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Sixth Street Specialty Lending NYSE: TSLX reported second-quarter net investment income and net income of $0.43 per share, while net asset value remained stable at $16.24 per share. The business development company said operating earnings exceeded its recently established base quarterly dividend of $0.42 per share.

The dividend will be paid Sept. 30 to shareholders of record as of Sept. 15. Chief Executive Officer Bo Stanley said the company generated annualized returns on equity of 10.6% based on net investment income and 10.5% based on net income during the quarter.

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Repayments and activity-based fees improved Repayment activity increased during the second quarter after a slower first quarter marked by market volatility. Sixth Street Specialty Lending recorded $192 million of repayments, producing net repayment activity of $55 million. Repayments rose about 70% sequentially, resulting in annualized portfolio turnover of 23% in the quarter and 18% for the first half of 2026.

The activity generated $0.08 per share of activity-based fee income, though Stanley said this remained below the company’s long-term historical average. Management said repayment activity experienced early in the third quarter supports its view that activity-based fee income could improve in the second half of the year.

Stanley told analysts that the company expects M&A-related activity to be a greater driver of repayments than refinancings during the remainder of the year. He said refinancing activity has been more limited because the current market offers a more attractive spread environment for new investments than the tighter credit conditions seen previously.

Ross Bruck, head of investment strategy, cited the June repayment of TS Imagine, a financial technology provider that refinanced its senior secured credit facility in the private credit market. The repayment included call protection and resulted in an unlevered internal rate of return of 15% and a 1.7x multiple of money for shareholders, according to Bruck.

Portfolio quality and new investment activity The company funded $137 million during the quarter across two new investments and capital called by its Structured Credit Partners joint venture. Bruck said both new investments involved borrowers with which Sixth Street had longstanding relationships.

One example was Photo Holdings, also known as Shutterfly. Sixth Street participated in a refinancing of the company’s debt after having invested in the business for several years. Bruck said the structured financing included contractual amortization, lender protections and what management described as attractive economics. In response to an analyst question, he said the investment was a first-lien term loan priced at a spread of SOFR plus 700 basis points.

Management said the direct-lending environment is showing signs of improvement, including wider spreads, stronger fees, better lender access to management teams, more robust diligence processes and improved loan documentation. Stanley said spreads were generally 25 to 50 basis points wider, while the company has also seen less competition in the upper middle market as capital has exited parts of the direct-lending market.

At June 30, the weighted average total yield on debt and income-producing securities at amortized cost was 11.2%, unchanged from March 31. New first-lien investments carried a weighted average spread of 690 basis points, compared with 527 basis points on new-issue first-lien loans for BDC peers in the first quarter, according to the company.

Sixth Street maintained effective voting control on 78% of debt investments and held an average of two financial covenants per investment. The portfolio had weighted average interest coverage of 2.4x, improving from 2.3x in the prior quarter. Core portfolio companies posted approximately 8% revenue growth and 11% EBITDA growth over the prior 12 months.

Credit quality remained stable. The company had no new non-accrual investments during the quarter, and three portfolio companies were on non-accrual status at June 30, representing 1.3% of the portfolio at fair value. The weighted average internal investment rating was 1.20 on a one-to-five scale, where one is the strongest rating.

Balance sheet actions and earnings outlook Chief Financial Officer Ian Simmonds said total investments were $3.3 billion at quarter-end, while principal debt outstanding was $2 billion and net assets totaled $1.5 billion. The company’s average debt-to-equity ratio rose to 1.24x from 1.14x in the prior quarter, while ending debt-to-equity increased to 1.27x from 1.18x.

Ending leverage was affected by cash held to repay $300 million of unsecured notes maturing Aug. 1. Net of that cash, ending net leverage was 1.17x, slightly below the prior quarter’s 1.18x.

During the quarter, the company extended the maturity of its revolving credit facility to May 2031 and issued $300 million of five-year notes at a spread of Treasury yields plus 180 basis points. The fixed-rate notes were swapped to floating-rate debt at SOFR plus 185 basis points. Following the August repayment of its 2026 notes, the company said it had approximately $966 million of undrawn revolver capacity and no near-term debt maturities, with its next maturity being $300 million of unsecured notes due in the second half of 2028.

Total investment income rose to $97.8 million from $93.4 million in the first quarter, aided by higher prepayment fees and other income. Net expenses increased to $55.7 million, primarily due to higher interest expense. The weighted average interest rate on average debt outstanding increased to 5.6% from 5.5%.

Management estimated undistributed income at approximately $1.12 per share at the end of the quarter. It reiterated that annualized return on equity could be 10% to 10.5% if full-year portfolio turnover remains below 20%, with returns above 10.5% if turnover is higher.

Stanley said the company’s pipeline includes late-stage opportunities that could begin closing in the third quarter, with a more pronounced pickup potentially occurring in the fourth quarter. He said management remains selective and expects a wider dispersion of outcomes across private credit as financing needs become more complex.

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.

This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to [email protected].

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Wall Street expects a year-over-year decline in earnings on lower revenues when Sixth Street (TSLX - Free Report) reports results for the quarter ended June 2026. While this widely-known consensus outlook is important in gauging the company's earnings picture, a powerful factor that could impact its near-term stock price is how the actual results compare to these estimates.

The stock might move higher if these key numbers top expectations in the upcoming earnings report, which is expected to be released on August 4. On the other hand, if they miss, the stock may move lower.

While management's discussion of business conditions on the earnings call will mostly determine the sustainability of the immediate price change and future earnings expectations, it's worth having a handicapping insight into the odds of a positive EPS surprise.

Zacks Consensus EstimateThis business development company is expected to post quarterly earnings of $0.41 per share in its upcoming report, which represents a year-over-year change of -26.8%.

Revenues are expected to be $96.41 million, down 16.2% from the year-ago quarter.

Estimate Revisions TrendThe consensus EPS estimate for the quarter has been revised 0.59% lower over the last 30 days to the current level. This is essentially a reflection of how the covering analysts have collectively reassessed their initial estimates over this period.

Investors should keep in mind that the direction of estimate revisions by each of the covering analysts may not always get reflected in the aggregate change.

Price, Consensus and EPS Surprise

Earnings WhisperEstimate revisions ahead of a company's earnings release offer clues to the business conditions for the period whose results are coming out. Our proprietary surprise prediction model -- the Zacks Earnings ESP (Expected Surprise Prediction) -- has this insight at its core.

The Zacks Earnings ESP compares the Most Accurate Estimate to the Zacks Consensus Estimate for the quarter; the Most Accurate Estimate is a more recent version of the Zacks Consensus EPS estimate. The idea here is that analysts revising their estimates right before an earnings release have the latest information, which could potentially be more accurate than what they and others contributing to the consensus had predicted earlier.

Thus, a positive or negative Earnings ESP reading theoretically indicates the likely deviation of the actual earnings from the consensus estimate. However, the model's predictive power is significant for positive ESP readings only.

A positive Earnings ESP is a strong predictor of an earnings beat, particularly when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). Our research shows that stocks with this combination produce a positive surprise nearly 70% of the time, and a solid Zacks Rank actually increases the predictive power of Earnings ESP.

Please note that a negative Earnings ESP reading is not indicative of an earnings miss. Our research shows that it is difficult to predict an earnings beat with any degree of confidence for stocks with negative Earnings ESP readings and/or Zacks Rank of 4 (Sell) or 5 (Strong Sell).

How Have the Numbers Shaped Up for Sixth St?For Sixth St, the Most Accurate Estimate is higher than the Zacks Consensus Estimate, suggesting that analysts have recently become bullish on the company's earnings prospects. This has resulted in an Earnings ESP of +1.45%.

On the other hand, the stock currently carries a Zacks Rank of #3.

So, this combination indicates that Sixth St will most likely beat the consensus EPS estimate.

Does Earnings Surprise History Hold Any Clue?Analysts often consider to what extent a company has been able to match consensus estimates in the past while calculating their estimates for its future earnings. So, it's worth taking a look at the surprise history for gauging its influence on the upcoming number.

For the last reported quarter, it was expected that Sixth St would post earnings of $0.49 per share when it actually produced earnings of $0.42, delivering a surprise of -14.29%.

Over the last four quarters, the company has beaten consensus EPS estimates three times.

Bottom LineAn earnings beat or miss may not be the sole basis for a stock moving higher or lower. Many stocks end up losing ground despite an earnings beat due to other factors that disappoint investors. Similarly, unforeseen catalysts help a number of stocks gain despite an earnings miss.

That said, betting on stocks that are expected to beat earnings expectations does increase the odds of success. This is why it's worth checking a company's Earnings ESP and Zacks Rank ahead of its quarterly release. Make sure to utilize our Earnings ESP Filter to uncover the best stocks to buy or sell before they've reported.

Sixth St appears a compelling earnings-beat candidate. However, investors should pay attention to other factors too for betting on this stock or staying away from it ahead of its earnings release.

Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.