Investcorp Credit Management BDC Q2 2025 Earnings Call Transcript

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March 26, 2025

There are 3 speakers on the call.

Operator

And Chief Executive Officer of the company. I would like to remind everybody that today's call is being recorded and that this call is the property of Industrial Credit Management, BDC. Any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be

Speaker 1

Welcome to the call.

Speaker 2

May I have your name, please? Hello? Is anyone there? I need your name. I'm sorry.

Speaker 2

What was the first name?

Speaker 1

David Anderson. And thank you. And the name of the company you're with? Anderson Family Office. Thank you for placing you back in the call.

Speaker 2

You're so welcome. You will now

Speaker 1

be placed into the conference. You are muted on this call. This call is being recorded.

Operator

Platform four, our Investor Relations page on our website. The format for today's call is as follows. Mikhail will provide an overall business portfolio summary and I'll then provide an overview of our results summarizing the financials followed by a Q and A. At this time, I'd like to turn the call over to Suteil.

Speaker 2

Thanks, Walt, 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 Munn, managing director of The Advisors and a senior member of the investment team as InvestcorpX management BDC's chief operating officer. Andrew has been with the firm for several years and has been a key member of the team. He brings advanced experience, and I'm excited to have him join the executive team of the company. For the quarter ending 12/31/2024, we reported net investment income of $800,000 or $0.06 per share compared to $0.16 per share in the Pratt quarter.

Speaker 2

Consequently, our net asset value share decreased by $0.16 per share to $5.39 compared to $5.55 as of 09/30/2024. The decline in NASS was primarily driven by lower investment yields and mark to market fluctuations reflecting broader market volatility and impacting spread environment. As we close our 2024, we have still continued spread compression, especially towards the December, largely due to refinancing and repricing activity, amid heightened competition among vendors and strong demand for quality assets. Post election marked optimism raised expectations for a resurgence in M and A activity. However, the risk of tariff wars and change in fiscal policies is creating uncertainty leading to adapting our FMA activities.

Speaker 2

Despite economic uncertainties, we remain well positioned to navigate challenges and consistently deliver value to our shareholders. We believe our portfolio is well positioned to further shifting economic environment. We have estimated that approximately 30% of our portfolio may experience moderate effects from tariffs on either direct or indirect basis. However, we believe being the Texas company in the well positioned to navigate these challenges through a range of mitigation strategies, including the ability to pass through price price increases to end customers, diversifying or switching suppliers and optimizing their supply chain. We are working with our underlying portfolio companies and sponsor partners to understand these risks further.

Speaker 2

Additionally, we are factoring in tariff risks when evaluating new investment opportunities to ensure the resilience and long term stability of our portfolio. High market volatility has led us to strategically target investments in critical sectors in the defense industry. A notable example is our recent investments in the data center sector. We're also encouraged by improvement in our portfolio of credit quality evidenced by lower counter cool rate measured on a fair market value basis compared to prior quarter. The median EBITDA of our portfolio remains relatively flat at approximately $61,600,000 at the end of the quarter compared to the previous quarter, while the weighted average net leverage increased slightly from 4.8% to 5% over the same period.

Speaker 2

The percentage of covenant attuned increased from 70% in the previous quarter to 77% in the prior quarter. These outcomes reinforce the durability of our strategy, our focus on credit quality and our proactive portfolio management as we look forward to the remainder of the year. Additionally, though, although our net investment can partially cover our debt dividend 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 earnings environment. I will now turn to details of our portfolio activity during the quarter.

Speaker 2

During the quarter, early December '30 first, we invested in two new portfolio companies and two existing portfolio companies. Funding for new investments totaled approximately $9,900,000 in cost. The average yield of debt investments made in the quarter was approximately 11.8%. In the same period, we fully realized two portfolio company investments totaling $7,600,000 in proceeds with an IRR of approximately 17.2%. First, we participated in the refinancing of Unigest, which is an existing portfolio company in other in our other funds.

Speaker 2

Unigest is a global leader in digital engagement software solutions across a number of end markets and is an Atlantic Street capital portfolio company. Our yielded cost is approximately 9.9%. We need an investment in the first name term loan of WealthBuild, listed on our SOI as KNS Midco Corp, to support Nano on acquisition and recapitalization of the business. WellTool is also an existing portfolio company in our electronics. The company operates in the health, wellness, nutrition state.

Speaker 2

Our yield is cost approximately 9.5%. Turning to our existing portfolio companies, we've made an investment in the term loan and preferred equity of Tecnplus. Tecnplus is an automotive component manufacturer that specializes in designing and producing engineered plastic parts and components. Ideally, the cost for the terminal is approximately 20%. We also made another investment in Crafty Aid.

Speaker 2

Crafty Aid is a full service visual effects studio with offices across the globe. Our yield at cost is approximately 20.5%. Lastly, we realized the first lien terminal position is Amerit, which was refinanced during the quarter in our bridge loan and Crafty Aid. Our realized IRR on Amerit was approximately 70 17.3%, and our realized IRR on Crafty Aid was approximately 15.4%. As of December 31, our largest industry concentrations by fair market value in the world, professional services at 14.4%, containers and packaging at 10.5%, trading companies and distributors at 8.6%, insurance at portfolio companies are 19 GICS, Our portfolio companies are in 19 GICS industries as of the quarter end, tuning our equity and bond position.

Speaker 2

I would now like to turn the call over to Walt to discuss our financial results. Thanks, Suhail.

Operator

For the quarter ended 12/31/2024, the fair value of our portfolio was 191,600,000 compared to $190,100,000 on December 30. Our net assets were $77,600,000 a decline of $2,300,000 from the prior quarter. Our portfolio's net decrease in net assets from operations this quarter was approximately negative $600,000 The weighted average yield of our debt portfolio was $10,400,000 a slight decrease from $10,500,000 in the previous quarter ended December 30. As of December 31, our portfolio consisted of 43 borrowers. Approximately 81.2% of our investments were in first lien debt and the remaining 18.8% was invested in equity, warrants and other positions.

Operator

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 was 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 $4,500,000 and our largest portfolio company invested on a fair market value basis is BioPlan at $15,400,000 dollars We are pleased to announce that on 03/20/2025, the Board of Directors declared a distribution for the quarter ended 03/31/2025 of $0.12 per share, which is payable in cash on 05/16/2025, stockholders of record as 04/25/2025. Gross leverage was 1.5x and 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 $12,900,000 in cash, of which approximately $11,300,000 was restricted cash with $41,500,000 of capacity under a revolving credit facility with Capital One.

Operator

Cash disclosed in the eight Q filed on 11/20/2024, we retraced the Capital One revolving credit facility during the quarter, bringing the borrowing cost spread based rate from three ten bps to two fifty bps. Additional information regarding the composition of our portfolio is included in our Form 10 KK. With that, I would like to turn the call back over to Sophia. Thank you, Art.

Speaker 2

As we move into 2025, we remain highly focused on executing our strategy with a focus towards passive presentation and mass stability. We believe that our disciplined investment approach combined with our strategic focus on critical sectors positions us 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 questions.

Operator

Ladies and gentlemen, at this time, we will conduct the question and answer session. If you would like to state a question, please press 7 on your phone now, and you will be placed in the queue in the order received. Or press 7 at any time to remove yourself from the queue. Please listen for your name to be announced, and be prepared to ask your question when prompted. And our first question comes from Mr.

Operator

Christopher Nolan with Ladenburg Thalmann. Go ahead, sir. Hey, how are you doing? The increased leverage, well, let me back up. What was the cause for the drop in tick income quarter over quarter, please?

Speaker 2

So actually the increase in PIK income for the September, Christopher, was really driven by reversing the non accrual for one of the portfolio companies, Kleinhurst, that actually drove, fixed income higher than usual in the September. So it looks like it's a drop in the December, but actually it is that's the decrease in why it sort of pops up and jumps out and looks like net income has come down.

Operator

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 stay in the dividend. And what are your comments on that, please?

Speaker 2

Yes. No, good question. Look, we are constantly evaluating that. It's our portfolio is running at about 18% or still the portfolio in 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 reevaluate the dividend.

Speaker 2

No such decision has been made to date, But I think the observation is the right one.

Operator

Okay. And I guess going forward, is the I saw in the 10 Q where you are, I believe, changing over to a calendar fiscal year. Is that correct?

Speaker 2

Yes, we did. We already did, which is by the 10 it's actually a 10 ks team that we filed. We didn't file a 10 q this past quarter. So we've changed the fiscal year and from June to December, which is why if you look at the 10 KT, you'll see the competitive side, you'll see more than what's required in the filings.

Operator

Okay. So next quarter will be first quarter twenty twenty? Correct. Got you. I guess the final question would be, where do you see the trend for your investment yield over the next quarter or two?

Speaker 2

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 like to point it out, and that's, you know, we're we're operating in the same market as all our competitors. So, and that's for me, we ought to remain in a similar ZIP code that's, you know, sort of 10 and a half percent plus or minus. Unless something, you know, there's a shock to the economy, there's a letdown or something where spreads start to widen up, liquidity drives up in the marketplace.

Speaker 2

Based on what we're 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 and A market, talking to our sponsor partners. That's something that, you know, only time will tell how that manifests itself into spreads in the marketplace. Okay. That's it

Operator

for me. Thanks for taking my questions.

Speaker 2

Sure. Thank you.

Operator

Thank you very much. Again, if you have any questions, please go ahead and press 7 on your phone. That's 7 on your phone. I don't see any other questions, sir.

Speaker 2

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

Operator

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

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Investcorp Credit Management BDC Q2 2025
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