CGBD - Earnings call transcript Q4 2019 | Carlyle Secured Lending, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the TCG BDC Incorporated Fourth Quarter 2019 Earnings Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference may be recorded. [Operator Instructions]

to conference like speaker to now Mr. today, would hand over the your I of Investor Head Harris, Daniel Relations. you. Thank go Please ahead, sir.

Daniel Harris

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

and on for the today, do we and will Report results statements to and is Risk will that in analysts current placed the session actual and not remarks be risks on are could question-and-answer section cause call forward-looking institutional reliance those These our undue management involve on Following being not available our of indicated. a Form identified based Factors expectations those webcast replay be XX-K Any performance Annual on our and them. differ This statements investors. hold should guarantee inherent website. uncertainties, from future today, made materially including

assumes BDC Pace. time. any the forward-looking turn I’ll our to no over update any to that, with Executive call Officer, And Chief statements Linda at obligation TCG

Linda Pace

morning, for on call fourth joining morning Thanks, Thank our our Dan. quarter to us discuss results. everyone. this XXXX Good you

our on the Officer, call Investment Joining Financial me Boswell; today Chief our Taylor Chief is and Officer, Tom Hennigan.

the capital and first, discussion quarter; I’d of as the today XXXX a dividend. like position brief remarks to results exit strength and second, XXXX; begin on and momentum highlighting summarizing my third, X areas: across business we our and for our focus our financial

our we on us. opportunities well a the XXXX discussing positioned to we enter of strength XXXX, platform. by are was I’ll as year ahead for of change and our company capitalize the start of

over we the wisely on While I process active in of manage our Senior right ensure has that place working position. to our Leadership our formally continue Team the investment Executive X, have drive been BDC capital Chief extremely to past to role optimize the few portfolio, our company’s of our January entire quarters, Officer assumed team and

along I, of will amount detail, had go evaluated team loan we have identified small an accounted moved that piece part portfolio to and investment minimize and more Taylor entire for but that of our of with we process. a our our our risk. quickly Taylor into every losses rapidly outsized

eliminated We that relatively largely exposure period a sit short today, here of in having time.

our of is goal. us help prudent achieve to and for will stable regular NAV management standards, earnings portfolio goal Our that Disciplined portfolio and usage deliver underwriting sustainable coverage leverage dividend. active

originating strong and X Our capital and philosophy our is outcomes towards with investment anchored deliver of investment create defensive utilizing breadth and to deep better of tenets: shareholders. Carlyle’s differentiated full investment core the industry capabilities, sponsors exposures; whom debt scale our of bias maintaining depth meaningful our and relationships; a in directly expertise have senior and opportunities we from opportunities for

as the me of Let investment a to we our well special net dividend $X.XX results of We generated regular our share overview of on share. declared and fourth for income $X.XX an quarter. per dividend $X.XX as per move

every dividend. quarterly we our investment IPO, of quarter As done in income our in have generated since excess regular company net our

are going forward. confident LIBOR dividend yield, lower be for continues quarterly to standard portfolio headwind pay to While overall our a we our in ability

impact $XX.XX Our $XX.XX special from includes net quarter, our share dividend. asset per to of the last value which declined $X.XX

would net been asset value up Excluding quarter-over-quarter. $XX.XX, this, per have X% share

repurchases and Our per ongoing accretive realized and to a were share unrealized $X.XX appreciation in portfolio NAV. gain net $X.XX share experienced

of Carlyle’s me bond. million of a we team XXXX, At receptive $XXX and with discussion unsecured position. Let and advantage dividend market place to conclude a capital of distribution end strong our privately took the

during unsecured his market, with pleased initial our upon the further in remarks. Tom touch execution We’re which will

We active levels. to as repurchasing continue have great been in company value also current at see we our

quarter, we over shares. in fourth the million $XX repurchased During

approximately remaining we current As $XX authorization. million have on of our today,

the or Over next seek Board authorize quarter repurchases. two, to approval additional to we intend

program the We NAV. feel buyers added to and today our our have of XXXX, the repurchases relative active the our we low $X.XX and to approximately at take end Since the confident of discounted quality initiated deeply advantage remain expect of of our portfolio stock. about valuation

we approximately preservation. we noted, price as currently special dividends XX%. $X.XX future dividend a share per quarterly balance announced XXXX. $X.XX $XX.XX to share That regular previously shareholders to to In said, an yield dividends special deep compared approximately we represents our attractive discounted share, XXXX, intend per At of of capital of in with

reiterate, to a investors We portfolio valuation. focused at stream offer believe CGBD we and remain on high-quality shares NAV. performance attractive extremely So dividend an recurring stabilizing

me over Let to our Investment Boswell. Taylor call Chief the Officer, now hand

Taylor Boswell

Linda, you, this support the and in interest to of Thank for their and everyone on thanks call morning CGBD.

and usual, an credit market current conditions. read economic I’ll briefly As Carlyle’s by start of update sharing on

topic experience of the credit reasons spend in why on to XXXX. expect as quarters of of the to most will compared and time the I coming we my improve it performance the

economic Carlyle there did of concern, of share, at front, was time the not which entering environment. a the On our report recessionary last

growth support Carlyle then, The easing should seen tensions in trade signs in further the XXXX. in provide of global our clear portfolio Since economy stabilization of continued have and companies.

and demand That strong the from reverse non-cyclical year. we to said, relatively impacts activities. portfolio is risk closely this not likely on is which postpone, here we are economic to flatten impact but our coronavirus we expect across that our expected emerging while driven everyone our monitoring knows, coronavirus. be of this due view domestic our will or early the global pickup is The As overweight limited footprint,

technical of environment be CGBD’s the are All supportive to the we strong portfolio. in period of experiencing demand. of all, performance markets continued judge levered Meanwhile, credit corporate a current currently

activity past memory, fixed been asset rates and markets months. a suffer repricing has of dislocated As over like compression alongside leverage and classes fall the finance of The income feel traditional conditions markets. yield heavy the XXXX distant several

competition of conducted, a on is all putting direct and premium where origination markets, remains investing of our breadth quality footprint. credit one’s stiff, private In nearly

able respect, market positions Our tight. generate platform quality outcomes caution, well the execution investments and is cycles. relative of broad moment to attractive are financing a Regardless, us in investment across underlying is we between for as relationship this and this

credit. to Turning

has relative XX the been detractor our from our credit months, last otherwise in book principle Over of migration a driver valuation value. the results. opinion, unwarranted And discounted our to

up, has efforts, reported credit strong actively to have position been as special dividends. this pleased, maximize improve on results strategic to those NAV Due actions quarter. our at and initiatives We team we’ve been as performance well tactical to value not working level. excluding With

we stand confident, forward performance that today in expectations. here will and deliver X confidence. more own investors are go with line increased for we There reasons our Importantly, our

been in Program, the a have losses otherwise First, CUP. as concentrated single exposure, our Carlyle strategy known highly Unitranche

we a financings exited. As origination took offer largely To was result partnership is our now CUP borrowers. of efforts market from to activity, refresh, and CGBD XXXX, an and the where XXXX small ran CUP unitranche exposure last-out

IPO, representing portfolio. over and X/Xrds of half CUP net unrealized despite realized the of generated figure XX X% has Since of the months, our losses, last in only CGBD’s our same and nearly

performance upgraded been single on have which negative Further, of We on the outsized recently improved as a position CUP the position. it a reduced to in was no results sub-X% CUP which our our result longer performance. had weighed can past. now watch list, exposure produce this

for the senior on more from performance in the our positions. we positioning less investments. analyze a around allows control first We workouts, we experienced portfolios as Second, away of exert take case prospects portfolio us with CUP, of structural historically to This dollar from our erosion of comfort volatility in run and sustained heavy earnings losses. risk true less ongoing assets permanent XX%

dollar today limiting of list the which Consequentially, the prospect our credit of severity performance essentially characterized first in our periods. all fair of exposures, recent our of the high value weak outcomes, watch credits more

our income to and Dermatology dollar restore we Associates, and to this name ultimately generation CGBD. is receive is to in first there significant our category, non-accrual recoveries which list recent from a expect addition

by leaves are position us going of means and we no perform future better orientation portfolio the to losses, immune watch while to our list first So, dollar credit forward.

in where we third, exposure, namely our have do debt lien the portfolio second of And XX% junior instruments.

our track on an averaging average of CUP borrowers, focused program. EBITDA risk larger currently to compares for and $XX of comfortable This lien We million EBITDA. We position with investing are our $XXX the over record. second million

borrowers in since CGBD reasons, record in larger with realized from benefitted profiles. loans. For for true second sounder track for make unrealized And and have these obvious investing performance we inception exceedingly strong credit positive lien an

positioned and By income enhancing credits the combination of generation, legacy are us borrower from yield our concurrently we which an incremental XXX average we on as generate increasingly expect which to points integrating business, we Shifting ABL incremental by to the lien, XXX factors. privately to CUP our strategies offered drive have source and the and additive as portfolio. of replace risk these market, large compared with to second opportunity spread exposures well such platform our placed capabilities, should diversify Carlyle to basis yield overall

significant doing exactly quarter, success In fourth we this. had the

yield from to to the will compression Europe QX opportunities in in compelling CUP from investments that Sourcing quarter. temporary recently and experienced the These offset second lien significantly close exits. expected are first other made

months to To off the portfolio strong conclude, our to initiatives start. X improve last of are a performance

yield core performance With our behind confident are improved deliver us, these meet we of to sustainable and investment in to our the shareholders. our effectively delivery CUP objective, to efforts ability continue and

now Chief I’ll turn call to our Financial Officer, Hennigan. over the Tom

Thomas Hennigan

Thank you, Taylor.

LIBOR, acceleration investments, elevated was driven in partially was income the solid an income yielding This million, total $XX previewed, generation. repayments million by by due total decrease income quarter the to investment higher offset was during primarily repayments the core of had fourth higher to fourth for investment of one quarter Linda and higher As Total we and OID non-accrual. income the quarter. lower the prior in The down JV. interest addition from of level $XX on from quarter another decline the from book,

quarter, as and line average quarter $XX for of On of quarter LIBOR, payable of investment Total XXXX, or $X.XX on which June declared down at incentive IPO. fees. record by were of the same regular per February lower million quarter, is that’s the share dividend and first lower the since business net Directors of management shareholders This from from for lower Board to share, primarily March XX. our expenses close XXXX driven expense our the million per resulted a in with XX, $XX $X.XX and the million interest $XX last income the in a of

some in our compression. comments on Expanding of yield earlier

about recapture repayments X.X%, XX/XX, Taylor a of the investments largest our core basis component priced us we prior strong The was about lien XX down basis quarter. as of higher have portfolio based was that As noted, XX on decline. second costs allow pipeline the assets, to loan will yield that of points points on from but of

As quarters. this as LIBOR we the of to yields a forward impact XXXX lower we’ve headwind. But on no When in to past the few highlighted OID look earnings, quarters, pressure be in to continues range. earnings acceleration with though, combined consistently NII quarter lower us see closer our in first XXXX, of we still $X.XX we But dividend. to even regular the some $X.XX see covering the coming we surprise anticipate

in focused the to equity trend JV the fourth on JV dedicated early Repayments quarter. our resources the on outpaced performance. deployment JV’s for Moving quarter. But origination with the XX% JV effort. consistent in the increased we’re this XXXX at to again remained The at yield on reversing dividend the during

was about outstanding evaluate leverage $X.X rate Shifting alternate the were mentioned continuing prior to times, front. our that we billion issuers, both X.XX quarter’s financing and given consistent call to the was solutions. last environment statutory financing favorable more We for with debt quarter. Total

our and million as the December, business our execution, To the flexible think is of in that unsecured covenant and X-year internal end, team note a closed attractive $XXX X.XX% rate, unsecured package standard which given To savings we quite first maturity debt. development all-in cost fixed successfully offering for leveraging note issuance from we private a distribution.

we use us management our under of times. to target Proceeds to run the leverage The tool offering within to comfortably range repay the X.X financial debt risk and revolving facilities. offering, our from flexibility provides X.X

the rating risk and internal list increase Regarding average a had based watch weighted X.X portfolio, value. we on modest in overall the the remained fair

given this we’re been September at the quarter, fair aggregate losses. valuation prior-period flat, our Quest, or fourth The the And has outsized XXXX. accounting total stabilization gain nonaccrual net investment our X in And $X.X about loss for we with investment gain in dermatology writing seeing that was an position we placed realized valuations, unrealized the related to had investment quarter off is reversal no value the unrealized was and on Product million with although credit our in loss. quarter equal for On our sizeable since signs associates of realized but of company.

This in our a prolonged loan original we realizations able dollar our a fourth given XXXX during we’re return of in other Regarding in investment. we position, our first exited successfully excess of [ph]. the investment XXX% back was [XXXX] loan in and to recovery workout, quarter, early restructured resulting our in maximize risk

we this in stability characterize in all, overall quality. all credit of of So one quarter

With that, the to let closing Linda remarks. me over back turn for call some

Linda Pace

Thank you, Tom.

turning your a company. that like progress questions, and for Before year reinforcing I’d change our to was of conclude by considerable to XXXX

We capability. enhance investment team, of our and underwriting part and to advantage have grow taken the being of origination Group, our Carlyle our process

for shareholders returns the point, we in firmly have and attractive this place At execute delivering XXXX in beyond. to resources our on

the questions. turn I’ll that, to over operator, back Daniel, our for call With

Operator

first Finian [Operator Instructions] comes with Securities. question O’Shea Our Fargo from Wells

is now line open. Your

Finian O’Shea

morning. for on congratulations and having quarter. Thanks on good me the Hi,

derm one would up, so your so can have I placed valuation expect on nonaccrual, either help nonaccrual last that that quarter associates, on implying you the would valuation think was recovery, on don’t down. or commentary First been full recovery. appreciate be it should it on the I But but you the that reconcile hopeful was

Just movements? conflating give you any to could those context as

Thomas Hennigan

not I good recover, is particular market, we decisions bifurcate in is think we different a to I is of think What time. necessarily right at on any right our point Hey, again mark nonaccrual discrete valuation Finney. but what what based ultimately the is to It’s do a morning, Tom. view at going the valuation value time, we’re in point fair the in indicative two

current getting moment to the related time. Nonaccrual in our income at interest payable

flow is cash based. So one market is really fair one based, value

on do quarter say, So stable, we fourth that’s versus income and negative what viewpoint, why one, quarter receipts. obviously, I you the current see nonaccrual, valuation would consider third

Finian O’Shea

unitranche, Thank all major a a question you just Okay, that there is you. this on of like Tom, appreciating have well, a that’s helpful. it as And identified that stress. also, quarter. out of the And on – you that source looks rotation

second-lien, good that harder assume was that’s read to are The us they is, that I quarter quarter. moved first to loan of effectively although to top-line, mind and given for comes your source thing the a yields

to that through posture? of kind have asking similar of But I assume you replacing will first you get strategy lien – a conservative income I’m or what on another this do more just migrate

Taylor Boswell

Hey, Fin. It’s Taylor Sure. speaking.

borrower I to we’ve things. think track CUP record good have you long is what in. should expect and investments a that a that incremental conducted our for One, exposure X which portfolio, large be replaced for in second-lien time with

fourth yield quarter, In first booked which drive fact, that help assets in will closed quarter portfolio. of the already couple incremental the some those in the in a us we’ve

which more sponsor incremental then, yield market the class. the versus And U.S. finance platform, I using secondly, that that around strategies of offer do quarters from available proactively heard to of core asset think of over middle we’re the you us some the other course couple us last us

levers, to we’re well So out already. we positioned replace think our to income that way X and of, rotated between and we that well on doing pretty are the confident, those

Finian O’Shea

you, me at Okay. more was more to bottom – on the – trying for item a And return, us, stable remind similar or I investment very Thank portfolio. that of top are pretty or you target you think XX%-ish line this credit you. good one XX% the of Can if higher? XX%, fund and to – make regard, just but the are the

Thomas Hennigan

XX%. mid-teen, that XX% It’s put the our I to return so is Tom. that stated target We’ve always in

say, So we’ve been relatively end stable we’re range certainly we XX% But, – historically. now. I’d that of that right level the see bottom towards we’re

are will Our that aspirations not XX% XX%, right now be that a number.

Finian O’Shea

you Sorry, size I the you will Tom. grow of meant have will the to portfolio, say more fund? –

Thomas Hennigan

looking too. I relative relative there we’re stability too, think there at stability

Finian O’Shea

Okay, that’s…

Thomas Hennigan

[Income and] size. [ph]

Finian O’Shea

that’s you Okay, so Thank all me. much. for

Thomas Hennigan

Thanks Fin.

Operator

Thank you.

KBW. with Ryan next comes from Our Lynch question

is Your line open. now

Ryan Lynch

questions. my taking for Thanks morning. good Hey,

The exit selling significant to guys CUP you those that exiting portfolio. accelerate first last-out this loans kind quarter. this There or loans the one is exits quarter? were of those had with to run-off parties of the to course the other normal a of that loans, do Was

Taylor Boswell

It the normal again. by some of no Hey, refinancing Taylor there. sort but proactive activity, actions. market It sales was positions. and activity, It’s then work was us, M&A X of

Ryan Lynch

yielding think they’re I very you large liens losses some on that I But mentioned had, which then And that your replace as interested, with Okay. yield they going enhancing to CUP sense. to as borrower can that, you strategies. loans was I half loans, comments, make higher was in interested of decision that you your other CUP, realized some the you of CUP that exit well the the those because last-out said those given were loans second are generate

second the borrower those liens, then But realized with said just But you’re are last-out unitranche several to I over as caused years view replace reasoning second those. large loans specifically lien the meaningful and larger as for borrower mean, on I have going and synthetic standard last lien basically losses them you now loans loans. you’re second you exiting loans

So changing those loans, the last-out and lien from not reconcile then loans your those? it risk can unitranche me you like with CUP standard seems you’re help replacing profile second and really exiting

Taylor Boswell

difference the primary borrower. The of Yeah. is size

about is marketplace, really with inception, for second been that $XX coming also junior So market at CUP’s these there track we orientation way historical doing larger our When debt that technical second in borrower that we’ve million think lien one structural size. the that borrower the have changes a today. which average a a EBITDA average of time talk since the about performance of and we and investment strong demand about in some gap smaller million liens, problems there’s marketplace, $XXX key was is record assets. working, of we the is in It’s where in positions up on where EBITDA portfolios

a be risk track place of perspective, risk right reward us record junior the the in exposure. to perspective. on more And that our from better borrowers scale of confidence lot will actually it’s performance nice space proven drive now point, pure So debt out that the technical demand a leave a and that

Linda Pace

you talking the you about with When optionality $XXX of And view so And teams like we any is what small or volatility just us. business through you their models CUP within of much teams. have ahead risks more larger to have to that headwinds companies going to EBITDA. been I would talk feel has program, Ryan, comfortable – the of where would any have might inherently saw a more borrower have this that EBITDA million capital, less $XX types that. of more about just in have in business add plans of economic more other Linda. you grown we you borrowers periods companies proven be are cycle that are management existence that and and less already have or and wanted management can then access tested proven with an some million But and plus we

Ryan Lynch

BDC President, a can professional and bit. That’s remember Okay. Head the last around – other Origination. the BDCs then significant That’s Origination, CEO, high and the Coast with starting investor more in I there pretty months, has West And turnover been than management of of over Head quite at helpful. XX

BDCs turnover? over just how level year with last experience can current they and So management of comment the team should level you investors it how of and get turnover comfortable that can that the feel on running that

Linda Pace

Ryan, Sure. problem. Sure, no

obviously, business the and overall. recent weren’t over As really underlying number we of we’re the the important a and the for and performance is of want right of Taylor the putting And to for BDC, heard, the business. resources Carlyle this all us that pleased this very us, make sure Group and resources, with right towards portfolio We for you kind the today. of quarter

so change, both level, the origination professionals, senior in committee the level. necessary adding end, the really investment it’s the level, not much investment that but So at more we’re underwriting

direction this best importantly our does itself XXXX, our as the views performance professionals Carlyle, BDC Carlyle in investment as what for really putting but it experience both that to at really really in sure our work for more right most make in goes for shareholders. repeat not did on So but

Ryan Lynch

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

Thomas Hennigan

Ryan. Thanks,

Operator

you. Thank

question Arren comes next Citi. Our from with Cyganovich

Your line is now open.

Arren Cyganovich

what about improving severity would the the based me ask had strikes to frequency those but loans. to on you give the invest had I And were they assume and wanted of in making forward? – loans, – I What guess, stack, be is to capital it’s CUP. where you default choose that is question just are I in a going the what’s nonetheless another investors to ability on Yes. issues decision going better in feel the better are that that you terms

Linda Pace

Sure, for question. Arren. Thanks your

harks it platform to to place. in across the that, resources think and I really question answer the put Ryan’s we back in additional

where We making like have what professionals we Taylor source sure and that bring lies. the the in the that not investment main look an more them. much profile personnel, what to are investments table we’re help will The across very – in highly skilled And that ones make a the qualified that risk really going Global don’t forward of to the to we our you better from strategy what heard to utilizing, – again. but – have had CUP platform we strength to have decisions success differentiated Carlyle place us the keys our experience be like program,

the confident that the process the our have mistakes. as learnt So and fact feel very from the the we’ve of next we judge have we’ve place, the you pudding, team – will number in place, But over in in quarters. be can proof we and obviously, in that we

Arren Cyganovich

you. Thank Okay.

Operator

to further and Harris Thank now question-and-answer like back remarks. any session. Daniel to for concludes over the call I’d gentlemen, this today’s Ladies you. turn

Daniel Harris

and your Thank morning. you time for this attention

next We free feel you follow-up you questions, speaking any the again If reach call. have Relations look out forward with to after quarter. to Investor to

Operator

Thank call. concludes for conference today’s Ladies you and gentlemen, this participating.

now may disconnect. You

Carlyle Secured Lending (CGBD) 26 Feb 202019 Q4 Earnings call transcript