Investcorp Credit Management BDC : September 19, 2023 Earnings Call Transcripts

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Op Assist Earnings Call

Conference Call

September 19, 2023

Operator:

Welcome to the Investcorp Credit Management BDC Incorporated Schedules

Earnings Release of fourth quarter ended June 30th. Your speakers 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#. A Question-and-Answer

Session will follow the presentation. I would now like to turn the call over to your

speakers. Please begin.

Mike Mauer:

Thank you, operator, and thank you for joining us on our fourth quarter call today.

I'm joined by Suhail Shaikh, my co-CIO and President

of Investcorp Credit

Mike Mauer:

Thanks, Rocco. The June quarter marks the last quarter of our fiscal year. New

deal activity in the primary markets, especially new LBOs and refinancings,

remained limited during the quarter. High interest rates have discouraged sponsors

Suhail Shaikh:

Thank you, Mike. As Mike mentioned, this quarter's activity was characterized by

secondary opportunities. Market estimates have direct lending volume in this

quarter down almost 50% year-over-year. However, we are beginning to see

primary deal flow pick up after the summer slowdown. We're being highly selective

in this credit environment, whether we are evaluating a primary or a secondary

transaction. Our primary focus remains investing in a high cash flow, offering high

cash flow generating businesses with enhanced structural projections and

supported by experienced sponsors.

During the quarter, we invested in two new portfolio companies and two existing

portfolio companies as Mike mentioned. We also fully realized our position in one

of the [Unintelligible]company. During the quarter, funding for commitments in

new investments totaled approximately $15.1 million of cost with a weighted

average yield of approximately 15.5%. In the same period, repayments totaled

approximately $8.7 million from one investment with an IRR of approximately 9.8%.

To talk you through the new investment, first, we made an investment in the first

lien term loan of AMCP Clean Acquisition Company, also known as PureStar. 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 is one of the

largest commercial laundry providers in the hospitality industry in the U.S. We

invested in the first lien term loan and delayed draw term loan. Our yielded cost is

approximately 16.5%.

Second, we invested in the first lien term loan of American Auction Group, also

known as XLerate. This is an example of an investment that we own in other

portfolios and we are able to find an attractive opportunity to purchase in the

secondary market. A Brightstar Capital portfolio company, XLerate is a full-service

used vehicle auction services provider for B2B customers. Our yielded cost is

approximately 13.6%.

Finally, we invested in the priority term loan of BioPlan. BioPlan provides

packaging and sampling solutions to the beauty and fragrance industry. Our yielded

cost is approximately 13.6%. During this quarter, we fully realized our position in

Altern Marketing, which was refinanced. Our fully realized IRR was approximately

9.8%, as I mentioned above.

We had a gross leverage of 1.54 times and a net leverage of 1.44 times as of June

30th compared to 1.65 gross and 1.49 net, respectively, for the previous quarter. As

of June 30th, we had six investments on non-accrual, which included the three

investments in 1888, the PDI revolver, and two investments in American Nuts. This

is an increase of two investments related to American Nuts from the previous

quarter. With respect to our liquidity, as of June 30th, we had approximately $9.2

million in cash, of which $8.1 million was restricted cash, with $28.1 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

filing, which will be filed later this week.

With that, I'd like to turn the call over back to Mike.

Mike Mauer:

Thank you, Rocco. As mentioned earlier, we remain focused on portfolio

management and risk mitigation especially in our borrowers that are experiencing

periods of stress. We added two new positions on non-accrual, American Nuts Term

Loan A and Term Loan B positions. American Nuts sources, procures, and

distributes nuts, seeds, and dried fruits, among other products. Their results have

been challenged in the recent period. We are currently working with the sponsor

and other co-lenders on the path forward. We continue to make progress rotating

the portfolio and expected progress on the remaining non-accruals over the next 12

months. Our NAV remained relatively unchanged, declining by 60 basis points. Our

gross leverage was 1.54, above our guidance of 1.25 to 1.5 times. Our net leverage

at 1.44 was within the target range.

As mentioned in the last quarter, we expect to see our gross and net leverage

converge. As of September 15th, our gross and net leverage were 1.51 and 1.50. 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 June quarterly dividend with NII. The company is expected to earn its dividend

through the next quarter ending September 30th. On September 14th, 2023, the

board of directors declared a distribution for the quarter ended June 30th, 2023 of

$0.12 per share, as well as a supplemental distribution of $0.03 per share both

payable on November 2nd, 2023 to shareholders of record as of October 12th, 2023.

It is worth noting that the three-cent supplemental distribution is related to fiscal

year 2023 spill back.