Blackstone Secured Lending Fund Q1 FY26 earnings call BXSL

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.

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.

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.

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.

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.

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.