$7.50
$17.00
bear $7.50
base $12.00
bull $17.00
margin of safety $7.50
market price* $10.39
Carlyle Secured Lending is an externally managed, publicly traded lender (a business development company) that makes senior secured loans, mostly first-lien and unitranche, to U.S. middle-market companies owned by private equity sponsors. Carlyle's credit team manages the portfolio. It earns interest on about $2.5 billion of loans (229 investments in 165 companies at year-end 2025), pays its expenses and interest on its own borrowings, and distributes most of the rest to shareholders. How we measured earnings. A lender's cash flow statement is dominated by loans made and repaid, so it says little about earning power. We started from net investment income after excise tax, then removed income that is not received in cash: interest paid in kind (added to the loan balance, $25.2 million in 2025) and accretion of purchase discounts ($10.9 million), and deducted preferred dividends. We added back the non-cash amortization of financing costs. There is no stock compensation or capex to deduct. On this basis earnings per share were about $1.36 (2020), $1.17 (2021), $1.21 (2022), $1.39 (2023), $1.26 (2024) and $1.00 (2025). Excluding paid-in-kind income also acts as a rough charge for credit losses: the company realized net investment losses of $21 million in 2023, $38 million in 2024 and $58 million in 2025, which do not appear in net investment income. Why the starting level is $1.00. Falling short-term interest rates lowered the yield on this floating-rate portfolio, and net investment income before taxes slipped from $112.4 million in 2023 to $107.99 million in 2024 and $102.7 million in 2025. In March 2025 the company merged with an affiliated fund (Carlyle Secured Lending III) and exchanged its $50 million preferred stock for common shares, which raised the share count from about 56 million to about 69 million weighted shares, so per-share earnings fell about 21% in 2025 (from $1.26 to $1.00). The 2023 and 2024 years reflect higher rates and a smaller share base, so we use 2025, the first year of the merged company, as the anchor. Net investment income in the first half of 2026 was $50.3 million before taxes, in line with 2025's pace, and the second quarter ($24.7 million) was below the second quarter of 2025 ($28.6 million). Growth. Trailing owner earnings per share fell about 21% in 2025. Our base case assumes a 2% annual decline, not a rebound: net asset value per share drifted from $16.99 at the end of 2023 to $16.26 at the end of 2025 and $15.61 in June 2026, and reported dividends ($1.65 per share in 2025) have exceeded our cash-basis earnings. We credit no growth from new lending: the company can only grow by issuing shares, which is not a secured or self-funded process, and the new Structured Credit Partners joint venture had not begun operating at year-end 2025. Base case, $12.00 per share. Earnings of about $1.00 per share decline 2% a year indefinitely, which at a 6% discount rate is worth about $12. The loan book is continually recycled by Carlyle's origination platform, which supports a long life for the earnings, but with no evidence of growth. Bear case, $7.50 per share. Non-accruing loans rose from 0.6% to 1.2% of the portfolio at fair value between 2024 and 2025 (seven loans, $30.5 million) and realized losses have risen three years running. The bear case has earnings falling to about $0.80 per share as lower rates and more credit problems compound, then declining 4% a year. The company also uses borrowing (interest and credit facility costs were $88 million in 2025), which magnifies any loss on the loans. Bull case, $17.00 per share. Earnings hold at about $1.03 per share with no further erosion, reflecting stable credit and the portfolio's floating-rate yield holding at recent levels. This is worth about $17 at the same discount rate. What could make this wrong. If credit losses fade back toward zero and interest rates stabilize, the cash-basis approach undervalues the paid-in-kind interest that is eventually collected. If losses accelerate, the bear case is not the floor. The company's other joint ventures and recent portfolio expansion (portfolio up from $1.8 billion to $2.5 billion in 2025) add complexity we could not fully trace to earnings. The margin-of-safety price is near $7.50, a wide discount to the base case because of credit exposure, leverage and an earnings stream that has been shrinking.