TSLX Sixth Street Specialty Lending Inc

Delaware

001-36364

27-3380000

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

2100 McKinney Avenue, Suite 1500

Dallas, TX

75201

(Address of Principal Executive Offices)

(zip code)

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TSLX

The New York Stock Exchange

Exhibit
Number

Description

99.1

Press Release, dated August 3, 2023

104

The cover page of this Current Report on Form 8-K, formatted in Inline XBRL

SIXTH STREET SPECIALTY LENDING, INC.

                    (Registrant)

Date: August 3, 2023

By:

/s/ Ian Simmonds

Ian Simmonds

Chief Financial Officer

NEW YORK—August 3, 2023— Sixth Street Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today reported net investment income of $0.58 per share and net income of $0.63 per share for the second quarter ended June 30, 2023. These results correspond to an annualized return on equity (ROE) on net investment income and net income of 14.0% and 15.2%, respectively.

Both net investment income per share and net income per share include approximately $0.01 per share of capital gains incentive fee expenses that were accrued, but not paid or payable, related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less any cumulative unrealized losses and capital gains incentive fees paid inception-to-date. Excluding the impact of the accrued capital gains incentive fee expenses, the Company’s adjusted net investment income and adjusted net income for the quarter ended June 30, 2023, were $49.5 million, or $0.59 per share, and $53.8 million, or $0.64 per share, respectively. These results correspond to an annualized return on equity (ROE) on adjusted net investment income and adjusted net income of 14.2% and 15.4%, respectively. The Company’s strong net investment income in the second quarter reflects continued strength of the core earnings power of its portfolio. Net investment income was supported by elevated portfolio yields driven by higher interest rates.

Reported net asset value (NAV) per share was $16.74 at June 30, 2023 as compared to NAV per share of $16.59 or an adjusted NAV per share of $16.55 at March 31, 2023 (which accounts for the impact of the $0.04 per share first quarter 2023 supplemental dividend). The drivers of this quarter’s NAV per share growth were primarily the continued overearning of the Company’s base quarterly dividend, the accretive equity raised during the quarter and net unrealized and realized gains from investments.

The Company announced that its Board of Directors has declared a third quarter 2023 base dividend of $0.46 per share to shareholders of record as of September 15, 2023, payable on September 29, 2023, and a second quarter supplemental dividend of $0.06 per share to shareholders of record as of August 31, 2023, payable on September 20, 2023. Adjusted for the impact of the supplemental dividend related to this quarter’s earnings, the Company’s Q2 adjusted NAV per share was $16.68.

In May 2023, the Company issued a total of 4,500,000 shares of common stock at $17.60 per share. Net of underwriting fees and offering costs, the Company received total cash proceeds of approximately $77.6 million. Subsequent to the offering, the Company issued an additional 675,000 shares in June 2023 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees and offering costs, total cash proceeds of approximately $11.7 million.

On June 12, 2023, the Company completed an amendment to its Revolving Credit Facility, which, among other changes, (a) increased the aggregate commitments under the facility from $1.585 billion to $1.710 billion, (b) extended the stated maturity date to June 12, 2028 for $1.465 billion of commitments, and (c) added two new banks to the syndicate.

Net Investment Income Per Share

Q2 2023:

 $0.58

Q2 2023 (adjusted):

$0.59

Net Income Per Share

Q2 2023:

$0.63

Q2 2023 (adjusted):

$0.64

Annualized ROE

Q2 2023 (NII):

14.0%

Q2 2023 (NI):

15.2%

Q2 2023 (Adj NII):

14.2%

Q2 2023 (Adj NI):

15.4%

NAV

Q2 2023 ($MM):

$1,460.5

Q2 2023 (per share):

$16.74

Q2 2023 (per share, adj):

$16.68

Dividends Declared (per share)

Q2 2023 (Base):

$0.46

LTM Q2’23 (Base):

$1.79

LTM Q2’23 (Supplemental):

$0.13

LTM Q2’23 (Total):

$1.92

For the quarter ended June 30, 2023, new investment commitments totaled $260.4 million. This compares to $176.1 million for the quarter ended March 31, 2023.

For the quarter ended June 30, 2023, the principal amount of new investments funded was $240.0 million across 6 new portfolio companies and 4 upsizes to existing portfolio companies. For this period, the Company had $114.0 million aggregate principal amount in exits and repayments. For the quarter ended March 31, 2023, the principal amount of new investments funded was $138.9 million across 6 new portfolio companies, 5 existing portfolio companies and 1 structured credit position. For that period, the Company had $50.8 million aggregate principal amount in exits and repayments.

As of June 30, 2023 and March 31, 2023, the Company had investments in 861 and 832 portfolio companies, respectively, with an aggregate fair value of $3,089.0 million and $2,918.6 million, respectively. As of June 30, 2023, the average investment size in each portfolio company was $35.31 million based on fair value.

As of June 30, 2023, the Company’s portfolio based on fair value consisted of 90.6% first-lien debt investments, 1.3% second-lien debt investments, 1.8% structured credit investments, 1.3% mezzanine investments, and 5.0% equity and other investments. As of March 31, 2023, the Company’s portfolio based on fair value consisted of 90.8% first-lien debt investments, 1.6% second-lien debt investments, 1.8% structured credit investments, 0.4% mezzanine debt investments, and 5.4% equity and other investments.

As of June 30, 2023, 99.2% of debt investments3 based on fair value in the portfolio bore interest at floating rates with 100.0% of these subject to reference rate floors. The Company’s credit facilities also bear interest at floating rates. In connection with the Company’s Unsecured Notes, which bear interest at fixed rates, the Company has entered into fixed-to-floating interest rate swaps in order to align the nature of the interest rates of its liabilities with its investment portfolio.

As of June 30, 2023 and March 31, 2023, the weighted average total yield of debt and income-producing securities at fair value (which includes interest income and amortization of fees and discounts) was 14.0% and 13.9%, respectively, and the weighted average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 14.1% and 13.9% for the quarter ended June 30, 2023 and March 31, 2023, respectively.

As of June 30, 2023 and March 31, 2023, 0.63% and 0.68% of the portfolio at fair value was on non-accrual status, respectively. No new investments were added to non-accrual status during the quarter.

Origination Activity

Commitments:

$260.4MM

Fundings:

$240.0MM

Net Fundings:

$126.0MM

Average Investment Size1

$35.3MM

(1.1% of the portfolio at fair value)

First Lien Debt Investments (% FV)

90.6%

Secured Debt Investments (% FV)

91.9%

Floating Rate Debt Investments3

(% FV)

99.2%

Weighted Average Yield of Debt and Incoming-Producing Securities

Yield at Fair Value:

14.0%

Yield at Amortized Cost:

14.1%

Total Investment Income

Total Investment Income

For the three months ended June 30, 2023 and 2022, investment income was $107.6 million and $63.9 million, respectively. The increase in investment income was largely the result of net funding activity and higher interest from investments driven by increased all-in yields.

$107.6MM

Net Expenses

Net Expenses

Net expenses totaled $57.9 million and $22.3 million for the three months ended June 30, 2023 and 2022, respectively. The increase in net expenses was primarily due to the upward movement in reference rates which increased the Company’s weighted average interest rate on average debt outstanding.

$57.9MM

Debt and Capital Resources

As of June 30, 2023, the Company had $25.9 million in cash and cash equivalents (including $15.1 million of restricted cash), total principal value of debt outstanding of $1,698.3 million, and $659.2 million of undrawn capacity on its revolving credit facility, subject to borrowing base and other limitations. The Company’s weighted average interest rate on debt outstanding was 7.1% and 6.7% for the three-month periods ended June 30, 2023 and March 31, 2023, respectively. At June 30, 2023, the Company’s debt to equity ratio was 1.16x, compared to 1.20x at March 31, 2023. Average debt to equity was 1.22x for the three-month period ended June 30, 2023, compared to 1.17x for the three-month period ended March 31, 2023.

Total Principal Debt Outstanding

$1,698.3MM

Debt-to-Equity Ratio

Q2 2023 Quarter End:

1.16x

Q2 2023 Average1:

1.22x

Revolving Credit Facility

Unfunded Commitment Activity

Revolver Capacity

$1,710

Unfunded Commitments (See Note 8 in 3/31/23 10-Q)

$330

Drawn on Revolver

($1,051)

Extinguished Unfunded Commitments

($22)

Unrestricted Cash Balance

$11

New Unfunded Commitments

$30

Total Liquidity (Pre-Unfunded Commitments)

$670

Net Drawdown of Unfunded Commitments

($39)

Available Unfunded Commitments1

($190)

Total Unfunded Commitments

$299

Total Liquidity (Burdened for Unfunded Commitments)

$480

Unavailable Unfunded Commitments1

($109)

Available Unfunded Commitments1

$190

Three Months Ended

(unaudited)

June 30, 2023

March 31, 2023

June 30, 2022

Investments at Fair Value

$

3,089.0

$

2,918.6

$

2,536.4

Total Assets

$

3,141.2

$

2,972.7

$

2,580.4

Net Asset Value Per Share

$

16.74

$

16.59

$

16.27

Supplemental Dividend Per Share

$

0.06

$

0.04

$

0.00

Adjusted Net Asset Value Per Share (1)

$

16.68

$

16.55

$

16.27

Investment Income

$

107.6

$

96.5

$

63.9

Net Investment Income

$

48.8

$

42.9

$

40.8

Net Income (Loss)

$

53.1

$

52.9

$

(13.5

)

Accrued Capital Gains Incentive Fee Expense

$

0.7

$

1.8

$

(9.1

)

Adjusted Net Investment Income (2)

$

49.5

$

44.7

$

31.7

Adjusted Net Income (2)

$

53.8

$

54.7

$

(22.6

)

Net Investment Income Per Share

$

0.58

$

0.53

$

0.54

Net Income (Loss) Per Share

$

0.63

$

0.65

$

(0.18

)

Accrued Capital Gains Incentive Fee Expense Per Share

$

0.01

$

0.02

$

(0.12

)

Adjusted Net Investment Income Per Share (2)

$

0.59

$

0.55

$

0.42

Adjusted Net Income (Loss) Per Share (2)

$

0.64

$

0.67

$

(0.30

)

Annualized Return on Equity (Net Investment Income) (3)

14.0

%

12.8

%

12.7

%

Annualized Return on Equity (Net Income (Loss)) (3)

15.2

%

15.8

%

-4.2

%

Annualized Return on Equity (Adjusted Net Investment Income) (2)(3)

14.2

%

13.3

%

9.9

%

Annualized Return on Equity (Adjusted Net Income (Loss)) (2)(3)

15.4

%

16.3

%

-7.1

%

Weighted Average Yield of Debt and Income Producing Securities at Fair Value

14.0

%

13.9

%

10.9

%

Weighted Average Yield of Debt and Income Producing Securities at Amortized Cost

14.1

%

13.9

%

10.9

%

Percentage of Debt Investment Commitments at Floating Rates (4)

99.2

%

99.2

%

99.2

%

June 30,

December 31,

2023

2022

Assets

Investments at fair value

Non-controlled, non-affiliated investments (amortized cost of $2,993,190 and $2,707,442, respectively)

$

3,022,333

$

2,717,170

Controlled, affiliated investments (amortized cost of $72,169 and $67,284, respectively)

66,654

70,755

Total investments at fair value (amortized cost of $3,065,359 and $2,774,726, respectively)

3,088,987

2,787,925

Cash and cash equivalents (restricted cash of $15,115 and $15,437, respectively)

25,855

25,647

Interest receivable

23,239

18,846

Prepaid expenses and other assets

3,088

4,529

Total Assets

$

3,141,169

$

2,836,947

Liabilities

Debt (net of deferred financing costs of $20,531 and $17,760, respectively)

$

1,623,301

$

1,441,796

Management fees payable to affiliate

11,110

10,526

Incentive fees on net investment income payable to affiliate

10,507

10,918

Incentive fees on net capital gains accrued to affiliate

8,570

6,064

Other payables to affiliate

3,546

3,265

Other liabilities

23,606

22,809

Total Liabilities

1,680,640

1,495,378

Commitments and contingencies (Note 8)

Net Assets

Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares
   issued and outstanding

—

—

Common stock, $0.01 par value; 400,000,000 shares authorized, 87,905,481
   and 82,053,537 shares issued, respectively; and 87,241,231 and 81,389,287
   shares outstanding, respectively

879

821

Additional paid-in capital

1,395,409

1,294,751

Treasury stock at cost; 664,250 and 664,250 shares held, respectively

(10,459

)

(10,459

)

Distributable earnings

74,700

56,456

Total Net Assets

1,460,529

1,341,569

Total Liabilities and Net Assets

$

3,141,169

$

2,836,947

Net Asset Value Per Share

$

16.74

$

16.48

Three Months Ended

Six Months Ended

June 30, 2023

June 30, 2022

June 30, 2023

June 30, 2022

Income

Investment income from non-controlled, non-affiliated investments:

Interest from investments

$

96,221

$

56,747

$

184,655

$

117,907

Paid-in-kind interest income

4,644

3,298

7,647

6,371

Dividend income

797

1,123

1,405

1,358

Other income

4,075

1,589

6,832

3,350

Total investment income from non-controlled, non-affiliated investments

105,737

62,757

200,539

128,986

Investment income from non-controlled, affiliated investments:

Interest from investments

—

—

—

133

Total investment income from non-controlled, affiliated investments

—

—

—

133

Investment income from controlled, affiliated investments:

Interest from investments

1,867

1,130

3,570

2,195

Other income

1

1

2

2

Total investment income from controlled, affiliated investments

1,868

1,131

3,572

2,197

Total Investment Income

107,605

63,888

204,111

131,316

Expenses

Interest

32,442

11,963

60,928

21,565

Management fees

11,410

9,488

22,143

18,818

Incentive fees on net investment income

10,507

6,724

19,988

14,601

Incentive fees on net capital gains

749

(9,122

)

2,506

(7,699

)

Professional fees

1,749

1,815

3,505

3,298

Directors’ fees

174

174

357

366

Other general and administrative

1,188

1,286

2,203

2,745

Total expenses

58,219

22,328

111,630

53,694

Management fees waived (Note 3)

(300

)

(12

)

(556

)

(12

)

Net Expenses

57,919

22,316

111,074

53,682

Net Investment Income Before Income Taxes

49,686

41,572

93,037

77,634

Income taxes, including excise taxes

902

750

1,316

1,100

Net Investment Income

48,784

40,822

91,721

76,534

Unrealized and Realized Gains (Losses)

Net change in unrealized gains (losses):

Non-controlled, non-affiliated investments

7,662

(56,727

)

19,416

(62,348

)

Non-controlled, affiliated investments

—

—

—

(14,350

)

Controlled, affiliated investments

(2,783

)

(4,045

)

(8,987

)

12,174

Translation of other assets and liabilities in foreign currencies

(2,000

)

7,671

(3,004

)

5,872

Interest rate swaps

(57

)

(1,650

)

174

(4,594

)

Total net change in unrealized gains (losses)

2,822

(54,751

)

7,599

(63,246

)

Realized gains (losses):

Non-controlled, non-affiliated investments

1,623

423

6,436

431

Non-controlled, affiliated investments

—

—

—

13,673

Foreign currency transactions

(139

)

(19

)

286

(32

)

Total net realized gains (losses)

1,484

404

6,722

14,072

Total Net Unrealized and Realized Gains (Losses)

4,306

(54,347

)

14,321

(49,174

)

Increase (Decrease) in Net Assets Resulting from Operations

$

53,090

$

(13,525

)

$

106,042

$

27,360

Earnings (Loss) per common share—basic

$

0.63

$

(0.18

)

$

1.28

$

0.36

Weighted average shares of common stock outstanding—basic

84,223,032

76,265,661

82,819,734

76,119,681

Earnings per common share—diluted

$

0.63

$

(0.15

)

$

1.28

$

0.36

Weighted average shares of common stock outstanding—diluted

84,223,032

81,846,634

82,819,734

81,700,654

Three Months Ended

($ in millions)

June 30, 2023

June 30, 2022

New investment commitments:

Gross originations (1)

$

1,522.9

$

1,569.3

Less: Syndications/sell downs (1)

1,262.5

1,190.4

Total new investment commitments

$

260.4

$

378.9

Principal amount of investments funded:

First-lien

$

209.3

$

267.5

Second-lien

30.0

—

Mezzanine

—

—

Equity and other

0.7

57.3

Structured Credit

—

—

Total

$

240.0

$

324.8

Principal amount of investments sold or repaid:

First-lien

$

112.3

$

211.6

Second-lien

—

—

Mezzanine

—

—

Equity and other

1.7

0.4

Structured Credit

—

—

Total

$

114.0

$

212.0

Number of new investment commitments in
   new portfolio companies

6

30

Average new investment commitment amount in
   new portfolio companies

$

41.3

$

12.0

Weighted average term for new investment
   commitments in new portfolio companies
   (in years)

6.7

5.7

Percentage of new debt investment commitments
   at floating rates

100.0

%

100.0

%

Weighted average interest rate of new
   investment commitments

12.6

%

9.2

%

Weighted average spread over reference rate of new
   floating rate investment commitments

7.3

%

7.3

%

Weighted average interest rate on investments
   fully sold or paid down

15.6

%

9.1

%