Good day, and welcome to Carlyle Secured Lending's third quarter 2022 earnings call. At this time, all participants are in listen only mode. After the speaker's presentation, there'll be a question and answer session, and instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Daniel Hahn, Head of Shareholder Relations. You may begin.
Good morning, and welcome to Carlyle Secured Lending's third quarter 2022 earnings call. With me on the call this morning is our Chief Executive Officer, Linda Pace, and our Chief Financial Officer, Tom Hennigan. Last night we issued a press release and earnings presentation outlining our quarterly results, both of which are available on the investor relations section on our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast, and a replay will be available on our website. Any forward-looking statements made today do not guarantee future performance, and any undue reliance should not be placed on them.
These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10-K, that could cause actual results to differ materially from those indicated. Carlyle Secured Lending assumes no obligation to update any forward-looking statements at any time. With that, I'll turn the call over to our Chief Executive Officer, Linda Pace.
Thank you, Dan. Good morning, everyone, and thank you all for joining us to discuss another strong quarter of performance. We're extremely pleased with our third quarter results, with growth in core earnings and net asset value, a lower level of non-accruals, and another 6% increase in our base dividend rate. These results demonstrate the power and resiliency of our platform and our ability to deliver on our objectives of generating sustainable income levels well above our base dividend and a stable NAV. With that said, I would like to focus my remarks on three areas for today's call. I'll start with an overview of our third quarter financial results. Next, I'll touch on the current market environment. Finally, I'll conclude with a few thoughts on our investment activity and current positioning.
In Q3, we generated net investment income of $0.58 per share, which included $0.14 per share of one-time income from restoring Direct Travel to accrual status. Net of this one-time income, core earnings for the quarter was $0.44, which benefited from both the continued resolution of our non-accrual credits and higher base rates. We declared total fourth quarter dividend of $0.44 per share, consisting of our newly increased $0.36 per share dividend plus an $0.08 per share supplemental dividend. We have now increased our base dividend rate in 2022 by a total of 12.5%. Our net asset value increased by over 2% in the third quarter to $17.16 per share.
This increase is primarily driven by our NII outpacing our dividends and higher valuations from credit improvements across watchlist credits, which Tom will discuss later in further detail. We repurchased an additional $7.1 million of our common stock during the quarter, resulting in $0.03 of accretion to our net asset value per share. In total, we have repurchased almost 11 million shares or 17.5% of our float since the commencement of our share repurchase program, resulting in $0.60 of total accretion to our net asset value per share. Now as for the current market, the macro environment remains complex and continues to evolve with a broad range of factors driving volatility across the global debt and equity capital markets. Fed rate hikes aimed at lowering inflation have increased the cost of borrowing and strengthened the U.S. dollar.
Geopolitical risks remain elevated from the Russia-Ukraine conflict and disruptions in the global supply chain. With this as the market backdrop, we feel it's important to remind investors how we think about constructing our portfolio. We prioritize floating rate investments at the top of the capital structure of high quality U.S. middle market companies that are scaled to withstand market disruptions and backed by leading private equity sponsors with a track record of supporting businesses. We utilize our competitive edge, the One Carlyle approach, leveraging the knowledge and expertise across our broader platform at each stage of our investment process. Turning now to the portfolio. Despite the complexities in the market environment, we continue to be pleased with the financial performance and liquidity positions of our portfolio companies.
We have yet to see any meaningful uptick in either amendment activity or drawdowns of revolver capacity by our borrowers beyond the ordinary course. We also continued to see positive credit performance across our book during the third quarter, especially in our watchlist names. That said, given the significant increase in benchmark rates, we've been increasing our focus on assessing both current and future cash generation and interest coverage metrics across all positions in the portfolio. As for investment activity, we funded $268 million of new investments in the third quarter, essentially all of which were in the first lien position. In addition to our regular sponsored deal flow, we were able to leverage the sourcing capabilities of Carlyle's broader credit platform for several attractive investments during the quarter. Total repayments and sales in the third quarter were $212 million.
We ended the quarter with approximately $1.9 billion of investments, slightly up from the prior quarter. Lastly, I want to address the leadership transition announced during the quarter. As reported in September, Taylor Boswell has decided to leave Carlyle to pursue other opportunities. On behalf of Carlyle, I want to thank Taylor for his leadership and invaluable contributions to Carlyle Secured Lending and the broader Carlyle Direct Lending business. I'm extremely grateful for the work that Taylor and the entire direct lending team have done over the past couple of years to reshape our investment process. As a result of the team's substantial efforts, I believe we are well-positioned to continue creating long-term value for our shareholders for many years to come. With that, I'd like to hand the call over to our CFO, Tom Hennigan.
Thank you, Linda. Today, I'll begin with a review of our third quarter earnings. I'll provide further detail on our balance sheet positioning, and I'll conclude with a discussion of our portfolio performance. As Linda previewed, we had another strong quarter on the earnings front. Total investment income for the third quarter was $59 million, up from $45 million in the prior quarter. The primary drivers of the one-time impact of Direct Travel and the benefit of rising benchmark rates. Importantly, improvement in core investment income was aided by lower net non-accruals. Total expense has increased in the quarter from $24 million to $29 million, primarily as a result of higher interest expense from higher base rates and higher incentive fees.
The result was total investment income for the third quarter of $30 million or $0.58 per share, and core earnings excluding Direct Travel of $0.44 per share, substantially above our core earnings of $0.40 per share earned the last few quarters. Our board of directors declared the dividends for the fourth quarter of 2022 at a total level of $0.44 per share. That's comprised of our new $0.36 base dividend, up from the prior level of $0.34, plus an $0.08 supplemental, which is payable to shareholders of record at the close of business on December 30th .
In terms of the forward outlook for earnings, based on the combination of higher benchmark rates and attractive economics on new investments, we see continued growth in NII for the fourth quarter, with further upside in 2023 based on the latest rate curves. As noted on prior calls, for every 33 basis points of additional increase in LIBOR or SOFR, we'll experience a $0.01 increase in NII each quarter. We remain highly confident in our ability to comfortably meet and exceed the new $0.36 base dividend and continue paying out supplemental dividends each quarter. Based on this anticipated increase in earnings in the coming quarters, we intend to evaluate and consider incremental increases to the base dividend level. On valuations, our total aggregate realized and unrealized net gain was $7 million for the quarter.
This increase was almost entirely driven by improvements across watchlist credits, a trend that continued from the prior quarter. Next, I'll touch on our financing facilities and leverage. We continue to be well-positioned on the right side of our balance sheet. Statutory leverage was about 1.26 times, while net financial leverage ended the quarter up slightly at 1.09 times. While up modestly compared to prior quarter, our leverage remains at the lower end of our target range. This positioning allows us to effectively deploy capital given the attractive yields and terms available for new investments in the current market. I'll finish with a review of the portfolio and related activity. We continue to see overall stability and credit quality across the book, and improvement in positions historically with performance issues.
The total fair value of transactions risk-rated three to five, indicating some level of downgrade since we made the investment, improved by over $60 million this quarter, while watchlist names rated four or five reduced by about 50%. In addition, total non-accruals decreased substantially from 4.4% to 2.3% based on amortized cost, with Direct Travel and the first out portion of the amended U.S. Derm investment being restored to accrual status. With that, back to Linda for some closing remarks.
Thanks, Tom. Before opening it up for your questions, I wanted to take a moment to comment on the change in my role at the company. As many of you are aware, I recently announced that I am stepping down as CEO at the end of the year. I will continue to serve as chair of the board of directors, but I'm pleased to be handing over the reins to the very capable hands of Aren LeeKong. Aren brings a wealth of experience to this role, as well as strong knowledge of the company from his time on the board. I look forward to continuing to work with Aren and the entire direct lending team. With that, I'd like to finish by reiterating that we remain highly confident in our strategy and portfolio construction, but cautiously optimistic given the inherent volatility in the current market.
I'd like to now hand the call over to the operator to take your questions.
Thank you. If you'd like to ask a question, please press star one one. Again, that's star one one to ask a question. Our first question comes from Melissa Wedel with JP Morgan. Your line is open.
Good morning. Thanks for taking my questions today. Linda, congratulations on your transition. I'd like to actually start there, if we could, given the evolution in your role and then also with Taylor leaving. Can we walk through sort of the team, who will be filling his shoes and, you know, maybe just dig into the depth of the team a little bit more? Thank you.
Sure, Melissa. Thanks for your question and thanks for the congratulatory note as well. It's been a, you know, terrific kind of double decade plus career at Carlyle, so I appreciate your thoughts. Yeah, just to talk about the team a little bit and, you know, I think team is definitely the right word. You know, we don't want our investors to think that our platform is, you know, is just one person. There's a whole team of people around the person that has that CEO title. Just to name a couple of people to point to, you know, obviously Tom has been here with us since the beginning. He's been here for, you know, well over a decade.
Tom, I think you're approaching 15 years now? I'm not. I lose track of time. He's been a long-term member of the team. Also, a gentleman named Michael Hadley, who we recently promoted as Chief Investment Officer. He's been at Carlyle also for about 15 years and he originally worked with me on the liquid side of the Carlyle Global Credit platform. Given his investment and underwriting and strength, he was originally head of our credit committee on the liquid side. He moved over several years ago to our BDC and direct lending business. The vast majority actually of the team of underwriters, which is now approximately 24 people, he has hired.
You know, and they all report to him. He's really a key person in making sure that our investment process is working well, and that our underwriting standards remain high. Also, you know, we've got a number of people that are executive officials for the company. You can kind of look back at our filings and see all the people that we added. One thing I wanna point out is we have a really robust investment committee. We've got about a dozen people on the investment committee from all walks of the global credit platform, and our risk management platform in Washington.
We can't, you know, get sort of much more talent on that investment committee if we wanted. You know, if you ever wanna talk to anybody specifically, let us know, Melissa. We're happy to put you in contact. You know, I think you're. Sorry for my long-winded answer, but I think hopefully everybody feels comfortable that there are plenty of eyes and ears on the direct lending team kind of looking after the portfolio and looking after the new investments that we make.
I appreciate that.
Does that help?
It was a very open-ended question, so.
Yeah.
I think it would be helpful. I certainly see the trajectory on non-accruals and watchlist investments, which is fantastic, particularly in this uncertain environment. Across the broader portfolio, I know you talked about seeing stable credit. Are you seeing any, even at the margin, any erosion in sort of interest coverage ratios or, you know, any weakness on top line, or softening at least on top line, from any, you know, sort of corners of the portfolio?
Sure. Tom, you want me to take that, or do you wanna take it or both of us?
Linda, I'll start. Hey, good morning, Melissa. You know, you look at our diversified portfolio over 100 different borrowers in the portfolio. Certainly in this environment you're gonna see results that span the gamut. Overall, we're happy to report solid performance across the portfolio. Revenue continues to grow both organically and via acquisitions. EBITDA and leverage statistics across the broad portfolio continue to be relatively stable, up modestly. The point on interest coverage is on a LTM basis, interest coverage still remains north of two times, but we're really focused on the forward outlook for both interest coverage and overall cash flows. Certainly as rates go up to north of 4%, we're gonna see that interest coverage ratio across the portfolio go down.
Across the broad portfolio, if it's two times now, it's gonna be less than two times. But what we're really focused, keenly focused on is individual credits. There's a gamut in terms of if we have a strong performing credit, maybe day one we started higher leverage. We're gonna be comfortable looking at that portfolio company with a lower interest coverage ratio. It's gonna be really the credits that are underperforming that may have EBITDA declines and maybe have a higher interest coverage, but we're gonna be more focused on those credits.
I think it's gonna be credit by credit, but we're certainly very focused on interest coverage ratios and then more importantly, just overall free cash flow, looking at working capital, taxes, interest, and both LTM basis, but really more importantly go forward because company may have generated cash in the last 12 months, but certainly their interest burden is gonna go up dramatically in the next 12 months.
Yeah, maybe, Melissa, I can just add, you know, we're, you know, we definitely don't have blinders on, right? This is, while we love the new opportunities we're seeing in the market, you know, there's gonna be some stresses in everybody's portfolios given, you know, the increase in input costs across the board. One of the assets that we have at Carlyle is an experienced workout team. So, you know, to the extent that we do have, you know, individual problems in the portfolio, we've got a lot of muscle power to help work those out. You know, not everyone's gonna work out as well as Valero did or Direct Travel.
You know, I think those represent kind of two great examples of our workout team really kind of doing a good job to maximize value when things aren't looking so good on individual names.
Got it. Maybe I can ask one last question. Given portfolio leverage levels and certainly your track record on sort of consistently repurchasing shares, when trading at decent discounts to NAV, is it fair to think that you guys are as committed as ever to continuing share repurchase? Could you just quickly recap how much is left on the current authorization? Thanks so much.
Yeah, sure. Melissa, what I'd say is we continue to be steady purchasers in this market. The board, I think last quarter increased the authorization, so we still have over $50 million left under the authorization. We renewed it last [crosstalk]. Yeah, last quarter, we renewed it through November of 2023, so effectively reset the annual renewal last quarter.
There are no further questions. I'd like to turn the call over to Linda Pace for any further remarks.
Thank you everyone for your time today, and we look forward to talking to you in the new year. Enjoy the rest of the year and enjoy your holidays. Take care.
This concludes the program. You may now disconnect. Everyone, have a great day.