10-K: Crescent Capital BDC Reports Income Decline, Rising Non-Accrual Loans in 2025

Crescent Capital BDC, Inc. experienced a decrease in net investment income and an increase in non-accrual loans for the year ended December 31, 2025, alongside significant unrealized depreciation in its investment portfolio.

Summary

• Net investment income decreased to $66.9 million ($1.81 per share) in 2025 from $89.0 million ($2.40 per share) in 2024, primarily due to lower investment income earned.
• Total investment income declined to $167.3 million in 2025 from $197.4 million in 2024, driven by a decrease in benchmark rates and restructurings of certain debt investments.
• Interest income from investments decreased from $183.0 million in 2024 to $156.4 million in 2025.
• Dividend income decreased from $11.3 million in 2024 to $7.7 million in 2025, mainly due to lower distributions from an investment in First Eagle Logan JV, LLC.
• Total net expenses, including taxes, decreased to $100.4 million in 2025 from $108.4 million in 2024, primarily due to lower interest and other debt financing costs.
• Interest and other debt financing costs decreased to $57.5 million in 2025 from $62.8 million in 2024, mainly due to a decrease in benchmark rates.
• Management fees, net of waivers, increased slightly to $20.3 million in 2025 from $20.1 million in 2024, driven by higher average assets under management.
• Income-based incentive fees, net of waivers, decreased to $14.1 million in 2025 from $18.7 million in 2024, due to lower pre-incentive fee net investment income.
• Professional fees increased to $2.8 million in 2025 from $2.0 million in 2024, attributed to additional regulatory compliance costs.
• Other general and administrative expenses rose to $3.4 million in 2025 from $2.6 million in 2024, related to higher administrative costs for Sarbanes-Oxley Act Section 404(b) compliance.
• Net realized and unrealized losses on investments and foreign currency transactions totaled $(32.4) million in 2025, compared to $(15.9) million in 2024.
• The company had eleven portfolio companies on non-accrual status as of December 31, 2025, representing 4.1% of total debt investments at cost and 2.0% at fair value, an increase from seven companies (2.2% at cost, 0.9% at fair value) in 2024.
• The weighted average yield on income-producing securities (at cost) decreased to 10.0% in 2025 from 10.9% in 2024.
• The asset coverage ratio was 179% as of December 31, 2025, down from 183% in 2024, but still above the 150% regulatory requirement.
• The company repurchased 92,262 shares of common stock totaling $1.333 million at an average price of $14.45 per share during 2025 under a new repurchase program.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a moderately negative filing due to significant declines in net investment income and total investment income, coupled with an increase in non-accrual loans and substantial unrealized losses, indicating deteriorating portfolio performance and a challenging operating environment.

Positives

• The company remained in compliance with its asset coverage requirements under the 1940 Act, with a ratio of 179% as of December 31, 2025, exceeding the 150% minimum.
• All financial covenant requirements of the company's credit facilities were met as of December 31, 2025.
• The company had $242.0 million of undrawn capacity on its unsecured notes, senior revolving credit, and special purpose vehicle asset facilities, providing liquidity for future investments.
• The company initiated a stock repurchase program, repurchasing 92,262 shares for $1.333 million at an average price of $14.45 per share, indicating management's view of undervaluation relative to market price.

Negatives

• Net investment income decreased significantly to $66.9 million ($1.81 per share) in 2025 from $89.0 million ($2.40 per share) in 2024.
• Total investment income declined to $167.3 million in 2025 from $197.4 million in 2024, primarily due to lower benchmark rates and debt restructurings.
• The number of portfolio companies on non-accrual status increased to eleven in 2025 (4.1% of debt investments at cost, 2.0% at fair value) from seven in 2024 (2.2% at cost, 0.9% at fair value), indicating deteriorating credit quality.
• Net realized and unrealized losses on investments and foreign currency transactions worsened to $(32.4) million in 2025 from $(15.9) million in 2024, reflecting significant unrealized depreciation.
• The weighted average yield on income-producing securities (at cost) decreased to 10.0% in 2025 from 10.9% in 2024.
• The market price of common stock on February 24, 2026, was $12.88 per share, representing a 32.6% discount to the net asset value of $19.10 as of December 31, 2025.

Risks

• The Board may change investment objectives, operating policies, and strategies without prior notice or stockholder approval, potentially affecting business and distributions.
• Failure to maintain BDC status could significantly reduce operating flexibility and trigger defaults under outstanding indebtedness.
• Dependence on key personnel of Crescent and the Adviser means the departure or misconduct of these individuals could materially adversely affect the business.
• Conflicts of interest may arise due to the Adviser's management of other Crescent clients and its pecuniary interest in the company's valuation process.
• The management and incentive fee structure may create incentives for the Adviser to make speculative investments or favor deferred interest, potentially misaligning with stockholder interests.
• The Adviser has limited liability and is entitled to indemnification, which may lead it to act in a riskier manner.
• Restrictions on transactions with affiliates limit the scope of available investment opportunities.
• The valuation process for certain illiquid portfolio holdings, determined in good faith by the Adviser, involves inherent uncertainty and significant management judgment, potentially leading to inaccurate valuations.
• Operating in an increasingly competitive market for investment opportunities may make it difficult to identify and make investments consistent with objectives.
• Ability to grow depends on raising capital, and unfavorable economic or capital market conditions may increase funding costs or limit access to capital.
• Regulations governing BDC operations affect the ability to raise additional capital, including restrictions on issuing common stock below NAV per share.
• Failure to invest a sufficient portion of assets in qualifying assets could lead to a loss of BDC status or preclude investing according to the current business strategy.
• Failure to make follow-on investments in portfolio companies could impair portfolio value or result in missed opportunities.
• The company is subject to corporate-level income tax if it is unable to qualify as a Regulated Investment Company (RIC).
• Difficulty paying required distributions may arise if income is recognized before, or without, receiving cash, potentially forcing asset sales or capital raises.
• Investments in Original Issue Discount (OID) and Payment-In-Kind (PIK) interest income expose the company to risks of unreliable valuations and non-refundable incentive fees based on non-cash accruals.
• Stockholders may be required to pay tax in excess of the cash they receive, especially if dividends are paid in common stock.
• Default under existing or future credit facilities could adversely affect the business, forcing asset sales or accelerating debt repayment.
• Restrictions under credit facilities, such as covenants and security interests, could limit the ability to create liens, restructure debt, or obtain additional financing.
• High degree of leverage magnifies potential for gain or loss and increases investment risk, potentially leading to sharper declines in net asset value.
• Changes in interest rates may adversely affect the value of portfolio investments and net investment income, especially with floating-rate debt and borrowings.
• The company may be the target of litigation, including securities litigation or derivative actions, which could result in substantial costs and divert management attention.
• There is a risk that investors in common stock may not receive dividends or that dividends may not grow, and debt security holders may not receive all entitled interest income.
• New or modified laws or regulations, including those related to 'shadow banking' or ESG, may adversely affect the business and increase costs.
• Risks associated with artificial intelligence and machine learning technology, used by the company or third parties, could lead to data breaches, operational disruptions, or competitive disadvantages.
• Changes to United States tariff and import/export regulations may negatively impact portfolio companies.
• Lack of liquidity in investments may make it difficult to sell assets quickly or at fair value, especially during forced liquidations.
• Portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity, and rising interest rates could exacerbate this.
• Debt investments may be repaid prior to maturity, leading to reinvestment in lower-yielding temporary investments and potential delays.
• Inflation has adversely affected and may continue to adversely affect portfolio companies' operations and ability to service debt.
• Investments in middle-market companies involve higher risk due to limited public information, financial resources, and vulnerability to economic downturns.
• Investments may be risky, below investment grade, and could result in loss of principal, especially with covenant-lite loans or indirect investments through CLOs.
• Equity investments, many of which are illiquid, involve substantial risk of failure to appreciate or decline in value, with returns dependent on liquidity events.
• Investments in significant risk transfer securities or similar synthetic instruments are subject to credit risks of underlying obligations and counterparty insolvency.
• Investments in the consumer products and services sector are subject to cyclical risks, economic recession, and changing consumer tastes.
• Investments in the financial services sector are subject to volatility, interest rate changes, and extensive government regulation.
• Investments in technology companies are subject to volatility, intense competition, shortened product life cycles, and litigation risk.
• The effect of global climate change may impact the operations of portfolio companies, leading to increased costs or decreased revenues.
• The market price of common stock may fluctuate significantly due to various factors beyond the company's control, including market volatility and changes in operating results.
• Common stockholders participating in the dividend reinvestment plan may increase their risk of overconcentration.
• Stockholders opting out of the dividend reinvestment plan will experience dilution in their ownership percentage.
• Future credit ratings may not reflect all risks of an investment in debt securities.
• Provisions of Maryland General Corporation Law and the Charter and Bylaws could deter takeover attempts and adversely affect the stock price.
• Significant costs are incurred as a publicly traded company, including compliance with Sarbanes-Oxley Act and Nasdaq listing standards.
• Information systems and systems failures could significantly disrupt business, negatively affecting liquidity, financial condition, or results of operations.
• Cybersecurity risks and cyber incidents may adversely affect the business by causing disruption, compromising confidential information, or damaging business relationships.
• Adverse developments in the credit markets may impair the ability to enter into new debt financing arrangements.

Future Outlook

The company anticipates cash generation from future securities offerings, borrowings, and operational cash flows, including investment sales and repayments. It intends to continue operating as a Regulated Investment Company (RIC) for U.S. federal income tax purposes, requiring annual distribution of at least 90% of its taxable income. The company may use hedging instruments to mitigate interest rate and currency risks, but cannot assure their effectiveness. The amount of leverage employed will depend on the Adviser's and Board's assessment of market conditions and other factors. The company also notes that an increase in realized losses or unrealized depreciation or significant NAV reductions due to rising rates and recession potential could increase the risk of breaching covenants and adversely affect access to capital.

Management Comments

• Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through debt and related equity investments.
• Our investment philosophy emphasizes capital preservation through credit selection and risk mitigation.
• We believe that the middle-market is attractive as a result of the lack of available lending sources to smaller companies.
• We expect our targeted portfolio to provide downside protection through conservative cash flow and asset coverage requirements, priority in the capital structure and information requirements.
• We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.

Industry Context

StockSavvy.ai notes that Crescent Capital BDC operates in the competitive middle-market lending sector, facing competition from other BDCs, public and private funds, and commercial banks. The company's strategy of focusing on less liquid private credit transactions, complemented by more liquid broadly syndicated loans, aims to leverage market inefficiencies. The decline in benchmark rates observed in 2025, impacting interest income, reflects broader macroeconomic trends affecting floating-rate debt investments across the financial services industry. The increase in non-accrual loans and unrealized depreciation could signal a challenging credit environment for middle-market companies, potentially indicating broader economic pressures or specific sector weaknesses that BDCs are exposed to.

Comparison to Industry Standards

• The company's asset coverage ratio of 179% as of December 31, 2025, is above the 1940 Act's minimum requirement of 150% for BDCs, indicating a healthy leverage position relative to regulatory standards.
• The weighted average yield on income-producing securities (at cost) of 10.0% in 2025, while a decrease from 10.9% in 2024, should be assessed against prevailing market interest rates and the risk profile of its middle-market debt portfolio. This yield is generally competitive within the direct lending space for similar risk profiles.
• The increase in non-accrual loans to 4.1% at cost and 2.0% at fair value in 2025, compared to 2.2% and 0.9% in 2024, suggests a deterioration in portfolio credit quality that warrants close monitoring, as it exceeds the average non-accrual rates typically seen in more stable periods for the broader BDC industry.
• The significant discount of 32.6% to NAV at which the common stock traded on February 24, 2026, is a notable deviation from the company's historical trading patterns and the broader BDC industry, where discounts or premiums can vary but such a wide discount often signals investor concerns about asset valuation, future performance, or market liquidity.

Corporate Governance

Legal Proceedings

• The company is party to certain lawsuits in the normal course of business, including proceedings relating to the enforcement of its rights under loans to or other contracts with portfolio companies.
• Third parties may try to seek to impose liability on the company in connection with its activities or the activities of its portfolio companies.
• The company does not expect these legal proceedings to materially affect its business, financial condition, or results of operations.

Related Party Transactions

• The company has an Investment Advisory Agreement with Crescent Cap Advisors, LLC (the Adviser), an affiliate of Crescent Capital Group LP (Crescent), for investment advisory services, including base management fees and incentive fees.
• The company has an Administration Agreement with CCAP Administration LLC (the Administrator), an affiliate of Crescent, for administrative services, with certain expenses reimbursable.
• The Adviser has voluntarily waived management fees on investments in WhiteHawk III Onshore Fund LP and Freeport Financial SBIC Fund LP.
• The Adviser voluntarily waived income incentive fees to the extent net investment income, excluding GAAP incentive fee, fell short of the regular declared dividend through December 31, 2023.
• Crescent, its employees, and certain officers and directors of the company owned 2.83% of the company's outstanding common stock as of December 31, 2025.
• Sun Life Financial Inc., which acquired a majority interest in Crescent on January 5, 2021, owned 6.02% of the company's outstanding common stock as of December 31, 2025.
• Sun Life is the sole lender of the company's Series 2023A Unsecured Notes and a $10.0 million participating lender in the Series 2021A Unsecured Notes.
• The Adviser paid $35.0 million in cash consideration to FCRD stockholders as part of the FCRD Acquisition, a portion of which was included as a deemed capital contribution to the company.
• The company has a license agreement with Crescent for non-exclusive, royalty-free use of the 'Crescent Capital' name.
• The Adviser has a Resource Sharing Agreement with Crescent, providing access to experienced investment professionals and resources.

Stakeholder Impact

• Shareholders: May experience reduced dividends due to lower net investment income and potential dilution if they opt out of the dividend reinvestment plan. The stock trading at a significant discount to NAV could also impact shareholder value. The stock repurchase program could benefit shareholders by reducing outstanding shares.
• Employees (of Adviser/Administrator): The Adviser's management and incentive fees, though slightly increased for management fees and decreased for incentive fees, directly impact the compensation structure for the investment and administrative professionals.
• Customers (Portfolio Companies): Deteriorating credit quality and increased non-accrual loans suggest some portfolio companies are facing financial challenges, potentially impacting their operations and ability to meet obligations.
• Creditors (Lenders): The company's compliance with asset coverage ratios and financial covenants is positive for creditors, but the increase in non-accrual loans and unrealized depreciation could signal increased risk in the underlying portfolio, which could affect future borrowing terms.
• Regulatory Bodies: The company's adherence to BDC and RIC regulations, including Sarbanes-Oxley Act compliance, is important for maintaining regulatory standing and investor trust.

Next Steps

• The Board of Directors will determine quarterly dividends based on earnings and financial condition.
• The company will continue to monitor its transactions and make tax elections to mitigate adverse effects of tax provisions.
• The company will continue to monitor compliance with all regulations adopted under the Sarbanes-Oxley Act and Nasdaq listing standards.
• The company will continue to assess interest rate risk and manage exposure, determining if hedging transactions are necessary.
• The company may refinance or repay any indebtedness at any time based on financial condition and market conditions.
• The company's stock repurchase program is authorized until September 30, 2026, with timing and amount determined by the company's discretion.

Key Dates

Recommendation

The company experienced a notable decline in net investment income and an increase in non-accrual loans in 2025, indicating a challenging period and potential deterioration in portfolio quality. While the company maintains strong liquidity and compliance with regulatory asset coverage, the significant discount of its stock price to NAV suggests market skepticism. The stock repurchase program is a positive signal from management, but the overall financial performance trends warrant a cautious 'hold' recommendation. Investors should monitor future earnings stability, credit quality trends, and the effectiveness of the repurchase program before considering further investment.

Keywords

BDC, Business Development Company, Middle-market lending, Secured debt, Unitranche loans, Unsecured debt, Private credit, Investment income, Non-accrual loans, Unrealized depreciation, Asset coverage ratio, Dividend reinvestment, SEC filing, Financial reporting, Credit risk, Interest rate risk, Corporate governance, Sarbanes-Oxley, RIC