Core Viewpoint - The BDC market is experiencing heightened volatility due to increased corporate distress and the Federal Reserve's approach to interest rate cuts, which complicates the ability of BDCs to maintain attractive spreads [1][2] BDC Market Dynamics - The anticipated interest rate cuts have not yet led to significant corrections in the BDC sector, but future adjustments are expected as the effects of these cuts permeate through BDC structures [2] - There are early signs of weakening portfolio quality metrics among BDCs, making a focus on quality increasingly critical [2] Stronger BDCs - **Carlyle Secured Lending Inc. (CGBD)**: - Maintained strong total investment income and a high dividend coverage ratio of 128% despite a 25% increase in dividends since early 2022 [4] - Net investment income per share remained stable at $0.51, with a minor non-accrual base of 1.8% expected to decline to 1% in Q3 2024 [4] - Announced a merger with Carlyle Secured Lending III, which is expected to benefit shareholders [4] - **FS KKR Capital (FSK)**: - Total investment income increased by $5 million, with a decrease in interest expenses and management fees, resulting in a $0.02 per share increase [5] - EBITDA levels of underlying portfolio investments grew by approximately 12% year-over-year, with non-accruals declining to 1.8% of total portfolio fair value [5] - FSK trades at a ~17% discount to NAV, with leverage decreasing to 1.09x, below the sector average [5] Weaker BDCs - **Oaktree Specialty Lending (OCSL)**: - Experienced a negative total return of 15% since January 2024, with adjusted net investment income declining to $0.55 per share [6] - Non-accruals increased from 4.3% to 5.7% of the portfolio, leading to a distribution coverage of only 100% [6] - Leverage increased from 1.02x to 1.1x, indicating potential risks despite solid portfolio statistics [6] - **Horizon Technology Finance (HRZN)**: - Investment income decreased from $28 million to $26 million, with per share income dropping from $0.54 to $0.36 year-over-year [7] - The portfolio size has declined due to shallow M&A activity, with repayments exceeding new investments [7] - Debt to equity ratio remains high at 1.36x, indicating balance sheet concerns [7] Conclusion - The BDC market is facing challenges from rising non-accruals, shallow transaction activity, and impending interest rate cuts, necessitating a focus on high-quality and defensive BDCs to sustain distributions and support gradual growth [8]

Carlyle Secured Lending, Inc. (CGBD) announced a definitive agreement to acquire Carlyle Secured Lending III (CSL III) — a private business development company with a similar investment strategy and portfolio. After the closure of this stock-for-stock merger, CGBD's total assets will increase to $2.5 billion and net assets to more than $1.2 billion upon closing. CSL III's investment activities are managed by its investment adviser, CSL III Advisor, an affiliate of Carlyle Group (CG) . Given the substantial ...

NEW YORK, Aug. 7, 2024 /PRNewswire/ -- Kuehn Law, PLLC, a shareholder litigation law firm, is investigating potential claims related to the below-listed proposed mergers. Kuehn Law may seek additional disclosures or other relief on behalf of the shareholders of these companies. Kuehn Law is investigating whether the Boards of the below companies 1) acted to maximize shareholder value, 2) failed to disclose material information, and 3) conducted a fair process: Carlyle Secured Lending, Inc. has agreed to mer ...

Financial Performance - Net investment income for Q2 2024 was $26.0 million, or $0.51 per common share, with dividends declared totaling $23.9 million, or $0.47 per share [304]. - Basic earnings per common share for Q2 2024 were recorded at $0.35, with dividends declared at $0.47 per common share [309]. - Total investment income for Q2 2024 was $58,264,000, down from $62,007,000 in Q1 2024, representing a decrease of 11.2% [313]. - Net investment income for Q2 2024 was $26,873,000, compared to $28,449,000 in Q1 2024, reflecting a decline of 5.5% [313]. - Total investment income for the three months ended June 30, 2024, was $58,264, down from $62,007 for the three months ended March 31, 2024, a decrease of approximately 4.5% [352]. - Net investment income for the three months ended June 30, 2024, was $26,873, compared to $28,449 for the three months ended March 31, 2024, reflecting a decrease of 5.5% [352]. - Net realized gains on investments for the three months ended June 30, 2024, were $5,118, compared to $1,209 in the same period of 2023 [367]. Investment Portfolio - As of June 30, 2024, the company held 180 investments across 126 portfolio companies, with a total fair value of $1.7 billion [305]. - The total investments at amortized cost as of June 30, 2024, amounted to $1,783,219,000, down from $1,829,575,000 at the beginning of the period [320]. - The fair value of total investments as of June 30, 2024, was $1,726,050,000, with 98.2% classified as performing investments [327]. - The geographical composition of investments shows that 90.0% of fair value is in the United States, with Canada at 3.4% and the United Kingdom at 4.0% [316]. - As of June 30, 2024, 83.3% of the fair value of investments was rated as Internal Risk Rating 2, indicating stable performance [326]. - The company made new investments totaling $81,865,000 during Q2 2024, with 95.2% of new debt investment commitments at floating interest rates [320]. - The number of new investment commitments in Q2 2024 was 14, with an average commitment amount of $7,371,000 [320]. - The fair value of loans on non-accrual status increased to $30,209 as of June 30, 2024, from $3,792 as of March 31, 2024, representing a significant increase [354]. Debt and Liquidity - Total liquidity as of June 30, 2024, was $399.1 million in cash and undrawn debt capacity [306]. - The weighted average interest rate on secured debt decreased to 6.90% as of June 30, 2024, from 6.95% as of December 31, 2023 [329]. - The Credit Facility has a total capacity of $790,000, with borrowings outstanding of $236,246 and an unused portion of $553,754 as of June 30, 2024 [331]. - Cash, cash equivalents, and restricted cash increased to $92,222 as of June 30, 2024, from $60,447 as of December 31, 2023, representing a growth of 52.7% [373]. - Total liquidity decreased to $399,149 as of June 30, 2024, from $420,122 as of December 31, 2023, a decline of 5.0% [373]. - Unfunded delayed draw commitments rose to $95,630 as of June 30, 2024, compared to $68,017 as of December 31, 2023, an increase of 40.6% [376]. - The company had $911,230 of outstanding consolidated indebtedness as of June 30, 2024 [369]. - The net financial leverage ratio improved to 0.90x as of June 30, 2024, from 1.02x at the end of 2023 [372]. Expenses - The total expenses for Q2 2024 were $31,391,000, down from $33,558,000 in Q1 2024, indicating a decrease of 6.5% [313]. - The total expenses for the three months ended June 30, 2024, decreased to $31,391 from $33,558 for the three months ended March 31, 2024, a reduction of approximately 6.5% [352]. - Total expenses for the three months ended June 30, 2024, were $31,391, down from $32,890 in the same period of 2023, a decrease of $1,499 [361]. Refinancing and Mergers - A merger agreement was entered into on August 2, 2024, involving Carlyle Secured Lending III, with the company continuing as the surviving entity [307]. - The company completed a $410.0 million refinancing of the 2015-1R Notes on July 2, 2024, extending the reinvestment period by four years and reducing the cost of debt by 22 basis points [308]. - The Company completed the 2015-1R Refinancing on July 2, 2024, resulting in the issuance of $410,000 in collateralized loan obligations [340]. Investment Commitments and Returns - The annualized dividend yield from the Credit Fund was 11.4% as of both June 30, 2024, and December 31, 2023 [343]. - The Company has commitments to fund up to $250,000 in the Credit Fund, which primarily invests in first lien loans of middle market companies [341]. - The number of portfolio companies in Credit Fund decreased from 38 to 32, indicating a reduction of 15.8% [345]. - Credit Fund II's portfolio of senior secured loans decreased to $228,033 as of June 30, 2024, down from $255,486 as of December 31, 2023, a decline of approximately 10.7% [350]. - The weighted average yield of senior secured loans in Credit Fund II based on amortized cost decreased to 11.7% from 12.0% [350].

Financial Data and Key Metrics Changes - In Q2 2024, the company generated net investment income of $0.51 per share, representing an annualized yield of over 12% [6] - The net asset value (NAV) as of June 30 was $16.95 per share, down $0.12 or approximately 0.7% from March 31 due to unrealized depreciation from some watch list names [6][21] - Total investment income for Q2 was $58 million, slightly down from the prior quarter due to a lower average portfolio balance and a decrease in prepayment and amendment fees [19] Business Line Data and Key Metrics Changes - The portfolio remains highly diversified with 180 investments in 126 companies across more than 25 industries, with 94% of investments in senior secured loans [12] - Nonaccruals increased to 1.8% of total investments at fair value, with expectations to drop below 1% in the upcoming quarter [22] Market Data and Key Metrics Changes - Sponsored direct lending volumes reached recent highs driven by strong refinancing, recapitalization, and M&A activity [11] - The core middle market continues to see comparatively less pressure than the large cap market, with significant year-over-year increases in originations [11] Company Strategy and Development Direction - The company has entered into a merger agreement to acquire Carlyle Secured Lending III, which is expected to provide strategic benefits such as increased scale and liquidity, cost reductions, and operational efficiencies [7][10] - The merger is structured to potentially be accretive to both NAV per share and net investment income per share, with a focus on maintaining a consistent investment strategy [15][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ability to navigate a potentially volatile second half of the year, emphasizing the importance of maintaining excellent credit quality [29] - The company remains committed to delivering a resilient cash flow stream through consistent income and solid credit performance [25] Other Important Information - The Board of Directors declared a total third quarter dividend of $0.47 per share, reflecting a variable supplemental dividend policy [20] - Carlyle will cover certain merger-related expenses up to a total cap of $5 million, which is expected to mitigate potential dilution from merger expenses for shareholders [10][14] Q&A Session Summary Question: What is the expected timeline for the merger and the shareholder base profile of Carlyle III? - Management indicated that the merger requires a shareholder vote from CGBD shareholders, which may take time, while CSL III shareholders do not have a vote [26][27] Question: How might current market volatility impact the company's competitive positioning? - Management believes the company is well-positioned to leverage its capital in a more volatile environment, enhancing its value to borrowers [29] Question: How will the loans from CSL III be integrated into CGBD's balance sheet? - The substantial overlap between the two portfolios suggests that most loans will be held directly by the BDC, with some potentially allocated to the credit fund [35][36] Question: Will there be any changes to the fee structure post-merger? - Management does not anticipate changes to the fee structure, emphasizing that Carlyle is covering transaction expenses and avoiding dilution for CGBD shareholders [39]

Q2 2024 Performance Highlights - Net investment income per share was $0.51, representing 128% of the base dividend of $0.40 per share[8] - NAV per share decreased by 0.7% to $16.95, compared to $17.07 in 1Q24, primarily due to net unrealized depreciation from watchlist names[8] - A base dividend of $0.40 plus a $0.07 supplemental dividend for 3Q24 was declared, equating to an annualized dividend yield of 11.1% on the 2Q24 NAV[8] Portfolio & Investment Activity - Total fair value of the portfolio was $1.7 billion across 126 portfolio companies, with a weighted average yield of 12.7%[8] - New investment fundings during the quarter were $84.8 million with a weighted average yield of 12.7%, while total repayments and sales were $135.9 million with a weighted average yield of 12.7%[8] - Non-accrual investments represented 2.8% of the total portfolio based on amortized cost and 1.8% based on fair value as of 2Q24[8] Liquidity & Capital Activity - Net financial leverage decreased to 0.90x, at the low end of the target range, and total liquidity at 2Q24 was $399.1 million in cash and undrawn debt capacity[8] - The company entered into a Merger Agreement with Carlyle Secured Lending III, subject to CGBD stockholder approval[8] Portfolio Composition - As of June 30, 2024, first lien debt accounted for 70.9% of the total investment portfolio by asset type[11] - Senior secured exposure was 94% of the portfolio[12]

Core Viewpoint - Carlyle Secured Lending, Inc. (CGBD) reported quarterly earnings of $0.51 per share, exceeding the Zacks Consensus Estimate of $0.50 per share, but down from $0.52 per share a year ago, indicating a slight decline in year-over-year earnings [1][2] Financial Performance - The company posted revenues of $41.65 million for the quarter ended June 2024, missing the Zacks Consensus Estimate by 1.32% and down from $42.73 million year-over-year [2] - Over the last four quarters, Carlyle Secured Lending has surpassed consensus EPS estimates three times and topped consensus revenue estimates two times [2] Stock Performance - Carlyle Secured Lending shares have increased approximately 13% since the beginning of the year, outperforming the S&P 500's gain of 12.1% [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating expectations for it to outperform the market in the near future [6] Earnings Outlook - The current consensus EPS estimate for the upcoming quarter is $0.50 on revenues of $42.51 million, and for the current fiscal year, it is $2.05 on revenues of $171.32 million [7] - The trend for estimate revisions ahead of the earnings release was favorable, suggesting potential positive movements in stock performance [6] Industry Context - The Financial - SBIC & Commercial Industry, to which Carlyle Secured Lending belongs, is currently ranked in the bottom 33% of over 250 Zacks industries, which may impact stock performance [8]

Merger Agreement Details - The merger agreement involves Carlyle Secured Lending III, Carlyle Secured Lending, Inc., and Blue Fox Merger Sub, Inc., with an effective date of August 2, 2024[5]. - The agreement outlines the conversion of capital stock and beneficial interest as part of the merger process[1]. - CSL III Advisor and Carlyle Global Credit Investment Management L.L.C. are included as advisors for specific sections of the agreement[5]. - The merger will include conditions precedent that must be satisfied for the first merger to take effect[4]. - There are provisions for termination and amendment of the agreement, including a termination fee[4]. - The agreement specifies the obligations of each party to effectuate the merger, including compliance with applicable laws[3]. - The agreement includes provisions for regulatory matters and stockholder approval[3]. - The merger is structured to ensure no dilution of interests for existing stakeholders[3]. - The agreement emphasizes the importance of maintaining compliance with governmental consents and permits[3]. - CSL III and CSL will undergo a two-step merger process, with CSL III merging into Merger Sub first, followed by CSL III merging into CSL[6]. - The Board of Trustees of CSL III unanimously determined that the merger is advisable and in the best interests of CSL III and its shareholders, ensuring no dilution of existing shareholders[6]. - The First Merger will result in CSL III continuing as a statutory trust under Delaware law, with Merger Sub ceasing to exist[8]. - At the Effective Time, each share of Merger Sub will convert into one share of the Surviving Company, while CSL III Common Shares owned by CSL will be cancelled[11]. - The Exchange Ratio for CSL III Common Shares will be adjusted if there are changes in the number of shares due to stock splits or similar transactions prior to the Effective Time[14]. - CSL Preferred Stock will be exchanged for CSL Common Stock based on the aggregate liquidation preference divided by the Closing CSL Net Asset Value[17]. - The Second Merger will see the Surviving Company merge into CSL, with CSL continuing as the surviving entity under Maryland law[19]. - The charter and bylaws of CSL will remain in effect post-merger until amended according to applicable laws[21]. - The directors and officers of Merger Sub will become the trustees and officers of the Surviving Company after the First Merger[23]. - CSL will appoint a Paying and Exchange Agent to manage the exchange of shares and cash for fractional shares post-merger[25]. Financial Statements and Compliance - The consolidated financial statements of CSL III and the SPV fairly present the consolidated results of operations and financial position as of December 31, 2023, in accordance with GAAP[50]. - As of December 31, 2023, CSL III has no liabilities that would need to be reflected in the balance sheet, except for those disclosed in SEC reports[51]. - CSL III's internal controls over financial reporting were assessed as effective as of December 31, 2023, in compliance with the Sarbanes-Oxley Act[54]. - The fair value of CSL III's investments as of June 30, 2024, was determined in accordance with ASC Topic 820, reflecting a reasonable estimate[57]. - CSL III has not received any material non-compliance notifications from governmental entities that would adversely affect its operations[60]. - There have been no material changes or adverse effects on CSL III's business since December 31, 2023[59]. - CSL III has maintained compliance with its investment policies and restrictions as set forth in its registration statement[61]. - No material compliance matters have been reported for CSL III that would reasonably be expected to have a material adverse effect[62]. - CSL III has timely filed all required SEC reports since January 1, 2022, with no material adverse effects expected[47]. - CSL III has declared and paid a Tax Dividend for all taxable years ended prior to the Effective Time[68]. - CSL III has good title to all securities and financial instruments owned, with qualifying investments exceeding 70% of total assets[82]. - There are no material liens for Taxes on CSL III or SPV's assets, and no claims have been made by taxing authorities regarding taxation in jurisdictions where they do not file Tax Returns[73][70]. - CSL III has not utilized any brokers or incurred liabilities for broker's fees in connection with the mergers or transactions, except for KBW[58]. - CSL III has timely filed all material Tax Returns and paid all material Taxes due, with no material disputes pending with the IRS[67]. - CSL III has qualified as a regulated investment company (RIC) since the beginning of its taxable year ended December 31, 2022, and expects to maintain this status[68]. Corporate Governance and Board Decisions - The CSL III Board has unanimously approved the Agreement and determined it to be in the best interests of CSL III and its shareholders[43]. - CSL's Board has unanimously approved the merger agreement, determining it to be in the best interests of the company and its stockholders[94]. - CSL's independent public accountant has not resigned or been dismissed due to disagreements on accounting principles or practices[102]. - The principal executive and financial officers of CSL have made all required certifications under the Sarbanes-Oxley Act, confirming compliance[107]. - CSL has designed and maintained a system of disclosure controls to ensure timely and accurate reporting of financial information[108]. - There have been no material changes in CSL's business operations since December 31, 2023, indicating stability[111]. - CSL's board has approved the CSL Matters and will submit them to stockholders for approval, including the issuance of shares as Merger Consideration[181]. Tax and Regulatory Matters - No governmental consents are necessary for the consummation of the First Merger and other Transactions, except for specific SEC filings[45]. - CSL has complied with all applicable laws and regulations, including the Investment Company Act and the Securities Act, without any material non-compliance issues reported[113]. - CSL has filed all material tax returns accurately and timely, with no material disputes pending regarding taxes[120]. - CSL has not been a member of any consolidated tax group other than those where CSL is the common parent[128]. - There are no material liens for taxes on CSL's assets, and all material insurance policies are in full force and effect[128][132]. Advisor and Financial Considerations - The financial advisor has opined that the Exchange Ratio in the First Merger is fair from a financial perspective to CSL III Common Shareholders[85]. - The CSL Special Committee received a fair opinion from Raymond James regarding the Exchange Ratio in the agreement[139]. - The Advisor believes that participation in the Mergers is in the best interests of CSL III and CSL, with no dilution expected for existing shareholders[154]. - The Advisor has the necessary financial resources to fulfill its obligations as outlined in the Registration Statement and Proxy Statement[154]. - CSL III and CSL have made representations and warranties that are true and correct in all material respects, except as previously disclosed[155]. Operational Restrictions and Commitments - CSL III will conduct its business in the ordinary course and maintain existing business relationships until the Effective Time[156]. - CSL III will not issue new shares or make significant changes to its capital structure without prior written consent from the CSL Special Committee[157]. - CSL III is prohibited from acquiring assets or making new capital expenditures outside of ordinary business operations[159]. - CSL will maintain its qualification as a RIC and avoid actions that could jeopardize this status during the agreement period[168]. - CSL will not incur any new indebtedness for borrowed money except for previously disclosed financing arrangements and permitted indebtedness[170]. - CSL will not enter into any new line of business that is not consistent with past practices or ordinary course of business[171]. - CSL will not settle any proceedings exceeding $1,000,000 in the aggregate unless settled in the ordinary course of business[173]. Takeover Proposals and Confidentiality - CSL III and CSL are required to cease any discussions regarding Takeover Proposals and return all confidential information related to such proposals[188]. - CSL must notify CSL III within 24 hours of receiving any Takeover Proposal, including the material terms and identity of the proposing party[189]. - If CSL receives a bona fide unsolicited Takeover Proposal, it may engage in negotiations after providing CSL III with a two-day notice[191]. - The CSL Special Committee must determine that a Takeover Proposal is a CSL Superior Proposal before CSL can consider it[194]. - CSL is obligated to provide CSL III with a written notice detailing any CSL Superior Proposal within 24 hours of such determination[194]. - Any changes to the CSL Recommendation must be communicated to CSL III, and no adverse changes can occur without prior notice[195]. - CSL must allow reasonable access to its properties and records for CSL III during the period prior to the Effective Time[200]. - Confidentiality obligations may restrict the disclosure of certain information during the negotiation process[200].

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1 This Presentation may contain forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forwardlooking terminology such as "anticipates," "believes," "expects," "intends," "will," "should," "may," "plans," "continue," "believes," "seeks," "estimates," "would," "could," "targets," "projects," "outlook," "potential," "predicts" and variations of these words and similar expressions to identify forward-looking statements, although not all forw ...