Sixth Street Specialty (NYSE:TSLX) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.

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Summary

Sixth Street Specialty reported a net investment income of $0.42 per share for Q1 2026, but a net loss per share of $0.27 due to unrealized losses from market volatility.

The company's net asset value per share decreased by 4.3%, largely due to the impact of wider market spreads and lower market valuations.

Announced a reduction in base dividend from $0.46 to $0.42 per share, aligning with current market conditions and forward earnings expectations.

Investment activity included $338 million in commitments and $135 million in fundings, with notable investments in two new portfolio companies and a joint venture.

Management expressed confidence in the company's strong balance sheet and positioning to capitalize on future investment opportunities amid market volatility.

Full Transcript

OPERATOR

Good morning and welcome to 6th Street Specialty Lending Inc. first quarter ended March 31, 2026 earnings conference. this time, all participants are in a listen only mode. As a reminder, this conference is being recorded on Wednesday, May 6, 2026. I will now turn over to Ms. Kami Senator, head of Investor Relations. Please go ahead.

Kami Senator (Head of Investor Relations)

Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward looking statements. Statements other than statements of historical facts made during this call may constitute forward looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward looking statements. As a result of a number of factors including those described from time to time in 6th Street Specialty Lending Inc. filings with the Securities and Exchange Commission, the Company assumes no obligation to update any such forward looking statements. Yesterday, after the market closed, we issued our earnings press release for the first quarter ended March 31, 2026 and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. the presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. 6th Street Specialty Lending Inc. S earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31, 2026. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Bo Stanley, chief executive officer of 6th Street Specialty Lending, Inc.

Bo Stanley (Chief Executive Officer)

Thank you, Kami. Good morning, everyone and thank you for joining us. With me today is our Head of Investment Strategy, Ross Bruck, and our CFO, Ian Simmons. Before I begin, I'm pleased to announce that effective May 21, Mike Fishman will become Chairman of our Board of Directors following our previous announcement regarding Josh Easterly's retirement from the role. Mike is a respected industry veteran with decades of experience in credit investing and asset management. As an early member of 6th Street Mike and a director of 6th Street Specialty Lending Inc. since 2011, including tenure as CEO, he has been instrumental in building our business. His combination of deep industry expertise and platform understand him make him uniquely qualified for this position and we look forward to his contributions as Chairman. For our call, I'll review our first quarter highlights and pass it to Ross to discuss investment activity and the portfolio. Ian will review our financial performance in detail and I will conclude with final remarks before opening the call to Q&A. Yesterday, we reported first quarter net investment income of $0.42 per share or an annualized return on equity of 9.9% inclusive of our movement in fair value of our investments, we reported a net loss per share of $0.27. Our net loss per share this quarter was largely driven by unrealized losses on our investments as we incorporated the impact of wider market spreads and lower market multiples in our fair value determinations. More on that in a moment. At quarter end our net asset value per share declined by approximately 4.3% from 1697, which includes the impact of the Q4 supplemental dividend and to 1624. Of this decline, $0.58 per share or nearly 80% was attributable to the movement in fair value from the market inputs which are unrealized. That included $0.40 per share from unrealized losses in our debt portfolio tied to credit spread widening seen in the broader market and $0.18 per share from lower market valuations. In our limited equity portfolio, $0.08 per share of the decline is related to portfolio company specific performance and the remainder from the payoffs and realized gains. Ian will walk through the NAV bridge in more detail. These results reflect a period of market driven volatility rather than a change in the underlying strength of our business. Our portfolio remains healthy, our balance sheet is strong and we are well positioned to capitalize on opportunities as the market continues to evolve. Volatility in Q1 was driven by several factors including market concerns around the impact of artificial intelligence on software investments, increased redemption requests from shareholders of non traded BDCs and heightened geopolitical uncertainty, the latter of which was not something we anticipated and at the time of our last earnings call. These dynamics contributed to spread credit spreads widened in a subdued transaction environment. LCD first lien spreads widened by 48 basis points and second lien spreads widened by 256 basis points during the quarter. I want to reiterate our approach to valuation which incorporates changes in market wide credit spreads when determining the fair value of our investments. Our process is designed to reflect the price in an orderly transaction at the measurement date. That's not just our perspective, it's the regulatory requirement designed to maintain the integrity of the balance sheet. For additional detail regarding our valuation framework, we encourage you to read our stakeholders letter on the topic from August 2022 available on our website. We have consistently applied this valuation framework since inception, including periods of volatility such as Q1 2020 related to Covid and Q2 2022 related to the interest rate hiking cycle. During those quarters, net asset value per share declined by approximately 7.4% and 3.6%, respectively, driven primarily by the impact of wider credit spreads. These unrealized losses reflected in earnings in NAV are noncash in nature and do not reflect our view of permanent credit losses. As such, we expect these unrealized losses related to credit spread movement to reverse over time as market conditions change and our investments approach realization or maturity. Our track record of long term value creation is demonstrated by the 4.7% cumulative growth in our net asset value per share since our 2014 IPO through March 31st. This compares to an average NAV decline of 7.3% for our public BDC peer group from our IPO through the end of 2025, representing significant outperformance irrespective of the volatility we experienced in any quarterly period. Market volatility also impacted net investment income through lower activity based fee income. In Q1, we earned 5 cents per share of activity based fees which is below our three year historical average of $0.09 per share. As we've discussed in prior periods, activity based fees, which are primarily driven by early repayments, are inherently episodic during periods of heightened market volatility. Our experience is that many borrowers and asset owners defer capital markets activity. As a result, both funding and repayment volumes typically contract and as valuation gaps widen and transaction activity slows. While we recognize that the current environment will take time to fully play out as the market undergoes a period of price discovery, our experience has consistently shown that these periods of volatility create some of the most attractive investment opportunities. We believe we are well positioned to capitalize on that opportunity set in our earnings release. Yesterday we announced a change in our base dividend level from $0.46 to $0.42 per share. This decision was informed by what we believe is a responsible and sustainable dividend policy. As we assess the current environment, we have always believed it is appropriate to align our base dividend with the forward earnings power of the business. That forward view reflects the level of uncertainty we see around near term activity, including the rate and spread backdrop and also the market volatility caused by geopolitical uncertainty that has occurred since our last call. Our perspective is also informed by historical periods of dislocation, which suggests that activity based fee income can take several quarters to normalize following a market dislocation. While this may differ, history reinforces our decision to take a measured and prudent approach. Today, the pre-2022 environment provides a baseline for where our dividend level stood before rates began to increase. We had a base dividend of $0.41 per share. Our earnings power increased with higher base rates and wider spreads. We raised the base dividend to $0.42 in Q3 2022, $0.45 in Q4 and $0.46 in Q1 2023, representing a total increase of 12.2%. While we see potential for an increase in transaction activities as the year progresses, the timing and magnitude of that pickup resulting impact on our activity based fee income remains difficult to forecast with conviction.. That said,, our view of base rates through the forward curve and new issue spreads is more visible. This adjustment establishes a distribution level that is sustainable across a range of potential activity outcomes. At quarter end, we had approximately $1.57 per share of potential activity based fee income embedded in the portfolio, including unamortized OID and call protection. If activity accelerates, that embedded income, provides meaningful upside. Our supplemental dividend framework captures and distributes that upside to shareholders. As it's realized, yesterday our board approved a base quarterly dividend of $0.42 per share to shareholders of record as of June 15, payable on June 30. This corresponds to an annualized dividend yield of 10.3% on our March 31 net asset value per share, which we believe is aligned with the core earnings power of the portfolio and with our target return on equity for the year. Ian will speak more on that in a moment. With that, I'll pass it to Ross to discuss this quarter's investment activity.

Ross Bruck (Head of Investment Strategy)

Thanks Beau. In Q1 we provided total commitments of $338 million and total fundings of 135 million across two new portfolio companies, upsizes to four existing investments and an initial investment in our previously announced joint venture, Structured Credit Partners or scp. A key advantage for SLX is our deep integration with the broader Six street platform which manages over 130 billion in assets. This connectivity allows us to leverage the collective expertise of hundreds of investment professionals to conduct the deep proprietary diligence required for today's complex investment landscape. By combining this expertise, the firm's platform wide sourcing engine and our disciplined underwriting, we remain well positioned to execute on investments that we believe create long term value for our shareholders. Our recent investment in Mindbody is a good example of how the platform comes together in practice. Given our history with the business dating back to 2021, we had a differentiated understanding of the company and were well positioned to lead the new financing. This was a cross platform and cross border effort with our direct lending teams working closely with our consumer team to deliver a bespoke solution. The business benefits from significant network effects with a scaled two sided ecosystem across consumers and wellness partners that we believe supports growth and strong underlying business quality, ultimately driving attractive risk adjusted returns for our shareholders. Our other new investment was Labrie, a leading North American manufacturer of premium refuse collection vehicles and related aftermarket parts. Labrie operates in a recession resistant market with predictable demand and structural tailwinds. The company's sticky dealer and customer base combined with a consistent high margin and capital light financial profile make this a compelling investment aligned with our approach of lending to businesses with attractive unit economics on repayments payoffs moderated versus levels seen throughout 2025 we experienced 113 million in repayments from four full and four partial investment realizations resulting in $22 million of net fundings for the quarter. Of the four full payoffs in Q1, two were refinancings and two were sales of liquid investments. Of the two refinancings, both were completed at lower spreads with one executed in the private credit market and the other in the broadly syndicated loan market. Our largest payoff was Galileo Parent, which refinanced its senior secured credit facility originally structured to support Advent's 2023 take private transaction. Sixth street served as agent on the original deal and the company refinanced with a broadly syndicated loan priced at SOFR +450 basis points compared with SOFR +575 basis points on the existing facility. SLX was repaid with call protection, generating AN asset level IRR and momentum of 15% and 1.4 times respectively. Our other refinancing was Madcap, a provider of authoring, publishing and content management solutions, which refinanced its existing credit facility in March. Sixth street originally provided capital in December 2023 to support an acquisition with an underwriting thesis centered on MadCap's robust product offering, granular blue chip customer base and strong unit economics. Having executed on its business plan, the company was able to transition to the bank market for a lower cost of capital. SLX was repaid in full, generating an asset level IRR and MOM of 16% and 1.3x respectively. During the quarter we had one addition and one removal from non accrual status resulting in no change to the total number of investments on Non accrual at three names representing approximately 1.4% of the portfolio at fair value and 1.9% at amortized cost. The addition was our investment in Bed, Bath and Beyond. While the path of this credit has not followed our original expectations we have driven recoveries through secondary sources of repayment and have received approximately 85% of our cost basis through March 31st. While we believe we are well positioned to realize meaningful additional recoveries over time, uncertainty around the timing and ultimate resolution of remaining claims led us to place the investment on non accrual, effective January 1st. The removal was our investment in Astra Acquisition Corp. Which was reorganized in Q1 following the company's Chapter 11 process. This had no impact on the quarter's nav, as the position was already fully marked down. Moving on to portfolio yields, our weighted average yield on debt and income producing securities at amortized cost decreased slightly quarter over quarter from 11.3% to 11.2%. The decline primarily reflects the decline of reference rates during the quarter across our core borrowers for whom these metrics are relevant. We continue to have conservative weighted average attachment and detachment leverage points of 0.4x and 5.2x, respectively, down from 5.3 times in the prior quarter with weighted average interest coverage of 2.3 times as of Q1. 26 the weighted average revenue and EBITDA of our core portfolio companies was $425 million and $127 million, respectively. Median revenue and EBITDA were $174 million and $54 million. Before turning the call over to Ian, I'd like to provide an update on our existing portfolio companies, highlighting key metrics. The performance rating of our portfolio continues to be strong with a weighted average rating of 1.19 on a scale of 1 to 5 with 1 being the strongest. We continue to see stable top line growth and earnings durability which signal a healthy demand environment across our end markets. Across our core portfolio companies, LTM revenue and ebitda growth were both 9%. The overall stability in these metrics continues to reflect proactive actions by management and sponsor teams. With that, I'd like to turn it over to IAN to cover our financial performance in more detail.

Ian Simmons (Chief Financial Officer)

Thank you Ross. For Q1 we generated net investment income per share of 42 cents and net loss per share of 27 cents. Our reported and adjusted metrics converged this quarter as there was no impact related to capital gains incentive fees. Total investments were $3.3 billion in line with prior quarter as a result of net funding activity offset by lower valuations. Total principal debt outstanding at quarter end was 1.8 billion and net assets were 1.5 billion or $16.24 per share. Our average debt to equity ratio decreased slightly quarter over quarter from 1.17 times to 1.14 times and our debt to equity ratio at March 31 was 1.18 times. The increase in this ratio was largely due to the impact of widening spreads on fair value versus net funding activity. We continue to have ample liquidity with $1.1 billion of unfunded revolver capacity at quarter end against $249 million of unfunded portfolio company commitments eligible to be drawn post quarter end. We further enhanced our debt maturity profile by closing an amendment to our revolving credit facility maintaining the pricing and key terms of the facility while extending the final maturity through May 2031.. All of the 19 banks in our syndicate were supported by and participated in the amendment, an extension that closed on May 1. Adjusted for the revolver extension, our weighted average remaining life of Debt funding is 3.9 years compared to a weighted average remaining life of investments funded by debt of only 2.5 years. At quarter end, our funding mix was represented by 68% unsecured debt. Moving on to upcoming maturities, as we mentioned on our last earnings call, we have reserved for the 300 million of 2026 notes due in August under our revolving credit facility. After adjusting our unfunded revolver capacity as of quarter end for the repayment of those notes and our Revolver amendment, we have liquidity of 649 million representing 2.6 times our unfunded commitments eligible to be drawn at quarter end. Our balance sheet remains well positioned allowing us to play offense in the current market environment. We believe the ability to invest capital opportunistically in what we're seeing as a wider spread environment today is a meaningful advantage for our shareholders. Pivoting to our presentation materials, Slide 8 contains this quarter's Nav Bridge. As Bo mentioned, the impact of credit spread widening and movement in market multiples on the valuation of our portfolio was by far the most significant driver of NAV movement this quarter, including $0.58 per share from fair value marks. Again, absent permanent credit losses, we would expect to see a reversal of these unrealized losses related to credit spreads over time as our investments approach their respective maturities. The estimated impact of broad market credit spread tightening since quarter end represents approximately $0.12 per share or 30% of the unwind of unrealized losses on our debt portfolio that we saw during Q1 walking through the other drivers of NAV movement this quarter we added $0.42 per share for net investment income against a base dividend of 46 cents per share. There was a 7 cent per share decline in NAV from the reversal of net unrealized gains from paydowns and sales. Other changes included $0.04 per share increase in NAV from net realized gains on investments and an 8 cent per share reduction to NAV, primarily from unrealized losses from portfolio company specific events. Moving on to our operating results Detailed on Slide 9, we generated $93.4 million of total investment income for the quarter compared to $108.2 million in the prior quarter. Interest and dividend income was $87.8 million down from prior quarter, primarily driven by the decline in interest rates. Other fees representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns were lower at $3.4 million compared to $10.9 million in Q4, driven by lower payoff activity in Q1 relative to the elevated level experienced in Q4. Other income was $2.2 million, up from $1.9 million in the prior quarter. Net expenses were $52.4 million, down from $56.4 million in the prior quarter, primarily driven by the decline in base rates. This contributed to our weighted average interest rate on average debt outstanding, decreasing approximately 50 basis points from 6% to 5.5%. Lastly, on undistributed income, we estimate that to be approximately $1.15 per share at the end of Q1. Turning to our outlook for the year, our original guidance was based on an assumption of 30% portfolio turnover in line with our long term historical average. Given the moderated pace of repayments in Q1, we anticipate an ROE of 10% to 10.5% if turnover remains below 20% for the full year and an ROE above 10.5% should we experience higher repayment activity. While we are taking a more measured view on forward portfolio activity, our fundamental return hurdle remains unchanged. We will continue to prioritize investing capital into opportunities that generate returns in excess of our cost of equity, maintaining the same discipline that has characterized our platform since inception. We may prove to be moving early on the base dividend adjustment, but our supplemental dividend framework provides the flexibility to capture upside should activity accelerate. With that, I'll turn it back to BO for concluding remarks.

Bo Stanley (Chief Executive Officer)

Thank you, Ian While the market environment remains dynamic, our conviction in the path forward is rooted in the platform we've built over the last 15 years. Our historical outperformance through varying market conditions is underpinned by the depth and continuity of our people from the team sourcing and underwriting the risk to the professionals managing the portfolio and working through complex situations this is a group with years of experience navigating every part of the credit cycle. We've been through these environments before and remain fully committed to the same disciplined approach that has guided the firm since day one. Looking ahead, we're excited about the investment opportunities set to come as the markets reset. Our thematic sourcing engine and the breadth of the 6th Street platform provide us with a significant advantage in identifying and executed on high quality transactions. We believe the actions we are taking today position 6th Street Specialty Lending Inc. to continue delivering strong risk adjusted returns for our shareholders over the long term and we are energized by the road ahead. In closing, I'd like to encourage our shareholders to participate and vote for our upcoming annual and special meeting on May 21. Consistent with previous years, we are seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 months. To be clear, to date we have never issued shares below net asset value under prior shareholder authorization granted to us by for each of the last nine years and we have no current plans to do so. We merely view this authorization as an important tool for value creation and financial flexibility in periods of market volatility as evidenced by the last 12 years since our initial public offering, our borrow for raising equity is high. We've only raised equity when trading above net asset value on a very disciplined basis. So we would only exercise this authorization to issue shares below net asset value if there was a sufficiently high risk adjusted return opportunities that would ultimately be accretive to our shareholders through over earning of our cost of capital and any associated dilution. If anyone has questions on the topic, please don't hesitate to reach out to us. We have also provided a presentation which walks through this analysis in the Investor Resources section of our website. We hope you find this supplemental information helpful as a way of providing a clear rationale for providing the company with access to this important tool. With that, thank you for your time today. Operator, Please open the line for questions.

OPERATOR

Thank you. At this time we will conduct the question and answer session. To ask a question, you will need to press Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q and A roster. Our first question comes from Finian o' Shea from Wells Fargo. Your line is now open.

Finian O'Shea

Hey everyone, Good morning and thanks. To start with the dividend, I want to ask about why it's framed on activity based fees where it feels like to us more good old-fashioned spread compression credit loss which happens you've kept a dividend for a very long time. But with that framing, is it a signal of some kind of shift in strategy, say more toward flow lending? That's where the market is. Or is it more transient because, say, your software book won't refi for a long time, but you'll still focus on the same style and eventually recover in the sort of fee income line.

Bo Stanley (Chief Executive Officer)

Hey Finn, thanks. It's Beau. Appreciate the question. There's a lot to unpack there. I'll attempt to get through it all. So, you know, first of all, you know, first principles for us is we want to set our dividend level at a, you know, sustainable and responsible level. I think that has been, you know, from day one. We've talked about that. We framed. I want to take a step back first of all, and talk about what we have signaled to the market both for this space and for 6th street over the past twelve months and even before that. But I think we wrote a letter in April of last year outlining what we believed were the path forward for ROEs in the sector, giving the interest rate curve and spread compression that we'd seen both in the Market street in SLX during that. In that letter we laid out what we believed was the path for ROEs for the sector and for in for 6th Street. I think we had the forward curve at that day. So twelve months forward, ROEs of 10.3% for 6th street in SLX, which is coincidentally where we've set the base dividend level on a yield basis today. So just starting there, the framing of activity based fees is exactly that. As we thought about forecasting ROEs last quarter, we forecasted normalized levels of activity based fees which have been generally around 8 to 9 cents per share since inception last year on an LTM basis that was closer to 12 cents per quarter. And you know, this quarter it was 4 cents because there was muted activity levels. This is very consistent with what we've seen in the past when spread levels increase. And when you think about it intuitively Fin as spreads increase, you're going to have less repayments because people are not going to reFinance you into higher yielding loans. So your activity based fees are really going to be focused on M and A activity which was also muted in the quarter. Here's the good news and what we feel good about is it's a better spread environment. We said last quarter that we believed ROEs for the sector were crossing and for 6th Street. We still believe that. We think it's a better spread environment. That's going to slowly work through the book. We also are ramping SCP which should continue to add support but that's going to take time as well and eventually we'll return to normalized activity based fee levels. Historically that has taken several quarters. Post rate hiking cycle it took six quarters to get back to normalized activity. I'm not sure it's going to take that long. We shall see. But just as we thought about setting a responsible dividend policy we took all of those factors into consideration also the great news is, and we commented this in the script, there continues to be high levels of activity base fees embedded in the portfolio should that activity return and we believe it will eventually. So hopefully that answered your question. It was a comprehensive answer.

Finian O'Shea

Yeah, no, definitely helpful. It'll be a bit of a drought, maybe sooner, maybe later. They hopefully come back I guess sort of in the meanwhile like that sort of call protection. Correct me if I'm wrong, that's been pretty instrumental to nav preservation, right? Like that's your sort of formula for gains which is obviously a very critical input over time. Do you have any like backup plan or approach to solve for that issue in the meanwhile or do you think it's also a nav headwind?

Bo Stanley (Chief Executive Officer)

Yeah Fin, the great news is I think our call protection as a percentage of book today is at 94. Is that right? 94.1. 94.1. That's versus a historical level of 94.7 since inception. So there continues to be a lot of embedded economics within the book. I would also note that and I think you've heard from others that we're seeing a better investing environment that includes higher spreads but also is better fees. We're seeing better both upfront fees and call protection and I think that makes us happy about investing in the future. And then lastly I would say we have seen a pickup of what I would call special situation type deals that have always been a hallmark of our platform and consistent historically probably of 30 to 35% of what we've done that had been muted activity. We're seeing a handful of opportunities in the current pipeline that excite me. All of that would support strong activity based fees in the future when they begin to turn again. The two biggest components that drive that are M and A activity which we are seeing early signs of stabilization there. I think geopolitical concerns will really be the determinant of that if that returns and then repayment activity which we do believe will be muted for some time because again it's a better spread environment and it's just natural if you're, if, you know, if new loans are getting created at better spreads than historic, you're not going to have a lot of payoff. Awesome. Great.

Finian O'Shea

Thank you everybody. Yeah, thanks Ben.

OPERATOR

Thank you. Our next question comes from Brian McKenna from Citizens. Please go ahead.

Brian McKenna (Equity Analyst)

Okay, great, thanks. So I'm curious, when did the board make the final decision on the dividend? Was it in and around the end of the first quarter? Because if it was, I'm curious, if the decision was made, you know, call it this week or today versus roughly a month ago, would that have changed the outcome on the dividend given the broad-based recovery in sentiment and risk assets over the past five weeks, Similar really to the sharp recovery we saw post Liberation Day last April?

Bo Stanley (Chief Executive Officer)

Well, the formal decision was made yesterday at the board meeting. We as a team have been working through this over the past month. Given that we saw the muted levels of activity based fees and have some forward visibility, albeit it's usually no more than four to five weeks on those activity based fees. So I would say the answer is we've been working on it for some time. Again, you know, we had talked about ROEs for the sector and for 6, 3 in a couple of letters both in April and November. So this is something we've been thinking about for some time but didn't come to a final conclusion until the final weeks. You're right. There has been a stabilization generally in the credit markets, but again, the spread environment is a more attractive environment and that is going to mute activity levels, at least from refinancings in the meantime. And what we did is really did a thorough analysis of the data. We always, when we have questions that are hard to answer, turn to the data and looked at periods of, you know, historical spread widening in the past. And it always has taken up, you know, several quarters to return to those activity based fee normalization levels.

Ian Simmons (Chief Financial Officer)

And maybe if I add to that, Brian, just to color up some of the data that Beau was referencing, that means that we went back and looked at every quarter back to 2014 to understand the characteristics of our earnings profile. What was generated from interest income and dividend income alone. What was generated from activity based fees. We looked at that on a quarterly basis, we looked at that on an annual basis. We overlaid periods of credit spread widening and or dislocation. So we looked at what was the behavior of our earnings profile during and post Covid. During and post the rate rise cycle in 22 and what are we seeing today? And all of those were Inputs into a determination about what is our level of conviction about the right level for our base dividend.

Brian McKenna (Equity Analyst)

And so as both said, it was data intensive as part of the framework for the discussion with the board. Okay, that's helpful. Thanks guys. And then just looking at spreads on new deals in the quarter, I think These totaled around 600 basis points versus the recent pace of around 700 basis points. So is the 600 plus basis points maybe the new run rate for spreads on new deals, was it just a one off quarter? I'm just trying to think through where things settle in on the spread front.

Bo Stanley (Chief Executive Officer)

It's a good question. It was very interesting. There are only really two new originations. Both of those were we had been working on pre the spread widening environment. Activity in general was muted. So we've had volatility from quarter to quarter given volumes come and go. By the way, Q1 is always a low volume quarter. What I would tell you is what we're seeing on the Ford is a much better investing environment. Wider spreads, more importantly, lower leverage, better documentation standards, better fees and call protection. So the whole package seems to be a better investing environment. I also mentioned within we're seeing more special situations than we had seen in the past. That's always been a driver of over earning relative to the space. So all of that would point to increasing spreads over time, which we're excited about.

Brian McKenna (Equity Analyst)

I'll leave it there. Thanks so much.

Robert Dodd (Equity Analyst)

Thank you. Our next question comes from Robert Dodd from Raymond James. Please go ahead. Hi guys. Thanks for the color on the court. Want to dig in like the buck 57 that you said was kind of embedded core protection in the portfolio right now? I mean, what's the half life on that? Obviously it ages out over time. I mean if we look at low levels of activity say for 12 months and I don't know, half of that buck 57 ages out over those 12 months, then even if activity rebounds a year from now, you still got structurally lower activity based fees for a period after that as well.

Bo Stanley (Chief Executive Officer)

So I mean the deals you're onboarding right now, are those sufficient to kind of maintain that total embedded core protection in the portfolio over kind of a prolonged period? Or is the aging phenomena kind of going to drag it out even further if you have a say 12 months? Maybe it's not 12 months, but 12 month period of low? I think that's a great question. Again, just turning that $1.57 into a metric that I think that we've talked about before just to contextualize as a percentage of fair value on the call price is 94 today. That's versus a historical means of 97. What we're seeing in new activity today will have better call protection than what we've seen in the last couple years. Especially as it relates to some of the special situation deals which generally have non call features. What I would tell you as far as half life, generally speaking, call protection is between two to three years. When you see a number like 94 which is above historical means, it means it's, you know, closer to the earlier vintages where we have that embedded. That makes sense given portfolio turnover has been elevated over the last couple of years. So there's a long Runway, you know, for that half life and you know, what we're replacing and what we're putting in as new deals will continue to actually add to that. When I actually don't have these in front of me, Kimmy. But when we returned after 2022 to the post, you know, kind of normalized fees, which took us six quarters about a year and a half, we started at a slightly less. If you look at three years, it was 94, five. And what were, you know what once we returned, I think those embedded, you know, those embedded numbers were, you know, well above historical means of $0.08 per share. We'll get you that data. So there is a shelf life kind of early into those vintages. What we're seeing from new deals is better call protection. I think all of that protects what we think should be normalized activity into the future.

Robert Dodd (Equity Analyst)

Got it, thank you. And a kind of tide follow up. I mean, obviously one of the issues here is spread widening. Maybe that slows down refinancing to the point who wants to refinance at a higher spread? Where spread widening has been greatest so far anecdotally at least is in the software segment, which is obviously your biggest single sector, so to speak. How much of this expectation of low activity is tied to software given that spreads have widened more in that sector than elsewhere in the market right now?

Bo Stanley (Chief Executive Officer)

It really didn't go into the calculation. We think there's actually for names that are not deeply AI impacted and that's a very small percentage of the portfolio. As we've said before and also in our letter about a month ago, there continues to be what we think is a refinancing market for software names, albeit at wider spreads. Again, just looking back at the data historically, whenever there's been spread widening, regardless if it was sector based, it's just you've had Muted levels of activity. And that's why we thought it was prudent to set the dividend level where it's at. I would also note that the portfolio continues to be very healthy. Earnings growth close to 10%. Software and technology names are in line with that. In fact, I think, you know, the earnings power of those businesses, you know, continues to increase as, you know, EBITDA margins are expanding as growth slows a bit. Those also would point to you to deleveraging over time and, you know, being able to refinance. We had, as we mentioned, Madcap was a software name that we had refinanced this quarter by a bank. It had executed well. It had delevered. You could argue whether it was going to be affected or not, but it was refinanced into much cheaper paper. So that did not go into our calculus.

OPERATOR

Got it. Thank you. Thank you. Our next question comes from Erin Saganovich from Truist Securities. Please go ahead.

Erin Saganovich (Equity Analyst)

Thanks. The amend and extend of the credit facility with no increase in pricing was a positive sign given what we'd seen in some press articles about banks looking to increase pricing on these types of. Or I guess more specifically it was bilateral facilities. But were there any pressure from the banks in terms of that process to raise the pricing? And maybe you just talk a little bit about that process and how the banks have been supportive.

Ian Simmons (Chief Financial Officer)

Yeah, I'll take that, Aaron. It's Ian. I would say there was no pressure, but that's really a factor of continued delivery on what we tell the banks that we're going to do. We view those banks as our capital partners, and so they're pretty in tune with our business. But I'd also point out that these syndicated BDC facilities are pretty well structured to protect the banks. The actual LTVs are very low. And given the development of the unsecured market as another form of financing, it's actually a very supportive way to build the capital structure. So I would characterize this as really just ordinary course discussions, collaborative in nature, and the outcome was the supportive renewal that we achieved.

Erin Saganovich (Equity Analyst)

That's good to hear. In terms of the investment activity slowing down, and I know that you don't have a crystal ball and you don't know when things might pick up, but in terms of whether or not it's discussions with sponsors or what have you, you know, are there any kind of green shoots of activity in areas other than software that are showing some signs that you might see some stronger deal activity maybe in the second half of the year?

Bo Stanley (Chief Executive Officer)

I'll Start and then pass it over to Ross. Look, I think the pipeline has rebounded and there's definitely some green shoots. I mentioned more special situations than we had seen in the past and that's across a lot of our core thematic areas, whether it's retail, abl, abl, energy, abl, some technology special situations. So that is encouraging. As we speak with sponsors, there seems to be a renewed focus on platform activity and finding new deals. I think a lot of that M and A activity is really going to. What's going to matter is the geopolitical concerns and where energy prices go over the next quarter. I think that's going to be the big determination. But the reality is, if you think about the robustness of our originations platform, especially the thematic platform across industries and specialties, I think that piece is really picking up here. From what we can see. Ross, you should edit any of that.

Ross Bruck (Head of Investment Strategy)

Yeah, I think in addition to either platform acquisitions or full platform refinancings, our portfolio continues to be active on the MA front. Our management teams and our sponsors are looking to continue to drive growth. And a large portion of our activity on the amendment side this quarter was to support that growth or support acquisitions, which creates options for us to reprice existing facilities, provide new capital into credits that we know well, or catalyze exits where the risk return doesn't make sense any longer at what's being offered. So there continues to be a fair amount of activity within the portfolio itself.

Erin Saganovich (Equity Analyst)

Very helpful, thanks. And just one quick one. The software exposure, I think last quarter you said was 40% in the portfolio, yet refi. What's the exposure as of 331?

Ross Bruck (Head of Investment Strategy)

Yeah, as you know, we don't think of software as an industry. We gave that number as a proxy to what we believe others in the space include in enterprise software that has not meaningfully changed. In fact, you know, we had one payoff, so if anything, it's down a bit, but it's not meaningfully changed quarter over quarter. Okay, thank you.

OPERATOR

Thank you. Our next question comes from rick Shane from JPMorgan. Please go ahead.

Rick Shane (Equity Analyst)

Hey guys, thanks for taking my questions. Look, and you talked about this a bit in your response to Finn's question, but you know, there's a lot of conversation about how terms and structures have changed since December. If you can help us understand sort of specifically what types of changes you're seeing not only in terms of spreads, but in terms of structure, in terms of covenants, that would be great. And more importantly, if you can put where we are today in the context of the historical continuum, because I don't think we're in sort of this dislocated market. I think we're probably more in the middle. But I'd like to understand how you guys see things and also valuations on the underlying equity positions.

Bo Stanley (Chief Executive Officer)

Yeah, I'll take a first swing at that and then pass it to Ross. So I think that's the right characterization, which is the pendulum is starting to swing back towards the middle from where it was to historic tights both in pricing, fees and structures. The encouraging thing is all of those are actually improving. We're seeing anywhere from 50 to 75 basis points of spread widening across all industries. I think more encouragingly for us, and one of the reasons that we were not participating in the market as robustly as others over the past two years is that underwriting standards are getting better. You're getting more access to management teams, you're getting better data. Your ability to underwrite and prove your core thesis is better. That is what was keeping us from being able as much as pricing, from being able to participate in the market. Those dynamics are better. I would say leverage on average is probably down a half turn to a turn in total from what we were seeing at the historic heights. Documentation standards are getting better. So all of those things are contributing to a much. A much better environment. But to your point, I think that pendulum is swinging more to the middle than what would be a deeply distressed environment where you've seen us grow by leaps and bounds in times of past. But that's how I. Characteristic Ross, do you have anything you'd add? I don't have a lot to add.

Ross Bruck (Head of Investment Strategy)

The other thing I'd say that we're seeing is better preservation of the headline economics. So things like carve outs to call protection, we're seeing pared back where step downs are set versus headline spread. Those are all things that have been important to us in that we've selectively decided not to participate in transactions, but we're not getting the terms to preserve the bargain for economics. And I think we're seeing it come back our way a bit.

Rick Shane (Equity Analyst)

Got it. Okay. That's. I mean, is it. Should we think of it that last year you would get sort of an RFP and the request would be, okay, here's the docs or here's the valuation pack and you have two weeks to respond and this is all the information you're going to get now, the due diligence time frames or extended to four weeks. I'd love to anecdotally Sort of think about how this has changed from your perspective.

Bo Stanley (Chief Executive Officer)

Yeah, I'll take that because I've been pretty vocal about this. And actually, you know, in my letter to the team starting the year, this is one of the headlines which is, you know, we will not be velvet roped in processes. If we're not getting access to management and the data to underwrite our credit thesis, we don't participate in those deals. It literally is almost verbatim what I said to the team. There was this velvet roping by issuers, both private equity and corporates because of the tight markets that at least in our view were contributing to looser underwriting standards and very, very intense timelines. Very little access to management, if at all. No real Q and A. And as a result, not only did we shrink the portfolio last year, but if you look at our originations that we did do, they were predominantly non sponsor away from kind of the traditional channels. We leaned very heavily on the thematic originations platform that we built for, you know, to be robust through all environments. What we're seeing so far and this could change is just better access all around, you know, access to management teams, actual management meetings. I actually think our team is, this is, you know, our team is at a management all day management meeting today on a special situation deal. That's an eight hour session. You know, those are the types of environments that contribute to the full understanding of the businesses. The ability to underwrite your credit thesis. And we do believe that is returning to the broader market in the credit environment as well.

Rick Shane (Equity Analyst)

Hopefully that's helpful. It's very helpful, I appreciate it and it will be interesting to see how things continue to evolve.

OPERATOR

Great, thank you. Our next question comes from Kenneth Lee from RBC Capital Markets. Please go ahead.

Kenneth Lee (Equity Analyst)

Hey, thanks for taking my question and good morning. One more on the ROE outlook there. Wondering whether you've been embedding any assumptions for benefit from potentially wider spreads on new investments or at least less spread compression for any kind of prepayments and refis. Just wondering whether there's any impact on the assumptions there. Thanks.

Bo Stanley (Chief Executive Officer)

Yeah, from where we set our base dividend it did not have an impact. But as we think about the future we do believe that's going to slowly roll through and spreads will increase over time. We do think we are nearing trough levels just based on what we're seeing in the pipeline and in the markets. In Ian, you're closer to kind of the projections. Anything to add to that?

Ian Simmons (Chief Financial Officer)

Yeah, we did not update our new issue spreads for the purposes of this exercise. I think if you think about the volume of new deals relative to the size of the portfolio, you need to have quite a significant amount of origination activity for that to move the needle. Our business from an ROE perspective in the near term is much more oriented towards repayment activity.

Bo Stanley (Chief Executive Officer)

Yeah, the one thing, because I think this is important as you think about the future, not only should you see spreads begin to increase over time through the book as you layer on new deals, there are opportunities obviously to with amendment fees, et cetera, as our portfolios come back to us as they're doing M and A et cetera, to slowly reprice the book as well. That did not go into our numbers in the near term, but that should show up after several quarters. So that's one of the things that leaves us pretty encouraged about the future earnings of the business.

Ross Bruck (Head of Investment Strategy)

Got you very helpful there. And it looks like you made some initial investments related to the scpjv. Just given the discussion around the geopolitical uncertainty and just the general backdrop there. What's the outlook in terms of how fast could you ramp up further in terms of that JV there? Thanks. Yeah, thanks for the question. This is ross. So in Q1, SLX invested $14.7 million into SEP so 0.4% of SLX investments at fair value. This was the first quarter of activity when we put the program in place. Our base case expectation was that it would take about two years to two and a half years to get to fully ramped. That continues to be our expectation. We've continued to invest into the program over the course of 2Q. So there were two CLOs that were priced before the end of Q1 that closed in 2Q and overall we are pleased with the results that we think we're achieving in the program. We were able to take advantage of some of the periods of dislocation in 1Q to build the portfolio at attractive prices. And despite the volatility, we were able to price the liability side of those two CLOs at levels that are consistent with the returns program. Returns target for the program. Gotcha.

Kenneth Lee (Equity Analyst)

Very helpful there. Thanks again.

Paul Johnson (Equity Analyst)

Thank you. Our next question comes from Paul Johnson from kbw. Please go ahead. Yeah, good morning. Thanks for taking my questions. I was wondering if you could provide just kind of a very general update in terms of roughly what percent of the portfolio was sort of originated pre2022. I think last quarter you said roughly about 20% of it was kind of pre2022 originated. I was curious if that's changed at all since last quarter?

Bo Stanley (Chief Executive Officer)

No, it's very similar percentages. It has not changed. So pre2022 is now 8% of the portfolio or no, I'm sorry, 18% of the portfolio. I was doing the. I missed the bar, but yeah, about 18% of the portfolio.

Paul Johnson (Equity Analyst)

Okay, thanks. And then I was just curious, you know, mindbody that refinanced during the quarter. So there's some evidence obviously that the market is still there in terms of software companies. But I'm curious, last quarter you also kind of talked about a little bit of slowing economics just within the software space in terms of the lending within that space. But I'm just curious, based on some of the recent transactions, you know, if there's anything that could be deduced from that in terms of what the common thread is of companies within the software space that are able to transact like that refinance loans in those that might have a much tougher time doing so.

Ross Bruck (Head of Investment Strategy)

Yeah, I think the trends that we're seeing within our software portfolio is consistent with the commentary that we gave in the prior quarter. So while Top Line continues to grow at a high single digit rate on a broad basis, there has been a bit of deceleration in that number. But our portfolio companies are expanding margins and improving leverage profiles which we think is ultimately supportive of refinancing activity. We talked about Madcap as an example of that. Transitioning from the private credit market into the bank market, given the deleveraging that the company had been able to achieve. And overall, you know, as we look at our portfolio, we view management teams and sponsors generally as being forward footed in finding ways to continue to drive organic growth as well as selective and organic opportunities in order to sustain the deleveraging that we see within our credit book. Yeah, and the only thing I would add to that because I think one of your questions was what we're seeing as far as spreads and leverage for new deals. There was muted activity of new deals in the technology space in general. There were a couple of proof points. There's one in particular that was a UK based software provider. That price may be 50bps wider than it would have been would have a year ago, but it's still a pretty robust package. I think it was seven and a half times leverage. So for five to 525 we did not participate in that. We were lower in leverage and wider on pricing. But there seems to still be a pretty robust market for anything other than what people perceive as having immediate AI disruptive risk. Got it, thanks.

Paul Johnson (Equity Analyst)

That's all for me taking my questions.

OPERATOR

Thank you. Our next question comes from Derek Hewitt from BofA Securities. Your line is open.

Derek Hewitt (Equity Analyst)

Good morning everyone. Since this is generally a better spread environment and really maybe even just more of a lender friendly environment, how should we think about capital issuance? Assuming the shares continue to trade above book, which could potentially help pare back a little bit of the software exposure. And then to the extent that capital issuance makes sense, would you be leaning more towards just ATM issuance at this point or would you be willing to do overnight transactions?

Ian Simmons (Chief Financial Officer)

Hey Derek, it's Ian. Thanks for the question. I think there's no change to the framework that we've talked about in the past about the conditions that we want to see or considering new issuance. And so we want to have high conviction about the pipeline. We want to have high conviction about the ability to drive earnings as a result of accessing growth capital. So that's a really important piece for us as to the tool we use. The way we communicated it 12 months ago when we put in place the ATM is, it's an efficient tool. So I think our mindset is always how can we be efficient with our shareholders capital and how can we generate the best outcome if there is an opportunity to raise capital? So without specifically answering which methodology, it's really going to come back to our view on the pipeline before we think about the tool that we apply.

Derek Hewitt (Equity Analyst)

Okay, thank you for that. And then maybe a quick follow up just in terms of circling back to the software portfolio. What is either the median or average EBITDA of the software portfolio or how would you characterize it relative to the overall weighted average ebitda?

Ross Bruck (Head of Investment Strategy)

You want to go Rafin? Sure. Overall we see margins in the software portfolio as broadly consistent with the overall portfolio, but also expanding at a quicker pace the overall portfolio. So hopefully that helps give a little bit of context. EBITDA margins are a bit higher and they're expanding I think quarter over quarter. They're up from 20 on average to 22% margins. That's been the historical trend. Right. You've seen businesses continue to have slowing growth, which was, you know, maybe two years ago in, you know, in the low to mid teens on an average basis to high single digit revenue growth, earnings growth, to trend above that as companies move more to profitability. That is, that has really been the trend post Covid when it was really a growth at all cost environment and when we believed both public and private markets were kind of, you know, misreading the signals from unit economics and that valuations were not in line with those declining unit economics. But it continues to be healthy, broadly in line on a growth basis, but probably more on the margin. Just more profitable businesses in general.

Derek Hewitt (Equity Analyst)

Thank you for that color. But what about on an absolute level?

Ross Bruck (Head of Investment Strategy)

Are the software companies, are they similar in terms of the top line with the overall portfolio in terms of ebitda? So the weighted average EBITDA for the overall portfolio was a little under $130 million or software. Yeah, I don't know that we have that number in front of us. I would guess they're, you know, they're broadly in line. But we'll have to get back to you.

Derek Hewitt (Equity Analyst)

Okay, thank you.

OPERATOR

Thank you. Our next question comes from Ethan K. From Lucid Capital Markets. Please go ahead.

Ethan K. (Equity Analyst)

Hey, guys, thanks for taking the question. Most of mine have been asked and answered, but maybe just a quick one. It looks like commitment activity was relatively kind of in line with historical average. Was really the funding activity that was maybe a bit lower. I'm curious whether perhaps that suggests maybe there are some deals, like towards the end of the quarter that were closed but not funded, or if you can just help us kind of reconcile that delta between the commitments and fundings for the quarter.

Ian Simmons (Chief Financial Officer)

Yeah, Ethan, it's Ian. That's a good observation. Just to be clear, that commitment figure includes the full commitment to the structured credit partners jv. So Ross made the comment earlier that we funded about over $14 million in the quarter, but the commitment was $200 million. That was previously disclosed. So that's in the commitment number.

Ethan K. (Equity Analyst)

Okay. The full SCP, 200 million. Okay. Yes. So my point is, don't read too much. The gap, it's sort of very specific

Ian Simmons (Chief Financial Officer)

given we commenced operations of the JV in this. In Q1.

Ethan K. (Equity Analyst)

Understood. Great. All right, thanks, guys.

OPERATOR

Thank you. I am showing no further questions at this time. I would now like to turn it back to Bo Stanley for closing remarks. Well, thank you everyone for the thoughtful questions. Thanks to the team for the preparation here, and just want to wish everybody happy Mother's Day weekend.

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