Business Context and Reporting Period
Company: Oaktree Specialty Lending Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: February 26, 2019
Event Date: February 25, 2019
Context: The registrant entered into a material definitive agreement to amend and restate its senior secured credit facility.
Key Financial Metrics and Facility Terms
This filing details the restructuring of the company's debt facility rather than reporting operational financial results (revenue, profit, or cash flow) for a specific period.
- Facility Size: Increased from $600 million to $680 million.
- Accordion Feature: Permits an increase up to $1.02 billion under certain circumstances.
- Interest Rate Margins (Reduced):
- LIBOR Loans: Reduced from 2.75% to 2.25% or from 2.25% to 2.00% (based on senior debt coverage ratio).
- Alternate Base Rate Loans: Reduced from 1.75% to 1.25% or from 1.25% to 1.00% (based on senior debt coverage ratio).
- Drawdown Period: Extended from November 30, 2020, to February 25, 2023.
- Final Maturity Date: Extended from November 30, 2021, to February 25, 2024.
- Collateral: Secured by substantially all assets (excluding certain investments) and guaranteed by subsidiaries.
Material Changes Versus Prior Period
The primary material change is the amendment of the credit agreement executed on February 25, 2019. Key changes include:
- Capacity Expansion: An $80 million increase in the committed facility size.
- Term Extension: Both the drawdown period and final maturity date were extended by approximately two years.
- Cost Reduction: Lower interest rate margins applicable to both LIBOR and alternate base rate loans.
- Prepayment: The registrant prepaid the pro rata portion of outstanding borrowings owed to certain lenders under the previous agreement, terminating those specific borrowings.
Guidance, Covenants, and Risks
Covenants and Restrictions: The Amended Credit Agreement imposes several affirmative and negative covenants, including:
- Asset Coverage Ratio: Must maintain a ratio of total assets (less total liabilities) to total indebtedness of not less than the greater of 1.65 to 1.00 or the statutory test applicable to the Company.
- Interest Coverage Ratio: Must maintain a ratio of consolidated EBITDA to consolidated interest expense of not less than 2.0 to 1.0 for the first year, and 2.25 to 1.0 thereafter.
- Borrowing Base: Borrowings are subject to a borrowing base with different advance rates for different asset types.
- Other Limitations: Restrictions on additional indebtedness, liens, investments, asset transfers, and restricted payments.
Risks and Contingencies: The agreement includes standard default provisions. Failure to make timely payments, a change in control, or failure to materially perform under the agreement could accelerate repayment. The filing text does not provide specific guidance on future revenue or earnings.
Investor Verification Checklist
- Verify the full text of the Amended and Restated Senior Secured Revolving Credit Agreement (Exhibit 10.1) for detailed covenant definitions.
- Confirm the current senior debt coverage ratio to determine the applicable interest rate margin tier.
- Review the company's most recent 10-Q or 10-K to assess compliance with the new 1.65:1.00 asset coverage ratio and 2.0:1.00 interest coverage ratio requirements.
- Monitor the utilization of the "accordion" feature to determine if the facility size increases beyond $680 million.
- Check for any subsequent filings regarding the prepayment of the previous lenders and the status of the terminated borrowings.