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OSCI's NII Beats Projections While NAV Falls

|About: Oaktree Strategic Income Corporation (OCSI)

The historical earnings history from Yahoo Finance for Oaktree Strategic Income Corp (OCSI)

Earnings History 9/29/2017 12/30/2017 3/30/2018 6/29/2018
EPS Est. 0.20 0.19 0.15 0.15
EPS Actual 0.19 0.15 0.16 0.17
Difference -0.01 -0.04 0.01 0.02
Surprise % -5.00% -21.10% 6.70% 13.30%

NII was 17 cents while the projection (from only one analyst providing projections to Yahoo) was 15 cents. Note - the '16' reported in Q1 was $0.1557/share.

My spreadsheets:

Oaktree Strategic Income Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Realized & Unrealized Gains -3.346 4.093 -2.641 -19.984 -5.791 -0.245 -5.159 2.236 -5.247 -6.446 -20.308 -7,114.935 -4,198.072 -158.452 -4,948.796 274.131 -69.719 -86.752 -271.814
Realized & Unrealized Gains/share -0.1136 0.1389 -0.0896 -0.6782 -0.1965 -0.0086 -0.1751 0.0759 -0.1781 -0.2187 -0.6892 -0.2415 -0.1425 -0.0538 -0.1679 0.0295 -0.01462 -0.0130 -0.0408

(1) Low PWAY portfolios are not supposed to have an ugly record when it comes to 'realized and unrealized gains'. This BDC does.

Oaktree Strategic Income Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14 Q3-14 Q2-14 Q1-14 Q4-13
Interest income 10.792 9.121 10.034 10.918 12.025 10.679 10.908 12.232 11.600 11.555 12.146 11.702 10.624 9.627 7.887 3.3 2.979 2.568 1.305
Fee income 0.299 0.651 0.398 1.023 0.502 0.279 0.406 0.209 0.815 0.741 1.313 1.710 3.008 2.265 7.973 3.0 0.866 0.837 1.001
PIK income 0.571 0.782 0.298 0.233 0.063 0.279 0.406 0.209 0.064 0.741 1.313 1.710 3.008 2.265 7.973 3.0 0.866 0.837 1.001
Div income 0.000 0.000 0.000 -.343 -0.402 0.279 0.406 0.209 0.700 0.741 1.313 1.710 3.008 2.265 7.973 3.0 0.866 0.837 1.001
Total investment income 11.661 10.555 10.731 11.820 12.170 11.020 11.561 13.203 13.114 13.195 13.914 14.068 13.707 11.892 15.860 6.285 3.845 3.406 2.306
Net investment income 5.072 4.589 4.547 5.521 5.930 5.086 5.884 6.342 6.164 5.785 7.002 7.402 6.339 6.701 10.425 3.805 1.853 1.791 1.503
Investments @ fair value 0.574 0.543 0.541 0.560 0.565 0.546 0.540 0.574 0.598 0.575 0.604 0.624 0.628 0.584 0.596 0.300 0.192 0.180 0.135
Wt Av Share Count 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 29.467 17.075 6.667 6.667 6.667
TII/share my calculation $0.3957 $0.3582 $0.3642 $0.4011 $0.4130 $0.3740 $0.3923 $0.4481 $0.4450 $0.4478 $0.4722 $0.4774 $0.4652 $0.3267 $0.5382 $0.3681 $0.5767 $0.5109 $0.3459
NII/share my calculation $0.1721 $0.1557 $0.1543 $0.1874 $0.2012 $0.1726 $0.1997 $0.2152 $0.2092 $0.1963 $0.2376 $0.2512 $0.2151 $0.2274 $0.3538 $0.2228 $0.2779 $0.2686 $0.2254
NII/share OSCI calc. $0.17 $0.16 $0.15 $0.19 $0.20 $0.17 $0.20 $0.22 $0.21 $0.20 $0.24 $0.25 $0.22 $0.23 $0.35 $0.22 $0.28 $0.27 $0.23
Distributions/share $0.1550 $0.1450 $0.1400 $0.1900 $0.1900 $0.1900 $0.1900 $0.225 $0.225 $0.225 $0.225 $0.225 $.30 $0.30 $0.30 $0.30 $0.27 $0.23 $0.21
NAV/share $9.91 $9.99 $9.84 $9.97 $10.65 $10.83 $10.86 $11.06 $10.99 $11.18 $11.36 $12.11 $12.23 $12.46 $12.53 $12.65 $15.13 $15.13 $15.10
Wt Av Yield 7.9% 7.9% 7.1% 7.5% 7.9% 8.4% 8.5% 8.6% 8.6% 8.4% 8.0% 8.1% 7.6% 7.4% 7.1% 7.2% 7.0% 6.7% 6.6%
Wt Av cash Yield 7.7% 7.7% 6.9% 7.3% 7.6% 8.1% 8.2% 8.3%
NII/TII ratio 43.50% 43.48% 42.37% 46.71% 48.73% 46.1% 50.9% 48.0% 47.0% 43.8% 50.3% 52.6% 46.2% 56.3% 65.7% 60.5% 48.2% 52.6% 65.2%
At the end of Q2-18, OCSI has one investment on non-accrual represented 0.14% of the debt portfolio at cost and 0.01% at fair value.

My access to old numbers went away when FSFR deleted the old info from their web site. There are several old numbers that look fishy - and I would verify (and probably correct).

The list of "not suppose to happen's" continues.

(2) Heavily weighted in floating rate loans - this BDC should not have falling TIIs - but this one does.

(3) Heavy in floating rate loans - this BDC should not have falling PWAYs - but this one does.

(4) Low PWAY BDCs strongly tend to operations that result in steady NAVs - but this one has falling NAVs.

(5) Low PWAY BDCs have lower fees - so the NII/TII ratio should be well above 50. This BDC has and continues to have ugly NII/TII ratios.

(6) PIK income should not be on the radar. This BDC has 4.89% of TII from PIK.

Oaktree Strategic Income Q2-18 Q1-18 Q4-17 Q3-17 Q2-17 Q1-17 Q4-16 Q3-16 Q2-16 Q1-16 Q4-15 Q3-15 Q2-15 Q1-15 Q4-14
Debt 258.550 257.978 251.905 260.733 266.160 275.388 249.815 292.412 295.827 292.947 291.558 323.026 307.366 280.098 184.848
Debt/share 8.7708 8.7548 8.5487 8.8483 9.0325 9.3456 8.4778 9.9234 10.0393 9.9415 9.8944 10.9623 10.4309 9.5055 6.2731
Debt/share to NAV 88.50% 87.64% 86.88% 88.75% 84.81% 86.29% 78.06% 89.72% 91.35% 88.92% 87.10% 90.52% 85.29% 76.29% 50.06%
Interest expense 3.235 2.898 2.764 2.645 2.662 3.007 2.456 2.456 2.437 2.338 2.273 2.197 4.163 1.705 0.886
Interest expense/share 0.1098 0.0983 0.0938 0.0898 0.0903 0.1020 0.0833 0.0833 0.0827 0.0793 0.0771 0.0746 0.1413 0.0579 0.0301
Interest expense/TII 27.74% 27.46% 25.76% 22.38% 21.87% 27.29% 21.24% 18.60% 18.58% 17.72% 16.34% 15.62% 30.37% 14.34% 5.59%
Annualized Int exp/Debt 5.00% 4.49% 4.39% 4.06% 4.00% 4.37% 3.93% 3.36% 3.30% 3.19% 3.12% 2.72% N/A 2.43% 1.92%
PWAY - Int exp/Debt 290 bps 341 bps 271 bps 324 bps 360 bps 373 bps 497 bps 524 bps 530 bps 521 bps 488 bps 538 bps N/A 497 bps 518 bps
For Q2-18, OCSI had a weighted average interest rate on debt outstanding of 4.3%. Two credit facilities received lower forward interest rates.
Q2-15 contained a one-time charge of $2.1 million related to a debt securitization that closed during the quarter.

(7) The interest expense to TII ratio is too dang high.

OCSI may be bragging about getting lower forward fees (or interest rates) on two of their credit facilities. I suspect that the reason interest expense was higher this quarter is due to the upfront fees paid for this quarter.

(8) The "PWAY to cost of debt" spread is tiny - even compared to other low PWAY BDCs.

Summation - 8 strikes and you are out

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.