Investcorp Credit Management BDC(US:ICMB)2020-11-09 21:17Investment Strategy and Portfolio - Investcorp Credit Management BDC, Inc. aims to maximize total return to stockholders through investments in debt and equity of privately held middle-market companies [192]. - The company’s investment strategy includes unitranche loans, first and second lien loans, and mezzanine loans, focusing on middle-market companies [192]. - The company’s portfolio investments are valued at fair value, which may differ significantly from actual realizable values due to market conditions [211]. - As of September 30, 2020, the investment portfolio was valued at $261.3 million, consisting of 38 portfolio companies, with 87.8% in first lien investments [242]. - During the three months ended September 30, 2020, the company added 4 new investments totaling approximately $12.5 million, with 92.0% being first lien investments [246]. - As of September 30, 2020, there was one investment on non-accrual status, representing approximately 0.5% of the portfolio at fair value [223]. - The company has off-balance sheet arrangements consisting of $2.6 million in unfunded commitments to three portfolio companies as of September 30, 2020 [289]. Financial Performance - For the three months ended September 30, 2020, investment income decreased to $7.0 million from $8.6 million for the same period in 2019, primarily due to a decrease in investments in income-producing companies [252]. - Total expenses for the three months ended September 30, 2020, decreased to $4.2 million from $5.0 million in the same period in 2019, mainly due to lower interest expenses and management fees [253]. - Net investment income for the three months ended September 30, 2020, was $2.7 million, down from $3.5 million in the same period in 2019 [254]. - The weighted average total yield of debt and income-producing securities at amortized cost was 9.36% as of September 30, 2020, compared to 9.58% as of June 30, 2020 [245]. - The net change in unrealized appreciation for the three months ended September 30, 2020, was $0.1 million, primarily due to increases in the value of certain portfolio companies [256]. Asset Management and Fees - The company has a base management fee of 1.75% of gross assets, payable quarterly, and an incentive fee of 20% on pre-incentive fee net investment income above an 8% hurdle rate [200]. - As of September 30, 2020, the company earned $1,220,772 in Base Management Fees, with $112,971 waived, and $2,304,739 payable [271]. - For the three months ended September 30, 2020, the company incurred no Income-Based Fees, with $58,673 currently payable to the Adviser [277]. Financing and Capital Structure - The company entered into a $102.0 million term secured financing facility, with borrowings outstanding of $102.0 million as of September 30, 2020 [224][225]. - The revolving financing facility was reduced to $20.0 million, with $14.0 million borrowings outstanding as of September 30, 2020 [226]. - The company closed a public offering of $30 million in aggregate principal amount of 6.125% notes due 2023, with total net proceeds of approximately $33.2 million [228]. - The outstanding principal balance of the 2023 Notes was approximately $51.4 million as of September 30, 2020, with an estimated fair value of $46.0 million [231]. - Approximately 5.75% of total assets were non-qualifying assets as of September 30, 2020 [235]. Interest Rate Sensitivity - As of September 30, 2020, 99.5% of the company's debt investments bore interest based on floating rates, which generally reset every one to three months [292]. - A 1.00% increase in interest rates would increase net interest income by approximately 12.9% [293]. - A 2.00% increase in interest rates would increase net interest income by approximately 25.7% [293]. - The portfolio includes fixed rate assets that are sensitive to interest rate fluctuations, impacting their value [293]. - Floating rate assets are exposed to cash flow variability due to interest rate changes [293]. - Variable-rate instruments subject to a floor reset periodically, affecting the benefit from interest rate increases [293]. - The analysis does not account for changes in credit markets or the composition of assets in the portfolio [294]. - There is a time lag between changes in the interest rate index and rate adjustments under applicable loans [294]. - Management cannot assure that actual results will not differ materially from the stated sensitivity to interest rate changes [294]. Cash and Distributions - The company had $8.4 million in cash and $6.5 million in restricted cash as of September 30, 2020, with additional capacity of $6.0 million under the Revolving Financing [260]. - The company intends to generate additional cash from future offerings of securities and cash flows from operations, including income from investments in portfolio companies [260]. - The company intends to distribute between 90% and 100% of its annual taxable income to stockholders, but may face restrictions due to covenants in the Financing Facility [265]. - On November 3, 2020, the board declared a distribution of $0.15 per share for the quarter ended December 31, 2020, along with a supplemental distribution of $0.03 per share [291]. Regulatory and Compliance - The company has modified its asset coverage requirements from 200% to 150% effective May 2, 2019, allowing for increased leverage [204]. - The company has applied for new exemptive relief from the SEC to allow greater flexibility in co-investment transactions [205]. - The company has no taxable subsidiaries as of September 30, 2020, allowing it to maintain its RIC status [202]. - The company’s advisory agreement was approved by stockholders at a special meeting held on August 28, 2019 [197]. - As of September 30, 2020, all investments were classified as Level 3 investments based on valuations by the board of directors [216].