Investcorp Credit Management BDC(ICMB) - 2022 Q4 - Annual Report

Part I Item 1. Business The company is an externally managed BDC investing in U.S. middle-market debt, focused on maximizing total return through income and capital appreciation - The company operates as a Business Development Company (BDC) and a Regulated Investment Company (RIC), investing primarily in the debt of U.S. middle-market companies with enterprise values under $750 million[11][12] - The company is externally managed by CM Investment Partners LLC, majority-owned by Investcorp Credit Management US LLC, a global credit investment platform with $14.7 billion in assets under management as of June 30, 2022[26][27][28] Portfolio Snapshot as of June 30, 2022 | Metric | Value | | :--- | :--- | | Total Portfolio Fair Value | $233.7 million | | Number of Portfolio Companies | 35 | | First Lien Investments | 91.94% | | Second Lien Investments | 0% | | Equity, Warrant, Other | 8.06% | | Weighted Avg. Total Yield (Debt & Income Producing) | 10.09% | Top 5 Industry Concentrations by Fair Value (June 30, 2022) | Industry | Percentage of Total Portfolio | | :--- | :--- | | Professional Services | 11.55% | | IT Services | 9.25% | | Internet & Direct Marketing Retail | 9.02% | | Household Durables | 7.42% | | Trading Companies & Distributors | 6.72% | Item 1A. Risk Factors The company faces significant risks from macroeconomic factors, leverage, illiquid middle-market investments, and adviser conflicts of interest - The COVID-19 pandemic and related economic disruptions pose a significant risk, potentially impacting portfolio company performance, loan valuations, and the company's ability to raise capital[169][170][172] - The company's use of leverage magnifies potential gains and losses, requiring an asset coverage ratio of at least 150% as a BDC[207][208] - The Adviser's incentive fee structure, based on gross assets and capital gains, may create conflicts of interest by encouraging leverage and speculative investments[248][250] - Investments are primarily in illiquid, private middle-market companies, susceptible to economic downturns and default risk due to limited financial resources[259][261][272] - Failure to maintain Regulated Investment Company (RIC) qualification would subject the company to corporate-level federal income tax, substantially reducing net assets and income for distribution[332] Item 1B. Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - Not applicable; the company has no unresolved staff comments[361] Item 2. Properties The company does not own any real estate, with its principal executive offices provided by the Adviser - The company does not own any real estate; its office facilities are provided by the Adviser[362] Item 3. Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any threatened against it - There are no material legal proceedings against the company[364] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[365] Part II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on NASDAQ under 'ICMB', consistently at a discount to NAV, with quarterly distributions Quarterly Stock Price and Distribution Data (Fiscal Year 2022) | Quarter | NAV per Share | High Price | Low Price | Discount of High to NAV | Discount of Low to NAV | Distributions per Share | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Q1 2022 | $7.00 | $6.42 | $5.30 | (8.29)% | (24.29)% | $0.15 | | Q2 2022 | $7.09 | $5.70 | $4.87 | (19.61)% | (31.38)% | $0.15 | | Q3 2022 | $6.93 | $5.72 | $5.08 | (17.46)% | (26.70)% | $0.15 | | Q4 2022 | $6.50 | $5.35 | $3.75 | (17.69)% | (42.31)% | $0.15 | - As of September 2, 2022, the company's common stock traded at a discount of approximately 33.08% to its June 30, 2022 NAV per share of $6.50[370] - The company has an 'opt-out' dividend reinvestment plan (DRIP), where cash distributions are automatically reinvested unless stockholders choose to receive cash[375] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Total investment income decreased to $24.4 million, net investment income slightly declined, and the company replaced its credit facilities Results of Operations Comparison (Years ended June 30) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Total Investment Income | $24.4 million | $26.7 million | | Total Net Expenses | $15.5 million | $17.6 million | | Net Investment Income | $8.9 million | $9.1 million | | Net Realized Loss | ($14.4 million) | ($5.8 million) | | Net Change in Unrealized Appreciation/(Depreciation) | $8.1 million | ($5.6 million) | | Net Increase/(Decrease) in Net Assets | $2.6 million | ($2.3 million) | - In August 2021, the company entered into a new five-year, $115 million senior secured revolving credit facility with Capital One, replacing its previous UBS facilities, with $84 million outstanding as of June 30, 2022[427][429] - As of June 30, 2022, the investment portfolio had a fair value of $233.7 million across 35 companies, with 91.94% in first lien investments and a weighted average total yield of 10.09%[446][448] - Six investments were on non-accrual status as of June 30, 2022, representing 1.08% of the portfolio's fair value, an improvement from 1.7% in the prior year[421] Item 7A. Quantitative and Qualitative Disclosure about Market Risk The company's primary market risk is interest rate fluctuation, with 91.9% of debt investments being floating-rate instruments - The company's primary market risk is interest rate fluctuation, with 91.9% of its debt portfolio in floating-rate investments as of June 30, 2022[508] Interest Rate Sensitivity Analysis (as of June 30, 2022) | Change in Interest Rates | Impact on Net Interest Income | | :--- | :--- | | +1.00% | ~9.8% decrease | | +2.00% | ~19.9% increase | Item 8. Financial Statements and Supplementary Data Audited financial statements show total investments of $233.7 million, net assets of $93.5 million, and a net increase in net assets from operations Consolidated Statement of Assets and Liabilities (as of June 30) | Account | 2022 | 2021 | | :--- | :--- | :--- | | Total Investments, at fair value | $233.7 million | $245.9 million | | Total Assets | $246.4 million | $267.7 million | | Total Liabilities | $152.9 million | $171.3 million | | Total Net Assets | $93.5 million | $96.4 million | | Net Asset Value Per Share | $6.50 | $6.92 | Consolidated Statement of Operations (for the year ended June 30, 2022) | Account | Value | | :--- | :--- | | Total Investment Income | $24.4 million | | Net Investment Income | $8.9 million | | Net Realized & Unrealized Loss | ($6.3 million) | | Net Increase in Net Assets from Operations | $2.6 million | | Earnings Per Share (Basic and Diluted) | $0.18 | - The independent auditor, RSM US LLP, identified the valuation of Level 3 investments as a critical audit matter due to significant subjective judgments and unobservable inputs[521][522] Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of June 30, 2022 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[747] - Management's assessment concluded that internal control over financial reporting was effective as of June 30, 2022, based on the COSO 2013 framework[750] Item 9B. Other Information There is no other information to report for this period - None[753] Part III Items 10-14 Information for Items 10-14 is incorporated by reference from the company's forthcoming 2022 Annual Meeting Proxy Statement - The information for Part III (Items 10, 11, 12, 13, and 14) is incorporated by reference from the company's forthcoming 2022 Proxy Statement[755] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists financial statements, schedules, and key agreements filed as exhibits, including CEO and CFO certifications - The financial statements from Item 8 are listed as part of the report[762] - Key agreements filed as exhibits include the Investment Advisory Agreement, Administration Agreement, and the Loan Agreement for the Capital One Revolving Financing[763] - Certifications of the CEO and CFO as required by Sections 302 and 906 of the Sarbanes-Oxley Act are filed as exhibits[765]