CGBD - Earnings call transcript Q2 2024 | Carlyle Secured Lending, Inc.

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Operator

Good day, and thank you for standing by. Welcome to the Carlyle Secured Lending Second Quarter 2024 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nishil Mehta, Head of Shareholder Relations. Please go ahead.

Nishil Mehta

CGBD to results Lending of for the merger welcome discuss Call XXXX and Lending proposed earnings Secured the the of morning, Carlyle Conference Secured to and III. Good Carlyle with second quarter Relations I'm results, and Hennigan, joined on which we a are our Officer; our with Investor morning, Tom press Officer. This available by release our section Financial presentation Executive website. Plouffe, issued Justin of Chief our Chief of the our

issued outlining the on Relations Secured III a quarterly Lending website, Secured our has today's earnings of will Investor today's to we and referred Carlyle will a press to which transaction its referred section as call, on referenced be announcing Lending which been call. addition Secured SEC Carlyle release release, has merger CSL and be In the that agreement Lending presentation Carlyle into filed entered III. CGBD will CGBD be with Lending with Carlyle also as the Secured a to has III. Throughout posted

with and expected performance. and associated remarks or today performance the we reliance on proposed on is analysts the call may of the include synergies operating not a forward-looking institutional hold realize a and guarantee our statements proposed closing merger, reflecting today, not the Today's future results respect ability statements to, them. likelihood to of timing will the question-and-answer undue call benefits the our be other things, This merger, views merger financial for among anticipated webcast, forward-looking made will with of the proposed the website. Any conference session be investors. our and replay and available any do future being placed our should Following

to filed risk any actual could that These on those market current be materially sections results inherent expectations XX-Q, statements in factors the identified in matters and from These of forward-looking the file obligation prospectus connection in to risks time. Please the Chief uncertainties regarding the proxy approval proposed intends assumes quarter cause available coming that and risks the statements be statement indicated. differ which close solicitation in involve note the XX-K will our today. turn at uncertainties, for our information CGBD following requiring update over any and with the CGBD CGBD's including those and are and any no to call merger CGBD will of based management the the Officer. and Executive stockholder proxies that, with Justin, additional weeks. With SEC I'll to

Justin Plouffe

the ways including before to with few especially Carlyle III, you the call, make quarter Tom second in positioning of an and the the comments portfolio for Justin Good CGBD our CFO, will I'll finish at will for over for Nishil. BDCs XXXX discuss morning, Credit Carlyle. On proposed and and results the I'm merger I Thank all between Plouffe, it joining. our CEO Hennigan. compelling CSL transaction overview of quarter's give a CIO everyone. support Thanks, to activity call the today's Carlyle Global which Deputy and our investment CGBD handing on shareholders.

performance new on consistent continued spread from trends the were deals. the Both quarter, these some with second largely to direct financial environment the headwinds from broader In rate base compression market. lending our of higher benefit with

represents which on investment X/XX NAV. XX% more generated net quarter, our the income $X.XX than an of annualized we based yield of During per share,

$X.XX to $X.XX quarter Our our plus base a Board supplemental third consisting of $X.XX total Directors of share, dividend. dividend per declared of dividend

our XX because watchlist from of as or of Our June from net asset share, value depreciation some XX was approximately X.X% names. $XX.XX $X.XX of per down unrealized March

deliver Lending efficiencies III. a are including entered number a a to Carlyle, an acquire transaction liquidity, reduction in in in will costs and operational into per has both to the an merger and benefits, earnings Carlyle CGBD by increase believe we elimination of agreement held stock accretion quarter, and to increase preferred strategic excited share. NAV strong scale and of that Secured another this Following announce We

that little Now a I'd bit like deeper dive into to brings. each merger this attribute

First, scale $X creating to institutional as company, and scale capitalization billion to liquidity. enhanced base expect a an ownership, liquidity. trading for With and market combined investor and of anticipated increased broader liquidity we increased transaction a this shareholders, over provide potential

held by Second, I'll on the convertible touch Carlyle. shares preferred

COVID could these have $X.XX an be the Now of $XX.XX Carlyle CGBD shares as by exercised. conversion therefore, dislocation quarter dilutive part to as These and resulting compared the know, made market investment were issued current support shares a if BDC during many of of of end's pandemic. to from you the price NAV

of trading exchange improved CGBD shares As lead shareholders Carlyle avoid could preferred shareholders. dilution NAV for that determined believe significant at This shortly will for as to merger part its prices. transaction, before X% X% a CGBD that this this convertible is value will to close. We

ratio Third, we We as and costs drive scale expenses. on savings be as processes X certain streamlining $X.X efficiencies compared total cost by approximately duplicative to eliminating an expect merger operational to million basis LTM well debt CGBD The this entities to points the on annual a increased reduce the access lower estimate through also continuing while and with assets, cost markets of to base capital providing will greater to to potentially combined also approximately operate XX separately. improve asset capital. net expense larger our basis

is overlap accretive between vehicles. net we share a the on NAV the exchange believe X both the This share investment and preferred and strategy diluted basis. is transaction substantial composition to due in portfolio both to per fully this and that per stock income Finally,

the investment accretive income lower with a net expect long term, portfolio also combined increased to metrics, investment be improved per to ratio transaction share expense and the We in capacity.

enable have call. close. trading NAV if Given before potential levels, that shortly the to discuss is more NAV in this later premium Tom our recent a at the accretion CGBD merger we trading structured to merger will

believe CSL million, III. the of costs. and total CGBD of support of to further Carlyle should cap will we an committed benefit cover transaction of believe merger-related expenses which affiliate long-term a up To the certain that we to $X shareholders is transaction merger, Carlyle all both CGBD cover will and success this

before quarter I both the operate borrowers, pressure the and significantly deal the want by driven market. Originations continues refinancing, turn our differentiated and over XXXX core to face cash lending and in discuss continued Spreads recapitalization of activity. second flow where in year-over-year, Tom, to from pressure covenants pick recent see the briefly up were environment. to with middle and market Now highs, as flow. I to continues call reached to the Activity to continue sponsored large volumes direct up strong but than market pipeline less comparatively second quarter we the cap core expand M&A

performance drive approach in credit consistent lending, selection Our with a disciplined goal to conservative portfolio and anchored is direct management. to

the We continue us to differentiates middle benefit from in core the market. platform, OneCarlyle which

strategy, activity for positive are on our overall origination a focused increasing While the of is portfolio. performance we credit most existing our

and are X%, Our XXX the single portfolio more and EBITDA remains across exposure The our XX% it's diversified companies investments less in in any portfolio than than in company million, portfolio end median average industries. comprised XXX of is was across XX investments at secured core $XX loans. highly senior of quarter our

quarter. the drove performance and in As always, consistency second discipline

to We call Tom in Financial I'll Hennigan. our tenets drive to Officer, performance expect future that, Chief quarters. With now these over hand the

Thomas Hennigan

with structure I'll the quarter performance terms results begin Today, you, then merger. balance discuss an proposed with of and before positioning. overview financial detail on I'll Thank of portfolio our concluding and the second Justin. a sheet

proxy shareholders. posted registration to and materials in we've to soliciting approval CGBD of the shareholders merger to our begin want CGBD's process expect point all website. additional Relations the I upcoming First, file from we to I'll the a weeks note, to Investor of statement

excited current we've stock, of shareholders. To X-year entered lockup merger, agreement to stock-for-stock both has Carlyle share NAV income agreed will net shortly it following to per into accretion on accretive Carlyle's occur to As Justin on with merge reiterate exchange Carlyle's potential with convertible CSL for Based a quarterly floating transaction, preferred per the III exchange, to common the for before exchange a share, the be support and crystallizes continued CGBD. be to per commitment its proposed previewed, has reinforcing price the basis. to which rate in diluted announce of to fully we're a existing close shares the merger. that subject this $X.XX a long-term tiered the will share conversion investment to

potential has of dilution how X impact for affiliate for circumstances, from the enables a at that merger potential would presentation, per NAV with rate our and floating has Carlyle construct share been bear any CGBD. expenses additional in to structured expected they accretion in expenses $X million Slide An XX outlines exchange also close. In up scenarios and merger agreed transaction transaction mitigate to which The shareholders. is to certain fees potential

participate be trading the exchange. slide, As or NAV premium on is premium ensures close minimum, up in allowing CGBD at the to of if CGBD NAV share, at at below merger is trading and construct is all see Xx you X.XXx, a CSL transaction to the equally will CGBD merger CSL merger. upside CGBD a shareholders per per This with But III close conducted to Xx if trading above before on NAV will going thereafter shareholders shortly III share, split NAV-for-NAV above is, the NAV CGBD if shareholders. while the neutral, the

primarily combined company first to focus sponsor-backed will loans companies strategy the to directly investment The Our in lien core middle on originated, remain U.S. continue market. unchanged.

portfolio diversification and XXX% XX%. all levels. all portfolio. combined combined Turning on total has CGBD's transaction are and current with $X.X metrics improved near of increase as from company Concentration of billion and forma XXX expected overlap XX data, a Key investments portfolio were and flows. pro of CGBD, current June improve. to top pro to companies forma XX assets senior X, the investments, III secured X and on CSL exposure has by XXX the risk the will portfolio over over company Total for Based to basis

representing as nonaccruals and risk debt can have investments to improve, percentage on Slides you downgraded all with see fair that internal value, expect X ratings a our presentation. We investments of XX been to as scale, the XX on X, and of risk merger rating also

in midpoint savings of portfolio operating be cost a implies XX% in the pro $X.X quarter with annual million. elimination decrease target XX the has believe also of we uncalled duplicative assets. Increased on merger result we also expenses capital our the ratio in and the merger improved provide anticipate from points markets. Leading under capital more overlap, second scale through about a Given a return significant debt basis to forma potential close, expected CGBD up range. access to debt the which over combined leverage seek which of will levels, alternatives, CSL from institutional remaining and for we'll net cost expenses target synergies cost to wider III expense all to result of refinancing the should reduce The our shareholders, could calling to efficient shareholders, to

level deal deploy increased can the we're capital confident we into activity Justin mentioned, Given attractive of investments. this

All to CGBD regular over in III's CGBD's course, credit facility will at closing merger. existing expect asset-based financing transfer of CSL facilities the and will continue we of

been of and CSL committees investment the CSL at sought of liquidity both of The with the III Trustees to proven and unanimously premium CSL we've greater benefits to, transaction shareholders NAV. enables highlight retain investors to scale also addition transaction of the approved to of of CGBD at combined been CGBD BDC the to the exposure CGBD Board access a for and trade to to focused Directors want a Board of potential benefits special they entity, the by the the listed strategy III on, III. I recommendation that has in the the the

for think these Taken new is CGBD together, value investors. we proposition a this compelling

closing unchanged, remain or CGBD and to XXXX, other adviser closing customary QX from of shareholders, we certain approval the in waiver and CGBD's Finally, approval of regulatory anticipate transaction subject satisfaction conditions.

prepayment second a on front. Total slightly for portfolio CGBD due to the lower and interest another total from the reduced The share, balance. in expenses line prior $XX result generally year this detailed quarter due and the $XX decrease results. or decreased down lower prior a quarter which of per fees. a average $XX on debt quarter, million quarter's more for of to million from comparable with investment primarily of strong Now net Total also amendment earnings was second the prior review is period. versus to investment average $X.XX was balance in a quarter expense income million, moving outstanding had quarter income

us to $X.XX for Our shareholders is of of the XX. share. supplemental reflects at Board of base portfolio dividends at the policy of flexible paying variable level XX% which of which business payable comprised dividend, allows of total Directors of evolves plus a dividend a excess third rates be level of quarter supplemental declared close dividend This earnings, on of $X.XX base total record the XXXX and least out the fluctuate. September the dividend $X.XX That's per our as as to

the total base the attractive grown same Our an of XX% coverage remains dividend quarter level the at XXXX. XX% the At base BDC dividend dividend based we've of peers time, price. this above average, yield XXX% the on and since represents also recent share for

Network, quarter. in Communications paying Looking ahead, in $X and total quarter. On loss exceed $X supplemental $X.XX base dividends and was unrealized in we to and Emergency the position was meet loss net highly each out remain largest The valuations, ability ECN. for million continue our our confident comfortably aggregate our contributor a our dividend million realized about

that loss mark. majority at So better than week and slightly a a million level that exited position, investment of X/XX our from last we one actually $X that

So X/XX share. to $XX.XX position in the per that from in QX full is downside already exceeded dividend, This $XX.XX in resulted NAV. partially our for NAV offset decrease modestly earnings decreasing valuations, reflected the that our by

to Turning credit performance.

fair credit see net this increased the at borrowers continue Nonaccruals quality portfolio. value stability nonaccrual quarter to to total of a to overall status. We added X.X% X as in we across investments

been exited ECN other and working we've a with we favorable solution borrowers. However, towards the

by upcoming nonaccrual as back facilities So value. I'll investments financing that drop ends to touching quarter, X% percentage and on leverage. expect the of for fair our we finish a below on

points opportunistic XX our an the about on side of we've as we quarter-over-quarter, early environment vehicle. Leverage range. the quarter the net is right of remain and that, that basis XXXX-X positioned we X capacity have over a half X.Xx. target years July, capital CLO, the Justin. evolves to at leverage as balance ended well in leverage period activity by I'll the the in reducing reinvestment opportunities environment to us conservatively Statutory deal operating accelerating cost deploy down been was of debt end extending call looks our attractive than second up allows back into of be more reset by XXXX. With positioning macroeconomic and and to to pick the the to within the In date continue and sheet. We lower deal at lower financial of modestly turn X.Xx This maturity closed and

Justin Plouffe

Thanks, Tom.

Before we proposal want combining Q&A, through share. Market that for risk The our reemphasize and beneficial expect investment a I scale merger to CGBD. meaningful without high. for portfolio. move the with adding transaction known private between BDCs positions NII merger will compelling significantly shareholders NAV credit both accretion integration is with are be between This to Carlyle entities to X wholly the smooth managed aligned. a us increasing consistency we approach and of for the process per demand X to remains We're

attractive and conservative We levels leverage levels. relative on significant sourcing focus with transactions continue spreads market cushions, equity to to

shareholders of benefiting With a continued portfolio from stable our of strategy. levels CGBD nonaccrual, execution the and are originations, attractive low new

to credit stable cash always, income and remain consistent committed to operator performance. I'd call you. hand the take resilient, to we to flow questions. now delivering stream our investors As over like a the through to your Thank solid

Operator

our of first come And with line to O'Shea WFS. from Instructions] the question Finian going [Operator is

Finian O'Shea

campaign? Does close. that mean shareholder it's us like First, Carlyle of expected on can an of the 'XX remind I base merger, of And think profile III? anticipating extended sort the outreach you you're

Justin Plouffe

Sure.

So get vote have to CGBD we shareholder shareholders. do from

of do fund. up a invested it initially part because process, of legal a and not reason a when time. this vote is of III why here signed will have The they they for take in work shareholders the bit that that sort that's CSL So

delay CSL the plays So at merger end The no wouldn't be vote, Carlyle there's much base III there significant but too of process without are shareholder But concentration. to impact shouldn't a on that that again, we of that all. things. a expect to, people

Thomas Hennigan

of it's And of expect, to shareholders, up always votes. CGBD takes just these it so such although time for transaction base compelling a any a for we'd investors much diverse very gather

normal anticipate to we'd course mergers. BDC other process the So as take

Finian O'Shea

looking finance on views you I Okay. if have in positioning I'd might or still That's and early tell this And position ask, volatility bank's to transactions the to you Justin, if to they screen the on we're any compete I too sponsor lead at would or be a if in helpful. strong it's think how the whatnot? in impact guess, today thought current week,

Justin Plouffe

how tell focused long the excellent all pressure the credit plays time out of the sure on portfolio But seen we've spreads. in of because now to the early year. Certainly been quality a Yes. second on this half for we've is making the

feel a more more volatile volatile environments, positioned it if very reason, stand capital in becomes environment. to we we're our more well So the that Fin, valuable And heading does into borrowers.

we're well positioned half year, have we'll the to out to turn but be So I see. think volatile if of does second it

Finian O'Shea

the on, obviously -- Okay. account merger at the into final will if accretion? fee transaction if exchange I incentive But that's And if there's any based future. may for ratio on close, one the

Justin Plouffe

incentive fee the account I the follow merger I'm sure question. If quite will not for Sorry, accretion?

Finian O'Shea

stock -- Yes. GAAP the it That's where presumably Carlyle to that depending the due better revenue could trades too NOI. be, I accounting I and explain where elevate or that reduce merger but and think Based might Tom. well, due on NAV-for-NAV, I the can't BDC it the when to is, even in goes common and the know, will on change don't there for it's maybe very

go will -- sorry, ahead. like, accrue you So

Thomas Hennigan

impact No on math Fin, the we expect wouldn't incentive our from merger because, any fees.

Operator

line JPMorgan. of the going Melissa next question to our from Wedel come And is with

Melissa Wedel

would about loans the in couple put of out. to quarters portfolio, that the view Or the I be understand at smaller those level, a as talk the portfolios. fund? merger on credit balance wanted combining and portfolio to a But being brought into high that's you I would CGBD's appropriate sheet? to the

Thomas Hennigan

Tom. the between terms Melissa, borrowers. There's funds substantial it's overlap of in the X

In obviously, fact, also CGBD, almost single CSL varying every position levels. held at III is at

looking at we'd the those. facilities potentially the some So as our on allocating JV. the down anticipate good that allocating potentially and based the and spread current seeing transactions, lower primarily investments facility for in our of place keeping road loans We're credit to existing

But yield them we'd think would most with I profile, by on the most is those is at line profile in is directly part, So spreading the the profile the vehicles. based BDC anticipate though, the be investment think looking the the for across yield we'd of I BDC. be that held

Melissa Wedel

And there. can JV? runway would fund you NII or much that then runway sort question. another think that's Okay. avenue when NAV remind sorry, I credit I the where you to explore about look there and us you guess to that's assume the grow of the accretion? I'm How is --

Thomas Hennigan

to looking Look, growth the those dividends think always the I we're the JV huge probably factor. size coming think ROE. I Not maintain looking ways improve JVs. and to level. we're maintain best to JV we're currently, from a looking our Certainly, now, at Right

Melissa Wedel

me, managers the it. shift just as the for portfolio seen I we've number lien, think Got around make And transactions adjustments sometimes question structure. we've to seen of increasingly Final fee first before. these fee structure. We've a seen

if a been that's something that's topic discussion of with the Just Board? curious

Justin Plouffe

in want out shares to with We the structure paying and like avoids our dilution think performance shareholders. to market, our the preferred that all is I a NAV, transaction potential We are something part to emphasize, don't X% do Carlyle X% our of fees given getting line But at we've Yes. merger. which changing as of we're expenses CGBD had. anticipate fee

transaction. X the really contributing are areas Carlyle those where the is So to

Operator

would to closing over this I'm showing Instructions] like no further conference for at Plouffe I questions hand to remarks. time, the Justin and back [Operator

Justin Plouffe

speaking call. really be Okay. Well, joining. We everyone. thank today's appreciate I'm to in future. you, you your the sure will we'll conclude That

Operator

This concludes for you today's participating. conference call. Thank

a may Everyone, great You day. disconnect. now have

Carlyle Secured Lending (CGBD) 5 Aug 242024 Q2 Earnings call transcript