Sign in

You're signed outSign in or to get full access.

OS

Oaktree Specialty Lending Corp (OCSL)·Q4 2025 Earnings Summary

Executive Summary

  • Q4 FY25 adjusted net investment income (NII) was $35.4 million ($0.40 per share) and GAAP NII was $35.8 million ($0.41 per share), with total investment income (TII) of $77.3 million; sequential NII improvement was driven by higher prepayment fees and dividend income and lower interest expense .
  • Results modestly beat Wall Street consensus on EPS ($0.40 vs $0.389*) and revenue ($77.3mm vs $76.5mm*); NAV per share declined to $16.64 from $16.76 QoQ due to unrealized depreciation .
  • Dividend held at $0.40 per share for Q4, fully covered by NII; liquidity stood at $695 million ($79.6mm cash and $615mm undrawn revolver) and net debt-to-equity was 0.97x, at the low end of the 0.90x–1.25x target .
  • Management emphasized levers to offset expected December-quarter NII headwinds from lower base rates (prudently increasing leverage, optimizing JVs, reducing non-accruals), and noted cautiously improving price discipline as private credit spreads stabilize around SOFR+450 .

Note: Values marked with * are retrieved from S&P Global.

What Went Well and What Went Wrong

What Went Well

  • “Our fourth quarter results demonstrate progress in stabilizing the investment portfolio … and we fully covered our quarterly dividend with net investment income.” – CEO Armen Panossian .
  • Adjusted TII increased by $2.6 million QoQ on higher prepayment fees (+$1.8mm) and dividend income (+$0.9mm); net expenses fell $0.5 million QoQ, aided by lower interest expense and fee waivers .
  • Portfolio risk metrics improved: non‑accruals declined to 3.0% of debt investments at fair value (from 3.2% QoQ and 4.0% YoY) and weighted average borrowing cost dipped to 6.5% (from 6.6%) .

What Went Wrong

  • NAV per share declined to $16.64 (from $16.76 QoQ and $18.09 YoY), reflecting unrealized depreciation on certain debt and equity investments .
  • Adjusted net realized and unrealized losses were $10.8 million in Q4, driven by realized and unrealized losses on select positions .
  • Life sciences/healthcare non‑accruals remain a drag (e.g., SIO2), with operational workouts ongoing and no near‑term exits anticipated; 10 investments remained on non‑accrual in Q4 .

Financial Results

MetricQ4 FY24 (oldest)Q3 FY25Q4 FY25 (newest)
Total Investment Income ($USD Millions)$94.685 $75.271 $77.315
Adjusted Total Investment Income ($USD Millions)$95.000 $74.297 $76.866
GAAP NII per Share ($)$0.55 $0.38 $0.41
Adjusted NII per Share ($)$0.55 $0.37 $0.40
Earnings per Share (GAAP) ($)$0.45 $0.44 $0.28
Adjusted Earnings per Share ($)$0.45 $0.43 $0.28
NAV per Share ($)$18.09 $16.76 $16.64

Segment composition (asset class mix at fair value):

Asset ClassQ4 FY24 (oldest)Q3 FY25Q4 FY25 (newest)
First Lien Debt (%)81.7% 81.1% 83.5%
Second Lien Debt (%)3.5% 2.3% 2.4%
Unsecured Debt (%)3.6% 4.9% 3.2%
Equity (%)5.0% 5.5% 5.0%
JV Interests (%)6.1% 6.2% 6.0%

Key KPIs:

KPIQ4 FY24 (oldest)Q3 FY25Q4 FY25 (newest)
Non‑Accrual FV ($USD Millions)$114.292 $83.637 $80.689
Non‑Accrual as % of Debt (FV)4.0% 3.2% 3.0%
Weighted Avg Yield on Debt (%)11.2% 10.1% 9.8%
Total Debt to Equity (x)1.12x 0.99x 1.02x
Net Debt to Equity (x)1.07x 0.93x 0.97x
Liquidity ($USD Millions)$—$729.8 ($79.8 cash + $650 undrawn) $694.6 ($79.6 cash + $615 undrawn)

Guidance Changes

MetricPeriodPrevious Guidance/FrameworkCurrent Guidance/FrameworkChange
Dividend per ShareQ4 FY25$0.40 base (Q3 FY25) $0.40 base (Q4 FY25) Maintained
Leverage Target (Net Debt/Equity)Ongoing0.90x–1.25x target range 0.90x–1.25x; at 0.97x currently Maintained; positioned low end
Cost of BorrowingsQ4 FY256.6% (Q3 FY25) 6.5% (Q4 FY25) Decreased
Explicit Rev/EPS GuidanceQ4 FY25None provided None provided; noted lower base-rate impact in Dec quarter N/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 FY25)Current Period (Q4 FY25)Trend
Private credit spreads & competitionVolatility, tariffs/inflation/high rates driving selectivity Price discipline improving; spreads stabilizing at SOFR+450 Stabilizing spreads; cautious optimism
Non‑accruals & workoutsFee cap instituted; focus on underperforming borrowers Non‑accruals down; operational workouts continue (SIO2) Gradual improvement; still a drag
JV optimizationJVs accretive; Kemper/Glick ROEs double‑digit JVs ROE ~12.4%; leverage 1.7x Earnings contribution stable/up
Deployments & originationsQ2: $407mm commitments; repriced revolver; 9.5% yields Q4: $208mm commitments; Walgreens FILO at attractive spread Selective, complex deals opportunistically
Macro/tariffs & EuropeOngoing macro risks including tariffs Europe momentum slowed; mixed deal quality Mixed macro; cautious stance
PIC usageNot emphasizedPIC was 6.4% of TII; disciplined, used judiciously Controlled PIC; risk-aware

Management Commentary

  • CEO: “Our fourth quarter results demonstrate progress in stabilizing the investment portfolio … and we fully covered our quarterly dividend with net investment income.”
  • President/COO: “We achieved adjusted NII of $0.40 per share, up from $0.37 … Several levers at corporate and JV levels can offset lower base rates … prudently increase leverage, optimize JVs, reduce non-accruals.”
  • CEO: “Private credit spreads have bottomed out at SOFR+450 … We remain extremely disciplined in credit documentation and acceptance of PIC.”
  • Co‑CIO: “Walgreens … Oaktree acted as joint lead arranger for the $2.5B first‑in, last‑out first‑lien term loan … priced at SOFR+700 with 2.5 points of OIB.”
  • CFO: “Weighted average cost of borrowings was 6.5% … waived ~$1.9 million in incentive fees … liquidity ~$695 million.”

Q&A Highlights

  • Deployment outlook: No outsized repayments expected or atypical December deployment; spreads tightening informs judicious deployment .
  • Origination yields: The quarter’s higher yields partly reflect Walgreens; IBOR‑indexed originations in prior quarter also affected coupons .
  • Sector risk: Non‑accruals skewed to life sciences/healthcare (e.g., SIO2); focus on operational turnarounds and asset sales; no near‑term monumental changes expected .

Estimates Context

MetricQ4 FY25 Consensus*Q4 FY25 ActualSurpriseQ1 FY26 Consensus*
Primary EPS (Adj. NII per share) ($)0.389*0.40 +0.0110.374*
Revenue (Total Investment Income) ($USD Millions)76.5*77.315 +0.875.6*
# of EPS Estimates5*——4*
# of Revenue Estimates5*——3*

Note: Values marked with * are retrieved from S&P Global.

Where estimates may need to adjust: lower base rates are expected to pressure December-quarter NII; management’s use of leverage/JVs and reductions in non‑accruals may partially offset, suggesting modest downward bias to near‑term EPS with medium‑term stabilization if levers execute .

Key Takeaways for Investors

  • Slight beat on EPS and revenue with improved fee/dividend income and lower interest expense; execution signals stabilization despite macro .
  • NAV drift remains the key headwind; continued unrealized losses warrant cautious positioning around book value-sensitive catalysts .
  • Balance sheet flexibility (0.97x net leverage, $695mm liquidity) and JV ROEs support earnings power amid lower base rates; near-term EPS likely modestly pressured .
  • Credit mix trending more first‑lien (83.5%) and lower non‑accruals (3.0% FV) improves risk profile; monitoring of life sciences exposures still critical .
  • Complex origination capability (e.g., Walgreens FILO at SOFR+700) provides spread alpha opportunities even as sponsor spreads tighten .
  • Dividend sustainability under the base-plus-supplemental framework remains credible given coverage in Q4; base held at $0.40 .
  • Trading implication: watch December-quarter print for NII impact from rates; upside catalysts include further JV optimization, non‑accrual resolutions, and disciplined deployment into higher-spread complex credits .