Good day and welcome to the Blackstone Secured Lending First Quarter 2026 Investor Call. Today's call is being recorded. At this time, all participants are in a listen-only mode. If you require operator assistance, please press star zero. If you would like to ask a question, please signal by pressing star one. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. At this time, I'd like to turn the conference over to Stacey Wong, Head of Stakeholder Relations. Please go ahead.

Thank you, Katie. Good morning and welcome to Blackstone Secure Lending Fund's first quarter results conference call. Joining me today are Brad Marshall, Co-Chief Executive Officer, and Teddy Laloge, Chief Financial Officer, along with other members of the management team available for Q&A, including Jonathan Box, Co-Chief Executive Officer, and Carlos Whitaker, President. Earlier today, we issued a press release with a presentation of our results and filed our 10Q, both of which are available in the Shareholder Resources section of our website, www.bxsl.com. We will be referring to that presentation throughout the day's calls. I'll let you remind you that this call may include forward-looking statements which are uncertain and outside of the firm's control, and may differ materially from actual results. We do not undertake any duty to update these statements. For some of the risks that could affect results, please see the risk factor session of our Form 10-Q filed earlier today. This audio cast is copyright material of Blackstone and may not be duplicated without consent. With that, I'll turn the call over to Brad Marshall.

Thank you, and good morning. Before turning to the quarter's results, I want to take a step back and address the broader market environment. The first quarter unfolded against an uncertain backdrop across asset class. With the S&P 500, investment grade, high yield, and broadly syndicated loan markets all posting negative returns amidst geopolitical development, concerns around AI's impact on software businesses, and overall wider spreads. Simply looking at the leveraged loan index, spreads widened roughly 50 basis points, and returns were down 55 basis points during the quarter. Investor sentiment was clearly negative during the quarter, and despite private credit generally outperforming the broadly syndicated loan and public equity markets, capital flows into several non-traded BDCs declined, and public BDCs traded down meaningfully. Amidst the volatility and broader market pressure, the private credit markets continue to be well capitalized and in high demand by private and public companies. Through Q1, over 80% of borrowers chose private lenders for LBO financing. The direct-to-borrow model is often a better solution to our corporate partners, all while seeking to provide investors with risk mitigation through senior positioning, covenant protections, and contractual income-generated returns. We believe these attributes have contributed positive returns in direct lending for Blackstone Credit and Insurance, or BXCI, since starting nearly 20 years ago. In fact, over the past 20 years, over $160 billion has been invested in BXCI's North American Direct Lending Strategy, with less than 10 basis points of realized annual losses as described in materials. More broadly, while we expect continued normalization of default activity across public and private sub-investment grade markets from historically low levels, the private credit model is built for that environment. In our view, performance in our portfolio will continue to be underpinned by high embedded current income, disciplined asset marks, and highly negotiated structural protections, and we expect that long-term outperformance to continue relative to liquid markets. For BXSL specifically, first and foremost, we have nearly 98 percent first lien exposure with substantial cushion of nearly 50 percent junior capital or equity below our capital structures on average. Second, our credit agreements are heavily reviewed with key provisions we negotiate during periods of underperformance and include strong collateral protections. Third, nearly 80 percent of BXCI's historical exposure is with either a sole or lead lender role, typically providing a position of influence. We are positioned in capital structures to enforce our rights, and we believe we have unmatched resources, experience, and infrastructure as part of Blackstone to help drive positive outcomes. Furthermore, in BXSL, as we enter our eighth year we have had a total of eight restructurings that incurred realized losses two of which have now been fully realized in those two deals inclusive interest received we achieved a realized multiple on invested capital of 0.98 times reflecting nearly a full recovery of our loan basis turning to performance this quarter we generated net investment cup income, or NI, of 77 cents per share, fully covering our dividend, and our total net return was over 70 basis points for the quarter, despite a volatile market backdrop. We deployed $325 million of new capital, and we saw nearly $450 million of repayments, consistent with our messaging that repayment volumes remain healthy. As we sit here today, we see visibility to over 600 million of repayments in the next three to four months, which we expect to use for a combination of new investments and share buybacks. NAV per share as of Q1 was $26.26, down approximately 2.5% quarter over quarter, reflecting changes to both public and private loan market spreads and company fundamentals. While these marks reduced NAV in the quarter, we believe they are an important part of the private credit model that reflect current information and market conditions, and every line item is publicly reported versus investment costs and par value. Non-accurals for the quarter were 3.1% at fair value and 4.7% at cost. We added three new positions to non-accurals, including Medallia, now marked at 60.3, Affordable Care, now marked at 69.8 and paramount global services now marked at 65 up to 316 portfolio companies in dxsl these three names make up over 88 of our non-accrual based on fair market value before detailing these portfolio developments it is worth highlighting that we believe the overall portfolio remains resilient if you look at averages across our book stable high single digit EBITDA growth over the last 12 months, consistent portfolio company EBITDA margins 28%, interest coverage at two times, which is a 17% increase over the last two years, and an average mark of 96.2, which is generally in line with the broadly syndicated loan market. Moreover, the bottom 10% of the portfolio is a mark at 73, with valuations reflecting underperformance on a handful of names. Certain borrowers may continue to see challenges and require sponsored capital or capital structure improvements. We believe we are very well positioned to drive this process as senior secured lenders. On the names we added to non-accrual this quarter, the largest is Medallia, which represents a 1.7% of BXSL's fair market value. While the company paid its full quarterly interest in cash in March, we have begun working towards the restructuring. As part of this restructuring, we, together with the other lenders, plan to invest new capital into the business and meaningfully de-lever the balance sheet. This will allow the company to, one, better serve its customers, and two, invest in new products and AI features. As we mentioned previously, Medallia is highly profitable today, and we expect it will greatly benefit from a delevered capital structure, which we expect to finalize over the next few months. Affordable care, representing 0.73% of BXSL's fair market value, operates in the dental service space, where demand trends have weakened, and the business carries a relatively elevated cost structure. Importantly, we are first-lane lenders in a capital structure with multiple layers of junior capital below our exposure and strong lender documentation. We plan to enforce our rights as senior lenders, and we are actively engaged with sponsor, management team, junior capital providers, and lender base to improve the capital structure. Finally, Paramount Global Services, which represents 0.26% of fair market value and remains current on its coupon payments was also added to non-accurl. The business is a building products distributor within the trading companies and distribution industry and has seen softening demand consistent with the broader industry which has impacted performance. In our view, the sponsor has been supportive to date and believes the challenge is to be more cyclical in nature. The consistent theme across these three names is that we sit at the top of the capital structure where we have both strong documentation and lender protections. We use these to help improve the outcomes for our investors and the companies. On the New Deal front, our largest new commitment was to firm its technologies during the quarter and the emerging GPU cloud service provider. Blackstone led a $10 billion GPU-backed debt financing to support the company's cloud build-out, serving large investment-grade counterparties, including major hyperscalers and enterprise cloud customers. The loan has senior secured denominated in U.S. dollars, with lenders having a first lien on GPUs. To date, Blackstone has led or anchored nearly $25 billion of GPU financings and is the largest owner of data centers globally. We leverage the insights gained from our experience investing across the digital infrastructure ecosystem to identify investments that benefit from the continued tailwinds we see from the build-out and demand for AI infrastructure. In this case, proprietary origination and structuring complexity help create attractive relative value for our investors. At BXEI, we continue to see attractive opportunities within the digital infrastructure, life science, and infrastructure services area of the market. Three higher conviction themes with secular tailwinds where we can leverage Blackstone's specialized expertise. We said last quarter that repayments would create additional balance sheet capacity if they materialized. We emphasize this because repayments give us room to be patient, stay disciplined, and make capital allocation decisions between paying down debt, investing in new deals as spreads may widen, and potentially buying back shares. Natural turnover can pull assets back to par upon realization. In other words, when a credit is marked below par due to market volatility or temporary performance pressure, but the underlying business retains meaningful equity value, repayments at par converts that discount into a positive realization for shareholders. A few recent instances, SelectQuote was previously marked as low as 88.4 and Colony Hardware at 91.75. Both were repaid at par during Q1. Alliance Grounds Loan was marked at 96.75 previously and was taken out at par, while our equity position returned two times invested capital. And lastly, and probably most notably, AVEX Aerospace, which went public in April last month. The business underperformed early in our BXSL investment. we held the position at a low mark of 82.5, and yet we were taken out at par in Q2 following a very successful IPO. These four examples represent over $300 million of total repayments at par since Q4, despite a previous combined average mark in the 80s. These are also examples of what we have stated in the past quarters. We believe realized performance is what ultimately matters and a more active deal market leading to more repayments can be a helpful longer-term return driver. This is also why we view interim marks and embedded income together. Current income can provide a significant return cushion, while repayment activity can convert below-power marks into power realizations. Finally, on software and AI, we continue to see public market bifurcation between business models that are more resilient and more insulated versus those at greater risk of potential disruption. For public loans and the leveraged loan index, companies growing earnings greater than 10% in more protected end markets have seen modest spread widening and are trading on average north of 95. In public equities, companies with a similar profile trade at a median of nearly 14 times EBTA. The XSL software portfolio has continued to perform well, with low double-digit percent LTM EBITDA growth and a large portion of our exposure in historically resilient sub-verticals such as data management, ERP, and security. Across approximately 70 software companies in the portfolio, weighted average LTM EBITDA is over $280 million and weighted average revenue exceeds $750 million. On average, these companies also maintain interest coverage of two times. As the sole or lead lender for the majority of transactions, BXEI can be more proactive and influence change versus acting as a passive investor. In many cases, BXEI's AI team has been working directly with some of these companies. We believe Blackstone has a differentiated perspective on AI. Across the firm, we have deep technology verticals that support and inform investment activity, including hundreds of technologists helping Blackstone's expansive portfolio on software procurement, technology implementations, and AI adoption. We also benefit from senior AI experts and technology leaders across the platform. Additionally, Rodney Zemmel, former global leader of McKinsey Digital, is helping us advance AI-enabled underwriting, risk analytics, and portfolio activities to support the exercise investment process. At large, the firm is in constant dialogue with AI market leaders across the digital infrastructure ecosystem. You may have seen the announcement this week that Blackstone is helping create a new AI service firm with Anthropic to bridge the gap between the technology and actual business applications. Once built, we expect that BXSL portfolio companies could engage the new firm and benefit from these services. So stepping back, our message this quarter is that while defaults may continue to normalize off historically low levels in the sub-investment-grade market, this activity is not new and is built into the long-term return model across diversified portfolios of senior secured assets. The important point is that performance is underpinned by high embedded interest income, discipline marks that create cushion for future outcomes, and the structural protections we negotiate as first lien lenders. Said differently, this is a model designed to produce a range of positive performance over time, even as individual credit experience is volatility. We believe the market is functioning, our portfolio remains broadly healthy. our underwriting and senior positioning matter and our active asset management is designed to drive positive performance for companies see turbulence at blackstone is the world's largest alternative asset manager we have the scale operating resources and experience through cycles to lean into situations that require operational support that matters because even when defaults occur, we believe there is no better platform than Blackstone to manage them. The XSL has delivered a nearly 11% inception-to-date return, which represents 550 basis points of excess return to the broadly syndicated loans. We've done this through a simple formula that remains in place today, and that has continued to support outperformance. Senior positioning in BXCI-originated assets in defensive areas of the market, high current income, low expense ratios, strong structural protections, discipline marks, and active asset management. Taken together, these elements give us confidence in BXCI's ability to outperform for shareholders across cycles. With that, I'll turn it over to Teddy.

Thanks, Brad. First, on performance, BXSL's net investment income for the quarter was $179 million, or 77 cents per share, representing 100% coverage for a dividend on a per share basis. Payment in kind income represents less than 7% of total income, which is down 21% on a quarter-over-quarter basis from over 8% of total investment income. Interest income excluding payment in kind, fees, and dividends represented over 92% of total investment income in the quarter. Looking back, BXSL has out-earned its dividend every quarter since inception. More recently, since the beginning of 2023, BXSL's annualized earnings exceeded its distribution yield by approximately 160 basis points on a weighted average basis. Over this period, undistributed earnings were retained in net asset value, which represents approximately $1.80 per share as of the first quarter, or over $410 million. This capital has been reinvested into new deals, which has been accreted to NII by approximately 7 cents per share after accounting for annual excise tax on undistributed amounts. We outlined last quarter that should BXSL stock traded a discount to net asset value, we would consider returning a portion of undistributed earnings to investors. We are doing so by reaffirming BXSL's quarterly dividend of $0.77 per share, which we anticipate will be covered by a combination of both current and previous undistributed earnings. This provides a temporary bridge as we realigned our dividends with a longer-term earnings profile as rates have reset on our predominantly floating rate portfolio. As always, we will continue to evaluate the dividends with our board every quarter. It is worth noting, we manage BXSL with a long-term orientation. That means remaining patient through periods of market volatility, continuing to focus on income generation and positive realizations, and making capital allocation decisions based on long-term shareholder value rather than short-term sentiment. Moving to the balance sheet, we ended the quarter with $13.9 billion of total portfolio investments at fair value, $8.1 billion of outstanding debt, and $6.1 billion of total net assets. Net asset value per share at quarter end was $26.26, down from $26.92 in the fourth quarter, or 2.5%, which was impacted primarily by $0.67 of unrealized losses in the portfolio, partially offset by one cent of net realized gains. The portfolio was marked at 96.2 as of the first quarter, down from 97.3 last quarter, reflecting a combination of broader spread widening across the public and private credit markets and company-specific fundamentals. Importantly, we have delivered net cumulative realized gains overall on investments since inception. As Brad highlighted, we saw healthy fundamentals on average across our portfolio companies demonstrated by consistent high single-digit percent EBITDA growth and increasing interest coverage ratios of two turns, which are up 5% from a year ago and 17% in the last two Earlier, Brad mentioned some of the advantages of senior private lending, and documentation is an important part of that defensive positioning. When we lead a transaction, we are able to negotiate directly with our borrowers and sponsors, and we place significant emphasis on lender protections from the outset. We conducted a bottoms-up review of Blackstone credit agreements across key covenant protections relative to broadly syndicated loans. In BXCI-led transactions, nearly 100% included enhanced protections against asset stripping and collateral release, as well as caps on EBITDA ad backs. Only 40% of broadly syndicated loan documents contain similar protective provisions. We believe that discipline is critical and will support recoveries in the private market through cycles. And this reinforces the value of directly negotiated documents, which can lead to benefits for senior secured private credit portfolios. Further, we did not see an increase in material amendments or performance-driven PIC amendments in the first quarter. In fact, both PIC income and amendment activity dropped this quarter. We had 30 amendments in the quarter across our portfolio, down 25% over Q4, with over 95% related to amendments associated with add-ons, DDTL extensions, and immaterial technical matters. Turning to activity, as Brad mentioned, BXSL funded over $325 million at a weighted average spread of nearly 530 basis points above the reference rate. Net funded investment activity was negative $126 million after nearly $450 million of repayments. This represented an annualized repayment rate of 13% of the portfolio at fair value compared to 15% for the prior quarter and 28% for the same quarter in the prior year. As a reminder, BXSL's Board of Directors approved a discretionary share repurchase plan last quarter under which BXSL may repurchase up to $250 million in the aggregate of its outstanding common shares in the open market at prices below its net asset value per share. As we see repayment activity creating additional capacity through year-end, we expect to evaluate share repurchases so long as trading levels persist at similar discounts to NAV as seen in the first and second quarter thus far. That said, capital allocation for share repurchases will be weighed against both new deployment opportunities and repayment volume as we manage to our stated long-term leverage range of one to one and a quarter terms. Our liability profile remains diverse across multiple financing markets, including $10.2 billion of committed debt capacity and $8.1 billion of funded debt as of the end of the first quarter. We have relationships across diverse lending counterparties and a balanced mix of unsecured and secured funding with approximately 56% of funded debt unsecured and 44% secured. This diversity of funding sources combined with our scale and long-standing lender relationships supports financial flexibility and the cost of capital that remains attractive relative to our traded BDC peers. We remained active in the quarter on liabilities while reducing our cost of capital. We have $1.7 billion drawn on our asset-based facilities with multiple banks, of which had a weighted average drawn spread of SOFR plus 184, down eight basis points since Q1 2025. We successfully closed an upside for the BXSL revolver, increasing the facility by $100 million to a total size of $2.5 billion. BXSL to date continues to have the most competitively priced revolvers across our traded BDC peers. In addition, we have over $450 million of CLO debt outstanding at a weighted average coupon of SOFR plus 154 and $4.5 billion of unsecured bonds outstanding as of March 31st, $2 billion of which is not swapped and has a weighted average coupon of 2.58%. This includes a $400 million three-and-a-half-year bond we issued in February priced 200 basis points above the benchmark treasury rate or 5.25% coupon. Taking all of this together, our all-in cost of debt for the first quarter was 4.9%, down from 5.09% in the first quarter of 2025. Total liquidity at the end of the first quarter was $2.3 billion, including unrestricted cash and undrawn debt available to borrow, while ending leverage as of March 31st was 1.27 on a net of cash basis and 1.32 turns on a gross basis. We expect repayment volumes to continue, and with that, we can manage to the high end of our range of one to one and a quarter turns. With that, I'll ask the operator to open it up for questions. Thank you.

Thank you. As a reminder, please press star one to ask a question. We ask you to limit yourself to one question and one follow-up question to allow as many callers to join the queue as possible. We will take our first question from Rick Shane with J.P. Morgan.

Hey, guys. Thanks for taking my question. Look, the framework that we've been asking most of the BDCs this quarter is really trying to understand where you think we are in the continuum, both in terms of return profile and also where we are in terms of deal structure. I am curious, particularly on the ROE side, sort of if you can frame what you think the opportunity is now and put it in the context of what you think we've seen historically. Realizing, of course, you guys are asset sensitive, So, if you want to think about it as a ROE, as a SOFR plus, that's a great way to do it.

This is Brad. So, we mentioned some of this on the call, but we have seen spreads move a little bit wider, and we've seen the cost of our leverage decline. So, that's, you know, a net positive. The other positive is that as we see continued turnover, then you should expect some of those assets, four of which we talked about on the call, that were marked below par, start to gravitate to their repayment price of par or better. So those are the two kind of positive kind of drivers of return. And that's offset by, you know, mark-to-market volatility in our assets, driven by what we're seeing in the market backdrop and if there is interim underperforming performance on assets. What we try to do on our calls is identify on that last bucket the bottom 10% of our portfolio, which we've marked it at 73 cents on the dollar. And as they perform in future quarters, will either take those marks up or down or sponsors may contribute more capital but that's where you'll see kind of most of the volatility from a mark-to-market standpoint. The good news there is historically recovery rates have been higher than that and even if they're lower than that, and all of those assets default, the downside from a realized NAV standpoint is actually pretty limited. If you assume 50% recovery rate on those bottom 10% of your assets, that means we have 2.3% asset movement from here. So I think to frame your answer without perfectly answering it, you have very high income across our vehicle and other BDCs that helps offset any potential losses in an asset class that historically has had moderate default rates and very strong recovery rates. BXSL is uniquely positioned because we're 98% senior secured. So when we do see non-accruals, three of which we talked about on this call, we're in control. We can reset the capital structure, work to improve the business, and capture the upside to the extent we're successful. And we talked about the long history we've had doing that where we've actually only lost less than 10 basis points annually in realized losses because of that seniority, because of the high income that we generate on these investments. So from here, Rick, I would say you have a couple positive potential drivers of return. We'll see what happens with rates. And then you have a couple interim points of volatility that are based on market conditions and based on certain assets' interim performance.

I appreciate it. I think somewhere along the line we've written, we shouldn't assume that everything going forward will be unprecedented, but I'm hoping at some point soon we'll be right on that. Thanks, Rick. I'm with you. Thanks, guys.

We will take our next question from Corey Johnson with UBS.

Hi, I was wondering if you could maybe, you know, size how much of the losses that you saw this quarter were sort of a result of, you know, credit issues versus the AI concern versus, you know, sprint widening that we've seen in the market?

Sure. Why don't I kind of take a stab at that, Corey? Your line was a little bit muffled, but I think I heard it. So, if you look at this quarter, about half the markdowns that we saw were related to the two positions, two of the positions we put on Nodic Rule. That made up about 48% of the markdowns, and then the remaining 52% was spread very broadly across the portfolio. More specifically, our software names, we took down 270 basis points during the quarter based on AI kind of concerns, you know, for the most part.

Thank you.

Thank you. We'll take our next question from Kenneth Lee with RBC Capital Markets.

Hey, good morning, and thanks for taking my question. Just on the prepayment activity there, the visibility that you're seeing there, what's driving some of the healthiness that you see in terms of prepayment activity, even despite a potentially wider spread kind of environment there?

Yeah, I'm happy to take that. This is Teddy. So we're tracking a number of repayments. And I think as you look at the list, right, it's really a mix of a few things, sales to strategics. We did have one company go public in the quarter, as Brad mentioned, sponsor-sponsor M&A, you know, continues, although it's been a little bit softer and also refinancing. So it is a bit of a mix. We did highlight last quarter, we had visibility to over $550 million of repayments near term. We saw that conversion in the first quarter. We saw $450 million as we sit here at the end of the first quarter, visibility to another $600 in Q2. So, you know, that turnover continues at a healthy place. You know, as it relates to, you know, the full portfolio and what the potential return impact on that is, we do have about two points of call protection and unamortized OID across the portfolio. So, as those repayments continue, there is potential for potential monetization of that call pro and unamortized OID and income.

And, Ken, I would expect that repayment activity picks up towards the end of the year. So we've had a healthy start. We've got good visibility. And I think that continues to pick up towards the end of the year as we see more deal activity flow through the system. Gotcha.

Very helpful there.

And then one follow-up, if I may, just in terms of the common dividend there. It sounds like there's some supplementing from the undistributed, distributable earnings there. Wondering how many additional quarters could you see that, and then how would you frame out some of the potential return there?

Yeah, thanks, Ken. Just to summarize, as we take a big step back, we've covered our dividend every quarter since inception, most recently out-earning by over 150 basis points, right? We're paying out 11.7% distribution among the highest across the peers. And as a result of that, we're sitting with about $1.80 of undistributed NII, and that capital has been reinvested in the portfolio. We also did mention previously that we consider distributions from undistributed NII if trading below NAB, which we had been over the last couple quarters. So to facilitate that, reaffirming our dividend for the second quarter, we expect that to be covered by a combination of previous undistributed and current earnings. This would be viewed as a temporary bridge. As we've said previously, recognize that rates have come down. We continuously evaluate the longer-term dividend to align with the earnings generation of the portfolio, and we'll continue to evaluate that with our board each corner.

All right, helpful there. Thanks again.

Thank you. We'll take our next question from Finian O'Shea with Wells Fargo Securities.

Hey, everyone.

Thank you. Brad, sort of a crystal ball question admittedly, just on credit. We're, I think the industry is rolling through just a bit of a tough vintage right now. I know there's spread widening on top of that, but just sticking to credit, like new non-accruals, what inning do you think we're in in dealing with underperforming assets? How long should we expect new non-accruals to continue to roll in?

Thanks, Finn. Well, I would expect that in levered credit, there is always going to be some level of non-appruals flowing through everyone's portfolios. We generate a double-digit dividend for our investors, and along the way, we take some risk in doing so. And so I think default rates will normalize off what has been very low levels. and you're seeing that flow through, I think, most people's earnings over the course of the year. But I don't think it's elevated. I don't think it will be much more elevated from here. As we look at our portfolio, most of the issues that we're seeing, one, we think are already marked into the portfolio. Two, are fairly identifiable, meaning we know what the issues are. They're not broad-based. They're maybe a bad acquisition, maybe some operating issues, maybe a customer loss. And so I think it's actually quite manageable. It doesn't mean there won't be more defaults in our portfolio and others. But I think what really matters as you think about kind of the outcome of any future defaults or assets that go in non-accurals is, are you first lien in the capital structure? Can you control the outcomes of those non-accurals? And are you in a position to enforce your rights as first lien lenders? And if you are, then if you look back over a long history, certainly at Blackstone, 20-plus years, the outcomes are actually pretty good. Loss rates are fairly low. You're able to reset the capital structure, give the company more flexibility to grow their business, to invest into their business versus cutting costs to service their debt. So I think if you have to put all of it in perspective when you're looking at coming off of low default rate environment and where you sit in the capital structure.

I appreciate that. I guess sort of a small or sort of a follow-up to that thread. If today's – if the non-accrual rate, you know, in the industry, again, If it's more of a normalization than a flare-up, do you think, like, the 400 to 500 spread frame is just way too low and the industry needs to sort of reprice risk in a more attractive way?

Well, I think the spread environment will be dictated by the quality of deals you do and how the broader market, including the public loan market, is pricing risk. And what we've seen over the past number of years is the public markets continue to price risk tighter and tighter, reflecting that, you know, the default environment. What I think will happen, Finn, over the course of this year, if deal activity accelerates, then you could see a widening of spreads. in order to get those deals done in the private markets. But for us, our kind of true north is to deliver a premium over those public markets. You know this better than anyone, but last year, we generated a 360 basis point premium to the public markets, despite, you know, some markdowns on certain assets. Of course, Porter, that premium was over 100 basis points. So I think the asset class in VXSL and others continues to deliver what it set out to do, which is deliver that premium to the public markets and drive an attractive return for investors.

Great. Thank you, Brent.

Thanks, Ben.

As a reminder, star one, if you would like to ask a question, we'll take our next question from Aaron Siganovich with Truist Securities.

Thanks. I was hoping we could discuss some of the AI infrastructure investments that you were referencing, the GPU-backed debt financing. How are these structured? What kind of rate do you get on these loans? and are they backed by the borrower or are they non-recourse, just trying to understand the kind of risks of the giant investment that's going on in the industry?

Yeah, Aaron, I think I caught most of that. In terms of kind of where we're investing across AI, maybe just start with a point of perspective. I think today, you know, Blackstone has become the largest investor in AI-related infrastructure in the world. So we have this, you know, pretty unique vantage in this ecosystem that continues to grow, and we've developed these in-house capabilities, which I mentioned. And I know your question is around investing, but it's also worth highlighting that these capabilities, these viewpoints, It helps us manage our AI exposure, helps us implement AI strategy in our portfolio companies. We're currently working with Medallium more specifically. And so, it's a very unique asset to have within Blackstone because it's a 24-7 resource. us. We announced the partnership with Anthropic as well as an addition to that. So, this entire build out of the AI infrastructure is something that we will continue to stay very active in and VXSL will benefit from that. Our investments in the space will continue to be First lien, senior secured, backed by collateral, backed by contracts. That is what you saw in our announcement with Firmus. That deal was a commitment last quarter that will start to fund this quarter, and we'll disclose the terms of that loan next quarter. Okay.

That's helpful. In understanding that you have a strong history with credit and recoveries, that the near-term impact of these new non-accruals is going to weigh on your earnings power. You know, how can you get some of that earnings power back? And what is the investment appetite right now, given the environment? Are you continuing to see good opportunities? And, you know, when would you expect to start to see some of that investment activity to occur?

Yeah. So, on the non-accrual, they're clearly not accruing any income. As we work through the restructuring, we'll reset the debt lower. So, the debt that we reinstate lower will be accruing income. So there's earnings upside from those non-accrual names going forward in terms of the opportunity set will really be defined by how much repayment activity that we see that allow us to reinvest into the market backdrop. Again, repayment activity, those two things, it helps drive a little bit extra returnings because of the fee acceleration that we get. and it does help with NAV and then lastly those repayments we will use either to buy back shares or to reinvest into a market backdrop that in this moment feels a little bit wider albeit there's not a ton of activity that we've seen more recently.

We will take our next question from Ethan Kaye with Lucid Capital Markets hey guys you mentioned kind of balancing the allocation of repayment activity between share buybacks and new investments I guess based on kind of relative attractiveness there given some of the commentary we've heard about you know improving economics and in terms on new deals. Kind of curious how you see those two kind of competing uses of capital stacking up currently. Like, is there a kind of a clearly more favorable use, you know, in the current kind of environment? Yeah, thanks, Ethan.

This is, I'm happy to take that. I think it's a, I think it's a few things. Number one, do you see clear repayment volume continuous, right? We're mentioning $600 million in the near term. As that happens, there are some competing allocations of capital. Number one, we do want to manage our leverage ratio to the one to one and a quarter times longer term target. We are one and a quarter time net, so we're not too far off of that. You know, number two, what we have said in the last quarter and continue to see is that buying back stock, buying back shares is accretive at similar discounts that we've seen in the first and second quarter. So if those continue, we will certainly evaluate that as a real option in the back half of the year. And then number three, as Brad mentioned, as repayments cut hit, we see a little bit of a return benefit from, you know, potential return benefit from unamortized OID, and then we can redeploy that potentially at wider spread. We saw spreads marginally wider in the first quarter. As we look at what's getting done in the market today, it's continuing to move a little bit wider, so we will have potentially some capital to take advantage of that tied to repayments. That's helpful.

And then one other on Medallia, so I guess you kind of talked about, like, the confidence you have in that underlying business going forward, right? I'm wondering, you know, how much of the challenges over there would you categorize as, like, capital structure-related versus, you know, maybe more fundamental for, you you know, pressure-related to competition from AI, say.

Thank you, since Brad I'll take that. I think most of their challenges have been around their capital structure, and it's prevented them from fully investing into the company for growth because their debt levels were higher than what their cash flow supported. And so, as we go forward, our job is to reset the capital structure in a way that will position them to reinvest in the business and grow. And I think after we do finish the restructuring, they'll be less levered than their competitor and, therefore, potentially better capitalized to continue to expand. And they will most definitively need to invest into AI to continue to improve their product offering for their clients. But the company has already started this journey. We're supporting them with more capital and our AI resources. And as I mentioned on the call, the company today is highly profitable. And with the new capital structure, we're very optimistic.

Appreciate it. Thanks, James.

Thank you. With no additional questions in queue, I'd like to turn the call back over to Stacey Wong for any additional or closing remarks.

Thank you again for your time and continued interest in VXSL. And for all your questions today, we look forward to updating you next quarter. Have a great day.