Good day and welcome to the Blackstone Secured Lending Third Quarter 2023 Investor Call. Today’s conference is being recorded. [Operator Instructions] At this time, I’d like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

Thank you, Katie. Good morning and welcome to Blackstone Secure Lending’s third quarter call. Earlier today, we issued a press release with a presentation of our results and filed our 10-Q, both of which are available on the Shareholders section of our website, www.bxsl.com. We will be referring to that presentation throughout today’s call. I’d like to remind you that this call may include forward-looking statements, which are uncertain and outside of the firm’s control and may differ materially from actual results. We do not undertake any duty in updating these statements. For some of the risks that could affect results, please see the Risk Factor section of our most recent annual report on Form 10-K. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent. With that, I’d like to turn the call over to BXSL’s Co-Chief Executive Officer, Brad Marshall.

Thank you, Stacy and good morning everyone. Thank you for joining our call this morning. With me today is Co-CEO, Jon Bock, our President, Carlos Whitaker and our CFO, Teddy Desloge. Turning to this morning’s agenda, I will start with some high level thoughts before Jon, Carlos and Teddy go into more detail on our portfolio and third quarter results. Looking at the presentation and turning to Slide 4, I want to highlight that Q4 marks the two-year anniversary since their IPO in 2021. I’m very pleased with the results that we have delivered to our shareholders and I’m very confident in the strength of the portfolio we have built and highly optimistic about BXSL investment opportunity set. Focusing on the third quarter, BXSL report another strong quarter of results, including growth in net asset value, and net income per share along with higher regular dividend distributions all built on BXSL strong credit fundamentals with a predominantly first lien portfolio invest in large, resilient businesses in historically low default sectors. Looking at the details, our 98.8% floating rate portfolio continues to benefit from sustained higher interest rates, net income per share increased 12% to $1.01 per share in the quarter compared to second quarter and is up over 74% compared to last year at this time. Net investment income or NII of $0.95 per share represents a 14.4% annualized return on equity. The quality of our earnings remains high with limited payment-in-kind, limited non-reoccurring and fee-driven income. Further interest income, excluding tax, fees and dividends represented 96% of our total investment income in the third quarter I’ll repeat that. Interest income, excluding tax, fees and dividends represent 96% of our total investment income in the quarter. We distributed our previously declared increased dividend of $0.70 per share as well. This…

Thank you, Brad. As Brad mentioned the focus on building a healthy and defensive portfolio that we believe allows us to continue to take advantage of our expanded pipeline from a position of strength. So jump to Slide 6, we ended the quarter with $9.5 billion of investments. We also continue to deliver modestly, the funds leverage at quarter end was 1.08x and quarterly average was 1.11x and those are well within our target range of 1x to 1.25x. We also were made well positioned with $1.5 billion of liquidity comprised of cash and borrowing amounts available across all our revolving credit facilities to lean in to that expanded pipeline Brad mentioned. Our weighted average yield on debt investments at fair value continues to increase steadily to 11.9% of this quarter end from 11.8% last quarter primarily driven by higher base rates. New investments continue to be accretive to our investment income. The yield on new debt investment fundings during the quarter averaged 12.2%, while yield on assets repaid or sold down averaged 11.6%, improving our weighted outfield in the portfolio. And importantly, the base rates of the third quarter expanded approximately 300 basis points on our 98.8% floating rate debt portfolio compared to the same quarter in the prior year. In this environment of higher rates, we continue to focus on constructing a portfolio for resiliency and downside protection. I jump to Slide 7. Since BXSL inception, we’ve been disciplined in building our portfolio to focus on first lien senior secured debt, as we believe that is most offensive place for investors, especially at a higher interest rate and slower growth common economy. Now over 98% of BXSL investments are in first lien senior secured loans of over 95% of loans or to companies owned by private equity firms,…

Thanks, Jon. Our people are our most important resource. With over 500 professionals, we have the scale and bandwidth to form investment opinions on over 3,150 corporate issuers. We take those valuable insights and plow them back into BXSL’s investment process through portfolio monitoring and origination to derive BXSL’s investment performance. The performing credit investment committee has worked together for an average of 16 years and that continuity helps us refine our investment process. Since BXSL’s inception, our global private credit investment team has grown meaningfully, while we have only seen a few departures among senior investment team significantly involved in the North American direct lending strategy. Blackstone credit has a team of senior investment professionals who engage with hundreds of the top financial sponsors we transact with. In addition, we have a dedicated team that covers strategic relationships with M&A and sell-side advisors globally, sharing pipeline and joint investment opportunities that often drive deal flow. We also leverage our sector expertise and insights across the credit platform with over 100 senior advisors, 950 technologists and over 50 data scientists across Blackstone providing us with valuable perspectives on how we invest, while also helping us monitor our portfolio. Blackstone’s deep platform can benefit BXSL in other ways. Blackstone growth, our private equity platform, real estate, life sciences, strategic partners, GP stakes business and tactical opportunities, all offer deep insights and support deal flow for BXSL widening our funnel. That’s made possible from a platform with the size and scale of Blackstone. In an increasingly competitive private credit market, we differentiate ourselves by providing more than just capital to our portfolio of companies. BXSL borrowers are offered full access to Blackstone credit’s value creation program through cross-sell opportunities, cost savings, procurements and capabilities, including cybersecurity and data science, all at no…

Thanks, Carlos. I will start with our operating results on Slide 12. In the third quarter, BXSL’s net investment income was $161 million or $0.95 per share. Our total investment income was up $57 million or 25% year-over-year driven by increased interest income primarily due to higher rates. Payment-in-kind, or PIK, income remained flat year-over-year and represents less than 4% of total investment income. GAAP net income in the quarter was $171 million or $1.01 per share, up from $0.58 per share a year ago, driven in part by $21 million of net unrealized appreciation this quarter. Our net investment income yield of $0.95 per share represents a 14.4% annualized return on equity. Importantly, as Brad mentioned, the quality of our earnings remains high with limited payment-in-kind non-recurring and fee-driven income. Interest income, excluding PIK fees and dividends, represents 96% of our total investment income in the third quarter. Turning to our balance sheet on Slide 13, we ended the quarter with $9.5 billion of total portfolio investments, of which 98.8% are floating rate loans with a weighted average yield at fair value of 11.9%. This compares to less than $5 billion of outstanding debt with a weighted average cost of just over 4.9%. That spread between our floating rate assets and lower cost mostly fixed rate liabilities provides the company with potential for additional earnings growth if rates continue to rise. As a result of strong earnings in excess of our dividend in the third quarter, NAV per share increased to $26.54, up from $26.30 last quarter. Next, Slide 14 outlines our attractive and diverse liability profile, which includes 56% of drawn debt in unsecured bonds. These unsecured bonds have a weighted average fixed coupon of less than 3%, which we view as a key advantage in this rising…

Thank you. [Operator Instructions] We’ll go first to Finian O’Shea with Wells Fargo. Finian O’Shea: Hi everyone. Thanks. Good morning. Just housekeeping question, did the fee waiver lapse pursuant to the 2-year anniversary last week or so?

Yes. Hey, Fin, this is Teddy. Yes, the fee waiver ended October 28, 2023. Finian O’Shea: Okay, great. Thank you. And a question on leverage, Brad, you mentioned it’s still within your target range, but it’s obviously come down some this year and that has an impact on returns. So we are seeing how you feel about the pipeline as you see it today, and if we could expect to see this come off the low end or if we need a real market come back to see that?

Thanks Fin. Just to follow my comments, the pipeline has picked up quite a bit and you saw that in the third quarter with our commitments being $650 million or so and in the fourth quarter, just from the overall Blackstone credit pipeline standpoint is probably the busiest we have seen it all year. And I think that’s just indicative of little bit more of an active M&A market, but also existing portfolio of companies looking to do more things, whether it’s add-on financings, whether it’s recapitalization. So, I would expect Fin, you can never perfectly time deals, which is always the tricky thing, which is why we give a range. As we get towards the end of the year, you could see us get a little bit higher than where we are today. Finian O’Shea: Awesome. Thank you. And if I could sneak in a third, I appreciated Jon’s color on the amendments that which none came from covenant or PIK relief. I was curious if anyone asked for covenant or PIK relief?

No, Fin. They didn’t. Finian O’Shea: Awesome. Thanks so much.

We will go next to Robert Dodd with Raymond James.

Hi, and congrats on the quarter. On kind of the pipeline and to your point, but I mean, the commitments in Q3, versus if we look back over the last multiple quarters, the gap between commitments and fundings was much more substantial than normal. Can you give us any color on that to your point? Was that DBTLs that, people are looking to start making acquisitions and setting up the financing first, or can you give us any color on what was the reason for the large spread there and should we expect that to be recurring going forward?

Just timing. So actually, a handful of those have already funded in the fourth quarter. So we just made the commitments towards the end of the third quarter, it usually takes 30 to 60 days for some of these deals to close. So that’s all, that’s the gap in the number, Robert.

Got it, got it. Thank you. And then as we look to next year, I mean your focus obviously, I mean as you’ve maintained all time. Firstly, do you expect to see some structural changes in kind of the deals getting done with rates being elevated in terms of maybe seeing lower leverage on a first line? Maybe you’re not doing the whole stack with somebody coming in behind, who’s willing to take a bit of – a bit more risk than you’re willing to do because obviously I mean on some of the large first line unit tranches, if it’s at 6x with makes where they or 8x whatever it is versus, do you expect to kind of the market to shift in terms of how some of the leverage is structured as we go through next year, if it’s more active with rates being so elevated.

Yes, you’re seeing that now, because you’re right to point out with higher interest expense. Your companies are being set up with less leverage, in order to service their debt appropriately. So you saw that a little bit in the quarter, average loan to value was 35.9% versus our historical LTV which is in the kind of mid-40s. So you’re seeing companies put on less leverage. And yes, in some cases you’re seeing a preferred equity piece get put in behind the senior debt. In order to kind of help the equity sponsor fund some of these transactions, but this is, I’m glad you pointed out because it’s what we get excited about in this environment is you’re seeing more yield, so more return primarily because of base rates. But you’re also seeing better companies come to market, with less leverage and lower loan to value. So more return and less risk is kind of how we think about it and it will drive our portfolio construction going forward because you don’t actually need to take a lot of risk in this market to get a very attractive return relative to most other asset classes.

Got it. Thank you.

We will go next to Kenneth Lee with RBC.

Hi, good morning and thanks for taking my question. Just one on the potential implications of the integration of the Blackstone credit and insurance platform. How do you think about potential changes in the portfolio mix or originations overtime based on their integration? Thanks.

So appreciate the question, Ken. So I don’t think it has any implications for portfolio construction, what it does for us. It gives us a bigger team with more exposure to sponsors with more exposure to corporates. Because at the end of the day, what we’re offering these clients is more solutions. BXSL will continue to be focused on senior secured corporate credit, top of the capital structure, a very kind of simple strategy, but when we’re out facing clients, we’re that much more relevant to them because we can do an asset based facility, we can do something more junior in the capital structure, we have more points of connectivity, more people, more scale, more resources and that’s the power of the BXSL integration. As you look at the private credit asset class expanding those managers that can provide multiple solutions will become more relevant to our end clients.

Got it. Very helpful there. And just one follow-up, if I may. In terms of the some of the recent deal activity in terms of some of the newer investments. Could you just talk a little bit more about trends that you’re seeing in terms of deal terms, docks protections? Just wondering if there’s been any changes there? Thanks.

Well, I would say a couple of things. Spreads have come in a little bit over the course of the year, but I attribute that more to what I was saying earlier, which the risk has gone down as rates are look like they’re going to stay higher longer. Capital structures are being set up with less leverage and therefore you know spreads have come in a little bit, which is a trade that we will take all day. So that’s maybe one trend. You know the public markets were briefly open now they’re they feel a little bit shaky again. So that gives us a lot more leverage as it relates to negotiating docs, especially for the larger deals, one of which Carlos highlighted on in his prepared remarks. So I would say by and large it’s very, very attractive both from a return for level of risk and from a documentation standpoint.

Got it. Very helpful there. Thanks again.

We will go next to Paul Johnson with KBW.

Hey, good morning, guys. Thanks for taking my questions. Just kind of adding on a little bit Ken’s last question, I mean, how long do you think the terms that you guys are seeing today can I guess be sustained in the market? I mean, I guess in addition to that, I mean. What is it that you – do you think that would probably, start to threaten that a little bit in the is it all predicated on the CLO market kind of returning or what – how long do I guess do you guys think the private market can keep up what’s going on today?

Listen, if you look at the U.S. leveraged finance market, it’s a little over $4 trillion. Private market has grown from what $70 million when we started to a little over a $1 trillion dollars, we expect that there’s a lot more runway, under the premise that the private solution for some issuers, regardless of whether the public market is open or closed, is a much more attractive solution for them and the best evidence of that was the largest growth period for private credit was 2021, when the public markets were wide open and sponsors, we’re looking for privacy. They were looking for certainty. They were looking for flexibility. So we’re very bullish on the long-term trends of private credit. Now getting to my earlier comments on spreads, spreads will move around a little bit. But it’s not spreads that’s driving returns right now in private credit, its most of its coming through, increase in base rates. And so the returns in private credit will be predicated on your view and our view on how long we think base rates or interest rates will stay higher. Our view is that they’ll stay higher for longer, they may move around a little bit, but long-term trend is actually quite good so. The market opportunity is there for those investors who can create deal flow, not just rely on the M&A market and returns should stay very robust in this rate environment.

Appreciate that. And one last one, it’s just kind of a more general question, but I’m just curious because your portfolio is a decent amount of software related companies and this in case it’s pretty much across the sector as well, but I’m curious as your thoughts in terms of just the evolution of AI, I mean it would seem, it could be an a big game changer for some of your companies, both in a positive and in a negative way is that proliferates, I mean seems there could be an opportunity to maybe cannibalize I guess parts of the software sector. So I’m just curious, I mean you guys have any kind of broader thoughts on how that technology even changes. I guess the underwriting story of the software sector.

So that is a 5-hour conversation. What I will say is Blackstone has been leading the charge in terms of understanding AI, using AI. Integrating that part of our investment process, so this well, it may be new to kind of everyone on this call over the past kind of 3 to 6 months. Because of ChatGPT. It is not new to Blackstone, so every underwriting that we’ve done in this space AI has been at the forefront of our decision making. And AI has its applications and where it’s going to be impactful and where it’s not going to be impactful. So the shorter answer to the 5-hour answer is we think about it a lot. We don’t see it having issues on the portfolio that we selected in this space, but you’re right, it will have implications in parts of the market.

Appreciate that Brad. That’s all for me.

We will go next to Melissa Wedel with JPMorgan.

Thanks for taking my questions. Wanted to follow-up on one of the comments from the prepared remarks. I think it was Brad; you were talking about expecting some dispersion in the market. I think that was related to sort of the higher for longer environment and the pressure that could put on credit. Just hoping you could elaborate on that and if it doesn’t incorporate a view on how you expect the credit cycle to evolve, could you add that in? Thank you.

So, higher rates are meant to slow down the economy. So it has two areas of impact on portfolios. One, higher rates, obviously consume more cash, so it puts a little bit of pressure on people’s cash-flows. And secondly, if you are more correlated to the overall health of the economy, then you are going to have some potential earnings top line pressure. So, that kind of – that is the driver behind our remarks that higher rates are meant to cause a little bit of a slowness. So, as I think about kind of where we will feel that next year, because really this – most of this year were just because of the lag on rates because of interest rate hedges. You haven’t seen the full impact of higher rates this year. So, as you think about next year, it’s going to be felt in sectors that typically don’t generate a lot of cash. So, that probably means because they are more capital intensive and industrial manufacturing business, it could be a smaller business that just has less diversity of revenue, may have higher customer concentration. It has less, maybe talent in its senior management. So, we think the stress in the system will be driven by which sectors you are in and the size of your business and then of course, layer in the further up the capital structure you are the kind of the better protected you will be older vintage Jon talked with the tail. Tails will become more of a focus in portfolios. So, if the company was already struggling a little bit next year won’t make it any easier. So, that kind of was the driver of my comments. And when we talk about it internally, Melissa, we talk about the 3S’. Which will really drive your performance and dispersion, and that’s seniority. That sectors and that scale, those for us, have been the driving factors when we are building the BXSL portfolio.

Thanks Brad. Could you – do you have any broader thoughts about what you expect to see across the space in terms of defaults and non-accruals. It seems like what’s come up so far has been pretty manageable and we have seen some restructurings. Just wonder if you expect that to continue to be sort of a one-off. In nature, if you are expecting some sort of broader weakening, perhaps along the line of the things that you just talked about more capital intensive businesses, smaller certain sectors. Thanks.

Well, don’t have a crystal ball. What I would say is and we look at how everyone else is doing too. I think everyone is probably a little bit surprised this year how well their portfolios have done. You haven’t seen a big uptick in non-accruals. I think Teddy gave some stats on the year-over-year growth in earnings of our portfolio companies, which is actually quite strong and obviously non-accrual is 0.0, something and our portfolio is almost non-existent. I would say next year you could see in the market default rates tick up in some sub sectors of healthcare and industrial manufacturing, retail, anything touching kind of the housing market and consumer. So, I would say you have to look at people’s portfolio, composition and that will, I think maybe better answer to your question. I am sure there are stats that JPMorgan and others have out there for kind of market default rates, which is for 1% or so. So, that may be another kind of number you could use. But it really, really comes down to and I have heard others say this, next year will be more dispersion driven by these areas that I have mentioned.

Thank you.

[Operator Instruction] We will go next to Mark Hughes with Truist.

Yes. Thanks. Good morning. Just following up on that, you mentioned that the higher interest rates are meant to slowdown the economy. Do you think that will work?

Yes. I do think it will work. It’s you have started to see kind of a change in the labor market. So, you are starting to see the effects of higher rates. You see it in portfolio companies and the impact on how much excess capital they have to spend on growth. So, all of that is slowly starting to have an impact, whether it has the full desired impact that the Fed is hoping, that will a little bit depend on how long they keep rates elevated. But yes, it will certainly – you have the desired effect. I think what’s debatable, how long and how deep.

And you mentioned spreads have come in a little bit, but you – I think attributed that to largely the deal structure. Do you think there has been more competitive pressure? There is a lot of dry powder among private equities, but a lot of dry powder, presumably among direct lenders, is there. Have you felt that or you think you are still insulated from that?

No. And some deals are actually being quite competitive and other deals less so. And – but in terms of how deals are ultimately getting priced, I think there is a fair amount of discipline in the market. Again, if a company is taking a turn, turn and a half less leverage, it’s not surprising that spreads for those deals are a little bit lower than what they might have been for a more leveraged structure, I would say kind of the large end of the market, which we tend to like. The public markets just haven’t been open for those deals. So, the deal that Carlos mentioned is $1.6 billion, we were the sole lender. That’s a really good dynamic for us because we can customize a solution for the sponsor and set it up with the right pieces of the capital structure to allow them to grow, contrast that with a $200 million lower middle market deal. That may be more competitive because there has been a lot of new capital raised by new entrants. They can all write smaller tickets. So, it will really depend on where the deal was created. How it comes to market and the size of that deal.

Appreciate it. Thank you.

We will take our final question from Arren Cyganovich with Citi.

Thanks. Maybe you can talk a little bit about, conversations with equity sponsors and whether or not you see them kind of starting to accept the different environment we are in, where equity valuations where they maybe previously expected are now down to lower levels and what will necessarily be needed to get folks to that point? Is it just a matter of time and a little less volatility in the market?

Yes. Valuation – valuations will come – have to come down. You are seeing that new deals get done. I think they are probably in by two turns in the second-half of the year. So, I think it’s coming through – buyers and sellers will always have a different view. But as you pointed out, the structures of their private equity funds force them a little bit to transact and that will kind of accelerate, the bid ask and get it closer together. I just – I think we are maybe another, three months, six months away from that acceleration picking up. A lot of our deal flow right now Arren, is just coming from our existing portfolio, so coming from our incumbency and not necessarily just from M&A. So, whether it’s on a public deal that we are taking private or whether it’s private companies they are looking for, to do acquisitions versus new platform investments. That’s what’s driving activity right now. But I do think next year you will see this. You will see the bid-ask come closer together, deal flow will start to accelerate.

Thank you.

Thank you. That will conclude our question-and-answer session. I would like to turn the call back over to Ms. Wang for any additional or closing remarks.

That would wrap up our call for today. Thank you everyone for joining us and thank you for all the great questions. We look forward to speaking to you next quarter. Thanks everyone.