Carlyle Credit Income Fund Q3 2025 Earnings Call Transcript

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August 20, 2025

Key Takeaways

  • Positive Sentiment: We maintained the $0.015 monthly dividend (22.1% annualized) fully declared through November 2025, with 174% coverage by recurring cash flows for the quarter.
  • Positive Sentiment: Our diversified CLO equity portfolio delivered a 15.1% GAAP yield and 23.1% cash-on-cash yield, supported by a healthy 4.5% overcollateralization cushion and extended reinvestment period.
  • Positive Sentiment: Adjusted net investment income was $0.22 per share and core NII was $0.35 per share, providing 111% dividend coverage and a NAV of $6.51.
  • Negative Sentiment: Ongoing leveraged loan repricings have compressed portfolio yields by four basis points, requiring increased refinancing and reset activity to mitigate spread pressure.
  • Positive Sentiment: Robust CLO issuance (~$42 billion in Q3) and resilient loan fundamentals—portfolio default rate at 1.2% vs. market 3.8%—underline demand and credit stability in our holdings.
AI Generated. May Contain Errors.
Earnings Conference Call
Carlyle Credit Income Fund Q3 2025
00:00 / 00:00

Transcript Sections

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Operator

Good day, and thank you for standing by. Welcome to the Carlisle Credit Credit Income Fund Third Quarter twenty twenty five Financial Results Investor Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that this conference is being recorded.

Operator

I would now like to turn the conference over to your speaker today, Joseph Castillo. Please go ahead.

Executive

Good morning, and welcome to Carlisle Credit Income Fund's third quarter twenty twenty five earnings call. With me on the call today is Nishal Mehta, CCIF's Principal Executive Officer and President Lauren Bezmadgen, CCIF's Chair and Carlyle's Global Head of Liquid Credit and Nelson Joseph, CCIF's Principal Financial Officer. Last night, we issued our Q3 financial statements and a corresponding press release and earnings presentation discussing 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.

Executive

Any forward looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on the Form NCSR. These risks and uncertainties could cause actual results to differ materially from those indicated. Carlyle Credit Income Fund assumes no obligation to update any forward looking statements at any time. During the conference call, we may adjust adjusted net investment income per common share and core net investment income per common share, which are calculated and presented on a basis other than in accordance with GAAP.

Executive

We use these non GAAP financial measures internally to analyze and evaluate financial results and performance, and we believe these non GAAP financial measures are useful to investors gauging the quality of the Fund's financial performance, identifying trends in its results, and providing meaningful period to period comparisons. The presentation of this non GAAP measure is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. With that, I'll turn the call over to Nishal.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Thanks, Joe. Good morning, everyone, and thank you all for joining CCF's quarterly earnings call. I would like to start by reviewing the Fund's activities over the last quarter. We maintained our monthly dividend at $0.01 $05 per share or 22.1% annualized based on the share price as of 08/15/2025, which is now declared through November 2025. The monthly dividend is supported by $0.55 of recurring cash flows for the quarter, providing 174% of dividend coverage.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

New CLO investments during the quarter totaled $28,100,000 with a weighted average GAAP yield of 14.6%. The aggregate portfolio weighted average GAAP yield was 15.1% as of June 30. We rotated out of seven CLO investments for total proceeds of $16,200,000 Within CCS portfolio, we completed two refinancings and resets in the third quarter, reducing the cost of liabilities and extending the reinvestment periods across these CLOs and bolstering equity cash flows. We expect refinancing and reset activity to pick up as CLO liability spreads continue to tighten. We sold 1,400,000.0 of our common shares above net asset value in connection with the ATM offering program for total net proceeds of 9,200,000.0.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

We continue to leverage Carlyle's long standing presence in the CLO market as one of the world's largest CLO managers and a fifteen year track record investing in third party CLOs to manage a diversified portfolio of CLO equity investments. While CLO equity valuations remain sensitive to macro volatility and continued loan re pricings in the underlying leverage loan market, we remain encouraged by the credit fundamentals across our holdings. We believe the portfolio is positioned defensively to focus on higher quality managers and structures that maintain ample reinvestment period and robust overcollateralization cushions. This is reflected in the portfolio's weighted average junior overcollateralization cushion of 4.5%. The average remaining reinvestment period increased over the quarter, following resets of two positions in the third quarter.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

The aforementioned loan repricings caused a four basis point decline in the weighted average spread of the portfolio's underlying loans. Despite this pressure, the portfolio delivered strong cash yields, with April distributions producing an average cash on cash yield of 23.1%, supporting CCIS' monthly dividend. I'd like to note that volatility earlier in the quarter pressured loan prices and CLO equity valuations. These periods often present opportunities amidst volatility in April. CLO managers were able to capitalize on a temporary dislocation by purchasing loans at discounted prices, helping to build par and support future value creation through the end of the quarter.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

I'd like to share some key stats on the portfolio as of June 30. The portfolio generates a GAAP yield of 15.11% on a cost basis supported by cash and cash yields of 23.11% on CLO investment quarterly payments received during the quarter. The weighted average years left in reinvestment period increased from approximately three point one years to three point three years as there were two accretive resets in the underlying portfolio during the quarter. This provides CLO managers the opportunity to capitalize on periods of volatility through active management. There are also zero CLOs in the portfolio that are post reinvestment period.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

We believe the portfolio weighted average over collateralization cushion of 4.5% is healthy and offsets potential defaults and losses in the underlying loan portfolios. The weighted average spread of the online loan portfolio was 3.25%. The average percentage of loans rated CCC by S and P was 4.4%, below the 7.5% CCC limit in CLOs. As a reminder, once a CLO has more than 7.5% of its portfolio rated CCC, the excess over 7.5% is marked at the lower fair market value or rating into recovery rates and reduces the overcollateralization cushion. The percentage of loans trading below 80 decreased from 3.3% to 3.1%.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

We continue to leverage the depth of the Carlyle liquid credit platform and our collaborative One Carlyle platform to source and invest in high quality CLO portfolios through a disciplined bottom up 14 step investment process. With that, I will now hand the call over to Lauren to discuss the current market environment.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

Thank you, Nishal. I'd now like to provide an update on the recent developments across both the loan and CLO equity markets. Following the volatility in April, the CLO market broadly stabilized as near term trade concerns eased and investor sentiment improved. CLO issuance totaled $42,000,000,000 for the quarter, including $17,000,000,000 in May alone, reflecting a meaningful pickup in activity as market conditions became more constructive. CLOs remain a key source of demand for the loan market, with new issuance still on track to outpace record twenty twenty four levels.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

CLO liability spreads widened sharply in April across the stack following Liberation Day with AAAs and BBs specifically widening by about 20 basis points and 100 basis points, respectively, from March 31 through their mid April peaks. As market conditions stabilized post Liberation Day, CLO liability spreads fully recouped the April widening and partially recouped the widening we witnessed in the second half of the first quarter. However, CLO debt spreads remained above the year to date types reached in late January and early February. Reset and refinancing activity continued during the quarter, though at a more measured pace. That said, the pace of repricings has picked up again during the summer.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

Looking ahead, we anticipate reset activity to remain strong as CLO debt spreads continue to tighten throughout the quarter and the large cohort of twenty twenty one vintage CLOs are approaching the end of their reinvestment periods in 2026. Moving to the loan market, prices broadly recovered over the course of the second quarter following a volatile start. The LSTA Index returned 2.3% in the second quarter, recovering from roughly 2% drawdown in April that followed the tariff announcements. The LSTA Index ended the quarter slightly below its January high of 97.7%, with approximately 40% of the loan market trading above par. While the market remained sensitive to macro developments, most of the second quarter marked a period of stabilization following some of the most volatile days seen since March 2020.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

Despite ongoing macro uncertainty, credit fundamentals across The U. S. Leveraged loan market remain resilient. Within Carlyle's portfolio of nearly 600 borrowers and CLO management platform, which we believe serves as a valuable proxy for third party managed CLO portfolios, we continue to see healthy performance. During the quarter, average borrower EBITDA grew by 5.1%, ahead of the 4.8% revenue growth.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

The average interest coverage ratio was about 3.4 times, with fewer than 2% of borrowers posting a ratio below one times. Preliminary second quarter twenty twenty five data indicates that borrower fundamentals remain stable, with sales and EBITDA growing but at a slower pace than in prior quarters. From a default perspective, Chapter 11 bankruptcies remain moderate and below historical averages. Out of court restructurings continue to be a major contributor to overall default activity in the broadly syndicated loan market. Including these transactions, the market's last twelve months default rate stands at approximately 3.8%, which is elevated relative to long term norms.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

CCIF's underlying loan portfolio has only experienced a 1.2% default rate over the same period, inclusive of out of court restructurings, a fraction of the market default rate. CCIF has been able to achieve a lower default rate by leveraging our in house credit expertise from over 20 U. S. Credit analysts. To complete bottom up fundamental analysis on the underlying loan portfolios.

Lauren Basmadjian
Chairman - CCIF Board & Trustee at Carlyle Credit Income

I will now turn the call back to Nelson, our CFO, to discuss financial results.

Nelson Joseph
Principal Financial Officer at Carlyle Credit Income

Thank you, Lauren. Today, I will begin with a review of our third quarter earnings. The cash on cash yield of 23.11% on CLO investment quarterly payments resulted in $0.55 of recurring cash flow. Total investment income for the third quarter was $8,600,000 or $0.43 per share. Total expenses for the quarter were $4,700,000 Total net investment income for the third quarter was $4,000,000 or $0.19 per share.

Nelson Joseph
Principal Financial Officer at Carlyle Credit Income

Adjusted net investment income for the third quarter was $4,500,000 or $0.22 per share. Adjusted NII adjusts for $03 per share impact from the amortization of the OID and insurance cost for the Fund's preferred shares. Core net investment income for the third quarter was $0.35 per share, providing dividend coverage of 111% of our monthly dividend of 10.5¢ per share. We believe core net investment income is a more accurate representation of CCIF's distribution requirement. Net asset value as of June 30 was $6.51 per share.

Nelson Joseph
Principal Financial Officer at Carlyle Credit Income

Our net asset value and valuations are based on the bid side mark we received from a third party on a 100% of the CLO portfolio. We continue to hold one legacy real estate asset in the portfolio. The fair market value of the loan was $2,200,000 The third party we engaged to sell our position continues to work through the sales process. During the quarter, we sold 1,400,000.0 of our common shares in connection with the ATM offering program at a premium to NAV for net proceeds of $9,200,000 The common share issuances for the quarter resulted in an accretion of our net asset value of $01 per share. In Q3, holders of our Series B Convert preferred shares converted $5,000,000 into common stock at a price above net asset value.

Nelson Joseph
Principal Financial Officer at Carlyle Credit Income

Dollars 3,500,000.0 of the Series B convertible preferred shares remains outstanding. With that, I'll turn it back to Nishal.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Thanks, Nelson. Today, CCF holds a diversified portfolio of CLOs with meaningful remaining reinvestment periods, giving our managers the flexibility to capitalize on market opportunities. We believe CCF remains well positioned to deliver both an attractive dividend yield that is fully covered by core net investment income and long term total return potential. We continue to leverage a bottom up approach to analyzing the underlying loan collateral in each Seal equity position and actively reassessing our exposure to ensure we remain focused on the highest quality risk adjusted opportunities. We remain committed to delivering strong consistent performance for our investors.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

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

Operator

Thank you. Our first question comes from Randy Binner with B. Riley Securities. Your line is open.

Timothy D'Agostino
Senior Equity Research Associate at B. Riley Securities

Hi, thank you for taking the question. This is Tim D'Agostino on for Randy Binner. As we look at the portfolio yield, it seems that it's come in since the '4. As we look out to the year end 'twenty five, '6, especially as the Fed cuts rates, would we expect this total portfolio to kind of be flat at this level or declining?

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

So, Nishal, and good morning. So maybe I'll first address what's driving the decline in in gap yields. It it's really the record number of loan repricings we've seen since the 2024. I think the nominal spread in the loan market has declined around 50 basis points. So this is a market wide issue, and it's really driven by what I would say is somewhat supply demand imbalance.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

You're not really seeing a lot of capital markets activity, which drives new loan origination. And so we've seen these repricings. Unfortunately, repricing wave continues. July, we saw another month of very strong repricings, and so as of right now, the trend continues to be unfavorable in terms of loan repricing is gonna cause the gap yield to decline. The two things that we are doing to to offset this is one, we are actively refinancing and resetting our portfolios.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Two, reset the the arbitrage between the the spread on the loans and the the cost of debt. We've the market was less active in the second quarter, so we only completed two just because of the spread widening we saw post, April, but now as spreads have continued to tighten, we expect that activity to increase. So that should help offset the repricings. The other thing that we're doing is we're constantly looking to optimize the portfolio, and specifically, we have some positions that have, substandard, gap yields now just because of the repricings. And so we've been rotating out of those positions and continue investments.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

To your question on Fed cuts, given the assets, the underlying loans and our cost of and our financings are both floating rate, It largely offsets each other, so we don't think decline in rates is gonna be have a material impact on our cap yields.

Timothy D'Agostino
Senior Equity Research Associate at B. Riley Securities

Okay. Great. Thank you so much. And then on cash yield, it seems it ticked up in the quarter over quarter. I know you said there was some movement in April.

Timothy D'Agostino
Senior Equity Research Associate at B. Riley Securities

As we look out to year end 2025, beginning 2026, should we expect the the cash yield to remain at this level? And yeah. Thank you.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Yeah. So you did see an uptick in cash yield last quarter, mainly because in the prior quarter, the quarter ending June, March 31, we had a number of CLOs that did not make their quarterly payments because the cash was instead to use for the accretive refinancings and resets. Given activity was lower, in the prior quarter, we we saw less of that, so you saw, the cash yields, normalize. I think the expectation is as we continue to see repricing that cash yields might decline, as well. It it's obviously hard to predict.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

But what we're we're hoping is that cash yields will stabilize as we continue to do these refinancings and resets.

Timothy D'Agostino
Senior Equity Research Associate at B. Riley Securities

Okay. Great. Thank you so much. That's all from me.

Operator

One moment for our next question. Our next question comes from Eric Zwick with Lucid Capital Markets. Your line is open.

Erik Zwick
MD - Equity Research at Lucid Capital Markets LLC

Thanks. Good morning, everyone. Wanted to start with just kind of a bigger kind of strategy question. Given the global reach of the Carlyle parent into kind global debt markets, Correct me if I'm wrong, I don't think CCIS currently has any non U. S.

Erik Zwick
MD - Equity Research at Lucid Capital Markets LLC

CLO positions in the portfolio and if I'm correct on that assumption, is there any particular reason do you have a mandate to only do U. S. Or have you just not seen attractive risk adjusted opportunities in other markets?

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Yeah, Eric, good morning. So you're right, right now CCF currently does not hold any European investments. I guess, would to be clear, our larger, seal investing platform, we we do invest in Europe. So we have the expertise. We have the the credit analyst to help us do the bottoms up analysis.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

We haven't really done it just from a a relative value standpoint, but we are looking at it, pretty actively, so I wouldn't be surprised to see some, incremental European investments in the portfolio over the next three to six months. And any investments we would make in Europe, we would we would hedge that back to dollars.

Erik Zwick
MD - Equity Research at Lucid Capital Markets LLC

Thanks, Mitchell. And then just thinking about the opportunity to utilize the new credit facility, I think it's $30,000,000. It just kind of made me weigh that against other methods of financing the portfolio and other some of the other debt you've used in the past.

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Yeah. So this credit line, we're gonna view it more as a working capital line. So it really helps smooth our our inflows and outflows. It allows us to be much more efficient in the fact that we don't have to be holding cash. And so the expectation is usage will be, episodic and somewhat limited instead of using it to to leverage the balance sheet.

Erik Zwick
MD - Equity Research at Lucid Capital Markets LLC

Thanks. And last one for me, just given the current discount where the stock is trading relative to NAV, have you given any thought to potentially repurchasing shares at this juncture?

Nishil Mehta
President, Principal Executive Officer & Trustee at Carlyle Credit Income

Yeah. It's something that we we discuss internally and with the board, and it's something that we'll continue to discuss if the stock trades below NAV. Obviously, you probably saw that both Lauren and myself, we we made purchases, so we we think it's great value. But we'll continue to to have those discussions internally on whether it's a it's more accretive to repurchase versus making new investments.

Erik Zwick
MD - Equity Research at Lucid Capital Markets LLC

Thanks for taking my questions today.

Operator

I'm not showing any further questions at this time. I'd like to turn the call back over to Joseph.

Executive

Thank you. We look forward to speaking to everyone quarter, if not sooner. Please feel free to reach out if you have any questions, and thank you all for your support.

Operator

Thank you. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.

Analysts
    • Executive
    • Nishil Mehta
      President, Principal Executive Officer & Trustee at Carlyle Credit Income
    • Lauren Basmadjian
      Chairman - CCIF Board & Trustee at Carlyle Credit Income
    • Nelson Joseph
      Principal Financial Officer at Carlyle Credit Income
    • Timothy D'Agostino
      Senior Equity Research Associate at B. Riley Securities
    • Erik Zwick
      MD - Equity Research at Lucid Capital Markets LLC
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