Business Context and Reporting Period
Company: Investcorp Credit Management BDC, Inc. (ICMB)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: December 31, 2020
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 portfolio consists primarily of unitranche, first lien, and second lien loans.
Key Financial Metrics
| Metric | Six Months Ended Dec 31, 2020 | Six Months Ended Dec 31, 2019 |
|---|---|---|
| Total Investment Income | $14,058,747 | $17,989,883 |
| Net Investment Income | $5,764,531 | $7,289,673 |
| Net Increase in Net Assets from Operations | $5,880,123 | $2,060,891 |
| Net Asset Value (NAV) per Share | $7.84 | $10.15 |
| Total Assets | $271,542,779 | $296,794,509 |
| Total Debt (Notes Payable) | $157,375,000 | $173,375,000 |
| Asset Coverage Ratio | 1.69x | 1.80x |
| Cash and Restricted Cash | $8,478,964 | $26,125,981 |
| Distributions Paid per Share | $0.36 | $0.50 |
Material Changes vs. Prior Period
- Revenue Decline: Total investment income decreased by approximately 22% year-over-year (from $18.0M to $14.1M) primarily due to a reduction in assets under management.
- Expense Reduction: Total expenses decreased by approximately 24% (from $11.1M to $8.5M). This was driven by lower interest expenses following the repayment of $20.0 million of the Term Financing in April 2020 and the absence of income-based incentive fees in the current period.
- Portfolio Valuation: The portfolio fair value decreased from $270.6 million to $257.7 million. While there was a net unrealized appreciation of $0.1 million for the six months ended Dec 31, 2020, this contrasts with a net unrealized depreciation of $5.3 million in the prior year period.
- Debt Reduction: Total notes payable decreased by $16.0 million, reflecting the repayment of the Term Financing and a reduction in the Revolving Credit Facility utilization (from $30.0M to $4.0M outstanding).
- NAV Decline: NAV per share decreased from $10.15 to $7.84, reflecting the impact of unrealized losses in the prior year and continued distributions exceeding net investment income in certain periods.
Outlook, Risks, and Management Commentary
- COVID-19 Impact: Management notes that the pandemic continues to have a significant impact on the U.S. and global economy. While some restrictions have been relaxed, surges in cases have led to renewed shutdowns. The Company anticipates that certain portfolio companies may experience financial distress or default, which could reduce net investment income and increase the percentage of cash flows dedicated to debt obligations.
- LIBOR Transition: The Company faces uncertainty regarding the phase-out of LIBOR after 2021. While the transition deadline has been extended to June 30, 2023, the shift to alternative reference rates (such as SOFR) may require renegotiation of credit agreements, potentially affecting interest rates and financial results.
- Asset Quality: As of December 31, 2020, 71.0% of the portfolio was rated "2" (performing within expectations), while 20.3% was rated "3" (performing below expectations). Two loans (1888 Industrial Services, LLC - Term B and Deluxe Toronto Ltd.) were placed on non-accrual status, representing 0.19% of the portfolio at fair value.
- Liquidity: The Company maintains sufficient liquidity to meet unfunded commitments ($1.8 million) and operational needs through cash on hand and available capacity under its Revolving Financing.
- Dividends: The Board declared a distribution of $0.15 per share plus a supplemental $0.03 per share for the quarter ended March 31, 2021, payable in April 2021.
Key Facts for Investor Verification
- Fee Waivers: The Adviser waived $207,330 of base management fees for the six months ended Dec 31, 2020. No income-based incentive fees were incurred during this period.
- Unfunded Commitments: Unfunded commitments decreased significantly from $7.9 million (June 30, 2020) to $1.8 million (Dec 31, 2020).
- Non-Qualifying Assets: Non-qualifying assets represented 5.08% of total assets as of Dec 31, 2020, well below the 30% threshold required to maintain BDC status.
- Stock Purchase Agreement: Investcorp BDC Holdings Limited is obligated to purchase up to 1.36 million shares of common stock by August 30, 2021. As of Dec 31, 2020, they had purchased 227,000 newly issued shares and 281,775 open-market shares.
- Subsequent Events: Between Dec 31, 2020, and Feb 8, 2021, the Company received $2.9 million in loan repayments.