Crescent Capital BDC, Inc. - Q2 2017 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2017. Crescent Capital BDC, Inc. is a closed-end, non-diversified management investment company organized as a Business Development Company (BDC) and a Regulated Investment Company (RIC). The Company invests primarily in secured and unsecured debt and related equity securities of private U.S. middle-market companies. As of June 30, 2017, the Company had 7,613,414 shares of common stock outstanding.
Key Financial Metrics
| Metric | Q2 2017 (3 Months) | YTD 2017 (6 Months) | YTD 2016 (6 Months) |
|---|---|---|---|
| Total Investment Income | $5.29 million | $9.76 million | $5.41 million |
| Net Investment Income (After Tax) | $2.27 million | $4.19 million | $2.21 million |
| Net Increase in Net Assets from Operations | $2.97 million | $6.51 million | $4.21 million |
| Net Asset Value (NAV) per Share | $20.41 | $20.41 | $19.49 |
| Total Assets | $296.92 million | $296.92 million | $225.56 million |
| Total Debt (Carrying Value) | $136.51 million | $136.51 million | $93.67 million |
| Cash and Cash Equivalents | $7.36 million | $7.36 million | $5.12 million |
| Asset Coverage Ratio | 2.12 to 1 | 2.12 to 1 | 2.47 to 1 |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased from $217.9 million at December 31, 2016, to $287.7 million at June 30, 2017. This growth was driven by new investment commitments totaling $93.6 million in the first six months of 2017.
- Revenue Increase: Net investment income for the six months ended June 30, 2017, rose 90% compared to the same period in 2016, primarily due to the larger portfolio size.
- Expense Increase: Total expenses increased to $5.56 million for the six months ended June 30, 2017, from $3.20 million in the prior year period. This was driven by higher interest and credit facility expenses ($2.34 million vs. $1.16 million) and the incurrence of income incentive fees ($0.61 million) which were zero in the prior year.
- Debt Financing: The Company terminated its original Revolving Credit Facility on June 29, 2017, and simultaneously entered into a new $75 million "Revolving Credit Facility II" with Capital One. The SPV Asset Facility was increased from $75 million to $125 million in February 2017.
- Capital Raise: The Company issued common stock pursuant to capital drawdowns totaling $25.0 million during the six months ended June 30, 2017.
Guidance, Outlook, and Risks
Management Commentary: Management noted that the portfolio is performing well, with 97.9% of investments rated as "2" (acceptable risk) and 2.1% rated as "3" (increased risk) on their internal 1-5 scale. There were no investments rated 4 or 5, and no loans were placed on non-accrual status as of June 30, 2017.
Outlook: The Company expects to continue generating cash from operations, future equity offerings, and borrowings to fund investment activities. With $238.0 million in uncalled capital commitments and $62.3 million in available debt capacity, liquidity is deemed sufficient for the foreseeable future.
Risks and Contingencies:
- Interest Rate Risk: 91.2% of the debt portfolio bears floating interest rates. A 100 basis point increase in rates would increase net assets resulting from operations by approximately $1.3 million annually.
- Valuation Risk: A significant portion of the portfolio ($174.6 million) is classified as Level 3 (unobservable inputs), requiring fair value determination by the Board.
- Liquidity Risk: Investments are generally less liquid than publicly traded securities and may be subject to restrictions on resale.
Investor Verification Checklist
- Debt Covenants: Verify continued compliance with the 2.0 to 1 asset coverage ratio requirement under the 1940 Act and specific facility covenants.
- Level 3 Valuations: Review the Board's fair value determinations for the $174.6 million in Level 3 assets, particularly given the transfer of $4.85 million from Level 2 to Level 3 during the period.
- Capital Commitments: Monitor the drawdown of the $238.0 million in uncalled capital commitments to assess future dilution or funding capacity.
- Portfolio Concentration: Assess the impact of the top holdings, which include significant positions in Commercial & Professional Services (24.3%) and Health Care Equipment & Services (20.1%).
- Expense Ratios: Track the ratio of total expenses to average net assets (7.80% annualized YTD 2017) to ensure it remains within expected ranges as the asset base grows.