Ladies and gentlemen, thank you for standing by, welcome to TCG BDC first quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press the star, then the one key on your touchtone telephone. If you require operator assistance, please press star, then zero. I would now like to hand the conference over to your speaker host, Allison Rudary. Please go ahead.
Good morning. Welcome to TCG BDC's first quarter 2021 earnings call. Last night, we issued an earnings press release and detailed earnings presentation with our quarterly results, a copy of which is available on TCG BDC's investor relations 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 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 factor section of our annual report on Form 10-K, that could cause actual results to differ materially from those indicated. TCG BDC assumes no obligation to update forward-looking statements at any time.
With that, I'll turn the call over to our Chief Executive Officer, Linda Pace.
Thank you, Allison. Good morning, everyone, and thank you for joining us on our call this morning to discuss our first quarter 2021 results. Joining me on the call today is our Chief Investment Officer, Taylor Boswell, and our Chief Financial Officer, Tom Hennigan. I'd like to start by highlighting the continued strong momentum we've established in our business. Our financial results for the quarter, which Tom and I will detail later, were solid, and importantly, our portfolio's credit profile continues to improve. Going forward, we expect that credit will continue to strengthen alongside the macroeconomic recovery as we move further away from the depths of the health crisis in the U.S. Overall, we are pleased with our current positioning and are confident in our ability to generate and sustain attractive income for our shareholders. I'd like to turn now to the financial highlights of the quarter.
We generated net investment income of $0.36 per common share and declared a total dividend of $0.36. This includes a base dividend of $0.32 and a $0.04 supplemental dividend. As we've noted before, we expect earnings to continue to be well in excess of our $0.32 base dividend. We ended the quarter with net asset value per share of $15.70, up $0.31 from last quarter for an increase of 2%. Driving this increase was a combination of improving market yields, and more importantly, stronger overall credit performance. This marks our fourth consecutive quarter of NAV growth since the first quarter of 2020. Since then, net asset value has increased 11%. Additionally, we repurchased almost $6 million of our common stock at an average discount of 22% of our net asset value. This resulted in $0.03 of accretion to net asset value.
We continue to be consistent, active repurchasers of our shares. Turning to the investment environment as we look forward. The markets in which we operate continue to be very active. Broadly speaking, the economic environment is recovering rapidly from last year's sharp contraction. As Taylor will detail later, broadly syndicated markets experienced an exceptionally strong quarter, but our focus area in the middle markets still provide compelling relative value. We continue to close on attractive investment opportunities. Despite a competitive landscape, our deal pipeline is robust, both in our core markets and those adjacent areas of the credit markets where we have deep expertise. We remain focused on leveraging the competitive advantages that accrue to us from the breadth of the Carlyle platform to originate differentiated new business.
Our broad sourcing funnel allows us to be highly selective, as always, we construct our portfolio to be defensive, high quality, and diverse, the aim of which is predictable, stable income generation throughout all market cycles. I'd also like to take a moment to welcome Billy Wright, who joined our Board of Directors last quarter as an Independent Director. Billy brings a great deal of experience and credit to our Board, we are glad to have the benefit of his expertise as we continue to deliver on our key objectives for our shareholders. I'll now hand it over to our Chief Investment Officer, Taylor Boswell.
Thank you, Linda. As usual, I'll begin with some quick comments on Carlyle's current macroeconomic perspectives, which we develop based upon inputs from across our global footprint. Keeping with the themes of the last year, our proprietary data again shows sharp divergence across economies. China, which grew 3% in 2020, is evidencing signs of decelerating but still solidly positive growth as its post-pandemic catch-up phase ends. Conversely, European lockdowns have generated a second quarter of economic contraction. In the U.S., as we expected, the economy is accelerating significantly on the back of improved confidence in vaccine distribution, reopening, and massive fiscal stimulus, the latter of which is expected to boost household income by 5% of GDP this year. Our data suggests significant growth versus both 2020 and 2019 in the most income-sensitive spending categories.
Of course, with a 91% U.S.-based investment portfolio, this establishes a strong fundamental operating backdrop for the vast majority of our borrowers. As the year has progressed, we have seen increased incidences of inflation globally, often the result of understandable but ultimately overly conservative management decisions to take capacity offline in 2020. These capacity constraints are combining with pent-up demand to generate pockets of price spikes and shortages, especially in the industrial sector. At this time, like policymakers, we also view most of these increases as transitory, with a low likelihood of long-term runaway inflation. In the portfolio, we are monitoring for the effectiveness of price pass-through mechanisms, input substitution, and other management actions which we expect will support continued strong credit performance.
Liquid leverage finance markets have remained extremely active year-to-date, with both the broadly syndicated loan and high yield markets posting their busiest new issue quarters on record, an astonishing fact. The reason is obvious to all here. In today's low interest rate environment, the execution offered by these asset classes is extremely attractive to both borrowers and investors alike. While we do not see a near-term catalyst for these market conditions to change, we are not concerned about operating effectively if they prove persistent. In fact, we are pleased that our business is demonstrating sustainable performance through this period. In this environment, repayments across credit markets have picked up and will continue to occur as transaction velocity increases. This has been especially true in our MMCF1 JV, whose larger EBITDA borrowers are more susceptible to rotation into liquid markets.
However, our core middle-market borrower base has seen a slower pace of repayment activity year-to-date. Many of these assets were priced in higher LIBOR environments and do not offer significant spread savings, as well as often possessing strong fundamental reasons to remain in private credit markets. Meanwhile, we are, as a business, finding ample attractive new opportunities to deploy capital. After the demand from COVID matched with owners' desires to sell ahead of potential tax or regulatory changes, one might have expected a material slowdown in Q1. In fact, we were extremely active on the originations front in the first quarter, deploying $151 million across 10 borrowers at an 8.4% average yield. This activity again comfortably outpaced $73 million of repayments in the period. The remainder of our portfolio exits were tactical sales, taking advantage of robust secondary market prices as part of our active portfolio management strategy.
All in, the yield on our sales and repayments was approximately 7.8%. The core secular drivers of our asset class remain intact, while the breadth and quality of origination available to us from the Carlyle platform allow us to maintain and grow our portfolio as may be required across the investment cycle. At the same time, you will see we post another solid quarter of credit improvement in earnings generation. Whether from an asset base, income, or credit perspective, we feel our business is on sound footing to deliver for shareholders in 2021. As always, thank you for your time and support. Tom?
Thank you, Taylor. Today, I'll begin with a review of our first quarter earnings. I'll provide further detail on the portfolio and our balance sheet positioning. As Linda previewed, we had another stable quarter on the earnings front. Total investment income for the first quarter was $41 million. That's down from $44 million in the prior quarter, primarily due to two main factors. First, a full quarter impact of lower average loan balance following the closing of our second JV in November. Second, lower OID accretion and prepayment fees due to lower loan repayments in the first quarter. This was partially offset by an increase in total dividend income from the two JVs, which increased due to a full quarter impact from MMCF2. Total expenses were $20 million in the quarter, down from $22 million last quarter. The largest component of the decrease was lower credit facility fees.
The result was net investment income for the quarter of $0.36 per common share or $20 million, right in line with the guidance we provided during last quarter's earnings call. On May 3rd, our board of directors declared the dividends for the second quarter of 2021 at a total level of $0.36 per share. That comprises the $0.32 regular dividend plus a $0.04 supplemental, which is payable to shareholders of record as of the close of business on June 30. Similar to last quarter, as we look forward to the rest of 2021, we remain very confident in our ability to comfortably deliver the $0.32 regular dividend, plus continue the sizable supplemental dividends in line with the $0.04-$0.05 we've been paying the last few quarters. Moving on to the performance of our two JVs. Total dividend income was $7.5 million, up from $6.5 last quarter.
The increase was due to a full quarter impact of MMCF2. On a combined basis, our dividend yield in the JVs was about 10%, in line with the prior quarter. Total assets at the JVs were down from $1.3 billion- $1.2 billion due to another wave of repayments that occurred at MMCF1 later in the quarter. We've had positive momentum with new originations for that vehicle early in the second quarter. Going forward, we expect stable aggregate assets, yield, and dividend generation from the two JVs similar to the first quarter's results. On to valuations. Our total aggregate realized and unrealized net gain was $15 million for the quarter, the fourth consecutive quarter of positive performance following the drop in March of 2020. Similar to the last three quarters, we saw valuations increase based on the continued rebound in market yields, plus improving fundamental credits.
Using the same buckets I've outlined in prior quarters, we again saw improvement across the board. First, performing lower COVID-impacted borrowers, plus our equity investments in the JVs, which accounts for a combined 70% of the portfolio, increased in value about $4 million compared to $12.31. Second, the assets that have been underperforming pre-pandemic, some which have COVID exposure, were up $5 million, marking the fourth consecutive quarter of stability or improvement for this group. The final category is the moderate to heavier COVID-impacted names. We continue to see a rebound in actual results and improvement in recovery prospects for these investments. Collectively, they also experienced a net $5 million increase in value. Given we're still in the early days of a sustained recovery for some of these borrowers, we continue to be appropriately conservative in our assessment of these credits. I'll turn next to the portfolio and related activity.
We continue to see overall stability and improvement across the book. Total non-accruals were flat at 3.3 based on fair value. As we sit here today, we don't see any additional loans at risk of non-accrual. The total fair value of positions risk-rated 3- 5, indicating some level of downgrade since we made the original investment, is down again this quarter by about $33 million in the aggregate. Total amendment activity slowed down meaningfully in the first quarter, as we expected. We had two material amendments that closed for borrowers specifically impacted by COVID. The important point to note is that in exchange for covenant relief, the sponsors ingested significant incremental dollars to support the liquidity needs of each business. I'll finish with a review of our financing facilities and liquidity. We continue to be very well-positioned with the right side of our balance sheet.
That said, we're always exploring various alternatives in both the private and public markets, particularly given the current issuer-friendly financing environment. Regarding 331 results, statutory leverage was stable at about 1.2x , while net financial leverage, which assumes the preferred is converted and the risk metric we use to manage the business, was again right around one turn of leverage. We're sitting close to the lower end of our target range of 1.0x to 1.4x , giving us flexibility to invest prudently in new attractive opportunities. Regarding the preferred equity issuance from May 2020, our stock continues to trade well above the conversion price. As we previously noted, this instrument remains a long-term investment by Carlyle and our BDC, there currently is no intention to convert. With that, back over to Linda for some closing remarks.
Thank you, Tom. I'll finish where I started and note the strong momentum and performance in our company that will continue to drive attractive and sustainable income generation for our shareholders. We appreciate your support and thank you for your time this morning. I'd like to now turn the call over to the operator to take your questions.
Thank you. Ladies and gentlemen, to ask a question, you will need to press the star then the one key on your touch-tone telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question coming from the line of Melissa Wedel with JPMorgan. Your line is open.
Good morning, everyone. Thanks for taking my questions today. Couple of interesting things this quarter. First of all, I was noticing that there was some second lien issuance that was a little bit elevated compared to prior quarters. Just wondering if you could elaborate on sort of the relative value that you're seeing up and down the capital structure. Thank you.
Hey, thank you so much, Melissa. It's Taylor picking that one up. I think that doesn't represent any significant change in terms of our approach to originations and balance of the portfolio over time. Maybe it's just more reflective of the opportunities that we saw and liked in this particular period. What I would say to you is that in our business, whether it's a sub-asset class or product category or a sector, even when portions of the market might comprehensively offer better or worse rel val, we're always really kind of looking for the individual credit investment and tend to find those that we like even in those verticals.
Interestingly, while we have a little more second lien origination, and we really like those credits that we booked, I think the second lien market right now is probably comprehensively not as much of a source of relative value of other aspects of the market. I wouldn't read into that we're doing deals we don't like. Rather, we're finding investment conviction and in credits we know and like very much within those markets, even if the whole market has less of a relative value construct right now for large second lien borrowers. At the same time, I think the core middle market senior product continues to offer great relative value across that entire asset base.
Again, deals we liked out of a very big origination funnel, not necessarily a reflection of a view that that's where the best relative value is comprehensively in the market today. Is that responsive?
That's really helpful. Thank you. A follow-up question on the repurchase activity, which obviously did continue in the March quarter but was a bit lower from 4Q levels of repurchase. I'm just wondering if you could help us understand the framework that you use to think about the sizing and pace of repurchase from quarter to quarter. Thanks so much.
Sure, Melissa. Hi, it's Linda. Thanks for the question. I think the first thing to state, and excuse me, allergies are kicking in here is that we do think there's a lot of value in our stock, and we continue to be consistent repurchasers of it. We'll obviously scale those repurchases based on how accretive they are overall, and that will fluctuate as our stock price fluctuates. It shouldn't be a surprise that we purchased a bit less this quarter. Repurchasing our shares was a bit less accretive this quarter than it had been in prior quarters. Nevertheless, again, we continue to see great value in our shares, so you should continue to see repurchases at least in the near future. Just as a side note, we have plenty of room and plenty of time left on our repurchase authorization that the board gives us each year.
Thank you, Linda.
You're welcome.
Now, next question coming from the line of Paul Johnson with KBW. Your line is open.
Yeah, good morning, everybody. Thanks for taking my questions. I realize you mentioned this at the end of your prepared remarks, and this has also been asked on previous calls as well. I'm just wondering on the preferred equity piece in your capital structure, have you guys assessed any of the dilutive impact from a potential conversion or even just a payoff of that investment? Also on that investment, I'm just also curious, is the preferred equity essentially controlled by the Adviser itself with discretion over the prepayment of that investment, or is this something that's in a fund that's maybe outside of the control of the Adviser?
Hey, good morning, Paul. It's Tom. To hit the second point of the last part in terms of the actual investment, who holds it. It's held by Carlyle, the advisor. It is obviously part of Carlyle. We look at it as clearly friendly money, and any decisions will certainly be made with our management team as well as broader Carlyle, noting that whatever the, sometime down the road, the ultimate realization of that product. There are certain requirements for board approval as well in terms of, let's say, where the liquidity will come from. We think it certainly is very much friendly paper. It's going to be a long-term Carlyle's investment and support for this business. When the time is right, sometime down the road, a collective decision across both BDC, the BDC board, and Carlyle, the manager.
In terms of the accretive effect, you can see we report the fully diluted shares. It's something to the tune of 5 million shares if and when converted, and that would have the commensurate impact on earnings. Obviously, we would not be paying the pref dividend, which is roughly $900,000, the cash rate per quarter, which is 7% rate, but then we'd be paying the common dividend. The net impact would be $0.02 or so per share per quarter.
Okay. Thanks for that. Not to prolong that topic anymore, I guess, but as you say, it's a part of your long-term financing plan for the BDC. I'm just curious how you balance that out in context of today's capital markets, where obviously we've seen BDCs issue unsecured debt at much lower rates, 3%, 4% handles, some even lower than that. How do you balance that out in terms of viewing a 7% piece of financing when you can issue potentially lower in the unsecured markets?
Sure. From a broader capital structure perspective, we're very comfortable with our current balance sheet, well-positioned with a flexible corporate revolver. We have an attractive long-term CLO that's well-suited for our heavy first lien portfolio. Then, of course, the unsecured debt that we raised the last two years. Very well-positioned. We're certainly looking at the current hot market, whether it be for unsecured, whether it be the CLO market. Obviously, a lot of moving pieces, and we'd certainly be factoring in the impact of a bond offering at a lower interest rate, but then offsetting what would certainly be the dilutive impact of, let's say, a conversion or a repayment of the pref. I think that our analysis would suggest that certainly Carlyle is a long-term holder with that pref, is that that will remain a long-term part of the capital structure.
No intention right now to convert, no intention to repay it.
Okay.
Paul, it's Taylor. I do think it's important in the context of the convert to go back to the circumstances in which it was put in the capital structure, which was sort of in the depths of the coronavirus crisis last year. The firm really thought that that was a strong statement of support for the company at the time. That execution was done on terms that probably wouldn't have been available in the market at those times. If you flash forward to today, I do think it's also important to call out that many of the attributes of that security are not replicable in other respects for the company, meaning its perpetual durat ion, its PIK toggle option. There's a bunch of attractive features of that security still today for that instrument.
We don't have any intention to convert in the near term, as Tom said. We don't feel like it is an inappropriate portion of our overall capital structure at $50 million of size.
Okay. Yeah, thanks for that. My last question is just on the JVs. I know you've been de-leveraging slightly over, well, quite a bit over the last couple of years in the Middle Market Credit Fund number one. Yield has been declining, obviously, as a result of that. I calculate roughly a 9.3% yield or so, annualized yield for that JV this quarter. I'm curious, is that the yield that we should expect going forward, just given all the de-leveraging that's taken place there? Or could we expect maybe potentially a higher return if you're going to be placing more investments into the fund?
Hey, Paul. Yeah, it's Tom again. When you compare the current status of that JV, lower leverage, and certainly as we look at new investments now, perhaps slightly higher yield from a spread perspective relative to historically you had higher leverage in the vehicle, but perhaps much lower yielding assets, more broadly syndicated assets that, let's say, had a L+ plus 400 handle. You'll see some of those legacy investments still in the portfolio. As we look going forward, the leverage will certainly be, I think, in the ballpark of where it is now, perhaps a little bit higher. We'll be looking for higher yielding assets relative to where the portfolio is right now. I think that right now I'd say that that 9 % is, we'll call it a range of, let's say, nine to 10 or 11 is at the bottom end of our range.
I think we'll live comfortably in that range based on some recent enhancements to our main credit facility. We potentially have an ability to achieve some higher yields, but I think we feel really comfortable with the 9% and based on both on the asset side and the liability side, a little bit of movement potentially to move that up. I think we're comfortable with a 9%-10% target and again, some potential upside based on our current assets targets and also our some recent developments with an amendment we closed at our main credit facility.
Thanks for that. That's very helpful. Those are all my questions. Thanks a lot.
Remind ladies and gentlemen, to ask a question, please press star one. I'm showing no further questions at this time. I would now like to turn the call back over to the speakers for closing remarks.
This is Linda. I want to thank everyone for joining us on our call today. Please follow up with Allison if you have any other further questions. Have a great day. Thanks.
Ladies and gentlemen, that does conclude conference call today. Thank you for your participation. You may now disconnect.