Business Context and Reporting Period
Oaktree Specialty Lending Corporation (the "Registrant") filed this Form 8-K on December 1, 2017, reporting events occurring on November 30, 2017. The Registrant is a Delaware corporation engaged in acquiring and funding leveraged loans, mezzanine loans, high-yield securities, convertible securities, preferred stock, common stock, and other investments.
Key Financial Metrics and Facility Details
The filing details the entry into a new Senior Secured Revolving Credit Agreement rather than reporting period-end financial performance metrics such as revenue or net income.
- Facility Size: Up to $600 million in borrowings, with an accordion feature allowing expansion to $800 million under certain circumstances.
- Interest Rates: LIBOR plus a margin of 2.25%, 2.50%, or 2.75% (no LIBOR floor) or an alternate base rate plus 1.25%, 1.50%, or 1.75%, depending on the senior debt coverage ratio.
- Maturity: The revolving period expires on November 29, 2020, with a final maturity date one year thereafter.
- Collateral: Secured by substantially all of the Registrant's assets, excluding certain investments held in subsidiaries or portfolio companies.
Material Changes Versus Prior Period
The primary material change is the replacement of the Registrant's previous financing arrangement.
- Termination of Prior Facility: The Registrant repaid all outstanding borrowings under its prior secured syndicated revolving credit facility (the "Prior ING Facility") and terminated the agreement.
- Original Maturity: The Prior ING Facility would have otherwise matured on August 6, 2018.
- Extension of Term: The new facility extends the borrowing window to November 2020 (plus one year final maturity), providing a longer horizon than the prior facility.
Guidance, Covenants, and Risks
The filing outlines specific financial covenants and risks associated with the new Credit Agreement.
- Financial Covenants:
- Total assets (less total liabilities) to total indebtedness ratio of not less than 2.0:1.0.
- Consolidated EBITDA to consolidated interest expense ratio of not less than 2.0:1.0 for the first year, increasing to 2.25:1.00 thereafter.
- Maintenance of minimum liquidity and net worth.
- Restrictions: Limitations on additional indebtedness, liens, certain investments, asset transfers, and restricted payments.
- Default Provisions: Events of default include failure to make timely payments, change in control, or failure to materially perform under the agreement, which could accelerate repayment.
- Regulatory Constraints: Borrowings are subject to leverage restrictions under the Investment Company Act of 1940.
Investor Verification Checklist
- Verify the full text of the Senior Secured Revolving Credit Agreement filed as Exhibit 10.1 for detailed covenant definitions and exceptions.
- Confirm the current senior debt coverage ratio to determine the applicable interest rate margin.
- Review the press release (Exhibit 99.1) for management's strategic rationale regarding the refinancing.
- Monitor compliance with the 2.0:1.0 and 2.25:1.0 EBITDA/interest expense ratios in subsequent quarterly reports.
- Assess the impact of the "accordion" feature on potential future leverage if the facility is expanded to $800 million.