TSLX Heads Into Earnings with Shorts Retreating but Borrow Costs Still Elevated

Sixth Street Specialty Lending reports Q3 results on November 4 with short sellers pulling back meaningfully but the lending market still signalling enough friction to keep the setup interesting.

The sharpest move in the positioning data is the retreat in short interest. Shares short have fallen roughly 21% over the past month, from around 5.2 million in late September to just under 4 million now. That unwinding of bearish positions has come alongside a easing in borrow costs, which have dropped from above 12% in late September to 9.8% today, still elevated for a BDC but no longer at the stress levels that prevailed six weeks ago. Availability, however, remains tight at 43%, meaning fewer than half the shares in the lending pool are free to borrow relative to current short interest. The 52-week minimum was just 0.24%, so the market has pulled well back from that extreme, but availability has not fully normalised. Options positioning has edged more defensive into the print, with the put/call ratio at 0.91, about 1.6 standard deviations above its 20-day mean of 0.88. That is not an alarm signal, but it confirms investors are carrying some downside protection into today's release.

The bull and bear cases for TSLX are well-defined and not easily resolved by a single quarter. Bulls point to the firm's conservative underwriting, its high proportion of senior secured loans, and a track record of outperforming through credit cycles. Keefe Bruyette raised its target to $19.50 in August, maintaining an Outperform, one of the few upward analyst moves this year. Bears focus on the guidance cut earlier in the year, the dividend reset, and ongoing pressure on asset values from credit spread widening. JP Morgan has trimmed its target twice in 2026, most recently to $16.50 in July while holding a Neutral. The stock at $17.90 sits between those two poles, with the bulls arguing for recovery and the bears questioning whether the BDC sector's floating-rate tailwind has fully run its course.

One institutional move worth noting: STRS Ohio lifted its stake from around 5.1% to 6.3% of shares, filing a 13G amendment in August. The fund now holds just over 6 million shares, the largest reported institutional position. That positions STRS Ohio as the single most consequential holder going into the print. Stakes are as last disclosed around the 5% threshold, so current holdings may differ.

TSLX's close BDC peers all posted gains on the week, with BCSF up 8.7%, PNNT up 9.2%, and SLRC up 5.2%. TSLX's 4% weekly gain lags that group, leaving the question of whether today's print narrows that gap or widens it.

The report will test whether the BDC's portfolio credit quality and net investment income have stabilised enough since the guidance cut to justify a re-rating toward the more constructive end of the analyst range.