Ladies and gentlemen, thank you for standing by and welcome to the TCG BDC Third Quarter 2019 Earnings Conference Call. At this time all participants lines are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference call is being recorded. [Operator Instructions] I would now like to hand the conference over to one of your speakers today, Mr. Daniel Harris. Sir, please begin.

Thank you, Howard. Good morning and welcome to TCG BDC’s third quarter 2019 earnings call. Last night we issued an earnings press release and detailed earnings presentation with our quarterly results. A copy of which is available on TCG BDC’s Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. Any forward-looking statements made today, do not guarantee future performance and undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our Annual Report on Form 10-K that could cause actual results to differ materially from those indicated. TCG, BDC assumes no obligation to update any forward-looking guidance at anytime. With that, I’ll turn it over to our President, Linda Pace.

Thank you, Dan. Good morning everyone and thank you for joining us on our call this morning to discuss our third quarter results. Joining me on the call today is our Chief Investment Officer, Taylor Boswell and our Chief Financial Officer, Tom Hennigan. Before handing the call over to Taylor and Tom, I’d like to focus my remarks today across three areas. Summarizing our financial results for the quarter; a closer look at our portfolio and the change in NAV this quarter; and a brief discussion on our dividend and capital position. Let me start with an overview of our results for the third quarter. We generated net investment income of $27 million or $0.45 per share and we declared our regular $0.37 dividend. Our company has consistently produced net investment income well in excess of our quarterly dividend and we expect to continue this going forward. Our net asset value per share declined to $16.58 from $17.06 last quarter. Net investment income substantially exceeded the dividend, but was offset by realized and unrealized losses of approximately $0.60 per share while share repurchases were $0.04 per share accretive to NAV. Let me shift to a slightly deeper discussion on our portfolio and change in NAV this quarter. Our BDC’s portfolios highly diversified and heavily weighted with first lien positions, which represent about 70% of our portfolio as of the third quarter. We have over 140 investments in the portfolio diversified by size and sector. No single sector accounts for more than 12% of the portfolio. This portfolio construction represents our defensive approach to sustainable dividend creation, which is our investment objective. However, portfolio construction alone does not immunize the portfolio from idiosyncratic risk, but we expect to outperform the industry over the long-term our results this quarter were negatively impacted…

Thank you, Linda. Allow me to begin by sharing Carlyle’s read on the macroeconomic environment. If you recall, last quarter we said our firms’ proprietary research is not pointing toward an imminent recession. Today, while we continue to see weakness in trade linked activities as well as certain categories of short cycle industrial demand and we acknowledge the data has softened somewhat in the last few months. Our house view remains unchanged, that is we still do not expect the recession through year-end 2020. That said we are neither macro investors nor market timers, rather we are fundamental investors building portfolios designed to perform across cycles. This is certainly the case with CGBD, where our investment objective is the delivery of defensive sustainable income to our shareholders. In this pursuit as Linda mentioned we constructed a portfolio which is heavily anchored in first dollar senior secured instruments and is highly diversified by borrower. It also possesses less than half the exposure to cyclical industries of broader leverage finance markets. As such, we’re happy to report that any economic weakness Carlyle sees emerging is not evidencing itself in CGBD’s portfolio. We remain confident in our ability to outperform through a cycle. We spoke last quarter about our portfolio sensitivity to movements in LIBOR. The progression of which continues to be unfavorable for us and our peers. As our market navigates this transition, we’re focused on maintaining price discipline and seeking to maintain the yield by increasing spreads. Our progress in this respect has been solid, especially in light of the highly competitive environment in which we are operating. You can see the same with our book yields roughly flat on a quarter-over-quarter basis, while the private markets rarely see immediate transition of public market signals, we do see initial signs our…

Thanks, Taylor. We had another solid quarter in terms of core income generation. Total investment income for the third quarter was $56 million down slightly from $57 million in the second quarter. The decrease was primarily due to lower OID accretion in prepayment fees, given the elevated level of repayments experienced last quarter. However, this was offset by growth in core interest income from a higher average investment balance. Total expenses were flat for the quarter at $29 million as higher interest expense from an increase in the average debt outstanding was offset by a decline in incentive fees. This resulted in net investment income for the quarter of $27 million or $0.45 per share and that compares to an average of $0.43 over the prior eight quarters dating back to our IPO. On November 4, our Board of Directors declared a regular dividend for the fourth quarter of 2019, at the same $0.37 per share and that’s payable to shareholders of record as of the close of business on December 31. Shifting to the financing front, we finished the third quarter with total debt outstanding of about $1.2 billion, that’s up from $1.1 billion as of 6/30. The increase we’ve driven primarily by funding the net growth in the investment portfolio. We recently increased our revolving credit facility by about another $100 million. So we still have about 330 million of total unused commitments under our credit facilities. Statutory leverage was 1.23 as of 9/30 which is right in the middle of our stated target range of 1.0 times to 1.4 times and that’s up from 1.07 times at the end of the prior quarter. And as we highlighted on last quarter’s call, given the more favorable rate environment for issuers. We continue to evaluate alternative financing solutions with…

Thank you, Tom. Delivering strong risk adjusted returns to our shareholders remains our top priority and getting to a place where we have stabilized NAV is a focus area for all of us on this call, we are on the right track. Thank you for your time and attention this morning and I’ll now turn the call back over to the operator for Q&A.

[Operator Instructions] Thank you. [Operator instruction] And our first question comes from the line of Finn O’Shea with Wells Fargo Securities. Your line is now open. Finn O’Shea: Hi guys, good morning. Thanks for having me on. First question for Linda you had some extended remarks on the dividend. This quarter, you seem to be saying that it’s attractive going forward essentially. Are you communicating anything in your view as to the long-term sustainability of the regular dividend?

Yes, Finn, good morning. Thanks for dialing in and for the question. Yes, I think our message to you and to our investors is that we’re very comfortable with the long-term sustainability of the dividend. Our net interest income is well in excess of the $0.37 that we declared this quarter and in prior quarters and we’re not going to give any guidance on the special for Q4 yet. It’s a bit too early, but you can see by the level of the spillover income that we’ll be in a position to declare one and we do expect that the special dividend, which was $0.20 last year were already declared $0.08 last quarter will be in excess of the combined $0.20 from last year. Finn O’Shea: Appreciate, sure. And as a follow, just looking at – with marks this quarter. It looks like a couple of your more severe experiences have come from the Madison Capital joint venture, the last out program. Is there any thread there in hindsight, whether it’d be industry or structure? And is there a change on how you look at this avenue going forward?

Yes, something that we’ve talked a lot about as a team here. So when we started out, we had the program with Madison Capital that essentially was a first out last out program where Carlyle took the last out. We’ve stopped investing through that program back in 2017. We’re still working through some of the legacy issues that came through that program and you saw mainly in dimensional dental this quarter. I think one thing, I’m not sure I would blame it on necessarily an industry, where there is a little bit of that, but it’s more so the structure. A last-out position when as company gets into trouble and has to restructure its balance sheet. The recoveries there are tend to be relatively poor. And so that’s the main driver for us wanting to not continue to invest in that program, and I think more importantly going forward we’ve got residual exposure that came from that program, but we’ve got a really good line of sight to fully exiting, whether it’s through just getting repayments or sales or just general portfolio management. Finn O’Shea: Thank you.

Sorry, it’s Taylor, just one point I would add on to that which is that Madison’s program we were running, which generally in smaller issuers, and so, as you see us taking incremental exposure in junior debt/second liens in this environment, what you see us doing is further up market with larger companies is another way that we’re sort of responding to the experience of that program which Linda mentioned we’re winding down. Finn O’Shea: Appreciate the color on that, and one of third question if I may, also with the couple of the names, I think legacy.com, Superior Health Linens, you add a pick component, is that a borrower concession of any form or do they trip a covenant and the rate picks up or anything to read into on those names?

Finn its Tom. In both those scenarios, we had covenant issues and in the negotiations with the sponsor in inking an amendment, we were able to increase price and, in both cases, we increased the price in the form of pick. Finn O’Shea: Okay, thank you for the color. That’s all from me.

Thank you. Our next question comes from the line of Rick Shane [ph] with JP Morgan. Your line is now open.

Good morning. It’s Melissa on for Rick today. I was hoping you guys could touch on how you’re thinking about taking leverage higher at this stage of the cycle and whether or not the extent to which you have even more ability to kind of move leverage up, if we were to see any kind of dislocation in the market?

Hi Melissa. It’s Tom, thanks for the question. When we received approval from our Board and shareholders last year, our view always was that, we could comfortably run the leverage in that 1.0 to 1.4 range, keeping the same investment mix and that being a relatively conservative mix weighted more heavily toward first lien and you see in the broader market. So if you look at our portfolio still with roughly 70% true first lien loans, we think that based on that risk exposure in the portfolio weighted toward first liens as well as, as Taylor noted, relatively low level of cyclicality in the portfolio. We feel quite comfortable running at the current leverage levels in that stated target range, given the risk in the aggregate portfolio.

Okay, thank you. Could you also talk about, I think Derm Growth Partners III, that’s something another one that you’re carrying, bit of a discount to costs. I’m not sure if there’s something incremental that happened this quarter or if you could just give an update on the company. Thank you.

Yes, the update I’d give on that credit is we’re working through some operational and financial performance challenges with the sponsor and the company, but unlike some of the other positions such as dimensional which was the other large mark down this quarter. This is a first lien tranche, so we expect in the situation a very different outcome than we had on dimensional which obviously being junior debt, in an underperforming situation, they were covered prospects on that one is much difference, that’s an important distinction I would draw between the two borrowers.

Thank you. And our next question comes from the line of Paul Johnson with KBW. Your line is now open.

Thanks for taking my question. You guys talked about taking on larger transactions a bigger company displacing more syndicated market. Does that result, what sort of the dislocation in the DSO market that we’ve heard about this year or is that more of an internal shift in your strategy.

Yes, thanks. Paul, this is Linda. Thanks for the question. In large part it is driven by the dislocation that we’re seeing in the broadly syndicated markets whereby we’re seeing more opportunities come our way and leave the syndicated market, and just I think a good way to maybe illustrate that is to give you an example, kind of in-house here at Carlyle, in talking with kind of our capital markets team that covers our private equity side. We recently did a deal that normally would have gone to the syndicated market given its size, but decided to come to the more middle market direct lending space and that was really not because direct lenders don’t have the same credit prowess or the way they look at credit is any different. They’re still very discriminating but really because there is much more execution risk in the broadly syndicated market these days than there is in the direct lending market, and having certainty around execution, having speed around execution is pretty valuable. So that opportunity is coming to our markets and we’re seeing more and more of that.

Great, thanks for that. And then switching a little bit to your middle market credit fund. We noticed that originates slightly during the quarter repayments were pretty big. Is there anything going on there that prompted the higher repayments during the quarter or is that just more of a, an anomaly.

I’d say that we – this is Tom. I’d say even when you look at the broader BDC, the repayments obviously difficult to predict, we have some quarters where payments are very heavy, somewhere they are light. I’d say, right now we just happen to be experiencing a very heavy repayment period for the JV. In particular, some larger positions and that’s why you see the - in particular the repayments are outpacing the new originations for the third quarter and we anticipate likely the same for the fourth quarter.

Okay. And then one other question on Derm Growth Partners, just to add on to the question before, is that particular company, is that a rollup strategy, healthcare practices?

Paul, its Tom. That’s correct.

Okay, and lastly, I’m just curious, is Carlyle, the BDC, are you guys undergoing any other additional changes either to your process or other things that the BDC is as Linda takes over as CEO, aside from integrating further into the Carlyle platform. That’s all from me. Thanks.

Thanks, Paul. The short answer is no. We talked last quarter about the additional resources that we’ve added to the team, both on the underwriting side and on the senior management side. And as Taylor pointed out earlier on the call, focusing on integrating within the broader Carlyle’s credit platform and the overall firm, those are the two main points and they are done and ongoing. So you shouldn’t expect anything else.

Thank you. I’m showing no further questions at this time. I will now turn the call back over to Head of Investor Relations, Daniel Harris for closing remarks.

Yes, thank you for your time today. We appreciate your interest. If you do have many follow-ups feel free to contact Investor Relations at any time. Otherwise, we look forward to speaking with you again next quarter.

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and you may now disconnect.