Oaktree Specialty Lending Corp
NASDAQ:OCSL
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Oaktree Specialty Lending Corp
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Welcome and thank you for joining Oaktree Specialty Lending Incorporation's Fourth Fiscal Quarter and Full Year 2021 Conference Call. Today's conference call is being recorded. At this time, all participants are in a listen-only mode but will be prompted for a question-and-answer session following the prepared remarks. 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 Oaktree Specialty Lending Incorporation's Fourth Fiscal Quarter and Full Year 2021 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 Chief Operating Officer; and Mel Carlisle, Chief Financial Officer and Treasurer. Also joining us on today's call for the question-and-answer session is Chris Macallan, the Company's current Assistant Treasurer, who will be taking over the CFO and Treasurer position from Mel next month. Before we begin, I want to remind you that comments on today's call include forward-looking statements, reflecting our current views with respect to, among other things, 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'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 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 thank you to everyone for joining this call. The fourth quarter completed a strong fiscal year for OCSL. We generated solid financial results and investment performance that was highlighted by robust origination activity and pristine credit quality. We again grew NAV and meaningfully increased our dividend. Full-year 2021 adjusted net investment income per share was $0.64, up from $0.51 for fiscal 2020, driven by higher adjusted investment income, reflecting our larger investment portfolio, as well as higher prepayment fees and OID acceleration on some of our investments made in the wake of the pandemic.
Importantly, this marked our highest annual level of adjusted net investment income under Oaktree 's management, and represents a tremendous progress we have made since taking over management of the Company 4 years ago, as well as the realization of synergy from the merger with OCSI which closed earlier this year. Given the strength and consistency of our earnings, our board increased our quarterly dividend by 7% to $15.5 per share. This was the 6th consecutive quarterly increase, and it represented a 41% increase from a year earlier. Our dividend is now up 63% from its pre-COVID level.
We reported NAV per share of $7.28 up 1% from the prior quarter, and up 12% for the full year. The quarterly increase reflected to continue price appreciation on certain debt and equity investments. And for the annual increase, successful realizations contributed as well. Importantly, our NAV continued to exceed its pre-COVID high and was up more than 10% from the end of calendar 2019. We had another strong year origination. During full-year 2021, we leveraged Oaktree 's credit platform to generate nearly $1.2 billion of new investments commitments. Many of our new originations have been in the form of directly originated investments, where we co-invested alongside other Oaktree funds. These new originations in average were attractively priced at approximately 8.6%, which exceeded the yield on investments that were exited the year by approximately 2%.
This ongoing shift in the portfolio towards higher-yielding proprietary investments has led to improved debt portfolio yield, which increased to 8.7% at year-end from 8.3% 1 year ago. Importantly, this all occurred against the backdrop of LIBOR remaining at all-time lows throughout the fiscal year. Credit quality remains very strong as a testament to our disciplined underwriting and risk-controlled approach to investing. As with the prior quarter, we had no investments on nonaccrual at the close of the fourth quarter and non-core investments represented just 5% of the portfolio at fair value at quarter-end. As it's our fiscal year end, I also wanted to iterate some of the key improvements we have made to our capital structure since the closing of the merger with OCSI in March.
These changes enhanced our flexibility and meaningfully lowered our cost of debt capital. In May, we issued $350 million of senior notes at a 2.7% coupon, which we subsequently swapped to a floating rate at LIBOR plus 1.66% to better match the floating rate nature of our underlying investment portfolio. We also amended our syndicated credit facility, increasing the size to $950 million from $800 million, and extending maturity by 2 years to May 2026. Additionally, we retired a higher-cost credit facility acquired from OCSI and we amended the City facility to reduce costs in some of our lower-yielding quoted loans.
By taking these steps, we proactively reduced our weighted average interest rate on debt outstanding to 2.4% down 30 basis points from 2.7% in last year's fourth quarter. We also improved our funding profile, by more than doubling our unsecured borrowings outstanding and boosted our borrowing capacity by more than $300 million. Finally, we received a strong vote of support from investment advisor Oaktree, who purchased 2.3% of outstanding shares from our largest shareholder in September. Oaktree, along with our management team and directors, now own 3.1% of OCSL shares, which we believe further strengthens the alignment between us and our advisor.
Before turning the call over to Armen, I wanted to remind you that Mel has announced he will step down as CFO and Treasurer of OCSL at the end of November to assume another senior management role within Oaktree. We thank Mel for his financial stewardship over the last 4 years, and of course, wish him well on the new position. Chris Macallan, a Managing Director at Oaktree, will become OCSL 's CFO and Treasurer, effective upon Mel 's resignation. Chris currently serves as OCSL 's Assistant Treasurer, has worked closely with Mel since we took over management of the Company in 2017. Chris is very well-suited and prepared to step into his new role, and he will do so at a time when we are exceptionally well-positioned for fiscal 2022. Now, I would like to turn the call over to Armen.
Thanks, Matt. And hello, everyone. I'll begin with comments on the market environment and continue with some additional highlights from our fiscal fourth quarter. Markets held up well in the September quarter, supported by economic growth and expectations for continued expansion. This resulted in further spread compression and continued low default rates in the credit markets.
However, as we cautioned last quarter, inflation pressures in the economy merit careful examination. U.S. inflation is currently running above 6%, and both food and energy costs are rapidly rising. Natural gas prices, for example, have doubled in 2021, and oil is up more than 50%. Inflation is very difficult to protect and many market participants believe it will prove short-lived. But the events of the past year-and-a-half have been unprecedented in both impact and government reaction. Before 2020, the world had never purposely shutdown a significant percentage of its economy and then try to restart it. No one knows how long it will take for bottlenecks in the supply chains to fully open up and for the labor force to be reconstituted.
As such, inflationary pressures may persist. This could force the Fed to increase interest rates faster than investors currently expect. So we believe it's important to view inflation and the current environment carefully and with objectivity. With that in mind, we are focusing on finding good relative value and our investing, where we believe the best risk-adjusted returns are. We're utilizing the full scope of Oaktree scale and resources to uncover and invest across a wide array of industries to a diversified group of issuers. We are leveraging Oaktree's ability to negotiate and structure customized private deals that we believe provide downside risk protection. And we're finding opportunities in less congested areas of the market, by lending to non-sponsor owned businesses.
As we've highlighted on past calls, we also continued to identify compelling opportunities among companies in life sciences and technology sectors that are poised for long-term growth as the global economy becomes increasingly driven by applied sciences and digital commerce. We are also continuing to evaluate opportunities in the sponsor lending market. Partnering with select private equity firms that we think have subject matter expertise in particular industries and sectors. Altogether, we are judiciously deploying capital on favorable terms and in a risk-controlled manner to further grow our portfolio and generate strong returns for our shareholders. Now turning to the overall portfolio. At the end of the fourth quarter, our portfolio was well diversified with $2.6 billion at fair value across 138 companies. 87% of the portfolio was invested in senior secured loans, including 69% in first-lien.
Median portfolio Company EBITDA as of September 30th, was approximately $106 million. Reflecting our preference of lending to larger, more diversified businesses, which we believe reduces risk and has contributed to our consistently solid credit quality. Moving onto investment activity. While the market remains competitive, we leverage the Oaktree platform to originate $385 million of new investment commitments, across 14 new and 6 existing portfolio companies in the quarter. Of these, 91% were first-lien loans, and included $304 million in private transaction, and $79 million in the new issue primary market. Our investment in RumbleOn is a compelling example of the unique opportunities we are finding in the non-sponsored area of the market.
RumbleOn is an omnichannel platform that operates the largest network of Powersports dealerships in the U.S., and an e-commerce marketplace that aggregates and distributes pre -owned Powersports and motor vehicles to and from consumers and dealers. Its e-commerce business is the only online marketplace capable of facilitating consumer-to-consumer sales in the Powersports sector, and it is rapidly growing its omnichannel offering by expanding its dealership footprint. Oaktree provided a $240 million first lien commitment to support the Company's continued growth activities. OCSL was allocated $54 million at an attractively priced LIBOR plus 825 basis points, as well as warrants in the Company.
With respect to repayments, we received $202 million from pay-downs and exits in the fourth quarter. This amount included payoffs and practice sales of lower yielding investments, which we were able to selectively reinvest into our higher-yielding originations this quarter. The weighted average yield on our new debt investment commitments for the quarter was 8.6%, which exceeded the 6.4% average yield of investments that we exited. This helped to further increase the yield on our debt portfolio, which grew by 30 basis points to 8.7% at year-end from 8.4% in the prior quarter.
Looking ahead, our pipeline remains robust as we are evaluating a range of interesting investment opportunities that we believe present an attractive risk reward. Our strong balance sheet and liquidity position us well to take advantage of attractive opportunities. Finally, I also want to wish Mel all the best in his new role within Oaktree and congratulate Chris on his promotion to CFO. Chris is a key contributor on a deep and talented team, and we are confident that he will maintain our tradition of providing you with high-quality financial report and transparency. Now, I will turn the call over to Mel to discuss our financial results in more detail.
Thank you, Armen. I greatly appreciate your kind words. I've been fortunate to have worked with a great team here. Ever since Oaktree took over the management of the Company, I strongly believe that OCSL will be in very capable hands with Chris Macallan at the helmet CFO. I've known and worked with Chris for 10 years, and I'm very confident that he is the right person for the job. Before I turn to our financial results, I'd like to take a moment to remind you of the several non-GAAP measures we put in place to make the Company's post-merger financial results, easier to understand and more comparable to our results prior to the merger. These non-GAAP measures are intended to remove the impact of the income accretion, as well as any net realized, and unrealized gains or losses arising solely from the merger accounting adjustments.
More information about these supplemental disclosures can be found in our earnings release and slide presentation. Now turning to our Financial Results, OCSL delivered another quarter of solid financial performance, which also contributed to exceptionally strong full-year results. For the fourth quarter of fiscal year 2021, we reported adjusted net investment income of $29.1 million or $0.16 per share, down modestly from $33.7 million or $0.19 per share in the third quarter. The decline was the result of much lower prepayments fees and OID income in the fourth quarter, primarily driven by $7 million in such fees last quarter in connection with the payoff of our loan to William Morris Endeavor.
Partially offsetting this decline was higher interest income as the earnings power of the portfolio has grown as a result of the larger investment portfolio and increased yield. Net expenses for the fourth quarter totaled $28.3 million, down $0.8 million sequentially. The decrease was mainly due to lower incentive fees, offset by higher base management fees and interest expense, driven by an increase in borrowings and our larger investment portfolio. For the fiscal year 2021, we accrued $17.6 million of part 2 incentive fees under GAAP based on the very strong portfolio performance we delivered. As a reminder, OCSL pays part 2 incentive fees annually, and to the extent that it has realized gains that exceed realized and unrealized losses at fiscal year-end.
Based on realized gains, the actual amount of those fees payable for full-year 2021 was $8.8 million according to the calculations under the Investment Advisory Agreement. Turning to credit quality, which continues to be excellent. As Matt mentioned, we had no investments on nonaccrual at quarter-end, and all of our portfolio companies made their scheduled interest payments. Now moving to the Balance Sheet, OCSL net leverage ratio increased to 0.95x from 0.79x at June 30th, reflecting the strong investment originations that we made during the quarter. Net leverage is now near the high-end of our target range of 0.85 times to 1.0 times. At September 30th, total debt outstanding was $1.3 billion, and had a weighted average interest rate of 2.4%. Unsecured debt represented 51% of total debt at year-end, up from 42% at the beginning of the year following the 2027 note offering. At year-end, we had total liquidity of approximately $500 million, including $29 million of cash and $470 million of undrawn capacity on our credit facilities.
Unfunded commitments, excluding unfunded commitments to the joint ventures, were $216 million with approximately $154 million of this amount eligible to be drawn immediately. As the remaining amount is subject to certain milestones that must be met by portfolio companies. Now turning to our two joint ventures. Kemper JV had $379 million of assets invested in senior secured loans to 55 companies; this compared to $387 million of total assets invested in 57 companies last quarter. Assets decrease mainly due to portfolio pay-offs and sales of lower yielding investments. The JV generated $2 million of cash interest income For OCSL during the quarter, and we also received a $450,000 dividend. Leverage at the JV was 1.4 times at year-end, comparable to the June quarter.
The Glick JV had $141 million of assets as of September 30th. These consisted of senior secured loans to 37 companies. Leverage at the JV was 1.1 times at year-end, relatively unchanged from last quarter. OCSL subordinated note in the Glick Joint Venture, totaling 56 million, continues to be current, and we received 1.2 million of principal and interest payments on the notes during the fourth fiscal quarter. In summary, we're very pleased with our financial results for the quarter, and full year. And we continue to believe our diverse portfolio and flexible Balance sheet positions us well for the future. Now I will turn the call back to Matt.
Thank you, Mel. We finished a very strong year at OCSL, generating a return and adjusted net investment income per share of 10%, and adjusted earnings per share of 19%. We also grew NAV by 12% and increased our dividend by 41% over the course of the year declaring annual dividends of $0.55 per share. Our current $15.5 dividend rate represents an attractive 8.5% yield on book value on an annualized basis. We believe this strong financial performance is directly correlated to the value that Oaktree brings to OCSL, and what differentiates us from our peers. Our ability to grow NAV and dividends has taken over management, and over the course of the pandemic has been exceptional.
NAV is up over 10% from its pre -pandemic high in December 2019. We also have increased our dividend for 6 consecutive quarters and has grown by 63% from its pre -pandemic run rate. Taken together, OCSL has generated an attractive 12% annualized return on equity since December 31,2017. Including a 20% return over the past year alone. We're proud of this accomplishment, as it demonstrates the power of the Oaktree platform and our ability to deliver superior investment performance, both in periods of market strength and distress. That said, we continue to see opportunities to further increase returns over time.
We remain focused on positioning the portfolio, or an improved yields by rotating out of lower yielding investments and into higher yielding proprietary loans. We made good progress in this fiscal year, exiting $168 million of these types of investments. At year-end, $83 million of senior secured loans priced at or below LIBOR plus 4.5% remained in the portfolio, including approximately $55 million of loans that we acquired in the OCSI merger. Our new investments during the year came in at attractive yields, which means there is more improving the yield on that portion of portfolio than we expect to -- that we expect to realized over time. Another opportunity for us to increase ROE is to further optimize both of our joint ventures. We can accomplish this by selectively rotating out of lower yielding investments into higher yielding one, as well as increasing leverage at the JV.
We have ample capacity at both of these vehicles and we will judiciously grow these portfolios, which we believe will also be accretive to ROE overtime. In conclusion, we are very pleased with our strong fourth quarter and full-year results. We are excited about our future prospects and are optimistic that we will continue to be able to identify new risk-adjusted investment opportunities and deliver attractive returns to our shareholders. Thank you for joining us on today's call, and for your continued interest in OCSL. With that, we're happy to take your questions. Operator, please open the lines.
Thank you. We will now begin the question-and-answer session. [Operator Instructions ] Today's first question comes from Devin Ryan at JMP Securities. Please go ahead.
Great. Good afternoon, everyone. First question here, just around portfolio leveraging. It's a really nice quarter for capital deployment. Nice step-up in leverage to 0.95 times. I know you're at the upper end of the 0.85 times to 1 on your target range. Just given the current deal-making environment and how strong credit quality has been in the portfolio, how are you guys thinking about that upper band of 1-times, and potentially, where that could go, and what would drive kind of the upper band higher from here?
Thanks Devin, it's Armen. We feel pretty comfortable with the range still at 0.85x to 1.00x. We did have some very strong originations in the quarter, but it's hard to predict quarter-to-quarter our pace of repayments. We still also have a nice amount of lower-yielding publicly-traded paper that we can rotate into higher-yielding origination that we, knock on wood, have been finding a good amount of, so we don't feel compelled to raise that upper end of the target range. We think we could operate within it and still be able to continue to originate pretty attractive debt for the portfolio.
Great. Thanks, Armen. And then just a follow-up. It sounds like?you got to go? more on the sponsor side, but can you just maybe [Indiscernible] what you're seeing in sponsor versus non-sponsor, both in terms of just opportunity set and pricing as well?
Sure. I mean, obviously we're pretty active in both areas. With sponsors, we tend to focus on some very large sponsors that have deep subject matter expertise and particular verticals. We like that because of two things. 1, you want to ride along with a sponsor that does has a secret source and execution. But 2, a lot of the sponsors that we do business with really support their businesses with strong equity checks, they view them as platforms for growth. In several instances, we have gotten more than a 50% equity check as well as covenants in those deals. We like doing business with really strong sponsors and when possible, when we see that type of deal flow, we are very interested in executing it. But I would say by a large in the market, in terms of sponsor deal flow, it's very competitive.
I think there has been a lot of AUM that's been raised certainly in the last year and half and happen and as well as the last year, 4 or 5, years that are chasing after a lot of similar deals. I think one can say that there's a lot of cash sitting on the sidelines, a lot of cash and not enough deals. There certainly would be a description of the sponsor market. And so, what we're trying to do is go to places where maybe others aren't trafficking in as much areas where our underwriting, our understanding of these businesses through cycles, because of sort of Oaktree DNA as a more opportunistic lender, having covered many different types of industries through several cycles, we're able to leverage that market reputation of ours to get pretty attractive deal flow that's frankly just less efficient, or less competitive, and we're finding that in the non-sponsor area.
In my prepared remarks, I mentioned RumbleOn. That's just one example of non-sponsored deal flow that's a very well -structured, pretty lightly levered, and has even some upside potential in it. When we see those types of deals, we're very interested in running hard at them. Obviously, we do see a lot of deals in both sponsor and non-sponsor, and that's part of our interest in expanding the funnel of potential deal flow that we see. However, we're executing on less than 5% of the deal flow that we are seeing.
So its job number 1 to make sure from a sourcing perspective, we're seeing as much deal flow as possible but it's very close, job number 2, to make sure that we're selecting all the best credit and all the appropriate structuring that we can put in place to defend against the downside and participate in the upside when possible.
Okay, terrific, that's great color. Thanks, Armen. I'll leave it there.
[Operator Instructions ] Our next question comes from Ryan Lynch at KBW. Please go ahead.
Hey, thanks for taking my questions, guys. My first one just has to do with -- I was looking at Slide number 6 in your deck, and out of the $385 million of new commitments, it looked like $345 million were in new portfolio companies. That seems to be a different core than what most other BDCs -- we've seen report where there's a heavy focus on existing portfolio companies. So you guys are backing that trend, at least in this current quarter. Are there any takeaways we should be thinking about when we see something like that?
This is Armen, Ryan. Thanks for the question. We respond to the deals that we're able to source. I think, a couple of things I would mention. First of all, we are working better than we ever have across the Oaktree platform. So that includes sponsor-oriented lending that we've been doing for 20 years as part of our mezzanine fund. That includes working with our opportunities fund which have a lot of dry powder, and that was very, very active in 2020 and 2021. So the deal flow that you're seeing this quarter includes several deals across multiple Oaktree managed accounts.
And I think that what it is not indicative of is chasing sponsored deals at ever tighter spreads and ever weaker legal documents. That's dramatically definitely not what we're doing. And it's probably why you are seeing other BDCs spending more time with existing portfolio companies, where there may be upsizing or refinancing themselves out, because they know those businesses, they know those sponsors, they would rather stick with what they know. And even if the pricing is tightening by 50 basis points, that's -- that feels a little bit more comfortable than maybe chasing the incremental new deal at ever tighter spreads and worsening legal doc. So -- but for us, if you look at our origination in the quarter, it's a fair bit of non-sponsor deal flow.
Even the sponsor deals that we have in there are not new LBOs. So sometimes you're able to get better pricing in a situation where a sponsor is looking for expansion capital rather than original LBO financing. So we are -- it's blocking and tackling, I wouldn't say thematically there's anything in particular that we did, but we continue to like life sciences. We originated a couple of deals in life sciences in the quarter. We worked with our opportunities funds on a few deals as well, across a variety of different industries, including an airport concessionaire.
That has a little bit of a recovery story, a post-COVID recovery story is still embedded in potential performance. So it's just making sure that we're seeing as much deal flow across the platform as possible while continuing to dig even deeper in life sciences. And on that point, I would say 2020 was a banner year for us in life sciences firm - wide, and it's shaping up that 2021 -- on a calendar basis. Not on a fiscal basis, but on a calendar basis, 2021 will be as busy, if not busier, for our direct lending franchise in life sciences just because, as we've done more deals, it's led to further market penetration for our life sciences businesses, and we're finding great risk-adjusted returns there, as well as strong legal protection. So we like that area, and we're continuing to mine it for some great opportunities.
Got you. Thanks for the color on your overall thoughts on where you guys are exploring right now. I had a question -- on the senior loan fund, you guys obviously have two of them but just the senior loan fund, that first one, it looks like it generated cash and interest income of about $2 million and you guys received a $500 thousand dividend payment from that. I'm just curious. Can you walk through what is the philosophy? It looks like you guys retaining capital in that vehicle. Will you guys always retain some level of the income within the JVs? Will it remain at this sort of proportional level, or even if the income doesn't increase that the overall JV is generating within the JV, could that distribution rise more proportional for their earnings power at that JV?
It's Armen again. I don't want to predict what sort of distributions we take out of the JVs. But historically -- I'd make a few comments. One, is we have very good relationships with our JV partners. We think they add value to OCSL. Second, historically, when we have retained capital on the JVs, it's really been to solidify the capital structures of JVs rather than put them in a position of risks. And I think between strong portfolio performance, as well as capital structure management and retention of some of those dividends, those JVs are in pretty good shape at this point.
And we'll evaluate and present to our Board every quarter our recommendations as to distributions we may or may not be able to make out of the JVs. But we feel good about the way they are situated now and will, on a quarter-by-quarter basis, evaluate whether it makes sense to retain capital within them, to either grow them or delever them, or to take distributions as dividends for OCSL. But that's all I could say, I really can't provide forward-looking guidance on that.
I understood. 1 question. Last one, if I could. The $83 million lower-yielding loans that you guys have in your books today, are those all liquid loans that you could sort of rotate out if that's within your control, or are those or any of those private illiquid assets?
Those are pretty much all liquid - tradable securities that -- in the broadly syndicated market. So we could execute sales on those at anytime. There's a few weeks of kind of settlement that usually occurs, but it's something that we've been able to manage very closely as a source of cash.
Okay. Appreciate the clarification. That's all the time -- or those are my questions. I appreciate the time today.
Okay. Thank you.
Thank you. [Operator Instructions ]. The next question will come from Bryce Rowe from Hovde Group. Please go ahead.
Thanks. Good afternoon. I wanted to follow up on Ryan's questioning there around the JV's and you guys have talked about optimizing Balance sheet leverage at the JV's for a couple of quarters now. And even within the BDC, we saw a nice uptick in net Balance sheet leverage here in the third quarter. It looked like the JV Balance sheet leverage, was roughly the same quarter-over-quarter. So curious how that juxtaposes against what you're seeing within the BDC.
Any opportunities to continue to rotate out of some of the lower yielding investments within the joint ventures. It looks like that was relatively stable quarter-over-quarter as well. So, I just wanted to get a little conversation around what's happening within the joint ventures from an investment perspective, being able to rotate out and maybe put money to work at higher yields within the JVs. Thanks.
Yeah. It's a good question. And we are at all times is looking to optimize the portfolios within the JVs for both risks, and return. So when possible, we are making rotations within the JV. So it's going to be case-specific and really dependent on what the market gives us, especially in the new issue, broadly syndicated market.
We do have a very built-out trading desk at Oaktree. We do have a broadly syndicated loan business and CLO management, so we're trafficking in the broadly syndicated market, both on a secondary and primary basis everyday. And when possible, we are trading around within the JV and also within the BDC itself to optimize return without really taking too much incremental risk or any incremental risk.
We really would like to, at all times maintain our risk levels at very manageable levels and look for inefficient pricing in either the privately negotiated transaction market or in the public markets. But I don't think there's anything programmatic that I could really comment on, but you should know that we are always attempting to maximize the return within the JVs. I'm not sure if there was -- if I'm really answering your question, if there was something more specific that you wanted though.
I think that I mean -- I think that covers it pretty well. I think that the question is around seeing some level of rotation away from some of the lower-yielding investments within the actual BDC's Balance Sheet. Seeing those investments that have lower yields come down within the BDC but stable there at the JVs, I'm just curious why we wouldn't have seen some rotation out within the JVs versus the BDC. I think you answered it.
We're trying to do it. And in the JVs, I think the relevant point of comparison would be, well, what is the broadly syndicated market, especially the new issue part of the broadly syndicated market, offering. And I would just say that it's probably -- this is more anecdotal but as I think about a lot of the new issue that we've been seeing coming to market, I would say 80% of it is probably not of the level of return that would make sense for the JVs. And so, we -- there may be strong credits, but we're really looking to optimize risk and return, rather than just risk or just return. And so, it's -- day-to-day, we see all the new deals, we see the secondary market trading patterns, but we're not seeing a wholesale opportunity to turn over the portfolio in a way that would be accretive in both risk and return to OCSL.
Okay. It's a good color, maybe shifting to the right side of the balance sheet. Now that you're obviously using a bit more of the revolver, just curious how you're thinking about capital structure. Do you think we'll possibly see some more tapping of unsecured or are you pretty comfortable with where the capital structure sits as of September 30th?
Matt or Mel, do you want to take a crack at that question?
Sure. It's Matt. Thanks, Bryce. I think we're pretty comfortable with the right side of the balance sheet between the revolvers and the unsecured notes and the mix between secured and unsecured and our liability profile in terms of maturities and pricing. So I think I wouldn't see a lot of change there. We're pretty comfortable, we've been able to decrease our funding costs, so it seems like it's in pretty good shape. That being said, we continue to look at the markets and we'll continue to look at the bank market as well as the unsecured note market and it just makes sense. We're as optimized as possible, but it's in pretty good shape right now.
Okay, that's good color. And then maybe 1 can ticky -tack question for Mel. Solid, an uptick in the provision for income taxes here in the press release and maybe I missed it within the commentary, but just curious, what's driving the increase in tax provision there.
Thanks, Bryce. There's an opportunity for Chris to join the Q&A. Chris, you want to take that one?
Yes. Sure. Happy to. It's really driven by a larger tax distribution from Dominion, CLO a corresponding increase and the dividend income quarter-on-quarter. So I think the kind of the way to think about that is to look at the dividend income, and then to deduct out that above the line provision for income tax, to think about it a net dividend amount.
That's great. That's it for me. Thank you.
Thank you. [ Operator Instructions ] Ladies and gentlemen, this concludes our Q&A session. I would like to turn the conference back over to Management for any closing remarks.
Great. Thank you. And thank you all for joining us on today's 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 10160823, beginning approximately 1 hour after this broadcast.
And thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.