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What were the key takeaways from Sixth Street Specialty Lending's earnings call?

**Key Takeaways**
- **Leadership Evolution**: Co-CEO transition formalizes existing collaboration, maintaining Sixth Street's investor-first culture.
- **Financial Resilience**: Q3 NII of $0.53 per share (12.3% ROE) with 114% dividend coverage, outperforming peers with NAV stability.
- **Strategic Differentiation**: Thematic investments (e.g., Walgreens ABL, Velocity Clinical) drive alpha, with 700bps new floaters vs. peers' 549bps.
- **Market Outlook**: BDC sector facing capital misallocation; SLX poised to benefit from disciplined underwriting and thematic sourcing.
- **Liquidity & Capital Management**: 1.15x debt-to-equity, $1.1B unfunded capacity, and $1.30 per share undistributed income for accretive deployment.

**【CEO Summary Section】**
- **Leadership Transition**: Robert Stanley named Co-CEO, effective immediately, with Joshua Easterly stepping down as CEO at year-end. Sixth Street's 25-year partnership ensures continuity.
- **Q3 Financials**: Adjusted NII of $0.53 per share (12.3% annualized ROE) and adjusted net income of $0.46 per share (10.8% annualized ROE). Base dividend of $0.46 and supplemental dividend of $0.03 declared.
- **Performance vs. Peers**: NAV grew 1.9% since 2022 rate hikes vs. 8.5% decline for peers. 22% of portfolio pre-2022 vintage vs. 56% for peers, positioning for rate cycle.
- **Market Outlook**: BDC sector facing capital misallocation, with dividend cuts likely. SLX maintains 114% dividend coverage, outperforming peers with NAV stability.

**【CFO Financial Commentary】**
- **Balance Sheet**: Total investments $3.4B, net assets $1.6B ($17.11 per share). Debt-to-equity ratio 1.15x, down from 1.2x. Unfunded revolver capacity $1.1B.
- **Liquidity & Capital Management**: No ATM issuance; disciplined approach to retain capital for accretive deployment. Undistributed income $1.30 per share, managed to avoid excise taxes.
- **Expense Management**: Interest expense decline to 6.1% WAC, benefiting from floating-rate liability structure. Operating expenses down 5% YoY.

**【Q&A Highlights】**
- **Investment Strategy**: 4 thematic off-the-run transactions ($388M commitments), including Walgreens ABL and Velocity Clinical Research. CLO liabilities ($100M) deployed at 554bps spread, liquid and accretive.
- **Credit Quality**: 1.12 average credit rating (1-5 scale), 0.6% of portfolio on non-accrual. Conservative covenants (0.3x attach, 5.2x detach) and 2.3x interest coverage.
- **Prepayment Activity**: $303M repayments Q3, 75% via refinancing at 325-525bps spreads. Activity-based fee income $0.14 per share vs. 3-year average $0.08.
- **Market Trends**: Elevated competition, spread compression (700bps new floaters vs. peers' 549bps). Structured credit team deploys $16B+ in CLOs with 27.1% IRR track record.
- **AI Impact**: Software portfolio unaffected; AI reduces dev costs but doesn't erode data/moat-based competitive advantages. Thematic focus on durable data moats continues.

Sixth Street Specialty Lending, Inc. (TSLX) Q3 2025 Earnings Call Transcript

- **Strong Financial Performance**: Q2 NII of $0.56 (13.1% ROE) vs. base dividend of $0.46, with 22% coverage.
- **Credit Improvement**: Nonaccruals drop to 0.6%, lowest in 3 years, with only 2 problem companies.
- **Spread Advantage**: 652bps new loan spreads vs. peers' 533bps, 30% nonsponsored originations.
- **Elevated Fees**: $0.11 per share in activity-based income, driven by $389m repayments of high-yield assets.
- **ROE Guidance**: Full year NII ROE in top half of 11.5%-12.5%, potential upside from fee income.
- **M&A Outlook**: 2021-2022 vintages need 6-8 quarters to justify exits, but investment-grade M&A may accelerate first.


**【CEO Opening Remarks】**
- Q2 adjusted net investment income: $0.56 per share (13.1% annualized ROE), adjusted net income: $0.64 per share (15.1% annualized ROE). 
- Outperformed peers with 42.6% total economic return vs. 19.1% average for public BDCs over 3.5 years.
- Credit stabilization evident: nonaccruals declined to 0.6% of portfolio (vs. 1.2% last quarter), with only 2 companies on nonaccrual.
- Strong dividend coverage: Q2 NII exceeded base dividend by 22% ($0.56 vs. $0.46).
- Weighted average spread on new first lien loans: 652bps (vs. 533bps for peers in Q1).
- 30% of Q2 originations from nonsponsored transactions, e.g., Ingenovis Health A/R securitization.

**【President (Bo Stanley) Investment Activity】**
- Q2 commitments: $289m (30% nonsponsored), fundings: $209m across 17 deals.
- M&A market remains muted (Q2 loan volume down 31% vs. Q1), but green shoots in duration management transactions.
- Repayments: $389m (driven by pre-2022 vintages), activity-based fee income: $0.11 per share (vs. 3-year avg $0.05).
- Portfolio yield: 12.0% (down 30bps vs. Q1 due to high-yield asset payoffs).
- 6.2% of portfolio has <500bps spread (vs. 29% for peers).
- 78% of debt investments have effective voting control, 94.1% protected by call options.

**【CFO (Ian Simmonds) Financial Details】**
- Q2 GAAP net income: $115m, EPS: $0.71 (excl. non-cash fees).
- Debt-to-equity: 1.09x (end Q2), within 0.9x-1.25x target range.
- Unfunded revolver capacity: $1.1b (7x coverage of $159m unfunded commitments).
- ROE guidance: Full year NII ROE in top half of 11.5%-12.5% range, potentially higher if fee income remains elevated.
- NAV: $17.17 per share (pre-supplemental dividend), spillover income: ~$1.30 per share.

**【Q&A Highlights】**
- **Portfolio Diversification**: Average position size 90bps vs. peers' 20-40bps, balanced risk through idiosyncratic underwriting.
- **Nontraded BDC Impact**: Secular trend of spread compression, but listed BDCs with excess economics (like SLX) can maintain ROE.
- **Repayment Activity**: Elevated through 2025 due to post-2022 vintage exposure, but no structural change to fee generation.
- **Lithium Restructuring**: Removed from nonaccrual, no NAV impact. Earn-out equity security valued at 3-year cash flow projection.
- **M&A Outlook**: Post-2021 vintages need 6-8 quarters to justify exits, but investment-grade M&A may accelerate first.


Sixth Street Specialty Lending, Inc. (TSLX) Q2 2025 Earnings Call Transcript

- **Q1 Earnings Beat Expectations**: $0.58 NII (13.5% ROE) and $0.36 net income, with $0.50 per share earnings power guidance.
- **Dividend Growth**: Base dividend of $0.46 and $0.06 supplemental, total spillover income of $1.31 per share.
- **Portfolio Resilience**: 12.3% yield, 93% first lien, and 1.2% non-accruals amid market volatility.
- **Strategic Capital Deployment**: 84% of new investments in non-sponsored deals with 700bps spreads, vs. peers' 541bps.
- **Balance Sheet Strength**: Extended debt maturity to 4.2 years, $1 billion liquidity, and 1.15x debt-to-equity ratio.

**【CEO Summary Section】**
- Adjusted net investment income of $0.58 per share (13.5% annualized ROE) and adjusted net income of $0.36 per share (8.3% annualized ROE) for Q1 2025.
- Board-approved base quarterly dividend of $0.46 per share and a supplemental dividend of $0.06 per share.
- Projected quarterly earnings power of $0.50 per share, with potential upside from activity-based fees.
- Portfolio yield at amortized cost of 12.3%, with 84% of new investments in non-sponsored deals.
- Limited direct exposure to tariffs, with 1.2% of portfolio on non-accrual status.

**【CFO Financial Commentary】**
- Total investments of $3.4 billion, down slightly from $3.5 billion in Q4 due to net repayment activity.
- Issued $300 million of 5-year notes at SOFR + 152.5bps and amended $1.675 billion credit facility to extend maturity to 2030.
- Weighted average cost of debt decreased 60bps to 6.4%, with $1 billion of unfunded revolver capacity.
- Debt-to-equity ratio of 1.15x, down from 1.18x in Q4.

**【President Bo Stanley's Portfolio Update】**
- Total commitments of $154 million and fundings of $137 million across 6 new investments and 4 upsizes.
- $270 million repayments, resulting in $133 million net repayment activity.
- 89% of fundings in new investments, with 84% outside the sponsor channel.
- York Logistics investment at 13.9% yield and Arrowhead prepayment fee contributing $0.05 per share.
- Portfolio churn of 28% LTM, highest in 9 quarters, driving $0.16 per share in fee income.
- 93% first lien exposure, with 5.4% of portfolio in senior secured loans below 550bps spread.

**【Q&A Highlights】**
- **Market Volatility & Investment Strategy**: Emphasis on disciplined capital allocation, non-sponsored deals, and higher spreads (700bps on new commitments vs. peers' 541bps).
- **Tariff Impact**: Minimal direct exposure (2% of portfolio), with hedged energy investments and collateral-focused retail ABLs.
- **Capital Management**: No plans to issue shares below NAV; ATM program for accretive equity raises.
- **Credit Quality**: 1.11 average credit rating, 0.5x/5.1x LTM interest coverage, and 1.2% non-accruals.
- **Liquidity & Balance Sheet**: $1 billion unfunded capacity, no near-term maturities, and 4.2-year average debt maturity vs. 2.3-year asset life.

Sixth Street Specialty Lending (TSLX)-1 May 25-2025 Q1 Earnings call transcript

- **Record Q4 Performance**: $0.61 NII per share (14.2% ROE) and $0.54 net income per share. 
- **2024 Growth**: 70bps NAV growth vs. -160bps sector decline; 13.8% ROE vs. 9.1% sector average. 
- **2025 Guidance**: 11.5-12.5% ROE target, with upside from $0.15+ per share activity fees. 
- **Non-Sponsored Edge**: 37% of 2024 fundings at 150bps+ spreads vs. sector; healthcare portfolio IRR 14.7%. 
- **Credit Discipline**: 1.4% non-accruals; 5.1% of portfolio <550bps spreads.

**【CEO Summary Section】**
- Adjusted net investment income of $0.61 per share in Q4, with an annualized operating ROE of 14.2% and full-year adjusted NII of $2.33 per share (13.8% ROE). 
- 2024 results driven by higher interest rates (+$0.03 per share), record activity-based fees ($0.44 per share), and net asset value growth of 70bps year-over-year.
- 2025 guidance targets 11.5-12.5% ROE on NII, with upside from normalized activity-based fees.

**【CFO Financial Commentary】**
- Q4 GAAP net income: $420M; Non-GAAP EPS: $1.08 (vs. $0.95 estimate). 
- Debt-to-equity ratio: 1.22x (1.19x annualized). 
- 2025 ROE guidance: 11.5-12.5% (based on 4% SOFR, 1.5% OID, 100bps credit losses). 
- 2024 spillover income: $1.23 per share. 

**【Investment Activity】**
- Q4 commitments: $479M (busiest quarter since 2021); full-year fundings: $839M. 
- 37% of 2024 fundings in non-sponsored deals, with spreads 150bps wider than sector average. 
- TRP Energy and Arrowhead Pharmaceuticals highlight differentiated non-sponsored investments. 
- 2024 repayments: $794M (+69% YoY), driven by M&A and refinancings. 

**【Q&A Highlights】**
- 2025 outlook: M&A activity expected to rise, but spreads remain tight. 
- Sixth Street maintains 5.1% of portfolio with spreads <550bps (vs. sector average). 
- Healthcare portfolio IRR: 14.7%, with limited reimbursement risk exposure. 
- Capital allocation: prioritize dividend coverage over leverage expansion.

Sixth Street Specialty Lending, Inc. (TSLX) Q4 2024 Earnings Call Transcript

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