Oaktree Specialty Lending Corporation (OCSL) Earnings Call Transcript & Summary

Good day. And welcome to the Oaktree Specialty Lending and Oaktree Strategic Income Corporation Joint Annual Meeting of Stockholders. I would now like to turn the conference over to Armen Panossian, Chief Executive Officer and Chief Investment Officer. Please go ahead.

Thank you, and good morning. I'm Armen Panossian, Chief Executive Officer and Chief Investment Officer of Oaktree Specialty Lending Corporation and Oaktree Strategic Income Corporation. From time to time, I will refer to OCSL and OCSI as a company or together as the companies. As presiding officer, I hereby call this meeting to order and welcome you to the 2020 Joint Annual Meeting of Stockholders of the companies. On behalf of management, I would like to thank those stockholders who are participating today via this virtual meeting for your attendance and interest. I also want to thank the many stockholders who submitted proxies. I would now like to take this opportunity to recognize the officers of the companies that are present today: the company's President and Chief Operating Officer, Matthew Pendo; Chief Financial Officer and Treasurer, Mel Carlisle; Chief Compliance Officer, Kimberly Larin; Secretary, Mary Gallegly; and Assistant Treasurer, Chris McKown. In addition, please -- present today from Ernst & Young LLP, the company's independent registered public accounting firm, are Tom Flannery, Mike O'Donnell and Jason Shaver. After this meeting has been adjourned, the directors of the companies: myself, Mr. Pendo, Mr. Carlisle and the representatives from E&Y will be available to answer stockholder questions. We encourage you to enter your questions in writing now on the virtual meeting portal in the field provided for stockholders. We will address the questions related to the proposal before voting commences and any additional questions upon the conclusion of the meeting. When submitting your question or comment, we would appreciate it if you could note your name and affiliation and be brief. We may not have enough time to answer all questions submitted by stockholders during the meeting. The companies have appointed [ Jan Castillo ], a representative of Broadridge Financial Solutions, Inc. to act as the Inspector of Election. A copy of the inspector's oath of office and affidavits of distribution to stockholders of record as of January 10, 2020, for the companies will be filed with and made a part of the minutes of this meeting. A list of the stockholders of record who are entitled to vote at this meeting, which has been prepared in accordance with Delaware Corporate Law and the bylaws of each of the companies, may be accessed through the virtual meeting portal, together with copies of the notice of the Joint Annual Meeting and joint proxy statement, the letter to stockholders, proxy cards and the 2019 annual report on Form 10-K of each of the companies. These documents are available for inspection or reference during the course of this meeting. For purposes of voting at this meeting, proxies have been solicited by the Board of Directors of each of the companies and the shares owned by stockholders of each of the companies, may be voted and represented at this meeting with respect to matters involving the company in which such stockholders own shares pursuant to these proxies. Ms. [ Castillo ] has informed me that we have a quorum present today for the conduct of business. I now declare this meeting duly convened, properly organized and competent to transact business. I will now open the floor to the consideration of the 2 items of business for each company described in the notice of the Joint Annual Meeting. The first order of business on our agenda is: a, the election of 2 directors to the Board of Directors of OCSL, who will each serve until the 2023 Annual Meeting of Stockholders and until his successor is duly elected and qualifies; and b, the election of 2 directors to the Board of Directors of OCSI, who will each serve until the 2023 Annual Meeting of Stockholders and until his successor is duly elected and qualifies. The persons nominated by the nominating and Corporate Governance Committee and the full Board of Directors of each of OCSL and OCSI are Mr. John B. Frank; and Mr. Bruce Zimmerman. The second order of business on our agenda is the proposal to ratify the selection of Ernst & Young to serve as the independent registered public accounting firm for each company for the fiscal year ending September 30, 2020. At this point, I will pause to answer questions or comments that may have been submitted by our stockholders on the 2 proposals, which were set forth in the company's proxy statement. We will address additional stockholder questions after the voting is complete. We will now begin the vote. Information regarding the election of directors and the ratification of the selection of Ernst & Young to serve as the independent registered public accounting firm for each company is provided in the joint proxy statement that was accessible as described in the notice of the Joint Annual Meeting. And accordingly, I will dispense with any preliminary explanation and declare the polls open for balloting. Stockholders that have not already voted by proxy prior to this meeting or that wish to revoke their proxy and vote on their own behalf at this meeting should vote now using the Vote Here button on their screen. [Voting]

The polls are now closed. This concludes the voting portion of the meeting. We will take a moment while the inspector of election counts the ballots and proxies. The inspector of election has notified me that the ballots and proxies have been counted. Will the secretary of the companies, please present the results of the balloting?

I report that the results of the balloting as provided by the inspector of election are as follows. One, the following individuals have been elected as directors of OCSL and OCSI: Mr. John B. Frank and Mr. Bruce Zimmerman; two, Ernst & Young LLP has been ratified to serve as the independent registered public accounting firm for OCSL and OCSI for the fiscal year ending September 30, 2020.

On the basis of the reports provided by the inspector of election and secretary, I declare that all of the proposals that have been presented for each of OCSL and OCSI at this time have been approved by the respective stockholders. There being no further business, I declare that the Joint Annual Meeting of Stockholders is hereby adjourned. At this point, I will pause to answer additional questions that may have been submitted by our stockholders for the directors of the companies, myself, Mr. Pendo, Mr. Carlisle or Ernst & Young.

We did receive one question through the portal. The question being, are you confident in your funding sources, and do you have any energy exposure? What are your equity exposures? In terms of our funding sources, I'll hand the call to Matt Pendo, who is the President and COO of OCSL and OCSI.

Thank you, Armen. So we feel very confident in our funding sources. As many of you know, we're very successful in the public markets, refinancing our 2024 and 2028 notes with a very attractive unsecured financing. The balance of financing in OCSL is through a credit facility that has a lot of capacity in it. In OCSI, we have credit facilities that we're very comfortable in financing as well as in our JVs, we have bank financing there that's in the kind of SV financing. So we feel very, very comfortable and confident in our funding sources, and we have a lot of capacity as we look at potential market opportunities, given what we're seeing today.

Thanks, Matt. And in terms of our energy exposure, as of December 31, 2019, energy exposure stood at about 3.8% of the portfolio at fair value in 4 companies, which is down from a peak of 7% about a year ago. We're closely monitoring the potential impact that might have -- that might be felt on our portfolio companies. But generally, our energy investments are less sensitive to price fluctuations in oil prices, as we typically have significant asset coverage and security. For example, our largest positions are in companies that actually have either refinery assets or infrastructure-oriented assets in the United States. We're closely watching the energy market for buying opportunities in light of these recent developments, but we're being quite cautious and measured in our approach. And in terms of equity exposures, our equities, we do not have significant public equities in our portfolio. We do have some warrants attached to loans. But broadly speaking, we're not terribly concerned about the volatility in the equity markets impacting our portfolio.

Our largest public equity position was YETI, and we sold all that earlier this year.

And looking at the portal now, we have no other questions. The allotted time for questions is now complete. I would like to conclude by thanking everyone for participating in our 2020 Joint Annual Meeting of Stockholders.

The conference has now concluded. Thank you for attending today's presentation, you may now disconnect.