TSLX - Earnings call transcript Q4 2017 | Sixth Street Specialty Lending, Inc.

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Operator

Good morning and welcome to TPG Specialty Lending’s Inc. December 31, 2017 Fourth Quarter and Fiscal Year Ended Earnings Conference Call.

Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of a number of factors, including those described from time to time in TPG Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. obligation any no statements. assumes Company to forward-looking update The XX, issued close, press and Yesterday its a website, December section market investor Company to fiscal and its the presentation ended www.tpgspecialtylending.com. quarter after the of fourth the earnings relation posted the release year XXXX, for Company's The presentation the should yesterday filed in reviewed XX-K be with with conjunction Form the SEC. investor earnings release the under the on is Company's available Inc.'s relation also Lending, Specialty TPG section. website as in Unless for of noted are all prepared otherwise, December and mentioned fourth XXXX. today's ended figures quarter the remarks performance XX,

replay a I over call As of this is reminder, Easterly, Josh now being TPG call recorded the for Lending, Inc. purposes. turn Specialty CEO will to

Josh Easterly

overview Good you our full and quarter thank and our and full morning, the I year for for highlights, you. XXXX. portfolio before will Stanley fourth over Bo everyone, origination and our with partner of and to our metrics turning quarterly us. Thank discuss an to call President joining begin year today the

Our well before record our CFO, quarter an of I the to of per end compared and excess final impact share to quarter for at announced morning compared a dividend per as and to $X, highlighting our variable quarterly after as Net specific dividend this with net financial share, results per of will positive of by of financial income per full income $X.XX base prior full to dividend. call base resulting overearning first quarterly the our supplemental conclude $X.XX. Yesterday, per year was share Board quarter QX giving Simmonds, year $X.XX, detail. per of a XXXX. in the impact remarks This XX, April our primarily in start investment effect the QX to asset more value year the of share in Net quarter payable the our full results share to up increase dividend was $X.XX on a $XX.XX, portfolio Q&A. I’d And the net of shareholders by to certain like unrealized XX. will for strong companies. opening driven Ian review share was of gains March investment XXXX of base

earnings supplemental declared Our Board $X.XX QX XX, of also the and February net record Consistent $X.XX maximizing of share from the increasing preserving dividend of while at year on based at our variable XX. variable the declared of QX. to QX of a March supplemental related value a to to total in of XXXX end dividend effect on $XX.XX variable per shareholders asset stability per net dividend our the share of value, XXXX incremental we of payable objective to while distributions asset with end dividend $X.XX be our supplemental giving the paid as formulaic impact $XX.XX after our framework,

dividend grow framework dividend as value per net our maintain supplemental share. asset to yield, book increase has Our us we or allowed

compared XXXX, to plus in share. per of we measured dividends an return in our reference, generated XX.X% growth economic yield value in as asset In book XX.X% by dividend net XXXX. For was XXXX, XX.X%

In same steady total index average total this In of quality Fargo senior investments XXXX, XX percentage Post turn of quarter overall XX over continue invested. December end, outperformance Wells the an a which strive return five, to for XX, assessment delivered our since with originations sources. BXC period Fargo cash BXC attribute we've like our you our points gross call in prior time versus month, approximately for and fully led allocation nearly of where From represents headwinds investment percentage the in compared our have that, robust through period. for no We we of strong that lower our XX% quality generated over through represents end we year and X.XX, on metrics portfolio portfolio year By leverage results January, shareholders in our registered completed realized to diversifying of same we humbled – rating underwriting of to pricing X.XX in versus XX.X%, performance higher remain philosophies. year the our the an based of by of issuance QX and the to one scale the XX.X%, facility. Wells highest of unsecured we results I'd the who discipline The IPO XXXX. took space. covenant we X.XX year Bo, generate we addition, being a billion perspective, by capital of a had that’s our of credit We as our end. date. to capital our In index. spreads, in inaugural year, and to funding With in of our which credit totaling status outperformance $X.X Since unlevered QX returns an financial and weighted XXXX reduce lending environment. on weighted tighter our calendar a more non-accrual enhancing invested have maturity an walk points on detail. portfolio return generate to competitive we the in notes and middle detail selectively revolving a market further will to will sourcing remains IRR and for thematic and able call. been discuss the the Across portfolio, to maintaining to operating the through inception Bo challenging on one commitment stable more average our Ian and later attractive and this investment the underwriting, ROEs, portfolios despite yields

Bo Stanley

a ABL larger private or the quarter, continued both business market at predominantly linked quarterly the approximately on us around that participants of for as need we most call with for led had completed of environment optimization. case, revenue fundraising on demand from Thanks, and In Oil larger in profile loan Josh. targeted companies Communications. look and players companies primarily year loans. facility activity, of favor our To the facility required iHeart down for billion, to numbers for agent [Audio a million activity Gap] we first we million fundamentals structure for by QX, either a and with Northern its quarter's on market in transactions Taking positioning since strong consists we discussed two in investments Gas, November successful driven market drove highest market this In which some origination, either return for borrowers competition capital record, middle new lien our $XXX existent debt sound a streams, defensive of middle sold gross generate and market portfolio. our lower credit inception diversified level closer our $X.XX and $XX of put

are funds, the funded For financing base and their both the regulatory activity capture meaningful of through we’re affiliated to approximately financial provided funds in quarter during Of we to syndicated asset lack able the underwriting allocated $X.XX $XX returns collateral commitments expect bank $XXX a billion million nearly constraints protection with and or $XXX affiliate and attractive structure total ability of and platforms, opportunity transactions, and call risk complex A us appetite co-investment adjusted or to originations the capital and these of of loans these larger the consists for fund, lending structures clip underwrite covenants. gross from million of our expertise’s funded shareholders. lot of to robust resulting million. post coverage quarter, of our end

repayments of $XXX sell realizations million full front, repayments quarter the had On of and principal aggregate from we a this down. four partial investment one amount

Reflecting in with unlevered with loan, the consistent Canada were we and in on repaid Canada, IRR approximately XX%. DIP of Sears million highest which level and One $XXX respectively. Sears investment economics with deal origination our our underwriting activity $X.X other on fundings, on of inception gross along realizations in achieved the billion our expectations, investments in of fully we since gross resulted XXXX, the investment

of million during were million. funding which of diversification the our related the experienced from channels. and downs sourcing also realizations year year XX% record repayments of of non-sponsor and originations partial we However, net XX highlights sell Approximately, $XXX resulting full the in our four $XX

sponsored to us upper capabilities. both afforded and ability our on part diligence transactions, sponsor as more non-sponsored like market Oil, require middle extensive and underwrite well For to the underwriting as platform expertise as the scale larger has opportunities acquisitions niche TSSP iHeart to to of commitments capitalize and and Northern that financing us enabled

market was value sourced during financing of XX% year million secondary together the funds, XXXX of During commitments or as our throughout that through provide of we investments opportunistically affiliated At market as sold other non-intermediated robust eight the channels, XX% past end, XXXX. compared year by mid are each dislocation in portfolio ago, a early fair $XXX and year greater. to accumulated prices late we XXXX of periods with

a financial our levels. we've investment to loan losses. identify downside risk investment betting cycle our end, with documentation, measures of maintained they us XX% effective on in process in order year of quickly As debt the in allow mitigation environment, features in today’s case voting as result in in investment, a X.X implement protection focus believe debt critical controlling potential at average consistent historical our and We late structuring the to under-performance, of minimize control covenants and for

value navigate As by secured At by exposure with the the steady XX% fair fair the of ninth at we with year remained on our remain the of capital X%. consistent investing focused at quarter portfolio top and our December capital prior cycle, junior lien, XX, the of economic we XX% structure. investments first and of value senior

weighted iHeart, debt XX.X% yielded the end, quarter's industries. year expected increase effective X.X% portfolio. basis XX.X%, impact portfolio of and the downward quarter from The the weighted income was XXXX. total the in securities diversified rate this that pay the costs As and At on fundings across costs for fundings weighted up downs the yield respectively. companies average XX%. new our with quarter is by duration amortized average rate fundings portfolio points average cost at debt yielded for the were total consistent was of net overall XX yield and Note our XX amortized amortize producing end was XX Adjusted offset floating in of year and on well the on LIBOR debt and debt total the during yields, our prior

iHeart Our size high the approximately quality our million structural average accounted value. fair collateral. which and whole of by our was governed position X.X% of well the our believe is is $XX approximately by supported We loan base for protections investment at borrowing secured largest size fully portfolio

structure and believe of value, underlying role strong credit strength company's are position In bank industry services the At addition, exposure the services of payment a our Note on fair limited capital of was of have services our risk. capital the we XX% the profile leverage portfolio agent business flow largest software integrated XX.X%. we the reorganized and by followed financial protection at our given the cash at at comprising XX, top free structure. December financial with companies vast businesses financial portfolio majority and regulatory BXB downside

exposure of we've XXXX. non-energy our well beginning the based industries which at of investments X% historical portfolio Given over the maintained XX% the value, late fair loan cycle asset compared excludes to at environment, a cyclical to

that value our energy, levels. companies collateral conforming have first reserve base XXXX has since communicated As we've opportunistically provide for been current for significant price hedge the loans to at lien early strategy upstream which

environment. portfolios approximately we XXXX Mississippi and expect and volatility and in light Even royalty trends, to Over sector energy value X% retail of of products from the the XXXX of exposure in we at acted late up we of number Despite the specific today's former a ABL profitable to at in investments the years, developed remain date. and broader sector. investing to cumulatively our commodity Since in activity likely energy on began two opportunistic challenges restaurants macro fair of to XXXX environment, ranging X.X%, streams Resources. increased some cycle prices, so been we've beginning namespace we've on past our the financing and building in from XXXX, and on

the and protection where expertise approach is that, to While teams remain cycle, with us With the TSSP same, robust relationships sectors stick and direct as in a which have the provide the the and competitive platforms I'd to investing and discipline of over TPG advantage, strategy a on and like our rotated downside Ian. over the of origination underwriting the broader source themes a turn secondary course focus it to to sourcing repayment.

Ian Simmonds

fourth the net of million be total million to prior billion, and of share paid investments of share, assets ended the XX.XX or the QX and Thank outstanding during XXXX $X.XX you, Bo. quarter per We per $XXX of fiscal supplemental to with $XXX total $X.XX debt XXXX. dividend impact

mentioned, share of the our fourth income $X.XX in income per full a was quarter, per Josh As share resulting investment investment year $X. net for net

Our was which to year net ROE XX.X% $X.XX, to based a exceeded investment expected which income our NAV. beginning per a of a XX.X% share $X.XX guidance was of share, $X.XX an applied per to on full

amount. the nearest movement supplemental no impact had cent three the quarters, this element per with dividend variable the of Consistent per on the against to base the of For $X.XX $X.XX XX% overearning calculation quarter's this dividend, share prior formula amounts NAV rounded of the to share. constraint of the

to net was leverage range of X.XX at times. the rebound of to result the equity debt X.XX times, a target As X.XX ratio lower approaching our fundings end this XX quarter, December our of in

weighted average year QX leverage X.XX respectively. was for point times ratio XXXX Our full and and times X.XX

During various overall made January, flexibility cost. and enhancements we to debt funding our

LIBOR principal of swap the credit we adding which facility. ROEs. of XXX term basis the Specifically, opportunistic into to five-year portfolio, used of revolver basis, a Consistent to time notional rate pricing senior untapped floating of new on amount under we with debt amount $XXX notes. nature issued resulting liabilities drag matching X.X% our us at of for our This debt down risk on that net previously with forma unsecured of of an and outstanding entered philosophy rate cost secured provided our the adjusted our revolving was a plus attractive points minimal notes, swap access was matching management market financing we pro the inside which an a interest proceeds spread pay the the our in million

to points the light amended of final drag we our revolving February the notes reductions in to XXX.XX credit XXXX week, LIBOR of significant offering may fees look maturity utilization this leverage our of of facility unused and forward. earlier to In pricing plus majority addition, on recent commitments the LIBOR basis In non-extended XXX revolver order given reduce on revolver $XXX million from regulatory reducing going explore constraints, commitment. effective plus to the portion on ROE revolver extending of we and limitations the

diversified our we positioned access of sources, well ongoing the believe demonstrated ahead. we our the Given support set lenders for are and and opportunity to liquidity funding

quarter. the to realized dividend from impact the on $X.XX attributed spreads during Moving of supplemental an a X credit effect of investment positive specific be After we Slide QX presentation of other added gains, impact for share The net we contains QX, including share excess companies. giving full materials, variable the those earnings net per QX $XX.XX the base the unrealized the NAV NAV was positive to by well $XX.XX. pay per during was XXXX. portfolio to declared portfolio, that unrealized adjust valuation supplemental is QX If in dividend and offset paid NAV bridge for for net based certain $X.XX we share our realizations to ending ending the related have that dividend, reversal on the our quarter. of which the of to can net will would in per per net $X.XX income gains four was of share investment

the other income repayment prior consists to in the by consistent the tend $X.X of to the to in activity an was with income fees. $X.X to upfront during of $X.X million, size million the compared due downs, statement be low driven $XX.X that of the investment the was quarter, fees we pay from the syndication nature. and the raise income $X.X was million, quarter, Moving experienced the which from quarter, of QX. million, prepayment portfolio impact the primarily from total million million and for previous primarily which item, up dividend Interest absence This fees, million down increase prior XX, income given quarter $X.X million down $X.X $XX.X fourth LIBOR. in fees line was in Other amortization on Slide prior and accelerated lower of from episodic quarter, unscheduled

X.X% expenses for incentive Our quarter, investment X.X% at total low Net expenses. PIK other quarter year for million, component lower due the for fees the operating income lower income expense, down and and to excluding from of $X.X million remains XXXX. interest the primarily full quarter, prior were $XX

fees QX the during on expense, convertible for revolver settlement average the interest QX quarter rate. the effective due for in net an our This increase on QX. activity timing positive quarter-over-quarter excluding interest with steady our debt in an average to was funding As and funding XXXX high at Adjusted for QX this in the X.X%, driven rate the swap notes utilization amortization debt prior this and borrowing in remain primarily our impact, of average outstanding. increase interest LIBOR increase was despite rate outstanding of resulted weighted cost by as lower

topic levels the investment we leverage year still and generated XX.X% The respectively. ROE income we XXXX, times net operated of a to ROE X.XX ratio debt XXXX, Recall to based an equity and ratio compared an on activity our from ratio based to a that XX% supported investment our below portfolio XXXX paydowns. X.XX generated ROE and income target and we generated in net Similar QX, on OID operated XX.X% XX.X% XXXX income X.X by resulted strength times. and times and unscheduled net XXXX, XX.X% income and elevated in leverage XXXX fees in of of of respectively. of when on of On that for investment at ROE accelerated times, during XX.X% with X.X XXXX, full average and we was heightened of the ROEs annualized prepayment an net based average at

XXXX XX.X%, end based for range the which of of on XX.X% income about again, Our was to net ROE high XX.X%. our target was slightly ROE

spread XXXX, our Looking times the ahead dividend moderate, and to the will line, repayments income debt related target through with targeted X.XX drive allow XXXX. expect which equity X.XX to consistent times, to of to range we and for to driver the range to interest return ROE us of similar our

coverage we on dividend fees. impact its which but XXX% may XXXX, NII, excluding as base in income incentive recall, activity income net You driven and base achieved we through investment define

While protection form we economics a portfolio continue near-term, illustrated the fact our has XX.X%. get percentage substantial the value to have of our as protection additional at the the XX fair in of debt repaid as should by of call December in portfolio that was

a of activity said, We that less be we income. earnings compared prominent ROE fees to of are a fee XXXX, activity related XXXX. believe to near in there as idiosyncratic expect related driver credit from That some term be catalysts driver could

three use of upfront the maturity the is in fees. example, amortization our for investment the which of ABL duration contractual For iHeart we years, is

iHeart is public expectation period. the However, given that our domain, are in shorter time repaid a details our of be which the in much the progress restructuring, of loan fully will

our that, cost intermediate per rate a target share. Over With of to range for financial This share. and return concluding net of $X.XX turn the interest end like it we using $X.XX XXXXs investment to year full XX.X% leverage, I'd yields, XX.X% to income per of a a $XX.XX based on of value equity term, book of our expectations forma over the to on to corresponds remarks. Josh level XXXX year pro our asset environment, funds continue for to

Josh Easterly

Thank you, Ian.

a risk year made risk dynamics our attractive for we've pleased underwriting create we're been very source to the return market opportunities, able reward shareholders. that underlying challenging While XXXX, with to

competitive size quarters the from and This with growing business. economics For the on opportunistically at of portfolio ways outpaced our focus of undo the assets, in our slightly we dislocation, increase three to XX.X% in market be average disciplined markets to decreased during investment remain a actually highly respect first our return to as which to the avoiding periods Due and seen instead XX.X% philosophy repayments year, of volatility of fundings. optimize can growth on year-over-year. in unit risk

rate and our expense XX XX Our points operating basis average debt recent run which in our to year-over-year funding us. ratio, towards enhancement decrease from

our include market, expense which we of by highly the have our may could code these impact geographic broadly level offsetting the face full a reduction construct NOLs of in cases borrowers CapEx, and a tax including certain – will corporate in increased key new deductibility including, at impact utilization deductibility effect attributes. end the quote, U.S. borrowers capital of intensity, the of new With the capital invest our and leverage provisions. limitation cash five vary the The of capital, tax of tax high we repatriation profiles, pillars where a reform reform, forward, market elevated deemed and been a passage cycle structure. leverage the of changes the in in year the with some But assessing leveraged tax net measures of in tax rate, in speaking tax our expense, is LIBOR, late borrowers tax footprints our many in approach, supports going view construction portfolio interest

in are as growing markets XXXX, in remain all rare relatively optimistic economies credit for for in the sound outlook global As we’re major fundamentals cautiously harmony.

unknowns the experiencing impact periods However, market the of could politics there of central aforementioned which various policy, drive including today. inflation, we believe domestic reform and bank as broader tax we're are volatility

opportune our average we an to of of and on differentiated perspective. illustrate investment exit of represents committed on Dip] XXXX capitalize capital we made our fully returns late weighted XXXX, to in volatility For by have we approximately XX%. and [Audio to windows companies and this, periods markets IRR growth levered of for during us, investments evolve adjusted generate for highly of where risk shareholders outsize To sectors market

strategic from for expertise this always looking time As value BDC alternatives in exploring we’re to and ways have additional unique time insight, investors, shareholders, think where generate include we space. may the for to our and we

X% QX, share the provides the X.X million the been price of approximately of of which Triangle purchase value per a of times, we three average has at outstanding, course a approximately approximately shares Corporation per X.XX shares or of company reporting Capital asset margin weighted company's net believe share, Over we $X.XX as The of believe result thesis for for our our for strategy both equity TCAPs safety asset a will the ultimately closed TCAPs which we review value loan, likely of our value would outcome of transaction, TSLX and in there position investments benefit investment. commercial stock a net or plus enhancing drive shareholders.

our invited TCAPs Although, be despite in and our the we and in that TCAP part consenting TCAP participate that seriously be to interest best take set process, – have obligations in believe resulted we to we believe were the we a our review shareholders. non-disclosure believe interests non-disclosure fiduciary to process, the liquidity larger that of the of we We non-customary agreement stock. our strategic a relinquishing decline in in onerous our and ultimately be review and voices shareholder what not agreement very to strategic company's would provisions

fees Operator, questions. thank please TCAP. for As to investment the interest financial elected for time Senate open our reflected results, continued line related today. and to our your we've base, up management and waive for in voluntarily your you With in that,

Operator

Bock our line sir. with [Operator will from you, Thank of the come Wells first Jonathan Instructions] Fargo. And question

Your open. line now is

Jonathan Bock

Thank for good and taking morning, and questions, also you my congratulations.

to environment, chunkier a a we return of out or an asking you are to be card about how that, overall iHeart One environment certainly take view maybe an balance because it's fairly it's risk shift in extremely so because or on blotch. But hard Bo or thesis clearly that question strategic a outstanding and well large, the exposures return assets So NAV, sizable. there whether just as say octane Clearly, investment. take in going might iHeart investments the investments investment? one. concentrated relative to quite and particular, be this understand, – really weighing is Is a turn you high – attractive first you starting Josh diversification, environment? should risk with today's talked taking of probably even investors perhaps worked. just would to is adequate this diversified folks find it's to over, And I concentrated will besides be in adjusted thought just adjusted and

Josh Easterly

Yes. Hey Jonathan, good morning.

offended So to octane. referencing by high you I'm

is is regular So XXX. I what is This have their to think nature cash and a an the cash and which priced the is bonds is loans restructured question not way is investment a LIBOR was term out IRR. XXX IRR that investment. without would restructured there investment, market properly flow of in a flow, – If

[indiscernible] is in clear banks banks domain, – so on of that octane. even with the And restructuring. was it's Not facility were of This an octane, is the that capital the happening cleansing not asset is middle. lending inevitable question is what rules. not given always been is this been the was spectrum octane a roll clear, to – the the the only or high given base levered to the no no in that's the iHeart process unable weren’t They lot structure. given It public highly below within

cleanses unimpaired. every is So of ABL the one providing full negotiation or on processes and those in creditors their updates iHeart by indicate

$X the was a that nature strategic investment been quality hasn't iHeart the there it chunky, versus shift the about So – the loan that asset quality the choice iHeart does a $X when $X to going iHeart it’s against the accounts on and based margin the of if and about EBITDA EBITDA, you and very grade people billion, $X.X of billion business. billion billion include of a been as actually know doing outdoor receivables. investment And a basically stable the name, it that's and collateral relates of idiosyncratic as consolidated loan, to basis, of

is a protected well very loan callus near with term has restructuring. the so it a and And

by well fashion squib offended So relates octane early typical in morning, I'm it little versus… question, as I'm a that as the and your

Jonathan Bock

I will for adjusted your take risk attractive sensibilities offending return.

So can I one appreciate that and expect that.

support So to new on that acquisition. stay loan was pre-pay, I Jive so expected reason? that both is it Software to understand Jive Software to to loan Lithium then quickly, for maybe do outstanding the also Or some moving Technologies

Josh Easterly

I'll bit. little take, Bo had Yes.

was I a little misunderstanding I think which that. which out that Software created the of definitely that – there business, of a piece of kind financing was is bit there's they had Jive name, is spun of new a only another capable to sponsor. But a opportunity

Bo Stanley

was the strategic was piece more to that out it I of Correct. Jive. Lithium much spun was Jive mean than to

of we it any for a So gave unique part perspective the neither to Lithium for be that payoff one allowed in to them but of concern. financing and us to are finance expected

Jonathan Bock

at it's And then to ask easy everyone the one imagine for it's the Okay, investment. and TCAP going all look $XX a on just about million it call, of it, I that us great. thing

just want can I to there's about that the you've been in process? put the on Journal because returns on Wall imagine I and strong Tuesday? the hanging some risk out the contrast and we the Street had to this can I'd fact some importantly, view through context just Street where up today. be to or is space put negative the what terrible article press strong significant risk as on to But would in folks just as reporters your adjusted way they generating And thinking So like for of Or for space of it Journal in either misinformation it returns more is part either light The clients, piece. a try in close adjusted through sales managers like generating on really about in here, space. been others I'd then the small keep Josh, what a Wall or to

Josh Easterly

Yes.

in media what the skim article. you, don't and of high our fuss I our there that leverage risk says are perspective be – on returns very Quite lot put get creating relatively the about great capital Street with a the about, in this space at low with business. Journal are of year. performance looked To honest frankly, just BDCs adjusted financial to I So kind I Wall so

made – what's we to year, income net for going I of think on ROE Our And net XX.X%. a this matters XX.X% mistakes. was really

the hit about envelope, the had to Mississippi. net at I you did and so And Mississippi, think related if income predominately back look the I we of $X.XX

And generated and being less environment we – one so than to unrealized ROE massively losses. XX.X% and both took where perfect at one. we weren't less realized even XX.X% an small than an levered We in

the so generate risk to know skill to returns in I'm requisite high were about this out And set on space. continue people capital pretty bullish of

a of down But I returns since so total return tails in was you allow debt by the the process. only decent of lot the the vote on average talented to shareholder do capital talked without it hasn't we relates us fuss our I public opportunity a about us be to small not really edge in it between to It’s But on and think us don't been We meetings. a X% up lot over right. for have as in when And have potentially TCAP, of hard – the – and X%. were the there's Street returns not quiet that – we've there a between decent driven chose and space gone in had future people X% continue a And that's and about of as great your being process somewhere – last Journal. are position. we've give it group specifically ROEs. the which That in to would financial because it really – said, Wall participate a build And position there's hopeful an give leverage. look to can to

kind that successful given seem for of the didn't or our And then sense shareholder into a so voice value without make being largest shareholders. being not and to probability of guys fifth the we're

Jonathan Bock

Thank much. you so

Operator

line Thank our come Raymond Vandegrift question with Leslie James. And of from the next you. will

is now open. Your line

Leslie Vandegrift

for for a thanks morning. One my taking last iHeart. this follow-up on as well Thanks quick the color morning, but question yet. in on see it's the the ABL and Good earlier out call,

X% between the you fell had XX% syndication and to Northern that and fees So down quarter. for about

the it’s position. which top for last get, usually well So you would the to at this for to on first is the quarter – And being a the not be on be close year.

looking and with sells this come why for been hasn’t Although – downs. what dispositions

Josh Easterly

Yes.

So let's take a step back.

was actually fee on them. it last off we premise think slightly generate our wrong when out, no I

upfront is are that is both the are closing spread the or – recognized spread and skimmed So closing upfront. loan either fees fees the or over additional amortize

a X.X% X.X% our So or for total I in X.X% as like example, were closing above. percent. or well fees iHeart something that, on think X%

two selling the we is – And were was it – same that in so you it if if are that unamortized income security securities. a fee OID, accounting essentially rules different effectively in the only can this recognize when

and fund. underwrote an had that entirely that to affiliate Oil, reaches we of it, it to transaction we Northern instead co-invested syndicating As

although we as fund And I affiliated so that able on commitment the to for is requires basis specific position. Oil on fee were would us underwriting the our same to relief the say the affiliated in us provide we by forward order at. that, a affiliated a generated investment entire shareholders. economic large go the and and given outsize there speak providing basis – and we economics certainty wasn’t income Northern exemptive massively funds And took TSL What That fund. TSL quarter, of between

Leslie Vandegrift

you Thank right. acknowledging All for that.

And so X.XX% plus because duration shorter coupon of other… on the or L that the the you discussed

Josh Easterly

plus doesn't Leslie, to that this L X.XX% skim. include

Leslie Vandegrift

It doesn’t include skim. the

Josh Easterly

Yes. like XX%. yields The think, there worst duration yield like three a years, X%. expected at are kind is of I is it’s

that there's it's if plus – will point, a And so a P&L. it delta be to the There some there on last big be that will the unamortized doesn’t portion between obviously income. will at advertise X.XX%, run significant spread then years. it you running And additional LIBOR when a three OID X% fee

the – given, And so of a between restructuring the XX% my the somewhere guess of pace kind the the of is and yield XX%. is true that yield

Leslie Vandegrift

not in she size then Those kinds origination and a for right. All few the outlook Okay. coupon did so the X.XX% And plus deals of other, low, way on below lower XXXX, coupons? looking little the the in loans. on no the quarter, are of those of at bit averages. What's LIBOR on but

Josh Easterly

Yes.

XXX I one fees. X% LIBOR plus floor was think Lithium

four sweet Industrial in fees. right that's spot. one So plus the Physics LIBOR X.XX%, I think

we And amortized Because probably so fees over the through in our differed a you those had to the we the fees. life. run and you P&L math I run remember range, XX% –those contractual of the somewhere yields we when XX% include when could had

and our kind So wheel at investments iHeart, be amortized the on our did amortized right it new QX X.X%, was as relates the to – and XXXX, – think lower tends to a in where typical be years of transaction. was QX XXXX, couple X.X% XX%. assets we the some X.X% it for in there of those XXXX we in are QX but look example, tends put so to for it adjusted over was whatever yield Ironically, QX – cost was – yields, house and have it it we for last it I don't

so be some some there bump and to are tend And assumes quarter-to-quarter be variation. I to

Leslie Vandegrift

did end year lower what quarter then you or And the with the income? with

Bo Stanley

Hey, put the respective. Leslie. that We estimate into

in if look Page approximately XX-K, as So you the at it's disclosed XX $XX million.

per $X.X a share. it's So

Leslie Vandegrift

All question right. Thank this you for answering morning. my

Operator

Thank you.

next of comes with Ladenburg. Schleien out from Mickey question Our

Your line is now open.

Mickey Schleien

did terms Or it as Symphony I that from other perhaps the about markets? liquid curious realize like exit for exits CLO, Yes. more just you the Good was whether small color groups called? investment. everyone. of in tightness reasons, the was in deal But such I morning, Josh, your a

Josh Easterly

credit those It or and and so came got those of acted. late have we and cost Oak basis the have having forward to XXXX during like I Hill a how of that that were – called we below returned ended early positions, wasn't that. dislocation called, after we those We up a it we something wasn’t capital you might XXXX, a yields – markets of we put what included on reviewed been back kind price our of – when as included go on positions, IRR kind We think put was. XX% Symphony, – it investments since some structured

So the relates to I mid kind of gain the bottom the we running we XX's. as think them capital to were – which in in where captured low resorted and the which the was a in we kind and spread mid of XX’s

Mickey Schleien

me Thanks morning. very for that. this That's it That's for helpful.

Operator

the our Rich And next question you. will line from Shane Thank come JPMorgan. with of

open. Your now line is

Rich Shane

guys. thanks Hey,

this question one morning. Just

up LIBOR normalizing year last points, for team costs bps. sure basis XX XX Over and the swap funding up were

Your XX yields asset basis up points. were about

So implicitly your is one. funding data about

Your about whole asset look we is wondering as XXXX, is move asset into sensitivity. X.X. the thesis here I'm data

asset things? we funding situation things. you on into costs your move on off a move start on costs, your floors, – you’re trying will the funding yields lower move the LIBOR into we As is beta to the you’ve XXXX, to to and the think optimize done you where things commitment betas move Do

Josh Easterly

that’s that’s Rick, great, Yeah, a great great a – question.

the basically We've had had I space. in you think said spread some hope. – the entire had a what we’ve that compression lot is our compression less business. We've is spread in

$X.X what to think the that more but bit over says little hope. a compared data is I a us. of of had our lot We’ve a is had have sensitivity, asset guide that’s assets compression billion spread

worry. interesting we nice asset It this I construction. risk going, continue will the XX.X%. you’ve was on to keeps on end. in about and tighter you've given that, our But be had year? get is that as higher up return what average thing assets this And would so, that What the was built yield you’re portfolio saying help than average And on how the our And, portfolio. year LIBOR what hope. so, to economy so hope assets is our business actually return return portfolio our trend in we’ve even on picked think our but know and The margin. will lost was my much that average given think was that as surely as is volatility what is the will I you – premiums and

kind so less elsewhere. economics is impactful get compression headline able been given And to than we've you the where of spread think would

Rich Shane

sense. makes that okay Okay, Thanks, Josh.

Josh Easterly

You’re welcome.

Operator

from come line you. Doug our of Mewirther question the SunTrust. will with Thank And next

line is Your now open.

Doug Mewirther

Hi, good morning.

could to they of hard But step out terms allocation the lot really even with so in is you It in actually retail opportunities. your would definitely of down fluctuates And the that there's knowing of seems and out have it's there your which sort increase size the quickly. business, there your asset where small it terms to quickly enough up grow pay like capacity ABL a opportunities of in still the size another do policies take you portfolio? land I guess agree? because retail and you there of market ABL are opportunity conditions In

Josh Easterly

million. Yeah I question. of think $XXX retail ABL about The invested we’ve quarter no end. stands only $XXX Look about as of today million it is in as portfolio

we and including to very long a asset $XXX to totally space. is probably retail, continue be even and probably invested And million $XXX invested came we've – at in we we names million. IR base so, in other ago lending which that probably active off And total PSIX,

allowed And that given we ABL That business so like could if bring to of even duration this appetite it though is $XXX the is surely I'm book? XX% million. question would from the assets. to on If us the be the million the they $XXX up. doubled yes. possible given But we there's opportunity nature to retail that set. uncorrelated not And our risks $XXX opportunities of our up sure million side

– price. bankruptcy. participate retrospect, wasn't the probably Well was did risk I think we how been although what that FILO right gone adjusted the or a I in have – we're example glad paper Toys in think has pretty case We in for given not that's not we the piece good thought haven't we just of

to most that’s still we the could. we doing business our if we’re We retail asset want would tend of not we – discerning we increase eye, everything So – have definitely base. to very books still in a but

Doug Mewirther

or there. Bo That’s helpful. just you conflicting pipeline. comment my there's final information question, if seems It your thanks. general origination some and Okay, on out And second could like

grow sort guess your well way as a there's then think think environment regular target just maybe – I rich I and it's to not your competitive lot of a there are – portfolio. because of there's opportunities. – and executives much Some opportunity that it’s

your flow. Just deal in comment for of on what XXXX outlook terms is

Bo Stanley

The deal coming QX. pretty environment point this into feels flow good at

team that I deploying needle on and we're opportunities on to focusing our the generation overlap continue think that thread capital. we with where

sitting feel out, into strong, the our today our hard are originations project feel hard very out where project year, I pretty pretty optimistic we It’s originations New activity. It’s feel good to quarter. I the to So heading are full about for each but I Year. idiosyncratic

Josh Easterly

compression slowed. think the low compression has spread the spread I has Look volatility –

increased has bit. a actually yield high little think I

generally that's the So think good I for environment.

XXXX, QX I and what I'm that tend doesn't said, or markets, have of we edge. we you’re equity both be the think continue and the in platform, credit surely direct helpful. like or think saw okay. to and our lot We all in highly we depth that's company you XXXX. sponsor an that markets it like we sure of we of seeing haven't be stuff feel a to you it's With volatility thematic to the and based seen seen originations. feels do like that XXXX. But of selective do It thematic. we that XXXX being And breadth roll we very where QX not of volatility, and the through you if we like our like haven't

stuff. adjusted I’m pretty highly So return good find comfortable risk to continuing

Doug Mewirther

my great. Okay all That's questions.

Operator

Barclays. Thank Instructions] from with come line our the you. question [Operator Ma of Terry next And will

open. now is line Your

Terry Ma

guys. Hey

more a broad existing in that from perspective? the can than there it impact just reform. color you a But portfolio impact I appreciate on of comments So the cash how flow sectors impacts on give more your tax bit may little others? Any

Josh Easterly

is portfolio our pretty actually shape. think in I so Yes, good

times. times, is six average X.X Our think, I seven I is like, think, the like breakpoint leverage,

will is slightly at high relates leverage market, the reform deterioration of the is I tax if not But And credit yield when of broad much will and up think into the generally further leverage in we're on this of look not it portfolio And is borrowers surely given limitation the statement. syndicated the our to a so both fundamentals. market, the debility. a this the the broadly cash in and high taxes account be have there handful universe bill capital you structure. that as more loan market taking

XX% have so a And effectively of limitation EBITDA. of you

offset coverage. to that – anything of going of But as on on X:X So tax offset interest by coverage that Anything expense. deductibility limitation is interest significantly you’re have the that going rate. interest limitation think it – lower have doesn't slightly have X:X to by

that watch think LIBOR X:X as where if example, out I and you today for loan so the environment market, in And $XXX. the a is think syndicated LIBOR in the is X:X, and rising at broadly that is broad a average

by that X%, none And on going effectively means X.X% LIBOR that of highly from be XX%. you levered to And to have a going costs three, increasing tax bar is so interest a are if think is yield. to going

to guess by my earnings are bars nobody that XX%. is And so thinks grow going

X.X to limitation representative so credit times on we given fundamentals levered weakening highly levered. And of of at we’re given is subset going borrowers, are subset there not deductibility of which our a be interest

I watch credit a are for fundamentals that as going a think people as environment, rate given earnings that I think rising out to grow in up. don't to base be is able go quick rates

Terry Ma

incremental seen from from Got it. or Have you your your any maybe demand in or peers? appetite competitors change debt, the

Bo Stanley

The about demand for for talking has just debt were and been phased. leverage We this. un

private at than my think fund. is And the kind expected of equity equity from that the if tax who world don't returns get so I cares last effect ton cheaper on sponsors God leverage of look and my on I when my of cost say or they

if special By Mike or a the our seen have we all. structure, view capital at a don't I a this. guest, capital or Vice Mike for in you way And not behavior change sponsor have so you on have demand President, know Fishman.

Mike Fishman

We I haven't any change. seen seen, haven't

reforms. they totally than to differently So businesses prior the sponsors have today no are I levering agree tax

Josh Easterly

Not that. only heard of seen, we or evidence seen haven't not thought we’ve of the

to So no date. change we've seen

Terry Ma

Okay, it you. got That's it. from Thank very me. helpful. That’s

Operator

will our National line And question of next you. Securities. from with Thank the Christopher Testa come

Your open. now line is

Christopher Testa

my questions. good for Thanks morning. Hi, taking

year bit, reform, something you of funnel? to space of at on in the question if how optimism top about. my touching in just, talk the an the the been can opportunity set. just be second companies increase might upbeat regulatory And the Are general, extent potential part which is of kind Just the given that seeing exposure in much that's about optimistic you on energy a portfolio your they're

Josh Easterly

Yes.

we funnel. don't are we've in the have those So to – if issuers one names have one structures the amount you the don't look, I it we broking chosen year NOG, at is really space is where decent of look And have in names, gotten Rex both think we've where play on structures. top our regulatory a two still of – a have the of as reform I capital broking to capital energy. if view – and There relates last

the which Although, capital, where price returns hedge earn taking gives structure volatility the commodity risk, we're fee in capital adjusted RBL collateral. risk format, much us the opportunity where not to on as on and higher

example, like And $XXX $X.XX trading had so or for now bonds below Northern Northern think of million both something I that. us

an are over offset at – is – quite done an XXX of loans we spread or points frankly been lending playing we've we we bank there And is bearish the bullish at cleaned it's we're been have been have not is we've done so and everyone – don't which we’re thesis have structure base basis commodity by asset capital sector, – where higher that what – is a what on of the prices, can where up. the would

much are there in market a – amount at price higher structures And capital of structures capital were so those environment. broking commodity built given so these are the companies unsecured

where so we’ll what opportunistic had be space. – do, of we this what And we in

Christopher Testa

on versus your how you. deal, of color. the just iHeart it. affiliated that was allocated Got And to out Communications great much Thank That’s syndicated funds.

Josh Easterly

Yes.

So question. that’s a good

million. $XXX loan $XXX was total million of was the So sell. There last

X.XXX% funds the – affiliated allocated And out. so we the took to of last

Christopher Testa

likely just iHeart the And – Does prepay excluding it, a include early Got slowing for on coming leverage the potential that. commentary that's up. that repayments okay. it’s just that down your your given to is and or

Josh Easterly

think iHeart I of think expected about mean, think is that I basis. duration includes we I how kind

so expect iHeart. target a And kind in payoff to of range, including our of be we

Christopher Testa

Thanks for all my That's it. questions. for taking me. Got

Operator

with Young you. West Family. come our of question will Jim line from And next Thank the

is line open. now Your

Jim Young

credit mentioned the my At basically, you it’s and part. to Number recent one, beginning Josh. have given tighter as do Thank and covenants in that at spreads, into What then XXXX have focused and change attention and look lose And seeing volatility, secondly, Yes. And evolve. two your Hi, more how marketplace? margin ball you paying XXXX respect think on with covenants. you the the leverage with the you. credit as how at saw you should leverage markets spreads, that the you is market in looking be question aren’t your crystal seen to? and any investors you’d more

Josh Easterly

think, I Chicago York they hopefully unfeasibly you to on had Unfortunately, in And West Coast. weather in as we be nice yesterday. the giving Jim, New have

in we’re even are what about So guess seen say it’s lender the volatility not But and I XXXX early deterioration up a like rapid we’re I’ll XXXX. that seeing we’re that and the weather. think appetite think early join And protection. of not we’re talk and the this down saw don’t or we feels missing the we expectation. on seeing for not a on book kind credit we’re bit. was I of and change kind comment I in of compression not have little it people rapid But seeing, that I spread don’t

in portfolio basis. a has change the real Our year-over-year

think is coverage like have I leverage we XX, exactly basically number XX to covenants. of from same went interest

grow more Bo, a have actually environment. picky, we’ve of you given – have I answers been our pretty portfolio, think But we’ve so we’d been already fishy. the about feel and you So we good view because it

Bo Stanley

I that’s say, Yes. right, would Josh.

last QX this where and of XXXX, of putting in restructuring in the came compression that here our deterioration out. very new function first was capital it of quarter spread aggressive lot We the saw and year, step in haven’t seen we

market consistent, I more we didn’t we saw volatility demand think remained year. didn’t any the improve pretty but seen deterioration so last we that – things, has haven’t

Ian Simmonds

yes, Yes. feel on seen a I out I we’ve like would spreads. bottoming say

watch I’ll think there’s deterioration. I any be covenant out whether XXXX might more For

lot Josh willing there take think a that happen, in as lot are are market said I but a – the to its players of less structure.

Josh Easterly

flow. and big is think look credit how on and leverage very as crossed And in that cash the interest watch companies and talked you talked been step of defensive loans our earnings, asset their tax where the that linear going about defensive missing is margin deductibility impact reform, me back, a and earnings, what material, uncorrelated on about we why to a line, we recoveries base position book have the we’ve big meaning take for out uncorrelated I free are rising on the we a LIBOR investors and limitation kind are they’ve the

So that’s a big watch out.

and cycle, typically other about should think you inflation. to cycles really The watch if be is and Because out is, you one the the person beginning think cycle great economic a you of as happens cycles about – me, but you investor, timing rising what economic probably have said want we’re study rates. at when the a to economic

to which We have rising which leads forces inflation and a policy rate, which slow recession. investment slow and consumption,

You spurs consumption. policy, have then monetary losing which

if kind we to of and you tightening time of activity, recession that monetary long any business or will will type some inflation. lead wage consumer obviously to correction. the a could of activity, debate response, which – some But at lead kind so a And a see we’re inflation of type for beginning inflation, large of tightening

And think I are – see inflation, you to as so I think we’re little – starting think inflation. pretty wage we’re we a about bit

across but tax and the cycle. monetary think is and the rates, rising business pretty the controllable, inflation and it’s think the I response I out watch a reform

Jim Young

you. Thank

Operator

our from Chris JMP Thank you. And Securities. from will York come next question

Your line is now open.

Chris York

questions. taking guys, my and you thank Good morning, for

borrowers growth today? below the on which and potentially considering markets, potential provides just demand your update volatility your is certainty you to sheet for us your returning TSL below should in range expanded, balance it’s equity Could target now market. increase the So interest leverage

Josh Easterly

was what that? Potential

Chris York

Potential interest growth in equity.

Josh Easterly

equity that And is question. raising the –

Chris York

Yes, correct.

Josh Easterly

cost Since our ago, only XX% think accretive exceeds our assets post we IPO, years equity. accretive on – it’s we value in for our cost when moment of ROE our post raise basis of book can the time, we fees, nearly basis losses, value i.e. four think equity when a book invest we’ve today in although traded where is that – a and in we it’s that

And line both to so things have those up.

which And just we’ll is and words, take do try so time. we better in for philosophy I it we don’t the –

– And where so on this leverage in Ian an moment raise in we’re moment in equity do time. our not given, book we’re time, planning I don’t know, anything target there’s ratio we think think to to don’t on this add. I

Ian Simmonds

have very dependent we it’s but that factors that much Obviously beyond on you ability. No. this don’t outlined, those

Chris York

while billion. then TCAP potential to And okay. it, about your position a assets combinations. not would The Got $X increased your comments heard TCAP to have pursue using on we acquisition clear of key business

as and maximum about meeting frame think that the size would we should a maybe returns? want to be So continue affecting ability to without a PC for selective to generate longer-term your you run strategy size that

Josh Easterly

Yes, great. Chris. Thanks,

I So – to and do the in as want TCAP. we to be – want to carefully chose I very, really make as our do I I involved same make want repeat process. so a to not words very qualifying a

like shareholders that think that a are in that deal who knows, – if the conclude will shareholder, a are there’s at And I our position but that think opportunity we into list. a top insight not the That process. it for way. is of for moment, combination, have process, there that of If doesn’t group use choose may in there we TCAP pursue different insight we think we comes should fifth out company. I is in reengage largest don’t not is is cars we our shareholders. deal massive the You an to the business out We but seem a something that don't on value the of TCAP. not comes that have a good

I about I you TCAP to that very our pick be we make to clear and carefully want words So sure want that. very that. into understand

Chris York

you that. Thank Yes. for

Josh Easterly

Would solution Yes, we ultimately not a of shareholders. be a of asset its shareholders to value environment. that of not could – from this allow it very The when reinvest discount. us a could is Look provide our book return We a do accretive – would we could we very way. at assets above we what TCAP assets we net because to answer $X.X be in you capital accretive in that very on grow it be capital why TCAP realizing way, and absolutely rotate as oriented to to mean TCAP of if up do want you that TSLX that billion return work – want in the if to would a to and it $X that? would can to stability buyer we no, billion give shareholders, shareholders billion relates and in value, environment would $X

small time this for billion a $XX we is speak over like think we larger middle billion we to credit balance we I – where like the we transactions. sheet. $X.X But part able of of platform, have, being a which we're size have in also

but interesting leading our able were do And so we're Oil iHeart the size like and a capital industry things not that we're base, returns since to burdened and we toggle we to shareholders value by for like of and able our create create up to Northern lot.

returns And on value by so model of – kind generating market off shareholders that model that a we capital. of for creates flexible creates think the lot

the us can opportunity And the and right question the equity. that we $X.X of to billion now we raise so size? optimal you I optimal grow the I've could hardly tell to as what have a for size given answer

And so a right now billion it, in maybe different optimal the $X is environment, billion. $X.X optimal size it market if the size but

Chris York

that in multiple appears Very you. Europe thank Great. Mike's internally or just opportunities any with to teams thoughtful maybe be direct some Europe. lending could Last investments there from in result there and portfolio? internally topics opportunities considering investment discussions your Are the evolved of one answer banks attractive contact has role that in

Josh Easterly

Yes.

next Mike today the look same much changed full being much, So you Mike as Mike time more it haven't that shows of hopeful is – Europe.

the frankly foreign BDC. quite for super direct have not lending efficient our and in in Europe. U.S. to assets, tax dedicated a the BDC assets non-qualifying including have European It's fund We shareholders,

for Given taxes assets. that non-qualifying foreign there on withholding the dividends shareholders except given are for legislation extended

not stuff. And not, of to so would we it's European lot a expect do

super of shareholders for BDC and Given not we the given efficient withholding non-U.S. fund have a careful the lending tax. it's direct

anything to there. had You add

Chris York

for that’s it Great. me. Thanks Well guys.

Operator

the for time. there showing I'm queue and in this you at questions the Thank

the some pleasure Director it's Chairman Mr. remarks. conference to comments and closing the Easterly, and Joshua hand Board So my over Sir. of to Chief for Officer, Executive

Josh Easterly

So session. everybody thought time, longest the one of I look we the taking appreciate Q&A

people as we're we're we So questions. about think about to and and happy what business lot engage of are market there know a the really our great

and the happy spring people at early people looks and Easter coming a March Happy late team family you is available. always spring, wish and also and for We know the of beginning Passover April

thanks time so today. Thanks everyone. your And for

Operator

participation Ladies you all on This conference. may your does gentlemen, and day. today's Everybody have a you our disconnect. And for thank program. conclude wonderful

Sixth Street Specialty Lending (TSLX) 22 Feb 182017 Q4 Earnings call transcript