Good day, and thank you for standing by. Welcome to the TCG BDC, Inc. Fourth Quarter 2021 Earnings Call. At this time, all participants 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 is being recorded. [Operator Instructions] I would now like to hand the conference over to your host today, Head of Investor Relations, Allison Rudary. Please go ahead.

Good morning, and welcome to TCG BDC’s fourth quarter 2021 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 they 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 forward-looking statements at any time. And with that, I’ll turn the call over to our Chief Executive Officer, Linda Pace.

Thank you, Allison, and good morning, everyone, and thank you all for joining us on our call this morning to discuss our fourth quarter and full year 2021 results. Joining me on today’s call is our Chief Investment Officer, Taylor Boswell; and our Chief Financial Officer, Tom Hennigan. I'm going to focus my remarks today on three topics. First, I want to touch on this quarter's results. Second, I'll highlight some of the momentum of the last year. And finally, I'll conclude with some thoughts on our positioning for 2022. Let me begin with this quarter's financial results, which demonstrated continued strength across the board. We again generated solid earnings with net investment income of $0.40 per common share, while declaring $0.40 in total dividends which represents an annualized yield on our stock of over 11%. Net asset value per share of $16.91 saw a positive progression for the seventh consecutive quarter, up 1.6% from Q3 2021. As we will detail later, strengthening credit performance, especially in our non-accrual and watch list names drove most of this increase. SolAero a non-accrual name we have been invested in for seven years and been working out for three provided the largest impact. In the first quarter, we exited the position and expect another meaningful boost to Q1 2022 performance and a reduction in our non-accrual rates as a result. As we have said before, the recovery of our watch list and non-accrual names remains a significant tailwind for performance. During the fourth quarter, given the continued attractive returns available we purchased $7.8 million of our common stock, resulting in $0.03 of accretion to net asset value. Since we launched our program in late 2018, we have repurchased over $125 million of stock, which represents nearly 15% of the total shares outstanding, demonstrating…

Thanks, Linda. As usual, I'll begin today by sharing some macroeconomic perspectives derived from our global investment footprint. And after that, I'd like to spend a few moments detailing the investment set up, as we see it for CGBD in 2022. Inflation is understandably our focused topic today. In short, it remains high and our portfolio data provide little reason to expect price pressures to abate meaningfully anytime soon. Capacity constraints continue to bide, from inventories to shipping to labor. The good news is that we're seeing cost increases largely being passed on to end customers. While this is positive for the portfolio's gross margins, near-term financials and credit performance, it further complicates the inflation outlook and suggests more accumulative Fed tightening may be necessary. In markets, we are, of course, seeing a meaningful shift in forward rate expectations. Thus far, floating rate credit, which comprises the vast majority of our portfolio, has been largely unaffected. While the sell-off in high-yield bonds can be almost entirely explained by rate risk rather than credit spreads. Equity market volatility, on the other hand, has risen with treasury market volatility. Returns in the most rate-sensitive equity categories, loss-making and long-duration growth stories are down significantly. Conversely, the equity assets most sensitized to the near-term economic outlook, companies with more traditional cash flow-based valuations and shorter investment horizons, have actually held up quite well. So despite this volatility, equity markets seemed to be telling us the same thing as credit markets. Liquidity conditions and the valuation environment are shifting. The fears of recession are not the outdriving markets. Shifting back to CGBD. As Linda noted, 2021 was undeniably a great year for the company, with strong income delivery, good NAV growth and outstanding stock performance. But, of course, what's next should always be our…

Thank you, Taylor. Today, I'll begin with a review of our fourth quarter earnings. Then I'll provide further detail on our balance sheet positioning and conclude with a discussion of our portfolio performance including some very positive developments in our some of our historically underperforming assets. As Linda previewed, we had another strong quarter on the earnings front. Total investment income for the fourth quarter was $44 million, up modestly from prior quarter. The primary driver was an increase in prepayment fees and OID accretion from a higher level of repayment activity. Core interest income on our investment book was down modestly due to a lower average investment balance while income from the two JVs again remained stable versus prior quarter levels. Total expenses were flat at $22 million in the quarter. The result was net investment income for the fourth quarter of $22 million or $0.40 per common share. That's our highest level since March 2020. On February 18th, our Board of Directors declared the dividends for the first quarter of 2022 at a total level of $0.40 per share. That comprises the $0.32 base dividend plus an $0.08 supplemental, which is payable to shareholders of record as the close of business on March 31 Earnings are like a broken record with this. As we look forward into 2022, we remain highly confident in our ability to comfortably deliver that $0.32 base dividend plus continued a sizeable supplemental dividends. Taylor noted, the impact of rising rates. Given most of our loans have LIBOR floors while our floating rate debt is nice. Based on the most recent curves, rising rates will result in mild earnings headwinds in the near-term. However, the current curves also indicate benchmark rates will quickly become a positive earnings drive. By the end of 2022 we…

Thanks Tom. Before I turn the call over to the operator, I'd like to reiterate that delivering a sustainable and attractive dividend to our shareholders alongside a stable or growing NAV remains our top priority. Since we changed our dividend policy in the third quarter of 2020 to include a base dividend of $0.32 plus a supplemental dividend, we've earned and distributed between $0.36 and $0.40 a share per quarter. Our shareholders should have a high degree of confidence that future quarterly payments will continue in this range. And that we will continue to payout the excess earnings over and above our $0.32 base dividend. Thank you for joining us today. I'd like to now hand the call over to the operator to take your questions.

thank you. [Operator Instructions] And our next question -- our first question comes from Melissa Wedel from JPMorgan. Your line is now open.

Good morning. Thanks so much for taking my questions today. Lot to digest in this quarter and with the update you provided this morning. Given the conversation you had about the interest rate outlook and given the magnitude of NII performance above the base dividend, I thought it would be helpful to kind of explore your thinking around at what point you might revisit the discussion around the level of the base dividend potentially increasing that overtime.

Yes, hey Melissa, Tom Hennigan. Thanks for the question. We feel very comfortable with that $0.32 dividend and we expect to continue to exceed that as we've noted and continue to note. There certainly are some near-term headwinds from the interest rate curve. We think we'll be quickly through that in the next couple of quarters. And then, when you look at the curve it really will be the fourth quarter where we'll start to see a positive impact on earnings for all else equal from the interest rate curve. We also see upside from our two remaining large non-accrual names. So overall, very positive signs. We feel very comfortable with those levels. And certainly as the year plays out, it's something we look at. But as of right now, there is no intention to increase that base dividend as we sit here today.

Yes. Melissa, it's Linda. Let me just chime in, because your question is one that obviously we asked ourselves every quarter. And we're never going to have perfect visibility. But I think as Tom said and as Taylor pointed out in his discussion, we think there's going to be a lot going on this year. Some of it is really, really good in terms of fundamentals in our portfolio and some of it is unknown vis-à-vis the macro environment and the interest rate environment. And really, we think the best thing for shareholders right now is to just give them a high degree of predictability in a very unpredictable world that we think is where we are in 2022. So, we're going to stay with our current dividend policy today, but feel free to keep asking that question as time goes on.

Noted. Thank you. One follow-up. On the repurchase activity as we look at it over the last few quarters, it's been pretty consistently in the $7 million to $8 million range for the last three quarters, certainly sounds like you're well aware of the value there given trading levels currently. Given where portfolio leverage is, given the opportunity set right now, is your thinking evolving at all on the level or pace of deployment on repurchases over the next few quarters, given the remaining capacity on the existing authorization?

Hey Melissa, it's Tom again. I think that based on -- we've been trading in, we'll call it, the mid 80s range and we've been stuck there for the last couple of quarters. And we think that at that level -- we're comfortable at the current level, so I don't see any change following to the repurchases. So I think that we certainly would hope that based on looking at the positive this quarter as our price creeps up towards the 90% of NAV range. That's where I think that you may see the decline in those open repurchase. But right now, we're comfortable with that modest level. We'll put that modest level we want to be in the market consistent purchases. That's what we've been in the last number of quarters as we've been in like we call the mid-80s trading range.

And Melissa, it's Taylor. I mean you'll hear a comments read through the answers to both of your last questions, which is we are just super-focused on stability and consistency. Those are the things that we think investors want to see out of us. And we think that there's ample room for us to perform both fundamentally and for our stock to perform. If we just keep delivering solid consistent performance, and that's driving a lot of the philosophy and the response to both those questions. There's more opportunity on both likely. But with where we sit today, we think investors just want to see us deliver, deliver, deliver quarter-in quarter-out.

That's really helpful contact. Thank you so much.

And thank you. [Operator Instructions] And our next question comes from Ryan Lynch from KBW. Your line is now open.

Hey. Good morning. Thanks for taking my questions and nice quarter. The first one I wanted to touch on was, can you maybe speak to what was the biggest difference in your successful exit of SolAero that you guys accomplished in Q1 of 2022 and kind of a long progress that you guys made of working through that investment and turning that around, versus maybe some of the investments that you guys had in the past that haven't had such a positive outcome? I know, several of those were in the unitranche program. So maybe it's just where -- how you structured those investments. But I would love to just hear what you guys learned and where you guys thought this investment was, why that investment was a successful exit turnaround versus maybe some in the past that that weren’t so much.

Yes. Ryan, I think, you're referencing the sort of 2018 period when we had some underperformance that was very localized on credit in our cut program. And we took a couple of high severity losses. And that really goes back to sort of the strategic decision around that program, which was very focused on small borrowers and junior debt. And when you look at our current non-accrual portfolio, it's mostly first lien assets of more scaled businesses at this point. And you've heard us say previously that we have the capabilities to work those assets over long periods of time to drive maximum value creation. We don't need to punt them or manage around them in a shorter time frame. And so, in the first case, three years ago however many years that was, those were losses that were unavoidable given the strategic choice around them. In this case, this is more sort of the natural outcome with solid first lien investing and good workout capabilities. Tom, I don't know if you want to pick up any details around SolAero from there.

What I'd add is the similarity SolAero and our other two watch list non-accrual names were first lien, so the lenders effectively control their destiny. Second is, we believe and support these businesses and we've done so with capital. And third is, with the patience point is, we're not in a rush. We're maximizing value over time by doing the right thing, getting the right management team, the right Board of Directors using other Carlyle resources and those are similarities with the various credits. And we used all those for the SolAero investment. We were the largest lender. We are the largest equity holder, ultimately, and we help drive the turnaround in that business. By being patience, providing capital when some other lenders maybe, we're not willing to provide capital. And being patience when getting -- in a exiting we think at the right time.

And, Ryan, even when we're not the biggest, we tend to have a lead role in these workouts, largely because of the resources that Carlyle brings to the table. Obviously, given our private equity background, we're good at determining value. And we have resources to source Board members and management teams and a plethora of other kind of things that we can bring to the table. So given that we have that capability in the names in SolAero and in the other two names, we see value over and above where things are trading if you will. So we're happy to be patient and work them out.

Okay. That's helpful commentary on that. Switching gears a little bit, Taylor in some of your prepared remarks, you talked about which is no surprise labor, or excuse me, inflation whether it's input cost or labor inflation sort of being – probably the biggest headwinds that businesses are managing through today and trying to pass along those costs. When I look at your year-on-year, the current two – the largest non-accruals in your portfolio grown growth and direct travel, I wouldn't think that, those would inflationary pressures would be huge headwinds to that business. But I'd love to hear, your comments on how do you think those two businesses are in particularly positioned for kind of rising inflation expectations? And then, also maybe broadly, are there any particular companies or industries, or how are you just generally feeling about CGBD's portfolios ability for your underlying portfolio companies to manage through the kind of a high inflationary environment?

Yeah. So on the first question first, those two names just to give you a sense of them. One of them is a diversified set of scaled dermatology practices. The other is a corporate services provider. And neither of them are having notable inflationary impacts on their performance. Both of them frankly have far more opportunity, from the combination of inherent operational improvement, and macroeconomic recovery to overwhelm any marginal impacts, they may feel from inflation. So I think that, those two businesses are really kind of ride in the curve to recovery pretty comfortably at this point Ryan. And that's why we are stepping forward and saying that we think we have plenty of opportunity for continued positive performance out of those names as 2022 rolls forward. In the larger conversation about credit, listen, we've got a highly diversified book and to suggest that, we aren't seeing the impacts of inflation would be completely disingenuous – and then we always try to be very direct with people here. Inflation is real, and it's in the portfolios. But we see – we're not seeing, any evolving risk to our forward credit performance from inflation, because pass-through is real. And generally, speaking borrowers are achieving pass-through of their increased costs. The problem with that, for all of us, of course is that's a loop, right? The fact that in rising costs are being passed through is what's creating inflation. And so I think that, a lot of those pressures are flowing into the macro and liquidity environment more than they're flowing into fundamental corporate credit performance right now, Ryan. That's what we're seeing across our portfolios, not just in CGBD, but Carlyle generally.

Great. That's helpful, details on those specific companies and also broad on your portfolio to definitely understand that we're going to be inpatient issues on all businesses today. That's all for me. I appreciate the time today, and again congrats on the nice quarter and more importantly congrats on really the nice 2021.

Thanks Ryan.

Thank you. And I am showing no further questions. I would now like to turn the call actually, pardon me. We have a question from Derek Hewett from Bank of America.

Good morning, everyone and congrats on the good quarter. Could you comment on, any updated thoughts on the preferred? And should we expect any sort of either an announcement or any sort of movement on that preferred issuance to give the market a little bit more certainty?

Sure Derek. Hi, it's Linda. Thanks for your question. And shorter answer is, not yet. Just to -- maybe reiterate and a little bit of background on the preferred. If you recall, it was put in at a very volatile time in the market and it was really a nice show of support from the Carlyle Group. As we sit here today with the market having recovered as much as it has, we're still pretty comfortable having it in our capital structure. It's just that to remind you 7% cash pay. And when you compare that to the yield on our common stock, it's pretty attractive for us and really accretive we think to the overall balance sheet. And it's $50 million. So it's not something that's kind of moving the needle for us. And as we sit here today we sort of like where it fits sits in the capital structure. So obviously, it's there. There are some call dates in whatever that will come up eventually and we'll address that. But at this point in time, you should think that it's just going to be as Taylor said, I'm using his words of stability and consistency that applies to the preferred too. So it's in our balance sheet and you should expect it to be there for a bit.

Okay. Thank you.

Thank you. And I'm showing no further questions. I would now like to turn the call back over to Linda Pace, for closing remarks.

Thank you everyone for joining us today, appreciate your time and your questions. And we look forward to talking to you in the spring. Have a good day.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.