CGBD - Earnings call transcript Q3 2020 | Carlyle Secured Lending, Inc.

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Operator

Ladies and gentlemen, thank you for standing by and welcome to the TCG BDC Inc Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions]. I would now like to turn the conference to your speaker today, Daniel Harris, Head of Investor Relations. Please go ahead, Sir.

Daniel Harris

to Third welcome Call. XXXX and morning TCG Quarter BDC's Earnings Good which the night press quarterly with of earnings issued results, available and copy Last an presentation release we Relations BDC TCG Investor detailed earnings A is website. on our

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

Linda Pace

across quarter this you, for joining call I'm to Boswell Taylor thank Financial Dan. areas. Tom and discuss Chief the Officer, X morning today today me results.Joining focus you Hennigan. to going Chief Good our our on Thank Investment Officer on us morning my third call XXXX our everyone is and remarks our

continues I be First with start shape. review portfolio, once again to our a in good of which

that has significantly past positive developments performance. third, to our we've quarter BDC And the discuss review improve will all of quick a TCG the led of year completed over provide third I'll Second, that at results.

significant quarter. discussion improving credit new quarter our headwinds non-accruals the was and of highlight strong during economic a in the this outlook. perform to position with zero We the which well Several year. measures current despite start key Let's and continues stable our had

portfolio in ticked our in X X rating based been both has sequentially amount during value non-accruals investments The non-accruals And but risk on quarter. the backward be down fair fact, across a risk down the quarters. past the flat methodology basis more In of number level our our of the last ticked cost third business Recall, to looking. we quarter, trends changed rather forward-looking X to quarter. on than X% and buckets

in ratings gives the positive our these in the we forward watchlist further more our believe and increased our portfolio direction, our amendment improvement these in now in majority Along and vast give So behind trend us. factors with credit confidence activity confidence portfolio. a us also of is continues us other in profile positive to of indicators trajectory granular

of financial net $X.XX income Moving This our dividend results share, on expense. quarter. net that announced to preferred our an per third for for we generated $X.XX of investment the we covered comfortably our quarter, overview dividend the fourth of fixed

a We a so also dividend declared special announced $X.XX for in have total, quarter. the fourth we dividend $X.XX

as we XX% we to per over In quarter, the consecutive continued gradual coming gains expect in our macro from Net had in increased share a would value under recovery our a X.X% just environment, $XX.XX market net quarter-over-quarter are quarters. We NAV stable second $XX.XX of and ROE. quarter last a asset portfolio. the

our our like strong perspective business would today of position highlights put improved operating the outlook. I Lastly, in to which

for of approximately on new created optimized our earlier this shareholders. significant these undertaken to balance into leverage. are sheet We In We our past Over others from have steps, actions we scenes of plainly year, portfolio. capacity this our delivering $XXX sustainable behind billion investment $XXX while income we visible shifting recently reduced some joint vehicle cases, to million the our of loans. loans year sheet venture sold our our both created goal investments the and achieve and more balance second

portfolio, last in and an strategy underperforming small our credit extinguished borrowers performance. also out quickly help unitranche We identified our drive program improved which

investment for new we Head process, all and implemented of strong on addition, installed In origination beefed committees. a alignment improved process professionals, sector flows a investment focused of our investment up the our for we all our team Underwriting,

also balance Weather created We a stronger sheet. All

of Carlyle. declined dilution XQ Over leverage from raised X.X year, past $XX X.X to times. and times to limited strong equity as year NAV declined further second earlier which pro our recent we million with forma in for and affirmed venture the joint million and with Financial $XXX leverage unsecured preferred convertible our of times this debt relationship X.X

strength CGBD shares, Given value repurchase as an restart our a in sheet well see trading as a of performance incredible we window balance steady we strategy the to the and now our position opens. are as

attractive recently repurchase the a Our extended fixed lastly, million November and program And Board to of $XXX Directors and we set increased our dividend. authorization XXXX. sustainable to

yield current fixed dividend upside and new has equates reflect set exceptionally with and distributions interest $X.XX dividend mid-teens low special currently rates. Our environment been to the to from operating

in over These to all have been initiatives this long to level done with the confident deliver improving dividend our value. focus term. incredibly are We shareholder a of ability our on shareholders

remain COVID We goal in meet to industry income. our in CGBD Our XXXX. ability deliver and impact to while remains confident sustainable objective. our this And entire

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

Taylor Boswell

Linda. you, Thank

across and of Posing quarter. emerged of demand. from the the wave domestic lead bearing continues the recovery, Southern witnessed significant driven perch, I macro evolution credit recovery From dispersion largely travel comment in economy the a the European usual, continue impact are in by and risk the After that today a to has is provide global too both the second portfolio, global of economies. brunt economic about Europe, us summary I'll industries our infections. research proprietary deal Carlyle's as as its begin of we sectors the on environment. will global geographies. Carlyle's As telling economy. well In the third Those many with China new what tourism

and hospitality, sectors. energy areas In to of focused the infections other the of has impact the and continues in been new travel continent. similarly economic improve activity While US, the

capacity, occupancy hotel at levels. below volumes activity has and XXXX below remained ago half gasoline airline hover demand As year XX% stagnated stuck XX% passenger

However, recovery, business and and including carefully been remain the geographies, of led by and consumer more the of impact spending. US. waves robust spending drive across we companies and to COVID software recently, have continue US services broadly, the online several More searching monitoring second

we future the of be XXXX. than We without crisis that CGBD. beginning recovery held this the since our our path will will current be at expect strongly half one perspective, This is continues not and management to is While those of first the volatility. view less disruptions severe of which portfolio do inform have a decisions

generally and stage months several out an are credit the At recoveries likely expected, side, active On running demand last performance. impacted a financial played cycle. of seeing out third in period of longer point, COVID more portfolio into and transitioning generally and the as of amendments tempered borrowers related have this covenant COVID this less

breathing metrics brisk earlier, level for issues capital positive these as we covenant worth non-accruals in X COVID providing trends portfolio assessed but third impacted the are very in problems pending the liquidity certainly migration. we and more quarter risk into evidencing CGBD COVID uptick had recovery known experiencing and a quarter, credit runway to activity, for new forward general, it's as regards heavily equity With to sufficient period months. value secured last investments, while the at these structures. While recent for credit valuation X reiterating ratings room there new or addressed significant and impacted breaches environment In borrowers fully covenant same have our the Linda both few transaction borrowers our to participants no mentioned in such portfolio. across liquidity in time of also have and now were been call transitioned noted sufficiently

quarters. new concentrated QX Our a where preponderance on points low in know and we In to transact today, assets healing we and been on new regimes. originations competitive deployment new in demand. care market the the continue has normalization to with technology coming and of regular typically borrowers remain in and With and space M&A well profiles, environment deployment our other and as high comparable delayed of value financings ABL opportunities said, Concurrently, add-on well at new incremental more to continuing an speaking increase with path both credit have are that the health remains to in leverage across expect activity, the in terms are seek as pre-COVID transaction the changes higher it the way other of than while seeing resume for tax acquisitions, reopening activity to footprint. robust we in is repayments market. our offer regulatory of more also COVID number a processes particularly relative while its we competition markets deal for documentation sale spaces syndicated we Both attractive the related transacted private environment QX very ahead potential compelling or favorable generally that to Spreads quality as differentiated by active and estimation, platform new and attractive leverage broadly

with let share several efforts. and and it me of just as deeply compressed to here we only am difficulty, at X appreciative has in entire cycle have comments, at our quarters. worth first, pleased top of hard the through on feels has economic the additional the by we many years' a the the come allow X It performance my thrown the challenges that team's last thoughts say work concluding Before that layering personal degree this Carlyle of crisis how few me of the team if I an of are proud months increased

asset of severe XX the the many also should we have young in occurred given benign growth what of private in evidence see class our is cycle it be for portfolio expected, given both in the preponderance credit that the severity the environment credit relatively as market an years evolution noted test well economic and industry that respects, the this the shock. first a largely this of is in and market's Second, encouragingly of performing last

For here, in confidence this mentioned to forward. reasons our deliver have ability shareholders we our going and for other

thank I'll our always call to Hennigan, CFO. for you support. we As Tom. your Tom hand over continuing the

Thomas Hennigan

and give on Taylor. to review have portfolio with our then further you earnings provide balance I'll position. quarter detail the sheet our you. a third Today Thank of

the had prior particularly driven headwinds couple the $XX As another factors. investment the of we we for quarter. a quarter. generation, $XX in some in Linda income was decrease million million last given The Total quarter of was discussed total from backdrop stable the macroeconomic previewed by quarter of jump third earnings income

$X.XX quarter second Board for the Linda the right the to loan payable share balance portfolio in December were X, second, $X.XX environment, invested the and the the amendment a average special fees. in is book of $XX On increased decrease $X.XX from the or per set slightly from on despite the investment $XX interest the we the This XXXX core of guidance quarter. our to of on dividends again, investment on however, quarter's LIBOR our lower from in to rate the business million based very lower the in million confident down when expenses First line due million total continuing this and general noted $XX and close remain most of income level besides by Total primarily driven low share, there'll quarter per lower underwriting LIBOR shareholders fourth quarter, prior in dividends last we our the with declared was regular regular anticipate and our of And as of of income reiterate a low we The is XX. which floors. interest meet dividend. quarter largest of in full to for we benefited Directors benefit provided the actual the last the record quarter common LIBOR as assets pay Well, quarter of component of quarter liabilities. I'll as expense portfolio earnings. ability which on dividend November have net decrease yield resulted

equity quarter with X% performance, dividend JV's again yield the third to the on consistent was on about Moving XX% expected XX% our in the range. to the

we've light activity seen across quarters, very JV. increase two BDC sharp and repayment Following the JV at in expected the over repayments portfolios quarter, a particularly this the last

and earnings coming weigh in quarters. could this on So JV distributions

the quarter valuations increase gain On for our the quarter, quarter. stable reference the net the benchmark continued Similar yields and was unrealized aggregate With realized second to and to $XX last saw on the our improving in market buckets outlined valuations, to credit million the we outlook. an to I in total based rebound had value which exposure our that JV, which first names XX% XXX for COVID compared increase performing on value pre-pandemic, equity flat fair $XX some been basis. combined million in aggregate XXX. The lower of underperforming about plus impacted investment COVID assets accounts a were have at

The impacted across second moderate assessment attempted to to be final these names, of a stability. heavier last conservative and to quarter category names similar $X is portfolio the of more at appropriately investments. in next these consecutive the to markdown which The resulted our turn in million activity. we granular quarter related look I'll a COVID

across about We debt have typically October. largely economics, amendments about to of in financial XX% back what's conducted amendment closed X% in enhancing value. about borrowers. a the levels. equity of investments March early outperformance into activity be at to bar quarter activity ranges from some our from evident liquidity. These historically said, April. But of full us encouraged during covenant This more XX% for early when which to included our terms is outperformance fair and and overall Dating in continue our to third now. normalized XX% across revolver That to sponsor close companies second a we've the the the of a That recovery relative increased by to EBITDA of increased now very We up we and improve the liquidity. with levels end March, uptick back fewer behind is amendments Utilization expectations pre-pandemic to our revolvers material set revenue issues re-underwriting almost quarter. borrowers. in necessary is when support credit documentation definitely normal our portfolio. at experienced in tightening

quarter we until X.X XX and additional leverage amendments, We're the equity on these already lenders and in cases, leverage on billion financing of I'll based received our respectively. sheet better which average with this was nine half yield, from but filings roughly the those controlling liquidity. two early Total next net won't restructurings as status basis ended on $X.X modest net see you spread recoveries. the XXX in with both balance quarter's third. In over investments non-accrual completed And October, For investments. points think XXX were of for now we that debt at flat Well, longer end. we about and deployment seat. positioned term on a facilities financial That's times will outstanding about to million finish statutory review for drive quarter. up at X.X of

effect leverage However, giving of net improved closing to recent our financial times to JV. the X.X second about after

million provide Let the assets consolidated and repay existing use our months CGBD on a consist of closed the to me be reinvestment investment on strategy at of vehicle, proceeds a $XXX our in sheet portfolio. partner governance color be investment the debt. current this an on an which X. intended with of vehicle initial for net generally November to bit shared the has It of by is and will XX interest portfolio balance our new maintains of It's representative is contributed to extension vehicle equity XX% period. underlying financing CGBD not more

pursue With the both from for wave the that, and we With withstand opportunities market Linda forward, down more some by provided possible share normalized very or improved turn attractive remarks. the profile conditions, me this call to back leg positioned well second feel investment economy over whether repurchases. liquidity leverage under closing to new transaction, to the and another let going

Linda Pace

credit growing shareholders alongside dividend sustainable Delivering Tom. performance. stable our which a priorities, with or NAV all are to strong a top you, Thank begins our

shareholders. over turn right this I'll all time the Thank your We you on Q&A. for these goals and back the morning deliver call on for attention now for the and track our to are operator to

Operator

Instructions]. [Operator

Our comes from Rick question first Shane Morgan. JP with

open. now is line Your

Richard Shane

morning that When XX. Central idiosyncratic good maturity, non-accrual, growth, outlook it is, their context taking my maturity both sort any and the of a was write-downs. go question. I'd they COVID-XX core on to dates. at of particularly those the I'm Hey, security timeline derm related is curious and when maturity. security to investments Central given the for of growth of was thanks in everybody central derm non-accrual appears look securities love and Based through them put because XX the it we what timeline that on went on before of for

Thomas Hennigan

Hey, good Central note On morning, is primarily Rick. they you're October. On correct, issues not to of one credit I'll security, related in were was that Thanks we for Tom. the idiosyncratic questions. both COVID. restructured transactions early This that those-- the and

and for deal, date. now fit So the structure has extended new a profile earnings I'll capital an maturity that say,

that appropriately we capital quarters. we we one it is Associates structure Dermatology and been that see let's current the within, or engaged restructured. anticipate remain next So have a resolution similar transaction we on one, of have call and that engaged couple

Richard Shane

Got it.

COVID-XX theory largest shouldn't financing I but one I be figure look their Technologies. Okay, that it that's How solar on like investments business there seeing they business more the and the customer, XX. two say. developments does are out fundamentally travel that way, am impacted that appears what's that's correlated for apologize I'm looking going satellites direct helpful. or are towards I related, maturity And with hopefully by maturing then I behaving, impacted, Solera but moving to be are that to issues, highly in making that and panels is potentially then panels mispronounced potentially if sponsors and related can't to sorry obviously should that COVID to that how I Softbank and of the in

Thomas Hennigan

Right. Good observation.

half issues transaction see forward customer highly on least at it's typical, have company, positive a positive equity in exactly and is that the about and that going are on working web industry the some solid actually from corner issues that their with based you're one one ago, we're that's fundamental negotiations on its a this one or in resolution way see Solaro that and the one we top ties their had that year just to one It's So terms bankruptcy. right, that's web resolution based of a in hoping turning to we we deal in and industry. that restructured a as had and emergence

Richard Shane

travel. Got on direct then And it.

Thomas Hennigan

the that book Direct and that business. Yeah. restructured if most the one travel we on lenders October also going severely for that deal are restructured had our forward name deals noted, in was that not early supporting two majority COVID probably of, that, transaction the the that I capital and impacted again for it providing the other owners business timeframe and

Richard Shane

it. Got

Okay, very report sorry a some know. today, so I great. Thank much, blur. companies many had Thank I and we've don't recovered you. you if materials, it's

Thomas Hennigan

No the morning, I and I'd or own this is now each of the say debt in at all four are there those original is first position In lien and we the what all problem will three are will the equity. highlight lenders bring debt the we each cases in in is equity existing anticipate situations all case.

in think those seniority outcomes good drive in So in based strong we're position to equity a we on situations. based position our on our and recoveries

Richard Shane

Thank Great. so you Hey, Tom. much.

Operator

you. Thank

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

Your open. line is now

Finian O'Shea

might had of then. I'll a Thanks, improvement, you reiterate here, write below comments Hi, my a good but a can bit you, be less the first three NAV morning. up about talk Rick's on questions

it of this spread any benchmark less of color or Is provide or two a there. a peers. enhancement, you a Your is function name

Thomas Hennigan

based benchmark the valuations improving And stable it's and performing on the improving. mentioned Tom. and categories. in look credit credit buckets outlook Fin yields I we across X The up book Hey then primarily outlook. When board

more in bucket than valuation driven went and million which of stability that I've say little numbers. that that XX X legacy is XX that more and I to just where good that those really bucket is direct deteriorations last and more benchmark the necessarily the COVID value flat enterprise half travel from we to bit decline our represented will about market saw of mentioned those based a not And roughly think are yields. investment. round and bucket on underperforming terms again then deals

say overall, to we modest we So besides book of about call the migration and good migration and limited media upward that really we on that route continue direct expect overall I'd what going to idiosyncratic think which see forward. the performance

Linda Pace

that of quarter were of question. Yeah We add let the pretty these Tom explained on just third busy his me some and as whatnot. getting of in resolution kind sort restructured names on

see given into So a NAV. kind improving now visibility of the how continued of now path portfolio we that is to that set, our just kind is what

So steady of what's horizon to not up would pretty of necessarily NAV. about progress slow good and the kind kind feel increasing step on guide function and on you we but a

Finian O'Shea

basics kind the in through on And helpful. you will well. of what go can what like and loans leverage will segment That's venture sort go there Okay. second of it's joint look of just this of as

Thomas Hennigan

higher best first Tom. Finn, a the that JVX Hi ranged be is target a singular portfolio of with on vehicle X weighted X.X was plus we risk bit leverage way unitranche up liens X spread it's book, and XX% primarily based let's the a right running that now, if times. lower XXX to in the only X.X leverage times the I'll about times call to of credit X Maybe spread point, That's say X JV loans more and that that of distinction more this in lower primarily rates. focuses has facility we're average what existing advance that The percentage at little price X. and a L half leverage with plus a second is will lien JV compare on anywhere around it loans

Finian O'Shea

helpful. that's Okay,

Taylor Boswell

there rationale scenario. us forward a any of that variance well. quickly serves in Maybe I'll We really well on that's transaction as think touch strategic just the macroeconomic

we sheet of going on for a new frees like in in an to a as regard again case which get course, upside pursue repurchase the investment of a and balance also case liquidity, base in front. or share both case, us enhancing environment, the this in attractive So a and amount up downside fair

Finian O'Shea

just segue Where about pro times be, into one last sort And Yeah. through and what to this of target all buy is my has want these you're few at you to question and we've light have I'll in hop moving stocks obviously your Thank in like gone back where a you in obviously changed what but does the if joint forma where that of off. profile opportunity today's given leverage is COVID environment. you. parts, that ventures

Taylor Boswell

Sure.

go I think pick up. this one you Tom, I'll ahead.

Thomas Hennigan

comfortable on market we're very about For right it's in the we the sure, when net financial We quite that operate that range. think running within to end feel still of middle been say portfolio. end frankly That's cases going both anticipate at more is lower can We that the happen. but I which on think to times. now, of ultimately, composition continue one the the knows again we our with now, settling good low anywhere will very in who our leverage. very we're with from based Obviously, and in the of just focus based to it's times composition JVs X.X what's COVID feel I comfortable on X.X of range. right The uncertainty a current rising,

remains things position noise to now lower right of frankly to target. feel with to we're negative. we And so again but as also a we're leverage put very turn expect as positioned quite elections, Some remain the share a right new very But in case that market now, seeing a lot range well X.X in the buyback, at of to that then noted money we potentially work. one we opportunities out to attractive in feel

Linda Pace

good sort do it's, drive to it's, of Finn. in to at We share errors. CGBD continue see really home just And to Linda, Yeah. value

looking steady forward and we weren't kind really, take the past, we're going would, get the we to it restarting same timers of we would repurchase position Eddie we forward. right, program that we in really and So just market

Finian O'Shea

That's on me. very Sure. congratulations here. from all good And quarter

Operator

Thank you.

with comes Our next Johnson Paul question KBW. from

open. is now line Your

Paul Johnson

up have there and yield else was my more questions. two driven or guys. quarter Those slight one commence quarter, this something morning just last but was asked, Thanks this taking Hey, questions, already good portfolio curious, upon that tick I for the short was that? driving and been in

Thomas Hennigan

Hey, it's right to across roughly That's XX% basis Tom. the points basis XXX ten roughly is Paul, the of portfolio. points exactly

Paul Johnson

Okay, is the that's that curious early realize last from is price a retiring, plans conversion price price on be evaluate question that of if start preferred. conversion advisor. retired possible great. sort any the something also just something and And there to that with that attached just of to then the is is you then my have I'm the I guys if you issued if would you or

Linda Pace

Weather there long a when eye profile but take appropriate never, is right talking the position is what as to but sheet never I'll to now, money the a meant sheet I'll. and as to and constituents our clearly really It's, an us to of we part key investment be balance our, accordingly a that. investor balance of all it's mentioned, really never act not we eye. an BDC term the say you're in and looked to at have is that to there work is, about in to see only not in at leverage the with of say Carlyle good we're strategic a able towards looked obviously market. opportunities be is from put with position terms that money so coming firm kind

of in our as of at a I caution look sheet. piece I capital I balance long-term to it you So, would, would would, kind

Paul Johnson

you from thank all much. me. Okay, very That's

Operator

Thank you.

Our Derek next comes from Hewett question with Bank America. of

Your line open. is now

Derek Hewett

question a clarification. first more And is want. of we Good morning. My

off purely is what financial Was that. that times. The of or that leverage to statutory based leverage. leverage X.X So target X regulatory of or was

Thomas Hennigan

financial Hey Tom net at X.X it, we now, the to based currently Derek, the look to X.X manage leverage. on right It's business clarify,

Derek Hewett

about great. considerations should kind And there that, or being Okay, terms the formulaic made. we then other of dividend special think in the are sizing ongoing more how it of is

Thomas Hennigan

or that give that we earnings, call now it's paying $X.XX mid on current above rate repayment run the normalized stated it fees earnings, we that quarter activity right $X.XX. outperformance Derek, Tom. territory. the loss every take anticipate comfortable Again, be in each effectively our Hey, feel be XXs quarter Recall we'll will based our our very so the

Derek Hewett

Okay.

Thomas Hennigan

declined pay did, so going like $X.XX $X.XX like we're we third quarter, earned the $X.XX So, to plus next quarter. much to we we

Derek Hewett

Okay. you. thank I understood. Great,

Operator

I'm I showing Harris questions any back further like you. closing time, now remarks. turn the over not this Thank for to to call at Daniel would

Daniel Harris

to and time Thank forward speaking for We look today. you quarter. you your next listening everyone with again

additional Relations call, any the at free to contact any much. If feel time. you very Thank after follow-ups you have Investor

Operator

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

You disconnect. may now

Carlyle Secured Lending (CGBD) 6 Nov 202020 Q3 Earnings call transcript