Oaktree Specialty Lending (OCSL) risk factors, FY2025 10-K

Other

1. 01An investment in our securities involves risks. The following is a summary of the principal risks that you should carefully consider before investing in our securities

Risks Relating to Our Business and Structure

1. 02Global economic, political and market conditions have (and in the future, could further) adversely affect our business, results of operations and financial condition and those of our portfolio companies
2. 03Changes in interest rates may affect our cost of capital and net investment income
3. 04Elevated interest rates have the effect of increasing our net investment income, which makes it easier for our Adviser to receive incentive fees
4. 05Tariffs may adversely affect us or our portfolio companiesNew
5. 06A significant portion of our investment portfolio is and will continue to be recorded at fair value and, as a result, there is and will continue to be uncertainty as to the value of our portfolio investments
6. 07Our ability to achieve our investment objective depends on our Adviser’s ability to support our investment process; if our Adviser were to lose key personnel or they were to resign, our ability to achieve our investment objective could be significantly harmed
7. 08Our business model depends to a significant extent upon strong referral relationships, and the inability of the personnel associated with our Adviser to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business
8. 09We may face increasing competition for investment opportunities, which could reduce returns and result in losses
9. 10The incentive fee we pay to our Adviser relating to capital gains may be effectively greater than 17.5%
10. 11Our ability to enter into transactions with our affiliates is restricted
11. 12A failure on our part to maintain our qualification as a Business Development Company would significantly reduce our operating flexibility
12. 13Regulations governing our operation as a Business Development Company and RIC affect our ability to raise, and the way in which we raise, additional capital or borrow for investment purposes, which may have a negative effect on our growth
13. 14Developments in the banking sector could materially affect the success of our activities and investments
14. 15We are subject to risks associated with international conflictsNew
15. 16Our Board of Directors may change our investment objective, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse
16. 17Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy
17. 18We are subject to risks associated with respect to sustainability matters53% rewritten
18. 19Sustainability Disclosure Laws may lead to investigations and audits, fines, other enforcement action or liabilities, or reputational damageNew
19. 20We are subject to risks associated with inflation
20. 21We and/or our portfolio companies may be materially and adversely impacted by global climate change
21. 22The market’s focus on climate change may not have a positive impact on our investments
22. 23We may face significant environmental liability in connection with our investments
23. 24Economic and trade sanctions and anti-bribery laws could make it more difficult or costly for us to conduct our operations or achieve our business objectives
24. 25We may face a breach of our cyber security, which could result in adverse consequences to our operations and exposure of confidential information
25. 26We and our portfolio companies will be subject to regulations related to privacy, data protection and information securities, and any failure to comply with these requirements could result in fines, sanctions or other penalties, which could have a material adverse effect on our business and our reputation
26. 27We are subject to risks associated with artificial intelligence and machine learning technology39% rewritten
27. 28We may be unable to invest a significant portion of the net proceeds from an offering of our securities on acceptable terms within an attractive timeframe
28. 29We may allocate the net proceeds from an offering in ways with which you may not agree

Risks Relating to Conflicts of Interest

1. 30Our base management fee may induce our Adviser to incur leverage
2. 31Our incentive fee may induce our Adviser to make speculative investments
3. 32There may be conflicts of interest related to obligations that Oaktree’s senior management and investment team have to Other Oaktree Funds86% rewritten
4. 33or to consider their interests when advocating on behalf of the Other Oaktree Funds that hold investments in lower parts of the capital structureNew
5. 34The Adviser may offer other investors the opportunity to participate in investments side by side with us
6. 35Oaktree personnel work on matters related to Other Oaktree Funds
7. 36We may realize different investment returns than Other Oaktree Funds

Risks Relating to Our Use of Leverage

1. 37Because we borrow money, the potential for loss on amounts invested in us will be magnified and may increase the risk of investing in us51% rewritten
2. 38When we incur additional leverage, our net asset value will decline more sharply if the value of our assets declines and the effects of leverage described above will be magnifiedNew
3. 39Corresponding net return to common stockholder -26.75% -16.68% -6.61% 3.47% 13.54%56% rewritten
4. 40Substantially all of our assets are subject to security interests under our credit facility and if we default on our obligations under such facility, we may suffer adverse consequences, including foreclosure on our assets49% rewritten
5. 41we have historically operated. As a result, we could be forced to curtail or cease new investment activities and lower or eliminate the distributions that we have historically paid to our stockholdersNew
6. 42We may enter into reverse repurchase agreements, which are another form of leverage

Risks Related to Distributions

1. 43Because we intend to distribute at least 90% of our taxable income each taxable year to our stockholders in connection with our election to be treated as a RIC, we will continue to need additional capital to finance our growth
2. 44We may not be able to pay you distributions, our distributions may not grow over time and a portion of our distributions may be a return of capital
3. 45We will be subject to corporate-level U.S. federal income tax if we are unable to maintain our qualification as a RIC under Subchapter M of the Code or do not satisfy the Annual Distribution Requirement
4. 46We may have difficulty paying our required distributions if we are required to recognize income for U.S. federal income tax purposes before or without receiving cash representing such income
5. 47We may in the future choose to pay distributions partly in our own stock, in which case you may be subject to tax in excess of the cash you receive

Risks Relating to Our Investments

1. 48Our investments in portfolio companies may be risky, and we could lose all or parts of our investments
2. 49We may be exposed to higher risks with respect to our investments that include OID or PIK interest
3. 50If we acquire the securities and obligations of distressed or bankrupt companies, such investments may be subject to significant risks, including lack of income, extraordinary expenses, uncertainty with respect to satisfaction of debt, lower-than-expected investment values or income potentials and resale restrictions
4. 51The lack of liquidity in our investments may adversely affect our business
5. 52We may not have the funds or ability to make additional investments in our portfolio companies
6. 53Some of our portfolio companies are highly leveraged
7. 54Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
8. 55The disposition of our investments may result in contingent liabilities
9. 56There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims100% rewritten
10. 57We may be subject to risks associated with our investments in unitranche loansNew
11. 58Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority creditors and us
12. 59If we make unsecured debt investments, we may lack adequate protection in the event our portfolio companies become distressed or insolvent and will likely experience a lower recovery than more senior debtholders in the event such portfolio companies default on their indebtedness
13. 60Our investments may include “covenant-lite” loans, which may give us fewer rights and subject us to greater risk of loss than loans with financial maintenance covenants
14. 61Our portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields
15. 62We may incur greater risk with respect to investments we acquire through assignments or participations of interests
16. 63We generally do not, and do not expect to, control our portfolio companies
17. 64Non-performance or defaults by our portfolio companies would harm our operating results
18. 65Our portfolio companies may experience financial distress and our investments in such companies may be restructured
19. 66We may not realize gains from our equity investments
20. 67We are subject to certain risks associated with foreign investments
21. 68We may have foreign currency risks related to our investments denominated in currencies other than the U.S. dollar
22. 69We may expose ourselves to risks if we engage in hedging transactions
23. 70We are a non-diversified investment company within the meaning of the Investment Company Act, and therefore have few restrictions with respect to the proportion of our assets that may be invested in securities of a single industry or issuer
24. 71Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry
25. 72We may invest in transactions on an expedited basis

Risks Relating to Our Common Stock

1. 73Shares of closed-end investment companies, including Business Development Companies, may trade at a discount to their net asset value
2. 74Investing in our common stock may involve an above average degree of risk
3. 75The market price of our common stock may fluctuate significantly
4. 76Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
5. 77Certain provisions of our restated certificate of incorporation and fourth amended and restated bylaws as well as the Delaware General Corporation Law could deter takeover attempts and have an adverse impact on the price of our common stock
6. 78Stockholders may incur dilution if we issue securities to subscribe to, convert to or purchase shares of our common stock
7. 79Example of Impact of Exercise of Subscription Right to Acquire Common Stock on Net Asset Value Per Share
8. 8010% discount to net asset value per common share $ 10.00 $ 9.80

Risks Related to Our Notes

1. 81The Notes are unsecured and therefore are effectively subordinated to any secured indebtedness we have currently incurred or may incur in the future24% rewritten
2. 82The Notes are structurally subordinated to any indebtedness and other liabilities of our subsidiaries27% rewritten
3. 83The indentures under which the Notes are issued contains limited protection for holders of the Notes
4. 84An active trading market for the Notes may not exist, which could limit your ability to sell the Notes or affect the market price of the Notes
5. 85If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes
6. 86Economic recessions or downturns may have a material adverse effect on our business, financial condition and results of operations, and could impair the ability of our portfolio companies to repay debt or pay interest
7. 87Global economic, political and market conditions, including downgrades of the U.S. credit rating, may adversely affect our business, results of operations and financial condition
8. 88We may experience fluctuations in our quarterly originations and results
9. 89Control deficiencies could prevent us from accurately and timely reporting our financial results
10. 90We incur significant costs as a result of being a publicly traded company
11. 91We may be the target of litigation or similar proceedings in the future32% rewritten