Q4 2023 Blackstone Secured Lending Fund Earnings Call

Operator: Good day, and welcome to the Blackstone Secured Lending 4th Quarter and Full Year 2023 Investor Call. Today's conference is being recorded. At this time, all participants are in a listen-only mode.

Good day and welcome to the Blackstone secured lending fourth quarter and full year 2023 Investor call. Today's conference is being recorded at this time all participants are in a listen only mode. If you require operator assistance at any time. Please press star zero, if you'd like to ask a question. Please signal by proteins.

Operator: If you require operator assistance at any time, please press star zero. If you'd like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

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Stacey Wang: At this time, I'd like to turn the conference over to Stacey Wang, Head of Stakeholder Relations. Please go ahead. Thank you, Katie. Good morning, and welcome to Blackstone Secure Lending Fund's fourth quarter and full year call. Earlier today, we issued a press release with a presentation of our results and filed our 10-K, both of which are available on the shareholder section of our website, www.bxsl.com. We will be referring to that presentation throughout today's call. I'd like to remind you that this call may include forward-looking statements that are uncertain and outside of the firm's control and may differ materially from actual results. We do not undertake any duty to update these statements.

At this time I'd like to turn the conference over to Stacy Wang head of stake stakeholder relations. Please go ahead.

Thank you Katie good morning, and welcome to Blackstone's secure lending banks fourth quarter and full year call.

Earlier today, we issued a press release with a presentation of our results and filed our 10-K also which are available on the shareholders section of our website www dot be X S. L. Dot com, we will be referring to that presentation throughout today's call I'd like to remind you that this call may include forward looking statements, which are uncertain and outside of the firm.

<unk> control and may differ materially from actual results, we do not undertake any duty to update these statements for some of the risks that could affect results. Please see the risk factors section of our Form 10-K filed earlier today.

Brad Marshall: For some of the risks that could affect results, please see the risk factors section of our Form 10-K filed earlier today. This audio cast is copyrighted material of Blackstone and may not be duplicated with outcome set. With that, I'll turn the call over to BXSL's Co-Chief Executive Officer, Brad Marshall. Thank you, Stacy. And good morning, everyone.

This audiocast is copyrighted material of Blackstone and may not be duplicated without comes back with that I'll turn the call over to <unk> co Chief Executive Officer, Brad Marshall.

Thank you Stacey and good morning, everyone. Thanks for joining our call. This morning also with me today are co Chief Executive Officer, Jon Bock, President Carlos would occur and our Chief Financial Officer Terry <unk>.

Brad Marshall: Thanks for joining our call this morning. Also with me today are our Co-Chief Executive Officer, John Bach, and our President, Carlos Whitaker, and our Chief Financial Officer, Teddy Dilos. Turning to this morning's agenda, I will start with some high-level thoughts before turning it over to John, Carlos, and Teddy to go into more details on our portfolio and the fourth quarter results. So just turning to the slide deck that we posted, and if we start on slide four.

Turning to this morning's agenda I will start with some high level thoughts before turning it over to John Carlos <unk> to go into more details on our portfolio in the fourth quarter results.

So just turning to the slide deck that we posted and if we start on slide four.

Brad Marshall: VXSL reported another strong quarter of results, including growth in net investment income, increased net asset value, and continued solid credit performance. Several other key highlights in the quarter include the highest weighted average asset yield on the portfolio since inception at 12%, our second best quarter of net investment income per share, and the busiest deployment period in two years. Net investment income or NAI per share increased 1% quarter over quarter to $0.96 per share, which represented a 14.5% annualized return on equity. It is important to note, along with strong earnings, the quality of our earnings remains high with limited PIC payment, non-recurring, and fee-driven income. In fact, interest income excluding PIC, fees, and dividends represented 95% of our total investment income in the fourth quarter.

<unk> reported another strong quarter of results, including growth in net investment income increased net asset value and continued solid credit performance.

Several other key highlights in the quarter include the highest weighted average asset yield on our portfolio since inception at 12% our second best quarter of net investment income per share in the busiest deployment period in two years.

Net investment income or NII per share increased 1% quarter over quarter to 96 per share, which represented a 14, 5% annualized return on equity.

It is important to note along with strong earnings the quality of our earnings remains high with limited tick.

Payment nonrecurring and fee driven income in fact interest income excluding pig fees and dividends represented 95% of our total investment income in the fourth quarter.

Brad Marshall: BXSL maintained its dividend of 77 cents per share, representing an 11.6 annualized distribution yield, one of the highest among our traded BDC peers with as much of their portfolio in first lien senior secured assets, while covering our fourth quarter dividend by $125,000. We continue to focus on our mandate of protecting investors' capital by constructing a portfolio of first lien senior secured loans. As of December 31st, BXSL's portfolio is 98.5% first lane senior secured debt with a 48.2% average loan to value. We had strong credit performance supported by a minimal non-accrual rate below 0.1% at both amortized costs and fair market value, the lowest among our traded BDC peers, and approximately one and a half percent of our debt investments as a percentage of total costs are marked below nine. Turning now to page five of the presentation deck.

<unk> maintained its dividend of 77 cents per share representing an 11 six annualized distribution yield one of the highest among our traded BDC peers with as much of their portfolio in first lien senior secured assets.

While covering our fourth quarter dividend by 125%.

We continue to focus on our mandate of protecting investors' capital by constructing a portfolio of first lien senior secured loans.

As of December 31, <unk> portfolio is 98, 5% first lien senior secured debt with a 48, 2% average loan to value.

We had strong credit performance supported by a minimal non accrual rate below 0.1% at <unk>.

Both amortized cost and fair market value lowest among our traded BDC peers and approximately one 5% of our debt investments as a percentage of total cost.

Mark below 90.

Turning now to page five of the presentation deck.

Brad Marshall: In the fourth quarter, BXSL saw a meaningful increase in investment activity, ending the period with over $1 billion at par in new investment commitments and $874 million in new investment funding. New investments funded in the quarter were over 98% first lien with a weighted average EBTA of approximately $130 million and an average loan-to-value of 41.5%, reflecting our continued focus on what we believe are high-quality investments. In addition, the weighted average spread was approximately 580 basis points with an average OID of 1.7% and nearly two years on average of call protection.

In the fourth quarter <unk> Dx SL saw a meaningful increase in investment activity ending the period with over $1 billion at par in new investment commitments and $874 million in new investment fundings.

New investments funded in the quarter were over 98% first lien with a weighted average EBITDA of approximately $130 million and an average loan to value of 41, 5%, reflecting our continued focus on what we believe are high quality investments in.

In addition, the weighted average spread was approximately 580 basis points with an average or idea of one 7% and nearly two years, an average of call protection.

Brad Marshall: From a market activity perspective, we see strength building as fourth-quarter M&A volume increased to almost $400 billion, a 40% boost year over year. We expect M&A activity to continue to build and accelerate in 2024. This view is supported by our ongoing dialogues with the top financial sponsors that we cover, as well as the sell-side advisors with whom we partner. M&A activity is expected to be largely driven by the build-up in record levels of private equity dry powder, large amounts of unsold assets that sponsors are sitting on, and older previous vintage funds, and the impact of lower M&A activity in 2023, 54 percent lower than the most recent peak in 2021. This expected market activity can be sustained by the prospect of lower interest rates and continued narrowing of bid-ask spreads between buyers and sellers. In addition, the number of deals in the Blackstone credit and insurance pipeline doubled as of the end of the fourth quarter versus the end of the first quarter.

From a market activity perspective, we see strength building as fourth quarter M&A volume increased almost 400, billion% to 40% boost year over year we.

We expect M&A activity to continue to build and accelerate in 2024. This view is supported by our ongoing dialogues with the top financial sponsors that we cover as well as the sell side advisors with whom we partner with.

M&A activity is expected to be largely driven by the buildup in record levels of private equity dry powder large amounts of unsold assets that sponsors are sitting on an older previous vintage funds.

And the impact of lower M&A activity in 2023, 54% lower than the most recent peak in 2021.

This expected market activity can be sustained by the prospect of lower interest rates and continued narrowing of bid ask spreads between buyers and sellers.

In addition, the number of deals in the Blackstone credit and insurance pipeline doubled as of the end of the fourth quarter versus the end of the first quarter.

Brad Marshall: These pipeline deals are predominantly first-lane, senior-secured exposure in companies in historically recession-resilient sectors we know very well. While we know every opportunity in BXSL's pipeline will not convert into investments, and our underwriting bar remains high, the volume gives us a sense of the scale and presence that we believe we have as an institution to drive deal flow. BXSL's Origination Pace benefits from the scale and platform Blackstone, or BXSI, which is one of the world's largest alternative credit managers with 319 billion dollars in assets and over 500 investment professionals in 18 offices globally. Our incumbency in over 4,500 corporate issuers allows us to see more deal flow, leverage our incumbency, and select into what we believe are the most attractive, risk-adjusted opportunities In addition, BXSI has been the sole or lead lender in approximately 84% of BXSL's direct lending transactions since its inception.

These pipeline deals are predominantly first lien senior secured exposure and companies and historically recession resilient sectors, we know very well.

While we know every opportunity in <unk> <unk>.

<unk> will not convert into investments and our underwriting bar remains high volume gives us a sense for the scale and presence that we believe we have the as an institution to drive deal flow.

B access cells origination pace benefits from the scale and platform Blackstone.

<unk>, which is one of the world's largest alternative credit managers with $319 billion in assets under management.

And over 500 investment professionals in 18 offices globally.

Our incumbency in over 4500, corporate issuers allows us to see more deal flow leverage our incumbency and select into what we believe are the most attractive.

Risk adjusted assets.

Whether the exercise has been the sole or lead lender and approximately 84% of <unk> direct lending transactions since inception.

Brad Marshall: This quarter alone, 12 of 17 BXSLs funded transactions were for deals Blackstone led, which allows us to be in a position to drive the negotiation of terms and documents. During the quarter, we issued nearly 330 million common shares through our ATM offering with additional equity and increased capacity for our debt, which has a weighted average cost of just over 5%. We remain very well positioned to take advantage of an improving M&A environment where we believe we can deploy capital and drive earnings for shareholders. 2023 was also our best year of performance since inception with a 14.7% return on NAV. And while a lot of that return was supported by higher rates, we believe there are multiple drivers of returns that could work in our favor in 2024.

This quarter alone 12 of 17, <unk> funded transactions or deals Blackstone led which allows us to be in a position to drive the negotiation of terms and documentation.

During the quarter.

We issued nearly $330 million of common shares through our ATM offering with additional equity and increase capacity for our debt, which has a weighted average cost of just over 5%.

We remain very well positioned to take advantage of an improving M&A environment, where we believe we can deploy capital and drive earnings for shareholders.

2023 was also our best year performance since inception, with a 14, 7% return on NAV basis.

A lot of that return was supported by higher rates. We believe there are multiple drivers of returns that could work in our favor in 2020 for these drivers include sustained elevated interest rates. Despite.

Brad Marshall: These drivers include sustained elevated interest rates, despite potential cuts later this year, tightening credit spreads which could result in asset appreciation and refinancings in our first lien, senior secured portfolio. And lastly, as I just mentioned, additional potential income driven by increased M&A activity, which we are starting to see as evidenced by our fourth quarter activity. So with that, I will turn it over to John Baxter.

<unk> cuts later this year.

And credit spreads, which could result in asset appreciation and refinancings in our first lien senior secured portfolio and lastly.

As I just mentioned additional potential income driven by increased M&A activity, which we are starting to see as evidenced by our fourth quarter activity.

With that I will turn it over to Jon Bock.

John Bach: Thank you, Brad, and let's turn to slide six. We ended the quarter with $9.9 billion in investments, an increase from $9.5 billion in the third quarter. We also modestly de-levered, ending the quarter at one times debt-to-equity and averaging 1.05 times in the quarter. Additionally, we enhanced our liquidity position this quarter to $1.8 billion. That's comprised of cash and available borrowing capacity across all revolving credit facilities, including ABLs, and that's to lean into an expanded pipeline. Our weighted average yield on debt investments at fair value was 12% this quarter compared to 11.9% last quarter. New investments continue to be accretive investment income. The yield on both new debt investment funding and assets repaid during the quarter averaged around 11.7%.

Thank you Brad let's turn to slide six we ended the quarter with $9 9 billion of investments an increase of nine point increase from $9 5 billion in the third quarter. We also modestly delever and in the corner at one times debt to equity and averaging one five times in the corner and we enhanced our liquidity position this corner.

To one 8 billion that is comprised of cash and available borrowing capacity across our revolving credit facilities, including a BLS and thats, how lean into an expanded pipeline now.

Weighted average yield on debt investments at fair value was 12% this quarter compared to 11, 9% last quarter, new investments continue to be accretive investment income.

The yields on both new debt investment fundings in assets repaid during the quarter averaged around 11, 7% and importantly, the weighted average base rate over the fourth quarter expanded approximately 120 basis points on a 98, 9% floating rate debt portfolio compared to the same quarter in the prior year as rates remain elevated.

John Bach: Importantly, the weighted average base rate over the fourth quarter expanded approximately 120 basis points on our 98.9% floating rate debt portfolio compared to the same quarter in the prior year as rates remain elevated. Now let's look at the portfolio and on slide seven. BXSL continued to focus on its defensive positioning in the current market environment.

Now, let's look at the portfolio and on slide seven.

<unk> continued to focus on its defensive positioning in the current market environment and this is reflected in our non accrual rate of less than zero and 1% at cost and fair market value with no new non accruals in the quarter as we look into 2020 form we expect to see dispersion in performance across the <unk>.

John Bach: And this is reflected in our non-accrual rate of less than 0.1% at cost and fair market value with no new non-accruals in the quarter. As we look into 2024, we expect to see dispersion in performance across the market with defaults increasing in certain areas, particularly in smaller companies and businesses with cyclical and capital-intensive profiles, neither of which are within BXSL's investment focus. In addition, we expect that underperforming businesses with upcoming maturities where sponsors have taken value out could also face more challenges. And while we expect market defaults and non-accruals to pick up modestly, fewer than 10 percent of BXSL's loans have maturities in the next 24 months, and liquidity profiles overall remain healthy. Now further, nine percent of BXSL's exposure to revolver credit facilities is drawn.

Market with defaults, increasing in certain areas, particularly in smaller companies and businesses with cyclical and capital intensive profile, neither of which are within the <unk> investment focus.

In addition, we expect the underperforming businesses with upcoming maturities, where sponsors are taking value out could also face more challenges and while we expect market defaults and non accruals to pick up modestly fewer than 10% of <unk> sales loans have maturities in the next 24 months and liquidity profile.

Overall remained healthy and further 9% of <unk> exposure to revolver credit facilities is drawn and what we're pleased with our non accrual rate. We continue to monitor our portfolio companies very closely leveraging our team of 84 professionals and Blackstone credit insurance as Chief investment Officer.

John Bach: And while we're pleased with our non-accrual rate, we continue to monitor our portfolio companies very closely, leveraging our team of 84 professionals in Blackstone Credit Insurance's chief investment office. Now, over 98% of BXSL's investments are in first lien, senior secured loans, and 99% of those loans are to companies owned by private equity firms or other financial sponsors who generally have access to additional equity capital, and equity owners of this type have historically shown a willingness to support borrowers. These sponsors have significant equity value in these capital structures with an average loan to value of 48.2% in BXSL. And to complement healthy credit fundamentals in what could be a lower interest rate environment later this year, our portfolio also starts from a very strong EBITDA base.

Now over 98% of <unk> investments are in first lien senior secured loans and 90, 99% of those loans are the companies owned by private equity firms or other financial sponsors who generally have access to additional equity capital and equity owners of this type have historically shown a willingness to some.

<unk> borrowers these sponsors have significant equity value in these capital structures with an average loan to value of 48, 2% and PX and sell it to complement healthy credit fundamentals and what could be a lower interest rate environment. Later this year. Our portfolio also starts from a very strong EBITDA.

John Bach: Taking a look at slide eight, you can see why we view larger companies as higher performing borrowers. Our portfolio companies generate an average of $192 million in LTM EBITDA, up from approximately $167 million at the end of the fourth quarter of 2022 and more than two times larger than the private credit market average. As we can see from the Lincoln International Private Market Database, a market resource on private credit markets overall, larger companies of $100 million or higher in EBITDA have experienced nearly four times greater EBITDA growth and default nearly five times less than when compared to true middle market transactions. As it is often said, these companies are not simply good because they are big. We believe they are big because they are good.

Base, taking a look at slide eight you can see why we view larger companies as higher performing borrowers our portfolio companies generated an average of $192 million.

LTM EBITDA up from approximately $167 million at the end of the fourth quarter of 2022 and more than two times larger than the private credit market average as we can see from the Lincoln International private market database, a market resorts on private credit markets overall larger companies of 100 million.

There's a higher and EBITDA have experienced nearly four times greater EBITDA growth and default nearly five times less than when compared to true middle market transactions and this is often said these companies are not simply good because they are big we.

We believe they are big because they are good.

John Bach: And with our extensive sourcing capabilities and origination engine, we have the ability to identify and choose a broad array of investments that are, in our view, attractive, risk-adjusted opportunities in a market environment where we're anticipating increased activity, as Brad outlined earlier. Now, slide nine focuses on our industry exposure, another important part of our defensive positioning, where we like to focus on better investment neighborhoods, and this means focusing on key sectors with, among other things, lower default rates and lower CapEx requirements. This quarter, 30% of BXSL's deals were closed in the software industry as we continued to focus on more historically lower default rate industries.

And with our extensive sourcing capabilities in origination engine, we have the ability to identify and choose a broad array of investments that are in our view.

<unk> risk adjusted opportunities in a market environment, where we are anticipating increased activity as Brad outlined earlier now slide nine focuses on our industry exposure. Another important part of our defensive positioning where we like to focus on better investment neighborhoods and this means focusing on key sectors with among other.

The themes lower default rates and lower capex requirements.

This quarter, 30% of Bx yourself deals were closed in the software industry. As we continued to focus on more historically lower default rate industries, we increased the number of portfolio companies, while maintaining nearly 90% invested in historically lower default rate industries, including software health care providers that serve.

John Bach: We increased the number of portfolio companies while maintaining nearly 90% invested in historically lower default rate industries, including software, healthcare providers and services, professional services, and commercial services and supplies, which are some of the highest exposures and highest conviction themes across the portfolio. On slide 10, we can see BXSL's portfolio company fundamentals compared to the private credit market as measured by Lincoln, and looking relative to the private credit market, BXSL has approximately two times, our portfolio companies have approximately two times higher growth rates and generate nearly 15% higher profitability. Now, we continue to stress the importance of interest coverage.

<unk> professional services and commercial services and supplies, which are some of the highest exposures and highest conviction themes across the portfolio.

On slide 10, we can see <unk> sales portfolio company fundamentals compared to the private credit market as measured by Lincoln.

Okay.

Relative to the private credit market <unk> has approximately two times our portfolio companies have approximately two times higher growth rate and generate nearly 15% higher profitability.

Now we continue to stress the importance of interest coverage average LTM EBITDA coverage of interest for <unk> portfolio companies over the last 12 months was one eight times in Q4, which again compares favorably to the Lincoln database for the private credit market.

John Bach: Average LTM EBITDA coverage of interest for BXSL portfolio companies over the last 12 months was 1.8 times in Q4, which again compares favorably to the Lincoln database for the private credit market at 1.4 times coverage in Q4. As we always say, the tails here are key. And 6% of BXSL's portfolio reflected interest coverage below one times, compared to the market at 15% on an LTM basis. It is even more important to understand what's driving these tails and which companies comprise them. Now, if you're looking at the market, looking at that tail below one times, more than 70% of the companies below one times interest coverage are small, with less than $50 million in EBITDA.

One four times coverage in Q4, as we always say the tail here are key and 6% of <unk> portfolio reflected interest coverage below one times compared to the market at 15% on an LTM basis is even more important to understand what's driving.

These tails and which companies comprise them if youre looking at the market looking at their tail below one times EBITDA coverage more than 70% of the company's below one times interest coverage or small with less than $50 million in EBITDA and <unk> and sell the majority of these companies are associated.

With recurring revenue loans, which were underwritten as higher growth names with lower initial with lower initial coverage ratios and if you exclude recurring revenue loans from the analysis.

John Bach: And for BXSL, the majority of these companies are associated with recurring revenue loans, which were underwritten as higher growth names with lower initial coverage ratios. And if you exclude recurring revenue loans from the analysis, BXSL's share of the portfolio below 1x interest coverage becomes less than 1% versus the market at 13%. Especially relative to the broader private credit market, we've seen our portfolio companies continue to deliver strong fundamental performance. Now looking ahead, the market's expecting rates to begin falling this year, with current pricing implying an average SOFR rate in 2025 of 4.1%. Now, as many of you know, lower interest rates effectively lower the interest burden that's currently placed on our portfolio companies, and that, in turn, allows more free cash flow to equity holding, all else equal.

<unk> share of the portfolio below one times interest coverage becomes less than 1% versus the market at 13 specially relative to the broader private credit market. We've seen our portfolio companies continue to deliver strong fundamental performance now looking ahead, the market's expecting rates to begin.

All this year current pricing, implying an average sofa rate in 2025 or four 1% now.

Now as many of you know lower interest rates effectively lowering the interest burden that is currently placed on our portfolio companies and that in turn allows more free cash flow to equity holding all else equal rather than spend the free cash flow and interest payments borrowers can reinvest excess cash into growth or prepare for sale or refinancing.

Illustrate this point running at a four 1% average base rate through <unk> portfolio as of Q4 2023 that implied a hypothetical increase in the portfolio as interest coverage ratio from one eight times to one nine times holding other data constant.

John Bach: Rather than spend the free cash flow on interest payments, borrowers can reinvest excess cash into growth or prepare for sale or refinancing. And to illustrate this point, running at a 4.1% average base rate through BXSL's portfolio as of Q4 2023, that implies a hypothetical increase in the portfolio's interest coverage ratio from 1.8 times to 1.9 times, holding other data constant. Now, I'll conclude with some points on our documents and the recent amendment act.

Now I'll conclude with some points on our documents and recent amendment activity as Brad indicated when we negotiate our credit agreements, especially when we are the leading lender we placed significant focus on ensuring important protections are put in place nearly 100% of the Blackstone led deals held in <unk> include.

John Bach: As Brad indicated, when we negotiate our credit agreements, especially when we're the leading lender, we place significant focus on ensuring important protections are put in place. For example, nearly 100% of the Blackstone-led deals held in BXSL include certain protections against asset stripping and collateral lease and have caps on ADBAX EBITDA. This is in stark contrast to the syndicated market, where the majority of loans lack these kinds of lender protections and, which we believe, have been a significant driver of depressed recoveries and liquid loans over the past year. Finally, amendment activity continues to be relatively low.

<unk> certain protections against asset stripping and collateral release and have caps on add backs to EBITDA. This is in stark contrast to the syndicated market, where the majority of loans lack these kind of lender protections and which we believe has been a significant driver of depressed recoveries in liquid loans over.

The past year.

Finally amendment activity continues to be relatively benign in the fourth quarter.

<unk> sell there were 40 amendments the vast majority of which were associated with add ons PDL extensions and other immaterial technical matter and there were two other amendments associated with providing additional pick flexibility and what amendment associated with an underperforming investment among the two pik amendments one was associated with the Cigna.

John Bach: In the fourth quarter, in BXSL, there were 40 amendments, the vast majority of which were associated with add-ons, DDTL extensions, and other immaterial technical matters. Now, there were two other amendments associated with providing additional PIC flexibility and one amendment associated with an underperforming investment. Among the two PIC amendments, one was associated with a significant equity infusion by the PE sponsor, and the other was effectively an extension of a PIC option provided at the initial underwrite. Now, when we extended, we also extended call protection on one of the deals by two years, and for the underperforming investment, we proactively engaged the PE sponsor, who also contributed new equity, and the amendment here was associated with recognizing additional equity in our covenant. With that, I'll turn it over to Carlos. Thanks, John. Turn to slide 11.

Difficult equity infusion by the sponsor and the other was affectively extension on a pik option provided an initial underwrite now when we extend credit. We also extended call protection on one of the deals by two years and for the underperforming investment we proactively engaged the Pes sponsored who also contributed new equity.

And the amendment here was associated with recognizing additional equity in our covenant tests and with that I'll turn it over to Carlos Thanks, Jon turning to slide 11.

<unk> maintained its dividend distribution of <unk> 77 per share.

28% increase from Q4 of last year, and a 45% increase since our IPO two years ago.

As you can see we are continuing to focus on delivering high quality yield to shareholders building a level of confidence through steady regular dividends. While also building NAV per share. We expect this approach to continue.

As the economic environment shifts, it's important to look at the market as a whole we.

Carlos Whitaker: The XSL maintained its dividend distribution of 77 cents per share, a 28 percent increase from Q4 of last year and a 45 percent increase since our IPO two years ago. As you can see, we have continued to focus on delivering high quality yield to shareholders, building a level of confidence through steady regular dividends while also building NAV per share. We expect this approach to continue. As the economic environment shifts, it's important to look at the market as a whole. We expect private credit spreads to tighten as M&A increases, a trend we began noticing in late 2023.

We expect private credit spreads to tighten as M&A increases a trend we began noticing in late 2023.

To expand on Brad's point regarding deal activity, we are optimistic about M&A volumes and a deployment picture for 2020 for.

Valuation expectations have improved.

Record private equity dry powder of one five trillion on the sidelines economic sentiment is improving.

Fundamentals remain healthy and there is a new prospect for lower cost of capital if rates fall all drivers for pent up market activity.

Given our broad origination platform and expansive credit footprint, we believe <unk> is well positioned to take advantage of this environment.

Another benefit we offer as our scaled investment franchise, which allows us to drive investor returns a main Blackstone focus.

Carlos Whitaker: To expand on Brad's point regarding deal activity, we are optimistic about M&A volumes and the deployment picture for 2024, valuation expectations have improved, record private equity dry powder of $1.5 trillion is on this island, economic sentiment is improving, fundamentals remain healthy, and there is a new prospect for lower cost of capital if rates fall, all drivers of pent-up market activity. Given our broad origination platform and expansive credit footprint, we believe BXSL is well positioned to take advantage of this environment. Another benefit we offer is our scaled investment franchise, which allows us to drive investor returns, a main Blackstone focus. Recall our value creation program, which all BXSL portfolio companies have access to, seeks to assist our companies by lowering their expenses and creating cross-sell opportunities across the broader Blackstone portfolio.

Call our value creation program, which all <unk> portfolio companies have access to six to assist our companies by lowering their expenses and creating cross sell opportunities across the broader Blackstone portfolio. We.

We have created an implied $3 5 billion plus of enterprise value for our Bx Ci companies in addition to being their lender.

For example, we made over 20 introductions across the broader Blackstone ecosystem to a digital service provider and generated approximately $7 million and sales for this borrower.

This included projects for enterprise architecture, and enterprise resource planning selection cloud optimization consulting and material requirements and planning all directly with other Blackstone investments.

Carlos Whitaker: We have created and implied $3.5 billion plus of enterprise value for our BXCI companies in addition to being their lenders. For example, we made over 20 introductions across the broader Blackstone ecosystem to a digital service provider and generated approximately $7 million in sales for this borrower; this included projects for enterprise architecture and Enterprise Resource Planning Selection. Cloud Optimization Consulting, and Material Requirements and Planning, all directly with other Blackstone investors. We also worked with a management service provider for health care to put together a request for proposals for medical consumables.

We also worked with a management service provider for health care to put together a request for proposals for medical consumables.

The request contained over 1000, skus and through this process save the borrowers almost $2 million and again, we are just the lender here so to be able to provide such assistance is quite remarkable.

It's a point worth emphasizing.

As we provide bx ci value creation services that aim to add value to our companies.

Offer our borrowers access to over 50 data scientists over 90 senior advisors and a team of cyber security experts all of which we believe ultimately makes us an attractive manager to partner with.

Carlos Whitaker: The request contained over 1,000 SKUs and, through this process, saved the borrowers almost $2 million. And again, we are just a lender. So to be able to provide such a system... is quite remarkable. It's a point worth emphasizing.

But all of this ties to our focus on shareholder experience and alignment.

Carlos Whitaker: As we provide BXCI value creation services that aim to add value to our companies, we offer our borrowers access to over 50 data scientists, over 90 senior advisors, and a team of cyber security experts, all of which we believe ultimately makes us an attractive manager to partner with. But all of this ties to our focus on shareholder experience and alignment. We built BXSL to help drive attractive risk-adjusted returns to shareholders with what we consider to be industry-leading best practices. Even after the expiration of our fee waiver, BXSL has among the lowest fee structures, expense ratios, and cost of debt relative to our peer set as a percentage of NAV and as of the end of Q4.

We built <unk> to help drive attractive risk adjusted returns to shareholders with what we consider to be industry, leading best practices.

Even after the exploration of our fee waiver DSO has among the lowest fee structures expense ratios and cost of debt relative to our peer set as a percentage of NAV and as of the end of Q4.

This helps us to build a defensive portfolio and deliver returns to our investors. We have a three year look back our total return hurdle related to incentive fees on income and importantly, we amortize OID over the life of the loan and do not scraped.

Teddy Dilos: This helps us to build a defensive portfolio and deliver returns to our investors. We have a three-year look-back or total return hurdle related to incentive fees on income. And importantly, we amortize OID over the life of the loan and do not scrape upfront fees from the manager by passing on all of BXSL's portion of investment-related fees fully to the fund, another example of shareholder alignment and another way we aim to differentiate ourselves. Thank you, Carlos.

Up front fees to the manager by passing on all of the excess sales portion of investment related fees fully to the fund.

Another example of shareholder alignment in another way, we aim to differentiate ourselves and with that I'll turn it over.

Thank you Carlos.

I'll start with our operating results on slide 12.

In the fourth quarter <unk> net investment income was $172 million or <unk> 96 per share representing the second highest NII quarterly performance since our IPO.

Teddy Dilos: I'll start with our operating results on slide 12. In the fourth quarter, VXSL's net investment income was $172 million, or $0.96 per share, representing the second-highest NII quarterly performance since our IPO. Gap's net income in the quarter was $157 million, or $0.88 per share, up 16% from a year ago.

GAAP net income in the quarter was 157 or <unk> 88 per share up 16% from a year ago.

Our total investment income for the quarter was up $53 million or 21% year over year, driven by increased interest income primarily due to higher rates payment in kind or pik income represented approximately 5% of total investment income during the corner.

We would also like to acknowledge that the fee waivers in place since our IPO expired near the end of October 2023, while this quarter included partial waivers for approximately one third of the period future quarters will fully incorporate VX yourselves or management fee of 1% and its incentive fee of 17, 5%.

Teddy Dilos: Our total investment income for the quarter was up $53 million, or 21% year-over-year, driven by increased interest income primarily due to higher rates. Payment in Kind, or PIC, income represented approximately 5% of total investment income during the quarter. We would also like to acknowledge that the fee waivers in place since our IPO expired near the end of October 2023. While this quarter included partial waivers for approximately one-third of the period, future quarters will fully incorporate BXSL's full management fee of 1% and its incentive fee of 17.5%. The partial waivers added approximately $0.02 of NII per share to the quarter.

The partial waivers added approximately <unk> <unk> of NII per share to the quarter.

Turning to the balance sheet on slide 13, we ended the quarter with $9 9 billion of total portfolio investments at fair value less than $5 billion of outstanding debt and nearly $5 billion of total net assets with our strong earnings in excess of the dividend in the quarter NAV per share increased to $26 66.

Up from $26 54 last quarter.

Next slide 14 outlines our attractive and diverse liability profile, which includes 57% of drawn debt and unsecured bonds. These bonds have a weighted average fixed coupon of less than 3%, which we view as a key advantage in its elevated rate environment and contributed to an overall weighted average interest rate on.

Teddy Dilos: Turning to the balance sheet on slide 13, we ended the quarter with $9.9 billion of total portfolio investments at fair value, less than $5 billion of outstanding debt, and nearly $5 billion of total net assets. With our strong earnings in excess of the div end of the quarter, NAV per share increased to $26.66 up from $26.54 last quarter. Next, slide 14 outlines our attractive and diverse liability profile, which includes 57% of drawn debt in unsecured bonds. These bonds have a weighted average fixed coupon of less than 3%, which we view as a key advantage in this elevated rate environment and contribute to an overall weighted average interest rate on our borrowings of just over $5. Again, this compares to a weighted average yield at fair value on our debt investments of $12. Additionally, we have no maturities on our liabilities until 2026, and our funding facilities have an overall weighted average maturity of 3.4 years.

Our borrowings of just over 5%.

Again this compares to weighted average yield at fair value on our debt investments of 12%.

Additionally, we have no maturities on our liabilities until 2026 and our funding facilities have an overall weighted average maturity of three four years.

As mentioned in our prior earnings call <unk> is the first traded BDC to received an improved outlook from stable to positive by Moody's and we continue to maintain our three investment grade corporate credit ratings.

We ended the quarter with approximately $1 8 billion of liquidity in cash and undrawn debt available to borrow providing us with significant capacity for continued portfolio growth.

The fourth quarter of 2023 was our most active quarter since 2021 with VX to sell committing to over $1 billion of investments in the quarter and have closed to date plus an additional $221 million committed to <unk> as of December 31st that have yet not yet closed.

Teddy Dilos: As mentioned in our prior earnings call, BXSL was the first traded BDC to receive an improved outlook from stable to positive by Moody's, and we continue to maintain our investment grade corporate credit rating. We ended the quarter with approximately $1.8 billion of liquidity in cash and undrawn debt available to borrow, providing us with significant capacity for continued portfolio growth. The fourth quarter of 2023 was our most active quarter since 2021, with BXSL committing to over $1 billion in investments in the quarter that have closed to date, plus an additional $221 million committed to BXSL as of December 31st that have not yet closed. As you heard from Brad, John, and Carlos, we believe deal activity will increase in 2024 and create new deployment opportunities we are seeing that are playing through our pipeline.

As you heard from Brian John and Carlos We believe deal activity will increase in 2024 and create new deployment opportunities. We are seeing that play through our pipeline. We also have seen spreads tightened and activity rise in the syndicated loan market generally a leading indicator for we expect to see on the private side as such we are.

Leveraging incumbency to retain exposure where capital structures were set up in a wider spread environment. While company performance has remained strong exceeding expectations. For example in the fourth quarter, we agreed to five repricing in the portfolio in exchange for an average of nearly two years of additional call protection. We are all.

Also finding success offering private solutions that are differentiating versus what the syndicated market can offer such as refresh DD TL capacity or modest pick flexibility.

In conclusion, we remain positive about the year ahead, our competitive advantages in the market and robust performance in various metrics against our peer set we believe the positive factors that have supported returns for investors remain in place, including portfolio positioning for a modestly lower but still elevated rate environment.

Teddy Dilos: We also have seen spreads tighten and activity rise in the syndicated loan market, generally a leading indicator for what we expect to see on the private side. As such, we are actively leveraging incumbency to retain exposure where capital structures were set up in a wire-spread environment, while company performance has remained strong, exceeding expectations. For example, in the fourth quarter, we agreed to five repricings in the portfolio in exchange for an average of nearly two years of additional call protection.

Ample liquidity to deploy into what we believe will be a more robust deal environment and continued elevated earnings powered by low cost financing sources, all of which is backed by blackstone's platform advantages in scale and sourcing and our focus on protecting investors' capital with that I'll ask the operator to open up for questions. Thank you.

Teddy Dilos: We are also finding success offering private solutions that are differentiating versus what the syndicated market can offer, such as refresh DDTL capacity or modest PIC flexibility. In conclusion, we remain positive about the year ahead, our competitive advantages in the market, and robust performance in various metrics against our peer set. We believe the positive factors that have supported returns for investors remain in place, including portfolio positioning for a modestly lower but still elevated rate environment, ample liquidity to deploy into what we believe will be a more robust deal environment, and continued elevated earnings powered by low-cost financing sources, all of which is backed by Blackstone's platform advantages in scale and sourcing and our focus on protecting investors' capital. With that, I'll ask the operator to open up for questions Thank you. Thank you. As a reminder, Star One, if you would like to ask a question, we ask you limit yourself to one question and one follow-up to allow as many questions as possible. We'll go first to Finian O'Shea with Wells Fargo. Hey everyone, good morning. Thanks for having me on.

Thank you as a reminder, star one if you would like to ask a question. We ask you limit yourself to one question and one follow up to allow as many questions as possible.

We'll go first to Finian O'shea with Wells Fargo Securities.

Okay.

Hey, everyone. Good morning, Thanks for letting me on.

Interesting comment at the end by Teddy there on the.

The re pricing.

I guess first how.

Many like.

If you can offer us color happened post quarter with the.

Major BSL come back in.

And then just higher level as I'm not sure repricing has been a concept in direct lending if you could touch on.

If this is a market evolution, that's kind of happening in real time. Thank you.

Yes, Thanks Ben.

And your first and your first question.

Missing out activity has continued.

Not too overly material extent.

If you look at the capital structures, where we have agreed to repricing. Some of these were setup.

Higher rate environment for higher spread environment.

Operator: Interesting comment at the end by Teddy there on the repricings, I guess first, how many like... If you can offer us color on what happened post-quarter with the major BSL comeback and then just higher levels. I'm not sure repricing has been a concept in direct lending. If you could touch on if this is a market evolution that's kind of happening in real time. Thank you. Yeah, thanks, Finn.

<unk> spread on the on the deals that we repriced in Q4 were just over right around so for 615.

Inside of our outside of where the market is today and all of those were met with with new call protection. So we make that trade to it to extend duration of workload.

Ben It's Brad I.

I would say it is a bit of a new phenomena.

But you always have.

Teddy Dilos: So on your first question, repricing activity has continued, but not to an overly sort of material extent. I think if you look at the capital structures where we have agreed to repricings, some of these were set up in a clearly higher rate environment or higher spread environment. The average spread on the deal that we repriced in Q4 was just over, right around, so for 615, inside of or outside of where the market is today. All of those were met with new call protection.

The option to take your capital back.

At your call protection.

And that's why it's important to have call protection on deals.

But on the higher quality assets, if they have de levered.

We're usually okay with extending duration on those types of assets.

Yeah.

Okay. That's helpful. Thank you I guess for my follow up can you talk about the strategy with capital raising.

Do you have kind of.

Leverage has gone from <unk>.

130 to one over the course of the year, mostly on the <unk>.

The ATM is.

Brad Marshall: So, you know, we make that trade to extend duration. Dennis, Brad, I would say it is a bit of a new phenomenon, but you always have the option to take your capital back at your call protection, and that's why it's important to have call protection in deals. But on the higher quality assets, if they've delevered, we're usually okay with extending duration on those types of assets. Okay, that's helpful

Or are you.

Is this I know you gave some constructive comments on the deployment.

<unk> outlook, but it's.

Not that meaningful yet so.

Are you still.

Pedal to the metal post quarter end.

How are you looking at that today. Thank you.

Yeah.

And its back I would outline that.

Now the pedal to the metal focus you size the equity capital based on the opportunity set as your forward pipeline develops and you've seen and you've heard brad's comments on the development of the forward pipeline I think what was outlining is that we have access to very high quality investors through the ATM program some of them.

John Bach: Thank you. And I guess for my follow-up question, can you talk about the strategy for capital raising? You've kind of, you know, leverage has gone from 130 to 1 over the course of the year, mostly on account of the ATM. Are you, I know you gave some constructive comments on the deployment outlook, but it's not that meaningful yet, so are you still pedaling to the metal post-quarter, and how are you looking at that today? Hey Finn, it's Bach.

A very large in nature and our goal will be to ensure that we're sizing the equity growth to ensure that we're generating attractive return and so monitoring that on a daily daily or quarterly basis. So you are starting to see a build in pipe you can expect to see a level of building capital, but you don't let that overwhelm the.

John Bach: I would outline that not a pedal to the metal focus; you size the equity capital based on the opportunity set as your forward pipeline develops. And you've seen and you've heard Brad's comments on the development of the forward pipeline. I think what it's outlining is that we have access to very high-quality investors through the ATM program, some of them very large in nature. And our goal will be to ensure that we're sizing the equity growth, to ensure that we're generating attractive returns. And so monitoring that on a daily, daily, or quarterly basis. So you're starting to see a build in the pipeline; you expect to see a level of build in capital, but you don't let that overwhelm the forward return. If so, then I'll just add to that.

Forward return.

Then I'll just add to that so.

I think we see things, maybe a little bit before the market.

In terms of pipeline building in assets and deployment.

You certainly saw some of that get reflected as we've said in the fourth quarter was our busiest quarter since.

2021, so we are seeing a material up tick in activity some of Thats being driven just by incumbency not in the existing portfolio, but across RPX at Psi.

Portfolio, where we can kind of originate deals on a proprietary basis just to give you some stats.

Brad Marshall: So I think we see things maybe a little bit before the market in terms of pipeline building and assets and deployment. You certainly saw some of that get reflected. As we said, the fourth quarter was our busiest quarter in 2021.

I think we said this but pipelines are about two times larger than.

Then it was maybe six months ago and even in the past couple of weeks the deal flow coming in from sell side advisers has has more than doubled.

Brad Marshall: So we are seeing a material uptick in activity. Some of that's being driven just by incumbency, not in the existing portfolio, but across our BXXI portfolio, where we can kind of originate, you know, deals on a proprietary basis. Just to give you some stats.

So we're always going to be thinking about our capital structure to make sure. We can take advantage of what's in front of us.

Recognize kind of your points leverage has come down but.

But again, it's on the back of very very active investment activity in the fourth quarter.

We'll see how the first quarter develops.

Brad Marshall: I think we said this, but the pipeline's about two times larger than it was maybe six months ago. And even in the past couple weeks, the deal flow coming in from sell-side advisors has more than doubled. So we're always going to be thinking about our capital structure to make sure we can take advantage of what's in front of us. I recognize kind of your points, leverage has come down, but again, it's on the back of very, very active investment activity in the fourth quarter, and we'll see how the first quarter develops. Thank you. Thank you. Thank you. We'll go next to Ken Lee with RBC Capital Markets. Hey, good morning.

Thank you. Thank you.

We'll go next to Kenneth Lee with RBC capital markets.

Hey, good morning, Thanks for taking my question.

In terms of the <unk>.

Normalization of the broadly syndicated loan markets wondering if you could just share your thoughts on how you think this could impact either the pace or the mix of new originations.

This year thanks.

So yes, the broadly syndicated markets have been quite.

I wouldn't say active because most of the activity has been on repricing there.

There hasnt been much of a new calendar come to the market.

But it has tightened.

Quite a bit probably by at least.

50 basis points in the first couple months of the year.

Kenneth S. Lee: Thanks for taking my question. These are the normalization of the broadly syndicated loan markets. I'm wondering if you could just share your thoughts on how you think this could impact either the pace or the mix of...

And I would say the private markets are somewhat keyed off of the public market. So.

One could expect.

Asset spreads coming in.

Brad Marshall: So yeah, the broadly syndicated markets have been quite I wouldn't say active because most of the activity has been on repricing. There hasn't been much of a new calendar come into the market, but it has tightened quite a bit, probably by at least, you know, 50 basis points in the first couple months of the year. And I would say the private markets are somewhat keyed off of the public market. So one could expect, you know, asset spreads coming in across the private market. We do have a pretty broad, you know, deal funnel globally, so we can pick our spots with BXSL. Again, the fourth-quarter activity, the spreads were in line with the assets that we deployed, and they were in line with the assets that came out, so we're kind of keeping pace. Spreads are both a positive and a negative, and so maybe just to hit on that, you know, with spreads tightened, all else being equal, asset prices should increase, so it has.

Across the private market, we do have a pretty broad.

Deal funnel globally.

So we can pick our spots with EXL.

Again, the fourth quarter activity the spreads were in line with our with.

With the assets that we deployed were in line with the assets that came out so we're kind of keeping pace.

Spreads are both of a pause.

Positive.

And a negative.

And so maybe just to hit on that.

Spreads tightened.

All else being equal asset prices should increase so it does have.

And I said this in my comments, a little bit of an upward.

Driver on the price of your existing assets. So that's positive.

Lower spreads lower rates does increased deal activity market activity.

Or at least it should and that creates more turnover and more fee acceleration. So that's another positive.

Brad Marshall: I said this in my comments, a little bit of an upward driver for the price of your existing assets. So that's positive. Lower spreads, lower rates do increase deal activity, market activity, or at least they should, and that creates more turnover and more fee acceleration. So that's another positive. And then, of course, it is a little bit of a headwind potentially on new assets, but even if 20% of your portfolio was invested in this market, it would have, what, 10 basis points of impact on the yield? of the portfolio and the fees that you're getting on an accelerated basis more than offset sets. So there are some pros and cons, and you will continue to see us pick our spots in this market with the benefit of having a really wide and deep deal funnel. Very helpful people there.

And then of course.

It is a little bit of a headwind potentially on new assets.

But even if 20% of your portfolio was being invested in this market has what 10 basis points of impact on the yield.

Of the portfolio.

And the fees that you're getting on accelerated basis more than more than offset that so there are some pros and cons.

And you.

You will continue to see us pick our spots in this market.

What's the benefit of having a really wide and deep deal funnel.

Very helpful. There and just one follow up if I may in terms of the activity that youre seeing in the pipeline sounds pretty robust.

Kenneth S. Lee: One follow-up, if I may. In terms of the activity that you're seeing in the pipeline, sounds pretty robust. Are there any particular drivers that you're seeing commonalities across the activity there? Any particular sectors? I just want to get a little bit more color on that.

Is there any particular drivers that you see.

Commonalities across the activity there any particular sectors just wanted to get a little bit more color on what you're seeing there. Thanks.

Yes on the pipeline I think.

<unk>.

John Bach: Yes, on the pipeline, you know, I think the couple things I would highlight are first, similar sector exposures, as Bach mentioned, you know, what we deployed in the fourth quarter is consistent with what we're seeing in the pipeline. Two, larger capital structures. So, as Brad mentioned, you know, double the volume, more than double the volume of larger than a billion dollar transactions in the pipeline. You know, I think, generally speaking, we are optimistic about the M&A environment this year. We see that early in our pipeline. You know, I think one thing we do need to see is a continued sort of narrowing of valuation between buyers and sellers. That's starting to happen, certainly helps with the prospect of lower cost of capital on the horizon with, as Brad mentioned, spreads tightening modestly, and then the prospect of lower rates coming down towards the back half. And what I just add to that, Ken, is that I would say at least half of our deal flow right now is going into the market and creating, so take Health Comp, which, you know, we did in the fourth quarter. We were the only capital provider that was around at that time. We were the incumbent.

A couple of things I would highlight is first similar sector.

Exposures as Bob mentioned.

What we deployed in the fourth quarter is consistent with what we're seeing the pipeline.

Two is larger capital structure, so as Brad mentioned.

Double the volume more than double the volume of larger than 1 billion transactions in the pipeline.

I think generally speaking we are optimistic about the M&A environment. This year, we see that early in our pipeline.

I think one thing we do need to see is continued.

Sort of narrowing between valuation between buyers and sellers.

That's starting to happen certainly helps with the prospect of lower cost of capital on the horizon, which as Brad mentioned spreads tightening modestly and then and then the prospect for lower rates coming down towards the back half of this year.

And what I would just add to that Ken is I would say at least half of our deal flow right now, we're going into the market and creating.

So take help comp, which we did in the fourth quarter, we were the only.

Capital provider that debt.

It was around that where the incumbent we had a strategic angle across.

Our our value add group.

Brad Marshall: We had a strategic angle across our value-add group. We could do the whole capital structure. So these are the types of transactions that we're leaning into in this market. We're going to, we committed to another deal this week that's, you know, fairly large over, you know, a billion dollars in size, and no one else kind of saw that deal. And these are some of the things I was trying to get across with my message on even in a market where the broadly syndicated, you know, activity is robust from a spread standpoint, we will continue to drive deal flow that's creative to BXSL in our opinion. So lots of different ways that we can kind of go about this, but that's where we're seeing deal flow, mostly from things that were created. Great. Very helpful people there. Thanks again. As a reminder, Star 1, if you would like to ask a question, we'll go next to Melissa Weddell with J.P. Morgan. Good morning.

We could do the whole capital structure.

So these are the types of transactions that we're leaning into in this market, we're going to we committed to another deal this week.

It's fairly large over $1 billion in size.

And no one else kind of saw that deal.

And these are some of the things I was trying to get across with my message on even in a market with a broadly syndicated.

Activity is robust.

From a spread standpoint, we will continue to drive deal flow, that's accretive to <unk> in our opinion.

So lots of different ways that we can kind of go about this but.

Thats, where were seeing deals mostly from things that we're creating.

Great very helpful. There. Thanks again.

Thank you Ken.

As a reminder, star one if you would like to ask a question. We will go next to Melissa Wedel with JP Morgan.

Good morning, Thanks for taking my questions today.

Melissa Weddell: Thanks for taking my questions today. I wanted to also follow up on the comments about the pipeline and how rich that seems to be right now. I think that we've heard from a few different management teams that while there is a pickup sort of early this year, a lot of folks are expecting particularly increased volume in the back half of this year. Is that why are you seeing anything differently than that? And then also,

I wanted to also follow up on the comments about the pipeline.

Now.

Rich that seems to be right now.

I think that we've heard from a few different management teams that others pick up.

Sort of early this year a lot of folks are expecting particularly increased volume in the back half of this year is that fair.

Seeing anything differently than that and then also.

Teddy Dilos: What does that imply for sort of repayments or exits to counter that? Are we seeing repayment activity, or is this sort of a net origination environment? Thank you.

What does that imply for sort of repayments or exits to counter that are we seeing refi activity or is this sort of a net origination environment. Thank you.

John Bach: I can give you the repayment point because it ties to what Teddy mentioned as it relates to repricing, and then as it relates to the pipeline bill, I know Teddy can then build out those comments. So as we're proactive both in sourcing deals and also proactive in defending them, you've seen both year-to-date or near-term repayment remain muted, and so that's a function of our view that an asset on our books filling an attractive illiquidity and credit spread relative to our cost base is a decision we're choosing to make. And so I'd say from a repayments perspective, we're trending better than expected, and then as it relates to deployment, I'll turn to my colleague. Yeah,

I can do the repayment point because it ties to what Teddy mentioned as it relates to our re pricings and then as it relates to the pipeline building at Ellington and build out those comments. So Melissa instantly as we're proactive bolt in sourcing deals and also proactive in defending them you've seen bolt.

Year to date or near term repayment remain muted and so thats a function of our view that an asset on our books still at attractive illiquidity and credit spread relative to our cost base is a decision we're choosing to make and so I'd say from a repayments perspective, we're trending better than expected and then is it really.

The deployment I'll turn to my colleague, Yes, I think consistent with Brad's comments, we're generally seeing deals earlier stage.

Teddy Dilos: You know, I think consistent with Brad's comments, we're generally seeing deals at an earlier stage. You know, a lot of what we're working on today are, you know, sell-side commitments prior to deal launch, so I think a lot of that does come to fruition in the back half of this year. In the meantime, there were a couple situations, particularly last quarter, where sell-side processes, M&A processes, fell apart because of valuations. We were then able to show up with, you know, a sole financing source for a recap ahead of another process. So those are situations that we're very much in front of. A lot of those we have incumbency on today, whether they're positions we have on the liquid side or private. Well, it's activity picking up in the second half of this year. I would agree with that comment, but I think most of the comments are that we hope that activity picks up in the second half. What you're hearing from others.

A lot of or working on today are.

Sell side commitments prior to prior to deal and launching so I think a lot of that does come to fruition in the back half of this year in the meantime, there were a couple of situations, particularly last quarter, where.

Sell side processes M&A processes fell apart because evaluations. We were then able to show up with some.

All financing source for a recap ahead of another process.

So those are situations that were were very in front of a lot of those we haven't come in seated at it today what are the other positions.

Physicians, we have on the liquid side or private positions.

Yes.

The activity picking up in the second half of this year.

I would agree with that comment, but I think most of the comments are.

We hope.

That activity picks up in the second half is what youre hearing from others.

Brad Marshall: Hope is not a strategy, so we're out trying to kind of, you know, develop our own, you know, deal flow in the absence of a more active M&A market. Logical holds true that activity should pick up, but we're certainly not going to sit back and wait for that to happen, and, you know, PE activity being light for the past two years, lots of dry powder, you know, all that is very true. But I would look more towards our current comments, which are cell-side M&A inbounds to us have increased twofold. The pipeline, which, you know, Teddy highlighted, is twice as large as it was not too long ago.

<unk> is not a strategy. So we're out trying to kind of develop our own deal flow in the absence of a more active M&A market or logic holds true that activity should pick up.

But we're certainly not going to sit back and wait for that to happen.

And P activity being.

<unk> for the past two years lots of dry powder. So all of that all of that is very true.

But I would look more towards our current comments, which are.

Sell side M&A inbound to us.

Increased twofold.

The pipeline, which <unk> highlighted is is twice as large as it was not too long ago. So those are the kind of the near term things that we're seeing.

Brad Marshall: So those are kind of the near-term things that we're seeing, and then, yes, we also hope that the broader market picks up, but we'll go out and find deals in the absence of that. If I could follow up on Finn's question, the repricings that you did, I think that's what you're referring to when you talk about finding the deals yourself and sort of being proactive. Are those deals or companies that could conceivably have refinanced in the broadly syndicated market? Thank you. Yeah, thanks, Melissa.

And then yes, we also hope that the broader market picks up but but will go up.

<unk> deals and the absence of that.

Understood and if I can.

Could follow up also on Ben's question.

The re pricing.

<unk>.

What you are referring to when you talk about my name is deal yourself as sort of being proactive are those deals that can see or companies that could have conceivably refinanced in the broadly syndicated market.

Yes.

Yes.

Teddy Dilos: Those deals were actually separate. So those deals were capital structures set up in a clearly wider spread environment. So average SOFR on those was 600 to closer to 625, where performance exceeded our expectations from a credit perspective. Those did have some access to the public markets. We were able to reset call protection and extend duration on those.

Yes, thanks for those deals where we are actually separate so those deals were capital structure is set up and it clearly wider spread environment. So average.

So far on those were $600 to closer to 625.

Where performance has has exceeded our expectations from a credit perspective.

Those did have.

Some access to the public markets, we were able to reset call protection extend duration on those deals that Brad was referring to were more.

Teddy Dilos: The deals that Brad was referring to were more public capital structures that actually see value in going private. And that was one of the deals that he's..., he was referring to that's closing shortly. There are ways that private lenders can differentiate from the syndicated market.

Public capital structure that actually see value in going private and that was one of the deals that he is he was referring to you. That's that's closing shortly.

There are ways that private lenders can differentiate from the syndicated market, we've been seeing that in our pipeline certainly around delayed draw capacity, providing capacity for M&A and certainty of execution and those are some areas, where we're seeing differentiation and where we can utilize those strengths to.

Teddy Dilos: We've been seeing that in our pipeline, certainly around delayed draw capacity, providing capacity for M&A, and certainty of execution. Those are some areas where we're seeing differentiation and where we can utilize those strengths to really drive our own deals. I'll give you some numbers that we have 100 deals that we identified at the end of the fourth quarter that we want to reverse into the company to try and create deal flow. They may have maturity, they may need growth capital, and they may prefer a more private capital structure. So even when the public markets are active, we can go in and create something that's a little bit more customized for them. And you can only do that if you have scale.

To really drive our own deal flow.

I'll put some numbers that we have 100 deals that we identified at the end of the fourth quarter.

That we want to reverse into the company.

To try and create deal flow. They may have a maturity they may need growth capital. They may prefer a more private capital structure. So even when the public markets are active we can go in and create something that's a little bit more customized for them and you can only do that if you have scale.

Brad Marshall: So in a couple of deals we'll likely close shortly, they are well over a billion dollars, and the sole or the large majority, anyway, of those capital structures we'll bring in some others. And you can only do that if you have incumbency across your platform. You can only do that if you have scale.

So in the in a couple of deals will likely close.

Shortly.

They are well over $1 billion will be the sole or.

The large majority of anyways of those capital structures will bring in some others.

And you can only do that if you have incumbency across your platform you can only do that if you have scale.

Brad Marshall: And you can only do that, obviously, if you have a more proactive approach. That's great detail. Thank you. We'll go next to Casey Alexander with Compass. Hi, good morning, and thanks for taking my questions.

You can only do that obviously, if you have a more proactive mindset.

No that's great detail. Thank you.

We'll go next to Casey Alexander with Compass point.

Hi, good morning, and thanks for taking my questions.

Yeah.

Casey Alexander: You talked about spreads, you know, appearing to be tightening, and interest rates were actually down broadly in the fourth quarter, which should have been supportive of the general values of the portfolio. But can you contrast that against the $23 million of unrealized depreciation in the quarter and give us a feel for what caused that relative to what should have been a pretty good pricing environment? Yeah, I'm happy to take that. So the 23 million of unrealized depreciation, some of that was a reversal of unrealized appreciation that we saw as it relates to repayments, right? We had over $500 million in repayments in the quarter.

You talked about spreads.

Appear to be tightening.

Interest rates were actually down.

Broadly in the fourth quarter, which should have been supportive for the general marks of the portfolio.

Acadia contour that against the $23 million of unrealized depreciation in the quarter and give us a feel for her.

What caused that relative to what should have been a pretty good pricing environment.

Yes, Im happy to take that.

So we so the $23 million of.

Of unrealized depreciation.

Some of that was a reversal of of unrealized appreciation that we saw as it relates to repayments right. We had over $500 million of repayments in the quarter that was an annualized repayment number of just over 20%. So when that happens you do have a reversal of.

Teddy Dilos: That was an annualized repayment number of just over 20%. So when that happens, you do have a reversal of unrealized gains. That was about a third of the move.

A reversal of unrealized gains and that was about a third of the move.

Teddy Dilos: The other two thirds were offset by some markups in the portfolio as well. But you know, I think spreads from a valuation perspective in the quarter were actually relatively flat. I think most of the spread tightening, you know, that we've seen that we're committed to in the quarter are deals that likely won't close until the first quarter or the second quarter of this year. So I think there's still some room to go on spread tightening and I haven't fully seen that reflected in the marks today. Yeah, rates shouldn't impact the mark. Casey, so it's more just the spreads, and the spreads have come in higher in the first quarter. I'd give you a couple other stats, too.

Two thirds were offset by by some markups in the portfolio as well.

Spreads from valuation perspective in the quarter were actually relatively flat I think most of the spread tightening that we've seen.

That we're committed to in the quarter, our deal that likely won't close until the first quarter in the second quarter of this year. So I think there is still some room to go on spreads tightening.

Fully seen that reflected in the market today right.

Great Shouldnt impact marks.

Casey So it's more just the spreads and spreads have come in more in the first quarter.

I'd give you a couple of other stats.

Brad Marshall: Only 1.1% of the portfolio is marked below 90. That would be the list of assets that we're most focused on. 8.8% is below 95, so the portfolio is still in really good shape, but you know we mark our assets to market, and so you're seeing that in some movements up and some movements down. Okay, thank you for that. And then, maybe a minor point, but there was a reasonable rise in PIC income, you know, versus the third quarter. It accounts for about 5% of total investment income now.

Only one 1% of the portfolio is marked below 90.

That would be that the asset list of assets that were most.

<unk> focused on.

Eight 8% is below 95%.

So.

Palio.

Is still in really good shape, but we mark our assets to market.

And so youre seeing that in some movements up and some movements now.

Okay. Thank you for that and then secondly, what maybe a minor point, but there was a reasonable horizon pick income.

Versus the third quarter, it's about 5% of total investment income now can you give us appeal for.

Teddy Dilos: Can you give us a feel for, you know, how that fits into the rest of your comments earlier today? Yeah, I'm happy to take that. So PIC income was up modestly. It was up about a percentage point from four to five percent in the quarter.

And how that fits into the rest of your comments earlier today.

Yes, but I would think that Pik income was up modestly.

About a percentage point from 4% to 5% in the quarter.

Teddy Dilos: I don't know if there's anything specific to point out there. We had one position that did roll off in the quarter that had PIC flexibility and paid full cash. Offsetting that, we did have a couple smaller PIC amendments where we agreed to them.

Don't know if theres anything specific to point out there.

One condition that did roll off in the quarter.

Does that have fixed flexibility.

But painful cash offsetting that.

We did have a couple smaller pik amendments.

Where we agreed to it.

Teddy Dilos: So it is an area, I think, over time where you can see for higher-performing situations, low LTV, in good sectors with good fundamentals, it's an area where you can see a little bit of differentiation from the syndicated market. So I think there's a difference between PIC because of underperformance versus PIC due to new deals or differentiation versus public policy. And again, I'll just add some numbers that so for, we had a couple smaller ones, got added a couple, and then four dropped the ones that got added. The average mark of those assets is 97, approximately.

It is an area I think over time, where you can see for higher performing situations low LTV and good sectors with good fundamentals that scenario, where you can see a little bit of differentiation from the syndicated market. So.

I think there is a difference between pick because of underperformance versus pik due to due to new deals our differentiation versus public markets and again all of this sets of numbers that so for.

We had a couple of smaller ones get add couple and then four dropped the ones that got added.

The average mark of that of those assets was 97 approximately.

Brad Marshall: So just give you a sense that they're kind of performing assets. They're marked in and around cost, but they've elected to use part of their pick option. I still think 5% Casey is probably at the low end of the industry. So still, no trend that you're seeing other than, you know, as rates stay high, companies have the option they're going to use. All right, thank you for taking my question, and he will go next to Mark Hughes with Truitt.

Just give you a sense that they are kind of performing assets.

In and around cost.

But they've elected part of their pick option.

Still think 5% Casey is probably at the low end of the industry.

So still so no trend that youre seeing other than as rates stay high companies have the option, they're going to use it.

Alright, Thank you for taking my questions.

Thank you we'll go next to Mark Hughes with tourists.

Mark Douglas Hughes: Yeah, thanks. Good morning. You talked about the new deals this quarter, I think 130 million average EBIT for your overall, norm is 190 million plus. Was there anything to that? Notwithstanding, you talked about some bigger deals that are out there. Did you find a little more attractive pricing at maybe the lower middle end of the market?

Yeah. Thanks, good morning.

You talked about the new deals this quarter I think $130 million on average.

Your overall.

Sure.

$190 million.

Anything to that notwithstanding you talked about some bigger deals that are good.

That are out there did you find the little more attractive pricing maybe.

Maybe the lower middle end of the market.

Teddy Dilos: Yeah, I don't think there's anything specific to point out there. You know, we have seen growth in the existing portfolio, organic and M&A growth, which is driving, you know, growth of our existing existing deals. You know, there were a handful of deals that we closed that were sort of sub-120 million that were still very high quality. So, you know, really no change in strategy to point out.

Yes, I don't think Theres anything specific to point out there.

We have seen growth in the existing portfolio.

Organic and M&A growth, which is driving growth of our existing existing deals.

There were a handful of deals that we closed that were sort of sub $120 million that we are still very high quality. So really no change in strategy.

Point out there.

Teddy Dilos: And then anything in your health care exposure that you want to highlight or not highlight, given some of the events in the industry, some other credit issues? Yeah, you know, healthcare exposure is one area where we spend a lot of our time; we do have a team that specializes in healthcare that sits on our investment team. You know, we see everything. I think the areas overall where we see stress or what we've mentioned before, business models with high components of labor inflation, business models that are more tied to regulatory pressure, or, or, or business models that are more commoditized, where we've focused our capital is, are really on more specialized models that aren't seeing much of that pressure. You know, there are a couple situations we are focused on that are roll-ups that have, you know, a little bit more cash flow constraints as rates are higher.

And then anything in your healthcare exposure you want to highlight there not highlight.

Given the some of the events in the industry and some other credit issues.

Yes, I think the health care exposure is one area, where we spend a lot of a lot of our time, we do have.

A team that specialize in healthcare, but our investment team we see everything.

I think the areas overall will receive stress our what we've mentioned before.

MS models with high components of labor inflation business models that are more tied to regulatory pressure or or or business models are more commoditized.

Where we have focused our capital is.

It's really on more specialized models that arent seeing much of that pressure.

There are a couple of situations, we are focused on that our roll ups that.

Have that have a.

A little bit more cash flow constraint as rates are higher.

John Bach: But overall, we're seeing relatively good performance in that part of the portfolio. And Mark, to add to that, if you think about it, while we're insulated from a lot of the trends you might have seen in other PPMs or positions practice, we're not completely immune. And to the extent that you see an area where we're named, where there can be an indicative level of stress that's also found and reflected in the mark. So we're very focused on those situations. Clearly, they're very small.

But overall seeing relatively good performance in that part of the portfolio and mark to add to that.

If you think about it while we're insulated from a lot of the trends you might've seen in other pbms or physician's practice, we're not completely immune and to the extent that you see are an area, where we're name whether it be an indicative level of stress. That's also found in reflected in the mark. So we're very focused on those situations clearly they are very small.

John Bach: But at the same time, I wasn't sure that that level of stress was reflected in the marks, which you can see in the estimate. Appreciate that. Thank you. We'll take our final question from Paul Johnson with KBW. Yeah, good morning.

But at the same time, I always and ensure that that that level of stress as reflected in the marks which you can see in the soi.

Appreciate that thank you.

We will take our final question from Paul Johnson with K B W.

Hey, good morning, Thanks for taking my questions.

Paul Johnson: Thanks for taking my questions. Brad sort of answered my question here in terms of opportunities and price, but I guess, you know, you, you, you identified a hundred deals. Describe that as, you know, pretty meaningful, the audio..., is driving the pipeline, or is that? or less, and then also on that, one more question: how much work?

Just.

Brad sort of answered my question here in terms of the.

The opportunity that you see in the portfolio in terms of repricing.

But.

I guess you identified 100 deals I mean would you describe that as you know pretty meaningful in the portfolio in terms of driving the pipeline or is that.

More or less kind of just low hanging fruit that you expect to be relatively quick and then also on that one more question just how much work I guess is it to execute.

Brad Marshall: Transactions. It's just kind of a matter of calling on the sponsor and discussing pricing. Yeah, and Paul, just to reiterate what Teddy mentioned, there is a distinct difference between repricings and reverse deal flow. Repricings is you own the asset, the sponsor reaches out and says, hey, we know we have call protection, but we want you to reprice, and we either say yay or nay. We usually ask for something in exchange, usually to reset the call protection if we say yay. However, reverses are entirely different. These are things that we don't own, that we're going into the market, trying to create new deals, and in those situations, if I said, you know, if it was 100 of those deals, We've actually gone through 33 of them through our kind of review process and reached out to the sponsors.

A repricing transaction is it just kind of a matter of calling on the sponsor and discussing the.

The repricing or do you basically.

Secondly, re underwrite transactions.

Yes.

And Paul just to reiterate what Teddy mentioned there is a.

A distinct different screen re pricings.

And reverse deal flow.

<unk> is the only asset the sponsor reaches out says Hey, we know we have call protection, but you want you to reprice and we I have to say yay or nay, we usually ask for something in exchange.

Usually reset with call protection, if we say yay reverses are entirely different these are things that we don't own that we're going into the market we're trying to create.

New deals.

And in those situations if there if I said it was 100 of those deals we've actually gone through 33 of them through our kind of review process.

And Ah and reach out to the sponsor is 80% of those they've said.

Brad Marshall: Eighty percent of those, they've said, no, not yet, or the price's too high. And so they go back on the shelf, and the other ones we're working through. So that's, it's very different. So when you think about our platform, we are invested in BXCI in over 3,000 companies. So we can mine our portfolios, we can create ideas, we can play the role of a banker with a balance sheet. It's a highly differentiated platform than almost anyone in the market.

No not yet or.

Pricing is too high.

And so they go back on the shelf.

And the other ones, we're working through so that's it's very different so when if you think about our platform. We are invested in <unk> in over 3000 companies.

So we can mine our portfolios we can create ideas.

We can play the role of banker, where the balance sheet, it's a highly differentiated.

<unk> form than almost anyone in the market and that's what we're focused on from a reverse standpoint is very different.

Brad Marshall: And that's what we're focused on from a reverse standpoint. Very different than the repricing exercise that we'll invariably kind of have to go through as the market strengthens. Thanks for that Brad, it's a very helpful description there. And then last one, I have to ask. For years, I mean, how do you do that?

Then the repricing exercise.

That will invariably kind of have to go through.

As the market strengthens.

Thanks for that Brad It's very helpful description, there and then last one I have to ask because it happens every four years.

How do you expect I guess the election kind of play into the pipeline this year.

Brad Marshall: Pipeline. Do you think that will prompt any more transactions ahead of the election? Yeah, I don't think we know. In an election year, you should see deal flow get pulled forward because people are worried about change and volatility. So if you look at kind of past history, that is what happens. And I guess we're seeing a pickup in the pipeline that would suggest that that will hold true, but it's unclear kind of if that's an accelerator or more of the fact that private equity sponsors have been sitting on the sidelines for a couple of years.

Do you think that would prompt anymore transactions ahead of the election I mean, just what are you kind of expect from sponsor behavior if anything.

Yes.

I don't think we know.

The election, an election year, you should see deal flow get pulled forward.

Because people are worried about change in volatility.

So if you look at kind of past history that is what happens.

And I guess, we're seeing a pickup in the pipeline that would suggest that that will hold true.

But unclear kind of.

Thats, an accelerator or more of the fact that private equity sponsor had been sitting on the sidelines for a couple of years.

Brad Marshall: So we'll wait and see. Thank you. That will conclude our question and answer session. At this time, I'd like to turn the call back over to Ms. Wang for any additional or closing remarks. Thank you. This concludes our fourth quarter call. Thank you so much for dialing in. We look forward to speaking with you, Warner, and others. I'm Mike Pearson.

So we'll wait and see.

Thank you Paul.

Thank you that will conclude our question and answer session. At this time I would like to turn the call back over to MS. Wang for any additional or closing remarks.

Thank you. This concludes our fourth quarter call. Thank you so much for dialing in and we look forward to speaking to you next quarter.

Yes.

Okay.

[music].

Stacey Wang: Have a great week and many more. Thank you. Thank you.