Could management quantify the portion of Q1 losses attributable to credit issues, AI concerns, and spread widening?

Brad Marshall stated that approximately half of the markdowns were due to the two new nonaccruals (Medallia and Affordable Care). The remaining 52% was broadly distributed across the portfolio. Software names specifically experienced a 270 basis point markdown, primarily driven by AI concerns. “about half the markdowns that we saw were related to the two positions -- two of the positions we put on nonaccrual that made up about 48% of the markdowns. And then the remaining 52% was spread very broadly across the portfolio. More specifically, our software names, we took down 270 basis points during the quarter based on AI kind of concerns for the most part.”

What factors are driving the healthy prepayment activity despite a potentially wider spread environment?

Teddy Desloge explained that repayments are a mix of sales to strategics, one company going public, sponsor-to-sponsor M&A, and refinancing. He highlighted visibility to $600 million in Q2, following $450 million in Q1. Brad Marshall added that overall deal activity is expected to pick up towards year-end, further boosting repayments. “it's really a mix of a few things, sales to strategics. We did have one company go public in the quarter, as Brad mentioned, sponsor-sponsor M&A continues, although it's been a little bit softer and also refinancing.”

How many additional quarters can the dividend be supplemented by undistributed earnings, and what is the potential return outlook?

Teddy Desloge reiterated that the dividend has been covered every quarter since inception, with $1.80 per share of undistributed NII. The current dividend reaffirmation, covered by a combination of current and previous undistributed earnings, is a temporary bridge. They continuously evaluate the dividend to align with longer-term earnings generation, especially as rates have reset. “This would be viewed as a temporary bridge. As we've said previously, recognize that rates have come down. We continuously evaluate the longer-term dividend to align with the earnings generation of the portfolio, and we'll continue to evaluate that with our Board each quarter.”

BXSL

Blackstone Secured Lending (BXSL) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Financials· May 7, 2026

Source: earnings call transcript

Executive summary

Blackstone Secured Lending Q1 FY26 — Resilient Performance Amidst Volatility

Blackstone Secured Lending Fund navigated a volatile Q1 FY26 with resilient NII and positive total net return, demonstrating the strength of its senior secured direct lending model. While NAV declined due to market spread widening and specific credit marks, the company emphasizes its strong structural protections and active asset management to drive positive outcomes. Management plans to balance share buybacks with new investment opportunities as repayment activity continues.

Highlights

Net investment income (NII) of $0.77 per share, fully covering the dividend.
Total net return of over 70 basis points for the quarter despite market volatility.
Deployed $325 million of new capital at attractive spreads (530 bps above reference rate).
Healthy repayment volumes of nearly $450 million in Q1, with visibility to over $600 million in the next 3-4 months.
Strong credit performance with less than 10 basis points of realized annual losses over 20 years in BXCI's North American direct lending strategy.

Concerns

NAV per share decreased by 2.5% QoQ to $26.26, primarily due to unrealized losses.
Nonaccruals increased to 3.1% at fair value (4.7% at cost), with three new positions added (Medallia, Affordable Care, Paramount Global Services).
Market volatility and broader market pressure led to negative returns in public markets and declines in non-traded BDCs.
Software names saw markdowns of 270 basis points due to AI concerns.

Guidance & targets

Category	Target	Timeline	Confidence
Repayments	$600 million medium materiality	Next 3-4 months	High
Leverage ratio	High end of 1 to 1.25 turns high materiality	Ongoing	High

BXSL operating KPIs by quarter

BXSL operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2025 Q4 FY25	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Portfolio companies	316 We increased our overall portfolio to 316 companies, including 40 industries funding 13 new credits, which had an average LTV at underwrite of 41% at an average spread near 500 basis points, and completed 15 add-ons to incumbent name. Source: earnings call transcript	316 Of the 316 portfolio companies in BXSL, these three names make up over 88% of our nonaccrual based on fair market value. Source: earnings call transcript	313 BXSL funded over $300 million during the quarter, adding 5 new borrowers to the portfolio, bringing our total to 313 companies. Source: earnings call transcript	-0.9%
Non-accruals rate at fair market value	0.5% Non-accruals in the fourth quarter were just 0.6% at cost and 0.5% at fair market value, up from 0.3% at cost and 0.2% at fair market value in the fourth quarter of last year as 2 smaller positions were added this quarter. Source: earnings call transcript	3.1% Nonaccruals for the quarter were 3.1% at fair value and 4.7% at cost. Source: earnings call transcript	1.8% We ended the period with a nonaccrual rate of 1.8% at fair value and 3.6% at cost, down from 3.1% at fair value and 4.7% at cost in Q1, primarily driven by 2 assets that were removed post restructuring. Source: earnings call transcript	-1.3 pt
Capital deployed	$1B BXSL funded $1 billion for the second consecutive quarter and committed over $900 million. Source: earnings call transcript	$325M We deployed $325 million of new capital, and we saw nearly $450 million of repayments, consistent with our messaging that repayment volumes remain healthy. Source: earnings call transcript	—	-67.5%
Net funded investment activity	$400M Net funded investment activity was $400 million after $629 million of repayments and sales, up nearly 45% quarter-over-quarter. Source: earnings call transcript	-$126M Net funded investment activity was negative $126 million after nearly $450 million of repayments. Source: earnings call transcript	—	—
Annualized repayment rate	15% This represented an annualized repayment rate of 15% of the portfolio at fair value, up from 13% for the prior quarter and 6% for the same quarter in the prior year. Source: earnings call transcript	13% This represented an annualized repayment rate of 13% of the portfolio at fair value compared to 15% for the prior quarter and 28% for the same quarter in the prior year. Source: earnings call transcript	21% This represented an annualized repayment rate of 21% of the portfolio at fair value compared to 13% for the prior quarter and 5% for the same quarter in the prior year. Source: earnings call transcript	+8 pt

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Product announcements

Product	Type	Timeline	Details
AI service firm with Anthropic	launch	this week

Deals & partnerships

Firmus Technologies Blackstone led a $10 billion GPU-backed debt financing to support the company's cloud build-out. $10 billion

Largest new commitment in Q1. Leverages Blackstone's insights in digital infrastructure.

Anthropic Blackstone is helping create a new AI service firm with Anthropic.

Aims to bridge the gap between AI technology and actual business applications.

Risks & headwinds

Market Volatility and Negative Returns Q1 FY26

S&P 500, investment grade, high yield, and broadly syndicated loan markets all posting negative returns. Leveraged loan index spreads widened roughly 50 bps, returns down 55 bps.

Mitigation:Private credit generally outperformed; BXSL has 98% first lien exposure, strong covenants, and lead lender role for influence.

NAV Decline Q1 FY26

Down 2.5% QoQ to $26.26, primarily due to $0.67 of unrealized losses.

Mitigation:Marks reflect current information and market conditions; overall portfolio remains resilient with stable high single-digit EBITDA growth and 2x interest coverage.

Increased Nonaccruals Q1 FY26

Nonaccruals at 3.1% fair value (4.7% cost). Medallia (1.7% FMV), Affordable Care (0.73% FMV), Paramount Global Services (0.26% FMV).

Mitigation:BXSL sits at the top of the capital structure with strong documentation and lender protections to drive positive outcomes through restructuring and capital structure improvements.

Software Business Disruption from AI Q1 FY26

Software names marked down 270 bps.

Mitigation:BXSL's software portfolio has performed well with low double-digit LTM EBITDA growth in resilient sub-verticals. Blackstone's AI team and resources support portfolio companies.

What to watch in Q2 FY26

Repayment volumes

Next 3-4 months (Q2 FY26)

Current $450 million in Q1 FY26

Target Over $600 million

Why it matters

Repayments create balance sheet capacity for new investments and share buybacks, and can convert below-par marks into par realizations, driving returns.

As we sit here today, we see visibility to over $600 million of repayments in the next 3 months to 4 months, which we expect to use for a combination of new investments and share buybacks.

Find out whether BXSL delivers this. Inve re-checks your case every morning.

Q&A highlights

Where does management see the current ROE opportunity, considering asset sensitivity and historical context?

Brad Marshall noted wider spreads and lower cost of leverage as positives. Repayments of below-par assets at par also drive returns. Volatility stems from mark-to-market changes, particularly in the bottom 10% of the portfolio. He emphasized high income, historically low loss rates, and BXSL's senior secured position for control in nonaccruals.

“you have very high income across our vehicle and other BDCs that helps offset any potential losses in an asset class that historically has had moderate default rates and very strong recovery rates.”

asked by Richard Shane · answered by Brad Marshall

2 min read 6 chapters

Detailed narrative

Market Environment and Private Credit Resilience

The first quarter saw broad market volatility with negative returns across public asset classes, including the S&P 500 and leveraged loan index. Despite this, private credit remained well-capitalized, with over 80% of LBO financings choosing private lenders. Blackstone's direct lending strategy has historically shown strong performance, with less than 10 basis points of realized annual losses over 20 years, demonstrating its resilience through various market cycles.

Portfolio Strength and Credit Protections

BXSL's portfolio is characterized by nearly 98% first lien exposure, providing a senior position in capital structures. The average junior capital cushion below BXSL's positions is nearly 50%, offering substantial protection. Furthermore, credit agreements are heavily negotiated with strong collateral protections, and BXSL's lead lender role in 80% of historical BXCI exposure provides significant influence in managing underperforming assets and driving positive outcomes.

Nonaccrual Management and Restructuring Efforts

Three new positions were added to nonaccrual in Q1 FY26: Medallia (1.7% of FMV), Affordable Care (0.73% of FMV), and Paramount Global Services (0.26% of FMV), bringing total nonaccruals to 3.1% at fair value. For Medallia, BXSL plans to invest new capital and delever the balance sheet to support growth and AI features.

For Affordable Care, BXSL, as a first lien lender, intends to enforce its rights to improve the capital structure. Paramount Global Services, though current on coupons, faces softening demand.

AI Infrastructure Investment Strategy

Blackstone has emerged as a significant investor in AI-related infrastructure, leveraging its deep expertise to identify attractive opportunities. BXSL's largest new commitment in Q1 was to Firmus Technologies, a GPU cloud service provider, through a $10 billion GPU-backed debt financing. This investment is structured as senior secured with a first lien on GPUs, benefiting from the secular tailwinds in AI infrastructure build-out and demand.

Repayment Activity and Capital Allocation

Repayments totaled $450 million in Q1, with management projecting visibility to over $600 million in Q2. This activity creates balance sheet capacity, enabling BXSL to strategically allocate capital between new investments and share buybacks. Recent examples demonstrate that assets previously marked below par can be repaid at par, converting discounts into positive realizations for shareholders, highlighting the importance of active asset management.

Software Portfolio Performance and AI Integration

Despite broader AI concerns, BXSL's software portfolio has performed well, exhibiting low double-digit LTM EBITDA growth and concentration in resilient sub-verticals like data management and security. Blackstone's dedicated AI team actively supports portfolio companies, and the firm's partnership with Anthropic to create a new AI service firm is expected to provide additional benefits and resources to BXSL's portfolio companies.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.