Oaktree Specialty Lending Corporation (OCSL) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents mixed signals: a modest rise in net investment income and dividend coverage are positive, but increased leverage and unrealized depreciation pose risks. The Q&A highlights concerns about underperforming assets and market uncertainties, especially in the software sector. The company's cautious approach and lack of clear guidance on new investments reflect a neutral sentiment. Given the small-cap nature of the stock, the market may react cautiously, leading to a neutral price movement prediction.
Key Financial Performance
Adjusted Net Investment Income $36.1 million or $0.41 per share, up modestly from the prior quarter. This increase reflects lower levels of Part I incentive fee expense which offset lower total investment income quarter-over-quarter.
Quarterly Cash Dividend $0.40 per share, consistent with the first quarter earnings.
New Fund Investments $314 million, up from $220 million in the prior quarter. This increase reflects disciplined capital deployment into income-generating assets.
Available Liquidity Over $576 million at the end of the quarter, providing financial flexibility for capital deployment.
Nonaccruals 3.1% of the total debt portfolio measured at fair value, down nearly 85 basis points year-over-year. This reflects efforts to reduce nonaccruals and equity positions.
Portfolio Size $2.95 billion, increased by approximately $100 million due to meaningful investment activity.
Net Leverage Ratio 1.07x, up from 0.97x last quarter, mirroring strong deployments during the quarter.
NAV per Share $16.30, down from $16.64 in the fourth quarter due to unrealized depreciation on certain debt and equity investments.
Adjusted Total Investment Income $74.5 million, down from $76.9 million in the fourth quarter, primarily driven by lower interest income due to lower reference rates and lower original issue discount acceleration.
Weighted Average Yield on Debt Investments 9.3%, reflecting the portfolio's income-generating potential.
You have reached the limit. Sign up to access full content
Get started
Operating Highlights
New Fund Investments: Totaled $314 million, up from $220 million in the prior quarter. The average all-in spread and yield of new private investments was 525 basis points and 9%, respectively.
Portfolio Growth: Portfolio size increased by approximately $100 million to $2.95 billion. Newly funded investment activity totaled $314 million, up 42% sequentially.
Investment in Premier Inc.: Oaktree acted as joint lead arranger, providing nearly 40% of the first lien term loan and 30% of the revolving credit facility. The term loan carries an all-cash coupon of SOFR plus 650 and has 2 points of original issue discount.
Middle Market M&A Activity: Middle market M&A activity is expected to improve over the course of the year, supported by easing rate pressures and sponsors turning to the M&A market for liquidity.
Private Credit Market Trends: Spreads in private credit have bottomed out at SOFR plus 450 to 475 basis points. Direct lending transactions offer a 150 basis point spread premium relative to broadly syndicated loans.
Nonaccruals: Nonaccruals represented 3.1% of the total debt portfolio, down nearly 85 basis points year-over-year. Efforts are ongoing to convert non-earning assets into income-producing assets.
Leverage and Liquidity: Net leverage ratio increased to 1.07x from 0.97x last quarter. Liquidity stood at $576 million, including $81 million in cash and $495 million of undrawn capacity on the credit facility.
AI and Software Investments: Focus on software providers with high mission criticality and credible AI roadmaps. Approximately 18% of total software positions were repaid over the past 12 months, reflecting quality underwriting.
Global Investment Platform: Oaktree leverages its global platform to access proprietary deal flow across asset-backed finance, European direct lending, infrastructure lending, and capital solutions.
You have reached the limit. Sign up to access full content
Get started
Risk or Challenges
Nonaccruals in Debt Portfolio: Nonaccruals represented 3.1% of the total debt portfolio at fair value, with 11 investments on nonaccrual. A new addition to the nonaccrual list was Pluralsight, which faced challenging industry dynamics and a softer-than-expected outlook. This poses a risk to income generation and portfolio stability.
Impact of AI on Private Credit: While AI is expected to expand the total addressable market for software, there is uncertainty regarding realized returns and adoption timelines. A pullback in AI investment could negatively impact broader economic growth and related investments.
Middle Market M&A Activity: Middle market M&A activity remains below historical averages, creating a backlog of transactions. This could limit liquidity and investment opportunities in the near term.
NAV Decline: Net Asset Value (NAV) per share decreased from $16.64 to $16.30 due to unrealized depreciation on certain debt and equity investments, particularly Pluralsight. This reflects potential challenges in asset valuation and portfolio performance.
Tighter Spreads in Private Credit: Spreads in private credit have bottomed out at SOFR plus 450 to 475 basis points, with tighter-than-normal spreads and looser terms. This could pressure returns and limit flexibility in new investments.
PIK Income Prevalence: Payment-in-Kind (PIK) income represented 6.3% of adjusted total investment income. While below industry averages, reliance on PIK income could pose risks if underlying investments underperform.
Leverage Increase: Net leverage ratio increased to 1.07x from 0.97x, reflecting higher deployments. While within the target range, increased leverage could heighten financial risk in a volatile market environment.
You have reached the limit. Sign up to access full content
Get started
Guidance & Outlook
Capital Deployment: The company plans to prudently deploy capital into attractive investment opportunities, with new fund investments totaling $314 million in the first quarter, up from $220 million in the prior quarter. The company has over $576 million of available liquidity to continue deploying capital.
Nonaccruals and Equity Positions: The company is focused on reducing nonaccruals and equity positions to improve earnings power. Proceeds from monetization of nonaccruals or equity positions will be reinvested into income-generating investments.
Market Trends and M&A Activity: Middle market M&A activity is expected to improve over the course of 2026. Spreads in private credit are anticipated to remain stable with potential to widen, supported by elevated redemptions in the perpetual BDC space.
AI and Software Sector Outlook: The company sees AI increasing the total addressable market for software, with a more active software M&A environment expected in 2026. However, there is caution around potential pullbacks in AI investment if returns or adoption timelines disappoint.
Portfolio Strategy: The company will prioritize loans to businesses with resilient models, defensible market positions, and durable long-term outlooks. It will also focus on first lien senior secured investments in market-leading businesses.
Leverage and Liquidity: The company maintains a long-term target leverage ratio of 0.9x to 1.25x and has ample liquidity of approximately $576 million to fund investment commitments.
You have reached the limit. Sign up to access full content
Get started
Shareholder Return Plan
Quarterly Dividend: The Board declared a quarterly cash dividend of $0.40 per share payable on March 31, 2026, to stockholders of record as of March 16, 2026.
Dividend Coverage: The quarterly dividend was fully covered by earnings, reflecting the company's disciplined capital deployment into income-generating assets.
You have reached the limit. Sign up to access full content
Get started
Key Q&A
Q:Can you provide a breakdown of the portfolio's performance, particularly focusing on underperforming assets and legacy issues?
A:Raghav Khanna explained that underperforming assets include nonaccruals, restructured equities, and positions marked well below par. Most of these are public positions, some bought in the high 80s to 90s and have traded down slightly. Technology names are under pressure, but trading volumes are low, mostly small sales from CLO sellers.
Q:Are there interesting names in the software sector given the current market conditions, and should we expect continued liquidity?
A:Raghav Khanna noted that they are monitoring software names using AI scorecards. While some names look attractive on the surface, the low trading volume and small ticket sales make it not the right time to step in as a buyer.
Q:What drove the increase in median portfolio EBITDA from $150 million to $190 million sequentially?
A:Armen Panossian attributed the increase to new originations in the fourth quarter, primarily large-cap companies, mostly sponsor-backed in the U.S. and a few in Europe. The growth was mainly due to a mix shift from these originations.
Q:Can you explain the $32 million of unrealized depreciation, including the role of Pluralsight?
A:Christopher McKown stated that Pluralsight accounted for about 38% of the total mark. Other factors included smaller marks on private positions and quoted names trading down, impacting both balance sheet holdings and JVs.
Q:How would you characterize top-line growth and EBITDA trends in the software sector, and what are the implications of AI on this market?
A:Armen Panossian stated that it is too early to see performance degradation due to AI. The concern lies in the long-term refinanceability of loans and potential binary outcomes for businesses disrupted by AI. He also discussed the role of covenants in software deals and noted that their portfolio has limited exposure to ARR deals.
Q:What is the weighted average LTV ratio for software loans, and how much valuation degradation can the software space absorb before widespread issues arise?
A:Armen Panossian clarified that the 47% weighted average LTV ratio is current as of 12/31. He noted that LTVs rising to 60% could challenge loan refinanceability. Sponsors' willingness to support businesses depends on various factors, including fund deployment stage and economic considerations.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer to whether there are interesting names in the software sector to invest in currently. While they provided some context about monitoring software names and using AI scorecards, they did not clearly state whether they see actionable opportunities or plans to invest.
You have reached the limit. Sign up to access full content
Get started
Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI
Avery
BDC
CEO Co
Co CIO
Oaktree credit
PIK
access
adoption
approach software
asset income
backdrop
breadth
comment
credit platform
debt portfolio
dispersion
driver
economy
equity position
health care
income asset
income investment
industry
lending transaction
lever
lien term
loan credit
nonaccruals equity
portfolio value
relationship
software investment
software position
spending
technology
term loan
transaction Premier
underwriting
value position
OCSL Transcript
Oaktree Specialty Lending Corporation (OCSL) Q1 2026 Earnings Call Transcript
Unknown2-4
The earnings call presents mixed signals: a modest rise in net investment income and dividend coverage are positive, but increased leverage and unrealized depreciation pose risks. The Q&A highlights concerns about underperforming assets and market uncertainties, especially in the software sector. The company's cautious approach and lack of clear guidance on new investments reflect a neutral sentiment. Given the small-cap nature of the stock, the market may react cautiously, leading to a neutral price movement prediction.
Oaktree Specialty Lending Corporation (OCSL) Q4 2025 Earnings Call Transcript
Positive11-18
The earnings call reflects a positive sentiment with an increase in net investment income, reduced nonaccruals, and higher funded investment commitments. The company is strategically focusing on high-quality, diversified portfolios with attractive yields. Despite some uncertainties in the pipeline for high-spread transactions, the overall financial health is stable with a decrease in weighted average cost of borrowings and a favorable direct lending outlook. The Q&A did not reveal significant negative concerns, supporting a positive stock price movement prediction.
Oaktree Specialty Lending Corporation (OCSL) Q3 2025 Earnings Call Transcript
Unknown8-5
The earnings call presents a mixed picture with both positive and negative elements. Financial performance shows declines in net investment income and investment income, though liquidity remains strong. The Q&A highlights confidence in maintaining dividends and strategic leverage plans. However, economic uncertainties and operational challenges persist. The market cap suggests a moderate reaction, leading to a neutral sentiment prediction (-2% to 2%).
Oaktree Specialty Lending Corporation (OCSL) Q2 2025 Earnings Call Transcript
Unknown5-1
The earnings call reveals several negative factors: declining adjusted NII, a decrease in net asset value, increased non-accrual investments, and higher total debt. Market conditions are volatile, with challenges in investment exits and portfolio performance. The Q&A section highlights management's vague responses, particularly concerning tariffs' impact and markdowns, adding uncertainty. Despite a share repurchase program, the financial outlook remains weak. Given the small-cap nature of the stock, these factors suggest a negative stock price movement, likely in the -2% to -8% range over the next two weeks.
OCSL Slides
OCSL Report
Frequently Asked Questions
Where does this earnings call transcript come from?
All transcripts are sourced directly from the official live webcast or the company’s official investor relations website. We use the exact words spoken during the call with no paraphrasing of the core discussion.
How soon is the transcript available after the earnings call ends?
Full verbatim transcripts are typically published within 4–12 hours after the call ends. Same-day availability is guaranteed for all S&P 500 and most mid-cap companies.
Is the transcript edited or altered in any way?
No material content is ever changed or summarized in the “Full Transcript” section. We only correct obvious spoken typos (e.g., “um”, “ah”, repeated 10 times”, or clear misspoken ticker symbols) and add speaker names/titles for readability. Every substantive sentence remains 100% as spoken.
Why do some answers appear as “Unclear” or “Inaudible”?
When audio quality is poor or multiple speakers talk over each other, we mark the section instead of guessing. This ensures complete accuracy rather than introducing potential errors.
Who creates the AI Summary and Key Q&A highlights shown above the transcript?
They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
