Sixth Street Specialty Lending(US:TSLX)2022-11-01 20:03Investment Portfolio - As of September 30, 2022, Sixth Street Specialty Lending has originated approximately $23.9 billion in aggregate principal amount of investments, retaining about $9.0 billion on its balance sheet[198]. - The average investment size in portfolio companies was approximately $23.8 million based on fair value, and $36.7 million when excluding structured products[202]. - Approximately 91.9% of the portfolio was invested in secured debt, with 90.4% in first-lien debt investments as of September 30, 2022[206]. - The largest single investment based on fair value represented 3.1% of the total investment portfolio as of September 30, 2022[201]. - The largest industry represented 14.0% of the total investment portfolio based on fair value as of September 30, 2022[205]. - The portfolio consisted of 90.4% first-lien debt investments, 1.5% second-lien investments, 0.4% mezzanine debt investments, and 7.7% equity and other investments[233]. - The total fair value of investments increased to $2,806.1 million as of September 30, 2022, from $2,521.6 million as of December 31, 2021[235]. - The company has investments in 118 portfolio companies as of September 30, 2022, up from 72 portfolio companies as of December 31, 2021[235]. Investment Income - Total investment income increased to $77.8 million for the three months ended September 30, 2022, compared to $71.2 million for the same period in 2021, representing an increase of 9.3%[246]. - Net investment income before income taxes for the three months ended September 30, 2022, was $37.5 million, slightly up from $36.6 million in the same period of 2021[246]. - Interest from investments rose to $75.1 million for the three months ended September 30, 2022, up from $68.6 million in the same period of 2021, reflecting an increase of 7.5%[247]. - Total investment income for the nine months ended September 30, 2022, was $209.2 million, compared to $200.3 million for the same period in 2021, an increase of 4.4%[246]. Expenses and Fees - Net expenses increased to $40.3 million for the three months ended September 30, 2022, compared to $34.6 million for the same period in 2021, marking an increase of 19.5%[250]. - Management fees (net of waivers) increased to $10.1 million for the three months ended September 30, 2022, compared to $9.5 million in the same period of 2021, an increase of 6.3%[254]. - Incentive fees related to pre-Incentive Fee net investment income decreased to $7.9 million for the three months ended September 30, 2022, down from $8.5 million in the same period of 2021[256]. - Professional fees increased from $1.6 million in Q3 2021 to $2.0 million in Q3 2022, while other general and administrative expenses decreased from $1.5 million to $1.2 million in the same period[258]. - For the nine months ended September 30, 2022, professional fees rose to $5.3 million from $4.8 million in 2021, primarily due to higher legal costs, while other general and administrative expenses fell from $4.7 million to $4.0 million[259]. Debt and Financing - Total debt as of September 30, 2022, was $2,382.5 million, with a carrying value of $1,457.1 million[291]. - The Revolving Credit Facility was increased to $1.585 billion as of April 25, 2022, with a potential accordion feature to increase to $2.0 billion[295]. - As of September 30, 2022, the company had approximately $0.8 billion available under its Revolving Credit Facility[283]. - The company issued a total of 4,360,125 shares of common stock for $78.1 million as settlement for the conversion of $79.2 million principal amount of the 2022 Convertible Notes in August 2022[287]. - The company issued $150.0 million of 2023 Notes with a 4.50% interest rate, using proceeds to repay outstanding indebtedness under the Revolving Credit Facility[313]. - The 2024 Notes, totaling $300.0 million, bear an interest rate of 3.875% and were issued to repay existing debt under the Revolving Credit Facility[315]. - The company issued $300.0 million of 2026 Notes at a 2.50% interest rate, with proceeds also used to repay outstanding indebtedness under the Revolving Credit Facility[320]. - The effective interest rate on the 2024 Notes is three-month LIBOR plus 2.28%[318]. Interest Rates and Risks - As of September 30, 2022, 98.9% of debt investments based on fair value in the portfolio bear interest at floating rates, with 100.0% subject to interest rate floors[339]. - Interest income is projected to increase by $80.3 million with a 300 basis point rise in interest rates, while interest expense would increase by $46.1 million, resulting in a net interest income of $34.2 million[340]. - The company may hedge against interest rate fluctuations using instruments such as interest rate swaps, futures, options, and forward contracts[341]. - The company is subject to financial market risks, including valuation risk, interest rate risk, and currency risk[334]. Tax and Compliance - The company intends to maintain its status as a RIC by distributing at least 90% of its investment company taxable income to stockholders, which generally relieves it from corporate-level U.S. federal income taxes[260]. - The company may incur a 4% U.S. federal excise tax if it fails to distribute sufficient amounts of taxable income and capital gains[329]. - The company has a minimum asset coverage ratio requirement of no less than 2 to 1 concerning consolidated assets and secured debt[307]. - As of September 30, 2022, the asset coverage ratio was 186.6%, down from 205.4% as of December 31, 2021[281]. Cash Flow - Cash and cash equivalents increased by $14.3 million to $30.3 million as of September 30, 2022, including $15.6 million of restricted cash[284]. - During the nine months ended September 30, 2022, cash used in operating activities was $278.8 million, primarily due to funding portfolio investments of $735.9 million[284]. - Cash provided by financing activities was $293.1 million, driven by borrowings of $1,024.5 million and issuance of common stock for $77.6 million[284]. Unrealized Gains and Losses - For the three months ended September 30, 2022, the company had unrealized gains of $12.6 million on 30 portfolio company investments, offset by unrealized losses of $24.3 million on 88 investments[264]. - For the nine months ended September 30, 2022, unrealized gains were $23.0 million on 17 investments, while unrealized losses totaled $99.3 million on 110 investments[265]. - The company incurred unrealized losses on interest rate swaps of $2.6 million for Q3 2022 and $7.2 million for the nine months, due to fluctuations in interest rates[266]. - Unrealized gains on foreign currency borrowings were $9.2 million for Q3 2022 and $15.1 million for the nine months, attributed to fluctuations in exchange rates[266]. Market Trends - The market trends indicate a favorable environment for middle-market lending due to limited capital availability from traditional lenders and strong demand for debt capital[228].