Sixth Street Specialty Lending, Inc. - Quarter Report: 2018 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, 2018

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from to

Commission file number 001-36364

TPG Specialty Lending, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	27-3380000
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

301 Commerce Street, Suite 3300, Fort Worth, TX	76102
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s Telephone Number, Including Area Code: (817) 871-4000

Not applicable

Former Name, Former Address and Former Fiscal Year, If Changed Since Last Report.

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐

Non-Accelerated filer	☐ (Do not check if a smaller reporting company)	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ☐ No ☒

The number of shares of the Registrant’s common stock, $.01 par value per share, outstanding at May 2, 2018 was 64,887,471.

TPG SPECIALTY LENDING, INC.

	INDEX	PAGE NO.

PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Consolidated Balance Sheets as of March 31, 2018 (Unaudited) and December 31, 2017	4

	Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 (Unaudited)	5

	Consolidated Schedules of Investments as of March 31, 2018 (Unaudited) and December 31, 2017	6

	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2018 and 2017 (Unaudited)	17

	Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (Unaudited)	18

	Notes to Consolidated Financial Statements (Unaudited)	19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	61

Item 4.	Controls and Procedures	62

PART II.	OTHER INFORMATION	63

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	64

SIGNATURES		65

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our current and prospective portfolio investments, our industry, our beliefs, and our assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements.

In addition to factors previously identified elsewhere in the reports and other documents TPG Specialty Lending, Inc. has filed with the Securities and Exchange Commission, or SEC, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:

•

an economic downturn could impair our portfolio companies’ abilities to continue to operate, which could lead to the loss of some or all of our investments in those portfolio companies;

•

such an economic downturn could disproportionately impact the companies in which we have invested and others that we intend to target for investment, potentially causing us to experience a decrease in investment opportunities and diminished demand for capital from these companies;

•

such an economic downturn could also impact availability and pricing of our financing;

•

an inability to access the capital markets could impair our ability to raise capital and our investment activities; and

•

the risks, uncertainties and other factors we identify in the section entitled “Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 21, 2018, and elsewhere in our filings with the SEC.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions are based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this report.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TPG Specialty Lending, Inc.

Consolidated Balance Sheets

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	March 31,			December 31,
	2018			2017
Assets
Investments at fair value
Non-controlled, non-affiliated investments (amortized cost of $1,729,452 and $1,523,844, respectively)	$	1,771,750		$	1,557,803
Controlled, affiliated investments (amortized cost of $167,427 and $162,406, respectively)		137,570			135,920
Total investments at fair value (amortized cost of $1,896,879 and $1,686,250, respectively)		1,909,320			1,693,723
Cash and cash equivalents (restricted cash of $5,697 and $3,150, respectively)		8,870			6,665
Interest receivable		8,541			6,762
Prepaid expenses and other assets		3,413			13,088
Total Assets	$	1,930,144		$	1,720,238
Liabilities
Debt (net of deferred financing costs of $16,512 and $11,770, respectively)	$	835,914		$	703,428
Management fees payable to affiliate		6,631			6,219
Incentive fees payable to affiliate		6,574			5,628
Dividends payable		23,556			23,488
Other payables to affiliate		2,410			1,901
Other liabilities		11,092			10,290
Total Liabilities		886,177			750,954
Commitments and contingencies (Note 8)
Net Assets
Preferred stock, $0.01 par value; 100,000,000 shares authorized; no shares issued and outstanding		—			—
Common stock, $0.01 par value; 400,000,000 shares authorized, 64,256,031 and 60,336,281 shares issued, respectively; and 64,166,951 and 60,247,201 shares outstanding, respectively		643			603
Additional paid-in capital		971,843			906,521
Treasury stock at cost; 89,080 and 89,080 shares held, respectively		(1,359	)		(1,359	)
Undistributed net investment income		64,965			61,790
Net unrealized gains		6,510			6,718
Undistributed net realized gains (losses)		1,365			(4,989	)
Total Net Assets		1,043,967			969,284
Total Liabilities and Net Assets	$	1,930,144		$	1,720,238
Net Asset Value Per Share	$	16.27		$	16.09

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Consolidated Statements of Operations

(Amounts in thousands, except share and per share amounts)

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
Income
Investment income from non-controlled, non-affiliated investments:
Interest from investments	$	47,967		$	47,770
Dividend income		195			1
Other income		5,819			2,125
Total investment income from non-controlled, non-affiliated investments		53,981			49,896
Investment income from controlled, affiliated investments:
Interest from investments		3,734			1,000
Other income		52			52
Total investment income from controlled, affiliated investments		3,786			1,052
Total Investment Income		57,767			50,948
Expenses
Interest		9,070			6,865
Management fees		6,660			6,071
Incentive fees		6,608			6,050
Professional fees		2,112			1,286
Directors’ fees		106			106
Other general and administrative		1,238			1,301
Total expenses		25,794			21,679
Management and incentive fees waived (Note 3)		(63	)	—
Net Expenses		25,731			21,679
Net Investment Income Before Income Taxes		32,036			29,269
Income taxes, including excise taxes		850			750
Net Investment Income		31,186			28,519
Unrealized and Realized Gains (Losses)
Net change in unrealized gains (losses):
Non-controlled, non-affiliated investments		8,339			11,240
Controlled, affiliated investments		(3,371	)		(7,750	)
Translation of other assets and liabilities in foreign currencies		(981	)		(5,793	)
Interest rate swaps		(4,194	)		154
Total net change in unrealized losses		(207	)		(2,149	)
Realized gains (losses):
Non-controlled, non-affiliated investments		2,645			1,322
Foreign currency transactions		212			586
Total realized gains		2,857			1,908
Total Unrealized and Realized Gains (Losses)		2,650			(241	)
Increase in Net Assets Resulting from Operations	$	33,836		$	28,278
Earnings per common share—basic and diluted	$	0.56		$	0.47
Weighted average shares of common stock outstanding—basic and diluted		60,840,459			59,796,731

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Consolidated Schedule of Investments as of March 31, 2018

(Amounts in thousands, except share amounts)

(Unaudited)



Company ⁽¹⁾	Investment	Initial Acquisition Date	Reference Rate and Spread			Interest Rate			Amortized Cost ⁽²⁾⁽⁷⁾		Fair Value ⁽⁹⁾		Percentage of Net Assets
Debt Investments
Beverage, food and tobacco
AFS Technologies, Inc. ⁽³⁾⁽⁶⁾	Second-lien loan ($59,621 par, due 9/2021)	6/30/2017		L + 9.05	%		11.35	%	$	59,621	$	57,981		5.6	%
Business services
Jive Software, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($53,595 par, due 6/2022)	6/12/2017		L + 9.25	%		11.13	%		51,851		55,337		5.3	%
Leaf US Holdings, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($33,221 par, due 6/2020)	6/30/2014		L + 8.00	%		10.30	%		32,910		33,309		3.2	%
Motus, LLC ⁽³⁾	First-lien loan ($69,400 par, due 1/2024)	1/17/2018		L + 6.75	%		8.48	%		67,711		68,012		6.5	%
	First-lien revolving loan ($393 par, due 1/2023)	1/17/2018		L + 6.75	%		8.48	%		259		281		0.0	%
Nintex Global Limited⁽³⁾⁽⁵⁾	First-lien loan ($65,000 par, due 4/2024)	3/30/2018		L + 6.75	%		9.06	%		63,376		63,375		6.1	%
Riskonnect, Inc. ⁽³⁾	First-lien loan ($42,800 par, due 6/2022)	6/30/2017		L + 7.75	%		10.06	%		41,960		42,442		4.1	%
Sovos Compliance, LLC ⁽³⁾	First-lien loan ($34,236 par, due 3/2022)	7/1/2016		L + 6.00	%		7.89	%		33,800		34,431		3.3	%
Tangoe, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($49,953 par, due 6/2022)	6/16/2017		L + 8.50	%	10.31% (incl. 0.50% PIK)				48,258		49,204		4.7	%
										340,125		346,391		33.2	%
Chemicals
Vertellus Specialties, Inc. ⁽³⁾	First-lien loan ($4,967 par, due 4/2018)	10/31/2016		L + 9.00	%		10.88	%		4,965		4,979		0.5	%
	Second-lien loan ($3,341 par, due 10/2021)	10/31/2016		L + 12.00	%		13.88	%		3,341		3,383		0.3	%
										8,306		8,362		0.8	%
Communications
iHeart Communications ⁽³⁾⁽⁵⁾	ABL FILO term loan ($117,465 par, due 11/2020)	11/30/2017		L + 4.75	%		6.53	%		114,343		117,758		11.3	%
Education
Curriculum Associates, LLC ⁽³⁾⁽⁵⁾	First-lien loan ($50,000 par, due 2/2024)	2/28/2018		L + 6.00	%		8.20	%		48,467		48,500		4.6	%
Finalsite Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($45,000 par, due 8/2022)	8/31/2016		L + 7.00	%		9.30	%		44,079		45,563		4.4	%
Frontline Technologies Group, LLC ⁽³⁾	First-lien loan ($47,584 par, due 9/2023)	9/18/2017		L + 6.50	%		8.38	%		46,945		47,299		4.5	%
Illuminate Education, Inc.⁽³⁾	First-lien loan ($56,900 par, due 8/2022)	8/25/2017		L + 8.00	%		9.99	%		55,825		56,281		5.4	%
										195,316		197,643		18.9	%
Financial services
AppStar Financial, LLC ⁽³⁾	First-lien loan ($19,914 par, due 8/2020)	8/18/2015		L + 8.00	%		9.88	%		19,652		20,187		1.9	%

AvidXchange, Inc. ⁽³⁾	First-lien loan ($54,449 par, due 8/2020)	8/7/2015		L + 9.50	%		11.44	%	53,927		55,402	5.3	%
Government Brands, LLC ⁽³⁾	First-lien loan ($35,034 par, due 3/2023)	3/15/2018		L + 9.25	%	11.06% (incl. 2.50% PIK)			34,240		34,233	3.3	%
PayLease, LLC ⁽³⁾	First-lien loan ($56,383 par, due 7/2022)	7/28/2017		L + 7.00	%		8.88	%	55,325		55,935	5.4	%
PaySimple, Inc. ⁽³⁾	First-lien loan ($50,822 par, due 3/2022)	3/7/2017		L + 8.25	%	10.56% (incl. 1.75% PIK)			49,983		50,568	4.8	%
	First-lien revolving loan ($2,500 par, due 3/2022)	3/7/2017		L + 9.25	%		14.00	%	2,421		2,475	0.2	%
Swift Gift Limited ⁽³⁾⁽⁵⁾	First-lien loan ($29,094 par, due 1/2022)	7/31/2017		L + 6.50	%		8.44	%	28,437		29,530	2.8	%
									243,985		248,330	23.7	%
Healthcare
Integrated Practice Solutions, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($32,256 par, due 6/2022)	6/30/2017		L + 8.00	%		9.88	%	31,445		31,853	3.1	%
Helix Health, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan (EUR 36,340 par, due 9/2018)	9/30/2014		E + 10.50	%		11.50	%	42,519	45,252 (EUR 36,795)		4.3	%
	First-lien revolving loan (EUR 300 par, due 9/2018)	9/30/2014		E + 10.50	%		11.50	%	320	430 (EUR 350)		0.0	%
MatrixCare, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($57,159 par, due 12/2021)	12/17/2015		L + 5.25	%		7.55	%	56,357		57,731	5.5	%
MedeAnalytics, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($42,705 par, due 9/2020)	9/30/2015		L + 8.50	%		10.38	%	42,000		43,133	4.1	%
Quantros, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($29,100 par, due 2/2021)	2/29/2016		L + 7.75	%		10.05	%	28,451		29,828	2.9	%
									201,092		208,227	19.9	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ⁽³⁾⁽⁶⁾	First-lien loan ($22,695 par, due 9/2019)	9/29/2015		L + 9.50	%	11.80% (incl. 5.00% PIK)			22,695		17,078	1.6	%
	First-lien revolving loan ($23,527 par, due 9/2019)	9/29/2015		L + 9.50	%	11.80% (incl. 5.00% PIK)			23,527		17,704	1.7	%
									46,222		34,782	3.3	%
Human resource support services
PageUp People Limited ⁽³⁾⁽⁴⁾	First-lien loan (AUD 46,092 par, due 12/2022)	1/11/2018	B + 7.25%			11.27% (incl. 2.25% PIK)			35,518	34,669 (AUD 45,198)		3.3	%
Insurance
Insurity, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($62,907 par, due 10/2020)	10/31/2014		L + 6.75	%		9.06	%	62,520		64,323	6.2	%
Internet services
Lithium Technologies, LLC ⁽³⁾	First-lien loan ($50,000 par, due 10/2022)	10/3/2017		L + 8.00	%		9.79	%	48,890		49,329	4.7	%
Manufacturing
Industrial Physics, LLC ⁽³⁾	First-lien loan ($9,950 par, due 10/2022)	10/23/2017		L + 7.00	%		8.88	%	9,765		9,826	0.9	%

	First-lien loan (EUR 21,012 par, due 10/2022)	10/23/2017		E + 7.00	%	8.00	%	24,221	25,518 (EUR 20,749)		2.4	%
	First-lien revolving loan ($750 par, due 10/2022)	10/23/2017		L + 7.00	%	8.84	%	659		688	0.1	%
ScentAir Technologies, Inc. ⁽³⁾	First-lien loan ($19,986 par, due 12/2019)	12/30/2014		L + 7.00	%	8.88	%	19,836		19,986	1.9	%
	First-lien revolving loan ($1,393 par, due 12/2019)	12/30/2014		L + 7.00	%	8.88	%	1,379		1,393	0.1	%
								55,860		57,411	5.4	%
Marketing services
Bazaarvoice, Inc.⁽³⁾	First-lien loan ($40,000 par, due 2/2024)	2/1/2018		L + 8.00	%	9.77	%	39,560		39,670	3.8	%
Vivial Inc.⁽³⁾	First-lien loan ($32,052 par, due 9/2022)	9/29/2017		L + 8.00	%	10.30	%	31,541		31,651	3.0	%
								71,101		71,321	6.8	%
Office products
USR Parent Inc.⁽³⁾⁽⁵⁾	ABL FILO term loan ($20,000 par, due 9/2022)	9/12/2017		L + 7.75	%	9.32	%	19,571		19,750	1.9	%
Oil, gas and consumable fuels
Mississippi Resources, LLC ⁽³⁾⁽⁶⁾	First-lien loan ($28,121 par, due 6/2018)	5/3/2017		L + 10.50	%	12.38	%	28,058		24,677	2.4	%
Northern Oil and Gas, Inc. ⁽³⁾	First-lien loan ($48,750 par, due 11/2022)	11/1/2017		L + 7.75	%	10.06	%	47,618		48,750	4.7	%
Rex Energy Corporation ⁽³⁾	First-lien loan ($22,100 par, due 4/2021)	4/28/2017		L + 8.75	%	11.06	%	21,557		23,900	2.3	%
								97,233		97,327	9.4	%
Pharmaceuticals
Ironwood Pharmaceuticals, Inc.^(4)(5)(8)	Secured note ($33,333 par, due 9/2026)	1/5/2017		8.38	%	8.38	%	33,193		33,166	3.2	%
Model N, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($30,000 par, due 1/2022)	1/5/2017	P + 9.25%			14.00	%	29,523		30,900	3.0	%
Nektar Therapeutics ^(4)(5)(8)	Secured note ($74,950 par, due 10/2020)	10/5/2015		7.75	%	7.75	%	74,410		77,386	7.4	%
								137,126		141,452	13.6	%
Retail and consumer products
99 Cents Only Stores LLC ⁽³⁾	ABL FILO term loan ($25,000 par, due 4/2021)	9/6/2017		L + 7.75	%	9.78	%	24,677		25,000	2.4	%
American Achievement Corporation ⁽³⁾⁽⁵⁾	First-lien loan ($22,971 par, due 9/2020)	9/30/2015		L + 8.25	%	9.92	%	22,792		22,971	2.2	%
Eddie Bauer LLC ⁽³⁾	ABL FILO term loan ($28,875 par, due 6/2019)	3/31/2017		L + 9.25	%	10.94	%	28,539		29,164	2.8	%
PayLess Inc. ⁽³⁾⁽⁵⁾	ABL FILO term loan ($15,000 par, due 8/2022)	3/1/2018		L + 8.00	%	10.01	%	14,680		14,700	1.4	%
Sears ^(3)(4)(10)	First-lien ABL loan ($17,296 par, due 7/2020)	3/18/2016		L + 7.50	%	9.20	%	16,992		17,368	1.7	%
								107,680		109,203	10.5	%

Total Debt Investments								1,844,509		1,864,259	178.5	%
Equity and Other Investments
Beverage, food and tobacco
AFS Technologies, Inc. ^(6)(12)(13)	Class A Preferred Units (125,000 units)	6/30/2017						12,500		14,844	1.4	%

	Class B Common Units (90,000 units)	6/30/2017		2		4,876	0.5	%
				12,502		19,720	1.9	%
Business Services
Motus, LLC ^(12)(13)	Class A Units (1,262 units)	1/17/2018		1,262		1,262	0.1	%
	Class B Units (517,020 units)	1/17/2018		—		—	0.0	%
Nintex Global Limited ^(12)(13)	Class A Shares (1,197 shares)	3/30/2018		1,197		1,197	0.1	%
	Class B Shares (398,557 shares)	3/30/2018		12		12	0.0	%
Riskonnect, Inc. ^(12)(13)	Preferred Class A Units (990 units)	6/30/2017		990		990	0.1	%
	Common Class B Units (959,018 units)	6/30/2017		10		10	0.0	%
				3,471		3,471	0.3	%
Chemicals
Vertellus Specialties, Inc. ⁽¹²⁾	Common Units (2,672,990 units)	10/31/2016		3,828		3,914	0.4	%
Financial services
AvidXchange, Inc. ⁽¹²⁾	Series E Preferred Equity (214,132 shares)	8/7/2015		3,846		7,481	0.7	%
Swift Gift Limited ^(12)(13)	Common Shares (35,000 shares)	7/31/2017		3,500		6,379	0.6	%
Oxford Square Capital Corp. ^(4)(11)	Common Shares (1,059 shares)	8/5/2015		7		6	0.0	%
Triangle Capital Corp. ^(4)(11)	Common Shares (224,600 shares)	11/3/2017		2,191		2,500	0.2	%
				9,544		16,366	1.5	%
Healthcare
SRS Parent Corp. ⁽¹²⁾	Common Shares Class A (1,980 shares)	12/28/2012		1,980		1,168	0.1	%
	Common Shares Class B (2,953,020 shares)	12/28/2012		20		12	0.0	%
				2,000		1,180	0.1	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ^(6)(12)	Class A Units (5,000,000 units)	9/29/2015		3,896		97	0.0	%
	Class C-1 Units (8,800,000 units)	9/29/2015		100		48	0.0	%
				3,996		145	0.0	%
Oil, gas and consumable fuels
Mississippi Resources, LLC ^(6)(12)(13)	Class A-1 Member Units (1,000 units)	5/3/2017		8,155		265	0.0	%
	Class A-2 Member Units (933 units)	6/4/2014		8,874	—		0.0	%
				17,029		265	0.0	%
Total Equity and Other Investments				52,370		45,061	4.2	%
Total Investments			$	1,896,879	$	1,909,320	182.7	%

	Interest Rate Swaps as of March 31, 2018
	Company Receives	Company Pays	Maturity Date	Notional Amount				Fair Market Value					Upfront Payments / Receipts				Change in Unrealized Appreciation / (Depreciation)
Interest rate swap ^(b)	L	1.16%	10/5/2018	$	92,500			$		633			$		—		$		153
Interest rate swap^(b)	4.50%	L + 2.86%	12/15/2019		115,000					(1,808		)			—				(784		)
Interest rate swap ^(a)(b)	L	1.72%	1/10/2020		33,333					536					—				244
Interest rate swap^(b)	4.50%	L + 2.37%	8/1/2022		115,000					(2,882		)			—				(2,172		)
Interest rate swap ^(b)	4.50%	L + 1.99%	1/22/2023		150,000					(1,635		)			—				(1,635		)
Cash collateral							—				5,156					—				—
Total						$	505,833		$		—			$		—		$		(4,194		)

(a)

Contract terms are shown net of Company receiving 6.65% and paying 8.38%.

(b)

Contains a variable rate structure. Interest rate determined by three-month LIBOR.

(1)	Certain portfolio company investments are subject to contractual restrictions on sales.

(2)	The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(3)

Investment contains a variable rate structure, subject to an interest rate floor. Variable rate investments bear interest at a rate that may be determined by reference to either London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR), Euro Interbank Offered Rate (“EURIBOR” or “E”), Bank Bill Swap Bid Rate (“BBSY” or “B”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”), at the borrower’s option, which reset periodically based on the terms of the credit agreement. For investments with multiple interest rate contracts, the interest rate shown is the weighted average interest rate in effect at March 31, 2018.

(4)

This portfolio company is not a qualifying asset under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”). Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time such acquisition is made, qualifying assets represent at least 70% of total assets. Non-qualifying assets represented 14.2% of total assets as of March 31, 2018.

(5)

In addition to the interest earned based on the stated interest rate of this investment, which is the amount reflected in this schedule, the Company may be entitled to receive additional interest as a result of an arrangement with other members in the syndicate to the extent an investment has been allocated to “first out” and “last out” tranches, whereby the “first out” tranche will have priority as to the “last out” tranche with respect to payments of principal, interest and any amounts due thereunder and the Company hold the “last out” tranche.

(6)

Under the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control,” as such terms are defined in the 1940 Act, this portfolio company, as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). Transactions during the three months ended March 31, 2018 in which the issuer was an Affiliated Person of and was deemed to Control a portfolio company are as follows:

Controlled, Affiliated Investments during the three months ended March 31, 2018

Company	Fair Value at December 31, 2017		Gross Additions (a)		Gross Reductions (b)			Net Change In Unrealized Gain/(Loss)			Realized Gain/(Losses)		Fair Value at March 31, 2018		Other Income		Interest Income
AFS Technologies, Inc.	$	75,780	$	—	$	—		$	1,921		$	—	$	77,701	$	—	$	1,604
IRGSE Holding Corp.		34,748		2,142	—				(1,963	)	—			34,927		2		1,260
Mississippi Resources, LLC		25,392		2,949		(70	)		(3,329	)	—			24,942		50		870
Total	$	135,920	$	5,091	$	(70	)	$	(3,371	)	$	—	$	137,570	$	52	$	3,734

(a)

Gross additions include increases in the cost basis of investments resulting from new investments, payment-in-kind interest or dividends, the amortization of any unearned income or discounts on debt investments, as applicable.

(b)

Gross reductions include decreases in the cost basis of investments resulting from principal collections related to investment repayments or sales, and the amortization of any premiums on debt investments, as applicable. When an investment is placed on non-accrual status, any cash flows received by the Company are applied to the outstanding principal balance.

(7)	As of March 31, 2018, the tax cost of the Company’s investments approximates the amortized cost.

(8)	These investments contain a fixed rate structure. The Company entered into an interest rate swap agreement to swap to a floating rate. Refer to Note 5 for further information related to the Company’s interest rate swaps on investments.

(9)

In accordance with Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), unless otherwise indicated, the fair values of all investments were determined using significant unobservable inputs and are considered Level 3 investments. See Note 6 for further information related to investments at fair value.

(10)	This investment is valued using observable inputs and is considered a Level 2 investment. See Note 6 for further information related to investments at fair value.

(11)	This investment is valued using observable inputs and is considered a Level 1 investment. See Note 6 for further information related to investments at fair value.

(12)	This equity investment is non-income producing.

(13)	Security acquired in transaction exempt from registration under the Securities Act of 1933, and may be deemed to be “restricted securities” under the Securities Act. As of March 31, 2018, the aggregate fair value of these securities is $29,835, or 2.9% of the Company’s net assets.

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Consolidated Schedule of Investments as of December 31, 2017

(Amounts in thousands, except share amounts)



Company ⁽¹⁾	Investment	Initial Acquisition Date	Reference Rate and Spread			Interest Rate			Amortized Cost ⁽²⁾⁽⁷⁾		Fair Value ⁽⁹⁾		Percentage of Net Assets
Debt Investments
Automotive
Heartland Automotive Holdings, LLC ⁽³⁾	First-lien loan ($25,725 par, due 1/2018)	8/28/2012		L + 10.25	%		11.75	%	$	25,724	$	25,789		2.7	%
	First-lien revolving loan ($4,056 par, due 1/2018)	8/28/2012		P + 9.00	%		13.50	%		4,056		4,066		0.4	%
										29,780		29,855		3.1	%
Beverage, food and tobacco
AFS Technologies, Inc. ⁽³⁾⁽⁶⁾	Second-lien loan ($59,621 par, due 9/2021)	6/30/2017		L + 9.05	%		10.74	%		59,621		57,534		5.9	%
Business services
Jive Software, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($53,730 par, due 6/2022)	6/12/2017		L + 9.25	%		10.69	%		51,900		53,730		5.5	%
Leaf US Holdings, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($33,221 par, due 6/2020)	6/30/2014		L + 8.00	%		9.69	%		32,879		33,221		3.4	%
Motus, LLC ⁽³⁾	First-lien loan ($20,879 par, due 7/2021)	7/29/2016		L + 10.00	%	11.57% (incl. 3.00% PIK)				20,496		21,975		2.3	%
Riskonnect, Inc. ⁽³⁾	First-lien loan ($42,800 par, due 6/2022)	6/30/2017		L + 7.75	%		9.50	%		41,920		42,203		4.4	%
Sovos Compliance, LLC ⁽³⁾	First-lien loan ($34,323 par, due 3/2022)	7/1/2016		L + 6.00	%		7.57	%		33,862		34,421		3.6	%
Tangoe, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($49,975 par, due 6/2022)	6/16/2017		L + 8.50	%	10.20% (incl. 0.50% PIK)				48,196		48,725		5.0	%
										229,253		234,275		24.2	%
Chemicals
Vertellus Specialties, Inc. ⁽³⁾	First-lien loan ($4,967 par, due 4/2018)	10/31/2016		L + 9.00	%		10.57	%		4,959		4,967		0.5	%
	Second-lien loan ($3,341 par, due 10/2021)	10/31/2016		L + 12.00	%		13.57	%		3,341		3,366		0.3	%
										8,300		8,333		0.8	%
Communications
iHeart Communications ⁽³⁾⁽⁵⁾	ABL FILO term loan ($115,000 par, due 11/2020)	11/30/2017		L + 4.75	%		6.23	%		111,613		112,700		11.6	%
Education
Finalsite Holdings, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($45,000 par, due 8/2022)	8/31/2016		L + 7.00	%		8.69	%		44,029		45,450		4.7	%
Frontline Technologies Group, LLC ⁽³⁾	First-lien loan ($47,703 par, due 9/2023)	9/18/2017		L + 6.50	%		8.09	%		47,039		47,132		4.9	%
Illuminate Education, Inc.⁽³⁾	First-lien loan ($56,900 par, due 8/2022)	8/25/2017		L + 8.00	%		9.48	%		55,772		55,971		5.8	%
										146,840		148,553		15.4	%
Financial services
AppStar Financial, LLC ⁽³⁾	First-lien loan ($20,364 par, due 8/2020)	8/18/2015		L + 8.00	%		9.57	%		20,071		20,643		2.1	%

AvidXchange, Inc. ⁽³⁾	First-lien loan ($54,449 par, due 8/2020)	8/7/2015		L + 9.50	%		11.06	%	53,879		55,266	5.7	%
PayLease, LLC ⁽³⁾	First-lien loan ($56,525 par, due 7/2022)	7/28/2017		L + 7.00	%		8.57	%	55,413		55,627	5.7	%
PaySimple, Inc. ⁽³⁾	First-lien loan ($50,601 par, due 3/2022)	3/7/2017		L + 8.25	%	10.00% (incl. 1.75% PIK)			49,633		50,045	5.2	%
Swift Gift Limited⁽³⁾⁽⁵⁾	First-lien loan ($29,167 par, due 1/2022)	7/31/2017		L + 6.50	%		8.13	%	28,472		29,458	3.0	%
									207,468		211,039	21.7	%
Healthcare
Integrated Practice Solutions, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($32,338 par, due 6/2022)	6/30/2017		L + 8.00	%		9.57	%	31,486		31,691	3.3	%
Helix Health, Ltd. ⁽³⁾⁽⁴⁾	First-lien loan (EUR 38,019 par, due 9/2019)	9/30/2014		E + 10.50	%		11.50	%	45,164	47,366 (EUR 39,445)		4.9	%
	First-lien revolving loan (EUR 300 par, due 9/2019)	9/30/2014		E + 10.50	%		11.50	%	293	540 (EUR 450)		0.1	%
MatrixCare, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($57,305 par, due 12/2021)	12/17/2015		L + 5.25	%		6.94	%	56,455		58,021	6.0	%
MedeAnalytics, Inc.⁽³⁾⁽⁵⁾	First-lien loan ($43,262 par, due 9/2020)	9/30/2015		L + 8.50	%		10.19	%	42,483		43,478	4.5	%
Quantros, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($29,475 par, due 2/2021)	2/29/2016		L + 7.75	%		9.44	%	28,772		30,212	3.1	%
									204,653		211,308	21.9	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ⁽³⁾⁽⁶⁾	First-lien loan ($22,414 par, due 9/2019)	9/29/2015		L + 9.50	%	11.19% (incl. 5.00% PIK)			22,414		17,596	1.8	%
	First-lien revolving loan ($21,665 par, due 9/2019)	9/29/2015		L + 9.50	%	11.06% (incl. 5.00% PIK)			21,665		17,007	1.8	%
									44,079		34,603	3.6	%
Insurance
Insurity, Inc. ⁽³⁾⁽⁵⁾	First-lien loan ($63,321 par, due 10/2020)	10/31/2014		L + 6.50	%		8.25	%	62,899		64,904	6.7	%
Internet services
Lithium Technologies, LLC ⁽³⁾	First-lien loan ($50,000 par, due 10/2022)	10/3/2017		L + 8.00	%		9.39	%	48,840		48,927	5.0	%
Manufacturing
Industrial Physics, LLC ⁽³⁾	First-lien loan ($9,975 par, due 10/2022)	10/23/2017		L + 7.00	%		8.55	%	9,686		9,750	1.0	%
	First-lien loan (EUR 21,065 par, due 10/2022)	10/23/2017		E + 7.00	%		8.00	%	24,260	24,915 (EUR 20,749)		2.6	%
ScentAir Technologies, Inc. ⁽³⁾	First-lien loan ($19,986 par, due 12/2019)	12/30/2014		L + 7.00	%		8.57	%	19,816		20,086	2.1	%
	First-lien revolving loan ($1,393 par, due 12/2019)	12/30/2014		L + 7.00	%		8.57	%	1,377		1,404	0.1	%
									55,139		56,155	5.8	%
Marketing services
Marketo, Inc. ⁽³⁾	First-lien loan ($28,125 par, due 8/2021)	8/16/2016		L + 9.50	%		11.19	%	27,428		29,025	3.0	%
Vivial Inc.⁽³⁾	First-lien loan ($32,463 par, due 9/2022)	9/29/2017	L + 8.00%				9.69	%	31,918		31,976	3.3	%
									59,346		61,001	6.3	%

Office products
USR Parent Inc. ⁽³⁾⁽⁵⁾	ABL FILO term loan ($20,000 par, due 9/2022)	9/12/2017		L + 7.75	%	8.99	%	19,553	19,600	2.0	%
Oil, gas and consumable fuels
Mississippi Resources, LLC ⁽³⁾⁽⁶⁾	First-lien loan ($25,229 par, due 6/2018)	5/3/2017		L + 10.50	%	12.07	%	25,180	25,229	2.6	%
Northern Oil and Gas, Inc. ⁽³⁾	First-lien loan ($48,750 par, due 11/2022)	11/1/2017		L + 7.75	%	9.50	%	47,563	47,450	4.9	%
Rex Energy Corporation ⁽³⁾	First-lien loan ($18,950 par, due 4/2021)	4/28/2017		L + 8.75	%	10.50	%	18,467	20,525	2.1	%
								91,210	93,204	9.6	%
Pharmaceuticals
Ironwood Pharmaceuticals, Inc.^(4)(5)(8)	Secured note ($33,333 par, due 9/2026)	1/5/2017		8.38	%	8.38	%	33,191	33,250	3.4	%
Model N, Inc. ⁽³⁾⁽⁴⁾	First-lien loan ($30,000 par, due 1/2022)	1/5/2017		L + 8.25	%	9.88	%	29,497	29,925	3.1	%
Nektar Therapeutics ^(4)(5)(8)	Secured note ($74,950 par, due 10/2020)	10/5/2015		7.75	%	7.75	%	74,363	76,449	7.9	%
								137,051	139,624	14.4	%
Retail and consumer products
99 Cents Only Stores LLC ⁽³⁾	ABL FILO term loan ($25,000 par, due 4/2021)	9/6/2017	L + 7.75%			9.26	%	24,654	24,875	2.6	%
American Achievement Corporation ⁽³⁾⁽⁵⁾	First-lien loan ($23,161 par, due 9/2020)	9/30/2015		L + 8.25	%	9.62	%	22,964	23,219	2.4	%
Destination Maternity Corporation ⁽³⁾⁽⁵⁾	ABL FILO term loan ($15,420 par, due 3/2021)	3/25/2016		L + 7.50	%	8.74	%	15,165	15,767	1.6	%
Eddie Bauer LLC ⁽³⁾	ABL FILO term loan ($29,250 par, due 6/2019)	3/31/2017		L + 9.25	%	10.94	%	28,847	29,396	3.0	%
Sears ^(3)(4)(10)	First-lien ABL loan ($17,296 par, due 7/2020)	3/18/2016		L + 7.50	%	8.89	%	16,962	17,383	1.8	%
								108,592	110,640	11.4	%

Total Debt Investments								1,624,237	1,642,255	169.4	%
Equity and Other Investments
Beverage, food and tobacco
AFS Technologies, Inc. ^(6)(12)(13)	Class A Preferred Units (125,000 units)	6/30/2017						12,500	14,031	1.4	%
	Class B Common Units (90,000 units)	6/30/2017						2	4,215	0.4	%
								12,502	18,246	1.8	%
Business Services
Riskonnect, Inc. ^(12)(13)	Preferred Class A Units (990 units)	6/30/2017						990	990	0.1	%
	Common Class B Units (959,018 units)	6/30/2017						10	10	0.0	%
								1,000	1,000	0.1	%
Chemicals
Vertellus Specialties, Inc. ⁽¹²⁾	Common Units (2,672,990 units)	10/31/2016						3,828	3,780	0.4	%
Financial services
AvidXchange, Inc. ⁽¹²⁾	Series E Preferred Equity (214,132 shares)	8/7/2015						3,846	7,481	0.8	%
Swift Gift Limited ^(12)(13)	Common Shares (35,000 shares)	7/31/2017						3,500	5,066	0.5	%

TICC Capital Corp. ^(4)(11)	Common Shares (1,059 shares)	8/5/2015		7		6	0.0	%
Triangle Capital Corp. ^(4)(11)	Common Shares (1,384,570 shares)	11/3/2017		13,428		13,140	1.4	%
				20,781		25,693	2.7	%
Healthcare
Helix Health, Ltd.^(4)(12)	Warrants	9/30/2014		877	1,336 (EUR 1,112)		0.1	%
SRS Parent Corp. ⁽¹²⁾	Common Shares Class A (1,980 shares)	12/28/2012		1,980		1,094	0.1	%
	Common Shares Class B (2,953,020 shares)	12/28/2012		20		11	0.0	%
				2,877		2,441	0.2	%
Hotel, gaming, and leisure
IRGSE Holding Corp. ^(6)(12)	Class A Units (5,000,000 units)	9/29/2015		3,896		97	0.0	%
	Class C-1 Units (8,800,000 units)	9/29/2015		100		48	0.0	%
				3,996		145	0.0	%
Oil, gas and consumable fuels
Mississippi Resources, LLC ^(6)(12)(13)	Class A-1 Member Units (1,000 units)	5/3/2017		8,155		163	0.0	%
	Class A-2 Member Units (933 units)	6/4/2014		8,874	—		0.0	%
				17,029		163	0.0	%
Total Equity and Other Investments				62,013		51,468	5.2	%
Total Investments			$	1,686,250	$	1,693,723	174.6	%

	Interest Rate Swaps as of December 31, 2017
	Company Receives	Company Pays	Maturity Date	Notional Amount				Fair Market Value					Upfront Payments / Receipts							Change in Unrealized Appreciation / (Depreciation)
Interest rate swap ^(b)	L	1.16%	10/5/2018	$	92,500			$		480			$		—			$			204
Interest rate swap ^(b)	4.50%	L + 2.86%	12/15/2019		115,000					(1,024		)			—						(817	)
Interest rate swap ^(a)(b)	L	1.72%	1/10/2020		33,333					292					—						292
Interest rate swap ^(b)	4.50%	L + 2.37%	8/1/2022		115,000					(710		)			—						(710	)
Cash collateral							—				962					—			—
Total						$	355,833		$		—			$		—	$		(1,031				)

(a)

Contract terms are shown net of Company receiving 6.65% and paying 8.38%.

(b)

Contains a variable rate structure. Interest rate determined by three-month LIBOR.

(1)	Certain portfolio company investments are subject to contractual restrictions on sales.

(2)	The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.

(3)

Investment contains a variable rate structure, subject to an interest rate floor. Variable rate investments bear interest at a rate that may be determined by reference to either London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR) Euro Interbank Offered Rate ( “EURIBOR” or “E”) or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”), at the borrower’s option, which reset periodically based on the terms of the credit agreement. For investments with multiple interest rate contracts, the interest rate shown is the weighted average interest rate in effect at December 31, 2017.

(4)

(5)

(6)

Under the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and “Control,” as such terms are defined in the 1940 Act, this portfolio company, as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). Transactions during the year ended December 31, 2017 in which the issuer was an Affiliated Person of and was deemed to Control a portfolio company are as follows:

Controlled, Affiliated Investments during the year ended December 31, 2017

Company	Fair Value at December 31, 2016		Gross Additions (a)		Gross Reductions (b)			Net Change In Unrealized Gain/(Loss)			Realized Gain/(Losses)			Fair Value at December 31, 2017		Other Income		Interest Income
AFS Technologies, Inc.	$	—	$	72,122	$	—		$	3,658		$	—		$	75,780	$	—	$	3,178
IRGSE Holding Corp.		31,974		8,014	—				(5,240	)	—				34,748		4		4,302
Mississippi Resources, LLC		33,885		6,297		(2,264	)		9,250			(21,776	)		25,392		200		1,963
Total	$	65,859	$	86,433	$	(2,264	)	$	7,668		$	(21,776	)	$	135,920	$	204	$	9,443

(a)

(b)

(7)	As of December 31, 2017, the tax cost of the Company’s investments approximates the amortized cost.

(8)	These investments contain a fixed rate structure. The Company entered into an interest rate swap agreement to swap to a floating rate. Refer to Note 5 for further information related to the Company’s interest rate swaps on investments.

(9)

(10)	This investment is valued using observable inputs and is considered a Level 2 investment. See Note 6 for further information related to investments at fair value.

(11)	This investment is valued using observable inputs and is considered a Level 1 investment. See Note 6 for further information related to investments at fair value.

(12)	This equity investment is non-income producing.

(13)	Security acquired in transaction exempt from registration under the Securities Act of 1933, and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2017, the aggregate fair value of these securities is $24,475, or 2.5% of the Company’s net assets.

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Consolidated Statements of Changes in Net Assets

(Amounts in thousands)

(Unaudited)

	Three Months Ended March 31, 2018			Three Months Ended March 31, 2017
Increase in Net Assets Resulting from Operations
Net investment income	$	31,186		$	28,519
Net change in unrealized losses		(207	)		(2,149	)
Net realized gains		2,857			1,908
Increase in Net Assets Resulting from Operations		33,836			28,278
Increase (Decrease) in Net Assets Resulting from Capital Share Transactions
Issuance of common shares, net of offering and underwriting costs		63,015		—
Issuance of convertible notes	—				356
Reinvestment of dividends		3,200			2,132
Dividends declared from net investment income		(25,368	)		(23,337	)
Increase (Decrease) in Net Assets Resulting from Capital Share Transactions		40,847			(20,849	)
Total Increase in Net Assets		74,683			7,429
Net assets, beginning of period		969,284			952,212
Net Assets, End of Period	$	1,043,967		$	959,641
Undistributed Net Investment Income Included in Net Assets at the End of the Period	$	64,965		$	48,619

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Consolidated Statements of Cash Flows

(Amounts in thousands)

(Unaudited)

	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
Cash Flows from Operating Activities
Increase in net assets resulting from operations	$	33,836		$	28,278
Adjustments to reconcile increase in net assets resulting from operations to net cash provided by (used) in operating activities:
Net change in unrealized gains on investments		(4,968	)		(3,490	)
Net change in unrealized losses on foreign currency transactions		981			5,793
Net change in unrealized (gains) losses on interest rate swaps		4,194			(154	)
Net realized gains on investments		(2,645	)		(1,322	)
Net realized gains on foreign currency transactions		(71	)		(355	)
Net amortization of discount on investments		(3,539	)		(9,425	)
Amortization of deferred financing costs		870			735
Amortization of discount on debt		178			163
Purchases and originations of investments, net		(319,241	)		(163,626	)
Proceeds from investments, net		14,743			73,732
Repayments on investments		101,090			178,366
Paid-in-kind interest		(994	)		(1,880	)
Changes in operating assets and liabilities:
Interest receivable		(1,670	)		1,584
Interest receivable paid-in-kind		(109	)		180
Prepaid expenses and other assets		9,675			(9,007	)
Management fees payable to affiliate		412			(198	)
Incentive fees payable to affiliate		946			161
Payable to affiliate		509			(207	)
Other liabilities		(3,392	)		825
Net Cash Provided by (Used) in Operating Activities		(169,195	)		100,153
Cash Flows from Financing Activities
Borrowings on debt		538,975			255,500
Repayments on debt		(402,879	)		(329,608	)
Deferred financing costs		(5,612	)		(3,812	)
Proceeds from issuance of common stock, net of offering and underwriting costs		63,015		—
Dividends paid to stockholders		(22,099	)		(21,157	)
Net Cash Provided by (Used) in Financing Activities		171,400			(99,077	)
Net Increase in Cash, Cash Equivalents, and Restricted Cash		2,205			1,076
Cash, cash equivalents, and restricted cash, beginning of period		6,665			5,954
Cash, Cash Equivalents, and Restricted Cash, End of Period	$	8,870		$	7,030
Supplemental Information:
Interest paid during the period	$	7,303		$	4,224
Excise taxes paid during the period	$	2,500		$	2,100
Dividends declared during the period	$	25,368		$	23,337
Reinvestment of dividends during the period	$	3,200		$	2,132

The accompanying notes are an integral part of these consolidated financial statements.

TPG Specialty Lending, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

(Amounts in thousands, unless otherwise indicated)

1. Organization and Basis of Presentation

Organization

TPG Specialty Lending, Inc. (“TSLX” or the “Company”) is a Delaware corporation formed on July 21, 2010. The Company was formed primarily to lend to, and selectively invest in, middle-market companies in the United States. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). TSLX is managed by TSL Advisers, LLC (the “Adviser”). On June 1, 2011, the Company formed a wholly-owned subsidiary, TC Lending, LLC, a Delaware limited liability company. On March 22, 2012, the Company formed a wholly-owned subsidiary, TPG SL SPV, LLC, a Delaware limited liability company (“TPG SL SPV”). On May 19, 2014, the Company formed a wholly-owned subsidiary, TSL MR, LLC, a Delaware limited liability company.

On March 21, 2014, the Company completed its initial public offering (“IPO”) and the Company’s shares began trading on the New York Stock Exchange (“NYSE”) under the symbol “TSLX.”

Basis of Presentation

The accompanying consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), and include the accounts of the Company and its subsidiaries. In the opinion of management, all adjustments considered necessary for the fair presentation of the consolidated financial statements for the periods presented, have been included. The results of operations for interim periods are not indicative of results to be expected for the full year. All intercompany balances and transactions have been eliminated in consolidation.

Certain financial information that is normally included in annual financial statements, including certain financial statement footnotes, prepared in accordance with U.S. GAAP, is not required for interim reporting purposes and has been condensed or omitted herein. These consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes related thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which was filed with the Securities and Exchange Commission (“SEC”), on February 21, 2018.

The Company is an investment company and, therefore, applies the specialized accounting and reporting guidance in Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.

Fiscal Year End

The Company’s fiscal year ends on December 31.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Actual amounts could differ from those estimates and such differences could be material.

Cash and Cash Equivalents

Cash and cash equivalents may consist of demand deposits, highly liquid investments (e.g., money market funds, U.S. Treasury notes, and similar type instruments) with original maturities of three months or less, and restricted cash pledged as collateral. Cash and cash equivalents denominated in U.S. dollars are carried at cost, which approximates fair value. The Company deposits its cash and cash equivalents with highly-rated banking corporations and, at times, cash deposits may exceed the insured limits under applicable law.

Investments at Fair Value

Loan originations are recorded on the date of the binding commitment, which is generally the funding date. Investment transactions purchased through the secondary markets are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds received (excluding prepayment fees, if any) and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. The net change in unrealized gains or losses reflects the change in investment values and also includes the reversal of previously recorded unrealized gains or losses with respect to investments realized during the period.

Investments for which market quotations are readily available are typically valued at those market quotations. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of the quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available, as is the case for substantially all of our investments, are valued at fair value as determined in good faith by the Company’s Board of Directors (the “Board”), based on, among other things, the input of the Adviser, the Company’s Audit Committee and independent third-party valuation firms engaged at the direction of the Board.

As part of the valuation process, the Board takes into account relevant factors in determining the fair value of its investments, including and in combination of: the estimated enterprise value of a portfolio company (that is, the total value of the portfolio company’s net debt and equity), the nature and realizable value of any collateral, the portfolio company’s ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation.

The Board undertakes a multi-step valuation process, which includes, among other procedures, the following:

•

The valuation process begins with each investment being initially valued by the investment professionals responsible for the portfolio investment in conjunction with the portfolio management team.

•

The Adviser’s management reviews the preliminary valuations with the investment professionals. Agreed upon valuation recommendations are presented to the Audit Committee.

•

The Audit Committee reviews the valuations presented and recommends values for each investment to the Board.

•

The Board reviews the recommended valuations and determines the fair value of each investment; valuations that are not based on readily available market quotations are valued in good faith based on, among other things, the input of the Adviser, Audit Committee and, where applicable, other third parties including independent third-party valuation firms engaged at the direction of the Board.

The Company conducts this valuation process on a quarterly basis.

The Board has engaged independent third-party valuation firms to perform certain limited procedures that the Board has identified and requested them to perform in connection with the valuation process. At March 31, 2018, the independent third-party valuation firms performed their procedures over substantially all of the Company’s investments. Upon completion of such limited procedures, the third-party valuation firms determined that the fair value, as determined by the Board, of those investments subjected to their limited procedures, appeared reasonable.

The Company applies Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurement “ASC 820”, as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:

•

Level 1—Valuations based on quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•

Level 2—Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

•

Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur. In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820. Consistent with the valuation policy, the Company evaluates the source of inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When a security is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various additional criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Company reviews pricing provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Some additional factors considered include the number of prices obtained as well as an assessment as to their quality, such as the depth of the relevant market relative to the size of the Company’s position.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If the Company were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.

Financial and Derivative Instruments

The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result the Company presents changes in fair value through current period earnings.

In the normal course of business, the Company has commitments and risks resulting from its investment transactions, which may include those involving derivative instruments. Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. While the notional amount gives some indication of the Company’s derivative activity, it generally is not exchanged, but is only used as the basis on which interest and other payments are exchanged. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process.

Derivatives, including the Company’s interest rate swaps, for which broker quotes are available are typically valued at those broker quotes.

Offsetting Assets and Liabilities

Foreign currency forward contract and interest rate swap receivables or payables pending settlement are offset, and the net amount is included with receivable or payable for foreign currency forward contracts or interest rate swaps in the consolidated balance sheets when, and only when, they are with the same counterparty, the Company has the legal right to offset the recognized amounts, and it intends to either settle on a net basis or realize the asset and settle the liability simultaneously.

Foreign Currency

Foreign currency amounts are translated into U.S. dollars on the following basis:

•

cash and cash equivalents, market value of investments, outstanding debt on revolving credit facilities, other assets and liabilities: at the spot exchange rate on the last business day of the period; and

•

purchases and sales of investments, borrowings and repayments of such borrowings, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions.

Although net assets and fair values are presented based on the applicable foreign exchange rates described above, the Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in fair values of investments held. Such fluctuations are included with the net realized and unrealized gain or loss from investments. The Company’s current approach to hedging the foreign currency exposure in its non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under the Company’s Revolving Credit Facility to fund these investments. Fluctuations arising from the translation of foreign currency borrowings are included with the net change in unrealized gains (losses) on translation of assets and liabilities in foreign currencies on the consolidated statements of operations.

Investments denominated in foreign currencies and foreign currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

Equity Offering Expenses

The Company records expenses related to equity offerings as a reduction of capital upon completion of an offering of registered securities. The costs associated with renewals of the Company’s shelf registration statement are expensed as incurred.

Debt Issuance Costs

The Company records origination and other expenses related to its debt obligations as deferred financing costs, which are presented as a direct deduction from the carrying value of the related debt liability. These expenses are deferred and amortized using the effective interest method, or straight-line method, over the stated maturity of the obligation.

Interest and Dividend Income Recognition

Interest income is recorded on an accrual basis and includes the amortization of discounts and premiums. Discounts and premiums to par value on securities purchased or originated are amortized into interest income over the contractual life of the respective security using the effective interest method. The amortized cost of investments represents the original cost adjusted for the amortization of discounts and premiums, if any.

Unless providing services in connection with an investment, such as syndication, structuring or diligence, all or a portion of any loan fees received by the Company will be deferred and amortized over the investment’s life using the effective interest method.

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection.

Dividend income on preferred equity securities is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies.

Other Income

From time to time, the Company may receive fees for services provided to portfolio companies by the Adviser. The services that the Adviser provides vary by investment, but may include syndication, structuring, diligence fees, or other service-based fees, and fees for providing managerial assistance to our portfolio companies and are recognized as revenue when earned.

Reimbursement of Transaction-Related Expenses

The Company may receive reimbursement for certain transaction-related expenses in pursuing investments. Transaction-related expenses, which are expected to be reimbursed by third parties, are typically deferred until the transaction is consummated and are recorded in Prepaid expenses and other assets on the date incurred. The transaction-related costs of pursuing investments not otherwise reimbursed are borne by the Company and for successfully completed investments included as a component of the investment’s cost basis. Subsequent to closing, investments are recorded at fair value at each reporting period.

Cash advances received in respect of transaction-related expenses are recorded as cash and cash equivalents with an offset to Other liabilities or Payables to affiliates. Other liabilities or Payables to affiliates are relieved as reimbursable expenses are incurred.

Income Taxes

The Company has elected to be treated as a BDC under the 1940 Act. The Company also has elected to be treated as a RIC under the Internal Revenue Code. So long as the Company maintains its status as a RIC, it will generally not pay corporate-level U.S. federal income or excise taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.

The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.

Dividends to Common Stockholders

The amount to be paid out as a dividend is determined by the Board and is generally based upon the earnings estimated by the Adviser. Net realized long-term capital gains, if any, would generally be distributed at least annually, although the Company may decide to retain such capital gains.

The Company has adopted a dividend reinvestment plan that provides for reinvestment of any dividends declared in cash on behalf of stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and it declares, a cash dividend, then the stockholders who have not “opted out” of the dividend reinvestment plan will have their cash dividends automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash dividend. The Company expects to use newly issued shares to satisfy the dividend reinvestment plan.

Accounting Standards Adopted in 2018

In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update 2014-09 (“ASU 2014-09”), “Revenue from Contracts with Customers (Topic 606).” The guidance in this ASU supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for public companies for interim and annual periods in fiscal years beginning after December 15, 2017, with early adoption permitted for interim and annual periods in fiscal years beginning after December 15, 2016. The Company’s adoption of this guidance did not have a material impact on the Company’s financial position, results of operations, cash flows or notes to the consolidated financial statements.

3. Agreements and Related Party Transactions

Administration Agreement

On March 15, 2011, the Company entered into the Administration Agreement with the Adviser. Under the terms of the Administration Agreement, the Adviser provides administrative services to the Company. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement. In addition, the Adviser is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company pays or reimburses the Adviser for certain expenses incurred by any such affiliates or third parties for work done on its behalf.

On February 22, 2017, the Board of Directors of the Company and the Adviser entered into an amended and restated administration agreement (the “Amended and Restated Administration Agreement”) reflecting certain clarifications to the agreement to provide greater detail regarding the scope of the reimbursable costs and expenses of the Administrator’s services.

On November 7, 2017, the Board renewed the Administration Agreement. Unless earlier terminated as described below, the Administration Agreement will remain in effect until November 2018, and may be extended subject to required approvals. The Administration Agreement may be terminated by either party without penalty on 60 days’ written notice to the other party.

For the three months ended March 31, 2018 and 2017, the Company incurred expenses of $0.9 million and $1.0 million, respectively, for administrative services payable to the Adviser under the terms of the Administration Agreement.

No person who is an officer, director or employee of the Adviser or its affiliates and who serves as a director of the Company receives any compensation from the Company for his or her services as a director. However, the Company reimburses the Adviser (or its affiliates) for an allocable portion of the compensation paid by the Adviser or its affiliates to the Company’s Chief Compliance Officer, Chief Financial Officer, and other professionals who spend time on such related activities (based on the percentage of time those individuals devote, on an estimated basis, to the business and affairs of the Company). Directors who are not affiliated with the Adviser receive compensation for their services and reimbursement of expenses incurred to attend meetings.

Investment Advisory Agreement

On April 15, 2011, the Company entered into the Investment Advisory Agreement with the Adviser. The Investment Advisory Agreement was subsequently amended on December 12, 2011. Under the terms of the Investment Advisory Agreement, the Adviser provides investment advisory services to the Company. The Adviser’s services under the Investment Advisory Agreement are not exclusive, and the Adviser is free to furnish similar or other services to others so long as its services to the Company are not impaired. Under the terms of the Investment Advisory Agreement, the Company will pay the Adviser the Management Fee and may also pay certain Incentive Fees.

The Management Fee is calculated at an annual rate of 1.5% based on the average value of the Company’s gross assets calculated using the values at the end of the two most recently completed calendar quarters, adjusted for any share issuances or repurchases during the period. The Management Fee is payable quarterly in arrears.

For the three months ended March 31, 2018 and 2017 Management Fees (gross of waivers) were $6.7 million and $6.1 million, respectively.

The Adviser has voluntarily waived the Management Fee on our ownership of shares of common stock in Triangle Capital Corp. (the “TCAP” Shares”) for any period in which Triangle Capital Corp. remains our portfolio company.

For the three months ended March 31, 2018, Management Fees of less than $0.1 million were waived consisting solely of Management Fees attributable to the Company’s ownership of the TCAP Shares. The Adviser did not waive any Management Fees for the three months ended March 31, 2017.

Any waived Management Fees are not subject to recoupment by the Adviser.

The Incentive Fee consists of two parts, as follows:

(i)

The first component, payable at the end of each quarter in arrears, equals 100% of the pre-Incentive Fee net investment income in excess of a 1.5% quarterly “hurdle rate,” the calculation of which is further explained below, until the Adviser has received 17.5% of the total pre-Incentive Fee net investment income for that quarter and, for pre-Incentive Fee net investment income in excess of 1.82% quarterly, 17.5% of all remaining pre-Incentive Fee net investment income for that quarter. The 100% “catch-up” provision for pre-Incentive Fee net investment income in excess of the 1.5% “hurdle rate” is intended to provide the Adviser with an incentive fee of 17.5% on all pre-Incentive Fee net investment income when that amount equals 1.82% in a quarter (7.28% annualized), which is the rate at which catch-up is achieved. Once the “hurdle rate” is reached and catch-up is achieved, 17.5% of any pre-Incentive Fee net investment income in excess of 1.82% in any quarter is payable to the Adviser.

Pre-Incentive Fee net investment income means dividends, interest and fee income accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Management Fee, expenses payable under the Administration Agreement to the Administrator, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Incentive Fee). Pre-Incentive Fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay-in-kind interest and zero coupon securities), accrued income that the Company may not have received in cash. Pre-Incentive Fee net investment income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

(ii)

The second component, payable at the end of each fiscal year in arrears, equaled 15% through March 31, 2014 and, beginning April 1, 2014, equals a weighted percentage of cumulative realized capital gains from the Company’s inception to the end of that fiscal year, less cumulative realized capital losses and unrealized capital depreciation. This component of the Incentive Fee is referred to as the Capital Gains Fee. Each year, the fee paid for this component of the Incentive Fee is net of the aggregate amount of any previously paid Capital Gains Fee for prior periods. For capital gains that accrue following March 31, 2014, the Incentive Fee rate is 17.5%. The Company accrues, but does not pay, a capital gains Incentive Fee with respect to unrealized

capital appreciation because a capital gains Incentive Fee would be owed to the Adviser if the Company were to sell the relevant investment and realize a capital gain. The weighted percentage is intended to ensure that for each fiscal year following the completion of the IPO, the portion of the Company’s realized capital gains that accrued prior to March 31, 2014, is subject to an incentive fee rate of 15% and the portion of the Company’s realized capital gains that accrued beginning April 1, 2014 is subject to an incentive fee rate of 17.5%.

For purposes of determining whether pre-Incentive Fee net investment income exceeds the hurdle rate, pre-Incentive Fee net investment income is expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter.

Section 205(b)(3) of the Investment Advisers Act of 1940, as amended, prohibits the Adviser from receiving the payment of fees on unrealized gains until those gains are realized, if ever. There can be no assurance that such unrealized gains will be realized in the future.

For the three months ended March 31, 2018 and 2017, Incentive Fees (gross of waivers) were $6.6 million and $6.0 million, respectively, of which $6.6 million and $6.0 million, respectively, were realized and payable to the Adviser.

The Adviser has voluntarily waived the Incentive Fees attributable to pre-Incentive Fee net investment income accrued by the Company as a result of its ownership of the TCAP Shares for any period in which Triangle Capital Corp. remains the Company’s portfolio company. The Adviser has not waived any part of the Capital Gains Fee attributable to the Company’s ownership of the TCAP Shares and, accordingly, any realized capital gains or losses and unrealized capital depreciation with respect to the TCAP Shares will be applied against the Company’s cumulative realized capital gains on which the Capital Gains Fee is calculated.

For the three months ended March 31, 2018, Incentive Fees of less than $0.1 million were waived, consisting solely of Incentive Fees attributable to the Company’s ownership of the TCAP Shares. The Adviser did not waive any Incentive Fees for the three months ended March 31, 2017. Any waived Incentive Fees are not subject to recoupment by the Adviser.

Since the Company’s IPO, with the exception of its waiver of Management Fees and certain Incentive Fees attributable to the Company’s ownership of certain investments, including the TCAP Shares, the Adviser has not waived its right to receive any Management Fees or Incentive Fees payable pursuant to the Investment Advisory Agreement.

In November 2017, the Board renewed the Investment Advisory Agreement. Unless earlier terminated as described below, the Investment Advisory Agreement will remain in effect until November 2018, and may be extended subject to required approvals. The Investment Advisory Agreement will automatically terminate in the event of an assignment and may be terminated by either party without penalty upon 60 days’ written notice to the other party.

From time to time, the Adviser may pay amounts owed by the Company to third-party providers of goods or services, including the Board, and the Company will subsequently reimburse the Adviser for such amounts paid on its behalf. Amounts payable to the Adviser are settled in the normal course of business without formal payment terms.

4. Investments at Fair Value

Under the 1940 Act, the Company is required to separately identify non-controlled investments where it owns 5% or more of a portfolio company’s outstanding voting securities as investments in “affiliated” companies. In addition, under the 1940 Act, the Company is required to separately identify investments where it owns more than 25% of a portfolio company’s outstanding voting securities and/or had the power to exercise control over the management or policies of such portfolio company as investments in “controlled” companies. Detailed information with respect to the Company’s non-controlled, non-affiliated; non-controlled, affiliated; and controlled affiliated investments is contained in the accompanying consolidated financial statements, including the consolidated schedules of investments. The information in the tables below is presented on an aggregate portfolio basis, without regard to whether they are non-controlled non-affiliated, non-controlled affiliated or controlled affiliated investments.

Investments at fair value consisted of the following at March 31, 2018 and December 31, 2017:

	March 31, 2018
	Amortized Cost ⁽¹⁾		Fair Value		Net Unrealized Gain (Loss)
First-lien debt investments	$	1,781,547	$	1,802,895	$	21,348
Second-lien debt investments		62,962		61,364		(1,598	)
Equity and other investments		52,370		45,061		(7,309	)
Total Investments	$	1,896,879	$	1,909,320	$	12,441

	December 31, 2017
	Amortized Cost ⁽¹⁾		Fair Value		Net Unrealized Gain (Loss)
First-lien debt investments	$	1,561,275	$	1,581,355	$	20,080
Second-lien debt investments		62,962		60,900		(2,062	)
Equity and other investments		62,013		51,468		(10,545	)
Total Investments	$	1,686,250	$	1,693,723	$	7,473

(1)	The amortized cost represents the original cost adjusted for the amortization of discounts or premiums, as applicable, on debt investments using the effective interest method.

The industry composition of investments at fair value at March 31, 2018 and December 31, 2017 is as follows:

	March 31, 2018			December 31, 2017
Automotive	—				1.8	%
Beverage, food and tobacco		4.1	%		4.5	%
Business services		18.3	%		13.8	%
Chemicals		0.6	%		0.7	%
Communications		6.2	%		6.7	%
Education		10.4	%		8.8	%
Financial services		13.9	%		14.0	%
Healthcare		11.0	%		12.6	%
Hotel, gaming, and leisure		1.8	%		2.1	%
Human resource support services		1.8	%	—
Insurance		3.4	%		3.8	%
Internet services		2.6	%		2.9	%
Manufacturing		3.0	%		3.3	%
Marketing services		3.7	%		3.6	%
Office products		1.0	%		1.2	%
Oil, gas and consumable fuels		5.1	%		5.5	%
Pharmaceuticals		7.4	%		8.2	%
Retail and consumer products		5.7	%		6.5	%
Total		100.0	%		100.0	%

The geographic composition of Investments at fair value at March 31, 2018 and December 31, 2017 is as follows:

	March 31, 2018			December 31, 2017
United States
Midwest		9.8	%		10.0	%
Northeast		24.8	%		22.9	%
South		21.2	%		21.6	%
West		38.3	%		40.6	%
Canada		1.7	%		2.0	%
Europe		2.4	%		2.9	%
Australia		1.8	%		—
Total		100.0	%		100.0	%

5. Derivatives

Interest Rate Swaps

In January 2015, in connection with its 2019 Convertible Senior Notes, the Company entered into two interest rate swap transactions, each with a $57.5 million notional amount. The Company receives fixed rate interest at 4.50% and pays variable rate interest based on the three-month LIBOR plus 2.86%. The swap transactions mature on December 15, 2019.

In November 2015, in connection with a fixed rate investment, the Company entered into two interest rate swap transactions, each with a $46.3 million notional amount. The Company receives three-month LIBOR and pays fixed rate interest at 1.16%. The swap transactions mature on October 5, 2018.

In January 2017, in connection with a fixed rate investment, the Company entered into an interest rate swap transaction with a $33.3 million notional amount. On a net basis, the Company receives three-month LIBOR and pays fixed rate interest at 1.72%. The swap transaction matures on January 10, 2020.

In February 2017, in connection with the issuance of the 2022 Convertible Senior Notes, the Company entered into an interest rate swap transaction with a $115 million notional amount. The Company receives fixed rate interest at 4.50% and pays variable rate interest based on the three-month LIBOR plus 2.37%. The swap transaction matures on August 1, 2022.

In January 2018, in connection with the issuance of the 2023 Notes, the Company entered into an interest rate swap transaction with a $150 million notional amount. The Company receives fixed rate interest at 4.50% and pays variable rate interest based on the three-month LIBOR plus 1.99%. The swap transaction matures on January 22, 2023.

The following tables present the gross and net information on the Company’s interest rate swap transactions that are eligible for offset in the Company’s consolidated balance sheets as of March 31, 2018 and December 31, 2017.

	March 31, 2018
	Maturity Date	Notional Amount		Gross Amount of Recognized Asset (Liability)			Gross Amount Offset in the Consolidated Balance Sheets			Net Amount of Assets in the Consolidated Balance Sheets
Interest rate swap ⁽¹⁾	10/5/2018	$	92,500	$	633		$	(633	)	$	—
Interest rate swap	1/10/2020		33,333		536			(536	)	—
Interest rate swap	1/22/2023		150,000		(1,635	)		1,635		—
Interest rate swap	12/15/2019		115,000		(1,808	)		1,808		—
Interest rate swap	8/1/2022		115,000		(2,882	)		2,882		—
Total		$	505,833	$	(5,156	)	$	5,156		$	—

(1)	The notional amount of certain interest rate swaps may exceed the Company’s investment in individual portfolio companies as a result of arrangements with other lenders in the syndicate.

	December 31, 2017
	Maturity Date	Notional Amount		Gross Amount of Recognized Assets			Gross Amount Offset in the Consolidated Balance Sheets			Net Amount of Assets in the Consolidated Balance Sheets
Interest rate swap ⁽¹⁾	10/5/2018	$	92,500	$	480		$	(480	)	$	—
Interest rate swap	1/10/2020		33,333		292			(292	)	—
Interest rate swap	8/1/2022		115,000		(710	)		710		—
Interest rate swap	12/15/2019		115,000		(1,024	)		1,024		—
Total		$	355,833	$	(962	)	$	962		$	—

(1)	The notional amount of certain interest rate swaps may exceed the Company’s investment in individual portfolio companies as a result of arrangements with other lenders in the syndicate.

During the three months ended March 31, 2018 and 2017, the Company received $0.3 million and $0.2 million, respectively, and paid $0.3 million and $0.3 million, respectively, related to the settlements of its $92.5 million notional amount interest rate swaps, which mature on October 5, 2018. These net amounts of these settlements are included in interest income in the Company’s consolidated statements of operations.

During the three months ended March 31, 2018 and 2017, the Company received $1.3 million and $1.3 million, respectively, and paid $1.3 million and $1.2 million, respectively, related to the settlements of its $115 million notional amount interest rate swaps, which mature on December 15, 2019. The net amounts of these settlements are included in interest expense in the Company’s consolidated statements of operations.

During the three months ended March 31, 2018 and 2017, the Company received $0.7 million and $0.4 million, respectively, and paid $0.7 million and $0.5 million, respectively, related to the settlements of its $33.3 million notional amount interest rate swap, which matures on January 10, 2020. The net amounts of these settlements are included in interest income in the Company’s consolidated statements of operations.

During the three months ended March 31, 2018, the Company received $1.3 million and paid $1.2 million, related to the settlement of its $115 million notional amount interest rate swap, which matures on August 1, 2022. No amounts were received or paid during the three months ended March 31, 2017. The net amounts of these settlements are included in interest expense in the Company’s consolidated statements of operations.

During the three months ended March 31, 2018, the Company received $1.3 million and paid $1.0 million, related to the settlement of its $150 million notional amount interest rate swap, which matures on January 22, 2023. The net amounts of these settlements are included in interest expense in the Company’s consolidated statements of operations.

For the three months ended March 31, 2018 and 2017, the Company recognized $4.2 million of net change in unrealized depreciation and $0.2 million of net change in unrealized appreciation, respectively, on interest rate swaps in the consolidated statement of operations related to the swap transactions.

As of March 31, 2018 and December 31, 2017, the swap transactions had a fair value of $(5.2) million and $(1.0) million, respectively, which is netted against restricted cash collateral on the Company’s consolidated balance sheet.

The Company is required under the terms of its derivatives agreements to pledge assets as collateral to secure its obligations under the derivatives. The amount of collateral required varies over time based on the mark-to-market value, notional amount and remaining term of the derivatives, and may exceed the amount owed by the Company on a mark-to-market basis. Any failure by the Company to fulfill any collateral requirement (e.g., a so-called “margin call”) may result in a default. In the event of a default by a counterparty, the Company would be an unsecured creditor to the extent of any such overcollateralization.

As of March 31, 2018, $10.9 million of cash is pledged as collateral under the Company’s derivative instruments and $5.7 million is included in restricted cash as a component of cash and cash equivalents on the Company’s consolidated balance sheet. The Company had $4.1 million of cash collateral posted as of December 31, 2017, of which $3.2 million is included in restricted cash as a component of cash and cash equivalents on the Company’s consolidated balance sheet.

The Company may enter into other derivative instruments and incur other exposures with the same or other counterparties in the future.

6. Fair Value of Financial Instruments

Investments

The following tables present fair value measurements of investments as of March 31, 2018 and December 31, 2017:

	Fair Value Hierarchy at March 31, 2018
	Level 1		Level 2			Level 3		Total
First-lien debt investments	$	—	$	17,368		$	1,785,527	$	1,802,895
Second-lien debt investments		—		—			61,364		61,364
Equity and other investments		2,506		—			42,555		45,061
Total investments at fair value	$	2,506	$	17,368		$	1,889,446	$	1,909,320
Interest rate swaps		—		(5,156	)		—		(5,156	)
Total	$	2,506	$	12,212		$	1,889,446	$	1,904,164

	Fair Value Hierarchy at December 31, 2017
	Level 1		Level 2			Level 3		Total
First-lien debt investments	$	—	$	17,383		$	1,563,972	$	1,581,355
Second-lien debt investments		—		—			60,900		60,900
Equity and other investments		13,146		—			38,322		51,468
Total investments at fair value	$	13,146	$	17,383		$	1,663,194	$	1,693,723
Interest rate swaps		—		(962	)		—		(962	)
Total	$	13,146	$	16,421		$	1,663,194	$	1,692,761

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three months ended March 31, 2018 and 2017:

	As of and for the Three Months Ended
	March 31, 2018
	First-lien debt investments			Second-lien debt investments		Equity and other investments			Total
Balance, beginning of period	$	1,563,972		$	60,900	$	38,322		$	1,663,194
Purchases or originations		316,770			—		2,471			319,241
Repayments / redemptions		(101,090	)		—		(1,379	)		(102,469	)
Paid-in-kind interest		994			—		—			994
Net change in unrealized gains		1,312			464		2,639			4,415
Net realized gains		59			—		502			561
Net amortization of discount on securities		3,510			—		—			3,510
Transfers into (out of) Level 3		—			—		—			—
Balance, End of Period	$	1,785,527		$	61,364	$	42,555		$	1,889,446

	As of and for the Three Months Ended
	March 31, 2017
	First-lien debt investments			Second-lien debt investments		Equity and other investments		Total
Balance, beginning of period	$	1,454,087		$	3,350	$	12,465	$	1,469,902
Purchases or originations		163,626			—		—		163,626
Repayments / redemptions		(188,342	)		—		—		(188,342	)
Paid-in-kind interest		1,880			—		—		1,880
Net change in unrealized gains (losses)		(3,292	)		8		1,797		(1,487	)
Net realized losses		(74	)		—		—		(74	)
Net amortization of discount on securities		8,756			—		—		8,756
Transfers into (out of) Level 3		—			—		—		—
Balance, End of Period	$	1,436,641		$	3,358	$	14,262	$	1,454,261

The following tables present information with respect to the net change in unrealized appreciation or depreciation on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at March 31, 2018 and 2017:

	Net Change in Unrealized		Net Change in Unrealized
	Appreciation or (Depreciation)		Appreciation or (Depreciation)
	for the Three Months Ended		for the Three Months Ended
	March 31, 2018 on		March 31, 2017 on
	Investments Held at		Investments Held at
	March 31, 2018		March 31, 2017
First-lien debt investments	$	5,065	$	3,594
Second-lien debt investments		464		8
Equity and other investments		3,097		1,797
Total	$	8,626	$	5,399

The following tables present the fair value of Level 3 Investments at fair value and the significant unobservable inputs used in the valuations as of March 31, 2018 and December 31, 2017. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

March 31, 2018

Valuation

Unobservable

Range (Weighted

Impact to Valuation from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

1,785,527

Income approach ⁽¹⁾

Market yield

7.0% — 25.0% (10.5%)

Decrease

Second-lien debt investments

61,364

Income approach

Market yield

13.2% — 14.3% (13.3%)

Decrease

Equity and other investments

42,555

Market Multiple ⁽²⁾

Comparable multiple

4.6x — 13.2x (11.4x)

Increase

Total

1,889,446

(1)	Includes $34.8 million of first-lien debt investments which were valued using an enterprise valuation waterfall and $160.8 million of first-lien debt investments which, due to the proximity of the transactions relative to the measurement date, were valued using the cost of the investments.

(2)	Includes $20.1 million of equity investments which were valued using a weighted valuation approach and $2.5 million of equity investments which due to the proximity of the transactions relative to the measurement date were valued using the cost of the investments.

December 31, 2017

Valuation

Unobservable

Range (Weighted

Impact to Valuation from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

1,563,972

Income approach ⁽¹⁾

Market yield

7.3% — 14.6% (10.2%)

Decrease

Second-lien debt investments

60,900

Income approach

Market yield

12.9% — 14.0% (13.0%)

Decrease

Equity and other investments

38,322

Market Multiple ⁽²⁾

Comparable multiple

4.6x — 13.2x (11.2x)

Increase

Total

1,663,194

(1)	Includes $34.6 million of first-lien debt investments which were valued using an asset valuation waterfall.

(2)	Includes $18.6 million of equity investments which were valued using a weighted valuation approach.

The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company’s capital structure.

Significant unobservable quantitative inputs typically considered in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. If debt investments are credit impaired, an enterprise value analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. For the Company’s Level 3 equity investments, multiples of similar companies’ revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions are typically used.

Financial Instruments Not Carried at Fair Value

Debt

The fair value of the Company’s Revolving Credit Facility, which is categorized as Level 3 within the fair value hierarchy, as of March 31, 2018, approximates its carrying value as the outstanding balance is callable at carrying value. The fair value of the Company’s Convertible Senior Notes and 2023 Notes, which are categorized as Level 2 within the fair value hierarchy, as of March 31, 2018, was $386.6 million, based on broker quotes received by the Company.

Other Financial Assets and Liabilities

The carrying amounts of the Company’s assets and liabilities, other than investments at fair value and Convertible Senior Notes and 2023 Notes, approximate fair value due to their short maturities or their close proximity of the originations to the measurement date. Under the fair value hierarchy, cash and cash equivalents are classified as Level 1 while the Company’s other assets and liabilities, other than investments at fair value and Revolving Credit Facility, are classified as Level 2.

7. Debt

In accordance with the 1940 Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. As of March 31, 2018 and December 31, 2017, the Company’s asset coverage was 222.5% and 235.5%, respectively.

Debt obligations consisted of the following as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	Aggregate Principal Amount Committed		Outstanding Principal		Amount Available ⁽¹⁾		Carrying Value ⁽²⁾
Revolving Credit Facility	$	895,000	$	473,905	$	421,095	$	464,680
2019 Convertible Senior Notes		115,000		115,000		—		112,533
2022 Convertible Senior Notes		115,000		115,000		—		111,708
2023 Notes		150,000		150,000		—		146,993
Total Debt	$	1,275,000	$	853,905	$	421,095	$	835,914

(1)	The amount available reflects any limitations related to the respective debt facilities’ borrowing bases.

(2)	The carrying values of the Company’s Revolving Credit Facility, 2019 and 2022 Convertible Senior Notes, and 2023 Notes are presented net of deferred financing costs of $9.2 million, $1.3 million, $3.0 million and $3.0 million, respectively.

	December 31, 2017
	Aggregate Principal Amount Committed		Outstanding Principal		Amount Available ⁽¹⁾		Carrying Value ⁽²⁾
Revolving Credit Facility	$	975,000	$	486,808	$	488,192	$	479,724
2019 Convertible Senior Notes		115,000		115,000		—		112,182
2022 Convertible Senior Notes		115,000		115,000		—		111,522
Total Debt	$	1,205,000	$	716,808	$	488,192	$	703,428

(1)	The amount available reflects any limitations related to the respective debt facilities’ borrowing bases.

(2)	The carrying values of the Company’s Revolving Credit Facility and 2019 and 2022 Convertible Senior Notes are presented net of deferred financing costs of $7.1 million, $1.5 million and $3.2 million, respectively.

For the three months ended March 31, 2018 and 2017, the components of interest expense were as follows:

	Three Months Ended
	March 31, 2018			March 31, 2017
Interest expense	$	7,959		$	5,687
Commitment fees		455			414
Amortization of deferred financing costs		870			735
Accretion of original issue discount		177			163
Swap settlement ⁽¹⁾		(391	)		(134	)
Total Interest Expense	$	9,070		$	6,865
Average debt outstanding (in millions)	$	826.8		$	699.3
Weighted average interest rate		3.7	%		3.2	%
Average 1-month LIBOR rate		1.7	%		0.8	%

(1)	Includes the settlement of the interest rate swaps related to the Company’s 2019 and 2022 Convertible Senior Notes, and 2023 Notes.

Revolving Credit Facility

On August 23, 2012, the Company entered into a senior secured revolving credit agreement with SunTrust Bank, as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).

As of March 31, 2018, aggregate commitments under the facility were $895 million. The facility includes an uncommitted accordion feature that allows the Company, under certain circumstances, to increase the size of the facility to up to $1.25 billion.

The revolving period, during which period the Company, subject to certain conditions, may make borrowings under the facility, ends February 18, 2022 and the stated maturity date is February 17, 2023.

The Company may borrow amounts in U.S. dollars or certain other permitted currencies. As of March 31, 2018, the Company had outstanding debt denominated in Australian Dollars (AUD) of 46.0 million and Euro (EUR) of 58.2 million on its Revolving Credit Facility, included in the Outstanding Principal amount in the table above.

The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75 million. As of March 31, 2018 and December 31, 2017, the Company had no outstanding letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.

Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either LIBOR plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. The Company may elect either the LIBOR or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. The Company also pays a

fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.

The Revolving Credit Facility is guaranteed by TPG SL SPV, LLC, TC Lending, LLC and TSL MR, LLC and may be guaranteed by certain domestic subsidiaries in the future. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by the Company and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants requiring:

•

an asset coverage ratio of no less than 2 to 1 on the last day of any fiscal quarter;

•

a liquidity test under which the Company must not maintain cash and liquid investments of less than 10% of the covered debt amount for more than 30 consecutive business days under circumstances where the Company’s adjusted covered debt balance is greater than 90% of the Company’s adjusted borrowing base under the facility; and

•

stockholders’ equity of at least $500 million plus 25% of the net proceeds of the sale of equity interests after February 20, 2018.

Net proceeds received from the Company’s common stock issuance in March 2018 and net proceeds received from the issuance of the 2022 Convertible Senior Notes and 2023 Notes were used to pay down borrowings on the Revolving Credit Facility.

2019 Convertible Senior Notes

In June 2014, the Company issued in a private offering $115 million aggregate principal amount convertible senior notes due December 2019 (the “2019 Convertible Senior Notes”). The 2019 Convertible Senior Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2019 Convertible Senior Notes are unsecured, and bear interest at a rate of 4.50% per year, payable semiannually. The 2019 Convertible Senior Notes will mature on December 15, 2019. In certain circumstances, the 2019 Convertible Senior Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 38.7162 shares of common stock per $1,000 principal amount of 2019 Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $25.83 per share of the Company’s common stock, subject to customary anti-dilution adjustments. As of March 31, 2018, the estimated adjusted conversion price was approximately $25.35 per share of the Company’s common stock. The sale of the 2019 Convertible Senior Notes generated net proceeds of approximately $110.8 million. The Company used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. In connection with the offering of 2019 Convertible Senior Notes, the Company has entered into interest rate swaps to continue to align the interest rates of its liabilities with its investment portfolio, which consists of predominately floating rate loans. As a result of the swaps, the Company’s effective interest rate on the 2019 Convertible Senior Notes is three-month LIBOR plus 2.86%. See Note 5 for further information related to the Company’s interest rate swaps.

Holders may convert their 2019 Convertible Senior Notes at their option at any time prior to June 15, 2019 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the 2019 Convertible Senior Notes) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after June 15, 2019 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

2022 Convertible Senior Notes

In February 2017, the Company issued in a private offering $115 million aggregate principal amount convertible senior notes due August 2022 (the “2022 Convertible Senior Notes” and, together with the 2019 Convertible Senior Notes, the “Convertible Senior Notes”). The 2022 Convertible Senior Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2022 Convertible Senior Notes are unsecured, and bear interest at a rate of 4.50% per year, payable semiannually. The 2022 Convertible Senior Notes will mature on August 1, 2022. In certain circumstances, the 2022 Convertible Senior Notes will be convertible into cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s election, at an initial conversion rate of 46.8516 shares of common stock per $1,000 principal amount of 2022 Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $21.34 per

share of the Company’s common stock, subject to customary anti-dilution adjustments. As of March 31, 2018, the estimated adjusted conversion price was approximately $21.12 per share of the Company’s common stock. The sale of the 2022 Convertible Senior Notes generated net proceeds of approximately $111.2 million. The Company used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. In connection with the offering of 2022 Convertible Senior Notes, the Company has entered into an interest rate swap to continue to align the interest rates of its liabilities with its investment portfolio, which consists of predominately floating rate loans. As a result of the swap, the Company’s effective interest rate on the 2022 Convertible Senior Notes is three-month LIBOR plus 2.37%. See Note 5 for further information related to the Company’s interest rate swaps.

Holders may convert their 2022 Convertible Senior Notes at their option at any time prior to February 1, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the 2022 Convertible Senior Notes) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after February 1, 2022 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

The Convertible Senior Notes are the Company’s senior unsecured obligations and rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

For the three months ended March 31, 2018 and 2017, the components of interest expense related to the Convertible Senior Notes were as follows:

	Three Months Ended
	March 31, 2018		March 31, 2017
Interest expense	$	2,588	$	2,156
Accretion of original issue discount		176		163
Amortization of deferred financing costs		361		302
Total Interest Expense	$	3,125	$	2,621

Total interest expense in the table above does not include the effect of the interest rate swaps related to the Convertible Senior Notes. During the three months ended March 31, 2018 and 2017, the Company received $2.6 million and $1.3 million, respectively, and paid $2.4 million and $1.2 million, respectively, related to the settlements of its interest rate swaps related to the Convertible Senior Notes. These net amounts are reductions to interest expense in the Company’s consolidated statements of operations. Please see Note 5 for further information about the Company’s interest rate swaps.

As of March 31, 2018, the principal amount of the 2019 and 2022 Convertible Senior Notes exceeded the value of the underlying shares multiplied by the per share closing price of the Company’s common stock.

As of March 31, 2018 and December 31, 2017, the components of the carrying value of the 2019 and 2022 Convertible Senior Notes and the stated interest rate were as follows:

	March 31, 2018
	2019			2022
	Convertible Senior Notes			Convertible Senior Notes
Principal amount of debt	$	115,000		$	115,000
Original issue discount, net of accretion		(1,147	)		(287	)
Deferred financing costs		(1,320	)		(3,005	)
Carrying value of debt	$	112,533		$	111,708
Stated interest rate		4.50	%		4.50	%

	December 31, 2017
	2019			2022
	Convertible Senior Notes			Convertible Senior Notes
Principal amount of debt	$	115,000		$	115,000
Original issue discount, net of accretion		(1,308	)		(302	)
Deferred financing costs		(1,510	)		(3,176	)
Carrying value of debt	$	112,182		$	111,522
Stated interest rate		4.50	%		4.50	%

The stated interest rate in the table above does not include the effect of the interest rate swaps. The Company’s swap-adjusted interest rate on the 2019 and 2022 Convertible Senior Notes is three month LIBOR plus 2.86%, and three month LIBOR plus 2.37%, respectively. Please see Note 5 for further information about the Company’s interest rate swaps.

The indentures governing the 2019 and 2022 Convertible Senior Notes contain certain covenants, including covenants requiring the Company to comply with the requirement under the 1940 Act that the Company’s asset coverage ratio, as defined in the 1940 Act, equal at least 200% and to provide financial information to the holders of the 2019 and 2022 Convertible Senior Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the indentures governing the 2019 and 2022 Convertible Senior Notes. As of March 31, 2018, the Company was in compliance with the terms of the indentures governing the 2019 and 2022 Convertible Senior Notes.

The Convertible Senior Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20. Upon conversion of any of the Convertible Senior Notes, the Company intends to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, the Company has the option to pay in cash or shares of the Company’s common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the indentures governing the 2019 and 2022 Convertible Senior Notes. The Company has determined that the embedded conversion options in the 2019 and 2022 Convertible Senior Notes are not required to be separately accounted for as a derivative under U.S. GAAP. In accounting for the 2019 and 2022 Convertible Senior Notes, the Company estimated at the time of issuance separate debt and equity components of the 2019 and 2022 Convertible Senior Notes. An original issue discount equal to the equity components of the 2019 and 2022 Convertible Senior Notes was recorded in “additional paid-in capital” in the accompanying consolidated balance sheet. Additionally, the issuance costs associated with the 2019 and 2022 Convertible Senior Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as deferred financing costs and equity issuance costs, respectively.

2023 Notes

In January 2018, the Company issued $150.0 million aggregate principal amount of unsecured notes that mature on January 22, 2023 (the “2023 Notes”). The principal amount of the 2023 Notes is payable at maturity. The 2023 Notes bear interest at a rate of 4.50% per year, payable semi-annually commencing on July 22, 2018, and may be redeemed in whole or in part at the Company’s option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $146.9 million. The Company used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

In connection with the 2023 Notes offering, the Company entered into an interest rate swap to continue to align the interest rates of its liabilities with the Company’s investment portfolio, which consists of predominately floating rate loans. As a result of the swap, the Company’s effective interest rate on the 2023 Notes is three-month LIBOR plus 1.99%. Please see Note 5 for further information about the Company’s interest rate swaps.

For the three months ended March 31, 2018, the components of interest expense related to the 2023 Notes were as follows:

	Three Months Ended
	March 31, 2018
Interest expense	$	1,294
Accretion of original issue discount		2
Amortization of deferred financing costs		115
Total Interest Expense	$	1,411

As of March 31, 2018, the components of the carrying value of the 2023 Notes and the stated interest rate were as follows:

	2023 Notes
Principal amount of debt	$	150,000
Original issue discount, net of accretion		(45	)
Deferred financing costs		(2,962	)
Carrying value of debt	$	146,993
Stated interest rate		4.50	%

As of March 31, 2018 and December 31, 2017, the Company was in compliance with the terms of its debt obligations.

8. Commitments and Contingencies

Portfolio Company Commitments

From time to time, the Company may enter into commitments to fund investments; such commitments are incorporated into the Company’s assessment of its liquidity position. The Company’s senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. The Company’s senior secured term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured term loan commitments generally have a shorter availability period than the term of the associated loan agreement.

As of March 31, 2018 and December 31, 2017, the Company had the following commitments to fund investments in current portfolio companies:

	March 31, 2018		December 31, 2017
AppStar Financial, LLC - Revolver	$	2,000	$	2,000
Bazaarvoice, Inc. - Revolver		4,000	—
Frontline Technologies Group, LLC - Delayed Draw		9,377		9,377
Helix Health, Ltd. - Revolver		4,550		4,443
Illuminate Education, Inc. - Revolver		5,000		5,000
Industrial Physics, LLC - Revolver		4,250		5,000
IRGSE Holding Corp. - Revolver		473		335
Lithium Technologies, LLC - Revolver		3,659		3,659
Leaf US Holdings, Inc. - Revolver		2,000		2,000
Motus, LLC - Revolver		5,226	—
Government Brands, LLC - Revolver		5,000	—
Marketo, Inc. - Revolver	—			1,875
Northern Oil & Gas, Inc. - Delayed Draw		16,250		16,250
PageUp People Limited - Delayed Draw		3,835	—
PayLease, LLC - Revolver		3,333		3,333
PaySimple, Inc. - Revolver		2,500		5,000
Rex Energy Corporation - Delayed Draw		7,900		11,050
Riskonnect, Inc. - Revolver		5,000		5,000
ScentAir Technologies, Inc. - Revolver		750		750
Sovos Compliance, LLC - Delayed Draw		3,030		3,030
Sovos Compliance, LLC - Revolver		1,657		1,657
Total Portfolio Company Commitments	$	89,790	$	79,759

Other Commitments and Contingencies

As of March 31, 2018 and December 31, 2017, the Company did not have any unfunded commitments to fund investments to new borrowers that were not current portfolio companies as of March 31, 2018 and December 31, 2017.

From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of March 31, 2018 and December 31, 2017, management is not aware of any pending or threatened litigation.

9. Net Assets

In March 2018, the Company issued a total of 3,750,000 shares of common stock at $17.45 per share. Net of underwriting fees and offering costs, the Company received total cash proceeds of $63.0 million. Subsequent to the offering the Company issued an additional 522,224 shares in April 2018 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $8.8 million.

The Company has a dividend reinvestment plan, whereby the Company may buy shares of its common stock in the open market or issue new shares in order to satisfy dividend reinvestment requests. The number of shares to be issued to a stockholder is determined by dividing the total dollar amount of the cash dividend or distribution payable to a stockholder by the market price per share of the Company’s common stock at the close of regular trading on the NYSE on the payment date of a distribution, or if no sale is reported for such day, the average of the reported bid and ask prices. However, if the market price per share on the payment date of a cash dividend or distribution exceeds the most recently computed net asset value per share, the Company will issue shares at the greater of (i) the most recently computed net asset value per share or (ii) 95% of the current market price per share (or such lesser discount to the current market price per share that still exceeded the most recently computed net asset value per share). Shares purchased in open market transactions by the plan administrator will be allocated to a stockholder based on the average purchase price, excluding any brokerage charges or other charges, of all shares of common stock purchased in the open market.

Pursuant to the Company’s dividend reinvestment plan, the following tables summarize the shares issued to stockholders who have not opted out of the Company’s dividend reinvestment plan during the three months ended March 31, 2018 and 2017. All shares issued to stockholders in the tables below are newly issued shares.

	Three Months Ended
	March 31, 2018
			Date
Date Declared	Dividend ⁽¹⁾	Record Date	Shares Issued	Shares Issued
November 7, 2017	Base	December 15, 2017	January 12, 2018		153,295
February 21, 2018	Supplemental	February 28, 2018	March 30, 2018		16,455
Total Shares Issued					169,750

	Three Months Ended
	March 31, 2017
			Date
Date Declared	Dividend ⁽¹⁾	Record Date	Shares Issued	Shares Issued
November 7, 2016	Base	December 31, 2016	February 1, 2017		122,836
Total Shares Issued					122,836

(1)	See Note 11 for further information on base and supplemental dividends.

On November 3, 2014, the Company’s Board approved a stock repurchase plan (the “Company 10b5-1 Plan”) to acquire up to $50 million in the aggregate of the Company’s common stock at prices just below the Company’s net asset value per share over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act.

The Company 10b5-1 Plan is designed to allow the Company to repurchase its common stock at times when it otherwise might be prevented from doing so under insider trading laws. The Company 10b5-1 Plan requires Goldman Sachs & Co. LLC, as agent, to repurchase shares of common stock on the Company’s behalf when the market price per share is below the most recently reported net asset value per share (including any updates, corrections or adjustments publicly announced by the Company to any previously announced net asset value per share). Under the Company 10b5-1 Plan, the agent will increase the volume of purchases made as the price of the Company’s common stock declines, subject to volume restrictions. The timing and amount of any stock repurchases depend on the terms and conditions of the Company 10b5-1 Plan, the market price of the common stock and trading volumes, and no assurance can be given that any particular amount of common stock will be repurchased.

The purchase of shares pursuant to the Company 10b5-1 Plan is intended to satisfy the conditions of Rule 10b5-1 and Rule 10b-18 under the Exchange Act, and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances.

On February 21, 2018, the Board authorized the extension of the termination date of the Company 10b5-1 Plan to August 31, 2018. Unless extended or terminated by the Board, the Company 10b5-1 Plan will be in effect through the earlier of August 31, 2018 or such time as the current approved repurchase amount of up to $50 million has been fully utilized, subject to certain conditions.

During the three months ended March 31, 2018 and 2017, no shares were repurchased under the Company 10b5-1 Plan.

10. Earnings per share

The following table sets forth the computation of basic and diluted earnings per common share:

	Three Months Ended
	March 31, 2018		March 31, 2017
Increase in net assets resulting from operations	$	33,836	$	28,278
Weighted average shares of common stock outstanding—basic and diluted		60,840,459		59,796,731
Earnings per common share—basic and diluted	$	0.56	$	0.47

For the purpose of calculating diluted earnings per common share, the average closing price of the Company’s common stock for the three months ended March 31, 2018 was less than the conversion price for the 2019 and 2022 Convertible Senior Notes outstanding as of March 31, 2018. Therefore, for all periods presented in the consolidated financial statements, the underlying shares for the intrinsic value of the embedded options in the 2019 and 2022 Convertible Senior Notes have no impact on the computation of diluted earnings per common share.

11. Dividends

The Company has historically paid a dividend to stockholders on a quarterly basis. Following the completion of the quarter ended March 31, 2017, the Company introduced a dividend framework that provides for a quarterly base dividend and a variable supplemental dividend, subject to satisfaction of certain measurement tests and the approval of the Board.

The following tables summarize dividends declared during the three months ended March 31, 2018 and 2017:

	Three Months Ended
	March 31, 2018
Date Declared	Dividend	Record Date	Payment Date	Dividend per Share
February 21, 2018	Supplemental	February 28, 2018	March 30, 2018	$	0.03
February 21, 2018	Base	March 15, 2018	April 13, 2018		0.39
Total Dividends Declared				$	0.42

	Three Months Ended
	March 31, 2017
Date Declared	Dividend	Record Date	Payment Date	Dividend per Share
February 22, 2017	Base	April 7, 2017⁽¹⁾	April 28, 2017	$	0.39
Total Dividends Declared				$	0.39

(1)

Subsequent to the declaration date, the record date for the dividend declared on February 22, 2017 was moved from its original date of March 31, 2017 to a revised date of April 7, 2017 in order to ensure compliance with notification requirements promulgated by the NYSE. The dividend payable associated with this declaration was recognized in the Company’s consolidated balance sheet as of March 31, 2017. There was no change to the dividend amount or payment date.

The dividends declared during the three months ended March 31, 2018 and 2017 were derived from net investment income, determined on a tax basis.

12. Income Taxes

The tax character of shareholder distributions attributable to the three months ended March 31, 2018 and 2017 were as follows:

	Three Months Ended		Three Months Ended
	March 31, 2018		March 31, 2017
Ordinary Income ⁽¹⁾	$	25,368	$	23,337
Capital Gains		—		—
Total	$	25,368	$	23,337

(1)	For the three months ended March 31, 2018 and 2017, 90.3% and 88.5% of ordinary income qualified as interest related dividend which is exempt from U.S. withholding tax applicable to non U.S. shareholders.

The following reconciles increase in net assets resulting from operations for the three months ended March 31, 2018 and 2017 to taxable income at March 31, 2018 and 2017:

	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
Increase in net assets resulting from operations	$	33,836		$	28,278
Adjustments:
Net unrealized loss on investments		207			2,149
Other income for tax purposes, not book		330			2,638
Deferred organization costs		(25	)		(25	)
Other expenses not currently deductible		854			758
Other book-tax differences		(5,185	)		(332	)
Capital loss carryforward		(3,877	)	—
Taxable Income	$	26,140		$	33,466

Note: Taxable income as presented in the preceding table is an estimate and is not fully determined until the Company’s tax return is filed.

Taxable income generally differs from increase in net assets resulting from operations due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized gains or losses, as unrealized gains or losses are generally not included in taxable income until they are realized.

Depending on the level of taxable income earned in a tax year, the Company can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, the Company accrues excise tax on estimated excess taxable income.

The Company makes certain adjustments to the classification of stockholders’ equity as a result of permanent book-to-tax differences, which include differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes or losses among other items. To the extent these differences are permanent, they are charged or credited to additional paid in capital, undistributed net investment income or undistributed net realized gains on investments, as appropriate. In addition, due to the Company’s differing fiscal, tax, and excise tax year ends, the best estimates available are recorded to the above accounts in the period that such differences arise or are identifiable.

During the three months ended March 31, 2018, permanent differences were principally related to $3.7 million of recharacterization of prepayment penalties and fees for tax purposes between ordinary income and capital gains, $0.9 million attributable to accrued U.S. federal excise taxes, and $0.2 million attributable to foreign currency reclassifications. During the three months ended March 31, 2017, permanent differences were principally related to $8.0 million of recharacterization of prepayment penalties and fees for tax purposes between ordinary income and capital gains, $0.8 million attributable to accrued U.S. federal excise taxes, and $0.6 million attributable to foreign currency reclassifications.

The Company’s wholly-owned subsidiary, TSL MR, LLC, is a taxable subsidiary in which the Company holds certain equity investments. TSL MR, LLC is not consolidated for U.S. federal income tax purposes and may generate income tax expense as a result

of its ownership of certain portfolio companies. The income tax expense, or benefit, and the related tax assets and liabilities, if any, are reflected in our Statement of Operations. As a result of recently enacted tax reform legislation, the corporate tax rate of TSL MR, LLC is 21% as of January 1, 2018.

As of March 31, 2018, the Company had a deferred tax asset of $4.5 million pertaining to operating losses, related to one of its investments. Given the losses generated by the entity, the deferred tax asset has been offset by a valuation allowance of $4.5 million.

As of December 31, 2017, the Company had a deferred tax asset of $2.9 million pertaining to operating losses, related to one of its investments. Given the losses generated by the entity, the deferred tax asset has been offset by a valuation allowance of $2.9 million.

The tax cost of the Company’s investments as of March 31, 2018 and December 31, 2017 approximates their amortized cost.

13. Financial Highlights

The following per share data and ratios have been derived from information provided in the consolidated financial statements. The following are the financial highlights for one share of common stock outstanding during the three months ended March 31, 2018 and 2017.

	Three Months Ended			Three Months Ended
	March 31, 2018			March 31, 2017
Per Share Data ⁽⁷⁾
Net asset value, beginning of period	$	16.09		$	15.95

Net investment income ⁽¹⁾		0.51			0.48
Net realized and unrealized gain (loss) ⁽¹⁾		0.05			(0.01	)
Total from operations		0.56			0.47
Issuance of common stock, net of offering costs ⁽²⁾		0.05		—
Dividends declared from net investment income ⁽²⁾		(0.42	)		(0.39	)
Total increase (decrease) in net assets		0.19			0.08
Net Asset Value, End of Period	$	16.27		$	16.04
Per share market value at end of period	$	17.86		$	20.39
Total return based on market value ⁽³⁾		(7.68	)%		11.24	%
Total return based on net asset value ⁽⁴⁾		3.73	%		3.01	%
Shares Outstanding, End of Period		64,166,951			59,839,041
Ratios / Supplemental Data ⁽⁵⁾
Ratio of net expenses to average net assets ⁽⁶⁾		10.56	%		9.39	%
Ratio of net investment income to average net assets		12.39	%		11.39	%
Portfolio turnover		25.72	%		36.67	%
Net assets, end of period	$	1,043,967		$	959,641

(1)	The per share data was derived by using the weighted average shares outstanding during the period.

(2)	The per share data was derived by using the actual shares outstanding at the date of the relevant transactions.

(3)	Total return based on market value is calculated as the change in market value per share during the period plus declared dividends per share, divided by the beginning market value per share.

(4)	Total return based on net asset value is calculated as the change in net asset value per share during the period plus declared dividends per share, divided by the beginning net asset value per share.

(5)	The ratios reflect an annualized amount.

(6)

The ratio of net expenses to average net assets in the table above reflects the Adviser’s waivers of its right to receive a portion of the Management Fee and Incentive Fees with respect to the Company’s ownership of shares of common stock of Triangle Capital Corp. Excluding the effects of waivers, the ratio of net expenses to average net assets would have been 10.59% for the three months ended March 31, 2018. The Adviser did not waive any Management Fees or Incentive Fees for the three months ended March 31, 2017.

(7)	Table may not sum due to rounding.

14. Subsequent Events

The Company’s management has evaluated subsequent events through the date of issuance of the consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the three months ended March 31, 2018.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the “Cautionary Statement Regarding Forward Looking Statements” set forth on page 3 of this Quarterly Report on Form 10-Q.

Overview

TPG Specialty Lending, Inc. is a Delaware corporation formed on July 21, 2010. The Adviser is our external manager. We have three wholly owned subsidiaries, TC Lending, LLC, a Delaware limited liability company, which holds a California finance lender and broker license, TPG SL SPV, LLC, a Delaware limited liability company, in which we hold assets that were previously used to support our asset-backed credit facility, and TSL MR, LLC, a Delaware limited liability company, in which we hold certain investments.

We have elected to be regulated as a BDC under the 1940 Act and as a RIC under the Code. We made our BDC election on April 15, 2011. As a result, we are required to comply with various statutory and regulatory requirements, such as:

•

the requirement to invest at least 70% of our assets in “qualifying assets”

•

source of income limitations;

•

asset diversification requirements; and

•

the requirement to distribute (or be treated as distributing) in each taxable year at least 90% of our investment company taxable income and tax-exempt interest for that taxable year.

Our shares are currently listed on the NYSE under the symbol “TSLX.”

We have in place a stock repurchase plan, the Company 10b5-1 Plan, to acquire up to $50 million in the aggregate of our common stock at prices below our net asset value per share over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We put the Company 10b5-1 Plan in place because we believe that if our common stock is trading below our then-current net asset value, it is in the best interest of our stockholders for us to reinvest in our portfolio and increase our leverage ratio through share repurchases.

The Company 10b5-1 Plan is designed to allow us to repurchase our common stock at times when we otherwise might be prevented from doing so under insider trading laws. The Company 10b5-1 Plan requires Goldman Sachs & Co. LLC, as our agent, to repurchase shares of common stock on our behalf when the market price per share is below the most recently reported net asset value per share (including any updates, corrections or adjustments publicly announced by us to any previously announced net asset value per share). Under the Company 10b5-1 Plan, the agent will increase the volume of purchases made as the price of our common stock declines, subject to volume restrictions. The timing and amount of any stock repurchases will depend on the terms and conditions of the Company 10b5-1 Plan, the market price of our common stock and trading volumes, and no assurance can be given that any particular amount of common stock will be repurchased.

On August 4, 2015, our Board authorized us to enter into a new stock repurchase plan, the Company 10b5-1 Plan, to acquire up to $50 million in the aggregate of our common stock at prices just below our net asset value over an initial six month period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act, and has continued to authorize extensions of the plan termination date prior to its expiration since that time. On February 21, 2018, the Board authorized the extension of the termination date of the Company 10b5-1 Plan to August 31, 2018. Unless extended or terminated by the Board, the Company 10b5-1 Plan will be in effect through the earlier of August 31, 2018 or such time as the current approved repurchase amount of up to $50 million has been fully utilized, subject to certain conditions.

Our Investment Framework

We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities in July 2011, through March 31, 2018, we have originated more than $7.9 billion aggregate principal amount of investments and retained approximately $4.8 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily in U.S.-domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities.

By “middle-market companies,” we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of $10 million to $250 million, although we may invest in larger or smaller companies on occasion. As of March 31, 2018, our core portfolio companies, which excludes certain investments that fall outside of our typical borrower profile and represent 84.0% of our total investments based on fair value, had weighted average annual revenue of $124.4 million and weighted average annual EBITDA of $26.4 million.

We invest in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Our first-lien debt may include stand-alone first-lien loans; “last out” first-lien loans, which are loans that have a secondary priority behind super-senior “first out” first-lien loans; “unitranche” loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt.

The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3), which is often referred to as “junk.”

The companies in which we invest use our capital to support organic growth, acquisitions, market or product expansion and recapitalizations (including restructurings). As of March 31, 2018, the largest single investment based on fair value represented 6.2% of our total investment portfolio.

As of March 31, 2018, the average investment size in each of our portfolio companies was approximately $39.8 million based on fair value.

Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:

Business and sector selection. We focus on companies with enterprise value between $50 million and $1 billion. When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio.

We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our portfolio companies by end-market (such as healthcare, and business services) and not by the products or services (such as software) directed to those end-markets.

As of March 31, 2018, the largest industry represented 18.3% of our total investment portfolio based on fair value.

Investment Structuring. We focus on investing at the top of the capital structure and protecting that position. As of March 31, 2018, approximately 97.6% of our portfolio was invested in secured debt, including 94.4% in first-lien debt investments. We carefully perform diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to six years after origination. For the three months ended March 31, 2018, the weighted average term on new investment commitments in new portfolio companies was 5.7 years.

Deal Dynamics. We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships.

Risk Mitigation. We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future interest income. As of March 31, 2018, we had call protection on 93.0% of our debt investments based on fair value, with weighted average call prices of 105.4% for the first year, 102.9% for the second year and 101.2% for the third year, in each case from the date of the initial investment. As of March 31, 2018, 100.0% of our debt investments based on fair value bore interest at floating rates (when including investment specific hedges), with 94.1% of these subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.

Relationship with our Adviser, TSSP and TPG

Our Adviser is a Delaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with the SEC under the Advisers Act. Our Adviser sources and manages our portfolio through a

dedicated team of investment professionals predominately focused on us. Our Investment Team is led by our Chairman and Chief Executive Officer and our Adviser’s Co-Chief Investment Officer Joshua Easterly, and our Adviser’s Co-Chief Investment Officer Alan Waxman, both of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of our Adviser and TPG Sixth Street Partners, or TSSP.

TSSP, with approximately $21 billion of assets under management as of December 31, 2017, is TPG’s special situations and credit platform and encompasses TPG Specialty Lending, TPG Opportunities Partners and TSSP Adjacent Opportunities Partners, which invest in special situations and distressed investments across the credit cycle, TSL Europe, which is aimed at European middle-market loan originations, and TPG Institutional Credit Partners, which is a “public-side” credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets. TSSP has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 185 investment and operating professionals. As of March 31, 2018, thirty (30) of these personnel are dedicated to our business, including twenty four (24) investment professionals.

Our Adviser consults with TSSP and TPG in connection with a substantial number of our investments. The TSSP and TPG platforms provide us with a breadth of large and scalable investment resources. We believe we benefit from their market expertise, insights into sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. TSSP and TPG will refer all middle-market loan origination activities for companies domiciled in the United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us by TSSP and TPG.

On December 16, 2014, we were granted an exemptive order from the SEC that allows us to co-invest, subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our Adviser has independently determined is appropriate to invest, with affiliates of TSSP and TPG in middle-market loan origination activities for companies domiciled in the United States and certain “follow-on” investments in companies in which we have already co-invested pursuant to the order and remain invested.

We believe our ability to co-invest with TSSP and TPG affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We expect that with the ability to co-invest with TSSP and TPG affiliates we will continue to be able to provide “one-stop” financing to a potential portfolio company in these circumstances, which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors.

Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser’s services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the base management fee, or the Management Fee, and may also pay certain incentive fees, or the Incentive Fees.

Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with the SEC, and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement.

Key Components of Our Results of Operations

Investments

We focus primarily on the direct origination of loans to middle-market companies domiciled in the United States.

Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.

In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.

Revenues

We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on direct equity investments, capital gains on the sale of investments and various loan origination and other fees. Our debt investments typically have a term of two to six years, and, as of March 31, 2018, 100.0% of these investments based on fair value bore interest at a floating rate (when including investment specific hedges), with 94.1% of these subject to interest rate floors. Interest on debt investments is generally payable quarterly or semiannually. Some of our debt investments provide for deferred interest payments or PIK interest. For the three months ended March 31, 2018, 1.9% of our total investment income was comprised of PIK interest.

Changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding, rather than by changes in interest rates. Our investment portfolio primarily consists of floating rate loans, and our credit facilities, 2023 Notes and Convertible Senior Notes, after taking into account the effect of the interest rate swaps we have entered into in connection with the Convertible Senior Notes and 2023 Notes, all bear interest at floating rates. Macro trends in base interest rates like LIBOR may affect our net investment income over the long term. However, because we generally originate loans to a small number of portfolio companies each quarter, and those investments also vary in size, our results in any given period—including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period—often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business.

In addition to interest income, our net investment income is also driven by prepayment and other fees, which also can vary significantly from quarter to quarter. The level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums, but also will vary based on corporate events that may take place at an individual portfolio company in a given period—e.g., merger and acquisition activity, initial public offerings and restructurings. As noted above, generally a small but varied number of portfolio companies may make prepayments in any quarter, meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends.

Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. We record prepayment premiums on loans as interest income when earned. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees. The frequency or volume of these repayments may fluctuate significantly.

Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the consolidated statements of operations.

Expenses

Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:

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calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms);

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expenses, including travel expenses, incurred by the Adviser, or members of our Investment Team, or payable to third parties, in respect of due diligence on prospective portfolio companies and, if necessary, in respect of enforcing our rights with respect to investments in existing portfolio companies;

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the costs of any public offerings of our common stock and other securities, including registration and listing fees;

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the Management Fee and any Incentive Fee;

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certain costs and expenses relating to distributions paid on our shares;

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administration fees payable under our Administration Agreement;

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costs of preparing financial statements and maintaining books and records and filing reports or other documents with the SEC (or other regulatory bodies) and other reporting and compliance costs, and the compensation of professionals responsible for the preparation of the foregoing, including the allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on those related activities (based on the percentage of time those individuals devote, on an estimated basis, to our business and affairs);

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debt service and other costs of borrowings or other financing arrangements;

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the Adviser’s allocable share of costs incurred in providing significant managerial assistance to those portfolio companies that request it;

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amounts payable to third parties relating to, or associated with, making or holding investments;

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transfer agent and custodial fees;

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costs of hedging;

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commissions and other compensation payable to brokers or dealers;

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taxes;

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Independent Director fees and expenses;

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the costs of any reports, proxy statements or other notices to our stockholders (including printing and mailing costs), the costs of any stockholders’ meetings and the compensation of investor relations personnel responsible for the preparation of the foregoing and related matters;

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our fidelity bond;

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directors and officers/errors and omissions liability insurance, and any other insurance premiums;

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indemnification payments;

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direct costs and expenses of administration, including audit, accounting, consulting and legal costs; and

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all other expenses reasonably incurred by us in connection with making investments and administering our business.

We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.

Leverage

While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions, however, our total borrowings are limited so that our asset coverage ratio cannot fall below 200% immediately after any borrowing (or 150% if we satisfy the requirements to elect to be subject to such lower asset coverage requirement under the Small Business Credit Availability Act (the “SBCAA”)), as defined in the 1940 Act. In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets as collateral to financing facilities from time to time.

Market Trends

We believe trends in the middle-market lending environment, including the limited availability of capital, strong demand for debt capital and specialized lending requirements, are likely to continue to create favorable opportunities for us to invest at attractive risk-adjusted rates.

The limited number of dedicated providers of capital to middle-market companies, combined with increases in required capital levels for regulated financial institutions, reduces the capacity of traditional lenders to serve middle-market companies. We believe that the limited availability of capital creates a significant opportunity for us to directly originate investments. We also believe that the large amount of uninvested capital held by private equity firms will continue to drive deal activity, which may in turn create additional demand for debt capital.

The limited number of providers is further exacerbated by the specialized due diligence and underwriting capabilities, as well as extensive ongoing monitoring, required for middle-market lending. We believe middle-market lending is generally more labor-

intensive than lending to larger companies due to smaller investment sizes and the lack of publicly available information on these companies.

An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower’s distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders.

Portfolio and Investment Activity

As of March 31, 2018, our portfolio based on fair value consisted of 94.4% first-lien debt investments, 3.2% second-lien debt investments, and 2.4% equity and other investments. As of December 31, 2017, our portfolio based on fair value consisted of 93.4% first-lien debt investments, 3.6% second-lien debt investments, and 3.0% equity and other investments.

As of March 31, 2018 and December 31, 2017, our weighted average total yield of debt and income-producing securities at fair value (which includes interest income and amortization of fees and discounts) was 11.1% and 10.7%, respectively, and our weighted average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 11.2% and 10.8%, respectively.

As of March 31, 2018 and December 31, 2017, we had investments in 48 and 45 portfolio companies, respectively, with an aggregate fair value of $1,909.3 million and $1,693.7 million, respectively.

For the three months ended March 31, 2018, we made new investment commitments of $331.7 million in seven new portfolio companies. For this period, we had $106.0 million aggregate principal amount in exits and repayments.

For the three months ended March 31, 2017, we made new investment commitments of $149.2 million in five new portfolio companies. For this period, we had $213.5 million aggregate principal amount in exits and repayments.

Our investment activity for the three months ended March 31, 2018 and 2017 is presented below (information presented herein is at par value unless otherwise indicated).

	Three Months Ended
($ in millions)	March 31, 2018			March 31, 2017
New investment commitments:
Gross originations	$	564.6		$	285.9
Less: Syndications/sell downs		232.9			136.7
Total new investment commitments	$	331.7		$	149.2
Principal amount of investments funded:
First-lien	$	311.0		$	142.2
Second-lien		—			—
Mezzanine and unsecured	—			—
Equity and other		2.5			—
Total	$	313.5		$	142.2
Principal amount of investments sold or repaid:
First-lien	$	93.9		$	175.6
Second-lien		—			15.7
Mezzanine and unsecured		—			11.5
Equity and other		12.1			10.7
Total	$	106.0		$	213.5
Number of new investment commitments in new portfolio companies		7			5
Average new investment commitment amount in new portfolio companies	$	47.4		$	29.8
Weighted average term for new investment commitments in new portfolio companies (in years)		5.7			5.6
Percentage of new debt investment commitments at floating rates ⁽¹⁾		100.0	%		100.0	%
Percentage of new debt investment commitments at fixed rates	—			—
Weighted average interest rate of new investment commitments		10.0	%		9.4	%
Weighted average spread over LIBOR of new floating rate investment commitments		7.8	%		8.7	%
Weighted average interest rate on investments sold or paid down		11.4	%		9.3	%

(1)	Includes one fixed rate investment for the three months ended March 31, 2017 for which we entered into an interest rate swap agreement to swap to a floating rate.

As of March 31, 2018 and December 31, 2017, our investments consisted of the following:

	March 31, 2018				December 31, 2017
($ in millions)	Fair Value		Amortized Cost		Fair Value		Amortized Cost
First-lien debt investments	$	1,802.9	$	1,781.5	$	1,581.3	$	1,561.3
Second-lien debt investments		61.3		63.0		60.9		63.0
Equity and other investments		45.1		52.4		51.5		62.0
Total	$	1,909.3	$	1,896.9	$	1,693.7	$	1,686.3

The following tables show the fair value and amortized cost of our performing and non-accrual investments as of March 31, 2018 and December 31, 2017:

	March 31, 2018					December 31, 2017
($ in millions)	Fair Value		Percentage			Fair Value		Percentage
Performing	$	1,909.3		100.0	%	$	1,693.7		100.0	%
Non-accrual⁽¹⁾	—		—			—		—
Total	$	1,909.3		100.0	%	$	1,693.7		100.0	%

	March 31, 2018					December 31, 2017
($ in millions)	Amortized Cost		Percentage			Amortized Cost		Percentage
Performing	$	1,896.9		100.0	%	$	1,686.3		100.0	%
Non-accrual⁽¹⁾	—		—			—		—
Total	$	1,896.9		100.0	%	$	1,686.3		100.0	%

(1)

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when management has reasonable doubt that the borrower will pay principal or interest in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Non-accrual loans are restored to accrual status when past due principal and interest has been paid and, in management’s judgment, the borrower is likely to make principal and interest payments in the future. Management may determine to not place a loan on non-accrual status if, notwithstanding any failure to pay, the loan has sufficient collateral value and is in the process of collection.

The weighted average yields and interest rates of our performing debt investments at fair value as of March 31, 2018 and December 31, 2017 were as follows:

	March 31, 2018			December 31, 2017
Weighted average total yield of debt and income producing securities ⁽¹⁾		11.1	%		10.7	%
Weighted average interest rate of debt and income producing securities		10.6	%		10.2	%
Weighted average spread over LIBOR of all floating rate investments⁽²⁾		8.6	%		8.8	%

(1)	Weighted average total portfolio yield at fair value was 10.8% at March 31, 2018 and 10.5% at December 31, 2017.

(2)	Includes fixed rate investments for which we entered into interest rate swap agreements to swap to floating rates.

The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

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assessment of success of the portfolio company in adhering to its business plan and compliance with covenants;

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periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments;

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comparisons to other companies in the industry;

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attendance at, and participation in, board meetings; and

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review of monthly and quarterly financial statements and financial projections for portfolio companies.

As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:

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An investment is rated 1 if, in the opinion of the Adviser, it is performing as agreed and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements. For these investments, the Adviser generally prepares monthly reports on investment performance and intensive quarterly asset reviews.

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An investment is rated 2 if it is performing as agreed, but, in the opinion of the Adviser, there may be concerns about the company’s operating performance or trends in the industry. For these investments, in addition to monthly reports and quarterly asset reviews, the Adviser also researches any areas of concern with the objective of early intervention with the portfolio company.

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An investment will be assigned a rating of 3 if it is paying as agreed but a material covenant violation is expected. For these investments, in addition to monthly reports and quarterly asset reviews, the Adviser also adds the investment to its “watch list” and researches any areas of concern with the objective of early intervention with the portfolio company.

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An investment will be assigned a rating of 4 if a material covenant has been violated, but the company is making its scheduled payments. For these investments, the Adviser prepares a bi-monthly asset review email and generally has monthly meetings with senior management. For investments where there have been material defaults, including bankruptcy filings, failures to achieve financial performance requirements or failure to maintain liquidity or loan-to-value requirements, the Adviser often will take immediate action to protect its position. These remedies may include negotiating for additional collateral, modifying investment terms or structure, or payment of amendment and waiver fees.

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A rating of 5 indicates an investment is in default on its interest or principal payments. For these investments, our Adviser reviews the investments on a bi-monthly basis and, where possible, pursues workouts that achieve an early resolution to avoid further deterioration. The Adviser retains legal counsel and takes actions to preserve our rights, which may include working with the portfolio company to have the default cured, to have the investment restructured or to have the investment repaid through a consensual workout.

The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as of March 31, 2018 and December 31, 2017. Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company’s business or financial condition, market conditions or developments, and other factors.

		March 31, 2018					December 31, 2017
Investment		Investments at					Investments at
Performance		Fair Value		Percentage of			Fair Value		Percentage of
Rating		($ in millions)		Total Portfolio			($ in millions)		Total Portfolio
	1	$	1,662.7		87.1	%	$	1,382.7		81.6	%
	2		186.7		9.8			250.9		14.8
	3		59.9		3.1			60.1		3.6
	4		—		—			—		—
	5		—		—			—		—
Total		$	1,909.3		100.0	%	$	1,693.7		100.0	%

Results of Operations

Operating results for the three months ended March 31, 2018 and 2017 were as follows:

	Three Months Ended
($ in millions)	March 31, 2018			March 31, 2017
Total investment income	$	57.8		$	50.9
Less: Net expenses		25.7			21.7
Net investment income before income taxes		32.1			29.2
Less: Income taxes, including excise taxes		0.9			0.7
Net investment income		31.2			28.5
Net realized gains ⁽¹⁾		2.8			1.9
Net change in unrealized losses ⁽¹⁾		(0.2	)		(2.1	)
Net increase in net assets resulting from operations	$	33.8		$	28.3

(1)	Includes foreign exchange hedging activity.

Investment Income

	Three Months Ended
($ in millions)	March 31, 2018		March 31, 2017
Interest from investments	$	51.7	$	48.8
Dividend income		0.2		0.0
Other income		5.9		2.1
Total investment income	$	57.8	$	50.9

Interest from investments, which includes amortization of upfront fees and prepayment fees, increased from $48.8 million for the three months ended March 31, 2017 to $51.7 million for the three months ended March 31, 2018. The average size of our investment portfolio increased from $1.6 billion for the three months ended March 31, 2017 to $1.8 billion for the three months ended March 31, 2018. Accelerated amortization of upfront fees primarily from unscheduled paydowns decreased from $7.0 million for the three months ended March 31, 2017 to $1.4 million for the three months ended March 31, 2018. Prepayment fees increased from $1.1 million for the three months ended March 31, 2017 to $3.7 million for the three months ended March 31, 2018. The accelerated amortization primarily resulted from full paydowns on four portfolio investments, partial paydowns on five portfolio investments and earning prepayment fees on three portfolio investments during the three months ended March 31, 2017. The accelerated amortization and prepayment fees primarily resulted from full paydowns on three portfolio investments, a partial paydown on one portfolio company and earning prepayment fees on five portfolio investments during the three months ended March 31, 2018. Dividend income increased from less than $0.1 million for the three months ended March 31, 2017 to $0.2 million for the three months ended March 31, 2018 following the partial sale of our holdings in TICC during the three months ended March 31, 2017 and the ownership of our TCAP shares during the three months ended March 31, 2018. Other income increased from $2.1 million for the three months ended March 31, 2017 to $5.9 million for the three months ended March 31, 2018, primarily due to higher syndication and other fees during the first quarter of 2018 compared to the same period in 2017.

Expenses

Operating expenses for the three months ended March 31, 2018 and 2017 were as follows:

	Three Months Ended
($ in millions)	March 31, 2018		March 31, 2017
Interest	$	9.1	$	6.9
Management fees (net of waivers)		6.6		6.1
Incentive fees related to pre-incentive fee net investment income (net of waivers)		6.6		6.0
Incentive fees related to realized/unrealized capital gains	—		—
Professional fees		2.1		1.3
Directors fees		0.1		0.1
Other general and administrative		1.2		1.3
Net Expenses	$	25.7	$	21.7

Interest

Interest expense, including other debt financing expenses, increased from $6.9 million for three months ended March 31, 2017 to $9.1 million for three months ended March 31, 2018. This increase was primarily due an increase in LIBOR and a larger outstanding debt balance during the three months ended March 31, 2018. The average interest rate on our debt outstanding increased from 3.2% for three months ended March 31, 2017 to 3.7% for the three months ended March 31, 2018.

Management Fees

Management Fees (net of waivers) increased from $6.1 million for the three months ended March 31, 2017 to $6.6 million for the three months ended March 31, 2018 due to an increase in assets for the three months ended March 31, 2018 compared to the same period in 2017. Management Fees waived were less than $0.1 million for the three months ended March 31, 2018, consisting solely of Management Fees attributable to our ownership of shares of common stock in Triangle Capital Corp. (the “TCAP” Shares). The Adviser did not waive any Management Fees for the three months ended March 31, 2017.

Any waived Management Fees are not subject to recoupment by the Adviser.

Incentive Fees

Incentive Fees (net of waivers) related to pre-Incentive Fee net investment income increased from $6.0 million for three months ended March 31, 2017 to $6.6 million for the three months ended March 31, 2018. This increase resulted from an increase in investment income resulting from our larger investment portfolio for the three months ended March 31, 2018. For the three months ended March 31, 2018, Incentive Fees related to pre-Incentive Fee net investment income of less than $0.1 million were waived, consisting solely of Incentive Fees attributable to our ownership of the TCAP Shares. The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the three months ended March 31, 2017. There were no Incentive Fees related to capital gains and losses for each of the three months ended March 31, 2018 and 2017 due to unrealized losses on our investments.

Any waived Incentive Fees are not subject to recoupment by the Adviser.

Professional Fees and Other General and Administrative Expenses

Professional fees increased from $1.3 million for the three months ended March 31, 2017 to $2.1 million for the three months ended March 31, 2018 primarily due to the recognition of remaining expenses associated with the initial shelf registration statement that were previously recorded as a deferred financing cost. Other general and administrative fees decreased from $1.3 million for the three months ended March 31, 2017 to $1.2 million for the three months ended March 31, 2018.

Income Taxes, Including Excise Taxes

We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-level U.S. federal income taxes.

Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income.

For the three months ended March 31, 2018, we recorded a net expense of $0.9 million and $0.7 million, respectively, for U.S. federal excise tax.

Net Realized and Unrealized Gains and Losses

The following table summarizes our net realized and unrealized gains (losses) for the three months ended March 31, 2018 and 2017:

	Three Months Ended
($ in millions)	March 31, 2018			March 31, 2017
Net realized gains on investments	$	2.7		$	1.3
Net realized gains on foreign currency transactions		0.1			0.2
Net realized gains (losses) on foreign currency investments		0.0			(4.8	)
Net realized gains on foreign currency borrowings		0.0			5.2
Net realized gains	$	2.8		$	1.9

Change in unrealized gains on investments	$	15.8		$	22.9
Change in unrealized losses on investments		(10.8	)		(19.4	)
Net Change in Unrealized Gains (Losses) on Investments	$	5.0		$	3.5
Unrealized depreciation on foreign currency borrowings		(1.0	)		(5.8	)
Unrealized appreciation (depreciation) on foreign currency cash and forward contracts		(0.0	)		0.0
Unrealized appreciation (depreciation) on interest rate swaps		(4.2	)		0.2
Net Change in Unrealized Gains (Losses) on Foreign Currency Transactions and Interest Rate Swaps	$	(5.2	)	$	(5.6	)

Net Change in Unrealized Losses	$	(0.2	)	$	(2.1	)

For the three months ended March 31, 2018 and 2017 we had net realized gains on investments of $2.7 million and $1.3 million, respectively. For the three months ended March 31, 2018 and 2017, we had net realized gains of $0.1 million and $0.2 million, respectively, on foreign currency transactions, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three months ended March 31, 2018 and 2017, we had net realized gains of less than $0.1 million and net realized losses of $4.8 million, respectively, on foreign currency investments. For the three months ended March 31, 2018 and 2017, we had net realized gains of less than $0.1 million and $5.2 million, respectively, on foreign currency borrowings. The net realized gains on foreign currency borrowings and foreign currency investments for the three months ended March 31, 2018 were a result of a partial realization on one investment. The net realized gains on foreign currency borrowings and net realized losses on foreign currency investments for the three months ended March 31, 2017 were a result of exiting two investments.

For the three months ended March 31, 2018 we had $15.8 million in unrealized appreciation on 34 portfolio company investments, which was offset by $10.8 million in unrealized depreciation on 18 portfolio company investments. For the three months ended March 31, 2017 we had $22.9 million in unrealized appreciation on 38 portfolio company investments, which was offset by $19.4 million in unrealized depreciation on 19 portfolio company investments. Unrealized appreciation resulted from an increase in fair value, primarily due to a tightening spread environment and positive credit-related adjustments. Unrealized depreciation primarily resulted from the reversal of prior period unrealized appreciation and in some instances negative credit-related adjustments.

For the three months ended March 31, 2018 and 2017, we had unrealized depreciation on foreign currency borrowings of $1.0 million and $5.8 million, respectively, as a result of fluctuations in the EUR and AUD exchange rates for three months ended March 31, 2018 and EUR and GBP for three months ended March 31, 2017. For the three months ended March 31, 2018 and 2017, we had unrealized depreciation on foreign currency cash and forward contracts of less than $0.1 million and unrealized appreciation of less than $0.1 million, respectively. For the three months ended March 31, 2018 and 2017, we had unrealized depreciation on interest rate swaps of $4.2 million and unrealized appreciation of $0.2 million, respectively, on interest rate swaps due to fluctuations in interest rates and the periodic settlement of interest rate swaps.

Realized Gross Internal Rate of Return

Since we began investing in 2011 through March 31, 2018, weighted by capital invested, our exited investments have generated an average realized gross internal rate of return to us of 18.6% (based on total capital invested of $2.7 billion and total proceeds from these exited investments of $3.4 billion). Eighty eight percent of these exited investments resulted in a realized gross internal rate of return to us of 10% or greater.

Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur.

Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of Management Fees, expenses, Incentive Fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.

Average gross IRR is the average of the gross IRR for each of our exited investments (each calculated as described above), weighted by the total capital invested for each of those investments.

Average gross IRR on our exited investments reflects only invested and realized cash amounts as described above, and does not reflect any unrealized gains or losses in our portfolio.

Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited.

Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital invested also includes realized losses on hedging activity, with respect to an investment, which represents any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any.

Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, which represents any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any.

Hedging

Our current approach to hedging the foreign currency exposure in our non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under our Revolving Credit Facility to fund these investments. For the three months ended March 31, 2018 and 2017, we incurred $1.0 million and $5.8 million, respectively, of unrealized losses on the translation of our non-U.S. dollar denominated debt into U.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments into U.S. dollars for the three months ended March 31, 2018 and 2017. See Note 2 for additional disclosure regarding our accounting for foreign currency. See Note 7 for additional disclosure regarding the amounts of outstanding debt denominated in each foreign currency at March 31, 2018 and 2017. See our consolidated schedule of investments for additional disclosure regarding the foreign currency amounts (in both par and fair value) of our non-U.S. dollar denominated investments.

Financial Condition, Liquidity and Capital Resources

Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:

•

investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements;

•

the cost of operations (including paying our Adviser);

•

debt service, repayment, and other financing costs; and

•

cash dividends to the holders of our shares.

We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time enter into additional debt facilities, increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock if immediately after the borrowing or issuance the ratio of total assets

(less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 200%. As of March 31, 2018 and December 31, 2017, our asset coverage ratio was 222.5% and 235.5%, respectively. We carefully consider our unfunded commitments for the purpose of planning our capital resources and ongoing liquidity, including our financial leverage. Further, we maintain sufficient borrowing capacity within the 200% asset coverage limitation to cover any outstanding unfunded commitments we are required to fund.

Cash and cash equivalents as of March 31, 2018, taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As of March 31, 2018, we had approximately $421.1 million of availability on our Revolving Credit Facility, subject to asset coverage limitations.

As of March 31, 2018, we had $8.9 million in cash and cash equivalents, including $5.7 million of restricted cash, an increase of $2.2 million from December 31, 2017. During the three months ended March 31, 2018, we used $169.2 million in cash from operating activities, primarily as a result of funding portfolio investments of $319.2 million, which was offset by repayments and proceeds from investments of $115.8 million, an increase in net assets resulting from operations of $33.8 million and other operating activity of $0.4 million. Lastly, cash provided by financing activities was $171.4 million during the period, primarily due to borrowings of $539.0 million (including the issuance of $150.0 million principal amount of our 2023 Notes) and proceeds from issuance of common stock, net of offering and underwriting costs, of $63.0 million, which was partially offset by paydowns on our Revolving Credit Facility of $402.9 million (including $146.9 million net proceeds from our 2023 Senior Notes and $63.0 million net proceeds from our equity offering in March 2018), dividends paid of $22.1 million and deferred financing costs of $5.6 million.

As of March 31, 2018, we had $5.7 million of restricted cash pledged as collateral under our interest rate swap agreements, an increase of $2.5 million from December 31, 2017.

Equity

On March 21, 2018, we issued 3,750,000 shares of common stock at $17.45 per share. Net of underwriting fees and offering costs, we received total cash proceeds of $63.0 million. Subsequent to the offering we issued an additional 522,224 shares in April 2018 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of $8.8 million.

During the three months ended March 31, 2018 and 2017, we issued 169,750 and 122,836 shares of our common stock, respectively, to investors who have not opted out of our dividend reinvestment plan for proceeds of $3.2 million and $2.3 million, respectively. On April 13, 2018, we issued 198,296 shares of our common stock through our dividend reinvestment plan for proceeds of $3.3 million, which is not reflected in the number of shares issued for the three months ended March 31, 2018 in this section or the consolidated financial statements for the three months ended March 31, 2018.

On November 3, 2014, the Board approved the Company 10b5-1 Plan to acquire up to $50 million in the aggregate of our common stock at prices just below our net asset value over a specified period, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We put the Company 10b5-1 Plan in place because we believe that, in current market conditions, if our common stock is trading below our then-current net asset value, it is in the best interest of our stockholders for us to reinvest in our portfolio and increase our leverage ratio through share repurchases.

The Company 10b5-1 Plan expired in accordance with its terms on June 30, 2015. On August 4, 2015, the Board authorized us to enter into a new stock repurchase plan, on substantially the same terms as the prior stock repurchase plan, over an initial six month period, and has continued to authorize extensions of the plan termination date prior to its expiration since that time. On February 21, 2018 the Board authorized the extension of the termination date of the Company 10b5-1 Plan to August 31, 2018. Unless extended or terminated by the Board, the Company 10b5-1 Plan will be in effect through the earlier of August 31, 2018 or such time as the current approved repurchase amount of up to $50 million has been fully utilized, subject to certain conditions.

For the three months ended March 31, 2018 and 2017, no shares were repurchased under the Company 10b5-1 Plan.

Debt

Debt obligations consisted of the following as of March 31, 2018 and December 31, 2017:

	March 31, 2018
	Aggregate Principal		Outstanding		Amount		Carrying
($ in millions)	Amount Committed		Principal		Available ⁽¹⁾		Value ⁽²⁾
Revolving Credit Facility	$	895.0	$	473.9	$	421.1	$	464.7
2019 Convertible Senior Notes		115.0		115.0	—			112.5
2022 Convertible Senior Notes		115.0		115.0	—			111.7
2023 Notes		150.0		150.0	—			147.0
Total Debt	$	1,275.0	$	853.9	$	421.1	$	835.9

(1)	The amount available reflects any limitations related to the respective debt facilities’ borrowing bases.

(2)	The carrying values of the Revolving Credit Facility, 2019 and 2022 Convertible Senior Notes, and 2023 Notes are presented net of deferred financing costs of $9.2 million, $1.3 million, $3.0 million and $3.0 million, respectively.

	December 31, 2017
	Aggregate Principal		Outstanding		Amount		Carrying
($ in millions)	Amount Committed		Principal		Available ⁽¹⁾		Value ⁽²⁾
Revolving Credit Facility	$	975.0	$	486.8	$	488.2	$	479.7
2019 Convertible Senior Notes		115.0		115.0	—			112.2
2022 Convertible Senior Notes		115.0		115.0	—			111.5
Total Debt	$	1,205.0	$	716.8	$	488.2	$	703.4

(1)	The amount available reflects any limitations related to the respective debt facilities’ borrowing bases.

(2)	The carrying values of the Revolving Credit Facility and 2019 and 2022 Convertible Senior Notes are presented net of deferred financing costs of $7.1 million, $1.5 million and $3.2 million, respectively.

As of March 31, 2018 and December 31, 2017, we were in compliance with the terms of our debt arrangements. We intend to continue to utilize our credit facilities to fund investments and for other general corporate purposes.

Revolving Credit Facility

On August 23, 2012, we entered into a senior secured revolving credit agreement with SunTrust Bank, as administrative agent, and J.P. Morgan Chase Bank, N.A., as syndication agent, and certain other lenders (as amended and restated, the “Revolving Credit Facility”).

As of March 31, 2018, aggregate commitments under the facility were $895 million. The facility includes an uncommitted accordion feature that allows us, under certain circumstances, to increase the size of the facility to up to $1.25 billion.

The revolving period, during which period we, subject to certain conditions, may make borrowings under the facility, ends February 18, 2022 and the stated maturity date is February 17, 2023.

We may borrow amounts in U.S. dollars or certain other permitted currencies. As of March 31, 2018, we had outstanding debt denominated in Australian Dollars (AUD) of 46.0 million and Euro (EUR) of 58.2 million on our Revolving Credit Facility, included in the Outstanding Principal amount in the table above.

The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of $75 million. As of March 31, 2018 and December 31, 2017, we had no outstanding letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility.

Credit Facility plus certain other designated secured debt. We may elect either the LIBOR or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding.

The Revolving Credit Facility is guaranteed by TPG SL SPV, LLC, TC Lending, LLC and TSL MR, LLC and may be guaranteed by certain domestic subsidiaries in the future. The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.

The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants requiring:

•

an asset coverage ratio of no less than 2 to 1 on the last day of any fiscal quarter;

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a liquidity test under which we must not maintain cash and liquid investments of less than 10% of the covered debt amount for more than 30 consecutive business days under circumstances where our adjusted covered debt balance is greater than 90% of our adjusted borrowing base under the facility; and

•

stockholders’ equity of at least $500 million plus 25% of the net proceeds of the sale of equity interests after February 20, 2018.

Net proceeds received from our common stock issuance in March 2018 and net proceeds received from the issuance of the 2022 Convertible Senior Notes and 2023 Notes were used to pay down borrowings on the Revolving Credit Facility.

2019 Convertible Senior Notes

In June 2014, we issued in a private offering $115 million aggregate principal amount convertible senior notes due December 2019, (the “2019 Convertible Senior Notes”). The 2019 Convertible Senior Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2019 Convertible Senior Notes are unsecured and bear interest at a rate of 4.50% per year, payable semiannually. The 2019 Convertible Senior Notes will mature on December 15, 2019. In certain circumstances, the 2019 Convertible Senior Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 38.7162 shares of common stock per $1,000 principal amount of 2019 Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $25.83 per share of our common stock, subject to customary anti-dilution adjustments. As of March 31, 2018, the estimated adjusted conversion price was approximately $25.35 per share of common stock. The sale of the 2019 Convertible Senior Notes generated net proceeds of approximately $110.8 million. We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. In connection with the offering of 2019 Convertible Senior Notes, we have entered into interest rate swaps to continue to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. As a result of the swaps, our effective interest rate on the 2019 Convertible Senior Notes is three-month LIBOR plus 2.86%.

Holders may convert their 2019 Convertible Senior Notes at their option at any time prior to June 15, 2019 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2014 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the 2019 Convertible Senior Notes) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after June 15, 2019 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

2022 Convertible Senior Notes

In February 2017, we issued in a private offering $115 million aggregate principal amount convertible senior notes due August 2022 (the “2022 Convertible Senior Notes” and, together with the 2019 Convertible Senior Notes, the “Convertible Senior Notes”). The 2022 Convertible Senior Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2022 Convertible Senior Notes are unsecured, and bear interest at a rate of 4.50% per year, payable semiannually. The 2022 Convertible Senior Notes will mature on August 1, 2022. In certain circumstances, the 2022 Convertible Senior Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 46.8516 shares of common stock per $1,000 principal amount of 2022 Convertible Senior Notes, which is equivalent to an initial conversion price of approximately $21.34 per share of our common stock, subject to customary anti-dilution adjustments. As of March 31, 2018, the estimated adjusted conversion price was approximately $21.12 per share of common stock. The sale of the 2022 Convertible Senior Notes generated net proceeds of approximately $111.2 million. We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. In connection with the offering of 2022 Convertible Senior Notes, we have entered into an interest rate swap to continue to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. As a result of the swaps, our effective interest rate on the 2022 Convertible Senior Notes is three-month LIBOR plus 2.37%.

Holders may convert their 2022 Convertible Senior Notes at their option at any time prior to February 1, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “measurement period”) in which the trading price (as defined in the indenture governing the 2022 Convertible Senior Notes) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or after February 1, 2022 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances.

The Convertible Senior Notes are our senior unsecured obligations and rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the Convertible Senior Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.

As of March 31, 2018, the principal amount of the 2019 and 2022 Convertible Senior Notes exceeded the value of the underlying shares multiplied by the per share closing price of our common stock.

The indentures governing the 2019 and 2022 Convertible Senior Notes contain certain covenants, including covenants requiring us to comply with the requirement under the 1940 Act that our asset coverage ratio, as defined in the 1940 Act, equal at least 200% and to provide financial information to the holders of the 2019 and 2022 Convertible Senior Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the indentures governing the 2019 and 2022 Convertible Senior Notes. As of March 31, 2018, we were in compliance with the terms of the indentures governing the 2019 and 2022 Convertible Senior Notes.

The Convertible Senior Notes are accounted for in accordance with Accounting Standards Codification (“ASC”) 470-20. Upon conversion of any of the Convertible Senior Notes, we intend to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, we have the option to pay in cash or shares of our common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the indentures governing the 2019 and 2022 Convertible Senior Notes. We have determined that the embedded conversion options in the 2019 and 2022 Convertible Senior Notes are not required to be separately accounted for as a derivative under U.S. GAAP. In accounting for the 2019 and 2022 Convertible Senior Notes, we estimated at the time of issuance separate debt and equity components of the 2019 and 2022 Convertible Senior Notes. An original issue discount equal to the equity components of the 2019 and 2022 Convertible Senior Notes was recorded in “additional paid-in capital” in the accompanying consolidated balance sheet. Additionally, the issuance costs associated with the 2019 and 2022 Convertible Senior Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as deferred financing costs and equity issuance costs, respectively.

2023 Notes

In January 2018, we issued $150.0 million aggregate principal amount of unsecured notes that mature on January 22, 2023 (the “2023 Notes”). The principal amount of the 2023 Notes is payable at maturity. The 2023 Notes bear interest at a rate of 4.50% per year, payable semi-annually commencing on July 22, 2018, and may be redeemed in whole or in part at our option at any time at par plus a “make whole” premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were $146.9 million. We used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility.

In connection with the 2023 Notes offering, we entered into an interest rate swap to continue to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. As a result of the swap, our effective interest rate on the 2023 Notes is three-month LIBOR plus 1.99%.

Off-Balance Sheet Arrangements

Portfolio Company Commitments

From time to time, we may enter into commitments to fund investments. We incorporated these commitments into our assessment of our liquidity position. Our senior secured revolving loan commitments are generally available on a borrower’s demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured term loan commitments are generally available on a borrower’s demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured term loan commitments generally have a shorter availability period than the term of the associated loan agreement. As of March 31, 2018 and December 31, 2017, we had the following commitments to fund investments in current portfolio companies:

($ in millions)	March 31, 2018		December 31, 2017
AppStar Financial, LLC - Revolver	$	2.0	$	2.0
Bazaarvoice, Inc. - Revolver		4.0	—
Frontline Technologies Group, LLC - Delayed Draw		9.4		9.4
Helix Health, Ltd. - Revolver		4.6		4.4
Illuminate Education, Inc. - Revolver		5.0		5.0
Industrial Physics, LLC - Revolver		4.2		5.0
IRGSE Holding Corp. - Revolver		0.5		0.3
Lithium Technologies, LLC - Revolver		3.7		3.7
Leaf US Holdings, Inc. - Revolver		2.0		2.0
Motus, LLC - Revolver		5.2	—
Government Brands, LLC - Revolver		5.0	—
Marketo, Inc. - Revolver	—			1.9
Northern Oil & Gas, Inc. - Delayed Draw		16.2		16.2
PageUp People Limited - Delayed Draw		3.8	—
PayLease, LLC - Revolver		3.3		3.3
PaySimple, Inc. - Revolver		2.5		5.0
Rex Energy Corporation - Delayed Draw		7.9		11.1
Riskonnect, Inc. - Revolver		5.0		5.0
ScentAir Technologies, Inc. - Revolver		0.8		0.8
Sovos Compliance, LLC - Delayed Draw		3.0		3.0
Sovos Compliance, LLC - Revolver		1.7		1.7
Total Portfolio Company Commitments	$	89.8	$	79.8

Other Commitments and Contingencies

As of March 31, 2018 and December 31, 2017, we did not have any unfunded commitments to fund new investments to new borrowers that were not current portfolio companies.

We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee.

Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, the fees and expenses associated with performing compliance functions and our allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who spend time on those related activities (based on a percentage of time those individuals devote, on an estimated basis, to our business and affairs). Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance.

Contractual Obligations

A summary of our contractual payment obligations as of March 31, 2018 is as follows:

	Payments Due by Period
			Less than
($ in millions)	Total		1 year		1-3 years		3-5 years		After 5 years
Revolving Credit Facility	$	473.9	$	—	$	—	$	473.9	$	—
2019 Convertible Senior Notes		115.0		—		115.0		—		—
2022 Convertible Senior Notes		115.0		—		—		115.0		—
2023 Notes		150.0		—		—		150.0		—
Total Contractual Obligations	$	853.9	$	—	$	115.0	$	738.9	$	—

In addition to the contractual payment obligations in the tables above, we also have commitments to fund investments and to pledge assets as collateral under the terms of our derivatives agreements.

Distributions

We have elected and qualified to be treated for U.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:

•

investment company taxable income (which is generally our ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses), determined without regard to the deduction for dividends paid, for such taxable year; and

•

net tax-exempt interest income (which is the excess of our gross tax-exempt interest income over certain disallowed deductions) for such taxable year.

As a RIC, we (but not our stockholders) generally will not be subject to U.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders.

We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-level U.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay the U.S. federal excise tax described below.

Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of:

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98% of our net ordinary income excluding certain ordinary gains or losses for that calendar year;

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98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the twelve-month period ending on October 31 of that calendar year; and

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100% of any income or gains recognized, but not distributed, in preceding years.

While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4% U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement.

We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time.

To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains.

We have adopted an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not “opted out” of our dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions.

Related-Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

•

the Investment Advisory Agreement;

•

the Administration Agreement; and

•

a license agreement with an affiliate of TPG under which the affiliate granted us a non-exclusive license to use the TPG name and logo, for a nominal fee, for so long as the Adviser or one of its affiliates remains our investment adviser. Other than with respect to this limited license, we have no legal right to the “TPG” name or logo.

Critical Accounting Policies

The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 21, 2018, and elsewhere in our filings with the SEC.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including valuation risk, interest rate risk and currency risk.

Valuation Risk

We have invested, and plan to continue to invest, primarily in illiquid debt and equity securities of private companies. Most of our investments will not have a readily available market price, and we value these investments at fair value as determined in good faith by our Board in accordance with our valuation policy. There is no single standard for determining fair value. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material.

Interest Rate Risk

Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. We also fund portions of our investments with borrowings. Our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. Accordingly, we cannot assure you that a significant change in market interest rates will not have a material adverse effect on our net investment income.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

As of March 31, 2018, 100.0% of our debt investments based on fair value in our portfolio bore interest at floating rates (when including investment specific hedges), with 94.1% of these subject to interest rate floors. Our credit facilities also bear interest at floating rates and in connection with our 2019 Convertible Senior Notes, 2022 Convertible Senior Notes and 2023 Notes, which bear interest at a fixed rate; we entered into fixed-to-floating interest rate swaps in order to continue to align the interest rates of our liabilities with our investment portfolio.

Assuming that our consolidated balance sheet as of March 31, 2018 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (considering interest rate floors for floating rate instruments):

($ in millions)
Basis Point Change	Interest Income			Interest Expense			Net Income
Up 300 basis points	$	56.1		$	25.6		$	30.5
Up 200 basis points	$	37.4		$	17.1		$	20.3
Up 100 basis points	$	18.7		$	8.5		$	10.2
Down 25 basis points	$	(4.7	)	$	(2.0	)	$	(2.7	)

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.

We may in the future hedge against interest rate fluctuations by using hedging instruments such as additional interest rate swaps, futures, options and forward contracts. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of changes in interest rates with respect to our portfolio investments.

Currency Risk

From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at each balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates. We also have the ability to borrow in certain foreign currencies under our Revolving Credit Facility. Instead of entering into a foreign exchange forward contract in connection with loans or other investments we have made that are denominated in a foreign currency, we may borrow in that currency to establish a natural hedge against our loan or investment. To the extent the loan or investment is based on a floating rate other than a rate under which we can borrow under our Revolving Credit Facility, we may seek to utilize interest rate derivatives to hedge our exposure to changes in the associated rate.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act.

Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial reporting that occurred during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under loans to or other contracts with our portfolio companies. We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us.

Item 1A. Risk Factors.

In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and the risk factors set forth below, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

Legislation may allow us to incur additional leverage.

As a BDC, under the 1940 Act we generally are not permitted to incur borrowings, issue debt securities or issue preferred stock unless immediately after the borrowing or issuance the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock is at least 200%. However, under the SBCAA, which became law in March 2018, we have the ability to elect to become subject to a lower asset coverage requirement of 150%, subject to our receipt of the requisite board or stockholder approvals under the SBCAA and satisfaction of certain other conditions. Specifically, we may receive approval to increase our amount of available leverage under the 1940 Act either from stockholders holding a majority of the votes cast at a meeting at which a quorum is present, or from our board, including a majority of our board members who are not "interested persons" within the meaning of the 1940 Act. If we receive board approval to reduce our asset coverage requirement, though, we must wait one year from the date of such approval prior to its effectiveness. In both cases, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to leverage. We would be also required to amend the terms of our Revolving Credit Facility in order to incur leverage based on an asset coverage ratio of 150%. While we have not determined whether and to what extent we may do so, to the extent we seek to take advantage of the increased leverage potentially available to us under the SBCAA we may be able to increase our leverage up to an amount that reduces our asset coverage ratio from 200% to 150% and as a result you may face increased investment risk. In addition, since our Management Fee is calculated as a percentage of the value of our gross assets, which includes cash, cash equivalents and any borrowings for investment purposes, our Management Fee expenses could increase if we incur additional indebtedness and our gross assets increase.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

Not applicable.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

Not applicable.

Item 6. Exhibits.

(a)

Exhibits.


4.1		Indenture, dated as of January 22, 2018, between TPG Specialty Lending, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed on January 22, 2018)

4.2		First Supplemental Indenture, dated as of January 22, 2018, between TPG Specialty Lending, Inc. and Wells Fargo Bank, National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed on January 22, 2018)

4.3		Form of 4.500% Note Due 2023 (incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed on January 22, 2018)

10.1		Sixth Amendment to Second Amended and Restated Senior Secured Revolving Credit Agreement, dated February 20, 2018, among TPG Specialty Lending, Inc., as Borrower, the Lenders party thereto and SunTrust Bank, as Administrative Agent (incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K filed on February 21, 2018)

31.1		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	TPG SPECIALTY LENDING, INC.

Date: May 3, 2018	By:	/s/ Joshua Easterly
		Joshua Easterly
		Chief Executive Officer

Date: May 3, 2018	By:	/s/ Ian Simmonds
		Ian Simmonds
		Chief Financial Officer