Good day, and thank you for standing by. Welcome to the Sixth Street Specialty Lending, Inc. First Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After this speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Cami VanHorn, Head of Investor Relations. Please go ahead.

Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending filings with the Securities and Exchange Commission. The Company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the first quarter at March 31, 2025, 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.'s earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the first quarter ended March 31, 2025. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Joshua Easterly, Chief Executive Officer of Sixth Street Specialty Lending, Inc.

Good morning, everyone, and thank you for joining us. With me today are President, Bo Stanley; and our CFO, Ian Simmonds. For our call today, I will review our first quarter highlights and pass it over to Bo to discuss activity in the portfolio. Ian will review our financial performance in more detail, and I will conclude with final remarks before opening up the call to Q&A. In addition to today's earnings call and public filings, we also published a letter to our stakeholders. We may currently be in one of the most pivotal periods for the U.S. and global markets since the global financial crisis. We believe we are operating under a new world order and it's our job as investors to embrace this reality and proactively position our business based on provost assessments to navigate the evolving environment. We encourage and welcome your feedback. While we recognize that the world has changed since March 31, we believe our business remains well protected on the asset side with limited direct exposure to tariffs and well positioned on the liability side. We already said a mouthful on these topics in our letter so I'll limit my opening remarks today to briefly cover our first quarter results and framing how we think about the future earnings potential of our business. After market closed yesterday, we reported first quarter adjusted net investment income of $0.58 per share or an annualized return on equity of 13.5% and adjusted net income of $0.36 per share or an annualized return on equity of 8.3%. As presented in our financial statements, our Q1 net investment income and net income per share, inclusive of the unwind of noncash accrued capital gains incentive fee expense was $0.62 and $0.39, respectively. Of the $0.22 per share difference between net…

Thanks, Josh. I'd like to start by sharing some perspective on market beginning with a look at the underlying supply and demand dynamics that have shaped the current investment environment. Specifically, as it relates to the U.S. direct lending market and focusing on BDCs as a proxy for direct lending vehicles, the supply and demand dynamics over the past several years have been characterized by an imbalance with the supply of capital outpacing demand. This is largely been fueled by the growth of the retail investor-oriented perpetual non-traded BDC structure, which accounted for roughly 80% of asset growth within the BDC sector in 2024. This inflow of capital has exerted downward pressure on new investment spreads, leading to instances of suboptimal capital allocation. We anticipate that the current uncertainty and volatility will moderate the supply and demand imbalance by slowing inflows into the non-traded vehicles and shifting the pendulum towards direct lending from a broadly syndicated loan market. While these factors may contribute to a more balanced supply and demand environment over time, we continue to believe that a meaningful resurgence M&A activity remains a longer-term prospect. However, our through-the-cycle business model and diverse originations channel enabled us to deploy capital into attractive investments across market cycles. In Q1, we provided total commitments of $154 million and total fundings of $137 million across six new portfolio companies and upsizes to four existing investments. We experienced $270 million repayments from seven full and four partial investment realizations resulting in $133 million of net repayment activity. As Josh highlighted, market dynamics have changed significantly since Q1. That said, our new investments during the quarter underscore our firm commitment to remain highly selective and disciplined in our capital allocation in all market environments. This is demonstrated in two ways, including lower levels of…

Thank you, Bo. For Q1, we generated adjusted net investment income per share of $0.58 and adjusted net income per share of $0.36. Total investments were $3.4 billion down slightly from $3.5 billion in the prior quarter as a result of net repayment activity. Total principal debt outstanding at quarter end was $1.9 billion and net assets were $1.6 billion or $17.04 per share prior to the impact of the supplemental dividend that was declared yesterday. Josh noted the strength of our balance sheet positioning earlier today, reflecting what has been a busy start to the year as we completed two capital market transactions during the first quarter. In February, we issued $300 million of long five-year notes at a spread of treasuries plus 150 basis points, which at the time, matched the tightest spread level for a BDC in the five-year part of the curve. As we do with all our issuances, we swapped these fixed street nodes to floating at a spread of SOFR plus 152.5 basis points, while the execution level stands out in its own right, and particularly so in the face of widening BDC credit spreads that we have seen since mid-February. This issuance illustrates execution on our underlying philosophy of proactively managing our liquidity needs and our commitment to enhancing the depth of our investor base with each issuance. In March, we further enhanced our debt maturity profile by closing an amendment to our revolving credit facility. With the ongoing support of our bank group, we amended our $1.675 billion secured credit facility, including extending the final maturity of $1.525 billion of these commitments through March 2030. We are pleased with the outcome of this transaction as we successfully converted a legacy non-extending lender to extending status marginally decreased the drawn spread the introduction…

Thank you, Ian. I'll keep my conclusion brief today and hope that people will take the time to read our letter, which is available on the Investor Resources section of the Sixth Street Specialty Lending website. In closing, I'd like to encourage our shareholders to participate in both for our upcoming annual and special meetings on May 22. Consistent with previous years, we're seeking shareholder approval to issue shares below net asset value effective for the upcoming 12 months. To be clear to-date, we have never issued shares below net asset value under prior shareholder authorization granted to us for each of the past eight years. We have no current plans to do so. We merely view this authorization as an important tool for value creation and financial flexibility and periods of market volatility. As evidenced by the last 11-plus years since our initial public offering, our bar for raising equity is high. We've only raised equity when trading above net asset value on a very disciplined basis. So, we would only exercise the authorization to issue shares below net asset value if there were sufficient high risk-adjusted return opportunities that will ultimately be accretive to our shareholders through over earning our cost of capital and any associated dilution. If anyone has questions on this topic, please don't hesitate to reach out to us. We have also provided a presentation which walks through the analysis in the Investor Resources section of our website. We hope you find that supplemental information helpful as a way of providing a clear rationale for providing the Company with access to this important tool. With that, thank you for your time today. Operator, please open up the line for questions.

Thank you. At this time, we’ll conduct a question-and-answer session. [Operator Instructions] And our first question comes from the line of Finian O’Shea of Wells Fargo. Your line is now open. Finian O’Shea: So, Josh, we enjoyed your shareholder letter. And I wanted to ask about the downward pressure on spreads with the ongoing nontraded BDC fundraising headwind. And can you talk about your resilience to that and how far it goes, just imagining that more capital is making its way into the complex, non-sponsor so forth styled origination opportunities?

Yes, Finn, so I wouldn't -- I guess let me start with saying I have no idea what retail flows are. I would suspect, given the volatility in the market that retail flows have slowed. Time will tell. I think that the data is dated and I don't think there's good post-liquidation date. Also, as you know, with those vehicles, they're called semi-liquid for a reason, which is the problems of liquidity. So, in times of volatility, if the analog is the nontraded REIT sector, they've been a sucking of liquidity out of the system, not a net flow, but time will tell. So that's one piece of it. The second piece of it is, look, we've managed the way we built our businesses, we've managed a relatively small amount of capital for the opportunity set. And we have a big top of the funnel, including the non-sponsor and more complex transactions. That has made our business more resilient to the spread tightening movement because we're just not purely in the sponsor business. And then, we've been really disciplined allocators of capital. And I think we deeply understand where we sit in the cost curve and our cost of equity. And so, we're not going to allocate capital just to allocate capital and to grow assets and therefore, grow revenues. We believe that we have two basically important people in our ecosystem. First being the capital providers who provided capital to us and entrust that capital to earn an acceptable risk-adjusted return on the capital and cost of equity. The second being our counterparty community. And we can't be a good lender and a good counterparty unless we have capital. So, we need to do both well, and we plan to keep doing both well. Finian O’Shea: Just to zeroing in like the top of the funnel, you haven't seen a material impact there from all the direct lending and private credit capital, which seems to be converging in style. Like is there just less that meet the standards in terms of spread and structure, for example, even if it's something that would more traditionally fall into your wheelhouse?

Well, again, maybe we're saying the same thing, maybe we're not. The top of the funnel -- the very, very top of the funnel has no impact. Now, we quickly might decide that is not for us. The top of the funnel is really, I think, the impact on the top of the funnel is broad-based, which is the M&A cycle, which is obviously, we've been very negative on that returning. And that is systematic across the industry. But yes, we decide more things are not for us early on. But because we have a big top of the funnel and other channels, we find places to put our shareholders' capital in a responsible way that generates the required returns. That's been the business model. That business model worked out. We also think we're going into a world where there will be more opportunity for complexity, and we're excited about that given the macro. So, I feel really confident on our ability to continue to earn returns across cycles. If you look at historically, we put this in the letter, and I don't think people get this, but like we've actually done better in moments like this than we've done better in kind of regular way markets. So, market volatility has provided us a return -- an ability because how we manage our balance sheet and the top of the funnel and the culture of Sixth Street, we've been able to generate outsized returns. I think in like volatile years, we generate almost 200 basis points of excess returns compared to nonvolatile years. And our outperformance in the industry actually grow significantly. So, we couldn't be more excited about the forward for our business. And I think that's from a design -- how we've designed the business and how we put shareholders and capital on that list and a priority and the capabilities we have given the market opportunity. Finian O’Shea: When you say like very negative on M&A returning, do you just mean a couple of quarters from what was supposed to be more like now? Or do you think more protracted and anything you can unpack there for us?

Yes. So, look, the industry has been beating the drum on M&A returning. Partly to justify, I think, the amount of capital they have raised. And we've been negative on that. The constraint is not the amount. The issue is not that there isn't dry powder for private equity deals to get done. There's a ton of dry powder. The problem is that people paid too much for assets between 2019 and 2022. And time -- those assets -- nobody wants to sell those assets without an acceptable return because it's not in their economic interest. And so, people need time and growth there is a headwind to growth, which we think will extend the time. So, do I know -- do I think it's -- do I think there's going to be a whole bunch of noninvestment-grade M&A in 2025? No. Do I think maybe 2026, possibly. But the uncertainty in the macro and the drawdown on the growth expectations is going to make noninvestment M&A harder.

Thank you. One moment for our next question. And our next question comes from the line of Brian McKenna of Citizens. Your line is now open.

So, Josh, you've been very clear the last several quarters about how the firm has been focused on finding attractive risk-reward opportunities and making sure you're going to pay the right economics for the risk you're taking. The environment has clearly shifted here. But I'm curious, how are your teams able to price risk when there's a meaningful pickup in uncertainty and volatility. And then, there's clearly been a healthy reset in valuation here. So where are you seeing the most attractive deployment opportunities today?

Yes. Brian, I appreciate the question. It's a really good question. Look, I think the way we're able to price risk, by the way, I don't think the private markets, at least what we're seeing today are doing a very good job of pricing risk, which is somebody showed me a slide this morning that said middle market spreads haven't moved, but probably syndicated spreads have moved. And I don't know where the data came from, but that feels pretty consistent. And that seems like a technical issue in the middle market, which is previous flows, people need to put the previous flows to work. But how we think about the world is we're deep fundamental investors. We look at where we sit on the cost curve, what's our required equity, the illiquidity premium that we need, which is I can't change my mind when I'm making an investment. And we look at what we think that asset is worth and loan to value on that asset. And what we think that asset is worth a kind of a normalized interest rate environment and a normalized growth environment. And so having kind of that deep fundamental view of the world and doing real work allows us to price risk in moments of volatility. In addition to that, Sixth Street is a big place. We have $100 billion of assets under management. We have large platforms in ABS, health care, sports media, telecom, energy, retail, consumer, et cetera, growth, et cetera, et cetera. So, we're able to see relative -- not only are we able to see the top funnel and a lot of different things, but we're able to see relative value across asset classes, and what people are pricing in for growth, what discount rates are using, that's super helpful to keep a kind of steady head in our shoulder and be able to commit capital when other people don't.

Okay. Great. That's helpful. And then, you touched on this a little bit, but you look at TSLX and even the broader Sixth Street platform, I mean, you've really delivered impressive returns kind of through cycles, looking back over your history. And I think some of the market actually forget volatility is a great thing for your business. So, can you just remind us again, why does TSLX and really the broader Sixth Street model work so well in all parts of the cycle. And then why do periods of volatility ultimately drive value for all your stakeholders longer term?

Yes. So, this is -- by the way, I was shocked when we look -- I wasn't shocked for us. I was shock at the industry. The industry has actually done a decent job, which is in moments of volatility, the industry returns are robust compared to in moments of not volatility, which is they don't go down. I think they're basically flat to up 20 basis points. which is -- was a little bit shocking. And that's structural in the sense that the capital is decently permanent. So, they're not a forced -- this is on the trade side. I think on the nontrade side time will tell because there will be a liquidity pool. But the structure of the industry, which is that they have permanent capital and they're not that levered, so they don't get closed out the option and the financing is robust that they're able to withstand volatility. And so, the industry itself and the capital structure of the industry and the permanency of the capital allows robustness I think SLX, I think we actually have this idea of anti-fragility, which we actually do better when there's stress. I think that's because we manage -- we've done a good job of allocating capital, which means that we have capital to allocate in moments of volatility. Not only are we not a forced seller, but we actually grow our investments during that time when the rest of the world is risk off. And that is a function of, a, being a good allocated capital; and b, understanding that we need to reserve for unfunded commitments. We need to reserve for investment capacity during those times, both capital and liquidity. And so that allows us to actually be on the front of our feet -- balls of our feet during those times and really capture that opportunity. So, I was -- I was shocked when I look at the data for the industry and -- but it makes sense because the industry is never -- should be never a forced seller given the primacy of the capital. Again, the nontraded space will be interesting because there will be capital stop flowing and there will be, my guess is some type of liquidity pool, pool of liquidity that happens, which is the analog being again the non-traded REIT space, capital came out of the system during that moment of volatility, capital did not come in for people to be aggressive as it relates to investment opportunities outside their capital structure or inside the capital structure.

Thank you. One moment for our next question. Our next question comes from the line of Mickey Schleien of Ladenburg. Your line is now open.

Josh, as usual, your prepared remarks were excellent and answer all of my top-down questions. So, I just have one modeling question. In the first row of Slide 9, which is your interest and dividend income, excluding fees, looks a little light relative to the 3% decline in the portfolio at cost and considering movements in spreads and so far. And that could be due to things like the cadence of investments or some sort of a reversal? Or was there something else in there that we should be aware of?

I'll turn that to Ian, and we might have to come back to you. I don't -- I do not -- let's come back to you exactly on the -- there was -- sorry, in 12/31 that quarter '24, there was a large dividend income payment that is included -- that was like not a nonrecurring spread item, right, Ian?

Yes, that's right. So that probably creates a little bit of noise.

That creates noise or better the analog to look at it is a little bit of spread pressure in the lower portfolio to engage compared to September 30, 2024, but there was a onetime dividend payment related to an energy name, right, Ian?

Yes, that's right. Sorry.

You're always happy. I think I got the answer. There was a onetime dividend payment old payment in the quarter 12/31, we'll come back to you with the back number. But that's not -- that's what there's a dividend payment, non-recurrent dividend payment with $5.1 million and as the prior quarter. So that apples to apples, it is pretty consistent with a little bit of yield compression and the portfolios to engage. If you look at dividends and interest and dividend income and you pro forma that 12/31 2024 about $113 million, minus $5 million. That will be more than just modeling.

Yes. Dividend income went from 5.8% to in Q4 to 0.9% in Q1.

Thank you. One moment for our next question. Our next question comes from the line of Kenneth Lee of RBC Capital Markets. Your line is now open.

Just given the prepared remarks around some of the investments, including, I guess, one in the retail ABL side. Could you further flesh out your outlook for Lane 2 and Lane 3 investments? Would it be fair to say that you're starting to see a lot more of these opportunities materializing right now? Or do we still have to wait a little bit more to see more stress across the sectors there?

I think. So, we've committed to one last quarter before the will fund here before year-end, a fact that we think it's very interesting and that it’s public. I think there will be needs a little bit more stress, a little bit more time. But we’re excited. We’re starting to see stuff. Obviously, the broadly syndicated loan market is down. My guess is if you look at this data, I think that Moody's have revised their LME kind of distress, which has been distressing board the cable loan market up 2x, I think or something like that. So, I think those opportunities are coming our way.

Great. Very helpful there. And just one follow-up, if I may, and this is just on the ATM equity program. And it sounds like the general approach towards any kind of potential capital raises is still very consistent with your previous approach. But just wondering whether you could be raising capital a little bit more frequently than in the past? Because I believe that TSLX had very infrequently raised capital in the past. I just wanted to see if the frequency could potentially change there.

No change in how we raise the capital, the frequency we raise capital when we look through, I think -- perfectly, which is it has to be both accretive on an ROE basis as related to our cost of equity and in an asset value basis. And it is we're pretty -- I would say, we were pretty stubborn about the ATM. But quite frankly, it's better for our shareholders because the cost is lower, but there is zero change and how we do it and zero lends it means that really makes sense for shareholders. Ian, anything to add there?

I think that’s spot on. I think we were very deliberate about making the comment about no new shares issued this quarter because we didn’t want people to assume that just because we had the tool, we would use it. It’s more about making sure that we can be as effective as possible for shareholders. I mean, let’s put it this way.

I mean let's take it this way. We let the balance sheet roll down, and therefore, revenues to the manager gets smaller, we don't need the opportunities that in the past quarter was driven for our shareholders. We're surely not going to issue new capital when we were like an existing balance sheet will avail.

Thank you. One moment for our next question. Our next question comes from the line of Sean Paul Adams from Value Securities. Your line is now open.

Obviously, your nonaccruals are quite low. Credit quality wise, you've been doing really well. Your letter made an excellent point on the deployment of capital to take advantage of nonstandard opportunities during volatile periods. However, that's based on an assessment of not having any trouble at home, on the impact of risk ratings. And have you guys seen any material migrations in internal risk ratings assigned within the portfolio?

No, not really. And I would say the one thing we did not do just put just FYI do a great job in our letter. I’ll take a criticism for it. I’ll give you a little bit more detail on because I think you’re asking a question about credit quality and at home. So let me hit tariffs a little quick. We outlined exposure, direct exposure to tariffs in our letter, which is about 2%. The reality of it is that 60 basis points of that is already on non-accrual. That's American achievement. There is another $4 million position that we think have a limit impact. And so, there's probably only one name, which is 1.3%. That name is not very levered today. That name is less than 5.5x levered, 60% is manufactured here in the U.S. at best for a low overseas. We think -- we estimate that there might be a kind of a 20% impact on EBITDA, if things ultimately roll through and then they can't pass along costs, and so that brings a credit like 6.5x leverage, which is still acceptable for that credit and the scale of that credit. So, I don't really hear about the portfolio and our ability to pay offense. And you hit exactly the right impact exactly, right, which is for you to be able to play off and not only do you need capital and liquidity you need to end with. And the bandwidth means that you don't have any problems at home. So, we have capital, we have liquidity, and we have bandwidth.

Thank you. One moment for our next question. Our next question comes from the line of Maxwell Fritscher of Truist. Your line is now open.

I'm on for Mark Hughes. We've heard that banks are going a little more risk off. Do you anticipate any impact on the liability side of your balance sheet from this in comments on the facility and the note issuance suggests that answer is probably no, but any comments there?

No. I mean I think -- and the answer is no. We just had amendment on an extension. We do that every 12 to 15 months. We effectively took one non-extender meeting than there tightened pricing a little bit. And then we opportunistically issued financing, like if you would have asked us when we were going to do a bond deal six months ago, we would have said in September -- we did it early. So, we prefunded that maturity. And so, we feel like really, really good. And in addition to that, like we have above -- in a downwards well-being rate environment, we have liability sensitivity. So, we swapped out all of our liabilities. So, we should not have net interest margin compression, all things being equal in the environment going forward. So, we're -- we managed the balance sheet. Ian's done a great job. We managed the balance sheet. And Ian and Christine, we've managed the balance sheet exactly in the right way. And so, we're excited to shout out to the team to Ian and Christine on Q.

Thank you. One moment for our next question. Our next question comes from the line of Melissa Wedel of JPMorgan. Your line is now open.

I wanted to follow up on a point that you made -- it was a brief point made in the shareholder letter, and it's really -- it is a bit more of a modeling question. But I think you referenced sort of making more space in terms of allowing more repayments rather than deploying capital so far in the second quarter. I want to make sure I was one, understanding that right. And then two, just wanted to understand maybe the scale of that compared to some pretty sizable repayment activity in the last two reported quarters.

Yes. Look, I would say my guesses will be at the end of Q2, somewhere between flat and slightly down, not -- I don't think it impacts model. I think it's like balance sheet might be down $30 million to $40 million or something like that. Repayment so, I -- look, we are going to -- it's obviously part of the economics of this some is keeping financial leverage, which drives capital efficiency and interest income, et cetera. And I think that's reflected in our guidance. So, I don't think it's a -- I think it's on the margin.

Okay. I appreciate that. And to your point about volatility historically creating good opportunities to deploy capital and generate higher returns versus sort of regular way markets. We know that there tends to be a bit of a lag between what's happening in the broadly syndicated market and what's happening in sort of the private credit area. We've obviously seen a lot of spread volatility, but it's only been remarkably one month that we've really seen that. So, it sounds like you're not really seeing that volatility create more interesting opportunities in the private credit space quite yet. Am I reading your reading that right?

Yes. I tell you that the great thing about our platform is we don't have elsewhere. And so like will capture some of that pricing. So, a, you're right, there's a technical thing happening in the private credit market. So, a, you write about that. And it is a lag, that’s probably a lag. But we don't need it to happen just in the private credit market because we've been able to capture it elsewhere. And so, if you look at these moments of time, we will go to more liquid markets to capture the spread volatility.

Thank you. One moment for our next question. Our next question comes from the line of Robert Dodd of Raymond James. Your line is now open.

Two questions. First on the -- really comes down to year end capital. Spillover is $1.31, right? I mean from an ROE perspective, with the excise tax friction, et cetera. And if you -- this the point in the cycle to your point that you're you might be down a little bit in Q2 or flat. Is this the point of the capital to -- the point of the cycle to shrink the capital base slightly, be accretive to ROE just on excise tax deduction alone potentially going forward. And maybe, you -- as you say in the letter, there’s not an infinite number of opportunities that are appropriate for BDCs. So, again, is this kind of the point of the cycle where you want to be more selective? So, shrinking the capital base or distributing some of that spillover might make sense.

Yes. So, look, we're not at that point, right? We're not where we need to return capital. That is obviously a lever you save the excise tax. But remember, to fund that distribution new borrowing, the excess tax costs at 4% annually, the borrower cash on a marginal basis, 150 or so for. And so, it is accretive on a leverage standpoint, it's dilutive on a NIM standpoint. And so, we're not close to that point. We actually think having capital and time of volatility is good. So, it is effectively making you more capital efficient, but it is a negative ARB as it relates to the cost of the excise tax and you borrow to fund the asset tax.

On NIM, yes, not on NII or cap all the way necessarily. I understood. On to the second question, just to your letter. I mean, one of the underlying themes in that letter. It seems to be, correct me if I'm wrong here, that you think global or globalization of trade may have peaked and be on a down cycle. Obviously, that is not something that happens usually for like a couple of years. I mean, the increase, there's one of the charts in here. I mean it was a multigenerational trend upward in global trade as a percentage, which obviously made a ton of sense then to go into services businesses because anything that was physical on -- as globalization is rising and offshoring was rising, made sense to say away with. So, if that is a core thesis in the letter and the outlook for Sixth Street, how does that change over the next year or two, but the next -- yes, 10 years, which is only really two iterations of owning an asset given the repayment cycles. How does this view on global trade and essentially onshoring potentially change how you might allocate capital over a longer period of time? Or does it just not make any difference?

No. Look, I think that -- so look, most of our business is in services. And I would say that the role demobilization started to happen in 2010. Now, there was a peak up in COVID, et cetera. But if you look at -- there's two things looking at that chart. One is the trip post 2010, which was declining and then picked up and then was reasonably declining. And what I would say is the impact mostly services businesses. But the impact, I think, are more -- the way I think about it is it probably slows velocity of capital, which will slow growth. It leads to an inflationary, which will affect discount rates on assets. And so, the super cycle of return equities, I think in the value is going from -- and by the way, there are private equity sponsors and great hedge fund managers and great equity managers that will pick up idiosyncratic. But the broad-based tailwinds, the equities, I think that’s changing, which is demobilization. The way I think about it is inflationary. It is -- one increased discount rates and assets and slow growth. And what made for a very accommodative equity return environment, which is low discount rates and high growth, those conditions no longer exist. And so, I think what as it relates to our underwriting, you have to be clear minded about yesterday’s valuations and yesterday’s LTVs are different. They’re going to be different. Just run a DCF, cut your growth by half, increase your discount rate by two, it’s going to come out with a different value. And so that is where I think this generation of investors are going to have a little bit of challenges, they’re going to look at yesterday’s news, yesterday’s comps, yesterday’s multiples, and think those are a real thing. Guess what? The environment has changed.

To that point, would that mean you would expect even -- I mean, this quarter, I think it was 11% sponsor back. No, it was 11% follow-on. It was 16%, 15% sponsor back, I think. Would you expect that -- that's obviously significantly below your long-term average. Is that kind of do you think going to be the new -- more of the new norm going forward?

No. I mean, I think the sponsors are super smart. We love them. They’re sophisticated users of capital. They’re great investors, but they’re sophisticated users of capital. And I think that technical in the private credit space, which was a lot of flows and a lot of money putting stuff, wanting to put money, needing to put money to work in that channel. It hasn’t shifted this quarter, but we love them and we’re going to be right there with them when they need capital and scale and size. But we’re going go where there’s the best risk return. The technicals in the private credit market were not accommodated this quarter.

Thank you. One moment for our next question. Our next question comes from the line of Paul Johnson of KBW. Your line is now open.

Just one on credit, if I may. IRG Sports and Entertainment, I believe that loan is maturing in this quarter. How is that company performing? You've obviously seen a lot of interest and professional sports facilities, but it was marked down just a little bit slightly in the quarter. Are you expecting to exit that?

Yes. mean, so IRG is the main that we -- there’s a whole bunch of assets that we’re working to sell, including a significant I think it’s 160 acres or something like that. A bit more. A little bit more outside of West Palm Beach. And so that will work to resolve that.

Got it. And then, real quick on just on the cost of debt that you guys have, it was I believe it’s down a little over 130 basis points or so over the last few quarters, which is a little bit more than what base rates have done over that time. Is there anything, I guess, that’s benefiting the hedges or anything that’s driving the cost of debt lower, I guess?

I’ll take a shot and then I’ll give it to Ian. One is mix probably. The other one is, hedges or hedges lag maybe. But one is mixed, funding mix. The new pricing of the revolver wouldn’t have an impact on the LTM period. So, it's probably a little bit of a mix.

Paul, if you look at the last two quarters in particular, we had one maturity of an unsecured note. So that rolled off, and we funded that with the revolver drawdown. So that was a positive benefit, so lowering overall weighted average cost of debt. And then, the new bond that was issued was only in the February, so it doesn’t have as much of an issue, but that was also lower spread.

Lower spreads.

Lower spreads -- and then the impact of base rates. So don't forget 100% of that.

Got it. Okay. That's helpful. And then last one. Josh, Ian, I'd love to get your thoughts on a relatively new development in the BDC space, but structured risk transfers. Does that have any potential, I guess, to change funding costs at all within the BDC space? Do you see that as a positive development or just a signal of peak risk?

So, that is to the yesterday, I think you're referring to the SRT done from our group some risk or risk transfer from banks to the private credit -- banks to the asset managers. Is that what you were referring to?

Yes.

Okay. I suspect it was done for not for capacity issues, which is it allows banks to effectively get capital relief and expand more lending relationships. So, on the margin, think it’s helpful. I don’t think it reduces pricing, but I do think it’s helpful as it relates to expansion of capacity. The bank’s model balance sheet into the space and then hopefully drive fees. And if they can book more balance sheet to the space from a capital relief trade. They get to get more fees and turn over that capital. So, my guess is that on the margin expands capacity or keeps capacity but doesn’t do anything to pricing.

Thank you. One moment for our next question. [Operator Instructions] Our next question comes from the line of Finian O'Shea of Wells Fargo. Your line is now open. Finian O’Shea: I just wanted to go back to the question on the ATM. I think, Bo, you said no changes whatsoever sort of to the historical approach, which has been something like every couple of years, something like 5% of NAV. Does that mean you'll do that sort of same thing with perhaps an institutional direct? Or will it be more of a dribble out type ATM program?

I'm Josh. That's a very good nuance question. I meant no changes philosophically how our framework of how we raise capital. The ATM does allow you to take capital just in time. Historically, what we've done, we've kind of actually prefunded that set of the balance sheet. So, people have built a J curve or drag and then raise the capital and got it kind of back in or will normalize the ATM will give us the flexibility and triples about. We'll use that flexibility. But proposal, we're not changing how to raise capital. In the sense that we're going to raise capital in when it's accretive to NAV and where we think we -- that capital will earn a return in excess of return on equity, but will we -- do we give you more visibility to do smaller-sized stuff and do just in time? Yes. Versus what we have historically done. We’ve kind of taken the leverage up and then brought it back down, which is I wouldn’t say, risky because we where we’re trading, but this is probably slightly more efficient in that way.

It's really a change in the execution, but the philosophy hasn't changed. Finian O’Shea: When you see like you've done it historically very judiciously in prudent, the dribble seems a bit more of like an asset gathering approach, which I know you'd be against. So can you like do it fast enough as you historically have when the deal flow is big...

Yes, your question is right. We're not saying we're exclusively using the ATM. What we're saying is a tool that is lower than a lower cost per shareholder exercise, there might be a time where like we want to -- like there's an opportunity to grow the balance sheet, step function and we think it's really good. And the ATM is not going to allow us to do that. And when we go to the public markets, yes, 100%. So, it's just another tool, it's not an exclusive tool.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Josh Easterly for closing remarks.

Great. My hope was -- I'm kind of joking that it's probably not going to land. My hope was that the letter would have made the question-and-answer section shorter. It might have had the opposite impact. So, shame on us and shame on me. But I really appreciate all the good questions, super thoughtful. We're excited about what lies ahead. This is what makes the job interesting, changing environment. Obviously, the environment keeps changing and lifelong learners. This is what we kind of get up every day to do and the platform is here to execute. We hope people enjoy their summer. We hope that we'll catch up with people after Q2 or if not sooner, please feel free to reach out. Thanks so much.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.