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Sixth Street Specialty is upgraded to a buy after a 20% price drop, presenting a compelling value opportunity. It can be treated as a buy-the-dip case. Investors may miss it in their presentation, but TSLX's portfolio has 40% exposure to software businesses. Still, key metrics remain strong, and the market is likely overreacting.

Sixth Street Specialty Lending is maintained at a hold rating due to insufficient growth catalysts despite a deeper discount to NAV. TSLX's portfolio remains resilient with a low non-accrual rate (0.6%) and strong dividend coverage, but net investment activity and earnings are declining. Dividend yield stands at 11.2% with 115% coverage, supported by $1.21 per share in spillover income, providing a buffer for payouts.

Many BDCs already have cut their dividends by an average of 20%. Some of those that are still holding their dividend untouched could likely preserve such levels going forward. However, there are several high-quality names out there, which I doubt would be able to sustain the current dividends going forward.

The performance of the VanEck BDC Income Exchange Traded Fund, which includes over 30 BDCs in its market cap-weighted index, gives a good sense of how BDCs performed in these different environments. During the rate-cutting period, which initiated the pressure on BDC profits, BDCs have had to cope with the DeepSeek AI shock, peaking just ahead of that event on 19 February 2025. With AI technologies seemingly set to destroy any potential profitability these firms had, many BDCs were suddenly faced with having to write down large portions of their portfolios. But not all BDCs are in that boat.

NEW YORK--(BUSINESS WIRE)--Sixth Street Specialty Lending, Inc. (NYSE: TSLX, or the “Company”) today sent the following letter to its stakeholders. Please view a printable version of the letter here.

Private credit and BDCs are under sector-specific pressure, not part of a broader fixed income risk-off trade. Recent negative sentiment is driven by liquidity events, failed mergers, and redemption pressures in major private credit funds. Unlisted BDCs like Blue Owl, Blackstone, and Blackrock have faced elevated redemption requests, exceeding or gating withdrawal limits.

Sixth Street Specialty Lending offers an 11% yield, trading near its 52-week low and at the low end of its historical P/NAV range. TSLX's portfolio is 89% first-lien, 96% floating-rate, with strong credit quality, conservative leverage, and a long record of NAV/share preservation. Alpine Income Property Trust's Preferred Series A yields 8%, offers cumulative dividends, and provides higher income protection versus common shares.