Welcome and thank you for joining Oaktree Specialty Lending Corporation's Third Fiscal Quarter Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode. But we will be prompted for a question-and-answer session following the prepared remarks. Now, I would like to introduce Dane Kleven, Head of Investor Relations, who will host today's conference call. Mr. Kleven, you may begin.

Thank you, operator, and welcome to Oaktree Specialty Lending Corporation's third fiscal quarter conference call. Our earnings release, which we issued this morning and the accompanying slide presentation, can be accessed on the Investors section of our website at oaktreespecialtylending.com. Joining us on the call today are Armen Panossian, Chief Executive Officer and Chief Investment Officer; Matt Pendo, President; Chris McKown, Chief Financial Officer and Treasurer. Before we begin, I want to remind you that comments on today's call include forward-looking statements, reflecting our current views with respect to our future operating results and financial performance. Our actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to our SEC filings for a discussion of these factors in further detail. We undertake no duty to update or revise any forward-looking statements. I’d also like to remind you that nothing on today’s call constitutes an offer to sell or solicitation of an offer to purchase any interest in any Oaktree Fund. Investors and others should note that Oaktree Specialty Lending uses the Investors section of its corporate website to announce material information. The company encourages investors, the media and others to review the information that it shares on its website. With that, I would now like to turn the call over to Matt.

Thanks, Dane, and welcome, everyone. Thank you for joining us today and for your interest in and support of OCSL. Our third quarter results were highlighted by continued strong origination activity and increased coupon income from our predominantly first lien portfolio. However, adjusted NII was $0.55 per share, down slightly from $0.56 for the prior quarter, as we experienced challenges at certain portfolio investments, resulting in a decline in NAV and an increase in non-accruals. In addition our continued rotation into primarily first lien loans reduced our weighted average portfolio spread by approximately 5 basis points in the quarter. Our first lien investments have increased from just over 76% at June 30, 2023, to approximately 82% today. At the same time, second lien and unsecured debt investments decreased from 14% to below 8% over the same period. Investments on non-accrual status at quarter end, represented 3.7% and 5.7% of the debt portfolio at fair value and cost, respectively, that was up from 2.7% of the debt portfolio at fair value and 4.3% of the portfolio at cost last quarter. We reported NAV per share of $18.19, down from $18.72 per share for the prior quarter. The decline primarily reflected unrealized losses on certain debt and equity investments, including the markdowns on the aforementioned non-accrual names. We are collaborating with each company to address the unique circumstances by leveraging our extensive experience and proven success in revitalizing underperforming investments, along with the substantial resources of Oaktree, we aim to achieve the best possible outcomes for our shareholders. As a result that these non-accruals had in our earnings, Oaktree, our manager, agreed to waive $3.2 million of Part 1 incentive fees for the quarter. This was on top of the $1.5 million of management fees Oaktree has been waiving each quarter since…

Thanks, Matt, and hello to everyone. I will start by providing an overview of our portfolio activity during the quarter and finish with comments on the current market environment. With over $3 billion of fair value, our portfolio remains well diversified across 158 companies at the close of the third quarter. Our focus remains to invest at the top of the capital structure with 86% of the portfolio invested in senior secured debt and first lien positions representing 82% of the portfolio at fair value. Further mitigate risk, we focus on larger, more diversified businesses. The median portfolio company EBITDA as of the end of the third quarter was approximately $147 million and leverage in our portfolio of companies was five times, which was roughly in line with the prior quarter and well below overall middle market leverage levels. Despite the elevated interest rate environment, our portfolio companies are performing well. Portfolio's weighted average interest coverage based on current base rates was in line with the prior quarter at 1.9 times. As Matt noted, during our third quarter, we originated $339 million of new investment commitments across 11 new and 9 existing portfolio companies. The diversity of our originations is evident in key examples from the quarter. I will start with Sorenson, the world's leading provider of communication tools for individuals that are death and heart of hearing. The company combines patented technology with human-centric services, connect signed and spoken languages. This was a sponsored deal of which Oaktree committed $417 million with 2% of original issue discounts and a coupon of SOFR plus 5.75%. OCSL was allocated $54 million of this transaction. Another example is EDS a public company, which has an 83% equity interest in US Cellular and wholly owned EDS telecom. US Cellular trades on the New…

Thank you, Armen. As Matt noted, we reported adjusted net investment income of $45.2 million or $0.55 per share as compared to $44.7 million or $0.56 per share in the second quarter. The slight increase on a dollar basis was primarily driven by lower Part 1 incentive fees, net of fees waived, partially offset by lower adjusted total investment income and higher interest expense. The per share decrease for the quarter was driven by an increase in weighted average shares outstanding. Adjusted total investment income decreased by $1.8 million in the quarter and was adversely impacted by placing certain investments on non-accrual status. Additionally, non-recurring income stemming from OID acceleration as well as prepayment fees and amendment fees were down from the prior quarter. These factors were partially offset by higher coupon interest income driven by growth in the investment portfolio. Net expenses for the third quarter totaled $50.4 million, down $2.3 million from the prior quarter. As Matt noted, decline was primarily driven by $3.2 million lower Part I incentive fees, net of fee waves as a result of the Part I incentive fees waived by Oaktree during the quarter. Now moving to our balance sheet. OCSL's net leverage ratio at quarter end was 1.10 times, up from 1.02 times at the end of the March quarter. Newly funded investment activity of $293 million exceeded proceeds from repayments and sales of $186 million, enabling us to grow the portfolio, but the markdowns taken in the quarter tempered that growth. Our net leverage continues to be within our targeted range of 0.9 times to 1.25 times. As of June 30th, total debt outstanding was $1.74 billion and had a weighted average interest rate of 7.0%, including the effect on our interest rate swap agreements consistent with the level at the…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Finian O'Shea from Wells Fargo. Please go ahead.

Hi, everyone. Good morning. First question, and apologies if I missed this somewhere. But the Part I fee waiver this quarter, is that truly one-time, or might it relate to something like returns or the dividend for some period of time going forward?

Hey, Finian it’s Armen, thanks for the question. No, the Part I fee waiver is truly one-time. We have done few waivers in the past relating to transactions you may recall the OSI entity mergers. But we viewed that it was appropriate to take a one-time waiver this quarter, it is not ongoing.

Okay. Thanks. And then Armen as well, I just wanted to ask about the Oaktree at the platform level. Now that you're at the helm and presumably some changes are going on. Can you talk about your vision for Oaktree, and perhaps if you seek to turn it into more of a volume shop. I know you mentioned that you maintain the relative value philosophy, but will things sort of drift that way? And would you attribute any platform changes to the recent credit experience? Thanks

Yes. So look, Oaktree when it was founded in 1995 at its core is a credit shop, specifically below investment grade and unrated debt investment firm, both on a performing and non-performing basis. That is the roots of the firm. We're going to continue managing the business with those – with that legacy in mind, and we're not going to sort of do anything that's unnatural from a growth perspective. We are -- in terms of the manager, a private company, we are owned -- a majority-owned by Brookfield Asset Management. But we are really focused on credit and especially below investment grade and unrated credit. And not looking to do anything unnatural from a growth perspective. I think the performance in the recent quarters has really nothing to do with any sort of platform shifts. These are unfortunate idiosyncratic situations in a small handful of credits, but unfortunately, we're large enough positions to have hurt our NAV in the last couple of quarters. I think thematically, it was businesses, we can kind of bucket them in different ways. But I think in -- if we were to look at sort of the biggest theme, it would be businesses that did actually really well during COVID and coming out of COVID had some stumbles. And I think at the time, we're considered very strong investments and had very high valuations from the ownership of those businesses. But again, since then, there's been some stumbles. And that's kind of the explanation is it's certainly an unfortunate situation for us as well as the equity owners of those businesses. But I really have nothing to do with Oaktree as a platform and any decisions we may or may not have made.

Thank you.

Our next question comes from Melissa Wedel of JPMorgan. Please go ahead.

Thanks for taking my question. I was trying to square the circle a little bit. Your comments about remaining I think, cautious in this environment, but then also just sort of looking at the level of net deployment. I'm wondering if that was sort of just -- it was pretty elevated this quarter. I'm wondering if that's a function of sort of timing and the way things came together? Or if you would expect activity levels and repayment levels to remain higher pick up?

Thanks, Melissa. I think there was a little bit of timing. I mean we saw a slowdown last year, last calendar year, as base rates were higher, so were spreads. I think there was some M&A activity that was pent up in the pipeline. And as that M&A activity has picked up this year, we have seen some elevated originations. The spreads are tighter this year than they were last year, and I would say, fairly meaningfully so. And we are cautious about new LBOs as well as existing ones given the elevated base rate environment. So we are being cautious. We are very mindful of valuation multiples, leverage multiples, loan to values. And you could see it in our origination, most of what we did was first lien and the overall portfolio, given some of the repayments we've received in junior debt has really meaningfully migrated, as Matt mentioned in his comments, to a substantially first lien portfolio. But we are definitely seeing an uptick in deal volume, refinancings, taking us out of positions as well as new LBOs, new M&A giving us the opportunity to invest selectively with the sponsors that we've done a lot of repeat business with.

Okay. And then as a follow-up in question, definitely to your point that this was a onetime fee waiver in the June quarter. I'm also wondering if you can remind us how much undistributed NII there is per share? Thanks very much.

Hey, Melissa thanks for the question. This is Chris. In terms of undistributed NII, we -- our adjusted NII came in at $0.55 per share. So right in line with that dividend payout.

This concludes our question-and-answer session. I'd like to hand things back over to Mr. Kleven for any final remarks.

Thanks, Alan, and thank you all for joining us on today's earnings conference call. A replay of this call will be available for 30 days on OCSL's website in the Investors section or by dialing 877-344-7529 for U.S. callers and plus 1-412-317-0088 for non-U.S. dollars with the replay access code 2416934 beginning approximately 1 hour after this broadcast. Thank you all.

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