Investcorp Credit Management BDC Inc (ICMB) 2025 Q2 法說會逐字稿

Good afternoon and thank you for joining today's Investcorp Credit Management BDC Incorporated second-quarter and fiscal period ended December 31, 2024 earnings call. It is now my pleasure to turn the floor over to Walter Tsin, CFO.

Thank you, Operator. Welcome everyone to Investcorp Credit Management BDC's quarter and fiscal year ended December 31, 2024 earnings call. I am joined by Suhail Sheikh, President and Chief Executive Officer of the company. I'd like to remind everybody that today's call is being recorded and that this is in this call is the property of Unreal Credit Management CDC. Any unauthorized broadcast of this call in any form is strictly prohibited.

Audio replay of the call will be available by visiting our investor relations page at our website at ICMBDC.com. I would also like to call your attention to the Safe Harbor disclosure in our press release regarding forward-looking information and remind everyone that today's call may include forward-looking statements and projections. Actual results may differ materially from these projections.

We will not update forward-looking statements unless required by law. To obtain copies of our latest SEC filing, please visit the company's registration statements on the SEC's EDA platform for our investor relations page on our website.

The format for today's call is as follows. Suhail will provide this overall business portfolio summary, and I'll then provide an overview of our results summarizing the financials followed by a Q&A.

At this time, I would like to turn the call over to Suhail.

Thanks a lot, and thank you to everyone for joining us today. Before I discuss the market environment and portfolio activity, it gives me great pleasure to announce that we've appointed Andrew Muns, Managing Director of the advisor and a Senior Member of the Investment team as Investocorp Management BDC Chief Operating Officer.

Andrew has been with the farm for several years and has been a key member of the team. He brings a wealth experience and I'm excited to have him join the executive team of the company. For the quarter ending December 31st, 2024, we reported net investment income of $0.8 million or $0.06 a share compared to $0.16 per share in the prior quarter. Consequently, our net as valued share decreased by $0.16 per share to $5.39 compared to $5.55 as of September 30, 2024.

The decline in math was primarily driven by lower investment fields and multi-market fluctuations reflecting broader market volatility and enticing stretch. As we closed our 2024, we observed continued spread compression, especially towards the end of December, largely due to refinancing and repricing activity amid heightened competition among vendors and strong demand for quality assets.

Post-selection master optimism raised expectations for assertions in M&A activity. However, the risk of [gene] wars and change in systems policies is creating uncertainty leading to adapting all M&A activity.

Despite economic uncertainty, we remain well positioned to navigate challenges and consistently deliver value to our shareholders. We believe our portfolio is well positioned together shifting economic balance. We have estimated that approximately 30% of our portfolio may experience modern effects from tariffs on either a direct or indirect basis. However, we believe these affected companies are well positioned to navigate these challenges through a range of dedication strategies, improving the ability to pass through price increases to end customers, diversifying the switching suppliers, and optimizing their supply chain.

We are working with our underlying portfolio companies and sponsor partners to understand these risks further. Additionally, we're factoring in (inaudible) risks when evaluating new investment opportunities to ensure the resilience and long-term stability of our portfolio. I can talk about [ifity] has led us strategically target investments critical sectors and defense industry.

A notable example is our recent investment in the data centre sector. We're also encouraged by improvement in our portfolio's credit quality evidenced by law on approval rate measured on a fair market value basis compared to the prior quarter.

The media needed of our portfolio remains valid if we flagged approximately [$61.76 million] at the end of the quarter compared to the previous quarter. Our median average net average increased slightly from 4.8 times to 5 times of the same period.

The percentage of governance appeals increased from 70% in the previous quarter to 77% in the current quarter. These outcomes reinforce the durability of our strategy, our focus and credit quality on our proactive portfolio management as we look forward to the remainder of the year.

Additionally, though, although our net investment is not fully cover our share dividends this quarter, accumulated spillover income from previous periods will partially offset the shortfall. We remain committed to delivering consistent returns to our shareholders while navigating the current environment. I will now turn to details of our portfolio activity during the quarter.

During the quarter end of December 31, we invested in two new portfolio companies and two existing portfolio companies. Funding for new investments totals approximately $9.9 million in cost. The stated average year of investments paid in the quarter was approximately 11.8%. In the same period, we fully realized two portfolio company investments totalling $7.6 billion in proceed with an IR of approximately 17.2%.

First, we participated in the refinancing of [Unicas], which is an existing portfolio company in other in our other funds. Unias is a global leader and digital engagement software solutions across a number of them markets and is an Atlantic street after for your company. A yielded cost is approximately 9.9%. We need an investment in the first term loan of Belfo listed on our SOI as ENF Midco Corp to support add on activation and recapitalization of this.

Well food is also an extensive for company in our other funds. The company operates in the health, wellness, nutrition space. A unit cost is approximately 9.5%. Turning to our existing portfolio companies, we make an investment in the term loan and equity of check plus. Second class is an automatic components manufacturer that specializes in designing and producing engineered plastic parts and components. A yielded cost for a thermal is approximately 30%.

We also made another investment in [Ka. Casate] is a full service visual effects studio with offices across the globe. I view the cost is approximately 14.5%. Lastly, he realized the firstly in term loan possession, and merit, which was refinanced during the quarter in our bridge loan and crafting.

I realized that IR on that was approximately 17.3%, and I realized that I ride on capital 8 was approximately 15.4%. As of December 31, the largest industry concentrations by fair market value, professional services at 14.4%, containers and packaging at 10.5%, trading companies and distributors at 8.6%. Insurance at 7.8% and IT services diversified consumer services, and specialty detailed at 7.1% each portfolio companies and 19 GICS industries as a support to end including our equity and loan position.

I would now like to turn the call over to Walter to discuss the financial result.

Thanks, Suhail. When the quarter ended December 31, 2024. The fair value of our portfolio was $191.6 million compared to $190.1 million on September 30. Our net assets were $77.6 million, a decline of $2.3 million in the prior quarter. Our portfolio's net decrease in that operation this quarter was approximately $6 million. The weighted average yield of our debt portfolio was 10.4%, a price decrease from 10.5% in the previous quarter into September 30.

As of December 31, our portfolio consisted of 43 borrowers. Approximately 81.2% of our investments were in personally in debt in the remaining 18.8% invested in equity, warrants, and other positions. 96.4% of our debt portfolio was invested in floating rate instruments and 3.6% in fixed rate instruments. The weighted average spread on our debt investments is 4.3% and the weighted average floor was 0.9%, which is unchanged compared to the previous quarter.

Our average portfolio issuer on a fair market value basis was approximately $4.5 million and our largest portfolio company investment on a fair market value basis is bio plan at $15.4 million. We are pleased to announce that on March 20, 2025, the board of directors declared a distribution for the quarter ended on March 31, 2025. Of $0.12 per share, which is payable in cash on May 16, 2025. Stockholders of record as April 25, 2025.

Gross leverage was 1.5x, net leverage was 1.42x as of December 31, compared to 1.39x gross and 1.26x net respectively for the previous quarter. With respect to our liquidity, as of December 31, we had approximately $12.1 million in cash, of which approximately $11.3 million was restricted cash with $41.5 million of capacity under a revolving credit facility with Capital One.

As closed in the AQ filed on November 20, 2024, we repriced the Capital One revolving credit facility during the quarter, bringing the borrowing costs, spread. They rate from 310 bps to 250 bps. Additional information regarding the composition of our portfolio is included in our in our form 10-K.

With that I would like to turn the call back over to Suhail.

Thank you, Walt. As we move into 2025, we remain highly focused in executing our strategy with a focus towards capital station and that stability. We believe that our discipline investment approach combined with our strategic focus on critical sectors, positions as well to navigate the evolving market landscape. And drive long term value to our shareholders.

Thank you for your continued support and we look forward to taking your pleasure.

(Operator Instructions)

Christopher Nolan, Landenburg Thalmann.

Sir. Hey, how you doing? The increased leverage. Well, let me back up, what was the cost for the drop in PIK come quarter over quarter please?

So actually, the increase in tech income for the September quarter was really driven by reversing the non-approval for one of the portfolios companies (inaudible) that actually drove PIK income higher than usual in the September quarter. So, it looks like it's a drop in the December quarter and actually.

It is an existence that's the big reason why it sorts of pops up and jumps out and that's why the comments come out.

Got it. And then I guess, my question is on the sustainability of the dividend because, you like a lot of other BDCs are experiencing lower yields, but also you unlike a lot of BDCs have a much higher leverage ratio. And in my view that leverage ratio gives you a lot less flexibility to manage earnings, and sustain the dividends and what are your comments on that please?

Yeah, no, great question. Look, we all, we're constantly evaluating that, it's our portfolio is running at about 18% or so the portfolios and non-income generating assets that puts pressure on the ability to earn income. We will continue to monitor that. Christopher, and we'll take it up to the Board and decide if it makes sense for us to re-evaluate the dividend. No such decision has been made to date. I think your observation is the is the right one.

Okay, and I guess going forward, is the -- I saw on the 10-Q where you are, I believe, changing over to a calendar fiscal year is that correct?

Yes, we did. We already did, which is why the 10, it's actually a 10-KT that we filed. We didn't file a 10- this past quarter, so we changed the fiscal year and from June to December, which is why if you, look at the 10-KT, you'll see the competitive, you see more than what's your slide and in the filings.

Okay, so next quarter will be first quarter 2025.

Correct. First quarter '25.

Got you. I guess the final question would be, what do you see the trend for your investment yield over the next quarter or two?

I suspect it's going to be similar. We don't see anything on the horizon where we think spreads are going to widen. In fact, spreads have that and as you rightly pointed out, and that's, we're operating in the same market as all our competitors, so, and that's when you want to remain in a similar zip code that's sort of 10.5%-plus or minus.

Unless something, there's a shock to the economy, there's a letdown or something that spreads start to quite up to credit you guys up in the marketplace. Based on what we are seeing right now, we don't foresee any of that.

The only thing that we're watching very carefully is potential impact of tariffs on our portfolio in the M&A market, talking to our sponsor partners. That's something that only time will tell how that manifests itself into spreads in the marketplace.

(Operator Instructions) I don't see any other questions, sir.

Great. Thank you, everyone, and thank you again for taking the time, and we look forward to seeing you at the end of the March quarters discussion. Thank you, we can end the call.

Thank you very much. This concludes today's conference call. Thank you everyone for attending.