Crescent Capital BDC (CCAP): A Deep-Value Dividend Play in a Stressed BDC Sector

In a market where high-yield, low-growth environments have pushed many business development companies (BDCs) into distress, Crescent Capital BDC (CCAP) stands out as a compelling deep-value opportunity. Trading at a 26% discount to its net asset value (NAV) of $19.55, CCAP offers an 11.10% dividend yield while maintaining a disciplined capital structure and a credit portfolio engineered for resilience. For income-focused investors seeking to capitalize on sector dislocation, CCAP's combination of sustainable dividends, strong capital preservation, and undervaluation makes it a standout candidate.

A Sector in Turmoil, but CCAP Stands Apart

The BDC sector has faced headwinds in 2025, with a negatively sloped interest rate curve, tighter credit spreads, and macroeconomic uncertainty dragging down valuations. Many BDCs trade at double-digit discounts to NAV, reflecting investor caution. CCAP, however, has navigated these challenges with a conservative leverage ratio of 1.23x (within its 1.1x–1.3x target range) and a weighted average cost of debt of 6.09%, down from 6.36% in Q1 2025. Its $20 million stock repurchase program further underscores management's confidence in the company's intrinsic value.

Credit Quality and Capital Preservation: CCAP's Strengths

CCAP's investment portfolio is a masterclass in risk mitigation. Comprising 187 companies with a fair value of $1.6 billion, the portfolio is 91% first lien loans and 99% sponsor-backed, ensuring robust downside protection. The weighted average loan-to-value ratio at underwriting is 39%, a conservative metric that reduces exposure to overleveraged borrowers.

While the watch list has risen to 14% of the portfolio (up slightly from prior quarters), management's proactive approach to risk identification—placing investments on the watch list based on forward-looking assessments rather than waiting for defaults—demonstrates disciplined oversight. Non-accruals at 2.4% are in line with industry averages but remain a focus for improvement. Importantly, 86% of the portfolio is rated 1 or 2 (performing at or above expectations), and the firm's track record of managing high-risk assets with recoveries provides confidence in its credit team.

Dividend Sustainability in a Low-Growth World

CCAP's 110% dividend coverage ratio (net investment income of $0.46 per share vs. a base dividend of $0.42 per share) ensures its $1.68 annualized dividend is well-supported. The inclusion of a $0.05 special dividend in Q3 2025 further underscores its commitment to returning capital to shareholders. With 90% of the portfolio in first lien debt and 85% in non-cyclical industries, CCAP's income stream is less vulnerable to economic downturns.

The Case for Re-Rating

The 26% discount to NAV is an overreaction to sector-wide concerns rather than a reflection of CCAP's fundamentals. Its 5-year total return of 110.96% outperforms the S&P 500's 91.23%, and its focus on high free cash flow, non-cyclical industries positions it to weather macroeconomic volatility. The stock repurchase program, which allows CCAP to buy shares at a discount to NAV, acts as a tailwind for long-term value creation.

Investment Thesis and Risks

Why Buy CCAP?
- Deep Discount to NAV: A 26% discount offers a margin of safety and potential for re-rating.
- High Yield with Coverage: An 11.10% yield supported by 110% coverage ensures income sustainability.
- Disciplined Capital Structure: Conservative leverage and a focus on first lien loans enhance capital preservation.
- Proactive Risk Management: Early identification of credit issues and a history of recoveries mitigate downside risks.

Risks to Consider
- Sector Volatility: BDCs remain sensitive to interest rate movements and credit cycles.
- Watch List Expansion: A rising watch list could signal emerging credit pressures if not managed effectively.

Conclusion: A Deep-Value Play for Income Investors

Crescent Capital BDC is a rare combination of a high-yield dividend stream, strong capital preservation, and undervaluation in a sector struggling to find its footing. For investors with a 3–5 year horizon, CCAP's disciplined approach to credit, robust portfolio structure, and management's commitment to shareholder returns make it a compelling deep-value play. The current discount to NAV is not a red flag but an opportunity to acquire a high-quality BDC at a price that doesn't reflect its intrinsic strengths.

Final Take: In a market where income-generating assets are scarce, CCAP's 11.10% yield and strong fundamentals position it as a top-tier BDC for those willing to navigate sector volatility. The key is to monitor credit quality and leverage while holding for the long term. For now, the risk-reward profile is skewed in favor of patient investors.