Q2 2025 Carlyle Secured Lending Earnings Call
Place on.
This, today's comments call may include 4 looking statements, reflecting our views with respect to among other things. The expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger and our future, offering results and financial performance.
These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor sections of our 10-K and 10-Qs.
These risks and uncertainties could cause actual results to differ materially from those indicated.
Cgbd assumes. No obligation to update any 4 looking statements at any time.
During this conference call the company may discuss certain non-gaap measures as defined by SEC regulation, G such as adjusted, net investment income, or adjusted knee.
The company's management believes adjusted, net investment income.
Adjusted net investment income per share.
Adjusted net income and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and Trends. And to review our performance without giving effect to the amortization or accretion resulting for the new cost basis on the Investments Acquired. And accounted for under the acquisition method of accounting in accordance with ASC 805 and the 1-time purchase or non-recurring investment income and expenses.
Including the effects on incentives and are used by management to evaluate the economic earnings of the company.
A Reconciliation of gaap. None investment income. The most directly comparable, gaap Financial measure to adjusted knee per share. Can be found in the accompanying, slide presentation for this call.
In addition, a Reconciliation of these measures may also be found in our earnings release file last night with the SEC on form AK.
With that, I'll turn the call over to Justin CBDs chief executive officer.
Thanks, initial. Good morning, everyone. And thank you all for joining. I'm Justin Plouffe, the CEO of Carlow BDCs and Deputy CIO for Carlow Global Credit.
On today's call, I'll give an overview of our second quarter, 2025 results, including the quarters investment, activity and portfolio positioning. I'll then hand the call over to our CFO. Tom henigan
During the second quarter, CGBD benefited from growth in the overall portfolio but was also impacted by historically tight market spreads.
we generated 39 cents per share of net investment income, for the quarter on both the Gap basis and after adjusting for asset acquisition accounting,
Our board of directors, declared a third quarter, dividend of 40 cents per share.
Our net asset value, as of June 30th was $16.43 per share compared to $15.63 per share as of March 31st.
Despite muted sponsor M&A activity, Carlyle Direct Lending achieved a platform-wide deployment record with $2 billion in originations closed during the quarter.
At the cgbd level, we funded 376 million dollars of investments into new and existing borrowers, the highest level since our IPO in 2017. Resulting in net investment activity of 238 million after accounting for repayments.
Total investments at CGBD increased from $2.2 billion to $2.3 billion during the quarter, after adjusting for $150 million of investments sold to MMCF. Our joint venture,
Looking ahead, CGBD origination activity is expected to be somewhat slower in the third quarter due to the seasonal summer slowdown and delayed transaction timelines, resulting from the market uncertainty that began in April.
However, we see our pipeline rebuilding, to a busier end of the year and remain optimistic for the fourth quarter.
As trade policy evolves, we continue to monitor our portfolio for tariff exposure.
In line with last quarter, we believe that less than 5% of the portfolio has material direct risk from tariffs.
Spreads in the private credit, space remain at historically tight levels. And when combined with potential Fed rate Cuts, may present a headwind to near-term earnings. Overall, we remain selective in our underwriting approach seeking quality credits, at the top of the capital structure.
We remain focused on overall credit performance and portfolio diversification while maintaining Target leverage and growing the credit fund.
As of June 30th, our portfolio is comprised of 202, Investments and 148 companies across more than 25 Industries. The average exposure to any single portfolio company was less than 1% of total Investments and 94% of our investments were in senior secured loans.
With that, I'll now hand the call over to our CFO. Tom henigan
Thank you, Justin. Today I'll begin with an overview of our second quarter, Financial results that I'll discuss portfolio performance before concluding with detail on our balance sheet position.
Total investment income for the second quarter was $67 million, up significantly from the prior quarter, as a result of a higher investment portfolio balance attributable to the merger with CSL III, which closed at the end of Q1, and the purchase of Credit Fund II in mid-February.
To expenses of 39 million. Also increased versus prior quarter,
Primarily as a result of higher interest expense from a higher average, outstanding debt balance along with higher management and incentives.
Driven by growth in the size of the portfolio.
The result.
With net investment income for the second quarter of 28 million, or 39 cents per share on both the Gap basis. And after adjusting, for asset, acquisition accounts,
Which excludes the amortization of the purchase price, premium from the CSL 3 merger and the purchase price, discount associated with the consolidation of credit fund too.
This quarter's earnings which demonstrates the First full quarter of the combined cgbd and CSL 3 portfolios decreased by about 1 penny per share. As we continue to work towards achieving. Our Target, leverage levels at both cdbg and the mmcf JV.
As previewed, last quarter, the earnings power of the combined portfolio remains in the same range as pre combination q1 cgbd earnings.
Our board of directors, declared the dividends of the third quarter of 2025, at a level of 40 cents per share.
Which is payable to stockholders of record as of the close of business on September 30th.
This dividend level represents an attractive yield of over 11% based on the recent share price.
In addition, we currently estimate that we have 89 cents per share of spillover income generated over the last 5 years.
So, we feel comfortable in our ability to maintain the quarterly dividend.
On valuations or total aggregate realized and unrealized net loss, for the quarter was about 14 million or 19 cents per share.
Partially attributable to unrealized markdowns on select on the Performing Investments.
Turning to credit performance, we continue to see overall stability and credit quality across the portfolio, with some underperformance in a handful of names.
On the metrics, the risk rating distribution remained relatively stable, with 1 name added to non-accrual during the quarter.
Increasing non-accruals to 2.1% of total Investments at fair value.
At the beginning of July, we closed the successful restructuring of Maverick, which all else equal decreases non-equal to 1% of total investments in fair value on a Pro Forma basis.
And while a non-approval rates, may fluctuate, in Period, to period, we're confident in our ability to Leverage The broader Carlile Network to achieve maximum recovery for underperforming Borrowers.
Moving to our credit fund as previewed. Last quarter, we've been focused on maximizing bold asset growth and returns at the MMFC, GV over the last few quarters.
As you can see from our investment activity, we continue to bolster the asset base and we expect the mmcf JV dividend to achieve a run rate of mid-. Teens Roe.
Separately. We continue to work on optimizing, our non-qualifying asset capacity and anticipate using this flexibility going forward for other strategic Partnerships.
I'll finish by touching on our financing facilities and leverage.
in July, we closed the small upsize to our primary revolving credit facilities,
Increasing total commitments to 960 million in total.
At quarter end statutory, leverages about 1.1 time towards the midpoint of our target range.
And given our current strong liquidity profile and targeted incremental sales to the MMCF JV, we're well positioned to benefit from the expected pickup in deal volume in future quarters.
With that, I'll turn the call back over to Justin.
Thanks Tom as we approach the middle of the third quarter. Our portfolio remains resilient. We continue to focus on sourcing transactions with significant Equity. Cushions conservative, leverage profiles, and attractive spreads relative to market levels.
Our pipeline of new originations is active with a stable, high-quality portfolio. Cgbd stockholders are benefiting from the continued execution of our strategy.
As always, we remain committed to delivering a resilience stable cash flow stream to our investors through consistent income and solid credit performance.
Finally, I'd like to conclude with some comments on a recently announced leadership Edition. We are thrilled that Alex Chi will join Carlile as partner. Deputy chief investment officer for Global Credit and head of direct lending in early 2026.
Alice will lead Carlos's Direct Lending team, and we'll work alongside Global Credit leadership to drive strategic decisions for Carlyle's Global Credit business and the Carlyle Direct Lending platform.
In a variety of roles most recently as co-head of private credit, within Goldman, Sachs asset management, and co-chief executive officer, and co-president of the Goldman Sachs, BDC complex with Alice's deep experience, proven leadership and strong industry relationships. We are confident, he will help us further accelerate. The growth of our Global Credit business, including cgbd.
I'd like to now hand the call over to the operator to take your questions. Thank you.
Thank you as a reminder, to ask a question. You will need to press star 1 1 1 on your telephone, to remove yourself from the queue. You may press star 1 1 1, again please, stand by. While we compile the Q&A roster,
Our first question comes from the line of Eric Zwick of Lucid Capital Markets. Your line is open, Eric.
Thanks. Good morning. Thanks for taking my questions. This morning, I wanted to start with maybe just a kind of a bigger picture question first and with regard to kind of the tighter spread environment that that you're currently operating in, um, not just you but the, you know, the entire sector and I'm curious from your seat. You know, what's Driven that the tighter spreads over the past, you know, year or so. And um, you know, what would it take to return to income maybe a
You know, more normal relative to historical levels? Environment, or do you think this is something that, um, is likely to persist for, um, you know, for kind of the near to midterm?
Yeah, Eric thanks for the question. Um, you know look I think a couple things, you know, 1 uh deal activity, probably wasn't as robust in the first half as we hoped it would be across the market. Now we had a record deployment quarter for the second quarter. Um so we're taking you know, more market share. Uh but I think what we'd really like to see if the market has increased deal activity and anecdotally. Um, we're optimistic about that for the rest of the year and into 2026, just from, you know, what we hear in in people's pipelines. Um, but I also think that part of this is the fact that in 2022 and 2023, um, spreads were probably wider, um, than you would expect in a, in a mature Market. Um, so I, I don't think that, um, this is necessarily about, uh, spreads going back to that level, but more just having them normalize with a, a normal amount of deal activity with
Private Equity sponsors, you know, entering the market in a more robust fashion. The second half of the year. Um, and as I said, we're we're optimistic about that deal activity, uh, coming to the market in, in Q4 and, and in 2026. So I think there'd be plenty of opportunities, uh, for us to invest,
I appreciate that the commentary there and, you know, just kind of falling on the theme there with, you know, had a very strong quarter of originations in 2q but still remain very optimistic. It sounds like, you know, the pipeline remains robust. So, but there's a lot of, you know, kind of broader Market, uncertainty or concern about the, the trajectory of the economy, but it, it sounds like based on what you're seeing. Um, you're seeing more opportunities, you know, Finding deals that you're comfortable underwriting. So, I guess from from your seat, is there anything that gives you any any pause or concern about? Um, you know, the, the US economic environment going forward
Yeah, look, I I, I think that um, certainty is what our markets like to see, uh, and any sort of certainty that we get on, uh, things like tariff policy, is a positive, uh, for our markets. But we're very happy with the companies we're investing in, right? As a, as a BDC, of course, we'd like to see, uh, spreads be a little bit more in our favor, but the real key to our long-term performance is investing in great companies, and we've continued to be able to do that. We see great companies coming to Market, and we're very optimistic about our ability to continue to
Invest with great companies. Going forward.
That's good to hear. Um, and I think you addressed it in the prepared remarks, but just wanted to make sure I heard it correctly with respect to the unrealized losses that were, um, kind of recorded in the quarter. Um, that sounded like, those are more company specific and and not something broader. And if so if you could just maybe, uh, you know, add a little color to, you know, what, what developed at those particular companies that resulted in the, uh, unrealized marks
Hey, are you? Yeah, that was it was really I'd say when you look at that unrealized it was probably 60. 65% credit. And then, 30 35%, just markets, slash technical factors like deals repaying.
You know, there's underperformance that were marked down, but, you know, we're we're engaged. We're appropriate with our workout team with other lenders, with the sponsors where we see, you know, stability in those names. Andor, you know, looking to get the companies in the right position that will have ultimate reasonable. Recoveries on those situations relative to where we're Mark today. Yeah, we certainly haven't seen, you know, broader reasons to worry about credit in, in the market, they're very specific situations in the book.
Got it and and then last 1 for me, in terms of, um, you know, that the buyback authorization that you do have, and I know you're, um, you know, very focused on on growth and that be the preferred use of the Capitol today. But just how do you think about the opportunity, given where the stock trades relative to, to NAB, uh, to potentially buy back shares?
Yeah, you have something. We didn't have to think about last year over the last few months. It's definitely something as a management team. We've had more regular conversations. We are having in dialogue with our board of directors. You know, you mentioned the last couple of years, we've been very focused on growth of our Equity base and that culminated with the merge that we closed last quarter. You know, so we get all the ski, all the benefits of scale whether it be better liquidity in the stock leveraging, our expense base, better liability. So we're still very much focused on growth and focused on getting that and getting that share price back up to nav. So we're in position to grow. But certainly something we're we're considering in terms of, you know, potential BuyBacks right now. There's nothing in the imminent plan. But we're certainly, considering just based on where the stock has been trained.
Thanks for taking my questions today.
Thank you. Our next question comes from the line of senna, OSHA of Wells, Fargo, Securities, your line is open, fine and
Hey everyone, good morning. Um, uh, Tom, first question on the the credit fund, um, Mid teens Roe. Does that indicate the the 5 million dividend or, or a different level?
That indicates roughly in the what we'll see is, we'll be deploying more capital and then we'll be able to be in the range. Of, let's say 4 and a half, to 5, and a half. When we, if we realize, perhaps a little bit higher when we utilize the full Equity, commitments right now. The fund has about 700 million of total Investments with the current Equity committed by both Partners. We can achieve, we can not quite double that, but that that's certain our plan longer term. So we think that we'll see the that dividend rate inch up. Some probably not too much movement in the absolute dividend level from from the jb1. What we are very focused on is potential other JBS and utilizing that non-asset capacity, nothing imminent right now, on that front but we're in dialogue with with other partners for for other JVS. And what I'd say is that that's likely to be something leveraging. The broader, Carlile network, not a great deviation for what we've been doing, but we're looking at that, not not as that, that asset capacity and
JVS in the aggregate certainly has a great stable base with JB1 and is looking to add to that.
With the second 1.
Yeah, it's helpful. Thanks. Um, I guess just a follow-up, bigger picture.
um you talked about Alex coming on, you know, growing the credit business including the BDC
Seeing if this suggests, any sort of style drift, like, do you want to get back to where you were? I know you were just at a premium.
Grow a little bit. Um sort of remain more specialty. I know a lot of the origination of this quarter looks looks pretty interesting and as you just said, there are plans on the 30% bucket, um, or do you want to go, you know, more into to overdrive? Like some of the large Market peers and, you know, issue maybe a lot on the ATM or secondary every quarter, um, which you know, the flip side of that is it might, it might ask that you, you know, go with a more um, modernized or or lower fee. Uh so seeing if you're weighing those 2 items against each other, and how we should think about that.
Sure. And um, uh, no change to our strategy. Uh, we are focused on originating in the core Middle Market and the US, um, that's going to continue to be the case. Alex brings tremendous experience in that area. Um, so this is just adding strength to strength, um, and as
We could do the best for our investors.
Awesome. Uh, all for me. Thanks so much.
Thank you. Our next question comes from the line.
Um, Melissa, we do of JP Morgan. Please go ahead Melissa.
Optimism for deployment in the second half. I want to make sure I heard you, right. I I got the impression from what you said that you're particularly optimistic about 4 versus 3 Q. Is that fair?
Yes, that that's fair Melissa. Um, the 3 Q is always uh a little bit muted in terms of closing on origination just because it's the summer. Um, but what we're looking at is the pipeline of deals we have today. Uh, and we think for the rest of the year, um, we feel pretty good about it.
Okay. And then sort of the flip side of that, as you see a pickup in activity, should we or are you expecting, you know, a proportionate pickup in repayments as well? So maybe sort of looking towards the net deployment back house, but maybe a little bit needed.
Um, I'm not expecting, or I don't see, reason in the market, I should say to expect to, you know, significant change in in prepayments, um, in the second half. I, I think this is just more about New Deal activity in the private Equity space and the pipelines we're seeing. Um, and we'll have to, we'll have to see if it actually materializes, but right now, um, our pipelines are looking pretty good.
Okay, I appreciate that. Um and then I guess the the final question for me when you think about all of the growth um,
Plans that you have and and potentially doing additional joint ventures and things like that which can enhance the earnings profile. I'm also curious about how you think about the earnings power.
Offset from potentially lower rates and and what that might mean for your dividend, uh, there and that's the base of that. I should specify a 40 cents a share. Thanks.
Yeah, sure. And you know we achieved the 39 cents a penny shot right now, our crystal ball for the third quarter. We're already at you know month in is we're going to be in the same general territory.
When you look at the potential, pluses is on on an average or steps to leverage, a quarter end was in the middle of our range, but on an average asset basis over on a daily basis, it was lower. So I think we've got just some upside in terms of Leverage.
I mentioned, um, we mentioned non-accruals
Maverick Arch a large position of that that was restructured and will be a lower debt balance that will be back on a cool. So there's some potential positive just on a little non across our cost of that. We're going to have some moving pieces with our baby Bond. We're likely going to issue a new another index eligible deal of the next few quarters. We have a higher price Legacy facility from CSL 3 that we're likely to be paid. So net. Net on liabilities, will probably be neutral all in. Uh, and then we've got
You know, the potential upside from the JBS which we're very focused on and the 1. Big headwind is obviously rates and then although spread some stabilized, you know, they when you look at overall portfolio, spread it continues to inch down a little bit. So we feel okay on the overall spread side so I think really it'll be the those various factors the number of positives.
That the JVS being in the longer term, a large growth driver in terms of our comfort with the achieving that 407.
Okay I appreciate your your kandare there. Um 1 follow up I guess 1 last follow-up for me on Maverick I would assume but I guess I'm asking this question. Is it fair for us to think that the mark that you had there at 6:30 was very reflective of the July 3rd? Restructuring economics,
Yes. So our anticipation is you're going to have a different capital structure so you can have a lower debt Quantum. You're going to have an equity holding and the total fair value dollars will be equivalent. I'll say the same that's our, that's our current valuation.
Got it. Thanks so much.
Thank you.
Our next question comes from the line of Robert Dodd of Raymond James. Please go ahead, Robert.
Hi guys, good morning. Um on the the kind of 2 things type of kind of credit fund and the non-quality on
What, what do you think?
Is a feasible timeline, to kind of fully.
Uh, a positive environment for kind of fully utilizing that vehicle. I mean, so if you can give us any idea of what the, the, the the timeline is for, for kind of maxing that 1, the first 1 out,
Based on the current Equity base. Where our Target, our goal was the next the next 2 or 3 quarters.
Got it, thank you additional JB having been having worked on the first JV and realized we hadn't. We had an agreement Inked and then, it took us 9 months to negotiate with. We think we'll be less than 9 months, but in terms of, you know, actual economic benefits for many second JV, uh, you know, it would likely be a 2026 event just because they're, uh, very complex structures, negotiating with the other partner. Getting everything in the ground, got it. Yeah. And to that, to that point, on on like another JV, would you be looking at kind of the same kind of conceptual structure, right? Basically the same kind of same kind of loans. Different partner or are you looking at at, at something slightly, different? Like, I mean, obviously, you know, you you can hold a lot of international assets in a JV somewhat easier than on balance sheets sometimes, Etc. I mean, is there any is it is it just going to be a for for um you know the lack of a better term, a carbon copy of the first 1, just with a different partner. Are you looking to do anything different?
With the second 1.
Yeah. Look, um, not necessarily decided yet. What I will tell you is that we're going to lean into our strengths uh, within Carlile, Global Credit overall. Um, so we have a lot of tools at our disposal in what we do with that with that, uh, JV or with that basket. Um, and at, in some way shape or form, I think it benefits our investors greatly to, to use all of, um, the experience and the origination engine. We have on our 200 billion dollar Global Credit platform. Um, but but right now, um, you know, for the second JV, we're considering options and, um, we'll just go with where we think we can produce the best value for, uh, for the entity.
Got it, thank you. And then what 1 more modification on on on the, um,
Obviously, you know, deal flow. Um, you seem quite positive, and that's...
kind of a theme for for not just you um,
And and quality-wise, right? And we've heard that there's there's been, you know, there's, there's a, a significant mix in, in the type of the quality of deals that are coming to Market like, right now, I mean, how would you characterize obviously, they were high enough quality for you in, in, in Q2. So, um, but looking looking forward, I mean, the, the A+ kind of deals have been able to get done, um, even during, you know, 23.
24, right? So is the, is there any
Mix shift in, in terms of like the quality of of opportunities that are starting to enter the pipeline and maybe getting rejected, but starting to enter the, the flow um, in the second half of 25 and heading into 26. Do you think there's going to be a mix?
A quality mix shift. No, no. We have not seen a material change in quality. Um, either the quality of the companies we've been able to invest in has continued to be strong, um, and the quality of the overall pipeline has continued to be strong. Certainly, we would, uh, prefer spreads to be a little wider than they are, and we'd prefer, uh, more deals in the market rather than less. Um, but so far, I think quality has remained good both in our pipeline and certainly in the investments we're doing.
Got it. Thank you.
Thank you. I would now like to turn the conference back to Justin puffer closing remarks sir.
Well, thank you everyone, for uh, joining our call. Hope it was helpful and we will uh, talk to you next quarter.
This concludes today's conference call. Thank you for participating. You may now disconnect.