Executive Summary

Q4 2024 delivered solid net investment income and a stable distribution, with $28.97M net investment income and $0.0821 per-share distribution (split $0.0753 in Dec and $0.0068 in Jan) at a 10.0% annualized rate based on $3.30 NAV .
NAV per share declined sequentially to $3.30 (from $3.41 in Q3 and $3.47 in Q2) as unrealized marks remained a headwind; total realized/unrealized losses were roughly $7.35M in Q4, leading to $0.05 EPS for the quarter .
Portfolio repositioning toward diversified credit continued, with 81.3% of investments at variable rates—supporting NII—but market marks and energy legacy exposures still impacted fair values .
Wall Street consensus estimates (EPS/revenue) via S&P Global were unavailable in this session due to request limits; no earnings call transcript was found, reducing near-term qualitative color for the quarter (see Estimates Context) [GetEstimates error]* [ListDocuments earnings-call-transcript=0].

What Went Well and What Went Wrong

What Went Well
- Net investment income remained strong: $28.97M in Q4; NII margin ~57% supported by high variable-rate exposure .
- Distribution policy executed: $0.0821 per share for Q4 at ~10% annualized rate on NAV, with clear guidance to continue enhanced quarterly distributions .
- Strategic transition progressed: management reiterated objective to “generate current income and, to a lesser extent, long-term capital appreciation by investing primarily in private and public credit” with direct/broadly syndicated loans .
What Went Wrong
- NAV per share fell to $3.30 (vs. $3.41 in Q3 and $3.47 in Q2), driven by continued unrealized depreciation on certain holdings; Q4 total realized/unrealized loss ~$(7.35)M .
- Legacy energy exposures and select positions (e.g., Plainfield Renewable Energy) remained on non-accrual/PIK and saw valuation pressure, impacting fair values .
- Limited disclosure vs. peers this quarter: no earnings call transcript found; consensus estimates unavailable in this session, reducing external context [ListDocuments earnings-call-transcript=0] [GetEstimates error]*.

Financial Results

Metric	Q2 2024	Q3 2024	Q4 2024
Investment Income ($USD Millions)	$50.286	$52.738	$50.817 (FY $223.091 − 9M $172.274)
Net Investment Income ($USD Millions)	$28.244	$30.934	$28.973 (FY $134.571 − 9M $105.598)
Total Realized + Unrealized Gain (Loss) ($USD Millions)	$13.230	$(17.097)	$(7.351) (FY $(39.527) − 9M $(32.176))
EPS – Net Increase in Net Assets ($USD)	$0.09	$0.03	~$0.05 (Q4 NI in net assets ≈ $21.622 on 455.506M shares)
NII Margin (%)	56.2% (28.244/50.286)	58.7% (30.934/52.738)	57.0% (28.973/50.817)

KPI	Q2 2024	Q3 2024	Q4 2024
NAV per Share ($)	$3.47	$3.41	$3.30
Distribution per Share ($)	$0.0866 (declared Jul 22)	$0.0753 (declared Dec 19)	$0.0821 total ($0.0753 Dec + $0.0068 Jan)
Total Investments at Fair Value ($USD Millions)	$1,646.5	$1,692.1	$1,842.6
Total Assets ($USD Millions)	$2,040.6	$1,986.3	$2,131.2
Total Liabilities ($USD Millions)	$459.9	$431.3	$627.8
Repurchase Facility Payable ($USD Millions)	$395.5	$396.0	$496.5
Portfolio Variable-Rate Share (%)	—	—	81.3%

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Quarterly Distribution (Annualized rate on NAV)	Q2 2024	Enhanced distribution targeting ~10% annualized on NAV; $0.0866 per share declared	Maintain enhanced quarterly distributions; increasing over time toward max cap of 15% of NAV beyond 2026	Maintained (clarified trajectory)
Quarterly Distribution	Q3 2024	Enhanced distribution continued; $0.0753 per share	Maintain enhanced quarterly distributions	Maintained
Quarterly Distribution	Q4 2024	—	$0.0821 total per share ($0.0753 in Dec + $0.0068 in Jan), ~10% annualized on $3.30 NAV; enhanced distributions expected to continue	Initiated (split payment)

Dividend/distribution details: “The enhanced distributions are expected to be paid quarterly and increase in subsequent years until the achievement of a long-term liquidity event, subject to a maximum cap of 15.0% of the Company’s then-current estimated net asset value beyond 2026.”

Earnings Call Themes & Trends

No Q4 2024 earnings call transcript available (none found) [ListDocuments earnings-call-transcript=0]. Trend tracking reflects management filings:

Topic	Previous Mentions (Q2 2024 & Q3 2024)	Current Period (Q4 2024)	Trend
Strategy pivot to diversified credit	Transition from energy to diversified credit effective 9/29/23; focus on secured/unsecured loans/bonds	Restated objectives; continued portfolio rotation and deployment	Steady execution
Enhanced distributions	Declared $0.0866 in Q2 (10% annualized NAV) ; $0.0753 in Q3	$0.0821 total in Q4; policy to increase over time with cap	Incrementally higher vs. Q3
Co-investment exemptive relief	Applied for broader co-investing order (FS affiliates)	FS Order granted 11/13/24 permitting co-investing with affiliates	Positive regulatory milestone
Variable-rate exposure / rate sensitivity	Portfolio variable-rate share grew; interest rate sensitivity noted	81.3% variable-rate; NII levered to rates; sensitivity table disclosed	Supportive for NII
Derivatives / TRS usage	Added BNPP loan TRS; Nomura equity TRS on FSCO	TRS positions maintained; fair value impacts limited	Stable utilization

Management Commentary

“Our current investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation by investing primarily in private and public credit in a broad set of industries, sectors and sub-sectors.”
“The enhanced distributions are expected to be paid quarterly and increase in subsequent years until the achievement of a long-term liquidity event, subject to a maximum cap of 15.0% of the Company’s then-current estimated net asset value beyond 2026.”
“As of December 31, 2024, 81.3% of our portfolio investments (based on fair value) paid variable interest rates…”

Q&A Highlights

No Q4 2024 earnings call transcript was found; therefore, no Q&A highlights or additional qualitative clarifications are available for this period [ListDocuments earnings-call-transcript=0].

Estimates Context

Wall Street consensus (EPS/revenue) from S&P Global was not retrievable in this session due to request limits; therefore, comparisons vs. consensus are unavailable. We attempted to fetch EPS and revenue estimates for Q4 2024, but received a daily limit error [GetEstimates error]*.
Given the fund structure and distribution-led investor focus, internal fundamentals (NII, NAV, distribution coverage) are more relevant drivers near-term than sell-side EPS consensus.

Key Takeaways for Investors

Distribution carry: Q4 per-share distribution of $0.0821 at ~10% annualized on NAV indicates management confidence in NII durability; policy guides potential increases over time (cap 15%)—a support for income-focused holders .
NAV drift: Sequential NAV declines ($3.47 → $3.41 → $3.30) reflect continued valuation pressure on select positions; watch legacy energy assets and non-accrual/PIK names (e.g., Plainfield Renewable Energy, Tenrgys) for recovery vs. potential exits .
Rate exposure: 81.3% variable-rate loan exposure enhances NII in higher-rate regimes; sensitivity analysis shows +100bps adds ~$10.0M net interest income annually—positive carry if rates remain elevated .
Leverage trajectory: Repurchase facility rose to ~$497M, lifting liabilities; as assets grew to ~$2.13B, monitor asset coverage and leverage-driven NII vs. NAV sensitivity to marks .
Regulatory positioning: FS co-investment order (11/13/24) broadens deal flow with affiliates—expect improved origination and potentially better diversification across secured loans .
Near-term trading: Without a call transcript or consensus estimates, the narrative hinges on quarterly distribution declarations and NAV updates; catalysts include enhanced distribution announcements and portfolio rotation progress (disposals/marks) .
Medium-term thesis: Income-first profile with improving portfolio mix and co-invest flexibility; watch for stabilization in unrealized marks to support NAV and total return while maintaining elevated NII .

* Values/estimates via S&P Global were unavailable in this session due to daily request limits.

FS Specialty Lending Fund (FSEN)·Q4 2024 Earnings Summary