Earnings call transcript Q2 2023

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Operator

Good day, everyone, and thank you for standing by. Welcome to the Carlyle Secured Lending, Inc.

Second Quarter 2023 Earnings Call [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Hahn. ahead. go Please

Daniel Hahn

Hennigan, welcome earnings And morning Secured second and Lending Aren Good Form With section Financial a and site. of to of me results, XXXX Tom Officer; our Executive press call. our filed this Chief on on quarter LeeKong, available presentation issued which a morning. Web Chief XX-Q Carlyle our the is are Officer. with the we Last our night, our release Investor Relations call

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

to I'll over that, With turn the Aren. call

Aren LeeKong

quarter topics second and today's our call. you Thanks, Dan. will with three all overview remarks morning, of Good for on focus thank I'll everyone, for joining. my I an results. start

I'll with our activity Starting investment Next, earnings. off positioning. I'll current on thoughts touch a and few And the environment. conclude on market current finally, with

generating per is XX% for attractive income rates $X.XX the quarter, pricing benefit the see total We share continue to base higher year-on-year. of and on investment investments, net which up new of

for at value $XX.XX QX. net per Our to June XXth as $XX.XX compared share was asset

detail offset a services driven will NII of the were QX was total quarter. of by later, investments that dividends partially was on dividend NAV for markdown the declared $X.XX in healthcare $X.XX the by We base quarter earning Tom a dividend. the line change of plus one our As primarily which consisting prior of excess in in of with $X.XX, both supplemental, our

Although portfolio. margins of fundamentals quarter's portfolio, have the credit largely remain of credit overall in than with well EBITDA the are more earnings, continued focused on The performance the with our the perform we flat pleased XX% stable. revenues up to and aggregate, comfort in meaningful we the despite as a portfolio. economy. borrowers in importantly, us reported seen have and to inflationary pressures strength This And noncash gives our of the increase have quality consistent not remained coverage our addbacks year-over-year interest we results

the quarter. second now last loan to trends supply and of We current Turning Terms the our call key on through and high sluggish in year overall syndicated markets activity deal saw XX yield leaned balance to is still continue lenders and discussed the of loans. pricing environment. market with favorably the net

finance sponsors market these Given been to to transactions dynamics, LBO have the that private limited market the number credit completed. favor of continue

our platform complemented LBO backed main view our nonsponsored One, portfolio. particular, also sources areas. as transaction new farming In deal I to a to with of of market the seen flow. component as have core strategy, swath the companies. One increasingly selective. sponsored mentioned, sourcing This traditional is continue of flow Carlyle Carlyle of we a to we've we Two, our The flow, call And from three, provides be three deal largest from flow. would attractive access continued pipeline us sponsor our and deal opportunities While finally, deal generator other and we flow. generated what wide

added extensions channel, our as position that flexibility and sponsors period One to deals solutions relationships along to that and example execute to portfolio's our companies and with in accretive to our leverage incumbent improved amendments, collaborative incremental points were provide to Regardless of economics XXX return. with able focused to portfolio. lender our our this year. on at borrowers are for We an the basis M&A attractive compared long-standing by of on we average approximately last opportunities this QX new spread efforts origination sourcing is that activity

second In from addition, activity, approximately driven equity quarter existing we value an of sponsors our loans XX% generated activities. In from of from related saw mentioned, other and areas additional and amendment improvement as documentation, in due to our previously spread amendment fees, these or contribution borrowers tighter has incremental incremental increases. significant which the one more alone,

hand CFO, to now over the our I'll call Tom Hennigan.

Tom Hennigan

begin Today, second conclude discuss a of balance I'll our portfolio I'll with on detail performance earnings, Thank you, I'll and positioning. review quarter our Aren. sheet with then

previewed, investment from quarter Total the from $XX the expense prior X% Aren $X.XX to $XX expenses million increase for the $XX strong we front. interest income quarter in As The was by was increase on the million up quarter. share, per net primarily had rates. $XX X% rising rates. driven total higher increased to primarily was higher income earnings by for benchmark Similar quarter, was result another investment driven quarter second second the or million. the versus base of last prior million, up from quarter Total This quarter.

materially from XXXX. Importantly, level above earnings quarterly this our is core recent earnings of

a us environment. allows $X.XX which XX% also And of of dividend the at increasingly comprised $X.XX over of NAV supplemental, on XX% close it September dividend This is XXXX plus to quarter attractive on declared an macroeconomic XX% a At for face represents to X.XX on NAV. complex and we $X.XX an yield of return earned equates $X.XX time, That's $X.XX plus in same share a business latest Directors total that over the dividend of of of price. build as the of shareholders level of NII this base to third the the the NAV level of total the share. the quarter on of record Board payable Our XXth. per

at for based outlook the stability forward deals. and of level on see attractive new the this benchmark on of we current economics combination $X.XX rates earnings, terms In

$X.XX to paying quarter. ability out highly meet base So confident each our continue exceed comfortably and our dividends supplemental and we in dividend remain

the on net a million total loss our realized of decrease names, by $XX The one markdown unrealized was was Partners. about driven the for On our valuations, and aggregate Physician quarter. healthcare American services

As in the the from inflation healthcare headwinds and past, shortages, we've the regulatory sector noted in wage has faced services changes labor US.

services favorably, these and other recent names our performance other financial upside valuation we healthcare in trended earnings and However, see has of investments.

and of decreased retaining with We've of of was a our on book. [Pro the a of highly X.X% transactions has downgrades acute APP, strategy consistent XX% LTM also inflationary this to that I'll ratio per one down facilities Part since dividends. total is allowed credit dividend leverage of nonaccruals Additionally, value, well us from based tenets value prudent conservatively see an performance weathered X, is $X.XX during PT] most aided and focus in financing coverage This noted The quarter. we continue to of and construction. made of overall and, investments to diversified management environment portfolio is resulted restructuring has the quarter. level some on improvement of Total as of we XXX%. positive marked portfolio investment, to use note, has a portfolio financial of retained the NII. our in and slightly to our on we volatility. Outside X the to strategy period companies X.X% the Maintaining or NAV of by indicating from completion been in key share quality fair and valuation continue buffer touching last the across rated like risk fair deliver our direct also NII finish the over associates. have act to stability and travel to migration leverage. a Aren dermatology see by

on be This effectively right and to X.X slightly at our the side terms of ended leverage the available range. investments Statutory times, balance We our comfortably capital continue deploy quarter target current attractive sheet. was lower in positioning the times X.X and allows to the us positioned leverage financial given new within about for yields market. net well

Aren. it to that, I'll turn With back

Aren LeeKong

investment to by Tom. and Thanks, would finish of I reiterate strategy. approach overall highlighting our our consistency the like

by core portfolio our on investments first focused US making are in across to the the million. quarter of primarily sponsors quality the EBITDA backed end high companies, We at The median market. $XX was middle

us to remain conservative on allows approach construction Our risk portfolio underwriting, prudent management. and focused disciplined

across over secured investments company XXX and Our companies exposure XXX XX average loans. than highly in of single in portfolio our portfolio to investments comprised industries. XX% any and are X% is The over remains less is senior of diversified

the to you. like in the positioned questions. So now we call your feel current to very hand to the over I'd environment. Thank take well operator

Operator

of comes our [Operator Melissa Wedel with line Instructions] question JPMorgan. And first the from

Unidentified Analyst

for is capital A.J. This Melissa. on returns. on have question I a

share are you year? you're then all going of given that special And how the the outearning dividend, dividend a we could First, at see the about thinking forward? end repurchases

Tom Hennigan

that's the a in current look evaluating our big at a repurchases, close On share is we price where take certainly the trading repurchases. and level factor of

quarter. where well Yes, stated as our stock. of. XX%, flow, stock see float that's sure to territory. to that want look what a XX% hey, this the to When to we'd overall but at in eye talk that got past we we them of in and on up past want be We've that can those say, close also buybacks. importantly looking last as curtail we're this NAV certainly you in You level, we we trading the level mindful got trading of if some continue evaluate buybacks, keep we the and accretion, quarter, something certainly to is that's we've get the make good saw on depending investors, We'll

So over over been $XXX very purchased We've historically, supportive the million. we've years.

the over we're little look based to the trading, just smaller on -- certainly maybe level levels. mitigate of I going think little go on a current a bit trading based that current to

terms level in we've on look NII good some terms at In we're dividend, really both historically. NAV the returns that of solid that's delivering really of the we our returns, you share we've retaining $X.XX done When on focused price. feel what noted and current level that of of and at

to perhaps that we based wouldn't pay dividend required do say, to -- stockpile potentially year, on going we, look a we we're just at payout of NII, the potentially special year, requirement. some As maybe be this next XX% it

But we'll continue So see share. to about -- that per NII payout, $X.XX we take feeling a rates assuming something think to based as what on we're benchmark $X.XX, good $X.XX I that that retain earnings -- look that's going pretty at. to otherwise, stay where, a

Unidentified Analyst

you more. restructuring? then Can us And one walk the Bayside just through

Tom Hennigan

took typical exchange it's for transaction the a debt equity of that where That restructuring in -- was a lenders company. majority a in write-off

as see SOI different we're the as on a that's now debt There as zero. of the equity as levels holdco are multiple that capital company well tranches, loans the structure. the level, at two where there's that you well see as line there's operating in multiple items that and you'll So marking different loan

Operator

[Operator Instructions] B. And it Bryce Rowe comes of Riley. the with line from

Bryce Rowe

portfolio and I for originations about repayments wanted activity, quarter. to here maybe ask the

the kind the and activity Just looks sales repayment and how of curious originations. pipeline exceeding

was, of was terms in curious activity? intentional Just that course of kind that or how kind the of repayment more normal

Tom Hennigan

Bryce, I'd it characterize normal as just course.

Aren LeeKong

would view decisions say, -- given make strategic moment. that there are look, I in So some world the we any we

we out I've of sponsored we're on the regular and when finance. that places you mentioned if think way One being focused big sourcing Today, opening picky in on we're it portfolio. a focused, to portfolio opportunities, more have we're three remarks, can focused my comes exceptionally Carlyle the farming just it, we're of so of the that get sort We

year-to-date to have we goal every our on our improving average think between is spread on and last if portfolio you'll year, goal somewhere originated that at is today, significant the premium X.XX our Now see, and X.XX, transactions focused moment. I

X.XX about thinking being above docks. replacing for X next tight on has to a everything we're the which, it maturity, times sort that about being and with a when of and model what's is repaid, fairly year fairly -- over we're we what's So all on with of average, spreads repaid up thinking have detailed at

portfolio is line know I and bottom quality not we're the land, constant construction. focused conversation on So private that this is -- credit a we're on

we're make to cash bit improving steady, the question tested be battle touched cap and have and little structure kind to very on we of fair, balance sheet that fine and a we're also previous So portfolio. more a holding sure this, our here

don't So yes, as quantity. -- we off, we're focused -- we're have quality, things on come not

Bryce Rowe

I bit sheet reading a little next don't versus more we over know, And six into an kind that, of or relevering that up there is over expectation months the, see maybe leverage compress balance so? the

Aren LeeKong

think well off-line obviously sort is So could further this we a chess as a of match but talk of when this XD in kind detail, that playing. about we about, we're and

we the so vintages. -- just powder accretion. also about a been risk float market. and the able of thinking down which dry back, total and we some mentioned but leverage little a while it, we're can our on in Tom course two this quality year take that more So years have take is on higher focus names over older the NII back little XX% to to in tried We've half, bought of last almost bit actually less over held We've of repaying $X.XX

we can. thinking all frankly of So trying are create portfolio the to and it to point, best the about we quite

under -- is we are consideration. So the all things of these answer are

Bryce Rowe

last And one me. maybe then for

debt capital the of last thinking structure, seeing markets here open start really Just over month. to kind up capital about back

at maturities of too, got so thinking capital end year, a be ways helpful. the structure? would around just decent, next about how commentary curious But You've away. you're of the preferreds Maybe decent any kind

Aren LeeKong

Are here our sitting planning be in and sitting here want you everything. to you sessions Tom, do start our our about and thinking I’ll… must you office, in office

Tom Hennigan

dialog constant with relationships. We're in our banking

the very In months two had was quickly. it's Well, -- ago. than has meeting opened like, a public It fact, hey, was it less market guess shut. we what,

in best diversified what's structure shareholders. have certainly prefs, offering and what's considering the best the that XXXX. end mix potential optimizing at those capital capital We're So We're looking always we and maturities structure. the capital -- structure, we'll looking It's for options. the and public bond at the we're right looking at continue to getting of dialog of mindful various something and at constant our do assess the

Aren LeeKong

as we're mentioned Tom as [proper] dialog constant Tom Carlyle as holistically I've terms about the to And kind well as works thinking -- kind of And prefs, of in of the we're mentioned contact and together. and focused and in said, everything all the quite points and Board with how which X%, long in pref comparable is the of at look to that -- now, the the you trades where our what term if preferred frankly, think are a basis about structure. comparable our trades part about is Right cheap cap today. at market, XXX

shareholder stands. about thinking pretty a along But of are, piece the value. as with good So paper it's we it unsecureds, actually long term

So tuned. stay

Operator

with Our [Operator Citi. next question is Arren Cyganovich Instructions] from

Arren Cyganovich

seeing Maybe the flowing you talk nonbank a other about could bit BDCs your pipeline, competitors? investment little how that's in competitive from environment or you're

Aren LeeKong

your you're take to I because your going liked I'm questions Arren. name,

you So questions mentioned and I'd I say it ago. if two think about --

about we've high busy. is capital, the sponsor three transactions lot more kind Obviously, is are that seen I'd Sponsor bit, think today. I'd but market the it BSL our portfolio a EBITDA. $XX you a million sleeves we the of busy. source say competitively quite average is is you quite in of market where choppy, say, market. large If deal still our have low priced of one, yield market is coming market little back the

week One lending, showing and Carlyle, were Carlyle away teams Carlyle-sourced, or that up a within our so announced other and able are solution there's rate so driven be that's of One trying partner channel we're sourced And is some fairly -- as in from transactions Folks less we've a of kind those just to today. being over last us terms we but partners sourcing be two. transactions better and to to core Carlyle, other quite selective those terms our are the as sponsor provider. robust down shying channel, sort sourcing that whole direct get in But been of mid-market. Those more from sponsor. Carlyle with The to better

would expect much I a to that be So bigger contributor.

literally sponsors can or improved, extend through the current actually that piece, solution that those also contributed with. right we're portion last ROIC can highest taken, portfolio call, changes by happy which for and get which, a current then can There's can after phone on as what's things, the to that view again, have significant to and that provided docks any the walk this the to of bottom segment with credits sponsors cash after portfolio the to is be we're the improve those line. order portfolio. do in be drop fees be that going a be yields And this transactions the company, we're amendment pretty amend I straight the the but our already to familiar very be And improvements that portfolio, improved, farming today

three our nauseam when ad value our be best but that's because, So already on have, if QX solutions I review, for of improving shareholders kind have offices, let's were to familiar is, probably of that extract those or our portfolio, trying the also inside message did you focus and our you with ago that we are would terms. value two and providers guess, weeks grab which loans risk and current quite we quite we heard frankly,

So that general three helpful? I'd buckets. the those Is are say

Arren Cyganovich

on And from, markdown that move last beginning Yes. quickly versus to more that the quarter. to investment specific of then healthcare of investments? the I Physician What relatively to American write-down, the the what's some there, kind happened of guess, part year seemed other

Tom Hennigan

specifics too one and remains transaction. situation, an this Arren, that many so we of can't active sensitive the deal get of into

getting industry headwinds labor specifically have compression health a some the you with inflation, industry it it's vision What Act. getting health, compared other this Surprises $XXX conservative. discuss say, were peers, earnings. Last care large-cap you're you inflation, we've good of points actually were -- that I broader valuation been BDCs million is we note inherent results right encounter line pretty costs in while one In nonaccrual. changes, last dramatically. relatively your items of ago, valued this have services, wage and our wage firms, gone with think we we've sharp it million full it's $XXX that zero healthcare across is really summary, The when years space. now marking to a up quarter, regulatory seen example, we we faced other similar bad, will one. were as highlighted And in I'll top the No XX than industry, now, the in in And wide, shortages, and the the are I has here lower we've for the the squeezed two

So that's the current NAV of negative of fully the reflective $X.XX, any particular and position. this

Aren LeeKong

And look, I elated, Arren. think actually of they're because kind questions great today everyone's asked all

So portfolio. -- term, diversified have us, a for a super technical we that's super a

risk So X%. little NII of than just low, managing the kind our in allows of each portfolio bit trying maintaining event -- bumps leverage conservatively. in to, quite us keeping to mark more road, is less the there's position and average preserving quarter, frankly, that any improve that goal The a

conservatively for a of to has conservatively quarter. mark diversified here. it that most even cash We lending goal position was this more direct sustainable The predictable us, have also portfolio a we flow. marked that ecided last So is and prudent to portfolio

overall it's isn't portfolio about So about for the of us, it management. really position, the kind

here and be conservatively So how portfolio we, to but we're -- taking as quite frankly, the took market. very view a conservative much trying we're larger to

Operator

for see further closing I comments. no queue, as And it in pass I to Aren will back you. questions LeeKong Thank

Aren LeeKong

a you. all quarter. the speaking go next few some Thank forward And on morning. your to you speaking you to to rest your to days over next to you support. the of for of summer. great deeper you of great thank look some look forward story. a We -- We have Have Everyone,

Operator

program now conclude participation today's your in This may does for all you conference. Thank disconnect. and you the

Carlyle Secured Lending (CGBD) 9 Aug 232023 Q2 Earnings call transcript