Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Carlyle Secured Lending Inc (CGBD, Financial) generated net investment income of $0.51 per share, representing an annualized yield of over 12%.
- The proposed merger with Carlyle Secured Lending III is expected to increase scale and liquidity, potentially enhancing trading liquidity and institutional ownership.
- The merger will eliminate convertible preferred shares, avoiding 5% to 8% dilution for CGBD shareholders.
- Cost savings from the merger are estimated to be approximately $2.5 million annually, improving operational efficiencies.
- The transaction is expected to be accretive to both NAV per share and net investment income per share, benefiting shareholders in the long term.
Negative Points
- Net asset value decreased by $0.12 per share due to unrealized depreciation from some watchlist names.
- Nonaccruals increased to 1.8% of total investments at fair value, indicating some credit quality concerns.
- Total investment income for the second quarter was $58 million, slightly down from the prior quarter.
- The merger process requires shareholder approval, which could delay the transaction until Q1 2025.
- The market environment remains volatile, with pressure on spreads and covenants from borrowers.
Q & A Highlights
Q: On the merger, it's expected to close in 2025. Does this mean an extended outreach campaign is anticipated? Can you remind us of the shareholder base profile of Carlyle III?
A: We need a shareholder vote from CGBD shareholders, which is a legal process and part of the reason for the timeline. CSL III shareholders do not have a vote as they agreed to this when they initially invested. The CSL III shareholder base is diverse, and we don't expect it to impact the merger process.
Q: How might the current market volatility impact banks' positioning to compete on sponsored finance transactions?
A: It's early to tell, but we've focused on ensuring excellent credit quality in our portfolio. In volatile environments, our capital becomes more valuable to borrowers, so we feel well-positioned if volatility continues.
Q: Will the incentive fee account for merger accretion based on the transaction exchange ratio at close?
A: We wouldn't expect any impact from the merger math on our incentive fees.
Q: Regarding the merger and combining portfolios, will the smaller portfolio loans be brought onto CGBD's balance sheet or into the credit fund?
A: There is substantial overlap between the two funds. Most loans will be allocated to our existing credit facilities, with some potentially allocated to the JV based on investment profiles.
Q: Is there any discussion about adjusting the fee structure given the shift towards more first-lien portfolios?
A: We don't anticipate changing our fee structure as part of the merger. Our fees are in line with the market, and Carlyle is covering all transaction expenses and exiting preferred shares at NAV to avoid dilution.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
