BDC Quarterly Analysis: Investcorp Credit Management Continues Review of Strategic Alternatives; Advisor Waives 56% of Base Management Fees to Support Liquidity

Credit Research: Lexie Wang

Relevant Items:
Q1’26 10-Q
Q1’26 8-K

On a call to discuss first-quarter results, Investcorp Credit Management BDC’s management said it is “committed to conducting a thorough and deliberate review” related to the company’s evaluation of strategic alternatives, though given the ongoing nature of the review, declined to take questions.

Alongside the strategic review, management outlined two steps taken to manage liquidity. The investment advisor voluntarily waived 56% of base management fees for the quarter, generating approximately $0.5 million in savings, with the waiver reflecting the advisor’s “ongoing commitment to support the company.”

Additionally, as disclosed in an 8-K filing on May 8, the company amended its RCF, reducing the commitment from $100 million to $50 million to better align the facility with current needs and reduce the cost structure.This adjustment is projected to result in annual savings of roughly $0.4 million in undrawn commitment fees.

During the quarter, the company “fully exited three portfolio company investments, generating total proceeds of approximately $12.7 million with a blended IRR of approximately 10.7%.” The exits comprised INW Manufacturing, PVI Holdings and Asurion.

According to management, there was a net realized gain on investments of $19.3 thousand for the three months ended March 31 due to the realization of gains associated with the sale of Asurion, LLC Term Loan.

On March 30, the company refinanced its existing 4.875% fixed-rate notes with new unsecured notes provided by an affiliate of its investment advisor Investcorp Capital PLC, carrying a floating rate of SOFR+5.5% and maturing July 1, 2029. During the quarter, the company also repaid $14 million on its Capital One RCF at the special purpose vehicle level.

Investcorp Credit Management BDC reported $109.9 million in outstanding borrowings at par as of March 31. Management noted that the asset coverage ratio, based on par value, stood at 148%, which did not meet the 150% threshold required under the 1940 Act.

Investcorp BDC Portfolio Review

As of March 31, Investcorp Credit Management BDC reported $178 million in portfolio investment cost at a fair value of $151.4 million, down sequentially from $190.5 million and $172.7 million, respectively. The portfolio is spread across 34 borrowers or company equity. The company’s debt portfolio consisted of 97.75% floating-rate investments and 2.25% fixed-rate investments.

In addition, the company had $2.7 million of unrestricted cash.

The portfolio consists of primarily first lien securities, as shown in the chart below:

As of March 31, the company had five investments on nonaccrual status, which collectively represented 6.09% of the company’s portfolio at fair value, compared with 6.93% in the December quarter. No new name was added to the list during the March quarter.

Sector allocation as of the end of the last three quarters is shown below; the professional services sector represents the largest sector exposure, at 15.7%:

Capital Structure and Liquidity

As of March 31, Investcorp Credit Management BDC had $109.9 million of outstanding borrowings at par value. According to management, the asset coverage ratio based on par value was 148%, failing to satisfy the 150% requirement established by the 1940 Act.

The company reported $2.7 million of cash and cash equivalents as well as $8.8 million in restricted cash and cash equivalents and $55.1 million of capacity under the Capital One Revolving Financing.

Octus-calculated gross leverage stood at 2.09x.