Investcorp Credit Management BDC, Inc. Q1 FY2025 earnings call

• Delivered a strong quarter with net asset value increase driven by higher net investment income, unrealized gains, and solid credit performance. - Generated net investment income of $2.3 million, up $1 million from prior quarter. - Deployed $13.1 million across six portfolio companies. - Market environment: subdued new deal flow but higher origination via refinancing, made two secondary investments. - Focus on core middle market, rotating portfolio towards larger, stable credits, senior secured investments. - Portfolio companies performing well with median EBITDA rising from $55 million to $61 million, weighted average net leverage declining from 5.1x to 4.7x, non-accruals improving to 4.8% from 5%.

For the quarter ended September 30, 2024, Investcorp Credit Management BDC's net asset value rose by $0.34 per share to $5.55 from $5.21 in the prior quarter. Net investment income was $2.3 million (approximately $0.16 per share), a $1 million increase from the prior quarter. The fair value of the portfolio increased to $190.1 million from $184.6 million on June 30, 2024. Net assets were $79.7 million, an increase of $4.9 million from the prior quarter. The debt portfolio had a weighted average yield of 10.5% (down from 12.3% in the previous quarter), with 82.5% of investments in first lien debt, 17.5% in equity/warrants, 90% in floating rate instruments, and 3% in fixed rate instruments. Revenue contribution breakdown: approximately 82.5% in first lien debt, 17.5% in equity/warrants and others.

• Board declared a distribution of $0.12 per share payable on January 8, 2025, to stockholders of record on December 20, 2024. - Maintain optimal portfolio leverage between 1.25 times and 1.5 times. - Optimistic about investment pipeline, prioritizing relationships with high-quality sponsors and investing in companies with strong cash flows in defensible industries.

• Intense competition and scarcity of high-quality opportunities. - Economic uncertainties. - Potential challenges with a small number of challenged portfolio positions.

Q: What was the driver of the PIK income for the quarter?

A: A big driver was the reversal of non-accrual to accrual of Klein Hersh. The company continues to perform well, and that coupon is mostly PIK.

Q: Were there timing issues with deals spilling over from prior quarters?

A: Yes, there were a couple of deals that spilled over into this quarter, and the business is lumpy, so such trends occur. Also, they've been purchasing loans in the secondary market to smooth activity.

Q: Could you give detail on realized loss and unrealized gain?

A: Realized loss was from Crafty Apes (on non-accrual). Unrealized gain was from Klein Hersh markup and Bioplan markup, as both performed well.

Q: Articulate the CEO's vision in terms of deal sourcing and strategy?

A: Focus on core middle market (companies with $15M to $75M EBITDA), more than 50% transactions from direct sponsor sourcing, leveraging existing vehicles to write meaningful checks for sponsors, and continuing to increase average EBITDA of portfolio, decrease leverage, and source more direct sponsor deals.

Q: Plan to improve operating efficiencies?

A: Taking a deep dive into reviewing expenses across portfolios and business, expecting expenses to come down organically as the business grows and also looking to use technology more efficiently to lower expense base