Carlyle Secured Lending NASDAQ: CGBD reported lower first-quarter investment income and net asset value, while management said the business development company is seeing a more lender-friendly deal environment with wider spreads and stronger documentation in new originations.
On the company’s first-quarter 2026 earnings call, Chief Executive Officer Alex Chi said Carlyle Secured Lending funded $217 million of investments during the quarter. At the broader Carlyle direct lending platform level, the firm closed more than $1.2 billion of new and incremental commitments.
Chi said platform originations rose 14% year over year, even as U.S. private equity deal activity was down nearly 25% over the same period. He attributed the performance to the Carlyle direct lending platform continuing to gain share.
“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,” Chi said.
Investment Income Falls as Portfolio Size and Yields Decline
President and Chief Financial Officer Tom Hennigan said total investment income for the first quarter was $64 million, down from the prior quarter. He said the decline was primarily driven by a decrease in average portfolio size and lower total portfolio yields, reflecting lower base rates and lower spreads. Higher fee income partially offset those pressures.
Total expenses were $39 million, also lower than the prior quarter, due mainly to lower interest expense from a reduced outstanding debt balance and lower base rates. Hennigan also cited the prior-quarter impact of accelerated debt issuance costs related to the repayment of the company’s 2028 notes.
Net investment income was $25 million, or $0.36 per share, on both a GAAP basis and an adjusted basis. The company’s net asset value was $15.89 per share as of March 31, down from $16.26 per share at Dec. 31.
Hennigan said the company recorded an aggregate realized and unrealized net loss of about $29 million, or $0.42 per share. About two-thirds of the decline was tied to unrealized losses from wider spreads across the broader portfolio, including software investments, amid market volatility. The remainder was attributed to credit-related impacts on a handful of underperforming investments.
Dividend Reset to $0.35 Per Share
The company’s board declared a second-quarter dividend of $0.35 per share, payable to stockholders of record as of the close of business on June 30. The new payout represents a reset from the prior base dividend of $0.40 per share.
Chi said the change was made after discussions with the board and is intended to support a stable net asset value in the near term while increasing financial flexibility and dividend coverage. He said the new base dividend equates to a yield on net asset value of 8.8%.
Carlyle Secured Lending is maintaining its supplemental dividend policy, which targets paying out at least 50% of excess earnings above the base dividend.
Hennigan said the company currently estimates it has $0.70 per share of spillover income to support the quarterly dividend. He also said management expects earnings to trough in the second quarter, followed by an increase as the company ramps the portfolios of its joint ventures.
Portfolio Remains Broadly Diversified
Chi said the company remains confident in the quality and stability of its portfolio, including its software borrowers. He said those borrowers continue to grow revenue and EBITDA year over year, and management does not currently see material near-term risks to portfolio companies from artificial intelligence disruption.
As of March 31, the portfolio included 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 investments were in senior secured loans. The median EBITDA across the portfolio was $100 million.
Hennigan said overall credit quality remained stable, including portfolio company margins, leverage levels and loan-to-value ratios. Non-accruals decreased as of March 31 after one borrower, Alpine, completed a balance sheet restructuring during the quarter. The remaining four non-accrual borrowers represented 0.9% of investments at fair value and 1% at amortized cost.
Total investments at Carlyle Secured Lending declined to $2.3 billion from $2.5 billion during the quarter. The decrease reflected elevated repayments of $216 million and $153 million in sales to the company’s Middle Market Credit Fund joint venture. Chi said management expects portfolio growth in the second quarter, citing a visible pipeline and fewer expected repayments.
Joint Ventures Expected to Support Future Earnings
Management highlighted the Middle Market Credit Fund, or MMCF, as a key area of focus. Total investments at the joint venture rose to more than $1 billion during the quarter. Hennigan said the venture is currently achieving a 15% dividend yield and charges no fees at the joint venture level.
During the quarter, the company closed an increase in MMCF equity commitments from $175 million to $250 million for each partner. In February, MMCF also closed a new $200 million financing facility at SOFR plus 180 basis points. Hennigan said the company recently closed a $400 million increase to an existing credit facility, raising it from $800 million to $1.2 billion at SOFR plus 170 basis points.
Carlyle Secured Lending has also begun ramping Structured Credit Partners, or SCP, a new joint venture capitalized with $600 million of equity commitments from Carlyle and Sixth Street BDCs. CGBD committed $150 million to the vehicle, which will invest in broadly syndicated first-lien senior secured loans and is expected to charge no management or incentive fees on underlying JV assets.
Hennigan said the company priced and closed the first two CLOs for SCP in April, taking advantage of market volatility, depressed loan prices and tight liability pricing. He said the company expects to price and close two additional CLOs in 2026, subject to market conditions.
Buybacks Continue as Shares Trade at a Discount
Hennigan said Carlyle Secured Lending repurchased $19 million of shares during the first quarter at an average discount of 26%, resulting in $0.09 of accretion to net asset value per share. The company repurchased an additional $8 million of shares to date in the second quarter, which Hennigan said would add another $0.05 per share of accretion.
The company’s board approved a $100 million increase to the buyback program in February, bringing the total program to $300 million.
At quarter end, statutory leverage was 1.25 times. Net financial leverage, adjusted for unsettled sales of loans to MMCF, was 1.06 times. Hennigan said the company’s debt stack is 100% floating rate, matching its primarily floating-rate assets, and that it has limited maturities until 2030.
During the question-and-answer portion of the call, Chi said the company is seeing spreads move higher and documentation standards shift back toward lenders. He noted that first-quarter spreads on new investments widened by about 50 basis points compared with the fourth-quarter average of roughly 475 basis points, while first-lien deals were more than a quarter turn less levered at origination.
Chi said the company’s pipeline is active and is weighted toward “old economy” sectors, including industrials, aerospace and defense, healthcare and consumer products. He said Carlyle Secured Lending remains focused on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels.
About Carlyle Secured Lending NASDAQ: CGBD
Carlyle Secured Lending, Inc NASDAQ: CGBD is a closed-end, non-diversified business development company that provides customized debt financing solutions to middle-market companies. Chartered under the Investment Company Act of 1940, the company invests primarily in floating-rate senior secured loans, including first-lien, unitranche and one-stop structures. Its objective is to generate current income and capital appreciation through disciplined credit selection and active portfolio management.
The firm focuses on U.S.
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