NEW YORK--(BUSINESS WIRE)--KBRA assigns a rating of BBB- to Crescent Capital BDC, Inc.'s (“CCAP” or “the company”) $115 million senior unsecured notes due in 2028 and 2030. The notes comprise a $35 million, 6.77% tranche and an $80 million, 6.90% tranche with maturities of February 18, 2028, and February 18, 2030, respectively. The rating Outlook is Positive. The notes are being issued in anticipation of 2026 unsecured note maturities.
Key Credit Considerations
The rating and Positive Outlook are supported by the BDC’s well diversified $1.6 billion investment portfolio comprised predominantly of senior secured first lien and first-out unitranche loans (~90%), as well as the company's ties to its credit investment platform, Crescent Capital Group LP ("CCG"). CCG is an investment management company with approximately $43 billion of AUM, $32 billion of which is concentrated in private credit, which provides CCAP with the benefit of scale through SEC exemptive relief to co-invest alongside other accounts across the platform. Sun Life Financial Inc. ("Sun Life"), a CAD $1.51 trillion Canadian life Insurance and asset management company, owns 51% of CCG. Sun Life also owns approximately 6% of CCAP's equity and has invested in $60 million of CCAP's senior unsecured debt. As of September 30, 2024, CCAP had an investment portfolio consisting of 183 portfolio companies across 20 sectors in primarily the U.S. middle market with median EBITDA of $27 million, with nearly all deals sponsor backed (99% of debt investments at fair value) and with a low underwriting LTV of ~40%, and portfolio and weighted average interest coverage of 1.8x (based on current quarter calculation). Health Care Equipment & Services (27.8%), Software & Services (21.6%), and Commercial & Professional Services (13.0%) are the leading portfolio sectors.
Further supporting the rating is the diverse funding mix which includes unsecured notes, an SPV asset facility, and a revolving credit facility with an extensive network of lending relationships. There is an adequate percentage of unsecured debt to total debt of ~34% as of September 30, 2024. The company’s liquidity is adequate with available credit lines of $317 million and cash of $37.8 million, including $20.8 million of cash restricted for the purpose of investments, set against $296.6 million of unsecured debt due within two years and unfunded commitments of $200.1 million (of which a portion is tied to covenants and transactions and are not expected to be drawn) as of September 30, 2024. This note offering is in anticipation of repaying the 2026 note maturities. Gross and net leverage were 1.15x and 1.10x, respectively, under CCAP’s target gross leverage of 1.20x. Asset coverage was sufficient at 186%, within regulatory asset coverage of 150%, providing a 24% cushion. Credit quality remains solid with non-accruals of total investments at cost and fair value of 1.6% and 0.8%, respectively, as of September 30, 2024.
Rating strengths are counterbalanced by the potential risk related to the company’s illiquid investments, retained earnings constraints as a regulated investment company ("RIC"), and a more uncertain economic environment with high base rates, inflation, and geopolitical risks.
Formed in 2015, Crescent Capital BDC, Inc. is a closed-end publicly traded business development company, regulated under the Investment Company Act of 1940, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. CCAP is externally managed by Crescent Cap Advisors, LLC, a subsidiary of CCG. The company’s stock trades on the NASDAQ under the symbol CCAP with a recent market capitalization of ~$726 million. The company is headquartered in Los Angeles, CA.
Rating Sensitivities
Given the Positive Outlook, ratings are likely to be upgraded over the medium term if there is little to no credit deterioration in the company's investment portfolio, leverage remains within the company's target range, and senior secured loans remain a high proportion of the company's total investments. Rating pressure is possible if a prolonged downturn in the U.S. economy has a material impact on the company’s earnings performance, asset quality, and leverage. An increased focus on riskier investment or a significant change in the current management structure coupled with a negative change in strategy, credit monitoring and/or originations could also pressure the ratings.
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Methodologies
Disclosures
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Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
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Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a designated rating organization by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized by the National Association of Insurance Commissioners as a Credit Rating Provider.
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