Welcome to the Investcorp Credit Management BDC Scheduled Earnings Release for 1/3 1/4 ended March 31, 2022. Your speakers for today's call are Mike Mauer, Christopher Jansen, and Rocco DelGuercio. Operator assistance is available anytime during this conference by pressing star zero. A question and answer session will follow the presentation. I'll now turn the call over to our speakers. You may begin.
Thank you, operator, and thank you for joining us on our 1/3 1/4 call today. I'm joined by Christopher 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 a 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. At this time, I'd like to turn the call back over to our Chairman and CEO, Michael Mauer.
Thank you, Rocco. I'd like to start by updating Investcorp's ownership stake in ICMB. On Thursday, May 5, Investcorp entered into a stock purchase agreement to purchase 2,165,000 shares at the March 31 NAV from Cyrus. Cyrus was an original seed capital investor in the predecessor private fund and the anchor investor in ICMB. Cyrus has been invested in ICMB for over 10 years between the predecessor fund and the existing BDC.
This position has created significant overhang in the stock as Cyrus was an unnatural long-term holder with in excess of a 20% position. Investcorp's intention in buying the stock was multifold. This demonstrates continued commitment to ICMB and conviction in the underlying value of the investments at NAV. It also reduces the overhang stock and allows all shareholders to see this commitment and benefit from the reduced overhang.
This past 1/4, we saw the broader market face significant volatility and a slowdown in the number of transactions in the loan market driven by geopolitical events. The majority of transactions we saw were either LBOs or refinancings. We have typically found that in a highly competitive market environment, our best opportunities come from companies we already lend to, as these deals tend to have better structures.
As we continue to see strong competition for deals, we see pressure coming from both tighter pricing and higher closing multiples. However, we remain focused on credit quality and are selective about the structures we are willing to lend into and thorough in our due diligence process. This 1/4, we were successful in deploying our capital at an average yield of 8.25%.
We made 2 new investments and invested in 3 of our existing portfolio companies, none of which were covenant light in a Sponsor-Friendly market environment. We also continued to execute under the plan to Co-Invest in equity positions with Investcorp's North American Private Equity Group, with more momentum in the pipeline under that plan. We continue to focus on the portfolio rotation that we began earlier this year while maintaining our credit discipline.
This past 1/4, we opportunistically sold out of positions in the portfolio in favor of new opportunities with higher yields and better loan structures. Our investment activity during the 1/4 continues to be balanced between club loans and middle-market lightly syndicated loans. We have also further reduced our exposure to energy equipment and services, which represents 5.4% of the portfolio, compared to a year ago at 10.1%.
Additionally, we continue to make progress with legacy credit issues in the portfolio. We completed the restructuring of Fusion Connect in January. I'll speak more about that later in the call. Christopher will now walk you through our investment activity during the March 1/4 and after 1/4 ends. After his discussion, Rocco will go through our financial results.
I'll finish with commentary on the restructuring of Fusion Connect and our Non-Accrual investments, our leverage, the dividend, and our outlook for the rest of 2022. As always, we'll end with Q&A. With that, I'll turn it over to Christopher.
Thanks, Mike. We invested in 2 new portfolio companies this 1/4, as well as 3 existing portfolio companies.
We fully realize our position in 5 portfolio companies and also refinance our position in JexPro and fully realize our position in the Fusion exit loan. We invested in the first lien loan of AHF Products, which supported the LBO by Paceline Equity Partners. AHF Products is a leading producer of hard surface and solid wood flooring in North America.
Our yield at cost is approximately 7.4%. We made our second equity Co-Investment alongside Investcorp's North American Private Equity Group. S&S Truck Parts LLC, listed in our schedule investments as Pegasus Aggregator, is one of the largest suppliers of new aftermarket parts for medium and Heavy-Duty vehicles. In terms of investments in current portfolio companies, our existing loan to JexPro was refinanced in January as part of a larger transaction which backed several acquisitions.
Our yield at cost on JexPro's funded revolver is approximately 7.5%, and term loan and delayed draw is approximately 7.4%. We also made an additional investment in the equity of Techniplas to support an asset purchase of a molded products facility sold by Lydall . As part of Fusion's restructuring process, we were a joint lead arranger on the new first lien term loan, which has a yield at cost of approximately 9.6%.
We also participated in the company's new Series A preferred equity, which has a PIK coupon of 12.5% and a yield at cost of approximately 13.1%. Mike will provide additional detail about Fusion's restructuring later in the call. Turning now to our realizations. Our loan to JexPro was repaid in full as the company refinanced in January.
Our fully realized IRR was approximately 10.4%. Our second realization was ProFrac Services. ProFrac completed the acquisition of FTS International in March, and we were refinanced out of our position. Our fully realized IRR was approximately 9.9%. We also received repayment in full for Fusion's exit loan as the position was refinanced through the broader restructuring of the company. Our fully realized IRR was approximately 14.1%.
We exited several investments opportunistically this 1/4 in order to reduce our leverage and rotate into higher yielding credits. We fully realize our position in Verigy with an IRR of approximately 9.7%, Qualtek with an IRR of approximately 8.7%, Flow Control with an IRR of approximately 8.1%, and Galaxy with an IRR of approximately 7.2%.
After 1/4 end, we invested in one new portfolio company, one existing portfolio company, and had 2 realizations in existing portfolio companies. First, the new JexPro loans made in the first 1/4 were repaid in April as the company merged with Lawson Products. Our fully realized IRR in the term loan was approximately 19.7%. Although we are pleased with the return on the revolver and the delayed draw, the IRRs are not meaningful given the short holding period.
We invested in the club financing for American Nuts, which supported the refinancing of the company and the acquisition of DSD Merchandisers. American Nuts provides procurement, processing, and packaging services of nuts, seeds, and dried fruits. The acquisition of DSD Merchandisers creates a fully vertically integrated business. Our yield at cost is approximately 9.9%.
Lastly, we fully realize our position in Kline's / Hr's as the company simultaneously refinanced its loans and converted to an ESOP. Our fully realized IRR was approximately 11.8%. We also invested in a new transaction. Our yield at cost is approximately 9.2%.
Using the GICS standard, as of March 31, our largest industry concentration was trading companies and distributors at 9.5%, followed by IT services at 9.2%, internet and direct marketing retail at 9.0%, professional services at 7.8%, and household durables at 7.1%. Our portfolio companies are in 20 GICS industries as of 1/4 end, including our equity and warrant positions. As of March 31, we had 35 portfolio companies, a decrease of 3 from December 31.
I'd now like to turn the call over to Rocco to discuss our financial results.
Thanks, Christopher. For the 1/4 ended March 31, 2022, our net investment income was $1.8 million or $0.12 per share. The fair value of our portfolio was $242 million compared to $269.4 million on December 31. Our portfolio's net decrease from operation this 1/4 was approximately $63,000.
Our investments in debt purchased during the 1/4 had an average yield of 8.25%, while realizations and repayments during the 1/4 had an average yield of 8.59%, and fully realized investments had an average IRR of 9.56%. The w8ed average yield of our debt portfolio was 8.14%, a decrease of 2 basis points from December 31.
As of March 31, our portfolio consisted of 35 portfolio companies. 91.8% of our investments were first lien. The remaining 8.2% is invested in equity warrants and other positions. 91.3% of our portfolio was invested in floating rate instruments and 0.5% in fixed rate investments. The average score on our debt investments was 1.04%.
Our average portfolio company investment was approximately $6.9 million, and our largest portfolio company is Fusion at $13.4 million. We had a gross leverage of 1.71 times and net leverage of 1.63 times as of March 31, compared to 1.74 gross and 1.39 net, respectively, for the previous 1/4.
Our net leverage, adjusted for open sales and open purchases, was 1.41 times as of March 31, compared to 1.61 times for the previous 1/4. As of March 31, we had 6 investments on Non-accrual, which included all 3 investments in PGi, as well as Deluxe and 2 investments in 1888.
With respect to our liquidity, as of March 31, we had $7.6 million in cash, of which $4.7 million was restricted cash, with $7.3 million of capacity under our revolving credit facility with Capital One. Additional information regarding the composition of our portfolio is included in our Form 10-Q, which was filed yesterday. With that, I'd like to turn the call back over to Mike.
Thank you, Rocco. We are proud of the progress that we have made repositioning the portfolio, and we continue to remain selective in our new investments. We continue to focus on adding club deals that were originated through the team's relationships as well as Add-On investments and refinancings of existing portfolio companies.
We remain focused on the credit quality of our deals, including the comprehensive evaluation of loan credit and documentation and downside protection. Fusion completed its restructuring in January. We were joint lead arrangers on the new first lien loan. We refinanced Fusion's exit loan. We were also a backstop party to the company's new money Series A preferred equity. By virtue of our backstop commitment as well as investment in the Series A preferred equity, we received warrants with a fair value of $636,000.
The take-back loan, which was the bulk of the company's debt, was equitized into Series B equity, and we will convert to common shares upon the receipt of regulatory approvals, which we anticipate will occur later this year. We also received out-of-the-money warrants. The restructuring significantly de-levered Fusion Connect's balance sheet and positions the company to execute on its growth initiatives.
Our gross leverage this 1/4 was 1.71 times, above our guidance of 1.25-1.5 times, and 3 basis points lower than last 1/4. Our net leverage was 1.63 times. Due to the timing of investments and repayments, our leverage remained above the target range. As mentioned last 1/4, we expect to see our gross and net leverage generally converge, with both around the high end of our target range.
As of May 2, our gross leverage was 1.48 and our net leverage 1.45 times. That's the high end of our target range. As we have previously stated, the advisor will waive the portion of our management fee associated with base management fees over one turn of leverage. We did not cover our March quarterly dividend with NII.
Through the fiscal year end to date, the company has earned its dividend and is expected to earn its dividend through the fiscal year ending June 30, 2022. Our board of directors declared a distribution for the 1/4 ended March 31, 2022 of $0.15 per share, payable on July 8 to shareholders of record as of June 17. We believe the dividend level is stable and sustainable and that it represents an attractive yield given the market price of ICMB stock.
As mentioned earlier, we continue to remain selective on our new investments and our portfolio repositioning strategy. We are focused on improving industry concentration and diversification and managing our average position size, all which help manage risk. Our investment strategy has not wavered.
We are focused on investing in primarily first lien loans, preserving capital and maintaining a stable dividend while creating upside to the NAV through our existing and new equity investments. As we enter the last 1/4 of our fiscal year, we expect to continue executing on our strategy and expand the diversity and stability of our portfolio. That concludes our prepared remarks. Operator, please open the line for Q&A.
Ladies and gentlemen, at this time, we will conduct a question-and-answer session. If you would like to state a question, please press star one on your phone now and you will be placed into the queue in the order received. Or press pound at any time to remove yourself from the queue. Once again, to ask a question, please press star one on your phone now.
Our first question comes from Paul Johnson with KBW. Your line is open.
Yeah, good afternoon, guys. Thanks for taking my questions. The first question is just kind of about the market and the investment pipeline that you're looking to build. I guess you know, with just kind of the advent of the unitranche and the growth of that product and direct lenders and what they'd have to offer to the market, has that pushed out in any way, I guess kind of the more traditional club deals and affected any sort of the syndicated-like deals that you guys participate in?
Thanks, Paul. It's Mike. Before I answer your question, Rocco just hit me that I misspoke earlier in the call. The distribution that the board of directors declared is for the 1/4 ended June 30, not March 31. I just wanted to correct that. Coming back to your question. We are seeing actually a reasonable pipeline of deals to look at.
The emergence of the unitranche that you're talking about, and I'll use some names generically, but you know, Blackstone, KKR, Apollo, these large Multibillion-Dollar direct lending vehicles. They tend to focus on a lot larger deals than we focus on. The deals we're focused on are typically on the low side, $40-$60 million tranche up to a couple hundred million.
My experience in running into and talking to, you know, a lot of former colleagues at some of those places, are that probably around the upper end of that range I just gave is where they get interested. Deals that are 100-150 million, it's almost hard for them to do them when you look at their allocation policy across all the vehicles.
They are very focused on the middle market that is probably 50-200 million of EBITDA. Those tranches, by definition, are 200-500 million. It really is not affecting us at this point. We are still seeing many club deals, and less of the lightly syndicated from the regional banks, but very good flow from partners in the club arena.
Got that. Got it. Appreciate that. My other question, just on the debt marks for the portfolio or for the BDC this 1/4, just a little bit of write-down in the 1/4 $1.9 million or so. Is that related to more mark-to-market spread widening? Or is there any sort of credit deterioration, specific credit deterioration that's baked into that?
Yeah. Hey, Paul, it's Christopher Jansen. It's all due to a little bit of spread widening from the beginning of the first 1/4, from 12/31 to 3/31. Anecdotally, you know, spreads are coming back in. From a performance perspective, the numbers we've seen, you know, in the 4th 1/4 and early in the first 1/4 of this year have been surprisingly healthy.
We haven't really seen any pockets of resistance or, you know, downward pressure from an operating viewpoint. It's just been either spread widening or in the case of Techniplas, which is our equity, a large equity position for us. It's just been the market comps have gone down by almost 2 full turns. Nothing to do with the operating performance either of Techniplas or really anything within the portfolio.
Got it. Appreciate that. I also have a question on the dividend level. I know that you mentioned in your prepared remarks that you're, you know, the board and the company believes it's sustainable level where it is today.
Just given the gap from NII this 1/4 to the dividend, I'm just hoping you can maybe talk about the levers that you have to pull in order to get NII, you know, back within that dividend range. You know, anything that, I guess, would help improve that. I mean, is it rates? Is it, you know, refinancing or just anything, any sort of color you can have on that one?
Sure, Paul, just, I'm glad you asked that because probably a little more color around. We came in at $0.12. The dividend is $0.15. That gap of $0.03, 2-1/3s of that gap is the excise tax that is a one-time in the 1/4.
If it weren't for the excise tax, we would have been at $0.14. The leverage, while the headline continues up in this 1.7 this 1/4 was, we had a bunch of sales that hadn't settled and things like that, we would have been below and in the target range if the receivables had been cash from a net perspective, or that cash we had, we would have paid down the Capital One facility. Running the portfolio around the level that we are gets us to that $0.15.
Rising rate environment will help all things being equal. That having been said, I think people who, including yourself, who've followed us for a while, watched us over the last 4 to 6 years move from what was a 60% first lien to today a 90% first lien. Given the inflation and the outlook, I think we would expect to stay in this 80%-90% first lien at least range because we've got rising rates, but we also have rising risk around the inflation in companies.
Got it. Appreciate that. My last question, if I can, is just on the large holders selling out or partially selling out this 1/4, Cyrus Capital Partners. I'm just curious if you have any details as far as was that a partner that was, you know, contributing, I guess, assets in any way or, you know, was there any sort of relationship there prior to the sale of their position? I'd also ask if you are in dialogue with them in any way or any of your other large shareholders on, you know, potentially further exits of those large insiders.
Let me start with the last part. I'm not aware of any near-term exit by any existing shareholder today, Cyrus or anyone else. I can't speak for what their plans are from a liquidity, from a you know, appreciation, et cetera.
I'm not aware of any. I do talk to our shareholders. Cyrus has been a great partner for a very long time dating back to the predecessor fund. It's well over 10 years that Cyrus was involved in this from seeding the original private fund, and there has been a view for a while that they wanted to get some liquidity. This was creating overhang and it was an opportunity for us to show conviction around the NAV value and to relieve some of that overhang.
Got it. Appreciate it. That's all I have today. Thanks for taking my questions.
Thank you, Paul.
As a reminder, if you do have a question, please press star one on your touchtone keypad. Our next question comes from Robert Dodd from Raymond James. Your line is open.
Hi, guys. Just following up on that last part of Paul's question. I mean, if the goal perhaps you can give some color on this. If the goal was, you know, for the manager to kind of give investors comfort of their belief in NAV, wouldn't it have made more sense for the manager to tender for $50 million of stock for all investors rather than take out one particular investor? Because obviously, if you believe in NAV, give the opportunity for everybody to sell to the manager rather than concentrate the financial benefit there to one investor.
Yeah. Robert, thank you for the Follow-Up. If that were the only objective, I would agree, but having a 25% shareholder who'd been in for 10 years, had another objective alongside and parallel, and we are trying to solve for several items at the same time. That was the road we chose.
Understood. And then, in your prepared remarks, Mike, you mentioned a comment about you making progress on some of the Non-accruals. Obviously, I mean, the names are the same, but can you give us any more color on what progress has been made? Obviously, you've talked in prior quarters, this is a long-term process.
Yeah.
Multiple years in many cases, but can you give us an update there?
Yeah. Listen, there's a lot of names we rotated out of and maybe it's a great point that on our next call, we should just highlight over the last 12-18 months how we have actually rotated and give you some granularity around that. You know, a couple of names that we have spent time around, I'll let Chris talk.
These are all still work in progress, but lots of momentum on bringing in advisors, bringing in management, shifting strategies. Techniplus, we equitized the debt. We went into the equity with Jordan, who was a 1/3 party coming into the situation, putting fresh cash in. There's been small tag-on acquisitions made. There's been facilities shut down. There's a new CEO in. It's actually performing quite well.
The comps are weak because of what's going on in the auto industry globally, but the company is performing quite well, and we feel very, very good about that. Fusion, new management is installed. There's a lot of activity going on looking at whether or not it's, you know, small acquisitions that need to round out, the product suite in order to make it an attractive strategic alternative for others, or whether or not there are some businesses that did not make sense.
Those are being addressed with new management, and we have recapitalized that to reduce the debt and put in preferred equity. That's another major one when you look at it. I'll let Chris talk to PG i.
Yeah. On PG i, the new owner in there has been doing a great job at, you know, actually managing the business and preserving whatever value is there. It's hard to be too optimistic on that being a large increase from where we are right now, but we feel rock solid about the valuation we have on it now. We are looking to that for that to increase a bit, but not make up close to anywhere the losses unfortunately.
Okay. I appreciate that. Thank you. Oh, go ahead.
Robert, I just appreciate, you know, all the questions and Paul also around, you know, we knew that when Investcorp did the purchase, it would have questions, and I just wanna reiterate that's at the Investcorp level. We know they own the manager, but it's not the manager and it's not the BDC.
100% understood. Last one if I can. On the dividend, you said you expect to earn the dividend for the fiscal year. Just to clarify, is that before or after tax, right? i.e., you're gonna earn the dividend with the excise tax payment or-
Yeah.
Excluding that?
Hi, Paul, it's Rocco. Yeah, with the excise tax payment.
Got it. Thank you.
Of course.
Thank you. We have a question from Christopher Nolan from Ladenburg Thalmann. Your line is open.
Most of my questions have been asked. On 1888, and excuse me if you answered this, it seems like you have a Non-accrual PIK loan, but then you have an accruing cash loan. I'm just trying to get clarification around that.
Yeah. It's priority. The first priority is expected to be able to pay the interest and the principal there. The Non-accruing PIK is where we have a question right now as we go through our valuations on whether or not that will be realized, and we'll continue to evaluate that on an ongoing basis.
Great. That's it for me. Thank you.
Okay.
Thank you. We have no further questions in queue at this time.
Thank you, everyone. We appreciate the time and look forward to talking after the next 1/4. Thank you.
This concludes today's conference call. Thank you for attending.