[Audio Gap] [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I will now hand the conference over to your speaker, Dan McMahon, Investor Relations.

Good morning, and welcome to Crescent Capital BDC Inc.'s June 30, 2020, quarterly earnings conference call. Please note that Crescent Capital BDC, Inc. may be referred to as Crescent BDC, CCAP or the company throughout the call. Before we begin, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. Statements other than statements of historical facts made during this call may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Crescent BDC's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statement. Please note that this call is the property of Crescent BDC. Any unauthorized rebroadcast of this call in any form is strictly prohibited. Yesterday, after the market closed, Crescent BDC issued its earnings press release and posted an earnings presentation for the quarter ended June 30, 2020. The presentation which is available on the company's website under the Investor Relations section will be referenced throughout today's call and should be reviewed in conjunction with the company's Form 10-Q filed yesterday with the SEC. Unless otherwise noted, all performance figures mentioned in today's prepared remarks are as of and for the second quarter ended June 30, 2020. As a reminder, this call is being recorded for replay purposes. Speaking on today's call will be Jason Breaux, Chief Executive Officer of Crescent BDC; and Gerhard Lombard, Chief Financial Officer of Crescent BDC. With that, I'd now like to turn it over to Jason.

Thank you, Dan. Good morning, everyone, and thank you for joining us today for our second quarter earnings call. We appreciate your continued interest in Crescent BDC and hope you and your families are safe and healthy. I'll begin today's call by briefly discussing our financial highlights for the second quarter, provide some color on our current positioning and touch on a few recent announcements. Gerhard will then discuss our financial results for the second quarter in more detail and review our liquidity profile. So let's begin. Please turn to Slide 8, where you'll see a summary of our second quarter results. CCAP's net asset value per share increased approximately 10% in Q2 to $18.12. Gerhard will walk through a NAV bridge in more detail, but the increase was primarily driven by a net change in unrealized appreciation specific to certain individual portfolio companies and net unrealized mark-to-market gains related to the tightening of credit spreads relative to the end of the first quarter. This quarter's rebound represents a recovery of just over half of the NAV attrition experienced in Q1. In terms of earnings, we reported $0.46 of after-tax net investment income per share, covering our $0.41 per share second quarter dividend. Given our second quarter results reflect a full quarter's impact of the economic shutdown related to the COVID-19 pandemic, we're pleased with this quarter's results and our ability to deliver a stable dividend to our shareholders. Slides 16 and 17 of the presentation provide a snapshot of our portfolio. We manage a diversified $900 million portfolio, consisting of 124 portfolio companies across 20 industries with an average investment size of less than 1% of the portfolio. On the upper right-hand side of Slide 16, you'll see that 99% of our debt portfolio is in sponsor-backed companies. This…

Thank you, Jason. I will review our income statement performance and highlights, NAV unrealized and realized activity as well as leverage and liquidity. Please turn to Slide 9, where you can find our financial highlights. For the second quarter, net investment income was $0.46 per share, exceeding our second quarter dividend of $0.41 per share in comparison to NII of $0.44 per share for the first quarter, also over-earning our dividend. Change in unrealized gains per share net of taxes was $1.59. Approximately 62% of the net unrealized gain was attributable to the tightening of credit spreads on performing investments while the remaining 38% was primarily represented by credit-related unrealized gains on 2 investments which had meaningful near-term credit and outlook improvements relative to the first quarter. Within the 62% related primarily to the tightening of credit spreads, fair value marks on broker quoted positions increased by approximately 4 points quarter-over-quarter while internally marked positions increased by less than 2 points over the same period. Separate from those 2 categories, approximately 1/3 of spread-related unrealized gains came from our joint venture, which invests in a diversified pool of broadly syndicated first-lien bank loans. We sold $37 million of liquid loans at cost for total proceeds of $36 million, recognizing $1 million or $0.04 per share in realized losses. These sales enhance our liquidity and positions us favorably to take advantage of current market conditions for capital deployments. The sold investments generally were syndicated loans with no floors or with below-market spreads that were already targets for rotation out of the portfolio. For the second quarter, total investment income was $19.3 million, up from $18.8 million in the previous quarter. Net expenses inclusive of taxes were $6.4 million, down from $7.3 million in the previous quarter primarily due to lower interest…

Thanks, Gerhard. We'd like to thank everyone on the call for your continued interest and time today. In closing, broadly speaking, we believe that our portfolio has been resilient in the current economic environment. We continue to work hard to protect our current portfolio of investments. And our more flexible capital structure will allow us to selectively pursue attractive new opportunities to grow our asset base over time. Operator, please open the line for questions.

[Operator Instructions] Our first question comes from Robert Dodd of Raymond James.

Congratulations on the quarter, both earnings and NAV rebound. You highlighted in your prepared -- a couple of questions, by the way. You highlighted in your prepared remarks, Jason, that, I think, some portfolio companies were marked up separate from tighter spreads also driving markups. So could you give us any color on themes that kind of drove that? And then also on Slide 19, if I look at -- your 3 and 4 rated investments went up a couple of hundred basis points. Anything that you can tell us there on -- I mean it's a small change, but on industries that saw that incremental deterioration from where you thought they would be in March?

Robert, thank you for the question. This is Jason. On your first question around individual portfolio companies, I wouldn't say there's anything thematic going on there. Those movements pertain to 2 companies in particular. And while I can't really get into specifics on what's going on at each of those companies, I will say that the companies are Conisus, where we hold preferred equity and common equity; and Black Diamond, where we hold a first-lien term loan. Both of those situations, the business outlook has improved significantly.

Got it. And then -- yes, go ahead.

Sure. On your second question around risk ratings, what I would say on that is, as a reminder, risk rating our assets each quarter is subjective, it's qualitative. There's no real guidance to ensure comparability amongst the filers. And as we look to risk rate our portfolio for June 30, we looked at our investments through multiple lenses, the same way we did in the first quarter. We wanted to see how the COVID-19 pandemic would impact the portfolio companies and bucketed those impacts into severity and into categories, such as elective procedure deferrals and noncritical medical for health care names, companies relying on large event gatherings, limited or reduced access to customers, very small piece, but energy-related and then any disruption to the supply chain and as we took those risk buckets and overlaid the financial condition of each of those portfolio companies, on top of that, to arrive at a list of companies, which we thought risk was elevated relative to underwrite. While I don't really get into individual drivers of this quarter's change, what I'd say is that we did not see a material change in our internal ratings. The percentage which is 3 or 4 rated went to 22.6%, as you said, from about 20% in the prior quarter. And the lion's share of the portfolio continues to be 1 or 2 rated, meaning performing in line with or above expectations. Overall, I think the approach that we took in Q1 and we continue to take was a conservative approach in our quarterly risk ratings. And as I've mentioned in prior remarks, broadly speaking, I think we believe that our portfolio has been resilient in the current economic environment.

I appreciate that color. I got one more, not related to that. The deployment outlook, pipeline, et cetera, you gave some color in your prepared remarks. I mean one thing, we see 5% of your portfolio right now is in Europe, vast majority is in the U.S. Are you seeing any opportunities out of the London office? Or if you can give any color about how that -- the pipeline there is rebounding versus the pipeline in the U.S. and if there's any material bifurcation in term and spreads or OID or whatever between, say, Europe and the U.S. and where the opportunities are to deploy capital right now.

Thanks, Robert. We have a sizable team based in London that originates and underwrites European opportunities. I would characterize the sort of environment as fairly comparable to what we are seeing here in the U.S. in the sense that volumes of opportunities are picking up, albeit still well below what I would characterize as a more normalized level of volume. The quality of the flow, I think, is pretty good in the sense that those companies that are actually able to tap private credit right now are generally less impacted or not impacted by the current pandemic. So stable businesses over the last 6 months as well as prior to that. From a term standpoint, I would say also comparable to here in the States in the sense that economic terms are more favorable now than they were 6 months ago for lenders and leverage and loan-to-value metrics are lower than they were roughly 6 months ago, which is also favorable for lenders.

Okay. I appreciate that color. Those are my questions. Congratulations on the quarter.

Thank you.

I'm showing no further question at this time. I'll turn the conference back over to Jason Breaux for any closing remarks.

Great. Well, thank you, operator. Thank you, everyone, for your time and interest in Crescent BDC. Know that we continue to be hard at work on the existing portfolio and scaling the vehicle in a measured fashion with good credits. We'll speak with you all soon.

Ladies and gentlemen, this does conclude today's conference. Thank you for participating. You may all disconnect. Have a great day.