Business Context and Reporting Period
Company: Investcorp Credit Management BDC, Inc. (ICMB)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: September 30, 2021
Business Overview: ICMB is a closed-end, externally managed business development company (BDC) regulated under the Investment Company Act of 1940. Its primary objective is to maximize total return through current income and capital appreciation by investing in debt and related equity of privately held middle-market companies. The company is advised by CM Investment Partners LLC (the Adviser), which is majority-owned by Investcorp.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 |
|---|---|---|
| Net Asset Value (NAV) per Share | $7.00 | $7.81 |
| Total Net Assets | $100.67 million | $108.46 million |
| Total Investment Portfolio (Fair Value) | $245.32 million | $261.33 million |
| Total Investment Income | $6.48 million | $6.97 million |
| Net Investment Income | $2.53 million | $2.75 million |
| Net Realized Gain on Investments | $0.76 million | $0.00 million |
| Net Increase in Net Assets from Operations | $3.29 million | $2.80 million |
| Earnings Per Share (Basic & Diluted) | $0.23 | $0.20 |
| Distributions Paid Per Share | $0.15 | $0.18 |
| Total Debt Outstanding (Notes Payable) | $167.00 million | $167.38 million |
| Asset Coverage Ratio | 1.61x | 1.65x |
| Cash and Restricted Cash | $16.32 million | $14.95 million |
Material Changes vs. Prior Period
- Investment Income: Decreased by approximately $0.49 million (7.0%) compared to Q3 2020, primarily due to a decrease in the portfolio of income-producing companies.
- Expenses: Total expenses decreased by approximately $0.27 million (6.1%) to $4.07 million. This was driven by lower interest expenses (due to reduced borrowings and lower LIBOR rates) and lower base management fees.
- Realized Gains: The company recorded a net realized gain of $0.76 million in Q3 2021, compared to negligible gains in the prior year period.
- Portfolio Composition: The portfolio remained heavily weighted toward Senior Secured First Lien Debt Investments (92.81% of fair value). Non-qualifying assets decreased to 3.98% of total assets from 6.81% in the prior quarter.
- Debt Structure: The company redeemed all $51.4 million of its 2023 Notes in April 2021. In March 2021, it issued $65 million of 2026 Notes. In August 2021, it entered into a new $115 million senior secured revolving credit facility with Capital One, though no borrowings were outstanding under this facility as of September 30, 2021.
Guidance, Outlook, and Risks
- Management Commentary: Management noted that while economic recovery gained traction in Q2 2021, the Delta variant and supply chain interruptions continued to create uncertainty. The company expects portfolio companies to continue facing adverse impacts, potentially leading to financial distress or defaults.
- Dividend Policy: The Board declared a distribution of $0.15 per share for the quarter ended December 31, 2021, payable in January 2022. The company intends to distribute between 90% and 100% of annual taxable income to maintain Regulated Investment Company (RIC) status.
- Liquidity: As of September 30, 2021, the company held $8.6 million in unrestricted cash and $7.7 million in restricted cash. It also had $20.0 million available under its UBS Revolving Financing and $115.0 million available under the new Capital One facility.
- Asset Quality: Five investments were on non-accrual status and one on partial non-accrual status, representing 1.51% of the portfolio at fair value. This is a slight improvement from 1.7% in the prior quarter.
- Risks: Key risks include the ongoing impact of the COVID-19 pandemic, interest rate fluctuations (96.1% of debt investments are floating rate), credit risk associated with leveraged middle-market companies, and the potential inability to maintain RIC status if distribution requirements are not met.
Investor Verification Checklist
- Debt Maturity Wall: Verify the repayment plan for the $102 million Term Financing due December 5, 2021, and the impact of the new Capital One facility on refinancing capabilities.
- Non-Accrual Trends: Monitor the specific performance of the five non-accrual loans (including 1888 Industrial Services and American Teleconferencing Services) to assess potential future impairments.
- Fee Waivers: Confirm the sustainability of the base management fee waivers ($116,936 in Q3 2021) and their impact on net investment income coverage of distributions.
- Unfunded Commitments: Review the $7.9 million in unfunded commitments to ensure sufficient liquidity remains available to fund these obligations if drawn.
- Capital Gains Fee: Note that no Capital Gains Fee was accrued or payable as of September 30, 2021, due to cumulative unrealized depreciation offsetting realized gains.