Sixth Street Specialty Lending(US:TSLX)2026-02-12 21:02Investment Overview - As of December 31, 2025, the company had made investments with an aggregate fair value of $3,347.3 million, down from $3,518.4 million as of December 31, 2024[60]. - The composition of investments at fair value included 88.9% in first-lien debt investments, 2.1% in second-lien debt investments, 1.8% in mezzanine debt investments, and 4.8% in equity and other investments as of December 31, 2025[61]. - The net unrealized gain for total investments was $24.0 million as of December 31, 2025, compared to a loss of $20.8 million as of December 31, 2024[61]. - The industry composition of investments at fair value showed that Internet Services represented 18.3% and Business Services represented 13.4% as of December 31, 2025[62]. - The geographic composition of investments indicated that the West region accounted for 29.8% and the South region for 23.2% as of December 31, 2025[65]. Risk Management - The company aims to limit downside potential by negotiating covenants that provide portfolio companies with flexibility while preserving capital[59]. - The company has a structured approach to risk assessment, grading investments on a scale of 1 to 5, with 1 indicating no concerns and 5 indicating default[55]. - The company has invested in various types of debt, including first-lien, second-lien, mezzanine, and unsecured debt, with a focus on maximizing seniority and collateral[57]. Financial Performance - Total debt as of December 31, 2025, was $2,925.0 million, with outstanding principal of $1,763.9 million[75]. - Interest expense for the year ended December 31, 2025, was $101.0 million, with total interest expense amounting to $129.6 million[78]. - The weighted average interest rate for the year ended December 31, 2025, was 6.2%[78]. - Asset coverage ratio as of December 31, 2025, was 191.5%, an increase from 182.5% in the previous year[73]. - Average debt outstanding for the year ended December 31, 2025, was $1,880.3 million[78]. Future Outlook - The company anticipates generating future cash flows from operations and issuances of common stock[72]. - The company may need to sell investments or raise additional capital to meet distribution requirements if cash flow is insufficient[156]. Competition and Market Position - The company faced competition from various capital providers, including BDCs and private equity funds[71]. Regulatory Compliance - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes specific regulatory requirements[119]. - The company must distribute at least 90% of its investment company taxable income and net tax-exempt income to maintain its status as a RIC[79]. - The company must derive at least 90% of its gross income from specified categories to maintain its status as a RIC[153]. - If the company fails to qualify as a RIC, all taxable income will be subject to corporate tax rates without deductions for distributions[157]. Fees and Expenses - Management Fees for the years ended December 31, 2025, 2024, and 2023 were $52.2 million, $51.8 million, and $46.4 million, respectively[91]. - The Adviser intends to waive a portion of the Management Fee on assets financed using leverage over 200% asset coverage, resulting in waived Management Fees of $1.3 million, $1.5 million, and $1.2 million for the years ended December 31, 2025, 2024, and 2023, respectively[93]. - Incentive Fees for the years ended December 31, 2025, 2024, and 2023 were $38.4 million, $40.2 million, and $47.0 million, respectively, with realized fees of $43.5 million, $45.5 million, and $42.6 million payable to the Adviser[100]. - The company incurred administrative service expenses of $3.9 million, $3.9 million, and $3.2 million for the years ended December 31, 2025, 2024, and 2023, respectively[105]. Investment Advisory Agreement - The Investment Advisory Agreement was renewed in November 2025 and will remain in effect until November 2026, subject to required approvals[102]. - The Adviser did not waive any Incentive Fees for the years ended December 31, 2025, 2024, and 2023[100]. - The Board concluded that the investment advisory fee rates are reasonable in relation to the services provided[118]. Shareholder Information - The company has a dividend reinvestment plan that automatically reinvests cash dividends for stockholders who do not opt out[80]. - The number of shares issued under the dividend reinvestment plan is determined by dividing the total dollar amount of the cash dividend by the market price per share on the payment date[84]. - The company is required to furnish stockholders with annual reports containing audited financial statements and quarterly reports[149]. Investment Valuation - The company values illiquid investments at fair value as determined by its Board, which may differ from liquidation values[542]. - As of December 31, 2025, 96.3% of the company's debt investments based on fair value bore interest at floating rates[545]. - A hypothetical increase of 300 basis points in interest rates could result in an increase of $91.5 million in interest income[546]. - The company may hedge against interest rate fluctuations using instruments such as interest rate swaps and options[547]. - The company may be exposed to currency risk from investments denominated in foreign currencies, which are translated into U.S. dollars[548].