Crescent Capital BDC, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Crescent Capital BDC Inc. fourth quarter and year-ended December 31st earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question at that time, please press star then 1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference over to your host, Mr. Dan McMahon, Vice President and Head of Investor Relations. Sir, you may begin.

Thank you. Good morning, and welcome to our fourth quarter and year-ended December 31st, 2020 earnings conference call. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC, or the company throughout the call. Before we begin, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in CCAP's filings with Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, CCAP issued its earnings press release and posted an earnings presentation for the fourth quarter and year-ended 2020. The presentation, which is available on the company's website under the investor relations section, will be referenced throughout today's call and should be reviewed in conjunction with the company's Form 10-K filed yesterday with the SEC. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be Jason Breaux, Chief Executive Officer of CCAP, and Gerhard Lombard, Chief Financial Officer of CCAP. With that, I'd now like to turn it over to Jason.

Thank you, Dan. Good morning, everyone, and thank you for joining us today. We appreciate your continued interest in CCAP. For those of you who are new to CCAP, our investment strategy is, and since inception has been, to focus on providing financing solutions to healthy, resilient middle market companies that are backed by strong, partnership-oriented private equity sponsors. Today, I'll highlight our strong fourth quarter and full year results, review our current positioning, provide an update on our acquisition of Alcentric Capital Corporation, which closed just over a year ago, and touch on a few more announcements. Gerhard will then discuss our financial results in more detail and review our liquidity profile. So let's begin. Please turn to slide five, where you'll see a summary of our results. For the fourth quarter, we reported after-tax net investment income of 47 cents per share, which concluded a strong year for CCAP despite the challenging macro backdrop. We're appreciative of how our team managed through the difficult conditions created by the COVID-19 pandemic. and we believe our performance is consistent with Crescent's nearly 30-year history of managing assets through multiple market cycles. Our net asset value per share increased approximately 4.2% in Q4 to 1988. Gerhard will walk through the key drivers in more detail, but the increase was primarily driven by a net change in unrealized appreciation specific to certain individual portfolio companies, and net unrealized mark-to-market gains related to the tightening of credit spreads relative to the end of the third quarter. It's worth noting that NAV is up 2% year-over-year, meaning we've recovered more than all of the attrition experienced in the first quarter. With our total investment portfolio carried at 102% of cost as of year-end versus 91% of cost at March 31, we are comforted by the quality of the portfolio and its performance despite the significant challenges the past year presented. Slides 12 and 13 of the presentation provide a snapshot of the portfolio. We ended the year with over $1 billion of investments at fair value across 132 portfolio companies, with an average investment size of less than 1% of the total portfolio. Our investment portfolio, which grew approximately 42% year over year, consists primarily of senior secured first lien and unit launch first lien loans. We are well diversified across 20 industries and lend primarily to private equity-backed companies. 99% of our debt portfolio was in sponsor-backed companies as of year-end, consistent with prior quarters. For the fourth quarter, our portfolio companies generally continue to perform well. 119 out of our 120 debt investment portfolio companies, representing 99% of total debt investments at fair value, made full scheduled principal and interest payments. This compares to 116 out of 118 in the prior quarter. Pick interest represented less than 5% of total investment income for the quarter and year-to-date periods, and our investment in NMSC Holdings, or NAPA Management, moved back to cash pay from PIC in Q4. Two additional positive credit trends are outlined on slide 16. Improved internal performance ratings and declining non-accruals. Our weighted average portfolio grade of 2.1 improved modestly over last quarter, and the percentage of risk-rated one and two investments, the highest ratings our portfolio companies can receive, increased to 87.5% of the portfolio at fair value as compared to 79.4% last quarter. As of year end, we had investments in two portfolio companies on non-accrual status, representing 1.7% and 1.3% of our total in debt investments at cost and fair value, an improvement from 3.8% and 2.1% from the prior quarter. During the fourth quarter, no new loans were placed on non-accrual and two investments, Systems Maintenance Services and MCS, came off of non-accrual following restructurings. Moving to our investment activity, please turn to slide 14. In conjunction with the economic and capital markets recovery during the back half of the year, Crescent's scaled direct origination platform allowed us to see a large set of opportunities in the financing market which led to a record 124 million in gross deployment in the fourth quarter, the largest origination level for CCAP in any quarter since our inception. We closed on nine new investments and five follow-ons, totaling 101 million and 6 million, respectively, with the remaining 17 million coming from revolver and delayed draw term loan activity during the quarter. All nine of the new investments were private equity-backed loans at 575 to 850 basis point spreads, each with a 1% LIBOR floor and OIDs between 1.75 and 3%. In addition, loan-to-value levels remain attractive, averaging below 40% for these transactions. The $124 million in gross deployment compares to $77 million in aggregate exits, sales, and repayments in the quarter. During periods of volatility like we experienced in 2020, we believe Crescent's reputation as a reliable partner and ability to offer surety of capital and scale financing solutions to the sponsor community are critical competitive advantages, particularly as non-bank lenders continue to become the financial backbone of the private debt markets in the United States. It's worth highlighting that the $101 million CCAP invested in the nine aforementioned new deals represents only 9% of the $1.1 billion total check size committed to these deals across the full Crescent platform. We're off to an active start in 2021 from a deployment perspective, underwriting several high-quality new opportunities. Since January 1, we've closed on four new investments for $39 million and four add-ons for $9 million. The new investments are all private equity-backed Unitronch loans, with spreads, LIBOR floors, and other characteristics fairly comparable to the aforementioned Q4 investments. Looking forward, we continue to see an attractive pipeline of new opportunities, and will continue to participate alongside the broader Crescent platform on all new investments that fit within our mandate. We remain optimistic that the continued firming economic conditions and healthy amounts of sponsor capital may provide a supportive backdrop for stronger deal activities throughout the year. Shifting gears, I'd now like to spend a minute on our acquisition of Alcentra Capital Corp., which we completed just over a year ago now. Please turn to slide 17. When we announced the transaction in the summer of 2019, I noted that through the merger, CCAP would enhance its asset diversification while still staying true to our core strategy of maintaining a high-quality, senior-secured, first lien-focused portfolio, amongst other benefits. As you can see on the slide, performance of the acquired portfolio has been strong, generating a 25% IRR, a healthy level of realization activity to date. At the time of announcement, CCAP's investment portfolio was $625 million at fair value, across 91 investments, and was pro forma for Alcentra, 73% first lean. As of the year ended 2020, our investment portfolio eclipsed $1 billion for the first time. Diversification has never been stronger, with 132 portfolio companies and an average investment size of less than 1% of our total portfolio, as I previously noted. and the percentage of the combined portfolio in first liens has improved as well. We continue to believe that this transaction served as an important step in our continued growth trajectory as a scaled BDC, ultimately demonstrating our ability to underwrite and obtain approval for a strategic and accretive pool of assets. I'd now like to cover a few more updates before I turn it over to Gerhard. First, we thought it would be helpful to provide everyone with an update on our fee waiver. As a reminder, since CCAP's inception in 2015, we have been operating with fee waivers in place, highlighted by a 75 basis point management fee that was applicable prior to our exchange listing. Although our management fee is 1.25% and our incentive fee is 17.5%, our advisor agreed for six quarters post-listing to preserve our industry-low 75 basis point management fee and to charge no income-based incentive fee. While this current waiver is set to expire on July 31st this year, our advisor has notified our Board of Directors of its intent to voluntarily waive income-based incentive fees to the extent our net investment income falls short of the declared dividend. We expect that this new incentive fee waiver will become effective upon the expiration of the current waiver on July 31 and continues through the end of 2022. Sitting here today, we would expect net investment income to trail our regular dividend level beginning in Q4 without the introduction of this new waiver. Importantly, over time, we believe we can support the dividend from an earnings standpoint without the need for waivers. The key factor to help us drive continued earnings growth is ramping our portfolio to our target leverage level while maintaining our focus on credit quality. While we remain pleased with the quality of our portfolio, the economic climate for much of 2020 presented challenges to our goal of progressing to scale on the portfolio. Deployment levels in the first half of the year and into the summer months lagged our historical pace as transaction activity slowed materially and we took a cautious approach to investing. While it will take additional time for us to fully scale the portfolio to our target leverage level, we want to ensure that we remain aligned with the interests of our stockholders as we continue to grow by obtaining our advisor's commitment to this incremental income-based incentive fee waiver. Next, on January 5th, Crescent, parent of the advisor to CCAP, and Sun Life consummated the previously announced transaction whereby Sun Life acquired a majority economic ownership interest in Crescent. Crescent is now a part of SLC Management, Sun Life's alternative investment management platform. As a reminder, the same team that was responsible for the investments and operations of CCAP prior to the close of the transaction continues to focus on executing the same proven investment strategies and processes as we always have. As we have previously disclosed, Sun Life has advised us that it intends to purchase up to 10 million of CCAP stock in the secondary market over time, demonstrating its alignment with CCAP stockholders. Such repurchases are expected to be made pursuant to a 10 plan, and we expect to announce the implementation of such plan prior to the time that shares of such common stock are purchased thereunder. Last week we announced that we agreed to issue $135 million in aggregate principal amount of 4% senior unsecured notes due February 2026. The notes will intentionally be issued in two separate closings. The initial issuance of $50 million of notes closed on February 17th, and we expect the second closing for the remaining $85 million to occur on or before May 17th. which is beneficial in terms of managing our interest expense as we continue to deploy capital over the next several months. This financing helps to further diversify our funding sources, provides us with a more flexible capital structure, and allows us to lower our utilization under our secured revolving facilities. As of year end, our debt to equity ratio was 0.85, well below our longer-term target range of 1.1 to 1.4 times. So the enhanced flexibility this issuance affords us is particularly beneficial as we continue to deploy capital into an attractive and increasingly robust investment pipeline. Two more quick items before I turn it over to Gerhard. The expiration of the third and final tranche of our share lockup occurred on February 2nd, increasing CCAP's public float from approximately $20.6 million to all 28.2 million shares outstanding. And finally, our Board has declared a normal $0.41 per share quarterly cash dividend for the first quarter of 2021. I will now turn it over to Gerhard to cover additional details on the quarter. Gerhard?