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1. Company Snapshot

1.a. Company Description

Oaktree Specialty Lending Corporation is a business development company specializing in investments in middle market, bridge financing, first and second lien debt financing, unsecured and mezzanine loan, mezzanine debt, senior and junior secured debt, expansions, sponsor-led acquisitions, preferred equity and management buyouts in small and mid-sized companies.It seeks to invest in education services, business services, retail and consumer, healthcare, manufacturing, food and restaurants, construction and engineering, and media and advertising sectors.It invests between $5 million to $75 million principally in the form of one-stop, first lien, and second lien debt investments, which may include an equity co-investment component in companies with enterprise value between $20 million and $150 million and EBITDA between $3 million and $50 million.


The fund has a hold size of up to $75 million and may underwrite transactions up to $100 million.It primarily invests in North America.The fund seeks to be a lead investor in its portfolio companies.

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1.b. Last Insights on OCSL

Oaktree Specialty Lending's recent performance was negatively impacted by a decline in earnings, missing the Zacks Consensus Estimate of $0.51 per share, with quarterly earnings of $0.45 per share. This earnings miss, coupled with a shrinking portfolio due to higher net loan repayments, has raised concerns about the company's ability to maintain its dividend coverage. The company's decision to cut its dividend by 27% in an effort to address deteriorating dividend coverage has also contributed to the negative sentiment. Furthermore, the recent extension of the senior secured revolving credit facility to April 2030 has raised questions about the company's ability to manage its debt obligations. Additionally, the current economic conditions, including the looming recession, have driven up the probability of non-accruals, which is a major risk for BDCs.

1.c. Company Highlights

2. Oaktree's Q4 Earnings: A Closer Look at Financial Performance

Oaktree's adjusted net investment income came in at $35.4 million, or $0.40 per share, surpassing estimates of $0.38 per share. The company's adjusted total investment income was $76.9 million, up from $74.3 million in the previous quarter, driven by higher prepayment fees and dividend income. Net expenses declined modestly, and interest expense decreased due to the refinancing of the syndicated credit facility. The yield on new investments was 60 bps higher compared to the last quarter, partly due to the complexity of the Walgreens deal.

Publication Date: Nov -26

📋 Highlights
  • Adjusted NII Growth: Increased to $35.4M ($0.40/share) from $32.5M ($0.37/share) QoQ due to normalized fee income and interest expense.
  • Private Credit Spreads: Stabilized at SOFR +4.50 with mixed deal quality, showing modest deal flow improvement and cautious optimism.
  • New Investment Commitments: Rose 54% to $120M QoQ, driven by selective senior secured loan prioritization despite competitive markets.
  • Investment Income Uplift: Adjusted total investment income rose to $76.9M from $74.3M QoQ, boosted by prepayment fees and lower interest costs.
  • Life Sciences Workout Risks: Noted ongoing challenges in large life sciences positions (e.g., FIO2) impacting portfolio performance.

Investment Strategy and Pipeline

Oaktree's private credit deal flow showed modest improvement, with a mix of high-quality and lower-quality deals. The company remains cautious, prioritizing senior secured loans to market-leading businesses with strong fundamentals. New funded investment commitments, including drawdowns from existing commitments, amounted to $120 million, a 54% increase from the prior quarter. According to Armen Panossian, "we continue to see a steady supply of high-quality opportunities, alongside an increasing number of lower-quality deals coming to market."

Valuation and Outlook

With a P/E Ratio of 35.4 and a Dividend Yield of 13.5%, Oaktree's valuation reflects a relatively high multiple on earnings, but an attractive yield for income investors. Analysts estimate a revenue decline of 5.3% for next year, which may put pressure on the stock. However, the company's focus on senior secured loans and cautious approach to new investments may help mitigate potential risks. The P/B Ratio of 0.82 suggests that the stock may be undervalued relative to its book value.

Credit Quality and Workouts

Oaktree has a few larger positions in the life sciences space that continue to be the subject of workouts, including FIO2. While these positions are a concern, the company's overall credit quality remains a focus. As Armen Panossian noted, "we have a few things that we're working on that might be sort of higher than the 450 to 500 spread that's typical sponsor lending," indicating potential opportunities for higher returns.

3. NewsRoom

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Why I'm Parking 45% Of My BDC Capital In These 2 Names

Dec -02

Source: seekingalpha.com

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The Hidden Risk In BDC Market That Nobody Is Talking About

Dec -01

Source: seekingalpha.com

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Oaktree Specialty Lending: Pricing An Inevitable Decline

Nov -27

Source: seekingalpha.com

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12% Yields: Why Blackstone Secured Lending Beats Oaktree Specialty Lending

Nov -22

Source: seekingalpha.com

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Oaktree Specialty Lending: The Yield Trap Is Still Active, Downgrade

Nov -21

Source: seekingalpha.com

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Oaktree Specialty Lending Corporation (OCSL) Q4 2025 Earnings Call Transcript

Nov -18

Source: seekingalpha.com

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Oaktree Specialty Lending (OCSL) Q4 Earnings and Revenues Surpass Estimates

Nov -18

Source: zacks.com

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Oaktree Specialty Lending Corporation Announces Fourth Fiscal Quarter and Full Year 2025 Financial Results

Nov -18

Source: businesswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (9.27%)

6. Segments

Credit Solutions

Expected Growth: 9.27%

Oaktree Specialty Lending Corporation's 9.27% growth in Credit Solutions is driven by increasing demand for customized financing solutions, expansion into new markets, and strategic partnerships. Additionally, the company's expertise in middle-market lending and ability to provide flexible capital structures have contributed to its growth.

7. Detailed Products

First Lien Loans

Customized, senior-secured loans to middle-market companies, providing capital for growth, acquisitions, and recapitalizations.

Second Lien Loans

Subordinated loans to middle-market companies, providing additional capital for growth, acquisitions, and recapitalizations.

Unitranche Loans

A single loan that combines the benefits of first lien and second lien debt, providing a comprehensive financing solution.

Equity Co-Investments

Equity investments alongside private equity sponsors, providing additional capital for growth and acquisitions.

Structured Products

Customized, structured financing solutions for complex transactions, providing capital for growth, acquisitions, and recapitalizations.

8. Oaktree Specialty Lending Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Oaktree Specialty Lending Corporation is medium, as there are some alternative investment options available to investors, but they may not offer the same level of returns or diversification benefits.

Bargaining Power Of Customers

The bargaining power of customers for Oaktree Specialty Lending Corporation is low, as investors have limited negotiating power and are often attracted to the company's unique investment offerings.

Bargaining Power Of Suppliers

The bargaining power of suppliers for Oaktree Specialty Lending Corporation is medium, as the company relies on a diverse range of suppliers and partners, but may have some dependence on key relationships.

Threat Of New Entrants

The threat of new entrants for Oaktree Specialty Lending Corporation is high, as the alternative lending space is attractive to new entrants and the company faces competition from both established players and new market entrants.

Intensity Of Rivalry

The intensity of rivalry for Oaktree Specialty Lending Corporation is high, as the company operates in a competitive industry with many established players, and must continually innovate and differentiate itself to maintain market share.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 53.10%
Debt Cost 7.08%
Equity Weight 46.90%
Equity Cost 9.42%
WACC 8.17%
Leverage 113.22%

11. Quality Control: Oaktree Specialty Lending Corporation passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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Runway Growth Finance

A-Score: 7.7/10

Value: 7.5

Growth: 8.3

Quality: 7.0

Yield: 10.0

Momentum: 4.0

Volatility: 9.3

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Medallion Financial

A-Score: 7.0/10

Value: 8.9

Growth: 7.7

Quality: 5.6

Yield: 7.0

Momentum: 7.0

Volatility: 6.0

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Barings BDC

A-Score: 6.8/10

Value: 6.4

Growth: 5.1

Quality: 6.3

Yield: 10.0

Momentum: 3.0

Volatility: 10.0

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Navient

A-Score: 6.3/10

Value: 9.6

Growth: 5.0

Quality: 5.6

Yield: 8.0

Momentum: 3.0

Volatility: 6.3

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Farmer Mac

A-Score: 6.1/10

Value: 6.2

Growth: 8.3

Quality: 4.6

Yield: 7.0

Momentum: 3.0

Volatility: 7.7

1-Year Total Return ->

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Oaktree Specialty Lending

A-Score: 5.8/10

Value: 5.6

Growth: 2.7

Quality: 5.5

Yield: 10.0

Momentum: 1.5

Volatility: 9.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

13.58$

Current Price

13.58$

Potential

-0.00%

Expected Cash-Flows