Carlyle Secured Lending outlines new joint venture and $300M share repurchase program amid record originations

Earnings Call Insights: Carlyle Secured Lending Inc. (CGBD) Q4 2025

MANAGEMENT VIEW

* Alex Chi, newly appointed CEO, stated that "CGBD's core investment strategy will remain the same. We're focused on stable, high-quality credits in the core and upper middle market." He emphasized plans to "continue to build out our origination engine and harness the full power of the Carlyle platform for the benefit of CGBD shareholders."
* Chi reported that "2025 was a record year of originations for both CGBD and the Carlyle Direct Lending platform," highlighting over $1.2 billion deployed at CGBD and over $7 billion of commitments at the platform level. The fourth quarter saw over $400 million of investment fundings and net investment activity of $193 million.
* The CEO announced the formation of a new joint venture, Structured Credit Partners (SCP), capitalized by four BDCs, including CGBD, which is expected to "increase diversification and portfolio yield at CGBD."
* Chi indicated a continued focus on software, stating, "Over the last 5 years, Carlyle Direct Lending has originated over $6 billion in commitments to software deals with 0 defaults."
* The Board declared a first quarter 2026 dividend of $0.40 per share.
* Thomas Hennigan, President and CFO, said, "Total investment income for the fourth quarter was $67 million, in line with prior quarter... The result was net investment income for the fourth quarter of $24 million or $0.33 per share on a GAAP basis and $0.36 per share after adjusting for the acceleration of debt issuance costs."
* Hennigan highlighted, "We repurchased $14 million of shares at an average discount of nearly 23% during the fourth quarter, resulting in $0.06 of accretion to NAV per share." The Board also approved a $100 million upsize to the repurchase program, increasing it to $300 million.

OUTLOOK

* Chi projected, "Looking ahead, we expect 2026 to be an active year as M&A activity increases."
* Hennigan stated, "We expect to see earnings trough in the first half of 2026, primarily due to the impact of the base rate cuts, but we anticipate an increase in earnings thereafter as we ramp the portfolios of both JVs."
* Management expects SCP to be "highly accretive to return on equity for CGBD," and anticipates ramping the JV to manage approximately $6 billion to $7 billion of assets fee-free.

FINANCIAL RESULTS

* CGBD reported $67 million in total investment income for the fourth quarter, consistent with the prior quarter.
* Net investment income was $24 million or $0.33 per share on a GAAP basis and $0.36 per share adjusted.
* The net asset value as of December 31 was $16.26 per share compared to $16.36 per share as of September 30.
* The company declared a dividend of $0.40 per share for Q1 2026 and estimated $0.74 per share of spillover income to support future dividends.
* Share repurchases totaled $14 million in Q4 and another $14 million in Q1 to date, nearly exhausting the original program and prompting a $100 million increase.
* Aggregate realized and unrealized net loss for the quarter was about $7 million or $0.09 per share, mainly due to unrealized markdowns on select underperforming investments.
* Nonaccruals remained relatively flat with 5 names representing 1.2% of investments at fair value.

Q&A

* Erik Zwick, Lucid Capital Markets, LLC: Asked about market share gains and competitive advantage. Chi replied, "the investment strategy here, it's not changing," and stressed leveraging the scale of the Carlyle platform.
* Zwick queried about strong deal flow in Q1 2026. Chi explained that Carlyle's presence in sectors like industrial, aerospace and defense, and health care is driving activity, aided by a rejuvenated origination platform.
* Zwick questioned the rationale for the SCP JV. Hennigan responded, "we've been looking to grow the existing JV... it's leveraging the broader Carlyle network... and what we think is a very attractive overall structure."
* Brian McKenna, Citizens JMP Securities, LLC: Inquired about near-term opportunities and priorities. Chi reiterated the strategy, focusing on breaking down silos and leveraging policy-driven cash flows.
* McKenna asked about spread movements. Chi said, "we are starting to see an opportunity where we're going to see a bit of spread widening... for the time being, we're not going to see any more compression."
* McKenna sought incremental color on Q1 trends. Hennigan pointed to continued strong performance and noted, "probably you're going to see a modest markdown on software names just based on market volatility and uncertainty."
* Richard Shane, JPMorgan Chase & Co: Asked about borrower interest expense. Hennigan responded, "interest coverage ratio is getting better... on the margin, it's going to be helpful. But... is it a material benefit... No."
* Shane queried about capital allocation between investments and share repurchases. Hennigan said, "we think it's a balanced approach... it's certainly accretive for investors to continue considering buybacks."

SENTIMENT ANALYSIS

* Analysts showed cautious optimism but focused on market volatility, spread trends, and capital deployment, reflecting a slightly positive to neutral sentiment.
* Management maintained a confident and steady tone in prepared remarks, frequently referencing "confidence" in the portfolio and strategic priorities, but acknowledged modest markdowns and earnings trough expectations. In Q&A, management remained focused and provided detailed, unambiguous answers, signaling control over strategic direction.
* Compared to the previous quarter, both analysts and management showed a slightly more constructive tone on deal flow and origination, though cautious about near-term earnings and market volatility.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter introduced Alex Chi as CEO and announced a new joint venture, SCP, focused on fee-free CLO investments and expanded share repurchase capacity.
* Net investment income declined from $0.37 per share (Q3) to $0.33 per share (Q4) on a GAAP basis.
* The dividend remains consistent at $0.40 per share, but estimated spillover income fell from $0.86 to $0.74 per share.
* Strategic focus shifted to further leveraging the Carlyle platform, expanding origination, and joint ventures to drive future returns.
* Management confidence remains high, especially regarding long-term performance and portfolio quality, but with more explicit acknowledgment of short-term earnings pressure due to base rate cuts.
* Analyst tone was slightly more focused on market risks and capital allocation versus the prior quarter’s emphasis on pipeline quality and yield pressure.

RISKS AND CONCERNS

* Management pointed to lower investment yields from lower base rates and tight spreads impacting new originations.
* Modest markdowns, especially in the software segment, were attributed to market volatility and uncertainty.
* The outlook highlighted an expected earnings trough in the first half of 2026 due to base rate cuts.
* Credit quality remains stable, with nonaccruals flat and strong coverage ratios, but market volatility and potential AI disruption in portfolio companies were acknowledged and actively monitored.

FINAL TAKEAWAY

Carlyle Secured Lending closed 2025 with record origination volumes and announced a new joint venture aimed at enhancing portfolio yield, while continuing to return capital through an upsized $300 million share repurchase program. Management reiterated its commitment to a stable, high-quality credit strategy, leveraging the scale of the Carlyle platform and maintaining disciplined underwriting, even as near-term earnings are expected to trough before rebounding with planned JV ramp-ups and increased market activity in 2026.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/cgbd/earnings/transcripts]

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