UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
For the transition period from to
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Not applicable
Former name, former address and former fiscal year, if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ |
Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
The number of shares of the registrant’s common stock, $.01 par value per share, outstanding at May 8, 2023 was
1
SIXTH STREET SPECIALTY LENDING, INC.
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INDEX |
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PAGE NO. |
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PART I. |
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4 |
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Item 1. |
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4 |
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Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 |
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4 |
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Consolidated Statements of Operations for the three months ended March 31, 2023 and 2022 (Unaudited) |
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5 |
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Consolidated Schedules of Investments as of March 31, 2023 (Unaudited) and December 31, 2022 |
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20 |
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Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited) |
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21 |
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22 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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45 |
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Item 3. |
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63 |
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Item 4. |
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64 |
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PART II. |
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65 |
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Item 1. |
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65 |
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Item 1A. |
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65 |
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Item 2. |
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68 |
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Item 3. |
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68 |
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Item 4. |
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68 |
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Item 5. |
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68 |
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Item 6. |
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69 |
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70 |
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2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
In addition to factors previously identified elsewhere in the reports and other documents Sixth Street Specialty Lending, Inc. has filed with the Securities and Exchange Commission, or SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law.
The “TSLX” and “TAO” marks are marks of Sixth Street.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Sixth Street Specialty Lending, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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March 31, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Investments at fair value |
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Non-controlled, non-affiliated investments (amortized cost of $ |
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$ |
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$ |
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Controlled, affiliated investments (amortized cost of $ |
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Total investments at fair value (amortized cost of $ |
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Cash and cash equivalents (restricted cash of $ |
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Interest receivable |
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Prepaid expenses and other assets |
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Total Assets |
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$ |
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$ |
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Liabilities |
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Debt (net of deferred financing costs of $ |
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$ |
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$ |
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Management fees payable to affiliate |
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Incentive fees on net investment income payable to affiliate |
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Incentive fees on net capital gains accrued to affiliate |
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Other payables to affiliate |
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Other liabilities |
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Total Liabilities |
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Net Assets |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Treasury stock at cost; |
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Distributable earnings |
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Total Net Assets |
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Total Liabilities and Net Assets |
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$ |
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$ |
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Net Asset Value Per Share |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
4
Sixth Street Specialty Lending, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except share and per share amounts)
(Unaudited)
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Three Months Ended |
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March 31, 2023 |
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March 31, 2022 |
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Income |
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Investment income from non-controlled, non-affiliated investments: |
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Interest from investments |
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$ |
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$ |
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Dividend income |
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Other income |
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Total investment income from non-controlled, non-affiliated investments |
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Investment income from non-controlled, affiliated investments: |
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Interest from investments |
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— |
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Total investment income from non-controlled, affiliated investments |
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— |
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Investment income from controlled, affiliated investments: |
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Interest from investments |
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Other income |
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Total investment income from controlled, affiliated investments |
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Total Investment Income |
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Expenses |
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Interest |
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Management fees |
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Incentive fees on net investment income |
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Incentive fees on net capital gains |
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Professional fees |
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Directors’ fees |
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Other general and administrative |
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Total expenses |
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Management fees waived (Note 3) |
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( |
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— |
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Net Expenses |
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Net Investment Income Before Income Taxes |
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Income taxes, including excise taxes |
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Net Investment Income |
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Unrealized and Realized Gains (Losses) |
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Net change in unrealized gains (losses): |
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Non-controlled, non-affiliated investments |
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( |
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Non-controlled, affiliated investments |
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— |
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( |
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Controlled, affiliated investments |
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( |
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Translation of other assets and liabilities in foreign currencies |
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( |
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( |
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Interest rate swaps |
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( |
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Total net change in unrealized gains (losses) |
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( |
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Realized gains (losses): |
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Non-controlled, non-affiliated investments |
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Non-controlled, affiliated investments |
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— |
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Foreign currency transactions |
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( |
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Total net realized gains (losses) |
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Total Net Unrealized and Realized Gains (Losses) |
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Increase in Net Assets Resulting from Operations |
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$ |
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$ |
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Earnings per common share—basic |
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$ |
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$ |
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Weighted average shares of common stock outstanding—basic |
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Earnings per common share—diluted |
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$ |
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$ |
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Weighted average shares of common stock outstanding—diluted |
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The accompanying notes are an integral part of these consolidated financial statements.
5
Sixth Street Specialty Lending, Inc.
Consolidated Schedule of Investments as of March 31, 2023
(Amounts in thousands, except share amounts)
(Unaudited)
6
Company (1)(6) |
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Investment |
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Initial |
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Reference |
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Interest Rate |
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Amortized |
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Fair Value (9) |
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Percentage |
Debt Investments |
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Automotive |
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Carlstar Group, LLC (3) |
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First-lien loan ($ |
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SOFR + |
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$ |
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$ |
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Business Services |
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Acceo Solutions, Inc. (3)(4)(5) |
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First-lien loan (CAD |
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C + |
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Alpha Midco, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Dye & Durham Corp. (3)(4) |
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First-lien loan (CAD |
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C + |
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First-lien revolving loan (CAD |
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C + |
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ExtraHop Networks, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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ForeScout Technologies, Inc. (3) |
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First-lien loan ($ |
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L + |
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First-lien loan ($ |
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L + |
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First-lien revolving loan ($ |
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L + |
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Hornetsecurity Holding GmbH (3)(4) |
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First-lien loan (EUR |
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E + |
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Information Clearinghouse, LLC and MS Market Service, LLC (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Mitnick Corporate Purchaser, Inc. (3)(9) |
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First-lien loan ($ |
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SOFR + |
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Netwrix Corp. (3) |
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First-lien loan ($ |
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SOFR + |
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First-lien revolving loan ($ |
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SOFR + |
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OutSystems Luxco SARL(3)(4)(5) |
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First-lien loan (EUR |
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E + |
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ReliaQuest Holdings, LLC (3)(5) |
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First-lien loan ($ |
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SOFR + |
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TIBCO Software Inc. (9) |
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First-lien note ($ |
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First-lien loan ($ |
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SOFR + |
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Chemicals |
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Erling Lux Bidco SARL(3)(4) |
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First-lien loan (EUR |
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E + |
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First-lien loan (GBP |
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S + |
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Communications |
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Banyan Software Holdings, LLC (3)(4) |
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First-lien loan ($ |
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SOFR + |
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Celtra Technologies, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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IntelePeer Holdings, Inc. |
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First-lien loan ($ |
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SOFR + |
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Convertible note ($ |
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Education |
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Astra Acquisition Corp. (3) |
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Second-lien loan ($ |
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L + |
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Destiny Solutions Parent Holding Company (3)(5) |
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First-lien loan ($ |
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L + |
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EMS Linq, Inc. (3) |
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First-lien loan ($ |
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L + |
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First-lien revolving loan ($ |
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L + |
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Financial Services |
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BTRS Holdings, Inc.(3) |
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First-lien loan ($ |
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SOFR + |
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First-lien revolving loan ($ |
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SOFR + |
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Bear OpCo, LLC (3)(5) |
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First-lien loan ($ |
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SOFR + |
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BlueSnap, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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G Treasury SS, LLC (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Ibis Intermediate Co. (3)(5) |
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First-lien loan ($ |
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L + |
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Ibis US Blocker Co. (3) |
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First-lien loan ($ |
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L + |
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Jonas Collections and Recovery, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Kyriba Corp.(3) |
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First-lien loan ($ |
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L + |
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First-lien loan (EUR |
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E + |
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First-lien revolving loan ($ |
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L + |
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First-lien revolving loan (EUR |
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E + |
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Passport Labs, Inc. |
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First-lien loan ($ |
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SOFR + |
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Convertible Promissory Note A ($ |
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Ping Identity Holding Corp. (3) |
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First-lien loan ($ |
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SOFR + |
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PrimeRevenue, Inc. (3) |
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First-lien loan ($ |
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L + |
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TradingScreen, Inc. (3)(5) |
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First-lien loan ($ |
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L + |
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Healthcare |
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BCTO Ace Purchaser, Inc. (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Second-lien loan ($ |
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SOFR + |
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Caris Life Sciences, Inc. |
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Convertible note ($ |
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Edge Bidco B.V (3)(4)(5) |
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First-lien loan (EUR |
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E + |
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Homecare Software Solutions, LLC (3)(5) |
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First-lien loan ($ |
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SOFR + |
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Integrated Practice Solutions, Inc. (3)(5) |
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First-lien loan ($ |
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L + |
|
|
|
|
|
|
|||||
Merative L.P. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Raptor US Buyer II Corp. (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Hotel, Gaming and Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASG II, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
IRGSE Holding Corp. (3)(6) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Human Resource Support Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
Axonify, Inc. (3)(4)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
bswift, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Elysian Finco Ltd. (3)(4)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Employment Hero Holdings Pty Ltd. (3)(4) |
|
First-lien loan (AUD |
|
|
B + |
|
|
|
|
|
|
|
||||
PageUp People, Ltd. (3)(4)(5) |
|
First-lien loan (AUD |
|
|
B + |
|
|
|
|
|
|
|
||||
|
|
First-lien loan (GBP |
|
|
S + |
|
|
|
|
|
|
|
||||
|
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
PayScale Holdings, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
PrimePay Intermediate, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Modern Hire, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Workwell Acquisition Co. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Insurance |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Disco Parent, Inc. (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Internet Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayshore Intermediate #2, L.P. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Coupa Holdings, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
CrunchTime Information, Systems, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
EDB Parent, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Higher Logic, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
LeanTaaS Holdings, Inc. (3)(5) |
|
First-lien loan ($32,519 par, due |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Lithium Technologies, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Lucidworks, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Piano Software, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
SMA Technologies Holdings, LLC(3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalara, Inc (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Office Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USR Parent, Inc. (3)(5) |
|
ABL FILO term loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Oil, Gas and Consumable Fuels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Laramie Energy, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Murchison Oil and Gas, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
TRP Assets, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omnigo Software, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Retail and Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 Cents Only Stores LLC (3) |
|
ABL FILO term loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
American Achievement, Corp. (3)(14) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
Subordinated note ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Bed Bath and Beyond Inc. (3)(15) |
|
ABL FILO term loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Cordance Operations, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Neuintel, LLC (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
Delayed draw term loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Project P Intermediate 2, LLC (3) |
|
ABL FILO term loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Tango Management Consulting, LLC (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
P + |
|
|
|
( |
|
|
( |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project44, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Total Debt Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Other Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dye & Durham, Ltd. (4)(10) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
|
|||
Mitnick TA Aggregator, LP (11)(12)(13) |
|
Membership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
ReliaQuest, LLC (11)(13) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class A-2 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Sprinklr, Inc. (10)(11) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celtra Technologies, Inc. (11) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
IntelePeer Holdings, Inc. (11) |
|
Series C Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series D Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Education |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Astra 2L Holdings II LLC (11) |
|
Membership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
EMS Linq, Inc. (11) |
|
Class B Units ( |
|
|
|
|
|
|
|
|
|
|
||||
RMCF IV CIV XXXV, |
|
Partnership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AvidXchange, Inc. (10)(11) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Newport Parent Holdings, LP (11) |
|
Class A-2 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Oxford Square Capital Corp. (4)(10) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Passport Labs, Inc. (11) |
|
|
|
|
|
|
|
|
|
|
|
8
TradingScreen, Inc. (11)(13) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caris Life Sciences, Inc. (11) |
|
Series C Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series D Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Merative L.P. (11)(12)(13) |
|
|
|
|
|
|
|
|
|
|
|
|||||
Raptor US Buyer II Corp. (11)(12) |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Hotel, Gaming and Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRGSE Holding Corp. (7)(11) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class C-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Human Resource Support Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axonify, Inc. (4)(11)(13) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
bswift, LLC (11)(12) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
ClearCompany, LLC (11)(13) |
|
Series A Preferred Units ( |
|
|
|
|
|
|
|
|
|
|
||||
DaySmart Holdings, LLC (11)(13) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Employment Hero Holdings Pty Ltd. (4)(11) |
|
Series E Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Internet Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayshore Intermediate #2, L.P. (11)(13) |
|
Common Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Lucidworks, Inc. (11) |
|
Series F Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Piano Software, Inc. (11) |
|
Series C-1 Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series C-2 Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
SMA Technologies Holdings, LLC (11)(12) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class B Units ( |
|
|
|
|
|
|
|
— |
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Marketing Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validity, Inc. (11) |
|
Series A Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Oil, Gas and Consumable Fuels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murchison Oil and Gas, LLC (12)(13) |
|
|
|
|
|
|
|
|
|
|
|
|||||
TRP Assets, LLC (11)(12)(13) |
|
Partnership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TherapeuticsMD, Inc. (4)(11) |
|
|
|
|
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Retail and Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Achievement, Corp. (11) |
|
Class A Units ( |
|
|
|
|
|
|
|
— |
|
|
|
|||
Copper Bidco, LLC (9) |
|
Trust Certificates ( |
|
|
|
|
|
|
|
— |
|
|
|
|||
|
|
Trust Certificates ( |
|
|
|
|
|
|
|
|
|
|
||||
Neuintel, LLC (11)(13) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegro CLO Ltd, Series 2018-1A, (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
American Money Management Corp CLO Ltd, Series 2016-18A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ares CLO Ltd, Series 2021-59A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ares Loan Funding I Ltd, Series 2021-ALFA, Class E (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Bain Capital Credit CLO Ltd, Series 2018-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Battalion CLO Ltd, Series 2021-21A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Benefit Street Partners CLO Ltd, Series 2015-BR (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Benefit Street Partners CLO Ltd, Series 2015-8A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Carlyle Global Market Strategies CLO Ltd, Series 2014-4RA (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Carlyle Global Market Strategies CLO Ltd, Series 2016-1, Ltd (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Carlyle Global Market Strategies CLO Ltd, Series 2018-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CarVal CLO III Ltd, Series 2019-2A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Cedar Funding CLO Ltd, Series 2018-7A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CIFC CLO Ltd, Series 2018-3A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CIFC CLO Ltd, Series 2021-4A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
9
Crown Point CLO Ltd, Series 2021-10A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Dryden Senior Loan Fund, Series 2018-55A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Dryden Senior Loan Fund, Series 2020-86A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Eaton CLO Ltd, Series 2015-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Eaton CLO Ltd, Series 2020-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
GoldenTree CLO Ltd, Series 2020-7A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Gulf Stream Meridian, Series 2021-4A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Gulf Stream Meridian, Series 2021-6A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Jefferson Mill CLO Ltd, Series 2015-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
KKR CLO Ltd, 49A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Madison Park CLO, Series 2018-28A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Magnetite CLO Ltd, Series 2021-30A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
MidOcean Credit CLO Ltd, Series 2016-6A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
MidOcean Credit CLO Ltd, Series 2018-9A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon 57 LLC, Series 2021-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon Investment Partners 18 Ltd, Series 2018-18A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon Investment Partners 38 Ltd, Series 2018-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Park Avenue Institutional Advisers CLO Ltd, Series 2018-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Pikes Peak CLO, Series 2021-9A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
RR Ltd, Series 2020-8A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Shackelton CLO Ltd, Series 2015-7RA (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Signal Peak CLO LLC, Series 2018-5A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Southwick Park CLO Ltd, Series 2019-4A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Stewart Park CLO Ltd, Series 2015-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Voya CLO Ltd, Series 2018-3A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Whitebox CLO I Ltd, Series 2020-2A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2014-2A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2017-1A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2018-3A (3)(4)(9) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Equity and Other Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Investments |
|
|
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|
Interest Rate Swaps as of March 31, 2023 |
|
|||||||||||||||||||
|
|
Company |
|
Company |
|
Maturity Date |
|
Notional |
|
|
Fair |
|
|
Upfront |
|
|
Change in |
|
||||
Interest rate swap (a)(b) |
|
|
L + |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Interest rate swap (a)(e) |
|
L + |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap (a)(c)(d) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
Interest rate swap (a)(c)(d) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
Interest rate swap (a)(c) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||||
Total |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
||
Cash collateral |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total derivatives |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
Controlled, Affiliated Investments during the three months ended March 31, 2023
Company |
|
Fair |
|
|
Gross |
|
|
Gross |
|
|
Net Change |
|
|
Realized |
|
|
Transfers |
|
|
Fair |
|
|
Other |
|
|
Interest |
|
|||||||||
IRGSE Holding Corp. |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Total |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
11
The accompanying notes are an integral part of these consolidated financial statements.
12
Sixth Street Specialty Lending, Inc.
Consolidated Schedule of Investments as of December 31, 2022
(Amounts in thousands, except share amounts)
13
Company (1)(6) |
|
Investment |
|
Initial |
|
Reference |
|
Interest Rate |
|
|
Amortized |
|
|
Fair Value (9) |
|
Percentage |
Debt Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Automotive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carlstar Group, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
$ |
|
$ |
|
|||||
Business services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acceo Solutions, Inc. (3)(4)(5) |
|
First-lien loan (CAD |
|
|
C + |
|
|
|
|
|
|
|
||||
Alpha Midco, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Dye & Durham Corp. (3)(4) |
|
First-lien loan (CAD |
|
|
C + |
|
|
|
|
|
|
|
||||
|
|
First-lien revolving loan (CAD |
|
|
P + |
|
|
|
|
|
|
|
||||
ExtraHop Networks, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
ForeScout Technologies, Inc. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Hornetsecurity Holding GmbH (3)(4) |
|
First-lien loan (EUR |
|
|
E + |
|
|
|
|
|
|
|
||||
Information Clearinghouse, LLC and MS Market Service, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Mitnick Corporate Purchaser, Inc. (3)(10) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Netwrix Corp. (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
OutSystems Luxco SARL(3)(4)(5) |
|
First-lien loan (EUR |
|
|
E + |
|
|
|
|
|
|
|
||||
ReliaQuest Holdings, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
TIBCO Software Inc. (10) |
|
First-lien note ($ |
|
|
|
|
|
|
|
|
||||||
|
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
WideOrbit, Inc. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Chemicals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Erling Lux Bidco SARL(3)(4) |
|
First-lien loan (EUR |
|
|
E + |
|
|
|
|
|
|
|
||||
|
|
First-lien loan (GBP |
|
|
S + |
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celtra Technologies, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
IntelePeer Holdings, Inc. |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
Convertible note ($ |
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Education |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Astra Acquisition Corp. (3) |
|
Second-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Destiny Solutions Parent Holding Company (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
EMS Linq, Inc. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BTRS Holdings, Inc.(3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Bear OpCo, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
BlueSnap, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
G Treasury SS, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Ibis Intermediate Co. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ibis US Blocker Co. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Jonas Collections and Recovery, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Kyriba Corp.(3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien loan (EUR |
|
|
E + |
|
|
|
|
|
|
|
||||
|
|
First-lien revolving loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan (EUR |
|
|
E + |
|
|
|
|
|
|
|
||||
Passport Labs, Inc. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ping Identity Holding Corp. (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
PrimeRevenue, Inc. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
TradingScreen, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BCTO Ace Purchaser, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Caris Life Sciences, Inc. |
|
First-lien loan ($ |
|
|
|
|
|
|
|
|
||||||
|
|
First-lien loan ($ |
|
|
|
|
|
|
|
|
||||||
|
|
Convertible note ($ |
|
|
|
|
|
|
|
|
||||||
Homecare Software Solutions, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Integrated Practice Solutions, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Merative L.P. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Hotel, Gaming and Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASG II, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
IRGSE Holding Corp. (3)(7) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Human Resource Support Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axonify, Inc. (3)(4)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
bswift, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Elysian Finco Ltd. (3)(4)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Employment Hero Holdings Pty Ltd. (3)(4) |
|
First-lien loan (AUD |
|
|
B + |
|
|
|
|
|
|
|
||||
PageUp People, Ltd. (3)(4)(5) |
|
First-lien loan (AUD |
|
|
B + |
|
|
|
|
|
|
|
14
|
|
First-lien loan (GBP |
|
|
S + |
|
|
|
|
|
|
|
||||
|
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
PayScale Holdings, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
PrimePay Intermediate, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Modern Hire, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Workwell Acquisition Co. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Internet Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayshore Intermediate #2, L.P. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CrunchTime Information, Systems, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
EDB Parent, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Higher Logic, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
LeanTaaS Holdings, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Lithium Technologies, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
First-lien revolving loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Lucidworks, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Piano Software, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
SMA Technologies Holdings, LLC(3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Manufacturing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Avalara, Inc (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Office Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
USR Parent, Inc. (3)(5) |
|
ABL FILO term loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Oil, Gas and Consumable Fuels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murchison Oil and Gas, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
TRP Assets, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omnigo Software, LLC (3)(5) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Retail and Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99 Cents Only Stores LLC (3) |
|
ABL FILO term loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
American Achievement, Corp. (3) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
Subordinated note ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Bed Bath and Beyond Inc. (3) |
|
ABL FILO term loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Cordance Operations, LLC (3) |
|
First-lien loan ($ |
|
|
SOFR + |
|
|
|
|
|
|
|||||
Neuintel, LLC (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Project P Intermediate 2, LLC (3) |
|
ABL FILO term loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Tango Management Consulting, LLC (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Transportation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Project44, Inc. (3)(5) |
|
First-lien loan ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Total Debt Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity and Other Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dye & Durham, Ltd. (4)(11) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
|
|||
Mitnick TA Aggregator, LP (12)(13)(14) |
|
Membership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
ReliaQuest, LLC (12)(14) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class A-2 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Sprinklr, Inc. (11)(12) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
WideOrbit, Inc. (12) |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Celtra Technologies, Inc. (12) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
IntelePeer Holdings, Inc. (12) |
|
Series C Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series D Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
— |
|
|
— |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Education |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Astra 2L Holdings II LLC (12)(13) |
|
Membership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
EMS Linq, Inc. (12) |
|
Class B Units ( |
|
|
|
|
|
|
|
|
|
|
||||
RMCF IV CIV XXXV, |
|
Partnership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Financial Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AvidXchange, Inc. (11)(12) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Newport Parent Holdings, LP (12) |
|
Class A-2 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Oxford Square Capital Corp. (4)(11) |
|
Common Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Passport Labs, Inc. (12) |
|
|
|
|
|
|
|
|
|
|
|
|||||
TradingScreen, Inc. (12)(14) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Healthcare |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caris Life Sciences, Inc. (12) |
|
Series C Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series D Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Merative L.P. (12)(13)(14) |
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Hotel, Gaming and Leisure |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IRGSE Holding Corp. (7)(12) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class C-1 Units ( |
|
|
|
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Human Resource Support Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Axonify, Inc. (4)(12)(14) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
bswift, LLC (12)(13) |
|
Class A-1 Units ( |
|
|
|
|
|
|
|
|
|
|
||||
ClearCompany, LLC (12)(14) |
|
Series A Preferred Units ( |
|
|
|
|
|
|
|
|
|
|
||||
DaySmart Holdings, LLC (12)(14) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Employment Hero Holdings Pty Ltd. (4)(12)(13) |
|
Series E Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Internet Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bayshore Intermediate #2, L.P. (12)(14) |
|
Common Units ( |
|
|
|
|
|
|
|
|
|
|
||||
Lucidworks, Inc. (12) |
|
Series F Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Piano Software, Inc. (12) |
|
Series C-1 Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Series C-2 Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
SMA Technologies Holdings, LLC (12)(13) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
Class B Units ( |
|
|
|
|
|
|
|
— |
|
|
— |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Marketing Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Validity, Inc. (12) |
|
Series A Preferred Shares ( |
|
|
|
|
|
|
|
|
|
|
||||
Oil, Gas and Consumable Fuels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Murchison Oil and Gas, LLC (13)(14) |
|
|
|
|
|
|
|
|
|
|
|
|||||
TRP Assets, LLC (12)(13)(14) |
|
Partnership Interest ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TherapeuticsMD, Inc. (4)(12) |
|
|
|
|
|
|
|
|
|
|
— |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
||
Retail and Consumer Products |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Achievement, Corp. (12) |
|
Class A Units ( |
|
|
|
|
|
|
|
— |
|
|
|
|||
Copper Bidco, LLC (10) |
|
Trust Certificates ( |
|
|
|
|
|
|
|
— |
|
|
|
|||
|
|
Trust Certificates ( |
|
|
|
|
|
|
|
|
|
|
||||
Neuintel, LLC (12)(14) |
|
Class A Units ( |
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Structured Credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allegro CLO Ltd, Series 2018-1A, (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
American Money Management Corp CLO Ltd, Series 2016-18A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ares CLO Ltd, Series 2021-59A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Ares Loan Funding I Ltd, Series 2021-ALFA, Class E (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Bain Capital Credit CLO Ltd, Series 2018-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Battalion CLO Ltd, Series 2021-21A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Benefit Street Partners CLO Ltd, Series 2015-BR (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Benefit Street Partners CLO Ltd, Series 2015-8A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Carlyle Global Market Strategies CLO Ltd, Series 2014-4RA (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Carlyle Global Market Strategies CLO Ltd, Series 2018-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CarVal CLO III Ltd, Series 2019-2A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Cedar Funding CLO Ltd, Series 2018-7A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CIFC CLO Ltd, Series 2018-3A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
CIFC CLO Ltd, Series 2021-4A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Crown Point CLO Ltd, Series 2021-10A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Dryden Senior Loan Fund, Series 2018-55A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Dryden Senior Loan Fund, Series 2020-86A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Eaton CLO Ltd, Series 2015-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Eaton CLO Ltd, Series 2020-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
GoldenTree CLO Ltd, Series 2020-7A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Gulf Stream Meridian, Series 2021-4A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Gulf Stream Meridian, Series 2021-6A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Jefferson Mill CLO Ltd, Series 2015-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
KKR CLO Ltd, 49A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Madison Park CLO, Series 2018-28A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Magnetite CLO Ltd, Series 2021-30A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
MidOcean Credit CLO Ltd, Series 2016-6A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
16
MidOcean Credit CLO Ltd, Series 2018-9A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon 57 LLC, Series 2021-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon Investment Partners 18 Ltd, Series 2018-18A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Octagon Investment Partners 38 Ltd, Series 2018-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Park Avenue Institutional Advisers CLO Ltd, Series 2018-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Pikes Peak CLO, Series 2021-9A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
RR Ltd, Series 2020-8A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Shackelton CLO Ltd, Series 2015-7RA (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Signal Peak CLO LLC, Series 2018-5A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Southwick Park CLO Ltd, Series 2019-4A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Stewart Park CLO Ltd, Series 2015-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Voya CLO Ltd, Series 2018-3A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Whitebox CLO I Ltd, Series 2020-2A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2014-2A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2017-1A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
Wind River CLO Ltd, Series 2018-3A (3)(4)(10) |
|
Structured Product ($ |
|
|
L + |
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Equity and Other Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Total Investments |
|
|
|
|
|
|
|
|
|
$ |
|
$ |
|
|
|
Interest Rate Swaps as of December 31, 2022 |
|
|||||||||||||||||||
|
|
Company |
|
Company |
|
Maturity Date |
|
Notional |
|
|
Fair |
|
|
Upfront |
|
|
Change in |
|
||||
Interest rate swap (a) |
|
|
L + |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|||
Interest rate swap (a)(e) |
|
L + |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||||
Interest rate swap (a)(b) |
|
|
L + |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Interest rate swap (a)(b) |
|
|
L + |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Interest rate swap (a)(b) |
|
|
L + |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Interest rate swap (a)(b) |
|
L + |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|||
Interest rate swap (a)(b) |
|
L + |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|||
Interest rate swap (a)(b) |
|
L + |
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
( |
) |
|||
Interest rate swap (a)(b) |
|
L |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
||
Total |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest rate swap (a)(c)(d) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|||
Interest rate swap (a)(c)(d) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|||
Interest rate swap (a)(c) |
|
|
L + |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|||
Total |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Cash collateral |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
Total |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|||
17
Non-controlled, Affiliated Investments during the year ended December 31, 2022
Company |
|
Fair |
|
|
Gross |
|
|
Gross |
|
|
Net Change |
|
|
Realized |
|
|
Transfers |
|
|
Fair |
|
|
Other |
|
|
Interest |
|
|||||||||
MD America Energy, |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Total |
|
$ |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|||
Controlled, Affiliated Investments during the year ended December 31, 2022
Company |
|
Fair |
|
|
Gross |
|
|
Gross |
|
|
Net Change |
|
|
Realized |
|
|
Transfers |
|
|
Fair |
|
|
Other |
|
|
Interest |
|
|||||||||
IRGSE Holding Corp. |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Mississippi Resources, |
|
— |
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
||||||||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||||
18
19
Sixth Street Specialty Lending, Inc.
Consolidated Statements of Changes in Net Assets
(Amounts in thousands, except share amounts)
(Unaudited)
|
|
Common Stock |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Cost |
|
|
Paid in Capital in |
|
|
Distributable |
|
|
Total Net |
|
|||||||
Balance at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net increase (decrease) in net assets resulting from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net investment income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net change in unrealized gains (losses) on investments and |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net realized gains (losses) on investments and foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends to stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Stock issued in connection with dividend reinvestment plan |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Dividends declared from distributable earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Tax reclassification of stockholders' equity in accordance with |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Balance at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
|
|
Common Stock |
|
|
Treasury Stock |
|
|
|
|
|
|
|
|
|
|
|||||||||||||
|
|
Shares |
|
|
Par |
|
|
Shares |
|
|
Cost |
|
|
Paid in Capital in |
|
|
Distributable |
|
|
Total Net |
|
|||||||
Balance at December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Net increase (decrease) in net assets resulting from operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Net investment income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Net change in unrealized gains (losses) on investments and |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Net realized gains (losses) on investments and foreign |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Dividends to stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Stock issued in connection with dividend reinvestment plan |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||||
Dividends declared from distributable earnings |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Tax reclassification of stockholders' equity in accordance with |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Balance at March 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The accompanying notes are an integral part of these consolidated financial statements.
20
Sixth Street Specialty Lending, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Cash Flows from Operating Activities |
|
|
|
|
|
|
||
Increase (decrease) in net assets resulting from operations |
|
$ |
|
|
$ |
|
||
Adjustments to reconcile increase (decrease) in net assets resulting from operations |
|
|
|
|
|
|
||
Net change in unrealized (gains) losses on investments |
|
|
( |
) |
|
|
|
|
Net change in unrealized (gains) losses on foreign currency transactions |
|
|
|
|
|
|
||
Net change in unrealized (gains) losses on interest rate swaps |
|
|
( |
) |
|
|
|
|
Net realized (gains) losses on investments |
|
|
( |
) |
|
|
( |
) |
Net realized (gains) losses on foreign currency transactions |
|
|
( |
) |
|
|
( |
) |
Net amortization of discount on investments |
|
|
( |
) |
|
|
( |
) |
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Amortization of discount on debt |
|
|
|
|
|
|
||
Purchases and originations of investments, net |
|
|
( |
) |
|
|
( |
) |
Proceeds from investments, net |
|
|
|
|
|
|
||
Repayments on investments |
|
|
|
|
|
|
||
Paid-in-kind interest |
|
|
( |
) |
|
|
( |
) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Interest receivable |
|
|
( |
) |
|
|
( |
) |
Interest receivable paid-in-kind |
|
|
( |
) |
|
|
|
|
Prepaid expenses and other assets |
|
|
|
|
|
( |
) |
|
Management fees payable to affiliate |
|
|
( |
) |
|
|
( |
) |
Incentive fees on net investment income payable to affiliate |
|
|
( |
) |
|
|
( |
) |
Incentive fees on net capital gains accrued to affiliate |
|
|
|
|
|
|
||
Payable to affiliate |
|
|
|
|
|
( |
) |
|
Other liabilities |
|
|
|
|
|
( |
) |
|
Net Cash Provided by (Used in) Operating Activities |
|
|
( |
) |
|
|
|
|
Cash Flows from Financing Activities |
|
|
|
|
|
|
||
Borrowings on debt |
|
|
|
|
|
|
||
Repayments on debt |
|
|
( |
) |
|
|
( |
) |
Deferred financing costs |
|
|
— |
|
|
|
( |
) |
Dividends paid to stockholders |
|
|
( |
) |
|
|
( |
) |
Net Cash Provided by (Used in) Financing Activities |
|
|
|
|
|
( |
) |
|
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash |
|
|
|
|
|
|
||
Cash, cash equivalents, and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, Cash Equivalents, and Restricted Cash, End of Period |
|
$ |
|
|
$ |
|
||
Supplemental Information: |
|
|
|
|
|
|
||
Interest paid during the period |
|
$ |
|
|
$ |
|
||
Excise and other taxes paid during the period |
|
$ |
|
|
$ |
|
||
Dividends declared during the period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Non-Cash Financing Activities: |
|
|
|
|
|
|
||
Reinvestment of dividends during the period |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
21
Sixth Street Specialty Lending, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
(Amounts in thousands, unless otherwise indicated)
1. Organization and Basis of Presentation
Organization
Sixth Street Specialty Lending, Inc. (the “Company”) is a Delaware corporation formed on July 21, 2010. The Company was formed primarily to lend to, and selectively invest in, middle-market companies in the United States. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is managed by Sixth Street Specialty Lending Advisers, LLC (the “Adviser”). On June 1, 2011, the Company formed a wholly-owned subsidiary, TC Lending, LLC, a Delaware limited liability company. On March 22, 2012, the Company formed a wholly-owned subsidiary, Sixth Street SL SPV, LLC, a Delaware limited liability company. On May 19, 2014, the Company formed a wholly-owned subsidiary, Sixth Street SL Holding, LLC, a Delaware limited liability company. On December 9, 2020, the Company formed a wholly-owned subsidiary, Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company.
On March 21, 2014, the Company completed its initial public offering (“IPO”) and the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “TSLX.”
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. In the opinion of management, all adjustments considered necessary for the fair presentation of the consolidated financial statements for the periods presented have been included. The results of operations for interim periods are not indicative of results to be expected for the full year. All intercompany balances and transactions have been eliminated in consolidation.
Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with U.S. GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the Securities and Exchange Commission (“SEC”), on February 16, 2023.
The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.
Fiscal Year End
The Company’s fiscal year ends on December 31.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual amounts could differ from those estimates and such differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents may consist of demand deposits, highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less, and restricted cash pledged as collateral for certain centrally cleared derivative instruments. Cash and cash equivalents denominated in U.S. dollars are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.
22
Investments at Fair Value
Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Investment transactions purchased through the secondary markets are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by the Company’s Board of Directors (the “Board”), based on, among other things, the input of the Adviser, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.
As part of the valuation process, the Board takes into account relevant factors in determining the fair value of its investments, including and in combination of: the estimated enterprise value of a portfolio company (that is, the total value of the portfolio company’s net debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.
The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:
The Company conducts this valuation process on a quarterly basis.
The Board has engaged independent third-party valuation firms to perform certain limited procedures that the Board has identified and requested them to perform in connection with the valuation process of investments for which no market quotations are readily available. At March 31, 2023, the independent third-party valuation firms performed their procedures over substantially all of the Company’s investments. Upon completion of such limited procedures, the third-party valuation firms concluded that the fair value, as determined by the Board, of those investments subjected to their limited procedures, appeared reasonable.
The Company applies Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurement (“ASC Topic 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC Topic 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC Topic 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC Topic 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC Topic 820, these levels are summarized below:
23
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC Topic 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various additional criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Company reviews pricing provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality, such as the depth of the relevant market relative to the size of the Company’s position.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment including the impact of changes in broader market indices and credit spreads and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Financial and Derivative Instruments
The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements, pursuant to ASC Topic 815 Derivatives and Hedging, further clarified by the FASB’s issuance of the Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging, which was adopted in 2019 by the Company. For all derivative instruments designated in a hedge accounting relationship, the entire change in the fair value of the hedging instrument shall be recorded in the same line item of the consolidated statements of operations as the hedged item. The Company uses certain interest rate swaps as derivative instruments to hedge the Company’s fixed rate debt, and therefore both the periodic payment and the change in fair value for the effective hedge, if applicable, will be recognized as components of interest expense in the consolidated statements of operations. For derivative contracts entered into by the Company that are not designated in a hedge accounting relationship, the Company presents changes in the fair value through current period earnings.
In the normal course of business, the Company has commitments and risks resulting from its investment transactions, which may include those involving derivative instruments. Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. While the notional amount gives some indication of the Company’s derivative activity, it generally is not exchanged, but is only used as the basis on which interest and other payments are exchanged. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process.
Derivatives, including the Company’s interest rate swaps, for which broker quotes are available are typically valued at those broker quotes.
Offsetting Assets and Liabilities
Foreign currency forward contract and interest rate swap receivables or payables pending settlement are offset, and the net amount is included with receivable or payable for foreign currency forward contracts or interest rate swaps in the consolidated balance sheets when, and only when, they are with the same counterparty, the Company has the legal right to offset the recognized amounts, and it intends to either settle on a net basis or realize the asset and settle the liability simultaneously.
Foreign Currency
Foreign currency amounts are translated into U.S. dollars on the following basis:
24
Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under the Company’s Revolving Credit Facility to fund these investments. Fluctuations arising from the translation of foreign currency borrowings are included with the net change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the consolidated statements of operations.
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
Equity Offering Expenses
The Company records expenses related to equity offerings as a reduction of capital upon completion of an offering of registered securities. The costs associated with renewals of the Company’s shelf registration statement are expensed as incurred.
Debt Issuance Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs, which are presented as a direct deduction from the carrying value of the related debt liability. These expenses are deferred and amortized using the effective interest method, or straight-line method, over the stated maturity of the debt obligation.
Interest and Dividend Income Recognition
Interest income is recorded on an accrual basis and includes the amortization of discounts and premiums. Discounts and premiums to par value on securities purchased or originated are amortized into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts and premiums, if any.
Unless providing services in connection with an investment, such as syndication, structuring or diligence, all or a portion of any loan fees received by the Company will be deferred and amortized over the investment’s life using the effective interest method.
Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Other Income
From time to time, the Company may receive fees for services provided to portfolio companies by the Adviser. The services that the Adviser provides vary by investment, but may include syndication, structuring, diligence fees, or other service-based fees and fees for providing managerial assistance to our portfolio companies and are recognized as revenue when earned.
Earnings per share
The Company's earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued and the additional shares of common stock were dilutive. Diluted EPS reflects the
25
potential dilution, using the if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised.
Reimbursement of Transaction-Related Expenses
The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are expected to be reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Prepaid expenses and other assets on the date incurred. The transaction-related costs of pursuing investments not otherwise reimbursed are borne by the Company and for successfully completed investments included as a component of the investment’s cost basis.
Cash advances received in respect of transaction-related expenses are recorded as Cash and cash equivalents with an offset to Other liabilities or Other payables to affiliates. Other liabilities or Other payables to affiliates are relieved as reimbursable expenses are incurred.
Income Taxes, Including Excise Taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code, and the Company intends to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, distribute to its stockholders in each taxable year generally at least
The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. As of the three months ended March 31, 2023, the Company did not have any uncertain tax positions that met the recognition or measurement criteria, nor did the Company have any unrecognized tax benefits. The Company’s 2022, 2021 and 2020 tax year returns remain subject to examination by the relevant federal, state, and local tax authorities.
Depending on the level of taxable income earned in a tax year, the Company can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible
For the three months ended March 31, 2023 and 2022, the Company recorded a net expense of $
Dividends to Common Stockholders
Dividends to common stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Board and is generally based upon the earnings estimated by the Adviser. Net realized long-term capital gains, if any, would generally be distributed at least annually, although the Company may decide to retain such capital gains.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any dividends declared in cash on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and it declares, a cash dividend, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company expects to use newly issued shares to satisfy the dividend reinvestment plan.
Recent Accounting Standards and Regulatory Updates
In December 2022, the Financial Accounting Standards Board issued Accounting Standards Update 2022-06 (“ASU 2022-06”) “Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848.” Topic 848 provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to
26
meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. ASU 2022-06 defers the sunset date of Topic 848 from
3. Agreements and Related Party Transactions
Administration Agreement
On March 15, 2011, the Company entered into the Administration Agreement with the Adviser. Under the terms of the Administration Agreement, the Adviser provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement. In addition, the Adviser is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company pays or reimburses the Adviser for certain expenses incurred by any such affiliates or third parties for work done on its behalf.
In February 2017, the Board of Directors of the Company and the Adviser entered into an amended and restated administration agreement (the “Administration Agreement”) reflecting certain clarifications to the agreement to provide greater detail regarding the scope of the reimbursable costs and expenses of the Administrator’s services.
In November 2022, the Board renewed the Administration Agreement. Unless earlier terminated as described below, the Administration Agreement will remain in effect until November 2023, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on
No person who is an officer, director or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for the allocable portion of the costs of compensation, benefits, and related administrative expenses of the Company’s officers who provide operational and administrative services to the Company pursuant to the Administration Agreement, their respective staffs and other professionals who provide services to the Company (including, in each case, employees of the Adviser or an affiliate). Such reimbursable amounts include the allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Financial Officer, Chief Compliance Officer, and other professionals who provide operational and administrative services to the Company pursuant to the Administration Agreement, including individuals who provide “back office” or “middle office” financial, operational, legal and/or compliance services to the Company. The Company reimburses the Adviser (or its affiliates) for the allocable portion of the compensation paid by the Adviser (or its affiliates) to such individuals based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company and in acting on behalf of the Company. The Company may also reimburse the Adviser or its affiliates for the allocable portion of overhead expenses (including rent, office equipment and utilities) attributable thereto. Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.
For the three months ended March 31, 2023 and 2022 the Company incurred expenses of $
Investment Advisory Agreement
On April 15, 2011, the Company entered into the Investment Advisory Agreement with the Adviser. The Investment Advisory Agreement was subsequently amended on December 12, 2011. Under the terms of the Investment Advisory Agreement, the Adviser provides investment advisory services to the Company. The Adviser’s services under the Investment Advisory Agreement are not exclusive, and the Adviser is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser the Management Fee and may also pay certain Incentive Fees.
The Management Fee is calculated at an annual rate of
For the three months ended March 31, 2023 and 2022 Management Fees (gross of waivers) were $
Any waived Management Fees are not subject to recoupment by the Adviser.
27
The Adviser intends to waive a portion of the Management Fee payable under the Investment Advisory Agreement by reducing the Management Fee on assets financed using leverage over
The Incentive Fee consists of two parts, as follows:
Pre-Incentive Fee net investment income means dividends, interest and fee income accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Management Fee, expenses payable under the Administration Agreement to the Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company may not have received in cash. Pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses.
For purposes of determining whether pre-Incentive Fee net investment income exceeds the hurdle rate, pre-Incentive Fee net investment income is expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter.
Section 205(b)(3) of the Investment Advisers Act of 1940, as amended, or the Advisers Act, prohibits the Adviser from receiving the payment of fees on unrealized gains until those gains are realized, if ever. There can be no assurance that such unrealized gains will be realized in the future.
For three months ended March 31, 2023 and 2022, Incentive Fees were $
Any waived Incentive Fees are not subject to recoupment by the Adviser.
Since the Company’s IPO, with the exception of its waiver of Management Fees and certain Incentive Fees attributable to the Company’s ownership of certain investments and the Leverage Waiver, the Adviser has not waived its right to receive any Management Fees or Incentive Fees payable pursuant to the Investment Advisory Agreement.
28
In November 2022, the Board renewed the Investment Advisory Agreement. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until November 2023, and may be extended subject to required approvals. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty on 60 days’ written notice to the other party.
From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.
4. Investments at Fair Value
Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled, affiliated investments is contained in the accompanying consolidated financial statements, including the consolidated schedules of investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled, non-affiliated; non-controlled, affiliated; or controlled, affiliated investments.
Investments at fair value consisted of the following at March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|||||||||
|
|
Amortized Cost (1) |
|
|
Fair Value |
|
|
Net Unrealized |
|
|||
First-lien debt investments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Second-lien debt investments |
|
|
|
|
|
|
|
|
( |
) |
||
Mezzanine debt investments |
|
|
|
|
|
|
|
|
|
|||
Equity and other investments |
|
|
|
|
|
|
|
|
|
|||
Structured credit investments |
|
|
|
|
|
|
|
|
( |
) |
||
Total Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
|
|
December 31, 2022 |
|
|||||||||
|
|
Amortized Cost (1) |
|
|
Fair Value |
|
|
Net Unrealized |
|
|||
First-lien debt investments |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
||
Second-lien debt investments |
|
|
|
|
|
|
|
|
( |
) |
||
Mezzanine debt investments |
|
|
|
|
|
|
|
|
|
|||
Equity and other investments |
|
|
|
|
|
|
|
|
|
|||
Structured credit investments |
|
|
|
|
|
|
|
|
( |
) |
||
Total Investments |
|
$ |
|
|
$ |
|
|
$ |
|
|||
The industry composition of investments at fair value at March 31, 2023 and December 31, 2022 is as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Automotive |
|
|
% |
|
|
% |
||
Business Services |
|
|
% |
|
|
% |
||
Chemicals |
|
|
% |
|
|
% |
||
Communications |
|
|
% |
|
|
% |
||
Education |
|
|
% |
|
|
% |
||
Financial Services |
|
|
% |
|
|
% |
||
Healthcare |
|
|
% |
|
|
% |
||
Hotel, Gaming and Leisure |
|
|
% |
|
|
% |
||
Human Resource Support Services |
|
|
% |
|
|
% |
||
Insurance |
|
|
% |
|
|
— |
|
|
Internet Services |
|
|
% |
|
|
% |
||
Manufacturing |
|
|
% |
|
|
% |
||
Marketing Services |
|
|
% |
|
|
% |
||
Office Products |
|
|
% |
|
|
% |
||
Oil, Gas and Consumable Fuels |
|
|
% |
|
|
% |
||
29
Other |
|
|
% |
|
|
% |
||
Pharmaceuticals |
|
|
% |
|
|
% |
||
Retail and Consumer Products |
|
|
% |
|
|
% |
||
Transportation |
|
|
% |
|
|
% |
||
Total |
|
|
% |
|
|
% |
The geographic composition of investments at fair value at March 31, 2023 and December 31, 2022 is as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
United States |
|
|
|
|
|
|
||
Midwest |
|
|
% |
|
|
% |
||
Northeast |
|
|
% |
|
|
% |
||
South |
|
|
% |
|
|
% |
||
West |
|
|
% |
|
|
% |
||
Australia |
|
|
% |
|
|
% |
||
Canada |
|
|
% |
|
|
% |
||
Germany |
|
|
% |
|
|
% |
||
Luxembourg |
|
|
% |
|
|
% |
||
Netherlands |
|
|
% |
|
|
— |
|
|
Norway |
|
|
% |
|
|
% |
||
United Kingdom |
|
|
% |
|
|
% |
||
Total |
|
|
% |
|
|
% |
||
5. Derivatives
Interest Rate Swaps
The Company enters into interest rate swap transactions from time to time to hedge fixed rate debt obligations and certain fixed rate debt investments. The Company’s interest rate swaps are all with one counterparty and are centrally cleared through a registered commodities exchange. Refer to the consolidated schedule of investments for additional disclosure regarding these interest rate swaps.
The following tables present the amounts paid and received on the Company’s interest rate swap transactions, excluding upfront fees, for the three months ended March 31, 2023 and 2022:
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2023 |
|
||||||||||
|
|
Maturity Date |
|
Notional Amount |
|
|
Paid |
|
|
Received |
|
|
Net |
|
||||
Interest rate swap (1) |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
|
|
|
( |
) |
||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
investment or security.
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2022 |
|
||||||||||
|
|
Maturity Date |
|
Notional Amount |
|
|
Paid |
|
|
Received |
|
|
Net |
|
||||
Interest rate swap |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|||
Interest rate swap |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
||||
Total |
|
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|||
30
For the three months ended March 31, 2023 and 2022, the Company recognized $
As of March 31, 2023, the swap transactions had a fair value of $(
The Company is required under the terms of its derivatives agreements to pledge assets as collateral to secure its obligations underlying the derivatives. The amount of collateral required varies over time based on the mark-to-market value, notional amount and remaining term of the derivatives, and may exceed the amount owed by the Company on a mark-to-market basis. Any failure by the Company to fulfill any collateral requirement (e.g., a so-called “margin call”) may result in a default. In the event of a default by a counterparty, the Company would be an unsecured creditor to the extent of any such overcollateralization.
As of March 31, 2023, $
The Company may enter into other derivative instruments and incur other exposures with the same or other counterparties in the future.
6. Fair Value of Financial Instruments
Investments
The following tables present fair value measurements of investments as of March 31, 2023 and December 31, 2022:
|
|
Fair Value Hierarchy at March 31, 2023 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
First-lien debt investments |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Second-lien debt investments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Mezzanine debt investments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Equity and other investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Structured credit investments |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total investments at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swaps |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
Fair Value Hierarchy at December 31, 2022 |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
First-lien debt investments |
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||
Second-lien debt investments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Mezzanine debt investments |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Equity and other investments |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Structured credit investments |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total investments at fair value |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Interest rate swaps |
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.
31
The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three months ended March 31, 2023 and 2022:
|
|
As of and for the Three Months Ended |
|
|||||||||||||||||
|
|
March 31, 2023 |
|
|||||||||||||||||
|
|
First-lien |
|
|
Second-lien |
|
|
Mezzanine |
|
|
Equity |
|
|
Total |
|
|||||
Balance, beginning of period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Purchases or originations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Repayments / redemptions |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Paid-in-kind interest |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
|
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||||
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Net amortization of discount on securities |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Transfers within Level 3 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Transfers into (out of) Level 3 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, End of Period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
|
|
As of and for the Three Months Ended |
|
|||||||||||||||||
|
|
March 31, 2022 |
|
|||||||||||||||||
|
|
First-lien |
|
|
Second-lien |
|
|
Mezzanine |
|
|
Equity |
|
|
Total |
|
|||||
Balance, beginning of period |
|
$ |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Purchases or originations |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|||
Repayments / redemptions |
|
|
( |
) |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Paid-in-kind interest |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
|||
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
||
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||||
Net amortization of discount on securities |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Transfers within Level 3 |
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
— |
|
|
Transfers into (out of) Level 3 |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Balance, End of Period |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Astra Acquisition Corp. was transferred into Level 3 from Level 2 for fair value measurement purposes during the three months ended March 31, 2022, as a result of changes in the observability of inputs into the security valuation for this portfolio company.
The following table presents information with respect to the net change in unrealized gains or losses on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at
|
|
Net Change in Unrealized |
|
|
Net Change in Unrealized |
|
||
|
|
Gains or (Losses) |
|
|
Gains or (Losses) |
|
||
|
|
for the Three Months Ended |
|
|
for the Three Months Ended |
|
||
|
|
March 31, 2023 on |
|
|
March 31, 2022 on |
|
||
|
|
Investments Held at |
|
|
Investments Held at |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
First-lien debt investments |
|
$ |
|
|
$ |
|
||
Second-lien debt investments |
|
|
( |
) |
|
|
( |
) |
Mezzanine debt investments |
|
|
|
|
|
( |
) |
|
Equity and other investments |
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
$ |
|
||
32
The following tables present the fair value of Level 3 Investments at fair value and the significant unobservable inputs used in the valuations as of March 31, 2023 and December 31, 2022. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.
|
|
March 31, 2023 |
||||||||||
|
|
|
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Impact to Valuation |
|
|
|
Fair Value |
|
|
Technique |
|
Input |
|
Average) |
|
Increase to Input |
|
First-lien debt investments |
|
$ |
|
|
Income approach (1) |
|
Discount rate |
|
|
Decrease |
||
Second-lien debt investments |
|
|
|
|
Income approach |
|
Discount rate |
|
|
Decrease |
||
Mezzanine debt investments |
|
|
|
|
Income approach (2) |
|
Discount rate |
|
|
Decrease |
||
Equity and other investments |
|
|
|
|
Market Multiple (3) |
|
Comparable multiple |
|
|
Increase |
||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2022 |
||||||||||
|
|
|
|
|
Valuation |
|
Unobservable |
|
Range (Weighted |
|
Impact to Valuation |
|
|
|
Fair Value |
|
|
Technique |
|
Input |
|
Average) |
|
Increase to Input |
|
First-lien debt investments |
|
$ |
|
|
Income approach (1) |
|
Discount rate |
|
|
Decrease |
||
Second-lien debt investments |
|
|
|
|
Income approach |
|
Discount rate |
|
|
Decrease |
||
Mezzanine debt investments |
|
|
|
|
Income approach (2) |
|
Discount rate |
|
|
Decrease |
||
Equity and other investments |
|
|
|
|
Market Multiple (3) |
|
Comparable multiple |
|
|
Increase |
||
Total |
|
$ |
|
|
|
|
|
|
|
|
|
|
The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company’s capital structure.
Significant unobservable quantitative inputs typically considered in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. If debt investments are credit impaired, an enterprise value analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. For the Company’s Level 3 equity investments, multiples of similar companies’ revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions are typically used.
Financial Instruments Not Carried at Fair Value
Debt
The fair value of the Company’s Revolving Credit Facility, which is categorized as Level 3 within the fair value hierarchy, as of March 31, 2023 and December 31, 2022, approximates its carrying value as the outstanding balance is callable at carrying value.
33
The following table presents the fair value of the Company’s 2023 Notes, 2024 Notes and 2026 Notes, as of March 31, 2023 and December 31, 2022.
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
|
|
Outstanding |
|
|
Fair |
|
|
Outstanding |
|
|
Fair |
|
||||
2023 Notes |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
$ |
|
||
2024 Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2026 Notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Other Financial Assets and Liabilities
The carrying amounts of the Company’s assets and liabilities, other than investments at fair value and the 2023 Notes, 2024 Notes and 2026 Notes, approximate fair value due to their short maturities or their close proximity of the originations to the measurement date. Under the fair value hierarchy, cash and cash equivalents are classified as Level 1 while the Company’s other assets and liabilities, other than investments at fair value and Revolving Credit Facility, are classified as Level 2.
7. Debt
Revolving Credit Facility
On August 23, 2012, the Company entered into a senior secured revolving credit agreement with Truist Bank (as a successor by merger to SunTrust Bank), as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).
As of March 31, 2022, aggregate commitments under the facility were $
Pursuant to the Twelfth Amendment, with respect to $
Pursuant to an amendment to the Revolving Credit Facility dated as of May 19, 2022 (the “Thirteenth Amendment”), certain non-substantive administrative and operational elements were updated.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. As of March 31, 2023, the Company had outstanding debt denominated in Australian dollars (AUD) of
The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $
Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either the applicable reference rate plus an applicable credit spread adjustment, plus a margin of either
34
The Revolving Credit Facility is guaranteed by Sixth Street SL SPV, LLC, TC Lending, LLC and Sixth Street SL Holding, LLC. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by the Company and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants. In accordance with the terms of the Thirteenth Amendment, the financial covenants require:
The Revolving Credit Facility also contains certain additional concentration limits in connection with the calculation of the borrowing base, based on the Obligor Asset Coverage Ratio.
Net proceeds received from the Company’s common stock issuance in February 2021 and net proceeds received from the issuance of the 2023 Notes, 2024 Notes and 2026 Notes were used to pay down borrowings on the Revolving Credit Facility.
As of March 31, 2023 and December 31, 2022, the Company was in compliance with the terms of the Revolving Credit Facility.
2022 Convertible Notes
In February 2017, the Company issued in a private offering $
On August 1, 2022, the 2022 Convertible Notes matured in accordance with the governing indenture. Holders of $
2023 Notes
In January 2018, the Company issued $
35
2024 Notes
In November 2019, the Company issued $
On February 5, 2020, the Company issued an additional $
In connection with the 2024 Notes offering and the reopening of the 2024 Notes, the Company entered into interest rate swaps to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is $
During the year ended December 31, 2020, the Company repurchased on the open market and extinguished $
2026 Notes
On February 3, 2021, the Company issued $
In connection with the issuance of the 2026 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $
For the three months ended March 31, 2023 and 2022, the components of interest expense related to the 2023 Notes, 2024 Notes and 2026 Notes were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Interest expense |
|
$ |
|
|
$ |
|
||
Accretion of original issue discount |
|
|
|
|
|
|
||
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Total Interest Expense |
|
$ |
|
|
$ |
|
||
36
Total interest expense in the table above does not include the effect of the interest rate swaps related to the 2023 Notes, 2024 Notes and 2026 Notes. During the three months ended March 31, 2023 and 2022, the Company received $
As March 31, 2023 and December 31, 2022, the components of the carrying value of the 2023 Notes, 2024 Notes and 2026 Notes and the stated interest rate were as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||||||
|
|
2024 Notes |
|
|
2026 Notes |
|
|
2023 Notes |
|
|
2024 Notes |
|
|
2026 Notes |
|
|||||
Principal amount of debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Original issue discount, net of accretion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Deferred financing costs |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Fair value of an effective hedge |
|
|
( |
) |
|
|
( |
) |
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Carrying value of debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|||||
Stated interest rate |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
|||||
The stated interest rate in the table above does not include the effect of the interest rate swaps. As of March 31, 2023, the Company’s swap-adjusted interest rate on the 2024 Notes and 2026 Notes is plus
As of March 31, 2023, the Company was in compliance with the terms of the indentures governing the 2024 Notes and 2026 Notes. As of December 31, 2022, the Company was in compliance with the terms of the indentures governing the 2023 Notes, 2024 Notes and 2026 Notes.
In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing. As of March 31, 2023 and December 31, 2022, the Company’s asset coverage was
Debt obligations consisted of the following as of March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|||||||||||||
|
|
Aggregate |
|
|
Outstanding |
|
|
Amount |
|
|
Carrying |
|
||||
Revolving Credit Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2024 Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
2026 Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
37
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Aggregate |
|
|
Outstanding |
|
|
Amount |
|
|
Carrying |
|
||||
Revolving Credit Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
2023 Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
2024 Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
2026 Notes |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||
Total Debt |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
For the three months ended March 31, 2023 and 2022, the components of interest expense were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Interest expense |
|
$ |
|
|
$ |
|
||
Commitment fees |
|
|
|
|
|
|
||
Amortization of deferred financing costs |
|
|
|
|
|
|
||
Accretion of original issue discount |
|
|
|
|
|
|
||
Swap settlement |
|
|
|
|
|
( |
) |
|
Total Interest Expense |
|
$ |
|
|
$ |
|
||
Average debt outstanding (in millions) |
|
$ |
|
|
$ |
|
||
Weighted average interest rate |
|
|
% |
|
|
% |
||
8. Commitments and Contingencies
Portfolio Company Commitments
From time to time, the Company may enter into commitments to fund investments; such commitments are incorporated into the Company’s assessment of its liquidity position. The Company’s senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. The Company’s senior secured delayed draw term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured delayed draw term loan commitments generally have a shorter availability period than the term of the associated loan agreement.
38
As of March 31, 2023 and December 31, 2022, the Company had the following commitments to fund investments in current portfolio companies:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Alpha Midco, Inc. - Delayed Draw |
|
$ |
|
|
$ |
|
||
American Achievement, Corp. - Revolver |
|
|
|
|
|
|
||
ASG II, LLC - Delayed Draw |
|
|
|
|
|
|
||
Avalara, Inc. - Revolver |
|
|
|
|
|
|
||
Axonify, Inc. - Delayed Draw |
|
|
|
|
|
|
||
Banyan Software Holdings, LLC - Delayed Draw |
|
|
|
|
— |
|
||
Bayshore Intermediate #2, L.P. - Revolver |
|
|
|
|
|
|
||
BCTO Ace Purchaser, Inc. - Delayed Draw |
|
|
|
|
|
|
||
Bear OpCo, LLC - Delayed Draw |
|
|
|
|
|
|
||
BlueSnap, Inc. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
BTRS Holdings, Inc. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Carlstar Group, LLC - Revolver |
|
|
|
|
|
|
||
Cordance Operations, LLC - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Coupa Holdings, LLC - Delayed Draw & Revolver |
|
|
|
|
— |
|
||
CrunchTime Information Systems, Inc. - Delayed Draw |
|
|
|
|
|
|
||
Disco Parent, Inc. - Revolver |
|
|
|
|
— |
|
||
Dye & Durham Corp. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
EDB Parent, LLC - Delayed Draw |
|
|
|
|
|
|
||
Edge Bidco B.V. - Delayed Draw & Revolver |
|
|
|
|
— |
|
||
Elysian Finco Ltd. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Employment Hero Holdings Pty Ltd. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
EMS Linq, Inc. - Revolver |
|
|
|
|
|
|
||
Erling Lux Bidco SARL - Delayed Draw & Revolver |
|
|
|
|
|
|
||
ExtraHop Networks, Inc. - Delayed Draw |
|
|
|
|
|
|
||
ForeScout Technologies, Inc. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
G Treasury SS, LLC - Delayed Draw |
|
|
|
|
|
|
||
Hornetsecurity Holding GmbH - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Ibis Intermediate Co. - Delayed Draw |
|
|
|
|
|
|
||
IRGSE Holding Corp. - Revolver |
|
|
|
|
|
|
||
Kyriba Corp. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Laramie Energy, LLC - Delayed Draw |
|
|
|
|
— |
|
||
LeanTaaS Holdings, Inc. - Delayed Draw |
|
|
|
|
|
|
||
Lithium Technologies, LLC - Revolver |
|
|
|
|
|
|
||
Lucidworks, Inc. - Delayed Draw |
|
|
|
|
|
|
||
Murchison Oil and Gas, LLC - Delayed Draw |
|
|
|
|
|
|
||
Netwrix Corp. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Neuintel, LLC - Delayed Draw |
|
— |
|
|
|
|
||
OutSystems Luxco SARL - Delayed Draw |
|
|
|
|
|
|
||
PageUp People, Ltd. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Passport Labs, Inc. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Ping Identity Holding Corp. - Revolver |
|
|
|
|
|
|
||
PrimePay Intermediate, LLC - Delayed Draw |
|
|
|
|
|
|
||
PrimeRevenue, Inc. - Delayed Draw & Revolver |
|
|
|
|
|
|
||
Project44, Inc. - Delayed Draw |
|
|
|
|
|
|
||
ReliaQuest Holdings, LLC - Delayed Draw |
|
|
|
|
|
|
||
Tango Management Consulting, LLC - Delayed Draw & Revolver |
|
|
|
|
|
|
||
TRP Assets, LLC - Delayed Draw & Membership Interest |
|
|
|
|
|
|
||
WideOrbit, Inc. - Revolver |
|
— |
|
|
|
|
||
Total Portfolio Company Commitments (1)(2) |
|
$ |
|
|
$ |
|
||
Other Commitments and Contingencies
As of March 31, 2023 and December 31, 2022, the Company did
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of March 31, 2023 and December 31, 2022, management is not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
39
9. Net Assets
In February 2021, the Company issued a total of
In December 2021, the Company issued a total of
In August 2022, the Company issued a total of
The Company has a dividend reinvestment plan, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the cash dividend or distribution payable to a stockholder by the market price per share of the Company’s common stock at the close of regular trading on the NYSE on the payment date of a distribution, or if no sale is reported for such day, the average of the reported bid and ask prices. However, if the market price per share on the payment date of a cash dividend or distribution exceeds the most recently computed net asset value per share, the Company will issue shares at the greater of (i) the most recently computed net asset value per share and (ii)
Pursuant to the Company’s dividend reinvestment plan, the following tables summarize the shares issued to stockholders who have not opted out of the Company’s dividend reinvestment plan during the three months ended March 31, 2023 and 2022. All shares issued to stockholders in the tables below are newly issued shares.
|
|
Three Months Ended |
|
|||||||
|
|
March 31, 2023 |
|
|||||||
|
|
|
|
|
|
Date |
|
|
|
|
Date Declared |
|
Dividend (1) |
|
Record Date |
|
Shares Issued |
|
Shares Issued |
|
|
|
Supplemental |
|
|
|
|
|
||||
|
Base |
|
|
|
|
|
||||
Total Shares Issued |
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|||||||
|
|
March 31, 2022 |
|
|||||||
|
|
|
|
|
|
Date |
|
|
|
|
Date Declared |
|
Dividend (1) |
|
Record Date |
|
Shares Issued |
|
Shares Issued |
|
|
|
Base |
|
|
|
|
|
||||
|
Supplemental |
|
|
|
|
|
||||
Total Shares Issued |
|
|
|
|
|
|
|
|
|
|
On August 4, 2015, the Company's Board authorized the Company to acquire up to $
40
10. Earnings per share
The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Earnings per common share—basic |
|
|
|
|
|
|
||
Numerator for basic earnings per share |
|
$ |
|
|
$ |
|
||
Denominator for basic weighted average shares |
|
|
|
|
|
|
||
Earnings per common share—basic |
|
$ |
|
|
$ |
|
||
Earnings per common share—diluted |
|
|
|
|
|
|
||
Numerator for increase in net assets per share |
|
$ |
|
|
$ |
|
||
Adjustment for interest expense and deferred financing |
|
|
— |
|
|
|
|
|
Numerator for diluted earnings per share |
|
$ |
|
|
$ |
|
||
Denominator for basic weighted average shares |
|
|
|
|
|
|
||
Adjustment for dilutive effect of 2022 Convertible Notes |
|
|
— |
|
|
|
|
|
Denominator for diluted weighted average shares |
|
|
|
|
|
|
||
Earnings per common share—diluted |
|
$ |
|
|
$ |
|
||
The 2022 Convertible Notes were convertible into a combination of cash and shares of the Company’s common stock, which could have been dilutive to common stockholders. Diluted earnings per share is the amount of earnings available to each share of common stock outstanding during the reporting period including any additional shares of common stock that would be issued if all potentially dilutive securities were exercised. Upon adoption of ASU 2020-06 during the period ended March 31, 2021, the Company was required to disclose diluted EPS using the if-converted method. The if-converted method is a method of computing EPS that assumes conversion of convertible securities at the beginning of the reporting period and is intended to show the maximum dilution effect to common stockholders regardless of how the conversion can occur.
For the purpose of calculating diluted earnings per common share, the average closing price of the Company’s common stock for the three months ended March 31, 2022 was greater than the estimated adjusted conversion price for the 2022 Convertible Notes outstanding as of March 31, 2022. Therefore, for this period presented in the consolidated financial statements the Company applied the if-converted method for purposes of calculating diluted earnings per common share.
11. Dividends
The Company has historically paid a dividend to stockholders on a quarterly basis. The Company has a dividend framework that provides for a quarterly base dividend and a variable supplemental dividend, subject to satisfaction of certain measurement tests and the approval of the Board.
The following tables summarize dividends declared during the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||||
|
|
March 31, 2023 |
|
|||||||
Date Declared |
|
Dividend |
|
Record Date |
|
Payment Date |
|
Dividend per Share |
|
|
|
|
|
|
$ |
|
|||||
|
|
|
|
|
|
|||||
Total Dividends Declared |
|
|
|
|
|
|
|
$ |
|
|
|
|
Three Months Ended |
|
|||||||
|
|
March 31, 2022 |
|
|||||||
Date Declared |
|
Dividend |
|
Record Date |
|
Payment Date |
|
Dividend per Share |
|
|
|
|
|
|
$ |
|
|||||
|
|
|
|
|
|
|||||
Total Dividends Declared |
|
|
|
|
|
|
|
$ |
|
|
The dividends declared during the three months ended March 31, 2023 and 2022 were derived from net investment income, determined on a tax basis.
41
12. Income Taxes
The tax character of shareholder distributions attributable to the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Ordinary Income |
|
$ |
|
|
$ |
|
||
Capital Gains |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
|
|
$ |
|
||
The tax basis components of distributable earnings as of March 31, 2023 and December 31, 2022 were as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Undistributed net investment income - tax basis |
|
$ |
|
|
$ |
|
||
Undistributed net realized gains - tax basis |
|
|
|
|
|
|
||
Net unrealized gains on investments |
|
|
|
|
|
|
||
Other temporary differences |
|
|
( |
) |
|
|
( |
) |
Total distributable earnings - book basis |
|
$ |
|
|
$ |
|
||
The following reconciles increase in net assets resulting from operations for the three months ended March 31, 2023 and 2022 to taxable income at March 31, 2023, and 2022:
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Increase in net assets resulting from |
|
$ |
|
|
$ |
|
||
Adjustments: |
|
|
|
|
|
|
||
Net unrealized (gains) losses on investments |
|
|
( |
) |
|
|
|
|
Other income for tax purposes, not book |
|
|
|
|
|
|
||
Deferred organization costs |
|
|
( |
) |
|
|
( |
) |
Other expenses not currently deductible |
|
|
|
|
|
|
||
Other book-tax differences |
|
|
|
|
|
|
||
Taxable Income |
|
$ |
|
|
$ |
|
||
Note: Taxable income is an estimate and is not fully determined until the Company’s tax return is filed. The Company’s tax year end is March 31st.
Taxable income generally differs from increase in net assets resulting from operations due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized.
The Company makes certain adjustments to the classification of stockholders’ equity as a result of permanent book-to-tax differences, which include differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes or losses among other items. To the extent these differences are permanent, they are charged or credited to additional paid in capital, or distributable earnings, as appropriate. In addition, due to the Company’s differing fiscal, tax, and excise tax year ends, the best estimates available are recorded to the above accounts in the period that such differences arise or are identifiable.
During the three months ended March 31, 2023 and 2022, the Company increased distributable earnings and decreased additional paid in capital by $
The Company’s wholly-owned subsidiary, Sixth Street SL Holding, LLC, is a taxable subsidiary in which the Company holds certain equity investments. Sixth Street SL Holding, LLC is not consolidated for U.S. federal income tax purposes and may generate income tax expense as a result of its ownership of certain portfolio companies. The income tax expense, or benefit, and the related tax assets and liabilities, if any, are reflected in our Statement of Operations.
As of March 31, 2023, the Company had a deferred tax liability of $
42
As of December 31, 2022, the Company had a deferred tax liability of $
During the period April 1, 2022 through March 31, 2023, the Company’s estimated U.S. federal taxable income exceeded its distributions made from such taxable income during the tax year; consequently, the Company has elected to carry forward the excess for distribution to shareholders. The amount carried forward is estimated to be approximately $
To the extent that the Company determines that its estimated current year annual taxable income will exceed its estimated current year dividends from such taxable income, the Company accrues excise tax on estimated excess taxable income. For the three months ended March 31, 2023 and 2022, a net expense of $
13. Financial Highlights
The following per share data and ratios have been derived from information provided in the consolidated financial statements. The following are the financial highlights for one share of common stock outstanding during the three months ended March 31, 2023 and 2022.
|
|
Three Months Ended |
|
|
Three Months Ended |
|
||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Per Share Data (8) |
|
|
|
|
|
|
||
Net asset value, beginning of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Net investment income (1) |
|
|
|
|
|
|
||
Net realized and unrealized |
|
|
|
|
|
|
||
Total from operations |
|
|
|
|
|
|
||
Issuance of common stock, net of |
|
|
— |
|
|
|
|
|
Dividends declared from net |
|
|
( |
) |
|
|
( |
) |
Total increase (decrease) in net assets |
|
|
|
|
|
|
||
Net Asset Value, End of Period |
|
$ |
|
|
$ |
|
||
Per share market value at end of |
|
$ |
|
|
$ |
|
||
Total return based on market value |
|
|
% |
|
|
% |
||
Total return based on market value (4) |
|
|
% |
|
|
% |
||
Total return based on net asset |
|
|
% |
|
|
% |
||
Shares Outstanding, End of Period |
|
|
|
|
|
|
||
Ratios / Supplemental Data (6) |
|
|
|
|
|
|
||
Ratio of net expenses to average |
|
|
% |
|
|
% |
||
Ratio of net investment income |
|
|
% |
|
|
% |
||
Portfolio turnover |
|
|
% |
|
|
% |
||
Net assets, end of period |
|
$ |
|
|
$ |
|
||
43
14. Subsequent Events
The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events, except as already disclosed, that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three months ended March 31, 2023.
44
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Statements” set forth on page 3 of this Quarterly Report on Form 10-Q.
Overview
Sixth Street Specialty Lending, Inc. is a Delaware corporation formed on July 21, 2010. The Adviser is our external manager. We have four wholly owned subsidiaries, TC Lending, LLC, a Delaware limited liability company, which holds a California finance lender and broker license, Sixth Street SL SPV, LLC, a Delaware limited liability company, in which we hold assets that were previously used to support our asset-backed credit facility, Sixth Street SL Holding, LLC, a Delaware limited liability company, in which we hold certain investments, and Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company, in which we plan to hold certain investments.
We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code. We made our BDC election on April 15, 2011. As a result, we are required to comply with various statutory and regulatory requirements, such as:
Our shares are listed on the NYSE under the symbol “TSLX.”
Our Investment Framework
We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities in July 2011, through March 31, 2023, we have originated more than $26.0 billion aggregate principal amount of investments and retained approximately $9.4 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities.
By “middle-market companies,” we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of $10 million to $250 million, although we may invest in larger or smaller companies on occasion. As of March 31, 2023, our core portfolio companies, which exclude certain investments that fall outside of our typical borrower profile and represent 91.4% of our total investments based on fair value, had weighted average annual revenue of $165.5 million and weighted average annual EBITDA of $53.8 million.
We invest in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Our first-lien debt may include stand-alone first-lien loans; “last out” first-lien loans, which are loans that have a secondary priority behind super-senior “first out” first-lien loans; “unitranche” loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt.
The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3 as defined by Standard & Poor’s and Moody’s Investors Services, respectively), which is often referred to as “junk.”
The companies in which we invest use our capital to support organic growth, acquisitions, market or product expansion and recapitalizations (including restructurings). As of March 31, 2023, the largest single investment based on fair value represented 2.7% of our total investment portfolio.
As of March 31, 2023, the average investment size in each of our portfolio companies was approximately $23.0 million based on fair value. Portfolio companies includes investments in structured credit investments, which include each series of collateralized loan obligation as a portfolio company investment. When excluding investments in structured credit investments the average investment in our remaining portfolio companies was approximately $34.5 million as of March 31, 2023.
45
Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:
Business and sector selection. We focus on companies with enterprise value between $50 million and $1 billion. When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio.
We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our 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.
As of March 31, 2023, the largest industry represented 15.0% of our total investment portfolio based on fair value.
Investment Structuring. We focus on investing at the top of the capital structure and protecting that position. As of March 31, 2023, approximately 92.4% of our portfolio was invested in secured debt, including 90.8% in first-lien debt investments. We carefully perform diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to six years after origination. For the three months ended March 31, 2023, the weighted average term on new investment commitments in new portfolio companies was 5.3 years.
Deal Dynamics. We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships.
Risk Mitigation. We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future interest income. As of March 31, 2023, we had call protection on 80.8% of our debt investments based on fair value, with weighted average call prices of 107.0% for the first year, 103.6% for the second year and 101.3% for the third year, in each case from the date of the initial investment. As of March 31, 2023, 99.2% of our debt investments based on fair value bore interest at floating rates, with 100.0% of these subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.
Relationship with our Adviser and Sixth Street
Our Adviser is a Delaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with the SEC under the Advisers Act. Our Adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on direct lending, which we refer to as our Investment Team. Our Investment Team is led by our Chairman and Chief Executive Officer and our Adviser’s Co-Chief Investment Officer Joshua Easterly and our Adviser’s Co-Chief Investment Officer Alan Waxman, both of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of our Adviser and affiliates of Sixth Street Partners, LLC, or “Sixth Street.”
Sixth Street is a global investment business with over $65 billion of assets under management as of March 31, 2023. Sixth Street’s core platforms include Sixth Street Specialty Lending, Sixth Street Lending Partners, which is aimed at U.S. upper middle-market loan originations, Sixth Street Specialty Lending Europe, which is aimed at European middle-market loan originations, Sixth Street TAO, which has the flexibility to invest across all of Sixth Street’s private credit market investments, Sixth Street Opportunities, which focuses on actively managed opportunistic investments across the credit cycle, Sixth Street Credit Market Strategies, which is the firm’s “public-side” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets, Sixth Street Growth, which provides financing solutions to growing companies, Sixth Street Fundamental Strategies, which primarily invests in secondary credit, and Sixth Street Agriculture, which invests in niche agricultural opportunities. Sixth Street has a long-term oriented, highly flexible capital base that allows it to invest across industries, geographies, capital structures and asset classes. Sixth Street has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 500 investment and operating professionals. As of March 31, 2023, forty-six (46) of these personnel are dedicated to direct lending, including thirty-six (36) investment professionals.
Our Adviser consults with Sixth Street in connection with a substantial number of our investments. The Sixth Street platform provides us with a breadth of large and scalable investment resources. We believe we benefit from Sixth Street’s market expertise, insights into industry, sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market
46
conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. Sixth Street and its affiliates will refer all middle-market loan origination activities for companies domiciled in the United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us.
On December 16, 2014, we were granted an exemptive order from the SEC that allows us to co-invest, subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our Adviser has independently determined is appropriate to invest, with certain of our affiliates (including affiliates of Sixth Street) in middle-market loan origination activities for companies domiciled in the United States and certain “follow-on” investments in companies in which we have already co-invested pursuant to the order and remain invested. On January 16, 2020, we filed a further application for co-investment exemptive relief with the SEC to better align our existing co-investment relief with more recent SEC exemptive orders. Subsequent further applications were also made, most recently as June 29, 2022. On August 3, 2022, the SEC granted the new order in response to our application.
We believe our ability to co-invest with Sixth Street affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We expect that with the ability to co-invest with Sixth Street affiliates we will continue to be able to provide “one-stop” financing to a potential portfolio company in these circumstances, which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors.
Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser’s services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the base management fee, or the Management Fee, and may also pay certain incentive fees, or the Incentive Fees.
Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement.
Key Components of Our Results of Operations
Investments
We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.
Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.
Revenues
We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on direct equity investments, capital gains on the sale of investments and various loan origination and other fees. Our debt investments typically have a term of two to six years, and, as of March 31, 2023, 99.2% of these investments based on fair value bore interest at a floating rate, with 100.0% of these subject to interest rate floors. Interest on debt investments is generally payable quarterly or semiannually. Some of our investments provide for deferred interest payments or PIK interest. For the three months ended March 31, 2023, 3.1% of our total investment income was comprised of PIK interest.
Changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding, rather than by changes in interest rates. Our investment portfolio primarily consists of floating rate loans, and our credit facilities, 2024 Notes and 2026 Notes, after taking into account the effect of the interest rate swaps we have entered into in connection with these securities, all bear interest at floating rates. Macro trends in base interest rates like LIBOR or other reference rates may affect our net investment income over the long term. However, because we generally originate loans to a limited number of portfolio companies each quarter, and those investments also vary in size, our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new
47
investments made during that period—often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business.
In addition to interest income, our net investment income is also driven by prepayment and other fees, which also can vary significantly from quarter to quarter. The level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums, but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g., merger and acquisition activity, initial public offerings and restructurings. As noted above, generally a small but varied number of portfolio companies may make prepayments in any quarter, meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends.
Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. We record prepayment premiums on loans as interest income when earned. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees. The frequency or volume of these items of revenue may fluctuate significantly.
Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the consolidated statements of operations.
Expenses
Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:
48
We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.
Leverage
While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions, however, under the 1940 Act, our total borrowings are limited so that our asset coverage ratio cannot fall below 150% immediately after any borrowing, as defined in the 1940 Act. In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets as collateral to financing facilities from time to time.
Market Trends
We believe trends in the middle-market lending environment, including the limited availability of capital from traditional regulated financial institutions, strong demand for debt capital and specialized lending requirements, are likely to continue to create favorable opportunities for us to invest at attractive risk-adjusted rates.
Subsequent to the global financial crisis, the implementation of regulatory changes such as Basel III requirements, Leverage Lending Guidance, and the Volcker Rule, tightened risk appetites and reduced the capacity of traditional lenders to serve middle-market companies. We believe that these dynamics create a significant opportunity for us to directly originate investments. We also believe that the large amount of uninvested capital held by private equity firms will continue to drive deal activity, which may in turn create additional demand for debt capital.
This market dynamic is further exacerbated by the specialized due diligence and underwriting capabilities, as well as extensive ongoing monitoring, required for middle-market lending. We believe middle-market lending is generally more labor-intensive than lending to larger companies due to smaller investment sizes and the lack of publicly available information on these companies. As a result, the opportunities for dedicated private lenders such as us has continued to expand.
An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower’s distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders.
Portfolio and Investment Activity
As of March 31, 2023, our portfolio based on fair value consisted of 90.8% first-lien debt investments, 1.6% second-lien investments, 0.4% mezzanine debt investments, 5.4% equity and other investments and 1.8% structured credit investments. As of December 31, 2022, our portfolio based on fair value consisted of 90.3% first-lien debt investments, 1.5% second-lien debt investments, 0.4% mezzanine investments, 6.0% equity and other investments and 1.8% structured credit investments.
As of March 31, 2023 and December 31, 2022, our weighted average total yield of debt and income producing securities at fair value (which includes interest income and amortization of fees and discounts) was 13.9% and 13.5%, respectively, and our weighted
49
average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 13.9% and 13.4%, respectively.
As of March 31, 2023 and December 31, 2022, we had investments in 127 portfolio companies (including 44 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment) and 121 portfolio companies (including 43 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment), respectively, with an aggregate fair value of $2,918.6 million and $2,787.9 million, respectively.
For the three months ended March 31, 2023, the principal amount of new investments funded was $138.9 million in seven new portfolio companies and five existing portfolio companies. For this period, we had $50.8 million aggregate principal amount in exits and repayments.
For the three months ended March 31, 2022, the principal amount of new investments funded was $52.8 million in two new portfolio companies and eight existing portfolio companies. For this period, we had $144.4 million aggregate principal amount in exits and repayments.
Our investment activity for the three months ended March 31, 2023 and 2022 is presented below (information presented herein is at par value unless otherwise indicated).
|
|
Three Months Ended |
|
|||||
($ in millions) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
New investment commitments: |
|
|
|
|
|
|
||
Gross originations (1) |
|
$ |
1,079.4 |
|
|
$ |
304.5 |
|
Less: Syndications/sell downs (1) |
|
|
903.3 |
|
|
|
225.2 |
|
Total new investment commitments |
|
$ |
176.1 |
|
|
$ |
79.3 |
|
Principal amount of investments funded: |
|
|
|
|
|
|
||
First-lien |
|
$ |
130.2 |
|
|
$ |
48.5 |
|
Second-lien |
|
|
5.0 |
|
|
|
— |
|
Mezzanine |
|
|
0.7 |
|
|
|
— |
|
Equity and other |
|
|
1.4 |
|
|
|
4.3 |
|
Structured Products |
|
|
1.6 |
|
|
|
— |
|
Total |
|
$ |
138.9 |
|
|
$ |
52.8 |
|
Principal amount of investments sold or repaid: |
|
|
|
|
|
|
||
First-lien |
|
$ |
50.3 |
|
|
$ |
140.5 |
|
Second-lien |
|
|
— |
|
|
|
— |
|
Mezzanine |
|
|
— |
|
|
|
— |
|
Equity and other |
|
|
0.5 |
|
|
|
3.9 |
|
Structured Products |
|
|
— |
|
|
|
— |
|
Total |
|
$ |
50.8 |
|
|
$ |
144.4 |
|
Number of new investment commitments in |
|
|
7 |
|
|
|
2 |
|
Average new investment commitment amount in |
|
$ |
21.6 |
|
|
$ |
16.5 |
|
Weighted average term for new investment |
|
|
5.3 |
|
|
|
5.7 |
|
Percentage of new debt investment commitments |
|
|
99.6 |
% |
|
|
100.0 |
% |
Percentage of new debt investment commitments |
|
|
0.4 |
% |
|
|
— |
|
Weighted average interest rate of new |
|
|
12.4 |
% |
|
|
9.5 |
% |
Weighted average spread over reference rate of new |
|
|
7.6 |
% |
|
|
8.6 |
% |
Weighted average interest rate on investments |
|
|
12.6 |
% |
|
|
9.7 |
% |
50
As of March 31, 2023 and December 31, 2022, our investments consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
($ in millions) |
|
Fair Value |
|
|
Amortized Cost |
|
|
Fair Value |
|
|
Amortized Cost |
|
||||
First-lien debt investments |
|
$ |
2,651.5 |
|
|
$ |
2,646.5 |
|
|
$ |
2,517.9 |
|
|
$ |
2,529.3 |
|
Second-lien debt investments |
|
|
44.8 |
|
|
|
47.6 |
|
|
|
40.8 |
|
|
|
42.7 |
|
Mezzanine debt investments |
|
|
11.1 |
|
|
|
8.3 |
|
|
|
10.1 |
|
|
|
7.5 |
|
Equity and other investments |
|
|
157.5 |
|
|
|
142.7 |
|
|
|
167.7 |
|
|
|
142.1 |
|
Structured credit investments |
|
|
53.7 |
|
|
|
54.7 |
|
|
|
51.4 |
|
|
|
53.1 |
|
Total |
|
$ |
2,918.6 |
|
|
$ |
2,899.8 |
|
|
$ |
2,787.9 |
|
|
$ |
2,774.7 |
|
The following tables show the fair value and amortized cost of our performing and non-accrual investments as of March 31, 2023and December 31, 2022:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
($ in millions) |
|
Fair Value |
|
|
Percentage |
|
|
Fair Value |
|
|
Percentage |
|
||||
Performing |
|
$ |
2,898.8 |
|
|
|
99.3 |
% |
|
$ |
2,787.7 |
|
|
|
100.0 |
% |
Non-accrual (1) |
|
|
19.8 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.0 |
|
Total |
|
$ |
2,918.6 |
|
|
|
100.0 |
% |
|
$ |
2,787.9 |
|
|
|
100.0 |
% |
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
($ in millions) |
|
Amortized Cost |
|
|
Percentage |
|
|
Amortized Cost |
|
|
Percentage |
|
||||
Performing |
|
$ |
2,871.6 |
|
|
|
99.0 |
% |
|
$ |
2,772.8 |
|
|
|
99.9 |
% |
Non-accrual (1) |
|
|
28.2 |
|
|
|
1.0 |
|
|
|
1.9 |
|
|
|
0.1 |
|
Total |
|
$ |
2,899.8 |
|
|
|
100.0 |
% |
|
$ |
2,774.7 |
|
|
|
100.0 |
% |
The weighted average yields and interest rates of our performing debt investments at fair value as of March 31, 2023 and December 31, 2022 were as follows:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Weighted average total yield of debt and income |
|
|
13.9 |
% |
|
|
13.5 |
% |
Weighted average interest rate of debt and income |
|
|
13.4 |
% |
|
|
13.1 |
% |
Weighted average spread over reference rate of all floating |
|
|
8.6 |
% |
|
|
8.7 |
% |
The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance of our investments, which may include the following:
51
As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:
The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of March 31, 2023 and December 31, 2022. Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company’s business or financial condition, market conditions or developments, and other factors.
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|||||||||||
Investment |
|
|
Investments at |
|
|
|
|
|
Investments at |
|
|
|
|
|||||
Performance |
|
|
Fair Value |
|
|
Percentage of |
|
|
Fair Value |
|
|
Percentage of |
|
|||||
Rating |
|
|
($ in millions) |
|
|
Total Portfolio |
|
|
($ in millions) |
|
|
Total Portfolio |
|
|||||
|
1 |
|
|
$ |
2,507.9 |
|
|
|
85.9 |
% |
|
$ |
2,472.8 |
|
|
|
88.7 |
% |
|
2 |
|
|
|
390.9 |
|
|
|
13.4 |
|
|
|
293.6 |
|
|
|
10.5 |
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
21.3 |
|
|
|
0.8 |
|
|
4 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
5 |
|
|
|
19.8 |
|
|
|
0.7 |
|
|
|
0.2 |
|
|
|
0.0 |
|
Total |
|
|
$ |
2,918.6 |
|
|
|
100.0 |
% |
|
$ |
2,787.9 |
|
|
|
100.0 |
% |
|
52
Results of Operations
Operating results for the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||
($ in millions) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Total investment income |
|
$ |
96.5 |
|
|
$ |
67.4 |
|
Less: Net expenses |
|
|
53.2 |
|
|
|
31.4 |
|
Net investment income before income taxes |
|
|
43.3 |
|
|
|
36.0 |
|
Less: Income taxes, including excise taxes |
|
|
0.4 |
|
|
|
0.3 |
|
Net investment income |
|
|
42.9 |
|
|
|
35.7 |
|
Net realized gains (losses) (1) |
|
|
5.2 |
|
|
|
13.7 |
|
Net change in unrealized gains (losses) (1) |
|
|
4.8 |
|
|
|
(8.5 |
) |
Net increase in net assets resulting from operations |
|
$ |
52.9 |
|
|
$ |
40.9 |
|
Investment Income
|
|
Three Months Ended |
|
|||||
($ in millions) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Interest from investments |
|
$ |
93.1 |
|
|
$ |
65.4 |
|
Dividend income |
|
|
0.6 |
|
|
|
0.2 |
|
Other income |
|
|
2.8 |
|
|
|
1.8 |
|
Total investment income |
|
$ |
96.5 |
|
|
$ |
67.4 |
|
Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $65.4 million for the three months ended March 31, 2022 to $93.1 million for the three months ended March 31, 2023. The increase in interest from investments was primarily the result of an increase in interest earned due to an increase in reference rates for the period ended March 31, 2023 compared to the same period in 2022. Accelerated amortization of upfront fees, which were primarily from unscheduled paydowns, decreased from $1.8 million for the three months ended March 31, 2022 to $0.5 million for the three months ended March 31, 2023. Prepayment fees decreased from $5.1 million for the three months ended March 31, 2022 to $1.1 million for the three months ended March 31, 2023. Accelerated amortization of upfront fees and prepayment fees primarily resulted from full paydowns on four portfolio investments, partial paydowns on four portfolio investments, a partial realization on one portfolio investment, and earning prepayment fees on seven portfolio investments during the three months ended March 31, 2022 and from a full paydown on one portfolio investment, partial paydowns on two portfolio investments and earning prepayment fees on two portfolio investments during the three months ended March 31, 2023. Dividend income increased from $0.2 million for the three months ended March 31, 2022 to $0.6 million for the three months ended March 31, 2023 due to increased investment in dividend yielding securities in 2023. Other income increased from $1.8 million for the three months ended March 31, 2022 to $2.8 million for the three months ended March 31, 2023, primarily due to increased amendment fees during the three months ended March 31, 2023 compared to the same period in 2022.
Expenses
Operating expenses for the three months ended March 31, 2023 and 2022 were as follows:
|
|
Three Months Ended |
|
|||||
($ in millions) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Interest |
|
$ |
28.5 |
|
|
$ |
9.6 |
|
Management fees (net of waivers) |
|
|
10.5 |
|
|
|
9.3 |
|
Incentive fees related to pre-incentive fee net investment |
|
|
9.5 |
|
|
|
7.9 |
|
Incentive fees related to realized/unrealized capital gains |
|
|
1.8 |
|
|
|
1.4 |
|
Professional fees |
|
|
1.7 |
|
|
|
1.5 |
|
Directors fees |
|
|
0.2 |
|
|
|
0.2 |
|
Other general and administrative |
|
|
1.0 |
|
|
|
1.5 |
|
Net Expenses |
|
$ |
53.2 |
|
|
$ |
31.4 |
|
53
Interest
Interest expense, including other debt financing expenses, increased from $9.6 million for the three months ended March 31, 2022 to $28.5 million for the three months ended March 31, 2023. This increase was primarily due to an increase in the average interest rate on our debt outstanding and an increase in the average debt outstanding from $1,211.0 million for the three months ended March 31, 2022 to $1,569.4 million for the three months ended March 31, 2023. The average interest rate on our debt outstanding increased from 2.3% for the three months ended March 31, 2022 to 6.7% for the three months ended March 31, 2023.
Management Fees
Management Fees (gross of waivers) increased from $9.3 million for the three months ended March 31, 2022 to $10.7 million for the three months ended March 31, 2023 due to an increase in average assets for the three months ended March 31, 2023 compared to the same period in 2022. Management Fees (net of waivers) increased from $9.3 million for the three months ended March 31, 2022 to $10.5 million for the three months ended March 31, 2023. The Adviser waived Management Fees of $0.3 million for the three months ended March 31, 2023 pursuant to the Leverage Waiver. The Adviser did not waive Management Fees for the three months ended March 31, 2022.
Any waived Management Fees are not subject to recoupment by the Adviser.
Incentive Fees
Incentive Fees related to pre-Incentive Fee net investment income increased from $7.9 million for the three months ended March 31, 2022 to $9.5 million for the three months ended March 31, 2023. This increase resulted from an increase in reference rates for the three months ended March 31, 2023. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the three months ended March 31, 2023 or 2022. For the three months ended March 31, 2023 and 2022, $1.8 million and $1.4 million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of March 31, 2023, these accrued Incentive Fees are not contractually payable to the Adviser.
Professional Fees and Other General and Administrative Expenses
Professional fees increased from $1.5 million for the three months ended March 31, 2022 to $1.7 million for the three months ended March 31, 2023. Other general and administrative expenses decreased from $1.5 million for the three months ended March 31, 2022 to $1.0 million for the three months ended March 31, 2023.
Income Taxes, Including Excise Taxes
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes.
Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income.
For the three months ended March 31, 2023 and 2022, we recorded a net expense of $0.4 million and $0.4 million, respectively, for U.S. federal excise tax and other taxes.
54
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses) for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended |
|
|||||
($ in millions) |
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Net realized gains (losses) on investments |
|
$ |
4.8 |
|
|
$ |
13.7 |
|
Net realized gains (losses) on foreign currency transactions |
|
|
0.2 |
|
|
|
(0.0 |
) |
Net realized gains (losses) on foreign currency investments |
|
— |
|
|
|
0.1 |
|
|
Net realized gains (losses) on foreign currency borrowings |
|
|
0.2 |
|
|
|
(0.1 |
) |
Net Realized Gains (Losses) |
|
$ |
5.2 |
|
|
$ |
13.7 |
|
|
|
|
|
|
|
|
||
Change in unrealized gains on investments |
|
$ |
24.0 |
|
|
$ |
29.7 |
|
Change in unrealized (losses) on investments |
|
|
(18.4 |
) |
|
|
(33.5 |
) |
Net Change in Unrealized Gains (Losses) on |
|
$ |
5.6 |
|
|
$ |
(3.8 |
) |
|
|
|
|
|
|
|
||
Unrealized gains (losses) on foreign currency borrowings |
|
|
(0.7 |
) |
|
|
(1.8 |
) |
Unrealized gains (losses) on foreign currency cash |
|
|
(0.3 |
) |
|
|
(0.0 |
) |
Unrealized gains (losses) on interest rate swaps |
|
|
0.2 |
|
|
|
(2.9 |
) |
Net Change in Unrealized Gains (Losses) on Foreign |
|
$ |
(0.8 |
) |
|
$ |
(4.7 |
) |
|
|
|
|
|
|
|
||
Net Change in Unrealized Gains (Losses) |
|
$ |
4.8 |
|
|
$ |
(8.5 |
) |
For the three months ended March 31, 2023 and 2022 we had net realized gains on investments of $4.8 million and net realized gains on investments of $13.7 million, respectively. For the three months ended March 31, 2023 and 2022, we had net realized gains of $0.2 million and net realized losses of less than $(0.1) million, respectively, on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three months ended March 31, 2022, we had net realized gains on foreign currency investments of $0.1 million. For the three months ended March 31, 2023 and 2022, we had net realized gains on foreign currency borrowings of $0.2 million and net realized losses of $(0.1) million, respectively.
For the three months ended March 31, 2023, we had $24.0 million in unrealized gains on 99 portfolio company investments, which was offset by $18.4 million in unrealized losses on 29 portfolio company investments. Unrealized gains for the three months ended March 31, 2023 resulted from an increase in fair value, primarily due to positive valuation adjustments, unwind of prior period unrealized losses, and changes in credit spreads. Unrealized losses for the three months ended March 31, 2023 resulted from the reversal of prior period unrealized gains due to realizations, negative credit-related adjustments and changes in credit spreads.
For the three months ended March 31, 2022, we had $29.7 million in unrealized gains on 31 portfolio company investments, which was offset by $33.5 million in unrealized losses on 40 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments.
For the three months ended March 31, 2023, we had unrealized losses on foreign currency borrowings of $(0.7) million, and for the three months ended March 31, 2022, we had unrealized losses of $(1.8) million on foreign currency borrowings, as a result of fluctuations in the AUD, CAD, EUR and GBP exchange rates. For the three months ended March 31, 2023, we had unrealized losses on foreign currency cash of $(0.3) million. For the three months ended March 31, 2023 and 2022, we had net unrealized gains on interest rate swaps of $0.2 million and net unrealized losses of $(2.9) million, respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps.
Realized Gross Internal Rate of Return
Since we began investing in 2011 through March 31, 2023, weighted by capital invested, our exited investments have generated an average realized gross internal rate of return to us of 17.7% (based on total capital invested of $6.7 billion and total proceeds from these exited investments of $8.4 billion). Ninety percent of these exited investments resulted in a realized gross internal rate of return to us of 10% or greater.
55
Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur.
Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of Management Fees, expenses, Incentive Fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.
Average gross IRR is the average of the gross IRR for each of our exited investments (each calculated as described above), weighted by the total capital invested for each of those investments.
Average gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.
Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited.
Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital invested also includes realized losses on hedging activity, with respect to an investment, which represents any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any.
Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees, administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, which represents any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any.
Interest Rate and Foreign Currency Hedging
We use interest rate swaps to hedge our fixed rate debt and certain fixed rate investments. We have designated certain interest rate swaps to be in a hedge accounting relationship. See Note 2 for additional disclosure regarding our accounting for derivative instruments designated in a hedge accounting relationship. See Note 5 for additional disclosure regarding these derivative instruments and the interest payments paid and received. See Note 7 for additional disclosure regarding the carrying value of our debt. Our current approach to hedging the foreign currency exposure in our non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under our Revolving Credit Facility to fund these investments. For the three months ended March 31, 2023 and 2022, we had $(0.7) million of unrealized losses and $(1.8) million of unrealized losses, respectively, on the translation of our non-U.S. dollar denominated debt into U.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments into U.S. dollars for the three months ended March 31, 2023 and 2022. See Note 2 for additional disclosure regarding our accounting for foreign currency. See Note 7 for additional disclosure regarding the amounts of outstanding debt denominated in each foreign currency at March 31, 2023. See our consolidated schedule of investments for additional disclosure regarding the foreign currency amounts (in both par and fair value) of our non-U.S. dollar denominated investments.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:
We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and
56
regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. For more information, see “Key Components of Our Results of Operations — Leverage” above. As of March 31, 2023 and December 31, 2022, our asset coverage ratio was 183.3% and 188.6%, respectively. We carefully consider our unfunded commitments for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. Further, we maintain sufficient borrowing capacity within the 150% asset coverage limitation under the 1940 Act and the asset coverage limitation under our credit facilities to cover any outstanding unfunded commitments we are required to fund.
Cash and cash equivalents as of March 31, 2023, taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As of March 31, 2023, we had approximately $0.5 billion of availability on our Revolving Credit Facility, subject to asset coverage limitations.
As of March 31, 2023, we had $25.7 million in cash and cash equivalents, including $16.2 million of restricted cash, an increase of $0.7 million from December 31, 2022. During the three months ended March 31, 2023, cash used in operating activities was $(73.5) million, primarily attributable to funding portfolio investments of $176.4 million, which was offset by repayments and proceeds from investments of $62.9 million and an increase in net assets resulting from operations of $53.0 million. Cash provided by financing activities was $73.6 million during the period due to borrowings of $457.6 million, which was offset by paydowns on our Revolving Credit Facility of $345.5 million and dividends paid of $38.5 million.
Equity
On February 23, 2021, we issued a total of 4,000,000 shares of common stock at $21.30 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $84.9 million. Subsequent to the offering we issued an additional 49,689 shares in March 2021 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $1.0 million.
In December 2021, we issued a total of 2,324,820 shares of common stock, or $42.3 million, as settlement for the conversion of $42.8 million principal amount of the 2022 Convertible Notes.
In August 2022, we issued a total of 4,360,125 share of common stock, or $78.1 million, as settlement for the conversion of $79.2 million principal amount of the 2022 Convertible Notes.
During the three months ended March 31, 2023 and 2022, we also issued 362,578 and 299,138 shares of our common stock, respectively, to investors who have not opted out of our dividend reinvestment plan for proceeds of $6.2 million and $6.8 million, respectively.
On August 4, 2015, our Board authorized us to acquire up to $50 million in aggregate of our common stock from time to time over an initial six month period, and has continued to authorize the refreshment of the $50 million amount authorized under and extension of the stock repurchase program prior to its expiration since that time, most recently as of May 8, 2023. The amount and timing of stock repurchases under the program may vary depending on market conditions, and no assurance can be given that any particular amount of common stock will be repurchased.
No shares were repurchased for the three months ended March 31, 2023 and 2022.
Debt
Revolving Credit Facility
On August 23, 2012, we entered into a senior secured revolving credit agreement with Truist Bank (as a successor by merger to SunTrust Bank), as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).
As of March 31, 2022, aggregate commitments under the facility were $1.510 billion. Pursuant to an amendment to the Revolving Credit Facility dated as of April 25, 2022 (the “Twelfth Amendment”), the aggregate commitments under the facility were increased to $1.585 billion. The facility includes an uncommitted accordion feature that allows us, under certain circumstances, to increase the size of the facility to up to $2.0 billion.
Pursuant to the Twelfth Amendment, with respect to $1.510 billion in commitments, the revolving period, during which period we, subject to certain conditions, may make borrowings under the facility, was extended to April 24, 2026 and the stated maturity date was extended to April 23, 2027. For the remaining $75.0 million of commitments, (A) with respect to $25.0 million of commitments, the
57
revolving period ends January 31, 2024 and the stated maturity is January 31, 2025 and (B) with respect to $50.0 million of commitments, the revolving period ends on February 4, 2025 and the stated maturity is February 4, 2026.
Pursuant to an amendment to the Revolving Credit Facility dated as of May 19, 2022 (the “Thirteenth Amendment”), certain non-substantive administrative and operational elements were updated.
We may borrow amounts in U.S. dollars or certain other permitted currencies. As of March 31, 2023, we had outstanding debt denominated in Australian Dollars (AUD) of 67.6 million, British pounds (GBP) of 14.0 million, Canadian Dollars (CAD) of 99.1 million, and Euro (EUR) of 27.1 million on our Revolving Credit Facility, included in the outstanding principal amount in the table above.
The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75.0 million. As of March 31, 2023 and December 31, 2022 the Company had $0.2 million and less than $0.1 million letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.
Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either the applicable reference rate plus an applicable credit spread adjustment, plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. We may elect either the applicable reference rate or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.
The Revolving Credit Facility is guaranteed by Sixth Street SL SPV, LLC, TC Lending, LLC and Sixth Street SL Holding, LLC. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants. In accordance with the terms of the Thirteenth Amendment, the financial covenants require:
The Revolving Credit Facility also contains certain additional concentration limits in connection with the calculation of the borrowing base, based on the Obligor Asset Coverage Ratio.
Net proceeds received from the Company’s common stock issuance in February 2021 and net proceeds received from the issuance of the 2026 Notes were used to pay down borrowings on the Revolving Credit Facility.
2022 Convertible Notes
In February 2017, we issued in a private offering $
58
The notional amount of the interest rate swaps matched the amount of principal outstanding, and matured on August 1, 2022, matching the maturity date of the 2022 Convertible Notes.
On August 1, 2022, the 2022 Convertible Notes matured in accordance with the governing indenture. Holders of $79.2 million aggregate principal amount of notes provided valid notice of conversion and were subject to the combination settlement method previously elected by us, with a specified cash amount (as defined in the indenture governing the 2022 Convertible Notes) of $20.00 per $1,000 principal amount of the 2022 Convertible Notes and any additional amounts in stock based on the applicable conversion rate as described in the indenture. In accordance with the settlement method, we issued a total of 4,360,125 shares of common stock, or $77.6 million at the adjusted conversion price per share of $17.92. The remaining balance of the notes that were not converted into newly issued shares of common stock were settled with existing cash resources, including through utilization of our Revolving Credit Facility. The interest rate swaps associated with the principal amount of the notes outstanding were terminated on the date of maturity of the 2022 Convertible Notes.
2023 Notes
In January 2018, we issued $
2024 Notes
In November 2019, we issued $
On February 5, 2020, we issued an additional $
In connection with the 2024 Notes offering and reopening of the 2024 Notes, we entered into interest rate swaps to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is $300.0 million and $50.0 million, respectively, each of which matures on November 1, 2024, matching the maturity date of the 2024 Notes. As a result of the swaps, our effective interest rate on the 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis).
During the year ended December 31, 2020, we repurchased on the open market and extinguished $2.5 million in aggregate principal amount of the 2024 Notes for $2.4 million. These repurchases resulted in a gain on extinguishment of debt of less than $0.1 million. This gain is included in the extinguishment of debt in the accompanying consolidated statements of operations. In connection with the repurchase of the 2024 Notes, we entered into a floating-to-fixed interest rate swap with a notional amount equal to the amount of 2024 Notes repurchased, which had the effect of reducing the notional exposure of the fixed-to-floating interest rate swaps, which were entered into in connection with the issuance of the 2024 Notes, to match the remaining principal amount of the 2024 Notes outstanding. As a result of the swap, our effective interest rate on the outstanding 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis).
2026 Notes
On February 3, 2021, we issued $
59
original issue discount, were $293.7 million. We used the net proceeds of the 2026 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the issuance of the 2026 Notes, we entered into an interest rate swap to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 1, 2026, matching the maturity date of the 2026 Notes. As a result of the swap, our effective interest rate on the 2026 Notes is three-month LIBOR plus 1.91%.
Debt obligations consisted of the following as of March 31, 2023 and December 31, 2022:
|
|
March 31, 2023 |
|
|||||||||||||
|
|
Aggregate Principal |
|
|
Outstanding |
|
|
Amount |
|
|
Carrying |
|
||||
($ in millions) |
|
Amount Committed |
|
|
Principal |
|
|
Available (1) |
|
|
Value (2)(3) |
|
||||
Revolving Credit Facility |
|
$ |
1,585.0 |
|
|
$ |
981.9 |
|
|
$ |
603.1 |
|
|
$ |
969.5 |
|
2024 Notes |
|
|
347.5 |
|
|
|
347.5 |
|
|
— |
|
|
|
329.0 |
|
|
2026 Notes |
|
|
300.0 |
|
|
|
300.0 |
|
|
— |
|
|
|
264.6 |
|
|
Total Debt |
|
$ |
2,232.5 |
|
|
$ |
1,629.4 |
|
|
$ |
603.1 |
|
|
$ |
1,563.1 |
|
|
|
December 31, 2022 |
|
|||||||||||||
|
|
Aggregate Principal |
|
|
Outstanding |
|
|
Amount |
|
|
Carrying |
|
||||
($ in millions) |
|
Amount Committed |
|
|
Principal |
|
|
Available (1) |
|
|
Value (2)(3) |
|
||||
Revolving Credit Facility |
|
$ |
1,585.0 |
|
|
$ |
719.3 |
|
|
$ |
865.7 |
|
|
$ |
706.2 |
|
2023 Notes |
|
|
150.0 |
|
|
|
150.0 |
|
|
— |
|
|
|
149.9 |
|
|
2024 Notes |
|
|
347.5 |
|
|
|
347.5 |
|
|
— |
|
|
|
325.5 |
|
|
2026 Notes |
|
|
300.0 |
|
|
|
300.0 |
|
|
— |
|
|
|
260.2 |
|
|
Total Debt |
|
$ |
2,382.5 |
|
|
$ |
1,516.8 |
|
|
$ |
865.7 |
|
|
$ |
1,441.8 |
|
As of March 31, 2023 and December 31, 2022, we were in compliance with the terms of our debt arrangements. We intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes.
Off-Balance Sheet Arrangements
Portfolio Company Commitments
From time to time, we may enter into commitments to fund investments. We incorporate these commitments into our assessment of our liquidity position. Our senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured delayed draw term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured delayed draw term loan commitments generally have a shorter availability period than the term of
60
the associated loan agreement. As of March 31, 2023 and December 31, 2022, we had the following commitments to fund investments in current portfolio companies:
($ in millions) |
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Alpha Midco, Inc. - Delayed Draw |
|
$ |
0.8 |
|
|
$ |
0.9 |
|
American Achievement, Corp. - Revolver |
|
|
2.4 |
|
|
|
2.4 |
|
ASG II, LLC - Delayed Draw |
|
|
6.0 |
|
|
|
7.0 |
|
Avalara, Inc. - Revolver |
|
|
3.9 |
|
|
|
3.9 |
|
Axonify, Inc. - Delayed Draw |
|
|
5.1 |
|
|
|
6.1 |
|
Banyan Software Holdings, LLC - Delayed Draw |
|
|
20.0 |
|
|
— |
|
|
Bayshore Intermediate #2, L.P. - Revolver |
|
|
1.9 |
|
|
|
1.6 |
|
BCTO Ace Purchaser, Inc. - Delayed Draw |
|
|
5.4 |
|
|
|
6.6 |
|
Bear OpCo, LLC - Delayed Draw |
|
|
2.3 |
|
|
|
2.6 |
|
BlueSnap, Inc. - Delayed Draw & Revolver |
|
|
2.5 |
|
|
|
2.5 |
|
BTRS Holdings, Inc. - Delayed Draw & Revolver |
|
|
7.5 |
|
|
|
8.6 |
|
Carlstar Group, LLC - Revolver |
|
|
8.5 |
|
|
|
8.5 |
|
Cordance Operations, LLC - Delayed Draw & Revolver |
|
|
7.3 |
|
|
|
12.0 |
|
Coupa Holdings, LLC - Delayed Draw & Revolver |
|
|
6.8 |
|
|
|
8.5 |
|
CrunchTime Information Systems, Inc. - Delayed Draw |
|
|
7.1 |
|
|
|
7.1 |
|
Disco Parent, Inc. - Revolver |
|
|
0.5 |
|
|
|
7.1 |
|
Dye & Durham Corp. - Delayed Draw & Revolver |
|
|
4.4 |
|
|
|
6.3 |
|
EDB Parent, LLC - Delayed Draw |
|
|
16.4 |
|
|
|
18.0 |
|
Edge Bidco B.V. - Delayed Draw & Revolver |
|
|
1.3 |
|
|
— |
|
|
Erling Lux Bidco SARL - Delayed Draw & Revolver |
|
|
5.7 |
|
|
|
5.6 |
|
Elysian Finco Ltd. - Delayed Draw & Revolver |
|
|
6.3 |
|
|
|
6.8 |
|
Employment Hero Holdings Pty Ltd. - Delayed Draw & Revolver |
|
|
8.7 |
|
|
|
8.8 |
|
EMS Linq, Inc. - Revolver |
|
|
6.1 |
|
|
|
8.8 |
|
ExtraHop Networks, Inc. - Delayed Draw |
|
|
15.8 |
|
|
|
17.1 |
|
ForeScout Technologies, Inc. - Delayed Draw & Revolver |
|
|
2.9 |
|
|
|
3.4 |
|
G Treasury SS, LLC - Delayed Draw |
|
|
3.0 |
|
|
|
3.3 |
|
Hornetsecurity Holding GmbH - Delayed Draw & Revolver |
|
|
2.1 |
|
|
|
2.0 |
|
Ibis Intermediate Co. - Delayed Draw |
|
|
6.3 |
|
|
|
6.3 |
|
IRGSE Holding Corp. - Revolver |
|
|
0.1 |
|
|
|
0.3 |
|
Kyriba Corp. - Delayed Draw & Revolver |
|
— |
|
|
— |
|
||
Laramie Energy, LLC - Delayed Draw |
|
|
7.7 |
|
|
— |
|
|
LeanTaaS Holdings, Inc. - Delayed Draw |
|
|
42.5 |
|
|
|
47.2 |
|
Lithium Technologies, LLC - Revolver |
|
|
2.0 |
|
|
|
2.0 |
|
Lucidworks, Inc. - Delayed Draw |
|
|
0.8 |
|
|
|
0.8 |
|
Murchison Oil and Gas, LLC - Delayed Draw |
|
|
3.3 |
|
|
|
9.8 |
|
Netwrix Corp. - Delayed Draw & Revolver |
|
|
13.1 |
|
|
|
13.9 |
|
Neuintel, LLC - Delayed Draw |
|
— |
|
|
|
4.2 |
|
|
OutSystems Luxco SARL - Delayed Draw |
|
|
2.2 |
|
|
|
2.1 |
|
PageUp People, Ltd. - Delayed Draw & Revolver |
|
|
5.7 |
|
|
|
5.8 |
|
Passport Labs, Inc. - Delayed Draw & Revolver |
|
|
2.8 |
|
|
|
2.8 |
|
Ping Identity Holding Corp. - Revolver |
|
|
2.3 |
|
|
|
2.3 |
|
PrimePay Intermediate, LLC - Delayed Draw |
|
|
0.8 |
|
|
|
2.5 |
|
PrimeRevenue, Inc. - Delayed Draw & Revolver |
|
|
6.5 |
|
|
|
6.3 |
|
Project44, Inc. - Delayed Draw |
|
|
19.9 |
|
|
|
19.9 |
|
ReliaQuest Holdings, LLC - Delayed Draw |
|
|
21.6 |
|
|
|
22.7 |
|
Tango Management Consulting, LLC - Delayed Draw & Revolver |
|
|
24.3 |
|
|
|
26.6 |
|
TRP Assets, LLC - Delayed Draw & Membership Interest |
|
|
7.8 |
|
|
|
7.8 |
|
WideOrbit, Inc. - Revolver |
|
— |
|
|
|
4.8 |
|
|
Total Portfolio Company Commitments (1)(2) |
|
$ |
330.4 |
|
|
$ |
338.0 |
|
Other Commitments and Contingencies
As of March 31, 2023 and December 31, 2022, we did not have any unfunded commitments to fund new investments to new borrowers that were not current portfolio companies as of such date.
61
From time to time, we may become a party to certain legal proceedings incidental to the normal course of our business. As of March 31, 2023, management is not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee.
Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on those related activities (based on a percentage of time those individuals devote, on an estimated basis, to our business and affairs). Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.
Contractual Obligations
A summary of our contractual payment obligations as of March 31, 2023 is as follows:
|
|
Payments Due by Period |
|
|||||||||||||||||
|
|
|
|
|
Less than |
|
|
|
|
|
|
|
|
|
|
|||||
($ in millions) |
|
Total |
|
|
1 year |
|
|
1-3 years |
|
|
3-5 years |
|
|
After 5 years |
|
|||||
Revolving Credit Facility |
|
$ |
981.9 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
981.9 |
|
|
$ |
— |
|
2024 Notes |
|
|
347.5 |
|
|
|
— |
|
|
|
347.5 |
|
|
|
— |
|
|
|
— |
|
2026 Notes |
|
|
300.0 |
|
|
|
— |
|
|
|
— |
|
|
|
300.0 |
|
|
|
— |
|
Total Contractual Obligations |
|
$ |
1,629.4 |
|
|
$ |
— |
|
|
$ |
347.5 |
|
|
$ |
1,281.9 |
|
|
$ |
— |
|
In addition to the contractual payment obligations in the tables above, we also have commitments to fund investments and to pledge assets as collateral under the terms of our derivatives agreements.
Distributions
We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:
As a RIC, we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders.
We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-level U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the U.S. federal excise tax described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of:
62
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement.
We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.
To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.
We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
Related-Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
Critical Accounting Policies
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, and elsewhere in our filings with the SEC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including valuation risk, interest rate risk and currency risk.
Valuation Risk
We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Interest Rate Risk
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We also fund portions of our investments with borrowings. Our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.
63
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
As of March 31, 2023, 99.2% of our debt investments based on fair value in our portfolio bore interest at floating rates, with 100.0% of these subject to interest rate floors. Our credit facilities also bear interest at floating rates, and in connection with our 2024 Notes and 2026 Notes, which bear interest at fixed rates, we entered into fixed-to-floating interest rate swaps in order to align the interest rates of our liabilities with our investment portfolio.
Assuming that our consolidated balance sheet as of March 31, 2023 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (considering interest rate floors for floating rate instruments):
($ in millions) |
|
|
|
|
|
|
|
|
|
|||
Basis Point Change |
|
Interest Income |
|
|
Interest Expense |
|
|
Net Interest Income |
|
|||
Up 300 basis points |
|
$ |
83.1 |
|
|
$ |
48.9 |
|
|
$ |
34.2 |
|
Up 200 basis points |
|
$ |
56.0 |
|
|
$ |
32.6 |
|
|
$ |
23.4 |
|
Up 100 basis points |
|
$ |
28.0 |
|
|
$ |
16.3 |
|
|
$ |
11.7 |
|
Down 25 basis points |
|
$ |
(7.0 |
) |
|
$ |
(4.1 |
) |
|
$ |
(2.9 |
) |
Down 50 basis points |
|
$ |
(14.0 |
) |
|
$ |
(8.1 |
) |
|
$ |
(5.9 |
) |
Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.
We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.
Currency Risk
From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our Revolving Credit Facility, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
64
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings
From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and the risk factors set forth below, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Pursuant to Section 61(a)(2)(C)(ii) of the 1940 Act, the principal risk factors associated with our senior securities are set forth below. However, since we already use leverage in optimizing our investment portfolio, the principal risk factors associated with our senior securities do not represent material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.
Legislation allows us to incur additional leverage.
Under the 1940 Act, a BDC generally is not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is at least 200%. However, under the SBCAA, which became law in March 2018, BDCs have the ability to elect to become subject to a lower asset coverage requirement of 150%, subject to the receipt of the requisite board or stockholder approvals under the SBCAA and satisfaction of certain other conditions.
On October 8, 2018, our stockholders approved the application of the minimum asset coverage ratio of 150% to us, as set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCAA. As a result and subject to certain additional disclosure requirements, as of October 9, 2018, our minimum asset coverage ratio was reduced from 200% to 150%. In other words, pursuant to Section 61(a) of the 1940 Act, as amended by the SBCAA, we are permitted to potentially increase our maximum debt-to-equity ratio from an effective level of one-to-one to two-to-one.
As a result, you may face increased investment risk. We may not be able to implement our strategy to utilize additional leverage successfully. Any impact on returns or equity or our business associated with additional leverage may not outweigh the additional risk. See “—We borrow money, which magnifies the potential for gain or loss and increases the risk of investing in us.”
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.
The 1940 Act imposes numerous constraints on the operations of BDCs. See “ITEM 1. BUSINESS—Regulation as a Business Development Company” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, for a discussion of BDC limitations. For example, BDCs are required to invest at least 70% of their total assets in securities of nonpublic or thinly traded U.S. companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less. These constraints may hinder the Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective.
We may need to periodically access the debt and equity capital markets to raise cash to fund new investments in excess of our repayments, and we may also need to access the capital markets to refinance existing debt obligations to the extent such maturing obligations are not repaid with availability under our revolving credit facilities or cash flows from operations.
Regulations governing our operation as a BDC affect our ability to raise additional capital, and the ways in which we can do so. Raising additional capital may expose us to risks, including the typical risks associated with leverage, and may result in dilution to our current stockholders. The 1940 Act limits our ability to incur borrowings and issue debt securities and preferred stock, which we refer to as senior securities, requiring that after any borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%.
We may need to continue to borrow from financial institutions and issue additional securities to fund our growth. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend credit to us. An inability to successfully access the capital markets may limit our ability to refinance
65
our existing debt obligations as they come due and/or to fully execute our business strategy and could limit our ability to grow or cause us to have to shrink the size of our business, which could decrease our earnings, if any. Consequently, if the value of our assets declines or we are unable to access the capital markets we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when this may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. If we borrow money or issue senior securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss.
If we issue preferred stock, the preferred stock would rank senior to common stock in our capital structure. Preferred stockholders would have separate voting rights on certain matters and may have other rights, preferences or privileges more favorable than those of our common stockholders. The issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest. Holders of our common stock will directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our common stock and the rights of holders of shares of preferred stock to receive dividends would be senior to those of holders of shares of our common stock.
Our Board may decide to issue additional common stock to finance our operations rather than issuing debt or other senior securities. However, we generally are not able to issue and sell our common stock at a price below net asset value per share. We may, however, elect to issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board determines that the sale is in our best interests and the best interests of our stockholders, and our stockholders have approved our policy and practice of making these sales within the preceding 12 months. Pursuant to approval granted at a special meeting of stockholders held on May 26, 2022, we are currently permitted to sell or otherwise issue shares of our common stock at a price below our then-current net asset value per share, subject to the approval of our Board and certain other conditions. Such stockholder approval expires on May 26, 2023. We may in the future seek such approval again; however, there is no assurance such approval will be obtained. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of those securities (less any distribution commission or discount). In the event we sell shares of our common stock at a price below net asset value per share, existing stockholders will experience net asset value dilution. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and would cause a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. As a result of any such dilution, our market price per share may decline. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.
In addition to issuing securities to raise capital as described above, we could securitize our investments to generate cash for funding new investments. To securitize our investments, we likely would create a wholly owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect would be willing to accept a substantially lower interest rate than the loans earn. We would retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio of investments before any of the debt securities would be exposed to the losses. An inability to successfully securitize our investment portfolio could limit our ability to grow or fully execute our business and could adversely affect our earnings, if any. The successful securitization of our investment could expose us to losses because the portions of the securitized investments that we would typically retain tend to be those that are riskier and more apt to generate losses. The 1940 Act also may impose restrictions on the structure of any securitization. In connection with any future securitization of investments, we may incur greater set-up and administration fees relating to such vehicles than we have in connection with financing of our investments in the past.
We borrow money, which magnifies the potential for gain or loss and increases the risk of investing in us.
As part of our business strategy, we borrow from and may in the future issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on our assets that have priority over the claims of our stockholders. If the value of our assets decreases, leverage will cause our net asset value to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed. This decline could negatively affect our ability to make dividend payments on our common stock. Our ability to service our borrowings depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. In addition, the Management Fee is payable based on our gross assets, including cash and assets acquired through the use of leverage, which may give our Adviser an incentive to use leverage to make additional investments. The amount of leverage that we employ will depend on our Adviser’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.
66
Our credit facilities and indentures governing our indebtedness also impose financial and operating covenants that restrict our business activities, remedies on default and similar matters. As of March 31, 2023, we are in compliance with the covenants of our credit facilities and indentures. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, although we believe we will continue to be in compliance, we cannot assure you that we will continue to comply with the covenants in our credit facilities and indentures. Failure to comply with these covenants could result in a default. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations. Lastly, we may be unable to obtain additional leverage, which would, in turn, affect our return on capital.
As of March 31, 2023, we had $1,629.4 million of outstanding indebtedness, which had an annualized interest cost of 5.2% under the terms of our debt, excluding fees (such as fees on undrawn amounts and amortization of upfront fees) and giving effect to the swap-adjusted interest rates on our 2024 Notes and 2026 Notes. As of March 31, 2023, as adjusted to give effect to the interest rate swaps, the interest rate on the 2024 Notes was three-month LIBOR plus 2.28% (on a weighted-average basis), and the interest rate on the 2026 Notes was three-month LIBOR plus 1.91%.
For us to cover these annualized interest payments on indebtedness, we must achieve annual returns on our investments of at least 0.9%. Since we generally pay interest at a floating rate on our debt, an increase in interest rates will generally increase our borrowing costs. We expect that our annualized interest cost and returns required to cover interest will increase if we issue additional debt securities.
In order to assist investors in understanding the effects of leverage, the following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. Leverage generally magnifies the return of stockholders when the portfolio return is positive and magnifies their losses when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.
Effects of Leverage Based on Actual Amount of Borrowings Incurred by us as of March 31, 2023
|
|
Assumed Return on Our Portfolio (net of expenses) (1) |
|
|||||||||||||||||
|
|
-10% |
|
|
-5% |
|
|
0% |
|
|
5% |
|
|
10% |
|
|||||
Corresponding return to stockholder (2) |
|
|
- |
% |
|
|
- |
% |
|
|
- |
% |
|
|
% |
|
|
% |
||
Our indebtedness could adversely affect our business, financial conditions or results of operations.
We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before it matures. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets or seeking additional equity. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.
Even in the event the value of your investment declines, the Management Fee and, in certain circumstances, the Incentive Fee will still be payable to the Adviser.
Even in the event the value of your investment declines, the Management Fee and, in certain circumstances, the Incentive Fee will still be payable to the Adviser. The Management Fee is calculated as a percentage of the value of our gross assets at a specific time, which would include any borrowings for investment purposes, and may give our Adviser an incentive to use leverage to make
67
additional investments. In addition, the Management Fee is payable regardless of whether the value of our gross assets or your investment have decreased. The use of increased leverage may increase the likelihood of default, which would disfavor holders of our common stock. Given the subjective nature of the investment decisions that our Adviser will make on our behalf, we may not be able to monitor this potential conflict of interest.
The Incentive Fee is calculated as a percentage of pre-Incentive Fee net investment income. Since pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses, it is possible that we may pay an Incentive Fee in a quarter in which we incur a loss. For example, if we receive pre-Incentive Fee net investment income in excess of the quarterly minimum hurdle rate, we will pay the applicable Incentive Fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses. In addition, because the quarterly minimum hurdle rate is calculated based on our net assets, decreases in our net assets due to realized or unrealized capital losses in any given quarter may increase the likelihood that the hurdle rate is reached in that quarter and, as a result, that an Incentive Fee is paid for that quarter. Our net investment income used to calculate this component of the Incentive Fee is also included in the amount of our gross assets used to calculate the Management Fee.
Also, one component of the Incentive Fee is calculated annually based upon our realized capital gains, computed net of realized capital losses and unrealized capital losses on a cumulative basis. As a result, we may owe the Adviser an Incentive Fee during one year as a result of realized capital gains on certain investments, and then incur significant realized capital losses and unrealized capital losses on the remaining investments in our portfolio during subsequent years. Incentive Fees earned in prior years cannot be clawed back even if we later incur losses.
In addition, the Incentive Fee payable by us to the Adviser may create an incentive for the Adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement. The Adviser receives the Incentive Fee based, in part, upon capital gains realized on our investments. Unlike the portion of the Incentive Fee that is based on income, there is no hurdle rate applicable to the portion of the Incentive Fee based on capital gains. As a result, the Adviser may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing investments. Such a practice could result in our making more speculative investments than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
68
Item 6. Exhibits.
31.1 |
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31.2 |
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101.INS |
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101.PRE |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
69
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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SIXTH STREET SPECIALTY LENDING, INC. |
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Date: May 8, 2023 |
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By: |
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/s/ Joshua Easterly |
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Joshua Easterly |
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Chief Executive Officer |
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Date: May 8, 2023 |
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By: |
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/s/ Ian Simmonds |
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Ian Simmonds |
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Chief Financial Officer |
70
Exhibit 31.1
CEO CERTIFICATION
I, Joshua Easterly, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Sixth Street Specialty Lending, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2023 |
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By: |
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/s/ Joshua Easterly |
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Joshua Easterly |
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Chief Executive Officer |
Exhibit 31.2
CFO CERTIFICATION
I, Ian Simmonds, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of Sixth Street Specialty Lending, Inc.;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and
c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 8, 2023 |
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By: |
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/s/ Ian Simmonds |
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Ian Simmonds |
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Chief Financial Officer |
Exhibit 32
Certification of CEO and CFO Pursuant to
18 U.S.C. Section 1350,
as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the quarterly report on Form 10-Q of Sixth Street Specialty Lending, Inc. (the “Company”) for the quarterly period ended March 31, 2023, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Joshua Easterly as Chief Executive Officer of the Company, and Ian Simmonds, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to such officer’s knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Joshua Easterly |
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Name: |
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Joshua Easterly |
Title: |
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Chief Executive Officer |
Date: |
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May 8, 2023 |
/s/ Ian Simmonds |
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Name: |
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Ian Simmonds |
Title: |
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Chief Financial Officer |
Date: |
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May 8, 2023 |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. §1350 and is not being filed as part of the Report or as a separate disclosure document.