Carlyle Credit Income Fund

Good day, and thank you for standing by. Welcome to the Carlisle Credit Income Fund First Quarter 2025 Financial Results and Investor Conference Call. At this time, all participants are in 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nichelle Mehta, Principal Executive Officer and President. Please go ahead.

Good morning and welcome to Carlyle Credit Income Funds First Quarter 2025 Earnings Call. With me on the call today is Lauren Basmazian, CCIF's Chief Executive Officer, and Nelson Joseph, CCIF's Chief Financial Officer. Last night, we issued our Q1 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 undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risk and uncertainties, including those identified in the risk factors section of our annual report on the Forum 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 forelooking statements at any time. With that, I'll turn the call over to Lauren.

Thanks, Nischal. Good morning, everyone, and thank you for joining CCIF's quarterly earnings call. I'd like to start by reviewing the fund's activities over the last quarter. We maintained our monthly dividend at 10.5 cents per share, or 16.4% annualized, based on the share price as of February 24, 2025, which is now declared through May of 2025. The monthly dividend is supported by core net investment income of 44 cents per share and 70 cents of recurring cash flows for the quarter. New COO investments during the quarter totaled 12 million with a weighted average gap yield of 16.8%. The aggregate portfolio weighted average gap yield was 17.2% as of December 31st. We sold 1.37 million of our common shares in connection with the ATM offering program for a total net proceeds of $11 million. We also issued $20 million of 7.5% convertible preferreds in January 2025. Shifting focus to the current market environment, I'd like to discuss the trends we've observed in both the loan and the CLO markets. 2024 was the busiest year of issuance in the 25-plus year history of the CLO market, supported by tightening spreads and a stable backdrop for credit. In 2024, CLO issuance totaled $200 billion, an increase of 76% year over year, and a 9% increase from the previous record set for new issuance in 2021. CLO managers addressed outstanding liabilities through resets and refinancings, which totaled $224 billion and $83 billion, respectively. Reset values exceeded the previous record of $140 billion set in 2021, highlighting the preference for managers and equity investors to extend the lifespan of existing CLOs. In the fourth quarter, broader fixed income markets remained stable through the presidential election and proposed policy shifts. While the Fed cut rates by 25 basis points in both November and December, Investor demand for CLOs remains steadfast, as the market expects rates to remain higher for longer. Within CCIF's portfolio, we completed 13 accretive resets and one refinancing in 2024, extending the reinvestment period and cash flows of these CLOs. Despite the increase in CLO reset activity, roughly 25% of the CLO market is still out of the reinvestment period, though CCIF's portfolio only has one CLO nearing the end of its reinvestment period, which was then reset in the first quarter of 2025. We continue to work with CLO managers to optimize the CLO investments in our portfolio through refinancings or resets. Fourth quarter cash-on-cash distributions average 4% based on a par purchase price, consistent with the asset class's historical annualized mid- to high-teens return. Loan repricing activity totaled $771 billion in 2024, reducing the weighted average spread of CLO portfolios by approximately 25 basis points and impacting CLO equity cash yields and valuations. The impact from repricings was partially mitigated by resets and refinancings, which reduced the weighted average cost of CLO liabilities and take advantage of near record types for CLO debt spread since the financial crisis. Fundamentals in the U.S. leveraged loan market continue to remain strong. For Carlisle's U.S. loan portfolio of over 600 borrowers, free cash flow generation remains a key focus. In the third quarter of 2024, approximately 72% of borrowers produced free cash flow, the highest percentage over the past year. And while borrower EBITDA growth has outpaced sales growth over the last 18 months, the two are starting to converge. In the third quarter of 2024, borrower EBITDA grew at 8% compared to revenue growth of 6%. Additionally, the average borrower interest coverage ratio improved quarter over quarter, rising from 3.3 times to 3.7 times, due primarily to growing EBITDA, loan repricing, and the impact of rate cuts. The market continues to experience a divergence between in-court and out-of-court bankruptcy activity. While the LSTA US Loan Index LTM default rate of 92 basis points is less than half of its long-term average, the default rate inclusive of distressed exchanges remains elevated at 4.5%. We believe distressed exchanges will continue to be the predominant form of defaults. The recovery rates for these transactions are typically higher than traditional defaults. That said, while the market default rate increased to 4.5%, CCIF's portfolio only experienced a default rate, inclusive of distressed exchanges, of 1.5%. Based on economic data and research published by Carlyle's chief economist, Jason Thomas, market expectations for rate cuts have declined. However, we believe loan borrowers are well positioned to adapt to this recalibration given the resilience they've shown over the past two years of elevated interest rates. Through the rest of 2025, we maintain a positive outlook for the loan market and CLO equity. I'll now hand the call over to Nishal Mehta, who was recently named principal executive officer and president of CCIF, to discuss our deployment and the current portfolio.