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DATE

Thursday, May 14, 2026 at 12 p.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jason Breaux
  • Chief Financial Officer — Gerhard Lombard
  • Chief Investment Officer — Henry Chung

TAKEAWAYS

  • Net Investment Income (NII) -- $0.38 per share, down from $0.45 sequentially, primarily due to increased nonaccruals and lower base rates.
  • Incentive Fee Waiver -- A $0.04 per share voluntary incentive fee waiver boosted reported NII to $0.42 per share for full dividend coverage.
  • Permanent Fee Reductions -- Base management fee cut from 1.25% to 1%, and incentive fee reduced from 17.5% to 15%, both effective April 1, 2026.
  • Dividend Reset -- Quarterly base dividend reduced to $0.34 per share, with three $0.03 special dividends approved for 2026.
  • Net Asset Value (NAV) Decline -- NAV fell to $18.27 per share from $19.10 sequentially; 65% of the decline attributed to market-driven markdowns, with the remaining 35% from credit-specific factors.
  • Nonaccruals -- Nonaccruals rose to 5.7% of cost and 3.6% of fair value, compared to 4.1% and 2% prior quarter, due to five new nonaccruals, four in healthcare.
  • Portfolio Size and Composition -- Investment portfolio stood at $1.6 billion at fair value; approximately 86% of investments rated 1 or 2, with a weighted average portfolio risk rating of 2.1%.
  • Leverage -- Net leverage reached 1.3x, marginally above the 1.1x-1.3x target, attributed to delayed realizations expected to close next quarter.
  • Liquidity -- Liquidity at quarter-end totaled $206 million in available capacity plus $27 million cash and equivalents; a $100 million SPV facility upsize expected to close before June quarter-end.
  • New Investments and Exits -- Gross deployment reached $115 million, with $57 million in 14 new platform investments and $58 million in add-ons; $93 million in exits resulted in $22 million of net deployment.
  • Sun Life Transaction and Support -- In March, Sun Life acquired all remaining equity in Crescent Capital, now a wholly owned SLC Management subsidiary; Sun Life owns about 6% of CCAP shares and holds $72 million of unsecured notes.

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RISKS

  • Nonaccruals increased from 4.1% to 5.7% of cost and from 2% to 3.6% of fair value, driven by five new nonaccruals, with management citing ongoing operational and labor challenges in portfolio healthcare investments.
  • Net asset value declined by $0.83 per share sequentially, with management attributing 35% of this reduction to credit-specific portfolio depreciation, indicating higher underlying portfolio stress in select names.
  • Net leverage increased beyond the targeted range, due to delayed realizations that have yet to close, temporarily heightening balance sheet risk.

SUMMARY

The company initiated permanent reductions to its base management and incentive fees, aligning its fee structure more competitively within the BDC space. Management implemented a new, lower base dividend and introduced special dividends to address spillover income. The transaction making Crescent Capital a fully owned subsidiary of Sun Life further ties CCAP to a well-capitalized institutional partner, impacting governance and resource alignment. Net asset value and NII both declined compared to last quarter, reflecting a combination of market repricing and credit events. The portfolio's weighted average risk rating remained stable despite increased nonaccruals, mainly in healthcare, with all nonaccrual positions remaining first lien and under active management.

  • Management emphasized, "we have deliberately constructed the CCAP portfolio over the past decade with a focus on first lien investments, noncyclical industries and strong sponsor backing," reinforcing the company's long-term risk approach.
  • Sun Life's role as an equity and debt holder, along with its broader capital commitments, signifies expanded institutional backing following the completed acquisition of Crescent Capital.

INDUSTRY GLOSSARY

  • Nonaccrual: Debt investments for which interest income is no longer recorded due to heightened doubt about collectability, typically signaling borrower distress.
  • First Lien: Debt position with the highest payment priority in case of borrower default or bankruptcy.
  • SPV Facility: Special Purpose Vehicle; a credit facility used by the BDC to fund or leverage investment positions, isolated from other company assets for risk management.
  • Watch List: Designation for portfolio investments identified as higher risk of credit deterioration and subject to intensified monitoring and risk management actions.

Full Conference Call Transcript

Jason Breaux: 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 CCaaS 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 nontraded 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 and 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 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 have invested or committed over $1.5 billion across present strategies since 2021, underscoring its significant and ongoing economic commitment to the platform. With that, I'll turn it over to Gerhard.

Gerhard Lombard: 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 and $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 risk 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 1.3x and 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 and 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.

Henry Chung: 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 continues 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 nonaccrual 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 Creston 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 CCaaS nonaccruals are first lien positions, which we believe is an important factor supporting 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.

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

Robert Dodd: 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 focus on the loan [indescernible] felt kind of address 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 the multiple different ones, but they've been infecting a lot of portfolio companies in our and elsewhere as well. So I mean, are there still developments for grossing in health care is 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 watches for a while, but it seems to have accelerated in terms of the problems recently.

Henry Chung: Robert, this is Henry. I'll take that. I think your observation is 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 list, 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 watches 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 qualified in health care, they are quite different in terms of the this model in terms of what specifically was impacting these businesses, whether it's a labor cost issue, whether it's execution-related misstep by the sponsor, whether it's a reimbursement dynamic. It's 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 for 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.

Robert Dodd: Got it. Just kind of a about the 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. congrats on doing that. But I mean, is -- what's the confidence that is it, so to speak, and things couldn't get were driven more by -- in this context, more by macro factors.

Is that still a meaningful threat to these businesses?

Jason Breaux: Yes. I think that's something that has pressure 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 watches today reflects that.

Operator: Your next question comes from the line of Christopher Nolan with Ladenburg Thalman.

Christopher Nolan: I echo Robert, congratulations on restructuring on the fee. Turning -- continuing on the accrual 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?

Henry Chung: 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.

Christopher Nolan: Great. And then given that overwhelmingly, your business seems to be focused on sponsor -- 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 problem businesses just because if private credit is getting pulled, private equity is getting pneumonia.

Jason Breaux: 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 base. 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 complete 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.

Christopher Nolan: 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?

Jason Breaux: Sun Life, I think you're referencing, Chris, which we entered into an agreement with Sun Life 5 years ago where Agressent sold a majority stake to Sun Life. And as I mentioned on the prepared remarks, the remaining minority interest, of course, was purchased by some 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, the private placement market. They've also supported us across a number of our...

Christopher Nolan: Are you there?

Jason Breaux: Yes. Yes. cut out.

Christopher Nolan: Now 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.

Jason Breaux: 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.

Operator: Thank you for attending. You may now disconnect.