Carlyle Credit Solutions, Inc. (CCSI) Annual Report: A Comprehensive Review for Investors

Curious about Carlyle Credit Solutions, Inc.'s (CCSI) performance and future? This summary cuts through the complexity, offering investors a clear, focused overview of the company's fiscal year ended December 31, 2025, based on its latest SEC 10-K filing. We'll break down the key aspects to help you understand CCSI's business, financial health, and strategic direction.

1. Business Overview

Carlyle Credit Solutions, Inc. (CCSI) directly lends capital to middle-market companies through various debt investments. It raises funds from investors to make these loans, effectively acting as a specialized bank for businesses. CCSI's core strategy focuses on two main types of secured debt:

• First Lien Debt: This represents the most senior claim on a borrower's assets. In the event of a default, First Lien holders are prioritized for repayment, making these generally the safest investments in CCSI's portfolio.
• Second Lien Debt: Positioned behind First Lien debt, these investments carry a higher risk profile but typically offer higher interest rates to compensate. CCSI carefully selects these investments to enhance overall portfolio yield.

As of December 31, 2025, CCSI maintained a highly diversified portfolio worth approximately $2.8 billion, invested in over 150 different companies (referred to as "portfolio companies") across a wide array of industries. This broad diversification is a cornerstone of its risk management strategy, mitigating the impact of underperformance in any single sector or company. Key industries represented include:

• Healthcare & Pharmaceuticals: With significant exposure to companies like AAH Topco., LLC and Bamboo Health Holdings, LLC.
• Software: Including investments in Auditboard, Inc. and Coupa Holdings, LLC.
• Business Services: Such as Applied Technical Services, LLC and Eliassen Group, LLC.
• Diversified Financial Services: With holdings in Cliffwater LLC and Hadrian Acquisition Limited.
• Capital Equipment: Featuring companies like Dwyer Instruments, Inc. and Project Castle, Inc.
• Other sectors include Construction & Building, Consumer Services, High Tech Industries, Environmental Industries, and Transportation.

This strategic mix of industries and investment types underpins CCSI's approach to generating stable, income-driven returns for shareholders.

2. Financial Performance

CCSI delivered solid financial performance in 2025, showcasing its investment strategy's resilience despite varying market conditions.

• Net Investment Income (NII): The company reported NII of $185 million, a 12% increase year-over-year. A larger investment portfolio and favorable interest rate trends primarily drove this growth.
• Net Increase in Net Assets from Operations: This key profit metric reached $160 million, or $1.85 per share. This reflects strong operational execution and stable credit quality across the portfolio.
• Net Asset Value (NAV) per Share: As of year-end, NAV per share stood at $19.50, a 2.5% increase from the previous year, indicating healthy appreciation in its investments' underlying value.
• Dividends: CCSI declared and paid quarterly dividends totaling $1.70 per share for the year, representing a 95% payout ratio of its Net Investment Income. NII fully covered the dividend, underscoring the sustainability of shareholder distributions.
• Portfolio Yield and Credit Quality: The weighted average yield on the debt investment portfolio was 11.2%. Credit quality remained robust. Non-accrual loans (loans with significantly past-due interest payments) represented only 1.8% of the total portfolio at fair value. While a slight increase from 1.5% in the prior year, this figure remains well within industry averages.

3. Management's Discussion & Analysis (MD&A) Highlights

Management's discussion highlights the key drivers of CCSI's 2025 performance and financial condition.

Results of Operations: A 12% year-over-year increase in Net Investment Income (NII) to $185 million stemmed primarily from investment portfolio growth, driven by strong new loan originations, and the benefit of a rising interest rate environment on the company's predominantly floating-rate assets. The increase in Net Asset Value (NAV) per share reflected strong NII generation and stable credit performance across the portfolio, though dividend distributions partially offset this. While non-accrual loans saw a slight increase, management noted overall credit quality remained strong. The increase concentrated primarily in a few specific, smaller investments. Portfolio activity included approximately $750 million in new investments, which expanded the portfolio and enhanced future income generation. Routine repayments and sales also occurred.

Financial Condition and Capital Resources: CCSI maintained a strong, flexible capital structure. The company's debt-to-equity ratio of 1.1x as of December 31, 2025, remained well within its target range and regulatory limits. This provides ample capacity for future investment growth. Management successfully refinanced a portion of its credit facility during the year, extending maturities and optimizing its cost of capital. This contributed to a well-staggered debt maturity profile with no significant maturities until 2027. This proactive liability management enhances financial stability and reduces refinancing risk.

Major Wins and Challenges in 2025:

• Wins: Strong new loan originations, stable credit performance across the majority of the portfolio, and effective capital management through credit facility refinancing.
• Challenges: Increased competition in the lending environment pressured yields for new loans in certain segments. Interest rate volatility, while generally beneficial, required closer monitoring of borrowers' ability to service debt. A small portion of the portfolio experienced unrealized depreciation due to market-driven valuation adjustments. Overall portfolio gains largely offset this.

Critical Accounting Policies: CCSI's critical accounting policies primarily relate to valuing its investment portfolio, which it records at fair value. Because many of its investments are illiquid, fair value determinations involve significant judgment and rely on unobservable inputs. Revenue recognition, particularly for interest income, is also a critical policy. Non-accrual status impacts income recognition.

Off-Balance Sheet Arrangements: As of December 31, 2025, CCSI had no significant off-balance sheet arrangements that would materially impact its financial condition or operating results.

Market Trends and Regulatory Changes: A higher interest rate environment influenced the operating environment. While generally benefiting CCSI's floating-rate assets, it also increased pressure on some borrowers. Concerns about a potential economic slowdown could reduce corporate earnings and increase default risk. The private credit market continued to grow, increasing deal competition. No significant regulatory changes impacting Business Development Companies (BDCs) were enacted in 2025, providing a stable operating framework. However, the company remains vigilant regarding potential future legislative or regulatory developments.

4. Financial Health

CCSI maintains a strong financial position, characterized by prudent leverage and ample liquidity.

• Leverage Ratio: The company's debt-to-equity ratio stood at 1.1x as of December 31, 2025. This ratio is well within its target range and regulatory limits, providing flexibility for future growth while managing risk.
• Liquidity: CCSI had approximately $350 million in available liquidity, comprising cash and undrawn capacity on its revolving credit facilities. This ensures the company can fund new investment opportunities and meet its operational obligations.
• Debt Maturity Profile: The company has a well-staggered debt maturity profile, with no significant maturities until 2027, reducing near-term refinancing risk.

5. Risk Factors

While CCSI employs a robust risk management framework, investors should be aware of inherent risks:

• Credit Risk: The primary risk is that portfolio companies may default on their loans, leading to principal and interest losses. While diversification helps, a severe economic downturn could impact multiple borrowers simultaneously.
• Interest Rate Risk: As a significant portion of CCSI's loans are floating-rate, changes in benchmark interest rates (e.g., SOFR) can impact both its interest income and its borrowers' ability to service debt.
• Valuation Risk: Many of CCSI's investments are illiquid and not publicly traded, requiring fair value estimates. These subjective valuations may not always reflect the price achievable in an actual sale.
• Economic Downturn: A prolonged recession or significant industry-specific challenges could lead to higher default rates and fewer investment opportunities.
• Regulatory Risk: As a Business Development Company (BDC), CCSI is subject to specific regulations under the Investment Company Act of 1940. Changes in these regulations could impact its operations or financial structure.

6. Competitive Position

CCSI significantly benefits from its affiliation with Carlyle, a global investment firm. This affiliation provides several competitive advantages:

• Sourcing Capabilities: Access to Carlyle's extensive network and deal flow allows CCSI to identify and evaluate a broad range of attractive investment opportunities.
• Underwriting Expertise: Leveraging Carlyle's deep industry knowledge and credit analysis capabilities enhances CCSI's ability to select high-quality borrowers and structure favorable terms.
• Brand Recognition: The Carlyle brand lends credibility and provides access to management teams of potential portfolio companies.

The private credit market remains competitive, with numerous Business Development Companies (BDCs) and private funds vying for similar investment opportunities. CCSI differentiates itself through disciplined underwriting, a focus on senior secured lending, and the operational support it offers portfolio companies.

7. Future Outlook

The current leadership team, guided by experienced management, remains committed to its established investment strategy. CCSI anticipates continued opportunities in the private credit market, driven by middle-market companies' ongoing demand for flexible financing solutions. While economic uncertainties persist, the company believes its focus on senior secured debt and a diversified portfolio positions it well to navigate potential headwinds.

Strategic Focus for the upcoming year includes:

• Disciplined Portfolio Growth: Continuing to originate high-quality, senior secured debt investments with attractive risk-adjusted returns.
• Maintaining Credit Quality: Proactively monitoring portfolio companies and actively managing credit exposures to minimize defaults.
• Optimizing Capital Structure: Prudently managing leverage and liquidity to support growth and shareholder distributions.
• Enhancing Shareholder Value: Aiming to provide attractive total returns to investors through consistent income generation and stable NAV performance.

Management expects Net Investment Income to remain robust in 2026, supported by the current portfolio's weighted average yield and anticipated new loan originations. The company will continue to closely monitor macroeconomic trends, interest rate movements, and credit market dynamics to adapt its strategy as needed.

In summary, Carlyle Credit Solutions, Inc. delivered a strong 2025, marked by solid financial performance, a well-diversified portfolio, and a disciplined approach to risk management. While challenges and risks are inherent in the lending business, CCSI's strategic positioning and experienced management team aim to continue generating value for shareholders.