Crescent Capital BDC, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Q3 2023 Crescent Capital Incorporated 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. This call is being recorded on Thursday, November 9, 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 third quarter ended September 30th, 2023 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. The reconciliation of adjusted NII per share to NII 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 30th, 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 third quarter results before discussing the current market environment in more detail. I'll then turn it over to Henry to review our recent investing activity and portfolio performance. Gerhard will then review our financial performance for the third quarter. Before we begin, you will note the presentation format has changed. We trust the content remains helpful in providing an overview of CCAP's performance. The revised format is Crescent's brand refresh, which reflects the growth and consistency of our firm investing in private and tradable corporate credit over the past 30-plus years. Let's begin. Please turn to slide 6, where you'll see a summary of our results. For the third quarter, we reported record net investment income of $0.59 per share, up from $0.56 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 regular dividend by 44%. We also paid our first supplemental dividend in September, which was $0.08 per share, and announced on last quarter's call. CCAP's over-earn of the combined dividend payments, coupled with unrealized appreciation in the portfolio on a net basis, resulted in net asset value per share of $19.70 at the quarter end, up 0.6% as compared to the prior quarter. For the third quarter, we are pleased to declare a supplemental dividend of 9 cents per share, one penny higher than last quarter's supplemental dividend, payable on December 15th. As a reminder, these supplemental dividends are calculated as 50% of net investment income in excess of our regular 41 cents per share dividend, subject to a measurement test. Our Board also declared a regular dividend of 41 cents per share for the fourth quarter, payable on January 16, 2024, which represents the 20th consecutive quarter of CCAP paying a regular dividend of 41 cents. Please turn to slides 13 and 14 of the presentation, which highlight certain characteristics of our portfolio. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 185 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 unit tranche 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 of the 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, 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 remained stable quarter over quarter, and on page 17, you will see that the percentage of risk-rated one and two investments, the highest ratings our portfolio companies can receive, accounted for 89% of the portfolio at fair value, up from 87% last quarter. As a quarter end, we had investments in nine portfolio companies on non-accrual status, representing 2.3% and 1.8% of our total debt investments at cost and fair value, respectively. Moving to the current market backdrop, activity levels have picked up in the second half of 2023, with new issuance in the third quarter hitting its highest mark since the rate hike onset in Q1 2022. During the third quarter, market pricing and terms continue to be attractive for new transactions. Credit spreads on new loans are above historical averages, leverage levels are lower, and equity contributions are at historical highs. We've continued to see private credit take share from the broadly syndicated market, which we believe to some extent is a more permanent structural shift. Looking ahead to the remainder of this year and 2024, we expect to see a continued uptick in M&A activity. 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. While these dynamics should lead to an acceleration of sponsor to sponsor portfolio company transactions, the current geopolitical situation perceptions around a slowing economy and potential recession and a higher for longer rate environment continue to weigh on the deal environment. When activity does pick up further, we do believe that Crescent's focus on sponsor-backed opportunities and our deep relationships in the space position us well to benefit. I'd now like to turn it over to Henry to discuss our Q3 investment activity.