ICMB - Earnings call transcript Q3 2020 | Investcorp Credit Management BDC Inc

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Operator

Welcome to the Investcorp Earnings Conference Call.

Your speakers for today's call are Mike Mauer; Chris Jansen; and Rocco DelGuercio. [Operator Instructions] A question-and-answer session will follow the presentation.

I'll now turn the call over to your speakers. Gentlemen, you may begin.

Mike Mauer

thank of and us for operator, afternoon. this you, you you all joining Thank by my Chris and joined am I Jansen, our Rocco Co-Chief CFO. DelGuercio, Officer; Investment

information our Before disclaimer will begin, statements. give we regarding Rocco the and forward-looking Rocco? customary

Rocco DelGuercio

of remind BDC. like being that of call any our call Any the is unauthorized Thanks call today's of property form and that prohibited. in to at broadcast I on available call everyone is icmbdc.com. Audio be Mike. Investcorp by this Relations the Investor would is our recorded Credit replay site strictly will Web Management this visiting page

I would may statements from and release Safe press regarding the also forward-looking may these projections, information projections. actual include to forward-looking results everyone like differ call call attention and materially disclosure today's our your Harbor in remind to that

unless forward-looking visit filings, law. not site. Web Relations statements obtain will Investor SEC our required We latest of please copies by our our on update To page

would I the Mauer. time, and call this Michael Chairman our like CEO, At to back turn to

Mike Mauer

Rocco. to recognizing fortunate business times and today. secondary by in effects the work-from-home live count businesses has world devastating the seamlessly COVID-XX have been the environment. we want individuals. safe for both and and our I have our ourselves and among pandemic We team the that over we incredible The healthy to all caused economic extraordinary and to is suffering Thanks all been transition able begin

our strengthened our position of Our this midst portfolio the has reposition years in work over to and past diversify the few pandemic.

an in in Still, in the the even number smaller current average-sized align our through number minimize borrowers, standards is and underwriters, our to number to not the our hope derisked By have credit increase which we borrowers. the wavered. being we an have portfolio of We distressed of of very industries increase cautious environment. and positions

as such hardest has avoided pandemic, by retail. the hit sectors, the hospitality, some of restaurants which have been and We

also vastly have was been vast corporation our should with borrowers fortunate covenants. the of less that at the than not Montreign a closed. occasion our which repayments, as improved time on lenders, average ample including are from exposed and liquidity casino majority same We position the violate The substantial loan one have the

perfect. borrowers have aren't We We four the in sector. do energy

in Another, well-positioned are with These we Techniplas reasons disruption has cautious struggled and unprecedented be the the volatile portfolio our Europe. chain supply through of that cycle. auto to U.S. on the is but business this are balance, optimistic

discuss through the will Rocco during quarter results. will after then our activity As investment and usual, and walk Chris our financial

remarks few levers, conclude months. dividends and and some commentary I'll Investcorp's conclude our investments the our a my next with commentary share purchases, prepared with our for about few our of outlook on

Chris. that, I'll Q&A. With end we'll always, it over As with to turn

Chris Jansen

Thanks Mike.

in six this We including portfolio invested four portfolio quarter, new companies companies.

All lien. between of early our early These additions were made investments were first and March. January

existing partial had investments full made revolving also one which an commitment. we funding simply and the quarter end, was quarter portfolio during We of companies, realizations. three two in realizations After under existing two

X.X%. and in has via loan First, its existing asset our RPX loan. position February. the of which invested The in existing been our an a full in we additional realization We sale facilities ACProducts new on purchase to investments a refinanced yield of this made term loans an a had size repaid new of in its opportunistically companies: December position. term better portfolio approximately majority one purchased investment hold debt best-performing and was borrowers. our XXXX some the RPX, in of we

approximately was realization Our XX.X%. IRR under

X.X%. new the loan lower yield at Our is on at cost

SPAC. United our also equipment the dealership States is Alta acquired Group. largest the in on mentioned invested platform call, by we Equipment in I As integrated last that Alta was

yields cost. loan lien of approximately first Our XX.X%

Pixelle invested a two paper lien leading of backed which from Specialty portfolio of the Verso. Goldberg, Solutions, a a in mills acquisition grade Lindsay of papers. loans We is first Pixelle company producer specialty

Our is to X.X%. cost yield approximately

club by lien for loan and participated Luther fittings, count, GS sea value high Gexpro which deal This in fasteners, parts our parts. investments is includes first Operating. is low Capital. owned a Services, King We appears of which schedule a parts, distributor plastic Gexpro of other also as SKU in valves,

yield X.X%. to approximately cost is Our

of BW portfolio a convenience is & company Allsup's Convenience. investment Gas Allsup's in and investments fourth you statement store gas new as see which will operator. Our our is listed station

lien Our yield on this loan first approximately is X.X%. to cost

the during realizations already full mentioned our quarter. loan I two of have We repayment the to ACProducts.

was TouchTunes IRR a lien realization was XX.X%. second our TouchTunes. investment realized and second is The fully

during quarter. loans also exited dip the a and generated loan, Connect, Fusion Empire as January. We have We our known in Fusion Montreign, of approximately had of bankruptcy Technologies XL XX.X%. IRR restructured which three position the realization in an Resorts.

the term first first new quarter, lien discussed are under lender As out loan. we last a

first pro loan received portion majority we of in is rata the XX.X%, quarter, on out The second exchange loan our approximately was the of the coupon I the although term kind. that pre-petition lien note our second for out yield This paid position. in would

hold also position Fusion's equity. in We a

Fusion, this Like The approximately in position XL yields known also emerged Technologies, as X.X%. the Technologies, bankruptcy exit now Clover also we hold equity. quarter. Clover's from loan

not We down the this during was very in prior also the position. a casino received of time. position are it Fusion loan refinancing new process, a package. especially Despite which loan, of X-year decrease in our Montreign's partial with exchange approximately quarter. here, XX% amount pay Clover, light a shuttered has substantially and COVID with significant an for restructured Chapter yields XX a which our rather and Unlike positive and of of pandemic, X.X%, we indefinite and a Finally, very pleased collateral improved yield, guarantee but the

earlier largest quarter this in call. later occurred Techniplas. the which month. also at media was XX, This March advance small energy, X.X%. Techniplas was to of at X.X% the provide our Using for XX%, will companies made we a and and filing company and of industry trading discuss followed XX%, at Mike end, concentration GICS XX.X%, construction Since services by bankruptcy, to the at loan equipment professional in and liquidity as distributors engineering at standard, services

portfolio quarter equity as end, GICS including companies industries Our in warrant of our are positions. and XX

of As company March XX These versus XX XX, our portfolio are XX. today. count December at unchanged was counts

like to I'd results. call to Rocco discuss financial now turn over to the our

Rocco DelGuercio

Chris. Thanks

was ended portfolio quarter $X.X December was million net XXXX, $XXX investment share. the XX. or compared of million For fair million at our XX, value to income The per $X.XX March our $XXX.X

$XX.X net million. from Our this operations decrease was portfolio's quarter approximately

an of yield of quarter investments and had yield of a Our an X.X% XX.X%. of average a IRR was XX. the and quarter exited average during portfolio The XX.XX%, new the average our yield decrease realized XX investments average points of had basis from during XX.X% December

XX.X% first unitranche As of our investments in XX portfolio rate the companies, XX.X% of was portfolio investments, floating investment our in of were our debt XX.X% X.X% lien loans portfolio consisted portfolio of was investments. lien, rate second X.X% of in invested was XX, March and fixed and

XX. compared company our Our at approximately portfolio as million, March X.XXx December to levered XX levered investment X.XXx and We of $X.X were Endemol average company as was million. portfolio was of investment $XX.X largest

revolving the cash had as UBS. of capacity cash, we our $XX revolver. million term in million and end, under Finally, of in million cash fully quarter our $XX million by facility we in cash, today, our with million reduced and have as loan Subsequent million on are credit of we March in to $XX.X and $XX.X to XX, respect with liquidity, restricted $X.X $XX $XX.X restricted million drawn

portfolio our XX-Q, is Form the which Additional included of information in filed regarding after. was composition our

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

Mike Mauer

Thank Rocco. you,

disruption the between our Russia. oil and also investments and from investments. declined has feud I'd impacted gas of result by well-publicized Arabia U.S. markets of onshore WTI XXs like Since of Unprecedented Saudi rig January, and into demand barrel has to global on few of in count oil XX and portfolio. provide updates more dropped several a the price the a per than as the our plummeting XX% the in have

production as drilling borrowers the Oilfield impacted and also slowdown our have The resulting industry, fracking activities XXXX. ProFrac in and Water well even as Liberty and in two Logistics

our Liberty debt levels low measures and to and and case liquidity even to encouraged that downturn. costs. proactive publicly cover took and company In with has enough in the cash reduce liquidity assets it are positive. remain will company, start early we anticipate prolonging flow drive the conditions, that extremely will ProFrac To announced a company The each fact portion by significant the of risk-free the and fracking of measures market maintain a current Liberty, cost-cutting

company future. to current to taking what sufficient we have high confidence market liquidity with and the stable expect conditions the the discussions necessary foreseeable management, to in the and company their for are steps have Likewise, ProFrac's be is that

the company with the family to the has ProFrac ability additional willingness who support to equity Wilks be utilize. Additionally, owns able demonstrated to and

in additional an lien Lastly first in frac margin safety noteworthy it lenders. asset current have providing of companies cases, values of that us fleets levels, excess both with projected for both and as debt is both

this XXXX environment of company essentially the activity the rig Permian by storm. count. help operating loan decrease the have will the all Liberty in relationships. adequate price PPP XXXX believe focused challenging beneficiary the is ProFrac the liquidity things ward right With under shows on the have company costs also in important doing been They costs. to offset operating XXXX's as cutting coming in maintaining at they a funds Basin of is current the will the currently We halt, levels. program, oil are the through forecast this most to same and and primarily some which driven

company's there additional the company the further toward we cost delaying current through the additional we Water by had. are to hard the conditions. clarity of revenues geared CapEx case be the environment, and and is will existing to wells. Even wells Logistics, Oilfield business be comfortable management as is little in business the thus is the reducing sustain of removal company's production and revenue that to And until from OWL, physically OWL drilling this from literally Liberty comforted very activity to of enough can coverage. as existing asset the marketing needed connected case customers is are water are or support market In ProFrac,

our portfolio Techniplas. just process. the U.S. the chain investment new occurred was verge came We auto as well a the to have have impacted one in involved of companies that capital Europe the standstill. company any transaction significant Techniplas supply by from of and of regarded financial a as both was a work over on stoppages This would perhaps on non-accrual, most

last this through financing. process support company As noteholder in was provided group file the form a to to a and week the bankruptcy the company debt forced result, for the of liquidity

noteholder the of expect including also We subset financing. group of conclusion that at the case exit an us the will a fund

Techniplas when attractive and and Over on defensible auto a long-term, incremental and in increase we also the has funding the the returns believe restarts. that recovery capital provide good will franchise notes that recovers production business and as on the

lien. past portfolio several the migrated For we our towards years, have first

into of We terms in sought total to we industries companies both we of have hold. also portfolio diversify went a number and

three environment. themes current us these market the All of have helped in

on were leverage target we quarter, of a this quarter, the our of our guidance is Our target X.XXx changes upper that slightly range target. slightly are Last X.Xx. we due above fair in the value to below portfolio of to

in IRR. December our dividends covered with an We quarter

X to, turn our management with associated portion of As of we waived the over management we base [current] fee revenue. committed fees [ph]

share declared Directors those $X.XX supplemental a ended XX, same for XX, Board also a declared as July of The per XX. XXXX, Our of of the to record Board payable payable of of shareholders dividend on XXXX, share, June distribution per on June $X.XX dates. quarter

we supplemental of variable we adding in path cut the our and component a While light the the not economic pleased are to pandemic the proven caused is turmoil global dividend, forward. reducing by believe dividend and a

Investcorp ICMB. has commitments to of separate two purchase made shares

X shares Firstly, March XXX,XXX a since program. market made of XXX,XXX Investcorp and XX and program under inception open shares XXbX and has January the purchases between has bought

XXX,XXX purchased purchase and Secondly, and shares at has to-date. committed March to has X have XXX,XXX NAV. between January Investcorp shares shares Investcorp XX

structure markets. a traditional place. all retail, seen diverse jobs capital disrupted don't software put or have early resilient stage hotels, the products. don't We restaurants, or a us has investments at more portfolio in top management teams sectors COVID-XX in are of transportation, in in We coming, but claim tech fortunate set being our the structured of

in volatility market continue. the that may know We months past several the

We expect it will continue.

our disciplined, remain of will managing first foremost, and portfolio the shareholder We preservation capital.

that operator, And please line with for open the Q&A.

Operator

Our comes Instructions] Christopher [Operator question first Nolan. from

Chris Nolan

leverage ratio of the is the lowering in going what Mike, forward? plan terms

Mike Mauer

Yes, Chris.

assume you that. I to to the in, First, apologize had had for same I'd apologies like everybody. quality I

in because, wasn't historically. So was chime ask to least it the extent as to it not my that as me end, has please on clear been at clarify and anything audible,

be we not of On and revolver. write-downs when also at term the as dovetails with, little more and we revolver our leverage, you We're That had Chris, X.Xx. targeting the in X.Xx, We're loan, targeting in to to the paid are we revolver of the were don't change X.Xx in X.Xx now X.Xx because heard we're the need because and a term we between using down some the using more leverage. NAV. much

sell, around but we multiple to been end. to today not of because lower the We're continue said, sell be In going write-downs. at down. will a the that. higher That run to manage environment, at that we're having going We'll the to prudent current just we're

Chris Nolan

that now portfolio? growing it be lowering fair leverage as say to right would priority the the is and opposed to not So the

Mike Mauer

say, the targeted say, me not it's to it, repayments slightly manage is to get growing existing as but we make may today. we on capital it portfolio priority which is the portfolio to grow we yes, any would preserve selectively not redeploy, but is the different, let I sure

Chris Nolan

that Great. new in And Techniplas, a non-accrual since quarter second the was then April?

Mike Mauer

Yes.

not non-accrual So Techniplas was today. technically, is X/XX, at it

bankruptcy, So we today. about March through quarter, interest of now. when that's fell that it a nice in we we COVID They are from sponsor. their of say one capital apart and And paid restructuring the and non-accrual, was to all very it a happened, have influx when have

So not before. it was non-accrual

Operator

Our next Dodd. from comes Robert question

Robert Dodd

as going formulaic forward $X.XX. the to two going dividends, can then discrete, I mean you the terms be And On interact the Board whether any color us on is cut the $X.XX supplemental that are base right? obviously, going versus of discretion. well, how supplement, everything But give components is NII Board in to to

Mike Mauer

a it. a doing right the way. over a we're way Robert. lot to that Yes, this. We it's I'm months it's we to some hopefully, recover at months the around are in are We and time not right that it being somewhat be X the U.S. slow economies spent expecting that know XX do of economies pace, there's going pace. prudent hope sure not and quicker. to the think next global We We

the quarterly. the have we that that are having out It The at level quarter we NII. looking and cover portfolio, to that's that to should at we be above that base it will above will a and $X.XX. that that formulaic to end. formulaic. It we all there want said, NII expect comfortable a be what meant managing but time we may be below, expected We With reassess been a be for supplemental will is play little will or some believe we're and where of that with be be will each proxy

Robert Dodd

all another. on we XX the if the months the beyond much Got If investments the you of for how look what has beyond portfolio And revenue, of Obviously, us and a and it. versus the or could high then no well. I give it's remainder those portfolio, companies, risk the into operational would than the you you not but assets exposure has color energy moderate you on called-out thank assessment of worrying call Appreciate mean as a any liquidity. combination liquidity, of liquidity, maybe Techniplas that. that to low, portfolio some less COVID business exposure has rest then provided of

you can kind thought color of us around that So give any process?

Chris Jansen

on XX% expect. our there's as of We've about of and how that all of COVID, would not. you more done is argument, portfolio our including being We much by really Yes. impacted severely detailed and how to an is at Chris. portfolio, Robert, XX% as the COVID, look oil gas analysis some it's much exposure,

have of as those, probably lower we Of amount half about liquidity. that

So roughly of portfolio. the XX%

Mike then as group last for Techniplas and process through was including bondholder want. that some as that of you the the is supporting mentioned, And is filed which week had bankruptcy bankruptcy

Robert Dodd

[Technical Difficulty]. it. I appreciate then, And color. that Got

Mike Mauer

know just add XX%, XX covenants, plus almost covenant just shy think or them for less and investments handful two-thirds, to And your I request question. that, we this relief have to of relief, a of for than part is Robert, about from When don't covenants. have if of minus, have asked where we

requests of lot liquidity a we So we here. are not more and and requests. we amendments not majority get basket We've covenant for only are go sitting ask with seen some out a further, a XX% for expect but covenant people handful got coming relief light had with of to-date. as have we vast covenant we've I'd

Robert Dodd

I But on that's your the in for side, companies, the there your liquidity right, get if $XX on sufficient do today, not if drags million so incrementally get to then you fund presume request error requests your what add to think fully own liquidity, appreciate and sheet? even additional margin more liquidity the that drawn in And to I are it. that. I request terms, do the you repayments. liquidity, cash relief, your come portfolio for Got resources you any if longer, mean this situation revolver. in of do balance what's from

Mike Mauer

$X or about thought group. the of that. we revolver truly that revolver our million that There's up. claims are of have on is lender Yes. as one $X Number ways two claims control three outside million, It's

have requirements or ones of on gating, a other of lenders. lot lot discretion The the a

one. in revolver not do our number significant design have exposure by So we portfolio. That's

will near be term, repayments I've about to we do of over self-help million Number is, at X/XX. other before $XX things, the included million three i.e., and least what expect $XX there about know Number number. in that we two is, when we that think

pay period needs or and we keep revolver whether of and there. will down over We some that extra time not assess liquidity liquidity

disruption actually. lastly, get a mid-summer extending other lot in to I then other a And the UBS, of they about be sector. know, the things. as we're the It's said because mortgage more and it it's of and from talk the BDC basically our lot and they sector those even before of is provider to think And probably we you into waiting away liquidity us want in of kind not corporate; will

think with So more that have today. leverage adequate facility than of on in liquidity got we we liquidity some got cushions think adequate our we've coming. that and We've UBS top we are

Operator

next from question Johnson. Paul comes Our

Paul Johnson

facility. the on credit more One

your said As today, about, you I'm as today I are in the availability? completely of far wrong, goes to quarter. the me availability on the capacity if borrower had or think the drawn the any Is restrictions limit that you you available in draw there on $XX for correct revolver million there facility second sort

Mike Mauer

clarify, term today, what think BDC of is, we our done to drawn our revolver loan. paid the I Just we've and as down at have

There's about So under that about got the we that are actual cash $XX cash capacity of have. other we've buffers is we $XX drawn on not but the got, We've million million of revolver. there. additional top

capacity So revolver we there it. think we need and additional don't not is

Paul Johnson

off Thanks through marketing spread plus process. quarter, you that. talk were could adjustments? as for value historical incorporate just these performance about projections you primarily if going this Okay. When process did your this of companies, more And forward-looking of bit any then little you marks were of based sort as curious these far market or fair I'm a

Chris Jansen

The It's Yes, did how crystal difficult. back. ball little come a gets depending more really Chris on the It's foggy, latter. Paul. of companies Jansen. We

on investments when we thorough of what this. our did that started liquidity individual hearing So We some the first, really felt analysis had. this rumblings first we

their was really companies right, do themselves but to against not have like, value, in So sustain coffers what at this? looking enterprise

it to went analysis this, portfolio okay, we be felt to confident and vast men, So that do the impacted as through we think are our for valuation to we most majority was said, would we did going companies which more we through companies on traditional which the and went backdrop, with very that the why? And say, them. of make of a say

more where or less performing we some doing COVID did with to and in had think environment? will and market been COVID pretty was widening So similar as the analysis where spread spreads our before, we backdrop companies a more but the widened And succinctly. what analysis but be it liquidity versus we've new

Paul Johnson

Sure.

to the this I Okay. around need I And just likely question firm support personnel or the your portfolio what's and had very we focus at have shifting I'm resources a credit had the to your do are or or platform. just resources we're help entered curious broader be recession. companies entering highest in basically guys you to the any guess last with as trouble crisis How to how those potentially potentially on shifted portfolio today? more you liquidity

Mike Mauer

Yes.

I think it's a great question.

team get we're every dealing have people. Chris We expertise industry involved. less discussion down name portfolio advisers, able restructuring a et type And that any with take having and and literally and the with the around given to in XX of lawyers, expertise. specialists amendment, take not We're industry is the are do the all are We it's by whether is people cetera. of names, about than by restructuring not XX each senior that to names. We and minutiae XXX who myself XXX, involved

industry nimble enough we based shift can and upon So that expertise. we restructuring are

Chris Jansen

is anybody on more sleeves the team. on up example that where than XXXX of a rolls good And that Mike to literally else credit

Mike vast ability I in refinancings from and do so prior his things So to has his that. understates career, experience he think

Operator

[ph]. from Rothschild] [David comes question next Our

Unidentified Analyst

doing price you of as a value here discount? at guys' line why and your you credit kind your As if that lot far net your I so allow of about far to aren't back Does know credits. below you this and more market buy is shares asset so, talked your

Mike Mauer

line credit, that. borrowed our from we're against of So

at you the the this overall question discount, make Mr. or sure we're about company at the at we've you all maintaining your liquidity level are very a important, sector NAV. in point, investments. it's or versus the trading so of BDC are And whether discount. important a $X.XX, think got $X.XX lot I I is the say deep that Rothschild portfolio. to around And not understand across I'd

to part that maintain think maintain it you investments. liquidity your of I the is making sure

XX-plus The we the if think stage should our for the rebound trading the range. is primary. back right and beyond that's XX, and get up we And the that really are we stock XX, into And is that appreciate do absolutely our but I back a second share of NAV a next not on that is to good right, now price, focused liquidity. buying levels use

Unidentified Analyst

Yes. It seems like XX% return is a good return.

Operator

[Operator Instructions] have further At we this time, no questions.

Mike Mauer

We everyone. talking you you and the to forward Thank to look appreciate your time in future.

Operator

for call. This today's conference concludes Thank you attending.

Investcorp Credit Management BDC (ICMB) 16 May 202020 Q3 Earnings call transcript