Carlyle Secured Lending, Inc. Q4 FY2024 earnings call

• Fourth quarter benefited from stable credit performance and higher base rate environment, with net investment income of $0.47 per share and annualized yield over 11% based on December 31 NAV. Board declared total fourth quarter dividend of $0.45 per share. Net asset value as of December 31 was $16.80 per share.
• Direct lending platform had record deployment in fourth quarter and full year 2024, growing portfolio by ~$100 million, with close rate on new deals ~5% over last twelve months, 94% 2024 originations in first lien investments and average loan to value under 40%.
• Proposed strategic affiliate merger with Carlyle Secured Lending 3 to deliver increased scale, liquidity, eliminate preferred stock dilution overhang, and reduce costs while continuing existing investment strategy.
• Obtained investment grade ratings from Fitch and Moody's, allowing issuance of first-ever institutional bond deal.
• Took steps in first quarter 2025 to optimize joint ventures, including consolidating MMCF 2 onto balance sheet and extending investment period of MMCF 1 by three years and closing new credit facility.
• Started 2025 focusing on increasing origination activity, prioritizing credit performance and maintaining diversified portfolio.

Carlyle Secured Lending, Inc. generated net investment income of $0.47 per share in the fourth quarter, representing an annualized yield of over 11% based on December 31 NAV. The direct lending platform achieved record highs for deployment in the fourth quarter and full year of 2024, growing its portfolio by about $100 million in the quarter. 94% of 2024 originations were in first lien investments with an average loan to value under 40%. As of December 31, the portfolio was comprised of 189 investments in 135 companies across more than 25 industries, with the average exposure in any single portfolio company less than 1% of total assets and 93% of investments in senior secured loans. The median EBITDA across the portfolio was $88 million. Revenue contribution details: Net investment income was $24 million or $0.47 per share for the quarter, total investment income was $56 million, total expenses were $31 million, and total aggregate realized and unrealized net loss was about $4 million for the quarter.

• Merger with Carlyle Secured Lending 3 on track to close by March 31, 2025, subject to stockholder approval and other customary closing conditions. Anticipated to provide increased scale, liquidity, reduce aggregate costs, and accrete to earnings and NAV per share.
• Market demand for private credit remains strong in 2025, focusing on sourcing transactions with significant equity cushions, conservative leverage profiles, and attractive spreads.
• Preferred stock exchange by Carlyle at NAV, stockholder-friendly, demonstrating support for Carlyle Secured Lending, Inc.'s success.

• Risks associated with forward-looking statements, including timing and likelihood of merger closing, expected synergies, ability to realize merger benefits, and future operating results, with inherent risks and uncertainties that could cause actual results to differ materially.
• Credit performance risks, including potential fluctuations in non-accruals and need to work with sponsors and management teams for underperforming borrowers.
• Uncertainties related to joint venture optimizations, such as execution of transactions and impact on earnings profile.
• Financing and leverage risks, including potential changes in financing structure affecting cost and flexibility.

Q: Hi, everyone. Good morning. Just a question on the JV. I think, Tom, you said it all frees up the unqualified asset bucket capacity. Are you suggesting you might do something else there, or should we expect a reramp of the first JV or perhaps a new and do a similar one, like, will that be replaced with a similar thing with nothing or with something else?

A: Hey, Finian. Good morning. Thanks for the question. Regarding the two JVs, on MMCF 2, that's our second smaller JV. That was the one that we closed in 2020, which is really more of a static type vehicle. So taking those balance sheet assets back on balance sheet, that's about $70 million investments that now is a reduction in the non-qualifying bucket. The JV 1, we do anticipate based on extending that relationship by three years. And inking in the process of inking a very attractive credit facility, we're going to look to ramp up that facility materially in the future. Based on the higher leverage profile under that new credit facility, we actually anticipate at least in the near term of having a distribution of equity, so a return of capital from that vehicle as well to create even more capacity. So overall, we'll look over time to put more equity in that vehicle, but at least in the near term, we'll actually have a return of capital we should see in the first quarter from both JVs. In terms of the future, you know, we're always working on different things, and there's nothing in the very near term hopper. But, certainly, we've got the flexibility now as we have very strategic conversations with partners in the marketplace. Something we've got the flexibility and we've got some ideas that we're working on, but nothing imminent right now.

Q: Good morning. Thanks for taking my questions. I was curious in the fourth quarter, was there any outside sort of fee income or prepayment income that we should be aware of?

A: Hey, Melissa. It's Tom. When you look at the combination of fee income and OID acceleration, it was actually probably lower than our historical average by about a penny per share. One thing I'll note is that in anticipation of winding down or taking that JV 2 on balance sheet, you said that we had a pad of an incremental dividend from that JV that runs for the JV income line.

Q: Good morning, everyone. What was the dollar amount of that incremental dividend related to the joint venture too in anticipation of the wind down? Thank you.

A: Hey, Derek. It was about $1.2 million. So net net impact on NII, about two pennies per share for the quarter. Thank you.