Q2 2024 Crescent Capital BDC Inc Earnings Call

August 13, 2024

Speaker Change: Please stand by. Your program is about to begin.

Operator: Good day everyone, and welcome to the Q2 2024 Crescent Capital BDC earnings conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask questions by pressing the start and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2.

Unknown Executive: Good day, everyone, and welcome to the Q2 2024 Crescent Capital, BTC, earnings conference call. This time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask questions by pressing the store and one on your telephone keypad. You may withdraw yourself from the queue by pressing Store too.

Speaker Change: Good day everyone, and welcome to the Q2 2024 Crescent Capital BTC Earnings Conference Call.

Speaker Change: At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask questions by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2.

Unknown Executive: Please note this call may be recorded and that will be sent in by should you need any assistance.

Operator: Please note this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Dan McMahon, Head of Investor Relations. Please go ahead.

Speaker Change: Please note this call may be recorded and I will be standing by should you need any assistance.

Daniel McMahon: It is now my pleasure to turn the conference over to Dan McMahon, Head of Investor Relations. Please go ahead.

Speaker Change: It is now my pleasure to turn the conference over to Dan McMahon, Head of Investor Relations. Please go ahead.

Daniel McMahon: Good morning and welcome to Crescent Capital, BTC, a second quarter and a June 30, 2024 earnings conference call. Please note that Crescent Capital, BTC may be referred to as Ccap Crescent BTC or the company throughout the call. Before we begin, I'll start with some important reminders. Comments made over the course of this call and the 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.

Dan McMahon: Good morning, and welcome to Crescent Capital BDC INCS' second quarter and a June 30 2024 earnings conference call. Please note that Crescent Capital Bdc may be referred to as C-Cap, Crescent Capital, or the company throughout the call. Before we begin, I'll start with some important reminders.

Dan McMahon: Good morning, and welcome to Crescent Capital BTC Inc.'s second quarter and to June 30, 2024, earnings conference call.

Speaker Change: Please note that Crescent Capital BDC may be referred to as C-CAP, 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 call and webcast may contain forward-looking statements.

Dan McMahon: Comments made over the course of this 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 FTC filings. The company assumes no obligation to update any such forward-looking statement. Please also note that past performance or market information is not a guarantee of future results. Yesterday, after the market closed, the company issued its earnings press release for the second quarter and for June 30, 2024, and posted a presentation in the investor relations section of its website at 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.

Speaker Change: 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.

Speaker Change: including those listed in its SEC filings, the company assumes no obligation to update any such forward-looking statements.

Daniel McMahon: Please note that past performance or market information is not a guarantee of future results.

Speaker Change: Please also note that past performance or market information is not a guarantee of future results.

Daniel McMahon: Yesterday, after the market closed, the company issued its earnings press release for the second quarter and a June 30, 2024, and posted a presentation to the Investor Relations section of its website at CrescentBTC.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday at the SEC.

Speaker Change: Yesterday, after the market closed, the company issued its earnings press release for the second quarter and to June 30, 2024.

Speaker Change: and posted a presentation to the investor relations section of its website at crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday at the SEC.

Unknown Executive: As a reminder, this call is being recorded for replay purposes.

Speaker Change: As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be CCAP's Chief Executive Officer, Jason Breaux, President Henry Chung, and Chief Financial Officer, Gerhard Lombard. With that, I'd now like to turn it over to Jason.

Unknown Executive: Speaking on today's call, we'll be Ccap's Chief Executive Officer, Jason Broke, President, Henry Chung, and Chief Financial Officer, Gerard Lombard.

Jason Breaux: Speaking on today's call will be CCAP's Chief Executive Officer, Jason Breaux; President Henry Chung, and Chief Financial Officer, Gerhard Lombard. With that, I'd now like to turn it over to Jason. Thank you, Dan. Hello, everyone, and thank you all for joining us today.

Jason Breaux: With that, I'd now like to turn it over to Jason.

Jason Breaux: Thank you, Dan.

Jason Breaux: Hello, everyone, and thank you all for joining us today. It was great to see some of you in person at our inaugural Analyst and Investor Day in early June. I'll start today's call by highlighting our second quarter results. Follow that with some thoughts on our investment approach and touch on our portfolio. Yesterday evening, we reported another quarter of solid earnings, which continued strong credit performance across the portfolio. That investment income or NII was 59 cents per share, which translates into an annualized NII return on equity at 11.7%. With our earnings, again, well in excess of the recently increased regular dividend, our board had declared a supplemental dividend for the second quarter of nine cents per share.

Jason Breaux: Thank you, Dan. Hello, everyone, and thank you all for joining us today. It was great to see some of you in person at our inaugural Analyst and Investor Day in early June.

Jason Breaux: It was great to see some of you in person at our Inaugural Analyst and Investor Day in early June. I'll start today's call by highlighting our second quarter results. I will follow that with some thoughts on our investment approach and thoughts on our portfolio. Yesterday evening, we reported another quarter of solid earnings with continued strong credit performance across the portfolio. Net Investment Income, or NII, was $0.59 per share, which translates into an annualized NII return on equity of 11.7%.

Jason Breaux: I'll start today's call by highlighting our second quarter results. Follow that with some thoughts on our investment approach and touch on our portfolio.

Jason Breaux: Yesterday evening, we reported another quarter of solid earnings with continued strong credit performance across the portfolio.

Jason Breaux: That investment income, or NII, was $0.59 per share, which translates into an annualized NII return on equity of 11.7%.

Jason Breaux: With our earnings, again, well in excess of the recently increased regular dividend, our board has declared a supplemental dividend for the second quarter of nine cents per share, when coupled with our previously declared regular dividend of $0.42 per share.

Speaker Change: With our earnings, again, well in excess of the recently increased regular dividend, our board has declared a supplemental dividend for the second quarter of nine cents per share.

Jason Breaux: When coupled with our previously declared regular dividend of 42 cents per share, this equates to a 10% annualized dividend yield on June 30, 2024, NAV. The strength of our earnings also led to growth in our net asset value, which increased to $20.30 per share, which is the highest it has been since June 2022.

Speaker Change: When coupled with our previously declared regular dividend of 42 cents per share, this equates to a 10% annualized dividend yield on June 30, 2024, NAV.

Jason Breaux: This equates to a 10% annualized dividend yield on June 30, 2024, and a. The strength of our earnings also led to growth in our net asset value, which increased to $20.30 per share, which is the highest it has been since June 2022. Now, let's shift gears and discuss our investment portfolio. Before I get into specific data points, I'd like to spend a minute on our investment approach and where we seek to originate new opportunities.

Speaker Change: The strength of our earnings also led to growth in our net asset value, which increased to $20.30 per share, which is the highest it has been since June 2022.

Jason Breaux: Let's shift gears and discuss the investment portfolio. Before I get into specific data points, I'd like to spend a minute on our investment approach and where we seek to originate new opportunities. It's no secret that in recent quarters there has been a lot of competition in private credit, both with the syndicated markets and significant capital that we have seen raised in the sector. In recent quarters, the average market is in what we call the lower and core middle market, segments of the market that are typically not able or less able to access the syndicated loan markets due to issuer size.

Speaker Change: Let's shift gears and discuss the investment portfolio.

Speaker Change: Before I get into specific data points, I'd like to spend a minute on our investment approach and where we seek to originate new opportunities.

Jason Breaux: It's no secret that in recent quarters, there has been a lot of competition in private credit, both with the syndicated markets and the significant capital that we have seen raised in the sector. In recent quarters, the average tranche size of transactions that are being refinanced by the direct lending markets from the syndicated markets is well north of $1 billion. However, this segment of the market is not where we focus.

Speaker Change: It's no secret that in recent quarters there has been a lot of competition in private credit, both with the syndicated markets and significant capital that we have seen raised in the sector.

Speaker Change: In recent quarters, the average tranche size of transactions that are being refinanced by the direct lending markets from the syndicated markets is well north of $1 billion.

Speaker Change: This segment of the market is not where we focus.

Jason Breaux: Where we focus our efforts is on what we call the lower and core middle marks, segments of the market that are typically not able or less able to access the syndicated loan markets due to issuer size. So think issuers with EBITDA of $10 million on the low end up to roughly $150 to $200 million on the high end. In the lower and core middle market, we are able to directly negotiate terms with our sponsors that have structural features around collateral protection that we deem critical for investing in the space. This is in direct contrast with the looser documentation for some of the mega Unitron deals completed over the past few quarters that resemble broadly syndicated loan documents, some of which have garnered significant public attention.

Speaker Change: Where we focus our efforts is in what we call the lower and core middle market, segments of the market that are typically not able or less able to access the syndicated loan markets due to issuer size.

Jason Breaux: So think issuers with EBITDA of 10 million on the low end, up to roughly 150 to 200 million on the high end. In the lower and core middle market, we are able to directly negotiate terms with our sponsors that have structural features around collateral protection that we deem critical for investing in the space. This is in direct contrast with the looser documentation for some of the mega-unitrange deals completed over the past few quarters that resemble broadly syndicated loan documents, some of which have garnered significant public attention. Our segment focus provides us with an opportunity to truly lead our transactions and drive the documentation.

Speaker Change: So think issuers with EBITDA of $10 million on the low end up to roughly $150 to $200 million on the high end.

Speaker Change: In the lower and core middle market, we are able to directly negotiate terms with our sponsors that have structural features around collateral protection that we deem critical for investing in the space.

Speaker Change: This is in direct contrast with the looser documentation for some of the mega Unitron deals completed over the past few quarters that resemble broadly syndicated loan documents, some of which have garnered significant public attention.

Jason Breaux: Our segment focus provides us with an opportunity to truly lead our transactions and drive the documentation. We are focused on strong cash flow generation. Tight EBITDA definition, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. We are cash flow lenders, so we focus on underwriting businesses that have been operating for a long time and that have a history of being able to generate cash flow consistently with low working capital requirements. It's for these reasons that we do not invest in Annual Recurring Revenue or ARR loans.

Speaker Change: Our segment focus provides us with an opportunity to truly lead our transactions and drive the documentation.

Jason Breaux: We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. We are cash flow lenders, so we focus on underwriting businesses that have been operating for a long time, that have a history of being able to generate cash flow consistently with low working capital requirements.

Speaker Change: We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management.

Speaker Change: We are cash flow lenders, so we focus on underwriting businesses that have been operating for a long time that have a history of being able to generate cash flow consistently with low working capital requirements.

Jason Breaux: It's for these reasons we do not invest in Annual Recurring Revenue or ARR loans.

Speaker Change: It's for these reasons we do not invest in annual recurring revenue or ARR loans.

Jason Breaux: Please turn to slide 13 and 14 of the presentation, which highlights 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 183 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 personally loans, collectively representing 90% of the portfolio at fair value at quarter-end, unchanged from the prior quarter. We continue to focus our investing efforts on non-cyclical industries and remain well diversified across 20 broad industry categorizations. Our investments are almost entirely supported by well-capitalized private equity sponsors, with 98% of our debt portfolio and sponsor-backed companies as of quarter-end.

Jason Breaux: Please turn to slides 13 and 14 of the presentation, which highlights 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 183 companies with an average investment size of approximately 0.5% of the total portfolio. We've deliberately maintained an investment portfolio that consists primarily of first lien loans.

Speaker Change: Please turn to slides 13 and 14 of the presentation, which highlights certain characteristics of our portfolio.

Speaker Change: We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 183 companies with an average investment size of approximately 0.5% of the total portfolio.

Speaker Change: We've deliberately maintained an investment portfolio that consists primarily of first lien loans, collectively representing 90% of the portfolio at fair value at quarter end, unchanged from the prior quarter.

Jason Breaux: Collectively, representing 90% of the portfolio at fair value at quarter end. Unchanged from the prior quarter, we continue to focus our investing efforts on non-cyclical industries and remain well diversified across 20 broad industry categorizations. Our investments are almost entirely supported by well-capitalized private equity sponsors. 98% of our debt portfolio was in sponsor-backed companies as of quarter 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 remains stable quarter over quarter.

Speaker Change: We continue to focus our investing efforts on non-cyclical industries and remain well diversified across 20 broad industry categorizations.

Speaker Change: Our investments are almost entirely supported by well-capitalized private equity sponsors, with 98% of our debt portfolio in sponsor-backed companies as a quarter end.

Jason Breaux: We have 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 remains stable quarter to quarter. And on slide 17, you will see the percentage of risk-graded 1 and 2 investments. The highest ratings our portfolio companies can receive. Accounted for 89% of the portfolio at fair value, also stable a quarter over quarter. As a quarter end, we had investments in eight portfolio companies on non-accrual status, representing 1.6% and 0.9% of our total debt investments that cost and fair value, respectively, which was flat quarter over quarter.

Speaker Change: We have been pleased with the fundamental performance of our portfolio, as indicated by our performance ratings and non-accrual levels.

Speaker Change: Our weighted average portfolio grade of 2.1 remains stable quarter over quarter and on slide 17 you will see the percentage of risk rated one and two investments, the highest ratings our portfolio companies can receive.

Jason Breaux: And on slide 17, you will see the percentage of risk rated by one and two investors. The highest ratings our portfolio companies can receive accounted for 89% of the portfolio at fair value, also stable quarter over quarter. At quarter end, we had investments in eight portfolio companies on non-accrual status, representing 1.6% and 0.9% of our total debt investments at cost and fair value, respectively. Black corner over quarter. I'd now like to turn it over to Henry to discuss the market, our Q2 investment activity, and the portfolio. Henry

Speaker Change: accounted for 89% of the portfolio at fair value, also stable quarter over quarter.

Speaker Change: As a quarter end, we had investments in eight portfolio companies on non-accrual status, representing 1.6% and 0.9% of our total debt investments at cost and fair value, respectively.

Henry Chung: I'd now like to turn it over to Henry to discuss the market, our Q2 investment activity, and the portfolio. Henry.

Speaker Change: which is flat quarter over quarter.

Speaker Change: I'd now like to turn it over to Henry to discuss the market, our Q2 investment activity, and the portfolio. Henry.

Henry Chung: Thanks, Jason. Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023, with most of the pickup in volume driven by refinancing activity. LBO activity, which represented approximately one third of the middle market loan volume in the first half of 2024, continues to increase, albeit modestly, driven by continued strong business fundamentals, better clarity on rates, declining spreads, and strong demand from the private credit market.

Henry Chung: Thanks, Jason. Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023, with most of the pickup in volume driven by refinancing activity. LBO activity, which represented approximately one-third of middle market loan volume in the first half of 2024, continues to increase, albeit modestly, driven by continued strong business fundamentals, better clarity on rates, declining spreads, and strong demand from the private credit market.

Henry: Thanks Jason. Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023 with most of the pickup in volume driven by refinancing activity.

Henry: LBO activity, which represented approximately one-third of middle market loan volume in the first half of 2024, continues to increase.

Henry: albeit modestly.

Henry: Driven by continued strong business fundamentals

Henry: better clarity on rates, declining spreads, and strong demand from the private credit market.

Henry Chung: Coupled with continued pressure from LPs to return capital, we believe that conditions are in place for LBO volumes to continue to accelerate in the second half of the year. And while the syndication markets are open, as Jason discussed, we believe the direct lending market remains the market of choice for sponsors in a lower and core middle market, given the benefits of the direct lending expertise offered by managers like Crescent, including speed and uncertainty of execution, and flexibility around the ability to craft bespoke capital structures.

Henry Chung: Coupled with continued pressure from LPs to return capital, we believe that conditions are in place for LBO volume to continue to accelerate in the second half of the year. And while the syndicated markets are open, as Jason discussed, we believe the direct lending market remains the market of choice for sponsors in the lower and core middle market, given the benefits of the direct lending expertise offered by managers like Crescent, including speed and uncertainty of execution and flexibility around the ability to craft bespoke capital structures.

Henry: Coupled with continued pressure from LPs to return capital, we believe that conditions are in place for LBO volume to continue to accelerate in the second half of the year.

Henry: And while the syndicated markets are open, as Jason discussed,

Speaker Change: We believe the direct lending market remains the market of choice for sponsors in the lower and core middle market given the benefits of the direct lending expertise offered by managers like Crescent, including speed and uncertainty of execution and flexibility around the ability to craft bespoke capital structures.

Henry Chung: Please turn to slide 15 where we highlight our recent activity. Gross deployment of the first quarter total of 119 million, as you can see on the left hand side of the page, 92% of which was in senior secure first lien and first lien neutral entrepreneurship. During the quarter, we closed six new platform investments, totaling 62 million, with the remaining 57 million coming from incremental investments in our existing portfolio companies. Incremental investment is a percentage of overall activity was elevated in the first half of 2024 compared to prior periods, as we continue to see higher levels of opportunistic refinancing and add-on opportunities within our existing borough universe.

Henry Chung: Please turn to slide 15, where we highlight our recent activities. Gross Deployment in the first quarter totaled $119 million, as you can see on the left-hand side of the page, 92% of which was in senior secured first lien and first lien unit tranche investments.

Jason Breaux: Please turn to slide 15, where we highlight our recent activity.

Breaux: Breaux's deployment in the first quarter totaled $119 million, as you can see on the left hand side of the page, 92% of which was in senior secured first lien and first liening and tranche investments.

Henry Chung: During the quarter, we closed six new platform investments totaling $62 million, with the remaining $57 million coming from incremental investments in our existing portfolio. Incremental investments as a percentage of overall activity were elevated in the first half of 2024 compared to prior periods, as we continue to see higher levels of opportunistic refinancing and add-on opportunities within our existing borrower universe. This provides an ongoing opportunity set for us to make incremental investments in existing well-performing companies to grow via the pursuit of creative emanation. The $119 million in gross deployment compares to approximately $73 million in aggregate exits, sales, and repayments resulting in $46 million of deployment on a net basis.

Breaux: During the quarter, we closed six new platform investments totaling $62 million with the remaining $57 million coming from incremental investments in our existing portfolio companies.

Breaux: Incremental investments as a percentage of overall activity was elevated in the first half of 2024 compared to prior periods as we continue to see higher levels of opportunistic refinancing and add-on opportunities within our existing borrower universe.

Henry Chung: This provides an ongoing opportunity to set for us to make incremental investments in existing, well-performing companies seeking to grow via the pursuit of a creed of M&A. The 119 million in gross deployment compares to approximately 73 million in aggregate exits, sales, and repayments, resulting in 46 million of deployment on a net basis. The new investments during the first quarter were loans to private equity back companies with silver floors, attractive fees, and a weighted average spread of approximately 530 basis points. We continue to back well-capitalized borrowers with significant equity cushions, and the weighted average loan to value of our new investments for the quarter was 31%.

Breaux: This provides an ongoing opportunity set for us to make incremental investments in existing, well-performing companies seeking to grow via the pursuit of creative M&A.

Breaux: The $119 million in gross deployment compares to approximately $73 million in aggregate exits, sales, and repayments, resulting in $46 million of deployment on a net basis.

Henry Chung: The new investments during the first quarter were loans to private equity-backed companies with silver floors, attractive fees, and a weighted average spread of approximately 530 basis points. We continue to back well-capitalized borrowers with significant equity cushions, and the weighted average loan-to-value of our new investments for the quarter was 31%. Turning back to the broader portfolio, please flip the slides. You can see the weighted average yield of our income-producing securities at cost came down modestly quarter over quarter to 12.2%, primarily due to lower-yielding assets that we originated in the second quarter, coupled with the exit of certain higher-yielding assets.

Breaux: The new investments during the first quarter were loans to private equity-backed companies with silver floors, attractive fees, and a weighted average spread of approximately 530 basis points.

Breaux: We continue to back well-capitalized borrowers with significant equity cushions and the weighted average loan-to-value of our new investments for the quarter was 31%.

Henry Chung: Turning back to the broader portfolio, please flip the slide 16. You can see the weighted average yield of our income producing securities at cost came down modestly quarter over quarter to 12.2%. Primarily due to lower yielding assets that we originated in the second quarter, coupled with the exit of certain higher yielding assets. As a reminder, this metric represented by the dark blue line at the top of the chart now includes the impact of income-producing equity investments. This includes dividends from the Logan JV as well as a partnership interest in GACP2 and White Hawk. As of June 30th, 97% of our debt investments at fair value were floating rate, with a weighted average floor of 80 basis points, which compares to our 67% floating rate liability structure based on debt drawing with 0% floors. Overall, our investment portfolio continues to perform well, with strong year-over-year weighted average revenue and EBITDA growth.

Breaux: Turning back to the broader portfolio, please flip to slide 16.

Breaux: You can see the weighted average yield of our income-producing securities at cost came down modestly quarter over quarter to 12.2%, primarily due to lower-yielding assets that we originated in the second quarter, coupled with the exit of certain higher-yielding assets.

Henry Chung: As a reminder, this metric, represented by the dark blue line at the top of the chart, now includes the impact of income-producing equity investments. This includes dividends from the Logan JV, as well as our partnership interests in GACP2 and Whitehawk. As of June 30th, 97% of our debt investments at fair value were floating rate with a weighted average floor of 80 basis points, which compares to our 67% floating rate liability structure based on debt drawn with 0% floors.

Breaux: As a reminder, this metric, represented by the dark blue line at the top of the chart, now includes the impact of income-producing equity investments.

Breaux: This includes dividends from the Logan JV, as well as our partnership interests in GACP2 and White Hawk.

Speaker Change: As of June 30th, 97% of our debt investments at fair value were floating rate with a weighted average floor of 80 basis points, which compares to our 67% floating rate liability structure based on debt drawn with 0% floors.

Henry Chung: Overall, our investment portfolio continues to perform well, with strong year-over-year weighted average revenue and EBITDA growth. That being said, we have continued to closely monitor the impact of borrowing costs on our portfolio companies given the elevated interest rate backdrop. The weighted average interest coverage of the companies in our investment portfolio at quarter end remains stable at 1.7 times as compared to the prior quarter. As a reminder, this calculation is based on the latest annualized base rate each quarter.

Speaker Change: Overall, our investment portfolio continues to perform well with strong year-over-year weighted average revenue and EBITDA growth.

Henry Chung: That being said, we have continued to closely monitor the impact of borrowing costs on our portfolio companies, given the elevated interest rate backdrop. The weighted average interest coverage of the companies in our investment portfolio at quarter and remain stable at 1.7 times as compared to the prior quarter. As a reminder, this calculation is based on the latest annualized base rate to each quarter. We also continue to closely monitor how our portfolio companies are managing fixed operating costs. Our analysis demonstrates that our portfolio companies, in the aggregate, are well positioned to address fixed charges with operating cash flows and available balance sheet liquidity.

Speaker Change: That being said, we have continued to closely monitor the impact of borrowing costs on our portfolio companies given the elevated interest rate backdrop.

Speaker Change: The weighted average interest coverage of the companies in our investment portfolio at quarter end remains stable at 1.7 times as compared to the prior quarter. As a reminder, this calculation is based on the latest annualized base rate each quarter.

Henry Chung: We also continue to closely monitor how our portfolio companies are managing fixed operating costs. Our analysis demonstrates that our portfolio companies, in the aggregate, are well positioned to address fixed charges with operating cash flows and available balance sheet liquidity. As expected, we saw a modest decrease in aggregate revolver utilization during the second quarter, with approximately 57% of aggregate revolver capacity available across the portfolio as of quarter end, which is sufficient in our view.

Speaker Change: We also continue to closely monitor how our portfolio companies are managing fixed operating costs.

Speaker Change: Our analysis demonstrates that our portfolio companies in the aggregator are well positioned to address fixed charges with operating cash flows and available balance sheet liquidity.

Henry Chung: As expected, we saw a modest decrease in aggregate revolver utilization during the second quarter, with approximately 57% of aggregate revolver capacity available across the portfolio as a quarter end, which is sufficient in our view. It is worth noting that we have seen an increase in reprising requests given tiny spreads. Our approach to reprising is that a portfolio company ought to have demonstrated improvement in credit wariness since on the right through growth and de-leveraging in order to warrant a reprising. The strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies.

Speaker Change: As expected, we saw a modest decrease in aggregate revolver utilization during the second quarter with approximately 57% of aggregate revolver capacity available across the portfolio as a quarter end, which is sufficient in our view.

Henry Chung: It is worth noting that we have seen an increase in repricing requests given the Tidex spread. Our approach to repricing is that a portfolio company ought to have demonstrated improvement in creditworthiness since underwriting through growth and deleveraging in order to warrant a repricing. The strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies. Most of it is applied by large and well-established private equity firms with whom we have long-standing relationships and have partnered in multiple transactions. And we note that the weighted average loan-to-value in the portfolio at the time of underwriting is approximately 40%. With that, I will now turn it over to Gerhard. Thanks, Henry. And hello, everyone.

Speaker Change: It is worth noting that we have seen an increase in repricing requests given dynamic spreads. Our approach to repricings is that a portfolio company ought to have demonstrated improvement in creditworthiness since on the right through growth and deleveraging in order to warrant a repricing.

Speaker Change: The strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies. Most of it's applied by large and well-established private equity firms with whom we have long-standing relationships and have partnered with in multiple transactions. And we note that the weighted average loan-to-value in the portfolio at time of underwrite is approximately 40%.

Henry Chung: Most of it is applied by large and low-established private equity firms with whom we have long-standing relationships and a partner with multiple transactions. And we note that the weighted average loan to value in the portfolio at time of under-write is approximately 40%.

Gerhard Lombard: With that, I will now turn it over to Gerard. Thanks, Henry, and hello everyone.

Speaker Change: With that, I will now turn it over to Gerhard.

Gerhard Lombard: Our net investment income per share of 59 cents for the second quarter of 2024 compared to 63 cents per share for the prior quarter and 56 cents per share for the second quarter of 2023. Total investment income of $49 million for the second quarter compared to $50.4 million for the prior quarter. The primary driver of this decrease relates to what we classify as non-recording investment income. Consisting of accelerated amortization, see income, and common stock dividends, non-recording income of $1.8 million decreased quarter of a quarter from $2.6 million. As noted on last quarter's call, while we expect some level of non-recording or transactional investment income every quarter, our non-recording investment income last quarter, driven primarily by two large realizations and an increase in structuring fees for a new platform investment, was meaningfully higher than in previous quarters.

Gerhard Lombard: Our net investment income per share, $0.59 for the second quarter of 2024, compares to $0.63 per share for the prior quarter and $1.56 per share for the second quarter of 2023. Total investment income of $49 million for the second quarter compares to $50.4 million for the prior quarter. The primary driver of this decrease relates to what we classify as non-recurring investment income.

Gerhard: Thanks Henry and hello everyone. Our net investment income per share of 59 cents for the second quarter of 2024 compares to 63 cents per share for the prior quarter and 56 cents per share for the second quarter of 2023.

Gerhard: Total investment income of $49 million for the second quarter compares to $50.4 million for the prior quarter.

Gerhard: The primary driver of this decrease relates to what we classify as non-recurring investment income. Consisting of accelerated amortization, fee income, and common stock dividends, non-recurring income of $1.8 million decreased quarter over quarter from $2.6 million.

Gerhard Lombard: Consisting of accelerated amortization, fee income, and common stock dividends, non-recurring income of 1.8 million decreased by a quarter of a quarter from 2.6. As noted on last quarter's call, while we expect some level of non-recurring or transactional investment income every quarter, Unknown Recurring Investment Income Loss Quarter, driven primarily by two large realizations and an increase in structuring fees for a new platform investment, meaningfully Importantly, our recurring yield-related income continues to represent the lion's share of total investment income, contributing over 95% of this quarter's total income, consistent with the prior quarter.

Gerhard: As noted on last quarter's poll, while we expect some level of non-recurring or transactional investment income every quarter,

Gerhard: a non-recurring investment income loss quarter driven primarily by two large realizations and an increase in structuring fees for a new platform investment, but meaningfully higher than in previous quarters.

Gerhard Lombard: Importantly, our recurring yield related income continues to represent the lion's share of total investment income, contributing over 95% of this quarter's total income, consistent with prior quarters. The income continues to represent a modest portion of our revenue at 4% of total investment income, which compares favorably to the BDC peer group.

Speaker Change: Importantly, our recurring yield-related income continues to represent the lion's share of total investment income, contributing over 95 percent of this quarter's total income, consistent with prior quarters.

Gerhard Lombard: It can come continues to represent a modest portion of our revenue at 4% of total investment income, which compares favorably to the BDC peer group. We remain highly focused on our level of PIC income, particularly in this environment, and believe that this will be a differentiator for BDC performance in the coming years. Our gap earnings per share, or net income, for the second quarter of 2024 was $0.55.

Speaker Change: TIC income continues to represent a modest portion of our revenue at 4% of total investment income, which compares favorably to the BDC peer group.

Gerhard Lombard: We remain highly focused on our level of pick income, particularly in this environment, and believe that this will be a differentiator for BDC performance in the coming years. Our gap earnings per share on net income for the second quarter of 2024 was 55 cents. This was primarily the result of net investment income outpacing the regular and supplemental dividend, offset by 7 cents per share of net unrealized and realized losses. As of June 30, a stockholder's equity was $752 million, up modestly from the prior quarter, resulting in net asset value per share of $20.30.

Speaker Change: We remain highly focused on our level of PIC income, particularly in this environment, and believe that this will be a differentiator for BDC performance in the coming years.

Speaker Change: Our gap earnings per share, or net income, for the second quarter of 2024 was $0.55.

Gerhard Lombard: This was primarily the result of net investment income outpacing the regular and supplemental dividend, offset by $0.07 per share of net unrealized and realized losses. As of June 30, our stockholder's equity was $752 million, up modestly from the prior quarter, resulting in a net asset value per share of $20.36. Now let's shift to our capitalization and liquidity. I'm on slide 19.

Speaker Change: This was primarily the result of net investment income outpacing the regular and supplemental dividend offset by $0.07 per share of net unrealized and realized losses.

Speaker Change: As of June 30th, our stockholders' equity was $752 million, up modestly from the prior quarter, resulting in net asset value per share of $20.30.

Gerhard Lombard: Now let's shift to our capitalization and liquidity. I'm on slide 19. As I noted in June at our analyst day, in terms of our leverage strategy, we have generally prioritized measured growth and have historically operated at the relatively conservative debt-to-equity ratio. This quarter's investment activity brought a debt to equity ratio up to 1.18 times from 1.11 times in the prior quarter. This quarter's increase puts us closer to the midpoint of our stated leverage range of 1.1 times to 1.3 times. With $294 million of undrawn capacity subject to leverage borrowing base and other restrictions and $36 million in cash and cash equivalence as of quarter end, we have sufficient liquidity to fund further investment activity while maintaining a debt to equity ratio that we are comfortable operating at.

Speaker Change: Now let's shift to our capitalization and liquidity. I'm on slide 19.

Gerhard Lombard: As I noted in June at our analyst day, in terms of our leverage strategy, we have generally prioritized measured growth and have historically operated at a relatively conservative debt to equity ratio. This quarter's investment activity brought our debt to equity ratio up to 1.18 times from 1.11 times in the prior quarter. This quarter's increase puts us closer to the midpoint of our stated leverage range of 1.1 times to 1.3 times. With $294 million of undrawn capacity subject to leverage, the borrowing base, and other restrictions and $36 million in cash and cash equivalents as of quarter end, we have sufficient liquidity to fund further investment activity while maintaining a debt to equity ratio that we are comfortable operating. The weighted average stated interest rate on the total borrowings was 6.91% as of quarter end.

Speaker Change: As I noted in June at our analyst day, in terms of our leverage strategy, we have generally prioritized measured growth and have historically operated at the relatively conservative debt-to-equity ratio.

Speaker Change: This quarter's investment activity brought our debt-to-equity ratio up to 1.18 times from 1.11 times in the prior quarter.

Speaker Change: This quarter's increase puts us closer to the midpoint of our stated leverage range of 1.1 times to 1.3 times.

Speaker Change: With $294 million of undrawn capacity, subject to leverage, borrowing base, and other restrictions, and $36 million in cash and cash equivalents as of quarter end, we have sufficient liquidity to fund further investment activity while maintaining a debt-to-equity ratio that we are comfortable operating at.

Gerhard Lombard: The weighted average stated interest rate on total borrowings was 6.91% as of quarter end. And as we've highlighted on the right-hand side of the slide, there are no debt maturities until 2026.

Speaker Change: The weighted average stated interest rates on the total borrowings was 6.91% as of quarter end.

Gerhard Lombard: And as we've highlighted on the right-hand side of the slide, there are no dead maturities until 2020. One additional item to highlight here relates to our SPV asset facility. In May, we tightened the spread by 30 basis points to SOFR plus 245, and extended the maturity from March 2028 to May 2029. As Jason mentioned, for the third quarter of 2024, our board has declared our recently increased regular dividend of $0.42 per share, which we believe we are well positioned to cover over the longer term.

Speaker Change: And as we've highlighted on the right-hand side of the slide, there are no dead maturities until 2026.

Gerhard Lombard: One additional item to highlight, dear, relates to our SPV asset facility. In May, we tightened the spread by 30 basis points to so far plus 245 and extended the maturity from March 2028 to May 2029. As Jason mentioned, for the third quarter of 2024, our board has declared our recently increased regular dividend of 42 cents per share, which we believe we are well positioned to cover over the longer term. We also plan to continue to declare and pay quarterly supplemental dividends pursuant to the current calculation to provide further distributions to stockholders.

Speaker Change: One additional item to highlight here relates to our SPV asset facility. In May, we tightened the spread by 30 basis points to SOFR plus 245 and extended the maturity from March 2028 to May 2029.

Speaker Change: As Jason mentioned, for the third quarter of 2024, our board has declared our recently increased regular dividend of 42 cents per share, which we believe we are well positioned to cover over the longer term.

Gerhard Lombard: We also plan to continue to declare and pay quarterly supplemental dividends pursuant to the current calculation to provide further distributions to shareholders. And with that, I'd like to turn it back to Jason for closing. Thanks, Gerhard.

Speaker Change: We also plan to continue to declare and pay quarterly supplemental dividends pursuant to the current calculation to provide further distributions to stockholders

Jason Breaux: And with that, I'd like to turn it back to Jason for closing remarks. Thanks, Gerard. In closing, we are pleased with this quarter's financial results and the performance of our investment portfolio. We continue to maintain a defensively positioned portfolio that delivers a stable NAV profile with consistent dividend coverage.

Speaker Change: And with that, I'd like to turn it back to Jason for closing remarks.

Jason Breaux: In closing, we are pleased with this quarter's financial results and the performance of our investment portfolio. We continue to maintain a defensively positioned portfolio that delivers a stable NAV profile with consistent dividend coverage and our Analyst and Investor Day in June. One thing we hope everyone left with was that CCAP benefits from its affiliation with Crescent, a proven cycle-tested manager. As credit investors, Crescent's approach to investment selection has remained consistent and disciplined for over three decades.

Speaker Change: Thanks Gerhard. In closing, we are pleased with this quarter's financial results and the performance of our investment portfolio. We continue to maintain a defensively positioned portfolio that delivers a stable NAV profile with consistent dividend coverage.

Jason Breaux: At our analyst and investor day in June, one thing we hope everyone left with was that C-CAT benefits from its affiliation with press and a proven cycle-tested manager. As credit investors, Crescent's approach to investment selection has remained consistent and disciplined for over three decades. And we believe this level of experience will serve as a point of real differentiation for C-CAT in less benign credit environments. Even though the private credit landscape continues to rapidly evolve, we want to assure our shareholders that our investment approach remains disciplined and consistent. As we look forward over the remainder of 2024, we remain confident in the continued strong performance of C Cap's portfolio and believe we are on track to continue to deliver attractive, risk-adjusted returns to our stockholders.

Speaker Change: at our Analyst and Investor Day in June.

Speaker Change: One thing we hope everyone left with was that CCAP benefits from its affiliation with Crescent, a proven cycle-tested manager.

Speaker Change: As credit investors, Crescent's approach to investment selection has remained consistent and disciplined for over three decades, and we believe this level of experience will serve as a point of real differentiation for CCAP in less benign credit environments.

Jason Breaux: And we believe this level of experience will serve as a point of real differentiation for CCAP in less benign credit environments, even though the private credit landscape continues to rapidly evolve. We want to assure our shareholders that our investment approach remains disciplined and consistent. As we look forward over the remainder of 2024, we remain confident in the continued strong performance of CCAP's portfolio and believe we are on track to continue to deliver attractive risk-adjusted returns to our stockholders.

Speaker Change: Even though the private credit landscape continues to rapidly evolve.

Unknown Executive: Good day everyone and welcome to the Q2 2024 Crescent Capital, BTC, Earnings Conference Call. This time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer a session. You may register to ask questions by pressing the store and one on your telephone keypad. You may withdraw yourself from the queue by pressing store too.

Speaker Change: We want to assure our shareholders that our investment approach remains disciplined and consistent.

Speaker Change: As we look forward over the remainder of 2024, we remain confident in the continued strong performance of CCAP's portfolio and believe we are on track to continue to deliver attractive risk-adjusted returns to our stockholders.

Unknown Executive: And with that operator, we can open the line for questions. And at this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw your question by pressing star two. Once again, to ask a question, please press the star and one on your telephone keypad.

Jason Breaux: With that operator, we can open the line for questions. At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2.

Speaker Change: and with that operator we can open the line for questions.

Unknown Executive: Please note this call may be recorded and that will be sent in by should you need any assistance.

Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may withdraw your question by pressing star 2.

Daniel McMahon: It is now my pleasure to turn the conference over to Dan McMahon, Head of Investor Relations. Please go ahead.

Operator: Once again, to ask a question, please press star and one on your telephone keypad. We'll take our first question from Lee Cooperman with the Omega Family Office. Please go ahead. Thanks. Everyone first.

Jason Breaux: Good morning and welcome to Crescent Capital, BTC, A second quarter and a June 30, 2024 Earnings Conference Call. Please note that Crescent Capital, BTC may be referred to as Ccap Crescent BTC or the company throughout the call. Before we begin, I'll start with some important reminders.

Speaker Change: Once again, to ask a question, please press star and 1 on your telephone keypad.

Lee Cooper-Man: So we'll take our first question from Lee Cooper-Man with Omega Family Office. Please go ahead. Thanks, everyone. First, thank you. Two questions. When I need a little help, all these calls I've listened to, everybody says interest rates are very high. What is the evidence that interest rates are very high? They're higher than they've been, but the stock market is at a record high. If you take the unweighted averages, the market is at a record high. This speculation going on in the market, you know, prior to 2008, the 10-year government bond yielded line in line with nominal GDP.

Speaker Change: We'll take our first question from Leigh Cooperman with Omega Family Office. Please go ahead.

Lee Cooperman: Thank you. Two questions. One, I need a little help.

Speaker Change: Thanks, everyone first. Thank you. Two questions. One, I need a little help. On all these calls I've listened to, everybody says interest rates are very high. What is the evidence that interest rates are very high? They're higher than they've been, but, you know, the stock market's at a record high. If you take the unweighted averages, the market is at a record high.

Lee Cooperman: On all these calls I've listened to, everybody says interest rates are very high. What is the evidence that interest rates are very high? They're higher than they've been, but the stock market is at a record high. If you take the unweighted averages, the market is at a record high. There's speculation going on in the market. Prior to 2008, the 10-year government bond yield was in line with nominal GDP.

Jason Breaux: Comments made over the course of this call and the 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 violence. The company assumes no obligation to update any such forward-looking statements. Please note that past performance or market information is not a guarantee of future results.

Speaker Change: There's speculation going on in the market, you know, prior to 2008, the 10-year government bond yielded in line with nominal GDP, so if you take 2-3% inflation, 2-3% real growth, the 10-year wouldn't be undervalued at 4-6% yield.

Lee Cooperman: So if you take 2% to 3% inflation and 2% to 3% real growth, the 10-year wouldn't be undervalued at 4% to 6% yield. So what is the evidence that interest rates are too high? And that's number one. And I have a second question. Hey Lee.

Lee Cooper-Man: So if you take two to three percent inflation, two to three percent real growth, the 10-year wouldn't be undervalued at four to six percent yield. So what is the evidence that interest rates are too high?

Jason Breaux: Yesterday, after the market closed, the company issued its earnings press release for the second quarter and a June 30, 2024 and posted a presentation to the Investor Relations section of its website at CrescentBTC.com. The presentation should be reviewed in conjunction with the company's form 10Q filed yesterday at the SEC. As a reminder, this call is being recorded for replay purposes.

Speaker Change: So, what is the evidence that interest rates are too high?

Lee Cooper-Man: That's number one.

Lee Cooper-Man: And I have a second question.

Speaker Change: and that's number one and I have a second question

Jason Breaux: Thanks for joining us. Thanks for the question. I think we would agree with you. I think we would say that interest rates are high, looking back at the last, let's say, ten years. But if you go back historically, over a longer period of time, I wouldn't call them necessarily high today. Secondly, Wall Street has created a lot of companies in the BDC space and the REIT space that only made sense when stocks sold at a premium to NAV because the game was, you know, sell stock, buy assets, raise a dividend.

Jason Breaux: Hey Lee, thanks for joining. Thanks for the question. I think we would agree with you. I think we would say that interest rates are high on a looking back at the last, let's say, 10 years. They're high, but if you go back historically over a longer period of time, I wouldn't call them necessarily high today.

Speaker Change: Hey Lee, thanks for joining. Thanks for the question. I think we would agree with you.

Speaker Change: I think we would say that interest rates are high on a, looking back at the last let's say 10 years

Jason Breaux: Speaking on today's call, we'll be Ccap's Chief Executive Officer Jason Broke, President Henry Chung and Chief Financial Officer Gerard Lombard. With that, I'd now like to turn it over to Jason. Thank you, Dan. Hello, everyone, and thank you all for joining us today. It was great to see some of you in person at our inaugural analyst and investor day in early June.

Speaker Change: they're high but if you go back historically over a longer period of time I wouldn't call them necessarily high today.

Jason Breaux: And once the stocks go to a discount to NAV, it's game over, and you want to be with the guys that are smart enough to understand that the game has changed and are willing to engage in capital management.

Jason Breaux: Secondly, Wall Street has created a lot of companies in the BDC space, RUIT space, that only made sense when stocks sold at a premium to NAV because the game was, you know, sell stock, buy assets, raise a dividend, you know, sell stock, buy assets, raise a dividend. And once the stocks go to a discount to NAV, it's game over. And you want to be with the guys that are smart enough to understand that the game has changed and are willing to engage in capital management.

Speaker Change: Secondly, Wall Street has created a lot of companies in the BDC space, REIT space,

Speaker Change: that only made sense when stocks sold at a premium to NAV. Because the game was, you know, sell stock, buy assets, raise a dividend. You know, sell stock, buy assets, raise a dividend. And once the stocks go to a discount to NAV, it's game over.

Jason Breaux: I'll start today's call by highlighting our second quarter results. Follow that with some thoughts on our investment approach and touch on our portfolio. Yesterday evening, we reported another quarter of solid earnings, which continued strong credit performance across the portfolio. That investment income or NII was 59 cents per share, which translates into an annualized NII return on equity at 11.7%. With our earnings, again, well in excess of the recently increased regular dividend, our board had declared a supplemental dividend for the second quarter of nine cents per share.

Speaker Change: And you want to be with the guys that are smart enough to understand that the game has changed and are willing to engage in capital management. So, we have stocks selling below book value. Do you guys have any plans to return capital via repurchase? Or is this something that you don't consider?

Jason Breaux: So without stock sign below book value, do you guys have any plans to return capital via repurchase? Or is this something that you don't consider?

Lee Cooperman: So we have stock selling below book value. Do you guys have any plans to return capital via repurchase? Or is this something that you don't consider? Yeah, Lee. Thanks again.

Jason Breaux: Yeah, Lee, thanks again. It's Jason. This is something that we evaluate, and we will continue to evaluate. As of today, the asset yields that we're getting are still compelling with leverage, even more compelling. That said, I think that's something that we're going to continue to be mindful of as we look at our stock price and we look at where the rate environment heads going forward because we obviously need to evaluate both of those measures. We also have to take into consideration on buybacks that we make sure to balance that with the benefits of having scale in the space, just given the fixed charges that are associated with managing a registered vehicle.

Jason Breaux: This is something that we evaluate, and we will continue to evaluate. As of today, the asset yields that we're getting are still compelling, with leverage, even more compelling. That said, I think that's something that we're going to continue to be mindful of as we look at our stock price and we look at where the rate environment heads going forward because we obviously need to evaluate both of those measures. We also have to take into consideration on buybacks that we make sure to balance that with the benefits of having scale in the space just given the fixed charges that are associated with managing a registered vehicle.

Speaker Change: Lee, thanks again. It's Jason. This is something that we evaluate and we will continue to evaluate. As of today, the asset yields that we're getting are still compelling with leverage, even more compelling.

Speaker Change: That said, I think that's something that we're going to continue to be mindful of as we look at our stock price and we look at where the rate environment heads going forward because we obviously need to evaluate both of those measures.

Speaker Change: We also have to take into consideration on buybacks that we make sure to balance that with the benefits of having scale in the space, just given the fixed charges that are associated with managing a registered vehicle.

Jason Breaux: And then the last point is where our leverage is at. So today, for instance, we're basically on top of our target leverage. A buyback would be a leveraging transaction, but it is something if we were to do it, I think we would make sure to manage that within our within our target leverage. A reasonable answer, thank you very much and good luck. We'll take our next question from Robert Dodd with Raymond James. Please go ahead.

Speaker Change: And then the last point is where our leverage is at. So today, for instance, we're basically on top of our target leverage. A buyback would be a leveraging transaction, but it is something if we are to do it, I think we would make sure to manage that within our target leverage.

Lee Cooper-Man: A reasonable answer. Thank you very much, and good luck.

Speaker Change: A reasonable answer, thank you very much and good luck.

Robert Dodd: Thank you. We'll take our next question from Robert Dodd with Raymond James.

Speaker Change: Thank you.

Speaker Change: We'll take our next question from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd: Please go ahead. Hi guys. I'm looking at the liability size of the balance sheet.

Robert Dodd: Hi guys, I'm looking at the liability side of the balance sheet. Can you give us any color on the plans? I mean, as it stands right now, you've got about 60% of your debt stack maturing in an eight month window in 2026, and the SMBC facility goes into amortization roughly a year from now. So I mean, it's pretty crowded in that window. It's a couple of years from now, but can you give us any thoughts on what you would expect to do to maybe ladder that ladder it out more? the period that you still have available to spend money. Yeah, hey, Robert. It's Gerhard.

Robert Dodd: Hi guys. I'm looking at the liability side of the balance sheet. Can you give us any color on the plans? I mean as it stands right now you've got about 60% of your debt stack maturing in an eight-month window in 2026.

Robert Dodd: Can you give us any color on the plans? I mean, as it stands right now, you've got about 60% of your debt stack maturing in an eight-month window in 2026. And the SMB C facility gives an amazement for a year from now. So, I mean, it's pretty crowded in that window. It's a couple of years from now.

Speaker Change: and the the SMBC facility goes into amortization roughly a year from now so I mean it's it's pretty crowded in

Speaker Change: in that window. It's a couple years from now, but can you give us any thoughts on what you would expect to do to maybe ladder that, ladder it out more over the period that you still have available to manage that?

Robert Dodd: But can you give us any thoughts on what you would expect to do to maybe ladder that ladder it out more over the period that you still have available to manage that.

Gerhard Lombard: Good morning. Thanks for the question. It's a good question. You know, we certainly feel good about our cost of capital today. Those unsecured debts, as you know, have a kind of a low fixed coupon relative to when it would be today. So that's very attractive.

Gerhard Lombard: Hey Robert, it's Gerhard. Good morning. Thanks for the question. It's a good question. You know, we certainly feel good about our capital today. Those unsecured debts, you know, as you know, have a kind of a low fixed coupon relative today. So that's very attractive. We are not in a rush to refinance those notes immediately. You know, we, as you saw from the 8-K on our SBV facility and the prepared comments we made a few minutes ago. We are actively looking at our capital structure and taking advantage opportunistically of opportunities to kind of manage that and optimize the capital structure.

Speaker Change: Yeah, hey Robert, it's Gerhard. Good morning. Thanks for the question.

Gerhard: It's a good question. We certainly feel good about our cost of capital today. Those unsecured debts, as you know, have kind of a low fixed coupon relative to when it would be today. So that's very attractive. We are not in a rush.

Jason Breaux: Our segment focus provides us with an opportunity to truly lead our transactions and drive the documentation. We are focused on strong cash flow generation, tight EBITDA definitions, as well as enhanced monitoring rights, which allow us to be proactive versus reactive as we think about our approach to portfolio management. We are cash flow lenders, so we focus on underwriting businesses that have been operating for a long time, that have a history of being able to generate cash flow consistently with low working capital requirements. It's for these reasons we do not invest in annual recurring revenue or ARR loans.

Gerhard Lombard: We are not in a rush to refinance those notes immediately. You know, as you saw from the 8k on our SPV facility and the prepared comments we made a few minutes ago, we are actively looking at our capital structure and taking advantage of opportunities to kind of, you know, manage that and optimize the capital structure. But, as you might imagine, we are in constant dialogue with the market and with our lenders.

Speaker Change: to refinance those notes immediately. You know, as you saw from the 8K on our SPV facility and the prepared comments we made a few minutes ago,

Speaker Change: We are actively looking at our capital structure and taking advantage opportunistically of opportunities to kind of, you know, manage that and optimize the capital structure.

Gerhard Lombard: But, as you might imagine, we are in constant dialogue with the market and with our lenders. And so, you know, you should expect that we will take action on those notes of maturity.

Speaker Change: but as you might imagine

Gerhard Lombard: And so, you know, you should expect that we will take action on those notes as well in terms of maturity. And, you know, to comment on lettering, I think that does make a lot of sense. I don't think we necessarily like the idea of having, you know, a large bullet maturity on our unsecured debt. And so I think we like the idea of lettering that so you are, you know, in the market all the time, and you are diversifying away that refinancing risk that you would otherwise if you had a kind of a larger single maturity on. I got it.

Speaker Change: We are in constant dialogue with the market and with our lenders and so, you know, you should expect that we will take action on those notes as well in terms of maturity.

Robert Dodd: And, you know, two comments about laddering. I think that does make a lot of sense. I don't think we necessarily like the idea of having, you know, a large bullish maturity on our unsecured debt. And so I think we like the idea of laddering that so you are, you know, in the market all the time and you are diversifying away that refinancing risk that you would have otherwise if you had a kind of a larger single maturity on your unsecured capital. Got it. Thank you. I appreciate that.

Speaker Change: and you know to comment on about lettering I think that does make a lot of sense I don't think we necessarily like the idea of having you know a large

Speaker Change: bullet maturity on our on our unsecured debt and so I think we like the idea of laddering that so you are you know in the market all the time and you are diversifying away that that refinancing risk

Speaker Change: that you would have otherwise if you had a kind of a larger single maturity on your unsecured capital.

Robert Dodd: Thank you. I appreciate that. On Henry's covers about the portfolio aggregate liquidity, 57% of all the capacities available, which is very good. Are you seeing any shifts on the margin because obviously, the aggregate I'd expect the aggregate portfolio company to be doing pretty well, um, but have there been any shifts at the margin? It doesn't look like it from your internal ratings, right, but anything that you're monitoring at 20 seconds, you're monitoring at an increased rate given how relatively high rates have been for the prolonged period and the liquidity that has been consumed on the plus side for shareholders by those Yeah, this is Henry.

Robert Dodd: On the, on the, the, the, the, the, the, the portfolio aggregate liquidity. 57% involvement capacity is available, which is very good. Are you seeing any ships on, on the margin, because obviously the aggregate, I'd expect the aggregate portfolio company to be doing pretty well. But have there been any shifts at the market? Doesn't look like it from your internal ratings, right? But, but anything that you're monitoring at, when he settles in monitoring at an increased rate, given how relatively high rates have been for the prolonged period and the liquidity that has been consumed on the plus side for shareholders.

Speaker Change: Thank you. I appreciate that. On Henry's comments about the portfolio aggregate liquidity, 57% of all the capacities available, which is very good. Are you seeing any shifts?

Jason Breaux: We continue to focus our investing efforts on non-cyclical industries and remain well diversified across 20 broad industry categorizations. Our investments are almost entirely supported by well capitalized private equity sponsors with 98% of our debt portfolio and sponsor back companies as of quarter-end. We have 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 remains stable quarter of a quarter.

Speaker Change: on the margin, because obviously the aggregate, I'd expect the aggregate portfolio company would be doing.

Speaker Change: Pretty well

Speaker Change: but have there been any shifts at the margin? It doesn't look like it from your internal ratings, right, but anything that you're monitoring at, when he said that he's monitoring at an increased rate given how

Speaker Change: relatively high rates have been for the prolonged period and the liquidity that has been consumed on the plus side for shareholders by those those rates and higher costs of funding for the portfolio companies.

Jason Breaux: And on slide 17, you will see the percentage of risk-graded 1 and 2 investments. The highest ratings our portfolio companies can receive. Accounted for 89% of the portfolio at fair value, also stable a quarter over quarter. As a quarter end, we had investments in eight portfolio companies on non-acrual status, representing 1.6% and 0.9% of our total debt investments that cost and fair value, respectively, which was flat quarter over quarter.

Robert Dodd: By those, those rates and higher cost of funding for the company.

Henry Chung: Yeah, this is Henry. I can comment on that. I would say that, you know, there's certainly on a margin where a focus on is indicated by our watch list represents just around 10% of our overall portfolio. Within the watch list, I'd say that liquidity is, as we sit here today, liquidity needs are really concentrated in less than a handful of portfolio companies that we're, we're highly focused on. And, you know, these are companies where it's not necessarily just a rate issue. There's some operating performance near-term challenges that those companies are working through that, coupled with the higher fixed charges that are resolved.

Henry Chung: I can comment on that. I would say that, you know, there's certainly a margin we're focused on as indicated by our watch list, which represents just around 10% of our overall portfolio. Within the watch list, I'd say that liquidity, as we sit here today, liquidity needs are really concentrated in less than a handful of portfolio companies that we're highly focused on. And, you know, these are companies where it's not necessarily just a rate issue; there are some operating performance, near-term challenges that those companies are working through that, coupled with the higher fixed charges that are resulting from the current rate environment, are creating some needs for liquidity.

Speaker Change: Yeah, this is Henry. I can comment on that. I would say that, you know, there's certainly...

Speaker Change: on the margin we're focused on is indicated by our watch list, which represents just around 10% of our overall portfolio. Within the watch list, I'd say that liquidity is...

Speaker Change: As we sit here today, liquidity needs are really concentrated in less than a handful of portfolio companies that were

Henry Chung: I'd now like to turn it over to Henry to discuss the market, our Q2 investment activity, and the portfolio. Henry. Thanks Jason. Middle market loan volume for the first half of the year increased nearly 20% as compared to the second half of 2023 with most of the pickup and volume driven by refinancing activity. LBO activity, which represented approximately one third of the middle market loan volume in the first half of 2024, continues to increase, albeit modestly driven by continued strong business fundamentals, better clarity on rates, declining spreads, and strong demand from the private credit market.

Speaker Change: are highly focused on and you know these are companies where it's not necessarily just a rate issue there's some operating

Speaker Change: performance.

Henry Chung: I'd say that, you know, given that 99% of our portfolio is sponsor-backed, we look to the sponsors to solve those liquidity needs to the extent that outside capital is needed. But to your comments, if you were to look at it on an aggregate basis, we're not seeing any heightened revolver utilization, which is something we track real time, given that we are typically the revolver lenders in these transactions as well. It's really going to be on the margins, as you said, and really a subset of our. I appreciate that. And you opened the sponsor door to the point of Jason's comments at the beginning as well.

Speaker Change: challenges that those companies are working through that, coupled with the higher fixed charges that are resulting from the current rate environment, are creating some needs for liquidity. I'd say that, you know, given that 99% of our portfolio is sponsor-backed,

Henry Chung: And resulting from the current rate environment are creating some needs for liquidity. I'd say that, you know, given that 99% of our portfolio cost is sponsored back. We look to the sponsors to solve those liquidity needs to the extent that outside capital is needed. But to your comments, if you were to look at an aggregate basis, we're not seeing any heightened revolver utilization, which is something we track real time. Given that we are typically the revolver lenders in these transactions as well, it's really going to be on the margins, as you said, and really a subset of money.

Speaker Change: We look to the sponsors to solve those equity needs to the extent that outside capital is needed. But to your comments, if you were to look at it on an aggregate basis, we're not seeing any heightened revolve reutilization, which is something we track real time, given that

Henry Chung: Coupled with continued pressure from LPs to return capital, we believe that conditions are in place for LBO volumes continue to accelerate in the second half of the year. And while the syndication markets are open, as Jason discussed, we believe the direct lending market remains the market of choice for sponsors in a lower and core middle market, given the benefits of the direct lending expertise offered by managers like Crescent, including speed and uncertainty of execution and flexibility around the ability to craft bespoke capital structures.

Speaker Change: We are typically the revolver lenders in these transactions as well. It's really going to be on the margins, as you said, and really a subset of our watch list.

Henry Chung: I appreciate that, and you know, the sponsor door to the point of view is coming to the beginning as well. Sponsors different parts of the market appear to be acting differently. Are you seeing those sponsors step up? I mean, certainly in some of the large mega deals we have not clearly. Are you seeing the sponsors continue to step up to provide the liquidity where needed in your segment of the market? Yeah, the short answer is we absolutely are. And it really comes down to the assessment of the constituents with a capital structure of whether the issue that the company facing is really a secular or longer term fundamental issue or something that's short term that can be bridged with some amount of equity capital.

Speaker Change: I appreciate that and you opened up the sponsor door to the point of Jason's comments in the beginning as well. Sponsors for different parts of the market appear to be acting differently, are you

Henry Chung: Please turn to slide 15 where we highlight our recent activity. Gross deployment of the first quarter total of 119 million, as you can see on the left hand side of the page, 92% of which was in senior secure first lien and first lien neutral entrepreneurship. During the quarter, we closed six new platform investments, totaling 62 million, with the remaining 57 million coming from incremental investments in our existing portfolio companies. Incremental investment is a percentage of overall activity was elevated in the first half of 2024 compared to prior periods, as we continue to see higher levels of opportunistic refinancing and add on opportunities within our existing borough universe.

Henry Chung: Sponsors from different parts of the market appear to be acting differently. Are you seeing those sponsors step up? I mean, certainly in some of the large mega deals, we have not. Are you seeing the sponsors continue to step up to provide the liquidity where it is needed in your segment of the market? Yeah, the short answer is we absolutely are.

Speaker Change: Seeing those sponsors step up, I mean certainly in some of the large mega deals, we have not, clearly. Are you seeing the sponsors continue to step up to provide the liquidity where needed in your segment of the market?

Henry Chung: And it really comes down to the assessment of the constituents within the capital structure of whether the issue that the company is facing is really a secular or longer-term fundamental issue or something that's short-term that can be bridged with some, some, some amount of equity capital. And I think, you know, we've certainly been fortunate within our portfolio. And I think this is really, Given our investment approach and our underwriting process, which has been in situations where any liquidity needs that we have seen in the situations that we have seen have been really short-term needs in nature, and that's allowed the sponsor to be able to be comfortable putting in capital beneath us in a position where they feel like they'll get a return on that capital and also for us to credibly come to a view that that' I love it.

Speaker Change: Yeah, the short answer is we absolutely are and

Speaker Change: It really comes down to the assessment of the constituents within capital structure of whether the issue that the company is facing is

Speaker Change: is

Speaker Change: really

Speaker Change: a secular or a longer-term fundamental issue or something that's short-term that can be bridged with some amount of equity capital. And I think, you know, we've certainly been fortunate within our portfolio and I think this is really

Henry Chung: This provides an ongoing opportunity to set for us to make incremental investments in existing, well-performing companies seeking to grow via the pursuit of a creed of M&A. The 119 million in gross deployment compares to approximately 73 million in aggregate exits, sales and repayments resulting in 46 million of deployment on a net basis. The new investments during the first quarter were loans to private equity back companies with silver floors, attractive fees and a weighted average spread of approximately 530 basis points. We continue to back well-capitalized borrowers with significant equity cushions and the weighted average loan to value of our new investments for the quarter was 31%.

Henry Chung: And I think, you know, we've certainly been fortunate with an upper folio, and I think this is really given our investment approach and our underlying process to be in situations where any liquidity needs that we have seen in the situation that we have seen that have been really short term in nature. And that allow the sponsor to be able to be comfortable putting in capital beneath us in a position where they feel like they'll, you know, get a return on that capital and also for us to credibly come to a view that that's all that's needed within that recycling situation.

Speaker Change: the day

Speaker Change: in a position where they feel like they'll...

Speaker Change: you know, get a return on that capital.

Speaker Change: and also for us to credibly come to a view that that's all that's needed within that respective situation. So I'd say that certainly in the situations where we've seen sponsors need to step up, we've seen them continue to do so.

Henry Chung: So I think that's certainly in the situation where we've seen sponsors need to step up. We've seen and continue to do so.

Robert Dodd: Thank you.

Robert Dodd: Appreciate the call.

Speaker Change: Thank you, appreciate the call.

Unknown Executive: Robert.

Paul Johnson: The next question from Paul Johnson with KBW.

Speaker Change: Robert.

Paul Johnson: Thank you. Appreciate the call. We will take our next question from Paul Johnson with KBW. Please go ahead. Yeah, thanks. Good morning.

Speaker Change: We'll take our next question from Paul Johnson with KBW. Please go ahead.

Paul Johnson: Please go ahead. Yeah, thanks.

Henry Chung: This includes dividends from the Logan JV as well as a partnership interest in GACP2 and White Hawk As of June 30th, 97% of our debt investments at fair value were floating rate with a weighted average floor of 80 basis points, which compares to our 67% floating rate liability structure based on debt drawing with 0% floors Overall, our investment portfolio continues to perform well with strong year-over-year weighted average revenue and EBITDA growth. That being said, we have continued closely monitor the impact of borrowing costs on our portfolio companies given the elevated interest rate backdrop.

Jason Breaux: Thanks for taking my questions. So I just wanted to ask you a question on the pick income statistics at 4%. I'm just wondering if you can kind of talk about why that is so much lower than the average kind of BDC pick in the space, weighted average leverage of five and a half times. You would expect in this environment that might be higher, but it's just simply because there are less borrowers in the portfolio that have this option available or are less being utilized at the moment. Honest hair would be helpful.

Paul Johnson: Good morning. Thanks for taking my questions. So I just wanted to ask a question on the pick income, certificate, four percent. I'm just wondering if you can kind of talk to why that is so much lower than the average kind of BDC pick. Five percent across the space, you know, weighted average, leverage of five and a half times. We would expect in this environment that might be higher, but it's just simply because there's less borrowers and portfolio that have this option available or less being utilized at the moment. But honestly, it would be helpful.

Paul Johnson: Yeah, thanks. Good morning. Thanks for taking my questions.

Paul Johnson: So I just wanted to ask you a question on the pick-income statistic you gave, 4%, I'm just wondering if you can kind of talk to why that is so much lower than

Paul Johnson: They're the average kind of BDC pick.

Paul Johnson: the space.

Paul Johnson: Weighted average leverage of five and a half times you would

Speaker Change: expect in this environment that might be higher, but

Speaker Change: It's just simply because there's less borrowers in the portfolio that have this option available or is less being utilized at the moment.

Henry Chung: The weighted average interest coverage of the companies in our investment portfolio at quarter and remain stable at 1.7 times as compared to the prior quarter. As a reminder, this calculation is based on the latest annualized base rate to each quarter. We also continue to closely monitor how our portfolio companies are managing fixed operating costs. Our analysis demonstrates that our portfolio companies in the aggregate are well positioned to address fixed charges with operating cash flows and available balance sheet liquidity.

Speaker Change: Honest hair would be helpful.

Jason Breaux: Yeah, hey, Paul. It's Jason. Thanks for the question.

Jason Breaux: Yeah, hey, Paul, it's Jason. Thanks for the question. Let me take a stab at that, and Henry, feel free to chime in if you've got additional thoughts. A little bit of this is speculation around, you know, maybe why we're lower than our peers. I can certainly comment on why. Why we're low, which is that we are and have been since inception very focused on earning cash at the top line since we're distributing cash at the bottom line.

Jason Breaux: Let me take a stab at that, and Henry Fieldfeeder chiming if you've got additional thoughts. A little bit of this is speculation around, you know, maybe why we're lower than our peers. I can certainly comment on why we're low, which is where we are and have been since inception, very focused on. I already cashed the top line since we're distributing cash at the bottom line. And so we have a high degree of sensitivity to pick toggle options for in. I can't say that we don't do them, but we do them very selectively in terms of deals at underwrite that have a pick option.

Speaker Change: Hey Paul, it's Jason. Thanks for the question. Let me take a stab at that and Henry, feel free to chime in if you've got additional thoughts.

Speaker Change: A little bit of this is speculation around...

Speaker Change: you know, maybe why we're lower than our peers. I can certainly comment on why.

Henry Chung: As expected, we saw a modest decrease in aggregate revolver utilization during the second quarter, with approximately 57% of aggregate revolver capacity available across the portfolio as a quarter end, which is sufficient in our view. It is worth noting that we have seen an increase in reprising requests given tiny spreads. Our approach to reprising is that a portfolio company ought to have demonstrated improvement in credit warliness since on the right through growth and de-leveraging in order to warrant a reprising.

Speaker Change: Why we're low which is we're we we are and have been since inception very focused on

Speaker Change: are earning cash at the top line since we're distributing cash at the bottom line and and so we have a high degree of sensitivity to

Jason Breaux: And so we have a high degree of sensitivity to pick toggle options, for instance, in deals at underwrite. I can't say that we don't do them, but we do them very selectively in terms of deals at underwrite that have a pick option. That probably falls in contrast to some of our peers who do more of that.

Speaker Change: pick toggle options for instance.

Speaker Change: in deals at Under Right.

Speaker Change: I can't say that we don't do them, but we do them very selectively.

Speaker Change: in terms of deals at underwrite that have a pick option.

Henry Chung: The strength of our portfolio continues to benefit from the substantial amount of equity invested in our companies. Most of it is applied by large and low-established private equity firms with whom we have long-standing relationships and a partner with multiple transactions. And we note that the weighted average loan to value in the portfolio at time of under-right is approximately 40%.

Jason Breaux: That probably falls in contrast to some of our peers who do more of that. AR loans, for instance, oftentimes have a pick feature because they don't necessarily generate profitability as they're investing in their business. So AR loans are not an area of focus for Crescent, really never have been. Secondarily, I would say the other way you find a pick in portfolios is when you've got amendment or workout activity. And I would say we certainly have some of those situations contained within our watch list. Oftentimes, as Henry mentioned, when sponsors are wanting to write a check to support a business, they're also looking for concessions from lenders.

Speaker Change: That probably falls in contrast to some of our peers who do more of that.

Jason Breaux: ARR loans, for instance, oftentimes have a pick feature because they don't necessarily generate profitability as they're investing in their business. And so ARR loans are not an area of focus for Crescent, and really never have been. Secondarily, I would say, you know, the other way you find pick-up in portfolios is when you've got amendment or workout activity. And I would say we certainly have some of those situations contained within our watch list.

Speaker Change: ARR loans, for instance, oftentimes have a pick feature.

Speaker Change: because they don't necessarily generate profitability as they're investing in their business. And so ARR loans are not an area of focus for Crescent, really never have been.

Gerhard Lombard: With that, I will now turn it over to Gerard. Thanks, Henry, and hello everyone. Our net investment income per share of 59 cents for the second quarter of 2024 compared to 63 cents per share for the prior quarter and 56 cents per share for the second quarter of 2023. Total investment income of $49 million for the second quarter compared to $50.4 million for the prior quarter. The primary driver of this decrease relates to what we classify as non-recording investment income.

Speaker Change: secondarily I would say you know the other the other way you find pick in in portfolios is when you've got amendment or workout activity

Speaker Change: And I would say we certainly have some of those situations contained within our watch list. Oftentimes, as Henry mentioned, when sponsors are wanting to write a check to support a business, they're also looking for concessions from lenders.

Jason Breaux: Oftentimes, as Henry mentioned, when sponsors are wanting to write a check to support a business, they're also looking for concessions from lenders. The top ask these days is cash interest burden relief in the form of PIC. So that's the other way that, you know, you would find PIC coming into portfolios.

Jason Breaux: The top ask these days is cash interest burden relief in the form of pick. So that's the other way that you would find pick in, come into portfolios. And I would say we do our darnest on those types of situations to make sure that if we are picking, we are getting real value from ownership as well to compensate for that concession that we're making. And, as you know, we try to be extremely selective in terms of the credits that we choose to put in our portfolio.

Gerhard Lombard: Consisting of accelerated amortization, see income, and common stock dividends, non-recording income of $1.8 million decreased quarter of a quarter from $2.6 million. As noted on last quarter's call, while we expect some level of non-recording or transactional investment income every quarter, our non-recording investment income last quarter, driven primarily by two large realizations and an increase in structuring fees for a new platform investment, but meaningfully higher than in previous quarters. Importantly, our recurring yield related income continues to represent the line share of total investment income, contributing over 95% of this quarter's total income, consistent with prior quarters.

Speaker Change: The top ask these days is cash interest burden relief.

Speaker Change: in the form of PICC. So that's the other way that, you know, you would find PICC come into portfolios. And I would say.

Jason Breaux: And I would say we do our darndest in those types of situations to make sure that if we are PICing, we are getting real value from ownership as well to compensate for that concession that we're making. And, you know, as you know, we try to be extremely selective in terms of the credits that we choose to put in our portfolio. So my hope is that in the long term, you won't see that as a material part of our portfolio at any time.

Speaker Change: We do our darndest on on those types of situations to

Speaker Change: to make sure that if we are picking, we are getting...

Speaker Change: real value from ownership, as well, to compensate for that concession that we're making. And as you know, we try to be extremely selective in terms of the credits that we choose to put into our portfolios. So my hope is that over the long term...

Jason Breaux: So my hope is that over the long term, you won't see that as a material part of our portfolio at any time.

Speaker Change: You won't see that as a material part of our of our portfolio at any time.

Jason Breaux: Yeah, the other thing I'll comment on there, Jason already touched on ARR loans, but during that 21 early 22 vintage, a lot, or I shouldn't say a lot, but I thought a deal structure that was fairly popular was a unique, pick preferred structure where sponsors were looking to be able to stretch leverage without overburning from a cash interest perspective to be able to. Hey, those top decile multiples that were needed to prevail in auctions.

Henry Chung: Yeah, the other thing I'll comment on there, Jason already touched on AR loans, but during that, 21 early 22 vintage, a lot of, or I shouldn't say a lot, but a top deal structure that was fairly popular was a unique pick preferred structure where sponsors were looking to be able to stretch leverage without overburning from a cash interest perspective to be able to pay those top desial multiples that needed, that were needed to prevail in auctions. That was something that I think, especially the pick preferred piece, we just tried away from, given our focus since the inception of C cap to stay away and minimize pick income as much as we can on the front end.

Gerhard Lombard: The income continues to represent a modest portion of our revenue at 4% of total investment income, which compares favorably to the BDC peer group. We remain highly focused on our level of pick income, particularly in this environment and believe that this will be a differentiator for BDC performance in the coming years.

Speaker Change: Yeah, the other thing I'll comment on there, Jason already touched on ARR loans, but during that

Speaker Change: 21, early 22 vintage, a lot of

Speaker Change: or I shouldn't say a lot, but a steel structure that was fairly popular was a unique pick-preferred structure.

Gerhard Lombard: Our gap earnings per share on net income for the second quarter of 2024 was 55 cents. This was primarily the result of net investment income outpacing the regular and supplemental dividend offset by 7 cents per share of net unrealized and realized losses. As of June 30, a stockholder's equity was $752 million, up modestly from the prior quarter, resulting in net asset value per share of $20.30.

Speaker Change: where sponsors were looking to be able to stretch leverage without overburdening from a cash interest perspective to be able to you know pay those top decile multiples that needed that were needed to prevail in auctions.

Henry Chung: That was something that, I think, especially the paper for peace, we just shied away from given our focus since the inception of C cap, to stay away and minimize PIC income as much as we can on the front end. So that's, I think, certainly something that you'll see as a minority in our portfolio relative to some of the other peers that are out there. And I think the last point I'll make is that, you know, if you were to ask us two years ago, I think we would have certainly seen more PIC amendment requests than we've seen now.

Speaker Change: That was something that I think, especially that paper fur piece, we just...

Speaker Change: shied away from given our focus since the inception of CCAP to

Speaker Change: stay away and minimize PIC income as much as we can on the front end.

Henry Chung: So that's, I think, certainly something that you'll see is a minority in our peers that are out there.

Speaker Change: So that's, I think, certainly something that you'll see as a minority in our portfolio relative to

Speaker Change: and some of the other peers that are out there.

Henry Chung: And the last point I'll make is that, you know, if you were to ask us two years ago, I think we would have certainly seen more pick amendment asks than we've seen now. But the other side of the coin that I think has been a positive surprise is that the business fundamental that's just been quite strong, you know, revenue and EBITDA growth on an aggregate basis continued. We've seen both. of both top line and bottom line growth across the book. And as a result, you know, while certainly borrowers are contending with higher fixed charges, the numerator of that has grown to be able to address that.

Speaker Change: And I think the last point I'll make is that, you know, if you were to ask us two years ago, I think we would have certainly seen more PIC amendment asks than we've seen now. But the other side of the coin that I think has been a positive surprise is that

Henry Chung: But the other side of the coin that I think has been a positive surprise is that the business fundamentals have just been quite strong, revenue and EBITDA growth on an aggregate basis have continued. We've seen both, both top line and bottom line growth across the book, and as a result, you know, while certainly borrowers are contending with higher fixed charges. The numerator of that has grown to be able to address that. So that's been, I'd say, certainly a positive development that's helped ameliorate what we would have thought, you know, several quarters ago would have been much more. A robust environment for PIC requests.

Speaker Change: The business fundamentals have just been quite strong, you know, revenue.

Speaker Change: and Ibada growth on an aggregate basis continued. We've seen both of...

Gerhard Lombard: With $294 million of undrawn capacity subject to leverage borrowing base and other restrictions and $36 million in cash and cash equivalence as of quarter end, we have sufficient liquidity to fund further investment activity while maintaining a debt to equity ratio that we are comfortable operating at. The weighted average stated interest rate on a total borrowings was 6.91% as of quarter end. And as we've highlighted on the right hand side of the slide, there are no debt maturities until 2026.

Speaker Change: both top-line and bottom-line growth across the book and as a result you know while certainly borrowers are contending with higher fixed charges

Speaker Change: The numerator of that has grown to be able to address that. So that's been, I'd say, certainly a positive involvement that's helped ameliorate.

Henry Chung: So that's been, I say, certainly a positive development that's helped ameliorate what we would have thought, you know, several quarters ago would have been a much more robust environment for pick requests.

Speaker Change: What we would have thought several quarters ago would have been a much more robust environment for PIC requests.

Gerhard Lombard: One additional item to highlight dear relates to our SPV asset facility. In May, we tightened the spread by 30 basis points to so far plus 245 and extended the maturity from March 2028 to May 2029. As Jason mentioned, for the third quarter of 2024, our board has declared our recently increased regular dividend of 42 cents per share, which we believe we are well positioned to cover over the longer term. We also plan to continue to declare and pay quarterly supplemental dividends pursuant to the current calculation to provide further distributions to stockholders.

Jason Breaux: Thanks for that. That's great color. And then on the new activity, 119 million in a quarter. I know, looks like there were about six new deals in there. What was the kind of mix of just, you know, the repricing activity that you mentioned and then the new deals within that and then as well as just kind of the pipeline overall? Let us, let us, Henry's pulling that up here.

Paul Johnson: Thanks for that. That's great color. And then on the new activity, 119 million in the quarter, I know looks like there's about six new deals in there. What was kind of the mix of just, you know, the repricing activity that you mentioned and then the new deals within that and then as well as just kind of the pipeline overall. Let us, let us, Henry's pulling that up here. While he does, Paul, I think I can comment just broadly on the market. You know, we're certainly seeing a pick up in general activity. I think first half, middle market loan volume was up 20% relative to the second half of last year.

Speaker Change: Thanks for that, that's great color. And then, on the new activity, $119 million in the quarter,

Speaker Change: I know it looks like there was about six new deals in there. What was kind of the mix of just, you know, the repricing activity that you mentioned and then the new deals within that and then as well as just kind of the pipeline overall?

Jason Breaux: While he does, Paul, I think I can comment just broadly on the market. You know, we're certainly seeing a pickup in general activity. I think first half middle market loan volume was up 20% relative to the second half of last year, albeit most of it driven by refinancing. I think LVO represented about a third of volume in the second quarter, so still lighter than where we want it to get to and we expect it to get to.

Jason Breaux: And with that, I'd like to turn it back to Jason from closing remarks. Thanks, Gerard. In closing, we are pleased with this quarter's financial results and the performance of our investment portfolio. We continue to maintain a defensively positioned portfolio that delivers a stable nav profile with consistent dividend coverage.

Speaker Change: Let us let us Henry's pulling that up here. Well, he does Paul I think I can comment just broadly on the market

Speaker Change: You know, we're certainly seeing a pickup in general activity. I think first half middle market loan volume was up 20% relative to the second half of last year, albeit most of it driven by refinancings.

Jason Breaux: At our analyst and investor day in June, one thing we hope everyone left with was that C-CAT benefits from its affiliation with press and a proven cycle tested manager. As credit investors, Crescent's approach to investment selection has remained consistent and disciplined for over three decades. And we believe this level of experience will serve as a point of real differentiation for C-CAT in less benign credit environments. Even though the private credit landscape continues to rapidly evolve, we want to assure our shareholders that our investment approach remains disciplined and consistent. As we look forward over the remainder of 2024, we remain confident in the continued strong performance of C Cap's portfolio and believe we are on track to continue to deliver attractive, risk-adjusted returns to our stockholders.

Jason Breaux: I'll be at most of it driven by refinancing. I think LBOs represented about a third volume in the second quarter. So still lighter than where we want it to get to, and we expect it to get to that; said still a meaningful increase over Q1. I think a 70-plus percent increase over Q1, LBO activity. Yeah. And to follow back up on the first part of the question, six new platforms totaling 62 million. And then we had 13 add-ons, 33 million. And then the remainder were fundings on our existing unfunded commitments, DDTLs, and revolvers. The new platforms that you referenced, those are new LBOs versus reprisings.

Speaker Change: I think LBO is represented.

Speaker Change: about a third of volume in the second quarter. So still lighter than where we want it to get to and we expect it to get to. That said, still a meaningful increase over Q1. I think a 70 plus percent increase over Q1 LVO activity.

Jason Breaux: That said, still a meaningful increase over Q1, I think a 70 plus percent increase over Q1 LVO activity. Yeah, and to follow back up on the first part of your question, six new platforms totaling $62 million, and then we had 13 add-ons, that was $33 million, and then the remainder were fundings on our existing unfunded DDTLs and revolvers.

Speaker Change: Yeah, and to follow back up on the first part of your question, six new platforms totaling $62 million, and then we had 13 add-ons, that was $33 million, and then the remainder were fundings on our existing unfunded commitments.

Speaker Change: DDTLs and revolvers. The new platforms that you referenced, those are those are new LBOs versus repricings.

Paul Johnson: Yeah. Thanks for that.

Speaker Change: yeah

Henry Chung: The new platforms that you referenced, those are new LBOs, uh... versus reprice. Thanks for that. And then last question, I was just wondering if you could give kind of an update on the performance of the Logan JV and where that's at. It looks like that was written down a little bit this quarter, but just a status update there would be helpful. Thanks.

Henry Chung: And then last question, I was just wondering if you can give kind of an update on the performance of the Logan JV and where that sat. It looked like that was written down a little bit; the score, the status update there will be helpful. Thanks. Yeah. So the JV, just as a reminder, the largest investment in the JV is the middle market CLO. And as a result, you'll see that fair value can move on a quarter-to-quarter basis based on the market market of the underlying oligores within that CLO. In terms of the performance of the JV as a whole, you know, we're very focused on assessing the distribution that we're receiving from that CLO and the loans within, relative to our projections.

Speaker Change: Thanks for that. And then last question, I was just wondering if you can give kind of an update on the performance of the Logan JV and where that's at. It looks like that was written down a little bit this quarter, but just a status update there would be helpful. Thanks.

Henry Chung: Yeah, so the JV, just as a reminder, the largest investment in the JV is a middle market CLO. And as a result, you'll see that fair value kind of move on a quarter to quarter basis based on the mark to market of the underlying obligors within that CLO. In terms of the performance of the JV as a whole, you know, we're very focused on assessing the distribution that we're receiving from that CLO and the loans within it relative to our projections.

Speaker Change: Yeah, so the JV, just as a reminder, the largest investment in the JV is a middle market CLO.

Lee Cooper-Man: This speculation going on in the market, you know, prior to 2008, the 10-year government bought a yielded line in line with nominal GDP. So if you take two to three percent inflation, two to three percent real growth, the 10-year wouldn't be undervalued at four to six percent yield. So what is the evidence that interest rates are too high?

Speaker Change #100: And as a result, you'll see that fair value kind of move on a quarter-to-quarter basis based on the mark-to-market of the underlying obligors within that CLO.

Speaker Change #101: In terms of the performance of the the JV as a whole, you know, we're we're very focused on assessing the distribution that we're receiving from

Henry Chung: And I'd say that they've been in line since we onboarded the asset. One thing to note with Logan JV is that the CLO that's in the JV, the reinvestment period is coming up, it's going to expire in August of next year, or sorry, not August, April of next year. So right now, the base case here, the thought around that is that once that reinvestment period lapses, the portfolio will monetize here, but that's something that we're evaluating in real time about next steps with respect to that vehicle, but performance wise, has been in line with the cash flow expectation we've been expecting from that. Thank you very much. All for me.

Speaker Change #102: that CLO and the loans within relative to our projections and I'd say that they've been in line since we've onboarded the asset.

Henry Chung: And I say that they've been in line since we've onboarded the asset. One thing to note with Logan JV is that that CLO that's in the JV, the re-investing period is coming up. It's going to expire in August of next year, or right now, August, April next year. So right now, the base case here that thought around that is that once that re-invested period lapses, the portfolio will monetize here. But that's something that we're evaluating real time as we kind of think about the next steps with respect to that vehicle. But I say, performance-wise. It's kind of been in line with the cash flow expectations that we've been expecting to receive from that vehicle.

Speaker Change #103: One thing to note with Logan JV is that that CLO that's in the JV, the reinvestment period, is

Jason Breaux: That's number one. And I have a second question. Hey Lee, thanks for joining. Thanks for the question. I think we would agree with you. I think we would say that interest rates are high on a looking back at the last, let's say, 10 years. They're high, but if you go back historically over a longer period of time, I wouldn't call them necessarily high today. Secondly, Wall Street has created a lot of companies in the BDC space, RUIT space, that only made sense when stocks sold at a premium to NAV because the game was, you know, sell stock, buy assets, raise a dividend, you know, sell stock, buy assets, raise a dividend.

Speaker Change #104: coming up. It's going to expire in August of next year, or sorry, not August, April of next year.

Speaker Change #104: So, right now, the base case here, the thought around that is,

Paul Johnson: Thank you very much.

Paul Johnson: Paul for me. Thanks, Paul.

Jason Breaux: And once the stocks go to a discount to NAV, it's game over. And you want to be with the guys that are smart enough to understand that the game has changed and are willing to engage in capital management. So without stock sign below book value, do you guys have any plans to return capital via repurchase? Or is this something that you don't consider? Yeah, Lee, thanks again, it's Jason. This is something that we evaluate and we will continue to evaluate.

Speaker Change #104: i

Speaker Change #104: Thank you very much, all for me.

Speaker Change #105: Thanks, Paul.

Finn O'Shea: We will move next by the opinion O'Shea with Wells Fargo. Please go ahead.

Paul Johnson: Thanks, Paul. We will move next with Fenian O'Shea with Wells Fargo. Please go ahead. Hey, everyone. Good morning.

Speaker Change #105: And we will move next with Fenian O'Shea with Wells Fargo. Please go ahead.

Finn O'Shea: Hey everyone, good morning. I wanted to go back to the death, death side discussion. Sounded like there'll be emphasis on or perhaps more of a ladder. Seeing what that might look like if we'll have even more and smaller pieces that would thereby presumably be more expensive. Or if you think that you'll be able to do this and keep that cost down, or perhaps reduce them. Thank you.

Fenian O'Shea: I wanted to go back to the debt side discussion. It sounded like there'll be an emphasis on, or perhaps more of a later, seeing what that might look like if we have even more and smaller pieces that would thereby presumably be more expensive, or if you think that you'll be able to do this and keep that cost down or perhaps reduce it. Thank you. Hey, this is Gerhard.

Fenian O'Shea: Hey everyone, good morning. I wanted to go back to the debt side discussion. It sounded like they'll be emphasis on or perhaps more of a latter.

Fenian O'Shea: is seeing what that might look like if we'll have

Jason Breaux: As of today, the asset yields that we're getting are still compelling with leverage, even more compelling. That said, I think that's something that we're going to continue to be mindful of as we look at our stock price and we look at where the rate environment heads going forward because we obviously need to evaluate both of those measures. We also have to take into consideration on buybacks that we make sure to balance that with the benefits of having scale in the space just given the fixed charges that are associated with managing a registered vehicle.

Speaker Change #107: even more and smaller pieces that would thereby presumably be more expensive or if you think that you'll be able to do this and keep that cost down or perhaps reduce them. Thank you.

Gerhard Lombard: Hey, Finn, this is Gerhard. Yes, it's a good question. We have three tranches of unsecured notes right now, maturing and FAB May in July of 2026. We do not see, and those are all those are all issued through private placement channel. We're evaluating both private placement and DCM options, but we don't see dead costs necessarily tick up due to size. We'll make sure that we size those issuances appropriately to get best execution in the market. I think it is fair to say just given that those notes currently are priced at 4% and 5% and 7.5% that they'll probably price up a little bit, given if you look at the spread environment today.

Gerhard Lombard: Yes, good question. We have three tranches of unsecured notes maturing in Feb, May, and July of 2026. We do not see, and those are all issued through the private placement channel; we're evaluating both private placement and DCM options. But we don't see debt costs necessarily tick up due to size. We'll make sure that we size those issuances appropriately to, you know, get, you know, better fixation in the market. You know, I think the, you know, the, I think it is fair to say, you know, just given that those notes currently are priced at 4%, 5%, and 7.5%, that they'll probably price up a little bit given, you know, if you look at the spread environment today. But other than that kind of, you know, price to market. The effect that we expect, we'll make sure we size those. And Finn, thanks for the question. Jason, too.

Speaker Change #107: Hey Finn, this is Gerhard.

Finn: Yes, it's a good question. We have three tranches of unsecured notes right now maturing in Feb, May, and July of 2026. We do not see, and those are all issued through the private placement channel. You know, we're evaluating both private placement and DCM options.

Jason Breaux: And then the last point is where our leverage is at. So today, for instance, we're basically on top of our target leverage. A buyback would be leveraging transaction, but it is something if we are to do it, I think we would make sure to manage that within our target leverage. A reasonable answer. Thank you very much and good luck. Thank you.

Speaker Change #109: But we don't see debt costs necessarily tick up due to size. We'll make sure that we size those issuances appropriately to get best execution in the market.

Robert Dodd: We'll take our next question from Robert Dodd with Raymond James. Please go ahead. Hi guys. I'm looking at the liability size of the balance sheet. Can you give us any color on the plans? I mean as it stands right now, you've got about 60% of your debt stack maturing in an eight-month window in 2026. And the SMB C facility gives an amazement for a year from now. So I mean, it's pretty crowded in that window. It's a couple of years from now.

Speaker Change #109: Thank you. Thank you. Thank you.

Speaker Change #110: I think it is fair to say, just given that those notes currently are priced at 4%, 5% and 7.5%, that they'll probably price up a little bit, if you look at the spread environment today. But other than that, price-to-market...

Gerhard Lombard: But other than that price-to-market effect that we expect, we will make sure we size those tranches appropriately.

Speaker Change #111: effect that we we expect you know we will make sure we resize those tranches appropriately.

Jason Breaux: I just wanted to add that as we continue to look at the market, and we want to be very opportunistic about when we penetrate the market, but we will also be looking at swapping as well, just given the environment that consensus seems to think we're in today. Okay, that's helpful. And for a follow-up, Jason, to your opening commentary on sticking with the lower middle market, to what extent do you see the larger players moving into that territory? And what's the sort of level of competition that that brings? Yeah, thanks, man.

Henry Chung: And Finn, thanks for the questions. Jason, too. I just wanted to add that I think as we continue to look at the market and we want to be very opportunistic about when we penetrate the market, but we will also be looking at swapping as well, just given the environment that consensus seems to think we're in today. Okay, that's helpful.

Speaker Change #112: And Finn, thanks for the question. Jason too. I just wanted to add that I think as we continue to look at the market and we want to be very opportunistic about when we

Gerhard Lombard: But can you give us any thoughts on what you would expect to do to maybe ladder that ladder it out more over the period that you still have available to manage that.

Speaker Change #113: penetrate the market but you know we will also be looking at at swapping as well just given the environment that

Gerhard Lombard: Hey Robert, it's Gerhard. Good morning. Thanks for the question. It's a good question. You know, we certainly feel good about our capital today. Those unsecured debts, you know, as you know, have a kind of a low fixed coupon relative today. So that's very attractive. We are not in a rush to refinance those notes immediately. You know, we as you saw from the 8K on our SBV facility and the prepared comments we made a few minutes ago.

Speaker Change #113: that consensus seems to think we're in today.

Jason Breaux: And for follow up, Jason, to your opening commentary on sticking with the lower middle market, to what extent do you see the larger players moving into that territory and what's the sort of level of competition that that brings? Yeah, thanks, Finn. I think so we everybody has their own definitions of middle market, but just for as a reminder, we deem the lower mid-market roughly $10 to about $35, $40 million of EBDA and then we call the core middle market, say $40 to $150 or so. So those are the two areas of focus for C-CAP. I would say competition from folks who are generally going after the upper middle market has not been all that meaningful in the lower mid market.

Speaker Change #114: Okay that's helpful and for a follow-up Jason, to your opening commentary on sticking with the lower middle market, to what extent do you see

Speaker Change #115: the larger players moving into that territory and what's the sort of level of competition that that brings.

Gerhard Lombard: We are actively looking at our capital structure and taking advantage opportunistically of opportunities to kind of manage that and optimize the capital structure. But as you might imagine, we are in constant dialogue with the market and with our lenders. And so, you know, you should expect that we will take action on those notes of maturity.

Jason Breaux: I think so. We everybody has our own definitions of the middle market, but, Just for, as a reminder, we deem the lower mid-market roughly 10 to about $35-$40 million of EBITDA, and then we call the core middle market, say, $40 to $150 or so. That's really, those are the two areas of focus for CCAP. I would say competition from folks who are generally going after the upper middle market has not been all that meaningful in the lower mid market. I think it's a different market focus, and it's a different sponsor focus, generally, than the upper middle market players.

Speaker Change #115: Yeah, thanks, Finn. I think, so we, everybody has their own definitions of middle market, but

Speaker Change #116: Just for, as a reminder, we deem the lower mid-market roughly 10 to about 35, 40 million dollars of EBITDA, and then we call the core middle market, say,

Gerhard Lombard: And, you know, two comments about laddering. I think that does make a lot of sense. I don't think we necessarily like the idea of having, you know, a large bullish maturity on our unsecured debt. And so I think we like the idea of laddering that so you are, you know, in the market all the time and you are diversifying away that that refinancing risk that you would have otherwise if you had a kind of a larger single maturity on your unsecured capital. Got it. Thank you. I appreciate that.

Speaker Change #117: I would say competition from folks who are generally going after the upper middle market has not been

Speaker Change #118: All that is meaningful in the lower mid-market. I think it's a different market focus, it's a different sponsor focus generally than the upper-middle market players. In addition to that, a lot of the upper-middle market...

Jason Breaux: I think it's a different market focus. It's a different sponsor focus generally than the upper middle market players. In addition to that, a lot of the upper middle market deal making is really getting done because of the significant flows coming into the non-traded space on the retail side where managers are taking in monthly subscriptions and needing to put that capital to work immediately. So it's certainly beneficial to put larger amounts of capital into each deal. In the core, I would say it's, you know, we do see some of the upper mid-market players dip down into the core at times, and these are folks that have been in the core middle market as well.

Henry Chung: On the, on the, the, the, the, the, the, the portfolio aggregate liquidity. 57% involvement capacity is available, which is very good. Are you seeing any ships on, on the margin, because obviously the aggregate, I'd expect the aggregate portfolio company to be doing pretty well. But have there been any shifts at the market doesn't look like it from your internal ratings, right, but, but anything that you're monitoring at, when he settles in monitoring at an increased rate, given how relatively high rates have been for the prolonged period and the liquidity that has been consumed on the plus side for shareholders. By those, those rates and higher cost of funding for the company.

Jason Breaux: In addition to that, you know, a lot of the upper middle market, deal making is really getting done because of the significant flows coming into the non-traded space on the retail side, where managers are taking in monthly subscriptions and needing to put that capital to work immediately. So it's certainly beneficial to put larger amounts of capital into the core. In the core, I would say we do see some of the upper mid-market players dip down into the core at times, and these are folks that have been in the core middle market as well, so folks that we've partnered with before, we've competed with before, so there is some level of activity from the folks that do the mega-unitrons deals as well, dipping down Thanks so much.

Speaker Change #119: deal-making is really getting done because of the significant flows coming into the non-traded space on the retail side where managers are taking in monthly subscriptions and needing to put that capital to work immediately.

Speaker Change #119: So, it's certainly beneficial to put larger amounts of capital.

Speaker Change #120: into each deal.

Speaker Change #120: In the core, I would say we do see some of the upper mid-market players dip down into the core.

Speaker Change #121: at times, and these are folks that have been in the core middle market as well, so folks that we've partnered with before, we've competed with before, so there is some level activity from the folks that do the mega Unitron deals as well, dipping down into the core at times.

Jason Breaux: So folks that we've partnered with before, we've competed with before. So there is some level activity from the folks that do the, you know, the mega unitrange deals as well, dipping down into the core at times.

Finn O'Shea: Thanks so much.

Speaker Change #121: Thanks so much. Thank you.

Derek Hewett: We'll take our next question from Derek. He with with back from America. Please go ahead.

Fenian O'Shea: Thank you. We'll take our next question from Derek Hewett with Bank of America. Please go ahead. Good morning, everyone.

Speaker Change #121: We'll take our next question from Derek Hewitt with Bank of America. Please go ahead.

Derek Hewett: Good morning, everyone. Focusing on flight 13. What's driving that 71% of the portfolio as financial covenants? I would have expected the presenters to be a little bit higher just given the focus on the lower and core middle market. Sorry, Derek. You said slide 13. Can you repeat your question? Yeah, I was what's driving the 71% of the portfolio that has financial covenants just given the focus on the lower and middle and core middle market. I would expect it that number to be higher. So it does have to do with any sort of legacy. That's made from first legal, or there's something else driving that number.

Derek Hewett: Focusing on slide 13, what's driving that 71% of the portfolio as financial covenants? I would have expected the percentage to be a little bit higher, just given the focus on the lower end core middle market. Sorry, Derek, you said slide 13.

Speaker Change #122: Good morning everyone. Focusing on slide 13, what's driving that 71% of the portfolio as financial covenants? I would have expected the percentage to be a little bit higher just given the focus on the lower and core middle market.

Henry Chung: There's some operating performance near-term challenges that those companies are working through that coupled with the higher fixed charges that are resolved. And resulting from the current rate environment are creating some needs for liquidity. I'd say that, you know, given that 99% of our portfolio cost is sponsored back. We look to the sponsors to solve those liquidity needs to the extent that outside capital is needed. But to your comments, if you were to look at an aggregate basis, we're not seeing any heightened revolver utilization, which is something we track real time.

Derek Hewett: Can you repeat your question? Yeah, I was wondering what's driving the 71% of the portfolio that has financial covenants? Just given the focus on the lower and middle and core middle market, I would expect that number to be higher. So it doesn't have to do with any sort of legacy investment from First Eagle or, or is there something else driving that number?

Speaker Change #123: Sorry Derek, you said slide 13. Can you repeat your question?

Derek Hewitt: What's driving the 71% of the portfolio that has financial covenants?

Speaker Change #125: Just given the focus on the lower and mid and core middle market, I would expect that number to be higher. So does that have to do with any sort of legacy investment from First Eagle or is there something else driving that number?

Henry Chung: No, I think it's, and this is Henry speaking Derek, it's really a function of the segmentation of the two different markets. So when you think about how we define the lower middle market, which is 35 million of EBITDA, and below all of those deals, or I should say virtually all those deals are going to have at least one maintenance covenant. In the core middle market, keep in mind how we define that; that's a much larger band; that's 35 to 200 million at UBDA.

Henry Chung: No, I think it's, and this is Henry speaking, Derek. It's really a function of the segmentation of the two different markets. So when you think about how we defy lower middle market, which is 35 million to be the DA in the low. All of those deals. Our virtual, or I should say virtually all those deals, are going to have at least one maintenance covenant. And the core middle market keep in mind how we define that. That's that's a much larger band: that's 35 to 200 million. So when you get to the upper end of that size spectrum, you do see situations where you do not have a maintenance covenant.

Henry Chung: Given that we are typically the revolver lenders in these transactions as well, it's really going to be on the margins, as you said, and really a subset of money. I appreciate that, and you know, the sponsor door to the point of view is coming to the beginning as well. Sponsors different parts of the market appear to be acting differently. Are you seeing those sponsors step up? I mean, certainly in some of the large mega deals we have not clearly.

Speaker Change #125: No, I think it's, and this is Henry speaking to Eric, it's really a function of the segmentation of the two different markets. So when you think about how we define lower middle market, which is 35 million of EBITDA and below, all of those deals

Speaker Change #126: or I should say virtually all those deals are going to have.

Speaker Change #127: a at least one maintenance covenant.

Speaker Change #128: And the core middle market keep in mind how we define that that's that's a much larger band That's 35 to 200 million EBDA. So when you get to the upper end of that

Henry Chung: So when you get to the upper end of that size spectrum, you do see situations where you do not have a maintenance covenant. So as a result, that's why you're seeing that mix; it's a function of the two different markets where we focus. I do think that one thing that we always like to point out here is that, you know, this is, I'd say, almost a direct inverse of what you're kind of seeing in the upper middle market with respect to covenants, probably more so nowadays, but that's really a function of just how wide that band is in terms of company size when you think about the core middle market and what on the larger issuer side of that. We're also, I would just add to that, agree with everything Henry said.

Henry Chung: Are you seeing the sponsors continue to step up to provide the liquidity where where needed in your segment of the market? Yeah, the short answer is we absolutely are. And it really comes down to the assessment of the constituents with a capital structure of whether the issue that the company facing is really a secular or longer term fundamental issue or something that's short term that can be bridged with some some amount of equity capital.

Speaker Change #129: spectrum, you do see situations where you do not have a maintenance covenant. So, as a result,

Henry Chung: So, as a result, that's why you're seeing that mix. It's a function of the two different markets where we focus. I do think that what we always do like to point out here is that, you know, this is, I'd say, almost direct inverse of what you're kind of seeing like in the upper middle market with respect to covenants. Probably more so nowadays. But that's really a function of just how wide that band is in terms of company size. And that's what you think about the core middle market. which I'll see on the larger ratio or side of that, that's that drum.

Speaker Change #129: That's why you're seeing that mix. It's a function of the two different markets where we focus.

Speaker Change #130: I do think that one thing that we always do like to point out here is that, you know, this is, I'd say, almost a direct inverse of what you're kind of seeing like in the upper middle market with respect to covenants.

Speaker Change #131: probably more so nowadays, but that's really a function of just how wide that band is in terms of company size when you think about the corporate market and what you'll see on the larger issuer side of that spectrum.

Henry Chung: And I think, you know, we've certainly been fortunate with an upper folio and I think this is really given our investment approach and our underlying process to be in situations where any liquidity needs that we have seen in the situation that we have seen that have been really short term in nature. And that allow the sponsor to be able to be comfortable putting in capital beneath us in a position where they feel like they'll, you know, get a return on that capital and also for us to credibly come to a view that that's all that's needed within that recycling situation. So I think that's certainly in the situation where we've seen sponsors need to step up. We've seen and continue to do so.

Henry Chung: We're also, I'm just add to that, I agree with everything Henry said. I would just say that, you know, even in the core Derek, when we don't necessarily have maintenance covenants, we are still highly focused on the documentation and having protections in place to the fullest extent that we can negotiate around things like baskets and asset dispositions and the like. So, we're, while, you know, this is representative of true financial covenants, that doesn't mean that, that in the core metal market, our documents look like, you know, look like broadly syndicated loan documents. Yeah, and it is an important point because there certainly can be a tendency to oversell the protection you get with maintenance covenants.

Speaker Change #132: We're also, I would just add to that, agree with everything Henry said, I would just say that even in the core, Derek, when we don't necessarily have maintenance covenants, we are still...

Jason Breaux: I would just say that, you know, even in the core, Derek, when we don't necessarily have maintenance covenants, we are still highly focused on the documentation and having protections in place to the fullest extent that we can negotiate around things like baskets and asset dispositions and the like. So while this is representative of true financial covenants, that doesn't mean that in the core middle market, our documents look broadly syndicated. Yeah, I think that's an important point, because there certainly can be a tendency to oversell the protection you get with maintenance covenants. You know, we've seen in certain situations that maintenance covenants are quite wide relative to having some real teeth to them.

Speaker Change #133: highly focused on the documentation and having protections in place.

Speaker Change #133: Thank you.

Speaker Change #134: to the fullest extent that we can negotiate around.

Speaker Change #135: things like baskets and asset dispositions and the like. So while this is representative of true financial covenants, that doesn't mean that in the core middle market our documents look like broadly syndicated loan documents.

Robert Dodd: Thank you. Appreciate the call. Robert.

Speaker Change #136: Yeah, I think that's an important point because there certainly can be a tendency to oversell the protection you get with maintenance covenants.

Paul Johnson: The next question from Paul Johnson with KBW. Please go ahead. Yeah, thanks.

Henry Chung: You know, we've seen in certain situations maintenance covenants are quite wide relative to having some real teeth to them. And we covered this during a segment within our analyst's day presentation, but the key here is really the document as a whole and our ability to ensure that our collateral stays within our credit box and that we're limiting leakage of our collateral and the extent that, to the extent that a situation may go sideways, it's for the operating performance. So, I think this is one barometer, and then we really use this to kind of indicate that our deals are not really just a variation or a variant of what you're seeing in the quality of the loan market. But if you were to kind of dig beneath that, you'll really see that even in deals that are covenants, the documentation is not indicative or does not resemble that of which you would see in an upper-middle market, probably syndicated loan type construct.

Speaker Change #137: You know, we've seen in certain situations maintenance covenants are quite wide relative to having some real teeth to them.

Jason Breaux: Good morning. Thanks for taking my questions. So I just wanted to ask a question on the pick income, certificate, four percent. I'm just wondering if you can kind of talk to why that is so much lower than the average kind of BDC pick. Five percent across the space, you know, weighted average, leverage of five and a half times. We would expect in this environment that might be higher, but it's just simply because there's less borrowers and portfolio that have this option available or less being utilized at the moment.

Henry Chung: And we covered this during a segment within our Analyst Day presentation, but the key here is really the document as a whole and our ability to ensure that our collateral stays within our credit box and that we're limiting leakage of our collateral to the extent that a situation may go sideways in terms of operating performance. So I think this is one barometer, and we really use this to kind of indicate that our deals are not really just a variation or a variant of what you're seeing in the polysaccharide loan market.

Speaker Change #137: and we covered this during a segment within our analyst day.

Speaker Change #137: presentation, but the key here is really the document as a whole and our ability to ensure that our collateral stays within.

Speaker Change #137: our credit box and that we're limiting leakage of our collateral and the extent that

Speaker Change #137: to the extent that a situation may go sideways in terms of operative performance. So I think this is one barometer, and then we really use this to kind of indicate.

Speaker Change #137: that our deals are not really...

Jason Breaux: But honestly, it would be helpful. Yeah, hey, Paul. It's Jason. Thanks for the question. Let me take a stab at that and Henry Fieldfeeder chiming if you've got additional thoughts. A little bit of this is speculation around, you know, maybe why why we're lower than our peers. I can certainly comment on why why we're low, which is where we are and have been since inception very focused on. I already cashed the top line since we're distributing cash at the bottom line.

Speaker Change #137: just

Speaker Change #137: a variation or a variant of what you're seeing in the policy-indicated loan market, but...

Henry Chung: But if you were to kind of dig beneath that, you'll really see that even in deals that are COV-like, the documentation is not indicative or does not resemble that at all. Markette, Brian Cinecato, Okay, thank you for that. And then circling back to PIC, I realize that PIC is well below industry peers, but how would you characterize it? Was the PIC that you have, was that structured into the original deals, or was that a result of amendment?

Speaker Change #138: If you were to kind of dig beneath that, you'll really see that even in deals that are cub light, the documentation is not indicative or does not resemble that of what you would see in a upper middle market, broadly syndicated loan type construct.

Derek Hewett: Okay, thank you for that.

Henry Chung: And then circling back to pick, I realized that take is well below industry peers, but how would you characterize it? Was that structured into the original deals or over that result of amendments?

Speaker Change #139: Okay, thank you for that. And then circling back to PICC, I realize that PICC is well below industry peers, but how would you characterize it? Was the PICC that you have, was that structured into the original deals or was that a result of amendments?

Jason Breaux: And so we have a high degree of sensitivity to pick toggle options for in. I can't say that we don't do them, but we do them very selectively in terms of deals at underwrite that have a pick option. That probably falls in contrast to some of our peers who do more of that. AR loans, for instance, oftentimes have a pick feature because they don't necessarily generate profitability as they're investing in their business.

Henry Chung: Yeah, this is Henry. I can respond to that. I'd say the majority of that PIC income is going to be related to it being available at origination. So it's, I mentioned in my comments to an earlier question here that the volume of PIC amendments that we've seen has actually been quite a bit lighter than we would have initially guessed several quarters ago, so the majority, which you'll see there, is going to be related. Investments that have a PIC component at origination, and that will really be more so for investments that are second-lean or unsecured, which our groups represent and a minority of our portfolio.

Henry Chung: Yeah, this is Henry. I can respond to that. I say the majority of that pick income is going to be related to; it was available at origination. So, I mentioned in my comments to an earlier question here that the volume of pick amendments that we've seen has actually been quite a bit wider than we would have initially guessed several quarters ago. So, the majority which you'll see there is going to be related to investments that have a pick component at origination.

Speaker Change #139: Yeah, this is Henry. I can respond to that. I'd say the majority of that PIC income is going to be related to it was available at origination, so it's

Speaker Change #140: I mentioned in my comments to an earlier question here that the volume of PIC amendments that we've seen has actually been

Speaker Change #141: Quite a bit lighter than we would have initially guessed several quarters ago

Speaker Change #142: So the majority, which you'll see there, is going to be related to...

Jason Breaux: So AR loans are not an area of focus for Crescent, really never have been. Secondarily, I would say the other way you find a pick in portfolios is when you've got amendment or workout activity. And I would say we certainly have some of those situations contained within our watch list. Oftentimes, as Henry mentioned, when sponsors are wanting to write a check to support a business, they're also looking for concessions from lenders.

Speaker Change #142: investments that have a pick component at origination.

Henry Chung: And that would really be more so for investments that are second-line or unsecured, which are going to represent a minority of our portfolio.

Speaker Change #142: and that will really be...

Speaker Change #142: more so for investments that are second lien or unsecured which represent a minority of our portfolio.

Derek Hewett: Thank you.

Unknown Executive: Thanks, Derek. Thank you.

Henry Chung: Thanks, Derek. Thank you. And this will conclude our Q&A session as well as our conference call for your participation, and you may disconnect at any time. Thank you all. Copyright OSHO International Foundation. OSHO is a registered trademark of OSHO International Foundation, Paul Johnson, Robert Dodd, Paul Johnson

Speaker Change #142: Thank you.

Speaker Change #143: Thanks, Derek.

Unknown Executive: And this will conclude our Q&A session, as well as our conference goal. Thank you for your participation, and you may disconnect at any time.

Speaker Change #144: Thank you and this will conclude our Q&A session as well as our conference call. Thank you for your participation and you may disconnect at any time.

Jason Breaux: The top ask these days is cash interest burden relief in the form of pick. So that's the other way that you would find pick in, come into portfolios. And I would say we do our darnest on those types of situations to make sure that if we are picking, we are getting real value from ownership as well to compensate for that concession that we're making. And as you know, we try to be extremely selective in terms of the credits that we choose to put in our portfolio.

Speaker Change #145: Thank you all.

Speaker Change #145: [inaudible]

Speaker Change #145: [music]

Jason Breaux: So my hope is that over the long term, you won't see that as a material part of our portfolio at any time. Yeah, the other thing I'll comment on there, Jason already touched on AR loans, but during that, 21 early 22 vintage, a lot of, or I shouldn't say a lot, but a top deal structure that was fairly popular was a unique pick preferred structure where sponsors were looking to be able to stretch leverage without overburning from a cash interest perspective to be able to pay those top desial multiples that needed, that were needed to prevail in auctions.

Jason Breaux: That was something that I think, especially the pick preferred piece, we just tried away from given our focus since the inception of C cap to stay away and minimize pick income as much as we can on the front end. So that's I think certainly something that you'll see is a minority in our peers that are out there. And the last point I'll make is that, you know, if you were to ask us two years ago, I think we would have certainly seen more pick amendment asks than we've seen now.

Jason Breaux: But the other side of the coin that I think has been a positive surprise is that the business fundamental that's just been quite strong, you know, revenue and EBITDA growth on an aggregate basis continued. We've seen both, of both top line ad bottom line growth across the book. And as a result, you know, while certainly borrowers are contending with higher fixed charges, the numerator of that has grown to be able to address that. So that's been, I say, certainly a positive development that's helped ameliorate what we would have thought, you know, several quarters ago would have been a much more robust environment for pick requests.

Henry Chung: Thanks for that. That's great color. And then on the new activity, 119 million in the quarter, I know looks like there's about six new deals in there. What was kind of the mix of just, you know, the repricing activity that you mentioned and then the new deals within that and then as well as just kind of the pipeline overall. Let us, let us, Henry's pulling that up here. While he does, Paul, I think I can comment just broadly on the market.

Henry Chung: You know, we're certainly seeing a pick up in general activity. I think first half, middle market loan volume was up 20% relative to the second half of last year. I'll be at most of it driven by refinancing. I think LBOs represented about a third volume in the second quarter. So still lighter than where we want it to get to and we expect it to get to that said still a meaningful increase over Q1.

Henry Chung: I think a 70 plus percent increase over Q1, LBO activity. Yeah. And to follow back up on the first part of the question, six new platforms totaling 62 million. And then we had 13 add-ons, 33 million. And then the remainder were fundings on our existing unfunded commitments, DDTLs and revolvers. The new platforms that you referenced, those are new LBOs versus reprisings. Yeah. Thanks for that.

Jason Breaux: And then last question, I was just wondering if you can give kind of an update on the performance of the Logan JV and where that sat. It looked like that was written down a little bit, the score, the status update there will be helpful. Thanks. Yeah. So the JV just as a reminder, the largest investment in the JV is the middle market CLO. And as a result, you'll see that fair value can move on a quarter and quarter basis based on the the market market of the underlying oligores within that CLO.

Jason Breaux: In terms of the performance of the the JV as a whole, you know, we're very focused on assessing the distribution that we're receiving from that CLO and the loans within relative to our projections. And I say that they've been in line since we've onboarded the asset. One thing to note with Logan JV is that that CLO that's in the JV, the re-investing period is coming up. It's going to expire in August of next year, or right now August, April next year.

Jason Breaux: So right now, the base case here that thought around that is that once that re-invested period lapses, the portfolio will monetize here. But that's something that we're evaluating real time as we kind of think about the next steps with respect to that vehicle. But I say performance wise. It's kind of been in line with the cash flow expectations that we've been expecting to receive from that vehicle. Thank you very much. Paul for me. Thanks, Paul.

Finn O'Shea: We will move next by the opinion O'Shea with Wells Fargo. Please go ahead.

Gerhard Lombard: Hey everyone, good morning. I wanted to go back to the death, death side discussion sounded like there'll be emphasis on or perhaps more of a ladder. Seeing what that might look like if we'll have even more and smaller pieces that would thereby presumably be more expensive. Or if you think that you'll be able to do this and keep that cost down or perhaps reduce them. Thank you. Hey, Finn, this is Gerhard.

Gerhard Lombard: Yes, it's a good question. We have three tranches of unsecured notes right now, maturing and FAB May in July of 2026. We do not see and those are all those are all issued through private placement channel. We're evaluating both private placement and DCM options, but we don't see dead costs necessarily tick up due to size. We'll make sure that we size those issuances appropriately to get best execution in the market. I think it is fair to say just given that those notes currently are priced at 4% and 5% and 7.5% that they'll probably price up a little bit given if you look at the spread environment today.

Gerhard Lombard: But other than that price-to-market effect that we expect, we will make sure we size those tranches appropriately. And Finn, thanks for the questions, Jason, too. I just wanted to add that I think as we continue to look at the market and we want to be very opportunistic about when we penetrate the market, but we will also be looking at swapping as well, just given the environment that consensus seems to think we're in today. Okay, that's helpful.

Jason Breaux: And for follow up Jason, to your opening commentary on sticking with the lower middle market, to what extent do you see the larger players moving into that territory and what's the sort of level of competition that that brings? Yeah, thanks, Finn. I think so we everybody has their own definitions of middle market, but just for as a reminder, we deem the lower mid-market roughly 10 to about $35, $40 million of EBDA and then we call the core middle market, say $40 to $150 or so.

Jason Breaux: So those are the two areas of focus for C-CAP. I would say competition from folks who are generally going after the upper middle market has not been all that meaningful in the lower mid market. I think it's a different market focus. It's a different sponsor focus generally than the upper middle market players. In addition to that, a lot of the upper middle market deal making is really getting done because of the significant flows coming into the non-traded space on the retail side where managers are taking in monthly subscriptions and needing to put that capital to work immediately.

Jason Breaux: So it's certainly beneficial to put larger amounts of capital into each deal. In the core, I would say it's, you know, we do see some of the upper mid market players dip down into the core at times and these are folks that have been in the core middle market as well. So folks that we we've partnered with before we've competed with before. So there is there is some some level activity from the folks that do the, you know, the mega unitrange deals as well, dipping down into the core at times. Thanks so much.

Derek Hewett: Thank you.

Derek Hewett: We'll take our next question from Derek. He with with back from America. Please go ahead.

Henry Chung: Good morning, everyone. Focusing on flight 13. What's driving that 71% of the portfolio as financial covenants? I would have expected the presenters to be a little bit higher just given the focus on the lower and core middle market. Sorry, Derek. You said slide 13. Can you repeat your question? Yeah, I was what's driving the 71% of the portfolio that has financial covenants just just given the focus on the lower and middle and core middle market.

Henry Chung: I would expect it that number to be higher. So it does have to do with any sort of legacy. That's made from first legal or there's there's something else driving that number. No, I think it's it's and this is Henry speaking Derek. It's really a function of the segmentation of the two different market. So when you think about how we defy lower middle market, which is 35 million to be the DA in the low.

Henry Chung: All of those deals. Our virtual or I should say virtually all those deals are going to have a at least one maintenance covenant. And the core middle market keep in mind how we define that that's that's a much larger band that's 35 to 200 million. So when you get to the upper end of that size spectrum, you do see situations where you do not have a maintenance covenant. So as a result, that's why you're seeing that mix.

Henry Chung: It's a function of the two different markets where we focus. I do think that what we always do like to point out here is that, you know, this is I'd say almost direct inverse of what you're kind of seeing like in the upper middle market with respect to covenants. Probably more so nowadays. But that's really a function of just how wide that that band is in terms of company size. And that's what you think about the core middle market, which I'll see on the larger ratio or side of that, that's that drum.

Henry Chung: We're also, I'm just add to that, I agree with everything Henry said, I would just say that, you know, even in the core Derek, when we don't necessarily have maintenance covenants, we are still highly focused on the documentation and having protections in place to the fullest extent that we can negotiate around things like baskets and asset dispositions and the like. So, we're, while, you know, this is representative of, of true financial covenants, that, that doesn't mean that, that in the core metal market, our documents look like, you know, look like broadly syndicated loan documents.

Henry Chung: Yeah, and it is an important point because there certainly can be a tendency to oversell the protection you get with maintenance covenants. You know, we've seen in certain situation maintenance covenants are quite wide relative to having some real teeth to them. And we covered this during a segment within our analyst's day presentation, but the key here is really the document as a whole and our ability to ensure that our collateral stays within our credit box and that we're limiting leakage of our collateral and the extent that, to the extent that a situation may go sideways, it's for the operating performance.

Henry Chung: So, I think this is one barometer and then we really use this to kind of indicate that our deals are not really just a variation or a variant of what you're seeing in the quality of the loan market, but if you were to kind of dig beneath that, you'll really see that even in deals that are covenants, the documentation is not indicative or does not resemble that of which you would see in a upper-middle market, probably syndicated loan type construct.

Henry Chung: Okay, thank you for that.

Henry Chung: And then circling back to pick, I realized that take is well below industry peers, but how would you characterize it was the pick that you have was that structured into the original deals or over that result of amendments? Yeah, this is Henry, I can respond to that. I say the majority of that pick income is going to be related to, it was available at origination. So, I mentioned in my comments to an earlier question here, that the volume of pick amendments that we've seen has actually been quite a bit wider than we would have initially guessed several quarters ago.

Henry Chung: So, the majority which you'll see there is going to be related to investments that have a pick component at origination. And that would really be more so for investments that are second-line or unsecured, which are going to represent a minority of our portfolio. Thank you. Thanks, Derek.

Derek Hewett: Thank you.

Unknown Executive: And this will conclude our Q&A session as well as our conference goal.

Thank you for your participation, and you may disconnect at any time.

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