What Crescent Capital BDC (CCAP) Said on Its Q3 Earnings Call

Key Points

• Net investment income rose to $0.37 per share from $0.36, above the $0.34 regular dividend, while NAV declined to $17.72 per share from $17.82.
• Crescent authorized up to $50 million in share repurchases, with parent Sun Life planning up to $25 million more. A planned joint venture seeded with about $150 million of first-lien assets is intended to reduce leverage and create capacity for buybacks.
• Net debt-to-equity was 1.36x, above the company’s long-term target, and the watch list grew to 16% of portfolio fair value. Management expects portfolio realizations and the joint venture to bring leverage into range by year-end, while noting lending activity remains subdued.

Crescent Capital BDC NASDAQ: CCAP reported a slight increase in third-quarter investment income and announced plans to buy back shares and form a joint venture as it works to reduce leverage.

Net investment income rose to $0.37 per share from $0.36 in the previous quarter, exceeding the company’s $0.34 regular dividend. Net asset value slipped to $17.72 per share at September 30 from $17.82 at the end of June.

CEO Jason Breaux said the board authorized up to $50 million in open-market share repurchases at certain thresholds below net asset value. Separately, Crescent parent Sun Life plans to purchase up to $25 million of shares under similar conditions.

Breaux said the company believes its shares are materially undervalued. The timing and amount of purchases will be determined separately by the company and Sun Life, subject to market conditions, legal requirements and other factors.

Joint Venture to Fund Buybacks and Reduce Leverage

Crescent expects to form an unconsolidated joint venture in the fourth quarter, seeded with approximately $150 million of performing first-lien assets from its portfolio. The company and an equity partner each expect to contribute $30 million, with an asset-based lending facility providing additional capital.

The company is targeting a low- to mid-teens return on equity for the venture. President Henry Chung said the structure should increase the portfolio’s gross yield, but its main objectives are to reduce leverage and create capacity for share repurchases.

Chung said the joint venture is expected to hold roughly $150 million to $200 million in assets and replenish investments as the initial portfolio turns over. He said Crescent is not contemplating additional joint ventures in the near term.

The company’s buybacks will be executed through a broker under a Rule 10b5-1 plan, with the pace subject to the plan’s trading parameters and regulatory requirements, Chung said.

Portfolio Quality and Lending Activity

Crescent ended the quarter with approximately $1.6 billion of investments at fair value across 190 companies. Senior first-lien loans accounted for 91% of the portfolio, and approximately 84% of investments were rated as performing at or above expectations.

The watch list increased to 16% of the portfolio at fair value from 15% in the prior quarter. Chung said the additions reflected company-specific challenges rather than broad credit deterioration. He said the company would take a long-term approach to maximizing recoveries rather than sell assets quickly to remove them from the watch list.

No new investments were placed on non-accrual during the quarter. Non-accruals declined to 4.7% of debt investments at cost from 4.8%, following the sale of a small legacy investment.

Gross deployment totaled $24 million, mostly in existing portfolio companies, while exits, sales and repayments were approximately $39 million. Chung said new investment activity was limited as the company prioritized deleveraging.

Net debt-to-equity stood at 1.36 times, above the company’s long-term target range. CFO Gerhard Lombard said pending portfolio realizations and the planned joint venture are expected to bring leverage within that range by year-end. Crescent had approximately $247 million of cash and available borrowing capacity at quarter-end.

Dividends and Market Outlook

The board declared a fourth-quarter regular dividend of $0.34 per share. The third and final previously announced special dividend of $0.03 per share is payable December 15. Lombard said no supplemental dividend is payable for the quarter under the company’s existing framework.

Breaux said sponsor-backed mergers and acquisitions remained subdued, with direct lending volume supporting leveraged buyouts down roughly 21% from the prior quarter and 60% from a year earlier. He said add-on acquisitions and refinancings continued to generate demand.

During the question-and-answer session, Breaux said the current pipeline was light but that he expects activity to pick up in 2027 as investors seek liquidity from sponsors. Chung added that early deal work could signal a more robust pipeline, although transactions still need to materialize.

Breaux also discussed Sun Life’s planned GreenOak brand, which will bring Crescent together with other investment businesses. He said Crescent Capital BDC’s investment strategy, personnel and investment processes are not expected to change.

About Crescent Capital BDC (NASDAQ:CCAP)

Crescent Capital BDC, Inc. is a business development company that provides financing to middle-market companies. The company seeks to generate current income and, to a lesser extent, capital appreciation by investing in privately negotiated debt and equity securities. Its investment portfolio is focused primarily on senior secured loans, including first-lien and second-lien loans, as well as other debt investments and selected equity interests. Crescent Capital BDC generally works with established companies across a range of industries, providing capital for acquisitions, recapitalizations, refinancing, growth initiatives and other corporate purposes.

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