Welcome to Investcorp Credit Management BDC Incorporated Scheduled Earnings Release of Third Quarter Ended March 31, 2021. Your speakers for today's call are, Mike Mauer, Chris Jansen and Rocco DelGuercio. A question-and-answer session will follow the presentation. I will now turn the call over to your speakers. Please begin.

Thank you, operator, and thank you to all of you for joining us today. I'm joined by Chris Jansen, my Co-Chief Investment Officer; and Rocco DelGuercio, our CFO. Before we begin, Rocco will give our customary disclaimer regarding information and forward-looking statements. Rocco?

Thanks Mike. I would like to remind everyone that today's call is being recorded and that this call is property of Investcorp Credit Management BDC. Any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by visiting our Investor Relations page on 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 our latest SEC filings, please visit our Investor Relations page on our website.

Thanks, Rocco. This past quarter, we saw a marked increase in activity in the broader market. Refinancing activity, which began to pick up around year-end, accelerated and drove a large number of transactions. We saw several of the loans in our portfolio get refinanced, both during and after quarter-end. As we consider our pipeline, refinancings and new LBOs are the primary drivers. With a robust primary market, we continue to see strong competition for deals, with most of the pressure coming on pricing at the larger end of the market. We have maintained our credit discipline. We haven't chased deals that have unattractive structures, even when these deals are refinancing the portfolio companies that we are comfortable with. Apart from structural trends, we also see that most deals are pricing tighter. We're focused on credit quality and loan structure first, and we accept that in this market, spreads are tightened. Sector selection remains a key tool in our portfolio management decisions. We are avoiding new investments in oil and gas, as well as in sectors that were hit hardest by the pandemic, such as retail and hospitality. Many of our borrowers were well-positioned to rebound from the effects of COVID on their businesses. We've seen this begin to play out in the numbers with strong second-half performance in 2020. Our investment activity during the quarter continues to be balanced between club loans and middle market syndicated loans. During the quarter, we invested in one of each, and since quarter-end, we have invested in two additional new portfolio companies. First, we'll go into detail about the investments and realizations during the quarter and then Rocco will discuss our financial results. I'll finish up with commentary on our financing activity during the quarter, our leverage, Investcorp's share purchases, our dividend and our outlook for the next few months. As always, we will end with Q&A. With that, I will turn it over to Chris.

Thanks Mike. We invested in two portfolio companies this quarter, both of which were new. We also had three full debt realizations and one equity realization. Our first investment was in the first lien term loan for a brand that designs, sources and markets footwear products. The sponsor is Gainline Capital Partners. Our yield on this club loan at cost is 8.5%. A second new investment was in the first lien term loan for auto lenders. The company is a vertically integrated auto sales and leasing platform. Our yield at cost is also 8.5%.

Thanks, Chris. For the quarter ended March 31, 2021, our net investment income was $1.8 million or $0.13 per share. The fair value of our portfolio was $251.8 million, compared to $257.7 million at December 31. Our portfolio’s net increase from operations this quarter was approximately $3.7 million. Our new debt investments during the quarter had an average yield of 8.5%, and realizations and repayments during the quarter had an average yield of 11.3%, and fully realized investments had an average IRR of 12.3%. The weighted yield of our debt portfolio was 8.77%, a decrease of 99 basis points from December 31.

Thank you, Rocco. We're very pleased to place a new bond this quarter. We closed on $65 million of new notes due 2026, which raised net proceeds of $63.1 million. In April, we used these proceeds to fully redeem our 2023 notes. The net effect is to provide us with additional long-term capital to fund our investing activities as well as lowering the cost of loans. Our guidance on leverage remains a target of 1.25 times to 1.5 times. Last quarter, we were within that target at 1.43 times. This quarter, our leverage artificially peaked at quarter-end due to the notes placed before normalizing at 1.5 times. We anticipate that our normal investment activity will keep us around this rate. I do want to touch on the non-accruals in the portfolio. A position was on non-accrual last quarter. This position, a small stub from our investment, represents our interest in the final wind down of the company. We have received a number of small paydowns and expect to collect additional amounts over the coming quarters. One of our borrowers has several term loans. The Term Loan B is subordinated to the Term Loan A, C and revolver. With those loans remaining on accrual, and absent significant changes in growing activity in that market, we do not expect the Term Loan B to resume paying interest. Another borrower unexpectedly failed to make its interest payment on both its first and second lien loans. We are engaging constructively with our fellow lenders in both processes as well as the sponsor. For confidentiality reasons, we can't say more on this at this time.

Our first question comes from Robert Dodd from Raymond James.

On Premiere Global and I understand there's confidentiality. So without going into all the details of what went on, can you give us any color on what's a reasonable time frame to expect either resolution of the asset entirely or the current, whatever there may be issues going on with the business?

Robert, unfortunately, we don't have a timeline. It has been a recent event. So everyone is in the beginning stages of discussions; it's not in the later stages. So we do not have a timeline at this point on that.

Another one that stands out is Exela Intermedia. Obviously, it's marked down. It's still on accrual but it's marked down pretty substantially. So can you give us any color on what your expectations are there? I mean, will it stay on accrual status? And on that, Mark, is there anything you can tell us about expected or potential outcomes with regard to that asset?

Robert, on that we keep watching it closely. We have discussions among some of the lenders. It is one that the company continues to make moves, and there’s all public information out there on some of the financings they've done, some of the contracts they've gotten. So they've made several moves in order to keep liquidity and so they have continued to make payments. We think that we've got it marked at actually a pretty attractive level. And we think that that is indicative from a market perspective. But until we get some guidance that they're not going to make an interest payment, we're going to keep it on accrual.

And then just in general, beyond those assets. Are there any other assets that you're seeing any warning signs in or anything that we should be paying particular attention to given obviously, there are still some stresses out there in the economy, et cetera?

It's a great question and I'll just use your question as maybe a digression on two or three things. One is, I think, in speaking, my partner, kick me from six feet away under the table here. I think I said $15, not $0.15 for the dividend next quarter. So I wanted to highlight that. The other thing is—and when we look forward, for the June quarter, I would expect that because of the bond and we had several investments to repay in this strong market and we had two or three delays in funding, that the June quarter will not necessarily cover the dividend, but our projections are that with the reinvestment we should be covering the dividend going forward beyond that. So I think that's one important thing. The other thing is the asset that we always talk about, 1888. If oil continues to hold in this $60 plus or minus range, which has been $64, $66 the last couple of weeks, but high 50s, low 60s, we are seeing a fairly slow but constant increase in rigs, especially in the Permian. It's still significantly below where it was pre-COVID, but we are seeing a very nice consistent pickup in that business. So we're not concerned about that one in the current environment.

Our next question comes from Paul Johnson.

I suppose non-accruals for a big driver of this. But I'm just—and I know you answered the question a little bit to Robert regarding the dividend. But in terms of like the interest income coming off the portfolio, just given yields and spreads, and repricings that are taking place in the market. I mean, do you expect to be able to bring that level of interest income kind of up from this quarter’s $6 million to $7 million range, or do you have any kind of line of sight on maybe kind of where we run from here?

So new investments we are assuming because of the environment—and we're not going to stretch and take on undue risk—we're assuming an average in the 8.5% to 9% range. We also are assuming that from our quarter-end, which was around our invested assets, we are in the process of a pipeline of deals we're looking at that we should be closer to that, which would not change our leverage, that's primarily using the additional cash that came from the baby bond. Hopefully that helps.

And then, I guess just one kind of broader question. I mean, within your portfolio, all your companies or even deals that you've looked at, particularly with the businesses that are maybe more labor—manual labor intensive. I mean, have you seen any signs of inflation pressure throughout the economy or just in middle market businesses?

We haven't seen it specifically. We're aware in the lower middle market, there are those pressures with hourly workers. But a number of our businesses that rely on more skilled workers are seeing some wage pressure, but they're seeing pricing stabilizing. Some of our companies, like in IEA, for example, can draw pricing. And others, kind of across the portfolio, we've been surprised by the resiliency on their revenue side as well, say for the discussion we've had on PGI and a couple of others.

Our next question comes from Christopher Nolan.

Mike, what was the driver for the decrease in portfolio yields in the quarter?

The primary driver of the decrease in portfolio yields was that we had repayments, and they were coming in at an average of around 11.3%, while our new investments were at about 8.5%.

And then a more strategic question. A month or so ago, there was talk about significantly increasing the capital gains tax. How do you think that affects your company, the BDC group, given so many deals come from private equity?

The short answer is, I'm not sure it changes it materially other than there's a real motivation by private equity sponsors at the margin to monetize so that they can, to the extent available, avoid the increased tax rate, assuming that the tax rate goes up prospectively, not retrospectively. That having been said, and why I say I don't see it as a huge change, is there is about $1.5 trillion, depending on who you talk to, of private equity capital that's been raised. So from a new deal perspective, forget about deals being refinanced, there are significant new deals and a fairly good pipeline of things for us to look at. So I think that you will see some pressure from the $1.5 billion sourcing new deals, but the capital gains tax definitely is the motivation for monetization at the margin; people aren't going to sell things below where it makes economic sense.

At this time, we have no further questions.

Thank you, everyone. We look forward to talking to you soon.

This concludes today's conference call. Thank you for attending.