Q3 2021 TCG BDC Inc Earnings Call

November 3, 2021

Okay.

Good day and thank you for standing by welcome to the TCG BDC, Inc. Third quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

One on your telephone please be advised that today's conference is being recorded.

You require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Alison Ruggeri. Please go ahead.

Good morning, and welcome to TCG Bdc's third quarter of 2021 earnings call last night, we issued an earnings press release and detailed earnings presentation with our quarterly results a copy of which is available on TCG Bdc's Investor Relations website.

Following our remarks today, we will hold a question and answer session for analysts and institutional investors.

This call is being webcast and a replay will be available on our website.

Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on that these statements are based on current management expectations and they involve inherent risks and uncertainty.

<unk> those identified in the risk factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated T.

TCG BDC assumes no obligation to update forward looking statements at any time.

And with that I'll turn the call over to our Chief Executive Officer, Linda pace.

Thank you Allison and good morning, everyone and thank you all for joining us on our call. This morning to discuss our third quarter 2021 results joining.

Joining me on today's call is our Chief investment Officer, Taylor, Boswell, and our Chief Financial Officer, Tom Hennigan.

I'd like to focus my remarks today on three areas.

First I'll provide an overview of this quarter's strong financial results.

I'll touch on the portfolio and credit highlights and finally I want to conclude with some thoughts on our current positioning.

Let me begin with an overview of this quarter's strong financial results.

We ended the quarter with net asset value per share of $16.65 up 51 cents or three 2% from the $16.14 we reported last quarter.

Notably our Nab now sits above what we reported in the fourth quarter of 2019.

The quarter before the onset of the global health crisis.

We took aggressive action to manage our portfolio throughout the pandemic. We are very pleased to see our team's hard work reflected in our results.

We again generated strong earnings this quarter with net investment income of 39 per common share.

We've declared a total dividend of <unk> 39.

Which represents a trailing 12 month dividend yield of 10, 6% on our common stock and 9% on our net asset value in.

In line with our dividend policy investors can expect us to distribute substantially all of the excess income earned over our base 32 cent dividend.

This quarter, we repurchased $6 $8 million of our common stock, resulting in two sense of accretion to net asset value.

Recently, our board of directors Reapproved, our stock repurchase authorization for $150 million that our stocks current valuation we will continue to be purchasers of our common shares.

I'll turn now to this quarter's investment activity in the portfolio.

As you might imagine given the continued strength in our markets. We posted another quarter of robust originations, we funded $270 million of new investments across an array of new and existing borrowers.

Currently the portfolio stands at just under $2 billion and leverage remains in line with our targets.

As we look forward our pipeline is healthy we're confident in our ability to source attractive investments in this market.

Credit fundamentals and the portfolio remains solid and those investments most impacted by Covid continue to demonstrate cyclical recovery.

Our internal risk ratings again improved as did the performance of our watch list credits.

We expect continued positive fundamental performance going forward and see opportunity in 2022 for improvements in our non accrual investments.

Finally alone allow me to reflect back on the last few years at <unk>.

When Taylor, Tom and I took the helm in the second quarter of 2019, reestablishing strong investment performance was our top priority.

On this front I am extremely pleased with the results our team has demonstrated.

We've passed through a difficult cycle and our NAV has grown across that period, while our earnings remained comfortably in excess of our base dividend.

Our investment objective is the delivery of sustainable income, we've been consistently delivering against that goal.

Going forward, we're fortunate to operate in attractive markets with both secular growth and strong relative investment value, but the cycle is advancing and there is ample competition.

As you've heard and we will continue to hear from US our strategy to address this is to fully leverage our primary competitive advantage the carlyle platform.

We focus our efforts on how best to use our platform to derive edge at each step of our investment process from origination to credit to portfolio management.

As we drive and deepen these initiatives. We're confident we can maintain a high degree of investment selectivity and regularly identify conviction investments all while bringing a safe and defensive approach to portfolio construction.

We will continue to focus on the long term performance of the business with the goal of delivering attractive dividends and NAV stability to our shareholders I'd.

I'd like to hand, the call now over to our Chief investment Officer Taylor Boswell.

Good morning, everyone. It's nice to be with you again, and we're pleased to report another strong quarter of performance at <unk>.

Today, we'll touch on macro and market as per usual, then I'd like to spend a few minutes on how we apply the benefits of Carlyle platform to drive our investment success.

Admittedly, it's a more complicated macro environments at the beginning of the year when there were fewer observable risks the cyclical recovery.

The pace of global growth weakened in the third quarter due to the COVID-19 Delta area and the persistence of global supply chain disruptions.

The late 2020, and early 2021 boom in durable goods spending liquidated global manufacturing inventories and restocking has proven difficult due to inadequate capacity and complex global production networks with.

With these conditions elevated inflation has proven more persistent than previously anticipated.

This has been further fueled in Q3 by sharp increases in global energy prices and elevated shipping costs.

While employee shortages persist as the U S Labor force participation rate remains approximately 2% below its pre pandemic peak.

And our portfolio, we're seeing certain instances of rising costs. However, generally our borrowers are showing the ability to pass through cost increases and as such fundamental performance remains strong.

This is consistent with the broader backdrop, where U S. Corporate earnings are expected to rise 30% from year ago levels.

On the new deal front, we continue to see robust activity across corporate transactional markets in the third quarter was as busy as any in our history.

Both the velocity and volume of this market are remarkable.

Of course philosophy as a risk while volume is an opportunity.

We're actively using the ladder to mitigate the risk of the former by focusing our efforts on those deals where we have both high conviction and appropriate opportunity to conduct rigorous credit work.

All in all our market continues to offer attractive deployment opportunities for discerning investors.

Last quarter I discussed, how we derive our investment advantage, even in competitive markets, which I would summarize as follows first we have a leading position in true middle market first lien lending that forms the core of our portfolios.

Second we complement our core with risk factor diversifying specialty lending capabilities and third we utilize the carlyle platform to create edge at all stages of our investment process.

Today I'll spend some time pulling deeper into that third topic, which has been an enormous focus of ours over the last two years.

In sourcing our platforms large direct origination footprint and integrated approach materially increased deal volumes at the top of our funnel.

Today, we sourced nearly a third of our deals from adjacent investment efforts within Carlyle Global credit platform, who regularly see transactions more appropriate for our mandate and for their own.

Over the last two years as we've deployed and deepened our integrated approach we have seen hit rates for new deals half, meaning we are roughly twice as credit selective today as we once were.

Top of the funnel breadth not only lets us get more selective at the bottom of our funnel. It also allows us to meaningfully reduce investment specific risks.

As an example, youll see in the quarter, we booked a new junior debt position.

Plastics.

Given the breadth of our origination footprint. We had this deal in house over an extended period of time from four different highly engaged sponsors.

This was a regular occurrence in our business and it allows us to significantly enhance our diligent steps compared to more narrow sourcing efforts.

And diligence our platform is an even more effective risk reducer.

Being part of Carlyle allows us access to expertise across a wide variety of markets sectors and geographies.

And we build our process to seek that edge in each transaction.

For instance in recent quarters, we've seen an uptick in sponsor interest in digital consultancy businesses as they're a strong secular growth trends underlying this sector.

We have a historically strong business services practice in Carlyle credit and.

Seven digital consultancy deals that fit our direct lending desk in the last nine months alone.

This is a great place to start but our work doesn't stop there.

We access the Carlyle platform, we leverage the fact that our private equity teams are also focused on this space and in fact own an asset in the sector.

We leveraged the senior leaders of our IP organization, who have deep direct expertise contracting with these firms and we leverage our private equity portfolio companies to understand how they use in view of these providers.

This gives us both more and more direct expertise to inform our investment judgments as we seek to both minimize risk and capture opportunities.

Finally in workouts, we combine the deep and relevant experience of our private equity franchise with our platforms dedicated workout stream.

We're not afraid to move aggressively to exit assets in which we have loss fate.

But we also have competitively advantaged workout capabilities from staffing management teams and boards to designing and executing new corporate strategies.

As such we are equally unafraid to hold workout assets.

And more instances been not we find the cost of capital demanded by the market to exit assets undergoing transition is far too high.

Precisely because potential buyers don't have the same capabilities as we do.

So one should expect us to remain invested in these assets for longer periods of time, so that we can leverage our capabilities to maximize outcomes. Indeed.

Indeed, you'll find that we've held our current non accrual investments for an average of 10 quarters.

As we look forward with several years of hard work behind US. We believe these assets now generally stand on sound fundamental put in.

Hopefully this helps provide color on how we apply our platform to drive investment edge across our process.

Over the last two years, we have been working hard to deepen these advantages and we believe the results of those efforts are beginning to evidenced themselves plainly and our investment performance.

Our portfolio is pass through the severe shock of Covid and exited with higher NAV than we entered we have consistently generated an attractive dividend and as we go forward continued portfolio recovery offers an opportunity for both income and NAV improvement.

Thanks, as always for your time and support Tom.

Thank you Taylor.

I will begin with a review of our third quarter earnings that will provide further detail on our balance sheet positioning and conclude with a discussion of our portfolio.

As Linda previewed we had another impressive quarter on the earnings front.

Total investment income for the third quarter was $44 million.

Up from $43 million in the prior quarter.

The primary driver was an increase in core interest income on our investment book.

Partially offset by lower other income.

OID accretion from repayments experienced a moderate increase will then come from the <unk> JV is again remained stable versus prior quarter levels.

Total expenses were up modestly at $22 million in the quarter.

The result was net investment income for the third quarter of $21 million or <unk> 39 per common share.

Exceeding both recent performance and the general guidance, we provided the last few quarters.

On November one our board of directors declared the dividends for the fourth quarter of 2021 at a total level of 39 per share.

That comprises the 32 base dividend plus a seven supplemental.

Which is payable to shareholders of record as of the close of business on December 31.

And similar to prior quarters as we look forward to the fourth quarter and into 2022, we remain very confident in our ability to comfortably deliver the 30 <unk> base dividend plus continue the sizeable supplemental dividends.

Moving on to the performance of our <unk> JV.

Total dividend income was again $7 5 million in line with the last two quarters.

On a combined basis, our dividend yield from the Jv's was about 11%.

Going forward, we continue to expect stable dividend generation from the <unk>. So much of this quarter's results.

On the valuations our total aggregate realized and unrealized net gain was $26 million for the quarter was.

The sixth consecutive quarter of positive performance following the drop in March 2020.

And as Linda noted NAV is now back above December 2019 levels.

Using the same buckets have outlined in prior quarters, we again saw broad based improvement across each category.

First the performing lower Covid impacted names plus our equity investments in the JV, increasing value of about $14 million compared to 630 <unk>.

Largest components were an $8 million increase in the value of our investment in Mcf, one plus $5 million and gains from our equity co investment book.

Second the assets that have been underperforming pre pandemic. So much have COVID-19 exposure was $5 million, marking the sixth consecutive quarter of stability or improvement.

The final category is the moderate to heavier COVID-19 impacted beams.

We continue to see improvement in the underlying financial performance of these borrowers.

Collectively we experienced a net $7 million increase in value.

Of note our investment first watch restaurants, which we marked up during the third quarter repaid in full during October.

Next I'll touch on our financing facilities and leverage.

We continue to be very well positioned with the right side of our balance sheet.

Statutory leverage was about one three times.

Financial leverage was about one one.

Both increased modestly quarter over quarter, given the net positive deployment in the investment book.

If we're still sitting close to the lower end of our target range of 101, four giving us flexibility.

<unk> ability to invest judiciously in the current robust deal environment.

And regarding the preferred equity issuance from May 2020, as I said in prior quarters. It continues to be a long term investment by Carlyle and our BDC.

Currently has no intention to convert.

I'll also note that it accounts for only about two 5% of our capital structure and is accretive to earnings on an unconverted basis.

I'll finish with a review of our portfolio and related activity.

We continue to see overall stability and improvement in credit quality across the book.

The total fair value of transactions risk rated three to five <unk>.

Indicating some level of downgrades since we made the investment approved again this quarter.

By $16 million in the aggregate.

Total non accruals were essentially flat at three 5% based on fair value.

And this was the fifth consecutive quarter with no new non accruals.

As Taylor detail I want to take a moment to reiterate our philosophy on workouts with a dedicated workout function and significant resources across Carlyle that we use to maximize recovery when credits turn south.

We don't manage our non accrual statistics, we manage our non accrual assets for maximum value realization.

These situations often required the right mix of turnaround experience incremental capital and patients all with.

We possess.

We use the combination in the pass through cheap successful recoveries and we're following a similar playbook on our current non accruals dermatology direct travel then shall arrow.

Based on our continued focus and investment over a number of years all else equal we see a path to both NII expansion and increased recovery above our 930 evaluations.

With that Dr. Linda for some closing remarks.

Thanks, Tom before I turn the call over to the operator, I'd like to reiterate that delivering a sustainable and attractive dividend to our shareholders alongside it stable or growing NAV remains our top priority.

We are pleased that we've delivered on this and believe we are very well positioned to continue to do so thank.

Thank you for joining us today, and we here at Carlyle with you and your families are safe and wonderful start to the holiday season.

Like to now hand, the call over to the operator to take your questions.

As a reminder to ask a question you will need to press star one on your telephone.

Draw your question press the pound key please standby, while we compile the Q&A roster.

Our first question comes from the line of Ryan Lynch from K VW. Your line is now open.

Hey, good morning, Thanks for taking my questions. The first one you gave some commentary in your introduction regarding some supply chain shortages in inflation pressures has been.

A fairly moderate concern right now in the marketplace, which is understandable.

That changed the specific industries that you guys are focusing on today. When you guys are looking to deploy new capital or does that just influence.

The way you guys are due diligence team specific companies, making sure that their supply chains are set up well there that they could pass on.

<unk> costs to their end markets.

Hey, Ryan Thanks for the question it's Taylor.

Answer is.

Absolutely on the ladder, maybe a little less so on the former meaning.

Meaning that it really causes us to.

Focus a lot more on near term earnings trajectory and proving out the price pass through mechanisms of the borrowers that we have that of course is isn't really important part of any underwriting and always will be and then seeing those demonstrated in the current period as costs rise to recapture those and profitability. So I think that it really.

Causes us to kind of double down in those places where you might see those those things happening and naturally in an environment like this you're going to skew a little less towards highly labor intensive business models highly energy intensive business models, where youre seeing the most pressure.

But it certainly doesn't rule out those sectors. If you have confidence in your ability to underwrite and understand that.

<unk> capture is happening on the other side of cost pick up.

Okay understood there.

Really over the last couple of quarters, you guys have had very strong.

Portfolio activity, both on the originations and on the repayment side.

It sounds like.

Your pipeline remains pretty strong.

I just wanted to know if you could give any color on what you guys are expecting you guys expecting these levels to remain similar in the fourth quarter that we've seen maybe in the third quarter or to a lesser extent the second quarter or.

Has anything changed as far as market activity or are you guys process that would slow that down.

Yes.

Overall, I mean, we're continuing to see very robust levels levels of activity in.

I don't think there's anything that's going to change that there is a little bit of seasonality in our business, where people kind of try to wrap their transactions.

Before the Christmas holiday season, and that new processes, what kind of launch in the new year, but that's very normal and typical and overall, we don't see any.

Thing going on markets or in our business specifically.

That are going to stand in the way right now of this very robust volume environment, yes.

Yes, Ryan it's Linda.

Maybe point you to what we look at it sort of a leading indicator in that regard and we see a lot of capital being raised.

On the private equity side, some folks folks like Carlyle all the way down the spectrum to private equity firms that are more focused on the more traditional middle market direct lending space as well so that gives us some confidence that the trajectory of the volumes that we're seeing will have some legs to it.

Mhm.

And then just one more for me you mentioned, you being able to tap into.

Other parts of the Carlyle platform, both from underwriting due diligence, but also very importantly to widen the funnel.

Create better <unk>.

Origination opportunities and I think you said.

Maybe a third of your deal flow is now coming from adjacent strategies across the Carlyle platform.

I know the overall credit business is growing at Carlyle.

Which is benefiting the BDC I'm just wondering has there also been investments made and if you could speak to those.

Within the direct lending platform to kind of grow the capabilities and the investment professionals at that platform.

In addition to just getting additional deal flow from from growth and other strategies across the credit platform.

Yes, Ryan it's been an enormous focus of ours over the course of really the last five years here at Carlyle.

When our credit platform has been.

Significantly investing in private credit markets and so if you look across our business.

The number of head count here dedicated to illiquid markets generally.

Probably doubled over that period of time.

And some of that growth falls directly into our narrowly defined direct lending business some of it falls into functional areas that.

Support our business, whether it would be our capital markets teams or our research teams are otherwise and some of it falls in those adjacent businesses, but.

We really.

Have meaningfully.

<unk> participated as a business and the growth of these industries and shifted our Resourcing is a platform dedicated towards those these private credit industries over the last five years. So.

The short answer is yes, a lot.

And Ryan maybe just to give you.

An anecdote this morning I had.

Just a conversational meeting with.

Some of the direct lending team and there are about a dozen of us in the room.

<unk> been at Carlyle 22 years, I don't think theres been anybody else in that room, that's been at Carlyle, even 22 months everybody had been higher than in 2020 in 2021. So.

Really a focus on.

Growing our resources and growing them in the right way with with people, who we think are going to be additive both on an origination from an origination perspective.

Credit research perspective.

Understood that's helpful antidote.

The one those are all my questions, but I did want to.

Before I hop off they'd wanted to say congratulations.

On reaching the milestone of growing NAV above pre COVID-19 levels. That's a that's a big accomplishment certainly for any lender in this environment.

Good work on that guys.

Thanks for recognizing that Ryan we really appreciate it.

Thank you. Our next question comes from the line of Stan <unk> from.

From Wells Fargo Securities.

Your line is now open.

Hi, everyone. Good afternoon, just a question on.

Leverage Tom as you pointed out there is the <unk>.

The range of one to one four and Youre on the lower end.

Just.

Any color or context on.

On how willing you are interested you are in.

Taking advantage of that in today's market.

Given where we're seeing a lot of.

Competition.

Wage and energy inflation, and so forth how should we think about should we think about this runway is a near term or longer term.

Opportunity.

Hey, good morning, I appreciate the question it's Tom.

You've seen the last number of quarters, we've been running in that right around 1.5, right between one <unk> and $1. One we're very comfortable at that range right now.

Certainly to the extent, we see attractive opportunities in the market, there's room to grow there, but our target right now for the time being is remaining right right in that sweet spot, where we are now we certainly gives us the flexibility to.

The increase of desired based on the market opportunities.

Yeah.

Got it that's all for me thanks, so much.

Thank you. Our next question comes from the line of Melissa went well down from JP Morgan. Your line is now open.

Good morning, everyone and thanks for taking my questions today.

Wanted to touch quickly on the repurchase activity, which seems to have been pretty stable quarter to quarter and it sounds like that.

Certainly at current levels and at discount to NAV.

And likely to continue in the near term I'm curious about how you're thinking about share repurchases headed into 'twenty two.

Thank you.

Hey, good morning, its Tom.

No.

Certainly we look closely at the level of the discount and.

While we have been active buyers over the last number of years, except during the.

To that March 2020 related 2020 timeframe based on that.

Pandemic.

<unk> been steady purchases, we anticipate continued steady purchases, but depending on the discount to NAV you can see that those numbers rightfully. We think rightfully have gone down the last couple of quarters. So we think based on.

Continued to trade in the <unk>, where we are now well continue with that.

Steady pace to the extent that now that we anticipate.

We anticipate that discount should decrease we should get closer to trading at NAV.

You could see those level of repurchases decline.

Got it I appreciate that and I did have one clarification I think it was a follow up on Ryan's question about repayment activity in Q did you I might've missed it did you touch on and.

Sort of if you expect prepayments.

Can you into the end of the year similar to what we've seen in the third quarter.

Hey, it's Tom we know what it is.

While the new deal environment for the reasons Taylor noted continues to be very robust, we've definitely seen a pickup in repayment activity based on just a really robust M&A environment Gibson since question about where we are with leverage as we look at this quarter as we sit here today, we're probably looking at.

Very robust new deal volume, probably being offset by repayments in the book So we're seeing I'd say in the aggregate.

Steady in terms of overall net net deployment for the quarter in terms of.

Not looking towards portfolio growth leverage remaining in the range, where we've been.

Got it.

It's Taylor, Melissa I think that.

We're feeling very confident generally and our ability to originate assets are frankly, we could take up the funded asset level I think very comfortably in this environment. If we wanted to but the focus here right is sustainable income generation and we feel like we're earning at a really nice level right around where we are with the business and and.

Kind of live in this range as Tom mentioned as opposed to needing or wanting to drive higher or lower for some for some.

Other reason.

Understood.

Helpful. Thank you.

Thank you. Our next question comes from the line of Colleen Lang from Citi. Your line is now open.

Good morning, Thanks for taking my question.

Wondering if you could talk about how interest rate sensitive you are and do you have any thoughts about.

Shelley inflationary pressures and how it affects the portfolio that you have.

Yes, sure. It's Tom again, when you look at our portfolio most of our loans floating rate and have LIBOR floors.

Our debt on the other hand, we've got our fixed rate tranches.

Notes or notes or other revolving credit is floating rates. So to the extent that LIBOR has been at LIBOR when it goes to <unk>.

Is it 10 basis points is at a low level to the extent that that level drips up to.

So the 1% floor level youll see some some deterioration in earnings.

LIBOR gets closer to that 1% or above.

Above the 1%.

When we start to get some of that fat. So that's we see the interest the interest rate sensitivity, we have tables in our 10-Q spelling out the various levels in terms of we got certainly the benefit of the floors right now.

To the extent interest rates go up we are interest expense would increase we've got some some pressure from that perspective.

Thanks, that's it for me.

Thank you at this time I am showing no further questions I would like to turn the call back over to Linda pace for closing remarks.

Well, thanks, everyone for joining us today I hope you have a great day, and we'll see you after Q4 earnings.

Thank you.

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

Yeah.

Yes.

[music].

Got it.

Yes.

[music].

Good day and thank you for standing by welcome to the T. C. G. B B C Inc. Third quarter 2021 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one.

On your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Allison her dairy. Please go ahead.

And welcome to TCG Bdc's third quarter of 2021 earnings call last night, we issued an earnings press release and detailed earnings presentation with our quarterly results a copy of which is available on TCG Bdc's Investor Relations website.

Following our remarks today, we will hold a question and answer session for analysts and institutional investors that's.

This call is being webcast and a replay will be available on our website.

Any forward looking statements made today do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and they involve inherent risks and uncertainty.

Alluding those identified in the risk factors section of our annual report on Form 10-K that could cause actual results to differ materially from those indicated.

TCG BDC assumes no obligation to update forward looking statements at any time.

And with that I'll turn the call over to our Chief Executive Officer, Linda pace.

Thank you Allison and good morning, everyone and thank you all for joining us on our call. This morning to discuss our third quarter 2021 results joining.

Joining me on today's call is our Chief investment Officer, Taylor, Boswell, and our Chief Financial Officer, Tom Hennigan.

I'd like to focus my remarks today on three areas.

First I'll provide an overview of this quarter's strong financial results.

I'll touch on the portfolio and credit highlights and finally I want to conclude with some thoughts on our current positioning.

Let me begin with an overview of this quarter's strong financial results.

We ended the quarter with net asset value per share of $16 65.

51 cents or three 2% from the $16.14, we reported last quarter.

Notably our NAV now sits above what we reported in the fourth quarter of 2019, the final quarter before the onset of the global health crisis.

We took aggressive action to manage our portfolio throughout the pandemic. We are very pleased to see our team's hard work reflected in our results.

We again generated strong earnings this quarter with net investment income of 39 per common share.

We have declared a total dividend of <unk> 39.

Which represents a trailing 12 month dividend yield of 10, 6% on our common stock and 9% on our net asset value in.

In line with our dividend policy investors can expect us to distribute substantially all of the excess income earned over our base 32 dividend.

This quarter, we repurchased $6 $8 million of our common stock, resulting in <unk> <unk> of accretion to net asset value.

Recently, our board of directors Reapproved, our stock repurchase authorization for $150 million that our stocks current valuation we will continue to be purchasers of our common shares.

I'll turn now to this quarter's investment activity in the portfolio as.

Currently the portfolio stands at just under $2 billion and leverage remains in line with our target.

As we look forward our pipeline is healthy we're confident in our ability to source attractive investments in this market.

Credit fundamentals and the portfolio remains solid.

And those investments most impacted by Covid continue to demonstrate cyclical recovery or <unk>.

Journal risk ratings again improved as did the performance of our watch list credits.

We expect continued positive fundamental performance going forward and see opportunity in 2022 for improvements in our non accrual investments.

Finally alone allow me to reflect back on the last few years at <unk>.

When Taylor, Tom and I took the helm in the second quarter of 2019, reestablishing strong investment performance was our top priority.

On this front I am extremely pleased with the results our team has demonstrated we.

<unk> pass through a difficult cycle and our NAV has grown across that period, while our earnings remained comfortably in excess of our base dividend.

Our investment objective is the delivery of sustainable income, we have been consistently delivering against that goal.

Going forward, we're fortunate to operate in attractive markets with both secular growth and strong relative investment value, but the cycle is advancing and there is ample competition.

As you've heard and we will continue to hear from US our strategy to address this is to fully leverage our primary competitive advantage the carlyle platform.

We focus our efforts on how best to use our platform to derive edge at each step of our investment process from origination to credit to portfolio management.

As we drive and deepen these initiatives. We're confident we can maintain a high degree of investment selectivity and regularly identify conviction investments all while bringing our safe and defensive approach to portfolio construction.

We will continue to focus on the long term performance of the business with the goal of delivering attractive dividends and NAV stability to our shareholders I'd.

I'd like to hand, the call now over to our Chief investment Officer Taylor Boswell.

Good morning, everyone. It's nice to be with you again, and we're pleased to report another strong quarter of performance at <unk>.

Today, we'll touch on macro end markets per usual, then I'd like to spend a few minutes on how we apply the benefits of Carlyle platform to drive our investment success.

Admittedly, it's a more complicated macro environments at the beginning of the year when there were fewer observable risks the cyclical recovery we saw.

While the pace of global growth weakened in the third quarter due to the COVID-19 Delta area and the persistence of global supply chain disruptions.

With these conditions elevated inflation has proven more persistent than previously anticipated.

This has been further fueled in Q3 by sharp increases in global energy prices and elevated shipping costs.

While employee shortages persist as the U S Labor force participation rate remains approximately 2% below its pre pandemic peak.

This is consistent with the broader backdrop, where U S. Corporate earnings are expected to rise 30% from year ago levels.

On the new deal front, we continue to see robust activity across corporate transactional markets in the third quarter was as busy as any in our history.

Both the velocity and volume of this market are remarkable.

Of course, the velocity of the risks while volume is an opportunity.

All in all our market continues to offer attractive deployment opportunities for discerning investors.

Second we complement our core with risk factor diversifying specialty lending capabilities and third we utilize the carlyle platform to create edge at all stages of our investment process.

Today I'll spend some time pulling deeper into that third topic, which has been an enormous focus of ours over the last two years.

In sourcing our platforms large direct origination footprint and integrated approach materially increased deal volumes at the top of our funnel.

Today, we sourced nearly a third of our deals from adjacent investment efforts within Carlyle Global credit platform, who regularly see transactions more appropriate for our mandate and further on.

Over the last two years as we've deployed and deepened our integrated approach we have seen hit rates for new deals half, meaning we are roughly twice as credit selective today as we once were.

Top of the funnel breadth not only lets us get more selective at the bottom of our funnel. It also allows us to meaningfully reduce investment specific risks.

As an example, youll see in the quarter, we booked a new junior debt position in <unk>.

Plastics.

Given the breadth of our origination footprint. We had this deal in house over an extended period of time from four different highly engaged sponsors.

This is a regular occurrence in our business and it allows us to significantly enhance our diligent steps compared to more narrow sourcing efforts.

And diligence our platform is an even more effective risk reducer.

Being part of Carlyle allows us access to expertise across a wide variety of markets sectors and geographies.

And we build our process to seek that edge in each transaction.

For instance in recent quarters, we've seen an uptick in sponsor interest in digital consultancy businesses as they're a strong secular growth trends underlying that sector.

We have a historically strong business services practice in Carlyle credit.

And seven digital consultancy deals that fit our direct lending desk in the last nine months alone.

This is a great place to start but our work doesn't stop there when we access the Carlyle platform, we leverage the fact that our private equity teams are also focused on this space and in fact on an asset in the sector.

This gives us both more and more direct expertise to inform our investment judgments as we seek to both minimize risk and capture opportunity.

Finally in workouts, we combined the deep and relevant experience of our private equity franchise with our platforms dedicated workout stream.

We're not afraid to move aggressively to exit assets in which we have loss base.

But we also have competitively advantaged workout capabilities from staffing management teams and boards to designing and executing new corporate strategies.

As such we are equally unafraid to hold workout assets.

In more instances, but not we find the cost of capital demanded by the market to exit assets undergoing transition is far too high precisely because potential buyers don't have the same capabilities as we do.

So one should expect us to remain invested in these assets for longer periods of time, so that we can leverage our capabilities to maximize outcomes.

Indeed, you'll find that we've held our current non accrual investments for an average of 10 quarters.

As we look forward with several years of hard work behind US. We believe these assets now generally stand on sound fundamental footing.

Hopefully this helps provide color on how we apply our platform to drive investment edge across our process.

Over the last two years, we have been working hard to deepen these advantages and we believe the results of those efforts are beginning to evidenced themselves plainly and our investment performance.

Thanks, as always for your time and support Tom.

Thank you Taylor.

Ill begin with a review of our third quarter earnings that will provide further detail on our balance sheet positioning and conclude with a discussion of our portfolio.

As Linda previewed we had another impressive quarter on the earnings front.

Total investment income for the third quarter was $44 million.

Its up from $43 million in the prior quarter.

The primary driver was an increase in core interest income on our investment book.

Partially offset by lower other income.

Although the accretion from repayments experienced a moderate increase will then come from the <unk> JV begin remained stable versus prior quarter levels.

Total expenses were up modestly at $22 million in the quarter.

The result was net investment income for the third quarter of $21 million or <unk> 39 per common share.

Exceeding both recent performance and the general guidance, we provided the last few quarters.

On November one our board of directors declared the dividends for the fourth quarter of 2021 at a total level of <unk> 39 per share.

That comprises the 32 base dividend plus a seven supplemental.

Which is payable to shareholders of record as of the close of business on December 31.

And similar to prior quarters as we look forward to the fourth quarter and into 2022, we remain very confident in our ability to comfortably deliver the 32 base dividend plus continue the sizeable supplemental dividends.