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Rating Action:

Moody's affirms the ratings of nine business development companies, revises industry outlook to negative from stable

07 Apr 2020

New York, April 07, 2020 -- Moody's Investors Service (Moody's) has affirmed the ratings with a stable outlook of the following business development companies (BDCs): Goldman Sachs BDC, Inc. (Baa3 senior unsecured) and Owl Rock Capital Corporation (Baa3 senior unsecured). The ratings of Ares Capital Corporation (Baa3 senior unsecured) were affirmed, but the outlook was changed to stable from positive. Moody's also affirmed the ratings of the following BDCs and changed their outlooks to negative from stable: Blackrock TCP Capital Corp. (Baa3 senior unsecured), FS KKR Capital Corp (Baa3 senior unsecured), Oaktree Specialty Lending Corporation (Baa3 senior unsecured), Prospect Capital Corporation (Baa3 senior unsecured), Solar Capital Ltd. (Baa3 issuer rating) and TPG Specialty Lending, Inc. (Baa3 senior unsecured). Moody's also has withdrawn the outlooks on the senior unsecured ratings of Prospect Capital Corporation and Allied Capital Corporation for its own business reasons. Please refer to the Moody's Investors Service's Policy for Withdrawal of Credit Ratings, available on its website, www.moodys.com.

The rapid and widening spread of the coronavirus outbreak and falling oil prices have led to a severe and extensive credit shock across many sectors, regions and markets. Given Moody's expectation for deteriorating asset quality, profitability and capital, the BDC sector is among those most affected by this credit shock. Moody's regards the coronavirus outbreak as a social risk under its environmental, social and governance (ESG) framework, given the substantial implications for public health and safety. Today's rating actions reflect the impact on BDCs of the breadth and severity of the shock, and the deterioration in credit quality, profitability and capital it has triggered. In connection with these rating actions, Moody's has revised its outlook for the BDC sector to negative from stable.

Affirmations:

..Issuer: Ares Capital Corporation

.... Issuer Rating, Affirmed Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa3

....Senior Unsecured Conv./Exch. Bond/Debenture, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Allied Capital Corporation

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: BlackRock TCP Capital Corp.

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: FS KKR Capital Corp

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Shelf, Affirmed (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Goldman Sachs BDC, Inc.

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Conv./Exch. Bond/Debenture, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Oaktree Specialty Lending Corporation

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Owl Rock Capital Corporation

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Prospect Capital Corporation

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Conv./Exch. Bond/Debenture, Affirmed Baa3

....Senior Unsecured Medium-Term Note Program, Affirmed (P)Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

..Issuer: Solar Capital Ltd.

....LT Issuer Rating, Affirmed Baa3

..Issuer: TPG Specialty Lending, Inc.

....LT Issuer Rating, Affirmed Baa3

....Senior Unsecured Regular Bond/Debenture, Affirmed Baa3

Outlook Actions:

..Issuer: Ares Capital Corporation

....Outlook, Changed To Stable From Positive

..Issuer: BlackRock TCP Capital Corp.

....Outlook, Changed To Negative From Stable

..Issuer: FS KKR Capital Corp

....Outlook, Changed To Negative From Stable

..Issuer: Goldman Sachs BDC, Inc.

....Outlook, Remains Stable

..Issuer: Oaktree Specialty Lending Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Owl Rock Capital Corporation

....Outlook, Remains Stable

..Issuer: Prospect Capital Corporation

....Outlook, Changed To Negative From Stable

..Issuer: Solar Capital Ltd.

....Outlook, Changed To Negative From Stable

..Issuer: TPG Specialty Lending, Inc.

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

Moody's expects that deteriorating economic and operating conditions due to the coronavirus outbreak will lead to higher loan non-accruals and defaults that will weaken BDCs' earnings and cash flow. The widening coronavirus pandemic and deteriorating global and US economic outlooks are leading to significant declines in commercial activity levels, negatively affecting the financial profiles of a wide swath of enterprises, including the US middle market businesses that are the focus of BDCs' lending and investing. Most BDCs rated by Moody's have modest exposure to sectors that are among the hardest hit initially, including the travel and leisure, hospitality, gaming, retail, restaurant and energy sectors. However, Moody's expects that most industry sectors, including those that are resilient to weakening economic conditions, will suffer deteriorating credit quality if current operating and economic conditions persist, which indicates further material downside risk to BDCs' operating performance and capital strength.

Reflecting the heightened risks to middle market borrowers, a class of borrower typically associated with low speculative grade ratings, Moody's expects that BDCs' loan portfolios will decline in value, weakening BDCs' capital positions and increasing their risk of bank covenant non-compliance. BDCs must maintain a minimum asset coverage (of debt) ratio of either 200% or 150%, as permitted under the Small Business Credit Availability Act, passed in 2018. BDCs must also report their investments at fair value, which will result in significant earnings and capital volatility given currently unstable operating and economic conditions. Current downside pressures on investment fair values increases the risk that BDCs will breach their regulatory asset coverage requirements. Additionally, BDCs fund their loans in part by borrowing under secured bank facilities that require maintenance of the regulatory minimum asset coverage. Non-compliance could constitute a loan default, a further risk to BDCs' operational stability. Furthermore, availability under most facilities is determined by a borrowing base calculation, which is sensitive to the fair value of pledged assets. Certain BDCs maintain more ample capital cushions than peers or maintain portfolio exposures that are more granular or of higher quality, which lessens their risk of asset coverage requirement non-compliance. That said, Moody's stress testing finds most BDCs resilient to a stress equivalent to the 2008-09 time period. As of 31 December 2019, rated BDCs' asset coverage ratio cushions ranged from 81% to 24%.

Moody's rated BDCs maintain strong liquidity, resulting in low debt repayment risk over the next 12-24 months. They have little debt maturing until 2022 and later, including senior unsecured notes and revolving borrowing facilities. Most BDCs have unfunded commitments to their borrowers, including under revolving credit facilities, delayed draw facilities and equity commitments. However, nearly all rated BDCs have sufficient liquidity from cash, borrowing availability and anticipated cash flow to fund the immediate draw against these commitments by their borrowers. For a small number of BDCs, the unfunded commitments are a more significant percentage of their liquidity resources, which is a consideration in today's rating actions. Overall, liquidity strength is a key factor supporting the BDCs' ratings.

Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. Please see Moody's Environmental risks and Social risks heatmaps for further information.

What follows is the rating rationale supporting individual BDC rating actions.

Goldman Sachs BDC, Inc. (GSBD)

Moody's affirmation of GSBD's Baa3 long-term issuer rating reflects the company's stand-alone assessment of Ba1 and one notch of affiliate support uplift based on Moody's expectation that The Goldman Sachs Group, Inc. (GS; A3 stable), the ultimate parent of GSBD's external manager Goldman Sachs Asset Management L.P. (GSAM), would provide support to GSBD if necessary. GSBD has adequate liquidity, with manageable unfunded lending commitments and no debt maturities until 2022. The company's revolving line of credit has a final maturity in 2025. GSBD is increasing its focus on first-lien senior secured lending, which is improving the portfolio's risk profile; the company's exposure to sectors at higher risk to coronavirus disruptions is moderate, comparable with other BDCs. A credit challenge is the potential that GSBD could increase debt-to-equity leverage to a higher level compared to peer BDCs, which would weaken the company's default cushion in relation to its asset coverage covenant. GSBD's stand-alone profile benefits from its affiliation with GSAM and GS' strong oversight of GSBD with respect to underwriting and risk management. The stable outlook reflects Moody's expectation that GSBD's portfolio fair values will decline as a result of the coronavirus pandemic effects, increasing earnings volatility and weakening the company's asset coverage, but that GS's oversight and support will forestall a material decline in the company's profile.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade GSBD's ratings if the company: 1) maintains a ratio of debt to tangible net worth of less than 1x; 2) increases its first-lien investment holdings to more than 80% of total investments; 3) improves its funding profile by reducing its reliance on secured debt to less than 30% of tangible assets, increasing revolving borrowing capacity, and by increasing laddering of debt maturities; 4) generates profitability that consistently compares well with BDC peers; and 5) benefits from increased support from GS.

Moody's could downgrade GSBD's ratings if the company: 1) increases debt-to-tangible equity to more than 1.5x; 2) increases funding concentrations or does not maintain adequate committed revolving borrowing availability of at least two years; 3) generates weaker or more volatile profitability or realized losses compared to peers, including realized and unrealized losses; 4) pays dividends that exceed net investment income on a regular basis; or 5) if Moody's expectation of GS support of GSBD diminishes.

Owl Rock Capital Corporation (ORCC)

Moody's affirmed ORCC's Baa3 long-term issuer rating with a stable outlook based on the company's strong capitalization, including the company's plan to transition to a more liberal 150% minimum asset coverage requirement from 200% currently, as approved by ORCC's board of directors on 7 April 2020. The transition increases the company's headroom against its regulatory requirement at a time when coronavirus related economic disruptions are raising the risk that BDC capital cushions will shrink following anticipated weakening of portfolio fair values. ORCC maintains adequate liquidity with sufficient borrowing availability under multiple committed borrowing facilities to meet its unfunded commitments to customers; the earliest committed line maturity is 2022. The company has no senior unsecured debt maturities until 2023. ORCC's rating is also supported by the company's conservative investment portfolio with a high proportion of first lien loans. Credit concerns include the company's shorter operating history compared to its rated peers, as well as its rapid portfolio expansion, offset partially by the company's seasoned management and professional staff. The stable outlook incorporates Moody's expectation that upcoming portfolio valuation marks will result in significant earnings volatility that weakens asset coverage, offset by ORCC's modest exposure to the most at-risk sectors affected by the coronavirus outbreak and low pro forma leverage, which provides better-than-peer cushion to absorb declining asset performance and valuation marks.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade ORCC's ratings if the company: 1) generates stronger and less volatile financial performance than peers, with low amounts of realized losses; 2) consistently maintains a debt to tangible equity ratio of less than 1x; 3) improves liquidity and funding by reducing reliance on secured funding and further laddering debt maturities.

Moody's could downgrade ORCC's ratings if the company: 1) increases debt-to-tangible equity to more than 1.3x after completing its transition to the 150% asset coverage requirement; 2) does not maintain strong liquidity, including availability under credit facilities with a minimum remaining maturity of at least two years; 3) generates materially weaker or more volatile profitability; 4) reduces the proportion of senior secured debt investments to less than 85% of its total investment portfolio; 5) pays dividends that exceed net investment income on a regular basis; or 6) increases the ratio of secured debt to gross tangible assets to more than 30%.

Ares Capital Corporation (ARCC)

Moody's affirmed ARCC's Baa3 long-term issuer rating based on the firm's history of strong operating performance, effective liquidity management and balanced investment portfolio risk characteristics. Moody's revised ARCC's outlook to stable from positive to reflect rising risks to credit quality and earnings from economic disruption relating to the coronavirus pandemic, balanced by the company's strong credit risk management. ARCC has diverse funding sources and maintains adequate availability under its multi-year committed borrowing facilities to manage its unfunded investment commitments, which are more significant than peers owing to the company's larger scale. The firm's liquidity profile is aided by the fact that ARCC has no senior unsecured term notes maturing until 2022. ARCC has significant unencumbered assets, as nearly 60% of debt funding was in unsecured form, as of 31 December 2019. ARCC targets debt-to-equity leverage of 0.9x to 1.25x, which translates into a strong cushion of 20% to 40% in relation to its 150% minimum asset coverage ratio bank covenant. ARCC's average net profitability ratio is higher than the rated peer median and its record of net realized gains over its history is also superior to peers. ARCC has a lower proportion of first lien loans in its portfolio than many BDCs, but the company has demonstrated strong asset quality performance over its history. Additionally, ARCC's modest exposure to the sectors at most risk of deterioration from the coronavirus pandemic should aid asset quality even as credit conditions deteriorate. However, Moody's expects that upcoming valuation marks will result in rising earnings volatility that weakens ARCC's asset coverage ratio cushion.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's could upgrade ARCC's ratings if the company: 1) sustains a ratio of debt to tangible equity of less than 1x; 2) increases and maintains the proportion of senior debt investments in its portfolio of at least 80%; and 3) generates profitability that consistently exceeds peers in terms of stability and strength, with low realized losses.

ARCC's ratings could be downgraded if the company: 1) increases debt-to-tangible equity to more than 1.3x; 2) fails to maintain strong liquidity, including ample availability under credit facilities with a remaining maturity of at least two years; 3) generates materially weaker or more volatile profitability; 4) reduces the proportion of senior debt investments to less than 65%; 5) pays dividends that exceed net investment income on a regular basis; or 6) increases the ratio of secured debt to gross tangible assets to more than 30%.

BlackRock TCP Capital Corp. (TCPC)

Moody's affirmed TCPC's Baa3 long-term senior unsecured rating based on the company's effective liquidity management and strong record of earnings and profitability since 2012. TCPC has adequate liquidity coverage of its modest unfunded lending commitments and debt maturities; the company's next maturity of senior unsecured notes is in 2022 and its revolving credit facilities mature in 2023. TCPC has a high proportion of senior secured loans in its portfolio, which Moody's expects will perform better in a downturn than more subordinate investments. Additionally, the company's exposure to sectors most affected by coronavirus-related disruptions is moderate. However, TCPC's capital cushion versus its asset coverage requirement of 150% is below the peer median, which results in a smaller cushion to absorb adverse asset fair value marks versus peers, though TCPC maintains adequate coverage under Moody's downside stress scenario. TCPC's outlook was changed to negative from stable, reflecting Moody's expectation that fair value marks will result in significant earnings volatility that weakens TCPC's asset coverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicated that a ratings upgrade is unlikely over the next 12-18 months. However, Moody's could upgrade TCPC's rating if the company: 1) sustains consistent debt-to-tangible equity leverage of less than 1x while also reducing exposures to sectors sensitive to economic stress; 2) materially increases the proportion of first-lien, first-out investments in its portfolio; 3) improves liquidity by further increasing the amount of committed borrowing availability and extending debt maturities; and 4) generates profitability that compares strongly with BDC peers.

Moody's could downgrade TCPC's rating if the company: 1) increases its ratio of debt to tangible equity to more than 1.3x; 2) ceases to maintain adequate committed revolving borrowing availability with a remaining maturity of at least two years, or liquidity otherwise materially weakens; 3) generates materially weaker or more volatile profitability; 4) reduces the proportion of first-lien, first-out secured debt investments in its portfolio; 5) pays dividends that exceed net investment income on a regular basis; or 6) increases the ratio of secured debt to gross tangible assets to more than 30%.

FS KKR Capital Corp (FSK)

Moody's affirmation of FSK's Baa3 long-term senior unsecured rating reflects the company's transition into a larger BDC under the external management of KKR, the company's strong historical record of profitability on a combined basis of its predecessor companies, and its adequate capital cushion and liquidity. FSK has sufficient liquidity available under its committed borrowing facilities to meet its funding obligations to portfolio companies, but its coverage is less robust than certain peers. Aiding the company's liquidity profile, FSK has no senior unsecured note maturities until 2022 and the maturity of its revolving borrowing facilities is staggered with the earliest maturity in 2022. FSK's portfolio granularity and investment diversity should result in lower return volatility and strong earnings quality over the long term. FSK has modest exposure to the most at-risk sectors affected by the coronavirus outbreak. FSK's debt-to-equity leverage is higher than certain peers, but it remains comfortably within its target range of between 0.9x and 1.25x. FSK's credit challenges include its high reliance on secured financing, which results in high encumbered assets, and a higher proportion of junior investments than certain peers, which could result in higher earnings volatility. The outlook was changed to negative from stable based on Moody's expectation that upcoming portfolio valuation marks will result in significant earnings volatility that weakens asset coverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that a ratings upgrade is unlikely over the next 12-18 months. However, Moody's could upgrade FSK's rating if the company: 1) sustains debt-to-tangible equity leverage of less than 1x; 2) significantly reduces the proportion of secured debt in its capital structure; 3) reduces the proportion of potentially more volatile junior investments in its portfolio; 4) increases liquidity strength by maintaining higher borrowing availability under committed facilities; and 5) generates profitability that consistently compares well with BDC peers.

Moody's could downgrade FSK's ratings if the company: 1) increases the ratio of debt to tangible net worth to more than 1.3x; 2) fails to maintain adequate committed revolving borrowing availability with a remaining maturity of at least two years, or liquidity otherwise materially weakens; 3) increases the proportion of junior portfolio investments without decreasing leverage; 4) generates weaker or more volatile profitability or realized losses compared to peers; 5) pays dividends that exceed net investment income on a regular basis; 6) increases the proportion of secured debt in the company's funding structure, resulting in the ratio of secured debt to assets remaining above 30%.

Oaktree Specialty Lending Corporation (OCSL)

The affirmation of OCSL's ratings reflects the company's improved liquidity profile and low leverage. OCSL improved its liquidity profile in the first quarter of 2020 by issuing senior unsecured debt and increasing its cash position. Unsecured debt accounted for 43% of total outstanding debt as of 25 March 2020, from 30% at 31 December 2019. OCSL also has a revolving credit facility with sufficient undrawn capacity. The company's liquidity position also benefits from no debt maturities until February 2024 and a manageable amount of unfunded lending commitments. OCSL maintains a low debt-to-equity target range of 0.70x to 0.85x, meaningfully below the peer median, which is a key credit strength for the company. OCSL has recently improved its investment portfolio composition by successfully reducing its legacy, non-core investments, and focusing its origination efforts on first lien loans. The company also has limited exposure to the most at-risk sectors affected by the coronavirus outbreak. Nonetheless, the change in outlook to negative from stable reflects Moody's expectation that valuation marks will result in significant earnings volatility and weaken OCSL's asset coverage ratio cushion.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that a ratings upgrade is unlikely over the next 12-18 months. However, OCSL's ratings could be upgraded if the company: 1) improves its liquidity and funding profiles by reducing its reliance on secured funding and lengthening its debt laddering, while improving creditor and investor diversity; 2) improves its portfolio composition, with first lien investments representing at least 80% of the portfolio; 3) consistently generates strong financial performance with low amounts of realized losses; 4) maintains robust capitalization; and 5) gains the ability to issue shares when stock trades below NAV per share following shareholder consent.

OCSL's ratings could be downgraded if the company: 1) fails to maintain adequate committed revolving borrowing availability with a remaining maturity of at least two years, or liquidity otherwise weakens; 2) shifts its target debt-to-equity range materially higher than the current 0.70x-0.85x, thereby eliminating a key credit strength relative to rated peers; 3) generates materially weaker or more volatile profitability from deterioration of asset quality or investment returns; or 4) pays dividends that exceed net investment income on a regular basis.

Prospect Capital Corporation (PSEC)

Moody's affirmed PSEC's Baa3 long-term senior unsecured rating based on PSEC's long history of operations and profitability compared to most BDC peers. PSEC's funding is more diverse, its debt maturities more evenly distributed, and its borrowing agreements have fewer financial covenants compared to most BDC peers, which reduces its refinancing risk. PSEC has strong liquidity, aided by ample availability under its multi-year committed revolving credit facility given its very low unfunded credit extensions to portfolio companies. PSEC has a manageable senior unsecured note maturity this month but its next maturity occurs in 2022 and its revolving credit facility matures in 2024. PSEC has more diverse investment strategies than most BDCs, but certain of the company's investments, including collateralized loan obligations and commercial real estate, will likely demonstrate greater asset volatility than other investments. However, PSEC's exposure to sectors negatively affected by the coronavirus epidemic is lower than most rated BDCs. Credit challenges include PSEC's smaller capital cushion of 23% at 31 December 2019 with respect to its 200% minimum asset coverage requirement, which is lower than the cushions of BDC peers. However, the structure and terms of PSEC's debt agreements mitigate this concern. The change in outlook to negative from stable reflects Moody's expectation that a likely decline in portfolio fair values will result in significant earnings volatility that weakens the PSEC's asset coverage.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that a ratings upgrade is unlikely over the next 12-18 months. However, Moody's could upgrade PSEC's ratings if the company: 1) decreases debt-to-tangible equity to not more than .7x; 2) reduces structured credit, real estate exposures and junior investments as a proportion of total investments; 3) further enhances financial flexibility by obtaining prior shareholder consent to issue shares at a price below net asset value; and 4) generates profitability that consistently compares well with BDC peers.

Moody's could downgrade PSEC's ratings if the company: 1) increases the ratio of net debt to tangible equity to more than .85x; 2) increases investment that Moody's expects will increase the company's asset and earnings volatility; 3) generates profitability that is weaker than expected compared to peers; 4) pays dividends that exceed net investment income on a regular basis; or 5) materially increases its funding reliance on secured debt.

Solar Capital Ltd. (SLRC)

Moody's affirmed SLRC's Baa3 issuer rating based on the BDC's strong capitalization and conservative investment portfolio mix, and lower-than-peer earnings volatility. SLRC has a strong liquidity position, with sufficient availability under its revolving credit facility to manage its modest unfunded credit extensions to customers. The company's next maturity of senior unsecured notes is in 2022 and its revolving line of credit has a final maturity of 2024, which reduces refinancing risk. SLRC has a high proportion of first lien loans in its investment portfolio and its exposure to sectors at most risk to coronavirus related disruption is lower than most peers. SLRC has also maintained lower financial leverage than most peers, providing a comfortable cushion against downside asset performance and fair value risks. The change in outlook to negative from stable reflects Moody's expectation that upcoming valuation marks will result in increased earnings volatility that will weaken SLRC's asset coverage ratio cushion.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that a ratings upgrade is unlikely over the next 12-18 months. However, Moody's could upgrade SLRC's ratings if the company: 1) sustains debt-to-tangible net worth leverage of less than 1x; 2) improves liquidity by further increasing unsecured debt issuance and laddering debt maturities; and 3) generates consistently strong profitability that compares well with BDC peers.

Moody's could downgrade SLRC's ratings if the company: 1) increases its ratio of debt to tangible net worth to more than 1.3x; 2) reduces its liquidity coverage by not maintaining adequate committed revolving borrowing availability with a remaining maturity of at least two years; 3) generates weaker or more volatile profitability or realized losses compared to peers, including realized and unrealized losses; 4) reduces its proportion of first lien loans in the comprehensive investment portfolio to less than 75%; 5) makes dividend distributions that exceed net investment income on a regular basis; or 6) increases its ratio of secured debt to gross tangible assets to more than 30%.

TPG Specialty Lending, Inc. (TSLX)

The affirmation of TSLX's ratings reflects the company's strong liquidity profile and solid asset coverage. TSLX's liquidity profile benefits from the company's sole reliance on term funding, with unsecured debt comprising 67% of total debt outstanding as of 25 March 2020, and adequate debt maturity laddering, with no maturities until August 2022. The company also has significant undrawn capacity on its revolving credit facility, including a large borrowing base that allows TSLX to access the available revolver capacity, and a manageable amount of unfunded lending commitments to clients. TSLX's debt-to-equity leverage policy of 0.9x to 1.25x results in a strong default cushion versus statutory and bank covenant asset coverage requirements of 150%. The company's high proportion of first-lien senior secured lending and modest exposure to the most at-risk sectors affected by the coronavirus outbreak should benefit asset quality as credit conditions deteriorate. Nonetheless, Moody's expects that upcoming valuation marks will result in significant earnings volatility and weaken TSLX's asset coverage ratio cushion. These risks are reflected in TSLX's negative outlook, which was changed from stable previously.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The negative outlook indicates that a ratings upgrade is unlikely over the next 12-18 months. However, TSLX's ratings could be upgraded if the company: 1) sustains an asset coverage ratio of more than 200% (or debt to tangible equity ratio of less than 1x); 2) maintains at least 95% of first-lien investment mix with continued low average portfolio loan-to-value; 3) improves liquidity by further increasing unsecured debt issuance and laddering debt maturities; and, 4) strengthens its competitive position, including by lengthening its track record of superior profitability.

TSLX's ratings could be downgraded if the company: 1) ceases to maintain adequate committed revolving borrowing availability with a remaining maturity of at least two years, or liquidity otherwise materially weakens; 2) increases its debt-to-tangible equity leverage to above 1.3x (equivalent to an asset coverage ratio of less than 180%); 3) generates materially weaker or more volatile profitability from deterioration of asset quality or investment returns; 4) reduces the proportion of first-lien secured debt investments to less than 75%; 5) pays dividends that exceed net investment income on a regular basis; or 6) increases the ratio of secured debt to gross tangible assets to more than 30%.

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating outcome announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Mark L. Wasden
Senior Vice President
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Ana Arsov
MD - Financial Institutions
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Joseph Pucella
Senior Vice President
Financial Institutions Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

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