Sixth Street Specialty Lending(US:TSLX)2022-05-04 21:15Financial Data and Key Metrics Changes - The adjusted net investment income per share for Q1 2022 was $0.49, corresponding to an annualized return on equity of 11.6% [9] - The adjusted net income per share was $0.56, corresponding to an annualized return on equity of 13.2% [9] - The net asset value per share at quarter end was $16.88, an increase of $0.15 or 1% from the previous quarter [16] - Total investments decreased slightly to $2.5 billion due to net repayment activities [40] - The average debt to equity ratio decreased from 0.99 times to 0.95 times [41] Business Line Data and Key Metrics Changes - The company committed $79.3 million and funded $52.8 million in Q1, primarily in the software services sector [26] - The weighted average yield on debt and income-producing securities increased to 10.3% from 10.2% quarter-over-quarter [36] - The weighted average revenue and EBITDA of core portfolio companies were $117 million and $31 million, respectively [38] Market Data and Key Metrics Changes - The S&P 500 and US High Yield Index ended Q1 down 4.5% and 4.6%, respectively, marking their worst quarter since Q1 2020 [21] - New issue loan volumes in the middle market were down 51% from a year ago [22] - The weighted average cost of debt outstanding remained relatively flat due to the mechanics of swap contracts [14] Company Strategy and Development Direction - The company is focused on investing in high-quality businesses and maintaining liquidity amid rising interest rates and inflation [12][15] - The company aims to provide differentiated capital solutions in a competitive direct lending landscape [35] - The company received a ratings upgrade from Fitch, reflecting strong performance and sector-leading returns [18] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by inflation, rising interest rates, and geopolitical factors but expressed confidence in the portfolio's strength [12][15] - The company anticipates that rising interest rates will benefit its asset sensitivity, allowing for potential ROE accretion [44] - Management remains optimistic about future opportunities in the private lending market despite current volatility [56][57] Other Important Information - The Board approved a base quarterly dividend of $0.41 per share and a supplemental dividend of $0.04 per share [17] - The company has ample liquidity with $1.2 billion of unfunded revolver capacity against $147 million of unfunded commitments [41] Q&A Session Summary Question: Interest rates and private lending market reaction - Management discussed the impact of rising interest rates on spreads and the potential for the private lending market to react differently than in the past [61][62] Question: Expectations for convertible debt settlement - The company elected to settle the convertible debt primarily in stock, which is expected to be slightly accretive to net asset value [66][67] Question: Competition in the lending market - Management noted that while competition has not yet decreased, there are signs of potential shifts in the market due to recent economic changes [75][76] Question: Opportunities in growth equity - Management acknowledged ongoing opportunities in growth equity but emphasized the need for careful selection based on appropriateness for the company's balance sheet [85][86] Question: Market activity and repayment expectations - Management indicated that while repayment activity may normalize, it is not highly sensitive to interest rate changes, and they expect continued repayment activity [102][111]