UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 001-36364
Sixth Street Specialty Lending, Inc.
(Exact name of registrant as specified in its charter)
Delaware
27-3380000
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
2100 McKinney Avenue, Suite 1500,
Dallas, TX
75201
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (469) 621-3001
Not applicable
Former name, former address and former fiscal year, if changed since last report.
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
TSLX
The New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The number of shares of the registrant’s common stock, $.01 par value per share, outstanding at July 31, 2024 was 93,017,205.
1
SIXTH STREET SPECIALTY LENDING, INC.
INDEX
PAGE
NO.
PART I.
FINANCIAL INFORMATION
4
Item 1.
Financial Statements
Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023
Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (Unaudited)
5
Consolidated Schedules of Investments as of June 30, 2024 (Unaudited) and December 31, 2023
6
Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2024 and 2023 (Unaudited)
21
Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (Unaudited)
22
Notes to Consolidated Financial Statements (Unaudited)
23
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
46
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
66
Item 4.
Controls and Procedures
67
PART II.
OTHER INFORMATION
68
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
69
SIGNATURES
70
2
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.
In addition to factors previously identified elsewhere in the reports and other documents Sixth Street Specialty Lending, Inc. (the "Company", "we", "us", or "our") has filed with the Securities and Exchange Commission, or SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law.
The “TSLX” and “TAO” marks are marks of Sixth Street.
3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
(Amounts in thousands, except share and per share amounts)
(Unaudited)
June 30,
December 31,
2024
2023
Assets
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $3,221,394 and $3,172,853, respectively)
$
3,254,527
3,223,152
Controlled, affiliated investments (amortized cost of $83,169 and $78,159, respectively)
62,542
59,913
Total investments at fair value (amortized cost of $3,304,563 and $3,251,012, respectively)
3,317,069
3,283,065
Cash and cash equivalents (restricted cash of $29,527 and $23,979, respectively)
34,649
25,196
Interest receivable
30,738
27,969
Prepaid expenses and other assets
4,495
7,578
Total Assets
3,386,951
3,343,808
Liabilities
Debt (net of deferred financing costs of $27,262 and $21,930, respectively)
1,712,905
1,780,307
Management fees payable to affiliate
12,468
11,962
Incentive fees on net investment income payable to affiliate
11,414
11,451
Incentive fees on net capital gains accrued to affiliate
8,266
10,446
Other payables to affiliate
4,584
2,802
Other liabilities
38,279
30,465
Total Liabilities
1,787,916
1,847,433
Commitments and contingencies (Note 8)
Net Assets
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding
—
Common stock, $0.01 par value; 400,000,000 shares authorized, 93,681,455 and 88,493,749 shares issued, respectively; and 93,017,205 and 87,829,499 shares outstanding, respectively
937
885
Additional paid-in capital
1,510,345
1,405,173
Treasury stock at cost; 664,250 and 664,250 shares held, respectively
(10,459
)
Distributable earnings
98,212
100,776
Total Net Assets
1,599,035
1,496,375
Total Liabilities and Net Assets
Net Asset Value Per Share
17.19
17.04
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Operations
Three Months Ended
Six Months Ended
June 30, 2024
June 30, 2023
Income
Investment income from non-controlled, non-affiliated investments:
Interest from investments
102,707
96,221
205,114
184,655
Paid-in-kind interest income
9,435
4,644
17,543
7,647
Dividend income
1,815
797
2,596
1,405
Other income
5,533
4,075
9,787
6,832
Total investment income from non-controlled, non-affiliated investments
119,490
105,737
235,040
200,539
Investment income from controlled, affiliated investments:
2,320
1,867
4,551
3,570
8
Total investment income from controlled, affiliated investments
2,325
1,868
4,559
3,572
Total Investment Income
121,815
107,605
239,599
204,111
Expenses
Interest
39,234
32,442
78,266
60,928
Management fees
12,765
11,410
25,361
22,143
Incentive fees on net investment income
10,507
22,342
19,988
Incentive fees on net capital gains
(1,335
749
(2,179
2,506
Professional fees
2,115
1,749
3,866
3,505
Directors’ fees
207
174
428
357
Other general and administrative
1,343
1,188
2,627
2,203
Total expenses
65,743
58,219
130,711
111,630
Management and incentive fees waived (Note 3)
(297
(300
(694
(556
Net Expenses
65,446
57,919
130,017
111,074
Net Investment Income Before Income Taxes
56,369
49,686
109,582
93,037
Income taxes, including excise taxes
1,226
902
2,076
1,316
Net Investment Income
55,143
48,784
107,506
91,721
Unrealized and Realized Gains (Losses)
Net change in unrealized gains (losses):
Non-controlled, non-affiliated investments
(7,852
7,662
(17,166
19,416
Controlled, affiliated investments
(2,783
(2,381
(8,987
Translation of other assets and liabilities in foreign currencies
(1,641
(2,000
3,085
(3,004
Interest rate swaps
(57
Total net change in unrealized gains (losses)
(9,493
2,822
(16,462
7,599
Realized gains (losses):
1,630
1,623
3,863
6,436
Foreign currency transactions
121
(139
12
286
Total net realized gains (losses)
1,751
1,484
3,875
6,722
Total Net Unrealized and Realized Gains (Losses)
(7,742
4,306
(12,587
14,321
Increase (Decrease) in Net Assets Resulting from Operations
47,401
53,090
94,919
106,042
Earnings per common share—basic and diluted
0.51
0.63
1.04
1.28
Weighted average shares of common stock outstanding—basic and diluted
92,734,320
84,223,032
90,883,350
82,819,734
Consolidated Schedule of Investments as of June 30, 2024
(Amounts in thousands, except share amounts)
Company (1)
Investment
InitialAcquisitionDate
ReferenceRate andSpread
Interest Rate
AmortizedCost (2)(7)
Fair Value (8)
Percentageof Net Assets
Debt Investments
Automotive
Bestpass, Inc. (3)(5)
First-lien loan ($44,575 par, due 5/2029)
5/26/2023
SOFR + 5.75%
11.09%
43,457
44,464
2.8%
Truck-Lite Co., LLC (3)
First-lien loan ($40,336 par, due 2/2031)
2/13/2024
11.07%
39,904
40,336
2.5%
First-lien revolving loan ($146 par, due 2/2031)
11.08%
105
146
0.0%
83,466
84,946
5.3%
Business Services
Alpha Midco, Inc. (3)(5)
First-lien loan ($69,550 par, due 8/2028)
8/15/2019
SOFR + 6.88%
12.21%
69,101
69,725
4.4%
First-lien revolving loan ($13 par, due 8/2028)
4/8/2024
12.22%
13
Artisan Bidco, Inc.(3)
First-lien loan ($37,920 par, due 11/2029)
11/7/2023
SOFR + 7.00%
12.33%
37,118
37,702
2.4%
First-lien loan (EUR 17,646 par, due 11/2029)
E + 7.00%
10.83%
18,612
18,818 (EUR 17,558)
1.2%
Azurite Intermediate Holdings, Inc. (3)
First-lien loan ($32,063 par, due 3/2031)
3/19/2024
SOFR + 6.50%
11.84%
31,399
31,588
2.0%
BCTO Ignition Purchaser, Inc. (3)
First-lien holdco loan ($33,933 par, due 10/2030)
4/18/2023
SOFR + 9.00%
14.33% PIK
33,120
34,527
2.2%
Crewline Buyer, Inc.(3)
First-lien loan ($56,324 par, due 11/2030)
11/8/2023
SOFR + 6.75%
12.08%
54,860
56,013
3.5%
Dye & Durham Corp. (3)(4)(9)
First-lien loan ($1,000 par, due 4/2031)
4/4/2024
SOFR + 4.35%
9.68%
985
1,003
0.1%
Elements Finco Limited (3)(4)
First-lien loan ($4,069 par, due 4/2031)
4/29/2024
SOFR + 4.75%
10.09%
4,043
4,039
0.3%
First-lien loan (GBP 7,095 par, due 4/2031)
S + 5.00%
10.20%
8,777
8,871 (GBP 7,018)
0.6%
ExtraHop Networks, Inc. (3)(5)
First-lien loan ($70,378 par, due 7/2027)
7/22/2021
SOFR + 7.60%
12.94%
69,513
70,199
ForeScout Technologies, Inc. (3)
First-lien loan ($5,625 par, due 5/2031)
5/24/2024
SOFR + 5.00%
10.33%
5,565
5,561
Galileo Parent, Inc. (3)
First-lien loan ($64,417 par, due 5/2030)
5/3/2023
SOFR + 7.25%
12.58%
62,702
64,417
4.0%
First-lien revolving loan ($6,058 par, due 5/2030)
12.59%
5,814
6,058
0.4%
Mitnick Corporate Purchaser, Inc. (3)(9)
First-lien loan ($328 par, due 5/2029)
5/2/2022
SOFR + 4.50%
9.93%
328
302
Netwrix Corp. (3)
First-lien loan ($46,243 par, due 6/2029)
6/9/2022
10.35%
45,721
46,489
2.9%
OutSystems Luxco SARL(3)(4)(5)
First-lien loan (EUR 3,004 par, due 12/2028)
12/8/2022
E + 5.75%
9.40%
3,107
3,286 (EUR 3,066)
0.2%
Price Fx Inc. (3)(4)
First-lien loan (EUR 910 par, due 10/2029)
10/27/2023
10.86%
964
970 (EUR 905)
USA DeBusk, LLC (3)
First-lien loan ($6,641 par, due 4/2031)
4/30/2024
SOFR + 5.25%
10.58%
6,525
6,550
First-lien revolving loan ($180 par, due 4/2030)
167
171
Wrangler TopCo, LLC (3)
First-lien loan ($4,153 par, due 7/2029)
7/7/2023
SOFR + 7.50%
12.83%
4,050
4,210
462,483
470,512
29.7%
Chemicals
Erling Lux Bidco SARL(3)(4)
First-lien loan (EUR 7,239 par, due 9/2028)
9/6/2022
E + 6.75%
10.62%
6,848
7,986 (EUR 7,452)
0.5%
First-lien loan (GBP 13,388 par, due 9/2028)
S + 6.75%
11.95%
15,150
17,135 (GBP 13,555)
1.1%
First-lien revolving loan (GBP 312 par, due 9/2028)
388
399 (GBP 316)
First-lien loan (NOK 7,427 par, due 9/2028)
N + 6.75%
11.48%
710
706 (NOK 7,520)
23,096
26,226
1.6%
Communications
Aurelia Netherlands MidCo 2 B.V. (3)(4)
First-lien loan (EUR 32,904 par, due 5/2031)
5/22/2024
9.55%
34,877
34,736 (EUR 32,410)
Babylon Finco Limited (3)(4)
First-lien loan ($1,557 par, due 1/2031)
1/26/2024
SOFR + 6.25%
11.57%
1,508
1,525
Banyan Software Holdings, LLC (3)(4)
First-lien loan ($39,586 par, due 10/2026)
1/27/2023
SOFR + 7.35%
12.69%
38,780
40,278
First-lien loan ($1,520 par, due 10/2026)
11.59%
1,336
1,420
Celtra Technologies, Inc. (3)(5)
First-lien loan ($26,786 par, due 11/2026)
11/19/2021
26,333
26,786
1.7%
IntelePeer Holdings, Inc.
First-lien loan ($33,088 par, due 12/2024) (3)
12/2/2019
SOFR + 8.40%
13.73%
33,078
33,088
2.1%
Convertible note ($4,880 par, due 5/2028)
5/12/2021
8.00%
8.00% PIK
4,856
6,186
140,768
144,019
9.0%
Education
Astra Acquisition Corp. (3)(14)
Second-lien loan ($41,945 par, due 10/2029)
10/22/2021
SOFR + 9.14%
14.47%
41,321
16,358
1.0%
Destiny Solutions Parent Holding Company (3)(5)
First-lien loan ($59,250 par, due 6/2026)
6/8/2021
SOFR + 5.85%
11.19%
58,694
58,954
3.7%
EMS Linq, Inc. (3)
First-lien loan ($56,216 par, due 12/2027)
12/22/2021
SOFR + 6.35%
11.69%
55,488
55,232
First-lien revolving loan ($5,446 par, due 12/2027)
5,344
5,292
Kangaroo Bidco AS (3)(4)
First-lien loan ($30,625 par, due 11/2030)
11/2/2023
12.54%
29,734
30,975
1.9%
190,581
166,811
10.4%
Financial Services
Alaska Bidco Oy (3)(4)
First-lien loan (EUR 727 par, due 5/2030)
5/30/2023
9.51%
757
787 (EUR 734)
BCTO Bluebill Buyer, Inc. (3)(5)
First-lien loan ($29,606 par, due 7/2029)
7/20/2023
28,675
29,384
1.8%
BlueSnap, Inc. (3)(5)
First-lien loan ($42,868 par, due 8/2025)
10/25/2019
SOFR + 7.15%
12.48%
42,583
42,528
2.7%
BTRS Holdings, Inc.(3)
First-lien loan ($48,012 par, due 12/2028)
12/16/2022
SOFR + 8.00%
13.34%
47,005
48,612
3.0%
First-lien revolving loan ($1,807 par, due 12/2028)
12.60%
1,700
7
CLGF Holdco 2, LLC(3)(4)
First-lien loan ($3,916 par, due 11/2027)
SOFR + 8.50%
13.83%
3,852
3,896
Second-lien loan ($3,357 par, due 11/2028)
SOFR + 12.00%
17.33%
3,132
3,264
Fullsteam Operations, LLC(3)
First-lien loan ($35,738 par, due 11/2029)
11/27/2023
13.74%
34,630
35,713
GreenShoot BidCo B.V (3)(4)
First-lien loan (EUR 5,107 par, due 5/2030)
5/28/2024
9.56%
5,405
5,356 (EUR 4,997)
Ibis Intermediate Co. (3)(5)
First-lien loan ($1,193 par, due 5/2027)
5/28/2021
SOFR + 4.65%
10.00%
1,156
1,199
Ibis US Blocker Co. (3)
First-lien loan ($17,094 par, due 5/2028)
13.75% PIK
16,897
17,265
Kyriba Corp. (3)
First-lien loan ($37,250 par, due 4/2028)
12/21/2023
13.83% (8.50% PIK)
36,571
38,045
First-lien loan (EUR 11,419 par, due 4/2028)
E + 8.50%
12.22% (8.50% PIK)
12,326
12,483 (EUR 11,647)
0.8%
Passport Labs, Inc.
First-lien loan ($24,995, par, due 4/2026) (3)
4/28/2021
13.75%
24,886
24,995
Convertible Promissory Note A ($1,086 par, due 8/2026)
3/2/2023
1,086
1,498
Ping Identity Holding Corp. (3)
First-lien loan ($22,727 par, due 10/2029)
10/17/2022
12.34%
22,218
23,165
1.4%
PrimeRevenue, Inc. (3)
First-lien loan ($2,007 par, due 12/2025)
12/31/2018
SOFR + 7.10%
12.44%
2,004
2,007
TradingScreen, Inc. (3)(5)
First-lien loan ($49,950 par, due 4/2027)
4/30/2021
11.68%
49,158
49,950
3.1%
Volante Technologies, Inc.
First-lien loan ($2,826 par, due 9/2028)
9/29/2023
16.50%
16.50% PIK
2,801
2,805
336,842
344,819
21.4%
Healthcare
BCTO Ace Purchaser, Inc. (3)
First-lien loan ($69,376 par, due 11/2027) (5)
11/23/2020
SOFR + 7.45%
12.80%
68,588
70,244
Second-lien loan ($6,091 par, due 1/2030)
1/23/2023
SOFR + 10.70%
16.02% PIK
5,972
6,197
Edge Bidco B.V. (3)(4)(5)
First-lien loan (EUR 5,893 par, due 2/2029)
2/24/2023
10.68% (3.25% PIK)
6,140
6,371 (EUR 5,945)
Merative L.P. (3)(5)
First-lien loan ($70,103 par, due 6/2028)
6/30/2022
68,368
69,752
Raptor US Buyer II Corp. (3)(5)
First-lien loan ($15,491 par, due 3/2029)
3/24/2023
15,041
15,607
SL Buyer Corp. (3)(5)
First-lien loan ($32,524 par, due 7/2029)
SOFR + 7.75%
13.09%
31,278
32,328
195,387
200,499
12.6%
Hotel, Gaming and Leisure
ASG II, LLC (3)(5)
First-lien loan ($65,000 par, due 5/2028)
5/25/2022
SOFR + 6.40%
11.73%
63,860
65,162
4.1%
Equinox Holdings, Inc.
First-lien loan ($48,550 par, due 3/2029)(3)
3/8/2024
SOFR + 8.25%
13.58% (4.13% PIK)
47,854
48,065
Second-lien loan ($2,167 par, due 6/2027)
3/13/2024
16.00%
16.00% PIK
2,110
2,173
IRGSE Holding Corp. (3)(6)
First-lien loan ($30,261 par, due 6/2025)
12/21/2018
SOFR + 9.65%
14.98%
28,593
30,034
First-lien revolving loan ($32,632 par, due 6/2025)
14.99%
32,632
32,381
Sports Alliance GmbH (3)(4)
First-lien loan (EUR 4,404 par, due 4/2030)
4/10/2024
E + 7.25%
10.94% (3.88% PIK)
4,605
4,612 (EUR 4,303)
179,654
182,427
11.4%
Human Resource Support Services
Axonify, Inc. (3)(4)(5)
First-lien loan ($42,998 par, due 5/2027)
5/5/2021
SOFR + 7.65%
12.99%
42,482
43,223
bswift, LLC (3)(5)
First-lien loan ($44,134 par, due 11/2028)
11/7/2022
SOFR + 6.38%
11.67%
43,132
44,796
Elysian Finco Ltd. (3)(4)(5)
First-lien loan ($20,677 par, due 1/2028)
1/31/2021
SOFR + 6.65%
12.04%
20,355
21,090
1.3%
First-lien revolving loan (GBP 812 par, due 1/2028)
1,045
1,000 (GBP 791)
Employment Hero Holdings Pty Ltd. (3)(4)
First-lien loan (AUD 50,000 par, due 12/2026)
12/6/2021
B + 6.25%
10.70%
34,903
33,393 (AUD 50,000)
HireVue, Inc.(3)
First-lien loan ($53,842 par, due 5/2029)
52,492
54,381
3.4%
First-lien revolving loan ($885 par, due 5/2029)
724
954
Madcap Software, Inc.(3)(5)
First-lien loan ($32,338 par, due 12/2026)
12/15/2023
SOFR + 6.10%
11.44%
31,669
31,933
PageUp People, Ltd. (3)(4)(5)
First-lien loan (AUD 11,894 par, due 12/2025)
1/11/2018
B + 5.00%
9.35%
8,999
7,944 (AUD 11,894)
First-lien loan (GBP 2,749 par, due 12/2025)
10/28/2021
S + 5.03%
10.23%
3,788
3,475 (GBP 2,749)
First-lien loan ($9,547 par, due 12/2025)
SOFR + 5.10%
10.44%
9,541
9,547
PayScale Holdings, Inc. (3)(5)
First-lien loan ($70,831 par, due 5/2027)
5/3/2019
70,510
71,185
4.5%
PrimePay Intermediate, LLC (3)(5)
First-lien loan ($34,200 par, due 12/2026)
12/17/2021
12.64%
33,602
34,200
353,242
357,121
22.4%
Insurance
Disco Parent, Inc. (3)
First-lien loan ($4,545 par, due 3/2029)
3/30/2023
12.85%
4,447
4,583
Internet Services
Arrow Buyer, Inc. (3)
First-lien loan ($35,120 par, due 7/2030)
6/30/2023
34,271
35,222
Bayshore Intermediate #2, L.P. (3)
First-lien loan ($38,359 par, due 10/2028)
10/1/2021
SOFR + 7.85%
13.17% PIK
37,869
38,359
Coupa Holdings, LLC (3)
First-lien loan ($43,191 par, due 2/2030)
2/27/2023
SOFR + 5.50%
42,222
43,691
CrunchTime Information, Systems, Inc. (3)(5)
First-lien loan ($59,199 par, due 6/2028)
6/17/2022
58,275
59,347
EDB Parent, LLC (3)(5)
First-lien loan ($66,400 par, due 7/2028)
7/7/2022
12.10%
65,273
65,902
Higher Logic, LLC (3)(5)
First-lien loan ($51,495 par, due 1/2025)
6/18/2018
51,405
51,624
3.2%
Hippo XPA Bidco AB (3)(4)
First-lien loan (SEK 78,816 par, due 2/2031)
2/20/2024
STIBOR + 6.50%
10.58% (3.50% PIK)
7,354
7,294 (SEK 77,245)
LeanTaaS Holdings, Inc. (3)(5)
First-lien loan ($51,909 par, due 7/2028)
7/12/2022
51,090
52,222
3.3%
Lithium Technologies, LLC (3)
First-lien loan ($60,749 par, due 1/2025)
10/3/2017
SOFR + 11.00%
16.33% PIK
60,749
46,625
Lucidworks, Inc. (3)(5)
First-lien loan ($9,210 par, due 2/2027)
2/11/2022
12.84% (3.50% PIK)
9,210
Merit Software Finance Holdings, LLC (3)
First-lien loan ($39,286 par, due 6/2029)
6/20/2024
12.84%
37,917
37,911
Piano Software, Inc. (3)(5)
First-lien loan ($53,957 par, due 2/2026)
2/25/2021
13.19%
53,486
53,957
SMA Technologies Holdings, LLC(3)(5)
First-lien loan ($36,833 par, due 10/2028)
10/31/2022
35,567
37,570
2.3%
544,688
538,934
33.7%
Manufacturing
Aptean, Inc. (3)
First-lien loan ($7,922 par, due 1/2031)
1/30/2024
10.59%
7,833
7,872
ASP Unifrax Holdings, Inc. (9)
First-lien loan ($1,124 par, due 12/2025) (3)
8/25/2023
SOFR + 3.90%
9.23%
1,067
1,096
First-lien loan (EUR 1,023 par, due 12/2025) (3)
9/14/2023
E + 3.75%
7.47%
1,007
1,050 (EUR 980)
Secured Note ($1,226 par, due 9/2028)
12/19/2023
5.25%
867
671
Unsecured Note ($1,059 par, due 9/2029)
8/31/2023
7.50%
593
535
Avalara, Inc. (3)
First-lien loan ($38,636 par, due 10/2028)
10/19/2022
37,809
39,274
Heritage Environmental Services, Inc. (3)
First-lien loan ($12,346 par, due 1/2031)
1/31/2024
12,279
12,381
Skylark UK DebtCo Limited (3)(4)
First-lien loan ($16,340 par, due 9/2030)
9/7/2023
15,926
16,299
First-lien loan (EUR 4,851 par, due 9/2030)
9.47%
5,062
5,186 (EUR 4,839)
First-lien loan (GBP 16,640 par, due 9/2030)
S + 5.75%
10.95%
20,069
20,964 (GBP 16,584)
102,512
105,328
6.6%
Office Products
USR Parent, Inc. (3)(5)
ABL FILO term loan ($16,000 par, due 4/2027)
4/25/2022
11.83%
15,741
15,960
Oil, Gas and Consumable Fuels
Laramie Energy, LLC (3)
First-lien loan ($27,317 par, due 2/2027)
2/21/2023
26,855
27,580
Mach Natural Resources LP(3)(4)
First-lien loan ($4,875 par, due 12/2026)
12/28/2023
11.98%
4,792
4,851
Murchison Oil and Gas, LLC (3)
First-lien loan ($22,417 par, due 6/2026)
22,144
22,865
TRP Assets, LLC (3)
First-lien loan ($65,000 par, due 12/2025)
12/3/2021
SOFR + 7.76%
13.10%
64,528
66,485
4.2%
118,319
121,781
7.6%
Other
Omnigo Software, LLC (3)(5)
First-lien loan ($39,738 par, due 3/2026)
3/31/2021
SOFR + 6.60%
11.94%
39,338
39,738
Scorpio Bidco (3)(4)
First-lien loan (EUR 2,511 par, due 4/2031)
9.60%
2,665
2,643 (EUR 2,466)
42,003
42,381
Pharmaceuticals
Apellis Pharmaceuticals, Inc. (3)(4)
First-lien loan ($19,737 par, due 5/2030)
5/13/2024
19,736
19,799
Retail and Consumer Products
American Achievement, Corp. (3)(14)
First-lien loan ($26,957 par, due 9/2026)
9/30/2015
11.68%(11.18% PIK)
26,132
20,555
First-lien loan ($1,347 par, due 9/2026)
6/10/2021
SOFR + 14.10%
19.43%(18.93% PIK)
1,347
101
Subordinated note ($4,740 par, due 9/2026)
3/16/2021
SOFR + 1.15%
6.45% PIK
545
71
Bed Bath and Beyond Inc. (3)(15)
ABL FILO term loan ($10,337 par, due 8/2027)
9/2/2022
SOFR + 9.90%
15.24%
10,155
9,510
Roll Up DIP term loan ($24,446 par, due 9/2024)
4/24/2023
SOFR + 7.90%
13.24% PIK
24,446
22,490
Super-Priority DIP term loan ($4,180 par, due 9/2024)
13.24%
4,180
3,846
Cordance Operations, LLC (3)
First-lien loan ($54,710 par, due 7/2028)
7/25/2022
14.48%
53,717
55,135
Neuintel, LLC (3)(5)
First-lien loan ($56,319 par, due 12/2026)
12/20/2021
55,670
56,460
PDI TA Holdings, Inc. (3)
First-lien loan ($16,132 par, due 2/2031)
2/1/2024
SOFR + 5.25
15,842
16,078
Rapid Data GmbH Unternehmensberatung (3)(4)
First-lien loan (EUR 4,495 par, due 7/2029)
7/11/2023
E + 6.50%
10.42%
4,697
4,818 (EUR 4,495)
Tango Management Consulting, LLC (3)(5)
First-lien loan ($60,974 par, due 12/2027)
12/1/2021
SOFR + 6.90%
60,348
60,669
3.8%
First-lien revolving loan ($2,333 par, due 12/2027)
SOFR + 6.85%
12.18%
2,280
2,315
259,359
252,048
15.6%
Transportation
Ben Nevis Midco Limited (3)(4)
First-lien loan ($3,296 par, due 3/2028)
3/26/2024
10.84%
3,231
3,234
Marcura Equities LTD (3)(4)
First-lien loan ($32,007 par, due 8/2029)
8/11/2023
31,089
31,797
First-lien revolving loan ($1,667 par, due 8/2029)
1,596
1,650
Project44, Inc. (3)(5)
First-lien loan ($35,051 par, due 11/2027)
11/12/2021
11.72%
34,137
35,051
70,053
71,732
Total Debt Investments
3,142,377
3,149,926
197.0%
Equity and Other Investments
Clarience Technologies, LLC (11)(12)
Class A Units (333 units)
2/12/2024
820
Artisan Topco LP(11)(12)
Class A Preferred Units (2,117,264 units)
2,117
Dye & Durham, Ltd. (4)(10)
Common Shares (126,968 shares)
3,909
1,143 (CAD 1,564)
9
Insight Hideaway Aggregator, L.P. (11)(12)
Partnership Interest (329,861 units)
3,299
Mitnick TA Aggregator, L.P. (11)
Membership Interest (0.43% ownership)
5,247
4,460
Newark FP Co-Invest, L.P.(11)(12)
Partnership (2,527,719 units)
2,533
ReliaQuest, LLC (13)
Class A-1 Units (637,713 units) (11)
11/23/2021
1,120
1,414
Class A-2 Units (2,989 units) (11)
6/21/2022
Class A-3 Units (16,957 units) (11)(12)
11/10/2023
36
Series A Preferred Stock (1,824 units) (3)(12)
12/20/2023
17.30% PIK
1,659
1,773
Warrants (90,634 warrants) (11)(12)
102
Sprinklr, Inc. (10)(11)
Common Shares (283,499 shares)
6/24/2021
2,445
2,727
Warrior TopCo LP (11)(12)
Class A Units (423,729 units)
424
22,897
20,046
Celtra Technologies, Inc. (11)
Class A Units (1,250,000 units)
1,250
IntelePeer Holdings, Inc. (11)
Series C Preferred Shares (1,816,295 shares)
4/8/2021
1,816
2,021
Series D Preferred Shares (1,598,874 shares)
2,925
2,172
Series C Warrants (280,000 warrants)
2/28/2020
183
Series D Warrants (106,592 warrants)
6,174
5,443
Astra 2L Holdings II LLC (11)
Membership Interest (10.17% ownership)
1/13/2022
3,255
EMS Linq, Inc. (11)
Class B Units (5,522,526 units)
5,522
4,763
RMCF IV CIV XXXV, LP. (11)
Partnership Interest (11.94% ownership)
1,000
1,505
9,777
6,268
AF Eagle Parent, L.P.(11)(12)
Partnership (121,329 units)
4,091
CLGF Holdco 2, LLC(4)(11)(12)
Warrants (334,682 warrants)
265
Newport Parent Holdings, L.P. (11)
Class A-2 Units (131,569 units)
12/10/2020
4,177
14,379
0.9%
Oxford Square Capital Corp. (4)(10)
Common Shares (1,620 shares)
8/5/2015
Passport Labs, Inc. (11)
Warrants (17,534 warrants)
192
TradingScreen, Inc. (11)(13)
Class A Units (600,000 units)
5/14/2021
600
9,249
19,340
Caris Life Sciences, Inc. (11)
Series C Preferred Shares (1,915,114 shares)
10/13/2020
3,500
6,764
Series D Preferred Shares (1,240,740 shares)
5/11/2021
10,050
10,527
Warrants (633,376 warrants)
9/21/2018
191
1,217
Warrants (569,991 warrants)
4/2/2020
250
912
Merative Topco L.P. (11)
Class A-1 Units (989,691 units)
9,897
9,600
Raptor US Buyer II Corp. (11)
Ordinary Shares (20,268 shares)
2,033
25,921
31,053
IRGSE Holding Corp. (7)(11)
Class A Units (33,790,171 units)
21,842
84
Class C-1 Units (8,800,000 units)
100
43
21,942
127
Axonify, Inc. (4)(11)(13)
Class A-1 Units (3,780,000 units)
3,780
4,564
bswift, LLC (11)
Class A-1 Units (2,393,509 units)
2,393
2,752
DaySmart Holdings, LLC (11)
Class A Units (166,811 units)
12/18/2020
2,088
Employment Hero Holdings Pty Ltd. (4)(11)
Series E Preferred Shares (113,250 shares)
3/1/2022
2,134
2,725 (AUD 4,080)
9,654
12,129
Bayshore Intermediate #2, L.P. (11)(13)
Co-Invest Common Units (8,837,008 units)
8,837
10,008
Co-Invest 2 Common Units (3,493,701 units)
3,494
3,957
Lucidworks, Inc. (11)
Series F Preferred Shares (199,054 shares)
8/2/2019
800
Piano Software, Inc. (11)
Series C-1 Preferred Shares (418,527 shares)
3,000
Series C-2 Preferred Shares (27,588 shares)
11/18/2022
198
SMA Technologies Holdings, LLC (11)
Class A Units (1,300 units)
11/21/2022
1,300
Class B Units (923,250 units)
17,629
19,263
Marketing Services
Validity, Inc.
Series A Preferred Shares (3,840,000 shares)
5/31/2018
3,840
9,984
Murchison Oil and Gas, LLC (13)
Preferred Units (13,355 units)
13,355
14,190
TRP Assets, LLC (11)(13)
Partnership Interest (1.89% ownership)
8/25/2022
8,784
12,319
22,139
26,509
TherapeuticsMD, Inc. (4)(11)
Warrants (14,256 warrants)
8/5/2020
1,029
10
American Achievement, Corp. (11)
Class A Units (687 units)
50
Copper Bidco, LLC (9)
Trust Certificates (996,958 Certificates)
1/30/2021
2,319
9,072
Neuintel, LLC (11)(13)
Class A Units (1,176,494 units)
915
5,319
10,037
Structured Credit
Cedar Funding CLO Ltd, Series 2018-7A (3)(4)(9)
Structured Credit ($1,000 par, due 1/2031)
7/21/2022
SOFR + 4.81%
10.14%
880
981
Dryden Senior Loan Fund, Series 2020-86A (3)(4)(9)
Structured Credit ($1,500 par, due 7/2034)
8/17/2022
SOFR + 6.76%
1,488
1,441
MidOcean Credit CLO Ltd, Series 2018-9A (3)(4)(9)
Structured Credit ($1,100 par, due 7/2031)
6/1/2022
SOFR + 6.31%
11.64%
975
1,089
Voya CLO Ltd, Series 2018-3A (3)(4)(9)
Structured Credit ($2,750 par, due 10/2031)
6/22/2022
SOFR + 6.01%
11.34%
2,453
2,613
5,796
6,124
Total Equity and Other Investments
162,186
167,143
Total Investments
3,304,563
207.4%
Interest Rate Swaps as of June 30, 2024
CompanyReceives
CompanyPays
Maturity Date
NotionalAmount
FairMarketValue
Upfront(Payments) /Receipts
Change inUnrealizedGains / (Losses)
Interest rate swap (a)
SOFR + 2.54%
3.875%
11/1/2024
2,500
Interest rate swap (a)(b)(c)(d)
SOFR + 2.51%
300,000
(4,235
4,611
SOFR + 2.72%
50,000
(743
Interest rate swap (a)(b)
2.50%
SOFR + 2.17%
8/1/2026
(25,376
735
6.95%
SOFR + 2.99%
8/14/2028
(2,542
(7,222
6.125%
SOFR + 2.44%
3/1/2029
350,000
(6,339
Total Hedge Accounting Swaps
1,302,500
(39,235
(7,395
Cash collateral
68,762
Total derivatives
29,527
11
Controlled, Affiliated Investments during the six months ended June 30, 2024
Company
FairValue atDecember 31,2023
GrossAdditions (a)
GrossReductions (b)
Net ChangeIn UnrealizedGain/(Loss)
RealizedGain/(Loss)
Transfers
FairValue atJune 30,2024
OtherIncome
InterestIncome
IRGSE Holding Corp.
5,010
Total
Consolidated Schedule of Investments as of December 31, 2023
First-lien loan ($44,800 par, due 5/2029)
11.11%
43,571
44,240
Acceo Solutions, Inc. (3)(4)(5)
First-lien loan (CAD 52,941 par, due 10/2025)
7/6/2018
C + 4.75%
10.21%
40,026
40,150 (CAD 52,941)
First-lien loan ($68,885 par, due 8/2025)
SOFR + 7.63%
12.97%
68,287
69,751
4.7%
First-lien loan ($38,112 par, due 11/2029)
12.38%
37,250
37,563
First-lien loan (EUR 17,735 par, due 11/2029)
10.96%
18,681
19,346 (EUR 17,513)
First-lien holdco loan ($31,935 par, due 10/2030)
14.40% PIK
31,086
31,775
54,781
55,236
Dye & Durham Corp. (3)(4)
First-lien loan (CAD 37,874 par, due 12/2027)
C + 5.75%
11.20%
28,873
28,938 (CAD 38,158)
First-lien revolving loan (CAD 1,086 par, due 12/2026)
693
824 (CAD 1,086)
First-lien loan ($66,197 par, due 7/2027)
12.96%
65,245
65,866
First-lien loan ($5,476 par, due 8/2026)
7/1/2022
SOFR + 8.10%
13.45%
5,420
5,498
First-lien loan ($64,742 par, due 5/2030)
62,920
63,770
4.3%
First-lien revolving loan ($3,317 par, due 5/2029)
3,048
3,166
Hornetsecurity Holding GmbH (3)(4)
First-lien loan (EUR 3,150 par, due 11/2029)
11/14/2022
10.50%
3,154
3,536 (EUR 3,201)
Information Clearinghouse, LLC and MS Market Service, LLC (3)(5)
First-lien loan ($17,640 par, due 12/2026)
12.02%
17,342
17,598
First-lien loan ($329 par, due 5/2029)
9.98%
329
310
First-lien loan ($36,594 par, due 6/2029)
10.39%
36,074
36,842
9.59%
3,091
3,332 (EUR 3,016)
10.94%
962
983 (EUR 890)
ReliaQuest Holdings, LLC (3)(5)
First-lien loan ($82,626 par, due 10/2026)
10/8/2020
12.63%
81,711
83,658
5.6%
12.88%
4,044
4,118
563,017
572,260
38.3%
6,954
8,053 (EUR 7,290)
First-lien loan (GBP 12,287 par, due 9/2028)
13,860
15,742 (GBP 12,349)
400
399 (GBP 313)
21,214
24,194
First-lien loan ($29,739 par, due 10/2026)
12.71%
28,771
29,739
First-lien loan ($34,038 par, due 11/2026)
11.71%
33,357
34,038
First-lien loan ($33,646 par, due 12/2024) (3)
33,625
33,394
Convertible note ($4,700 par, due 5/2028)
7.50% PIK
4,674
4,994
100,427
102,165
6.8%
Astra Acquisition Corp. (3)
Second-lien loan ($43,479 par, due 10/2029)
42,814
27,174
First-lien loan ($59,550 par, due 6/2026)
11.21%
58,858
59,252
55,288
55,079
First-lien loan ($25,582 par, due 11/2030)
24,621
24,794
181,581
166,299
11.2%
E + 6.25%
755
796 (EUR 720)
First-lien loan ($28,640 par, due 7/2029)
27,635
27,996
First-lien loan ($47,051 par, due 12/2028)
13.38%
45,931
47,168
First-lien revolving loan ($1,205 par, due 12/2028)
1,085
Bear OpCo, LLC (3)(5)
First-lien loan ($21,392 par, due 10/2024)
10/10/2019
13.01%
21,294
21,713
1.5%
First-lien loan ($41,895 par, due 10/2025)
12.50%
41,516
42,117
13.85%
3,845
3,867
17.35%
3,116
3,164
First-lien loan ($29,663 par, due 11/2029)
13.78%
28,611
29,049
First-lien loan ($1,201 par, due 5/2027)
10.04%
1,066
1,257
First-lien loan ($15,958 par, due 5/2028)
13.79% PIK
15,743
15,838
First-lien loan ($35,634 par, due 4/2028)
13.87% (incl. 8.50% PIK)
34,875
34,871
14
First-lien loan (EUR 10,924 par, due 4/2028)
12.42% (incl. 8.50% PIK)
11,766
11,825 (EUR 10,705)
First-lien loan ($24,603 par, due 4/2026) (3)
24,444
24,555
2,025
12.36%
22,183
First-lien loan ($9,007 par, due 12/2024)
12.46%
8,996
9,083
First-lien loan ($47,198 par, due 4/2027)
46,360
47,080
First-lien loan ($2,604 par, due 9/2028)
2,578
2,598
342,885
349,384
23.4%
First-lien loan ($69,231 par, due 11/2027) (5)
68,325
69,746
Second-lien loan ($5,623 par, due 1/2030)
16.10%
5,493
5,637
First-lien loan (EUR 3,850 par, due 2/2029)
16.10% (incl. 3.25% PIK)
3,951
4,266 (EUR 3,862)
Homecare Software Solutions, LLC (3)(5)
First-lien loan ($65,000 par, due 10/2026)
10/6/2021
SOFR + 5.70%
11.06%
64,017
64,838
68,205
69,753
Raptor US Buyer II Corp. (3)
First-lien loan ($15,569 par, due 3/2029)
15,070
15,491
First-lien loan ($31,475 par, due 7/2029)
30,139
30,902
255,200
260,633
17.5%
First-lien loan ($61,609 par, due 5/2028)
11.77%
60,383
61,934
First-lien loan ($30,261 par, due 6/2024)
15.00%
28,594
30,109
First-lien revolving loan ($27,622 par, due 6/2024)
15.03%
27,622
27,480
116,599
119,523
7.9%
First-lien loan ($41,607 par, due 5/2027)
13.04%
41,035
41,718
First-lien loan ($44,358 par, due 11/2028)
SOFR + 6.63%
12.03%
43,236
44,802
First-lien loan ($19,519 par, due 1/2028)
12.03% (incl. 6.50% PIK)
19,112
19,987
10.67%
34,834
34,117 (AUD 50,000)
First-lien loan ($54,113 par, due 5/2029)
52,478
53,808
3.6%
First-lien loan ($32,500 par, due 12/2026)
11.46%
31,713
31,769
First-lien loan (AUD 13,400 par, due 12/2025)
9.36%
10,114
9,143 (AUD 13,400)
First-lien loan (GBP 3,104 par, due 12/2025)
10.22%
4,276
3,957 (GBP 3,104)
First-lien loan ($10,557 par, due 12/2025)
10.45%
10,549
10,557
0.7%
First-lien loan ($71,196 par, due 5/2027)
11.70%
70,826
71,374
4.8%
First-lien loan ($34,375 par, due 12/2026)
33,672
34,375
351,845
355,607
23.7%
12.89%
4,436
4,533
First-lien loan ($33,125 par, due 7/2030)
11.85%
32,249
32,820
First-lien loan ($36,629 par, due 10/2028)
12.96% PIK
36,129
36,446
First-lien revolving loan ($480 par, due 10/2027)
12.01%
446
468
12.86%
42,135
43,441
First-lien loan ($59,500 par, due 6/2028)
SOFR + 6.00%
11.36%
58,477
59,947
First-lien loan ($63,508 par, due 7/2028)
62,301
63,032
First-lien loan ($52,937 par, due 1/2025)
52,781
53,069
First-lien loan ($36,966 par, due 7/2028)
36,190
37,411
First-lien loan ($57,665 par, due 1/2025)
14.39% (incl. 4.50% PIK)
57,673
56,367
First-lien loan ($8,912 par, due 2/2027)
12.86% (incl. 3.50% PIK)
8,912
First-lien loan ($50,889 par, due 2/2026)
12.45%
50,282
50,508
12.11%
35,459
37,110
473,034
479,531
31.9%
First-lien loan ($1,130 par, due 12/2025) (3)
9.25%
1,053
1,051
7.68%
998
1,030 (EUR 932)
Secured Note ($91 par, due 9/2028)
62
570
540
37,736
38,743
2.6%
11.60%
15,722
15,812
15
10.18%
5,055
5,238 (EUR 4,742)
S + 6.25%
11.52%
20,207
20,735 (GBP 16,265)
81,403
83,215
5.7%
ABL FILO term loan ($17,000 par, due 4/2027)
16,703
16,914
26,768
27,142
First-lien loan ($5,000 par, due 12/2026)
12.00%
4,900
First-lien loan ($27,849 par, due 6/2026)
SOFR + 8.65%
14.00%
27,453
28,267
13.11%
64,372
66,980
123,493
127,289
8.5%
First-lien loan ($39,943 par, due 3/2026)
11.96%
39,440
39,743
99 Cents Only Stores LLC (3)
ABL FILO term loan ($25,000 par, due 5/2025)
9/6/2017
14.03%
24,868
25,000
First-lien loan ($27,046 par, due 9/2026)
11.19% PIK
26,219
20,488
First-lien loan ($1,352 par, due 9/2026)
18.94% PIK
1,352
6.54% PIK
ABL FILO term loan ($14,065 par, due 8/2027)
15.26%
13,787
13,468
Roll Up DIP term loan ($25,931 par, due 9/2024)
13.26% (incl. 13.26% PIK)
25,931
24,828
Super-Priority DIP term loan ($4,739 par, due 9/2024)
13.26%
4,739
4,538
First-lien loan ($49,543 par, due 7/2028)
SOFR + 9.25%
14.66%
48,641
49,801
First-lien loan ($57,701 par, due 12/2026)
13.03%
56,923
58,134
3.9%
10.48%
4,676
4,853 (EUR 4,393)
First-lien loan ($57,007 par, due 12/2027)
12.20%
56,247
56,703
263,928
257,985
17.2%
First-lien loan ($35,139 par, due 11/2027)
11.78%
34,139
35,001
31,020
31,482
1,589
1,625
66,748
68,108
3,045,524
3,071,623
205.3%
2,532
1,383 (CAD 1,823)
5,243
4,496
Series A Preferred Stock (1,667 Units) (12)
1,502
1,504
90,634 Warrants (11)(12)
Common Shares (315,005 shares)
2,716
3,793
Class A Units (423,728 units)
19,707
17,819
1,957
2,099
280,000 Series C Warrants
106,592 Series D Warrants
5,306
309
4,762
1,455
6,526
16
334,682 Warrants
11,591
17,534 Warrants
16,470
6,676
9,899
633,376 Warrants
1,187
569,991 Warrants
989,691 Class A-1 Units
Raptor US Buyer II Corp. (11)(12)
20,268 Ordinary Shares
25,922
30,280
2,281
2,324
4,026
bswift, LLC (11)(12)
2,394
2,138
2,605 (AUD 3,817)
9,655
11,163
8,461
3,345
Series C-2 Preferred Shares (27,588 shares)(12)
SMA Technologies Holdings, LLC (11)(12)
Class A Units (1,300 shares)
Class B Units (923,250 shares)
17,104
10,368
13,355 Preferred Units
14,156
8,755
11,513
22,110
25,669
14,256 Warrants
Copper Bidco, LLC
Trust Certificates (132,928 Certificates)
12/7/2020
Trust Certificates (996,958 Certificates) (9)
2,589
10,089
12/21/2021
2,430
5,589
12,569
Allegro CLO Ltd, Series 2018-1A, (3)(4)(9)
Structured Credit ($1,000 par, due 6/2031)
5/26/2022
SOFR + 3.11%
8.51%
983
971
American Money Management Corp CLO Ltd, Series 2016-18A (3)(4)(9)
Structured Credit ($1,500 par, due 5/2031)
SOFR + 3.31%
8.70%
1,359
1,475
Ares CLO Ltd, Series 2021-59A (3)(4)(9)
Structured Credit ($1,000 par, due 4/2034)
6/23/2022
SOFR + 6.51%
11.89%
898
967
Ares Loan Funding I Ltd, Series 2021-ALFA, Class E (3)(4)(9)
Structured Credit ($1,000 par, due 10/2034)
6/24/2022
SOFR + 6.96%
944
988
Bain Capital Credit CLO Ltd, Series 2018-1A (3)(4)(9)
Structured Credit ($500 par, due 4/2031)
10/15/2020
SOFR + 5.61%
11.02%
429
445
Battalion CLO Ltd, Series 2021-21A (3)(4)(9)
Structured Credit ($1,300 par, due 7/2034)
7/13/2022
SOFR + 3.56%
8.96%
1,170
1,252
Benefit Street Partners CLO Ltd, Series 2015-BR (3)(4)(9)
Structured Credit ($2,500 par, due 7/2034)
SOFR + 4.11%
9.53%
2,194
2,465
Benefit Street Partners CLO Ltd, Series 2015-8A (3)(4)(9)
Structured Credit ($1,425 par, due 1/2031)
9/13/2022
SOFR + 3.01%
8.43%
1,289
1,367
17
Carlyle Global Market Strategies CLO Ltd, Series 2014-4RA (3)(4)(9)
Structured Credit ($1,000 par, due 7/2030)
SOFR + 3.16%
8.56%
920
Carlyle Global Market Strategies CLO Ltd, Series 2016-1, Ltd (3)(4)(9)
Structured Credit ($1,600 par, due 4/2034)
2/15/2023
SOFR + 6.86%
12.28%
1,430
1,521
Carlyle Global Market Strategies CLO Ltd, Series 2018-1A (3)(4)(9)
Structured Credit ($1,550 par, due 4/2031)
8/11/2020
11.42%
1,264
1,442
CarVal CLO III Ltd, Series 2019-2A (3)(4)(9)
Structured Credit ($1,000 par, due 7/2032)
SOFR + 6.70%
903
874
934
CIFC CLO Ltd, Series 2018-3A (3)(4)(9)
Structured Credit ($1,000 par, due 7/2031)
6/16/2022
SOFR + 5.76%
11.16%
904
956
CIFC CLO Ltd, Series 2021-4A (3)(4)(9)
Structured Credit ($1,000 par, due 7/2033)
7/14/2022
SOFR + 6.26%
11.66%
900
991
Crown Point CLO Ltd, Series 2021-10A (3)(4)(9)
Structured Credit ($1,000 par, due 7/2034)
6/14/2022
SOFR + 7.11%
12.53%
953
Dryden Senior Loan Fund, Series 2018-55A (3)(4)(9)
Structured Credit ($1,000 par, due 4/2031)
927
959
12.16%
1,463
1,433
Eaton CLO Ltd, Series 2015-1A (3)(4)(9)
Structured Credit ($2,500 par, due 1/2030)
SOFR + 2.76%
8.18%
2,260
2,410
Eaton CLO Ltd, Series 2020-1A (3)(4)(9)
8/11/2022
11.91%
936
970
GoldenTree CLO Ltd, Series 2020-7A (3)(4)(9)
921
994
Gulf Stream Meridian, Series 2021-4A (3)(4)(9)
Structured Credit ($1,015 par, due 7/2034)
6/3/2022
SOFR + 6.61%
942
968
Gulf Stream Meridian, Series 2021-6A (3)(4)(9)
Structured Credit ($2,000 par, due 1/2037)
9/12/2022
SOFR + 6.62%
11.93%
1,851
1,928
Jefferson Mill CLO Ltd, Series 2015-1A (3)(4)(9)
Structured Credit ($1,000 par, due 10/2031)
5/23/2022
SOFR + 3.81%
9.22%
908
965
KKR CLO Ltd, 49A (3)(4)(9)
Structured Credit ($1,000 par, due 7/2035)
6/2/2022
SOFR + 8.26%
13.42%
978
987
Madison Park CLO, Series 2018-28A (3)(4)(9)
6/28/2022
SOFR + 5.51%
10.91%
911
963
Magnetite CLO Ltd, Series 2021-30A (3)(4)(9)
6/13/2022
SOFR + 6.46%
MidOcean Credit CLO Ltd, Series 2016-6A (3)(4)(9)
Structured Credit ($3,500 par, due 4/2033)
SOFR + 3.78%
9.20%
3,170
3,274
1,012
Octagon 57 LLC, Series 2021-1A (3)(4)(9)
5/24/2022
12.26%
951
940
Octagon Investment Partners 18 Ltd, Series 2018-18A (3)(4)(9)
7/26/2022
SOFR + 2.96%
8.36%
913
Octagon Investment Partners 38 Ltd, Series 2018-1A (3)(4)(9)
Structured Credit ($2,800 par, due 7/2030)
9/20/2022
SOFR + 3.21%
8.63%
2,505
2,713
Park Avenue Institutional Advisers CLO Ltd, Series 2018-1A (3)(4)(9)
9/23/2022
SOFR + 3.59%
9.01%
870
925
Pikes Peak CLO, Series 2021-9A (3)(4)(9)
Structured Credit ($2,000 par, due 10/2034)
8/31/2022
SOFR + 6.84%
12.23%
1,787
1,890
RR Ltd, Series 2020-8A (3)(4)(9)
Structured Credit ($1,000 par, due 4/2033)
8/22/2022
SOFR + 6.66%
12.06%
955
995
Signal Peak CLO LLC, Series 2018-5A (3)(4)(9)
Structured Credit ($333 par, due 4/2031)
8/9/2022
SOFR + 5.91%
11.29%
301
318
Southwick Park CLO Ltd, Series 2019-4A (3)(4)(9)
932
Stewart Park CLO Ltd, Series 2015-1A (3)(4)(9)
Structured Credit ($1,000 par, due 1/2030)
SOFR + 2.86%
8.26%
928
11.41%
2,441
2,484
Wind River CLO Ltd, Series 2014-2A (3)(4)(9)
Structured Credit ($1,500 par, due 1/2031)
1,407
1,404
Wind River CLO Ltd, Series 2017-1A (3)(4)(9)
Structured Credit ($3,000 par, due 4/2036)
SOFR + 3.98%
9.38%
2,633
2,911
Wind River CLO Ltd, Series 2018-3A (3)(4)(9)
Structured Credit ($2,000 par, due 1/2031)
12/12/2022
11.33%
1,721
1,856
52,865
55,844
205,488
211,442
14.1%
3,251,012
219.4%
18
Interest Rate Swaps as of December 31, 2023
(8,846
(1,563
1,362
(26,111
9,554
4,680
952,500
(31,840
23,243
55,819
23,979
19
Controlled, Affiliated Investments during the year ended December 31, 2023
FairValue atDecember 31, 2022
RealizedGain/(Losses)
70,755
10,875
(21,717
7,756
20
Consolidated Statements of Changes in Net Assets
Common Stock
Treasury Stock
Shares
ParAmount
Cost
Paid in Capital inExcess of Par
DistributableEarnings
Total NetAssets
Balance at December 31, 2023
87,829,499
664,250
Net increase (decrease) in net assets resulting from operations:
Net investment income
52,362
Net change in unrealized gains (losses) on investments and foreign currency translation
(6,969
Net realized gains (losses) on investments and foreign currency transactions
2,125
Increase (decrease) in Net Assets Resulting from Capital Share Transactions:
Issuance of common stock, net of offering and underwriting costs
4,000,000
40
81,417
81,457
Dividends to stockholders:
Stock issued in connection with dividend reinvestment plan
292,057
5,921
5,924
Dividends declared from distributable earnings
(49,268
Balance at March 31, 2024
92,121,556
1,492,511
99,026
1,582,006
600,000
11,844
11,850
295,649
5,990
5,993
(48,215
Balance at June 30, 2024
93,017,205
Balance at December 31, 2022
81,389,287
821
1,294,751
56,456
1,341,569
42,937
4,777
5,238
362,578
6,245
6,248
(44,764
Tax reclassification of stockholders' equity in accordance with GAAP (1)
(403
403
Balance at March 31, 2023
81,751,865
824
1,300,593
65,047
1,356,005
5,175,000
52
89,238
89,290
314,366
5,578
5,581
(43,437
Balance at June 30, 2023
87,241,231
879
1,395,409
74,700
1,460,529
Consolidated Statements of Cash Flows
(Amounts in thousands)
Cash Flows from Operating Activities
Increase (decrease) in net assets resulting from operations
Adjustments to reconcile increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Net change in unrealized (gains) losses on investments
19,547
(10,429
Net change in unrealized (gains) losses on foreign currency transactions
(3,085
3,004
Net change in unrealized (gains) losses on interest rate swaps
(174
Net realized (gains) losses on investments
(3,863
(6,436
Net realized (gains) losses on foreign currency transactions
(765
(476
Net amortization of discount on investments
(10,557
(7,674
Amortization of deferred financing costs
3,446
2,312
Amortization of discount on debt
816
387
Purchases and originations of investments, net
(458,946
(455,596
Proceeds from investments, net
59,433
9,049
Repayments on investments
374,283
176,630
Paid-in-kind interest
(16,292
(6,634
Changes in operating assets and liabilities:
(1,518
(3,380
Interest receivable paid-in-kind
(1,251
(1,013
3,083
506
584
(37
(411
(2,180
Payable to affiliate
1,782
281
408
3,406
Net Cash Provided by (Used in) Operating Activities
59,729
(186,581
Cash Flows from Financing Activities
Borrowings on debt
855,943
750,079
Repayments on debt
(905,182
(571,126
Deferred financing costs
(8,778
(5,083
Proceeds from issuance of common stock, net of offering and underwriting costs
93,307
Dividends paid to stockholders
(85,566
(76,371
Net Cash Provided by (Used in) Financing Activities
(50,276
186,789
Net Increase (Decrease) in Cash, Cash Equivalents, and Restricted Cash
9,453
208
Cash, cash equivalents, and restricted cash, beginning of period
25,647
Cash, Cash Equivalents, and Restricted Cash, End of Period
25,855
Supplemental Information:
Interest paid during the period
68,168
56,464
Excise and other taxes paid during the period
2,404
2,416
Dividends declared during the period
97,483
88,201
Non-Cash Financing Activities:
Reinvestment of dividends during the period
11,917
11,829
Notes to Consolidated Financial Statements
(Amounts in thousands, unless otherwise indicated)
1. Organization and Basis of Presentation
Organization
Sixth Street Specialty Lending, Inc. (the “Company”) is a Delaware corporation formed on July 21, 2010. The Company was formed primarily to lend to, and selectively invest in, middle-market companies in the United States. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is managed by Sixth Street Specialty Lending Advisers, LLC (the “Adviser”). On June 1, 2011, the Company formed a wholly-owned subsidiary, TC Lending, LLC, a Delaware limited liability company. On March 22, 2012, the Company formed a wholly-owned subsidiary, Sixth Street SL SPV, LLC, a Delaware limited liability company. On May 19, 2014, the Company formed a wholly-owned subsidiary, Sixth Street SL Holding, LLC, a Delaware limited liability company. On December 9, 2020, the Company formed a wholly-owned subsidiary, Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company.
On March 21, 2014, the Company completed its initial public offering (“IPO”) and the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “TSLX.”
Basis of Presentation
The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. In the opinion of management, all adjustments considered necessary for the fair presentation of the consolidated financial statements for the periods presented have been included. The results of operations for interim periods are not indicative of results to be expected for the full year. All intercompany balances and transactions have been eliminated in consolidation.
Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with U.S. GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the Securities and Exchange Commission (“SEC”), on February 15, 2024.
The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.
Fiscal Year End
The Company’s fiscal year ends on December 31.
2. Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual amounts could differ from those estimates and such differences could be material.
Cash and Cash Equivalents
Cash and cash equivalents may consist of demand deposits, highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less, and restricted cash pledged as collateral for certain centrally cleared derivative instruments. Cash and cash equivalents denominated in U.S. dollars are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.
Investments at Fair Value
Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Investment transactions purchased through the secondary markets are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses primarily reflects the change in investment values and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.
Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by the Company’s Board of Directors (the “Board”), based on, among other things, the input of the Adviser, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.
As part of the valuation process, the Board takes into account relevant factors in determining the fair value of its investments, including and in combination of: the estimated enterprise value of a portfolio company (that is, the total value of the portfolio company’s net debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.
The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:
The Company conducts this valuation process on a quarterly basis.
The Board has engaged independent third-party valuation firms to perform certain limited procedures that the Board has identified and requested them to perform in connection with the valuation process of investments for which no market quotations are readily available. At June 30, 2024, the independent third-party valuation firms performed their procedures over substantially all of the Company’s investments. Upon completion of such limited procedures, the third-party valuation firms concluded that the fair value, as determined by the Board, of those investments subjected to their limited procedures, appeared reasonable.
The Company applies Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurement (“ASC Topic 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC Topic 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC Topic 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC Topic 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC Topic 820, these levels are summarized below:
24
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC Topic 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various additional criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Company reviews pricing provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality, such as the depth of the relevant market relative to the size of the Company’s position.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment including the impact of changes in broader market indices and credit spreads and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
Financial and Derivative Instruments
The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements, pursuant to ASC Topic 815 Derivatives and Hedging, further clarified by the FASB’s issuance of the Accounting Standards Update (“ASU”) No. 2017-12, Derivatives and Hedging, which was adopted in 2019 by the Company. For all derivative instruments designated in a hedge accounting relationship, the entire change in the fair value of the hedging instrument shall be recorded in the same line item of the Consolidated Statements of Operations as the hedged item. The Company uses certain interest rate swaps as derivative instruments to hedge the Company’s fixed rate debt, and therefore both the periodic payment and the change in fair value for the effective hedge, if applicable, will be recognized as components of interest expense in the Consolidated Statements of Operations. For derivative contracts entered into by the Company that are not designated in a hedge accounting relationship, the Company presents changes in the fair value through current period earnings.
In the normal course of business, the Company has commitments and risks resulting from its investment transactions, which may include those involving derivative instruments. Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. While the notional amount gives some indication of the Company’s derivative activity, it generally is not exchanged, but is only used as the basis on which interest and other payments are exchanged. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process.
Derivatives, including the Company’s interest rate swaps, for which broker quotes are available are typically valued at those broker quotes.
Offsetting Assets and Liabilities
Foreign currency forward contract and interest rate swap receivables or payables pending settlement are offset, and the net amount is included with receivable or payable for foreign currency forward contracts or interest rate swaps in the Consolidated Balance Sheets when, and only when, they are with the same counterparty, the Company has the legal right to offset the recognized amounts, and it intends to either settle on a net basis or realize the asset and settle the liability simultaneously.
Foreign Currency
Foreign currency amounts are translated into U.S. dollars on the following basis:
25
Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under the Company’s Revolving Credit Facility to fund these investments. Fluctuations arising from the translation of foreign currency borrowings are included with the net change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the Consolidated Statements of Operations.
Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.
Equity Offering Expenses
The Company records expenses related to equity offerings as a reduction of capital upon completion of an offering of registered securities. The costs associated with renewals of the Company’s shelf registration statement are expensed as incurred.
Debt Issuance Costs
The Company records origination and other expenses related to its debt obligations as deferred financing costs, which are presented as a direct deduction from the carrying value of the related debt liability. These expenses are deferred and amortized using the effective interest method, or straight-line method, over the stated maturity of the debt obligation.
Interest and Dividend Income Recognition
Interest income is recorded on an accrual basis and includes the amortization of discounts and premiums. Discounts and premiums to par value on securities purchased or originated are amortized into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts and premiums, if any.
Unless providing services in connection with an investment, such as syndication, structuring or diligence, all or a portion of any loan fees received by the Company will be deferred and amortized over the investment’s life using the effective interest method.
Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection.
Dividend income on preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.
Other Income
From time to time, the Company may receive fees for services provided to portfolio companies by the Adviser. The services that the Adviser provides vary by investment, but may include syndication, structuring, diligence fees, or other service-based fees and fees for providing managerial assistance to our portfolio companies and are recognized as revenue when earned.
Earnings per share
The Company's earnings per share (“EPS”) amounts have been computed based on the weighted-average number of shares of common stock outstanding for the period. Basic EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net increase (decrease) in net assets resulting from operations by the weighted average number of shares of common stock assuming all potential shares had been issued and the additional shares of common stock were dilutive. Diluted EPS reflects the potential dilution, using the if-converted method for convertible debt, which could occur if all potentially dilutive securities were exercised.
26
Reimbursement of Transaction-Related Expenses
The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are expected to be reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Prepaid expenses and other assets on the date incurred. The transaction-related costs of pursuing investments not otherwise reimbursed are borne by the Company and for successfully completed investments included as a component of the investment’s cost basis.
Cash advances received in respect of transaction-related expenses are recorded as Cash and cash equivalents with an offset to Other liabilities or Other payables to affiliates. Other liabilities or Other payables to affiliates are relieved as reimbursable expenses are incurred.
Income Taxes, Including Excise Taxes
The Company has elected to be treated as a RIC under Subchapter M of the Code, and the Company intends to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must, among other things, distribute to its stockholders in each taxable year generally at least 90% of its investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain its RIC status, the Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal income taxes.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.
Depending on the level of taxable income earned in a tax year, the Company can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that the Company determines that the estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, the Company accrues excise tax on estimated excess taxable income.
For the three and six months ended June 30, 2024, the Company recorded a net expense of $1.2 million and $2.1 million, respectively, for U.S. federal excise tax and other taxes. For the three and six months ended June 30, 2023, the Company recorded a net expense of $0.9 million and $1.3 million, respectively, for U.S. federal excise tax and other taxes.
The Company changed its tax year end from March 31st to December 31st.
Dividends to Common Stockholders
Dividends to common stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Board and is generally based upon the earnings estimated by the Adviser. Net realized long-term capital gains, if any, would generally be distributed at least annually, although the Company may decide to retain such capital gains.
The Company has adopted a dividend reinvestment plan that provides for reinvestment of any dividends declared in cash on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and it declares, a cash dividend, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company expects to use newly issued shares to satisfy the dividend reinvestment plan.
27
Recent Accounting Standards and Regulatory Updates
On June 28, 2024, the Canadian Dollar Offer Rates (“CDOR”) ceased to be published. In accordance with the cessation of CDOR, CDOR-based contracts were transitioned to the Canadian Overnight Repo Rate Average (“CORRA”).
3. Agreements and Related Party Transactions
Administration Agreement
On March 15, 2011, the Company entered into the Administration Agreement with the Adviser. Under the terms of the Administration Agreement, the Adviser provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement. In addition, the Adviser is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company pays or reimburses the Adviser for certain expenses incurred by any such affiliates or third parties for work done on its behalf.
In February 2017, the Board of Directors of the Company and the Adviser entered into an amended and restated administration agreement (the “Administration Agreement”) reflecting certain clarifications to the agreement to provide greater detail regarding the scope of the reimbursable costs and expenses of the Administrator’s services.
In November 2023, the Board renewed the Administration Agreement. Unless earlier terminated as described below, the Administration Agreement will remain in effect until November 2024, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on 60 days’ written notice to the other party.
No person who is an officer, director or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for the allocable portion of the costs of compensation, benefits, and related administrative expenses of the Company’s officers who provide operational and administrative services to the Company pursuant to the Administration Agreement, their respective staffs and other professionals who provide services to the Company (including, in each case, employees of the Adviser or an affiliate). Such reimbursable amounts include the allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Financial Officer, Chief Compliance Officer, and other professionals who provide operational and administrative services to the Company pursuant to the Administration Agreement, including individuals who provide “back office” or “middle office” financial, operational, legal and/or compliance services to the Company. The Company reimburses the Adviser (or its affiliates) for the allocable portion of the compensation paid by the Adviser (or its affiliates) to such individuals based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company and in acting on behalf of the Company. The Company may also reimburse the Adviser or its affiliates for the allocable portion of overhead expenses (including rent, office equipment and utilities) attributable thereto. Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.
For the three and six months ended June 30, 2024 the Company incurred expenses of $1.0 million and $1.9 million, respectively, for administrative services payable to the Adviser under the terms of the Administration Agreement, which is included in other general and administrative expenses in the Consolidated Statements of Operations. For the three and six months ended June 30, 2023, the Company incurred expenses of $0.6 million and $1.2 million, respectively, for administrative services payable to the Adviser under the terms of the Administration Agreement.
Investment Advisory Agreement
On April 15, 2011, the Company entered into the Investment Advisory Agreement with the Adviser. The Investment Advisory Agreement was subsequently amended on December 12, 2011. Under the terms of the Investment Advisory Agreement, the Adviser provides investment advisory services to the Company. The Adviser’s services under the Investment Advisory Agreement are not exclusive, and the Adviser is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser the Management Fee and may also pay certain Incentive Fees.
The Management Fee is calculated at an annual rate of 1.5% based on the average value of the Company’s gross assets calculated using the values at the end of the two most recently completed calendar quarters, adjusted for any share issuances or repurchases during the period. The Management Fee is payable quarterly in arrears.
For the three and six months ended June 30, 2024, Management Fees (gross of waivers) were $12.8 million and $25.4 million, respectively. For the three and six months ended June 30, 2023, Management Fees (gross of waivers) were $11.4 million and $22.1 million, respectively.
28
Any waived Management Fees are not subject to recoupment by the Adviser.
The Adviser intends to waive a portion of the Management Fee payable under the Investment Advisory Agreement by reducing the Management Fee on assets financed using leverage over 200% asset coverage (in other words, over 1.0x debt to equity) (the “Leverage Waiver”). Pursuant to the Leverage Waiver, the Adviser intends to waive the portion of the Management Fee in excess of an annual rate of 1.0% (0.250% per quarter) on the average value of the Company's gross assets as of the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the average value of our net asset value at the end of the two most recently completed calendar quarters. The Adviser waived Management Fees of $0.3 million and $0.7 million, respectively, for the three and six months ended June 30, 2024 pursuant to the Leverage Waiver. For the three and six months ended June 30, 2023, the Adviser waived Management Fees of $0.3 million and $0.6 million, respectively, pursuant to the Leverage Waiver.
The Incentive Fee consists of two parts, as follows:
Pre-Incentive Fee net investment income means dividends, interest and fee income accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Management Fee, expenses payable under the Administration Agreement to the Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company may not have received in cash. Pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses.
For purposes of determining whether pre-Incentive Fee net investment income exceeds the hurdle rate, pre-Incentive Fee net investment income is expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter.
Section 205(b)(3) of the Investment Advisers Act of 1940, as amended (the “Advisers Act”), prohibits the Adviser from receiving the payment of fees on unrealized gains until those gains are realized, if ever. There can be no assurance that such unrealized gains will be realized in the future.
For three and six months ended June 30, 2024, Incentive Fees were $10.1 million and $20.2 million, respectively, of which $11.4 million and $22.3 million, respectively, were realized and payable to the Adviser. For the three and six months ended June 30, 2023, Incentive Fees were $11.3 million and $22.5 million, respectively, of which $10.5 million and $20.0 million, respectively, were realized and payable to the Adviser. For the three and six months ended June 30, 2024, $(1.3) million and $(2.2) million, respectively, of Incentive Fees was accrued related to the reversal of Capital Gains Fees. For the three and six months ended June 30, 2023, $0.7 million and $2.5 million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of June 30, 2024, the Capital Gains Fees accrued are not contractually payable to the Adviser.
Any waived Incentive Fees are not subject to recoupment by the Adviser.
29
Since the Company’s IPO, with the exception of its waiver of Management Fees and certain Incentive Fees attributable to the Company’s ownership of certain investments and the Leverage Waiver, the Adviser has not waived its right to receive any Management Fees or Incentive Fees payable pursuant to the Investment Advisory Agreement.
In November 2023, the Board renewed the Investment Advisory Agreement. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until November 2024, and may be extended subject to required approvals. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty on 60 days’ written notice to the other party.
From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.
4. Investments at Fair Value
Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled, affiliated investments is contained in the accompanying consolidated financial statements, including the Consolidated Schedules of Investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled, non-affiliated; non-controlled, affiliated; or controlled, affiliated investments.
Investments at fair value consisted of the following at June 30, 2024 and December 31, 2023:
Amortized Cost (1)
Fair Value
Net UnrealizedGain (Loss)
First-lien debt investments
3,048,775
3,078,445
29,670
Second-lien debt investments
52,535
27,993
(24,542
Mezzanine debt investments
41,067
43,488
2,421
Equity and other investments
156,390
161,019
4,629
Structured credit investments
12,506
December 31, 2023
2,956,079
2,996,177
40,098
51,423
35,975
(15,448
38,022
39,471
1,449
152,623
155,600
2,977
55,842
32,053
30
The industry composition of investments at fair value at June 30, 2024 and December 31, 2023 is as follows:
2.6
%
1.3
14.8
18.0
0.8
4.5
3.3
5.2
5.3
11.0
11.1
7.0
8.9
5.5
3.7
11.2
0.1
16.8
15.1
3.2
2.5
0.2
0.3
0.5
4.7
1.5
2.9
0.6
7.9
8.2
2.2
2.1
100.0
The geographic composition of investments at fair value at June 30, 2024 and December 31, 2023 is as follows:
United States
Midwest
12.9
10.7
Northeast
23.6
25.4
South
20.2
20.7
West
31.6
32.0
Australia
1.7
1.8
Canada
2.8
Finland (1)
0.0
France
Germany
Luxembourg
Netherlands
Norway
Sweden
United Kingdom
3.5
5. Derivatives
Interest Rate Swaps
The Company enters into interest rate swap transactions from time to time to hedge fixed rate debt obligations and certain fixed rate debt investments. The Company’s interest rate swaps are all with one counterparty and are centrally cleared through a registered commodities exchange. Refer to the Consolidated Schedule of Investments for additional disclosure regarding these interest rate swaps.
31
The following tables present the amounts paid and received on the Company’s interest rate swap transactions, excluding upfront fees, for the three and six months ended June 30, 2024 and 2023:
For the Three Months Ended June 30, 2024
For the Six Months Ended June 30, 2024
Notional Amount
Paid
Received
Net
Interest rate swap
(6,032
2,906
(3,126
(11,932
5,813
(6,119
(1,032
484
(548
(2,030
969
(1,061
(24
51
(48
99
(5,770
1,875
(3,895
(11,349
3,708
(7,641
(6,398
5,213
(1,185
(12,656
10,425
(2,231
(6,968
5,359
(1,609
(12,183
9,468
(2,715
(26,224
15,888
(10,336
(50,198
30,482
(19,716
For the Three Months Ended June 30, 2023
For the Six Months Ended June 30, 2023
Interest rate swap (1)
1/22/2023
(663
431
(232
(5,601
(2,695
(10,833
(5,020
(960
(1,848
(879
47
90
42
(5,341
1,854
(3,487
(10,262
(6,554
652,500
(11,926
5,291
(6,635
(23,654
11,011
(12,643
For the three and six months ended June 30, 2024, the Company recognized $3.0 million in unrealized gains and $7.4 million in unrealized losses, respectively, on interest rate swaps designated as hedging instruments in the Consolidated Statements of Operations. For the three and six months ended June 30, 2024, this amount is offset by an increase of $3.2 million and an increase of $5.4 million, respectively, for a change in the carrying value of the 2024 Notes (as defined below), an increase of $2.0 million and an increase of $0.7 million, respectively, for a change in carrying value of the 2026 Notes (as defined below), a decrease of $1.0 million and a decrease of $7.2 million, respectively, for a change in carrying value of the 2028 Notes (as defined below) and a decrease of $1.2 million and a decrease of $6.3 million, respectively, for a change in carrying value of the 2029 Notes (as defined below).
For the three and six months ended June 30, 2023, the Company recognized $0.1 million in net unrealized losses and $0.2 million in net unrealized gains, respectively, on interest rate swaps not designated as hedging instruments in the Consolidated Statements of Operations related to the swap transactions. For the three and six months ended June 30, 2023, the Company recognized $4.8 million in net unrealized losses and $2.4 million in net unrealized gains, respectively, on interest rate swaps designated as hedging instruments in the Consolidated Statements of Operations. For the three and six months ended June 30, 2023, this amount is offset by a decrease of $1.3 million and an increase of $1.8 million, respectively, for a change in the carrying value of the 2024 Notes and a decrease of $3.5 million and an increase of $0.6 million, respectively, for a change in carrying value of the 2026 Notes.
As of June 30, 2024, the swap transactions had a fair value of $(39.2) million which is netted against cash collateral on the Company’s Consolidated Balance Sheet. As of December 31, 2023, the swap transactions had a fair value of $(31.8) million which is netted against cash collateral on the Company’s Consolidated Balance Sheet.
The Company is required under the terms of its derivatives agreements to pledge assets as collateral to secure its obligations underlying the derivatives. The amount of collateral required varies over time based on the mark-to-market value, notional amount and remaining term of the derivatives, and may exceed the amount owed by the Company on a mark-to-market basis. Any failure by the Company to fulfill any collateral requirement (e.g., a so-called “margin call”) may result in a default. In the event of a default by a counterparty, the Company would be an unsecured creditor to the extent of any such overcollateralization.
As of June 30, 2024, $29.5 million of cash was pledged as collateral under the Company’s derivative agreements and is included in restricted cash as a component of cash and cash equivalents on the Company’s Consolidated Balance Sheet. As of December 31, 2023, $24.0 million of cash was pledged as collateral under the Company’s derivative agreements and is included in restricted cash as a component of cash and cash equivalents on the Company’s Consolidated Balance Sheet.
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6. Fair Value of Financial Instruments
Investments
The following tables present fair value measurements of investments as of June 30, 2024 and December 31, 2023:
Fair Value Hierarchy at June 30, 2024
Level 1
Level 2
Level 3
3,451
3,074,994
1,206
42,282
148,072
Total investments at fair value
19,853
3,293,341
(19,382
3,277,834
Fair Value Hierarchy at December 31, 2023
2,391
2,993,786
606
38,865
5,180
140,331
68,928
3,208,957
37,088
3,251,225
Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.
The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and six months ended June 30, 2024:
As of and for the Three Months Ended
First-liendebtinvestments
Second-liendebtinvestments
Mezzanine debtinvestments
Equityand otherinvestments
Balance, beginning of period
3,114,679
28,669
40,077
147,344
3,330,769
Purchases or originations
246,590
246,613
Repayments / redemptions
(282,738
(1,535
(284,273
Sales Proceeds
(9,109
7,656
338
1,111
76
9,181
Net change in unrealized gains (losses)
(6,705
481
1,076
629
(4,519
Net realized gains (losses)
(1,772
Net amortization of discount on securities
6,393
6,451
Transfers within Level 3
Transfers into (out of) Level 3
Balance, End of Period
33
As of and for the Six Months Ended
450,028
4,151
456,183
(370,087
(371,622
13,387
569
2,178
157
16,291
(10,482
(9,093
1,200
3,433
(14,942
(2,391
9,862
73
39
9,974
The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and six months ended June 30, 2023:
2,628,849
44,805
11,093
136,769
2,821,516
249,417
29,111
279,221
(119,056
Sale Proceeds
(554
3,081
194
60
3,335
11,366
(5,315
(53
(1,827
4,171
(25
374
349
3,758
3,808
731
2,777,390
39,708
40,237
136,186
2,993,521
2,495,959
40,762
10,158
147,059
2,693,938
417,459
4,850
29,806
2,060
454,175
(5,809
(176,394
6,297
143
6,634
27,147
(6,142
103
(12,928
8,180
5,073
5,048
6,947
44
7,018
34
Copper Bidco, LLC was transferred into Level 3 from Level 2 for fair value measurement purposes during the three and six months ended June 30, 2023, as a result of changes in observability of inputs into the security valuation for this portfolio company.
The following table presents information with respect to the net change in unrealized gains or losses on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at June 30, 2024 and 2023:
Net Change in Unrealized
Gains or (Losses)
for the Three Months Ended
June 30, 2024 on
June 30, 2023 on
Investments Held at
(4,758
11,843
480
(1,869
(2,573
4,606
for the Six Months Ended
(5,875
29,123
(9,094
(8,430
14,654
The following tables present the fair value of Level 3 Investments at fair value and the significant unobservable inputs used in the valuations as of June 30, 2024 and December 31, 2023. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.
Valuation
Unobservable
Range (Weighted
Impact to Valuationfrom an
Technique
Input
Average)
Increase to Input
Income approach (1)
Discount rate
9.1% — 20.0% (13.7%)
Decrease
Income approach (2)
14.9% — 20.6% (16.6%)
Income approach (3)
13.6% — 22.5% (14.5%)
Market Multiple (4)
Comparable multiple
2.0x — 20.0x (7.1x)
Increase
8.7% — 17.9% (14.2%)
15.3% — 21.7% (17.6%)
14.6% — 22.5% (15.4%)
2.0x — 19.2x (6.7x)
35
The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company’s capital structure.
Significant unobservable quantitative inputs typically considered in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. If debt investments are credit impaired, an enterprise value analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. For the Company’s Level 3 equity investments, multiples of similar companies’ revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions are typically used.
Financial Instruments Not Carried at Fair Value
Debt
The fair value of the Company’s Revolving Credit Facility, which is categorized as Level 3 within the fair value hierarchy, as of June 30, 2024 and December 31, 2023, approximates its carrying value as the outstanding balance is callable at carrying value.
The following table presents the fair value of the Company’s 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes, as of June 30, 2024 and December 31, 2023.
OutstandingPrincipal
FairValue (1)
2024 Notes
347,500
344,749
340,862
2026 Notes
279,180
273,410
2028 Notes
307,320
309,420
2029 Notes
346,978
1,297,500
1,278,227
947,500
923,692
Other Financial Assets and Liabilities
Under the fair value hierarchy, cash and cash equivalents are classified as Level 1 while the Company’s other assets and liabilities, other than investments at fair value and Revolving Credit Facility, are classified as Level 2.
7. Debt
Revolving Credit Facility
On August 23, 2012, the Company entered into a senior secured revolving credit agreement with Truist Bank (as a successor by merger to SunTrust Bank), as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).
As of June 30, 2024, aggregate commitments under the facility were $1.7 billion. The facility includes an uncommitted accordion feature that allows the Company, under certain circumstances, to increase the size of the facility to up to $2.0 billion.
Pursuant to the Fourteenth Amendment dated June 12, 2023, with respect to $1.465 billion in commitments, the revolving period, during which period we, subject to certain conditions, may make borrowings under the facility, was extended to June 11, 2027 and the stated maturity date was extended to June 12, 2028. For the remaining $220.0 million of commitments, (A) with respect to $50.0
million of commitments, the revolving period ends on February 4, 2025 and the stated maturity is February 4, 2026 and (B) with respect to $170.0 million of commitments, the revolving period ends April 24, 2026 and the stated maturity is April 23, 2027.
Pursuant to the Fifteenth Amendment dated April 24, 2024, aggregate commitments were increased to $1.7 billion. With respect to $1.505 billion of commitments, the revolving period was extended to April 24, 2028 and the stated maturity was extended to April 24, 2029. For the remaining $195.0 million of commitments, (A) with respect to $25.0 million of commitments, the revolving period ends on February 4, 2025 and the stated maturity is February 4, 2026 and (B) with respect to $170.0 million of commitments, the revolving period ends April 24, 2026 and the stated maturity is April 23, 2027.
The Company may borrow amounts in U.S. dollars or certain other permitted currencies. As of June 30, 2024, the Company had outstanding debt denominated in Australian dollars (AUD) of 64.9 million, British pounds (GBP) of 41.0 million, Canadian dollars (CAD) of 5.0 million, Swedish Krona (SEK) of 78.1 million and Euro (EUR) of 101.2 million on its Revolving Credit Facility, included in the Outstanding Principal amount in the table below. As of December 31, 2023, the Company had outstanding debt denominated in Australian dollars (AUD) of 66.4 million, British pounds (GBP) of 32.3 million, Canadian dollars (CAD) of 96.8 million, and Euro (EUR) of 57.2 million on our Revolving Credit Facility, included in the Outstanding Principal amount in the table below.
The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75 million. As of June 30, 2024 and December 31, 2023 the Company had $3.0 million and $0.2 million, respectively, of letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.
Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either the applicable reference rate plus an applicable credit spread adjustment, plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. The Company may elect either the applicable reference rate or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.
The Revolving Credit Facility is guaranteed by Sixth Street SL SPV, LLC, TC Lending, LLC and Sixth Street SL Holding, LLC. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by the Company and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants. In accordance with the terms of the Fifteenth Amendment, the financial covenants require:
The Revolving Credit Facility also contains certain additional concentration limits in connection with the calculation of the borrowing base, based on the Obligor Asset Coverage Ratio.
Net proceeds received from the Company’s common stock issuances in February 2024 and April 2024 and net proceeds received from the issuance of the 2029 Notes were used to pay down borrowings on the Revolving Credit Facility.
As of June 30, 2024 and December 31, 2023, the Company was in compliance with the terms of the Revolving Credit Facility.
2023 Notes
In January 2018, the Company issued $150.0 million aggregate principal amount of unsecured notes that matured on January 22, 2023 (the “2023 Notes”). The principal amount of the 2023 Notes was payable at maturity. The 2023 Notes bore interest at a rate of 4.50% per year, payable semi-annually commencing on July 22, 2018, and were redeemable in whole or in part at the Company’s
37
option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $146.9 million. The Company used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility. The 2023 Notes matured on January 22, 2023 and were fully repaid in cash. The swap transaction associated with the issuance of the 2023 Notes also matured on January 22, 2023.
In November 2019, the Company issued $300.0 million aggregate principal amount of unsecured notes that mature on November 1, 2024 (the “2024 Notes”). The principal amount of the 2024 Notes is payable at maturity. The 2024 Notes bear interest at a rate of 3.875% per year, payable semi-annually commencing on May 1, 2020, and may be redeemed in whole or in part at our option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts, offering costs and original issue discount were $292.9 million. The Company used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
On February 5, 2020, the Company issued an additional $50.0 million aggregate principal amount of unsecured notes that mature on November 1, 2024. The additional 2024 Notes are a further issuance of, fungible with, rank equally in right of payment with and have the same terms (other than the issue date and the public offering price) as the initial issuance of 2024 Notes. Total proceeds from the issuance of the additional 2024 Notes, net of underwriting discounts, offering costs and original issue premium were $50.1 million. The Company used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the 2024 Notes offering and the reopening of the 2024 Notes, the Company entered into interest rate swaps to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is $300.0 million and $50.0 million, respectively, each of which matures on November 1, 2024, matching the maturity date of the 2024 Notes. As a result of the swaps, the Company’s effective interest rate on the 2024 Notes is SOFR plus 2.54% (on a weighted average basis). The interest expense related to the 2024 Notes is offset by proceeds received from the interest rate swaps designated as a hedge. The swap adjusted interest expense is included as a component of interest expense on the Company’s Consolidated Statements of Operations. As of June 30, 2024, and December 31, 2023, the effective hedge interest rate swaps had a fair value of $(5.0) million and $(10.4) million, respectively, which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2024 Notes.
During the year ended December 31, 2020, the Company repurchased on the open market and extinguished $2.5 million in aggregate principal amount of the 2024 Notes for $2.4 million. In connection with the repurchase of the 2024 Notes, the Company entered into a floating-to-fixed interest rate swap with a notional amount equal to the amount of 2024 Notes repurchased, which had the effect of reducing the notional exposure of the fixed-to-floating interest rate swaps, which were entered into in connection with the issuance of the 2024 Notes, to match the remaining principal amount of the 2024 Notes outstanding. As a result of the swap, the Company’s effective interest rate on the outstanding 2024 Notes is SOFR plus 2.54% (on a weighted average basis).
On February 3, 2021, the Company issued $300.0 million aggregate principal amount of unsecured notes that mature on August 1, 2026 (the “2026 Notes”). The principal amount of the 2026 Notes is payable at maturity. The 2026 Notes bear interest at a rate of 2.50% per year, payable semi-annually commencing on August 1, 2021, and may be redeemed in whole or in part at the Company’s option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2026 Notes, net of underwriting discounts, offering costs and original issue discount, were $293.7 million. The Company used the net proceeds of the 2026 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the issuance of the 2026 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 1, 2026, matching the maturity date of the 2026 Notes. As a result of the swap, the Company’s effective interest rate on the 2026 Notes is SOFR plus 2.17%. The interest expense related to the 2026 Notes is offset by proceeds received from the interest rate swaps designated as a hedge. The swap adjusted interest expense is included as a component of interest expense on the Company’s Consolidated Statements of Operations. As of June 30, 2024 and December 31, 2023 the effective hedge interest rate swaps had a fair value of $(25.4) million and $(26.1) million, respectively, which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2026 Notes.
38
On August 14, 2023, the Company issued $300.0 million aggregate principal amount of unsecured notes that mature on August 14, 2028 (the “2028 Notes”). The principal amount of the 2028 Notes is payable at maturity. The 2028 Notes bear interest at a rate of 6.95% per year, payable semi-annually commencing on February 14, 2024, and may be redeemed in whole or in part at the Company’s option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2028 Notes, net of underwriting discounts, offering costs and original issue discount, were $293.9 million. The Company used the net proceeds of the 2028 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the issuance of the 2028 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 14, 2028, matching the maturity date of the 2028 Notes. As a result of the swap, the Company’s effective interest rate on the 2028 Notes is SOFR plus 2.99%. The interest expense related to the 2028 Notes is offset by proceeds received from the interest rate swaps designated as a hedge. The swap adjusted interest expense is included as a component of interest expense on the Company’s Consolidated Statements of Operations. As of June 30, 2024 and December 31, 2023, the effective hedge interest rate swaps had a fair value of $(2.5) million and $4.7 million, respectively, which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2028 Notes.
On January 8, 2024, the Company issued $350.0 million aggregate principal amount of unsecured notes that mature on March 1, 2029 (the “2029 Notes”). The principal amount of the 2029 Notes is payable at maturity. The 2029 Notes bear interest at a rate of 6.125% per year, payable semi-annually commencing on September 1, 2024, and may be redeemed in whole or in part at the Company’s option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2029 Notes, net of underwriting discounts, offering costs and original issue discount, were $341.6 million. The Company used the net proceeds of the 2029 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the issuance of the 2029 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $350.0 million, which matures on March 1, 2029, matching the maturity date of the 2029 Notes. As a result of the swap, the Company’s effective interest rate on the 2029 Notes is SOFR plus 2.44%. As of June 30, 2024, the effective hedge interest rate swaps had a fair value of $(6.3) million which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2029 Notes.
For the three and six months ended June 30, 2024 and 2023, the components of interest expense related to the 2023 Notes, 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes were as follows:
Interest expense
15,813
5,241
30,733
10,877
Accretion of original issue discount
421
195
440
1,757
Total Interest Expense
17,134
5,876
33,306
12,177
Total interest expense in the table above does not include the effect of the interest rate swaps related to the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes. During the three and six months ended June 30, 2024, the Company received $15.9 million and $30.5 million, respectively, and paid $26.2 million and $50.2 million, respectively, related to the settlements of its interest rate swaps, excluding upfront fees, related to the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes. During the three and six months ended June 30, 2023, the Company received $5.3 million and $11.0 million, respectively, and paid $11.9 million and $23.7 million, respectively, related to the settlements of its interest rate swaps, excluding upfront fees, related to the 2023, 2024 and 2026 Notes.
As June 30, 2024, the components of the carrying value of the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes and the stated interest rate were as follows:
Principal amount of debt
Original issue discount, net of accretion
(136
(871
(1,519
(3,114
(345
(1,559
(3,563
(4,587
Fair value of an effective hedge
(4,979
Carrying value of debt
342,040
272,194
292,376
335,960
Stated interest rate
3.88
2.50
6.95
6.13
As of December 31, 2023, the components of the carrying value of the 2024 Notes, 2026 Notes, 2028 Notes and the stated interest rate were as follow:
(335
(1,072
(1,675
(852
(1,932
(3,994
(10,409
335,904
270,885
299,011
The stated interest rate in the table above does not include the effect of the interest rate swaps. As of June 30, 2024, the Company's swap-adjusted interest rate on the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes was SOFR plus 2.54% (on a weighted average basis), 2.17%, 2.99% and 2.44%, respectively. As of December 31, 2023, the Company's swap-adjusted interest rate on the 2024 Notes, 2026 Notes and 2028 Notes was SOFR plus 2.54% (on a weighted average basis), 2.17%, and 2.99%, respectively.
As of June 30, 2024, the Company was in compliance with the terms of the indentures governing the 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes. As of December 31, 2023, the Company was in compliance with the terms of the indentures governing the 2024 Notes, 2026 Notes and 2028 Notes.
In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing. As of June 30, 2024 and December 31, 2023, the Company’s asset coverage was 189.9% and 181.6%, respectively.
Debt obligations consisted of the following as of June 30, 2024 and December 31, 2023:
AggregatePrincipalAmountCommitted
AmountAvailable (1)
CarryingValue (2)(3)
1,700,000
487,542
1,209,456
470,335
Total Debt
2,997,500
1,785,042
1,710,000
889,659
820,160
874,507
2,657,500
1,837,159
For the three and six months ended June 30, 2024 and 2023, the components of interest expense were as follows:
25,646
23,915
52,198
44,320
Commitment fees
1,090
612
2,090
1,266
1,741
Swap settlement
10,336
6,635
19,716
12,643
Average debt outstanding (in millions)
1,857.8
1,713.0
1,870.9
1,641.8
Weighted average interest rate
7.7
7.1
6.9
8. Commitments and Contingencies
Portfolio Company Commitments
From time to time, the Company may enter into commitments to fund investments; such commitments are incorporated into the Company’s assessment of its liquidity position. The Company’s senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. The Company’s senior secured delayed draw term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured delayed draw term loan commitments generally have a shorter availability period than the term of the associated loan agreement.
As of June 30, 2024 and December 31, 2023, the Company had the following commitments to fund investments in current portfolio companies:
Alaska Bidco Oy - Delayed Draw & Revolver
224
231
Alpha Midco, Inc. - Delayed Draw & Revolver
654
470
American Achievement, Corp. - Revolver
2,403
Apellis Pharmaceuticals, Inc. - Delayed Draw
5,263
Aptean, Inc. - Delayed Draw & Revolver
2,078
Arrow Buyer, Inc. - Delayed Draw
5,479
7,644
Artisan Bidco, Inc. - Revolver
5,717
5,716
ASG II, LLC - Delayed Draw
3,391
Avalara, Inc. - Revolver
3,864
Axonify, Inc. - Delayed Draw
2,116
3,506
Azurite Intermediate Holdings, Inc. - Delayed Draw, Revolver & Equity
16,262
41
Babylon Finco Limited - Delayed Draw
287
Banyan Software Holdings, LLC - Delayed Draw
18,480
10,036
Bayshore Intermediate #2, L.P. - Revolver
2,398
1,918
BCTO Ace Purchaser, Inc. - Delayed Draw
206
461
BCTO Bluebill Buyer, Inc. - Delayed Draw
4,144
5,110
Bear OpCo, LLC - Delayed Draw
1,183
Ben Nevis Midco Limited - Delayed Draw
1,704
BlueSnap, Inc. - Delayed Draw & Revolver
7,517
BTRS Holdings, Inc. - Delayed Draw & Revolver
3,999
5,563
Cordance Operations, LLC - Delayed Draw & Revolver
10,290
1,956
Coupa Holdings, LLC - Delayed Draw & Revolver
6,809
Crewline Buyer, Inc. - Revolver & Equity
6,148
Disco Parent, Inc. - Revolver
455
Dye & Durham Corp. - Revolver
1,236
EDB Parent, LLC - Delayed Draw
8,600
11,492
Edge Bidco B.V. - Delayed Draw & Revolver
1,028
1,060
Elements Finco Limited - Delayed Draw
4,020
Elysian Finco Ltd. - Delayed Draw & Revolver
2,503
4,704
Employment Hero Holdings Pty Ltd. - Delayed Draw & Revolver
8,682
8,871
EMS Linq, Inc. - Revolver
3,338
Erling Lux Bidco SARL - Delayed Draw & Revolver
10,436
3,184
ExtraHop Networks, Inc. - Delayed Draw & Revolver
6,622
9,803
ForeScout Technologies, Inc. - Delayed Draw & Revolver
3,425
Fullsteam Operations, LLC - Delayed Draw & Revolver
10,171
11,246
Galileo Parent, Inc. - Revolver
4,038
6,779
Greenshoot Bidco B.V. - Revolver
Heritage Environmental Services, Inc. - Revolver
1,698
Hippo XPA Bidco AB - Delayed Draw & Revolver
4,426
Hirevue, Inc. - Revolver
6,002
6,887
Hornetsecurity Holding GmbH - Delayed Draw & Revolver
2,113
Ibis Intermediate Co. - Delayed Draw
6,338
IRGSE Holding Corp. - Revolver
868
878
Kangaroo Bidco AS - Delayed Draw
4,375
9,418
Kyriba Corp. - Revolver
2,488
Laramie Energy, LLC - Delayed Draw
7,683
LeanTaaS Holdings, Inc. - Delayed Draw
23,091
38,034
Lucidworks, Inc. - Delayed Draw
833
Marcura Equities LTD - Delayed Draw & Revolver
11,667
Merit Software Finance Holdings, LLC - Delayed Draw & Revolver
15,714
Netwrix Corp. - Delayed Draw & Revolver
2,870
13,056
OutSystems Luxco SARL - Delayed Draw
2,146
2,212
Passport Labs, Inc. - Revolver
2,778
PDI TA Holdings, Inc. - Delayed Draw & Revolver
5,368
Ping Identity Holding Corp. - Revolver
2,273
PrimeRevenue, Inc. - Revolver
6,250
Project44, Inc. - Delayed Draw
19,861
Rapid Data GmbH Unternehmensberatung - Delayed Draw & Revolver
4,565
6,254
ReliaQuest Holdings, LLC - Delayed Draw & Equity
4,424
Scorpio Bidco - Delayed Draw
524
SkyLark UK DebtCo Limited - Delayed Draw
7,011
7,071
SL Buyer Corp. - Delayed Draw
12,126
13,175
Sport Alliance GmbH - Revolver
670
Tango Management Consulting, LLC - Delayed Draw & Revolver
4,743
11,043
TRP Assets, LLC - Delayed Draw
Truck-Lite Co., LLC - Delayed Draw & Revolver
8,597
USA Debusk LLC - Delayed Draw & Revolver
3,179
Wrangler TopCo, LLC - Revolver
Total Portfolio Company Commitments (1)(2)
327,596
316,107
Other Commitments and Contingencies
As of June 30, 2024 and December 31, 2023, the Company did not have any unfunded commitments to fund investments to new borrowers that were not current portfolio companies as of such date.
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of June 30, 2024 and December 31, 2023, management is not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
9. Net Assets
On May 15, 2023, the Company issued a total of 4,500,000 shares of common stock at $17.33 per share. Net of underwriting fees and offering costs, the Company received total cash proceeds of $77.6 million. Subsequent to the offering, the Company issued an additional 675,000 shares on June 12, 2023 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, additional total cash proceeds of $11.7 million.
On March 5, 2024, the Company issued a total of 4,000,000 shares of common stock at $20.52 per share. Net of underwriting fees and offering costs, the Company received total cash proceeds of $81.5 million. Subsequent to the offering, the Company issued an additional 600,000 shares on April 1, 2024 pursuant to the overallotment option granted to underwriters and received, net of offering and underwriting fees, additional total cash proceeds of $11.9 million.
The Company has a dividend reinvestment plan, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the cash dividend or distribution payable to a stockholder by the market price per share of the Company’s common stock at the close of regular trading on the NYSE on the payment date of a distribution, or if no sale is reported for such day, the average of the reported bid and ask prices. However, if the market price per share on the payment date of a cash dividend or distribution exceeds the most recently computed net asset value per share, the Company will issue shares at the greater of (i) the most recently computed net asset value per share and (ii) 95% of the current market price per share (or such lesser discount to the current market price per share that still exceeded the most recently computed net asset value per share). Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market.
Pursuant to the Company’s dividend reinvestment plan, the following tables summarize the shares issued to stockholders who have not opted out of the Company’s dividend reinvestment plan during the six months ended June 30, 2024 and 2023. All shares issued to stockholders in the tables below are newly issued shares.
For the Six Months Ended
Date
Date Declared
Dividend (1)
Record Date
Shares Issued
February 15, 2024
Supplemental
February 29, 2024
March 20, 2024
36,749
Base
March 15, 2024
March 28, 2024
255,308
May 1, 2024
May 31, 2024
June 20, 2024
34,318
June 14, 2024
June 28, 2024
261,331
Total Shares Issued
587,706
February 16, 2023
February 28, 2023
March 20, 2023
61,590
March 15, 2023
March 31, 2023
300,988
May 8, 2023
May 31, 2023
June 20, 2023
23,686
June 15, 2023
290,680
676,944
On August 4, 2015, the Company's Board authorized the Company to acquire up to $50 million in aggregate of the Company’s common stock from time to time over an initial six month period, and has continued to authorize the refreshment of the $50 million amount authorized under and extension of the stock repurchase program prior to its expiration since that time, most recently as of May 1, 2024. The amount and timing of stock repurchases under the program may vary depending on market conditions, and no assurance can be given that any particular amount of common stock will be repurchased.
No shares were repurchased during the six months ended June 30, 2024 and 2023.
10. Earnings per share
The following table sets forth the computation of basic and diluted earnings per common share for the three and six months ended June 30, 2024 and 2023:
Increase in net assets resulting from operations
11. Dividends
The Company has historically paid a dividend to stockholders on a quarterly basis. The Company has a dividend framework that provides for a quarterly base dividend and a variable supplemental dividend, subject to satisfaction of certain measurement tests and the approval of the Board.
The following tables summarize dividends declared during the six months ended June 30, 2024 and 2023:
Dividend
Payment Date
Dividend per Share
0.08
0.46
0.06
Total Dividends Declared
1.06
0.09
0.04
1.05
The dividends declared during the six months ended June 30, 2024 and 2023 were derived from net investment income, determined on a tax basis.
12. Financial Highlights
The following per share data and ratios have been derived from information provided in the consolidated financial statements. The following are the financial highlights for one share of common stock outstanding during the six months ended June 30, 2024 and 2023.
Per Share Data (8)
Net asset value, beginning of period
16.48
Net investment income (1)
1.18
1.11
Net realized and unrealized gains (losses) (1)
(0.14
0.17
Total from operations
Issuance of common stock, net of offering costs (2)
0.02
Dividends declared from net investment income (2)
(1.06
(1.05
Total increase/(decrease) in net assets
0.15
0.25
Net Asset Value, End of Period
16.74
Per share market value at end of period
21.35
18.69
Total return based on market value with reinvestment of dividends (3)
4.10
11.43
Total return based on market value (4)
3.75
10.90
Total return based on net asset value (5)
7.12
7.95
Shares Outstanding, End of Period
Ratios / Supplemental Data (6)(7)
Ratio of net expenses to average net assets
16.94
16.22
Ratio of net investment income to average net assets
13.79
13.24
Portfolio turnover
23.94
12.65
Net assets, end of period
13. Subsequent Events
The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events, except as already disclosed, that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three and six months ended June 30, 2024.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Statements” set forth on page 3 of this Quarterly Report on Form 10-Q.
Overview
Sixth Street Specialty Lending, Inc. is a Delaware corporation formed on July 21, 2010. The Adviser is our external manager. We have four wholly owned subsidiaries, TC Lending, LLC, a Delaware limited liability company, which holds a California finance lender and broker license, Sixth Street SL SPV, LLC, a Delaware limited liability company Sixth Street SL Holding, LLC, a Delaware limited liability company, and Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company.
We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code. We made our BDC election on April 15, 2011. As a result, we are required to comply with various statutory and regulatory requirements, such as:
Our shares are listed on the NYSE under the symbol “TSLX.”
Our Investment Framework
We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities in July 2011, through June 30, 2024, we have originated approximately $37.9 billion aggregate principal amount of investments and retained approximately $10.4 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine and unsecured loans and investments in corporate bonds, equity securities, and other instruments.
By “middle-market companies,” we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of $10 million to $250 million, although we may invest in larger or smaller companies on occasion. As of June 30, 2024, our core portfolio companies, which exclude certain investments that fall outside of our typical borrower profile and represent 97.9% of our total investments based on fair value, had weighted average annual revenue of $310.4 million and weighted average annual EBITDA of $104.4 million.
We invest in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Our first-lien debt may include stand-alone first-lien loans; “last out” first-lien loans, which are loans that have a secondary priority behind super-senior “first out” first-lien loans; “unitranche” loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt.
The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3 as defined by Standard & Poor’s and Moody’s Investors Services, respectively), which is often referred to as “junk.”
The companies in which we invest use our capital to support organic growth, acquisitions, market or product expansion and recapitalizations (including restructurings). As of June 30, 2024, the largest single investment based on fair value represented 2.4% of our total investment portfolio.
As of June 30, 2024, the average investment size in each of our portfolio companies was approximately $30.4 million based on fair value. Portfolio companies includes investments in structured credit investments, which include each series of collateralized loan obligation as a portfolio company investment. When excluding investments in structured credit investments the average investment in our remaining portfolio companies was approximately $31.5 million as of June 30, 2024.
Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:
Business and sector selection. We focus on companies with enterprise value between $50 million and $1 billion. When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio.
We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our portfolio companies by end-market (such as healthcare, and business services) and not by the products or services (such as software) directed to those end-markets.
As of June 30, 2024, the largest industry represented 16.8% of our total investment portfolio based on fair value.
Investment Structuring. We focus on investing at the top of the capital structure and protecting that position. As of June 30, 2024, approximately 93.6% of our portfolio was invested in secured debt, including 92.8% in first-lien debt investments. We carefully perform diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to seven years after origination. For the six months ended June 30, 2024, the weighted average term on new investment commitments in new portfolio companies was 6.1 years.
Deal Dynamics. We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships.
Risk Mitigation. We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future interest income. As of June 30, 2024, we had call protection on 75.1% of our debt investments based on fair value, with weighted average call prices of 106.5% for the first year, 103.3% for the second year and 101.0% for the third year, in each case from the date of the initial investment. As of June 30, 2024, 99.6% of our debt investments based on fair value bore interest at floating rates, with 100.0% of these subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.
Relationship with our Adviser and Sixth Street
Our Adviser is a Delaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with the SEC under the Advisers Act. Our Adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on direct lending, which we refer to as our Investment Team. Our Investment Team is led by our Chairman and Chief Executive Officer and our Adviser’s Co-Chief Investment Officer Joshua Easterly and our Adviser’s Co-Chief Investment Officer Alan Waxman, both of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of our Adviser and affiliates of Sixth Street Partners, LLC, or “Sixth Street.”
Sixth Street is a global investment business with over $78 billion of assets under management as of June 30, 2024. Sixth Street’s direct lending platforms include Sixth Street Specialty Lending, Sixth Street Lending Partners, which is aimed at U.S. upper middle-market loan originations, Sixth Street Specialty Lending Europe, which is aimed at European middle-market loan originations. Additional Sixth Street core platforms include Sixth Street TAO, which has the flexibility to invest across all of Sixth Street’s private credit market investments, Sixth Street Opportunities, which focuses on actively managed opportunistic investments across the credit cycle, Sixth Street Credit Market Strategies, which is the firm’s “public-side” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets, Sixth Street Growth, which provides financing solutions to growing companies, Sixth Street Fundamental Strategies, which primarily invests in secondary credit, and Sixth Street Agriculture, which invests in niche agricultural opportunities. Sixth Street has a long-term oriented, highly flexible capital base that allows it to invest across industries, geographies, capital structures and asset classes. Sixth Street has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 610 investment and operating professionals. As of June 30, 2024, sixty-six (66) of these personnel are dedicated to direct lending, including fifty-one (51) investment professionals.
Our Adviser consults with Sixth Street in connection with a substantial number of our investments. The Sixth Street platform provides us with a breadth of large and scalable investment resources. We believe we benefit from Sixth Street’s market expertise, insights into industry, sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market
conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. Sixth Street and its affiliates will refer all middle-market loan origination activities for companies domiciled in the United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us.
On December 16, 2014, we were granted an exemptive order from the SEC that allows us to co-invest, subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our Adviser has independently determined is appropriate to invest, with certain of our affiliates (including affiliates of Sixth Street) in middle-market loan origination activities for companies domiciled in the United States and certain “follow-on” investments in companies in which we have already co-invested pursuant to the order and remain invested. On January 16, 2020, we filed a further application for co-investment exemptive relief with the SEC to better align our existing co-investment relief with more recent SEC exemptive orders. Subsequent further applications were also made, most recently as June 29, 2022. On August 3, 2022, the SEC granted the new order in response to our application.
We believe our ability to co-invest with Sixth Street affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We expect that with the ability to co-invest with Sixth Street affiliates we will continue to be able to provide “one-stop” financing to a potential portfolio company in these circumstances, which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors.
Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser’s services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the base management fee, or the Management Fee, and may also pay certain incentive fees, or the Incentive Fees.
Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement.
Key Components of Our Results of Operations
We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.
Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.
Revenues
We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on direct equity investments, capital gains on the sale of investments and various loan origination and other fees. Our debt investments typically have a term of two to seven years, and, as of June 30, 2024, 99.6% of these investments based on fair value bore interest at a floating rate, with 100.0% of these subject to interest rate floors. Interest on debt investments is generally payable monthly or quarterly. Some of our investments provide for deferred interest payments or PIK interest. For the three and six months ended June 30, 2024, 7.7% and 7.3%, respectively, of our total investment income was comprised of PIK interest.
Changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding, rather than by changes in interest rates. Our investment portfolio primarily consists of floating rate loans, and our credit facilities, 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes, after taking into account the effect of the interest rate swaps we have entered into in connection with these securities, all bear interest at floating rates. Macro trends in base interest rates like SOFR or other reference rates may affect our net investment income over the long term. However, because we generally originate loans to a limited number of portfolio companies each quarter, and those investments also vary in size, our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest
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rate of new investments made during that period—often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business.
In addition to interest income, our net investment income is also driven by prepayment and other fees, which also can vary significantly from quarter to quarter. The level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums, but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g., merger and acquisition activity, initial public offerings and restructurings. As noted above, generally a small but varied number of portfolio companies may make prepayments in any quarter, meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends.
Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. We record prepayment premiums on loans as interest income when earned. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees. The frequency or volume of these items of revenue may fluctuate significantly.
Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the Consolidated Statements of Operations.
Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:
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We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.
Leverage
While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions, however, under the 1940 Act, our total borrowings are limited so that our asset coverage ratio cannot fall below 150% immediately after any borrowing, as defined in the 1940 Act. In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets as collateral to financing facilities from time to time.
Market Trends
We believe trends in the middle-market lending environment, including the limited availability of capital from traditional regulated financial institutions, strong demand for debt capital and specialized lending requirements, are likely to continue to create favorable opportunities for us to invest at attractive risk-adjusted rates.
Subsequent to the global financial crisis, the implementation of regulatory changes such as Basel III requirements, Leverage Lending Guidance, and the Volcker Rule, tightened risk appetites and reduced the capacity of traditional lenders to serve middle-market companies. We believe that these dynamics create a significant opportunity for us to directly originate investments. We also believe that the large amount of uninvested capital held by private equity firms will continue to drive deal activity, which may in turn create additional demand for debt capital.
This market dynamic is further exacerbated by the specialized due diligence and underwriting capabilities, as well as extensive ongoing monitoring, required for middle-market lending. We believe middle-market lending is generally more labor-intensive than lending to larger companies due to smaller investment sizes and the lack of publicly available information on these companies. As a result, the opportunities for dedicated private lenders such as us has continued to expand.
An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower’s distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders.
Portfolio and Investment Activity
As of June 30, 2024, our portfolio based on fair value consisted of 92.8% first-lien debt investments, 0.8% second-lien investments, 1.3% mezzanine debt investments, 4.9% equity and other investments and 0.2% structured credit investments. As of December 31, 2023, our portfolio based on fair value consisted of 91.3% first-lien debt investments, 1.1% second-lien debt investments, 1.2% mezzanine debt investments, 4.7% equity and other investments and 1.7% structured credit investments.
As of June 30, 2024 and December 31, 2023, our weighted average total yield of debt and income producing securities at fair value (which includes interest income and amortization of fees and discounts) was 13.8% and 14.1%, respectively, and our weighted
average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 13.9% and 14.2%, respectively.
As of June 30, 2024 and December 31, 2023, we had investments in 109 portfolio companies (including 4 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment) and 136 portfolio companies (including 42 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment), respectively, with an aggregate fair value of $3,317.1 million and $3,283.1 million, respectively.
For the three months ended June 30, 2024, the principal amount of new investments funded was $163.6 million in eight new portfolio companies and five existing portfolio companies. For this period, we had $290.3 million aggregate principal amount in exits and repayments.
For the three months ended June 30, 2023, the principal amount of new investments funded was $240.0 million in six new portfolio companies and four existing portfolio companies. For this period, we had $114.0 million aggregate principal amount in exits and repayments.
Our investment activity for the three months ended June 30, 2024 and 2023 is presented below (information presented herein is at par value unless otherwise indicated).
($ in millions)
New investment commitments:
Gross originations (1)
1,858.8
1,522.9
Less: Syndications/sell downs (1)
1,627.8
1,262.5
Total new investment commitments
231.0
260.4
Principal amount of investments funded:
First-lien
163.6
209.3
Second-lien
30.0
Mezzanine
Equity and other
0.7
240.0
Principal amount of investments sold or repaid:
265.2
112.3
25.1
290.3
114.0
Number of new investment commitments in new portfolio companies
Average new investment commitment amount in new portfolio companies
21.2
41.3
Weighted average term for new investment commitments in new portfolio companies (in years)
6.1
6.7
Percentage of new debt investment commitments at floating rates
Weighted average interest rate of new investment commitments
11.6
12.6
Weighted average spread over reference rate of new floating rate investment commitments
6.6
7.3
Weighted average interest rate on investments fully sold or paid down
13.4
15.6
As of June 30, 2024 and December 31, 2023, our investments consisted of the following:
Amortized Cost
3,048.8
3,078.5
2,956.1
2,996.2
52.5
28.0
51.4
36.0
41.1
43.5
38.0
39.5
156.4
161.0
152.6
155.6
5.8
52.9
55.8
3,304.6
3,317.1
3,251.0
3,283.1
The following tables show the fair value and amortized cost of our performing and non-accrual investments as of June 30, 2024 and December 31, 2023:
Percentage
Performing
3,280.0
98.9
3,262.4
99.4
Non-accrual (1)
37.1
1.1
3,235.3
97.9
3,222.9
99.1
69.3
28.1
0.9
The weighted average yields and interest rates of our performing debt investments at fair value as of June 30, 2024 and December 31, 2023 were as follows:
Weighted average total yield of debt and income producing securities (1)
13.8
14.1
Weighted average interest rate of debt and income producing securities
13.3
13.7
Weighted average spread over reference rate of all floating rate investments
8.0
8.3
The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance of our investments, which may include the following:
As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:
The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of June 30, 2024 and December 31, 2023. Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company’s business or financial condition, market conditions or developments, and other factors.
Investments at
Performance
Percentage of
Rating
Total Portfolio
3,058.4
92.2
2,939.1
89.5
139.1
4.2
196.6
6.0
82.5
126.7
3.9
Results of Operations
Operating results for the three and six months ended June 30, 2024 and 2023 were as follows:
Total investment income
121.8
107.6
239.6
204.1
Less: Net expenses
65.4
57.9
130.0
111.1
Net investment income before income taxes
56.4
49.7
109.6
93.0
Less: Income taxes, including excise taxes
55.1
48.8
107.5
91.7
Net realized gains (losses) (1)
Net change in unrealized gains (losses) (1)
(9.5
(16.5
7.6
Net increase (decrease) in net assets resulting from operations
47.4
53.1
94.9
106.0
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Investment Income
105.0
98.1
209.7
188.2
9.4
4.6
17.5
1.4
5.6
4.1
9.8
6.8
Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $98.1 million for the three months ended June 30, 2023 to $105.0 million for the three months ended June 30, 2024. The increase in interest from investments was primarily the result of an increase in interest earned due to an increase in reference rates for the period ended June 30, 2024 compared to the same period in June 30, 2023 and a larger average portfolio size for the period ended June 30, 2024 compared to the same period in 2023. Paid-in-kind interest income increased from $4.6 million for the three months ended June 30, 2023 to $9.4 million for the three months ended June 30, 2024 due to increased PIK election. Dividend income increased from $0.8 million for the three months ended June 30, 2023 to $1.8 million for the three months ended June 30, 2024 due to increased investments in dividend yielding securities compared to the same period in 2023. Other income increased from $4.1 million for the three months ended June 30, 2023 to $5.6 million for the three months ended June 30, 2024, primarily due to increased amendment fees during the three months ended June 30, 2024 compared to the same period in 2023.
Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $188.2 million for the six months ended June 30, 2023 to $209.7 million for the six months ended June 30, 2024. The increase in interest from investments was primarily the result of an increase in interest earned due to an increase in reference rates for the period ended June 30, 2024 compared to the same period in June 30, 2023 and a larger average portfolio size for the period ended June 30, 2024 compared to the same period in 2023. Paid-in-kind interest income increased from $7.7 million for the six months ended June 30, 2023 to $17.5 million for the six months ended June 30, 2024 due to increased PIK election. Dividend income increased from $1.4 million for the six months ended June 30, 2023 to $2.6 million for the six months ended June 30, 2024 due to increased investments in dividend yielding securities compared to the same period in 2023. Other income increased from $6.8 million for the six months ended June 30, 2023 to $9.8 million for the six months ended June 30, 2024, primarily due to increased amendment fees during the six months ended June 30, 2024 compared to the same period in 2023.
Operating expenses for the three and six months ended June 30, 2024 and 2023 were as follows:
39.2
32.4
78.3
60.9
Management fees (net of waivers)
12.5
24.7
21.6
11.4
10.5
22.3
20.0
(1.3
(2.2
0.4
1.2
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Interest expense, including other debt financing expenses, increased from $32.4 million for the three months ended June 30, 2023 to $39.2 million for the three months ended June 30, 2024. This increase was primarily due to an increase in the average interest rate on our debt outstanding and an increase in the average debt outstanding from $1,713.0 million for the three months ended June 30, 2023 to $1,857.8 million for the three months ended June 30, 2024. The average interest rate on our debt outstanding increased from 7.1% for the three months ended June 30, 2023 to 7.7% for the three months ended June 30, 2024.
Interest expense, including other debt financing expenses, increased from $60.9 million for the six months ended June 30, 2023 to $78.3 million for the six months ended June 30, 2024. This increase was primarily due to an increase in the average interest rate on our debt outstanding and an increase in the average debt outstanding from $1,641.8 million for the six months ended June 30, 2023 to $1,870.9 million for the six months ended June 30, 2024. The average interest rate on our debt outstanding increased from 6.9% for the six months ended June 30, 2023 to 7.7% for the six months ended June 30, 2024.
Management Fees
Management Fees (gross of waivers) increased from $11.4 million for the three months ended June 30, 2023 to $12.8 million for the three months ended June 30, 2024 due to an increase in average assets for the three months ended June 30, 2024 compared to the same period in 2023. Management Fees (net of waivers) increased from $11.1 million for the three months ended June 30, 2023 to $12.5 million for the three months ended June 30, 2024. The Adviser waived Management Fees of $0.3 million for the three months ended June 30, 2024 pursuant to the Leverage Waiver. The Adviser waived Management Fees of $0.3 million for the three months ended June 30, 2023 pursuant to the Leverage Waiver.
Management Fees (gross of waivers) increased from $22.1 million for the six months ended June 30, 2023 to $25.4 million for the six months ended June 30, 2024 due to an increase in average assets for the six months ended June 30, 2024 compared to the same period in 2023. Management Fees (net of waivers) increased from $21.6 million for the six months ended June 30, 2023 to $24.7 million for the six months ended June 30, 2024. The Adviser waived Management Fees of $0.7 million for the six months ended June 30, 2024 pursuant to the Leverage Waiver. The Adviser waived Management Fees of 0.6 million for the six months ended June 30, 2023 pursuant to the Leverage Waiver.
Incentive Fees
Incentive Fees related to pre-Incentive Fee net investment income increased from $10.5 million for the three months ended June 30, 2023 to $11.4 million for the three months ended June 30, 2024. This increase resulted from an increase in reference rates for the three months ended June 30, 2024. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the three months ended June 30, 2024 or 2023. For the three months ended June 30, 2024 and 2023, $(1.3) million and $0.7 million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of June 30, 2024, these accrued Incentive Fees are not contractually payable to the Adviser.
Incentive Fees related to pre-Incentive Fee net investment income increased from $20.0 million for the six months ended June 30, 2023 to $22.3 million for the six months ended June 30, 2024. This increase resulted from an increase in reference rates for the six months ended June 30, 2024. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the six months ended June 30, 2024 or 2023. For the six months ended June 30, 2024 and 2023, $(2.2) million and $2.5 million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of June 30, 2024, these accrued Incentive Fees are not contractually payable to the Adviser.
Professional Fees and Other General and Administrative Expenses
Professional fees increased from $1.8 million for the three months ended June 30, 2023 to $2.1 million for the three months ended June 30, 2024. Other general and administrative expenses increased from $1.2 million for the three months ended June 30, 2023 to $1.3 million for the three months ended June 30, 2024.
Professional fees increased from $3.5 million for the six months ended June 30, 2023 to $3.9 million for the six months ended June 30, 2024. Other general and administrative expenses increased from $2.2 million for the six months ended June 30, 2023 to $2.6 million for the six months ended June 30, 2024.
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We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes.
Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income.
For the three and six months ended June 30, 2024, we recorded a net expense of $1.2 million and $2.1 million, respectively, for U.S. federal excise tax and other taxes. For the three and six months ended June 30, 2023, we recorded a net expense of $0.9 million and $1.3 million, respectively, for U.S. federal excise tax and other taxes.
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses) for the three and six months ended June 30, 2024 and 2023:
Net realized gains (losses) on investments
1.6
6.4
Net realized gains (losses) on foreign currency transactions
(0.1
(0.8
Net realized gains (losses) on foreign currency investments (1)
(1.7
(0.0)
(2.4
Net realized gains (losses) on foreign currency borrowings (1)
2.0
Net Realized Gains (Losses)
Change in unrealized gains on investments
13.9
23.7
40.0
Change in unrealized (losses) on investments
(21.8
(13.1
(43.2
(29.6
Net Change in Unrealized Gains (Losses) on Investments
(7.9
4.9
(19.5
10.4
Unrealized gains (losses) on foreign currency borrowings
(1.6
(2.0
3.0
(2.7
Unrealized gains (losses) on foreign currency cash (1)
(0.3
Unrealized gains (losses) on interest rate swaps
Net Change in Unrealized Gains (Losses) on Foreign Currency Transactions and Interest Rate Swaps
(2.1
(2.8
Net Change in Unrealized Gains (Losses)
For the three and six months ended June 30, 2024, we had net realized gains on investments of $1.6 million and $3.9 million, respectively, primarily driven by nineteen investments and thirty-six investments, respectively. For the three and six months ended June 30, 2024, we had net realized losses of $0.1 million and net realized losses of $0.8 million, respectively on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three and six months ended June 30, 2024, we had net realized losses of $1.7 million and net realized losses of $2.4, respectively, on foreign currency investments. For the three and six months ended June 30, 2024, we had net realized gains of $2.0 million and net realized gains of $3.2 million on foreign currency borrowings. The net realized gains and losses on foreign currency borrowings were a result of payments on our revolving credit facility.
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For the three months ended June 30, 2024, we had $13.9 million in unrealized gains on 57 portfolio company investments, which was offset by $21.8 million in unrealized losses on 73 portfolio company investments. Unrealized gains primarily resulted from tightening credit spreads and positive portfolio company specific developments. Unrealized losses primarily resulted from negative portfolio company specific developments and the reversal of prior period unrealized gains due to realizations. For the six months ended June 30, 2024, we had $23.7 million in unrealized gains on 63 portfolio company investments, which was offset by $43.2 million in unrealized losses on 89 portfolio company investments. Unrealized gains primarily resulted from tightening credit spreads and positive portfolio company specific developments. Unrealized losses primarily resulted from negative portfolio company specific developments and the reversal of prior period unrealized gains due to realizations.
For the three and six months ended June 30, 2024, we had unrealized losses on foreign currency borrowings of $1.6 million and unrealized gains of $3.0 million, respectively, on foreign currency borrowings, as a result of fluctuations in the AUD, CAD, EUR, SEK and GBP exchange rates. For the three and six months ended June 30, 2024, we had unrealized losses on foreign currency cash of less than $0.1 million and unrealized losses of less than $0.1 million, respectively. For the three and six months ended June 30, 2024, we had no unrealized gains or losses on interest rate swaps, respectively.
For the three and six months ended June 30, 2023, we had net realized gains on investments of $1.6 million and $6.4 million, respectively, primarily driven by one investment and one investment, respectively. For the three and six months ended June 30, 2023, we had net realized losses of $0.1 million and net realized gains of $0.1 million, respectively on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three and six months ended June 30, 2023, we had net realized losses of less than $0.1 million, respectively, on foreign currency investments. For the three and six months ended June 30, 2023, we had net realized losses of less than $0.1 million and net realized gains of $0.2 million on foreign currency borrowings. The net realized gains and losses on foreign currency borrowings were a result of payments on our revolving credit facility.
For the three months ended June 30, 2023, we had $18.0 million in unrealized gains on 102 portfolio company investments, which was offset by $13.1 million in unrealized losses on 30 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments. For the six months ended June 30, 2023, we had $40.0 million in unrealized gains on 108 portfolio company investments, which was offset by $29.6 million in unrealized losses on 26 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, and also lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments.
For the three and six months ended June 30, 2023, we had unrealized losses on foreign currency borrowings of $2.0 million and $2.7 million, respectively, on foreign currency borrowings, as a result of fluctuations in the AUD, CAD, EUR and GBP exchange rates. For the three and six months ended June 30, 2023, we had unrealized gains on foreign currency cash of less than $0.1 million and unrealized losses of $0.3 million, respectively. For the three and six months ended June 30, 2023, we had unrealized losses on interest rate swaps of $0.1 million and unrealized gains of $0.2 million, respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps.
Realized Gross Internal Rate of Return
Since we began investing in 2011 through June 30, 2024, weighted by capital invested, our exited investments have generated an average realized gross internal rate of return to us of 17.3% (based on total capital invested of $7.5 billion and total proceeds from these exited investments of $9.5 billion). Ninety two percent of these exited investments resulted in a realized gross internal rate of return to us of 10% or greater.
Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur.
Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of Management Fees, expenses, Incentive Fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.
Average gross IRR is the average of the gross IRR for each of our exited investments (each calculated as described above), weighted by the total capital invested for each of those investments.
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Average gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.
Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited.
Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital invested also includes realized losses on hedging activity, with respect to an investment, which represents any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any.
Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees, administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, which represents any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any.
Interest Rate and Foreign Currency Hedging
We use interest rate swaps to hedge our fixed rate debt and certain fixed rate investments. We have designated certain interest rate swaps to be in a hedge accounting relationship. See Note 2 for additional disclosure regarding our accounting for derivative instruments designated in a hedge accounting relationship. See Note 5 for additional disclosure regarding these derivative instruments and the interest payments paid and received. See Note 7 for additional disclosure regarding the carrying value of our debt.
Our current approach to hedging the foreign currency exposure in our non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under our Revolving Credit Facility to fund these investments. For the six months ended June 30, 2024 and 2023, we had $3.0 million of unrealized gains and $2.7 million of unrealized losses, respectively, on the translation of our non-U.S. dollar denominated debt into U.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments into U.S. dollars for the six months ended June 30, 2024 and 2023. See Note 2 for additional disclosure regarding our accounting for foreign currency. See Note 7 for additional disclosure regarding the amounts of outstanding debt denominated in each foreign currency at June 30, 2024. See our Consolidated Schedule of Investments for additional disclosure regarding the foreign currency amounts (in both par and fair value) of our non-U.S. dollar denominated investments.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:
We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. For more information, see “Key Components of Our Results of Operations — Leverage” above. As of June 30, 2024 and December 31, 2023, our asset coverage ratio was 189.9% and 181.6%, respectively. We carefully consider our unfunded commitments for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. Further, we maintain sufficient borrowing capacity within the 150% asset coverage limitation under the 1940 Act and the asset coverage limitation under our credit facilities to cover any outstanding unfunded commitments we are required to fund.
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Cash and cash equivalents as of June 30, 2024, taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As of June 30, 2024, we had approximately $1.2 billion of availability on our Revolving Credit Facility, subject to asset coverage limitations.
As of June 30, 2024, we had $34.6 million in cash and cash equivalents, including $29.5 million of restricted cash. During the six months ended June 30, 2024, cash provided by operating activities was $59.7 million, primarily attributable to an increase in net assets resulting from operations of $94.9 million and repayments and proceeds from investments of $433.7 million, which was offset by funding portfolio investments of $458.9 million and other operating activity of $10.0 million. Cash used in financing activities was $(50.3) million during the period, primarily attributable to paydowns on our Revolving Credit Facility of $905.2 million, dividends paid to stockholders of $85.6 million, deferred financing costs of $8.8 million, which was offset due to borrowings of $856.0 million and proceeds from the issuance of common stock $93.3 million.
Equity
On May 15, 2023, we issued a total of 4,500,000 shares of common stock at $17.33 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $77.6 million. Subsequent to the offering we issued an additional 675,000 shares on June 12, 2023 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $11.7 million.
On March 5, 2024, we issued a total of 4,000,000 shares of common stock at $20.52 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $81.5 million. Subsequent to the offering, the Company issued an additional 600,000 shares on April 1, 2024 pursuant to the overallotment option granted to underwriters and received, net of offering and underwriting fees, additional total cash proceeds of $11.9 million.
During the six months ended June 30, 2024 and 2023, we also issued 587,706 and 676,944 shares of our common stock, respectively, to investors who have not opted out of our dividend reinvestment plan for proceeds of $11.9 million and $11.8 million, respectively.
On August 4, 2015, our Board authorized us to acquire up to $50 million in aggregate of our common stock from time to time over an initial six month period, and has continued to authorize the refreshment of the $50 million amount authorized under and extension of the stock repurchase program prior to its expiration since that time, most recently as of May 1, 2024. The amount and timing of stock repurchases under the program may vary depending on market conditions, and no assurance can be given that any particular amount of common stock will be repurchased.
No shares were repurchased for the three and six months ended June 30, 2024 and 2023.
In August 2012, we entered into a senior secured revolving credit agreement with Truist Bank (as a successor by merger to SunTrust Bank), as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).
Pursuant to the Fourteenth Amendment dated June 12, 2023, with respect to $1.465 billion in commitments, the revolving period, during which period we, subject to certain conditions, may make borrowings under the facility, was extended to June 11, 2027 and the stated maturity date was extended to June 12, 2028. For the remaining $220.0 million of commitments, (A) with respect to $50.0 million of commitments, the revolving period ends on February 4, 2025 and the stated maturity is February 4, 2026 and (B) with respect to $170.0 million of commitments, the revolving period ends April 24, 2026 and the stated maturity is April 23, 2027.
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We may borrow amounts in U.S. dollars or certain other permitted currencies. As of June 30, 2024, we had outstanding debt denominated in Australian dollars (AUD) of 64.9 million, British pounds (GBP) of 41.0 million, Canadian dollars (CAD) of 5.0 million, Swedish Krona (SEK) of 78.1 million and Euro (EUR) of 101.2 million on its Revolving Credit Facility, included in the Outstanding Principal amount in the table below. As of December 31, 2023, the Company had outstanding debt denominated in Australian dollars (AUD) of 66.4 million, British pounds (GBP) of 32.3 million, Canadian dollars (CAD) of 96.8 million, and Euro (EUR) of 57.2 million on our Revolving Credit Facility, included in the Outstanding Principal amount in the table below.
The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75.0 million. As of June 30, 2024 and December 31, 2023 the Company had $3.0 million and $0.2 million, respectively, letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.
Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either the applicable reference rate plus an applicable credit spread adjustment, plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. We may elect either the applicable reference rate or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.
The Revolving Credit Facility is guaranteed by Sixth Street SL SPV, LLC, TC Lending, LLC and Sixth Street SL Holding, LLC. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
In January 2018, the Company issued $150.0 million aggregate principal amount of unsecured notes that matured on January 22, 2023 (the “2023 Notes”). The principal amount of the 2023 Notes was payable at maturity. The 2023 Notes bore interest at a rate of 4.50% per year, payable semi-annually commencing on July 22, 2018, and were redeemable in whole or in part at the Company’s option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $146.9 million. The Company used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility. The 2023 Notes matured on January 22, 2023 and were fully repaid in cash. The swap transaction associated with the issuance of the 2023 Notes also matured on January 22, 2023.
In November 2019, the Company issued $300.0 million aggregate principal amount of unsecured notes that mature on November 1, 2024 (the “2024 Notes”). The principal amount of the 2024 Notes is payable at maturity. The 2024 Notes bear interest at a rate of 3.875% per year, payable semi-annually commencing on May 1, 2020, and may be redeemed in whole or in part at our option at any
time at par plus a “make whole” premium. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts, offering costs and original issue discount were $292.9 million. The Company used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility.
In connection with the issuance of the 2026 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 1, 2026, matching the maturity date of the 2026 Notes. As a result of the swap, the Company’s effective interest rate on the 2026 Notes is SOFR plus 2.17%. The interest expense related to the 2026 Notes is offset by proceeds received from the interest rate swaps designated as a hedge. The swap adjusted interest expense is included as a component of interest expense on the Company’s Consolidated Statements of Operations. As of June 30, 2024 and December 31, 2023, the effective hedge interest rate swaps had a fair value of $(25.4) million and $(26.1) million, respectively, which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2026 Notes.
In connection with the issuance of the 2028 Notes, the Company entered into an interest rate swap to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 14, 2028, matching the maturity date of the 2028 Notes. As a result of the swap, the Company’s effective interest rate on the 2028 Notes is SOFR plus 2.99%. The interest expense related to the 2028 Notes is offset by proceeds received from the interest rate swaps designated as a hedge. The swap adjusted interest expense is included as a
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component of interest expense on the Company’s Consolidated Statements of Operations. As of June 30, 2024 and December 31, 2023, the effective hedge interest rate swaps had a fair value of $(2.5) million and $4.7 million, respectively, which is offset within interest expense by an equal, but opposite, fair value change for the hedged risk on the 2028 Notes.
Aggregate Principal
Outstanding
Amount
Carrying
Amount Committed
Principal
Available (1)
Value (2)(3)
1,700.0
487.5
1,209.5
470.3
347.5
342.0
300.0
272.2
292.4
350.0
336.0
2,997.5
1,785.0
1,712.9
1,710.0
889.7
820.2
874.5
335.9
270.9
299.0
2,657.5
1,837.2
1,780.3
As of June 30, 2024 and December 31, 2023, we were in compliance with the terms of our debt arrangements. We intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes.
Off-Balance Sheet Arrangements
From time to time, we may enter into commitments to fund investments. We incorporate these commitments into our assessment of our liquidity position. Our senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured delayed draw term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured delayed draw term loan commitments generally have a shorter availability period than the term of the associated loan agreement. As of June 30, 2024 and December 31, 2023, we had the following commitments to fund investments in current portfolio companies:
2.4
5.7
3.4
16.3
18.5
10.0
1.9
5.1
7.5
4.0
10.3
8.6
1.0
8.7
8.8
10.2
4.4
6.3
63
23.1
11.7
15.7
13.1
5.4
2.3
19.9
12.1
13.2
327.6
316.1
From time to time, we may become a party to certain legal proceedings incidental to the normal course of our business. As of June 30, 2024, management is not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee.
Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on those related activities (based on a percentage of time those individuals devote, on an estimated basis, to our business and affairs). Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.
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Contractual Obligations
A summary of our contractual payment obligations as of June 30, 2024 is as follows:
Payments Due by Period
Less than
1 year
1-3 years
3-5 years
After 5 years
Total Contractual Obligations
1,137.5
In addition to the contractual payment obligations in the tables above, we also have commitments to fund investments and to pledge assets as collateral under the terms of our derivatives agreements.
Distributions
We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:
As a RIC, we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders.
We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-level U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the U.S. federal excise tax described below.
Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of:
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement.
We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.
To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.
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We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.
Related-Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
Critical Accounting Estimates
Our critical accounting policies and estimates, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 15, 2024, and elsewhere in our filings with the SEC. The critical accounting policies and estimates should be read in connection with our risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are subject to financial market risks, including valuation risk, interest rate risk and currency risk.
Valuation Risk
We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.
Interest Rate Risk
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We also fund portions of our investments with borrowings. Our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
As of June 30, 2024, 99.6% of our debt investments based on fair value in our portfolio bore interest at floating rates, with 100.0% of these subject to interest rate floors. Our credit facilities also bear interest at floating rates, and in connection with our 2024 Notes, 2026 Notes, 2028 Notes and 2029 Notes, which bear interest at fixed rates, we entered into fixed-to-floating interest rate swaps in order to align the interest rates of our liabilities with our investment portfolio.
Assuming that our consolidated balance sheet as of June 30, 2024 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (considering interest rate floors for floating rate instruments):
Basis Point Change
Interest Income
Interest Expense
Net Interest Income
Up 300 basis points
93.6
53.6
Up 200 basis points
62.4
35.7
26.7
Up 100 basis points
31.2
17.9
Down 25 basis points
(7.8
(4.5
(3.3
Down 50 basis points
(15.6
(8.9
(6.7
Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.
We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.
Currency Risk
From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our Revolving Credit Facility, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.
Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. Legal Proceedings.
From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Rule 10b5-1 Trading Plans
During the three months ended June 30, 2024, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) adopted, modified or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).
Item 6. Exhibits.
3.1
Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Company’s Current Report on Form 8-K filed on June 19, 2020)
Second Amended and Restated Bylaws dated July 10, 2023 (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K/A filed on July 17, 2023)
10.1
Fifteenth Amendment to Second Amended and Restated Senior Secured Revolving Credit Agreement, dated as of April 24, 2024, among Sixth Street Specialty Lending, Inc., as Borrower, the Lenders party thereto and Truist Bank (as successor by merger to SunTrust Bank), as Administrative Agent
31.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
101.SCH
Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: July 31, 2024
By:
/s/ Joshua Easterly
Joshua Easterly
Chief Executive Officer
(principal executive officer)
/s/ Ian Simmonds
Ian Simmonds
Chief Financial Officer
(principal financial officer)