Q2 2021 Crescent Capital BDC Inc Earnings Call
[music].
Good day, and thank you for standing by welcome.
For the second quarter of 2021 Crescent capital BDC earnings Conference call.
At this time all participant lines are in listen only mode.
After the presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then one on your telephone keypad.
Please be advised that today's conference maybe recorded.
If you require operator assistance. Please press Star then zero.
I'd now like to hand, the conference over to Dan Mcmahon head of Investor Relations for CCAR.
Good morning, and welcome to Crescent Capital BDC, Inc. Second quarter ended June 32021 earnings Conference call.
Please note that Crescent capital Bdcs, maybe.
May be referred to as some GAAP crescent EDC or the company throughout the call.
Before we begin I'll start with some important reminders comments.
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 call we may discuss certain non-GAAP measures as defined by I think reregulation JV.
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 is 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 it 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 32021.
Posted a presentation to the Investor Relations section of its website at Www Dot Crescent PVC Dot 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 Jason Brown, Chief Executive Officer of C GAAP and.
They're hard Lombard Chief financial Officer of C cap.
With that I'd now like to turn it over to Jason.
Thanks, Dan Hello, everyone and thank you for joining US. We appreciate your continued interest in C cap.
For our call today I'll provide a few highlights from this quarters results.
Review, our investing activity provides.
Provide some thoughts on our current portfolio and positioning and then turn it over to Gary hard to review our quarterly financial results in more detail before we open the call to Q&A.
So let's begin.
Please turn to slide six where youll see a summary of our results we.
We reported strong second quarter financial results with adjusted net investment income of <unk> 53 per share.
Similar to the prior quarter, we accrued a cap gains incentive fee expense related to changes in net realized and unrealized gains and losses.
This noncash expense, which was not paid and is not payable was approximately <unk> 14 per share for the quarter.
Our Q2 net investment income per share inclusive of the accrued capital gains based incentive fee expense was 39.
<unk>.
As a reminder, the capital gains fee is only payable at the end of each fiscal year based on our investment advisory agreement.
If we were to hypothetically ended the year as of June 30, the <unk> 19 per share of cumulative accrued capital gains incentive fees.
That we had at quarter end would not be paid or payable since the gains must be realized in order for us to be eligible to receive the fee.
Turning back to our results our net asset value per share increased for the fifth consecutive quarter up approximately three 7% in Q2 to $20.98.
The highest value since <unk> inception.
Gerhard will walk through the key drivers in more detail, but the increase this quarter was primarily driven by a net change in unrealized appreciation specific to certain portfolio companies, where we hold equity.
Please turn to slide four which highlights our historical NAV trajectory in cumulative dividends since inception.
Focusing on the right hand side of the page our business has performed well through the pandemic.
From a total economic returns perspective, which is change in NAV plus dividends paid we've generated over 20% since the year ended 2019.
Just prior to the onset of Covid 19.
This was driven by growth in our net asset value per share.
Up seven 6% in that timeframe.
And the payment of our quarterly base dividends, which cumulatively represent another 12, 6%.
Overall, we're pleased with this outcome and with our total investment portfolio carried at 105% of cost as of quarter end versus 103% last quarter.
We remain comforted by the quality of our portfolio and its performance, particularly given the volatility we've all experienced since March of last year.
Let's now shift gears and turn to slides 13, and 14 of the presentation.
Which provide a snapshot of the current portfolio.
We ended the quarter with about $1.1 billion of investments at fair value across 130 portfolio companies with an average investment size of less than 1% of the total portfolio.
Our investment portfolio continues to consist primarily of senior secured first lien and Unitranche first lien loans.
We are well diversified across 20 industries and lend primarily two private equity backed companies.
99% of our debt portfolio was in sponsor backed companies as of quarter end.
System with prior quarters, and 80% of the portfolio at fair value was firstly in line with Q1.
For the second quarter 116 out of our 117 debt investment portfolio companies, representing over 99% of total debt investments at fair value made full scheduled principal and interest payments and Pik interest represented just under 4% of total investment income in Q2.
90% of our debt investment portfolio today is marked above 95 cents on the dollar with an average mark of approximately <unk> 98.
Two more positive credit trends are outlined on slide 17.
Continued strong performance ratings and non accrual levels.
Our weighted average portfolio grade of two one was unchanged as compared to last quarter.
And the percentage of risk rated one and two investments.
Highest ratings our portfolio companies can receive increased modestly to 88, 1% of the portfolio at fair value.
As compared to 87, 6% last quarter.
As of quarter end, we had investments in two portfolio companies on nonaccrual status, representing one 6% and one 2% of our total debt investments at cost and fair value respectively.
Moving to our investment activity.
Please turn to slide 15.
In terms of the broader market backdrop, while we have seen an increase in competition, which has resulted in some pressure on spreads.
We continue to see growth in demand for large direct lending solutions.
This is positive from our lens given we continue to benefit from Crescent long standing reputation as a reliable partner.
And our ability to offer surety of capital and scaled financing solutions to the sponsor community.
Sponsors and portfolio company management teams alike are in our view exhibiting a strong preference for flexibility of capital and a long term partnership approach with firms like ours, particularly given our focus on first lien and Unitranche solutions.
<unk> gross deployment in the second quarter totaled $121 million near.
Nearly all of which or approximately 97% was in senior secured first lien or unitranche first lien investments.
All told we closed on 11, new investments and 13 follow ons.
Italy, $76 million and $32 million respectively.
With the remaining $13 million coming from revolver and delayed draw term loan activity during the quarter.
All 11 of the new investments, where private equity backed loans at $4.75 to 650 basis point spreads.
Each with a LIBOR floor and oid's between one and 3%.
In addition loan to value levels remain attractive averaging approximately 39% for these transactions.
The $121 million in gross deployment compares to $109.6 million in aggregate exits sales and repayments in the quarter.
It's also worth highlighting that <unk> total commitments for the 11 aforementioned new deals represented only 17% of the over half a billion dollars total check size committed to these new deals across crescent.
Highlighting the breadth of our platform.
Activity in the third quarter has been strong.
For the month of July we closed on six new investments totaling $58 million.
The new investments are each private equity backed first lien or unitranche loans with spreads LIBOR floors and other characteristics comparable to the aforementioned Q2 investments.
Two more updates before I turn it over to gearhart.
First sunlight entered its previously announced stock purchase program in May with.
With C cap share purchases commencing on June 29th.
The program will make open market purchases of shares of our common stock in an aggregate amount of up to $10 million.
And we will be in effect for approximately 12 months unless extended or until the aggregate approved purchase amount has been expanded.
And finally, our board has declared a <unk> 41 per share quarterly cash dividend for the third quarter of 2021.
Payable on October 15th to stockholders of record as of the close of business on September 30.
With that I'll now turn it over to Gary Hart to cover additional details on the quarter.
Thanks, Jason our adjusted net investment income per share of <unk> 53 for the second quarter of 2021 compares with 46 for both prior quarter and second quarter of 2020.
Our GAAP earnings or net increase and net assets, resulting from operations per share for the second quarter of 2021.
Was $1.16, which compares to <unk> 76 per share for the first quarter of 2021.
And $2 per share for the second quarter of 2020.
Our second quarter adjusted earnings were driven by strong recurring interest and dividend income generated from our growing portfolio. In addition to accelerated accretion of OID related to the elevated level of pay down activity during the quarter.
The majority of the $19 million or <unk> 69 per share of net unrealized gains on investments were driven by mark to market appreciation across certain of our common equity positions largely driven by our equity investment in kinesis, which.
Which we acquired in connection with El Centro transaction in July we fully exited our investment in kinesis at a value consistent with our second quarter market.
At June 30.
<unk> equity was $591 million.
Resulting in a net asset value per share of $20.98.
As compared to $570 million or.
Or $20.24 per share last quarter and.
$510 million or $18.12 per share at June 32020.
The increase in our net asset value during the second quarter, primarily driven by net unrealized gains as highlighted on slide 10 and.
And we had <unk> <unk> of realized gains per share <unk>.
Investments at fair value increased three 5% in the quarter.
From one spot zero of $5.8 billion to one spot zero 95 billion.
Even by approximately $11 million and net deployment. In addition to an increase in net unrealized portfolio appreciation.
Turning to slide 16.
This graph summarizes the weighted average yield on income producing securities and spread over LIBOR on our floating rate debt investments.
As of June 32021.
Weighted average yield on our income producing securities at amortized cost was seven 8% as compared to seven 9% from the prior quarter.
99, 6% of our debt investments bear interest at floating rates and have a weighted average LIBOR floor of approximately 90 basis points, which is well above today's current three month LIBOR rate.
Now, let's shift to our capitalization and liquidity.
I'm on slide 19 as of June 30, our debt to equity ratio was <unk>.
Eight seven times up modestly from eight six times at March 31.
<unk> <unk> continued significant cushion to our regulatory asset coverage of 150%.
On June 21, we amended our SPV asset facility with Wells Fargo, which reduced the annual interest rate by 10 basis points and extended the maturity date from March 2025 to June 2026.
The maturity profile of our debt capital base continues to remain attractive with no near term maturities and 100% of the principal amount of debt outstanding maturing off through June 2023.
From a liquidity perspective as of quarter end, we had $220 million of undrawn capacity subject to leverage borrowing base and other restrictions.
As Jason mentioned, our board of directors declared a regular third quarter cash dividend of <unk> 41 per share, which is consistent with our regular quarterly dividend paid in the second quarter.
And with that I'd like to turn it back to Jason for closing remarks.
Thanks Chiara.
Overall.
We are pleased with our financial results this quarter.
Additionally, our credit performance remains very strong and we believe we have built a diverse and defensive portfolio of increasing scale.
Courted by an increasingly attractive financing profile.
As noted earlier the overwhelming majority of our portfolio companies continue to perform well.
Most of our borrowers have returned to normalized operating levels.
While we are closely monitoring covid developments.
We continue to have a positive outlook for the overall economy in the second half of the year as.
As demand further rebounds.
We believe this will continue to drive good results for our borrowers and we look forward to leveraging our competitive advantages and the full crescent platform.
To continue to deliver attractive risk adjusted returns for our shareholders.
We would like to thank all of you for your confidence and continued support.
And with that operator, please open the line for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then one if you'd like to ask a question at this time.
Our first question comes from the line of Robert Dodd with Raymond James.
Hi, guys. Good morning, congratulations on the quarter first if I can just a housekeeping one maybe pik.
The income tax it looks like you had a seven 970000 income no excise tax.
Expense this quarter and then obviously seven technical pay $10 million dividend I think that was probably a tax distributions.
From the queue.
So those basically offset.
Is should we expect with southern technical will continue to pay those tax distributions, but that'll be offset by tax expense or was that kind of a one time thing.
Yes, Hi, Robert This is Gary Thanks for the question and you are absolutely correct.
That is a tax distribution and so there is a corresponding offset for that dividend on the balance sheet.
Look it's very it's very difficult to predict how that investment will perform but but I think our expectation is that to the extent that there is taxable income being generated by the portfolio company. There will be as we've seen in this quarter that will be a tax distribution to help manage that exposure.
And in the investment.
<unk> to perform.
Performed well.
Totality.
Got it I appreciate that.
And then just kind of bigger picture I'm not going to comp anything you said.
Deployments and repayments.
The rest of this year so the next month.
What are your expectations, we've been having with I mean, it sounds like the market is very strong should we.
We expect probably good deployment.
Repayment activity has also been elevated generally.
But more of a mixed messages on that front. So what kind of what are your expectations through the course of the year, maybe thematic Lee and then.
Ex kinesis, where you've got a nice big repayment that would you expect the portfolio ex that.
So the bigger by year end same size smaller what's kind of your feel on that.
Hey, Robert it's Jason Thank you for the question.
Generally speaking I think we're quite constructive on the opportunity set that we're seeing today certainly volumes in the middle market are up sponsored loan volumes are up unitranche volumes just hit a record in the second quarter in terms of <unk>.
Issuance, which is a big focus of ours.
<unk>.
Sponsors are continuing to see real value in certainty of execution.
That's provided with private credit and speed of execution as well.
With respect to the repayments certainly a healthy repayment quarter in Q1, a healthy repayment quarter in Q2, we've seen some repayments here in Q3.
I do think that a couple of things are going to work to our to our favor in terms of net overall growth.
<unk>.
I would hope and expect to be higher in the back half of the year. One is is the the new volumes are higher certainly than a seasonally slower Q1.
But but our pipeline is very attractive and as I mentioned on the prepared remarks.
Deployment in Q3, so far it's been has been good.
So that's sort of the supply demand kind of getting more in line I think the other piece is that.
We continue to see some spread tightening as a result of.
Some competition in the space.
We finally kind of touched pre covid levels on the private side at this point.
And there is still a premium relative to the syndicated markets, which I think there always will be but.
It's hard for me to imagine first lien spreads getting much tighter than where we are today I think some of that is really bound by.
Issuance in the syndicated market, where a lot of new issuance more recently, it's been in B three rated names and as we all know the big buyers in the syndicated market or really the CLO is at some point. The CLO are are going to reach their fill on on.
<unk> exposure. So I think we've got a natural kind of.
Yeah.
Ceiling, if you will that I would hope we would see on the spread side, which which certainly will influence and slow down the repayments.
Got it.
Really appreciate that color and then kind of tied into that.
The next question I mean, your deployments this quarter I mean LIBOR flows on everything looking through your portfolio I mean that that's about 100.
There's a floor.
The idea of <unk> V, which.
Pretty healthy so while the spread.
You can compensate the spread is extremely competitive, but maybe level now, but some of the other terms look look like they've held in quite well we've heard mixed messages from some other bdcs about whether we're the LIBOR floors have been coming down it doesn't seem to be the case in Europe do you think those are the components of the total.
But just the spread are those going to hold up here or do you think that's the next thing to kind of view.
On the pricing front.
We haven't seen it much Robert I think.
Our experience has been that the other components of what we're trying to.
Drive return off of have held up as you said I think in some cases, we are seeing pressure on the floors.
Perhaps down to 75 bps in certain situations, but for the most part we're having experience where we're able to.
Predominantly hold the line it at 100 bps.
On occasion flex down to 75, but but on the on the upfront I think those have been consistent with historical experience.
Okay. Thank you and my last question was about monetizing kinesis, but you already answered it.
Congratulations on that front in the quarter as well thanks a lot.
Thank you Robert.
Again, if you'd like to ask a question at this time that is star then one.
I'm showing no further questions in queue at this time I'd like to turn the call back to Jason Brown for closing remarks.
Yes.
Okay. Thank you Liz.
Once again I'd like to thank everyone for your time and attention today and your continued support and interest in <unk>. We look forward to speaking with you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.
[music].
[music].
[music].
Good day and thank you for standing by what's been a second quarter 2021 Crescent capital BDC earnings Conference call.
At this time all participant lines are in listen only mode.
After the presentation, there will be a question and answer session.
To ask a question during the session you will need to press Star then one on your telephone keypad.
Please be advised that today's conference maybe recorded.
If you require operator assistance. Please press Star then zero.
I'd now like to hand, the conference over to Dan Mcmahon head of Investor Relations for CCAR.
Good morning, and welcome to Crescent Capital BDC, Inc. Second quarter ended June 32021 earnings Conference call.
Please note that Crescent capital BDC, maybe.
May be referred to exceed GAAP Crescent, Google suite or the company throughout the call.
Before we begin I'll start with unimportant reminders comments.
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 our 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 call we may discuss certain non-GAAP measures as defined by I think you 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 is 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 and 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 30th 2021.
Posted a presentation to the Investor Relations section of its website at Www Dot Crescent PVC Dot 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 Jason Brown, Chief Executive Officer of C. GAAP.
Their hard Lombard.
<unk> financial officer of CCAR.
With that I'd now like to turn it over to Jason.
Thanks, Dan Hello, everyone and thank you for joining US. We appreciate your continued interest in C cap.
For our call today I'll provide a few highlights from this quarters results.
To review our investing activity provides.
Provide some thoughts on our current portfolio and positioning and then turn it over to Gary Hart to review, our quarterly financial results in more detail before we open the call to Q&A.
So let's begin.
Please turn to slide six where youll see a summary of our results.
We reported strong second quarter financial results with adjusted net investment income of 53 per share.
Similar to the prior quarter, we accrued a cap gains incentive fee expense related to changes in net realized and unrealized gains and losses.
This noncash expense, which was not paid and is not payable was approximately <unk> 14 per share for the quarter.
Our Q2 net investment income per share inclusive of the accrued capital gains based incentive fee expense was 39, respectively.
As a reminder, the capital gains fee is only payable at the end of each fiscal year based on our investment advisory agreement.
If we were to hypothetically and the year as of June 30, the <unk> 19 per share of cumulative accrued capital gains incentive fees.
That we had at quarter end would not be paid or payable since the gains must be realized in order for us to be eligible to receive fee.
Turning back to our results our net asset value per share increased for the fifth consecutive quarter up approximately three 7% in Q2 to $20.98.
Hi, its value since <unk> inception.
Gierhart, who will walk through the key drivers in more detail, but the increase this quarter was primarily driven by a net change in unrealized appreciation specific to certain portfolio companies, where we hold equity.
Please turn to slide four which highlights our historical NAV trajectory and cumulative dividends since inception.
Focusing on the right hand side of the page our business has performed well through the pandemic.
From a total economic returns perspective, which is change in NAV plus dividends paid was generated over 20% since the year ended 2019.
Just prior to the onset of Covid 19.
This was driven by growth in our net asset value per share up.
Up seven 6% in that timeframe.
And the payment of our quarterly base dividends, which cumulatively represent another 12, 6%.
Overall, we're pleased with this outcome and with our total investment portfolio carried at 105% of cost as of quarter end versus 103% last quarter.
We remain comforted by the quality of our portfolio and its performance, particularly given the volatility we've all experienced since March of last year.
Let's now shift gears and turn to slides 13, and 14 of the presentation.
Which provide a snapshot of the current portfolio.
We ended the quarter with about $1.1 billion of investments at fair value across 130 portfolio companies with an average investment size of less than 1% of the total portfolio.
Our investment portfolio continues to consist primarily of senior secured first lien and Unitranche first lien loans.
We are well diversified across 20 industries and lend primarily two private equity backed companies.
99% of our debt portfolio wasn't sponsor backed companies as of quarter end.
Consistent with prior quarters, and 80% of the portfolio at fair value was firstly in line with Q1.
For the second quarter 116 out of our 117 debt investment portfolio companies, representing over 99% of total debt investments at fair value.
Full scheduled principal and interest payments and Pik interest represented just under 4% of total investment income in Q2.
90% of our debt investment portfolio today is marked above 95 cents on the dollar with an average mark of approximately 98.
Two more positive credit trends are outlined on slide 17.
Continued strong performance ratings and non accrual levels.
Our weighted average portfolio grade of $2, one was unchanged as compared to last quarter.
And the percentage of risk rated one and two investments.
Highest ratings our portfolio companies can receive increased modestly to 88, 1% of the portfolio at fair value as compared to 87, 6% last quarter.
As of quarter end, we had investments in two portfolio companies on nonaccrual status, representing one 6% and one 2% of our total debt investments at cost and fair value respectively.
Moving to our investment activity.
Please turn to slide 15.
In terms of the broader market backdrop, while we have seen an increase in competition, which has resulted in some pressure on spreads.
We continue to see growth in demand for large direct lending solutions.
This is positive from our lens given we continue to benefit from Crescent long standing reputation as a reliable partner.
And our ability to offer surety of capital and scaled financing solutions to the sponsor community.
Sponsors and portfolio company management teams alike are in our view exhibiting a strong preference for flexibility of capital and a long term partnership approach with firms like ours, particularly given our focus on first lien and Unitranche solutions.
<unk> gross deployment in the second quarter totaled $121 million, nearly all of which or approximately 97% was in senior secured first lien or unitranche first lien investments.
All told we closed on 11, new investments and 13 follow ons totaling $76 million and $32 million respectively.
With the remaining $13 million coming from revolver and delayed draw term loan activity during the quarter.
All 11 of the new investments, where private equity backed loans at $4.75 to 650 basis point spreads.
Each with a LIBOR floor and oid's between one and 3%.
In addition loan to value levels remain attractive averaging approximately 39% for these transactions.
The $121 million in gross deployment compares to $109.6 million in aggregate exits sales and repayments in the quarter.
It's also worth highlighting that <unk> total commitments for the 11% aforementioned new deals represented only 17% of the over half a billion dollars total check size committed to these new deals across crescent.
Highlighting the breadth of our platform.
Activity in the third quarter has been strong.
In the month of July we closed on six new investments totaling $58 million.
The new investments are each private equity backed first lien or unitranche loans with spreads LIBOR floors and other characteristics comparable to the aforementioned Q2 investments.
Two more updates before I turn it over to Gary Hart.
First sunlight entered its previously announced stock purchase program in May.
With C cap share purchases commencing on June 29th.
And we will be in effect for approximately 12 months unless extended or until the aggregate approved purchase amount has been expanded.
And finally, our board has declared a <unk> 41 per share quarterly cash dividend for the third quarter of 2021.
Payable on October 15th to stockholders of record as of the close of business on September 30.
With that I'll now turn it over to Gary hard to cover additional details on the quarter.
Sure.
Thanks, Jason our adjusted net investment income per share of <unk> 53 for the second quarter of 2021 compares with 46 for both prior quarter and second quarter of 2020.
Our GAAP earnings or net increase and net assets, resulting from operations per share for the second quarter of 2021.
Was $1.16, which compares to <unk> 76 per share for the first quarter of 2021.
And $2 per share for the second quarter of 2020.
The majority of the $19 million or <unk> 69 per share of net unrealized gains on investments were driven by mark to market appreciation across certain of our common equity positions largely driven by our equity investment in <unk>, which.
Which we acquired in connection with El Centro transaction in July we fully exited our investment in kinesis at a value consistent with our second quarter Mark.
At June 30.
<unk> equity was $591 million, resulting in a net asset value per share of $20.98.
As compared to $570 million or.
Or $20.24 per share last quarter and.
$510 million or $18.12 per share at June 32020.
The increase in our net asset value during the second quarter, primarily driven by net unrealized gains as highlighted on slide 10 and.
And we had <unk> <unk> of realized gains per share <unk>.
Investments at fair value increased three 5% in the quarter.
From one spot zero of $5.8 billion to one spot zero 95 billion.
Loan by approximately $11 million and net deployment. In addition to an increase in net unrealized portfolio appreciation.
Turning to slide 16.
This graph summarizes the weighted average yield on income producing securities and spread over LIBOR on our floating rate debt investments.
As of June 32021, the weighted average yield on our income producing securities at amortized cost was seven 8% as compared to seven 9% from the prior quarter.
99, 6% of our debt investments bear interest at floating rates and have a weighted average LIBOR floor of approximately 90 basis points, which is well above today's current three month LIBOR rate.
Now, let's shift to our capitalization and liquidity.
I'm on slide 19 as of June 30, our debt to equity ratio was <unk>.
Eight seven times up modestly from <unk> 86 times at March 31.
<unk> and continued significant cushion to our regulatory asset coverage of 150%.
On June 21, we amended our SPV asset facility with Wells Fargo, which reduced the annual interest rate by 10 basis points and extended the maturity date from March 2025 to June 2026.
The maturity profile of our debt capital base continues to remain attractive with no near term maturities and 100% of the principal amount of debt outstanding maturing off through June 2023.
From a liquidity perspective as of quarter end, we had $220 million of undrawn capacity subject to leverage borrowing base and other restrictions.
As Jason mentioned, our board of directors declared a regular third quarter cash dividend of <unk> 41 per share, which is consistent with our regular quarterly dividend paid in the second quarter.
And with that I'd like to turn it back to Jason for closing remarks.
Thanks, Gary.
Overall.
We are pleased with our financial results this quarter additional.
Additionally, our credit performance remains very strong and we believe we have built a diverse and defensive portfolio of increasing scale <unk>.
Supported by an increasingly attractive financing profile.
As noted earlier the overwhelming majority of our portfolio companies continue to perform well.
Most of our borrowers have returned to normalized operating levels.
While we are closely monitoring covid developments, we continue to have a positive outlook for the overall economy in the second half of the year.
As demand further rebounds.
We believe this will continue to drive good results for our borrowers and we look forward to leveraging our competitive advantages and the full crescent platform.
To continue to deliver attractive risk adjusted returns for our shareholders.
We would like to thank all of you for your confidence and continued support.
And with that operator, please open the line for questions.
If you'd like to ask a question at this time. Please press. The Star then the number one key on your Touchtone telephone.
To withdraw your question press the pound key.
Again that is star then one if you'd like to ask a question at this time.
Our first question comes from the line of Robert Dodd with Raymond James.
Hi, guys. Good morning, congratulations on the quarter first if I can just a housekeeping one maybe pik.
The income tax it looks like you had a seven 970000 income no excise tax.
<unk> expense this quarter and then obviously seven technical paid $10 million dividend I think that was probably a tax distributions.
From the queue.
So those basically offset what.
Should we expect with southern technical will continue to pay those tax distributions, but that'll be offset by tax expense or was that kind of a one type thing.
Yes, Hi, Robert This is Guillermo thanks for the question and you are absolutely correct.
That is a tax distribution and so there is a corresponding offset for that dividend on the balance sheet.
Look it's very it's very difficult to predict how that investment will perform but but I think our expectation is that to the extent that there is taxable income being generated by that portfolio company. There will be as we've seen in this quarter that will be a tax distribution to help manage that exposure.
And in the investment.
<unk> to perform.
<unk> performed well.
Totality.
Got it I appreciate that.
And then just kind of bigger picture I'm not going to comp anything you said.
Deployments and repayments.
The rest of this year so the next month.
What are you expecting as you've been hearing mixed I mean, it sounds like the market is very strong should we.
We expect probably good deployments.
But repayment activity has also been elevated generally.
But more of a mixed messages on that front. So what kind of what are your expectations through the course of the year, maybe Steve Matt Ackley and then.
Ex kinesis, where you've got a nice big repayment that would you expect the portfolio ex that.
To be bigger by year end same size smaller what's kind of your feel on that.
Hey, Robert it's Jason Thank you for the question.
Yeah.
Generally speaking I think we're quite constructive on the opportunity set that we're seeing today certainly volumes in the middle market are up sponsored loan volumes are up unitranche volumes just hit a record in the second quarter in terms of issuance, which is a big focus of ours.
Think sponsor.
Sponsors are continuing to see real value in certainty of execution that's.
Thats provided with private credit and speed of execution as well.
With respect to the repayments certainly a healthy repayment quarter in Q1, a healthy repayment quarter in Q2, we've seen some repayments here in Q3.
I do think that a couple of things are going to work to our to our favor in terms of net overall growth that.
I would hope and expect to be higher in the back half of the year. One is is the.
The new volumes are higher.
Certainly then our seasonally slower Q1.
But but our pipeline is very attractive and as I mentioned on the prepared remarks.
Deployment in Q3, so far it's been has been good.
So that's sort of the supply demand kind of getting more in line I think the other piece is that.
While we continue to see some spread tightening as a result of.
Some competition in the space.
We finally kind of touched pre covid levels on the private side at this point.
And there is still a premium relative to the syndicated markets, which I think there always will be but.
It's hard for me to imagine first lien spreads getting much tighter than where we are today.
Some of that is really bound by.
Issuance in the syndicated market, where a lot of new issuance more recently, it's been in B three rated names and as we all know the big buyers in the syndicated market or really the CLO is at some point, a CLO or are going to reach their fill on <unk>.
<unk> exposure. So I think we've got a natural kind of.
Ceiling, if you will.
I would hope we would see on the spread side, which which certainly will influence and slow down the repayments.
I really appreciate that color.
Tied into that.
Next question I mean, your deployments this quarter LIBOR flows on everything looking through the portfolio I mean that debt.
Homegoods.
Whether it's a flaw.
Oh idea of one Lee, which is pretty healthy so while the spread.
You can compensate the spread is extremely competitive but may be leveling out but some of the other terms look look like they've held in quite well we've heard mixed messages from some other bdcs about whether we're the LIBOR floors have been coming down it doesn't seem to be the case in Europe do you think those are the components of the total.
But the just the spread are those going to hold up here or do you think that's the next thing to kind of on the pricing front.
We haven't seen it much Robert I think our experience has been that the other components of what we're trying to.
Drive return off of have held up as you said I think in some cases, we are seeing pressure on the floors.
Perhaps down to 75 bps in certain situations, but for the most part.
We're having experience where we're able to.
Predominantly hold the line at 100 bps.
On occasion flex down to 75, but but on the on the Upfronts I think those have been consistent with historical experience.
Thank you and then my last question was about monetizing kinesis, but you already answered it.
Congratulations on that front and the quarter as well thanks a lot.
Thank you Robert.
Again, if you'd like to ask a question at this time that is star then one.
I'm showing no further questions in queue at this time I'd like to turn the call back to Jason Brown for closing remarks.
Yes.
Okay. Thank you Liz.
Once again I'd like to thank everyone for your time and attention today and your continued support and interest in <unk>. We look forward to speaking with you again next quarter.
This concludes today's conference call. Thank you for participating you may now disconnect.