Sixth Street Specialty Lending, Inc.

Good morning and welcome to the 6th Street Specialty Lending, Inc.' 's first quarter-ended March 31, 2023 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Tuesday, May 9, 2023. I will now turn the call over to Ms. Cammie Van Horn, Head of Investor Relations.

Thank you. 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 Lending Inc's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the first quarter ended March 31st, 2023, and posted a presentation to the investor resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our form 10Q filed yesterday with the SEC. Sixth Street Specialty Lending Inc.' 's earnings release is also available on our website under the investor resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31st, 2023. 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, Cami. Good morning, everyone, and thank you for joining us. With us today is my partner and our president, Bo Stanley, and our CFO, Ian Simmons. For our call today, I'll provide highlights for this quarter's results and then pass over to Beau to discuss activity levels and the portfolio. Ian will review our quarterly financial results in detail, and I will conclude with final remarks before opening the call to Q&A. After market closed yesterday, we reported first quarter financial results with adjusted net investment income per share of 55 cents, corresponding to an annualized return on equity of 13.3%, an adjusted net income per share of 67 cents, corresponding to an annualized return on equity of 16.3%. From a reporting perspective, our Q1 net investment income and net income per share, inclusive of accrued capital gains incentive fee expenses, was 53 cents and 65 cents, respectively. As a reminder, the two cents per share is a non-cash expense, which was not paid or payable and is related to accrued fees on unrealized gains from the valuation of our investments. This quarter's net investment income reflects a continued strength in the core earnings power of our portfolio, and the annualized return on equity metrics are above the guidance we provided on our last earnings call. Net investment income was largely the result of elevated portfolio yields driven by higher underlying reference rates. Activity-based fees represented only 3.6% of total investment income for the quarter. Year over year, total investment income has increased 43%, largely driven by asset sensitivity from higher interest rates in our floating rate investments. We expect that the interest rate environment will continue to support core rates without the impact of any activity-related income based on our base dividend level. Further, we believe there is potential upside relative to this quarter's 13.3 annualized return on equity on adjusted net investment income as we generate incremental earnings from payoffs and other activity-based fees. The difference between this quarter's net investment income and net income was predominantly a result of unrealized gains from tightening credit market spreads on the fair value of our portfolio and unrealized gains from certain portfolio company-specific events. From a macroeconomic perspective, to say 2023 is off to an eventful start is an understatement. Through the first quarter of the year, we have experienced financial contagion fears following the regional banking issues, persistent inflation, sustained rising interest rates, and ongoing geopolitical factors, just to name a few. As part of our commitment to transparency and our communications with our stakeholders, during March, we published a letter outlining the positioning of our business as it relates to the most recent developments in the banking sector. We encourage you to read our perspectives and welcome any feedback. But for today's call, we will keep it simple by saying we don't believe there are any material impacts to our business from these developments. If we take a step back and consider all of the opportunities and challenges presented by today's macro landscape, we believe that TSLX is well positioned. We have built a defensive through-the-cycle business characterized by investments on top of the capital structure with low exposure to cyclical businesses. Although our portfolio construction is bottoms up in nature, we continue to be mindful of the impact of certain macroeconomic indicators that can influence both the performance of our existing portfolio and the opportunity set ahead of us. At quarter end, net asset value per share was $16.59, up 20 cents per share, or 1.2% from adjusted net asset value per share at year end of $16.39. This growth was primarily driven by continued over-earning of our base dividend and net unrealized and realized gains from investments. Yesterday, our board approved a second quarter base quarterly dividend of 46 cents per share to shareholders of record as of June 15th, payable on June 30th. Our board also declared a supplemental dividend of four cents per share related to our Q1 earnings to shareholders of record as of May 31st, payable on June 20th. Our Q123 net asset value per share adjusted for the impact of the supplemental dividend is $16.55. We estimate that our spillover income per share at quarter end is approximately $0.87. As part of our focus on capital efficiency, in conjunction with our board, we will review the level of undistributed income as the year progresses to ensure we minimize potential return equity drag from the resulting excise tax. At some level, This will likely require the payment of additional distributions to our shareholders, similar to how we addressed this in 2020 and 2021. With that, I'll now pass it over to Beau to discuss this quarter's investment activity.