Breaking Down Carlyle Secured Lending, Inc. (CGBD) Financial Health: Key Insights for Investors

You're looking at Carlyle Secured Lending, Inc. (CGBD) because you defintely need a high-yield income play, but the real question is whether that payout is sustainable in a tightening credit market. The latest Q3 2025 results give us a clear map: the company reported an Adjusted Net Investment Income (NII) of just $0.38 per common share, which is a hair under the declared Q4 2025 dividend of $0.40 per share, creating a coverage gap that needs a closer look. Still, the underlying engine is growing, with the total fair value of investments hitting a robust $2.4 billion as of September 30, 2025, and the stock is still offering an attractive annualized yield north of 12%. But, honestly, the slight 0.4% dip in Net Asset Value (NAV)-or book value-to $16.36 per share, coupled with the high payout ratio, means the margin for error is thin, so we need to break down the underlying credit quality and capital structure moves to see if management can keep the income engine running smoothly into 2026.

Revenue Analysis

You need to know where the money is actually coming from at Carlyle Secured Lending, Inc. (CGBD), and the short answer is: interest payments from middle-market loans. As a Business Development Company (BDC), their revenue is overwhelmingly comprised of investment income, primarily generated from their portfolio of senior secured loans to U.S. middle-market companies. This is a direct-lending model, so their revenue stream is much less volatile than, say, a bank relying heavily on trading fees.

For the nine months ended September 30, 2025, Carlyle Secured Lending, Inc. reported total revenue of $188.65 million. This figure is crucial because it shows the company is on track to meet or exceed analyst full-year revenue estimates, which hover around $260.57 million to $267.69 million. The core of this revenue is the interest collected on their debt investments, which totaled $2.4 billion in fair value as of the third quarter of 2025. That's the engine of the business.

Primary Revenue Sources: The Investment Income Breakdown

The revenue structure is simple but precise. It's categorized as 'Total Investment Income,' and while the bulk is interest, other components contribute to the total. This mix is typical for a BDC, but the focus on senior secured loans is what drives the stability of the main income stream.

• Interest Income: The dominant source, derived from the interest payments on their portfolio of debt investments.
• Fee Income: Includes origination, structuring, and commitment fees from new loans.
• Dividend Income: Generated from their equity and warrant holdings in portfolio companies.

In Q3 2025, the total investment income was $66.51 million, which was in line with the prior quarter, suggesting a stable portfolio yield despite market spread tightness. This stability is what you defintely want to see in a credit-focused investment vehicle.

Year-over-Year Growth and Recent Trends

When you look at the growth, the picture is one of recent acceleration, which is a good sign in a high-rate environment. The year-over-year revenue growth for the third quarter of 2025 was a solid 18.84%, with revenue jumping to $66.51 million from $55.97 million in Q3 2024. However, the growth rate for the latest twelve months (LTM) ending September 30, 2025, tells a more modest story at 2.55%, which reflects a more measured pace over the full year.

Here's the quick math on quarterly performance:

The significant change in the revenue stream is less about a segment shift and more about the impact of the interest rate environment. Higher base rates mean higher interest income from their floating-rate loans, but this is somewhat offset by historically tight market spreads and lower accretion of discounts from repayment activity, as noted in the Q3 2025 earnings call. The company's focus on new originations-funding $260 million of investments in Q3 2025-is what keeps the revenue base growing. If you want to dig deeper into who is investing in this strategy, you can check out Exploring Carlyle Secured Lending, Inc. (CGBD) Investor Profile: Who's Buying and Why?

Profitability Metrics

You want to know if Carlyle Secured Lending, Inc. (CGBD) is truly profitable, and the answer is yes, but the story is in the margins and the trends. For a Business Development Company (BDC), we look past traditional Gross Profit (which is essentially their Total Investment Income) and focus on Net Investment Income (NII) as the true measure of operational efficiency before non-cash items and realized/unrealized gains or losses are factored in.

Carlyle Secured Lending, Inc.'s third quarter of 2025 (Q3 2025) showed solid operational performance, but the nine-month view reveals a broader sector headwind. The key takeaway is that their operational margin is strong, but the year-to-date net profit is lower due to realized/unrealized losses, which is a near-term risk you must track.

Here's the quick math on the core Q3 2025 profitability figures:

• Gross Profit Margin: For a BDC, Gross Profit is the Total Investment Income (TII) before operating expenses. In Q3 2025, TII was $66.51 million, making the Gross Margin effectively 100% of TII.
• Operating Profit Margin (NII Margin): This is Net Investment Income (NII) divided by TII. NII is the best proxy for operational profit. Q3 2025 NII was $27 million. This translates to a strong Operating Profit Margin of approximately 40.59% ($27M / $66.51M).
• Net Profit Margin: This is Net Income divided by TII. Q3 2025 Net Income was $23.9 million. This gives a Net Profit Margin of about 35.93%.

The difference between the NII margin (40.59%) and the Net Profit Margin (35.93%) is small, which indicates that in Q3 2025, the impact of realized and unrealized losses was manageable, resulting in a total realized and unrealized net loss of just $3 million for the quarter.

Profitability Trends and Industry Comparison

When you look at the trends, you see mixed signals that demand attention. Carlyle Secured Lending, Inc.'s operational efficiency is defintely improving year-over-year, but the cumulative net result is weaker. This is a common theme across the BDC sector as economic uncertainty leads to valuation adjustments (unrealized losses) in portfolio companies.

The operational efficiency is clear: Q3 2025 Revenue and Net Income both increased year-over-year, with Revenue up by over 18% and Net Income up by over 21%. That's a strong sign of effective cost management and a lower cost of financing post-quarter-end, which the company achieved by issuing a second institutional bond and repaying a credit facility.

But here's the reality check: the nine-month Net Income of $52.59 million is a significant drop from the $67.62 million reported for the same period last year. This nine-month decline is largely due to the realized and unrealized losses from the investment portfolio, a direct reflection of the deteriorating environment for middle-market companies that the BDC sector is facing in 2025. This is why you see the median change in Net Investment Income across the BDC sector falling by about -13% over the past year. Carlyle Secured Lending, Inc. is not immune to this sector-wide pressure, even with its strong Q3 operational results. For a deeper look at the firm's mandate, you can review their Mission Statement, Vision, & Core Values of Carlyle Secured Lending, Inc. (CGBD).

Debt vs. Equity Structure

Carlyle Secured Lending, Inc. (CGBD) maintains a balanced, yet active, approach to its capital structure, keeping its debt-to-equity ratio well-managed below the sector average to preserve financial flexibility.

As of the third quarter of 2025, Carlyle Secured Lending, Inc.'s (CGBD) debt-to-equity ratio stood at approximately 1.09x. This is a critical metric for a Business Development Company (BDC), which is a type of investment company that lends to small and mid-sized companies, because federal regulations allow BDCs to borrow up to a 2:1 debt-to-equity ratio (or 200% asset coverage). CGBD's ratio is comfortably below that statutory limit and even below the current BDC sector-wide average of about 1.19x as of Q3 2025. The company's internal target is to operate near a 1:1 ratio, which signals a prudent, defensive posture in a fluctuating credit environment.

Here's the quick math on their leverage profile:

• CGBD's Debt-to-Equity Ratio (Q3 2025): 1.09x
• BDC Sector Average (Q3 2025): 1.19x
• Regulatory Limit (Asset Coverage): 2.00x

The company is actively optimizing its long-term debt profile to lower its cost of capital. Post-Q3 2025, Carlyle Secured Lending, Inc. issued $300 million of 5.75% unsecured notes maturing in 2031. This move locks in a lower fixed rate for a longer term, which is smart given the current interest rate outlook. Plus, they announced plans to redeem $85 million of their outstanding, higher-cost 8.20% Notes Due 2028 on December 1, 2025. This kind of proactive refinancing is defintely a positive for future net investment income.

In addition to the notes, Carlyle Secured Lending, Inc. has a senior secured credit facility, which they upsized in July 2025 to total commitments of $960 million. This facility provides short-term, revolving debt capacity to fund new investments quickly, balancing the more permanent, unsecured notes. This mix of long-term fixed-rate debt and flexible, floating-rate credit facilities shows a sophisticated capital strategy. The equity side of the equation is underpinned by a Net Asset Value (NAV) per share of $16.36 as of September 30, 2025, which provides a solid base for their borrowing capacity.

The balance between debt and equity is a constant tightrope walk: debt offers cheaper funding to boost returns (leverage), but too much debt increases risk, especially with their floating-rate assets. The company is using debt to finance its growth-evidenced by the increase in the total fair value of investments to $2.4 billion in Q3 2025-but is doing so conservatively compared to its peers. For a deeper dive into who is betting on this strategy, you should read Exploring Carlyle Secured Lending, Inc. (CGBD) Investor Profile: Who's Buying and Why?

Liquidity and Solvency

You need to know if Carlyle Secured Lending, Inc. (CGBD) has the cash flow and balance sheet strength to weather market shifts and keep paying that dividend. The short answer is that while their immediate liquidity ratios are tight, typical for a Business Development Company (BDC), their overall capital structure and available credit lines paint a more resilient picture.

Their liquidity position, measured by the current ratio (current assets divided by current liabilities) and quick ratio (a stricter measure excluding inventory), is currently sitting at 0.90 for both. Honestly, a ratio below 1.0 means that, on paper, they don't have enough short-term assets to cover all their short-term debts if everything came due today. For a BDC, though, this is less alarming because their main assets are long-term loans, not inventory, but it's defintely a point to watch.

The working capital trend shows a net liability working capital position of $110.1 million as of June 30, 2025. This negative working capital is a common structural feature for BDCs, which primarily use long-term debt and credit facilities to fund their loan portfolio. The key is that they have substantial 'dry powder'-total liquidity, including cash and undrawn debt capacity, was $613.1 million as of June 30, 2025. That's their real cushion.

• Current Ratio: 0.90
• Quick Ratio: 0.90
• Total Liquidity: $613.1 million (as of 6/30/25)

When you look at the cash flow statement, you see the story of a highly active lending business. The Trailing Twelve Months (TTM) Operating Cash Flow through September 30, 2025, was negative at -$162.44 million. This is a signal that operating activities alone are not generating enough cash, but for a BDC, this often reflects changes in working capital and the timing of interest payments.

Investing Cash Flow is where the action is. In Q3 2025, the company deployed $260 million into new and existing borrowers, resulting in net investment activity of $117 million. They are actively growing their portfolio, which reached a total fair value of $2.4 billion as of September 30, 2025. The Financing Cash Flow is where they fund this growth and manage their capital. They have been busy, showing $251.05 million in net debt issued (TTM Sep '25) and paying out $98.62 million in dividends (TTM Sep '25). They're using new debt to fund their investments, which is the core business model, but they also recently optimized their capital structure to lower financing costs.

Here's the quick math: They are intentionally running a tight ship on immediate cash (the 0.90 ratio) because their business is lending, not hoarding cash. The strength is in their access to capital and their ability to issue new debt, which they are doing successfully. The risk is that the negative operating cash flow, coupled with a high dividend payout ratio of 135.59% (as of Q3 2025), means they rely on investment performance and access to the capital markets to sustain their dividend, which is a constant balancing act. You can read more on their strategy here: Mission Statement, Vision, & Core Values of Carlyle Secured Lending, Inc. (CGBD).

The biggest strength is the $613.1 million in total liquidity and the post-quarter-end move to optimize their debt structure, which should lower their cost of financing and improve future net investment income. The biggest near-term risk remains the negative operating cash flow trend and the high dividend payout ratio, which mandates continued, successful portfolio performance.

Valuation Analysis

You are looking at Carlyle Secured Lending, Inc. (CGBD) right now and wondering if the market has it right. The direct takeaway is this: the stock appears undervalued on a price-to-book basis but carries significant risk due to a highly stretched dividend payout, which is why the analyst consensus is a cautious Hold. The market is pricing in a likely dividend cut, which is a key risk you need to map.

Over the last 12 months, the stock price has fallen sharply, decreasing by 26.76% as of November 2025. This steep decline brought the stock to a recent low of $11.63. The 52-week high was $18.64, so the current price of around $11.88 is trading near the bottom of its range. This price action reflects the market's concern over Q3 2025 earnings which missed estimates, plus the broader economic outlook for business development companies (BDCs).

Here's the quick math on the core valuation metrics for the 2025 fiscal year, which point to a mixed signal:

• Price-to-Earnings (P/E): The current P/E ratio is approximately 9.86, with analyst estimates for the full 2025 fiscal year around 11x. This is generally low compared to the broader S&P 500, but it's in line with or slightly below the BDC sector average, suggesting it's not dramatically cheap on earnings alone.
• Price-to-Book (P/B): The estimated Price-to-Book ratio for 2025 is a low 0.84x. This is the clearest signal of potential undervaluation, as it means the stock is trading at a 16% discount to its net asset value (NAV) per share.
• EV/EBITDA: Enterprise Value-to-EBITDA (EV/EBITDA) is less commonly used for BDCs like Carlyle Secured Lending, Inc. (CGBD) because Net Investment Income (NII) is the primary earnings measure, and a clear 2025 estimate is not widely published. What this estimate hides, however, is the quality of the underlying loan portfolio.

The dividend is where the rubber meets the road. The stock offers a very high dividend yield, currently in the range of 13.7% to 14.31%. But, honestly, a yield this high is a red flag, not a free lunch. The dividend payout ratio is critically high, estimated between 130% and 135.59% for 2025. A ratio over 100% means the company is paying out more in dividends than it is earning in net income, which is defintely not sustainable long-term without drawing down capital or taking on more debt. You are being paid a premium to hold a stock with a near-term risk of a dividend reduction.

The consensus from the seven covering research analysts is a Hold rating, not a Buy. The average 12-month price target is $14.33, which implies a decent upside from the current price, but the range is wide, from a low of $12.00 to a high of $15.00. This mixed view-undervalued P/B but unsustainable payout-is why analysts are sitting on the fence. For a deeper dive into the balance sheet risks, check out Breaking Down Carlyle Secured Lending, Inc. (CGBD) Financial Health: Key Insights for Investors.

The table below summarizes the key valuation metrics:

Risk Factors

You're looking at Carlyle Secured Lending, Inc. (CGBD) because of that attractive yield, but as a seasoned analyst, I have to be a realist: the biggest near-term risk is the sustainability of that dividend. The numbers from the 2025 fiscal year show the margin for error has vanished, and the credit quality, while recently improving, is still a critical watch area.

The core issue is a consistent shortfall in Net Investment Income (NII) versus the dividend. For Q3 2025, CGBD reported a GAAP NII of only $0.37 per share, which is below the declared quarterly dividend of $0.40 per share. This trend is not new; Q2 2025 NII was also just $0.39 per share. This means the company is paying out more than it's earning from its core lending business, relying on its spillover income-which was an estimated $0.86 per share as of Q3 2025-to bridge the gap. That spillover income acts as a buffer, but it's not an endless resource. A dividend cut is defintely a substantial risk in the short term.

• Monitor NII coverage: A payout ratio over 100% is a red flag.

Beyond the dividend, we see pressure on the portfolio's health. The Net Asset Value (NAV) per share has been in a clear downtrend throughout 2025, falling from $16.80 at year-end 2024 to $16.36 as of September 30, 2025. This 2.6% drop reflects net unrealized depreciation on investments. More importantly, the non-accrual rate-loans on which interest payments are no longer being recognized-spiked earlier in the year. In Q1 2025, non-accruals hit 1.6% of total investments at fair value, a significant jump from 0.6% in the prior quarter.

The good news is that management has been proactive. They've focused on a defensive strategy, increasing the portfolio's exposure to first lien debt to 95% of investments in Q3 2025, up from 70.9% a year earlier. This shift to senior secured debt is a smart move to mitigate credit losses. Also, the non-accrual rate actually decreased in Q3 2025 to a more manageable 1.0% at fair value, showing the credit quality is stabilizing.

Here's a quick snapshot of the key financial risks and CGBD's defensive positioning:

From an external standpoint, the entire Business Development Company (BDC) sector is facing tight market spreads, which limits the profitability of new loans. Carlyle Secured Lending, Inc. also has a heavy concentration in sectors like Healthcare & Pharmaceuticals (around 30%) and Software (around 14%). While diversification helps, a regulatory or economic headwind in the healthcare space could disproportionately impact the portfolio. You should also review the long-term strategic direction outlined in their Mission Statement, Vision, & Core Values of Carlyle Secured Lending, Inc. (CGBD).

So, the action item is clear: keep a very close eye on the NII coverage in the next earnings report. If it doesn't improve, that dividend is living on borrowed time.

Growth Opportunities

You're looking for a clear path forward for Carlyle Secured Lending, Inc. (CGBD), and the key takeaway is that their growth is less about massive revenue leaps and more about disciplined, high-quality portfolio expansion and cost management. The strategic merger activity in early 2025 has already set the stage for a larger, more resilient platform, but near-term earnings face a challenging market.

Their primary growth driver is simply scale. The merger with CSL III in Q1 2025 was a game-changer, injecting an immediate $2.2 billion in portfolio value and eliminating dilutive preferred shares. This move, plus the consolidation of Credit Fund II, which added a net $127 million in new investments, boosted total assets from $1.9 billion to $2.5 billion in Q1 2025. Scale helps them compete for larger, more attractive deals in the U.S. middle-market lending space.

Looking at the numbers, the full fiscal year 2025 revenue is estimated to land around $239.66 million, based on the sum of Q1, Q2, Q3 actuals/estimates and the Q4 consensus. Consensus earnings per share (EPS) for the full year 2025 is estimated at $1.58. To be fair, the Q3 2025 adjusted EPS of $0.38 missed the consensus estimate, and management is signaling a cautious outlook for an earnings trough in the next couple of quarters.

• Boost scale via strategic mergers.
• Focus on high-yield senior secured loans.
• Lower funding costs through refinancing.

Strategic Initiatives and Competitive Edge

Carlyle Secured Lending's strategic initiatives are all about shoring up the balance sheet and maintaining a defensive posture. They are laser-focused on senior secured lending, with 95% of their Q3 2025 portfolio consisting of first lien loans. This is their product innovation-sticking to the safest part of the capital structure to preserve Net Asset Value (NAV), which stood at $16.36 per share as of September 30, 2025.

Their competitive advantage is rooted in their sponsor, Carlyle Group, whose deal-sourcing prowess gives Carlyle Secured Lending access to high-quality originations that smaller competitors can't touch. In Q3 2025 alone, they funded $260 million in new and existing borrower investments at a weighted average yield of 9.5%. That's a strong quarter of deployment. Plus, they've been proactively managing their capital structure, including a recent upsizing of their senior secured Credit Facility to $960.0 million. This flexibility is key.

Here's the quick math on recent performance versus estimates:

The company has also taken post-quarter steps, like a second institutional bond issuance and the repayment of a CSL III SPV credit facility, which they expect will lower their funding costs going forward. Lower cost of capital means a wider net interest margin (NIM), which directly supports future earnings. You can dig deeper into who is betting on this strategy by Exploring Carlyle Secured Lending, Inc. (CGBD) Investor Profile: Who's Buying and Why?

What this estimate hides is the rising non-accrual rate (loans not generating interest), which hit 1.6% of the portfolio's fair value in Q3 2025. While low compared to the historical BDC sector average, it's a risk to watch. Still, their focus on senior secured debt and the massive scale from the 2025 mergers defintely position them to weather a potential economic slowdown better than many peers.

Next step: Have your credit team model the impact of a 2.5% increase in non-accruals on the 2026 EPS estimate by the end of the month.