Executive Summary

TSLX delivered solid Q2 with adjusted NII per share of $0.56 and total investment income (revenue) of $115.0M, both topping S&P Global consensus; revenue beat by ~4% and EPS (adj. NII) beat by ~6% as activity-based fees and lower funding costs offset lower base rates . S&P Global estimates used for comparisons*.
Dividend coverage remained robust: adjusted NII of $0.56 exceeded the $0.46 base dividend; Board declared a Q3 2025 base dividend of $0.46 and a Q2 2025 supplemental of $0.05 .
Credit trends improved: non‑accruals fell to 0.6% of fair value (from 1.2% in Q1), aided by the Lithium Technologies restructuring; management sees sector focus shifting from credit to dividend coverage as yields drift lower .
Strategic positioning: spreads on new first‑lien originations (Q2 weighted average ~6.5%–6.7%) remained above the public BDC peer averages; management expects full‑year ROE on adjusted NII in the “top half” of the 11.5%–12.5% range, with potential upside if activity-based fees stay elevated .

What Went Well and What Went Wrong

What Went Well
- Outperformed consensus: revenue ($115.0M) and EPS (adj. NII $0.56) beat led by fee income from elevated repayments and timing of OID amortization; other income rose to $7.6M and activity-based fees reached ~$0.11 per share excluding other income . S&P Global estimates used for consensus*.
- Credit stabilization: non‑accruals improved to 0.6% FV; Lithium was restructured and removed from non‑accruals; CEO: “we expect that credit issues are predominantly behind us” .
- Differentiated originations: ~30% of Q2 commitments from non‑sponsor channels; new first‑lien spreads (≈6.5%) outpaced sector; quote: “our omnichannel sourcing capabilities enabled us to put capital to work in a disciplined manner” .
What Went Wrong
- Top-line pressure: total investment income declined YoY to $115.0M (vs $121.8M) on lower base rates despite higher activity-based fees .
- Portfolio yield compression: weighted-average yield at amortized cost dipped to 12.0% (from 12.5% in Q1 and 13.9% in Q2’24) as payoffs of higher-yielding assets exceeded yields on new fundings .
- Net payoffs and competition: repayments ($388.7M) outpaced fundings ($208.6M), and management reiterated spread pressure from abundant private credit capital, cautioning on sector “complacency” and future dividend coverage for some peers .

Financial Results

Metric	Q2 2024	Q1 2025	Q2 2025
Total Investment Income ($MM)	$121.8	$116.3	$115.0
Net Investment Income ($MM)	$55.1	$58.0	$50.8
Net Investment Income Per Share ($)	$0.59	$0.62	$0.54
Adjusted NII Per Share ($)	$0.58	$0.61	$0.56
Net Income Per Share ($)	$0.51	$0.39	$0.63
Adjusted Net Income Per Share ($)	$0.50	$0.36	$0.64
NAV Per Share ($)	$17.19	$17.04	$17.17
Weighted Avg Yield at Amortized Cost (%)	13.9%	12.5%	12.0%
Non‑accruals (% of FV)	n/a	1.2%	0.6%
Debt/Equity (quarter-end, x)	n/a	1.18x	1.09x

KPI and portfolio activity

KPI	Q2 2024	Q1 2025	Q2 2025
New Commitments ($MM)	$231.0	$154.4	$297.7
Fundings ($MM)	$163.6	$136.8	$208.6
Repayments/Exits ($MM)	$290.3	$269.6	$388.7
First‑lien (% FV)	n/a	92.9%	92.4%
Floating‑rate debt investments (% FV)	99.6%	97.0%	96.5%
New floating‑rate spread (bps over ref)	660 bps	700 bps	670 bps
Weighted avg interest rate on debt o/s	n/a	6.4%	6.3%

Estimate comparisons (S&P Global consensus)*

Metric	Q4 2024	Q1 2025	Q2 2025
Revenue Consensus Mean ($MM)*	119.1	116.7	110.4
Revenue Actual ($MM)*	123.7	116.3	115.0
Revenue Surprise (%)*	+3.9%	-0.3%	+4.2%
Primary EPS Consensus Mean ($)*	0.571	0.554	0.528
Primary EPS Actual ($)*	0.620	0.619	0.560
EPS Surprise (%)*	+8.6%	+11.8%	+6.1%

Note: “Primary EPS” for BDCs typically tracks NII/share; Actuals shown reflect the tool’s EPS definition, which aligns with adjusted NII/share for TSLX. Values retrieved from S&P Global.*

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
ROE on Adjusted NII	FY 2025	11.5%–12.5% target	“Top half” of range; potential to exceed if activity‑based fees remain elevated	Maintained range; tone more positive
Base Dividend per Share	Quarterly	$0.46 (maintained)	$0.46 for Q3 2025 declared	Maintained
Supplemental Dividend	Quarterly	$0.06 for Q1 2025	$0.05 for Q2 2025	Lower sequentially (driven by earnings mix)

Earnings Call Themes & Trends

Topic	Previous Mentions (Q4’24, Q1’25)	Current Period (Q2’25)	Trend
Sector focus shifting to dividend coverage	Warned that as “front book becomes back book,” ROEs could fall at peers; emphasized cost of equity discipline	Explicitly: sector focus moving from credit to dividend coverage as yields decline; TSLX coverage robust	Intensifying
M&A/Activity pipeline	Cautious on near‑term non‑IG M&A; stressed longer runway needed for PE vintages	Q2 commentary frames M&A resurgence as time‑driven; seeing non‑M&A financings and sponsor portfolio optimization	Gradual improvement in non‑M&A activity
Spread environment/competition	Highlighted supply/demand imbalance from non‑traded BDC inflows; maintained discipline	Competitive dynamics persist; TSLX new first‑lien spreads ~6.5% vs sector lower; warns on sector “complacency”	Spreads tight; disciplined deployment
Credit quality/non‑accruals	Non‑accruals ~1.2% in Q1; limited tariff exposure	Non‑accruals improved to 0.6%; Lithium off non‑accrual; “issues predominantly behind us”	Improving
Call protection/fees	Call protection high; elevated activity‑based fees in Q4/Q1	Activity‑based fees remained a tailwind; fair value under call protection ~94.1% (embedded economics)	Supportive
Liability management	Extended revolver to 2030; issued 2030 notes swapped to SOFR +153 bps	No near‑term maturities; weighted avg debt cost down to 6.3%	Stable/positive

Management Commentary

“We estimate the quarterly earnings power of our business to exceed our base dividend level assuming stable credit, leverage in the middle of our target range, and conservative fee income.”
“We expect that credit issues are predominantly behind us… This should result in a convergence between net investment income and net income for the sector.”
“Our omnichannel sourcing capabilities enabled us to put capital to work in a disciplined manner demonstrated by a weighted average spread on new first‑lien investments of 652 bps.”
“As sponsors work to optimize their portfolio companies… we are well positioned to provide the kind of complex bespoke capital solutions these situations require.”

Q&A Highlights

Dividend coverage vs sector: Management reiterated strong coverage and flagged potential dividend cuts at some peers as portfolio yields normalize; TSLX’s excess economics and sizing of the base dividend underpin coverage .
Repayments/fees outlook: Elevated repayments are likely near‑term; fees can be high depending on vintage mix, with fair value to call‑protection metrics indicating embedded economics if assets prepay .
Originations mix and documentation: ~30% non‑sponsor in Q2 (near historical levels); covenant/documentation standards stable; TSLX avoids “commodity capital” situations .
Macro/tariffs: Very limited direct tariff exposure; one of three identified names repaid post‑quarter; overall direct exposure now even smaller .
Retirement vehicles and private assets: Support for access but concerns on investor protections and education; emphasis on being investor‑first .

Estimates Context

Q2 2025 results beat S&P Global consensus: revenue $115.0M vs $110.4M (+4.2%); “EPS” (aligned with adjusted NII/share) $0.56 vs $0.528 (+6.1%). Prior quarters: Q1 2025 EPS beat and revenue roughly in line; Q4 2024 beat on both metrics.
Potential estimate revisions: Given improved non‑accruals, strong fee contribution, and management’s “top half” full‑year ROE guidance, Street EPS/NII estimates may drift modestly higher; however, management continues to highlight spread pressure and lower base rates as headwinds for portfolio yields*.
Values retrieved from S&P Global.*

Key Takeaways for Investors

Earnings quality: Beat on revenue and adjusted NII per share, with fee income and call protection supporting results despite lower rates .
Credit healing: Non‑accruals declined to 0.6% and are concentrated; Lithium resolved with no material NAV impact in Q2 .
Structural advantage: TSLX’s multisource (“omnichannel”) originations and higher spreads on new first‑liens vs peers continue to differentiate in a tight spread environment .
Payout resilience: Adjusted NII of $0.56 covered the $0.46 base dividend with room for supplemental payouts ($0.05 this quarter) .
Risk to monitor: Continued spread compression and lower base rates could weigh on yields sector‑wide; activity‑based fees are episodic and not guaranteed .
Balance sheet strength: Substantial liquidity, extended maturity ladder, and lower funding costs (6.3% avg debt rate) provide flexibility if volatility rises .
Trading angle: Narrative skew is positive (beats, credit improvement, dividend coverage) with near‑term catalysts from continued repayments/fees and potential estimate uplift; medium‑term, watch for origination spreads and M&A cadence to sustain ROE in the top half of guidance .

Citations

Q2 2025 8‑K and press release/exhibit:
Q2 2025 earnings call transcript: –
Q1 2025 8‑K/press details and call: – –
Q4 2024 call (for trend context): –

*Values retrieved from S&P Global.

Sixth Street Specialty Lending, Inc. (TSLX)·Q2 2025 Earnings Summary