Sixth Street Specialty Lending, Inc. · NYSE:TSLX
Sixth Street Specialty Lending — Debt Investor Presentation (August 2024)
56 slides from Sixth Street Specialty Lending's debt investor presentation, August 2024
Slide 1: Fixed Income Presentation August 2024
SIXTH STREET SPECIALTY LENDING SIXTH STREET SPECIALTY LENDING, INC Fixed Income Presentation August 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: 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 NAV per Share 15.60 4.32 $19.92 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 Public Strategy US & European Renewables Opportunistic Growth Direct Lending & Infrastructure Healthcare & Life Sciences Energy Insurance Real Estate Sports, Media, Entertainment Public Software & & Telecom Strategy Core Business Services Agriculture Finan
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 $78+ billion1 Sixth Street platform with proprietary deal flow and significant resources including Approximately $37.9 billion of 250+ investment professionals and investments
Slide 9: Approach to the Unsecured Markets
APPROACH TO THE UNSECURED MARKETS 1 Overview & Organization 1.07x 73% 2.2x >$1.21BN 13 bps ~58% 1.1% Debt to Equity Unsecured Asset Cov. for Revolver Annualized net New Vintage Portfolio (FV) (GAAP) Debt Uns. Notes1 Capacity realized gains2 Portfolio on Non-Accrual Our Framework Implementation • Fou
Slide 10: Agenda: Track Record of Strong Performance
AGENDA 1. Overview & Organization 2. Track Record of Strong Performance 10 SIXTH STREET SPECIALTY LENDING
Slide 11: Track Record of Strong Performance
TRACK RECORD OF STRONG PERFORMANCE 2 Track Record of Strong Performance NI RETURN ON EQUITY 2 NII RETURN ON EQUITY 2 TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ TSLX BDC Peers (Mean) BDC Peers Top Quartile¹ LTM Since TSLX IPO LTM Since TSLX IPO 14.2% 14.0% 14.3% 13.1% 13.3% 13.5% 12.6% 10.5% 9.2%
Slide 12: Delivering Through-the-Cycle Returns
DELIVERING THROUGH-THE-CYCLE RETURNS 2 Track Record of Strong Performance TSLX Annual Returns Since IPO ROE on Adj. Net Income Economic Return 19.7% 19.1% 15.4% 15.9% 16.2% 15.5% 14.7% 15.5% 16.1% 14.5% 13.3% 10.8% 11.9% 12.1% 12.0% 11.7% 11.6% 11.3% 10.0% 7.6% 7.6% 7.6% 2014 2015 2016 2017 2018 201
Slide 13: Industry vs TSLX Unit Economics
INDUSTRY VS TSLX UNIT ECONOMICS 2 Track Record of Strong Performance Unit Economics (Since TSLX IPO) BDC Peers TSLX Return on Assets: All-in Yield (on Assets) 10.4% 13.1% Higher return on assets Cost of Funds2 (5.1%) (5.4%) Debt/Equity 0.94x 0.86x Lower leverage Net Interest Income Return (on Equity
Slide 14: Agenda: Strong Liquidity and Funding Profile
AGENDA 1. Overview & Organization 3. Strong Liquidity and Funding Profile 14 SIXTH STREET SPECIALTY LENDING
Slide 15: Strong Liquidity and Funding Profile
STRONG LIQUIDITY AND FUNDING PROFILE 3 Strong Liquidity and Funding Profile CAPITAL & LIQUIDITY ROBUST BALANCE SHEET LIQUIDITY VS. NEAR-TERM OBLIGATIONS ($ in Millions) As of June 30, 2024 / $ Millions Near-term Obligations $5.1 Cash $1,215 Total Liquidity: Undrawn Revolver $ 1,209 $1,2152 Capacity1
Slide 16: Liquidity Management
LIQUIDITY MANAGEMENT 3 Strong Liquidity and Funding Profile CASH AND CASH EQUIVALENTS Unrestricted Cash Totaled $5.1 Million as of June 30, 2024. Restricted Cash Related to Interest Rate Swaps Totaled $29.5 Million 1 Revolving Credit Facility Unsecured Notes $1.7 Billion Committed; Uncommitted Accor
Slide 17: Strong Asset Coverage for Outstanding Debt
STRONG ASSET COVERAGE FOR OUTSTANDING DEBT 3 Strong Liquidity and Funding Profile TSLX Asset Coverage for Unsecured Notes1 Unsecured Debt over Total Debt Outstanding 3.2x 3.1x 73% 2.5x 2.6x 69% 2.2x 2.2x 56% 52% 40% 38% Q1'23 Q2'23 Q3'23 Q4'23 Q1'24 Q2'24 Q1'23 Q2'23 Q3'23 Q4'23 Q1'24 Q2'24 Asset co
Slide 18: TSLX Liquidity and Funding Profile vs BDC Peers
TSLX LIQUIDITY AND FUNDING PROFILE VS BDC PEERS 3 Strong Liquidity and Funding Profile TSLX LTM Q2’24 BDC Peers Median LTM Q2’24 LIQUIDITY AS % OF TOTAL ASSETS1 36% 20% LIQUIDITY AS A MULTIPLE OF 4.9x 2.7x UNFUNDED COMMITMENTS2 REGULATORY LEVERAGE (NET)3 1.07x 1.14x Unsecured Investor Attach Point4
Slide 19: A Disciplined Approach to Liquidity & Capital Management
A DISCIPLINED APPROACH TO LIQUIDITY & CAPITAL MANAGEMENT 3 Strong Liquidity and Funding Profile ($ in Millions) Revolving Credit Facility Renewal Unsecured Bonds Issued Convertible Notes Issued Equity Issued $90 $94 1.60x $130 $300 $350 1.40x $300 $78 1.20x $300 $50 P / NAV 1.00x $75 $150 $112 $82 0
Slide 20: Agenda: Credit Highlights
AGENDA 1. Overview & Organization 4. Credit Highlights 20 SIXTH STREET SPECIALTY LENDING
Slide 21: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings ROE (NI) % % Debt Since ($ in millions) Ticker Moody's S&P Fitch KBRA Assets Debt1 1st Lien2 Unsecured LTM3 TSLX IPO4 Sixth Street Specialty Lending TSLX Baa3 (positive) BBB- (stable) BBB (positive) BBB+ (stable) $3,3
Slide 22: Credit Highlights – TSLX vs BDC Peers
CREDIT HIGHLIGHTS – TSLX VS BDC PEERS 4 Credit Highlights Long Term Credit Ratings Key Credit Metrics Debt Debt Interest Interest & Dividend ($ 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 23: 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 52.7% Median: 50% 52% Median: 25% 24% 14.4% 0% BXSL SLRC BCSF CCAP ARCC PFLT GBDC BBDC MFIC MAIN TSLX HTGC CION OBDC CGBD PSEC NMFC FDUS SCM PNNT RW
Slide 24: Agenda: Principles and Investment Strategy
AGENDA 1. Overview & Organization 5. Principles and Investment Strategy 6. Appendix 24 SIXTH STREET SPECIALTY LENDING
Slide 25: 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 26: 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 27: Differentiated Platform Expertise and Capabilities
DIFFERENTIATED PLATFORM EXPERTISE AND CAPABILITIES 5 Principles and Investment Strategy Sourcing Voting Control TSLX Portfolio Construction Intermediary/ Market Relationship No Voting 1% Control 23% $20-105 Predominantly, million floating rate, first position size lien / senior secured 13% US and Ta
Slide 28: Net Interest Margin Analysis
NET INTEREST MARGIN ANALYSIS 5 Principles and Investment Strategy 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 Spread Over Reference Rate of All Floating
Slide 29: 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 30: 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 31: Portfolio Highlights – Diversification Across Borrowers & Industries
PORTFOLIO HIGHLIGHTS – DIVERSIFICATION ACROSS BORROWERS & INDUSTRIES Top 10 Borrower Diversification Industry Diversification Merative LP TRP Assets LLC Internet Services Business Services Bcto Ace Purchaser Inc (HST Pathways) PayScale Holdings, Inc. Human Resource Support Services Financial Service
Slide 32: 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 33: TSLX Asset Mix
TSLX ASSET MIX 5 Principles and Investment Strategy TSLX Portfolio Large BDC Composite Q2’24 Q2’24 Equity / Second Lien/ Other Subordinated 5% Equity / 2% Other 13% Second Lien/ Subordinated 22% First Lien 65% First Lien 93% Yield at Amortized Cost: 13.9% Yield at Amortized Cost: 11.8% Average Retur
Slide 34: 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 26% 26% $817 24% $815 25% $783 $751 18% $559 16% 14% $497 $451 11% 10% 9% $350 7% $302 $295 $217 6% $185 3% 2% 1% 2% $83 $70 1% $47 $54 $3
Slide 35: 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 98% 96% 96% 96% 96% 2.2% 2.2% 1.16 1.17 1.16 1.15 1.14 0.9% 0.9% 0.8% 1.1% 1.1
Slide 36: 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 / 82% 16% LOWER BETA INDUSTRIES1 AVERAGE REFERENCE RATE FLOORS2 0.96% 0.66% WEIGHTED AVERAGE LIFE3 1.4 years 4.4 years 102 102 100 100 98 98 99 99 99 98 98 98
Slide 37: Originations and Funding Activity
ORIGINATIONS AND FUNDING ACTIVITY 5 Principles and Investment Strategy $ Billions Origination sizes: Up to $500+ million $37.9 Target investment holds: $30 – $100 million Target position size: $20 – $105 million $10.4 $27.5 $3.3 $7.2 Originations 1 Syndications and Fundings 1 Realizations, Portfolio
Slide 38: Agenda: Appendix
AGENDA 1. Overview & Organization 6. Appendix 38 SIXTH STREET SPECIALTY LENDING
Slide 39: 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 40: 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 Q2'22, although our portfolio companies still had strong performance (measured by earnings,
Slide 41: 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 42: 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 Q2 2023 Q3 2023 Q4 2023 Q1 2024 Q2 2024 Net Investment Income Per Share $0.58 $0.57 $0.62 $0.59 $0.59 Net Income (Loss)
Slide 43: Portfolio Highlights – Selected Metrics
PORTFOLIO HIGHLIGHTS – SELECTED METRICS DOLLAR AMOUNTS IN THOUSANDS June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 Investments at Fair Value $3,088,987 $3,113,277 $3,283,065 $3,380,009 $3,317,069 Number of Portfolio Companies 130 131 136 124 109 Average Investment Si
Slide 44: 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 June 30, 2023 September 30, 2023 December 31, 2023 March 31, 2024 June 30, 2024 Assets Investments at Fair Value $3,088,987 $3,113,277 $3,283,065 $3,380
Slide 45: Net Asset Value Bridge – Q2'24
NET ASSET VALUE BRIDGE – Q2’24 $0.01 ($0.05) $0.58 ($0.46) $17.17 $17.20 $0.03 $0.03 $0.02 $17.19 $17.11 $17.13 ($0.06) ($0.08) ($0.06) 3/31/2024 Q1'24 3/31/24 Q2'24 Q2'24 Q2'24 Q2'24 NAV Q2'24 Q2'24 Q2'24 Q2'24 6/30/24 Q2'24 6/30/24 Supplemental Adjusted NAV1 Adjusted Net Reversal of Reversal of Ne
Slide 46: 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 13.3% Amortization of upfront fees1 0.9% Total Yield on Debt and Income Producing Securities 14.2% Impact of Additional fees2 0.9% Prudent Use of Leverage
Slide 47: Illustrative Interest Coverage Throughout Cycles
ILLUSTRATIVE INTEREST COVERAGE THROUGHOUT CYCLES 5 Sector Observations Illustrative Interest Coverage Illustrative Interest Coverage Debt to Equity Debt to Equity 290.97% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 290.97% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 2.51x 2.47x 2.43x 2.40x 2.37x 2.29x 6.50% 4
Slide 48: Illustrative ROE Throughout Cycles
ILLUSTRATIVE ROE THROUGHOUT CYCLES 5 Sector Observations Illustrative ROE Illustrative Illustrative ROE Interest Coverage Debt to Equity Debt Debt toto Equity Equity 14.48% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 14.48% 0.90x 0.95x 1.00x 1.05x 1.10x 1.25x 12.0% 8.2% 8.3% 8.4% 8.5% 8.7% 9.0% 6.50% 14.9%
Slide 49: 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 $40.86 $40.32 $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 $19.85 $29.83 $19.39 $29.22 $18.93 $
Slide 50: 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 51: 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 51 SIXTH STREET SPECIALTY LENDING
Slide 52: Footnotes
FOOTNOTES SIXTH STREET SPECIALTY LENDING
Slide 53: Footnotes
FOOTNOTES Slide 4: Overview 1. Reflects NAV per share adjusted for the supplemental dividend per share related to Q2 2024 earnings 2. Moody’s rating updated 9/18/2023; 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. AU
Slide 54: Footnotes
FOOTNOTES Slide 17: Strong Asset Coverage for Outstanding Notes 1. Calculated as total assets less secured borrowings divided by unsecured debt Slide 18: TSLX Liquidity and Funding Profile vs BDC Peers 1. Calculated as (total undrawn commitments under revolving credit facility + unrestricted cash) /
Slide 55: Footnotes
FOOTNOTES Slide 42: Financial Highlights 1. Adjusted to exclude the capital gains incentive fee expense that was accrued, but not paid, related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less any cumulative unrealized losses and capital gains incentive
Slide 56: TSLX Investor Relations
CONTACT US: TSLX Investor Relations IRTSLX@sixthstreet.com VISIT US: www.sixthstreetspecialtylending.com 56 SIXTH STREET SPECIALTY LENDING
Sixth Street Specialty Lending — Debt Investor Presentation (August 2024) on 6ix