Carlyle Secured Lending (CGBD) Earnings Call

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DATE

Wednesday, February 25, 2026 at 11 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Alex Chi
• Former Chief Executive Officer — Justin V. Plouffe
• President and Chief Financial Officer — Tom Hennigan
• Managing Director — Nishil Mehta

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TAKEAWAYS

• Net Investment Income -- $24 million, or $0.33 per share (GAAP); $0.36 per share (adjusted) reflecting adjustments for accelerated debt issuance costs and asset acquisition accounting related to the CSL III merger and Credit Fund II consolidation.
• Total Investment Income -- $67 million, consistent with the prior quarter, as growth in average portfolio size offset lower yields from base rates and tighter spreads.
• Dividend -- $0.40 per share declared for the next quarter; $0.74 per share in spillover income available to support future dividends.
• Share Repurchases -- $14 million repurchased at a nearly 23% average discount to NAV during the quarter, creating $0.06 accretion per share; an additional $14 million repurchased in the current quarter, producing another $0.06 accretion per share; share repurchase program expanded to $300 million.
• Net Asset Value (NAV) -- $16.26 per share as of quarter-end, down from $16.36 per share at the prior quarter-end, reflecting $7 million ($0.09 per share) in aggregate net realized and unrealized losses, mainly from select underperforming investments.
• Originations -- Over $1.2 billion deployed for the year, with fourth quarter investment fundings exceeding $400 million and net investment activity of $193 million after repayments; platform-wide commitments surpassed $7.0 billion.
• Portfolio Size and Composition -- Investments increased to $2.5 billion from $2.4 billion at quarter start; exposure distributed across 165 companies in over 25 industries; average exposure per company less than 1% of total; 94% in senior secured loans.
• Median Portfolio Company EBITDA -- $97 million.
• Leverage -- Statutory leverage at 1.3x, but 1.1x when adjusted for unsettled trades, unchanged sequentially.
• Non-Accruals -- Five names on non-accrual, accounting for 1.2% of investments at fair value and 1.8% at amortized cost.
• Software Portfolio Performance -- Software book had 0% defaults over five years, with average revenue and EBITDA growth of 8% and 20%, respectively; weighted average loan-to-value is 40% below the portfolio average.
• Middle Market Credit Fund (MMCF) JV -- Investments exceed $950 million; MMCF produces a 15% dividend yield; equity commitments upsized from $175 million to $250 million per partner.
• SCP Joint Venture -- New Structured Credit Partners JV launched, capitalized with $600 million equity from Carlyle and Sixth Street BDCs; aims for 4 CLO issuances per year, targeting $6.0 billion to $7.0 billion in managed assets over time, with no management or incentive fees; returns traditionally 10%-12%, with a potential 400-500 basis point uplift from the fee-free structure.
• Capital Structure -- Issued a $300 million unsecured bond at SOFR plus 2.31% and redeemed $85 million in legacy debt; these changes extended maturity to 2030 and lowered average borrowing costs by about 10 basis points.

SUMMARY

The earnings call confirmed that Carlyle Secured Lending (NASDAQ:CGBD) delivered record-breaking originations for both the standalone entity and its platform, emphasizing ongoing portfolio expansion and strong activity pipeline. The team highlighted a strategic shift toward maximizing diversification and yield, evidenced by a major new joint venture, SCP, designed to utilize non-qualifying assets for enhanced, fee-free returns. Management reported that credit quality remains stable, with portfolio non-accruals and mark-to-market leverage levels holding steady versus previous periods, while the software lending book continues to outperform peers with zero defaults and industry-leading growth metrics.

• CEO Alex Chi stated, "Carlyle Secured Lending, Inc.’s core investment strategy will remain the same," and indicated a focus on "harness the full power of the Carlyle platform for the benefit of Carlyle Secured Lending, Inc. shareholders."
• President and CFO Tom Hennigan reported, "Total expenses of $43 million increased versus the prior quarter, primarily as a result of higher interest expense due to a higher average outstanding debt balance, as well as the acceleration of debt issuance costs from the repayment of our 2028 notes."
• Tom Hennigan detailed that the SCP JV is structured with "no management or incentive fees," which management expects will be "highly accretive to return on equity for Carlyle Secured Lending, Inc."
• The management team anticipates a trough in earnings in 2026, explicitly attributed to projected base rate cuts, followed by earnings growth as new JVs ramp up.
• Alex Chi noted that current market volatility, especially in software and technology, has led to "a modest markdown on software names just based on market volatility and uncertainty, but relatively modest, certainly relative to some of the volatility in the broader syndicated market."
• The firm’s weighed approach to new investment versus share repurchases was summarized by Tom Hennigan: "You should see what we have done the last ninety days, as we started buying back shares last quarter and we have continued into this quarter."
• Deal flow in core and upper middle markets is described as "our pipeline for the first quarter has picked up," with origination activity supported by recently added origination professionals and ongoing sectoral focus, particularly in industrials, aerospace, defense, and healthcare.

INDUSTRY GLOSSARY

• Adjusted Net Investment Income (Adjusted NII): Net investment income adjusted to exclude non-recurring items and the amortization or accretion from acquisition accounting adjustments, providing a clearer measure of ongoing earnings power.
• Structured Credit Partners (SCP): A joint venture, newly formed between Carlyle and Sixth Street BDCs, focused on investing in broadly syndicated first-lien senior secured loans, predominantly financed by CLOs, with no underlying management or incentive fees.
• Middle Market Credit Fund (MMCF): Carlyle Secured Lending's joint venture that invests alongside other partners to maximize asset growth and returns for shareholders, currently delivering a 15% dividend yield.
• Non-Accrual: Loan status indicating that interest is not being accrued due to borrower payment issues, signaling potential credit deterioration.
• Loan-to-Value (LTV): Ratio measuring outstanding loan amount against the appraised value of the collateral asset, used to assess credit risk and recovery prospects.
• Spillover Income: Retained investment income that exceeds dividend obligations, available to enhance future dividend payments.

Full Conference Call Transcript

Nishil Mehta: Good morning, and welcome to Carlyle Secured Lending, Inc.’s fourth quarter 2025 earnings call. I am joined by Justin V. Plouffe, our former Chief Executive Officer; Alex Chi, Carlyle Secured Lending, Inc.’s newly appointed Chief Executive Officer; and Tom Hennigan, our President and Chief Financial Officer. Last night, we filed our Form 10-K 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 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 and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our 10-K. 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 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, one-time purchase or nonrecurring investment income or 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 per share to 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 will turn the call over to Justin.

Justin V. Plouffe: Thanks, Nishil. Good morning, everyone, and thank you all for joining. As many of you know, I have assumed the role of Chief Financial Officer of Carlyle and resigned as CEO, President, and Director of Carlyle Secured Lending, Inc. Earlier this year, Alex Chi joined the firm as Deputy Chief Investment Officer for Global Credit, Head of Direct Lending, and was recently appointed CEO and a Director of Carlyle Secured Lending, Inc. With Alex’s deep expertise, including prior experience as CEO of multiple BDCs, his proven leadership, and strong industry relationships, we are confident he will help us continue to deliver results and growth for Carlyle Secured Lending, Inc. shareholders.

Separately, Tom Hennigan, who has been with the platform since inception, has been appointed President of Carlyle Secured Lending, Inc. in addition to his existing roles as CFO, Chief Risk Officer, and Director. I would like to now introduce Alex and hand over the call for his remarks.

Alex Chi: Thanks, Justin, and good morning. I would like to start by highlighting how excited I am to join Carlyle. Carlyle Secured Lending, Inc.’s core investment strategy will remain the same. We are focused on stable, high-quality credits in the core and upper middle market. As I look forward, I am highly focused on continuing to build out our origination engine and harness the full power of the Carlyle platform for the benefit of Carlyle Secured Lending, Inc. shareholders. On today’s call, I will give an overview of our fourth quarter and full-year 2025 results, including the quarter’s investment activity, portfolio positioning, and an update on our investment outlook.

I will then hand the call over to our President and CFO, Tom Hennigan. 2025 was a record year of originations for both Carlyle Secured Lending, Inc. and the Carlyle Direct Lending platform, a direct result of our efforts to enhance our origination capabilities. We deployed over $1.2 billion at Carlyle Secured Lending, Inc. and closed over $7.0 billion of commitments at the platform level. The fourth quarter was also a record at Carlyle Secured Lending, Inc., with over $400 million of investment fundings, resulting in net investment activity of $193 million after accounting for repayments.

Total investments at Carlyle Secured Lending, Inc. increased from $2.4 billion to $2.5 billion during the quarter, and total investments at our MMCF joint venture increased to over $950 million. While we benefited from strong origination across the platform, Carlyle Secured Lending, Inc. was impacted by lower investment yields due to lower base rates and historically tight spreads on new originations. We generated $0.33 per share of net investment income for the quarter on a GAAP basis and $0.36 of adjusted NII per share. Our Board of Directors declared a first quarter 2026 dividend of $0.40 per share. Our net asset value as of December 31 was $16.26 per share, compared to $16.36 per share as of September 30.

Although the public markets have experienced volatility due to a reset in valuations for companies potentially disintermediated by AI, we remain confident in the quality and stability of our portfolio. Our software track record remains exemplary. Over the last five years, Carlyle Direct Lending has originated over $6.0 billion in commitments to software deals with zero defaults. On average, the software borrowers in our book have grown revenue and EBITDA by approximately 8% and 20% year over year, respectively, and the weighted average loan-to-value of our software book is 40% below the rest of the portfolio, even after adjusting for multiple degradation based on public comparables.

In addition, Carlyle Secured Lending, Inc. software exposure as a percentage of the portfolio is below that of our peer group. We invest in software companies that we believe deliver embedded, data-driven, and mission-critical products that deliver tangible ROI for customers on a daily basis. Our underwriting process focuses on businesses that have a strong competitive moat driven by either incumbency, data ownership, a network effect, or any combination of these. Software as an industry has always been about innovation, and we believe that these same key factors that have traditionally provided market defensibility will also provide insulation in the newest market threat, AI.

The products that are truly embedded and mission critical—we view AI as a way to augment the functionality of these products, not necessarily to replace them. Many of our borrowers, which are already embedded and mission critical to their customers, either have already or are in the process of layering AI capabilities into their product sets to bolster their offerings. In addition to this core software investing framework, which we believe will insulate our portfolio from AI disintermediation, our underwriting process incorporates AI-specific risk factors into every new origination regardless of industry sector, and we actively assess both direct and indirect exposure across the portfolio using the same framework.

In light of recent volatility and concerns in the software space, we have re-underwritten and examined our entire portfolio to evaluate AI disruption and displacement risk. We continuously monitor the portfolio closely through a detailed review process and continue to feel comfortable with our exposure, finding no material near-term risks to our portfolio companies from AI at this stage. We remain focused on portfolio diversification while managing target leverage. As of December 31, our portfolio was comprised of 165 companies across more than 25 industries. The average exposure to any single portfolio company was less than 1% of total investments, and 94% of our investments were in senior secured loans. The median EBITDA across our portfolio was $97 million.

As always, discipline and consistency drove performance in the fourth quarter, and we expect these tenets to drive performance in future quarters. Following quarter-end, we announced the formation of a new joint venture capitalized by four BDCs, comprised of Carlyle Secured Lending, Inc.; private perpetual BDC Carlyle Credit Solutions; and two BDCs managed by Sixth Street. The new JV, Structured Credit Partners, or SCP, is expected to increase diversification and portfolio yield at Carlyle Secured Lending, Inc. SCP will focus on investing in broadly syndicated first-lien senior secured loans financed with long-term non-mark-to-market and predominantly investment-grade-rated CLO debt.

Returns from SCP will be enhanced by no management fees or incentive fees at the underlying CLOs or at the joint venture, reflecting Carlyle’s continued commitment to Carlyle Secured Lending, Inc. SCP highlights the benefits of scale through partnership with Sixth Street and underscores the power of the Carlyle platform, which houses one of the largest CLO managers in the world with $50 billion of AUM. Historical median CLO returns have typically been within the 10% to 12% range, and we anticipate a potential 400 to 500 basis point uplift from the fee-free structure, so we expect the investment to be highly accretive to return on equity for Carlyle Secured Lending, Inc.

Looking ahead, we expect 2026 to be an active year as M&A activity increases. Through a combination of increased market activity and the Carlyle Direct Lending platform’s rejuvenated origination platform, our pipeline for the first quarter has picked up, and we expect to continue to see strong deal flow. Carlyle Secured Lending, Inc. is well positioned to capitalize on this opportunity with Carlyle’s deep expertise across multiple asset classes, a strong and long-standing track record in direct lending, and a growing origination apparatus.

As manager dispersion increases, we expect the breadth of our platform and the consistency of our performance to differentiate us from credit managers that do not have access to the same scale, scope, and investment capabilities with dedicated in-house investing, portfolio management, and restructuring resources the Carlyle platform offers. With that, I will now hand the call over to our President and CFO, Tom Hennigan.

Tom Hennigan: Thank you, Alex. Today, I will begin with an overview of our fourth quarter financial results, then I will discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the fourth quarter was $67 million, in line with the prior quarter, as an increase in average portfolio size was offset by a decrease in total portfolio yields as a result of lower base rates and lower spreads. Total expenses of $43 million increased versus the prior quarter, primarily as a result of higher interest expense due to a higher average outstanding debt balance, as well as the acceleration of debt issuance costs from the repayment of our 2028 notes in December.

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 and the impact of asset acquisition accounting related to the CSL III merger and the consolidation of Credit Fund II, both of which closed in 2025. Our Board of Directors declared the dividend for 2026 at a level of $0.40 per share, which is payable to stockholders of record as of the close of business on March 31. In addition, we currently estimate we have $0.74 per share of spillover income to support the quarterly dividend.

As mentioned during last quarter’s call, we expect to see earnings trough in 2026 primarily due to the impact of base rate cuts, but we anticipate an increase in earnings thereafter as we ramp the portfolios of both JVs. Given Carlyle Secured Lending, Inc. shares continue to trade at a compelling discount, 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. We continued to repurchase shares in the first quarter, with an incremental $14 million to date, which results in an additional $0.06 per share of accretion.

Having nearly exhausted the existing $200 million share repurchase program, our Board approved a $100 million upsize, increasing the total program to $300 million. On valuations, our total aggregate realized and unrealized net loss for the quarter was about $7 million, or $0.09 per share, primarily attributable to unrealized markdowns on select underperforming investments. 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 LTV, and we expect interest coverage will continue to improve in future quarters aided by lower base rates.

The majority of our PIK is underwritten in origination, or what we would consider to be good PIK, and non-accruals remain relatively flat as of December 31, with five names on non-accrual representing only 1.2% of investments at fair value and 1.8% at amortized cost. Moving to the Middle Market Credit Fund, our long-standing JV, 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. MMCF is currently achieving a 15% dividend yield generated through over $950 million of investments with no fees at the JV.

The equity upsize will enable us to continue to grow the JV and increase the impact to Carlyle Secured Lending, Inc. earnings. In addition, as Alex previewed earlier this month, we announced the formation of Structured Credit Partners, or SCP, a new JV capitalized with $600 million of equity commitments from the Carlyle and Sixth Street BDCs that will invest in broadly syndicated first-lien senior secured loans. The financing of these assets will be primarily through CLOs, separately managed by Carlyle and Sixth Street, subject to oversight from SCP’s Board of Directors. Governance of SCP is shared equally between Carlyle and Sixth Street as managers, and each BDC has equal representation on the Board.

All key investment, financing, and capital decisions are subject to joint approval by the JV Board. Carlyle Secured Lending, Inc. committed $150 million of capital to the vehicle, which, as Alex highlighted, will not charge any management or incentive fees on the underlying assets, providing a potential 400 to 500 basis point uplift to total returns, which have historically been within the 10% to 12% range for similar underlying vehicles. The JV plans to ramp at a cadence of four CLO issuances per year to ensure vintage diversification, and over time, the JV is expected to manage approximately $6.0 billion to $7.0 billion of assets fee-free at SCP.

We expect the JV to be accretive to return on equity for Carlyle Secured Lending, Inc. I will finish by touching on our financing facilities and leverage. As a reminder, in October, we raised a new five-year $300 million unsecured bond at an attractive swap-adjusted rate of SOFR plus 2.31%. We used the proceeds in part to repay in full the higher-priced legacy CSL III credit facility and, in December, redeemed the $85 million baby bond. In the aggregate, these capital structure optimizations lowered our weighted average cost of borrowing by about 10 basis points, extended the maturity profile of our capital structure with limited maturities until 2030, and reduced reliance on mark-to-market 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 cuts. At quarter-end, statutory leverage was 1.3x; however, adjusted for unsettled trades of loans to MMCF, leverage at quarter-end was closer to 1.1x, in line with the prior quarter. Given our current strong liquidity profile, we believe we are well positioned to benefit from the expected pickup in deal volume in future quarters. With that, I will turn the call back over to Alex.

Alex Chi: Thanks, Tom. As we approach the middle of the first 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. 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. At the platform level, I am excited to continue building out the Carlyle Direct Lending team and expanding our existing capabilities.

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

Operator: Thank you. We will now open for questions. To withdraw your question, please press 1-1 again. Our first question comes from the line of Erik Edward Zwick with Lucid Capital Markets. Your line is open.

Erik Edward Zwick: I wanted to start with a question for you, Alex. One, nice to meet you virtually here. In the press release, you mentioned that the fund is well positioned to take market share going forward. So I am just curious from your perspective, who you would be taking that share from? Is it the BSL market, private credit funds, banks? And then, what is your competitive advantage relative to those that you would be taking it from?

Alex Chi: Sure. Absolutely. It is great to meet you as well. One thing I just want to underscore is that the investment strategy here is not changing. As I said, we are going to continue to focus on investing in high-quality companies in the core and upper middle market. While my prior firm’s credit platform also had a strong presence in the large-cap market, that is not an area that I plan to aggressively push us into right now. As I mentioned, we have a strong credit culture, a team of underwriters dedicated to industry verticals, deep expertise, and we are going to concentrate on playing a lead role in the majority of our deals.

But, also, one thing that we are going to do a lot more of to win and take share is really just harness the power of the other parts of Carlyle. Whether it is the large liquid platform we have, such as the CLO business, or Carlyle AlpInvest platform, which is truly differentiated, our Washington, D.C. presence and connectivity, and of course our global private equity platform, and the list goes on. So we are not a pure-play direct lending shop. Rather, we have a direct lending business housed within one of the most formidable asset managers in the world, and we are going to take full advantage of that.

Erik Edward Zwick: Thanks, I appreciate that. And then, just a follow-up on the positive commentary that you expressed about the pipeline here in Q1 2026, seeing stronger deal flow. There is certainly some concern about a K-shaped economy and some cracks forming somewhere. From your perspective and the sectors that you lend to, can you just maybe talk about what is driving borrowing demand and contributing to the strong pipeline flow today?

Alex Chi: Sure. Well, first of all, another good aspect of playing in the middle market, the core and upper, is that there is always better, more consistent flow of opportunities to look at. And we have all talked about the lack of DPI over the last two to three years. We are starting to see that change. If you look at Carlyle at the platform level, we saw that last year, where we returned a significant amount of capital through exits to our investors. We are starting to see that play through the broader pipeline.

What is also interesting is that, just given Carlyle’s heritage around industrials, aerospace and defense, and healthcare, those are areas that we are starting to see some more activity, as those areas are now back in vogue, if you will. So that, plus the fact that we have a rejuvenated origination platform—you have heard Justin say it before—we hired a senior originator from KKR that has been here for over a quarter. We have a couple other managing directors who come with long-standing relationships. There are others coming on board.

It is not a coincidence that the fourth quarter was a record quarter for us from an origination standpoint, and, therefore, from a pipeline perspective, we are starting to see a lot more there as well.

Erik Edward Zwick: Thanks. And last one for me. Just curious if you could talk a little bit about the rationale for the SCP JV. Why now? Is this potentially reflective of your view that spreads may remain tighter for a while in the middle market and, therefore, you can take advantage of the non-qualifying bucket availability to get some additional yield using the structure? Just kind of curious how you would describe the timing rationale for that new venture.

Tom Hennigan: Hey, Erik. Good morning. If you go back to last year when we had our two JVs, we collapsed the one JV on the balance sheet. We have been looking to grow the existing JV with PSP, but we are looking to maximize and fully utilize the non-qualifying asset bucket. So we have really been, over the last year, looking at what is the next big venture for us. This is something we have been working on for a while. And to Alex’s point, it is leveraging the broader Carlyle network and the strength of our broadly syndicated team and, at the same time, producing very strong expected returns based on a no-fee structure.

So it is, again, leveraging the broader Carlyle network and what we think is a very attractive overall structure.

Erik Edward Zwick: Got it. Thanks, Tom. That is all for me. Thanks for taking my questions today.

Alex Chi: Thank you.

Operator: Our next question comes from the line of Bryant McKenna with Citizens. Your line is open.

Bryant McKenna: Okay, great. Thanks. Good morning, everyone. Alex, great to meet you, and congrats on the new role, and also same to you, Tom. Maybe starting with you, Alex. Taking a step back here with a new set of eyes, looking at the broader Carlyle Direct Lending platform, what are some of the near-term opportunities across the business, and what are your top priorities for Carlyle Secured Lending, Inc. and the related direct lending strategies over the next year or so?

Alex Chi: Sure. As I mentioned, my plan is not to make large, wholesale changes to the strategy. The Carlyle Direct Lending platform has actually been here for quite some time. Although I am relatively new here, Justin, who is sitting here next to me, has been on the platform for nearly fifteen years, and our Chief Underwriting Officer, Mike Hadley, has been here for nearly twenty years. And there is deep underlying expertise across the core verticals where we play. So what we are going to do, again, with our rejuvenated origination strategy is start to take more share and see more flow.

And one thing that I think the leadership of Carlyle has done a great job of over the last handful of years is really starting to break down the silos so that we are harnessing the full power of all the different aspects of what Carlyle has to offer. Again, I do want to point to the Washington, D.C. roots that we have. I think that really no one has a better handle on policy-driven cash flows than we do. So I think there is a lot of opportunity here for us to take more share while we just stick to our core knitting.

As I mentioned in my earlier comments, although, again, at my prior shop we had a formidable presence in the large-cap space, that is not an area that we plan to push into right now.

Bryant McKenna: Okay, great. That is helpful. And then just a little bit bigger picture—clearly, volatility has picked up across a number of different segments within the market. Seems like capital and liquidity is coming in a bit across the capital markets, but I am curious what you are seeing on new deals today that are coming together. Have spreads started to move out a little bit? I am just curious what you are seeing real time on that front.

Alex Chi: It is a great question. In terms of spreads, we are starting to see an opportunity where we are going to see a bit of spread widening. It is not going to happen in a significant manner, but in some of the deals that we are looking at right now, the proposed spreads that are coming in reflect what we were seeing perhaps two to three months ago. I think, just given the volatility that you referenced, it is an opportunity to start getting some spread back, especially in the middle market. Yet another reason as to why we are not actively pursuing a strategy back into the large-cap piece of the landscape.

Look, I think software is an area that a lot of people have spoken about. I think in terms of the flow of software opportunities, you are going to see a bit of a pause there—not so much because we think that software is bad or anyone is getting out of the market—it is just because many of the software deals that were acquired were acquired at very high, robust multiples two, three, four years ago. And I think, just given that people are still trying to figure out what AI means for many of these companies, the value expectations versus what the market wants to pay for them are probably going to diverge.

You are going to see some enterprise value gaps here. I think we are going to need some time for people to really assess what is happening in that landscape before you start to see more deal flow. So I think that people are going to start to focus their areas more on more core parts of the economy. Those are areas where you see a significant amount of portfolio companies that have to be monetized. I think that is where we are going to start to see more of the flow.

And I think on spreads, to your question, for the time being, we are not going to see any more compression, which is good, and if anything, we are starting to see some opportunities for us to get spread back.

Bryant McKenna: Got it. Okay. That is helpful. And then just one more for me, if I may. Two months into the first quarter here, any incremental color or detail you can share with quarter-to-date trends as it relates to new originations, markups, markdowns, and even just credit quality more broadly?

Alex Chi: Bryant, I think that on the portfolio, we continue to have overall strong performance. We are still in the process of getting fourth quarter results. Obviously, you are not going to see anything in those fourth quarter results. One thing we have done is, just based on what we are seeing in the broader syndicated market—some volatility in trading prices—while that does not directly translate by any means to our private credit valuations, we and our third-party valuation providers are taking a look broadly at the portfolio, specifically at the technology and software deals in the portfolio.

I think you probably are going to see a modest markdown on software names just based on market volatility and uncertainty, but relatively modest, certainly relative to some of the volatility in the broader syndicated market.

Bryant McKenna: Alright. I will leave it there. Thanks so much.

Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please stand by for our next question. Our next question comes from the line of Rick Shane with JPMorgan. Your line is open.

Rick Shane: Hey, everybody. Thanks for taking my questions this morning, and congratulations on all your new roles. One of the themes that has emerged listening to many of the BDC calls is the potential relief from the asset sensitivity of your borrowers’ balance sheets. And I am curious—when we think about this, and again remember we come at this from the perspective of also covering many of the commercial mortgage REITs where interest expense is a huge, huge part of owning commercial real estate—I am curious, when you think about the businesses that you are lending to, and their revenue and cost structures, how significant is interest expense in their overall expense load?

Tom Hennigan: Yes. It is something that, obviously, when we look at our credit metrics, interest coverage ratios are getting better. It is marginal. You know, base rate is down 75 basis points, with expected additional rate cuts. On the margin, it is going to be helpful, just like we ran the sensitivities when rates were going up—even if we said, okay, rates were at 5%, 6%, they had to gap up materially before we were concerned about liquidity at particular borrowers. Our sensitivities said they had to go up another 300 basis points. Certainly on the margin, it helps. Is it a material benefit where we think it is going to be a material difference? No.

It is certainly going to help on the margin, but based on where the current base rates are expected and based on where the current curve is. The other comment that I would make is on new originations that we are looking at right now. It is not only just interest coverages that we are looking at. We are also looking at fixed charge coverage ratios. And the fixed charge coverage ratios that are now coming out that we are underwriting to have a lot more cushion than what we saw before. We would typically look at 1.1x fixed charge coverage ratio and then we would sensitize that, of course, for different curves.

But now, out of the box, we are starting to see much more cushion—call it 1.25x or even higher, going towards 1.5x—which is really nice to see, because I think that the borrowers are starting to take a bit more of a conservative approach with respect to how much leverage is going to be put on these companies.

Rick Shane: Got it. Okay. Thank you. And then, the question that I have asked a couple of companies through earnings: Look, you guys are in the position where you are able to do more than one thing at a time, but you are experiencing significant repayments, the stock is trading at a significant discount to NAV, and you have a history of repurchasing shares. Is the best incremental dollar the next investment given dynamics in the market, or is the best investment repurchasing stock?

Tom Hennigan: Rick, we think it is a balanced approach. You should see what we have done the last ninety days, as we started buying back shares last quarter and we have continued into this quarter. So, again, it was $14 million in the fourth quarter and another $14 million quarter-to-date in the first quarter. That represents 3% of our total shares. It is about $0.06 per share accretion in each quarter, so $0.12 in total. That is $186 million since inception, so we have been supportive going back a number of years with buying back shares. And our Board increased the $200 million threshold up to $300 million at our recent Board meeting.

So we certainly anticipate, based on where the stock is trading, it is accretive for investors to continue considering buybacks. At the same time, when you look at primarily our two JVs, we are within our target leverage range. Net-net, if we are adding investments to our JVs, that is very accretive for the fund. So, on the margin, we are not adding 450 to 475 spread deals; it is to our current JV where we are able to generate a 15%+ return from that fund. And, certainly, we anticipate over the course of the next two years investing in and growing our structured credit partners JV.

So we think those are very accretive dollars in terms of where we are putting our new investment dollars on a net basis. But it is a balance.

Rick Shane: Thank you. Sorry, I think I interrupted.

Tom Hennigan: No, go ahead.

Rick Shane: No, that is it. I just wanted to say thank you. I appreciate the clarity on that. It helps us think about the path you may be painting over the next twelve months.

Alex Chi: Okay. Thanks for the question.

Operator: Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

Alex Chi: Great. Well, thank you very much. I am very excited to be here and look forward to coming back in subsequent quarters.

Operator: Ladies and gentlemen, that concludes today’s conference call. Thank you for your participation. You may now disconnect.

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