Executive Summary

Q3 FY2025 was soft: adjusted NII fell to $32.5M ($0.37/share), down from $38.7M ($0.45/share) in Q2, driven by lower non‑recurring fee income, tighter spreads, and one‑time non‑cash financing cost acceleration; NAV/share ticked up to $16.76 (+$0.01) on net unrealized appreciation .
Versus consensus: EPS was roughly in line (actual $0.38 vs $0.389*), while “revenue” (total investment income) modestly missed ($75.3M vs $76.5M*); estimate depth was limited (5 estimates) . Values retrieved from S&P Global*.
Credit facility amendment lowered margins by ~12.5 bps and extended maturities (reinvestment to Apr 8, 2029; maturity to Apr 8, 2030), setting up lower run‑rate interest expense; non‑accruals improved to 3.2% of debt FV (from 4.6% in Q2) .
Dividend maintained at $0.40 for the quarter; management highlighted plans to lift leverage toward the midpoint of the 0.90x–1.25x range and redeploy non‑earning assets to support earnings power near/above the base dividend .

What Went Well and What Went Wrong

What Went Well

Non‑accruals declined (3.2% of debt FV; 6.6% at cost) and one name (Telestream) was removed after restructuring; Mosaic repayments and the Alto take‑out at par supported credit quality recovery .
Facility actions (amend/extend, termination of higher‑cost Citibank SPV) reduce interest expense going forward; CFO quantified $3.9M one‑time write‑off impact this quarter and lower margin going forward (6.6% WA debt cost vs 6.7% in Q2) .
Management emphasized portfolio diversification and first‑lien focus; originations were 100% first‑lien with a 9.1% weighted average yield, and the pipeline spans asset‑backed financing and Europe/APAC opportunities .

“During the quarter, we further diversified our portfolio and amended and extended our credit facility on more favorable terms… Looking to the back half of the year, we remain focused on leveraging the Oaktree platform…” — CEO Armen Panossian .

What Went Wrong

Adjusted NII/share declined to $0.37 (from $0.45) on lower non‑recurring income (fees/OID acceleration) and higher interest expense from one‑time non‑cash deferred financing cost acceleration .
Total investment income fell to $75.3M (from $77.6M in Q2 and $94.7M in Q4 FY2024), reflecting tighter spreads and smaller average portfolio; adjusted TII was $74.3M .
A new non‑accrual (BayMark) was added given operational issues; elevated realized losses in prior quarters and market competitive pressure from BSL/CLO tightened spreads further .

Financial Results

Metric	Q1 FY2025 (Dec 31, 2024)	Q2 FY2025 (Mar 31, 2025)	Q3 FY2025 (Jun 30, 2025)
Total Investment Income ($USD Millions)	$86.6	$77.6	$75.3
Adjusted Total Investment Income ($USD Millions)	$87.1	$77.2	$74.3
GAAP Net Investment Income ($USD Millions)	$44.3	$39.1	$33.5
GAAP NII per share ($USD)	$0.54	$0.45	$0.38
Adjusted NII per share ($USD)	$0.54	$0.45	$0.37
Earnings per share (GAAP)	$0.09	$(0.42)	$0.44
NAV per share ($USD)	$17.63	$16.75	$16.76
Total Debt/Equity (x)	1.11x	1.00x	0.99x
Net Debt/Equity (x)	1.03x	0.93x	0.93x
WA Yield on Debt Investments (%)	10.7%	10.2%	10.1%
Non‑accruals (% of debt FV)	3.9%	4.6%	3.2%
New Investment Commitments ($USD Millions)	$198.1	$407.0	$147.2

Portfolio composition by asset class (% of fair value):

Asset Class	Q1 FY2025	Q2 FY2025	Q3 FY2025
First Lien Debt	81.8%	80.9%	81.1%
Second Lien Debt	3.0%	3.4%	2.3%
Unsecured Debt	3.9%	5.0%	4.9%
Equity	4.8%	4.6%	5.5%
JV Interests	6.5%	6.1%	6.2%

Liquidity and funding KPIs:

KPI	Q1 FY2025	Q2 FY2025	Q3 FY2025
Cash & Equivalents ($M)	$112.9	$97.8	$79.8
Undrawn Credit Capacity ($M)	$957.5	>$1,000	$650.0
Unfunded Commitments ex‑JV ($M)	$275.2	$272.6	$278.2
% Floating‑Rate Debt Investments	87.6%	89.8%	90.9%
WA Interest Rate on Debt Outstanding	6.2%	6.7%	6.6%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per share	Q3 FY2025	$0.40 (Q2 FY2025)	$0.40 (payable Sep 30, 2025)	Maintained
Target leverage ratio	Ongoing	0.90x–1.25x (unchanged)	0.90x–1.25x; plan to move toward midpoint	Maintained (execution plan reiterated)
Syndicated revolver pricing	Effective Apr 8, 2025	SOFR+2.00% → 1.875% (plus 0.10% adj)	Reduced margins confirmed; WA debt cost 6.6% (down from 6.7%)	Lowered ~12.5 bps
Syndicated revolver maturity	Facility terms	Reinvestment to Apr 8, 2029; maturity Apr 8, 2030	Same; reaffirmed	Extended vs prior structure
Citibank SPV facility	Q3 FY2025	Active in prior periods	Terminated; one‑time write‑off of deferred financing costs	Lower future interest expense
JV leverage target	Ongoing	~1.2x current leverage	Target ~1.5x; plan to increase modestly	Raised target (execution pending)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2)	Current Period (Q3 FY2025)	Trend
Tariffs/macro and spread environment	Press releases flagged uncertainty from tariffs, inflation, elevated rates	M&A muted; refinancing dominates; CLO issuance increased competition; private credit spreads tightened vs start of year	Tighter spreads; competitive dealflow shifting
Portfolio credit quality/non‑accruals	Non‑accruals rose in Q2; focus on resolutions	Non‑accruals improved (3.2% FV); Telestream off non‑accrual; Mosaic paydowns; BayMark added	Improving, with ongoing workouts
Asset‑backed/infrastructure opportunities	Noted selective deployment amid volatility	Pipeline in asset‑backed (corporate‑linked assets), infrastructure, Europe/APAC; excluding consumer unsecured	Expanding into diversified structures/geographies
PIK discipline	PIK a small portion of income historically	PIK ~6.7% of total; low end of peers; cautious stance	Stable, conservative
Funding cost/structure	Q2 issued 2030 notes, swap; syndicated facility amended	WA debt cost down to 6.6%; revolver margins reduced; SPV facility terminated	Improving funding profile
Dividend policy	Base + supplemental launched in Q1; $0.40 base	Base maintained at $0.40; confidence supported by redeployment and leverage plan	Stable base, supplemental variable

Management Commentary

“We further diversified our portfolio and amended and extended our credit facility on more favorable terms… we remain focused on leveraging the Oaktree platform to source attractive investment opportunities” — CEO Armen Panossian .
“Adjusted NII declined to $0.37 per share, primarily due to… nonrecurring and noncash items related to refinancing activities… lower than usual nonrecurring income” — CFO Christopher McKown .
“All our originations in the quarter were first lien… weighted average yield on new debt investments was 9.1%… We are seeing pockets of opportunity in asset backed financing and life sciences” — Co‑CIO Raghav Khanna .
“We successfully amended and extended… reducing the interest rate from SOFR+2% to SOFR+1.75–1.875%… we terminated a higher cost ABL facility… accretive to earnings going forward” — President Matt Pendo .

Q&A Highlights

Spread capture and origination mix: OCSL achieved mid‑500s first‑lien spreads (incl. OID) via select life sciences, European deals (e.g., Draken at SONIA+5.50 with 2 pts OID), and a refinancing premium of 50–75 bps vs de novo .
Earnings power and leverage path: Plan to move leverage to midpoint of 0.90x–1.25x, modest JV leverage lift toward 1.5x, and redeploy cash from equity/non‑accruals into earning assets to support the $0.40 base dividend; agencies aware of plan .
Dividend sustainability amid potential rate cuts: Management emphasized redeployment, pipeline, and reduced funding costs as offsets; dividend decisions remain board‑determined each quarter .
Asset‑backed focus: Avoid consumer unsecured; favor corporate‑linked assets (equipment receivables, telecom/fiber) and structures in sectors OCSL knows well .

Estimates Context

Metric	Q3 FY2025 Actual	Q3 FY2025 Consensus	Surprise
Primary EPS (NII per share) ($)	$0.38	$0.38879*	-$0.009*
“Revenue” (Total Investment Income) ($M)	$75.27	$76.51*	-$1.24*
# of EPS Estimates	—	5*	—
# of Revenue Estimates	—	5*	—

Values retrieved from S&P Global*.
Implications: Modest shortfall on investment income reflects lower non‑recurring fees/OID and tighter spreads; EPS effectively in line given one‑time non‑cash financing cost acceleration that should not recur .

Key Takeaways for Investors

Near‑term NII pressure was primarily from one‑time financing cost write‑offs and reduced non‑recurring income; lower revolver margins and SPV termination support improved run‑rate interest expense going forward .
Portfolio credit metrics improved: non‑accruals down to 3.2% of FV, with successful restructuring/removals (Telestream) and paydowns (Mosaic); watch BayMark remediation .
Origination discipline continues: 100% first‑lien, diversified exposures (life sciences, Europe), and refinancing premiums help defend spreads amid tighter market .
Liquidity remains ample ($730M total, incl. $80M cash and $650M undrawn), enabling redeployment to earning assets and potential leverage normalization toward midpoint to underpin the $0.40 base dividend .
Dividend is maintained; supplemental remains variable. Monitor rate path/spread dynamics and JV leverage ramp toward ~1.5x as incremental NII levers .
Estimate expectations may drift down on non‑recurring income normalization but could stabilize as funding costs decline and redeployment progresses; limited estimate depth (5) increases potential for revisions*.
Tactical setup: Watch for exits/non‑accrual resolutions, originations mix, and WA debt cost trajectory as catalysts; slight NAV accretion this quarter signals improving marks/portfolio health .

Oaktree Specialty Lending Corp (OCSL)·Q3 2025 Earnings Summary