TSLX - Earnings call transcript Q2 2020 | Sixth Street Specialty Lending, Inc.

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Operator

Good morning, and welcome to Sixth Street Specialty Lending, Inc.'s June 30, 2020 Quarterly 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 the 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 the forward-looking statements as result of a number of factors, including those described from time-to-time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Investor closed, second issued XXXX, quarter a to market release earnings and the its presentation the of for ended the after the its company press posted website Yesterday www.sixthstreetspecialtylending.com. section Resources June XX, with be yesterday XX-Q SEC. conjunction the company's Form The presentation in the should reviewed filed with the earnings section. Lending, Sixth also on Resources Street Inc.'s Specialty the Investor available is release company's website under June remarks XX, all performance second figures are prepared as otherwise, today's the of noted Unless quarter in ended XXXX. for and mentioned

reminder, to a being of for Chief As Inc. call this recorded turn Officer Lending, replay is now will the purposes. Sixth Executive Josh I Street Specialty call over Easterly,

Joshua Easterly

Thank everyone your loved me and uncertain our Street, Stanley; Good joining and healthy and everyone, my here for hope Ian this spoke you President, you us. today in We Simmonds. stay at Bo you. CFO, With to safe in Sixth May. We and and partner morning, ones thank is and able are environment. our

been to be return more Our hope the would -- of on timeline that been would've has and path business clarity there activity. full there August by

economic the around of crisis current take the to toll households human However, lives, as well and continues on businesses the as world. a health health

will will U.S. normalcy rapid be. take to monetary support, and be While the government it ultimately have the to extraordinary what Fed impact remains we are seen and provided fiscal COVID of turned and how long-term long

steps and we've but appropriate to portfolio of not undesired make our including our only of and mitigate our allow preserves setting always constraint create liability provide focus why BDC to vulnerable high-quality fragility, liquidity inherent in over it nature market outsize is that shared business business, the uncertainty. model construction option As business actively of that shocks our cycle Stakeholder the model, across of model to risks low than meeting and particularly financial periods to policy inherent last risks. ago, for benefits outcomes Letter us the underwriting model years, stakeholders. also and our match the we've taken That fragile These a and believed weeks for less any business two we've the liabilities reinvestment elements volatility. on and in include risk scale our and both general funding, returns finding value These with introduced the into to assets optimal our has

portfolio, income against investment value fee the of stakeholders this XX.X% we that, early Ferrellgas. was in investment elevated year-to-date prepayment return net period income investment annualized early of by still of -- unfolding per -- an in the of of induced our quarter's XX%, income X.X%, that respectively. strength indication dividend correspond net on $X.XX in an the While of me COVID turn was and we highlights, QX QX are of we XX. believe quarter the preliminary net quarter of return is was provided create equity this the net ahead. net equity on XX.X% can to market and Net for reported downturn, second investment activity QX let of income supported earnings respectively. In our on results With our investment realized notably on which income and and closed consistent Net other income These results our $X.XX. income yesterday, the with of $X.XX. July in reported we annualized and this share results base After the most our net

net gains due during related spread the impact this as robust as this unrealized income quarter primarily income. to -- year well tightening quarter, of a strong Our net the our to strong was markets investment

quarter walk result any to October were only through not per per asset shareholders and the of preceding were special per impact value lien adjusted quarter-end, the asset term. by the the the net supplemental $X.XX September asset that to not activity have we more equity were share unrealized value value medium though lien at valuation some exogenous in pro share. and our net our observed special first with no $X.XX said of through value asset back unrealized our our aggregate overearnings in dividend September the of Yesterday, of positions on supplemental asset detail. other related declaring base no NAV to in per of asset Board our detail. Taking brings short value we quarter's reflected related was by our of second to we dividend earnings of by net of test able outlook presuming to back our rate market our XX%. do mark-to-market greater been level events core the and unrealized our to the of the a against $X.XX on impact overreaching net Over turn call result per changes the against per base in paid syndicated net our Even spread If net value of respective was XX. supplemental in with framework, share paid QX, that, shareholders $XX.XX net record share net which of of the dividends rebuild impact our the including per asset is dividends, forma and we of QX. dividends retraced forma This what our and this on a net anticipate spread XXXX $XX.XX, result resume value as of I LCD small $X.XX. $XX.XX a of $XX.XX, asset XX% of in our special our over expect per supplemental payable to QX, pro of our declared gain decline losses X.X% would asset gains March, making would we bridge asset from a $XX.XX. declare of Ian per increasing XX% our to been which to as XX asset in there through With per interest Net share this if would $XX.XX, approximately net There power QX, share last declarative are almost Consistent back the dividends, dividends health are Any downward of no relating back, base share is reversal was quarter supplemental provided the value was asset spreads of being declined quarter, overearning. review, dividends of to as back accounts reported losses, $X.XX starting value at in Therefore, March we broadly spread the because value more Consistent share unrealized and the a the portfolio, $X.XX on QX portfolio current add swaps. as current share beginning near share test. year. this which market, share, of any compare value our we ways, supplemental $XX.XX, per dividend, to share the that dividends $X.XX on value will value as as the volatility special based specifies limiter purpose than declared for of Based reversed Bo asset of added we've entirely be material which widening. like that over walk for of dividend portfolio a XX% able quarter's our XX like quarter's $X.XX our out-performance earnings in level and the result $X.XX pro a of third dividends share of on XX declines, for a dividends this net forma of the per net and in in of to QX per on QX of QX. more course our QX, quarter step an during for impact

Bo Stanley

and government and backdrop was significant muted broader as extensive significantly begin the believe quick agree Thanks, intervention of a I'll premiums Amid risk risk between disconnect be fueled second reality, markets. overview to and in into on struggled back the prices economic driving asset we which with quarter. was the economic to A market investor sellers by and of demand during assets. quarter, fed our tightening Josh. buyers primarily activity emerged continue M&A credit in Meanwhile, there valuations. uncertainty,

of high investment those sectors variety rose credit sharply liquidity included one and across a our a and portfolio small yield liabilities six markets of ABL there's our secondary financing broad at a we commitments quarter of this for were with abundance our existing in affiliated purchases the higher providing and existing impacted QX, As In a portfolio, Moran risk The connection refresh recapitalization $XX was and of a market where including in protection. businesses opportunistic issuers, strong majority of growth an prices fundings junior QX new of companies. and adjusted risk investments result, light returns with funds triple co-investments adjusted COVID. Foods, in by and with fundings. and grade new our basis Other returns. the dollar maintaining most These was limited these CLO of $XX of six new new across focus million dynamics, a light origination's fundings debt spread on alongside our and in relatively B at call replaced on activity loan attractive given million across

two decreased As a XX% QX, in end first Ferrellgas repaid paid were the and fair which exposure on Repayments lien both full a early our Nektar, basis. QX XX% fully the $XXX our portfolio three across during slightly outs. of were portfolio's million from value partial two names largest at quarter-over-quarter and quarter. result, to totaled

the $XXX million. result net repayment As for a activity was quarter

set as and deep less build and underwrite opportunities financings hard to M&A given to the immediate actionable our opportunity quarter continued value of complexity. team work and where expertise core of pipeline could secondary to sector for market our a the ability fed the create became rescue we through activity During purchases competencies slowed intervention,

we been in July As post deployment we've our active XX, capital in previewed letter quarter-end. on

QX new providers, our approximately investments. In sourcing sector investments. strengths, themes primarily an role participants two million $XXX led play our today, important broad these solutions of by totaled of within reputation creative amongst is As fundings in a particularly

scale along our investments diligence able solutions Street $XX strong of constantly to billion profile Today, the return of build adjusted underwriting risk part platform pipeline, sourcing with we're robust overall deep as to capabilities, we Our a attractive the through which enhances with continue spreads, offer and call portfolio. structure working we're that Sixth us fees a channels. other to direct and to allowed protection have our

competitive the financing believe in grow we and increasingly advantage of complexity sponsors ahead, solution management this environment. capital our a only Looking company’s sought by in as uncertain will human will teams evident become

relates on of a performance of investments. remarks, and quarter-end, of side To performance with our balance to fragility continues Josh's have of overall with we fair non-accruals the the introductory solid, sheet. it X.X% inherent approximately the five, one approximately at XX% representing rating be left-hand value scale the minimum highest of recognized three to a our two As to one rated one portfolio portfolio being portfolio or basis, long the at on revisit

which the the defensive fragile on the efforts team played and selection. investments of and widen, Our of our order we away, are loans, assets volatility, We callable sector, of strong focused in balance the our called management a combat assets typically portfolio borrow our ones we've are In construction, business underwriting sheet, overearning periods the today. due model have outperformance performance tend these decline. spreads includes means and left-side elements role to of years to get where that value when in credit that believe which discipline over are to of portfolio the the

loan, by this portfolio still highlight The quarter's took our quarter-end quality X.X% Marcus X.X% up increase portfolio portfolio first ABL of driven fair the FILO approximately the and early, residual at macro action Neiman non-accruals term quick the Penney performed was our we'd protect slight lien non-DIP portions lien notes. at value from our roll of loan remiss and expectations, loan to optimize positions. liquidity not be company’s their onset in structures has secured by of However, who our COVID cost it's our management term to teams above J.C. and first given Albeit, not term to high backdrop. our the

of cash during quarter we believe to payments have par. less than what cost were received all the regularly of scheduled acquired recovery, par we interest amortized applied than the less prices our which maybe Given we the positions, at

in in deemed benefit fair quarter-end we value. preliminary covered X.X% essential current at that exposure continue Staples to of quarter XX.X% represent Foods at the July, our As ABL together our ABL the during prior retail of at exposure release was portfolio and generally Moran quarter-end. from environment from $X.XX retail shutdown are and at tailwinds in COVID stable our businesses

quarter-end. exposure ABL Neiman value fair portfolio at and was largest Marcus, is our X.X% Our loan of term FILO retail at which our

of expected which milestones of that Our company’s we current expectation refinanced will occur as is have XXXX. in in based meaningful Street and financing With pre-petition is Penney's are fall the structures, on bankruptcy, DIP Neiman each of Neiman’s able and reorganization to Sixth driving case be roles upon J.C. the process and from to exit in terms. capital we plan size of the lenders

DIP As for result, loan given adjusted DIP offer DIP J.C. Neiman the quarter-end million Penney protection our par $X combination in attractive value we economics. loan our of returns, a structural believe with and risk contractual for loans par value our million at $XX.X

fall was a pro Our forma and on into on portfolio's at partial value a sense basis quarter-end X.X% at post at Alloys quarter-end. paydowns Energy energy exposure fair Verdad given X.X%

its the assets. QX to out-of-court company Energy fully via of expect XXXX on wind-down be liquidation Alloys We an completes repaid as during

stats X.X be approximately and portfolio to at remain was value, the on credit attachment portfolio our times for of followed Based financial net Our industry respectively. average point and through and X.X relatively services and XX% prior Top of compared exposures X.X last business information quarter. services March QX stable X.X at continue XX% dollar and and from by at the times healthcare XX%, times, times to financial core average composition companies, fair XX respectively. portfolio

would most cover X.X was persisted average in reflect Our of timing and the interest that figures of trailing compared that times do not these through caveat shutdown the We QX. nature economic fully quarter. ratio impact X.X to times given the lag prior

we However, based credit a in on expect an not borrowers, ongoing engagement of material portfolio the with across metrics do our deterioration term. near

direct in investment sector of amendment reversed, XX of this we discussed names, only cited to outside retail a earlier, state of reopenings positive to cabinets. we expect COVID cost. out our provide quarter extent flexibility the on portfolio had an one with borrowers To This that our increase ones that of order the complete as we would figure additional

we in expect of near debt not service obligations any today, defaults term. do As the on

down, it impact of our points the over of of our basis prior from to increased from it impact that, XX our points, basis weighted portfolio investments from to the basis over to three floating average to of LIBOR debt almost XX the of to uplift XX XX impact by our points With the I'd partially increased our weighted downward offset exited producing by the on and assets. entirely XXX floors. income average basis new Breaking and quarter These reaching amendments. Quarter-over-quarter, by points approximately floors LIBOR in floating yields. turn uplift basis this our yield onto at XXX The basis yield of Now spread points total and LIBOR rate benefit average amortized rate cost securities like investments of were points yield quarter-over-quarter the across due Ian. this XX%. months a there movement were

Ian Simmonds

spread $X.XX $XX.X activity partially slightly an at fair I'll our by value down investment. amount we primarily $X quarter-end, billion from unfunded ending be At Total and million to per assets prior overview quarter-over-quarter, was times, fair sheet. debt ratio was positive billion Bo. was our of equity our company of the drawn. balance portfolio, net investments in our $X.XX against times Average $XXX $X.XX net from available to impact our begin equity had Total to credit portfolio to X.XX of or valuation due the was with debt revolver in decreased of $XX value repayment liquidity to billion you, outstanding under Thank the times, of principal quarter. of offset debt on X.XX million and tightening billion ratio share. commitments X.XX

the Given the the of innately to requirement loan that company the to million the market In net these side that inherent the our opportunities. a an side funding that efforts the complicated X.XX and that This today the times. of I'll only, elements make discussed and fully our $XXX order right-hand mark-to-market And the million cover balance invested need estimated be strict limitless direct to level review, to to To at portfolio in our are that unfunded recent with liquidity sheet. sheet dividend there now we've model. available valuation commitments requirements model be activity middle address thus leverage far stakeholders, fact stands expects, in fragility limitations is discussed $XX letter QX, introduced to approximately include the we drawn. BDC generate by lending business length of generating framework. at alpha fragile. the to be a structural on regulatory of is further Bo left-hand the market balance our And

our capital on clients create quarter-end, to in liquidity and for of low we both be in on represented requirements coverage in loan our As ability and solutions median unfunded stakeholders to times of had five borrowers and based option our the approximately paying of underlying periods periods At during of to XX% risk believe times is assets, volatility compares and XX. This the by our managers operate at peer volatility. available March XX critical contractual agreements. providers, high drawn approximately liquidity for our value total on we nearly commitments

leverage only was X.XX XX investment our liquidity financial these of to have at have times commitments option up basis of an annualized size $X.X points capacity uncertain combined our times. If to our we similar on we cost the peers, unfunded of times today revolver the Our of five To with numbers on picked robust ROE of substantial some approximately around coverage basis put median and our million. would flexibility quarter-end, our means that approximately during or have liquidity.

ability investments and both structure However, be investments in own past a new to our we this few months, in the already opportunistic on we portfolio through realized return capital investment. in our have believe

swaps our million XX%. During on our the at year. quarter, we namely our amount these cost on $X.X unrealized these notes notes principal price option those million blended million of notes entire Concurrent par. $XX.X with this debt to position, pro-rata Taking average purchases of perspective, prices of majority canceling combined gains purchase weighted on swamps. able effectively approximately gains by on of swaps of the To about cost benefits gains convertible of purchases, was alone, a XX.X portion into interest our our account, the of permanentized reduction these covered purchase the liquidity and we the full amount our rate the given into put to the were the about XXXX portions nodes, corresponding below strong liquidity XXXX to opportunistically the and mark-to-market principal the

the markets. long-term unsecured months a address diverse been to for refinancing profile issued funding also funding the and We five-year of in insurance that XX create to mitigate face to extend revolver BDCs notes with and We've our maturity our access on paying opportunistically to the staggered market maturities. Moving in XX risk. every size the constraints

$XXX mix average remaining X.X life of investments with our end remaining of to X.X funded respect principal two Our liability. next to XX% only XX% at weighted away of funding debt comprised With our The our the debt was on is our was million approximately at debt. amount. QX. years years quarter-end unsecured and commitments fixed secure rate a compared maturity at And maturity years of average

to nature of those uncertainty, was periods rate unsecured environments, the swaps At rates economic coincide $XX million gains interest of our carrying on our earnings with We embedded our capital of swaps given liabilities In and million notes. swaps accounting with liquidity notes at on floating approximately in can rate continue our of use quarter-end, enhanced assets. the XXXX The unrealized the quarter-end, interest in our reflected match right which value we our have our typically of profile. application was had which to swaps, falling of mark-to-market with NAV. predominantly hedge remainder $XX associated these

our for materials. bridge eight Slide the presentation Turning the quarter. to NAV is

Walking to position. was these $X.XX quarter, As our spread investment as NAV in the related the driven quarter's we income. recognize with equity changes per of some credit Josh per share mentioned, investment against and of NAV. to by positive of reduction resulted through unrealized quarter's was unrealized movement unrealized net NAV realizations driver the dividends the investment per $X.XX net a this movement significant reversed base gains this NAV other related $X.XX valuation impacted balance gains per this the impact into This from this portfolio $X.XX sheet was gains primarily a share added our of share Other a on per There on of to we share. net tightening quarter, drivers gains of $X.XX share. income of

the prior Interest paydowns debt. of million, quarter's $X.X quarter. Net $X.X and which impact income expenses $XX.X prior million of was $XX.X to the decreased fees mitigated $X.X fees LIBOR to of our in statement to fees, due income the which average a Other the of by to nine. a interest expense million quarter. million Total size LIBOR, $X.X lower our $XX.X amortization increased by compared quarter due quarter-over-quarter was income rate to income on in prepayment million largest effective floating Ferrellgas. was to driven consists our million investment quarter. $X.X and upfront million unscheduled the from lower in decrease and a the from the primarily other falling down Moving of driver the in floors was to fees debt to dividend accelerating It driven $XX.X million prior from also slide portfolio. of million, The compared average compared decrease by average This this outstanding. prior the across $XX.X by in was million

This quarter's weighted as our average the decreased well points approximately of accretive outstanding, impact the cost by opportunistic outstanding reflecting in X.X%, decrease effective and debt small of to our basis debt the LIBOR as XX notes repurchases.

Given lag the of for on relatively LIBOR reset have rate we visibility one our the timing swaps, good our quarter the into interest debt ahead. date for cost quarter

our As Any directly we below debt flow our net of net QX for think in our and about benefit LIBOR LIBOR beyond, average on to margin and margin our for any will declines remains the asset leverage. given interest level of floors our incremental interest and assets. cost yields

update of in experiencing of the for expansion based Assuming of yields, we earnings on on guidance year. in able note, level unswapped this economic our that have liabilities of in QX with expect would expansion our environment, rate an approximately are power an points. of uncertainty. imply period margin X.XX basis to portfolio net business the interest This level for interest asset our peers in low line times, interest of let enhance points. margin remainder compression On me QX wrap and the Unlike most a fixed of our would year-over-year net with XXX our likely average QX we approximately rate this current our for basis up net with leverage XX been

we income share upper of previously Given first our for communicated the $X.X. our of and our to range expect current full be XXXX results investment to on net of the half per would $X.XX end outlook, year our

pipeline concluding yields, strength solutions capabilities for our attractive ahead. ROEs turn to to generating back our in the it our Josh this higher given With asset ability like of of feel remarks. as Given and environment, about prospects continue to the a the good I'd period that, we for provider level

Joshua Easterly

Thank you, Ian.

While be to our these and we're we're the with of in challenges there times, economic the operating proud accomplish been ahead to of will pleased able QX us. has team that with what results date mindset challenging prolonged

deliberate but XXXX, continues However, small only uncertainty, volatility learning our efforts we that to Hindsight on result not and business are in thrive therefore, along creating in and wins. is the that survive way. a continually always

our business our will and differentiated our create in and and experience model a thinking processes clients. to We continue refine our stakeholders evolve for to

Before impact moving reflect had spend the of a Q&A, our on I'd to we has of like the that back, to When to a economic step this pandemic communities. evident COVID a fault moment take it's impact disproportional as incomes, of people was with lower gender, and time. the to few, less caregiver racial, by inherit into COVID security, our regressive name impact magnified a job of those lacking flexibility. a socioeconomic, built The inequalities, over institutions

help a support better strives a helps that a in our that change imperative fill create to inclusive society. more can't we and an in business communities, leaders a result, As be that

Over been economic facilitate impact. ways resources as directly some addressing COVID topics, representation for past to well Sixth been on counteracting these inequality Street finance We've our through our recruiting the to organizations, contributing time and exploring in now addressing few as also business addition teams those honest trying in conversations months, under been with has to to your partnership efforts. organization continued brought doing to continue are and that like questions. an today. your you We our of think COVID lining that, With of of will please for inequality these I'd Operator, to up interest silver issues for we as part thank forefront. be And line to is agent open support the change. of being an

Operator

JPMorgan. [Operator Rick Shane first comes Instructions] from Our with question

open. is line Your

Rick Shane

peers my about capital know basis cost your But, of you you of in significant. thanks capital the relative through taking when absolute to well. talk for wanted growth in acquisition? good. and relative possibility for it's everybody's now, to of access peers of morning, right it think a on that? way I your that your capital versus Good I'm grow -- terms necessarily investment your an that Is so in think you and of monetizing through same can't in it strategy. little relative I you about questions. in glad advantages Is do guys multiple. the how are cost I'm general, wondering your doing bit a period

Joshua Easterly

Hey, Rick. Good morning. Thanks for question. the

tell look, during but moment will that So, get cost looking our of kind of which our the market a don't have at caught I is of a world, the moment our capital, We fluctuate think market costs cost will up in capital. view -- will of we us tell the and you times.

cycles. at across so, of And we capital can cost to try our look

front, to done managed internally On time scaled think think, is frankly, valuation kind of many of managed those that M&A really the the done. accretive -- moment very we easier space we're the deep reasonable BDCs to time very kind valuation there's very, BDCs BDC small, the only at kind it's don't Quite have either has get credit to Historically, M&A problems not -- the managed work. internally left. have externally market been in credit I reflect really, on where think this of that problems BDCs at the any M&A it's done. hard something that We we or get in the to where

find path North Star think path as is for stakeholders put see well ultimately been forward we'll to and think pretty our the to think creation, on return, my and for of that's our kind the view sheet is it's inception, -- I for since And our value we I worked continuing adjusted stakeholders. to go-forward and to I a So, about think work. value if balance that basis, create high-risk opportunities

camp latter the creation So, what it I former definitely to we're the think camp path a going-forward. relates in as most value versus

Rick Shane

and spinning is former in of … your latter head My it. the Got between context

Joshua Easterly

high-risk -- are competitors our not That organic capital in opportunities path. capital organic putting and capital where was the we're work versus adjusted growth, constrained more integrated constrained, the acquisition

Rick Shane

Got it.

the in appreciate that. business, you're financial it than it's loans been if more I a Okay. make think to in think and disparate some write-down will long you But now, obviously, of but company, right any persistent. extent Look, been a context I -- at a manufacturing point being it's and about time. you

is advantage just advantageous aggressive if to sold that. of peers. versus so goods of Your wondering your -- cost more take ways I'm

Joshua Easterly

bit honest -- a Yeah. I circular. to like it's be mean, little

I we're because try still margin of capital. is as goods low thinks relates things market the prudent on that large a we in -- to assets and think, returns on cost when our so it create high that our capital a build of we're capital. And relative margin, I sold. to basis, very high a sold of of able we go the wrong, of allocator cost to cost are safety go have our creating get gross versus goods

cost the think that into more makes hey, the curve, sense. relative low on super I you -- the I'm probably that up if advantage, more the lean end eroding you'll

Rick Shane

incense motivates you're understanding of that then us again, And lot does. and what And guys going. where you makes absolutely a It you, sense. sort understand helps of

thank So, you.

Joshua Easterly

Rick. Thanks,

Operator

Next with question Lynch comes from Ryan KBW.

Your line is open.

Ryan Lynch

Hey, good my taking morning. questions. for Thanks

appreciate the you really letter that guys shareholder I and off, very that thoughtful First that informative. provided was

mentioned agree you But then you of been Bo, robust you which to some muted your on M&A that that and struggled market mentioned as pressured market, really buyers that. thank then you're that valuation. earlier, pipeline also and you -- today. a the is activity comments sellers have So, for has

better changed just just of deals activity for? clarify has I'm XXXX? more been about getting just depth the the market Or pipeline, some from your potential the in As when so, seen to well you grow in to pipeline up you returning activity about what you for are the that the levels generally a as, rates talk can about on talking talking deal kind pipeline. robust really of you are you pick hit are to wondering you there Has guys more speaking? searching marketplace And guys

Bo Stanley

Thanks, Ryan. Sure.

quality think, company As led both really see we're now and encouraged ABL, opportunistic by some channels of depth I the the and I we're mentioned, we to direct to pipeline starting on, M&A so focused activity. sponsor recently all and

getting we're where will So, there encouraged better. see I quality pipeline, was is as to say that that. to compared a QX

saw, existing think are but continuing selective only but still it and new portfolio in we not to each the platform opportunistic opportunities not shareholders, really but from yet platform XXXX. rather really seeing we best as what channels. up again, be more of We're capital is on for M&A across sponsors focus of from our we'll be that our So, companies, is always selective, a we're QX, M&A those lot and think the I quality throughout from

Ryan Lynch

obviously you going have deals or you are a have lean market in affected a stories that guys pricing bit come be financing a can have downturn, given more guys guys don't do tumultuous have going you in a would quite the terms probably assume you I Do preference, to by Do favorable. would up good those are opportunities into COVID that of a environment extremely more just to those more really but -- grower deep do companies in terms? backdrop. this guys favor -- aren't value you guys and a secular the as structures of you And rescue obviously Or get sort preference? want a bad

Bo Stanley

preference. We really don't a have

opportunity the our each platform across We're, is channels. think think from of we financings also that downturns when other we than tailwinds obviously, opportunities rescue is and of like GDP closer very it the of those businesses come people And good. have economic I pursue beauty growth downturns, and time-to-time are the the of growing active expertise goes in to to for better. that sets set

the conversations is focus really we diverse. So, based very like set on core opportunity team, our which with

Ryan Lynch

last one enough. And Fair Okay. just one. then

just that the you of a don't very in have guys positive retail. the of way have You an near outside in lot I new going completing Can forward. confidence expect obviously Once investment talked mentioned you you term. only two that's amendment, one mean, surprising, talk in portfolio you a any your really about but defaults made, guys much up that as the backdrop why with that in base about well this? thus make BDCs level, think -- better so you you you a so then the far other what portfolio higher than And are that do has using performed your assertion is economic a held from and assertion? guys case that to

Joshua Easterly

Hey, have And cyclical and high in. full a cyclical can fishy when costs. or you jump our Bo, -- you portfolio, we of let -- amount Look, at business fixed very me I hit had can exposure. models I some in we think had that typically we look think, have jump of didn't

typical really the less has kind IT, tailwinds. cyclical at financings And so either our strong secular kind model. healthcare, royalty exposure business Generally, a typically fintech that strong you form you cyclical we business industries, services, look when just had top include and -- structures avoided financial three which a which of services, of but cost those really variable -- and healthcare had a or and

And minded a what setup most been time. to we impacted, obviously were cycle, kind a just -- to so, call change me, it outside construction, just might appropriate cycle have a portfolio we over or cycle of the construction, which would of has late was of portfolio because retail, that

really know, business I -- bonds forecast? exposure. to add, view. model And a fishy, And slow so, when any realistic so, down have we at really, sector anything recovery up fish It's it and their it's these look i.e. view, or really portfolio, don't was up top our just view bow those a really forecasts? view are but are is our What versus doing? U-shape. Are a V-shape, or bonds how companies

Bo Stanley

to I don't add. think right. I that's have lot a exactly

that high And in created cost script, structures had we the a benefit to we that the well. of That's quality also and really lot liquidity -- appropriate as management cycle. our had in we think I early as teams. mentioned a is focused on

Ryan Lynch

my time Okay. all today. Understood. the appreciate Those are questions. I

Joshua Easterly

Ryan. Thanks,

Operator

Thank you.

next Fargo Finian Wells O'Shea question from Our Securities. with comes

is open. line Your

Finian O'Shea

guys. Good Hi. morning,

Joshua Easterly

Hey, Fin.

Finian O'Shea

couple How on There channel quarter. I were First deals are service you? believe. sprinkler, a are paying question new this that

safer be from You [ph] if so structure? it attractive for suitable for peck weren't historically structure. that more makes what might or than away very shied BDC these the reasonably their But opportunities that

Joshua Easterly

Yeah.

that originally it was it affiliated on look, the quite growth you platform, nail on frankly, So, funds head. And the our hit investments. TSLX

a the and peck. at teams, we requirements Street the that companies, amounts, given -- policy We're that bullish the -- growth, Given structures how Specialty models the really we the allowed we're much that markets have that capital on really underlying for book. did they growing in BD we the take bullish small a unfortunately on business did serve, really only significant rates the management the wanting Lending peck in Sixth about bullish have to we're the could that

in like structures relatively had would were what kind something for And the those of we they BDC. the each so, size -- in like I million have there were But given financial and bucks if -- million peck, were we small around was not or our X -- had would have policy our structures, significantly or peck those think given X limitations that. appetite risk more

Finian O'Shea

right. that's Yeah,

Joshua Easterly

you have then there? add do anything So Bo, -- that to

Bo Stanley

No.

You on hit the it head.

Joshua Easterly

the were was $X.XX I $X XX% think was investment and and was a a convertible channel at those sprinkler it million deals. peck. million, note much service larger Again,

even need slows the one frankly, capital we we when actually why but are that affiliate were with we on future and if frankly, not thought financings -- adjusted sizes, in the to when go-forward provide returns. they might have if affiliated risk weren't you very, those the -- for reasons -- a they co-invest when that basis they quite in those And we have -- companies if would structures, rules the nature transactions they not growth small those We more made BDC, joint transactions -- that of the very be given tech in able more high they the funds. appropriate capital around mature. become Quite and a become

so, we And standalone as them love a investment.

think more put We are the going appropriate be opportunities more to forward. going for also in there's BDC that to capital

Finian O'Shea

AvidXchange. portfolio another And name you. Thank Okay.

equity capital color and got the also some raise that for give few looks very BDC very round like. Can not structures a But nature I sure this you the on in us small the had a small of platform I'm part BDC a or an there. that think too if there's piece while, You've capital why took it -- growth of allocation? and the

Joshua Easterly

facility there Bo? correct redeemable were a So between there Bo, there two in a I -- finance -- prep Correct, warrants. There pieces. with me, was a was and think was staple a senior a secured

Bo Stanley

Correct.

Joshua Easterly

a were strip. they And

larger much was with warrants senior prep And secured the redeemable than the so facility.

BXB -- having that as space, that same is down the actually much BDC, payment mature dividend to AvidXchange pay more discussed appropriate been But, we're more for thoughtful exact a again, of before. business. it It's cash we a the business. liability about. again, kind a the always mature has So, in a considerations right having which came but

Bo Stanley

I The appropriately size would right. We've the excellent peck add that only XXXX. But component. given since business again, thing we've well that That's reward. that's grown risk is a

Finian O'Shea

Okay. me. for all much. Thanks so That's

Joshua Easterly

Thanks.

Operator

Thank you.

with Robert Raymond from next Dodd James. question comes Our

line Your is open.

Robert Dodd

Hi. Morning, guys.

that's Just widening prepared up obviously factors contributing remarks, that's put brought spreads they stimulus And question. kind in the of retracing been before. the the you in. to much of the went I amount -- so one general of obviously, in mean, through

it but is was, -- So, opportunity obviously lists to this still there set the getting NAV COVID year, think it, evaporator, do to excessively NAV as to is retrace competitive had that the are there before potentially to issue, there's that we continue those last how private again, this a spreads capital but as as benefit, an given result out there event. COVID call you that. benefit on of What much

Joshua Easterly

Yeah.

and always as been good space. you spread bad good is with the The a news. The the news Robert, retracing, news -- benefit has of the it, hit benefit there do. NAV, to you i.e. So, a -- the not people regulatory stakeholders of a not BDC issues from in out in space, getting from a benefit having framework getting vendors the or option, out capital close close their the -- with

news the that go think, the private bad coupled it question? of that's So, is truncated, truncated how dry powder. the question Has that opportunity? the of credit, good is news. I the forward The with amount the

Robert Dodd

Yes.

Joshua Easterly

Yeah.

yields, a ago. only a most when So I year to competitive want a I absolute on -- lot think, not say the Uber definitely yields, spread say, at actually but would is -- less quarter-over-quarter, you book. surely -- it's We than basis, look our data, saw it's actually I come would I saw up competitive actually -- you look in

much wider. was The I so spread to date at cost last on -- LIBOR it's last in, amortized wider. is a yield that have basis -- put QX XX. -- been in think Is put -- XX new we so, in quarter And against Q I we've XX% think much that in investments

stepped not it's so, have at Fed across not -- been surely And I it would in. risk Fed didn’t been step of assets it it's it's think, surely hadn't I the space, There ton what -- and been generally BDC the a think the would it's across across don't if -- issues have -- in.

capacity. I have We think, take but that, we advantage investment been we would've would of well-positioned would about been had to liquidity. less very more have concerned

So, truncated. in think go-forward it at I today don't we there some opportunities completely been think that like -- good QX. opportunities And is that the on is. seeing that there's it what some executed we've and I least probably there's has feel is what out good we're there

Robert Dodd

… If it. could Got it. Got I

Joshua Easterly

them I keep felt in on on do you the fishy? the add fishy just West -- mix to to have I Mike, anything Coast. wish

Unidentified Company Representative

No. nothing. I Thanks. have

Robert Dodd

why if little because extension renewal, in with name If a ABL to your the spreads I QX maybe whose point, of was it. kind take that widen biggest of misplaced in just investment you bit, of QX, but the -- the to could will, ask

be is book? grow result? commodity an -- versus in activity there expect increased is a faster maybe given of are much flow a we wide book divergence returns that should financing the book set specialized given -- more the specialized the labor it versus I lending cash in is is, that as business? spreads is available ABL is ABL is And So between staying lending that a opportunity a to going the yields to and intensive where mean, traditional such

Joshua Easterly

Yeah.

that's a good think, question. I

wide would is, -- call spreads embedded spread. we in had embedded very that their had base. investments a it's loan, ABL we QX. two wide a much available. very quite a it has revenue like is was large I one and deal, was -- which in what we One complicated, don't So, frankly, cash financing recurring flow a -- -- company say that although, ERP And was so receivables then historically made customer much high was one It

there's think out. we a second So, way

so and that don't we struck we Bo, lenders not And not -- so, we're That flow -- me in warrants we that. -- money. X% is I'm think -- the about got sense cash correct loan I pure at company wrong. the had of if it's think

-- XXX at points And been … and probably with pre-COVID. more done was would XXX -- have wider And what so call basis XXX -- to done than it protection done

Bo Stanley

Correct.

Joshua Easterly

spreads, relates to stakeholders to their in And -- So, asset with capital, classes. the and see are wider Like, spreads quite are base look, increased effectively stuff that months. think over there uncertainty. is us world, like not world. being uncertainty to no you're if allocating investor compensate the can't in credit disciplined, see uncertainty telling frankly, their wider going lenders they I telling as think they're across pricing because for wider that imagine significantly And six I it anybody no has spreads compensate investors doesn't the -- last if they're

you'll of or jobs specialized And you the margin, get more competitive so, the opportunity more pricing fiduciaries on are as be uncertain stakeholders problems see spreads a their spreads to you you're it lending world where I we trying book, complexity. when the for if for being would got is you're kind take -- complexity, kind the people see they for drastic lot year going set. were expect their their doing don't to spreads, that people And uncertainty. across you'll in got through not wider ago, you opportunities less -- wider there of -- year again, already to should ago, specialized there to paid is same see and as guess going -- they or wider see problems because in. -- spreads a My see things it and wider me people on a are shocking want was are to to if are But have

Robert Dodd

color, you. Thank Yeah. I Josh. appreciate the

Operator

question from Schleien Mickey next comes Our with Ladenburg.

open. Your line is

Mickey Schleien

obviously, quarter you're world, want about on it to a morning, yield looks doing looks markets question to the like, the very again. well. everyone. tightening after in ask hear results follow-up the back Good half will I Glad stone, Josh. years. persist keep we've this morning a it'll Yes. spreads very interest hungry reopening, and from which We're, sort of for which tightening you Robert's debt weak, implies LIBOR look GDP private all are wrong the rates low at bounce banks. like in and formed the obviously forward first But invest is lot capital, in lot and pretty third a that talked about curve, that disintermediate of poor And when But of from again. to which with many has we economies the nevertheless, Fed times, year. been could the the the forecast in there's loan

generally So, point A you in of this pressure while. place to excellent you on lot But a has yields. seems for as scenario me that out, portfolio pointed to continued yield. to maintained portfolio been

we loan the factors to your relationships generate that back terms and Ferrellgas for origination I quarter. with a you ask the fee in that to -- your we particularly like have So, perhaps like just ability mitigate pressure, helped and step that process structures saw this you moment see what the provide

Joshua Easterly

Yeah.

pieces I I of look, question, think different So Mickey. think, a are to we couple our business. -- Good willing of A, there's

we're we like really The ecosystems. expertise is, We're those sectors. involved have one first is in those some in And deep in involved sectors.

piece nuances relates ecosystems we how those it and so, we speed it's knowledge of counterparties certainty don't I those because commodity -- lender. -- And deep our business of of those to as that it work. how think we're think our a can they have relates -- to think, the as They industries and

response I that's on think so, a been And for most business. helpful definitely

-- in and -- we're thing returns that gathering our The returns, we're return serving second stakeholders not asset clients and not in the our game. is, creating for in the game. the is creating we're Like,

far the over -- And people industry so, true I as this for you've tightening much think part has I time, you than actual than of debt massively or mean, is corporate has -- GDP. the And or as you -- the growing the GDP. widening corporate sector that competitors when faster levered from as spread spread faster time right, see demand in. When at -- grown look seen over historically capital

managers asset And into assets growing stakeholder traded for growing high creating leaned have and they've returns. so, assets

going interesting. I'm why -- we to that really on it, so, people -- And model front. this at And have is that. different opportunities why on -- the surely if just haven't and is I actually, be the it's bullish this corporate had And a looked think sector quite

it GDP look corporate than up financial a you had crisis, was If through The a percentage the of than does did less lot lot pre-COVID. corporate pre-global it a GDP, sector XXXX did. less

corporate started cycle sector and much levered, issued debt more quite more frankly, So, post and financial the post-COVID crisis. has global much than

to anemic you're corporate going special. out would things with a sector overlevered And is growth what end settle I expect so, up with massively relatively to be when

with that clients, from stakeholder creating where manager not deal not an If tend -- complexity. complexity our and kind for to and the because the to a turn which desire, and business, curve our to more. a those go outside to opportunity expertise, sector financing me standpoint, other but really willing you returns providing we're assets way LIBOR will shade investment great outside of look at to is then the the investment And create serving of creative there's grow

build. You can't

stack wanted grow assets do to shareholders. that for do to and can't be tend and that for of stakeholders. we'll you We've they to can't You been a book the great return therefore, but fees, continue our because churns,

Mickey Schleien

from -- of you I it's on are was time? or sticking see floors everyone's of LIBOR more lenders appreciate over three guns sort to the and the ago, light philosophy, I negotiated now crashed. on LIBOR thought. but for part Does or In it. benefiting market LIBOR you floors years appreciate were new Josh, really our said deals a other two floors? trending it great deals -- accommodative be Is their that how most LIBOR In what just your do words,

Joshua Easterly

than vintages the to look our no -- LIBOR floors if at the across XXXX. really think I for floors, Look, vintages -- our different LIBOR you -- XXXX

Mickey Schleien

case? the still that is post-COVID, And

Joshua Easterly

Yeah.

Mickey Schleien

That's hear. Okay. to That's good good.

Joshua Easterly

And quite fact sit frankly, is, we have Rick again, like, curve, the fees. I cost actually lower lowest Shane's the we point the to right? think And on

lower rate -- our the lowest cost floating structure, the We given liability curve. have in we're

focused So, net interest should be I cost work, than there should work are, should curve. have and which we should and way the because pressure the we're margin, on more -- would if less keeping on be should they things -- maintaining people we benefit lowest we from,

Mickey Schleien

of are one of tailspin area and very particular bankruptcies mortar a and the terms expertise, retail and we've adept understand. I in taking space. is And in the advantage been brick of the in obviously, to last there. Josh, your seen few you've number get developing you days, How comfortable returns risk competition can terms? take think there? that Or Or still new advantage are coming do and to you deal see position in you try where adjusted there entrance segment? you in a dislocating

Joshua Easterly

Yeah.

good -- definitely competition. good more most the as more well. news supply opportunity The the So, is of

Mickey Schleien

Yeah.

Joshua Easterly

step So -- and it's -- there's -- obviously -- back in look you being are more from lot communities of is was set a well. that -- obviously decent opportunities. bit continues space formation. there flipped, you -- take quite to very hourly like a very as frankly, that's not big But that workers affected, a it's risk good adjusted and There news, when right? it capital little opportunity It's but more returns decent slightly there an a risk as being there's feels at be lot adjusted

Mickey Schleien

this well really for wish there. questions That's your are and understand. time Those morning. -- appreciate the helpful. all my I I everyone

Joshua Easterly

Thank you. Great.

Joshua Easterly

Thanks.

Operator

you. Thank

Delphi Our next [indiscernible] with from comes question Capital.

Your open. line is

Unidentified Analyst

presentation. you two I much very for Thank Yes. have the questions.

you first out This And are how modification deal going loan loan to last impairment question loan the you to second the impairment modifications if did loan the Then make of question. directly question you know -- is quarter? is is impairment quarter? that, of session Thank out hear total And how impairment. that The [ph] my I first recoveries you last from I'd many requests? have with brought like those expected you. loan

Joshua Easterly

the Well, me let answer first. second question

of BDC investments schedule you the The -- market schedule -- value. assets and our fair investments. refer I adjusted to would have So,

incorporate And value. so fair would timelines, those those and recoveries

-- timelines three recoveries again, on incorporate time but markets view on in -- the level then assets, those and -- value. they assets view above the collect on a loan incorporates you are level the fair whatever timeline. the for So, based ultimate mark-to-model, recovery i.e. on at that if a fair and value, And recoveries effectively trades and $X.XX on the $X.XX the assumed market based -- something recovery recovery is that the an two

I at to schedule value. and you fair look So, you can would refer investments,

were first a checking to there companies agreements open that of up get control they if waiver, effectively -- was, amendment And to are typically was to us agreement loan there -- the come waivers question account, place. for open a doing really they need need no we and constantly amendments if uptick. frankly, relate given quite -- structure the -- On three and get they we new in and to our

And non-normal would that Two kind a had those and and so, obviously is J.C. Neiman what say, and which the bankruptcy a of waivers. company. COVID there And -- amendments and one third related involved material of in. Penney consumer were was generally we're filed related waivers. amendments uptick in was -- a retail three not The I there was

Unidentified Analyst

Thank you.

Operator

this the remarks. turn currently showing over further back for I'm time. I'll no closing Joshua And call questions to Thank Easterly at you.

Joshua Easterly

going parent it's anybody Labor Thank to continue we figure good happening hope people's to remainder for to and for to we remain their obviously, stakeholders. we'll for they time, can out of a good summer their value much. tricky, hard who's and create so environment look, school not the and And interesting really appreciate solutions for providing work school. and continue stakeholders Day. to with what's continues Well, everybody work kids creative a be clients, Great. our to you a very very And for the stakeholders going has clearly, continue valuable to and but we'll our to and investment our going

Bo Stanley

Thanks, everyone.

Operator

participating. Thank this gentlemen, and call. you Ladies concludes today's for conference

may You disconnect. now

Sixth Street Specialty Lending (TSLX) 5 Aug 202020 Q2 Earnings call transcript