Sixth Street Specialty Lending, Inc. · NYSE:TSLX
Sixth Street Specialty Lending — Debt Investor Presentation (November 2023)
52 slides from Sixth Street Specialty Lending's debt investor presentation, November 2023
Slide 1: Sixth Street Specialty Lending Fixed Income Presentation November 2023
SIXTH STREET SPECIALTY LENDING SIXTH STREET SPECIALTY LENDING, INC Fixed Income Presentation November 2023
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 $39.05 $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 $28.41 $28.17 19.83 $27.43 19.31 18.81 $26.61$26.83 16.53 17.8118.26 $26.03 16.01 16.98
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 $70+ billion Sixth Street platform with proprietary deal flow and significant resources including Approximately $29 billion of 200+ investment professionals and investments or
Slide 7: Approach to the Unsecured Markets
APPROACH TO THE UNSECURED MARKETS 1 Overview & Organization • Commitment to investment grade ratings OUR • Commitment to unsecured issuance as a component of our capital stack FRAMEWORK • Commitment to differentiated investor communication and transparency • Four rating agencies with investment grad
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 14.5% 13.1% 13.2% 12.2% 16.1% 10.2% 13.4% 8.3% 10.8%
Slide 10: Industry vs TSLX Unit Economics
INDUSTRY VS TSLX UNIT ECONOMICS 2 Track Record of Strong Performance Unit Economics (Since TSLX IPO) BDC Peers TSLX Q3’23 Return on Assets: All-in Yield (on Assets) 9.9% 12.9% Higher return on assets Cost of Funds2 (4.8%) (5.0%) Debt/Equity 0.95x 0.83x Lower leverage Net Interest Income Return (on E
Slide 11: 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% 17.0% 15.4% 15.9% 15.5% 14.7% 15.5% 15.7% 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 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 STAGGERED, LONG-TERM DEBT MATURITIES 1 ROBUST LIQUIDITY VS. NEAR -TERM OBLIGATIONS As of September 30, 2023 / $ Millions As of September 30, 2023 / $ Millions $1,713 Near-term Obligations Undrawn Revolving Credit Facility $3
Slide 14: Strong Asset Coverage for Outstanding Debt
STRONG ASSET COVERAGE FOR OUTSTANDING DEBT 3 Strong Liquidity and Funding Profile TSLX Asset Coverage for Unsecured Notes 1 3.5x 3.1x 3.2x 3.0x 2.7x 2.7x 2.5x 2.4x 2.5x 2.0x 1.5x 1.0x 0.5x 0.0x Q2'22 Q3'22 Q4'22 Q1'23 Q2'23 Q3'23 TSLX Unsecured Notes TSLX Truist Revolving Credit Facility Collateral
Slide 15: TSLX Liquidity and Funding Profile vs BDC Peers
TSLX LIQUIDITY AND FUNDING PROFILE VS BDC PEERS 3 Strong Liquidity and Funding Profile TSLX LTM Q3’23 BDC Peers Median LTM Q3’23 LIQUIDITY AS % OF TOTAL ASSETS1 30% 21% LIQUIDITY AS A MULTIPLE OF 4.8x 2.4x UNFUNDED COMMITMENTS2 REGULATORY LEVERAGE (NET) 1.15x 1.17x Attach Point3 24% 25% Detach Point
Slide 16: A Disciplined Approach to Liquidity & Capital Management
A DISCIPLINED APPROACH TO LIQUIDITY & CAPITAL MANAGEMENT 3 Strong Liquidity and Funding Profile ($ in Millions) Revolving Credit Facility Renewal Unsecured Bonds Issued Convertible Notes Issued Equity Issued 1.60x $90 $130 1.40x $300 $300 $78 1.20x $300 $50 Price-to-Book 1.00x $75 $150 $112 $82 0.80
Slide 17: Agenda: Credit Highlights
AGENDA 1. Overview & Organization 4. Credit Highlights 17 SIXTH STREET SPECIALTY LENDING
Slide 18: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings ROE (NI) % % Debt Since ($ in millions) Ticker Moody’s S&P Fitch KBRA Assets Debt1 Equity 1st Lien2 Unsecured LTM3 TSLX IPO4 Sixth Street Specialty Lending TSLX Baa3 (positive) BBB- (stable) BBB (stable) BBB+ (stable)
Slide 19: 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 20: 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 Median: 50% 53% Median: 25% 25% 0% BXSL TCPC PFLT TSLX MFIC OBDC PNNT ARCC GBDC RWAY GSBD BCSF CCAP BBDC HTGC SLRC MAIN CGBD OCSL FDUS NMFC SAR CION
Slide 21: Agenda: Principles and Investment Strategy
AGENDA 1. Overview & Organization 5. Principles and Investment Strategy 6. Appendix 21 SIXTH STREET SPECIALTY LENDING
Slide 22: 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 23: Differentiated Platform Expertise and Capabilities
DIFFERENTIATED PLATFORM EXPERTISE AND CAPABILITIES 5 Principles and Investment Strategy Sourcing Voting Control TSLX Portfolio Construction Intermediary/ No Voting Market Control Relationship 9% 1% $20-105 Predominantly, million floating rate, first position size lien / senior secured 13% US and Tar
Slide 24: 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 25: 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 26: 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 27: Disciplined Sector Approach
DISCIPLINED SECTOR APPROACH 5 Principles and Investment Strategy Top 10 Borrower Diversification Industry Diversification Merative LP (IBM Watson) TRP Assets LLC Internet Services Business Services Retail and consumer products Human Resource Support Services ReliaQuest, LLC BCTO Ace Purchaser, Inc.
Slide 28: 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 29: TSLX Asset Mix
TSLX ASSET MIX 5 Principles and Investment Strategy TSLX Portfolio Large BDC Composite1,2 Q3’23 Q3’23 Equity / Second Lien/ Other Equity / Subordinated 7% Other 2% 12% Second Lien/ Subordinated 23% First Lien 64% First Lien 91% Yield at Amortized Cost: 14.3% Yield at Amortized Cost: 12.1% Average Re
Slide 30: 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 22% 33% $639 20% 20% $989 $590 $603 27% $787 13% $374 11% 16% $314 $486 8% 6% $229 9% $272 $168 5% 4% $154 3% 3% $112 1% $75 $81 1% 0% $17
Slide 31: 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% 99% 98% 96% 1.0% 0.9% 0.9% 0.7% 0.6% 0.7% 1.12 1.12 1.16 1.16 1.17 0.1
Slide 32: TSLX Portfolio vs. Broadly Syndicated Loan Market
TSLX PORTFOLIO VS. BROADLY SYNDICATED LOAN MARKET 4 5 Principles and Investment Strategy TSLX Broadly Syndicated Loan Market BUSINESS SERVICES / 84% 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 98 100 100 98 99 98 98
Slide 33: Originations and Funding Activity
ORIGINATIONS AND FUNDING ACTIVITY 5 Principles and Investment Strategy $ Billions Origination sizes: Up to $500+ million $28.6 Target investment holds: $30 – $100 million Target position size: $20 – $105 million $9.7 $18.8 $2.8 $6.9 1 1 Originations Syndications and Fundings Realizations, Portfolio
Slide 34: Agenda: Appendix
AGENDA 1. Overview & Organization 6. Appendix 34 SIXTH STREET SPECIALTY LENDING
Slide 35: 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 36: 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 37: 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 38: 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 2022 Q4 2022 Q1 2023 Q2 2023 Q3 2023 Net Investment Income Per Share $0.47 $0.65 $0.53 $0.58 $0.57 Net Income (Loss)
Slide 39: Portfolio Highlights – Selected Metrics
PORTFOLIO HIGHLIGHTS – SELECTED METRICS DOLLAR AMOUNTS IN THOUSANDS September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 Investments at Fair Value $2,806,063 $2,787,925 $2,918,584 $3,088,987 $3,113,277 Number of Portfolio Companies 118 121 127 130 131 Average Investme
Slide 40: 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 Three Months Ended September 30, 2022 December 31, 2022 March 31, 2023 June 30, 2023 September 30, 2023 Investme
Slide 41: Net Asset Value Bridge – Q3'23
NET ASSET VALUE BRIDGE – Q3’23 ($0.03) $0.06 $16.97 $0.60 ($0.46) ($0.08) $16.90 $16.74 $16.68 $16.79 $0.20 ($0.07) ($0.06) 6/30/23 Q2'23 6/30/23 Q3'23 Q3'23 Q3'23 NAV Q3'23 Q3'23 Q3'23 9/30/23 Q3'23 9/30/23 NAV Supplemental Adjusted NAV 1 Adjusted Net Accrued Capital Base Dividend Before Net Unreal
Slide 42: 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 13.6% Amortization of upfront fees1 0.9% Total Yield on Debt and Income Producing Securities 14.5% Impact of Additional fees2 1.1% Prudent Use of Leverage
Slide 43: Illustrative Interest Coverage Throughout Cycles
ILLUSTRATIVE INTEREST COVERAGE THROUGHOUT CYCLES Illustrative Interest Coverage Illustrative Interest Coverage Debt to Equity Debt to Equity 317.30% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 317.30% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 2.68x 2.63x 2.59x 2.55x 2.51x 2.41x 6.00% 4.66x 4.53x 4.42x 4.32x
Slide 44: Illustrative ROE Throughout Cycles
ILLUSTRATIVE ROE THROUGHOUT CYCLES Illustrative ROE Illustrative Interest Illustrative ROE Coverage Debt to Equity Debtto Debt toEquity Equity 15.61% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 15.61% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 8.6% 8.7% 8.8% 9.0% 9.1% 9.5% 6.00% 15.9% 16.2% 16.5% 16.8% 17.1%
Slide 45: 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 $39.05 $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 $18.47 $28.64 $28.41 $18.01 $28.17 $17.55
Slide 46: 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 47: 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 47 SIXTH STREET SPECIALTY LENDING
Slide 48: Footnotes
FOOTNOTES SIXTH STREET SPECIALTY LENDING
Slide 49: Footnotes
FOOTNOTES Slide 4: Snapshot 1. Reflects NAV per share adjusted for the supplemental dividend per share related to Q3 2023 earnings 2. Moody’s rating updated 9/18/2023; S&P rating affirmed on 2/7/2023; Fitch rating affirmed on 4/3/2023; KBRA affirmed 5/26/2023 Slide 6: Differentiated Solutions Provid
Slide 50: Footnotes
FOOTNOTES Slide 14: Strong Asset Coverage for Outstanding Notes 1. Calculated as total assets less secured borrowings divided by unsecured debt 2. In connection with the note offerings, the Company entered into interest rate swaps to align the interest rates of its liabilities with its investment po
Slide 51: Footnotes
FOOTNOTES Slide 32: TSLX Portfolio vs. Broadly Syndicated Loan Market 1. TSLX classifies the industries of its portfolio companies by end-market (such as healthcare, and business services) and not by the products or services (such as software) directed to those end-markets. For the broadly syndicate
Slide 52: TSLX Investor Relations
CONTACT US: TSLX Investor Relations IRTSLX@sixthstreet.com VISIT US: www.sixthstreetspecialtylending.com 52 SIXTH STREET SPECIALTY LENDING
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