Crescent Capital BDC(US:CCAP)2023-11-07 16:00PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Crescent Capital BDC, Inc., including statements of assets, operations, changes in net assets, cash flows, and investment schedules Consolidated Statements of Assets and Liabilities Total assets increased to $1.62 billion, liabilities grew, and net assets rose to $730.3 million, with NAV per share slightly decreasing Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Total Investments, at fair value | $1,564,828 | $1,262,956 | | Total Assets | $1,624,487 | $1,302,878 | | Liabilities & Net Assets | | | | Total Debt (net) | $856,656 | $654,456 | | Total Liabilities | $894,221 | $690,337 | | Total Net Assets | $730,266 | $612,541 | | Net Asset Value Per Share | $19.70 | $19.83 | Consolidated Statements of Operations Total investment income rose to $134.2 million, driving net investment income to $59.8 million and a $53.0 million net increase in net assets Statement of Operations Summary (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Investment Income | $134,176 | $82,142 | | Net Expenses | $73,497 | $38,454 | | Net Investment Income | $59,789 | $43,624 | | Net Realized & Unrealized (Losses) | ($7,540) | ($30,036) | | Net Increase in Net Assets | $52,979 | $12,942 | | Net Investment Income Per Share | $1.68 | $1.41 | | Net Increase in Net Assets Per Share | $1.49 | $0.42 | Consolidated Statements of Changes in Net Assets Net assets increased by $117.7 million to $730.3 million, primarily from operations and an asset acquisition, partially offset by distributions Reconciliation of Net Assets (Nine Months Ended Sep 30, 2023, in thousands) | Description | Amount | | :--- | :--- | | Balance at Dec 31, 2022 | $612,541 | | Net Increase from Operations | $52,979 | | Issuance for Asset Acquisition | $91,257 | | Deemed Contribution from Adviser | $22,040 | | Distributions from Distributable Earnings | ($48,551) | | Balance at Sep 30, 2023 | $730,266 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $57.7 million, a reversal from prior year, with $52.0 million used in financing, ending with $22.8 million cash Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $57,696 | ($13,895) | | Net Cash from Financing Activities | ($52,000) | $12,522 | | Net Increase (Decrease) in Cash | $5,688 | ($1,373) | | Cash, End of Period | $22,755 | $22,153 | Consolidated Schedule of Investments The $1.56 billion investment portfolio is primarily debt-focused, concentrated in Senior Secured First Lien and Unitranche loans, diversified across key industries Portfolio Composition by Investment Type (at Fair Value) | Investment Type | Sep 30, 2023 (%) | Dec 31, 2022 (%) | | :--- | :--- | :--- | | Senior Secured First Lien | 28.4% | 23.8% | | Unitranche First Lien | 60.0% | 65.2% | | Senior Secured Second Lien | 3.7% | 4.8% | | Equity & Other | 6.6% | 4.7% | | Other Debt | 1.3% | 1.5% | Top 5 Industries by Fair Value (Sep 30, 2023) | Industry | Percentage of Fair Value | | :--- | :--- | | Health Care Equipment & Services | 27.4% | | Software & Services | 20.8% | | Commercial & Professional Services | 14.1% | | Consumer Services | 9.5% | | Diversified Financials | 5.2% | - The total fair value of investments increased to $1.56 billion as of September 30, 2023, from $1.26 billion at the end of 2022165 Notes to Consolidated Financial Statements This section details accounting policies, investment valuation, related party agreements, outstanding debt, and the recent FCRD acquisition Note 2. Summary of Significant Accounting Policies The company follows ASC 946, fair-valuing illiquid assets through a multi-step process and categorizing investments into a three-level hierarchy - The Board has designated the Adviser as the valuation designee to perform fair value determinations for investments where market quotations are not readily available, following SEC Rule 2a-5106 - As of September 30, 2023, the company had sixteen investments across nine portfolio companies on non-accrual status, representing 1.8% of total debt investments at fair value, an increase from 1.2% at year-end 2022117 Note 3. Agreements and Related Party Transactions The company is externally managed by Crescent Cap Advisors, earning base and incentive fees, with the Adviser voluntarily waiving certain fees Management and Incentive Fees (Nine Months Ended Sep 30) | Fee Type (in thousands) | 2023 Incurred | 2023 Waived | 2022 Incurred | 2022 Waived | | :--- | :--- | :--- | :--- | :--- | | Management Fees | $14,541 | ($145) | $12,235 | ($175) | | Income Incentive Fees | $12,634 | ($229) | $8,039 | ($474) | - The Adviser has voluntarily waived income incentive fees to the extent net investment income falls short of the regular declared dividend, a waiver effective through December 31, 2023148 Note 6. Debt Total debt outstanding increased to $864.3 million across various facilities, with the weighted average interest rate on borrowings rising to 6.96% Debt Composition as of September 30, 2023 (in thousands) | Facility | Drawn Amount | | :--- | :--- | | SPV Asset Facility | $314,750 | | SMBC Corporate Revolving Facility | $252,975 | | Series 2021A Unsecured Notes | $135,000 | | FCRX Unsecured Notes | $111,600 | | Series 2023A Unsecured Notes | $50,000 | | Total Debt | $864,325 | - The combined weighted average interest rate of aggregate borrowings increased to 6.96% for the nine months ended September 30, 2023, compared to 4.15% for the same period in 2022215 Note 13. First Eagle Alternative Capital BDC, Inc. Acquisition The company completed the acquisition of FCRD on March 9, 2023, accounted for as an asset acquisition with a total purchase price of $129.5 million - The acquisition of FCRD was completed on March 9, 2023266 FCRD Acquisition Purchase Price (in thousands) | Component | Amount | | :--- | :--- | | Aggregate Share Consideration | $91,257 | | CCAP Cash Consideration | $8,649 | | Deemed contribution from the Adviser | $22,040 | | Transaction costs | $7,565 | | Total Purchase Price | $129,511 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses performance, focusing on maximizing total return through debt and equity investments, highlighting increased investment income, portfolio activity, and liquidity Portfolio and Investment Activity The investment portfolio grew to $1.56 billion, primarily floating-rate debt with an 11.9% yield, with net dispositions during the period Portfolio Statistics | Metric | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Weighted avg. yield on income producing securities | 11.9% | 10.8% | | Percentage of debt at floating rate | 98.6% | 98.8% | | Number of portfolio companies | 185 | 129 | - For the nine months ended September 30, 2023, proceeds from investments sold or repaid ($144.6 million) exceeded new investments at cost ($112.2 million)316 - Investments on non-accrual status represented 1.8% of the portfolio's fair value as of September 30, 2023, compared to 1.2% as of December 31, 2022287 Results of Operations Total investment income rose to $134.2 million, while net expenses increased to $74.4 million, resulting in net investment income of $59.8 million - Interest income for the nine months ended Sep 30, 2023, increased to $123.5 million from $75.7 million in the prior year period, attributed to a rise in benchmark rates, the FCRD Acquisition, and organic portfolio growth291 - Interest and other debt financing costs for the nine months ended Sep 30, 2023, increased to $43.0 million from $20.7 million year-over-year due to higher average debt outstanding and a higher weighted average cost of debt293 Net Investment Income Reconciliation (in millions) | Metric | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Investment Income | $134.2 | $82.1 | | Total Net Expenses | $74.4 | $38.5 | | Net Investment Income | $59.8 | $43.6 | Liquidity and Capital Resources The company had $340.1 million in available liquidity, with total debt of $864.3 million and an asset coverage ratio of 184%, exceeding regulatory requirements - As of September 30, 2023, the company had $22.8 million in cash and cash equivalents and $317.3 million of undrawn capacity on its credit facilities328 - The company's asset coverage ratio was 184% as of September 30, 2023, in compliance with the 150% regulatory requirement362 - On July 28, 2023, the company repaid its $50.0 million 5.95% Series 2020A Unsecured Notes and issued $50.0 million of 7.54% Series 2023A Unsecured Notes due 2026308310 Quantitative and Qualitative Disclosures About Market Risk The company faces interest rate, valuation, and currency risks, with earnings sensitive to interest rate changes due to 98.6% variable-rate investments - As of September 30, 2023, 98.6% of the investments at fair value in the portfolio were at variable rates, making the company's income sensitive to interest rate fluctuations137 Annualized Impact of Hypothetical Base Rate Changes (in millions) | Basis Point Change | Net Interest Income Change | | :--- | :--- | | Up 100 basis points | $10.4 | | Up 50 basis points | $5.2 | | Down 50 basis points | ($5.2) | | Down 100 basis points | ($10.4) | - The company uses foreign currency forward contracts to hedge exposure from investments denominated in foreign currencies344 Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2023, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023368 - There were no changes in internal control over financial reporting during the quarter ended September 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls370 PART II OTHER INFORMATION Legal Proceedings The company is involved in routine lawsuits, which are not anticipated to materially impact its financial condition or results of operations - The company is party to certain lawsuits in the normal course of business but does not expect them to materially affect its business, financial condition, or results of operations348 Risk Factors This section refers to 10-K risk factors, highlighting systemic risks in the U.S. and global banking sectors, including recent bank failures - The report highlights risks related to the instability of financial institutions, citing the failures of Silicon Valley Bank (SVB) and Signature Bank in March 2023 as examples that could lead to market-wide problems139371 Unregistered Sales of Equity Securities and Use of Proceeds The Sun Life purchase program committed to buying up to $20.0 million of common stock, with $10.0 million worth of shares purchased through September 30, 2023 - In connection with the FCRD merger, Sun Life committed to a share purchase program of up to $20.0 million. Through September 30, 2023, the program had purchased 629,428 shares for a total of $10.0 million128 Defaults Upon Senior Securities No defaults upon senior securities were reported during the period - None reported373 Other Information No director or Section 16 officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - During the third quarter of 2023, no director or Section 16 officer adopted or terminated a Rule 10b5-1 trading arrangement374 Exhibits This section lists all exhibits filed with the quarterly report, including corporate governance documents, material contracts, and certifications - The report includes numerous exhibits, such as amendments to the Loan and Security Agreement, various Note Purchase Agreements, and the Senior Secured Revolving Credit Agreement355