10-K: Carlyle Secured Lending: Portfolio Growth Amid Income Decline

Carlyle Secured Lending reported a significant increase in its investment portfolio to $2.5 billion in 2025, driven by strategic acquisitions, despite a decline in net investment income and NAV per share.

Summary

• Net investment income for the year ended December 31, 2025, was $100.7 million, or $1.48 per common share, a decrease from $105.3 million or $2.00 per common share in 2024.
• Adjusted net investment income per common share (non-GAAP) was $1.51 in 2025, compared to $2.02 in 2024.
• Dividends declared on common shares totaled $110.0 million, or $1.65 per share, in 2025.
• Net asset value (NAV) per common share decreased to $16.26 as of December 31, 2025, from $16.80 as of December 31, 2024.
• The fair value of investments grew to approximately $2.5 billion across 165 portfolio companies and 31 industries as of December 31, 2025, up from $1.8 billion in 2024.
• Non-accrual investments represented 1.8% of the portfolio based on cost and 1.2% based on fair value as of December 31, 2025, an increase from 0.6% of fair value in 2024.
• The weighted average yield on total debt and income-producing investments decreased to 10.1% as of December 31, 2025, from 11.7% as of December 31, 2024.
• The company completed the acquisition of Carlyle Secured Lending III (CSL III) on March 27, 2025, and gained 100% ownership of Credit Fund II on February 11, 2025.
• A new joint venture, Structured Credit Partners JV, LLC, was agreed upon in December 2025 with Carlyle Credit Solutions, Inc. and Sixth Street Partners, LLC, with initial capital commitments of up to $150.0 million each for Carlyle SCP Members.
• Total liquidity as of December 31, 2025, was $472.8 million, comprising cash and unused debt capacity.
• The company repurchased 1,095,791 shares of common stock for approximately $13.9 million in 2025, resulting in an accretion to NAV per common share of approximately $0.06.

Sentiment

Score: 5

Explanation: StockSavvy.ai views this as a neutral to slightly negative report. While strategic growth initiatives like the CSL III merger and new joint ventures are positive, the decline in key profitability metrics such as net investment income and NAV per share, coupled with an increase in non-accrual investments, indicates underlying challenges in generating returns from the expanded portfolio.

Positives

• Total investments at fair value increased significantly to $2.5 billion in 2025 from $1.8 billion in 2024, indicating strong portfolio growth.
• Strategic acquisitions, including the CSL III Merger and the Credit Fund II Purchase, expanded the company's asset base and market presence.
• The establishment of Structured Credit Partners JV, LLC, provides a new avenue for investing in broadly syndicated loans and diversifies product offerings.
• Share repurchases of 1,095,791 common shares for $13.9 million in 2025 resulted in a $0.06 accretion to NAV per common share, benefiting existing shareholders.
• The Credit Facility was amended and restated, increasing total commitments to $960.0 million and extending the maturity date to March 12, 2030, enhancing liquidity and financial flexibility.
• The company maintained a healthy asset coverage ratio of 175.6% as of December 31, 2025, exceeding the 150% minimum requirement for BDCs.

Negatives

• Net investment income decreased to $100.7 million in 2025 from $105.3 million in 2024.
• Net investment income per common share declined to $1.48 in 2025 from $2.00 in 2024.
• NAV per common share decreased to $16.26 as of December 31, 2025, from $16.80 as of December 31, 2024.
• The weighted average yield on the total debt and income-producing investments decreased to 10.1% in 2025 from 11.7% in 2024.
• Non-accrual investments, based on fair value, increased to 1.2% of the total portfolio in 2025 from 0.6% in 2024, indicating a rise in underperforming assets.
• Interest expense and credit facility fees increased to $88.1 million in 2025 from $68.5 million in 2024, primarily due to a higher average outstanding debt balance.

Risks

• Capital markets disruption and economic uncertainty, including elevated interest rates, inflation, and geopolitical tensions, may adversely affect debt and equity markets and the company's business.
• Inflation has increased costs for portfolio companies, potentially impacting their ability to service debt and reducing the fair value of investments.
• Economic recessions or downturns could impair portfolio companies, increase non-performing assets, decrease portfolio value, and increase funding costs.
• Dependence on the Investment Adviser for future success, with potential for loss of key personnel or inability to replicate historical success.
• Significant potential conflicts of interest due to the Investment Adviser managing other funds and accounts, potentially impacting investment allocation and returns.
• Regulations governing BDC operations affect the ability to raise additional capital, with a minimum asset coverage ratio of 150% potentially limiting borrowing or preferred stock issuance.
• The NAV per share may be diluted if shares are sold at prices below the then-current NAV per share, as authorized by stockholder approval.
• Borrowing money magnifies potential for gain or loss, increasing risk of investing and potentially affecting dividend payments.
• Risk of corporate-level income tax if the company fails to maintain its status as a Regulated Investment Company (RIC).
• Provisions of Maryland General Corporation Law (MGCL) and the company's charter and bylaws could deter takeover attempts and adversely impact common stock price.
• High dependence on information systems, with systems failures potentially disrupting business operations.
• Cybersecurity risks and cyber incidents may adversely affect business operations, compromise confidential information, and damage business relationships.
• Use of artificial intelligence technology could lead to data exposure, increase competitive, operational, legal, and regulatory risks, and may contain inaccuracies or flaws.
• Changes in laws or regulations, or their interpretation, affecting the company or its portfolio companies may adversely impact business.
• Investments are risky, speculative, generally illiquid, and typically do not have a readily available market price, leading to subjective valuations.
• Highly competitive market for investment opportunities, including competition from affiliated investment vehicles.
• Portfolio companies may be highly leveraged, subject to restrictive covenants, and may incur debt ranking equally with or senior to the company's investments.
• Declines in corporate debt security prices and illiquidity in debt markets may adversely affect fair value of portfolio investments.
• Investments in restructurings and reorganizations may be subject to greater regulatory and legal risks.
• Financial projections of portfolio companies could prove inaccurate, and due diligence may not reveal all relevant facts.
• Portfolio companies may prepay loans, reducing investment income if returned capital cannot be reinvested at equal or greater yields.
• Restrictions on transactions with Carlyle and other affiliates.
• Lack of controlling equity interests in portfolio companies limits influence over management decisions.
• Risks associated with debt obligations having original issue discount (OID) or payment-in-kind (PIK) interest, including non-cash accruals and increased credit risk.
• Investments in foreign securities involve additional risks such as exchange control regulations, political instability, and foreign taxes.
• Hedging transactions may not be successful in mitigating risks and could limit opportunities for gain.
• Tariffs may adversely affect the company or its portfolio companies by increasing costs and reducing profitability.

Future Outlook

The company anticipates continued volatility in interest rates and market conditions, with the Federal Reserve potentially increasing rates in 2026 if inflation persists. The investment strategy remains focused on direct origination of secured debt in U.S. middle market companies, opportunistically supplemented by diversified lending and investing strategies leveraging Carlyle's Global Credit platform. The company expects to issue additional debt and equity to fund future growth and investments.

Management Comments

• Management emphasizes a core investment strategy focused on lending to U.S. middle market companies with $25.0 million or greater EBITDA, supported by financial sponsors.
• The Investment Adviser's team utilizes a rigorous, systematic, and consistent investment process, refined over Carlyle's 38-year history, designed to achieve enhanced risk-adjusted returns and capital preservation.
• Management believes the middle market lending environment offers attractive investment opportunities due to its large size, superior value, and supply-demand imbalance favoring non-bank lenders.
• The company's competitive strengths are based on Carlyle's integrated platform, including breadth of capabilities, scale of capital, and depth of expertise, which are believed to mitigate competition and improve stockholder returns.

Industry Context

StockSavvy.ai notes that Carlyle Secured Lending's focus on direct lending to U.S. middle market companies aligns with a broader industry trend where traditional banks have reduced their lending capabilities post-financial crisis due to increased regulation (e.g., Dodd-Frank, Basel III). This shift has created a significant opportunity for non-bank lenders like BDCs. The company's emphasis on financial sponsor-backed companies and senior secured loans is a common strategy in this segment, aiming for capital preservation and current income. The expansion of Carlyle's Global Credit segment, with its substantial AUM and experienced professionals, positions the company to capitalize on these favorable market dynamics, despite the competitive landscape.

Comparison to Industry Standards

• The filing states that the company operates in a highly competitive market, competing with other BDCs, public and private funds, commercial and investment banks, CLOs, and commercial finance companies.
• Many competitors are noted to be substantially larger with greater financial, technical, and marketing resources, potentially having a lower cost of funds and access to funding sources not available to the company.
• The company believes its direct origination resources, broad product capabilities, ability to commit capital at scale, and depth of expertise enable it to compete effectively.
• Specific comparable companies, projects, or direct performance benchmarks against industry standards are not provided in the filing to allow for a detailed quantitative comparison.

Management Changes

Corporate Governance

Legal Proceedings

• The company is not currently subject to any material legal proceedings, nor is any material legal proceeding threatened against the company.

Related Party Transactions

• The Investment Adviser receives base management fees (1.50% of gross assets, with a 1.00% rate on gross assets exceeding 200% of NAV) and incentive fees (17.5% of pre-incentive fee net investment income above a hurdle rate and 17.5% of realized capital gains) from the company.
• The Administrator receives reimbursements for its costs and expenses, including the company's allocable portion of overhead and compensation for officers and staff providing services to the company.
• The company co-manages Middle Market Credit Fund, LLC, with Credit Partners USA LLC, each holding a 50% economic interest and commitments to fund capital.
• Prior to February 11, 2025, the company co-managed Middle Market Credit Fund II, LLC, with Cliffwater Corporate Lending Fund (CCLF), holding an 84.13% economic ownership.
• In December 2025, the company agreed to co-manage Structured Credit Partners JV, LLC, with Carlyle Credit Solutions, Inc. (an affiliated BDC) and Sixth Street Partners, LLC, with each Carlyle SCP Member having an initial capital commitment of up to $150.0 million.
• An affiliate of Carlyle received underwriting fees for the issuance of the 2028 Notes ($6.4 million principal, 3.15% fee) in November 2023 and the 2030 Notes ($9.0 million principal, 1.00% fee) in October 2024.
• The Preferred Stock, held by an affiliate of Carlyle, was exchanged for common stock on March 27, 2025, in connection with the CSL III Merger.

Stakeholder Impact

• Shareholders: Experienced a decrease in NAV per common share and lower net investment income per share, but benefited from NAV accretion due to share repurchases. The opt-out dividend reinvestment plan may lead to dilution for those opting out.
• Investment Adviser: Continues to receive management and incentive fees, which are tied to gross assets and investment performance, creating potential conflicts of interest.
• Portfolio Companies: Benefit from direct lending and strategic support, but face risks from economic downturns, high leverage, and potential changes in interest rates.
• Lenders/Creditors: Senior debt holders have priority claims on assets. The company's compliance with asset coverage ratios and covenants is crucial for maintaining access to financing.
• Employees (of Administrator/Investment Adviser): Compensation for officers and staff providing services to the company is reimbursed, indicating continued operational support.

Next Steps

• Payment of a common stock dividend of $0.40 per share on April 16, 2026, to stockholders of record on March 31, 2026.
• Potential further repurchases of common stock under the increased $300.0 million Stock Repurchase Program.
• Continued funding of capital commitments to Middle Market Credit Fund, LLC, which increased to $250.0 million each for the company and Credit Partners USA LLC.

Key Dates

Recommendation

The company's 2025 performance presents a mixed picture. While strategic acquisitions and partnerships have significantly grown the investment portfolio and expanded market reach, key financial metrics such as net investment income and NAV per share have declined, and non-accrual investments have increased. The robust liquidity and strong asset coverage ratio provide stability, but the lower weighted average yield and increased interest expenses are headwinds. Given these offsetting factors, a 'hold' recommendation is appropriate, as the long-term success hinges on the effective integration of new assets and the ability to generate improved returns in a volatile interest rate environment.

Keywords

Carlyle Secured Lending, CGBD, Business Development Company, BDC, SEC Filing, 10-K, Financial Results, Investment Portfolio, Middle Market Lending, Secured Debt, First Lien Loans, Second Lien Loans, Equity Investments, Net Asset Value, NAV, Net Investment Income, Capital Markets, Credit Facility, Senior Notes, Securitization, Carlyle Global Credit, CSL III Merger, Credit Fund II, Structured Credit Partners, Share Repurchase Program, Dividend Reinvestment Plan, Corporate Governance, Risk Management, Cybersecurity, Artificial Intelligence, RIC Status, Interest Rate Risk, Inflation, Geopolitical Tensions