Q2 2023 Investcorp Credit Management BDC Inc Earnings Call

Speaker 2: Hello, this is the operator. Thank you so much for joining the Invest Corp Conference call. May I have your first and last thing, please?

We had one realization repayment during the quarter, which had an average yield of 11, 3%.

And the fully realized investment.

11, 4%.

The weighted average yield of our debt portfolio was 10, 7% a decrease of 12 basis points from September 30.

As of December 31, our portfolio consisted of 37 portfolio companies 91, 2% of our investments were first lien and the remaining eight 8% is invested in equity warrants and other positions.

99, 5% of our debt portfolio was invested in floating rate instruments, and <unk>, 5% and fixed rate.

The average floor of our debt investment was one point or 4%.

And our average portfolio company investment was approximately $6 $2 million and the largest portfolio company investment is fusion at $12.8 million.

We had a gross leverage of <unk>.

155, and a net leverage of 1.46 as of December 31, compared to $1 six four gross and 156 net relatively low risk.

Respectively for the previous quarter.

As of December 31, we had eight investments on non accrual which included all three pgi three.

Three investments and $8 88.

<unk> and our investment in the first lien of bio plant.

With respect to our liquidity as of December 31, we had approximately $8 4 million in cash of which $7 9 million was restricted cash with $36 6 million capacity under our revolving credit facility with capital one <unk>.

Additional information regarding the composition of our portfolio is included in our Form 10-Q, which which we filed yesterday with that I'd like to turn the call back over to Mike.

Thank you Rocco.

I would first like to address the NAV declined during the quarter.

Part of the decline was attributable to a decrease in our March for fusion series, a preferred equity client Hirsch and career builder.

As mentioned previously our methodology for valuing all of our debt investments are to take into account changes in credit metrics during the quarter any change in the perceived credit risk and readjust our yield return expectations. Accordingly. This can sometimes result in a decline in our fair value.

Which is exactly what happened during the quarter for a few of our names in the portfolio. We added one position on non accrual this quarter, which it was bio plan. However, we are unable to discuss the situation in further detail due to confidentiality reasons.

Our gross leverage this quarter was $1 five five times above our guidance of one and a quarter to one five times. Our net leverage was 146, which is within the target range as mentioned last quarter, we expect to see our gross and net leverage generally converge as.

February nine our gross and net leverage were $1 46 and 144.

As we have previously stated the adviser will waive the portion of our management fee associated with base management fees over one turn of leverage we covered our December dividend with NII. The company expect to earn its dividend through the next quarter ending March 31.

On February 2nd our board of Directors declared a distribution for the quarter ended March 31 of <unk> 13 per share.

And a supplemental distribution of <unk> <unk> per share.

Notes payable on March 32023 to shareholders of record as of March 10, 2023.

I would also like to highlight a few additional platform development, we closed on in SMA and had an initial close on our institutional fund this doubles our platform AUM since last quarter.

Increasing our dialogue and reducing average expenses across the funds.

As we head into 2023, we remain optimistic in our ability to deploy capital in high quality senior secured structures and middle market companies at an attractive rate. Our current pipeline is robust and we're seeing significant deal flow, especially in new <unk>, we believe that.

Suhail and his team's expertise will only elevate our underwriting and sourcing capabilities, which will be additive to our platform.

Our ultimate goal has not wavered and he is as always focused on capital preservation and maintaining a stable dividend.

That 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. If you would like to state. A question. Please press seven pounds on your phone now and you will be placed in the queue in the order received our press seven pound at anytime again to remove yourself from the queue. Please.

Please listen for your name to be announced and be prepared to ask your question when prompted.

We are now ready to begin.

Yeah.

Yeah.

Yeah.

Our first.

Question comes from Sean Paul Adams with Raymond James.

Go ahead.

Hey, guys.

In relation to your deal flow and it looked like you guys were averaging at least four five or six new investments each quarter for last year.

I just wanted to get a comment on.

The underlying reasons behind that deal flow for this quarter and kind of the outlook for the rest of 2023.

Yes, Thanks, Sean.

I would say that the fourth quarter slowed down for a couple of reasons one was on our side.

We sat back we wanted to reassess the portfolio at the same time, we saw at least I'm not sure what you've seen away from us, but we saw flow slow down a bit in the fourth quarter, we saw that pick up over the last few weeks.

I'd expect that we'll be back to a normal I'll call it 4% to eight as a broad band, but thats also subject to.

Refinancings roll offs et cetera of the existing portfolio, we want to stay in this one quarter. One five range. We're at the top end of that right now.

And so to the extent that things are not paying off as quickly.

We won't be making as many new investments.

Part of the slowdown on things paying off is that we saw.

<unk> portfolio investments refinance.

In an environment, where we had low base rates.

And spreads were I'll call them normal spreads have widened a little bit and so theres not as much incentive for people to refinance also.

Got you. Thank you.

And as far as.

NAV decline you guys were ahead of the industry median for the last quarter, but.

With your current NAV declined for the quarter you guys are well above the projected median for the fourth quarter ended.

Have any.

Underlying ideas about if theres going to be continued nap decline.

Base rates and is it more related to credit or just the underlying portfolio.

I'd say that two things one is we had just remark based upon where we saw rates and underlying portfolio. There is a couple of episodic names that I did mention.

But we view as of today, we don't see any other changes as of today to the map.

Got you. Thank you I appreciate it.

Yes.

Thank you very much Mr. Adams. Our next question comes from Mr. Christopher Nolan with Ladenburg Thalmann.

Go ahead please.

Thanks for taking my call a bio plan all of the fair value seems to increase modestly quarter over quarter can you just give a little reasoning behind that.

Yes, we go through our detail on everything we know that is confidential from the details Chris So I can't go into that but we get all of the feeds.

From the company and agent and we go through and value it based upon our expected value.

We expect that to complete a restructuring during this quarter.

And then.

We will have updates after that.

Great and then as a follow up interesting excuse me.

There was lower yields and slightly lower asset volumes in the quarter.

Was the flu.

Flattish interest income due to timing issues or something.

Yes, it's a good point.

You have two or three things working there you've got <unk>.

<unk> plan that did you mentioned that went on non accrual so that affected the overall average slightly you had one of our larger positions Berry that was an attractive investment for us that was above the average yield and that came off in the fourth during.

During the fourth calendar quarter.

And then there is also a bit of a lag as far as us.

Benefiting from the increase in sulfur.

During the quarter because of the three month contracts.

Great and then finally, Chris So opex for this service in Hopewell.

Green pastures going forward for you so.

And welcome to the new team. Thank you.

Long straight.

Passengers.

Yes.

Thank you very much Mr. Nolan and our next question comes from Mr. Paul Johnson again, if you have any questions. Please seven perhaps seven pound on our fall.

Mr. Johnson go ahead please.

Hey, guys. Good afternoon, thanks for that.

My questions.

Yes.

In terms of.

The recent changes and.

The tacos.

Platform.

Yes, maybe potential scale that can come out of that I was wondering.

If there's anything you could share.

You did quantify that at all in terms of how that might actually alleviate some of the expenses at the BDC, Chile like G&A.

Expenses just because.

Are you guys I think.

Historically around a little bit higher than the sector in terms of G&A expense just because of the overall decline in size of the BDC, but anything you can share there would be.

Great.

Yeah.

Yes, I would just say that and I'll pass it over to Rocco I'd, just say that from an AUM and thats really the basis in which we think about.

Spreading expenses.

During this quarter, so it's kind of mid quarter or this quarter won't be a full benefit we're going to double the AUM between the separately managed account and a first close on a small institutional fund.

We're targeting to grow that institutional fund throughout the year and we're targeting.

To have another fund closed during the year, but Rocco I'll, let you comment yes.

I think the expenses on the public fund definitely.

The admission I definitely can come down to Mike's point.

It's going to be.

Copy of look back so I'll take a look at the <unk> at the end of the quarter and kind of look back I can't really tell you how much. It is right now, but they definitely are going to come down.

I'm not quite sure if I answered your question Paul There is no doubt directionally theyre going on yes.

And we are working to continue to build that platform.

Yes.

That's good to know.

<unk> continued to do so.

And then a lot of Bdcs.

This quarter has.

Provided general and some more specifics assessments of their portfolio.

Kind of going into the year, obviously, we're all kind of with the expectation that we're essentially headed into a rich satcom.

Yeah.

Whether that'd be just overall credit quality loans with coverage that sort of thing I was wondering.

If you have or yeah.

Yes.

Major regional hubs will probably do so and provide those results.

Which is kind of the overall performance of the portfolio.

Yes, we intend to continue.

Looking at those from our ratings of one through five in four and five are the ones, where we see the most.

Our credit risk and whether or not it's non accrual or not and so those I think are the the way that we're approaching it I'm not sure we'll take a look at the way others are doing it but we're not planning on starting additional metrics.

Got it okay.

Ultimately thanks for taking my questions.

Yes.

Paul.

Thank you very much Mr Johnson and.

I don't see any other question.

Yes.

None on the queue.

Well I'd like to thank everyone. We look forward to talking to you after the.

The March quarter end.

And following up in the meantime, thank you very much.

Thank you everyone and this concludes today's conference call. Thank you again for attending.