Business Context and Reporting Period
Company: Investcorp Credit Management BDC, Inc. (ICMB)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2022
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, a subsidiary of Investcorp.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2022 | Nine Months Ended Mar 31, 2022 | As of Mar 31, 2022 |
|---|---|---|---|
| Total Investment Income | $5.92 million | $18.61 million | - |
| Net Investment Income | $1.80 million | $6.43 million | - |
| Net Realized Gain/(Loss) | ($6.61 million) | ($14.39 million) | - |
| Net Change in Unrealized Appreciation | $4.75 million | $14.64 million | - |
| Net Increase/(Decrease) in Net Assets from Operations | ($63,081) | $6.67 million | - |
| Net Asset Value (NAV) Per Share | - | - | $6.93 |
| Total Assets | - | - | $275.02 million |
| Total Investments (Fair Value) | - | - | $242.03 million |
| Total Debt (Notes Payable, Net) | - | - | $170.38 million |
| Cash and Restricted Cash | - | - | $7.57 million |
| Asset Coverage Ratio | - | - | 1.58x |
Material Changes vs. Prior Comparable Period
- Investment Income: Decreased to $5.92 million for the three months ended March 31, 2022, from $6.01 million in the prior year period. The nine-month total decreased to $18.61 million from $20.07 million. This decline was primarily driven by a decrease in payment-in-kind (PIK) income and a lower weighted average total yield on debt investments.
- Expenses: Total expenses decreased slightly to $4.25 million for the quarter (from $4.27 million) and $12.54 million for the nine months (from $12.78 million). Reductions in interest expense and base management fees were partially offset by increased amortization of deferred debt issuance costs.
- Realized Losses: Net realized losses increased significantly to $6.61 million for the quarter and $14.39 million for the nine months, compared to $3.65 million and $3.64 million in the prior year periods. These losses were primarily attributed to the restructuring of Fusion Connect Inc. and 1888 Industrial Services, LLC.
- Unrealized Gains: Net change in unrealized appreciation was $4.75 million for the quarter and $14.64 million for the nine months, compared to $5.52 million and $5.63 million in the prior year periods. Gains were driven by restructurings, partially offset by decreases in the value of CareerBuilder, LLC and Techniplas, LLC.
- Debt Structure: The company repaid its $102 million Term Financing in full in November 2021. As of March 31, 2022, outstanding debt consisted of $107.75 million under the Capital One Revolving Credit Facility and $65 million in 2026 Notes.
Guidance, Outlook, Risks, and Unusual Items
- Management Commentary: Management noted that the portfolio yield on debt and income-producing securities at amortized cost was 8.27% as of March 31, 2022, up from 8.10% at June 30, 2021. The portfolio turnover rate for the nine months ended March 31, 2022, was 45%, compared to 22% in the prior year.
- Unusual Items: Significant realized losses were recognized due to the restructuring of specific portfolio companies (Fusion Connect Inc. and 1888 Industrial Services, LLC). These restructurings also contributed to unrealized appreciation gains.
- Risks and Contingencies:
- COVID-19: The company continues to monitor the impact of the pandemic on portfolio companies, noting potential for financial distress, defaults, or loan modifications.
- Interest Rate Risk: 99.5% of debt investments bear floating interest rates. A 1.00% increase in interest rates is estimated to increase net interest income by approximately 5.26%.
- Asset Quality: As of March 31, 2022, 1.4% of the portfolio was on non-accrual status. Investments rated 4 or 5 (indicating substantial underperformance or expected loss of principal) represented 1.4% of the portfolio fair value.
- Dividends: The company declared a distribution of $0.15 per share for the quarter ended March 31, 2022. On May 5, 2022, a distribution of $0.15 per share was declared for the quarter ending June 30, 2022.
Key Facts for Investor Verification
- NAV vs. Market Price: Verify the current market price of ICMB shares against the reported NAV of $6.93 per share to assess the discount or premium.
- Debt Maturities: Confirm the repayment schedule for the $107.75 million Capital One Revolving Facility (maturing August 2026) and the $65 million 2026 Notes (maturing April 2026).
- Unfunded Commitments: Note the $17.5 million in unfunded commitments to portfolio companies as of March 31, 2022, which may require future capital deployment.
- Fee Waivers: Review the voluntary waiver of base management fees ($128,831 for the quarter; $352,645 for the nine months) and assess the likelihood of future waivers.
- Portfolio Concentration: Verify the top 10 portfolio company holdings, which represented a significant portion of the portfolio, to understand concentration risk.