KBRA Affirms Ratings for Crescent Capital BDC, Inc.

KBRA affirms the issuer and senior unsecured debt ratings of BBB- for Crescent Capital BDC, Inc. (NASDAQ: CCAP) (“the company"). The rating Outlook is revised to Positive from Stable.

Key Credit Considerations

The ratings and Positive Outlook are supported by the BDC’s well-diversified $1.6 billion investment portfolio comprised predominantly of senior secured first lien and first-out unitranche loans (~89%), the company's ties to its credit investment platform, Crescent Capital Group LP ("CCG"), which is a large investment management company with $42.6 billion of AUM, $31.6 billion of which is concentrated in direct lending, which provides CCAP with the benefit of scale through SEC exemptive relief to co-invest alongside other accounts across the platform. Ratings are further supported by an adequate percentage of unsecured debt to total debt outstanding of 35% as of December 31, 2023. Sun Life Financial Inc., a $1.4 trillion Canadian life Insurance and asset management company, owns 51% of CCG. Sun Life also owns approximately 4.6% of CCAP's equity and has invested in $60 million of CCAP's senior unsecured debt.

As of December 31, 2023, CCAP had an investment portfolio consisting of 186 portfolio companies across 20 sectors in primarily the U.S. middle market. As of December 31, 2023, the portfolio companies had a median EBITDA of $28 million, were nearly all sponsor backed (98% of debt investments at fair value) with a low underwriting LTV of ~41%, and had underwriting net leverage of 5.5x and interest coverage of 1.7x (based on current quarter calculation). Health Care Equipment & Services (25.9%) and Software & Services (21.2%) are the leading portfolio sectors.

Further supporting the ratings is the diverse funding mix which includes a bank revolving credit facility with an extensive network of lending relationships. The company’s liquidity is adequate with available credit lines and cash, including $16.7 million of cash restricted for the purpose of investments, of $354.2 million compared with $135.0 million of unsecured debt due within 2 years and unfunded commitments of $175.0 million, as of December 31, 2023. Gross and net leverage were 1.15x and 1.14x, respectively, under CCAP’s target gross leverage of 1.20x. Asset coverage was sufficient at 186%, within regulatory asset coverage of 150%, providing a 24% cushion.

Strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a RIC, and a more uncertain economic environment with high interest rates, geopolitical risks, and the potential of increasing non-accruals.

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 ~$640 million, as of March 12, 2024. The company is headquartered in Los Angeles, CA.

Rating Sensitivities

Given the Positive Outlook, ratings are likely to be upgraded over the medium term if there is little to no credit deterioration in the company's investment portfolio, leverage remains within the company's target range, and senior secured loans remain a high proportion of the company's total investments. Rating pressure is possible if a prolonged downturn in the U.S. economy has a material impact on the company’s earnings performance, asset quality, and leverage. An increased focus on riskier investment or a significant change in the current management structure coupled with a negative change in strategy, credit monitoring and/or originations could also pressure the ratings.

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