TSLX - Earnings call transcript Q1 2022 | Sixth Street Specialty Lending, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the Sixth Street Specialty Lending, Inc. Q1 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. now Ms. hand would to conference I speaker, your Instructions] like the to over [Operator Head Investor VanHorn, Cami of Relations. Please go ahead.

Cami VanHorn

Thank you.

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

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

Joshua Easterly

joining us. my With President, thank and Simmonds. you and Good our Stanley; everyone morning, for Bo partner is us Ian you. Thank and today CFO, our

highlights pass to I’ll quarter’s and today, financial quarters’ remarks the I Q&A. to call reported review After and to origination annualized first financial $X.XX, this detail. of corresponding per Bo we an an of net provide market the before XX.X%. results will investment more income on quarter closed of $X.XX, return XX.X% adjusted opening our conclude in Ian of yesterday, on per And corresponding over equity share quarterly For our results, annualized portfolio. of some adjusted share final the equity call net will results to discuss activity to this it and income return

of discussed cash was if unrealized these inclusive that fee our in incentive portfolio marked to and normal realized to course. from of reporting entire tied inclusive net of share end, our of income quarter accrued of call would to be incentive in – gains remainder $X.XX gains perspective, related capital income incentive fees expenses had payable was investments. per quarters, share and and fees $X.XX require – which trigger non-cash protection, of respectively. approximately per and for approximately these of would this would This of gains fees accrued if recognize accrued be payable share sheet $X.XX previous QX expense investment recognition From debt prepaid amount we capital per quarter fees our are were paid previously in and reversal cents was net a end approximately which QX. cumulative or $X.XX, valuation share investment income on not at accrued capital investments, as The balance per the $X.XX As the gains at

– guidance in earnings power income Net fee driven quarters’ investment portfolio and our sustained core our earnings reflects investment from was income income from strength last continued supported specific net our income This above unrealized in coming was company alongside the interest our a by dividend activity provided our investment we net portfolio, call. levels net yields. result by gains this The portfolio of and primarily income a quarter’s events. portfolio of difference net between

US we economy. operating will factors are months. Looking [indiscernible] rising ahead, global pandemic from significantly for environment facing in which rates, certainly last changed a has headwind the geopolitical impacts inflation, Increase the few and an the global over present interest

profile the impact during From existing will maintain We on of to on is of of environment to liquidity the we credit in Ian facility, through XXXX, liability understanding further mind. enhanced similar on the rate detail the our in revolving of extension into maintaining our invested later call. the our heading commitments discuss high-quality a perspective, discipline asset positioning top we expansion quarter side. our further early the businesses macroeconomic and interest unfunded uncertainty the approach of building which COVID However, of a durable inclusive the side, have in on liquidity

in we results saw on seen movement for impact financial upward Although meaningful yet primary the rates two haven’t we during QX, our interest reasons.

an experienced rate average contracts outstanding are floors is our mass until matched our of downside debt Once floors, liability weighted of our rate an QX, On in resulting seen protection the increase [indiscernible] reference rates falling cost preceding income rates the had from of to debt for sensitivity one the which floor unsecured given environment, reset average the our statement. total investments of In our through asset floors our end as the above On quarter, environment on impact this asset of we of levels. are benefit up arriving act recently. rise side, a a liabilities mechanics relatively of side, in able we impact flat we quarter quarter in the at are remain swap exposures. the of floating how

side the rise further weighted the average cost as see, rates asset to – the average interest Given for offset speed be rates which our will XXXX. expect risen increase of reference to-date, at us above in debt from the have we

asset positioned portfolio Although very benefit [indiscernible] from on rising impacts potential to of interest play the have Today, the our know you out cognizant are the a anticipate our remains as coverage sheet, strong across fair environment if confident sensitivity our also the positive lender borrowers. balance we of we to companies, we this rate void in we’re underwritten.

primarily like are high-quality quarter As said overearning share dividend of This we from value well. and and the per we unrealized asset pro end, know that past, capital At net and gains a our by in net $X.XX structure from share asset end top of growth at and driven net on X% continued base was share on the focused per we year forma businesses industries per of or value $XX.XX investments. was $XX.XX. investing

return trailing shareholders resulting have Yesterday, July asset value economic reported $X.XX in the total by of base been two-year of our value approved Over has dividend of X.X% of increased June distributions a record XX.X%. of as distributed, period, Board XXth. per and share net in to $X.XX book total on XXth, quarterly a payable

payable our – our a of share as earnings shareholders Our relating Board to QX declared supplemental of May $X.XX earnings record on QX to XXst, to of dividend related per XXth. June also

per for impact spillover share pro asset share the approximately per is forma We estimate dividend supplemental QX of was $XX.XX. Our ’XX the income value $X.XX. net our

to [ring firms Rating and published minus – pass upgraded I receive upgrade, notch I’ll With to annual BDC outlook. of are of is BDC supported Fitch share pass Bo our to discuss upgrade wanted Before from seen reported sector ratings on BBB agencies the note that, to activity. Sixth TSLX with such a Xth, to firms leading are over in ratings universe] April decade’s the Bo, one their it firm XX BBB center, worth quarterly received Fitch review pleased the Street only one be the Specialty [ph], consensus returns. I we to over stable to there’s for Lending to holder Fitch sectors a it a its investment strong the now Of as performance, an flat by only

Bo Stanley

ending representing the to – and in high activity Index, markets yields our by discovery with QX XXXX. for X.X% of start for the lead equities the quarter uncertainty in their to environment the worst for markets in volatility led with observations These sharing financial and macroeconomic the in market backdrop, invasion down Yield some market the reacted February. since fluctuations buyers factors, the Thanks, These and on in Ukraine, ultimately quickly and upward earnings in during M&A like since an a slowdown of Josh. in QX. ratings heightened last broader coupled I’d inflationary quarter. resulting S&PXXX markets private sellers, public US in Russia’s price movement period to particular, call Public a High X.X% of quarter the

the lien end, taking we with M&A respectively the relative [wides] expect by where back capital widening [ph] increases, materials what tighter volumes respectively. the historical and of be see and at scarcity commodities. to reflecting lien At some muted this opportunities buyers from activity alternative of we’d points, XX Pivoting needs, look loan the inflationary middle step traditional there differentiated leveraged spreads, across mid-March. markets the volumes solutions looking take can can decline first our Low we lien and of ahead, were the markets, compared to expect explained With through if matched provide the reversion loan spreads than XXX ago. more XX certain were private second to capital raw and issuers As expertise. the These immediacy of of a lien goods, new driven capital movement leading the reconsider in as points volume is we also XX% likely time cap were issue quarter now down peak much a to second of driving and and to first a to X by and an where to volatility their year environment, spread trends by with was markets periods. basis price basis

and X we’ve that driving seen in these estate, exceeding across the Over industries several sectors supply impact as the to consumer. prices demand months, last real for up as XX such the automotive energy,

a on outlook. will government seen strong house from equity Given consumer for or towards prior prior strong has will services benefited Household chain high wealth – we of be that longevity provided higher generally issues far as transfers rent of exposure these demand our growth support that Demand to With portfolio weighted industries we back from supply been low inflation have margin and the also to wage and are growth has business gains. the increases sector COVID. has inflation key throughout be software haven’t fiscal higher compressions heavily impacting soared companies. thus services, post-COVID, price the increasing

in pressures inflationary We continue with mind. monitor construct to and our portfolio

activity. portfolio to Turning

QX and Our in commitments $XX.X totaling respectively. companies. XXXX, new [upsized This million, [ph] portfolio was in funding $XX.X slowed two million a after existing to] across busy distributed

both space borrowers. on their growth new lien also new our including investments the first in companies active quarters’ capital XX% providing existing funding businesses Our by were and value-added solutions. loans software investments quarter quarter portfolio We of this services technology were the needs, in and served our existing supporting during strategic and this Lucidworks, our

new a quickly with sector revenue senior closed allow Unily experience We provider strong borrowers, JVC lending space. of with believe financing our expertise acquisition has software of is just secured market. before fund addressable terms lending provides us direct Sixth that In European base churn recurring alongside historical borrowers move employee Unily million this Street’s experience a and $XXX low that certainty by to to amid competition the large of direct in and and strong we growth.

the pay in realizations across On the highlight Resources there made downs three of E&P example of capabilities Two our the partial energy Street briefly for up of four two an and as upstream these Verdad investment in repayments during XX% off and investments MD activity platform. side, Sixth the companies America $XXX.X of pay sector five, realizations. million are our which We’ll quarter. were

materially our energy lien sourcefire loans form the a first million facility reserve $XXX in term and lower improved an investment in return our reflects company investment of attractive so capital. refinance allowing through credit to returns, bank commodity development profile. in risk to investment based loan upstream approach, providing strong opportunistic we companies a environment, led XXXX, in the at to market the Verdad that team ultimately was the profile Since to [indiscernible] in that cost the Our company’s improved provide price due a

platform Chapter term As we held Sixth a in XX% company filing investment MD loan made $XXX amendments initial in XXXX, an a for we series what XXXX. Street resulting of October the America, energy ultimately first initial deal. closed refresher of lien by November in Since led on million team there’s on of of our a where our been XX investment, the

allowed resulting capabilities management our bankruptcy of December to the along from us asset in of reorder XXX% a Our in first the capital successful a with base XXXX, be with flexible emergence value-added lenders partner, equity. receiving

was at exit X.XXx Brands, further create made notable the was shareholders repayments, During After value MD of and portfolio companies. by ABL to our portfolio demonstrating Energy, in the several were decreased strong investment the underwrote initial retail a shutdowns sector one a generated complex our weeks QX, balance XXXX, for providing during of the America our quarter representing in we borrowers able investment we of sale and our our from in in interest exit full global by capital when six ultimately is for in and energy back August of XX% other industries. a MLM, to One in needed in exposure this suffering play time we XX% Because MLM, XX.X% value. which impacted IRR during the our our our time, positioning, We the X.X% and ownership to At a these offense Brands to prolonged ability the completed Designer the WildFire COVID Designer situations. pandemic. for XXXX sheet investment X.XXx of to IRR a retail of company. two fair

unlevered Since its company outstanding retained on prepayment term this balance of balance. with we’re of originations ABL across levels premium IRR into in During realized direct quarter’s On generally, exit, our credit average our loan and investments. heading pipelines March remains the generated we facility of the gross outstanding and optimistic X% lending the saw activities about an receiving are Brand beginning inception quarter, The Designer funding inclusive the of competitive. the XXXX. we rest XX.X% and a we landscape fully pickup an

expanding pick We of to our platform. alongside the continue opportunity our to in is which selective remain spots growth Sixth Street set, the

As a demonstrated points Yields average slight up amortized weighted on in to income-producing and yield was our repayment a are deploy slightly perspective, to names, look of underwrite average investments, our across this debt by from funding exited quarter’s weighted of XX.X% at for upsizes to E&P ability a retail us where and yield generated securities quarter XX.X% new The on up returns during complexity cost opportunistically navigate create ABL areas a XX.X%, we’ll from amortized the capital and portfolio and impact activity quarter and our platform’s excess to this cost. yield quarter-over-quarter, from ago. returns allows From to portfolio. have are this on X.X% at about XX compared yield basis including investments. year positive

weighted have their across relatively Moving our whom credit respectively, a we to X.X stats, our interest to coverage and relevant, weighted conservative detach continue points on and times composition at portfolio loans times, core X.X are attach metrics times. average and of average remain stable these for X.X on the borrowers and

EBITDA the revenue As average of portfolio and respectively. XXXX, QX $XXX our of million, weighted companies was million core $XX and

X Finally, rating the rating of the of of be continues X.XX a scale our strongest. X a with performance with on being X, portfolio average to weighted strong to

that changes detail. at non-accruals over the like in With from less performance minimal Ian than portfolio We I’d it have value, quarter. to financial continue to that, with fair our turn no to cover of more to prior X.XX% the

Ian Simmonds

Thank you, Bo.

repayment of quarter of dividend net were $X.XX. slightly and the net from share QX, $X.X activities. impact $X.X income $X.XX, debt investment a net prior as of investments share per billion adjusted end, result $XX.XX down was were yesterday. principal share at or quarter prior per billion outstanding At net For billion, and total quarter end Total the the was per adjusted declared income that assets $X.X supplemental generated we of to

Our quarter-over-quarter at times March X.XX average times our and debt to X.XX debt equity from to decreased equity slightly X.XX ratio XX, was to ratio times.

capacity end liquidity we have revolving and to $XXX enhanced Post-quarter unfunded maturity credit of quarter to portfolio billion liquidity drawn. amendment eligible continue million to further revolver end, against We debt commitments $X.X company unfunded by closing our profile be at with ample an facility. of our

XXXX. under of support remaining increased funded debt billion lending commitments average line remaining interest forma of funding by commitment $X.XXX related the April on years. in of facility a X.X from to our the lender back extension, funding circle to the With final revolver with was ongoing unsecured our the debt Josh’s is XX% the of end, to upsize a the maturity rates. we weighted X.X extended life mix weighted from $X.XX life take quarter for partners, to $X.XX only I’d moment represented debt billion to an quarter. these average upward through an the existing prior investments Pro our billion by comments years, like on At compared of in to movement and

the basis rates from investments the During of with assuming reach projected from constant LIBOR this of an the points, average QX, basis. in the three-month was approximately the been our yield impact three-month basis illustrate expected accretion share but above term XX incremental and potential to our can on average have floor We to end, increased impact basis To floors, as per floor points every on further approximately above average an quarter quantify expect year end. call, annual to last our see SOFR we X.X%. one rates At as curve $X.XX would our timeline in points forward our May. since X.X% net income ROE earnings, XX or to the quarter the of XX sheet in XX debt using spreads balance remain points average basis accelerated April. And of we our floors reference and by increase time of

of of equal basis ending net income in base rates of or else quarter share X.X% would annually. to per incremental an accretion ROE as all the XXX points increase imply Assuming QX ’XX, $X.XX

gains Moving on position There reversal primarily added share to Slide on adjusted gains main from our instruments, booked our valuation share. extend per NAV, the as spreads to our designated investment base that are X The on growth, – $X.XX against MD $X.XX drivers income dividend our unrealized to share quarter’s $X.XX outstanding the credit sale. per per Walking of as of presentation as realized which America, bridge. NAV the per net on from were mark-to-mark these this per our hedging we upon on $X.XX there in NAV share. to with negative impacts the $X.XX amounted share. from And related a we minor negative impact materials, of our was of net not contains widening portfolio swaps reduction through

Finally, from investments share portfolio there per events primarily company specific impact share, cents other were realized share. positive was were $X.XX and a $X.XX changes, on $X.XX per gains per

average rate the relatively net lower by rates, compared at in weighted Despite rate representing the interest downs reference the elevated in our prior quarter. were investment incentive Other dividend Total Walking slightly quarter prepayment timing accrual we remained activity expenses, reset experienced the the approximately from Moving Net X. to on the rate was QX. income reference down QX, during and our the to $XX.X driven QX. components $X.X given was upward were of $X.X interest $X.X $XX our through million down of for million, on impact portfolio fees, $XX.X unscheduled non-cash million, Other gains average income, upfront million, million quarter-over-quarter, income $XX.X quarter. date accelerated Slide $XX.X quarter to the fees the flat debt interest X% on million pay from the from from operating in million one to amortization million, and quarter. on quarter detail in results to prior capital compared primarily outstanding fees movement fees excluding prior prior related lag activity on of was income swaps. repayment compared the in

Before our ROE XX.X% back it income net compares remarks. into wanted our In based call, concluding we annualized QX, the investment on of ROE earnings to for income and target our XXXX. of it XX.X%, to the net that, over an turn QX metrics. outlook passing back circle for to year, during based annualized Josh, return This Josh on articulated heading generated adjusted as maintain equity like of I’d XX% on this I and on With ROE adjusted to rest XX.X%. we to of an to

Joshua Easterly

net I’d to record and we’re of by net approval encouraging Thank have value for for under on the to-date, to months. May vote. years, Annual you, shareholders to upcoming past five XX five years. with seeking issued granted upcoming issue like our close the [indiscernible] shares be remarks value Meetings authorization Special Ian. past To prepared today XX never below clear, our Consistent we asset below us asset our shareholder effective to shareholder the participate shares prior

no have do for financial view an plans may of so. We current authorization the creation tool flexibility periods only volatility. value market to and important and We

plus our on value this of to above offering, on asset overearning questions anyone a would capital net topic, raised below very that issue is As sufficiently equity there equity trading only to high authorization when years so be shareholders risk has asset exercise shares to eight by opportunities adjusted us. the we evidenced – for cost don’t since value dilution. high. hesitate reach only disciplined our part our are if please associated and to out return sufficient accretive would our any ultimately this We’ve net initial last public basis, raising If

presentation also section the website. in Investor our this Resources’ walks through provided of have analysis We which a

for the extremely returns road for the mind, for the the we proposition final value only be value are thought a our ahead. a market optimistic of of to underscored been As of shareholders, current conditions franchise alternative impacts better source proposition With as both The sustainable. never shareholders. for business today’s we believe our in call, our we declining from believe about purchasing our and inflation of have which clients has power

to As our periods in clients, with prepared through capital provide of volatility in public and speed we’re certainty markets. for

cycle – to implemented significant liquidity the Fed, the tiny a credit we in low These on market our of by positively of past. monetary offense profile evolve periods – continues As us in play the have the greatest positions and event based policy believe been dislocation to types leverage of our outperformance dislocation.

team we to the Sixth interest Specialty provide gather XXXX. [they’ll XXX To been and Austin, further in] refreshing in off motivation predict for Texas. Although our thank interact We forms Sixth approximately of is what office the colleagues friends the how Operator, site, collaborating able stakeholders. open as with clients to we that we your for of on the wanted feedback that new be Street rebuild your strong continued today. refreshing tradition and ahead, continue forward you push Lending. questions. is into sort call our in out will cannot stakeholders, ideas robust cycle. how up the annual you person has we to business the time it please [ph] for especially in model Street of I in and I closing, thank – know to and face-to-face line look that, With In resuming be

Operator

Thank first with comes question Mickey from Our you. ahead. [Operator go Ladenburg. Instructions] Schleien Please

Mickey Schleien

one. I doing rate floating risk presentation, weighted the with ton I you’re in table expect Page going remarks, that But the increased. average that mentioned expand the the Josh, interest you of start questions which reflecting when On your But as to the I’m the does, right. your higher net rate But spread And your suspect repricing you everything margin interest probably Hope it shows that in Q, never in that XX equal, with everyone. I’m investments assumes rates. of rates. of interest at was remains sure to down well. a assets. the lag on look would LIBOR prepared came as on Good investor there’s Yes. morning,

will private I’d So, ask you terms to your spreads? lending short-term the view react on higher like what’s market how maintaining in rates to of think

Joshua Easterly

was you Yes, repeat last part Mickey. What question? part Can question? hi the the that of of the last

Mickey Schleien

LIBOR of looking is last The we’re SOFR a part curve at question curve very that’s forward or you know the steep.

what’s react in of interest view will So on the to spreads? I’d short-term terms like to how maintaining private your ask higher lending market rates

Joshua Easterly

for Yeah, a us. question of top it’s mind

So the all, is, has ceiling think to on about that curve think when the business. positive I or adjustments, first you the they’re the extremely spread one LIBOR had same thing of curve note an of about impact credit SOFR

about year, LIBOR at look income know in in they in were spread between this. basis, income a add back net to have to our our estimate September don’t only that differentiate people pricings to not They $X.XX line, would you an had and If last get income line, hopefully investment free. to through of be we so thoughtful floors. investment happen And tend market, and to probably will be about line, $X.XX tends to on but today. risk you What we IRR

you we’re XX% an at And doing and that’s IRR reduced versus know, hey, we you hey, realizing or not free. that still something therefore pricing spread, alone lot risk a coming XX% were really – not know that of from a realizing with a so doing And IRR. or XX% the maybe

don’t return And being does in for a – equal, our sure spread allow hopefully risk you the industry and captures question. things free the so or it all key and instead mass much think I SOFR of and we tradeoff the reacts I want that between how industry one And of the between at question, think free coming you LIBOR. attribution low return for industry risk know, the But think you – is, I we key spread. I sensitivity book know does is – differently. hope I have one

Mickey Schleien

A for level Thanks, taxable convertible housekeeping is also couple of of your And settling undistributed which the expectations Josh. income? Yeah, up? questions. what I coming What are understand. the is

Ian Simmonds

one. Ian. I’ll Hey, take Mickey, sure. that Yeah, it’s

prior months to had On to in the convert, maturity. make we election six an

that So X. basically there’s is I elected minimis settle we million in principal. today. stock, about $XXX converts Because all-in And settlement million amount And it’s the on primarily and stock. out of think of in was $XXX Converse’s is de about, that cash actually outstanding million $X of about February principal to that amount

Joshua Easterly

slightly mean asset of although of valve value, above dilutive on the because earnings undistributable slightly, issued $X.XX earnings. say, could accretive those And NAV. know I slightly I of be will that net it’s the be would least is you

you realizations earnings expected earnings plus undistributable we some So above $X.XX of the from know expect in current growth undistributable marks.

think I obviously think us leverage can allows ratio. above give obviously pipeline efficient. enough We know our still plus or have to have that make gains spillover capital expect steady leverage don’t, you’ll target income you keep you’re you dividends kind – of unrealized that we If special we in we flexibility. so, to grow use us sure and And to

Bo Stanley

so a early felt think a of maybe we tool one, an and some way goals. conversion we it special you difficulty] achieve last in that efficient And that’s [technical those should addressed same the then way was we of to QX year,

Mickey Schleien

What was? balance did understand. I UTI you say the

Bo Stanley

$X.XX per share.

Mickey Schleien

X-X?

Bo Stanley

Yes.

Mickey Schleien

– Okay X-X?

Bo Stanley

Correct.

Mickey Schleien

questions. my me Thank for this it for That’s you taking morning.

Joshua Easterly

Thanks, Mickey.

Operator

Thank you.

go Fultz question JMP next will with Please Our from come Securities. ahead. Kevin

Kevin Fultz

Mickey’s for my questions. Hi, questions. you question good taking first morning similar My the of to is one and thank

past shift You to see seeing to of less form other know Just if the the lenders? loan outlook environment in you competition curious documentation given widening market improved you’re the from more economic a that in in a lender-friendly or the shifted are has either spreads? beginning months, few

Joshua Easterly

think it don’t we’ve Hey, Kevin. seen yet. I

markets think I react One public the markets. couple of market. a the in is, typically to forces kind private there’s slower

in The the capital that a credit you somewhat I there’s know a think some second shifting. think happens, muted private impact had of amount – the market, of formation which I decent thing that is pendulum on

I of the think tailwind. kind a

those So I think headwinds. are the two

of the markets that think The The from public react certainty for the the first private headwind there’s formation will that say think of is given markets the which kind – it capital volatility it’s you know expanded of the people allow that over I slow maybe TAM, the The be credit, want I a TAM shift. of And public volatility increases what is I context goes tailwind increased is tailwind don’t for of private, think clearly TAM markets. private to time. to I with willing that, that the to away a which pendulum pay is. has in

Bo Stanley

say, in because slowdown you out it’s also earlier supply of earlier. this lot know say created M&A year, been a I’d the there deployed that hasn’t I’d

will the in market, tension keep So, I suppose. that

Joshua Easterly

anything Well, add? to

Ian Simmonds

this the haven’t know point, of evidence both funnel to terms you seen spreads fill lining know those seen You start the think better remarks, statements, we’ve know I at off, that companies a I be we see as play top going spots. there’s to of though my offense opportunities in balance you noted some or to with is we activities non-sponsor different market in opportunistic our particular to mentioned of their up in as Josh sheets, and In so. the pick of as this shore valuation looking

Joshua Easterly

certainty and which and sponsors TAM the is each markets looking volatility and the for from expand, capital issuers But surely issue. help should to in public going given

Kevin Fultz

helpful. all Okay, And on then great. just leverage. That’s one really

stated X.X leverage this is Your X to target quarter. range

end that comfortable has of changed bit still in the you environment? that Are low your Or current you’re As at target. range? of the a offering anywhere target internal end, quarter within

Joshua Easterly

– think, the operate end the look I think world, going no, So the don’t given range. we’re uncertainty I in the I top at to of

the spreads capital leverage know and want a XXXX-XXXX. to commitments we outperformance in how mark-to-market in outside And sheet. volatile to feeds have our dry piece side to of given and the you business our to also powder quite about balance got unfunded the of I about moments, the of how which liquidity whole is, invest you on think think of frankly and lead our we – burden – both asset by the bunch change you think the

real capital capital economic know, I liquidity we think coming, which make our we top probably industry return to opportunity means, investments liquidity as XX% opportunity to two to was capital, and think the our of us high and on of the equity to relatively the XX% XXXX a And you at enough our XX%. on given of And cost. environment, – change given about operate we’re had or that I think end don’t you coming, means, about over equity leverage, of return years. there’s having the has which going relatively those the know there’s that function in a enough had volatility for

Kevin Fultz

Okay, leave on that quarter. Congratulations there. it Josh. makes nice sense, And I’ll really a

Joshua Easterly

Thanks.

Operator

you. Thank

O’Shea come next Finian will Our from question Securities. go ahead. with Wells Please Fargo

Finian O’Shea

preferred growth you well. Sorry, structures. about peers it’s to budding on your last quarter mute. about in We’ve is. of heard junior that equity you growth Hi, some from how the know as morning. everyone. see talk equity, given something market. of that lag opportunity – know Bo, types you provide Good or faded? the have late-stage a still But Can talked in logically, quarter. you the corner? obviously opportunities hoped to too didn’t much have these we those continued this assets that’s Or Is we this around to have would We of those lot Josh

Joshua Easterly

platform, and for opportunity. that data amazing which going So most for The long CEO is an will say think question say, the the amazing think to and example, those we that opportunities appropriate given to transaction Street is is within the fund. how investor we company, it’s data the I Lending Specialty be an is a for is think the time. structures in however Across definitely evolve Sixth nature we an of

Specialty Sixth are that dividend so our and the Street I know to And sheet business. positioned the a how The as into coming. pick fit ones we’ll those we’ve think question is given about opportunities you the we right liability that think Lending, balance

your keep had think during about to people cash, liability. but you in pay because I liability business, the cash it’s some the to pandemic, stock, you rig status, realized your you had their a really flexibility think to pay dividend dividend to the had as people to there’s in

right to and return sciency. next the businesses anything even still some years, there. the opportunity there’s that you appropriateness right capital, you on know or is we couple know you right question economics and the spots over So, the to that think add? and market pick growth But there’ll that think I know Bo, have the be still TAM and addressable

Bo Stanley

Yes.

Going bit in through you opportunity valuations think private the a know set you the resetting. all with pause I for know other, we’ll markets that

be the and platform tool, the everything with strong and said quite Josh across it’s active having a there property we’re spots, that opportunities will with is the that our think the and we’ll recognition. market on I pick the brand

Finian O’Shea

platform terms Structured Sure, the about to want Group. the ancillary saw you Anything there that’s helpful. the groups set Group, on platform? Josh BDC new talk couple then, director benefits or level, Capital this know quarter, you And up of in Products [Northern] [ph] we a to

Joshua Easterly

the for opportunity, commercial Thanks my friend.

So Northern Capital. I always loved

Dryden, most hired Mike be grows. a think for and that value-add You generally Capital, time. be of long, known we Sixth and we to proposition value business the know that that have long we Northern We ran we’ve in And who you a such – will we only at portfolio Credit know, opportunities long, we that to can it leader think a the companies space On lending great definitely will Suisse. come visits platform. product Street

know, talented and partner to, a a assets face. came but asset was then opportunity an in that as you has there’s time be that know, and for and Mike a we in bad You you know we’ve lateral good to known I there super long you got will brand big think sensitive

be of for think we the Lending. think only returns enhances organization we and discuss mosaic build most so Bo definitely Sixth And want to continuing to there the Specialty will Northern and Street set skill Capital. suggested

Bo Stanley

you brought know CEO that of very technology businesses Jeff a four-time have Stone to Now help to is effort. are us build on excited we out

companies of they will experience common in with building help You know this you and problems know lot businesses. a our, portfolio scaling

from next years. that over I know to of the him and You so think couple on have group happy super you’ll hear more

Finian O’Shea

Thanks Great, that’s much. so helpful.

Operator

you. Thank

will from with Hovde. ahead. next Our Rowe Bryce question go Please come

Bryce Rowe

Thanks. a activity. source the would around or you is mentioned of know be Maybe maybe speak on Good that market be? you March. in of of pickup start could of Thanks helpful. some morning. seasonality pickup color kind to would the to level Any Bo Wanting lot. just that business the you more

Bo Stanley

M&A always of QX there’s bit seasonal active quite QX Yes, market. lag of from as it’s an bit a a both, is a generally a

I So in we as that was pretty the public bit of did seller little That’s you typical, sort valuations know activity in have think the in generally and the M&A buyers pause market. is this reset on quarter what know markets. a you unique

down. and in so my So spread in to activity remarks, slowed that, saw addition as I mentioned slowed widening, refinancings we opportunistic

know the but pipeline our opportunistic of private, begin to also in public to you the companies back of know really more quarter both the half be in opportunistic fill you and started to portfolio valuation to funnel unthaw M&A, environment. with top saw the You that in looking

activity. saw pickup you Secondly, in a non-sponsor

As opportunistically periods both strongest you in invest know, the internally to shore balance will sheets, in look also their these companies growth, to for in up M&A. but

going already what So we have pretty we’ve committed the through opportunity on to, between you bullish know the set. we’re that pipeline

Joshua Easterly

or kind than in move the a two, would would we unthaw a say quarter especially that was And lot valuations. Bo know takes usually of you given expected have happened sooner tech you little it a bit,

Bo Stanley

Exactly.

Joshua Easterly

some typically than little in a it, volatility gotten refinancing, and flow, opportunistic think quicker hit some which market you bit feels than both like seasonals, I and it think of So terms market thought. it’s is have I would volatility that’s I M&A

Bryce Rowe

volatility you continued guys activity, of like prepayment you Or you And slow higher will activity? feel repayment line know or into you do good here know have rates? with and sight the activity exit do with repayment pretty

Joshua Easterly

I say unlike Yeah. sensitive not mortgages, prepayment Typically would we’re we’re so. on speed. to a rates

portfolios ago, impact up portfolio you and – sign some expect that that that will at We’re so have that events. the would know say a that idiosyncratic that companies and we for discussed sale. would know on there’s you or you our spreads – were second I

Now might trade that didn’t before. trade

was given very there of was activity you books, And the energy repayment know so the be in involved commodity relatively repayment the you will in – that you activity. environment of QX, know price kind outside little there know

get back price Given levels to normalized I kind to it would that expect commodity to environment, some extent. of

Bryce Rowe

maturity it note Okay, unsecured you may right. how curious in sheet. debt space? answer. unsecured to this more the early widened and ’XX for with just the know question side today know you’re rates how And might you handle the in spreads kind got know haven’t having it But thinking you’ve Maybe widened if were you about right me having on be BDC of balance tough a today for all how you one just – you or handle might of

Joshua Easterly

Yeah.

of commitments. So know liquidity spreads is, news look, than less total to X have commitments billion franchise about the upgrade unfunded unsecured available beta unfunded burden X.X of X.X a The X.X for we quality think billion billion great billion – have of and draw growth I the given built. you the our we getting other, especially building to

I million? maturity that is like XXX think

Ian Simmonds

XXX.

Joshua Easterly

XXX.

optionality that Ian, I it so a what on of and to reward me adjusted flexibility LIBOR probably that is XXX have think lot like maturity? correct some a that on do what And – It’s is flop I’m our and if we line like basis today. wrong, that?

Ian Simmonds

Yeah.

Joshua Easterly

LIBOR At XXX.

the value it’s think or If fee. LIBOR you line you capital on XXX, of of, a cost think about marginal yeah I offer about a revolver commitment fee because

be commitments, of if And cost unfunded that we think capital. know to to XXX so on our were we we X.X X.X actually LIBOR we have And accretive got billion actually XXX, were I billion, XXX. for do is would and revolver it you a

basis and And liquidity. ton saving so you a up we if to do actually it $XXX were online, you XX you a have net basis marginal of pick points know on interest basis a million

Bryce Rowe

right. All guys. Thanks, That’s helpful. Okay.

Joshua Easterly

Thank you.

Operator

Thank you.

Morgan. come Please will Melissa from question Wedel next J.P. go with Our ahead.

Melissa Wedel

Good my questions morning, today. and thanks for taking

stance First repayment context of sense but normalize current a it rates. all in expressing the about with on what’s of happening make activities, bit, your will

that the you had lot years a recognized sort upsized the over driven have guys income. of We also that fee of have repayments

thinking on you how repayments be the item for can normalize? Thank line know as fee trajectory income that what and you’re of curious the the sort I’m potential you. So about

Joshua Easterly

you is, your as I if that income prepayments it me I correct you – Yeah, about to But heard, the say, on income it was wrong, the I can hard can think think question? think do of – heard I was statement I this really heard what I think think I impact normalize? what you hear.

Melissa Wedel

it, Josh. Thanks. that’s Yes,

Joshua Easterly

get try I’ll fees, typically think I Look row to is of great. a kind This you for Okay, the attribution us. quarter data. exact

accelerated exact X fees prepayment the a amendment know fees data basis.$X.XX, you that what it, share $X.XX quarter. per is $X.XX call annualized on historically typically average, divided by quarter per an between So we get is, OID, basis on and

think was I this $X.XX, $X.XX $X.XX? quarter to

Ian Simmonds

$X.XX –

Joshua Easterly

$X.XX.

quarter. definitely it low was in this So

So know historically think you you I know that’s how operated. we’ve

or I our be worst $X.XX think of and $X.XX could you so expect know year would to something probably kind say you know yeah that. quarter I it to per more you like

Given activity you they’re quarter-to-quarter. levels, surely but you lumpy know that know,

Melissa Wedel

Understood, thank you.

Operator

you. Thank

Please Lynch from will next Our come go ahead. question with KBW. Ryan

Ryan Lynch

Hey, good morning.

QX about a I very question rest correctly, like. said in half it of of slowdown you think economic seasonality First in looks the And like sounds robust what with kind was if Bo, had, think XXXX your driven I some kind I the that understand partially of with, your by, I pipeline inflation, combination into had Also comments of bit uncertainties second rising economic question things and is, they’ve been just because issues, or into high confusing surprising the bit geopolitical My as labor of out as I with uncertainty to decreasing there. QX – is a been QX. growing guess, know little little XX valuations, equity just end because ever seem now you a kind XXXX.

building? And building uncertainties economic curious pipeline so seem at why to the are same be just the on the I’m is of time that also

Joshua Easterly

into question. that around rally that square you do How square peg

you, dry think this with powder you the fear answer be equity of in the I is and long-term to activity private a there amount think And equity-driven. of war. greed best there’s And is private of is when And always thing, honest investors you them of which lot know in most know time private the the I to out the invest a ton is to dry volatility. put to powder there’s starting sometimes there that you’re equity. a see is which lies

is that example seen but Street know can company, that’s that equity-backed great the difficulty] Specialty – like you’ve and company say You was a a was in know it [technical to private inside which a publicly-traded ventures. portfolio, Lending you not Sixth – from

money uncertainty. know you know the you’re you so seeing certain to putting sponsors you industries given in And know, work

Ryan Lynch

fears at are uncertainties has point. the well That because all obviously wide those this operating marketplace, with – known eyes all our everybody’s open Okay. and in

So with least at quality are companies good pipeline? You that, quality has transacting flow are of these the be to weather the to they noticed companies improved transaction that quality that any Have in in know deal higher or of change? positions potentially you headwinds? the potentially

Joshua Easterly

there’s questions. everybody I one think nuance, sees I Look, think really are say the good I These uncertainty. Yeah. would

going on people very is divergent out. have views I play uncertainty the to think how

basis and still employment – unemployment how or lending, see going That’s typically grow to not are I You points I planning activity I points. say going the can that’s increases you there’s think divergent employment not, say a gross through and I Soft we think, know soft cost stronger you earnings. why models be know there’s the think to that push have have given maybe know seen XX XX by never leverage by around do businesses can’t that if with I far be gap. I recession unemployment high don’t basis operating haven’t you deal able But you gap? think I worldwide landing why margins so maybe to there’s business mostly the increase and clearly views. have seen

are you know views, know think valuations of businesses quality divergent you environment. think the have high. so are people the there’s think I And The but different views I given very I the

structure. I invested where think by we’re impacted in we’re less given that capital

Ryan Lynch

time appreciate I your Understood. Okay. today.

Joshua Easterly

Ryan. Thanks,

Operator

you. Thank

question Kenneth Markets. Our Please with RBC go from next Capital comes Lee ahead.

Kenneth Lee

taking for my thanks question. Hi,

industries But Just current a shifts you within Thanks. portfolio. across given positioning, pretty the bit just you’re little about now. right across if industries investment the It’s I near-term portfolio marginal on the just thinking talk outlook? about any diversified one wonder and backdrop how

Joshua Easterly

concerns question. this that’s capital price higher ESG side, private marginal there’s the factor What and that of versus asset there which environments. it’s sector, two the you is less as a historically flow Look, is, companies factor I the But and mean, there’s terrible in it’s are shifts. you been factors, been is, energy ESG public capital across prices a outflows lot growth into big is of is, energy know both which have high interesting second correlation capital, feels you big wind one muted the putting have focus issues sector good free that or given the think like energy like been like know any space. to I commodity people and more value don’t Yeah, net we been concerns. cash don’t given typically I an allocator a think is on

our – So, I exposure gone significantly. know we energy’s – net down has

like I today. book – X.X% think the it’s of

you but amount there XX.X, retail, do portfolio is is come to and will down and know precision retail of strong historically consumer think how and I that’s kind our you of flushed the as it. know as high something about the today or we I backdrop think XX% the know in retail, the On thoughtful Retail well. from of there’s But very a a room had know you exact is I be that you’ve been you was or has like kind that. of got strong and got over world pandemic. earnings changed think

that retail And or comes back volatility discounting in, more consumer so and earnings, change. as in softens there’s I might the think

where what but margin, think think we cycle. segments at in on But are those look of if I I under-allocated, for So the you in has bands portfolio historically it’s given the the two our we’re sure, been.

of You add? to I meaning be there for. expect some the there anything know versions to Is

Kenneth Lee

ROE from despite in if may I you XX% they’re know high One quarter. helpful the follow-up terms there. just having maintaining ROE targets, very and Great, looks a the like level of your in ROE

one talk about What and or the you the the takes that puts bit Thanks. just think a you of some can way over the of about impact near-term? One are other? little ROE major how ROE

Joshua Easterly

book then is you we’ve to know that through how portfolio we I ROE we historically you about And some of know economics capital a in how do I economics of Yeah, upside negative dividends good think payoffs, unit our feel how in gains growing is capital you think losses. growth where I pretty current on in perspective, positive. that that manage net function marks. a sit access realized things special there things about when efficiency, mean impact exceed play a manage our some of unit and business net or know the were base actually our and credit yields, our the a – losses. out combination managed so depending credit you from unrealized that which we leverage, capital, a business, that plus address

a so, And impact that to will have positive ROE.

see going credit any near-term I losses. So don’t

capital efficiency and So ultimately a and job of the of done managing good you both. function know pretty we’ve yields

Kenneth Lee

Great, very helpful. Thanks again.

Operator

Thank you.

Our from will question come Tjaden ahead. next Matt Please go James. Raymond with

Matt Tjaden

Hey, good morning. all,

on me for product. question the First ABL

know actually demand tends they You Do drive working capital higher generally products? type inflation ABL in given higher think and chance of capital inflation ABL any to up you a working your might market the loans, and there’s inventory fund for needs. both your drive the cost higher

Joshua Easterly

offsetting the good factors mean, I really been the shape. that in Yeah, has consumer

really, retail gross time. know a margin expansion and know involved income across of pandemic. given at been shape, really we’ve the which lack you look given are for in you consumers statements in platform we’ve the when done, frankly across so you The And good and the Marcus long Neiman EBITDA post quite margin, discounting

so, income then flow of and cash know know you’re there’s you sheet capital cash you know balance you working either income a financing. strength working find or And know statements income need, that you free you capital statement operating more statements, flow, through and know you right, the but

be I on the moment. a so really change for good That shape dime And And have retail could offset. in at that’s the think to sure.

Matt Tjaden

that with following versus the high your changed five level, for how for XXXX know you, and me, the what’s year? maybe year outlook Got up it. at beginning private default ago of one Kind Josh. the you much Last end of credit helpful. more has That’s months environment

Joshua Easterly

it’s pretty low. I still think

if know look book, you trigger pretty XX. at our the I questions and I XX it’s think low. You think But

started software growth of and had recent off those about been I tax. companies have If think and you think good the vintages you credit with earnings the know, the know that you know you has slightly, deals And private liquidity.

feels much we well have it it’s of much so or cyclicals you pretty to not cyclicals. know don’t And that exposure exposure like

’XX to add? feel for Fishy generally do cycle So constructive fall for I general or you especially credit, Bo for pretty have private credit. I about – the anything let

Michael Fishman

XX, the an but sector. I XX question, think, default it’s across pretty alternative think I would I rates expect low

Joshua Easterly

of relatively going they’re where or where are there be to those kind EBITDA that are tell they’ve hurt can’t industries are where inputs be you, can low I margin pass had to to price hurt. industry businesses competitive they consumers, businesses going commodity along

paper to And know cost and know have structure. you and any packaging both pricing know plugged power industries relatively commodity think of that you a I’m So you those high non-specialty but you margins, not chemicals. and I calling into know, no low EBITDA there titles, is

think a are those are chance the higher hurt. I industries being you that know have of

Matt Tjaden

That’s helpful. Got it. I appreciate the time.

Operator

from Fargo follow-up with O’Shea Thank a ahead. go you. And Please we have Finian Securities. do Wells

Finian O’Shea

that you on sorts of take could in our your avoiding this commentary company out there past, in of too you’ve type on And the was where really But obviously. in there Josh from firm provider I a there the thinking type structured well somewhere rescue the asked sand? on for on would outlook the deals? returns you’re Or of environment, a the much preferreds. dialogue is line opportunity of so appreciate that large drawing pick. very more a is the logic these on I I be And because well thanks curve Hey, today’s be bit turns follow-up. done and much to

it hard enough being today? is good Or in So line is just is, a yeah, this not anti-pick? question

Joshua Easterly

just line think a don’t we hard Mike filing. are as have where Fishman – No, I to we

sheet, our liquidity. we at of looking overall are got We balance tons

think rescue like division. our we see funding large we of from being have investors liquidity, tons operating us areas provider in know about the financing so you that a where a I dividends junior balance finding our combination fit opportunities don’t So I of and into of up bottom a right right think to sheet. capital it’s

running structure, we we’re capital the not run. taking Our process were full financing strategy events of rescue historically not And the has risk.

great think what does clean would and which strategy. I healthy our some structures, in prospects, you really know, generally doing the So said like of if this see fundamental many, us I investing like think as then really, secular IRR. question times, type risk capital the you growing I characterize is, return the you we work, can’t that And with of eat is, I many, many companies businesses way is

XX% And callable. so in a know know get where – you of like investment preferred, where you can make structure XX% but you to it’s you

you’re but a think. doesn’t deep down and so And is a structure worse I to your like going your like times, work you’re lot or – that X.X capital of capital enrollment your yield lose

of given know being the so like bonds of have not you investors those fulcrum others. aren’t default like returns probability you returns and think we about or to you and and and of we’re so the we And some there’s opportunities know a be but I thoughtful no hardline

Operator

for questions would to showing call any at now time. queue over I the back I’m further remarks. you. the closing to management turn like this no in Thank

Joshua Easterly

we Look, appreciate Great. really time. people’s

today. actually West We’re the on Coast

going. morning the So slightly painful know time. this people’s But is get up really me X:XX at appreciate we you in getting for

including Day there people Day our everybody so know out others. take families and Happy their with their our to to and hope who’s the in You we Mother’s in think up, tradition, Mother’s you significant appreciate spend listening, life everybody the know, coming I is time

I dialogue. So love we really – the

If you make environment. to your way stop people the given to everybody. New free or in welcoming we’re Francisco, and office, York our back feel San in Thanks,

Ian Simmonds

Thanks

Operator

call. and this concludes conference Ladies gentlemen, Thank for you participation. your today’s

disconnect. now may You

Sixth Street Specialty Lending (TSLX) 4 May 222022 Q1 Earnings call transcript