Blackstone Secured Lending Fund Q2 FY26 earnings call BXSL

The portfolio demonstrated healthy LTM EBITDA growth of 7% year-over-year, with interest coverage modestly improving to 2.1x. PIK income remained flat quarter-over-quarter at 6.6% of total investment income, a 20% reduction from Q4 FY25. The nonaccrual rate decreased significantly to 1.8% at fair value and 3.6% at cost, driven by the successful restructuring of two assets, with no new nonaccruals added during the quarter. Medallia, prior to its restructuring, represented 1.5% of the nonaccrual rate by fair value, or 79% of the total nonaccrual fair value.

Repayment activity accelerated, with over $700 million in additional repayments during the quarter, representing an annualized rate of 21% of the portfolio at fair value. This compares to 13% in the prior quarter and 5% in the same quarter last year. The average mark across fully repaid assets was below 94%, with select repayments including call protection, leading to realizations slightly above par. This turnover provides additional capacity for reinvestment into new opportunities with attractive spreads, and management views it as an indicator of improving market health.

BXSL funded over $300 million during the quarter, adding 5 new borrowers and bringing the total to 313 companies. Deployment remains disciplined, focusing on strong credit profiles, thematic orientation, and attractive spreads. New deals across BXCI are generally structured with less leverage, lower loan-to-values, and average spreads wider than in previous quarters. Key thematic areas for new deal flow include AI and digital infrastructure, infrastructure services, and life sciences, leveraging Blackstone's industry expertise.

The company remains highly proactive with underperforming borrowers, particularly the bottom 10% of the portfolio marked at 70%. This involves leveraging Blackstone's operating resources, including over 110 strategic advisors and a 120-person CIO office with a dedicated value creation team. This team assists portfolio companies with operational efficiencies, cost savings, and management enhancements. BXCI has a long-standing track record of an annualized loss rate of less than 10 basis points over 20 years in North American direct lending, informing its approach to restructurings.

BXSL's liability profile is diverse, with $10.4 billion of committed debt capacity and $7.6 billion of funded debt. Approximately 68% of funded debt is unsecured and 32% is secured. The all-in cost of debt for the quarter was 5.05%. Total liquidity, including unrestricted cash and undrawn debt, stood at $2.8 billion. The company successfully issued a $650 million 5-year bond at 205 basis points over the benchmark treasury rate, with a 5.9% coupon, which was 5x oversubscribed.

The company maintained its dividend at $0.77 per share, despite NII of $0.75 per share. Management intends to use undistributed earnings ($1.77 per share) as a temporary bridge to a lower, more sustainable dividend level, reflecting lower base rates and maturities of lower-cost investment-grade bonds. A discretionary share repurchase plan of up to $250 million remains authorized, with potential activity weighed against new deployments and leverage targets of 1x to 1.25x.