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Carlyle Secured Lending to acquire CSL III in stock deal

EditorEmilio Ghigini
Published 08/05/2024, 06:31 AM
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NEW YORK - Carlyle Secured Lending, Inc. (NASDAQ: CGBD), a business development company, has announced a definitive agreement to acquire Carlyle Secured Lending III (CSL (OTC:CSLLY) III), a private business development entity. This stock-for-stock merger is expected to increase CGBD's total assets to over $2.5 billion and net assets to more than $1.2 billion upon closing.

The transaction is designed to benefit both CGBD and CSL III investors by creating a larger, more liquid company with an enhanced investor experience.

Justin Plouffe, CEO of both CGBD and CSL III, expressed confidence in the merger's ability to boost trading volume, expand the investor base, and reduce operating and financing costs.

To further enhance the transaction's value, Carlyle Investment Management L.L.C. (CIM) will exchange its CGBD convertible preferred stock for common stock at net asset value (NAV), thus eliminating the dilution risk from the preferred stock conversion. This exchange is expected to prevent a potential decrease in CGBD's NAV per share and quarterly net investment income (NII) per share.

The agreement stipulates that CSL III shareholders will receive CGBD common stock based on an exchange ratio to be determined before the merger's closure.

The merger aims to drive efficiency, reduce costs, and maintain strong credit quality with a seamless integration of strategies between the two entities.

Advisors have agreed to cover transaction costs up to $5 million to maximize benefits for stockholders. The combined company will remain externally managed by CGCIM and continue trading under the ticker CGBD on the Nasdaq Global Select Market.

The boards of both companies have unanimously approved the transaction, which is subject to stockholder and regulatory approvals and other customary closing conditions. The merger is anticipated to close in the first fiscal quarter of 2025.

This merger is based on a press release statement and is intended to present the facts without endorsement of the claims.

In other recent news, Discover Financial Services (NYSE:DFS) has agreed to sell its private student loan portfolio, valued at approximately $10.1 billion, to investment partnerships managed by Carlyle and KKR.

The transaction, expected to conclude by the end of 2024, will see the servicing of the loans transition to Firstmark Services, a division of Nelnet (NYSE:NNI). This sale marks a significant shift in Discover's operations as the portfolio represents a substantial portion of its business.

In relation to Carlyle, Jefferies and TD Cowen have maintained a Hold rating, with Jefferies raising the price target to $45.00 and TD Cowen lowering it from $49.00 to $45.00.

Both firms have cited expectations of improved Fee-Related Earnings (FRE), despite a decrease in Distributable Earnings (DE) per share estimates.

KBW has maintained a Market Perform rating and revised its price target to $48.00, while Oppenheimer, despite maintaining an Outperform rating, reduced its price target to $68.00.

Furthermore, The Carlyle Group (NASDAQ:CG)'s ambitious $40 billion fundraising goal for 2024 has been highlighted by Jefferies, which also predicts an increase in share repurchase activities. These are among the recent developments concerning Discover Financial Services and The Carlyle Group.

InvestingPro Insights

As Carlyle Secured Lending, Inc. (NASDAQ: CGBD) moves towards its strategic merger with Carlyle Secured Lending III, the company's financial metrics present a mixed picture. With a market capitalization of $15.92 billion, CGBD is positioned as a significant player in the business development space. The company's revenue for the last twelve months as of Q1 2024 stands at $2218.4 million, although this reflects a notable decline of 33.6% from the previous period. Despite this decrease in revenue, the company maintains a strong gross profit margin of 58.29%, indicating efficient cost management relative to its revenue generation.

Investors may also take interest in the company's dividend yield, which as of the latest data, stands at an attractive 3.17%. This is coupled with a dividend growth of 7.69% over the last twelve months as of Q1 2024, suggesting a commitment to returning value to shareholders. Notably, the stock has also experienced a positive year-to-date price total return of 10.47%, and an impressive one-year price total return of 42.71%, signaling potential optimism in the market regarding the company's performance and future prospects.

InvestingPro Tips highlight the importance of considering both the PEG ratio, which at 0.13 suggests that the stock may be undervalued based on expected growth rates, and the Price / Book value, which at 3.14 indicates the market's valuation of the company relative to its book value. For investors seeking a deeper analysis, InvestingPro offers an additional 15 tips that could provide further insights into CGBD's financial health and investment potential.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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