MidCap Financial Investment Corp Q1 FY2024 earnings call

• Results Summary: The March quarter saw a slight increase in net asset value per share, stable credit performance, and continued de-risking of the portfolio. Net investment income per share was $0.44, GAAP EPS was $0.39.
• Portfolio De-Risking: Reduced exposure in Merx and second lien; second lien and other debt exposure is now 0.7% of the total corporate lending portfolio.
• Mergers Update: Proposed mergers with Apollo Senior Floating Rate Fund Inc and Apollo Tactical Income Fund Inc; potential one-time $0.20 per share cash dividend if mergers close; special meetings for stockholders on May 28th.
• Investment Activity: MidCap Financial closed ~$5.1 billion in new commitments in March; MFIC's new investment commitments totaled $149 million, with a weighted average spread of 624 basis points.
• Portfolio Composition: Fair value of the portfolio was $2.35 billion, invested in 154 companies across 23 industries; corporate lending and other ~92%, Merx 8%.
• Credit Quality: Weighted average attachment point of corporate lending portfolio is essentially 0; weighted average net leverage 5.36x; interest coverage 1.9x.
• Financial Results: NAV per share at end of March was $15.42, up $0.01; net expenses $39.8 million, down $2.4 million; net leverage 1.35x.

The corporate lending and other segment represented approximately 92% of the total portfolio at fair value, with 97% being first lien. Merx accounted for 8% of the total portfolio at fair value. Net investment income per share for the March quarter was $0.44, corresponding to an annualized return on equity (ROE) of 11.4%. GAAP EPS for the March quarter was $0.39. The board declared a dividend of $0.38 per share, consistent with prior quarters, representing an annualized yield of approximately 9.9% based on NAV per share as of March 31st.

• Dividend: $0.38 per share declared, annualized yield ~9.9% based on NAV.
• Mergers: Potential benefits of larger combined company including enhanced returns, scale, diversification; one-time $0.20 per share cash dividend if mergers close.
• Investment Deployment: Excited about potential to deploy more capital post-merger.

• Interest Rate Risk: Higher-for-longer rate environment could impact the portfolio.
• Credit Risk: Monitoring companies below 1x interest coverage ratio; potential covenant breaches or amendment activity.
• Market Competition: Competition from broadly syndicated loan market impacting spreads in the middle market.

Q: Comment on spread stability in the middle market and trend.

A: Spreads tightened, but seeing stability now as sale processes run their course; deals between 500-550 basis points, MFIC executed at 624 basis points.

Q: Pro forma leverage post merger?

A: It will be somewhere around between 1.15 and 1.2x lever.

Q: Transition to offensive side post merger?

A: Excited about potential to deploy more capital post-merger, but strategy remains focused on MidCap-sourced loans.

Q: Credit quality and continuation vehicles?

A: Constructive discussions around extensions, repricings; continuation vehicles typically change control but have ongoing dialogue.