Crescent Capital BDC, Inc. (CCAP) - Q3 2020 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2020. Crescent Capital BDC, Inc. is a closed-end, externally managed business development company (BDC) and 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. A significant event during the period was the completion of the Alcentra Capital Corporation acquisition on January 31, 2020, which was accounted for as an asset acquisition.
Key Financial Metrics
| Metric | Q3 2020 (3 Months) | Q3 2019 (3 Months) | YTD 2020 (9 Months) | YTD 2019 (9 Months) |
|---|---|---|---|---|
| Total Investment Income | $18.7 million | $14.8 million | $56.8 million | $38.8 million |
| Net Investment Income | $12.2 million | $9.2 million | $36.7 million | $23.4 million |
| Net Realized & Unrealized Gains/Losses | $26.3 million | ($6.4 million) | ($16.6 million) | ($2.8 million) |
| Net Increase in Net Assets from Operations | $38.3 million | $2.7 million | $20.2 million | $20.1 million |
| Net Asset Value (NAV) per Share | $19.07 | $19.50 (Dec 31, 2019) | $19.07 | $19.48 (Sep 30, 2019) |
| Total Debt (Carrying Value) | $422.2 million | $322.0 million (Dec 31, 2019) | $422.2 million | $322.0 million (Dec 31, 2019) |
| Cash and Cash Equivalents | $3.0 million | $4.6 million (Dec 31, 2019) | $3.0 million | $4.6 million (Dec 31, 2019) |
| Asset Coverage Ratio | 2.25x | 2.17x (Sep 30, 2019) | 2.25x | 2.17x (Sep 30, 2019) |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased to $961.1 million from $726.5 million at year-end 2019, driven primarily by the Alcentra Acquisition and organic deployment.
- Income Growth: Net investment income increased significantly year-over-year due to the larger portfolio size. Interest income rose to $52.2 million for the nine months ended September 30, 2020, compared to $34.7 million in the prior year period.
- Valuation Volatility: The Company reported a net unrealized appreciation of $26.8 million for the quarter ended September 30, 2020, reversing a net unrealized depreciation of $6.4 million in the same period in 2019. This reflects market recovery following the initial volatility of the COVID-19 pandemic in early 2020.
- Debt Expansion: Total debt increased to $426.9 million (principal) from $325.4 million at year-end 2019. The weighted average interest rate decreased to 3.13% from 4.10%, benefiting from lower benchmark rates.
- Fee Waivers: The Adviser continued to waive a portion of management fees and all income-based incentive fees through July 31, 2021, as part of the Alcentra Acquisition transaction support agreement.
Guidance, Outlook, and Risks
- Subsequent Events: On October 21, 2020, Crescent Capital Group LP (parent of the Adviser) entered into an agreement to be acquired by Sun Life Financial Inc. This transaction will result in a change of control of the Adviser and requires stockholder approval of a new investment advisory agreement. Sun Life intends to purchase up to $10 million of CCAP common stock.
- Dividends: The Board declared a regular cash dividend of $0.41 per share for the quarter, payable in January 2021. The Company maintains a dividend reinvestment plan.
- Liquidity: As of September 30, 2020, the Company had approximately $189.5 million of undrawn capacity on its credit facilities and $11.6 million in cash/restricted cash. Management notes that while markets have stabilized, continued volatility could impact collateral eligibility and borrowing availability.
- Risks: Key risks include the impact of the COVID-19 pandemic on portfolio companies, potential defaults, interest rate fluctuations, and the uncertainty surrounding the Sun Life transaction and its impact on the investment advisory relationship.
Investor Verification Checklist
- Fee Waiver Expiration: Verify the terms and expiration date (July 31, 2021) of the management and incentive fee waivers to understand future expense ratios.
- Sun Life Transaction: Review the details of the Sun Life Financial acquisition of the Adviser's parent company and the implications for the Investment Advisory Agreement.
- Non-Accrual Status: Monitor the 3.8% of debt investments on non-accrual status (up from 1.9% at year-end 2019) and the specific portfolio companies involved.
- Debt Covenants: Confirm continued compliance with asset coverage ratios (currently 2.25x) and credit facility covenants given the leverage levels.
- Unfunded Commitments: Assess the $66.0 million in unfunded commitments against available liquidity and borrowing capacity.