Sixth Street Specialty Lending, Inc. (TSLX) Earnings

Management highlights

- Portfolio and Credit Quality * Net asset value per share remained stable at $16.24, reflecting strong underlying credit quality from disciplined asset selection, structural downside protection, and active portfolio management * Weighted average internal investment rating is 1.20 (1 = strongest, 5 = weakest), with stable non-accruals and improving interest coverage that rose to 2.4x from 2.3x QoQ * LTM revenue and EBITDA growth for core portfolio companies is 8% and 11% respectively, with the technology/software portfolio performing in line or slightly better than the broader portfolio * 78% of debt investments carry effective voting control, with an average of 2 financial covenants per investment, consistent with historical standards - Investment Activity * Total Q2 fundings were $137 million across 2 new investments and joint venture capital calls, maintaining activity levels consistent with Q1 despite broad market slowdowns * All new investments were with existing long-term relationship borrowers; the Shutterfly refinancing example highlights the platform's ability to deliver bespoke structured solutions for complex needs that traditional capital sources avoid * Total repayments rose 70% sequentially to $192 million, driving net repayments of $55 million, for an annualized portfolio turnover of 23% in Q2 and 18% for H1 2026 * New first lien investments carried a weighted average spread of 690 bps, above BDC peer average new issue spreads of 527 bps in Q1; trailing 12 month average new investment spread is 6.8%, aligned with the 7% average spread on the existing floating rate portfolio - Balance Sheet and Capital Management * Completed two proactive capital markets transactions in Q2: extended the revolving credit facility maturity to May 2031 with unchanged terms, and issued $300 million of 5-year unsecured notes at a spread of Treasuries + 180 bps, the second-tightest spread in the company's history for this tenor * Ending debt-to-equity ratio was 1.27x; net of cash held for the August 2026 unsecured note maturity, net leverage was 1.17x, slightly down QoQ * As of Q2 end, there was $1.1 billion of unfunded revolver capacity, covering eligible unfunded portfolio commitments 4.9x; after the August 2026 note repayment, undrawn capacity remains at $966 million (4.4x coverage) * The 10b5-1 automatic share repurchase program repurchased ~$500,000 (31,000 shares) at an average price of $16.17 per share, buying when the stock trades below reported NAV to add shareholder value * No new shares were issued through the at-the-market offering program in Q2

Guidance

- Full-year annualized ROE is projected to be 10% to 10.5% if full-year portfolio turnover remains below 20%, and above 10.5% if portfolio turnover is higher; year-to-date annualized ROE from net investment income is 10%, consistent with this guidance - Management is increasingly constructive on activity-based fee income in H2 2026 relative to H1, as sequential repayment momentum has continued into early Q3, driven by a thaw in M&A activity - New deal closing activity is expected to begin in Q3 2026 and pick up meaningfully in Q4 2026, as the pipeline has a large share of late-stage opportunities, some already committed pending regulatory approval - The structured credit joint venture ramp is on track with original guidance; medium-run dividend yield contribution for the joint venture is projected to be in the low to mid-teens percent on TSLX's $200 million total commitment, with no change to this outlook - The joint venture is expected to target 85% to 90% debt-to-capitalization for its financing subsidiaries, consistent with standard CLO structuring

Segment performance

Sixth Street Specialty Lending operates as a single business segment focused on middle market direct lending and structured credit investments. For Q2 2026, total investment income was $97.8 million, up from $93.4 million in Q1 2026. Interest and dividend income was $88.5 million, activity-based (prepayment and other) fee income was $5.4 million (up from $3.4 million in Q1), equal to $0.08 per share. Net investment income and net income were both $0.43 per share, generating an annualized return on equity of 10.6% and 10.5% respectively. Total investments stood at $3.3 billion, unchanged quarter-over-quarter, with $2 billion in total principal debt outstanding and net assets of $1.5 billion ($16.24 NAV per share, stable QoQ). Non-accrual investments represented just 1.3% of the portfolio by fair value, with 3 names on non-accrual and no new additions in the quarter. The weighted average total yield on debt and income-producing securities was 11.2%, unchanged QoQ. The joint venture structured credit platform had $154 million of called equity as of Q2 end, ~25% ramped towards its $200 million total target commitment for TSLX.

Risks & headwinds

- Forward-looking statements are subject to material risks and uncertainties that could cause actual results to differ materially, including general market volatility, interest rate movements, geopolitical uncertainty, and changes to M&A and transaction activity, all as detailed in the company's SEC filings - Sustained elevated interest rates could potentially pressure portfolio credit quality and stall the recovering M&A environment, though management currently does not see material credit risk given current portfolio health and rising interest coverage - Persistently low transaction and portfolio turnover will keep activity-based fee income below long-term averages, limiting ROE upside - Periods of macro and interest rate uncertainty can suppress sponsor and corporate transaction activity, prolonging the recovery in deal volumes - Market competition for secondary distressed assets and acquisition of smaller BDC peers remains high, limiting attractive opportunities to deploy capital in these categories at present

Analyst Q&A

• Q: What is driving the expected normalization of portfolio turnover and activity-based fees, and do origination terms like spreads and documentation remain favorable as M&A activity picks up?

  A: Repayment activity comes from two sources: refinancings and M&A. Refinancing activity remains muted in the current wide spread environment, but M&A activity that was paused due to market uncertainty is starting to thaw, with payoffs already seen in Q2 and early Q3 that will drive higher activity in H2. Spreads remain 25 to 50 bps wider than prior periods, fees are better, and underwriting processes have improved with better access to management, deeper due diligence, and stronger documentation – these favorable trends have held even as activity picks up.

• Q: Is the structured credit JV ramping faster than expected, will it generate higher dividend yields than guided, and what is the investment strategy for the portfolio?

  A: The JV is 25% ramped after the first half of the program, exactly in line with original expectations. Quarter-to-quarter yield fluctuations are driven by temporary factors like amortizing JV-level expenses and financing timing, so the medium-run guidance of low-to-mid teens percent dividend yield on TSLX's $200 million commitment remains unchanged. The portfolio is diversified and focused on high quality investments, not concentrated in risky sectors; its structural advantage of fee-free structure versus market CLOs allows attractive returns even in tighter arbitrage environments.

• Q: Has there been a shift toward more complex investments to maintain current portfolio spreads, and what are the key drivers of that differentiation?

  A: The Sixth Street platform's thematic sourcing capabilities allow the firm to source opportunities off the beaten path away from competitors, which has supported consistent spread levels. Over the past six quarters, the firm has done more non-sponsor originated activity, including 'good company, bad balance sheet' complex restructuring opportunities, than in prior periods, and this trend has continued. The Shutterfly refinancing, a long-term relationship complex deal that delivered a 700 bps SOFR spread aligned with portfolio targets, is a representative example of this strategy.

• Q: How will the expected future interest rate hikes impact net investment income and portfolio credit quality, and is management concerned about a stall in M&A recovery?

  A: Recent upward shifts in the forward curve have already added 40 to 50 bps of yield support through the end of 2026, which is broadly supportive of earnings. With spread widening trends holding amid lower capital inflows to direct lending, higher risk-free rates are expected to lift overall earnings rather than being offset by spread compression. From a credit perspective, portfolio interest coverage has risen sequentially to 2.4x, reflecting strong underlying earnings growth, so management has no immediate concerns about credit stress; any impact on M&A is expected to be modest at most.