Good morning and welcome to the TPG Specialty Lending, Inc. December 31, 2014 Fiscal Year End Quarterly Earnings Conference Call. Before we begin today's call, I'd like to remind our listeners that remarks made during this 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 the future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in forward-looking statements as a result of numbers of factors, including those described from time-to-time in the TPG Specialty Lending Inc.'s filings with the Securities and Exchange Commission. The Company assumes no obligation to update any such forward-looking statements. Yesterday after the market closed, the company issued its quarterly earnings press release for the fourth quarter and fiscal year ended December 31, 2014 and posted a supplemental earnings slide presentation to the Investor Resource section of the Web site, www.tpgspecialtylending.com. The earnings presentation should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC. TPG Specialty Lending Inc.'s earnings release is also available on the company's Web site under the Investor Resource section. As a reminder, this conference call is being recorded for replay purposes. I'll now turn the call over to Joshua Easterly, Co-Chief Executive Officer and Chairman of the Board for TPG Specialty Lending. Please go ahead sir.

Thank you, Ashley. Good morning everyone and thank you for joining us today. Fair warning that presentation is slightly dense today, but I'll begin today with a brief overview of our quarterly and annual highlights. And then I will turn the call over to my partner, Mike Fishman, to discuss our origination and portfolio metrics for the fourth quarter and full year 2014. Alan Kirshenbaum, our CFO, will then discuss our quarterly and annual financial results in more detail and I will conclude with final remarks and our outlook for market conditions before opening the call to Q&A. I'm pleased to report strong originations and financial results for the fourth quarter. Net investment income per share was $0.57 for the fourth quarter for 2014 as compared to $0.43 per share for the third quarter of 2014, the quarter-over-quarter difference in net investment income per share of $0.14 was largely attributable to an elevated level of revenues this quarter related to investment pay downs, net income per share was $0.26 for the fourth quarter of 2014, as compared to $0.35 per share for the third quarter. Net asset value per share as of December 31, 2014, was 15.53 as compared to 15.56 as of September 30, 2014. Alan will walk you through these quarter-over-quarter differences in greater details. But at a high level, these variances were largely driven by unrealized losses of approximately $0.21 per share associated with the impact on the fair value of our investment portfolio of widening market spreads and changes in risk asset prices during the quarter including energy and commodity price volatility. Risk mitigation is central to our investment strategy and we believe that fair valuing the portfolio is crucial to this process of managing and mitigating risk. To quote a 2009 Financial Times op-ed piece,…

Thanks, Josh. Q4 was another solid originations quarter for us with gross originations of over $304 million. During 2014, we generated originations of over $1.1 billion. Of the approximately $304 million originated during the fourth quarter, we syndicated $100 million of these originations resulting in new investment commitments of approximately $205 million. These investments were distributed across six new portfolio companies, and three upsizing of existing portfolio companies. Of the $205 million of new investment commitments made during the quarter, $198 million was funded. Over the last four quarters, we have generated average quarterly fundings of over $203 million, or $815 million for the full year of 2014. During the fourth quarter, we exited commitments totaling $148 million, due to the full pay downs of three investments and four partial investment pay downs, and as Alan will discuss in greater detail, during the fourth quarter, we generated significant economics as a result of these full pay downs. This level of repayments is slightly above our average quarterly repayments over the past four quarters of approximately $130 million. Our average quarterly net funded activity is approximately $75 million based upon the past four quarters or approximately $300 million of net funded activity during 2014 a level of growth that we feel is prudent. Since inception through December 31, we generated gross unlevered IRR of 16.6% on fully exited investments totaling $835 million of cash invested. We continue to believe that our ability to provide flexible, fully underwritten financing solutions and to hold sizable positions is a key competitive advantage benefiting both our borrowers and our shareholders. During the fourth quarter, the SEC approved our application for exemptive relief. Under the terms of this relief, TPG affiliated funds, primarily our affiliated credit funds will be able to co-invest alongside TSLX in certain…

Thank you, Mike. I'll take us through a review of our financial results. We ended the fourth quarter of 2014 with total portfolio investments of $1.26 billion, outstanding debt of $396 million and net assets of $835 million. Our average debt to equity ratio for the three months ended December 31 was 0.44x as compared to 0.38x for the previous quarter. For the 12 months ended December 31, our average debt to equity ratio was 0.50x. At quarter end December 31, our debt to equity ratio was 0.51x pro forma for unsettled trades as compared to 0.46x at September 30. We expect to continue to progress towards our target debt to equity ratio as the year continues. As it relates to the right side of our balance sheet, in the fourth quarter of 2014, as we noted on our last call, we amended and extended our revolving credit facility reducing pricing 25 basis points from LIBOR +225 to LIBOR +200 and extending the maturity date to October 2019. As it relates to our SPV asset facility subsequent to quarter end, we drew down on the remaining commitment prior to the reinvestment period ending in January. As for other initiatives we're focused on, we continue to evaluate additional ways to diversify our funding sources. We have significant liquidity starting off 2015 with over $650 million of undrawn commitments and we believe we remain match funded from an interest rate and duration perspective. We also believe we have little to no funding risk in our business, which I'll touch on in a few minutes. On Slide 6 of our earnings presentation, you will see our total investments increased $30 million from the third quarter of 2014 and our net funded investment activity was $50 million during the fourth quarter of 2014. The…

Thanks, Kirsh. We're rounding the corner here. A central theme underlying the results of this quarter and our successful track record since inception is our focus to on identifying, mitigating and managing risk in our portfolio. We believe that the fair valuation of this portfolio, cycle sensitive capital structure and sector selection and control features of the portfolio are the foundation of sound risk management in our business. Last quarter, we highlighted a developing trend in liquid markets that persisted in the fourth quarter a reversal of inflow that otherwise characterized much of the last three years. This trend persisted in Q4 resulting in a widening of risk premiums in the liquid credit markets notably given the increase in credit spreads and the rally and equity markets and uncoupling of equity and credit risk premiums that was observed last quarter. We believe such circumstances represent a considerable opportunity for a scaled capital provided with access to liquidity and diversified funding sources. As Mike discussed, we believe the SEC's approval of our application of exempt of relief further solidifies our relevance to the middle market. To reiterate, the vast majority of our portfolio is classified as level III illiquid investments. However, our illiquid portfolio is not as isolated from broader changes in these premiums. We fair value the portfolio on a quarterly basis taken into account among other input changing credit spreads and other risk asset prices. During the fourth quarter, LCD versus lien composite spreads increased by 37 basis points. And the LCD second lien composite spreads increased by 153 basis points. That being said given that we are a control lender with operating and financial covenants, we believe expected duration of our portfolio mitigate some of the broader risk premium volatility on a dollar basis. As Alan discussed and…

Thank you. [Operator Instructions] Our first question comes from Rick Shane of JPMorgan. Your line is open.

Thanks guys for taking my questions this morning. I just want to sort of tie together two themes that came up. One is the outflows from the liquid loan markets and the other is the dynamics in terms of repayments on your portfolio and the ability to capture, make whole provisions when that occurs. Obviously, you guys had very strong repayments this year. Given what you're seeing, would you expect that will slowdown in terms of the – as we head into 2015?

Yes. So I'll take that, Rick. Appreciate the question. So the repayments are really a function of two different things. One is idiosyncratic things happen with our borrowers such as M&A transactions; they graduate to cheaper cost of capital or the high-yield market; or I think what you're talking about the changes in credit spreads allow them to find cheaper cost of capital. So one is idiosyncratic and one is kind of spread related. I would suspect that the spread related piece of the repayments will slow this year which will allow us to generate more ROEs from traditional interest income. But the middle market is very active. Companies get bought, sold, they do add-on acquisitions. They have capital needs which provides a lot of opportunity for us to put additional capital to work. But I would suspect that the credit spread, the rate of change of credit spreads decreasing net-net will mean that repayments will be slower this year as a percentage of our portfolio.

Okay. That's actually a helpful answer. I appreciate not only the spread driven but the deal activity, which I wasn't necessarily considering. Thank you, guys.

Yes. No problem.

Thank you. Our next question comes from Doug Mewhirter of SunTrust. Your line is open.

Hi. Good morning. I have two questions. First, how do you expect your syndication activities to evolve over the next two years? It looks like it’s stepped-up very slightly. Is it really a case-by-case basis? Or are you actually sort of building that into part of your originations strategy as you might seek out loans that could be more easily syndicated to get that fee income?

Yes. So what I would say is, we're not generally – we're not in the syndication business. Right? We're in the storage business we're not in the moving business, right? We like to store risk. There are two drivers of that opportunity set, which – or those revenues which TSLX has historically benefited from. One driver, which is that our existing portfolio -- as deal activity in our existing portfolio picks up, our borrowers need more capital needs. As they need more capital needs, it outstrips our risk profile to hold those positions on our balance sheet. In that case, we will generate revenues from syndicating the financing needs driven by deal activity. The second piece of that, as liquid markets take a step back or the high-yield market and leverage loan market, and we typically don't want to compete with those markets. But if they take a step back and they focus on financing larger companies, we will have the opportunity to finance companies that have capital needs of $150 million to $250 million of needs, which the high-yield market is not focused on, which given our hold position targets $40 million to $80 million will allow us to drive those type of revenues. So you saw a whole bunch of that activity in 2012, people didn't follow a pre-listing, but a company -- for example, called Federal Signal, we did a $215 [ph] million deal for. But I think it's – the activity will be driven by two sources, one is – what's in our existing portfolio and the second is, as there is less competition, and from the high-yield market or other BDCs, given their leverage ratio, the capital constraints, they are trading below NAV, we will have the opportunity to deploy and underwrite larger credit facilities, which will drive that revenue. Mike, do you have anything to add?

Yes. I think to touch upon what Josh was saying, the bottom end of the broadly syndicated loan market, which last year was probably dipping down to 200 to 250, I think that floor has been raised by more to 350 to 400. So there is this larger geography of transaction size that we can look at and create more underwriting and syndication opportunities for us.

Okay, great. That's very helpful answer. My second and final question, I haven't gone through your portfolio line by line yet, but did you make any liquid market – significant liquid market purchases during the quarter?

We did. And so I'm happy to go through those or a couple of those. One was a company called Vivint or APX which in my prior life at Goldman, we owned the equity and provided financing for, and TSLX had provided financing for a couple of years back, we know the company. We bought two securities, one was the secured bond and one was the unsecured bond. And those prices have rallied since we bought those. And then we invested in the FILO and Toys 'R' Us which is a – basically last out on a receivables inventory loan, which is very liquid collateral during the market disruption as well. So those are two examples.

Great. Thanks. That's all my questions.

Thanks.

Thank you. [Operator Instructions] Our next question comes from Terry Ma of Barclays. Your line is open.

Hey, guys. Just wanted to get a sense of how the first quarter is shaping up for investments and maybe can you just talk a little bit about whether or not the exemptive relief will contribute to the size of your pipeline immediately given you can write larger check sizes now?

Yes. Great question. Right now our pipeline continues to be very active. As you know and as you've heard us say before in an individual quarter, transactions that could close in one quarter might slip to the following quarter. So it's probably better to look at originations probably more on a trailing 2 to 4 quarter basis. But we're seeing a lot of interesting opportunities right now. And as far as exemptive relief, we're certainly seeing opportunities of larger size that the exemptive relief will allow us to underwrite those transactions at levels and bring in affiliated credit funds within TPG. So I think it's already showing to be something that could be powerful for us going forward.

It only took three years.

Okay, great. So with the rest of the BDC space trading below book and the input of cost of equity higher there, the valuation of your stock obviously held up very well and you guys are below the low-end of your target leverage range. So can you maybe just talk about how your opportunities set has increased and also aside from dislocation and energy, is there anything that looks interesting right now?

Yes. So I'll take a shot and I will let people fill in. Look, you're right in saying that the BDC – I think industry last year between – these are round numbers between unlisted, BDCs and BDCs raised about $8 billion or $9 million of capital for the last two years and for the last two years, I think increased their balance – increased the total the balance sheet from about $49 billion to about $77 billion. So I think that the industry probably had a tough year last year as we trenched a little bit given the capital was raised and people were meeting their cost of capital. I think who knows that continues to play out or if capital continues to flow or doesn't flow. I think in the short-term, it probably provides a little bit of opportunity, but there's a surely capital being raised in the grey market such as the non-traded BDCs. For us, as it relates to us being under-levered, our capital is a finite resource which we think as a very high opportunity cost, but we will continue to really focus on things not try to take market share, but really try to focus on things that drive what we think are really unlevered attractive risk-adjusted returns. But I know, I didn't answer question, I mean, I feel better going into this year than I did last year as it relates to the opportunities and competition, but that can quickly change, but our capital has a high opportunity cost.

Okay, got it. That's very helpful. Thank you very much.

Thank you. Our next question comes from Jonathan Bock of Wells Fargo Securities. Your line is open.

Good morning. And thank you for taking my question. One small one and then maybe a couple of bigger picture questions. The first, Josh, I noticed that you purchased a CLO tranche, I think it was Symphony small amount. But I know you have a pretty particular views on CLO equity within a BDC structure given that the two things the BDC can't withstand or both NAV volatility and cash flow volatility both of which are present in a CLO investment. So can you walk us through why one owns CLO or structured risk and what you were seeing and how that might be a bit different than most?

So first of all, this is not CLO equity.

Okay.

Just to be very clear. So I think you know, Jonathan in our credit platform, we have a CLO manager, I've been pretty generally bearish about buying CLO equity or appropriateness of CLO equity in a BDC for various reasons, one is the high cost producer of that risk return, given management fees are on management fees. And two, the volatility and cash flow, so this is not CLO equity. During a market disruption, there was a Tier 1 CLO manager Symphony was a very low default record, which we know the collateral very well, there is 6% subordination where 100% of the tranche not that we invest on credit ratings, but it was B2 rating that was a non-single name credit portfolio where we were able to buy at a very large discount at 85. And constant default rate would have to be kind of 6% to 7% at the low a 70% recovery rate for us to lose money. So that risk return we thought was very good at that moment in time. And again, just to be clear, just it's a $5 million cash position. But that's how we thought about it which is, it was very good risk return with 15-point backs, combined with a lot of convexity. And you had a decent amount of subordination where you would have to be in a very high default rate environment for a sustained period of time with low recoveries so for you to lose money.

Makes total sense, and I appreciated it. And Alan just to – you mentioned the 15 – the purchasing of 15 points below, obviously when you see 6% yield, I mean what is your – call with OID, your effective yield that you received day one when you purchased that investment?

LIBOR +850.

Okay, great. Broader question as it relates to levered lending guidance. We've heard a bit about retrenchment at the banks, which obviously plays into your situational credit favor as well as your strong position in the middle market. But we're also kind of interested in bank appetite to leverage – to back end lever deals to the extent that you originate a credit that either doesn't amort according to levered lending regs or has leveraged – total leverage in excess to 6x. Is there still an appetite for the ABL groups at various banks to be willing to backend lever because we were under the impression that even though banks are lending that they – well, even though banks are in an ABL structure which is very, very safe and sound particularly in one of your investments, the regulators might look at that as a non-passed asset. So how would you describe the backend leverage environment today in light of tightening regulations and if that's a factor?

Yes. So I think generally, it will probably be a factor on the margin. I'll give you an example. We financed the company called Insurity, which had $155 million senior credit facility. And we brought in two -- Mike, two lenders?

Yes.

In the first half piece very low attachment point which was $70 million in the first up, plus the revolver. And so we have not felt it. We hear about it. We haven't felt it, yet. And so I think that that will also be a little bit of a risk, although, as you know, most of our portfolio, when you look at our total portfolio, we have very, very high attachment points and so we use that kind of – it's not – it's core to our strategy, but I want to say that it's not every transaction is quite frankly a lot less than half of our transactions. And so --

Go ahead, Josh.

So I would say that we hear about it. We haven't felt it. Ultimately, I think it will be an opportunity.

Okay. And then I'm just curious, there is a way to effectively structure the same type of return perhaps instead of taking idiosyncratic risk at the investment level, pooling, instead of unit tranche assets in addition to a partner that is then financed by a bank or others which would be okay, any thoughts that if the backend leverage environment cool slightly, that you would consider some form of a JV, which is pretty proven and given your debt and institutional relationships you could pretty easily create?

Yes. I mean, we constantly look at different opportunities, right? And we talked about the SBIC before where we're constantly looked at opportunities where – around JVs and other things. What we like about our current strategy is that our portfolio basically has single name financing with a little bit of front leverage versus a pooled where we are adding more risk to our equity investors because we're pooling our investments in a cross collateral financing construct. And so, possibly, but we like what we're doing today.

Okay. Okay, guys, congratulations on a great year, great quarter. Thank you so much.

Thanks, Jon.

Thanks.

Thank you. [Operator Instructions] I'm not showing any further questions in queue. I'd like to turn the call back over to management for any further remarks.

Great. Well, look, we appreciate people of time and support. We have a kind of a history around here of wishing people a happy holiday. There is no really holidays that exist except for I hope people enjoy their present day and got out skiing or spend time with their family or Valentine's Day with their loved ones. So, much appreciate the time and support and we'll talk to you next quarter if not sooner. Thanks.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.