Investcorp Credit Management BDC Q1 2026 Earnings Call - BDC Shrinks Portfolio Amid Strategic Review and Fee Waivers
Summary
Investcorp Credit Management BDC is in a holding pattern. The board has formed a special committee to evaluate strategic alternatives, and the company is actively downsizing its balance sheet to preserve capital and reduce costs. Net assets fell 14% sequentially to $52.7 million, driven by an $8.8 million depreciation in portfolio fair value that completely offset a small increase in net investment income. The investment advisor waived 56% of base management fees, and the revolving credit facility was halved from $100 million to $50 million to cut unnecessary undrawn commitment fees.
Despite the contraction, the underlying credit quality remains largely intact. Non-accruals held steady at 6.1% of the portfolio, and the weighted average yield on debt climbed 139 basis points to 11.95%. The firm exited three positions for $12.7 million, generating a 10.7% blended IRR, while only funding a minimal $79,000 in new capital. With software exposure low at 3.1% and 97.8% of debt floating rate, the portfolio is positioned for stability, but the strategic review leaves the long-term direction in limbo.
Key Takeaways
- The board has formed a special committee of independent directors to evaluate strategic alternatives aimed at maximizing shareholder value, and the company will not take questions during this call.
- Net assets declined 14% sequentially to $52.7 million, with net asset value per share dropping to $2.65 from $4.25 at the end of the prior quarter.
- The investment advisor voluntarily waived 56% of base management fees, saving the company approximately $456,000 in the first quarter.
- The revolving credit facility commitment was reduced from $100 million to $50 million, cutting annual undrawn commitment fees by roughly $401,000.
- Net investment income before taxes was only $0.3 million, or $0.02 per share, as an $8.8 million depreciation in portfolio assets offset a $0.2 million increase in NII.
- First lien debt represents 83% of the portfolio, with a weighted average yield of 11.95%, an increase of 139 basis points from the previous quarter.
- Non-accruals remained consistent at 6.1% of the portfolio fair value, down slightly from 6.9% in the prior quarter, with five positions on non-accrual status.
- The company fully exited three portfolio company investments, generating $12.7 million in total proceeds with a blended IRR of approximately 10.7%.
- New investment activity was nearly nonexistent, with only $79,000 funded for an existing portfolio company to support working capital needs.
- Liquidity remains tight but manageable, with $11.6 million in cash (of which $8.8 million is restricted) and $65.1 million in unused commitment on the reduced credit facility.
- Software exposure remains minimal at 3.1% of the portfolio's fair value, while the largest issuer, ArborWorks, represents 7.6% of the total fair market value.
- Gross leverage ticked up slightly to 2.05x and net leverage to 1.83x, reflecting the shrinking asset base rather than an increase in debt levels.
Full Transcript
Operator/Moderator, Investcorp Credit Management BDC, Inc: Good morning, thank you for joining today’s Investcorp Credit Management BDC, Inc earnings release call for the first quarter ended March 31, 2026. It is now my pleasure to turn the floor over to Suhail. Go ahead, please.
Suhail, President and Chief Executive Officer, Investcorp Credit Management BDC, Inc: Okay. Yes. Thank you. Andrew, why don’t you please do the opening remarks, and then I’ll take over.
Andrew, Chief Financial Officer or Financial Officer, Investcorp Credit Management BDC, Inc: Sure. Thanks, Suhail. Welcome everyone to Investcorp Credit Management BDC’s earnings call for the quarter ended March 31st, 2026. As you heard, I’m here with Suhail, 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 a property of Investcorp 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 icmbdc.com. 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 the latest SEC filings, please visit the company’s registration statement on the SEC EDGAR platform or our investor relations page on our website. The format for today’s call is as follows: Suhail will provide an overall business and portfolio summary, and then I’ll provide an overview of our results and summarize the financials. At this time, I would like to turn the call back over to Suhail.
Suhail, President and Chief Executive Officer, Investcorp Credit Management BDC, Inc: Thank you, Andrew. Good morning, everyone, and thank you for joining our earnings call for the quarter ended March 31, 2026. We will begin with a business update and review of our first quarter results and portfolio activity. After which Andrew will walk through our financials in greater detail. As previously announced, the board has formed a special committee of independent directors to evaluate strategic alternatives aimed at maximizing shareholder value. The special committee has retained Fulcrum Multi-Capital Inc as financial advisor to assist in this process. The board and management team are committed to conducting a thorough and deliberate review. Given that the strategic review process is ongoing, we will not be taking questions on today’s call. We want to share two steps taken to help manage the company’s liquidity.
Our investment advisors voluntarily agreed to waive 56% of our base management fees for the quarter, resulting in approximately $456,000 in savings. This voluntary waiver reflects the advisor’s ongoing commitment to support the company. As noted in our 8-K filing on May 8, 2026, we amended our revolving credit facility to reduce the commitment from $100 million to $50 million. This better aligns the facility with our current needs and reduces our cost structure while maintaining adequate liquidity for our investment strategy. This will save the company approximately $401,000 in undrawn commitment fees annually. Turning to our first quarter results, ICMB reported net investment income before taxes of $0.3 million or $0.02 per share.
Net assets declined approximately 14% sequentially, with net asset value per share decreasing to $2.65 from $4.25 at December 31st. This decline was primarily driven by the change in fair value adjustment, lower investment activity, and higher dividends resulting in non-significant growth in NII. Non-accruals remained consistent with the prior quarter, with five positions on non-accruals representing approximately 6.1% of the portfolio fair value compared to 6.9% last quarter. The portfolio remains diversified across 17 GICS industries, with our largest issuer representing 7.6% of fair value. I would also note that our software exposure remains relatively low at 3.1% of fair value at quarter end. Consistent with our hands-on priorities of capital preservation and liquidity management, new investment activity remained muted during the quarter.
For the quarter ended March 31st, we funded an incremental $79,000 under the first term loan C of American Nuts, an existing portfolio company, to support the company’s working capital requirements as it executes on its near-term growth initiative. American Nuts provides processing, packaging, sourcing, and procurement services for nut seeds and dried fruits. A yield on this position at cost is approximately 12.6%. On the realization side, we fully exited three portfolio company investments during the quarter, generating total proceeds of approximately $12.7 million with a blended IRR of approximately 10.7%. This included the full repayment of our term loan investment in high-end luxury manufacturing, BBI Holdings, and our position with Insurance Term Loan B debt. I’ll now turn the call back over to Andrew to review our financial results in more detail.
Andrew, Chief Financial Officer or Financial Officer, Investcorp Credit Management BDC, Inc: Thanks, Suhail. Let me begin by providing you with highlights of our quarterly performance. For the quarter ended March 31st, 2026. The fair value of our portfolio was $151.4 million, compared to $172.7 million on December 31st. Our net assets were $52.7 million, a decrease of $8.6 million from the prior quarter. The quarterly change in net assets consisted of a $0.2 million increase from NII, offset by an $8.8 million decrease from net depreciation of portfolio assets. The weighted average yield of our portfolio, our debt portfolio was 11.95% of fair value, an increase of 139 basis points from the December quarter. As of March 31st, our portfolio consists of 34 borrowers.
Approximately 83% of our investments were in first lien debt, the remaining 17% was invested in equity, warrants, and other positions. 97.8% of our debt portfolio was invested in floating rate instruments and 2.2% in fixed rate investments. The weighted average cash spread on our floating rate debt investments was 4.5%, relatively unchanged from the prior quarter. The average investment size per portfolio company on a fair market value basis was approximately $4.4 million or approximately 2.9%. Our largest portfolio company investment on a fair market value basis was ArborWorks, $11.6 million or approximately 7.6% of our total fair market value.
Our largest industry concentrations by fair market value were professional services at 15.7%, commercial services and supplies at 11.2%, diversified consumer services at 9.7%, IT services at 9.2%, and specialty retail at 7.6%. Gross leverage was 2.05x, and net leverage was 1.83x on March 31st, compared to 2.02x gross and 1.78x net, respectively, for the previous quarter. With respect to our liquidity, as of March 31st, we had approximately $11.6 million in cash, of which approximately $8.8 million was restricted cash. In addition, we had $65.1 million of unused commitment under our revolving credit facility with Capital One, of which $3.6 million was available under our borrowing base.
As discussed previously, subsequent to quarter end, we’ve reduced our commitment from $100 million to $50 million, which leaves our borrowing base availability unchanged but reduces the ongoing costs as discussed, having a large undrawn fee associated with unneeded availability. Additional information regarding the composition of our portfolio and quarterly financial results are included in our Form 10-Q. With that, I’d like to turn the call back over to Suhail.
Suhail, President and Chief Executive Officer, Investcorp Credit Management BDC, Inc: Thank you, Andrew. As we mentioned in the previous quarter, our priority remains clear: preserving capital and actively managing the portfolio. To summarize, the special committee continues its [audio distortion] to evaluate strategic alternatives to focus on maximizing shareholder value. We appreciate your continued support and look forward to updating you on our progress next quarter. With that, we would like to conclude the call.
Operator/Moderator, Investcorp Credit Management BDC, Inc: This concludes today’s conference call. Thank you everyone for attending.