TPG Specialty Lending, Inc. Announces Quarter Ended September 30, 2016 Financial Results And Board Declares Quarterly Dividend Of $0.39 Per Share For The Fourth Fiscal Quarter Of 2016

TPG Specialty Lending, Inc. (NYSE:TSLX, or the "Company") today reported net investment income of $30.6 million, or $0.51 per share, for the quarter ended September 30, 2016. Net asset value per share was $15.78 at September 30, 2016 as compared to $15.55 at June 30, 2016. The Company's Board of Directors previously declared a third quarter dividend of $0.39 per share, payable to stockholders of record as of September 30, 2016 that was paid on October 31, 2016.

The Company also announced that its Board of Directors has declared a quarterly dividend of $0.39 per share for stockholders of record as of December 31, 2016, payable on or about January 31, 2017.

FINANCIAL HIGHLIGHTS:

(amounts in millions, except per share amounts)
       

Three Months Ended
(unaudited)
September 30, 2016 June 30, 2016 September 30, 2015
 
Investments at Fair Value $1,643.6 $1,611.0 $1,396.4
Total Assets $1,665.2 $1,628.8 $1,419.4
Net Asset Value Per Share $15.78 $15.55 $15.62
 
Investment Income $53.9 $46.0 $46.8
Net Investment Income $30.6 $25.5 $25.8
Net Income $36.9 $49.6 $9.3
 
Net Investment Income Per Share $0.51 $0.43 $0.48
Net Realized and Unrealized Gains (and Losses) Per Share $0.11 $0.41 ($0.31)
Net Income Per Share $0.62 $0.84 $0.17
 
Weighted Average Yield of Debt and Income Producing Securities at Fair Value 10.3% 10.6% 10.5%
Weighted Average Yield of Debt and Income Producing Securities at Amortized Cost 10.3% 10.5% 10.5%
 
Percentage of Debt Investment Commitments at Floating Rates 98% (1) 96% (1) 95%
 

(1) Includes one fixed rate investment for which we entered into an interest rate swap agreement to swap to a floating rate.

Conference Call and Webcast

Conference Call Information:

The conference call will be broadcast live at 8:30 a.m. Eastern Time on November 8, 2016. Please visit TSLX's webcast link located on the Events & Presentation page of the Investor Resources section of TSLX's website http://www.tpgspecialtylending.com for a slide presentation that complements the Earnings Conference Call . Please visit the website to test your connection before the webcast.

Participants are also invited to access the conference call by dialing one of the following numbers:

Domestic: (877) 359-9508International: +1 (253) 237-1122Conference ID: 84395988

All callers will need to enter the Conference ID followed by the # sign and reference "TPG Specialty Lending" once connected with the operator. All callers are asked to dial in 10-15 minutes prior to the call so that name and company information can be collected.

Replay Information:

An archived replay will be available from approximately 12:00 p.m. Eastern Time on November 8 through November 22 via a webcast link located on the Investor Resources section of the Company's website, and via the dial-in numbers listed below:

Domestic: (855) 859-2056International: +1 (404) 537-3406Conference ID: 84395988

Portfolio and Investment Activity

For the three months ended September 30, 2016, gross originations totaled $318.1 million. This compares to $199.7 million for the three months ended June 30, 2016 and $184.8 million for the three months ended September 30, 2015.

For the three months ended September 30, 2016, the Company made new investment commitments of $194.2 million in six new portfolio companies. For this period, the Company had $199.2 million aggregate principal amount in exits and repayments, resulting in a net portfolio decrease of $8.8 million aggregate principal amount.

For the three months ended September 30, 2015, the Company made new investment commitments of $184.8 million, $160.9 million to six new portfolio companies and $23.9 million to five existing portfolio companies. For this period, the Company had $148.4 million aggregate principal amount in exits and repayments, resulting in a net portfolio increase of $15.8 million aggregate principal amount.

As of September 30, 2016 and June 30, 2016, the Company had investments in 52 and 50 portfolio companies, respectively, with an aggregate fair value of $1,643.6 million and $1,611.0 million, respectively.

As of September 30, 2016, the portfolio based on fair value consisted of 94.4% first-lien debt investments, 3.2% second-lien debt investments, 0.9% mezzanine and unsecured debt investments and 1.5% equity and other investments. As of June 30, 2016, the portfolio based on fair value consisted of 92.9% first-lien debt investments, 3.7% second-lien debt investments, 1.9% mezzanine and unsecured debt investments, and 1.5% equity and other investments.

As of September 30, 2016, 97.9% of debt investments based on fair value in the Company's portfolio bore interest at floating rates (when including investment specific hedges), with 94.8% of these subject to interest rate floors. The Company's credit facility bears interest at floating rates, and the Company's Convertible Senior Notes, which bear interest at a fixed rate, have been entered into fixed-to-floating interest rate swaps in order to continue to align the interest rates of the Company's liabilities with its investment portfolio.

As of September 30, 2016 and June 30, 2016, the weighted average total yield of debt and income producing securities at fair value (which includes interest income and amortization of fees and discounts) was 10.3% and 10.6%, respectively, and the weighted average total yield of debt and income producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 10.3% and 10.5%, respectively.

As of September 30, 2016, 99.5% of debt investments based on fair value were meeting all payment and covenant requirements. One investment was on non-accrual status at September 30, 2016, and was subsequently restructured post quarter end into a performing credit and equity investment.

Results of Operations for the Three Months Ended September 30, 2016 compared to the Three Months Ended September 30, 2015

Investment Income

For the three months ended September 30, 2016 and 2015, investment income totaled $53.9 million and $46.8 million, respectively. The increase in investment income was primarily driven by an increase in the average size of the total investment portfolio, higher syndication, amendment and other fees, partially offset by lower accelerated amortization of upfront fees and no prepayment fees from unscheduled paydowns, as compared to the same period in 2015.

Expenses

Net expenses totaled $22.7 million and $20.5 million for the three months ended September 30, 2016 and 2015, respectively. The increase in net expenses was primarily due to higher management and incentive fees, and higher professional fees as a result of increased costs associated with servicing a growing investment portfolio and our corporate actions with respect to our investment in the common stock of TICC Capital Corp.

Liquidity and Capital Resources

As of September 30, 2016, the Company had $3.9 million in cash and cash equivalents, total debt outstanding of $690.8 million, and $245.5 million of undrawn commitments on its revolving credit facility, subject to borrowing base and other limitations. The weighted average interest rate on average debt outstanding was 2.7% for the three months ended September 30, 2016 and 2.6% for the three months ended September 30, 2015.

The Company is rated BBB- by Fitch Ratings and Standard and Poor's, each with a stable outlook.

 

Financial Statements and Tables

TPG Specialty Lending, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)
 
    Three Months Ended   Nine Months Ended

September 30, 2016
 

September 30, 2015

September 30, 2016
 

September 30, 2015
Income
Investment income from non-controlled, non-affiliated

investments:
Interest from investments $ 44,088 $ 43,986 $ 124,931 $ 120,040
Dividend income 474 474 1,421 474
Other income   6,767   708   8,909   4,714
Total investment income from non-controlled, non-affiliated investments 51,329 45,168 135,261 125,228
Investment income from controlled, affiliated investments:
Interest from investments 2,537 1,532 7,288 4,442
Other income   51   74   152   186
Total investment income from controlled, affiliated

investments
  2,588   1,606   7,440   4,628
Total Investment Income   53,917   46,774   142,701   129,856
Expenses
Interest 6,102 7,963 17,029 16,910
Management fees 6,212 5,460 17,953 15,706
Incentive fees 6,467 3,045 16,761 15,182
Professional fees 3,029 2,366 6,923 4,857
Directors' fees 98 101 290 288
Other general and administrative   897   1,634   3,211   4,061
Total expenses   22,805   20,569   62,167   57,004
Management and incentive fees waived   (149 )   (104 )   (346 )   (104 )
Net Expenses   22,656   20,465   61,821   56,900
Net Investment Income Before Income Taxes 31,261 26,309 80,880 72,956
Income taxes, including excise taxes   690   460   1,615   1,301
Net Investment Income 30,571 25,849 79,265 71,655
Unrealized and Realized Gains (Losses)
Net change in unrealized gains (losses):
Non-controlled, non-affiliated investments 13,660 (10,191 ) 28,657 (1,698 )
Controlled, affiliated investments (6,898 ) (4,454 ) (7,048 ) (3,925 )
Translation of assets and liabilities in foreign currencies (1,367 ) 1,227 436 4,536
Interest rate swaps   (462 )   1,879   1,103   672
Total net change in unrealized gains (losses)   4,933   (11,539 )   23,148   (415 )
Realized gains (losses):
Non-controlled, non-affiliated investments 1,516 (4,975 ) 1,920 (5,042 )
Foreign currency transactions (145 ) 2 (49 ) (140 )
Interest rate swaps         1,852
Total realized gains (losses)   1,371   (4,973 )   1,871   (3,330 )
Total Unrealized and Realized Gains (Losses)   6,304   (16,512 )   25,019   (3,745 )
Increase in Net Assets Resulting from Operations $ 36,875 $ 9,337 $ 104,284 $ 67,910
Earnings per common share—basic and diluted $ 0.62 $ 0.17 $ 1.79 $ 1.26
Weighted average shares of common stock outstanding—basic and diluted   59,523,695   54,017,302   58,229,549   53,969,423
 

 

TPG Specialty Lending, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)
 
    September 30,   December 31,
2016 2015
Assets
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $1,570,297

and $1,443,017, respectively)
$ 1,578,148 $ 1,422,211
Controlled, affiliated investments (amortized cost of $95,633 and $86,659,

respectively)
  65,424   63,498
Total investments at fair value (amortized cost of $1,665,930 and $1,529,676,

respectively)
1,643,572 1,485,709
Cash and cash equivalents 3,928 2,431
Interest receivable 10,668 10,146
Receivable for interest rate swaps 1,505 402
Receivable for investments sold 2,722
Prepaid expenses and other assets   2,825   7,880
Total Assets $ 1,665,220 $ 1,506,568
Liabilities
Debt (net of deferred financing costs of $8,633 and $10,365, respectively) $ 680,115 $ 642,423
Management fees payable to affiliate 6,145 5,530
Incentive fees payable to affiliate 6,384 4,915
Dividends payable 23,236 21,124
Payable for investments purchased 4,435
Payables to affiliate 1,311 1,492
Other liabilities   7,560   5,908
Total Liabilities   724,751   685,827
Commitments and contingencies
Net Assets
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued

and outstanding
Common stock, $0.01 par value; 400,000,000 shares authorized, 59,669,593 and

54,166,959 shares issued, respectively; and 59,580,513 and 54,163,960 shares

outstanding, respectively
597 542
Additional paid-in capital 898,363 812,586
Treasury stock at cost; 89,080 and 2,999 shares held, respectively (1,359 ) (30 )
Undistributed net investment income 36,379 27,521
Net unrealized losses (5,232 ) (28,380 )
Undistributed net realized gains   11,721   8,502
Total Net Assets   940,469   820,741
Total Liabilities and Net Assets $ 1,665,220 $ 1,506,568
Net Asset Value Per Share $ 15.78 $ 15.15
 

The Company's investment activity for the three months ended September 30, 2016 and 2015 is presented below (information presented herein is at par value unless otherwise indicated).
 
    Three Months Ended
($ in millions)

September 30, 2016
 

September 30, 2015
New investment commitments:
Gross originations $ 318.1 $ 184.8
Less: Syndications/sell downs   123.9  
Total new investment commitments $ 194.2 $ 184.8
Principal amount of investments funded:
First-lien $ 190.4 $ 99.6
Second-lien 30.7
Mezzanine and unsecured 15.1
Equity and other     18.8
Total $ 190.4 $ 164.2
Principal amount of investments sold or repaid:
First-lien $ 174.9 $ 138.4
Second-lien 7.8 10.0
Mezzanine and unsecured 16.3
Equity and other   0.2  
Total $ 199.2 $ 148.4
Number of new investment commitments in

new portfolio companies
6 6
Average new investment commitment amount in

new portfolio companies
$ 32.4 $ 26.8
Weighted average term for new investment

commitments in new portfolio companies

(in years)
5.3 5.1
Percentage of new debt investment commitments

at floating rates
100.0 % 91.1 %
Percentage of new debt investment commitments

at fixed rates
8.9 %
Weighted average interest rate of new

investment commitments
9.7 % 9.6 %
Weighted average spread over LIBOR of new

floating rate investment commitments
8.7 % 8.9 %
Weighted average interest rate on investments

sold or paid down
8.0 % 9.8 %
 

About TPG Specialty Lending, Inc.

TSLX is a specialty finance company focused on lending to middle-market companies. The Company seeks 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 and equity securities. The Company has elected to be regulated as a business development company, or a BDC, under the Investment Company Act of 1940 and the rules and regulations promulgated thereunder. TSLX is externally managed by TSL Advisers, LLC, a Securities and Exchange Commission ("SEC") registered investment adviser. TSLX leverages the deep investment, sector, and operating resources of TPG Special Situations Partners, the dedicated special situations and credit platform of TPG, with approximately $18 billion of assets under management as of June 30, 2016, and the broader TPG platform, a global private investment firm with approximately $73 billion of assets under management as of June 30, 2016. For more information, visit the Company's website at www.tpgspecialtylending.com.

Forward-Looking Statements

Statements included herein may constitute "forward-looking statements," which relate to future events or the Company's future performance or financial condition. These statements are not guarantees of future performance, conditions or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in the Company's filings with the Securities and Exchange Commission. The Company assumes no obligation to update any such forward-looking statements. TSLX undertakes no duty to update any forward-looking statements made herein.

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