Financial Data and Key Metrics Changes - For Q4 2025, adjusted net investment income (NII) per share was $0.39, with an adjusted NII return on equity (ROE) of 10.4% [4] - Adjusted net income per share was $0.36, resulting in an adjusted ROE of 9.6% [4] - Cumulative distributions for fiscal year 2025 totaled $1.65 per share, representing 10.9% of end-of-year net asset value per share [4] - The net asset value (NAV) per share at the end of fiscal year 2025 was $14.97, which is 34 cents above the IPO NAV in 2010 [5] Business Line Data and Key Metrics Changes - Approximately 90% of GBDC's investment portfolio remains in the highest-performing internal rating categories [11] - The investment income yield was 10.4%, a sequential decline of 20 basis points [12] - The weighted average rate on new investments was 8.9%, a decline of 30 basis points from the prior quarter [18] - The investment portfolio decreased to just under $8.8 billion at fair value, with $371 million in repayments and exits [13] Market Data and Key Metrics Changes - The private credit direct lending market is facing headwinds, including narrowed spreads and a credit cycle with elevated defaults [6][26] - The default rate in the broadly syndicated market is currently about two and a half times historical average levels [26] - GBDC's effective borrowing costs decreased to 5.6% annualized, which is considered industry-leading [13] Company Strategy and Development Direction - GBDC's investment strategy focuses on providing first-lien senior-secured loans to middle-market companies backed by strong private equity sponsors [3] - The company aims to maintain a stable NAV per share, minimize excise taxes, and adjust its base distribution level infrequently [9] - GBDC plans to revisit its dividend policy early next year based on the outlook for rates and asset spreads [8] Management's Comments on Operating Environment and Future Outlook - The U.S. economy shows resilience, but there are signs of weakness, particularly among lower-end consumers [25] - Elevated credit stress is expected to persist, impacting different BDCs in varying ways [26] - The company believes that the current environment may allow private credit specialists to outperform [10] Other Important Information - GBDC's liquidity position remains strong, ending the quarter with approximately $1.2 billion in liquidity [24] - The company repurchased 368,000 shares during the quarter, totaling 2.9 million shares for the fiscal year [16] Q&A Session Summary Question: Availability of co-invest - GBDC has not seen any meaningful change in the availability or quality of equity co-invest opportunities over the past years [31][32] Question: Themes in the economy - There is optimism regarding capital spending due to tax provisions, but concerns exist about the subprime consumer facing stress [39] Question: Spread compression risks - The compression of spreads is widespread across various debt categories, and a change in investor sentiment would be necessary for spreads to move higher [40][41]

What we are now seeing is a deterioration between more respected in the credit cycle in any of our portfolio. So I think that's credit remains solid for on credit cards in the US all the way to corporates, but we will see how it plays and continues once the economy. I don't think that the economy will go into recession.It's likely to slow down and the credit cycle will continue to normalize. But I don't think that in the credit cycle we see that the duration beyond what we were expecting if the economy slow ...

Private Credit Market Concerns - Investors are concerned about private credit due to recent collapses like Tricolor Holdings and First Brands [1] - Jamie Dimon's "cockroaches in the economy" comment raised concerns about hidden risks in the credit market, not specifically an attack on private credit but a point about the credit cycle [1][2] - The rapid growth of private credit compared to banks raises questions about regulatory balance; either banks are over-regulated, or private credit is under-regulated [3] Systemic Risk & Regulation - The systemic risk of large private credit issuers is unknown, and the industry is not predicting a repeat of the 2008 financial crisis [4] - The credit cycle may be near its peak, but current pricing doesn't reflect this, creating a risk of a significant downturn [4]

Core Insights - The partnership between Carlyle and Red Bull Racing represents a significant evolution in the finance industry, particularly in the context of private markets and their growing influence in sports sponsorships [3][4][50] - The collaboration emphasizes performance excellence, aligning the values of both organizations in their pursuit of success [5][10][12] Group 1: Partnership Dynamics - Carlyle's involvement in Formula One marks a notable shift as it becomes the first global investment firm to partner with the sport, highlighting the increasing intersection of finance and sports [50] - The partnership is characterized by a shared obsession with performance and a data-driven approach, fostering a natural connection between the two entities [9][10] - The collaboration aims to reach a broader global audience, capitalizing on the rapid growth of Formula One and its appeal to younger demographics [14][15] Group 2: Market Trends and Growth - The private markets have become a primary source of capital for many companies, reflecting a broader trend in the financial landscape over the past 30 years [3][22] - Formula One has experienced significant growth, with 40% of its global audience being female and under 35 years old, indicating a successful outreach strategy [14][15] - The influx of institutional money into sports, including sponsorships from firms like Carlyle, is reshaping the financial dynamics within the industry [13][46] Group 3: Leadership and Cultural Shifts - The leadership transition at Carlyle coincides with a cultural evolution in how the firm engages with retail and wealth clients, emphasizing performance as a core value [16][20] - The focus on talent and performance is paramount, with leaders encouraged to create environments that foster success and innovation [24][25] - The competitive landscape necessitates constant self-analysis and adaptation to better serve clients and maintain relevance in a changing market [17][18]

Group 1: Portfolio Performance - The portfolio did not benefit from the small-cap run due to a lack of companies with earnings, particularly in sectors like uranium and quantum computing, and was negatively impacted by the bankruptcies of First Brands and Tricolor [1][2] - The portfolio experienced a positive shift when Fed Chair Jerome Powell indicated a likely path towards lower interest rates [1] Group 2: Bankruptcy Impact - First Brands, an auto-parts company, filed for bankruptcy protection, while Tricolor opted for Chapter 7 liquidation, revealing issues with collateral that may have been fraudulently double-pledged [2] - The bankruptcies have adversely affected the banking sector, especially small regional banks, as the weak economy has led consumers to be more selective in their spending, impacting the auto sector [2] Group 3: Financial Sector Analysis - Fifth Third Bancorp had to write off 100% of a $200 million asset-backed loan to Tricolor, yet reported strong third-quarter results despite this write-off [5] - Concerns exist regarding potential systemic issues in the banking sector, with fears of fraud and lax underwriting standards being highlighted [6][18] Group 4: Credit Cycle and Economic Outlook - The current situation is not expected to lead to a financial crisis similar to 2008, as the banking system is fundamentally sound, and the issues are seen as isolated rather than systemic [10][13] - The performance of major banks has been strong, with robust investment banking and trading results, indicating a potential M&A boom [12] Group 5: Fiscal Stability and Interest Rates - Recent data suggests an improvement in U.S. government finances, with a budget surplus of $198 billion in September 2025, indicating a more sustainable financial path [19] - This fiscal improvement is expected to exert downward pressure on U.S. Treasury rates, potentially lowering the 10-year Treasury rate to around 3.5% by the end of 2026 [19]

Core Viewpoint - Concerns over bad loans at midsize U.S. banks exist, but there is little evidence of a systemic problem that could lead to a broader financial crisis according to a senior analyst at Moody's Ratings [1][2]. Group 1: Credit Cycle and Asset Quality - The credit cycle does not show signs of turning negatively, with no evidence found to support market fears [3]. - Asset quality numbers have shown very little deterioration over the last several quarters, indicating stability in the banking sector [3]. Group 2: Market Reactions and Sentiment - Bank stocks experienced a significant sell-off due to concerns over bad loans, particularly after disclosures from Zions Bancorp and Western Alliance Bancorp [3][4]. - Market sentiment improved following a sell-off, with the SPDR S&P Regional Banking ETF rising 2% in premarket trading after a 6.2% drop [6][7]. Group 3: Default Rates and Economic Outlook - Default rates on high-yield debt remain low, under 5% this year, and are expected to decline to below 3% by 2026, contrasting sharply with the high double-digit defaults during the 2008 financial crisis [5]. - The U.S. economy is performing better than anticipated, with GDP growth exceeding expectations and credit quality appearing stable or potentially improving [5][6].

Core Insights - JP Morgan's CEO Jamie Dimon expressed concerns about the private credit market, suggesting that the presence of one bankruptcy could indicate more issues to come [1] - Moody's Mark Pinto noted that while there are questions about credit standards, current asset quality remains stable, with no significant deterioration observed [5][6] Private Credit Market Concerns - Dimon highlighted the potential for more bankruptcies in the private credit market, indicating a need for caution [1] - Pinto emphasized that while there may be concerns about credit standards loosening, there is no evidence of a systemic credit cycle downturn at this time [4][5] Default Rates and Economic Outlook - Current default rates in the global high yield market are just under 5%, with expectations that they will drop below 3% next year [6][12] - The overall economic outlook appears resilient, with GDP growth better than anticipated, which may positively influence credit quality [9][11] Regulatory Environment - There are concerns regarding the shift of credit risk from regulated banks to less regulated non-bank institutions, which may lead to less transparency in the market [13] - The dialogue around deregulation, termed as modernization, has raised concerns about potential deterioration in credit quality, but forecasts have since improved [11]

Market Focus & Investment Opportunities - Investors are highly interested in banks with strong investment banking and trading operations due to anticipated strong performance in Q3, driven by robust capital markets [2] - Consumer credit trends, particularly within banks holding large credit card portfolios like Wells Fargo, will be a key area of investor focus [3] - M&A activity is expected to increase in 2025-2026, with the Fifth Third's acquisition of CoAmerica for $11 billion potentially marking the start of a consolidation trend [7] Bank Valuations & Rerating Potential - Banks, on average, are still valued slightly below the cyclical highs of January 2018, with some like JP Morgan at very high valuations [6] - A full credit cycle needs to be observed to determine if banks deserve a permanent rerating, as credit performance is crucial to bank profitability and is tested during economic downturns [5] - Regional banks could outperform money center banks in 2026 if the economy grows at 15%-2%, the Fed cuts rates by another 50 basis points, and the yield curve steepens [11][12] Regional Banks & Net Interest Income - Net interest income, a strength of regional banks, is expected to grow faster than anticipated under a scenario of healthy economic growth, Fed rate cuts, and a steeper yield curve [11] - Loan growth, fueled by a resilient economy and increased capital expenditures financed by commercial loans, could further boost the performance of regional banks [12] M&A Considerations - Fifth Third's acquisition of CoAmerica was unique because it was not dilutive to tangible book value per share, a key focus for Fifth Third's CEO [8] - Expect more deals over the next 12-24 months [8]

Investment Rating - The report indicates a positive outlook on the corporate credit cycle, suggesting a shift in momentum with increased M&A and LBO activity, although it starts from a benign point [5][9]. Core Insights - US consumer spending growth is slowing but remains solid, supported by elevated net worth and asset growth outpacing liabilities [43]. - The credit cycle is gaining momentum with busy issuance in both investment-grade (IG) and high-yield (HY) markets, with September IG issuance reaching $227 billion, significantly above seasonal averages [6][43]. - Delinquencies are rising in subprime credit while stabilizing in prime credit, indicating a bifurcation in credit quality [43][23]. Summary by Sections Corporate Credit - The credit cycle is moving up a gear with significant M&A and LBO announcements, although current activity levels are below historical trends [5][9]. - High-yield issuance in September exceeded $55 billion, marking it as the third-largest month on record [7][8]. - Defaults remain elevated despite tighter spreads, with a trailing 12-month default rate for high-yield loans at 4.2% [12][11]. Securitized Credit - There is a notable divergence in delinquency rates between prime and subprime segments, with prime delinquencies stabilizing while subprime delinquencies are on the rise [43][23]. - Transition rates do not indicate further deterioration in credit quality, suggesting a potential stabilization in the market [28]. Economic Overview - Real personal consumption expenditure growth is slowing, but remains robust, particularly among high-income cohorts whose net worth is significantly higher [34][43]. - Labor income growth has decelerated, which may impact real spending in the future [38][43].

Core Insights - The private credit and private equity sectors are expected to face challenges as the current credit cycle is untested and coincides with weak exit options in Asia's public markets [1] Group 1 - The boom in private credit and private equity is under scrutiny due to the potential impact of an untested credit cycle [1] - Fragile exit routes in Asia's public markets may exacerbate the challenges faced by private credit and private equity [1]