Carlyle Secured Lending's Q4 2024: Contradictions in JV Strategy, Leverage Outlook, and Market Activity

These are the key contradictions discussed in Carlyle Secured Lending's latest 2024Q4 earnings call, specifically including: JV Strategy, Merger Impact on Leverage, and Market Activity:



Strong Financial Performance and Dividend Payout:
- Carlyle Secured Lending Inc. (CGBD) generated net investment income of $0.47 per share in Q4, representing an annualized yield of over 11% based on its 12/31 NAV.
- The company declared a total fourth quarter dividend of $0.45 per share, consisting of a base dividend of $0.40 plus a $0.05 supplemental dividend.
- The high dividend payout was supported by stable credit performance and a higher base rate environment.

Merger and Strategic Initiatives:
- Carlyle proposed a strategic affiliate merger with Carlyle Secured Lending 3 (CSL3), expected to deliver increased scale, liquidity, and reduced costs.
- The merger is anticipated to close by March 31, subject to stockholder approval and customary closing conditions.
- The merger is intended to enhance CGBD's liquidity and earnings power while eliminating the CGBD preferred stock dilution overhang.

Optimization of Joint Ventures and Investment-Grade Ratings:
- CGBD consolidated MMCF II onto its balance sheet and extended the investment period of MMCF I by 3 years, enhancing the earnings profile of the portfolio.
- The company obtained investment-grade ratings from Fitch and Moody's, enabling it to issue its first institutional bond deal.
- These moves allowed CGBD to optimize its joint ventures' earnings power and capacity, providing greater flexibility for future transactions and partnerships.

Portfolio Diversification and Credit Performance:
- CGBD's portfolio was comprised of investments in 135 companies across more than 25 industries, with an average exposure of less than 1% in any single company.
- The company maintained 93% of investments in senior secured loans, with a median EBITDA across the portfolio of $88 million.
- The diversified portfolio and strong credit performance were supported by a selective underwriting approach and a focus on conservative leverage profiles.