Carlyle Credit Income Fund

Good day, everyone, and thank you for standing by. Welcome to the Carlyle Credit Income Fund fourth quarter ending September 30, 2023 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Jane Tsai from Investor Relations. Please go ahead.

Good afternoon, and welcome to Carlyle Credit Income Fund's fourth quarter 2023 earnings call. With me on the call today is Lauren Badmagen, the fund's chief executive officer, Nishal Mehta, the fund's portfolio manager, and Nelson Joseph, the fund's chief financial officer. Last night, we filed our NCSR and issued a press release and corresponding earnings presentation discussing 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. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the risk factor section of our annual report on the form NCSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Credit Income Fund assumes no obligation to update any forward-looking statements at any time.

With that, I'll turn the call over to Warren. Thanks, Jane. Good afternoon, everyone, and thank you for joining CCIF's first earnings call. The fourth quarter represented a period of transition as Carlyle took over as investment advisor of the fund on July 14, 2023. In connection with this change, the fund's name was changed to Carlyle Credit Income Fund. and the fund's investment mandate changed to focus primarily on investing in the equity tranches of CLOs. In the first four months since taking over as investment advisor, we have successfully transitioned the fund, including completing the following. Carlyle successfully deployed the initial cash proceeds into a diverse pool of CLO equity, generating a gap yield of over 18.16% on a cost basis. Carlyle declared a monthly dividend of $0.94, equating to 14.2% annualized dividend based on NAV at September 30th, higher than the 12% target dividend yield previously disclosed to investors. We leveraged the funds to meet our target leverage of 0.25X to 0.4X through the issuance of 8.75% Series A term preferred stock due 2028. We issued $52 million through the initial issuance of $30 million on October 18th and incremental $2 million through underwriters partially executing the green shoe and $20 million add-on on November 21st. Carlyle now holds 41% of the common stock of CCIF following the completion of the $25 million tender offer and $15 million investment via newly issued shares and private share purchases. Carlyle's ownership is held via the public entity Carlyle Group and not through a fund managed by Carlyle. This provides significant alignment of interest between the investment advisor and the fund. Switching gears, I'd like to discuss the current market environment for both secured loans and CLO equity. Carlyle is one of the world's largest CLO managers with $50 billion of AUM. About one-third of Carlyle credits $150 billion of AUM, providing us with differentiated insight into the senior secured loan and CLO markets. Despite inflationary pressures in the economy and higher base rates, the loan market continues to be resilient as evidenced by increased issuance in the third quarter, continued low defaults, and underlying earnings growth. In the third quarter, new loan issuance totaled $76 billion, the highest level since the Federal Reserve began tightening monetary policy in the first quarter of 2022. The LTM default rate of the loan index has decreased to 1.3% from 1.7% in the second quarter, still below the historical average of about 2.5%. During the third quarter, we have seen high single-digit average EBITDA growth in the roughly 600 companies to which Carlyle's managed CLOs lend to. However, we continue to see downgrades in the senior secure loan market, outpaced upgrades at approximately 25% of the loan market has been downgraded so far in 2023. This has resulted in an increase in loans rated triple C, and the average triple C exposure in CLOs is now over 6%. We expect default rates to return to historical averages of 2% to 3%, driven by certain underperforming, over-leveraged issuers with near-term maturities, along with a backdrop of elevated rates. Turning now to the current CLO market, we believe CLO opportunities remain compelling as they continue to benefit from elevated base rates and attractive pricing in the secondary market. Secondary CLO equity benefits from the rebound in quarterly payments and payments averaged over 4% based on PAR, which is above the historical average. We have found returns in the secondary market are currently higher than the primary market as the cash on cash benefits from tighter liabilities. However, Primary CLO equity, and specifically print and sprint opportunities, can be attractive at certain points in time. Elevated base rates have helped to offset tighter arbitrage, and we continue to see a good pace of CLO issuance as the U.S. CLO market saw $28 billion in new issuance in the third quarter, and now has exceeded $100 billion year-to-date. Reset and refinancing activity remains limited due to historically wide debt costs. As a result, approximately 40% of the CLO market is expected to be out of the reinvestment period by the end of this year. I'll now hand the call over to Nigel Mehta, our Portfolio Manager, to discuss our deployment and the current portfolio.