Logo of jester cap with thought bubble.

Image source: The Motley Fool.

DATE

Monday, May 11, 2026 at 11 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Alex Chi
  • President and Chief Financial Officer — Thomas M. Hennigan
  • Moderator — Nishil Mehta

TAKEAWAYS

  • Investment Fundings -- $217 million of investments funded, while new and incremental platform commitments totaled over $1.2 billion, reflecting platform origination growth of 14% year over year despite U.S. private equity deal activity decreasing by 25%.
  • Net Investment Activity -- Net repayments and sales led to a decrease in total investments from $2.5 billion to $2.3 billion for the quarter, attributed to $216 million in prepayments and $153 million in MMCF joint venture sales.
  • First-Lien Leverage and Spread -- Spreads on new investments widened by almost 50 basis points compared to the prior quarter's 475 basis point average, and first-lien deals were originated with leverage lower by more than a quarter turn.
  • Portfolio Diversification -- Exposure to any single company averaged under 60 basis points of total investments, with investments spanning 171 companies and more than 25 industries; 94% were in senior secured loans.
  • Net Investment Income -- $0.36 per share reported on both GAAP and adjusted bases.
  • Net Asset Value -- NAV stood at $15.89 per share at quarter end, down from $16.26 per share, primarily due to market-related valuation changes.
  • Dividend Policy -- The base dividend was reset to $0.35 per share for 2026, compared to $0.40 previously, with a targeted yield on NAV of 8.8% and a continuing supplemental dividend paying out at least 50% of excess earnings above the base.
  • Share Repurchases -- $19 million in shares repurchased during the quarter at a 26% average discount to NAV, generating $0.09 per share of NAV accretion; an additional $8 million was repurchased in Q2 to date, adding $0.05 per share of accretion.
  • MMC Joint Venture (MMCF) -- Equity commitments increased from $175 million to $250 million per partner and the credit facility upsized from $800 million to $1.2 billion at SOFR plus 170-180 basis points; MMCF had over $1 billion in investments and delivered a 15% dividend yield.
  • Structured Credit Partners (SCP) JV -- Carlyle Secured Lending, Inc. committed $150 million, targeting investment in broadly syndicated first-lien loans with no management or incentive fees, expecting a 400-500 basis point return uplift as ramp progresses.
  • Non-Accruals -- Non-accruals decreased to four borrowers at quarter end, representing only 0.9% of investments at fair value and 1% at amortized cost.
  • Leverage and Liquidity -- Statutory leverage reported at 1.25x, with net financial leverage (adjusted for unsettled MMCF sales) at 1.06x; the debt stack remained 100% floating rate with limited maturities before 2030.
  • Realized and Unrealized Losses -- Aggregate net loss for the quarter totaled $29 million, or $0.42 per share, with about two-thirds attributed to unrealized spread-widening impacts, especially in software investments; the remainder was due to credit issues in certain underperforming credits.

Need a quote from a Motley Fool analyst? Email [email protected]

RISKS

  • President and CFO Hennigan reported, "Total investment income for the first quarter was $64 million, below the prior quarter, primarily driven by a decrease in average portfolio size and a decrease in total portfolio yields as a result of lower base rates and lower spreads."
  • The reset in base dividend from $0.40 to $0.35 per share "supported by the earnings power of the current portfolio," signaling ongoing yield pressure on existing assets.
  • Management expects earnings to reach a low point in the second quarter and only rebound as recently ramped joint ventures contribute more meaningfully, indicating near-term earnings headwinds.
  • CFO Hennigan said, "aggregate realized and unrealized net loss for the quarter was about $29 million, or $0.42 per share," with more than half due to "unrealized losses from widening spreads across the broader portfolio, including software investments, driven by overall market volatility."

SUMMARY

Carlyle Secured Lending, Inc. (CGBD +0.35%) reported expanding origination activity and platform market share despite headwinds in private equity deal flow. Management stated that the environment supported wider spreads and improved documentation on new originations, contributing to a more lender-friendly climate. Share repurchase activity drove NAV accretion and reflected the Board's increased buyback program size. New and expanded joint ventures, including upsized MMCF facilities and launch of SCP, position the business to scale earnings and portfolio assets. The company expects earnings to bottom in the next quarter, then lift as joint ventures ramp and deal activity recovers.

  • Spillover income of $0.70 per share was available to support future dividends, according to management.
  • CEO Chi indicated, "Our pipeline of new originations is active, and with a stable, high-quality portfolio, Carlyle Secured Lending, Inc. stockholders are benefiting from the continued execution of our strategy."
  • MMCF equity and credit facility upsizes, along with SCP ramp, are expected to drive incremental value and dividend growth in coming quarters as market conditions stabilize.
  • Discussions suggested that a "wave of M&A activity" over the medium term could create favorable opportunities for deployment, leveraging the revitalized origination franchise.

INDUSTRY GLOSSARY

  • PIK (Payment-In-Kind): Interest or dividends paid in the form of additional securities instead of cash, often used as a credit feature in lender agreements.
  • CLO (Collateralized Loan Obligation): A structured finance vehicle pooling leveraged loans and issuing tranches to investors, used as a primary funding channel by the SCP joint venture.
  • MMCF (Middle Market Credit Fund): Carlyle's long-term joint venture vehicle co-investing in and holding middle-market loans alongside Carlyle Secured Lending, Inc.
  • SCP (Structured Credit Partners): New joint venture between Carlyle and Sixth Street BDCs to invest in syndicated first-lien loans, enhancing overall scale and fee efficiency for shareholders.
  • Net Investment Income (NII): The company's income from investments after deducting expenses, before realized and unrealized capital gains or losses.

Full Conference Call Transcript

Nishil Mehta: Good morning, and welcome to Carlyle Secured Lending, Inc.'s First Quarter 2026 Earnings Call. I am joined by Alex Chi, Carlyle Secured Lending, Inc.'s Chief Executive Officer, and Thomas M. Hennigan, our President and Chief Financial Officer. This morning, we filed our Form 10-Q and issued a press release with a presentation of our results 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.

Today’s conference call may include forward-looking statements reflecting our views with respect to, among other things, our future operating results and financial performance. These statements are based on current management expectations, estimates, and projections and involve inherent risks and uncertainties, including those identified in the Risk Factors and Cautionary Statement Regarding Forward-Looking Statements sections of our 10-Q. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Secured Lending, Inc. assumes no obligation to update any forward-looking statements at any time. During this conference call, the company may discuss certain non-GAAP measures as defined by SEC Regulation G, such as adjusted net investment income, or adjusted NII.

The company’s management believes adjusted net investment income, adjusted net investment income per share, adjusted net income, and adjusted net income per share are useful to investors as additional tools to evaluate ongoing results and trends and to review our performance without the effect of the amortization or accretion resulting from the new cost basis of the investments acquired and accounted for under the acquisition method of accounting in accordance with ASC 805 and the one-time purchase or nonrecurring investment income and expense amounts, including the effect on incentive fees, and are used by management to evaluate the economic earnings of the company.

A reconciliation of GAAP net investment income per share, the most directly comparable GAAP financial measure, to adjusted NII per share can be found in the accompanying slide presentation for this call. In addition, a reconciliation of these measures may also be found in our earnings release filed this morning with the SEC on Form 8-K. With that, I will turn the call over to Alex.

Alex Chi: Thanks, Nishil, and good morning. On today’s call, I will give an overview of our first quarter results, including the quarter’s investment activity and portfolio positioning, and provide an update on our investment outlook. I will then hand the call over to our President and CFO, Thomas M. Hennigan. Despite a complex backdrop marked by geopolitical events and market volatility, we continue to be very pleased with the consistent credit performance of Carlyle Secured Lending, Inc. and the strength of the Carlyle Direct Lending platform. In total, we funded $217 million of investments at Carlyle Secured Lending, Inc. and closed over $1.2 billion of new and incremental commitments at the platform level, reflecting a strong quarter of originations.

Despite the market volatility, our platform originations were up 14% year-over-year in the face of U.S. private equity deal activity being down nearly 25% over the same period. The Carlyle Direct Lending platform continues to take share. In addition, we are seeing signs of an increasingly attractive investment environment, with wider spreads and tighter documentation showing up in our new originations as a result of volatility and the recent rebalancing of capital supply amongst direct lenders. In the first quarter, spreads for Carlyle Secured Lending, Inc.’s new investments widened by nearly 50 basis points on average compared to the fourth quarter’s average of approximately 475 basis points, and our first-lien deals were over a quarter turn less levered at origination.

We also saw our enhanced origination team drive several wins during the quarter, including closing deals with two new private equity sponsors that we had not partnered with before. Prepayments remained elevated, with $216 million of activity during the quarter combined with $153 million in sales through our MMCF joint venture. Net investment activity drove total investments at Carlyle Secured Lending, Inc. to decrease from $2.5 billion to $2.3 billion during the quarter. Given a strong, visible pipeline and fewer expected repayments, we do expect to see portfolio growth in the second quarter.

Total investments at our MMCF joint venture increased to over $1 billion as we continue to prioritize ramping this vehicle given the enhanced returns MMCF generates for Carlyle Secured Lending, Inc. During the quarter, we generated $0.36 per share of net investment income on both a GAAP and adjusted basis. Our net asset value as of March 31, 2026 was $15.89 per share, compared to $16.26 per share as of December 31, 2025. The decrease is primarily attributable to market-related valuation factors, which Thomas will describe in more detail later. Although concern around software companies persists, we remain confident in the quality and stability of our portfolio.

The software borrowers in our book continue to grow revenue and EBITDA on a year-over-year basis. As it relates to AI disruption risk, we continue to feel comfortable with our exposure, finding no material near-term risks to our portfolio companies at this stage. We remain focused on portfolio diversification while managing target leverage. As of March 31, 2026, our portfolio was 171 companies across more than 25 industries. The average exposure to any single portfolio company was less than 60 basis points of total investments, and 94% of our investments were in senior secured loans. The median EBITDA across our portfolio was $100 million.

As always, discipline and consistency drove performance in the first quarter, and we expect these tenets to drive performance in future quarters. Looking ahead, we continue to expect a wave of M&A activity over the medium term, and we are well positioned with our revitalized origination platform to take advantage of increasing market activity and to continue taking share. Looking at our pipeline, a significant majority of deals are in old-economy sectors including industrials, aerospace and defense, healthcare, and consumer products.

While we are optimistic about the potential for a continued shift to an increasingly lender-friendly investment environment, Carlyle Secured Lending, Inc.’s current income generation continues to be impacted by lower investment yields on the current portfolio, driven by the tight market spreads of recent years. Following discussions with our Board of Directors, we have reset the base dividend to $0.35 per share for 2026, compared to our previous $0.40 per share base dividend, which equates to a dividend yield on NAV of 8.8%. We are maintaining our existing supplemental dividend policy, which targets paying out at least 50% of excess earnings above the base dividend.

This change will enable us to support a stable NAV in the near term and increases our financial flexibility and dividend coverage cushion, while also allowing us to deliver additional value to shareholders over time as the investment environment becomes more attractive and we scale our joint ventures. As manager dispersion increases, we expect the breadth of the Carlyle platform and the consistency of our performance to differentiate us through our ability to leverage Carlyle’s scale, scope of investment capabilities, and dedicated in-house investing, portfolio management, and restructuring resources. With that, I will now hand the call over to our President and CFO, Thomas M. Hennigan.

Thomas M. Hennigan: Thank you, Alex. Today, I will begin with an overview of our first quarter financial results, then I will discuss portfolio performance, before concluding with detail on our balance sheet positioning. Total investment income for the first quarter was $64 million, below the prior quarter, primarily driven by a decrease in average portfolio size and a decrease in total portfolio yields as a result of lower base rates and lower spreads. This was partially offset by higher fee income.

Total expenses of $39 million also decreased versus the prior quarter, primarily as a result of lower interest expense due to a lower outstanding debt balance and lower base rates, as well as the acceleration of debt issuance costs from the repayment of our 2028 notes during the fourth quarter. The result was net investment income for the first quarter of $25 million, or $0.36 per share, on both a GAAP basis and after adjusting for the impact of asset acquisition accounting related to the CSL III merger and consolidation of Credit Fund II, both of which closed in 2025.

Our Board of Directors declared the dividend for 2026 at a level of $0.35 per share, which is payable to stockholders of record as of the close of business on June 30, 2026. As Alex discussed, this resets the base dividend to a level supported by the earnings power of the current portfolio. With the investment environment becoming more attractive, and as we continue to deploy and scale our joint ventures, we expect to potentially deliver additional value to shareholders through the supplemental dividend. In addition, we currently estimate we have $0.70 per share of spillover income to support the quarterly dividend.

As we mentioned in prior earnings calls, we expect earnings to trough in the second quarter, and we anticipate an increase in earnings thereafter as we ramp the portfolio of both JVs. Now, given Carlyle Secured Lending, Inc. shares continue to trade at a compelling discount, we repurchased $19 million of shares at an average discount of 26% during the first quarter, resulting in $0.09 of accretion to NAV per share. We continued to repurchase shares in the second quarter, with an additional $8 million to date, which will result in an additional $0.05 per share of accretion. As a reminder, our Board approved a $100 million upsize in February, increasing the total program to $300 million.

On valuations, our total aggregate realized and unrealized net loss for the quarter was about $29 million, or $0.42 per share. About two-thirds of the decline was attributable to unrealized losses from widening spreads across the broader portfolio, including software investments, driven by overall market volatility, with the remainder due to credit-related impacts on a handful of underperforming investments. Now turning to credit performance, we continue to see overall stability in credit quality across the portfolio. Key credit stats continue to be stable, including portfolio company margins, leverage levels, and LTVs.

Although the fair value of loans utilizing PIK provisions did increase during the first quarter, the majority of our PIK is underwritten at origination or for performing borrowers—what we would consider the “good PIK.” Non-accruals decreased as of March 31, 2026, with one borrower, Alpine, completing a balance sheet restructuring during the quarter. The four remaining borrowers on non-accrual represent only 0.9% of investments at fair value and 1% at amortized cost. Moving to the Middle Market Credit Fund, or MMCF, our long-standing joint venture, we continue to focus on maximizing both asset growth and returns.

During the first quarter, we closed an upsize to the MMCF equity commitments, from $175 million to $250 million for each partner, further supporting additional ramp. In February, we closed a new $200 million financing facility for MMCF, with an attractive cost of SOFR plus 180 basis points. And last week, we closed a $400 million upsize to the existing credit facility, from $800 million to $1.2 billion, at an attractive spread of SOFR plus 170 basis points. MMCF is currently achieving a 15% dividend yield, generated through over $1 billion of investments, with no fees at the joint venture.

The equity and debt upsizes position us to continue to grow assets at the JV and increase the impact on Carlyle Secured Lending, Inc. earnings. In addition, we began ramping our new JV, Structured Credit Partners, or SCP. As a reminder, SCP is capitalized with $600 million of equity commitments from Carlyle and Sixth Street BDCs and will invest in broadly syndicated first-lien senior secured loans. The financing of these assets will be primarily via CLOs separately managed by Carlyle and Sixth Street, subject to the oversight of SCP’s board of directors.

Carlyle Secured Lending, Inc. committed $150 million of capital to the vehicle, which will not charge any management or incentive fees on the underlying JV assets, providing a potential 400 to 500 basis point uplift to total returns. In April, we were able to capitalize on market volatility and accelerated the timeline for the first two CLOs to price and close, benefiting from depressed loan prices and tight liability pricing. We expect to price and close two additional CLOs in 2026, subject to market conditions, in line with our plan to ramp at a cadence of four CLO issuances per year to ensure vintage diversification.

Over time, the JV is expected to manage approximately $67 billion of assets fee-free at SCP. We expect to grow the dividend to Carlyle Secured Lending, Inc. as the JV ramps in the coming quarters. I will finish by touching on our financing facilities and leverage. Our debt stack is 100% floating rate, matching our primarily floating-rate assets, meaning Carlyle Secured Lending, Inc. is well positioned in advance of any additional interest rate movements, and we have limited maturities until 2030. At quarter end, statutory leverage was 1.25x, and net financial leverage, after adjusting for unsettled sales of loans to MMCF, was only 1.06x.

Given our current strong liquidity profile, we believe we are well positioned to benefit from both more attractive terms for new investments and the expected pickup in deal volume in future quarters. With that, I will turn the call back over to Alex.

Alex Chi: Thanks, Thomas. As we push into the middle of the second quarter, our portfolio remains resilient, and our strategy remains unchanged. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles, and attractive spreads relative to market levels, and we expect to take advantage of improved conditions in the market with our revitalized origination platform. Our pipeline of new originations is active, and with a stable, high-quality portfolio, Carlyle Secured Lending, Inc. stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering a resilient, stable cash flow stream to our investors through consistent income and solid credit performance.

I would like to now hand the call over to the operator to take your questions. Thank you.

Operator: We will now open the call for questions. At this time, please press star 11 on your telephone. If your question has been answered and you wish to withdraw your hand, please press star 11 again. Our first question comes from Richard Shane with JPMorgan. Your line is open.

Richard Shane: Hey, thank you for taking my questions this morning. You highlighted the opportunity in terms of better origination terms. I am curious where you see us in the cycle as things start to normalize. Are we in a scenario where it is back to mid-cycle levels in terms of spreads and deal structure, or is this the classic type of market where you are able to extract premiums and especially strong terms?

Alex Chi: Thanks for the question, Richard. It feels to us that, given the rebalancing in capital supply amongst the direct lending landscape on top of the fact that there is still deal activity, there is more discipline in spreads being indicated as well as documentation. For the time being, and as we look at the pipeline and our dialogue with borrowers, we are clearly back in an environment where we are getting some spread back—our originations in the first quarter were up around 50 basis points on spreads—and we are getting a bit more OID. Documentation standards are also moving further back into lenders’ hands.

For the foreseeable future, and as we look at our pipeline, it feels like this dynamic will continue.

Operator: One moment for our next question. Our next question comes from Erik Edward Zwick with Lucid Capital Markets. Your line is open.

Erik Edward Zwick: Thanks, and good morning. I wanted to follow up on the commentary that Thomas gave. I think you mentioned that you expect earnings to trough in 2Q given the expected ramp in the JVs. You also mentioned some spread widening for the core portfolio, but it looks like 1Q new investments have a weighted average yield that is still below the average yield in the portfolio. So can that earnings trough happen even with potentially a little bit more core investment yield compression? Is that the right way to think about your commentary?

Thomas M. Hennigan: Erik, thanks for the question. I think that is right. When you look at the second quarter in particular compared to the first quarter, a couple of dynamics: Number one, overall portfolio spread continues to have a little bit of pressure, but I think that has largely worked its way through. Second, base rates—we think at least for our portfolio—the impact worked its way through in the first quarter, so absent additional rate cuts, the prior rate cuts’ impact we have felt already.

When you look at our average assets, particularly given we had some attractive sales to our JV at the end of the quarter, the average assets in the second quarter are likely to be lower than the first quarter. And the first quarter was also aided by higher-than-typical fee income—we had a couple of exits, exit fees, and prepayment fees—that probably aided the first quarter by a little bit north of a penny. As you put those together, we also anticipate we are going to start to see some ramp—particularly with our new JV with Sixth Street—in the second quarter, but that will be more of a back-half 2026 into 2027 positive.

Put that all together, and we anticipate we will trough in the quarter and then see a rebound in the third quarter.

Erik Edward Zwick: That is helpful, thanks. And then on the $152 million of assets sold to the credit fund in the quarter, how were those assets selected, and can you provide any commentary on the yields of those loans as well as the pricing?

Thomas M. Hennigan: Sure. Those are primarily late 2025 originations—regular-course deals—with spreads typically in the 450 to 475 basis point area. When we originate across our platform throughout 2025, those lower-spread transactions—typically with a four-handle—were not ones we were considering to maintain long term on the Carlyle Secured Lending, Inc. balance sheet. We were always working in concert with MMCF with the thought that we would originate directly or ultimately sell to the JV. So this was really a timing factor of ultimately transacting on those deals that we originated at market terms throughout 2025.

Operator: I am not showing any further questions at this time. I will turn the call back to Alex for any further remarks.

Alex Chi: Great. Thanks, everyone, for participating on our call. We will continue to execute, and we look forward to speaking with you when we report next quarter. Have a good day.

Operator: Thank you, ladies and gentlemen. This concludes today’s presentation. You may now disconnect, and have a wonderful day.