Sixth Street Specialty Lending, Inc.

Good morning and welcome to Sixth Street Specialty Lending, Inc.' 's third quarter and its September 30th, 2023 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Friday, November 3rd, 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. 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 third quarter ended September 30th, 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 third quarter ended September 30th, 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 will provide highlights of this quarter's results, and then pass it 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 strong third quarter financial results with adjusted net investment income per share of $0.60, corresponding to an annualized return on equity of 14.4%. and adjusted net income per share of $0.77, corresponding to an annualized return on equity of 18.5%. From a reporting perspective, our Q3 net investment income and net income per share, inclusive of accrued capital gains and Senate fee expenses, were $0.57 and $0.74, respectively. The $0.03 per share difference between the adjusted and reported metrics is a non-cash expense related to accrued fees on unrealized gains from the valuation of our investments. As a reminder, we exclude the 3 cents per share in the presentation of our adjusted results. If this year were to have ended on September 30th and we were to calculate the capital gains incentive fee that's payable to the advisor in cash, it would have been zero given the gains driving the fee accrual are unrealized. Our net investment income this quarter continued to be a function of robust net interest margin attributable to the asset sensitivity of our floating rate portfolio in this higher rate environment. The difference between this quarter's net investment income and net income of 17 cents per share was driven by 11 cents per share from unrealized gains, largely from the impact of credit spread tightening on the value of investments, and 6 cents per share from net realized gains. As many of you will recall, market volatility increased last year at the start of the rate hiking cycle. During Q2 2022, LCD firstly and secondly credit spreads widened by 123 and 206 basis points respectively, creating downward pressure on the fair value marks across our portfolio and resulting in 40 cents decline in net asset value per share related to spread movement alone. Over the five quarters since that time, net asset value per share has increased by 70 cents from 1627 to 1697 and now is above our Q1 2022 net asset value per share of 1688 for two primary reasons. First, the in the ground portfolio from Q2 2022 has experienced fair values have pulled towards par as first lien credit spreads have tightened 78 basis points. This has resulted in approximately 26 cents of uplift to net asset value per share. We have generated net investment income in excess of our quarterly base and supplemental dividends, which has contributed 31 cents in net asset value per share over the five quarter period. This over-earning is driven by our disciplined approach of deploying capital into investment opportunities that exceed our cost of capital, inclusive of any credit losses. With substantial levels of both capital and liquidity available, we were able to deploy capital into a better environment in terms of both economics and underwriting standards. This has led to successful deployment of nearly $1 billion of capital into new investments over the last five quarters, representing approximately 30% of the in-the-ground portfolio today. The remaining increase is attributable largely to accretion of OID from new investments, company-specific valuation marks, and net realized gains. Shifting now to the macro landscape, the overriding theme this year has been the realization that we are in a higher for longer scenario and the potential impact that brings to the economy. Zooming in on this topic for levered corporate credit, the higher for longer backdrop is twofold, including one that is immediate and the other one that is delayed. Over the last 12 to 18 months, BDCs, for example, have experienced higher portfolio yields from the rise in base rates, contributing to elevated operating return on equity relative to historical averages. This outperformance has been largely universal across the sector given the floating rate asset sensitivity of these vehicles. The real differentiation will become evident when we start to see the lagged impact of higher rates play out across portfolios. This will likely be in the form of increased defaults followed by losses. We believe that in the long run, the strength of our asset selection and portfolio management capabilities will differentiate our returns for shareholders. These competencies are deep within our culture It has been built over decades and gives us confidence in our ability to continue to provide top-tier results to shareholders for the foreseeable future. At quarter end, net asset value per share was $16.97, up $0.23 per share, or 1.4% from the June 30th figure of $16.74. This growth was primarily driven by the continued over-earning of our base dividend and net realized and unrealized gains from investments as discussed earlier. Yesterday, our board approved the base quarterly dividend of $0.46 per share to shareholders of record as of December 15th, payable on December 29th. Our board also declared a supplemental dividend of $0.07 per share related to our Q3 earnings to shareholders of record as of November 30th, payable on December 20th. Our Q3 2023 net asset value per share adjusted for the impact of the supplemental dividend is $16.90. With that, I'll now pass over to Beau to discuss this quarter's investment activity.