Crescent Capital BDC, Inc. - Q3 2019 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2019. Crescent Capital BDC, Inc. (the "Company") 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. A significant development during the period was the entry into a definitive agreement on August 12, 2019, to acquire Alcentra Capital Corporation.
Key Financial Metrics
| Metric | Q3 2019 (3 Months) | Q3 2018 (3 Months) | YTD 2019 (9 Months) | YTD 2018 (9 Months) |
|---|---|---|---|---|
| Total Investment Income | $14.84 million | $8.72 million | $38.81 million | $22.79 million |
| Net Investment Income (After Tax) | $9.17 million | $4.87 million | $23.37 million | $11.76 million |
| Net Increase in Net Assets from Operations | $2.73 million | $4.80 million | $20.10 million | $9.92 million |
| Net Asset Value (NAV) per Share | $19.48 | $19.43 | $19.48 | $19.97 |
| Total Investments (Fair Value) | $692.28 million | $493.34 million | $692.28 million | $493.34 million |
| Total Debt (Carrying Value) | $319.49 million | $235.71 million | $319.49 million | $235.71 million |
| Cash and Cash Equivalents | $17.58 million | $9.81 million | $17.58 million | $9.81 million |
| Asset Coverage Ratio | 2.17x | 2.12x | 2.17x | 2.12x |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased by approximately 40% from $493.3 million in Q3 2018 to $692.3 million in Q3 2019, driven by capital drawdowns and new investment commitments.
- Income Growth: Net investment income for the nine months ended September 30, 2019, increased 99% year-over-year, primarily due to the larger portfolio size and increased dividend income from new investments (including the Senior Loan Fund and GACP II).
- Unrealized Losses: The Company reported a net unrealized depreciation of $7.59 million for the quarter and $3.80 million for the nine months ended September 30, 2019, compared to $0.11 million and $1.67 million in the prior year periods. This was partially offset by unrealized appreciation on foreign currency forward contracts ($1.20 million for the quarter).
- Debt Expansion: Total debt increased from $235.7 million to $319.5 million to support portfolio growth. The Company entered into a new $200 million Corporate Revolving Facility in August 2019 and terminated its previous Revolving Credit Facility II.
- Non-Accrual Status: Non-accrual investments increased slightly to 3.4% of total debt investments at cost (up from 2.5% in Q4 2018), representing two portfolio companies with four positions.
Guidance, Outlook, and Risks
- Alcentra Acquisition: The Company is pursuing the acquisition of Alcentra Capital Corporation via a cash and stock transaction. The deal is subject to shareholder and regulatory approvals. Upon completion, the Advisor has agreed to reduce the management fee from 1.5% to 1.25% and increase the incentive fee hurdle from 6% to 7%.
- Fee Waivers: The Advisor continues to waive income incentive fees and a portion of management fees until a Qualified IPO occurs or the Commitment Period ends (June 30, 2020). For the nine months ended September 30, 2019, total waived fees were approximately $6.72 million.
- Risk Factors: Key risks include potential fluctuations in quarterly operating results, economic recessions, adverse credit market developments, and the uncertainty surrounding the completion and integration of the Alcentra Acquisition. The Company also faces risks related to leverage and the illiquidity of its investments.
- Outlook: Management expects to complete the Alcentra Acquisition as early as the first quarter of 2020. The Company continues to deploy capital into its portfolio, with a focus on senior secured first-lien and unitranche loans.
Investor Verification Checklist
- Alcentra Acquisition Status: Verify the progress of regulatory approvals and shareholder votes required to close the Alcentra Capital merger.
- Fee Structure Changes: Confirm the specific terms of the amended Investment Advisory Agreement post-acquisition, specifically the reduced management fee and increased hurdle rate.
- Non-Accrual Portfolio: Review the specific identities and financial status of the two portfolio companies currently on non-accrual status to assess potential credit losses.
- Unrealized Depreciation: Investigate the drivers behind the significant increase in unrealized depreciation compared to the prior year, particularly in the context of the broader credit market environment.
- Leverage Utilization: Monitor the utilization of the new $200 million Corporate Revolving Facility and the Company's ability to maintain the required 2.0x asset coverage ratio under the 1940 Act.