Crescent Capital BDC, Inc. - Q1 2019 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2019. Crescent Capital BDC, Inc. is a Delaware corporation organized as an externally managed, closed-end, non-diversified management investment company. It has elected to be treated as a Business Development Company (BDC) under the Investment Company Act of 1940 and as a Regulated Investment Company (RIC) for U.S. federal income tax purposes. 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 | Q1 2019 | Q1 2018 |
|---|---|---|
| Total Investment Income | $11.46 million | $6.81 million |
| Net Investment Income (after tax) | $6.83 million | $3.14 million |
| Net Increase in Net Assets from Operations | $8.86 million | $2.84 million |
| Net Asset Value (NAV) per Share | $19.63 | $20.08 |
| Total Investments (Fair Value) | $520.25 million | $493.34 million |
| Total Debt (Carrying Value) | $235.02 million | $237.40 million |
| Cash and Cash Equivalents | $11.36 million | $9.81 million |
| Asset Coverage Ratio | 2.22 to 1 | 2.29 to 1 |
| Weighted Average Interest Rate on Debt | 4.56% | 3.73% |
Material Changes vs. Prior Period
- Revenue Growth: Total investment income increased 68% year-over-year, driven by a larger portfolio size (average portfolio increased from $321.9M to $512.7M) and the inclusion of dividend income from the GACP II investment.
- Expense Increases: Net expenses rose to $4.62 million from $3.67 million. Interest and credit facility expenses increased to $2.81 million due to higher average debt balances and interest rates. Management fees increased to $0.99 million due to asset growth.
- Incentive Fee Waiver: Income incentive fees were $0 for Q1 2019, compared to $0.55 million in Q1 2018. The Advisor waived its right to income incentive fees effective April 1, 2018, in exchange for extending the Commitment Period.
- Portfolio Composition: The portfolio added a new controlled affiliate investment in the CBDC Senior Loan Fund, LLC ($17.26 million fair value). Non-accrual loans remained stable at 2.4% of total investments at cost.
- Capital Activity: The Company issued 1.33 million shares for $26.0 million in capital drawdowns and 15,149 shares via the dividend reinvestment plan.
Guidance, Outlook, and Risks
Management Commentary: Management noted that the portfolio is well-diversified across industries, with Commercial & Professional Services (22.6%) and Health Care Equipment & Services (18.0%) being the largest sectors. The weighted average yield to maturity of debt securities remained stable at 9.2%.
Outlook: The Company expects to continue deploying capital into private credit transactions. The Commitment Period for capital calls was extended to June 30, 2020, or until a Qualified IPO occurs.
Risks and Contingencies:
- Interest Rate Risk: 95.3% of the debt portfolio bears floating rates. A 100 basis point increase in rates would increase net assets from operations by approximately $2.5 million annually.
- Currency Risk: The Company holds investments denominated in GBP and EUR. It utilizes foreign currency forward contracts and natural hedges (borrowing in foreign currencies) to mitigate exposure.
- Liquidity: The Company has $117.4 million in uncalled capital commitments and approximately $24.9 million available under its debt facilities.
- Non-Accrual Status: One portfolio company with three positions is on non-accrual status, representing 1.3% of total investments at fair value.
Investor Verification Checklist
- Verify the impact of the Advisor's fee waivers on future expense ratios and net investment income.
- Monitor the performance of the new CBDC Senior Loan Fund, LLC investment and its contribution to overall portfolio yield.
- Assess the sustainability of the 2.22 asset coverage ratio given the Company's leverage strategy and interest rate environment.
- Review the status of the single portfolio company on non-accrual status for potential credit losses.
- Confirm the timeline and conditions for the "Qualified IPO" which would alter fee structures and the Commitment Period.