MidCap Financial Investment Corporation Q2 FY2025 earnings call

• Kenny Seifert was appointed as MFIC's new Chief Financial Officer effective June 30, 2025, with Greg Hunt continuing as an adviser until December. Howard Widra intends to retire from Apollo at the end of 2026.
• Second quarter net investment income per share was $0.39, corresponding to an annualized ROE of 10.5%. GAAP net income per share was $0.19, with an annualized ROE of 5.2%. NAV per share was $14.75 at end of June, down 1.2% from prior quarter due to company-specific challenges in some positions, partially offset by a gain on Merx and NII exceeding the dividend.
• In the June quarter, MFIC made $262 million of new commitments across 29 transactions, with slightly more than half to existing portfolio companies. The weighted average spread on new commitments was 538 basis points (excluding 2 outliers, 526 basis points), and weighted average net leverage on new commitments was 4x, down from 4.2x prior quarter.
• Merx sold 1 aircraft in Q2, had a sales transaction post quarter-end covering most aircraft, received $30.9 million in insurance proceeds related to 3 aircraft detained in Russia, and will repay approximately $90 million to MFIC in Q3, reducing MFIC's investment in Merx by nearly half. MFIC's remaining investment in Merx consists of 4 aircraft and the servicing platform, with the servicing business representing approximately 40% of the remaining value.
• Portfolio fair value was $3.33 billion at end of June, invested in 249 companies across 51 industries. Direct origination and other represented 92% of the total portfolio. Non-directly originated loans from closed-end funds were 2% of the portfolio. Weighted average yield at cost of direct origination portfolio was 10.5% in Q2, down from 10.7% in prior quarter. Weighted average spread on directly originated corporate lending portfolio was 568 basis points at end of June, down 1 basis point from end of March.
• Financial results: Total investment income for Q2 was approximately $81.3 million, up $2.6 million or 3.2% from prior quarter. Net expenses were $44.9 million, up from $44.4 million prior quarter. Incentive fee for Q2 was $3.9 million or 9.6% of pre-incentive fee NII.
• Balance sheet: Portfolio fair value $3.33 billion, total principal debt outstanding $2.05 billion, total net assets $1.3 billion or $0.1475 per share. Net leverage at end of quarter was 1.44x. Gross fundings excluding revolvers totaled $254 million, net fundings $144 million.
• Kroll affirmed MFIC's investment-grade rating of BBB- with a positive outlook in June.

The direct origination portfolio had a fair value of $3.33 billion at the end of June 2025, with 99% being first lien and 90% backed by financial sponsors on a fair value basis. The weighted average yield at cost of the directly originated lending portfolio was 10.5% for the June quarter. Merx accounted for 5.6% of the total portfolio at the end of June but was reduced to approximately 2.8% post quarter-end due to a $90 million net paydown. During the June quarter, Merx sold 1 aircraft resulting in an $8.5 million paydown to MFIC, and post quarter-end, Merx completed a sales transaction covering most aircraft, received insurance proceeds, and will repay approximately $90 million to MFIC in the September quarter, reducing MFIC's investment in Merx by nearly half.

• Redeployment of the $90 million repaid from Merx is expected to generate approximately $0.06 per share in additional annual net investment income. The remaining value of Merx, once realized and reinvested, will generate another approximate $0.06 per share in additional net investment income at current base rates.
• Anticipate a pickup in M&A activity in the second half of the year, with the M&A pipeline continuing to build. Sponsors are active with dry powder to deploy, and private credit markets have liquidity, providing opportunities to deploy capital.
• Comfortable with the weighted average net leverage on new commitments in the 4x to 4.5x range, which is where the market is and where they like to deploy, as borrowers in middle market strategies are acquisitive and expected to delever over time.

Q: What's the impact of Merx transactions on NAV?

A: The Merx transactions should result in a positive impact to NAV in the high-single digit per share range, specifically $0.06 to $0.09 per share.