Good day, and thank you for joining us. Welcome to Carlyle Secured Lending, Inc.'s Third Quarter 2025 Earnings Call. Please note that today's conference is being recorded. I will now turn the call over to your speaker, Nishil Mehta, Head of Shareholder Relations. Please proceed.

Good morning, and welcome to Carlyle Secured Lending's conference call to discuss the earnings results for the third quarter of 2025. I'm joined by Justin Plouffe, our Chief Executive Officer; and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10-Q and issued a press release with a presentation of 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 the 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. Today's conference call may include forward-looking statements reflecting our views with respect to, among other things, the expected synergies associated with the merger, the ability to realize the anticipated benefits of the merger and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our 10-K and 10-Qs. These risks and uncertainties could cause the actual results to differ materially from those indicated. CGBD 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 an additional tool to evaluate ongoing results and trends and to review our performance without giving effect to 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 events, including the effects on incentive fees and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP net investment income, 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 last night with the SEC on Form 8-K. With that, I'll turn the call over to Justin, CGBD's Chief Executive Officer.

Thanks, Nishil. Good morning, everyone, and thank you all for joining. I'm Justin Plouffe, the CEO of the Carlyle BDCs and Deputy CIO for Carlyle Global Credit. On today's call, I'll give an overview of our third quarter 2025 results, including the quarter's investment activity and portfolio positioning. I will then hand the call over to our CFO, Tom Hennigan. During the third quarter, CGBD benefited from strong originations across the platform, but was also impacted by historically tight market spreads. We generated $0.37 per share of net investment income for the quarter on a GAAP basis and $0.38 after adjusting for asset acquisition accounting. Our Board of Directors declared a fourth quarter dividend of $0.40 per share. Our net asset value as of September 30 was $16.36 per share compared to $16.43 per share as of June 30. CGBD had another strong quarter of deployment, funding $260 million of investments into new and existing borrowers, resulting in net investment activity of $117 million after accounting for repayments and $48 million of investments sold to our joint venture, MNCF. Total investments at CGBD increased from $2.3 billion to $2.4 billion during the quarter. Looking ahead, net new supply has picked up recently, and the Q4 pipeline continues to build. Year-over-year, deal flow at the top of the funnel increased nearly 30% over the last 2 months. We expect activity will continue to increase, supported by declining base rates driving lower funding costs, normalization of tariff and regulatory policy and resilient expectations for economic growth. Although there have been recent bankruptcies in the news, CGBD has no direct or indirect exposure to First Brands or Tricolor, and we continue to have confidence in the credit quality of our portfolio. As a reminder, CGBD consistently exhibits below average nonaccruals and a strong track record of NAV preservation. Based on June 30 reporting, CGBD's nonaccruals were 120 basis points below the public BDC average at cost, and nonaccruals at CGBD decreased by 140 basis points at cost between June 30 and September 30. Overall, we remain selective in our underwriting approach, seeking to provide first lien loans to quality companies. We remain focused on portfolio diversification while managing target leverage. As of September 30, our portfolio was comprised of 221 investments in 158 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments and 95% of our investments were in senior secured loans. Immediate EBITDA across our portfolio was $98 million. As always, discipline and consistency drove performance in the third quarter, and we expect these tenets to drive performance in future quarters. With that, I'll now hand the call over to our CFO, Tom Hennigan.

Thank you, Justin. Today, I'll begin with an overview of our third quarter financial results, then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the third quarter was $67 million, in line with prior quarter, driven by a stable average portfolio size, a modest change in total portfolio yields and lower accretion of discounts from repayment activity. Total expenses of $40 million increased slightly versus prior quarter, primarily as a result of higher interest expense due in part to the 2030 senior notes transitioning from fixed to the floating rate swap. The result was net investment income for the third quarter of $27 million or $0.37 per share on a GAAP basis and $0.38 per share after adjusting for asset acquisition accounting, which excludes the amortization of the purchase price premium from the CSL II merger and the purchase price discount associated with the consolidation of Credit Fund II. Our Board of Directors declared the dividend for the fourth quarter of 2025 at a level of $0.40 per share, which is payable to stockholders of record as of the close of business on December 31. This dividend level represents an attractive yield of over 12% based on the recent share price. In addition, we currently estimate we have $0.86 per share of spillover income generated over the last 5 years to support the quarterly dividend, which represents more than 2/4 of the existing $0.40 quarterly dividend. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $3 million or $0.04 per share, partially attributable to unrealized markdowns on select underperforming investments. Turning to credit performance. We continue to see overall stability in credit quality across the portfolio. At the beginning of July, we closed the successful restructuring of Maverick, which was the main contributor to nonaccruals decreasing to 1.6% of total investments at cost and 1% at fair value. And while our nonaccrual rates may fluctuate from period to period, we're confident in our ability to leverage the broader Carlyle network to achieve maximum recoveries for underperforming borrowers. Moving to our JV. We continue to focus on maximizing both asset growth and returns at the MMCF JV. We closed an upsize to the credit facility in October. The upsize enables us to increase our investments in the JV, which is achieving a run rate mid-teens ROA for CGBD. Separately, we continue to work on optimizing our 30% nonqualifying asset capacity and are currently in advanced discussions with a potential institutional partner on a new joint venture. And based on our current outlook for earnings, we're comfortable with the current dividend policy of $0.40 per share. I'll finish by touching on our financing facilities and leverage. In October, we raised a new 5-year $300 million institutional unsecured bond at an attractive swap-adjusted rate of SOFR + 231. We used the proceeds in part to repay in full the higher-priced legacy CSL III credit facility. In addition, we announced that we will redeem the $85 million baby bond effective December 1. In the aggregate, these capital structure optimizations will lower our weighted average cost of borrowing by 10 basis points, extend the maturity profile of our capital structure with limited maturities until 2030 and reduce reliance on mark-to-market leverage. Our debt stack is now 100% floating rate, matching up primarily floating rate assets, meaning CGBD is well positioned in advance of future interest rate cuts. At quarter end, statutory leverage was 1.1x towards the midpoint of our target range. And given our current strong liquidity profile and targeted incremental asset sales to our MMCF JV, we're well positioned to benefit from the expected pickup in deal volume in future quarters. With that, I'll turn the call back over to Justin.

Thanks, Tom. As we approach the middle of the fourth quarter, our portfolio remains resilient. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels. Our pipeline of new originations is active and with a stable high-quality portfolio, CGBD 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. At the platform level, we continue to build out the Carlyle Direct Lending team. As a reminder, Alex Chi will be joining Carlyle as Partner, Deputy Chief Investment Officer for Global Credit and Head of Direct Lending in early 2026. We also hired a new head of origination during the quarter and continue to build out the broader origination function with an additional hire in Q3 and one more slated to join the team in Q4. All 3 will expand our existing capabilities, combined with the expected increase in overall capital markets activity, we are constructive on our expectations for activity and deployment going forward. I'd like to now hand the call over to the operator to take your questions. Thank you.

Our first question comes from the line of Finian O'Shea from Wells Fargo Securities.

Tom, could you provide some insight into the top line for this quarter? I believe SOFR remained quite stable. The nonaccrual was minimal. I'm curious about the mix, whether it's related to the average portfolio, one-time fees, or any other notable factors.

Yes. Sure, Fin. Thanks for the question. When you look at the top line, it's $67 million last quarter and this quarter, but last quarter, it rounded down. This quarter, it rounded up. When you look at the delta, that's a very modest decline, it's primarily OID accretion on repaid investments. That's really the biggest bridge point in terms of the difference between the two. When you look at fee income, it was up modestly. And in the aggregate, the average daily principal balance of loans outstanding was pretty flat across the quarter. That's what we will see that we should get a benefit in the coming quarter just based on that average daily outstanding investment balance. So that was neutral from second quarter to third quarter. But it was really the OID accretion that was the biggest point on the top line.

Okay. Was the 10 basis points you mentioned regarding borrowing spreads solely related to the baby bond, or did it include some post-quarter changes as well? Is that a comprehensive guidance or just pertaining to that one bond? I'm sorry, I didn't catch that.

No, it was mainly due to items that occurred after the quarter ended. We repaid our legacy CSL III facility, which was priced at SOFR plus 2.5%. The adjusted rate for the baby bond is SOFR 3.14%. We settled the CSO facility repayment at the start of October, and the baby bond will be repaid on December 1. The primary change is the new institutional deal we executed, which is swap adjusted to 2.31%, exceeding SOFR. Overall, this results in a difference of about 10 basis points across the capital structure.

Okay. And one last question from me. I'll return to the queue afterward. I know we discussed this last quarter, but regarding the $0.40 declared in the fourth quarter, you mentioned being comfortable for now. Could you clarify what "for now" means? Specifically, how far out into the SOFR curve does that extend? Additionally, I recall you mentioned the 30% bucket and some rotating spreads; how do the fundamental or octane drivers balance against the Fed's decline in your outlook for coverage?

Sure. Interestingly, our outlook and our comfort with the $0.40 are focused on the near term, particularly over the next few quarters, where we anticipate the most challenges due to the SOFR curve. We expect earnings to reach their lowest point in the coming quarters. In the longer term, with our current joint venture and a potential second one, we recognize that it will take time to develop those investments. For instance, in our existing joint venture, we recently increased the credit facility from $600 million to $800 million to provide us with additional resources for ongoing investments. We have also agreed with our partner to boost our equity commitments from $175 million to $250 million each. Furthermore, we are exploring innovative low-cost financing options to maintain a low debt cost of capital for this venture. This strategy allows us to grow our assets from $800 million to $1.6 billion over time. Currently, with a 15% return on assets for CGBD, we believe we can potentially increase that by 300 to 500 basis points. While there are many positive factors at play with this joint venture, it will take time to invest over the coming quarters. Regarding the second joint venture, we've made significant progress with a promising partner, leveraging Carlyle's expertise in global credit and loan investments. We aim to provide more updates to the market and hopefully close that deal within this quarter, but it will also require time to ramp up.

Our next question comes from the line of Erik Zwick from Lucid Capital Markets.

Just looking at Slide 5 of your deck this morning, over the past year or so, the concentration of first lien debt has increased to about 86% of the total portfolio now with the second lien investment funds coming down. We've been hearing from others that second lien debt potentially is not as attractive today given tighter spreads. So just curious, are we likely to see this trend continue in your view of first lien debt continuing to become a larger concentration in the portfolio?

Yes, it's Justin. Thank you for the question. We are currently operating in a tight spread environment across credit markets. At this time, we don’t see much value in second liens. Overall, in private credit markets, the compensation for taking on significant risk has decreased over the past 24 months. Our strategy has always prioritized defensive, diversified first lien investments, while being opportunistic with second liens. However, at the moment, we do not find the opportunities compelling. Therefore, you will likely see our portfolio continue to focus on first lien investments, and I don't anticipate any changes to that strategy in the near term. Of course, if a credit cycle occurs, there may be opportunities that arise then. But right now, our emphasis remains on maintaining a defensive first lien portfolio.

I appreciate the commentary there. And then just given your comments about the pipeline continuing to grow, I guess I'm curious what the kind of average yield looks like in the pipeline today versus the current weighted average yield in the portfolio. Is there potentially pressure there as the portfolio turns? Or what are your thoughts there?

Erik, it's Tom. We are experiencing ongoing pressure on spreads relative to the portfolio's current position. For the third quarter, our weighted average spread was slightly above 500 basis points, which is lower than in previous quarters. This is influenced by our mix of non-U.S. transactions, which was about 15% in the second quarter. Typically, we expect a premium of 75 to 100 basis points for these non-U.S. transactions, so we had a bit of extra spread premium then. In the third quarter, our originations were robust, but only about 5% were from European sources, with just one deal contributing. Therefore, we are around 500 basis points now. However, there continues to be overall pressure when comparing the portfolio yield to the new originations, which hover around a weighted average of 500. For a brand-new leveraged buyout not currently in the portfolio, we're seeing yields in the 4 range in today's market. For CGBD, we plan to invest in those types of transactions, particularly in our broader direct lending business. As those assets drift and their spreads fall below 500, they become strong candidates for our joint venture.

And last question for me, just looking at the chart on Slide 12, the risk rating distribution, a nice quarter-over-quarter improvement in those 2-rated assets. I'm just curious about the drivers there. Was it kind of industry related or more company specific, if you're able to provide any commentary?

Increase in the 2 rated, Erik, from above $100 million. Yes. Primarily a couple of deals transitions from the 3 category to the 2 category. The biggest component is just net originations for the quarter. And those continue to be in our main categories of health care, software, technology and financial services. Those continue to be 2 of our larger categories, and that's where most of our originations in the third quarter.

Our next question comes from the line of Sean-Paul Adams from B. Riley Securities.

Congratulations on the impressive quarter. However, when reviewing the nonaccruals, it appears that quarter-over-quarter nonaccruals have decreased significantly, while the portfolio rating has improved from 4 to 5. Are the remaining nonaccruals indicative of a substantial shift in recovery expectations, or is it simply a result of a covenant change or the length of time since payment?

It's Tom again. I'll respond a bit differently to describe the changes in the categories. The largest decline in the category was due to the restructuring of Arch Maverick, which is now called Align Precision. This was the main part of that category. We successfully restructured and wrote off some debt, but now that transaction is reflected in the second and third categories. The transition from the fourth to the fifth category mainly involves one credit that remains in nonaccrual and is currently undergoing restructuring. The shift from four to five indicates our acknowledgment that we are restructuring it and writing off debt. Unlike Maverick, I believe there is a path forward with the lead agent, which will take a few years but could lead to a strong recovery, possibly a complete recovery on that investment. There were two loans, with one being the majority piece, while four to five referred to investments that are restructuring, currently in payment default, or on nonaccrual. We also think that in the long term, a full return of capital is unlikely.

Our next question comes from the line of Robert Dodd from Raymond James.

Regarding the potential second joint venture, do you and your partner envision it as being similar in style to the existing one? In your comments, you noted the possibility of leveraging the global platform more. Will the second venture be structurally alike, but focus on different target assets than the first one, thereby diversifying overall exposure, or will it participate in the same type of deals while diversifying the locations of those deals?

Right. Rob, this contemplated JV, the structure will be very similar to the existing JV in terms of 50-50 governance, will be 50-50 economic ownership. It is in loans, but it will be a different investment strategy, really 0 overlap to the current JV.

Got it. And then just you sound obviously more optimistic about the outlook and 30% increase in deal flow for a couple of months is pretty good, how is the quality of those deals and kind of like the terms? I mean, are you seeing the initial look at those, to your point, 4 handles on new LBOs. I mean, is that what we're looking at? Are the terms consistent with that in terms of the pipeline build? And is the quality of the assets you're seeing, it's one thing for 475 if leverage is lower. But if leverage is getting fuller and fuller, and I don't know that to be the case, those terms might not be so attractive. I mean any color you can give on like the constituents of the pipeline in terms of how it looks?

Rob, I think that the pipeline consists, I think, of high-quality borrowers very much in the same makeup industry-wise as our current portfolio in terms of focus on whether it be software, technology, health care, business and consumer services, financial services. I would say it's very much industry deal-specific in terms of leverage. The one key attribute, though, and it was the case back in '23 when leverage was lower. It's been the case now that there's somewhat of reopening in the markets is the LTV investing in the first lien loans, our LTV consistently is 38% to 42% on average, perhaps even lower for some of the technology deals. If we're looking at industrial deals, it may be a bit higher because of the lower growth and lower enterprise value multiples. But overall, that's really the one common attribute is that loan to value. So we've got significant coverage where loan to value is typically 40%.

Our next question comes from the line of Melissa Wedel from JPMorgan.

I want to ensure I understand your comments and views on the joint venture correctly. It appears that, given the expansion of the existing venture and the potential for a second one, it will take time for these to scale. Therefore, when considering the earnings potential of the portfolio, we should not expect these to have an immediate impact on earnings. Is that correct?

Yes. Melissa, that's a very good synopsis of it. When we look at the current quarter, the next quarter, next 2 quarters, we know the rate cut math is easy for us, every 100 basis points is $0.03 per share per quarter. Those JVs are going to take more time, multiple quarters. So we see an earnings trough in the next couple of quarters and then it starts to build back up second half of '26 into '27.

And of course, that will all depend on activity in the market as well. If we see elevated activity, perhaps we can ramp faster. But we're thinking about these JVs as long-term drivers of increased income, not necessarily as a quarter-to-quarter fix.

We have $0.86 of spillover over two quarters, and for now, we feel comfortable paying out that spillover if necessary. However, we are focused on our long-term goals.

Okay.

Thanks, everybody, for joining the call. We really appreciate it, and we will speak with you next quarter. Take care.

This concludes today's conference call. Thank you for participating. You may now disconnect.