Crescent Capital BDC (CCAP) Q2 Earnings call transcript Aug 13, 2024

In the recent second quarter earnings call, Crescent Capital BDC (CCAP) reported another quarter of solid earnings, highlighting its continued strong credit performance across the portfolio. The company's net investment income (NII) was $0.59 per share, which translates into an annualized NII return on equity of 11.7%. This impressive performance led to a supplemental dividend for the second quarter of $0.09 per share, resulting in a 10% annualized dividend yield on June 30, 2024, net asset value (NAV).

Despite the highly competitive private credit market, CCAP remains focused on its lower and core middle market segments, which are typically less able to access the syndicated loan markets due to issuer size. By directly negotiating terms with sponsors and focusing on strong cash flow generation, CCAP is able to lead its transactions and drive documentation. The company's segment focus has led to a highly diversified portfolio of 183 companies, with an average investment size of approximately 0.5% of the total portfolio. The portfolio consists primarily of first lien loans, representing 90% of the portfolio at fair value at quarter end.

Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023, driven by refinancing activity and strong business fundamentals. LBO activity, representing approximately 1/3 of middle-market loan volume in the first half of 2024, continues to increase. The direct lending market remains the market of choice for sponsors in the lower and core middle market due to its speed and flexibility in attracting capital structures.

CCAP's investment approach has proven successful, with a weighted average portfolio grade of 2.1 remaining stable quarter-over-quarter, and 89% of the portfolio at fair value having the highest ratings. The company has been pleased with the fundamental performance of its portfolio, as indicated by its performance ratings and nonaccrual levels. As of quarter end, there were 8 portfolio companies on nonaccrual status, representing 1.6% and 0.9% of total debt investments at cost and fair value, respectively.

Looking forward, CCAP remains confident in its investment approach and the continued strong performance of its portfolio. The company is well-positioned to navigate the evolving private credit landscape and deliver attractive risk-adjusted returns to its stockholders. With its focus on the lower and core middle market, CCAP is well-equipped to lead transactions and drive documentation, ensuring the security of its investments and the success of its portfolio companies.