Investcorp Credit Management BDC(ICMB) - 2019 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the quarter ended March 31, 2019, the net investment income was $3.4 million or $0.25 per share, with the fair value of the portfolio increasing to $299.1 million from $283.3 million at December 31 [29][30] - The weighted average yield of the debt portfolio decreased to 10.44%, down 64 basis points from 11.08% on December 31, primarily due to a decline in LIBOR and the repayment of high-yield Sears debt [30][31] Business Line Data and Key Metrics Changes - The company added three new portfolio companies, diversifying its investments across 20 different industries, with the oil and gas sector now representing only 10.5% of the portfolio, down from being the largest sector [6][27] - First-lien investments now account for over 75% of the portfolio, up from 63.7% last quarter, reflecting a strategic shift towards lower-risk investments [30][31] Market Data and Key Metrics Changes - The market in the first calendar quarter of 2019 was notably active, with a rapid recovery from the volatility experienced in December, leading to a tightening of spreads early in the quarter [7][10] - The company reported that 94.9% of its debt portfolio was invested in floating rate loans, indicating a strategy aligned with current market conditions [31] Company Strategy and Development Direction - The company is focused on maintaining a portfolio with a lower risk profile, emphasizing secured lending and first-lien opportunities, while avoiding second-lien investments to preserve capital [34][38] - The company plans to increase leverage from a limit of one-time to a target range of 1.25 to 1.5 times, which is expected to enhance investment opportunities [40][41] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's resilience and the ability to generate stable dividends, despite the unpredictable nature of prepayments [39][43] - The company remains selective in new investments, focusing on quality management teams and rigorous evaluation of loan credit [38][39] Other Important Information - The company declared a distribution of $0.25 per share for the quarter ended June 30, 2019, maintaining the dividend level since March 2017 [43] - The advisor will waive base management fees in excess of 1% for leverage above one time, effective immediately [62] Q&A Session Summary Question: What are the EBITDA terms for new debt investments? - The recent club deals have lower leverage, with equity cushions ranging between 40% and 55% for the last few deals [46] Question: When will the company reach the target leverage level of 1.25? - The company expects to reach the target within 90 to 120 days without needing amendments to current lending agreements [47] Question: What were the accelerated fees this quarter? - The acceleration was a little over a million dollars, primarily due to repayments from Sears and Caelus [60] Question: What is the risk of rapid deterioration in credit quality? - Management noted significant differences between current investments and past issues, emphasizing the first-lien nature of current holdings compared to second-lien in previous cases [54] Question: Why hasn't there been a NAV rebound despite market recovery? - The lack of new information from investments during the quarter and the less liquid nature of the portfolio contributed to the slower NAV recovery [56][57]