8-K: Carlyle Credit Income Fund Announces $10.6 Million Private Placement of Convertible Preferred Shares and $11.5 Million Registered Direct Placement of Common Shares

Carlyle Credit Income Fund has secured $10.6 million through a private placement of convertible preferred shares and $11.5 million through a registered direct placement of common shares.

Summary

• Carlyle Credit Income Fund (CCIF) has entered into agreements to raise capital through two separate transactions.
• The first transaction involves the private placement of approximately 11,517 shares of 7.125% Series B Convertible Preferred Shares due 2029, with a liquidation preference of $1,000 per share, at a price of $930 per share.
• This private placement is expected to generate net proceeds of approximately $10.6 million for the Fund before expenses.
• The convertible preferred shares pay a quarterly dividend at a fixed annual rate of 7.125% of the liquidation preference, or $71.25 per share, per year.
• The Fund is required to redeem all outstanding convertible preferred shares on August 27, 2029, at the liquidation preference plus accumulated unpaid dividends.
• The Fund has the option to redeem the convertible preferred shares, in whole or in part, after February 27, 2025.
• Holders of the convertible preferred shares have the option to convert their shares into common shares starting six months after the issuance date.
• The conversion price is the greater of the average market price for the five trading days prior to conversion or the most recently reported net asset value per common share.
• The convertible preferred shares will not be listed on any exchange and may not be transferred without the consent of the Fund.
• The second transaction involves a registered direct placement of 1,444,865 common shares at a price of $7.9592 per share.
• This registered direct placement is expected to generate net proceeds of approximately $11.5 million for the Fund before expenses.
• Both offerings are expected to close on or about August 27, 2024, subject to customary closing conditions.
• The Fund intends to use the net proceeds from the offerings to acquire investments, make distributions to shareholders, and for general working capital purposes.

Sentiment

Score: 7

Explanation: The sentiment is moderately positive as the company is successfully raising capital through both preferred and common stock offerings. The terms of the offerings are reasonable, and the funds will be used for investment and working capital purposes. However, the non-listed nature of the preferred shares and the redemption date are minor concerns.

Positives

• The capital raise provides the Fund with additional capital for investments, distributions, and working capital.
• The convertible preferred shares offer a fixed dividend rate of 7.125%, providing a predictable income stream for investors.
• The conversion feature of the preferred shares provides potential upside for holders if the common share price increases.
• The Fund has the flexibility to redeem the preferred shares after February 27, 2025, which could be beneficial for the Fund's capital structure.
• The registered direct placement of common shares provides additional capital without the need for a placement agent, underwriter, broker or dealer.

Negatives

• The convertible preferred shares are not listed on any exchange and may not be transferred without the consent of the Fund, which could limit liquidity for investors.
• The conversion price of the preferred shares is based on the greater of the market price or the net asset value, which could limit the potential upside for holders if the market price is lower than the net asset value.
• The Fund is required to redeem the preferred shares on August 27, 2029, which could be a negative for investors who prefer a longer-term investment.

Risks

• The Fund's ability to meet its redemption obligations for the preferred shares depends on the availability of legally available funds.
• The Fund's investment performance and market conditions could impact the value of the common shares and the conversion price of the preferred shares.
• The Fund's ability to generate sufficient income to pay dividends on the preferred shares is subject to investment performance and market conditions.
• The Fund's use of leverage could increase the volatility of its returns and the risk of loss.
• The Fund's investments in CLOs are subject to credit risk, interest rate risk, and prepayment risk.

Future Outlook

The Fund intends to use the net proceeds from the offerings to acquire investments in accordance with its investment objectives and strategies, to make distributions to its shareholders, and for general working capital purposes.

Management Comments

• The Fund expects to receive net proceeds (before expenses) from the sale of the Convertible Preferred Shares of approximately $10.6 million.
• The Fund expects to receive net proceeds (before expenses) from the sale of Common Shares of approximately $11.5 million.
• The Fund intends to use the net proceeds from the offerings to acquire investments in accordance with our investment objectives and strategies, to make distributions to our shareholders and for general working capital purposes.

Industry Context

This announcement reflects a common strategy for closed-end funds to raise capital through a combination of preferred and common share offerings. The use of convertible preferred shares allows the fund to attract investors seeking income while also providing a potential path for conversion to common shares. The direct placement of common shares is a cost-effective way to raise additional capital.

Comparison to Industry Standards

• The use of convertible preferred shares with a fixed dividend rate is a common practice among closed-end funds seeking to raise capital.
• The 7.125% dividend rate is within the typical range for preferred shares issued by similar funds.
• The conversion feature of the preferred shares is also a common feature, providing investors with potential upside.
• The direct placement of common shares is a cost-effective method for raising capital, avoiding the fees associated with underwriters or placement agents.
• Comparable companies such as Eagle Point Credit Company (ECC) and Oxford Lane Capital Corp. (OXLC) also utilize preferred share offerings as part of their capital structure.

Stakeholder Impact

• Shareholders will benefit from the additional capital available for investments and potential distributions.
• Preferred shareholders will receive a fixed dividend rate and have the option to convert to common shares.
• The Fund's employees and management will have additional resources to execute the Fund's investment strategy.
• The Fund's creditors may benefit from the increased financial stability of the Fund.

Next Steps

• The offerings are expected to close on or about August 27, 2024, subject to customary closing conditions.
• The Fund will use the net proceeds from the offerings to acquire investments, make distributions to shareholders, and for general working capital purposes.

Key Dates

Keywords

convertible preferred shares, common shares, private placement, registered direct placement, capital raise, Carlyle Credit Income Fund, dividends, redemption, conversion, CLOs