Investcorp Credit Management BDC, Inc. Reports Results for its Fiscal Fourth Quarter Ended June 30, 2019
Investcorp Credit Management BDC, Inc. (NASDAQ: ICMB) (“ICMB” or the “Company”) today announced its financial results for its fiscal fourth quarter ended June 30, 2019. The Company was formerly known as CM Finance Inc through August 30, 2019
HIGHLIGHTS
| ● | ICMB made eleven investments in six portfolio companies. The Company invested $32.2mm in the quarter inclusive of funding of revolving and delayed draw commitments. The weighted average yield of debt investments made in the quarter was 11.47% |
| ● | Two investments were fully realized during the quarter. These were the Company’s debt investment in Nexeo Plastics, and its equity investment in Zinc Acquisition Holdings, LP |
| ● | The weighted average yield on debt investments, at cost, increased six basis points to 10.50%, compared to 10.44% as of March 31, 2019. The change in LIBOR during the quarter accounted for a negative 25 basis point effect on the yield |
| ● | Net asset value (“NAV”) per share decreased by 5.66% to $10.51, compared to $11.14 as of March 31, 2019 |
| ● | Effective August 30, 2019, Investcorp Credit Management US LLC (“Investcorp”) became the majority owner of the Company’s investment adviser, CM Investment Partners LLC (the “Adviser”), and the Company entered into a new investment advisory agreement with the Adviser (the “New Advisory Agreement”) |
| Portfolio results, as of June 30, 2019: | ||
| Total assets | $336.9mm | |
| Investment portfolio, at fair value | $306.4mm | |
| Net assets | $143.1mm | |
| Weighted average yield on debt investments, at cost | 10.50% | |
| Net asset value per share | $10.51 | |
| Portfolio activity in the current quarter: | ||
| Number of new investments | 11 | |
| Total capital invested | $32.2mm | |
| Proceeds from repayments, sales, and amortization | $17.2mm | |
| Number of portfolio companies, end of period | 33 | |
| Net investment income (NII) | $3.0mm | |
| Net investment income per share | $0.22 | |
| Net decrease in net assets from operations | $5.2mm | |
| Net decrease in net assets from operations per share | $0.38 | |
| Quarterly per share distribution paid on July 5, 2019 | $0.25 |
Mr. Michael C. Mauer, the Company’s Chief Executive Officer, said “We are very excited to begin the next stage of our growth as a company, as we join our new partners at Investcorp. As part of a robust credit platform, we anticipate leveraging Investcorp’s resources to accelerate the pace at which we diversify our portfolio into new middle market lending relationships. We remain focused on providing first lien and senior secured debt in our borrowers’ capital structures, and we believe there are attractive opportunities in club and direct lending to earn better risk-adjusted returns than the broader market. The fair value of the portfolio declined during the quarter, largely due to specific markdowns in three of our portfolio companies.”
On August 28, 2019, the Company’s Board of Directors (the “Board”) declared a distribution for the quarter ending September 30, 2019 of $0.25 per share, payable on October 16, 2019, to shareholders of record as of September 26, 2019. This represents a 14.35% yield on the Company’s $6.97 share price as of market close on September 9, 2019. Distributions may include net investment income, capital gains and/or return of capital, however, the Company does not expect the distribution to be comprised of a return of capital. The tax status of distributions will be determined at the end of the taxable year.
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Portfolio and Investment Activities
During the quarter, the Company made investments in six portfolio companies, and funded one revolver and one delayed draw commitment. The aggregate capital invested during the quarter totaled $32.2mm at cost, and investments were made at a weighted average yield of 11.47%. Three new portfolio companies were added in the quarter.
The Company also realized $17.2mm of repayments, sales, and amortization, including sales of Exela Intermedia LLC (Bond), Nexeo Plastics (Bond), and Zinc Acquisition Holdings, LP (Equity Interest), as well as the sale of a portion of the Company’s position in FPC Holdings, Inc. and Specialty Building Products Holdings LLC. Realized and unrealized gains and losses accounted for a decrease in the Company’s net investments of approximately $8.2mm, or $0.60 per share. The total net decrease in net assets resulting from operations for the quarter was $5.2mm, or $0.38 per share.
As of June 30, 2019, the Company’s investment portfolio consisted of investments in 33 portfolio companies, of which 77.6% were first lien investments, 18.7% were second lien investments, and 3.7% were unitranche loans. The Company’s debt portfolio consisted of 96.8% floating rate investments and 3.2% fixed rate investments.
As of June 30, 2019, the Company had one investment onnon-accrual status, Fusion Connect Inc.
Capital Resources
As of June 30, 2019, the Company had $19.7mm in cash, $6.6mm in restricted cash and $19.0mm of capacity under its revolving credit facility with UBS AG, London Branch.
Investcorp Transaction
As previously announced, on June 26, 2019, Investcorp entered into a definitive agreement to acquire a majority ownership interest in the Adviser through its purchase of the respective equity positions held by certain funds managed by Cyrus Capital Partners, L.P. and Stifel Venture Corp., and newly issued interests in the Adviser (the “Transaction”). The consummation of the Transaction on August 30, 2019 resulted in a change in control of the Adviser and, as a result, an assignment and subsequent termination of the investment advisory agreement, dated February 5, 2014, between the Company and the Adviser (the “Prior Advisory Agreement”) in accordance with the Investment Company Act of 1940, as amended (the “Investment Company Act”).
New Advisory Agreement
At anin-person meeting held on June 26, 2019, the Board, including all of the independent directors, unanimously approved the New Advisory Agreement and recommended that the New Advisory Agreement be submitted to the Company’s stockholders for approval at the special meeting of stockholders (the “Special Meeting”) on August 28, 2019. At the Special Meeting held on August 28, 2019, the Company’s stockholders approved the New Advisory Agreement. In connection with the closing of the Transaction on August 30, 2019 (the “Closing”), the Company entered into the New Advisory Agreement and a new administration agreement with the Adviser (the “New Administration Agreement”). The terms of the New Advisory Agreement and the New Administration Agreement are substantially the same as those contained in the Prior Advisory Agreement and the prior administration agreement.
Entrance into Stock Purchase Agreement
In connection with the Transaction, on June 26, 2019, the Company entered into a stock purchase and transaction agreement with Investcorp BDC Holdings Limited (“Investcorp BDC”), an affiliate of Investcorp (the “Stock Purchase Agreement”). The Stock Purchase Agreement provides that, among other things, following the Closing and prior to the second anniversary of the date of the Closing, Investcorp BDC will purchase 680,985 newly issued shares of the Company’s common stock, at the most recently determined net asset value per share of the Company’s common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the Investment Company Act. In addition, Investcorp BDC will purchase
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680,985 shares of the Company’s common stock in open-market or secondary transactions overa two-year period following the Closing. Investcorp BDC did not purchase any shares of the Company’s common stock at the Closing.
Recent Developments
Subsequent to June 30, 2019 and through September 9, 2019, we invested $19.6 million in new and existing portfolio companies and received sales proceeds of $15.2 million. As of September 9, 2019, the Company had 34 portfolio companies.
On August 28, 2019, the Board elected Thomas Sullivan as a director of the Company, effective as of September 15, 2019. On August 28, 2019, the Company entered into the Letter Agreement with Investcorp (the “Waiver Agreement”) amending certain terms of the Stock Purchase Agreement. In accordance with the Waiver Agreement, Investcorp has the right to identify a second director candidate (the “Post-Closing Designated Director”) prior to March 31, 2020; provided that if by March 31, 2020 the Post-Closing Designated Director has not been elected to the Board and the nominating and corporate governance committee of the Board (the “Nominating Committee”) has rejected one or more proposed Post-Closing Designated Directors, then such date will be extended for such period of time as necessary for Investcorp to propose a qualified Post-Closing Designated Director, but in any event not beyond August 30, 2020, (ii) Robert Ryder and Robert Wagner have submitted their resignations from the Board, each to be effective as of September 15, 2019, (iii) Keith Lee has delivered a letter to the Chairman of the Board indicating that, in light of the Stock Purchase Agreement and the Transaction, he intends to resign as a member of the Board upon the recommendation by the Nominating Committee to the Board to appoint the Post-Closing Designated Director and the appointment by the Board of the Post-Closing Designated Director to the Board, and (iv) the Board has approved a reduction in its size to four members, effective as of September 15, 2019.
In addition, on August 28, 2019, the Board appointed Mr. Lee as chair of the Audit Committee and Julie Persily as chair of the Valuation Committee, each to be effective as of September 15, 2019.
On August 28, 2019, the Board declared a distribution for the quarter ended June 30, 2019 of $0.25 per share payable on October 16, 2019 to stockholders of record as of September 26, 2019.
As noted above, on August 30, 2019, the Company entered into the New Advisory Agreement and the New Administration Agreement. In addition, on August 30, 2019, the Company changed its name to Investcorp Credit Management BDC, Inc. and, effective September 3, 2019, the trading symbol on the NASDAQ Global Select Market for shares of the Company’s common stock changed from “CMFN” to “ICMB”.
On August 30, 2019, in connection with the Closing, Christopher Jansen resigned from the Board.
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lnvestcorp Credit Management BDC, Inc. and Subsidiaries
Consolidated Statements of Assets and Liabilities
| June 30, 2019 | June 30, 2018 | |||||||||||||||
Assets | ||||||||||||||||
Non-controlled,non-affiliated investments, at fair value (amortized cost of $321,504,359 and $302,647,282, respectively) | $ | 306,390,993 | $ | 293,592,013 | ||||||||||||
Derivatives, at fair value (cost of $0 and $0, respectively) | - | 229,918 | ||||||||||||||
Cash | 19,706,281 | 5,620,441 | ||||||||||||||
Cash, restricted | 6,589,901 | 2,706,273 | ||||||||||||||
Receivable for investments sold | 820,332 | 7,751,875 | ||||||||||||||
Interest receivable | 3,090,639 | 4,011,450 | ||||||||||||||
Deferred offering costs | 121,922 | 121,922 | ||||||||||||||
Other receivables | - | 245,550 | ||||||||||||||
Prepaid expenses and other assets | 227,924 | 255,139 | ||||||||||||||
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Total Assets | $ | 336,947,992 | $ | 314,534,581 | ||||||||||||
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Liabilities | ||||||||||||||||
Notes payable: | ||||||||||||||||
Term loan | $ | 122,000,000 | $ | 102,000,000 | ||||||||||||
Revolving credit facility | 11,026,670 | 17,823,000 | ||||||||||||||
2023 Notes payable | 34,500,000 | - | ||||||||||||||
Deferred debt issuance costs | (2,000,262) | (1,953,771) | ||||||||||||||
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Notes payable, net | 165,526,408 | 117,869,229 | ||||||||||||||
Payable for investments purchased | 22,276,343 | 12,569,450 | ||||||||||||||
Dividend payable | 3,404,923 | 3,417,848 | ||||||||||||||
Deferred financing costs payable | 1,037,000 | 2,071,167 | ||||||||||||||
Income-based incentive fees payable | 545,991 | 2,294,678 | ||||||||||||||
Base management fees payable | - | 1,319,853 | ||||||||||||||
Accrued provision for taxes | 13,778 | 2,579,337 | ||||||||||||||
Derivatives, at fair value (cost $0 and $0, respectively) | - | 229,918 | ||||||||||||||
Interest payable | 724,222 | 303,153 | ||||||||||||||
Directors’ fees payable | 95,240 | 99,296 | ||||||||||||||
Accrued expenses and other liabilities | 240,197 | 257,986 | ||||||||||||||
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Total Liabilities | 193,864,102 | 143,011,915 | ||||||||||||||
Commitments and Contingencies (Note 6) | ||||||||||||||||
Net Assets | ||||||||||||||||
Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,619,690 and 13,649,504 shares issued and outstanding, respectively) | 13,620 | 13,649 | ||||||||||||||
Additionalpaid-in capital | 198,398,831 | 198,700,999 | ||||||||||||||
Distributable earnings (loss) | (55,328,561) | (27,191,982) | ||||||||||||||
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Total Net Assets | 143,083,890 | 171,522,666 | ||||||||||||||
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Total Liabilities and Net Assets | $ | 336,947,992 | $ | 314,534,581 | ||||||||||||
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Net Asset Value Per Share | $ | 10.51 | $ | 12.57 | ||||||||||||
See notes to consolidated financial statements.
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Investcorp Credit Management BDC, Inc. and Subsidiaries
Consolidated Statements of Operations
| For the Twelve months ended June 30, | ||||||||||||||||||||||||
| 2019 | 2018 | 2017 | ||||||||||||||||||||||
Investment Income: | ||||||||||||||||||||||||
Interest income | $ | 32,591,488 | $ | 28,691,187 | $ | 29,476,315 | ||||||||||||||||||
Payment in-kind interest income | 953,928 | 2,609,037 | 423,632 | |||||||||||||||||||||
Dividend income | 133,858 | 9,005,887 | - | |||||||||||||||||||||
Payment in-kind dividend income | - | 333,333 | - | |||||||||||||||||||||
Other fee income | 718,548 | 152,308 | 1,112,250 | |||||||||||||||||||||
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Total investment income | 34,397,822 | 40,791,752 | 31,012,197 | |||||||||||||||||||||
Expenses: | ||||||||||||||||||||||||
Interest expense | 8,866,796 | 6,310,842 | 4,748,449 | |||||||||||||||||||||
Base management fees | 5,436,135 | 4,871,706 | 4,652,064 | |||||||||||||||||||||
Income-based incentive fees | 1,720,707 | 3,932,710 | 1,289,927 | |||||||||||||||||||||
Provision for tax expense | 158,028 | 2,579,337 | - | |||||||||||||||||||||
Professional fees | 1,130,816 | 1,063,528 | 806,810 | |||||||||||||||||||||
Allocation of administrative costs from advisor | 1,354,247 | 1,198,397 | 987,286 | |||||||||||||||||||||
Amortization of deferred debt issuance costs | 781,508 | 695,470 | 932,417 | |||||||||||||||||||||
Insurance expense | 336,629 | 351,923 | 345,697 | |||||||||||||||||||||
Directors’ fees | 405,000 | 402,240 | 501,233 | |||||||||||||||||||||
Custodian and administrator fees | 285,799 | 295,032 | 480,269 | |||||||||||||||||||||
Offering expense | 207,000 | 186,513 | - | |||||||||||||||||||||
Other expenses | 719,547 | 455,645 | 818,532 | |||||||||||||||||||||
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Total expenses | 21,402,212 | 22,343,343 | 15,562,684 | |||||||||||||||||||||
Waiver of income-based incentive fees | (503,229) | (527,224) | (249,071) | |||||||||||||||||||||
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Net expenses | 20,898,983 | 21,816,119 | 15,313,613 | |||||||||||||||||||||
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Net investment income | 13,498,839 | 18,975,633 | 15,698,584 | |||||||||||||||||||||
Net realized and unrealized gain/(loss) on investments: | ||||||||||||||||||||||||
Net realized gain (loss) from investments | (21,982,973) | (9,855,453) | (11,809,335) | |||||||||||||||||||||
Net change in unrealized appreciation (depreciation) in value of investments | (6,058,095) | 6,505,300 | 19,690,216 | |||||||||||||||||||||
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Total realized and unrealized gain (loss) on investments | (28,041,068) | (3,350,153) | 7,880,881 | |||||||||||||||||||||
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Net increase (decrease) in net assets resulting from operations | $ | (14,542,229) | $ | 15,625,480 | $ | 23,579,465 | ||||||||||||||||||
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Basic and diluted: | ||||||||||||||||||||||||
Net investment income per share | $ | 0.99 | $ | 1.39 | $ | 1.15 | ||||||||||||||||||
Earnings per share | $ | (1.07) | $ | 1.14 | $ | 1.72 | ||||||||||||||||||
Weighted average shares of common stock outstanding | 13,630,661 | 13,689,823 | 13,686,288 | |||||||||||||||||||||
Distributions paid per common share | $ | 1.00 | $ | 1.00 | $ | 1.20 | ||||||||||||||||||
See notes to consolidated financial statements.
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About Investcorp Credit Management BDC, Inc.
The Company is an externally-managed,closed-end,non-diversified management investment company that has elected to be regulated as a business development company under the Investment Company Act of 1940. The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through debt and related equity investments by targeting investment opportunities with favorable risk-adjusted returns. The Company seeks to invest primarily in middle-market companies that have annual revenues of at least $50mm and earnings before interest, taxes, depreciation and amortization of at least $15mm. The Company’s investment activities are managed by its investment adviser, CM Investment Partners LLC. To learn more about Investcorp Credit Management BDC, Inc., please visitwww.icmbdc.com.
Forward-Looking Statements
Statements included herein may contain “forward-looking statements,” which relate to future performance or financial condition. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance or results and involve a number of assumptions, risks and uncertainties, which change over time. Actual results may differ materially from those anticipated in any forward-looking statements as a result of a number of factors, including those described from time to time in filings by the Company with the Securities and Exchange Commission. The Company undertakes no duty to update any forward-looking statement made herein except as required by law. All forward-looking statements speak only as of the date of this press release.
Contacts
Investcorp Credit Management BDC, Inc.
Investor Relations
Email:icmbinvestorrelations@investcorp.com
Phone:212-257-5199
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