Sixth Street Specialty Lending, Inc. (TSLX) is a business
development company, or BDC. The company primarily invests in companies with
earnings before interest, taxes, depreciation, and amortization, or EBITDA,
between $10 million and $250 million, according to the company’s most
recent earnings presentation. Almost all of Sixth Street’s investments are
in the companies’ first-lien secured, floating-rate debt.
I recently wrote about another BDC, Prospect Capital (PSEC), that looks cheap because it trades at a steep discount to book value.
Sixth Street Specialty Lending does not look cheap. The company trades at a price to book ratio of around 106.5%, compared to the average P/B ratio for BDCs, which is around 83%. This means each dollar of stock buys only 93.9 cents in equity in Sixth Street, compared to around $1.20 in equity in the average BDC.
That said, as in life, in investing you often get what you pay for. In several recent articles, I’ve described two common types of investment opportunities:
- High quality companies trading at a modest discount to intrinsic value.
- More average companies trading at a much larger discount to intrinsic value.