Investcorp Credit Management BDC, Inc.

and chief executive officer of the company. I'd like to remind everybody that today's call is being recorded and that this call is the property of Investor Credit Management, BBC. Any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available.

Welcome to the call. May I have your name, please? Hello, is anyone there? I need your name. I'm sorry, what was your first name? David Anderson. And thank you in the name of the company you're with. Anderson Family Office. Thank you for replacing me back in the call. You're so welcome. You will now be placed into the conference.

You are muted on this call. This call is being recorded.

Platform 4, our investor relations page on our website. The format for today's call is as follows. Suhail will provide his overall business portfolio summary, and I'll then provide an overview of our results, summarizing the financials, followed by a Q&A. At this time, I would like to turn the call over to Suhail.

Thanks, Lawton. Thank you to everyone for joining us today. Before I discuss the market environment and portfolio activity, It gives me great pleasure to announce that we've appointed Andrew Mons, managing director of the advisor and a senior member of the investment team as InvestCorp Credit Management PDC Chief Operating Officer. Andrew has been with the firm for several years and has been a key member of the team. He brings the wealth experience and I'm excited to have him join the executive team of the company. For the quarter ending December 31st, 2024, We reported net investment income of $0.8 million, or $0.06 a share, compared to $0.16 per share in the prior quarter. Consequently, our net asset value per share decreased by $0.16 per share to $5.39 compared to $5.55 as of September 30, 2024. The decline in NAS was primarily driven by lower investment yields and market fluctuations reflecting broader market volatility and affecting spread violence. As we close out 2024, we have felt continued spread compression, especially towards the end of December, largely due to refinancing and repricing activity amidst heightened competition among vendors, and strong demand for quality assets. Post-election market optimism raised expectations for assertions in M&A activity. However, the risk of giant wars and changes to fiscal policies is creating uncertainty leading to adapting all M&A activities. Despite economic uncertainties, we remain well-positioned to navigate challenges and consistently deliver value to our shareholders. We believe our portfolio is well positioned to weather the shifting economic environment. We have estimated that approximately 30% of our portfolio may experience moderate effects from tariffs on either a direct or indirect basis. However, we believe these affected companies are well positioned to navigate these challenges through a range of mitigation strategies, including the ability to bounce from price increases to end customers, diversifying or switching suppliers, and optimizing their supply chain. We are working with our underlying portfolio companies and sponsor partners to understand these risks further. Additionally, we are factoring in challenge risks when evaluating new investment opportunities to ensure the resilience and long-term stability of our portfolio. Heightened market volatility has led us to strategically target investments in critical sectors and defensive industries. A notable example of this is our recent investments in the data center sector. We're also enticed by improvement in our portfolio's credit quality, evidenced by a lower on-recrual rate measured on a fair amount of value basis compared to the prior quarter. The median EBITDA of our portfolio remains rather than keep flat at approximately 61.76 million at the end of the quarter compared to the previous quarter, while the weighted average net leverage increased slightly from 4.8% to 5.0% over the same period. The percentage of government appeals increased from 70% in the previous quarter to 77% in the current quarter. These outcomes reinforce the durability of our strategy, our focus on credit quality, and our proactive portfolio management as we look forward to the remainder of the year. Additionally, though, although our net investment income is not fully covered after 10 dividends this quarter, accumulated spillover income from previous periods will partially offset the shortfall. We remain committed to delivering consistent returns to our shareholders while navigating the current earnings environment. I will now turn to details of our portfolio activity during the quarter. During the quarter ended December 31st, we invested in two new portfolio companies and two existing portfolio companies. Funding for new investments totaled approximately $9.9 million in costs. The median average yield of debt investments made in the quarter was approximately 11.8%. In the same period, we fully realized two portfolio company investments totaling $7.6 million in proceeds with an IRR of approximately 17.2%. First, we participated in the refinancing of Unigest, which is an existing portfolio company in our other funds. StudiGas is a global leader in digital engagement software solutions across a number of end markets and is an Atlantic Street capital portfolio company. A yielded cost is approximately 9.9%. We need an investment in the first eight-term loan of Wellfull, listed on our SOI as KNF Mitko Corp. to support an add-on acquisition and recapitalization of the business. Wellfull is It is also an existing portfolio company in our other funds. The company operates in the health, wellness, and nutrition space. Our yield is cost is approximately 9.5%. Turning to our existing portfolio companies, we make an investment in the terminal and preferred equity of TechSupply. TechSupply is an automated component manufacturer that specializes in designing and producing engineered plastic parts and components. I yielded costs for the terminal as approximately 20%. We also made another investment in Crafty Apes. Crafty Apes is a full-service visual effects studio with offices across the town. I yielded costs as approximately 14.5%. Lastly, we realized the first game terminal position, Emerit, which was refinanced during the quarter in our bridge loan and Crafty Apes. I realized I arrived on the bed with approximately 70% 17.3%, and I realized IRR on crafty haze was approximately 15.4%. As of December 31st, our largest industry concentrations by fair market value were professional services at 14.4%, containers and packaging at 10.5%, trading companies and distributors at 8.6%, insurance at 7.8%, and IT services diversified consumer services, and specialty retail at 7.1% each. Our portfolio companies are in 19 GICS industries as of the quarter end, tuning our equity and warranty position. I would now like to turn the call over to Ward to discuss our financial results.

Thanks, Suhail. For the quarter end of December 31, 2024, the fair value of our portfolio was 191.6 million compared to 190.1 million on September 30th. Our net assets were 77.6 million, a decline of 2.3 million from the prior quarter. Our portfolio's net decrease in net assets from operations this quarter was approximately negative 0.6 million. The weighted average yield of our debt portfolio was 10.4, a slight decrease from 10.5 in the previous quarter and to September 30th. As of December 31st, our portfolio consisted of 43 borrowers. Approximately 81.2% of our investments were in first lien debt, and the remaining 18.8% was invested in equity, warrants, and other positions. 96.4% of our debt portfolio was invested in floating rate instruments, and 3.6% in fixed rate instruments. The weighted average spread on our debt investments was 4.3%, and the weighted average floor was 0.9%, which is unchanged compared to the previous quarter. Our average portfolio issuer on a fair market value basis is approximately $4.5 million, and our largest portfolio company investment on a fair market value basis is BioPlan at $15.4 million. We are pleased to announce that on March 20, 2025, the Board of Directors declared a distribution for the quarter ended March 31, 2025, of $0.12 per share, which is payable in cash on May 16, 2025, stockholders of record as April 25, 2025. Gross leverage was 1.5x and net leverage was 1.42x as of December 31, compared to 1.39x gross and 1.26x net respectively for the previous quarter. With respect to our liquidity, as of December 31, we had approximately $12.9 million in cash which approximates 11.3 restricted cash with 41.5 million of capacity under a revolving credit facility with Capital One. As disclosed in the APU filed on November 20th, 2024, we reprized the Capital One revolving credit facility during the quarter, bringing the borrowing cost spread straight from 310 BIPs to 250 BIPs. Additional information regarding the composition of our portfolio is included in our Form 10 KT. With that, I would like to turn the call back over to Suhail.

Thank you, Mark. As we move into 2025, we remain highly focused on executing our strategy with a focus towards passive presentation and mass stability. We believe that our disciplined investment approach, combined with our strategic focus on critical sectors, positions us well to navigate the evolving market landscape and drive long-term value to our shareholders. Thank you for your continued support, and we look forward to taking your questions.

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 pounds on your phone now, and you will be placed in the queue in the order received. Or press 7 pounds 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. And our first question comes from Mr. Christopher Nolan with Ladenburg-Talman. Go ahead, sir.

Hey, how you doing? The increased leverage, well, let me back up. What was the cause for the drop in TIC income quarter over quarter, please?

So, actually, the increase in fixed income for the September quarter, Christopher, was really driven by reversing the non-approval for one of the portfolio companies, Klein-Hirsch, that actually drove fixed income higher than usual in the September quarter. So, it looks like it's a drop in the December quarter when, actually, it is an extension. So that's the big reason why it sort of pops up and jumps out and looks like it can come down.

Got it. And then I guess my question is on the sustainability of the dividend because you, like a lot of other BDCs, are experiencing lower yields. But also you, unlike a lot of BDCs, have a much higher leverage ratio. And in my view, that leverage ratio gives you a lot less flexibility flexibility to manage earnings and sustain the dividend. And what are your comments on that, please?

Yeah, no, great question. Look, we're constantly evaluating that. It's, you know, our portfolio is running at about 18% or so of the portfolios and non-income generating assets. That puts pressure on the expenditure on income. We We'll continue to monitor that, Christopher, and, you know, we'll take it up to the board and decide if it makes sense for us to reevaluate the dividend. No such decision has been made to date, but I think the observation is the right one.

Okay, and I guess going forward, is the, I saw in the 10-Q where you are, I believe, changing over to a calendar fiscal year. Is that correct?

Yes, we did. We already did, which is by the 10th. It's actually a 10th KT that we filed. We didn't file a 10th Q. This quarter has changed the fiscal year and from June to December, which is why if you look at the 10th KT, you'll see the comparatives are usually more than what's required in the filings.

Okay, so next quarter will be first quarter 2020. Correct. I guess the final question would be, where do you see the trend for your investment yield over the next quarter or two?

I suspect it's going to be similar. We don't see anything on the horizon where we think spreads are going to widen. In fact, spreads have tightened as you I can point it out, and that's, you know, we're operating in the same market as all our competitors. So, investment, you've got to remain in a similar zip code. That's, you know, sort of 10.5% plus or minus. Unless something, you know, there's a shock to the economy, there's a leg down or something, but I spread start to point enough, liquidity dries up in the marketplace. Based on what we're seeing right now, we don't foresee any of that. The only thing that we're watching very carefully is potential impact of tariffs on our portfolio, in the M&A market, talking to our sponsor partners. That's something that, you know, only time will tell how that manifests itself into spreads in the marketplace.

Okay, that's it for me. Thanks for taking my questions.

Sure, thank you.

Thank you very much. Again, if you have any questions, please go ahead and press seven pounds on your phone. That's seven pounds on your phone.

I don't see any other questions, sir. Great.

Thank you, everyone, and thank you again for taking time, and we look forward to seeing you at the end of the March quarter's discussion. Thank you. Look, we can end the call.

Thank you very much. This concludes today's conference call. Thank you, everyone, for attending.