CGBD - Earnings call transcript Q2 2018 | Carlyle Secured Lending, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the TCG BDC Second Quarter 2018 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And I would now like to introduce your host for today’s conference Mr. Daniel Harris, Head of Investor Relations. Mr. begin. now may you Harris,

Daniel Harris

our Thank website. you, second issued to BDC’s TCG presentation and earnings which copy is available Good XXXX earnings morning on with earnings quarter detailed we Investor release welcome results, call. a press of Relations TCG BDC’s and Sherry. quarterly Last an night,

call a and This made call This based is Following our hold and expectations webcast involve guarantee that will our investors. results section we and SEC be TCG future a obligation question-and-answer on webcast performance reliance form to materially should not not forward-looking property time. could update institutional including be BDC, and replay any uncertainties, strictly of assumes the remarks other from today, actual no session will those placed the are current available statements for broadcast inherent forward-looking our prohibited. and Any do at of on analysts on any and is Risk statements risks filings identified any being is in cause statements website. undue and them. today TCG in any those and Factors BDC differ XX-K management to indicated. These unauthorized

does Lastly, Chief it over Executive With guarantee to not past that, performance our Officer, results. future I’ll turn Michael Hart.

Michael Hart

at provide where this Small with our Availability on quarter last certain an June of adoption and leverage update Head look of us Good a Thank morning revisit implementation of Xth the by then thank became the including leverage second at team, new Parekh. our provisions for limitations, for our I'll Act of joining to Hennigan; earnings financial discussion President, year. Business in everyone and quarter CFO, you, begin I’m the Jeff for effective Originations, Tom also our referred I’ll BDC which us the the morning, today on bill. management Dan. our regarding Credit is you Levin; from results, brief our call. joined and this Grishma our

As leader you for quarter, thinking with and new our that the and results base. was with ways share from of talk last approval both guidelines seeking shareholders. fee board those to and our we're you as from our discussion I’ll the how the to know our for best important BDC TCG about we about of shareholder utilization, align outreach our an continue interests in our to structure look change

in $X.XX quarter Tom components to our investment per trailing yesterday, core and our increase Turning to Net joint released contributed our prior All of a the that deliver quarter share some our business income changes performance quarter to by per of which $X.XX from valuation year. results $XX.XX dividend to of with primarily second second from asset net moment. on results, share, comfortably XX-month continue including basis. consistent for which quarter unrealized more a X% of per partnerships, all financial per XX.X% share venture represented about modestly of we solid our covering strategic provide an driven and quarter-over-quarter on the earnings details decline $XX.XX share value a our yield portfolio,

leverage good on the Let as make segue debt-to-equity of me provides comments to topic want ratio, it bill. that shift to a BDC the our I into broader the

our boundary the continue our in quarter those currently, the today. in modestly be the guidance of overall X.XX:X was our are ratio to X.X:X. levels the X.X:X area we out given debt-to-equity previously quarter. first from that leverage X.X:X outer of end portfolio businesses to prudent for up inside the Obviously would of risk comfortably those boundaries we're believe but at the We the second Our owned end provided at the

in the shareholder meeting. of shareholders that of the two take a considered adoption our ratio one bill the some coverage you're both from XXX%, In go of the BDC in of shareholders the and vote ratio BDC to unanimously resulted the majority translates specifics, X:X our and Directors which the regulatory leverage after independent of a go an for decision regardless approval aware implications. to for either not would by impact, XXX% in from The adoption board X:X. effect company only law vote case which the our an is minimum directors from have overwhelmingly to year. Xth carefully becoming with two new into our debt-to-equity weigh shareholders, the June in was with day for parameters positive approved of asset Regarding route increase through the our forward ratio announced on affirmative of the of adoption, leverage bill what shareholders. it's one we provided annual potential to we timing not XXX% in as avenues asset leverage its into into a and April, and by which coverage adoption in or significantly bill bill too new going felt shareholder that and cushion an the those well this evaluating to so but be it’s the terms the of approval potential affective on the business, increased In and year-end reduce vote new the of permits our constituencies Board meeting, for receive would the the approved as proxy coincided important into receiving shareholder approval provided process bill seek in new we best majority effect potential our limitation affirmative that case the both provisions concluded industry passage the a path When was increased for of and date was a the the the approval bill also would profitability and year the whole, a board

we applied inception. company's mentioned the to anticipate requirement We'll As thesis invest of continue coverage reduced don't to influence our previously to change adoption or since the that where we've we the investment asset we've relative see our in adoption deliver represent the way and the to returns believe any shareholders. forward. leverage material an change of obviously opportunity to We value increased guidelines portfolio shouldn't new construct best going

event even be would new and markets. future decisions dependent. in market which coverage immediate the leverage out and more However, regulatory Many invaluable flexibility, of asset overtime the cushion of leverage aspects in the many the the of increased operational to volatile will builds reduced absence ratio will limit, provides impact play the the the of be in increased

point year fee, to market relates our which of to some the has the around ongoing and the July state provide is of than assets new is how Carlyle's shareholder out financed know guidelines greater good X:X overall reduced to Jeff you as additional investment the and on final has of of turn emphasis alignment. been fee affected management example in leverage. This X% X.X% of However, philosophy shareholders who with this With reduction leverage Jeff? the implemented influencing another on it over post all of interest the selection. investment commitment will shareholders color it as base this I’ll to approval that management advisor Xst our is with to retroactively Carlyle alignment the from

Jeff Levin

continue June, to peak higher below managers contribution quarter compared was leverage to private with it operating market value the XX% including quarter drive them than is middle the purchase and significantly coupled LBOs this in remains the teams average market relatively have multiples as of unchanged prices. In end was equity finance the firms Mike. the during the XX% to Thanks, the substantial held and at private paying to in private economy first which Substantial was continues credit dry it both middle the dynamic. underlying cycle last equity U.S. powder when second strong the and full high credit at of Loans equity equity XXXX. by

quarter flat middle XX volatility volume the said, market Second have money with flexing seen thirds in was flexing market approximately activity. roughly impact this driven tighter The by some month. volatility class. not two with loan yet experienced versus loan deals XX wider the That the loan June first during with significantly sponsored asset pricing syndicated quarter we new

focused the possible ability our based on for where to the as equity invest companies, competitive find support persists, our and these deliver vast for the continue our capital middle financing create the value that environment investments highly the has throughout many returns capital full shareholders. elements Carlyle we direct intelligence borrowers. having including with network industry business to from delivering partner strong portfolio adjusted we be optimizing value ability ensuring the and on risk to their structure to Given generate help market quality flexible scale best source ability lending achieve high substantial returns critical Several to for to sponsors solutions differentiated to we as

Given lending In direct flow lenders by instances quantum's in increasingly the deal to business to of those Global managed being scale, can BDC across that the has scale large to optimize theme of credit, many show commit importance investment become want beneficial address that resulting the we is one only differentiator growth Carlyle Credit. TCG a sponsor sourcing. to

middle further maximize capital we influence manage is market to sizes BDC. A managed improved benefit Carlyle transactions of include allows bolster tenant [indiscernible], which our origination direct Credit what recent funnel of and held have committed key is in roles dynamic, which Global [indiscernible] take us larger diversification on examples transactions a our this raise us to both maintaining management platform to continues each to formats Carlyle’s more lead whole positions in these lending which in significantly expansion in platform, in and Given of to of our prudent when couple and To allows levels, from of risk TCG loans, our account continue individual the capital platform while investments terms. strategy. and

us our to that strategy. combined consistent over to provide of these investment diversification scale allowed managed Our I this advisor co-lead our by winning hand other it was critical activity mandates details with and quarter. positions with Grishma the size will that investment our funds are With to origination and

Grishma Parekh

Overall we had Jeff. quarter Thanks, deployment of capital fronts. on a a strong number

our noted equity existing investment we of transaction. XX In with have is over with $XXX firms equity million made middle encompass past the XXX XX the private vast That totaling quarter, supported commitments During new U.S. I've sponsor private activity second we our whom quarters, has base. market majority closed as that sponsors.

we we have with we not part have until quarter market for identified important our platform, now. that our care competitive strategy, for reason several known firms and clients. to These or origination to adverse This great have another in an hyper many added of like as transacted to one today important are new we but is Continue especially with years, reach expand a issues. our so but selection order market in any avoid do have

on the Our focus of resolute the stack. capital part remains top

new These coming such XX% quarter, in for loans to of buyouts saw lien second among weren’t of of know a to financing and our than for investments of LBO XX% past We in risk portfolio existing that be portfolio. incremental This diversified companies tend as equity our of [ph] often capital. is were our having companies. fresh benefit with is quarter, activity. by a of position. deployment large and acquisitions an credits. the best companies our and capital adjusted This and substantial acquisition In important well, more our best additional a our that investments. debt Similar our performing we is supportive propelled portfolio they our gross the represented as Approximately view in quarters, are financing third supported investment a and acquisitions first financing

terms, than on second portfolio is existing certainty execution from in was Shifting this investment portfolio a in assessment compared JV of For X.X% was of produce On the while credit new been and early investments. curriculum, coverage education development environment. the example, of the teaching of speed underlying growth Well, with metrics that vehicle weighted market co-led $X.X mandate. early company provide investment total for with have stands had able risk during of as about less the unlevered weighted and of average strategies. education activity highly BDC overall of irrespective weighted tailwinds leader the the should Based information the the of a This credit the debt-to-EBITDA portfolio professional It's return of quarter of quarter as to The times. $X.X to prior represented investment to the we've less due Net and the line market lien X.X% economic quarter sponsor, increased our our combined BDC. attractive. quality we was portfolio X.X Teaching our JV to BDC's quarter-over-quarter. investments this billion. XX% the X.X% times the space a middle than light our with to loan for the value to at portfolio. we interest JV to secular incumbent volume of line lower basis also the market. approximately and more the X.X in benefit provide new currently comprises Covenant TCG a position seen high in well. in The largely The was investment. a and the the investments investing and portfolio first in new were general average remain TCG in whole. as support is and billion XX.X% leverage overall quarter ability were fund will strategies highlights flat to in awarded credit we is TCG to average net in yield acquisition facility our total an XX% XX% The portfolio weakening

portfolio market also approach repayments were as quarter-over-quarter. sales seeing is stand. loan repayment opportunistic over more shifted activity modest TCG and of now first favor experienced TCG Finally, where Despite to this growth I'll of behavior by a second further BDC. and transactions positions sizable heavy The toward we lien aggressive we're lien turn net mix-shift investment proxy two million $XXX in participants. mix market Hennigan. BDC where asset X% under in the just weighted our This call perfection Tom the

Tom Hennigan

our facilities we financial portfolio I’ll Today, Grishma. want to facilities. Thanks, the are we’ve few million level. and $XXX increasing of In limit. shareholders active current our priced million last five-year million, and discussion months slightly a CLO. the were reinvestment total period our Last very and the second $XXX financing board had new of in overall that the financing increase XXXX maintain importantly, will conjunction of with amendment with successfully an we I a LPLUS debt of approval given to our week, leverage performance, CLO three-year by our discuss begin from the statutory the capital. all quarter reset new both SPV to the leverage vintage XXX expect upsizing at $XXX our the improving we to establishing financing on to week, close and cost facility permit period, by reset our pricing [ph] our issued statutory next

an we’ve lenders facility addition, progress us great amendment revolver provide with made that similar our the flexibility. under In with on corporate would

$XX second On facilities from [ph]. both It’s by million Regarding by capacity, the with activity quarter tapping to of driven about at upsizing finished about future debt additions net deployment debt million up $XXX our secured highlighted as we’re current unsecured total our as Grishma. the markets. looking the million note, well outstanding we that $XXX

million, total $XXX the $XXX we followed and million unused CLO had month. under of our to facilities that $XXX will later credit the of in As this commitments over million of closing grow upsizing approximately

kicked Regarding the average risk on our portfolio, risk down X transactions rated up net $XX rating that or scale, weighted a X.X, kicked total internal the watch to modestly was million. worse list rating internal by

the value. six indicating of category to non-accruals However, X.X% two loans to migrated while total loss probable increased fair

over EBITDA our a year-over-year revenue In credit basis. and continues annualized the on terms to portfolio growth experience of of XX% metrics, LTM

the million to Product were from of and primarily markdowns national some we coinvestment deleveraged our Evaluations continued that since for unrealized realization these our aggregate and repayment market dinged we track again, to and Quest up the weighted regards net realized additional quarter. investment. was in benefitted Offsetting on have total tightening it loans valuations, the of XX. for time spreads global leverage this and index successful portfolio software. Our the secondary quarter, notably about middle and on In due equity loss previously modest average net $XX

of was the quarter-over-quarter. fees. Total from largest interest roughly the quarter. expenses for was arranger income driven roughly Net investment per compares declared by the second share. million to outstanding other LIBOR. of note, the $X.XX million expense of $X.XX were regular income XX. was per the results which $XX income share, share, about was regular income, This payable quarter $XX August JV The per financial on investment both of of second result September about million record quarter. for And compared Directors quarter and higher Net same Turning dividend dividend higher business declared the was million X, million, quarter interest by and to the net increase to or for our our was in aided the up average shareholders versus the of flat the Total for quarter. $XX component of to of the at debt split first $X.XX Board as higher $X between close income which third $XX on the evenly increasing first increase

Regarding with yield remarks. quarters. to first achieved down JV expect the for achieve was as And us and quarter quarter. in for in everyone line we you the the items quarter’s That mid-teen that, similar open the But normalization concludes results on call, the quarter joining our we let following I I’ll operator to about our last prepared mentioned in JV Thank in future today. XX%, the second some returns, one-time on expected XX% equity first this from dividend the questions.

Operator

Thank Instructions]. [Operator you.

Fargo with comes first question Our from O'Shea Fin Wells Securities.

Fin O'Shea

for deals can roughly various larger TCG EBITDA The taking and winning growth origination your value you thanks start sort ability the give of questions. as broadly; my deals similar, enterprise deals around color size in for to are nature just and going on to highlighted a you up some funds. are platform of companies. spread morning shares you look, consistent your guys. Hi, guess larger the Good BDC you type larger so or I example

Jeff Levin

Fin. Sure. Levin. the Thanks Jeff It’s question, for

widen though origination $XXX size single The sponsors $XXX strategy the were to dollars to million Our terms in the more anywhere a hasn’t that and different in the only to have the financing do quickly drive looked commit to that in businesses between of the ability and of and finance. certain an the side front in liability changed can million can than a economics target few entire market, it so or show us I Sponsors terms name to deals provide instances, better allows impact the of referenced. lenders to deal derisk certainty LBO.

diversification we of be quantum the so even across we years to And – we’re given commingled growth estimates to business. year returns given ago X% capital, positions drive than two and continue better across – much the anywhere able and commit the various of growth or able to to between the the risk-adjusted balance across typical given and platform drive platform of able X%, credit and funds larger size could here, the of we’re the a pools the the have sheet,

Fin O'Shea

pop outlined on should is there makes Okay, or And was your this kind arranger we to of fees that as inclined of – quarter. with this sort or – very expect one-off, consistent this some a sense. remain higher well there quarter is

Jeff Levin

Yes.

I sorry Mike. think… I’m

Michael Hart

a the opportunities we the question. overall an the as I income – strategy. clearly would I this there’s anomaly. primary We something quarter look that’s driving that’s Mike. view in not look bit source It’s for income – but that don’t although at Thanks as that not at there, of Fin. of a wouldn’t Hey, fee

Fin O'Shea

on sheet the that well. the that on funder upsizing, is very Sorry, CLO or more one. One that credit balance CLO? is missed the – I Okay, the

Tom Hennigan

Fin, it’s balance That’s CLO. sheet Hey, Tom. the

Fin O'Shea

Okay.

rule on allowing does that vehicle issue, for this cetera there? the point SEC the in for tension So, was in solved that previously but the mean SEC done upsize – I’m outside for – you Act delayed at just for risk refinanced activity so the the That you’re terms at the et was did with that not XX that is our CLO all the sure it familiar a of and issues end SEC nuances, the less your had financing, to framework run I’m the or market. of

Tom Hennigan

our previously that in on the on, hold retention issues end activity was guess, That had, No. market. the for risk I delayed

Fin O'Shea

financing on given that down, – looks quest, is and well. it sorry, trigger paid hit paid naturally it’s this or something if buyout seasoned a type I’m this provision the bit correct very Trident you Okay, question – like down one of front-end more just you insurance product little a wound here. did you the

Tom Hennigan

piece. priority one independent unit in in No. the items, back that’s The transaction, experience sequentially to revolver down the that That’s see, that’s two-line tranche in that’s we Fin, from on made outrisk we just a the all a from the vendors the year original that loan loan contributed is today, when first last you super see XXXX that hold place about remains the marked ago, original you out quarter. XXXX. that that position

Fin O'Shea

makes make guys you Thank It much. Okay. so sense.

Tom Hennigan

Fin. Thanks,

Jeff Levin

Thanks.

Operator

you. Thank Instructions]. [Operator

Our next Rick from JPMorgan. Shane with comes question

Melissa Wedel

as It's increase thinking ago? of Carlyle Hey, especially could breadth for guys question minutes size Rick about upwards and you Melissa just today. given few Quick this your from a this, leverage? for the you you Are the result across potential highlighted hold that platform guys. average of the skew allow – that impact on

Michael Hart

a Melissa. ways. of Mike. increase Thanks the in at opportunity we for Hi couple the It’s leverage question. Melissa, look

impacts First I certainly and that while market a valuation, limit look comments, as a nice to my have. the that’s in regulatory we foremost, potentially on leverage at as to cushion mentioned nice thing and increased

is which comfortably into times $X.XX we’ve on putting times. we the moving considered consider to X.X debt-to-equity, X.X where today, leverage, we As about additional always are

capacity million if it that in context. $XXX $XXX for us just you we dollars mathematically So, look And will. creates that to at million of

the BDC, of that. the capacity the grows holds with manner relative in to respect in linear terms or So, single individual to a holds

you today look are the at our just the to allow manner based commitment of increased $X size we from within taking in where look it them, in the things simply to if constraints constant would we portfolio size. today about leverage sort billion, leverage that if increase for of as all that of portfolio X.X limits XX% So, holding other applying apply on a linear overall

Melissa Wedel

follow-up, sight line Okay, large you into expected adjust guys of do to any any have repayments you’re okay. one then that XQ? willing And for

Tom Hennigan

Melissa. positive Tom. significantly the in there should But innings. I’d our expected active deployments This net I our the quarter, result Hi, is regular for in say are course, pipeline repayments. think, nothing to impact of note

Melissa Wedel

Got it. Thanks guys.

Tom Hennigan

Thanks, Melissa

Operator

and you call today’s remarks. question-and-answer participating the portion in Ladies now would to like of turn any management I over the thank for gentlemen, to call. for back closing

Michael Hart

thanks joining. appreciate morning. Thank We really you this for and time your everyone

further of with If hesitate to your speak Enjoy you. I you would to happy reach us. thanks. But out have please summer. to don’t be rest the again, questions,

Operator

gentlemen, in for and today’s you does Ladies participating thank call. conclude program. This the

You may and have a disconnect day. wonderful all

Carlyle Secured Lending (CGBD) 8 Aug 182018 Q2 Earnings call transcript