Q2 2026 Crescent Capital BDC Inc Earnings Call

August 11, 2026

Operator 3: Good morning, and welcome to Crescent Capital BDC, Inc.'s second quarter ended 30 June 2026 earnings conference call. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC, or the company throughout the call. I will start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I will now turn the call over to Dan McMahon.

Operator: Good morning, and welcome to Crescent Capital BDC, Inc.'s Q2 ended 30 June 2026 earnings conference call. Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC, or the company throughout the call. I will start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties. The company's actual results could differ materially from those expressed in such forward-looking statements for any reason, including those listed in its SEC filings. The company assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I will now turn the call over to Dan McMahon.

Speaker #1: I'll start with some important reminders. Comments made over the course of this conference call and webcast may contain forward-looking statements and are subject to risks and uncertainties.

Speaker #1: 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.

Speaker #1: Please also note that past performance or market information is not a guarantee of future results. I'll now turn the call over to Dan McMahon.

Speaker #2: Thank you. Yesterday, after the market closed, the company issued its earnings press release for the second quarter ended June 30, 2026, and posted a presentation to the investor relations section of its website at www.crescentbdc.com.

Dan McMahon: Thank you. Yesterday, after the market closed, the company issued its earnings press release for the second quarter ended 30 June 2026, and posted a presentation to the investor relations section of its website at www.crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be CCAP's Chief Executive Officer, Jason Breaux, Chief Financial Officer, Gerhard Lombard, and President, Henry Chung. With that, I would now like to turn it over to Jason.

Speaker #2: 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 #2: Speaking on today's call will be CCAP's Chief Executive Officer, Jason Breaux; Chief Financial Officer, Gerhard Lombard; and President, Henry Chung. With that, I'd now like to turn it over to Jason.

Speaker #3: Thank you, Dan, and good morning, everyone. I'll begin by summarizing our second quarter results, discussing our key priorities with respect to CCAP, and commenting on current market conditions.

Jason Breaux: Thank you, Dan, and good morning, everyone. I will begin by summarizing our second quarter results, discussing our key priorities with respect to CCAP, and commenting on current market conditions. For the second quarter, we reported net investment income of $0.36 per share, which was down from $0.38 per share in the prior quarter, excluding the impact of a one-time incentive fee waiver. Our earnings exceeded our $0.34 base dividend. We also paid the first of our three previously announced special dividends of $0.03 per share during the quarter. Our net asset value was $17.82 per share as of 30 June. This was down from $18.27 in the prior quarter. The reduction in net asset value was primarily driven by unrealized losses associated with non-accrual investments that we are actively managing.

Speaker #3: For the second quarter, we reported net investment income of $36 per share, which was down from $38 per share in the prior quarter excluding the impact of a one-time incentive fee waiver.

Speaker #3: Our earnings exceeded our $0.34 base dividend. We also paid the first of our three previously announced special dividends of $0.03 per share during the quarter.

Speaker #3: Our net asset value was $17.82 per share as of June 30. This was down from $18.27 in the prior quarter. The reduction in net asset value was primarily driven by unrealized losses associated with non-accrual investments that we are actively managing.

Speaker #3: CCAP remains an important part of the Crescent private credit platform, and our two near-term priorities are rotating our watchlist investments and deleveraging our portfolio to within our target range.

Jason Breaux: CCAP remains an important part of the Crescent private credit platform, and our two near-term priorities are rotating our watchlist investments and deleveraging our portfolio to within our target range. We established a fee and dividend framework last quarter that provides us the flexibility to prioritize these initiatives, ensuring strong alignment between Crescent and our shareholders through this process. Our reduced management and incentive fees, together with our revised dividend framework, became effective as of 1 April. We believe these actions enhance CCAP's long-term earnings power, support sustainable shareholder returns, and position the company with one of the most competitive fee structures in the public BDC sector. Our fee structure also represents a continued meaningful economic contribution by Crescent.

Speaker #3: We established a fee and dividend framework last quarter that provides us the flexibility to prioritize these initiatives, ensuring strong alignment between Crescent and our shareholders through this process.

Speaker #3: Our reduced management and incentive fees, together with our revised dividend framework, became effective as of April 1. We believe these actions enhance CCAP's long-term earnings power, support sustainable shareholder returns, and position the company with one of the most competitive fee structures in the public BDC sector.

Speaker #3: Our fee structure also represents a continued meaningful economic contribution by Crescent. That alignment extends to our parent Sun Life which has been a long-term holder of approximately 6% of CCAP's outstanding shares and has invested or committed more than $1.5 billion across Crescent's strategies since 2021.

Jason Breaux: That alignment extends to our parent, Sun Life, which has been a long-term holder of approximately 6% of CCAP's outstanding shares and has invested or committed more than $1.5 billion across Crescent strategies since 2021. This significant and ongoing investment reflects confidence in Crescent's platform and our strategy. As demonstrated by our results during the quarter, we intentionally set the base dividend at a conservative level relative to our earnings, reflecting both our commitment to consistently earning our base dividend and the potentially volatile market outlook. Turning to the broader private credit market, sponsor-backed M&A activity continues to be below historical averages. However, competitive dynamics have improved, particularly in the upper mid-market. Ongoing redemptions and slower capital formation in the non-traded retail BDC market have improved lending conditions by reducing competitive pressure.

Speaker #3: This significant and ongoing investment reflects confidence in Crescent's platform and our strategy. As demonstrated by our results during the quarter, we intentionally set the base dividend at a conservative level relative to our earnings.

Speaker #3: Reflecting both our commitment to consistently earning our base dividend and a potentially volatile market outlook. Turning to the broader private credit market, sponsor-backed M&A activity continues to be below historical averages.

Speaker #3: However, competitive dynamics have improved, particularly in the upper mid-market. Ongoing redemptions and slower capital formation in the non-traded retail BDC market have improved lending conditions by reducing competitive pressure.

Speaker #3: We've started to see this drive better terms in the core and lower middle market as well, where Crescent primarily invests. We remain optimistic that the availability of private equity dry powder and sponsors looking to return capital to investors will provide a favorable opportunity set in the long term.

Jason Breaux: We've started to see this drive better terms in the core and lower middle market as well, where Crescent primarily invests. We remain optimistic that the availability of private equity dry powder sponsors looking to return capital to investors will provide a favorable opportunity set in the long term. During the second quarter, the broader Crescent platform committed more than $2.5 billion across private credit transactions and more than $8.7 billion over the last 12 months, reflecting the strength of our origination capabilities and providing CCAP with continued access to a deep pipeline of high-quality investment opportunities. Given our near-term deleveraging priority, we are intentionally balancing selected new investments with preserving financial flexibility and prudently managing leverage for CCAP. With that, I'll turn it over to Gerhard to discuss our quarterly financial results in greater detail.

Speaker #3: During the second quarter, the broader Crescent platform committed more than $2.5 billion across private credit transactions and more than $8.7 billion over the last 12 months, reflecting the strength of our origination capabilities and providing CCAP with continued access to a deep pipeline of high-quality investment opportunities.

Speaker #3: Given our near-term deleveraging priority, we are intentionally balancing selective new investments with preserving financial flexibility and prudently managing leverage for CCAP. With that, I'll turn it over to Gerhard to discuss our quarterly financial results in greater detail.

Speaker #2: Thanks, Jason. And hello, everyone. Net investment income was $0.36 per share during the second quarter, compared to reported NII of $0.42 per share in the first quarter.

Gerhard Lombard: Thanks, Jason, and hello, everyone. Net investment income was $0.36 per share during the second quarter, compared to reported NII of $0.42 per share in the first quarter. As Jason noted, excluding the $0.04 per share one-time incentive fee waiver recognized in the first quarter, NII declined from $0.38 per share to $0.36 per share. Compared to the first quarter, total investment income declined by approximately $1.6 million. The quarter-over-quarter decline was primarily driven by lower dividend income and lower realization activity, which resulted in reduced accelerated amortization and prepayment fee income. Dividend income was $1.2 million during the second quarter, down approximately $1.8 million quarter-over-quarter, primarily reflecting a decline in the distribution from the Logan JV as the vehicle continues to amortize and de-lever, as discussed in prior quarters.

Speaker #2: As Jason noted, excluding the $0.04 per share one-time incentive fee waiver recognized in the first quarter, NII declined from $0.38 per share to $0.36 per share.

Speaker #2: Compared to the first quarter, total investment income declined by approximately $1.6 million. The quarter-over-quarter decline was primarily driven by lower dividend income and lower realization activity, which resulted in reduced accelerated amortization and prepayment fee income.

Speaker #2: Dividend income was $1.2 million during the second quarter, down approximately $1.8 million quarter-over-quarter, primarily reflecting a decline in the distribution from the Logan JV as the vehicle continues to amortize and delever, as discussed in prior quarters.

Speaker #2: Lower LBO activity resulted in accelerated amortization and prepayment fee income of approximately $0.4 million during the quarter, compared with an average of approximately $0.8 million over the past year.

Gerhard Lombard: Lower LBO activity resulted in accelerated amortization and prepayment fee income of approximately $0.4 million during the quarter, compared with an average of approximately $0.8 million over the past year. These reductions were partially offset by higher interest income resulting from positive net deployment during the H1 of the year and recent restructurings of non-accrual investments, as well as the benefit of our lower management and incentive fees, which are now fully embedded in our operating results. Turning to the balance sheet. As of 30 June 2026, our investment portfolio totaled approximately $1.6 billion in fair value. Total net assets were $656 million, and NAV per share was $17.82. On slide 10, we provide a graphical analysis of the quarter-over-quarter change in NAV. It is important to distinguish between two separate drivers. First, we completed three restructurings during the quarter.

Speaker #2: These reductions were partially offset by higher interest income, resulting from positive net deployment during the first half of the year and recent restructurings of non-accrual investments, as well as the benefit of our lower management and incentive fees, which are now fully embedded in our operating results.

Speaker #2: Turning to the balance sheet, as of June 30, 2026, our investment portfolio totaled approximately $1.6 billion in fair value. Total net assets were $656 million, and NAV per share was $17.82.

Speaker #2: On slide 10, we provide a graphical analysis of the quarter-over-quarter change in NAV. It's important to distinguish between two separate drivers. First, we completed three restructurings during the quarter.

Speaker #2: These resulted in $48 per share of realized losses, which were directly offset by the reversal of previously recognized unrealized losses that were crystallized through the restructuring process.

Gerhard Lombard: These resulted in $0.48 per share of realized losses, which were directly offset by the reversal of previously recognized unrealized losses that were crystallized through the restructuring process. In other words, these restructurings had a minimal net impact on NAV. Separately, we recognized $0.47 per share of unrealized losses, primarily reflecting continued operating pressure across a subset of our non-accrual investments, partially offset by $0.03 per share of realized gains. NAV was also reduced by the $0.03 per share special dividend paid during the quarter. Let's shift to our capitalization and liquidity on slide 19. Our debt to equity ratio increased to 1.42 times or 1.37 times net of balance sheet cash, reflecting the decline in net asset value together with positive net deployment during the quarter.

Gerhard Lombard: These resulted in $0.48 per share of realized losses, which were directly offset by the reversal of previously recognized unrealized losses that were crystallized through the restructuring process. In other words, these restructurings had a minimal net impact on NAV. Separately, we recognized $0.47 per share of unrealized losses, primarily reflecting continued operating pressure across a subset of our non-accrual investments, partially offset by $0.03 per share of realized gains. NAV was also reduced by the $0.03 per share special dividend paid during the quarter. Let's shift to our capitalization and liquidity on slide 19. Our debt to equity ratio increased to 1.42x or 1.37x net of balance sheet cash, reflecting the decline in net asset value together with positive net deployment during the quarter.

Speaker #2: In other words, these restructurings had a minimal net impact on NAV. Separately, we recognized $0.47 per share of unrealized losses, primarily reflecting continued operating pressure across a subset of our non-accrual investments, partially offset by $0.03 per share of realized gains.

Speaker #2: NAV was also reduced by the $0.03 per share special dividend paid during the quarter. Let's shift to our capitalization and liquidity. I'm on slide 19.

Speaker #2: Our debt-to-equity ratio increased to 1.42 times, or 1.37 times net of balance sheet cash, reflecting the decline in net asset value together with positive net deployment during the quarter.

Speaker #2: While leverage ended the quarter above our long-term target range, we continued to maintain a strong liquidity position, with approximately $200 million of available borrowing capacity and $36 million of cash and cash equivalents on the balance sheet at quarter-end.

Gerhard Lombard: While leverage ended the quarter above our long-term target range, we continued to maintain a strong liquidity position with approximately $200 million of available borrowing capacity and $36 million of cash and cash equivalents on the balance sheet at quarter end. We have visibility into several portfolio realizations in the near term, which all else equal, we expect will reduce leverage to within our target net leverage range during the H2 of the year. We repaid $162 million of maturing fixed rate debt during the quarter and bolstered the balance sheet with incremental access to liquidity. We upsized our SPV asset facility by $100 million to $500 million and our SMBC corporate facility by $25 million to $335 million, further enhancing our available liquidity. We also funded the previously committed $50 million tranche of our Series 2025A fixed rate unsecured notes due May 2029.

Speaker #2: We have visibility into several portfolio realizations in the near term, which, all else equal, we expect will reduce leverage to within our target net leverage range during the second half of the year.

Speaker #2: We repaid $162 million of maturing fixed-rate debt during the quarter and bolstered the balance sheet with incremental access to liquidity. We upsized our SPV asset facility by $100 million to $500 million and our SMBC corporate facility by $25 million to $335 million.

Speaker #2: Further enhancing our available liquidity, we also funded the previously committed $50 million tranche of our Series 2025A fixed-rate unsecured notes, due May 2029. These three capital sources represent $175 million in the aggregate, versus the $162 million repaid across the maturing FCRX unsecured notes and the maturing 2023A unsecured notes.

Gerhard Lombard: These three capital sources represent $175 million in the aggregate versus the $162 million repaid across the maturing FCRX unsecured notes and the maturing 2023 A unsecured notes. As a result, our unsecured debt maturity profile has been extended to 2028 and beyond, providing us with meaningful financial flexibility.

Speaker #2: As a result, our unsecured debt maturity profile has been extended to 2028 and beyond, providing us with meaningful financial flexibility. Our board declared a regular third-quarter dividend of $0.34 per share.

Gerhard Lombard: Our board declared a regular Q3 dividend of $0.34 per share. We will also pay the second of our previously announced $0.03 per share special dividends on 15 September. While our existing supplemental dividend framework remains in effect, CCAP will not pay a supplemental dividend for the quarter based on the terms of that framework. With that, I will turn it over to Henry to discuss underlying credit trends, our portfolio management efforts, and investment activities.

Speaker #2: We will also pay the second of our previously announced $0.03 per share special dividends on September 15. While our existing supplemental dividend framework remains in effect, CCAP will not pay a supplemental dividend for the quarter based on the terms of that framework.

Speaker #2: With that, I'll turn it over to Henry to discuss underlying credit trends, our portfolio management efforts, and investment activities.

Speaker #3: Thanks, Gerhard. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 192 portfolio companies, with an average investment size of approximately 0.5% of the total portfolio, and 91% of the portfolio invested in senior first lien loans.

Henry Chung: Thanks, Gerhard. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 192 portfolio companies, with an average investment size of approximately 0.5% of the total portfolio and 91% of the portfolio invested in senior first lien loans. The broader portfolio continued to perform generally in line with our underwriting expectations. The majority of our portfolio companies continued to demonstrate resilient operating performance and year-over-year EBITDA growth. Approximately 85% of investments remained rated 1 or 2, with a weighted average portfolio risk rating of 2.1. Weighted average interest coverage remained stable at 2.2 times, reflecting continued resilience across the broader portfolio. I want to acknowledge that NAV has now declined for several consecutive quarters. That pressure has been concentrated in a limited set of challenged credits.

Speaker #3: The broader portfolio continued to perform generally in line with our underwriting expectations. The majority of our portfolio companies continued to demonstrate resilient operating performance and year-over-year EBITDA growth.

Speaker #3: Approximately 85% of investments remained rated 1 or 2, with a weighted average portfolio risk rating of 2.1. Weighted average interest coverage remained stable at 2.2 times, reflecting continued resilience across the broader portfolio.

Speaker #3: I want to acknowledge that NAV has now declined for several consecutive quarters. That pressure has been concentrated in a limited set of challenged credits.

Speaker #3: I will provide additional details on where we are seeing pressure and the actions we are taking. Our watchlist increased modestly from 14% to 15% quarter over quarter.

Henry Chung: I will provide additional details on where we are seeing pressure and the actions we are taking. Our watchlist increased modestly from 14% to 15% quarter over quarter. While the majority of our watchlist investments do not have a near-term credit event, we continue to closely monitor businesses that are indexed to deferrable consumer spending, which represents an outsized proportion of our watchlist relative to the broader portfolio. With respect to our largest industry categories, our healthcare investments continue to demonstrate stability outside of a select few investments that are managing company-specific issues. Additionally, our software and services investments also continue to deliver stable operating results amid AI-related market volatility. We have also continued to focus on rotating the legacy First Eagle portfolio, which continues to represent an outsized contributor to our watchlist.

Speaker #3: While the majority of our watchlist investments do not have a near-term credit event, we continue to closely monitor businesses that are indexed to deferrable consumer spending, which represents an outsized proportion of our watchlist relative to the broader portfolio.

Speaker #3: With respect to our largest industry categories, our healthcare investments continue to demonstrate stability outside of a select few investments that are managing company-specific issues.

Speaker #3: Additionally, our software and services investments continue to deliver stable operating results amid AI-related market volatility. We have also continued to focus on rotating the legacy First Legal portfolio, which continues to represent an outsized contributor to our watchlist.

Speaker #3: The longer-term rotation thesis was a key area of diligence and factored into our investment rationale when completing the acquisition, and we have continued to make progress on this front.

Henry Chung: The longer-term rotation thesis was a key area of diligence and factored into our investment rationale when completing the acquisition, and we have continued to make progress on this front. During the quarter, we restructured one legacy First Eagle investment, and we also exited another acquired investment at par. As of 30 June, the acquired portfolio has been reduced from over 70 to 27 investments, representing approximately 7% of CCAP's portfolio at fair value. Looking ahead, we expect realizations to continue as we focus our efforts on improving portfolio quality through the rotation. We had no new non-accruals during the quarter and completed three restructurings, resulting in non-accruals declining from 5.7% to 4.8% of debt investments at cost.

Speaker #3: During the quarter, we restructured one legacy first lien investment, and we also exited another acquired investment at par. As of June 30th, the acquired portfolio has been reduced from over 70 to 27 investments, representing approximately 7% of CCAP’s portfolio at fair value.

Speaker #3: Looking ahead, we expect realizations to continue as we focus our efforts on improving portfolio quality through rotation. We had no new non-accruals during the quarter and completed three restructurings, resulting in non-accruals declining from 5.7% to 4.8% of debt investments at cost.

Speaker #3: As we manage our watchlist, we want to reiterate that we consistently take a long-term approach to portfolio management that has been guided by the 10 years of experience Crescent has investing in sponsor-backed private capital structures.

Henry Chung: As we manage our watchlist, we want to reiterate that we consistently take a long-term approach to portfolio management that has been guided by the tenure and experience Crescent has investing in sponsor-backed private capital structures. Our experience has informed us that these workout situations rarely resolve within a single quarter, and the most expedient realization is not necessarily the approach that maximizes value. As operating performance, enterprise values, and recovery expectations evolve, we proactively reflect those developments through our valuations. While quarterly marks reflect current conditions, we ultimately judge these investments based on their final realization outcomes. Moving to investment activity, given our current leverage profile, we intentionally moderated our hold sizes on platform-originated investments during the quarter. Gross deployments during the second quarter totaled $57 million, including $28 million across three new platform investments.

Speaker #3: Our experience has informed us that these workout situations rarely resolve within a single quarter, and the most expedient realization is not necessarily the approach that maximizes value.

Speaker #3: As operating performance, enterprise values, and recovery expectations evolve, we proactively reflect those developments through our valuations. Our quarterly marks reflect current conditions; we ultimately judge these investments based on their final realization outcomes.

Speaker #3: Moving to investment activity, given our current leverage profile, we intentionally moderated our hold sizes on platform-originated investments during the quarter. Gross deployment during the second quarter totaled $57 million, including $28 million across three new platform investments.

Speaker #3: These investments were made at weighted average spreads of approximately 550 basis points. The remaining $29 million represented follow-on investments in existing portfolio companies. Aggregate exits, sales, and repayments totaled approximately $36 million, resulting in net deployment of approximately $21 million for the quarter.

Henry Chung: These investments were made at weighted average spreads of approximately 550 basis points. The remaining $29 million represented follow-on investments in existing portfolio companies. Aggregate exits, sales, and repayments totaled approximately $36 million, resulting in net deployment of approximately $21 million for the quarter. We believe this combination of active portfolio management and disciplined deployment aligns with our focus on demonstrating stability across our portfolio. With that, I'll turn the call back to Jason.

Speaker #3: We believe this combination of active portfolio management and disciplined deployment aligns with our focus on demonstrating stability across our portfolio. With that, Jason.

Speaker #2: Thank you, Henry.

Jason Breaux: Thank you, Henry. Before we open the call for questions, I'd like to leave you with a few closing thoughts. Active portfolio management and strong alignment between ourselves and our investors remain foundational for our approach to managing CCAP. We acknowledge that the portfolio rotation, particularly as it relates to the legacy acquired assets, remains ongoing. We have also taken a number of important steps to further strengthen CCAP's positioning, including implementing a best-in-class fee structure, developing a revised dividend framework, and proactively managing our balance sheet. We are confident that our platform provides us with the right capabilities to deliver an experience to our investors that is consistent with our 30-plus year history investing in private credit. We believe consistent execution is the best path to narrowing that valuation gap. On behalf of the entire Crescent team, I'd like to thank our shareholders for their continued support and confidence.

Speaker #3: Before we open the call for questions, I'd like to leave you with a few closing thoughts. Active portfolio management and strong alignment between ourselves and our investors remain foundational to our approach to managing CCAP.

Speaker #3: We acknowledge that the portfolio rotation, particularly as it relates to the legacy acquired assets, remains ongoing. We have also taken a number of important steps to further strengthen CCAP's positioning.

Speaker #3: This includes implementing a best-in-class fee structure, developing a revised dividend framework, and proactively managing our balance sheet. We are confident that our platform provides us with the right capabilities to deliver an experience to our investors that is consistent with our 30-plus-year history investing in private credit.

Speaker #3: We believe consistent execution is the best path to narrowing that valuation gap. On behalf of the entire Crescent team, I'd like to thank our shareholders for their continued support and confidence.

Speaker #3: Operator, we'd now be happy to take your questions.

Jason Breaux: Operator, we'd now be happy to take your questions.

Speaker #4: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press *1 to raise your hand.

Operator 3: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert Dodd with Raymond James. Your line is open. Please go ahead.

Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert Dodd with Raymond James. Your line is open. Please go ahead.

Speaker #4: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #4: If you're muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Robert Dodd with Raymond James.

Speaker #4: Your line is open. Please go ahead.

Robert Dodd: Hi, guys. Just want to dig into a couple of bits on obviously the NAV trend. As you said, it has been down eight consecutive quarters now. I recognize your point that turnarounds do not happen overnight, et cetera. They can take some time. There is a difference between the turnaround and workout process and whether the fair value was set where it should have been. You can factor the eventual outcome of a turnaround into the fair value quicker than appears to be the case. Is that the issue that the turnarounds are not progressing how you would like, and that is driving the revising your expectations downward each quarter? Or is it they are occurring as planned and it is just the fair value is keeping up with that rather than being more forward-looking?

Speaker #5: Hi, guys. Just want to dig into a couple of points on, obviously, the NAV trend. As you said, it's been down eight consecutive quarters now.

Speaker #5: And I recognize your point that turnarounds don't happen overnight, etc.—they can take some time. But there's a difference between the turnaround and workout process, and whether the fair value was set where it should have been.

Speaker #5: In fact, the eventual outcome of a turnaround into the fair value is happening quicker than appears to be the case. I mean, is that the issue—that the turnarounds are not progressing how you'd like, and that's driving the kind of revising your expectations downward each quarter? Or is it that they are occurring as planned, and it's just that the fair value is keeping up with that rather than being more forward-looking?

Speaker #5: Can you give us any insight? Because obviously, with eight consecutive quarters, we would expect that, by random chance, you might have an up quarter in there. So, how close are we to the bottom, so to speak, on NAV, taking into account full expected outcomes on these assets?

Robert Dodd: Can you give us any, because obviously, eight consecutive quarters, we would expect random chance you might have an up quarter in there. How close are we to the bottom, so to speak, on NAV on factoring in full expected outcomes on these assets?

Henry Chung: Hi, Robert. This is Henry. I can start off by taking that. I think the first dynamic is what you just alluded to, which is I completely agree with your observation around the longer-term trend that we have seen, and it is consistent with what you said, which is these do not happen, these watch list investments do not fully resolve and realize within a quarter or even within a year or two, for instance. What we are focused on as we are thinking through the watch list is making sure that we are focused on long-term value and recovery maximization, not necessarily just getting them off of the watch list and out of the portfolio as quickly as possible. That is going to inform our positioning and our thoughts with respect to just the rotation thesis, especially as it relates to investments that are on our watch list.

Speaker #2: That's fair, Robert. This is Henry. I can start off by taking that. I think the first dynamic is what you just alluded to, which is I completely agree with your observation around the longer-term trend that we've seen.

Speaker #2: And it's consistent with what you said, which is these don't happen—these watch investments don't fully resolve and realize within a quarter, or even within a year or two, for instance.

Speaker #2: And what we're focused on, as we're thinking through the watch list, is making sure that we're focused on long-term value and recovery maximization—not necessarily just getting them off of the watch list and out of the portfolio as quickly as possible.

Speaker #2: So that's going to inform our positioning and our thoughts with respect to just the rotation thesis, especially as it relates to investments that are on our watch list.

Speaker #2: I would say that with respect to the valuation, on a quarter-to-quarter basis, we need to reflect what the nearest-term operating performance of these portfolio companies is, as well as the nearest-term outlooks.

Henry Chung: I would say that with respect to the valuations on a quarter-to-quarter basis, we need to reflect what the nearest term operating performance of these portfolio companies are, as well as the nearest term outlooks. As you can imagine, an investment that is on the watch list in particular might have the most variance in both of those inputs on a quarter-to-quarter basis. Our goal and what we commit to is reflecting those in real time and providing the best current view that we have on the respective watch list investments. When I think about making sure that we factor in every relevant input, those can change, and those tend to change most dramatically for an investment that is on the watch list or non-accrual as in comparison to just an investment that may be stable and performing to expectations.

Speaker #2: And as you can imagine, an investment that is on the watch list, in particular, might have the most variance in both of those inputs on a quarter-to-quarter basis.

Speaker #2: Our goal, and what we commit to, is reflecting those in real time and providing the best current view that we have on the respective watch's investments.

Speaker #2: So, when I think about making sure that we factor in every relevant input, those can change, and those tend to change most dramatically for an investment that is on the watch list or non-accrual, as compared to just an investment that may be stable and performing to expectations.

Speaker #2: So, I think that's certainly a dynamic that we're observing here as it relates to changes in unrealized losses on a quarter-over-quarter basis. I think the last point I'll make is just with respect to the watches in aggregate.

Henry Chung: I think that's certainly a dynamic that we're observing here as it relates to changes in unrealized losses on a quarter-over-quarter basis. The last point I'll make is just with respect to the watch list in aggregate. As of this quarter, we were at 15%, which is about 1.5 percentage points higher than where we've been over the last three years on average. As you know, and as we've alluded to in prior quarters, we like to be proactive with respect to how we designate investments on the watch list. As a result, you haven't seen our watch list necessarily balloon sharply on a quarter-over-quarter basis. That's because we want to be upfront with what we're designating on the watch list and how we're approaching these investments.

Speaker #2: As of this quarter, we were at 15%, which is about one and a half percentage points higher than where we've been, on average, over the last three years.

Speaker #2: As you know, and as we've alluded to in prior quarters, we like to be proactive with respect to how we designate investments on the watch list.

Speaker #2: And as a result, you haven’t seen our watch list necessarily balloon sharply on a quarter-over-quarter basis. And that’s because we want to be upfront with what we’re designating on the watch list and how we’re approaching these investments.

Speaker #2: So, to summarize here, I think it's certainly a component of just the longer-dated time it takes to rotate and realize watch list investments, as well as our approach of making sure that we factor in the latest relevant inputs as we're thinking about marking these investments appropriately on a quarter-to-quarter basis.

Henry Chung: To summarize here, I think it's certainly a component of just the longer dated time it takes to rotate and realize watch list investments as well as our approach of making sure that we factor in the latest relevant inputs as we're thinking about marking these investments appropriately on a quarter-to-quarter basis.

Speaker #5: Okay, I appreciate that, Carla. Thank you. Moving on to a different topic, if I can. Obviously, you've got repayments. I think Gerhard said you should be in the target leverage range in the second half.

Robert Dodd: Okay. I appreciate that color. Thank you. Moving on to a different topic, if I can. Obviously, you've got repayments. I think Gerhard said you should be in the target leverage range in H2. Some net portfolio declines in size probably. Can you give any color on what you expect to do? Obviously, you've moved to more granular, smaller average positions, et cetera, as you rotated over time from acquired assets, et cetera. Do you think there's going to be any change there? Any further increase in that? Or what's the view of once you get to target leverage, if the market's more active, how do you expect to respond to that. Because typically when originating, if the market's active in originations, it's also active in repayments, right?

Speaker #5: So, some net portfolio declines in size are probably expected. Can you give us any color on what you expect to do? Obviously, you've moved to more granular, smaller average positions, etc.

Speaker #5: As you rotated over time, from acquired assets, etc., do you think there's going to be any change there? Any further increase in that, or what's the view of, once you get to target leverage, if the market's more active, how do you expect to respond to that?

Speaker #5: Typically, when originating, if the market's active in originations, it's also active in repayments, right? So...

Henry Chung: Yeah. In the near term, Robert, our focus here is going to be adding positions that are likely going to be smaller than our average position size of approximately 50 basis points on the total portfolio. Our goal here with origination in the near term, at least as it pertains to CCAP specifically, in light of our leverage, is continuing to add diversification, continuing to access the broader origination that is happening across the platform as a whole, but just in smaller size at the individual portfolio company level. So that is, in the near term, what I would say the expectation is.

Speaker #2: Yeah. In the near term, Robert, our focus here is going to be adding positions that are likely going to be smaller than our average position size of approximately 50 basis points on the total portfolio.

Speaker #2: Our goal here with origination in the near term, at least as it pertains to CCAP specifically, in light of our leverage, is continuing to add diversification—continuing to access the broader origination that's happening across the platform as a whole, but just in smaller size at the individual portfolio company level.

Speaker #2: So, that's in the near term, what I would say the expectation is.

Speaker #5: Got it. Thank you.

Robert Dodd: Got it. Thank you.

Speaker #4: Your next question comes from the line of Sina Noche with Wells Fargo Securities. Your line is open. Please go ahead.

Operator 3: Your next question comes from the line of Finian O'Shea with Wells Fargo Securities. Your line is open. Please go ahead.

Operator: Your next question comes from the line of Finian O'Shea with Wells Fargo Securities. Your line is open. Please go ahead.

Speaker #6: Good morning. I want to touch on scale, if growing this is something that's on the table—priority maybe now, maybe later. But you've been active on M&A in the past.

Finian O'Shea: Good morning. I want to hit on scale, if growing this is something that is on the table, priority maybe now, maybe later. But you have been active on M&A in the past. Is that something that you spend a lot of time on competitively and/or would there be appetite from Sun Life to put more capital into the BDC?

Speaker #6: Is that something that you spend a lot of time on, competitively, and/or would there be appetite from Sun Life to put more capital into the BDC?

Jason Breaux: Hey, Finn, it's Jason. Thanks for the question. I'd say a couple of things. CCAP certainly remains a core strategic vehicle within the Crescent private credit platform. It provides a permanent capital base that complements the broader franchise and certainly enhances our ability to originate and manage assets. Sun Life has been a tremendous supporter of the platform and of the vehicle, real ownership in the stock. They've been owners of unsecured debt as well. So a terrific supporter, and I think they will continue to be a great supporter of not just CCAP, but also the platform. As far as M&A goes, we have executed M&A in the past. I think we, as officers of CCAP, view it as part of our fiduciary obligation to be looking at opportunities and ways to grow the vehicle.

Speaker #3: Hey, Finn. It's Jason. Thanks for the question. Let's say a couple of things. CCAP certainly remains a core strategic vehicle within the Crescent Private Credit platform.

Speaker #3: It provides a permanent capital base that complements the broader franchise and certainly enhances our ability to originate and manage assets. Sun Life has been a tremendous supporter of the platform and of the vehicle, real ownership in the stock.

Speaker #3: They've been owners of unsecured debt as well, so a terrific supporter. And I think they will continue to be a great supporter of not just CCAP, but also the platform.

Speaker #3: As far as M&A goes, we have executed M&A in the past. I think we, as officers of CCAP, view it as part of our financial fiduciary obligation to be looking at opportunities and ways to grow the vehicle.

Speaker #3: I will say, as we talked about in the prepared remarks, we're not happy with the NAV declines and what we've seen in the recent trends.

Jason Breaux: I will say, as we talked about on the prepared remarks, we're not happy with the NAV declines and what we've seen in the recent trends. We're not happy with where our non-accruals are. We're trying to clean that up, and that remains our primary focus right now for managing this vehicle.

Speaker #3: We're not happy with where our non-accruals are. We're trying to clean that up, and that remains our primary focus right now for managing this vehicle.

Speaker #6: Okay, thanks. And just a follow-up on that, on the performance. You have a pretty significant, long-running institutional franchise. One thing we've sort of observed with some of the underperforming BDCs is that the losing positions have been concentrated, if not entirely, in the BDC. Was that the case for you, or have you had more of a, say, blanket performance headwind because of a vintage, or healthcare, or whatnot?

Finian O'Shea: Okay. Thanks. Just a follow-up on that, on the performance. You have a pretty significant long-running institutional franchise. One thing we've observed with some of the underperforming BDCs as such is that the losing positions had been concentrated, if not entirely, in the BDC. Was that the case for you, or have you had a, say, blanket performance headwind because of a vintage or healthcare or whatnot?

Speaker #3: Yeah, Finn, interesting question. I think I'd say a couple of things there too. Sort of going back to what Henry's saying in response to Robert, I think we are in a bit of a normalization period to reflect higher overall defaults and credit, relative to where we were a couple of years ago.

Jason Breaux: Yeah. Finn, interesting question. I think I'd say a couple of things there, too. Going back to what Henry was saying in response to Robert. I think we are in a bit of a normalization period to reflect higher overall defaults in credit relative to where we were a couple of years ago. I think some of that stems from more aggressive structures in the '21, '22 vintage and zero base rates back at that period of time when we're certainly operating in a higher cost capital environment today. So I think there's some normalization that's taking place. As far as CCAP versus the institutional business, there's significant overlap with where CCAP sits and where our institutional business is in terms of how we co-invest across the platform.

Speaker #3: And I think some of that stems from more aggressive structures in the 2021 and 2022 vintage, and zero base rates back at that period of time, when we're certainly operating in a higher-cost capital environment today.

Speaker #3: So, I think there's some normalization that's taking place. As far as CCAP versus the institutional business, there's significant overlap with where CCAP sits and where our institutional business is in terms of how we co-invest across the platform.

Speaker #3: The one, I would say, the one exception to that that I would call out certainly is anything that CCAP might do on the M&A side.

Jason Breaux: I would say the one exception to that that I would call out certainly is anything that CCAP might do on the M&A side. We do have some legacy First Eagle names that we onboarded at the time of that acquisition. We knew they were challenged names. They continue to be challenged names, and those are only represented within the CCAP portfolio.

Speaker #3: And so, we do have some first legal legacy, first legal names that we onboarded at the time of that acquisition. We knew they were challenged names.

Speaker #3: They continue to be challenge names, and those are only represented within the CCAP portfolio.

Finian O'Shea: Thank you.

Speaker #5: Thank you.

Operator 3: There are no further questions at this time. I will now turn the call back to Jason Breaux for closing remarks.

Operator: There are no further questions at this time. I will now turn the call back to Jason Breaux for closing remarks.

Speaker #4: There are no further questions at this time. I will now turn the call back to Jason Breaux for closing remarks.

Speaker #6: Okay. Thank you, operator. Thank you for the questions. Just to conclude, we are grateful for the support of our shareholders. We are highly focused on stabilizing the portfolio and rotating out of some of the more troubled situations.

Jason Breaux: Okay. Thank you, operator. Thank you for the questions. Just to conclude, we are grateful for the support of our shareholders. We are highly focused on stabilizing the portfolio and rotating out of some of the more troubled situations in the portfolio and looking forward to cleaning that up and moving this vehicle forward in a way where we are well-aligned with shareholders with a competitive fee structure and a high-quality portfolio and strong support from our parent. Thank you all for your continued support.

Speaker #6: And the portfolio—and looking forward to cleaning that up and moving this vehicle forward in a way where we're well aligned with shareholders, with a competitive fee structure, a high-quality portfolio, and strong support from our parent.

Speaker #6: Thank you all for your continued support.

Operator 3: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining CCAP Q2 2026 Earnings Conference Call. The line will disconnect automatically.

Operator: This concludes today's call. Thank you for attending. You may now disconnect. This event has now concluded. Thank you for joining CCAP Q2 2026 Earnings Conference Call. The line will disconnect automatically.

Speaker #4: This concludes today's call. Thank you for attending. You may now disconnect.

Q2 2026 Crescent Capital BDC Inc Earnings Call

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