TSLX sees more junior debt in its future

The business development company originated $149m in senior debt in Q1. 

TPG Specialty Lending (TSLX) showed strong originations last quarter, with nearly 100 percent in senior debt, and expects to expand its junior debt portfolio over next several quarters, executives said during Thursday's first-quarter earnings call.

The mid-market lender’s junior capital portfolio is currently limited to about 1 percent of its total portfolio. But over the next two to three quarters, its exposure may far surpass that level, bumping up  to the 5-7 percent range.

But Joshua Easterly, co-chief executive officer, said on the call that “you could see us expand way past five to seven percent at the other side of the credit cycle”, noting that the firm has had previous junior debt exposures as high as 12 to 13 percent.

The business development company originated $149.2 million in debt last quarter, across five new portfolio investments, earnings results show.

TSLX ended the quarter with $1.6 billion in portfolio investments, with 99 percent of that first lien senior debt, earnings results show. The exclusively floating rate debt portfolio totalled 48 portfolio companies with a weighted average EBITDA of $31 million.

The firm’s net asset value per share was $16.04 as of 31 March, compared with $15.95 at 31 December. The BDC’s net investment income totaled $28.5 million, or $0.48 per share, for the quarter, compared to $28.07 million, or $.047 per share, at the end of last year.

TSLX shareholders will vote on whether or not to allow the firm to issue shares below NAV on 18 May, though the firm has “no immediate plans to do so”, Easterly said on the call. Such a move could be useful in times of “elevated volatility”, he said.

The portfolio’s average yield has been stable for the last year, ending last quarter at 10.4 percent, which is relatively unchanged from the previous quarter (10.4 percent) and the same quarter last year (10.3 percent). TSLX’s portfolio had 0.64x of leverage, compared to 0.73x last quarter and 0.74x in first quarter 2016.