Investcorp Credit Management BDC, Inc. Q2 FY2024 earnings call

• Change in leadership: Rocco DelGuercio resigned as CFO effective March 31, 2024. Revised financial results for Q2 FY2024 reflected ~$388,000 or $0.02 per share adjustments. - Net investment income decreased 3%, NAV declined due to valuations of Klein Hersh, American Nuts and ArborWorks restructuring. - Nonaccrual positions reduced to 4.6%. 1888 sale expected to close soon. Dividend declared: $0.12 per share plus $0.03 supplemental. Leverage: gross 1.7x, net 1.51x, expected to reduce to ~1.5x. - Investment activity: Added 5 new portfolio companies, realized positions in 4, weighted average EBITDA increased from $55.6 million to $59.9 million, industry concentrations included trading company and distributors at 13.6%, etc., and portfolio diversification improved.

For the quarter ended December 31, 2023, net investment income was $1.6 million or $0.11 per share, a decrease of approximately 3% from the previous quarter. Net asset value per share declined approximately 6% to $5.48 per share. Nonaccrual investments declined to 4.6% of total sales value of the portfolio. Weighted average loan-to-value for the portfolio of debt investments was approximately 50%, an increase from 41% in the prior quarter. The portfolio had investments in 44 borrowers across 25 industries, up from 37 borrowers and 19 industries in the prior year's December quarter.

• Expect progress on remaining nonaccruals in the next 12 months. - Dividend expected to be earned through Q3 ending March 31. - Optimistic about pipeline and ability to deploy capital in high-quality investments. - Focus on capital preservation and stable dividend.

• Valuation changes of investments like Klein Hersh, American Nuts. - Leverage levels above guidance (gross 1.7x, net 1.51x). - Market conditions affecting portfolio performance.

Q: Regarding size of portfolio companies increasing, Suhail said it's more the size of the portfolio company, not the investment size, and they're diversifying.

A: Great question, Chris. It's more the size of the portfolio company. I think the size of the investment, as Mike pointed out and as I may have alluded to as well, is actually a decreasing. So we increased the number of borrowers. And so we're trying to diversify the portfolio as much as we can.

Q: Average EBITDA interest coverage A: Interest coverage, we typically, when we are underwriting a new deal, we are targeting interest coverage of at least 2x, Christopher. And that's -- it's not a rule of thumb, but that's -- we look at cash flow and the ability for the company to service the debt. I mean, we're laser focused on that, obviously, in this market. So it's 2x, it depends on the industry, it depends on the business. And in most cases, it's north of 2x