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TPG Specialty: Dividend Outlook Update

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  •  2/21/2018: TPG Specialty Lending Announces Results. Outlook Maintained At UNCHANGED

    TSLX: We reviewed the IVQ and full year 2017 earnings press release and the accompanying 10-K. Also, looked at the 45 company portfolio list and identified – in advance of the Conference Call – only 2 Watch List names (Mississippi Resources and IRGSE Holding Corp), both of which are of long standing. These two credits account for $60mn, or 3.6% of total assets. That number is essentially unchanged from the prior period and down by $116mn from the end of 2016, thanks to Realized Losses and write-ups. There are no non-accruals. Admittedly, Mississippi Resources seems to have deteriorated in value. The company was restructured in 2017 into a debt and equity portion. The latter $17mn has been almost completely written off. The $25.2mn in Senior debt, though, remains valued very close to par. A problem for another quarter perhaps, but OK for the moment.

    With plenty of liquidity, and debt to equity at a recent low and with TSLX being able to maintain its yield by doing idiosyncratic senior deals – often in an asset based format- and with recurring earnings running well ahead of the distribution, there appears to be no immediate threat to the sustainability of the dividend.

    Our prior Dividend Outlook was UNCHANGED, which remains our view.

    The most intriguing issue we’ll be watching out for is whether TSLX will make a play to acquire Triangle Capital (see BDC Daily News). If they – like Kennedy where the space race was concerned – is willing to make every sacrifice and pay any price in pursuit of this goal – which might radically change the portfolio mix, capitalization and shareholder mix – we may begin to worry. Again, that might not affect TSLX’s results (except for legal bills) until the second half of 2018, but bears watching. To date, TSLX have proven canny buyers and we doubt that the management would push the envelope too far, but that huge increase in fees that would be involved might be too alluring.
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