KBRA Affirms Ratings for Sixth Street Specialty Lending, Inc.

KBRA affirms the issuer and senior unsecured debt ratings of BBB+ for Sixth Street Specialty Lending, Inc. (NYSE: TSLX or "the company"). The Outlook is Stable.

Key Credit Considerations

The ratings reflect the company's ties to Sixth Street, a global investment firm with $130+ billion of assets under management, SEC exemptive relief to co-invest with Sixth Street Partners' affiliates originating middle market loans, and a $3.3 billion diversified investment portfolio comprised largely of first lien senior secured loans (89.3%). Furthermore, the company has demonstrated a solid operating history since its formation in 2010 and is among the more established platforms in the sector. As of March 31, 2026, TSLX's portfolio company median annual EBITDA was $53.5 million. The top three sectors by end user were Internet Services (18.3%), Retail and Consumer Products (11.5%), and Business Services (11.2%). Credit quality has remained solid but non-accrual investments were higher than historic levels at 1.4% and 1.9% of total investments at fair value and cost, respectively. The ratings are also supported by a strong management team with decades of experience in middle market lending and solid risk management practices that have resulted in high returns.

TSLX's leverage (gross) at 1.18x is appropriate given its high percentage of first lien senior secured loans, including unitranche first lien last out, and is well within the company's targeted net leverage range of 0.90x to 1.25x. Asset coverage was 185%, providing an adequate cushion to regulatory minimum of 150% in volatile and uncertain markets. As of March 31, 2026, the company's liquidity remained strong with $1.1 billion of available bank lines set against $300 million senior unsecured notes maturing August 2026 and $249 million of unfunded portfolio company commitments currently eligible to be drawn. Post quarter-end, the company issued $300 million 5.65% senior unsecured notes due 2031. As of March 31, 2026, the company's unsecured debt to total debt ratio was one of the highest in the industry at 68.4% providing financial flexibility and low asset encumbrance for the benefit of the unsecured noteholders. TSLX has one of the longest histories of trading above NAV, and hence has been able to raise equity. The strengths are counterbalanced by the illiquid nature of the assets and retained earnings constraints as a Regulated Investment Company (RIC).

Formed in 2010, Sixth Street Specialty Lending, Inc. is a publicly traded closed-end externally managed non-diversified investment management company regulated as a business development company under the Investment Company Investment Act of 1940. The company has elected to be subject to tax as a RIC. The company is managed by Sixth Street Specialty Lending Advisers, LLC, an affiliate of Sixth Street Partners.

Rating Sensitivities

The ratings for TSLX are unlikely to be upgraded in the intermediate term. A rating downgrade and/or Outlook change to Negative could be considered if a prolonged downturn in the U.S. economy has a material impact on credit metrics, including liquidity, leverage, and earnings. An increased focus on riskier investments or a significant change in the current management structure and/or risk management policies could also lead to negative rating action.

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