Blackstone Secured Lending Fund — Q1 2024 Form 10-Q
Business context and reporting period. Blackstone Secured Lending Fund (NYSE: BXSL) is an externally managed business development company that invests mainly in senior secured loans to private companies. This summary covers the unaudited quarter ended March 31, 2024; comparisons are with Q1 2023 unless otherwise stated. Amounts below are in U.S. dollars.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Prior comparable / December 31, 2023 |
|---|---|---|
| Investment income | $304.0 million | $264.9 million in Q1 2023 |
| Net investment income after excise tax | $165.8 million; $0.87 per share | $149.2 million; $0.93 per share in Q1 2023 |
| Net increase in net assets from operations | $183.8 million; $0.96 per share | $138.8 million; $0.86 per share in Q1 2023 |
| Net asset value per share | $26.87 | $26.66 at December 31, 2023 |
| Portfolio fair value | $10.44 billion | $9.87 billion at December 31, 2023 |
| Cash and cash equivalents | $147.7 million | $154.9 million at December 31, 2023 |
| Debt outstanding, principal | $5.30 billion | $4.94 billion at December 31, 2023 |
| Asset coverage ratio | 197.3% | 200.3% at December 31, 2023 |
| Distribution declared | $0.77 per share | $0.70 per share in Q1 2023 |
Cash flow and liquidity. Operating activities used $395.5 million, largely reflecting $719.1 million of investment purchases, partly offset by $186.7 million of investment sales and principal repayments. Financing activities provided $388.3 million, including $363.8 million of net borrowing and $162.0 million of net ATM share proceeds, partly offset by $137.4 million of cash distributions. Management reported $1.302 billion of available unused credit capacity, subject to borrowing-base limits, in addition to cash. The filing says these resources are expected to support near-term investing and operations.
Margins and debt cost. Net investment income after excise tax was about 54.6% of investment income, versus about 56.3% in Q1 2023. Total expenses before excise tax were $134.8 million, versus $123.7 million; prior-year expenses included management and incentive-fee waivers that had ended by Q1 2024. Interest expense was nearly unchanged at $66.7 million, while the weighted-average borrowing rate rose to 5.10% from 4.68%. Average principal debt outstanding fell to $5.05 billion from $5.62 billion in the year-ago quarter.
Material changes versus prior periods
- Investment income rose 15%, primarily from higher reference rates; PIK interest income increased to $20.5 million from $9.8 million and represented 6.7% of investment income, versus 3.7%.
- Net investment income rose about 11%, but per-share net investment income declined to $0.87 from $0.93, as weighted-average shares increased to 190.6 million from 160.5 million.
- Operations increased to $183.8 million from $138.8 million, supported by $11.8 million of net unrealized appreciation versus $14.5 million of net unrealized depreciation in Q1 2023.
- Portfolio investment purchases increased substantially, to $719.1 million from $102.3 million. The portfolio grew to 210 companies from 196 at year-end 2023; new investment commitments were $1.17 billion.
- Debt principal outstanding rose $360.1 million from year-end 2023, while asset coverage declined by 3.0 percentage points. NAV per share increased $0.21 during the quarter, including the effect of the $0.77 distribution.
- The share repurchase plan expired February 22, 2024, without repurchases during the quarter. BXSL issued 5.89 million shares through its ATM program for $162.0 million in net proceeds.
Outlook, risks and unusual items
- No specific earnings or investment guidance is provided. Management says income will vary with originations, repayments and interest rates. Higher rates have supported income but may raise borrowers’ financing costs, weaken cash flows and credit quality, and increase nonperformance or valuation losses.
- Management also identifies inflation, slower growth, geopolitical and political uncertainty, market volatility, and possible reductions in credit-market liquidity or financing availability as risks. Actual results may differ from expectations.
- The portfolio is predominantly first-lien debt: 98.5% of investments at fair value. Almost all debt investments bear floating rates; 92.9% of debt fair value had a rate floor above zero. Software was 17.5% of portfolio fair value, health care providers and services 10.6%, and professional services 9.0%.
- Two loans to one borrower were on non-accrual at quarter-end, compared with one loan to one borrower at year-end. Non-accrual assets were 0.1% of investment cost. The filing identifies Benefytt Technologies loans as non-accrual; one related loan was valued at zero.
- Unfunded portfolio commitments increased to $1.421 billion from $985.9 million at year-end; management separately estimated $373.6 million of committed investments not yet funded. Funding demands could affect liquidity and leverage.
- Most portfolio investments are Level 3 and valued using significant unobservable inputs; fair values may differ materially from realizable sale prices. The company reports that debt covenants were met and that no material legal proceedings or material changes to previously disclosed risk factors were identified.
- PIK income is accrued but not collected in cash and may still contribute to amounts distributed to shareholders. The Adviser accrued $3.1 million of capital-gains incentive fees in Q1 2024, versus a $1.6 million reversal in Q1 2023. Fee waivers that benefited the prior-year comparison had ended in October 2023.
- On May 8, 2024, the Board declared a further $0.77-per-share distribution, payable on or about July 26, 2024 to holders of record June 30, 2024.
Most important facts for investors to verify
- Whether borrower performance, non-accrual exposure and PIK accruals remain consistent with reported portfolio valuations and cash collections.
- How the large increase in unfunded commitments affects available liquidity, borrowing capacity and asset coverage if commitments are drawn.
- Whether investment income and distributions remain sustainable if interest rates decline, borrower credit quality weakens, or funding costs rise.
- The effect of share issuance through the ATM program on per-share earnings and NAV, and whether future issuance is accretive.
- How much the reported Level 3 valuations depend on unobservable assumptions and whether realized exits support those marks.