TSLX - Sixth Street Specialty Lending: Consistent Performance Justifies Premium

2024-07-05 03:10:19 ET

Summary

• TSLX is a BDC focusing on lending to middle market US companies.
• The portfolio is well-constructed, diverse, and focused on risk mitigation through first lien debt investments and a majority of investments on a floating rate basis.
• TSLX's high distribution rate of 8.8% is well-supported by net investment income, with a history of solid dividend growth and coverage, making it an attractive option for income-focused investors.
• The price currently trades at a premium to NAV but is justified by strong portfolio quality that remains cyclical resistant.
• Non-accruals have slightly increased to 1.1% of fair value.

Overview

Sixth Street Specialty ( TSLX ) lending operates as a business development company that focuses on lending to middle market companies that are primarily US-based. The BDC has a public inception dating back to 2014, so we have over a decade of historical performance and portfolio strategy to reference. I previously covered TSLX back in February and rated it as a buy despite the price trading at a premium to net asset value. I randomly referenced some peer BDCs to compare the total return profile over the last three-year period. As we can see, TSLX is a middle of the pack performer and has achieved a total return of over 30% over the last three years....

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