Sixth Street Specialty Lending(US:TSLX)2021-11-03 17:09Financial Data and Key Metrics Changes - The company reported adjusted net investment income of $0.55 per share and adjusted net income of $0.80 per share for Q3 2021, reflecting an annualized year-to-date return on equity of 12.9% for adjusted net investment income and 21.5% for adjusted net income [5][32] - The net asset value (NAV) per share increased to $17.18, a 2% increase from the prior quarter, surpassing the previous record high of $17.16 in Q4 2020 [10][11] - Total investments decreased to $2.4 billion from $2.6 billion in the prior quarter due to net repayment activity [32] Business Line Data and Key Metrics Changes - The company funded five investments totaling $105.4 million in commitments and $65.4 million in fundings during the quarter [21] - The weighted average yield on debt and producing securities at amortized cost increased from 10.1% to 10.2% quarter-over-quarter, with new investments yielding 11.7% compared to 9.5% on exited investments [27] - The portfolio's equity concentration increased from 6% to 7% on a fair value basis, primarily due to an increase in the fair value of existing equity positions [28] Market Data and Key Metrics Changes - The company noted a robust direct lending environment, with private debt AUM growing over threefold in the last decade, indicating a shift towards institutionalization in the asset class [18] - The repayment activity in Q3 was elevated, with six investments fully realized and one partially sold, totaling $284 million [26] Company Strategy and Development Direction - The company aims to expand borrower and sponsor relationships through a thematic investment approach and differentiated underwriting capabilities, despite strong competition in the direct lending market [20] - The company plans to continue focusing on sectors with strong tailwinds and resilient business models, selectively increasing junior capital exposure [29] Management's Comments on Operating Environment and Future Outlook - Management expressed a positive outlook for Q4, expecting continued elevated repayment activity and a strong funding pipeline, with net investments projected between $150 million and $250 million by year-end [21][93] - The management team is cautiously optimistic about inflation, indicating that the portfolio is robust against inflationary pressures due to the pricing power of the companies financed [72] Other Important Information - The company declared a special cash dividend of $0.50 per share and a base quarterly dividend of $0.41 per share, along with a supplemental dividend of $0.07 per share based on Q3 adjusted net investment income [15][14] - The company has a strong liquidity position with over $1.3 billion of unfunded revolver capacity at quarter end [35] Q&A Session Summary Question: Investment activity during the quarter - The gross origination number was largely impacted by Biohaven, with a strong net origination expected in Q4 [62] Question: Elevated repayment activity - Management expects a balanced mix of repayment activity and new investments in Q4, with specific mention of a public repayment from Motus [64] Question: Views on inflation - Management believes the portfolio is robust against inflation, with companies having pricing power and high EBITDA margins [72] Question: Convertible notes early conversion - Early conversion triggers must be met prior to six months before maturity, and currently, no triggers are met [76] Question: Supplemental dividend policy - The supplemental dividend policy remains unchanged, calculated based on adjusted net investment income [102] Question: Portfolio mix going forward - The company will continue to focus on sectors with higher risk-adjusted returns and may expand into energy and software sub-verticals [114]