Blackstone Secured Lending Fund

Welcome, everyone, to the Blackstone Secure Landing Third Quarter 2022 Investor Call. It is hosted by Michael Needham, Head of Investor Relations. My name is Chris, and I'm your event manager. During the presentation, your lines will be on mute. If you need assistance at any time throughout the call, please key star zero on your device. I would like to remind everyone that the call is being recorded for replay and transcription purposes. And with that, I will hand the conference over to the host, Michael. Sir, please go ahead.

Thank you, Chris. Good morning and welcome to Blackstone Secured Lending's third quarter call. Joining me today are Brad Marshall, Chief Executive Officer, and Kevin Kresge, Interim Chief Financial Officer. Earlier today, we issued a press release with a presentation of our results and filed our 10-Q, both 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 materially from actual results. We do not undertake any duty to update these statements. For some of the risks that could affect results, please see the risk factors section of our most recent annual report on Form 10-K. This audio cast is copyright material of Blackstone and may not be duplicated without consent. On results, we reported GAAP net income of 58 cents per share for the third quarter and net investment income of 80 cents per share. With that, I'll turn the call over to Brad.

Thank you, Michael, and good morning, everyone, and thank you for joining our call today. As Michael mentioned, we reported another excellent quarter, including strong growth in investment income and solid credit performance. Net investment income increased 29% quarter over quarter to a record $0.80 a share, which represented a 12.4% annualized net investment income yield on third quarter NAF. We expect another step up in the NII over the near term from higher rates. Stronger earnings have also driven higher dividends. In September, we raised our regular quarterly dividend by 13% to 60 cents a share, which represented a 9% annualized yield based on September 30th NAV. Including special dividends, our yield was 11% over the past year, And this is from a portfolio of virtually all first lien senior secured loans during a period where short-term rates averaged below 1%. I would also note that we repurchased $164 million of shares during the quarter below book value, which contributed to $0.02 of NAI accretion in the quarter, in addition to $0.09 of NAV accretion. Kevin will cover our share repurchases in more detail. As many of you know, we recently celebrated our one-year anniversary of BXSL as a publicly traded company, and we will soon mark our four-year anniversary since launch. When we created BXSL and B-CRED, our non-traded BDC, we told investors that we would lead the market with best practices, including lowering our fees, so we could build a more defensive portfolio that would protect capital in more challenging market conditions, yet still deliver attractive returns. Today, you'll hear how that plan is playing out with respect to our sector selection, our seniority in the capital structure, and the size of the businesses that we lend to. To put just a few numbers to it, as of 9-30 of this year, 0% of our assets are on non-recall. only 1% of our private assets are marked below 90. Our estimated average interest coverage is 2.7 times for the last 12 months. And our portfolio companies have registered healthy EBITDA growth quarter over quarter. We're seeing similarly strong metrics across our more than $80 billion of U.S. direct lending platform. We believe this quality bias will lead to resiliency in a more challenging macroeconomic backdrop. Before turning it over to Kevin to review our financial results, I want to spend a few minutes on a couple themes. Firstly, NAI growth. Higher rates and an advantageous asset liability profile are driving powerful growth in our net investment income. Secondly, credit. BXSL was designed to outperform in more difficult credit environments and we have confidence in the resiliency of our business. And third, outlook. We believe BXSL is well positioned to deliver high and growing income and dividends for our investors given our deep platform, positive NII tailwinds, and defensive portfolio positioning. So first, the third quarter represents the beginning of a material expansion of our earnings. BXSL out-earned its dividend by 33%, driven by a favorable asset liability profile with virtually 100% floating rate investments and 58% fixed rate debt, an average coupon of less than 3%. We expect additional NAI growth over the near term as the portfolio more fully incorporates recent rate increases. Our average base rate was 1.1% in the second quarter, 2.5% in the third quarter and would have been 3.5% at quarter end if all the loans reset on September 30th. With 76% of our assets based on LIBOR, the blended base rate would have been 4.3% if all loans were to reset yesterday. If the September 30th base rate of 3.5% had been in effect for the entire quarter, we estimate that third quarter NAI would have been 13% higher or an additional $0.10 per share. Our credit performance was solid in the quarter, and we believe we will continue outperforming from a credit standpoint. Over the past four years, we invested BXSL's capital with an eye towards downside protection by focusing on the top of the capital structure in more resilient sectors, partnering with large companies and leading sponsors. I want to share a few metrics that give you a better picture of why we feel so optimistic about the resiliency of our portfolio. Seniority, 98% of BXSL's investments are in first lien, senior secured loans, and over 95% of those loans are to companies owned by private equity firms or other financial sponsors who have access to additional equity capital to support their companies. Our portfolio is highly equitized. with an average loan-to-value of 47%, below the market average of 55% for leveraged buyouts over the past 12 months. Sectors. Blackstone Credit has increased its headcount by more than 30% over the last year, with a focus on expanding resources in key sectors with low default rates such as technology, healthcare, and our sustainable resource group. We estimate that over 85% of BXSL's portfolio is invested in sectors that have seen annual default rates of less than 2% since 2007. Based on data from Fitch, this is well below the S&P leverage loan index at 55% for similar low default sectors. Scale. We also believe that larger companies have more resources to weather difficult macroeconomic environments. Our average portfolio company EBITDA grew to $162 million, and we've orientated the portfolio to larger, more durable businesses. Our company's EBITDA grew an estimated 5% quarter-over-quarter on same-store sales basis versus 2% for the S&P Leverage Loan Index. our weighted average EBITDA margin is 30% versus 18% for S&P companies leveraged two times or higher. Further, we estimate that our portfolio average interest coverage was about 2.7 times on an LTN basis and 2.2 times based on annualized third quarter market rates. In either case, approximately 2% of the portfolio had interest coverage less than one times. Of those loans, the vast majority are represented by two companies for which we believe earnings profile are improving. And the remaining loans were intentionally set up with lower than average LTV and larger than average liquidity reserve. Lastly, we've not seen a significant pickup in amendment requests. But should our companies face more challenging times like we saw immediately post-COVID, we have a large operational team that can help them reduce expenses, improve operational efficiencies, or source new revenue channels. There are over 20 professionals in or affiliated with Blackstone Credit focused on managing and improving our investments, plus over 100 operational professionals across Blackstone's broader platform to whom we have access. We believe that having access to an operational team to take an active role with our portfolio companies is beneficial to the BXSL and B-Cred franchise and will continue to distinguish our platform and performance over time. So despite macroeconomic headwinds on the horizon, we believe the outlook for BXSL shareholders is bright. Blackstone is highly focused on shareholder experience. We set our fees materially lower than the average public BDC. We've elected not to scrape fees for the manager. We have a performance look back mechanism, and we just finished a $263 million buyback, including repurchases after quarter end. Earnings. If you take a pro forma earnings for 930 rates over yesterday's closing share price, that is a over 15% NII yield. Not 12, not 13, but 15% in a portfolio of performing first lien assets, at 47% loan-to-value. And while our assets and liabilities have positioned us for this out-earning, a meaningful portion of that yield is the result of having lower fees than our competitors. Credit, 0% on non-accrual, and only 1% of BXSL's portfolio marked below 90. Our focus on sector and size and recency of vintage bodes very well for the future. Even in an environment with headwinds, we're built to be defensive. Lastly, on platform, as I mentioned, across BXC, our headcount is up more than 30% over the past year as we continue to lean into the build-out of our sector verticals, our geographic expansion, portfolio management teams, and in particular, our operating resources. As we think about what will truly differentiate outcomes over the next few years, BXSL's access to operating resources and executives that can be positioned alongside companies across multiple functions will be defining. So as we think about where and how we are positioned with both our BDCs, with lower fees and expenses, elevated earnings outlook, some of the best credit metrics, and a platform resource to support our companies, we feel like Blackstone will be a net winner as we move ahead in the quarters to come. So with that, I'll turn it over to Kevin.