Portfolio Overview - As of June 30, 2024, the company's portfolio had a fair value of 184,569,530, with 60 investments, compared to 965.0 billion of uncalled capital as of March 31, 2024[25]. - The company primarily invests in middle-market companies with annual revenues of at least 15 million[28]. - Investments typically range in size from 25 million, with a focus on standalone first and second lien loans, unitranche loans, and selectively in unsecured debt[28]. - The investment strategy includes a focus on companies with significant asset or franchise values and strong free cash flow[28]. - The company aims to capitalize on the limited competition in the middle-market lending space, facilitating higher quality deal flow[24]. - The company believes that current market conditions allow for attractively priced debt investments with potential return-enhancing mechanisms[27]. Risk Management and Underwriting - The company emphasizes disciplined underwriting policies and rigorous portfolio management to achieve favorable risk-adjusted returns[26]. - The underwriting process includes evaluating historical and projected financial performance, management team experience, and industry dynamics[35][37]. - The investment rating system categorizes investments from 1 (performing above expectations) to 5 (substantially below expectations), with 18.4% of the portfolio rated 3 or below as of June 30, 2024[45][46]. - The company utilizes hedging techniques, such as interest rate swaps, to mitigate potential interest rate risks on indebtedness[58]. - A 1.00% increase or decrease in interest rates would affect the company's net interest income by approximately 5.93%[410]. - A 2.00% increase or decrease in interest rates would affect the company's net interest income by approximately 14.94%[410]. Management and Advisory Fees - The Base Management Fee is set at an annual rate of 1.75% of gross assets, calculated based on the average value at the end of the two most recently completed calendar quarters[66]. - The Income-Based Fee is 20.0% of the Pre-Incentive Fee Net Investment Income exceeding a 2.0% hurdle rate, with a catch-up provision for amounts between 2.0% and 2.5%[68]. - The management fee is set at an annualized rate of 1.75%[82]. - The advisory fee structure is considered reasonable and beneficial to stockholders, particularly due to the exclusion of cash and cash equivalents from the Base Management Fee calculation[90]. - The board of directors concluded that the proposed advisory fees are reasonable, considering indirect benefits to the Adviser[94]. Compliance and Regulatory Requirements - The company is a BDC under the 1940 Act, which imposes restrictions on transactions with affiliates and requires a majority of independent directors[103]. - The company must provide significant managerial assistance to portfolio companies, except in cases of control or group purchases[107]. - 70% of the company's assets are required to be in qualifying assets or temporary investments, which include cash and U.S. government securities[108]. - The company is required to distribute at least 90% of its investment company taxable income to qualify as a Regulated Investment Company (RIC)[124]. - To avoid a 4% excise tax, the company must distribute 98% of its net ordinary income and 98.2% of its capital gain net income annually[125]. - The company must satisfy the 90% Income Test and Diversification Tests to maintain its RIC status[130]. - If the company fails to maintain its RIC qualification, it could be subject to corporate-level U.S. federal income taxes on all taxable income[131]. Performance and Returns - The weighted average total yield of debt and income-producing securities at amortized cost was 12.47%, while the total portfolio yield was 10.60%[12]. - The company expects to receive interest income over the investment period, providing significant returns on invested capital prior to final exit[57]. - The company aims to exit investments through company sales, recapitalizations, or loan repayments, with a focus on maintaining significant underlying equity value[31]. - Cumulative incentive compensation accrued for the preceding 11 calendar quarters was 8,000,000[80]. Competition and Market Position - The company faces competition from larger public and private funds, other BDCs, and commercial banks, which may have access to funding sources not available to it[60]. - The investment adviser, CM Investment Partners, has a team with over 100 combined years of experience in structuring customized debt solutions for middle-market companies[18]. - The investment team has extensive networks for sourcing investment opportunities, enhancing the company's competitive advantage in identifying investments[26]. Governance and Operations - The company does not have direct employees; day-to-day operations are managed by the Adviser, with key officers being employees of the Adviser[62]. - The Advisory Agreement allows for a termination notice of 60 days without penalty from either party[85]. - The Board of Directors approved the continuation of the Advisory Agreement on July 23, 2024, considering various factors including advisory fees and operating expenses[87]. - The Administration Agreement allows the Adviser to provide various administrative services, including maintaining financial records and preparing reports for stockholders[95]. - The company has adopted a code of ethics to govern personal investments and restrict certain transactions by its personnel[112].
Investcorp Credit Management BDC(ICMB) - 2024 Q4 - Annual Report