Blackstone Secured Lending Fund

Good day and welcome to the Blackstone Secured Lending second quarter 2023 investor call. Today's conference is being recorded. During today's call, if you need any operator assistance, please press star zero. If you would like to ask a question during today's presentation, please press star one on your telephone keypads. At this time, I'd now like to turn the conference over to Ms. Stacey Wong, head of stakeholder relations. Please go ahead, ma'am.

Thank you. Good morning and welcome to Blackstone Secure Lending's second quarter call. Earlier today, we issued a press release with a presentation of our results and filed our 10-Q, both of which are available on the shareholders section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that this 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 factor 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. With that, I'll turn the call over to BXSL's Co-Chief Executive Officer, Brad Marshall.

Thank you, Stacey, and good morning, everyone. Joining me today is Co-Chief Executive Officer John Bach and our Chief Financial Officer Teddy DeLoge. Turning to this morning's agenda, I'd like to start with some high-level thoughts on the market and the portfolio before turning it over to John and Teddy to go into more details on the portfolio and our second quarter results. So turning to slide four, the XSL reported another strong quarter. which was highlighted by our record quarterly net investment income per share, an increase in our base dividend distribution, increased net asset value, and continued strong portfolio credit performance. Looking at the details, net investment income, or NAI, increased 14% quarter over quarter and 71% year over year to a BXSL record of $1.06 per share. which represents a 16.2% annualized return on equity. In the quarter, we also announced a 10% increase to the third quarter base dividend distribution of 70 cents per share to 77 cents per share, which represents an 11.7% annualized distribution on our June 30th net asset value per share, one of the highest among our BDC peers with as much of its portfolio invested in first lien senior secured assets, and we covered our second quarter dividend by 151%. From a portfolio perspective, we continued our focus on protecting investors' capital. During the quarter, 100% of the investments we made were first-lane senior secured with an average loan-to-value of 43.8%. As of June 30th, BXSL's portfolio is 98% first-lane senior secured, with a 46.5% average loan-to-value, has a minimal non-accrual rate of 0.14% at amortized cost or 0.07% at fair market value, and has only 1% of debt investments marked at fair value below 90. Our net asset value, which increased to $26.30 per share from $26.10 the previous quarter, reflects portfolio stability. Slide 5 provides additional highlights on our portfolio activity and strong liquidity position. Second quarter sales and repayments were $465 million, in line with what we communicated on previous calls. Proceeds from sales and repayments were primarily used to reduce leverage to our targeted range of 1 to 1.25 times, and other proceeds were used for new investments of $117 million. we generated 7.2 million of realized gains in the second quarter associated with our exit of Westland. And while equity positions only account for 1.2% of the portfolio, we continue to be very strategic about those commitments. For example, inception to date, BXL cash proceeds from realizations of equity positions totaled 95 million on a total of 52 million invested across those positions. Wesson realized in the second quarter in 2023, and Datasite in the third quarter of 2022. Looking forward, we expect our deal pipeline to continue to build if economic strength continues to exceed expectations. Just as Blackstone was early to spot inflation, we are beginning to see it fall across our ecosystem of portfolio companies. For example, within the Blackstone portfolio on a year-over-year basis, Input costs rose just 1.7%, and shipping costs are now back to pre-COVID level. As you've heard us say in the past, we continue to expect an economic slowdown due to the impact of sustained higher rates. What does this mean for private credit markets? With the slowdown comes caution and scarcity of capital, resulting in a reshuffling of debt capital providers. As commercial banks continue to retrench, private credit markets continued to expand. Through the first half of the year, private credit managers, including Blackstone Credit, executed 108 of the 120 leveraged buyout deals that came to market. We see this as a result of the benefits that come with private credit solutions, such as flexibility, certainty, and confidentiality as compared to uncertainty in the public markets. Looking at our activity, The number of deals we considered has more than doubled in the last quarter as private equity sponsors look to deploy capital. We believe these transactions represent a healthy funnel for BXSL to deploy into and are in line with BXSL's core strategy. Predominantly, first lane senior secured exposure and historically recession resilient sectors we know very well. We believe that we will see deal activity continue to pick up over the remainder of the year. Our weighted average yield on debt investments at fair value increased from 11.4% last quarter to 11.8% at this quarter end, primarily driven by higher base rates. The yield on new debt investment fundings during the quarter averaged 12%, while yield on assets repaid or sold down during the quarter averaged 11.3%, boosting our weighted average yield in the portfolio. Importantly, base rates on our 99% floating rate portfolio expanded approximately 400 basis points since second quarter of last year. Turning to slide six. We ended the quarter with $9.3 billion of investments, average fund leverage of 1.26 times, and ending leverage of 1.15 times, down from 1.33 times and 1.31 times, respectively, last quarter. We also remain well positioned with $1.8 billion in liquidity, including cash and borrowing capacity, to lean into a growing pipeline. One of the key benefits of having a scale platform like Blackstone Credit is our ability not just to participate in deals, but to create and lead them. In 82% of BXSL's portfolio, Blackstone Credit served as the sole or lead lender. We value the ability to drive outcomes, whether on the front end with credit documentation or later in life of the loan should the company face challenges. Further, being part of the world's largest alternative asset manager with over a trillion dollars in assets under management as of June 30th, 295 billion of which comprises Blackstone Credit Insurance, we have the opportunity to build an investment network which we can offer investors' distinct advantages. For example, we leverage our sector expertise and insights across the Black Zone platform with over 100 senior advisors, 50 data scientists, and 470 employees in technology and innovations, providing valuable perspectives as we make investment decisions and manage our portfolio. Having this data advantage by being part of the largest alternative platform globally is a key differentiating factor, whether it comes in the form of sourcing investment opportunities or diligencing these opportunities in the market or looking at business trends. With over 450 professionals, Blackstone Credit has the scale and bandwidth to form investment opinions in over 3,000 corporate issuers that we currently invest in globally. We also have one of the largest leveraged loan and CLO platforms, managing over $100 billion in liquid credit. This scale in our liquids business, in addition to our private origination platform, helps drive incumbent deal flow and has led to over $12 billion in new private credit opportunities for Blackstone Credit over the last two and a half years. Additionally, within BSXL, over 95% of deals we've committed to in the past quarter were issuers with whom Blackstone had a pre-existing relationship. And finally, Blackstone Credit provides more than just capital to our portfolio companies. BXSL borrowers are offered the full access to Blackstone Credit's value creation program. We believe this sets Blackstone Credit apart with our differentiated platform, broad network, and dedicated teams who can partner with portfolio companies to add value after we make a loan. We believe these are important points of distinction, one that complements our strong results and strengthens our ability to continue to drive attractive risk-adjusted returns for our investors. You see some of that in the numbers today, not just in the returns, which we have previously discussed, but also underlying credit performance. Only 0.14% of amortized cost or 0.07 of fair market value of the portfolio is on non-accrual. Just 1% of our debt investments are currently marked below 90, and only 0.22% of our portfolio at cost has asked for performance-related amendments this quarter. Also, the quality of our earnings remains very high, with limited one-time fee-driven income and non-PIC interest accounting for 96% of total interest income. We continue to believe that our focus on credit quality will be reflected in our numbers as you measure those against our peers. With that, I will turn it over to John.