TCG BDC, Inc. Stock

Good day and thank you for standing by. Welcome to the Carlyle Secured Lending, Inc. second quarter 2026 earnings conference call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nishil Mehta, Head of Shareholder Relations. Sir, please go ahead.

Good morning and welcome to Carlyle Secured Lending second quarter 2026 earnings call. I'm joined by Alex Chi, CGBD's Chief Executive Officer, and Tom Hennigan, our President and 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 analysts and institutional investors. The call is being webcast and a replay will be available on our website. Today's earnings call may include forward-looking statements reflecting our views with respect to, among other things, our future operating results and financial performance. Any forward-looking statements made today do not guarantee future performance, and undue reliance should not be placed on them.

These statements are based on current management expectations, estimates, and projections that involve inherent risk and uncertainties, including those identified in the risk factors and cautionary statement regarding forward-looking statements sections of our Form 10-K and Form 10-Qs. These risks and uncertainties could cause actual results to differ materially from those indicated in our forward-looking statements. CGBD assumes no obligation to update any forward-looking statements at any time.

During this call, the company may discuss certain non-GAAP financial 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 common share, adjusted net income, and adjusted net income per common 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 and the one-time purchase or non-recurring 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 per share, the most directly comparable GAAP financial measure to adjusted NII per common share, can be found in the accompanying slide presentation for this call that is available on our website. In addition, a reconciliation of these measures may also be found in our earnings press release filed last night with the SEC on Form 8-K. With that, I'll turn the call over to Alex.

Thanks, Nishil, and good morning. On today's call, I'll give an overview of our second quarter results, including the quarter's investment activity and portfolio positioning, and provide an update on our investment outlook. I'll then hand the call over to our President and CFO, Tom Hennigan.

During the second quarter, macroeconomic and geopolitical factors led to a complicated market backdrop for new deal activity. However, we continue to be very pleased with the strength of Carlyle Direct Lending's origination platform and the consistent credit performance of CGBD.

In total, we closed $1.5 billion of new and incremental commitments at the platform level, and excluding joint venture activity, funded $248 million of investments at CGBD, reflecting a strong quarter of originations. Our platform originations were up over 20% versus the first quarter, while platform selectivity continued to increase with a commitment rate on second quarter pipeline deals of less than 5%.

On our new originations, weighted average spreads held steady in line with the first quarter, while weighted average leverage on entry continued to decrease. Our enhanced origination team continued to drive several wins, and Carlyle played a lead role in nearly 90% of platform originations.

Repayments decreased in the quarter to $68 million of activity. Combined with $123 million in sales to our MMCF joint venture and $50 million of equity funding at SCP, net investment activity drove total investments at CGBD to increase from $2.3 billion to $2.4 billion during the quarter.

Moving to our investment funds, both of our JVs, MMCF and SCP, continue to scale and generate attractive returns to CGBD. Total investments at our MMCF joint venture increased to $1.2 billion, with the annualized dividend yield increasing by over 200 basis points to 17.6% in the quarter. At SCP, the portfolio grew to $1.7 billion and produced an annualized dividend yield of 18.7% to CGBD.

During the quarter, we generated $0.35 per share of net investment income on both a GAAP and adjusted basis. In line with our revised dividend policy, our Board of Directors declared a third quarter dividend of $0.35 per share, which is fully covered by net investment income in the quarter. Our net asset value as of June 30th was $15.61 per share compared to $15.89 per share as of March 31st.

Although the market remains focused on the software sector, we continue to see strong fundamental performance from the software borrowers in our book. As I've mentioned in prior quarters, our underwriting approach to borrowers in the software space remains highly disciplined and our platform's software track record is exemplary, with 0 defaults on $7 billion in commitments to software deals over the last 6 years.

Turning to portfolio construction, we remain focused on portfolio diversification while managing target leverage. As of June 30th, our portfolio grew to 177 companies across more than 25 industries. The average exposure to any single portfolio company was less than 60 basis points of total investments, and 95% of our investments were in senior secured loans. The median EBITDA across our portfolio was $101 million.

As always, discipline and consistency drove performance in the second quarter, and we expect these tenets to drive performance in future quarters. Looking ahead, despite the complicated market backdrop mentioned earlier, we continue to expect strong activity in our market over the medium and long term, and we're well positioned with a revitalized origination platform to take advantage of increasing market activity and to continue taking share.

Looking at our pipeline, a significant majority of deals continues to be in old economy sectors, including industrials, aerospace and defense, healthcare, and consumer products. As manager performance 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'll now hand the call over to our President and CFO, Tom Hennigan.

Thank you, Alex. Today, I'll begin with an overview of our second quarter financial results. Then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning. Total investment income for the second quarter was $62 million, below prior quarter, primarily driven by a decline in interest income due to lower OID accretion from reduced repayment activity, as well as a decrease in fee income, partially offset by increased dividend income from both the MMCF and SCP JVs.

Total expenses of $38 million also decreased versus prior quarter, primarily as a result of lower interest expense due to a lower outstanding debt balance. The result was net investment income for the second quarter of $24 million, or $0.35 per share, on both a GAAP basis and after adjusting for the impact of asset acquisition accounting.

Achieving NII of $0.35 per share means we fully earned our new base dividend. Our Board of Directors declared the dividend for the third quarter of 2026 at that $0.35 per share base dividend level, which is payable to stockholders of record as of the close of business on September 30th.

As a reminder, we're maintaining our existing supplemental dividend policy, which targets paying out at least 50% of excess earnings above the base dividend, allowing us to deliver additional value to shareholders as earnings grow. As mentioned on prior earnings calls, we still expect the second quarter will be the near-term earnings trough, which means we not only expect to maintain full dividend coverage in future quarters, but we anticipate an increase in earnings and supplemental dividends as we ramp the portfolios and earnings of both JVs over the course of the next four to six quarters.

In addition, we currently estimate we have $0.73 (sic) [ $0.70 ] per share of spillover income to support the quarterly dividend. Given CGBD shares continued to trade at a compelling discount, we repurchased $12.5 million of shares at an average discount of 29% during the second quarter, resulting in $0.07 of accretion to NAV per share, and total purchases since inception of the program now exceed $200 million.

On valuations, our total aggregate realized and unrealized net loss for the quarter was about $24 million, or $0.35 per share, partially driven by markdowns on a limited number of investments. To highlight a couple of the larger movers, on our investment in SPF debt and equity, we expect a successful exit later this year.

However, we did adjust the mark on a residual equity position down to align with updated expectations on total recovery to lenders, given higher than anticipated proceeds to management and doctors. But overall, it remains a very positive story with an expected MOIC of 1.4x and highlights the impact of our dedicated workouts team.

On U.S. Infra, which is a provider of inspection, maintenance, and rehabilitation services for critical infrastructure, based on our expectation of lower earnings for fiscal year '26, we lowered our valuation as of 6/30. Our workout team is closely working with the sponsor and management team to right-size the capital structure and provide additional liquidity to support the business to best position the company for recovery.

Turning to credit performance, we continue to see overall stability in credit quality across the portfolio. The fair value of loans utilizing PIK provisions decreased during the second quarter, and the majority of our PIK is underwritten at origination or for performing borrowers and is what we would consider to be good PIK.

Non-accruals continue to remain low as of June 30th and represent only 0.6% of investments at fair value and 1.2% at amortized cost. The restructuring of DCA closed the second quarter, so that investment was placed back on accrual status, while U.S. Infra and Project Castle, also known as Material Handling Systems, were added to non-accrual status.

Moving to the Middle Market Credit Fund, our longstanding JV, we continue to focus on maximizing both asset growth and returns. During the second quarter, we closed a $400 million upsize to our main credit facility, increasing total commitments to $1.2 billion at an attractive spread of SOFR plus 170 basis points.

During the second quarter, MMCF achieved a 17.6% dividend yield, an increase of over 200 basis points quarter over quarter, generated from $1.2 billion of investments with no fees at the joint venture. The increases in both debt and equity commitments that closed earlier this year position us to continue asset growth and income generation at the JV.

In addition, our newer JV, Structured Credit Partners, or SCP, ramped to $1.7 billion of investments and produced a dividend yield of 18.7%. 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 lower loan prices and tight liability pricing.

We expect SCP 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. And over time, the JV is expected to manage approximately $6 billion to $7 billion of assets fee-free at SCP.

I'll finish by touching on our financing facilities and leverage. Our debt stack is 100% floating rate, matching our primarily floating rate assets, meaning CGBD is well-positioned in advance of any additional interest rate movement.

At quarter end, statutory and net financial leverage were both 1.2x. Given our current strong liquidity profile, we believe we're 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'll turn the call back over to Alex.

Thanks, Tom. As we approach the middle of the third 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 expect to take advantage of improved conditions in the market with a revitalized origination platform.

The 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. I'd like to now hand the call over to the operator to take your questions.

[Operator Instructions] Our first question is going to come from the line of Rick Shane with J.P. Morgan.

Really just curious right now as you sort of look at the deal market, we're starting to see underlying equity values improve in some sectors, and at the same time, M&A activity remains pretty muted. I am curious, sort of, what you are seeing in terms of pricing and terms related to new transactions versus refinanced transactions and opportunities to rotate the portfolio.

Sure. Thanks, Rick, for the question. It's Alex. As you can see from the results, we were able to find some attractive new investments in the second quarter, and the pipeline for the third quarter also continues to be pretty robust.

Having said that, the overall landscape for M&A continues to be a bit muted. And I think that's driven by the continued geopolitical uncertainty and also the macroeconomic uncertainty. I think once you see a clearer picture of what will happen there, I think that should unleash some more M&A activity that we'll all benefit from.

Having said that, in terms of what the pipeline looks like, these are companies that are more shielded from what's happening out in the economy, clearly away from software. So, most of the deals that we're looking at and are in our pipeline are within industrials, aerospace and defense, healthcare, basic consumer products, et cetera.

In terms of pricing, as you can see from our results, the weighted average spread that we saw really held steady from the first quarter. We didn't really see much more spread widening. Having said that, it really depends on the sector.

I think that if you see a very attractive industrial deal per se, then I think you'll see some competition and that will lead to a bit tighter pricing. But having said that, we've seen spreads hold in there, and the doc standards have also continued to improve. That's also one of the nice parts about just being in the middle market where you see just more consistent deal flow and in terms of holding steady.

Yes, no, it's an interesting observation in terms of spreads. And I think, obviously, base rates are a tailwind for the industry, but with rising non-accruals in a lot of portfolios, there's an offset and it does look like you guys picked up a little bit of yield. You actually got -- were able to benefit efficiently from the pickup in base rates it looks like.

Yes, I think we saw some nice benefit. And, again, we also benefit from the fact that our non-accruals are quite low. So, it allows us to be on offense with respect to deployment and just looking for the best opportunities to invest in.

And just given where we've landed on that front as well as our leverage, not only were we able to deploy into attractive opportunities, but we were also able to take advantage of the discount and also purchase some shares too.

Got it. Yes, we saw that as well. Look, pretty straightforward quarter. We appreciate you guys taking our questions.

Our next question will come from the line of Erik Zwick with Lucid Capital Markets. Your line is open. Please go ahead.

This is Justin. I'm in for Erik. I just wanted to go back to yields a little bit. Obviously, it held steady from the first quarter. Can you talk about the spread environment thus far in the second half of the year?

And how are you thinking about balancing capital deployment in terms of new loans versus share repurchases given the current discount to NAV?

Hey, good morning, Justin. Thanks for the question. You know, we continue to be active with repurchasing shares, but we're trying to find the right balance and continue to be active in deploying new capital. Certainly, where we've been focused, and you'll see, is we had increases in the yields at both JVs, so we're certainly focused on depending on the spread for individual investments is continue to deploy at the JV because that's very accretive for investors.

And, likewise, we've been nicely ramping the SCP JV. So, we're trying to find the right balance between continuing to be active on both the new deal front and on share purchases.

Okay. And then just a follow-up. On the other income line, I was curious on the quarter-over-quarter decline. Was that due to lower refi and amendment activity? Or what drove that decrease?

Yes, it was. So, last quarter, we had more outsized one-time income from repayment activity. One particular repayment had a large repayment fee. And so, this quarter really more normalized, actually probably a lower level than normal, as we had very limited other income this quarter. So, I'd say that last quarter was atypically high, and this quarter was actually lower than, let's say, our steady baseline.

Okay. All right. Great. Thanks for the color there. I appreciate it.

Thanks, Justin.

[Operator Instructions] Our next question is going to come from the line of Robert Dodd with Raymond James.

On your comments, obviously, I mean, macro, geopolitical, et cetera. Yes, there's a lot going on out there. And the M&A environment still being a little muted. I mean, what would you say? A lot of other competitors have given a more a pretty, I would say generally hopeful and optimistic view about the back end of this year. It sounds like that's not necessarily to say the M&A pipeline is building right now, but they're hopeful it will.

How would you characterize your view? I mean, do we need flat-out stability before you even get more optimistic about the back half of the year, or how are you thinking about that?

Hey, Robert, thanks a lot for the question. Definitely a lot going on right now. Look, I think with respect to just the M&A market coming back in full force, I do think you need more clarity with respect to the inflationary picture, what's going to happen to rates. And that is linked to what's happening out of the Middle East and all the derivatives and permutations from oil prices.

If your business is linked whatsoever to those impacts, it's really difficult to forecast what the near to medium term is going to look like for your business, and that's just going to lead to an impact on valuation from buyers. Therefore, if you're a seller, unless you really have to generate proceeds, why not wait for another quarter or two before you put it into the market for a successful outcome?

At the same time, if you put it in the market right now and you don't achieve the outcome that you want, it's really hard to ignore the valuations that came through as part of the auction process. So, as a result for those kinds of businesses, I do think you're going to have to wait until that comes, until likely later in the year or even early next year.

Having said that, there's still a healthy amount of flow that we're seeing, businesses where you can put a box around those risks or are not as impacted because they are recession-resistant or more non-cyclical, and we're still seeing some healthy multiples for those kinds of businesses.

I think that where we are, M&A is quite a seasonal type of dynamic. And so, right now, the top of the funnel has certainly expanded. And as these deals start to get signed up and the commitments come to fruition, it's going to still take another quarter or two in order to fund as part of the closing process. So, that's why I think that perhaps some of our peers are saying that they're a bit more optimistic about the fourth quarter.

Because the top of the funnel, I think, across the board, we are seeing a bit of an expansion for it. But it really remains to be seen, and I think, as a result of all these forces, I think you just still have to be quite selective about what you invest in.

Got it, got it. If -- so, if we look forward to the year 2026 for the credit partners or the SCP, you indicate plans to do another two CLOs this year. If -- and four a year is the plan, right? If the market's much hotter in, say, '27, would you be willing to change those plans?

I mean, you articulated a plan is to diversify by vintage, and different vintages of collateral can be a good thing. I mean, we know that the '21 was a big vintage, and we know what's going on with the '21s. So, is there anything that could get you to change that ramp-up schedule on the SCP? Or do you just want to stick to four a year, no more, and the diversification just matters that much, even if the market gets hot?

Robert, I can say when we talk with Lauren Basmadjian, who runs our liquid business, she is laser-focused on vintage diversification. Something that, when we started this program and idea, it's something we were very focused on.

And not to say we -- it's not something we consider and we have conversations based on the market, but we're very focused on vintage diversification. We anticipate it will be that four CLO cadence. Could timing result in whether one year has three CLOs, one year has five CLOs? It's possible, but we're going to be focused on evenly deploying over the horizon.

I'm not going to disagree that vintage diversification matters. I appreciate all that. I mean, then just on -- sorry, one more. On the sectors that you find attractive right now. I mean, in this industrials, aerospace, I mean, in GICS, aerospace is a subset within industrials.

Any particular niches within -- I mean, obviously, I don't think when you say industrials, I'm not thinking you're meaning deep cyclical, you know, steel foundries or things like that. So, could you maybe give us some kind of insight into where you're looking specifically within those pretty broad categories?

You're absolutely right that we are going to stay away from the more cyclical OEM, new install type of industrial businesses. We are gravitating much more towards aftermarket, repair, replacement, short repair maintenance type cycles. So, that's what we're really looking at.

And you can apply that towards pretty many broad parts of the economy. So, I wouldn't say that we're just drilling down on a certain subsector within industrials. It's more of the overlay of the type of business model that we're looking at.

So, at the same time, I think we are being a bit more careful within sectors that were supposed to be recession-resistant, such as, let's say, home services, residential services. That's a pretty popular area for private equity firms to invest in as buy-and-builds.

As a result, direct lenders will take a look at those things. If you really, if you look, if you unpack those areas, you know, we are starting to see a bit of top-line volume deceleration because, I think, people are feeling it in terms of what's happening in the economy and margins are starting to get a bit squeezed.

So, I think that's a sector that, again, I think, if you unpack this for portfolios of various private credit lenders, you're going to see a bunch of these platforms in there. I think, given what's going on, we also just have to be more selective about areas to stay away from too.

Thank you. I would now like to hand the conference back over to Alex Chi for closing remarks.

Great. Thanks, everyone, for joining the call. We appreciate your support. Please reach out if you have any further questions, and enjoy the rest of your summer.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day. Goodbye.

Good day, and thank you for standing by. Welcome to Carlyle Secured Lending's First Quarter 2026 Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Nishil Mehta. Please go ahead.

Good morning, and welcome to Carlyle Secured Lending's First Quarter 2026 Earnings Call. I'm joined by Alex Chi, CGBD's Chief Executive Officer; and Tom 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, 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 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, 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-K. These risks and uncertainties could cause 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 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 and the onetime purchase or nonrecurring investment income and expense events, 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'll turn the call over to Alex.

Thanks, Nishil, and good morning.

On today's call, I'll 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'll then hand the call over to our President and CFO, Tom Hennigan.

Despite a complex backdrop marked by geopolitical events and market volatility, we continue to be very pleased with the consistent credit performance of CGBD and strength of the Carlyle Direct Lending platform. In total, we funded $217 million of investments at CGBD 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 as the Carlyle Direct Lending platform continues to take share. In addition, we're 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 CGBD'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 2 new private equity sponsors that we had not partnered with before.

Repayments remained elevated with $216 million of activity during the quarter, combined with $153 million in sales to our MMCF joint venture, net investment activity drove total investments at CGBD to decrease from $2.5 billion to $2.3 billion during the quarter. Given the 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 CGBD.

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 was $15.89 per share compared to $16.26 per share as of December 31. The decrease was primarily attributable to market-related valuation factors, which Tom 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, our portfolio was comprised of 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. We expect these tenants 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, health care and consumer products. While we are optimistic about the potential for continued shift to an increasingly lender-friendly investment environment, GGBD'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 the second quarter of 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 management expression 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'll now hand the call over to our President and CFO, Tom Hennigan.

Thank you, Alex.

Today, I'll begin with an overview of our first quarter financial results. Then I'll discuss portfolio performance before concluding with detail on our balance sheet positioning.

Total investment income for the first quarter was $64 million, below prior quarter, primarily driven by a decrease in the 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 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 II merger and consolidation of Credit Fund II, both which closed in the first quarter of 2025.

Our Board of Directors declared the dividend for the second quarter of 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. 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. And given CGBD 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 continue 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. And 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. Now about 2/3 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.

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 or what we would consider to be good PIK.

Nonaccruals decreased as of March 31, with 1 borrower Alpine, completing a balance sheet restructuring during the quarter. The 4 remaining borrowers on nonaccrual 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 upsized 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 positioned us to continue to grow assets at the JV and increase the impact of CGBD 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 the Carlyle and Sixth Street BDCs and will invest in broadly syndicated first lien senior secured loans.

The financing of these assets will be primarily for CLOs separately managed by Carlyle and Sixth Street, subject to the oversight of SCP's Board of Directors. CGBD 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're able to capitalize on market volatility and accelerated the time line for the first 2 CLOs to price and close, benefiting from depressed loan prices and tight liability pricing. We expect to price and close 2 additional CLOs in 2026, subject to market conditions, in line with our plan to ramp at a cadence of 4 CLO issuances per year to ensure vintage diversification.

Over time, the JV is expected to manage approximately $6 billion to $7 billion of assets fee-free at SCP. We expect to grow the dividend to CGBD as the JV ramps in the coming quarters.

I'll finish by touching on our financing facilities and leverage. Our debt stack is 100% floating rate, matching our primarily floating rate assets, meaning CGBD 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're 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'll turn the call back to Alex.

Thanks, Tom.

As we approach the middle of the second quarter, our portfolio remains resilient and our strategy remains unchanged. We continue to focus on sourcing and transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels and expect to take advantage of improved conditions in the market with a revitalized origination platform.

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.

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

[Operator Instructions] Our first question comes from Rick Shane with JPMorgan.

Look, you're highlighting the opportunity in terms of better origination terms. I am curious sort of where you see us in the cycle as things start to normalize? Are we in a scenario where it's sort of back to mid-cycle levels in terms of spreads and in terms of deal structure? Or is this sort of the classic tight market where you are able to extract premiums and especially strong terms?

It's Alex. Thanks a lot for the question.

It feels to me like, as we've talked about, just given the rebalancing in the capital supply amongst the direct lending landscape, on top of the fact that there is still deal activity out there, there is just more discipline where it comes to spreads that are being indicated as well as for documentation.

So for the time being, and as we look at the pipeline and in our dialogue with the borrowers, it feels to us like we're clearly back in an environment where we're getting some spread back. As we mentioned, our originations in the first quarter, the spreads were up around 50 basis points.

We're getting a bit more OID and the documentation standards are also going a bit further back into lenders' hands. And so for the foreseeable future and as we look at our pipeline, it feels like this dynamic will continue.

Our next question comes from Eric Zwick with Lucid Capital Markets.

Just wanted to follow up on the questions -- I'm sorry, on the commentary that Tom gave with the question. I think, Tom, you mentioned that you expect the earnings to trough in 2Q given the expected kind of ramp in the JVs.

Just you mentioned some spread widening as well for the core portfolio, but it looks like 1Q new investments, the weighted average yield for that is still below the average yield in the portfolio. So that earnings trough can happen even with potentially a little bit of more kind of core investment yield compression. Is that the right way to think about your commentary?

Eric, thanks for the question.

I think that's right. When you look at the second quarter in particular compared to the first quarter, a couple of dynamics. Number one is overall portfolio spread continues to have a little bit of pressure, but I think that's pretty much worked its way through.

Second, base rates, we think at least for our portfolio, base rates the impact worked its way through in the first quarter. So absent additional rate cuts, at least the prior rate cuts, we felt the pain to date already.

When you look at our average assets and particularly when we had some attractive sales to our JV at the end of the quarter, the average assets for the second quarter are likely to be lower than the first quarter. And then 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 $0.01. So you put those together, we also anticipate we're going to finally start to see some ramp, which is finally, we just started with our JVs.

So you're going to start to see some modest ramp, particularly with our new JV with Sixth Street in the second quarter, but that's going to be more of a back-end '26 into '27. -- positive. So you put that all together, and we think that you'll see -- we anticipate a trough in the second quarter and then see a rebound in the third quarter.

That's helpful. And then just on the -- I think it's $152 million of assets sold to the credit fund in the quarter. How were those assets selected? And any commentary you can give on just kind of the details on kind of potentially the yield that was on those as well as the pricing?

Sure.

So those I'd say are primarily late 2025 originations, regular course deals, the deals in the typically the 450, 475 spread. So those transactions when we originate across our platform throughout 2025, those lower spread transactions typically with a 4 handle, we would really weren't considering to maintain long term on the CGBD balance sheet.

We're always working in concert with PSP with the thought that we would originate directly or ultimately sell to the JV. So that was really just a timing factor of ultimately transacting on those deals that we originated at market terms throughout 2025.

[Operator Instructions] And I'm not showing any further questions at this time. I'd turn the call back to Alex for any further remarks.

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

Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.

Hello, and thank you for standing by. Welcome to the Carlyle Secured Lending Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

I would now like to hand the call over to Nishil Mehta. Sir, you may begin.

Good morning, and welcome to Carlyle Secured Lending's Fourth Quarter 2025 Earnings Call. I'm joined by Justin Plouffe, our former Chief Executive Officer; Alex Chi, CGBD'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 the 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 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, 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. 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 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 counted for under the acquisition method of accounting in accordance with ASC 805 and a onetime 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 per share, the most directly comparable GAAP financial measure to adjusted net 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.

Thanks, Nishil. Good morning, everyone, and thank you all for joining. As many of you know, I've assumed the role of Chief Financial Officer of Carlyle and resigned as CEO, President and Director of CGBD.

Earlier this year, Alex Chi joined the firm as Deputy Chief Investment Officer for Global Credit and Head of Direct Lending and was recently appointed CEO and a Director of CGBD. With Alex's deep expertise, including prior experience as CEO of multiple BDCs, his proven leadership and strong industry relationships, we're confident he will help us continue to deliver results and growth for CGBD shareholders.

Separately, Tom Hennigan, who has been with the platform since inception has been appointed President of CGBD in addition to his existing role as CFO, Chief Risk Officer and Director.

I'd like to now introduce Alex and hand over the call for his remarks.

Thanks, Justin, and good morning. I'd like to start by highlighting how excited I am to join Carlyle. CGBD's core investment strategy will remain the same. We're focused on stable, high-quality credits in the core and upper middle market.

As I look forward, I'm highly focused on continuing to build out our origination engine and harness the full power of the Carlyle platform for the benefit of CGBD shareholders. On today's call, I'll give an overview of our fourth quarter and full year 2025 results, including the quarter's investment activity and portfolio positioning, and provide an update on our investment outlook. I'll then hand the call over to our President and CFO, Tom Hennigan.

2025 was a record year of originations for both CGBD and the Carlyle Direct Lending platform, a direct result of our efforts to enhance our origination capabilities. We deployed over $1.2 billion at CGBD and closed over $7 billion of commitments at the platform level. The fourth quarter was also a record at CGBD with over $400 million of investment fundings, resulting in net investment activity of $193 million after accounting for repayments.

Total investments at CGBD 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, CGBD 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 5 years, Carlyle Direct Lending has originated over $6 billion in commitments to software deals with 0 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, CGBD's 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 the same key factors that have traditionally provided market defensibility will also provide insulation from the newest market threat, AI.

The products that are truly embedded in 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 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 4 BDCs comprised of CGBD, a private perpetual BDC Carlyle Credit Solutions and 2 BDCs managed by Sixth Street. The new JV, Structured Credit Partners, or SCP, is expected to increase diversification and portfolio yield at CGBD. 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 CGBD.

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 CGBD.

Looking ahead, we expect 2026 to be an active year as M&A activity increases. Through a combination of increased market activity in Carlyle Direct Lending's rejuvenated origination platform, our pipeline for the first quarter has picked up, and we expect to continue to see strong deal flow. CGBD 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 that differentiate us from credit managers that do not have access to the same scale, scope of investment capabilities or dedicated in-house investing, portfolio management and restructuring resources the Carlyle platform offers.

With that, I'll now hand the call over to our President and CFO, Tom Hennigan.

Thank you, Alex. Today, I'll begin with an overview of our fourth quarter financial results. Then I'll 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 prior quarter, in the 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 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 the first quarter of 2025.

Our Board of Directors declared the dividend for the first quarter of 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 call, 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.

Given CGBD 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.

Now we've nearly exhausted the existing $200 million share repurchase program. So 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 a good PIK. And nonaccruals remained relatively flat as of December 31, with 5 names on nonaccrual 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 commitment, 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 of CGBD 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 has 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.

CGBD 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 4 CLO issuances per year to ensure vintage diversification. And over time, the JV is expected to manage approximately $6 billion to $7 billion of assets fee-free at SCP. So we expect the JV to be accretive to return on equity for CGBD.

I'll finish by touching on our financing facilities and leverage. As a reminder, in October, we raised a new 5-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 through 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 CGBD 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 prior quarter. Given our current strong liquidity profile, we believe 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 Alex.

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, 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, I'm excited to continue building out the Carlyle Direct Lending team, expanding our existing capabilities.

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

[Operator Instructions] Our first question comes from the line of Erik Zwick with Lucid Capital Markets.

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

It's great to meet you as well. One thing I just want to underscore is that the investment strategy here, it's not changing. As I said, we're 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's not an area I plan to aggressively push us into right now.

As I mentioned, we have a strong credit culture, team underwriters dedicated to industry verticals, deep expertise. So we're going to stick to our knitting, and we're going to concentrate on playing a lead role in the majority of our deals. But also, one thing that we're going to do a lot more though is to win and take share is really just harness the power of the other parts at Carlyle, whether it's the large liquid platform we have, such as the CLO business, our Carlyle Alplnvest platform, which is truly differentiated, our Washington, D.C. presence in connectivity, of course, our global private equity platform and the list goes on.

So we're not a pure-play direct lending shop. Rather, we have a direct lending business housed within one of the most formidable alternative asset managers in the world, and we're going to take it full advantage of that.

I appreciate that. And then just a follow-up on the positive commentary that you guys expressed about the pipeline here in 1Q '26, seeing stronger deal flow. There's 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's driving borrowing demand and contributing to the strong pipeline flow today?

Sure. Well, first of all, another good aspect of playing in the middle market and the core number is that there is always a better, more consistent flow of opportunities to look at. And we've all talked about the lack of DPI over the last 2, 3 years. We're starting to see that change.

If you look at Carlyle at the platform level, you saw that last year that we returned a significant amount of capital through exits to our investors. We're starting to see that play through in the broader pipeline. What's also interesting is that, again, just given Carlyle's heritage around industrial, aerospace and defense, health care, those are areas that we're 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've heard Justin say before, we hired a senior originator from Kaub that's been here for over a quarter. We have a couple of other managing directors who come with long-standing relationships. There are others coming on board. It's not a coincidence that the fourth quarter was a record quarter for us from an origination standpoint. And therefore, from a pipeline perspective, we're starting to see a lot more there as well.

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 kind of take advantage of the nonqualified bucket availability to get some additional yield using the structure. Just kind of curious if how you describe kind of the timing and rationale for that new venture?

It's Tom Hennigan. If you go back to last year, when we had our 2 JVs, we collapsed the 1 JV on the balance sheet. We've been looking to grow the existing JV with PSP. But we're looking to maximize and fully utilize the nonqualifying asset bucket. So we've really been over the last year, looking, "Hey, what's the next big venture for use is something we've been working on for a while. And to Alex's point, it's leveraging the broader Carlyle network and the strength of global growth syndicated team and at the same time, producing very strong expected returns based on no fee structure. So it's again, leveraging the broader Carlyle network and what we think is a very attractive overall structure.

Our next question comes from the line of Brian McKenna with Citizens.

Alex, great to meet you, and congrats on the 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 really for CGBD and the related direct lending strategies over the next year or so?

Sure. Look, 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, Tom, who is sitting here next to me, has been on the platform for nearly 15 years. And our Chief Underwriting Officer, Mike Hadley, he's been here for 20 years. And there's deep underlying expertise across the core verticals where we play. So what we're going to do, again, with our rejuvenated origination strategy is just really start to take more share, see more flow.

And one thing that I think that the leadership of Carlyle has done a great job of over the last handful of years is really start to just break down the silos so that we're harnessing the full power of all the different aspects of what Carlyle has to offer. And again, I don't want to interplay just the Washington, D.C. routes 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's a lot of opportunity here for us to just take more share while we just stick to our core knitting. As I mentioned in my earlier comments, although, again, in my power shop, we had a formidable presence in the large-cap space, that's not an area that we plan to push into right now.

Okay. Great. That's helpful. And then just a little bit bigger picture. Clearly, volatility has picked up across a number of different segments within the market. It seems like capital liquidity is coming in a bit just across the capital markets. But I'm curious what you're seeing on new deals today that are coming together have spreads started to move out a little bit? Like I'm just curious what you're seeing real time on that front.

It's a great question. In terms of spreads, we are starting to see an opportunity where we're going to see a bit of spread widening. It's not going to happen in a significant manner. But in some of the deals that we're looking at right now, the proposed spreads that are coming in reflect what we were seeing perhaps 2, 3 months ago.

I think just given the volatility that you just referenced, it's an opportunity to start getting some spread back, especially in the middle market. Another -- yet another reason as to why we're not actively pursuing a strategy back in 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, I think you're going to see a bit of a pause there, not so much because we just think that software is better or anyone is getting out of the market. It's just because many of the software deals that were acquired, they were acquired at very, very high robust multiples 2, 3, 4 years ago.

And I think just given the fact that people are still trying to figure out what AI means for these companies, I think the value expectations versus what buyers want to pay for, they're probably -- you're going to see some enterprise value gaps here. So I think we're going to need some time in order for people to really assess what's 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, and those are areas where you see significant amount of portfolio companies that yet to be monetized. So I think that's where we're going to start to see more of the flow. And I think on spreads, to your question, I think for the time being, we're not going to see any more compression, which is good. And if anything, we're starting to see some opportunities for us to get the spread back.

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

Brian, I think that the -- on the portfolio continue to have overall strong performance. We're still in the process of getting fourth quarter results. Obviously, you're not going to see anything in those fourth quarter results.

One thing we have done is just based on -- certainly, we're seeing in the broadly 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. So I think probably you're 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 broadly syndicated market.

[Operator Instructions] Our next question comes from the line of Rick Shane with JPMorgan.

Congratulations on all youf new roles. Look, one of the themes that has emerged listening to all of the BDC calls or 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're lending to, and their revenue and cost structures, how significant is interest expense in their overall expense load?

Yes. It's something that -- obviously, when we look at our credit metrics, interest coverage ratio is getting better, it's marginal, base rates down 75 basis points, expected additional rate cuts -- on the margin, it's going to be helpful. But just like we ran the sensitivities when rates were going up, even if we said, okay, rates were at 5%, 6%, they had a gap up materially before we were concerned about liquidity at particular our sensitivities that they had to go up another 300 basis points.

So certainly, on the margin, it helps. Is it a material benefit where we think it's going to be a material difference? No, it's certainly going to help on the margin. But based on certainly where the current base rates are -- based on where the current curve is.

The other comment that I'd make is on new originations that we're looking at right now. It's not only just interest coverage that we're looking at. We're also looking at fixed-charge coverage ratios. And the fixed-charge coverage ratios that are now coming out that we're underwriting to, there's a lot more cushion than what we saw before. We would typically look at a 1.1x fixed-charge coverage ratio, and then we sensitize that, of course, for different industry curves.

But now out of the box, we're 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 that we'll put on these companies when we buy them.

Got it. Okay. And then the question that I've sort of asked a couple of companies through earnings. Look, you guys are in the position you are able to do more than one thing at a time, but you are experiencing significant repayments, stocks trading at a significant discount to NAV. 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?

Rick, we think it's a balanced approach as you see what we've done in the last 90 days is we started buying back shares last quarter. We've continued into this quarter. So again, it was $14 million in the fourth quarter, another $14 million quarter-to-date in the first quarter. That represents 3% of our total shares. It's about $0.06 per share accretion in each quarter to $0.12 in total. That's $186 million since inception.

So we've been supportive of going back a number of years in 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's certainly accretive for investors to continue considering buybacks. At the same time, when you look at primarily our 2 JVs where we we're within our target leverage range.

Net-net, if we're adding investments to our JVs, that's very accretive for the fund. So on the margin, we're not adding -- if we're adding 475 or 450 spread deals. It's to our current JV where we're able to generate a 15% plus return from that fund. And certainly, we anticipate over the course of the next 2 years, investing and growing our second -- well, not our third JV, but our Structured Credit Partners JV. So we think those are very accretive dollars in terms of where we're putting our new investment dollars on a net basis...

I think I interrupted.

No, go ahead.

No, that's it. I just wanted to say thank you. I appreciate the clarity on that. It helps us think about the talent you may be paying off over the next 12 months.

Ladies and gentlemen, I'm showing no further questions in the queue. I would now like to turn the call back over to Alex for closing remarks.

Great. Well, thank you very much. Very excited to be here, and we look forward to coming back in subsequent quarters.

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

Good day, and thank you for standing by. Welcome to Carlyle Secured Lending, Inc.'s Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Nishil Mehta, Head of Shareholder Relations. Please go ahead.

Good morning, and welcome to Carlyle's 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 in 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 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 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 in the onetime purchase or nonrecurring investment income and expense events, including the effects on incentive fees and are used by management to value 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 by sight 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 or $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, MMCF. 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. [indiscernible] 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 TriCoat, 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 tenants 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 3 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 quarters 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 upside to the credit facility in October. The upside 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% non-qualifying 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 plus 231. We used the proceeds in part to repay in full the higher-priced legacy CSL 3 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 and reduced reliance on mark-to-market leverage. Our debt stack is now 100% floating rate, matching our 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 profile 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's 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 continued to build out the broader origination function with an additional hire in Q3 and 1 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.

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

Tom, can you give us some color, maybe a bridge on the top line this quarter, SOFR was pretty stable. I think the nonaccrual was small. Just seeing what the mix was, whether it be like average portfolio or onetime fees or anything else in there that's notable?

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 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 2.

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 where we'll 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. It's really the all accretion was the biggest point on the top line.

Okay. In the 10 bps you gave on borrowing spreads, was that just from the baby bond? Or was that also there's a couple of post-quarter changes as well. Is that a holistic sort of guidance or just that 1 bond that I'm sorry, I didn't catch that.

No, and it was primarily post quarter end items. It was the we repaid our legacy CSL 3 facility that was priced at SOFR plus 285. The baby bond swap adjusted is SOFR 314. So those -- the CSO facility we repaid at the beginning of October. The baby bond will be repaid effective December 1. And then the biggest replacement is the new institutional deal we did, which is swap-adjusted to 31. So all for SOFR. So net-net, that's about 10 basis points across the capital structure.

Okay. One final one for me. I'll get back in the queue. I'm sure we probably do about this last quarter. But the $0.40 declared to the 4, you said something like comfortable for now. Can you expand on for now does that include like how far out into the SOFR curve, does that include? And then sort of what are -- I know you mentioned the the 30% bucket, a bit of rotating spread. So like how much sort of fundamental or octane sort of drivers offset how much Fed decline in your outlook for coverage.

Sure, and interestingly, our outlook and the support and our comfort with that $0.40 is actually in the near term, the next few quarters is where we see the most [indiscernible] and that's just based on primarily the sulfur curve. So we anticipate earnings will trough in the next couple of quarters. When you look at the longer-term with our 2 JVs -- I should say 1 JV in place and then a potential second JV. That's what we see. That will just take time to ramp those vehicles.

So for example, our existing JV, I mentioned we increased the credit facility from $600 to $800 give us more dry powder to continue to invest. We reached agreement with our partner to increase our equity commitments from $175 to $250 each. And we've also been working on some creative low-cost financing solutions to continue to operate at a very low debt cost of capital for that JV.

So that gives us the runway and it's going to take some time to grow that vehicle from $800 million of assets to double the size to $1.6 billion. And right now, we're at a 15% return on assets for CBD, we see the ability to increase that by 300 to 500 basis points. So we see a lot of positive drivers with that JV, but it's going to take some time to invest over the course of the next number of quarters.

And then the second JV, where we've made some really good progress with a potential partner. It's leveraging, Carlyle's, global credit expertise in investing loans. It's something we hope to have more color for the market and hopefully start to close on that deal sometime this quarter. Again, that will be longer term to ramp that vehicle.

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 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. Thanks for the question. Look, we are operating in a tight spread environment across credit markets. And at this point in time, we don't see a ton of value in second liens. I think the -- I think across all private credit markets, the amount you're getting paid to take significant risk has really -- has come down in the last 24 months. So our strategy has always been defensive, diversified first lien and then opportunistic on things like second liens.

And I would tell you, right now, we don't see the opportunity to be that compelling. So I think you will see our portfolio continue to trend first lien. And I don't see any reason for that to change in the near term. Of course, we could have a credit cycle, and then there might be opportunities that come up at that point. But for now, we're very, very focused on a defensive first lien portfolio.

I appreciate the commentary there. And then just given your comments about the pipeline continuing to grow and 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. It definitely continues to be pressure on spreads relative to where the portfolio is. For the first -- for the third quarter, our weighted average spread was a shade over 500 basis points. Prior quarters is a bit higher. And part of that is our mix of non-U.S. transactions in the -- second quarter was closer to 15%. We typically see anywhere from a 75 to 100 basis point premium for those non-U.S. transactions. So we've got a little extra spread premium in the second quarter. In the third quarter, our origination as well strong was only up 5%, only 1 deal from our European originations. So we're around about 500.

But I think that there continues to be overall pressure when you look at where the overall portfolio yield is relative to, let's say, those new originations, which are more squarely 500 weighted average. And for a brand new LBO, not in the portfolio, probably a 4 handle is what we're seeing in the space market.

But for CGBD, those are transactions and we'll be investing in that particular transaction across our broader direct lending business. for CGBD as those assets drift and spread below 500, that's where they're very good candidates for our JV.

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 the drivers there? Was it kind of industry-related or more company specific, if you're able to provide any commentary.

The increase in the 2 rate, Erik, from up by about $100 million.

Yes.

Yes. Primarily a couple of deals transitioned from the 3 category to 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 through 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.

Congrats on the great quarter. But when looking over the nonaccruals, it looked like quarter-over-quarter nonaccruals decreased significantly, but the rating within the portfolio increase from 4 -- investment-grade rating 4 to 5. So is -- are the nonaccruals that are remaining on the books, they just shifted to materially changing the expectations on recoveries? Or is this just more of a covenant change or just lapsing in the amount of time since payment?

It's Tom again. I'll answer that in a slightly different way. I think just to describe the changes in the categories. The biggest decline in the 4 category was the restructuring of Arch Maverick, now it's called Aline Precision. So that was the largest component of that 4 category. And we successfully restructured, we wrote off some debt, but now that transaction, the multiple tranches lives in the 2 and 3 categories.

The migration from 4 to 5 is primarily 1 credit that remains on nonaccrual that we are in the midst of restructuring right now. And I think that it's a -- the shift from 4 to 5 is acknowledgment on our part that, hey, yes, we're restructuring it. Yes, we're going to be writing off debt. And

[Audio Gap]

Just want to make sure I'm understanding your comments on the and your views on the JV appropriately. It seems like with the upsize and the existing one and the potential second JV, those will take time to scale up. And so as you look at the earnings power of the portfolio, we shouldn't be thinking of those as having a particularly near-term impact on earnings power. Is that fair to say?

Yes, that's a very good synopsis of it. When we look at the current quarter, the next quarter, next 2 quarters, we know the red cut map 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.

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 mix.

[indiscernible] We have our $0.86 a spillover over 2 quarters that for this interim basis, we feel comfortable if we're necessarily paying out the spillover, but really have the long-term goal in mind.

Okay. Okay. And then following on one of your comments, I think it was during the prepared remarks. You mentioned at 1 point the potential for spreads to widen, especially to compensate a little bit for lower base rates. I guess I'm wondering if that's built into your -- is that your base case expectation and how does that -- how do you reconcile that with just the supply and demand and balance of capital that we're seeing in the market now, even with base rates being lower and spreads still being so tight.

Yes. No, it's not our -- necessarily our base case scenario. I think if you look historically, when rates have been going down, have actually more than compensated for the reduction in rates. But we're in an unusual environment now where we do have base rates going down while spreads either tightened or remain tight. So -- in the current environment, that's not the case. But as we know, credit goes through cycles. And I think eventually, we will have a change in the supply-demand imbalance. I think historically, if you look across private credit, spreads are at the tighter levels that they've been.

So I think it's reasonable in the intermediate term to think that there probably will be some movement on spread, and we want to be positioned to take advantage of that, right? So that's really all that we're saying, not some prediction of near-term spread widening because I don't really see the impetus for that in the markets today.

Thank you. At this time, I would now like to turn the conference back over to Justin Plouffe for closing remarks.

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