Sixth Street Specialty Lending, Inc. · NYSE:TSLX
Sixth Street Specialty Lending — Debt Investor Presentation (November 2024)
55 slides from Sixth Street Specialty Lending's debt investor presentation, November 2024
Slide 1: Sixth Street Specialty Lending Fixed Income Presentation November 2024
SIXTH STREET SPECIALTY LENDING SIXTH STREET SPECIALTY LENDING, INC Fixed Income Presentation November 2024
Slide 2: Disclaimer and Forward-Looking Statement
DISCLAIMER AND FORWARD-LOOKING STATEMENT General Disclaimer The information contained in this presentation (the ʺPresentationʺ) is preliminary, may not be complete and may be changed. By acceptance hereof, you agree that the information contained herein may not be used, reproduced or distributed to
Slide 3: Agenda
AGENDA 1. Overview & Organization 3 SIXTH STREET SPECIALTY LENDING
Slide 4: Overview
14.71 0.00 $14.71 Q4'11 14.88 0.06 $14.94 14.92 0.22 $15.14 15.12 0.54 $15.66 15.19 0.90 $16.09 Q4'12 15.27 1.23 $16.50 15.29 1.61 $16.90 OVERVIEW 15.35 2.01 $17.36 15.52 2.39 $17.91 Q4'13 15.51 2.79 $18.30 15.70 3.17 $18.87 15.66 3.55 $19.21 15.53 3.93 $19.46 Q4'14 15.60 4.32 $19.92 NAV per Share 1
Slide 5: The Sixth Street Platform
THE SIXTH STREET PLATFORM 1 Overview & Organization TAO: Sixth Street Highly Flexible, Thematically Focused, Cross-Platform Investing Vehicle Fundamental Direct Asset Based Credit Market Growth Opportunities Agriculture Adjacencies Strategies Lending Finance Strategies Convex Control US Middle Marke
Slide 6: Sector Franchises
SECTOR FRANCHISES 1 Overview & Organization Agriculture Sports, Media, Credit Market Software & Healthcare & Entertainment & Telecom Strategies Business Services Life Sciences Financial & Asset Based Consumer & Digital Fundamental Other Finance Internet Strategies Strategies Opportunistic Insurance
Slide 7: Flexible Capital: Sixth Street Platform Reach
FLEXIBLE CAPITAL: SIXTH STREET PLATFORM REACH 1 Overview & Organization Opportunities Growth Adjacencies Reward Fundamental Infrastructure Strategies ABF Direct Lending Insurance Real Estate Credit Market Strategies Yielding Agriculture Risk Note: For illustrative purposes only. Real Estate and Infr
Slide 8: Differentiated Solutions Provider
DIFFERENTIATED SOLUTIONS PROVIDER 1 Overview & Organization Our Competitive Advantages Our Track Record Highlights Part of a $80+ billion1 Sixth Street Approximately $40.4 billion of platform with proprietary deal flow investments originated with a realized and significant resources including averag
Slide 9: Approach to the Unsecured Markets
APPROACH TO THE UNSECURED MARKETS 1 Overview & Organization 1.17x 50% 2.7x >$0.7BN 12 bps ~61% 1.9% Debt to Equity Unsecured Asset Cov. for Revolver Annualized net New Vintage Portfolio (FV) (GAAP) Debt3 Uns. Notes1,3 Capacity3 realized gains2 Portfolio on Non-Accrual Our Framework Implementation •
Slide 10: Agenda
AGENDA 1. Overview & Organization 2. Track Record of Strong Performance 10 SIXTH STREET SPECIALTY LENDING
Slide 11: Track Record of Strong Performance
TRACK RECORD OF STRONG PERFORMANCE 2 Track Record of Strong Performance NI RETURN ON EQUITY 2 NII RETURN ON EQUITY 2 TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ LTM Since TSLX IPO LTM Since TSLX IPO 13.4% 13.9% 12.6% 13.4% 11.9% 12.7% 12.3% 10.8% 9.1%
Slide 12: Delivering Through-the-Cycle Returns
DELIVERING THROUGH-THE-CYCLE RETURNS 2 Track Record of Strong Performance TSLX Annual Returns Since IPO ROE on Adj. Net Income Economic Return 19.7% 19.1% 15.4% 15.9% 16.2% 15.5% 14.7% 15.5% 16.1% 14.5% 11.9% 12.1% 12.8% 10.8% 11.7% 11.6% 11.3% 11.3% 10.0% 7.6% 7.6% 7.6% 2014 2015 2016 2017 2018 201
Slide 13: Industry vs TSLX Unit Economics
INDUSTRY VS TSLX UNIT ECONOMICS 2 Track Record of Strong Performance Unit Economics (Since TSLX IPO) BDC Peers TSLX Return on Assets: All-in Yield (on Assets) 10.4% 13.2% Higher return on assets Cost of Funds2 (5.4%) (5.5%) Debt/Equity 0.95x 0.86x Lower leverage Net Interest Income Return (on Equity
Slide 14: Agenda
AGENDA 1. Overview & Organization 3. Strong Liquidity and Funding Profile 14 SIXTH STREET SPECIALTY LENDING
Slide 15: Strong Liquidity and Funding Profile
STRONG LIQUIDITY AND FUNDING PROFILE 3 Strong Liquidity and Funding Profile CAPITAL & LIQUIDITY ROBUST BALANCE SHEET LIQUIDITY VS. NEAR-TERM OBLIGATIONS 7 ($ in Millions) As of September 30, 2024 / $ Millions $6.5 Cash Near-term Obligations Total Liquidity: Undrawn Revolver $746 $ 740 Capacity1 $746
Slide 16: Liquidity Management
LIQUIDITY MANAGEMENT 3 Strong Liquidity and Funding Profile CASH AND CASH EQUIVALENTS Unrestricted Cash Totaled $6.5 Million as of September 30, 2024. Restricted Cash Related to Interest Rate Swaps Totaled $23.2 Million 1 5 Revolving Credit Facility Unsecured Notes $1.7 Billion Committed; Uncommitte
Slide 17: Strong Asset Coverage for Outstanding Debt
STRONG ASSET COVERAGE FOR OUTSTANDING DEBT 3 Strong Liquidity and Funding Profile TSLX Asset Coverage for Unsecured Notes1 Unsecured Debt over Total Debt Outstanding 3.2x 2.5x 73% 2.8x 2.7x 69% 2.6x 2.2x 56% 50% 40% 38% Q2'23 Q3'23 Q4'23 Q1'24 Q2'24 Q3'24 2 Q2'23 Q3'23 Q4'23 Q1'24 Q2'24 Q3'24 2 Asse
Slide 18: A Disciplined Approach to Liquidity & Capital Management
A DISCIPLINED APPROACH TO LIQUIDITY & CAPITAL MANAGEMENT 3 Strong Liquidity and Funding Profile ($ in Millions) Revolving Credit Facility Renewal Unsecured Bonds Issued Convertible Notes Issued Equity Issued DRIP Equity $24 $18 $90 $94 1.60x TSLX $36 $130 $300 $350 1.40x $31 $78 $21 $300 1.20x $22 $
Slide 19: Agenda
AGENDA 1. Overview & Organization 4. Credit Highlights 19 SIXTH STREET SPECIALTY LENDING
Slide 20: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings ROE (NI) % % Debt Since ($ in millions) Ticker Moody's S&P Fitch KBRA Assets Debt1 1st Lien2 Unsecured5 LTM3 TSLX IPO4 Sixth Street Specialty Lending TSLX Baa3 (positive) BBB- (stable) BBB (positive) BBB+ (stable) $3,
Slide 21: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings Key Credit Metrics Debt Debt Interest Interest & Dividend ($ in millions) Ticker Moody's S&P Fitch KBRA / Equity1 / Assets1 Coverage2 Coverage3 Sixth Street Specialty Lending TSLX Baa3 (positive) BBB- (stable) BBB (po
Slide 22: Collateral Coverage and Asset Quality Matters
COLLATERAL COVERAGE AND ASSET QUALITY MATTERS 4 Credit Highlights UNSECURED DEBT ATTACH & DETACH POINTS 1 Percentage of Assets 75% Attach/Detach Points 54.0% Median: 50% 52% 25% 27.1% Median: 22% 0% BXSL2 OBDE MSDL SAR SLRC KBDC CGBD ARCC NCDL CCAP PFLT GBDC BBDC OBDC 2BCSF MFIC HTGC PSEC NMFC FDUS
Slide 23: Agenda
AGENDA 1. Overview & Organization 5. Principles and Investment Strategy 6. Appendix 23 SIXTH STREET SPECIALTY LENDING
Slide 24: Differentiated Platform Expertise
DIFFERENTIATED PLATFORM EXPERTISE 5 Principles and Investment Strategy DIFFERENTIATED MAINTAIN A LOW PLATFORM DISCIPLINED SECTOR FOCUSED RISK VOLATILITY EXPERTISE AND APPROACH MANAGEMENT PORTFOLIO CAPABILITIES • Source away from Wall • Late cycle-minded sector • Cover the downside • Avoid risks that
Slide 25: Sourcing and Underwriting Overview
SOURCING AND UNDERWRITING OVERVIEW 5 Principles and Investment Strategy Sourcing Underwriting Asset Management Process: Process: Process: • Credit originators / team • Quick Look memo • Performing Loans – Monthly review of operating performance • Weekly pipeline conference calls • Prepare Investment
Slide 26: Differentiated Platform Expertise and Capabilities
DIFFERENTIATED PLATFORM EXPERTISE AND CAPABILITIES 5 Principles and Investment Strategy Sourcing Voting Control TSLX Portfolio Construction Intermediary/ Market No Voting Relationship Control 1% 22% $20-105 Predominantly, million floating rate, first position size lien / senior secured 13% US and Ta
Slide 27: Net Interest Margin Analysis
NET INTEREST MARGIN ANALYSIS 5 Principles and Investment Strategy 1 Weighted Average Total Yield on Debt and Income Producing Securities at Amortized Cost Weighted Average Interest Rate of Debt and Income Producing Securities at Fair Value Weighted Average Spread Over Reference Rate of All Floating
Slide 28: Disciplined Sector Approach
DISCIPLINED SECTOR APPROACH 5 Principles and Investment Strategy GOOD BUSINESSES WITH CHALLENGED BUSINESS GOOD BUSINESSES WITH 1 2 3 GOOD CAPITAL STRUCTURE MODELS WITH GOOD ASSETS BAD CAPITAL STRUCTURE Note: Reflects current and fully realized investments; selected to represent a variety of transact
Slide 29: Low Cyclical Exposure
Q1'13 626 31% 31% Q2'13 787 25% 25% Q3'13 22% 889 26% Q4'13 22% 1,016 26% Q1'14 19% 1,196 28% Q2'14 20% 1,129 24% Q3'14 18% 28% 1,233 $ Millions by Fair Value Q4'14 12% 20% 1,264 Q1'15 10% 18% 1,331 Investments at Fair Value Q2'15 8% 17% 1,398 Q3'15 7% 16% 1,396 Q4'15 7% 10% 1,486 Q1'16 7% 9% 1,564
Slide 30: Diversification Across Borrowers & Industries
DIVERSIFICATION ACROSS BORROWERS & INDUSTRIES 5 Principles and Investment Strategy Top 10 Borrower Diversification Industry Diversification Merative L.P. TRP Assets LLC Internet Services Business Services Bcto Ace Purchaser Inc (HST Pathways) ExtraHop Networks, Inc. Human Resource Support Services F
Slide 31: Portfolio Diversification Across Borrowers
Q1'13 626 70% Q2'13 787 61% Q3'13 889 57% Q4'13 1,016 54% Q1'14 1,196 50% Q2'14 1,129 50% Q3'14 1,233 49% $ Millions by Fair Value Q4'14 1,264 48% Q1'15 1,331 47% Q2'15 44% 1,398 Q3'15 43% 1,396 Q4'15 41% 1,486 Q1'16 39% 1,564 Q2'16 38% 1,611 Q3'16 36% 1,644 Q4'16 36% 1,657 Q1'17 38% 1,580 Q2'17 40%
Slide 32: TSLX Asset Mix
TSLX ASSET MIX 5 Principles and Investment Strategy TSLX Portfolio Large BDC Composite Q3’24 Q3’24 Equity / Second Lien/ Other Subordinated 5% 2% Equity / Other 17% Second Lien/ Subordinated 15% First Lien 68% First Lien 93% Yield at Amortized Cost: 13.4% Yield at Amortized Cost: 11.3% Average Retur
Slide 33: Asset Vintage Diversity
ASSET VINTAGE DIVERSITY 5 Principles and Investment Strategy Fair Value by Vintage Debt Investments by Maturity $ Millions by Fair Value $ Millions by Fair Value 24% 25% $790 24% $815 23% $792 $756 17% $565 16% 14% $514 15% $455 12% $489 $391 9% 9% $279 $280 6% $185 3% 2% $86 1% 2% $51 $70 0% $31 >0
Slide 34: High Quality Portfolio
HIGH QUALITY PORTFOLIO 5 Principles and Investment Strategy TSLX Weighted Average Portfolio Performance Rating TSLX % of Investments on Non-Accrual By Fair Value % of Portfolio Rated 1 or 2 By Fair Value By Amortized Cost 96% 96% 96% 96% 97% 3.9% 2.2% 2.2% 1.9% 1.17 1.16 1.15 1.14 1.14 0.9% 0.8% 1.1
Slide 35: TSLX Portfolio vs. Broadly Syndicated Loan Market
TSLX PORTFOLIO VS. BROADLY SYNDICATED LOAN MARKET 5 Principles and Investment Strategy TSLX Broadly Syndicated Loan Market BUSINESS SERVICES / 81% 17% LOWER BETA INDUSTRIES1 AVERAGE REFERENCE RATE FLOORS2 0.93% 0.65% WEIGHTED AVERAGE LIFE3 1.3 years 4.4 years 102 102 100 100 98 98 99 99 99 98 98 98
Slide 36: Originations and Funding Activity
ORIGINATIONS AND FUNDING ACTIVITY 5 Principles and Investment Strategy $ Billions Origination sizes: Up to $500+ million $40.4 Target investment holds: $30 – $100 million Target position size: $20 – $105 million $10.5 $29.8 $3.4 $7.6 Originations 1 Syndications and Fundings 1 Realizations, Portfolio
Slide 37: Agenda
AGENDA 1. Overview & Organization 6. Appendix 37 SIXTH STREET SPECIALTY LENDING
Slide 38: TSLX Valuation Process: Internal, External & Board Level Review
TSLX VALUATION PROCESS: INTERNAL, EXTERNAL & BOARD LEVEL REVIEW 25+ people 15+ people 100+ people 100+ people 100+ people 9 people Complete Initial Preliminary Final Valuation Audit Committee Board of Portfolio Review of Draft of Valuation Committee Meeting Directors Reviews Valuation Valuation Comm
Slide 39: BDC Sector Price-to-Book
BDC SECTOR PRICE-TO-BOOK Price-to-Book vs. ROE on Net Income (Since TSLX IPO) Average Price-to-Book1 1.3x Annualized ROE (on NI): • TSLX: 13.4% • BDC Peers Mean: 7.4% 1.2x TSLX • BDC Peers Median: 6.6% BDC 11 1.1x BDC 6 BDC 21 BDC 24 1.0x BDC 9 BDC 8 BDC 1 BDC 20 BDC 23 BDC 12 BDC 25 BDC 26 BDC 13 B
Slide 40: Thorough Origination, Underwriting and Negotiation Process
THOROUGH ORIGINATION, UNDERWRITING AND NEGOTIATION PROCESS ORIGINATION UNDERWRITING & APPROVAL NEGOTIATION & CLOSING Input / Output Process Bottleneck Make Decision Simultaneous Process Pre-cmt. Create Expense checklist Start Ledger for Out-of- Pocket Expenses Issue Commitment Legal & Final KYC Proc
Slide 41: Financial Highlights
FINANCIAL HIGHLIGHTS DOLLAR AMOUNTS IN THOUSANDS Except Per Share Data; Per Share Data is Based on Weighted Average Shares Outstanding During the Period, Except as Otherwise Noted Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Net Investment Income Per Share $0.57 $0.62 $0.59 $0.59 $0.59 Net Income (Loss)
Slide 42: Portfolio Highlights – Selected Metrics
PORTFOLIO HIGHLIGHTS – SELECTED METRICS DOLLAR AMOUNTS IN THOUSANDS September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 Investments at Fair Value $3,113,277 $3,283,065 $3,380,009 $3,317,069 $3,441,075 Number of Portfolio Companies 131 136 124 109 115 Average Investme
Slide 43: Quarterly Statements of Financial Condition
QUARTERLY STATEMENTS OF FINANCIAL CONDITION DOLLAR AMOUNTS IN THOUSANDS Except Per Share Data; Per Share Data is Based on Ending Shares Outstanding September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 September 30, 2024 Assets Investments at Fair Value $3,113,277 $3,283,065 $3,380,009 $
Slide 44: Net Asset Value Bridge – Q3'24
NET ASSET VALUE BRIDGE – Q3’24 $0.02 ($0.03) $0.57 ($0.46) $17.19 $17.23 $0.03 $17.13 $17.12 $17.07 ($0.06) ($0.13) ($0.05) 6/30/2024 Q2'24 6/30/24 Q3'24 Q3'24 Q3'24 Q3'24 NAV Q3'24 Q3'24 9/30/24 Q3'24 9/30/24 Supplemental Adjusted NAV 1 Adjusted Net Reversal of Reversal of Net Base Dividend Before
Slide 45: Our Drivers of ROE
OUR DRIVERS OF ROE Illustrative Unit Economics / Return on Equity Return on Assets: Return on Assets Weighted Average Interest Rate of Portfolio 12.5% Amortization of upfront fees1 0.9% Total Yield on Debt and Income Producing Securities 13.4% Impact of Additional fees2 0.8% Prudent Use of Leverage
Slide 46: Illustrative Interest Coverage Throughout Cycles
ILLUSTRATIVE INTEREST COVERAGE THROUGHOUT CYCLES Illustrative Interest Coverage Illustrative Interest Coverage Debt to Equity Debt to Equity 301.81% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 301.81% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 11.0% 2.52x 2.48x 2.44x 2.41x 2.38x 2.30x 6.00% 4.28x 4.16x 4.06x 3.97x
Slide 47: Illustrative ROE Throughout Cycles
ILLUSTRATIVE ROE THROUGHOUT CYCLES Illustrative ROE Illustrative Interest Illustrative ROE Coverage Debt to Equity DebttotoEquity Debt Equity 13.49% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 13.49% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 11.0% 7.2% 7.3% 7.4% 7.5% 7.6% 8.0% 6.00% 13.9% 14.1% 14.4% 14.6% 14.9%
Slide 48: Book Value Per Share and Dividends Paid Per Share
$14.71 $0.00 $14.71 $14.88 $0.06 $14.94 $14.92 $0.22 $15.14 $15.12 $0.54 $15.66 $15.19 $0.90 $16.09 Note: As of 9/30/24. $15.27 $1.23 $16.50 $15.29 $1.61 $16.90 $15.35 $2.01 $17.36 $15.52 $2.39 $17.91 $15.51 $2.79 $18.30 $15.70 $3.17 $18.87 $15.66 $3.55 $19.21 NAV per Share $15.53 $3.93 $19.46 $15.6
Slide 49: Sixth Street Responsible Investment Overview
SIXTH STREET RESPONSIBLE INVESTMENT OVERVIEW WHAT WE BELIEVE RI AND ESG GOVERNANCE EMPLOYEE TRAINING • Our mission is to deliver • Senior oversight through • Sixth Street provides training compelling risk-adjusted ESG Oversight and other tools to its returns while conducting our Committee includes e
Slide 50: Differentiated Investor Transparency and Communication
DIFFERENTIATED INVESTOR TRANSPARENCY AND COMMUNICATION Regional Banking Crisis – Covid-19 Pandemic – 2020 March 2023 Valuation Principles – Quarterly Debt & Equity Investor Presentations August 2022 50 SIXTH STREET SPECIALTY LENDING
Slide 51: Footnotes
FOOTNOTES SIXTH STREET SPECIALTY LENDING
Slide 52: Footnotes
FOOTNOTES Slide 4: Overview 1. Reflects NAV per share adjusted for the supplemental dividend per share related to Q3 2024 earnings 2. Moody’s rating affirmed 9/23/2024; S&P rating affirmed on 1/23/2024; Fitch rating updated on 3/26/2024; KBRA affirmed 6/3/2024 Slide 5: The Sixth Street Platform 1. A
Slide 53: Footnotes
FOOTNOTES Slide 16: Liquidity Management 1. Includes $25 million of non-extending commitments with a maturity of February 4, 2026 and a revolving period ending February 4, 2025 and $170 million of non-extending commitments with a maturity of April 23, 2027 and a revolving period ending April 24, 202
Slide 54: Footnotes
FOOTNOTES Slide 36: Originations and Funding Activity 1. At par value; since inception through 9/30/2024 2. Pay-downs include amortization of term loans and revolver pay-downs; other reflects the difference between the basis of fundings (par value) and portfolio balance (fair value as of 9/30/2024)
Slide 55: TSLX Investor Relations
CONTACT US: TSLX Investor Relations IRTSLX@sixthstreet.com VISIT US: www.sixthstreetspecialtylending.com 55 SIXTH STREET SPECIALTY LENDING
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