Carlyle Secured Lending (CGBD) 5 Aug 24 2024 Q2 Earnings call transcript

Carlyle Secured Lending (CGBD) held its second quarter 2024 earnings conference call to discuss its financial performance and the proposed merger with Carlyle Secured Lending III (CSL III). The call, led by CEO Justin Plouffe, provided insights into the company's strategic moves and financial health.

Financial Performance and Merger

CGBD reported a net investment income of $0.51 per share for Q2 2024, representing an annualized yield of over 12%. Despite facing headwinds from spread compression on new deals, the company's performance was consistent with the broader direct lending market. CGBD's net asset value (NAV) as of June 30 was $16.95 per share, down 0.7% from March 31 due to unrealized depreciation from some watchlist names.

The merger with CSL III is expected to deliver strategic benefits, including increased scale and liquidity, elimination of Carlyle's convertible preferred shares, cost savings, and accretion to earnings and NAV per share. The combined entity will have an anticipated market capitalization of over $1 billion, providing increased scale and liquidity to shareholders.

Market Environment and Investment Activity

The call also touched on the market environment, highlighting strong refinancing, recapitalization, and M&A activity in the second quarter of 2024. CGBD's goal is to drive performance through a consistent approach to direct lending, anchored in disciplined credit selection and conservative portfolio management. The company continues to benefit from the OneCarlyle platform, differentiating it in the core middle market.

Outlook and Future Plans

Looking ahead, CGBD is optimistic about its future prospects. The company expects to call all remaining uncalled capital from CSL III shareholders and return CGBD to the midpoint of its target leverage range. CGBD's focus remains on sourcing transactions with significant equity cushions, conservative leverage levels, and attractive spreads relative to market levels. The merger with CSL III is expected to be accretive to both NAV and net investment income per share, providing a compelling value proposition for shareholders.

Analysts' Questions and Answers

During the Q&A session, analysts probed into various aspects of the merger, including the shareholder base profile of CSL III, the impact of the merger on incentive fees, and the strategy for integrating the smaller portfolio. CGBD's management provided detailed responses, demonstrating their thorough understanding of the merger's implications and their plans for executing it smoothly.

Conclusion

CGBD's Q2 2024 earnings call provided a comprehensive overview of the company's financial performance and its strategic merger with CSL III. The call underscored CGBD's commitment to delivering a resilient, stable cash flow stream to its investors through consistent income and solid credit performance. The merger, expected to close in Q1 of 2025, is seen as a significant step forward, positioning CGBD for increased scale, liquidity, and operational efficiencies.