Release Date: November 12, 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 solid earnings with a net investment income of 64¢ per share, translating to an annualized return on equity of 12.6%.
- The company declared a supplemental dividend of 7¢ per share, in addition to the regular dividend of 42¢ per share, resulting in an approximately 10% annualized dividend yield.
- CCAP maintains a highly diversified portfolio with approximately $1.6 billion in investments across 183 companies, focusing primarily on first lien loans.
- The portfolio's credit performance remains strong, with nonaccruals well below the industry average, and 90% of the portfolio receiving the highest performance ratings.
- The company has significant liquidity with $317 million of undrawn capacity and $38 million in cash, supporting further investment activity within their target leverage range.
Negative Points
- Net asset value (NAV) decreased by 10¢ to $20.20 per share, primarily due to net unrealized losses.
- The weighted average yield of income-producing securities decreased to 11.6% due to a reduction in base rates and the realization of higher-yielding assets.
- The percentage of total investment income from payment-in-kind (PIK) income increased to 8.2%, with a portion attributed to nonrecurring credit events.
- The supplemental dividend was capped at 7¢ due to a mechanism limiting NAV reduction, indicating constraints on dividend payouts.
- Market conditions have led to spread compression, particularly in the upper middle market, which could impact future earnings potential.
Q & A Highlights
Q: Can you clarify the amount of nonrecurring income this quarter and its impact on future projections?
A: Gerhard Lombard, Chief Financial Officer, explained that the quarter saw an increase in nonrecurring income due to prepayment and accelerated OID, which are generally viewed as nonrecurring. Additionally, there was nonrecurring PIK income from two names previously on nonaccrual. While the recurring income on these names will increase slightly, the nonrecurring income was less than $3 million.
Q: What is the outlook for the remaining First Eagle assets, and how quickly do you expect them to be rotated?
A: Henry Chung, President, noted that the M&A environment has been anemic, limiting natural runoff through refinancings and sales. However, with changes in the market backdrop and increased sponsor activity, the pace of asset rotation is expected to accelerate compared to the past year and a half.
Q: How do you view the potential for deal activity in 2025 compared to previous years?
A: Jason Breaux, CEO, expressed optimism for significant pickup in activity in 2025, driven by pent-up demand and election results. While not necessarily expecting 2021 levels, there is a constructive outlook for deployment opportunities, which could help stabilize spreads.
Q: Are there plans for more acquisitions in the BDC space, or are there other priorities for Crescent Capital?
A: Jason Breaux stated that while Crescent Capital is open to additional M&A opportunities, the focus remains on measured growth that benefits investors. The company is also considering organic growth and values being part of the larger Crescent platform.
Q: What drove the unrealized markdowns in the portfolio this quarter?
A: Gerhard Lombard identified four names that contributed to the unrealized losses, including a control investment in the Logan JV and three other names, two of which were on nonaccrual. These specific investments were the primary drivers of the markdowns.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
