Sixth Street Specialty Lending, Inc.

Good morning and welcome to 6th Street Specialty Lending Inc. 2nd Quarter and the June 30, 2021 Earnings Conference Call. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lendings, Inc., filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, the company issued its earnings press release for the second quarter ended June 30, 2021. and posted a presentation to the Investor Resources section of its website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with the company's form 10-Q, filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.' 's earnings release is also available on the company's website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of for the second quarter ended June 30th, 2021. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Chief Executive Officer of Sixth Street Specialty Lending Inc.

Thank you. Good morning, everyone, and thank you for joining us. As usual, with me today is my partner and our president, Bo Stanley, and our CFO, Ian Simmons. For our call today, I will review this quarter's results and then pass it over to Bo to discuss this quarter's originations activity and portfolio. Ian will review our quarterly financial results in more detail, and I will conclude with final remarks before opening up the call to Q&A. After market closed yesterday, we reported second quarter adjusted net investment income per share of 46 cents, exceeding our quarterly base dividend per share of 41 cents. This corresponds to an annualized return on equity of 11 percent Adjusted net income per share for the quarter was $0.88, which corresponds to an annualized return on equity of 21.4%. Year-to-date, our annualized return on equity on adjusted net investment income is 12.4%, ahead of our full-year target of 11.5% to 12%, and return on equity on adjusted net income is 22.2%. This quarter's net investment income reflects continued strength in our core earnings power of our portfolio, and the difference between this quarter's net investment income and net income was due to significantly net realized and unrealized gains on our investments, which both were covered. Since these gains resulted in accrued capital gains incentive fees, we have adjusted this quarter's results to exclude the impact of this non-cash expense, which was approximately $0.08 per share. There are a few reasons to do this. To start, the accrual for capital gains incentive fee is a gap requirement in quarters where cumulative gains exceed cumulative losses less previously paid capital gains incentive fees. The rationale is that when these gains become realized, they would be subject to capital gains incentive fees. Note, however, that only a portion of our cumulative unrealized gains at quarter end would actually be subject to a capital gains incentive fee if our entire portfolio will be realized in normal course at the June 30th mark. The rest of the cumulative unrealized gains are related to the evaluation of our debt investments, inclusive of call protection, which if prepaid will result in the recognition of fees and investment income and trigger a reversal of previously accrued capital gains incentive fees related to these investments. At quarter end, we had approximately $0.16 per share of cumulative accrued capital gains incentive fees on our balance sheet, but only $0.04 per share would actually be payable in cash if our entire portfolio would be realized at their quarter end mark and normal course. A reminder that the calculation of accrued capital gains incentive fees is actually payable to the advisor as done annually at calendar year end. Capital gain incentive fees would only be payable to extend our cumulative net realized gains exceed our cumulative net realized and unrealized losses on inception to date basis, less any previously paid fees. All cumulative unrealized gains are disregarded for this calculation since the gains must be realized in order for us to be eligible to receive fees. Therefore, illustratively, if we were at year end today and calculating the capital gain incentive fees payable based on our Q2 financials, none of our cumulative accrued capital gains incentive fees would be actually payable. Given the capital gains incentive fee accrual creates noise around the fundamental earnings power of our business, we've adjusted our results to exclude this line item. Continuing with this quarter's results, gains on investments drove strong net asset value per share, growth of 2.7%, quarter-over-quarter to 1685, up 44 cents per share from Q1's performing net asset value per share of 1641. If we were to look at the growth in our net asset value since the onset of COVID through today, which would require adjusting for the impact of special and supplemental dividends, we've grown net asset value per share by 12.2 percent since year in 2019. From a total economic return perspective, which would factor in the benefit of our quarterly based dividends as well, we've generated a return of 26.8% for our shareholders over this time. While we think the challenges of COVID are far from over, we believe our strong results today demonstrate the robustness of our business model and ability to create value across uncertain market environments. Yesterday, our board approved a base quarterly dividend of 41 cents per share to shareholders of record as of September 15th, payable on October 15th. Our board also declared a supplemental dividend of two cents per share based on our Q2 adjusted net investment income to shareholders of record as of August 31st, payable on September 30th. Proforma for the impact of the Q2 supplemental dividend, our quarterly net end, quarter net end net asset value per share was 1683. Reviewing our first half progress, we continue to generate attractive risk-adjusted returns by focusing on segments of the market where we believe we have the highest value proposition for our portfolio companies, management teams, and sponsors. After experiencing elevated portfolio turnover in 2020 and faced with reinvestment headwinds from falling credit risk premiums in the broader loan market, we were able to grow our portfolio while maintaining stable portfolio yields AND PORTFOLIO CREDIT METRICS, WHICH BO WILL COVER IN MORE DETAIL. BY REMAINING DISCIPLINED TO OUR SPECIALTY LENDING FOCUS AND DRAWING ON THE BREADTH AND DEPTH OF SIXTH STREET PLATFORM, WE'RE ABLE TO FIND OPPORTUNITIES WHERE OUR DEEP SECTOR KNOWLEDGE AND STRUCTURAL CAPABILITIES ALLOW US TO GENERATE OUR TARGET LEVELS OF RETURNS FOR OUR INVESTORS. WITH THAT, I'LL NOW PASS IT OVER TO BO TO DISCUSS OUR Q2 ORIGINATIONS ACTIVITY AND PORTFOLIO METRICS.

THANKS, JOSH. we had a very active quarter supported by a robust deal-making environment. And against an improving macro backdrop, transaction levels were elevated as sellers looked to capitalize on attractive valuation environment and buyers looked to accelerate growth through strategic acquisition. Meanwhile, sponsors with record levels of dry powder continue to focus on buying and building portfolio companies. With the busy activity levels for the first half of this year, a thematic approach and scale and resource benefits of being part of the $50 billion plus Sixth Street platform continued to serve as important competitive advantage. A thematic playbook allowed our team to efficiently focus on transactions where we have the expertise and the capital base to provide financing solutions that few other competitors could replicate. In addition, The market insights and resources across the Sixth Street platform, which allow us to provide value beyond capital, became an important consideration for our management teams and sponsors looking to successfully navigate today's complex and evolving market dynamics. In addition to the strong originations activity we had in Q2, we also have a strong backlog for the second half of this year, including agent roles on three large financings that total over $1.5 billion in facility size. As you can expect, we are partnering with our affiliated funds and other managers on these transactions, which provides us the flexibility to determine the optimal final hold sizes for TSLX. This quarter we had $303 million of commitments and $265 million of fundings across seven new investments and upsizes to eight existing portfolio companies. As an illustration of the power of the platform, the majority of our new investments were completed in collaboration with funds across the Sixth Street platform. Perhaps reflective of broader market trends, all of our new investments this quarter were financed to support acquisitions or growth, and six of the seven of these were backed by financial sponsors. We continue to execute on our educational technology theme with new first lean term loans, investments in Exonify and Modern Campus. Given that we were one of the first lenders to market on this theme and have significant familiarity with a business model and market dynamics, we were able to provide speed of execution and a level of deal structure customization that set us apart from our competition. As for our other new investments this quarter, they all had the hallmarks of our focus on well-managed businesses with mission-critical, deeply embedded tech-enabled solutions. and they were all sourced through our proprietary origination channels. On the repayment front, activity continued to be relatively muted this quarter at $108 million across two full paydowns and one sell-down, which partly reflects the more recent vintage of our portfolio as we began the year. This resulted in net funding activity of $157 million for Q2. The two paydowns this quarter were both M&A driven, And the sell-down was our small Neiman equity position at a price above our cost basis, as mentioned on our last earnings call in May. During the quarter, a few of our portfolio companies were in the press following certain milestone events, a couple of which I'll touch upon here. In May, CARES completed a growth equity round at nearly $8 billion post-money valuation, led by Sixth Street's healthcare and life sciences teams. Since 2018, TSLX has made relatively small investment in the company's capital structure alongside our affiliated funds and received warrants as part of these transactions. Based on the valuation of CARES' latest financing round, the fair value of our junior debt, warrant, and preferred equity positions increased significantly quarter over quarter, contributing to this quarter's unrealized gains. Sprinklr, another one of our portfolio companies and a provider of customer experience management solutions, completed its IPO on June 23rd. We made a small investment in Sprinklr's convertible notes alongside affiliated funds last May, and upon completion of the IPO, our notes automatically converted into common equity. The quarter end fair value mark of our equity position reflects a discount to the company's June 30th closing share price given the trading restrictions on our equity security and but still represents a 2.5x MOM on our capital invested. Driven primarily by the unrealized gains and the debt-to-equity conversion of certain investments upon milestone events this quarter, our portfolio's equity concentration increased slightly from 4% to 6% on a fair value basis. We continue to be focused on investing at the top of the capital structure, and our portfolio remains predominantly first lien oriented with 94% first lien at quarter end. As Josh alluded to, the credit quality of our portfolio remains robust with minimal changes in our credit metrics compared to the prior quarter. The weighted average EBITDA of our core borrowers this quarter was steady at $41 million, and our portfolio's average attachment and detachment points remain stable at 0.4X and 4.2X, respectively. The average interest coverage on our core borrowers improves slightly from 3.2X to 3.4X quarter over quarter. Our investments on non-accrual status remain minimal, at 0.02% of the portfolio at fair value, representing our restructured sub-notes in American achievement, as discussed on our CARL in May. Our portfolio's weighted average yield on debt and income-producing securities at amortized costs continues to be steady. This quarter's yield was 10.1%, same as the prior quarter, and approximately 10 basis points higher than what it was a year ago. The yield impact on new versus exited investments this quarter was minimal. The weighted average yield at amortized cost of new investments this quarter was 10.0% compared to a yield of 9.5% on exited investments. With that, I'd like to turn it over to Ian.