Sixth Street Specialty Lending(US:TSLX)2025-02-13 21:02Investment Portfolio - As of December 31, 2024, the company had made investments with an aggregate fair value of $3,518.4 million, an increase from $3,283.1 million as of December 31, 2023[49]. - The composition of investments included $3,302.5 million in first-lien debt, $19.8 million in second-lien debt, $39.1 million in mezzanine debt, and $155.5 million in equity and other investments as of December 31, 2024[50]. - The total net unrealized loss for investments was $20.8 million as of December 31, 2024, compared to a net unrealized gain of $32.1 million as of December 31, 2023[50][51]. - The company’s investment portfolio included 116 portfolio companies as of December 31, 2024, down from 136 companies as of December 31, 2023[49]. - The industry composition of investments at fair value showed a decrease in Business Services from 18.0% in 2023 to 13.3% in 2024, while Internet Services increased from 15.1% to 16.4%[51]. - The geographic composition of investments indicated a decrease in the Northeast region from 25.4% in 2023 to 21.7% in 2024, while the Midwest region increased from 10.7% to 14.3%[52]. - The company aims to limit downside potential by negotiating covenants that provide portfolio companies with flexibility while preserving capital[50]. - The company’s investment strategy includes a focus on U.S.-domiciled middle-market companies through direct originations of senior secured loans[44]. - Total portfolio company commitments increased to $356.3 million as of December 31, 2024, up from $316.1 million in 2023, representing a growth of approximately 12.5%[55]. Debt and Financing - Total debt as of December 31, 2024, was $2,650.0 million, with an aggregate principal outstanding of $1,954.1 million[62]. - The Revolving Credit Facility had a committed principal amount of $1,700.0 million, with $1,004.1 million outstanding as of December 31, 2024[62]. - The company reported a decrease in available amounts under the Revolving Credit Facility from $820.2 million in 2023 to $674.2 million in 2024[62]. - The company is actively managing its debt obligations to maintain compliance with asset coverage ratios and covenants[61]. - Interest expense for the year ended December 31, 2024, was $105.2 million, an increase of 10.8% from $95.5 million in 2023, and significantly higher than $49.9 million in 2022[66]. - Total interest expense for 2024 reached $154.2 million, up 15.5% from $133.7 million in 2023, and more than double the $63.0 million reported in 2022[66]. - Average debt outstanding increased to $1,882.7 million in 2024, compared to $1,705.6 million in 2023 and $1,342.0 million in 2022, reflecting a growth of 10.4% year-over-year[66]. - The weighted average interest rate rose to 7.5% in 2024, compared to 7.3% in 2023 and significantly higher than 3.9% in 2022[66]. Regulatory Compliance - The company is subject to regulatory restrictions under the 1940 Act, which may limit its operational flexibility compared to competitors[58]. - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes specific regulatory requirements[106]. - The company must distribute at least 90% of its investment company taxable income to maintain its status as a RIC, avoiding corporate-level U.S. federal income tax[67]. - The company is subject to periodic examination by the SEC for compliance with the 1940 Act[115]. - The company has received an exemptive order from the SEC allowing co-investment with affiliates in middle-market loan origination activities[117]. - The company must ensure that at least 70% of its total assets are qualifying assets as defined under the 1940 Act[119]. - The company is restricted from acquiring more than 3% of the voting stock of any investment company under the 1940 Act[112]. - The company has adopted codes of ethics for its officers and advisers to ensure compliance with federal securities laws[126]. Management and Fees - Management fees for the year ended December 31, 2024, were $51.8 million, an increase of 11.6% from $46.4 million in 2023, and up from $39.9 million in 2022[80]. - The Adviser waived management fees of $1.5 million in 2024, $1.2 million in 2023, and $0.4 million in 2022 under the Leverage Waiver[82]. - For the year ended December 31, 2024, Incentive Fees amounted to $40.2 million, a decrease from $47.0 million in 2023 and an increase from $24.5 million in 2022[88]. - Realized Incentive Fees payable to the Adviser for the years ended December 31, 2024, 2023, and 2022 were $45.5 million, $42.6 million, and $33.4 million, respectively[88]. - The Adviser incurred administrative service expenses of $3.9 million, $3.2 million, and $3.1 million for the years ended December 31, 2024, 2023, and 2022, respectively[92]. - The Investment Advisory Agreement was renewed in November 2024 and will remain in effect until November 2025, subject to required approvals[90]. - The Administration Agreement was also renewed in November 2024, with a similar duration and termination clause as the Investment Advisory Agreement[94]. - The Adviser has not waived any Incentive Fees for the years ended December 31, 2024, 2023, and 2022[88]. Interest Rate Risk - The company has a significant exposure to interest rate risk, with potential annualized impacts on net interest income ranging from $38.1 million for a 300 basis point increase to $(6.3) million for a 50 basis point decrease[504]. - The company may utilize hedging instruments such as interest rate swaps to mitigate interest rate fluctuations, but such strategies may limit potential benefits[505]. - The company regularly assesses its exposure to interest rate risk and manages it by comparing interest rate-sensitive assets to liabilities[502]. - The company may borrow in foreign currencies to establish natural hedges against investments denominated in those currencies[506]. Operational Insights - The company does not anticipate any substantial change in the nature of its business operations[111]. - The company expects to distribute substantially all of its earnings on a quarterly basis, but may defer distributions under certain circumstances[141]. - The company is subject to a 4% U.S. federal excise tax if it does not distribute sufficient amounts to meet tax requirements[140]. - The company invests primarily in illiquid debt and equity securities of private companies, which are valued at fair value determined by the Board[500]. - The company may incur withholding and other foreign taxes on investments in foreign securities, which could affect distributions to stockholders[143]. - As of December 31, 2024, 97.2% of the company's debt investments based on fair value bore interest at floating rates, with 100.0% subject to interest rate floors[503]. - The company is permitted to issue common stock below net asset value per share, subject to board approval and stockholder consent, with the current approval expiring on May 25, 2024[114]. - The company has a commitment to fund investments in current portfolio companies as of December 31, 2024, although specific figures were not disclosed[53].