Blackstone Secured Lending Fund - Earnings Call - Q4 2024

Executive Summary

• BXSL delivered record total investment income ($353M) and solid NII ($183M; $0.84/share), while NAV/share rose for the ninth straight quarter to $27.39; asset yields fell to 10.4% from 11.2% QoQ as spreads tightened, partially offset by lower borrowing costs (5.17% vs. 5.45%) and strong deployment.
• Liquidity expanded sharply to $2.4B as management prepositioned for an “active 2025” deployment backdrop; leverage moved to 1.17x (midpoint of 1.0–1.25x target range).
• Dividend of $0.77/share was maintained and covered at 109%; first‑lien exposure remained 98.0% with non‑accruals minimal at 0.3% of cost (0.2% of fair value), supporting durable earnings power and NAV stability.
• Liability optimization and scale are core catalysts: tightest‑spread 2024 BDC bond issues (5.35% due 2028, +$300M tap) and an inaugural $458M CLO at SOFR+154 reinforce low cost of capital and funding durability that can support origination leadership and shareholder returns.

What Went Well and What Went Wrong

What Went Well

• Deployment and originations: highest fundings since 2021 ($1.377B) and $1.241B in commitments; management emphasized incumbency and platform scale to create deal flow amid slow M&A, with over half of Q4 deals proactively originated within Blackstone’s ecosystem.
• Funding and liabilities: $700M of 5.35% notes due 2028 (tightest BDC bond spread in 2024) and a $458M CLO at SOFR+154 lowered borrowing costs and extended maturities, bolstering liquidity to $2.4B.
• Credit quality: non‑accruals remained minimal (0.3% cost; 0.2% fair value), with 98% first‑lien exposure and average LTV ~46%, sustaining NAV stability and defensive positioning; management highlighted interest coverage of 1.7x and only 9% of portfolio below 1x vs. 15% market.

What Went Wrong

• Asset yields compressed: weighted average yield on performing debt fell to 10.4% from 11.2% QoQ (and 11.6% in Q2), reflecting broad market spread tightening; management expects near‑term stability, potential widening mid‑year as M&A rebounds.
• NII per share ticked down to $0.84 (from $0.91 in Q3 and $0.89 in Q2) as asset yields tightened and expenses rose with scale, though lower borrowing costs and stronger fundings offset some pressure.
• Isolated marks: Medallia marked mid‑90s due to slower growth into capital structure despite meaningful EBITDA growth; management emphasized control, documentation strength, and ecosystem cross‑sell to mitigate risk.

Transcript

Operator (participant)

Good day and welcome to the Blackstone Secured Lending fourth quarter and full year 2024 investor call. Today's call is being recorded. At this time, all participants are in a listen-only mode. If you require operator assistance at any time, please press star zero. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Justin Farshidi, Principal for Blackstone Credit and Insurance. Please go ahead.

Justin Farshidi (Principal)

Thank you. Good morning and welcome to Blackstone Secured Lending Fund's fourth quarter conference call. Joining me today are Brad Marshall, Co-Chief Executive Officer, Jonathan Bock, Co-Chief Executive Officer, Carlos Whitaker, President, Teddy Desloge, Chief Financial Officer, and other members of the management team. Earlier today, we issued a press release with a presentation of our results and filed our 10-K, both of which are available on the Shareholder Resources section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that this call may include forward-looking statements, which are uncertain and outside of the firm's control, and may differ materially from actual results. We do not undertake any duty to update these statements. For some of the risks that could affect results, please see the Risk Factors section of our Form 10-K filed earlier today.

This audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'll turn the call over to Brad Marshall.

Brad Marshall (Co-CEO)

Thank you, Justin, and good morning, everyone. Thanks for joining our call. Before we dive into details with John, Carlos, and Teddy, I will begin with a few high-level comments on the fourth quarter results and our view on the current market environment. Turning to slide four, BXSL reported another strong quarter highlighted by its record total investment income, increased net asset value, newly issued liabilities at market-tight levels compared to our traded BDC peers, continued solid credit performance, and active deployment. Looking at each of these in detail, our net investment income, or NII, of $0.84 per share this quarter represented a 12.3% annualized return on equity and is made up overwhelmingly from contractual income rather than one-time fees or dividend income. Net asset value per share increased for the ninth consecutive quarter by $0.12 to $27.39.

With regard to our liabilities, we issued nearly $1.2 billion of new debt through CLOs at a weighted average spread of 154 basis points over SOFR and bonds, which we swapped into a weighted average spread of 154 basis points over SOFR, all at market-tight spreads compared to traded BDC peers, while also upsizing our revolving lines of credit by an aggregate amount of $850 million, a portion of which at a reduced spread. Our liability stack continues to be diverse with floating-rate components, allowing us to help offset reduced base rates on the asset side this quarter. On expenses, BXSL has among the lowest management fee and lowest G&A cost as a percentage of NAV across our traded BDC peers, which allows us to focus on high-quality assets.

Lastly, credit quality remains strong with 0.3% of investment on non-accrual at cost and 0.2% at fair market value, well below the average of our traded BDC peers of 2.6% and 1.2%, respectively, in the third quarter. All of these are related. One, our low-cost structure and low cost of capital relative to the traded BDC peers allows us to bias our portfolio towards what we believe are higher quality, better borrowers while still delivering what we believe is an attractive return on equity with a leading regular dividend compared to our traded BDC peers. Two, our high-quality focus has delivered NAV stability and strong credit performance since inception. And three, attractive performance above our cost of capital leads to a premium valuation, which further lowers our cost of capital.

As we discussed last quarter, we positioned BXSL for an anticipated ramp up in deal activity throughout 2024, and we saw that quarter-over-quarter. In the fourth quarter, we had $1.2 billion of investment in commitments, our fifth consecutive quarter of $1 billion plus in commitments. We also had nearly $1.4 billion in new investment funding, the most active quarter since 2021. And we continue to lend to what we believe are high-quality borrowers, as demonstrated in the fourth quarter, at an average loan-to-value near the mid-30s, at yields ranging between 8%-10%, and at a three-year all-in spread above 520 basis points. This is the hallmark of BXSL, a company that taps into the skill of Blackstone's resources, relationships, and reach to deliver a diverse portfolio of assets for our investors at competitive returns compared to our traded BDC peers.

At times, we may elect to invest in larger credits at tighter spreads, and at other times, we may seek attractive deals in historically good neighborhoods with greater spread-to-LTV ratios in the middle market. Our scale allows us to play up and down market, which we believe makes us a valuable counterparty to the clients and portfolio companies we serve. Looking forward for BXSL, the M&A outlook is positive and suggests a recovery from historical lows as the cost of capital improves and the U.S. administration adopts policies that are potentially pro-growth and pro-deregulation. Private credit market has a major tailwind tied to a significant dry powder that exists with private equity sponsors, and while spreads have tightened, both the quality of companies and the capital structures financed by private credit today continue to improve.

We believe this lays a foundation for an active 2025, and we are excited to see what is to come for our fund and for our investors this year. With that, I will pass over to my colleague, Jonathan.

Jonathan Bock (Co-CEO)

Thank you, Brad. And let's turn to slide six. We ended the quarter with $13.1 billion of investments at fair value, over a 9% increase from $12 billion in Q3. And that's while adding 28 new borrowers to our portfolio, now totaling over 276 companies. Ending leverage and average leverage kicked up slightly compared to our prior quarter at 1.17x and 1.15x, respectively, remaining towards the middle of our target range of 1 to 1.25x. We increased our liquidity position to $2.4 billion, comprised of cash and available borrowing capacity across our revolving credit facilities, including ABLs, and that to lean into an expanded pipeline. Now, for context, last quarter, our liquidity position stood at $1.1 billion, another testament to our deal flow expectations for 2025. Our weighted average yield on performing debt investments at fair value was 10.4% this quarter-end compared to 11.2% last quarter.

The yields on new debt investment fundings and assets sold and repaid during the quarter averaged 9.6% and 11.1%, respectively. Now, let's take a look at the portfolio on slide seven. 98% of BXSL's investments are in first-lien, senior-secured loans, and 99% of those loans are to companies owned by financial sponsors who generally have significant equity value in these capital structures, demonstrated by an average loan-to-value of 46%. Our portfolio also has what we believe to be a strong LTM EBITDA base, averaging $198 million, increasing over 3% from last year. Now, that's three times larger than that of the companies in the Lincoln International Private Market Database. Now, although we evaluated opportunities across the size spectrum, as evidenced by our investments this year, we've seen continued strength and performance that come from larger companies.

And that's a bedrock of our portfolio relative to smaller EBITDA counterparts in terms of higher growth and lower defaults. BXSL's portfolio companies have seen growth rates in line or higher with the broader private credit market databases measured by Lincoln, and over 20% more profitability on an LTM EBITDA margin basis. When speaking to portfolio performance, it's not only strength that matters, but consistency. Our fund's performance and portfolio company selection both speak volumes to the consistency of our investment process and the talent of our people. Most importantly, we believe we've demonstrated a commitment to our foundational discipline strategy when we launched BXSL in 2018. Our focus on first-lien, senior-secured debt, and lower default rate industries is what we view as a very defensive place for investors.

And this is further evidenced by our low non-accrual rate of 0.3% at cost compared to our traded BDC peer average of 2.6% from last quarter. We continue to emphasize the importance of interest coverage. LTM EBITDA coverage based on average LTM EBITDA for BXSL portfolio companies over the last 12 months was 1.7x in Q4, which again compares favorably to the Lincoln database for the broader private credit market at 1.5x average coverage in Q4. Looking at the share of the portfolio below one times interest coverage, excluding recurring revenue loans, BXSL is at 9% of fair value versus the Lincoln Private Credit Market Index at 15%. Turning to new investments, 93% of the new private debt investments during the quarter were first-lien, senior-secured positions with average LTVs below 40%, meaning there's significant amounts of junior capital beneath our loans.

I'll conclude with some points on our documents and recent amendment activity. As a reminder, when we negotiate our credit agreements, especially as the leading lender, we remain highly focused on control and lender protections. Amendment activity this quarter was down 19% quarter-over-quarter by count, with 39 of BXSL's private borrowers amending documents in Q4. Nearly all of these amendments by position side were associated with add-ons, M&A, DDTL extensions, immaterial technical matters, or changes to terms. Besides these amendments, only one amendment accounting for fewer than 30 basis points of the portfolio was associated with an underperforming investment marked below 90 and featured additional document tightening along with incremental economics. With that, I'd like to turn it to my colleague, Carlos.

Carlos Whitaker (President)

Thanks, John. Turn to slide nine. BXSL maintained its dividend distribution of $0.77 per share. As you can see, we remain focused on delivering high-quality yield to shareholders through steady, well-covered regular dividends, and we expect this approach to continue. As mentioned last quarter, we continue to be optimistic about future potential M&A volumes and the deployment picture for 2025. Earlier, we detailed the scale of our credit platform demonstrated by our level of new investment fundings in Q4. We can be selective with our borrowers and provide solutions which we believe few managers are capable of offering. For example, BXCI led a $2 billion debt financing for Dropbox, a publicly traded leading content management and collaboration platform. This business has a sticky and large customer base and generates significant free cash flow, characteristics we seek in our lending prospects.

We close the transaction with an implied loan-to-value ratio of under 30%, providing us with sizable equity cushion. Given Dropbox's large market capitalization and access to broad ranges of financing options, we believe the company chose to partner with Blackstone because of our ability to provide a large-scale, customized financing solution with price certainty and speed. That said, we also see opportunities across the middle market to large-cap segments of the market due to our broad reach of our platform and investment team. For instance, we led a financing for a consumer services business with sub-$100 million of EBITDA owned by a middle market sponsor. The company is seeing sustained growth in a fragmented market and benefits from a premium customer base and recurring services, attributes we generally look for in services-focused business models.

Diving deeper, the median EBITDA of our new investments was $138 million, compared to the $198 million weighted average EBITDA for companies in the private portfolio. Again, we look for investment opportunities and what we believe are high-quality transactions at lower loan-to-values and attractive risk-adjusted returns across the size spectrum, with our broad reach across the middle market to large-cap space. And with that, I'll turn it over to Teddy.

Teddy Desloge (CFO)

Thanks, Carlos.

I'll start with our operating results on slide 10. In the fourth quarter, BXSL's net investment income was $183 million, or $0.84 per share, in dollar terms, up over 6% year-over-year and the second highest dollar amount since inception. Total investment income for the quarter, a record for the fund, was at $49 million, or 16% year-over-year, driven by increased interest income. As a reminder, we amortized 100% of OID earned over the life of each loan versus taking fees upfront, which we believe provides for greater stability over the longer term. Interest income excluding payment in kind, fees, and dividends represented over 94% of total investment income in the quarter.

Moving to our balance sheet on slide 11, we ended the quarter with over $13 billion of total portfolio investments at fair value, nearly $7.1 billion of outstanding debt, and over $6 billion of total net asset value. NAV per share increased to $27.39, up 0.4%, up from $27.27 last quarter, driven primarily by stable fundamentals across the majority of our portfolio, excess earnings, and share issuance above NAV. Moving to slide 12, in addition, we saw the most active quarter since 2021 on a deployment basis, as Brad outlined, with BXSL funding approximately $1.4 billion in the quarter, committing over $1.2 billion, and an estimated additional $162 million committed by BXCI and earmarked for BXSL as of December 31st. Net funded investment activity in the quarter was approximately $1.2 billion, up over 230% year-over-year.

Notably, we saw $198 million of repayments in the quarter, with a 2024 repayment rate of 6% of the portfolio at fair value compared to 10% for 2023, and as we look forward, we expect portfolio turnover to increase with M&A volumes in a more active capital markets environment. Next, slide 13 outlines our attractive and diverse liability profile, which includes 39% of drawn debt in unsecured bonds that are not swapped. These unsecured bonds have a weighted average fixed coupon of less than 3%, which we view as a key advantage in an elevated rate environment and contributed to an overall weighted average interest rate on our borrowings of 5.17%, down from 5.45% last quarter. This also compares to a weighted average yield at fair value on our performing debt investments of 10.4%.

While we maintained our three investment-grade corporate credit ratings this quarter, it is important to remember we earned a full-notch upgrade from both Moody's and Fitch in 2024. In Q4, we also became one of three BDCs with a Baa2 rating, two of which are managed by Blackstone, providing a testament to our disciplined approach to portfolio construction, defensive positioning, and conservative liability structure. We have no maturities on our funded liabilities until 2026, and our debt and funding facilities have an overall weighted average maturity of 3.7 years. Further, we continued to optimize our cost of capital. In October, we issued a $400 million 3.5-year bond, which priced at a 5.35% coupon, or 163 basis points over the relevant benchmark treasury rate.

With strong demand post-issuance, we were able to tap the market again in December, growing the quantum by $300 million at 125 basis points over the relevant benchmark treasury rate. This was the tightest spread BDC bond issued in 2024. Additionally, BXSL's inaugural $458 million CLO priced in November at SOFR Plus 154 through 61% loan-to-value, including the senior notes portion pricing at SOFR Plus 155, the tightest spread on senior most notes of any middle market private credit CLO among the 200-plus issued since 2021. To conclude, total liquidity at quarter end was $2.4 billion in cash and undrawn debt available to borrow, while ending leverage as of December 31st was 1.1 turns, slightly up from 1.12 turns in the third quarter, near the midpoint of our target range of one to one and a quarter turns.

We believe we have positioned our balance sheet with significant capacity to support increasing activity through the end of the year should M&A volumes continue to rebound. And with that, I'll ask the operator to open it up for questions. Thank you.

Operator (participant)

Thank you. As a reminder, please press star one to ask a question. We ask that you limit yourself to one question and one follow-up to allow as many callers to join the queue as possible. We'll take our first question from Casey Alexander with Compass Point.

Casey Alexander (Managing Director and Senior Equity Analyst)

Hi, good morning. I'm just kind of curious. I mean, it's such a strong quarter for new originations, and what we've been hearing from other platforms is that the deal activity hasn't really picked up yet, so I'm kind of curious out of the, you know, $1.4 billion in new originations, kind of how would you characterize what percentage of that is sort of incumbent or is born out of the existing Blackstone universe or ecosystem as compared to, you know, sort of new merchandise that came in the door?

Brad Marshall (Co-CEO)

Thanks, Casey. Good question. So what I would say, and I'm glad you asked the question because I think this is our superpower, if we had one, which is our ability to originate during market, during periods when the market is slow from a new M&A standpoint. And where we go find those deals is really kind of, you know, having the team play the role of banker with a balance sheet. They go and create the idea, they approach the company, they approach the sponsor. And because we can show up with $1 billion, $2 billion, $3 billion, $500 million, we can go and create deal flow when the market doesn't provide it.

So to answer your question, over half our deals in the fourth quarter fell into that category where we were in a situation where we had some incumbency, where the deal team noticed something in the market and approached a company proactively. Typically, this will be in our power alleys, which is in tech and software, healthcare and life science, and business services. But, you know, it does kind of showcase kind of the power of the platform and where scale can be a true advantage where you can originate in slower periods. I will say, you know, the start of the year is off to the slowest start that we've seen since 2003, just from a new M&A standpoint. So you'll probably kind of hear next quarter from a lot of managers that, you know, deployment is pretty slow.

We continue to be aware of that and find opportunities where we can.

Carlos Whitaker (President)

All right. Thank you. That's my only question. I appreciate it.

Brad Marshall (Co-CEO)

Thanks, Casey.

Operator (participant)

We'll take our next question from Melissa Wedel with JPMorgan.

Melissa Wedel (VP of U.S. Equities Research)

Good morning. Thanks for taking my questions. Given the usually high level of activity.

Brad Marshall (Co-CEO)

Melissa, you may be on mute. Operator, maybe we'll just go to the next question and then come back to Melissa.

Operator (participant)

We'll go next to Kenneth Lee with RBC Capital Markets.

Kenneth Lee (Managing Director and Senior Equity Analyst)

Hey, good morning. Thanks for taking my question. Just one on, I think, of the prepared remarks. You alluded to the new investments having the portfolio companies having lower average EBITDAs than the rest of the portfolio. And I think there's also a discussion about looking more towards the core middle markets. Just curious whether going forward you could see a little bit more of a lean towards the core middle market segment there. And if so, could you just remind us broadly of the capabilities of the Blackstone Credit Platform that's available to pursue such opportunities? Thanks.

Teddy Desloge (CFO)

Yeah, I'm happy to take that. Thanks, Kenneth. So just starting on some of the facts, our median EBITDA in the quarter for new deals funded was about $138 million. And I think what you're seeing is really the benefit of our enormous origination effort. We have over 280 investment professionals in our sub-IG business. We have portfolio companies that we financed in the quarter ranging from $25 million of EBITDA to $1 billion on the high end. So we're really seeing the full market landscape. I think as the syndicated market has come back, we've seen a little bit better relative value in that core middle market. We have significant presence there, and we've been able to take advantage of that in the last quarter where spreads were a little bit better.

Kenneth Lee (Managing Director and Senior Equity Analyst)

Gotcha. Thank you very much there. And just one quick follow-up, if I may, just want to see if you could provide a little bit more color in terms of what you're seeing across new investment spreads, whether you're seeing a little bit more stabilization there and any kind of outlook going forward. Thanks.

Brad Marshall (Co-CEO)

Yeah, maybe I'll start and Teddy can backfill. So spreads over the course of last year came down clearly driven by just the broader market spread tightening across all fixed income. You know, as you know, we're a big public loan investor, and we saw actually the AAA liabilities and CLOs tightened by over 100 basis points from their peak. And that really drove leveraged loan asset spreads tighter in combination with the market outlook is still quite positive. Default rates are modest, and then supply and demand is a little bit light. So spread tightening across the board, private credit wasn't spared from that. I would say the good news, and I'll answer your question, the good news is that liabilities actually came in probably more than the assets.

The net interest between the assets and liabilities is actually pretty steady from the fourth quarter of 2024 and fourth quarter of 2023. That's interesting. That was about 300 and just shy of 350 basis points. Then obviously our cost of capital is a lot lower than others, which helps. I would expect spreads to be stable from here with a chance that in the near term they could tighten, and then the medium term, I actually think they widened. I still think we're going to see a pretty meaningful pickup in M&A activity starting towards the end of the second quarter. I think right now we're in a little bit of a lull because there's a lot of market uncertainty around tariffs and policy changes, and that's pushed out some of the expected M&A activity.

But it is coming, and it's going to come, I think, very actively through the balance of the year.

Teddy Desloge (CFO)

Yeah, the other thing I would mention there is if you look at our investment activity, you know, we funded $1.2 billion. Our weighted average spread on deals funded was SOFR Plus 510 with a point upfront OID. So the three-year implied spread on that discount margin is in that SOFR 550 context. If you look at the variance, you know, there were, you know, a couple of deals in the 400s, but the variance is really sort of 450 for the highest quality up to 550 on the wider end.

Kenneth Lee (Managing Director and Senior Equity Analyst)

Great. Very helpful there. Thanks again.

Operator (participant)

Thank you. We'll go next to Sean-Paul Adams with Raymond James.

Sean-Paul Adams (Senior Research Associate)

Hey, guys. Good morning. Obviously, you guys have a stellar credit track record. However, while the industry portfolio is largely defensive or unaffected by potential tariff impacts with an overweight being in software, has there been any portfolio review to examine, you know, BXSL's broader portfolio exposure to upcoming tariff impacts?

Teddy Desloge (CFO)

Yeah, thanks, Sean. I'm happy to take that. This is Teddy. We've done a ton of work on this. I think overall our view continues to be a moving target, right? Very hard to pin down. But as we take a step back, the exporting of physical goods into the U.S. is not a significant part of our portfolio. We looked at areas where COGS and input costs and volumes could both be under pressure from higher tariffs from key regions, in particular Mexico, China, and Canada. Overall, you know, I think if we were to put numbers to it, it's kind of mid-single digits type exposure, but very hard to indicate sort of what the handicap, what the impact would be. So something we're still watching, very focused on. It certainly comes up regularly in new investment committees on assets.

For instance, you know, industries like consumer goods where we were already de-emphasizing exposure, I think we're even more cautious today.

Sean-Paul Adams (Senior Research Associate)

Excellent answer. Thank you.

Operator (participant)

Thank you. As a reminder, star one for questions. We'll go next to Finian O'Shea with Wells Fargo Securities.

Finian O'Shea (Managing Director and Senior Equity Analyst)

Hey, everyone. Good morning. I wanted to ask about the mark on Medallia, sort of just, you know, mid-90s, but inching down and trying to get a feel of what that implies, if we should expect that to continue to play out to the extent it's on trailing performance. And, you know, if you're able to provide color, like sort of what that, you know, often we'll hear a 95 means something like 30% under EBITDA trajectory performance. If you could give color on that handle, that'd be great. Thank you.

Brad Marshall (Co-CEO)

Thanks, Finn. Yeah, I'll give you a little bit of insight. We unfortunately don't comment a lot on specific assets just because they're private companies, but we clearly understand the sensitivity for investors given what happened with Pluralsight. So what I would say with Medallia, around your 30% comment, the company is actually growing. EBITDA has tripled since we made the investment, but it's just been a little bit slower to grow into its capital structure than we would like. So that the mark reflects that challenge. But the product is still very high quality. We're just seeing a little bit of pricing pressure, which is slowing, you know, our expected kind of growth. But again, it's, you know, EBITDA has grown meaningfully since we did the deal. I will say, you know, what this deal, and I'm glad you brought it up because it highlights a couple of things.

One, being in control of the dialogue with a sponsor when a company is in this situation is really important, and why it's why we like to lead our deals and control them. Focusing on doc quality is paramount for us, as you know, where I think some of the other situations that have gotten in trouble may have had issues with their docs. 100% of our deals or nearly 100% have asset stripping protection, so these are things that we spend a lot of time on for these exact reasons, and then lastly, you know, and this again is, I said we had a superpower before. Maybe this is our other superpower, but we are able to play a more active role with companies.

And with Medallia, we're figuring out how to cross-sell their products across the Blackstone ecosystem, which hopefully, you know, can drive some value as the company continues to accelerate growth. So I threw a lot out there. I think the market reflects kind of, you know, a little bit of the growth is below our plan, but EBITDA is growing nicely.

Finian O'Shea (Managing Director and Senior Equity Analyst)

Super helpful. Really appreciate that. I guess a small follow-up. I just want to, I wanted to revisit the prior question on spread-related headwinds. I think you said to Ken, the new spreads were in the fives, low fives average. That looks like this quarter. Just to verify, did you indicate that, you know, just understanding this quarter's paper was, you know, one, two quarters ago committed or originated? Is that consistent with what you're doing today? Or should, you know, one quarter spreads skew more toward that low end of the range, the sort of 450?

Brad Marshall (Co-CEO)

I think you're asking on a go-forward basis. I think spreads are in range with historical our last quarter, I think, to answer your question. You know, it's always a hard question to answer, though, Finn, because everyone always asks about spreads and no one ever talks about risk. For example, you know, Dropbox that we just did was less than 30% loan-to-value. And I think the spread on that is 490, close to 500. So you really got to put risk in context of spreads. I implore everyone to focus on this. The market's super efficient.

So I think the winners as it relates to, you know, the BDC model are those that can minimize credit issues, those that can drive down their cost of capital across all fronts, whether it's their fees, whether it's the leverage facilities, and maintain kind of NAV stability in a market where in the moment spreads are a little bit tighter. So I think it's really important to focus on risk when we talk about spreads.

Finian O'Shea (Managing Director and Senior Equity Analyst)

Just, I guess, a follow-up there on the market. Like there's a lot more being raised out there in other, like lower fee formats, the non-traded BDCs and maybe institutional, you know, certainly industry-wide, there's a lot still coming in. Like the direct lending premium, it sort of gets washed out in the public BDC. But a lot of this stuff could be very attractive in, say, a non-traded. And all these non-tradeds are way under-levered. They're raising a lot of money every day. What's your sort of feel of maybe when the dam breaks and the new money, you know, the sort of floor goes down to SOFR 400 or 375, or, you know, how long can it be before we get there? If you have any sort of crystal ball view on that. Thanks.

Brad Marshall (Co-CEO)

I don't have a crystal ball. I will say, Finn, the market in leverage finance in the U.S. is a $6 trillion market. Private credit's probably about $2 trillion. The real economy is probably something close to $30 trillion. So the white space for private credit is enormous, which is why there's more capital being raised for the space. The reason performance has been strong, which is why there's investors that are attracted to it. So I don't have a crystal ball on where spreads go. I guess if the public markets went to a SOFR Plus 100, you know, spread environment, then yes, you could see spreads in private credit, you know, tighten in line with the public markets. But I do think one thing that's for certain, which is, you know, the spread to the public markets will continue to be attractive for investors. That has not changed.

The other thing I think is important, getting into my previous comment, is the question you're asking is really for a lot of the other kind of BDCs because BXSL is one of the lowest cost, you know, BDCs in the market. And we've done that intentionally so we can focus on higher quality assets and not reach for risk as a market becomes more efficient. So I don't know where spreads are going. I do know that in the context of driving returns for our investors, it's what I said earlier, you need very good credit performance, you need NAV stability, and you want to deliver a dividend higher than what's available in the public markets, and you want to do that on a consistent basis.

Operator (participant)

Thank you. We'll go next to Maxwell Fritscher with Truist Securities.

Yeah, good morning. Thank you. I'm on for Mark Hughes. You kind of just hit on in the last question, the new capital being raised. So going off that, can you comment on competition you're seeing in the upper end of the market, maybe whether that be BSLs or other direct lenders? Have there been any changes recently, or has that been relatively stable?

Brad Marshall (Co-CEO)

That might be a question for Melissa when we get her back on the call from JPMorgan. But I would say the public markets have definitely come roaring back this year. I think it's back a little bit to my opening comments around the outlook, is quite, you know, positive in the U.S., not a lot of new deals, it's supply and demand imbalance, and the cost of liabilities have tightened such that asset spreads have followed. So the banks, you know, have been a little bit more active as they underwrite loans for the broadly syndicated markets. And that's resulting in a few repayments of some of our larger deals, which for investors is, I guess, an immediate positive because they get the call protection and the accelerated OID as a result of those repayments.

But definitely kind of more activity on the public side, which, to Teddy's earlier points, is why we skewed a little bit more to the kind of upper end of the middle market more recently because we just saw better opportunities there where we can use our scale, we can use our brand, we can use our value-add program to differentiate our kind of proposals from the public markets. In terms of new private credit managers, there's a lot of new private credit managers coming into the space. But these are usually with one, two, three, four billion-dollar funds, which if you think about building a fund of a portfolio for a fund that size, you're committing not really more than $100 or $200 million in a deal. So that competition has gotten maybe a little bit more heated in the small end and the lower middle market.

It's really kind of this, you know, more pure middle market that's had a little bit more of a premium. Europe. Not that this focuses a lot on Europe, but Europe continues to have a spread premium as well, as well as some of these sectors that are a little bit more constrained and specialized, constrained from a supply and demand standpoint and specialized from a sector standpoint. So take life science, for example, where there's a $170 billion R&D funding gap that has largely been funded by the equity markets, but that is now turning to the debt market, and you can't get that funding through public, you know, debt alternatives. So there are certainly some white spaces that we're kind of moving into to help drive differentiated returns for our investors.

Thank you.

Operator (participant)

Thank you. We'll take our last question from Melissa Wedel with JPMorgan.

Melissa Wedel (VP of U.S. Equities Research)

Good morning. Let's try this one more time. Can you hear me?

Brad Marshall (Co-CEO)

Yes.

Melissa Wedel (VP of U.S. Equities Research)

Okay, great. Thank you. I was surprised a little bit, especially given the strength of the originations activity in 4Q. I was surprised by the what seemed like pretty minimal repayments and exits. I guess I was curious if you were surprised by that as well and if you expect a pickup in that, you know, into 2025. Thank you.

Teddy Desloge (CFO)

Thanks, Melissa, to Teddy. I'm happy to take that. So I think we would agree with you. Repayments were relatively light in the quarter, right around 6%, actually sort of right on top of 6% for the full year. You know, where we saw activity to Brad's point was whereas we had quite a bit of incumbency over the last over half of our deals closed were either existing portfolio companies or we had some level of incumbency. So that wouldn't necessarily drive repayments. I do think our view is if as the M&A market comes back this year, that is an upside potential lever to returns, right? We generated 94% of our income in the quarter from just interest income, very low accelerated OID, very low fee income, and not a lot of PIKs.

So, as repayments pick up this year, as the M&A market picks up, that's potential upside driver to returns.

Melissa Wedel (VP of U.S. Equities Research)

Thank you.

Operator (participant)

That will conclude our question and answer session. At this time, I would like to turn the call back over to Justin Farshidi for any additional or closing remarks.

Justin Farshidi (Principal)

Thank you. And thanks to all of you for joining today's call. We look forward to our follow-up discussions and we'll reconvene again next quarter.

Operator (participant)

Thank you. That will conclude today's call. We appreciate your participation.