Crescent Capital BDC, Inc.

Good afternoon, ladies and gentlemen, and welcome to the Crescent Capital BDC, Inc. Fourth Quarter Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you need assistance, please press star zero for the operator. This call is being recorded on Thursday, February 22, 2024. Now let's turn the conference over to Dan McMahon. Please go ahead.

Good morning. and welcome to Crescent Capital BDC, Inc.' 's fourth quarter and year-ended December 31st, 2023 earnings conference call. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent PDC, 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 fourth quarter and year ended December 31st, 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-K 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 Chief Executive Officer, Jason Brobe, Chief Financial Officer Gerhard Lombard, and Managing Director Henry Chung, who was recently appointed to serve as President of CCAP. 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 provide some fourth quarter and full year highlights, touch on our current portfolio, and provide some commentary on what we are seeing in the market. 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 fourth quarter. Let's begin. Please turn to slide seven. The headline is that CCAP had an excellent quarter. After the market closed yesterday, we reported net investment income of 61 cents per share for the fourth quarter, corresponding to an annualized NII ROE of 12.4%. The $0.61 per share of NII is up from $0.59 per share in the prior quarter, which culminated in a year of record net investment income of $2.30 per share. These results largely reflect the continued strong credit performance of our portfolio and the earnings benefits of higher market interest rates on our primarily floating rate portfolio. The strength of our earnings and positive valuation momentum in our portfolio also led to growth in our net asset value, which increased 1.7% in the quarter and 1.1% year-over-year to $20.04 per share. Net income per share was 83 cents in the fourth quarter, corresponding to an annualized ROE of 16.9%. Please turn to slides 14 and 15 of the presentation, which highlight certain characteristics of our portfolio. We ended the year with approximately $1.6 billion of investments at fair value across the highly diversified portfolio of 186 companies, with an average investment size of approximately 0.5% of the total portfolio. We have deliberately maintained an investment portfolio that consists primarily of senior secured first lien and unit-launched first lien loans, collectively representing 89% of the portfolio at fair value at year-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 portfolios with greater second lien and subordinated debt exposure. We have focused our investing efforts on non-cyclical industries with high free cash flow characteristics and remain well diversified across 20 industries. Our investments are almost entirely supported by well-capitalized private equity sponsors. with 98% of our debt portfolio in sponsor-backed companies as of year-end. We've been pleased with the fundamental performance of our portfolio, as indicated by our performance ratings and non-accrual levels. Our weighted average portfolio grade of 2.1 remained stable quarter-over-quarter, and on page 18, you will see that the percentage of risk rate of one and two investments, the highest ratings our portfolio companies can receive, accounted for 87% of the portfolio at fair value. As of year end, we had investments in nine portfolio companies on non-accrual status, representing 2.0 and 1.9% of our total debt investments at cost and fair value, respectively. Moving to the market backdrop, over the past year, we've largely operated in an environment where the ongoing impact of higher interest rates and future rate uncertainty have constrained new LBO activity. These dynamics weighed on the deal environment for most of 2023, as evidenced by U.S. LBO transaction volume reaching its lowest level in 10 years and down nearly 40% from the trailing 10-year average. However, during the fourth quarter, we did see a meaningful improvement in deal volume relative to the first three quarters of 2023, and the consensus seems to be that this trend is going to continue. On the demand side, private equity dry powder is at record levels, and on the supply side, 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 with motivated sponsor buyers and sponsor sellers we are cautiously optimistic about deal volumes for 2024. given crescent's deep relationships with private equity sponsors that span in excess of three decades we are well positioned to benefit from an increase in lbo activities For the fourth quarter, we are pleased to declare a supplemental dividend of 10 cents per share, one penny higher than last quarter's supplemental dividend, payable on March 15. As a reminder, these supplemental dividends are calculated as 50% of net investment income in excess of our regular 41 cent per share dividend, subject to a measurement test. The increased supplemental dividend comes from a record earnings quarter and our maintained focus on aligning ourselves with our shareholders. While future supplemental dividend declarations are at the discretion of our Board of Directors, it is our intent and expectation that CCAP will continue to distribute quarterly supplemental dividends for the foreseeable future given base rates are above historical averages and we have meaningful undistributed taxable income, which is generated by earnings in excess of our dividends. Our Board has also declared a regular dividend of 41 cents per share for the first quarter. payable on April 15, 2024, which represents the 21st consecutive quarter of CCAP paying a regular dividend of 41 cents. Together with the 10 cent supplemental, these distributions correspond to an annualized dividend yield of 10.2% based on CCAP's NAV per share as of December 31, 2023. I'd now like to turn it over to Henry to discuss our Q4 investment activity and portfolio commentary.