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spk02: good day and thank you for standing by welcome to the carlisle credit income fund third quarter 2024 financial results and investor conference call at this time all participants are in a listen-only mode please be advised that today's conference is being recorded after the speaker's presentation there will be a question and answer session to ask a question please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again I would now like to hand the conference over to your speaker today, Jane Tsai.
spk06: Good morning and welcome to Carlyle Credit Income Fund's third quarter 2024 earnings call. With me on the call today is Lauren Beth Majan, CCIF's Chief Executive Officer, Nishal Mehta, CCIF's Portfolio Manager, and Nelson Joseph, CCIF's Chief Financial Officer. Last night, we issued our Q3 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.
spk05: Thanks, Jane. Good morning, everyone, and thank you all for joining CCIF's quarterly earnings call. I would like to start by reviewing the fund's activities over the last quarter. We maintained our dividend at 10.5 cents per share, which is now declared through November 2024, equating to a 14.8% annualized dividend based on the share price as of August 20, 2024. The monthly dividend is supported by 81 cents of recurring cash flows. New CLO investments during the quarter totaled $12.2 million, with a weighted average gap yield of 19.5%. The aggregate portfolio weighted average gap yield was 20.3% as of June 30th. I would like to highlight what Carlyle has accomplished since July 14th, 2023, the date that we took over as the investment advisor of CCIF. We rotated the portfolio into a diverse pool of CLO equity positions, generating a gap yield of 20.3%, with no CLOs that have an over-collateralization cushion of less than 3%. We met the fund's leverage targets by issuing flexible and long-term preferred stock without any financial covenants or mark-to-market provisions. We increased the dividend from 8% to 16.5%, based on the fund's net asset value as of July 31, 2024. Pivoting to the current market environment, I'd like to discuss what we've observed in both the loan and CLO equity markets over the quarter. Continued tightening in CLO liability spreads has supported the arbitrage for CLO equity, resulting in higher new issue volumes. CLO market activity accelerated this past quarter with $53 billion of issuance. which is the most active quarter on record. CLO issuance through June totals $101 billion, an increase of 80% year over year. We believe the continued tightening of CLO liabilities has fueled heightened CLO refinancing and reset activity. Year-to-date through June, CLO refinancing and reset volumes of $39 billion and $73 billion have materially outpaced 2023's $5 billion and $20 billion. As a reminder, refinancings reduce the financing cost of the CLO, while resets extend the reinvestment period to a fresh five years typically. Within CCIF's portfolio, we have completed six resets year-to-date through June, extending the reinvestment period of these CLOs. Despite the increase in CLO reset activity, 32% of the CLO market is still out of their reinvestment period. though CCIF's portfolio only has two CLO positions outside of their reinvestment period, both of which were opportunistic purchases. While the implications of elevated interest rates may pressure borrowers' ability to service existing debt, Carlisle's U.S. loan portfolio of over 600 borrowers has remained resilient in the first quarter and is a valuable proxy for assessing the overall health of borrowers in the broadly syndicated loan markets. While the average sales growth in the loan portfolio decreased versus the prior quarter, EBITDA growth of 9.5% is the second highest quarter that we have experienced since the Russian invasion of Ukraine in 2022. We believe this trend indicates that management teams are focused on cost containment and cash preservation as they operate in a higher rate environment. The LSTA index default rate, excluding distressed exchanges, declined to 90 basis points at the end of July, compared to 1.1% at the end of March. While we believe restructuring risk remains, as approximately 4.4% of the loan market trades below 80, the loan default rate, inclusive of distressed exchanges, also moderated, from 3.5% at the end of March to 3.3% by the end of July. We anticipate loan defaults will remain manageable for CLO managers, including and excluding distressed exchange activity. Retail loan inflows and robust CLO new issuance activity of the LSTA index closed at a two-year high of 96.99 in mid-May, before declining to 96.59 by the end of June. Performing issuers capitalized on market conditions, and year-to-date through June, loan repricing activity totals $383 billion, which accounts for about 30% of borrowers in the loan market. So through these repricings, borrowers have reduced spread on the underlying loans by an average of 54 basis points year-to-date. While a decrease in underlying asset spreads negatively impacts CLO arbitrage, including a 15 basis point year-to-date decline in the weighted average spread of CCIF loan portfolio, these impacts were partially offset by continued tightening in liability spreads. Furthermore, we remain encouraged by CLO equity's attractive cash-on-cash distributions. Median CLO equity payments in July totaled 4.1%, a slight decline from April payments, but still higher than the 10-year average of 3.8%. I'll now hand the call over to Nishal Mehta, our portfolio manager, to discuss our deployment and the current portfolio.
spk09: Thank you, Lauren. We continue to leverage Carlyle's long-standing presence in the CLO market as one of the world's largest CLO managers with a 15-year track record of investing in third-party CLOs to manage a diversified portfolio of CLO equity investments. As of June 30th, our portfolio comprised 41 unique CLO investments managed by 24 different Carlyle managers, sourced primarily in the secondary market. We continue to target recent ventures of Tier 1 and Tier 2 managers with ample time remaining in the reinvestment period in the secondary market. Given continued spread compression and supportive CLO arbitrage, we've also assessed CLO equity primary investments, given these loan portfolios are generally cleaner than those sourced in the CLO secondary markets. We continue to leverage our in-house credit expertise of 23 U.S. and 9 European credit research analysts to complete bottoms-up fundamental analysis on the underlying loan portfolios of CLOs. As Lauren mentioned, the CELO market was impacted by the record repricing wave, which has reduced the weight average spread of CCIF's portfolio by 10 basis points over the quarter and 15 basis points year-to-date, and loan prices declining by 15 basis points over the quarter. The combination of these two factors resulted in a decline in CELO equity prices across the market, including in CCIF's portfolio. We do not believe the quarter-over-quarter decline in net asset value raises any concerns for our existing portfolio, and we remain pleased with the high-quality positions that we have invested in across Tier 1 and Tier 2 CLO managers. The following represent some key stats on the portfolio as of June 30th. The portfolio generates a gap yield of 20.26% on a cost basis, supported by cash-on-cash yields of 31.68%. on CLO investment quarterly payments received during the quarter. The weighted average years left in reinvestment period is approximately 2.4 years, providing CLO managers the opportunity to capitalize on periods of volatility to improve portfolios or reposition them. We believe the weighted average junior over-collarization cushion of 4.17% is a healthy cushion to offset a gradual increase in defaulted loans with zero CLOs with an over-collarization cushion of less than 3%. The weight average spread of the underlying portfolios was 3.55%. The percentage of loans rated CCC by S&P was 6.3%, below the 7.5% CCC limit in CELAs. As a reminder, once a CELA has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower fair market value, radiating to recovery rates and reduces the overall collateralization cushion. The percentage of loans trading below 80 was limited at 4.2%. I will now turn it over to Nelson, our CFO, to discuss the financial results.
spk11: Thank you, Nischal. Today I will begin with a review of our third quarter earnings. Total investment income for the third quarter was $7.4 million, or $0.58 per share, compared to $7.3 million, or $0.61 per share, in the prior quarter. Total expenses for the quarter were $3.4 million, compared to $3.3 million in the prior quarter. Total net investment income for the third quarter was $4 million or $0.32 per share, compared to $4 million or $0.33 per share in the prior quarter. Net asset value as of June 30th was $7.68 per share, compared to $7.88 per share in the prior quarter. Our net asset value and valuations are based on a bid size mark we received from a third party on 100% of the CLO portfolio. We continue to hold one legacy real estate asset in the portfolio. The total fair market value of the loan is 2.2 million. The third party we engaged to sell our position continues to work through the process to maximize proceeds. During the third quarter, we sold 680,000 of our common shares in connection with the ATM offering program at a premium to NAB for net proceeds of 5.5 million, resulting in a one cent per share increase. We view the ATM program as an efficient and a creative way to grow the fund. The cash-on-cash yield of 31.68% on the CLO investment quarterly payments resulted in $0.81 of recurring cash flow. The quarterly cash payments received in July total $10 million, or approximately $0.77 per share, compared to $4 million of dividends paid in the quarter, or $0.31.5 per share. With that, I'll turn it back to Lawrence.
spk04: Thanks, Nelson.
spk05: We continue to believe that CCIF is well-positioned to provide investors with an attractive dividend yield and total return. We remain focused on applying a disciplined CLO investment and monitoring process to analyze the underlying collateral in each CLO equity position in which we invest. I'd now like to hand the call over to the operator to take your questions.
spk02: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
spk03: One moment for questions. Our first question comes from Mickey Shulian with Leidenberg.
spk02: You may proceed.
spk10: Yes, good morning. You mentioned in your prepared remarks that weakness in CLO equity valuations has been partially driven by lower loan spreads. But as we know, CLOs are naturally hedged, and CLO equities are still delivering strong cash yields. So what do you think it will take for the CLO equity market to finally show some strength?
spk09: Yeah, Mickey, good morning. It's Nishal. So I would say CLO equity markets we still think are – showing strength. You have seen a slight decline with the combination of the repricing waves that we've seen in the market. As Lauren mentioned, about 30% of the borrowers in the market have repriced their loans. That reduces the way average spread. And then just through the end of the quarter at 630, you saw loan prices also decline about 10, 15 cents. With that being said, the April payment dates quarterly payments were the highest that we had seen since the third quarter of 2016. You saw some decline in the July payment dates, but it was still very healthy. I think overall, we still remain very positive on the CELO markets. Given credit, we believe remains relatively stable. We believe defaults remain relatively manageable. And so we continue to believe CELO equity is remains attractive.
spk10: Initially, if I can follow up on what you just said, what was the main cause for the July payments to be lower than the April payments?
spk09: Yeah, I think it's two factors. One, as these repricings with 30% of the market repricing, that reduces the weight average spread on the underlying loan portfolios and CLOs. And that ultimately results in a reduction in the quarterly payments. The other is you do have kind of seasonality of variance. And the fact that on average, CLOs hold around 2% to 3% of bonds. Those bonds typically pay on a six-month cycle. And so most bonds paid as part of the April payment date. And so it yields may see an uptake in the October payment date just from the bonds paying on their six-month cycle.
spk10: Yeah, I understand. I've seen that in other funds. One last question for me, Nisha. We saw the dynamic between one-month and three-month LIBOR, which is now SOFR, obviously, impact CLO equity cash flows as the Fed tightened. Now that it seems fairly certain the Fed will start to loosen monetary policy, how should we think about that one-month, three-month spread impacting CLO equity cash flows as the Fed starts to cut rates?
spk09: Yeah, it's a great question because it's the first time we're going to be in a potentially prolonged rate cut environment since 2008, so about 16 years ago. If you think about when rates were increasing, I think we had the issue that three-month LIBOR or SOFR was significantly higher than one month. Now you're seeing the inverse of that. I think today, three-month SOFR is locked in at 14 basis points. As a reminder, all of the liabilities are typically paid at three-month SOFR, whereas I think anywhere from 60% to 70% of the underlying loans are based off one-month SOFR. And so you may see a slight mismatch occur again. Right now it's somewhat favorable since our assets are using a higher SOFR rate, but it's really going to come down to the timing of the rate cuts and to the extent of the rate cuts where you can see some impact. We're not expecting rate cuts of 75 basis points, at least for the foreseeable future. Obviously, things might change. So I don't think we're going to see the same impact that we saw when rates were increasing pretty substantially.
spk10: I appreciate that. Those are all my questions this morning. Thank you for your time.
spk09: Thanks, Mickey.
spk02: Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Matthew P. Hollett with B. Reilly. You may proceed.
spk13: Oh, hi, Michel. Hi, Lauren. Thanks for taking my question. First, on primary versus secondary, we've heard some market participants sort of come out and say secondary spreads have just tightened. We're just focused on primary. You seem to be pretty much – are the spreads that wide? Or just give us an update on what you're seeing in each channel.
spk09: Yeah, Matt, good morning. I think the one thing I'd start off with saying is we try to avoid making just generic statements across both markets because there's obviously a lot of different profiles and different type of opportunities between primary and secondary. I think we'd concur that primary is attractive now that the CELO debt costs have continued to climb over the year in line with the spread tightening we've seen across fixed income markets. That's helped improve the equity arbitrage, so that's made primary attractive again, so we continue to look at that. On the secondary side, we still find pockets of opportunity. We're not buying every single secondary opportunity that we see, but every so often we do find secondary opportunities that we continue to believe are attractive. I do agree that overall you've seen some tightening. and the overall expected returns for secondary CELA equity, largely in line with the tightening we've seen throughout the year across fixed income markets. But we still find opportunities that we think present good relative value in risk-adjusted returns.
spk13: Great. And just on the side note, with the primary market picking up, are you going to start doing like accumulation facilities? We've seen that, you know, with some of the other folks out there, I mean, in big size.
spk09: Yeah, so as we do primary, we will enter into the loan accumulation facilities. You'll probably see, I think we're currently in one or two right now. So we expect that to increase as we increase activity in the primary market.
spk13: Okay, and it sounds like that's going to be enhanced returns. It seems like it's a real boost to the other folks that do it in bigger size. But, you know, just something to look forward to. A second question is, what is the refi reset opportunity today in the portfolio? Can you quantify? You have a lot of 22. It seems like that's the sweet spot. What can you tell us in terms of the opportunity here as you look down the pipeline?
spk09: Yeah, so look, out of the 41 sealers that we hold, we have refinanced or reset six of them. We actually maintain trackers that we update on a periodic basis, trying to identify which refis and resets make sense. And we update it based on movements and COO financing costs. So we are in active dialogue with a handful of the managers where we hold positions within CCIF. So we expect to continue activity in the reset and refi market for this portfolio.
spk13: Great, so you said only six of the 41.
spk09: Yeah, and I think that's largely a function of the fact that this is a relatively newer ramps portfolio. So compared to some of our peers that have more seasoned portfolios, a higher percentage of their portfolios that are out of reinvestment period, we only have two of those which we opportunistically invested in, taking advantage of our bottoms-up approach in terms of analyzing the ongoing loans. So I think just the overall opportunity set within our portfolio may be smaller than our peers just because our portfolio is less seasoned. And given it's less seasoned, there may be fewer refinancing and reset opportunities.
spk13: Gotcha. Okay. And the next question, the OC level looked like it picked up in July. I mean, pretty significantly. Any rationale for that? Is this?
spk09: Yeah, I think it's like, as Lauren mentioned, we think credit fundamentals continue to remain stable. And so with the portfolio that we hold and the managers that we've partnered with, they continue to maintain what we consider to be very strong OC cushions. Over 4%, none of our CLOs have an OC cushion of less than 3%. And so I think you're always going to see slight variations quarter over quarter, but I don't think there's anything specific pointing to that increase.
spk13: Great. Last question. Look, you've done a great job rotating the portfolio. I guess you have just one more small real estate asset to sell. You've lowered your cost of capital. I look at that preferred bond and it's trading around 26. When can you call that if it's an eight and three quarter coupon? Is this two years away? I mean, how long can you call that and refinance it? Obviously, your cost of capital should keep on going down, and that's going to really accelerate growth.
spk12: But when can you call that?
spk09: Yeah, so when we issued that last October, I believe, market standard is for a five-year bond issuance to have a two-year non-call. So it's something that we will look at closer to the fourth quarter of 2025. We agree it looks very expensive, but I think it's still very attractive given five-year tenor and a lot of flexibility it provides us. Obviously, spreads have tightened in since then, and as we've
spk13: seasoned as a fund as we've taken over um you've seen the uh the trading uh price increased pretty substantially so it's yielding substantially lower than the current coupon well that's that's not that far away it's a little over a year and that's going to be a big impact if you could do something low below eight or even you know low seven so it's something to uh really keep an eye on because i think it's going to be able to have a huge boost to earnings if you can get down so we'll look forward to that appreciate the uh the questions and, you know, great quarter. Keep up the good work.
spk03: All right. Thanks, Matt.
spk02: Thank you. I would now like to turn the call over to Lauren Basmedian for any closing remarks.
spk05: 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 thanks again for all the support.
spk02: Thank you. This concludes the conference. Thank you for your participation.
spk03: You may now disconnect. Hello. Thank you. Thank you for watching. Bye.
spk02: good day and thank you for standing by welcome to the carlisle credit income fund third quarter 2024 financial results and investor conference call at this time all participants are in a listen-only mode please be advised that today's conference is being recorded after the speaker's presentation there will be a question and answer session to ask a question please press star 1 1 on your telephone and wait for your name to be announced to withdraw your question please press star 1 1 again I would now like to hand the conference over to your speaker today, Jane Tsai.
spk01: Good morning and welcome to Carlyle Credit Income Fund's third quarter 2024 earnings call.
spk06: With me on the call today is Lauren Beth Majan, CCIF's Chief Executive Officer, Nishal Mehta, CCIF's Portfolio Manager, and Nelson Joseph, CCIF's Chief Financial Officer. Last night, we issued our Q3 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.
spk05: Thanks, Jane. Good morning, everyone, and thank you all for joining CCIF's quarterly earnings call. I would like to start by reviewing the fund's activities over the last quarter. We maintained our dividend at 10.5 cents per share, which is now declared through November 2024, equating to a 14.8% annualized dividend based on the share price as of August 20, 2024. The monthly dividend is supported by 81 cents of recurring cash flows, New CLO investments during the quarter totaled $12.2 million, with a weighted average gap yield of 19.5%. The aggregate portfolio weighted average gap yield was 20.3% as of June 30th. I would like to highlight what Carlyle has accomplished since July 14th, 2023, the date that we took over as the investment advisor of CCIF. We rotated the portfolio into a diverse pool of CLO equity positions, generating a gap yield of 20.3%, with no CLOs that have an overcollateralization cushion of less than 3%. We met the fund's leverage targets by issuing flexible and long-term preferred stock without any financial covenants or mark-to-market provisions. We increased the dividend from 8% to 16.5%, based on the fund's net asset value as of July 31, 2024. Pivoting to the current market environment, I'd like to discuss what we've observed in both the loan and CLO equity markets over the quarter. Continued tightening in CLO liability spreads has supported the arbitrage for CLO equity, resulting in higher new issue volumes. CLO market activity accelerated this past quarter with $53 billion of issuance, which is the most active quarter on record. CLO issuance through June totals $101 billion, an increase of 80% year over year. We believe the continued tightening of CLO liabilities has fueled heightened CLO refinancing and reset activity. Year-to-date through June, CLO refinancing and reset volumes of $39 billion and $73 billion have materially outpaced 2023's $5 billion and $20 billion. As a reminder, refinancings reduce the financing cost of the CLO, while resets extend the reinvestment period to a fresh five years typically. Within CCIF's portfolio, we have completed six resets year-to-date through June, extending the reinvestment period of these CLOs. Despite the increase in CLO reset activity, 32% of the CLO market is still out of their reinvestment period. The CCIF portfolio only has two CLO positions outside of their reinvestment period, both of which were opportunistic purchases. While the implications of elevated interest rates may pressure borrowers' ability to service existing debt, Carlisle's U.S. loan portfolio of over 600 borrowers has remained resilient in the first quarter and is a valuable proxy for assessing the overall health of borrowers in the broadly syndicated loan market. While the average sales growth in the loan portfolio decreased versus the prior quarter, EBITDA growth of 9.5% is the second highest quarter that we have experienced since the Russian invasion of Ukraine in 2022. We believe this trend indicates that management teams are focused on cost containment and cash preservation as they operate in a higher rate environment. The LSTA index default rate, excluding distressed exchanges, declined to 90 basis points at the end of July compared to 1.1% at the end of March. While we believe restructuring risk remains as approximately 4.4% of the loan market trades below 80, the loan default rate inclusive of distressed exchanges also moderated from 3.5% at the end of March to 3.3% by the end of July. We anticipate loan defaults will remain manageable for CLO managers including and excluding distressed exchange activity. Retail loan inflows and robust CLO new issuance activity of the LSTA index closed at a two-year high of 96.99 in mid-May, before declining to 96.59 by the end of June. Performing issuers capitalized on market conditions, and year-to-date through June, loan repricing activity totals $383 billion, which accounts for about 30% of borrowers in the loan market. So through these repricings, borrowers have reduced spread on the underlying loans by an average of 54 basis points year-to-date. While a decrease in underlying asset spreads negatively impacts CLO arbitrage, including a 15 basis point year-to-date decline in the weighted average spread of CCIF loan portfolio, these impacts were partially offset by continued tightening in liability spreads. Furthermore, we remain encouraged by CLO equity's attractive cash-on-cash distributions. Median CLO equity payments in July totaled 4.1%, a slight decline from April payments, but still higher than the 10-year average of 3.8%. I'll now hand the call over to Nishal Mehta, our portfolio manager, to discuss our deployment and the current portfolio.
spk09: Thank you, Lauren. We continue to leverage Carlyle's long-standing presence in the CLO market as one of the world's largest CLO managers with a 15-year track record of investing in third-party CLOs to manage a diversified portfolio of CLO equity investments. As of June 30th, our portfolio comprised 41 unique CLO investments managed by 24 different collateral managers sourced primarily in the secondary market. We continue to target recent ventures of Tier 1 and Tier 2 managers with ample time remaining in the reinvestment period in the secondary market. Given continued spread compression and supportive CELO arbitrage, we've also assessed CELO equity primary investments, given these loan portfolios are generally cleaner than those sourced in the CELO secondary markets. We continue to leverage our in-house credit expertise of 23 U.S. and 9 European credit research analysts to complete bottoms-up fundamental analysis on the underlying loan portfolios of CELOs. As Lauren mentioned, the CELO market was impacted by the record repricing wave, which has reduced the weight average spread of CCIF's portfolio by 10 basis points over the quarter and 15 basis points year-to-date, and loan prices declining by 15 basis points over the quarter. The combination of these two factors resulted in a decline in CELO equity prices across the market, including in CCIF's portfolio. We do not believe the quarter-over-quarter decline in net asset value raises any concerns for our existing portfolio, and we remain pleased with the high-quality positions that we have invested in across Tier 1 and Tier 2 CLO managers. The following represent some key stats on the portfolio as of June 30th. The portfolio generates a gap yield of 20.26% on a cost basis, supported by cash-on-cash yields of 31.68%. on CLO investment quarterly payments received during the quarter. The weighted average years left in reinvestment period is approximately 2.4 years, providing CLO managers the opportunity to capitalize on periods of volatility to improve portfolios or reposition them. We believe the weighted average junior over-collarization cushion of 4.17% is a healthy cushion to offset a gradual increase in defaulted loans with zero CLOs with an over-collarization cushion of less than 3%. The weight average spread of the underlying portfolios was 3.55%. The percentage of loans rated CCC by S&P was 6.3%, below the 7.5% CCC limit in CELAs. As a reminder, once a CELA has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower fair market value, with radiancy recovery rates and reduces the overall collateralization cushion. The percentage of loans trading below 80 was limited at 4.2%. I will now turn it over to Nelson, our CFO, to discuss the financial results.
spk11: Thank you, Nischal. Today I will begin with a review of our third quarter earnings. Total investment income for the third quarter was $7.4 million, or $0.58 per share, compared to $7.3 million, or $0.61 per share, in the prior quarter. Total expenses for the quarter were $3.4 million, compared to $3.3 million in the prior quarter. Total net investment income for the third quarter was $4 million, or $0.32 per share, compared to $4 million, or $0.33 per share in the prior quarter. Net asset value as of June 30th was $7.68 per share, compared to $7.88 per share in the prior quarter. Our net asset value and valuations are based on a bid size mark we received from a third party on 100% of the CLO portfolio. We continue to hold one legacy real estate asset in the portfolio. The total fair market value of the loan is 2.2 million. The third party we engaged to sell our position continues to work through the process to maximize proceeds. During the third quarter, we sold 680,000 of our common shares in connection with the ATM offering program at a premium to NAB for net proceeds of 5.5 million, resulting in a one cent per share increase. We view the ATM program as an efficient and a creative way to grow the fund. The cash-on-cash yield of 31.68% on the CLO investment quarterly payments resulted in $0.81 of recurring cash flow. The quarterly cash payments received in July total $10 million, or approximately $0.77 per share, compared to $4 million of dividends paid in the quarter, or $0.31.5 per share. With that, I'll turn it back to Lawrence.
spk04: Thanks, Nelson.
spk05: We continue to believe that CCIF is well-positioned to provide investors with an attractive dividend yield and total return. We remain focused on applying a disciplined CLO investment and monitoring process to analyze the underlying collateral in each CLO equity position in which we invest. I'd now like to hand the call over to the operator to take your questions.
spk02: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again.
spk03: One moment for questions. Our first question comes from Mickey Schoonen with Leidenberg.
spk02: You may proceed.
spk10: Yes, good morning. You mentioned in your prepared remarks that weakness in CLO equity valuations has been partially driven by lower loan spreads. But as we know, CLOs are naturally hedged and CLO equities are still delivering strong cash yields. So what do you think it will take for the CLO equity market to finally show some strength?
spk09: Yeah, Mickey, good morning. It's Nishal. So I would say CLO equity markets, we still think are key. showing strength. You have seen a slight decline with the combination of the repricing waves that we've seen in the market. As Lauren mentioned, about 30% of the borrowers in the market have repriced their loans. That reduces the way the average spread. And then just through the end of the quarter at 6.30, you saw loan prices also decline about 10, 15 cents. With that being said, the April payment dates quarterly payments were the highest that we had seen since the third quarter of 2016. You saw some decline in the July payment dates, but it was still very healthy. I think overall, we still remain very positive on the CELO markets. Given credit, we believe remains relatively stable. We believe defaults remain relatively manageable. And so we continue to believe CELO equity is remains attractive.
spk10: Initially, if I can follow up on what you just said, what was the main cause for the July payments to be lower than the April payments?
spk09: Yeah, I think it's two factors. One, as these repricings with 30% of the market repricing, that reduces the weight average spread on the underlying loan portfolios and CLOs. that ultimately results in a reduction in the quarterly payments the other is you do have kind of seasonality of variance and the fact that on average silos hold around two to three percent of bonds those bonds typically pay on a six month cycle and so most bonds paid as part of the april payment date and so it yields may see an uptake in the October payment date just from the bonds paying on their six-month cycle.
spk10: Yeah, I understand. I've seen that in other funds. One last question for me, Nishal. We saw the dynamic between one-month and three-month LIBOR, which is now SOFR, obviously, impact CLO equity cash flows as the Fed tightened. Now that it seems fairly certain the Fed will start to loosen monetary policy, how should we think about that one-month, three-month spread impacting CLO equity cash flows as the Fed starts to cut rates?
spk09: Yeah, it's a great question because it's the first time we're going to be in a potentially prolonged rate cut environment since 2008, so about 16 years ago. If you think about it, when rates were increasing, I think we had the issue that three-month LIBOR or SOFR was significantly higher than one month. Now you're seeing the inverse of that. I think today, three-month SOFR is locked in at 14 basis points. As a reminder, all of the liabilities are typically paid at three-month SOFR, whereas I think anywhere from 60% to 70% of the underlying loans are based off one-month SOFR. And so you may see a slight mismatch occur again. Right now it's somewhat favorable since our assets are using a higher SOFR rate, but it's really going to come down to the timing of the rate cuts and to the extent of the rate cuts where you can see some impact. We're not expecting rate cuts of 75 basis points, at least for the foreseeable future. Obviously, things might change. So I don't think we're going to see the same impact that we saw when rates were increasing pretty substantially.
spk10: I appreciate that. Those are all my questions this morning. Thank you for your time. Thanks, Mickey.
spk02: Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Matthew P. Hollett with B. Reilly. You may proceed.
spk13: Oh, hi, Michel. Hi, Lauren. Thanks for taking my question. First, on primary versus secondary, we've heard some market participants sort of come out and say secondary spreads have just tightened. We're just focused on primary. You seem to be pretty much – are the spreads that wide? Or just give us an update on what you're seeing in each channel.
spk09: Yeah, Matt, good morning. I think the one thing I'd start off with saying is we try to avoid making just generic statements across both markets because there's obviously a lot of different profiles and different type of opportunities between primary and secondary. I think we'd concur that primary is attractive now that the CELO debt costs have continued to climb over the year in line with the spread tightening we've seen across fixed income markets. That's helped improve the equity arbitrage, so that's made primary attractive again, so we continue to look at that. On the secondary side, we still find pockets of opportunity. We're not buying every single secondary opportunity that we see, but every so often we do find secondary opportunities that we continue to believe are attractive. I do agree that overall you've seen some tightening. and the overall expected returns for secondary CELA equity, largely in line with the tightening we've seen throughout the year across fixed income markets. But we still find opportunities that we think present good relative value in risk-adjusted returns.
spk13: Great. And just on the side note, with the primary market picking up, are you going to start doing like simulation facilities? We've seen that, you know, with some of the other folks out there, I mean, in big size.
spk09: Yeah, so as we do primary, we will enter into the loan accumulation facilities. You'll probably see, I think we're currently in one or two right now. So we expect that to increase as we increase activity in the primary market.
spk13: Okay, and it sounds like that's going to be enhanced returns. It seems like it's a real boost to the other folks that do it in bigger size. But, you know, just something to look forward to. A second question is, what is the refi reset opportunity today in the portfolio? Can you quantify? You have a lot of 22. It seems like that's the sweet spot. What can you tell us in terms of the opportunity here as you look down the pipeline?
spk09: Yeah, so look, out of the 41 sealers that we hold, we have refinance or reset six of them. We actually maintain trackers that we update on a periodic basis, trying to identify which refis and resets make sense. And we update it based on movements and COO financing costs. So we are in active dialogue with a handful of the managers where we hold positions within CCIF. So we expect to continue activity in the reset and refi market for this portfolio.
spk13: Great, so you said only six of the 41.
spk09: Yeah, and I think that's largely a function of the fact that this is a relatively newer ramped portfolio. So compared to some of our peers that have more seasoned portfolios, a higher percentage of their portfolios that are out of reinvestment period, we only have two of those which we opportunistically invested in, taking advantage of our bottoms-up approach in terms of analyzing the underlying loans. So I think just the overall opportunity set within our portfolio may be smaller than our peers just because our portfolio is less seasoned. And given it's less seasoned, there may be fewer refinancing and reset opportunities.
spk13: Gotcha. Okay. And the next question, the OC level looked like it picked up in July. I mean, pretty significantly. Any rationale for that? Yeah.
spk09: Yeah, I think it's like, as Lauren mentioned, we think credit fundamentals continue to remain stable. And so with the portfolio that we hold and the managers that we've partnered with, they continue to maintain what we consider to be very strong OC cushions. Over 4%, none of our CLOs have an OC cushion of less than 3%. And so I think you're always going to see slight variations quarter over quarter, but I don't think there's anything specific pointing to that increase.
spk13: Great. Last question. Look, you've done a great job rotating the portfolio. I guess you have just one more small real estate asset to sell. You've lowered your cost of capital. I look at that preferred bond and it's trading around 26. When can you call that if it's an eight and three quarter coupon? Is this two years away? I mean, how long can you call that and refinance it? I mean, obviously, your cost of capital should keep on going down, and that's going to really accelerate growth.
spk12: But when can you call that?
spk09: Yeah, so when we issued that last October, I believe, market standard is for a five-year bond issuance to have a two-year non-call. So it's something that we will look at closer to the fourth quarter of 2025. We agree it looks very expensive, but I think it's still very attractive given five-year tenor and a lot of flexibility it provides us. Obviously, spreads have tightened in since then, and as we've
spk13: seasoned as a fund as we've taken over um you've seen the uh the trading uh price increased pretty substantially so it's yielding substantially lower than the current coupon well that's that's not that far away it's a little over a year and that's going to be a big impact if you could do something low below eight or even you know low seven so it's something to uh really keep an eye on because i think it's going to be able to have a huge boost to earnings if you can get down so we'll look forward to that appreciate the uh
spk02: uh the questions and uh you know great great quarter keep up the good work all right thanks matt thank you i would now like to turn the call over to lauren bass median for any closing remarks 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 thanks again for all the support thank you this concludes the conference thank you for your participation you may now disconnect
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