Carlyle Credit Income Fund

Good day and thank you for standing by. Welcome to the Carlyle Credit Income Fund fourth quarter 2024 financial results and investor conference 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, Investor Relations for CCIF. Please go ahead.

Good morning and welcome to Carlyle Credit Income Fund's fourth quarter 2024 earnings call. With me on the call today is Lauren Beth Majan, CCIF Chief Executive Officer, Nishal Mehta, CCIF Portfolio Manager, and Nelson Joseph, CCIF Chief Financial Officer. Last night, we issued our Q4 financial statements and a corresponding press release and earnings presentation discussing our results. which are available in 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. Carlisle 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, Jane. Good morning, everyone, and thank you for joining CCIS Quarterly Earnings Call. I would like to start by reviewing the fund's activities over the last quarter. We maintained our monthly dividend at $0.105 per share, or 15.2% annualized. based on the share price as of November 19th, 2024, which is now declared through February of 2025. The monthly dividend is supported by four net investment income of 45 cents per share and 70 cents of recurring cash flows during the quarter. We completed a private placement of five-year, seven and an eighth percent convertible preferred shares due 2029. Six months after issuance, the holders have the option to convert the preferred shares into common stock at the greater of NAV or the average closing price of the five previous trading dates. We issued 1.4 million of our common shares through a registered direct placement at a price above the fund's NAV. Total net proceeds from these two offerings were approximately $22.2 million. These offerings are in addition to 6.8 million of common shares issued through the ATM program. New CLO investments during the quarter totaled $39.6 million with a weighted average gap yield of 16.5%. The aggregate portfolio weighted average gap yield was 18.6% as of September 30th. Heading into the current market environment, I'd like to discuss what we've observed in both the loan and CLO equity markets over the quarter. The CLO market continues to experience strong issuance activity, supported by tightening spreads and a stable backdrop for credit. Third quarter CLO new issuance totaled $39 billion, representing a 42% increase year over year. Refinancing and reset volumes totaled $21 billion and $72 billion in the third quarter. CLO resets and refinancings are up 10 times year over year, mainly driven by the tightening of CLO liabilities. which allows SEALs to cut their borrowing costs. Resets and refinancings have been largely absent from our market during 2022 and 2023, since financing spreads were at historical highs. So there's an element of catch-up in our market today. Within CCIF's portfolio, we continue to work with CLO managers and have completed seven resets year-to-date through September, extending the reinvestment period and cash flows of these CLOs. Despite the increase in CLO reset activity, 33% of the CLO market is still out of its reinvestment period. The CCIS portfolio only has two positions outside their reinvestment period, both of which were opportunistic purchases. In September, the Federal Reserve reacted to a more normalized inflation environment and a weaker labor market by cutting rates by 50 basis points, marking its first reduction since 2020. CLO equity is modeled using a forward curve for base rates, so today's current yields take into account expectations for future rate cuts. Cash on cash returns could decline slightly if rates move lower, though borrower health should improve due to lower interest expense, which should help the credit quality of the underlying portfolios. U.S. loan borrowers demonstrated strong performance throughout the quarter. Interestingly, in-court and out-of-court bankruptcies continue to diverge. While the LSA LTM default rate of 80 basis points remains less than half of its 20-year average, the default rates inclusive of distressed exchanges remains high at 3.7%. We believe that out-of-court bankruptcies will continue to be the predominant form of default given the degradation of loan documentation. That said, recoveries for out-of-court processes have thus far been higher than recoveries in Chapter 11. The 600 plus borrowers in Carlyle's U.S. loan portfolio have generally continued to focus on free cash flow generation. We are still in the midst of third quarter earnings, but in the second quarter, borrower EBITDA growth of 9% outpaced revenue growth of 5%. At this point, we're seeing similar trends in the third quarter. Additionally, Interest coverage increased quarter over quarter to 3.3 times and is approaching the historical average of 3.9 times. Only 3% of borrowers had an interest coverage ratio of less than one time, suggesting that borrowers are navigating the higher interest rate environment well. Third quarter institutional gross loan issuance increased 61% year over year as borrowers continue to manage their respective cost of debt through repricing activity. On average, borrowers reduced spread by 50 basis points with each repricing, resulting in an overall spread decline of 20 basis points in the loan market. The spread compression is in line with what we've seen in other fixed income markets. While loan prices experienced a decline in August related to volatility in the broader markets, they rebounded to remain in line quarter over quarter, with third quarter ending at 96.71. As we approach 2025, we remain constructive on the outlook for the broadly syndicated loan and CLO asset classes. Key factors such as a resilient U.S. economy, moderating inflation, and the normalization of monetary policy support an outlook for sales growth, EBITDA growth, and reduced interest expense for our borrowers. I will now hand the call over to Nishal Mehta, our portfolio manager, to discuss our deployment and the current portfolio.