Good day and welcome to the Blackstone Secured Lending Second Quarter 2024 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time, I'd like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

Thank you, Jennifer. Good morning and welcome to Blackstone Secured Lending Fund's second quarter conference call. Joining me today are Brad Marshal; and Jonathan Bock, Co-Chief Executive Officers; Carlos Whitaker, President; and Teddy Desloge, Chief Financial Officer. Earlier this morning, we issued a press release and slide presentation of our results and filed our 10-Q, both of which are available on the shareholder section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that today's call may include forward-looking statements, which are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty in updating these statements. For some of the risks that could affect results, please see the risk factors section of our most recent annual report on Form 10-K. This audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'd like to turn over the call to Brad Marshall.

Thank you, Stacy and good morning everyone. Thanks for joining our call this morning. Turning to the agenda, I'll start with some high-level thoughts before turning over to Jon, Carlos, and Teddy to go into details of our portfolio and second quarter results. Turning to Slide 4 of the presentation. In my view, these results reflect the strength of our platform, leveraging the advantages of Blackstone's scale across our $1.1 trillion ecosystem and putting it to work for our investors. We're pleased that BXSL reported the best quarter of earnings on a dollar basis and the highest net asset value per share since our IPO, as well as increases in net investment income per share and net income per share compared to last quarter. Our NII of $0.89 per share, representing a 13.2% annualized return on equity is up from $0.87 per share in the prior quarter and net income of $1.01 per share is up from $0.96 per share in the prior quarter. Further, net asset value per share increased by $0.32 or 1.2% to $27.19 from $26.87 per share last quarter. Our dividend of $0.70 per share is well covered at 116% and represents an 11.3% annualized dividend yield, one of the highest among our traded BDC peers with as much of their portfolio invested in first lien senior secured assets with BXSL at 98.6%. Return drivers remain strong. As of quarter end, BXSL had an 11.6% weighted average yield on debt investments with less than 0.3% investments on non-accrual at cost. And we were able to amend our corporate revolver post quarter end, leveraging the tighter market environment, as you will hear later from Teddy. Moving to Slide 5. The second quarter was our most active quarter for originations for both committed and funded investments since 2021,…

Thank you, Brad and let's jump to Slide 6. We ended the quarter with $11.3 billion of investments, over an 8% increase from the $10.4 billion in Q1 across 231 portfolio companies. This resulted in an increase in ending leverage to 1.13 times and average leverage of 1.09 times given the timing of some of our investment fundings, moving up to the middle of our target range of 1 times to 1.25 times debt equity. We maintained our strong liquidity position at $1.2 billion, and that's comprised of cash, available borrowing capacity across our revolving credit facilities, and that's including ABLs to lean into that expanded pipeline. Now, our weighted average yield on debt investments at fair value held steady at 11.6% this quarter compared to 11.8% last quarter. The yields on new debt investment fundings and assets sold and repaid during the quarter averaged 10.9% and 11.7%, respectively. And let's take a look at the portfolio and turn to Slide 7. Approximately 99% of BXSL investments are in first lien senior secured loans and 99% of those loans are to companies owned by financial sponsors, who generally have significant equity value in these capital structures demonstrated by an average loan-to-value of 47.4%. Now, it's worth noting, the average single sponsor concentration in our portfolio is approximately 1% of fair value. Now, our portfolio also has what we believe is a strong LTM EBITDA base that's averaging $206 million, and it's a 13% increase from last year. This is more than 2 times larger than the private credit market, where we also see continued strength and performance from larger companies, the bedrock of our portfolio relative to their smaller EBITDA counterparts on both growth and default. But however, Brad mentioned this, we continue to see a broad range of deals…

Thanks Jon. Turning to Slide 9. BXCL maintained its dividend distribution of $0.77 per share. As you can see, we have continued to focus on delivering yield to shareholders, building a level of confidence through steady regular dividends, while also growing NAV per share. We expect this approach to continue as we believe we are heading into a heightened period for deal activity. For instance, helping to meet this quarter's portfolio growth, we issued $190 million of additional equity under our ATM or at-the-market program this quarter at a premium to NAV. And we raised a $400 million bond that was swapped to SOFR plus 138, which we observed was well inside the price of new secured debt capacity. As we often discuss, after we make investments, we aim to add value by driving operational improvements and revenue-generating opportunities for our portfolio companies. We have outlined our BXCI value creation program on prior calls. And we believe a partnership with BXCI is valued by private equity sponsors. And with increased competition in the private credit market, we seek to distinguish ourselves by providing more than just capital to our portfolio companies. For instance, Park Place, a name we have discussed in the past, won two new clients through our BX-preferred program in the second quarter, resulting in the borrower increasing its annual recurring revenue by $1.1 million. We also continue to work with Park Place's business development team on additional opportunities with Blackstone invested companies that have meaningful spend on data centers. As a reminder, BXSL borrowers are offered full access to BXCI's value creation program, which provides borrowers with revenue-generating opportunities, cost savings procurement, and capabilities, including cybersecurity and data science, all at no additional cost because we understand the potential benefit to both BXSL's investment portfolio and shareholder returns. And with that, I'll turn it over to Teddy.

Thanks Carlos. I'll start with our operating results on Slide 10. In the second quarter, BXSL's net investment income was $173 million or $0.89 per share. BXSL recorded its highly quarterly GAAP net income on a dollar basis and tied its highly quarterly earnings per share since IPO at $196 million and $1.01 per share, respectively, up 12% from a year ago. Total investment income for the quarter was up $37 million or 11% year-over-year, driven by increased interest income primarily due to higher interest rates. As a reminder, we amortized 100% of OID earned over the life of each loan versus taking fees upfront, which we believe leads to greater stability over the long-term. Interest income, excluding PIC fees and dividends represented nearly 93% of our total investment income in the quarter. Turning to our balance sheet on Slide 11. We ended the quarter with $11.3 billion of total portfolio investments at fair value, $6.1 billion of outstanding debt, and $5.4 billion of total net assets. NAV per share increased to $27.9, up 1.2%, up from $26.87 last quarter, driven by excess earnings, stable portfolio fundamentals, and share issuance above NAV. This represents the seventh consecutive quarter of NAV per share growth. Moving to Slide 12. In addition, we saw the fifth consecutive quarter of commitment growth, as Brad outlined, with BXCL committing to approximately $1.3 billion in the quarter, funding nearly $900 million and an estimated additional $261 million committed by BXCI and earmarked for BXSL as of June 30th. Net funded investment activity in the quarter was $800 million, up over 50% sequentially over the first quarter. Further, despite the spread tightening cycle across fixed income markets so far this year and an increase in broadly syndicated activity, we continue to experience muted repayment activity as Brad…

Thank you. [Operator Instructions] We'll go first to Finian O'Shea with Wells Fargo Securities.

Hey, everyone, good morning. So, first question in the wake of the Pluralsight restructuring for a lot of BDCs. I know you're not in there, but we're trying to get a picture of issuers or portfolio companies that would be below interest coverage, but where you have the sponsor putting in money. So, is that -- would that be included in your below 1 interest coverage provided metric or otherwise, how prevalent is that set up in the portfolio?

Hey Fin, it's Brad. So, I'll just give a high-level comment, Teddy can give the statistics on the portfolio. So, Pluralsight, you're right, we're not in it. So we're not super close to that asset. I will make the comment, though, on the positive, which is the handover of Pluralsight to its lenders was actually quite orderly, which is one of the advantages of private credit. This was in the public markets. I think it would have languished it would have been stuck in bankruptcy. So, it was nice to see kind of the private markets working fairly well. In terms of kind of overall credit and coverage, maybe Teddy, you can hit on the kind of what's kind of captured in our statistics.

Yes. I think your question, Fin, directly is a percentage of exposure below 1 times coverage and then specifically what we're seeing in terms of equity investments. Back went through it, but we had 65 amendments, 95% benign or positive. We had three issuers that had material amendments. Those three represented less than 1% of the overall portfolio. Generally speaking, in situations that are underperforming, that is our first response is to work consensually with the company to see equity come into the structure. I can't speak specifically to those three companies, but it is something that we do ask in those types of situations.

Okay, that's helpful. Thanks. And as a follow-up with the WHCG, it looks like you're joining the partial accrual movement. Can you talk about your policy there and if this will be commonplace going forward?

Yes, I'm happy to start. Again, can't speak to that situation specifically. Generally speaking, Fin, I think as you've probably noticed historically, we haven't put assets on partial non-accrual unless there's a very clear potential restructuring that reflects that, in fact. More to come on that situation in the next quarter.

I'd also say if you're going to make kind of the reference of how we think about both non-accruals, et cetera, Fin, if you start to see assets that have traded clearly below 80 or in some discounted mark territory, you can see that as an indicator of stress and we outline it. Maybe perhaps what you don't see here is an asset that has marched close to par that goes on non-accrual the next quarter. So, I'd say that you'll see the page turn, but also in terms of that movement, you kind of have to reflect that if we have operating knowledge to have that mark and see where that mark is post restructuring, that could give you some indication of how we think about non-accruals.

So, just to put those two comments to the Fin, so equity, we'll always try and negotiate equity to come into the businesses, I think, in most of our restructurings that has happened. Secondly, Mark, you'll see a steady decline, and that's probably what analysts and investors should focus on is kind of what marks our -- as Jon said, below 80 because that indicates that there's real headwinds in the business. And those will improve or get worse between quarters. And -- but what's most important is we are -- it's an asset that's in that ZIP code. We are absolutely in front of the sponsor asking for equity. We have a CIO team of 80 people, which I think is bigger than most investment platforms. And all they do is spend time on making sure that we can improve the value of our investment, whether it's through the value-added program, which Carlos went through or by being early and proactive in any sort of restructuring.

Thanks everybody.

We'll go next to Robert Dodd with Raymond James.

Hi guys. Hopefully, you can hear. On -- first, on the size that you did do -- you mentioned you did more middle market company for smaller companies, $100 million in EBITDA, it didn't use to be normal more market anything. But can you give us any color on when you're looking at a smaller company like that, what industries are you more focused on doing that? Because you've talked about bigger is better on size, but also neighborhood matter, which industries, et cetera. So, can you give us a color on like what industry would you do for, say, a $250 million EBITDA company, but you wouldn't do for a $100 million EBITDA company. Any color on like how that shifts by size in industry appeal?

Yes. Thanks Robert. It's Brad. I'll take that one. And again, it's not just -- it's not just sector, but obviously, it's capital structure. -- when we're looking at any deal, it is looking at the senior part of the capital structure, as you're aware. We're looking at the quality of the business, which is -- we've historically highlighted that larger companies tend to be better businesses. And then, of course, we're looking at -- you're pointing out which sectors, which neighborhoods, and we're going maybe a layer deeper than that. We're trying to be in the best blocks in the best neighborhoods. And so I would say in when looking at these $100 million type EBITDA businesses, they are going to be in three primary sectors, where we have our sector teams built out technology and software, health care and life science and business services. And in those areas, we characterize those neighborhoods as being historically low default sectors. They're good cash flow generators. They tend to grow -- outgrow the economy, which in this environment is quite important. So, that's what I would say about kind of where we're investing. And I wouldn't say they're small, I would say, the upper end of the middle market. And then on my last point around capital structure, as we said in our prepared remarks, the investments we made in the quarter were at 37.9% loan-to-value. So, the risk profile that where we're setting these companies up is quite low relative to where we've invested in some of these larger businesses, which has been more in the mid-40s.

Got it. Thank you. Follow-up. You -- Pluralsight already came up, Fin brought it up. You're not involved. It was originated in the second quarter of 2021, and you guys were $7 billion AUM back then and 2021 was a really active year. So ,I'm going to assume and we know what assuming means that you had the opportunity to participate in Pluralsight. So, can you correct me if I did you not see the deal or did you see the deal and decline to participate? And if you did decline, any recollection of what the reason was back then? It wasn't that moment ago.

Yes. Well, we've seen it twice actually, and we passed both times based on just our own view of the credit was maybe different than others. One of the nice things about our platform is we have 900 technologists across kind of the Blackstone platform that we can kind of tap into and get very good insights into these technology businesses, and we do that in every single deal that we're invested in as well as we use the 50 data scientists that are part of the platform as well. So, -- and this will happen in many instances where we just take a different view than the market. I'd rather not get into the specific reasons and why we passed on it. But nonetheless, we did see it twice and passed both on it.

Got it. Thank you.

And at this time, we will go next to Paul Johnson, KBW.

Hey good morning. Thanks for taking my questions here. Just wanted to squeeze in. I just wanted to know about a specific credit in the portfolio and just kind of give your thoughts on performance, but maybe a little bit of an explanation of what the company is? Snoopy Bidco, large loan in the portfolio. I believe it's on full pick at this point, but it seems to be marked fairly well. Just wondering to get some ideas on how that company is performing and that's all?

Yes. So, unfortunately, the private companies, so we can't say much about the business. The business is a vet care business. We can talk about the mark, which is around 97.25% across the securities, which would reflect that it's performing in line with expectations. I think when we did the deal, we were through the senior debt, which were -- that's our investment, we're through 32% loan to value. So, a lot of equity kind of beneath us and the sponsors continue to kind of support that business and it's generally performing flat.

Got it. And would you say is that the majority of the PIC income in the portfolio? Or are there other--

Yes, I'm happy to take that. No real change quarter-over-quarter in terms of PIC income, it represents 7% of income. 80% of our PIC is from the top five assets similar to last quarter. Those, as Brad said, are all performing all marked above 97%, and there were no new PIC amendments in the quarter.

Got it. Appreciate it. And congrats on the good quarter. Thanks guys.

Thanks Paul.

We'll go next to Mark Hughes with Truist.

Yes, thank you. Good morning. Sorry if I missed this join late, but the repayments were pretty low this quarter. Is that just idiosyncratic quarter? Or is there some broader theme, something about your portfolio and kind of give any expectations you can share regarding how you expect that to play out?

Yes, I'm happy to take that. You're right, annualized repayment rate was 3%, I think, lower than we would expect in sort of a normalized M&A environment. I think a couple of things driving that. Number one, M&A volumes overall have -- have increased are still relatively muted. So, we've been driving deployment really through incumbency around half of what we're deploying are into assets where we do have incumbency. I think it is possible that we see repayments pick up over time as M&A picks up and as rates come down. But for now, you're right, they've remained relatively low.

Mark, I'd just add, that's also a function of an item we mentioned last quarter, which is a proactive view on effective defense. So, here in the quarter, we had repricing activity where what we have is a company that's effectively coming close to moving off call protection. And you have the ability to work with the company that you know and do so at a market price that's well above your current cost of capital and end up earning or extending the life of that loan and its current benefit to ROE. So, if you look at across the board, give or take, our focus there in those active defense is also what will keep assets on the books for longer, allowing us to grow accretively as we also issue equity and low-cost debt.

Is that process becoming a little more competitive, the repricing? Is there more negotiation around spreads as others maybe -- as the companies may be checking the current market dynamics?

It's all a market dynamic, right? And it's clearly in an environment where you have a good amount of capital looking at a finite amount of deals that's simply a market phenomenon. Overall, it's around if you look at some of the reprices, is core is about 70-ish basis points of, we'll call it, tightening, if you will, which is in line with where we've started to see kind of market trends move overall. But I'd say a clear to my colleagues here, but it does find itself kind of just natural as it relates to where the broadly syndicated loan market is today and that perhaps can change with current volatility.

So, Mark, we have call protection in these deals, so it gives us a low leverage. And certainly, as repayments as the market gets more active, you'll probably see more repayments and that will either give us the opportunity to stay with the credit or take our call protection and accelerated fee income to help drive earnings. So, for us, it's a little bit of a win-win. Investors either in a more active environment, we'll get more fee income or we get to kind of hold on to our better assets at market spreads.

Understood. Thank you.

We'll go next to Kenneth Lee with RBC Capital Markets.

Hey, good morning. Thanks for taking my question. And I just jumping around from calls, so I apologize if this was covered already, but could you go over some of the key drivers for the unrealized gains that were reported in the quarter? Thanks.

Yes, I'm happy to take that. We did have unrealized gains of $23 million in the quarter. I wouldn't -- a few markups and a couple of markdowns. I wouldn't necessary under say there's anything notable. We did see spreads come in a little bit in the quarter which helped drive March overall, given what we're seeing in the markup in the market, but nothing really to call out here.

Got you. And then one follow-up, if I may. In terms of recent deal activity, you talked about some of the spreads that you're seeing, but just wondering, in terms of terms and documentation, what are you seeing in terms of some of the more recent activity, any timing or changes there? Thanks.

Yes, I would say no specific trends. There's, I would say, on the back of Pluralsight, the provision in the document that allowed the sponsor to move around kind of assets, that's actually been tightened up. So, lenders have pointed to that as a weakness in documents and for new deals have tightened up that that loophole, I would say, in the middle market documents tend to be a little bit tighter than the large end of the market, which competes with the syndicated market. And so for us, during the quarter, documents are actually pretty good. But any time you see a very active liquid market, you tend to see some provisions get tested in the market, and you saw some of that earlier on in the quarter. Now, the liquid markets are showing a little bit of volatility right now. So, that is kind of -- that's changing a little bit right now, but we'll see how it develops over the course of the year.

Got you. Very helpful there. Thanks again.

Thanks Ken.

And at this time, I'll turn the call back to Stacy Wang for closing comments.

Thank you everyone for joining our call today. We look forward to speak to you next quarter. Thanks, everyone.

Good bye.