Carlyle Secured Lending, Inc. (together with its consolidated
subsidiaries, “we,” “us,” “our,” “CGBD” or the “Company”) (NASDAQ:
CGBD), a business development company focused on
directly-originated lending to sponsor-backed U.S. middle market
companies, has entered into a definitive agreement to acquire
Carlyle Secured Lending III (“CSL III”), a private business
development company with a similar investment strategy and
portfolio. The stock-for-stock transaction will have a floating
exchange ratio that has the potential to allow CGBD and CSL III to
share the benefits if CGBD is trading above NAV shortly before
merger close. Following closing, CGBD is expected to have total
assets of over $2.5 billion and net assets of over $1.2 billion.1
“We are excited to announce the merger of CGBD and CSL III,
which is designed to have meaningful benefits for investors of both
entities,” said Justin Plouffe, Chief Executive Officer for CGBD
and CSL III. “Given substantial overlap in strategy and portfolio
composition, combining CGBD and CSL III into a single, larger, and
more liquid vehicle will result in significant stockholder value
creation and an enhanced investor experience. We are confident in
this transaction’s potential to drive greater trading volume,
access to an expanded stockholder base, and lower operating and
financing costs. There is strong momentum across our direct lending
franchise, and we believe bringing CGBD and CSL III together will
enable us to build on that momentum.”
In order to enhance the benefits of the transaction for
stockholders, Carlyle Investment Management L.L.C. (“CIM”), a
wholly owned subsidiary of Carlyle, has agreed to exchange its
shares of CGBD convertible preferred stock for CGBD common stock.
The CGBD convertible preferred stock was issued by CGBD as part of
an investment Carlyle made to support CGBD during the market
dislocation resulting from the COVID pandemic. This exchange will
eliminate the dilutive impact of the preferred stock, which has a
conversion price of $8.98 compared to CGBD’s June 30th NAV per
share of $16.95.2
Under the terms of the proposed merger, shareholders of CSL III
will receive shares of CGBD based on a ratio determined shortly
before merger close (the “Exchange Ratio”). The Exchange Ratio is
discussed in more detail below.
Merger Benefits
The transaction is expected to deliver considerable value and
benefits for investors both in the short term and over the longer
term, including:
- Increased scale and
liquidity: The proposed merger will increase CGBD’s scale
meaningfully, with total assets expected to increase to over $2.5
billion at merger close.1 The increased market capitalization of
CGBD following the merger is anticipated to provide greater trading
liquidity, the potential for more institutional ownership, and a
broader investor base than CGBD as a stand-alone company.
- Elimination of CGBD
preferred stock dilution overhang: The exchange of the
shares of convertible preferred stock for CGBD common stock at NAV
as of the Determination Date will eliminate the risk of dilution
from conversion of the shares, which may have led to a $0.79 (or
5%) decrease in CGBD’s NAV per share and a $0.04 (or 8%) decrease
in quarterly NII per share of CGBD common stock when calculated on
a fully diluted basis at the current preferred conversion price of
$8.98 as of June 30, 2024.
- Drives efficiency and debt
market access, reduces costs: As a result of the combined
company’s increased scale, it is expected to be able to access a
wider array of debt financing solutions, including in the unsecured
debt market, and may potentially receive more attractive terms and
pricing than CGBD as a stand-alone company. In addition, cost
savings and operational synergies from eliminating redundant
expenses are expected to drive a lower expense ratio, resulting in
long-term efficiencies from greater scale.
- Continuation of successful
strategy with greater scale and seamless integration:
Post-closing, CGBD expects to continue its strategy of lending to
U.S. middle market companies, which CGBD defines as companies with
approximately $25 million to $100 million of earnings before
interest, taxes, depreciation and amortization, supported by
financial sponsors, which 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. This enables CGBD to drive stockholder value by
leveraging Carlyle’s deep credit expertise and wide origination
capabilities to pursue the most compelling relative value
opportunities based on the market environment. No material change
from CGBD’s current portfolio is expected at closing, given CSL
III’s near complete overlap with CGBD. Accordingly, credit quality
is expected to remain strong with improved portfolio metrics given
that less than 0.1% of CSL III is on non-accrual and 96% of CSL
III’s investments are categorized as a 2 risk rating, reflecting
the investments are performing as expected. The transaction will
also decrease CGBD’s concentration in its top 10 investments from
19% to 17%.
- Substantial adviser support: To support the
proposed merger, Carlyle Global Credit Investment Management L.L.C.
(“CGCIM”), investment adviser to CGBD, and CSL III Advisor, LLC
(“CSL III Advisor” and together with CGCIM, the “Advisors”),
investment adviser to CSL III, have agreed to cover merger-related
expenses in certain circumstances, up to a total cap of $5 million,
to maximize merger benefits for CGBD stockholders and CSL III
shareholders. Additionally, CIM’s shares of common stock issued as
a result of the preferred stock exchange will be subject to a
2-year tiered lock-up, demonstrating its continued long-term
commitment to CGBD.
The combined company will remain externally managed by CGCIM.
The combined company will continue to trade under the ticker CGBD
on the Nasdaq Global Select Market.
The Board of Directors of CGBD and the Board of Trustees of CSL
III have unanimously approved the transaction with active
participation throughout the process from the respective
independent directors and trustees, as applicable, and the special
committees that each Board formed to evaluate and negotiate the
transaction.
Consummation of the proposed merger is subject to CGBD
stockholder approval, regulatory approval and other customary
closing conditions. Assuming satisfaction of these conditions, the
transaction is expected to close during the first fiscal quarter of
2025.
Prior to the anticipated closing of the proposed merger, each of
CGBD and CSL III intends to maintain its current dividend policies
and, if necessary, will declare and pay any special distributions
required to distribute sufficient taxable income to continue to
comply with its regulated investment company status.
Exchange Ratio
Under the terms of the proposed merger, shareholders of CSL III
will receive newly issued shares of CGBD common stock based on the
Exchange Ratio, which will be calculated based upon: (a) the NAV
per share of CGBD and CSL III (“CGBD NAV Per Share” and “CSL III
NAV Per Share”)3; and (b) the market price of CGBD common stock
(“CGBD Price”)4 shortly before merger close. The Exchange Ratio
will be calculated as follows:
- If CGBD Price is equal to or less
than CGBD’s NAV Per Share:Exchange Ratio = CSL III NAV Per Share /
CGBD NAV Per Share
- If CGBD Price is greater than CGBD’s
NAV Per Share:Exchange Ratio = (CSL III NAV Per Share) x (1 + 50% x
(CGBD Price / CGBD NAV Per Share – 1)) / CGBD PriceNote: 50% x
(CGBD Price / CGBD NAV Per Share – 1) shall not exceed 5.5%.
The Exchange Ratio is subject to adjustment only in the event of
a reclassification, recapitalization or similar transaction by
either company.
There is a supplemental investor presentation with further
details of the transaction on the investor relations section of the
CGBD website.
Raymond James & Associates, Inc. served as financial advisor
and Sidley Austin LLP served as legal counsel to the special
committee of the independent directors of CGBD. Keefe, Bruyette
& Woods, A Stifel Company, served as financial advisor and
Sullivan & Worcester LLP served as legal counsel to the special
committee of the independent trustees of CSL III. Sullivan &
Cromwell LLP serves as legal counsel to CGBD and CSL III.
Conference Call
The Company will host a conference call at 10:00 a.m. EST on
Monday, August 5, 2024 to discuss the proposed merger and review
CGBD’s second quarter 2024 earnings results. The conference call
will be available via public webcast via a link on Carlyle Secured
Lending’s website and will also be available on our website soon
after the call’s completion.
About Carlyle Secured Lending, Inc.
CGBD is an externally managed specialty finance company focused
on lending to middle-market companies. CGBD is managed by CGCIM, an
SEC-registered investment adviser and a wholly owned subsidiary of
The Carlyle Group Inc. Since it commenced investment operations in
May 2013 through June 30, 2024, CGBD has invested approximately
$8.5 billion in aggregate principal amount of debt and equity
investments prior to any subsequent exits or repayments. CGBD’s
investment objective is to generate current income and capital
appreciation primarily through debt investments in U.S. middle
market companies. CGBD has elected to be regulated as a business
development company under the Investment Company Act of 1940, as
amended.
Web: carlylesecuredlending.com
About Carlyle Secured Lending III
CSL III is an externally-managed, non-diversified closed-end
management investment company that has elected to be regulated as a
business development company under the Investment Company Act of
1940. CSL III’s investment objective is to generate current income
and, to a lesser extent, capital appreciation primarily through
assembling a portfolio of secured debt investments with favorable
risk-adjusted returns. CSL III’s investment activities are managed
by its investment adviser, CSL III Advisor, an affiliate of Carlyle
(as defined below).
About Carlyle
Carlyle (“Carlyle”) (NASDAQ: CG) is a global investment firm
with deep industry expertise that deploys private capital across
three business segments: Global Private Equity, Global Credit and
Global Investment Solutions. With $435 billion of assets under
management as of June 30, 2024, Carlyle’s purpose is to invest
wisely and create value on behalf of its investors, portfolio
companies and the communities in which we live and invest. Carlyle
employs more than 2,200 employees in 29 offices across four
continents. Further information is available at www.carlyle.com.
Follow Carlyle on X @OneCarlyle and LinkedIn at The Carlyle
Group.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS
This press release may contain forward-looking statements that
involve substantial risks and uncertainties. Some of the statements
in this communication constitute forward-looking statements because
they are not historical facts, but instead relate to future events,
future performance or financial condition of CGBD, CSL III or the
Mergers. The forward-looking statements may include statements as
to: future operating results of CGBD and CSL III and distribution
projections; business prospects of CGBD and CSL III and the
prospects of their portfolio companies; and the impact of the
investments that CGBD and CSL III expect to make. You can identify
these statements by the use of forward-looking terminology such as
“anticipates,” “believes,” “expects,” “intends,” “will,” “should,”
“may,” “plans,” “continue,” “believes,” “seeks,” “estimates,”
“would,” “could,” “targets,” “projects,” “outlook,” “potential,”
“predicts” and variations of these words and similar expressions to
identify forward-looking statements, although not all
forward-looking statements include these words. The forward-looking
statements contained in this press release involve risks and
uncertainties. Certain factors could cause actual results and
conditions to differ materially from those projected, including the
uncertainties associated with (i) the timing or likelihood of the
Mergers closing; (ii) the expected synergies and savings associated
with the Mergers; (iii) the ability to realize the anticipated
benefits of the Mergers, including the expected elimination of
certain expenses and costs due to the Mergers; (iv) the percentage
of CGBD stockholders voting in favor of the proposals submitted for
their approval; (v) the possibility that competing offers or
acquisition proposals will be made; (vi) the possibility that any
or all of the various conditions to the consummation of the Mergers
may not be satisfied or waived; (vii) risks related to diverting
management’s attention from ongoing business operations; (viii) the
risk that stockholder litigation in connection with the Mergers may
result in significant costs of defense and liability; (ix) changes
in the economy, financial markets and political environment,
including the impacts of inflation and rising interest rates; (x)
risks associated with possible disruption in the operations of CGBD
and CSL III or the economy generally due to terrorism, war or other
geopolitical conflict (including the uncertainty surrounding
Russia’s military invasion of Ukraine and the impact of
geopolitical tensions in other regions such as the Middle East, and
developing tensions between China and the United States); (xi)
future changes in laws or regulations (including the interpretation
of these laws and regulations by regulatory authorities); (xii)
conditions in CGBD’s and CSL III’s operating areas, particularly
with respect to business development companies or regulated
investment companies; and (xiii) other considerations that may be
disclosed from time to time in CGBD’s and CSL III’s publicly
disseminated documents and filings. CGBD and CSL III have based the
forward-looking statements included in this press release on
information available to them on the date hereof, and they assume
no obligation to update any such forward-looking statements. You
should read statements that contain these words carefully because
they discuss our plans, strategies, prospects and expectations
concerning our business, operating results, financial condition and
other similar matters. We believe that it is important to
communicate our future expectations to our investors. There may be
events in the future, however, that we are not able to predict
accurately or control. You should not place undue reliance on these
forward-looking statements, which speak only as of the date on
which we make it. Factors or events that could cause our actual
results to differ, possibly materially from our expectations,
include, but are not limited to, the risks, uncertainties and other
factors we identify in the sections entitled “Risk Factors” and
“Cautionary Statement Regarding Forward-Looking Statements” in
filings we make with the Securities and Exchange Commission, and it
is not possible for us to predict or identify all of them. Although
CGBD and CSL III undertake no obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, you are advised to consult any
additional disclosures that they may make directly to you or
through reports that CGBD and CSL III have filed or in the future
may file with the Securities and Exchange Commission (“SEC”),
including the Proxy Statement and the Registration Statement (each
as defined below), annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K.
Additional Information and Where to Find It
This communication relates to a proposed business combination
involving CGBD and CSL III, along with the related Proposals for
which CGBD stockholder approval will be sought. In connection with
the Mergers, CGBD plans to file with the SEC and mail to its
stockholders a proxy statement on Schedule 14A (the “Proxy
Statement”), CSL III plans to file with the SEC and mail to its
shareholders an information statement (the “Information
Statement”), and CGBD plans to file with the SEC a registration
statement on Form N-14 (the “Registration Statement”) that will
include the Proxy Statement, the Information Statement and a
prospectus of CGBD. The Proxy Statement, Information Statement and
the Registration Statement will each contain important information
about CGBD, CSL III, the Mergers and related matters. This press
release does not constitute an offer to sell or the solicitation of
an offer to buy any securities or a solicitation of any vote or
approval. No offer of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the Securities
Act. STOCKHOLDERS OF CGBD AND CSL III ARE URGED TO READ THE PROXY
STATEMENT, THE INFORMATION STATEMENT AND REGISTRATION STATEMENT,
AND OTHER DOCUMENTS THAT ARE FILED OR WILL BE FILED WITH THE SEC,
AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO THESE DOCUMENTS,
CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE
THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT CSL III, CGBD, THE
MERGERS AND RELATED MATTERS. Investors and security holders will be
able to obtain the documents filed with the SEC free of charge at
the SEC’s web site at http://www.sec.gov or, for documents filed by
CGBD, from CGBD’s website at carlylesecuredlending.com.
Participants in the Solicitation
CGBD, its directors, certain of its executive officers and
certain employees and officers of CGCIM and its affiliates may be
deemed to be participants in the solicitation of CGBD proxies in
connection with the Mergers. Information about the directors and
executive officers of CGBD is set forth in its proxy statement for
its 2024 Annual Meeting of Stockholders, which was filed with the
SEC on April 26, 2024. CSL III, its trustees, certain of its
executive officers and certain employees and officers of CSL III
Advisor and its affiliates may be deemed to be participants in the
solicitation of CGBD proxies in connection with the Mergers.
Information about the trustees and executive officers of CSL III is
set forth in its annual report on Form 10-K, which was filed with
the SEC on March 12, 2024. Information regarding the persons who
may, under the rules of the SEC, be considered participants in the
solicitation of the CGBD stockholders in connection with the
Mergers will be contained in the Proxy Statement when such document
becomes available. These documents may be obtained free of charge
from the sources indicated above.
No Offer or Solicitation
This press release is not, and under no circumstances is it to
be construed as, a prospectus or an advertisement and the
communication of this press release is not, and under no
circumstances is it to be construed as, an offer to sell or a
solicitation of an offer to purchase any securities in CGBD, CSL
III or in any fund or other investment vehicle managed by the
Advisors or any of their respective affiliates.
Contacts:
Investors: |
Media: |
Nishil Mehta |
Kristen Greco Ashton |
+1-212-813-4918 |
+1-212-813-4763 |
publicinvestor@carlylesecuredlending.com |
kristen.ashton@carlyle.com |
|
|
1 Expected assets at merger close assuming target leverage of
1.10x.2 Please refer to the supplemental investor presentation on
the investor relations section of the CGBD website with further
details of the transaction.3 Net asset value of CGBD divided by the
number of shares of CGBD common stock issued and outstanding
(taking into account the common stock issued from the exchange of
CGBD preferred stock), both as of the Determination Date; and the
net asset value of CSL III divided by the number of shares of CSL
III common stock issued and outstanding, both as of the
Determination Date.4 Closing price per share of CGBD common stock
on the Nasdaq on either the Determination Date or, if the Nasdaq is
closed on the Determination Date, the most recent trading day prior
to the Determination Date.
Carlyle (NASDAQ:CG)
Historical Stock Chart
From Aug 2024 to Sep 2024
Carlyle (NASDAQ:CG)
Historical Stock Chart
From Sep 2023 to Sep 2024