CGBD - Earnings call transcript Q2 2019 | Carlyle Secured Lending, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the TCG BDC Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]

It is now my pleasure to introduce, Daniel Harris, Head of Investor Relations.

Daniel Harris

operator. you, Thank welcome call. and BDC's quarter second Good to earnings XXXX morning, TCG

Last release which earnings presentation an website. night, issued we press TCG Investor quarterly a on with results, and copy available of is BDC's Relations our earnings detailed

we be remarks a hold website. available institutional on today, analysts webcast and question-and-answer is This our call Following being for a and will our session investors. replay will

to guarantee the These could future any be any at Any are performance our undue identified forward-looking cause of annual do statements forward-looking management from not them. Factors made reliance to inherent time. that uncertainties, current placed results obligation XX-K, materially on differ Form BDC not update on involve risks in actual TCG statements today based should Risk and including and those expectations and statements report section indicated. on no assumes those

to Executive that, call Chief Officer, I'll our Hart. over Michael the turn With

Michael Hart

on for morning, Good Dan. Thanks, second quarter discuss us everyone, this results. thank you morning to our joining our and call

on the call become President, will who TCG me CEO our is of Pace, on the Linda BDC new January today X. Joining

Chief we Head Originations, Chief Hennigan; Parekh; Tom In have of Boswell. new Direct Financial Investment and our the Lending, of addition, Grishma Officer Taylor our Officer,

Let second me we quarter. spend transition a the moment on during announced the CEO

XX to billion our today then $XX past for continue will Carlyle having and As at new I I'll loan mentioned, an broadly years, effective in CEO over that and a January manages exceptional syndicated business AUM. year, Linda I'll become has the Linda until record TCG X stepping down that next led business the be in track of of capacity. BDC operate

team. for more since with as capacities she been and years and investment been with actually her investment an had as risk to the markets are She exceptional different involved has an than our lending investment XX closely skill important experience manager credit serving pleasure Linda has committee. working in inception, a our addition is of Linda and member BDC global direct with and I've in perfect of Carlyle our our

well to opportunities within in is leadership to our team changing Today, experienced and the a take forward. positioned advantage new our move investment business of combination powerful team our is business the our combination industry of

With that, let turn over Linda? call me now Linda to the Pace.

Linda Pace

wonderful Thank experience years. you a working the with you, over It's Mike. past closely been few

remains new is excited Let Carlyle, me begin key an by for I'm today message. BDC management flagship responsibilities. why reiterating these on take which vehicle a The important to

lending to business broadly direct BDC development market is leading has a and is which credit capabilities. core and more business Our Carlyle’s the global which

I'd across like focus three my that to With areas. remarks said, today

optimal returns, the financial management underwriting our at risk-adjusted focused our Our strategy strategy on for and and financial capital quarter, the achieving results BDC.

on remains underwriting outcome. our focused risk-adjusted and best First, portfolio the strategy a managing creating and diversified achieve loan portfolio to

Our the high. expectation for company's remains performance

our changes Carlyle’s an made unchanged. The perspective, From business. into this philosophy the investment have are aggressive of core tenants we highlight investment investment

a maintain the relationships. populate BDC directly and and and industry exposures, defensive senior relative sponsors exposures to continue from will with whom bias strong value We diverse the meaningful have with towards we best debt originate

will that does we mean stand however That still. not

improvement In or advantage. efforts, dynamic whether our evolve competitive our markets in to fact, to continuous will responding extend we constantly

and new that years recent capabilities software as in practices. instance, in of evolution ABL resulted lending For our the such development

our cross will platform. the thrust be the forward, evolution of Carlyle Going integrating

of capabilities of breadth efforts utilize Specifically, our capital scale the to depth the we the our our will expertise and base, investing mitigate intensify to of competition.

and yield our which shareholders. outcomes We competitors we expect can as structural will regard which for advantages, of assets true investment these differentiated match few our

specific examples of already some will give benefits the you these and We Grishma seeing efforts are momentarily.

declared for the and a results dividends previewed $X.XX $X.XX the let income in Second, our produced $X.XX we me a dividend declared of than $XX in We share, or first $X.XX in total second overview generated per higher net quarter. of an the the $X.XX investment quarter. regular dividend an as million give we $X.XX We special we for also last declared quarter. quarter, of

of Company Our investment this income in net going produced consistently has we forward. quarterly continue trend expect excess dividend and our to

reduced share in quarter last from Our income line net paid generally with and declined $XX.XX and asset value losses total per share. unrealized of was net approximately investment was per $XX.XX by as realized dividends $X.XX to

which growing we team to years. approach the repurchased few major per accretive NAV was be me shares Stabilizing quarter, will over During the our million share X.X million, the for via platform the and focus over our NAV. $X.XX and next $XX for area stock of integrated

And for core opportunity this like stability attractive in focus remarks an I'd view plans. our that is my we of confident ability to in generate investment recurring earnings of on shareholders. my We to highly and our $X.XX capital finally dividend believe last our remain excess

We will earnings special some with regularity income core approximately of second to future in dividends we appropriate periods. At end and quarter, our special as $X.XX consider future as the had share per fund additional the spillover dividends allow. in

quarter As XXXX. $XXX of million today, our remaining we the $XX million repurchase have implemented fourth authorization of during on

our at the believe platform. accurately of valuation We our or we shares continue strength not reflects current investment as our will price current to share repurchase do near

business. me the let the discuss and call our of that, Health over to Taylor, hand will Direction With who

Taylor Boswell

this today with team begin my this and across the of Tom work assumed important excitement of talented the Lending. for I'm Thanks, investment Grishma, Carlyle and to our operating I'll here activities. rest BDCs investment role join Chief expressing Investment Officer effort. Linda, Linda. our I'll having closely recently In by role, Direct

us at indicators is the data of tracks global to ranging Carlyle proprietary closely information many from research economic health available hundreds analyzing leading to of which by resources economies One team, portfolio our across of the macro companies.

we position efforts around ourselves findings. how regularly expect we and the to of you forward, insights Going share with their these

geographies. or today, Carlyle global certain across see near-term weakness Looking driven emerging recession. foreign signs The we trade of U.S. contained to economic largely see a are our sectors portfolios do not global does and global

U.S. deceleration, leading evidenced this economic is more in impacting real an extent not said, sentiment to teams. to management while That by conservative and approaches business data

a business credit markets. in over downward likely our mitigate vigorous This The our the global or stable banks liquidity global pending forward all favorable from months. less last shift of interest expects real is peers. macro both depth in rate as response believe for response to abrupt six result duration and has of the as in to Carlyle one we led development central that weakness well economic increasing BDC and expectations

is per else being rate loans floating our basis LIBOR all Every points investment XX annual of in and XX% reminder, impact comprised income a portfolio $X.XX share. will of by net equal. As change

we importantly, portfolio positioned our to Most macroeconomic backdrop. extremely be against consider well fundamentally BDCs this

A investment We long-term exposures, lien cyclical diversification weights under and degree will of have benefits shareholders. XX% all industry of to true in significant to which of instruments. high first be our our portfolio more believe we

expect current and expectations which progression in are our normal room was see for pleased period, aspects impacted higher financial of of realized area unrealized was we of one fell QX while In with improvement. short would our the to performance, which course. controllable in NAV, most than the we The by losses there remains

portfolio not We of indications credit or concentrations have and ascertained weakness. our economic situation either dug they in thematic broad into each represent issues, risk idiosyncratic

focus a these and necessary team you maximize the shareholder loans As have are resources expect, our committed would significant for to we value.

dynamically diversified comfortable appropriately comments, with optimistic positioned defensively we we and also our to business respond about conditions. are while our To echo All-in-all, market of will the broad integrating maintain capabilities Linda's changing profile to and our platform prospects. portfolio

on diligence opportunities we advantage. Our investment remains borrower resilient a differentiated quality, process relationships high our businesses, rigorous, recession with and have clients, focused investment where deep

hand over through you in to take now activity call I'll the origination our the to quarter. Grishma

Grishma Parekh

Taylor. Thanks

multiples me conditions terms In dynamic. the substantial stable both purchase backdrop and with The for general to by the characterized economic equity private powder firm, continues prices. private market, drive dry by is painful generally private credit managers coupled leverage equity of and held this high

see Loan activity. focus uptake to sluggish our of intense play we volume Competition this due remains areas new opportunistic investments in for assurance. did an to and been has response activity, in muted origination M&A our quarter to was although,

platform our the past. than have in way a greater done capabilities harnessing we credit are We in wide

our long-term whom that stack. offer expertise the that example, idea research credit of investing one-stop taking equity and of syndicated creative several a parts a leveraging relationship transaction means an with capital to by analyst strong bring in generated aerospace Carlyle's professionals solution a companies in For sponsor have we business, the private the loan across broadly aerospace to

components occurred is investment This and owned one aerospace in recent manufacturer our aftermarket core exactly by Warburg Pincus. what with

in that found credit across order quicker around conviction can expertise. with is outcomes. in aligning We we by more industry only also to are better doing We greater resulting but move develop firm-wide this not

amount device a For a significant example, contract is other and Regulatory our leveraging Affairs Advisors. of medical spent manufacturing healthcare team, time have and our sector Group developing thesis Carlyle by niche around we

Altasciences Our devices. knowledge a designer medical lead Acquistion, space us for complex secure US and to of the the electronic impairment conviction manufacturer led

quarter, XXX Much with across equity in XX line about QX, the XX the equity to Moving of transactions clients private existing our companies. with with private existing we numbers to of during and supportive capital firms. originated was portfolio half this the business million essentially commitments,

offer clients is believe we the of risk an in best some adjusted opportunities. and As tool investing we important return borrowers the management past, and said repeat P risk behind

of This and positions. overall. line amortized for average of and quarters. cost in quarter, investments portfolio prior X.XX% X.XX% our Many about were new investments the was these yield senior first commitments XXX% for lean The with portfolio broader vast new weighted remain more XX% our to metrics secured the compared at our in largely of key monitor debt new the with we majority

high our was multiple the for mezzanine investments and of ratio coverage JV excess XX%, the XX EBITDA across were new which loan-to-value in was The million XX the the million new deep the our dive median of repayment portfolio. Xx. this with of excludes Repayments was at quarter XXX million a X.Xx PSP. was average investments loan million, leverage a interest XX versus So average

with which This QX had market due is volatility in the that quarter. minimum the repayments to contrast

you look line when years. However, in with they the of for at first prior repayments were XXXX half our

a we in experienced our reduction of of BDC X% JV result, net in net X% and growth portfolio the a As

financial call Tom over the review to now I our Hennigan turn to results. will

Thomas Hennigan

Thanks Grishma. up which to income OID the first the about compared investment accretion $XX was right was increase million The for to Jumping quarter. $X Total quarter repayments the due balance. lower into income total prepayment second level from primarily and million, was LIBOR financials. This and quarter was from higher and from elevated by non-accruals JV. pressure of our some offset also and this lower the negative average in fees investment higher increase

million $XX expense, average to expenses in $XX share $XX and the $X.XX compared million last since of Total per to for driven share. quarter. by net component our compares dividend regular primarily were million The resulted increased of of with per in largest This the average outstanding. and that an interest last income higher quarter seven the of $X.XX $X.XX investment quarter higher IPO quarters over or the our debt

referenced regular core Last interest the any fees the income which on fees. quarter transaction OID as term define income, we excluding or we interest acceleration, portfolio, prepayment investment

that's This of quarter still the per record of And related quarter covered up the declared our business third dividends. dividend regular to close We and the X, comfortably of would of $X.XX income the elevated XXXX, September back of same if Board of transaction as on share at for the shareholders you XX. August the on streams. Directors payable regular level have

front, That's $X.X billion. compared of total On outstanding to flat quarter. finished the debt with quarter financing we the about second prior

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

giving our million was So in unused leverage had growth line the about commitments as generally Statutory you XXX in the prior we with quarter X.XX, credit portfolio. under facility. $XXX the of total

looking them expected we level steady see quarter. by more to given the end increasing due modest more third this do originations favorable more And However, our this operational environments public in of issuers, for a repayments increase the we'll quarter financing pipeline be near-term the meaningfully exploring at with combined market private anticipate the flexibility including we all the markets. areas of transactions additional rate capital to and

equity our the Moving was onto about XX% on quarter. for the the yield JV JVs performance, the dividend second in

points. reduction previewed the overall JVs CLO call by about May, in which basis our in As capital JV, late second an closed cost last on we resulted the of at in quarter's XX

average we portfolio, this overall the activity risk weighted Regarding had in internal increase rating The an remained X.X. quarter.

total this loans However, watch net increased quarter three a list addition again with borrowers. of

supportive with enhancing our are these that issues. amendments remains we recovery. have Sponsors believe full With We've capital. credit the overall their additional theme most is negotiated temporary cases goal in and been performance closed

on addition downside two mark, a quarter at value to borrowers. quarter XXX non-accruals level that post our to one from We the a positions’ X.X% investment. of increased end with developing lower this fair our totes potential exited of our X% these The driven the based in view recovery by level than bit on of

For the these be situations. transactions and continue other fluid non-accrual to developing

the the the to we additional next hope Given we're quarters. various of updates parties color, status negotiations ongoing but over between in couple providing have of limited

unrealized on negative $X Regarding valuations million realized a the continue this primary on million. total gains markdowns about market aggregate NAV, million while where to positions related quarter and for yields loss rebound Credit aided the was in in versus prior was driver $XX the exited $X net our quarter. loss. unrealized by of about evaluations a They

quarter roughly loss primary million The this two realized components. has $X

realized that And gain was First, reversal prior Celero a imperial losses. of second, million in $X recapitalization of and co-investment equity our unrealized a date. on million $X an loss primarily period for

Without to let the back me Linda for closing remarks. turn some call

Linda Pace

Tom. Lending moving business Thank forward. to excited I'm our to opportunity Again, lead have very Direct the you,

focus I to the growing and adjusted major resources risk stabilizing mentioned our and areas Carlyle. As our be of among NAV leverage shareholders delivering further strong will diverse as returns we earlier, my

and morning, now and Thank you time this over call operator your to for turn attention the the for back Q&A. I'll

Operator

Instructions] [Operator of with Rick from first you. J.P. Morgan. the our Thank line Shane comes question And

line Your open. is now

Richard Shane

things. question to about the congratulations. Wanted morning. talk taking Linda, two for Thanks guys. Hey this

interest floors all, current of could to given and rate portfolio negotiate of in the of the your investments us sense in you the on a give outlook, distribution your current floors guys environment? First ability

Thomas Hennigan

Tom. is This Rick. Sure,

those LIBOR the think most X%. deals, have and particularly in portfolio floors typically it's we transactions. LIBOR directly I floors have market And Our to for continue originated our transactions middle

Richard Shane

floors rate regardless year sort base the curve the were last curve gotten that's was typically you rate when were of And They're X% were in you're rates – in headed haven't of in rates – getting higher with floor that. not interest environment, higher higher rates higher. suggesting the higher

Thomas Hennigan

been last of really the number the for standard has One years.

Richard Shane

it. Got

great. Okay,

Grishma, of historically nuance approach integrating this specifically of Carlyle, at inception a terms specific question, resources of about beginning sort talked one all new been in company. you the the notion you curious to we that there's goes the Carlyle Second of back from way looking the said should different, love there. the to be the I'm this what transaction, really or the to understand

Grishma Parekh

question, Yes, Rick. sure. To this

capabilities So utilization of been and firm-wide has is really that core our the investment integration frankly, of our the ethos something business. and to just and our credit-wide strategy

we're within a way, spending So lot with fundamentally opportunities time changed. Tactically more now, approaching lot firm. in a groups when other has we are the not collaborating that

are can develop around lending certain analysts, that to we We're so research direct so the that a within formulate interesting we're then generating continuing call, a an sector private more just that necessarily deeper ideas. and that equity niche our areas think ring includes the include And our of opportunity includes so to phone and expertise, And team, certain credit waiting sponsor. members of members we really that'll sectors, for business that not from the proactively thesis sectors.

invest to been really deals success seeing we've the to beginning. even on sourcing very the those we've ideas focused from an much more Carlyle that we that way that taking becoming approach for in want big in our by And rates the been one impactful shift and efforts we're deeper a just

Richard Shane

tapping up past? into using characterize to from transactions experts at strategy that the resources ideas looking push sort a the of Carlyle opposed pole you've Is as more of it of to in been when pushing the as the fair of strategy

Grishma Parekh

Yes, said. that's well

we we of we've an organization. generate of looking So think was would what of lot now opportunity, seeing various ideas we're in parts I and think we're out sort the the that already looking a in can other in invested capacity, tank market, past the almost at various saying, reach when sectors and a and in from investments there at time spending what

again, our a doing. don't private that And we to we think can we before? of equity direct capital, as clients lot clients of lenders ideas looking us And when lot that a provider found that, haven't just that a done our but are now we've of that are of bring provider in not a do at a we just also ideas. What unique other way really

Richard Shane

it. Got

so you Okay. much. Terrific. Thank

Michael Hart

Rick. Thanks

Operator

O'Shea Thank the of Wells you. line from Finian Fargo And our Securities. comes next question with

Your is open. line now

Finian O'Shea

Hi guys. welcome, Taylor. Good morning and and Linda

to of quarter the it this First on remarks looks healthcare are services side, some of valuation, the related portfolio like some names. negative question the

to ask, these portfolios? a any across on BDC employee specifics company. be on portfolio pressure to Is want are could I any are So you any or can't issues helpful frankly there retention there. provide reimbursement for challenges So seen maybe into in which get acute practices color industry you issues, appreciating there it'd this your many

Linda Pace

nice take This question phone. themes made BDC, really in to across because team ourselves other to but pretty pointing Fin. credit the then the But person and to not that you with platform seeing in that global as comments. within the meet far soon, is portfolio. you're our think really I in on Hope stress Thanks making in Linda. I'll looking regarding one observation it's as more just you what are we've and at jump folks there can we're Sure. your any that's the in meet as

space, got only and more do of services they're challenge systems have types the we having And that, aggressive list like you part, challenges. in on of not which thing are point with. personnel a on seeing within you've most where challenges, challenges, we're companies watch to can we non-accrual, are is situations. one bit for but that are the challenges more transactions things sponsors for that or come But And that reimbursement that healthcare our roll-up seeing the idiosyncratic a more with those dealing names

those come of that So think of portfolio market. in of the things these the as yes, deals more looking we our that's see have we aware and at I kind becoming learned we're we've more noticed, something things on lessons to that

Finian O'Shea

allocation allocation, economics Sure. the the a a originates question does any And the Carlyle to just BDC? Appreciate advisor when receive before on – follow-up new loan, color. it when upfront

Thomas Hennigan

answer The fees, Tom. It's Fin. BDC received Hey, no. the receiving. is of zero what manager outside is, The

have and there underwriting BDCs the of to there's So full no extent the fund. our pass-throughs manager all for to and whole that's manager taking and access we the on for But demand, is are certainly – our that funds that of underwriting. that funds fee the the be our screed fees ultimate may there it the

Finian O'Shea

Thank question. for my right. you All taking

Operator

[Operator Our you. the with Thank next Ryan question Instructions] Lynch of from comes line KBW.

is line open. now Your

Ryan Lynch

taking my Jeff the for at amount Hey, ago. of Mike questions. good That's at a BDC. Linda, of Hart, year for executive question a Levin the earlier significant first announced you. months few morning. Thanks Obviously, turnover level resignation this the then is and

comment can on investors just level So how turnover? maybe with of you can executive get comfortable that

Linda Pace

question. Sure, Ryan. for Thanks your

underneath here That's is, And still and a So you out what and still of the Mike's all of are we like the the have year. retirement working XX yes, them at and of Tom, departure very tell still hard. people. and two team that people would Grishma end I Jeff's people acknowledging

been and of we're the role Even more the been to beginning, not a the Credit me because President more on consistent the BDC of overall taking to more focus of platform, and really investment but member into the the since role, to of assumed the opportunity I've the add to of and resources Global BDC the President. platform. the team, kind committee though, importance people Carlyle's I having new just put

of lot the from senior have usual So with the and as credit and think of confident on to a experienced focus feel focused professionals Carlyle's highly we are shareholders we BDC. – continue really work it's business we a And hard. that can platform ton I

Michael Hart

have within our the confidence Credit never I business. context And and just about may allowed have have involved an where be our where add, contemplated if is stands our relationship Linda on business but better think one, think are a people I the – has the decision immediate more for impact will And and I had Global to Linda that Ryan, never personal to I felt the and that overall involved the business in people of be platform. – and are stands my

turnover – this. is businesses So – while like in business inevitable

I that have Taylor. with a is think joining benefit integration at The like Global platform. the our say team the I greatly firm individuals and with never been Credit time unique has that having been Linda can point it will from on personally better focus business further and that talented a resourced. we the there's

Ryan Lynch

Okay. That's helpful commentary.

quarter Middle yield the the on you I was securitization the know QX, this securitization was of is that lower guys back yield a Credit issued yield I kind was just expect XX% bit you question or quarter. CLO and know had range? that Fund, sort XX.X% a Market given type XX% to into said quarter. was up that this Next bump wanted to you in this issued or that that of trough guys the

Thomas Hennigan

Tom. Ryan. It's Hey,

flow one-time to prepayment to for our JV in in that kind OID extent of one-time low transactions of fees there ebb general yield repaying think the that that mid-teens I and JV. deals you'll the on fees based are any range on equity see just the

general see ebb and range. that So I'll you'll think flow in the

Ryan Lynch

would then I repayments guys the QX. at How normalize XXX running of quarter, million for you should XXX of to Okay. from been repayment were is Grishma, very expect you the the kind talking kind million, the side about kind in the given this it we have is, And XQ of area? outlook – looking believe strong muted

Grishma Parekh

there little which of in bit would from we pointed Yes. in first a repayments very was repayments because that way is task, forward of the was I in a the across why for Hey, the pull that, of we fact QX. QX to little Ryan. feel sort there did say like

expecting much here we And outlook. as to balance good of we're the and repayment backlog context relates pipeline environment. think repayment for it pretty And so, and QX normalized as in our of year, our the I today, feel more both a we the a sit

Ryan Lynch

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

Operator

Thank showing time. further you. this And I'm no questions at

turn over call of Daniel back Harris Investor closing Relations, the to I'll that, Head for remarks. with So

Daniel Harris

you, Thank for you attention operator, thank and all and morning. this your time

have If any questions, free to end reach Investor you feel after with to next to I summer. the do will speaking forward you further again out look the of call. Relations the quarter, and enjoy

Operator

Ladies you and Everyone does all and in gentlemen, day. This participating today's for thank the conference. conclude have you disconnect. wonderful may program a

Carlyle Secured Lending (CGBD) 7 Aug 192019 Q2 Earnings call transcript