Carlyle Secured Lending, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (dollar amounts in thousands, except share and per share data, unless otherwise indicated) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Part II, Item 8 of this Form 10-K “Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in “Risk Factors” in Part I, Item 1A of this Form 10-K. Our actual results could differ materially from those anticipated by such forward-looking statements due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-K. Overview Carlyle Secured Lending, Inc., a Maryland corporation, is a specialty finance company that is a closed-end, externally managed, non-diversified management investment company. We have elected to be regulated as a business development company (“BDC”) under the Investment Company Act and have operated our business as a BDC since we began our investment activities. For U.S. federal income tax purposes, we have elected to be treated as a registered investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (together with the rules and regulations promulgated thereunder, the “Code”). We were formed in February 2012, commenced investment operations in May 2013 and began trading on the Nasdaq Global Select Market, under the symbol “CGBD,” upon completion of our initial public offering in June 2017. Our principal executive offices are located at One Vanderbilt Avenue, Suite 3400, New York, New York 10017. Our investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through assembling a portfolio of secured debt investments in U.S. middle market companies. Our core investment strategy focuses on lending to U.S. middle market companies, which we define as companies with approximately $25 million to $100 million of earnings before interest, taxes, depreciation and amortization (“EBITDA”), supported by financial sponsors. This core strategy is opportunistically supplemented with differentiated and complementary lending and investing strategies, which take advantage of the broad capabilities of Carlyle's Global Credit platform while offering risk-diversifying portfolio benefits. We seek to achieve our investment objective primarily through direct origination of secured debt instruments, including first lien 69 Table of Contents senior secured loans (which may include stand-alone first lien loans, first lien/last out loans and “unitranche” loans) and second lien senior secured loans (collectively, “Middle Market Senior Loans”), with a minority of our assets invested in higher yielding investments (which may include unsecured debt, subordinated debt and investments in equities and structured products). The Middle Market Senior Loans are generally made to private U.S. middle market companies that are, in many cases, controlled by private equity firms. We invest primarily in loans to middle market companies whose debt is rated below investment grade, or would likely be rated below investment grade if it was rated. These securities, which are often referred to as “junk,” have predominately speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. We are externally managed by our Investment Adviser, an investment adviser registered under the Investment Advisers Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “Investment Company Act”) and a subsidiary of Carlyle. We benefit from our Investment Adviser’s investment team of over 190 investment professionals with the deep knowledge and expertise across multiple asset classes who are supported by a team of finance, operations and administrative professionals currently employed by Carlyle Employee Co., a wholly owned subsidiary of Carlyle. In conducting our investment activities, we believe that we benefit from the significant scale, relationships and resources of Carlyle, including our Investment Adviser and its affiliates. 2024 Highlights 2024 Annual Results • Net investment income, inclusive of the preferred dividend, was $101.8 million or $2.00 per common share. • Adjusted for one-time income or expense events, the adjusted net investment income per common share (a non-GAAP financial measure) was $2.02. Refer to the Adjusted Net Investment Income and Adjusted Net Income discussion within this section for further details. • Dividends declared on common shares were $95.1 million, or $1.87 per share. • Net investment income for the year ended December 31, 2024, after adjusting for the acceleration of debt issuance costs related to the reset of the 2015-R Notes, declined slightly from the comparable period in the prior year driven by a decrease in the average outstanding investment balance due to total repayment and sales of our investments in excess of new originations and lower spreads across the loan portfolio. • The NAV per common share decreased to $16.80 as of December 31, 2024, from $16.99 as of December 31, 2023. Portfolio and Investment Activity • As of December 31, 2024, we held 189 investments across 135 portfolio companies and 28 industries for a total fair value of $1.8 billion. • During the year ended December 31, 2024, we had investment fundings of $509.0 million and investment repayments of $569.3 million. • As of December 31, 2024, non-accrual investments represented 1.0% and 0.6% of our portfolio based on cost and fair value, respectively. Liquidity and Capital Activity • On August 2, 2024, we entered into the Merger Agreement with Carlyle Secured Lending III. In connection with the Merger Agreement, all shares of Preferred Stock issued and outstanding will be exchanged for shares of our common stock in a private placement transaction at a rate equal to the quotient of (i) the aggregate liquidation preference of the Preferred Stock and (ii) the Closing CGBD Net Asset Value per share. Refer to Note 15, Merger with CSL III, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for additional information regarding the Merger Agreement, the Mergers and the Preferred Stock Exchange. • On October 18, 2024, we completed a public offering of $300.0 million aggregate principal of 6.75% senior unsecured notes due February 18, 2030 (the “2030 Notes”). In connection with the issuance of the 2030 Notes, we entered into an interest rate swap agreement with JP Morgan Chase Bank N.A. for a total notional amounts of $300.0 million. Under the interest rate agreement, commencing on the effective date of August 18, 2025, we will 70 Table of Contents receive a fixed interest rate of 6.75% and pay a floating interest rate based on the compounded average daily SOFR plus 3.235%. • During the year ended December 31, 2024, we issued 111,321 shares for a total consideration of $2.0 million under the dividend reinvestment plan. • On December 31, 2024, we repaid at par the $190.0 million aggregate principal of 4.50% and 4.75% unsecured notes. • Total liquidity as of December 31, 2024 was $565.7 million in cash and undrawn debt capacity. Recent Developments • On February 10, 2025, we and Cliffwater Corporate Lending Fund (“CCLF”) entered into an amendment to the Credit Fund II limited liability company agreement (as so amended, the “Amended Credit Fund II LLCA”). Pursuant to the terms of the Amended Credit Fund II LLCA, Credit Fund II distributed $2.7 million to CCLF, and we contributed $140.0 million in cash to Credit Fund II. Such distributions and contributions were accounted for as a reduction in CCLF's membership interest based on the net asset value of Credit Fund II as of December 31, 2024. On February 11, 2025, we entered into a membership interest purchase agreement to purchase CCLF's remaining membership interest for cash at the net asset value thereof as of December 31, 2024, after which Credit Fund II became a wholly owned subsidiary of CGBD and in connection therewith the CCLF board members resigned. See Note 6, Middle Market Credit Fund II, LLC, to the consolidated financial statements included in Part II, Item 8 in the Form 10-K. • On February 18, 2025, we declared common stock dividends of $0.45 per share to be paid on April 17, 2025. Key Components of Our Results of Operations As a BDC, we believe that the key components of our results of operations for our business are earnings per share, dividends declared, net investment income and net asset value per common share. For the three months ended December 31, 2024, we recorded basic earnings per common share of $0.40, declared a dividend of $0.45 per common share and earned $0.47 of net investment income per common share. For the year ended December 31, 2024, we recorded basic earnings per common share of $1.68, declared dividends of $1.87 per common share and earned $2.00 of net investment income per common share. The following table sets forth the calculation of basic and diluted earnings per share (dollar amounts in thousands, except share and per share data): For the years ended December 31, 2024 2023 Basic Diluted Basic Diluted Net increase (decrease) in net assets resulting from operations attributable to Common Stockholders $ 85,478 $ 88,978 $ 88,780 $ 92,280 Weighted-average common shares outstanding 50,831,205 56,468,099 50,817,659 56,311,555 Earnings per share $ 1.68 $ 1.58 $ 1.75 $ 1.64 For the years ended December 31, 2024 and 2023, we declared dividends per common share of $1.87 and $1.76, respectively. As of December 31, 2024 and 2023, our NAV per share was $16.80 and $16.99, respectively. Investment Income We generate investment income primarily in the form of interest income on debt investments we hold. In addition, we generate income from dividends on direct equity investments, capital gains on the sales of loans and debt and equity securities and various loan origination and other fees. Our debt investments generally have a stated term of five to eight years and generally bear interest at a floating rate usually determined on the basis of a benchmark such as SOFR. Interest on these debt investments is generally paid quarterly. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. At times, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity reflects the proceeds of sales of securities. We may also generate investment income in the form of 71 Table of Contents commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Expenses Our primary operating expenses include: (i) investment advisory fees, including base management fees and incentive fees, to our Investment Adviser pursuant to the Investment Advisory Agreement; (ii) debt service and other costs of borrowings or other financing arrangements; (iii) costs and other expenses and our allocable portion of overhead incurred by our Administrator in performing its administrative obligations under the Administration Agreement; and (iv) other operating expenses summarized below: • administration fees payable under our Administration Agreement and Sub-Administration Agreements, including related expenses; • the costs of any offerings of our common stock and other securities, if any; • calculating individual asset values and our net asset value (including the cost and expenses of any independent valuation firms); • expenses, including travel expenses, incurred by our Investment Adviser, or members of our Investment Adviser team managing our investments, or payable to third parties, performing due diligence on prospective portfolio companies; • the allocated costs incurred by our Investment Adviser in providing managerial assistance to those portfolio companies that request it; • amounts payable to third parties relating to, or associated with, making or holding investments; • the costs associated with subscriptions to data service, research-related subscriptions and expenses and quotation equipment and services used in making or holding investments; • transfer agent and custodial fees; • commissions and other compensation payable to brokers or dealers; • U.S. federal, state and local taxes; • independent director fees and expenses; • costs of preparing financial statements and maintaining books and records, costs of preparing tax returns, costs of Sarbanes-Oxley Act compliance and attestation and costs of filing reports or other documents with the SEC (or other regulatory bodies), and other reporting and compliance costs, including federal and state registration and any applicable listing fees; • the costs of any reports, proxy statements or other notices to our stockholders and the costs of any stockholders’ meetings; • the costs of specialty and custom software for monitoring risk, compliance and overall portfolio; • fidelity bond, liability insurance, and any other insurance premiums; • indemnification payments; • direct fees and expenses associated with independent audits, agency, consulting and legal costs; and • all other expenses incurred by us or our Administrator in connection with administering our business, including our allocable share of certain officers and their staff compensation. 72 Table of Contents Net Investment Income The following table summarizes our net investment income and net investment income per common share: For the years ended December 31, 2024 2023 Total investment income $ 232,590 $ 241,626 Total expenses (including excise tax expense) 127,338 131,655 Net investment income $ 105,252 $ 109,971 Preferred stock dividend 3,500 3,500 Net investment income, net of the preferred stock dividend $ 101,752 $ 106,471 Weighted-average common shares outstanding 50,831,205 50,817,659 Net investment income per common share $ 2.00 $ 2.10 Adjusted Net Investment Income and Adjusted Net Income On a supplemental basis, we are disclosing Adjusted Net Investment Income, Adjusted Net Investment Income Per Common Share, Adjusted Net Income and Adjusted Net Income Per Common Share each of which is calculated and presented on a basis other than in accordance with GAAP (“non-GAAP”). 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 as an additional tool to evaluate our ongoing results and trends and to review our performance without giving effect to one-time or non-recurring investment income and expense events, including the effects on incentive fees. The presentation of these non-GAAP measures is not intended to be a substitute for financial results prepared in accordance with GAAP and should not be considered in isolation. We use the non-GAAP financial measures described above internally to analyze and evaluate financial results and performance and to compare our financial results with those of other business development companies that have not had similar one-time or non-recurring events. We believe “Adjusted Net Investment Income”, “Adjusted Net Investment Income Per Common Share”, “Adjusted Net Income” and “Adjusted Net Income Per Common Share” are useful to investors as an additional tool to evaluate our ongoing results and trends without giving effect to one-time or non-recurring events and are used to evaluate our economic earnings. 73 Table of Contents The following table summarizes our Adjusted Net Investment Income, Adjusted Net Investment Income Per Common Share, Adjusted Net Income, and Adjusted Net Income Per Common Share: For the years ended December 31, 2024 December 31, 2023 Net investment income, net of the preferred stock dividend $ 101,752 $ 106,471 Acceleration of debt issuance costs, net of incentive fee impact (1) 1,011 — Adjusted Net Investment Income $ 102,763 $ 106,471 Net increase (decrease) in net assets resulting from operations attributable to Common Stockholders $ 85,478 $ 88,780 Acceleration of debt issuance costs, net of incentive fee impact (1) 1,011 — Adjusted Net Income $ 86,489 $ 88,780 Net Investment Income Per Common Share $ 2.00 $ 2.10 Acceleration of debt issuance costs, net of incentive fee impact (1) 0.02 — Adjusted Net Investment Income Per Common Share $ 2.02 $ 2.10 Net Income Per Common Share $ 1.68 $ 1.75 Acceleration of debt issuance costs, net of incentive fee impact (1) 0.02 — Adjusted Net Income Per Common Share $ 1.70 $ 1.75 Weighted-average common shares outstanding 50,831,205 50,817,659 (1) On July 2, 2024, Carlyle Direct Lending CLO 2015-1R LLC, a wholly owned and consolidated subsidiary of us, completed the refinancing of its outstanding notes by redeeming the notes in full and issuing new notes and loans. In connection with the refinancing, the debt issuance costs were accelerated in accordance with GAAP. Refer to Note 8, Borrowings, in the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for more information on the refinancing. Portfolio and Investment Activity Portfolio Overview The following tables summarize certain characteristics of our investment portfolio as of December 31, 2024: First Lien Debt Second Lien Debt Equity Investments Investment Funds Total Investments Count of investments 144 9 33 3 189 Investments, at amortized cost $ 1,342,935 $ 125,901 $ 108,279 $ 271,097 $ 1,848,212 Investments, at fair value $ 1,323,697 $ 116,467 $ 116,746 $ 246,633 $ 1,803,543 Percentage of total investments at fair value 73.4 % 6.4 % 6.5 % 13.7 % 100.0 % 74 Table of Contents Weighted Average Yields at Amortized Cost Fair Value First Lien Debt (1) 11.1 % 11.3 % Second Lien Debt (1) 13.0 % 13.2 % Total Debt and Income Producing Investments (1)(2) 11.7 % 12.0 % (1) Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2024. Weighted average yield at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount (“OID”) and market discount earned, divided by (b) total fair value included in such securities. Weighted average yield at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned, divided by (b) total amortized cost included in such securities. Weighted average yields exclude investments on non-accrual status. Actual yields earned over the life of each investment could differ materially from the yields presented above. Inclusive of all debt and income producing investments and investments on non-accrual status, the weighted average yield on amortized cost was 11.6% as of December 31, 2024. (2) Weighted average yield for total investments includes Credit Fund and Credit Fund II, as well as income producing equity investments. The geographical composition of investments at fair value as of December 31, 2024 were as follows: As of Geography—% of Fair Value December 31, 2024 Australia 0.1 % Canada 3.3 Italy 0.2 Luxembourg 2.3 Sweden 0.0 United Kingdom 2.7 United States 91.4 Total 100.0 % The industry composition of investments at fair value as of December 31, 2024 were as follows: As of Industry—% of Fair Value December 31, 2024 Aerospace & Defense 3.7 % Auto Aftermarket & Services 2.4 Beverage & Food 1.4 Business Services 5.9 Capital Equipment 4.3 Chemicals, Plastics & Rubber 2.4 Construction & Building 2.6 Consumer Goods: Durable 0.2 Consumer Goods: Non-Durable 0.4 Consumer Services 6.5 Containers, Packaging & Glass 2.6 Diversified Financial Services 5.5 Energy: Electricity 0.4 Energy: Oil & Gas 0.7 Environmental Industries 3.6 Healthcare & Pharmaceuticals 12.9 High Tech Industries 8.0 75 Table of Contents As of Industry—% of Fair Value December 31, 2024 Investment Funds 13.7 % Leisure Products & Services 4.5 Media: Advertising, Printing & Publishing 0.9 Media: Diversified & Production 1.8 Retail 1.3 Software 10.5 Sovereign & Public Finance 0.0 Telecommunications 2.2 Transportation: Cargo 0.4 Utilities: Water 0.1 Wholesale 1.1 Total 100.0 % Our investment activity for the years ended December 31, 2024 and 2023 is presented below (information presented herein is at amortized cost unless otherwise indicated): For the years ended December 31, 2024 2023 Investments: Total investments, beginning of year $ 1,904,895 $ 2,049,975 New investments purchased 500,998 231,476 Net accretion of discount on investments 11,003 8,435 Net realized gain (loss) on investments (38,317) (21,238) Investments sold or repaid (530,367) (363,753) Total Investments, end of year $ 1,848,212 $ 1,904,895 Principal amount of investments funded: First Lien Debt $ 469,069 $ 228,704 Second Lien Debt 9,320 6,341 Equity Investments (1) 30,658 7,507 Total $ 509,047 $ 242,552 Principal amount of investments sold or repaid: First Lien Debt $ (478,876) $ (267,667) Second Lien Debt (71,691) (86,433) Equity Investments (1) (18,735) (14,901) Total $ (569,302) $ (369,001) Number of new investment commitments (2)(3) 72 24 Average new investment commitment amount $ 7,090 $ 5,816 (1) Based on cost/proceeds of equity activity. (2) Represents commitments to a portfolio company as part of an individual transaction. (3) For the years ended December 31, 2024 and 2023, 99.0% and 100.0% of new funded debt investments were at floating interest rates, respectively. See the Consolidated Schedules of Investments as of December 31, 2024 and 2023 to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for more information on these investments, including a list of companies and type and amount of investments. Portfolio Credit As part of the monitoring process, our Investment Adviser has developed risk assessment policies pursuant to which it regularly assesses the risk profile of each of our debt investments and rates each of them based on the following categories, 76 Table of Contents which we refer to as “Internal Risk Ratings”. Key drivers of internal risk ratings include financial metrics, financial covenants, liquidity and enterprise value coverage. Pursuant to these risk policies, an Internal Risk Rating of 1 – 5, which are defined below, is assigned to each debt investment in our portfolio. Rating Definition 1 Borrower is operating above expectations, and the trends and risk factors are generally favorable. 2 Borrower is operating generally as expected or at an acceptable level of performance. The level of risk to our initial cost basis is similar to the risk to our initial cost basis at the time of origination. This is the initial risk rating assigned to all new borrowers. 3 Borrower is operating below expectations and level of risk to our cost basis has increased since the time of origination. The borrower may be out of compliance with debt covenants. Payments are generally current although there may be higher risk of payment default. 4 Borrower is operating materially below expectations and the loan’s risk has increased materially since origination. In addition to the borrower being generally out of compliance with debt covenants, loan payments may be past due, but generally not by more than 120 days. It is anticipated that we may not recoup our initial cost basis and may realize a loss of our initial cost basis upon exit. 5 Borrower is operating substantially below expectations and the loan’s risk has increased substantially since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. It is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. Our Investment Adviser monitors and, when appropriate, changes the risk ratings assigned to each debt investment in our portfolio. Our Investment Adviser reviews our investment ratings in connection with our quarterly valuation process. The below table summarizes the Internal Risk Ratings as of December 31, 2024 and 2023. December 31, 2024 December 31, 2023 Fair Value % of Fair Value Fair Value % of Fair Value Internal Risk Rating 1 $ 380 0.0 % $ 30,282 2.0 % Internal Risk Rating 2 1,258,072 87.4 1,158,006 77.3 Internal Risk Rating 3 172,840 12.0 273,329 18.2 Internal Risk Rating 4 7,756 0.5 38,061 2.5 Internal Risk Rating 5 1,116 0.1 — — Total $ 1,440,164 100.0 % $ 1,499,678 100.0 % As of December 31, 2024 and 2023, the weighted average Internal Risk Rating of our debt investment portfolio was 2.1 and 2.2, respectively. As of December 31, 2024 and 2023, three and four of our debt investments were assigned an Internal Risk Rating of 4 or 5, respectively. The following table summarizes the fair value of our performing and non-accrual/non-performing investments as of December 31, 2024 and 2023: December 31, 2024 December 31, 2023 Number of Investments Fair Value % of Fair Value Number of Investments Fair Value % of Fair Value Performing 185 $ 1,793,150 99.4 % 169 $ 1,803,820 97.9 % Non-accrual (1) 4 10,393 0.6 4 38,061 2.1 Total 189 $ 1,803,543 100.0 % 173 $ 1,841,881 100.0 % (1) For information regarding our non-accrual policy, see Note 2, Significant Accounting Policies, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K. Portfolio Financing Our primary sources of financing consist of secured debt, unsecured debt, and securitizations, which are presented on the Consolidated Statements of Assets and Liabilities as Debt and secured borrowings. Refer to Note 8, Borrowings, to the 77 Table of Contents consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for additional information regarding our financing. The following table details those sources of financing: Outstanding Principal Balance, as of December 31, 2024 2023 Secured Debt Credit Facility $ 213,439 $ 260,356 Unsecured Debt 2024 Notes — 190,000 2028 Notes 85,000 85,000 2030 Notes 300,000 — Securitizations 2015-1R Notes — 449,200 2015-1N Debt 380,000 — Total $ 978,439 $ 984,556 Weighted average interest rate 6.65 % 6.95 % Credit Facility On March 21, 2014, we closed on a senior secured revolving credit facility (the “Credit Facility”), as amended from time to time. The maximum principal amount of the Credit Facility is $790,000, pursuant to the terms of the agreement, subject to availability under the Credit Facility, which is based on certain advance rates multiplied by the value of our portfolio investments (subject to certain concentration limitations) net of certain other indebtedness that we may incur in accordance with the terms of the Credit Facility. Proceeds of the Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. Maximum capacity under the Credit Facility may be increased, subject to certain conditions, to $1,185,000 through the exercise by us of an uncommitted accordion feature through which existing and new lenders may, at their option, agree to provide additional financing. The Credit Facility includes a $50,000 limit for swingline loans and a $20,000 limit for letters of credit. Subject to certain exceptions, the Credit Facility is secured by a first lien security interest in substantially all of the portfolio investments held by us. The Credit Facility includes customary covenants, including certain financial covenants related to asset coverage, shareholders’ equity and liquidity, certain limitations on the incurrence of additional indebtedness and liens, and other maintenance covenants, as well as usual and customary events of default for senior secured revolving credit facilities of this nature. The Credit Facility consisted of the following as of December 31, 2024 and 2023: Total Facility Borrowings Outstanding Unused Portion (1) Amount Available (2) Weighted Average Interest Rate December 31, 2024 $ 790,000 $ 213,439 $ 576,561 $ 509,121 6.18 % December 31, 2023 $ 790,000 $ 260,356 $ 529,644 $ 359,675 7.21 % (1) The unused portion is the amount upon which commitment fees are based. (2) Available for borrowing based on the computation of collateral to support the borrowings and subject to compliance with applicable covenants and financial ratios. Unsecured Debt On December 30, 2019, we closed a private offering of $115.0 million in aggregate principal amount of 4.75% senior unsecured notes due December 31, 2024 and on December 11, 2020, we issued an additional $75.0 million aggregate principal amount of 4.50% senior unsecured notes due December 31, 2024 (together the “2024 Notes”). The interest rates of the 2024 Notes were subject to increase (up to an additional 1.00% over the stated rate of such notes) in the event, subject to certain exceptions, the 2024 Notes ceased to have an investment grade rating. The 2024 Notes were general unsecured obligations of ours that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. The 2024 Notes were repaid in full at maturity on December 31, 2024. On November 20, 2023, we completed a public offering of $85.0 million in aggregate principal of 8.20% senior unsecured notes due December 1, 2028 (the “2028 Notes”). We may redeem the 2028 Notes in whole or in part at our option on 78 Table of Contents or after December 1, 2025 at a redemption price of 100% of the outstanding principal amount of 2028 Notes to be redeemed plus accrued and unpaid interest thereon. The 2028 Notes are general unsecured obligations of ours that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. On October 18, 2024, we completed a public offering of $300.0 million aggregate principal of 6.75% senior unsecured notes due February 18, 2030 (the “2030 Notes” and together with the 2024 Notes and 2028 Notes, the “Senior Notes”). We may redeem the 2030 Notes in whole or in part at our option at any time or from time to time at a redemption price equal to the greater of (1) (a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming the notes matured on January 18, 2030) on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 45 basis points less (b) interest accrued to the date of redemption, or (2) 100% of the principal amount of the 2030 Notes to be redeemed, plus, in either case accrued and unpaid interest thereon. The 2030 Notes are general unsecured obligations of ours that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. The following table details the carrying value of our 2024 Notes, 2028 Notes, and 2030 Notes as of December 31, 2024 and 2023: As of December 31, 2024 2023 2024 Notes $ — $ 190,000 2028 Notes 85,000 85,000 2030 Notes 300,000 — Total principal amount $ 385,000 $ 275,000 Less: unamortized debt issuance costs (8,572) (3,434) Effective interest rate swap hedge (6,700) 985 Total carrying value $ 369,728 $ 272,551 Weighted average interest rate 6.95 % 5.84 % In November 2023, in connection with the issuance of the 2028 Notes, the Company entered into a five-year interest rate swap agreement with Morgan Stanley Capital Services LLC (“Morgan Stanley”) to mitigate the exposure to adverse fluctuations in interest rates for a total notional amount of $85.0 million, maturing on December 1, 2028. Morgan Stanley has the ability to exercise an early termination commencing on December 1, 2025, subject to providing written notice thirty days prior. Under the interest rate swap agreement, the Company receives a fixed interest of 8.20% and pays a floating rate based on the compounded average daily SOFR rate plus 3.139%. The Company designated this interest rate swap as a hedging instrument to the 2028 Notes. In October 2024, in connection with the issuance of the 2030 Notes, the Company entered into an interest rate swap agreement with JP Morgan Chase Bank N.A. (“JP Morgan”) to mitigate the exposure to adverse fluctuations in interest rates for a total notional amount of $300.0 million, maturing on February 18, 2030. Under the interest rate agreement, commencing on the effective date of August 18, 2025, the Company receives a fixed interest rate of 6.75% and pays a floating interest rate based on the compounded average daily SOFR plus 3.235%. The Company designated this interest rate swap as a hedging instrument to the 2030 Notes. Securitizations On June 26, 2015, we completed the 2015-1 Debt Securitization, which was refinanced on August 30, 2018 (the “2015-1 Debt Securitization Refinancing”) by redeeming in full the previously issued securitized notes and issuing new notes (the “2015-1R Notes”). The 2015-1R Notes were issued by Carlyle Direct Lending CLO 2015-1R LLC (the “2015-1 Issuer”), a wholly owned and consolidated subsidiary of us. The 2015-1R Notes were secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. We received 100% of the $125,900 in nominal value of the non-interest bearing preferred interests issued by the 2015-1 Issuer (the “2015-1 Issuer Preferred Interests”) on the closing date of the 2015-1 Debt Securitization in exchange for our contribution to the 2015-1 Issuer of the initial closing date loan portfolio. Following the 2015-1 Debt Securitization Refinancing, the 2015-1 Issuer Preferred Interests were reduced by approximately $21,375 to approximately $104,525. 79 Table of Contents On June 30, 2023, the 2015-1R Notes were amended to transition the benchmark rate to the Term SOFR Rate plus a Term SOFR adjustment (LIBOR prior to the amendment). The 2015-1R Notes reinvestment period ended October 15, 2023 and had a maturity date of October 15, 2031. In connection with the initial financing, we made customary representations, warranties and covenants to the 2015-1 Issuer. On July 2, 2024, the Company and the 2015-1 Issuer completed a refinancing of the 2015-1R Notes (the “2015-1R Refinancing”), which resulted in the issuance of a $410.0 million collateralized loan obligation (“the “2015-1N Debt”). On the closing date of the 2015-1R Refinancing, the 2015-1 Issuer refinanced the 2015-1R Notes with the 2015-1N Debt, issued additional 2015-1 Issuer Preferred Interests to the Company in the aggregate notional amount of $13,500, increasing the 2015-1 Issuer Preferred Interests held by the Company to approximately $118,054 and extended the reinvestment period end date and maturity date applicable to the 2015-1 Issuer to July 15, 2028 and July 1, 2036, respectively. Following the 2015-1R Refinancing, the Company retained the 2015-1 Issuer Preferred Interests. The 2015-1N Debt in the 2015-1R Refinancing was issued by the 2015-1 Issuer and is secured by a diversified portfolio of the 2015-1 Issuer consisting primarily of first and second lien senior secured loans. As of the closing date, the Company retained the $30 million Class C-R Notes. The following table summarizes the terms of the 2015-1N Debt tranches and their principal amount: As of 2015-1N Debt Tranche (1) Credit Rating Reference Rate Spread December 31, 2024 Class A-1-1-A Notes AAA SOFR 1.80% $ 240,000 Class A-L Loans AAA SOFR 1.80% 50,000 Class A-1-2-B Notes AAA SOFR 2.00% 20,000 Class A-2-RR Notes AA SOFR 2.15% 30,000 Class B-R Notes Single A SOFR 2.75% 40,000 Total Principal Amount Outstanding $ 380,000 Less: unamortized debt issuance costs (2,218) Total Carrying Value $ 377,782 Weighted average interest rate 6.59 % (1) Excludes $30 million of Class C-R notes, which are rated BBB-, accrue interest at SOFR plus spread of 3.75%, and are retained by the Company. The following table summarizes the terms and principal amount of the 2015-1R Notes: As of 2015-1R Notes Tranche Credit Rating Reference Rate (1) Spread / Fixed Interest Rate December 31, 2023 Class A-1-1-R AAA SOFR 1.55% $ 234,800 Class A-1-2-R AAA SOFR 1.78% 50,000 Class A-1-3-R AAA Fixed Rate 4.56% 25,000 Class A-2-R SOFR 2.20% 66,000 Class B Single A SOFR 3.15% 46,400 Class C BBB- SOFR 4.00% 27,000 Total Principal Amount $ 449,200 Less: unamortized debt issuance costs (1,924) Total Carrying Value $ 447,276 Weighted average interest rate 7.49 % (1) Floating rate tranches bear interest at three-month SOFR plus a Term SOFR adjustment. Forward Currency Contracts In order to better define its contractual rights and to secure rights that will help the Company mitigate its counterparty risk, the Company has entered into an International Swaps and Derivatives Association, Inc. Master Agreement (“ISDA Master Agreement”) with the derivative counterparty, Barclays Bank PLC (the “Counterparty”), in respect of forward currency 80 Table of Contents contracts. Each ISDA Master Agreement is a bilateral agreement between the Company and the Counterparty that governs over the counter derivatives, including forward currency contracts, and contains, among other things, collateral posting terms and netting provisions in the event of a default and/or termination event. The provisions of each ISDA Master Agreement with the Counterparty permit a single net payment in the event of a default (close-out netting) or similar event, including the bankruptcy or insolvency of the counterparty. As of December 31, 2024, the total unrealized appreciation (depreciation) related to forward currency contracts governed by these agreements was $1,699. Middle Market Credit Fund, LLC (“Credit Fund”) On February 29, 2016, we and Credit Partners USA LLC (“Credit Partners”) entered into an amended and restated limited liability company agreement, as amended from time to time, to co-manage Credit Fund, a Delaware limited liability company that is not consolidated in our consolidated financial statements. Credit Fund is managed by a six-member board of managers, on which we and Credit Partners each have equal representation. We and Credit Partners each have 50% economic ownership of Credit Fund and have commitments to fund, from time to time, capital of up to $250,000 each. Funding of such commitments generally requires the approval of the board of Credit Fund, including the board members appointed by us. By virtue of our respective membership interests, we and Credit Partners each indirectly bear an allocable share of all expenses and other obligations of Credit Fund. Credit Fund primarily invests in first lien loans of middle market companies sourced primarily by us and our affiliates. Portfolio and investment decisions with respect to Credit Fund must be unanimously approved by a quorum of Credit Fund’s investment committee consisting of an equal number of representatives of us and Credit Partners. Therefore, although we own more than 25% of the voting securities of Credit Fund, we do not believe that we have control over Credit Fund (other than for purposes of the Investment Company Act). Middle Market Credit Fund SPV, LLC (“Credit Fund Sub”) and MMCF Warehouse II, LLC (“Credit Fund Warehouse II”), each a Delaware limited liability company are wholly owned subsidiaries of Credit Fund and are consolidated in Credit Fund’s consolidated financial statements. Since inception of Credit Fund and through December 31, 2024, we and Credit Partners each made capital contributions of $1 in members’ equity and $216,000 in subordinated loans to Credit Fund. On May 25, 2021, we and Credit Partners each received an aggregate return of capital on the subordinated loans of $23,000. The cost and fair value of our investment in Credit Fund was $193,001 and $182,636, respectively, as of December 31, 2024 and $193,001 and $181,960, respectively, as of December 31, 2023. Our portion of the dividends declared by Credit Fund was $22,000 and $22,000 for the years ended December 31, 2024 and 2023, respectively. As of both December 31, 2024 and 2023, our annualized dividend yield from Credit Fund was 11.4%. 81 Table of Contents Below is a summary of Credit Fund’s portfolio as of December 31, 2024 and 2023: As of December 31, 2024 2023 Senior secured loans (1) $ 547,672 $ 803,541 Weighted average yields of senior secured loans based on amortized cost (2) 10.3 % 11.2 % Weighted average yields of senior secured loans based on fair value (2) 10.5 % 11.6 % Number of portfolio companies in Credit Fund 33 38 Average amount per portfolio company (1) $ 16,596 $ 21,146 Number of loans on non-accrual status 2 3 Fair value of loans on non-accrual status $ 4,787 $ 13,263 Percentage of loans at floating interest rates (3)(4) 100.0 % 100.0 % Fair value of loans with PIK provisions $ 39,712 $ 36,481 Percentage of portfolio with PIK provisions (4) 7.5 % 4.8 % (1) At par/principal amount. (2) Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2024 and 2023. Weighted average yield on debt at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount (“OID”) and market discount earned, divided by (b) total fair value included in such securities. Weighted average yield on debt at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned, divided by (b) total amortized cost included in such securities. Weighted average yields exclude investments on non-accrual status. Actual yields earned over the life of each investment could differ materially from the yields presented above. (3) Floating rate debt investments are generally subject to interest rate floors. (4) Percentages based on fair value. Middle Market Credit Fund II, LLC (“Credit Fund II”) On November 3, 2020, we and CCLF entered into a limited liability company agreement to co-manage Credit Fund II, a Delaware limited liability company that is not consolidated in our consolidated financial statements. Credit Fund II is managed by a four-member board, on which we and CCLF have equal representation. As of December 31, 2024, we and CCLF had 84.13% and 15.87% economic ownership of Credit Fund II, respectively. By virtue of our respective membership interests, we and CCLF each indirectly bear an allocable share of all expenses and other obligations of Credit Fund II. Credit Fund II primarily invests in senior secured loans of middle market companies. Credit Fund II's initial portfolio was funded in November 2020 with existing senior secured debt investments contributed by us and as part of the transaction, we determined that the contribution met the requirements under ASC 860, Transfers and Servicing . Credit Fund II is expected to make only limited new investments in senior secured loans of middle market companies. Portfolio and investment decisions with respect to Credit Fund II must be unanimously approved by a quorum of Credit Fund II’s board members consisting of at least one of our representatives and one of CCLF's representatives. Therefore, although we own more than 25% of the voting securities of Credit Fund II, we do not believe that we have control over Credit Fund II (other than for purposes of the Investment Company Act). Middle Market Credit Fund II SPV, LLC (“Credit Fund II Sub”), a Delaware limited liability company, is a wholly owned subsidiary of Credit Fund II and is consolidated in Credit Fund II’s consolidated financial statements. On February 10, 2025, we and CCLF entered into an amendment to the Credit Fund II limited liability company agreement (as so amended, the “Amended Credit Fund II LLCA”). Pursuant to the terms of the Amended Credit Fund II LLCA, Credit Fund II distributed $2.7 million to CCLF, and we contributed $140.0 million in cash to Credit Fund II. Such distributions and contributions were accounted for as a reduction in CCLF's membership interest based on the net asset value of Credit Fund II as of December 31, 2024. On February 11, 2025, we entered into a membership interest purchase agreement to purchase CCLF's remaining membership interest for cash at the net asset value thereof as of December 31, 2024, after which Credit Fund II became a wholly owned subsidiary of CGBD and in connection therewith the CCLF board members resigned. Since inception of Credit Fund II and through December 31, 2024, we and CCLF made capital contributions of $78,096 and $12,709 in members’ equity, respectively, to Credit Fund II. The cost and fair value of our investment in Credit Fund II was $78,096 and $63,997, respectively, as of December 31, 2024 and $78,096 and $67,419, respectively, as of December 31, 2023. Our portion of the dividends declared by Credit Fund II was $12,906 and $11,105 for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024 and 2023, our annualized dividend yield from Credit Fund II was 20.9% and 14.2%, respectively. 82 Table of Contents Below is a summary of Credit Fund II’s portfolio as of December 31, 2024 and 2023: As of December 31, 2024 2023 Senior secured loans (1) $ 198,678 $ 255,486 Weighted average yields of senior secured loans based on amortized cost (2) 10.6 % 12.0 % Weighted average yields of senior secured loans based on fair value (2) 10.8 % 12.2 % Number of portfolio companies in Credit Fund II 29 36 Average amount per portfolio company (1) $ 6,851 $ 7,097 Number of loans on non-accrual status 1 1 Fair value of loans on non-accrual status $ 424 $ — Percentage of portfolio at floating interest rates (3)(4) 100.0 % 97.9 % Percentage of portfolio at fixed interest rates (4) — % 2.1 % Fair value of loans with PIK provisions $ 24,344 $ 20,117 Percentage of portfolio with PIK provisions (4) 12.7 % 8.5 % (1) At par/principal amount. (2) Weighted average yields include the effect of accretion of discounts and amortization of premiums and are based on interest rates as of December 31, 2024 and 2023. Weighted average yield on debt at fair value is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of original issue discount (“OID”) and market discount earned, divided by (b) total fair value included in such securities. Weighted average yield on debt at amortized cost is computed as (a) the annual stated interest rate or yield earned plus the net annual amortization of OID and market discount earned, divided by (b) total amortized cost included in such securities. Weighted average yields exclude investments on non-accrual status. Actual yields earned over the life of each investment could differ materially from the yields presented above. (3) Floating rate debt investments are generally subject to interest rate floors. (4) Percentages based on fair value. 83 Table of Contents Consolidated Results of Operations For the years ended December 31, 2024 and 2023 The following table sets forth information regarding our consolidated results of operations for the years ended December 31, 2024 and 2023. For information regarding results of operations for the year ended December 31, 2022, see the Company’s Form 10-K for the fiscal year ended December 31, 2022. Years ended December 31, 2024 vs 2023 2024 2023 $ Investment income: Interest income $ 171,581 $ 183,028 $ (11,447) PIK income 21,425 20,491 934 Dividend income 34,905 33,104 1,801 Other income 4,679 5,003 (324) Total investment income 232,590 241,626 (9,036) Expenses: Base management fees 26,908 28,515 (1,607) Incentive fees 21,647 22,622 (975) Professional fees 3,048 2,688 360 Administrative service fees 1,589 1,280 309 Interest expense and credit facility fees 68,485 71,711 (3,226) Directors’ fees and expenses 601 444 157 Other general and administrative 2,321 1,960 361 Excise tax expense 2,739 2,435 304 Total expenses 127,338 131,655 (4,317) Net investment income (loss) 105,252 109,971 (4,719) Net realized gain (loss) and net change in unrealized appreciation (depreciation): Net realized gain (loss) on investments (38,317) (21,238) (17,079) Net realized currency gain (loss) on non-investment assets and liabilities (1,436) 385 (1,821) Net change in unrealized appreciation (depreciation) on investments 18,345 7,084 11,261 Net change in unrealized currency gains (losses) on non-investment assets and liabilities 3,437 (3,922) 7,359 Net change in unrealized gains (losses) on forward currency contracts 1,697 — 1,697 Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments, non-investment assets and liabilities, and forward currency contracts (16,274) (17,691) 1,417 Net increase (decrease) in net assets resulting from operations $ 88,978 $ 92,280 $ (3,302) Investment Income The decrease in investment income for the year ended December 31, 2024 from the comparable period in 2023 was primarily driven by a decrease in the average outstanding investment balance due to total repayments and sales of our investments in excess of new originations and lower spreads across the loan portfolio. The size of the portfolio at amortized cost was $1,848,212, $1,904,895, and $2,049,975 as of December 31, 2024, December 31, 2023, and December 31, 2022, respectively. As of December 31, 2024, the weighted average yield of our total debt and income producing assets decreased to 11.7% from 12.7% as of December 31, 2023, based on amortized cost. Interest income and PIK income on our first and second lien debt investments are dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of December 31, 2024 and 2023, four and four of our income producing investments, respectively, were on non-accrual status. Non-accrual investments had a fair value of $10,393 and $38,061, respectively, which represented approximately 0.6% and 2.1% of total investments at fair value, respectively, as of December 31, 2024 and 2023. The remaining income producing investments were performing and current on their interest payments as of December 31, 2024 and 2023. 84 Table of Contents The increase in dividend income for the year ended December 31, 2024 from the comparable period in 2023 was primarily driven by an increase in dividends declared by Credit Fund II for the quarter ended December 31, 2024 to distribute previously retained net investment income. The decrease in other income for the year ended December 31, 2024 from the comparable period in 2023 was primarily driven by lower prepayment fees partially offset by higher amendment fees. Expenses The decrease in interest expense and credit facility fees for the year ended December 31, 2024 compared to the comparable period in 2023 was primarily driven by the lower average principal balance of borrowings outstanding, partially offset by the acceleration of debt issuance costs as a result of the refinancing of the 2015-1R Notes. The decrease in base management fees for the year ended December 31, 2024 from the comparable period in 2023 was driven by lower average gross assets during the year. The decrease in incentive fees for the year ended December 31, 2024 from the comparable period in 2023 was driven by lower pre-incentive fee net investment income. For the years ended December 31, 2024 and 2023, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) as of December 31, 2024 and 2023, respectively. The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“U.S. GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. See Note 4, Related Party Transactions, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for more information on our incentive and base management fees. Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs. Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments The amount of and number of investments with realized gain (loss) and change in appreciation (depreciation) for the years ended December 31, 2024 and 2023 were as follows: For the years ended December 31, 2024 2023 Realized gain on investments $ 22,474 $ 1,843 Number of investments with realized gains 20 14 Realized losses on investments $ (60,791) $ (23,081) Number of investments with realized losses 17 15 Change in unrealized appreciation on investments $ 69,673 $ 72,261 Number of investments with unrealized appreciation 105 126 Change in unrealized depreciation on investments $ (51,328) $ (65,177) Number of investments with unrealized depreciation 111 68 Net realized gain (loss) on investments during the year ended December 31, 2024 was primary driven by realized losses after the write-off of our investment in American Physician Partners, the sale of our investment in Emergency Communications Network, LLC, and the restructure of our investment in Jeg’s Automotive, LLC, partially offset by realized gains from the recapitalization of our investment in Dermatology Associates and the sale of our equity investment in Legacy.com. Net change in unrealized appreciation (depreciation) is driven by changes in other inputs utilized under our valuation methodology, including, but not limited to, enterprise value multiples, borrower leverage multiples and borrower ratings, and the impact of exits. The net change in unrealized appreciation (depreciation) for the year ended December 31, 2024 was mainly driven by the reversal of prior period unrealized depreciation related to American Physician Partners, partially offset by the reversal of prior period unrealized appreciation related to Dermatology Associates, and unrealized depreciation related to Aimbridge Acquisition Co., Inc. 85 Table of Contents Consolidated Results of Operations For the three months ended December 31, 2024 and September 30, 2024 The following table sets forth information regarding our consolidated results of operations for the three month periods ending December 31, 2024 and September 30, 2024, respectively: Three months ended Change December 31, 2024 September 30, 2024 $ Investment income: Interest income $ 40,573 $ 41,617 $ (1,044) PIK income 5,124 5,033 91 Dividend income 9,572 8,276 1,296 Other income 1,085 1,039 46 Total investment income 56,354 55,965 389 Expenses: Base management fees 6,753 6,590 163 Incentive fees 5,155 5,101 54 Professional fees 848 727 121 Administrative service fees 439 337 102 Interest expense and credit facility fees 17,124 16,882 242 Directors’ fees and expenses 144 147 (3) Other general and administrative 663 547 116 Excise tax expense 182 750 (568) Total expenses 31,308 31,081 227 Net investment income (loss) 25,046 24,884 162 Net realized gain (loss) and net change in unrealized appreciation (depreciation): Net realized gain (loss) on investments (11,852) (11,477) (375) Net realized currency gain (loss) on non-investment assets and liabilities (1,526) (593) (933) Net change in unrealized appreciation (depreciation) on investments 3,415 9,085 (5,670) Net change in unrealized currency gains (losses) on non-investment assets and liabilities 4,577 (2,288) 6,865 Net change in unrealized gains (losses) on forward currency contracts 1,697 — 1,697 Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments, non-investment assets and liabilities, and forward currency contracts (3,689) (5,273) 1,584 Net increase (decrease) in net assets resulting from operations $ 21,357 $ 19,611 $ 1,746 Investment Income The increase in investment income for the three months ended December 31, 2024, as compared to the three months ended September 30, 2024, was primarily driven by an increase in dividends declared by Credit Fund II and an increase in the average outstanding investment balance, partially offset by lower benchmark rates and lower spreads across the loan portfolio. As of December 31, 2024, the size of our portfolio increased to $1,848,212 from $1,757,621 as of September 30, 2024, at amortized cost. As of December 31, 2024 and September 30, 2024, the weighted average yield of our total debt and income producing investments was 11.7% and 11.9%, respectively, based on amortized cost. Interest income and PIK income on our first and second lien debt investments are dependent on the composition and credit quality of the portfolio. Generally, we expect the portfolio to generate predictable quarterly interest income based on the terms stated in each loan’s credit agreement. As of December 31, 2024 and September 30, 2024, four and two of our income producing investments were on non-accrual status, respectively. Non-accrual investments had a fair value of $10,393 and $10,472, which represented approximately 0.6% and 0.6% of total investments at fair value as of December 31, 2024 and 86 Table of Contents September 30, 2024, respectively. The remaining income producing investments were performing and current on their interest payments as of December 31, 2024 and September 30, 2024. The increase in other income for the three months ended December 31, 2024 as compared to the three months ended September 30, 2024 was primarily driven by an increase in amendment fees, partially offset by a decrease in prepayment fees. Expenses The increase in interest expense and credit facility fees was primarily driven by the issuance of the 2030 Notes during the three months ended December 31, 2024. The increase in base management fees was driven by higher average gross assets as a result of net purchases of new investments for the three months ended December 31, 2024 compared to the three months ended September 30, 2024. The increase in incentive fees was driven by higher pre-incentive fee net investment income for the three months ended December 31, 2024 compared to the three months ended September 30, 2024. For the three months ended December 31, 2024, there were no accrued capital gains incentive fees based upon the cumulative net realized and unrealized appreciation (depreciation) as of December 31, 2024. The accrual for any capital gains incentive fee under accounting principles generally accepted in the United States (“U.S. GAAP”) in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less than in the prior period. If such cumulative amount is negative, then there is no accrual. See Note 4, Related Party Transactions, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for more information on the incentive and base management fees. Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including our allocable portion of the cost of certain of our executive officers and their respective staff. Other general and administrative expenses include insurance, filing, research, subscriptions and other costs. Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) The amount of and number of investments with realized gain (loss) and change in unrealized appreciation (depreciation) for the three months ended December 31, 2024 and September 30, 2024 were as follows: Three Months Ended December 31, 2024 September 30, 2024 Realized gains on investments $ 349 $ 2,144 Number of investments with realized gains 3 2 Realized losses on investments $ (12,201) $ (13,621) Number of investments with realized losses 9 3 Change in unrealized appreciation on investments $ 27,087 $ 24,398 Number of investments with unrealized appreciation 83 80 Change in unrealized depreciation on investments $ (23,672) $ (15,313) Number of investments with unrealized depreciation 90 93 During the three months ended December 31, 2024, we recognized a realized loss after the restructure of our investment in Jeg’s Automotive, LLC. During the three months ended September 30, 2024, we recognized a realized loss after the sale of our investments in Emergency Communications Network, LLC and Stonegate Pub Company Bidco Limited partially offset by a realized gain from the sale of our equity investment in Chartis Holding, LLC. The net change in unrealized appreciation (depreciation) is driven by changes in various inputs used in our valuation methodology, including but not limited to enterprise value multiples, borrower leverage ratios, borrower ratings, and the impact of exits. The net change in unrealized appreciation (depreciation) is also driven by the reversal of prior period unrealized depreciation related to Jeg’s Automotive, LLC., an increase in fair value of investments in SPF Borrower, LLC and an increase 87 Table of Contents in value of our investment in the Credit Fund, partially offset by a decrease in value of our investment in Aimbridge Acquisition Co., Inc. and our investment in Credit Fund II. Financial Condition, Liquidity and Capital Resources Capitalization We have capitalized our business to date primarily through the issuance and sale of our common stock, asset-level financing, and the issuance of unsecured senior debt. As of December 31, 2024, we had $978,439 of outstanding consolidated indebtedness under the Credit Facility, the 2015-1N Debt, the 2028 Notes and the 2030 Notes as previously discussed within Portfolio and Investment Activity - Portfolio Financing . As of December 31, 2024, we had $565,696 of liquidity that can be used to satisfy our short-term cash requirements and working capital for our business. Refer to Note 8, Borrowings, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for additional information regarding our financing. On May 5, 2020, the Company issued and sold 2,000,000 shares of Preferred Stock to an affiliate of Carlyle in a private placement. Our Preferred Stock has a liquidation preference equal to $25 per share (the “Liquidation Preference”) plus any accumulated but unpaid dividends up to but excluding the date of distribution. Dividends on our Preferred Stock are payable on a quarterly basis in an initial amount equal to 7.00% per annum of the Liquidation Preference per share, payable in cash, or at our option, 9.00% per annum of the Liquidation Preference payable in additional shares of Preferred Stock. The Preferred Stock is convertible, in whole or in part, at the option of the holder of the Preferred Stock into the number of shares of common stock equal to the Liquidation Preference plus any accumulated but unpaid dividends, divided by an initial conversion price of $9.50, subject to certain adjustments to prevent dilution as set forth in the Company's articles supplementary (the “Articles Supplementary”). The conversion price as of December 31, 2024 was $8.87. Effective as of May 5, 2023, the Company, with the approval of the Board of Directors, including a majority of the Independent Directors, has the option to redeem all of the Preferred Stock for cash consideration equal to the Liquidation Preference plus any accumulated but unpaid dividends. The holders of the Preferred Stock have the right to convert all or a portion of their shares of Preferred Stock prior to the date fixed for such redemption. Effective as of May 5, 2027, the holders of the Preferred Stock have the option to require the Company to redeem any or all of the then-outstanding Preferred Stock upon 90 days’ notice. The form of consideration used in any such redemption is at the option of the Board of Directors, including a majority of the Independent Directors, and may be cash consideration equal to the Liquidation Preference plus any accumulated but unpaid dividends, or shares of common stock. Holders also have the right to redeem the Preferred Stock upon a Change in Control (as defined in the Articles Supplementary). In connection with entry into the Merger Agreement, the Carlyle affiliate has agreed to exchange the Preferred Stock for common stock pursuant to the Preferred Stock Exchange. Refer to Note 15, Merger with CSL III, to the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for additional information regarding the Merger Agreement, the Mergers and the Preferred Stock Exchange. The following table presents our certain capitalization ratios: December 31, 2024 December 31, 2023 Net Financial Leverage (1) 1.01x 1.03x Statutory Debt to Equity (2) 1.20x 1.20x (1) Reflects cumulative convertible preferred securities as equity, net of excess cash held at period end, which was $61.5 million and $38.5 million as of December 31, 2024 and December 31, 2023, respectively. (2) Reflects cumulative convertible preferred securities as debt. These securities are considered "senior securities" for the purposes of calculating asset coverage pursuant to the Investment Company Act. Sources of Liquidity Our primary sources of liquidity include cash and cash equivalents and available borrowings under our Credit Facility. December 31, 2024 December 31, 2023 Cash, cash equivalents and restricted cash $ 56,575 $ 60,447 Available borrowings under Credit Facility 509,121 359,675 Total Liquidity $ 565,696 $ 420,122 88 Table of Contents We generate cash from the net proceeds of offerings of our common stock and through cash flows from operations, including investment sales and repayments as well as income earned on investments and cash equivalents. We may also fund a portion of our investments through borrowings under the Credit Facility, the issuance of debt, and through securitization of a portion of our existing investments. The primary use of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, repurchases of our common stock and for other general corporate purposes. We believe our current cash position, available capacity on our Credit Facility, which is well in excess of our unfunded commitments, and net cash provided by operating activities will provide us with sufficient resources to meet our obligations and continue to support our investment objectives, including reserving for the capital needs which may arise at our portfolio companies. Liquidity Needs Our primary liquidity needs include our funding of new and existing portfolio investments, payment of operating expenses and interest and principal payments under the Credit Facility. From time to time, we may also repurchase our outstanding debt or shares of our common stock. Contractual Obligations and Contingencies In the ordinary course of our business, we enter into contracts or agreements that contain indemnifications or warranties. Future events could occur which may give rise to liabilities arising from these provisions against us. We believe that the likelihood of such an event is remote; however, the maximum potential exposure is unknown. No accrual has been made in the consolidated financial statements as of December 31, 2024 and December 31, 2023, included in Part II, Item 8 of this Form 10-K for any such exposure. We have in the past, currently are and may in the future become obligated to fund commitments such as revolving credit facilities, bridge financing commitments, or delayed draw commitments. We had the following unfunded commitments to fund delayed draw and revolving senior secured loans as of December 31, 2024 and December 31, 2023: Par/Principal Amount as of December 31, 2024 2023 Unfunded delayed draw commitments $ 105,485 $ 68,017 Unfunded revolving commitments 73,762 66,392 Total unfunded commitments $ 179,247 $ 134,409 Pursuant to an undertaking by us in connection with the 2015-1 Debt Securitization, we agreed to hold on an ongoing basis the 2015-1 Issuer Preferred Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate outstanding amount of all collateral obligations by the 2015-1 Issuer for so long as any securities of the 2015-1 Issuer remains outstanding. As of December 31, 2024 and December 31, 2023, we were in compliance with this undertaking. Cash Flows The following table details the net change in our cash and cash equivalents: For the years ended December 31, 2024 2023 Cash flows provided by (used in) operating activities $ 104,265 $ 230,609 Cash flows provided by (used in) financing activities (108,137) (200,668) Net increase (decrease) in cash, cash equivalents and restricted cash $ (3,872) $ 29,941 During the year ended December 31, 2024, we paid $454,315 related to cost of investments purchased and received $482,647 in proceeds from sales and repayments on our investments. During the year ended December 31, 2024, we had net repayments of $44,958 on the Credit Facility, repaid $449,200 of principal on the 2015-1R Notes, completed the 2015-1R Refinancing of $380,000, repaid $190,000 of principal on the 2024 Notes, and completed a public offering of $300,000 aggregate principal on the 2030 Notes. 89 Table of Contents Asset Coverage In accordance with the Investment Company Act, a BDC is only allowed to borrow amounts such that its “asset coverage,” as defined in the Investment Company Act, satisfies the minimum asset coverage ratio specified in the Investment Company Act after such borrowing. “Asset coverage” generally refers to a company’s total assets, less all liabilities and indebtedness not represented by “senior securities,” as defined in the Investment Company Act, divided by total senior securities representing indebtedness and, if applicable, preferred stock. “Senior securities” for this purpose includes borrowings from banks or other lenders, debt securities and preferred stock. Prior to March 23, 2018, BDCs were required to maintain a minimum asset coverage ratio of 200%. On March 23, 2018, an amendment to Section 61(a) of the Investment Company Act was signed into law to permit BDCs to reduce the minimum asset coverage ratio from 200% to 150%, so long as certain approval and disclosure requirements are satisfied. Under the 200% minimum asset coverage ratio, BDCs are permitted to borrow up to one dollar for investment purposes for every one dollar of investor equity, and under the 150% minimum asset coverage ratio, BDCs are permitted to borrow up to two dollars for investment purposes for every one dollar of investor equity. In other words, Section 61(a) of the Investment Company Act, as amended, permits BDCs to potentially increase their debt-to-equity ratio from a maximum of 1 to 1 to a maximum of 2 to 1. On April 9, 2018 and June 6, 2018, the Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the Investment Company Act), and the stockholders of the Company, respectively, approved the application to the Company of the 150% minimum asset coverage ratio set forth in Section 61(a)(2) of the Investment Company Act, as amended. As a result, the minimum asset coverage ratio applicable to the Company was reduced from 200% to 150%, effective as of June 7, 2018. As of December 31, 2024 and 2023, the Company had total senior securities of $1,028,439 and $1,034,556, respectively, consisting of secured borrowings under the Credit Facility, the Senior Notes, the Securitizations, and the Preferred Stock, and had asset coverage ratios of 183.2% and 183.4%, respectively. For a discussion of the principal risk factors associated with these senior securities, see Part I, Item 1A of this Form 10‑K ” Risk Factors ”. For the purposes of the asset coverage ratio, the Preferred Stock is classified as a senior security. Critical Accounting Policies and Estimates The preparation of our consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. These estimates and judgments are based on historical information, information currently available to us and on various other assumptions management believes to be reasonable under the circumstances. Actual results could vary from those estimates and we may change our estimates and assumptions in future evaluations. Changes in these estimates and assumptions may have a material effect on our results of operations and financial condition. We believe the critical accounting policies discussed below affect our more significant judgments and estimates used in the preparation of our consolidated financial statements and should be read in conjunction with our consolidated financial statements and related notes in Part II, Item 8, as well as with our “Risk Factors” in Part I, Item 1A of this Form 10-K. Fair Value Measurements The Company applies fair value accounting in accordance with the terms of Financial Accounting Standards Board ASC Topic 820, Fair Value Measurement (“ASC 820”). ASC 820 defines fair value as the amount that would be exchanged to sell an asset or transfer a liability in an orderly transfer between market participants at the measurement date. Effective September 8, 2022, the Investment Adviser, as the valuation designee pursuant to Rule 2a-5 under the Investment Company Act, determines in good faith the fair value of the Company’s investment portfolio for which market quotations are not readily available. The Investment Adviser values securities/instruments traded in active markets on the measurement date by multiplying the closing price of such traded securities/instruments by the quantity of shares or amount of the instrument held. The Investment Adviser may also obtain quotes with respect to certain of its investments, such as its securities/instruments traded in active markets and its liquid securities/instruments that are not traded in active markets, from pricing services, brokers, or counterparties (i.e., “consensus pricing”). When doing so, the Investment Adviser determines whether the quote obtained is sufficient according to U.S. GAAP to determine the fair value of the security. The Investment Adviser may use the quote obtained, or alternative pricing sources may be utilized, including valuation techniques typically utilized for illiquid securities/instruments. Securities/instruments that are illiquid, or for which the pricing source does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the Investment Adviser, does not represent fair value, shall each 90 Table of Contents be valued as of the measurement date using all techniques appropriate under the circumstances and for which sufficient data is available. These valuation techniques may vary by investment and include comparable public market valuations, comparable precedent transaction valuations and/or discounted cash flow analyses. The process generally used to determine the applicable value is as follows: (i) the value of each portfolio company or investment is initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments, a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs is used to determine a preliminary value, which is also reviewed alongside consensus pricing, where available; (ii) preliminary valuation conclusions are documented and reviewed by a valuation committee comprised of members of senior management; (iii) the Board of Directors engages a third-party valuation firm to provide positive assurance on portions of the Middle Market Senior Loans and equity investments portfolio each quarter (such that each non-traded investment other than Credit Fund is reviewed by a third-party valuation firm at least once on a rolling twelve month basis) including a review of management’s preliminary valuation and conclusion on fair value; (iv) if applicable, prior to September 8, 2022, the Audit Committee of the Board of Directors (the “Audit Committee”) reviewed the assessments of the Investment Adviser and the third-party valuation firm; and (v) if applicable, prior to September 8, 2022, the Board of Directors discussed the valuation recommendations of the Audit Committee and determined the fair value of each investment in the portfolio in good faith based on the input of the Investment Adviser and, where applicable, the third-party valuation firm. All factors that might materially impact the value of an investment are considered, including, but not limited to the assessment of the following factors, as relevant: • the nature and realizable value of any collateral; • call features, put features and other relevant terms of debt; • the portfolio company’s leverage and ability to make payments; • the portfolio company’s public or private credit rating; • the portfolio company’s actual and expected earnings and discounted cash flow; • prevailing interest rates and spreads for similar securities and expected volatility in future interest rates; • the markets in which the portfolio company does business and recent economic and/or market events; and • comparisons to comparable transactions and publicly traded securities. Investment performance data utilized are the most recently available financial statements and compliance certificate received from the portfolio companies as of the measurement date which, in many cases, may reflect a lag in information. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Because of the inherent uncertainty of valuation, these estimated values may differ significantly from the values that would have been reported had a ready market for the investments existed, and it is reasonably possible that the difference could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the realized gains or losses on investments to be different from the net change in unrealized appreciation or depreciation currently reflected in the consolidated financial statements as of December 31, 2024 and 2023. U.S. GAAP establishes a hierarchical disclosure framework which ranks the level of observability of market price inputs used in measuring investments at fair value. The observability of inputs is impacted by a number of factors, including the type of investment and the characteristics specific to the investment and state of the marketplace, including the existence and transparency of transactions between market participants. Investments with readily available quoted prices or for which fair value can be measured from quoted prices in active markets generally have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. For further information on the fair value measurements, including the fair value hierarchies, our framework for determining fair value, and the composition of our portfolio, see Note 3, Fair Value Measurements to the consolidated financial statements in Part II, Item 8 of this Form 10-K. Investments Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment at the time of exit using the 91 Table of Contents specific identification method without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. Net change in unrealized appreciation or depreciation on investments as presented in the Consolidated Statements of Operations in Part II, Item 8 of this Form 10-K reflects the net change in the fair value of investments, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized. Revenue Recognition - Non-Accrual Income Loans are generally placed on non-accrual status when principal or interest payments are past due or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest are current or there is no longer any reasonable doubt that such principal or interest will be collected in full and, in management’s judgment, are likely to remain current. Management may determine not to place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. Income Taxes For federal income tax purposes, the Company has elected to be treated as a RIC under the Code, and intends to make the required distributions to its stockholders as specified therein. In order to qualify as a RIC, the Company must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then the Company is generally required to pay income taxes only on the portion of its taxable income and gains it does not distribute. The minimum distribution requirements applicable to RICs require the Company to distribute to its stockholders at least 90% of its investment company taxable income (“ICTI”), as defined by the Code, each year. Depending on the level of ICTI earned in a tax year, the Company may choose to carry forward ICTI in excess of current year distributions into the next tax year. Any such carryover ICTI must be distributed before the end of that next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. In addition, based on the excise distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company distributes in a timely manner an amount at least equal to the sum of (1) 98% of its ordinary income for each calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in the preceding year. For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed. The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more likely than not” to be sustained by the applicable tax authority. All penalties and interest associated with income taxes, if any, are included in income tax expense. The SPV and the 2015-1 Issuer are disregarded entities for tax purposes and are consolidated with the tax return of the Company.