NEW YORK—February 16, 2023— Sixth Street Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today reported net investment income of $2.13 per share and net income of $1.38 per share, for the year ended December 31, 2022. For the quarter ended December 31, 2022 net investment income and net income per share were $0.65 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. Return on equity (ROE) for the full year 2022 was 12.7% and 8.3% on a net investment income and a net income basis, respectively. Annualized ROE for the fourth quarter 2022 was 15.9% and 14.0% on a net investment income and a net income basis, respectively.

Net Investment Income Per Share

2022:

Q4 2022:

$2.13

$0.65

2022 (adjusted):

Q4 2022 (adjusted):

$2.01

$0.64

Both net investment income per share and net income per share for the year include approximately $0.11 per share unwind of previously accrued capital gains incentive fees in 2022, which is a non-cash reversal. Excluding the impact of the unwind of capital gains incentive fee expenses for the year, the Company’s adjusted net investment income and adjusted net income for the year ended December 31, 2022 were $2.01 per share $1.27 per share, respectively. For the quarter ended December 31, 2022, adjusted net investment income per share was $0.64 and adjusted net income per share was $0.56. Return on equity (ROE) for the full year 2022 was 12.0% and 7.6% on an adjusted net investment income and an adjusted net income basis, respectively. Annualized ROE for the fourth quarter 2022 was 15.5% and 13.6% on an adjusted net investment income and an adjusted net income basis, respectively.

Net Income Per Share

2022:

Q4 2022:

$1.38

$0.57

2022 (adjusted):

Q4 2022 (adjusted):

$1.27

$0.56

Reported net asset value (NAV) per share was $16.48 at December 31, 2022 as compared to $16.36 at September 30, 2022. The Company announced that its Board of Directors has increased its quarterly base dividend, raising this figure by $0.01 per share to $0.46 per share to shareholders of record as of March 15, and payable on March 31. The Board also announced a fourth quarter supplemental dividend of $0.09 per share to shareholders of record as of February 28, 2023, payable on March 20, 2023. Giving effect to the impact of the supplemental dividend, the Company’s fourth quarter adjusted NAV per share was $16.39 as compared to adjusted NAV per share of $16.73 at December 31, 2021. The primary driver of this year’s NAV per share decline was from unrealized losses as the Company incorporated the impact of wider credit market spreads on the valuation of its portfolio.

Return On Equity

2022 (NII):

Q4 2022 (NII):

12.7%

15.9%

2022 (NI):

Q4 2022 (NI):

8.3%

14.0%

2022 (Adj. NII):

Q4 2022 (Adj. NII):

12.0%

15.5%

2022 (Adj. NI):

Q4 2022 (Adj. NI):

7.6%

13.6%

Post-quarter end, the Company satisfied the maturity of its $150 million January 2023 unsecured notes through utilization of undrawn capacity on its revolving credit facility. The settlement marginally decreased the Company’s weighted average cost of debt and had no impact on leverage.

Net Asset Value

Q4 2022 ($MM):

$1,341.6

Q4 2022 (per share):

$16.48

Q4 2022 (per share, adj.):

$16.39

Dividends (per share)

Q4 2022 (Base):

$0.45

2022 (Base):

$1.69

2022 (Supp/Special):

$0.13

2022 (Total):

$1.82

For the year ended December 31, 2022, new investment commitments totaled $1,084.2 million. This compares to $1,389.1 million for the year ended December 31, 2021.

For the year ended December 31, 2022, the principal amount of new investments funded was $864.0 million in 24 new portfolio companies, 22 existing portfolio companies and 41 structured credit investments. For this period, the Company had $653.8 million aggregate principal amount in exits and repayments.

2022 Origination Activity

Commitments:

$1,084.2MM

Fundings:

$864.0MM

Net Fundings:

$210.2MM

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.

Fourth Quarter

For the quarter ended December 31, 2022, new investment commitments totaled $241.4 million. This compares to $384.6 million for the quarter ended September 30, 2022.

Q4 2022 Origination Activity

Commitments:

$241.4MM

Fundings:

$211.9MM

Net Repayments:

$69.7MM

For the quarter ended December 31, 2022, the principal amount of new investments funded was $211.9 million across 7 new portfolio companies, 5 existing portfolio companies and 1 structured credit position. For this period, the Company had $281.6 million aggregate principal amount in exits and repayments. For the quarter ended September 30, 2022, the principal amount of new investments funded was $274.4 million across 7 new portfolio companies, 6 existing portfolio companies and 18 structured credit investments. For this period, the Company had $15.8 million aggregate principal amount in exits and repayments.

Average Investment Size¹

$35.1MM
(1.3% of the portfolio at fair value)

As of December 31, 2022 and September 30, 2022, the Company had investments in 78¹ and 75² portfolio companies, respectively, with an aggregate fair value of $2,787.9 million and $2,806.1 million, respectively. As of December 31, 2022, the average investment size in each portfolio company was $35.1¹ million based on fair value.

First Lien Debt Investments (% FV)

90.3%

As of December 31, 2022, the Company’s portfolio based on fair value consisted of 90.3% first-lien debt investments, 1.5% second-lien debt investments, 1.8% structured credit investments, 0.4% mezzanine debt investments, and 6.0% equity and other investments. As of September 30, 2022, the Company’s portfolio based on fair value consisted of 90.4% first-lien debt investments, 1.5% second-lien debt investments, 1.8% structured credit investments, 0.4% mezzanine investments, and 5.9% equity and other investments.

Floating Rate Debt Investments³

(% FV)

98.9%

As of December 31, 2022, 98.9% of debt investments based on fair value in the portfolio bore interest at floating rates, with 100.0% of these subject to reference rate floors. The Company’s credit facilities also bear interest at floating rates. In connection with the Company’s Unsecured 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, 2022 and September 30, 2022, 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 13.5% and 12.3%, 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 13.4% and 12.2%, respectively.

As of December 31, 2022, non-accrual investments represented less than 0.01% of the portfolio at fair value.

Weighted Average Yield of Debt and Incoming-Producing Securities

Yield at Fair Value:

13.5%

Yield at Amortized Cost:

13.4%

1.       As of December 31, 2022, excludes 43 structured credit investments with a total fair value of $51.4 million.

2.      As of September 30, 2022, excludes 43 structured credit investments with a total fair value of $52.0 million.  

3.      Calculation includes income earning debt investments only.

For the years ended December 31, 2022 and 2021, investment income totaled $309.3 million and $278.6 million, respectively. The increase in investment income was primarily the result of higher interest from investments driven by increased all-in yields.

Net expenses totaled $140.4 million and $135.8 million for the years ended December 31, 2022 and 2021, respectively. The increase in net expenses was primarily due to the upward movement in reference rates which increased the Company’s weighted average interest rate on average debt outstanding.

2022

Investment Income:

$309.3MM

Net Expenses:

$140.4MM

For the three months ended December 31, 2022 and 2021, total investment income was $100.1 million and $78.3 million, respectively. The increase in total investment income was primarily the result of higher interest from investments driven by increased all-in yields.

Q4 2022

Investment Income:

$100.1MM

Net Expenses:

$46.4MM

Net expenses totaled $46.4 million and $32.5 million for the three months ended December 31, 2022 and 2021, 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

$1,516.8MM

As of December 31, 2022, the Company had $25.6 million in cash and cash equivalents (including $15.4 million of restricted cash), total principal value of debt outstanding of $1,516.8 million, and $865.7 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 $1.585 billion, in accordance with the accordion feature.

The Company’s weighted average interest rate on debt outstanding was 5.6% and 4.3% for the three months ended December 31, 2022 and September 30, 2022, respectively. At December 31, 2022, the Company’s debt to equity ratio was 1.13x, compared to 1.16x at September 30, 2022. Average debt to equity was 1.14x and 1.15x during the three months ended December 31, 2022 and September 30, 2022, respectively.

Debt-to-Equity Ratio

Q4 2022 Quarter End:

1.13x

2022 Average¹:

1.03x

Q4 2022 Average¹:

1.14x

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

$1,585

Unfunded Commitments (See Note 8 in 9/30/22 10-Q)

$394

Drawn on Revolver

($719)

Extinguished Unfunded Commitments

($50)

Unrestricted Cash Balance

$10

New Unfunded Commitments

$30

Total Liquidity (Pre-Unfunded Commitments)

$876

Net Drawdown of Unfunded Commitments

($38)

Available Unfunded Commitments¹

($178)

Total Unfunded Commitments

$336

Total Liquidity (Burdened for Unfunded Commitments)

$698

Unavailable Unfunded Commitments¹

($158)

Available Unfunded Commitments¹

$178

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 $19.1M at 12/31/21, $17.8M at 3/31/22, $20.6M at 6/30/22, $19.1M at 9/30/22 and $17.8M at 12/31/22. Fair value hedge on interest rate swaps related to the 2024 and 2026 notes total $2.5M at 9/30/21, ($5.9M) at 12/31/21, ($33.0M) at 3/31/22, ($41.1M) at 6/30/22, ($58.3M) at 9/30/22 and ($55.1M) at 12/31/22.

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 (48% of investments) and the remaining (shorter-dated) investments (52% of investments) are currently funded by debt financing. Investments for purposes of this analysis exclude unfunded commitments, and equity capital is defined as 12/31/22 net assets.

3.

Weighted by gross commitment amount.

Three Months Ended

(unaudited)

December 31, 2022

September 30, 2022

December 31, 2021

Investments at Fair Value

$

2,787.9

$

2,806.1

$

2,521.6

Total Assets

$

2,836.9

$

2,859.7

$

2,551.9

Net Asset Value Per Share

$

16.48

$

16.36

$

16.84

Supplemental Dividend Per Share

$

0.09

$

0.00

$

0.11

Special Dividend Per Share

$

—

$

—

$

—

Adjusted Net Asset Value Per Share ⁽¹⁾

$

16.39

$

16.36

$

16.73

Investment Income

$

100.1

$

77.8

$

78.3

Net Investment Income

$

52.6

$

37.2

$

46.2

Net Income

$

46.3

$

34.4

$

41.8

Accrued Capital Gains Incentive Fee Expense

$

(1.1

)

$

(0.0

)

$

(0.0

)

Adjusted Net Investment Income ⁽²⁾

$

51.5

$

37.2

$

46.2

Adjusted Net Income ⁽²⁾

$

45.1

$

34.4

$

41.8

Net Investment Income Per Share

$

0.65

$

0.47

$

0.63

Net Income (Loss) Per Share

$

0.57

$

0.43

$

0.57

Accrued Capital Gains Incentive Fee Expense Per Share

$

(0.01

)

$

(0.00

)

$

(0.00

)

Adjusted Net Investment Income Per Share ⁽²⁾

$

0.64

$

0.47

$

0.63

Adjusted Net Income (Loss) Per Share ⁽²⁾

$

0.56

$

0.43

$

0.57

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

15.9

%

11.5

%

14.6

%

Annualized Return on Equity (Net Income) ⁽³⁾

14.0

%

10.7

%

13.2

%

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

15.5

%

11.5

%

14.6

%

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

13.6

%

10.6

%

13.2

%

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

13.5

%

12.3

%

10.0

%

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

13.4

%

12.2

%

10.2

%

Percentage of Debt Investment Commitments at Floating Rates ⁽⁴⁾

98.9

%

98.9

%

98.9

%

1.

Adjusted 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,

2022

2021

Assets

Investments at fair value

Non-controlled, non-affiliated investments (amortized cost of $2,707,442 and $2,354,984, respectively)

$

2,717,170

$

2,434,797

Non-controlled, affiliated investments (amortized cost of $0 and $12,666, respectively)

—

27,017

Controlled, affiliated investments (amortized cost of $67,284 and $64,362, respectively)

70,755

59,779

Total investments at fair value (amortized cost of $2,774,726 and $2,432,012, respectively)

2,787,925

2,521,593

Cash and cash equivalents (restricted cash of $15,437 and $14,399 respectively)

25,647

15,967

Interest receivable

18,846

10,775

Prepaid expenses and other assets

4,529

3,522

Total Assets

$

2,836,947

$

2,551,857

Liabilities

Debt (net of deferred financing costs of $17,760 and $19,147, respectively)

$

1,441,796

$

1,185,964

Management fees payable to affiliate

10,526

9,380

Incentive fees on net investment income payable to affiliate

10,918

9,789

Incentive fees on net capital gains accrued to affiliate

6,064

14,928

Dividends payable

—

30,926

Other payables to affiliate

3,265

3,149

Other liabilities

22,809

21,873

Total Liabilities

1,495,378

1,276,009

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, 82,053,537

   and 76,067,586 shares issued, respectively; and 81,389,287 and 75,771,542

   shares outstanding, respectively

821

761

Additional paid-in capital

1,294,751

1,189,275

Treasury stock at cost; 664,250 and 296,044 shares held, respectively

(10,459

)

(4,291

)

Distributable earnings

56,456

90,103

Total Net Assets

1,341,569

1,275,848

Total Liabilities and Net Assets

$

2,836,947

$

2,551,857

Net Asset Value Per Share

$

16.48

$

16.84

Year Ended

Year Ended

Year Ended

December 31, 2022

December 31, 2021

December 31, 2020

Income

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

Interest from investments

$

292,442

$

261,782

$

237,260

Dividend income

2,159

3,426

1,816

Other income

9,502

7,751

22,174

Total investment income from non-controlled, non-affiliated investments

304,103

272,959

261,250

Investment income from non-controlled, affiliated investments:

Interest from investments

133

838

4,606

Dividend income

—

740

—

Other income

—

—

368

Total investment income from non-controlled, affiliated investments

133

1,578

4,974

Investment income from controlled, affiliated investments:

Interest from investments

5,064

4,039

3,809

Other income

5

17

4

Total investment income from controlled, affiliated investments

5,069

4,056

3,813

Total Investment Income

309,305

278,593

270,037

Expenses

Interest

62,991

38,825

39,402

Management fees

39,900

37,081

32,105

Incentive fees on net investment income

33,401

33,062

31,483

Incentive fees on net capital gains

(8,864

)

13,507

1,421

Professional fees

7,192

6,586

6,775

Directors’ fees

736

743

825

Other general and administrative

5,427

6,236

5,262

Total expenses

140,783

136,040

117,273

Management fees waived (Note 3)

(427

)

(190

)

—

Net Expenses

140,356

135,850

117,273

Net Investment Income Before Income Taxes

168,949

142,743

152,764

Income taxes, including excise taxes

2,622

384

5,760

Net Investment Income

166,327

142,359

147,004

Unrealized and Realized Gains (Losses)

Net change in unrealized gains (losses):

Non-controlled, non-affiliated investments

(70,085

)

17,938

10,304

Non-controlled, affiliated investments

(14,350

)

14,350

2,785

Controlled, affiliated investments

8,054

17,450

18,862

Translation of other assets and liabilities in foreign currencies

8,721

(591

)

(5,068

)

Interest rate swaps

(6,748

)

(6,699

)

6,812

Income tax provision

(561

)

(1,902

)

—

Total net change in unrealized gains (losses)

(74,969

)

40,546

33,695

Realized gains (losses):

Non-controlled, non-affiliated investments

1,072

28,849

25,382

Non-controlled, affiliated investments

13,608

(33

)

7,854

Controlled, affiliated investments

55

—

(36,352

)

Extinguishment of debt

—

—

739

Interest rate swaps

2,251

—

(62

)

Foreign currency transactions

(291

)

59

(152

)

Total net realized gains (losses)

16,695

28,875

(2,591

)

Total Net Unrealized and Realized Gains (Losses)

(58,274

)

69,421

31,104

Increase in Net Assets Resulting from Operations

$

108,053

$

211,780

$

178,108

Earnings per common share—basic

$

1.38

$

2.93

$

2.65

Weighted average shares of common stock outstanding—basic

78,197,826

72,169,488

67,209,078

Earnings per common share—diluted

$

1.38

$

2.79

$

2.65

Weighted average shares of common stock outstanding—diluted

78,197,826

77,702,258

67,209,078

For the Year Ended December 31,

($ in millions)

2022

2021

2020

New investment commitments:

Gross originations

$

4,240.9

$

4,269.9

$

3,296.8

Less: Syndications/sell downs

3,156.7

3,152.5

2,112.1

Total new investment commitments

$

1,084.2

$

1,117.4

$

1,184.7

Principal amount of investments funded:

First-lien

$

761.7

$

1,022.1

$

909.6

Second-lien

—

43.5

5.2

Mezzanine

—

6.1

4.1

Equity and other

44.8

—

7.2

Structured credit

57.5

45.7

12.9

Total

$

864.0

$

1,117.4

$

939.0

Principal amount of investments sold or repaid:

First-lien

$

645.4

$

962.6

$

922.1

Second-lien

—

5.8

4.4

Mezzanine

—

—

—

Equity and other

4.3

31.7

12.5

Structured credit

4.1

4.4

2.3

Total

$

653.8

$

1,004.5

$

941.3

Number of new investment commitments in new portfolio

   companies

65

25

31

Average new investment commitment amount in new portfolio

   companies

$

14.6

$

47.5

$

30.9

Weighted average term for new investment commitments in new

   portfolio companies (in years)

6.1

5.3

4.6

Percentage of new debt investment commitments at floating

   rates ⁽¹⁾

98.9

%

99.5

%

98.8

%

Percentage of new debt investment commitments at fixed rates

1.1

%

0.5

%

1.2

%

Weighted average interest rate of new investment commitments

11.9

%

9.2

%

10.2

%

Weighted average spread over reference rate of new floating rate

   investment commitments

7.8

%

9.0

%

10.0

%

Weighted average interest rate on investments sold or paid down

9.9

%

9.1

%

9.7

%

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.