Crescent Capital BDC, Inc.

Thank you for standing by and welcome to the Crescent Capital BDC third quarter 2021 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one on your telephone. As a reminder, today's program may be recorded. I would now like to introduce your host for today's program, Dan McMahon, head of investor relations. Please go ahead.

Good morning, and welcome to Crescent Capital BDC, Inc.' 's third quarter ended September 30th, 2021 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'll start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. During this conference call, we may discuss certain non-GAAP measures as defined by SEC Regulation G, such as adjusted net investment income, or NII, per share. The company believes that adjusted NII per share provides useful information to investors regarding financial performance because it's one method the company uses to measure its financial condition and results of operations. A reconciliation of adjusted net investment income per share to net investment income per share, the most directly comparable GAAP financial measure can be found in the accompanying slide presentation for this call. In addition, a reconciliation of this measure may also be found in our earnings release. Yesterday, after the market closed, the company issued its earnings press release for the third quarter ended September 30, 2021, and posted a presentation to the Investor Relations section of its website at www.crescentpdc.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 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. We appreciate your continued interest in CCAP. For our call today, I'll provide a few highlights from this quarter's results, review our investing activity, provide some thoughts on our current portfolio and positioning, and touch on a few more updates before turning it over to Gerhard to review our quarterly financial results in more detail. So let's begin. Please turn to slide six, where you'll see a summary of our results. We reported strong third quarter financial results with adjusted net investment income of 48 cents per share. Similar to the prior two quarters, we accrued a capital gains-based incentive fee expense related to changes in net realized and unrealized gains and losses. This non-cash expense, which was not paid and is not payable, was approximately $0.03 per share for the quarter. Our Q3 net investment income per share, inclusive of the accrued capital gains-based incentive fee expense, was $0.45 respectively. As a reminder, the capital gains expense is only payable at the end of each fiscal year based on our investment advisory agreement. If we were to hypothetically end the year as of September 30, the 22 cents per share of cumulative accrued capital gains incentive fee expenses that we had at quarter end would not be paid or payable since the gains must be realized in order for us to be eligible to receive the fee. Turning back to our results, our net asset value per share increased for the sixth consecutive quarter, up approximately 1% in Q3 to $21.16, the highest value since CCAP's inception. Gerhard will walk through the key drivers in more detail, but the increase this quarter was primarily driven by a net change in unrealized appreciation specific to certain portfolio companies coupled with our net investment income outpacing the dividend per share. Since our listing in early 2020, prior to the onset of COVID, NAV per share has grown 8.5%, and from a total economic return perspective, which is change in NAV plus cumulative dividends paid, we've generated 23.2%. Let's now shift gears and turn to slides 13 and 14 of the presentation, which provide a snapshot of the current portfolio. We ended the quarter with over $1.1 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 continues to consist primarily of senior secured first lien and Unitranche first lien loans. We are well diversified across 20 industries and lend primarily to private equity-backed companies. 100% of our debt portfolio was in sponsor-backed companies at the quarter end, and 84% of the portfolio at fair value was first lien as compared to 80% in Q2, driven by our origination activity in the quarter as outlined on slide 15, which I'll touch on shortly. For the third quarter, 120 out of our 121 debt investment portfolio companies, representing over 99% of total debt investments at fair value, made full scheduled principal and interest payments. And PIC interest represented approximately 1% of total investment income in Q3. 93% of our debt investment portfolio today is marked above $0.95 on the dollar, with an average mark of approximately $0.98. Two more positive credit trends are outlined on slide 17, continued strong performance ratings and non-accrual levels. Our weighted average portfolio grade of 2.1 was unchanged as compared to last quarter, and the percentage of risk-rated one and two investments, the highest ratings our portfolio companies can receive, increased to 89.4% of the portfolio at fair value as compared to 88.1% last quarter. As of quarter end, we had investments in two portfolio companies on non-accrual status, representing 1.5 and 1.1% of our total debt investments at cost and fair value, respectively. Moving to our investment activity, please turn back to slide 15. Focusing on the left-hand side of the page, we had an active quarter with $158.5 million in gross deployment. Nearly all of the activity where approximately 95% was in senior secured first lien or unit launch investments. All told, we closed on 12 new investments and 10 follow-ons, totaling $116 and $16 million respectively, with the remaining $27 million coming from revolver and delayed draw term loan activity. All 12 of the new investments were private equity-backed loans at 500 to 675 basis point spreads, and OIDs between 1% and 2.75%. In addition, loan-to-value levels remain attractive, averaging approximately 41% for these transactions. The $158.5 million in gross deployment compares to $122.8 million in aggregate exits, sales, and repayments in the quarter. It's also worth highlighting that CCAP's total commitments for the 12 aforementioned new deals represented only 14% of the approximately $1.2 billion total check size committed to these deals across Crescent, highlighting the scale of our platform. Activity thus far in the quarter has been strong. For the month of October, we closed on six new and four follow-on investments, totaling $49 million and $15 million, respectively. The six new investments are each private equity-backed, first lien or unit tranche loans, with spreads and other characteristics comparable to the aforementioned Q3 investments. As we sit here today, our origination pipeline for the remainder of Q4 is robust. Coupled with an expectation for a slowdown in prepayment activity, we think Q4 may end up being the strongest net deployment quarter of the year, driving continued investment portfolio growth and a further increase in our debt-to-equity profile as we approach the lower end of our target range. A few more updates before I turn it over to Gerhard. First, a quick update on our acquisition of Alcentric Capital Corp., which, as a reminder, we completed in Q1 of 2020. Please turn to slide 18. As you can see on this slide, performance of the acquired portfolio has been strong, generating a 28% IRR with a healthy level of realization activity through September 30th. Almost all or 97% of our cost basis in the acquired assets has been realized, and the approximately $84 million in remaining fair value translates to about 7% of CCAP's total investment portfolio as of quarter end. Overall, we are pleased with this outcome thus far, which has been accretive to CCAP and our stockholders. Second, in mid-October, Sun Life completed its stock purchase program, having acquired 10 million of CCAP stock pursuant to its 10B51 plan, demonstrating its alignment with CCAP stockholders. Sun Life has advised us that it seeks to introduce a second 10B51 plan of comparable size to the first plan. We believe that our stock's current discount represents a particularly compelling opportunity to acquire shares in what we view as an increasingly well-diversified, defensively constructed first lien focused BDC that has committed to ensuring 100% dividend coverage via incentive waivers on an as needed basis through 2022. Finally, for the fourth quarter of 2021, our board declared a 41 cent per share quarterly cash dividend payable on January 17, 2022 to stockholders of record as of the close of business on December 31. Our board has also approved a series of four consecutive quarterly special cash dividends of $0.05 per share beginning this quarter. As we've historically over-earned our base dividend, our spillover income has grown to approximately $0.48 per share as of quarter end. The payment of approximately half of this balance in the form of special dividends serves to enhance our capital efficiency by eliminating some of the excise tax drag on our spillover income which provides for a modest ROE uplift on an annualized basis. The first special cash dividend is payable on December 15 to stockholders of record as of the close of business on December 3, and the second, third, and fourth 5-cent specials will be paid on the 15th of March, June, and September 22, respectively. The record dates for these payments have been disclosed in our 10-Q and earnings release And again, all of these have already been approved by our board of directors. With that, I'll now turn it over to Gerhard to cover additional details on the quarter. Gerhard.