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.

Thank you, Lauren. In connection with Carlisle becoming the advisor of the fund in July, the prior advisor liquidated 97% of the real estate portfolio at closing. As a result, almost 100% of the fund's assets was cash on the closing date. We leveraged Carlisle's longstanding presence in the CELA market as one of the world's largest CELA managers and 15-year track record in investing in third-party CELAs to deploy the cash and CCIS into a diversified portfolio in approximately two months ahead of schedule. As of September 30th, our portfolio consisted of 24 unique CELA equity investments managed by 19 different collateral managers sourced entirely in the secondary market. We targeted recent ventures of Tier 1 and Tier 2 managers with ample time remaining in the reinvestment period. Most of these portfolios have attractive cost of capital, and with active management and time left in the reinvestment periods, managers can look to take advantage of periods of volatility to improve portfolios or reposition them. We utilize our in-house credit expertise, including over 20 credit analysts and portfolio managers to complete bottom-up fundamental analysis on the underlying portfolios of the CLOs. The following are some key stats on the portfolio as of September 30th. The portfolio generates a gap yield of 18.16% on a cost basis, supported by cash-on-cash yields of 26% on the October quarterly payments based on CCIF's purchase price. We expect cash yields to remain strong due to elevated base rates and continue to increase the weighted average spread of the portfolios as limited new issue volume is at higher spreads. The weighted average years left in reinvestment period is three years. The weighted average junior over-collaboration cushion of 4.98%. A healthy cushion to offset the expected increase in defaulted loans. The weighted average spread of the online portfolio was 3.7%. The percentage of loans rated triple C by S&P was 5.7%. providing a fair amount of cushion below the 7.5% CCC limit in CLOs. As a reminder, once a CLO has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower fair market value in rating and C recovery rates and reduces over-calibration cushions. The percentage of loads trading below 80 was limited at 3.7%. Now I'll turn it over to Nelson, our CFO, to discuss the financial results.

Thank you, Nischal. Today I will begin with the review of our fourth quarter earnings. Total investment income for the fourth quarter was $2.2 million, or $0.20 per share. Total expenses for the quarter was $3.6 million. Total net investment loss for the fourth quarter was $1.4 million, or $0.14 per share.

Net asset value as of September 30th was $8.42 per share, a 1.8% increase

from the 827 when Carla took over as the investment advisor. Our net asset value is based on the bid side mark we received from a third party on the CLO portfolio. We currently have one legacy real estate asset remaining in the portfolio. The fair market value of the loan is $2 million. We are currently in discussions with several parties to exit this position while maximizing proceeds. Subsequent to fiscal year end, we put into place and at-the-market offering program that will allow us to efficiently and equitably issue common stock once the stock trades above that asset value. Fourth quarter earnings do not represent the expected earnings for CCEA on a go-forward basis due to the following. First, we ramped the initial portfolio throughout the fourth quarter. Therefore, all of our investments have not earned a full quarter's worth of income. We did not achieve our leverage target of 0.25 times, 0.4 times debt plus preferred to total assets until late November. The issuance of the Series A term preferred stock is very creative as the coupon is 8.75%, while our portfolio cap yield is 18.16%. The preferred is also flexible capital with a five-year maturity and no financial covenants. CCIF procured significant non-procuring expenses in conjunction with the transaction, totaling $1.9 million. Such non-recurring expenses included legal, accounting, and advisory fees. We estimate operating expenses excluding management fees, incentive fees, and costs of preferred will be in the 0.5 to 0.6 million range per quarter going forward. We expect that the current dividend policy of 9.94 cents per month will be covered by our GAAP net investment income on a go-forward basis. The monthly dividend is further supported by cash on cash yield of 26% received on the October quarterly payments based on CCIF's purchase price. The quarterly October cash payments total $5.81 million compared to $1.17 million payment for the October 2023 dividend. With that, I will turn it back to Lauren.

Thanks, Nelson. We believe the fund is now positioned to provide CCIF investors with an attractive dividend yield that is expected to be fully covered by GAAP net investment income through exposure to a diversified portfolio of CLO equity positions. Our approach allows us to remain focused on disciplined underwriting, prudent portfolio construction, and conservative risk management. I'd now like to hand the call over to the operator to take your questions. Thank you.

As a reminder, to ask a question, you will need to press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster.

Our first question comes to the line of Miki Schleyen with Ladenburg Thalmann.

Good afternoon, everyone. First question relates to the outlook for the fund in terms of, well, more specifically, your outlook for the CLO equity market and loan markets for 2024. You did mention that you expect default rates to, you know, regress towards historical averages, but what other trends are you expecting for next year?

Rebecca Hines, M.D.: : Sure, so we do expect default rates to increase to historical averages so closer to the two to 3% and we're also expecting continued downgrades in the market. Rebecca Hines, M.D.: : That said, where loan prices are trading today, if you look at where they were before Ukraine we're still at a significant discount so there's probably room for price appreciation during 2024 in the loan market.

Yeah, and Mickey, good to hear from you. On the CLO side, given our expectation that we're going to see defaults increase to historical averages, at least in the first half of the year, we expect CLO spreads to stay relatively flat. That's what most of the industry analysts, excuse me, research analysts are predicting. so based on that we think the the current arbitrage on primary equity is going to continue to be on the tighter end of the historical range but we still think that there will be periods of volatility which will allow for more print and sprints on the primary side on the secondary side we think it's a very attractive environment given cash on cash yields are elevated on a historical basis and we think the periods of volatility will create opportunities to make investments at this kind of prices.

Nishal, in terms of the primary market, the bulk of the activity this year has been in what some folks refer to as captive funds. Besides tighter spreads amongst CLO liabilities, which may or may not happen, are there other factors that you're watching that could unlock a more normalized primary market?

Yeah, so to think about that, there's two ways to really generate the return for CELA equity. One is just the spread between the underlying loans and the CELA debt. So you could either have CELA debt tighten, or conversely, you could have loan spreads increase. We're already at seeing elevated levels on the primary market on the loan side, but it's limited issuance. We don't think that part of the equations really going to materially change from here. The other thing that could happen and what we saw a fair amount of in 2022 and pockets in 23 is when you have periods of volatility where loan prices decline and you're able, the COO manager is able to rent portfolios at discounted prices, which can create attractive opportunities for COO equity.

That's a good point. In terms of the outlook for the fund, I realize the advantages or the attractiveness of investing in positions that still have a long reinvestment period, but what sort of cash yields are you seeing in positions for post-reinvestment CLOs, and is that something you're considering adding to the portfolio?

Yeah, that's a really good question. So one, I want to mention that our cash on cash yields based on the October payments that we received as a reminder, seal equity typically pays, uh, two to three weeks after quarter end. So most of our existing positions received payments in October cash on cash yield was around 26%. Now the deals that we invested in were primarily, uh, longer dated sealers typically have, uh, two plus years left in reinvestment. I believe the average in our portfolio is three years. On shorter dated deals or deals that are out of reinvestment period, the cash on cash yield can be somewhat volatile depending on where in the life cycle that the deal is out of reinvestment. Has it already amortized down significantly or is it just exiting reinvestment? But you can see even more elevated cash on cash yields for deals out of reinvestment. but those typically last for a short period because over time, repayments and prepayments that do come in in the underlying portfolios will start paying down the debt and will start suppressing your cash on cash payments. So we do think it's a part of the market that's typically not focused on by many investors. It's something that we're taking a closer look at because we think the The relative risk-adjusted returns can be attractive versus longer-dated. And the fact that Carlisle is one of the largest dealer managers, so we have a significant credit expertise in-house, we can do the bottoms-up analysis on that type of profile, which we do for longer-dated as well, but for shorter-dated deals, the portfolios tend to become a little more static, so it's even more important to do the fundamental analysis on the portfolio. Yeah.

I understand. Thanks for that initial. My last question relates to the dividend. Your portfolio is generating yields sort of in line with your peers. Your operating expenses will ultimately be similar to theirs as well. I do understand that your cost of debt capital is higher than theirs, given that they issued when the markets were more borrower-friendly, but do you see a path for your dividend yield to climb towards what they're offering since your fund is currently the lowest yielding or your stock is the lowest yielding investment in the CLO closed-end space?

Well, Mickey, right now we have a dividend yield.

I think it's around 15 and a half, 16%, depending on where the stock price is. You're correct that Eagle Point, Australand, our two peers are trading at wider levels, but we looked at it on a historical basis over the past two years. I think the average for both those funds was probably more in the 15, 16% range on the dividend yield standpoint. So we've based our current dividend policy based on where they've historically traded, just looking at two years data. Right now, I think the sub-industry is training at historically higher dividend yields. Can we achieve dividend yields where our peers are? I don't think we can comment on that. I don't think we need to be there because we think the markets do normalize. This is looking at data starting in 2022, so periods of volatility. If If our peers start trading at levels that we've seen over the past two years back to the average, we think our stock compares well to those numbers.

I appreciate that, Mitchell. Those are all my questions this afternoon. Thanks for your time.

Thank you, Mickey.

As a reminder, that is star 1-1 to ask a question. Our next question will come from the line of Matthew Howlett with B. Riley.

Hey, thanks for taking my question. Hey, look, it's a great time to be deploying capital in this environment. And you mentioned really the up in quality focus tier one and tier two managers. Can you just comment on in those buckets what you look for in the manager? I mean, is it track record? Is it what the sectors that they're focused on, sectors they stay away from? Just a little more color on the up in quality and why you feel that tier one, tier two is the place to be.

Yeah, Matt, nice to hear from you. Appreciate the question. So we spend a fair amount of time dealing with this thing, kind of the sealant manager universe. There's about 150 different sealant managers in the market today. And we look at various different factors. We actually rank sealant managers based on I think it's 96 different performance metrics at this point. So we definitely focus on track record. The benefit of COOs is they're very transparent vehicles. You can pull track record information from a COO from this past month, any COO on the market, or you can pull the information and the track record for a COO that was issued back in 1999. So there's an abundant amount of data. We do very much focus on track record. Given the sealers are actively managed vehicles, you're ultimately investing with the manager and looking at consistent performance over periods of volatility and periods of different credit cycles. We look for consistent management teams as well. So not only is there a consistent track record, but making sure that the portfolio managers have longevity in their seats. We look for deep teams, making sure they have a robust industry analyst team supporting that as well. So those are the few things that we look at. But ultimately, track record is ultimately what we focus on.

Well, you're capturing a high-end field, Vicky, so what, 18% on a cost basis and you're up in quality? It just seems like that's the risk-adjusted return, the place to be. And then maybe, Nichelle, can you comment on, I mean, resets? I mean, there's not a lot going on from what we can tell me. How should investors think about that if that was to open up next year? That's just embedded upside in the portfolio, the way you think about it?

Yeah, that's exactly right. So resets have been limited in 2022 and 2023 as CO2 debt spreads have widened. So it's really been... uneconomical for a vast majority of deals to be reset because you're refinancing your debt at a wider or higher price or higher cost. And so it's been limited. So right now, 40% of the market is going to be out of reinvestment period by the end of this year. If CELO market and debt spreads do rally and they tighten, we do think there's going to be a surge in resets. And that's only upside. We don't forecast resets or refinancing in our portfolios, but there are certainly deals that we currently have invested in that would definitely benefit from resets. So I agree. It's just upside from here.

Great. And then I guess this last question, a bigger picture question. I mean, Mickey touched on it in terms of differentiation from the outstanding peers out there. I mean, you know, you have obviously, on one hand, I mean, you guys are ramping in this opportune environment. You don't own things at a higher basis like the others. The debt's obviously a little bit higher, but I'm assuming that that's callable at some point and you become more of an issue where your cost of capital is going to go down and you get bigger. Just, we touched on the differentiation, you know, with this vehicle. It's Carlisle. We all know the name, you know, versus some legacy stuff out there and, Is it just cleaner that you're ramping in a better environment and you can pick and choose higher quality managers and still get very great yields? Going forward, just differentiation. Just maybe highlight on how you're going to differentiate, what you're going to do differently for investors.

Yeah, I think you touched on a couple of them. One, just being part of the larger Carlyle platform. Carlyle today is close to $400 billion, including $150 billion in credit and global credit. But the fact that Carlyle is one of the largest CLO managers globally, why that's so important is the team that manages CCIF, we can leverage that expertise when analyzing CLOs, because CLOs are effectively pools of 200 or 300 loans, and so we can leverage our industry analysts to do bottoms-up analysis. I think that's a definite benefit. We have benefited from the fact that we are ramping this portfolio in periods of volatility. And so we've been able to make purchases at historically discounted prices, which has been attractive. I think the other benefit to that is while we mentioned we're in a default rate environment where we think default rates are increasing, a vast majority of those defaults are well telegraphed. And so when we're underwriting the investments that we've made, we've already identified what positions we expect to default. And so it's the benefit of investing today versus having a more seasoned portfolio. Three, right now our focus has been on longer dated CLOs. The average reinvestment period left is three plus years. We currently do not have any deals that we've purchased that say, three, four, five years ago that are now exiting reinvestment period. So that's a differential as well.

Well, that's huge. I mean, most companies have sort of 25% have exited or something like that. That's a huge differentiator. And, of course, to Carla, it's great to see the name out there and, you know, the track record and really be able to utilize those resources are terrific. Really appreciate it and look forward to you continuing growth. Thanks, Matt.

Thank you. And as I see no further questions in queue, I will pass it back to Lauren for closing comments.

Thank you. We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions. And thank you for all of your support.

Have a great rest of your year. Thank you all for your participation in today's conference. This does conclude the program, and you may now disconnect. you Thank you.

Thank you.

Good day, everyone, and thank you for standing by. Welcome to the Carlyle Credit Income Fund fourth quarter ending September 30th, 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'll 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 Bazmajan, 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 went 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.

Thank you, Lauren. In connection with Carlisle becoming the advisor of the fund in July, the prior advisor liquidated 97% of the real estate portfolio at closing. As a result, almost 100% of the fund's assets was cash on the closing date. We leveraged Carlisle's longstanding presence in the CELA market as one of the world's largest CELA managers and 15-year track record in investing in third-party CELAs to deploy the cash in CCIS into a diversified portfolio in approximately two months ahead of schedule. As of September 30th, our portfolio consisted of 24 unique CELA equity investments managed by 19 different collateral managers sourced entirely in the secondary market. We targeted recent ventures of Tier 1 and Tier 2 managers with ample time remaining in the reinvestment period. Most of these portfolios have attractive cost of capital, and with active management and time left in the reinvestment periods, managers can look to take advantage of periods of volatility to improve portfolios or reposition them. We utilize our in-house credit expertise, including over 20 credit analysts and portfolio managers to complete bottom-up fundamental analysis on the underlying portfolios of the CLOs. The following are some key stats on the portfolio as of September 30th. The portfolio generates a gap yield of 18.16% on a cost basis, supported by cash-on-cash yields of 26% on the October quarterly payments based on CCIS purchase price. We expect cash yields to remain strong due to elevated base rates and continued increase in the weighted average spread of the portfolios as limited new issue volume is at higher spreads. The weighted average years left in reinvestment period is three years. The weighted average junior over-collateralization cushion of 4.98%. A healthy cushion to offset the expected increase in defaulted loans. The weighted average spread of the online portfolio was 3.7%. The percentage of loans rated triple C by S&P was 5.7%. providing a fair amount of cushion below the 7.5% CCC limit in CLOs. As a reminder, once a CLO has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower fair market value in rating and C recovery rates and reduces over-qualification cushions. The percentage of loads trading below 80 was limited at 3.7%. Now I'll turn it over to Nelson, our CFO, to discuss the financial results.

Thank you, Nischal. Today I will begin with the review of our fourth quarter earnings. Total investment income for the fourth quarter was $2.2 million, or $0.20 per share. Total expenses for the quarter was $3.6 million. Total net investment loss for the fourth quarter was $1.4 million, or $0.14 per share. Net asset value as of September 30th was $8.42 per share, a 1.8% increase from the 827 when Carla took over as the investment advisor. Our net asset value is based on the bid side mark we received from a third party on the CLO portfolio. We currently have one legacy real estate asset remaining in the portfolio. The fair market value of the loan is $2 million. We are currently in discussions with several parties to exit this position while maximizing proceeds. Subsequent to fiscal year end, we put into place and at-the-market offering program that will allow us to efficiently and accretively issue common stock once the stock trades above that asset value. Fourth quarter earnings do not represent the expected earnings for CCEA on a go-forward basis due to the following. First, we ramped the initial portfolio throughout the fourth quarter. Therefore, all of our investments have not earned a full quarter's worth of income. We did not achieve our leverage target of 0.25 times, 0.4 times debt plus preferred to total assets until late November. The issuance of the Series A term preferred stock is very creative, as the coupon is 8.75%, while our portfolio cap yield is 18.16%. The preferred is also flexible capital with a five-year maturity and no financial covenants. CCIF procured significant non-recurring expenses in conjunction with the transaction, totaling $1.9 million. Such non-recurring expenses included legal, accounting, and advisory fees. We estimate operating expenses excluding management fees, incentive fees, and costs of preferred will be in the 0.5 to 0.6 million range per quarter going forward. We expect that the current dividend policy of 9.94 cents per month will be covered by our GAAP net investment income on a go-forward basis. The monthly dividend is further supported by cash on cash yield of 26% received on the October quarterly payments based on CCIF's purchase price. The quarterly October cash payments total $5.81 million compared to $1.17 million payment for the October 2023 dividend. With that, I will turn it back to Lauren.

Thanks, Nelson. We believe the fund is now positioned to provide CCIF investors with an attractive dividend yield that is expected to be fully covered by GAAP net investment income through exposure to a diversified portfolio of CLO equity positions. Our approach allows us to remain focused on disciplined underwriting, prudent portfolio construction, and conservative risk management. I'd now like to hand the call over to the operator to take your questions. Thank you.

As a reminder, to ask a question, you will need to press star, one, one on your telephone and wait for your name to be announced. To withdraw your question, please press star, one, one again. Please stand by while we compile the Q&A roster.

Our first question comes to the line of Miki Schleyen with Ladenburg-Thalmann.

Good afternoon, everyone. The first question relates to the outlook for the fund in terms of, well, more specifically, your outlook for the CLO equity market and loan markets for 2024. You did mention that you expect default rates to regress towards historical averages, but what other trends are you expecting for next year?

Sure. So we do expect default rates to increase to historical averages, so closer to the 2% to 3%. And we're also expecting continued downgrades in the market. That said, where loan prices are trading today, if you look at where they were before Ukraine, we're still at a significant discount. So there's probably room for price appreciation during 2024 in the loan market.

Yeah, and Mickey, good to hear from you. On the CLO side, given our expectation that we're going to see defaults increase to historical averages, at least in the first half of the year, we expect CLO spreads to stay relatively flat. That's what most of the industry analysts, excuse me, research analysts are predicting. So based on that, we think the current arbitrage on primary equity is going to continue to be on the tighter end of the historical range. But we still think that there will be periods of volatility, which will allow for more print and sprints on the primary side. On the secondary side, we think it's a very attractive environment, given cash on cash yields are elevated on a historical basis. and we think the periods of volatility will create opportunities to make investments at this kind of prices.

Nishal, in terms of the primary market, the bulk of the activity this year has been in what some folks refer to as captive funds. Besides tighter spreads amongst CLO liabilities, which may or may not happen, are there other factors that you're watching that could unlock a more normalized primary market?

Yeah, so to think about that, there's two ways to really generate the return for CO equity. One is just the spread between the underlying loans and the CO debt. So you can either have CO debt tighten, or conversely, you could have loan spreads increase. We're already at seeing elevated levels on the primary market on the loan side, but it's limited issuance. We don't think that part of the equation is really going to materially change from here. The other thing that could happen, and what we saw a fair amount of in 2022 and pockets in 2023, is when you have periods of volatility where loan prices decline and the COO manager is able to rent portfolios at discounted prices, which can create attractive opportunities for SEAL equity.

That's a good point. Nishal, in terms of the outlook for the fund, I realize the advantages or the attractiveness of investing in positions that still have a long reinvestment period. But what sort of cash yields are you seeing in positions for post-reinvestment CLOs? And is that something you're considering adding to the portfolio?

Yeah, that's a really good question. So one, I want to mention that our cash on cash yields based on the October payments that we received. As a reminder, CLO equity typically pays two to three weeks after quarter end. So most of our existing positions receive payments in October. Cash-on-cash yield was around 26%. Now, the deals that we invested in were primarily longer-dated CLOs, typically have two-plus years left in reinvestment. I believe the average in our portfolio is three years. On shorter-dated deals or deals that are out of reinvestment period, the cash-on-cash yield can be somewhat volatile depending on where in the life cycle the deal is out of reinvestment. Has it already amortized down significantly or is it just exiting reinvestment? But you can see even more elevated cash on cash yields for deals out of reinvestment. But those typically last for a short period because over time, repayments and prepayments that do come in in the underlying portfolios will start paying down the debt and will start suppressing your cash on cash payments. So we do think it's a part of the market that typically not focused on by many investors. It's something that we're taking a closer look at because we think the relative risk adjusted returns can be attractive versus longer dated. And the fact that Carlisle is one of the largest dealer managers, so we have significant credit expertise in-house, we can do the bottoms up analysis on that type of profile, which we do for longer dated as well, but for shorter dated deals, The portfolios tend to become a little more static, so it's even more important to do the fundamental analysis on the portfolio.

I understand. Thanks for that initial. My last question relates to the dividend. Your portfolio is generating yields sort of in line with your peers. Your operating expenses will ultimately be similar to theirs as well. I do understand that your cost of debt capital is higher than theirs given that they issued, you know, when the markets were more borrower-friendly. But do you see a path for your dividend yield to, you know, climb towards what they're offering since your fund is currently the lowest yielding or your stock is the lowest yielding investment in the CLO closed-end space?

Well, like Mickey, um, right, right now we have a dividend yield.

Um, I think it's around 15 and a half, 16%, depending on, on where the stock price is. Uh, you're correct that Eagle point, Australia, our two peers are trading at wider levels, but we looked at it on a historical basis over the past two years. Um, I think the average for, for both those funds was probably more than a 15, 16% range on the dividend yield standpoint. So we've faced our current dividend policy based on where they've historically traded, just looking at two years' data. Right now, I think the sub-industry is training at historically higher dividend yields. So can we achieve dividend yields of where our peers are? I don't think we can comment on that, but I don't think we need to be there because we think the markets do normalize. And this is looking at data starting in 2022, right, so in periods of volatility. So if our peers start trading at levels that we've seen over the past two years back to the average, we think our stock compares well to those numbers.

I appreciate that, Nishal. Those are all my questions this afternoon. Thanks for your time.

Thank you, Mickey.

As a reminder, that is star one one to ask a question. Our next question will come from the line of Matthew Howlett with B. Riley.

Hey, thanks for taking my question. Hey, look, it's a great time to be deploying capital in this environment. And you mentioned really the up in quality focus tier one and tier two managers. Can you just comment on in those buckets what you look for in the manager? I mean, is it track record? Is it what the sectors that they're focused on, sectors they stay away from, just a little more color on the up in quality and why you feel that tier one, tier two is the place to be.

Yeah, Matt, nice to hear from you. Appreciate the question. So we spend a fair amount of time still in this thing, kind of the sealant manager universe. There's about 150 different sealant managers in the market today. And we look at various different factors. We actually rank COO managers based on, I think it's 96 different performance metrics at this point. So we definitely focus on track record. The benefit of COOs is they're very transparent vehicles. You can pull track record information from a COO from this past month, any COO on the market, or you can pull those the information and the track record for CELO that was issued back in 1999. So there's an abundant amount of data. We do very much focus on track record. Given the CELOs are actively managed vehicles, you're ultimately investing with the manager and looking at consistent performance over periods of volatility and periods of different credit cycles. We look for Consistent management teams as well. So not only is there a consistent track record, but making sure that the portfolio managers have longevity in their seats. We look for deep teams, making sure they have a robust industry analyst team supporting that as well. So those are the few things that we look at, but ultimately track record is ultimately what we focus on.

Well, you're capturing a high enough yield that you said, what, 18% on a cost basis, and you're up in quality. It just seems like that's the risk-adjusted return, the place to be. And then maybe, Nishal, can you comment on, I mean, resets? I mean, there's not a lot going on from what we can tell me. How should investors think about that if that was to open up next year? That's just embedded upside in the portfolio, the way you think about it?

Yeah, that's exactly right. So resets have been limited in 2022 and 2023 as debt spreads have widened. So it's really been uneconomical for a vast majority of deals to be reset because you're refinancing your debt at a wider or higher price or higher cost. And so it's been limited. So right now, 40% of the market is going to be out of reinvestment period by the end of this year. If CELO market and debt spreads do rally and they tighten, we do think there's going to be a surge in resets. And that's only upside. We don't forecast resets or refinancing in our portfolios, but there are certainly deals that we currently have invested in that would definitely benefit from resets. So I agree, it's just upside from here.

Great. I guess this last question, a bigger picture question, I mean, you know, Mickey touched on it in terms of differentiation from the outstanding peers out there. I mean, you know, you have obviously, on one hand, I mean, you guys are ramping in this opportune environment. You don't own things at a higher basis like the others. The debt's obviously a little bit higher, but I'm assuming that that's callable at some point and you become more of an issue where your cost of capital is going to go down, you get bigger. Just, we touched on the differentiation issue. you know, with this vehicle, it's Carlisle, we all know the name, you know, versus some legacy stuff out there. And is it just cleaner that you, you know, you're, you're ramping in a better environment and you can pick and choose higher quality managers and still get very great yields or just, just a different, and going forward, just differentiation, just maybe highlight on, you know, how you're going to differentiate what you're going to do differently for investors.

Yeah, I think you touched on a couple of them. One, just being part of the larger Carlyle platform. Carlyle today is close to $400 billion, including $150 billion in global credit. But the fact that Carlyle is one of the largest CELA managers globally, why that's so important is the team that manages CCIF, we can leverage that expertise when analyzing CLOs, because CLOs are effectively pools of 200 or 300 loans, and so we can leverage our industry analysts to do bottoms-up analysis. So I think that's a definite benefit. We have benefited from the fact that we are ramping this portfolio in periods of volatility. And so we've been able to make purchases at historically discounted prices, which has been attractive I think the other benefit to that is while we mentioned we're in a default rate environment where we think default rates are increasing, a vast majority of those defaults are well telegraphed. And so when we're underwriting the investments that we've made, we've already identified what positions we expect to default. And so it's the benefit of investing today versus having a more seasoned portfolio. Three, Right now, our focus has been on longer dated CLOs. The average reinvestment period left is three plus years. We currently do not have any deals that we've purchased to say three, four, five years ago that are now exiting reinvestment period. So that's a differential as well.

Well, that's huge. Most companies have sort of 25% have exited or something like that. That's a huge differentiator. And of course, Carl, it's great to see the name out there and the track record and really to be able to utilize those resources are terrific. Really appreciate it and look forward to you to continue growth. Thanks, Matt.

Thank you. And as I see no further questions in queue, I will pass it back to Lauren for closing comments. Thank you.

We look forward to speaking to everyone next quarter, if not sooner. Please feel free to reach out if you have any questions. And thank you for all of your support.

Have a great rest of your year. Thank you all for your participation in today's conference. This does conclude the program and you may now disconnect.