Crescent Capital BDC, Inc.

Good morning and afternoon, ladies and gentlemen, and welcome to the Q2 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 know that this call is being recorded on Thursday, August 10, 2023. I would now like to turn the conference over to Dan McMahon. Please go ahead.

Good morning, and welcome to Crescent Capital BDC, Inc.' 's second quarter and to June 30th, 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 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. The 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 second quarter ended June 30, 2023, and posted a presentation to the investor relations section of its website at www.crescentbdc.com. 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 second quarter results before discussing the current market environment in more detail. I'll then touch on our dividend policy before turning it over to Henry to review our recent investing activity and portfolio performance. Gerhard will then review our financial performance for the second quarter. Let's begin. Please turn to slide six, where you'll see a summary of our results. For the second quarter, we reported record net investment income of 56 cents per share, up from 54 cents per share in the prior quarter. This quarter's net investment income continues to reflect the strength and the core earnings power of our portfolio, as we over-earned our base dividend by 37%. This over-earn, coupled with unrealized appreciation in the portfolio on a net basis, resulted in net asset value per share of $19.58 as a quarter end, up 1% as compared to the prior quarter. Please turn to slides 14 and 15 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 approximately 0.5% 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, unchanged from the prior quarter. This speaks to our continued focus on maintaining a defensively positioned portfolio with greater downside protection and lower risk of loss compared to second lien and subordinated debt focused portfolios. 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 a quarter end. We generally believe that private equity sponsors can provide operational and financial support to strengthen their portfolio companies for long-term value creation. In terms of industry composition, you can see on the right-hand side of slide 15 that the majority of our investments continue to be in service-based businesses, with a particular focus on healthcare, software, and 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. A few more credit trends to review. Performance ratings and non-accrual levels. Our weighted average portfolio grade of 2.1 improved from 2.2 last quarter, and the percentage of risk-graded 1 and 2 investments, the highest ratings our portfolio companies can receive, accounted for 87% of the portfolio at fair value, up from 85% last quarter. As a quarter end, we had investments in eight portfolio companies on non-accrual status, representing 2.2% and 1.7% of our total debt investments at cost and fair value, respectively. a decrease from the prior quarter. Moving to the current market backdrop, transaction activity in the second quarter was lighter as compared to the prior year, albeit busier than what we witnessed during the first quarter, given the challenges in the regional banking space. We've seen direct lending continue to gain share from the syndicated markets, with approximately 85% of new issue LBO financing in the U.S. completed by direct lenders in Q2. A lack of CLO issuance and volatility in the BSL market have made certainty of execution and depth of capital in the direct lending space increasingly attractive for issuers. Valuation expectations between buyers and sellers have remained apart for much of 2023 thus far, driving a decline in overall M&A volumes. That said, on the demand side, private equity dry powder is at record levels, and on the supply side, an increasing number of private companies are looking for potential exit opportunities. with many backed by sponsors that may be seeking to monetize longer-held investments. Looking ahead to the remainder of the year and beyond, as buyers and sellers acclimate to the new market environment, we see early signs that LBO volume has picked up despite overall economic uncertainties that continue to exist. Before I turn it over to Henry, I'd like to touch on our dividend policy. On our call in May, we announced our intent to implement a variable supplemental dividend program beginning this quarter. which is the first full quarter of combined results following our acquisition of First Eagle BDC in March. For the second quarter, we are pleased to declare an inaugural supplemental dividend of $0.08 per share, payable on September 15th. As detailed in slide 7 of our earnings presentation, it is calculated as 50% of net investment income in excess of our regular $0.41 per share dividend, subject to a measurement test. PCAP's NII per share has been comfortably outpacing the base dividend for some time, which we have seen accelerate in recent quarters as higher underlying reference rates have resulted in higher portfolio yields given our 99% floating rate portfolio. In looking at the current shape of the forward curve, however, we do expect rates will come down over time, which will impact the entire BDC sector's earnings profile. We believe the formulaic framework offered by our supplemental program ultimately strikes the right balance of increasing total distributions to our stockholders while preserving the stability of our NAV over time across different base rate outlooks. Total dividends of 49 cents per share for the second quarter represent a 10% annualized yield based on our June 30th NAV. I'd now like to turn it over to Henry to discuss our Q2 investment activity. Henry.