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Introduction
Carlyle Secured Lending (NASDAQ:CGBD) is a specialty finance firm doing enterprise as a Enterprise Growth Firm (‘BDC’). The BDC is specializing in secured debt investments within the center market corporations (with a market capitalization of $25-100M). Carlyle focuses on corporations whose debt can be rated beneath funding grade. As of the top of September, Carlyle Secured Lending had about $1.87B in investments with about 99% of the debt consisting of floating price debt with 68% of the investments categorised as first lien debt. The weighted common yield on its investments elevated to 12.7%

CGBD Investor Relations
CGBD has about 50.8 million shares excellent leading to a present market capitalization of roughly $760M. However somewhat than specializing in the fairness of Carlyle Secured Lending, I’m extra within the not too long ago issued debt safety which is buying and selling with (NASDAQ:CGBDL) as ticker image.

A have a look at the efficiency of Carlyle Secured Lending
I’m clearly very within the internet funding earnings generated by this BDC. Because the earnings assertion beneath reveals, Carlyle Secured Lending reported a complete funding earnings of $60.5M whereas the full quantity of bills got here in at $32.5M leading to a internet funding earnings of $28M and about $27.1M after making the excise tax bills.

CGBD Investor Relations
Trying on the breakdown of the bills, we see about $12.6M of the bills was paid as a administration price and an incentive price. Moreover, Carlyle Secured Lending paid about $18.2M in curiosity bills.
The BDC additionally generated some beneficial properties on investments and its backside line consequence reveals a internet earnings of $30M for the quarter and after making the $875,000 in most popular dividend funds, the online earnings attributable to its frequent shareholders was $29.1M or $0.57 per share. The Web Funding Earnings was $0.52 per share. Which implies the present dividend of $0.37 in addition to the supplemental dividend of $0.07 per share had been (and are) absolutely lined. The $0.44 in dividends might be payable on January 18 th to the frequent shareholders of report on December 29, 2023.
Trying on the steadiness sheet, we see CGBD has about $1.96B in whole belongings of which $1.86B are investments. The rest of the belongings consists of money ($55M) and curiosity and dividends receivable ($33.5M). On the liabilities facet, we see about $1.05B in whole liabilities of which $1B is debt. After deducting the money place, Carlyle has a internet debt place of roughly $950M which represents roughly 51% of the full e book of investments.

CGBD Investor Relations
As you may see above, the NAV/share was $16.86 which suggests the inventory is buying and selling at a small low cost to its NAV.

CGBD Investor Relations
Fairly than being a shareholder, the 2028 debt safety is an attention-grabbing choice
Given the dividend announcement for December (with the dividend payable in January 2024), Carlyle Secured Lending can pay $1.76/share in dividends for this yr. This ought to be greater than absolutely lined by the online funding earnings and gives for a really wholesome dividend yield of simply over 11%. This makes the frequent inventory very interesting however I used to be additionally very considering Carlyle’s latest providing of 8.20% notes, that are presently buying and selling with (CGBDL) as ticker image.
The principal worth per safety is $25 and the annualized curiosity funds are $2.05 per unit per yr, payable in 4 equal quarterly funds of $0.5125 per quarter. These debt securities mature in December 2028 however Carlyle Secured Lending can train a name choice from December 2025 on. If rates of interest on the monetary markets certainly proceed to lower, I feel it’s more and more probably for Carlyle to name these securities however in fact lots can nonetheless occur between now and 2028.

Searching for Alpha
The latest closing worth for the 2028 notes was $25.77. Which implies the yield to name is presently roughly 6.5% which is kind of average. However in a means, this debt safety may be seen as a hypothesis on Carlyle Secured Lending nót calling the securities in 2025. If the decision can be postponed till December 2026, the yield to name would enhance to roughly 7%. And if CGBD wouldn’t name these securities in any respect, the yield to maturity is getting near 7.5%. And that situation can be engaging.
Funding thesis
If you’re assuming the debt securities might be known as in 2025, the 6.5% yield to name isn’t spectacular. However given the very acceptable leverage ratio on the steadiness sheet and the very sturdy internet funding earnings consequence, the chance/reward ratio nonetheless seems to be good. Not within the least as a result of the full dimension of this providing is simply $75M. In a really perfect world, the securities received’t be known as and can mature as deliberate in 2028 as that will probably be probably the most optimum scenario from a return perspective. But when rates of interest on the monetary markets are certainly transferring down, the chance of an 8.20% debt safety getting known as is greater.
I feel it will make sense for me to provoke a small lengthy place and I can add to this place when/if the worth would drop to a stage nearer to the par worth of $25 per unit. I presently don’t have any place however might purchase a starter place within the subsequent few weeks. Proudly owning a mixture of each the fairness and the debt might make sense as nicely, however I’ll concentrate on the debt securities within the very close to time period.