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, 2019
Business Overview: TCG BDC is an externally managed, non-diversified closed-end management investment company regulated as a Business Development Company (BDC). It primarily invests in U.S. middle-market companies through secured debt (first and second lien loans) and equity investments. The company is managed by Carlyle Global Credit Investment Management L.L.C.
Key Financial Metrics
| Metric | Q3 2019 (Three Months) | YTD 2019 (Nine Months) | YTD 2018 (Nine Months) |
|---|---|---|---|
| Total Investment Income | $55.8 million | $167.8 million | $151.2 million |
| Net Investment Income | $26.8 million | $82.3 million | $79.0 million |
| Net Realized Gain (Loss) | ($10.9 million) | ($17.7 million) | ($3.0 million) |
| Net Change in Unrealized Appreciation (Depreciation) | ($25.2 million) | ($30.5 million) | ($35.8 million) |
| Net Increase (Decrease) in Net Assets from Operations | ($9.0 million) | $34.5 million | $40.3 million |
| Earnings Per Share (Basic & Diluted) | ($0.15) | $0.57 | $0.64 |
| Total Assets | $2.23 billion | $2.23 billion | $2.08 billion (Dec 31, 2018) |
| Total Investments (Fair Value) | $2.13 billion | $2.13 billion | $1.97 billion (Dec 31, 2018) |
| Total Liabilities | $1.25 billion | $1.25 billion | $1.02 billion (Dec 31, 2018) |
| Net Assets | $978.6 million | $978.6 million | $1.06 billion (Dec 31, 2018) |
| Net Asset Value (NAV) Per Share | $16.58 | $16.58 | $17.09 (Dec 31, 2018) |
| Cash and Cash Equivalents | $70.3 million | $70.3 million | $87.2 million (Dec 31, 2018) |
| Secured Borrowings | $756.5 million | $756.5 million | $514.6 million (Dec 31, 2018) |
| Notes Payable (Net) | $446.2 million | $446.2 million | $446.0 million (Dec 31, 2018) |
Material Changes vs. Prior Period
- Investment Portfolio Growth: Total investments at fair value increased to $2.13 billion as of September 30, 2019, from $1.97 billion at December 31, 2018. This growth was driven by new originations and accretion, partially offset by repayments and sales.
- Increased Leverage: Secured borrowings increased significantly to $756.5 million from $514.6 million at the end of 2018, reflecting increased deployment of capital. Total senior securities (borrowings + notes payable) reached $1.21 billion.
- Net Asset Value Decline: NAV per share decreased to $16.58 from $17.09 at year-end 2018. This decline was primarily due to net unrealized depreciation on investments ($30.5 million YTD) and net realized losses ($17.7 million YTD), partially offset by net investment income.
- Share Repurchases: The company repurchased 3.22 million shares for $47.5 million during the nine months ended September 30, 2019, reducing the share count from 62.2 million to 59.0 million.
- Interest Expense: Interest expense increased to $38.6 million YTD 2019 from $26.9 million YTD 2018, consistent with higher outstanding debt balances.
Guidance, Outlook, and Risks
- Management Commentary: Management noted that the decrease in weighted average yields on debt investments (from 9.54% to 8.88% on an amortized cost basis) was primarily due to lower LIBOR rates and loans placed on non-accrual status. Investment income increased YTD 2019 compared to 2018 due to a larger invested balance and higher LIBOR rates in the first half of the year.
- Portfolio Quality: As of September 30, 2019, 99.36% of the portfolio was performing. Non-accrual loans totaled $13.7 million (0.64% of total investments). The weighted average internal risk rating of the debt portfolio was 2.3.
- Dividends: The company declared a quarterly dividend of $0.37 per share on August 5, 2019. A subsequent dividend of $0.37 was declared on November 4, 2019, payable in January 2020.
- Risks: Key risks include the speculative nature of below-investment-grade instruments, interest rate fluctuations (99.7% of debt is floating rate), and the potential for unrealized losses to become realized. The company is subject to asset coverage requirements under the Investment Company Act, which it met with a ratio of 181.16%.
- Unfunded Commitments: The company had $173.9 million in unfunded commitments to fund delayed draw and revolving senior secured loans as of September 30, 2019.
Investor Verification Checklist
- Asset Coverage Ratio: Verify the company maintains the required 150% asset coverage ratio under the Investment Company Act (Current: 181.16%).
- Non-Accrual Status: Monitor the $13.7 million in non-accrual loans and the specific portfolio companies involved (e.g., Dimensional Dental Management, Product Quest Manufacturing) for potential charge-offs.
- Debt Maturity Profile: Review the maturity schedule of the $756.5 million in secured borrowings and $449.2 million in 2015-1R Notes to assess refinancing risks.
- Unrealized Losses: Assess the sustainability of the $30.5 million in net unrealized depreciation YTD and its impact on future NAV.
- Share Repurchase Program: Confirm the remaining capacity of the $100 million share repurchase program ($47.6 million remaining as of Sept 30, 2019).
- Interest Rate Sensitivity: Evaluate the impact of potential LIBOR changes on net investment income, given the high percentage of floating-rate assets and liabilities.