TPG Specialty Lending expects NIM expansion as LIBOR drops

In a letter to shareholders, TPG Specialty Lending (TSLX -10.4%) Chairman and CEO Joshua Easterly writes, “In today’s environment, where LIBOR has dropped below our average LIBOR floor, we would experience net interest margin expansion.”

That would amount to an estimated net interest margin expansion of 2 cents per share at March 31, 2020 and 6 cents per share at June 30, 2020 based on the current forward 3-month LIBOR curve.

The BDC has “long operated with a late-cycle mindset” and has taken a number of steps to proactively manage risk in its portfolio, he says.

Specifically, the BDC has focused on investing at the top of the capital structure in businesses with limited commodity and cyclical exposure.

Energy exposure at year-end 2019 was limited to four portfolio companies representing 4.2% of the portfolio fair value.

“We believe we have ample and diverse funding sources with long-dated maturities to support our capital needs in the period ahead,” Easterly writes.

Currently, TSLX has more than $925M of capacity available and expects that to rise to more than $1.0B in the near term given scheduled investment repayments.

Its nearest maturity obligation is August 2022.

TSLX estimates that it’s at the bottom of target leverage range.


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