Crescent Capital BDC, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Q1 2023 Crescent Capital BDC, Inc. Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Thursday, May 11, 2023, and I would like to turn the conference over to Dan McMahon. Please go ahead.

Good morning, and welcome to Crescent Capital BDC Inc.' 's first quarter and March 31, 2023 earnings conference call. Please note that Crescent Capital BDC 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 not 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, the 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 first quarter ended March 31, 2023, 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 President and Chief Executive Officer, Jason Breaux, Chief Financial Officer, Gerhard Lombard, and Managing Director, Henry Chung. With that, I'd now like to turn it over to Jason.

Thank you, Dan. Hello, everyone, and thank you for joining our earnings call. We appreciate your continued interest in CCAP. I'll begin the call by providing a brief overview of our first quarter results before discussing the current market environment in more detail. I'll then provide an update on our dividend policy before turning it over to Henry to review our recent investing activity. Gerhard will then review our financial performance for the first quarter. Let's begin. Please turn to slide six, where you'll see a summary of our results. On March 9th, we closed on our acquisition of First Eagle BDC. So first quarter results reflect approximately three weeks worth of combined company P&L. Earnings per share metrics are based on weighted average shares outstanding for the period. For the first quarter, adjusted net investment income increased 10% to $0.54 per share from $0.49 per share for the prior quarter. This increase was driven primarily by rising base rates and higher spreads. Our net asset value per share ended the quarter at $19.38 down 2.3% as compared to year end. This decline was attributable to two things. One, transaction costs related to our acquisition of First Eagle BDC, and two, unrealized losses we took to reflect wider credit spreads in the market, which were modestly offset by net realized gains. We tend to focus more on realized gains and losses, which we believe is a more important metric in grading our performance than unrealized gains and losses. which has meaningfully less impact on our longer-term results. Please turn to slides 13 and 14 of the presentation, which highlight certain characteristics of our portfolio. We ended the quarter with nearly $1.6 billion of investments at fair value across a highly diversified portfolio of 187 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, collectively representing 89% of the portfolio at fair value at quarter end, which compares to 90% as of year end. And we remain well diversified across 20 industries and continue to lend almost exclusively to private equity backed companies, with 98% of our debt portfolio in sponsor backed companies as of quarter end. In terms of industry composition, You can see on the right-hand side of slide 14 that the majority of our investments continue to be in services-based businesses, with a particular focus on healthcare, software, commercial, and professional services. This is by design, as Crescent's private credit team has always focused on underwriting free cash flow generative businesses in what we deem to be more recession-resilient industries. With respect to software, our investment focus is providing conventional cash flow-based leverage financing, to more mature sponsor-backed companies. We are not participants in loans to pre-cash flow or annual recurring revenue-based loans. This approach has led to the consistent payment of principal and interest from our borrowers, with portfolio companies representing over 99% of our total debt investments at fair value, making full payments in the first quarter, a figure that's remained stable for some time. As highlighted in our previously released supplemental materials, the acquisition of First Eagle BDC has not resulted in material changes to the credit quality, investment type, or industry focus of our portfolio. A few more credit trends to review. Performance ratings and non-accrual levels. Our weighted average portfolio grade of 2.2 compares to 2.1 last quarter, and the percentage of risk-rated one and two investments, the highest ratings our portfolio companies can receive, accounted for 85% of the portfolio at fair value, down modestly from 87% last quarter. As of quarter end, we had investments in eight portfolio companies on non-accrual status, representing 2.7% and 2.0% of our total debt investments at cost and fair value, respectively. Moving to the current market backdrop, the volatility we experienced in the financial markets in the latter half of 2022 continued during the first quarter of 2023, especially with the challenges in the regional banking space. We believe that the banks remain constrained on new activity due to capital and liquidity concerns, which improves the opportunity set for direct lenders. For example, while M&A activity remained muted for the first quarter, for those deals that did get done, we continued to see a growing preference for surety of execution from sponsors and management teams alike. This is highlighted by the fact that in the first quarter, Over 90% of new LBO financings by count were completed by private capital providers, a market traditionally weighted towards the broadly syndicated channel. Additionally, the opportunities we have seen in recent quarters have demonstrated economic and structural terms that are favorable to prior years. On the topic of regional banks, less than 3% of our portfolio at fair value has top line exposure to regional bank customers. While we believe Crescent has and will continue to benefit from its position as a tenured solutions provider to middle market companies, given the breadth of our origination capabilities and the experience of our team, in the immediate to near term, CCAP is primarily focused on the rotation of our existing portfolio and maintaining leverage in the lower half of our target range, and therefore will be highly selective on new deployment opportunities. The new investment opportunities the platform is seeing are quite compelling in terms of attractive pricing, enhanced call protection, and lower overall leverage levels for high-quality companies. Spreads on new originations are approximately 100 basis points higher compared to a year ago. Switching gears, before I turn it over to Henry, I want to touch on our dividend policy. As CCAP has continued to scale since its inception in 2015, Net investment income and the quarterly base dividend have grown alongside. Following a dozen dividend increases, which began in the second half of 2015, we've paid the current 41 cents per share base dividend every quarter since the beginning of 2019, which represents an 8.5% annualized dividend yield based on our March 31 NAV. We have consistently prioritized earning our dividend, and note that we have earned our dividend in every quarter since inception. Following the Fed's rate hikes beginning last year, our NII per share has begun to more comfortably outpace the base dividend, as was evident over the past few quarters. Because of this dynamic, beginning in the second quarter, we intend to implement a variable supplemental dividend program. The supplemental dividend will be variable each quarter, calculated as 50% of NII in excess of our regular dividend, rounded to the nearest penny and subject to a measurement test. The measurement test will cap the supplemental dividends such that any decline in NAV over the prior two quarters plus the supplemental dividend will be no more than 15 cents per share. For purposes of the initial second quarter calculation, the change in NAV component will only look back one quarter to March 31, which is the first reporting period following the first EGLE BDC acquisition. For all future periods, the prior two-quarter methodology will be applied. The supplemental dividends will be approved by our Board, announced with quarterly results, and paid in the following quarter. We believe this formulaic framework strikes the right balance of increasing total distributions to our stockholders while preserving the stability of our NAV over time. For the second quarter of 2023, our Board declared a $0.41 per share quarterly cash dividend, which will be paid on July 17, 2023 to stockholders of record as of June 30, 2023. Assuming we over-earn $0.41 per share in the second quarter and are not constrained by the measurement test, we'll announce the amount of our first supplemental dividend in conjunction with next quarter's results. I'd now like to turn it over to Henry to discuss our Q1 investment activity. Henry.