Crescent Capital BDC, Inc. (CCAP) Earnings

Management highlights

- Market Environment Context * The firm operates in a volatile credit market backdrop shaped by elevated geopolitical uncertainty, mixed consumer sentiment, and persistent inflation, with pockets of pressure across private credit that management believes are often overstated as broad systemic risk. * Risk issues are not uniform across portfolios or issuers; recent NAV declines have been driven by concentrated pressure in specific watchlist investments rather than broad portfolio deterioration. * The current market environment has created an attractive new investment opportunity set, with wider spreads, stronger deal structures, and reduced competition from lenders reliant on retail and non-traded BDC capital. - Portfolio Construction & Resilience * The portfolio was deliberately constructed over a decade to weather challenging credit conditions, with a focus on first lien investments, non-cyclical industries, and strong sponsor backing. * All 13 non-accruals are first lien positions, which management expects to support higher recovery outcomes. 86% of portfolio investments meet or exceed underwriting performance expectations, with stable risk ratings and improving interest coverage. * Software sector exposure performs in line with expectations, with no new watchlist additions and no exposure to ARR loans. * Average individual investment size is approximately 0.6% of the total portfolio, supporting diversification, and the firm is using smaller position sizing for new investments to maintain a conservative approach. - Structural Changes & Capital Actions * Management permanently reduced the base management fee from 1.25% to 1% and the incentive fee from 17.5% to 15%, effective April 1, 2026, moving CCAP's fee structure back to the most competitive range of its BDC peer group. * The quarterly base dividend was reset from $0.42 per share to $0.34 per share, a conservative level aligned with the near-term earnings outlook. The board also approved three $0.03 per share special dividends to be paid quarterly in 2026 to utilize existing spillover income. * Sun Life completed the acquisition of the remaining equity stake in CCAP's external advisor Crescent Capital, making Crescent a wholly owned subsidiary of Sun Life's SLC Management alternatives platform. This strengthens alignment with a well-capitalized long-term institutional partner, which already holds ~6% of CCAP's outstanding shares, $72 million of CCAP unsecured notes, and has committed over $1.5 billion to Crescent's strategies since 2021. - Balance Sheet & Liquidity * End-of-quarter net leverage was 1.32x, modestly above the 1.1x-1.3x target range due to delayed realization timing; management expects leverage to return to the target range once these realizations complete. * The firm maintained strong liquidity, with $206 million of available capacity and $27 million in cash and cash equivalents at quarter end. A $100 million upsize of the SPV facility is expected to close by end-Q2 2026, part of which will refinance upcoming May unsecured maturities.

Guidance

Management does not expect significant near-term net portfolio growth, and will instead focus on actively rotating the portfolio and selectively deploying capital into attractive opportunities sourced from the broader Crescent Capital platform. The new $0.34 per share base dividend is set at a conservative level relative to the near-term earnings outlook. Management expects net leverage to return to its 1.1x-1.3x target range once delayed portfolio realizations are completed. No formal financial performance guidance for full-year 2026 was provided beyond these forward-looking statements.

Segment performance

Crescent Capital BDC operates a single investment portfolio segment. For Q1 2026, net investment income (NII) was $0.38 per share before a voluntary $0.04 per share incentive fee waiver, resulting in a reported NII of $0.42 per share, down from $0.45 per share in the prior quarter. Net asset value (NAV) declined quarter-over-quarter to $18.27 per share from $19.10 per share. The total investment portfolio had a fair value of approximately $1.6 billion at quarter end. Non-accruals increased to 5.7% of total debt investment cost and 3.6% of fair value, up from 4.1% of cost and 2% of fair value in the prior quarter, with 5 new non-accruals concentrated across 4 healthcare investments. Approximately 86% of investments maintained an internal risk rating of 1 or 2 (performance at or above underwriting expectations), with a stable weighted average portfolio risk rating of 2.1. Weighted average interest coverage improved modestly to 2.2x. Gross investment deployment in Q1 totaled $115 million, with $93 million in exits, sales, and repayments, resulting in net deployment of $22 million.

Risks & headwinds

- Broad macro risks include elevated geopolitical uncertainty, persistent inflation and sticky wage inflation, and volatile credit market conditions that can lead to broader mark-to-market valuation declines even without underlying fundamental portfolio deterioration. * Concentrated credit risk exists in specific watchlist and non-accrual investments, with 5 new non-accruals added in Q1 concentrated across four healthcare investments facing stress from deferrable consumer spending, unfavorable labor dynamics, and execution challenges. While stress is not broad-based across the healthcare sector, continued macro pressure could lead to further deterioration of these assets. * Refinancing pressures and a challenging exit environment for private equity sponsors have led to sponsors holding assets longer than historical averages, which can reduce sponsors' capacity to support struggling portfolio companies. * Net leverage is currently modestly above the firm's target range, though management expects this to be temporary.

Analyst Q&A

• Q: The five new non-accruals added this quarter are concentrated in healthcare, after several quarters of growing healthcare stress across the BDC space. Does management have a solid handle on existing issues, or could further unexpected developments arise in the healthcare portfolio? /

  A: Management confirms that stress is limited to specific pockets of healthcare, not broad-based across the sector. Each of the four stressed healthcare investments has distinct idiosyncratic drivers of pressure (labor costs, execution missteps, reimbursement dynamics) rather than a single shared healthcare-wide trend. The firm has tracked these assets on its watchlist for an average of over five quarters, and management feels it has a clear handle on where to focus ongoing monitoring, though acknowledges continued quarter-to-quarter volatility is possible in the current environment.

• Q: Given sticky wage inflation that has pressured these healthcare assets, after marking positions conservatively this quarter, is there still meaningful macro-driven risk of further deterioration? /

  A: Wage inflation has pressured these assets for two years, and while the pace of wage growth has slowed, it remains elevated relative to 2023 with no expected reversal of past increases. All of these current wage and inflation dynamics have already been factored into the current conservative valuation and non-accrual status assignments for these assets, so current marks already reflect the expected ongoing pressure.

• Q: All non-accruals are sponsor-backed. Are dividends to sponsors shut off once loans go non-accrual, and could widespread private equity sector stress reduce sponsor capacity to support struggling assets, creating broader risk to CCAP's sponsored-focused business model? /

  A: It is correct that all non-accruals are sponsor-backed, and by custom, all sponsor dividends and management fees are suspended well before non-accrual status is declared, as these cash outflows are subordinated to CCAP's debt service. Management agrees that broader credit stress does mean sponsors are also facing challenges, and they are holding assets longer due to the difficult exit environment. However, CCAP constructs its portfolio to select credits where sponsors will still continue to support investments, and management focuses on credits where impairment risk is minimal and full recovery is expected.

• Q: Will the full acquisition of Crescent by Sun Life enable CCAP to access lower-cost debt funding going forward? /

  A: Sun Life has been a partner to Crescent for five years, and the full acquisition was a pre-negotiated option agreed to five years ago. Sun Life is already a major investor in CCAP (holding both equity and unsecured debt) and is a dominant player in the private debt placement market, creating potential for favorable funding support, though no explicit new lower-cost funding arrangements were announced.