Transcript • Nov. 13, 2025 4:00 PM • Investcorp Credit Management BDC, Inc. Common Stock (ICMB)
Transcript
Nov. 13, 2025 4:00 PM
Investcorp Credit Management BDC, Inc. Common Stock (ICMB)
Operator: Good morning, ladies and gentlemen, and welcome to today's InvestCorp Credit Management BDC's quarter-ended September 30th, 2025 earnings call. It is now my pleasure to turn the floor over to Andrew Munz, Chief Financial Officer.
Andrew Munz: Thank you, Operator. Welcome everyone to InvestCorp Credit Management BDC's earnings call for the quarter-ended September 30th, 2025 earnings call. I'm joined today by Suhail Shaikh, President and Chief Executive Officer of the company. I would like to remind everyone that today's call is being recorded and that this call is the property of Invescorp Credit Management, BDC. Any unauthorized broadcast of this call in any form is strictly prohibited. An audio replay of the call will be available on the Investor Relations page of our website at I would also like to call your attention to the safe harbor disclosure in our press release regarding forward-looking information and remind everyone that today's call may include forward-looking statements and projections. Actual results may differ materially from these projections. We will not update forward-looking statements unless required by law. To obtain copies of our latest SEC filings, please visit the company's registration statement on the SEC's Edgar platform or our investor relations page on our website. The format for today's call is as follows. Sue Hale will provide an overall business and portfolio summary, and then I'll provide an overview of our results, summarizing the financials. This will be followed by Q&A. At this time, I would like to turn the call over to Sue Hale.
Suhail Shaikh: Good morning, everyone, and thank you for joining our third quarter earnings call. We'll start with an update, followed by a review of our third quarter results, current market conditions, portfolio activity, and then Andrew will walk through our financials for the quarter. I'm pleased to announce that the manager's parent company continues to provide strong support for the BDC. Our board of directors has approved InvestCorp Capital, an affiliate of InvestCorp Group, to provide a backstop commitment to refinance our four and seven-eighths new notes due April 1, 2026. This commitment enhances our flexibility, proactively addresses the near-term maturity, and strengthens our balance sheet. Turning to our third quarter results, we reported net investment income before taxes of 0.6 million, or 4 cents per share, a decrease of 2 cents per share from the previous quarter. The sequential decline in NII was primarily driven by a decline in income-earning assets due to the loss of big dividend income from Fusion's preferred equity position, which was placed on non-accrual status, as well as portfolio repayments and our continued discipline in not chasing lower-yielding investments. Net assets declined by approximately 4%, with net asset value per share decreasing to $5.04 per share from $5.27 last quarter. This was largely the result of fair value adjustments in two legacy borrowers and the payment of a dividend in excess of NII. Non-accruals accounted for 4.4% of the portfolio at fair value, up from 1.6% last quarter, following the addition of Fusion's preferred equity position. Although modestly higher, sequentially the level remains comparable to the 4.8% reported a year ago, underscoring the continued stability of the portfolio and our proactive management of underperforming credits, especially legacy credits. Overall, the portfolio remains healthy. Approximately 82% of assets at fair value are rated in the top two risk rating categories. Our weighted average interest coverage ratio improved to 2.3 times compared to two times a year ago, reflecting enhanced portfolio strength. Weighted average LTV remains approximately 41%, while weighted average leverage declined to 4.6 times in the current period from 4.8 times in the prior quarter, as weighted average EBITDA increased. The portfolio is broadly diversified across 18 industries, with LTV, Average exposure to any single company representing less than 3% of the portfolio's fair value. As we reflect on the quarter, we continue to operate in a backdrop of solid fundamentals, but heightened caution. Deal flow and sponsor-led M&A remain slow, with many transactions still working their way through the processes rather than closing. refinancing and portfolio redeployment activity has also slowed, compressing spreads and limiting opportunities for compelling new originations. We remain highly selective in evaluating opportunities that meet our targeted yield and credit quality criteria. Approximately 57% of sponsor backed private credit deals were priced with spreads below 500 basis points in the current quarter. While we actively manage the portfolio, We're not rotating into lower-yielding assets simply for growth. Of all deals entering our pipeline this quarter, fewer than 10% advance to deeper diligence. Instead, our focus remains on credit quality and structural protections. We're not chasing the lowest-yielding deals. Approximately 73% of our investments are in covenant deals. Looking ahead, we expect NII to benefit from new fundings, and we remain committed to disciplined Portfolio management to drive long-term shareholder value. I will now turn to a summary of our investment activity for the quarter. This was a lighter quarter for sure for investment activity. During the quarter ending September, we invested approximately $25,000 in the preferred equity of 4L Technologies, an existing portfolio company, to support an incremental equity raise in our existing positions. We also fully realized two portfolio company investments generating total proceeds of 6.5 million with an IRR of approximately 12.7%. We realized that firstly in terms on positions in Pure Star listed on our SOI as AMCP Clean Acquisition Company and One Call Medical, both of which were refinanced during the quarter. Our realized IRRs on PureStar and OneCall were 11.5% and 13.7% respectively. I'll now turn the call back over to Andrew to review our financial results in more detail.
Andrew Munz: Thanks, Suvail. Let me begin by providing you with highlights of our quarterly performance. For the quarter ended September 30th, 2025, the fair value of our portfolio was 196.1 million compared to 204.1 million on March 31st. Our net assets were 72.7 million, a decrease of 3.3 million from the prior quarter. Our portfolio's net decrease in net assets from operations this quarter was approximately 1.3 million The remaining $2 million was due to distribution of cash dividends to shareholders. The weighted average yield of our portfolio from debt was 10.9%, a slight increase from 10.6% in the previous quarter into June 30th. As of September 30th, our portfolio consisted of investments in 41 companies. Approximately 78% of these investments was in first lien debt and the remaining 22% invested in equity warrants and other securities. 98.5% of our debt portfolio was invested in floating rate instruments and 1.5% in fixed rate investments. The weighted average spread on our floating rate debt investments was 4.6%, relatively unchanged from the prior quarter. The average size per portfolio company on a fair market value basis was approximately 4.7 million or approximately 2.5% total. And our largest portfolio company investment on a fair market value basis was BioPlan at 13.4 million. Our largest industry concentrations by fair market value were professional services at 13.7%, insurance at 10.4%, containers and packaging at 8.9%, IT services at 8.5%, and trading companies and distributors at 8.4%. Overall, our portfolio companies are spread among 18 GICS industries as of the quarter end, including our equity and warrant physicians. We're also pleased to announce that on November 10th, 2025, the Board of Directors declared a distribution for the quarter and a December 31st, 2025 of 12 cents per share and a supplemental distribution of 2 cents per share payable in cash on December 12th, 2025 to stockholders of record as of December 1st, 2025. Gross leverage was 1.75 times and net leverage was 1.59 times as of September 30th, compared to 1.77 times gross and 1.54 times net, respectively, for the previous quarter. With respect to our liquidity, as of September 30th, we had approximately $11.6 million of cash, of which approximately $7.8 million was restricted cash, with $36.5 million of capacity under our revolving credit facility with Capital One. Additional information regarding the composition of our portfolio and quarterly financial results are included in our Form 10-Q. With that, I would like to turn the call back over to Suhail.
Suhail Shaikh: Thank you, Andrew. To close, we remain focused on executing our strategy and positioning the portfolio for long-term value creation. We believe we are well positioned for the current environment. with a robust portfolio, strong capital backing, and a disciplined investment posture that prioritizes credit quality and income stability over yield. As the broader backdrop remains uncertain, our emphasis continues to be on maintaining flexibility, protecting asset value, and ensuring our dividend remains fully supported. The refinancing commitment from our parents' affiliate, InvestCorp Capital, underscores the confidence and ongoing support from our parent company, further strengthening our balance sheet and providing additional financial flexibility as we navigate this environment. The $65 million commitment to refinance the 4.78% notes, coupled with approximately 3.6 million shares held by our parent, are reflective of Invescorp's strong commitment to increasing shareholder value and aligning interests. While market activity remains subdued, we continue to see solid underlying portfolio performance with strong coverage metrics and healthy diversification across sectors. We remain patient and selective, ready to deploy capital when attractive opportunities arise. Thank you again for your time and continued support. We look forward to updating you on our progress at next quarter. That concludes our prepared remarks. Operator, please open the lineup for Q&A.
Operator: Ladies and gentlemen, at this time we will conduct the question and answer session. If you would like to state a question, please press 7 pound on your phone now and you will be placed in the queue in the order received. Or press 7 pound again at any time to remove yourself from the queue. Please listen for your name to be announced and be prepared to ask your question when prompted. We are now ready to begin. Our first question comes from Christopher Nolan with Lattenberg Palmer. Go ahead, please.
Christopher Nolan: Hi. Thank you for taking my questions. On the backstop, could you clarify whether or not that's to buy up the full refinance amount for the maturing $65 million bonds, or is that simply just to cover principal and coupon payments from the new bonds?
Suhail Shaikh: No, it's the former. So the backstop, Christopher, is to refinance the notes in the event that we have not refinanced them prior to the April 1st, 2026 maturity date.
Christopher Nolan: Great. And is there any sort of parameters in terms of the coupons?
Suhail Shaikh: Yeah, I believe the letter outlines it. We publish it. It's an exhibit to the 10th queue. we have agreed to so far plus 550 on a floating rate basis as the new football.
Christopher Nolan: Great. Second question, I guess, for Andrew, what was the spillover income in the quarter, please?
Andrew Munz: Well, I think as we said last time, we don't give the specific spillover income, but I think you've probably noticed in the past that our dividend has been above NII, and obviously the amount that we've chosen to pay out is reflective of the spillback amount is required. So you can make a similar assumption for the declared dividend to be paid in December of this year.
Christopher Nolan: Great. And the final question I have is for Klein Hirsch. This is non-accrual, but the cost basis is zero and the fair value is zero. So why keep it on the investment portfolio at all?
Suhail Shaikh: The subnotes?
Andrew Munz: We're required to, you know, under accounting rules, you have to put everything on there that has any chance of being paid at any time. You know, you see the career builder warrants are on there, also marked at zero. Those were not expected to, and now that obviously the restructuring of that is complete, it certainly will not in the future pay anything. So that's just something we're required to do, and we have had things marked at zero before. Interestingly, the notes – for Kleinherz that are on non-accrual actually have a zero coupon to them. I think if they were on accrual status, we would theoretically have to amortize the 100% discount over time, which I think would distort the results pretty materially.
Operator: Okay. Thank you.
Suhail Shaikh: Thank you.
Operator: Thank you very much. And, again, if you have any questions, please go ahead and press 7 pounds. Again, that's £7 for your question. I don't see any other questions, sir.
Suhail Shaikh: Great. Excellent. Well, thank you, everyone, and we appreciate your time, and we look forward to speaking again next quarter. Thank you, Luke.
Operator: You're welcome, sir. And this concludes today's conference call. Thank you, everyone, for attending.
