Carlyle Secured Lending (CGBD) risk factors, FY2024 10-K

Risks Related to Our Business and Structure

1. 01Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies
2. 02Economic recessions or downturns could impair our portfolio companies and harm our operating results
3. 03We are dependent upon our Investment Adviser for our future success
4. 04There are significant potential conflicts of interest, including the management of other investment funds and accounts by our Investment Adviser, which could impact our investment returns and the holders of our common stock
5. 05Our ability to achieve our investment objective and to grow depends on our ability to acquire suitable investments and monitor and administer those investments, which depends, in turn, on our Investment Adviser’s ability to identify, invest in and monitor companies that meet our investment criteria
6. 06We may need to raise additional capital to grow because we must distribute most of our income
7. 07Any failure on our part to maintain our status as a BDC or RIC would reduce our operating flexibility, may hinder our achievement of our investment objective, may limit our investment choices and may subject us to greater regulation
8. 08Regulations governing our operation as a BDC affect our ability to, and the way in which we will, raise additional capital. As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage
9. 09The NAV per share of our common stock may be diluted if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock
10. 10We borrow money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us
11. 11(1)Assumes, as of December 31, 2024, (i) $1,926.0 million in total assets, (ii) $978.4 million in outstanding indebtedness, (iii) $905.2 million in net assets and (iv) weighted average effective annual interest rate, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 6.65%
12. 12Our indebtedness could adversely affect our business, financial conditions or results of operations
13. 13Changes in interest rates have increased, and may in the future increase, our cost of capital, reduce the ability of our portfolio companies to service their debt obligations and decrease our net investment income
14. 14We may experience fluctuations in our quarterly results
15. 15We may be obligated to pay our Investment Adviser incentive compensation even if we incur a loss
16. 16Our fee structure may induce our Investment Adviser to pursue speculative investments and incur leverage, and investors may bear the cost of multiple levels of fees and expenses
17. 17The “catch-up” portion of the incentive fees may encourage our Investment Adviser to accelerate or defer interest payable by portfolio companies from one calendar quarter to another, potentially resulting in fluctuations in timing and dividend amounts
18. 18We will be subject to corporate-level income tax if we are unable to maintain our qualification as a RIC for U.S. federal income tax purposes under Subchapter M of the Code
19. 19A portion of our income and fees may not be qualifying income for purposes of the income source requirement
20. 20If we fail to maintain the adequacy of our internal controls over financial reporting, we may not be able to accurately report our financial results, which may adversely affect investor confidence in us and, as a result, the value of the securities we issue
21. 21controls over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports. This could materially adversely affect us and lead to a decline in the price of the securities we issue
22. 22Certain investors are limited in their ability to make significant investments in us
23. 23Our Board of Directors is authorized to reclassify any unissued shares of common stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners
24. 24Provisions of the MGCL and of our Charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
25. 25we will amend our bylaws to be subject to the Control Share Act only if our Board of Directors determines that it would be in our best interests and if the SEC staff does not object to our determination that our being subject to the Control Share Act does not conflict with the Investment Company Act
26. 26Our Board of Directors may change our investment objective, operating policies and strategies without prior notice and without stockholder approval
27. 27We are highly dependent on information systems, and systems failures could significantly disrupt our business
28. 28These events, in turn, could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders
29. 29Our Investment Adviser’s liability is limited under the Investment Advisory Agreement, and we are required to indemnify our Investment Adviser against certain liabilities, which may lead our Investment Adviser to act in a riskier manner on our behalf than it would when acting for its own account
30. 30We are subject to certain risks as a result of our direct interest in the 2015-1 Issuer Preferred Interests
31. 31The 2015-1 Issuer Preferred Interests are subordinated obligations and therefore we may not receive cash from the 2015-1 Issuer
32. 32The interests of holders of the 2015-1N Debt issued by the 2015-1 Issuer may not be aligned with our interests
33. 33Under the documents governing the 2015-1R Refinancing, there are two coverage tests applicable to the 2015-1N Debt
34. 34We may be required to assume liabilities of the 2015-1 Issuer and are indirectly liable for certain representations and warranties in connection with the 2015-1R Refinancing

Risks Related to Our Investments

1. 35Our investments are risky and speculative
2. 36We operate in a highly competitive market for investment opportunities, and compete with investment vehicles sponsored or advised by our affiliates
3. 37Our portfolio companies may be highly leveraged
4. 38Our portfolio companies may incur debt that ranks equally with, or senior to, some of our investments in such companies and if there is a default, we may experience a loss on our investment
5. 39would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company
6. 40Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry
7. 41Declines in the prices of corporate debt securities and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our NAV through increased net unrealized depreciation
8. 42To the extent we make investments in restructurings and reorganizations they may be subject to greater regulatory and legal risks than other traditional direct investments in portfolio companies
9. 43The financial projections of our portfolio companies could prove inaccurate
10. 44The due diligence investigation that our Investment Adviser carries out with respect to an investment opportunity may not reveal or highlight all relevant facts that may be necessary or helpful in evaluating such investment opportunity
11. 45Our portfolio companies prepay loans from time to time, which may have the effect of reducing our investment income if the returned capital cannot be invested in transactions with equal or greater yields
12. 46We invest through joint ventures, partnerships or other special purpose vehicles and our investments through these vehicles may entail greater risks, or risks that we otherwise would not incur, if we otherwise made such investments directly
13. 47Our ability to enter into transactions with Carlyle and our other affiliates is restricted
14. 48Our failure to make follow-on investments in our portfolio companies could impair the value of our investments
15. 49The disposition of our investments may result in contingent liabilities
16. 50Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
17. 51Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments
18. 52We may expose ourselves to risks if we engage in hedging transactions
19. 53There are certain risks associated with holding debt obligations that have original issue discount or payment-in-kind interest
20. 54OID instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID income may also create uncertainty about the source of our cash dividends
21. 55Our investments may be affected by force majeure events

Risks Related to an Investment in Our Securities

1. 56Investing in our securities involves a high degree of risk
2. 57The market price of our securities may fluctuate significantly
3. 58Our shares of common stock have traded at a discount to NAV and may do so again, which could limit our ability to raise additional equity capital
4. 59We issued the Preferred Stock in May 2020 and we may in the future determine to issue additional preferred stock, which could adversely affect the market value of our common stock
5. 60Our stockholders may experience dilution upon the conversion of the Preferred Stock
6. 61Holders of the Preferred Stock have the right to elect members of the board of directors and class voting rights on certain matters
7. 62Purchases of our common stock under our stock repurchase program, including a Company 10b5-1 Plan, may have resulted in the price of our common stock being higher than the price that otherwise might have existed in the open market
8. 63Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock
9. 64Our stockholders will experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan
10. 65Our stockholders may receive shares of our common stock as dividends, which could result in adverse tax consequences to them
11. 66We may have difficulty paying our required distributions if we recognize taxable income before or without receiving cash representing such income
12. 67We cannot assure that an active trading market for the 2028 Notes or 2030 Notes will develop or be maintained
13. 68The indenture under which the 2028 Notes and 2030 Notes were issued contain limited protection for holders of the 2028 Notes and 2030 Notes, respectively
14. 69In addition, the indenture and the 2028 Notes does not require us to make an offer to purchase the 2028 Notes in connection with a change of control or any other event
15. 70Certain of our debt instruments include more protections for their holders than the indenture and the Senior Notes
16. 71If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the 2028 Notes or 2030 Notes
17. 72We may not be able to repurchase the 2030 Notes upon a Change of Control Repurchase Event
18. 73We may choose to redeem the 2028 Notes and 2030 Notes when prevailing interest rates are relatively low
19. 74The 2030 Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our
20. 75A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the 2028 Notes or change in the debt markets could cause the liquidity or market value of the 2028 Notes to decline significantly

Risks Related to the Mergers

1. 76Sales of shares of our common stock after the completion of the Mergers may cause the trading price of our common stock to decline
2. 77Most of our stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Mergers
3. 78We may be unable to realize the benefits anticipated by the Mergers, including estimated cost savings, or it may take longer than anticipated to achieve such benefits
4. 79If the Mergers do not close, we will not benefit from the expenses incurred in pursuit of the Mergers
5. 80The termination of the Merger Agreement could negatively impact us
6. 81The Mergers are subject to closing conditions, including stockholder approvals, that, if not satisfied or (to the extent legally allowed) waived, will result in the Mergers not being completed, which may result in material adverse consequences to our business and operations
7. 82We may, to the extent legally allowed, waive one or more conditions to the Mergers without resoliciting stockholder approval
8. 83Uncertainty about the effect of the Mergers may have an adverse effect on us and, consequently, on the combined company following completion of the Mergers
9. 84The market price of our common stock after the Mergers may be affected by factors different from those affecting our common stock currently
10. 85Litigation against us, CSL III, or the members of our Board of Directors and CSL III’s board of trustees, could prevent or delay the completion of the Mergers or result in the payment of damages following completion of the Mergers