Blackstone Secured Lending Fund — Q2 2023 Form 10-Q
Business context and reporting period. Blackstone Secured Lending Fund is an externally managed business development company (BDC) and regulated investment company (RIC), focused primarily on senior secured loans to private companies. This filing covers the quarter and six months ended June 30, 2023; financial comparisons are to the corresponding 2022 periods unless noted. Amounts below are in U.S. dollars.
Financial and portfolio highlights
| Metric | Q2 2023 / June 30, 2023 | Comparison |
|---|---|---|
| Investment income | $290.4 million | Up 55% from $187.0 million in Q2 2022 |
| Net investment income after excise tax | $171.5 million; $1.06 per share | $105.3 million; $0.62 per share in Q2 2022 |
| Net increase in net assets from operations | $144.9 million; $0.90 per share | $79.6 million; $0.47 per share in Q2 2022 |
| Net unrealized depreciation | $37.5 million | $28.0 million in Q2 2022 |
| Investments at fair value | $9.29 billion | $9.62 billion at December 31, 2022 |
| Net assets / NAV per share | $4.35 billion / $26.30 | $4.16 billion / $25.93 at December 31, 2022 |
| Debt outstanding, principal | $5.01 billion | $5.56 billion at December 31, 2022 |
| Cash and cash equivalents | $147.4 million | $131.3 million at December 31, 2022 |
| Asset coverage | 186.9% | 174.8% at December 31, 2022 |
Six-month results and cash flow
- Investment income was $555.3 million, versus $372.6 million in the first half of 2022. Net investment income after excise tax was $320.7 million, versus $208.0 million; net increase in net assets from operations was $283.6 million, versus $186.8 million.
- Operating activities provided $677.1 million of cash, compared with $17.2 million in the prior-year period. The filing attributes 2023 cash generation principally to $573.8 million of investment-sale proceeds and principal repayments, partly offset by $219.2 million of purchases.
- Financing activities used $673.3 million, including $594.4 million of net debt repayments and $198.7 million of cash dividends, partly offset by $124.9 million of common-share issuance proceeds.
- Six-month total return was 6.92% based on NAV and 29.10% based on market value. These returns include distributions reinvested under the company’s methodology.
Material changes and portfolio profile
- Higher benchmark rates were the principal driver of income growth. The increase was partly offset by a smaller investment portfolio than in the prior-year comparison. Q2 included $13.0 million of non-recurring interest income, primarily prepayment premiums and accelerated fee/discount accretion, versus $0.4 million in Q2 2022.
- Borrowing costs rose: Q2 interest expense increased 47% to $66.1 million. The weighted-average borrowing rate was 4.84%, compared with 3.05% in Q2 2022, while average principal debt outstanding declined to $5.38 billion from $5.76 billion.
- At quarter-end, first-lien debt represented 98.38% of investment fair value; second-lien debt 0.43%; and equity 1.19%. Software and healthcare providers and services were the largest industry exposures, at 15.41% and 12.17% of portfolio fair value, respectively.
- Debt investments were 99.9% floating-rate; 93.8% of debt portfolio fair value had a positive interest-rate floor. The weighted-average yield on debt and income-producing investments was 11.76% at fair value, versus 10.73% at year-end 2022. Yields are not guarantees of realized returns.
- One borrower across two loans was on non-accrual at June 30, 2023; non-accrual assets were 0.1% of investments by amortized cost. The schedule identifies Benefytt Technologies loans as non-accrual.
- Unfunded revolver and delayed-draw commitments were $551.3 million, down from $690.3 million at year-end. Investment fair value was below cost by approximately $64.8 million.
Outlook, risks, and unusual items
- The filing provides no specific quantitative earnings or distribution guidance. Management says investment income will vary with originations, repayments, and interest rates; results for the interim period are not necessarily indicative of the full year.
- Management cautions that additional rate increases may benefit income but also raise borrower costs and impair portfolio-company cash flow, credit quality, and repayment capacity. Economic weakness, inflation, market dislocation, and reduced credit-market liquidity could also weaken valuations or constrain asset sales and financing access.
- Most investments are valued using Level 3 inputs and unobservable assumptions. The filing warns that fair values may differ materially from amounts ultimately realized, particularly in a forced sale.
- Liquidity included $147.4 million of cash and $1.69 billion of reported undrawn facility capacity, subject to borrowing-base limits. Management expected these resources to support near-term investing and operations, but notes that future financing may be unavailable or less favorable.
- The Adviser waived management and incentive fees during the post-IPO waiver period; Q2 waivers were $6.1 million and $4.9 million, respectively. The waiver period was described as lasting two years after the IPO.
- The company accrued $5.0 million of excise tax in Q2 and $7.6 million for the first half, reflecting RIC distribution requirements. It declared a $0.77-per-share distribution for shareholders of record September 30, payable October 26, 2023.
- The $400 million 3.65% notes due July 14, 2023 were outstanding at June 30 and were repaid at maturity after quarter-end. The company reported compliance with debt covenants at June 30 and no pending or threatened material litigation.
Most important facts for investors to verify
- Whether higher floating-rate income can continue to outpace rising funding costs, and how borrower performance responds to rates and economic conditions.
- Credit deterioration, non-accrual status, payment-in-kind income, and valuation assumptions for the portfolio’s largest exposures.
- Actual available borrowing capacity after borrowing-base restrictions and the cash needed to fund $551.3 million of unfunded commitments.
- The sustainability of distributions relative to recurring cash income, excise taxes, and non-cash PIK income.
- Post-quarter repayment of the 2023 Notes and the resulting effect on liquidity, debt mix, and interest expense.