Business Context and Reporting Period
This Form 8-K, dated October 17, 2017, reports the consummation of an Asset Purchase Agreement by Oaktree Specialty Lending Corporation (formerly Fifth Street Finance Corp.). The filing details the transition of the Company's investment adviser and administrator from Fifth Street Management LLC to Oaktree Capital Management, L.P. ("Oaktree"). Concurrently, the Company changed its name and ticker symbol, and executed a complete turnover of its Board of Directors and executive officers.
Key Financial Metrics and Agreements
The filing does not provide specific revenue, profit, cash flow, or liquidity figures for the reporting period. However, it establishes the following financial terms for the new management agreements:
- Base Management Fee: 1.50% per annum on total gross assets (excluding cash and cash equivalents).
- Incentive Fee on Income:
- Hurdle Rate: 1.50% preferred return on net assets per quarter.
- Catch-up: 100% of income between 1.50% and 1.8182% on net assets.
- Subordinated Fee: 17.5% of pre-incentive fee net investment income exceeding 1.8182% on net assets.
- Incentive Fee on Capital Gains: 17.5% of realized capital gains on a cumulative basis, commencing with the fiscal year ending September 30, 2019.
- Administrative Expenses: Reimbursed at cost with no markup to the administrator.
- Debt Instruments: The Company exchanged existing senior notes for new notes with updated CUSIPs and ticker symbols to reflect the name change. Principal amounts remain unchanged:
- $250,000,000 aggregate principal of 4.875% Senior Notes due 2019.
- $75,000,000 aggregate principal of 5.875% Senior Notes due 2024.
- $86,250,000 aggregate principal of 6.125% Senior Notes due 2028.
Material Changes Versus Prior Period
The filing outlines significant structural and operational changes effective October 17, 2017:
- Corporate Identity: Name changed from "Fifth Street Finance Corp." to "Oaktree Specialty Lending Corporation." Ticker symbol changed from "FSC" to "OCSL."
- Management Transition: Termination of agreements with Fifth Street Management LLC and entry into new agreements with Oaktree Capital Management, L.P. and Oaktree Fund Administration, LLC.
- Leadership Turnover:
- Board Resignations: Bernard D. Berman, James Castro-Blanco, Brian S. Dunn, Byron J. Haney, Alexander C. Frank, and Douglas F. Ray.
- Board Elections: John B. Frank, Marc H. Gamsin, Craig Jacobson, Richard G. Ruben, and Bruce Zimmerman.
- Officer Resignations: Bernard D. Berman (CEO), Steven M. Noreika (CFO), and Kerry S. Acocella (CCO).
- New Appointments: Edgar Lee (CEO/CIO), Mel Carlisle (CFO), Mathew M. Pendo (COO), and Kimberly Larin (CCO).
- Security Indemnification: Fifth Street Holdings L.P. pledged 6,265,665 shares of common stock to secure indemnification obligations related to SEC investigation costs and potential penalties.
Guidance, Outlook, and Risks
The filing contains forward-looking statements regarding future results of operations and financial performance but does not provide specific quantitative guidance or earnings projections. Key risks and contingencies noted include:
- Regulatory Risks: Potential SEC investigation-related legal costs, fines, or penalties, which are partially secured by the pledged shares from Fifth Street Holdings L.P.
- Operational Transition: Risks associated with the change in investment adviser, including the ability of the new management team to achieve objectives and the impact on portfolio company performance.
- Market Conditions: General political, economic, and market conditions affecting the value of investments and net assets.
- Agreement Termination: The new Investment Advisory and Administration Agreements may be terminated by either party without penalty upon 60 days' written notice.
Investor Verification Checklist
- Verify the new ticker symbol "OCSL" and CUSIP number "67401P 108" for common stock trading commencing October 18, 2017.
- Confirm the updated CUSIP numbers and ticker symbols for the 2019, 2024, and 2028 Senior Notes.
- Review the definitive proxy statement filed on July 25, 2017, for detailed terms of the new Investment Advisory Agreement.
- Monitor the status of the pledged shares held by Fifth Street Holdings L.P. regarding potential SEC-related indemnification claims.
- Assess the investment strategy and track record of the new management team led by Edgar Lee and Oaktree Capital Management.