Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to Sixth Street Specialty Lending, Inc.’s Second Quarter Ended June 30, 2023 Earnings Conference Call. At this time all participants are in a listen-only mode.

As a reminder, the conference is being recorded on Friday, August 4, 2023.

I will now turn the call over to Ms. Cami VanHorn, Head of Investor Relations.

Cami VanHorn

you. Thank

of today’s made like contain forward-looking during Statements number than and begin listeners remind forward-looking risks statements I during of results other remarks made and guarantees that the statements performance and call, are we may of to would our statements. this not Before call facts future constitute or historical uncertainties. call a may involve

number Inc.’s a of materially differ those the the obligation result from closed, our from June XX, of second as to after assumes update presentation Exchange Street forward-looking a such XXXX, the and the to including Actual in posted results may we statements. and the of earnings time factors, forward-looking in The described market filings those Sixth our section a Investor Resources statements company Yesterday, for Securities Commission. quarter no issued to time Specialty website with ended any release www.sixthstreetspecialtylending.com. press Lending,

The today’s the SEC. as in presentation section. otherwise, figures with release Specialty Investor Inc.’s Lending, our under filed Street and is second in are the all conjunction Form ended earnings XX-Q the June noted website should mentioned quarter Resources with available Sixth prepared yesterday on our remarks Unless be also of performance reviewed for XX, XXXX.

purposes. reminder, a replay being call this for As recorded is

the Specialty turn to Executive Joshua over now call Lending, Inc. Street will of I Easterly, Sixth Chief Officer

Joshua Easterly

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

remarks over in our detail, opening financial portfolio. the to results discuss this levels Ian will and final will will in call before I today, to provide the our For for highlights results I with activity quarter’s then to it Q&A. conclude Bo and review quarterly pass call

inclusive return The of results per to the QX XX.X% share perspective, annualized net fee return respectively. quarter net of of we the equity closed From with share second $X.XX on net an XX.X%. income a share investment accrued corresponding $X.XX difference per $X.XX, expenses equity from net financial market per After and corresponding to an of capital and gains $X.XX, yesterday, incentive per noncash $X.XX reporting of valuation adjusted on were reported and metric annualized and investments. reported the accrued adjusted investment income between of income our and gains related adjusted expense fees our of unrealized income share, to

in core This our quarter’s by net strength the investment of earned quarterly earnings our portfolio the as power we XX%. income reflect over dividend continues to base

with periods, investment As from activity-related we’ve this X% remains income lower fees. environment total in discussed in this prior quarter only turnover portfolio coming our of

from reference current by the interest environment underlying here. Net activity-related given investment earnings support core income a now was rates. of forward we’re peak the our sustained any yields shape result elevated portfolio excess forward sector BDC current of rate the we curve will to Based sloping curve, near is higher on dividend XXXX We income. without of the believe driven largely through earnings base the expect that is continue in

$X.XX quarter’s With from on spread The share return and net income realized of net a the basis was from of that we net on per between share remains investments. value per $X.XX $X.XX said, unrealized being gains equity difference on share gains think strong. and this proposition income investment per

net on net of months six generated and first XX.X% investment on XX%, annualized income adjusted the income an adjusted have and equity we Through respectively. XXXX, of return

a we share the issuance. per equity particularly period We operating are increased pleased which during with in share through these we given incremental on raised results; a basis earnings

first call the the XXXX moment. XX% a our speak year-end we earnings raising framework results guidance our the outperform Based equity on the will approach to in for XXXX. believe capital we year, provided of of through on half XX.X% to relative to we will of for on Ian our return

related selection, becomes remains more the As a risk asset portfolio. lever importance more financial the portfolio of convey of our leverage – across all sector of and to risk complex mix significant. elements path believe credit, these sectors. levels We conservative in macroeconomic the environment the Each reflects these

we have In industries loss outsized selection, and terms sector thematic avoid that for creditors. risk investors of of generally are

loss target a And cushion representing leverage of exposures. default significant sub Our asset well to second-lien limit. within lower we with significant the mix regulatory range our to compared given is XX% debt first-lien, risk finally, and remain

leverage the these As across deliver our vectors to it losses. of to our cycle continue us will shareholders We returns and returns both a industry-leading magnifies that reminder, conservative help [ph]. approach as use cuts ways both believe

and businesses. In many today’s we rates have on reference could XXXX. challenge a We’ve seen since the increase of health portfolio environment, companies. our dramatically market Borrowing costs are for focused present of existing March risen significantly

monitoring portfolio declined We metrics across X.X% companies a has portfolio average reported last we across materially X.X on interest basis which core our but as from different are companies, coverage, quarter. closely such not weighted our certain times key at is

a of as As to rates borrowers metric a look-back of metrics EBITDA. is believe a the to such metric borrower as assumes representation opposed that position reminder, better our apply interest at quarter end we steady-state the of our LTM. coverage our reference We the

Using XX.X% the index metrics from as than Despite proxy to within from period has actually X.X% XX.X%, more the average We the can of loans over tails to the last percentage in price June disguising in to has as which XXXX. loan we months importantly the More increase XX, as XX thereby averages. potential XX below doubled can hitting portfolio weighted be the material than price the the the portfolios a are over trading tails sign with average June a bid which the the levered X% – of that the below be the components of XXXX track bid increased increasing, a believe same of credit we index issues are index tails. come. weighted of

– a we illustrates arise, where comparison do credit some dispersion private the issues to within in private are not are will minimal leverage portfolios. the data portfolio portfolio, exist credit perfect the loan tails our The that that believe which may credit index Although portfolio. private in is

X.Xx. by I Based less on coverage a than moment the companies, portfolio of value, interest ago, core methodology of described which have the fair XX% below our represent X% portfolio

and Additionally, quarter. to nonaccruals only one nonaccrual status remain the investments new amortized fair by nonaccrual and of With portfolio X% company on value than less no added status the during cost. portfolio

to share by $XX.XX, up the of base base approved share value share our $X.XX equity per per per as value March raise quarterly At XX, net dividend, $X.XX growth of gains per investments. XX. asset of $XX.XX. and earning basis unrealized at net points a or of XX over or accretive was September payable of quarter September asset dividend realized record was continued driven our Board XX Yesterday, shareholders end, primarily from The from net share on

per a of to Our declared shareholders Board earnings payable of $X.XX September also XX, as dividend QX XX. related to our record share on August supplemental of

our the of estimate net this asset is share $X.XX. the per spillover quarter approximately that share dividend income impact value XXXX QX $XX.XX. at per supplemental for adjusted Our We

tax. income the on excise return ensure we As as minimize equity year progresses always, potential to we of will from level undistributed review the drags the

over With this to that, activity. discuss I’ll pass to investment Bo quarter’s

Bo Stanley

environment M&A essentially and in issuers both Refinancings by backdrop, activity, driven Thanks, by off and the which refinancing observations some market holding primarily an the higher issuance private represents across to on markets. asset for level like Josh. levels I’d dropped today. has spread Credit start was activity sharing a the have particular, broader lower the declined in spread than XXXX. as public both market

market that As past fewer few bid-ask buyers is but funnel at the today’s private spread for over a continued price is to the shift quarters. by there for activity, sellers coming yesterday’s want issuers the top of credit offset narrower, us where With towards M&A originations want this price. be and to

are number access the generally interesting seeing with are opportunity ever as remaining as alternatives markets remained the syndicated returned selective. market plenty before. believe loan generally near lenders. has pipeline the has be to only and of limited broadly to as we constrained Access given markets take Our share as to for credits the robust, seeing continues This We for high-quality set we to high-yield direct borrowers public are credits. has while increased investment-grade of advantage increased

credit As and selection is has Josh of underwriting. borrowers mentioned disciplined right for environment the earlier, the highlighted importance challenging, now operating which

companies. we million, we’ve some be fundings believe quarter’s quarter, this the and vintage investments, million $XXX $XXX existing million in to of had and four commitments better and to new million of and across Of which six of $XXX commitments million activity. the respectively, seen $XXX were fundings $XXX Turning investments, a than and million time. in for upsizes to $XXX new portfolio We

As an take Technologies. a opportunity illustration million of closed facility aided allocated was to borrowers platform, $X.X and secured high-quality on billion which to private in we SLX set Advent across senior of the of $XX Sixth the the credit support International’s Street Maxar

scaled Maxar and to reason exist in is competitive mode. a a enterprise differentiated with clear

strong close and the and of XX% high funded reflected flow with cash of deal to pricing value low free the the attractive conversion unit economics, at structure In business, loan addition the to approximately terms. leverage

$XXX three had QX. investment million repayment totaling full side, we partial the On four and in realizations

of and asset The Modern XXth Since driven investment respectively, to SLX follow-on exit, company amendment two of investments. unlevered the MOM XXXX, Hire has gross the Our refinancings. the ultimately shareholders. our investment included the in largest initial facilities supported million payoffs level in its GTreasury At GTreasury by IRR in resulting capital in SLX X.X%, were in time our new $XX acquired XX.X% portfolio a generated larger quarter, which investment growth and opportunities. deploy GTreasury via of in was during and for and recycled company was acquisitions, through

a new on issued level from as in closed to of and leverage Carlyle unlevered Street a recapitalize a million and redeploy and Modern and Modern business. like credit SLX generated on of gross and XX.X% MOM the HireVue, scaled with X.Xx, Hire asset Sixth incumbency a business the an acquire payoff. also IRR proceeded Sixth by the at respectively, facility and portfolio to less the more this company to in to payoff assisted agent winning opportunity a Street $XXX highlight combined Hire capital investment spread. I’d larger, wider our

anticipate provided have our Bath call in XX% through approximately throughout the update have several regarding been We as the puts outcomes of our XX. Since capital total process a – July back developments, investment Based narrowly on committee. creditors we achieved our continuing unsecured & There case we received of as as has the receive Beyond, reaching last key the takes band to along with become this progresses. ongoing earnings this way more with milestones investment and defined. of Bed these the such process deal we believe on back liquidation

the we in As companies by in softness rest portfolio, our to of inflationary have the investment bookings hold landscape, environment. it our portfolio triggered interest the today’s our the and persistent growth observed rate challenges the existing presented health demand and given Across destruction importance. of significant generally relates borrowers, given higher slowing

related However, activity PIK amendment we have quarter. not last in seen conversions the an in increase to

and decelerating general sales, the Despite expand the average oftentimes environments. the companies in EBITDA nature The the growth XX.X% sector variable and to and resistant from models software yield cost models majority business ability headwinds, investments embedded slowdown their points business up perspective, From up due slowdown to year is basis of vast structures companies. XXX borrowers and inherently our exposure structures. were top-line have further macro in their highlighting of maintain a stand XX.X% cost quarter-over-quarter to of about base these increased of the gives high construction. us portfolio our to the to to of as our business are weighted of our portfolio from ability quarter-over-quarter, given economic services customer portfolio our strength and These are the confidence margins of favor a portfolio and yields selection We XX.X% more ago. the

by of portfolio to for our loans we borrowers and on whom metrics to have to and interest times on these staff. for weighted declined our times, cost the funds impact weighted times respectively, and of rates the times average relevant, Moving attach our continue detach core conservative marginally X.X and our composition rising X.X of driven average points credit Across borrowers. X.X interest from X.X are on coverage

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

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

from with we added portfolio at quarter. nonaccruals value to As X.X% no portfolio Josh to the prior minimal of nonaccrual fair continue status referenced earlier, new have companies at the

With performance to over that, detail. financial I’d more it our like in to to Ian turn cover

Ian Simmonds

you, Thank Bo.

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

raise, decrease combined X.X average as of X.XX dividend, activity earning debt-to-equity driven funding for ratio to XX primarily times June from during net times. from over offset quarter. was March base decreased our which ratio was weighted times of the proceeds our of debt-to-equity and the with as by X.XX QX equity The Our the XX,

liquidity million commitments unfunded capacity quarter of $XXX be $XXX million at to revolver company to unfunded portfolio end We ample continue drawn. against have eligible to of

referenced executed we Josh raise As a May, earlier, earnings soon call. our after during QX equity small

Given framework the the equity established of framework value explain in to of we business. a issuance satisfaction the transparency, moment I’d two This like new our of commitment our requires to to ongoing criteria. take for creation

and that the of TSLX net premium asset a to years per our trading such half recently a nine approach listed. historical share have issuing almost most reported at of The first the days over NAV equity been that a to value is share. shares XX% at per we traded on have premium we follow

the offering, On the the an premium paid such by equity closed NAV discount, the the price NAV we to stock represented day XX% recently per share. reported executed the per X% share. at investors premium most After a to applicable

first therefore satisfied. criterion was The

conviction estimated available calculated new that The the have generating the raised are that into equity. on equity of returns deploying of capital words, exceed on return us us exceeds that to equity new second capital. other criterion requires assets our cost we In cost marginal to new

benefit assumptions fees criterion the XX.X% capital. receive second which deployed, to into this on noting credit equity incremental well our into from average assets of unit our required capital new to assets. applying we structure generate and an return X.X% equity premise, the XX.X%, equity results are return on that Based let’s of cost illustration our cost through on the new to other the at deployed with exclude was that an is estimated capital losses ROEs This but in We many on our estimated satisfied. that with above for that it, these marginal cost the asset was of Let’s yield in the math, return back XX.X% we indicates activity-related additional to we sourced of there model. equity. calculation cost case, note through walk may of Bloomberg. look resulting fees, economics business, investments In the level the ways assume X.X%, maturity associated required assets by including the leverage expenses estimated of our This return can a

this We of our was the equity had this fundamental investments. In of capital our future on established risk the any within during we targets. believe that addition the executed pipeline. is not XXXX, end of exceeds our on doing premise successfully profile was material case by a the are a tool In philosophy. requiring words, bring the raising have raise to to confirming business so-called of back example earnings capital, J-curve quarter this other operated raise power new the also visible with financial deploying our year we stated the business, of into to effect post equity that already and We set a approach right shareholders. cost second the Since of opportunity immediate quarter an a we our equity leverage in applying eliminated

constraints new banks we XXXX Tighter from liquidity revolving than of enhanced however, with our of commitments in amendment to billion the our syndicate. extended to result this non-extending the lenders the funding $X.XXX capital rather two This through the to two billion profile in maturity increased credit facility. maturity new quarter the added and and maturity now Turning $X.XX extension both total did, XXXX.

further commitments commitments unfunded upside the record to liquidity sector, Our which banking track size the contraction The in losses. profile, avoiding of the the be ability facility in during grow Sixth banks, amount highlights addition our the of represents drawn. half and importance key maintain eligible credit pricing and of Street to of as our three for a to the improved times scale credit platform of recent the relationship a and

of terms two capacity our our XX maturities have in unused profile, debt months In we satisfied revolver. through last maturity secured the on

we to does our through XXXX, focused the however, nearest on occur not target Our mix November funding funding unsecured until normalizing maturity continuing are by unsecured market. incremental

a borrower, This spread-based of floating to capital been have rate debt deterred We base significant maintain all opportunities for by in us yields remain and to the our rates. being or underlying in incremental approach. volatility fixed to allows liabilities and lending increase a without markets evaluate the swap treasury floating-rate

of materials. the Moving investment quarter’s presentation to income X share $X.XX $X.XX net Walking our per through main this against drivers NAV growth, from our bridge. adjusted contains added we NAV of per base Slide share. dividend

related $X.XX accrued our portfolio. to including provided net As from share $X.XX positive net issued of on equity there quarter’s changes by from in Josh overallotment investments. to realized primarily share impact was per realized this per fee incentive decline shares The And share of losses the capital and was mentioned, a the effect NAV, a gains offset the spreads expenses gains partially unrealized accretion per equity share largely $X.XX of raise, on $X.XX from NAV market NAV. investments, There of per per sale finally, gains. $X.XX share to of unrealized the tightening resulted value in fair other of credit

on components of of on XX% Moving the quarter the results prior and investment activity. X. up our in for $XX.X compared by was all-in and operating quarter. Slide funding record $XXX.X the from We Walking quarter, prior income detailed to million total million, level income, income generated million million, through to $XXX.X yields in a higher $XX.X of net driven interest dividend up the

paydowns million of unscheduled continued slowdown amortization fees compared to Other activity Other experience accelerated the $X.X million million QX, given in was was to from $X.X in fees fees repayment million representing compared prepayment $X.X $X.X at slightly and QX. lower in prior to upfront quarter. the we in income

from excluding This the impact gains due a on was increased $XX.X average which the quarter. expenses, in average capital in to debt reference to movement related million, incentive rates, to the of debt X.X%, $XX.X noncash upward QX. outstanding were prior up higher with marginally fees outstanding our X.X% interest in from accrual Net coupled million average rate weighted primarily

NII previously the on impact track of range the year to of our end generated investment per to for from investments the positive plus. XX%. on net has income XX.X% For unrealized reference of realized XXXX, well of full which to we net on annualized or increased meet adjusted to income the benefited adjusted company-specific high events of nature year-to-date period, $X.XX and stated income exceed we’ve our has guidance return and on rates adjusted equity of market asset-sensitive tightening share investment XX.X% due credit as net in equity both from the an $X.XX We income of spreads. business on and return a gains corresponds believe and on valuation remain as Net rise net of

Josh for With it remarks. concluding turn that, I’ll to back

Joshua Easterly

today an lower participate limits publicly in traded environment of The emphasizing to churn by the issuing only regulatory the to Thank you, new given the invest remarks higher capital. environment. is raising prepared limited leverage sector, this and our way being allocator moment, of capital and I’d by like in slowdown holding is to on equity. efficient from by this the portfolio user capital Capital to or in Ian. spread extremely importance close BDCs in our the leverage

we debt-to-equity X.XX In average second capital, terms started of of at an XXXX the peer our holding set. half compared to for of times $X.XX

despite by our slowdown the second limited allowed across half first ratio As remain leverage constraints to repayment capital sector, half active us the the became activity. the and of of highly in leverage in XXXX profile XXXX

golden this value. at also asset private refer have Some to which premium issuing age people credit, as net trade participate and been by for requires which we able equity, to a to you a

We trading own and within have avoiding believe record a by of capital understanding shareholders’ rewarded including above a our framework within cost – losses capital, of our value. sound track that efficiently our book our for using stock BDC been

us give holding by book positioning more characterized a seen are opportunities to what defined at shareholders we best of history. in this believe vintage have access by trading has to some Our capital to we and the SLX premium value allowed investment recent

benefit LTM credit we XX% vintage and to a believe the $XXX the will million to the shareholders Over investments, into differentiate of returns is to access representing our period, portfolio. continue our industry. from that new funded this We

With you for please today. your Operator, that, up line for time open the questions. thank

Operator

[Operator our from Instructions] you. O’Shea WFS. from Finian question comes Thank first And

is Your open. line now

Finian O’Shea

in all of equity that be the I often? together, ability today’s does to to outline putting and everyone. morning. looking equity framework invest Good With Hey mean more appreciate you’ll vintage. the the issue that

Joshua Easterly

how you? are I wouldn’t far. that Good Hey, go Finian, morning.

very been how in primary we’ve been has think disciplined I deals. capital. raised of done TSLX March equity since four We’ve public done we’ve we’ve XXXX,

be the capital So I we answer we’ll doing opportunity issue but cost capital, of that. will there’s to our think disciplined deploy an is exceeds when equity, that

for issue it’s and capital. we it’s very to So high a environment-dependent, – equity bar us

framework changing. there and understand it’s the that is a have for framework a I to We think to approach put don’t the important decided because out math industry. I So think our people

wanted clear. the to math So be we

we an helps. also, out, wanted just have we that that so that. as do meets to of that want we that profile changing. hopefully criteria. And view deleveraging Ian deleveraging And don’t by framework think But the create think pipeline leverage We is I to to do visible I drag pointed earnings the our things near-term don’t significantly business. where a is it

Finian O’Shea

on helpful. but That’s that? of are you And things you they then as really pipeline? good good pipeline Obviously, mentioned of touch on of is and quantity the Thanks. kind quality pipeline how as Sure. can big along the you. as are the mentioned, still you now, sort the Thank – and builds you right can or

Joshua Easterly

Yes. Thanks.

still think the think that think, QX good is I payoffs we’re couple pipeline, pretty I a more I seeing actually in although were older vintage payoff.

not activity not sure of that has we’ll given I’m on off core them, So drive of run much probably level them. protection fees some all but

– you mentioned bit most as more hope and So up of about I is least kind coming at that a be the both so BDCs, we’re a either competition But don’t think think flattish say their coming there’s on on share portfolio publicly way constraints helps. of given from kind going levels look little good. would maybe up BDCs – is going little are we’re to the be that I and we’re the traded now, really think I GPLP from for I structures. would I say competition really Market but private margin part, have the activity we but we or as – competition is to to to down. that capital not think – still going of is the – bit. it activity, pipeline at portfolio

Finian O’Shea

And Yes, thanks absolutely. much. so

Joshua Easterly

day. Have a Finian. Thanks, good

Operator

comes Robert our next question for Dodd from And Raymond you. our James. question. moment And next one from Thank

open. Your line is now

Robert Dodd

Morning. Obviously, the Congrats I congrats. the color appreciate really Hi quarter. about first, on tails. the

that. about question one So

on underwritten be makes I are gotten You have to businesses said than those that that or revenue expected What one you one mean what recurring of rate? percentage what percentage be below one, below have below less already were because one below if those coverage X% of interest to go-forward who underperformance. sense? or of currently, them you’ve

Joshua Easterly

good American a Achievement question. underwritten wasn’t that impacted Obviously, business. Yes. to COVID was be It’s a

I five work or There’s, kind and a the – think, other names names. investing were four or And and so of their names. of rapidly they that there’s would I in below handful the in half say half one business. were sense of four those underwritten

Robert Dodd

one that then, then On Bath for collect to have & last Bed left prospects still the Yes, said me. to collect fairly things that’s at since you value income. understood. this fee do expect significant what and And potentially last fair some quarter for the quarter? – the you value fair from gave And quarter, income some last can What changed fee time full are you us plus you expected Beyond, that?

Joshua Easterly

Yes.

what would in So say and liquidation. been there’s the push takes I is

better, it’s example, a think about pools of There’s assets volatility inventory little be real and moment. higher claims that less. in came still estate large determined outstanding outcomes of I For bit have hard to of litigation will and make this are that tell the whole in

with and get feedback I know, principal is is people structure, we evolved that. the public interest committee we start then the splitting – and there, that think, out past it’s think I as So proceeds our

don’t XX up, it’s litigation our points I it’s that’s points the So the outcomes. our that going get think I expect be I think on think I but to case, unless well, – – have to dependent – us wouldn’t ends or we XX those

Robert Dodd

And Appreciate again, Got – great congrats it. Thank a it. quarter. you.

Joshua Easterly

Thanks.

Operator

for next Lee Markets. Thank Capital Ken you. And And question one moment next RBC comes from our question. our from

Your line is open. now

Ken Lee

Thanks morning. good my question. for Hi, taking

macro how up term? shaping where see the potential Thanks. is one opportunities near the do now, backdrop opportunities, given over ABL Just these you on

Joshua Easterly

on Yes. opportunity forward. set, remain bullish really I honestly, going the

think and happened I’ve this think but and about before, I pre-COVID, you of retail. said both when is think – I cyclical secular a lot what’s issues brick-and-mortar on

got nowhere whole except there savings, versus to and was and but uncertainty, had in a moment had a money, money a pocket lot spend then COVID, the hard for During and of you soft goods consumers of their excess of bunch experiences. they

now now needed. capital wallet shares retail not away from overearned And being stuff. so buying moved to our which experiences, and the And significantly, made consumers’

So retail for enhance profile. I general going their look they’re would expect to that worse, opportunities credit liquidity and gets to

– be set. to balance But it I be better we’ll asset will overlay a I a allows think pretty I tell. those we deals. think opportunity us. are here it that But some going good management time. flow But probably invest in having you opportunity that takes it’s underwrite from that’s flow in – a us think continue when then see But even that to So sheets, that banks I constrained for and And asset and that manage active. time should resources platform be around think perspective, means

Ken Lee

of one forecast, a paydowns pickup sustainable if Do the more Very difficult Got the pay obviously the pickup wondering near terms term. realizing spell paydowns but just quarter. Thanks. in you in follow-up, downs, the over pickup nice may, could backdrop in I a in more it. And whether helpful there. very it’s in just pay to sustained downs, a see

Joshua Easterly

Yes.

So paydowns exact Ian? what it was number, the was realize… quarter, I three, think four the in the

Ian Simmonds

Three, four realize.

Joshua Easterly

of And one those rolled larger deal. we into a

really still but of question pick materially. is expect paydown little not the we that little a they a Robert’s So visibility I on bit, muted. said, quarter this bit really, have because like will I up,

the historically, to XX% I year. over XX% book a think turned

period. I think that’s an LTM

it’s half less. or that think I

some framework. book of gap then down be of is interest two capital And if – credit, will we’ll then of that absolute which the that the really the the refinance it. I tighten, activity. will the into of companies obviously is think and haven’t then buyers that’s components repayments that you seems help of larger level rated turning the I markets And between – will spur think for one that rates obviously, generally piece so and is and The what migration most kind But from there’s create bridge sellers from have that probably reopen, One going capital the spreads changes that they out change – if lower markets, activity. money. to it third M&A

Ken Lee

Got helpful Very, very again. it. color Thanks there.

Joshua Easterly

Thanks.

Operator

Thank you. question one JPMorgan. from for comes And question. And our from our moment next Melissa Wedel next

open. Your line is now

Melissa Wedel

today. was a Are capital? add-ons. people asked, mentioned Good think companies I you’re are I them deploying How Actually, do? taking you taking share four think companies hoping portfolio to morning. you using how now? looking Appreciate most my seeing are they right it capital? of have you What but little they existing bit you that elaborate already existing been I could to questions had, was on

Joshua Easterly

would are margin profile. just capital. which opposite, not to – doing they’re in actually generally I say Look, trying deploying Yes. most the companies increase They’re increasing

to I the I non-par attention is payrolls morning. really But think this pay don’t this the I that because to think of was – slowing. headline

quarter, And tuck-ins. guess so this were add-ons two the been think, were experience. in or business Yes, add-ons and that’s my M&A. kind The their actually, small strategic our maybe one I some investments of

which M&A, three I and were other that of think screen trading there those were one strategic accordance one. was basically

M&A – I little but think but a small. of So bit

Melissa Wedel

Thanks, Josh.

Operator

next our And Hughes Truist. question Mark from comes from

Your line is now open.

Joshua Easterly

Mark, morning. good Hey

Mark Hughes

What your Any grow morning. facility their of of mid-June. impression appetite the reflections the credit Good to kind in your BDC maintain exposure? or was amended banks of you

Joshua Easterly

it’s doing a Yes, great question. this amendment been now. that What We’ve was in?

Ian Simmonds

Fourteen.

Joshua Easterly

Fourteenth amendment.

risk of part this management we our submit done We hardest we’ve have try of year. I our or amendment. second maybe was that philosophy. is hardest this. our kind make say to And amend every look, amendment So our probably we would sure to want

Ian Simmonds

Yes.

Joshua Easterly

two RWAs non-extending reform constrained understand all large their the The U.S. banks. are bank and exposure. at Like least, in subsidiary up BDC exited commitment was we that in top a

lucky were But additional and so is we the the to which I grew facility. of from our space And rest enough, different think, – commitments. get we

think it had But shrink are facility. – have constraints. banks others their to definitely capital is most actually I

about sorting banks capital hard right of it’s the rooftops for regulatory weeks, think there now. not I requirements. miss a over deposits very very, last it’s the environment – couple screaming whole to from then out the that’s Jamie treasuries, You and of cash hard happened with bunch to Dimon And from

generally, really good our that is, better. I is facility. that means the most was side anything to – the but Ian, to asset add of the But it it think that I the definitely able harder. we shows thing grow were think power And there? platform

Ian Simmonds

at good. I think you captured That’s all.

Joshua Easterly

imagine I billion but most can’t harder. benefit Sixth meaningful Street, And six if definitely I love most them. the most would having to of definitely anybody definitely are a else general is weeks – us, talk we’re and good asset it that broad manager lucky, alternative and was relationships, have helped think $XX it that to people we’re we not is not look, the that like, I And feeling comments. to

Mark Hughes

human just bit. services industry I there looks little Yes, appreciate dropped this like is that mix, you – the intentionality up down it just And but services financial Is that. may support there? investments Or be your resources of a to moved any quirk third, the of some this made quarter?

Joshua Easterly

which about that software is the No. you, hiring that’s resource human mean support I process. human human tell you in managers resources, look, I a business HireVue, think can when resources,

it. think which I grew position so shifted And the on that probably margin,

Mark Hughes

yes. Yes, Understood.

you. thank Okay,

Operator

question [Operator Ryan Instructions] our Lynch Thank comes KBW. you. from from And follow-up

now line Your is open.

Joshua Easterly

your it’s think I Ryan, Hey, question. first

get you as You as want. many

Ryan Lynch

morning. right. Josh. two All this just Thanks, I had

rates about environment that environment that on? going the well that from famous much attractive a from close obvious. heard have a better, they Has lot versus close over six BDCs increased in has to of a funnel months other been rates. pretty We’ve being substantially you you historical on the of very talked BDCs months rates attractive activity that, deals. of I’m just not then Has where put kind as slide lot it is noticed just deal from of all your You curious, guys nine the last your the deals standpoint? as the close which have have,

Joshua Easterly

question. a Look, great it’s answer is, Yes. yes. The

we of – book in at because close like. you kind hurdle stepped became structure close this if up large beginning and the quality our I kind it – last months, end to the available of higher In and credits cost of just things Although kind most is of look credits year, it’s the credit no I were because kind and the a would more. have we’re we’ll months we’ve BDC’s don’t saying, I think than or structure, like Either or said rate, say cost last we the lower industry don’t four of three rate and think definitely, higher was ratio. the look and probably of of you I year. kind meaning, But at of

true. for say to of in separately So, Most Bo, I last back think the that’s I although anything of the kind add? industry, couple months. would that’s normalized

Bo Stanley

the historical higher in I like, think that – on pick selective. competition months. you higher hit super quality and names And the We’ve of we’re That’s be the close continue we’ll few times, increasing continue our are sense. over last No, that just pockets credits that to seen are it. spots rate remained competition structures we make but on has than to seeing going we to what think the and we

Joshua Easterly

line you’re have on day you front stuff. this do view different – every any the on Fish,

Michael Fishman

No. really the Yes. It’s add to same view. on Nothing that.

Ryan Lynch

All appreciate that. right. I everybody, comments on

question I Ian. is for other had The probably

from capital mentioned at You liability you the looking guys side. structure are always your

today, some issue have swap notes if notes which curious, have pricing do some sort XXXX, then guys in today to expect I’m What time. to the guys to notes assuming you, in you you on rate guys you guys out had on past? you the You new just and were done get? due issued as I’m of those new guys would

Joshua Easterly

market to us. me going tell gave Ian the the is Look, shrug the shores, which of

million about of think it think have to I liquidity. is, way we the a, $XXX

what million tell the – to mix. affect with of the so Our half-ish XXX would in dilutive I is year because year, to a be next it and there, confidence would generally, that $XXX note funding of going due is you – earnings November

little And cost you XXX we because fee. with marginal think in you’re refinanced marginal those portfolio, lift got has because a bit so commitment getting we’ve it kind cost of marginal of a on your LIBOR of basis, financing on about earnings of the that growth been a when financing, because rid the of about lower

spread funding $XXX your fee about [ph]. commitment And so the the funding drawn minus is

And has mix everything as been shifted. funding accretive so the has

figure absolute in be the I a going do – look, market But quarter a $X.XXX quarter index-eligible then know relatively could can – it’s what what going by $X.XX that’s if the you in basis way, X.XXX I our it’s or of $X.XX to and should is Is if what we’re deal. structure. And the I It an to ultimately something be Yes. it’s quarter, think dilutive. know we spread going to that a marginally but part to of a definitely about a is, think don’t be. most out a is. cap From you to dilutive math that an you’re $X.XX it’s is tell we us [ph] higher small range. the that? committed But a doing on still quarter think

We’ve to the but spread. us is mix. good important exact dilutive. question, have a to it’s the And tell so it’s a us. not massively committed But mix funding is funding to going But market

Ryan Lynch

Gotcha. That’s That’s for comments the today. me. Appreciate helpful. all

Operator

no further closing Easterly, would Josh back over to showing remarks. am I CEO now I And to like call you. Thank for the questions. turn

Joshua Easterly

the has I for feel conversations a Great. out your and last you fall. We to Well, thank to of have for you free in Thanks, lot the we of team and people I months. those a sure support. end of everybody good spent hope Day, the summer you everybody. questions. if the Labor couple in any we’ll And Please were see time know with with dialogue. having reach

Operator

for concludes participating. you Thank call. This today’s conference

disconnect. may now You

Sixth Street Specialty Lending (TSLX) 4 Aug 232023 Q2 Earnings call transcript