Carlyle Secured Lending(US:CGBD)2025-05-06 20:25Part I. Financial Information Financial Statements This section presents the unaudited consolidated financial statements for Carlyle Secured Lending, Inc., detailing its financial position, operations, and cash flows for Q1 2025 and 2024 Consolidated Statements of Assets and Liabilities The Consolidated Statements of Assets and Liabilities show a significant increase in total assets from $1.93 billion at year-end 2024 to $2.53 billion as of March 31, 2025, primarily driven by a rise in total investments at fair value Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | Total investments, at fair value | $2,245,626 | $1,803,543 | | Total assets | $2,533,808 | $1,925,993 | | Debt and secured borrowings | $1,247,186 | $960,949 | | Total liabilities | $1,321,419 | $1,020,789 | | Total net assets | $1,212,389 | $905,204 | | Net assets per common share | $16.63 | $16.80 | Consolidated Statements of Operations For the three months ended March 31, 2025, the company reported total investment income of $54.9 million, a decrease from $62.0 million in the prior year period, resulting in a net increase in net assets from operations of $14.1 million Consolidated Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total investment income | $54,864 | $62,007 | | Total expenses | $32,559 | $32,728 | | Net investment income (loss) | $21,629 | $28,449 | | Net increase in net assets from operations | $14,054 | $29,264 | | Basic earnings per common share | $0.25 | $0.56 | | Diluted earnings per common share | $0.25 | $0.52 | Consolidated Statements of Changes in Net Assets Net assets increased by $307.2 million during Q1 2025, reaching $1.21 billion, primarily driven by capital transactions including the CSL III Merger and Preferred Stock Exchange - Net assets increased from $905.2 million at the beginning of the period to $1,212.4 million at the end of the period10 - Key capital transactions included the issuance of $315.8 million in common stock for the CSL III Merger and a $50.0 million common stock issuance related to the Preferred Stock Exchange10 Consolidated Statements of Cash Flows Net cash provided by operating activities was $145.8 million, leading to a net increase in cash of $194.3 million, bringing the end-of-period balance to $250.9 million Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $145,801 | $81,005 | | Net cash provided by (used in) financing activities | $48,507 | $(71,531) | | Net increase in cash, cash equivalents and restricted cash | $194,308 | $9,474 | | Cash, cash equivalents and restricted cash, end of period | $250,883 | $69,921 | - Significant non-cash activities in Q1 2025 included the acquisition of CSL III, which involved assuming $483.7 million in investments and $206.0 million in debt, and the issuance of $315.8 million in common stock13 Consolidated Schedules of Investments The investment portfolio had a fair value of $2.25 billion, heavily concentrated in First Lien Debt (83.4%), diversified across industries, with most investments in the U.S. and nearly all debt at floating rates Investment Portfolio Composition by Type (March 31, 2025) | Type | Fair Value | % of Fair Value | | :--- | :--- | :--- | | First Lien Debt | $1,873,091 | 83.4% | | Second Lien Debt | $129,629 | 5.8% | | Equity Investments | $121,515 | 5.4% | | Investment Funds | $121,391 | 5.4% | | Total | $2,245,626 | 100.0% | Top 5 Industry Concentrations by Fair Value (March 31, 2025) | Industry | % of Fair Value | | :--- | :--- | | Healthcare & Pharmaceuticals | 13.5% | | Software | 13.2% | | Consumer Services | 8.2% | | Diversified Financial Services | 7.7% | | Business Services | 7.1% | - As of March 31, 2025, the company had total unfunded commitments of $263.5 million, consisting of $157.7 million in delayed draw commitments and $105.7 million in revolving loan commitments270395 Notes to Consolidated Financial Statements (unaudited) The notes detail accounting policies and significant events, including the CSL III merger, Credit Fund II acquisition, preferred stock exchange, and changes to debt facilities - On March 27, 2025, the company completed its merger with CSL III, issuing 18,935,108 shares of common stock, adding assets with a fair value of $539.3 million and liabilities of $223.7 million74302305 - On February 11, 2025, the company acquired the remaining membership interest in Middle Market Credit Fund II (Credit Fund II), making it a wholly-owned subsidiary, treated as an asset acquisition72210 - In connection with the CSL III merger, all 2,000,000 outstanding shares of preferred stock were exchanged for 3,004,808 shares of common stock on March 27, 2025, with no preferred stock outstanding as of March 31, 202573168273 - The company's asset coverage ratio was 196.3% as of March 31, 2025, well above the required minimum of 150%229401 Management's Discussion and Analysis of Financial Condition and Results of Operations In Q1 2025, the company completed transformative mergers, significantly increasing portfolio size to $2.2 billion, while managing a slight NAV per share decrease and maintaining strong liquidity First Quarter 2025 Highlights Q1 2025 saw significant strategic transactions, expanding the investment portfolio to $2.2 billion, with net investment income of $0.40 per share and robust total liquidity of $858.5 million - Completed the merger with CSL III on March 27, 2025, and the purchase of 100% ownership in Credit Fund II on February 11, 2025321 - Net investment income was $20.8 million, or $0.40 per common share, with adjusted NII per share at $0.41321 - NAV per common share decreased to $16.63 from $16.80 at the end of the prior quarter321 - Total liquidity as of March 31, 2025 was $858.5 million, comprising cash and undrawn debt capacity326 Portfolio and Investment Activity The investment portfolio totaled $2.25 billion, dominated by first lien debt, with high investment activity driven by mergers and acquisitions, while credit quality remained stable despite an increase in non-accrual investments Portfolio Investment Activity (Q1 2025, at amortized cost) | Activity | Amount (in thousands) | | :--- | :--- | | Total investments, beginning of period | $1,848,212 | | New investments purchased | $325,914 | | Transfer in - CSL III Merger | $485,673 | | Transfer in - Credit Fund II Purchase | $191,201 | | Investments sold or repaid | $(558,441) | | Total Investments, end of period | $2,273,998 | Internal Risk Ratings of Debt Portfolio (by Fair Value) | Rating | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 1 (Lowest Risk) | 0.0% | 0.0% | | 2 | 89.7% | 87.4% | | 3 | 8.5% | 12.0% | | 4 | 1.8% | 0.5% | | 5 (Highest Risk) | 0.0% | 0.1% | - Non-accrual investments represented 1.6% of the total portfolio at fair value as of March 31, 2025, an increase from 0.6% at December 31, 2024342373 Consolidated Results of Operations Total investment income decreased by $7.1 million to $54.9 million, and net investment income fell by $6.8 million to $21.6 million, primarily due to lower portfolio yields and increased non-accruals Results of Operations Comparison (in thousands) | Metric | Q1 2025 | Q1 2024 | Change | | :--- | :--- | :--- | :--- | | Total investment income | $54,864 | $62,007 | $(7,143) | | Total expenses | $33,235 | $33,558 | $(323) | | Net investment income | $21,629 | $28,449 | $(6,820) | | Net increase in net assets from operations | $14,054 | $29,264 | $(15,210) | - The decrease in investment income YoY was driven by lower yields on the portfolio, stemming from lower base rates, new issue spreads, repricing of existing loans, and an increase in non-accruals381 - Interest expense increased by $0.7 million YoY due to a higher average principal balance, partially offset by lower benchmark rates384 - A significant realized loss of $22.5 million was recognized in Q1 2025, primarily related to the restructuring of an investment in Aimbridge Acquisition Co., Inc. and the consolidation of Credit Fund II378388 Financial Condition, Liquidity and Capital Resources The company maintained a strong liquidity position of $858.5 million, sufficient to cover unfunded commitments, with a statutory debt-to-equity ratio of 1.04x and an asset coverage ratio of 196.3% Sources of Liquidity (in thousands) | Source | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $250,883 | $56,575 | | Available borrowings under Credit Facilities | $607,608 | $509,121 | | Total Liquidity | $858,491 | $565,696 | - Total outstanding consolidated indebtedness was $1.26 billion as of March 31, 2025390 - The asset coverage ratio was 196.3% as of March 31, 2025, compared to the 150% minimum requirement401 Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to valuation and interest rate risks, with 99.4% of debt investments at floating rates, and a 100 basis point interest rate increase would boost annual net investment income by $10.4 million - The company's primary market risks are valuation risk for its illiquid investments and interest rate risk403 - As of March 31, 2025, approximately 99.4% of the company's debt investments (by fair value) bear interest at floating rates, making income sensitive to interest rate changes405 Annualized Interest Rate Sensitivity Analysis (as of March 31, 2025, in thousands) | Basis Point Change | Impact on Interest Income | Impact on Interest Expense | Net Impact on Investment Income | | :--- | :--- | :--- | :--- | | Up 300 bps | $60,064 | $(28,775) | $31,289 | | Up 200 bps | $40,042 | $(19,183) | $20,859 | | Up 100 bps | $20,021 | $(9,592) | $10,429 | | Down 100 bps | $(20,021) | $9,592 | $(10,429) | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period411 - No material changes to the internal control over financial reporting were identified during the first quarter of 2025412 Part II. Other Information Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any material threats - As of the report date, the Company is not subject to any material legal proceedings414 Risk Factors This section highlights the risk of tariffs adversely affecting portfolio companies by increasing costs or reducing demand, and refers readers to the 2024 Form 10-K for extensive risk factors - The company notes that tariffs imposed on foreign or U.S. goods could adversely affect its portfolio companies by increasing production costs or reducing product demand416 - Investors are referred to the more extensive risk factors section in the 2024 Form 10-K415 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity securities were sold, and no shares were repurchased under the $200 million stock repurchase program during the quarter, with approximately $42.3 million remaining - No unregistered equity securities were sold during the period417 Issuer Purchases of Equity Securities (Q1 2025) | Period | Total Shares Purchased | Average Price Paid Per Share | Maximum Value Remaining for Purchase | | :--- | :--- | :--- | :--- | | Jan 1 - Jan 31, 2025 | 0 | $0 | $42,263 | | Feb 1 - Feb 28, 2025 | 0 | $0 | $42,263 | | Mar 1 - Mar 31, 2025 | 0 | $0 | $42,263 | - The Board of Directors continued the $200 million stock repurchase program until November 5, 2025, with approximately $42.3 million remaining available as of March 31, 2025420 Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - There were no defaults upon senior securities421 Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company422 Other Information No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025 - No director or Section 16 officer adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements in Q1 2025423 Exhibits This section lists the exhibits filed with the Form 10-Q, including amended credit and partnership agreements, preferred stock exchange agreements, and officer certifications