Sixth Street (TSLX) Q3 2026 Earnings Call Transcript

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DATE

Nov. 4, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Robert Stanley
• Head of Investment Strategy - Ross Brooks
• Chief Financial Officer - Ian Timothy Simmonds
• Head of Investor Relations - Cami Senatore

TAKEAWAYS

• Net Investment Income -- $0.44 per share, representing an annualized return on equity of 10.7%.
• Net Income -- $0.36 per share, reflecting an annualized return on equity of 8.9% based on regulatory filings.
• Net Asset Value -- $16.19 per share as of Sept. 30, 2026, compared to $16.24 as of June 30, 2026.
• Quarterly Base Dividend -- $0.42 per share, with an additional supplemental dividend of $0.01 per share declared based on third quarter earnings.
• Dividend Coverage -- 105%, reflecting net investment income exceeding the base dividend for the period.
• New Investment Fundings -- $247 million across four new portfolio companies and five upsizes, representing the highest funding activity level so far in 2026.
• Portfolio Repayments -- $160 million in the third quarter, down 17% from the previous quarter.
• Weighted Average Total Yield -- 11.4% on debt and income-producing securities at amortized cost, increasing from 11.2% as of June 30, 2026.
• Interest Coverage -- 2.3x for portfolio companies, which management stated provides a cushion to absorb higher interest rate expense.
• Debt to Equity Ratio -- 1.25x at quarter end, compared to 1.15x as of Sept. 30, 2025.
• Total Liquidity -- $812 million in unfunded revolver capacity, which is 3.7x the eligible unfunded portfolio company commitments.
• Nonaccrual Status -- Three portfolio companies representing 1.1% of the total portfolio at fair value, with no new companies added during the quarter.
• Portfolio Composition -- 86.9% first-lien debt investments at fair value, down from 88.3% as of June 30, 2026.
• Direct Lending Volume -- Declining 47% year over year for private equity backed borrowers in the third quarter according to market-wide data cited by management.
• Unsecured Debt Funding -- 64% of the funding mix as of Sept. 30, 2026.
• Undistributed Income -- Estimated at $1.08 per share at the end of the third quarter.
• Annualized Portfolio Turnover -- 19% for both the quarter and year to date.
• Weighted Average Attachment Leverage -- 0.4x for core borrowers as of the end of the third quarter.
• Weighted Average Detachment Leverage -- 5.2x for core borrowers as of the end of the third quarter.
• Average Investment Size -- $32.21 million based on fair value across 133 portfolio companies.
• New Investment Characteristics -- Weighted average borrower revenue of $662 million and median EBITDA of $98 million for the four new investments in the third quarter.
• LTM Revenue and EBITDA Growth -- Approximately 8% and 9%, respectively, for core portfolio companies.
• Call Protection Contribution -- $0.03 per share in activity-based fees from the Labrie payoff in July 2026.
• Floating Rate Exposure -- 97.6% of debt investments based on fair value, with 100% subject to reference rate floors.
• Realized Losses -- Net realized losses reduced net asset value by $0.10 per share, primarily reflecting the PriceSpider restructuring.

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RISKS

• Stanley stated, "Expect ongoing credit normalization to drive greater dispersion and performance, across both borrowers and managers," indicating potential variability in future portfolio stability.
• Brooks noted that "the persistence of macroeconomic volatility across interest rates, energy prices, and geopolitics, resulted in a more subdued pace of M&A activity we anticipated," which slowed deployment.
• Stanley noted that although technology portfolio performance remains stable, "you have to be, you know, incredibly nuanced" in underwriting as technological shifts redefine competitive dynamics.

SUMMARY

Sixth Street Specialty Lending, Inc. (NYSE:TSLX) reported sequential growth in net investment income driven by higher benchmark rates and activity-based fee income. Management noted that the portfolio is heavily weighted toward newer vintages, with more than 85% originated after the current rate hiking cycle began. The company focused on the upper middle market during the third quarter, where it identified opportunities with lower leverage and higher borrower revenue compared to its total portfolio average. Despite a moderation in broader M&A activity, the firm maintained dividend coverage of 105% and declared a supplemental dividend based on its over-earning framework.

• Management introduced an updated brand identity featuring a prism logo to represent evaluating investments from multiple dimensions and perspectives.
• CEO Stanley noted that the current rate environment is a net positive for the business, stating, "providing a tailwind to both earnings and dividend coverage."
• The company restructured NewIntel, also known as PriceSpider, following a strategic transaction that did not materialize as expected.
• The company aims to bring a differentiated perspective to where and how capital is invested rather than competing on standard industry terms.
• The company did not issue any shares through its at-the-market program during the third quarter, prioritizing return thresholds over growth.
• Management reported that no new portfolio companies were added to nonaccrual status, maintaining the rate at 1.1% of fair value.

INDUSTRY GLOSSARY

• Agentic Solutions: Software designed to act as an agent, often used in AI contexts to perform autonomous tasks.
• ATM Program: At-the-market program, a type of follow-on offering of stock into the secondary market.
• Attachment Leverage: The point in a company's capital structure where an investment begins to have a claim on assets.
• BDC: Business Development Company.
• Call Protection: Contractual provisions requiring a borrower to pay a fee if a loan is repaid before a specific date.
• Detachment Leverage: The point in a company's capital structure where an investment no longer has a claim on assets.
• EBITDA: Earnings before interest, taxes, depreciation, and amortization.
• First-lien Debt: Debt that has the first claim on a company's assets in the event of default.
• PIK Interest: Payment-in-kind interest that is added to the principal balance rather than paid in cash.
• SOFR: Secured Overnight Financing Rate, a benchmark interest rate.
• Unitranche: A hybrid loan structure that combines senior and subordinated debt into a single facility.

Full Conference Call Transcript

Operator: Good morning, and welcome to the Sixth Street Specialty Lending Inc. Third Quarter September 30, 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. To ask a question during the session, you will need to press star-11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your questions, please press star-11 again. As a reminder, this conference is being recorded on Wednesday, November 4, 2026. I will now turn the call over to Ms. Cami Senatore, head of investor relations.

Cami Senatore: 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 this call may constitute forward-looking statements and are not guarantees of future performance or results 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 Sixth 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 third quarter ended September 30, 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. Sixth Street Specialty Lending, Inc. 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 third quarter ended September 30, 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 Sixth Street Lending, Inc.

Robert Stanley: Thank you, Cami. Good morning, everyone, and thank you for joining us. With me today is our head of investment strategy, Ross Bruck, and our CFO, Ian Timothy Simmonds. For our call, I will review our third quarter highlights and pass it to Ross to discuss investment activity in the portfolio. Ian will cover our financial performance in more detail, I will conclude with final remarks before opening the call to Q&A. After the market closed yesterday, we reported third quarter net investment income of $0.44 per share or an annualized return on equity of 10.7%. And net income of $0.36 per share. Or an annualized return on equity of 82.9%.

Net asset value per share was $16.19 at quarter end, compared to 16.24 as of June 30. Our third quarter net investment income per share exceeded our base dividend representing dividend coverage of 105%. This over earning permitted the declaration of a supplemental dividend in accordance with our supplemental dividend framework. Net investment income has increased sequentially in each of the. each quarter of this year. Driven by the combination of higher base interest rates activity base fee income. Looking forward, we expect the earnings momentum to persist supported by the shape of the forward interest rate curve and by stable spreads and credit quality across the portfolio.

The current rate path is a is a net positive for our business. Providing a tailwind to both earnings and dividend coverage. We are also mindful of the impact on our borrowers, we are confident in their capacity to absorb higher rates for 2 reasons. First, our portfolio is weighted heavily towards newer vintages. As of September 30, more than 85% of our portfolio by fair value was originated after the rate hiking cycle began. These capital structures were underwritten with an intentional margin of safety designed to absorb higher base rates and borrowers entered into these credit facilities. With visibility into the prevailing rate environment. Subsequent growth in the underlying businesses has further supported the margin of safety.

Second, borrowers maintained strong interest coverage of 2.3x providing them with operating flexibility to continue executing on their business plans. This level of coverage provides a meaningful cushion to absorb higher interest rate expense. Our portfolio has also demonstrated resilience through a sustained period of elevated base rates. From July 2023 through September 2024 when the federal funds rates remain above 5%. Our portfolio companies maintain weighted average interest coverage of at least 2.0x. Turning back to our third quarter results.

The difference between net investment income and net income of $0.08 per share reflects both the impact of tightening credit spreads and a continued recovery in equity and multiples, and offsets to the reversal of unrealized gains related to paydowns most of which was recognized through net investment income, as well as credit related declines in a small number of our investments. Ian will walk through an average in more detail momentarily. Yesterday, our board approved a base quarterly dividend of $0.42 per share to shareholders of record as of December 15, payable on December 31.

In addition, our board declared a supplemental dividend of $0.01 per share related to our third quarter earnings to shareholders of record as of November 30. Payable on December 21, Net asset value per share adjusted for the impact of a supplemental dividend that was declared yesterday is $16.18. With that, I will now pass it over to Ross to discuss this quarter's investment activity.

Ross Brooks: Thanks, Bo. Beginning with the investment environment, the third quarter marked our highest level of funding activity, so far in 2026. We provided fundings of $247 million across 4 new investments 5 upsizes to existing portfolio companies, and capital called by our joint venture. As you may remember from our earnings call in August, were cautiously optimistic regarding conditions for a more robust M&A environment. In the second half of the year. In Q3, however, the persistence of macroeconomic volatility across interest rates, energy prices, and geopolitics, resulted in a more subdued pace of M&A activity we anticipated.

This moderation was evident market wide, with year over year direct lending volume to private equity backed borrowers declining 47% in the third quarter, and 32% on a year to date basis. We saw some processes stall as bidders and sellers reevaluated transacting, despite a record high 4.5-year average hold period across private equity portfolios, while other deals had timing shift into the fourth quarter, positioning us for a finish to the year. Positively, we continue to identify compelling specialty lending opportunities that are not dependent on M&A transaction volume. And are fielding demand from companies seeking to raise growth capital and to refinance their existing capital structures. Alongside other off the run transactions.

This was the setup for 2 of the 4 new investments we made in Q3. These situations often require tailored financing solutions, or 6th Street platform advantages set us apart. Our sector expertise and structuring flexibility position us well to address these needs, providing borrowers with certainty of execution while maintaining our focus on attractive risk-adjusted return, and robust downside protection. All 4 new investments in Q3 were cross platform transactions where 6th Street Scale allowed us to take leadership roles by committing in size. With competition remaining elevated for regular way sponsor given the limited supply dynamics previously mentioned, our ability to underwrite complexity and provide substantial capital commitments, across our platform continues to be an important differentiator.

Consistent with our comments on our prior earnings call, we have been seeing more attractive risk-return opportunities in the upper middle market across our 4 new investments in Q3. Weighted average borrower revenue was $662 million, approximately 40% above our total portfolio average of $479 Median borrower EBITDA was $98 million compared to $55 million across the portfolio. These investments also carry lower leverage, with weighted average net leverage of 4.6x compared to 5.2x across the portfolio. Rather than a shift in our investment approach, our activity in Q3 highlights the rotational playbook by which we migrate across borrower characteristics industry themes, and investment lanes. Execute on the most compelling risk-return opportunities.

Pivoting to payoffs, total repayments in the third quarter were $160 million, down 17% sequentially but in line with average quarterly repayments. During the first half of 2026 overall. We had 5 full payoffs along with the payoff of 3 structured credit investments. Annualized portfolio turnover was 19%, for both the quarter and year to date. Consistent with recent quarters, prepayment activity across our 4 debt investment payoffs were driven by strong borrower performance, these borrowers refinanced into lower cost debt facilities, and 1 payoff occurring in connection with an acquisition by a strategic.

We received call protection on 3 of the 4 debt investments repaid with a weighted average repayment price of 102.3% reinforcing the value of the contractual protections we embed in our documentation to enhance returns upon early exit. An example payoff from this quarter was our investment in Labrie, a North American manufacturer of refuse collection vehicles and aftermarket parts. In January, Sixth Street agented a senior secured facility to support a debt refinancing and shareholder dividend. In July, the facility was repaid in connection with the company's acquisition by EF Corporation. Our embedded call protection contributed $0.03 per share of activity based fees. And drove a 19% gross unlevered IRR for TSLX shareholders.

In Q3, we recapitalized NewIntel, also known as PriceSpider. A provider of retail analytics for consumer brands, an end market that has faced competitive headwinds. We are actively partnering with management to drive value creation initiatives, drawing on our previously successful playbooks and the deep operating capabilities of the broader Sixth Street platform. Moving on to portfolio metrics and yields. At September 30, the weighted average total yield on our debt and income-producing securities at amortized cost was 11.4%, up approximately 20 basis points compared to 11.2% as of June 30. The increase in portfolio yields primarily reflects higher benchmark rates.

Given the typical 1 quarter lag in borrower interest rate resets, we expect the positive asset sensitivity of our portfolio to support core earnings in the fourth quarter. Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attachment and detachment leverage points of 0.4 times and 5.2x, respectively, with weighted average interest coverage of 2.3x. As of Q3 2026, weighted average revenue and EBITDA of our core portfolio companies was $479 million and $136 million respectively.

Median revenue and EBITDA were $181 million and $55 million Finally, overall portfolio performance remained healthy, as evidenced by a weighted average internal investment rating of 1.25 on a scale of 1 to 5, with 1 being the strongest. Credit quality continues to be stable, and no new portfolio companies were added to nonaccrual status during the quarter. As of September 30, we had 3 portfolio companies on nonaccrual status representing 1.1% of the total portfolio at fair value. Top line growth has remained stable, while earnings growth has moderated slightly. Still signaling a resilient demand environment and healthy operational scale across our end markets.

For our core portfolio companies, LTM revenue and EBITDA growth were approximately 8% and 9%, respectively. With that, I would like to turn it over to Ian to cover our financial performance in more detail.

Ian Timothy Simmonds: Thank you, Ross. For Q3, we generated net investment income per share of $0.44 and net income per share of $0.36. Total investments were $3.4 billion up from $3.3 billion in the prior quarter as a result of net funding activity. Total principal debt outstanding at quarter end was $1.9 billion and net assets were $1.5 billion or $16.19 per share. Prior to the impact of the supplemental dividend that was declared yesterday. Our average debt to equity ratio was 1.24x, reflecting no change from the prior quarter. Our ending debt to equity ratio decreased from 1.27x to 1.25x quarter over quarter. We continue to have significant liquidity for the size of our balance sheet.

With nearly $812 million of unfunded revolver capacity at quarter end. Representing more than 3.7x our eligible unfunded portfolio company commitments. As of September 30, our funding mix was represented by 64% unsecured debt. Following the repayment of our 2020 unsecured notes that matured in August, We have no near term maturities. With our nearest obligation being $300 million of unsecured notes in August 2028. Our liquidity position is further supported by the permanent nature of our equity capital. This allows us to manage our balance sheet with a long term investment horizon. Additionally, we maintain a portfolio of liquid structured credit investments with a fair value of $82 million as of September 30.

Which serves as an incremental source of liquidity we can opportunistically Rotate out of to fund new investments and as a tool to lower leverage. We view our available liquidity as a strategic tool to capitalize on attractive investment opportunities. Particularly when market conditions constrain other sources of capital. That flexibility allows us to remain patient and disciplined while preserving the capacity to play offense when we see compelling risk adjusted returns. That same discipline extends to raising new equity capital, Consistent with previous quarters, we did not issue any shares through our ATM program during Q3. Pivoting to our presentation materials, Slide 8 contains this quarter's NAV bridge.

Walking through the main drivers of NAV movement, we added $0.44 per share from net investment income against our base dividend of $0.42 per share. The slight impact of tightening credit spreads on the valuation of our portfolio increased net asset value by $0.07 per share. Net realized losses on investments reduced NAV by $0.10 per share primarily reflecting the realized loss on the price spider restructuring partially offset by realized gains on our equity investment in Caris Life Sciences. Other changes resulted in a $0.02 per share decline in NAV, primarily from net unrealized losses on investments. Moving on to our operating results detail on Slide 9.

We generated $99 million of total investment income for the quarter up from $97.8 million in the prior quarter. Interest and dividend income was $89.7 million up from $88.5 million in the prior quarter. Other fees representing prepayment fees, and accelerated amortization of upfront fees from unscheduled paydowns, were also higher at $6.7 million. Compared to $5.4 million in Q2 driven by the increase in prepayment fees earned during Q3. Other income was $2.6 million compared to $4 million in the prior quarter. Net expenses were $56.2 million up modestly from $55.7 million in the prior quarter.

Our weighted average interest rate on average debt outstanding increased slightly from 5.6% to 5.7%, This was primarily the result of a shift in our funding mix and a marginal increase in daily average reference rates. Lastly, on undistributed income, we estimate that to be approximately $1.08 per share. As of the end of Q3. Before handing it back to Bo, I wanted to provide an update on our ROE metrics. Through the first 9 months of the year, we have generated annualized ROE based on net investment income of 10.1%. Annualized portfolio turnover of 19%.

With 3 quarters of the year complete, our results remain consistent with our previously communicated full year ROE range of 10% to 10.5% assuming portfolio turnover remains below 20%. The pace of repayments and associated activity based fee income in the fourth quarter will be the primary drivers of our full year performance relative to that range. With that, I will turn it back to Bo for concluding remarks.

Robert Stanley: Before turning the call over to your questions, I would like to briefly highlight an important evolution our brand identity. You may have noticed an updated logo and website across SLX, and 6th Street more broadly. We introduced the updated brand identity at Sixth Street's annual LP conference 2 weeks ago. The 6 in the logo is--is rendered on a prism. Reflecting multiple dimensions and perspectives. That design is deliberate. We believe evaluating an investment from multiple angles, bringing together different sector insights, experiences, and perspectives, allow us to see risk and opportunities that may be less apparent through a single lens.

Challenging conventional thinking and our assumptions helps us develop a more complete understanding of a business, its capital needs, and the range of potential outcomes. This ability is particularly important in today's complex and competitive investing environment. Expect ongoing credit normalization to drive greater dispersion and performance, across both borrowers and managers, a trend increasingly accelerated by technological shifts, that are redefining competitive dynamics across industries. Being on the right side of that dispersion requires a deeply nuanced understanding of underlying business models and a willingness to continue to challenge our own conclusions.

Bringing multiple perspective to our investment process also allows us to look beyond standard financing solutions and identify opportunities our insight and flexibility can make a meaningful difference. Our objective is not to compete for the same investments on the same terms, but to bring a differentiated perspective to where and how our capital is invested. We believe these capabilities position us well to navigate an increasingly bifurcated market and compound long term value for our shareholders. While our outlook has evolved, our strategy, values, culture, investment approach, and commitment to our shareholders remain unchanged. With that, thank you for your time today. Operator, please open the line for questions.

Operator: Thank you. At this time, we will conduct a question and answer session. As a reminder, 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&A roster. Our first call comes from the line of Rick Shane of JPMorgan. Rick, your line is open.

Rick Shane: Thanks for taking my questions this morning, everybody. Look, it is a really interesting time in the space. You guys are trading. Or not trading. You guys are near the top of your leverage range. You are trading at a premium to NAV. I am curious, last quarter, you did not issue anything off the ATM. And I know that you are very, very disciplined about the return thresholds associated with that. The question I have is the following. Ordinarily, it is sort of an internal analysis but given how dislocated the sector is, And, effectively, the market is giving you a cost of funds or a lower hurdle rate advantage.

Does it make sense this point to either extend leverage limits a little bit or take advantage of your multiple in the, equity marketplace?

Ian Timothy Simmonds: Hey, Rick. it is Ian. I will take this 1. I understand your point. I think we got a similar question last quarter from this group. I think our job is to always look for opportunities to create shareholder value. And if that means utilizing the way our stock trades relative to the sector which obviously gives us an advantage then that is something that we take into account. Execution risk is always very much front of mind. So that plays into our considerations.

But when it when it comes to leverage, the comment that we made for the last 7, 8 years is that we are really committed to our investment grade rating We are very committed to that segment of having fund our balance sheet. It would have to be a really strong opportunity for us to want to go outside the parameters that we have previously communicated. So our leverage range is at the top of the range, but it is not outside the range. But it would have to be a really compelling opportunity for us to see a reason to go outside of that. Does that help you, Rick?

Rick Shane: It does. And, look, in some ways, sit here and say, well, okay. The market's giving me this unique opportunity. Why not advantage of it? But on the other hand, I am sitting here saying, okay. You guys have a really, really good track record, and who knew. Knows which piece you take out of the puzzle. Before it falls. So I appreciate the and the commitment to the strategy as well. It makes it a lot easier, frankly, as investors to understand what is going on.

Ian Timothy Simmonds: I think, Rick, the other element to that is that there is an embedded assumption that growth is good and all growth is good. And I think we take a slightly different perspective, which is let's focus on returns. And if the returns are generated, then the opportunity to grow will be there. But growth is not the initial objective.

Rick Shane: Well, Ian, as you know, I have known you guys a really long time, and that has absolutely been the hallmark of what you guys. Your approach. So I appreciate no change there.

Ian Timothy Simmonds: Thank you. Thanks, Rick.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Finian O'Shea of WFS. Finian, your line is open.

Finian O'Shea: Hey, everyone. Good morning. I guess I will sort of stick to that topic. How much does the ramp of SSLP sort of get in the way of a TSLX equity offering And then as an extension, this is something we have talked about a bit over the years, but 've seen sort of more language fallout this year around the co investment order that protects deal flow for the BDCs. Are there more funds sort of participating and is all that sort of contributing to a slower growth opportunity for TSLX?

Robert Stanley: Hey, Finian. This is Bo. Thanks for the question. So the ramping of SSLP does not have any bearing. On equity issuances, SLX. As you know, there is a focus on SSLP in the upper-middle market; it is a different strategy than the pure middle market focus that has generally been the TSLX Opportunity set. As we have said in our script and Ross touched on, we are seeing. We are continuing to see better risk adjusted returns in the upper middle market. Than we have seen you know, traditionally in the lower middle market. We think there may be some catalysts for that to change over the coming quarters and a idiosyncratic originations that we have had.

You know, traditionally. As it relates to the exemptive relief and other funds, we have always used the platform as the ability to size up and do larger, more complex transactions across the platform, which has been a net beneficiary to SLX and will continue to be a net beneficiary to SLX in the future. So these are that has always been accretive and will continue. Hopefully, that answers your question.

Finian O'Shea: Yeah. it is helpful. Thank you. Just a small I guess, sort of housekeeping item. The new Intel Reorg was that a sort. Like, an intra quarter nonaccrual or what was the sort of interest rate? What would--. Can you kind of, like, walk us through the investment income versus prior and post reorg capital stack if you follow?

Ian Timothy Simmonds: I might jump in on this 1 and see if it helps. On NewIntel,, that was a business that was actually going through a strategic transaction. During the quarter. The fair value mark at the end of June was 90 and a quarter. That strategic transaction did not play out as expected. And as a result, we pivoted, but it was not a discussion about non accrual. It was always paying interest throughout that time period.

Robert Stanley: it is actually. Last dollar is less than 6 times. We had very tight covenants on this deal that allowed us to get to the table and force a sale process. There were some negative developments during the quarter that interrupted that sale process, and we pivoted to a full restructuring, which is what you see here post quarter.

Finian O'Shea: Great. Thank you.

Operator: Thank you. 1 moment for our next question. Our next question comes from the line of Mickey Schleien of Clear Street. Mickey, your line is open.

Mickey Schleien: Yes. Good morning, everyone. Last quarter, you indicated that your technology portfolio continued to perform well. And I think you mentioned earnings growth of about 11% Has that performance continued in the third quarter? And have you seen any changes in you know, metrics like customer retention, bookings, or you know, general competitive pressure attributed to AI And can you update us at least at a high level of a percentage of the portfolio in enterprise software companies?

Robert Stanley: Sure. I will take that. Thanks for the questions. So there is been no change in the technology and software portfolio since last quarter or candidly, during the year. it is in line with the rest of the portfolio. The rest of the portfolio grew revenue by about 8% this quarter. Pretty consistent with last quarter. Earnings growth was 9%. Which is slightly down there is probably more reinvestment in a lot of businesses they continue to invest in agentic solutions, etcetera. But what we are seeing across renewal rates, unit economics, and other key KPIs are stability and actually some slight improvement as those key.

You know, core KPIs, you know, bookings momentum across the portfolio and Sixth Street's technology portfolio. In general seems to actually be quite good over the last couple quarters. We will see what happens. You know, over the next quarter or 2. But, there is really been no change. I think the tails are still the tails. there is been real. Really no changes to any of the tails or the underperforming end markets within technology and software over the past 2 years, which I think is positive. From an AI--I-- The last thing I would mention is although there has not been a broad opportunity set to invest in new activity in the sector.

The emerging new opportunities you are seeing, if you have the platform to underwrite the nuances in today's environment is a much more attractive environment. We will continue to be selective there. We do think. You know, we know, you have to be, you know, incredibly nuanced. And thinking about the transition of technology, not just to technology and software, but how AI is going to affect every end market. And every industry. But we do think that it is a, you know, generally a better underwriting environment than it has been historically.

Mickey Schleien: And in terms of being selective, can you update us on the percentage of the portfolio in software generally? And are you know, actively allowing that to run off, or do you intend to I think you previously mentioned it was around 40%. Do you intend to keep it at that level?

Robert Stanley: There has been no change. In fact, the probably slightly down only because the opportunity set of new deals has been has been, you know, skewed slightly to nontechnology. As I said 3, 4 quarters ago, we you know, we look at the end market and think of software technology as a as a product, not a sector. So we do not have hard limits on where we are going to run the portfolio. We think more holistically, about risk management and tail management you know, across end markets and you know, that entails deeply, deeply nuanced underwriting and understanding of each ecosystem that these tools are serving. So we do not put a hard limit on it.

But I would say, you know, it is it is largely in line where it was the beginning of the year, maybe slightly down to the opportunity set. Has skewed a little bit more heavily to nontechnology.

Mickey Schleien: I appreciate that. And if I could follow-up with 1 more question. Spreads on your new investments declined 90 basis points quarter to quarter to a still very nice 600 basis points. I think you have you have you have mentioned being very selective and nuanced several times. So how much of that decline reflects your investment mix? Versus competitive pressure in the in the sector generally.

Ross Brooks: This is Ross. I will jump in to answer this question. So I would say the quarter origination if you look at it historically, were within the bounds. Of where we have originated This number will inherently change quarter to quarter based on the opportunity set where we see risk return being stronger or less compelling and also just the timing of deals closing in 1 quarter versus a different 1. And as we talked about in the prepared remarks, for this quarter, we generally saw opportunities at the upper end of the middle market and at lower leverage. Profiles you know, which led to the weighted average spread on originations in the quarter.

I would say the figure that we report just covers our floating rate investment, so it excludes income producing investments that are not floating rate. If you include all of our income producing investments, originated in Q3, there is about a 100-basis-point uplift which is reflected in looking at our total yield metrics, which besides benefiting from base rates, also benefited from a stable effective yield in Q3 versus prior quarters.

Mickey Schleien: Yeah. Thank you for that. that is really helpful. I appreciate taking my questions.

Operator: Thank you. Thank you. Our next call comes from the line of Arren Cyganovich of Truist Securities. Arren? Your line is open.

Arren Cyganovich: Thanks. I just was hoping you could talk a little bit more about the investing environment in you know, what are some of the aspects that you are seeing that makes upper middle market more attractive? Is it underwriting? Is it spread? Is it you know, just maybe some of those aspects? And what is your investment pipeline looking like now for the platform, maybe not so much for the BDC since we are kind of already at a relatively high leverage level.

Robert Stanley: Yes. Thanks. I will answer that. So generally, we have been more constructive on the investment environment in 2026 than we were in 2024 and 2025 as we have stated on, you know, previous calls. I think what we are seeing is better access to management teams, better processes where you can get. Do the deep level of due diligence that our platform requires to make investments. You were not seeing that. As much in 2024 and 2025. there is this peloton-ing processes that, made it very difficult for us to you know, play in a lot of, you know, in particularly some of the processes, but it was for all issuers.

So we are generally seeing better access to data and to management to, you know, to actually prove out a credit thesis. Which I think is very helpful Underwriting documentation standards, though not perfect, have gotten better. Gradually over the year, and we are seeing better We still see some areas of improvement there, particularly around the definition of EBITDA, but things that, you know, we are we are we are able to invest in things that have documents that we believe protect our borrowers And, you know, that is been a continued trend line. Leverage levels are down generally. I would say a half turn and sometimes almost a full turn from where they were in previous years.

Which is which is helpful. And on the margin, spreads have been up, you know, probably 50 basis points, and fees have been up slightly as well. There may be some of that being given back with risk free rates going up and you know, people trading at least for the best names, some spread for better, you know, better documents, better pricing. And lower leverage, I think that is a reasonable trade off. But you know, that is that is not been full fledged, so I still think it is it is a. You know, better pricing, better structure, better access.

Last thing that I will I will say is, like, this migration that we talked about, you know, better in the upper middle market. I think that is a, you know, direct consequence of capital you know, coming out of the sector and, you know, there being less pressure you know, of new money that is, you know, that is coming in. The middle market has been more insulated from that. I think, and has made that a bit more competitive. But we are seeing early signs of that stabilizing. As we look forward to the pipeline, the pipeline feels good.

You know, you know, coming into Q4, and I would expect a decent, you know, mix of both middle market and upper middle market. You know? And we are also seeing some, you know, activity payoffs within the portfolio that kind of were happen in Q3 that are happening in Q4 that gives us some capacity. You know, even without an raise to go out and take advantage of those opportunities.

Arren Cyganovich: Thank you.

Operator: Thank you very much. Our next question comes from the line of Kenneth Lee of RBC Capital Markets. Kenneth, your line is open.

Kenneth Lee: Hey, good morning, and thanks line Just 1 on the more specialized opportunities you mentioned for the new investments in the quarter there. Wondering at a higher level, how would you characterize sort of opportunities you are seeing? Is it picking up a little bit versus last few quarters? And are there any particular areas of opportunity that are emerging there? Thanks.

Ross Brooks: Hey, Kenneth. it is Ross. I am happy to start here. Look. I think there is a couple different dynamics at play. As we talked about the M&A environment. Has been volatile, but generally, resulting in lower transaction volumes this year, hold periods for sponsors, are getting long. And so 1 general theme that we are seeing is just need to refinance as capital structures put in place closer to the COVID time frame need to be refinanced. So that is 1 theme. A second theme is the need for growth capital. Many businesses are acquisitive.

Looking to invest in organic growth opportunities to continue value creation for equity holders In some of those cases, incumbent lenders could be stretched or unwilling to extend terms. And so that is the second catalyst.

And we are seeing this really across cash flow opportunities, as well as asset based opportunities and you know, the areas where we are better positioned to play are those that line up with our investment themes where we have strong domain expertise across the 6th Street platform but it is really broad based across those few things, which is need to refinance, need to continue investing, longer hold periods, and willingness of equity holders to consider different forms of financing whether asset based, or similar.

Kenneth Lee: Great. Very helpful there. that is all I had. Thanks.

Operator: Thank you. Our next question comes from the line of Christopher Muller of Citizens. Christopher, your line is open.

Christopher Muller: Hey, guys. Thanks for taking the question. I guess following up on a prior question, spreads are trending lower, which you guys talked about, but yields have started inflecting higher. And given the September rate hike, is not reflected in third quarter results, are you guys starting to see spreads widen out so you could start to see a double benefit from both higher base rates and wider spreads going forward?

Robert Stanley: I will take that, Christopher. Look. I think spreads have been largely stable throughout the year. As I mentioned, you saw a comp of kind of 50 to 75 basis points in all in yield early in the year. that is for the most part, withstood, I think, the best credits, there may be a bit of pressure on that, you know, on the edges, like 25 basis points. But we have not, as of yet, seen spread widening. Except for maybe in some of the specialty you know, finance things that we do, restructurings.

I think for largely in 2024 and 2025, there was not a lot of good company, bad balance sheet, bad capital structure. transactions that we have traditionally done. And the ones that were. You were not getting paid for the complexity, I think we are starting to see early signs and green shoots of giving better pricing on those more complex transactions, which should be a net benefit to the platform. They are also getting better duration, which is important as an investor in those as well.

But for the most part, spreads are stable, but with the uplift in, you know, base rates, we are, you know, we are quite positive on the forward earnings outlook that should be supportive particularly with the new dividend policy at the beginning of the year.

Christopher Muller: Got it. And then maybe just generally high level, what do you guys expect spreads to do in a rising rate environment? Should we expect things to tighten up? And is there any lag effect with that, that you guys have seen historically?

Robert Stanley: Well, historically, you do see slight tightening when rates went up in spreads, you certainly saw that in 2023 and 2024. I think it is I think there is more discipline today in the market. And, you know, so, you know, I think that would if any mute. There would be a muted effect of any tightening. Something that we will watch. But, you know, certainly no signs of that today. Anything you know, on your side?

Ian Timothy Simmonds: I would just add, Christopher, that the observation from the last rate cycle is that it catalyzed pretty significant rise in capital that flowed to the space. And so you saw a little bit of an offset with tightening spreads even though rates were higher. Because there was just so much capital that was raised to capture that higher overall yield environment. You are seeing the opposite today. With that. So I think that, you know, that gives us that gives a positive sign of what should be a stable spread environment. At a minimum.

Christopher Muller: Got it. it is very helpful. Appreciate you guys taking the questions today.

Operator: Thank you. You. Our next call comes from the line of Robert Dodd of Raymond James. Robert, your line is open.

Robert Dodd: Hi, everyone. Thanks for taking the question. On mean, it is been touched on a couple of times here. The M&A environment's been volatile. Sponsors have been taking up longer hold positions. I mean, how much of that would you attribute to obviously, you know, arguably overpaying in 2021 versus the level of uncertainties. Right? there is macro as you as you. I think Robert said in prepared remarks, I mean, it is macro, there is geopolitical, etcetera. All those kind of levels of uncertainties, including rates. 1 of them has gone away at least. Right? We now know essentially, the election results because it is all of those uncertainties accompanied by an election year too.

Do you think the certainty on the results do you think that is gonna unlock any kind of appetite or rush towards year end to get deals done. It certainly. It kinda does not feel like it, but I just want your impression on that 1 of the kind of pronounced uncertainties seems to be off the table now. What. Whatever you think of the results.

Robert Stanley: First of all, thanks for the question. I think it always helps when political uncertainty is over. So you always see a pause in activity. During election cycles and that is no different coming into this year. I do think the economic uncertainty probably weighted on the transactions more than the election cycle. that is just my own gut feeling in talking and speaking with folks. I think there is a lot going on with interest rates and energy prices and the general, like, fragility feel to what is an otherwise strong economic environment.

I, you know, I it is gonna be positive to have the election results behind us to transactions, so I am bullish on activity I am not bullish that happens by the end of the year. These, you know, transactions take time. Gestation periods can be very quick, but, you know, generally speaking, I would think it would it would bode well for Q1 and Q2 of next year than it is for the remainder of this quarter.

Ross Brooks: I think a lot of the transaction activity that is gonna happen this quarter is already in the works. It may it may result in stronger bids for you know, for deals that are in the market today. You know, more certainty around transactions. So on the margin, it could help, but I think it would be more of a tailwind for Q1 and Q2 if that materializes. Yeah. I would just add that, you know, look. Ultimately, you need the bid side and the offer side to match to get a transaction done. And so know, it is a little less relevant as to which side is catalyzing deals not happening.

But when you look at the processes that we ran hard at in Q3, there were M&A driven and that did not wind up closing. You know, we saw deals fall away for really both sides of that. So we saw bidders you know, move value over the course of the process. Some of that was idiosyncratic. Some of that is more macroeconomic driven. Yeah. But we also saw sellers who had actionable bids choose not to transact. And so, ultimately, you need you need both sides. And, you know, we just saw a number of opportunities in Q3 where alignment did not happen. Got it.

Robert Dodd: Got Thank you. And then if I can, 1 more. I mean, I. I am picking up I think, a little bit of a mixed message on spreads, so maybe you can clarify for me. I think when you, you know, you talked earlier about, you know, leverage levels are down, half a turn, spreads are up 50 basis points. fees are a little bit higher too, but there is trade-offs, right, between structure versus spread. And then just now, you talked about spreads being stable. So, I mean, is it is it just frankly that spreads are all over the place? And it is so deal dependent that it is.

That hard to read into, or can you clarify like, what the trends are? Or is it, you know, spreads are up in complex situations, but stable in regular way kind of M&A deals where those are happening. I am just trying to get the kind of clarify.

Robert Stanley: Yeah. Sorry if it was confusing. They are largely stable in regular way transactions. I think we see early signs of more complex situations, there being a better spread environment. We in 2024 and 2025 that the premium that you are. you were getting over a regular way financing as far as spread and duration. Was not adequate for the complexity that we generally have underwritten in the past. I think there is early signs that you are actually. there is there is a better premium for those types of deals. Got it.

Robert Dodd: Got it. Thank you.

Operator: Thank you. Our next call comes from the line of Paul Johnson of KBW. Paul, your line is open.

Paul Johnson: Just on the Simplr recapitalization deal this quarter, I understand it is a very small position in your portfolio, but I would ask, given that you should have some insight into that transaction. Do you read that as a sign that the capital injection there as conversations are beginning to happen with those companies. And I guess, you know, does that provide, you know, a viable blueprint going forward for any I guess, more highly leveraged SaaS company to raise additional capital.

Robert Stanley: Yes. As you mentioned, it is not a large position for us, and we were not heavily involved in that, but we are familiar with the transaction, so that. that is correctly stated. I think it is a reasonable blue. Blueprint for businesses that have proven modes and still have know, equity value embedded in, you know, in the capital structure. And we have said for quite some time that we think there is gonna be a dispersion of outcomes within the sector and, frankly, across all sector in the post AI world.

But the vast majority of deals we believe, have a reason to exist and have the--have the ability with good management teams to expand their TAMs and create long equity value. I think this is an example of the sponsor believed in their ability to create equity value and preserve equity value and willingness to delever the business. I do not think that is going to be true of every transaction. You know, in this sector. But I think it is a reasonable blueprint for those deals that are going to be on the right side of value creation and TAMIX expansion in the post-agentic world.

Paul Johnson: Thanks for that. And then I guess I would also ask, I mean, just you know, given that the number of BDCs, that have been actively, you know, looking for strategic alternatives. And you know, asset sales that we have seen in the space Is that potential area, I guess, deployments in terms of secondary portfolio purchase or asset purchases. That you think could potentially create value for shareholders? Or I guess, would that just be not something that you would be as interested at this point in time?

Robert Stanley: Yeah. Look. We are. We will continue to be interested in anything that we believe can be accretive to our shareholders on an earnings basis. And I do think I think it is a good sign, I think it is a good sign that we are seeing some consolidation in the sector. We know-- what we believe very firmly in operating in a healthy neighborhood. And I think when you see the ability to consolidate underperforming managers that have not been good allocators of capital in the past. it is good for the space. And it can be good for shareholders.

So those transactions, whether it be portfolio sales or ability to consolidate, we, you know, we would be very interested in if we believe it is accretive on an earnings basis. But, generally, you know, we think it is a good thing for the sector.

Paul Johnson: Got it. Thanks. And 1 last question. More of a technical 1, but I was curious. Within your origination, deployment number, within investments funded this quarter, does that include investments that are coming out of restructuring into some sort of new entity?

Ian Timothy Simmonds: No. It does not, Paul. Okay.

Paul Johnson: You very much.

Operator: Our next question comes from the line of Derek Hewett of BofA. Derek, your line is open.

Derek Hewett: Good morning, everyone. Could you provide some additional color on the watch list? I think those are the risk weighted 3 loans, which increase to, looks like about 5% of the portfolio from nearly 2% last quarter. And then secondly, where do you expect the watch list to trend kind of longer term?

Robert Stanley: Yeah, sure. I will take those. So the change in risk ratings generally were across 4 names. Think you are talking about the movement from the 2s to the 3s Or to the 3 bucket. I just wanna make sure that you know, we properly define that, which is these are investments that are paying as agreed. We do not expect any payment default. But we expect, at least in the next couple of quarters, a potential for a financial covenant default. And the great news is we have financial covenants in the vast majority of our portfolio, and they are set at levels that generally force growth and force deleveraging.

So the read through to this would be you know, that these give us the opportunity to get back to the table, have discussions with management teams, reunderwrite our position, and, frankly, you know, you know, know, have a conversation with them and likely reprice that is not always the case. Sometimes it is a simple covenant reset. Businesses--or you know, further injection of capital into the business. They are all idiosyncratic. I would say you know, there is 1 that went from a 1.2 to a 2.3. That deal was actually underwritten originally. To a covenant default that was in our base case, so this is not a surprise to us. And that is the larger percentage of that.

We have been actively working with management, again, in a situation that was underwritten to--through a covenant default that, you know, the management team and the ownership were much more bullish on what they thought the forward growth trajectory. The business is still growing. You know, but we set the covenant levels very tight. It gives us, again, chance to get back to the table and reprice. As far as any change in the future, we are not. You know, we are seeing broad strength across the portfolio. We do not expect any material change to these in the future. Hopefully, that is helpful.

Derek Hewett: Okay. Yes. Thank you.

Operator: This concludes our question and answer session. I would now like to turn it back over to Bo Stanley for closing remarks.

Robert Stanley: Okay. Thanks, everybody. We are coming into the end of the year, so I wish everybody a good end to 2026. Hopefully, we will get to spend time with their friends and family over the holidays, and thanks as always for the great questions in the follow-up. Thank you.

Operator: Thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Goodbye.

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