OCSL - NASDAQ

Welcome and thank you for joining Oaktree Specialty Lending Corporation’s Third Fiscal Quarter 2023 Conference Call. Today’s conference call is being recorded. [Operator Instructions] Now, I would like to introduce Michael Mosticchio, Head of Investor Relations, who will host today’s conference call. Mr. Mosticchio, you may begin.

Thank you, operator and welcome to Oaktree Specialty Lending Corporation’s third fiscal quarter conference call. Our earnings release, which we issued this morning and the accompanying slide presentation, can be accessed on the Investors section of our website at oaktreespecialtylending.com. Our speakers today are Armen Panossian, Chief Executive Officer and Chief Investment Officer, Matt Pendo, President and Chris McKown, Chief Financial Officer and Treasurer. Also joining us on the call for the question-and-answer session is Matt Stewart, our Chief Operating Officer. Before we begin, I want to remind you that comments on today’s call includes forward-looking statements reflecting our current views with respect to, among other things, the expected synergies and savings associated with the merger with Oaktree Strategic Income II, Inc., the ability to realize the anticipated benefits of the merger and our future operating results and financial performance. Our actual results could differ materially from those implied or expressed in the forward-looking statements. Please refer to our SEC filings for a discussion of these factors in further detail. We undertake no duty to update or revise any forward-looking statements. I would 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 fund. Investors and others should note that Oaktree Specialty Lending uses the Investors section of its corporate website to announce material information. The company encourages investors, the media and others to review the information that it shares on its website. With that, I would now like to turn the call over to Matt.

Thanks, Mike and welcome everyone. Thank you for your interest and support of OCSL. We appreciate your participation on this call. We produced strong results in our fiscal third quarter, bolstered by robust origination activity at attractive yields and the positive impact of higher base rates on our predominantly floating rate portfolio. Combined with the cost synergies arising from the recently closed merger with OSI2, we generated strong earnings on behalf of our shareholders. Third quarter adjusted NII was $0.62 per share in line with the prior quarter. This was supported primarily by higher total investment income and lower operating expenses, partly offset by increased interest expense as well as higher management and incentive fees. We reported NAV per share of $19.58, down slightly from $19.66 for the prior quarter. The decrease reflected a modest decline in the value of certain debt investments and was offset by net investment income in excess of $0.55 per share quarterly dividend. Given the strong overall earnings, our Board maintained our quarterly dividend at $0.55 per share. As a reminder, this is nearly double our pre-pandemic quarterly dividend run-rate of $0.285. Our investment activity in the third quarter was strong, with $251 million of new investment commitments, more than double the level of the prior quarter. Of the new originations, nearly 90% were private direct lending opportunities and 90% were first lien loans, reflecting our emphasis of being at the top of the capital structure. The weighted average yield on new originations was attractive at 12.6%. Pay-downs and exits in the quarter were also strong as we received $261 million of proceeds. While broader market activity has been slower given higher interest rates and fewer refinancings, we continued to receive steady levels of pay-downs and have also been opportunistic selling out of lower yielding public credit investments. Importantly, the third quarter marked our first full quarter realizing synergies following the merger with OSI2. We are pleased to be on track to achieve $1.4 million worth of operating expense synergies on an annualized basis. We have also been focused on streamlining our capital structure, leveraging OCSL’s greater scale to improve our financial flexibility. During the quarter, we increased the size of our syndicated credit facility to $1.2 billion from $1.0 billion and extend the maturity by 2 years to 2028. We also consolidated a credit facility acquired from OSI2 with our existing Citibank facility and pushed up the maturity by 2 years to 2027. We appreciate our banking partners support and their confidence in Oaktree as a manager. These improvements further strengthen our funding options and enhance our ability to capitalize the new investment opportunities. Altogether, our strong balance sheet puts OCSL in excellent shape to continue delivering attractive returns to our shareholders. Before I turn the call over to Armen, on behalf of the team, I wanted to congratulate him on being selected as Co-CEO of Oaktree along with Bob O’Leary, beginning in the first quarter of calendar 2024. Well deserved Armen.

Thanks, Matt. Much appreciated. Good day, everyone. The current market environment presents a complex landscape. On one hand, headline inflation has responded to the most aggressive rate hiking cycle in 40 years. However, core inflation, which excludes food and energy prices, has proven more challenging to control. Meanwhile, unemployment numbers and consumer spending are both relatively stable. Against the backdrop of rapid rate increases, this economic resilience can be at least partially attributed to the U.S. government’s aggressive fiscal policy that has buoyed the economy. In the near-term, investors have become exuberant and the public markets have rallied over the last several weeks. If inflation continues to trend in the right direction and a recession does not occur, the likely scenario would be that rates would remain higher for longer. Such a condition would create elevated default risk, among interest rate sensitive assets, such as real estate and highly levered equities, even if a recession does not materialize first. Many companies have capital structures put in place during the easy money era of near zero base rates. And we have only recently begun to see the elevated impact of higher rates of levered free cash flow. This might lead borrowers to seek concessions from lenders or additional equity injections from owners. As a result, availability of capital for new deals may become limited at times, benefiting managers like Oaktree, who consider these risks well in advance of them materializing helping our portfolios withstand volatility and capitalize an opportunities. At OCSL, our timely merger with OSI2 provided us with important scale, and as Matt noted additional financial flexibility. Combined with our team’s long history of opportunistic investing, we believe that we are well positioned to leverage the power of the Oaktree platform and to negotiate and structure deals that provide downside risk protection and generate excellent risk adjusted returns over the long-term. Now turning to the overall portfolio. At the close of the June quarter, our portfolio was well diversified with $2.1 billion at fair value across 156 companies. 88% of the portfolio was invested in senior secured loans, with first lien loans representing 76% underscoring our emphasis on being at the top of the capital structure. We continue to emphasize investing in larger, more diversified businesses that are better positioned to weather downturns on market turbulence. To that end, median portfolio company EBITDA as of June 30 was approximately $190 million and leverage in our portfolio companies was 5.0x, well below overall middle-market leverage levels. The portfolio’s weighted average interest coverage based on trailing 12-month performance was steady at 2.5x. Turning now to our origination activity, our $251 million of new investment commitments were spread over 6 new and 4 existing portfolio companies in the quarter. I would like to highlight two representative examples from the quarter. First, Oaktree led to direct lending financing from Melissa & Doug, which sells children’s toys to retailers in North America and Europe, known for reimagining classic educational play patterns to promote creativity, imagination and social connection. The company’s toys encourage free play and reduce screen time, an increasingly popular mission. Oaktree approached the sponsor, who was originally planning to amend and expanded it into existing broadly syndicated loans in the public market and offered several flexible financing solutions. This resulted in an Oaktree led transaction consisting of $260 million first lien term loan and a $65 million revolving credit facility. OCSL has allocated $51.3 million in total and the deal was priced at SOFR plus 750. Second, Oaktree originated a $550 million commitment and allocated $50 million to OCSL as part of a larger loan to Vedanta Group, an India-based diversified resources company. Its presence spans across the zinc and aluminum, oil and gas, copper, power, iron ore and steel industries. The company was looking to raise capital and refinance debt that was set to mature in the near-term. This first lien loan was priced favorably with a 13% fixed rate and carried strong downside protections. Turning to credit quality, we moved three investments to non-accrual during the quarter, one involved a very small immaterial position with a fair value of $325,000 and other All Web Leads, which provides insurance lead services, is a non-core position we inherited from the prior manager that is maturing later this year. While the company is exploring options, including the possible sale of some or all of its assets, we felt it was prudent to place it on non-accrual at this time. The other new non-accrual is an investment that we made in Athenex, a biopharmaceutical company dedicated to the discovery, development and commercialization of novel therapies in the treatment of cancer and related conditions. It has many sub-divisions and uncorrelated assets that it has been selling over time to pay-down our loan. Today, OCSL has been repaid on roughly 90% of its original funded amount of $55 million and the position totaled $7.5 million fair value as of June 30, 2023. In May, the company filed for Chapter 11 to facilitate an orderly sale and wind down of the remaining assets, which we expect to conclude in the near-term. To that end, since quarter end, we received an additional pay-down of $2.3 million. Altogether, the new non-accruals represented just 1% and 0.8% of the debt portfolio at cost and fair value, respectively. Importantly, our overall portfolio is in solid shape. With each of these non-accruals, we expect to arrive at successful outcomes on behalf of our shareholders. In summary, our increased scale and experience across various cycles, paired with the power of the Oaktree platform, places OCSL in great shape to close out fiscal 2023 and move into the next year. Now, I will turn the call over to Chris to discuss our financial results in more detail.

Thank you, Armen. OCSL continues to deliver consistently strong financial performance, and we have demonstrated that again this quarter. For the third quarter, we reported adjusted net investment income of $47.6 million or $0.62 per share, up from $45.4 million and consistent with $0.62 per share in the second quarter due to the higher share count as a result of the merger with OSI2. The increase on a dollar basis was primarily driven by the first full quarter of interest income earned on the assets acquired in the merger, the impact of higher base rates on the company’s floating rate debt portfolio and lower operating expenses, which were partially offset by higher interest expense, management fees and incentive fees. Net expenses for the third quarter totaled $53.5 million, up $3.2 million sequentially. The increase was mainly driven by $3.0 million of higher interest expense due to the impact of rising interest rates on the company’s floating rate liabilities and an increase in the average borrowings outstanding. Further contributing to the increase was a $0.8 million increase base management fees, primarily resulting from the first full quarter of the assets acquired in the OSI2 merger as well as $0.6 million of higher Part 1 incentive fees resulting from the higher adjusted net investment income during the quarter. These were partially offset by $1.2 million of lower professional fees in general and administrative expenses, including realized synergies from the OSI2 merger. With respect to interest rate sensitivity, OCSL remains well situated to further benefit from the increasing rate environment. As of quarter end, 86% of our debt portfolio at fair value was in floating rate investments. Our strong earnings in the third quarter were again driven by the higher base rates as Matt noted. Now moving to our balance sheet. OCSL’s net leverage ratio at quarter end was 1.14x consistent with the end of the March quarter and it continues to be within our targeted range of 0.9x to 1.25x. As of June 30, total debt outstanding was $1.8 million and had a weighted average interest rate of 6.6%, including the effect on our interest rate swap agreement, up from 6.2% at March 31 due to the impact of higher interest rates. Unsecured debt represented 36% of total debt at quarter end, down modestly from the prior quarter. At quarter end we had ample liquidity to meet our funding needs, with total dry powder of approximately $542 million, including $60 million of cash and $483 million of undrawn capacity on our credit facilities. Unfunded commitments, excluding unfunded commitments to joint ventures were $247 million, with approximately $185 million eligible to be drawn immediately, whereas the remaining amount is subject to certain milestones that must be met by portfolio companies before funds can be drawn. With respect to our credit facilities during the quarter, we entered into an amendment to our syndicated credit facility that among other things increased the size of the facility from $1.0 billion to $1.2 billion and extended its maturity by 2 years to June 2028 with no change in the margin. There are now 20 lenders in the syndicate. Also, during the quarter, we consolidated the OCSL and OSI2 SPV facilities with Citibank, entering into a new $400 million facility that matures in 2027. Shifting to our two joint ventures. At quarter end the Kemper JV at $370 million of assets invested in senior secured loans to 52 companies down from $393 million last quarter, primarily as a result of exit exceeding new originations. The JV generated $3.4 million of cash interest income for OCSL in the quarter, up from $3.2 million in the second quarter as a result of the portfolio’s continued strong performance in the impact of rising interest rates on floating rate investments. We also received a $1.1 million dividend consistent with the second quarter dividend. Leverage at the JV was 1.2x at quarter end, down from 1.4x in the prior quarter. The Glick JV had $127 million of assets as of June 30, down from $131 million at March 31. These consisted of senior secured loans to 38 companies, leverage at the JV was 1.2x times at quarter end, and we received $1.7 million of principal and interest payments on OCSL subordinated note in the Glick JV during the quarter. In summary, we’re very pleased with our financial results. And we continue to believe that our strong balance sheet positions as well for the remainder of the fiscal year. Now I will turn the call back to Matt for some closing remarks.

Thank you, Chris. Our strong financial results for the quarter enabled us to generate an annualized return on adjusted net investment income of 12.6%. Consistent with the prior quarter, we are very pleased with the growth in our earnings over the past several years, and believe that OCSL remains well positioned to continue delivering strong ORE going forward. First, we believe we are well situated for the prevailing higher interest rate environment. As Chris noted earlier, with 86% of our investment portfolio in floating rate assets, we expect that the July rate hike in future potential increases in base rates will positively impact our net interest margin. We also continue to benefit from higher ROE is generated at our joint ventures. During the third quarter, both joint ventures delivered ROEs of over 14.5% due to strong credit quality and positive impacts from the rising rate environment. As noted earlier, we expect that the synergies resulting from the OSI2 merger will support our returns and generate substantial long-term value for our shareholders. In conclusion, we are very pleased with the continued strength in our results in our ongoing momentum. Our portfolio is diverse and healthy, and we are in excellent financial shape to capitalize on this volatile but attractive investment environment. With our robust liquidity, extensive relationships and disciplined underwriting expertise, we believe that our solid portfolio and strong balance sheet position us favorably for the remainder of the fiscal year. As always, we thank you for joining us on the call today and for your continued interest in OCSL. With that, we’re happy to take your questions. Operator, please open the line.

Thank you. [Operator Instructions] Our first question comes from Erik

Good morning. Thank you. I wanted to first just start – you had a very strong quarter in terms of new commitments, I am curious what that might mean for the pipeline going forward. And then the next quarter or so if you are seeing similar strong opportunities at this point.

Hi, Eric, it’s Armen. Yes, it has been a strong quarter in terms of originations, what you do see in the quarter represents originations that have been in the pipeline now for at least a quarter if not two or three. And so there is a little bit of a lag in terms of the actual originations that you see in any particular quarter, I would say that, generally speaking, the next quarter, the September quarter ended September 30, will probably be a little bit lighter, just given the fact that the elevated cost of borrowing, base rates have risen so much and spreads have widened, has caused a bit of a decline in M&A volume, as well as a little bit of a pause button being hit by non-sponsored transactions or non-sponsored investment opportunities that we’re considering as well. So I am expected to be a little bit lighter over the next quarter or so.

Thanks. That’s helpful. And then Armen, in your prepared comments, you mentioned that the higher for longer rate environment can create elevated default risk. And I know you typically try and focus on kind of more conservative and just kind of defensive portfolio, but you have the opportunity to look across a broad number of sectors. So I’m curious, at this point, are you seeing any signs of weakness or concern in any particular sectors? Or is it still kind of too early at this point to see how that might play out?

It’s a good question. So we are, I wouldn’t say that we’re seeing huge alarm bells at the moment. But certainly, the stresses, the early signs of stress, I would say, are most acute in companies that didn’t benefit from COVID and have experienced some inflationary impact in their costs. So healthcare services, transactions of an older vintage that are in healthcare services, I would say are showing a little bit more stress than the average borrower use some technology companies are, I think, seeing some stress and they are working on their cash flow generation potential, I think a lot of technology companies are actually focusing on generating cash flow or becoming cashflow neutral, because the assumption of having access to the capital markets has gone away a bit. And so you are probably more likely to see stress in some technology oriented companies versus the average borrower as well. But net-net I think it is a bit early to really tease out an industry or sector specific trend.

That’s great color. Thanks for taking my questions today.

And we now have a question from Melissa Wedel from JPMorgan. Melissa, please go ahead.

Good morning. Thanks for taking my questions today. Following up on the new activity in the portfolio, I was just curious, was there anything kind of idiosyncratic around timing of new deployments versus repayments during the quarter? I guess more specifically, did you see repayments earlier in the quarter and put capital to work later?

Hi, Melissa, it’s Armen, again. I don’t think that there was any discernible trend that way in terms of timing. I think we were fairly active in originating throughout the quarter, we had a couple specialty loans that were done in partnership with our opportunistic credit group that it’s hard to predict if they closed in a certain week or a certain month, they just take longer to document. And so I wouldn’t say that there was any sort of trend in that regard.

Okay, appreciate that. And I do appreciate the detail that you provided on the three new non-accruals in the portfolio. I was hoping to circle back to the previous two companies that you talked about last quarter, I believe, as I recall, with regard to both of those companies that were already on non-accrual headed into the June quarter, you’d indicated that you expected somewhat near-term resolutions on those as well. Just curious if that’s still your outlook, or things have evolved. Thank you.

Thanks. So the other two, one was called the Avery, one is SiO2. Avery is a real estate asset in the San Francisco market. We are – we continue to work with the sponsor there the developer, they are very skilled developer and marketer of all types of real estate assets. And so we think their highest and best use is to have that developer continue to sell the units. The good news is that the units are continuing to sell at a creative prices relative to our attachment point on – an attachment point on our load. So it’s just going to take a little bit longer, I don’t think we’re going to do a bulk sale of the remaining units anytime soon. But I think it’s kind of steady as it goes. And it will take a little bit of time to get all of the capital back. I wouldn’t be surprised if they did a bulk sale. But that’s certainly not – we’re not putting the pressure on to get the capital back quickly rather do an orderly liquidation. In the case of SiO2, the company had its confirmation hearing for emergence from bankruptcy that is an ongoing situation it is going to exit bankruptcy very soon. And we will have more to report probably at the end of the fiscal year, at the end of the next quarter as to an update. We have been very heavily involved with operational changes for the business during the pendency of the case. We are also engaging with strategic partners and investors as well as financial investors to help in terms of the equity infusions that the company would like to engage in to grow. There is a lot of interest in the intellectual property and the capabilities of this business. And we at Oaktree are not really on the mindset to grow our equity exposure the company, but we’re happy to have – especially strategic investors join in and help grow that business. So we are cautiously optimistic about that situation. But it is not, I would say a resolution – a complete resolution of the position over the course of the next few weeks, I think it will take at least a few quarters to have a clear path here. But we are – I think in the thick of the bankruptcy and the operational changes to the business as well as engaging with many investors on the equity side to help kind of take their business to the next level as it emerges to bankruptcy in the coming weeks. So I think the only update there is that it is going to emerge from bankruptcy quickly, very quick bankruptcy, we are in control of the business. And we are really setting it up for success but that success is not at hand at the moment or in the near-term.

Got it. Thank you, Armen.

[Operator Instructions] We have a question coming from Bryce Rowe from B. Riley. Bryce, please go ahead.

Thank you so much. Good morning. Wanted to maybe start on some of the repayment activity and then also on the portfolios of the JVs, somewhat elevated repayment activity here this quarter and then the portfolios of the JVs sell in terms of their outstanding. So kind of curious if it’s more, if that’s intentional both with the own balance sheet and the JV portfolios in terms of trying to exit with a market that might be more active than not?

Yes, hi, it’s Matt Stewart. I would say across both the on balance sheet and the JVs, we were better sellers as the syndicated loan market rally during the quarter. If you look at our repayment activity on balance sheet, about a third of that was us actively selling. Some of the positions that we purchased in the secondary market at the end of last year or that came along with the OSI2 merger, we were better sellers of. So, we were selling out of those positions. And then we did similar themes in the JV as well, just given the strength in the loan market. But we continue to monitor the primary market for broadly syndicated loans for the JVs. And then on balance sheet, again, we have been rotating out of some of the liquid positions in anticipation of our private pipeline.

Okay. And Matt, are there may be continued opportunities to do that, or pretty well exhausted.

We worked through most of our liquid positions from the OSI2 merger, and obviously, the balance of our OSI merger a few years back. But there is still some rotation opportunities in the portfolio, just not as plentiful as it was previously.

Okay. Alright. Maybe shifting to capital structure, obviously active with some of the amendments with the credit facilities, just kind of curious, how you are thinking about the unsecured opportunity at this point to maybe layer in some more unsecured notes. And then a follow-up to that, any appetite to use the ATM, now that your stock prices is over NAV?

So, we are still watching the unsecured market. We feel comfortable where our capital structure is today. As you mentioned, we pushed out both our secured facilities by a little over 2 years, or near-term maturities of ‘25 and ‘26, are now ‘27 and ‘28. We are about 36% unsecured at this point. So, we are going to continue to watch that market, it’s tightened about 100 basis points, if you look at some of the recent prints in the market versus where we were a few quarters ago. But we do feel comfortable about where we are today. Our next maturity is February of 2025, so we have significant runway. But we will continue to evaluate that market and see if there is any opportunities. But then on the ATM side, we have had the ATM in place for about 1.5 years now. We have accessed it very little last year. We will continue to watch that. And we will see how the stock trades and what our pipeline looks like. And if there is any opportunities for ROE in the future there.

Got it. Okay. Thanks. Thanks for taking the questions.

We have a question from Ryan Lynch from KBW. Ryan, please proceed.

Hey. Good morning. First question I had was just you had about $2.6 million of non-interest operating expenses this quarter. That was a little bit lower than we were expecting. I know there were expected to be some synergies, is that a pretty good run rate that we should expect going forward, or is anything that that kind of lower that or is there anything in other quarters that expected to kind of make that a little bit higher?

Hey Ryan, Chris McKown here. Thanks for the question. Yes, we were very happy to realize some of the synergies from the OSI2 merger. We are always going to have some puts and takes quarter-in and quarter-out with respect to the operating expenses. But I do think that where we landed this quarter is a decent run rate, again counts on puts and takes. In addition to the synergies, we did have some items that were kind of non-recurring nature last quarter that also contributed to the decline.

And then outside of maybe the non-accruals that you guys have had put on this quarter. Have you guys been receiving many amendment activity requests from borrowers in your portfolio relative to call it, requests you would have received on a normal basis, like a year ago?

Yes. I think it’s been pretty light so far. It’s been I would say, consistent with what it’s been, it wasn’t 2022 or 2021, so not really an uptick. I would expect some of those conversations to happen at some point in the markets broadly. But for now, it’s really been pretty quiet on that front.

Okay. And then just one final question that I had, kind of a higher level question, but you guys have had really good insights on the credit markets. You mentioned higher base rates that borrowers are just now starting to feel the effect of higher base rates kind have on their financials? I am just curious, we have heard in the past that that higher base rates of loan are probably not going to put a lot of borrowers into default. It’s probably going to take some sort of weakness in the business, in combination with higher base rates. So, I am just curious, do you expect sort of broadly and then maybe with your portfolio specifically, because the economy has been so resilient? Now, there has been uneven in certain areas, but it’s been pretty resilient. Are you expecting sort of a meaningful increase in defaults? If the economy does stay strong if and base rates stay this high? Do you think base rates alone are effective enough to kind of meaningfully increase the defaults going forward?

Yes. I mean it’s hard, it’s very hard to predict. But you are right, that base rates of the loan are probably not going to result in a wave of defaults. It should result in an increase in the default rate by a couple of 100 basis points from the historical averages. And over a period of time, over an extended period of time, I think that you will see the big spike in defaults until you get to closer to a maturity wall, which in the public markets, you start seeing more heavy maturities in 2025 or 2026. You don’t really see a very heavy maturity level in 2024. The comment about base rates being problematic is that, if base rates are being this elevated for an extended period of time, then what you will find is a maturity issue. Potentially, you will find some number of companies, albeit maybe not a big distress cycle, but you will see defaults growing. And you will see this asset bubble, deflation, as companies and asset owners need to decide are they going to invest additional equity into these businesses, if they are underwater from a capital structure perspective. So, you will see a combination of factors that don’t bode well, under investment in assets, some level of defaults, some requests for picking interest, some requests for amendments and waivers. It’s really hard to see in the I would say the medium-term, a very positive outlook, in the case of a higher for longer scenario. And for those businesses that are able to grow nominal profitability, or nominal dollars of profit over the medium to long-term, then maybe better off if they are able to survive this capital crunch that is probably going to occur over the next 6 months to 18 months is the guess that I would have as to when the impact of the base rates have the access to the capital markets for highly levered capital structures put in place before the pandemic. I think that this next year or 2 years is going to be when we see some pretty key decisions about asset owners support those businesses.

Okay. Understood. That’s all for me. Thanks.

And we have a question from Kyle Joseph from Jefferies. Kyle, please go ahead.

Hey. Good morning guys. Thanks for taking my questions. Apologies if I missed, there has been too many earnings this morning. But just it was an active quarter of both deployments and repayments. And then it looks to me like fee income was a little lighter than I was expecting, anything you would highlight there? Was it just kind of the nature of some of the repayments there or anything, any other nuance?

Hi, it’s Matt Stewart. Not too much to report there, I mean we got some of our repayments for older vintage loans that didn’t have significant call protection or the call protection had run out. So, there is really not much to report there and to Armen’s point around amendment activity, the amendment fees during the quarter weren’t significant either, so not much to report on that line item.

Got it. And then turning back to Armen or Matt Pendo. Just want to get your thoughts in terms of kind of the potential fallout from what’s going on with regional banks and rumors and headlines about increasing capital requirements at banks and how big of an opportunity you think that is for the sector and OCSL in particular?

Yes. It is Armen, I mean I will jump in and Matt feel free to add. I do think that it’s going to present a very attractive opportunity. In some ways, it gives us the opportunity to partner with those banks and in other situations that gives us the opportunity to buy portfolios. And then finally, I think generally speaking, whether there is an increase in required equity capital or not. I think the higher level of scrutiny from the regulators, we are already seeing it kind of play through with an expansion in the aperture of the possible deals that we may do, with or without partnership with the bank. So, we are just I think beginning to see an increase in deal flow, but I think there is also opportunities to work with the banks as an offtaker of some of their assets at a price or as a partner with them, going forward to origination. But I think it’s early days in terms of figuring that out.

Yes. It’s Matt. It’s Matt Pendo, Kyle. I think just to echo Armen’s comments, I do think it’s early days. That being said, I do you think it will be a big opportunity. There is no question that from the bank’s perspective, the regulatory oversight, capital charges are increasing and only going to continue to increase. And we can really partner well, with banks, there is a lot of services and products they offer that we don’t offer and we are not interested in. But we have a lot of capital, we can structure and execute transactions, very quickly, and thoughtfully. So, I think the trend has been – it’s been going on for a while. And I think it’s only going to increase and discussions around kind of partnering with banks and doing things together combining our capital and kind of their sales force and footprint. I think it’s – well, it will take a while to play out. I think it’s going to be a positive.

Got it. Thanks very much for answering my question.

And we have no further questions at this time. So, I will turn the word back to Mr. Mosticchio.

Thanks Lisa and thank you all for joining us on today’s earnings conference call. A replay of this call will be available for 30 days on OCSL’s website in the Investors section, or by dialing 877-344-7529 for U.S. callers or 1-412-317-0088 for non-U.S. callers with the replay access code 1958224 beginning approximately one hour after this broadcast. We hope you enjoy the rest of the summer. Thank you.