Sixth Street Specialty Lending(US:TSLX)2022-11-02 19:31Financial Data and Key Metrics Changes - Adjusted net investment income per share for Q3 2022 was $0.47, with an annualized return on equity of 11.5% [11][54] - Adjusted net income per share was $0.43, corresponding to an annualized return on equity of 10.6% [11][54] - The quarterly base dividend was increased by approximately 7.1% to $0.45 per share, with a booked dividend yield rising to 11% from 10.3% [12][18] - Total investments reached $2.8 billion, up from $2.5 billion in the prior quarter [54] - Weighted average yield on debt and income-producing securities at amortized cost increased to 12.2% from 10.9% quarter-over-quarter [49] Business Line Data and Key Metrics Changes - The company had $385 million of commitments and $274 million of fundings across seven new investments during the quarter [39] - Portfolio composition remained strong, with 78% of the portfolio in software and business services sectors [45] - The performance rating of the portfolio improved to a weighted average rating of 1.12 from 1.13 in the previous quarter [51] Market Data and Key Metrics Changes - New issued leveraged loan volumes were down 86% in Q3 relative to the same period last year, indicating a shift towards private credit [32] - LCD first lien and second lien spreads widened by 10 and 152 basis points, respectively, during Q3 [34] - The company noted a lender-friendly environment with higher overall yields and issuers willing to pay higher fees [34] Company Strategy and Development Direction - The company aims to leverage its strong balance sheet to be a valuable partner in a tightening credit market, focusing on private credit solutions [35][75] - The strategy includes maintaining a conservative approach to credit selection and active portfolio management to drive returns [28][75] - The company is positioned to navigate economic uncertainty and capitalize on opportunities arising from market dislocation [29][75] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's health, with no material amendment activity reported [98] - The operating environment is characterized by rising interest rates and inflation, which may lead to demand disruption [22][25] - The company anticipates continued strong performance in the private credit sector, driven by its ability to avoid credit losses [76] Other Important Information - The company has a robust liquidity position with $846 million of unfunded revolver capacity at quarter end [56] - The Board renewed the stock repurchase program with a total size reset to $50 million [61] - The company experienced unrealized losses due to wider market spreads, impacting net asset value [21][62] Q&A Session Summary Question: Insights on LeanTaaS and deal structuring - Management noted that the transaction was earlier in the pipeline and preferred to hold less unfunded commitments to drive economics in the current environment [82] Question: Investment landscape and deal pricing - Management indicated that underwriting standards have tightened, with higher spreads and lower leverage compared to previous periods [90] Question: Amendment activity in the portfolio - Management reported no material amendment activity, indicating a strong portfolio quality [98] Question: Future paydown activity - Management explained that paydowns typically drive activity-based income and are influenced by credit spread environments [102] Question: Supply side in private credit - Management highlighted that the supply of private credit has decreased, leading to wider spreads and tighter underwriting standards [112] Question: ABL strategy in a higher inflationary environment - Management emphasized the importance of evaluating collateral value dynamically in the current environment [114] Question: Structure of loans in the portfolio - Management expects a significant increase in highly structured loans as credit availability tightens [124]