Q3 2023 Carlyle Secured Lending Inc Earnings Call
Yeah.
Speaker 1: Hello and welcome to the Carlisle Secured Lending Inc. Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone.
Hello, and welcome to the Carlisle secured lending, Inc. Third quarter 2023 earnings conference call.
At this time all participants are in a listen only mode. After the speaker 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.
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It is now my pleasure to introduce Daniel Hahn shareholder relations.
Speaker 2: Good morning and welcome to Carlisle Secured Lending's third quarter 2023 earnings.
Good morning, and welcome to Carlisle secured lending third quarter 2023 earnings call.
Speaker 2: With me on the call this morning is Aaron Lee Kong, our Chief Executive Officer, and Tom Mannegan, our Chief Financial Officer.
With me on the call. This morning is air Mekong are Chief Executive Officer, and Tom Hennigan, Our Chief Financial Officer.
Speaker 2: Last night, we filed our form 10-2 and issued a press release with a presentation of our results.
Last night, we filed our Form 10-Q and issued a press release with a presentation of our results.
Speaker 2: which are available on the investor relations section of our web.
Which are available on the Investor Relations section of our website.
Following our remarks today, we will hold a question and answer session for analysts and institutional investors.
Speaker 2: This call is being webcast and a replay will be available on our web.
Call is being webcast and a replay will be available on our website.
Speaker 2: Any forward-looking statements made today do not guarantee future performance. And any undue reliance.
Any forward looking statements made today do not guarantee future performance and any undue reliance should not be placed on them.
Speaker 2: These statements are based on current management expectations and involved inherent risks and uncertainties, including those identified in the risk factor section of our annual report on form 10.
These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factors section of our annual report on Form 10-K.
Speaker 2: These risks and uncertainties could cause actual results to differ materially from those enemies.
These risks and uncertainties could cause actual results to differ materially from those indicated.
Speaker 2: Car law-scared lending assumes no obligation to update any forward-looking statements at any time. With that, I'll turn the call over to Aaron.
Carlisle secured lending assumes no obligation to update any forward looking statements at any time with that I will turn the call over to Eric.
Thanks, Dan.
Speaker 3: Good morning, everyone, and thank you all for joining. As has become custom, I will focus my remarks on three topics for today.
Everyone.
Thank you all for joining us.
As has become custom I will focus my remarks on three topics for today's call.
Speaker 3: First, I'll provide an overview of the third quarter financial results. Next, I'll touch on the current market and-
First I'll provide an overview of the third quarter financial results Nick.
Hudson the current market environment.
Speaker 3: And finally, I'll conclude with a few comments on the Quarters Investment Activity and Portfolio position.
And finally, I'll conclude with a few comments on the quarter's investment activity and portfolio positioning.
Speaker 3: Starting off with earnings, we continue to see our portfolio yield and fit from the higher base rate environment.
Starting off with earnings we continued to see our portfolio yield benefit from the higher base rate environment.
Speaker 3: In the third quarter, we generated total core NII of 52 cents per share, which is an increase of 18% from the prior year and represents an annualized return of equity of 12.4.
In the third quarter, we generated total core NII of 52 per share, which is an increase of 18% from the prior year and represents an annualized return on equity of 12, 4%.
Speaker 3: continued trend upward from last quarter and the LTM period.
Moving to trend upward from last quarter and the LTM period.
Speaker 3: Our Board of Directors declared a total fourth quarter dividend of 44 cents, consistent of 37 cents a base dividends, plus a 7 cents supplemental, both of which were in...
Our board of directors declared a total fourth quarter dividend of 44 cents consistent up 37 cents a base dividend plus seven supplemental.
Both of which were in line with the prior quarter.
Speaker 3: Our net asset value as of September 30th, was $16.86 per year. Up 13 cents or approximately 1% from the June 30th period, as a result of our Q3 earnings outpacing our divend and net positive movement evaluations. Thank you very much.
Our net asset value as of September 30 was $16 86 per share.
13th or approximately 1% from the June 30 period as a result of our Q3 earnings outpacing our dividend and net positive movement in valuations.
Turning now to the current environment.
Speaker 3: Private credit continues to take share of the BSL market. And we've seen answers continue to favor the private credit market to enhance the limited number of new LBO transactions.
Private credit continued to take share from the BSL market.
And we've seen sponsors continue to favor the private credit market demands the limited number of new LBO transactions.
Speaker 3: Reef financing transactions drove the majority of activity during the quarter, which included a number of high profile BSL names, being re-financed by the private credit space.
Financing transactions drove the majority of activity during the quarter, which included a number of high profile BSL names being refinanced by the private credit space.
Speaker 3: Similar to prior quarters, terms and pricing during the quarter lead favorably to London. However, we continue to remain highly selective in putting new money to work and look for new transactions to improve the credit quality of our book and are treated to CSL's RL.
Similar to prior quarters terms in pricing during the third quarter lead favorably to lenders. However, we continue to remain highly selective and putting new money to work and look for new transactions to improve the credit quality of our book and are accretive to CFL Roe.
Speaker 3: The weighted average spread of new investments outpaced the spread on the third quarter's repayments for the fifth quarter in a row.
The weighted average spread of new investments outpaced the spread on the third quarter's repayments for the fifth quarter in a row.
Speaker 3: We continue to see the trends for leverage in LTVs and platform originations improve. On a year-to-date basis, average leverage in LTVs and new originations decreased by approximately one term and five percent respect.
We continue to see the trend for leverage and Ltvs in platform originations improve on a year to date basis average leverage and Ltvs on new originations decreased by approximately one turn and 5% respectively.
Speaker 3: Originations benefited from the one car-lile platform, both in the US and US.
Originations benefited from the one Carlyle platform both in the U S and Europe.
Speaker 3: As discussed last quarter, we're focused on complementing our traditional sponsored pipeline with other sources of transaction flow, including crawlout generated.
As discussed last quarter.
Just on complementing our traditional sponsor pipeline with other sources of transaction flow, including Carlyle generated in non sponsor transactions.
Speaker 3: Outside of New Deal, we continue to see momentum in mining the existing portfolio for add-on transactions that provide incremental economics, not a lot from improvements in the cap structure of current portfolio companies. Lastly,
Outside of new deals, we continue to see momentum in mining the existing portfolio for add on transactions that provide incremental economics now lots of improvements in the cap structure of current portfolio companies.
Lastly, I'd like to spend a few minutes on current positioning.
Speaker 3: Our portfolio remains highly diversified and is comprised of 171 investments in 124 companies across over 25.
Our portfolio remains highly diversified and is comprised of 171 investments in 124 companies across over 25 industries.
Speaker 3: The average exposure in any single portfolio company is less than 1%, and 94% of our investments aren't senior secured loss.
The average exposure in any single portfolio company is less than 1% and 94% of our investments are in senior secured loans.
Speaker 3: We continue to be pleased with the overall credit performance of ours as in portfolio, with revenue and even a quarter of a quarter. And since...
We continue to be pleased with the overall credit performance of our existing portfolio with revenue and EBITDA quarter over quarter.
Since origination.
In addition, despite persistent inflationary pressures our borrowers EBITDA margins have generally remained stable.
Speaker 3: Despite persistent and placenary pressures, our borrowers EBITDA margins have generally remained stable. The median EBITDA across our quote, quote, portfolio, at the end of the quarter was $80 million, and importantly, we've not seen any meaningful increase in the level of non-cash.
The median EBITDA across our core portfolio at the end of the quarter.
$80 million and importantly, we've not seen any meaningful increase in the level of noncash add backs.
Speaker 2: I'll now hand the call over to our CFO , Tom Hedigan. Thank you, Aaron. Today, I'll begin with a review of our third quarter earnings. Ben of Discussing Corsoil.
I'll now hand, the call over to our CFO Tom Hennigan.
Thank you Erin.
Today I'll begin with a review of our third quarter earnings.
Pat will discuss portfolio performance.
And I'll conclude with details on our balance sheet positioning.
As Aaron previewed we had another strong quarter on the earnings front.
Speaker 2: Children's investment income to the third quarter was $61 million.
Total investment income for the third quarter was $61 million.
Up modestly from the prior quarter.
Speaker 2: The continued positive impact of higher base rates was partially offset by a lower average investment value.
The continued positive impact of higher base rates was partially offset by a lower average investment balance.
Speaker 3: Total expenses of $34 million also instep for prior quarter. Again do the higher interest expense.
Total expenses of $34 million also inched up versus prior quarter.
Again due to higher interest expense from rising base rates.
Speaker 2: The result was total investment income to the third quarter of $26 million. For $52 per ship.
The result was total investment income for the third quarter of $26 million.
Or <unk> 52 per share.
In line with prior quarter.
Speaker 4: Importantly, this recent level of earning is matured above our quarterly earning from 2020.
Importantly, this recent level of earnings is materially above our quarterly earnings from 2022.
Speaker 4: Our board of directors declared the dividends for the fourth quarter of 2023 at a total level of 44 cents per share.
Our board of directors declared the dividends for the fourth quarter of 2023 at a total level of <unk> 44 per share.
Speaker 4: That's comprised of the 37 cent base dividend plus a 7 cent supplement.
That's comprised of a 37 base dividend plus the seven supplemental.
Speaker 4: which is payable to share holders of record as a close of business on December 29th.
Which is payable to shareholders of record at the close of business on December 29.
Similar to prior quarters.
Speaker 4: total dividend level of 44 cents per share allows us to bolster NAS in the face of an increasingly complex macroeconomic environment.
Total dividend level of 44 per share allows us to bolster NAV in the face of an increasingly complex macroeconomic environment.
Speaker 4: Our base dividend coverage of over 140% is among the highest in the BDC peers.
Our base dividend coverage of over 140% is among the highest in the BDC peer set.
Speaker 4: And we've grown the base dividend by nearly 16% since mid-2022.
And we've grown the base dividend by nearly 16%.
2022.
Speaker 4: At the same time, the total dividend level also represents an attractive yield of over 12% on the share price as of September 29.
At the same time.
The total dividend level also represents an attractive yield of over 12% on the share price as of September 29.
Speaker 4: In terms of the forward outlook for earnings, we see stability in the $0.50 plus level.
In terms of the forward outlook for earnings we see stability in the 50 plus level.
Speaker 4: based on the combination of the current forward interest rate curve and attractive economics on new deals.
Based on the combination of the current forward interest rate curve.
And attractive economics on new deals.
Despite rising rates.
Speaker 4: we've maintained a conservative disciplined approach that we believe will enable us to continue consistent dividend payouts in a variety of rate environments.
We've maintained a conservative disciplined approach that we believe will enable us to continue a consistent dividend payout and a variety of rate environments, including on rates normalize.
Speaker 4: So we're mainly highly confident in our ability to comfortably meet and exceed our 37 cent-based dividends and continue to hang out supplemental dividends each quarter.
So we remain highly confident in our ability to comfortably meet and exceed our 37 base dividend and continued paying us supplemental dividends each quarter.
Speaker 4: on valuations, our total aggregate realized and unrealized net gain was about $0.003 million for the quarter.
On valuations, our total aggregate realized and unrealized net gain was about $3 million for the quarter.
Speaker 4: Supported in part by tightening market spreads and improvement in valuations in some of our health.
Supported in part by tightening market spreads and improvement in valuations in some of our health care needs.
Speaker 4: This increase in valuations, combined with 2.3 earnings exceeding the dividend, resulted in our NAB increasing from $16.73 to $16.86.
This increase in valuations combined with Q3 earnings exceeding the dividend resulted in our NAV increased from $16 73 to <unk>.
$16 86 per share.
Speaker 4: Turning to the portfolio, we can see just the overall stability and credit quality across
Turning to the portfolio.
We continue to see overall stability in credit quality across the book.
Speaker 4: Importantly, this quarter there were no new not accruals and no additions to our watch list, which deals with risk.
Importantly, this quarter there were no new non accruals and no additions to our watch list, which are deals with risk rated four or five.
Speaker 4: Total non-accruals were effectively flat quarter over quarter, as we continue to see financial performance improvement and positive valuation migration in investments like Dermatology Associates and Bayside, which is formerly known as ProPT.
Total non accruals were effectively flat quarter over quarter as we continue to see financial performance improvement and positive valuation migration and investments like dermatology associates, and Bayside, which is formerly known as <unk>.
Speaker 4: And then, as Aaron noted, most of our portfolio companies continue to weather the inflationary environment very well. And we remain confident in the credit strength of our overall portfolio. I'll finish by touching on our financing facilities and leverage.
And then as Eric noted most of our portfolio companies continue to weather the inflationary environment very well.
And we remain confident in the credit strength of our overall portfolio.
I'll finish by touching on our financing facilities and leverage.
We continue to be well positioned on the right side of our balance sheet.
Leverage is down quarter over quarter and.
Speaker 4: And we're intentionally running leverage conservatively at the lower end of our target range to maintain the flexibility to invest in attractive opportunities.
And we are intentionally running leverage conservatively at the lower end of our target range to maintain the flexibility to invest in attractive opportunities.
Statutory leverage was about one two times.
Speaker 4: And net financial leverage ended the quarter modestly lower at 1.06 times.
And net financial leverage ended the quarter modestly lower at $1 six times.
The lowest levels in over a year.
Speaker 4: This positioning allows us to opportunistically deploy capital given the attractive yields and terms available for new investments in the current market environment.
This positioning allows us to opportunistically deploy capital given the attractive yields in terms available for new investments in the current market environment.
With that I'll turn it back over to Eric.
Speaker 3: Thanks, Tom. I would like to finish by highlighting the consistency of our investment approach and reiterate our overall strategy.
Yeah.
Thanks, Tom.
I would like to finish by highlighting the consistency of our investment approach and reiterate our overall strategy.
Speaker 3: We're primarily focused on making senior secured floating rate investments to U.S. companies backed by high quality sponsors, primarily in the mid.
We're primarily focused on senior secured floating rate investments to U S companies backed by high quality sponsors primarily in the mid market.
Speaker 3: We utilize a rigorous approach based on disciplined underwriting, prudent portfolio construction, and conservative risk management.
Utilize the rigorous approach based on disciplined underwriting and prudent portfolio construction and conservative risk management.
Speaker 3: While market demand for private credit remains high, our approach has not changed.
While market demand for private credit remains high our approach has not changed and we remain focused on sourcing differentiated lending opportunities via the breadth and scope of the one Carlyle platform.
Speaker 3: And we remain focused on sourcing differentiated lending opportunities via the breadth and scope of the One Carlyle Plot.
Speaker 3: I'd like to now hand the call over to the operator to take your questions.
I'd like to now hand, the call over to the operator to take your questions. Thank.
Thank you.
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Speaker 1: I'm showing no further questions. So with that I'll hit the call back over to CEO Aaron Lee Kong for any closing remarks
I'm showing no further questions so with that I'll hand, the call back over to CEO, Eric <unk> for any closing remarks.
Speaker 3: Thank you so much, everyone. Look forward to speaking to you all in your scheduled calls. And thank you for the support. Have a great day.
Thank you so much everyone look forward to speaking to you all and your scheduled calls and thank you for the support have a great day.
Yeah.
Speaker 1: Ladies and gentlemen, thank you for participating. This concludes today's program and you may now disconnect.
Ladies and gentlemen, thank you for participating this concludes today's program and you may now disconnect.
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Speaker 5: I.