Business Context and Reporting Period
Company: TCG BDC, Inc. (formerly Carlyle Secured Lending, Inc.)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
Business Overview: TCG BDC is an externally managed, non-diversified closed-end investment company regulated as a Business Development Company (BDC). Its investment objective is to generate current income and capital appreciation primarily through debt investments in U.S. middle-market companies. The company is managed by Carlyle Global Credit Investment Management L.L.C.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | As of Sep 30, 2021 |
|---|---|---|---|
| Total Investment Income | $43.8 million | $127.3 million | N/A |
| Net Investment Income | $22.1 million | $64.4 million | N/A |
| Net Increase in Net Assets (Operations) | $47.6 million | $126.4 million | N/A |
| Net Assets | N/A | N/A | $944.4 million |
| Net Asset Value (NAV) per Share | N/A | N/A | $16.65 |
| Total Investments (Fair Value) | N/A | N/A | $1.95 billion |
| Total Liabilities | N/A | N/A | $1.10 billion |
| Cash and Cash Equivalents | N/A | N/A | $46.2 million |
| Weighted Average Yield (Debt) | N/A | N/A | 7.69% (Amortized Cost) |
Material Changes vs. Prior Period
- Investment Income: For the nine months ended September 30, 2021, total investment income decreased to $127.3 million from $138.6 million in the prior year period. This decrease was primarily driven by a lower average loan balance, as the portfolio size at amortized cost decreased to $2.00 billion from $2.07 billion in the prior year.
- Net Investment Income: Net investment income for the nine months ended September 30, 2021, was $64.4 million, a decrease from $66.9 million in the same period in 2020. This was largely due to lower investment income, partially offset by lower interest expense and credit facility fees.
- Realized and Unrealized Gains: The company reported a net realized gain of $11.2 million and a net change in unrealized appreciation of $49.1 million for the nine months ended September 30, 2021. This contrasts sharply with the prior year period, which saw a net realized loss of $49.7 million and a net change in unrealized depreciation of $48.3 million. The improvement is attributed to improving credit fundamentals and tightening market yields.
- Debt Levels: Total secured borrowings increased to $425.5 million as of September 30, 2021, from $347.9 million at December 31, 2020. However, total interest expense for the nine-month period decreased to $21.5 million from $28.9 million in the prior year due to lower average principal balances and lower weighted average interest rates.
Guidance, Outlook, and Risks
- Dividends: The company declared a base quarterly common dividend of $0.32 plus a supplemental common dividend of $0.07 on November 1, 2021, payable January 14, 2022. Preferred stock dividends remain at $0.438 per share quarterly.
- Stock Repurchases: The Board approved the continuation of a $150 million common stock repurchase program through November 5, 2022. During the nine months ended September 30, 2021, the company repurchased 1.6 million shares for approximately $20.5 million.
- Portfolio Composition: As of September 30, 2021, 98.5% of debt investments were at floating interest rates. The portfolio consists of 65.5% First Lien Debt, 18.1% Second Lien Debt, 13.7% Investment Funds, and 2.7% Equity Investments.
- Risks: Key risks include the speculative and illiquid nature of investments, the use of borrowed money (leverage), fluctuations in interest rates (specifically LIBOR transition), and the impact of the COVID-19 pandemic on portfolio companies. The company maintains an asset coverage ratio of 180.23%, well above the 150% minimum required by the Investment Company Act.
- Unfunded Commitments: The company had $183.0 million in unfunded commitments to fund delayed draw and revolving senior secured loans as of September 30, 2021.
Investor Verification Checklist
- Asset Coverage Ratio: Verify the current asset coverage ratio (180.23%) remains above the 150% regulatory minimum to ensure borrowing capacity is maintained.
- Non-Accrual Status: Monitor the $67.5 million (3.5% of portfolio) in non-accrual loans and the specific internal risk ratings (4-5) assigned to these assets.
- LIBOR Transition: Assess the company's progress and strategy regarding the transition from LIBOR to alternative reference rates, given 98.5% of debt is floating rate.
- Dividend Sustainability: Confirm that net investment income continues to cover the declared dividend rate of approximately $1.11 per share for the nine-month period.
- Unfunded Commitments: Review the $183 million in unfunded commitments to understand potential future capital deployment and liquidity requirements.