UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): February 20, 2019
TPG Specialty Lending, Inc.
(Exact name of registrant as specified in charter)
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Delaware |
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001-36364 |
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27-3380000 |
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(State or Other Jurisdiction of Incorporation) |
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(Commission File Number) |
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(I.R.S. Employer Identification No.) |
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301 Commerce Street, Suite 3300 Fort Worth, TX |
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76102 |
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(Address of Principal Executive Offices) |
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(zip code) |
Registrant’s telephone number, including area code: (817) 871-4000
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02 – Results of Operations and Financial Condition
On February 20, 2019, the registrant issued a press release announcing its financial results for the quarter and year ended December 31, 2018. The text of the press release is included as Exhibit 99.1 to this Form 8-K.
The information disclosed under this Item 2.02, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.
Item 7.01 – Regulation FD Disclosure
On February 20, 2019, the registrant issued a press release, included herewith as Exhibit 99.1, announcing the declaration of a first fiscal quarter 2019 base dividend of $0.39 per share for stockholders of record as of March 15, 2019, payable on April 15, 2019, and a quarterly supplemental dividend of $0.12 per share for stockholders of record as of February 28, 2019, payable on March 29, 2019.
The information disclosed under this Item 7.01, including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.
Item 9.01 – Financial Statements and Exhibits
(d) Exhibits:
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Exhibit |
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Description |
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99.1 |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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TPG SPECIALTY LENDING, INC. (Registrant) |
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Date: February 20, 2019 |
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By: |
/s/ Ian Simmonds |
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Ian Simmonds |
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Chief Financial Officer |
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Exhibit 99.1
Full Year and Fourth Quarter 2018 Earnings Results
TPG Specialty Lending, Inc. Reports Full Year and Fourth Quarter 2018 Earnings Results; Declares a Fourth Quarter Supplemental Dividend Per Share of $0.12 and a First Quarter Base Dividend Per Share of $0.39
NEW YORK—February 20, 2019— TPG Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today reported net investment income of $143.9 million, or $2.25 per share, and net income of $119.0 million, or $1.86 per share, for the year ended December 31, 2018. For the quarter ended December 31, 2018, net investment income was $44.1 million, or $0.67 per share, and net income was $14.2 million, or $0.22 per share. Reported net asset value per share was $16.25 at December 31, 2018 as compared to $16.47 at September 30, 2018.
The difference between this quarter’s net investment income per share and net income per share was primarily driven by $0.23 per share of unrealized losses from the impact of widening credit spreads on the valuation of the Company’s portfolio and $0.29 per share of reversal of net unrealized gains from full investment realizations. This was partially offset by unrealized mark-to-market gains of $0.10 per share related to the Company’s interest rate swaps resulting from a flattening of the forward LIBOR curve during the quarter.
Return on equity (ROE) for the full year 2018 was 14.0% and 11.6% on a net investment income and a net income basis, respectively. Annualized ROE for the fourth quarter 2018 was 16.4% and 5.3% on a net investment income and a net income basis, respectively.
The Company announced that its Board of Directors has declared a first quarter 2019 base dividend of $0.39 per share for stockholders of record as of March 15, 2019, payable on April 15, 2019. The Company’s Board of Directors also declared a fourth quarter supplemental dividend of $0.12 per share for stockholders of record as of February 28, 2019, payable on March 29, 2019.
The Company’s Board of Directors also approved an extension of its stock repurchase plan (“Company 10b5-1 Plan”) to acquire up to $50 million in the aggregate of TSLX’s common stock at prices just below TSLX’s net asset value per share, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934. Unless extended or terminated by its Board of Directors, the Company expects that the stock repurchase plan will be in effect through the earlier of August 31, 2019, or such time as the approved $50 million repurchase amount has been fully utilized, subject to certain conditions. Under the Company 10b5-1 Plan, no shares were repurchased during the fiscal year ended December 31, 2018.
In February 2019, the Company entered into an amendment to the Revolving Credit Facility. Under the terms of the amendment, aggregate commitments under the facility were increased to $1.17 billion, the accordion was increased to allow for commitments of up to $1.50 billion, and the stated maturity date has been extended to February 2024. Other key terms of the Revolving Credit Facility remain unchanged.
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Net Investment Income |
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2018 ($MM): 4Q18 ($MM): |
$143.9 $44.1 |
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2018 (per share): 4Q18 (per share): |
$2.25 $0.67 |
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Net Income |
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2018 ($MM): 4Q18 ($MM): |
$119.0 $14.2 |
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2018 (per share): 4Q18 (per share): |
$1.86 $0.22 |
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NAV |
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4Q18 ($MM): |
$1,063.2 |
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4Q18 (per share): |
$16.25 |
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4Q18 (per share, PF): |
$16.13 |
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ROE |
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2018 (NII): 4Q18 (NII, annualized): |
14.0% 16.4% |
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2018 (NI): 4Q18 (NI, annualized): |
11.6% 5.3% |
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Dividend (per share) |
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4Q18 (Supp.): |
$0.12 |
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1Q19 (Base): |
$0.39 |
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2018 (Base): 2018 (Supp.): 2018 (Total): |
$1.56 $0.31 $1.87 |
1
Portfolio and Investment Activity
For the year ended December 31, 2018, gross originations totaled $2,199.4 million. This compares to $2,251.5 million for the year ended December 31, 2017.
For the year ended December 31, 2018, the principal amount of new investments funded was $816.9 million in 19 new portfolio companies and 14 existing portfolio companies. For this period, the Company had $790.3 million aggregate principal amount in exits and repayments.
For the year ended December 31, 2017, the principal amount of new investments funded was $989.3 million in 22 new portfolio companies and 12 existing portfolio companies. For this period, the Company had $951.5 million aggregate principal amount in exits and repayments.
Fourth Quarter
For the quarter ended December 31, 2018, gross originations totaled $373.4 million. This compares to $1,066.7 million for the quarter ended December 31, 2017.
For the quarter ended December 31, 2018, the principal amount of new investments funded was $147.7 million in 4 new portfolio companies and 6 existing portfolio companies. For this period, the Company had $382.6 million aggregate principal amount in exits and repayments.
For the quarter ended December 31, 2017, the principal amount of new investments funded was $271.8 million in 5 new portfolio companies and 2 existing portfolio companies. For this period, the Company had $136.4 million aggregate principal amount in exits and repayments.
As of December 31, 2018 and December 31, 2017, the Company had investments in 46 and 45 portfolio companies, respectively, with an aggregate fair value of $1,706.0 million and $1,693.7 million, respectively. As of December 31, 2018, the average investment size in each portfolio company was $37.1 million based on fair value.
As of December 31, 2018, the Company’s portfolio based on fair value consisted of 96.9% first-lien debt investments, 0.2% second-lien debt investments, 0.2% mezzanine investments, and 2.7% equity and other investments. As of December 31, 2017, the Company’s portfolio based on fair value consisted of 93.4% first-lien debt investments, 3.6% second-lien debt investments, and 3.0% equity and other investments. As of December 31, 2018 and December 31, 2017, approximately 97.1% and 97.0% of the portfolio was invested in secured debt, respectively.
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2018 |
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Gross Originations: $2,199.4MM Fundings: $816.9MM Net Fundings: $26.6MM |
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4Q18 |
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Gross Originations: $373.4MM Fundings: $147.7MM Net Fundings: ($234.8MM) |
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Average Investment Size |
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$37.1MM |
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First Lien Debt Investments (% FV) |
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96.9% |
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Secured Debt Investments (% FV) |
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97.1% |
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As of December 31, 2018, 99.7% of debt investments based on fair value in the portfolio bore interest at floating rates (when including investment specific hedges), with 93.4% of these subject to interest rate floors. The Company’s credit facilities also bear interest at floating rates. In connection with the Company’s Convertible Notes and other Notes, which bear interest at fixed rates, the Company 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.
As of December 31, 2018 and September 30, 2018, 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 11.6% and 11.1%, 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 11.7% and 11.3%, respectively.
As of December 31, 2018, 100% of the portfolio at fair value was meeting all payment and covenant requirements, and no investments were on non-accrual status.
3
Results of Operations for the Full Year and Quarter Ended December 31, 2018
For the years ended December 30, 2018 and 2017, investment income totaled $261.9 million and $210.9 million, respectively. The increase in investment income was primarily driven by an increase in the average size of the investment portfolio, an increase in prepayment fees, and an increase in other income.
Net expenses totaled $114.6 million and $87.8 million for the years ended December 31, 2018 and 2017, respectively. This increase in net expenses was primarily driven by an increase in interest expense. This was due to an increase in the average debt outstanding, an increase in the average interest rate on the debt outstanding due to an increase in LIBOR, and a change in the mix of the Company’s debt funding sources.
Fourth Quarter
For the quarters ended December 30, 2018 and 2017, investment income totaled $74.7 million and $48.8 million, respectively. The increase in investment income was primarily driven by an increase in the effective LIBOR on income producing investments, an increase in prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns.
Net expenses totaled $29.7 million and $21.4 million for the quarters ended December 30, 2018 and 2017, respectively. This increase in net expenses was primarily due to an increase in interest expense following an increase in the average interest rate on the debt outstanding due to an increase in LIBOR, and higher management and incentive fees.
Liquidity and Capital Resources
As of December 31, 2018, the Company had $10.6 million in cash and cash equivalents, including $7.3 million of restricted cash, total principal value of debt outstanding of $625.0 million, and $752.5 million of undrawn capacity on its revolving credit facility, subject to borrowing base and other limitations. The Company’s weighted average interest rate on debt outstanding was 4.5% and 4.3% for the quarters ended December 31, 2018 and September 30, 2018, respectively. Average debt to equity was 0.71x and 0.91x during the quarters ended December 31, 2018 and September 30, 2018, respectively.
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(1) |
Daily average debt outstanding during the quarter divided by the daily average net assets during the quarter. Daily average net assets is calculated by starting with the prior quarter end net asset value and adjusting for capital activity during the quarter (adding common stock offerings / DRIP contributions). |
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Conference Call and Webcast
Conference Call Information:
A conference call to discuss the Company’s financial results will be held live at 8:30 a.m. Eastern Time on February 21, 2019. Please visit TSLX’s webcast link located on the Events & Presentations page of the Investor Resources section of TSLX’s website http://www.tpgspecialtylending.com for a slide presentation that complements the Earnings Conference Call. Please visit the website to test your connection before the webcast.
Participants are also invited to access the conference call by dialing one of the following numbers:
Domestic: (877) 359-9508
International: +1 (253) 237-1122
Conference ID: 6389804
All callers will need to enter the Conference ID followed by the # sign and reference “TPG Specialty Lending” once connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected.
Replay Information:
An archived replay will be available from approximately 12:00 p.m. Eastern Time on February 21 through February 28 via a webcast link located on the Investor Resources section of TSLX’s website, and via the dial-in numbers listed below:
Domestic: (855) 859-2056
International: +1 (404) 537-3406
Conference ID: 6389804
5
Financial Highlights
(Amounts in millions, except per share amounts)
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Three Months Ended |
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(unaudited) |
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December 31, 2018 |
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September 30, 2018 |
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December 31, 2017 |
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Investments at Fair Value |
$ |
1,706.0 |
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$ |
1,981.9 |
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$ |
1,693.7 |
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Total Assets |
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1,730.3 |
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$ |
2,007.0 |
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$ |
1,720.2 |
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Net Asset Value Per Share |
$ |
16.25 |
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$ |
16.47 |
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$ |
16.09 |
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Supplemental Dividend Per Share |
$ |
0.12 |
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$ |
0.05 |
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$ |
0.03 |
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Pro Forma Net Asset Value Per Share(1) |
$ |
16.13 |
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$ |
16.42 |
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$ |
16.06 |
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Investment Income |
$ |
74.7 |
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$ |
63.0 |
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$ |
48.8 |
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Net Investment Income |
$ |
44.1 |
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$ |
32.3 |
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$ |
26.9 |
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Net Income |
$ |
14.2 |
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$ |
37.4 |
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$ |
26.7 |
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Net Investment Income Per Share |
$ |
0.67 |
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$ |
0.50 |
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$ |
0.45 |
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Net Realized and Unrealized Gains (and Losses) Per Share |
$ |
(0.45) |
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$ |
0.07 |
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$ |
(0.01 |
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Net Income Per Share |
$ |
0.22 |
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$ |
0.57 |
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$ |
0.44 |
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Annualized Return on Equity (Net Investment Income)(2) |
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16.4 |
% |
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12.1 |
% |
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11.1 |
% |
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Annualized Return on Equity (Net Income)(2) |
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5.3 |
% |
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14.0 |
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11.0 |
% |
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Weighted Average Yield of Debt and Income Producing Securities at Fair Value |
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11.6 |
% |
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11.1 |
% |
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10.7 |
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Weighted Average Yield of Debt and Income Producing Securities at Amortized Cost |
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11.7 |
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11.3 |
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10.8 |
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Percentage of Debt Investment Commitments at Floating Rates (3) |
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99.7 |
% |
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99.8 |
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100.0 |
% |
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(1) |
Pro Forma Net Asset Value Per Share gives effect to the supplemental dividend declared related to earnings in the applicable period. |
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(2) |
Return on equity is calculated using prior period’s ending net asset value per share. |