Earnings call transcript: Sixth Street Specialty Lending beats Q2 2025 forecasts

Sixth Street Specialty Lending, Inc. (TSLX) reported its Q2 2025 earnings, surpassing Wall Street’s expectations. The company posted an earnings per share (EPS) of $0.56, above the forecasted $0.53, marking a 5.66% surprise. Revenue reached $115 million, exceeding the anticipated $110.94 million. Following the announcement, the stock rose 2.37% in after-hours trading, closing at $24.39. According to InvestingPro data, the company maintains an impressive dividend yield of 8.79% and has consistently paid dividends for 12 consecutive years, making it an attractive income investment option.

Key Takeaways

• Sixth Street Specialty Lending’s EPS exceeded analyst expectations by 5.66%.
• Revenue reached $115 million, surpassing forecasts by 3.66%.
• Stock price increased by 2.37% in after-hours trading following the earnings release.

Company Performance

Sixth Street Specialty Lending demonstrated robust performance in Q2 2025, with significant earnings growth and revenue exceeding forecasts. The company’s strategic investments and strong operational metrics contributed to its outperformance compared to peers. Despite a muted M&A market and competitive pressures, Sixth Street managed to increase its net asset value and deliver a total economic return significantly above the sector average.

Financial Highlights

• Revenue: $115 million, up from the forecasted $110.94 million.
• Earnings per share: $0.56, compared to the forecast of $0.53.
• Adjusted net investment income: $0.56 per share.
• Adjusted net income: $0.64 per share.
• Total investments: $3.3 billion, slightly down from $3.4 billion.

Earnings vs. Forecast

Sixth Street Specialty Lending exceeded analyst expectations with an EPS of $0.56 against a forecast of $0.53, resulting in a 5.66% earnings surprise. Revenue also surpassed projections, coming in at $115 million versus the anticipated $110.94 million, a 3.66% surprise. This performance reflects the company’s ability to navigate a challenging market environment effectively.

Market Reaction

Following the earnings announcement, Sixth Street’s stock price saw a 2.37% increase in after-hours trading, reaching $24.39. This positive movement reflects investor confidence in the company’s financial health and future prospects, especially given the stock’s performance within its 52-week range of $18.58 to $25.17.

Outlook & Guidance

The company expects its quarterly earnings power to surpass its base dividend, with improvements in credit quality anticipated. Despite potential sector-wide dividend cuts, Sixth Street forecasts its full-year return on equity to be in the upper half of the 11.5% to 12.5% range, indicating a positive outlook for the remainder of the year.

Executive Commentary

CEO Joshua Easterly emphasized the company’s resilience, stating, "Through past dislocations, we have consistently proven our ability to protect capital and generate value." He also noted the narrow path to outperformance in the business development company (BDC) sector, highlighting the company’s strategic positioning and competitive edge.

Risks and Challenges

• The muted M&A market and a 31% decline in loan volume in Q2 could pose future growth challenges.
• Competitive pressures on investment spreads may impact profitability.
• Potential dividend cuts in the sector could affect investor sentiment.

Q&A

During the earnings call, analysts inquired about the company’s portfolio diversification strategy and investment themes. The management addressed the potential impact of retirement vehicles opening to private investments and explained the accounting treatment of fees and original issue discounts (OID), providing clarity on operational strategies and financial reporting.

Full transcript - Sixth Street Specialty Lending Inc (TSLX) Q2 2025:

Conference Operator: Good morning, and welcome to Sixth Street Specialty Lending, Inc. Second Quarter Ended 06/30/2025 Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this conference is being recorded on Thursday, 07/31/2025. I will now turn the call over to Ms.

Cami Senator, Head of Investor Relations.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending: 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 second quarter ended 06/30/2025, 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 10 Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc. 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 second quarter ended 06/30/2025. 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.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Good morning, everyone, and thank you for joining us. With me today are president, Bo Stanley, and our CFO, Ian Simmons. Before we get started, I wanna take a moment to express a profound sorrow following the tragic events that unfolded in our city earlier this week. On behalf of our entire company, our hearts go out to the victims and their loved ones. Our thoughts and prayers are with the families, first responders, the local firms affected by the Census and Random Act.

After market closed yesterday, we reported the second quarter adjusted net investment income of $0.56 per share on an annualized return on equity of 13.1%, and adjusted net income of $0.64 per share on an annualized return on equity of 15.1%. As presented in our financial statements, our Q2 net investment income and net income per share, inclusive of the accrued capital gains incentive fee expenses, were $0.54 and $0.63 respectively. As a reminder, any differences between the adjusted and reported metrics is a noncash expense related to accrued fees on unrealized gains from the valuation of our investments. The difference between adjusted net investment income and adjusted net income of $08 per share in Q2 was largely related to net unrealized gains from the impact of tightening credit spreads on the valuation and of our positive portfolio company specific events. I’d like to frame an important shift we are we see unfolding in the sector following the mini credit cycle that took place over the past last few years beginning in mid two thousand twenty two with the rapid rise of interest rates.

Through that cycle, public BDCs, including SOX, experienced idiosyncratic credit issues, putting downward pressure on net asset values. While the average public BDC saw its net asset value per share declined by 10.1% from the 2021 through the first quarter of this year, SLX’s net asset value per share increased by 1.2% over the same time frame or 2% through Q2. Even with the rise in non accruals and the losses we recognize, our disciplined approach to capital allocation allowed us to over run our cost of equity and grow net asset value. Over this period, we generated total economic return calculated as change in net asset value plus dividends of 42.6%, more than doubling the average of our public BDC peers of 19.1%. We expect that credit issues are predominantly behind us.

This is evidenced by an improvement in nonaccruals for SLX this quarter and also for the sector more broadly, which experienced a marginal decrease in non accruals in Q1. While we don’t have pure data for Q2, we expect the trend to continue this quarter. This should result in a convergence between net investment income and net income for the sector. Under the premise that credit has broadly stabilized, we anticipate the focus for the sector shift from credit quality to dividend coverage as portfolio yields decline from the combination of lower forward rates and tighter portfolio spreads. For SLX, adjusted net investment income in Q2 of $0.56 per share exceeded our base dividend by 22%.

This robust dividend coverage is tied to our ability to source and execute on differentiated investment opportunities. This is clearly demonstrated by our weighted average spread on our new first lien investments in the second quarter of 6.5%, which compares to the public BDC sector average of 5.3% on new issued first lien loans for the first quarter. Again, we don’t have comparable Q2 data for our peers, but we expect the weighted average portfolio spread to decline further this quarter. We continue to caution that there has been complacency in the sector. In addition to the pursuit of AUM growth, we believe this is largely driven by a backward looking focus on LTM metrics that reflect an elevated rate and spread environment that’s no longer indicative of today’s investment landscape.

What matters today and always is the forward view, and we believe our approach will continue to positively distinguish our earnings profile. Looking ahead, we estimate the quarterly earnings power of our business to exceed our base dividend level assuming stable credit, leverage in the middle of our target range, and conservative fee income. As of June 30, our net asset value was $17.17 per share, representing an increase of 70 basis points from 17.04 as of March 31. Yesterday, our board approved a base quarterly dividend of $0.46 per share to shareholders of record as of September 15, payable on September 30. Our Board also declared a supplemental dividend of $05 per share related to our Q2 earnings to shareholders of record as of August 29, payable September 19.

Net asset value per share adjusted for the impact of the supplemental dividend that was declared yesterday of $17.12 We estimate that our spillover income per share is approximately $1.3 With that, I’ll now pass it over to Bo to discuss this quarter’s investment activity. Thanks,

Bo Stanley, President, Sixth Street Specialty Lending: Josh. I’d like to start by sharing some thoughts on the M and A environment and how that’s impacting activity in our portfolio. As we’ve discussed for several quarters, the M and A market has yet to deliver the meaningful rebound that many had anticipated in 2025. This muted transactional environment is clearly reflected in the leverage loan market, where M and A related loan volume was down approximately 31% in the second quarter compared to the first. In second quarter, loan volume marked its lowest levels since the 2023.

From our perspective, a meaningful reacceleration in M and A requires a catalyst for one of three areas: economic growth, interest rates, or time. Given the prevailing uncertainty around trade policy, a surge in near term growth appears unlikely, and the forward curve suggests rates will remain higher for longer. This leaves time as the most important factor. In an environment of slower growth and elevated rates, sponsors and management teams need a longer runway for portfolio company earnings to grow and generate appropriate return on investments. While we can’t predict the future, we estimate the timing of m and a activity taking inspiration from the Hubert peak theory, which was used in the nineteen fifties to estimate when US oil production would peak.

Utilizing data sourced from PitchBook, the medium buyout multiple at peak levels in 2021 has declined roughly three turns compared to the medium for closed buyout deals year to date. If we assume no multiple compression from the peak in 2021 and an average annual EBITDA growth rate of approximately 9%, consistent with historical S and P earnings growth, it would take approximately four to five years for a buyer to earn an appropriate multiple of money on their investment. If we apply the same assumptions, but including the rerating of multiples since the rate hiking cycle, This lengthens the timeline to six to seven years, implying an additional two years needed to grow earnings until an appropriate multiple of money is achieved. Based on our analysis, the earlier wave of investments from the pre COVID vintages are now approaching the six to seven year mark, which should moderately increase m and a activity in the next few quarters. As for the record setting post COVID pre rate hiking vintages of 2021 and early twenty twenty two, which we estimate make up more than 40% of current private equity net asset value, sellers need six to eight additional quarters to reach an acceptable multiple of money, implying a further delay of the broad based return of m and a activity that many are predicting.

We recognize there are additional factors at play, and this time line will vary for different segments of the market. For example, investment grade M and A is likely the first to return given the favorable regulatory environment. These businesses are also less levered compared to non investment grade companies, which means they have less sensitivity to interest rates. While the red widespread return of m and a in our markets remains a future prospect, we have observed a noticeable shift in market sentiment beginning in late June and strengthening through July. In addition to some green shoots related to the buy and bill strategies, we have have more noted notably seen a pickup in non m and a related activity within sponsor portfolios, such as duration management transactions.

We expect these types of financings to be a prominent theme in the second half of the year as sponsors work to optimize their portfolio companies in preparation for an improved exit environment. We believe we are very well positioned to provide the kind of complex bespoke capital solutions these situations require creating attractive risk adjusted returns for our shareholders. Turning now to activity in the second quarter, we provided total commitments of $289,000,000 and total fundings of $2.00 $9,000,000 across 13 new investments and four upsizes to existing portfolio companies. To characterize our origination activity in q two, approximately 30% of our commitments were sourced outside the sponsored channel. The remaining 70% came through the traditional sponsor backed finance market, where we leveraged our deep relationships and platform scale to both deploy capital into investments that earn appropriate risk adjusted return for our business.

An example of our nontraditional transactions in Q2 is our direct to company investment Genovus Health. This was an accounts receivable securitization financing where the combination of our deep knowledge and specific health care themes combined with a long standing track record in asset based loans created a unique investment opportunity for SLX shareholders. With the resources in place across the Sixth Street platform, including dedicated ABL and health care teams, we have the ability to source and underwrite these off the run transactions that diversify our assets as well as our return profile relative to the sector. Another differentiated investment in our portfolio is Keras Life Sciences. As a reminder, we made initial debt and equity linked investment in Keras in 2018 and subsequent equity linked investments in 2020 and 2021.

We fully exited our debt security in 2023, and the company recently completed an IPO in June. We still hold an equity position today, which is valued quarterly based on the company’s closing stock price on the last day of the quarter. While equity positions are a small part of our overall portfolio, our ability to embed potential incremental economics into our business through unique thematic sourcing and disciplined underwriting serves as a competitive advantage for our shareholders. I’d like to spend a moment providing an update on one of our existing portfolio companies, Lithium Technology, that had previously been on nonaccrual status. During q two, we navigated a sale process and restructuring for of the business, working closely with a new sponsor to negotiate and drive an outcome.

As a result of the restructuring, we hold a smaller loan that is paying cash interest and an earn out equity security. This transaction had no material impact on our net asset value in Q2 as the realization of our original investment was consistent with our valuation as of March 31. Lithium has therefore been removed from nonaccrual status following the restructuring. Moving on to repayment activity. The second quarter marked the third consecutive quarter of elevated payoffs.

Total repayments in Q2 were $389,000,000 This repayment activity contributed to another strong quarter of activity based fee income, excluding other income totaling $0.11 per share in Q2 relative to our three year historical average of $05 per share. The repayment activity we experienced during the quarter was driven by a mix of refinancings and M and A activity. Of the excess debt involved refinancing transactions, the majority were completed at lower investment spreads. Our portfolio continues to reflect our disciplined capital allocation as only 6.2% of our investments by fair value as of quarter end had a contractual spread of 500 basis points or below. While we don’t have the comparable q two peer data set available yet, this is nearly five times less than the average of 29% of public BDC portfolio spreads at of 500 basis points or below as of March 31.

A large proportion of our payoffs during the quarter came from older pre 2022 vintages, reducing our exposure to these assets to 29% of the portfolio by cost. This compares to 59% or roughly double pre 2022 vintage exposure for the public BDC sector average of as of March 31. We view this as a positive differentiator for our business as it reflected greater exposure to newer vintage assets that were originated following the commencement of the rate hiking cycle in early twenty twenty two. Given this greater exposure to new vintage assets, 37% of our exits were post 2022 investments resulting in an incremental economics of shareholders driven by prepayment fees. Moving on to the portfolio metrics and yield.

Despite recent competitive dynamics, we remain committed to high documentation standards that provide robust downside protection. At quarter end, we maintained effective voting control of 78% of our debt investments, an average of two financial covenants, consistent with historical levels. As for managing prepayment risk, the fair value of our portfolio as a percentage of call protection is 94.1%, which means that we have protection in the form of additional economics that would flow through net investment income should our portfolio get repaid in the near term. As of June 30, the weighted average total yield on our debt and producing securities of amortized cost was 12% compared to 12.3 as of March 31. Given the meaningful payoff activity we experienced in Q2, the decline primarily reflects payoffs of higher yielding assets exceeding the yields of new investments during funded during the quarter.

While credit spreads have remained competitive in Q2, our omnichannel sourcing capabilities enabled us to put capital to work in a disciplined manner demonstrated by a weighted average spread on new first lien investments of six fifty two basis points, which compares to a spread of five thirty three basis points on new issued first lien loans for the BDC peers in Q1, as Josh mentioned earlier. Moving on to the portfolio composition and key credit stats across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attachment and detachment points of 0.3 times and five point zero times, respectively. And our weighted average interest coverage remained consistent at 2.1 times. As of Q2 twenty twenty five, the weighted average revenue and EBITDA of our core portfolio companies was $377,000,000 and $114,000,000 respectively. Medium revenue and EBITDA was a $147,000,000 and $46,000,000, respectively.

Finally, overall portfolio performance is strong with weighted average rating of 1.1 on a scale of one to five with one being the strongest. The lithium restructuring resulted in an improvement in nonaccruals quarter over quarter from 1.2 of the portfolio at fair value to 0.6%. As of June 30, we have two portfolio companies on nonaccrual status. With that, I’d like to turn it over to my partner, Ian, to cover our financial performance in more detail.

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: Thank you, Bo. For Q2, we generated adjusted net investment income per share of $0.56 and adjusted net income per share of $0.64 Total investments were $3,300,000,000 down slightly from $3,400,000,000 in the prior quarter as a result of net repayment activity. Total principal debt outstanding at quarter end was $1,800,000,000 and net assets were $1,600,000,000 or $17.17 per share prior to the impact of the supplemental dividend that was declared yesterday. Our average debt to equity ratio was 1.2 times, up from 1.19 times in the prior quarter, and our ending debt to equity ratio decreased from 1.18 times to 1.09 times quarter over quarter. Average leverage was higher than ending leverage driven by the timing of repayment activity, which predominantly occurred towards the end of the quarter.

We continue to focus on maintaining leverage within our target range of 0.9 to 1.25 times. And since the regulatory change in late twenty eighteen, we have operated with an average quarterly debt to equity ratio of 1.03x. Leverage remains within our target range and above our historical average, providing ample capital for new investment opportunities. In terms of balance sheet positioning, we had approximately $1,100,000,000 of unfunded revolver capacity at quarter end against $159,000,000 of unfunded portfolio company commitments eligible to be drawn or coverage of approximately seven times. Our quarter end funding mix was represented by 71% unsecured debt.

As a reminder, we proactively completed several capital markets transactions during Q1, strengthening our balance sheet. Following these transactions, our capital, liquidity and funding profile remain in excellent shape. Further, we have no near term maturities with our nearest obligation being $300,000,000 of unsecured notes not occurring until August 2026. We did not issue any shares through our ATM program during the quarter. Pivoting through our presentation materials, Slide eight contains this quarter’s NAV bridge.

Walking through the main drivers of NAV growth, we added $0.56 per share from adjusted net investment income against our base dividend of $0.46 per share. As Josh mentioned, there was approximately $02 per share of accrued capital gains incentive fee expenses related to this quarter’s net realized and unrealized gains. There was a $0.13 per share reduction to NAV as we reversed net unrealized gains on the balance sheet related to investment realizations and recognized these gains into this quarter’s income. The reversal of unrealized gains this quarter was primarily driven by early payoffs, resulting in accelerated OID and call protection. There was a $09 per share positive impact to NAV, primarily from the effect of tightening credit market spreads on the fair value of our portfolio.

Portfolio company specific events increased NAV by $07 per share. And finally, there was $06 per share of net realized gains mainly from equity realizations in ReliaQuest and Murchison. As Bo mentioned earlier, there was no material impact to net asset value from the lithium restructuring as the realized value was consistent with our fair value as of March 31. As shown in our financial statements, there was an unrealized gain from the reversal of the previous unrealized loss that was equally offset by a realized loss this quarter. Moving on to our operating results detail on Slide nine, We generated $115,000,000 of total investment income for the quarter compared to $116,300,000 in the prior quarter.

Interest and dividend income was $97,200,000 down slightly from prior quarter, primarily driven by lower dividend income and a decline in foreign base rates. Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were lower at $10,200,000 compared to $14,000,000 in Q1, driven by the significant Arrowhead prepayment fee that occurred in Q1. Other income was $7,600,000 up from $3,500,000 in the prior quarter. Net expenses, excluding the impact of the noncash accrual related to capital gains incentive fees, were $61,400,000 up marginally from $60,700,000 in the prior quarter, primarily driven by expenses incurred for the annual and special shareholder meetings held during the second quarter. Our weighted average interest rate on average debt outstanding decreased slightly from 6.4% to 6.3%.

This was primarily the result of a decline in foreign base rates. Before handing it back to Josh, I wanted to provide an update on our ROE metrics. Year to date, we generated strong annualized ROEs based on adjusted net investment income and net income of 13.311.7%, respectively. We believe this reflects our broad originations platform, ability to embed economics into our portfolio and disciplined capital allocation. Based on our year to date performance and our expectation of the quarterly earnings power of the business in the second half of the year, we anticipate generating a return on equity based on adjusted net investment income in the top half of our previously stated range of 11.5% to 12.5% for the full year.

If activity based fees remain elevated as we have experienced in recent quarters, there is potential to exceed the top end of that range. With that, I’ll turn it back to Josh for concluding remarks.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Thank you, Ian. It’s a tricky investment environment driven by the imbalance between supply and demand of capital. Competition is elevated, and it’s increasingly difficult to generate outsized returns. However, Sixth Street is built was built to navigate such complexity. We have a long and proven history of delivering for our shareholders through challenging backdrops, including the emerging the energy market volatility that started in late two thousand fourteen and continue and continued in 02/2015 ’16, the global pandemic in 2020 and 02/2021, and most recently, the interest rate hiking cycle of 2022 and 02/2023.

Yeah. Through past dislocations, we have consistently proven our ability to protect capital and generate value. During these years, SLX generated an average annualized return on equity of 13.7%, a significant outperformance compared to the 7.5% average for our public BDC peers over the same years. While today’s market presents a different set of challenges, our core strategy remains unchanged. Leveraging a deep bench of talented individuals who work collaboratively to source and underwrite investments that differentiate our return profile.

This investor first approach is not just a guiding principle. It’s deeply embedded in our firm’s culture and business model. To appreciate our strategy, one must first understand the framework of our industry. The path to outperformance in the highly regulated BDC sector is exceptionally narrow. First, there is little to no opportunity for differentiation through leverage or financing as the liability side of the balance sheet offers no real source of excess return.

Second, most industry participants operate on a similar cost structure of fees and expenses. Consequently, our performance must be generated almost exclusively on the asset side by sourcing differentiated investments and, just as importantly, minimizing investment losses. This is ultimately accomplished by the team, which becomes the real differentiator. This is the core of the Sixth Street model where our platform has consistently shined. For over a decade as a public company, the human capital advantage has delivered strong risk adjusted returns for our shareholders.

Looking forward, we will lean on the on these proven capabilities, remaining steadfast to our promise to be an investor first firm dedicated to building a robust business that compounds value over the long term. With that, thank you for your time today. Operator, please open up the lines for questions.

Conference Operator: Thank And our first question comes from Brian McKenna with Citizens. Your line is open.

Brian McKenna, Analyst, Citizens: Thanks. Good morning, everyone. Josh, I’m curious how you think about portfolio diversification as it relates to risk. Some of your larger peers have average position sizes of twenty, thirty, 40 plus basis points. I look at the average position at TSLX continues to be around 90 basis points.

So how do you balance managing risk through diversification, but also sizing positions appropriately in order to match your conviction in an investment?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. Hey. It’s a it’s a good question. Look. We are I I I think we’ve done a really good job of managing risk on a idiosyncratic basis.

In the the day, it’s all about idiosyncratic underwriting. And when you look at SLX’s loss history and the inverse of that NAV growth over time compared to the rest of the industry, I think it speaks for itself as it relates to our risk management, set of risk management parameters, to be honest with you. At the end the day, this is about this business is about originating and underwriting credits, that have a asymmetrical skew where you cut off the left tail and minimizing losses, that that is your as we mentioned in the script, that is the only path, at the end of the day to outperformance because of the regulatory framework of the industry. You don’t have the ability to do it through capital structure or financing costs. It’s just about your portfolio yields compared to your losses, and your risk management.

And, you know, I think we have the best in class track record of that.

Brian McKenna, Analyst, Citizens: Okay. That’s super helpful. Thanks. And then one of your partners was speaking in a public forum recently. He talked about how an investable theme typically lasts about one to three years at Sixth Street.

So, yeah, what are some of the more attractive themes you’re investing into right now? You know, and really, what areas of the market have the best return opportunities per unit of risk? And then, you know, you know, what are some of the sectors you’re or or themes you’re shying away from?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. So, look, I think that the the most challenged you know, although we we still pick our spots is the the on the run sponsored finance business that tends to be the most crowded at the moment. Although, we still pick our spots in that space if we have industry overlap. But, generally, we like more off the run, non sponsor stuff today. Most definitely harder to source and harder to underwrite for sure and but has generally led to a whole bunch of excess return.

And so that could be spec pharma, that could be asset based lending, That could be energy. You know, those tend to be less picked over spaces with less capital. And, generally, they tend to have less, you know, kind of traditional private equity sponsorship. Bose, do have anything to add there?

Bo Stanley, President, Sixth Street Specialty Lending: The other thing I’d say is we continue to build out sector capabilities across the platform, and our shareholders are beneficiaries of that as they they source deals across the capital structure. And, you know, we still are active in the in the sponsor space, but it’s gonna be where our our themes overlap. And we’re not, we’re not, you know, competing, with commodity providers of capital.

Brian McKenna, Analyst, Citizens: Okay. I’ll leave it there. Thank you, guys.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Thanks, Brian.

Conference Operator: Thank you. Our next question comes from Mickey Schleien with Clear Street. Your line is open.

Mickey Schleien, Analyst, Clear Street: Yes. Good morning, everyone. Josh, a high level question to start about the sector in general. The growth of non traded BDCs and other funds investing in private credit continues to broadly pressure loan spreads, and we saw a little bit of that in your portfolio. Do you think that process is a secular trend?

And do you expect spreads for debt liabilities in the space to also compress or maybe for fee structures to come down and allow listed BDCs to maintain their arbitrage? Or do you think investors need to begin to accept lower ROEs in the sector? Yeah. I I realize Sixth Street may not be as exposed to these trends, but I think everyone would like to hear your your views.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. Yeah. By the way, Mickey, congrats on the on on the new feed. Glad you joined the call.

Mickey Schleien, Analyst, Clear Street: Thank you.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: You have an important voice in this so thank you. Look. I I I wrote extensively about this last quarter, so I would point people to my letter on this subject last quarter. About 90% of the asset growth, which I think you’re referring to, inflows came from the the the perpetually offer non traded space. And I would, you know, I would I would include, you know, interval funds, emerging interval funds in that category as well.

So I I think the challenge you have is in this particular time, the, and and we talk about this in this in this letter I mean, in this earnings script, is there’s complacency, which is we think investors are looking at the historical return backward looking LTM, which is higher than the four given both the combination of the higher spread in the back book compared to reinvestment spreads today plus the difference between the the downward sloping SOFR curve. And so you have spot SOFR, which is somewhere between eighty and ninety basis points above the SOFR swap curve. And so, you know, as people do, they kinda look at things and say, oh, what’s what’s the return profile been? But we think the return profile is going lower. And that is a that that that needs to shake out.

I would expect that that will shake out and, you know, the flows will change, flow, get reallocated to to those managers that have been able to, know, continue continue to produce in in the new environment an attractive ROE. When you historically look at balance sheet when you historically look at balance sheet, heavy financials, we were hard to find a balance sheet heavy financial that had an ROE requirement less than 9%. And so if it’s banks or fincos or BDCs so I’m not super hopeful that the market’s going to wake up, especially in a environment where treasuries the thirty year treasuries near five that they’re gonna, you know, re require, you know, a, you know, six or 7% ROE. That doesn’t seem like a a a a spread that’s super competitive risk adjusted returns. So I think I think that we’re in this moment of time where the the back book and the spot forward is hiding some of the economics of where the industry is going.

And as I wrote about, I’m I’m pretty concerned about that. And I think there’s been a lot of complacency about that. The the as it relates to your other two levers, which is the liability level lever, like, it doesn’t make a difference. I mean, you know, it would be nice, like, if if, you know, our investment grade spreads rally, you know, they kinda trade somewhere between investment grade and high yield, and, you know, they tighten by 20 or 30 basis points. But at one to one or 1.15 times levered, it’s not a real pickup in additional excess, excess return to investors.

And the last lever is obviously, you know, fees. And, you know, if the industry can’t generate immediate ROE, you know, capital will get reallocated or, you know, people will be forced to get more efficient, and, you know, that’s

Brian McKenna, Analyst, Citizens: the way capitalism works.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: But I I I would point I I I I wrote too long about this subject and probably probably spoke too long about this subject on this call, but it it is it is it is the right topic.

Mickey Schleien, Analyst, Clear Street: Yeah. I agree. And I share all of your concerns. That’s why I asked. Couple more questions, simpler ones.

There was some migration in your internal risk ratings from one to two. You know, at a high level, can you tell us what drove that decline?

Bo Stanley, President, Sixth Street Specialty Lending: There there were there were so we had a couple names that actually were lower rated that came off nonaccrual and moved up or were refinanced out, and then we had two, you know, specific names that went from one to twos. Those are businesses that are not performing, to their our original plan. However, they have, you know, strong interest coverage and, you know, so we moved them to one to two, but they’re, you know the general trend was down a bit, but it was two specific names.

Mickey Schleien, Analyst, Clear Street: But not an yeah. I mean, you’re not seeing sort of, that trend across the portfolio based on, you know, what I heard yesterday.

Robert Dodd, Analyst, Raymond James: No. In fact, you know, our our

Bo Stanley, President, Sixth Street Specialty Lending: earnings for the quarter across the book were actually very strong. Quarter over quarter, I think, you know, Cami, you know, the the earnings growth quarter over quarter over quarter. So when you look at q one or, yeah, q one earnings If it were $5.25 over last year’s earnings, they were up, in the mid teen low to mid teens on an earnings basis. On an LTM basis, they’re around eight, 8%. So the portfolio is in very good shape.

These were two idiosyncratic names. And, again, still performing, still have strong interest coverage. They’re just they’re they’re not performing to our original plan.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: That’s that’s very helpful. Look. Mickey, I would say, generally, one of our big themes is I I we think we’ve been pretty good about calling stuff, by the way. I just wanna I just wanna point it out to the team, but we I I I think our the theme is that credit quality you know, we talked about this last quarter. Probably quarters have kind of bottomed out.

It’s probably slightly gets bet it’s probably gets better. It’s slightly got better for us, at least on the non accrual line. And that, now the focus is going to be to dividend coverage and, you know, which we think, you know, for the first time be between the combination of reinvestment spreads and and the so forth swap curve that there might be some dividend cuts in this space. Our dividend coverage happens to be really, really strong due to, a, we have excess economics in our book and, two, we size our dividend, and we think about the liability. But, like, we think credit quality should you know, like, the economy is growing.

Credit quality should be pretty good. And so we we we feel pretty good about credit quality, but we think the shift should be focused now on ROEs and ROEs compared to to to the promises people made as it relates to the dividend.

Mickey Schleien, Analyst, Clear Street: Yeah. I agree with that as well, and I do expect to see some dividend cuts. My last question, just a housekeeping question maybe for Ian. What was the nature of the increase in the prepaid expenses and other assets on the balance sheet? It it moved pretty meaningfully.

I suspect it might be receivables for investments you sold.

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: Yeah. That’s right, Mickey. We had one name that paid off on June 30, but the cash didn’t come in until post quarter end.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: So it was shown in the

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: receivable rather than kept in the SOI.

Mickey Schleien, Analyst, Clear Street: Okay. Thank you. Appreciate your time this morning. That’s it for me.

Conference Operator: Thank you.

Bo Stanley, President, Sixth Street Specialty Lending: Thanks, Vicki.

Conference Operator: Our next question comes from Finian O’Shea with Wells Fargo Securities. Your line is open.

Finian O’Shea, Analyst, Wells Fargo Securities: Hey, guys. Good morning, everyone. I guess going back to the high level, Josh, I was interested in some of your opening remarks on credit. You described them as idiosyncratic, but also likely behind us. So I was wondering why.

Know idiosyncratic can mean a few things. Basically, off, but I would kinda think think of it as, you know, coming from from looser underwriting and seeing if if you think that’s something that’s changed.

Speaker 9: Yeah. Look. The the so, look.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: I always look at our book and say things are mostly behind us, or, you know, we think behind us. I would also say, that when you look at the shock of the rate hike cycle in mid two thousand twenty two, it takes there’s a lag as it relates to default. That lag is a function of historically that companies have cash on their balance sheet and some flexibility to manage things. And so although there’s a shock, there’s a shock absorber, but that absorber gets worn out over time and shows up, you know, two years later. And so if you think about 2022, we’re in mid twenty twenty five.

I think I think, generally, my feeling is, like, a lot of the credit issues have shown themselves. As it relates to what we call idiosyncratic, when you look at what we got wrong, what we got wrong was the, specifically on, lithium was there it was a business where it benefited from COVID. We clearly did not see that. And as the COVID kinda ran off and, you know, and the industry structure in in in that business changed, you know, we missed it. And so, you know, it wasn’t generally because of high rates.

It wasn’t generally because of commodity prices. It was a very idiosyncratic credit issue with that business model.

Bo Stanley, President, Sixth Street Specialty Lending: Yeah. And and the only thing I’d say, we we never compromise our underwriting standards, as you know, but we sometimes get things wrong. That’s something we miss.

Finian O’Shea, Analyst, Wells Fargo Securities: You know, absolutely. And I was referring to the industry at large. I was interested in the the the makes sense, so the the answer is helpful. Just as a small follow-up. Can you touch on the the changes in the latest co investment order and if the BDC still have priority on direct lending origination.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. They they they do. They do. I mean, the the co investment order just made, co investment, slightly, quite frankly, easier and more manageable. But, yes, you you will see nothing different.

Finian O’Shea, Analyst, Wells Fargo Securities: Okay. Great. Thanks so much.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Thanks, Suneem. Thanks, Suneem.

Conference Operator: Thank you. Our next question comes from Kenneth Lee with RBC Capital Markets. Your line is open.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending0: Hey, good morning. Thanks for taking my question. Think in the prepared remarks, mentioned that about 30% of the originations in the quarter were driven by non sponsored transactions. Wondering what your outlook is for the so called Lane two or Lane three investments over the near term. Are you seeing more opportunities given the macro backdrop?

Bo Stanley, President, Sixth Street Specialty Lending: Yes. Sure. I’ll take that. So yes, this quarter, was about 70% sponsor and 30% non sponsor. That’s, you know, fairly close to where historical levels have been over time.

You know, it’s usually about 65% sponsor and 35% non sponsor. Some quarters like last quarter, you’ll have more thematic non sponsor coverage. We’re we’re, you know, I think generally, we’re generally positive in second half activity being stronger than it was last year, given last year’s election cycle probably paused some demand. The pipeline feels pretty robust. Now with the competitive environment, we’re gonna continue to be thoughtful on how we allocate capital.

But we’re seeing pretty strong demand across both sponsor and non sponsor activities. So I I like, I I’m not gonna make a prediction on what that’s gonna look in the second half. You know, it generally follows over the, you know, long arc of of these, you know, that 6535, But we we seem to be seeing good activity across each of our thematic areas.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending0: Great. Very helpful there. And just one follow-up, if I may. I think you touched upon this briefly. You mentioned the covenants and some of the documentation on the new investments.

Just curious, for the more recent new investments in the current environment, have you been seeing any kind of changes in terms of terms and documentation? Thanks.

Bo Stanley, President, Sixth Street Specialty Lending: We we have not seen a change over the last few quarters. In fact, in probably the last year in, you know, the document standards or or covenant packages, they’ve remained stable. I think, you know, in part because how we source deals, away from some of, you know, the more the more combed over areas, but, we have not seen a change in that.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending0: Gotcha. Very helpful there. Thanks again.

Bo Stanley, President, Sixth Street Specialty Lending: Thanks, Ken.

Conference Operator: Thank you. Our next question comes from Aaron Cyganovich with Truist Securities. Your line is open.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending1: Hi, thanks. I was wondering if you could talk a little bit about your thoughts on the push to open up retirement vehicles to private investment assets and if you have any expectations of how that might impact the direct lending market.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. I mean, I think it’s a little too early to tell. I think it is I think it’s a very complicated issue. I I I I like the idea of giving access to returns and alternatives to to to individual investors. They’ve obviously had some of that through the BDC sector on the private credit side.

To be honest, I’m a little concerned that the incentives are not exactly right and that the that, you know, there was a decent prophylactic around alternatives where you had either super sophisticated individual investors or institutions that could do the work. And, you know, I’m I’m a little concerned about their ability to do the work and, and individual investor protections. You know, I hopefully, that gets cleared through and people are responsible, in that way. I mean, I can I can tell you, go back fifteen years when we started in the BDC industry and you talked to individual investors, and I think this is this is not supposed to be, snarky at all? But I they there was the vast majority did not understand the difference between return on capital and return of capital and dividend yield and ROE.

And so there was a whole individual investor that was chasing high dividend paying stocks, not realizing that it was return of capital, not return on capital. And by the way, some of that still exists. And so the you know? And the people on this call, which I I is is has been significant upgrade in contribution to the space, have been doing that work for, you know, for on the research side to make sure that people understand that. But so I’m I’m I have mixed feelings.

I’m concerned. I understand why GPs want access because it’s a big TAM and big growth. But, you know, at the end of the day, we gotta take care of our clients, and our job is to provide something of value of clients and, you know, not not in that focus still needs to be re you know, should should re remain, which is everything works well when you provide value to your customer. Everything the entire ecosystem takes care of itself. And I would I would urge the space to, you know, keep keep that at at at the most, you know, as their north star.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending1: Got it. That’s helpful. Thanks. And then just a quick one on new investments. There was an 8% stake in, it looks like, structured credit.

Can you just talk a little bit about what that is and what kind of the underlying assets in that?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. I’ll I’ll I’ll hit that real quick. That that that that you know, on on occasion, we, you know, buy structured credit a structured credit portfolio, which is of corporate loans. The underlying corporate loans and probably typically, probably syndicated loans. It the those securities are rated securities, typically double b or triple b.

They offer competitive they offer, you know, competitive risk adjusted returns with subordination. And so we we we’ve, you know, come in and out of that market, through the years. So I think in you know? And we sold a structured credit investment in q two that we bought for a price of 97 and a half, and it had a whole bunch of carry that we sold for $1.00 2, I think. And so we we’ve come in and out of that market.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending1: Okay. So these are just more opportunistic then?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Top.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Yep.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending1: Thanks.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Thank you so much.

Conference Operator: Thank you. Our next question comes from Melissa Wedel with JPMorgan. Your line is open.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending3: Good morning. Thanks for taking my questions. I appreciate the context that you provided around sort of second half activity levels that you you might expect to see. I’m curious if you’re also expecting sort of repayment activity to remain elevated in the second half to sort of match that. I I just note looking at the the net repayments over the last couple of quarters, they’ve been pretty pretty sizable.

And I I know you don’t manage to that necessarily on a quarterly basis, but just trying to put a framework around that.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. I mean, look. The good news, think, for SLX shareholders is that we have outsized exposure to Vintage’s post 22 rate hiking cycle. So those were higher spread assets. As you know, how our accounting works is we don’t recognize any of the upfront fee day one unless there’s a syndication involved, and they typically have call protection.

So if those get called away from us early, they produce excess income. And so you have activity based fees when repayments pick up. And so I would expect on the margin repayments stay stay elevated given that exposure that we have that others do not have or don’t have as much of because we kept on investing through that rate hiking cycle. And so I I think that in the short term is good for net investment income, because there will be excess returns and fees. And then, you know, we’re gonna as as I said at the end of our script, we gotta, like you know, we we we we do it for a living.

We’ll we have a large top of the funnel, and we’ll go we’ll go replace it with stuff we really, really like.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending3: Right. Okay. Thank you for that. And then just wanted to follow-up on sort of looking across the portfolio. Now that you’ve had a few more months after some tariff announcements, I’m just curious if if you’re still seeing low exposure across the portfolio.

Has your view changed on that at all? No.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: I mean, I look. I’ll let Bo hit it. I think the answer is no, and I I think our tariff exposure is actually reduced for post quarter end, but Bo has

Bo Stanley, President, Sixth Street Specialty Lending: That’s exactly right. If you remember right, we have very low exposure, you know, less than, you know, 1% of the portfolio on a fair market value basis. It was really three names that we thought had direct exposure. We didn’t know exactly what the impact was going to be. Since, last recording, that actually one of the names, one of those three names has actually been paid off.

So we you know, business is performing well. It paid off, into, you know, cheaper financing. So, it’s it’s down to $2.02 small names at this point.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending3: Thank you.

Conference Operator: Thank you. Our next question comes from Paul Johnson with KBW. Your line is open.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Hey, good morning. Congrats on the good quarter. Can I just ask, so what drove the higher other income this quarter versus last? Was that just the repayment activity in the quarter?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Sorry, Paul. You kinda yeah. I I think the question was what drove higher other income?

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Yeah. Correct. Yeah. Alright.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: I’ve seen I’ll take that one.

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: It it’s really just a a number of miscellaneous, exit fees that were embedded in transactions that paid off during the quarter.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Got it. And Not not in Sorry if I didn’t.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Fourth quarter. Got

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: it. I and I I sorry if I didn’t catch it, but did did you guys disclose what the what the prepayment income was, the accelerated prepayment income per share this quarter?

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: From a per share basis, the the prepayment income was about a third of activity based fees

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: or around 6¢ per share for specific to prepayment fees. Yeah. I mean, I I and correct me if I’m wrong. The in in the other income line, there was extra fees Yeah. Which is is, like, a very close cousin to prepayment fees.

Yeah. So I the other income line was how much?

Ian Simmons, Chief Financial Officer, Sixth Street Specialty Lending: Other income was about 7¢ per share.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. So I I I I think it’s fair to think of, like, prepayment and exit fees being pre on a gross basis, somewhere between 11 and 13¢ per share. I I they’re they’re pretty they they were pretty close cousins. You know, the the the question the diff the difference is technically is, you know, a prepayment a a prepayment income was existed in the contract from day one where an exit fee might have existed in the in in the contract along the way. Right, Ian?

That’s right.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Okay. Got it. That makes that makes sense. Very helpful. And then in terms of Just then Sorry.

Go ahead. Didn’t know if I cut someone off there.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: No. No. I understand the same thing. Go go ahead.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: Okay. So so in terms of the structuring fee income, though, I mean, from the kind of sponsor portfolio optimization that you you mentioned with some some transactions or add on add on activity there, is there any sort of structuring fee income that would come along with that?

Speaker 9: No. I mean, I I mean, I take a little bit

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: of a deep dive on this because I think people in the industry do it different. So there are people in the industry that take some of their upfront fees if that and split it between a structuring fee and OID. And the issuer doesn’t really care if the two points you get up front and half of the structuring fee and half of OID. You know? And, ultimately, then what happens is is that you have smaller OID that gets amortized over time.

So something if you take more of the income upfront, and with something prepays, you have less accelerated OID because you’ve already taken the income. And that is not how we do our accounting. How we do our accounting, unless there’s a syndication fee, we don’t take a structuring fee. It all goes into OID. And so when the portfolio churns, there’s more accelerated OID, and there is, than than would have been a case if we took a structured fee.

So all of our fees are effectively deferred and put in OID, at least from a a structuring perspective. So people do it different. It’s a really important nuance. So in the in the former case, new activity will drive NII on a marginal basis. In the latter case, our case, is that repayment activity and portfolio churn will drive NII.

Sorry for the deep dive.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: No. I got it. That makes sense. And, again, helpful answer there. Last one for me.

Just on the lithium restructuring positive. It seems that that was done without any additional write down or loss on the investment this quarter. But can I just ask this on the earn out security? So what exactly, I guess, is kind of triggering the the payout there? Is it just based on revenue or EBITDA, or is there any sort of sales that are taking place within the company?

And then also just kind of what’s maybe the expected kind of realization time line there? And that’s all for me. Thanks.

Bo Stanley, President, Sixth Street Specialty Lending: Yeah. Yeah. Sure. So, again, this was, this was split into into two securities, which was an interest earning, debt security that is smaller, and then an equity participation and all cash flows that are generated beyond that. The expectation is that the duration will be about three years, for for to fully realize the value on that equity, and, you know, there’s a chance that we can overperform that.

We took a view of what, those cash flows would look like over the three years, and that’s how we value the equity security.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: No loan amortization, though.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending0: Correct. Correct.

Cami Senator, Head of Investor Relations, Sixth Street Specialty Lending2: I appreciate it. That’s all for me.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Congrats on a good quarter. Thank you. Thank

Conference Operator: you. And our last question comes from Robert Dodd with Raymond James. Your line is open.

Robert Dodd, Analyst, Raymond James: Hi, guys, and and congrats on the quarter. If I can go to, back to the the the repayment, issue briefly, and then I’ve got a a different one. To quote Ian, you know, expect full year NII, ROE, and obviously, not including, know, to be in the top half half of of of previous guidance. But if fees remain elevated, could be above that. To quote Josh, expect repayments to remain elevated.

And then if we look at the your fair value to CallPro, which ticked up fairly meaningfully, this quarter tends to imply that you’re expecting less call protection in in sort of q three, maybe the second half than you got in the first half or less of that’s built into NAV. So can you reconcile, like, you know, you can have high v payments without having high repayment fees depending on the vintage of the asset, etcetera, etcetera. But can you kind of reconcile those those those bits? So, like, if repayments are elevated, why wouldn’t fees be elevated too? But that doesn’t seem to be factored into your your core fair value to core ratio from the presentation.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. So what what I would say is, look, my my comment as it relates to repayments is a is a q three look. Ian’s comment was a full year look. So let let let let’s start let’s start with that. Right?

Like, there is a you know, Ian was talking about full year guidance. I was talking about, you know, in the next, you know, quarter. That’s kind of what we have as much visibility as we have. You know? And then, obviously, fees and the amount of fees is a little bit of a function of what vintage.

Mhmm. And, you know, we we don’t control that. But so I’m not I’m not sure there’s a huge disconnect in what we all said. It’s just it’s we’re just trying to round it out.

Robert Dodd, Analyst, Raymond James: No. No. No. No. I appreciate that.

And that little breakdown does does help the breakdown for me, so thanks for that. On on the the second question, if I can, I mean, I was gonna ask you about the the retro, peak oil model, but, something simpler? To your point, Josh, typically, balance sheet financials, you know, you need an ROE greater balance sheet heavy financials. You need an ROE greater than nine to trade that book or better. If Yeah.

Yeah. Institutional investors are the primary ones driving valuation. I think, that’s my addendum to that. So how do you think given given a huge amount of capital raised, obviously, as as you quite know, is these evergreen funds, which aren’t. It is not institutional capital.

You know and, obviously, those those are for for a lot of the market, the actual kind of drivers of spreads and volume also than the public vehicles are. So how do you think to to that point? Like, that 9%, is that what the industry is going to be satisfied with given what the evergreen funds are doing and who the primary capital comes from on that front?

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Yeah. I mean, I’m a big believer that markets are typically not very efficient in the short term, but very efficient in the long term. And what I would say is if you have an individual investor or an RIA who’s sitting in front of that individual investor, they should, at some point, are going to pick their head up and say, I can earn I can buy something at a discount to book in the public markets and earn, you know, a nine, you know, versus buying something at par and have daily liquidity versus buying something at NAV and rebuying something at NAV because I’m not redeeming that I’m earning a seven and that I may or may not have liquidity when I put in at the end of the of of the quarter. Like, that that will work its way through if people are doing their job as fiduciaries. And, you know, and so in the short term, that, you know, that that disconnect might exist.

But in the long term, my my hope and belief, if markets are doing their job and and people are active fiduciaries, they will put their clients in the best risk adjusted return on capital and look at alternatives and look at liquidity premiums and, you know, optionality and discounts to book and all that stuff. So I think, ultimately, it it will come out in the wash. You you would I think all things being equal, want to own something where you have daily liquidity versus not and where you you might be gated. You know? And that you know, people have to experience that firsthand to kinda realize it, but at some point, they will, and it will work its way through.

Robert Dodd, Analyst, Raymond James: K. Thank you.

Conference Operator: Thank you. At this time, I’d like to turn the call back over to Josh Easterly for closing remarks.

Joshua Easterly, Chief Executive Officer, Sixth Street Specialty Lending: Look. I you know, two two two things have gone look. We live in the team’s in New York City. Most of us live in New York City except for Fish and and Cammy. And I I would say it’s hard not to end any type of call this week without saying that it is life is fragile, and random and, you know, like, you know, what happened this week was on nobody’s bingo board, and people should make sure they, you know, are present with the people they care about and give them lots of hugs.

So I I say that, because that’s top of mind for me. The other thing that’s top of mind for me is I I look back at what Sixth Street Specialty Lending has accomplished pre public and post public for since 02/2014. And the key and it’s about the team. The team has just done an incredible job over market cycles, navigating difficult times, and I couldn’t be prouder of the people that I work with, and the platform is a special place where we have the ability to really find unique investments for our our our our investors with the big top of the funnel. And, you know, it’s a pleasure working with the people I work with.

So those two things are top of mind to me, and, I thank everybody for, you know, attending the call. And I hope people have a peaceful rest of the summer. Thanks, everyone. Thank you.

Conference Operator: Thank you for your participation. Bye. This does conclude the program. You may now disconnect. Everyone, have a great day.

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