Crescent Capital BDC Stock

Good morning and welcome to Crescent Capital BDC, Inc.'s second quarter ended June 30, 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'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.

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'll now turn the call over to Dan McMahon.

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. 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'd now like to turn it over to Jason.

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. 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 June 30.

This was down from $18.27 in the prior quarter. A reduction in net asset value was primarily driven by unrealized losses associated with non-accrual investments that we are actively managing. CCAP remains an important part of the Crescent private credit platform, and our 2 near-term priorities are rotating our watch list 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 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. 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. 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 a 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. 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. 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.

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. 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 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.

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. 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. 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. I'm 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. 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 second half 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. 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. 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. We will also pay the second of our previously announced $0.03 per share special dividends on September 15th. 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'll turn it over to Henry to discuss underlying credit trends, our portfolio management efforts and investment activities.

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 underlying expectations. The majority of our portfolio companies continue to demonstrate resilient operating performance and year-over-year EBITDA growth.

Approximately 85% of investments were remained rated 1 or 2 with a weighted average portfolio risk rating of 2.1. Weighted average interest coverage remained stable at 2.2x, 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. I will provide additional details on where we are seeing pressure and the actions we are taking.

Our watch list increased modestly from 14% to 15% quarter-over-quarter. While the majority of our watch list 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 watch list 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 a legacy First Eagle portfolio, which continues to represent an outsized contributor to our watch list. A longer-term rotation thesis was a key area of diligence and factored into our investment rationale when completing the acquisition. 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 June 30th, 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.

As we manage our watch list, 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.

Our 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 deployment during the second quarter totaled $57 million, including $28 million across three new platform investments. 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.

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've 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. Operator, we'd now be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James.

Just want to dig into a couple of bits on obviously the NAV trend. And as you said, I mean, it's been down 8 consecutive quarters now and I recognize your point that like 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. In fact, the eventual outcome of a turnaround into the fair value 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 they are occurring as planned and it's just, you know, the fair value is keeping up with that rather than being more forward-looking. Can you give us any, it was obviously, 8 consecutive quarters, we'd expect a random chance you might have an up quarter in there. And so kind of how close are we to the bottom, so to speak, on NAV, on factoring in full expected outcomes on these assets?

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

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. 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 the 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. 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 watch list or non-accrual as in comparison to just an investment that may be stable and performing to expectations. 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.

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 3 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. And as a result, you haven't seen our watch list necessarily balloon sharply over -- 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. 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.

Okay. I appreciate that color. 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. So some net portfolio declines in size probably. Can you give us any color on what you expect to do? Obviously, you moved it to more granular, smaller average positions, et cetera, et cetera, as you rotated over time from acquired assets, et cetera. I mean, 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? So.

Yes, 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's happening across the platform as a whole, but just in smaller size at the individual portfolio company level. So that's in the near term what I would say the expectation is.

Your next question comes from the line of Finian O'Shea with Wells Fargo Securities.

Good morning. I want to hit 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. Is that something that you spend a lot of time on competitively and/or sort of would there be appetite from Sun Life to put more capital into the BDC?

Hey, Fin, 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. 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.

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 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 sort of a, say, blanket performance headwind because of a vintage or healthcare or whatnot?

Yes, Fin, 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. And I think some of that stems from more aggressive structures in the '21, '22 vintage and 0 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.

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. And so we do have some First Eagle 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.

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

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 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, and a high quality portfolio and strong support from our parent. Thank you all for your continued support.

This concludes today's conference. Thank you for attending. You may now disconnect.

Good morning, and welcome to Crescent Capital BDC, Inc.'s First Quarter ended March 31, 2026, and 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'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. 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'll now turn the call over to Dan McMahon.

Thank you. Yesterday, after the market closed, the company issued its earnings press release for the first quarter ended March 31, 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'd now like to turn it over to Jason.

Thank you, Dan, and good morning, everyone. Before turning to our results, I want to frame the quarter in the context of the broader market environment. We are operating in an environment characterized by elevated geopolitical uncertainty, mixed consumer sentiment and persistent inflationary pressures, which have contributed to a more volatile backdrop for credit markets.

Within private credit, we are seeing pockets of pressure. At the same time, we believe the broader narrative around the asset class has become somewhat overstated. With distinct issues often grouped together in a way that can exaggerate the perception of risk. While factors such as credit stress and select sectors, valuation scrutiny, evolving risks within software and refinancing pressures are all part of the current dialogue, these dynamics are not uniform across portfolios or issuers.

Against this backdrop, A small number of credit-specific developments within CCAP's portfolio drove a more challenging quarter. This reflects a continuation of recent quarters where NAV has declined driven by both market conditions and pressure in certain watch list investments. These issues are concentrated and are being actively managed, and Henry will provide further details. Importantly, we have deliberately constructed the CCAP portfolio over the past decade with a focus on first lien investments, noncyclical industries and strong sponsor backing with the expectation that we would eventually operate in a more challenging credit environment.

This approach is informed by Crescent's more than 35-year track record of investing in credit across multiple market cycles. As a result, while performance has reflected increased recent variability. We believe the portfolio is well positioned to navigate these conditions over the long term. At the same time, the current market is creating a more attractive opportunity set with widening spreads, stronger structures and reduced competition for new investments. In particular, we are seeing a pullback in activity from certain lenders who are more reliant on retail and non-traded BDC capital.

Turning to earnings. We generated $0.38 per share of net investment income or NII for the quarter, down from $0.45 in the prior quarter, primarily driven by an increase in nonaccruals and reduction in base rates. However, we voluntarily waived $0.04 of incentive fees to ensure full dividend coverage for the quarter. As a result, reported NII of $0.42 per share reflects the $0.04 per share incentive fee waiver. As we previewed on our last earnings call and in partnership with our Board, we have implemented a broader set of structural changes to position CCAP for more consistent earnings and attractive returns across market cycles.

On fees, we are permanently reducing the base management fee from 1.25% to 1% and the incentive fee from 17.5% to 15% effective April 1, 2026. At the time of our listing in 2020. Our fee structure was among the most competitive in the BDC sector. Over time, as the market evolves, our fees became more in line with the broader peer group. The changes we announced today brings CCAP's fee structure back towards the most competitive end of the peer group. In junction with the fee reductions, we are resetting the quarterly base dividend from $0.42 to $0.34 per share. We believe this new base dividend reflects a conservative level relative to our near-term earnings outlook. Our Board has also approved 3 special dividends of $0.03 per share to be paid quarterly over the course of calendar year 2026. These special dividends are meant to address our current spillover balance.

Taken together, this framework separates core earnings power from the return of previously earned income and provides us with greater flexibility as we actively manage the portfolio. Finally, I'd like to touch on the recently completed transaction between Sun Life and our external adviser, Crescent Capital. In March, Sun Life acquired the remaining equity interest in Crescent making it a wholly owned subsidiary of SLC Management, Sun Life's alternatives platform. This further strengthens alignment with a well-capitalized long-term institutional partner. Sun Life is a long-term holder of approximately 6% of CCAP shares outstanding, holds approximately $72 million of CCAP's unsecured notes and has invested or committed over $1.5 billion across Crescent Strategies since 2021, underscoring its significant and ongoing economic commitment to the platform.

With that, I'll turn it over to Gerhard.

Thanks, Jason. I wanted to start by bridging the change in NII compared to the prior quarter. The decline from the prior quarter was primarily driven by approximately $0.04 per share from new nonaccruals, $0.02 per share from lower base rates and approximately $0.01 per share from lower onetime fee income and deployment timing. This was partially offset by higher dividend income. On Slide 10, we provide a graphical analysis of NAV changes during the quarter. Net asset value declined quarter-over-quarter to $18.27 per share from $19.10 per share driven by a combination of broader mark-to-market movements and credit-specific depreciation across the portfolio.

The impact of credit spread widening and changes in market multiples was the most significant driver of the change this quarter, accounting for approximately 65% of the overall reduction, while the remaining 35% was attributable to credit specific factors. We believe the market-driven portion of the markdown primarily reflects a broader repricing of risks rather than underlying fundamental deterioration.

Turning to the balance sheet. Our investment portfolio totaled approximately $1.6 billion at fair value. We ended the quarter with net leverage of 1.32x, modestly above our target range of 1.1x to 1.3x, driven by the timing of realizations that were pushed out of the quarter. We expect that leverage will return to our target range as those realizations occur. We continue to maintain a strong liquidity position with approximately $206 million of available capacity and $27 million of cash and cash equivalents at quarter end.

Importantly, we have sufficient availability under our ABL facilities, including a $100 million upsize to our SPV Facility, which we expect to close before the upcoming June quarter end. Part of the upside will be used to refinance our upcoming May unsecured maturities. For the second quarter of 2026, our Board declared a regular dividend of $0.34 per share payable on July 15 to stockholders of record as of June 30. Additionally, the first $0.03 per share special dividend is payable on June 15 to stockholders of record as of May 31. While our existing variable supplemental dividend framework remains in effect, CCAP will not pay a Q1 supplemental dividend based on this quarter's NII. With that, I'll turn it over to Henry.

Thanks, Gerhard. At a high level, the portfolio remains well positioned with the majority of companies continuing to perform as evidenced by year-over-year EBITDA growth, supported by strong sponsor backing and resilient business models. Approximately 86% of investments are rated 1 or 2, unchanged quarter-over-quarter, representing performance at or above our underwriting expectations with a weighted average portfolio risk rating of 2.1, that has also remained stable.

Weighted average interest coverage improved modestly to 2.2x, demonstrating continued resilience in underlying earnings. In addition, our software exposure continued to perform in line with expectations with no new additions to the watch list during the quarter. Also, it's worth noting that we do not have any exposure to ARR loans. Turning to our nonaccruals. As a percentage of debt investments, nonaccruals increased to 5.7% of cost and 3.6% of fair value, up from 4.1% and 2% in the prior quarter, respectively, reflecting the addition of 5 new nonaccruals during the quarter.

Our 5 new nonaccrual this quarter were concentrated across 4 health care investments. We know that the drivers of stress are distinct across each investment ranging from deferrable health care consumer spending, persistent unfavorable labor dynamics and execution-related operational challenges. We do not observe the stress in these investments as indicative of broader stress within health care. From a portfolio management perspective, these investments have been on our watch list for over 5 quarters on average, and we have been actively working with the management teams and sponsors over that period.

Importantly, the Crescent platform has meaningful control or influence each situation through agency roles or position size. Our experience managing through prior economic cycles gives us confidence in our ability to actively manage these situations and drive recovery outcomes. Taking a step back, all 13 of CCAP's nonaccruals are first lien positions, which we believe is an important factor supporting [ our ] ultimate recoveries. 6 were acquired through the First Eagle portfolio, which we understood acquisition to include a number of legacy challenges and more limited lender control.

Importantly, while elevated relative to historical levels, these remain concentrated in a portfolio of almost 200 portfolio companies and are not indicative of broader portfolio deterioration. We have also taken a proactive and conservative approach to valuation of our watch list, marking assets to levels we believe appropriately reflect current conditions and expected recovery values rather than deferring these adjustments over time.

Please turn to Slide 15, where we highlight our recent activity. In this environment, we continue to focus on nontypical, sponsor-backed businesses and are seeing higher spreads and increased add-on activity. Gross deployment in the first quarter totaled $115 million, including $57 million across 14 new platform investments. These investments were made at a weighted average spread of approximately 500 basis points with Crescent serving as leader agent on 93% of these transactions. The remaining $58 million was invested in existing portfolio companies. This compares to approximately $93 million in aggregate exits, sales and repayments during the quarter, resulting in net deployment of approximately $22 million.

The broader Crescent platform remained highly active with over $2.6 billion of private credit capital commitments in the first quarter and over $7.5 billion on an LTM basis, providing a strong pipeline of opportunities. While we are not expecting significant net portfolio growth in the near term, we are actively rotating the portfolio while selectively deploying capital into attractive opportunities originated through the Crescent platform.

We are taking a conservative approach to new investments through smaller position sizing and increased diversification. As at quarter end, CCAP's average investment size was approximately 0.6% of the portfolio.

With that, I'll turn it over to Jason.

Thank you, Henry. In closing, this quarter reflects a continuation of challenging trends in certain segments of the portfolio, which we are actively managing. We've taken proactive steps to strengthen the durability of our earnings profile and enhance shareholder value, including reducing management and incentive fees and resetting our base dividend.

Against that backdrop, CCAP benefits from being part of the broader Crescent platform, which is well positioned and is seeing an increasingly attractive opportunity set. We appreciate your continued support and look forward to updating you next quarter.

Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James.

First, I want to say congrats or whatever the right word for it is on the fee adjustment and getting back into kind of the leading group in the space in terms of structure on that.

Then on the kind of the focus on the nonaccruals and obviously, [ felt ] kind of addressed it. I mean, it's been a theme, obviously, with your portfolio this quarter, few others over the last couple of quarters in terms of health care, and there's disparate issues between all of those things. But I mean, when do you -- how comfortable are you now that you have your hands around the issues for the specific assets or just kind of the health care themes in general. I mean there are multiple different ones, but they've been [ infecting ] a lot of portfolio companies in yours and elsewhere as well.

So I mean, are there still developments progressing in health care that are kind of like catching you and others kind of by surprise, flat footed whichever way you want it. I mean, yes, they've been on the watch list for a while, but it seems to have accelerated in terms of the problems recently.

Robert, this is Henry. I'll take that. I think your observation's absolutely correct, that we noticed the same across the space as well that there's select health care names that have been certainly popping up on nonaccrual lists, just more broadly. I think in terms of the observation that we're seeing in our portfolio, it's not broad-based within health care. There's certain pockets within health care that I'd say, are certainly starting to demonstrate stress, and we've had them on the watch list and have been watching them closely. And we alluded to that in our prepared remarks around being -- or having a close eye in terms of how the different drivers have developed. But I think as we take a step back here and we look at the different drivers.

These -- while these are all classified as health care, they are quite different in terms of business model, in terms of what specifically was impacting these businesses, whether it's a labor cost issue, whether it's a execution-related misstep by the sponsor, whether it's a reimbursement dynamic. It's difficult to say that this is really something that we're seeing that's broad-based within the space or within the portfolio as well. It's -- I look at these as 4 distinct drivers in terms of what's creating operating pressure at the businesses.

So looking forward, as I think about health care in our portfolio. We certainly are continuing to keep a close eye in terms of how these pressures are potentially servicing within our portfolio. But I would say, by and large, as we think about how we capture them in our watch list as well as the nonaccruals, we certainly do feel like we have a good handle in terms of where to keep our focus on today. Fully recognizing that we're in an environment where on a quarter-to-quarter basis, there can certainly be volatility in terms of just how these actual businesses perform on a quarter-to-quarter basis.

Got it. Just kind of asking kind of a crystal ball, how much of these issues are -- have been -- if it's the fact has been exacerbated by inflation, wage inflation, et cetera. I mean is there a risk that, given the latest inflation from the other day, et cetera, I mean like could things deteriorate further from here. I mean, I think in your prepared remarks, I think you said you marked the assets now rather than dribbling things in, which is a good thing. So congrats on doing that. But I mean, is -- what's the confidence that, that is it, so to speak, and things couldn't get worse, driven more by, in this context, more by macro factors. Is that still a meaningful threat to these businesses?

Yes. I think that's something that has pressured these businesses for the better part of the last 2 years now. And in particular, on the wage inflation side, it's been sticky. We've certainly seen the clip at which wage increases have demonstrated within these cost structures as slowing down, but they're still elevated to where they were in 2023. Just -- and that we haven't seen a reversal of those trends. And to be honest, we don't expect to see a reversal in the trends and we factor that into how we value the assets and how we've determined the accrual status of these assets.

So when I think about how we're positioned here, we've -- we're not necessarily waiting for better outcomes with respect to wages to think about how we mark the positions and just the accrual status. We want to make sure that we're being conservative here. And I would say that what we -- how we've kind of thought about value and how we thought about our watch list today reflects that.

Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

I echo Robert, congratulations on restructuring on the fee. Turning -- continuing on the nonaccruals, I presume they're all sponsored companies. Were they different sponsors. And because they're not accruing, I presume the sponsor is not getting any dividends or anything from these investments. Is that a correct assumption?

That's correct on both fronts. These are all sponsor-backed companies. There's -- and then the second piece as well as its customary as a business well in advance of -- typically, when we determine nonaccrual status that any dividends or management fees to the sponsors are shut off because those outflows of cash are subordinated to our debt service.

Great. And then given that overwhelmingly, your business seems to be focused on sponsored -- providing debt to sponsored companies and given -- I mean from my chair, seen deteriorating asset quality across BDCs in general. But that must mean that the private equity sector is must be under stress. And going forward, does this create a greater risk to your business model since these sponsors would have less capacity to support these problematic businesses just because if private credit is getting pulled, private equity is getting pneumonia.

Yes. Chris, it's Jason. Thanks for that question. I think it's a really good observation. And something that we've seen through cycles, I would agree with you. Certainly, if you're seeing elevated credit quality stress in BDCs that means that sponsors are also experiencing challenges in their portfolios. I would say hopefully, in most cases, if we've done our jobs, we've picked credits that sponsors are going to try to continue to support. I do think that there will be some continued triage taking place across sponsor-backed portfolios. And certainly, with some of these nonaccruals, we will end up owning these [ fees. ]

But Crescent's philosophy has always been around trying to pick the good credits. The credits where we think loss of risk of impairment is minimal and we are going to get our money back, which means there will be value down into the equity. But I agree with you, these are more challenged times. Sponsors are holding on to assets longer than they ever have because the exit environment is also increasingly challenging, and we went from 0 base rates to something greater than 0 base rates over the last several years.

So there's -- I think there's a confluence of events that have driven some of these challenges. But our home and our objective always have been to try to pick the right credits that we're not going to lose money on.

Great. If I can ask one more. The Sun America tie-up, will that, in any way, enable you guys to get lower cost funding -- debt funding going forward?

Sun Life, I think you're referencing, Chris, which we entered into an agreement with Sun Life 5 years ago where Crescent sold a majority stake to Sun Life. And as I mentioned on the prepared remarks, the remaining minority interest, of course, was purchased by Sun Life, that was all negotiated, prearranged 5 years ago as an option for Sun Life. They've been a terrific capital partner for us. Very supportive. And I think I mentioned some of the figures in the prepared remarks. But they own equity in CCAP. They own unsecured debt in CCAP.

They're actually quite a dominant player in the private placement market, debt private placement market. They've also supported us across a number of our...

Hello?

Are you there?

Yes. Yes. Cut out. No you answer my question.

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

Okay. Thank you, operator, and thank you all for joining our Q1 earnings call. We continue to believe that this portfolio is well positioned over the long term, and we are excited to demonstrate alignment with our shareholders through our fee structure changes, and we look forward to continuing our dialogue with you next quarter.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and welcome to Crescent Capital BDC, Inc.'s Fourth Quarter and Year Ended December 31, 2025 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'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. 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 guarantee of future results.

I'll now turn the call over to Dan McMahon.

Thank you. Yesterday, after the market closed, the company issued its earnings press release for the fourth quarter and year ended December 31, 2025, and posted a presentation to the IR section of its website at www.crescentbdc.com. The presentation should be reviewed in conjunction with the company's Form 10-K 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; 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. I'll start today's call by summarizing our results and outlook and follow that with some commentary on the current market environment.

In terms of fourth quarter earnings, we reported net investment income of $0.45 per share as compared to $0.46 for the prior quarter. Once again, our earnings over-earned the quarterly dividend. Consistent with our dividend policy and fourth quarter earnings, our Board declared a quarterly cash dividend of $0.42 per share for the first quarter of 2026, payable on April 15, 2026, to stockholders of record as of March 31, 2026.

Net asset value was $19.10 per share as of December 31, compared to $19.28 per share as of September 30. This decline reflects unrealized losses stemming from certain portfolio companies. While NAV per share has declined over the past several quarters, reflecting market volatility and certain credit-specific marks during 2025, we believe it is important to view our performance over a longer horizon.

The broader portfolio remains fundamentally healthy with stable credit metrics, strong sponsor support and performance in line with our underwriting expectations. Since inception, CCAP has maintained one of the more stable NAV profiles across the public BDC sector, supported by our disciplined underwriting, diversified positioning and a focus on senior secured sponsor-backed companies, which we have maintained throughout our history. Capital preservation remains core to our strategy, and we are actively managing the portfolio to maintain consistent long-term NAV stability.

I'd now like to touch on our outlook for CCAP's earnings power and dividend sustainability. First, while lower base rates have impacted yields across the space, CCAP remains well positioned today. For the fourth quarter, net investment income covered our base dividend by 107%. We ended the year with net debt-to-equity of 1.20x, below the 1.30x upper end of our target range, preserving flexibility to prudently grow the portfolio and deploy capital through Crescent's origination platform.

Crescent's private credit platform has been active with over $6.5 billion of capital committed in 2025, including over $1.7 billion during the fourth quarter. Our existing portfolio remains one of our most active origination channels with add-ons representing over half of our transactions over the same period. We are also encouraged by the recent increase in transaction activity in Q4 and early 2026.

As origination and refinancing volumes normalize, structuring fees and accelerated amortization income can serve as incremental contributors to earnings. In addition, our spillover income of approximately $1.16 per share, which is nearly 3x our base dividend continues to provide meaningful support as we navigate the current rate transition.

All of that said, we fully recognize the earnings headwinds facing the entire BDC space related to forward base rate expectations. As such, we and our Board are actively reviewing a range of options to ensure CCAP is positioned to deliver durable earnings and attractive returns across market cycles, and we expect to provide a more fulsome update on our plans and any actions stemming from that review in May when we report next quarter's results. We look forward to updating you further next quarter.

Let me now shift gears and discuss what we are seeing in our market. We are operating in an increasingly competitive private credit market. Capital formation across direct lending strategies has remained strong with a growing number of lenders competing for high-quality sponsor-backed transactions. This has resulted in tighter spreads and evolving deal structures, particularly in the broadly syndicated and upper end of the middle market.

This environment, maintaining underwriting discipline and strong structural protections remains essential. Within private equity, the past 3 years have been characterized by subdued exit activity with sponsors favoring recapitalizations and dividend transactions over traditional M&A to generate liquidity in a muted market. This has created a backlog of portfolio companies awaiting monetization.

As rate pressures ease and financing markets stabilize, we are seeing sponsors selectively reengage in the M&A market to deliver liquidity to their limited partners. At the same time, elevated redemption activity in the perpetual nontraded BDC space may potentially contribute to a more balanced supply-demand dynamic. Overall, we continue to view the long-term outlook for private credit favorably. Disciplined underwriting, thoughtful selectivity and active portfolio management remain essential to driving strong performance.

With that, I'll turn it over to Henry to provide additional detail on our portfolio and recent investment activity. Henry?

Thanks, Jason. Please turn to Slides 13 and 14. We ended the year with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 184 companies with an average investment size of approximately 0.6% of the total portfolio. We believe disciplined position sizing is one of the most effective tools for managing idiosyncratic credit risk.

Broad diversification across industries, end markets, sponsors and issuers help limit concentration risk and support durable performance across market cycles. Since inception, our portfolio has consisted primarily of first lien loans representing 91% of the portfolio at fair value at year-end.

Our investments are supported by well-capitalized experienced private equity sponsors with 99% of our debt portfolio in sponsor-backed companies as of year-end. At origination, the weighted average loan-to-value of the portfolio is approximately 40%, underscoring the meaningful equity buffer beneath us. We believe conservatively capitalizing the portfolio companies is a key driver of downside protection and recovery potential across cycles.

It is also worth noting that 71% of our portfolio includes covenants, far higher than in the upper middle market or broadly syndicated loan market. We view covenants as an important risk management tool, providing earlier visibility into potential issues and a structured framework to engage early with sponsors if performance softens.

In terms of software and services, we have been investing in the sector for over 15 years, applying a consistent underwriting approach throughout. Our focus has always been on durable cash flow generating businesses that deliver mission-critical enterprise embedded software with high switching costs, where the cost of failure or disruption is prohibitively high for customers.

This long-standing discipline has guided how we underwrite technology risk across multiple innovation cycles, and we believe our approach is inherently defensive against AI-driven disintermediation risk. Today, software and services represent approximately 20% of our portfolio, and we continue to apply the same cash flow-based underwriting principles that have guided us for decades. Consistent with this approach, we do not invest in any annual recurring revenue or ARR loans.

Please turn to Slide 15, where we highlight our recent activity. Gross deployment in the fourth quarter totaled $71 million, as you can see on the left-hand side of the page. During the quarter, we closed 5 new platform investments totaling $29 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 490 basis points, with Crescent serving as lead or agent on all the new platform investments.

The remaining $42 million came from incremental investments in our existing portfolio companies. The $71 million in gross deployment compares to approximately $78 million in aggregate exits, sales and repayments, resulting in net realization of approximately $7 million for the fourth quarter.

Turning back to the broader portfolio, please flip to Slide 16. The weighted average yield on our income-producing securities at cost decreased 40 basis points quarter-over-quarter, ending the year at 10%. This decline was primarily driven by lower base rates following the recent rate cuts.

Importantly, we remain disciplined in our deployment approach, prioritizing credit quality, structural protections and long-term risk-adjusted returns over maximizing headline yield. The weighted average interest coverage of the companies in our investment portfolio at year-end improved to 2.2x, demonstrating durability and strength within the earnings and our underlying portfolio companies. As a reminder, this calculation is based on the latest annualized base rates each quarter.

Please flip to Slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of our portfolio, resulting in consistency in our risk ratings and a weighted average portfolio risk rating of 2.1. On the right-hand side of the slide, you'll see that 1 and 2 rated investments, representing names that are performing at or above our underwriting expectations, decreased from 87% to 86% quarter-over-quarter, continuing to represent the lion's share of our portfolio at fair value.

As a percentage of debt investments at cost and fair value, nonaccruals increased from 3.3% and 1.6% as of September 30 to 4.1% and 2% as of December 31, driven by the addition of 2 new nonaccrual investments during the fourth quarter. It is worth noting that in January, one nonaccrual investment restructured and another was fully realized via a sale, which decreased pro forma nonaccruals to 1.4% and 3.2% of debt investments at fair value at cost.

Given our highly diversified portfolio and acquired assets, we continue to have a nonaccrual rate that is higher than our long-term average. We are actively managing these portfolio investments and note that these are driven by idiosyncratic company-specific issues. The broader portfolio remains healthy, and we continue to observe demonstrable growth across the majority of our portfolio companies.

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

Thanks, Henry, and hello, everyone. For the fourth quarter ending December 31, 2025, we reported net investment income of $0.45 per share as compared to $0.46 for the prior quarter. This decrease was largely driven by lower interest income due to lower reference rates.

Turning to the balance sheet. As of December 31, 2025, our investment portfolio at fair value totaled $1.6 billion, consistent with the prior quarter. Total net assets were $706 million and NAV per share was $19.10, a decrease from $19.28 at the end of the third quarter due primarily to net unrealized depreciation in the portfolio.

Let's shift to our capitalization and liquidity on Slide 19. As a reminder, in October, we proactively priced $185 million of senior unsecured notes structured across 3 tranches with a delayed draw feature. We intentionally incorporated the delayed funding feature to align proceeds with our 2026 maturity schedule, allowing us to efficiently address our unsecured maturities while minimizing negative carry.

The first 2 tranches totaling $135 million closed on February 17. The final $50 million tranche will fund in May in advance of additional 2026 maturities. Pro forma for this activity, over 90% of our committed debt now matures in 2028 or later, meaningfully extending our maturity profile and enhancing balance sheet flexibility.

We remain in active dialogue with our underwriting partners regarding additional unsecured issuance as we continue to thoughtfully manage our maturity ladder and optimize our capital structure over time. The weighted average stated interest rate on our total borrowings was 5.83% as of year-end, down from 5.99% quarter-over-quarter due to lower base rates.

Our quarter end debt-to-equity ratio was 1.25x or 1.2x net of balance sheet cash, up from the prior quarter, but within our stated target range of 1.1x to 1.3x. With $242 million of undrawn capacity subject to leverage, borrowing base and other restrictions and over $30 million of cash and cash equivalents as of year-end, we have sufficient liquidity to selectively further fund investment activity while maintaining a debt-to-equity ratio inside our target range. As Jason noted, for the first quarter of 2026, our Board has declared our regular dividend of $0.42 per share.

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

Thank you, Gerhard. In closing, while 2025 presented a more dynamic environment across both rates and credit markets, we believe CCAP enters 2026 from a position of strength. Our portfolio remains highly diversified and predominantly first lien, supported by experienced sponsors and meaningful equity cushions. We have maintained prudent leverage, enhanced the duration of our liabilities and preserved liquidity to navigate a range of market conditions.

At the same time, our Board and management team are thoughtfully evaluating additional steps to further strengthen our earnings profile and long-term return framework in alignment with shareholder interest.

Private credit continues to offer compelling opportunities for disciplined lenders with scale and selectivity. Crescent has been investing in private credit and delivering consistent returns to our investors across multiple cycles over the past 30 years. CCAP's focus remains clear: protect capital, enhance sustainable earnings power and deliver attractive risk-adjusted returns for shareholders over the long term. We appreciate your continued support and look forward to updating you next quarter.

Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Robert Dodd with Raymond James.

On -- I know you don't really want to talk about this because you said you give us more information next quarter, but you opened the door to questions about exactly what you'll be reviewing with the Board and long-term position, et cetera. I mean, is this -- are you talking about like a discussion of like dividend structure? Because it's obviously in context of long-term dividend or more strategic kind of initiatives as you also mentioned in context of like an -- so I know you will next time, but can you give us like a skeleton to hang some thoughts on at least about what kind of things you mean when you made that comment?

Go ahead, Henry.

Robert, this is Henry. Just -- I think I could start off by providing that our review here is really focused on long-term earnings durability and creating a proper alignment with shareholders. What that includes with respect to your question about a skeleton here is it includes an evaluation of our fee structure as well as our base dividend level relative to forward earnings expectations.

As we alluded to, we'll plan to have more detailed commentary on both going forward in the following quarter here. But what I will say is that we believe that we're positioned well currently for near-term stability. We're operating from a position of strength today by over-earning the dividend. And what we really want to do here is proactively adapt to what we are potentially expecting to be a lower rate environment, which obviously has implications for us as a predominantly floating rate asset base. And as a result, in terms of kind of the key focus areas, those are the 2 that I would point you to as we just think about this broader review.

Got it. Very helpful. On the -- one other quick one and then another [ one ]. On -- in January, you said there was another [ call ] exit and one was sold. Was it sold at the mark or repaid at par? Or can you give us -- I mean, we'll see it eventually, but -- and that obviously lowered nonaccruals fairly significantly, I think.

Yes. The investment was realized at close to the mark.

Got it. One second. On the -- so then talking about like the kind of the future earnings of the business. I mean, yes, base rates coming down. It sounded like you might be a little bit optimistic that maybe spreads will widen depending on fund flows and other things. Can you give us more thoughts there? I mean, if spreads do widen, how optimistic are you that the activity levels stay robust? Because they've started to pick up a little bit, but partly that's because spreads have been tight. I mean, can you kind of reconcile that thought for us?

Yes. I'd say on the latter point, so we -- the spreads, and you could see this in terms of where we've been originating new investments, have largely been consistent within that 475 basis points to 500 basis points over SOFR context for new first lien and new tranche investments, I'd say for the better part of the last 3 to 4 quarters.

And in conjunction with that stability here, we've certainly seen, despite that we're still at historical lows in terms of LBO activity, that activity really start to creep up towards the end of last quarter and also at the beginning of this year. We certainly think that as deal activity continues, there is potential for opportunity to capture -- potentially capture excess spread here in certain pockets where we're seeing a little bit more, I would say, price discovery.

But more broadly, I would say that in the near term, the expectation here is, it does look like spreads have stabilized for high-quality assets that are first lien in that kind of 475 basis points to 500 basis points over SOFR context. In terms of just broader LBO activity as a whole, the year did start off quite active, and we were pleased with how we were seeing deployment to the beginning of the year. I think just given more broadly what's going on, we're watching closely how the financing markets react here as well as the broader LBO markets react. But I would say that we certainly had an optimistic start in terms of the pipeline to the year.

Your next question comes from the line of Mickey Schleien with Clear Street.

Yes. Just a couple of questions from me. Could you give us a little bit more color on the main drivers of the realized gain during the quarter and the unrealized losses?

Mickey, thanks for the question. The main driver of realized gain was an investment that was sold during the quarter. We had an investment that was previously on nonaccrual several years ago, MTS that we ended up realizing above our cost basis. So that transaction closed during the fourth quarter.

In terms of the unrealized losses, the largest driver this quarter were related to our 2 investments that we placed on nonaccrual this quarter [ Generate ] and Transportation Insight. The former relates to an investment that the outlook for the business has fundamentally -- or has certainly degraded. And as a result, we market accordingly. And then Transportation Insight is an investment that we've spoken about the sector in the past, but is indexed to the third-party logistics sector, and we continue to see challenges in that space. So that's been the other large driver on a quarter-to-quarter basis.

I understand. And if you could just repeat the pro forma nonaccruals as of the activity in January? I didn't get a chance to write it down quickly enough.

Yes. It's approximately 100 basis points on cost of nonaccruals that we are expecting to come out of the portfolio. So it's on a pro forma basis, 1.4% of fair value and 3.2% of cost.

Terrific. And lastly, at a high level, can you give us some background on the rationale for rotating proceeds from portfolio repayments into new investments instead of taking advantage of deep discount to NAV that the stock is offering?

Yes. I think I want to remind you that the current buyback program does remain in place, and we have been buying back shares in the market. When we announced our repurchase program last year, one of the key considerations with respect to our buyback program is weighing the buybacks in relation to what we're seeing in the investment pipeline. As stated at that time, our goal here with CCAP is to make investments in private credit investments that provide durable long-term income for shareholders.

And how we think about deploying excess capital here as we get reinvestments is weighing that against our pipeline and determining the relative attractiveness of new deals that we have on our investment pipeline relative to just simply creating or simply providing incremental ROE vis-a-vis share repurchases.

And I think what we've seen with just the quality of the investments in the pipeline today is that there's still a lot of benefit in terms of being able to provide that durable income by reinvesting proceeds. So as a result, we're taking a balanced approach here where we're still continuing to execute on our buyback plan that we initially announced here, but we are maintaining the overall asset base and continuing to invest in new investments as they come through the pipeline.

Okay. I understand. And lastly, you've noted that you may be examining the dividend policy down the road. But as we sit today, is the supplemental dividend policy still in place?

Yes, that's correct. The supplemental dividend is still in place. As a reminder, we do have a measurement test that is put in place with respect to the supplemental dividend. And as a result of that measurement test this quarter, there will not be a supplemental dividend that is paid related to Q4 earnings, but that construct remains in place.

And the constraint is probably related to declines in NAV. Is that correct?

That's correct. It's a 2-quarter look back with respect to NAV on the supplemental measurement test.

Next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

Henry, in your comments, you indicated that software and services is 20% of the portfolio. On Page 14, it says 15%. Did you just misspeak? Or was there a change in exposure there?

The software and services as a total of our portfolio just based on the industry breakdown is -- it's 20%. Is there -- was there a specific -- or sorry, which page are you referring to, Chris?

I believe Page 14 of the deck. I'm looking at the...

I believe that's...

I might be looking upper right-hand. [ Don't know ]. It could be -- there's another section that has a similar color. So it could be my mistake.

Yes. I'm looking at our stats here, and it's 20% on Page 14.

Okay. No problem. On this...

15% is commercial and professional services.

Got it. They're shaded sort of similarly. Okay. On the topic of software and services, is the plan -- is -- does the firm still intend for any of those maturing investments to reinvest into software or to lower the exposure going forward?

Yes. It's a good question. With respect to software -- there's a couple of comments that I ought to make just with respect to, first, the performance of our software investments. And then second to your -- more directly to your question, the underwriting approach and the outlook.

What we've seen within our software portfolio to date is that the performance has been quite strong. We're seeing both revenue and EBITDA growth across our portfolio within software as well as demonstrable deleveraging that has coincided with strong fundamental performance there.

As you think about how we underwrite software, and we made this comment earlier, but this is a sector that we've been investing alongside our sponsors for over 15 years. Disintermediation has been a critical component of our underwriting thesis from the very beginning of investing in this space. And what we really do look for here is software that demonstrates mission-critical system rules, deep workflow integration, demonstrating a system of record type value proposition as well as software that operates in highly regulated end markets where there is just a high cost of failure.

We also really do focus here on the actual value proposition that's being provided to customers, not so much whether or not it's just difficult for the software to be replaced, but do the customers actually like the product they're using? And are we seeing supporting trends in those software investments via -- vis-a-vis the retention stats?

Our experience has demonstrated that these attributes tend to provide durable cash flows in these investments. And as a result, to the extent that we do see new software investments that exhibit these characteristics, we will continue to find a home for these in our portfolio. And we think that they certainly provide good credits to add to our portfolio today.

A couple of other notes I'll make here with respect to software is when you think about our software investments, we are in a first lien position, and we are not the equity. And why that's important is we have an equity cushion beneath us that's supported by cash contributions from our private equity sponsors. And the other piece that I note here is -- and I think this is particularly of importance to us just in the market that we're in today is we do not do any ARR loans.

We don't do structured loans as PIK DDTLs. So we're not just focused on the enterprise value of the underlying software companies. We're also focused on the current cash flows, what's available to service our debt and in situations that may require and what's available to delever our capital structure and reduce our risk.

So we continue to think that there is attractive opportunities here. And with the shakeout that's happening in the broader marketplace, there will continue to be so. But we want to really articulate here that the focus and what's allowed us to have success investing in the space historically, we will continue to maintain that discipline. And it's one that served us well historically and one that we think will continue to serve us well going forward.

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

Okay. Operator, thank you. Once again, everyone, we appreciate your time today and your interest in CCAP, and we look forward to providing you with another update for our first quarter earnings in May. Thanks all.

That concludes today's call. Thank you all for joining, and you may now disconnect.

Good morning, and welcome to the Crescent Capital BDC, Inc.'s Third Quarter ended September 30, 2025 Earnings Conference Call. [Operator Instructions] Please note that Crescent Capital BDC, Inc. may be referred to as CCAP, Crescent BDC or The Company throughout the call. 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. The company's actual results could differ materially from those expressed in 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.

Thank you. Yesterday, after the market closed, the company issued its earnings press release for the third quarter ended September 30, 2025, and posted a presentation to the IR 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; 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. I'll start today's call by summarizing our third quarter results, follow that with some thoughts on the market, touch on our portfolio and our forward earnings outlook.

In terms of third quarter earnings, we reported net investment income of $0.46 per share, unchanged from the prior quarter, translating into an annualized NII yield of 9.5%. Earnings continue to remain in excess of our dividend, 110% base dividend coverage for the quarter. Net asset value was $19.28 per share as of September 30 compared to $19.55 per share as of June 30. The quarter-over-quarter decline was primarily due to unrealized and realized losses stemming from certain portfolio companies that have demonstrated weakened operating outlooks due to tariffs.

Let me now discuss what we are seeing in our market and our positioning. With respect to the macroeconomic environment, the U.S. economy has largely remained resilient. While we have been seeing signs of some slowing momentum amid mixed labor economic data, we believe that the Federal Reserve's recent rate cuts, combined with greater clarity on tariff policies relate to near-term growth in LBO activity.

On new investment opportunities, our private credit platform continues to maintain lead roles in the majority of our transactions. Given our focus on the core and lower middle markets, we believe we drive better structural protections and deals in the more competitive Upper Middle Market or BSL Replacement segment. Our segment focus provides us with the opportunity to 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.

While we have no exposure to First Brands and Tricolor, these recent bankruptcies highlight governance issues that we seek to avoid by working with well-established private equity sponsors. We've established our private credit business by partnering closely with our long-standing sponsor relationships to uphold strong governance and oversight across our portfolio companies.

Let's shift gears and discuss the investment portfolio. Please turn to Slide 13 and 14. We ended the quarter with approximately $1.6 billion of investments at fair value across a highly diversified portfolio of 187 companies, an average investment size of approximately 0.6% of the total portfolio. Our top 10 largest borrowers represented 16% of the portfolio as we are believers in modulating credit risks to position size. We have maintained an investment portfolio that consists primarily of first lien loans since inception, electively representing 90% of the portfolio at fair value at quarter end. Additionally, we have positioned our portfolio to focus on domestic service-oriented businesses and in our view, mitigate concentrated risks associated with tariffs, shifts in governance spending and other policy changes.

Finally, our investments are supported by well-capitalized private equity sponsors with 99% of our debt portfolio in sponsor-backed companies as of quarter end. We have partnered with our sponsors to invest in well-capitalized borrowers with significant equity capital beneath us. And we note that the weighted average loan-to-value in the portfolio at time of underwrite is approximately 40%.

Moving on to our dividend. For the fourth quarter, our Board declared a regular dividend of $0.42 per share which represents a 9% and 12% annualized dividend yield based on NAV and today's closing stock price, respectively. This dividend is payable on January 15, 2026 to stockholders of record as of December 31. This marks our 39th consecutive quarter of earning our regular dividend at CCAP.

Before I turn it over to Henry, I'd like to take a moment to discuss our outlook for CCAP's earnings potential and base dividend in light of recent rate cuts and potential further easing in 2026. Looking ahead, we anticipate that a lower base rate environment may gradually reduce portfolio yields to place some pressure on net investment income given the largely floating rate nature of our direct lending portfolios. We believe several factors positioned CCAP well to address base rate-driven earnings headwinds. To start, in the third quarter of 2025, our net investment income once again exceeded our base dividend, 110% coverage. On the liability side, approximately half of our borrowings are also floating rate, allowing funding costs to adjust downward to preserve our net interest margin.

We have several additional levers that may help offset potential earnings pressure from lower base rates and support future growth. First, we ended the quarter with net debt to equity of 1.20x below the upper end of our 1.30x target range. This provides us with flexibility to leverage Crescent's attractive origination pipeline and enhance earnings through prudent portfolio growth. Crescent's private credit platform has been active with over $6 billion of capital committed to new and add-on investments on a trailing 12-month basis including over $1.7 billion during the third quarter. Being associated with Crescent's private credit platform provides ample opportunity for CCAP to reinvest in attractive private credit investment opportunities.

Second, a more accommodative rate environment should serve as a tailwind for new deal activity. Lower borrowing costs are expected to support renewed M&A and refinancing volumes, creating opportunities for attractive reinvestment and additional fee income. We are optimistic that over time, we may see higher levels of noninterest-related income as compared to this third quarter, driven by a pickup in origination and structuring fees on new investments as well as accelerated amortizations on realizations.

Third, our spillover income remains a meaningful source of earnings support. At approximately $1.10 per share, this balance provides a cushion as we navigate the current rate outlook. And finally, we have a demonstrated record of alignment with shareholders since inception. Each of our portfolio ramping initiatives, both when we established CCAP in 2015 and listed CCAP in 2020 were supported by our fee structure during the respective ramps. Additionally, we have committed substantial adviser support for accretive non-dilutive growth opportunities, including our two public acquisitions. As I noted last quarter, our positioning has and always will be for the long term. And today, we are comfortable with our dividend level.

With that, I will now turn the call over to Henry. Henry?

Thanks, Jason. Please turn to Slide 15, where we highlight our recent activity. Gross deployment in the second quarter totaled $74 million, as you can see on the left-hand side of the page. During the quarter, we closed 7 new platform investments totaling $51 million. Even as spreads have tightened, our focus remains on high-quality companies with strong credit profiles. These new investments were loans to private equity-backed companies with a weighted average spread of approximately 530 basis points. The remaining $22 million came from incremental investments in our existing portfolio companies. The $74 million in gross deployment compares to approximately $86 million in aggregate exits, sales and repayments, resulting in net realizations of approximately $12 million for the third quarter. Our portfolio activity resulted in net realizations during the quarter due to several commitments to new portfolio companies that slipped into the fourth quarter.

Turning back to the broader portfolio, please flip to Slide 16. You can see that the weighted average yield of our income-producing securities at cost remained stable quarter-over-quarter at 10.4%. As of June 30, 97% of our debt investments at fair value were floating rate with a weighted average floor of 77 basis points. The weighted average interest coverage of the companies in our investment portfolio at quarter end was stable at 2.1x demonstrating durability and strength within the earnings at our underlying portfolio companies. As a reminder, this calculation is based on the latest annualized base rate each quarter.

Please flip to Slide 17, which shows the trends in internal performance ratings. Overall, we have seen stability in the fundamental performance of our portfolio resulting in consistency in our risk ratings and a weighted average portfolio risk rating of 2.1. On the right-hand side of the slide, you will see that 1 and 2 rated investments representing names that are performing at or above our underwriting expectations increased modestly from 86% to 87% quarter-over-quarter, continuing to represent the lion's share of our portfolio at fair value. As a percentage of investments at fair value, nonaccruals improved from 2.4% as of June 30 to 1.6% as of September 30 driven by a change of control and recapitalization as well as the sale of an investment that has previously been on nonaccrual. This was partially offset by two new nonaccrual investments during the quarter.

The overall portfolio continues to demonstrate resilient business fundamentals supported by the fact that the vast majority of our borrowers experienced steady revenue and EBITDA growth year-over-year. We have seen weakness in search and watch list investments that are facing operating challenges resulting from tariff impacts. Two of these investments, one which exports goods to the U.S. from Europe, the other which sources a meaningful percentage of its inventory from overseas negatively impacted NAV this quarter collectively accounting for $0.15 per share and unrealized losses.

As a reminder, in May, we highlighted that our initial tariff analysis identified 4% of our portfolio may face direct operating impact from tariff policies. We do not believe this exposure has increased in any meaningful since our initial review and outside of a select portfolio companies highlighted, the portfolio impact from tariffs remain muted.

We continue to monitor closely for potential adverse impact in the portfolio stemming from trade policy and believe our aggregate risk is manageable, particularly as the portfolio further diversifies. More broadly speaking, we have continued to take a preemptive and rigorous approach to our watch list, recognizing that there are a variety of approaches to how managers think about these categorizations.

It's worth noting that as of the end of the third quarter as a percentage of total investments at fair value, CCAP watch list, which we define as 3, 4 and 5 rated investments was 13% as compared to nonaccruals of 1.6% to a gap of over 11%. Based on the analysis of our public peers, this gap is approximately 5%. We do not wait until there is default for moving an investment down the risk rating scale. We strive to be transparent about the health of our portfolio with the market. And one of the ways we do so is by taking a preemptive approach towards how we classify our watch list investment.

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

Thanks, Henry, and hello, everyone. Yesterday evening, we reported net investment income of $0.46 per share, which is in line with the prior quarter. Net income for the third quarter was $0.19 per share compared to $0.41 in the prior quarter. The quarter-over-quarter change primarily reflects higher net realized and unrealized losses. The tariffs impacted investments that Henry noted accounted for the majority of the change in realized and unrealized losses during the quarter. While these items impacted results this quarter, they represent isolated credit events within an otherwise stable and well-diversified portfolio.

Turning to the balance sheet. As of September 30, 2025, our investment portfolio at fair value totaled $1.6 billion, consistent with the prior quarter. Total net assets were $714 million and NAV per share was $19.28, a decrease from $19.55 at the end of the second quarter.

Let's shift to our capitalization and liquidity. I'm on Slide 19. In light of the continued tightening in credit spreads, we're actively pursuing opportunities to optimize the pricing, tenor and diversification of our financing sources, leveraging more constructive dynamics in the private placement market. At the end of October, we priced $185 million of new senior unsecured notes broken down into three tranches: First, $67.5 million due February 2029; second, $67.5 million due February 2031; and third, $50 million due May 2029. The notes will be issued in two closings. The first and second tranches totaling $135 million will be issued on February '26 and the third tranche will be issued in May 2026. The proceeds from these respective issuances will be used to repay the majority of our existing unsecured debt maturing in 2026. Pro forma for this activity, over 90% total committed debt now matures in 2028 or later. So we're pleased with our progress here.

The weighted average stated interest rate on our total borrowings was 5.99% as of quarter end down from 6.09% in the prior quarter, due primarily to a 50 basis point spread reduction in our SPV asset facility, which we rightsized during the second quarter and discussed on last quarter's call.

Our quarter end debt-to-equity ratio was 1.23x or 1.20x on a net basis unchanged from the prior quarter and within our stated target range of 1.1x to 1.3x. With $240 million of undrawn capacity, subject to leverage, borrowing base and other restrictions and $28 million of cash and cash equivalents at quarter end, we have sufficient liquidity to selectively fund further investment activity while maintaining a debt-to-equity ratio inside our target range.

The third and final previously announced $0.05 per share special cash dividend related to undistributed taxable income was paid in September. As Jason noted, for the fourth quarter of 2025, our Board has declared a regular dividend of $0.42 per share. While our existing variable supplemental dividend framework remains in effect, CCAP will not pay a Q4 supplemental dividend as the measurement cap exceeded 50% of this quarter's excess available earnings.

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

Thank you, Gerhard. In closing, as we enter the last two months of the year and look towards 2026, we believe CCAP remains well positioned with respect to our experienced investment team, high-quality diversified portfolio and strong capital structure. We remain optimistic about the long-term prospects of the company given our positioning as a leader in the core and lower middle market with access to the breadth and resources of the broader Crescent platform and we are focused on continuing to deliver a stable NAV profile an attractive total economic return in excess of the public BDC space.

Thank you all for joining us today and your interest in CCAP. I'll now turn the call over to the operator for Q&A.

[Operator Instructions] And your first question comes from the line of Robert Dodd with Raymond James.

Thanks for all the color on kind of the earnings outlook and the dividend question. So I mean digging into that, I mean, as you said, spill over a $1.10. So you have that as a cushion, if necessary. But I mean, obviously, that is the way NAV, if you dip into that. I mean, what do you think between your liability side, sort of the leverage, activity fees, et cetera, what do you think the probability is that you have enough levers to actually keep NII coverage of the dividend at 100% or more? Or do you think spillover is going to be necessary or consumed during 2026?

Robert, Jason here. Thanks for the question. We certainly think that the levers will be available to us on a go-forward basis here. I think for the immediate near term, we do believe that we are going to cover our base dividend with NII. I think we are certainly going to be tactical about how we think about generating incremental NII to support our base dividend. And as noted on the call, we've got an availability to certainly increased the size of the portfolio. We do think that there is the potential for increased noninterest-related income that can be driven from a pickup in activity relative to a more subdued line item for noninterest-related income.

And then lastly, as noted, I think we -- we've always tried to do the right thing and support CCAP and support our shareholders. And so between all of those levers, we're focused on covering the dividend.

On the couple of assets that got marked down, the tariff question, to Henry's point, I don't think that the tariff exposure has increased. But has the ability of the exposed companies the ability to handle the tariffs deteriorated because the exposure to the signal has gone up, but some of them have been marked down fairly significantly on a tariff issue that's -- I mean, I want to say been known about all year because it hasn't. But it wasn't a new surprise this quarter. Is there something that's changed in the ability to cope on specific tariffs or anything like that?

Yes. Robert, this is Henry. I'll take that. The short answer is, in aggregate, no, nothing has changed there. We've actually been on a broader portfolio perspective, pleased with how management teams have responded with respect to either enacting price increases, repositioning supply chains or exercising customer power that they have over their suppliers to be able to address potential pressures from tariffs. We highlighted the two names that we saw pronounced reduction in near-term operating outlooks because while -- overall in the portfolio, we've certainly seen resilience on those two companies and at least in the near-term outlook, are going to have a longer road in terms of being able to exercise those levers to get back to what I would say is more historical levels of profitability. So in order to summarize it, I would say that for the broader portfolio, it's certainly the case that we have seen management teams and sponsors and able to respond proactively to the actions outside of specific portfolio companies where we just have seen. Our view is that, that outlook is going to be longer term.

Got it. One more, if I can. On -- you focus obviously core lower middle market, lower middle market isn't what it used to be. But the tone this quarter from other BDC seems to be that the competition in the core lower market has heated up to the spreads, et cetera. It's heated up at kind of an accelerated rate as we go through -- as we've gone through this year. Can you give us -- I mean what do you think of the state of the market? You're still getting covenants, but are they as tight as they were. The spreads aren't necessarily where they were, obviously, everybody has seen spread compression. But to some degree, has it exceeded your expectations for what you normally see in your core market? And when do you think that changes if it does?

Robert. Jason here, thanks. I would say we've certainly all seen spread compression this year across the middle market, whether it's lower core or upper, it's certainly been exacerbated in the upper where you're really competing with the broadly syndicated loan market and quite frankly, you can get single B type spreads in that market in the 300s.

Where we're operating, I would say not a significantly notable pickup in increased competition from actual new competitors. I think there's certainly competition for deals because of lower volumes certainly in the first half of the year. And so that has resulted in some spread compression in our end of the market as opposed to new entrants.

But what I would say is that I think that we're still seeing transactions -- high-quality private transactions in the lower and core in the S+ 450 to 500 range versus what you might see in the upper mid in the low 400 range and importantly, different leverage structures, right? So in the upper mid-market, you might see deals getting done in the low 400s at one or two turns more leverage than what you might see in the lower end core. So from a risk-adjusted standpoint, we like where we're investing.

I do think from a spread standpoint, we have some optimism that with the demonstrated rate cuts by the Fed, we are seeing increased pipeline activity increased dialogue. And so now we've said this before, but we do have some optimism around a real pickup in activity in 2026.

And just to add to that, across the platform, as you know, Robert, CCAP is a small part of Crescent's broader private credit platform. we've been actually quite active with a lot of activity coming in recent quarters. We're just at around $6 billion total over the last 12 months that have been deployed across private credit here and that's with taking our spots. It's certainly been competitive on the rate side, but we are -- we're not really willing to compromise is on how these businesses are capitalized and our corresponding documentation that goes with it. So with that, there's -- I think there's a strong case here for in the near term, expecting that opportunity set to be larger over the next 12 months than it was over the prior 12 months which I think kind of feeds to your original question as well, which is thinking about levers here to continue to drive attractive reinvestment and consistent investment income here.

Your next question comes from the line of Mickey Schleien with Clear Street.

Sticking to the issue of spreads, looking at Page 8 of your presentation, it was, I'd say, gratifying to see that spreads on your new investments increased quarter-to-quarter. Could you help us understand what drove that increase?

Yes. Thanks for the question. This is Henry. We've actually been able to, I'd say, over the last five quarters here, kind of hold the origination spreads at around that 500 over SOFR baseline. It's going to be a mix of incremental activity from our existing portfolio, a strong source of our origination on a quarter-to-quarter basis are add-ons with existing portfolio companies as well as just opportunities that we're seeing within our specific market segments that kind of tied closer to that 4.75% to 5.25% over SOFR band. So as you kind of think about where we play in the market as well as add-ons being a large -- anywhere from 1/3 to 1/2 of our origination on a quarter-to-quarter basis. Those two dynamics are certainly providing us the ability to maintain spreads here even in this market.

So would it be reasonable to say that the spread expansion quarter-to-quarter did not include taking on excessive risk?

Yes. I would absolutely agree with that. We're very conscious to stay within our lane in terms of where we're underwriting with respect to security. So we haven't deviated from the same focus on top of the capital structure. Everything we do historically and today remains sponsored by portfolio companies, and we're not -- it's never been our ethos to stretch for yield by either taking on leverage beyond what we think is prudent or expanding to company types that are outside of our comfort zone.

I understand. That's helpful. Staying with the presentation, but switching to Page 15, new equity investments represented 20% of this quarter's new investments. Could you describe what those new equity investments were? And what did you see that made them interesting to you?

Yes. So those new equity investments are actually tied to restructuring of portfolio companies where we recapitalized part of the capital structure into both the debt and equity component. So when you think about the breakdown there, the majority of what you'll see on that page is tied to the recapitalization and change of control that we did with two portfolio companies during the quarter.

Okay. So I guess it's new in sort of quotation marks. Another question on investing. I noticed your investment in Family Dollar, which is interesting. What is your thesis there? We're getting such mixed messages on the health of the consumer, particularly at the low end of the spectrum. So I wanted to understand what your thinking is there.

Yes. That loan was actually done in conjunction with equity investment that we have an asset-based lender called WhiteHawk. This is a group that we've been investing in and alongside -- going back to 2017 across multiple vintages on historically, they were called Great American Capital Partners. And selectively, we have participated and co-investment opportunities alongside them from time to time.

So if you kind of look back at our history, some notable investments that would fall within a category in the past include Amyris as well as BJ Services and the Family Dollar is one of the more recent ones that we've done with them. When you think about the investment thesis there, given that their focus is on asset-based lending, that is an asset-based loan where the primary collateral there is not the ongoing operations of the business.

So we're not underwriting to necessarily consumer demand for that specific type of retailer but more so the hard assets that underpin the loan there. So it's something that we've done in spots historically over the last 8 years or so, never a large percentage of the portfolio, but that investment would be part of that categorization.

Okay. That's interesting. We've seen other BDCs do really well in that space. Just one final question, if I can. It's more of a, I guess, a philosophical question. It's a small position referring to, I don't know if it's CECO or CECO, I don't know how do you pronounce it. It's valued above par, but it's on nonaccrual, which is unusual. What is the valuation reflecting there? And just philosophically, if you can explain the approach.

Yes. So CECO is a third-party logistics provider. That company we actually restructured at the beginning -- or in the first half of the year and the valuation that you see reflects its position in the capital structure as the priority revolver. As far as the accrual status of the loan goes, what that reflects is just the ultimate view here in terms of recovering the initial cost basis in that loan.

CECO in particular is -- operates in one of, I would say, the hardest in the subsectors that we've seen which is third party logistics following the liberation Day announcements. And as a result, there's a fair amount of near-term operating uncertainty with the business just in terms of operating performance, given some of the revenue headwinds that we're seeing both on the rate as well as the volume side. So as a result, we made that determination just based on the latest near-term outlook that we had to the extent that, that changes here, it's something that we'll reevaluate, but we really want to make sure that we're conservative in terms of factoring in the near-term outlook, especially for businesses that are kind of at the front lines of potential macro headwinds like a business like CECO. So that's what you'll see as far as that particular line item goes.

Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

Are there any nonrecurring items in earnings this quarter?

Nonrecurring items. Gerhard?

Yes. I can take that question. Certainly, in the revenue top line, I think Jason mentioned this in -- or earlier in the responsive question, our sort of fee income is running a little bit lower than sort of the -- I would say, maybe a 1/3, about 1/3 of sort of the historical run rate. We only have about any of fee income, sort of noninterest fee income in our revenues this quarter. But other than that, there's nothing that I called out that's material from a nonrecurring perspective. The sort of core interest income, meaning sort of cash income, pick income, the amortization of OID, unused fees and what we view sort of the distribution -- recurring distribution from the Logan JV represents about 97%, 96%, 97% of total top line revenue. So nothing out of the ordinary or nonrecurring that I'd call out there.

Great. And then following up on the earlier question, how you guys are holding the line in terms of the yields on new investments. Are you seeing more PIK or OID as components of the overall weighted yield for these deals?

This is Henry. I can comment on that. Now within our deals, the PIK component is something that we just deemphasized from the beginning. So I think the short answer on PIK is no. We've certainly seen deals out there where there is more PIK either in the form of PIK has to be toggled or just PIK premium that's added on the coupon at the beginning in order to deliver yields in excessive market but as far as what we're originating, PIK is not a material component of the spreads at underwrite this quarter and just overall in terms of where we invest.

On the OID side, I would say that OIDs generally have been tightening about a year ago, OIDs are probably kind of in the 1.5 point of the original deal. And now that's probably 25 bps tight where we've seen. So that component along with just market pricing as a whole has tightened a bit, but it's -- OID is always kind of one component of our upfront deal that we want to -- we consider as we're thinking about our investments here and like spreads, we've seen some modest tightening there.

And I guess a final question, it's more broad-based in terms of the lower middle market and middle market sectors. Tariffs have been a headwind, but energy costs have gone down as well. And given the lower interest rates, do you think this is going to help company the EBITDA multiples on deals that you're going to see or not? What's your thoughts on this?

Yes. It's -- I think in the near term, it can potentially be a tailwind on both of those fronts. What we're seeing across our portfolio just in terms of free cash generation, despite some of the tariff headwinds is that with lower borrowing costs, interest coverages are the highest we've seen in really two years since the tightening side -- sorry, since the prior rate hiking cycle began. And with higher interest coverage is kind of across the board, you have the ability to potentially for borrowers to be able to service a larger quantum of debt, which allows buyers to justify larger purchase multiples.

While we haven't seen that dynamic in a broad-based fashion yet, a lot of the multiples and business that we've seen trade in this market have really been amongst kind of the highest quality assets that have been out there. we can certainly see that being a potential tailwind coming in the coming quarters here as we seek to see broader M&A volumes increase.

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

Okay. Thank you, operator. Thank you all for your time and attention here today and your support of CCAP. We appreciate it, and we look forward to speaking with you all again soon.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.