Picture supply: The Motley Idiot.
Date
Thursday, August 14, 2025 at 12 p.m. ET
Name members
Chief Govt Officer — Jason Breaux
President and Chief Monetary Officer — Gerhard Lombard
Chief Funding Officer — Henry Chung
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Takeaways
Web Funding Revenue— $0.46 per share, or $0.48 per share excluding a $0.02 one-time accelerated amortization of deferred financing prices, for Q2 2025, in comparison with $0.45 within the prior quarter.
Dividend Protection— Web funding earnings lined the common dividend by 110% in Q2 2025.
Web Asset Worth (NAV)— Ended Q2 2025 at $19.55 per share, down $0.07 from $19.62 sequentially, primarily because of the $0.05 per share particular dividend.
Funding Portfolio— Complete truthful worth of $1.6 billion throughout 187 firms as of Q2 2025. Common place measurement was roughly 0.6% of the portfolio in Q2 2025.
Portfolio Composition— 91% of the portfolio was in first lien loans by truthful worth as of Q2 2025. The highest 10 debtors constituted 18% of the portfolio as of Q2 2025.
Sponsor-Backed Publicity— 99% of the debt portfolio was in sponsor-backed firms as of Q2 2025.
Weighted Common Mortgage-to-Worth— Roughly 39% at time of underwriting for the portfolio.
Gross Deployment— $58 million in Q2 2025, with 99% in first lien investments. Consists of $22 million in three new platform investments and $36 million of add-ons in Q2 2025 (totals don’t sum resulting from rounding or extra exercise).
Portfolio Firm Efficiency— Portfolio firms skilled year-over-year weighted common income and EBITDA progress.
Curiosity Protection— Weighted common curiosity protection for portfolio firms improved to 2.1x in Q2 2025.
Portfolio Threat Scores— Weighted common threat ranking held at 2.1, with 86% of the portfolio (at truthful worth) rated 1 or 2 (acting at or above underwriting expectations) as of Q2 2025. Moreover, 14% of whole investments at truthful worth had been categorized as “watch checklist” (rated 3, 4, or 5) as of Q2 2025.
Nonaccruals— 2.4% of the portfolio at truthful worth was on nonaccrual standing as of Q2 2025.
Debt-to-Fairness Ratio— Decreased to 1.23x from 1.25x, throughout the said goal vary of 1.1x to 1.3x in Q2 2025.
Borrowing Price— Weighted common rate of interest on whole borrowing was 6.09% as of quarter finish, in comparison with 6.36% as of March 31. Moreover, 74% of dedicated debt matures in 2028 or later as of June 30, 2025.
Particular Dividends— Paid the second of three beforehand introduced $0.05 per share particular dividends in Q2 2025. The ultimate $0.05 per share particular dividend associated to undistributed taxable earnings shall be paid on September 15, 2025, to holders of file as of August 29, 2025.
Common Dividend— Declared a $0.42 per share common dividend for Q3 2025, marking 38 consecutive quarters of protection.
Inventory Repurchase Program— The board licensed a $20 million repurchase program as introduced through the Q2 2025 earnings name, and administration described share buybacks as “a horny use of extra capital.”
SPV Asset Facility— Rightsized from $500 million to $400 million, and the unfold was lowered by 50 foundation factors to 195 foundation factors in April 2025; anticipated to decrease future curiosity expense.
Supplemental Dividend Coverage— No Q3 2025 supplemental dividend, because the payout measurement take a look at cap exceeded 50% of this quarter’s extra accessible earnings.
Portfolio Sector and Construction— Portfolio primarily contains service-oriented home companies, with lower than 2% in unitranche last-out investments and small, declining publicity to second lien loans.
Abstract
Crescent Capital BDC(CCAP 2.37%) reported secure internet funding earnings and maintained constant dividend protection whereas internet asset worth per share decreased in Q2 2025, largely resulting from a particular dividend payout. Portfolio credit score high quality remained regular, with 86% of property rated at or above expectations as of Q2 2025 and nonaccruals had been 2.4% of truthful worth as of Q2 2025. Portfolio threat scores and business composition remained secure, and administration emphasised preemptive watch itemizing based mostly on forward-looking fundamentals.
Gerhard Lombard stated, “Web earnings per share was $0.41 in Q2 2025, in comparison with $0.11 in Q1 2025,” attributing the rise to lowered realized and unrealized losses.
Jason Breaux defined that the typical public BDC noticed a ten.5% NAV per share decline from 2019 by way of Q1 2025, whereas CCAP’s NAV per share rose 0.6% over the identical interval, based mostly on reported figures, and 0.3% by way of Q2 2025, leading to a complete financial return of 49%.
Administration highlighted that solely a “low single digits” proportion of the portfolio confronted direct tariff affect and confirmed through the Q2 2025 earnings name that this evaluation remained unchanged as of Q2 2025, and that noticed impacts haven’t expanded or contracted because the prior overview.
Management “have additionally actually sought to keep up a diversified guide,” with business and position-size preferences unchanged and portfolio rotation concentrating on legacy acquired property.
The discount of the SPV asset facility is predicted to cut back future borrowing prices, and leverage stays throughout the said administration goal vary.
Chung described curiosity protection for debtors as having improved to 2.1 instances in Q2 2025 and said, “gasoline enter prices are actually not a big element” of most portfolio firms’ COGS, reaffirming the portfolio’s emphasis on human capital-driven price buildings.
Unitranche and second lien exposures proceed to signify minor elements, consistent with the agency’s core first lien orientation.
Trade glossary
First Lien Mortgage: A senior-secured mortgage holding the best precedence declare on collateral within the occasion of default.
Unitranche Final-Out: Essentially the most junior place in a unitranche mortgage facility, sometimes bearing increased threat and yield, however with potential management options in distressed situations.
Nonaccrual: Mortgage standing the place contractual curiosity is not being acknowledged as earnings resulting from vital cost delinquency or doubt about collectibility.
SPV Asset Facility: A particular objective automobile credit score facility utilized by BDCs to finance portfolio investments, usually providing structural flexibility and regulatory leverage effectivity.
Full Convention Name Transcript
Jason Breaux: Thanks, Dan. Hey, everybody. Thanks all for becoming a member of us. I’ll begin at present’s name by summarizing our second quarter outcomes, observe that with some ideas in the marketplace, and contact on our portfolio. When it comes to second quarter earnings, we reported internet funding earnings of $0.46 per share, in comparison with $0.45 per share within the first quarter. Excluding $0.02 per share of one-time accelerated amortization associated to deferred financing prices, NII was $0.48 per share. Importantly, earnings stay in extra of our dividend with 110% base dividend protection for the quarter.
NAV per share was down roughly 0.4% for the quarter, pushed primarily by the second of three beforehand introduced $0.05 per share particular dividends associated to spillover earnings that was paid through the quarter. Now let’s focus on what we’re seeing in our markets and our positioning. Gasoline exercise remained comparatively constrained in Q2, given ongoing tariff discussions and regulatory uncertainty. This policy-driven volatility has augmented an already strong pipeline of potential PE exits. Maintain instances for a lot of personal equity-owned property proceed to increase, furthering the stress from LPs to each deploy dry powder and return capital.
During times of heightened volatility that sometimes embrace reductions in general M&A quantity, our deployment advantages from a big and diversified present portfolio throughout the Crescent personal credit score platform. Throughout the platform, add-ons to present portfolio firms accounted for roughly half of whole investments by depend through the second quarter. Moreover, incumbency is a vital side of our origination efforts, whereby Crescent has demonstrated the power to stay as lead lender in strong-performing credit even after a change of sponsor possession, with out committing to transportable capital buildings. From an underwriting perspective, we profit instantly from seeing how these firms fared by way of the pandemic, wage inflation, and provide chain disruptions over our maintain interval.
From an execution perspective, this information and familiarity with administration groups enable us to maneuver shortly and with conviction, and that’s one thing that the sponsors with whom we associate worth drastically. New alternatives in our personal credit score platform have maintained lead roles within the majority of our transactions, and we proceed to drive stringent documentation. Given our concentrate on the core and decrease center market, we imagine we’re capable of drive higher structural protections than offers within the extra aggressive higher center market section or BSL alternative section. Now let’s shift gears and focus on the funding portfolio. Please flip to Slide 13 and 14.
We ended the quarter with simply over $1.6 billion of investments at truthful worth, throughout a extremely diversified portfolio of 187 firms, with a median funding measurement of roughly 0.6% of the full portfolio. Our high 10 largest debtors represented 18% of the portfolio. As we’re believers in modulating credit score threat by way of place measurement, we’ve persistently maintained an funding portfolio that consists primarily of first lien loans since inception, collectively representing 91% of the portfolio at truthful worth at quarter finish. Moreover, we take consolation in the truth that our portfolio is concentrated on home, service-oriented companies that, in our view, carry decrease direct coverage threat from tariffs and different lately proposed and carried out authorities insurance policies.
Lastly, our investments are virtually totally supported by well-capitalized personal fairness sponsors, with 99% of our debt portfolio in sponsor-backed firms as of quarter finish. We’ve got partnered with our sponsors to spend money on well-capitalized debtors, with vital fairness capital beneath us. We all know that the weighted common mortgage to worth within the portfolio on the time of underwriting is roughly 39%. Transferring on to our dividend, we declared a 3rd quarter 2025 common dividend of $0.42 per share. This dividend is payable on October 15, 2025, to stockholders of file as of September 30.
Moreover, the third and remaining beforehand introduced $0.05 per share particular dividends associated to undistributed taxable earnings shall be paid on September 15 to stockholders of file as of August 29. This marks our thirty eighth consecutive quarter of incomes our common dividend at CCAP, which we’ve completed whereas sustaining NAV per share inside a decent band. Our positioning has and at all times shall be for the long run. General, we’re happy with the power of our portfolio and secure outcomes this quarter. We imagine they’re consultant of CCAP’s longer-term observe file of delivering a secure NAV profile and a horny whole financial return.
To border the purpose a bit additional, let us take a look at efficiency since CCAP’s public itemizing in February 2020, a interval that captures the totality of the COVID pandemic, the rise in rates of interest starting in mid-2022, and no less than a part of the latest tariff volatility. Primarily based on publicly accessible knowledge, the typical public BDC noticed its internet asset worth per share decline by 10.5% from 2019 to the primary quarter of this 12 months. CCAP’s NAV per share elevated by 0.6% over the identical timeframe and 0.3% by way of Q2. Over this era, we generated a complete financial return calculated as change in internet asset worth plus dividends, of 49%, nicely in extra of the general public BDC common.
I spotlight this longer-term observe file because it usually feels as if we function in 90-day earnings vacuums. Sentiment can swing wildly, generally warranted, generally not. If you don’t imagine CCAP’s present low cost to NAV is warranted, which is why our board has accepted a $20 million inventory repurchase program. We imagine that opportunistically repurchasing shares at sure ranges is a horny use of extra capital. As we search to keep up a disciplined capital allocation method at CCAP, we’ll stability our repurchase program with different components resembling our present funding pipeline and leverage ranges. With that, I’ll now flip the decision over to Henry.
Henry Chung: Thanks, Jason. Please flip to Slide 15, the place we spotlight our latest exercise. Gross deployment within the second quarter totaled $58 million, as you’ll be able to see on the hand facet of the web page, of which 99% was in first lien investments. Throughout the quarter, we closed three new platform investments totaling $22 million. Whilst spreads have tightened, our focus stays on high-quality firms with robust credit score profiles. These new investments had been loans to personal equity-backed firms with a weighted common unfold of roughly 480 foundation factors. Every of those new investments are first lien loans in keeping with our technique of investing on the high of the capital construction to supply higher draw back safety.
The remaining $36 million got here from incremental investments in our present portfolio firm {dollars}. $58 million in gross deployment compares to roughly 90. Buyer portfolio continues to carry out nicely, with year-over-year weighted common income and EBITDA progress. The weighted common curiosity protection of the businesses in our funding portfolio at quarter finish improved to 2.1 instances. As a reminder, this calculation is predicated on the newest annualized base fee every quarter. Please flip to slip 17, which reveals the developments in inner efficiency scores. General, we’ve seen stability within the basic efficiency of a portfolio, leading to consistency in our threat ranking a weighted common portfolio threat ranking of two.1.
The proper-hand facet of the slide, you may see that one and two rated investments representing names which can be acting at or above our underwriting expectations. Proceed to signify the lion’s share or 86% of our portfolio at truthful worth. It’s value noting that as of quarter finish, as a proportion of whole investments at truthful worth, CCAP’s watch checklist which we outline as three, 4, 5 rated investments, 14%. Whereas our nonaccruals at truthful worth had been 2.4%. A virtually 12% hole. That is in distinction to evaluation with public friends, the place this hole was roughly %, We imagine this displays our philosophy and our tradition of being forward-looking and phrases of sustaining our watch checklist.
We don’t, for instance, wait till there’s a default for shifting one thing down the danger ranking scale. Attempt to be clear in regards to the well being core portfolio with the market and one of many methods we achieve this is by taking a pre-ethical method in direction of how we classify watch checklist investments. With that, I’ll now flip it over to Gerhard.
Gerhard Lombard: Thanks, Henry, and good day, everybody. Yesterday night, we reported internet funding earnings of $0.46 per share, $0.48 excluding the one-time accelerated amortization that Jason famous, in comparison with $0.45 per share within the prior quarter. The rise in internet funding earnings was pushed by a rise within the distribution from the Logan three way partnership and a secure quarter-over-quarter portfolio yield of 10.4%. Web earnings per share of $0.41 within the second quarter in comparison with $0.11 within the prior quarter pushed by a discount in adjustments in internet realized and unrealized losses on a quarter-over-quarter foundation. Turning to the stability sheet. As of June 30, 2025, our funding portfolio at truthful worth totaled $1.6 billion.
Complete internet property had been $725 million as of June 30, 2025. Web per share was $19.55, a lower of $0.07 per share from $19.62 on the finish of the primary quarter. Jason famous, this quarter’s change in NAV is essentially attributable to the $0.05 particular dividend paid in June as NII outpaced an everyday dividend offset by modest internet unrealized and realized losses. Per share. Let’s shift our capitalization and liquidity. I’m on slide 19. On the April, we rightsized our SPV asset facility from $500 million to $400 million and lowered the unfold by 50 foundation factors from 245 to 195.
This facility resizing offers us with adequate capital to handle any potential attracts on our unfunded commitments whereas minimizing curiosity expense associated to extra unfunded capability. Following the one-time affect of the acceleration of the deferred financing price, we count on to see the total advantage of the repricing in our future quarterly working outcomes. Our capital construction displays our goal measurement and leverage with our present fairness base at present. We’ve got ensured that our borrowing capability is in keeping with our funding mandate. The quarter’s exercise introduced our debt to fairness ratio down modestly from 1.25 instances within the prior quarter to 1.23 instances which is inside our said goal leverage vary of 1.1 instances to 1.3 instances.
As you’ll be able to see on the proper facet of the slide, roughly 74% of whole dedicated debt now matures in 2028 or later. The weighted common said rates of interest on a complete borrowing of 6.09% as of quarter finish in comparison with 6.36% as of March 31. As Jason famous, for 2025, our board has declared our common dividend of $0.42 per share. Moreover, the third and remaining beforehand introduced $0.05 per share particular tax dividend is payable in September. Our present variable supplemental dividend framework stays in impact as nicely. CCAP won’t pay a Q3 supplemental dividend because the measurement take a look at cap exceeded 50% of this quarter’s extra accessible earnings.
And with that, I wish to flip it again to Jason for closing remarks.
Jason Breaux: Thanks, Gerhard. So to sum up, CCAP posted secure ends in 1 / 4 that from a macro perspective was something however secure. Traditionally, in intervals of market volatility, Crescent’s concentrate on disciplined credit score underwriting, capital preservation, robust free money movement era, and strong debt service protection has enabled us to remain on the proper facet of efficiency and returns throughout managers. Earlier, I highlighted CCAP’s efficiency since itemizing in 2020. We imagine Crescent and CCAP will proceed to be on the proper facet of this efficiency dispersion spectrum over the long run, and we look ahead to delivering on that within the quarters to return. As at all times, we thanks for becoming a member of our name at present.
We look ahead to connecting with a lot of you quickly. And with that, operator, we are able to open the road for questions.
Operator: Right now, I wish to remind everybody to be able to ask a query, please press star then the primary in your phone keypad. Your first query comes from the road of Robert Dodd with Raymond James. Your line is open.
Robert Dodd: Hello, guys, and congratulations on primarily the NAV stability this quarter, however I simply need to concentrate on credit score high quality a bit of bit once more. As Henry stated, proper, so the watch checklist is at 14%, however I imagine it was, like, 12 or 13 final quarter. So it does appear to be it is ticked up only a tiny bit. And in addition on the internally rated fours and fives, that are the bottom classes, that ticked up this quarter as nicely. So in that, with the fours and fives, 3% of the portfolio.
With respect to the watch checklist, extra usually, what I’d say is that our view, and we alluded to this in ready remarks, is that we need to be preemptive with how we designate investments on the watch checklist. So we’ve at all times relied on the elemental working efficiency and the near-term outlook to information us as to if or not we’re inserting an funding on the watch checklist. And it isn’t going to be purely pushed by if there is a credit score occasion pending. So from that perspective, we simply need to guarantee that we’re each being forward-looking and likewise being clear round what the closest turnout seems like for our portfolio firms.
With respect to the fours and fives, what I’d say there’s that these are all investments which can be definitely most challenged with respect to potential near-term outlook when it comes to restoration. Nevertheless, what I will even say there’s that what we’ve our count on what we do need to guarantee that we consider, and that is each when it comes to the ranking as nicely when it comes to the mark, is first, the place we expect the restoration goes to appear like on a near-term foundation simply provided that present outlook of the corporate at present?
And secondly, even when there’s a longer path to restoration, we need to guarantee that not being too shortsighted round near-term challenges that firms are going through. So what I’d say is if you’re in that class, it is definitely type of the biggest variance when it comes to potential outcomes with respect to final restoration right here, however what I’ll say is that after I look again at our observe file, at our loss fee, and our means to create restoration even in conditions which can be type of, you already know, increased threat, I’d say that we definitely have the capabilities and the observe information to again that.
And what I’d additionally say there’s that it is actually type of extra of an earlier ahead look versus demonstrating a leg down and, like, additional portfolio weak spot.
Robert Dodd: Obtained it. Obtained it.
Jason Breaux: Let me sorry, Robert. It is Jason. I simply need to add two factors. On the primary level on the watch checklist, I feel it is also essential to level out that as a decrease and core center market investor, three out of 4 firms within the portfolio have monetary covenants. And so, that may be excessive relative to a few of our friends who concentrate on the higher finish of the market. And the great factor about having covenants is it actually allows frequency of dialogue and interplay with the administration groups and sponsorship.
And so I feel from an perception standpoint, and a dialogue standpoint, we could also be in nearer contact with people given the covenants that we’ve in place, which could give us extra real-time visibility and outlook. The opposite level that I simply needed to make is that whereas our nonaccrual fee, I feel, is as an instance, usually consistent with the broader business, it’s definitely not one thing we’re happy with. It is not consultant of how we consider our portfolio or our underwriting course of. Or, frankly, in keeping with our historic metrics, and that is one thing that we’re wanting ahead to seeing some progress on when it comes to bringing that down.
Robert Dodd: I recognize all that shade. Kinda sorta associated. As you stated, proper, the duvet with all of the tabs, etcetera, and people the outlook on tariffs, appears to vary daily. Have you ever seen something and to your level, you’ve got been involved with plenty of these portfolio firms extra ceaselessly than the higher market may be. Have you ever seen any change in ideas from portfolio firms about how manageable the tariff publicity is? Clearly, you already know, it retains altering, so they could should hold altering plans. However any ideas on how the portfolio firms assume they will have the ability to handle this unstable interval?
Jason Breaux: Yeah. I might say I might begin off by commenting on, you already know, once we had been sharing with the market, our preliminary overview of the direct affect on our portfolio to tariffs, it was a relative minority in our guide. It was type of low single digits the place we considered our as having direct affect. And this was the type of the best stage of type of tariffs post-liberation day that we had been doing our evaluation round. However what we have seen since is, you already know, we have completed a refresh of that and reviewed and actually first to test how shut we had been when it comes to the affect and our evaluation round potential tariff affect.
And secondly, to find out how the businesses, to your query, how the businesses are capable of reply. I might say on the primary conclusion from that refreshment evaluation, I might say our evaluation nonetheless holds. We’ve not seen that direct tariff affect inhabitants increase in any significant manner, and nor contract, you already know, the businesses that we thought had been going to be impacted instantly by tariffs are definitely ones which can be nonetheless navigating that setting. On the latter level, there is a I might say there’s just a few ways in which we have seen firms handle the upcoming adjustments in tariffs.
The primary is, you already know, we have at all times regarded to spend money on firms which have excessive pricing energy, and the power to reveal the power to move by way of costs. You recognize, we had a superb lens into that within the 2023, 2024 time-frame once we noticed a fairly marked improve in wage inflation. And provided that we make investments primarily in providers, does companies, that is going to sometimes be the biggest element of the price construction for the overwhelming majority of our debtors. And with the ability to see that dynamic play out on the value facet with respect to enter prices as nicely within the context of tariffs.
That is definitely the first lever that we have seen administration groups make use of on this present setting. On the second facet, which is for these which can be sourcing instantly from, I might say, of upper up the checklist, tariff impacted, geographies. What we have seen administration groups do is take a proactive method to different sourcing mechanisms. And there is plenty of work that firms that we spend money on that do have some type of provide chain procurement overseas coming into the US. We noticed that is that is that is an method and diligence that was completed after the primary wave of tariffs through the first Trump residency, and we’re seeing that type of repositioning occur real-time now as nicely.
I feel, when it comes to seeing it play out of the numbers, it is in all probability going to be again half of this 12 months once we actually begin to see the advantages of these actions in addition to the affect of the tariff really present up within the borrower financials. However, I might say, you already know, type of summarize right here. First, the direct tariff affect in our portfolio is only a small proportion to start with. And secondly, given the dialogue, the entry that we’ve to administration, we have been capable of see them type of handle this upfront each on the value facet in addition to on the provision chain facet.
Robert Dodd: Obtained it. Thanks for that shade. Yet one more query if I can, unrelated to all these points. So you aren’t placing it proper mainly proper again in the midst of your goal leverage vary. So I feel you stated that you don’t count on plenty of internet portfolio progress going ahead. However would you want you already know, if market exercise does decide up and, clearly, the platform as an entire, remains to be, you already know, very energetic, which clearly, in precept, in case you get some new funds on the BDC, you already know, it offers you comparatively fast alternatives to redeploy the capital.
However is there something you would like to change within the combine, you already know, inside that, you already know, whereas sustaining type of, you already know, midpoint of the leverage vary possibly. Would you prefer to rotate out of any sectors and into completely different ones? Or shrink common place sizes or issues like that, all of which may go on whereas the portfolio internet rising. So any ideas on any repositioning comparatively talking, that you simply’d love to do whilst you’re at type of goal leverage?
Henry Chung: Yeah. I imply, it is an amazing query. Go forward, Henry. I will follow-up. Yeah. That is an amazing query. I might say, on a few factors, the primary is, when it comes to rotation from an business perspective, I might say we be ok with the place we’re when it comes to our business focus. You recognize, we’re very centered on investing in excessive free money movement producing, nontypical business with defensible income streams. And, you already know, we have began that positioning from the very starting of CCAP and to keep up that. So I would not say that they are particularly any business concentrations that we’re seeking to scale back within the close to time period or on the opposite facet of that increase as nicely.
You recognize, our focus is at all times going to be on these industries. I might say the identical for the typical place measurement as nicely. We’ve got 187 obligors in our portfolio. The common place measurement is 60 foundation factors. So we actually from the start, have additionally actually sought to keep up a diversified guide. And given we’ve the added luxurious, in case you’ll name it that, of being connected to a platform that, you already know, although the CCAP on a internet foundation through the quarter, the portfolio shrink, you already know, we have seen $1.3 billion of latest deployment come by way of the platform within the quarter alone.
So we’re capable of decide our spots when it comes to what’s accretive to us, simply from a pure yield perspective in addition to we need to be when it comes to business, with out having to sacrifice diversification in any respect. I might say on that piece, we’re in a superb place. You recognize, we’re centered on rotating is, and we have talked about this in prior commentary is the acquired property. We’re a bit of over midway by way of the rotation of the acquired First Eagle property, and we’re virtually totally by way of the rotation of the Alcentra property.
However that is actually, I might say, the place the heaviest focus is when it comes to our rotation efforts, as a result of we’ve the power to reallocate and re these investments into Crescent instantly originated alternatives. It is only a matter of rotating the acquired property at ranges that we discover enticing.
Robert Dodd: Obtained it. Thanks.
Operator: Earlier than going to the following query, once more, if you need to ask a query, please press 1 in your phone keypad. Your subsequent query comes from the road of Mickey Schleien with Clear Avenue. Your line is open.
Mickey Schleien: Sure. Hey, everybody. Jason, only one query from me at present. I feel buyers and analysts actually recognize your transparency in regards to the breakdown of your portfolio by the kind of safety. And I see that lower than 2% is in unitranche final out investments. As you already know, that construction may also help increase portfolio yield with out giving up a lot management over an funding. So how are you evaluating the chance to extend that to assist offset potential declines and so forth?
Jason Breaux: Hey, Mickey. Thanks for the query. It is Jason. That section of the portfolio has at all times been comparatively small for us. And I might name out a few issues. First off, I feel we have at all times been within the unitranche section of the market. In reality, Crescent’s heritage is basically additionally as a junior debt lender. So we have traditionally been fairly snug lending deeper right into a capital stack of center market firms. The final out alternative will not be so voluminous, I’d say, as of late. You recognize, as direct lending managers have extra capital to place to work. That is definitely the case for Crescent too. I’d say we’re opportunistic in these pursuits.
Typically, solely getting snug if it is a very small quantity of first out leverage forward of us the place we really feel fairly snug that we might take management of that first out if wanted. Nevertheless it’s usually pushed by the portfolio firm having a banking relationship and desirous to carry a relationship into a primary out piece of a capital construction. However in any other case, I’d simply say it isn’t all that frequent of a possibility for us at present.
Mickey Schleien: I perceive. Thanks for taking my query.
Operator: Your subsequent query comes from the road of Nolan with Ladenburg Thalmann. Your line is open.
Nolan: Hello. Simply following up on Robert’s query from a special angle. Are you given the decline in vitality costs, and your organization’s do you see your firms having elevated working leverage the place if vitality inputs go down, your revenue margins go up and so forth?
Henry Chung: Yeah. Thanks for the query, Chris. That is Henry. I might say that gasoline enter prices are actually not a big element of the price of items offered for the overwhelming majority of our debtors. You recognize, it is one thing that we actually search to keep away from in underwriting the place there’s plenty of publicity to potential materials price inputs, each as a discount in margins in addition to a method to doubtlessly increase margins. So I would not say that will be essentially a cloth driver of working leverage inside our portfolio as an entire.
Typically, I’d say what you may see given our service orientation, our portfolio is that the biggest element of price of products offered, and the overwhelming majority of our portfolio firms’ price buildings goes to be human capital versus pure type of gasoline enter price. Nevertheless, I would definitely count on to see some profit. I simply do not count on it to be a cloth driver of portfolio efficiency, if that is smart.
Nolan: Yep. After which the follow-up query, I see that the stability of second lien loans has gone down 12 months up to now. I do know it is a small a part of the portfolio, however is that this one thing which you type of decide hop into extra cyclically when the economic system begins going up and the value on second liens are enticing? Then we must always begin seeing these improve perspective to have conviction round coming in behind 5, six, generally seven turns of first lien leverage. With out getting applicable threat premia. If that adjustments, then it is definitely one thing that we’ll have a look at, however we’ll at all times be selectively deploying to second lien.
I do not I’d by no means count on it to be a big element of the portfolio given our focus right here is to proceed to our portfolio in direction of first lien.
Nolan: Okay. Thanks.
Operator: I’ll flip the decision again over to Jason Breaux for closing remarks.
Jason Breaux: Thanks very a lot, Kate. Thanks all to your time and a focus right here at present. We recognize having this dialog with you and look ahead to talking with you once more quickly.
Operator: Girls and gents, that concludes at present’s name. Thanks all for becoming a member of. Chances are you’ll now disconnect.
