8-K: Carlyle Credit Income Fund Refinances Preferred Shares

Carlyle Credit Income Fund completed a private placement of 7.25% Series E Convertible Preferred Shares to raise $16.275 million, primarily to redeem its 8.75% Series A Preferred Shares.

Summary

• Carlyle Credit Income Fund (CCIF) entered into a purchase agreement on October 30, 2025, for the issuance and sale of approximately 17,500 shares of its 7.25% Series E Convertible Preferred Shares due 2030.
• The Series E Convertible Preferred Shares have a liquidation preference of $1,000.00 per share and were sold at a price of $930.00 per share.
• The Fund received net proceeds (before expenses) of approximately $16.275 million from the sale.
• Proceeds will be used to fund the redemption of the Fund's Series A Preferred Shares and any remaining proceeds for general working capital purposes.
• The Series E Convertible Preferred Shares pay a quarterly dividend at a fixed annual rate of 7.25% of the liquidation preference, equivalent to $72.50 per share per year, commencing January 31, 2026.
• The Fund is required to redeem all outstanding Series E Convertible Preferred Shares on October 30, 2030 (Term Redemption Date), at the liquidation preference plus accumulated but unpaid dividends.
• The Fund has the option to redeem the Series E Convertible Preferred Shares, in whole or in part, at any time on or after May 1, 2026.
• Holders of Series E Convertible Preferred Shares have the right to convert their shares into Common Shares at any time on or after April 30, 2026, prior to the Term Redemption Date.
• The conversion price is the greater of the average official closing price for the five trading days prior to exercise or the Fund's most recently reported net asset value per Common Share.
• The dividend rate on Series E Convertible Preferred Shares will increase by 2.00% per annum if the Fund fails to deliver Common Shares upon conversion.
• The dividend rate will also increase by 1.00% per annum if the Series E Convertible Preferred Shares are downgraded below investment grade.
• The Series E Convertible Preferred Shares will not be listed on any exchange and may not be transferred without the consent of the Fund.
• Purchasers and the investment adviser have granted the Fund an irrevocable proxy to vote all Convertible Preferred Shares they hold in the same proportion as other Preferred Shares.
• The Fund adopted the Fifth Supplement to its Amended and Restated Declaration of Trust on October 30, 2025, to establish the rights and preferences of the Series E Convertible Preferred Shares.
• The Fund announced it will redeem all outstanding 8.75% Series A Preferred Shares Due 2028 (NYSE: CCIA) on November 3, 2025, at a redemption price of $25 per share plus accumulated unpaid dividends.

Sentiment

Score: 7

Explanation: The filing indicates a strategic move to optimize the Fund's capital structure by refinancing higher-cost preferred shares with lower-cost convertible preferred shares, which is generally positive for financial health. However, the unlisted nature and transfer restrictions of the new shares, along with the irrevocable proxy, introduce some limitations for investors.

Positives

• Successfully completed a private placement raising approximately $16.275 million in net proceeds.
• Refinancing of higher-cost 8.75% Series A Preferred Shares with lower-cost 7.25% Series E Convertible Preferred Shares, improving the Fund's cost of capital.
• The remaining proceeds after redemption will be used for general working capital, strengthening the Fund's liquidity.
• The Fund retains flexibility with optional redemption rights for the new Series E Convertible Preferred Shares starting May 1, 2026.

Negatives

• The new Series E Convertible Preferred Shares are not listed on any exchange, which significantly limits liquidity for investors.
• Transfer of the Series E Convertible Preferred Shares requires the Fund's consent, further restricting investor flexibility.
• Purchasers and the investment adviser have granted an irrevocable proxy to the Fund, limiting their direct voting control over the new preferred shares.
• Potential for future dilution of common shareholders if the Series E Convertible Preferred Shares are converted into Common Shares.
• The dividend rate on the Series E Convertible Preferred Shares can increase by 2.00% if the Fund fails to deliver Common Shares upon conversion, or by 1.00% if the shares are downgraded below investment grade, increasing future financing costs under certain conditions.

Risks

• Failure to maintain asset coverage of at least 200% could trigger mandatory redemption of preferred shares, potentially impacting the Fund's capital structure and financial stability.
• If the Fund fails to fulfill its obligations to deliver Common Shares upon conversion of any Convertible Preferred Shares, the quarterly dividend rate will increase by 2.00% per annum.
• The dividend rate on Convertible Preferred Shares will increase by 1.00% if they are downgraded below investment grade or if an investment grade rating is not maintained.
• Certain events, such as a non-listing event (Common Shares cease public trading), reorganization transaction, or change of control, trigger mandatory redemption offers for the Series E Convertible Preferred Shares.
• The Fund's ability to redeem shares is contingent on having legally available funds and complying with the 1940 Act and Delaware law.
• Holders of Convertible Preferred Shares face limitations on conversion if it would cause certain managed accounts to beneficially own more than 4.9% of Common Shares or 3.00% of Voting Securities for investment companies.
• The Fund has a maximum aggregate limit of 4,218,526 common shares that can be issued pursuant to the Conversion Obligation.

Future Outlook

The Fund intends to use the net proceeds from the sale of the Series E Convertible Preferred Shares to fund the redemption of its Series A Preferred Shares and any remaining proceeds for general working capital purposes. The Fund also intends to continue to operate in compliance with the requirements to maintain its qualification as a regulated investment company under Subchapter M of the Code.

Management Comments

• Carlyle Credit Income Fund, an externally managed closed-end fund focused on investing in primarily equity and junior debt tranches of collateralized loan obligations, has entered into a Purchase Agreement with certain institutional investors for the purchase and sale of approximately 17,500 shares of the Funds 7.25% Series E Convertible Preferred Shares due 2030.

Industry Context

The issuance of new convertible preferred shares and the redemption of existing higher-coupon preferred shares by Carlyle Credit Income Fund reflects a common strategy in the closed-end fund and credit markets to optimize capital structure and reduce financing costs. By issuing new preferred shares at a lower dividend rate (7.25%) compared to the redeemed Series A Preferred Shares (8.75%), the Fund is taking advantage of market conditions to improve its cost of capital. The private placement nature of the offering suggests a targeted approach to institutional investors, which is typical for less liquid or specialized securities.

Comparison to Industry Standards

• The 7.25% fixed annual dividend rate on the new Series E Convertible Preferred Shares is lower than the 8.75% rate on the Series A Preferred Shares being redeemed, indicating a favorable refinancing for the Fund. This compares positively to other closed-end funds that may be facing higher financing costs in the current interest rate environment.
• The asset coverage requirement of at least 200% is a standard regulatory requirement for closed-end funds issuing senior securities under the Investment Company Act of 1940, ensuring a degree of protection for preferred shareholders.
• The private placement structure and lack of exchange listing for the new preferred shares are common for specialized or smaller preferred offerings, contrasting with more liquid, exchange-traded preferred shares offered by larger financial institutions or utilities.

Corporate Governance

Related Party Transactions

• The investment adviser (Eagle Point Credit Management LLC) is a party to the purchase agreement and has granted an irrevocable proxy to the Fund to vote the Convertible Preferred Shares it holds or manages.

Stakeholder Impact

• Shareholders (Common): Potential for future dilution if Series E Convertible Preferred Shares are converted into Common Shares. Benefit from reduced financing costs due to lower dividend rate on new preferred shares.
• Shareholders (Series A Preferred): Will have their shares redeemed at $25 per share plus accrued dividends, providing a return of capital.
• Shareholders (Series E Convertible Preferred): Receive a fixed 7.25% annual dividend, potential for capital appreciation through conversion to common shares, but face liquidity constraints due to unlisted nature and transfer restrictions. Their voting rights are limited by an irrevocable proxy.
• Fund: Benefits from lower cost of capital and strengthened working capital.

Next Steps

• Redemption of all outstanding 8.75% Series A Preferred Shares Due 2028 on November 3, 2025.
• Quarterly dividend payments on Series E Convertible Preferred Shares commencing January 31, 2026.
• Optional redemption of Series E Convertible Preferred Shares by the Fund from May 1, 2026.
• Holders' conversion rights for Series E Convertible Preferred Shares become exercisable from April 30, 2026.
• Mandatory redemption of Series E Convertible Preferred Shares on October 30, 2030.

Key Dates

Recommendation

The refinancing of higher-cost preferred shares with lower-cost convertible preferred shares is a positive step for the Fund's capital structure and cost of capital. However, the unlisted nature of the new preferred shares and the irrevocable proxy granted by investors suggest a targeted institutional placement rather than a broad market offering. While the move is financially sound for the Fund, the immediate impact on common share price is likely neutral to slightly positive due to improved cost of capital, but potential dilution from future conversions needs to be considered. For existing common shareholders, it's a 'hold' as the benefits are primarily structural and long-term, without immediate catalysts for significant upside, while new preferred shares are illiquid.

Keywords

Carlyle Credit Income Fund, CCIF, Convertible Preferred Shares, Private Placement, Series E Preferred Shares, Series A Preferred Shares Redemption, Fixed Income, Closed-End Fund, CLO, Dividend, Capital Raise, SEC Filing, 8-K