CC
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
Segment breakdown (Portfolio asset mix):
KPIs:
Consensus vs Actual (Q4 2024):
Guidance Changes
Earnings Call Themes & Trends
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 .