Carlyle Credit Income Fund's Q1 2025: Unraveling Contradictions in CLO Valuations, Credit Quality, and Cash Flow Impacts

These are the key contradictions discussed in Carlyle Credit Income Fund's latest 2025Q1 earnings call, specifically including: CLO Equity Market Valuations, Credit Quality Concerns, Interest Expense and Interest Coverage Ratio Calculations, and Repricing Impacts on CLO Equity Cash Flows:



Dividend and Cash Flow Performance:
- Carlyle Credit Income Fund (CCIF) maintained its monthly dividend at $0.105 per share, yielding 16.4% annualized.
- The dividend is supported by core net investment income of $0.44 per share and recurring cash flows of $0.70 per share for the quarter.
- This stability reflects the fund's strong cash flow generation and management.

CLO Investments and Spread Compression:
- CCIF made new CLO investments totaling $12 million during the quarter, with a weighted average GAAP yield of 16.8%.
- The portfolio's weighted average GAAP yield was 17.2% as of December 31, despite a decline of 33 basis points in spread.
- The decline in spread has impacted the fund's GAAP yield and net asset value, although resets and refinancings are helping to mitigate this effect.

Loan Market and CLO Activity:
- In 2024, the US leveraged loan market saw $771 billion in repricing activity, reducing spreads by approximately 25 basis points.
- CCIF completed 13 accretive resets and one refinancing in 2024, extending the reinvestment period and cash flows of CLOs.
- These activities are driven by the fund's strategy to optimize CLO investments and adapt to market conditions.

Borrower Health and Lending Dynamics:
- In the third quarter of 2024, approximately 72% of borrowers in Carlyle's US loan portfolio produced free cash flow.
- Borrower EBITDA growth outpaced sales growth, and the average borrower interest coverage ratio improved to 3.7 times.
- This indicates solid fundamentals among borrowers and a resilient lending environment.

CLO Market and Policy Impact:
- CLO managers addressed outstanding liabilities through resets and refinancings, totaling $224 billion and $83 billion, respectively.
- Despite policy shifts and rate cuts, investor demand for CLOs remained steadfast, reflecting their attractiveness in the current market environment.
- This underscores the fund's focus on managing CLO equity investments to capitalize on favorable market conditions.