Carlyle Credit Income Fund (NYSE:CCIF) reported second-quarter 2026 results that reflected continued pressure in the CLO equity market, while management said underlying credit fundamentals in the portfolio remained broadly stable.
On the fund’s earnings call, Nishil Mehta, CCIF’s Principal Executive Officer and President, said CLO equity markets faced pressure during the quarter from a January loan repricing wave, weakness in some software-related loans tied to concerns about artificial intelligence disintermediation, and volatility related to conflict in the Middle East. Those factors weighed on loan prices, CLO equity valuations and cash flows, he said.
Dividend Maintained as Core NII Covers Payout
CCIF maintained its monthly dividend of $0.06 per share, which Mehta said represented a 21.5% annualized rate based on the share price as of May 12. The dividend has been declared through August 2026.
The fund’s underlying CLO investments generated an annualized cash-on-cash yield of 20.11% for the quarter, producing $0.44 of recurring cash flows and $0.29 of core net investment income per share at the fund level. Mehta said core net investment income provided 161% coverage of the revised monthly dividend.
Nelson Joseph, CCIF’s Principal Financial Officer, said total investment income for the second quarter was $5.5 million, or $0.26 per share. Total expenses were $3.6 million, and total net investment income was $1.9 million, or $0.09 per share. Adjusted net investment income was $2.4 million, or $0.11 per share.
Joseph said adjusted net investment income excludes a $0.02 per-share impact from amortization of original issue discount and issuance costs related to the fund’s preferred shares and credit facility. He added that management views core net investment income as “a more accurate representation of CCIF’s distribution requirement.”
Net asset value was $3.34 per share as of March 31. Joseph said the fund’s NAV and valuations were based on bid-side marks received from a third party for 100% of the CLO portfolio. CCIF also continued to hold one legacy real estate asset, with a fair market value of $2.2 million.
Portfolio Activity Focuses on Reducing Leverage
During the quarter, CCIF made $1.5 million of new CLO investments with a weighted average GAAP yield of 11.5%. The fund generated $21.7 million of sales proceeds, which Mehta said were used in part to redeem $20 million of its 7.5% Series C convertible preferred shares in cash, reducing leverage.
In the question-and-answer session, Mehta said the fund proactively sold positions because the decline in NAV had pushed leverage above management’s target range.
CCIF completed four CLO resets during the quarter, adding to 26 refinancings and resets completed in calendar year 2025. Mehta said those actions can reduce liability costs, extend reinvestment periods and support CLO equity cash flows.
“The best way to offset loan repricings is completing the accretive refinancings and resets,” Mehta said. He added that with CLO debt spreads tightening alongside broader fixed-income markets, management expects to remain active in refinancing and resetting the portfolio.
Credit Metrics Remain Stable Despite Spread Compression
Management said the portfolio remained defensively positioned, with experienced CLO managers and transactions that have longer reinvestment periods. The weighted average years remaining in reinvestment periods decreased slightly to 3.3 years from 3.4 years, and no CLOs in the portfolio were past their reinvestment period as of March 31.
Mehta said the portfolio’s weighted average junior overcollateralization cushion was 4.18%, which management views as healthy. The average percentage of loans rated CCC by S&P was 4.1%, below the 7.5% CCC limit in CLOs.
The weighted average spread of the underlying loan portfolio fell 10 basis points from the prior quarter to 2.96%, reflecting the cumulative effect of elevated loan repricing activity, especially in January. Mehta said lower loan spreads continue to pressure CLO equity earnings power because resets and refinancings have not fully offset spread compression.
Still, he said the fund’s portfolio remains diversified across approximately 1,850 underlying loans, with exposure to any single issuer below 1%. More than 97% of the portfolio is made up of first-lien senior secured loans.
CLO and Loan Market Conditions
Lauren Basmadjian, CCIF’s Chair and Carlyle’s Global Head of Liquid Credit, said CLO liability spreads widened modestly during the quarter. AAA spreads widened by about 5 basis points quarter over quarter, while BB spreads widened by about 150 basis points.
New-issue CLO volume totaled approximately $47 billion during the quarter, compared with $44 billion in the prior year. CLO resets and refinancings totaled $28 billion and $23 billion, respectively, down from $57 billion and $37 billion in the first quarter of 2025, as wider liability spreads and increased volatility reduced activity.
In the loan market, Basmadjian said the LSTA U.S. Leveraged Loan Index declined 60 basis points during the quarter as loan prices fell 2.1%. Issuance was driven largely by opportunistic refinancings and repricings in January, though LBO and M&A activity increased. She cited the Electronic Arts LBO as part of roughly $51 billion of quarterly LBO and M&A volume in the broadly syndicated loan market, the highest quarterly total in more than four years.
Basmadjian said credit fundamentals in Carlyle’s U.S. portfolio of more than 550 borrowers remained resilient in the fourth quarter of 2025, with more than 75% generating positive free cash flow. Revenue and EBITDA growth were 5% and 6% year over year, respectively, and interest coverage was 3.8 times.
Software Exposure and AI Risk in Focus
Management addressed investor questions about software exposure, which has drawn scrutiny due to concerns about AI-related disruption. Mehta said software represents about 12% to 13% of the broadly syndicated loan market and approximately 12% of CCIF’s portfolio.
He said CCIF can manage that exposure by reviewing individual loan holdings within CLOs, rotating out of CLO positions where the software credit profile is unattractive and engaging with CLO managers about their views and strategies. However, he noted that CLO managers retain discretion over their portfolios.
Mehta also said software exposure may decline across the market over time, with newer CLOs already showing software exposure closer to the mid- to high-single-digit range.
Looking ahead, management said CLO equity performance will depend on manager selection, reinvestment discipline and active credit management. Basmadjian said about 17% of the loan market matures before the end of 2028, which could drive a busy refinancing environment and potentially become “spread additive” after more than two years in which refinancings often reduced spreads.
“Given the current geopolitical, AI, and inflationary risks, we think 2026 will continue to be a year of dispersion, with the haves and have-nots experiencing very different outcomes,” Basmadjian said.
About Carlyle Credit Income Fund (NYSE:CCIF)
Carlyle Credit Income Fund is a close ended fixed income mutual fund launched and managed by Vertical Capital Asset Management, LLC. The fund is co – managed by Behringer Advisors, LLC. The Fund invests mainly in fixed-income securities. The fund invests in stocks of companies operating across diversified sectors. It seeks to benchmark the performance of its portfolio against the Barclays Capital U.S. Mortgage Backed Securities Index. Carlyle Credit Income Fund was formed on December 30, 2011 and is domiciled in the United States.
