Carlyle Secured Lending(US:CGBD)2025-05-07 16:02Financial Data and Key Metrics Changes - In Q1 2025, the company generated GAAP net investment income of $0.40 per share and adjusted net investment income of $0.41 per share, representing a decline of $0.04 per share from the prior quarter due to tighter yields and lower base rates [7][14] - The net asset value (NAV) as of March 31 was $16.63 per share, down from $16.80 per share as of December 31 [8] - Total investment income for the first quarter was $55 million, consistent with the prior quarter, while total expenses increased to $33 million primarily due to higher interest expenses [13] Business Line Data and Key Metrics Changes - The company added approximately $180 million in organic originations to its portfolio during the quarter, despite muted sponsor M&A activity [8] - The total size of the portfolio increased from $1.9 billion to $2.5 billion, bolstered by the merger with CSL3 and the consolidation of Credit Fund II [9] - The portfolio comprised 195 investments in 138 companies across more than 25 industries, with 94% of investments in senior secured loans [12] Market Data and Key Metrics Changes - The broadly syndicated and private credit markets remained competitive, with recent volatility around tariffs posing a near-term headwind to capital markets and M&A activity [9][10] - Non-accruals increased to 1.6% of total investments at fair value, indicating some underperformance in a handful of names [17] Company Strategy and Development Direction - The strategic merger with CSL3 is expected to improve liquidity and reduce costs while maintaining the existing investment strategy due to the near 100% overlap between the portfolios [11] - The company is focused on overall credit performance and diversification, with a selective underwriting approach to take quality credits at the top of the capital structure [10][11] Management's Comments on Operating Environment and Future Outlook - Management noted minimal direct risk from tariffs, estimating that less than 5% of the portfolio has material direct exposure [10] - The company anticipates a strong pipeline of transactions in the second quarter, aiming to reach its target leverage range of 1.0 [35][36] Other Important Information - The Board of Directors declared a second-quarter dividend of $0.40 per share, representing an attractive yield of about 11% based on the recent share price [15] - The company has $0.85 per share of spillover income generated over the last five years, providing comfort in maintaining the base dividend [15] Q&A Session Summary Question: On the credit fund, what does the dividend look like going forward? - Management indicated that the dividend is expected to be flat in the near term, with overall NII being roughly neutral due to higher ROE on a lower capital base [25] Question: Is there any asset rotation expected post-merger? - Management confirmed that the merger resulted in a reduction in yield by about 15 basis points, with plans to selectively rotate lower spread assets into the current joint venture for better returns [31][32] Question: How does the company plan to drive leverage back into the target range? - Management aims to achieve the target leverage range over the next couple of quarters, with a strong pipeline of transactions anticipated for the second quarter [35][36] Question: How much spillover income is expected to support the dividend? - Management stated that while spillover income may support the dividend, the extent and speed of the impact from the SOFR curve remain uncertain [39][42]