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Crescent Capital BDC, Inc. (CCAP)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net investment income (NII) was $0.55 per share, down from $0.64 in Q3 and $0.61 YoY; NAV per share fell $0.22 to $19.98, primarily on unrealized marks .
  • Total investment income declined to $46.4M vs $51.6M in Q3 on Fed rate cuts and lower nonrecurring income; management expects interest income to decline further in Q1 as full-quarter rate cuts flow through .
  • Dividend coverage remained strong; the Board declared a Q1 2025 regular dividend of $0.42 per share and three $0.05 special dividends (total $0.15) tied to undistributed taxable income; no Q4 supplemental was declared under CCAP’s supplemental framework cap .
  • Leverage moved to 1.19x (target 1.1x–1.3x); CCAP extended its SMBC revolver to Dec 2029 and issued $115M of unsecured notes (Feb 2028, Feb 2030), improving debt maturity ladder and liquidity .
  • Wall Street consensus from S&P Global was unavailable at analysis time; estimate beat/miss cannot be determined (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • “We have prioritized base dividend coverage since CCAP’s inception…and our NII is well in excess of our base dividend at 131% coverage in the fourth quarter” .
  • Portfolio quality remained resilient: nonaccruals were 0.9% of total debt investments at fair value (2.2% at cost) at year-end; 87% of portfolio was rated 1 or 2 (at/above underwriting expectations) .
  • Capital structure actions reduced near-term maturity concentration: SMBC revolver maturity extended to Dec 2029 and $115M of new unsecured notes issued, lowering 2026 maturities from 58% to 25% of total committed debt .

What Went Wrong

  • Sequential earnings pressure: NII per share fell to $0.55 from $0.64, driven by lower portfolio yields from rate cuts and a drop in nonrecurring income (from $3.3M to $1.2M) .
  • Watch list increased: seven names were added, migrating risk-rated 3 assets by ~$40M, contributing to unrealized losses and NAV decline .
  • Spread compression and repricing dynamics persisted, especially in larger core/upper middle market deals; management highlighted ongoing pricing discipline but recognized risk if LBO volumes don’t pick up .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Investment income ($M)$48.9 $51.6 $46.4
Net investment income ($M)$21.7 $23.5 $20.5
NII per share ($)$0.59 $0.64 $0.55
GAAP net income per share ($)$0.55 $0.41 $0.27
NAV per share ($)$20.30 $20.20 $19.98
Weighted avg yield at cost (%)12.2% 11.6% 10.9%

Segment breakdown (Portfolio asset mix):

Investment TypeDec 31, 2024 Fair Value ($M)Dec 31, 2024 %Dec 31, 2023 Fair Value ($M)Dec 31, 2023 %
Senior secured first lien$379.7 23.7% $429.2 27.0%
Unitranche first lien$1,044.1 65.3% $973.9 61.5%
Unitranche first lien – last out$14.8 0.9% $13.5 0.9%
Senior secured second lien$38.5 2.4% $58.2 3.7%
Unsecured debt$17.5 1.1% $4.1 0.3%
Equity & other$64.9 4.1% $50.1 3.2%
LLC/LP equity interests$39.4 2.5% $53.1 3.4%
Total investments$1,598.9 100.0% $1,582.1 100.0%

KPIs:

KPIQ2 2024Q3 2024Q4 2024
Debt-to-equity ratio (x)1.18x 1.15x 1.19x
% floating rate debt investments96.9% 97.4% 97.3%
Nonaccruals (% of debt FV)0.9% 0.9% 0.9%
Nonaccruals (% of debt cost)1.6% 1.7% 2.2%
Portfolio companies (#)183 183 185
Weighted avg interest coverage (x)1.7x 1.8x 1.9x

Consensus vs Actual (Q4 2024):

MetricS&P Global ConsensusActualSurprise
Investment income ($M)N/A (Unavailable)$46.4 N/A
NII per share ($)N/A (Unavailable)$0.55 N/A
Note: S&P Global Wall Street consensus data was unavailable at analysis time; beat/miss cannot be determined.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular dividend per shareQ1 2025$0.42 (Q4 2024) $0.42 (declared) Maintained
Supplemental dividend per shareQ4 2024$0.07 (Q3 2024) None (not declared due to cap) Lowered
Special dividends (aggregate)2025 (Mar/Jun/Sep)None$0.15 total ($0.05 each) New
Interest income outlookQ1 2025NoneExpect further decline in interest income in Q1 due to full-quarter rate cuts Negative
Leverage targetOngoing1.1x–1.3x stated range Operating within range (1.19x at YE) Maintained
Revolver maturityCapital structureOct 2026 Extended to Dec 2029; size reduced to $310M Extended & resized
Unsecured notesCapital structure$296.6M due in 2026 (prior concentration) Issued $35M (Feb 2028, 6.77%) and $80M (Feb 2030, 6.90%) Laddered maturities

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4)Trend
Deal activity & LBO volumesQ2: Middle market volume +20% vs 2H23; LBO ~1/3 of volume; expect pickup 2H24 . Q3: Optimism into 2025 on rate cuts and regulatory backdrop .Q4: Expect increased M&A/LBO in 2025 on dry powder and more stable rates .Improving pipeline
Spread compression & repricingQ2: Rising repricing requests; disciplined approach . Q3: Repricing increased; focus on re-underwriting .Q4: Risk persists if LBO volumes lag; pressure concentrated in upper middle market .Still elevated, moderating with activity
Portfolio quality & nonaccrualsQ2: Nonaccruals 0.9% FV; strong ratings (89% rated 1–2) . Q3: Nonaccruals 0.9% FV; 90% rated 1–2 .Q4: Nonaccruals 0.9% FV; watch list increased (7 names; ~$40M migration) .Slight deterioration on watch list
Interest coverage & rate backdropQ2: Interest coverage 1.7x; expect improvement with cuts . Q3: Improved to 1.8x .Q4: Improved to 1.9x; expect interest income decline near-term due to cuts .Coverage improving; near-term NII headwind
Tariff/government exposureN/ATariff-exposed industries ~12% FV; government revenue exposure <5%; monitoring risks .Emerging risk tracking
Capital structure & maturitiesQ2: No maturities until 2026; evaluating laddering . Q3: Conservative leverage, liquidity strong .Q4: Extended revolver to 2029; issued notes to 2028/2030; reduced 2026 maturity concentration .Improved maturity profile

Management Commentary

  • CEO: “Our NII is well in excess of our base dividend at 131% coverage in the fourth quarter. Our net asset value decreased $0.22 to $19.98 per share…driven primarily by changes in unrealized marks.”
  • Portfolio construction: “Approximately $1.6 billion of investments at fair value across 185 companies…90% first lien…99% sponsor-backed…weighted average portfolio grade of 2.1 remains stable.”
  • Quality and risk: “Nonaccruals…0.9% of total debt investments at fair value and 2.2% of cost…we added seven names to the watch list, collectively marked at 97% of their combined cost basis.”
  • Market outlook: “We believe we’re operating in an attractive environment for increased M&A…more stability around near-term base rates…we continue to apply disciplined credit underwriting.”
  • CFO: “Total investment income of $46.4M…recurring interest income declined…we expect interest income to decline further in Q1 to reflect the full-quarter impact of rate cuts.”
  • Capital actions: “Amended SMBC revolver…size from $385M to $310M, maturity to Dec 2029…priced $115M of new senior unsecured notes: $35M due Feb 2028 and $80M due Feb 2030.”

Q&A Highlights

  • Watch list drivers and sector exposures: Third-party logistics (freight rate compression), packaging (destocking), and early-stage med-tech/biotech-indexed businesses flagged; collectively <~4% of portfolio; consumer-indexed names recovering more slowly .
  • Tariff and government exposure: Foreign-sourced COGS industries ~12% of FV; government-revenue exposure <5% (primarily software); portfolio largely services-oriented .
  • Repricing dynamics: Elevated in 2024; likely to subside if LBO volumes accelerate; pressure concentrated in upper middle market due to non-traded BDC flows .
  • Realized loss driver: Restructuring of CECO (prior nonaccrual) moved unrealized to realized loss in Q4 .
  • Nonaccrual origins and control: Of three new nonaccruals (iLending, Merkle, Mann Lake), one originated by Crescent, two legacy; majority of watch list are Crescent-originated with control/agency .
  • Spread levels: Q4 weighted average spread ~510 bps for new investments; smaller issuers in lower middle market getting mid-to-high 4s given lower leverage and tighter terms .

Estimates Context

  • S&P Global consensus (EPS/Revenue) was unavailable at analysis time; beat/miss relative to Street cannot be determined.
  • Implications: With Q4 NII down sequentially on lower base rates and reduced nonrecurring income, near-term Street models may need to reflect lower interest income in Q1 as indicated by management, while dividend coverage remains robust and capital structure improvements mitigate refinancing risk .

Key Takeaways for Investors

  • Dividend support remains strong: Q4 NII covered the $0.42 base dividend at 131%; Q1 2025 base dividend maintained at $0.42 with $0.15 in special dividends scheduled, though no Q4 supplemental due to framework cap .
  • Earnings headwind from rates: Management explicitly guided that interest income will decline further in Q1 given the full-quarter impact of late-2024 rate cuts; sequential NII pressure likely near-term .
  • Portfolio quality resilient but watch list rose: Nonaccruals stayed at 0.9% FV, yet seven watch-list additions and ~$40M migration into 3-rated assets warrant monitoring, especially in flagged subsectors .
  • Maturity profile improved: Extending revolver to 2029 and issuing notes to 2028/2030 reduced 2026 concentration and supports deployment capacity within the 1.1x–1.3x leverage target .
  • Repricing risk tied to LBO volumes: If deal flow accelerates, repricing pressures should subside; pressure is more acute in upper middle market where non-traded BDC flows concentrate .
  • Yield normalization: Weighted average portfolio yield fell to 10.9% from 11.6% amid rate cuts; ongoing spread discipline and first-lien concentration (90%) reflect conservative posture .
  • Tariff/government exposure limited: Only ~12% of FV potentially exposed to foreign-sourced materials and <5% to government revenue, indicating minority portfolio sensitivity to these macro risks .