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Sixth Street Specialty Lending, Inc. (TSLX)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 adjusted net investment income (NII) was $0.53 per share (12.3% annualized ROE) and adjusted net income was $0.46 per share (10.8% ROE); reported NII and NI were $0.54 and $0.47, reflecting a $0.01 per-share non-cash incentive fee unwind .
  • Investment income was $109.4M; both adjusted EPS and revenue modestly beat Wall Street consensus (Primary EPS 0.5205*, Revenue $108.7MM*); prior quarter (Q2) also beat on both lines, continuing positive estimate dispersion (consensus*) (actuals ).
  • Base dividend of $0.46 per share for Q4 and a Q3 supplemental dividend of $0.03 were declared; adjusted NAV/share was $17.11 after the supplemental dividend .
  • Strategic themes: disciplined capital allocation amid spread compression; elevated repayments drove $0.14/share of gross activity-based fee income; thematic originations (Walgreens ABL, Velocity Clinical) and opportunistic $100M BB CLO liabilities at ~554 bps spreads supported earnings .
  • Leadership transition: Joshua Easterly to step down as CEO 12/31/25 (remains Chairman); Bo Stanley named Co-CEO and joins the Board—management emphasized continuity of underwriting, portfolio management, and capital priorities .

What Went Well and What Went Wrong

What Went Well

  • Over-earned the base dividend with 114% coverage; declared another supplemental dividend, underscoring payout durability .
  • Originated off-the-run thematic deals with attractive risk-adjusted returns: led $2.5B Walgreens U.S. retail term loan (largest non-bank ABL ever) and financed Velocity Clinical Research, leveraging deep sector expertise .
  • Opportunistic deployment into BB CLO liabilities at ~554 bps spread provided liquid relative-value carry without strategy shift; track record in CLOs: 27.1% IRR and 1.24x MOIC historically .
    Quote: “These investments…are not reflective of a change in the core investment approach or long-term strategy” .

What Went Wrong

  • Yields declined modestly (amortized cost yield 11.7% vs. 12.0% in Q2) due to lower base rates and payoffs of higher-yielding assets; total investment income fell to $109.4M vs. $115.0M in Q2 .
  • Sector-wide spread compression and refinancing at lower spreads (325–525 bps) increased repayment churn, challenging reinvestment spreads in regular-way sponsor loans .
  • Activity-based fee income was above average ($0.14/share) due to elevated payoffs; management cautioned sector dividend coverage risk broadly as NII declines with lower forward rates and spreads .

Financial Results

MetricQ3 2024 (oldest)Q2 2025Q3 2025 (latest)
Total Investment Income ($USD Millions)$119.2 $115.0 $109.4
Adjusted NII per Share ($)$0.57 $0.56 $0.53
Reported NII per Share ($)$0.59 $0.54 $0.54
Adjusted Net Income per Share ($)$0.41 $0.64 $0.46
Reported Net Income per Share ($)$0.44 $0.63 $0.47
Annualized ROE (Adj. NII)13.2% 13.1% 12.3%
Annualized ROE (Adj. NI)9.6% 15.1% 10.8%
Estimates vs ActualsQ3 2024Q2 2025Q3 2025
Primary EPS Consensus Mean ($)*0.5729*0.5277*0.5205*
Actual Adjusted NII per Share ($)0.57 0.56 0.53
Revenue Consensus Mean ($USD Millions)*119.161*110.420*108.672*
Actual Total Investment Income ($USD Millions)119.223 115.015 109.444

Values with asterisks were retrieved from S&P Global.

Segment/Portfolio Composition (Fair Value)

SegmentQ2 2025Q3 2025
First-lien Debt92.4% 89.2%
Second-lien Debt0.9% 0.9%
Mezzanine Debt1.6% 1.8%
Equity5.1% 5.2%
Structured Credit— 2.9%

Key KPIs

KPIQ3 2024Q2 2025Q3 2025
NAV per Share ($)17.12 17.17 17.14
Adjusted NAV per Share ($, post supplemental)17.07 17.12 17.11
Investments at Fair Value ($MM)3,441.1 3,294.9 3,376.3
Debt-to-Equity (Ending, x)—1.09x 1.15x
Liquidity (Undrawn Revolver, $MM)—~1,100 1,046.6
Available Unfunded Commitments ($MM)—159 174
Non-Accrual (% of FV)—0.6% 0.6%
Weighted Avg Yield at Amortized Cost (%)13.4% 12.0% 11.7%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted NII per ShareFY 2025$1.97–$2.14 Expect at top end; potential to exceed top end driven by activity-based fees Maintained, upward bias
Annualized ROE Target (Adj. NII)FY 202511.5%–12.5% At/near top end based on YTD performance Maintained
Base Dividend per ShareQ4 2025$0.46 (Q3 declared same) $0.46 declared for Q4 Maintained
Supplemental Dividend per ShareQ3 2025$0.05 (Q2) $0.03 (Q3) Lowered vs Q2

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2)Current Period (Q3)Trend
Direct lending spreads & competitionSupply of capital outpacing demand; tight spreads; discipline on Lane 2/3 thematic deals Spreads remain tight; refinancing into BSL; new floating-rate investments at ~700 bps spread vs peers’ ~549 bps in Q2 Persistent compression; TSLX outperforms peers on spreads
M&A environmentCautioned broad-based rebound is longer-term; duration management deals rising No near-term broad recovery; continued tight spreads; thematic origination fills pipeline Slowly improving activity in pockets; broad rebound still delayed
Repayments & fee incomeElevated churn, activity-based fees above average (Q1/Q2) Q3 repayments $303M; $0.14/share gross activity-based fees Elevated, normalizing toward historical averages ahead
CLO liabilities (liquid credit)Opportunistic structured credit activity (Q2) $100M BB CLOs at ~554 bps; accretive carry, liquid, relative value Tactical use amid tight DL spreads
Non-traded BDC flows & transparencyConcern about backward-looking ROE masking forward declines; call for transparency Expect dividend cuts sector-wide; investor selection critical; transparency in non-traded vehicles emphasized Heightened scrutiny, potential capital reallocation
AI/software exposureFocus on high switching costs/data moats; limited direct AI impact to date No portfolio impact seen; nuanced, likely net positive over time Monitoring; moat-focused underwriting intact
Macro/tariffs/regulationLimited direct tariff risk; services-heavy exposure No material impact from government shutdown; sector credit issues largely behind Macro manageable; idiosyncratic issues only

Management Commentary

  • “We continue to over-earn our base dividend with 114% coverage in Q3” .
  • “Weighted average spread on new floating-rate investments…700 basis points in Q3” .
  • “Undistributed income of approximately $1.30 per share at quarter end” .
  • “Two portfolio companies on non-accrual status representing 0.6% of the portfolio by fair value” .
  • “We view the September sell-off as a net positive for our industry…expect to see dividend cuts across the industry as NII falls below dividend levels” .
  • “Our CLO investments reflect a weighted average spread of 554 basis points…liquid nature allows us to rotate” .

Q&A Highlights

  • Leadership transition: Management emphasized day-to-day continuity; Easterly remains active in investment committees; Stanley to lead calls and maintain growth responsibilities .
  • CLO liabilities: $100M position is a small, liquid placeholder that was accretive by “probably a penny” this quarter; not expected to grow materially .
  • Credit quality: Team views sector credit issues as largely behind; private credit’s idiosyncratic underwriting and due diligence provide resilience vs BSL market headlines .
  • ABL collateral monitoring: Long-standing core competency (inventory counts/appraisals/GL reconciliation); 20%+ IRR track record in retail ABL .
  • Repayment trajectory: Elevated payoffs drove fee income; forward visibility suggests normalization toward historical levels, with interest income growth offsetting lower activity-based fees .

Estimates Context

  • Q3 2025: Adjusted NII/share $0.53 vs. EPS consensus 0.5205*—bold beat; Revenue $109.4M vs. $108.7M*—bold beat .
  • Q2 2025: Adjusted NII/share $0.56 vs. 0.5277*—beat; Revenue $115.0M vs. $110.4M*—beat .
  • Q3 2024: Adjusted NII/share $0.57 vs. 0.5729*—in-line to slight miss; Revenue $119.2M vs. $119.161M*—in-line .
    Values with asterisks were retrieved from S&P Global.

Implications: Given the continued over-earning of the base dividend, management’s “top-end” bias for FY adjusted NII guidance, and persistent spread discipline, Street models may need to reflect higher fee-driven contributions and slightly lower base-rate sensitive yields, preserving coverage even as sector peers face dividend pressure .

Key Takeaways for Investors

  • Earnings quality: Modest revenue and EPS beats plus consistent dividend coverage; adjusted ROE within guidance top end—supports near-term payout confidence .
  • Alpha from thematic origination: Walgreens ABL and Velocity Clinical showcase off-the-run sourcing and sector depth—differentiated spreads vs peers .
  • Tactical liquidity: BB CLO liabilities provide flexible carry in tight DL markets; expect opportunistic rotation as relative value shifts .
  • Reinvestment discipline: Elevated repayments (and fees) met with strict spread floors—only 12% of FV with spreads <550 bps vs sector count at 59% in Q2 .
  • Risk posture: Non-accruals remain low (0.6%); conservative attachment/detachment levels and improved interest coverage—stable credit backdrop .
  • FY setup: Management guiding to top end of adjusted NII range with potential upside from activity fees—supports constructive medium-term thesis .
  • Industry lens: Expect sector dividend normalization; TSLX’s investor-first capital allocation and transparency stance remain core differentiators .

The quarter’s narrative: disciplined origination and selective liquidity deployment amid tight spreads, with repayment-driven fee tailwinds and strong dividend coverage—while management transitions signal continuity of underwriting culture and capital priorities .