Blackstone Secured Lending Fund

Welcome everyone to the Blackstone Secured Lending Force Quarter and Full Year 2022 Investor Call hosted by Michael Needham, Head of Investor Relations. During the presentation, your lines will remain on listen only. If you require assistance at any time, please key star zero on your telephone and the coordinator will be happy to assist you. If you wish to ask a question, please key star and one on your telephone keypad. And now I would like to hand over to Michael. Please go ahead.

Thank you, Colby. Good morning, and welcome to Blackstone Secured Lending's fourth quarter call. Earlier today, we issued a press release with a presentation of our results and filed our 10-K, both of which are available on the shareholders section of our website, bxsl.com. We will be referring to that presentation throughout today's call. 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. The audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'll turn the call over to BXSL's Co-Chief Executive Officer, Brad Marshall.

Thank you, Mike, and good morning, everyone. Joining me today, our interim CFO, Kevin Kresge, and our newly appointed co-CEO, John Bach. I, as well as many others on this call, are quite familiar with John's impact on the BDC industry as both a top-ranked equity research analyst and BDC executive. John is an exceptional thought leader in the BDC space, as well as a longtime friend. I'm thrilled to have his partnership as we continue to expand our business. Turning to this morning's agenda, I'd like to start with some high level perspectives before John and Kevin go into detail of our portfolio and fourth quarter results. Turn to slide four. VXSL reported another excellent quarter with significant growth in investment income, higher net asset value, and strong credit performance. Net investment income, or NAI, increased 13% quarter over quarter to a record 90 cents per share which represents a 14% annualized return on equity. This powerful performance reflects the quality and strength of our well-sourced portfolio. At year end, 98% senior secured, 47.5% loan to value, with zero investments on non-accrual, and only 1% of our assets marked below 90. Our net asset value, which increased to $25.93, from $25.76 the previous quarter also reflects the portfolio's strength. As a result, I'm thrilled to report that BXSL has raised its regular quarterly dividend by 17% to 70 cents per share beginning in Q1 2023. That represents a 10.8% annualized yield for shareholders based on the higher fourth quarter NAV of $25.93 per share. This marks the third time in the last year and a half that we've raised our regular dividend, which we believe represents the highest dividend yield for any listed BDC with a predominantly first lane senior secured portfolio. Since we IPO'd in late 2021, we've increased our regular dividend by 40%. Later in the call, John will speak to the durability of that higher dividend, which remains very well covered by our fourth quarter net investment income of 90 cents per share. Slide five provides additional highlights on our portfolio activity and strong liquidity position. Fourth quarter sales and repayments were 219 million, offset by 177 million of new investment funding, which remains below historical levels. Our weighted average yield on debt investments increased from 9.1% last quarter to 10.7% at quarter end, driven by higher base rates. We closed out the year with 1.1 billion in liquidity. Turning to slide six, we ended the year with 9.6 billion of investments and leverage of about 1.34 times, which was effectively flat quarter over quarter. Importantly, The ending yield on our 98% floating rate debt portfolio expanded approximately 350 basis points over the last 12 months, with more potential upside from here. Turn your attention to slide seven. Here we outline BXSL's strong NAI per share growth. We've illustrated how interest rates could impact the year-end portfolio. You can see that if we apply 1231 rates, to that portfolio, NAI jumps to 96 cents per share. This transition to increasing base rates has continued since year end. Looking at this chart, I think markets and investors understand that base rates could drive up NAI. But today, I'd like to dive into just one of the tools that is available to and unique to Blackstone that informs our view on macro conditions. As many of you know, Blackstone's position as the world's largest alternative asset manager allows for distinctive and differentiated insights gained across our portfolio of businesses in private equity, in credit, and real estate. Within Blackstone Credit alone, we have over 3,100 companies across our liquid and private businesses. As debt originators, we often receive real-time information from our companies and have direct access to sponsors, management teams, and market participants. This results in market views that are core to our investment process, and we use data and technology to integrate it into our portfolio decisions. One differentiated resource we want to share is our CEO survey from our Blackstone portfolio companies, which can offer unique insights. First, while those responding CEOs ranked slowing economic growth as the top macro issue they face, Blackstone's private equity companies saw year-over-year revenue growth in the fourth quarter, and most of these CEOs expect near-term revenue growth to stay healthy. Second, responding CEOs indicated that inflation is decelerating in major categories, wages, raw materials, energy, and pricing. Lastly, Sign of confidence in the operating environment is a management team's willingness to invest in projects for growth and efficiency. What's interesting is that a majority of the CEOs expect to maintain or increase their level of investment with the largest areas being software, technology, and services to improve productivity. This also supports BXSL's thematic industry selection in these areas. To be sure, despite the slower overall inflation, certain inflationary pressures remain. For example, some cooling in the labor markets and base effects have helped to moderate wage pressure, but it remains well above levels considered consistent with the Fed's inflation target. We think that supply, demand, and balances in the labor markets will cause the Fed to keep rates higher for longer. Today's economy simply has more, many more job openings than there were before the pandemic. And the vast majority of responding CEOs expect their company's employment levels to be flat or positive. This muddling along in the economy should keep credit performance generally strong, particularly for those managers capable of underwriting large-scale businesses. Before turning it over to John and Kevin, let me leave you with a final overarching thought. When we created BXSL, and Bcred, our non-traded BDC. We told investors that we would lead the market with best practices, including lowering our fees so we could bring a more defensive portfolio that would protect capital in more challenging market conditions, yet still deliver attractive returns. That philosophy continues to serve us well. We operate at a cost structure about 30% lower than that of our listed peers. We amortize OID over the life of the loan, and we don't scrape upfront fees for fund assets to the manager. That's because that's something that we believe runs contrary to true investment investor alignment. And most importantly, that alignment comes with the benefit of Blackstone's differentiated scale. Across our platform, the benefits of that scale abound, but especially in uncertain economic environments. when our portfolio management and Blackstone Advantage teams can, I believe, add significant value. Recall, we have an internal Blackstone team of 112 people who work with our portfolio companies, including over 20 professionals in or affiliated with Blackstone Credit. This team not only takes an active role in watching over our companies and initiating ongoing discussions with our sponsors, but also adds value to our portfolio companies by giving them access to Blackstone's operating resources to drive both revenue and cost synergies that are significant to the portfolio company and the private equity sponsor. For example, in 2022 alone, the Blackstone Credit Advantage team was able to reduce portfolio company costs by $66 million across the Blackstone credit platform, bringing almost $250 million in savings since the inception of the Blackstone Advantage program. Through these cost-saving initiatives alone, the team has added more than $3 billion of enterprise value to the Blackstone credit portfolio, a significant benefit for our sponsors. In addition, across the full Blackstone portfolio, companies have generated over $500 million in revenue from cross-selling to one another. The scale and impact of what we sometimes call the Blackstone economy, in which the portfolio companies across our credit platform are meaningfully engaged differentiates Blackstone Credit and can be especially impactful in a slowing economy. The impact of this specialized team and its end investor benefits is immense and we believe entirely unique to the Blackstone Credit Group. We also expect it to be a major differentiator of our platform and performance over time. With that, I will turn it over to John to speak about the portfolio.