Delaware

001-36364

27-3380000

(State or Other Jurisdiction

of Incorporation)

(Commission

File Number)

(I.R.S. Employer

Identification No.)

2100 McKinney Avenue, Suite 1500

Dallas, TX

75201

(Address of Principal Executive Offices)

(zip code)

☐

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

TSLX

The New York Stock Exchange

Exhibit
Number

Description

99.1

Press Release, dated February 17, 2022

SIXTH STREET SPECIALTY LENDING, INC.

(Registrant)

Date: February 17, 2022

By:

/s/ Ian Simmonds

Ian Simmonds

Chief Financial Officer

NEW YORK—February 17, 2022— Sixth Street Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today reported adjusted net investment income of $2.16 per share and adjusted net income of $3.12 per share for the year ended December 31, 2021. For the quarter ended December 31, 2021, adjusted net investment income per share was $0.63 and adjusted net income per share was $0.57.  Return on equity (ROE) for the full year 2021 was 13.6% and 19.7% on an adjusted net investment income and an adjusted net income basis, respectively. Annualized ROE for the fourth quarter 2021 was 14.6% and 13.2% on an adjusted net investment income and an adjusted net income basis, respectively.

Net Investment Income Per Share

2021 (adjusted):

Q4 2021 (adjusted):

$2.16

$0.63

2021:

Q4 2021:

$1.97

$0.63

Both adjusted net investment income per share and adjusted net income per share for the year exclude approximately $0.19 per share of capital gains incentive fee expenses that were accrued, but not paid or payable, related to cumulative gains in excess of cumulative losses less capital gains incentive fees paid inception-to-date. Including the impact of the capital gains incentive fee expenses accrued this year, the Company’s net investment income and net income for the year ended December 31, 2021 were $1.97 and $2.93, respectively. For the quarter ended December 31, 2021 net investment income and net income per share were $0.63 and $0.57, respectively. The Company’s net investment income in the fourth quarter was driven by higher fees from elevated repayment activity, as well as a robust level of interest income from the strength in the core earnings power of the portfolio.

Net Income Per Share

2021 (adjusted):

Q4 2021 (adjusted):

$3.12

$0.57

2021:

Q4 2021:

$2.93

$0.57

Reported net asset value (NAV) per share was $16.84 at December 31, 2021 as compared to $17.18 at September 30, 2021. The Company announced that its Board of Directors has declared a first quarter 2022 base dividend of $0.41 per share to shareholders of record as of March 15, 2022, payable on April 18, 2022, and a fourth quarter supplemental dividend of $0.11 per share to shareholders of record as of February 28, 2022, payable on March 31, 2022. Adjusted for the impact of the supplemental dividend, the Company’s fourth quarter pro forma NAV per share was $16.73 as compared to pro forma NAV per share of $15.86 at December 31, 2020. The primary drivers of this year’s NAV per share growth were the over-earning of our base dividend through net investment income, accretive capital markets transactions, and realized and unrealized gains on investments.

Return On Equity

2021 (Adj. NII):

Q4 2021 (Adj NII):

13.6%

14.6%

2021 (Adj. NI):

Q4 2021 (Adj NI):

19.7%

13.2%

2021 (NII):

Q4 2021 (NII):

12.4%

14.6%

2021 (NI):

Q4 2021 (NI):

18.5%

13.2%

The Company has approximately $100 million remaining principal value of 2022 convertible notes that will mature in August of this year. Similar to the method of settlement on the early conversion of a portion of these notes last year, in accordance with the requirements under the Indenture, the Company announced to holders earlier this year that the 2022 convertible notes will be settled with primarily stock and a small portion of cash, which will result in an equity issuance in Q3’22 related to the remaining principal outstanding.

Net Asset Value

Q4 2021 ($MM):

$1,275.8

Q4 2021 (per share):

$16.84

Q4 2021 (per share, PF):

$16.73

Dividends (per share)

Q4 2021 (Base):

$0.41

2021 (Base):

$1.64

2021 (Supp/Special):

$2.01

2021 (Total):

$3.65

For the year ended December 31, 2021, new investment commitments totaled $1,389.1 million. This compares to $1,184.7 million for the year ended December 31, 2020.

For the year ended December 31, 2021, the principal amount of new investments funded was $1,117.4 million in 25 new portfolio companies and 26 existing portfolio companies. For this period, the Company had $1,004.5 million aggregate principal amount in exits and repayments.

2021 Origination Activity

Commitments:

$1,389.1MM

Fundings:

$1,117.4MM

Net Fundings:

$112.8MM

For the year ended December 31, 2020, the principal amount of new investments funded was $939.0 million in 31 new portfolio companies and 27 existing portfolio companies. For this period, the Company had $941.3 million aggregate principal amount in exits and repayments.

Fourth Quarter

For the quarter ended December 31, 2021, new investment commitments totaled $835.2 million. This compares to $105.4 million for the quarter ended September 30, 2021.

Q4 2021 Origination Activity

Commitments:

$835.2MM

Fundings:

$656.3MM

Net Fundings:

$128.5MM

For the quarter ended December 31, 2021, the principal amount of new investments funded was $656.3 million across 15 new portfolio companies and 4 existing portfolio companies. For this period, the Company had $527.8 million aggregate principal amount in exits and repayments. For the quarter ended September 30, 2021, the principal amount of new investments funded was $65.4 million across five portfolio companies. For this period, the Company had $283.7 million aggregate principal amount in exits and repayments.

Average Investment Size

$35.0MM
(1.4% of the portfolio at fair value)

As of December 31, 2021 and September 30, 2021, the Company had investments in 72 and 67 portfolio companies, respectively, with an aggregate fair value of $2,521.6 million and $2,406.5 million, respectively. As of December 31, 2021, the average investment size in each portfolio company was $35.0 million based on fair value.

First Lien Debt Investments (% FV)

91.2%

As of December 31, 2021, the Company’s portfolio based on fair value consisted of 91.2% first-lien debt investments, 1.7% second-lien debt investments, 0.7% mezzanine debt investments, and 6.4% equity and other investments. As of September 30, 2021, the Company’s portfolio based on fair value consisted of 92.5% first-lien debt investments, 0.7% mezzanine debt investments, and 6.8% equity and other investments.

Floating Rate Debt Investments¹

(% FV)

98.9%

As of December 31, 2021, 98.9% of debt investments based on fair value in the portfolio bore interest at floating rates (when including investment specific hedges), with 99.4% of these subject to LIBOR 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 has 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.

For the period ended December 31, 2021 and September 30, 2021, 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 10.0% and 9.9%, 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 10.2% for both periods.

As of December 31, 2021, 100.0% of the portfolio at fair value was meeting all payment and covenant requirements.

Weighted Average Yield of Debt and Incoming-Producing Securities

Yield at Fair Value:

10.0%

Yield at Amortized Cost:

10.2%

1.       Calculation includes income earning debt investments only.

For the years ended December 31, 2021 and 2020, investment income totaled $278.6 million and $270.0 million, respectively. The increase in investment income was primarily driven by an increase in accelerated amortization of upfront fees and prepayment fees due to a higher number of paydowns, coupled with robust other fee income.

Net expenses totaled $135.8 million and $117.3 million for the years ended December 31, 2021 and 2020, respectively. This increase in net expenses was primarily driven by accrued capital gains incentive fees related to the Company’s cumulative gains in excess of cumulative losses less capital gains incentive fees paid inception‐to-date and higher management fees due to an increase in average assets.

2021

Investment Income:

$278.6MM

Net Expenses:

$135.8MM

For the three months ended December 31, 2021 and 2020, total investment income was $78.3 million and $62.2 million, respectively. The increase in total investment income resulted primarily from an increase in total interest from investments and other income.

Q4 2021

Investment Income:

$78.3MM

Net Expenses:

$32.5MM

Net expenses totaled $32.5 million and $27.7 million for the three months ended December 31, 2021 and 2020, respectively. The increase in expenses was primarily driven by higher interest expense resulting from an increase in the average debt outstanding and higher incentive fees due to an increase in pre-incentive fee net investment income.

Total Principal Debt Outstanding

$1,213.9MM

As of December 31, 2021, the Company had $16.0 million in cash and cash equivalents (including $14.4 million of restricted cash), total principal value of debt outstanding of $1,213.9 million, and $1,193.6 million of undrawn capacity on its revolving credit facility, subject to borrowing base and other limitations. At year end, aggregate commitments under the Company’s revolving credit facility were $1.51 billion, in accordance with the accordion feature.

The Company’s weighted average interest rate on debt outstanding was 2.2% and 2.3%  for the three months ended December 31, 2021 and September 30, 2021, respectively. At December 31, 2021, the Company’s debt to equity ratio was 0.95x, compared to 0.90x at September 30, 2021. Average debt to equity was 0.99x and 1.01x during the three months ended December 31, 2021 and September 30, 2021, respectively.

Debt-to-Equity Ratio

Q4 2021 Quarter End:

0.95x

2021 Average¹:

1.00x

Q4 2021 Average¹:

0.99x

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).

Revolving Credit Facility

Unfunded Commitment Activity

Revolver Capacity

$1,510

Unfunded Commitments (See Note 8 in 9/30/21 10-Q)

$191

Drawn on Revolver

($316)

Extinguished Unfunded Commitments

($29)

Unrestricted Cash Balance

$1

New Unfunded Commitments

$184

Total Liquidity (Pre-Unfunded Commitments)

$1,195

Net Drawdown of Unfunded Commitments

($14)

Available Unfunded Commitments¹

($156)

Total Unfunded Commitments

$332

Total Liquidity (Burdened for Unfunded Commitments)

$1,039

Unavailable Unfunded Commitments¹

($176)

Available Unfunded Commitments¹

$156

1.

Commitments may be subject to limitations on borrowings set forth in the agreements between the Company and the applicable portfolio company. As a result, portfolio companies may not be eligible to borrow the full commitment amount on such date.

1.

Net of Deferred Financing Costs and Interest Rate Fair Value Hedging. Deferred Financing Costs total $17.2M at 12/31/20, $23.7M at 3/31/21, $22.3M at 6/30/21, $20.8M at 9/30/21 and $19.1M at 12/31/21. Fair value hedge on interest rate swaps related to the 2024 and 2026 notes total $16.8M at 12/31/20, $2.2M at 3/31/21, $4.5M at 6/30/21, $2.5M at 9/30/21 and ($5.9M) at 12/31/21.

2.

Weighted by amortized cost of debt investments. Investments are financed by debt and equity capital.  This analysis assumes longer-dated investments are currently funded by equity capital (53% of investments) and the remaining (shorter-dated) investments (47% of investments) are currently funded by debt financing. Investments for purposes of this analysis exclude unfunded commitments, and equity capital is defined as 12/31/21 net assets.

3.

Weighted by gross commitment amount.

Three Months Ended

(unaudited)

December 31, 2021

September 30, 2020

December 31, 2020

Investments at Fair Value

$

2,521.6

$

2,406.5

$

2,298.9

Total Assets

$

2,551.9

$

2,438.5

$

2,338.6

Net Asset Value Per Share

$

16.84

$

17.18

$

17.16

Supplemental Dividend Per Share

$

0.11

$

0.07

$

0.05

Special Dividend Per Share

$

—

$

0.50

$

1.25

Pro Forma Net Asset Value Per Share ⁽¹⁾

$

16.73

$

16.61

$

15.86

Investment Income

$

78.3

$

71.2

$

62.2

Adjusted Net Investment Income ⁽²⁾

$

46.2

$

39.9

$

34.2

Adjusted Net Income ⁽²⁾

$

41.8

$

58.4

$

54.9

Accrued Capital Gains Incentive Fee Expense

$

(0.0

)

$

3.4

$

1.4

Net Investment Income

$

46.2

$

36.5

$

32.8

Net Income

$

41.8

$

55.0

$

53.5

Adjusted Net Investment Income Per Share ⁽²⁾

$

0.63

$

0.55

$

0.50

Adjusted Net Income Per Share ⁽²⁾

$

0.57

$

0.80

$

0.81

Accrued Capital Gains Incentive Fee Expense Per Share

$

(0.0

)

$

0.05

$

0.02

Net Investment Income Per Share

$

0.63

$

0.50

$

0.48

Net Income Per Share

$

0.57

$

0.75

$

0.79

Annualized Return on Equity (Adjusted Net Investment Income) ⁽²⁾⁽³⁾

14.6

%

13.0

%

12.0

%

Annualized Return on Equity (Adjusted Net Income) ⁽²⁾⁽³⁾

13.2

%

19.0

%

19.2

%

Annualized Return on Equity (Net Investment Income) ⁽³⁾

14.6

%

11.9

%

11.5

%

Annualized Return on Equity (Net Income) ⁽³⁾

13.2

%

17.9

%

18.7

%

Weighted Average Yield of Debt and Income Producing Securities at Fair Value

10.0

%

9.9

%

10.0

%

Weighted Average Yield of Debt and Income Producing Securities at Amortized Cost

10.2

%

10.2

%

10.2

%

Percentage of Debt Investment Commitments at Floating Rates ⁽⁴⁾

98.9

%

98.9

%

99.1

%

1.

Pro forma net asset value per share gives effect to the supplemental dividend declared related to earnings or special dividend in the applicable period.

2.

Adjusted to exclude the capital gains incentive fee 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 fees paid inception to date.

3.

Return on equity is calculated using prior period’s ending net asset value per share.

4.

Includes one or more fixed rate investments for which the Company entered into an interest rate swap agreement to swap to floating rate. Calculation includes income earning debt investments only.

December 31,

December 31,

2021

2020

Assets

Investments at fair value

Non-controlled, non-affiliated investments (amortized cost of $2,354,984 and $2,187,427, respectively)

$

2,434,797

$

2,249,302

Non-controlled, affiliated investments (amortized cost of $12,666 and $12,892, respectively)

27,017

12,892

Controlled, affiliated investments (amortized cost of $64,362 and $58,709, respectively)

59,779

36,676

Total investments at fair value (amortized cost of $2,432,012 and $2,259,028, respectively)

2,521,593

2,298,870

Cash and cash equivalents (restricted cash of $14,399 and $10,815, respectively)

15,967

13,274

Interest receivable

10,775

8,583

Prepaid expenses and other assets

3,522

17,866

Total Assets

$

2,551,857

$

2,338,593

Liabilities

Debt (net of deferred financing costs of $19,147 and $17,246, respectively)

$

1,185,964

$

1,110,363

Management fees payable to affiliate

9,380

8,435

Incentive fees on net investment income payable to affiliate

9,789

7,252

Incentive fees on net capital gains accrued to affiliate

14,928

1,421

Dividends payable

30,926

27,728

Other payables to affiliate

3,149

2,632

Other liabilities

21,873

19,447

Total Liabilities

1,276,009

1,177,278

Commitments and contingencies (Note 8)

Net Assets

Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares

   issued and outstanding

—

—

Common stock, $0.01 par value; 400,000,000 shares authorized, 76,067,586

   and 67,980,253 shares issued, respectively; and 75,771,542 and 67,684,209

   shares outstanding, respectively

761

680

Additional paid-in capital

1,189,275

1,025,676

Treasury stock at cost; 296,044 and 296,044 shares held, respectively

(4,291

)

(4,291

)

Distributable earnings

90,103

139,250

Total Net Assets

1,275,848

1,161,315

Total Liabilities and Net Assets

$

2,551,857

$

2,338,593

Net Asset Value Per Share

$

16.84

$

17.16

Year Ended

Year Ended

Year Ended

December 31, 2021

December 31, 2020

December 31, 2019

Income

Investment income from non-controlled, non-affiliated investments:

Interest from investments

$

261,782

$

237,260

$

224,810

Dividend income

3,426

1,816

420

Other income

7,751

22,174

13,838

Total investment income from non-controlled, non-affiliated

   investments

272,959

261,250

239,068

Investment income from non-controlled, affiliated investments:

Interest from investments

838

4,606

6,370

Dividend income

740

—

—

Other income

—

368

88

Total investment income from non-controlled, affiliated

   investments

1,578

4,974

6,458

Investment income from controlled, affiliated investments:

Interest from investments

4,039

3,809

5,958

Other income

17

4

11

Total investment income from controlled, affiliated investments

4,056

3,813

5,969

Total Investment Income

278,593

270,037

251,495

Expenses

Interest

38,825

39,402

49,110

Management fees

37,081

32,105

30,104

Incentive fees on net investment income

33,062

31,483

27,211

Incentive fees on net capital gains

13,507

1,421

—

Professional fees

6,586

6,775

6,530

Directors’ fees

743

825

595

Other general and administrative

6,236

5,262

5,912

Total expenses

136,040

117,273

119,462

Management and incentive fees waived (Note 3)

(190

)

—

—

Net Expenses

135,850

117,273

119,462

Net Investment Income Before Income Taxes

142,743

152,764

132,033

Income taxes, including excise taxes

384

5,760

3,750

Net Investment Income

142,359

147,004

128,283

Unrealized and Realized Gains (Losses)

Net change in unrealized gains (losses):

Non-controlled, non-affiliated investments

17,938

10,304

29,432

Non-controlled, affiliated investments

14,350

2,785

1,272

Controlled, affiliated investments

17,450

18,862

(12,381

)

Translation of other assets and liabilities in foreign currencies

(591

)

(5,068

)

(3,255

)

Interest rate swaps

(6,699

)

6,812

9,194

Income tax provision

(1,902

)

—

—

Total net change in unrealized gains (losses)

40,546

33,695

24,262

Realized gains (losses):

Non-controlled, non-affiliated investments

28,849

25,382

5,482

Non-controlled, affiliated investments

(33

)

7,854

—

Controlled, affiliated investments

—

(36,352

)

(3,594

)

Extinguishment of debt

—

739

—

Interest rate swaps

—

(62

)

41

Foreign currency transactions

59

(152

)

109

Total net realized gains (losses)

28,875

(2,591

)

2,038

Total Unrealized and Realized Gains (Losses)

69,421

31,104

26,300

Increase in Net Assets Resulting from Operations

$

211,780

$

178,108

$

154,583

Earnings per common share—basic

$

2.93

$

2.65

$

2.34

Weighted average shares of common stock outstanding—basic

72,169,488

$

67,209,078

$

66,069,305

Earnings per common share—diluted

$

2.79

$

2.65

$

2.34

Weighted average shares of common stock outstanding—diluted

77,702,258

67,209,078

66,069,305

For the Year Ended December 31,

($ in millions)

2021

2020

2019

New investment commitments:

Gross originations

$

4,269.9

$

3,296.8

$

3,007.0

Less: Syndications/sell downs

3,152.5

2,112.1

1,773.5

Total new investment commitments

$

1,117.4

$

1,184.7

$

1,233.5

Principal amount of investments funded:

First-lien

$

1,022.1

$

909.6

$

1,055.7

Second-lien

43.5

5.2

12.4

Mezzanine

6.1

4.1

—

Equity and other

45.7

20.1

19.5

Total

$

1,117.4

$

939.0

$

1,087.6

Principal amount of investments sold or repaid:

First-lien

$

962.6

$

922.1

$

567.1

Second-lien

5.8

4.4

0.8

Mezzanine

—

—

—

Equity and other

36.1

14.8

7.3

Total

$

1,004.5

$

941.3

$

575.2

Number of new investment commitments in new portfolio

   companies

25

31

32

Average new investment commitment amount in new portfolio

   companies

$

47.5

$

30.9

$

28.7

Weighted average term for new investment commitments in new

   portfolio companies (in years)

5.3

4.6

4.6

Percentage of new debt investment commitments at floating

   rates ⁽¹⁾

99.5

%

98.8

%

98.7

%

Percentage of new debt investment commitments at fixed rates

0.5

%

1.2

%

1.3

%

Weighted average interest rate of new investment commitments

9.2

%

10.2

%

10.2

%

Weighted average spread over LIBOR of new floating rate

   investment commitments

9.0

%

10.0

%

8.0

%

Weighted average interest rate on investments sold or paid down

9.1

%

9.7

%

11.8

%

1.

Includes one fixed rate investment for the year ended December 31, 2020 and two fixed rate investments for the year ended December 31, 2019 for which we entered into interest rate swap agreements to swap to floating rates.