10-Q: Carlyle Secured Lending Reports Q3 2024 Results, Announces Merger Agreement

Carlyle Secured Lending, Inc. announced its third quarter 2024 results, including a decrease in net asset value per share and a merger agreement with Carlyle Secured Lending III.

Summary

• Carlyle Secured Lending, Inc. reported a net investment income of $24.0 million, or $0.47 per common share, for the third quarter of 2024.
• Adjusted net investment income per share, a non-GAAP measure, was $0.49, after accounting for one-time expenses related to the reset of the 2015-1R Notes.
• The company declared dividends on common shares for the third quarter of 2024 totaling $23.9 million, or $0.47 per share.
• Net asset value per common share decreased to $16.85 as of September 30, 2024, from $16.95 as of June 30, 2024.
• As of September 30, 2024, the company held 175 investments across 128 portfolio companies and 26 industries for a total fair value of $1.7 billion.
• During the third quarter of 2024, the company had investment fundings of $143.4 million and investment repayments of $171.2 million.
• Non-accrual investments represented 1.2% and 0.6% of the portfolio based on cost and fair value, respectively, as of September 30, 2024.
• Total liquidity as of September 30, 2024 was $354.8 million in cash and undrawn debt capacity.
• On August 2, 2024, the company entered into a Merger Agreement with Carlyle Secured Lending III, with the merger expected to close in the first fiscal quarter of 2025.
• On October 18, 2024, the company completed a public offering of $300.0 million aggregate principal of 6.75% senior unsecured notes due February 18, 2030.
• On November 4, 2024, the company declared common stock dividends of $0.45 per share to be paid on January 17, 2025.

Sentiment

Score: 5

Explanation: The document presents mixed results, with a decrease in net asset value and net investment income, but also a strong liquidity position and a merger agreement that could provide future benefits. The sentiment is neutral to slightly negative.

Positives

• The company has a diversified portfolio of investments across various industries.
• The company has a significant amount of liquidity available for future investments and operations.
• The company has a well-established investment team with deep knowledge and expertise.
• The company has a strong relationship with Carlyle, which provides access to significant resources and relationships.

Negatives

• Net asset value per common share decreased during the quarter.
• Net investment income decreased slightly compared to the same period in the prior year.
• The company has a significant amount of debt outstanding.
• The company's investments are subject to valuation risk due to the lack of readily available market prices.

Risks

• The company's investments are subject to market risk, including changes in interest rates and credit spreads.
• The company's investments are subject to credit risk, including the risk of default by portfolio companies.
• The company's investments are subject to valuation risk due to the lack of readily available market prices.
• The company's performance is dependent on the performance of its portfolio companies.
• The company's performance is dependent on the ability of its Investment Adviser to locate suitable investments and to monitor and administer its investments.
• The company is subject to the risk of changes in laws, policies or regulations affecting its operations or the operations of its portfolio companies.
• The company is subject to the risk of information technology system failures, data security breaches, data privacy compliance, network disruptions, and cybersecurity attacks.
• The company is subject to the risk of uncertainty surrounding the financial stability of the United States, Europe and China, including a possible shutdown of the U.S. federal government.
• The company is subject to the risk of uncertainty surrounding Russias military invasion of Ukraine and the impact of geopolitical tensions in other regions such as the Middle East, and developing tensions between China and the United States.
• The company is subject to the risk that the Mergers may not be completed or may not be completed as timely as expected.
• The company is subject to the risk that the anticipated benefits of the Mergers may not be realized or may take longer than anticipated to achieve.
• The company is subject to the risk that the market price of its common stock after the Mergers may be affected by factors different from those affecting its common stock currently.
• The company is subject to the risk of litigation against the company, CSL III, or the members of the Board of Directors and CSL IIIs board of trustees, which could prevent or delay the completion of the Mergers or result in the payment of damages following completion of the Mergers.

Future Outlook

The company expects the merger with Carlyle Secured Lending III to close in the first fiscal quarter of 2025, subject to certain closing conditions.

Industry Context

The company operates in the specialty finance industry, which is subject to various market risks, including changes in interest rates and credit spreads. The company's focus on middle market lending is consistent with broader trends in the private credit market.

Comparison to Industry Standards

• The company's weighted average yield on its debt portfolio of 11.9% is within the range of other BDCs focused on middle market lending.
• The company's non-accrual rate of 0.6% of the portfolio based on fair value is relatively low compared to some other BDCs.
• The company's asset coverage ratio of 194.9% is above the minimum requirement for BDCs.
• The company's total return based on market price of 23.17% for the nine months ended September 30, 2024 is higher than some other BDCs.

Related Party Transactions

• The company paid an affiliate of Carlyle a fee for underwriting services rendered in connection with the issuance of the 2028 Notes and 2030 Notes.

Stakeholder Impact

• Shareholders will experience a reduction in their percentage ownership and voting power in the combined company as a result of the Mergers.
• Shareholders will receive a dividend of $0.45 per share on January 17, 2025.
• Employees may be affected by the integration of the two companies following the Mergers.
• Customers (portfolio companies) may be affected by the changes in the company's investment strategy following the Mergers.
• Creditors may be affected by the changes in the company's capital structure following the Mergers.

Next Steps

• The company will continue to monitor its portfolio and manage its investments.
• The company will work to complete the merger with Carlyle Secured Lending III.
• The company will continue to evaluate opportunities to enhance shareholder value.

Key Dates

Keywords

Business Development Company, BDC, Carlyle Secured Lending, Middle Market Lending, Senior Secured Loans, Private Credit, Investment Income, Net Asset Value, Merger, Credit Facility, Senior Notes, Securitization