# Sixth Street Specialty Lending, Inc.: Form 10-Q for the period ended Jun 30, 2023

- Company: [Sixth Street Specialty Lending, Inc.](/companies/tslx.md) (CIK 1508655)
- Form: 10-Q
- Filed: 2023-08-03
- Accepted by EDGAR: Aug 3, 2023, 16:28 ET
- Period: 2023-06-30
- Accession: 0000950170-23-038066
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1508655/000095017023038066/tslx-20230630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1508655/000095017023038066/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-04-01 to 2023-06-30 | $32.4m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2023-01-01 to 2023-06-30 | $60.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-04-01 to 2023-06-30 | $902.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2023-01-01 to 2023-06-30 | $1.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-04-01 to 2023-06-30 | $53.1m | us-gaap:ProfitLoss |
| Net income | 6 months, 2023-01-01 to 2023-06-30 | $106.0m | us-gaap:ProfitLoss |
| Diluted EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.63 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.28 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-04-01 to 2023-06-30 | $0.63 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2023-01-01 to 2023-06-30 | $1.28 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-04-01 to 2023-06-30 | 84,223,032 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2023-01-01 to 2023-06-30 | 82,819,734 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2023-01-01 to 2023-06-30 | −$186.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2023-01-01 to 2023-06-30 | $76.4m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-06-30 | $25.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-06-30 | $3.14bn | us-gaap:Assets |
| Total liabilities | at 2023-06-30 | $1.68bn | us-gaap:Liabilities |
| Long-term debt | at 2023-06-30 | $1.62bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-06-30 | $1.46bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 90,881 characters.

*The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward-Looking Statements” set forth on page 3 of this Quarterly Report on Form 10-Q.*

### Overview

Sixth Street Specialty Lending, Inc. is a Delaware corporation formed on July 21, 2010. The Adviser is our external manager. We have four wholly owned subsidiaries, TC Lending, LLC, a Delaware limited liability company, which holds a California finance lender and broker license, Sixth Street SL SPV, LLC, a Delaware limited liability company, in which we hold assets that were previously used to support our asset-backed credit facility, Sixth Street SL Holding, LLC, a Delaware limited liability company, in which we hold certain investments, and Sixth Street Specialty Lending Sub, LLC, a Cayman Islands limited liability company, in which we plan to hold certain investments.

We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code. We made our BDC election on April 15, 2011. As a result, we are required to comply with various statutory and regulatory requirements, such as:

- the requirement to invest at least 70% of our assets in “qualifying assets”;
- source of income limitations;
- asset diversification requirements; and
- the requirement to distribute (or be treated as distributing) in each taxable year at least 90% of our investment company taxable income and tax-exempt interest for that taxable year.

Our shares are listed on the NYSE under the symbol “TSLX.”

### Our Investment Framework

We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities in July 2011, through June 30, 2023, we have originated more than $27.6 billion aggregate principal amount of investments and retained approximately $9.6 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine and unsecured loans and investments in corporate bonds, equity securities, and other instruments.

By “middle-market companies,” we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of $10 million to $250 million, although we may invest in larger or smaller companies on occasion. As of June 30, 2023, our core portfolio companies, which exclude certain investments that fall outside of our typical borrower profile and represent 91.3% of our total investments based on fair value, had weighted average annual revenue of $205.3 million and weighted average annual EBITDA of $67.3 million.

We invest in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Our first-lien debt may include stand-alone first-lien loans; “last out” first-lien loans, which are loans that have a secondary priority behind super-senior “first out” first-lien loans; “unitranche” loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt.

The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3 as defined by Standard & Poor’s and Moody’s Investors Services, respectively), which is often referred to as “junk.”

The companies in which we invest use our capital to support organic growth, acquisitions, market or product expansion and recapitalizations (including restructurings). As of June 30, 2023, the largest single investment based on fair value represented 2.5% of our total investment portfolio.

As of June 30, 2023, the average investment size in each of our portfolio companies was approximately $23.8 million based on fair value. Portfolio companies includes investments in structured credit investments, which include each series of collateralized loan obligation as a portfolio company investment. When excluding investments in structured credit investments the average investment in our remaining portfolio companies was approximately $35.3 million as of June 30, 2023.

Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:

*Business and sector selection.* We focus on companies with enterprise value between $50 million and $1 billion. When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio.

We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our portfolio companies by end-market (such as healthcare, and business services) and not by the products or services (such as software) directed to those end-markets.

As of June 30, 2023, the largest industry represented 15.7% of our total investment portfolio based on fair value.

*Investment Structuring.* We focus on investing at the top of the capital structure and protecting that position. As of June 30, 2023, approximately 91.9% of our portfolio was invested in secured debt, including 90.6% in first-lien debt investments. We carefully perform diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to six years after origination. For the six months ended June 30, 2023, the weighted average term on new investment commitments in new portfolio companies was 6.7 years.

*Deal Dynamics.* We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships.

*Risk Mitigation.* We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future interest income. As of June 30, 2023, we had call protection on 76.6% of our debt investments based on fair value, with weighted average call prices of 107.0% for the first year, 103.6% for the second year and 101.2% for the third year, in each case from the date of the initial investment. As of June 30, 2023, 99.2% of our debt investments based on fair value bore interest at floating rates, with 100.0% of these subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.

### Relationship with our Adviser and Sixth Street

Our Adviser is a Delaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with the SEC under the Advisers Act. Our Adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on direct lending, which we refer to as our Investment Team. Our Investment Team is led by our Chairman and Chief Executive Officer and our Adviser’s Co-Chief Investment Officer Joshua Easterly and our Adviser’s Co-Chief Investment Officer Alan Waxman, both of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of our Adviser and affiliates of Sixth Street Partners, LLC, or “Sixth Street.”

Sixth Street is a global investment business with over $65 billion of assets under management as of June 30, 2023. Sixth Street’s core platforms include Sixth Street Specialty Lending, Sixth Street Lending Partners, which is aimed at U.S. upper middle-market loan originations, Sixth Street Specialty Lending Europe, which is aimed at European middle-market loan originations, Sixth Street TAO, which has the flexibility to invest across all of Sixth Street’s private credit market investments, Sixth Street Opportunities, which focuses on actively managed opportunistic investments across the credit cycle, Sixth Street Credit Market Strategies, which is the firm’s “public-side” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets, Sixth Street Growth, which provides financing solutions to growing companies, Sixth Street Fundamental Strategies, which primarily invests in secondary credit, and Sixth Street Agriculture, which invests in niche agricultural opportunities. Sixth Street has a long-term oriented, highly flexible capital base that allows it to invest across industries, geographies, capital structures and asset classes. Sixth Street has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 520 investment and operating professionals. As of June 30, 2023, forty-nine (49) of these personnel are dedicated to direct lending, including thirty-seven (37) investment professionals.

Our Adviser consults with Sixth Street in connection with a substantial number of our investments. The Sixth Street platform provides us with a breadth of large and scalable investment resources. We believe we benefit from Sixth Street’s market expertise, insights into industry, sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. Sixth Street and its affiliates will refer all middle-market loan origination activities for companies domiciled in the United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us.

On December 16, 2014, we were granted an exemptive order from the SEC that allows us to co-invest, subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our Adviser has independently determined is appropriate to invest, with certain of our affiliates (including affiliates of Sixth Street) in middle-market loan origination activities for companies domiciled in the United States and certain “follow-on” investments in companies in which we have already co-invested pursuant to the order and remain invested. On January 16, 2020, we filed a further application for co-investment exemptive relief with the SEC to better align our existing co-investment relief with more recent SEC exemptive orders. Subsequent further applications were also made, most recently as June 29, 2022. On August 3, 2022, the SEC granted the new order in response to our application.

We believe our ability to co-invest with Sixth Street affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We expect that with the ability to co-invest with Sixth Street affiliates we will continue to be able to provide “one-stop” financing to a potential portfolio company in these circumstances, which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors.

Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser’s services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the base management fee, or the Management Fee, and may also pay certain incentive fees, or the Incentive Fees.

Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement.

### Key Components of Our Results of Operations

### Investments

We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.

Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.

In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.

### Revenues

We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on direct equity investments, capital gains on the sale of investments and various loan origination and other fees. Our debt investments typically have a term of two to six years, and, as of June 30, 2023, 99.2% of these investments based on fair value bore interest at a floating rate, with 100.0% of these subject to interest rate floors. Interest on debt investments is generally payable monthly or quarterly. Some of our investments provide for deferred interest payments or PIK interest. For the three and six months ended June 30, 2023, 4.3% and 3.7%, respectively, of our total investment income was comprised of PIK interest.

Changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding, rather than by changes in interest rates. Our investment portfolio primarily consists of floating rate loans, and our credit facilities, 2024 Notes and 2026 Notes, after taking into account the effect of the interest rate swaps we have entered into in connection with these securities, all bear interest at floating rates. Macro trends in base interest rates like SOFR or other reference rates may affect our net investment income over the long term. However, because we generally originate loans to a limited number of portfolio companies each quarter, and those investments also vary in size, our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period—often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business.

In addition to interest income, our net investment income is also driven by prepayment and other fees, which also can vary significantly from quarter to quarter. The level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums, but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g., merger and acquisition activity, initial public offerings and restructurings. As noted above, generally a small but varied number of portfolio companies may make prepayments in any quarter, meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends.

Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. We record prepayment premiums on loans as interest income when earned. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees. The frequency or volume of these items of revenue may fluctuate significantly.

Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the Consolidated Statements of Operations.

### Expenses

Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:

- calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);
- expenses, including travel expenses, incurred by the Adviser, or members of our Investment Team, or payable to third parties, in respect of due diligence on prospective portfolio companies and, if necessary, in respect of enforcing our rights with respect to investments in existing portfolio companies;
- the costs of any public offerings of our common stock and other securities, including registration and listing fees;
- the Management Fee and any Incentive Fee;
- certain costs and expenses relating to distributions paid on our shares;
- administration fees payable under our Administration Agreement;
- costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, and the compensation of professionals responsible for the preparation of the foregoing, including the allocable portion of the compensation of our Chief Financial Officer, Chief Compliance Officer and other professionals who spend time on those related activities (based on the percentage of time those individuals devote, on an estimated basis, to our business and affairs);
- debt service and other costs of borrowings or other financing arrangements;
- the Adviser’s allocable share of costs incurred in providing significant managerial assistance to those portfolio companies that request it;
- amounts payable to third parties relating to, or associated with, making or holding investments;
- transfer agent and custodial fees;
- costs of hedging;
- commissions and other compensation payable to brokers or dealers;
- taxes;
- Independent Director fees and expenses;
- the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;
- our fidelity bond;
- directors and officers/errors and omissions liability insurance, and any other insurance premiums;
- indemnification payments;
- direct costs and expenses of administration, including audit, accounting, consulting and legal costs; and
- all other expenses reasonably incurred by us in connection with making investments and administering our business.

We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.

### Leverage

While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions, however, under the 1940 Act, our total borrowings are limited so that our asset coverage ratio cannot fall below 150% immediately after any borrowing, as defined in the 1940 Act. In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets as collateral to financing facilities from time to time.

### Market Trends

We believe trends in the middle-market lending environment, including the limited availability of capital from traditional regulated financial institutions, strong demand for debt capital and specialized lending requirements, are likely to continue to create favorable opportunities for us to invest at attractive risk-adjusted rates.

Subsequent to the global financial crisis, the implementation of regulatory changes such as Basel III requirements, Leverage Lending Guidance, and the Volcker Rule, tightened risk appetites and reduced the capacity of traditional lenders to serve middle-market companies. We believe that these dynamics create a significant opportunity for us to directly originate investments. We also believe that the large amount of uninvested capital held by private equity firms will continue to drive deal activity, which may in turn create additional demand for debt capital.

This market dynamic is further exacerbated by the specialized due diligence and underwriting capabilities, as well as extensive ongoing monitoring, required for middle-market lending. We believe middle-market lending is generally more labor-intensive than lending to larger companies due to smaller investment sizes and the lack of publicly available information on these companies. As a result, the opportunities for dedicated private lenders such as us has continued to expand.

An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower’s distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders.

### Portfolio and Investment Activity

As of June 30, 2023, our portfolio based on fair value consisted of 90.6% first-lien debt investments, 1.3% second-lien investments, 1.3% mezzanine debt investments, 5.0% equity and other investments and 1.8% structured credit investments. As of December 31, 2022, our portfolio based on fair value consisted of 90.3% first-lien debt investments, 1.5% second-lien debt investments, 0.4% mezzanine investments, 6.0% equity and other investments and 1.8% structured credit investments.

As of June 30, 2023 and December 31, 2022, our weighted average total yield of debt and income producing securities at fair value (which includes interest income and amortization of fees and discounts) was 14.0% and 13.5%, respectively, and our weighted average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 14.1% and 13.4%, respectively.

As of June 30, 2023 and December 31, 2022, we had investments in 130 portfolio companies (including 44 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment) and 121 portfolio companies (including 43 structured credit investments, which include each series of collateralized loan obligation as a separate portfolio company investment), respectively, with an aggregate fair value of $3,089.0 million and $2,787.9 million, respectively.

For the three months ended June 30, 2023, the principal amount of new investments funded was $240.0 million in six new portfolio companies and four existing portfolio companies. For this period, we had $114.0 million aggregate principal amount in exits and repayments.

For the three months ended June 30, 2022, the principal amount of new investments funded was $324.8 million in 30 new portfolio companies and two existing portfolio companies. For this period, we had $212.0 million aggregate principal amount in exits and repayments.

Our investment activity for the six months ended June 30, 2023 and 2022 is presented below (information presented herein is at par value unless otherwise indicated).

*($ in millions)*

| New investment commitments: | Three Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: |
| Gross originations (1) | $1,522.9 | $1,569.3 |
| Less: Syndications/sell downs (1) | 1,262.5 | 1,190.4 |
| Total new investment commitments | $260.4 | $378.9 |
| **Principal amount of investments funded:** |  |  |
| First-lien | $209.3 | $267.5 |
| Second-lien | 30.0 | — |
| Mezzanine | — | — |
| Equity and other | 0.7 | 57.3 |
| Structured Credit | — | — |
| Total | $240.0 | $324.8 |
| **Principal amount of investments sold or repaid:** |  |  |
| First-lien | $112.3 | $211.6 |
| Second-lien | — | — |
| Mezzanine | — | — |
| Equity and other | 1.7 | 0.4 |
| Structured Credit | — | — |
| Total | $114.0 | $212.0 |
| **Number of new investment commitments in new portfolio companies** | 6 | 30 |
| **Average new investment commitment amount in new portfolio companies** | $41.3 | $12.0 |
| **Weighted average term for new investment commitments in new portfolio companies (in years)** | 6.7 | 5.7 |
| **Percentage of new debt investment commitments at floating rates** | 100.0% | 100.0% |
| **Weighted average interest rate of new investment commitments** | 12.6% | 9.2% |
| **Weighted average spread over reference rate of new floating rate investment commitments** | 7.3% | 7.3% |
| **Weighted average interest rate on investments fully sold or paid down** | 15.6% | 9.1% |

(1) Includes affiliates of Sixth Street

As of June 30, 2023 and December 31, 2022, our investments consisted of the following:

*($ in millions)*

|  | June 30, 2023 Fair Value | Amortized Cost | December 31, 2022 Fair Value | Amortized Cost |
| --- | ---: | ---: | ---: | ---: |
| First-lien debt investments | $2,800.2 | $2,783.5 | $2,517.9 | $2,529.3 |
| Second-lien debt investments | 39.7 | 47.8 | 40.8 | 42.7 |
| Mezzanine debt investments | 40.2 | 37.5 | 10.1 | 7.5 |
| Equity and other investments | 154.7 | 141.6 | 167.7 | 142.1 |
| Structured credit investments | 54.2 | 55.0 | 51.4 | 53.1 |
| **Total** | $3,089.0 | $3,065.4 | $2,787.9 | $2,774.7 |

The following tables show the fair value and amortized cost of our performing and non-accrual investments as of June 30, 2023 and December 31, 2022:

*($ in millions)*

|  | June 30, 2023 Fair Value | Percentage | December 31, 2022 Fair Value | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Performing | $3,069.6 | 99.4% | $2,787.7 | 100.0% |
| Non-accrual (1) | 19.4 | 0.6 | 0.2 | 0.0 |
| **Total** | $3,089.0 | 100.0% | $2,787.9 | 100.0% |

*($ in millions)*

|  | June 30, 2023 Amortized Cost | Percentage | December 31, 2022 Amortized Cost | Percentage |
| --- | ---: | ---: | ---: | ---: |
| Performing | $3,037.2 | 99.1% | $2,772.8 | 99.9% |
| Non-accrual (1) | 28.2 | 0.9 | 1.9 | 0.1 |
| **Total** | $3,065.4 | 100.0% | $2,774.7 | 100.0% |

(1) Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection. See “–*Critical Accounting Policies – Interest and Dividend Income Recognition.”*

The weighted average yields and interest rates of our performing debt investments at fair value as of June 30, 2023 and December 31, 2022 were as follows:

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Weighted average total yield of debt and income producing securities (1) | 14.0% | 13.5% |
| Weighted average interest rate of debt and income producing securities | 13.8% | 13.1% |
| Weighted average spread over reference rate of all floating rate investments | 8.3% | 8.7% |

(1) Weighted average total portfolio yield at fair value was 13.3% at June 30, 2023 and 12.8% at December 31, 2022.

The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance of our investments, which may include the following:

- assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;
- periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;
- comparisons to other companies in the industry;
- attendance at, and participation in, board meetings; and
- review of monthly and quarterly financial statements and financial projections for portfolio companies.

As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:

- An investment is rated 1 if, in the opinion of the Adviser, it is performing as agreed and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements. For these investments, the Adviser generally prepares monthly reports on investment performance and intensive quarterly asset reviews.
- An investment is rated 2 if it is performing as agreed, but, in the opinion of the Adviser, there may be concerns about the company’s operating performance or trends in the industry. For these investments, in addition to monthly reports and quarterly asset reviews, the Adviser also researches any areas of concern with the objective of early intervention with the portfolio company.
- An investment will be assigned a rating of 3 if it is paying its obligations to us as agreed but a material covenant violation is expected. For these investments, in addition to monthly reports and quarterly asset reviews, the Adviser also adds the investment to its “watch list” and researches any areas of concern with the objective of early intervention with the portfolio company.
- An investment will be assigned a rating of 4 if a material covenant has been violated, but the company is making its scheduled payments on its obligations to us. For these investments, the Adviser generally prepares a bi-monthly asset review email and generally has monthly meetings with the portfolio company’s senior management. For investments where there have been material defaults, including bankruptcy filings, failures to achieve financial performance requirements or failure to maintain liquidity or loan-to-value requirements, the Adviser often will take immediate action to protect its position. These remedies may include negotiating for additional collateral, modifying investment terms or structure, or payment of amendment and waiver fees.
- A rating of 5 indicates an investment is in default on its interest and/or principal payments. For these investments, our Adviser reviews the investments on a bi-monthly basis and, where possible, pursues workouts that achieve an early resolution to avoid further deterioration of our investment. The Adviser retains legal counsel and takes actions to preserve our rights, which may include working with the portfolio company to have the default cured, to have the investment restructured or to have the investment repaid through a consensual workout.

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of June 30, 2023 and December 31, 2022. Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company’s business or financial condition, market conditions or developments, and other factors.

*($ in millions)*

*($ in millions)*

| Investment Performance Rating | June 30, 2023 Investments at Fair Value | Percentage of Total Portfolio | December 31, 2022 Investments at Fair Value | Percentage of Total Portfolio |
| ---: | ---: | ---: | ---: | ---: |
| 1 | $2,718.5 | 88.0% | $2,472.8 | 88.7% |
| 2 | 295.4 | 9.6 | 293.6 | 10.5 |
| 3 | 55.7 | 1.8 | 21.3 | 0.8 |
| 4 | — | — | — | — |
| 5 | 19.4 | 0.6 | 0.2 | 0.0 |
| Total | $3,089.0 | 100.0% | $2,787.9 | 100.0% |

### Results of Operations

Operating results for the three and six months ended June 30, 2023 and 2022 were as follows:

*($ in millions)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Total investment income | $107.6 | $63.9 | $204.1 | $131.3 |
| Less: Net expenses | 57.9 | 22.3 | 111.1 | 53.7 |
| Net investment income before income taxes | 49.7 | 41.6 | 93.0 | 77.6 |
| Less: Income taxes, including excise taxes | 0.9 | 0.8 | 1.3 | 1.1 |
| Net investment income | 48.8 | 40.8 | 91.7 | 76.5 |
| Net realized gains (losses) (1) | 1.5 | 0.4 | 6.7 | 14.1 |
| Net change in unrealized gains (losses) (1) | 2.8 | (54.7) | 7.6 | (63.2) |
| **Net increase (decrease) in net assets resulting from operations** | $53.1 | $(13.5) | $106.0 | $27.4 |

(1) Includes foreign exchange hedging activity.

### Investment Income

*($ in millions)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest from investments | $102.7 | $61.2 | $195.9 | $126.6 |
| Dividend income | 0.8 | 1.1 | 1.4 | 1.4 |
| Other income | 4.1 | 1.6 | 6.8 | 3.3 |
| **Total investment income** | $107.6 | $63.9 | $204.1 | $131.3 |

Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $61.2 million for the three months ended June 30, 2022 to $102.7 million for the three months ended June 30, 2023. The increase in interest from investments was primarily the result of an increase in interest earned due to an increase in reference rates for the period ended June 30, 2023 compared to the same period in 2022 and an increase in amendment fees. Accelerated amortization of upfront fees, which were primarily from unscheduled paydowns, decreased from $1.7 million for the three months ended June 30, 2022 to $0.7 million for the three months ended June 30, 2023. Prepayment fees decreased from $1.5 million for the three months ended June 30, 2022 to $0.3 million for the three months ended June 30, 2023. Accelerated amortization of upfront fees and prepayment fees primarily resulted from full paydowns on three portfolio investments, a partial paydown on three portfolio investment, realizations on one portfolio investments, and earning prepayment fees on one portfolio investments during the three months ended June 30, 2022 and from full paydowns on two portfolio investments, partial paydowns on two portfolio investments, a partial realization of two portfolio investments and earning prepayment fees on one portfolio investment during the three months ended June 30, 2023. Other income increased from $1.6 million for the three months ended June 30, 2022 to $4.1 million for the three months ended June 30, 2023, primarily due to increased amendment fees during the three months ended June 30, 2023 compared to the same period in 2022.

Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $126.6 million for the six months ended June 30, 2022 to $195.9 million for the six months ended June 30, 2023. The increase in interest from investments was primarily the result of an increase in interest earned due to an increase in reference rates for the period ended June 30, 2023 compared to the same period in 2022 and an increase in amendment fees. Accelerated amortization of upfront fees from unscheduled paydowns decreased from $3.4 million for the six months ended June 30, 2022 to $1.6 million for the six months ended June 30, 2022. Prepayment fees decreased from $6.6 million for the six months ended June 30, 2022 to $0.3 million for the six months ended June 30, 2023. Accelerated amortization of upfront fees and prepayment fees primarily resulted from full paydowns on seven portfolio investments, partial paydowns on seven portfolio investments, a partial realization of one portfolio investment, a realization of one portfolio investments and earning prepayment fees on eight portfolio investments during the six months ended June 30, 2022 and full paydowns on four portfolio investments, partial paydowns on four portfolio investments, a partial realization of three portfolio investments and earning prepayment fees on two portfolio investments during the six months ended June 30, 2023. Other income increased from $3.3 million for the six months ended June 30, 2022 to $6.8 million for the six months ended June 30, 2023, primarily due to increased miscellaneous fees earned during the six months ended June 30, 2023 compared to the same period in 2022.

### Expenses

Operating expenses for the three and six months ended June 30, 2023 and 2022 were as follows:

*($ in millions)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Interest | $32.4 | $11.9 | $60.9 | $21.6 |
| Management fees (net of waivers) | 11.1 | 9.5 | 21.6 | 18.8 |
| Incentive fees related to pre-incentive fee net investment income (net of waivers) | 10.5 | 6.7 | 20.0 | 14.6 |
| Incentive fees related to realized/unrealized capital gains | 0.7 | (9.1) | 2.5 | (7.7) |
| Professional fees | 1.8 | 1.8 | 3.5 | 3.3 |
| Directors fees | 0.2 | 0.2 | 0.4 | 0.4 |
| Other general and administrative | 1.2 | 1.3 | 2.2 | 2.7 |
| **Net Expenses** | $57.9 | $22.3 | $111.1 | $53.7 |

54

#### Interest

Interest expense, including other debt financing expenses, increased from $11.9 million for the three months ended June 30, 2022 to $32.4 million for the three months ended June 30, 2023. This increase was primarily due to an increase in the average interest rate on our debt outstanding and an increase in the average debt outstanding from $1,156.4 million for the three months ended June 30, 2022 to $1,713.0 million for the three months ended June 30, 2023. The average interest rate on our debt outstanding increased from 3.1% for the three months ended June 30, 2022 to 7.1% for the three months ended June 30, 2023.

Interest expense, including other debt financing expenses, increased from $21.6 million for the six months ended June 30, 2022 to $60.9 million for the six months ended June 30, 2023. This increase was primarily due to an increase in the average interest rate on our debt outstanding and an increase in the average debt outstanding from $1,183.6 million for the six months ended June 30, 2022 to $1,641.8 million for the six months ended June 30, 2023. The average interest rate on our debt outstanding increased from 2.7% for the six months ended June 30, 2022 to 6.9% for the six months ended June 30, 2023.

#### Management Fees

Management Fees (gross of waivers) increased from $9.5 million for the three months ended June 30, 2022 to $11.4 million for the three months ended June 30, 2023 due to an increase in average assets for the three months ended June 30, 2023 compared to the same period in 2022. Management Fees (net of waivers) increased from $9.5 million for the three months ended June 30, 2022 to $11.1 million for the three months ended June 30, 2023. The Adviser waived Management Fees of $0.3 million for the three months ended June 30, 2023 pursuant to the Leverage Waiver. The Adviser waived Management Fees of less than $0.1 million, respectively, for the six months ended June 30, 2022 pursuant to the Leverage Waiver.

Management Fees (gross of waivers) increased from $18.8 million for the six months ended June 30, 2022 to $11.4 million for the six months ended June 30, 2023 due to an increase in average assets for the six months ended June 30, 2023 compared to the same period in 2022. Management Fees (net of waivers) increased from $18.8 million for the six months ended June 30, 2022 to $22.1 million for the six months ended June 30, 2023. The Adviser waived Management Fees of $0.6 million for the six months ended June 30, 2023 pursuant to the Leverage Waiver. The Adviser waived Management Fees of less than $0.1 million, respectively, for the six months ended June 30, 2022 pursuant to the Leverage Waiver.

Any waived Management Fees are not subject to recoupment by the Adviser.

#### Incentive Fees

Incentive Fees related to pre-Incentive Fee net investment income increased from $6.7 million for the three months ended June 30, 2022 to $10.5 million for the three months ended June 30, 2023. This increase resulted from an increase in reference rates for the three months ended June 30, 2023. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the three months ended June 30, 2023 or 2022. For the three months ended June 30, 2023 and 2022, $0.7 million and $(9.1) million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of June 30, 2023, these accrued Incentive Fees are not contractually payable to the Adviser.

Incentive Fees related to pre-Incentive Fee net investment income increased from $7.9 million for the six months ended June 30, 2022 to $29.0 million for the six months ended June 30, 2023. This increase resulted from an increase in reference rates for the six months ended June 30, 2023. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the six months ended June 30, 2023 or 2022. For the six months ended June 30, 2023 and 2022, $2.5 million and $(7.7) million, respectively, of Incentive Fees were accrued related to Capital Gains Fees. As of June 30, 2023, these accrued Incentive Fees are not contractually payable to the Adviser.

#### Professional Fees and Other General and Administrative Expenses

Professional fees remained constant from $1.8 million for the three months ended June 30, 2022 to $1.8 million for the three months ended June 30, 2023. Other general and administrative expenses decreased from $1.3 million for the three months ended June 30, 2022 to $1.2 million for the three months ended June 30, 2023.

Professional fees increased from $3.3 million for the six months ended June 30, 2022 to $3.5 million for the six months ended June 30, 2023. Other general and administrative expenses decreased from $2.7 million for the six months ended June 30, 2022 to $2.2 million for the six months ended June 30, 2023.

### Income Taxes, Including Excise Taxes

We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes.

Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income.

For the three and six months ended June 30, 2023, we recorded a net expense of $0.9 million and $1.3 million, respectively, for U.S. federal excise tax and other taxes. For the three and six months ended June 30, 2022, we recorded a net expense of $0.8 million and $1.1 million, respectively, for U.S. federal excise tax and other taxes.

### Net Realized and Unrealized Gains and Losses

The following table summarizes our net realized and unrealized gains (losses) for the three and six months ended June 30, 2023 and 2022:

*($ in millions)*

|  | Three Months Ended June 30, 2023 | June 30, 2022 | Six Months Ended June 30, 2023 | June 30, 2022 |
| --- | ---: | ---: | ---: | ---: |
| Net realized gains (losses) on investments | $1.6 | $0.4 | $6.4 | $14.1 |
| Net realized gains (losses) on foreign currency transactions | (0.1) | (0.0) | 0.1 | (0.0) |
| Net realized gains (losses) on foreign currency investments | (0.0) | 0.0 | (0.0) | 0.1 |
| Net realized gains (losses) on foreign currency borrowings | (0.0) | 0.0 | 0.2 | (0.1) |
| **Net Realized Gains (Losses)** | $1.5 | $0.4 | $6.7 | $14.1 |
| Change in unrealized gains on investments | $18.0 | $5.8 | $40.0 | $22.5 |
| Change in unrealized (losses) on investments | (13.1) | (66.6) | (29.6) | (87.0) |
| **Net Change in Unrealized Gains (Losses) on Investments** | $4.9 | $(60.8) | $10.4 | $(64.5) |
| Unrealized gains (losses) on foreign currency borrowings | (2.0) | 7.7 | (2.7) | 5.9 |
| Unrealized gains (losses) on foreign currency cash | 0.0 | (0.0) | (0.3) | (0.0) |
| Unrealized gains (losses) on interest rate swaps | (0.1) | (1.6) | 0.2 | (4.6) |
| **Net Change in Unrealized Gains (Losses) on Foreign Currency Transactions and Interest Rate Swaps** | $(2.1) | $6.1 | $(2.8) | $1.3 |
| **Net Change in Unrealized Gains (Losses)** | $2.8 | $(54.7) | $7.6 | $(63.2) |

For the three and six months ended June 30, 2023, we had net realized gains on investments of $1.6 million and $6.4 million, respectively, primarily driven by one investment and one investment, respectively. For the three and six months ended June 30, 2023, we had net realized losses of $(0.1) million and net realized gains of $0.1 million, respectively on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three and six months ended June 30, 2023, we had net realized losses of less than $(0.1) million, respectively, on foreign currency investments. For the three and six months ended June 30, 2023, we had net realized losses of less than $(0.1) million and net realized gains of $0.2 million on foreign currency borrowings. The net realized gains and losses on foreign currency borrowings were a result of payments on our revolving credit facility.

For the three months ended June 30, 2023, we had $18.0 million in unrealized gains on 102 portfolio company investments, which was offset by $(13.1) million in unrealized losses on 30 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, and also lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments. For the six months ended June 30, 2023, we had $40.0 million in unrealized gains on 108 portfolio company investments, which was offset by $(29.6) million in unrealized losses on 26 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, and also lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments.

For the three and six months ended June 30, 2023, we had unrealized losses on foreign currency borrowings of $(2.0) million and $(2.7) million, respectively, on foreign currency borrowings, as a result of fluctuations in the AUD, CAD, EUR and GBP exchange rates. For the three and six months ended June 30, 2023, we had unrealized gains on foreign currency cash of less than $0.1 million and unrealized losses of $(0.3) million, respectively. For the three and six months ended June 30, 2023, we had unrealized losses on interest rate swaps of $(0.1) million and unrealized gains of $0.2 million, respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps.

For the three and six months ended June 30, 2022, we had net realized gains on investments of $0.4 million and $14.1 million, respectively, primarily driven by one investment and one investment, respectively. For the three and six months ended June 30, 2022, we had net realized losses of less than $(0.1) million on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three and six months ended June 30, 2022, we had net realized gains of less than $0.1 million and $0.1 million, respectively, on foreign currency investments. For the three months ended June 30, 2022, we had net realized gains of less than $0.1 million on foreign currency borrowings and for the six months ended June 30, 2022 we had net realized losses of $(0.1) million on foreign currency borrowings. The net realized gains and losses on foreign currency borrowings were a result of payments on our revolving credit facility.

For the three months ended June 30, 2022, we had $5.8 million in unrealized gains on 6 portfolio company investments, which was offset by $(66.6) million in unrealized losses on 90 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, and also lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments. For the six months ended June 30, 2022, we had $22.5 million in unrealized gains on 9 portfolio company investments, which was offset by $(87.0) million in unrealized losses on 91 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive portfolio company specific developments. Unrealized losses primarily resulted from widening credit spreads, and also lesser impacts from the reversal of prior period unrealized gains due to realizations and negative portfolio company specific developments.

For the three and six months ended June 30, 2022, we had unrealized gains on foreign currency borrowings of $7.7 million and $5.9 million, respectively, on foreign currency borrowings, as a result of fluctuations in the AUD, CAD, EUR and GBP exchange rates. For the three and six months ended June 30, 2022, we had unrealized losses on foreign currency cash of less than $(0.1) million. For the three and six months ended June 30, 2022, we had unrealized losses on interest rate swaps of $(1.6) million and $(4.6) million, respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps.

### Realized Gross Internal Rate of Return

Since we began investing in 2011 through June 30, 2023, weighted by capital invested, our exited investments have generated an average realized gross internal rate of return to us of 17.5% (based on total capital invested of $6.8 billion and total proceeds from these exited investments of $8.5 billion). Ninety percent of these exited investments resulted in a realized gross internal rate of return to us of 10% or greater.

Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur.

Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of Management Fees, expenses, Incentive Fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.

Average gross IRR is the average of the gross IRR for each of our exited investments (each calculated as described above), weighted by the total capital invested for each of those investments.

Average gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.

Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited.

Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital invested also includes realized losses on hedging activity, with respect to an investment, which represents any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any.

Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees, administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, which represents any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any.

### Interest Rate and Foreign Currency Hedging

We use interest rate swaps to hedge our fixed rate debt and certain fixed rate investments. We have designated certain interest rate swaps to be in a hedge accounting relationship. See Note 2 for additional disclosure regarding our accounting for derivative instruments designated in a hedge accounting relationship. See Note 5 for additional disclosure regarding these derivative instruments and the interest payments paid and received. See Note 7 for additional disclosure regarding the carrying value of our debt.

Our current approach to hedging the foreign currency exposure in our non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under our Revolving Credit Facility to fund these investments. For the six months ended June 30, 2023 and 2022, we had $(2.7) million of unrealized losses and $5.9 million of unrealized gains, respectively, on the translation of our non-U.S. dollar denominated debt into U.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments into U.S. dollars for the six months ended June 30, 2023 and 2022. See Note 2 for additional disclosure regarding our accounting for foreign currency. See Note 7 for additional disclosure regarding the amounts of outstanding debt denominated in each foreign currency at June 30, 2023. See our consolidated schedule of investments for additional disclosure regarding the foreign currency amounts (in both par and fair value) of our non-U.S. dollar denominated investments.

### Financial Condition, Liquidity and Capital Resources

Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:

- investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements;
- the cost of operations (including paying our Adviser);
- debt service, repayment, and other financing costs; and
- cash dividends to the holders of our shares.

We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. For more information, see “Key Components of Our Results of Operations — Leverage” above. As of June 30, 2023 and December 31, 2022, our asset coverage ratio was 186.1% and 188.6%, respectively. We carefully consider our unfunded commitments for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. Further, we maintain sufficient borrowing capacity within the 150% asset coverage limitation under the 1940 Act and the asset coverage limitation under our credit facilities to cover any outstanding unfunded commitments we are required to fund.

Cash and cash equivalents as of June 30, 2023, taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As of June 30, 2023, we had approximately $0.5 billion of availability on our Revolving Credit Facility, subject to asset coverage limitations.

As of June 30, 2023, we had $25.9 million in cash and cash equivalents, including $15.1 million of restricted cash, an increase of $0.2 million from December 31, 2022. During the six months ended June 30, 2023, cash used in operating activities was $(186.6)

million, primarily attributable to funding portfolio investments of $455.6 million, which was offset by repayments and proceeds from investments of $176.6 million and an increase in net assets resulting from operations of $106.0 million. Cash provided by financing activities was $186.8 million during the period due to borrowings of $750.1 million, which was offset by paydowns on our Revolving Credit Facility of $571.1 million and change in dividends payable of $76.4 million.

### Equity

On February 23, 2021, we issued a total of 4,000,000 shares of common stock at $21.30 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $84.9 million. Subsequent to the offering we issued an additional 49,689 shares on March 24, 2021 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $1.0 million.

During the three months ended December 2021, we issued a total of 2,324,820 shares of common stock, or $42.3 million, as settlement for the conversion of $42.8 million principal amount of the 2022 Convertible Notes.

On August 1, 2022, we issued a total of 4,360,125 share of common stock, or $78.1 million, as settlement for the conversion of $79.2 million principal amount of the 2022 Convertible Notes.

On May 15, 2023, we issued a total of 4,500,000 shares of common stock at $17.60 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $77.6 million. Subsequent to the offering we issued an additional 675,000 shares on June 12, 2023 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $11.7 million.

During the six months ended June 30, 2023 and 2022, we also issued 676,944 and 567,973 shares of our common stock, respectively, to investors who have not opted out of our dividend reinvestment plan for proceeds of $5.6 million and $12.6 million, respectively.

On August 4, 2015, our Board authorized us to acquire up to $50 million in aggregate of our common stock from time to time over an initial six month period, and has continued to authorize the refreshment of the $50 million amount authorized under and extension of the stock repurchase program prior to its expiration since that time, most recently as of May 8, 2023. The amount and timing of stock repurchases under the program may vary depending on market conditions, and no assurance can be given that any particular amount of common stock will be repurchased.

No shares were repurchased for the three months ended June 30, 2023 and 2022.

### Debt

#### Revolving Credit Facility

On August 23, 2012, we entered into a senior secured revolving credit agreement with Truist Bank (as a successor by merger to SunTrust Bank), as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).

As of March 31, 2023, aggregate commitments under the facility were $1.585 billion. Pursuant to an amendment to the Revolving Credit Facility dated as of June 12, 2023 (the “Fourteenth Amendment”), the aggregate commitments under the facility were increased to $1.710 billion. The facility includes an uncommitted accordion feature that allows the Company, under certain circumstances, to increase the size of the facility to up to $2.0 billion.

Pursuant to the Fourteenth Amendment, with respect to $1.465 billion in commitments, the revolving period, during which period the Company, subject to certain conditions, may make borrowings under the facility, was extended to June 11, 2027 and the stated maturity date was extended to June 12, 2028. For the remaining $245.0 million of commitments, (A) with respect to $25.0 million of commitments, the revolving period ends January 31, 2024 and the stated maturity is January 31, 2025, (B) with respect to $50.0 million of commitments, the revolving period ends on February 4, 2025 and the stated maturity is February 4, 2026 and (C) with respect to $170.0 million of commitments, the revolving period ends April 24, 2026 and the stated maturity is April 23, 2027.

We may borrow amounts in U.S. dollars or certain other permitted currencies. As of June 30, 2023, we had outstanding debt denominated in Australian Dollars (AUD) of 67.5 million, British pounds (GBP) of 14.0 million, Canadian Dollars (CAD) of 101.7 million, and Euro (EUR) of 28.0 million on our Revolving Credit Facility, included in the outstanding principal amount in the table above.

The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75.0 million. As of June 30, 2023 and December 31, 2022 the Company had $0.2 million and less than $0.1 million letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.

Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either the applicable reference rate plus an applicable credit spread adjustment, plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. We may elect either the applicable reference rate or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.

The Revolving Credit Facility is guaranteed by Sixth Street SL SPV, LLC, TC Lending, LLC and Sixth Street SL Holding, LLC. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants. In accordance with the terms of the Fourteenth Amendment, the financial covenants require:

- an asset coverage ratio of no less than 1.5 to 1 on the last day of any fiscal quarter;
- stockholders’ equity of at least $500 million plus 25% of the net proceeds of the sale of equity interests after January 31, 2020; and
- minimum asset coverage ratio of no less than 2 to 1 with respect to (i) the consolidated assets of the Company and the subsidiary guarantors (including certain limitations on the contribution of equity in financing subsidiaries) to (ii) the secured debt of the Company and its subsidiary guarantors plus unsecured senior securities of the Company and its subsidiary guarantors that mature within 90 days of the date of determination (the “Obligor Asset Coverage Ratio”).

The Revolving Credit Facility also contains certain additional concentration limits in connection with the calculation of the borrowing base, based on the Obligor Asset Coverage Ratio.

#### 2022 Convertible Notes

In February 2017, we issued in a private offering $115.0 million aggregate principal amount convertible notes due August 2022 (the “2022 Convertible Notes”). The 2022 Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2022 Convertible Notes were unsecured, and bore interest at a rate of 4.50% per year, payable semiannually. In June 2018, we issued an additional $57.5 million aggregate principal amount of 2022 Convertible Notes. The additional 2022 Convertible Notes were issued with identical terms, and were fungible with and were part of a single series with the previously outstanding $115.0 million aggregate principal amount of our 2022 Convertible Notes issued in February 2017. In connection with the offering of 2022 Convertible Notes in February 2017 and the reopening in June 2018, we entered into interest rate swaps to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swaps matched the amount of principal outstanding, and matured on August 1, 2022, matching the maturity date of the 2022 Convertible Notes.

On August 1, 2022, the 2022 Convertible Notes matured in accordance with the governing indenture. Holders of $79.2 million aggregate principal amount of notes provided valid notice of conversion and were subject to the combination settlement method previously elected by us, with a specified cash amount (as defined in the indenture governing the 2022 Convertible Notes) of $20.00 per $1,000 principal amount of the 2022 Convertible Notes and any additional amounts in stock based on the applicable conversion rate as described in the indenture. In accordance with the settlement method, we issued a total of 4,360,125 shares of common stock, or $77.6 million at the adjusted conversion price per share of $17.92. The remaining balance of the notes that were not converted into newly issued shares of common stock were settled with existing cash resources, including through utilization of our Revolving Credit Facility. The interest rate swaps associated with the principal amount of the notes outstanding were terminated on the date of maturity of the 2022 Convertible Notes.

In January 2018, we issued $150.0 million aggregate principal amount of unsecured notes that matured on January 22, 2023 (the “2023 Notes”). The principal amount of the 2023 Notes was payable at maturity. The 2023 Notes bore interest at a rate of 4.50% per year, payable semi-annually commencing on July 22, 2018, and were redeemable in whole or in part at our option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $146.9 million. We used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility. The 2023 Notes matured on January 22, 2023 and were fully repaid in cash. The swap transaction associated with the issuance of the 2023 Notes also matured on January 22, 2023.

In November 2019, we issued $300.0 million aggregate principal amount of unsecured notes that mature on November 1, 2024 (the “2024 Notes”). The principal amount of the 2024 Notes is payable at maturity. The 2024 Notes bear interest at a rate of 3.875% per year, payable semi-annually commencing on May 1, 2020, and may be redeemed in whole or in part at our option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts, offering costs and original issue discount were $292.9 million. We used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

On February 5, 2020, we issued an additional $50.0 million aggregate principal amount of unsecured notes that mature on November 1, 2024. The additional 2024 Notes are a further issuance of, fungible with, rank equally in right of payment with and have the same terms (other than the issue date and the public offering price) as the initial issuance of 2024 Notes. Total proceeds from the issuance of the additional 2024 Notes, net of underwriting discounts, offering costs and original issue premium were $50.1 million. We used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

In connection with the 2024 Notes offering and reopening of the 2024 Notes, we entered into interest rate swaps to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is $300.0 million and $50.0 million, respectively, each of which matures on November 1, 2024, matching the maturity date of the 2024 Notes. As a result of the swaps, our effective interest rate on the 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis).

During the year ended December 31, 2020, we repurchased on the open market and extinguished $2.5 million in aggregate principal amount of the 2024 Notes for $2.4 million. These repurchases resulted in a gain on extinguishment of debt of less than $0.1 million. This gain is included in the extinguishment of debt in the accompanying Consolidated Statements of Operations. In connection with the repurchase of the 2024 Notes, we entered into a floating-to-fixed interest rate swap with a notional amount equal to the amount of 2024 Notes repurchased, which had the effect of reducing the notional exposure of the fixed-to-floating interest rate swaps, which were entered into in connection with the issuance of the 2024 Notes, to match the remaining principal amount of the 2024 Notes outstanding. As a result of the swap, our effective interest rate on the outstanding 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis). Due to the Index Cessation Event, each Legacy LIBOR Instrument referenced herein will transition to 3-month SOFR plus the relevant tenor spread adjustment effective September 25, 2023. As a result of the transition, our effective interest rate will be three-month SOFR plus 2.54% (on a weighted average basis).

On February 3, 2021, we issued $300.0 million aggregate principal amount of unsecured notes that mature on August 1, 2026 (the “2026 Notes”). The principal amount of the 2026 Notes is payable at maturity. The 2026 Notes bear interest at a rate of 2.50% per year, payable semi-annually commencing on August 1, 2021, and may be redeemed in whole or in part at our option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2026 Notes, net of underwriting discounts, offering costs and original issue discount, were $293.7 million. We used the net proceeds of the 2026 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

In connection with the issuance of the 2026 Notes, we entered into an interest rate swap to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is $300.0 million, which matures on August 1, 2026, matching the maturity date of the 2026 Notes. As a result of the swap, our effective interest rate on the 2026 Notes is three-month LIBOR plus 1.91%. Due to the Index Cessation Event, each Legacy LIBOR Instrument referenced herein will transition to 3-month SOFR plus the relevant tenor spread adjustment effective September 25, 2023. As a result of the transition, our effective interest rate will be three-month SOFR plus 2.17%.

Debt obligations consisted of the following as of June 30, 2023 and December 31, 2022:

*($ in millions)*

|  | June 30, 2023 Aggregate Principal Amount Committed | Outstanding Principal | Amount Available (1) | Carrying Value (2)(3) |
| --- | ---: | ---: | ---: | ---: |
| Revolving Credit Facility | $1,710.0 | $1,050.8 | $659.2 | $1,033.9 |
| 2024 Notes | 347.5 | 347.5 | — | 328.0 |
| 2026 Notes | 300.0 | 300.0 | — | 261.4 |
| **Total Debt** | $2,357.5 | $1,698.3 | $659.2 | $1,623.3 |

(1) The amount available may be subject to limitations related to the borrowing base under the Revolving Credit Facility and asset coverage requirements.

(2) The carrying values of the Revolving Credit Facility, 2024 Notes and 2026 Notes are presented net of the combination of deferred financing costs and original issue discounts totaling $16.9 million, $1.9 million and $3.6 million, respectively.

(3) The carrying values of the 2024 Notes and 2026 Notes are presented inclusive of an incremental $(17.6) million and $(35.1) million, respectively, which represents an adjustment in the carrying values of the 2024 Notes and 2026 Notes, each resulting from a hedge accounting relationship.

*($ in millions)*

|  | December 31, 2022 Aggregate Principal Amount Committed | Outstanding Principal | Amount Available (1) | Carrying Value (2)(3) |
| --- | ---: | ---: | ---: | ---: |
| Revolving Credit Facility | $1,585.0 | $719.3 | $865.7 | $706.2 |
| 2023 Notes | 150.0 | 150.0 | — | 149.9 |
| 2024 Notes | 347.5 | 347.5 | — | 325.5 |
| 2026 Notes | 300.0 | 300.0 | — | 260.2 |
| **Total Debt** | $2,382.5 | $1,516.8 | $865.7 | $1,441.8 |

(1) The amount available may be subject to limitations related to the borrowing base under the Revolving Credit Facility and asset coverage requirements.

(2) The carrying values of the Revolving Credit Facility, 2023 Notes, 2024 Notes and 2026 Notes are presented net of the combination of deferred financing costs and original issue discounts totaling $13.2 million, less than $0.1 million, $2.6 million and $4.1 million, respectively.

(3) The carrying values of the 2024 Notes and 2026 Notes are presented inclusive of an incremental $(19.4) million and $(35.7) million, which represents an adjustment in the carrying values of the 2024 Notes and 2026 Notes, each resulting from a hedge accounting relationship.

As of June 30, 2023 and December 31, 2022, we were in compliance with the terms of our debt arrangements. We intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes.

### Off-Balance Sheet Arrangements

### Portfolio Company Commitments

From time to time, we may enter into commitments to fund investments. We incorporate these commitments into our assessment of our liquidity position. Our senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured delayed draw term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured delayed draw term loan commitments generally have a shorter availability period than the term of the associated loan agreement. As of June 30, 2023 and December 31, 2022, we had the following commitments to fund investments in current portfolio companies:

*($ in millions)*

|  | June 30, 2023 | December 31, 2022 |
| --- | ---: | ---: |
| Alaska Bidco Oy - Delayed Draw & Revolver | $0.3 | $— |
| Alpha Midco, Inc. - Delayed Draw | 0.7 | 0.9 |
| American Achievement, Corp. - Revolver | 2.4 | 2.4 |
| Arrow Buyer, Inc. - Delayed Draw | 7.6 | — |
| ASG II, LLC - Delayed Draw | 5.2 | 7.0 |
| Avalara, Inc. - Revolver | 3.9 | 3.9 |
| Axonify, Inc. - Delayed Draw | 4.1 | 6.1 |
| Banyan Software Holdings, LLC - Delayed Draw | 20.0 | — |
| Bayshore Intermediate #2, L.P. - Revolver | 1.9 | 1.6 |
| BCTO Ace Purchaser, Inc. - Delayed Draw | 3.6 | 6.6 |
| Bear OpCo, LLC - Delayed Draw | 1.9 | 2.6 |
| BlueSnap, Inc. - Delayed Draw & Revolver | 2.5 | 2.5 |
| BTRS Holdings, Inc. - Delayed Draw & Revolver | 6.0 | 8.6 |
| Carlstar Group, LLC - Revolver | 8.5 | 8.5 |
| Cordance Operations, LLC - Delayed Draw & Revolver | 5.7 | 12.0 |
| Coupa Holdings, LLC - Delayed Draw & Revolver | 6.8 | — |
| CrunchTime Information Systems, Inc. - Delayed Draw | 0.2 | 7.1 |
| Disco Parent, Inc. - Revolver | 0.5 | — |
| Dye & Durham Corp. - Delayed Draw & Revolver | 2.6 | 6.3 |
| EDB Parent, LLC - Delayed Draw | 14.8 | 18.0 |
| Edge Bidco B.V. - Delayed Draw & Revolver | 1.4 | — |
| Elysian Finco Ltd. - Delayed Draw & Revolver | 5.7 | 6.8 |
| Employment Hero Holdings Pty Ltd. - Delayed Draw & Revolver | 5.8 | 8.8 |
| EMS Linq, Inc. - Revolver | 8.7 | 8.8 |
| Erling Lux Bidco SARL - Delayed Draw & Revolver | 3.5 | 5.6 |
| ExtraHop Networks, Inc. - Delayed Draw | 13.8 | 17.1 |
| ForeScout Technologies, Inc. - Delayed Draw & Revolver | 3.4 | 3.4 |
| G Treasury SS, LLC - Delayed Draw | — | 3.3 |
| Galileo Parent, Inc. - Revolver | 5.6 | — |
| Hirevue, Inc. - Revolver | 6.9 | — |
| Hornetsecurity Holding GmbH - Delayed Draw & Revolver | 2.1 | 2.0 |
| Ibis Intermediate Co. - Delayed Draw | 6.3 | 6.3 |
| IRGSE Holding Corp. - Revolver | 1.9 | 0.3 |
| Kyriba Corp. - Delayed Draw & Revolver | — | — |
| Laramie Energy, LLC - Delayed Draw | 7.7 | — |
| LeanTaaS Holdings, Inc. - Delayed Draw | 41.1 | 47.2 |
| Lithium Technologies, LLC - Revolver | 1.0 | 2.0 |
| Lucidworks, Inc. - Delayed Draw | 0.8 | 0.8 |
| Murchison Oil and Gas, LLC - Delayed Draw | 3.3 | 9.8 |
| Netwrix Corp. - Delayed Draw & Revolver | 12.7 | 13.9 |
| Neuintel, LLC - Delayed Draw | — | 4.2 |
| OutSystems Luxco SARL - Delayed Draw | 2.2 | 2.1 |
| PageUp People, Ltd. - Delayed Draw & Revolver | — | 5.8 |
| Passport Labs, Inc. - Delayed Draw & Revolver | 2.8 | 2.8 |
| Ping Identity Holding Corp. - Revolver | 2.3 | 2.3 |
| PrimePay Intermediate, LLC - Delayed Draw | — | 2.5 |
| PrimeRevenue, Inc. - Delayed Draw & Revolver | 6.2 | 6.3 |
| Project44, Inc. - Delayed Draw | 19.9 | 19.9 |
| ReliaQuest Holdings, LLC - Delayed Draw | 13.9 | 22.7 |
| Tango Management Consulting, LLC - Delayed Draw & Revolver | 16.8 | 26.6 |
| TRP Assets, LLC - Delayed Draw & Membership Interest | 4.3 | 7.8 |
| WideOrbit, Inc. - Revolver | — | 4.8 |
| **Total Portfolio Company Commitments (1)(2)** | $299.3 | $338.0 |

(1) Represents the full amount of our commitments to fund investments on such date. Commitments may be subject to limitations on borrowings set forth in the agreements between us and the applicable portfolio company. As a result, portfolio companies may not be eligible to borrow the full commitment amount on such date.

(2) Our estimate of the fair value of the current investments in these portfolio companies includes an analysis of the fair value of any unfunded commitments.

### Other Commitments and Contingencies

As of June 30, 2023 and December 31, 2022, we did not have any unfunded commitments to fund new investments to new borrowers that were not current portfolio companies as of such date.

From time to time, we may become a party to certain legal proceedings incidental to the normal course of our business. As of June 30, 2023, management is not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.

We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee.

Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on those related activities (based on a percentage of time those individuals devote, on an estimated basis, to our business and affairs). Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.

### Contractual Obligations

A summary of our contractual payment obligations as of June 30, 2023 is as follows:

*($ in millions)*

|  | Payments Due by Period Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| Revolving Credit Facility | $1,050.8 | $— | $— | $1,050.8 | $— |
| 2024 Notes | 347.5 | 347.5 | — | — | — |
| 2026 Notes | 300.0 | — | 300.0 | — | — |
| **Total Contractual Obligations** | $1,698.3 | $347.5 | $300.0 | $1,050.8 | $— |

In addition to the contractual payment obligations in the tables above, we also have commitments to fund investments and to pledge assets as collateral under the terms of our derivatives agreements.

### Distributions

We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:

- investment company taxable income (which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses), determined without regard to the deduction for dividends paid, for such taxable year; and
- net tax-exempt interest income (which is the excess of our gross tax exempt interest income over certain disallowed deductions) for such taxable year.

As a RIC, we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders.

We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-level U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the U.S. federal excise tax described below.

Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of:

- 98% of our net ordinary income excluding certain ordinary gains or losses for that calendar year;
- 98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the twelve-month period ending on October 31 of that calendar year; and
- 100% of any income or gains recognized, but not distributed, in preceding years.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement.

We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.

To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.

### Related-Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

- the Investment Advisory Agreement;
- the Administration Agreement; and
- an ongoing agreement with an affiliate of TPG Global, LLC governing, inter alia, the parties’ respective ownership of and rights to use the “Sixth Street” and “TPG” trademarks and certain variations thereof.

### Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, and elsewhere in our filings with the SEC.

## Market risk

As filed, 5,080 characters.

We are subject to financial market risks, including valuation risk, interest rate risk and currency risk.

### Valuation Risk

We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.

### Interest Rate Risk

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We also fund portions of our investments with borrowings. Our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

As of June 30, 2023, 99.2% of our debt investments based on fair value in our portfolio bore interest at floating rates, with 100.0% of these subject to interest rate floors. Our credit facilities also bear interest at floating rates, and in connection with our 2024 Notes and 2026 Notes, which bear interest at fixed rates, we entered into fixed-to-floating interest rate swaps in order to align the interest rates of our liabilities with our investment portfolio.

Assuming that our consolidated balance sheet as of June 30, 2023 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (considering interest rate floors for floating rate instruments):

*($ in millions)*

| Basis Point Change | Interest Income | Interest Expense | Net Interest Income |
| --- | ---: | ---: | ---: |
| Up 300 basis points | $88.4 | $50.9 | $37.5 |
| Up 200 basis points | $58.9 | $34.0 | $24.9 |
| Up 100 basis points | $29.5 | $17.0 | $12.5 |
| Down 25 basis points | $(7.4) | $(4.2) | $(3.2) |
| Down 50 basis points | $(14.7) | $(8.5) | $(6.2) |

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.

We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.

### Currency Risk

From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our Revolving Credit Facility, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate.

## Controls and procedures

As filed, 1,063 characters.

***Evaluation of Disclosure Controls and Procedures.*** As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.

***Changes in Internal Control over Financial Reporting.*** There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 20,328 characters.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and the risk factors set forth below, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

*Pursuant to Section 61(a)(2)(C)(ii) of the 1940 Act, the principal risk factors associated with our senior securities are set forth below. However, since we already use leverage in optimizing our investment portfolio, the principal risk factors associated with our senior securities do not represent material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.*

### Legislation allows us to incur additional leverage.

Under the 1940 Act, a BDC generally is not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is at least 200%. However, under the SBCAA, which became law in March 2018, BDCs have the ability to elect to become subject to a lower asset coverage requirement of 150%, subject to the receipt of the requisite board or stockholder approvals under the SBCAA and satisfaction of certain other conditions.

On October 8, 2018, our stockholders approved the application of the minimum asset coverage ratio of 150% to us, as set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCAA. As a result and subject to certain additional disclosure requirements, as of October 9, 2018, our minimum asset coverage ratio was reduced from 200% to 150%. In other words, pursuant to Section 61(a) of the 1940 Act, as amended by the SBCAA, we are permitted to potentially increase our maximum debt-to-equity ratio from an effective level of one-to-one to two-to-one.

As a result, you may face increased investment risk. We may not be able to implement our strategy to utilize additional leverage successfully. Any impact on returns or equity or our business associated with additional leverage may not outweigh the additional risk. See “—*We borrow money, which magnifies the potential for gain or loss and increases the risk of investing in us.”*

***Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital.***

The 1940 Act imposes numerous constraints on the operations of BDCs. See “ITEM 1. BUSINESS—Regulation as a Business Development Company” in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 16, 2023, for a discussion of BDC limitations. For example, BDCs are required to invest at least 70% of their total assets in securities of nonpublic or thinly traded U.S. companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less. These constraints may hinder the Adviser’s ability to take advantage of attractive investment opportunities and to achieve our investment objective.

We may need to periodically access the debt and equity capital markets to raise cash to fund new investments in excess of our repayments, and we may also need to access the capital markets to refinance existing debt obligations to the extent such maturing obligations are not repaid with availability under our revolving credit facilities or cash flows from operations.

Regulations governing our operation as a BDC affect our ability to raise additional capital, and the ways in which we can do so. Raising additional capital may expose us to risks, including the typical risks associated with leverage, and may result in dilution to our current stockholders. The 1940 Act limits our ability to incur borrowings and issue debt securities and preferred stock, which we refer to as senior securities, requiring that after any borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%.

We may need to continue to borrow from financial institutions and issue additional securities to fund our growth. Unfavorable economic or capital market conditions may increase our funding costs, limit our access to the capital markets or could result in a decision by lenders not to extend credit to us. An inability to successfully access the capital markets may limit our ability to refinance our existing debt obligations as they come due and/or to fully execute our business strategy and could limit our ability to grow or cause us to have to shrink the size of our business, which could decrease our earnings, if any. Consequently, if the value of our assets declines or we are unable to access the capital markets we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when this may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. If we borrow money or issue senior securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss.

If we issue preferred stock, the preferred stock would rank senior to common stock in our capital structure. Preferred stockholders would have separate voting rights on certain matters and may have other rights, preferences or privileges more favorable than those of our common stockholders. The issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in your best interest. Holders of our common stock will directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our common stock and the rights of holders of shares of preferred stock to receive dividends would be senior to those of holders of shares of our common stock.

Our Board may decide to issue additional common stock to finance our operations rather than issuing debt or other senior securities. However, we generally are not able to issue and sell our common stock at a price below net asset value per share. We may, however, elect to issue and sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board determines that the sale is in our best interests and the best interests of our stockholders, and our stockholders have approved our policy and practice of making these sales within the preceding 12 months. Pursuant to approval granted at a special meeting of stockholders held on May 25, 2023, we are currently permitted to sell or otherwise issue shares of our common stock at a price below our then-current net asset value per share, subject to the approval of our Board and certain other conditions. Such stockholder approval expires on May 25, 2024. We may in the future seek such approval again; however, there is no assurance such approval will be obtained. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of those securities (less any distribution commission or discount). In the event we sell shares of our common stock at a price below net asset value per share, existing stockholders will experience net asset value dilution. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per share of our common stock and would cause a proportionately greater decrease in the stockholders’ interest in our earnings and assets and their voting interest in us than the increase in our assets resulting from such issuance. As a result of any such dilution, our market price per share may decline. Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect cannot be predicted.

In addition to issuing securities to raise capital as described above, we could securitize our investments to generate cash for funding new investments. To securitize our investments, we likely would create a wholly owned subsidiary, contribute a pool of loans to the subsidiary and have the subsidiary issue primarily investment grade debt securities to purchasers who we would expect would be willing to accept a substantially lower interest rate than the loans earn. We would retain all or a portion of the equity in the securitized pool of loans. Our retained equity would be exposed to any losses on the portfolio of investments before any of the debt securities would be exposed to the losses. An inability to successfully securitize our investment portfolio could limit our ability to grow or fully execute our business and could adversely affect our earnings, if any. The successful securitization of our investment could expose us to losses because the portions of the securitized investments that we would typically retain tend to be those that are riskier and more apt to generate losses. The 1940 Act also may impose restrictions on the structure of any securitization. In connection with any future securitization of investments, we may incur greater set-up and administration fees relating to such vehicles than we have in connection with financing of our investments in the past.

***We borrow money, which magnifies the potential for gain or loss and increases the risk of investing in us.***

As part of our business strategy, we borrow from and may in the future issue additional senior debt securities to banks, insurance companies and other lenders. Holders of these loans or senior securities would have fixed-dollar claims on our assets that have priority over the claims of our stockholders. If the value of our assets decreases, leverage will cause our net asset value to decline more sharply than it otherwise would have without leverage. Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed. This decline could negatively affect our ability to make dividend payments on our common stock. Our ability to service our borrowings depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. In addition, the Management Fee is payable based on our gross assets, including cash and assets acquired through the use of leverage, which may give our Adviser an incentive to use leverage to make additional investments. The amount of leverage that we employ will depend on our Adviser’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us.

Our credit facilities and indentures governing our indebtedness also impose financial and operating covenants that restrict our business activities, remedies on default and similar matters. As of June 30, 2023, we are in compliance with the covenants of our credit facilities and indentures. However, our continued compliance with these covenants depends on many factors, some of which are beyond our control. Accordingly, although we believe we will continue to be in compliance, we cannot assure you that we will continue to comply with the covenants in our credit facilities and indentures. Failure to comply with these covenants could result in a default. If we were unable to obtain a waiver of a default from the lenders or holders of that indebtedness, as applicable, those lenders or holders could accelerate repayment under that indebtedness. An acceleration could have a material adverse impact on our business, financial condition and results of operations. Lastly, we may be unable to obtain additional leverage, which would, in turn, affect our return on capital.

As of June 30, 2023, we had $1,698.3 million of outstanding indebtedness, which had an annualized interest cost of 7.13% under the terms of our debt, excluding fees (such as fees on undrawn amounts and amortization of upfront fees) and giving effect to the swap-adjusted interest rates on our 2024 Notes and 2026 Notes. As of June 30, 2023, as adjusted to give effect to the interest rate swaps, the interest rate on the 2024 Notes was three-month LIBOR plus 2.28% (on a weighted-average basis), and the interest rate on the 2026 Notes was three-month LIBOR plus 1.91%. On September 25, 2023, the swap-adjusted interest rate on the 2024 Notes and 2026 Notes will transition to three-month SOFR plus 2.54% (on a weighted average basis), and three-month SOFR plus 2.17%, respectively.

For us to cover these annualized interest payments on indebtedness, we must achieve annual returns on our investments of at least 3.9%. Since we generally pay interest at a floating rate on our debt, an increase in interest rates will generally increase our borrowing costs. We expect that our annualized interest cost and returns required to cover interest will increase if we issue additional debt securities.

In order to assist investors in understanding the effects of leverage, the following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. Leverage generally magnifies the return of stockholders when the portfolio return is positive and magnifies their losses when the portfolio return is negative. Actual returns may be greater or less than those appearing in the table. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing below.

### Effects of Leverage Based on Actual Amount of Borrowings Incurred by us as of June 30, 2023

|  | Assumed Return on Our Portfolio (net of expenses) (1) |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
|  | **-10%** | **-5%** | **0%** | **5%** | **10%** |
| Corresponding return to stockholder (2) | -29.8% | -19.0% | -8.3% | 2.5% | 13.2% |

(1) The assumed portfolio return is required by SEC regulations and is not a prediction of, and does not represent, our projected or actual performance. Actual returns may be greater or less than those appearing in the table. Pursuant to SEC regulations, this table is calculated as of June 30, 2023. As a result, it has not been updated to take into account any changes in assets or leverage since June 30, 2023.

(2) In order to compute the “Corresponding return to stockholder,” the “Assumed Return on Our Portfolio” is multiplied by the total value of our assets at June 30, 2023 to obtain an assumed return to us. From this amount, the interest expense (calculated by multiplying the weighted average stated interest rate of 7.13% by the approximately $1,698.3 million of principal debt outstanding) is subtracted to determine the return available to stockholders. The return available to stockholders is then divided by the total value of our net assets at June 30, 2023 to determine the “Corresponding return to stockholder.”

***Our indebtedness could adversely affect our business, financial conditions or results of operations.***

We cannot assure you that our business will generate sufficient cash flow from operations or that future borrowings will be available to us under our credit facilities or otherwise in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before it matures. We cannot assure you that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets or seeking additional equity. We cannot assure you that any such actions, if necessary, could be effected on commercially reasonable terms or at all, or on terms that would not be disadvantageous to our stockholders or on terms that would not require us to breach the terms and conditions of our existing or future debt agreements.

***Even in the event the value of your investment declines, the Management Fee and, in certain circumstances, the Incentive Fee will still be payable to the Adviser.***

Even in the event the value of your investment declines, the Management Fee and, in certain circumstances, the Incentive Fee will still be payable to the Adviser. The Management Fee is calculated as a percentage of the value of our gross assets at a specific time, which would include any borrowings for investment purposes, and may give our Adviser an incentive to use leverage to make additional investments. In addition, the Management Fee is payable regardless of whether the value of our gross assets or your investment have decreased. The use of increased leverage may increase the likelihood of default, which would disfavor holders of our common stock. Given the subjective nature of the investment decisions that our Adviser will make on our behalf, we may not be able to monitor this potential conflict of interest.

The Incentive Fee is calculated as a percentage of pre-Incentive Fee net investment income. Since pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital gains or losses, it is possible that we may pay an Incentive Fee in a quarter in which we incur a loss. For example, if we receive pre-Incentive Fee net investment income in excess of the quarterly minimum hurdle rate, we will pay the applicable Incentive Fee even if we have incurred a loss in that quarter due to realized and unrealized capital losses. In addition, because the quarterly minimum hurdle rate is calculated based on our net assets, decreases in our net assets due to realized or unrealized capital losses in any given quarter may increase the likelihood that the hurdle rate is reached in that quarter and, as a result, that an Incentive Fee is paid for that quarter. Our net investment income used to calculate this component of the Incentive Fee is also included in the amount of our gross assets used to calculate the Management Fee.

Also, one component of the Incentive Fee is calculated annually based upon our realized capital gains, computed net of realized capital losses and unrealized capital losses on a cumulative basis. As a result, we may owe the Adviser an Incentive Fee during one year as a result of realized capital gains on certain investments, and then incur significant realized capital losses and unrealized capital losses on the remaining investments in our portfolio during subsequent years. Incentive Fees earned in prior years cannot be clawed back even if we later incur losses.

In addition, the Incentive Fee payable by us to the Adviser may create an incentive for the Adviser to make investments on our behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement. The Adviser receives the Incentive Fee based, in part, upon capital gains realized on our investments. Unlike the portion of the Incentive Fee that is based on income, there is no hurdle rate applicable to the portion of the Incentive Fee based on capital gains. As a result, the Adviser may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing investments. Such a practice could result in our making more speculative investments than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

Filed Aug 3, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-038066. Last ingested by Listed: Nov 3, 2026, 18:52 ET. No prices; not investment advice.