Sixth Street Specialty Lending Inc

Non-accrual debt across US-registered business development companies jumped to 1.9% of total debt at cost in Q1 2026, up 52 basis points from the prior quarter, signaling growing borrower distress in private credit. Adjusted non-accrual exposure, counting all debt owed by borrowers with at least one non-accrual tranche, rose to 3.3% of total debt at cost, up 116 basis points from Q4 2025. Among the ten largest publicly traded BDCs, reported non-accrual debt reached 3.95% of total debt at cost in Q2, up 20 basis points, while adjusted exposure rose 54 basis points to 5.95%. The number of borrowers with at least one non-accrual instrument climbed to 356 in Q1 2026, representing 4.69% of all borrowers, up from 4.26% a year earlier. Two borrowers, Medallia and Inovalon, accounted for $4.4 billion of the Q1 2026 non-accrual total.

Analysts have reduced fair value estimates for Sixth Street Specialty Lending from about US$23.75 to roughly US$19.80, a decline of around 17% that places the estimate in the high teens. BofA, Wells Fargo, JPMorgan, Keefe Bruyette, and Citizens all trimmed their price targets following recent Q1 reports, with BofA lowering its target to US$19.50 from US$23 while maintaining a positive rating. The cuts reflect a more conservative stance on valuation for business development companies generally, though commentary suggests the moves are a recalibration rather than a complete shift in view. Key assumption changes include an expected revenue decline adjusted from about 5.87% to roughly 3.60%, a net profit margin assumption lifted from around 48.58% to roughly 56.0%, and a future P/E multiple lowered from about 16.47x to roughly 12.00x.

Sixth Street Specialty Lending has seen its stock drop 23.4% over the past six months to a new 52-week low of $16.62, driven by softer quarterly results. The company's revenue has declined at an annualized rate of 3.7% over the last two years, a sharp reversal from its prior five-year trend. Earnings per share have remained flat over the past five years, even as revenue grew at a 9.6% annualized rate, indicating declining per-share profitability. The stock now trades at 9.5 times forward earnings, but its shaky fundamentals suggest potential further downside.

Sixth Street Specialty Lending reported first-quarter revenues of $93.4 million, down 19.7% year on year and missing analyst estimates by 9.3%, making it the weakest performer among nine tracked specialty finance stocks. The group overall beat revenue consensus by 2.1% but saw average share prices decline 1.5% since reporting. Encore Capital Group led with revenues of $475.4 million, up 21% and beating estimates by 6.5%, while HA Sustainable Infrastructure Capital posted the fastest revenue growth at 31.3% and the largest beat at 43.8%. PROG Holdings met revenue expectations with $742.7 million, up 11.1%, and raised full-year EPS guidance above estimates, sending its stock up 34.3%. Sixth Street Specialty Lending's stock fell 16.9% since its report, the steepest decline among peers.