Welcome, and thank you for joining Oaktree Specialty Lending Corporation's Fourth Fiscal Quarter Conference Call. Today's conference call is being recorded. [Operator Instructions] 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. Before I pass the call over to the Oaktree team, I want to remind you that comments on today's call may include forward-looking statements reflecting Oaktree's current views with respect to future operating results and financial performance. Actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to OCSL's SEC filings for a discussion of these factors in further detail. Oaktree undertakes no duty to update or revise any forward-looking statements. I'd also like to remind you that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase any interest in any Oaktree fund. Now I would like to introduce Dane Kleven, Head of Investor Relations, who will host today's conference call. Mr. Kevin, you may begin.

Thank you, operator, and thank you all for listening in. We very much appreciate your support of Oaktree Specialty Lending Corporation. I'd like to welcome you to our earnings call for the fourth fiscal quarter of 2024. 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. We encourage investors, the media and others to review the information that is shared on our website. Joining us on the call today are Armen Panossian, Chief Executive Officer and Co-Chief Investment Officer; Matt Pendo, President; and Chris McKown, Chief Financial Officer and Treasurer. With that, I would now like to turn the call over to Matt to discuss our results.

Thanks, Dane, and welcome, everyone. Our adjusted NII for the fiscal fourth quarter ended September 30, 2024, was $45 million or $0.55 per share, which was consistent with our third quarter results. NII for the quarter reflected our healthy origination and repayment activity, combined with the decrease in net expenses driven by our lower management fees that went into effect on July 1st and interest expense. This was partially offset by a modest decline in adjusted total investment income as certain investments were moved to nonaccrual status. Full year fiscal 2024 adjusted NII was $179 million or $2.23 per share compared to $178 million or $2.47 per share for fiscal year 2023. The dollar increase was driven by higher investment income generated from a larger average investment portfolio following last year's completion of our merger with Oaktree Strategic Income Inc. or OSI2 impact of higher base rates and an increase in the prepayment fees and OID acceleration from successful investment exits. These drivers were offset by an increase in investments placed on nonaccrual status and higher interest expense, primarily due to our floating rate liabilities. The year-over-year per share decrease in adjusted NII reflects a higher share count from the issuance of common shares. During fiscal 2024, we continue to rotate into primarily first lien loans. Our first lien investments increased to 82% from 76% at fiscal year-end 2023. Concurrently, second lien investments decreased from 10% to 4%. Investments on nonaccrual status at quarter end were 4% at fair value and 4.9% at cost compared to 3.7% and 5.7% last quarter. During the quarter, we successfully restructured two investments and removed them from nonaccrual. However, we placed three additional investments on nonaccrual status and took some further write-downs on certain investments. Our net asset value per share decreased slightly to…

Thank you, Matt, and hello, everyone. Before I review our portfolio activity, I'd like to provide a quick update on our leadership team. I'm excited to announce the appointment of Raghav Khanna as Co-Chief Investment Officer for OCSL. Raghav joined Oaktree in 2012 as a member of our Global Opportunities Group before becoming a founding member of the strategic credit strategy in 2014, where he now serves as a co-portfolio manager and an investment committee member. His dedication and strategic insights have been instrumental in driving the growth of our platform, and I am looking forward to working alongside him as co-CIOs of OCSL. With that, I will now turn to our portfolio activity for the quarter and concluded observations in the current market environment. Our portfolio remained well diversified across 144 companies with a fair market value of over $3 billion at the end of the fourth quarter. In line with our objective to lend to the at the top of the capital structure. At quarter end, 82% of our portfolio was invested in first lien debt, which, as Matt mentioned, is up from 76% one year ago. To mitigate risk in the current environment, we are pursuing and investing in a diverse group of industries and larger companies. In the fourth quarter, the median EBITDA for our portfolio of companies was $140 million, the median leverage was 5.2x. This leverage ratio is roughly in line with the prior quarter, yet notably below the average for middle market comps. Our portfolio companies continued to perform well with a weighted average interest coverage ratio using current base rates at 2.3x. During the fourth quarter, we invested $259 million into a diverse set of nine new and 10 existing portfolio companies. Now I will provide details of a few key investments.…

Thank you, Armen. As Matt noted for our fourth fiscal quarter, we reported adjusted net investment income of $45.2 million or $0.55 per share, which was consistent with the prior quarter ending June 30, 2024. Adjusted total investment income for the quarter declined $0.6 million or about $0.01 from the prior quarter. This was driven by a $2.7 million decrease in interest income resulting from placing certain investments on nonaccrual status, smaller average portfolio size and the impact of spread compression. These factors were partially offset by increased OID acceleration in connection with repayments. We also had a $0.3 million decline in dividend income from the Kemper JV. These decreases were offset by a $2.4 million increase in fee income, which was primarily driven by prepayment and exit fees. Nonrecurring income generated in connection with successful investment exits did have a larger than neutral impact on our results this quarter. To give you a sense of magnitude, our nonrecurring income in the September quarter was about $0.09, whereas we generally see nonrecurring income in the neighborhood of about $0.03 to $0.05 per share per quarter. Net expenses declined $0.6 million from the prior quarter, driven by a $2.5 million decrease in management fees, net of fees waived. $0.5 million of lower interest expense from lower average borrowings and $0.2 million of lower professional fees, partially offset by $2.6 million of higher Part 1 incentive fees, net of fees waived. Now moving to our balance sheet. OCSL's net leverage ratio at quarter end was 1.07x, down from 1.10x at the end of the third quarter. Repayments and sales of $338 million outpaced our newly funded investments of $233 million. This, in combination with the markdown this quarter resulted in a slight decline in the size of our portfolio. Our net leverage…

[Operator Instructions] Our first question today is from Paul Johnson with KBW. Please go ahead.

Just on the incentive fee waiver this quarter. Just trying to understand if this is going to be something that the adviser is committed to on a go-forward basis to the extent that NII trends below the $0.55 dividend?

Paul, it's Matt Pendo. Thanks for the question. So, this quarter, we announced a -- we describe it as a discretionary fee waiver of $1.2 million. As you mentioned last quarter, there was another quarter prior to that, there was another discretionary fee waiver of $3.2 million. We view those as discretionary, not permanent. So that's kind of how we're looking at it kind of quarter-to-quarter. This -- the July -- starting July 1 is when the management fee was reduced to 1%, that was permanent. So that's kind of how we approach the incentive fee waiver. And then obviously, the 1% management fee is permanent.

Got it. And then just on a few credits in the portfolio. The FinThrive obviously going on nonaccrual this quarter, but it looked like it was just marked incrementally higher in the quarter. Thrasio also on nonaccrual looks like it's still had a fairly strong mark quarter-over-quarter. How do you feel, I guess, in terms of how comfortable are you with where either of those loans are at an especially Thrasio which has been on accrual a little bit longer, I mean are we -- is that investment approaching point of resolution anytime soon? Is there any sort of update there?

Thanks for the question. This is Armen. On Thrasio I think, look, this is an execution story that's going to take another few quarters. I wouldn't say that it is close to a resolution that we would think is value maximizing in the near term. For FinThrive or nThrive, as it's known, there is public information out there that -- a press release that was disclosed yesterday, which we think is actually positive or the Company and its stability. And we think that, that business is well positioned. But certainly, has some execution to do, and it has a lot of engagement from its sponsor. We are watching it closely, but I think FinThrive or nThrive and Thrasio are in very different positions.

Appreciate that. That's helpful. And then on Pluralsight, I realize at this point, after being restructured, it's not as large of an investment in the portfolio. But I was wondering if you could tell us, I mean, within the delayed draw or the revolver, I should say, is there -- the loan is still unpicked at this point. I mean is there anything that restricts the borrower from borrowing on the revolver to pay the interest on the restructured loan?

I mean the revolver does have covenants and restrictions. I would need to give you a more detailed answer with the legal REIT. But that isn't the intention to draw on the revolver to pay the coupon. The revolver is meant to support the business as it repositions itself or strengthens its position, it's not meant to pay coupon interest.

Got it. And last one for me. If we get -- if 2025 next year ends up being a good year, and we have a very good wave of activity in the market. I mean how do you feel about kind of terms and covenants in the market? Do you think that direct lenders you're going to be able to hold the line on kind of further covenant and term erosion and kind of where do you think we stand in terms of how documents are going to be holding up in the market.

Sure. I think in the lower middle market and the core middle market, so lower middle market between being companies with $20 million of EBITDA or lower core middle market being $20 million to $70 million of EBITDA. I think in those two categories, we should expect to see reasonably good covenants, tested quarterly reasonably good protections in terms of stripping collateral away from lenders. I think as you get larger as you get to $100 million, $150 million, $200 million of EBITDA, those businesses or those borrowers, comp their leverage terms to what could be available in the broadly syndicated loan markets, which are much weaker covenants. And therefore, I think there has been covenant erosion in that very large end of the market. And I would think, though, that as deal flow picks up, that some of those covenants will come back on the large cap end. And on the core middle market and on the lower middle market, and I think they will continue to strengthen a little bit. I think over the last 12 months or so, there's been a condition where the haven't been that many deals, and there's -- there has been a substantial amount of capital chasing those deals. So, we have seen a tightening of spreads in the last 12 to 24 months, and we have generally seen a little bit of a loosening of covenants especially in that large cap end of the market. And I think more deal flow will help to counter some of that. But it won't -- I don't think it will completely undo what has happened in terms of legal protections or spread compression in the market.

The next question is from Melissa Wedel with JPMorgan. Please go ahead.

As I'm reading between the lines a little bit, regarding your comments on the investment environment right now. It sounds like you're not necessarily expecting a normally large December quarter like we typically see on a seasonal basis, and you're sort of expecting that activity to pick up in early '25. Am I interpreting that right?

Yes. This is Armen, Melissa. We don't want to make forward-looking statements. And I would say that it's very hard to predict sort of fourth quarter and first quarter sometimes because deals that are slotted to happen in the fourth quarter, sometimes slip into the first quarter. Sometimes they're accelerated into the fourth quarter, which is more rare. I would just say that over an extended period of time over the next 12 to 24 months with lower rates and with the decline in spreads that we've seen over the last 12 to 24 months, the expectation and some of the conversations that we've been having with sponsors and with non-sponsored companies has certainly picked up. The velocity of those conversations has picked up. It's hard to predict one quarter then next though.

Okay. Fair enough. I also wanted to go back to the JVs. I'm wondering, we've seen that slip a little bit in terms of portfolio allocation year-over-year. I'm wondering if you see an opportunity, particularly in a more compressed spread environment to sort of further optimize those JVs and maybe generate some incremental income, and how that might be sized? I appreciate your thoughts.

Sure. This is Armen again. We're always looking at optimizing the JVs. There are ways that we think we could do that. So, I do think that there are some ways to get a little bit more return out of them. We have JV partners, however, so we -- and we are in constant dialogue with them, but expansion of those JVs really is a partnership. And [indiscernible] at this time about expanding those JVs. But we are constantly looking at the portfolio allocation there, the nature of the portfolio, public versus private positions as well as the quantum and cost of the leverage. So, we will always look to optimize those for the JVs and for OCSL.

A quick follow-up there. In terms of the level of leverage in each of the JVs right now, can you give us just an update on how you're thinking about the current leverage and whether within the existing framework that's there, if there's an opportunity to increase the capacity through higher leverage?

Sure. I mean the leverage levels there are in the -- above 1x. And we think -- sorry, and on a combined basis between the two JVs, it's about 1.4x. We are looking to take it up over time. It's not going to be a significant and sudden increase, but we do think that there's a little bit of leverage capacity there to increase given the nature of those portfolios. The performing names in those portfolios are largely publicly traded debt that you can get a much higher than 1.4x leverage multiple on. And we do have some legacy positions in those JVs that existed prior to Oaktree's assumption of the management of OCSL that we're consistently or constantly looking to restructure and turn into performing credit assets for those JVs. And we will look to rotate out of the privates in there and make it largely a broadly syndicated loan portfolio with some increases in leverage beyond the 1.4x that there is currently there.

This concludes our question-and-answer session. I would like to turn the conference back over to Dane Kleven for any closing remarks.

Thank you all for joining today's call and for your continued interest in OCSL. Please reach out if you have any additional questions. We appreciate your time today.

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