Sixth Street Specialty Lending(TSLX) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Sixth Street Specialty Lending, Inc. for the periods ended June 30, 2021, and December 31, 2020, providing a detailed overview of the company's financial position, performance, and investment portfolio Consolidated Balance Sheets The Consolidated Balance Sheets show an increase in total assets and liabilities, with a modest rise in total net assets, while Net Asset Value Per Share saw a slight decrease Key Balance Sheet Figures | Metric | June 30, 2021 (in thousands) | December 31, 2020 (in thousands) | Change (in thousands) | Percentage Change | | :----------------------------------- | :----------------------------- | :------------------------------- | :-------------------- | :------------------ | | Assets | | | | | | Investments at fair value | $2,569,992 | $2,298,870 | $271,122 | 11.79% | | Cash and cash equivalents | $18,494 | $13,274 | $5,220 | 39.32% | | Total Assets | $2,608,356 | $2,338,593 | $269,763 | 11.53% | | Liabilities | | | | | | Debt (net) | $1,304,841 | $1,110,363 | $194,478 | 17.51% | | Total Liabilities | $1,384,543 | $1,177,278 | $207,265 | 17.61% | | Net Assets | | | | | | Total Net Assets | $1,223,813 | $1,161,315 | $62,498 | 5.38% | | Net Asset Value Per Share | $16.85 | $17.16 | $(0.31) | -1.81% | Consolidated Statements of Operations The Consolidated Statements of Operations show a decrease in total investment income but a significant improvement in net realized and unrealized gains, leading to a substantial increase in net assets from operations for the six-month period Key Operating Results | Metric (in thousands) | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total Investment Income | $62,828 | $70,234 | $129,069 | $136,504 | | Total Expenses | $35,405 | $29,765 | $68,877 | $61,363 | | Net Investment Income | $27,388 | $39,469 | $59,697 | $73,131 | | Total Net Unrealized and Realized Gains (Losses) | $30,966 | $56,401 | $55,309 | $(30,360) | | Increase in Net Assets Resulting from Operations | $58,354 | $95,870 | $115,006 | $42,771 | | Earnings per common share—basic | $0.80 | $1.43 | $1.62 | $0.64 | | Earnings per common share—diluted | $0.74 | $1.43 | $1.50 | $0.64 | Consolidated Schedules of Investments The Consolidated Schedules of Investments detail a significant increase in total investments at fair value, with the portfolio heavily weighted towards first-lien debt and a majority of debt investments bearing floating interest rates with floors Investment Portfolio Composition | Investment Type | Fair Value (June 30, 2021, in thousands) | Amortized Cost (June 30, 2021, in thousands) | Fair Value (December 31, 2020, in thousands) | Amortized Cost (December 31, 2020, in thousands) | | :---------------------- | :------------------------------------- | :------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | First-lien debt | $2,405,014 | $2,365,265 | $2,196,910 | $2,165,100 | | Second-lien debt | $6,285 | $5,351 | $5,037 | $4,991 | | Mezzanine debt | $16,758 | $7,108 | $10,982 | $8,223 | | Equity and other | $141,935 | $111,030 | $85,941 | $80,714 | | Total Investments | $2,569,992 | $2,488,754 | $2,298,870 | $2,259,028 | - As of June 30, 2021, 93.6% of the portfolio was invested in first-lien debt, indicating a continued focus on senior secured positions[253] - The weighted average total yield of debt and income-producing securities at fair value decreased slightly from 10.0% at December 31, 2020, to 9.8% at June 30, 2021[254] - At June 30, 2021, 98.9% of debt investments bore interest at floating rates (including hedges), with 99.2% of these subject to interest rate floors, providing a hedge against inflation[228] Consolidated Statements of Changes in Net Assets The Consolidated Statements of Changes in Net Assets reflect an increase in total net assets, primarily driven by net investment income, net change in unrealized gains, and common stock issuance, partially offset by dividends Changes in Net Assets | Metric (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Balance at December 31, prior year | $1,161,315 | $1,119,297 | | Net investment income | $59,697 | $73,131 | | Net change in unrealized gains (losses) | $38,701 | $(27,446) | | Net realized gains (losses) | $16,608 | $(2,914) | | Issuance of common stock, net | $85,945 | $4,828 | | Dividends declared | $(157,134) | $(92,336) | | Balance at June 30, current year | $1,223,813 | $1,082,601 | Consolidated Statements of Cash Flows The Consolidated Statements of Cash Flows indicate a shift to net cash used in operating activities in H1 2021, primarily due to increased investment purchases, with financing activities providing significant offsetting cash Cash Flow Summary | Metric (in thousands) | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net Cash Provided by (Used) in Operating Activities | $(148,476) | $319,621 | | Net Cash Provided by (Used) in Financing Activities | $153,696 | $(317,827) | | Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash | $5,220 | $1,794 | | Cash, Cash Equivalents, and Restricted Cash, End of Period | $18,494 | $15,937 | - Purchases and originations of investments, net, significantly increased to $439.2 million in H1 2021 from $211.0 million in H1 2020, contributing to the net cash used in operating activities[65] - Borrowings on debt increased to $827.3 million in H1 2021 from $322.5 million in H1 2020, while repayments on debt also increased to $615.5 million from **