Crescent Capital BDC, Inc. (CCAP) - Q1 2021 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2021. Crescent Capital BDC, Inc. is a Maryland corporation operating 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. On January 5, 2021, Sun Life Financial Inc. acquired a majority interest in Crescent Capital Group LP, the majority member of the Company's investment adviser, resulting in a change of control.
Key Financial Metrics
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total Investment Income | $20.6 million | $18.8 million |
| Net Investment Income (GAAP) | $11.4 million | $11.6 million |
| Net Investment Income (Adjusted) | $13.0 million | $11.6 million |
| Net Realized and Unrealized Gains | $10.2 million | $(86.6 million) |
| Net Increase in Net Assets from Operations | $21.5 million | $(74.5 million) |
| Net Asset Value (NAV) per Share | $20.24 | $16.52 |
| Total Debt (Carrying Value) | $482.9 million | $471.9 million |
| Asset Coverage Ratio | 216% | 208% |
| Cash and Restricted Cash | $12.6 million | $11.5 million |
Material Changes vs. Prior Period
- Portfolio Performance: The Company reported a net increase in net assets of $21.5 million, a significant improvement from the $74.5 million decrease in Q1 2020. This turnaround was driven by a net unrealized appreciation of $8.5 million in Q1 2021, compared to a depreciation of $82.6 million in the prior year.
- Investment Income: Total investment income increased to $20.6 million, primarily due to organic net deployment and higher dividend income from the CBDC Senior Loan Fund LLC.
- Expense Management: Net expenses increased to $9.0 million from $7.0 million year-over-year. This increase was largely due to the accrual of $1.6 million in capital gains-based incentive fees, which were waived in the prior period. The Company continued to waive income-based incentive fees ($2.3 million) and a portion of management fees ($1.3 million).
- Debt Structure: The Company issued $50.0 million of 4.00% senior unsecured notes due 2026 in February 2021. It also fully repaid the remaining $16.4 million of InterNotes assumed during the Alcentra Acquisition.
- Portfolio Composition: The portfolio at fair value grew to $1.058 billion. Unitranche First Lien investments now represent 44.3% of the portfolio, up from 40.0% at year-end 2020. Non-accrual loans remained stable at 1.7% of total debt investments at cost.
Guidance, Outlook, and Risks
- Dividend Policy: The Board declared a regular cash dividend of $0.41 per share for the quarter, payable on April 15, 2021. A subsequent dividend of $0.41 per share was declared on May 10, 2021, for payment on July 15, 2021.
- Fee Waivers: The Adviser has voluntarily waived income-based incentive fees through July 31, 2021, and has committed to a new waiver effective August 1, 2021, through December 31, 2022, to the extent net investment income falls short of the declared dividend.
- Liquidity: As of March 31, 2021, the Company had approximately $247.1 million in undrawn capacity across its credit facilities and unsecured notes, which exceeds its unfunded commitments of $102.0 million.
- Risks: Key risks include the impact of the COVID-19 pandemic on portfolio companies, potential defaults, interest rate fluctuations (98.4% of debt is floating rate), and the transition of the investment adviser's ownership to Sun Life Financial. The Company notes that forward-looking statements are subject to uncertainties that could cause actual results to differ materially.
Investor Verification Checklist
- Fee Waiver Expiration: Verify the terms and expiration dates of the management fee and income-based incentive fee waivers, specifically the new waiver extending through 2022.
- Debt Maturities: Review the maturity schedule of the $482.9 million debt portfolio, noting the recent issuance of the 2026 Unsecured Notes and the repayment of InterNotes.
- Non-Accrual Status: Monitor the 1.7% of debt investments on non-accrual status and the specific portfolio companies involved (two companies with three positions).
- Unfunded Commitments: Assess the $102.0 million in unfunded commitments against the available liquidity and borrowing capacity.
- Valuation Methodology: Review the Level 3 fair value measurements, which constitute the majority of the portfolio, and the sensitivity of valuations to unobservable inputs like discount rates and EBITDA multiples.