Sixth Street Specialty Lending (NYSE:TSLX) reported fourth-quarter and full-year 2025 results after the market closed Thursday, highlighting dividend coverage, a tenth consecutive year of double-digit economic returns, and a new joint venture aimed at investing in broadly syndicated loan CLO equity. Management also spent significant time outlining its views on enterprise software credit risk and the potential implications of AI.
Fourth-quarter results and dividend declarations
Chief Executive Officer Bo Stanley, in his first earnings call as CEO, said the company generated adjusted net investment income (NII) of $0.52 per share in the fourth quarter, equating to an annualized operating return on equity of 12%. Adjusted net income was $0.30 per share, or an annualized ROE of 7%.
The company’s board declared:
- A base quarterly dividend of $0.46 per share payable March 31 to shareholders of record March 16.
- A supplemental dividend of $0.01 per share payable March 20 to shareholders of record Feb. 27, capped under the company’s distribution framework.
Stanley reiterated that supplemental dividends are limited so that any net asset value (NAV) decline over the preceding two quarters, inclusive of supplemental payments, does not exceed $0.15 per share, a framework the company has used since it began paying supplemental dividends in 2017.
Full-year 2025 performance and NAV movement
For full-year 2025, management reported adjusted NII of $2.18 per share, representing an operating ROE of 12.7%, which Stanley said exceeded the top end of the guidance range communicated during 2025. Adjusted net income was $1.76 per share, corresponding to a 10.3% ROE.
Stanley also cited an economic return of 10.9% for 2025, defined as the change in NAV plus dividends paid, marking what he described as the company’s 10th consecutive year of double-digit economic returns. He added that both net income ROE and economic return exceeded an estimated cost of equity of 9%.
Chief Financial Officer Ian described year-end balance sheet figures including $3.3 billion of total investments, $1.8 billion of principal debt outstanding, and net assets of $1.6 billion. NAV per share was $16.98 at Dec. 31, 2025, prior to the impact of the newly declared supplemental dividend.
In explaining the quarter’s NAV bridge, Ian said key drivers included:
- +$0.52 per share from adjusted NII versus the base dividend of $0.46 per share.
- -$0.10 per share from reversal of net unrealized gains tied to paydowns and sales.
- -$0.03 per share from widening credit spreads impacting portfolio valuation.
- +$0.04 per share from net realized gains on investments.
- -$0.12 per share primarily from unrealized losses related to portfolio company-specific events.
In Q&A, Ian said portfolio-specific unrealized marks included a reversal in Karat (a public equity name held by the company) as the market price fell from Sept. 30 to Dec. 31, as well as impacts from a restructuring at IRG and other smaller items.
Portfolio positioning, leverage, and credit quality
Management emphasized balance sheet flexibility. The company ended 2025 at 1.10x debt-to-equity, with Stanley stating this left $246 million in investment capacity before reaching the top end of its target leverage range. Liquidity was described as approximately 33% of total assets.
Ian added that Sixth Street Specialty Lending had approximately $1.1 billion of unfunded revolver capacity at year-end against $199 million of unfunded portfolio company commitments eligible to be drawn. He noted the company had reserved for the $300 million of 2026 notes due in August under the revolving credit facility and said that, after adjusting for that repayment, liquidity still exceeded unfunded commitments by 4.2x.
Head of Investment Strategy Ross Bruck said Q4 originations included $242 million of total commitments and $197 million of fundings across five new portfolio companies and upsizes to four existing investments. For the full year, the company reported $1.1 billion of commitments and $894 million of fundings. Bruck said 97% of Q4 investments were first-lien loans.
On repayments, Bruck reported $235 million of repayments in Q4 and $1.2 billion for full-year 2025, which he said was the highest annual repayment activity since inception. Portfolio turnover was 34% in 2025, above the three-year average of 22%, contributing to $0.64 per share of activity-based fee income for the year.
Credit quality metrics remained stable in management’s view. Bruck reported a weighted average portfolio rating of 1.13 (on a 1-to-5 scale where 1 is strongest) and said total non-accruals were unchanged at 0.6% of the portfolio by fair value. He noted a de minimis second-lien term loan position in Alkegen was placed on non-accrual during the quarter, representing 0.01% of the portfolio by fair value.
AI and software: management’s underwriting lens
Stanley said the company wanted to address enterprise software and AI directly, arguing that AI lowers development costs and may increase competition but does not necessarily erode the core “moats” of durable enterprise software businesses. He emphasized that, as credit investors, the firm focuses on durability of cash flows rather than equity valuation upside.
Management mapped the portfolio to provide a peer-comparable view of enterprise software exposure, which it said is approximately 40% of the portfolio by fair value. Stanley said the enterprise software bucket’s metrics were broadly consistent with the overall portfolio, including a weighted average LTV of 40%, approximately 9% LTM revenue growth, and approximately 15% LTM earnings growth.
In Q&A, Stanley said the firm has been thinking about AI’s impact on the ecosystem for about three years and has rotated capital toward businesses it believes will be beneficiaries, while acknowledging there will be winners and losers over time.
Structured Credit Partners joint venture and 2026 outlook
Ian announced the formation of Structured Credit Partners (SCP), a joint venture between both BDCs managed by Sixth Street and two BDCs managed by The Carlyle Group. The JV’s stated objective is to invest equity into newly issued broadly syndicated loan CLOs managed by Sixth Street or Carlyle.
Management said the JV is designed to be “fee-free,” with no management or incentive fees at either the underlying CLO level or the JV level. Ian said TSLX’s total commitment is $200 million and management expects the JV to generate mid-teens returns on invested capital, which it believes will be accretive to earnings. Bruck clarified the CLOs are expected to hold broadly syndicated loans and not private credit originated by Sixth Street or third parties.
Looking ahead, Ian said the company expects to target a 2026 NII ROE of 11% to 11.5%, based on assumptions including the forward curve, leverage in the middle of the target range, and broadly stable spreads on new investments. Using year-end book value per share of $16.97 (adjusted for the supplemental dividend), he said this corresponds to $1.87 to $1.95 in full-year 2026 adjusted NII per share. The company ended 2025 with $1.21 per share of spillover income, which management said it will continue to monitor as part of distribution strategy.
About Sixth Street Specialty Lending (NYSE:TSLX)
Sixth Street Specialty Lending Inc (NYSE: TSLX) is a closed-end, externally managed business development company that provides flexible debt financing solutions to middle-market companies. The fund primarily targets senior secured loans, unitranche facilities, mezzanine debt, second-lien financings and equity co-investment opportunities. By structuring tailored capital solutions, Sixth Street Specialty Lending seeks to support growth initiatives, recapitalizations and refinancings across a diverse set of industries, including technology, healthcare and business services.
As an affiliate of Sixth Street Partners, a global alternative investment firm, the company leverages the broader platform’s credit research, operational expertise and industry relationships.
