Investcorp Credit Management BDC(ICMB) - 2019 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For the quarter ended December 31, 2018, the net investment income was $3.7 million or $0.27 per share, with a fair value of the portfolio at $283.3 million compared to $330.7 million at September 30, indicating a significant decrease [35] - The weighted average yield of the portfolio increased by 18 basis points from 10.9% on September 30 to 11.08% on December 31 [36] - The investment activity accounted for a $34.4 million decrease in the portfolio, including $13.1 million of net realized and unrealized losses [35] Business Line Data and Key Metrics Changes - The portfolio consisted of 63.7% first lien investments, 4.1% unitranche investments, 31.7% second lien investments, and approximately 0.5% equity, warrant, and other positions [36] - The average position size decreased by 20% to $9.8 million, while the number of portfolio companies increased by approximately 20% to 29 [15][35] Market Data and Key Metrics Changes - The first half of the quarter saw an average yield of 9%, while the second half increased to 13.2%, reflecting market volatility and investment opportunities [10][54] - The current pipeline of investment opportunities is expected to yield between 8.5% to 15%, with a focus on maintaining an average yield around 10.5% [55][76] Company Strategy and Development Direction - The company aims to maintain a diversified portfolio by reducing average position sizes and increasing the number of sectors exposed [40][46] - The focus remains on secured lending opportunities, with a commitment to preserving capital and maintaining a stable dividend [41][49] - The company plans to target a portfolio size of $350 million to $400 million with 40 to 50 names, maintaining an average position size of $8 to $10 million [58] Management's Comments on Operating Environment and Future Outlook - Management expressed concerns about credit risk increasing over the past year and emphasized the need to be cautious regarding cyclicals and non-cyclicals in the market [85] - The company is actively monitoring the market for potential monetizations and expects to see more opportunities in the coming months [54][76] Other Important Information - The company declared a distribution of $0.25 per share for the quarter ending March 31, 2019, payable on April 4, 2019 [48] - The company has repurchased approximately 31,000 shares at an average price of $8.25, representing a 28.19% average discount to NAV [50] Q&A Session Summary Question: What is the current yield and pipeline outlook? - The current pipeline has yields ranging from 8.5% to 15%, with an average expected yield around 10.5% [54][55] Question: How does the company plan to manage portfolio size and risk? - The company aims to maintain an average position size of $8 to $10 million, reducing the impact of any single asset's poor performance on NAV [56][58] Question: What is the outlook on credit risk? - Management noted that credit risk has been increasing and emphasized the importance of being cautious with investments in cyclical industries [85] Question: What is the expected recovery on the Trident investment? - The management indicated that the deterioration of Trident's core business has led to a significant markdown, with little to no expected recovery [60][62] Question: Will there be more aggressive buybacks? - The company is considering all options, including potential buybacks, but is currently being measured in its approach [77][82]