Blackstone Secured Lending Fund(BXSL) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - BXSL reported net investment income (NII) of $186 million or$ 0.91 per share, up 16% year-over-year and the highest dollar amount since inception [32] - Total investment income for the quarter was a record $59 million or 21% year-over-year, driven by increased interest income [32] - Net asset value (NAV) per share increased to$ 27.27, up from $27.19 last quarter, marking the eighth consecutive quarter of NAV growth [34] Business Line Data and Key Metrics Changes - BXSL ended the quarter with$ 12 billion of investments at fair value, a 6% increase from $11.3 billion in Q2 [15] - The weighted average yield on performing debt investments was 11.2%, down from 11.6% in the previous quarter [16] - The portfolio maintained a low nonaccrual rate of 0.2% at cost, compared to the average of 2.8% among traded BDC peers [19] Market Data and Key Metrics Changes - The company ended the quarter with$ 1.1 billion in new commitments and $956 million in fundings, marking the highest quarter of fundings since 2021 [11] - The economic environment showed optimism for a soft landing, with Q3 GDP growth at 2.8% annualized [13] - The company noted a significant increase in deal flow, with over 2x growth in the investment pipeline since Q1 of last year [12] Company Strategy and Development Direction - BXSL aims to maintain a focus on first lien senior secured loans, with 99% of investments in this category [17] - The company is positioned to benefit from increased M&A activity and private equity sponsor activity as interest rates decline [25] - BXSL's strategy includes leveraging its scale and platform to enhance asset quality and transaction speed [28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in a "super cycle" for deal volume in 2025, driven by lower capital costs and a supportive economic outlook [60] - The company highlighted the importance of maintaining a conservative leverage ratio to maximize long-term returns [56] - Management noted that the current economic conditions and the administration's support for deal activity contribute to a positive outlook for the upcoming year [61] Other Important Information - Moody's upgraded BXSL's credit rating from Baa3 to Baa2, making it the only manager with two BDCs holding this distinction [10] - The company maintained a strong liquidity position with$ 1.1 billion in cash and available borrowing capacity [34] - BXSL's corporate revolver was upsized by $300 million, tightening the lowest tier drawn spread [40] Q&A Session Summary Question: Spillover and Earnings Management - Spillover is currently about$ 1.82 per share, representing over two quarters' worth of dividends [45] - Management emphasized the importance of maintaining adequate spillover to ensure attractive returns [48] Question: Outlook for M&A Activity - Management believes that lower rates and spreads will accelerate deal activity, leading to increased turnover and fee generation [49] Question: Impact of M&A on Earnings - A more active M&A market could lead to increased earnings, with potential turnover rates of 20% to 25% [52] Question: Confidence in Future Activity - The primary changes contributing to increased confidence include lower rates, improved economic outlook, and significant dry powder among private equity sponsors [60] Question: Documentation Trends - The average spread on new deals was in the range of 500 to 515 basis points, with nearly 100% of documents including key protections [67] Question: Borrower Size Target - BXSL is currently more active in the middle market but may skew towards larger companies if the market conditions are favorable [74] Question: PIK Income Trajectory - PIK income represented about 6% of total income, with expectations for quality to align with earnings growth [76] Question: Aftermarket Program Outlook - Management indicated that while there is optimism for the deal environment, timing remains uncertain [81]