INTRODUCTION

This summary provides a review of Carlyle Secured Lending, Inc.’s (CGBD) credit performance and specific company developments during the first quarter of 2025 based on the BDC’s earnings conference call and 10-Q filing.

REVIEW

Carlyle Secured Lending, Inc. Q1 2025: Credit Performance and Portfolio Company Developments

CGBD reported its first quarter 2025 results on May 7, 2025, highlighting portfolio growth, credit performance, and specific developments among portfolio companies.

Portfolio Growth and Structure

• CGBD added approximately $180 million in organic originations during Q1 2025.
• The merger with CSL III, completed on March 27, 2025, added about $490 million in new investments
• The consolidation of Credit Fund II in February 2025 increased the portfolio by a net $127 million.
• Total assets increased from $1.9 billion to $2.5 billion during the quarter.
• As of March 31, 2025, the portfolio consisted of 195 investments across 138 companies in more than 25 industries.
• Average exposure to any single company was less than 1% of total investments, with 94% of investments in senior secured loans.
• The median EBITDA for portfolio companies was $87 million.

Credit Performance and Non-Accruals

• Non-accruals increased to 1.6% of total investments at fair value as of March 31, 2025, up from 0.6% in the previous quarter and 0.1% a year earlier.Non-accruals as a percentage of total cost were 2.2%
• The total value of all non-accruals was $36 million at quarter end.
• Maverick Acquisition Inc., an aerospace company, was added to non-accrual status in Q1 2025. CGBD placed a $40 million loan on non-accrual, resulting in a temporary loss of ($4.5) million in annual interest income. The loan had previously been discounted by (27%_ at the end of 2024. CGBD also increased its exposure to Maverick by $6 million during the quarter. No equity is owned in Maverick. The fair value of the Maverick loan is $26 million.
• Aimbridge Acquisition Co., Inc. underwent a restructuring that resulted in a realized loss of approximately $8 million. CGBD’s $9 million debt position was converted to equity, now valued at $1 million. The loss of annual income, which began when the debt was placed on non-accrual in Q4 2024, amounts to just over $1 million.
• An estimated $1.8 million of annual interest income or preferred interest is being forgone due to non-accruals at three other companies.

Realized and Unrealized Gains and Losses

• The total aggregate realized and unrealized net loss for the quarter was approximately ($8) million.
• Realized losses totaled ($22.5) million across four companies, including the loss related to Aimbridge Acquisition^[.
• CGBD exited its investment in SPay at par, resulting in about $4 million in unrealized gains for the quarter. SPay was carried at $25.1 million at the end of 2024, with a cost and par value of $29.2 million. The loan was largely paid in payment-in-kind (PIK), so the repayment will decrease PIK income going forward^[1].
• Equity positions in SPF Borrower (also known as Derm Growth) and Bayside (formerly ProPT) increased in value. SPF Borrower’s equity is now valued above cost. Bayside’s equity value increased from $2.2 million to $6.0 million in three months. Debt holdings in both companies are current on cash interest payments, and some loans are paid entirely in PIK.

Risk Ratings Table

The merger caused the percentage of assets in the lowest three categories to substantially decrease from the situation in the IVQ 2024 before the combination. The $35mn in the two lowest risk categories is very modest by contrast with the BDC’s net assets of $1,212mn, which is about (3%).

Tariff Exposure

• Less than 5% of the portfolio has any material direct exposure to tariffs. The company continues to monitor for both direct and indirect impacts as trade policy evolves.

Leverage and Capital Structure

• Portfolio leverage was somewhat lower on a net basis at quarter end. CGBD’s target is a 1:1 debt-to-equity ratio going forward.
• The company increased its revolving credit facility by $145 million to $935 million and assumed a $250 million CSL III credit facility upon closing the merger.

Summary of Company-Specific Developments

• Maverick Acquisition Inc.: $40 million loan placed on non-accrual; fair value now $26 million; $4.5 million annual interest income loss; no equity held.
• Aimbridge Acquisition Co., Inc.: $8 million realized loss from restructuring; $9 million debt converted to $1 million equity; annual income loss of just over $1 million
• SPay: Exited at par, generating about $4 million in unrealized gains; repayment reduces future PIK income.
• SPF Borrower (Derm Growth) and Bayside (ProPT): Equity values increased; both companies’ debt positions are current on cash interest, with some loans paid in PIK.

VIEWS

Ups And Downs

There were both positive and negative developments where CGBD’s credit performance was concerned in the IQ 2025.

The addition of Maverick to the non-accrual list is an undeniable negative and a material drag on earnings and book value.

The BDC Credit Reporter has very little to tell us about what’s happening at the company but the write-downs taken at other BDCs confirms that this is a serious situation that could yet get worse from a valuation perspective.

However, Maverick and the rest of the under-performing companies represent – at worst – only a tenth of the portfolio as a whole and – going by the Credit Reporter’s research which we’re cribbing from – there are only 4 “Important Underperformers” in the 138 company portfolio.

Look On The Bright Side

CGBD’s shareholders should take some comfort from the positive resolution of S-Pay and the positive trends at the restructured SPF Borrower and Bayside which – if nothing else – suggests the restructurings are bearing fruit.

Moreover – for what it’s worth – the current level of non-accruals, both at cost and FMV – is on the low side, both by the BDC’s own historical levels and that of BDC sector averages.

There is not yet any clear and present credit danger from tariffs.

Overall, the risk profile of CGBD at the end of the IQ 2025 was lower than previously thanks to the merger and the modest leverage employed, substantially more modest than most of its peers.