Executive Summary

Q4 FY2023 NII was $2.2mm ($0.15/share), with weighted average debt yield at cost of 12.45% and NAV/share of $6.09; gross leverage was 1.54x and net leverage 1.44x .
The Board declared a base dividend of $0.12/share for the quarter ending September 30, 2023 and a $0.03/share supplemental (spillback), and management expects to cover the base distribution next quarter; base dividend was modestly reduced vs prior quarter ($0.13) and supplemental reduced ($0.05 → $0.03) .
Portfolio repositioning continued: 2 new and 2 follow-on investments ($15.1mm cost) with strong sponsor support; repayments totaled $8.7mm (realized IRR ~9.77%), nonaccruals increased to 6 as American Nuts Term Loan A & B were added .
Management emphasized risk mitigation and diversification amid limited primary issuance, with expectations of improving deal flow and redeployment of expected repayments; the expanded platform (SMA + institutional fund) is a key sourcing and origination catalyst .

What Went Well and What Went Wrong

What Went Well

High-yield deployment with sponsor-backed credits: 2 new and 2 existing investments totaling $15.1mm at a 15.48% weighted average yield at origination; repayments of $8.7mm realized ~9.77% IRR .
Dividend policy visibility and coverage: base $0.12 plus $0.03 supplemental declared; management reiterated expectation to cover the base dividend next quarter (“We covered our June quarterly dividend with NII… expected to earn its dividend through the next quarter ending September 30”) .
Platform scale increased: acquisition of an SMA and initial close on an institutional fund doubled platform AUM, enhancing sourcing, origination, and cost spreading; “expanded team has already proved to be meaningful” .

Selected quote: “We continue to focus on managing the portfolio in this inflationary environment; specifically focusing on the diversity of our investments, reducing average position sizes, and working with borrowers and sponsors where covenant or liquidity issues exist.” — Michael C. Mauer .

What Went Wrong

Yield compression vs prior quarter: weighted average yield on debt investments at cost fell to 12.45% from 13.36% in Q3; management noted continued portfolio risk management amid high-rate stresses .
NAV and net assets down: NAV/share decreased $0.04 to $6.09; net assets fell by ~$0.5mm (0.6%) q/q; net increase in net assets from operations was $2.1mm ($0.14/share) .
Credit headwinds: nonaccruals increased to 6 (American Nuts added); primary issuance remained limited, constraining new deal activity and necessitating higher selectivity .

Financial Results

Quarterly Performance and Leverage (oldest → newest)

Metric	Q2 2023	Q3 2023	Q4 2023
Net Investment Income (NII) ($USD Millions)	$2.3	$2.5	$2.2
NII per Share ($)	$0.16	$0.18	$0.15
Net Increase in Net Assets from Operations ($USD Millions)	$0.6	$(1.1)	$2.1
Net Increase in Net Assets per Share ($)	N/A	N/A	$0.14
Weighted Avg Yield on Debt Portfolio at Cost (%)	10.7%	13.36%	12.45%
Number of Portfolio Companies (end of period)	37	35	36
Gross Leverage (x)	1.55x	1.65x	1.54x
Net Leverage (x)	1.46x	1.49x	1.44x

Notes: “Net Increase in Net Assets per Share” provided in Q4 press release only .

Portfolio Composition and Liquidity

Metric	Q2 2023	Q3 2023	Q4 2023
First Lien (%)	91.2%	89.2%	89.21%
Floating Rate Debt (%)	99.5%	99.6%	99.6%
Cash ($USD Millions)	$8.4 (restricted $7.9)	$14.1 (restricted $11.2)	$9.2 (restricted $8.1)
Revolver Capacity ($USD Millions)	$36.6	$33.1	$28.1
Nonaccrual Investments (count)	8	4	6

Industry Concentrations (Top Buckets)

Industry	Q3 2023	Q4 2023
Trading Companies & Distributors	15.9%	16.0%
Professional Services	14.0%	12.8%
IT Services	10.8%	10.7%
Commercial Services & Supplies	6.5%	6.5%
Software	6.2%	6.2%

Additional KPIs

KPI	Q4 2023
Weighted Avg Portfolio Net Leverage (borrowers) (x)	3.9x
Weighted Avg Loan-to-Value (LTV) (%)	~48%
New Investments — Weighted Avg Yield at Origination (%)	~15.48%
Realizations — IRR (%)	~9.77%
NAV per Share ($)	$6.09
Net Assets ($USD Millions)	$87.7

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Base Dividend per Share ($)	Next quarter	$0.13 for quarter ended June 30, 2023	$0.12 for quarter ending Sep 30, 2023	Lowered
Supplemental Dividend per Share ($)	Next quarter	$0.05 for quarter ended June 30, 2023	$0.03 (FY2023 spillback) for quarter ending Sep 30, 2023	Lowered
Dividend Coverage (NII vs base)	Next quarter	Expected to cover dividend through quarter ending June 30	Expected to cover base $0.12 in quarter ending Sep 30	Maintained (coverage)
Leverage Target (gross/net)	Ongoing	1.25x–1.5x	1.25x–1.5x; gross 1.54x (above), net 1.44x (within)	Maintained target; monitor gross

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 2023)	Previous Mentions (Q3 2023)	Current Period (Q4 2023)	Trend
Deal flow (primary vs secondary)	Primary slowed; very selective; 1 new investment; added to existing; focus on first lien, sponsor-backed	Secondary opportunities picked up; 1 new + 3 existing; robust pipeline	Primary issuance limited; pivot to secondary; expect improvement; 2 new + 2 existing	Stabilizing to improving
Portfolio risk management	Emphasis on sector selection, equity cushions, capital preservation	Reduced nonaccruals to 4; continued rotation	Added 2 nonaccruals (American Nuts A/B); ongoing mitigation	Mixed (incremental stress)
Yields	Portfolio yield 10.7%	Portfolio yield 13.36%	Portfolio yield 12.45%	Down q/q (still elevated y/y)
Leverage discipline	Gross 1.55x, net 1.46x; converge expected	Gross 1.65x, net 1.49x; converge expected	Gross 1.54x (above target), net 1.44x (within)	Slight improvement q/q
Dividend policy	Declared $0.13 + $0.02; expected coverage	Declared $0.13 + $0.05	Declared $0.12 + $0.03; expect base coverage	Maintained base; supplemental lower
Platform/AUM scale	SMA + initial fund close doubled platform AUM	Continued headway; scale to aid sourcing and costs	Expanded team meaningful; pipeline healthy	Positive

Management Commentary

Strategic focus: “We remain increasingly focused on capital preservation and maintaining a stable dividend… rotating and diversifying the portfolio, all while focusing on mitigating risk in our borrowers experiencing short-term stress.” — Michael Mauer .
Market backdrop and deployment: “High interest rates have discouraged sponsors… investment activity remained lower… we expect the slowdown in primary deal activity to pick up… we continue to see compelling investment opportunities in our pipeline.” — Michael Mauer .
Portfolio quality metrics: Weighted average borrower net leverage ~3.9x and LTV ~48%, with 89% first-lien and ~99.6% floating rate debt composition .
Dividend: “We covered our June quarterly dividend with NII… expected to earn its dividend through the next quarter ending September 30.” — Michael Mauer .

Q&A Highlights

Repayments and deployment: Management has line-of-sight to repayments and plans to redeploy, not expecting net repayments: “These are payments… but we will be redeploying.” — Michael Mauer .
Platform scale and performance: Management underscored building a broader platform to originate more and improve terms; ongoing fund raises and SMAs to spread cost and bolster sourcing .
Dividend sustainability: Dividend income from equity positions in the quarter was characterized as one-off, not recurring; base dividend coverage expected .
Credit facility: Active dialogue with lender; revolver maturity in 2026; reinvestment period noted for 2024; management to review details but relationship healthy .

Estimates Context

Wall Street consensus (S&P Global) for Q4 FY2023 EPS and revenue was unavailable due to request limits; as a result, we cannot provide a beat/miss assessment vs consensus for this quarter. Values retrieved from S&P Global.*

Where estimates may need to adjust: The decline in portfolio yield vs Q3 (13.36% → 12.45%), increased nonaccruals (to 6), and lower cash/revolver capacity may temper near-term NII trajectories, while high-yield new deployments (15.48% at origination) and expected repayments/redeployment could support stabilization .

Key Takeaways for Investors

Base dividend maintained at $0.12 with a $0.03 supplemental; management expects base coverage next quarter, offering near-term income visibility despite modest reductions vs prior quarter .
Yield normalization from Q3’s elevated levels to 12.45% reflects mix, nonaccrual additions, and timing; monitor NII resilience as redeployment progresses .
Credit vigilance remains central: nonaccruals increased to 6 (American Nuts added); continued portfolio rotation and diversification aim to mitigate borrower stresses .
Leverage is trending down within/near target (gross 1.54x; net 1.44x); fee waivers apply above 1.0x, offering partial offset to higher leverage levels .
Liquidity tighter q/q (cash $9.2mm; revolver capacity $28.1mm) but adequate for measured deployment; increased platform scale should enhance sourcing and club opportunities .
Near-term trading: watch for confirmations of repayments and redeployment pace, nonaccrual resolutions, and dividend coverage; medium-term thesis hinges on platform-led origination and improved primary issuance .

Appendix: Portfolio Activity Detail (Q4 FY2023)

New/Follow-on investments: PureStar (AMCP Clean Acquisition Co., first-lien + DDTL), XLerate (American Auto Auction Group, first-lien), Bioplan (priority term loan) — yields ~13.6–16.5% at cost .
Realization: Altern Marketing (proceeds ~$8.7mm; IRR ~9.77%) .
Subsequent events: $4.1mm invested in one new and one existing portfolio company; portfolio companies increased to 37 by Sept 15, 2023 .

Investcorp Credit Management BDC, Inc. (ICMB)·Q4 2023 Earnings Summary