Blackstone Secured Lending Fund (NYSE:BXSL) Q4 2022 Earnings Call Transcript

Brad Marshall: Thanks, Casey.

Operator: And the following question is coming from the line of Robert Dodd, Raymond James. Please go ahead.

Robert Dodd: Hi, guys, and welcome, Jon. On going to that slide — the data on slide 10, I mean, Jon, you talked about at the December spot rates you’d have 8% of the portfolio under one times interest coverage. December is your peak though. Have you looked at what, say, intra the proportion or indeed your proportion versus the length of the portion would be under 1 at peak rates, which are maybe 100 basis points higher even than December?

Jon Bock: Yes. So, if you start to look forward, let’s say 5%, you’ll notice that that ratio still stays very, very close. For Blackstone, you’ll see a level of stability in our portfolio given where we focused. And then for the market, if you move forward, you start to see that tail increase over 20%. Our goal is to give you a view of what we see as of 12-31, and then continue to adjust to what’s factually there, because who knows where rates will be arbitrarily. But that’s really where it will trend. And we believe that’s an important item to focus on because, truly, it is what sits in the tails and how you manage it, Robert.

Brad Marshall: Rob, maybe just to add to that, because we clearly run all the different interest rate environments through our portfolio. I think I mentioned this before, but we have one of the largest portfolio management teams in the industry. And this is a big part of what we do; we run it through our models. Because what that does is it creates the conversation with the sponsor to figure out a game plan to the extent they’re going to be close. If you look forward into peak rates, what you’ll find is that — and remember, we look at coverage on an LTM basis, and if look at the companies that would step into the less than one times, they’re actually outperforming the rest of the portfolio. So, we feel good about the quality of those companies that would approach or be less than one times in higher rate environment because of the momentum they have on a forward-looking basis to performance.

Robert Dodd: I appreciate that, but that’s exactly related to the follow-up question. Which is to your point, like just under one times interest coverage doesn’t really — that doesn’t , right? It has to be a combination of factors, i.e., lender 1 and the EBITDA is shrinking or that the business is broken or something like that. So, if I look at slide 10, in the middle, LTM EBITDA growth, you’re at 17%, credit market at 9%, so roughly 2X again. So for the tail, what percent of the portfolio, for example, has negative EBITDA growth or — because that’s where the problems are going to come from more than the interest expense, right, it’s that the EBITDA is having a problem or any other way you can breakout the tail of the portfolio for us in some of those other metrics?

Jon Bock: So — or maybe asked differently, interest rates alone don’t cause companies to default. Good companies will manage through a higher interest rate environment quite well, especially given the vintage of BXSL’s portfolio companies. But to answer your question, Robert, about 20% of the companies that are closed on interest coverage have been performing in line or below expectations.

Robert Dodd: Got it, I appreciate that. Thank you.

Operator: And the next question is coming from the line of Ryan Lynch, KBW. Please go ahead.