Crescent Capital BDC, Inc. (CCAP) Q1 2026 Earnings Call Transcript

Thank you.

Yesterday, after the market closed, the company issued its earnings press release for the first quarter ended March 31, 2026, and posted a presentation to the investor relations section of its website at www.crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be CCAP's Chief Executive Officer Jason Brough, Chief Financial Officer Gerhard Lombard, and President Henry Chung. With that, I'd now like to turn it over to Jason.

Thank you, Dan, and good morning, everyone. Before turning to our results, I want to frame the quarter in a more volatile factor. Against this factor, this reflects a continuation of recent quarters. These issues are concentrated and are being actively With the expectation of challenging credit and fees conditions over the market, reported NII on fees, effective April 1, our fee structure was among the most competitive in the BDC sector. Changes we announced today bring CCAP's fee structure back towards the most competitive end of the $0.42. Believe this new base dividend, fully earned income, actively managed support the completed transaction, making it a wholly owned subsidiary of CCAP's unsignificant.

It's significant and on the change in NII from new non-appruals. We ended the quarter with net leverage, firstly above our target who declared a regular dividend of 30% on July 5th by year-over-year.

Approximately 86% of investments are rated one or two unchanged quarter-over-quarter, representing performance at or above our underwriting expectations, with a weighted average portfolio risk rating of 2.1 that has also remained stable. Lastly, the 2.2 times, demonstrating continued resilience in underlying, ranging from different factors, these investments, agency roles, confidence in our ability, companies, conditions, and businesses, increased add-on activities, 14 new platforms.

The $8 million was investing in challenging trends in certain segments of the portfolio, and the durability of our earnings profile, and enhanced shareholder value, including reducing management and incentive fees, and resetting our base dividends, and is seeing an increasingly attractive opportunity set. We appreciate your continued support and look forward to updating you next quarter. Operator, please open the line for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert Dodd with Raymond James. Your line is open. Please go ahead.

First, I want to say congrats or whatever word for it is on the free adjustment and getting back into kind of the leading group in the space in terms of structure on that. Then on the kind of focus on the non-accords and obviously Phil kind of addressed it, I mean it's been a theme obviously with your portfolio this quarter, few others over the last couple of quarters in terms of healthcare and there's disparate issues between all of those things. But I mean when do you how comfortable are you now that you have your hands around the issues for the specific assets or just kind of the healthcare themes in general? I mean, there are multiple different ones, but they've been affecting a lot of portfolio companies, and just elsewhere as well. So, I mean, are there still developments progressing in healthcare that are kind of like catching you and others kind of by surprise, flat-footed, whichever way you want it. I mean, yes, they've been on the watch list for a while, but it seems to have accelerated in terms of the problems recently.

Hi, Robert. This is Henry. I'll take that. You know, there's a lot of people popping up on nonaccrual. I think in terms of the observation that we're seeing in our portfolio in health care, there's certain pockets within health care that I'd say are certain of being or having a – but I think as we take a step back here and we look at the different drivers, while these are all classified in health care, they're quite different in terms of business model, in terms of what this is, whether it's a labor cost issue, whether it's a execution-related misstep by the sponsor, whether it's a reimbursement dynamic. It's difficult to say that this is really something that we're seeing that's broad-based within the space or within the portfolio as well. It's, you know, I look at these as four distinct strivers in terms of what's creating operating pressure at businesses. So looking forward, you know, as I think about the health care in our portfolio, we certainly are continuing to keep a close eye in terms of how these pressures are potentially surfacing within our portfolio. But I would say, by and large, as we think about how we've captured them in our watch list as well as their non-accruals, we certainly do feel like we have a good handle in terms of what's on today. fully recognizing that we're in an environment where on a quarter-to-quarter basis there can certainly be volatility in terms of just how these actual businesses perform on a quarter-to-quarter basis.

Got it. Thank you. Just kind of a crystal ball, how much of these issues have been exacerbated by inflation, wage inflation, et cetera? I mean, is there a risk that, given the latest inflation from the other day, et cetera, I mean, could things deteriorate further from here? I mean, I think in your presentation, I think you said you, you know, mark the assets now rather than dribbling things in, which is a good thing, so congrats on doing that. But, I mean, is, you watch the confidence that that is it, so to speak, and things couldn't get worse, driven more by, in this context, more by macro factors. Is that still a meaningful threat to these businesses?

Yeah, I think that's something that has pressured these businesses for the better part of the last two years now, and in particular on the wage inflation side, you know, it's been sticky. We've certainly seen the clip at which wage increases have demonstrated within these cost structures as slowing down, but they're still elevated to in 2023, and we haven't seen a reversal of those trends. And to be honest, we don't expect to see a reversal in the trends, and we factor that into how we value the assets and how we determine the accrual status of these assets. So when I think about how we're positioned here, we're not necessarily waiting for better outcomes with respect to wages to think about how we mark the positions and just the accrual status. We want to make sure that we're being conservative here. And I would say that what we – how we've kind of thought about value and how we've thought about our watches today.

Your next question comes from the line of Christopher Nolan with Landenberg-Thalman. Your line is open. Please go ahead.

Thanks for taking my questions. And I echo Robert's congratulations on restructuring on the fee. Continuing on the non-accruals, I presume they're all sponsored companies. Were they different sponsors? And because they're not accruing, I presume the sponsor is not getting any dividends or anything from these investments. Is that a correct assumption?

That's correct on both fronts. These are all sponsored-backed companies. And then the second piece as well is it's customary as a business well in advance of typically when we determine our accrual status, dividends or management fees because those outflows of cash are subordinated to our – And then given that overwhelmingly your business seems to be focused on providing debt to sponsored companies, And given, I mean, from my chair, I've seen, you know, deteriorating asset quality across BDCs in general.

But that must mean that the private equity sector must be under stress. And going forward, doesn't this create a greater risk to your business model since these sponsors would have less capacity to support these problematic businesses just because, you know, if private credit is getting cold, private equity is getting pneumonia.

Hey, Chris, it's Jason. Thanks for that question. I think it's something that we've seen elevated that means that experiencing challenges in their portfolios. I would say, hopefully, you know, in most cases, if we've done to try to continue to support, I do think that there will be some continued triage taking place across sponsor-backed portfolios. And certainly, with some of these non-accools, we will end up owning these days. But, you know, Crescent's philosophy has always been the credits, The credit's where we think loss of risk of impairment is minimal. I agree with you. These are more challenged times. Sponsors are holding on to assets longer than they ever have. Also increasingly challenging and zero-based rates to meet as a conference of events that have driven COVID are just it's all.

If I can ask one more, the Sun America tie-up, will that in any way enable you guys to get lower-cost funding, debt funding going forward?

Mike, I think you're referencing, Chris, which we entered into an agreement with Sun Life five years ago where Crescent sold a majority stake to Sun Life. And as I mentioned on the remaining five years ago as an option for Sun Life. They've been a terrific capital partner for us, very supportive, some of the figures in the prepared remarks. But they own equity in CCAP. They own unsecured debt in CCAP. They're actually a dominant placement market, debt-private placement market. They've also supported us across a number of our – You answered my question.

Thank you for taking my questions.

There are no further questions at this time. I will now turn the call back to Jason Grove for closing remarks.

Thank you, Operator. And thank you all for joining our Q1 earnings call. We continue to believe that this portfolio is well-positioned over the long term, and we are excited to demonstrate alignment with our shareholders through our fee structure. I look forward to continuing our dialogue with you next.

This concludes today's call. Thank you for attending. You may now disconnect.