Tuesday, B. Riley initiated coverage of Carlyle Credit Income Fund (NYSE:CCIF) with a Buy rating and a stock price target set at $9.00. The firm's analysis suggests that this target is about 1.15 times the projected forward net asset value (NAV) of $7.97. Including dividends, the firm forecasts a total return of 23% for investors over the next 12 months.
Carlyle Credit Income Fund has recently undergone a strategic transformation under new management, focusing on the equity and mezzanine tranches of collateralized loan obligations (CLOs). This shift has resulted in two significant dividend increases, now up to $0.105 monthly, which have been declared through August 2024. The fund's strong purchase yields on CLO equity positions are contributing to high GAAP and recurring cash margins.
The firm anticipates further improvement in the fund's net investment income (NII), buoyed by the performance of CLO equity and the accretive impact of a recent preferred deal. The analysis also includes the potential for future bond issuance as the fund re-leverages and benefits from a declining cost of capital.
Despite expectations of gradually rising leveraged loan default rates, they are predicted to stay below market forecasts, maintaining the favorable arbitrage opportunities for CLO equity investors.
Following a recent preferred offering, CCIF's leverage is positioned above the midpoint of its target range, which reduces the likelihood of a near-term capital raise. Additionally, the fund has a $75 million at-the-market (ATM) offering in place. The first quarter of 2024 showed the fund's recurring cash flows to be double the distributions, a performance that stands out among CLO-focused peers.
The firm believes that the intellectual capital provided by Carlyle will afford the fund a competitive edge over its counterparts. This advantage is a key factor in supporting the price target's premium to NAV, coupled with a conservative portfolio valuation approach. Currently, CCIF trades at 1.07 times NAV, which is slightly below its peers, presenting what B. Riley considers a unique buying opportunity as the fund's portfolio continues to expand.
In other recent news, Carlyle Credit Income Fund (CCIF) has maintained its dividend at $0.105 per share through August 2024, reflecting a robust 15.95% annualized yield. This move indicates a positive outlook on its financial stability and investment strategy.
The company has also been actively involved in the Collateralized Loan Obligation (CLO) market, with $20 million invested in new CLOs and strong equity distributions. The quarterly results showcased a total investment income of $7.3 million, bolstered by the performance of its diversified CLO portfolio.
During the earnings call, Nishil Mehta discussed CCIF's strategic refinancing approach and potential expansion of its capital structure, including the addition of preferred shares and longer-dated bond issuances. These recent developments show CCIF's proactive approach in navigating the dynamic CLO market.
The company's strategy, focused on high-quality CLO managers and investments in both primary and secondary markets, positions it well for growth. However, no specific bearish highlights or misses in terms of financial targets or expectations were reported.
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