- Earnings call transcript Q3 2022

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Operator

Welcome to the Investcorp Credit Management BDC, Inc., Schedules Earnings Release of First Quarter ended September 30, 2022.

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 would like to now turn the call over to your speakers. Please begin.

Michael Mauer

thank today. joining and first on operator, call quarter you, you us for our Thank by Jansen, joined our I'm Chris CFO. Rocco Officer; DelGuercio, and my Co-Chief Investment

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

Rocco DelGuercio

the statements our any remind icmbdc.com. Audio release Any Thank Investor call will differ that may safe this unauthorized call to attention website may this and Relations these is and broadcast is you, harbor from page Investcorp replay of in on that today's the materially and of forward-looking everyone that property by forward-looking the like regarding I form call recorded Credit projections. our at everyone available Mike. Actual prohibited. to press like would visiting call would call I remind of is also results to our projections. information strictly being Management be call disclosure in today's your include BDC.

forward-looking by time, to I Investor and to statements our Mauer. Chairman this Relations At We our Michael will the call website. turn unless page visit CEO, obtain not law. our would SEC please required our update on filings, latest back To like

Michael Mauer

first Rocco. influence continue quarter Thank marks Macro debt the our quarter This markets. year. you, private to first fiscal September on of dominant the factors be

quality middle U.S. well. slowing benefit remains Interest underlying credit volatility, the We that slowdown in in continue in steady. the in has positioned new the market performance further increased quarter issuance rates broader we significantly the further and volatile broader economy of fewer of pressures. Equity as driven pace overall toward stable a primary naturally to our to and as and the been refinancing market and new credit interest leads investments. been inflationary widen notably increases see the have operating Despite prolonged Fed This to from further tight believe markets monetary end of the portfolio the market well We slowed by saw the well. activity spreads continued have The companies policy activity portfolio generally are rates. to market.

For new four the made context, quarter. investments we during

quarter. made X.X the Over the new quarter typically per were four during we investments club deals we we quarters, concentrated averaged investments pricing. find and structural favorable The on prior where protections more

sponsor-backed All and in were none coming of light. new our were investments

XX%. process. quarter, successful This we deploying opportunities We highly an our were when in and selective capital of average investment new our in in at new investing yield remain system

in stronger we committed lower structures investing yields, As and with covenant multiple. always, higher to are protection leverage closing

industries increasingly that the attributes. selection, environment, resilient Given have and sector markets become lending macro we recession-resistant and to with on have countercyclical focused end

to and finish XXXX. be management in Rocco our becoming risk end. now investments, quarter results. through Chris incrementally portfolio quarter also on leverage, through and will will go walk deals, addition mitigation. September after the more outlook nonaccrual NAV, with financial commentary our dividend for our the the our I'll on In diligent continue to new investment selective we our and activity during

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

Chris Jansen

invested We and positions companies this companies four in Mike. Thanks, two in new fully portfolio realized our quarter. portfolio

the club snow by in invested care removal equipment we financing at LLC support construction, of for yield manufacturer a company long the add-on XX.X%. markets.Our approximately designer acquisition the OEMs and of waste, cost for is First, Investment. to the and JMC in is and

settlement the the providing revolver, mass acquisition Fortress loan of We services common company Archer Archer also outsourced an and on of of invested Systems services. in administrative the is Investment and Group. tort term by provider equity focused

is the in approximately a Sterling portfolio a loan. We Services, company industrial of invested provider is Our X.X%. in Evergreen of to and We Group. related North specialty services. the cleaning and Industrial cost Evergreen invested yield American cleaning term revolver

X.X%. Our approximately cost at is yield

of We distributor invested the focused company applications LBO support in diverse on to markets. PVI MRO Inc. by of control in middle end a the financing PVI Holdings Holdings, the flow is club leading also ground capital.

cost is PVI approximately Our yield X.X%. on at

in We the its substantial also fully company realized refinance our Lennox a debt. and position acquisition as made

XX.X%. fully IRR Our realized was approximately

we Lastly, Water position fully our which in Oilfield by Logistics, Water acquired Solutions. realized pilot was

part position Our of was as refinanced transaction. that

in services portfolio end the IRR company After first Flat Solutions outsourcing financing that for and by realized a We provides term of X.X%. to lien Capital. in and in new Boeing realizations. the was Flat invested We technology approximately variety one company revolver, had loan of invested common World acquisition company fully markets. business support and World quarter outsourcing a to invested equity. we end, the no process have is Our the club

Internet trading at X.X%, portfolio our GICS services cost professional distributors yield is at and XX.X%. Using industry XX, in as the X.X%. X.X% was services Our standard and retail at marketing September direct company X.X%, concentration and at approximately the largest commercial at XX.X%, followed IT of at and by supplies services

GICS positions, increase are of from the X% industries including is quarter our previous quarter. which of end, as equity an in XX of portfolio Our companies and warrant

I'd financial As of the call to XX, Rocco results. June to had also our we now discuss companies, increase like an to of portfolio two over September XX XX. from turn

Rocco DelGuercio

Chris. Thanks,

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

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

investments and change quarter of IRR increase of the while SOFR. of June fully during in a XX, XXX average average of an an XX% is realizations XX%, approximately realized yield of portfolio investments and average quarter of was average our debt basis XX.X%, the debt repayments XX.X%. an the during the yield of points Our an The increase result yield had had XX.X% from weighted LIBOR had

our X.X% floor XX, on investments invested was of rate equity, fixed in is The consisted remaining of other first and portfolio -- the average As debt excuse me, warrants were our in instruments our September portfolio invested companies. and floating debt XX in X.X% XX.X% and rate of investments of and X.XX%. portfolio positions. was XX.X% investments. our lien,

company investment was our had X.XX leverage times We company portfolio previous respectively, gross net X.XX gross net million. largest quarter. as Fusion of times of portfolio and and a $XX a times at average XX and to of X.XX approximately million, leverage $X.X for the times Our X.XX compared September is

three was $X.X cash capacity investments restricted to had million credit cash, our One. in XXXX XX, had $X.X As of With on in we our included three under of investments seven with $XX.X one September all Capital investment September and of PGI, in XX, million with respect Deluxe. which as nonaccrual, liquidity, million revolving of which we facility

XX-Q, the regarding to which is filed that, information included I'd like our was to in portfolio our the Additional Form yesterday. turn call back With composition of Mike. over

Michael Mauer

Thank you, Rocco.

quarter. the haven't First, NAV to we decline in to the quarter I expected. seen two materialize Last expected quarter, as this were address the recover NAV that current There reasons recovery we modestly. like would primary

from widened the we that September. had by in average the the points. XX saw spread to XX, From BB in quarter to First, beginning occurred the tightening previous X B- X-week of reversed September spread trailing basis the itself

in in the downward did of significant are experience recovery a a -- low disaster On we public most evaluation as ArborWorks unable the equity not comp the significant a terms due of results Public the Second, the the to expecting our in as equities the move situation that result historically market. driver region we equity decline business are saw and and Part the our ArborWorks to due we had to discuss volatility quarter was reasons. some decline in lumpiness the Bioplan, decrease term. that valuation of confidentiality expected we result of a serves. of Bioplan, year a as ArborWorks buyer We our quarter a early marks during decline in are the of of comfortable in recovery the current the underwrote some to On over experienced in business X NAV long and burn, career see the acreage building. investment ArborWorks with September. Arcade attributable of

challenges late three some segments previous business CareerBuilder tariff, benefits There discussed in a provider now underlying been October. work segment time. sold business small experiencing a that remaining. technology administration CareerBuilder's the in business are As has quarter,

we can't performance. additional about company's any can't give the -- reasons, information into confidentiality For we go

investments, or capital M&A remain a to conclusion for continue that for positive activities. optimistic think we the driver our and for We markets provides a maturity short

Our this guidance above quarter our X.XX gross leverage to was of X.X. X.XX

net X.XX. Our was leverage

we quarter, expect to see last mentioned leverage As converge. net growth in continue to our

and net As X, X.X%. gross our of X.XX% were leverage November and

quarterly per will company we earn fees both management of of ended board our base one fee XX, quarter our the have XX, XX, is adviser XX, through of turn leverage.We supplemental covered its NII. associated and ending share to December with previously distribution dividend management distribution of a dividend of our January payable of stated, on November XXXX, next the shareholders with declared On XX. XXXX. waive share, per the for December the December record As the over to The expected on $X.XX September XXXX, portion directors quarter a $X.XX

price this regular range are to setting believe believe dividend as per from We we this that level We previous $X.XX net of we proactively of attractive quarter. yield to While represent new at on continues continue the officially of appropriate dividend the stock. to an effect the dividend quarter reducing unchanged share, is is leverage X.XX market level the a focus times. the X.X IPM given

portfolio companies further to challenges. is our market to continues navigate be portfolio Our operating The of well positioned strong. underlying performance

management with protection remain investment focused highly ahead, Looking we on attractive opportunities and investment strong finding structural characteristics. and risk

always, Our That open stable ultimate is, prepared preservation as and concludes our wavered not line capital please a Operator, remarks. for Q&A. goal focused on the has and maintaining dividend.

Operator

[Operator have ahead, very gentlemen, conduct Raymond first James. person Sean-Paul question-and-answer question -- Our you this time, call Adams a the session. much. the with our Go we'll first we at first, Ladies first for Thank and is please. Instructions]

Sean-Paul Adams

credit. In your markdowns a spread breakdown than for last little proportion quarter, guys. versus related bit quarter? the market estimates relation credit markdowns adjustments your Hey, of greater to of markdowns give of of had Can you a us this average you for to

Michael Mauer

quarter? For the December

Sean-Paul Adams

sir. Yes,

Michael Mauer

December the that starting quarter. reviews Is the for we're just quarter, to our do The question?

really general we have no the let any comments at of quality Chris So I'll make point. portfolio. the estimates about this

Chris Jansen

is Yeah. plan. Overall, to Mike. according portfolio performing the Thanks,

concern on there like has I credit, deals some sharp interest obviously, coverage cause us out who for in short-term rise at levels. rates the given anybody think

And that and side the the the have coverage and years deals. of this I that we've in fact level the interest never many to On seen a of been doing XX% of team some had we this, to through of due other that issues that's or Mike specific the just equity XX% underneath the have as the credits quarter. Mike deals last credits, XX% them. where far have, walked And lot as of we have in couple

too anything process. it's But about This thinking early Hopefully, on helpful. as that's Mike very differently. in said, we're quarter, the we're not not really very,

Sean-Paul Adams

Yeah, that's perfect. Thank you.

Michael Mauer

Sure.

Operator

much. very you Thank

Next question is Christopher Nolan please. with Ladenburg ahead, Go Thalmann.

Christopher Nolan

guys. Hey,

some of the increasing economy the of this plans it nonaccruals take portfolio? you in if cut economy, seems uncertainty some already up, the does that trying terms risk up back would the You be went the like guys impacts. material base off dividend, Given tack vulnerable were leverage any really and quarter, but to to

Michael Mauer

things. you Chris. very up much question. of was The leverage bit. Thank a the Yeah, for A couple

of is repayments, some where we've on as Some you that refinancing. timing, know, visibility got

bit something a comes Sometimes to before committing of little new mismatch there's a of deal a on.

we at are paid movement to the not on you will we the optimistic. view, right, want environment, leverage was range, into that not, wouldn't much of above net in and range our basis that And our it read material too in the a be I it's are get look you deteriorate. get concerned we quarter-to-quarter. to pessimistic, from as X.X%. saw there But X.XX%, We So the

continue And an portfolio, to existing so from we watch.

top We borrowers is about see have coming. equity Chris do stated, some pressures. we've and dialogue resilient seeing line. to fairly happening to But our with significant cushions. as what is cost think got We're We continue what

been key cushion. historically. one that are focused really equity where equity is doing we've is from and around think cushions things now, I Recently, the the over XX% they on every of been things, average, right growing we're three new have we're investment

And covenants, environment it, when getting clean every this in focused. financial look in at is critical call very least at I'll think a are EBITDA, new that not I and doing any things We on tough covenant underwriting, one EBITDA how, need all our deal coverage, is critical you we're doing. one around much is light, of do in We're deals where at focused far good very there how those of very And out adjustments interest start as we good leverage. to be it. as low with part And things all are even that. but it as we is, we're SOFR

Christopher Nolan

and non-accrual nonaccruals, that of just is XXXX for these? And Teleconference of while. have exit as -- And the to a services it your a Or a recovery. can like better simply is been some out make just American decent follow-up, anticipation you my

Michael Mauer

think the return name one in in are talking through we I is Telecom, and On you are. On on ways neither that. XXXX, them with working X of exit it of we're on you're that working American it's try it. just It's and or depends robust, these not a of, find a about. maximize to PGI that out sector process to can

think I stories between different two. very the So

Christopher Nolan

Thank you.

Operator

Lynch from very question next you much. with Go Thank Mr. comes Ryan KBW. please. [Operator ahead Instructions] Our

Ryan Lynch

afternoon. good Hey,

update But missed sure where you is on six and an months can I'm and compares or maybe so. ago First in question weighted your to coverage provide the I portfolio how that interest average it. if I prepared this said on you not your and comments -- today had,

Michael Mauer

Chris, given consolidated But -- we've on go I'll basis. I'm let not it sure you ever a ahead.

Chris Jansen

Ryan, it's Chris.

coverages X.X-plus as interest coverage enlarge, range but are the in average. have an Our still by declined

We And probably outperformed. as that's well couple point. of you I at our this much give companies as can have had a about

Ryan Lynch

your That's of of the kind going or more to deleveraging credit the you following commentary you issues I at have payouts. are love are And overall that fine. hear look of is kind the just dividend, the guys the up the because guys core to potential dividend framework mean, a of have is I'd of interest function a on tailwind lowering you dividend. keeping that portfolio your then rates Okay. but just of guys same, potentially kind the the forward. quality regarding when you could earnings dividend total thinking just overall today, going of of on

payout. else you accelerated So core of appear equal, But level growth. that reducing everything holding earnings be there it are actually dividend would that should guys meanwhile, of kind

of I'd but the the that level and even dividend behind So had just core hear slightly. dividend mix the kind guys level love kind framework whole mix changing you of changing the to of the reducing same kind

Michael Mauer

great I'm have the glad sure because or trying about have did asked manage Yeah, could to we spent probably could it it time leverage ratio. talk more it Ryan, it's prepared. in I a make into spent we you question. we on on more time But that

So that's one thing.

continued to and portfolio. The other We're continue spread. rotate is the we that not will as the we've maximizing invest, about to

the So XX-XX. XX we've seen this subordination spreads line now probably in to We're more focused on environment.

don't a an And SOFR the so that you'll yield, us spread plus the I a uplift. see on plus absolute widening of know get widening

XXX What happened you was SOFR around new during minus look rolled if So off -- our the of what to were XX%. quarter SOFR our above investments XX%. XXX LIBOR or up at and numbers. plus was

the around up was overall Our same.

comfortable signaling, that the think Right want the both But sure comfortable will So always to we and all covering. around when sure that most dividend covering right we supplemental. lift. we make about on core to want is from the I going a of that's the And make that that, coming core that we're see dividend, from we core just think the now. dynamics now,

Ryan Lynch

a to way improve bit the stock you a fair stock, think, the discount valuation is approach, last forward. then what think fundamental what Obviously, approaching close your that that That's but you all Investcorp valuation. could that fundamentals of discounted that calendar are big going has pretty for just upon Okay. interest don't looking you and all to that performance and a some your been are question, are value or investor of the increase the of obviously, book control control company, time. the business that rapidly potentially we do And I you of hopefully as are -- price my and the XXXX, areas

Michael Mauer

listen, we're in it. we're song same -- to strategic the at old grow ways Well, looking that always

other or kind the But did our dividend been either will will the two that's and found we're performance. one control our again focused OpEx the inside like. of in base not and private, of that, on the outside one come is I away from on we executing building that We help thing have and right control, the the which or successful those and think decrease of because go on

and to actively So that we've got to working base, continue we're build that right now. on

Ryan Lynch

Okay. all today. That's for me. appreciate time the I

Michael Mauer

you Thank very much.

Operator

thank And looks like It no you everyone. questions. have we further

Michael Mauer

to next Thank you you, look talking forward We everyone. to quarter.

Operator

for attending. call. today's Thank And everyone, you, conference this concludes

Investcorp Credit Management BDC (ICMB) 15 Nov 222022 Q3 Earnings call transcript