Wells Fargo downgrades Oaktree Specialty Lending on less dividend ‘cushion’

Wells Fargo analyst Finian O’Shea downgraded Oaktree Specialty Lending to Equal Weight from Overweight with a price target of $17, down from $18. The analyst is more cautious on business development company names with “stretched” net operating income profiles on “what feels like” an acceleration of earnings moderation through credit headwinds and lower pointing base rates. Credit headwinds strengthened, though substantially from Pluralsight, which explained 25% of the $627M net written down or off this quarter among the group, the analyst tells investors in a research note. Wells says the breadth of credit loss was notable, having come through over a period of especially strong market conditions. It views BlackRock TCP Capital (TCPC) and Oaktree Specialty Lending (OCSL) as having less NOI “cushion” against their current dividend payouts and likely more difficult paths to dividend coverage from higher leverage.