KBRA Assigns Rating to Crescent Capital BDC, Inc.'s $50 Million Senior Unsecured Notes due 2026
28 Jul 2023 | New York
KBRA assigns a rating of BBB- to Crescent Capital BDC, Inc.'s ("CCAP", "Crescent", or "the company") $50 million 7.54% senior unsecured notes due July 28, 2026. The rating Outlook is Stable.
Key Credit Considerations
The ratings and Stable Outlook are supported by CCAP’s investment portfolio of $1.6 billion at fair value, as of 1Q23, comprised mostly of senior secured first lien loans at 89%, with diversification that spans 187 portfolio companies within 20 industries. The top three portfolio sectors are 28% Health Care Equipment & Services, 19% Software & Services, and 14% Commercial & Professional Services. Crescent focuses primarily on sponsor backed companies (99%) with an average EBITDA of $26 million. Leverage remained moderate at 1.23x in 1Q23, near the midpoint of the company’s target range of 1.0x and 1.40x, allowing for an adequate cushion in less favorable market conditions. The ratings are also supported by the company’s affiliation with a large and established external investment advisor, Crescent Capital Group LP ($40+ billion AUM) which has more than 30 years of history in leveraged finance and has weathered many recessions, along with SEC exemptive relief to co-invest among the Crescent Capital Group LP affiliates in private credit transactions. The company added incremental unsecured debt from the March 2023 acquisition of First Eagle Alternative Capital BDC ("FCRD"), boosting its unsecured debt to total debt to 34%. The company’s liquidity is strong with minimal two-year debt maturities. Crescent benefits from increasing interest rates as 99% of its loans are floating rate while 66% of its debt is floating rate. The weighted average yield on the investment portfolio was 11.4% in 1Q23 compared to 7.5% in 1Q22.
Strengths are counterbalanced by the potential risks related to CCAP’s business as a regulated with the illiquid nature of the assets, and retained earnings constraints as a Regulated Investment Company (RIC). Crescent had 8 portfolio companies on non-accrual status, as of 1Q23, comprising 1.9% and 2.5% of total investments at fair value and cost, respectively, increasing from 1.1% and 1.9%, respectively, at 4Q22 due principally to the acquisition of legacy assets from FCRD with the potential for further increases in light of a potential recession.
Formed in 2015, Crescent Capital BDC, Inc. is a closed-end publicly traded business development company, regulated under the Investment Company Act of 1940, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company’s stock trades on the NASDAQ under the symbol CCAP with market capitalization of $561 million, as of June 30, 2023. The company is headquartered in Los Angeles, CA.
The ratings for CCAP are unlikely to be upgraded in the intermediate term. The Outlook could be changed to Positive with the maintenance of stable asset quality and earnings metrics, along with prudent leverage. The Outlook for CCAP could be revised to Negative or the rating could be downgraded if a prolonged downturn in the U.S. economy materially impacts performance and non-accruals materially impact capital leverage and liquidity metrics. An increased focus on riskier investments or a significant change in the current management structure coupled with a negative change in strategy, credit monitoring, and/or originations could pressure ratings.
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