Blackstone Secured Lending Fund

Welcome everyone to the Blackstone Secured Lending fourth quarter and year-end 2021 investor call. My name is Tommy and I'm your event manager. During the presentation, your lines will remain on listen only. If you require assistance at any time, please press star zero on your phone and the coordinator will be happy to assist you. If you wish to ask a question, please press star one. I would like to advise all parties the conference is being recorded for replay purposes, and now I'd like to hand it over to Weston Tucker, head of shareholder relations. Please go ahead, sir.

Great. Thanks, Thomas, and good morning, and welcome to Blackstone Secured Lending's fourth quarter call. I'm sitting in today for Mike Needham, BXSL's head of investor relations, who is on paternity leave with his first child. Big congrats to Mike and his wife, Vicki. Joining me on today's call are Brad Marshall, chief executive officer, and Steve Kuppenheimer, chief financial officer. Earlier today, we issued a press release with a presentation of our results and filed our 10-K, all of which are available on our website. I'd like to remind you that today's call may include forward-looking statements which are uncertain and outside of the firm's control and may differ from actual results materially. We do not undertake any duty to update these statements. For discussion of some of the risks that could affect results, please see the risk factors section of our latest 10-K. Certain information discussed on this call and the accompanying presentation, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. Accordingly, BXSL makes no representation or warranty with respect to this information. This audio cast is copyrighted material of Blackstone and may not be duplicated without our consent. Go on to results. We reported gap net income of 73 cents per share for the fourth quarter. Net investment income was 67 cents per share. With that, I'll turn the call over to Brad.

Thank you, Weston, and good morning, and thanks, everyone, for joining the call today. As Weston mentioned, BXSL reported a strong fourth quarter and full year results, highlighted by growth in net asset value, strong credit performance, and a well-covered dividend. For the full year, the company delivered a total return of 12.6% based on NAV, including $2.03 per share of dividends. Looking ahead, we expect dividends to remain strong. Our regular fourth quarter dividend yields an annualized 8% on quarter end NAV, and we've declared a series of special dividends for 2022 that adds 2.5% to our regular dividend yield. We entered 2022 on solid footing with a portfolio that is very well positioned. We believe that BXSL has one of the most secure portfolios among public BDCs with approximately 98% invested in first lien senior secured loans and 99.9% of debt is floating rate. The XSL is also the only BDC among the large public peers with over 750 million of assets that has no loans on non-accrual based on the latest available information. In fact, across Blackstone's entire direct lending portfolio of over $60 billion, there were no loans on non-accrual at year end, Were there any loans marked below 90? We've accompanied that by following a simple formula. Have some of the lowest fees and expenses in the industry. Build a high-quality portfolio. Stay disciplined in an environment where others are tempted to chase risk and return. And leverage the power and scale of the Blackstone expansive platform. Today, I'd like to cover a few key themes before turning it over to Steve to review our financial results. First, I'll discuss DXSL's competitive advantages and superior risk return profile. Second, I'll provide an update on our portfolio in the current market. Third, we'll outline potential benefit from a rising rate environment. And lastly, we'll cover deployment opportunities. So firstly, we're seeing our competitive advantages play out. DXSL was designed to pass through more cash flow to investors from the loans that we originate. We have some of the lowest management fees of all public BDCs before and after our fee waiver. We also have some of the lowest G&A expenses as a percentage of NAV among public BDCs with more than 750 million of assets. And some of the lowest cost liabilities despite having 58% in unsecured fixed rate debt based on drawn amounts. Taken together, this creates a structural advantage that we believe enables us to stay invested in the highest quality part of the market and produce attractive and defensive returns for our investors. As of year end, 98% of BXSL's portfolios comprise of first lien senior secured loans, and the other 2% is predominantly in equity provided alongside our first lien senior secured loans. We intend to maintain that focus going forward. BXSL benefits meaningfully from Blackstone's scale and expertise. Blackstone is the number one BDC manager by AUM. That buying power enables BXSL to move upmarket and lend to large companies that often have better risk profiles, which we believe further de-risk the portfolio. Furthermore, Blackstone's credit platform has over 400 employees, regional offices around the country, deep sector teams, over 2,000 corporate investments, and is supported by the overall Blackstone ecosystem. The senior team in Blackstone Credit has worked together for over 16 years, which provides extensive market relationships and incumbency. For the borrowers, we differentiate ourselves by offering a better product. They benefit from our scale, speed, certainty of execution, and access to a suite of value-added services from Blackstone. Those services range from procurement to operational support and cross-selling opportunities. We call it the Blackstone Advantage and believe it's a unique program in the industry with over 100 Blackstone professionals available to help our portfolio company. In one example, Blackstone helped a portfolio company generate over $2 million of revenue by expanding their client base in a time of strategic change. Blackstone also identified over $4 million of cost savings for that same company through our procurement services. And they took advantage of other Blackstone corporate services, including cybersecurity evaluation and healthcare consulting. The Blackstone Advantage Program has a dedicated team within Blackstone Credit whose sole mission is to help drive value creation for our sponsors and our companies. That partnership builds upon itself, increasing the likelihood of us winning future investment opportunities. As we mentioned earlier, today Black BXSL's portfolio is in great shape. As of quarter end, all loans are performing, none are in covenant relief, and company fundamentals are broadly healthy. Across the private portfolio, revenue and EBITDA grew nicely in 2021, and margins expanded. Net asset value per share increased 0.5% in the fourth quarter, and 4.2% in 2021, to $26.27 net of $2.03 per share of dividend payments. We're focused on investing in good neighborhoods and avoiding secularly disrupted businesses. Most of the portfolios comprise of non-cyclical sectors, and for loans originated pre-COVID, borrowers' aggregate revenue and EBITDA are generally above their 2019 levels. Our privately originated loans have an average loan-to-value of 44%, with significant equity or subordinated debt below us. We're investing in many companies that have leading positions in their industries. That's evidenced by a weighted average EBITDA of $116 million across the private loan portfolio. Larger companies tend to have stronger competitive positions, including more pricing power in an inflationary environment, and are more diversified, which we believe helps eliminate single points of risk. Looking ahead, we feel very good about the quality and resiliency of the portfolio. Interest rates have begun to rise due to higher inflation and likelihood of Fed hikes. If that trend continues, our investment income should benefit. Ten-year treasuries are now yielding just below 2%, up from 1.5% at the year-end 2021. The short end of the curve has also risen, with three-month LIBOR currently at 52 basis points. We believe that private floating rate debt is one of the best assets to invest in, against a backdrop of rising rates. BXSL's debt portfolio on a fair value basis is 99.9% floating rate, while 58% of its liabilities are fixed rate based on drawn amounts, creating attractive upside potential. The XSL is currently benefiting from interest rate floors on most of its assets. The three-month LIBOR would have to rise above these floors, which average about 80 basis points, for us to start seeing a benefit to investment income. Beyond that point, we estimate that 100 basis point increase in LIBOR would result in incremental earnings of 8 cents per share, 52 cents per share from a 200 basis point increase, and 96 cents per share on a 300 basis point increase. Our weighted average cost of debt in the fourth quarter was 2.9%, which we believe is one of the lowest in our industry. Our scale, reputation, and quality of our portfolio gives us a major advantage in the financing markets. Low-cost debt directly contributes to higher investor returns by creating a wider asset liability spread. We executed on attractive deployment opportunities in the fourth quarter, and our portfolio is fully invested. BXSL invested $2.4 billion across 41 portfolio companies in the fourth quarter and $6.8 billion for the full year. That brought the portfolio to $9.9 billion at year end, which was well diversified across issuers with 148 total loans and an average position size of less than 1%. No single loan accounts for more than 5% of the portfolio. The large-scale segment, private debt markets, is growing as financial sponsors are increasingly working with private lenders versus going to the syndicated markets. We think that trend is here to stay, which could bode well for BXSL as we optimize the portfolio when we have available capital to invest. Blackstone is winning in this area, leading the majority of the largest Unitranche loans in 2021 and so far in 2022. We see a healthy backlog of large transactions today and believe Blackstone will remain in that pole position. While we believe the risk profile is generally better at the larger end of the market, we will continue to evaluate small, medium, and large transactions for BXSL. The funnel has widened. The outlook for BXSL is exceptionally bright. We've proven out our model by financing strong companies, which builds upon itself as we bolster our reputation as a differentiated lender. We think BXSL represents the best version of a public business development company with a stable, high-quality portfolio and competitive advantages that make us the lender of choice for companies looking to finance their growth. and is backed by a leading alternative investment platform which offers additional support around sourcing, diligence, and financing. We've married that expertise with low management fees, low operating costs, and attractive financing rates to create a powerful economic engine that we think will drive results for our investors going forward.

With that, I'll turn it over to Steve. Thank you, Brad.

and thank you all for your time today. It's a pleasure to be speaking with you on our first earnings call following the IPO of the company's shares in October of last year. The fourth quarter of 2021 was remarkable for BXSL and saw continued strong performance, record investment activity, and a successful listing of our shares. Brad mentioned performance earlier, but I want to reiterate a few of the highlights as we go through financial results. The company produced very strong results for both the quarter and the full year. We ended the year with a dividend yield on ending NAV of 8.1% after raising our regular quarterly dividend from 50 to 53 cents per share. Total return on NAV was 2.5% and 12.6% for the quarter and year respectively, bringing our inception-to-date annualized return to 10.1%. The company ended the fourth quarter with total portfolio investments of $9.9 billion, up 20% from the previous quarter, outstanding debt of $5.5 billion, and total net assets of $4.4 billion. Net asset value per share increased to $26.27 from $26.15 in the prior quarter. This increase was primarily driven by the growth in our net investment income, which exceeded our dividend by $20.8 million. as well as $11.4 million of net realized and unrealized gains. Our NII was 67 cents per share, up from 63 in the prior quarter, which exceeded our declared dividend of 53 cents, resulting in quarterly dividend coverage of 126%. The primary driver of our increase in net investment income was $19.9 million of accelerated accretion of OID and prepayment income related to 441 million of prepayments in the fourth quarter, in addition to higher average leverage over the quarter. We expect ongoing prepayment-related activity in the near term as our portfolio continues to mature. Turning to investment activity during the quarter, the company made $2.4 billion of funded investments, offset by $347 million of sales and $441 million of repayments. This $1.6 billion of asset growth at fair value is the most in our operating history and reflects a robust credit market, as well as the continued expansion of Blackstone's origination capabilities as a firm. We also continue to increase the diversity of the issuers in the portfolio during the quarter, with our total number of portfolio companies growing from 117 to 148, representing an average issuer concentration of less than 1%, with no single issuer representing more than 5% of the portfolio. We ended the quarter invested across 35 separate industries with our largest exposures in healthcare, software, and professional services. Each of these are industries where we continue to see strong tailwinds, economic growth, and well-positioned companies backed by strong sponsors to lend to. As Brad mentioned, the credit performance of our portfolio continues to be outstanding. with no assets on non-accrual, 98% first lien assets, and 99.9% of our debt investments as floating rate. Moving to our capitalization and liquidity, our balance sheet is comprised of efficient, diversified sources of capital, including a significant amount of fixed-rate unsecured debt. As a quarter end, 58% of our debt outstanding was in the form of unsecured bonds, which provides the company with significant flexibility and cushion. Of our $6.3 billion of committed debt, $5.5 billion was drawn at quarter end, representing an ending in average debt-to-equity ratio of 1.25 times and 1.22 times, respectively, which is consistent with our near-term goal to operate with leverage at the high end of the range of 1 to 1.25 times. This active balance sheet management allowed us to continue to keep our cost of leverage down, with an average cost of debt over the quarter of 2.9%. Additionally, We have low levels of debt maturities over the next few years with our nearest maturity in 2023 and the weighted average maturity of our debt at 4.2 years as of quarter end. We ended the year with over $700 million of undrawn debt capacity. Turning to the IPO of the company's shares, on October 28th, BXSL successfully listed its shares on the New York Stock Exchange at a price of $26.15, which was equal to NAV. The related IPO was one of the largest in the BDC industry and resulted in $262 million of new capital raised. In connection with the IPO, the company announced several programs and economic changes which we believe are accretive to shareholder value. These include, first, a two-year waiver period during which our management fees and incentive fees will remain at 75 bps and 15% respectively. Second, 65 cents per share of special dividends paid in four installments in connection with each unlock of the company's shares. In terms of the 65 cents, 10 cents had a record date of January 18th, 15 cents will have a record date of March 16th, 20 cents on May 16th, and the remaining 20 cents on July 18th. Third, we announced a share repurchase program equal in size to the IPO. This is a $262 million 10b51 share repurchase program which went into effect shortly after our IPO and is triggered if BXSL shares were to trade below net asset value. Given our shares trading levels post-IPO have been above NAV and our IPO price, there have been no repurchases under the program to date. And fourth and finally, we added an incentive fee look back. This is a three-year total return look back feature on our income-based incentive fee. which may reduce the income-based incentive fee if our portfolio experiences aggregate write-downs or net capital losses during the applicable trailing 12 quarters. Overall, the fourth quarter of 2021 was a momentous period for BXSL, which saw record deployment, continued strong performance, and a successful listing of the company's shares. BXSL continues to take advantage of strong tailwinds in the U.S. private credit markets to invest across a strong portfolio of assets, increased diversity, optimize leverage, and bring liquidity to our investors. And with that, I'll ask the operator to open the call to questions.

Absolutely. So with that, everyone, your question and answer session will now begin. If you wish to ask a question, just to remind you, please press star 1 on your phone. You can also withdraw your question by pressing star then 2. And please clip your question to one question and a follow-up. In case you have additional questions, you may re-queue later on. and we already have a couple of questions queuing up. And our first question is coming from Finiano Shea from WFS. Please go ahead. You're live in the call.

Hi, everyone. Good morning. Thank you. Brad, first question on some of your opening remarks for the Blackstone Advantage Program. I think you mentioned there's a new credit-oriented arm of this. Can you... outline a bit of what that entails. Is it essentially similar, just targeted toward your origination vertical, or is it providing a different sort of service to compete for deal flow?

Yeah, thanks, Finn. Why don't I give a quick summary of the program? Probably not everyone's familiar with it. But Blackstone, as a large private equity firm, has an operating team over kind of 200 operating professionals. Their job is to kind of help make our companies better, more profitable. And within Blackstone Credit, we have the same access to those resources. So when we finance a company, one of the first things we do is we reach out to the sponsor, we reach out to the company themselves, and figure out how we can help them either buy things cheaper, help them cross-sell products across their platform, use our data science team, our cybersecurity team to ultimately make them a better company. Within Blackstone Credit, we have a team of about five people. All they do every day is call our portfolio companies and ask that question, how can we help you? So use an example. We funded a billion dollar loan to DataSites last year, a little over a year ago. And we have a weekly call with that company to figure out how we can save them money or cross-sell their products across the broader Blackstone ecosystem. We've made 66 introductions across our platform. We've driven... revenue growth as a result of that, and we've driven about half a million dollars in cost savings for them. The net value of that for the company is somewhere between $20 and $30 million of enterprise value that we've helped create for that company because this team embedded within Blackstone Credit is finding ways to use the broader Blackstone ecosystem to drive value. That team has grown. To answer your question, Finn, is dedicated to Blackstone Credit portfolio companies and helps us win transactions, help us create more partnership with our portfolio companies and private equity sponsors, and continues to differentiate our platform.

Awesome. Thank you. And just as my follow-up for you or perhaps Steve, also on your Opening remarks, we found the item of lower GNA interesting. If you could help us shine some light on that. Are there any major items that you aren't charging to the BDC that your peers may be?

Hey, Finn. Steve Koppeneimer. Thanks for calling in today and for the question. I would say we're probably... simply charging less overhead to the BDC. I don't know exactly all the line items that our peers charge, but having looked at it historically, there's some items that I think some managers historically have charged, such as rent or other kind of related items that can overstate direct overhead. So in terms of the services, kind of third-party services or costs, I don't know that we're materially different, but in terms of our own costs and what gets billed to the BDC, I think that's probably where we outperform.

And, Finn, just to add to that, we do have the lowest G&A expense across all BDCs. We are leveraging the scale Blackstone. We do take a best-in-class kind of mentality when we approach, as we've talked about before with you and others, in terms of kind of how we want to deliver returns to investors. So whether it's lowering our G&A, not scraping fees for the benefit of the manager, having the lowest kind of management fees, all those things are towards the same goal of lowering our expenses so we can de-risk the portfolio and drive better returns over time.

Very well. That's helpful. Thanks, everybody. Thanks, Ben.

Our next question is coming from Kenneth Lee from RBC Capital Markets. Please go ahead.

Hi, good morning. Thanks for taking my question. Just in terms of originations, wondering if you could just further elaborate on comments on opportunities across the spectrum of company sizes, or more specifically, how do you think about the risk return for smaller corporate borrowers versus some of the larger ones?

Thanks.

maybe I'll take that one so what I would say can is our primary focus when we look at anything we start with risk and it's the reason why the portfolio is constructed in the way it is being senior focus and with an average loan to value of 44% so that is kind of with every deal kind of where we where we start What we would say is larger companies tend to be lower risk assets than smaller companies. We think they're lower risk for the following reasons. One, they're larger usually because they have a better product or service that they're selling. So they've gotten to that scale for that reason. Because they're larger, they typically attract stronger management teams. They typically have larger and therefore maybe better sponsors. And they typically are more diversified. As I mentioned on the prepared remarks, there's no single point of failure. And as I just mentioned, they often have more equity subordination. In addition, in that part of the market, we see more in the smaller end of the market, we actually see more competition. So there's a lot of Platforms that can invest in a $300 million loan, there's probably 50-plus credit managers that could do that. For a billion-dollar loan, there's maybe five that can truly hold a billion dollars, not syndicate it but hold it. And above $2 billion, there's maybe one or two at most. So that part of the market we think is – the larger end of the market we think is less competitive. We think the businesses are better. And so while we still look at the broader market, we think that's kind of where risk kind of skews as a general comment.

Great. That's very helpful.

And one follow-up, if I may. I wonder if you could just share with us your outlook for prepayments. You mentioned that as the portfolio matures, There could be an elevated level. Just wondering if we can get your thoughts on that, especially given the current environment. Thanks.

Yeah, listen, repayments are one of the, you know, return drivers, you know, for the fund. It also gives us more investment capacity to invest in, you know, in the current environment, just given that VXSL is fully invested right now. Usually in a spread tightening environment, you will see repayment activity pick up. So I would expect that over the course of the year, given the vintage of the portfolio, given that we may see spread tightening as base rates continue to increase, you would expect to see some pickup in turnover repayment of the portfolio. We saw that. a little bit going into the end of the year last year, and we've seen it, you know, pick up a little bit at the start of this year.

Great. Thank you very much. I'm sorry.

And Ken, just to be clear about that too, we view that as a huge positive for BXSL because that is ultimately our kind of source of capital to invest into new deals, and it helps drive additional return for investors and so we view it large as positive.

Understood. Thank you very much.

Our next question is coming from Casey Alexander from CompassPoint. Please go ahead.

Yeah, hi. Good morning. First of all, congratulations on a successful IPO process and on your first quarter out of the box. I have a couple questions. First of all, Some folks in sort of your peer set have pursued some second lean strategy of companies that have EBITDA that is, you know, two or three X what they invest in in the first lean category. Is that a sector that eventually may become attractive to you or is that just something that you're diametrically kind of opposed to?

Thanks, Casey. Yeah, I think every manager has their own strategy, so hard to comment on what others are doing. I think for us, again, it comes back to risk, and we're trying to deliver a low-risk return to investors. So going more junior in the capital structure would be contrary to delivering that strategy. And I think in this environment, where the outlook, we're generally cautious, just with more global unrest, with inflationary pressure, some market volatility, we think it's more prudent to be further up the capital structure than going further down the capital structure to try and reach for a little bit more yield. Our fees are so much lower than everyone else. we can hold the line at staying senior versus having to go junior.

Okay, great. Secondly, it might have been, especially given the size of the share repurchase program that you laid out, some expectation that you were going to use some of it. At least to this point in time, you haven't had to use any of it. And with such a senior first lien strategy, Does not having to utilize the share repurchase program and having such a senior strategy potentially give you more flexibility to expand the balance sheet a little beyond where the current leverage ratio is?

So if I understand the question, is our goal to take leverage up right now?

Kind of two questions in one.

Yeah, so let me, I'll start with just the leverage target, and Steve can fill in the balance. So our leverage right now is around one and a quarter times, and we feel like that is generally a good range and a good target for us, you know, plus or minus.

And then, Casey, I think the other part of your question may be do we anticipate having to use that $262 million of capital, or can we use that to invest? and the share repurchase program exists for a year, and the stock has been trading very well, but we're still unlocking shares. So I think as we get through our unlocks and watch trading levels, we can have a more kind of concrete view there. But as it stands now, we don't want to make the blanket assumption that we're not going to use the share repurchase program at all. I think many BDC share repo programs get used We're very happy with where the stock is traded, but we're watching it closely.

Okay, great. Thank you for that answer. Last question, and this is more just sort of a maintenance thing. Not notable, but a small pickup in pick income in the quarter. Is there anything we should have our eyes on in relation to that?

Nope. We made, I think, one in particular investment during the fourth quarter that caused that to tick up a little bit. But as you point out, it is very low as a percentage of our overall income. It's about 2%. So somewhat immaterial. I don't see that to change much from there.

Okay. Thank you. I appreciate you taking my questions.

And again, congratulations on the successful listing.

Thank you. Excuse me. Our next question is coming from Robert Dodd from Ray James. Please go ahead.

Hi, guys. Yeah, congrats on the quarter and obviously the IPO. A couple of questions. I'm pretty sure they're related, actually. On LTV first, you know, from 46 down to 44, can you give us any – how much of that is mixed? Obviously, the Medallia transaction, which I think is the one you were just referencing, actually, is sub-30 LTV. So is there – So that alone is going to tend to drive it down. I mean, and obviously SaaS type of deals also have usually lower LTVs. So is there a like-for-like decline in LTV, or is that entirely mix-related, and should we expect that to continue going lower?

So it is 100% mix-related, Robert. If you think about our focus, our orientation, it is ultimately invest in good neighborhoods. So what that means is very high quality businesses with strong reoccurring revenue characteristics. Those tend to be higher multiple businesses, tend to have more equity subordination, and therefore our loans will have lower loan to value. If you take stamps that we did last year, where the sponsor bought the company for $6.6 billion and the term debt was $2.6 billion. You know, those are the types of businesses, those are the types of profiles that we think are better risk. They're also the profiles that we think perform much better in an inflationary environment. Very different than an industrial business that may be levered four times but is 60% kind of loan to value, that to us is a lot more risk than something like a Medallia or something like a Stamps.

I appreciate that. And kind of the second part, which I think is related to Casey's question as well. I mean, Medallia was all pick, right? So, you know, 300 million all pick transaction. There was another asset that flipped to pick this quarter. But should we expect that in those good neighborhoods, are you going to be willing to do more pick because you think the credit's good and so you can collect the pick at the end? So if we see that LTV come down as you focus on those better credits, are you more willing in a competitive environment to trade cash for pick in that situation as well?

Yeah, so I'll pick transactions are quite rare. It's the reason why it only makes up 2% of our overall income in our portfolio. I would not expect to see a material uptick from there. Sometimes we like to give companies some operating flexibility for high quality businesses, but that'll be a case by case. It's not a general strategy or target. but rather it is more the exception rather than the rule.

Okay. Appreciate it. Thank you and congrats on the quarter again. Thanks, Robert.

The next question is coming from Melissa Wedel from JP Morgan. Please go ahead.

Good morning. Appreciate you taking my questions today. I had a quick follow-up question I think to what Ken was asking about earlier related to prepayment fees. In the fourth quarter, can you give us some context around how much you think that contributed, either on a total revenue basis or on a per share basis?

Sure. In the fourth quarter, it contributed 10 cents.

Got it. Thank you. And then, switching gears a little bit, could you give us an update on how you think about the energy space, given your focus on you know, being in the right neighborhood, as you put it, but then also any opportunities that might be there, how that area might stand to benefit from the inflationary environment? Thank you.

Yeah, sure, Melissa.

So we, traditional energy, so upstream, midstream, downstream energy is not a core focus for DXSL. We did, however, launch a new group within Blackstone Credit called the Sustainable Resource Group. And what they do is they focus on companies in transition, companies that are making more sustainable resource-focused investments or services. So that group is a large team based in New York and Houston and focusing on, again, both the service side of that transitionary market, focusing on just the generation of sustainable kind of resources, whether it's alternative power sources. So those types of businesses could be a focus in BXSL, but less so in the traditional Oil and gas sector, which you're right, is seeing some real tailwinds as it relates to commodity prices. But as we all know, that market is volatile, and we're trying to create a much more steady income profile for our investors.

Thank you.

Our next question is from Ryan Relinch from KBW. Please go ahead.

Hey, good morning. Thanks for taking my questions. The first one was just surrounding some of your prepared comments. You talked about revenue and EBITDA in the portfolio through 19 and 2021, but you also mentioned that the margins expanded throughout the year. I was just curious, you know, some of the – there's been some pretty major trends with labor inflation as well as some material inflation kind of in the back. path of 2021 and accelerating into 2022. I would just love to hear your guys' comments on those good growth numbers and margin expansion that you guys saw in 2021. How do you think your portfolio is positioned to kind of handle those pretty significant headwinds that are coming down the pike in 2022?

Yeah, thanks, Ryan. So we agree with your statement around inflation. We have been kind of talking to investors about this for over six months. One of the advantages of being part of Blackstone is we're invested in thousands of companies. On the private side, hundreds of companies that we control. And we are constantly in front of them asking about not just what happened last quarter, but more so what is in their outlook, what are they seeing in their company, what are the trends. That helps us inform our investment team on where to invest capital, how to structure our debt. It's a real competitive advantage that we have in this market. So on the matter of inflation, we think a lot of the inflationary pressures are real are going to continue to be headwinds, especially as you point out in shelter and wages. And so we've factored that into what Robert was just mentioning around asset mix towards the types of companies that are less impacted by those types of inflationary pressures. So high cash flow software companies are an example of that where shelter and wages are a lower contributor of their cost structure, certain kind of sectors in health care, logistics distribution. So for us, those inflationary pressures have informed us on where to invest our capital. And so we've seen just less margin compression in our overall portfolio. In fact, we've seen the opposite. As revenue has grown, it's given a lot of these companies more scale, which has driven margins up. So that's kind of, we agree with everything you say, and it's kind of driven and will continue to drive our portfolio construction.

Okay, that's helpful. Telling around those discussions. My next question just relates to kind of overall portfolio yield and how you guys think about managing risk. Now, you guys have really the best fee structure, probably in the BDC space. So you guys have more flexibility, I think, about what you guys put, you know, from an asset side and yield side. But, you know, overall, the portfolio yield, you know, it's come down quite a bit, 7.7% a year ago. Now it's 7.2%. There's 7% yields for the new investments in the fourth quarter. So I'm just curious, how do you guys think about, you know, investing in these good neighborhoods, investing with high-quality companies versus the portfolio yield coming down. Is there any sort of absolute level that you guys want to try to hold that portfolio yield at? Obviously, there's a lot going on with the potential for rate hikes that may benefit that at some point. And then the other question kind of on that as well, there's other BDCs out there who have done other things as sort of yield enhancements, which I don't think that they view it as adding too much incremental risk like JVs, some specialty lending vehicles, those sort of things. Would you ever consider doing any of those one-off items, maybe utilize your 30% bucket as part of the overall yield enhancements to your portfolio?

Yeah, so let me try and hit most of that. If I miss something, just come back to me, Ryan. But let's just start with your question around yield. As I said earlier, our biggest focus is risk. And when you start solving for yield, you take a little bit of the eye off the ball on risk. It starts to kind of drive some of your portfolio construction efforts. Maybe you go junior in the capital structure and start to justify being more in second lien assets or junior debt. That is not us, Ryan. We are going to first and foremost focus on risk. If you look at kind of the portfolio for us, our EBITDA has doubled, the companies that we finance. Loan-to-value has dropped about 20%. So we're taking on safer, bigger companies, and that will continue to be the driver. for us. We have plenty of other return drivers for the fund. Like I said, repayments, lower expenses, as you point out. The fact that we can add value to the companies that we invest in through our Blackstone Advantage program. Rising rates are clearly also a focus for us given how much of our debt is fixed rate. So plenty of return drivers for us, but we don't feel like we're going to have to have to chase yield to do that. Just to give you a little bit of an example, and you said 7%, so let's just use 7%. If you overlay kind of our fee structure with the average BDC that's, let's just say, pursuing a riskier 8% loan because it's smaller or because they're junior in the capital structure, we will still deliver 100 basis points of additional return to investors. So we've taken on a lower yielding asset, but still delivered 100 basis of additional return. And so we think we've created better risk and better return by doing that. In terms of JVs, especially finance companies, other things like that, what we said during our analyst day and will continue to iterate, We're trying to keep the BXL story as simple and straightforward as possible. JVs are good vehicles for a lot of managers. It's basically off-balance sheet leverage. We're trying to create a simple portfolio of high-quality, first-lane assets and largely larger businesses to create a stable, consistent, and defensive return for our investors.

Okay, great. That's a very, very helpful response. I think you hit all my points, and I definitely agree in particular with your first comment of how you're managing the BDC because we've too often seen some BDCs manage the BDC, you know, targeting a certain yield profile versus a certain risk profile, and that usually doesn't end up well for shareholders. So I appreciate the time today and taking my questions. Thanks, Ryan.

Our next question is from John Rowan from Jenny. Please go ahead.

Good morning, guys. Just two kind of housekeeping questions. Can you remind me when the share lockups expire and also when the share repurchase authorization expires?

Yeah, absolutely. And thanks for your question, John. The share unlock, the last one is on July 1st. So the remaining unlocks on the 1st of March, May, and July, respectively, will unlock 15%, 25%, and 50% of the shares on January 1st. You may remember we unlocked 10%. In terms of the share repurchase program, that is in place for the first year, which I believe will take us to the end of the year next year.

All right. Thank you very much. Thanks, John.

Our final question comes from the line of Derek Hewitt from Bank of America. Please go ahead.

Good morning, everyone. Most of my questions were already addressed, but could you talk a little bit, kind of circling back to prepayment fees, and at what level do you expect prepayment fees to kind of normalize from the elevated, I think you said, $0.10 per share for the fourth quarter? And over what time period do you think that process would occur?

I don't know if we have a perfect answer for that, Derek. It's a good question. We do model in about 20% kind of prepayment on an annual basis. So it is something that we expect. It is something that we flow through our model as we think about our dividend and paying out that dividend to investors. In terms of kind of... how that drives income. It's a little bit honestly asset-specific, so a little bit more granular than that. For example, we had one asset that had a very high prepayment penalty in the fourth quarter that drove a good portion of that $0.10. So it'll be a little bit asset-specific. Some of the assets that we invested in right after COVID at higher prepayment penalties. And so as those loans start to repay, you could see an uptick and more of an uptick. But I'm going to give you a lack of precision on that answer. We'll try and, you know, define a little bit better and catch up with you afterwards.

And just to highlight a little bit what Brad was saying. Sorry, Derek, just wanted to add a little bit of context to Brad's answer. The single asset that prepaid in the fourth quarter that Brad mentioned was eight of those $0.10. And so what you can see with this item is it can be somewhat lumpy. So over a year, over a couple years, I think we have a pretty good view of what the average candidate should be. But in any given quarter, you can see it move around a bit driven by specific deal activity.

Okay. Thank you. And now I'd like to turn it back to Weston Tucker for closing remarks. Great. Thanks, everyone, for joining us today and look forward to following up after the call.

Goodbye.

Thank you so much, everyone. That concludes your conference call for today. You may now disconnect.

Thank you for joining and enjoy the rest of your day.