Crescent Capital BDC Q1 Earnings Call Highlights

Key Points

• Q1 earnings weakened as net investment income fell to $0.38 per share from $0.45, while NAV dropped to $18.27 from $19.10. Management said higher non-accruals, lower base rates, and credit-market volatility were the main pressures.
• Crescent raised its non-accruals to 5.7% of debt investments at cost, with five new problem loans concentrated in healthcare. Management said the issues are specific to a small number of portfolio companies rather than broad-based stress in the sector.
• The company cut fees and reset its dividend, lowering the base management fee to 1.00%, the incentive fee to 15.0%, and the quarterly base dividend to $0.34 per share. It also approved special dividends in 2026 to work through its spillover balance.

Crescent Capital BDC NASDAQ: CCAP reported a more difficult first quarter as higher non-accruals, lower base rates and broader credit-market volatility weighed on earnings and net asset value, prompting management to lower fees and reset the company’s base dividend.

Chief Executive Officer Jason Breaux said the quarter unfolded against a backdrop of “elevated geopolitical uncertainty, mixed consumer sentiment, and persistent inflationary pressures,” which contributed to volatility in credit markets. He said private credit is showing “pockets of pressure,” though he cautioned that the broader narrative around the asset class may overstate risk by grouping distinct issues together.

“A small number of credit-specific developments within CCAP’s portfolio drove a more challenging quarter,” Breaux said. He added that the issues are concentrated and being actively managed.

Earnings Decline as Non-Accruals Rise

The company generated $0.38 per share of net investment income, or NII, for the quarter, down from $0.45 per share in the prior quarter. Management said the decline was primarily driven by an increase in non-accruals and lower base rates.

Chief Financial Officer Gerhard Lombard said the sequential decline in NII included approximately $0.04 per share from new non-accruals, $0.02 per share from lower base rates and about $0.01 per share from lower one-time fee income and deployment timing, partially offset by higher dividend income.

Breaux said Crescent voluntarily waived $0.04 per share of incentive fees to ensure full dividend coverage for the quarter. Reported NII of $0.42 per share reflected that waiver.

Net asset value declined to $18.27 per share from $19.10 per share in the prior quarter. Lombard said the decline was driven by both broader mark-to-market movements and credit-specific depreciation. He said credit spread widening and changes in market multiples accounted for about 65% of the NAV reduction, while credit-specific factors accounted for the remaining 35%.

“We believe the market-driven portion of the markdown primarily reflects a broader repricing of risk rather than underlying fundamental deterioration,” Lombard said.

Management Cuts Fees and Resets Dividend

Crescent announced permanent reductions to its fee structure, effective April 1, 2026. The base management fee will decline to 1.00% from 1.25%, and the incentive fee will be reduced to 15.0% from 17.5%.

Breaux said the changes are intended to move the company’s fee structure back toward “the most competitive end of the peer group.”

In conjunction with the fee reductions, the company reset its quarterly base dividend to $0.34 per share from $0.42 per share. Breaux said the new base dividend reflects a conservative level relative to the company’s near-term earnings outlook.

The board also approved three special dividends of $0.03 per share to be paid quarterly during calendar 2026 to address the company’s current spillover balance. For the second quarter, Crescent declared a regular dividend of $0.34 per share payable July 15 to stockholders of record as of June 30. The first $0.03 special dividend is payable June 15 to stockholders of record as of May 31.

Lombard said Crescent will not pay a first-quarter supplemental dividend under its existing variable supplemental dividend framework based on the quarter’s NII.

Healthcare Investments Drive New Non-Accruals

President Henry Chung said the majority of portfolio companies continue to perform, supported by sponsor backing and resilient business models. Approximately 86% of investments were rated 1 or 2, unchanged from the prior quarter, and the weighted average portfolio risk rating remained stable at 2.1. Weighted average interest coverage improved modestly to 2.2 times.

However, non-accruals increased to 5.7% of debt investments at cost and 3.6% at fair value, up from 4.1% and 2.0%, respectively, in the prior quarter. The increase reflected five new non-accruals during the quarter, concentrated across four healthcare investments.

Chung said the causes of stress varied by investment, including deferrable healthcare consumer spending, unfavorable labor dynamics and execution-related operational challenges. He said management does not view the issues as evidence of broad stress across healthcare.

“From a portfolio management perspective, these investments have been on our watchlist for over five quarters on average, and we have been actively working with the management teams and sponsors over that period,” Chung said.

Chung added that all 13 of Crescent’s non-accruals are first-lien positions, which management believes is important for potential recoveries. Six of those non-accruals were acquired through the First Eagle portfolio, which Chung said included legacy challenges and more limited lender control at the time of acquisition.

Balance Sheet and Investment Activity

Crescent’s investment portfolio totaled approximately $1.6 billion at fair value at quarter end. Net leverage was 1.32 times, modestly above the company’s target range of 1.1 times to 1.3 times. Lombard said leverage was above target due to realizations that were pushed out of the quarter and is expected to return to the target range as those realizations occur.

The company ended the quarter with approximately $206 million of available capacity and $27 million of cash and cash equivalents. Lombard said Crescent has sufficient availability under its asset-based lending facilities, including a $100 million upsize to its SPV facility that the company expects to close before the end of the June quarter. Part of that upsize is expected to refinance upcoming May unsecured maturities.

Gross deployment totaled $115 million in the first quarter, including $57 million across 14 new platform investments and $58 million in existing portfolio companies. New platform investments were made at a weighted average spread of approximately 500 basis points, and Crescent served as lead or agent on 93% of those transactions. Exits, sales and repayments totaled approximately $93 million, resulting in net deployment of approximately $22 million.

Analysts Press Management on Healthcare and Sponsors

During the question-and-answer session, Raymond James analyst Robert Dodd asked whether management had a handle on healthcare-related credit issues. Chung said the stress was not broad-based, though he acknowledged that select healthcare names have appeared on non-accrual lists across the industry.

Chung said wage inflation has pressured some healthcare businesses for roughly two years and remains elevated compared with 2023, though the pace of wage increases has slowed. He said Crescent is not assuming a reversal in wage trends when valuing assets or determining accrual status.

Ladenburg Thalmann analyst Christopher Nolan asked whether sponsor stress could pose a greater risk to Crescent’s business model. Breaux said sponsor-backed portfolios are facing challenges and that some triage is likely to continue. He said Crescent’s objective has been to choose credits where the risk of impairment is minimal and where sponsors are likely to continue providing support.

Management also discussed Sun Life’s completed acquisition of the remaining equity interest in Crescent Capital, making Crescent a wholly owned subsidiary of SLC Management, Sun Life’s alternatives platform. The company said Sun Life owns approximately 6% of CCAP shares outstanding, holds about $72 million of CCAP unsecured notes and has invested or committed more than $1.5 billion across Crescent strategies since 2021.

About Crescent Capital BDC NASDAQ: CCAP

Crescent Capital BDC, Inc is a closed-end, externally managed business development company that provides flexible financing solutions to middle market companies in the United States. Trading on the Nasdaq under the ticker CCAP, the firm offers investors exposure to a diversified portfolio of debt and equity instruments, targeting businesses with attractive risk-adjusted return profiles. Its primary objective is to generate current income through interest payments and potential capital appreciation via selective equity co-investments.

The company’s investment strategy emphasizes senior secured loans, unsecured second-lien loans, mezzanine debt, as well as preferred and common equity co-investments.

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