Sixth Street Specialty Lending(TSLX) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Sixth Street Specialty Lending, Inc., detailing financial position and operational results for Q1 2025 Consolidated Balance Sheets The Consolidated Balance Sheet shows total assets decreased to $3.50 billion, with net assets at $1.60 billion and NAV per share at $17.04 Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Investments at Fair Value | $3,412,032 | $3,518,412 | | Total Assets | $3,498,500 | $3,582,225 | | Total Liabilities | $1,897,217 | $1,974,696 | | Total Net Assets | $1,601,283 | $1,607,529 | | Net Asset Value Per Share | $17.04 | $17.16 | Consolidated Statements of Operations Q1 2025 saw $116.3 million total investment income and $58.0 million net investment income, but net losses limited the increase in net assets from operations to $37.0 million Quarterly Operating Results (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Total Investment Income | $116,349 | $117,783 | | Net Expenses | $57,021 | $64,571 | | Net Investment Income | $57,978 | $52,362 | | Total Net Unrealized and Realized Losses | $(21,023) | $(4,844) | | Increase in Net Assets from Operations | $36,955 | $47,518 | | Earnings per common share—basic and diluted | $0.39 | $0.53 | Consolidated Schedules of Investments As of March 31, 2025, total investments at fair value were $3.41 billion, primarily debt, with top industry concentrations in Internet Services, Business Services, and Retail and Consumer Products Investment Portfolio Composition as of March 31, 2025 (in thousands) | Investment Type | Amortized Cost | Fair Value | | :--- | :--- | :--- | | Debt Investments | $3,292,781 | $3,253,992 | | Equity and Other Investments | $150,809 | $158,040 | | Total Investments | $3,443,590 | $3,412,032 | - As of March 31, 2025, non-qualifying assets under the 1940 Act represented 16.6% of total assets[29] - The company holds one controlled, affiliated investment, IRGSE Holding Corp., with a fair value of $66.8 million as of March 31, 2025[30] Consolidated Statements of Changes in Net Assets For Q1 2025, net assets decreased from $1.608 billion to $1.601 billion, as dividends declared exceeded the net increase from operations Changes in Net Assets for Q1 2025 (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2024 | $1,607,529 | | Net increase from operations | $36,955 | | Stock issued via dividend reinvestment plan | $6,440 | | Dividends declared | $(49,641) | | Balance at March 31, 2025 | $1,601,283 | Consolidated Statements of Cash Flows For Q1 2025, net cash provided by operating activities was $149.9 million, while financing activities used $130.0 million, leading to a $19.9 million net increase in cash Cash Flow Summary for Q1 2025 vs Q1 2024 (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $149,919 | $(65,538) | | Net Cash Provided by (Used in) Financing Activities | $(129,978) | $76,232 | | Net Increase (Decrease) in Cash | $19,941 | $10,694 | | Cash, End of Period | $47,269 | $35,890 | Notes to Consolidated Financial Statements The notes detail accounting policies, fair value measurement, adviser agreements, investment portfolio specifics, debt structure, and financial highlights, including the company's BDC and RIC status - The company is managed by Sixth Street Specialty Lending Advisers, LLC and has elected to be regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC)[51] - For the three months ended March 31, 2025, the Adviser waived Management Fees of $0.4 million pursuant to the Leverage Waiver[110] - As of March 31, 2025, the company's asset coverage ratio was 185.1%, above the 150% regulatory requirement[167] - The company declared total dividends of $0.53 per share for the first quarter of 2025, consisting of a $0.46 base dividend and a $0.07 supplemental dividend[190] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, financial condition, and market outlook, emphasizing direct origination of senior secured loans to U.S. middle-market companies and strong liquidity - The company focuses on lending to middle-market companies with annual EBITDA between $10 million and $250 million[200] - As of March 31, 2025, 97.0% of debt investments bore floating interest rates, with 100.0% of these having interest rate floors, providing a hedge against inflation[209] - Since inception through March 31, 2025, exited investments have generated an average realized gross internal rate of return (IRR) of 17.0%[264] Portfolio and Investment Activity As of March 31, 2025, the investment portfolio was valued at $3.41 billion, primarily first-lien debt, with Q1 2025 new fundings at $136.8 million and exits at $269.6 million Investment Activity (in millions) | Metric | Three Months Ended Mar 31, 2025 | Three Months Ended Mar 31, 2024 | | :--- | :--- | :--- | | Total new investment commitments | $154.4 | $263.6 | | Principal amount of investments funded | $136.8 | $162.8 | | Principal amount of investments sold or repaid | $269.6 | $108.6 | Portfolio Composition by Fair Value | Investment Type | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | First-lien debt | 92.9% | 93.9% | | Second-lien debt | 1.0% | 0.6% | | Mezzanine debt | 1.5% | 1.1% | | Equity and other | 4.6% | 4.4% | Non-Accrual Investments | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | As % of Fair Value | 1.2% | 1.4% | | As % of Amortized Cost | 3.7% | 3.6% | Results of Operations For Q1 2025, total investment income was $116.3 million, net expenses decreased to $57.0 million, yielding $58.0 million net investment income, but net losses reduced the increase in net assets from operations to $37.0 million Investment Income Breakdown (in millions) | Income Source | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Interest from investments | $106.6 | $104.6 | | Paid-in-kind interest income | $5.4 | $8.1 | | Dividend income | $0.9 | $0.8 | | Other income | $3.4 | $4.3 | | Total Investment Income | $116.3 | $117.8 | Expense Breakdown (in millions) | Expense Source | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Interest | $33.0 | $39.0 | | Management fees (net) | $12.7 | $12.2 | | Incentive fees | $7.8 | $10.1 | | Net Expenses | $57.0 | $64.6 | - Net realized gains were $0.8 million in Q1 2025, while net change in unrealized losses was $21.8 million[259] The unrealized losses were driven by widening credit spreads, negative credit-related adjustments, and foreign currency fluctuations[261][263] Financial Condition, Liquidity and Capital Resources The company maintains strong liquidity with $47.3 million cash and $1.0 billion available on its Revolving Credit Facility, supported by a 185.1% asset coverage ratio Debt Obligations as of March 31, 2025 (in millions) | Debt Instrument | Outstanding Principal | Carrying Value | | :--- | :--- | :--- | | Revolving Credit Facility | $639.2 | $621.3 | | 2026 Notes | $300.0 | $284.3 | | 2028 Notes | $300.0 | $298.0 | | 2029 Notes | $350.0 | $343.2 | | 2030 Notes | $300.0 | $298.0 | | Total Debt | $1,889.2 | $1,844.8 | - As of March 31, 2025, the company had total unfunded commitments to portfolio companies of $322.6 million[317] - The company's asset coverage ratio was 185.1% as of March 31, 2025, providing significant cushion over the required 150% level[273] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces valuation, interest rate, and currency risks, managed through a portfolio of primarily floating-rate assets and currency hedging strategies - The company's primary market risks are valuation risk for its illiquid private investments, interest rate risk, and currency risk[331] Annualized Impact of Hypothetical Interest Rate Changes on Net Interest Income (in millions) | Basis Point Change | Impact on Net Interest Income | | :--- | :--- | | Up 300 basis points | $36.9 | | Up 200 basis points | $24.6 | | Up 100 basis points | $12.3 | | Down 25 basis points | $(3.1) | | Down 50 basis points | $(6.2) | - Currency risk is primarily managed by borrowing in the same foreign currency as the investment to create a natural hedge[339] Item 4. Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[340] - No material changes to internal control over financial reporting occurred during the most recently completed fiscal quarter[341] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings or aware of any being threatened against it - The company is not currently a party to any material legal proceedings[342] Item 1A. Risk Factors This section directs readers to the comprehensive risk factors detailed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - The report directs investors to review the risk factors detailed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024[343] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period - None[344] Item 5. Other Information No directors or officers adopted, modified, or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q1 2025 - No directors or officers adopted, modified, or terminated any Rule 10b5-1 trading plans during the first quarter of 2025[347] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to credit agreements, indentures, and CEO/CFO certifications - Key exhibits filed include the Sixteenth Amendment to the Senior Secured Revolving Credit Agreement and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act[348] Signatures The report was duly signed on April 30, 2025, by Joshua Easterly, Chief Executive Officer, and Ian Simmonds, Chief Financial Officer - The report was duly signed on April 30, 2025, by Joshua Easterly, Chief Executive Officer, and Ian Simmonds, Chief Financial Officer[352]