CCAP - Earnings call transcript Q2 2022 | Crescent Capital BDC, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to Crescent Capital BDC, Inc.'s Second Quarter 2022 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. I would now like to turn the conference over to your speaker host today, Dan McMahon, Head of Investor Relations. Please go ahead.

Dan McMahon

Good morning, and welcome to Crescent Capital BDC, Inc.'s Second Quarter ended June 30, 2022, Earnings Conference Call. Capital Crescent that note BDC, Inc. Please referred company throughout be to as the or BDC Crescent the CCAP, may call.

conference may statements. The Before update we subject results over statements this could made those important to past reminders. and market begin, listed I'll SEC future forward-looking The filings. including from start the any with risks that and differ course for company's and to materially in results. obligation forward-looking statements reason, company also contain any some forward-looking no performance uncertainties. Comments such information call are webcast actual in of a expressed assumes note is Please such guarantee its or not those of

the measures net Regulation such information financial believes provides as it's defined During to income, call, investment that share for one regarding of method this share. adjusted its company measure found accompanying reconciliation net income GAAP share per conference the by as directly adjusted operations. G, non-GAAP we investment investment The presentation adjusted comparable in useful financial results NII, investors to certain may per of be most uses slide financial condition or per per net company because NII this A share, and call. SEC can performance discuss to income the measure

with XX-Q SEC. presentation should with in of to Investor also the quarter section The in website our posted found the the filed second after closed, measure earnings its at conjunction be presentation for market its company issued and www.crescentbdc.com. reviewed a In may yesterday addition, earnings this June the reconciliation a XXXX, Yesterday, the press company's Form XX, ended be of the release. release Relations

reminder, this purposes. recorded a replay call As for being is

Breaux, to CCAP. turn Officer Officer Jason now Executive Speaking CCAP; that, Lombard, Gerhard Financial With Jason. be to it Chief of over of Chief and call I'd will on today's like

Jason Breaux

joining our results results, our thoughts then appreciate Gerhard earnings financial in Thank review current I'll quarter and you and continued on Dan. activity interest Today, morning, Good more for CCAP. current review your We investing then our call detail. some the will second in market backdrop. you, Thank everyone. provide portfolio today. our highlight

turn share. capital X, the where you'll reported second capital On of So adjusted $X.XX GAAP quarter a our reversal $X.XX share. investment noncash per Please our summary investment quarter fees difference basis, net for gains-based let's was relates results. to a our income of per begin. appreciation. share of a net Slide unrealized net per $X.XX see income incentive second We The on to

more economy. X% lion's ended in record net we reported but Our created relates this at the to many compared Gerhard finance down market in volatility $XX.XX the operating asset This as face will in credit per decline has volatility quarter. during unrealized continued quarter. second share the touch value just today's $XX.XX, complex leveraged we on per over the losses of took share, companies as the equity quarter prior spreads markets to and an share which that the the wider in environment within the to increasingly detail, reflect

negatively positioned are in been certain high on maintain industries that margins. and view, able economy to impacted labor with resilient continued margins the companies margin our flow some are issues. of generation in our our free of cash by increases to segments in market-leading However, strong avoid our pressure portfolio companies experiencing and have companies supply has And largely solid our focus more recent input from costs, while portfolio inflation and chain

and us cycles. approach and the of nearly companies has We since investments of over strategies in selection highlighted believe has has preservation. with It's with presentation. of second capital numerous the entrusting billion years to across the investment ended $X.X at XXX average core at multiple their past with been a fair resulted an X% of capital quarter XX-plus portfolio DNA our originate attractive, investments XX debt Crescent on and CCAP largest portfolio, than investment-grade diversified investors and portfolio. the an for low We manage XX the total on value disciplined Our at focus across inception, this less highly Crescent's as credit with investment with of led portfolio Slides size successfully to philosophy the

to from at of representing portfolio XX% of secured senior in our lien collectively well and to private value, continue first loans, prior with sponsor-backed continues And debt lend primarily we almost portfolio consist in industries the equity-backed quarter diversified exclusively Our of remain up portfolio end. as XX% XX% fair lien the across of to first companies, and quarter. unitranche companies XX

XXX average value, made investment of quarter, debt XX% of second our XXX companies, at investments XX% today Slide an outlined fair on mark marked out payments. trends interest XX. principal scheduled dollar our are above of Two the approximately full on [XX%.] credit portfolio the For and positive of total is representing debt debt with portfolio investment over $X.XX more

Continued strong levels. performance ratings nonaccrual and

And healthy our of weighted rated remains X the can portfolio the Our investments, of portfolio X at XX% fair portfolio as at ratings compared companies the receive, highest was to percentage average of grade the unchanged value. and quarter. X.X, prior risk

in fair had investments and status, our to X.X% of As debt prior X.X% of investments and quarter total nonaccrual respectively, as and in representing X cost X.X% end, companies compared X.X% at value, portfolio quarter. on we the

senior with deployment investments. $XXX.X to as the left-hand see Slide XX% the XXX $X respectively, can basis XX of XX and million basis investments on first weighted Please to activity. in new of investment totaling remaining you million, of unitranche loans side page, second unitranche loan in told, X% the of XX XX approximately and silver the of X% secured and lien new term with follow-on which of were the points, points. was million, on floors our investments from All was XXX million quarter a to we and back lien and revolver or average Gross $XX draw and $X closed OIDs coming private equity-backed XX. spread Moving first turn All delayed activity.

In deals about the over highlighting total It's remain total accounts, that of million these transactions. gross The deployment aforementioned breadth the billion and platform. commitment size across the check attractive, for $XX Crescent's for XX% repayments addition, committed averaging compares $XXX private new loan-to-value highlighting represented levels aggregate quarter. credit approximately in sales exits the in CCAP's in $X.X of million the also worth to XX%

right-hand total page, you'll over unitranche us investment first XX% becoming a sponsor to execution is net enables that community This of and of the from design XX% has yield prominent the to remaining see stack. quarters, surety several the enhance ago lien year of activity past the percentage opportunity as more Moving increase our portfolio. side to of by it our capital today greater to led top while at the us our even allows offer to to the a

CBDC more distribution the few the the end in of within quarter to particularly over monetize first To Loan expect proceeds, of We $XX months. our this down pool given coming expect this year. date, joint made on the remaining that items during We loans million will I the syndicated prior Fund, turn first touched wind venture trend marked roughly plan we joint quarters. formally of our the to the second Senior and A XX% which end wind lien broadly down and sold X% $XXX at remaining in the I've as the Gerhard. of entity approximately venture continue, million were it quarter approximately of liquidating distribute by to and before

to rapid hikes interest the will and likely Reserve's Federal impact First, us. of rate to have continue highlight I'd had have on most like

rate of June to value of market investments compares us XX% of XX in interest a we relatively this This our average XX, fair from net of which well adjusted have share with net floor investment that quarter floating quarter with per had income income case item debt benefit the quarter, above as impact basis flowed this structure line growth calculate average the As market increases moves would activity. investment floors quarter points, our full second rates the with weighted our through situates floating at no was interest floors. rate to modest our If liability entire XX.X% in were the been our higher. despite rate $X.XX

we Additionally, that calculate after would investment annual an impact per approximately increase basis per earnings LTM else fees, XX.X% point short-term as rates to income a of net equal our all income-based could quarter end, share. represent XXX which share, lift increase considering incentive of in our $X.XX and adjusted holding by the

And credit debt our a on do of diversified we've In here sitting highly terms continue defensive and rates deterioration. the of to impact we observe not portfolio. believe any meaningful constructed rising today, investments,

history a ended feel X% good investments over to Holding ratio would heightened XX-year ability the a before the interest environment average to of will of below X.Xx. by navigate portfolio borrower coverage periods debt to base need all over companies equal, toolkit aggregate about developed rise operating a level, the leverage of navigate including volatility. Our short-term rate dip Xx. We at else coverage with Crescent's quarter interest have rates and our effectively through higher weighted

October quarterly our $X.XX which XXXX, cash of of share be a will on of XX. quarter third XX to the stockholders for Finally, Board as record declared September paid dividend, per

Additionally, cash share September record will X. to $X.XX on be stockholders as dividend the paid previously special and final of fourth XX per declared of September

details second quarter. call the more turn I'll to cover that, with the Gerhard Gerhard? on some to So over

Gerhard Lombard

everyone. Thanks, Jason, morning, and good

million compares per to the quarter, income Our an share $X.XX the for QX. includes approximately investment $XX.X adjusted of million $X.XX investment during of share of net quarter income the $X the to nonrecurring Total million from quarter. of related $XX.X XXXX for prior investment second prior for second which income exit our for compares per quarter to

of excluding quarter the of was income, total million driver our which amortization in component for grew onetime million $XX.X income recurring represents a to $XX.X revenues, from interest investment total accelerated key second QX and quarter-over-quarter Importantly, the growth.

continue interest to the heels of near income in seen increase we've rate continue to the see to the half recurring hikes future. into the our and XXXX expect on of second We may

million. repriced as quarter of rates part occurred our monthly market occurred portfolio The quarter base to quarter, end. in have $X.X higher earnings in prior income in compared benefit at yields quarter, to from increase is from did Dividend rates the yet generally million quarter rates to XXXX reflected the in our our see and have which these of increase through quarter-over-quarter came full resets for the benefit other either from in the quarterly. $X.X up modestly quarter fully million income million $X.X the the of as that We second quarter not market why in in the rates at base or $X.X was second second most latter already

for Our share earnings in per resulting prior to operations of $X.XX share minus GAAP $X.XX assets was decrease or the XXXX quarter second per net per share net the as compared from increase quarter. from

share. last included stockholders' $XXX per of million earnings We broadly realized share of $XX.XX our in June million or and bank investments million venture, syndicated down $XX invested $X.XX predominantly as $XXX share net was $XX.XX wind or value XXXX. quarter resulting and loans. $XX $XXX deployed credit asset on investments million losses from per net unrealized million, GAAP share $XX.XX of to per XX, in equity before June continued into which Our our per joint net At approximately XX, private at compared

billion of portfolio process, which investment of on $X each investment seeks to fair investments. our losses our total million down given June each XX, I $X.X XXXX, approximately to mark importance value our portfolio accurately want was mark-to-market as unrealized valuation underscore the quarter. of Our at in quarter-over-quarter

important rather Our portfolio net our a which credit reflection in widening rated This environment. quarters, distinction the environment, to believe spread quarter market of was is rating deteriorating shareholders portfolio our in highlight XX% but credit this not, quality the We our second for is is prior roughly a impacted volatile X ratings of an X, evidenced decline in at our highest the with or categories. marks. by view, quarter, of this portfolio, end internal dynamic the consistent

yield average of Turning and to spread over weighted debt floating rate LIBOR income-producing Slide the investments. securities XX. This graph summarizes our on

from average securities our prior XXXX, quarter. XX, X.X%, weighted at June on of up amortized the yield was As income-producing cost X.X% in the

environment, rate we've comfortably benefit we As well floors and all rising remain to discussed, a positioned passed for interest rate remain investments. we from our the

Now liquidity. let's our shift XX. and I'm Slide to capitalization on

target XX, on up borrowings As XX, of The our X.X% quarter range. well below of at ratio but still end. from debt-to-equity our March X.XXx was interest longer-term rate June weighted as our was total X.XXx, stated modestly average

expect be by secured our near-term financed We priced all deployment attractively activity will facilities. that

Directors level see slide, in maturities over par maturities share, can liquidity with special of liquidity. of related by dividend August and this debt turn at the of $X.XX of maturities fourth closing with unsecured the to a prior there maturity cash X redeemed a had until proceeds our January cash you interest penalty. paid As subject restrictions the XXXX, of have venture, cash augmented side other capacity million undrawn equivalents. notes year leverage, declared term is the After will wind for On be of plus down in of low that, regular discussed, can to on we incremental dividend. and joint we I'd And dividend $XX back next of a without no as which million borrowing to Jason like final and our on that, the quarter X.XX% July quarter and million X, per right-hand the years Jason the and XXXX, cash which consistent our remaining perspective, base $XXX are quarter no Board From remarks. as XX, Expected end, XXXX. third for it accrued from to $XXX with quarterly provide cash

Jason Breaux

Thanks, Gerhard.

that navigate and positioned uncertainty continue We economic the ahead. CCAP believe to well remains to market

is our the maintaining to periods and portfolio wanted we I widening compelling on relative rigorous currently first dividends, currently standards continued line course, and on the unitranche on by primarily value stock portfolio While while, nearly of open in market trading operator, about loans, that lien current our the a of we lean good potential feel is believe do XX% please a and thank And We where our we've and for which we dislocation, spread confidence attractive of anticipate during same you close volatility ability based questions. support. of progresses, created term current that, CCAP further cycle for CCAP highlighting would to into like to stated always based regular environment. for and opportunities implemented. well-performing, yielding is all as underwriting your the the with

Operator

Raymond first Instructions] from question Our [Operator Robert from coming James. the of line Dodd

Robert Dodd

on quarter. the Congrats

spreads. the want function I of Or basically do market And kind is on. with et be in expect that are just And were the originations et lag, with Jason, more they've wind have cetera? Spreads in your the private Is remarks highest your in QX, cetera, lag, credit in on to going you been changes seeing terms, et First, where of widening, stable originations QX guess thing, that the I the two you QX spreads touch that given new [indiscernible] QX? is today, a cetera? topics lag? spread right, up QX. touch traditional on in a that the to

Jason Breaux

great for the question. thanks Robert, question. It's a

before past up over private I more maybe and [XXX/XXX] seeing it's out deal. side change, have the was in looking the What in looking is terms markets private to which markets the what we're of deal months, on at. the to we're the like the say, maybe perhaps think about spreads of opportunity attributable month would we've liquid lag, [XXX/XXX] set terms a that widened talked catching in things. of largely And I more

year, that, syndicated of In is frankly. the down, and time the I in addition think and to the because volatility the markets given largely market shut loan this is the

we getting We otherwise than potentially have protection would and say, gotten. are, better I would terms

get projected of the current up the lender able bit. in respect tests and I and and documents And with more definitions. BSL certainly. we're been incurrence a There's and a on coverage, flow we've focus to focus as to market, think terms tighten that in EBITDA side result cash think I the to baskets shutdown better able

standpoint direction a in So from a I favorable in all think lender time. real moving that's

Robert Dodd

appreciate Got color. that it. I

on, On companies do pressure. not said I a, I deterioration. you the margin then mentioned credit key word very to quality. are certain about and the mean, meaningful credit at you ask next experiencing And later observe one, beginning, got

directions seeing implication any sort Can of significant broadly color some I any us a up you some labor, can't advantage at and of but give the It's word. there's in supply trends? the the is pick do. incrementally chain credit, or that thematic point, are things of that it? obviously call some on are you And Have obviously more BSL terms the more and maybe inflation? and It's So phone companies more they you meaningful. have you seeing? you about are recently some mean companies can started to you necessarily in heard which see anything to those private

Jason Breaux

I rates the saw but industry to seeing Yes, would company which performing the the say still portfolio be year-over-year would we are specifically last say, I top higher portfolio top healthy. would by line board, maybe size. than across or totally surprising, largely year, by out Robert, not say is nothing maybe I year where call on well this growth may pretty top lines on we're line

of inflation as On cost where the largely to we things, retention I of instances. positions some in our segments, think the portfolio more do some certain in companies skilled at the retention is that things. challenge also the The highly see real. pressure challenges entry-level side are a end opposed That certain is within And said, companies. wage is

difficult of think facing -- comes. retention fortunately, there when to positions some wage But it's it to our pressure comes So I it's the some extremely -- we -- when side, the it's are those are in yes, challenges. turnover companies. Yes, aren't not refill portfolio

Robert Dodd

looking kind activity mean, obviously -- is appreciate last it is it. have recovery too I mean, year. and then that question amount there? year. Or It's color. markets kind mean your the next just right lower thoughts, sponsor closer, activity forward I very QX, lending and expect the market has really is just to do been private high got a not I I I to you But volatility been about than in of mean M&A of little because this I on -- bit lending given down syndicated share. It XX like steady XX months, mean now? it, Got was gaining hard say of a se. rather a just activity it the per it's

Jason Breaux

a of with deal the the to for certainly There's respect uncertainty lot Yes. flow of year. balance

of conflict, on going depend macroeconomic elections. where I think Fed the much continues inflation or goes, stop to Russia it consumer spending, midterm is with the the environments economy the doing and to what do

continued could if economy absorb increasingly financing are hard come. hearing caused believe, is more going Labor think that to some the of that buyers price. that say, going it's to I these put syndicated on sidelines materially moderate, be capital amount Robert, it I headed the the market likely good market there's together And some to it's and I for could continue $XX-plus banks, on purchase of it's going however, think where take giving be significantly, hearing to comes a that private market providers going I on standpoint factors still will is more time worsen as we flow the I frankly, pressures thing that would to market, and as think of see activity be conservative that when private that and deployed. flow from supply we perhaps that are the slow to down soft come when Day deal If, sellers REITs. to think just are we're to we just coming do is path downturn to deal leverage that transactions maybe which we're to billion landing that's the pricing in post One equity be to from because

Operator

Wells coming Fargo. next Jordan line Our Instructions] the [Operator question of from from

Unidentified Analyst

are syndicated I closed, question filling are Just gap. lenders now, that on market The markets and dynamics. direct guess, a for

activity a So done Has market vacuum there? market? Or market? there of seeing I'm from in direct the just much been kind so up middle competition for core lenders what all you of kind core are created that's has that just curious your always middle

Jason Breaux

question. the Jordan, Thanks it's Jason. for

factors maybe certainly into is as I color not to think help the provide also on but to a well. few the your just on there's One slowed markets answer inflows market going private question. the have some syndicated

the platforms less, that in terms that capital institutional And their heavily for think, I effect" dealing as are committing in "denominator regard. slowing pace down of raising. relied folks addition And with the have there that I retail that, in materially. are So well slowed think on are accounts, to

So playing competitive standpoint, I think I out. the dynamic that -- is from think a a that's

down, a In for of typically, terms that of credit, overall that's otherwise need syndicated because markets standpoint seeing, we're credit opportunity that from have they set even steered a time the private volatility, could opportunities in private markets to the when the in an those toward good healthy finance periods environment. particularly syndicated are shut if

this So I improve oftentimes flow the the in can quality would of deal lenders. credit environment for private of type say

doesn't is levels too. of inflows Now coming because upmarket the sort down as private down in are whole moving that factor other the market, that that contributing everybody coming to mean

their are for to high lenders check size, more in dollars larger unitranches folks were they million robust which downsizing speaking end a than that are getting perhaps on environment. So with be the more means hundred several used filled

market. kind I we're of that of that way a see So continue think middle across saying long-winded opportunities going the to to

where the super to And the attractive a investments. risk/return a on us of perhaps terms we'll just I for think can that quality might in pick more of be generate us, be period. selective it's this really higher see think bit we I our environment opportunities spots in and in little volatile incumbent

Operator

call Jason am over remarks. no this I further turn Breaux Mr. back I to any would the questions for to like Instructions] time. at showing [Operator now closing

Jason Breaux

you look continued thank soon. and Okay. Thank and operator, in with much, appreciate we very all your speaking you call. interest for and to CCAP, you We forward joining the support

Operator

participation. conference today. that our Thank your Ladies for you for and gentlemen, conclude does

now may You disconnect.

Crescent Capital BDC (CCAP) 11 Aug 222022 Q2 Earnings call transcript