Sixth Street Specialty Lending, Inc. · NYSE:TSLX
Sixth Street Specialty Lending — Debt Investor Presentation (March 2024)
54 slides from Sixth Street Specialty Lending's debt investor presentation, March 2024
Slide 1: Sixth Street Specialty Lending Fixed Income Presentation March 2024
SIXTH STREET SPECIALTY LENDING SIXTH STREET SPECIALTY LENDING, INC Fixed Income Presentation March 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: Overview & Organization
AGENDA 1. Overview & Organization 3 SIXTH STREET SPECIALTY LENDING
Slide 4: Snapshot
SNAPSHOT 1 Overview & Organization Specialty Lending Company Focused on Providing Financing Solutions $39.65 $39.05 $38.30 $37.65 $36.99 $36.42 $35.66$35.50 $35.10 $34.46 $33.70 $32.85 $31.83 $31.03 $29.58 $29.22 $28.64 $28.17 $28.41 19.8320.36 $27.43 19.31 18.81 $26.61$26.83 17.8118.26 $26.03 16.01
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 Structured Credit Market Growth Opportunities Agriculture Adjacencies Strategies Lending Products Strategies Convex Control US Middle Marke
Slide 6: Differentiated Solutions Provider
DIFFERENTIATED SOLUTIONS PROVIDER 1 Overview & Organization Our Competitive Advantages Our Track Record Highlights Part of a $75+ billion1 Sixth Street platform with proprietary deal flow and significant resources including Approximately $31.5 billion of 200+ investment professionals and investments
Slide 7: Approach to the Unsecured Markets
APPROACH TO THE UNSECURED MARKETS 1 Overview & Organization 1.19x 73% 2.2x $1,216mm 12 bps ~40% 0.6% Debt to Unsecured Asset Cov. for Revolver Net realized New Vintage Portfolio on Equity1,2 Debt1 Uns. Notes1,3 Capacity1 gains Portfolio Non-Accrual Our Framework Implementation • Four rating agencies
Slide 8: Agenda: Track Record of Strong Performance
AGENDA 1. Overview & Organization 2. Track Record of Strong Performance 8 SIXTH STREET SPECIALTY LENDING
Slide 9: Track Record of Strong Performance
TRACK RECORD OF STRONG PERFORMANCE 2 Track Record of Strong Performance NI RETURN ON EQUITY 2 NII RETURN ON EQUITY 2 TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ LTM Since TSLX IPO LTM Since TSLX IPO 14.4% 14.1% 12.9% 13.3% 16.2% 10.3% 12.2% 13.5% 8.4%
Slide 10: Delivering Through-the-Cycle Returns
DELIVERING THROUGH-THE-CYCLE RETURNS 2 Track Record of Strong Performance TSLX Annual Returns Since IPO ROE on Adj. Net Income Economic Return 19.7% 19.1% 15.4% 15.9% 16.2% 15.5% 14.7% 15.5% 16.1% 14.5% 10.8% 11.9% 12.1% 11.7% 11.6% 11.3% 10.0% 7.6% 7.6% 7.6% 2014 2015 2016 2017 2018 2019 2020 2021
Slide 11: Industry vs TSLX Unit Economics
INDUSTRY VS TSLX UNIT ECONOMICS 2 Track Record of Strong Performance Unit Economics (Since TSLX IPO) BDC Peers TSLX Return on Assets: All-in Yield (on Assets) 10.3% 13.0% Higher return on assets Cost of Funds2 (5.0%) (5.1%) Debt/Equity 0.93x 0.84x Lower leverage Net Interest Income Return (on Equity
Slide 12: Agenda: Strong Liquidity and Funding Profile
AGENDA 1. Overview & Organization 3. Strong Liquidity and Funding Profile 12 SIXTH STREET SPECIALTY LENDING
Slide 13: Strong Liquidity and Funding Profile
STRONG LIQUIDITY AND FUNDING PROFILE 3 Strong Liquidity and Funding Profile CAPITAL & LIQUIDITY ROBUST BALANCE SHEET 3 LIQUIDITY VS. NEAR-TERM OBLIGATIONS ($ in Millions) As of December 31, 2023 / $ Millions Near-term Obligations $1.2 Cash $1,217 $348 Total Liquidity: $ 1,216 Undrawn Revolver $226 $
Slide 14: Liquidity Management
LIQUIDITY MANAGEMENT 3 Strong Liquidity and Funding Profile CASH AND CASH EQUIVALENTS Unrestricted Cash Totaled $1.2 Million as of December 31, 2023. Restricted Cash Related to Interest Rate Swaps Totaled $24.0 Million 1 5 Revolving Credit Facility Unsecured Notes $1.685 Billion Committed; Uncommitt
Slide 15: Strong Asset Coverage for Outstanding Debt
STRONG ASSET COVERAGE FOR OUTSTANDING DEBT 3 Strong Liquidity and Funding Profile TSLX Asset Coverage for Unsecured Notes1 Unsecured Debt over Total Debt Outstanding 3.2x 3.1x 73% 2.7x 2.5x 2.6x 2.2x 56% 53% 52% 40% 38% 2 Q4'22 Q1'23 Q2'23 Q3'23 Q4'23 Adj. Q4'23 2 Q4'22 Q1'23 Q2'23 Q3'23 Q4'23 Adj.
Slide 16: TSLX Liquidity and Funding Profile vs BDC Peers
TSLX LIQUIDITY AND FUNDING PROFILE VS BDC PEERS 3 Strong Liquidity and Funding Profile TSLX LTM Q4’235 BDC Peers Median LTM Q4’236 LIQUIDITY AS % OF TOTAL ASSETS1 36% 19% LIQUIDITY AS A MULTIPLE OF 5.4x 2.3x UNFUNDED COMMITMENTS2 REGULATORY LEVERAGE (NET)3 1.19x 1.18x Attach Point4 14% 24% Detach Po
Slide 17: A Disciplined Approach to Liquidity & Capital Management
A DISCIPLINED APPROACH TO LIQUIDITY & CAPITAL MANAGEMENT 3 Strong Liquidity and Funding Profile ($ in Millions) Revolving Credit Facility Renewal Unsecured Bonds Issued Convertible Notes Issued Equity Issued $90 1.60x $130 $300 $300 1.40x $78 1.20x $300 $50 $75 1.00x $150 $112 $82 0.80x $115 $1,710
Slide 18: Agenda: Credit Highlights
AGENDA 1. Overview & Organization 4. Credit Highlights 18 SIXTH STREET SPECIALTY LENDING
Slide 19: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings ROE (NI) % % Debt Since ($ in millions) Ticker Moody's S&P Fitch KBRA Assets Debt1 Equity4 1st Lien2 Unsecured4,5 LTM3 TSLX IPO Sixth Street Specialty Lending TSLX Baa3 (positive) BBB- (stable) BBB (stable) BBB+ (stab
Slide 20: 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 (st
Slide 21: 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 52.8% Median: 50% 52% 25% Median: 24% 14.0% 0% 2 3 3 3 3 3 3 3 BXSL PFLT RWAY SLRC TSLX HTGC PNNT OBDC MFIC ARCC GBDC BCSF CCAP MAIN PSEC BBDC CION
Slide 22: Agenda: Principles and Investment Strategy
AGENDA 1. Overview & Organization 5. Principles and Investment Strategy 6. Appendix 22 SIXTH STREET SPECIALTY LENDING
Slide 23: 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 24: 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% 12% $20-105 Predominantly, million floating rate, first position size lien / senior secured 13% US and Ta
Slide 25: Differentiated Platform Expertise and Capabilities
DIFFERENTIATED PLATFORM EXPERTISE AND CAPABILITIES 5 Principles and Investment Strategy Net Interest Margin Weighted Average Total Yield on Debt and Income Producing Securities at Amortized Cost 1 Weighted Average Interest Rate of Debt and Income Producing Securities at Fair Value Weighted Average S
Slide 26: Disciplined Sector Approach
DISCIPLINED SECTOR APPROACH 5 Principles and Investment Strategy Representative Themes Software and/or Recurring Revenue ABL / ABL Retail Financing Pharma Royalty Streams AR Securitization Upstream E&P Selectivity Across 3 Lanes Durable Business Model / Durable Business Model / Challenged Business M
Slide 27: 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 Investments at Fair Value Q1'15 10% 18% 1,331 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 28: Disciplined Sector Approach
DISCIPLINED SECTOR APPROACH 5 Principles and Investment Strategy Top 10 Borrower Diversification Industry Diversification ReliaQuest, LLC IBM Watson (Merative LP) Business Services Internet Services TRP Assets LLC BCTO Ace Purchaser, Inc. Human Resource Support Services Financial Services PayScale H
Slide 29: 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 30: TSLX Asset Mix
TSLX ASSET MIX 5 Principles and Investment Strategy TSLX Portfolio Large BDC Composite1 Q4’23 Q4’23 Equity / Other Second Lien/ 6% Equity / Subordinated 2% Other 14% Second Lien/ Subordinated 23% First Lien 63% First Lien 91% Yield at Amortized Cost: 14.2% Yield at Amortized Cost: 12.1% Average Retu
Slide 31: Focused Risk Management
FOCUSED RISK MANAGEMENT 5 Principles and Investment Strategy Fair Value by Vintage Debt Investments by Maturity $ Millions by Fair Value $ Millions by Fair Value 30% $925 21% 25% 25% 20% $669 $772 $770 $622 18% $573 13% 12% $402 $379 10% $311 8% $238 5% 4% 3% $161 $124 2% 3% $102 $78 $81 1% 1% 0% $1
Slide 32: 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 99% 99% 98% 96% 96% 1.0% 0.9% 0.9% 0.8% 0.7% 0.6% 0.7% 0.6% 1.12 1.16 1.16 1.1
Slide 33: 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 / 83% 16% LOWER BETA INDUSTRIES1 AVERAGE REFERENCE RATE FLOORS2 0.97% 0.43% WEIGHTED AVERAGE LIFE3 1.4 years 4.2 years 102 102 100 100 98 100 98 99 99 98 98 98
Slide 34: Originations and Funding Activity
ORIGINATIONS AND FUNDING ACTIVITY 5 Principles and Investment Strategy $ Billions Origination sizes: Up to $500+ million $31.5 Target investment holds: $30 – $100 million Target position size: $20 – $105 million $10.0 $21.5 $2.9 $7.1 1 1 Originations Syndications and Fundings Realizations, Portfolio
Slide 35: Agenda: Appendix
AGENDA 1. Overview & Organization 6. Appendix 35 SIXTH STREET SPECIALTY LENDING
Slide 36: 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 37: Why Valuation Matters
WHY VALUATION MATTERS 1 • We believe its important to listen what the market is saying and incorporate these inputs (rates, spread, market risk) into a rigorous valuation and decision-making framework 2 • In Q3'22, although our portfolio companies still had strong performance (measured by earnings,
Slide 38: 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 39: 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 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Q4 2023 Net Investment Income Per Share $0.65 $0.53 $0.58 $0.57 $0.62 Net Income (Loss)
Slide 40: Portfolio Highlights – Selected Metrics
PORTFOLIO HIGHLIGHTS – SELECTED METRICS DOLLAR AMOUNTS IN THOUSANDS December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 Investments at Fair Value $2,787,925 $2,918,584 $3,088,987 $3,113,277 $3,283,065 Number of Portfolio Companies 121 127 130 131 136 Average Investmen
Slide 41: Operating Results Detail
OPERATING RESULTS DETAIL 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 For Year Ended For Three Months Ended 2022 2023 March 31, 2023 June 30, 2023 September 30, 2023 December 31, 2023 In
Slide 42: Net Asset Value Bridge – Q4'23
NET ASSET VALUE BRIDGE – Q4’23 $0.01 ($0.04) $0.01 $0.62 ($0.46) $17.03 $0.13 $0.02 $17.04 $16.97 ($0.15) $16.96 $16.90 ($0.08) ($0.07) 9/30/23 Q3'23 9/30/23 Q4'23 Q4'23 Q4'23 Q4'23 NAV Q4'23 Q3'23 Q4'23 Q4'23 12/31/23 Q4'23 12/31/23 NAV Supplemental Adjusted NAV1 Adjusted Net Reversal of Reversal o
Slide 43: Net Asset Value Bridge – 2023
NET ASSET VALUE BRIDGE – 2023 ($0.05) ($0.18) $2.36 ($1.84) $0.14 ($0.23) $17.04 $16.96 $0.55 ($0.08) $16.48 $16.51 $0.07 $16.39 ($0.17) ($0.09) 12/31/2022 Q4'22 12/31/22 2023 2023 2023 2023 Q1'23 - Q3'23 NAV 2023 2023 2023 2023 12/31/23 Q4'23 12/31/23 NAV Supplemental Adjusted NAV 1 Adjusted Net Ac
Slide 44: 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 13.7% Amortization of upfront fees1 0.9% Total Yield on Debt and Income Producing Securities 14.6% Impact of Additional fees2 1.0% Prudent Use of Leverage
Slide 45: Illustrative Interest Coverage Throughout Cycles
ILLUSTRATIVE INTEREST COVERAGE THROUGHOUT CYCLES Illustrative Interest Coverage Illustrative Interest Coverage Debt to Equity Debt to Equity 291.18% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 291.18% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 2.47x 2.43x 2.40x 2.37x 2.34x 2.27x 6.50% 4.29x 4.18x 4.08x 3.98x
Slide 46: Illustrative ROE Throughout Cycles
ILLUSTRATIVE ROE THROUGHOUT CYCLES Illustrative ROE Illustrative Illustrative ROE Coverage Interest Debt to Equity Debt DebttotoEquity Equity 15.32% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 15.32% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 8.1% 8.2% 8.3% 8.4% 8.5% 8.9% 6.50% 15.5% 15.7% 16.0% 16.3% 16.6%
Slide 47: Book Value Per Share and Dividends Paid Per Share
BOOK VALUE PER SHARE AND DIVIDENDS PAID PER SHARE NAV per Share Cumulative Special Dividends Cumulative Supplemental Dividends Cumulative Base Dividends $39.65 $39.05 $38.30 $37.65 $36.99 $36.42 $35.66$35.50 $35.10 $34.46 $33.70 $32.85 $31.83 $31.03 $29.83 $29.22 $18.93 $18.47 $28.64 $28.41 $18.01 $
Slide 48: 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 49: 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 49 SIXTH STREET SPECIALTY LENDING
Slide 50: Footnotes
FOOTNOTES SIXTH STREET SPECIALTY LENDING
Slide 51: Footnotes
FOOTNOTES Slide 4: Snapshot 1. Reflects NAV per share adjusted for the supplemental dividend per share related to Q4 2023 earnings 2. Fitch rating affirmed on 4/3/2023; Moody’s rating updated 9/18/2023; S&P rating affirmed on 2/7/2023; KBRA affirmed 5/26/2023 Slide 5: The Sixth Street Platform 1. AU
Slide 52: Footnotes
FOOTNOTES Slide 14: Liquidity Management 1. Includes $50 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 53: Footnotes
FOOTNOTES Slide 30: TSLX Asset Mix 1. Excludes investments on non-accrual status 2. Calculated as cumulative reported net income per share from 3/31/2014 to 12/31/2023, divided by beginning NAV per share at 3/31/2014, adjusted for annual basis. For TSLX, the cumulative net income per share is adjust
Slide 54: TSLX Investor Relations
CONTACT US: TSLX Investor Relations IRTSLX@sixthstreet.com VISIT US: www.sixthstreetspecialtylending.com 54 SIXTH STREET SPECIALTY LENDING
Sixth Street Specialty Lending — Debt Investor Presentation (March 2024) on 6ix