Carlyle Secured Lending, Inc.

Thank you for standing by, and welcome to Carlyle Secured Lending's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again. I would now like to hand the call over to Nisha Mehta, Head of Investor Relations. Please, go ahead.

Good morning, and welcome to Carla's Secured Lending Conference Call to discuss the earnings results for the second quarter of 2025. I'm joined by Justin Plouffe, our Chief Executive Officer, and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10-Q and issued a press release with a presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and any undue reliance should not be placed on them. Today's comments call may include forward-looking statements reflecting our views with respect to, among other things, the expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger, and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risk and uncertainties, including those identified in the risk factor sections of our 10K and 10Qs. These risks and uncertainties could cause actual results to differ materially from those indicated. CGPD assumes no obligation to update any forelooking statements at any time. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC regulation G, such as adjusted net investment income or adjusted NII. The company's management believes adjusted net investment income, adjusted net investment income per share, adjusted net income, and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and trends and to review our performance without giving effect to the amortization or accretion resulting from the new cost basis of the investments acquired and accounted for under the acquisition method of accounting in accordance with ASC 805 and the one-time purchase or non-recurring investment income and expense events, including the effects on incentives and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP non-investment income The most directly comparable GAAP financial measure to adjusted NII per share can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release filed last night with the SEC on Form 8K. With that, I'll turn the call over to Justin, CGVD's Chief Executive Officer.

Thanks, Nishal. Good morning, everyone, and thank you all for joining. I'm Justin Plouffe, the CEO of the Carlisle BDCs and Deputy CIO for Carlisle Global Credit. On today's call, I'll give an overview of our second quarter 2025 results, including the quarter's investment activity and portfolio positioning. I'll then hand the call over to our CFO, Tom Hennigan. During the second quarter, CGPD benefited from growth in the overall portfolio, but was also impacted by historically tight market spreads. We generated $0.39 per share of net investment income for the quarter, on both the GAAP basis and after adjusting for asset acquisition accounting. Our board of directors declared a third quarter dividend of 40 cents per share. Our net asset value as of June 30th was $16.43 per share compared to $16.63 per share as of March 31st. Despite muted sponsor M&A activity, Carlisle Direct Lending achieved a platform-wide deployment record with $2 billion in originations closed during the quarter. At the CGPD level, we funded $376 million of investments into new and existing borrowers, the highest level since our IPO in 2017, resulting in net investment activity of $238 million after accounting for repayments. Total investments at CGPD increased from $2.2 billion to $2.3 billion during the quarter after adjusting for $150 million of investments sold to MMCF, our joint venture. Looking ahead, CGPD origination activity is expected to be somewhat slower in the third quarter due to the seasonal summer slowdown and delayed transaction timelines resulting from the market uncertainty that began in April. However, we see our pipeline rebuilding to a busier end of the year and remain optimistic for the fourth quarter. As trade policy evolves, we continue to monitor our portfolio for tariff exposure. In line with last quarter, we believe that less than 5% of the portfolio has material direct risk from tariffs. Spreads in the private credit space remain at historically tight levels, and when combined with potential Fed rate cuts, may present a headwind to near-term earnings. Overall, we remain selective in our underwriting approach, seeking quality credits at the top of the capital structure. We remain focused on overall credit performance and portfolio diversification while maintaining target leverage and growing the credit fund. As of June 30th, Our portfolio was comprised of 202 investments in 148 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments and 94% of our investments were in senior secured loans. The median EBITDA across our portfolio was $92 million. As always, discipline and consistency drove performance in the second quarter. We expect these tenants to drive performance in future quarters. With that, I'll now hand the call over to our CFO, Tom Hennigan. Thank you, Justin. Today, I'll begin with an overview of our second quarter financial results. Then I'll discuss portfolio performance before concluding with detail on our balance sheet position. Total investment income for the second quarter was $67 million, up significantly from prior quarter as a result of a higher investment portfolio balance attributable to the merger with CSL3, which closed at the end of Q1, and the purchase of Credit Fund 2 in mid-February. Total expenses of $39 million also increased versus prior quarter, primarily as a result of higher interest expense from a higher average outstanding debt balance, along with higher management and incentive fees, driven by growth in the size of the portfolio. The result was net investment income for the second quarter of $28 million, or 39 cents per share, on both a gap basis and after adjusting for asset acquisition accounts. which excludes the amortization of the purchase price premium from the CSL-free merger and the purchase price discount associated with the consolidation of Credit Fund 2. This quarter's earnings, which demonstrate the first full quarter of the combined CGBD and CSL-free portfolios, decreased by about one penny per share as we continue to work towards achieving our target leverage levels at both CGBD and the NMCFJV. As previewed last quarter, the earnings power of the combined portfolio remains in the same range as pre-combination Q1 CGBD earnings. Our Board of Directors declared the dividend for the third quarter of 2025 at a level of 40 cents per share, which is payable to stockholders of record as of the close of business on September 30th. This dividend level represents an attractive yield of over 11% based on the recent share price. In addition, we currently estimate we have 89 cents per share of spillover income generated over the last five years, so we feel comfortable in our ability to maintain the quarterly dividend. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $14 million, or 19 cents per share, partially attributable to unrealized markdowns on select underperforming investments. Turning to credit performance, we continue to see overall stability in credit quality across the portfolio, with some underperformance in a handful of names. On the metrics, the risk rating distribution remained relatively stable, with one name added to non-accrual during the quarter, increasing non-accruals to 2.1% of total investments at fair value. At the beginning of July, we closed the successful restructuring of Maverick, which, all else equal, decreases non-accruals to 1% of total investments at fair value on a pro forma basis. And while non-accrual rates may fluctuate from period to period, we're confident in our ability to leverage the broader Carlisle network to achieve maximum recoveries for underperforming borrowers. Moving to our credit fund, as previewed last quarter, we've been focused on maximizing both asset growth and returns at the MMCF JV over the last few quarters. As you can see from our investment activity, we continue to bolster the asset base, and we expect the MMCF JV dividend to achieve a run rate of mid-teens ROE. Separately, we continue to work on optimizing our non-qualifying asset capacity and anticipate using this flexibility going forward for other strategic partnerships. I'll finish by touching on our financing facilities and leverage. In July, we closed a small upsize to our primary revolving credit facility, increasing total commitments to $960 million in total. At quarter end, statutory leverage was about 1.1 times towards the midpoint of our target range. And given our current strong liquidity profile and targeted incremental sales to the MMCFJV, we're well positioned to benefit from the expected pickup and deal volume in future quarters. With that, I'll turn the call back over to Justin. Thanks, Tom. As we approach the middle of the third quarter, our portfolio remains resilient. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles, and attractive spreads relative to market levels. Our pipeline of new originations is active, With a stable, high-quality portfolio, CGPD stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering a resilient, stable cash flow stream to our investors through consistent income and solid credit performance. Finally, I'd like to conclude with some comments on a recently announced Leadership Edition. We are thrilled that Alex Chee will join Carlisle as Partner, Deputy Chief Investment Officer for Global Credit, and Head of Direct Lending in early 2026. Alex will lead Carlyle's direct lending team and will work alongside global credit leadership to drive strategic decisions for Carlyle's global credit business and the Carlyle direct lending platform. Alex joins Carlyle from Goldman Sachs, where he spent more than 30 years serving in a variety of roles, most recently as co-head of private credit within Goldman Sachs Asset Management and co-chief executive officer and co-president of the Goldman Sachs BDC Complex. With Alex's deep experience, proven leadership, and strong industry relationships, We are confident he will help us further accelerate the growth of our global credit business, including CGPD. I'd like to now hand the call over to the operator to take your questions. Thank you.