Q2 2022 Investcorp Credit Management BDC Inc Earnings Call
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Okay.
Welcome to the Enzo Corp.
Speaker 1: Welcome to the Invest for Credit Management scheduled earning release of second quarter ended December 31, 2021. Your speakers for today's call are Mike Mauer, Chris Jansen, and Waco Doughercio. Operating assistance is available in the conference by pressing star zero. A question and a session will follow the presentation. I'll now like to turn the call over to speakers. Please begin.
Credit management scheduled earning release of second quarter ended December 30 for 2021. Your speakers for today's call are Mike Mauer, Chris Jansen and Rocco Delguercio operator assistance is available anytime during this conference by pressing Star zero eight.
Question and answer session will follow the presentation.
I'd now like to turn the call over to speakers. Please begin.
Thank you operator, and thank you all for joining us on our second quarter call today I'm joined by Chris Jansen My co Chief investment Officer, and Rocco Delguercio, our CFO before we begin Rocco will give our customary disclaimer regarding information and forward looking statement.
Speaker 2: Thank you, operator, and thank you all for joining us on our second quarter call today. I'm joined by Chris Jansen, my co-chief investment officer, and Rocco DelGurcio, our CFO . Before we begin, Rocco will give our customary disclaimer regarding information and forward-looking statements. Rocco? Thanks, Mike.
Rocco.
Thanks, Mike.
Speaker 3: I would like to remind everyone that today's call is being recorded and that this call is a property from the scope credit management fees.
I'd like to remind everyone that today's call is being recorded and that this call is a property of investcorp credit management BDC.
Speaker 3: Any unauthorized broadcast of this call in any form is strictly prohibited.
Unauthorized broadcast of this call in any form is strictly prohibited.
Speaker 3: Audio replay of the call will be available by visiting our Investor Relations page on our website at icmbdc.com.
Audio replay of the call will be available by visiting our Investor Relations page on our website at ICD.
DC Dot com.
Speaker 3: I would also like to call your attention to the State's Harvard disclosure in our press release regarding forward-looking information and remind everyone that today's call may include forward-looking statements and projections.
I would also like to call your attention to the Safe Harbor disclosure in our press release regarding forward looking information.
Mind, everyone that todays call may include forward looking statements and projections.
Speaker 3: Actual results may differ materially from these projections. We will not update forward-looking statements unless required by law.
<unk> results may differ materially from these projections.
We will not update forward looking statements unless required by law.
Speaker 3: To obtain copies of our latest SEC filings, please visit our investor relations page on our website. At this time, I'd like to turn the call back over to our Chairman and CEO , Michael Maurer.
To obtain copies of our latest SEC filings. Please visit our investor relation page on our website at this time I'd like to turn the call back over to our chairman and CEO Michael Mauer.
Speaker 2: Thank you, Rocco. Our December quarter was the busiest one in our history. We invested in seven new portfolio companies and made additional investments in seven other portfolio companies.
Rocco our December quarter was the busiest one in our history, we invested in seven new portfolio companies and made additional investments in seven other portfolio companies, we supported LBO acquisitions and existing portfolio companies. Among other uses of proceeds.
Speaker 2: We supported LBO acquisitions and existing portfolio companies.
Speaker 2: among other uses of proceeds. This diverse set of investments continues to support the portfolio rotation we began earlier this year.
This diverse set of investments continues to support the portfolio rotation. We began earlier this year as.
As we promised last quarter, we have added to our total count of portfolio companies decrease concentrations in a number of industries, we lend into and maintained a moderate average position size.
Speaker 2: As we promised last quarter, we've added to our total count of portfolio companies, decreased concentrations in a number of industries we lend into, and maintained a moderate average position size.
Speaker 2: all with the goal of increasing the stability of our results.
All with the goal of increasing the stability of our results. We completed the restructuring of fusion connect in January as well as the conversion of the <unk> term loan b into equity with these restructuring is complete we continue to address significant legacy credit issues.
Speaker 2: We completed the restructuring of Fusion Connect in January , as well as the conversion of 1888's Term Loan B into equity. With these restructurings complete, we continue to address significant legacy credit issues in the portfolio. I'll speak more about the details later in the call.
The portfolio.
Ill speak more about the details later in the call.
Speaker 2: It continues to be challenging to maintain price and structure in a highly competitive market environment, but we were successful in deploying our capital at an average yield in excess of 8% during the quarter. Only one of our new investments was Covenant Lite in a market environment which is increasingly sponsor friendly.
It continues to be challenging to maintain price and structure in a highly competitive market environment, but we were successful in deploying our capital at an average yield in excess of 8% during the quarter only one of our new investments with covenant light in a market environment, which is increasingly sponsor friendly.
Since the real story of the quarter as our new investment activity I would like to turn the call over to Chris. After his discussion Rocco will go through our financial results I will finish with commentary on our investments.
Speaker 2: Since the real story of the quarter is our new investment activity, I'd like to turn the call over to Chris. After his discussion, Rocco will go through our financial results. I'll finish with commentary on our investments.
On non accrual the restructurings of 18, 88, and fusion connect our leverage the dividend and our outlook for 2022 as well and.
Speaker 2: on non-accrual, the restructuring of 1888 Infusion Connect, our leverage, the dividend, and our outlook for 2022, as well. And as always, we'll end with Q&A. With that, I'll turn it over to Chris. Let's get started.
And as always we'll end with Q&A with that I'll turn it over to Chris.
Thanks, Mike.
We invested in seven new portfolio companies this quarter as well as seven existing portfolio companies.
Speaker 4: We invested in seven new portfolio companies this quarter, as well as seven existing portfolio companies.
Speaker 4: We had six full realizations as well. Please bear with me as there's a lot to cover this quarter.
We had six full realizations as well please bear with me as is a lot to cover this quarter.
We invested in the first lien loan of laser away a portfolio company of Ares management.
Speaker 4: We invested in the first lien loan of LaserAway, a portfolio company of Aries Management.
Laser away as a leading chain of laser hair removal and skincare boutiques.
Speaker 4: Laser away is a leading chain of laser hair removal and skin care boutiques. Our yield at cost is approximately...
Our yield at cost is approximately seven 1%.
We invested in the first lien loan of Patriot MLG or momentum manufacturing group to backed the LBO of the company by one equity partners.
Speaker 4: We invested in the first lien loan of Patriot MMG, or Momentum Manufacturing Group, to back the LBO of the company by one equity partner.
Momentum provides metal machining wellbeing bending and finishing services.
Speaker 4: Momentum provides metal machining, welding, sanding and finishing service.
Speaker 4: our yield at cost is approximately 6.9%. We also invest
Our yield at cost is approximately six 9%.
We also invested in a club financing for Arbor works, we participated in the revolver term loan and made a small co investment in the equity.
Speaker 4: You participated in the Revolver Term Loan and made a small co-investment in the equity.
Speaker 4: ArborWorks provides utility clearing, vegetation management, and disaster relief services.
<unk> provides utility clearing vegetation management and disaster relief services.
The transaction supported the LBO of the company by New State capital.
Speaker 4: transaction supported the LBO of the company by New State Capital. Our yield at cost
Our yield at cost is approximately eight 5%.
We invested in the revolver and first lien loan of South coast terminals backing.
Speaker 4: We invested in the revolver and first lien loan of South Coast terminals, backing its LBO.
Backing its LBO by platform partners.
South coast as a contract manufacturer of specialty chemicals and lubricants our yield at cost is approximately seven 5%.
Speaker 4: South Coast is a contract manufacturer of specialty chemicals and lubricants. Our yield of cost is approximately 7.5.
We also invested in the revolver delayed draw term loan and first lien term loan of xenon arc.
Speaker 4: We also invested in the Revolver, Delay Draw Term Loan, and First Lean Term Loan of Xenon dramatic music plays
Which provides tech enabled distribution solutions for specialty chemicals and materials.
Speaker 4: which provides tech-enabled distribution solutions for especially chemicals and materials. Peak rock is a sponsor. Are you all?
Peak rock is the sponsor.
Our yield at cost is approximately 7%.
We participated in an upsizing of <unk> term loan joining the club deal and supporting the company as it made an acquisition.
Speaker 4: We participated in an up sizing of Crafty H's Terminal, joining a club deal and supporting the company as it made an acquisition.
Speaker 4: Crafty Apes is a visual effects company serving the TV and film production industries. Jim Spring is a sponsor.
<unk> is a visual effects company, serving the TV and film production industries.
Gem spring is the sponsor.
Our yield at cost is approximately seven 9%.
Finally, we made our first equity co investment alongside Investcorp, North American private equity group.
Speaker 4: Finally, we made our first equity co-investment alongside Invest Corps North American private equity.
Recent power listed in our schedule of investments as Investcorp transformer aggregator LP.
Speaker 4: Re-suppower listed in our schedule investments as InvestCorp Transformer Aggregator LP provides field services, power systems, and specialty distribution of related products to utility, power generation, corporate, and government costs.
<unk> field services power systems, and specialty distribution of related products, So utility power generation corporate and government customers.
In terms of investments in our existing portfolio companies.
Speaker 4: In terms of investments in our existing portfolio company.
Speaker 4: We made a small incremental loan to JECS for out to support an acquisition. Are yield the cost of the price?
We made a small incremental loan subjects grow to support an acquisition.
Our yield at cost was approximately 9%.
Speaker 4: Our loans to Jack Sproul were refinanced at the quarter end, which I'll talk about in a moment.
Our loans to Jack straw, where refinance after quarter end, which I'll talk about in a moment.
We also made a made a small incremental loans of fusion connect to support this liquidity during the restructuring process.
Speaker 4: We also made a small incremental loans to Fusion Connect to support its liquidity during the restructuring process. Our yield of cost was
Our yield at cost was approximately 12%.
Speaker 4: As with Jaxbro, we refinance this loan after quarter-end.
As the tax pro we refinanced this loan after quarter end.
Speaker 4: Michael provided additional detail about fusion and structuring later in the call.
Mike will provide additional detail about fusion structuring later in the call.
Yes.
Speaker 4: We made an incremental loan to Easyway, which was a new portfolio company for us last quarter.
We made an incremental loan too easy way, which was a new portfolio company for us last quarter.
Speaker 4: Easy way is the designer and manufacturer of cushions, covers, umbrellas and other accessories for the outdoor furniture market. Our yield across is approximately...
Easy way as a designer and manufacturer of cushions covers umbrella and other accessories for the outdoor furniture market.
Our yield at cost is approximately eight 9%.
Galaxy Universal.
Speaker 4: Galaxy Universal purchased a number of footwear brands from sequential brands in sequential bankruptcy.
<unk> the number of footwear brands from sequential brands and sequential bankruptcy auction.
Galaxy manage these brands already and we're pleased to participate in this transformational acquisition.
Speaker 4: Galaxy Managees brands are ready and we're pleased to participate in this transformational acquisition.
Speaker 4: Galathe's existing term loans were refinanced, and the new first lean loan yields approximately 7.4% across.
<unk> existing term loans were refinanced and the new first lien loan yields approximately seven 4% of cost.
We made an additional investment in the first lien loan to agro refresh a food Sciences company, whose products prolonged the useful life of fruits.
Speaker 4: We made an additional investment in the first lean loan to Agro-Fresh, a food scientist's company whose products prolong the useful life of fruit.
We had a subscale position and are now comfortable with our hold size.
Speaker 4: We had a sub-scale position and are now comfortable with our hold sucks. Are you able to cause the approximately...
Our yield at cost is approximately seven 2%.
We provided an incremental loan declined Hurst alongside our club partners.
Speaker 4: We provide an incremental loan to Kleinhurst alongside our club partners.
Client Hirsch's financial performance has been outstanding and leveraged today is below closing leverage.
Speaker 4: Client Hersh's financial performance has been outstanding, and leverage today is below closing.
Speaker 4: This helps us get comfortable with the fact that the use of proceeds was a dividend to the sponsor New State Capital. Our yield to cost is
This helped us get comfortable with the fact that the use of proceeds was the dividends of the sponsor new state capital.
Our yield at cost is approximately eight 3%.
Speaker 4: Finally, we provided a small incremental loan to ASI to help the company make an acquisition. Are you able to cross as a-
And finally, we provided a small incremental loan to ASI to help the company make an acquisition.
Our yield at cost is approximately nine 5%.
Turning now to our realizations as I mentioned last quarter, our loan to zero chaos was repaid in full as a company was acquired by pro unlimited.
Speaker 4: Turning now to our realizations, as I mentioned last quarter, our loan to zero chaos was repaid in fault as the company was acquired by pro unlimited.
Our fully realized IRR was approximately 11, 2%.
Speaker 4: Our fully realized IRR was approximately 11.2.
I mentioned a minute ago that we participated in galaxy Universal's new financing as the company acquired assets and sequential brands bankruptcy auction.
Speaker 4: I mentioned a minute ago that we participated in Galaxy Universal's new financing as the company acquired assets in sequential brands, bankruptcy off.
Speaker 4: This new first lean loan refinanced our old loan for a fully realized IRR of approximately 12.8%.
This new first lien loan refinanced our old loan growth for our fully realized IRR of approximately 12, 8%.
We also opportunistically exited our position in pixel specialty solutions in favor of new opportunities that we originated this quarter.
Speaker 4: We also opportunistically exited our position in pixel specialty solutions in favor of new opportunities that we originated this quarter. A fully realized IRR was approximately 8.9%.
Our fully realized IRR was approximately eight 9%.
We also received repayment in full for one sky as the company exited the syndicated loan market in favor of utilizing a double the Tc financing.
Speaker 4: We also received repayment and fall for one sky as a company exited the syndicated loan market in favor of utilizing a double ETC finance.
Our fully realized IRR was approximately 10, 8%.
Speaker 4: or fully realized IOR was approximately 10.8.
We also sold our position in United Road services, which was one of our positions with the risk rating of three.
Speaker 4: We also sold our position in the United Road Services, which was one of our positions with the risk rating of 3.
Speaker 4: Our fully realized IRR was approximately 4.1%.
Our fully realized IRR was approximately four 1%.
Finally, we fully realize our position and veteran services or Lockwood.
Speaker 4: Finally, we fully realize our position in veteran services or lawhood.
This was always intended to be a short term hold and we are very pleased with the outcome and with our IRR, which was approximately 24, 4%.
Speaker 4: This was always intended to be a short-term hold, and we were very pleased with the outcome and with our IRR, which was approximately 24.4.
After quarter end, we had both investment and realization in two portfolio companies first our loan to <unk> Pro was fully refinanced with a realized IRR of approximately 10, 4%.
Speaker 4: After quarter-end, we had both investment and realization in two portfolio companies. First, our loan to Jetspro was fully refinanced with a realized IRR of approximately 10.4%.
We took part in the new financing for the company, which included a new first lien term loan.
Speaker 4: We took part in the new club financing for the company, which included a new first-leag term loan, the way draw term loan, and a revolver commitment.
Delayed draw term loan and revolver commitment.
Our yielded cost <unk> funded revolver is approximately seven 5%.
Speaker 4: Our yield at cost, our NJX Pro is funded revolvers approximately 7.5% and term loan is approximately 7.4%.
The term loan is approximately seven 4%.
We also had realizations and new investments in fusion connect Michael.
Speaker 4: We also have realizations and new investments in Fusion Connect. Michael talked more about the restriction later in the call.
Mike will talk more about the restructuring later in the call.
Speaker 4: The exit term loan was fully financed, it's called premium, with the realized IRR 13.4.
The exit term loan was fully refinance it's called premium with a realized IRR of 13, 4%.
We were joint book runners on the new first lien term loan.
Speaker 4: We were joint book runners on the new first lane term loan, which has the yield of cost of across the
Which has the yield at cost of approximately nine 6%.
We also participated in the Companys New series, a preferred equity, which has a pik coupon of 12, 5% in.
Speaker 4: We also participated in the company's new Series A preferred equity, which has a pick coupon of 12.5%, and a yield of costs of approximately 13.1.
And the yield at cost of approximately 13, 1%.
Using the <unk> standard as of December 31, our largest industry concentration was commercial services and supplies at 12, 5%.
Speaker 4: Using the GIC standard as of December 31st, our largest industry concentration was commercial services and supplies at 12.5%. Followed by internet and direct marketing retail at 8.3%.
Followed by Internet and direct marketing and retail at eight 3%.
Speaker 4: Energy equipment and services of 7.6%. Professional services at 7.2%.
Energy equipment and services of seven 6%.
Professional services at seven 2%.
And software of six 4%.
Our portfolio companies are in 20, <unk> industries as of quarter end, including our equity and warrant positions.
Speaker 4: Our portfolio companies are in 23 GX industries as of quarter-end, including our equity community and our position.
As of December 31, we had 38 portfolio companies an increase of two from September 30.
Speaker 4: As of December 31st, we had 38 portfolio companies in increase of two from September 30th.
Speaker 4: I'd now like to turn the call over to Rocco to discuss our financial results.
I'd now like to turn the call over to Rocco to discuss our financial results.
Thanks, Chris.
For the quarter ended December 31, 2021, our net investment income was $2 1 million or <unk> 50 per share.
Speaker 3: So the quarter ended December 31, 2021. Our net investment income was $2.1 million or $15 cents per share.
Speaker 3: The fair value of a portfolio was 269.4 million compared to 245.3 million on September 30.
The fair value of our portfolio was $269 4 million compared to $245 3 million on September 30.
Our portfolio's net increase from operations this quarter was approximately $3 4 million.
Speaker 3: Our portfolios net increase from operations this quarter was approximately $3.4 million.
Our investment in new debt during the quarter had an average yield of seven 8%, while realizations and repayments during the quarter at an average yield of 11, 8%.
Speaker 3: Our investments in new debt during the quarter had an average yield of 7.8% while realizations and repayments during the quarter had an average yield of 11.8% and fully realized investments had an average IRR of 12.8%.
And fully realized investments had an average IRR of 12, 8%.
The weighted average yield of our debt portfolio was eight 6% an increase of four basis points from September 30.
Speaker 3: The weighted average yield of our debt portfolio was 8.16% and increased the full basis points from September 30th.
Speaker 3: As of December 31, a portfolio consisted of 38 portfolio companies.
As of December 31, our portfolio consisted of 38 portfolio companies 95, 3% of our investments were in first lien and the remaining $4 seven as invested in equity warrants and other positions.
Speaker 3: 95.3% of our investments were in first lane, and the remaining 4.7 is invested in equity, warrant and other positions.
99, 5% of our debt portfolio was invested in floating rate instruments, and five and fixed rate investments.
Speaker 3: 99.5% of our debt portfolio was invested in floating rate instruments and 0.5 in fixed rate investments.
Speaker 3: The average libel tour of our debt investment was 1.1%.
The average LIBOR floor of our.
That investment was one 1%.
Speaker 3: Our average portfolio of company investment was approximately $7.1 million and our largest portfolio investment was Empire Office at 12.8 million.
Our average portfolio of company investment was approximately $7 1 million and our largest portfolio investment was Empire office at $12 8 million.
Speaker 3: We had a gross leverage of 1.74 and net leverage of 1.39 as of December 31st compared to 1.63 3 grows and 1.47 respectively for the previous quarter.
We had a gross leverage of 174 and net leverage of 139.
As of December 31, compared to $1 63, gross and 147, respectively for the previous quarter.
As of December 31, we had four investments on non accrual, which included all three investments in pgi as well as deluxe and one investment on partial accrual fusion take backlog.
Speaker 3: As of December 31, we had four investments on NARO CORE, which included all three investments in PGI, as well as the LUCS and one investment on partial CORE fusion take back more. With respect to our liquidity, as of December 31, we had $36.1 million in cash, and of which $19.8 million was restricted cash.
With respect to our liquidity as of December 31, we had 36 point.
$1 million in cash and of which $19 8 million was restricted cash.
With no unused capacity under our revolving credit facility with capital one.
Speaker 3: with no unused capacity under our revolving credit facility with Capital One.
Additional information regarding the composition of our portfolio is included in our Form 10-Q , which was filed yesterday.
Speaker 3: Additional information regarding the composition of our portfolio is included in our form 10Q which was filed yesterday. With that, I'd like to turn the call back over to Mike.
With that I'd like to turn the call back over to Mike.
Speaker 2: Thank you, Rocco. 1888 has been a difficult investment for us. After a significant period of negotiations, the term loan B has been fully equitized. This reduces debt at the company by approximately 60% while leaving the lenders and equity holders interest aligned through crossholding.
Thank you Rocco.
<unk> has been a difficult investment for us after a significant periods of negotiations the term loan b has been fully equity.
This reduces data at the company by approximately 60%, while leaving the lenders and equity holders interest aligned through cross holdings.
We also played a major role in the balance sheet restructuring of fusion connect fusion exited bankruptcy two years ago, but with an unsustainable debt structure driven by the structural demands by certain other lenders through this restructuring we help the company reduce secured debt by approximately 80%.
Speaker 2: We also played a major role in the balance sheet restructuring of Fusion Connect. Fusion exited bankruptcy two years ago, but with an unsustainable death structure driven by the structural demands by certain other lenders.
Speaker 2: Through this rescaturing, we hope the company will reduce the cure dead by approximately 80%.
We were joint lead arranger on the new first lien loan, which refinanced fusion exited loan. We also were a backstop party to the company's new money series, a preferred equity providing additional income for our shareholders to take back loan which.
Speaker 2: We were joint leader-anger on the new first-learn loan, which re-financed Fusion's exit loan. We also were a backstop party to the company's new money series A preferred equity, providing additional income for our shareholders.
Speaker 2: The take back loan, which was the bulk of the company's debt, was equitized into Series V equity, and will convert to comment shares upon the receipt of regulatory approvals, which we anticipate will occur later this year. We also received warrants with multiple strike prices.
Was the bulk of the company's debt was <unk> into series B equity and will convert to common shares upon the receipt of regulatory approvals, which we anticipate will occur later this year.
We also received warrants with multiple strike prices.
Some of which are immediately in the money.
As I stated last quarter, we think that 18 88 pgi infusion.
Speaker 2: As I stayed the last quarter, we think that 1888 PGI infusion.
Speaker 2: has limited ability to introduce negative volatility to our NAV at this point. Instead,
Have limited ability to introduce negative volatility to our NAV at this point instead.
We think the growing number of equity investments in the portfolio, while small in terms of fair value at this point has the potential to appreciate over the coming years.
Speaker 2: We think the growing number of equity investments in the portfolio while small in terms of fair value at this point has potential to appreciate over the coming year.
Our gross leverage this quarter was 174 times.
Speaker 2: Our gross leverage, this quarter was 1.74 times.
Speaker 2: above our guidance of one and a quarter to one and a half times. That said, our net leverage of 1.39 times, which is within the number we manage to. This quarter, especially active investment cycle, included unexpected fluctuations in the timing of investments and repayments, including a need to hold cash for closing on deals after quarter-end. We expect to see our growth and net leverage generally converge with both around us.
Our guidance of one and a quarter to one five times that said, our net leverage of 139 times.
Which is within the number we manage to this quarter, especially active investment cycle included unexpected fluctuations in the timing of investments and repayments, including a need to hold cash for closing on deals after quarter end, we expect to see our gross and net leverage Jen <unk>.
Really converge with both.
Around the high end of the targeted range as we have previously committed we waived a portion of our management fee associated with base management fees over one turn of leverage.
Speaker 2: As we have previously committed, we waive the portion of our management fee associated with base management fees over one turn of love.
We covered our December quarterly dividend with NII looking at our portfolio on a run rate basis, we expect to continue to cover the dividend in March and going forward, our disciplined investment approach and appropriate capital resources leaves us well positioned to continue to do.
Speaker 2: We covered our December quarterly dividend with NII, looking at our portfolio on a run rate basis. We expect to continue to cover the dividend in March and going forward. Our disciplined investment approach and appropriate capital resources leaves us well positioned to continue to generate sufficient NII.
Generate sufficient NII.
Speaker 2: Our Board of Directors declared a distribution for the quarter and in March 31, 2022, of $0.15 per share payable on March 31 to share ahold of record as of March 11. We believe the dividend level is stable and sustainable and that it represents an attractive yield given the market price of ICMD stocks.
Our board of directors declared a distribution for the quarter ended March 31, 2022 of <unk> 15 per share payable on March 31 to shareholders of record as of March 11, we believe the dividend level is stable and sustainable and that it represents an attractive yield given the market.
Rice of ICM destock.
Speaker 2: For the six months and a December 31, we invested in nine new portfolio companies and eight existing portfolio companies.
For the six months ended December 31, we invested in nine new portfolio companies and eight existing portfolio companies.
Speaker 2: The fourth quarter was our business today, and I am proud of what the team accomplished during what is traditionally a market law. We deployed capital without compromising our principles, focusing on club deals with strong structural protections, pricing and covenants. We will continue to manage support for it with the goal of consistent income generation and preservation of shareholder capital.
Fourth quarter was our busiest to date and I am proud of what the team accomplished during what is traditionally a market low we deployed capital without compromising our principles focusing on club deals with strong structural protections pricing and covenants, we will continue to manage the portfolio with the goal.
Consistent income generation and preservation.
Preservation of shareholder capital as we enter 2022, we have visibility into probable repayments as well as several promising deals in the pipeline.
Speaker 2: As we enter 2022, we have visibility into probable repayments as well as several promising deals in the pipeline.
Speaker 2: which will enable us to continue our portfolio rotation. We expect to continue our focus on optimizing portfolio for yield diversity and stability.
Which will enable us to continue our portfolio rotation, we expect to continue our focus on optimizing portfolio for yield diversity and stability.
This concludes our prepared remarks, operator, please open the line for Q&A.
Speaker 2: This concludes our prepared remarks. Operator, please open the line for Q&A.
Ladies and gentlemen at this time, we will conduct a question and answer session.
Speaker 1: Ladies and gentlemen, after this time, we will conduct a question and answer session. If you would like to say a question, please press star one on your phone now, and you will play key to the key in order received. Are press time at any time to move yourself in the key? Please listen for your name to be announced, and you prepare to ask your question when prompted. Once again, to ask a question, please press star one now.
If you would like to state a question. Please press star one on your phone now and you're replacing the Ken or do we see kind of any content move yourself from the queue. Please listen for your name to be announced and then prepare to ask a question when prompted once again to ask a question. Please press star one now.
Our first question comes from Robert Dodd from Raymond James Please state your question.
Speaker 1: Our first question comes from Robert Dodd from Raymond James. Please see your question.
Hi, guys.
Speaker 5: Hi guys, I have several questions. First, on the...
Several questions first of all.
Sure.
Sure.
The restructured assets, let me fusion connect I mean, just just to clarify the takeback Tim loan was marked down.
Speaker 5: the restructuring assets. I mean fusion connect coming just just kind of I mean the take back term loan was marked down in the December quarter obviously and then the restructuring code after that. I mean can you give it on that was the mark down because of some you know new weakness in the business or was it just a function of that's where the negotiations came out in terms of the restructuring.
In the December quarter of this year and then the restructuring so after that I mean can you give us all of that was the.
Because of some new weakness in the business or was it just a function of that.
That's where.
The negotiations came out in terms of the restructuring.
Framework.
Yeah, Hey, Robert it's Chris.
Speaker 4: hey Robert, it's Chris. Thank you. Much more, much more, how are you? Much more of the ladder.
Much more much more how are you much more of the latter.
The business is stabilizing the new management teams in <unk>.
Speaker 4: You know, the business is stabilizing. There's new management teams and the management has been in there for a while. So there's no market change in the business.
<unk> been in there for a while so there is no market change in the business.
Okay Pinpoints assumption, yes.
Yes, I mean just look.
Speaker 5: Yeah, I mean, just looking at the new...
The new.
Speaker 5: uh... pricing on that i mean i think he said nine point six percent on on new learn on that that seems attracted uh... business that has had some trouble over the years i mean can you give us any any any car on on on that and why that um...
Pricing on that I mean, I think you said nine 6% on the new loan on that seems pretty attractive Paul.
A business that has had some trouble over the year can you give us any color on that I mean.
Why is that.
Speaker 5: you know, for something that's gone through two restructuring in a couple of years, that pricing seems pretty good on the new look.
For something Thats going to two restructurings and a couple of years.
<unk> teams seems pretty good on the new loan.
Yes, basically the the group lenders that are financing that are also financed the preferred.
Speaker 4: Yeah, basically the group lenders that are financing that are, I've also financed the preferred and there were attractive warrants with regard to pricing too.
And there were.
Attractive warrants with regard with the pricing too so.
It may or may be a little less little lighter on the rate, but the economics of the deal in total since it was kind of big of the strip.
Speaker 4: It may be a little lighter on the ray, but the economics of the deal in total, since it was kind of big of a strut. We think we're going.
Think were compelling.
Got it got it I appreciate that.
Speaker 5: Got it, I appreciate that. This one, if I can, on on on leverage, I mean, I appreciate your comments there, I mean, the leverage is pretty high there. I mean, the net 139, I mean, there's a payable, obviously, that so not all that cash is available to...
One for Ken.
On leverage I mean, Mike I appreciate your comments there Michael.
So Leslie.
Hi, there.
139 does it.
Payable obviously not all our cashes is available.
To pay down.
Yes.
Speaker 5: to run net against the left. So it is above the high end of the range in terms of
It will fluctuate.
Above the high end differently.
And we will adjust.
Adjusted.
What what timeframe should we expect to get down to that.
Speaker 5: What time frame should we expect to get down to that?
The high end of the range and if I can then kind of tied to that as well with a range of $1 25 to $1 50 is the target what kind of market environment, which.
Speaker 5: the high end of the range. And if I can then kind of type that as well with a range of 125 to 150 as the target, what kind of market environment would
Speaker 5: would be required for you to decide say the low end is more appropriate than the high end. But you know, or what's what's what kind of function should we think about about where you would be?
Would be required for you to decide to stay at the low end is more appropriate than the high end.
What kind of function should we think about mobile.
Well you would be in the Ohio low.
So Robert.
Speaker 2: So Robert, I'm glad you asked that because there's been some activity post quarter end. So if I looked at it, close the business today, or identified repayments that we've been told we're getting repaying. I don't know if that's over two weeks or six weeks, and some monetization that we've done. If I pro form of that, and I look at the net cash for payables, we are.
I'm glad you asked that because there has been some activity post quarter end. So if I look at it close of business today.
<unk> identified repayments that we've been told we're getting repaid nominal debt to two weeks or six weeks.
And some more.
Monetization that we've done.
If I pro forma that and I look at the net cash from payables.
Sure.
Speaker 2: either slightly above, I think we're slightly below 1.5. I think it's like 1.49, okay? So we're at that level today. How long will it take us to get there? We're kind of there today, called 1.5. Net of every...
Either slightly above I think we're slightly below one five.
I think it's like $1 49, okay. So were at that level today, how long will it take us to get there we're going to bear today to one five.
Net of everything.
Speaker 2: If you're not understood so yeah, okay, and then I'm not saying well, I'm gonna take it. Go ahead, sir. So the key thing is, you know, we want to operate in this, I'll call it 140 to 150 and we're gonna flip up and when we see things coming off.
So, yes and no.
Amongst the many.
Got it so the key thing is.
We want to operate in this and I'll call. It 140 to 150, and we're going to blip up and when we see things coming.
In order to fund it in advance of the repayments that kind of what we were doing at December quarter end, because we had some visibility getting down to the 125 as kind of a I'll call. It a target rate would mean, we'd be operating in a 110 to 130 range because of repayments that commitment.
Speaker 2: in order to fund the advance of the repayments. That's kind of what we were doing at December quarter and because we had some visibility. Getting down to the 125, as kind of a, I'll call it a target. Rate would mean we'd be operating in a one 10 to 130 range because of the repayments that come in and advance of being at that 125. So I don't see that in the near term. I see us trying to stay in this 125 to 150 range.
<unk> is at 125, so I don't see that in the near term I see us trying to stay in this 125 to $1 50 range.
Speaker 5: Got it. On one one half, if I can, the interest expense looked a little higher than I was expecting. Obviously there were two revolvers functional during the quarter. One of the VS ones gone now. But were there any one time expenses related to the X?
Got it.
One housekeeping one if I can the interest expense looked.
And I was expecting obviously there were two of OLED.
Functional Julien.
Quarter, one was the excellent has gone now but.
But without any one time expenses.
Related to the exit of the UBS facility, which oses southern Delaware.
Yes, Hi, Robert H Rocco so.
Speaker 3: Hi Robert, it's Rocco. So, because we had the two facilities, because we had the UBS facility through mid-November, we incurred this $485,000 interest of which, 150 of it was breakage fee. We're gonna look at it this way. Thank you. Yeah.
Because we had the two facilities because we had the UBS facility through mid November we incurred.
$485000 in interest of which.
150 of it was breakage fee.
Look at it got it thank you yeah.
Appreciate it thanks Noah.
Our next question comes from Christopher Nolan from Lindenberg. Please state your question.
Speaker 1: Our next question comes from Christopher Nolan from London Bird.
Speaker 6: Hi, um, Broco, you said 150,000 breakage fee, so that's the not recurring for the quarter. Correct. And then, um,
Rocco you said 150000 breakage fees.
Our recurring for the quarter.
Correct.
Okay and then.
Are you guys, assuming any sort of action.
Action by the Federal reserve to increase interest rates and if so how many.
Great how are you expecting.
We're.
We are expecting rate hikes.
Speaker 2: We are expecting rate height. You know, we internally not doing lots, but we on our side, you know, debate its first height can be 25 or 50. And, you know, as you know, we've got, I'll call it round figures, 30% fixed rate in our liabilities. Our liwork floors are average in about one 10, but they're not all there. We've got some at 75.
We internally.
But we on our side debated for a site can be 25 or 50.
And as you know, we've got I'll call. It round figures 30 odd percent fixed rate.
In our liabilities.
Our LIBOR floors are average at about $1 10, but do not all year, we've got some <unk> 75.
Speaker 2: So that will our assumption is that it's at least six to nine months.
So that will our assumption is that it's at least six to nine months before we get the benefit of rising LIBOR.
Speaker 2: Before we get the benefit of rising alive.
Speaker 2: So we've got fixed on part of the debt. We'll have a little bit of increase, but on the asset side, we're seeing, you know.
So we've got fixed on part of the debt will have a little bit of increase.
But on the asset side.
We're seeing.
I would say stability to a little bit of lift on the LIBOR plus $5 25 to 600, where everything was and we're seeing a little bit of lift to that not a lot on the spread right now.
Speaker 2: I've faced condomity to a little bit of lift on the LiRWR Plus 525 to 600, where everything was, and we're seeing a little bit of lift to that, not a lot.
Great follow up question American.
Speaker 6: Great, and follow-up question, American telecom conferencing. There are a lot of movies here in the quarter. And...
Telecom conferencing.
There are a lot move EPS in the quarter.
And did you guys mentioned that in your prepared remarks, or if you did I missed it.
Speaker 4: The, um, Pagriss, it's, uh, Chris, um, the, the, the mark basically stayed fairly static. Um,
<unk>.
Hey, Chris It's Chris.
The Mark basically stayed fairly static.
<unk>.
Speaker 4: The company is making progress on operating the business and maximizing value for the lender through the stakeholders.
The company is making progress on operating.
The business and maximizing value for the lenders who the stakeholders.
Don't anticipate.
<unk> much upward movement at this point.
Speaker 4: upward movement at this point. They're just, you know, operating the business and trying to maximize.
They are just operating.
The business and trying to maximize.
Profits for restore back to profits actually and Chris would you characterize this as a likely restructuring.
Speaker 4: profits or get restored back to profits and christ would you characterizes
The coming quarters.
Speaker 4: I'm more, more of a sale in the next 12 to 24 months. Great.
Okay.
More and more of a sale in the next.
12 to 24 months.
Great.
Okay. Thank you.
Sure. Thank you. Thank you.
Our next question comes from Paul Johnson from <unk>. Please state your question.
Speaker 7: Hey, good afternoon guys. Thanks for taking my questions. Going back to one of the questions just on the leverage, it sounds like you guys have a decent amount of insight into the quarter in terms of where repayments are coming in and that sort of thing. But just kind of taking into account where you guys stand today on a gross basis and then that combined with your unfunded commitments, I believe they're around 14 million, correct me if I'm wrong there. I mean, how do you guys, you know, coming off of the really active quarter that you had? How do you balance out?
Hey, good afternoon, guys. Thanks for taking my questions going back to quest.
Questions just on the leverage it sounds like you guys have.
Amount of insight into the quarter in terms of where.
Our repayments are coming in and that sort of thing, but just.
Kind of taking into account, where you guys stand today on a gross basis and then that combined with your unfunded commitments I believe they are around $14 million correct me if I'm wrong there.
I mean, how do you guys.
Coming off of a really active quarter that you had how do you balance out I.
Speaker 7: I guess your investment activity for the quarter in terms of your ideal position holding sizes.
I guess your investment activity for the quarter in terms of your ideal position holding sizes to do the level of unfunded commitments you have today does that in any way kind of construct what you would like to hold on the balance sheet or.
Speaker 7: Do the level of unfunded commitments you have today? Does that in any way kind of construct what you would like to hold on the balance sheet? Or, you know, I guess any insight into how you're kind of balancing that out in today's market?
Any insight into how youre kind of balancing that out.
In today's market.
Yes, Paul it's Christian.
We were cognizant of.
Speaker 4: We, you know, we're cognizant of, you know, the unfunded commitments we were taught, we managed that very carefully to the point where we're never have to have that as a primary consideration in what we're doing within the portfolio.
The unfunded commitments, we are trying to manage that very carefully to the point, where we're never.
Have to have that as a primary consideration in what we're doing within the portfolio.
We.
Speaker 4: We always is probably an overstatement, but we always have a small handful of...
Always there is probably an overstatement, but we always have a small handful of.
Speaker 4: more liquid names in the portfolio that we can cycle out of. You know, add or around the level where we have it marked. Never guarantee, but...
To more liquid names in the portfolio that we can see.
<unk>.
At or around the level, where we have a mark.
Never a guarantee but.
<unk>.
Speaker 4: That's what we did, this current quarter. So bottom line, it doesn't really, the unfunded commitments don't really inhibit or how we...
That's what we did this current quarter.
So.
Bottom line it doesn't really the unfunded commitments don't really inhibited.
Or how we handle the portfolio.
Got it and how much insight you have on those unfunded commitments per se of how much do you think or are readily available to be drawn by your.
Speaker 7: Got it. And how much insight you have on those unfunded commitments per se of how much do you think are readily available to be drawn by your portfolio companies versus that are subject to milestones and maybe unlikely to be?
Portfolio companies versus <unk>.
Subject to milestones and may be unlikely to be to be drawn upon.
I'd say more than half, but we mentally.
Speaker 4: I'd say more than half, but we mentally always assume they all can be drawn.
Always assume they all can be drawn.
Okay.
Sure.
Speaker 7: Okay, and then my last question just a quick one. I do you guys have any insight into terms of when you might be earning an incentive?
And then.
And my last question just a quick one do you guys have.
Any insight into terms of when you might be earning an incentive fee again.
So if I model out assuming kind of what we're going through now we're looking at probably September of 'twenty three ish I would guess.
Speaker 3: So if I model out assuming kind of what we're going through now, we're looking at probably September of 23-ish, I would guess.
Speaker 2: And the purpose is of modeling when we talk about this because we do it's might fall. We assume conservatively that we are kind of one rate of the portfolio at about 1.5, 4.5 to 1.5 times leverage. We then assume that the rate of the unlever grade is around where it is today.
For purposes of modeling when we talk about this because we do it's Mike.
Paul we assume.
Conservatively that we are kind of run rate of the portfolio at about one five or five to one five times leverage we then assume that.
All.
Of the Unlevered rate is around where it is today and we do not assume any big pickup in our realized or unrealized gains those are all things that we would accelerate turning on.
Speaker 2: And we do not assume any big pick-up in our realized or unrealized games.
Speaker 2: Those are all things that would accelerate turning on the...
And.
In September we deal September quarter, we would earn it not turn it on after that.
Speaker 2: And that's a temporal idea. So, the temporal order we would earn is not turned it on after it would actually fall off. Got it.
Got it.
Okay got it yeah I understand alright, that's all from me thanks for taking my questions.
Speaker 7: Okay, got it. Yep, I understand it. Alright, that's all from me. Thanks for taking my questions.
Thank you very much.
Once again, ladies and gentlemen, if you would like to ask a question. Please press star one on your phone now.
Speaker 1: Once again, ladies and gentlemen, if you would like us a question, please press star one on your phone now.
At this time, we have no further questions.
Thank you very much everyone moved forward to talking to you next quarter.
Speaker 2: Thank you very much, everyone. Move forward, talk to you next course.
This concludes today's conference call. Thank you for attending have a great day.
[music].
Speaker 8: The host has ended this call. Goodbye.
The host has ended this call good.