Carlyle Credit Income Fund

Good day and thank you for standing by. Welcome to the Carlyle Credit Income Fund second quarter 2024 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 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 this conference is being recorded. I would now like to hand the conference over to your speaker today, Alex Berardino. Please go ahead.

Good morning and welcome to Carlyle Credit Income Fund's second quarter 2024 earnings call. With me on the call today is Lauren Bognajan, 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 issued semi-annual financial statements and a corresponding press release and 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 semiannual report on the form and CSR. 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 Lauren.

Thanks, Alex. Good morning, everyone, and thank you for joining CCIF's quarterly earnings call. I would like to start by reviewing the fund's activity over the last quarter. We maintained our dividend at 10.5 cents per share which is now declared through August of 2024, equating to a 15.95% annualized dividend based on the share price as of May 28th. The monthly dividend is covered by CCIS second quarter net investment income of 33 cents and further supported by 64 cents of recurring cash flow. We deployed the remaining proceeds from the preferred stock offering making new CLO investments during the quarter of $20 million with a weighted average gap yield of 19.4%. The aggregate portfolio weighted average gap yield was 20.8% as of March 31st. Switching gears, I'd like to discuss the current market environment for both senior secured loans and CLO equity. Carlisle is one of the world's largest CLO managers, with over 50 billion of assets under management, providing us with differentiated insight into the Senior Secured Loan and CLO markets. CLO market activity has surged through the first four months of 2024. In total, CLO issuance through April reached $66 billion, which is a 65% increase year-over-year and the highest on record through the first four months of any year. This record-setting demand reflects the increased arbitrage and relative value versus other risk asset classes. Additionally, CLO managers are capitalizing on tighter liability spreads to refinance or reset existing CLOs. Refinancing and reset volumes of $19 billion and $39 billion, respectively, through April 2024 have already surpassed full-year 2023 volumes of $5 billion and $20 billion. As far as performance for companies, we don't have full first quarter 2024 results, but are encouraged by the roughly 50% of borrowers who have reported thus far, as well as the full fourth quarter 2023 data. During the fourth quarter of 2023, we saw EBITDA growth of 8%, which outpaced revenue growth of 5%, and 70% of borrowers produced free cash flow, demonstrating borrower focus on improving debt service. When we look at the over 600 U.S. borrowers that Carlyle managed CLOs lend to, only 2% have interest coverage under one time. The market is currently pricing in one to two rate cuts, down from the approximate seven rate cuts projected at the beginning of the year. This better reflects Carlyle's initial 2024 outlook and belief that even if we do experience rate cuts this year, we will be operating in a higher rate environment for some time. We think this is a positive for CLO equity distributions as they benefit from higher base rates as long as defaults and distressed exchanges don't increase significantly. For example, the second quarter median CLO equity distributions based on April payments were 4.8%, the highest the CLO market has experienced since the fourth quarter of 2015. That said, despite the strong distributions, we continue to experience rating agency downgrades in the loan market, oftentimes focus on contraction and borrowers' interest coverage. For example, in March, Altice France, one of the CLO market's largest single albacores, was downgraded to CCC. Downgrades may continue to pressure CCC tests and CLOs and highlight the importance of understanding the underlying collateral and the risk in each CLO equity position. I will now hand the call over to Nisha Mehta, our portfolio manager, to discuss our deployment and the current portfolio.