CGBD - Earnings call transcript Q1 2019 | Carlyle Secured Lending, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the TCG BDC First Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct the question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded. I would now like to introduce your host for today’s conference, Mr. Investor of Head Harris, Relations. Daniel Mr. now Harris, you may begin.

Daniel Harris

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

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

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

Michael Hart

results earnings delivered important vantage joining Head morning or everyone four with NAV us today drivers the performance. we originations, joined growth Hennigan. Dan. it's also this begin By Parekh the brief of some whether Tom our you and are thoughts I'll Originations, business Thanks every share earnings, first development on and first quarter business. the year. point strong quarter a earnings Good from for our at Grishma released key and of our Most thank call. Yesterday, of portfolio this for morning my results. for financial improvement, our metric I'm our by our look CFO,

portfolio. First our is core

venture diversified, credit scaled with First which is and lean continued joint market middle highly our fund performance of second the the fully PSP. is oriented, strong

Group Third $XX more management across last source in commitments of and our gross and direct totaling significant has $XXX And of firm-wide are and professionals credit combined including efforts now to million evaluate Carlyle loan the the assets approximately broader and record has $XXX opportunities. lending we the markets number over capital the under finally, Global global the quarter of who generally. originated credit this months. $X.X platform a that billion billion Carlyle investment resources billion. originations, and direct a capabilities leverage from lending nearly and roughly new firm underwriting potential XX AUM

of some has Looking a income investment at reporting first period the achieved dividend $X.XX, quarter in that share specific numbers, company's covering our was been every of net in our per $X.XX history. comfortably result

majority fee core results income one-time of any items. vast contributing are versus quarter's representative the related income This interest of total

XX% the to the of increase dividend the our As quarterly and consistency during What performance, a our approximately the With per of March of of to activity. led portfolio most quarter. investment Record originations well. was reached at and end $X.X near increase stated satisfying as billion approximately origination quarter the composition was first which in quality quarter be this undistributed XXXX we've dividend second surplus, considering an the special share. of XX, $X.XX we'll be of the given generated surplus payment NII income considering our the we'll of

variety of will this quarter strength Grishma opportunities. in the to investments originate and a to the the reflect the versatility of a made moment, ability directly on continued As expand and platform

market increased $XX.XX and to backdrop of $X.XX impact portfolio our activity share deliver strong of adding differentiated per we primarily by lower value and in platform performance to $X.XX was verticals program $XX.XX ability share results $X.XX, against across of another quarter-over-quarter industry across appreciation the various contributing the a driven the This overall spanned excess asset our volumes from dividend of newer per cycle. in $X.XX. and capital investment NII the were ABL space. the made adding repurchase Net share structure areas believe as our the which Our such highlights investment

Our debt was strategy the first quarter increase leverage and execution to our the the end strong the from over just growth. to X:X, at the represented prior the of fund equity use intended of of regarding of originations was result quarter stated net

look lower asset X.X mentioned to I operate of we As leverage year, when we'll to the in coverage last the X times. adopted requirement, range

we and opportunities inception. where present be haven't We growth We'll increase since the the see themselves base value during altered through leverage any way to relative asset market in organic was likely quarter. in as this in continue any case our invest when best our strategy investment will

liabilities, CLO association we our continue benefit from in premier world. one Regarding with the the to the platforms of

of our market middle sources our cost we diversifying This priced of debt. quarter, reducing fourth CLO overall further and financing our

BDC and markets our which relative provides feel valuable highly has term be This few more investment with it portfolio provides increased mark-to-market to us senior is our that with diversification shareholders secured scale We only with the but our support with we perhaps not importantly, the in first-lien of financing debt an of issuance in continue lower CLOs. one BDCs to peers non cost loans of and to the anchored volatility. necessary

lending bank by capital financing in of the direct enjoy we a across BDCs, supplies broader $X.X our which to the group platform billion facilities. continue a variety Regarding of over support leveraged XX-member

utilize program. our We also actively to share continue repurchase

recent the total During accretion a million up approximately repurchase proceeds in quarter per shareholders. accretion continue feel these we as quarter nearly on increase first a we $X.XX $X.XX repurchasing expect do share by over XX% of our a cost quarter, repurchased trading of our program $XX, in our advanced and XXXX. date, since not of shares stock we fourth $XX repurchased the represented price is intrinsic levels reflect This our amount in NAV the any the over way has in trailing has three-fold company. have shares quarter-over-quarter. in activity our our is positive year-end, our represented And to nearly of would nearly for resulted $XX in to Based XX%, a of To repurchase value we is extremely which to that while NAV and of million mentioned quality the earlier. activity yield over attributes attractive level at million which deployed related an think share I've all average we other business the of dividend portfolio given of that the to XX-month $XX.XX

we we origination to the With let we've final release program limited lockup alignment utilize commitment liquidity on below very trading versus pre-IPO recently Additionally, portfolio. we believe our it of accelerated value relative today May basis the confidence at XX%. BDC also which intend have view our program provide excellent over quarter. to greater the discretionary the We of our as Relatedly, this experienced. color represents companies and it a to a value contractual to allow space market to other will provides in us another our one on IPO yield in at XX. of an also overall the to last on the shares window This Grishma remove us of additional repurchase the levels transaction activity which and that, shareholder features some visible do the significantly repurchase turn to me

Grishma Parekh

Thanks Mike.

fairly additional approached how the footing. some and begin ultimately around credit activity firm by environment, investing how it markets context the on in translated me providing the we the quarter we QX. and Let have fourth rebounded of market produced from it The into volatility

the sudden us dislocation find compelling. stable the simply private certainty quarter middle also the scalable didn't previously despite to we However of versus have involved short steep from to the returns shied have terms. who market, we QX lenders parts in particularly prioritizing the remains this market in impact, market somewhat insulated our risk The broadly did syndicated capital volatility sponsor adjusted has pressure clients in working lived it the to driving residual equity get away market felt QX and aggressive more have be basis while than had experienced being we some because in with the most allowed to

Specifically, loans. second EBITDA well I'm greater market, referring than as to $XX term with as upper middle companies the lien million of

As that the to with quickly. to lenders turned flexible and able capital equity complex private nimble like are platforms pools large of banks Carlyle, firms markets structure transactions capitulated, and execute

and Their Carlyle’s of continued a were to capital term an including I priorities who more the influence was TCG while upper $XXX to It’s global note We give an in BDC. by our me speed, top on certainty what We roles direct co-lead speak can direct a the when what sales, million credit maintaining middle example benefit important and acquire are and approached financing of committed We held individual larger The diversification sponsor in storage the manage across were than significantly company capabilities that loan. prudent of million second-lien for is positions terms lending BDC. $XXX our mean. in equity entire Let process platform pre-empt lead holding transactions to mandated one confidentiality. the levels. platform space. industrial now looking market our were pools financing to this clients expansion private to

our say, investment our volatility QX shareholders. and I'd of dislocation for to combination usual generate returns a on So capitalizing as business was and activity enhanced

virtually QX no partially down due As activity. opportunistic Mike mentioned, and to leverage muted was loan activity in M&A volume meaningfully

we seeing thus in are QX. So a far pickup

XX During firms. the XX originated million with equity of $XXX quarter, commitments we across transactions private a solid

the yield to our and to capital us was lead about ability role XX.X%. in investments weighted of majority cost Our The led provider complete transactions. have our solution of average be new a a vast

the repeat the and investments a we senior The in the new average were a sponsors about was about XX% new conditions. X.X across quarter, has $XX versus our my earlier million of of with commitments the bit to our been were to $XX interest portfolio to the responsive intact in reflection investments of loan scaling changing of to to metrics was is platform for coverage first-lien secured that value our remain was and comments of existing more positions, of investments market deviate new borrowers. XX% is of a one from about that prior median Many EBITDA The XXX% times. The portfolio. area and our the quarter XX%. million times were our key be designed broader quarters. largely This investments average monitor ratio multiple new was investments EBITDA the our did excess with leverage This of and two

EBITDA Our portfolio shape year-over-year. and growth good healthy demonstrating companies line top and are in

of As at growth portfolio our quarter-over-quarter repayments JV. $XX at muted this million cost the The sales and the core average anticipated, XX%. at the the in about were both $XX BDC million and good was resulted and yield JV. quarter, repayments relatively weighted This at BDC

Lastly, senior we as lending hire based last discussed. a through asset fall previously entered space the

Our thesis business. complementary an cash was markets, is our and middle strategy to finance ABL remains that flow sponsor core

Asset loan an in creates and recovery covenants underwriting have have flow been across strong and classes consistent across the with more bases and adding loans the and defensive performance protections and market borrowing form asset more cash of structural rates diversified cycles. potentially better and correlation. based capability ABL’s ABL company lower

investments the two yields. made at we in quarter, attractive strategy This

expect to BDC. ROE should drive the grow We meaningfully strategy the which for higher

in ultra and with over turn the We’re value to have credit across that capital selective. what over evaluate platform financial I'll the and company opportunities acutely all review be we to and lens professionals could investing sectors expertise Hennigan our stack, cycle to cycles call remain credit Tom now relative has sizes, investment investment results. market the we're aware fundamental therefore late and the that XXX Carlyle's investing.

Tom Hennigan

Thanks Grishma. Today I’ll topics. main discuss three

valuations acceleration, core in a to income compared the the million income in in a for of of modest an last then line about during increase results, in that result portfolio, in down our first interest largest in quarter financial the quarter. quarter outstanding The expense our were $X.XX net A regular references income share. average with investment income. unusually Total an in by was this, increased lower fees growing first compared average the primarily both quarter the on about on OID that or acceleration were $X.XX income component fourth is IPO million results driven a per we the in for of originations. performance partial to the low relatively quarter have to By portfolio quarter this of achieve million which I $XX quarter. of was given six fees The dividend elevated net which was prepayment our offset higher the the was interest was quarter. over the expenses $X.XX higher $XX the the despite OID first and fourth first interest and portfolio. investment core from low million excluding or income decrease to compares and Our prior for income. quarter. of made and investment mean largely able Total debt $XX Mike declared first We're the quarters fees. the share from level any prepayment quarter increase growth in to mark-to-market term that level regular repayments end per interest one-time impact due of The the $XX of one-time million transaction earnings since quarter and

dividend our cover Directors the same of regular business dividend. Xth, Board our of fact the and core second income at as note June this May alone $X.XX share In of record to to now able payable shareholders the on as of Of on for quarter close per the declared XXXX regular interest is XX.

financing net outstanding $X.X on the driven of strong earlier. discussed the the we we about first deployment $XXX quarter debt total that's almost quarter finished billion, up million On with front, by the

During million. we revolving commitments our under credit $XXX by increased the quarter, facility

So about as of under our commitments facility. $XXX X/XX, of million unused we still credit had total

from noted, statutory leverage point increased to Mike X.XX. As X.X

a we view of based the relatively I'd deal as some Today foreshadowed portfolio muted leverage near-term. line in You quarters, next and heavy we of may that sight the well further couple we growth pipeline increase as last as recall, activity think on this at over quarter's should on call look expect time. forward, our repayments increases the in of new be

stable. that value. the credit note weighted by internal in increased fair remain rated borrowers. portfolio, The level watchlist unchanged you'll the on remained largely of at addition driven non-accruals primarily X.X, the four overall this Regarding quarter. risk remained of average performance based the was category two What deals rating This

year. One companies a of operating issues this we're seeing rebound has some experienced already temporary these performance but in

pronounced and position The challenges. has operating other and some more longer likely reporting term

to we're However position capital the private the our equity plus support additional nine business full the next way repayment amendment could within pave hopefully to to finalizing that sponsors equity in XX and months. the of

quarter. the slight was credit alone movement gain partial about market. and mark-to-market, $X in net total unrealized based to aggregate contributor valuations million Regarding for our the was largest valuations realized The and on yields bounceback gain a a in positive. Overall cap was in the large

indices. XX/XX we’ve common large the market and mid-market the far only see April, index broader and in levels modestly market we note middle that but lag However from which movements middle I'll in volatility is in of both so their a less pretty also both through in we terms timing experiencing track seen that often improvement the rebounded markets. the sharp cap

based experienced valuation in the purely some with So quarter. market further current potentially we that the decline of market fourth levels, that recapture see yield of will we

in our mid-teens line for XX% JV yield was quarter in target. the with Regarding first JV’s on performance, our the the equity the dividend about

Similarly and XX% XX% when XXXX, April capital the We remain in reduction half in deal we will points. JV about May basis JV targeted priced in to XX supported CLO which expect late levels and will we’ll stable overall the first JV an the of about this JV’s these to of by late of result mezzanine back cost in late to in loan. of our in JV closed repay the CLO second be closing range

in our the and modest equity the CLO when for quarter's expect it to when JV’s mezzanine results. investments to some that, decline With the next we me BDC, income report we both JV equity remarks. total Mike let our the considering loan from a enhances So while return back turn concluding

Michael Hart

very we're closing, first with In Tom. quarter you, results. Thank pleased our

consistent shareholders. While for remarks. market and the all company morning to our thank line open challenges you believe we'd is today's and at the a be like from That competitive happy to concludes prepared market to in We'd we continues compete time. deliver in dialing present questions this our to standpoint, to this for well-positioned our results

Operator

a Shane [Operator Thank question do Rick JPMorgan. have you. We with from Instructions]

Rick Shane

Good morning guys. Can me? hear you

Michael Hart

Yes. Rick. Sure,

Rick Shane

and Sorry, queued in. want back off I was make line sure got dropped the to I I

of that's you'll where do that after terms expect you the sponsors the have coming months? transaction In to ongoing restructured in, being there investment nine repaid back an you XX

Tom Hennigan

a repaid the and morning, full business This particular will will sale that that of be a Rick. expect continuing we position Good is in be Tom. we'll in and not borrow. have the In transaction,

Rick Shane

be on expectation or is And you'll there any recovery get that full great. principal your Okay, will that write-down? principal

Tom Hennigan

recovery. We're full anticipating

Rick Shane

That's Thank guys. great. you Okay, from it me.

Tom Hennigan

Rick. Thanks

Operator

you. Thank

comes Our O'Shea Finian question Securities. from Fargo with next Wells

Finian O'Shea

morning. to asset beyond flow you're my how this started asset talk this endeavors. Group good you to in Is this remarks your of you've is you. been BDC labor based this given understanding that the a beyond Grishma of announced how the senior BDC, and intensive strategy, bring Thank given about quarter more you're senior from able hire? something the Can something of guys, Hi it's about more on some recent building of lending based talked resources assemble internal or deal you able the hearing hire. outside kind

Grishma Parekh

good Thanks Fin. question. Sure, it’s

from broader our it, a enter us and it big are way the important and this get obviously to then and the and past what to decision the credit in is broader benefits platform you've that was the of the made then is heard of of firm. to the the they components and part first strategy the two side So thinking part origination space exploring kind were there when we the on about thesis were of and the

sourcing is in where of industry the platform is so a silos ABL generating that, relevant, in firm retail and ABL is Stretch in particular. tremendous certain the across origination the thesis and really amount we're consumer activity And particularly

everything the as we direct across we're as So seeing is lending of a deal the amount do fair thesis that direct within well from be flow in lending to going firm. that away

continue As be supporting are brought will a up couple we investing more to and execution the on building about the of focused we’re six be underwriting, the the continue of the hires there we've space, to Storr to to the the in and business. months side is that to up going team, so who nine David that that opportunities be new see effort ago Executive over the we'll build

Michael Hart

that that the that's is add like. we're this of highly regular part to that I is sitting the intended One ABL as way ABL you to of Fin, is And Stretch respect Mike. mentioned, what analysis that targeting ABL of would behind with collateral as thing traditionally think the intensive market the Grishma and

our with isn't our approach with we’ll the be strategy that ABL So where that is. certainly to to Stretch be resources will element the on the people focus bringing necessary broader execute respect but

Finian O'Shea

And Sure. helpful, in That's one thank growth then of sort sponsored you. more group. the on just

I you've time and grown think going back you've of a through pretty this an the in obviously sponsors consistent level. asset had earnings on releases group

more So much you acute the that? base. to sponsor share Is meaningfully are a runway more you how more effort your with can there would making grow more, be, question expand or still there

Grishma Parekh

with. they're bad is and that track times invest, share to opportunities in active all if a middle real years over how at. market shot, last them record, spent how really where good on and in play all and looking securing opportunities we are their So private XX goal and behave want we very XX equity see lot during it We we focused that couple particularly deepening the much of times been time on the they understand We role have that a focused they sponsors our of identifying probably we with we've they the winning and a as market being virtually that of relationship financing. the leading the in capturing have with

and as down we relationships that ways of a capture really in our the business a we are many really core identified where sort so group net origination sponsors. equity in we particularly we of to on have wide given broad that said, double with deep And strategically. in With of lot cycle, we've sponsors a private important especially

comes down it credit so And as to well. fundamental investing

sponsors our good and white with plus that there's say of we white you as have but them. rates space plenty And I'd sponsors of them So well. space relationships within see investment repeat with exists really core that we outside deep XX% plenty have of

sponsors. combination So I'd our it's a them kind X on focus both a of say, of of with Top Tier

Finian O'Shea

that's helpful. Sure, you. Thank

Operator

Thank you.

comes next Ryan question KBW. with from Our Lynch

Ryan Lynch

for Thanks questions. morning. my good Hey taking

do The $X.XX first to are dividend level spillover you do the Is the guys going currently forward? comment to special full of of pay potentially as guys $X.XX with to as spillover always guys well that one the that you that spillover some maintain the income are income want it considering. going out regarding process you thought has have you of or

Tom Hennigan

Good morning, for and Ryan thanks the question.

accumulated past for last quarter. at look the year that a to the that has that in the similar it’s the fourth to responsive reached that fourth that wanted year. out not timeframe traditionally, surplus the it a back that and special of portion in to that $X.XX we surplus very necessarily that and over money point been a at we getting As approached of quarter cognizant size into in year, that In we've more $X.XX that but at reasonable expect in at paid size that to the be undistributed and pay June year, rapidly course would accumulated declaring generated the this dividend in as $X.XX full declaring the it number This we've over shareholders. amount the how the year-end the we’re year, to

much exactly size June And that the in we’ll we we'll of $X.XX the be how So out. that's declare in will paying that coming weeks timeframe.

Ryan Lynch

mentioned you unchanged. X to your guys is X.X of leverage equity, far times as which as then to And Okay. target guys debt

continue environment range. guys first it's the You leverage in we're end move range end market to wide we're guys the you see a run are foresee now up at, do to where pretty the that target and Do given market at upper in? ranges the that within your or of you quarter. kind backdrop of yourself of current today that The the at targeted trying that range environment

Tom Hennigan

question, is -- representation utilize it. we quarter Much we this think and thought like, thought, it of had exceptional a had We Ryan. origination good I year a we quarter opportunities. how a we with Another good about investment think were how what I

The other was dynamic lower repayments.

And different of there first-lien anywhere utilized really being the have best that assets you'd that of that's look available leverage that space, so have we being the I was to the is don't is what exactly being the unforeseen look identifying X think very to the that preponderance time. fund operating that added of sort that that to comfortable that where pressure was and in good event our and range. we X.X think our And do is at and in valuations and dramatically then we'd an growth and leverage allowing this up of you on that's market high at the we simply to to use opportunities highest a X.X given view X.X volatility within X cushion in times. move that leverage to into

good So high if change or that we process at just standard really we our are very I have there a don't reiterate this again, point. and approach, I investment opportunities don't

accept that in businesses we’ll We sectors. with cyclicality the various won't have and or target accept to of respect

within we're the which going to all meet. our leverage and we’re operate looking X.X, that to respect to our within comfortably the in investments from to the for So make band. bar as view X of frame with But allowed context to comfortable covered increased that long as is sure growth that of

Ryan Lynch

my are all the understood. questions, I appreciate today. Okay, Those time

Tom Hennigan

Thank you.

Operator

I'm in call any questions no remarks. closing At like over the to queue. for turn further management Speakers, back time, the showing I'd this to

Daniel Harris

time today. attention your for Thanks and

you free next the Relations Otherwise any If to with you speaking throughout to day. follow-ups, quarter. have feel we forward look Investor call again

Operator

This in concludes conference. Ladies you and program. participating for today's gentlemen, the thank

have a disconnect all wonderful and may You day.

Carlyle Secured Lending (CGBD) 8 May 192019 Q1 Earnings call transcript