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Carlyle Secured Lending, Inc. (CGBD)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net investment income was $0.47 per share, flat vs Q3; total investment income was $56.4M with net income per share at $0.40. NAV per share decreased 0.3% QoQ to $16.80 as modest net realized/unrealized losses offset NII .
  • Portfolio fair value rose to $1.80B on net investment activity of $97.2M; non‑accruals remained low at 0.6% of fair value (1.0% of amortized cost) and senior secured exposure was 93.5% .
  • Board declared a Q1 2025 dividend of $0.45 per share ($0.40 base + $0.05 supplemental); base dividend coverage was 118% and net financial leverage ended at 1.01x within the 0.90x–1.25x target range .
  • Capital structure optimized: $300M 6.75% unsecured notes issued in Oct; $190M of 2024 notes repaid; total liquidity increased to $565.7M by 12/31/24 .
  • Strategic catalyst: shareholders approved the CSL III merger on Mar 26, 2025; management expects accretion to earnings and NAV with increased scale and reduced costs .

What Went Well and What Went Wrong

What Went Well

  • Record deployment and portfolio growth: “growing its portfolio by about $100 million in the quarter” and net investment activity of $97.2M; 94% of 2024 originations were first lien with average LTV under 40% .
  • Credit quality remained stable: non‑accruals were 0.6% of fair value, with risk rating distribution largely unchanged; management emphasized confidence in recoveries leveraging the broader Carlyle network .
  • Financing and ratings achieved: investment‑grade ratings from Moody’s and Fitch; inaugural $300M unsecured notes at 6.75% fixed rate, diversifying financing sources and enabling repayment of 2024 notes .
  • Dividend consistency and coverage: Q1 2025 dividend set at $0.45 per share with policy to pay ≥50% of excess earnings as supplemental; base dividend coverage was 118% .
  • Strategic merger momentum: management reiterated merger benefits—scale, liquidity, reduced costs, and accretion to NII/NAV; shareholder approval subsequently obtained .

Quotes:

  • “During the quarter, we generated net investment income of $0.47 per share…Our Board of Directors declared a total fourth quarter dividend of $0.45 per share…” .
  • “We expect the merger to deliver increased scale and liquidity, eliminate the CGBD preferred stock dilution overhang and reduced aggregate costs…” .

What Went Wrong

  • Valuation headwinds: aggregate realized/unrealized net loss of ~$4M driven primarily by a markdown in Aimbridge; NAV per share declined to $16.80 from $16.85 .
  • Yield compression: lower weighted average yield vs prior quarter due to spread tightening and repricing; management noted earnings contraction risk in coming quarters (from prior quarter commentary) .
  • JV-driven noise: a one‑time ~$1.2M JV dividend added ~2¢ to NII and temporarily widened the gap between debt investment yields (11.2%) and income‑producing investment yields (11.7%), expected to normalize next quarter .

Financial Results

MetricQ4 2023Q3 2024Q4 2024Consensus (S&P Global)
Total Investment Income ($M)$62.7 $56.0 $56.4 Unavailable (SPGI limit)
Net Expenses ($M)$33.6 $31.1 $31.3 Unavailable (SPGI limit)
Net Investment Income ($M)$28.2 $24.0 $24.2 Unavailable (SPGI limit)
NII per Common Share ($)$0.56 $0.47 $0.47 Unavailable (SPGI limit)
Net Income per Common Share ($)$0.57 $0.37 $0.40 Unavailable (SPGI limit)
NAV per Share ($)$16.99 $16.85 $16.80 Unavailable (SPGI limit)

KPIs and Balance Sheet

KPIQ3 2024Q4 2024
Portfolio Fair Value ($B)$1.71 $1.80
Non‑accruals (% of FV / % of cost)0.6% / 1.2% 0.6% / 1.0%
Net Financial Leverage (x)0.90x 1.01x
Statutory Debt-to-Equity (x)1.05x 1.20x
Total Liquidity ($M)$354.8 $565.7
Weighted Avg Yield on Income-Producing (amortized cost)11.9% 11.7%

Asset Mix (Period-end, % of fair value)

Asset TypeQ3 2024Q4 2024
First Lien Debt72.2% 73.4%
Second Lien Debt7.1% 6.4%
Equity6.4% 6.5%
Investment Funds14.3% 13.7%
Senior Secured Exposure (incl. funds)93.7% 93.5%

Origination Activity (Par)

MetricQ3 2024Q4 2024
New Investment Fundings ($M)$143.4 $186.0
Sales & Repayments ($M)$(171.2) $(88.7)
Net Investment Activity ($M)$(27.8) $97.2
WA Yield on New Fundings10.7% 10.6%
WA Yield on Repayments12.4% 11.2%

Notes

  • Q3 adjusted NII per share was $0.49 due to accelerated debt issuance costs from the CLO reset; Q4 adjusted NII equaled GAAP at $0.47 .
  • A one‑time JV dividend (~$1.2M) added ~2¢ to Q4 NII, temporarily lifting income‑producing yields vs debt yields .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Common DividendQ1 2025$0.40 base + $0.05 supplemental (Q4 declaration) $0.40 base + $0.05 supplemental (declared Feb 18; payable Apr 17) Maintained
Leverage TargetOngoing0.90x–1.25x net financial leverage 0.90x–1.25x net financial leverage (actual 1.01x) Maintained
Merger Close TimingQ1 2025On track to close by end of Q1 2025 Expected close following Mar 26 stockholder meeting (approved Mar 26) Affirmed/Completed (approval)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024, Q3 2024)Current Period (Q4 2024)Trend
Merger with CSL IIIAnnounced; accretive to NII/NAV; Carlyle to exchange preferred at NAV; cost savings ~$2.5M “On track to close by March 31”; urged stockholder vote; reiterated accretion and scale benefits Progressing to completion
Origination volumes & spreadsRising originations; spreads compressed, stabilizing around SOFR+500–550 Record deployment; continued repricing/tightening headwinds; selective underwriting (~5% close rate) Stronger volumes; spreads tight
Credit performance/non‑accrualsNon‑accruals expected to drop below 1% Flat at 0.6% FV; risk ratings largely stable; ongoing work on specific borrowers Stable/benign
Joint ventures (MMCF1/MMCF2)Maintain JV size; not a huge growth lever Consolidated MMCF2; extending MMCF1 and adding facility to improve ROE; near‑term equity distributions Optimizing; near‑term ROE uplift
Financing & ratingsCLO reset; obtained IG ratings; plan unsecured notes Executed $300M 6.75% notes; repaid $190M 2024 notes; diversified funding Strengthened
Dividend policy & coverage≥50% excess earnings as supplemental; coverage above peers Q1 2025 dividend $0.45; base coverage 118%; attractive yield ~10% Consistent
Macro/private credit demandStrong demand; pipeline expanding “Market demand… remains strong”; increasing origination focus Supportive

Management Commentary

  • Strategic positioning: “We continue to seek quality at the top of the capital structure with 94% of our 2024 originations in first lien investments and an average loan‑to‑value under 40%” .
  • Earnings durability and dividends: “This total dividend level reflects our variable supplemental dividend policy of paying out at least 50% of excess earnings…” .
  • Merger benefits: “We expect the merger to deliver increased scale and liquidity… reduced aggregate costs… accretion to both earnings and NAV per share” .
  • Balance sheet strength: “We strengthened and diversified… most notably with the issuance of our inaugural institutional bond… At quarter‑end… leverage comfortably within our target range…” .

Q&A Highlights

  • JV optimization and capacity: MMCF2 assets moved on balance sheet reducing non‑qualifying bucket; MMCF1 extension and new facility to materially improve ROE; near‑term return of capital expected, creating capacity .
  • Excise tax: Q4 decline was a year‑end true‑up; expect future quarters to be in the prior quarters’ range .
  • Growth plans: Focused on deploying capital and completing the merger; post‑close growth initiatives to be considered later .
  • Fee/prepayment income: Q4 fee income/OID acceleration was ~1¢ per share below historical average; incremental JV dividend padded JV income line .
  • Yield metrics: The 11.7% income‑producing yield vs 11.2% debt yield gap was driven by the JV payout; expected to normalize next quarter .
  • Quantified JV impact: Incremental JV dividend was $1.2M ($0.02 per share to NII) .

Estimates Context

  • Consensus comparison: S&P Global Wall Street consensus for Q4 2024 EPS and revenue was unavailable due to request limits. As a result, estimate beat/miss analysis cannot be provided. Values retrieved from S&P Global were unavailable.

Key Takeaways for Investors

  • Income stability with low credit risk: NII per share held at $0.47 while non‑accruals remained 0.6% FV (1.0% cost); senior‑secured exposure ~93.5% and first‑lien mix 73.4% underpin portfolio resilience .
  • Dividend visibility: Q1 2025 dividend $0.45 declared; base coverage at 118% supports continued supplemental payouts under the ≥50% excess earnings policy .
  • Deployment momentum: Net investment activity swung positive to $97.2M with record platform deployment; selective underwriting (~5% close rate) maintains risk discipline .
  • Capital strength and liquidity: $300M 2030 notes executed; $190M 2024 notes repaid; liquidity rose to $565.7M, supporting 2025 origination capacity .
  • JV optimization: Consolidation of MMCF2 and extension/financing at MMCF1 should enhance ROE and create near‑term capacity via equity distributions .
  • Merger catalyst: Shareholders approved CSL III merger (96% support); management expects accretion to NII/NAV and reduced operating expenses post‑close .
  • Watch items: Modest valuation losses (Aimbridge markdown) and ongoing spread tightening/repricing are near‑term earnings headwinds; management flagged possible earnings contraction in coming quarters in prior commentary .