Sixth Street Specialty Lending, Inc. Q4 FY2024 earnings call

• Interest rates remained higher for longer, providing an earnings boost. Twelve months ago, forward curve indicated different rates than current, contributing to earnings. - Earned $0.44 per share of gross activity-based fee income in 2024, with $0.15 per share in Q4, highest in seven quarters. - Experienced credit deterioration in two portfolio companies, Astrac Acquisition Corp and Lithium Technologies, negatively impacting net investment income. - New investment spreads tightened during 2024, lowering net investment income. - In Q4, total commitments were $479 million and total fundings were $324 million across nine new portfolio companies and upsized seven existing investments. Full year 2024 commitments were $1.2 billion and fundings were $839 million. - 37% of total fundings in 2024 were to non-sponsored businesses. - Highlighted investments like TRP Energy and Arrowhead Pharmaceuticals, showcasing differentiated portfolio with unique investment opportunities.

In the fourth quarter, adjusted net investment income was $0.61 per share, adjusted net income was $0.54 per share. For the full year 2024, adjusted net investment income per share was $2.33 and adjusted net income per share was $1.97. Net asset value per share increased from $17.12 as of September 30 to $17.16 as of December 31. The fourth quarter earned $0.15 per share of activity-based fees, the highest in seven quarters. Full-year activity-based fee income was $0.44 per share, the highest since 2021.

• 2025 earnings potential tied to portfolio spreads. - Estimated return on equity on net investment income for 2025 is 11.5% to 12.5%, lower end reflects muted activity-based fees, upper end normalized activity-based fees. - Base quarterly dividend of $0.46 per share declared, with a supplemental dividend of $0.07 per share related to Q4 earnings declared.

• Credit deterioration risks from portfolio companies, as seen with Astrac Acquisition Corp and Lithium Technologies in 2024. - Tightening new investment spreads which impacted net investment income in 2024 and could continue to affect future earnings. - Macroeconomic factors and market conditions that could influence spreads and overall returns, such as changes in interest rates and M&A volume.

Q: Ask about origination outlook and TRP Energy.

A: Joshua Easterly states TRP was a first lien financing in an off-the-run energy space, sees capital solutions deals prevalent in 2025 origination with spreads ranging from SOFR 600 to 850.

Q: Ask about IRG.

A: Joshua Easterly says they're working on selling assets of IRG, which owns valuable assets in West Palm Beach, hoping for resolution in next few quarters.

Q: Ask about why borrowers choose Sixth Street.

A: Joshua Easterly mentions top of the funnel, ability to provide speed, certainty, size in sponsor side, and deep industry expertise in non-sponsor side for less trafficked areas.

Q: Ask about probability of spreads staying tight with M&A rebound.

A: Joshua Easterly says spreads are a function of supply and demand equilibrium, hopes market signals will correct misallocation of capital, and notes their guidance is conservative based on track record of over-delivering.

Q: Ask about portfolio overlap.

A: Joshua Easterly attributes less overlap mainly to non-sponsor transactions.

Q: Ask about call protection and healthcare exposure.

A: Joshua Easterly says call protection is at 93.6% of fair value, stable, and healthcare exposure is in pharma, not services side which has reimbursement risks.