Crescent Capital BDC, Inc. Q4 FY2025 earnings call

• Fourth quarter net investment income was 45 cents per share, with earnings over-earning the quarterly dividend. Board declared a quarterly cash dividend of 42 cents per share for the first quarter of 2026. - Asset value declined due to unrealized losses, but broader portfolio is fundamentally healthy with stable credit metrics, strong sponsor support. - Private credit platform was active in 2025 with over $6.5 billion of capital committed, including over $1.7 billion in the fourth quarter. Add-ons represented over half of transactions. - Operating in a competitive private credit market with tighter spreads and evolving deal structures. Private equity has subdued exit activity with sponsors favoring recapitalizations, but seeing some re-engagement in M&A as rate pressures ease. - Portfolio is highly diversified with 184 companies, 91% first lien loans, 99% in sponsor-backed companies. Weighted average loan to value is approximately 40%. 71% of portfolio includes covenants. - Gross deployment in fourth quarter totaled $71 million, with $29 million in five new platform investments and $42 million in incremental investments in existing portfolio companies. Net realizations were approximately $7 million. - Weighted average stated interest rates on total borrowings were 5.83% as of year-end, down from 5.99% quarter-over-quarter. Debt-to-equity ratio was 1.25 times or 1.2 times net of balance sheet cash, within target range. $242 million of undrawn capacity and over $30 million of cash and cash equivalents as of year-end.

Fourth quarter net investment income was 45 cents per share, compared to 46 cents in the prior quarter. Asset value was $19.10 per share as of December 31, down from $19.28 per share as of September 30. Net debt to equity was 1.20 times at year-end. Software and services represent approximately 20% of the portfolio. Weighted average yield on income-producing securities at cost decreased 40 basis points quarter over quarter to 10%. Weighted average interest coverage of portfolio companies improved to 2.2 times. Non-accruals increased from 3.3% and 1.6% as of September 30th to 4.1% and 2% as of December 31st, but pro forma non-accruals decreased to 1.4% and 3.2% of debt investments at fair value and cost in January.

• Board declared a quarterly cash dividend of 42 cents per share for the first quarter of 2026, payable on April 15, 2026, to stock orders of record as of March 31, 2026. - Management and board are actively reviewing options to ensure durable earnings and attractive returns across market cycles, with more fulsome update expected in May when reporting next quarter's results. - Expect to see continued activity in private credit, with origination and refinancing volumes normalizing, and structuring fees and accelerated amortization income as incremental contributors to earnings. - View long-term outlook for private credit favorably, with discipline underwriting, thoughtful selectivity, and active portfolio management essential to driving strong performance.

• Unrealized losses in portfolio due to market volatility and certain credit-specific marks. - Non-accruals increased in fourth quarter, driven by idiosyncratic company-specific issues. - Competitive private credit market with tighter spreads and evolving deal structures, which could impact margins and deal opportunities. - Elevated redemption activity in the perpetual non-traded BDC space may potentially affect supply-demand dynamic. - Lower base rates impacting yields across the space, which could affect earnings power. - Potential challenges in the software and services sector, such as the outlook degradation of certain investments and challenges in the third-party logistics sector affecting Transportation Insight investment.

Q: Asked about what kind of things the review with the board includes regarding long-term earnings durability and dividend structure.

A: Henry responded that the review includes evaluation of fee structure and base dividend level relative to forward earnings expectations, focusing on near-term stability and adapting to lower-rate environment.

Q: Asked about details of investments sold and non-accruals.

A: Mickey said realized gain was from an investment sold during the quarter that was previously on non-accrual and realized above cost basis. Unrealized losses were from two investments placed on non-accrual in the quarter, Generate and Transportation Insight. Pro forma non-accruals as of January were approximately 1.4% of fair value and 3.2% of cost.

Q: Asked about rationale for rotating proceeds into new investments instead of taking advantage of deep discount NAV.

A: Explained that current buyback program is in place, but weighing buybacks against investment pipeline and relative attractiveness of new deals vs share repurchases, with focus on reinvesting for durable income.

Q: Asked about supplemental dividend policy.

A: Stated supplemental dividend is still in place, with measurement test showing no supplemental dividend for Q4 earnings due to two-quarter look back on NAV.

Q: Asked about software and services portfolio exposure and reinvestment plans.

A: Henry said software and services represent 20% of the portfolio, with strong performance, focusing on mission-critical software with high switching costs, not doing ARR loans, and will continue to invest in software with appropriate characteristics if they exhibit durable cash flow attributes.