Blackstone Secured Lending Fund's Q3 2025: Contradictions Emerge on Dividend Sustainability, LTV Adjustments, and Spread Stability

Date of Call: None provided

Financials Results

• Revenue: Net investment income $189M ($0.82 per share); total investment income up $14M or 4.7% YOY; deployment >$1.0B in quarter, net funded activity up (net funded > $500M) and repayments $433M (annualized 13% vs ~5% prior quarter).

Guidance:

• Expect deal activity to remain active and asset turnover/repayments to pick up.
• Anticipate spreads to remain attractive versus traditional fixed income and credit quality to stay steady.
• Plan to operate near the higher end of leverage range (1.0–1.25x), reflecting heightened deal activity.
• Will review base dividend thoughtfully as rates fall, leveraging cost advantage to maintain sustainability.

Business Commentary:

• Deal Activity and Leverage:
• BXSL ended the quarter with a leverage ratio of 1.22 times, after averaging close to 1.15 times for the quarter, marking a significant increase from the previous quarter.

• The rise in leverage was driven by an acceleration in deal activity, with a 63% year-over-year increase in M&A activity, leading to more borrowings and higher debt levels.

• Spreads and Yield:

• The weighted average yield on performing debt investments at fair value was 10%, down from 10.2% the previous quarter.

• Despite falling base rates, new deals were secured at an average spread of 544 basis points over the base rate, reflecting the perceived value of private credit solutions despite competitive pressures.

• Portfolio Performance and Credit Quality:

• BXSL's portfolio experienced stable underlying fundamentals, with non-accruals dropping to 0.1% at cost, indicating strong credit quality.

• This stability and low default rates were attributed to the company's focus on first-lien senior secured loans with larger, well-capitalized sponsor-backed companies.

• Dividend and Earnings:

• The distribution of $0.77 per share was covered by net investment income, reflecting a 106% coverage ratio.
• The consistent distribution is supported by a high quality of BXSL's income, primarily derived from interest income, which accounts for 91% of total investment income.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted NII of $0.82 per share (12% annualized ROE), net investment income coverage 106% of dividend, non-accruals at 0.1%, deployment >$1B (up 90% Q/Q), and $13.8B portfolio (15% YOY growth), emphasizing strong fundamentals and low losses.

Q&A:

• Question from Finian Patrick O’Shea (Wells Fargo Securities): First question on Squarespace. Can you hit on why hang on to that? There was a pretty small junior allocation in the main tranches plus 225. Is that indicative of how low you’ll go? Otherwise, should more junior follow in a delayed draw or something like that?
  Response: For high-quality companies we may retain exposure using multiple tools (including first-out structures) versus syndicating; spreads overall were stable around mid-500s this quarter.

• Question from Finian Patrick O’Shea (Wells Fargo Securities): Follow-up — does it matter if new spreads are in the mid-500s if they’re going to be repriced to 225? Are we going to see a lot more of this to come?
  Response: No — they do not expect widespread repricing to much tighter (e.g., 225); individual situations vary but overall spreads have been flat over recent quarters.

• Question from Finian Patrick O’Shea (Wells Fargo Securities): Follow-up — are you seeing any impact on the non-traded space or the trajectory of flows given the headlines on private credit?
  Response: Demand for private credit remains strong across investor types; BDCs, including Blackstone’s, have delivered a premium to public markets and continue to attract inflows even when rates fall.

• Question from Casey Alexander (Compass Point Research & Trading): There was a modest quarter-over-quarter markdown on Medallia; can you update where that company stands and whether Qualtrics' acquisition changes competitive dynamics?
  Response: No material update—Medallia marked appropriately and the Qualtrics acquisition should take time to integrate and does not change the market backdrop today.

• Question from Casey Alexander (Compass Point Research & Trading): Company revenues and EBITDA are up but LTV ticked higher — is that driven by LTV on newly originated loans or something else?
  Response: The marginal LTV increase (from ~47% to ~49.7%) reflects small enterprise value adjustments and activity such as add-on financings; substantial equity subordination (~$1.5B) remains and management is not concerned.

• Question from Doug Harder (UBS): How are you viewing the outlook for the dividend as base rates come down and you refinance fixed-rate debt?
  Response: Dividend was covered this quarter (earned $0.82 vs $0.77 paid); management will thoughtfully review the base dividend as rates fall, leveraging a lower cost structure to keep it competitive and sustainable.

• Question from Doug Harder (UBS): If M&A and turnover pick up, how will that impact realized yields?
  Response: Higher turnover/repayments should boost near-term earnings via accelerated OID and fees and can be an upside to returns, though new-deal yields may be modestly lower in a lower-rate environment.

• Question from Kenneth Lee (RBC Capital Markets): Near-term AI opportunities — could this include debt financing for infrastructure and what is appropriate for the vehicle?
  Response: Focus on AI 'picks and shovels' and infrastructure (data-center equipment, power); recent examples include Layer Zero and Sabre Power—expect continued activity in infrastructure-related financings.

• Question from Kenneth Lee (RBC Capital Markets): How would you assess the quality of deals you're seeing with the pickup in activity?
  Response: Deal quality has been solid—M&A typically leads with higher-quality assets; average new LTVs ~45% and portfolio remains largely first-lien senior secured.

• Question from Ethan Kay (Lucid Capital Markets): How much of Q3 funding activity was incumbent versus new borrowers — any shift recently?
  Response: Over 80% of activity was to incumbent borrowers and nearly 75% were sole or lead roles; this mix is consistent with prior quarters.

• Question from Ethan Kay (Lucid Capital Markets): Given leverage ticked up to the high end of your range and issuance constraints, will deployment be driven by turnover and is there capacity to maintain elevated funding levels?
  Response: Firm is well-capitalized with ~$2.5B liquidity and access to debt markets (recent $500M bond at tight spreads); they will issue equity only if accretive, and expect repayments and turnover to provide capacity.

• Question from Robert Dodd (Raymond James): LTV is near 50% (up ~300 bps); is this driven by marginal multiple trims broadly or concentrated in larger assets?
  Response: The LTV move is marginal and reflects various factors (e.g., add-ons, enterprise value adjustments) rather than a broad problem; subordination remains robust and it's not a concern.

• Question from Robert Dodd (Raymond James): Private credit has maintained a ~150bp premium to syndicated loans — is that at risk given competition and capital?
  Response: Management believes the premium will be maintained (or widen at times) because private credit offers tailored, faster solutions and disintermediates bank-distributed models.

• Question from Robert Dodd (Raymond James): What is the estimated spillover currently to support the dividend?
  Response: $1.89.

• Question from Melissa Waddell (JP Morgan): Was there anything one-time or outsized impacting the interest income pickup this quarter?
  Response: No material one-offs; ~91% of interest income is cash interest excluding PIC/fees, repayments added ~3 cents of impact, and OID amortization smooths reported income.

• Question from Melissa Waddell (JP Morgan): How does the U.S. opportunity set compare to outside the U.S. as activity re-accelerates?
  Response: Europe offers slightly wider spreads (approx. 25–50 bps premium) and less depth; Asia is less developed—U.S. and Europe are both attractive with different dynamics.

• Question from Aaron Saganovich (Truist Securities): With cost of capital coming down but macro uncertainty remaining, what's your experience in such environments?
  Response: Corporate fundamentals look resilient (portfolio LTM EBITDA growth ~9%), though pockets of weakness exist; falling inflation and cooler labor markets drive rate cuts, and outcomes depend on sector exposures.

Contradiction Point 1

Dividend Sustainability and Spreads

It involves changes in the company's stance on the sustainability of dividends and expectations regarding portfolio spreads, which are critical for investor decision-making.

How is the dividend outlook affected by falling base rates and refinancing fixed-rate debt? - Doug Harder (UBS)

2025Q3: We are in a good spot, cost and expense advantage over peers. With more M&A activity, we see opportunities. We'll be thoughtful about any changes to the base dividend rather than rushing into them. Currently, 99% of the portfolio is floating rate, which helps. - Jonathan Bock(CEO)

Is the dividend sustainable and will you proactively adjust it if needed? How realistic is a rise in portfolio spreads with increased activity? - Robert James Dodd (Raymond James)

2025Q2: Our dividend is about 15% higher than the average BDC. We look at long-term signals, not short-term drivers. Base rates are expected to come down, which could potentially signal a change in the long-term dividend. We are underlevered, have surplus capital, and fees will increase with deal activity, which we factor into our dividend decision. - Brad Marshall(CEO)

Contradiction Point 2

Loan-to-Value (LTV) Changes

It involves changes in the company's explanation of Loan-to-Value (LTV) adjustments, which are crucial for understanding the company's financial health and risk management.

Is the increase in LTV due to portfolio-wide adjustments in multiples or concentrated in larger assets? - Robert Dodd (Raymond James)

2025Q3: It's not an event that concerns us. LTV adjustments reflect original Purchase Price. It's not a story, given the subordination remains below our debt positions. - Jonathan Bock(CEO)

Should investors be concerned about the trend in net investment losses? Can you provide an update on the Medallia loan? - Casey Jay Alexander (Compass Point)

2025Q2: Loan-to-values on new deals were about 45%. The marginal increase in LTV is largely due to enterprise values getting adjusted slightly lower, which is an equity consideration. The companies are growing, and interest coverage is improving. - Jonathan Bock(CEO)

Contradiction Point 3

Dividend Policy and Financial Management

It involves the company's approach to managing dividends and financial strategies, which are crucial for investor confidence and financial health.

How will refinancing fixed-rate debt and falling base rates affect the dividend outlook? - Doug Harder(UBS)

2025Q3: We are in a good spot, cost and expense advantage over peers. With more M&A activity, we see opportunities. We'll be thoughtful about any changes to the base dividend rather than rushing into them. - Jonathan Bock(CEO)

If SOFR curves put you below the dividend level, what's your policy on spillover - will you use it or adjust the base dividend as needed? - Finian O'Shea(Wells Fargo Securities)

2025Q1: Since rates peaked last year, we've seen three cuts of 100 basis points. If rates keep declining, earnings will come down. We manage this by increasing turnover, lowering expenses, and avoiding riskier assets. Despite challenges, our dividends remain at 11.2%. - Brad Marshall(CEO)

Contradiction Point 4

Leverage and Loan-to-Value Adjustments

It involves differing explanations for changes in leverage and loan-to-value ratios, which are important indicators of portfolio risk and asset quality.

Is the record-high LTV due to portfolio-wide multiple adjustments or concentrated in larger assets? - Robert Dodd(Raymond James)

2025Q3: LTV adjustments reflect original Purchase Price. It's not an event that concerns us. LTV adjustments reflect original Purchase Price. - Jonathan Bock(CEO)

Will the company shift toward the core middle market, and if so, what capabilities of the Blackstone credit platform can pursue these opportunities? - Kenneth Lee(RBC Capital Markets)

2024Q4: Loan-to-values on new deals were about 45%. The marginal increase in LTV is largely due to enterprise values getting adjusted slightly lower, which is an equity consideration. - Jonathan Bock(CEO)

Contradiction Point 5

Spread Stability and Repricing Concerns

It involves differing perspectives on the stability of spreads in new deals and the potential for repricing, which impacts investor expectations and portfolio risk assessment.

Can you explain why you retained Squarespace? The small junior allocation suggests a potential floor—should we expect more junior follow in a delayed draw? - Finian Patrick O’Shea(Wells Fargo Securities)

2025Q3: Spreads on new deals remain relatively stable. We saw spreads increase slightly quarter over quarter. We have tools like first outs, but overall, spreads have been flat over the last three to four quarters. - Jonathan Bock(CEO)

Of the $1.4 billion in new originations, what percentage comes from existing Blackstone relationships versus new merchandise? - Casey Alexander(Compass Point)

2024Q4: The new spreads are coming in higher than the previous quarter, but you can see the middle market rates have also come in higher this quarter. - Teddy Desloge(CFO)