Blackstone Secured Lending Fund (NYSE:BXSL) Q3 2023 Earnings Call Transcript November 8, 2023

Blackstone Secured Lending Fund misses on earnings expectations. Reported EPS is $0.95 EPS, expectations were $0.99.

Operator: Good day and welcome to the Blackstone Secured Lending Third Quarter 2023 Investor Call. Today’s conference is being recorded. [Operator Instructions] At this time, I’d like to turn the conference over to Stacy Wang, Head of Stakeholder Relations. Please go ahead.

Stacy Wang: Thank you, Katie. Good morning and welcome to Blackstone Secure Lending’s third quarter call. Earlier today, we issued a press release with a presentation of our results and filed our 10-Q, both of which are available on the Shareholders 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, which are uncertain and outside of the firm’s control and may differ materially from actual results. We do not undertake any duty in updating these statements. For some of the risks that could affect results, please see the Risk Factor section of our most recent annual report on Form 10-K. This audio cast is copyrighted material of Blackstone and may not be duplicated without consent. With that, I’d like to turn the call over to BXSL’s Co-Chief Executive Officer, Brad Marshall.

Brad Marshall: Thank you, Stacy and good morning everyone. Thank you for joining our call this morning. With me today is Co-CEO, Jon Bock, our President, Carlos Whitaker and our CFO, Teddy Desloge. Turning to this morning’s agenda, I will start with some high level thoughts before Jon, Carlos and Teddy go into more detail on our portfolio and third quarter results. Looking at the presentation and turning to Slide 4, I want to highlight that Q4 marks the two-year anniversary since their IPO in 2021. I’m very pleased with the results that we have delivered to our shareholders and I’m very confident in the strength of the portfolio we have built and highly optimistic about BXSL investment opportunity set. Focusing on the third quarter, BXSL report another strong quarter of results, including growth in net asset value, and net income per share along with higher regular dividend distributions all built on BXSL strong credit fundamentals with a predominantly first lien portfolio invest in large, resilient businesses in historically low default sectors.

A portfolio manager wearing a suit and tie, looking at a graph representing the growth of the business development company.

Looking at the details, our 98.8% floating rate portfolio continues to benefit from sustained higher interest rates, net income per share increased 12% to $1.01 per share in the quarter compared to second quarter and is up over 74% compared to last year at this time. Net investment income or NII of $0.95 per share represents a 14.4% annualized return on equity. The quality of our earnings remains high with limited payment-in-kind, limited non-reoccurring and fee-driven income. Further interest income, excluding tax, fees and dividends represented 96% of our total investment income in the third quarter I’ll repeat that. Interest income, excluding tax, fees and dividends represent 96% of our total investment income in the quarter. We distributed our previously declared increased dividend of $0.70 per share as well.

This represents an 11.6% annualized distribution, one of the highest among our BDC peers, with as much of this portfolio invested in first lien senior secured assets, while covering our third quarter dividend by 123%. In a higher interest rate environment, investors may benefit from an elevated interest income yield. However, higher interest rates placed pressure on floating rate borrowers. As a result, we continue to focus on building our portfolio with the intention of protecting investor’s capital. During the third quarter more, than 99% of funds invested were first lien senior secured with an average loan-to-value of 35.9%. As of September 30, BXSL’s portfolio is over 98% first lien senior secured with 46.9% average loan-to-value. We have a minimal non-accrual rate below 0.1% at both amortized cost and fair market value, and approximately 1% of debt investments marked at fair value below 90%.

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