Investcorp Credit Management BDC : May 16, 2023 Earnings Call Transcripts

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	Op Assist Earnings Call
	Conference Call
	May 16, 2023
Operator:	Welcome to the Investcorp Credit Management BDC Incorporated Scheduled
	Earnings Release for Third Quarter Ended March 31st for today's call are Mike
	Mauer, Suhail Shaikh and Rocco DelGuercio. Operator assistance is available at any
	time during this conference by pressing 0, pound (#). A question-and-answer
	session will follow the presentation. I would like to now turn the call over to your
	speakers. Please begin.
Michael Mauer:	Thank you operator, and thank you for joining us on our third quarter call today.
	I'm joined by Suhail Shaikh, my co-CIO, and Rocco DelGuercio, our CFO. Before we

begin, Rocco will give our customary disclaimer regarding information and forward- looking statements. Rocco.

Rocco DelGuercio: Thanks, Mike. I would like to remind everyone that today's call is being recorded and that this call is the property of Investcorp Credit Management BDC. 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 on 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 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 Mauer.

Michael Mauer:	Thank you, Rocco. March quarter marks the third quarter of our fiscal year. In the
	beginning of 2023, there continued to be limited, new issuance and refinancing
	opportunities driven by broader market uncertainty and high interest rates. In the
	second half of the March quarter, we saw the level of activity pick up slightly. The
	collapse of Silicon Valley Bank and Signature Bank led to a broadly accepted credit
	contraction for middle market banks which will further increase our opportunities.

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	We saw our deal flow pick up after a slow December quarter primarily driven by
	secondary opportunities across all industries. Especially during periods of market
	volatility, we actively focus on opportunities in both existing portfolio companies
	across our platform as well as investors we are familiar with.
	During the quarter, we invested in one new portfolio company and three existing
	portfolio companies. We have typically found in a highly competitive market
	environment, our best opportunities come from companies we already lent to as
	these tend to have known performance and better structures. The investments we
	made during the quarter and after-quarter end were all sponsored-backed. Even in
	a competitive environment, we remain optimistic about our pipeline and believe
	our portfolio is well-positioned to benefit from any further increase in interest
	rates. The weighted average yield of our debt investments during the quarter
	increased approximately 25% to 13.4% from 10.7% at 12/31.
	Although our pipeline is robust, we continue to very selective when investing in
	new credits. We remain focused on investing in high free cash flow and recession-
	resistant businesses. The credit quality of our current portfolio remains stable.
	Despite the challenging market environment, the weighted average EBITDA of our
	debt investments improved quarter over quarter. This is supported by the
	substantial amount of equity cushion in our portfolio companies provided by well-
	established middle market sponsors. Our weighted average loan-to-value ratio for
	all debt investments is approximately 50%. We're proud of the continued
	improvement in the credit quality of our portfolio. Suhail will now walk through our
	investment activities during the March quarter and after quarter-end. Rocco will go
	through the financial results. I'll finish with commentary on our non-accrual
	investments, our leverage, the dividend and our outlook for the rest of 2023. As
	always, we'll end with Q&A.
	With that, I'll turn it over to Suhail.
Suhail Shaikh:	Thank you, Mike. As Mike mentioned, we've been seeing a steady flow of new
	opportunities. These typically fall in two main categories. Add-on as secondary
	purchases of existing portfolio investment and opportunistic secondary purchases
	and refinancing of new companies. We're beginning to see some new responsive
	platform transactions, but the volume is significantly below our historical
	experience. We invested in our portfolio and one new portfolio company and three
	existing portfolio companies this quarter. We also fully realized the position in two

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portfolio companies. During the quarter, funding for commitments and new investments total approximately $11.1 million. In the same period, repayments total approximately the same amount of $11 million.

We invested in Sandvine, a portfolio company of Francisco Partners. We have been an investor in Sandvine and other funds for over four years. The company is a leading provider of Active Network Intelligence & Security Solutions for network operators and enterprises globally. We invested in the first lien term loan. Our yield at cost is approximately 11.8%. We opportunistically added to our position in two existing portfolio companies. First we invested in the first lien term loan of Laseraway. Laseraway is a leading chain of laser hair removal and noninvasive aesthetic dermatology centers. The yield at cost is 11.3%. Second, we invested in a priority term of loan of Bioplan. Bioplan provides packaging and sampling solutions to the beauty and fragrance industry. Our yielded cost is approximately 15.8%. We also participated in a small equity raise with Techniplas, one of our existing portfolio companies. Techniplas is a global manufacturer of plastic components for the automotive industry.

As mentioned above, we fully realized our position in Liberty Oil Field Services which was refinanced. Our fully realized IRR was approximately 11.3%. We also fully realized a position AgroFresh, which was repaid as part of a team private transaction by Paine Schwartz Partner. Our fully realized IRR was approximately 10%. After quarter-end, we invested in two new portfolio companies. First, we invested in the first lien term loan of PureStar, also known as AMCP Clean Acquisition Company. This is a good example of an opportunistic secondary purchase of a credit that we had been tracking. PureStar is a portfolio company of Cornell Capital. It's one of the largest commercial laundry providers to the hospitality industry in the US. We invested in the first lien term loan and delayed draw term loan. Our yielded cost is about 15.7%.

We invested in the first lien term loan of American Auto Auction Group, formerly known as XLerate. This is another example of an investment that we own in other portfolios and we're able to find an attractive opportunity to purchase in the secondary market. Our Brightstar Capital Portfolio company, XLerate or American Auto Auction Group is a fully service used vehicle auction services provider for B2B customers. Our yield at cost is 13.3%.

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Using the GICS standard as of March 31st, our largest industry concentrations were: trading company and distributors at 15.9%, professional services at 14%, followed by IT services at 10.8%. Commercial services and supplies are at 6.5% and software remain at 6.2%. Our portfolio companies and 20 GICS industries as of quarter end, including our equity and warrant positions.

I'd now like to turn the call over to Rocco to discuss our financial results.

Rocco DelGuercio: Thanks, Suhail. For the quarter ended March 31, 2023, our net investment income was $2.5 million or $0.18 per share. The fair value of our portfolio was $221.3 million compared to $228.6 million on December 31. Our net assets were $88.2 million, a decrease of 3.6% from prior quarter. Our portfolio's net decrease from operations this quarter was approximately $1.1 million. Our debt investments made during the quarter had an average yield of 12.8%. Our realizations and repayments during the quarter had an average yield of 11.9% and our average IRR was 10.7%. As Mike mentioned, the weighted average yield on our debt portfolio increased 270 basis points to 13.4% as of December 31. As of March 31, our portfolio consisted of 35 portfolio companies; 90.6% of our investments were in first lien and the remaining 9.4% is invested in equity, warrants and other positions. 99.6% of our debt portfolio was invested in floating rate instruments and 0.4% in fixed rate investments.

	The average floor of our debt investment was 1.1%. Our average portfolio company
	investment was approximately $6.3 million and our largest portfolio company
	investment is Fusion at $12.5 million. We had a gross leverage of 1.65% and a net
	leverage of 1.49% as of March 31 compared to 1.55 gross and 1.46 net,
	respectively, for the previous quarter. As of March 31, we had four investments on
	nonaccrual which included PGI revolver and three investments in 1888. This is a
	decrease of four investments from the previous quarter. With respect to our
	liquidity, as of March 31, we had approximately $14.1 million in cash, of which
	$11.2 million was restricted cash with $33.1 million of capacity under our revolving
	credit facility with Capital One. Additional information regarding the composition
	of our portfolio is included in our Form 10, which was filed yesterday. With that,
	I'd like to turn the call back over to Mike.
Michael Mauer:	Thank you, Rocco. As mentioned last quarter, we acquired an SMA and had an
	initial close on our institutional fund. This doubled our platform AUM, expanding
	our level of investable assets and reducing average expenses across the funds. We

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also have an opportunity to grow the platform throughout the year. We believe that the scale and experience of our expanded team and platform positions us to be more meaningful to the market in terms of sourcing and origination.

I would like to also address that we have made significant headway in completing our portfolio rotation initiative. The number of portfolio companies on nonaccrual were reduced from eight in the previous quarter to four investments in the current quarter, those four investments across two companies. First, on Deluxe, we have recovered 8.9% of our principal and receive principal and interest representing 106% of our cost on that position to date. We believe future recoveries are likely to be minimal at this stage and have decided to write off the remaining position. For PDI, all remaining value is expected to be recovered in the priority revolver which remains on nonaccrual. We have written off our positions in the first lien and second lien loans and are not expected to realize any recovery on those, and as such, those were written off. Bioplan successfully completed a balance sheet restructuring during the quarter. We currently hold positions in the take-back term loan, priority term loan and the common equity. The two loan positions are on accrual, and we're excited about the company's prospects going forward. In summary, we expect significant progress on the remaining nonaccruals over the next 12 months.

Our NAV declined 3.6% this quarter. Equity positions represented a majority or $2.3 million of this decline. While this is disappointing, we believe that we will see a bounce back in the coming quarters. We had 3 portfolio companies which declined in value by half a million dollars or more. First, we marked down our investment in ArborWorks. ArborWorks is a vegetation management company providing services to utility companies. Their results have been challenged by weather patterns in California, their largest market. We reduced the mark in our equity position in Techniplas due to increased margin pressures and lower production volumes in the auto industry. We also marked down our equity position in Fusion due to changes in model inputs related to market conditions. Our gross leverage this quarter was 1.65 above our guidance of 1.25 to 1.5 times. Our net leverage was 1.49 times which is within the target range. As mentioned last quarter, we expect to see our gross and net leverage generally converge. As of May 15th, our gross and net leverage were

1.59 times and 1.56 times. 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.

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