Sixth Street Specialty Lending (TSLX) 2026年第三季法說會：高利率支撐獲利

重點摘要

• Sixth Street Specialty Lending 公布 2026 年第三季每股淨投資收益為 0.44 美元，每股淨利為 0.36 美元，年化股東權益報酬率 (ROE) 分別為 10.7% 與 8.9%。
• 淨投資收益對每股 0.42 美元之季度基本股利的覆蓋率達 105%。董事會亦宣布發放與第三季獲利掛鉤的每股 0.01 美元額外股利。
• 每股淨資產價值 (NAV) 為 16.19 美元，低於 6 月 30 日的 16.24 美元；經新宣布的額外股利調整後，NAV 為 16.18 美元。
• 第三季放款金額創 2026 年新高，達 2.47 億美元，涵蓋四項新投資、五筆投資組合公司增資以及合資企業資本催繳。還款總額則為 1.6 億美元。
• 管理階層預期基準利率攀升、利差穩定及投資組合信用體質良好，將支撐獲利與股利覆蓋率。在假設投資組合周轉率維持在 20% 以下的前提下，全年淨投資收益 ROE 仍符合先前預估的 10% 至 10.5% 區間。
• 投資組合信用指標維持穩定，加權平均利息保障倍數為 2.3 倍。共有三家公司處於停息狀態，占投資組合公允價值的 1.1%。

核心財務數據

NAV 變動分析顯示，每股淨投資收益貢獻 0.44 美元，但被 0.42 美元之基本股利所抵銷。信用利差收窄貢獻每股 0.07 美元，而淨已實現投資損失使 NAV 每股減少 0.10 美元。其他變動則使 NAV 每股減少 0.02 美元。

董事會核准每股 0.42 美元的季度基本股利，將於 12 月 31 日發放給截至 12 月 15 日名列股東名冊的股東。每股 0.01 美元的額外股利將於 12 月 21 日發放給截至 11 月 30 日名列股東名冊的股東。

業務與營運表現

第三季放款總額達 2.47 億美元，創 2026 年單季新高。相關業務涵蓋四項新投資、五筆增資案及合資企業資本催繳。四項新投資均為跨平台交易，並由 Sixth Street 主導。

新投資集中於中型市場偏大型企業。其借款人加權平均營收為 6.62 億美元，整體投資組合則為 4.79 億美元；EBITDA 中位數為 9,800 萬美元，高於整體投資組合的 5,500 萬美元；加權平均淨槓桿率則較低，為 4.6 倍，整體投資組合為 5.2 倍。

還款總額為 1.6 億美元，季減 17%。第三季及前九個月的年化投資組合周轉率皆為 19%。在已還款的四筆債務投資中，有三筆包含贖回保護條款，加權平均還款價格為 102.3%。

債券及生息證券的加權平均總收益率從 11.2% 上升至 11.4%，主因基準利率攀升。管理階層表示，借款人利率重置通常落後一季，預計將對第四季的核心獲利形成支撐。

核心投資組合公司過去 12 個月的營收成長率約為 8%，EBITDA 成長率為 9%。加權平均利息保障倍數為 2.3 倍，而進入點與退出點槓桿倍數分別為 0.4 倍與 5.2 倍。

投資組合品質大體維持穩定。內部投資評等加權平均為 1.25（以 1 為最佳等級）。本季並無新增進入停息狀態的公司。

管理階層財測指引

管理階層預期在遠期利率曲線、穩定的投資組合利差與穩健信用體質的支撐下，獲利動能將持續延續。該公司認為目前的利率路徑對獲利與股利覆蓋率均屬正面。

針對 2026 全年，管理階層表示，在假設投資組合周轉率維持在 20% 以下的情況下，業績表現仍符合先前預估的 10% 至 10.5% 年化淨投資收益 ROE 區間。第四季的還款情況及相關基於交易活動的手續費收入，將是決定該區間最終結果的主要變數。

管理階層表示第四季投資儲備案源相當穩健，投資機會遍及一般中型市場與中型市場偏大型企業。預期的投資組合還款也將提供資金投放能力，而無需進行股權增資。

管理階層預期政治不確定性降低對 2027 年第一季與第二季交易活動的助益，將大於 2026 年第四季剩餘時間，同時也指出多數可能在年底前結案的交易已在進行中。

風險與關注事項

• 利率、能源價格與地緣政治引發的總體經濟波動壓抑了併購活動。2026 年第三季針對私募股權支持借款人的直接放款規模年減 47%，前九個月則年減 32%。
• TSLX 目前槓桿水準接近先前溝通區間的上限。管理階層仍致力於維持投資級評等，除非出現極具吸引力的機會，否則不會超出既定的槓桿參數。
• NeuIntel（亦稱 PriceSpider）在策略性交易未按預期進行後進行了資本重組。此次重組導致了已實現損失，但管理階層表示該投資在此期間仍持續支付利息。
• 有四筆投資移至內部風險評等第 3 類。管理階層表示，這些投資均如期履約付款且預期不會違約，但在未來數季可能面臨財務承諾條款違約的風險。
• 較高利率使借款人的利息支出增加。管理階層指出，投資組合利息保障倍數達 2.3 倍，且超過 85% 的投資組合公允價值是在升息循環開始後所承造發起，這些都是緩解風險的有利因素。
• 管理階層持續密切關注 AI 對科技、軟體及其他產業的影響。該公司指出續約率、單位經濟效益及其他核心科技投資組合指標維持穩定至略有改善，但強調仍須採取高度嚴格審慎的核貸標準。

分析師問答焦點

資本與槓桿：管理階層表示，公司會評估 TSLX 的交易水準是否能支持股東價值創造，但創造報酬才是首要目標，而非追求規模成長。該公司在第三季並未透過按市價增發 (ATM) 計畫發行股票，且仍專注於維持其投資級融資體質。

中型市場偏大型企業機會：管理階層提到，公司能更直接接觸管理團隊與取得數據、合約文件條件逐漸改善、槓桿水準比往年低約 0.5 倍至近 1.0 倍，且利差與手續費略高。管理階層指出，常規交易利差大體保持穩定，而結構較複雜的融資案則已初現享有更佳風險溢價的跡象。

科技業暴險：管理階層表示，科技與軟體暴險程度與年初水準大致持平，甚至可能略低，主因近期投資機會偏向非科技產業。該公司並未對軟體暴險設定固定的投資組合上限。

併購前景：管理階層將交易活動低迷歸因於經濟不確定性，而非選舉週期。管理階層預期政治不確定性的消除將隨時間推移帶來助益，但認為較顯著的影響可能會落在 2027 年上半年。

特種借貸儲備案源：舊資本結構的再融資、成長型資金需求，以及現有貸款機構不願或無法提供額外融資的情況，正在為現金流借貸與資產抵押借貸創造機會。

BDC 整併：管理階層表示，只要有助於增厚股東獲利，公司會考慮次級市場投資組合收購、資產出售或整併機會。

電話會議逐字稿全文

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完整財報電話會議逐字稿

管理層陳述

Operator

Good morning, and welcome to the Sixth Street Specialty Lending, Inc.'s Third Quarter September 30, 2026, Earnings Conference Call.

[Operator Instructions]

As a reminder, this conference is being recorded on Wednesday, November 4, 2026. I will now turn the call over to Ms. Cami Senatore, Head of Investor Relations.

Cami Senatore

Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Sixth Street Specialty Lending, Inc.'s filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements.

Yesterday, after the market closed, we issued our earnings press release for the third quarter ended September 30, 2026, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our Form 10-Q filed yesterday with the SEC. Sixth Street Specialty Lending, Inc.'s earnings release is also available on our website under the Investor Resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the third quarter ended September 30, 2026.

As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Bo Stanley, Chief Executive Officer of Sixth Street Specialty Lending, Inc.

Robert Stanley

Thank you, Cami. Good morning, everyone, and thank you for joining us. With me today is our Head of Investment Strategy, Ross Bruck; and our CFO, Ian Simmonds. For our call, I will review our third quarter highlights and pass it to Ross to discuss investment activity in the portfolio. Ian will cover our financial performance in more detail, and I will conclude with final remarks before opening the call to Q&A.

After the market closed yesterday, we reported third quarter net investment income of $0.44 per share or an annualized return on equity of 10.7% and net income of $0.36 per share or an annualized return on equity of 8.9%. Net asset value per share was $16.19 at quarter end compared to $16.24 as of June 30. Our third quarter net investment income per share exceeded our base dividend, representing a dividend coverage of 105%. This overearning permitted the declaration of a supplemental dividend in accordance with our supplemental dividend framework. Net investment income has increased sequentially in each quarter of this year, driven by the combination of higher base interest rates and activity-based fee income.

Looking forward, we expect the earnings momentum to persist, supported by the shape of the forward interest rate curve and by stable spreads and credit quality across the portfolio. The current rate path is a net positive for our business, providing a tailwind to both earnings and dividend coverage. We are also mindful of the impact on our borrowers, and we are confident in the capacity to absorb higher rates for 2 reasons. First, our portfolio is weighted heavily towards newer vintages. As of September 30, more than 85% of our portfolio by fair value was originated after the rate hiking cycle began. These capital structures were underwritten with an intentional margin of safety designed to absorb higher base rates, and borrowers entered into these credit facilities with visibility into the prevailing rate environment. Subsequent growth in the underlying businesses has further supported the margin of safety.

Second, our borrowers maintained strong interest coverage of 2.3x, providing them with operating flexibility to continue executing on their business plans. This level of coverage provides a meaningful cushion to absorb higher interest rate expense. Our portfolio has also demonstrated resilience through a sustained period of elevated base rates. From July 2023 through September 2024, when the federal funds rates remained above 5%, our portfolio companies maintained weighted average interest coverage of at least 2.0x.

Turning back to our third quarter results. The difference between net investment income and net income of $0.08 per share reflects both the impact of tightening credit spreads and a continued recovery in equity market multiples, and offsets to the reversal of unrealized gains related to paydowns, most of which was recognized through net investment income, as well as credit-related declines in a small number of our investments. Ian will walk through the NAV bridge in more detail momentarily.

Yesterday, our Board approved a base quarterly dividend of $0.42 per share to shareholders of record as of December 15, payable on December 31. In addition, our Board declared a supplemental dividend of $0.01 per share related to our third quarter earnings to shareholders of record as of November 30, payable on December 21. Net asset value per share adjusted for the impact of the supplemental dividend that was declared yesterday is $16.18.

With that, I'll now pass it over to Ross to discuss this quarter's investment activity.

Ross Bruck

Thanks, Bo. Beginning with the investment environment, the third quarter marked our highest level of funding activity so far in 2026. We provided fundings of $247 million across 4 new investments, 5 upsizes to existing portfolio companies and capital called by our joint venture. As you may remember from our earnings call in August, we were cautiously optimistic regarding conditions for a more robust M&A environment in the second half of the year. In Q3, however, the persistence of macroeconomic volatility across interest rates, energy prices and geopolitics resulted in a more subdued pace of M&A activity than we anticipated. This moderation was evident market-wide with year-over-year direct lending volume to private equity-backed borrowers declining 47% in the third quarter and 32% on a year-to-date basis.

We saw some processes stall as bidders and sellers reevaluated transacting despite a record high 4.5-year average hold period across private equity portfolios, while other deals had timing shift into the fourth quarter, positioning us for an active finish to the year. Positively, we continue to identify compelling specialty lending opportunities that are not dependent on M&A transaction volumes and are fielding demand from companies seeking to raise growth capital and to refinance their existing capital structures alongside other off-the-run transactions.

This was the setup for 2 of the 4 new investments we made in Q3. These situations often require tailored financing solutions where Sixth Street platform advantages set us apart. Our sector expertise and structuring flexibility position us well to address these needs, providing borrowers with certainty of execution while maintaining our focus on attractive risk-adjusted returns and robust downside protection. All 4 new investments in Q3 were cross-platform transactions where Sixth Street scale allowed us to take leadership roles by committing in size. With competition remaining elevated for regular way sponsor financing given the limited supply dynamics previously mentioned, our ability to underwrite complexity and provide substantial capital commitments across our platform continues to be an important differentiator.

Consistent with our comments on our prior earnings call, we have been seeing more attractive risk return opportunities in the upper middle market. Across our 4 new investments in Q3, weighted average borrower revenue was $662 million, approximately 40% above our total portfolio average of $479 million. Median borrower EBITDA was $98 million compared to $55 million across the portfolio. These investments also carry lower leverage with weighted average net leverage of 4.6x compared to 5.2x across the portfolio. Rather than a shift in our investment approach, our activity in 3Q highlights the rotational playbook by which we migrate across borrower characteristics, industry themes and investment lanes to execute on the most compelling risk return opportunities.

Pivoting to payoffs. Total repayments in the third quarter were $160 million, down 17% sequentially, but in line with average quarterly repayments during the first half of 2026 overall. We had 5 full payoffs along with the payoff of 3 structured credit investments. Annualized portfolio turnover was 19% for both the quarter and year-to-date. Consistent with recent quarters, repayment activity across our 4 debt investment payoffs was driven by strong borrower performance with these borrowers refinancing into lower-cost debt facilities and one payoff occurring in connection with an acquisition by a strategic. We received call protection on 3 of the 4 debt investments repaid with a weighted average repayment price of 102.3%, reinforcing the value of the contractual protections we embed in our documentation to enhance returns upon early exit.

An example of payoff from this quarter was our investment in Labrie, a North American manufacturer of refuse collection vehicles and aftermarket parts. In January, Sixth Street agented a senior secured facility to support a debt refinancing and shareholder dividend. In July, the facility was repaid in connection with the company's acquisition by Hiab Corporation. Our embedded call protection contributed $0.03 per share of activity-based fees and drove a 19% gross unlevered IRR for SLX shareholders.

In Q3, we recapitalized NeuIntel, also known as PriceSpider, a provider of retail analytics for consumer brands, an end market that has faced competitive headwinds. We are actively partnering with management to drive value creation initiatives, drawing on our previously successful playbooks and the deep operating capabilities of the broader Sixth Street platform.

Moving on to portfolio metrics and yields. At September 30, the weighted average total yield on our debt and income-producing securities at amortized cost was 11.4%, up approximately 20 basis points compared to 11.2% as of June 30. The increase in portfolio yields primarily reflects higher benchmark rates. Given the typical 1 quarter lag in borrower interest rate resets, we expect the positive asset sensitivity of our portfolio to support core earnings in the fourth quarter. Across our core borrowers for whom these metrics are relevant, we continue to have conservative weighted average attachment and detachment leverage points of 0.4x and 5.2x, respectively, with weighted average interest coverage of 2.3x.

As of Q3 '26, the weighted average revenue and EBITDA of our core portfolio companies was $479 million and $136 million, respectively. Median revenue and EBITDA were $181 million and $55 million. Finally, overall portfolio performance remains healthy as evidenced by a weighted average internal investment rating of 1.25 on a scale of 1 to 5, with 1 being the strongest. Credit quality continues to be stable, and no new portfolio companies were added to nonaccrual status during the quarter. As of September 30, we had 3 portfolio companies on nonaccrual status, representing 1.1% of the total portfolio at fair value. Top line growth has remained stable, while earnings growth has moderated slightly, still signaling a resilient demand environment and healthy operational scale across our end markets. For our core portfolio companies, LTM revenue and EBITDA growth were approximately 8% and 9%, respectively.

With that, I'd like to turn it over to Ian to cover our financial performance in more detail.

Ian Simmonds

Thank you, Ross. For Q3, we generated net investment income per share of $0.44 and net income per share of $0.36. Total investments were $3.4 billion, up from $3.3 billion in the prior quarter as a result of net funding activity. Total principal debt outstanding at quarter end was $1.9 billion and net assets were $1.5 billion or $16.19 per share prior to the impact of the supplemental dividend that was declared yesterday. Our average debt-to-equity ratio was 1.24x, reflecting no change from the prior quarter. Our ending debt-to-equity ratio decreased from 1.27x to 1.25x quarter-over-quarter. We continue to have significant liquidity for the size of our balance sheet with nearly $812 million of unfunded revolver capacity at quarter end, representing more than 3.7x our eligible unfunded portfolio company commitments. As of September 30, our funding mix was represented by 64% unsecured debt. Following the repayment of our 2026 unsecured notes that matured in August, we have no near-term maturities with our nearest obligation being $300 million of unsecured notes in August of 2028.

Our liquidity position is further supported by the permanent nature of our equity capital. This allows us to manage our balance sheet with a long-term investment horizon. Additionally, we maintain a portfolio of liquid structured credit investments with a fair value of $82 million as of September 30, which serves as an incremental source of liquidity that we can opportunistically rotate out of to fund new investments and as a tool to lower leverage. We view our available liquidity as a strategic tool to capitalize on attractive investment opportunities, particularly when market conditions constrain other sources of capital. That flexibility allows us to remain patient and disciplined while preserving the capacity to play offense when we see compelling risk-adjusted returns.

That same discipline extends to raising new equity capital. Consistent with previous quarters, we did not issue any shares through our ATM program during Q3. Pivoting to our presentation materials. Slide 8 contains this quarter's NAV bridge. Walking through the main drivers of NAV movement, we added $0.44 per share from net investment income against our base dividend of $0.42 per share. The slight impact of tightening credit spreads on the valuation of our portfolio increased net asset value by $0.07 per share. Net realized losses on investments reduced NAV by $0.10 per share, primarily reflecting the realized loss on the PriceSpider restructuring, partially offset by realized gains on our equity investment in Caris Life Sciences. Other changes resulted in a $0.02 per share decline in NAV, primarily from net unrealized losses on investments.

Moving on to our operating results detail on Slide 9. We generated $99 million of total investment income for the quarter, up from $97.8 million in the prior quarter. Interest and dividend income was $89.7 million, up from $88.5 million in the prior quarter. Other fees, representing prepayment fees and accelerated amortization of upfront fees from unscheduled paydowns, were also higher at $6.7 million compared to $5.4 million in Q2, driven by the increase in prepayment fees earned during Q3. Other income was $2.6 million compared to $4 million in the prior quarter.

Net expenses were $56.2 million, up modestly from $55.7 million in the prior quarter. Our weighted average interest rate on average debt outstanding increased slightly from 5.6% to 5.7%. This was primarily the result of a shift in our funding mix and a marginal increase in daily average reference rates.

Lastly, on undistributed income, we estimate that to be approximately $1.08 per share as of the end of Q3. Before handing it back to Bo, I wanted to provide an update on our ROE metrics. Through the first 9 months of the year, we've generated annualized ROE based on net investment income of 10.1%, annualized portfolio turnover of 19%. With 3 quarters of the year complete, our results remain consistent with our previously communicated full year ROE range of 10% to 10.5%, assuming portfolio turnover remains below 20%. The pace of repayments and associated activity-based fee income in the fourth quarter will be the primary drivers of our full year performance relative to that range.

With that, I'll turn it back to Bo for concluding remarks.

Robert Stanley

Before turning the call over to your questions, I'd like to briefly highlight an important evolution in our brand identity. You may have noticed an updated logo and website across SLX and Sixth Street more broadly. We introduced the updated brand identity at Sixth Street's Annual LP Conference 2 weeks ago. The 6 in the logo is rendered on a prism, reflecting multiple dimensions and perspectives. That design is deliberate. We believe evaluating an investment from multiple angles, bringing together different sector insights, experiences, and perspectives allow us to see risk and opportunities that may be less apparent to a single one. Challenging conventional thinking and testing our assumptions helps us develop a more complete understanding of the business, its capital needs and the range of potential outcomes.

Visibility is particularly important in today's complex and competitive investing environment. We expect ongoing credit normalization to drive greater dispersion and performance across both borrowers and managers, a trend increasingly accelerated by technological shifts that are redefining competitive dynamics across industries. Being on the right side of that dispersion requires a deeply nuanced understanding of underlying business models and a willingness to continue to challenge our own conclusions.

Bringing multiple perspectives to our investment process also allows us to look beyond standard financing solutions and identify opportunities where our insight and flexibility can make a meaningful difference. Our objective is not to compete for the same investments on the same terms, but to bring a differentiated perspective to where and how our capital is invested. We believe these capabilities position us well to navigate an increasingly bifurcated market and compound long-term value for our shareholders. While our look has evolved, our strategy, value, culture, investment approach and commitment to our shareholders remain unchanged.

With that, thank you for your time today. Operator, please open the line for questions.

Operator

[Operator Instructions]

Our first call comes from the line of Rick Shane of JPMorgan.

分析師問答

Richard Shane

Look, it's a really interesting time in the space. You guys are trading -- or not trading, you guys are near the top of your leverage range. You are trading at a premium to NAV. I am curious, last quarter, you didn't issue anything off the ATM. And I know that you're very, very disciplined about the return thresholds associated with that. The question I have is the following. Ordinarily, it's sort of an internal analysis. But given how dislocated the sector is and effectively, the market is giving you a cost of funds or a lower hurdle rate advantage, does it make sense at this point to either extend leverage limits a little bit or take advantage of your multiple in the equity marketplace?

Ian Simmonds

Rick, it's Ian. I'll take this one. I understand your point. I think we got a similar question last quarter from this group. I think our job is to always look for opportunities to create shareholder value. And if that means utilizing the way our stock trades relative to the sector, which obviously gives us an advantage, then that's something that we take into account. Execution risk is always very much front of mind. So that plays into our considerations.

But when it comes to leverage, the comments that we've made for the last 7, 8 years is that we're really committed to our investment-grade rating. We're very committed to that segment of how we fund our balance sheet. It would have to be a really strong opportunity for us to want to go outside the parameters that we've previously communicated. So our leverage range is at the top of the range, but it's not outside the range. But it would have to be a really compelling opportunity for us to see a reason to go outside of that. Does that help you, Rick?

Richard Shane

It does. And look, in some ways, I sit here and say, well, okay, the market is giving me this unique opportunity, why not take advantage of it. But on the other hand, I'm sitting here saying, okay, you guys have a really, really good track record and who knows which piece you take out of the puzzle before it falls. So I appreciate the discipline and the commitment to the strategy as well. It makes a lot easier, frankly, as investors, to understand what's going on.

Ian Simmonds

I think, Rick, the other element to that is that there's an embedded assumption that growth is good and all growth is good. And I think we take a slightly different perspective, which is let's focus on returns. And if the returns are generated, then the opportunity to grow will be there, but growth is not the initial objective.

Richard Shane

Ian, as you know, I've known you guys for a really long time, and that has absolutely been the hallmark of what you guys -- your approach. So I appreciate no change there.

Operator

Our next question comes from the line of Finian O'Shea of WFS.

Finian O'Shea

I guess I'll sort of stick to that topic. How much does the ramp of SSLP sort of get in the way of a TSLX equity offering? And then as an extension, this is something we've talked about a bit over the years, but we've seen sort of more language fall out this year around the co-investment order that protects deal flow for the BDCs. Are there more funds sort of participating? And is all that sort of contributing to a slower growth opportunity for TSLX?

Robert Stanley

Fin, this is Bo. Thanks for the question. So the ramping of SSLP does not have any bearing on equity issuances at SLX. As you know, there's a focus on SSLP upper middle market. So it's a different strategy than the pure middle market focus that has generally been the SLX opportunity set. As we've said in our script and Ross touched on, we're seeing -- we're continuing to see better risk-adjusted returns in the upper middle market than we have seen traditionally in the lower middle market. We think there may be some catalysts for that to change over the coming quarters and especially on some of the idiosyncratic originations that we've had traditionally.

As it relates to the exemptive relief and other funds, we've always used the platform as the ability to size up and do larger, more complex transactions across the platform, which has been a net beneficiary to SLX and will continue to be a net beneficiary to SLX in the future. So these are -- that has always been accretive and will continue. Hopefully, that answers your question.

Finian O'Shea

Yes, it's helpful. Just a small, I guess, sort of housekeeping item. The NeuIntel reorg, was that like an intra-quarter nonaccrual? Or what was the sort of interest rate? Can you kind of like walk us through the investment income versus prior and post reorg capital stack, if you follow?

Ian Simmonds

I might jump in on this one, it's Ian. On NeuIntel, that was a business that was actually going through a strategic transaction during the quarter. The fair value mark at the end of June was 90.25%. That strategic transaction not played out as expected. And as a result, we pivoted, but it wasn't a discussion about a nonaccrual.

Robert Stanley

Yes. It was always paying interest throughout that time period. It's actually last dollar is less than 6x. We had very tight covenants on this deal that allowed us to get to the table and force a sale process. There were some negative developments during the quarter that interrupted that sale process, and we pivoted to a full restructuring, which is what you see here post quarter.

Operator

Our next question comes from the line of Mickey Schleien of Clear Street.

Mickey Schleien

Last quarter, you indicated that your technology portfolio continued to perform well. And I think you mentioned earnings growth of about 11%. Has that performance continued in the third quarter? And have you seen any changes in metrics like customer retention, bookings or general competitive pressure attributable to AI? And can you update us at least at a high level, the percentage of the portfolio in enterprise software companies?

Robert Stanley

Sure. I'll take that. Thanks for the questions. So -- there's been no change in the technology and software portfolio since last quarter or candidly, during the year. It's in line with the rest of the portfolio. The rest of the portfolio grew revenue by about 8% this quarter, pretty consistent with last quarter. Earnings growth was 9%, which is slightly down. There's probably more reinvestment in a lot of businesses as they continue to invest in the agentic solutions, et cetera. But what we're seeing across renewal rates, unit economics and other key KPIs are stability and actually some slight improvement in those core KPIs. Bookings momentum across this portfolio and Sixth Street's technology portfolio in general seems to actually be quite good over the last couple of quarters. We'll see what happens over the next quarter or 2.

But there's really been no change. I think the tails are still the shape of tails. There's been really no changes to any of the tails or the underperforming end markets within technology and software over the past few years, which I think is positive from AI. And the last thing I'd mention is although there hasn't been a broad opportunity set to invest in new activity in the sector, the emerging new opportunities you're seeing, if you have the platform to underwrite the nuances in today's environment is a much more attractive environment.

We'll continue to be selective there. We do think you have to be incredibly nuanced and thinking about the transition of technology, not just the technology and software, but how AI is going to affect every end market and every industry. But we do think that it is generally a better underwriting environment than it has been historically.

Mickey Schleien

And in terms of being selective, can you update us on the percentage of the portfolio in software generally? And are you actively allowing that to run off? Or do you intend to -- I think you previously mentioned it was around 40%. Do you intend to keep it at that level?

Robert Stanley

There has been no change. In fact, it's probably slightly down only because the opportunity set of new deals has been skewed slightly to non-technology. As I said 3, 4 quarters ago, we look at the end market and think of software and technology as a product, not a sector. So we do not have hard limits on where we're going to run the portfolio. We think more holistically about risk management and tail management across end markets. And that entails deeply, deeply nuanced underwriting and understanding of each ecosystem that these tools are serving. So we don't put a hard limit on it. But I would say it's largely in line with where it was at the beginning of the year, maybe slightly down because the opportunity set has skewed a little bit more heavily to nontechnology.

Mickey Schleien

I appreciate that. And if I could follow up with one more question. Spreads on your new investments declined 90 basis points quarter-to-quarter to still very nice 600 basis points. I think you've mentioned being very selective and nuanced several times. So how much of that decline reflects your investment mix versus competitive pressure in the sector generally?

Ross Bruck

This is Ross. I'll jump in to answer this question. So I'd say the quarter, our originations, if you look at it historically, we were within the bounds of where we've originated. This number will inherently change quarter-to-quarter based on the opportunity set where we see risk return being stronger or less compelling and also just the timing of deals closing in one quarter versus a different one. And as we talked about in the prepared remarks, for this quarter, we generally saw opportunities at the upper end of the middle market and at lower leverage profiles, which led to the weighted average spread on originations in the quarter. I'd say the figure that we report just covers our floating rate investments. So it excludes income-producing investments that are not floating rate. If you include all of our income-producing investments, originated in 3Q, there's about 100 basis point uplift, which is reflected in looking at our total yield metrics, which besides benefiting from base rates also benefited from a stable effective yield in 3Q versus prior quarters.

Operator

Our next call comes from the line of Arren Cyganovich of Truist Securities.

Arren Cyganovich

I just was hoping you could talk a little bit more about the investing environment. And what are some of the aspects that you're seeing that makes the upper middle market more attractive? Is it underwriting? Is it spread? Is it just maybe some of those aspects? And what is your investment pipeline looking like now for the platform, maybe not so much for the BDC since we're kind of already at a relatively high leverage level?

Robert Stanley

Yes. Thanks. I'll answer that. So generally, we've been more constructive on the investment environment in 2026 than we were in 2024 and 2025, as we've stated on previous calls. I think what we're seeing is better access to management teams, better processes where you actually can do the deep level of due diligence that our platform requires to make investments. You weren't seeing that as much in '24 and '25, there was this slow-rolling processes that made it very difficult for us to play in a lot of -- and particularly some of the sponsor processes, but it was for all issuers. So we're generally seeing better access to data and to management to actually prove out a credit thesis, which I think is very helpful. Documentation standards, though not perfect, have gotten better gradually over the year, and we're seeing better documents. We still see some areas of improvement there, particularly around the definition of EBITDA, but things that we're able to invest in things that have documents that we believe protect our borrowers and that's been a continued trend line.

Leverage levels are down generally, I would say, a half turn and sometimes almost a full turn from where they were in previous years, which is helpful. And on the margin, spreads have been up probably 50 basis points and fees have been up slightly as well. There may be some of that being given back with risk-free rates going up and people trading at least for the best names, some spread for better documents, better pricing and lower leverage. I think that's a reasonable trade-off, but that's not been full-fledged. So I still think it's better pricing, better structure, better access.

The last thing that I'll say is like this migration that we talked about better in the upper middle market. I think that is a direct consequence of capital coming out of the sector and there being less pressure of new money that is coming in. The middle market has been more insulated from that, I think, and has made that a bit more competitive, but we're seeing early signs of that stabilizing. As we look forward to the pipeline, the pipeline feels good coming into Q4, and I would expect a decent mix of both middle market and upper middle market. And we're also seeing some activity -- payoffs within the portfolio that kind of were -- didn't happen in Q3 that are happening in Q4 that gives us some capacity even without an equity raise to go out and take advantage of those opportunities.

Operator

Our next question comes from the line of Kenneth Lee of RBC Capital Markets.

Kenneth Lee

Just one on the more specialized opportunities. You mentioned for the new investments in the quarter there. Wondering at a high level, how would you characterize some of the opportunities you're seeing? Is it picking up a little bit versus last few quarters? And are there any particular areas of opportunity that's emerging there?

Ross Bruck

Ken, it's Ross. I'm happy to start here. Look, I think there's a couple of different dynamics at play. As we talked about, the M&A environment has been volatile, but generally resulting in lower transaction volumes this year, hold periods for sponsors are getting long. And so one general theme that we're seeing is just need to refinance as capital structures put in place closer to the COVID time frame need to be refinanced. So that's one theme.

The second theme is the need for growth capital. Many businesses are acquisitive. We're looking to invest in organic growth opportunities to continue value creation for equity holders. In some of those cases, incumbent lenders could be stretched or unwilling to extend terms. And so that's a second catalyst. And we're seeing this really across cash flow opportunities as well as asset-based opportunities. And the areas where we are better positioned to play are those that line up with our investment themes where we have strong domain expertise across the Sixth Street platform. But it's really broad-based across those few things, which is need to refinance, need to continue investing longer hold periods and willingness of equity holders to consider different forms of financing, whether asset-based or similar.

Operator

Our next question comes from the line of Chris Muller of Citizens.

Christopher Muller

So I guess following up on a prior question. Spreads are trending lower, which you guys talked about, but yields have started inflecting higher. And given the September rate hike, which is not reflected in third quarter results, are you guys starting to see spreads widen out so you could start to see a double benefit from both higher base rates and wider spreads going forward?

Robert Stanley

I'll take that, Chris. Look, I think spreads have been largely stable throughout the year. As I mentioned, you saw a bump of kind of 50 to 75 basis points in all-in yield early in the year. That's for the most part, withstood. I think for the best credits, there may be a bit of pressure on that on the edges, like 25 basis points. But we haven't as of yet seen spread widening, except for maybe in some of the specialty finance things that we do, restructurings. I think for largely in 2024 and 2025, there wasn't a lot of good company, bad balance sheet, bad capital structure transactions that we've traditionally loved to do.

And the ones that were, you weren't getting paid for the complexity. I think we're starting to see early signs and green shoots of getting better pricing on those more complex transactions, which should be a net beneficiary to the platform. You're also getting better duration, which is important as an investor in those as well. But for the most part, spreads are stable. But with the uplift in base rates, we are quite positive on the forward earnings outlook that should be supportive, particularly with the new dividend policy at the beginning of the year.

Christopher Muller

Got it. And then maybe just generally high level, what do you guys expect spreads to do in a rising rate environment? Should we expect things to tighten up? And is there any lag effect with that, that you guys have seen historically?

Robert Stanley

Well, historically, you did see some slight tightening when rates went up in spreads. You certainly saw that in 2023 and 2024. I think there's more discipline today in the market. And so I think that would -- there would be a muted effect of any tightening. It's something that we'll watch. But certainly, no signs of that today. Anything, Ian, on your side?

Ian Simmonds

I would just add, Chris, the observation from the last rate cycle is that it catalyzed a pretty significant rise in capital that flowed to the space. And so you saw a little bit of an offset with tightening spreads even though rates were higher because there was just so much capital that was raised to capture that higher overall yield environment.

Robert Stanley

You're seeing the opposite today with that. So I think that gives us -- that is a positive sign of what should be a stable spread environment at a minimum.

Operator

Our next call comes from the line of Robert Dodd of Raymond James.

Robert Dodd

On -- I mean it's been touched on a couple of times here. The M&A environment has been volatile. Sponsors have been taking longer hold positions. I mean, how much of that would you attribute to obviously arguably overpaying in 2021 versus the level of uncertainties, right? There's macro, as I think Ross said in his prepared remarks, I mean there's macro, there's geopolitical, et cetera, all those kind of levels of uncertainties, including rates. One of them has gone away at least, right? We now know essentially the election results because it's -- all of those uncertainties accompanied by an election year, too. Do you think the certainty on the results, do you think that's going to unlock any kind of appetite or rush towards year-end to get deals done? It kind of doesn't feel like it, but I just want to get your impression on that, that one of the kind of pronounced uncertainty seems to be off the table now, whatever you think of the results?

Robert Stanley

First of all, thanks for the question. I think it always helps when political uncertainty is over. So you always see a pause in activity during election cycles, and that's no different coming into this year. I do think the economic uncertainty probably weighed on transactions more than the election cycle. That's just my own feeling in talking -- speaking with folks. I think there's a lot going on with interest rates and energy prices and the general like fragility feel to what is an otherwise strong economic environment.

I think it's going to be positive to have the election results behind us to transactions. So I am bullish on activity. I'm not bullish that, that happens by the end of the year. These transactions take time. Gestation periods can be very quick. But generally speaking, I would think it would bode well better for Q1 and Q2 of next year than it is for the remainder of this quarter. I think a lot of the transaction activity that is going to happen this quarter is already in the works. It may result in stronger bids for deals that are in the market today and more certainty around transactions so on the margin, it could help. But I think it would be more of a tailwind for Q1 and Q2 if that materializes.

Ross Bruck

Yes. I would just add that, look, ultimately, you need the bid side and the offer side to match to get a transaction done. And so it's a little less relevant as to which side is catalyzing deals not happening. But when you look at the processes that we ran hard at in 3Q that were M&A-driven and that didn't wind up closing, we saw deals fall away for really both sides of that. So we saw bidders move value over the course of the process. Some of that was idiosyncratic. Some of that is more macroeconomic driven. But we also saw sellers who had actionable bids choose not to transact. And so ultimately, you need both sides. And we just saw a number of opportunities in 3Q where alignment didn't happen.

Robert Dodd

Got it. Got it. And then if I can, one more. I mean I'm picking up a little bit of a mixed message on spreads. So maybe you can clarify for me. I think when you talked earlier about leverage levels are down 0.5 turn, spreads are up 50 basis points, fees a little bit too, but there's trade-offs, right, between structure versus spread. And then just now you talked about spreads being stable. So I mean, is it just, frankly, that spreads are all over the place and it's so deal dependent that it's hard to read into? Or can you clarify like what the trends are? Or is it spreads are up in complex situations, but stable in regular way kind of M&A deals where those are happening? I'm just trying to get the...

Robert Stanley

Yes. Sorry, if it was confusing. They're largely stable in regular way transactions. I think we see early signs of more complex situations, there being a better spread environment. We thought in 2024, 2025 that the premium that you're getting over a regular way financing as far as spread and duration was not adequate for the complexity that we generally have underwritten in the past. And I think there's early signs that you're actually -- there's a better premium for those types of deals.

Operator

Our next call comes from the line of Paul Johnson of KBW.

Paul Johnson

Just on the simpler recapitalization deal this quarter, I understand it's a very small position in your portfolio, but thought I'd ask, given you should have some insight into that transaction. Do you read that as a sign, the capital injection there as those conversations are beginning to happen with those companies? And I guess, does that provide a viable blueprint going forward for any, I guess, more highly leveraged SaaS company to raise additional capital?

Robert Stanley

Yes. As you mentioned, it's not a large position for us, and we weren't heavily involved in that, but we are familiar with the transaction. So that's correctly stated. I think it's a reasonable blueprint for businesses that have proven moats and still have equity value embedded in the capital structure. And we've said for quite some time that we think there's going to be a dispersion of outcomes within the sector and frankly, across all sectors in the post-AI world. But the vast majority of deals, we believe, have a reason to exist and have the ability with good management teams to expand their TAMs and create long-term equity value. I think this is an example of the sponsor believing in their ability to create equity value and preserve equity value and willingness to delever the business.

I don't think that's going to be true of every transaction in the sector. But I think it's a reasonable blueprint for those deals that are going to be on the right side of value creation and TAM expansion in the post-agentic world.

Paul Johnson

And then I guess I'd also ask, I mean, just given the number of BDCs that have been actively looking for strategic alternatives and asset sales that we've seen in the space, -- is that potential area, I guess, of deployment in terms of secondary portfolio purchases or asset purchases that you think could potentially create value for shareholders? Or I guess would that just be not something that you would be as interested at this point in time?

Robert Stanley

Look, we will continue to be interested in anything that we believe can be accretive to our shareholders on an earnings basis. And I do think -- I think it's a good sign that -- I think is a good sign that we're seeing some consolidation in the sector. And look, we believe very firmly in operating in a healthy neighborhood. And I think when you see the ability to consolidate underperforming managers that have not been good allocators of capital in the past, it's good for the space, and it can be good for shareholders. So those transactions, whether it be portfolio sales or ability to consolidate, we would be very interested in if we believe it's accretive on an earnings basis. But generally, we think it's a good thing for the sector.

Paul Johnson

Got it. And one last question, more of a technical one, but I was just curious, within your origination deployment number within investments funded this quarter, does that include investments that are coming out of restructuring into some sort of new entity?

Robert Stanley

No, it doesn't, Paul.

Operator

Our next question comes from the line of Derek Hewett of BofA.

Derek Hewett

Could you provide some additional color on the watch list? I think those are the risk-rated 3 loans, which increased to it looks like about 5% of the portfolio from nearly 2% last quarter? And then secondly, where do you expect the watch list to trend kind of longer term?

Robert Stanley

Yes, sure. I'll take those. So the change in risk ratings generally were across 4 names. I think you're talking about the movement from the 2s to the 3s or to the 3 bucket. I just want to make sure that we properly define that, which is these are investments that are paying as agreed. We don't expect any payment default. But we expect, at least in the next -- in the coming quarters, a potential for a financial covenant default. And the great news is we have financial covenants in the vast majority of our portfolio, and they're set at levels that generally force growth and force deleveraging. So the read-through to this would be that they give us the opportunity to get back to the table, have discussions with management teams, re-underwrite our position and frankly, have a conversation with them and likely reprice. That's not always the case.

Sometimes it's a simple covenant reset businesses -- or further injection of capital into the business. They're all idiosyncratic. I'd say there was one that went from a 1 to a 3. That deal was actually underwritten originally to a covenant default that was in our base case. So this is not a surprise to us, and that's a larger percentage of that. We've been actively working with management, again, in a situation that was underwritten to a covenant default, the management team and the ownership were much more bullish on what they thought the forward growth trajectory. The business is still growing, but we set the covenant levels very tight. It gives us, again, a chance to get back to the table and reprice. As far as any change in the future, we're not -- we're seeing broad strength across the portfolio. We don't expect any material change to these in the future. Hopefully, that's helpful.

Operator

This concludes our question-and-answer session. I would now like to turn it back over to Bo Stanley for closing remarks.

Robert Stanley

Okay. Thanks, everybody. We're coming into the end of the year. So I wish everybody a good end to 2026. Hopefully, you'll get to spend time with your friends and family over the holidays. And thanks as always for the great questions and the follow-up.

Ian Simmonds

Thank you.

Operator

Thank you for your participation in today's conference. This concludes the program, and you may now disconnect.

Goodbye.