Crescent Capital BDC, Inc. - Q3 2017 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2017. Crescent Capital BDC, Inc. is a Delaware corporation organized as an externally managed, closed-end, non-diversified business development company (BDC) and a regulated investment company (RIC). The Company's primary objective is to maximize total return through debt and related equity investments in private U.S. middle-market companies.
Key Financial Metrics
| Metric | Q3 2017 (Three Months) | YTD 2017 (Nine Months) | Q3 2016 (Three Months) | YTD 2016 (Nine Months) |
|---|---|---|---|---|
| Total Investment Income | $6.19 million | $15.94 million | $3.46 million | $8.87 million |
| Net Investment Income (After Tax) | $2.86 million | $7.05 million | $1.58 million | $3.79 million |
| Net Increase in Net Assets from Operations | $2.35 million | $8.86 million | $3.20 million | $7.41 million |
| Net Asset Value (NAV) per Share | $20.40 | $20.40 | $20.08 | $19.77 |
| Total Investments (Fair Value) | $301.98 million | $301.98 million | $217.92 million | $217.92 million |
| Total Debt (Carrying Value) | $137.89 million | $137.89 million | $93.67 million | $93.67 million |
| Cash and Cash Equivalents | $7.39 million | $7.39 million | $4.99 million | $4.99 million |
| Asset Coverage Ratio | 2.18 to 1 | 2.18 to 1 | 2.25 to 1 | 2.25 to 1 |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased by approximately 38.6% from $217.9 million at December 31, 2016, to $302.0 million at September 30, 2017. This growth was driven by new investment commitments of $129.1 million during the nine months ended September 30, 2017.
- Revenue Expansion: Net investment income for the nine months ended September 30, 2017, increased 85.8% compared to the same period in 2016, primarily due to the larger portfolio size.
- Expense Increases: Total expenses rose to $8.89 million for the nine months ended September 30, 2017, from $5.08 million in the prior year period. This increase was driven by higher interest and credit facility expenses ($3.75 million vs. $1.90 million) and income incentive fees ($1.12 million vs. $0.06 million) resulting from increased net investment income.
- Debt Utilization: Total debt increased from $93.7 million to $137.9 million. The Company terminated its original Revolving Credit Facility in June 2017 and entered into a new $75 million Revolving Credit Facility II. The SPV Asset Facility was also increased from $75 million to $125 million.
- Unrealized Gains: The Company recorded a net change in unrealized appreciation of $2.54 million for the nine months ended September 30, 2017, compared to $4.03 million in the prior year period.
Guidance, Outlook, and Risks
Management Commentary: Management noted that the increase in interest income was due to the growth in the portfolio size. The weighted average total yield to maturity of debt and income-producing securities at fair value was 7.6% as of September 30, 2017, up from 7.3% at December 31, 2016. The portfolio consists of 79 portfolio companies, with 91.8% of debt bearing floating interest rates.
Liquidity and Capital Resources: As of September 30, 2017, the Company had $7.8 million in cash, $228.0 million in uncalled capital commitments, and $61.2 million available under debt facilities. Management believes these resources are sufficient for foreseeable investing activities and operations.
Risks and Contingencies:
- Interest Rate Risk: 91.8% of the portfolio is at variable rates. A 100 basis point increase in interest rates would increase net assets resulting from operations by approximately $1.5 million annually.
- Valuation Risk: A significant portion of the portfolio (Level 3 inputs) is valued using unobservable inputs, which introduces uncertainty regarding fair value.
- Concentration Risk: The portfolio is concentrated in specific industries, with Commercial & Professional Services (24.2%), Software & Services (21.0%), and Health Care Equipment & Services (20.4%) representing the largest sectors.
- Unfunded Commitments: The Company has $16.3 million in unfunded loan commitments as of September 30, 2017.
Key Facts for Investor Verification
- NAV Performance: Verify the Net Asset Value per share of $20.40 and the total return of 7.85% for the nine months ended September 30, 2017.
- Debt Covenants: Confirm compliance with the 2.0 to 1 asset coverage ratio requirement under the 1940 Act; the Company reported a ratio of 2.18 to 1.
- Fee Structure: Note the increase in income incentive fees to $1.12 million for the nine months ended September 30, 2017, reflecting the Company's ability to exceed the 1.5% quarterly hurdle rate.
- Portfolio Composition: Review the shift in asset mix, with Senior Secured First Lien debt comprising 64.5% of the portfolio and Senior Secured Second Lien debt at 21.2%.
- Capital Drawdowns: Verify the $35.0 million in capital drawdowns received during the nine months ended September 30, 2017, against the remaining $228.0 million in uncalled commitments.