TSLX Sixth Street Specialty Lending Inc

Delaware

001-36364

27-3380000

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

2100 McKinney Avenue, Suite 1500

Dallas, TX

75201

(Address of Principal Executive Offices)

(zip code)

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TSLX

The New York Stock Exchange

Exhibit
Number

Description

99.1

Press Release, dated February 15, 2024

104

The cover page of this Current Report on Form 8-K, formatted in Inline XBRL

SIXTH STREET SPECIALTY LENDING, INC.

                    (Registrant)

Date: February 15, 2024

By:

/s/ Ian Simmonds

Ian Simmonds

Chief Financial Officer

NEW YORK—February 15, 2024— Sixth Street Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today reported net investment income of $2.31 per share and net income of $2.61 per share, for the year ended December 31, 2023. For the quarter ended December 31, 2023 net investment income and net income per share were $0.62 and $0.58, respectively. The Company’s net investment income in the fourth quarter was largely driven by a robust level of interest income from the strength of the core earnings power of the portfolio. Return on equity (ROE) for the full year 2023 was 14.1% and 15.9% on a net investment income and a net income basis, respectively. Annualized ROE for the fourth quarter 2023 was 14.7% and 13.8% on a net investment income and a net income basis, respectively.

Both net investment income per share and net income per share for the year include approximately $0.05 per share of capital gains incentive fee expenses that were accrued, but not paid or payable, related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less any cumulative unrealized losses and capital gains incentive fees paid inception-to-date. Excluding the impact of the accrued capital gains incentive fee expenses, the Company’s adjusted net investment income and adjusted net income for the year ended December 31, 2023 were $2.36 per share and $2.66 per share, respectively. For the quarter ended December 31, 2023, adjusted net investment income per share was $0.62 and adjusted net income per share was $0.58. Return on equity (ROE) for the full year 2023 was 14.4% and 16.2% on an adjusted net investment income and an adjusted net income basis, respectively. Annualized ROE for the fourth quarter 2023 was 14.5% and 13.6% on an adjusted net investment income and an adjusted net income basis, respectively.

Reported net asset value (NAV) per share was $17.04 at December 31, 2023 as compared to $16.97 at September 30, 2023. The Company announced that its Board of Directors has declared a first quarter 2024 base dividend of $0.46 per share to shareholders of record as of March 15, 2024 and payable on March 28, 2024. The Board also announced a fourth quarter supplemental dividend of $0.08 per share to shareholders of record as of February 29, 2024, payable on March 20, 2024. Adjusted for the impact of the supplemental dividend related to this quarter’s earnings, the Company’s Q4 adjusted NAV per share was $16.96. The primary drivers of this year’s NAV per share growth were the over-earning of our base dividend through net investment income, accretive capital markets transactions, and realized and unrealized gains on investments.

Post-quarter end, the Company issued $350.0 million aggregate principal amount of unsecured notes that mature on March 1, 2029 (the "2029 Notes"). The 2029 Notes bear interest at a rate of 6.125% per year. The Company used the net proceeds of the 2029 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

In connection with the offering, the Company entered into an interest rate swap to better align the interest rate of its liabilities with the Company's investment portfolio, which consists of predominately floating rate loans. As a result of the swap, the Company's effective interest rate on the 2029 Notes is SOFR plus 243 basis points.

Net Investment Income Per Share

2023:

Q4 2023:

$2.31

$0.62

2023 (adjusted):

Q4 2023 (adjusted):

$2.36

$0.62

Net Income Per Share

2023:

Q4 2023:

$2.61

$0.58

2023 (adjusted):

Q4 2023 (adjusted):

$2.66

$0.58

Return on Equity

2023 (NII):

Q4 2023 (NII):

14.1%

14.7%

2023 (NI):

Q4 2023 (NI):

15.9%

13.8%

2023 (Adj. NII):

Q4 2023 (Adj. NII):

14.4%

14.5%

2023 (Adj. NI):

Q4 2023 (Adj. NI):

16.2%

13.6%

NAV

Q4 2023 ($MM):

$1,496.4

Q4 2023 (per share):

$17.04

Q4 2023 (per share, adj):

$16.96

Dividends Declared (per share)

Q4 2023 (Base):

$0.46

2023 (Base):

$1.84

2023 (Supplemental):

$0.26

2023 (Total):

$2.10

For the year ended December 31, 2023, new investment commitments totaled $958.6 million. This compares to $1,084.2 million for the year ended December 31, 2022.

For the year ended December 31, 2023, the principal amount of new investments funded was $808.4 million in 29 new portfolio companies, 16 existing portfolio companies and 1 structured credit investment. For this period, the Company had $469.1 million aggregate principal amount in exits and repayments.

For the year ended December 31, 2022, the principal amount of new investments funded was $864.0 million in 24 new portfolio companies, 20 existing portfolio companies and 41 structured credit investments. For this period, the Company had $653.8 million aggregate principal amount in exits and repayments.

Fourth Quarter

For the quarter ended December 31, 2023, new investment commitments totaled $316.4 million. This compares to $205.8 million for the quarter ended September 30, 2023.

For the quarter ended December 31, 2023, the principal amount of new investments funded was $277.9 million across 9 new portfolio companies and 5 upsizes to existing portfolio companies. For this period, the Company had $145.4 million aggregate principal amount in exits and repayments. For the quarter ended September 30, 2023, the principal amount of new investments funded was $151.6 million across 8 new portfolio companies and 2 upsizes to existing portfolio companies. For this period, the Company had $158.9 million aggregate principal amount in exits and repayments.

As of December 31, 2023 and September 30, 2023, the Company had investments in 941 and 892 portfolio companies, respectively, with an aggregate fair value of $3,283.1 million and $3,113.3 million, respectively. As of December 31, 2023, the average investment size in each portfolio company was $34.31 million based on fair value.

As of December 31, 2023, the Company’s portfolio based on fair value consisted of 91.3% first-lien debt investments, 1.1% second-lien debt investments, 1.7% structured credit investments, 1.2% mezzanine debt investments, and 4.7% equity and other investments. As of September 30, 2023, the Company’s portfolio based on fair value consisted of 91.0% first-lien debt investments, 1.3% second-lien debt investments, 1.7% structured credit investments, 1.2% mezzanine investments, and 4.8% equity and other investments.

As of December 31, 2023, 99.7% of debt investments based on fair value in the portfolio bore interest at floating rates, with 100.0% of these subject to reference rate floors. The Company’s credit facilities also bear interest at floating rates. In connection with the Company’s Unsecured Notes, which bear interest at fixed rates, the Company has entered into fixed-to-floating interest rate swaps in order to align the nature of the interest rates of its liabilities with its investment portfolio.

For the period ended December 31, 2023 and September 30, 2023, the weighted average total yield of debt and income-producing securities at fair value (which includes interest income and amortization of fees and discounts) was 14.1% and 14.2%, respectively, and the weighted average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 14.2% and 14.3%, respectively.

As of December 31, 2023, non-accrual investments represented 0.62% of the portfolio at fair value. No new investments were added to non-accrual status during the quarter.

2023 Origination Activity

Commitments:

$958.6MM

Fundings:

$808.4MM

Net Fundings:

$339.2MM

Q4 2023 Origination Activity

Commitments:

$316.4MM

Fundings:

$277.9MM

Net Fundings:

$132.5MM

Average Investment Size1

$34.3MM

(1.0% of the portfolio at fair value)

First Lien Debt Investments (% FV)

91.3%

Floating Rate Debt Investments3

(% FV)

99.7%

Weighted Average Yield of Debt and Incoming-Producing Securities

Yield at Fair Value:

14.1%

Yield at Amortized Cost:

14.2%

Full Year

2023

For the years ended December 31, 2023 and 2022, investment income totaled $438.1 million and $309.3 million, respectively. The increase in investment income was primarily the result of higher interest from investments driven by increased all-in yields.

Net expenses totaled $239.3 million and $140.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in net expenses was primarily due to the upward movement in reference rates which increased the Company’s weighted average interest rate on average debt outstanding.

Investment Income:

$438.1MM

Net Expenses:

$239.3MM

Fourth Quarter

Q4 2023

For the three months ended December 31, 2023 and 2022, total investment income was $119.5 million and $100.1 million, respectively. The increase in total investment income was primarily the result of higher interest from investments driven by increased all-in yields.

Net expenses totaled $64.3 million and $46.4 million for the three months ended December 31, 2023 and 2022, respectively. The increase in expenses was primarily driven by higher interest expense resulting from the upward movement in reference rates which increased the Company’s weighted average interest rate on average debt outstanding.

Investment Income:

$119.5MM

Net Expenses:

$64.3MM

Debt and Capital Resources

As of December 31, 2023, the Company had $25.2 million in cash and cash equivalents (including $24.0 million of restricted cash), total principal value of debt outstanding of $1,837.2 million, and $820.2 million of undrawn capacity on its revolving credit facility, subject to borrowing base and other limitations. At year end, aggregate commitments under the Company’s revolving credit facility were $1.710 billion, in accordance with the accordion feature.

The Company’s weighted average interest rate on debt outstanding was 7.8% and 7.5% for the three months ended December 31, 2023 and September 30, 2023, respectively. At December 31, 2023, the Company’s debt to equity ratio was 1.23x, compared to 1.15x at September 30, 2023. Average debt to equity was 1.22x and 1.18x during the three months ended December 31, 2023 and September 30, 2023, respectively.

Total Principal Debt Outstanding

$1,837.2MM

Debt-to-Equity Ratio

Q4 2023 Quarter End:

1.23x

2023 Average1:

1.20x

Q4 2023 Average1:

1.22x

Revolving Credit Facility

Unfunded Commitment Activity

Revolver Capacity

$1,710

Unfunded Commitments (See Note 8 in 9/30/23 10-Q)

$327

Drawn on Revolver

($890)

Extinguished Unfunded Commitments

($25)

Unrestricted Cash Balance

$1

New Unfunded Commitments

$73

Total Liquidity (Pre-Unfunded Commitments)

$821

Net Drawdown of Unfunded Commitments

($59)

Available Unfunded Commitments1

($226)

Total Unfunded Commitments

$316

Total Liquidity (Burdened for Unfunded Commitments)

$595

Unavailable Unfunded Commitments1

($90)

Available Unfunded Commitments1

$226

Three Months Ended

(unaudited)

December 31, 2023

September 30, 2023

December 31, 2022

Investments at Fair Value

$

3,283.1

$

3,113.3

$

2,787.9

Total Assets

$

3,343.8

$

3,174.1

$

2,836.9

Net Asset Value Per Share

$

17.04

$

16.97

$

16.48

Supplemental Dividend Per Share

$

0.08

$

0.07

$

0.09

Adjusted Net Asset Value Per Share (1)

$

16.96

$

16.90

$

16.39

Investment Income

$

119.5

$

114.4

$

100.1

Net Investment Income

$

54.7

$

50.0

$

52.6

Net Income

$

51.2

$

64.8

$

46.3

Accrued Capital Gains Incentive Fee Expense

$

(0.7

)

$

2.6

$

(1.1

)

Adjusted Net Investment Income (2)

$

54.0

$

52.6

$

51.5

Adjusted Net Income (2)

$

50.5

$

67.4

$

45.1

Net Investment Income Per Share

$

0.62

$

0.57

$

0.65

Net Income Per Share

$

0.58

$

0.74

$

0.57

Accrued Capital Gains Incentive Fee Expense Per Share

$

(0.01

)

$

0.03

$

(0.01

)

Adjusted Net Investment Income Per Share (2)

$

0.62

$

0.60

$

0.64

Adjusted Net Income Per Share (2)

$

0.58

$

0.77

$

0.56

Annualized Return on Equity (Net Investment Income) (3)

14.7

%

13.7

%

15.9

%

Annualized Return on Equity (Net Income) (3)

13.8

%

17.8

%

14.0

%

Annualized Return on Equity (Adjusted Net Investment Income) (2)(3)

14.5

%

14.4

%

15.5

%

Annualized Return on Equity (Adjusted Net Income) (2)(3)

13.6

%

18.5

%

13.6

%

Weighted Average Yield of Debt and Income Producing Securities at Fair Value

14.1

%

14.2

%

13.5

%

Weighted Average Yield of Debt and Income Producing Securities at Amortized Cost

14.2

%

14.3

%

13.4

%

Percentage of Debt Investment Commitments at Floating Rates (4)

99.7

%

99.7

%

98.9

%

December 31,

December 31,

2023

2022

Assets

Investments at fair value

Non-controlled, non-affiliated investments (amortized cost of $3,172,853 and $2,707,442, respectively)

$

3,223,152

$

2,717,170

Controlled, affiliated investments (amortized cost of $78,159 and $67,284, respectively)

59,913

70,755

Total investments at fair value (amortized cost of $3,251,012 and $2,774,726, respectively)

3,283,065

2,787,925

Cash and cash equivalents (restricted cash of $23,979 and $15,437, respectively)

25,196

25,647

Interest receivable

27,969

18,846

Prepaid expenses and other assets

7,578

4,529

Total Assets

$

3,343,808

$

2,836,947

Liabilities

Debt (net of deferred financing costs of $21,930 and $17,760, respectively)

$

1,780,307

$

1,441,796

Management fees payable to affiliate

11,962

10,526

Incentive fees on net investment income payable to affiliate

11,451

10,918

Incentive fees on net capital gains accrued to affiliate

10,446

6,064

Other payables to affiliate

2,802

3,265

Other liabilities

30,465

22,809

Total Liabilities

1,847,433

1,495,378

Commitments and contingencies (Note 8)

Net Assets

Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares
   issued and outstanding

—

—

Common stock, $0.01 par value; 400,000,000 shares authorized, 88,493,749
   and 82,053,537 shares issued, respectively; and 87,829,499 and 81,389,287
   shares outstanding, respectively

885

821

Additional paid-in capital

1,405,173

1,294,751

Treasury stock at cost; 664,250 and 664,250 shares held, respectively

(10,459

)

(10,459

)

Distributable earnings

100,776

56,456

Total Net Assets

1,496,375

1,341,569

Total Liabilities and Net Assets

$

3,343,808

$

2,836,947

Net Asset Value Per Share

$

17.04

$

16.48

Year Ended

Year Ended

Year Ended

December 31, 2023

December 31, 2022

December 31, 2021

Income

Investment income from non-controlled, non-affiliated investments:

Interest from investments

$

411,022

$

292,442

$

261,782

Dividend income

4,181

2,159

3,426

Other income

15,122

9,502

7,751

Total investment income from non-controlled, non-affiliated investments

430,325

304,103

272,959

Investment income from non-controlled, affiliated investments:

Interest from investments

—

133

838

Dividend income

—

—

740

Other income

—

—

—

Total investment income from non-controlled, affiliated investments

—

133

1,578

Investment income from controlled, affiliated investments:

Interest from investments

7,756

5,064

4,039

Other income

6

5

17

Total investment income from controlled, affiliated investments

7,762

5,069

4,056

Total Investment Income

438,087

309,305

278,593

Expenses

Interest

133,731

62,991

38,825

Management fees

46,382

39,900

37,081

Incentive fees on net investment income

42,590

33,401

33,062

Incentive fees on net capital gains

4,382

(8,864

)

13,507

Professional fees

7,323

7,192

6,586

Directors’ fees

806

736

743

Other general and administrative

5,280

5,427

6,236

Total expenses

240,494

140,783

136,040

Management and incentive fees waived (Note 3)

(1,171

)

(427

)

(190

)

Net Expenses

239,323

140,356

135,850

Net Investment Income Before Income Taxes

198,764

168,949

142,743

Income taxes, including excise taxes

2,365

2,622

384

Net Investment Income

196,399

166,327

142,359

Unrealized and Realized Gains (Losses)

Net change in unrealized gains (losses):

Non-controlled, non-affiliated investments

40,571

(70,085

)

17,938

Non-controlled, affiliated investments

—

(14,350

)

14,350

Controlled, affiliated investments

(21,717

)

8,054

17,450

Translation of other assets and liabilities in foreign currencies

(6,393

)

8,721

(591

)

Interest rate swaps

174

(6,748

)

(6,699

)

Income tax provision

556

(561

)

(1,902

)

Total net change in unrealized gains (losses)

13,191

(74,969

)

40,546

Realized gains (losses):

Non-controlled, non-affiliated investments

12,095

1,072

28,849

Non-controlled, affiliated investments

158

13,608

(33

)

Controlled, affiliated investments

—

55

—

Interest rate swaps

—

2,251

—

Foreign currency transactions

180

(291

)

59

Total net realized gains (losses)

12,433

16,695

28,875

Total Net Unrealized and Realized Gains (Losses)

25,624

(58,274

)

69,421

Increase (Decrease) in Net Assets Resulting from Operations

$

222,023

$

108,053

$

211,780

Earnings per common share—basic

$

2.61

$

1.38

$

2.93

Weighted average shares of common stock outstanding—basic

85,131,264

78,197,826

72,169,488

Earnings per common share—diluted

$

2.61

$

1.38

$

2.79

Weighted average shares of common stock outstanding—diluted

85,131,264

78,197,826

77,702,258

Year Ended

($ in millions)

December 31, 2023

December 31, 2022

December 31, 2021

New investment commitments:

Gross originations (1)

$

6,516.6

$

4,240.9

$

4,269.9

Less: Syndications/sell downs (1)

5,558.0

3,156.7

3,152.5

Total new investment commitments

$

958.6

$

1,084.2

$

1,117.4

Principal amount of investments funded:

First-lien

$

753.4

$

761.7

$

1,022.1

Second-lien

8.4

—

43.5

Mezzanine

32.2

—

6.1

Equity and other

12.8

44.8

—

Structured Credit

1.6

57.5

45.7

Total

$

808.4

$

864.0

$

1,117.4

Principal amount of investments sold or repaid:

First-lien

$

460.3

$

645.4

$

962.6

Second-lien

—

—

5.8

Mezzanine

—

—

—

Equity and other

6.0

4.3

31.7

Structured Credit

2.8

4.1

4.4

Total

$

469.1

$

653.8

$

1,004.5

Number of new investment commitments in
   new portfolio companies

30

65

25

Average new investment commitment amount in
   new portfolio companies

$

29.2

$

14.6

$

47.5

Weighted average term for new investment
   commitments in new portfolio companies
   (in years)

6.0

6.1

5.3

Percentage of new debt investment commitments
   at floating rates

99.5

%

98.9

%

99.5

%

Weighted average interest rate of new
   investment commitments

12.9

%

11.9

%

9.2

%

Weighted average spread over reference rate of new
   floating rate investment commitments

7.6

%

7.8

%

9.0

%

Weighted average interest rate on investments
   fully sold or paid down

13.7

%

9.9

%

9.1

%