Good morning and welcome to the TPG Specialty Lending, Incorporated December 31, 2016 Fourth Quarter and Fiscal Year Ended Quarterly Earnings Conference Call. 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 fact made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in TPG Specialty Lending, Incorporated’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 earnings press release for the fourth quarter and fiscal year ended December 31, 2016, and posted a supplemental earnings presentation to the Investor Resources section of its website, 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, Incorporated earnings release is also available on the company’s website under the investor resources section. Unless noted otherwise, all performance figures mentioned in today’s prepared remarks are as of the fourth fiscal quarter ended December 31, 2016. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Mike Fishman, Co-Chief Executive Officer of TPG Specialty Lending, Incorporated.

Thank you. Good morning, everyone, and thank you for joining us. I will begin today with a brief overview of our quarterly and annual highlights, and we’ll turn the call over to our President, Bo Stanley, to discuss our origination and portfolio metrics for the fourth quarter and full year 2016. Our CFO, Ian Simmonds, will review our quarterly and annual financial results in more detail. And my partner, Josh Easterly, will conclude with final remarks before opening the call to Q&A. I am pleased to report strong financial results for the fourth quarter and full year 2016. Net investment income per share was $0.47 for the fourth quarter, resulting in a full year 2016 net investment income per share of $1.83. For the fourth quarter and full year 2016, we continued our track record of overearning our dividend on a net investment income plus net realized gains basis. Yesterday, our Board of Directors declared a first quarter dividend of $0.39 per share to shareholders of record as of March 31, payable on April 28, 2017. We closed 2016 with our all-time high net asset value per share of $15.95 as compared to $15.78 for the third quarter and $15.15 at the end of 2015. Net asset value movement during the fourth quarter was primarily driven by the overearning of our quarterly dividend and unrealized gains resulting from the positive impact of tightening credit spreads on investment valuations. For the full year 2016, we achieved net asset value per share growth of 5.3% through a combination of overearning our dividend, executing a NAV and ROE accretive equity raise and the aforementioned positive impact of tightening credit spreads on investment valuations. From a portfolio perspective, we had no investments on non-accrual status at yearend. As disclosed on our last call, during…

Thanks, Mike. Our Q4 investment activity was relatively muted with gross originations of $79 million and fundings of $54 million distributed across one new portfolio company and two add-ons to existing portfolio companies. While Q4 has typically been an active quarter for us from origination standpoint, we believe our activity level in the fourth quarter is reflective of an uncertain M&A environment given the U.S. election as well as our investment selectivity amid an increasingly competitive lending environment. In 2016, middle-market debt platforms raised twice the amount of capital as compared to 2015. In today’s issuer-friendly and late cycle environment, we believe our focus on investment selectivity and strong credit documentation plays an ever important role in the mitigation of credit losses and protection of our shareholders’ capital. Through our direct origination efforts, 89% of our current portfolio by fair value was sourced through non-intermediated channels. This enables us to control the documentation and investment structuring process and has resulted in our ability to maintain effective voting control in 75% of our debt investments and average 2.5 financial covenants per loan both calculated on a fair value basis. During the fourth quarter, we had $57 million aggregate principal amount repayments from one full investment realization and five partial investments sell downs. With the full realization of our SEK denominated investment in GUs, our foreign currency exposure pro forma for post-fourth-quarter sell downs is limited to one portfolio company. Reflecting on our deal activity in 2016, we were well positioned to capitalize on larger financing opportunities as traditional banks were sidelined amid bouts of market volatility and regulatory constraints. During the past year, we, along with our affiliated funds, provided commitments for five financings that were $400 million or greater in size at attractive risk adjusted returns. Our ability to originate…

Thank you, Bo. We ended the fourth quarter and fiscal 2016 with total investments of $1.66 billion, total debt of $692 million and net assets of $952 million or $15.95 per share. As Mike mentioned at the beginning of this call, our net investment income per share was $0.47 for the fourth quarter, resulting in a full year net investment income per share of $1.83. This exceeded our full year guidance of $1.59 to $1.74 per share, which was based on an expected ROE of 10.5% to 11.5% applied to beginning NAV. Consistent with the prior quarter, our leverage ratio at December 31 was 0.73 times and for both fourth quarter and full year 2016 our weighted average leverage ratio was 0.8 times, the midpoint of our target leverage range of 0.75 to 0.85 times. I will note however in periods where we see limited attractive risk return opportunities, we may operate below our target leverage range given portfolio repayments could outpace fundings. Historically, in our experience, during those environments we tend to have more fee income related to repayment activity to support ROE, which was the case for us in 2014 and 2015. Since our last call, we have made strides on enhancing and diversifying our funding sources. During the fourth quarter, we upsized and extended our revolving credit facility increasing commitments by $123.7 million to $945 million, and extending the final maturity to December 2021 for $885 million of these commitments. We are very appreciative of our lenders’ ongoing support and their recognition of our disciplined approach to portfolio construction and capital allocation. Subsequent to quarter end, we issued a $115 million principal amount of 4.5% 5.5-year convertible notes, the net proceeds of which we used to pay down debt outstanding under our revolving credit facility. Consistent with…

Thank you, Ian. The market environment today stands in stark contrast to what it was a year ago. And concerns about China’s growth and downturn in the energy sector drove over 10% declines in the equity market and spread expansion in the credit markets. By yearend however, the S&P 500 high yield and leverage loan indices all achieved double-digit returns as global growth shows signs of stabilization and the outcome of the U.S. election boosted hopes for pro-growth economic policies. Also during 2016, there were significant fluctuations in the currency market related to Brexit and movements in interest rates related to fed policy and the U.S. growth outlook. Through the market noise, we remain focused on identifying and managing the impact of risks which we could control for, such as sector and borrower selection, and certain noncredit risk including foreign currency, interest rate and reinvestment risk, the latter which is mitigated by call protection on 80% of our investments. As a result of our hedging strategy, we experienced de minimis currency related impact to NAV in 2016. While sentiment in the broader investment community has been generally positive, our outlook for 2017 remains cautious due to a number of tail risks surrounding fiscal policy and the protectionist rhetoric that exist. One example is impact of tax reform on various factors. While WallStreet Research indicates a potential border adjustment tax could reduce but could not eliminate corporate earnings upside as a result of tax reform. The impact of the border adjustment tax could vary wildly by sector, with consumer staples and discretionary areas of sectors likely to be more adversely affected. That said, we believe the value of our retail investments would remain stable despite these headwinds of their loans are asset-based in nature and secured by working capital assets. Beyond…

[Operator Instructions] Our first question comes from Jonathan Bock with Wells Fargo.

Good morning and thank you taking my questions. Josh, just talking about the repayment environment, given its credit markets are fairly buoyant, can you talk about Highwinds Capital and kind of the net effect that would inert investors to the extent that $48 million at par loan is repaid, what are the dollar and cents impact? And then two, taking a 30,000 foot view, if we’re looking at general repayment activity and we look at number of the deals that are trading in line with their call protection at 101 or above par, would you expect that this environment is likely going to be buoyant enough to see greater amounts of prepayment activity and likely limit your desire for equity capital in the future?

Hey, Jonathan, good morning, thanks for your questions. Let’s take the first question - let’s take your last question first, because I think it’s a little less straightforward. Look, we are in a pretty tough investment environment. There has been a lot of capital raised. People are pretty bullish on growth prospects. Quite frankly, this is where we find that there is the most risk to any investing environment, which is a combination of a lot of capital raised and a bullish consensus. So I agree that there is a possibility of repayments. I think for our business and for the earnings power of our business, that is we have the ability to withstand as we did in 2014, 2015. So we look at our portfolio and say, the names that are marked above par as candidates for re-buys. The weighted average call-protection on those names are about 103.2. And so there is some barrier for those to be repaid. In the event they are repaid, there is two economic streams that our shareholders benefit from. One is the call protection. And the second is the accelerated amortization of the remaining OID, which also drives ROE. So in the environment where repayments as Ian talked about outpace new fundings, which you could see in an environment which is super competitive and we are less bullish on the overall environment or, quite frankly, we think that there is a high opportunity to cost of our capital. In that environment, we might be under our target leverage ratio, but in that environment, we’ll have a lot of additional fees or income streams that are able to produce high ROEs, for example in 2014, 2015. So for example, I think in 2014 NII was $2.07 a share, in 2015 it was $1.76. In both those years our weighted average leverage ratio was in 2014 0.5x and then 2015 0.64x. So did I answer your latter question, and then we’ll get to your first point about Highwinds?

You definitely did, and then just dollars and cents impact there in terms of - is that about $500,000 fee or…

Yeah, that’s generally about right, so it’s a pretty consistent with the fair value at the end of the quarter.

All right, all right. Great. And then, thank you for taking my questions.

Yeah.

Our next question comes from Chris York with JMP Securities.

Good morning, guys, and thanks for taking my questions. So I really only have a couple this morning. But I’ll begin with a question on your DBL [ph] strategy. So when you lend to a retail company like American Achievement or Toys R Us that may have some enterprise value that includes IP, in your underwriting, do you need the consider protections, so the borrower does not transfer the IP to unrestricted subsidiaries, like we saw in J.Crew or Claire’s?

Sure. So first of all, American Achievement is not an ABL deal. American Achievement - and it’s not a retail deal. It’s a consumer products deal. So we’ll set that aside. In that case, the great news about private credits, generally speaking versus the syndicated loan market, is that the baskets related to restricted payments, incurrence of debt, transfer of assets are de minimis or nonexistent. And so, you generally don’t have that risk. Whereas in the broadly syndicated market those credit agreements are set out to provide the maximum flexibility for borrowers since the diversity of the underlying lender base is very hard to get amendments done, when you have 100 CLO lenders. In the private credit landscape, where there are bilateral loans or club loans, the flexibility is much less. And so that risk doesn’t exist. As it relates to the ABL credits, specifically on retail that risk wouldn’t exist anyway, because they’re underwritten to the liquidation value of inventory and there is typically not an IP component that you’re advancing against. If you are advancing against an IP component, obviously they’re unable to transfer that. So they’re very different in nature. I don’t know, Fish, you…

Yes, now, or relative to IP on retail deals you get the IP to use it in a liquidation. So beyond that as Josh mentioned we tend to be fully secured by the inventory liquidation values.

Chris, did that answer your question?

It does. It’s very thoughtful. It’s good distinction too and I know some people were curious about that as it related to your strategy. So, thank you. And then I wanted to talk a little bit about the dividend, so your prepared remarks in the top - were thoughtful and measured. But earnings has consistently covered the dividend and now with the prospects of rising rates it should be a tailwind for earnings power. So what do you need to see maybe specifically to have more comfort to increase the dividend as the context is also challenged, because the investment environment remains difficult?

Yes. I mean, you hit it, which is the pluses are - when you look at our business, the ROE - look, we had this conversations at the board level yesterday. I think what happens is if you think about how we set our dividend, which is we set it where we have a three standard deviation of confidence of reaching. And if you set it at that low point, by definition you’re always going to overearn, right, because if 99 out of 100 cases you earn it, the other - in those 99 cases, the probability that you overearn is high. And so we’re kind of in that situation. So the unit economics of our business surely has historically been able to support a higher dividend. The good news is that it hasn’t been lost because it gets captured in NAV. And we’ve been able to grow NAV since inception from probably $14.80, $14.90 a share or $14.70 a share to almost $16 a share now. That being said, so the tailwind is a rising rate environment, a performing portfolio and we’ve been able to generate historically ROEs that exceed our dividend. The headwind for surely are the investment environment, possible spread compression given the capital formation and the repayments which would lower our effective leverage ratio, which would be a headwind to ROE, offset by the embedded economics in our portfolio, which is the accelerated amortization of OID and the call protection. So when you put that all in the mix, I think we’re a little bit in a wait-and-see approach. And we’re trying to think some creative ways on how to deal with it. As you know, we’re not a big fan of specials given specials don’t reward long-term shareholders. They reward the guy who happens to own it at that moment in time. So we’re trying to think through it. And for at least this quarter, we’re in the wait-and-see approach as it relates to investment environment. And hopefully quite frankly, there will be points of volatility like there was in Q1 of 2016 and Q4 of 2015 that will to take advantage and have more visibility as it relates to our dividend. Ian, do you have anything to add or, Mike.

No, I think you covered that one.

Thanks, Chris.

Yeah, that’s it for me, very thoughtful answer. Thanks, Josh. Thanks, guys.

[Operator Instructions] Our next question comes from Doug Mewhirter with SunTrust.

Hi, good morning. I guess, more of a general question, your commentary is similar to the commentary of some of your other competitors, and then just it’s, I guess, the demand for deals exceed the supply of deals for the traditional middle-market space. And so, I’m just kind of wondering where are you looking if the traditional sort of enterprise-value, sponsored deals don’t look attractive to you. It seems like you have to go further and further into the niches or into the - up into the syndicated, like are you looking at more syndicated deals? Is the ABL space still fertile or is there any other pockets that you are going into that maybe you haven’t been in a while?

Yeah. So that’s a great question, I’ll hit the high level and turn over to Bo in a bit. Look, the thing about our business is we tend to be thematic as it relates to our origination strategy. So I’ll turn it over to Bo and Fish to talk about those themes. In general, obviously in retail given what’s happening, the secular trends in retail, we think there will be more disruption to that business model, which will require more capital or transitional capital, I think which will be helpful to our platform, which we have a most definitely a core competency. And it’s very niche and you need a technical expertise. Monitoring a borrowing base and understanding a borrowing base is not always easy and it’s seemingly capital intensive. As it relates to syndicated market, to us given this fees structures in BDCs, if you are using shareholder capital to participate in a broadly syndicated loan market you’re actually destroying value, right, so people can access their risk return either through CLOs, which are 40 to 50 basis points of AUM, or they can access that through floating rate funds. And so, if you are - given the fees structure of BDCs, if you are that - you’re the high cost producer of that risk return, which means that you’re actually destroying shareholder value. So I don’t think you’ll see us go into the syndicated loan market. Quite frankly, what you’ve seen us is in our liquid credit stuff, continuing to sell that, given that we think it’s got to our difference point of fair value. And so, we’ve been a large seller in Q4 on our level two names between Vivint, which we had sold at a blended price of almost par at our blended cost with 86%, so our SkillSoft, Toys R Us, and obviously, TICC. So I don’t think you will see us go there. Bo and Fish, you want to talk a second about themes, is it FinTech or pharma, where we’re not pricing risks?

Yeah, sure, I think just generally, we’ve always been of the belief that thematic originations allows us to put ourselves in positions with - where we are seeing opportunities that there is less competition, especially in periods of intense competitive pressure like we are seeing today. So as Josh mentioned, some of the themes that we’ve developed over the years are pharma, retail ABL, which we’ve talked about a lot, FinTech, enterprise software. We are continuingly developing these themes and rotating them depending on the opportunity sets, which is what spent a fair amount of our time as a management team and as an investment group thinking through and we’ll continue to do that as opportunity sets change.

Yeah. I mean, and just to add to that, I mean, it’s somewhat obvious, but what’s obvious to everyone else that looks like a good opportunity creates situation where those investments become less interesting to us. So we have to do a lot of work and we’re in the midst of doing it to identify those themes. And it will put us in a position where, look, there’s always going to be competitors looking at opportunities. But when you find the right themes, we have a differentiated view. And there are very few others that are looking at those same opportunities. We think we can create some interesting risk returns.

Okay. Thanks, that’s very helpful and it’s all my questions.

Thanks, Doug.

Our next question comes from Leslie Vandegrift with Raymond James.

Good morning. You mentioned in your prepared commentary about being mostly sold out of TICC at this point. How much is left there? And I guess, we’re moving out of it right now. Can we see that basically gone in second quarter?

You could expect to see it completely gone in the second quarter except probably a small total position.

Okay. And then, given the lot of color so far on the repayment activity and loan originations for the quarter and kind of the political reasons behind why it was slow as well as the tepid environment there, but with the uncertainty of the election gone, will we see a bit faster origination and repayments in first quarter than fourth quarter even if we’re still in that tougher environment?

Sure. Look, I read a lot of research out there. And a lot of research talks about origination activity. For our business model, origination activity doesn’t drive, have any real impact on unit economics. And so, I just want to put that out there, which is what matters in our business is maintaining our financial leverage. And so, what really people should key on is the net activity which the net activity in Q4 was flat. But there are going to be points of time, given that the competitive environment where the net activity might be negative. That being said, there are - there has been some public names. I mean, public names, we usually don’t disclose what we’ve done inter-quarter between calls, but it has been public names. We’re obviously been involved in the Fred’s transaction. Who knows if that happens as it relates to Walgreens and Rite Aid. We’ve been - on an ABL basis, we’ve been involved in another public name which is Model N and Ironwood which was a pharma company. And so, those are the names that are public in Q1. And so you’re seeing activities levels pick up. And then as Jonathan pointed out, you have seen some repayments pick up, for example Highwinds.

Okay, perfect.

The only thing I would add. Oh, go ahead.

No, sorry. Go ahead.

So the only thing I would add to that is it’s a sort of bridge from our thematic discussions. All three of those that were mentioned that were public or thematic originations, public companies that I think a lot of our competitors wouldn't have seen.

Okay, all right. And then on - just a quick modeling question on the spillover income, what was that at the end of the quarter?

Sure. Leslie, it’s Ian. We actually disclosed that in our 10-K. It’s on Page 33.

Okay.

And I’ll give you the number. It’s $52 million in total which is $0.86 per share.

Okay. And then on your portfolio, I know you don’t typically break it out. But approximately what percent of that first-lien senior security investments are unitranche style?

Yes, it’s actually - it is broken out, you could do the math, because there are footnotes by the names that are subject to skim [ph] income. And so about half and half. So less than half has a small first-out either revolver or term loan. The way, Leslie, that you could pick it up is there is a footnote, I can’t remember what footnote it was. Footnote 5, next to the ones that have subject to some type of arrangement.

Okay. All right, and then just last quick question here, on the quarter you guys gave weighted average term on new investments each quarter, and I know, again, like you said net was low and gross originations were lower last quarter. But it went down to 2.4 years. Was that one specific investment that brought that down, or is that something we’re seeing, because we’ve seen that some competitors have shorter-term investments as well?

It was one specific investment, which was a retail ABL deal, which was Payless that was coterminous with the ABL. And the other thing I would say is we are seeing - look, we’re seeing risk and risk appetite increase across the space. And that means lower covenants, higher leverage, lower pricing, in addition to longer weighted average maturities or longer weighted average life. Ultimately, which will have an impact on fair value of credit spreads blow out. Right, so, if credit spreads blow out and you have a short weighted average life portfolio, the dollar impact should be low. If credit spreads blow out and you have a long weighted average portfolio the impact will be high. And so, you are seeing - we have not materially changed the underlying weighted average life of our book and added duration to our risk profile.

Okay, perfect. That’s all for me. Thank you.

Our next question comes from Mickey Schleien with Ladenburg.

Yes, good morning, everyone. Josh, you spent a good amount of your prepared remarks talking about your view of the credit cycle. And clearly, when you look at the quarter and you do the math on the unitranche, we see an increased allocation to first-lien that was also the slowest quarter for you on a net basis in a long time. So that seems to reflect a pretty cautious outlook. And as of today, it seems that that’s still your outlook. But I’m curious, what are the key developments you and the management team and board are looking for that could actually increase your appetite for risk and maybe take on some more second-lien or more mezzanine debt?

Yes, so I think for us, look, it would be volatility and the risk/reward offered on those securities. And so, I think something massively have to change. The challenge with investing those securities is not only are you investing at - on a leverage level the highest attachment points in a long time, but you’re also financing - the most earnings that you have, right? So you had compounded earnings growth post-cycle, so the combination of those two things, high leverage and financing peak earnings is pretty scary to us. And so, I would expect - you might see big changes in the percentage basis, i.e., we go from 3% to 4%, but that will be a big change in a percent basis, 33% or whatever it would be. But you won’t see a step function to a portfolio that’s 10% to 20% junior capital until you see a washout as it relates to both capital formation and financing kind of more moderate earnings levels.

Okay. I appreciate that and I understand. Just a couple of more simple questions, looking at the realized loss in the quarter, was that Vertellus or something else?

Yes, that was Vertellus. So it had no real impact on NAV, right, because that was already - so it went from unrealized to realized. And so there was no real impact on net asset value, but given that there is fresh start accounting and given the exit of bankruptcy, you crystallize the unrealized loss.

Now, I understand. And lastly, can you just touch on the issues confronting Moroso?

Which name?

It’s IRG - is it IRGSE…?

Oh, IRG, sorry.

IRGSE Holding.

Yes, yes, so, IRG is - look, it’s in the middle of a turnaround. We control the company. We put in new management and we’re more optimistic than we ever have been. But how we fair value our portfolio, which we believe it is appropriate, which is where would we buy that security and the required yield, and how does that - and what is the dollar price on our security. And so, as that business has been slow return, although started to return we have to reflect in our valuation.

And what…

And mostly execution issues, so the business - so in my view we had a - there had to be a management change and mostly execution issues. They are an entertainment in the sense that they run drag - there is one or two and operating national - the sanction body for operating drag races and sport events. So think of it as mini-NASCAR and they were running a lot of negative gross profit events that have - and where we since have taken out of the schedule.

All right, that’s very helpful. I appreciate your time this morning.

Yeah, thank you, Mickey.

And I’m not showing any further questions at this time, I’d like to turn the conference back over to our host.

Great. So, look, we appreciate people’s time and we’ll be back on the phone earlier. Given the cadence of these calls, given from Q4 to Q1 it seems like we’ll be talking shortly. I hope people enjoy their spring and their holidays and Passover and Easter. And feel free to reach out to the team if you have any questions. Thanks all.

Ladies and gentlemen, it does conclude today’s presentation. You may now disconnect and have a wonderful day.