Business Context and Reporting Period
Company: Crescent Capital BDC, Inc. (Crescent)
Filing Date: August 12, 2019 (Form 8-K)
Event: Entry into a definitive merger agreement to acquire Alcentra Capital Corporation (Alcentra) in a stock and cash transaction. The combined entity will be incorporated in Maryland and trade on NASDAQ under the ticker "CCAP."
Key Financial Metrics and Transaction Terms
Consideration for Alcentra Shareholders:
- Cash: $3.1784 per share (less special dividends).
- Stock: 0.4041 shares of Crescent common stock per Alcentra share (fixed exchange ratio).
- Share Exchange Volume: Approximately 5.2 million Crescent shares for 12.9 million Alcentra shares.
Transaction Support:
- Advisory Contribution: CBDC Advisors (Crescent's adviser) will provide $21.6 million ($1.6761 per share) of the cash consideration directly.
- Expense Reimbursement: CBDC Advisors will reimburse up to $1,419,000 of transaction expenses.
Liquidity and Debt:
- Revolving Facility: Received a commitment from Ally Bank for a $200.0 million revolving facility (expandable to $300.0 million) to fund cash payments and general corporate purposes.
Management Fee Adjustments (Post-Closing):
- Base management fee reduced from 1.50% to 1.25%.
- Fee waiver for six quarters post-merger, effectively charging 0.75%.
- Income-based incentive fee waived for six quarters post-merger.
- Hurdle rate for income-based incentive fee increased from 1.50% to 1.75% per quarter (6.00% to 7.00% annualized).
Material Changes and Conditions
Corporate Structure: Crescent will convert from a Delaware corporation to a Maryland corporation.
Lock-Up Provisions: Existing Crescent stockholders (excluding Alcentra shareholders receiving Crescent stock) will be restricted from trading for at least six months post-closing. Restrictions lapse at 50% after nine months and 100% after 12 months.
Termination Fees: Alcentra may be required to pay a termination fee of $4,281,720 if it enters into a Superior Proposal or under other specified termination circumstances.
Conditions to Closing: Subject to stockholder approvals of both companies, expiration of the HSR Act waiting period, and other customary conditions.
Outlook, Risks, and Management Commentary
Expected Timing: The Company expects the Mergers to be completed as early as the fourth quarter of 2019.
Management Continuity: All officers and directors in office prior to closing will remain in their current roles.
Risks and Contingencies:
- Failure to obtain required regulatory or stockholder approvals.
- Uncertainty regarding the financial performance of the combined company.
- Potential for stockholder litigation affecting timing or costs.
- Changes in laws impacting BDC classification.
- Integration difficulties and failure to realize anticipated synergies.
Investor Verification Checklist
- Verify the final approval status of the merger by both Crescent and Alcentra stockholders.
- Confirm the final closing date and whether the transaction proceeds as expected in Q4 2019.
- Review the Joint Proxy Statement/Prospectus (Form N-14) for detailed financial projections and risk factors.
- Monitor the status of the $200 million Ally Bank revolving facility commitment and drawdowns.
- Check for any competing proposals or termination fee events.
- Verify the implementation of the new management fee structure and incentive hurdle rates post-closing.