CGBD

Carlyle Secured Lending ($CGBD) CFO Buys $100K Near Lows...11.6% Yield with 16% NAV Discount Opportunity

08/21/2025 20:25

Carlyle Secured Lending ($CGBD) is drawing investor attention following CFO Thomas Hennigan's significant insider purchase on August 20. He acquired 7,285 shares at $13.75 per share, investing approximately $100,000 at a price level nearly identical to the current stock price of $13.70, signaling management's confidence in the stock's valuation floor. Carlyle Secured Lending is a Business Development Company (BDC) specializing in secured lending to middle-market companies. Externally managed by a subsidiary of The Carlyle Group, the company targets firms with EBITDA between $25 million and $100 million, focusing primarily on first-lien secured loans. Its portfolio spans over 25 industries with 202 investments across 148 companies, with 94% consisting of senior secured loans, providing a relatively safe investment structure. Hennigan's recent purchase carries special significance. In July 2024, he sold 3,550 shares at $18.10 through his spouse's holdings. His decision to buy back at a 24% lower price with more than double the volume eight months later demonstrates strong conviction in the current valuation level. This is particularly noteworthy given his position as CFO with intimate knowledge of the company's financial condition. The pattern of insider buying has been consistent. Director Mark David Jenkins has been actively purchasing shares from August through November 2024. Most notably, he acquired 65,000 shares over two days (November 11-12), investing $1,077,400 at prices between $16.50-$16.64. Even at those levels—20% higher than current prices—he aggressively expanded his stake. These purchases are backed by solid business performance. In Q2 2025, the company executed a record $2 billion in new originations, the highest since its 2017 IPO, demonstrating continued strong demand in middle-market lending. Twelve-month revenue reached $234.46 million, up 15.5% year-over-year, while maintaining an impressive operating margin of 74.85%. The dividend yield is equally attractive. With quarterly distributions of $0.40 per share, the annual yield reaches 11.6%. As a BDC required to distribute at least 90% of income as dividends, CGBD's payouts are supported by stable portfolio performance and spillover income reserves. Despite these fundamentals, the stock has underperformed due to several factors. The broader BDC sector faces pressure from the rising interest rate environment. With a debt-to-equity ratio of 109.32%, the company's high leverage structure makes it sensitive to interest rate changes that compress net interest margins. Additionally, Q2 losses of $0.19 per share from select underperforming investments led to a 22% decline in quarterly earnings year-over-year. Markets are also concerned about narrowing loan spreads. Intensifying competition in middle-market lending has tightened lending conditions compared to historical levels, potentially limiting future profitability of new originations. Negative operating cash flow of $133.36 million over the trailing twelve months has also raised investor concerns. However, the current stock price appears excessively discounted. Trading at a 16% discount to its $16.43 NAV per share, the P/B ratio of 0.84x indicates significant undervaluation relative to book value. Moreover, the recently completed merger with Carlyle Secured Lending III has expanded total assets to $2.5 billion and net assets to $1.2 billion, providing scale benefits while eliminating preferred stock dilution concerns. Management has provided cautious Q3 guidance, expecting some slowdown in origination activity due to seasonal factors and market uncertainty. However, they anticipate deal flow to rebound in Q4 2025 and into 2026. The company continues profitability improvement efforts, including the MMCF joint venture targeting mid-teens ROE. Key catalysts ahead include the company's ability to deploy its expanded $960 million revolving credit facility for additional lending. The appointment of Alex Chi as Deputy CIO for Global Credit and Head of Direct Lending starting in 2026 provides new growth momentum. The company is also considering share buybacks, which could help close the NAV discount. From an investment perspective, risks and opportunities coexist. High interest rates, elevated leverage, and narrowing loan spreads remain concerns. However, the 11.6% dividend yield, discounted valuation to NAV, and most importantly, consistent insider buying present compelling buy signals. The CFO's recent large purchase near current lows particularly suggests potential bottom formation.