OCSL

Business Context and Reporting Period

Company: Oaktree Specialty Lending Corporation (OCSL)
Filing Type: Form 8-K (Current Report)
Date of Report: September 15, 2022 (Event Date: September 14, 2022)
Event: Entry into a Material Definitive Agreement (Agreement and Plan of Merger) with Oaktree Strategic Income II, Inc. (OSI2).

Key Financial Metrics and Transaction Terms

This filing details a merger transaction rather than periodic financial performance. Key financial terms include:

• Merger Consideration: OSI2 shareholders will receive OCSL common stock based on an Exchange Ratio calculated by comparing the Net Asset Value (NAV) per share of both companies as of a Determination Date within 48 hours of closing.
• Management Fee Waiver: Oaktree Fund Advisors, LLC agreed to waive $9.0 million in base management fees following the closing:
  • $6.0 million in the first year ($1.5 million per quarter).
  • $3.0 million in the second year ($750,000 per quarter).
• Termination Fees:
  • Approximately $9.8 million payable by a third party acquiring OSI2 under certain termination scenarios.
  • Approximately $37.9 million payable by a third party acquiring OCSL under certain termination scenarios.

Note: The filing text does not provide specific revenue, profit, cash flow, or debt figures for the reporting period.

Material Changes and Transaction Structure

The primary material change is the execution of the Merger Agreement. The transaction structure involves:

1. Merger Sub (a wholly-owned subsidiary of OCSL) merging with and into OSI2, with OSI2 surviving as a subsidiary of OCSL.
2. Immediately thereafter, OSI2 merging with and into OCSL, with OCSL continuing as the surviving company.
3. The transaction is intended to be treated as a tax-free "reorganization" under Section 368(a) of the Internal Revenue Code.

Guidance, Outlook, and Risks

Outlook and Timeline:

• Closing is expected in the second fiscal quarter of 2023.
• Stockholder meetings for both companies are required to obtain approval.

Conditions to Closing:

• Requisite stockholder approvals.
• Nasdaq listing authorization for new OCSL shares.
• Effectiveness of the registration statement.
• Regulatory approvals (including HSR Act waiting period expiration).
• Accuracy of representations and warranties.

Risks and Contingencies:

• Failure to satisfy closing conditions or obtain stockholder approval.
• Potential competing offers or superior proposals.
• Management distraction from ongoing operations.
• Stockholder litigation risks.
• Macroeconomic factors including inflation, rising interest rates, and geopolitical conflicts.

Investor Verification Checklist

• Verify the final Exchange Ratio once the Closing NAV calculations are determined.
• Confirm the outcome of the stockholder votes for both OCSL and OSI2.
• Review the upcoming Joint Proxy Statement (Schedule 14A) and Registration Statement (Form N-14) for detailed financial data and risk factors.
• Monitor regulatory approval status, specifically the expiration of the Hart-Scott-Rodino waiting period.
• Assess the impact of the $9.0 million management fee waiver on future expense ratios.