Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Crescent Capital BDC Inc (CCAP, Financial) reported strong net investment income (NII) of $0.59 per share, translating to an annualized NII return on equity of 11.7%.
- The company declared a supplemental dividend of $0.09 per share, in addition to the regular dividend of $0.42 per share, resulting in a 10% annualized dividend yield.
- Net asset value (NAV) increased to $20.30 per share, the highest since June 2022.
- The investment portfolio remains highly diversified with approximately $1.6 billion in investments across 183 companies, primarily in first lien loans.
- The portfolio's performance remains strong with 89% of investments rated as risk-rated one and two, the highest ratings possible.
Negative Points
- Total investment income decreased to $49 million from $50.4 million in the prior quarter, primarily due to a drop in nonrecurring investment income.
- The weighted average yield of income-producing securities at cost decreased to 12.2% quarter over quarter.
- The company has investments in eight portfolio companies on nonaccrual status, representing 1.6% and 0.9% of total debt investments at cost and fair value, respectively.
- The debt-to-equity ratio increased to 1.18 times from 1.11 times in the prior quarter, indicating higher leverage.
- The weighted average interest rate on total borrowings was 6.91%, which could impact future profitability given the current interest rate environment.
Q & A Highlights
Q&A Highlights from Crescent Capital BDC Inc (CCAP) Q2 2024 Earnings Call
Q: What is the evidence that interest rates are very high?
A: Jason Breaux, CEO: Interest rates are high compared to the last 10 years, but historically, they are not necessarily high.
Q: With stocks below book value, do you have a plan to return capital via repurchase?
A: Jason Breaux, CEO: We evaluate this continuously. Currently, asset yields are compelling, but we will remain mindful of our stock price and rate environment.
Q: Can you give us any color on plans to manage the debt stack maturing in 2026?
A: Gerhard Lombard, CFO: We are not in a rush to refinance immediately but are in constant dialogue with the market and lenders. We aim to ladder out maturities to diversify refinancing risk.
Q: Are you seeing any shifts in portfolio company liquidity needs?
A: Henry Chung, President: Liquidity needs are concentrated in a few portfolio companies. We rely on sponsors to solve these needs, and overall, we are not seeing heightened revolver utilization.
Q: Why is your PIK income lower than the average BDC?
A: Jason Breaux, CEO: We focus on earning cash at the top line and are selective with PIK toggle options. We avoid ARR loans and are selective in workout situations to ensure value.
Q: What was the mix of repricing activity and new deals in the quarter?
A: Henry Chung, President: We had six new platforms totaling $62 million and 13 add-ons totaling $33 million. The new platforms were new LBOs.
Q: Can you provide an update on the performance of the Logan JV?
A: Jason Breaux, CEO: The JV's largest investment is a middle market CLO, which affects fair value. Performance has been in line with cash flow expectations.
Q: To what extent do larger players move into the lower middle market?
A: Jason Breaux, CEO: Competition from upper middle market players is not significant in the lower middle market. In the core middle market, we do see some competition.
Q: What's driving the 71% of the portfolio with financial covenants?
A: Henry Chung, President: This is due to the segmentation of the lower and core middle market. Larger companies in the core middle market may not have maintenance covenants.
Q: Was the PIK income structured into original deals or a result of amendments?
A: Henry Chung, President: The majority of PIK income is from investments with a PIK component at origination, mainly in second lien or unsecured investments.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
