Crescent Capital BDC, Inc. - 10-Q Summary (Period Ended September 30, 2018)
Business Context and Reporting Period
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. This report covers the quarterly period ended September 30, 2018, and the nine-month period ended on the same date.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2017 |
|---|---|---|---|
| Total Investment Income | $8.72 million | $22.79 million | $15.94 million |
| Net Investment Income (After Tax) | $4.87 million | $11.76 million | $7.05 million |
| Net Increase in Net Assets from Operations | $4.80 million | $9.92 million | $8.86 million |
| Net Asset Value (NAV) per Share | $19.97 | $19.97 | $20.40 (End of Period) |
| Total Investments (Fair Value) | $449.78 million (as of Sep 30, 2018) | ||
| Total Debt (Carrying Value) | $202.64 million (as of Sep 30, 2018) | ||
| Cash and Cash Equivalents | $12.33 million (as of Sep 30, 2018) | ||
| Asset Coverage Ratio | 2.12 to 1 (as of Sep 30, 2018) |
Material Changes vs. Prior Period
- Portfolio Growth: Total investments at fair value increased from $319.13 million at December 31, 2017, to $449.78 million at September 30, 2018. This growth was driven by capital drawdowns of $60.0 million during the nine months ended September 30, 2018.
- Revenue Increase: Net investment income for the nine months ended September 30, 2018, increased by approximately 67% compared to the same period in 2017, primarily due to the larger portfolio size.
- Expense Increases: Total expenses rose to $11.02 million for the nine months ended September 30, 2018, from $8.89 million in the prior year period. Interest and credit facility expenses increased to $5.78 million due to higher average debt balances and interest rates.
- Fee Waivers: The Advisor waived income incentive fees effective April 1, 2018, as part of an agreement to extend the Commitment Period. Consequently, income incentive fees were $0 for the three months ended September 30, 2018, compared to $0.50 million in the prior year quarter.
- Unrealized Losses: The Company recorded a net change in unrealized depreciation of $1.67 million for the nine months ended September 30, 2018, contrasting with unrealized appreciation of $2.54 million in the prior year period.
Guidance, Outlook, and Risks
- Capital Commitments: As of September 30, 2018, the Company had $394.3 million in total capital commitments, with $163.3 million remaining unfunded. The Commitment Period was extended to June 30, 2020, or until a Qualified IPO.
- Debt Facilities: The Company amended its SPV Asset Facility, increasing the limit to $175 million, and its Revolving Credit Facility II, increasing the limit to $85 million. Total committed debt capacity is $260 million.
- Portfolio Quality: As of September 30, 2018, 87.4% of the portfolio was rated "2" (acceptable risk), and 8.0% was rated "3" (increased risk). One investment (2.9% of total investments at cost) was on non-accrual status.
- Risk Factors: Key risks include potential fluctuations in quarterly operating results, economic recessions, adverse credit market developments, defaults by portfolio companies, and the impact of interest rate changes on net investment income. The Company is exposed to interest rate risk as 92.7% of its debt portfolio bears floating rates.
- Subsequent Events: The Company issued common shares and received gross proceeds of approximately $20 million subsequent to September 30, 2018.
Key Facts for Investor Verification
- Fee Waiver Impact: Verify the duration and conditions of the income incentive fee waiver agreed upon in April 2018 and its effect on future Net Investment Income.
- Non-Accrual Status: Review the specific details of the single investment on non-accrual status (representing 2.9% of cost) and the Company's recovery strategy.
- Unfunded Commitments: Assess the timeline and likelihood of calling the remaining $163.3 million in unfunded capital commitments.
- Debt Covenants: Confirm continued compliance with the 2.0 to 1 asset coverage ratio requirement under the 1940 Act, currently standing at 2.12 to 1.
- Valuation Methodology: Note that a significant portion of the portfolio ($357.96 million) is classified as Level 3 fair value, relying on unobservable inputs and management judgment.