Welcome and thank you for joining Oaktree Specialty Lending Corporation's Fourth Fiscal Quarter and Full Year 2017 Conference Call. Today's conference call is being recorded. [Operator Instructions] Now I would like to introduce Michael Mosticchio of Investor Relations who will host today's conference call. Mr. Mosticchio, you may begin.

Thank you, operator, and welcome to all of you who have joined us for today's call to discuss Oaktree Specialty Lending Corporation's Fourth Fiscal Quarter and Full Year 2017 Financial Results. Our earnings release that was issued this morning and a slide presentation which accompanies this call can be accessed on the Investors section of our website oaktreespecialtylending.com. Our speakers today are Oaktree Specialty Lending's Chief Operating Officer, Matt Pendo; Chief Executive Officer and Chief Investment Officer, Edgar Lee; and Chief Financial Officer and Treasurer, Mel Carlisle. We will be happy to take any questions following their prepared remarks. Before we begin, I want to remind you that our comments today will include forward-looking statements reflecting our current views with respect to, among other things, our future operating results and financial performance. Our actual results could differ materially from those implied or expressed in forward-looking statements for any reason. Please refer to our SEC filings for a discussion of these factors. We undertake no duty to update or revise these forward-looking statements. I'd also like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in any Oaktree stock. Investors and analysts should know that Oaktree Specialty Lending Corporation uses the Investors section of its public corporate website to announce its sale information. Accordingly, the company encourages investors, media and others to review the information that is shared on its corporate website at oaktreespecialtylending.com. With that, I would now like to turn the call over to Matt Pendo, Chief Operating Officer.

Thanks Mike. And again apologies and do let us know if you cannot hear us. It is a privilege to welcome all of you to our first conference call as a new investment advisor of Oaktree Specialty Lending Corporation. On today’s call, I’ll provide a brief overview of Oaktree Capital Management. Next, our Chief Executive Officer, Edgar Lee, will provide an overview of the portfolio; and Mel Carlisle. our Chief Financial Officer and Treasurer will review our financial and operating results for the fourth quarter. I would like to begin by thanking our stockholders for your vote of confident and welcome you to Oaktree Specialty Lending Corporation. We are very excited in managing this company as well as Oaktree Strategic Income Corporation. We believe both BDCs are well positioned to leverage Oaktree’s platform and resources and to do what Oaktree has done successfully for many years, help companies access the capital they need to manage and grow their business. For those of you who may not be familiar with Oaktree, we are a premier credit manager that was founded by the pioneers of alternative credit investing. Oaktree manages approximately $100 billion in asset as of September 30, 2017, of which over 70% is invested in credit strategies. Our clients include some of the world's most significant investors including pension funds, corporations, universities, charities, endowments and foundations as well as sovereign wealth funds. Across our investment strategies, our approach has always been primarily focused on risk control and downside protection for our portfolios. The same holds true for Oaktree’s Specialty Lending and Oaktree Strategic Income. We believe this approach makes us an ideal long-term partner for the companies we invest in and also positions us well to deliver attractive returns to our BDCs stockholders. Since we became the investment manager of…

Thank you, Matt. I’ll begin by reviewing Oaktree Specialty Lending portfolio and our plans for managing it. I would like to remind you that since the transaction closed on October 17th, the portfolio results for the fourth quarter of 2017 do not reflect any of our portfolio repositioning efforts. At September 30th, the portfolio had a fair value of $1.54 billion invested in 125 companies. This was comprised of loans to 81 borrowers, the joint venture with Kemper Corporation, 6 public bond issued, 19 equity only positions and 18 private equity investments. Approximately 92% of portfolio was invested in debt instruments, 54% of the portfolio was invested in first lien loans, 24% was in second lien loans, and the remaining 14% was in unsecured investments. 84% of the debt investments were in floating rate securities. The weighted average yield of on un-debt investments is 9.6%. The portfolio included investment in companies across more than 40 industries. The largest concentrations were in the following sectors. Internet and application software and services, healthcare services and equipment, advertising, data processing and outsourced services and pharmaceuticals, while the average investment by borrower was approximate $13 million at fair value, 13 investments were over $30 million and 55 investments were less than $10 million in line with our goal to maintain a diverse portfolio with more evenly size high conviction investments, we expect to reduce our exposure to loans below $10 million overtime. The Kemper joint venture which invests primarily in senior secured loans to middle market companies was valued at $134 million. 96% of that amount is a secured debt investment in the joint venture with the balance in common equity. New investment commitments for the fourth quarter were $156 million and included nine new and five existing portfolio companies. Fundings for the quarter…

Thank you, Edgar. Net investment income in the fourth quarter was $11.5 million or $0.08 per basic and diluted share. This was down sequentially from $19.4 million of $0.14 per share in the third quarter due to the smaller size of the portfolio and increased in loans and non-accrual status and lower fee and dividend income. The size of the portfolio decreased during the quarter as proceeds from repayments and exits were used to pay down debt. Total investment income for the fourth quarter was $35.7 million including $31.4 million of cash interest income. Net expenses for the quarter were $24.4 million, reflecting lower incentive and base management fees due to the size and performance of the portfolio. Net realized losses were $20.5 million and included a $34 million loss on the partial payoff of the investments in ERS Acquisition Corp, which was previously markdown the $3.7 million. This amount was offset by realized gains generated by 2 of the 17 investments monetize during the quarter. Oaktree Specialty Lending record $116.4 million of net unrealized losses during the quarter primarily due to write-downs in 6 portfolio companies and our equity interest in the Kemper joint venture. As a result, net asset value decline to $6.16 per share at September 30th from $7.17 per share at June 30th. With regard to the portfolio valuation, I’d like to note that because Oaktree was appointed the investment advisor of Oaktree Specialty Lending on October 17th, we were not managing the portfolio in the fourth quarter of 2017. That said, the September 30th portfolio valuation was performed by Oaktree's long tenured internal valuation team in collaboration with external valuation firms and approved by the residing Board of Directors of Oaktree Specialty Lending. Therefore while we are not responsible for the portfolio results, we did…

In closing, I would like to reemphasize that we are very excited to be managing Oaktree Specialty Lending. We are confident that our demonstrated investment process, disciplined approach to underwriting investment opportunities and substantial expertise and restructuring challenge of credits will pave the way to building a portfolio that delivers attractive returns to our shareholders overtime. With that, we’d be delighted to take your questions. So, operator, please open the lines.

We will now begin the question-and-answer session. [Operator Instructions] The first question will come from Rick Shane of JP Morgan. Please go ahead.

I’d like to talk a little bit about the transition and then I’d like to talk over the last quarter and then talk about how evolves going forward. During the transition period from when the transaction was announced to when you closed. What was your involvement? What was the new management team's involvement in approving investments? Are these legacy investments? Or are these managerial investments that really were blessed by the new team?

So, under the 40 Act and the rules of the BDC, Fifth Street continued to be manager of the BDS and improved all transactions or investments in the portfolio during the Q4 period. We remain aware of those investments, but we do not have any role on approving those transactions.

And then when we think about the valuation process and given the closing date, I’m assuming that because you were able to do the valuation process, once the closing was done and sort of look back that these are valuations that the new management team has signed off on a 100%. What was the involvement of the prior professionals who led or serviced those investments?

Our initial valuation of the portfolio was performed by Oaktree’s internal valuation team and we did work very closely with the Fifth Street team in arriving that valuations, but ultimately Oaktree made final decision on valuation.

And were there any significant surprises or discrepancies between what the Fifth Street team thought and what the Oaktree team thought?

No, they were on board along with our internal valuation team along with the third-party valuation firms.

And then just to emphasize certainly as we discussed in our prepared remarks, the current Board approves the valuation as announced.

And then last question and I apologize, I know you said one, only one, but I am going to hopefully take a little bit advantage. In terms of you sort of provided a near-term long-term plan and made the comment that dividends will fluctuate. I'm assuming, should we think of the near term as being next 12 months and that a year from now, we'll be having a conversation about what the vehicle looks like sort of in ongoing basis with a more stable predictable dividend?

I think it's a little bit too early for us to provide comments on that. As we've mentioned, we've only taken over that operations of the vehicle or the Company in last 45 days or so. So, it's a little bit premature for us to comment on the timeframe there.

The next question will come from Ryan Lynch of KBW. Please go ahead.

Kind of following up on the fair value marking process, I mean glad that you guys were able to go in and make your own fair value marks. I was just wondering, obviously, there were some very big markdowns taking in the quarter, and I think I would expect with the new team coming in that you guys would have big markdowns and probably taken a conservative approach to fair value. So with the markdowns that you guys have this quarter, do you guys feel that you guys had your head around of the legacy Fifth Street book? And how confident are you in your ability to minimize future markdowns and that we aren't going to see big markdowns after this most recent quarter?

So, I think the way I'd address this as, we've been managing this portfolio for about six weeks now. So it's early in the process. What we can say is that we've been reviewing each of the investments in the portfolio with the same level of due diligence that we'd apply to any new Oaktree investment. In addition, we have a lot of expertise and experience in debt restructuring. It's how I started my career here at Oaktree, and so we've a lot of expertise in the area of working out troubled credits, and so we can take a proactive approach to the managing portfolio, reaching out to management teams, and trying to really assess the best path forward with individual investments. What I can share with you on a couple of data points on the portfolio to give you a sense of how the portfolio is performing, because you only have a sense of some of the markdowns. Just to give you some data points, just a couple of data points, so among the existing investments in the portfolio that have reported numbers as of September 30th, almost 65% by fair market value have reported increase in revenue growth and similarly approximately 55% by fair market value have reported a decrease in leverage. So, hopefully that gives you some sense about how the portfolio is going and where that may ultimate -- or how that may ultimately impact the portfolio in the future.

Okay, if I can just have one slight follow-up to that. As far as the fair value marking process, would you say I know you gave me statistics on how the portfolio is performing, but would you say that your -- because obviously there's big markdowns in the portfolio this quarter. Would you guys say that, that maybe Oaktree's fair value marking process is more conservative than the legacy Fifth Street approach? Or was there significant deterioration in the portfolio in the fiscal fourth quarter, because it seems like one of those have to be true in order to get to the big fair value mark -- the big fair value decline this quarter?

Well, I think, I can’t comment on Fifth Street valuation approach. But what I can say is, as we went through the valuation process a handful of credits had some negative events occurred that impacted our views on the fair market value of those investments.

The next question will come from Terry Ma of Barclays. Please go ahead.

Can you give us a sense of how long your portfolio repositioning could take?

Here is how I look at this. Again, we’ve just taken over this portfolio, so it’s early to say and we’re very early in the process. Timing, the way I would think about timing generally is that there are some investments in this portfolio that are not one that we would necessarily invest in, where it fairly easy for us to monetize those investments because they maybe investments in more liquid opportunities that we can more readily monetize. And there will be other investments that are more in liquid, more challenged where it will be more difficult to find, potential buyer of that asset, and that could take a little bit longer. So on the outside, I want to give an outside date, but it can take longer to do a 100% of the reposition that we want to. But what we may find overtime as we continue to access the portfolio is that will be able to reposition a large portion of it sooner than we might have necessary thought.

And in terms of the investments you plan on rotating out of the liquid and illiquid investments. Can you maybe just quantify how much is updated?

So, I'd love to do that on future calls. We’re still going through that’s right now. And what I would say is that, we’re still going to the process of determining which loans we would like to move and one we would like to move amount of the portfolio, and the process by which we like to move amount of the portfolio. Some of them will go through some sort of sales process, because we are the equity owners of that company, others will go through some sort of bespoke one sort of by lateral negotiation, because it is a loan what we can find other drug lending fund to participate in that loan. Some of these loans are not necessarily bad loans. There are loans that may just be some optimal size for our portfolio. Well, other loans are ones just may not fit our investment style, but may set another manager’s investment style.

The next question will come from Jonathan Bock of Wells Fargo Securities. Please go ahead.

Hi, guys. Fin O'Shea for Jonathan Bock this morning. Thanks for taking us and congratulations on your inaugural quarter as a BDC. Just to kind of get some color on what the new book, the new investment activity will look like, as you gave us an example of 35 million first lien at L plus A? This is a prototypical loan. Can you kind of expand a little bit on say what was the level of EBITDA and what was the total facility size? And we’ll start there, thanks.

On this particular investment, I can’t comment because of our confidentiality arrangements.

Maybe just generally then what kind of hold sizes do you expect to originate? And what type of EBITDA are you currently able to do for a buyout?

Sure. So, in OCSL when we think about sizing of positions typically we’d like to see positions around 2% to 2.5%. We think that’s an adequate amount of diversity to make sure that is for -- if there was an unfortunate negative event to the Company, the impact to the overall portfolio would be relatively limited. But at the same time, it’s sizable enough that if there are positive events there that it will have some impact on the portfolio, and it also makes sure that we’re not overly diversified in the way that we are introducing the new risk to portfolio. In terms of company size, what I would say is because of our exemptive relief that we received, we’re able to right pretty substantial size loans to companies. We are generally for OCSL and for in our strategic credit strategy tending to focus on larger companies in the middle space as opposed to going into the lower middle market small business side of marketplace.

Very well, thank you. Then just one more follow up, if I may. Can you comment now that you’ve conducted the portfolio valuation on a potential stock buyback program?

Yes, I think at this time, we’re focused on repositioning the portfolio. We’re not particularly focused on the share repurchase. We have to reposition to portfolio. There is an ING credit facility that we’re focused on. We have some work ground to JVs and that’s our focus on right now.

The next question will come from George Bahamondes of Deutsche Bank. Please go ahead.

You mentioned -- haven't got the exact detail the share, but there are few investments that you mentioned are sub-optimal in terms of size. Did you give the specifics around what that dollar amount or the number of those investments were? I believe the sub-optimal that was below $10 million, but did not get the details?

Sure. Hi, George. It’s Edgar here. So, we did say below $10 million the way I think about it is at below $10 million you are looking at positions that are potentially 0.5% in size in the portfolio, some positions in the portfolio or as small as a couple of million dollars. So, those are the types of the positions we would be looking to monetize over the coming quarters.

Got it. And just a follow up on another detail, I’ve missed here. You mentioned unfunded commitments at 930. Can you just disclose that amount again?

$180 million.

The next question comes from Christopher Testa of National Securities Corporation. Please go ahead.

Of the unrealized depreciation of roughly $160 million or so in the quarter. How much of that was due to declining performance of the investments versus you guys marking the book differently than Fifth Street would have?

I think we touch on the survey. I think the marks and I don't have specific percentages in front of me, but you should -- the vast bulk of those markdowns were related to a handful of credits that had very specific negative credit, credit events occur.

With the credit facility amendment, what was the cost associated with that approximately?

The cost, there were no costs.

And just touching on an earlier comment, you guys have said that. Your hold size, you wouldn't want to hold things under 5 million, but at the same time you have the ability to have exemptive relief. Is it I guess sensible to think that you guys could make potentially a $50 million, $60 million, $70 million investment across the platform or potentially of hold sizes in the BDC let's say under 10 million or say?

It is possible that it would occur. We don't anticipate at this point that that will be a frequent occurrence.

And last one from me, just with the current verticals of the portfolio given the high concentration and obviously a lot of tackling software and obviously healthcare, which has been problematic for Fifth Street. Are you comfortable in those types of verticals? Or should we expect a more of a significant change in those industries?

So, we do a pretty substantial amount of investing today in those two verticals. We've a number of people focused on those two industries, but we also focus on many more industries in more substantial ways than what Fifth Street or the old prior manager did. What I would say around the healthcare, both healthcare and software just some quick comments, healthcare and their healthcare exposure often times people mentioned to me that have a lot of healthcare exposure, which is true but they had very specific types of healthcare exposure and it happened to be a number of their most -- of those sizeable investments in the healthcare industry that they made had highly correlated risk factors that happened to be that there were some negative events that occurred, that affected all of those credits in a similar way. Among their software vertical its performed, the software vertical has actually performed reasonably well with a couple of challenged investments and those investments are very company specific and are not necessarily correlated to the other software companies in the portfolio.

[Operator Instructions] The next question will come from Chris York of JMP Securities. Please go ahead.

When do you expect to release the 10-K [indiscernible] questions about the market and investment today?

We expect to release the 10-K this afternoon after market close.

And then you didn't declare a Q1 '18 dividend, but did acknowledge that results could be volatile in the short-term. And then I didn't fully understand the dividend outlook comment in the prepared remarks, but is it safe to think that the distribution policy in a short term will be variable as opposed to the more commonly fixed policy that we tend to think about for the industry?

Yes, I think it's Matt. Chris, thanks for your question. I think the way we're thinking about dividend -- dividends in a short run just talking about short runs, really just -- they are a function of the investment income and income that’s generated from the portfolio. So, that is the guide post that you should focus on in terms of in the short run as we work through dividend.

And then I mean, we think about the fourth quarter, you had $0.08 net investment income per share. There was some noise. I think we still haven't seen its pay in expenses. Are there one-time items in here that you think are non-recurring?

We don’t really want it -- I mean in the last quarter or projected to Q1 of…

Q4, were there any, I mean professional fees were up. The SG&A was up. I mean are there any one-time, I mean, interest expense was up sequentially. So, were there any one-time expenses in there that you think are non-recurring in fiscal 2018?

There are probably some non-recurring expenses, but there are also going to be expenses just in terms of stabilizing and transitioning the portfolio.

And then last and I’ll hop back in the queue. So, leverage is at 0.79 times and then clearly your decision to pay down the debentures. So can you give us an update on how you’re thinking about your capital structure? And then maybe what improvement potentially longer term exists on the right-hand side of your balance sheet?

Sure. So, as we announced where we made off the SBA debentures. Primarily, because the in order the act of transferring the license SBA is quite cumbersome and bureaucratic, so it was just lot simple and easier for us to and part of the API was to pay off those debentures, which obviously you takes down leverage and freeze up cash to actually further deliver. And we’re going to kind of continue to do that. In terms of going forward, I think, there is so many again moving parts right now in the portfolio, I don’t want to talk about seat numbers, but in general we’re pretty conservative in this environment, when it comes to leverage levels.

We have no further questions Mr. Mosticchio.

Thank you and thank you all for joining us on today’s call. We apologies again for the earlier technical issues and we will work to post our transcript to our website as soon as possible. If anyone would like feel free to reach me, call me or email me, you can find our contact info in our earnings presentation around our website. Replay for this conference call will be available for 30 days on OCSL’s website in the Investor section or by dialing 877-344-7569, for U.S. callers are 1-412-317-0088, for non-U.S. callers the replay access code 10114277 beginning approximately one-hour after this broadcast. Thank you.

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines. Have a great day.