Sentiment Analysis of the earnings transcript to help figure out if there are any bullish or bearish sentiments that could be gathered from it. We're doing ML and AI based analysis on the earnings call to get some more insights.
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| Statement |
|---|
| We finished the year with a strong quarter from an earnings and investment activity perspective |
| So I think that's going to be a good opportunity |
| And 2023 was a strong year for shareholder returns, excluding the post-COVID year rebound in 2021, full-year return on equity adjusted ingested net income of 16.2% reflects the highest calendar annual return on equity since our IPO in 2014 |
| While this partially reflects the round tripping of 2022 results, we viewed on a combined basis over the last two years, we remain pleased with our performance relative to the sector and in context of a complex macroeconomic environment |
| We earned $2.36 per share of adjusted net investment income, which reflects our highest annual operating earnings since inception |
| And so I'm very proud of what we've been able to do |
| We are proud of the track record we've delivered over this period of time and believe we are well positioned to continue building upon what we have achieved thus far |
| While we believe that operating earnings for BDC is likely peaked in 2023, we feel that our business is positively positioned to continue to outperform the sector in 2024, driven in part by our liability structure |
| Our track record for efficiently allocating shareholder capital has been rewarded as evidence by our stock trading above book value |
| As a result, our shareholders benefit from access to the more recent asset vintage |
| As a result, we feel that our balance sheet is in excellent shape |
| As you heard from Bo and Ian, the pipeline continues to build and the balance sheet is in excellent shape |
| More importantly, we believe we have the right team and resources to differentiate our business to benefit shareholders going forward |
| Retail cash flow deals still we don't love, but retail, hopefully, will be another good opportunity for us |
| We feel confident about the strengths of our -- in the ground portfolio today for two key reasons |
| Finally, the performance rating of our portfolio continues to be strong, with a weighted average rating of 1.16 times on a scale of one to five, with one being the strongest, representing an improvement from last quarter's rating of 1.17 times, driven by growth in the portfolio from new investments |
| The good news for our business is that we feel confident in our asset selection and credit quality, given our approach for being highly selective in our ability to lead in attractive investment environments |
| The significant increase in our yields in 2023 illustrates the positive asset sensitivity of our business from increased base rates in addition to our selective origination approach across themes and sectors |
| We remain focused on finding the best risk adjusted return opportunities for our stakeholders and feel that [Indiscernible] is well positioned to do so |
| 2023 was another productive year for private credit as the asset class continued to grow in terms of both supply and demand |
| Over the life of the initial Sixth Street investment in 2019, Kyriba has shown strong growth resulting in deleveraging and has become a leader in cloud-native treasury management software |
| I think what we've seen is the best risk-adjusted return and quite frankly the most activity levels, has been up market |
| Despite a general slowdown in M&A transactions, we benefited from the large market share shift from the broadly syndicated to the private credit market |
| As the BSL market regains share in the future, we feel confident in our ability to find deployment opportunities driven by the all cycle business model that we have created |
| And finally, we are highly confident in our ongoing ability to overrun our base dividend, which Ian will discuss in more detail |
| So look we have those capabilities, we're excited about it, we're excited about the team at Sixth Street and I think that's part of the benefit for SLX shareholders is they get the benefit of this broad-based platform that a -- quite frankly a monoline standalone manager of a $3 billion BDC could provide shareholders |
| It's -- what I would say is even though document in terms are loosening, I think they're still on the margin better than they were kind of in the late cycle peak-ish levels in 2020, 2021 |
| Pivoting to our operating results detail on slide 12, we generated a record level of total investment income for the third consecutive quarter of $119.5 million, up 4%, compared to $114.4 million in the prior quarter |
| This slowdown in portfolio turnover contributed to our second highest net deployment year, resulting in year-over-year portfolio growth of 18% |
| Our long-term relationship with a company coupled with Sixth Street’s ability to commit to the entire facility provided an opportunity to continue to grow with a company we like and know well |
| Statement |
|---|
| LBO transaction volume reached its lowest level in over 10-years and was down 37% from the trailing 10-year average |
| First is a decline in net investment income driven by the downward shape of the forward interest rate curve |
| More broadly, our outlook for the sector remains cautious as we know from history that credit deterioration takes time and therefore losses lag |
| And third, is a downward pressure on net asset value driven by the potential for lower fair values from credit weakness and dividend policies and excessive earnings that result in a return of capital |
| Second, is an uptake in non-accruals from credit deterioration, resulting in further declines in net investment income |
| So what I would say is, at least for 2024, spreads do come in and we see some pressure on net interest margin, surely, with the activity levels pick up |
| The reality for private credit managers is the illiquid nature of the investment assets and the requirement to be long-only makes it challenging to reposition our existing portfolio with any level of speed as macroeconomic conditions change |
| I think you saw the negative print earlier this week on retail sales shifted from goods to experiences, the balance sheet for void during COVID, given the consumer can only spend their excess savings on goods |
| And the other question on that is our loan to values staying low |
| And Josh, I think you've said in the past you prefer investing environments where there's a lack of capital and liquidity broadly in the market |
| Obviously, that is a bad asset |
| There was a $0.15 per share decline in NAV from net unrealized losses driven by portfolio company specific events |
| In terms of activity levels, transaction volumes are meaningfully lower in 2023 |
| And so last year, activity levels were really, really muted |
| I think I met growth originations will be lower |
| Over the last two years, we experienced the fastest rate hiking cycle in history, contributing to increased volatility and economic uncertainty |
| So banks who had issues last year had liquidity issues and not |
| I would suspect that it's saying slightly down maybe, I think activity levels, general activity levels in the environment are going to be better, but market share is going to be down |
| And because the environment seems still continues to be volatile |
| Assuming our balance sheet remains constant as of quarter end, we expect every 25 basis points decline in reference rates to lower net investment income by $0.03 per share on an annualized basis |
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