ICMB - Earnings call transcript Q4 2022 | Investcorp Credit Management BDC, Inc.

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Operator

Welcome to the Investcorp Credit Management BDC 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 would now like to turn the call over to your speakers. Please begin.

Michael Mauer

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

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

Rocco DelGuercio

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

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

Michael Mauer

quarter June you, Rocco. year end. our Thank The marks fiscal

portfolio impact the credit more to saw widening of in spreads supply broadly be our The underlying well market an quarter in debt fair moderate. investments, performance increase widened quarter spreads of syndicated spreads sense. have and strong. and the have moderated Despite rose as both June middle-market levels the XX Spread several quarter. inflationary the our has on although This most rates markets somewhat has across in in quarter value operating volatility the floor into pressures Interest above weeks end, chain market the continues activity rates the and significant and our primary had in times the broader weak since continued. end in seen the been that average hiked going credit the Fed the

focused made and new portfolio robust light of club investments remains which We our on which more and has LBOs. of of pipeline three None were new covenant Our were companies. been financings. and reinvested in existing one three

execute to this co-invest in equity We group, our North with one position under America to Investcorp’s continue positions plan with equity new quarter. private

also get refinanced. We in portfolio our of saw several our loans

Although this despite in are into land the and volatility, remain we haven’t we diligence. been unattractive structures market active fundamental opportunity. deals selective the our structures, rigorous even with chased we the with investment We where has comfortable about

seen stronger lower generally have loans yields with We higher covenant multiples. and closing protections leverage

were we average deploying quarter an XX.X%. capital of This yield at in successful

investing has not continue the to in management cash middle-market on attractive decisions. strategy management backdrop, in investment Sector free Our we portfolio of economic in and remain Even our teams focused macro with market credit and the a tool companies characteristics, key our flow face strong defensible we and selection maintain remains wavered discipline. positions sponsors.

of leverage, recessionary after resilient with for that and finish NAV, commentary will I’ll avoiding on quarter financial periods our during now investment outlook activity June results. Chris most and environments. exposure adding We investments, non-accrual end. discussion, go XXXX. After his through quarter our our dividend Rocco the and consciously and to are vulnerable our sectors on focused will are through markets walk in are the

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

Chris Jansen

in our We companies. companies We three new in realized this positions invested Thanks three Mike. portfolio quarter. portfolio fully

and one then reinvested position company. also in realized existing fully portfolio our We

business. procurement, creates acquisition in processing American dry seeds First, company of club Merchandisers and vertically of fruits. for Nuts Nuts, services the American financing refinancing packaging the acquisition Merchandisers. The integrated of provides DSD we which and invested nuts, the the of supported DSD a and fully

freelance equity. cost yielded a led common that supporting invested term loan technology on approximately club staffing integrated first its WorkGenius and end-to-end lien both JBC. is We firm We is focuses of the acquisition financing XX.X%. hiring. of WorkGenius, in Our the

the We services at Investcorp’s CCC an X.X%. structure. led listed its cost on equity investments of approximately equity as as co-investment the our Hersh XXX CrossCountry alongside firm loan third conversion to term yield debt Fortune companies. corporate advisory offering our private refinanced group, a is in schedule is North Our LP Aggregator Klein Consulting, Victor’s American advisory business part to ESOP

was the a approximately existing had yield invested of with XX.X%. in realized XX%. an We investment cost IRR of at term last fully which Our new loan, approximately out

new Regarding in realizations April, merged the as with company the repaid made first Products. in loans Gexpro the other our quarter were Lawson

approximately IRR realized loan was fully XX.X%. on the term Our

Although we the draw, on short the pleased given holding not the delayed revolver are IRRs are the return with meaningful the and period.

by We have realized in which position DZS. fully Assia, was our acquired

was of refinanced part Our as position that transaction.

Group fully We new in favor quarter. position of in Manufacturing realized this approximately originated we opportunities Our our was IRR that Momentum opportunistically XX.X%. exited

Our After portfolio an fully realization X.X%. quarter invested X existing we had portfolio was in new IRR X and end, realized approximately company. in companies

on in services. which by mass outsourced revolver in of tort invested is LBO loan First, Archer the providing Systems, the We Archer term provider supported we common an and Fortress. invested company settlement administrative services of equity. the focused

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

cost yield is X.X%. at Our approximately

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

approximately X.X%. Our cost is at yield

the for AmeriQuip in acquisition waste, by the is of snow the AmeriQuip markets. club designer care for add-on to support of invested company financing lawn manufacturer JMC. OEMs also construction, LLC the We and a in removal and equipment

cost is yield Our XX.X%. at approximately

debt. fully position company made Linux, Lastly, refinance acquisition a our realized and we in the as substantial its

trading professional followed by XX.X%. GICS X.X%, Using at X.X%, our company industry services retail household the and approximately and internet standard X.X%, at at services as and IRR concentration XX.X%, XX, June realized distributors X.X%. Our was direct marketing durables at of IT fully was at largest

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

As of XX. portfolio had June March companies unchanged from XX we XX,

As turn of to XX the call have today, I’d our like companies. now to over results. we to discuss Rocco portfolio financial

Rocco DelGuercio

Thanks, Chris.

For the quarter was XXXX, share. investment net our income $X.X ended June or XX, per $X.XX million

XX. value fair portfolio March Our on million $XXX.X on $XXX.X our to compared was million

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

IRR Our quarter average had investments realizations debt during XX.X%. of and XX% XX.X%, the average of average repayments the realized yield during had yield an an and quarter fully had while investments of an

the XX% delayed LIBOR portfolio IRR, debt before points March SOFR. and XXX an draw of XX. excluding an repayment a GS was was increase our distorted of the by operating, which by of the of timing operating, XX.X% the XX.X%. this of created weighted Approximately increase GS result of IRR The Although exceptionally basis a yield average is in this was change high

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

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

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

call our like which composition back we of the in to portfolio and that, expect included on return Form-XX With Monday, over information to Mike. to I’d September is Additional file XX. our the

Michael Mauer

Rocco. you, Thank

inflationary in public depreciation the markdown the investments and value volatility the to in PGI. is related like from I’d specific markets. and of few sector by Techniplas, in market of the for position, in this into credit and auto of portfolio in a which Techniplas variety companies, NAV the driven spreads CareerBuilder, headwinds quarter the address change of movement a was Approximately including equity quarter, which one-third is unrealized broad-based driven First, including the factors, the decline to

over we based Our valuation quarter past value the time. decline at X/XX the for of on CareerBuilder’s the If is price in from stock underlying gains been the significant use, experiencing look ended trends few X/XX fair with the the modest set challenges comparables. the to weeks. using business quarter we broad-based recovered company of comps has has some the public the public ended

in said, less X-year. give For details quarter. confidentiality during about and July revolver the in matures can’t That the have matured the Quotes term reasons, performance. loan I company’s than declined

all by informed factors. is market Our these of

term a a that significant for M&A and a change constructive the on unrealized this experienced for optimistic quarter. we value just is maturity recover expectations. on to company’s write-down expect We in our our expect second monetize revolver have short far a to Efforts longer do our believe are the accounted in capital We thus conclusion no investments loan that in provides recovery the position We PGI value of possible catalyst in we quarter. assets mark markets positions. CareerBuilder’s XX% position. lien for However, our of or appreciation activity. over or been short of

expect some significant responsible may investment. depreciation on that value time portfolio Although fully the impairment of further that for method. majority yield the we in position. change marked of realize our a is is and using XX% take in unrealized PGI to The

as declined in of positions using of to making and effects. down June both spreads Our marked broad have XX, quarter one-third movement the tightened yield market significantly, attributable is negative. fairly fair Over well reversal us about takes factors, some a NAV our spreads of value down optimistic account marked the as into mark-to-market these – company-specific Since this method. positive

above of X.Xx leverage compared lower our gross to X.XXx last this points and X.XXx basis to quarter. quarter guidance XX Our was

was Our in the leverage range. target net X.XXx

see net quarter, our converge. we gross leverage generally and As to mentioned last expect

and leverage X, As gross of September our X.XXx. net were

record XX, and the of represents ending market yield September XX. Board September the through management previously with its the XX, quarterly company the June waive fees year earned and to As dividend sustainable given distribution Directors of year of October attractive stable the ICMB payable stated, dividend base for price declared is Xx dividend $X.XX over earn quarter shareholders end will it that portion level our expected We on next quarter and XX per of September We its the our our share the to-date we XX, with XXXX ended fiscal is has of have dividend leverage. June August calendar associated management and an advisor Through fee of to On covered believe the NII. as a XX. stock.

remain management. ahead, risk focused Looking highly on we our

set on Thank attractive We industries. in rate line Although Operator, we lien order believe to macro remain remarks. Q&A. the achieve dividend. in discipline structural cannot to diverse and capital short-term in and predict loans our defensively geopolitical challenges. please broader for open portfolio Session maintain of in We rates our the primarily goal first focused any increase we concludes believe actions, Question-and-Answer well protections Fed’s preserve the we opportunities the pricing to floating investment from of stable credit and invest is positioned with positioned you. timing our That maintain to benefit prepared a finding and continue will a and navigate to

Operator

please. from first James. Dodd ahead go Our Robert Instructions] question [Operator with comes Raymond Robert,

Robert Dodd

if mean implies markdowns, XX-K. That credit over the for is than we a there said just Hi the not give can the Are accounting etcetera. which of is strong, market Mike. math, the guys. said mean performance companies remained the ones, you mark In don’t two-thirds something Techniplas like of you or obviously, and to some portfolio the us, CareerBuilder, CareerBuilder, I you remarks, obviously XXXX, third another have I I outlined this case. that implies any just specific PGI Hi, there was some of more is wasn’t. prepared underlying pieces your most because do you looks small it others, operating Obviously, probably business?

see can’t another But where there marks I business anything incremental are or the and credit that So, concerns? there is performance the at moment. like

Michael Mauer

concerns credit Robert, – ones not from have you the highlighted. is the is the answer short answer There no. away

half you think a and if of for third account over write-down, think then NAV two at market spread. the being I I it look Techniplas, those and of CareerBuilder,

small are you the between So, and movements. think XX% And are I XX%. Chris,? But balance

Chris Jansen

Robert. of PGI an Hey, that. is Yes. additional XX%

those three are names two-third. So, basically

Robert Dodd

an sounds Got impact obviously. have the at was It it. And look have of which on you of you mean away numbers. industries, like are numbers then seen, areas got just high, running or prepared already mean a mean high interest have recently you in I Are inflation certain if about still we that that, rather also Techniplas. backwards the concerned that having we performance lot we than obviously forward, like any coverage looking there eating I about from talked right. that? staying of the terms are inflation, in levels where away anything I remarks,

you worried or if are, forward whatever you about, where have XXX So, is any points, which or there would do to so that SOFR be obviously, goes there the LIBOR to basis close curves indicating…? exposure

Chris Jansen

Yes.

couple Robert. things, of I think a

levered. I leverage companies, four on companies. at of are I we plus When have or times quarters been our they last quarters focused three lower think three bulk particular, the two in plus look and the really

another smaller lot sold large, b, And about more we they and their doing nature, with initiatives conservatism teams addition That’s management any are to where things are be on labor lot costs of of really them to that we tended of but goods costs, a, our and lot level put pressures don’t input and And today, all the they of asking As for on labor of that. of I management of a to saving see on have side, cost calls, we upfront. our costs, under think there. wanted we a by out a cost in diligence investments. are to in the bullish control really taken other the

Michael Mauer

a add is other Robert, that it’s things. Chris just the have two lower highlighted would around things focused of on that been I that couple ones Mike. leverage, And we there key

value. around To feel in other covenant very deals. the the where a end, lot loan not been significant about heavy, as beyond have done well the junior equity is we to have been are, thing been of of portfolio. And deterioration the new around LIBOR We been It’s as availability, cash we quality low-XX%. all on EBITDA and focused high point below focused sensitivities EBITDA. around have we to and and It’s your and sensitivities principally typically capital, as good increases at light. Covenant we equity the

Robert Dodd

business appreciate earn out on it’s right to I where you whatever now, But expect color. Got the doing what in I with Fed you the income that’s that as more, business said is feasible the especially If Do return do. it Do need going costs, as about equity September X.X% obviously, as sustain business with at cost an etcetera, with be I realize you the we management it. bounced, hard the dividend, overhead believe dividend Thanks. you to what they believe losses or of the NAV long-term rates are and well move, unrealized one the a earn to although debt, and it need which you will gains hopefully project is before earn long-term with the X.X%. dividend. the structure, where to can you it fee just size, it to it that realized that’s conceptually the even you now, can but is income right quarter of stands? on the this

Michael Mauer

Short Yes. we at have looked it. answer,

Robert Dodd

Got Yes. Appreciate it. it.

Michael Mauer

Thank you Robert. much, very

Operator

next ahead. from with Chris Thalmann. Ladenburg Our Nolan go question Chris, comes

Chris Nolan

Hi.

investments were percentage can you on non-accrual the the basis value? portfolio and the Given K, cost the tell the us of in fair what delay a

Michael Mauer

XXth, value upon a million value. approximately of as Yes. based The June fair – X.XX% the $X.X are fair non-accruals

Chris Nolan

basis? And cost

Michael Mauer

I have that… do not

Rocco DelGuercio

The so changed have not will quarter-to-quarter. will to non-accruals Rocco, the numbers get get I just from it’s of back. back. We Chris, have

the exact same... So, they are

Michael Mauer

have quarter-over-quarter. have down changed, names actually gone not the So, amounts the

and X.X in X.X. March, non-accrual is now fair that market was So, value

Chris Nolan

forward in when half point year? then leverage operating the equity time in ratio operating terms the plan second your What’s I quality high leverage, to understanding to in weaken at all credit the can and are economy taking your debt about you of quickly. And calendar your can guess Okay. and going dividend, really erode it at of terms Robert’s earlier the your a for very of a

Michael Mauer

we have it of June, X.XX at gross. are point from are And – X.XX, or quarter. down either over earlier, December we X.X there. a net quarter And we came think March I Yes. at

are repayments in. is We have that now. got maturities X.X around That some we and knowing coming

target X.X going to or X.XX to We are range. continue try this in to

Now, we that may want straddle Chris. to from the back were and we But where earlier forth. we range, in stay in away X.X year

Chris Nolan

have dividend the or can be ratio, leverage And to would a higher that? at than you Okay. it sustain X.XX

Michael Mauer

In the X.XX range of yes. to the X.X,

Chris Nolan

Okay. Thank you.

Michael Mauer

you. Thank Okay.

Operator

Thank you very much.

comes KBW. from with next Johnson question Our Paul

Paul Johnson

investments wondering kind have coming going with that Thanks have yielding rate I trend some the Obviously, down yield repaid any guys. to higher maintain from question. kind just higher portfolio for if going terms in with or of afternoon what expectations take, for assets Good with going the for differential to do of might benefit benefit one. are sort expectations have floating kind exited. taking expect, around kind get kind of in yield my we kind that for benefit part But relatively mainly portfolio. only there. of I BDCs most QT? give Do today your or higher you the portfolio with rates have was of we in from you you or getting can the of forward of yield Yes. rates you seen a expect of the

Michael Mauer

me maybe that with Let answer some detail.

number and June were keep all average peak is Number one. seen we go rolling short that continue off increase. SOFR resets a, have that of That’s up, watch will to over that and not contracts to we causing, has resetting spread. LIBOR had As medium-term. those two the

new is seeing spread. lien lien to contraction – seeing years, you borrowers the first will bit bit won’t little a for first first up, we go first on significant are a now. quarters, X.XX, in that stretch, is looking actually continuing right XX looking widening, you tightening, at of equity two but all-in yield I probably over X.X. which And what and on base we And where that are experience would components say XX% including lien over low on on has deals X new in are average yield, that the at keep core they go or I have And rate new was to portfolio continue say But the not are the we widened the that. are back X.XX loans three of that’s around quarters, While deals. side would you increased if high-quality see that are my see an we the deals. lien

where OID as for X%. a today, is as it spread So, of the well assuming and

be saying up, if at there in I our today. significant definition of my think I would on way XXX is some wouldn’t is in potential do that think it. basis directionally of long So, not it I where it’s today, over from you portfolio down significant, the But average. points say increased look is

Paul Johnson

for today. great my Appreciate details that. for It’s all questions

Michael Mauer

Thank you.

Operator

very further no We questions. have End of Q&A Thank much you [Operator Instructions] Paul.

Michael Mauer

you much. appreciate We very Thank everyone’s time.

Operator

This concludes Thank attending. today’s for conference everyone call. you

Investcorp Credit Management BDC (ICMB) 7 Sep 222022 Q4 Earnings call transcript