Investcorp Credit Management BDC(US:ICMB)2019-11-12 21:29Investment Strategy - Investcorp Credit Management BDC, Inc. has a primary investment objective to maximize total return to stockholders through current income and capital appreciation by investing in debt and equity of privately held middle-market companies [198]. - The company’s investment strategy includes unitranche loans, standalone first and second lien loans, and mezzanine loans, primarily targeting middle-market companies [198]. - As of September 30, 2019, the investment portfolio was valued at $302.2 million, consisting of 33 portfolio companies, with 77.9% in first lien investments [245]. - During the three months ended September 30, 2019, four new investments totaling approximately $20.0 million were added, all of which were first lien investments [248]. Financial Performance - For the three months ended September 30, 2019, investment income was $8.6 million, an increase from $8.3 million in the same period of 2018 [253]. - Net investment income increased to $3.5 million for the three months ended September 30, 2019, up from $3.4 million in the same period of 2018 [255]. - Total expenses for the three months ended September 30, 2019, rose to $5.0 million, compared to $4.8 million for the same period in 2018, primarily due to increased interest expenses [254]. - The weighted average total yield of debt and income-producing securities at amortized cost was 10.44% as of September 30, 2019 [247]. Asset Management - As of June 30, 2019, Investcorp managed assets totaling $11.9 billion, focusing on senior secured corporate debt in Western Europe and the United States [202]. - The company has a base management fee of 1.75% of gross assets, with an incentive fee structure that includes a 20% share of pre-incentive fee net investment income above an 8% hurdle rate [205]. - The asset coverage ratio for senior securities was modified from 200% to 150% as of May 2, 2019, allowing for increased leverage under specified conditions [209]. - The company has received exemptive relief from the SEC to co-invest in certain private placement transactions with other funds managed by the Adviser or its affiliates [210]. Investment Valuation - The fair value of portfolio investments is determined based on market quotations or through methods approved by the board of directors when market quotations are not available [212]. - As of September 30, 2019, all investments were classified as Level 3 investments based on valuations by the board of directors [219]. - As of September 30, 2019, one investment, Fusion Connect Inc., was on non-accrual status, representing approximately 3.5% of the portfolio at fair value [226]. - The company recorded a net change in unrealized depreciation of $4.5 million for the three months ended September 30, 2019, primarily due to decreases in the value of several investments [257]. Debt and Financing - The company entered into a $122.0 million term secured financing facility, with borrowings outstanding of $122.0 million as of September 30, 2019 [229]. - The company amended the 2017 UBS Revolving Financing to reduce the size to $30.0 million, with borrowings of $19.0 million outstanding as of September 30, 2019 [231]. - 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 [232]. - The company closed a public offering of $15 million in additional 6.125% notes due 2023, with total net proceeds of approximately $16.4 million after expenses [292]. Cash and Distributions - As of September 30, 2019, the company had $3.4 million in cash and $7.4 million in restricted cash, along with $10.9 million of capacity under the 2017 UBS Revolving Financing [261]. - The company intends to generate additional cash from future offerings of securities and cash flows from operations, including income from investments in portfolio companies [261]. - The company intends to distribute between 90% and 100% of its annual taxable income to stockholders, but covenants in the Financing Facility may restrict these distributions [266]. - On November 6, 2019, the board declared a distribution of $0.25 per share for the quarter ended December 31, 2019, payable on January 2, 2020 [291]. Interest Rate Exposure - Approximately 10.27% of total assets were non-qualifying assets as of September 30, 2019 [238]. - As of September 30, 2019, 96.8% of debt investments bore interest based on floating rates, while 3.2% bore interest at fixed rates [249]. - A 1.00% increase in interest rates would increase net interest income by approximately 18.5% [294]. - A 2.00% increase in interest rates would increase net interest income by approximately 27.9% [294]. - The company's net interest income is exposed to risks related to interest rate fluctuations [294]. - Variable-rate instruments subject to a floor reset quarterly based on LIBOR [294]. - There is a time lag between changes in the interest rate index and rate adjustments under applicable loans [295]. - The analysis does not account for changes in credit markets or the composition of assets in the portfolio [295]. - The company cannot assure that actual results will not differ materially from the stated sensitivity analysis [295].