TSLX - Earnings call transcript Q4 2024 | Sixth Street Specialty Lending, Inc.

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Operator

Good morning, and welcome to Sixth Street Specialty Lending, Inc.'s Fourth Quarter and Fiscal Year Ended December 31, 2024, Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Friday, February 14, 2025.

I would now like to hand the conference over to Ms. Cami VanHorn, Head of Investor Relations.

ahead. go Please

Cami VanHorn

Thank you.

of described I made that contain forward-looking during Statements than call, like remind forward-looking statements today's during results other to a the made involve and from Inc.'s factors, in guarantees would the those the statements performance differ and materially listeners are begin a number may of remarks from our in of we time of to statements. filings Exchange this number risks statements not Before time call facts future and constitute . or result as historical Sixth uncertainties. call may including Lending, a those Actual Securities results may Specialty Commission. of forward-looking Street and with

such closed, the December the Resources forward-looking statements. The our presentation assumes year and posted company Yesterday, a website, we www.sixthstreetspecialtylending.com. release the for our to any market earnings fourth press quarter XXXX, and ended fiscal Investor no obligation XX, update of issued after section to

Chief are remarks should release Officer in Inc. today's be Easterly, for XX, quarter the Resources all earnings filed of Sixth fourth Inc.'s Lending, in Form fiscal Lending, Unless on Investor website of otherwise, mentioned figures Street section. Specialty under prepared Sixth Specialty year the and XX-K will Executive as noted over with yesterday now our the with Joshua our call also to performance and I and Street XXXX, SEC. December ended presentation turn the available is The conjunction reviewed

Joshua Easterly

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

detail, in call and discuss I will highlights will with the I quarter over pass remarks portfolio. in our will final to conclude review For review activity Ian Q&A. to more and opening performance fourth financial Bo our before full and it our year to the call,

of $X.XX with quarter $X.XX income return annualized an of per of yesterday, operating income per net reported share equity strong net return annualized adjusted closed on investment market the adjusted fourth XX.X%. on or of share we results After and XX.X% equity on an

financial noncash unwind presented gains and share, capital than income As or of per the higher the of inclusive per [indiscernible] statements, net adjusted our investment accrued of net the share our QX in figures. income $X.XX

per the In X highest representing earned quarters. QX, including we income, $X.XX activity-based of amount share in dividend fees,

to We continue net to value $XX.XX of as per build XX. December from XX, of share asset $XX.XX September as

share, dividend, remains with net Additionally, per well our base our $X.XX base covered quarterly adjusted dividend exceeding income of investment

[Technical Difficulty]

share or XX%. per

generated XX.X% representing For year income full of the of we on $X.XX full XXXX, per share and adjusted equity return operating on net income of per $X.XX, XX.X%. share adjusted net or return year investment equity an of

income for sector On on remains capital our well is on on of of return QX net always basis, equity significantly average for generated above we've XX% nearly said that above measure and X.X%. estimated the cost LTM return matters. the that As we equity a approximately XXXX. BDC This X%

basis XX points net December share to $XX.XX of of developed from on as as delivered of XXXX. XXXX, XX, -- value we $XX.XX increase December asset Further, an per XX,

components, new interest impact driven shift factors, results these from activity-based tailwinds. a at We'll were and the all rates, headwinds spreads. including the by starting investment movement in each back number credit Looking with of a XXXX, in fees, of additional highlight

or sulfur indicated of the swap higher forward points earnings longer, X% curve rate XX approximately rates First -- and interest months XX ago, for approximately an most boost a difference. obvious, X.X% today today. the X-month compares of rates interest sector. This for basis to remained providing X-year

sector XX.X% LTM rates interest for of average of and through X.X%. sector the XX.X% for long-term the for QX above ROEs operating base TSLX, Higher well

TSLX, contributed rate environment XXXX above the income of our guidance. $X.XX For share per approximately net in

We to XXXX. addition income, including activity-based of share in per dividend fee since slightly and the gross rates. earned XXXX, $X.XX uplift amount representing from highest In other income

and approach is portion came fee $X.XX our value we shareholders. that income significant create fourth selective and our a of in the of repayment activity activity-based of per above we investment net resulted activity-based include our This resurgence investment X-year call a per of income This approximately as product share. structured income quarter [indiscernible] fee trailing as portfolio. the above quarter A share in-depth XXXX, $X.XX for average guidance. underwriting income share in In the for income in protection fee a investment experienced [indiscernible] carefully contributed $X.XX of of features our per

to pivoting couple the for in message credit headwinds. the Now on our the with weaken expected of margin emerge. to Consistent years, we tails last

to from X last across deterioration we Over nonaccrual the year. nonaccrual investments income being the the placed which status these XX companies. of interest forecast. Technologies, in relative net both impact resulted idiosyncratic X months, XXXX our portfolio share added to investment Corp. credit on per and experienced $X.XX during we Acquisition a And Lithium income lost in to after negative [indiscernible]

Even on group on XX we peer grow XXX compared the to This approximately to XXXX average QX QX of points. XXXX. with points through a for the basis BDC net to fair by asset value basis these value decline investments, continue lower compares year-over-year

earnings is about and muted several M&A significant For the This of we've moved roughly finally, on the our share net of driven same for in the And calls. by points raised of XX amount per outperformance. talked period, combined throughout XXX previous the spreads basis representing capital investment basis TSLX year, asset supply imbalance that new tighter renewspace direct the points, increased with volume. value

will fourth To illustrate spreads still cycle. the movement are reported given early in and XXXX, we the the XXXX XXXX in of quarter compare QX QX

X.X%, respectively. the X.X%, and spread QX a our respectively, [indiscernible] and of XXXX X.X% for QX portfolio XX to first average basis sector. and on TSLX of lien XXXX decline and assets the public a [indiscernible] of spread representing BDCs weighted performing public X% average was of As BDC points for weighted out in

spreads tighter BDC tighter points approximately the new XXXX, for said, put spreads new relative as by evidenced per moved XXXX net at deals of That lowered on being for impact average our average public to income market than peers. deals we to QX the deals forecast wider continue sector our in basis the $X.XX year. the As to share new being our on approximately by weighted compared investment XXX spread on wider

income on Although there were puts operating an basis the year. and met our guidance for we takes,

potential tied deals largely returns put will To to it portfolio the to future. Looking of is driver ahead the for the simply, XXXX, we spreads. the do earnings today you BDCs be in believe ultimately

on in of of estimated the had weighted on X% a sulfur XXX on equity rate an average A life over return consistent balance union the entire credit over assuming X.X% example, average basis losses assets. weighted implies As quarter average XX calculated X-year the economics earned equity, of basis our on our a assuming and on spread points equal X fourth and to as to new with illustrative we portfolio swap spread we've our XX%, of points X.X%. average the investments OID a X%, of last X-year year. the return sheet weighted year-end, Based of

are the in expenses to compare of this new sector average by potential of analysis for X%, of XXX liens and a X-year of for return a third our average fees, based the for points sector. average weighted spread rate first basis points, rates the QX X.X% swap weighted the points basis To to Using quarter index OID funds portfolio lending silver using according cost for [indiscernible] long-term and the spread net operating Clipwater the assume XXX management equity of public simplify on average at X% the can incentive earnings BDCs. LTM generates return the the We life approximately XXX X-month basis will loss leverage over annualized on sector.

a these some the ROEs to X%. base and two, asset important sensitivity is swap move rate lower, lower; given return note estimates BDC of liability space. the assume if sensitivity will rates X-year for move It that

is our clear, our away, we big our be have we hold would be is of the on embedded and return amortization will when analysis today's X for months only. mind If ago in tomorrow's illustrative portfolio entire our in call book. past, and was As during call equity of investments. of front theme term To we the given make the impact book earnings upfront fees. the top protection back said QX purposes boost highlighted remains the This

sustainable a the differentiated profile business We feel for may like on levels sourcing set in it eroding margin spread our While is the direct a lending our for with proposition to the channels market deliver today. given up shareholders. value return

competitive payable to the even this base earning as of to in contributor record more over shareholders cost March our March our future. will a quarterly Board believe continue power and of on spread per capital We Yesterday, a of sector key be dividend environment the approved share a in $X.XX in to the returns dispersion XX. of XX,

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

per is per supplemental staller that that we Our the and of the adjusted $XX.XX, declared year-end asset share for income of value was net estimate yesterday impact dividend our $X.XX share. approximately

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

Robert Stanley

I'd volumes the that sellers another are between and Josh. and specifically, like we XXXX additional interest anticipating to thoughts lending lower the was how buyers as on for start rates environment the Thanks, positioned we M&A are some gaps remain on and laying elevated XXXX. in by market. in valuation of more persisted year direct opportunity

optimistic of setup While year reasons. activity for from different is XXXX higher about not we a a the few XXXX, entirely are this levels that for

narrowed XXXX. reasonable and excess reality First, for a they trough that the reached if paid earn valuation return. can buyer an businesses additional prices paid XXXX before a growth the alone from few required multiples in ago that have have years businesses after implies let money, back is peak multiple gaps and in contracted, multiples in since their The a

Achieving and had have that time year takes yet to that another into companies back earnings. growth go generally

for macroeconomic in interest normal more stable while a pressures backdrop. largely least time now consider we at subsided, being. Second, may new the to what to XXXX, have rates Compared have the inflationary stabilized

that XXXX. believe while we for While -- normalization back into longer, more being the market the bring we'll more still -- buyers of still still while higher rates, in

record and pressure materialize, million system, year on the Each stage continued million in total fundings will factors the an to to opportunities. we in fully putting take activity increased powder. productive year. and the of investments. total at sponsors has companies XXXX, they promising of had to extremely but slower QX, Lastly, capital set a sitting this investment portfolio work In new Amidst amounts we upside of $XXX for time dry $XXX levels backdrop build these provided X M&A of the existing in across commitments differentiated X of

In our terms X years was QX of busiest quarter XXXX. commitments, of in QX since

positioning on provided including closed the an market XXXX, full levels In we million fundings from $X.X stayed REIT the of million, leveraging by being the year $XXX investment channels. $XXX sponsor finance the us $XXX become market. For segment in and million across like our capabilities In our billion of platform. sectors omnichannel respectively. in thematic of XXXX commitments us XXXX, the provider a we This, the we and representing and source lending X solution a sourcing increase direct active valuable of differentiated to both what competitive thereby in and provide of speed most the the as certainty market, nonsponsor and in know has the capital sponsor well, allows

provides sponsor away businesses, of platform nonsponsored REIT's originate regular breadth to finance credits the business. As the the the way us X ability for with from

of shareholders. XX% less fundings In maintaining incremental generally nonsponsored total earn we risk for return is our to an this theme businesses. the market in XXXX, appropriate It spread where while of were traveled

facility largest we differentiated the a expertise quarter funding with and asset that Energy. Given to linked rather our the volume long-standing funnel in to our recapitalized To to exchange. from investment solely our connection on across This pipeline for was loan but an a access investment new flexible as in also channels, M&A a relationships, capital is TRP structured wide a highlight approach. not multiple business stems term QX, investment origination the top sector closed of new

in the by As approximately prepayment of term its per from and of loan the existing TRP engine share Street, transaction, fees resulting part income. refinanced combination Sixth dividend $X.XX

the of believe Arrowhead stay in on touch To and the protection. was This opportunities. HSR We a made announcing of investment licensing last the investment in our of in approval transaction opportunity invest trusted our this agreed week, Similar portion a allows Street new power with was these investment we After agreement the Therapeutics. Street collaboration large-scale activity-based call through estimated we deal us receiving of Based across accordance effective Inergy, expect to and XXXX. deep anticipate QX, creating expertise [indiscernible] XXXX. with to in management of -- unique per global share Sixth we investment alongside QX upon with underscores Sixth prepayment a another investment and will team press $X.XX Pharmaceuticals in be terms. earn loan repayment result this a in fees a platform a platform. on TRP direct of the to in QX terms, nonsponsor

of within the care which positively by investments has an the sector portfolio. fully care number IRR established benefited XX.X% themes X.Xx our and on been a core realized asset-level average health We of health a MOM have over shareholders, in competency weighted demonstrated in and years, specific and SLX

Both we that investments of overlap to have with sector. in This an portfolio the of examples examining other further portfolio and differentiated demonstrated across the these investment BDCs by is BDC overlap the comparing created. the the TSLX highlight

at the As on at compared in in reinforcing of portfolio the for overlap Pivoting the structure. to funding average capital top sector. of were our focus approximately QX, new lien XX% long-term QX XXXX, of less investments trends first XX% on TSLX loans, our investing to the overlap

across lead as in the in transactions us believe the in we All lead we were fourth to aged our where return serves today's advantage as funded are X presented platform that opportunities. contributed investments a shareholder Street's to we capital deals quarter. to attractive ultimately XX% base size Sixth skilled capital competitive and of direct crowded participate deals In of leverage to lenders, in base transactions Sixth of drive the This Street able new TSLX returns. allowing marketplace risk-adjusted

repayment on Moving activity. to

highlighted payoffs in As a off fourth year. during Josh the significant pickup earlier, the we to finish experienced quarter

million. Total repayments $XXX in were QX

of between activity To year, increase funding experienced For resulting quarter, the repayment million, in fourth [indiscernible] investment, TRP a to of we totaled XXXX driven existing opportunity net in our a followed business to the of $XXX resulted by by and activity XXXX. to a and M&A Two over related refinancings. payoffs continue payoffs lending the million during full reflecting the XX% characterize M&A, new loan. we $XX Energy repayments the and repayment the our through for money mix saw term

yields basis rest In mix repayments spread XX.X% step-downs debt between From existing new shareholders. on of getting securities and profile on do on at average a lower XX from producing to spreads weighted decline was deals pass on and that of an an a costs return amortized the investment. yield decreased by of appropriate refinancings, from continue perspective, rates interest this present quarter-over-quarter was not at Cost driven our to points XX.X%. we fundings portfolio and our terms income for yield done

XXX X% capital. our than the in less points. of that today's loans points. outlined XXX investment importance this In previous participate environment, will by This of spread value spread highlight is by value of below secured our a portfolio Further, reasons estimate with fair the is in basis we to our tighter than only earnings basis in our spreads illustrated of we cost return a regarding we by senior carries continued for X.X% of call have fair that cost earn below greater opportunities earning the have portfolio We capital.

their credit these of for composition stats. and and coverage average whom portfolio interest and X.Xx. the have metrics borrowers continue relevant, to core points are our Across at and we conservative on consistent average X.Xx, X.Xx weighted to Moving attach detach weighted remains respectively

run the rate a coverage As apply quarter we rate reminder, to interest end rates of the at that assumes borrower EBITDA. reference

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

continues represent a X, X.XX, performance rating of our X the driven QX. to by investments during from average investment a of growth [indiscernible] of scale fair the X in a value status with being strong to the an the of improvement new Nonaccruals from of added leading rating Finally, the on X.XX strongest and quarter's of last be portfolio X weighted with portfolio represent new nonaccrual X.X% portfolio no at repayment in quarter. to investments the with

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

Ian Simmonds

quarter the of from generated investment investment QX, net year investment finished a earnings income of perspective. with year activity We net full Bo. an $X.XX In share $X.XX. strong in we you, per income share Thank and per resulting

was Our share of $X.XX, year per in . of the net $X.XX net income net and resulting resulting share gains investment year $X.XX, income We for QX per income experienced in fees income adjusted per in net full capital $X.XX unwind $X.XX. adjusted of XXXX, respectively. incentive and per of share share an

of the we yesterday. had $XX.XX billion of share, which billion $X.X prior of principal of investments is year-end, per $X.X impact At was the and total debt net billion that total declared dividend supplemental outstanding assets to $X.X or

debt-to-equity up in Our from X.XXx ratio the prior our increased slightly to debt-to-equity was ratio from X.XXx, X.XXx average ending X.XXx also quarter quarter-over-quarter.

XXXX, from X.XXx year average XXXX. our slightly X.Xx full was debt-to-equity in ratio down For

of commitments revolver at be $XXX capacity year-end, available we of $XXX to terms million against had drawn. In million company unfunded sheet eligible our balance of positioning portfolio

on capacity quarter's last maturity discussed through unsecured the during on facility. XXXX we utilization of notes As our quarter our revolving the undrawn satisfied call, credit of fourth

Consistent accessing annual we of the Following annual XXXX debt our extend maturity amending calendar target in August maturity our revolving with off year the until maintain Last being we facility. not unsecured that issuer, ongoing our process occur our of and anticipate month, funding does market messaging XXXX. extending our mix. nearest credit ladder of repayment, kicked to and an

extended exceeds basis, the XXXX, While historically weighted the average maintaining liabilities, funded a liability that weighted average current meaningfully our on duration driven not on of principle until assets life maturity an we annual of is our maturity have the on facility debt. the asset by by the matching

in lowering upon spread We the amendment anticipate on QX. facility closing undrawn drawn the fee of marginally and the

XX contains growth, through a to Slide share base share of of positive $X.XX adjusted bridge. against presentation impact Moving materials. The of our value. our had main credit impact portfolio added investment dividend per we to quarter's net from our tightening drivers NAV this the the Walking of valuation per share. spreads on NAV $X.XX asset $X.XX net per income

related gains $X.XX share NAV by changes losses And from net we uplift investment per oil as to primarily driven largely unrealized and Kyriba. from our was in was on finally, gas. realized Energy realizations and equity the a company-specific investment per from portfolio investments, NAV Other included balance $X.XX reversed There a there [indiscernible] in $X.XX reduction TRP unrealized share on decline net net to sheet, share per events. in gains

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

Net of accelerated driven earlier. the that repayments fees fees from at fees paydowns million in quarter. were excluding from accrual the million million, upfront capital highlighted $XX.X up QX, was prior earned were Bo income by and expenses, slightly $XX.X gains amortization million, on to noncash unscheduled Other prepayment activity-based Other compared $X.X fees $X.X of $X incentive related quarter. in the million the also up to impact million prior from fees higher $X.X the representing in

fourth funding This from rate in on decline largely quarter. of decreased XXXX in to approximately a the the the driven outstanding XX Our following mix by basis average repayment interest was coupled X%. weighted unsecured average notes debt X.X% reference with shift rates points

which a interest reminder, move the will structure is our direction in of cost rate, means liability our entirely As as debt rates. same floating

assumes remain rates on fees of XXXX passing leverage this wanted equity new We the interest the net deals the XX.X%. and to on we to earn. key in those with guidance spreads Before investment anticipate a I which for of amount spreads, to and model, our expect are to be to in it which the for activity-based about we back new movement a and impact Josh, income to issue return fourth target XXXX, year. variables similar including income incorporates thinking for provide investment XXXX Based expect forward on we quarter, will of consistent to on curve how framework the XX.X% and interest

end activity-based share to of range end range fees. income our of full the per adjusted value upper XXXX QX net adjusted book normalized of more lower is Using supplemental a of while The of this share. to to $X.XX reflects activity-based our $X.XX include investment level a the fees, for impact per dividend. year muted reflects This corresponds year-end $XX.X which

is As protected. our well base share annual basis, reminder, which $X.XX believe per we remains an on a dividend

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

Joshua Easterly

thoughts the up issue market contributed earnings today spreads Competition sector, by call economics and rates Thank and [indiscernible] fierce sharing direct the for of existing we'll older you, tights. average Last by in of the Ian. wrap spreads I combination the operating the and to on portfolio is that historical loans topic. year, my above new unit started were lending investments sector. interest on on on

the sector. As This in we XXXX earnings and the headwinds for was credit in year, headwind of to to sector. largely anticipated, we expect tailwinds terms to offset a

converted firms cost has least portfolios on been equity highlights at a it the return books relates curve. where potential sit math see The earlier on illustrated we misallocated As capital challenge in as we book, earnings. to and will the back front in as that sector

spreads known On weighted to the issues these to share prevailing We in believe average of positive today. we become we evident market note, expect be about a We in to portfolio value the credit and care maintaining the sector. spreads credit the from Ultimately, majority because we XXXX for improve therefore, proposition expect we converge here. as this capital upholding ensure are direct investors. and all our remains their to other that for our sector place equity cost to look beyond. long lenders our We're -- and and hard risk a and that standards price it's forward understand working appropriately. throughout We XXXX a stakeholders sector to important for dedicated investors both debt of to deliver desired views

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

Operator

[Operator question with from Fargo first to line Wells Finian going the Our Instructions] of is O'Shea come Securities.

Finian O'Shea

name want ask of opportunity? better to like what returns type lien it recaps deal kind sounded to find, the new mentioned. the there. couldn't TRP spreads commitment, and and feeling? I the the sounds I I'm cap it of Solutions And about from but you a you may opportunity that Correct tie Energy, new origination outlook delevers be you're a or a source me the it. of lot first wrong do that if But that of is get it

Joshua Easterly

risk lien transaction. I energy. return. that the about would that So and kind a have off was we On good is the expertise a type was really not first TRP that space in, and say, obviously, in TRP feel we of, that, of run financing,

We the are stuff. capital seeing solutions

there's there today. in any comes -- book I was that in not don't XXXX in prevalent that think I I'm that think guess, origination, -- was but will any not sure be I that TRP.

-- our those X couple the a TRP somewhere have we oriented. the solutions closed that -- XXX. And have top up XXX from But more that to I after one of obviously, of QX sulfur least pipeline in of or capital in continue on sulfur in between kind them. end actually would not range, range are that to think was at be

Finian O'Shea

IRG. Very to a I ask follow-up about And want good.

I of one mark for a quarter. took on a We a while. this been think working you've that touch

us So any could that. update you give on

Joshua Easterly

in working that. in valuable Beach quarters of on think Beach. quarter the resolution Palm . getting West company-owned super own We're have super we portfolio We valuable, They X sold. those next Palm the on land a in to there or hope assets, Yes. or assets

Operator

of the our next Mckenna [Operator come Instructions] with from to And line Brian going Citizens question JMP. is

Brian Mckenna

and basis deck, great see results strong it results over So quarter in Page the about past was base And of you've the kind operating just environment in the point every into looking strong rates at really ROEs XXX on then decline delivered despite decade. the to X such year-end. of impressive

the So so does any backdrops? all why question is, well work your model and in

Joshua Easterly

Yes. the mean, worked thanks be for hard I Thanks, Brian, look, credit. right really we question. to on Yes,

significantly loss been And sector in you when look rates set our asset historical over at rates the They've asset so time. -- the returns well below industry. loss the and the

first. rates, starts it starts investor -- with that So an being it with loss

model or origination origination is, competitors Second on think we sponsor you top our response spreads. bigger the of lot have focused That the competitive on -- have most channel. which are early I have a the whippy most channel of funnel, of where the is is historically, kind a

funnel function level a returns to better of think having then losses. bigger I credit the a so run asset that minimizing find the off where And it's we're of offer able opportunities and top

look it And see [indiscernible] economics at on when fit the me you space, you unit so can the X -- of second. Give

X.X% So think been about losses that. have have higher at been points the on and unit equity, we've on economics then credit has been been on of half I space have return if basis average look our the hundred you weighted portfolio the couple of software been, -- a and historically assets

less top -- compared of inception the we've had we've since a been so basis of XXX space. funnel points yields. IPO, credit since guess, that's wider to significantly And mostly XXX historically our I because higher Again, losses IPO and since aperture on the our asset

performance the So of those time. X big drivers are over our

Brian Mckenna

there's helpful. And a mean then markets Okay. raised and bigger are credit clearly lot super a being deployed And I the very question in today. private here. credit active. of capital That's also just obviously, picture then public

Street a your ultimately But a as choosing market. do why of borrowers lot different Sixth seat, choices across end have the from partner? borrowers So lending up

Joshua Easterly

Great. Yes.

million-plus So of and and we the the look, and because X and expertise size is the have who firms kind X in tend speed again, value is those a of both have can certainty side, then And think sponsor that we of and in a, suit a and $XXX industries, the nonpunser provide I and think, industry I we less on speed, really value, handful provide or same important -- -- across side, are which can to it's traffic can travel in certainty, and for handful on platform. coming top deep sponsor of flexibility that a -- size speed areas. of the certainty we write same but checks because some kind

Robert Stanley

I we the thematic approach, a speed universe right. in outside think for exactly allows long-standing have the They We're lot of us of solutions that's and to quickly, and curve have sponsor . certainty. really sponsor provide up community. can that the confidence relationships especially providers we get sectors. the investing deliver,

Operator

come Ladenburg. line Mickey question Our with to is Schleien next from the going of

Mickey Schleien

redevelop. ability over is months? XX to imbalance stabilization do in but about market, your And to of expect spreads. for the pressure I'm some you what finally sponsored terms we remain more of stable talked did in the spreads next the you Josh, Or those outlook the see curious

Joshua Easterly

Yes.

on spread compare And what Mickey, the equity this So maybe Look, we those it's of and market for hope beginning right is, my return equity for at space. mechanism how a back to my is tried to I imply is our earnings call the question. this those and God, up that mean your my of hope, provide what space converts hope a the be is levels is book? think front your to that to for work, book will wake will mechanism that returns. kind And and say, a price does on the for market feedback will "Oh return to asset level as which what do about

spreads it quite of I'm equity space. curve not the for but so bottom frankly, on space, bottom the cost the level the and investing, level, what on we're return given works at And not sure, sponsor the

on of on compared sulfur the and somewhere, and losses be cost to cost I swap sets X% equity and think our based based rate between the mass on equity going X% a X% between is XX%. determine somewhere curve to based

of hopefully, kind feedback so most the if market capital is will And allocated. that provide

my of provide reinforcing too the cost that adjust. maybe mechanism will will of there's the But market spreads. hope high that Now a is that for the and at space level least for equity is space, some

Mickey Schleien

That's really quite interesting and helpful.

small Just growing whether your at to as BDC in one expanding the relatively basis? interest question. is the The Sixth compared you growing Street. curious follow-up platform and a platform on BDC I'm keeps have TSLX relative broad

Joshua Easterly

question, of -- investors, kind Street I great way Six of of how a It's we're Street be the interesting an Mickey. to Look, we Sixth want an because a it's is Yes. we investor and model. it's it's goal built look, first think

just cycles, don't market. a invest can Street XX we're of X at in capital you the lending And to platform, across raised but AUM, that's look so strategies we're when we know, as think so about, we Six direct billion we we that I like $XXX constrained do across -- have

And of where capital to that is for our unless issuers But to us grow capital partners, sponsors who as direct Specialty to we as job exists as provide us. capital capital to because trust and which investor on kind a sponsors long for the an to we our providing Lending acceptable doing clients returns the grow first business. and we'll we're be see investors. built if lending opportunity believe good our really both can cap flywheel Street can't people or as the that on know, to so only there's have And we people efficacious larger our we provide we solution we're model Sixth our business an provide investments. and focuses direct lending provide we'll But return

Operator

And our next question Ken comes line from Lee of Capital Markets. with RBC the

Kenneth Lee

the commentary around the appreciate Really overlap. portfolio

company. of of have? size you curious, is to attribute the to nonsponsored the portfolio you due part Just to of less transactions the mainly overlap that would the it proportion Or also

of there. the terms in contribution curious Just

Joshua Easterly

Yes.

directionally, side. think it's the probably I nonsponsored

directionally, sponsor lack the I that I there's bit that. the portfolio for compared helpful. think sure, rest But to there's -- nonsponsor side the mostly of space. think a contributes to if that's it's the overlap on of side, little of the

Kenneth Lee

one helpful. No, helpful. just Yes. And That's that's follow-up.

documentation you're now, spreads terms. new about on seeing seeing of lot terms what a talked of loan any are investments, but of in in just You curious terms in you changes

the whether . you're there. been of see Just have by items seeing wanted to those impacted level activity

Joshua Easterly

No.

I think typically, Bo can comment.

the outside underwriting of think spread I the and standards XX document of consistent . typically, over has kind pretty been the months last

Robert Stanley

they've XX consistent. months, to XX been pretty

on for in seen most pass up some documentation syncratic pop you've part, outright. see where But see ones stabilization will those the easier now. of you lack discipline You'll

Operator

with of from Our line comes next the Wedel question JPMorgan. Melissa

Melissa Wedel

the you terms call Following remarks, I'm earlier that the of you're some most before deals And up with balance in is the structure curious, sort investments of has on prepared in . something call typical you on the of put new protection? on sheet? of about mentioned characteristic being talked on changed just new anything -- protections putting

Joshua Easterly

is something a to actually, just that remarks, percentage opened in hit call No, of value. closing kind as No. a you going protection up but fair of

value look So at in fair is coal its price lowest actually if the today. portfolio by you at the divided level

So that's newer of, protection. a vintage think, of retain -- call we've I plus it's been that combination a function able to investments and

XX.X%. that's So at

that's our So embedded of highest called got we economics lot would economics embedded level. the at of the away, entire kind that and have at a is portfolio

been So the has on to stable. and off-the-run pretty I would we're call call more able nonsponsor. more more protection say production the generate investments

the been it protection sponsor exist. all and I has generally, think on pretty So stable does stuff

Melissa Wedel

helpful. That's Okay.

space. mentioned care also in exposure expertise You and health the

the as you you across . embedded look of portfolio, curious, there? see sort Just reimbursement risk do in any

Joshua Easterly

has the difficult has exposure in on services health a been services. So the health It been for on given care has pharma. inflation services side, wage place look, and not the care on space tech side, [indiscernible] which really our been

-- we strategy care don't the health years pretty a in But health have there priced on a differentiated So back. was care the of market more was we -- pharma that We there was that. I always think a couple of in expect -- reimbursement portfolio.

Operator

Our line Robert of next question Raymond James. is going to with come the Dodd from

Robert Dodd

A-grade to tight there's -- the what's obviously, supply-demand I question. But it mismatch so back years. leverage pay you few last down the is the Because But been Are leverage on spreads a of it's spread that we rebound going of last more our on has move see because been you reverse mix, an investors want spread in pointed think spread came going probability as to the a increase couple too. mean and the compression out, see per new I spreads trend as in activity? mean more for the Going unit we stay move that in like see if arguably see activity? don't quite sense there's there. companies if and some I spreads years, makes actually I we mean to up. deals B-grade just because we of think them

is activity company But leverage, are meaningful quality a there the somewhat per other rebounding dynamics needle. if meaningful terms in there kind push of that mix, anything like spread unit of of

Joshua Easterly

people supply how in of when and ultimately so it's should suggesting -- look, wake -- people's their function spreads see no, way, value. supply destroying longer I off. supply happen the capital them Like and a was Yes, the on up that's What market meeting my what signaling can market let return lower is that provides and equity, book compared and not is be cut but And that says, demand function work to suggesting as their that prices hope, should and shareholder equilibrium, my back side, side, front happen, of spreads. that book I no. back that hope on will me is is drive that market a was that -- that right? was What the I the hope wasn't at I no, into some -- it's What is the by -- supply no the converts should a right?

Your X, matter of should to risk-adjusted book XXX cut allocate the the you is no what levels. managers capital be off trade you at can't at that down cost supply value, capital return lower capital at should signal the of and to stock and a And below a think really spreads. about

of front transparency So comes more of conversion to out back supply that in market book. book hopefully as a there's

On the side, demand that's the so side. supply

and the probably side, M&A to of demand private On spreads the up. also of other move increased most M&A catches that up credit, capital, should supply demand for increased but given

it signaling had a are a capital the back being on what's and appropriately you've about to move people side, M&A There over put happened capital because low lot hasn't the had last allocated if of supply that for work. you've hasn't have hides function book that transparent the real -- you So of XX then and that been incentives capital up. is the months The to demand is in space. caught

spreads. So of framework that's and the kind basic equilibrium supply demand for

Robert Dodd

Understood.

shortcut you a that stay presumably, kind where We imbalance self-correct of there? think to corrected Is given be that can phenomenon might assumes the that So longer-term for any think market spreads guidance don't the are? it be on they fair?

Joshua Easterly

depend when guess look guidance, comes on don't going up and when and back. And how mean you I not I know. to when. it's just I I now come sure at signals it's this Well, our -- M&A I'm strong self-correct. specific twice. and mean the are market has

conservative. which do I little on guidance like is we of being guidance I of over-deliver just kind over beat guess no a credit To out the Like I XX of XX a bit of harm we little give is the expectations. mindset I think years, that's the framework. provided us perspective, the firm, think kind to deliver. you loan of a

XX the of level we've of above X X And guidance. half. top been out XX the years, top years, we've out been above

of think M&A actually guidance and somewhere between and So look I think you levels implies low XX% is at portfolio our versus I guidance year. when in XX% our turnover, at this XX%

activity low So fees. of it implies drives which level level a

guidance our think relatively is I So conservative.

that spreads hey, let's think to, we get better, spreads framework this portfolio And What try little again, bit in spit guidance. that's what's was turnover like a don't out assumes worse. say, with I mean? what over-delivering assume a gets less did does of

have again, track record we're we a But where delivering.

like our that think mean PhD the you you what done add -- quick. the Barbara, think because -- kind that to -- not I I would "Hey, guidance, is what I'm makes would got do you're looking quick, at for context not relationship you in you their the But you've does our with environment. which guidance would I of I historical Street. put as I of to is, said, what So

Operator

our from comes Maxwell Truist. with line Fritscher of And next question the

Mark Hughes

Mark new versus for on I'm borrowers the expect Hughes. you wanted incumbent do I view to how trend to over of your borrowers get mix XXXX? on just

Joshua Easterly

create portfolio and historically I work mean, portfolio our relationships. we've existing new in put

existing company what but our the the have work going view. think have I I the relationships company on portfolio be like We'll that's you, us. a mix don't portfolio mix. what gives I to to a started take be number I mean, increased to it's the we that new -- where portfolio and money know, going specific it's if company the we can in of obviously, What put market and but a you portfolios know opportunity significantly, the gets to us.

Maxwell Fritscher

the in energy? Understood. new And then companies. that average TRP commitments just I in new that, the the increase large . sequential What's driving is assume, portfolio

Joshua Easterly

back little come to quick. you me a Let

I if question. your understand Let me just see

Maxwell Fritscher

[indiscernible].

Joshua Easterly

one I was mean TRP Yes, give me so secon.d million. $XX Yes,

that So of outside. big an Most them not it's median the big of was It's outside. between of XX%. that were an not probably

So big. not that

Operator

Johnson Paul the [Operator Instructions] of Our next with line question comes KBW. from

Paul Johnson

curious, into few Street partnership first recent announcements could, months, course you that but potentially new partnerships funnel? guess, I'm the few that does this I Sixth financing the made provide any fits or citizens, any last equipment just partnership. of one, this flow Would the most deal the partnership over TSLX's other enter? a

Joshua Easterly

really the That's Yes. leasing. citizens seen with equipment an expect partnership We equipment First don't Citizens. we've first

of the druclinding corporate into for to kind TSLX. that expect portfolio don't we So fit

if be definitely most that they're will they partnerships, appropriate will will appropriately. . opportunities TSLX and there But will cross-platform allocated for get be there

Paul Johnson

how in of kind portfolio. expand typically are within non-sponsored just more come the Got opportunities? it. in channel? nonsponsor payoff the I'm add-on frequently you on And Or curious with portfolio or shorter-term primarily financing then these provide borrowers just your financing have existing through the that opportunities

Joshua Easterly

portfolio actually look They're Like was a swap. company you an that mix. existing CRP an asset at if entered Yes. TRP, into basically

we're expand able relationships expand so ABL then other we were that amount there side, is And capital one that that relationship. to strategy. deploy. capital our bridge able a transitory the on But or, is to retail the example, that's And we those more that's side, on for of and some the where

a there's mix rule really are would both. in to on the These now on margin, the nature. transitory. it's tend opportunistic I more exceptions So of TRP, be say, like but the margin, they to

Ian Simmonds

right. That's

Joshua Easterly

-- long-term we -- we our capital want durable, that and But don't investors. to be that is for channel we and strategy

Paul Johnson

feel? helpful. guys signaling year, The And your pretty seems for end guys just to a year, capital year? pretty for line for given then outlook the valuation shareholders do you of you be X Got stable your do maybe target. think an raising pretty capital year on be time potentially you feeling sight more And guys the upper you how are Or repayments? from guys think activity in opportunistic this leverage do optimistic and your been just the it. of the about very this That's standpoint, how to last is has ask you I market is how are at throughout a last would right X.Xx

Joshua Easterly

Yes.

takes to capital time. that accretive a don't for on capital capital expect say significantly to capital. don't cost us us the capital and So you would is I you're see look don't that you But where the book invest is accretive ultimately given really trade Obviously, price. to permanent and have of grow period work this at spread levels we believe return capital I not would for can you And jumping for are, ROEs because I the share value, -- unless long I going of to think that in new what and spreads at given that below space. issue shareholders new puts and your

can capital we'll work. have raise entrusted change. there first their with that And put we'll investors meet we capital so it expectations on Star equity us that to those on is on that return beat may But and we our and everything capital equity relates as going changes, to is And that do return work, implied North and that capital capital. and to sure we're put an for if make capital, the

Paul Johnson

answers. sense. Those makes are great That

Joshua Easterly

great are Those there are answers. answer, but

me look and we to got deeply to platform XX -- deeply meet issuers, We a investor important equity on we server are have expectations. long-term meet that for to to to important sustainable is personally. us -- and the return And

Operator

the And for remarks. to I his to back closing would conference like Easterly Josh hand

Joshua Easterly

the holiday hope and all always appreciate weekend. Great. . -- questions. I thank either you all, I weekend. hope Well, people going around. enjoy available. their first people always But the We're We're from again, team we're to of I

Operator

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

You may a great now disconnect. day. have Everyone,

Sixth Street Specialty Lending (TSLX) 14 Feb 252024 Q4 Earnings call transcript