Sixth Street Specialty Lending(TSLX)2024-11-06 15:50Financial Data and Key Metrics Changes - Adjusted net investment income per share for Q3 2024 was 0.41, corresponding to an annualized return on equity of 9.6% [8] - Net investment income for the quarter was 0.44, reflecting the impact of non-cash accrued capital gains incentive expense [8][11] - Net asset value (NAV) per share decreased to 17.19 as of June 30, but increased from 269 million in commitments across eight new investments and upsizes to four existing portfolio companies during Q3 [19] - The weighted average yield on debt and income-producing securities at amortized costs decreased from 13.9% to 13.4% [26] - Non-accruals represented 1.9% of the portfolio at fair value, with one new investment added to non-accrual status in Q3 [25] Market Data and Key Metrics Changes - The weighted average interest coverage on the core portfolio improved from 2.1 times to 2.2 times quarter-over-quarter [25] - The company reported that 24% of BDC portfolios based on count had spreads below 550 basis points as of Q2 2024, compared to only 7% in its own portfolio [14] Company Strategy and Development Direction - The company continues to focus on investing at the top of the capital structure, with 100% of Q3 fundings in first lien positions [19] - The strategy includes leveraging sector themes and deep relationships to source unique investment opportunities [20] - The company aims to maintain a disciplined capital allocation approach, as evidenced by the lower percentage of sub-550 deals in its portfolio [14] Management's Comments on Operating Environment and Future Outlook - Management noted that the lower cost of capital should improve the cash flow profile of borrowers, benefiting corporate credit and activity levels [17] - The company anticipates a more active M&A environment as rates decline, although significant increases in deal flow may take time [18] - Management expressed confidence in the overall credit quality of the portfolio, with no credit names below 90% [53] Other Important Information - The company declared a base quarterly dividend of 0.05 per share related to Q3 earnings [15] - The company has significant liquidity with nearly $1.1 billion of unfunded revolver capacity at quarter end [28] Q&A Session Summary Question: Details on non-sponsored business activity - Management indicated that the non-sponsored business was approximately 50% of total transactions this quarter, with significant activity in non-sponsored deals like Belk and Arrowhead [42] Question: Impact of election on M&A activity - Management noted that while there was a cautious tone leading into the election, the primary drivers of M&A activity would be interest rates and valuation unlocks [49] Question: Improvement in interest coverage - Interest coverage improved from 2.1 times to 2.2 times, attributed to earnings growth and a delayed impact from lower base rates [51] Question: Credit outlook and amendment activity - Amendment activity was low, with all amendments being positive credit amendments, indicating strong credit quality [52] Question: Risks of high rates on non-accruals - Management acknowledged the risk of surprises in non-accruals but indicated that fundamentally challenged names were already identified [62]