MidCap Financial Investment Corp Q3 FY2025 earnings call

• Tanner Powell began by discussing third quarter results, the $97 million net repayment from Merx, and the dividend declaration of $0.38 per share. - Ted McNulty provided an overview of the market backdrop, noting the resilient U.S. economy, Fed rate cuts, and M&A activity. He reviewed third quarter investment activity, with $138 million of new commitments across 21 transactions, and detailed the portfolio, which had 246 companies across 48 industries at fair value of $3.18 billion. - Kenny Seifert reviewed financial results, with total investment income of approximately $82.6 million, net expenses of $47.3 million, and discussed balance sheet activities like amending the revolving credit facility and upsizing the CLO.

During the third quarter, MFIC had net investment income per share of $0.38 and GAAP net income per share of $0.29. The portfolio had a fair value of $3.18 billion. The investment in Merx, an aircraft leasing portfolio company, saw a net repayment of approximately $97 million. MFIC's investment in Merx was $105 million at fair value, representing 3.3% of the portfolio. The direct origination and other segment represented 95% of the total portfolio at fair value, with a weighted average yield at cost of the directly originated lending portfolio being 10.3% for the quarter, down from 10.5% in the prior quarter. Non-accrual investments were 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter.

• The Board declared a quarterly dividend of $0.38 per share. - Management is actively working on initiatives to offset the impact of declining base rates, including pursuing additional paydowns from Merx and resolving non-accrual and earning assets. - They plan to deploy proceeds from Merx in a deliberate manner and aim to return to target leverage, with the target leverage unchanged and an endeavor to get back to the 1.4 level over time.

• There are company-specific issues leading to increases in non-accrual investments, which do not represent a broader deterioration in credit quality. - Declines in base rates put pressure on net investment income, as a 100 basis point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or $0.10 per share. - Market conditions, such as changes in M&A activity and spreads, pose risks to the business.

Q: Discuss the increases in non-accrual.

A: Ted McNulty said there's no real theme tying the non-accrual companies together, with some impacted by tariffs and others by weakened consumer sentiment, being very idiosyncratic.

Q: Thoughts on the sustainability of increased M&A activity through 2026?

A: Ted McNulty noted factors like private equity dry powder, muted tariff volatility, and rate certainty contributing to ongoing M&A activity.

Q: Evaluating timing difference of mitigating actions for lower base rates and impact on dividend decisions?

A: Tanner Powell said they will deploy proceeds deliberately, aim for granular portfolio deployment, and will reevaluate the dividend based on the trajectory of rates and the impact of mitigating efforts.

Q: Update on portfolio leverage and share repurchases?

A: Tanner Powell stated target leverage is unchanged and they aim to get back to the 1.4 level, and share repurchases are a compelling tool but weighed against liquidity and deployment opportunities.

Q: Dividend coverage given current rate outlook?

A: Tanner Powell said the dividend was met with the current quarter's dynamics, benefits from Merx proceeds, liability remarks, and non-accrual resolutions, and the Board will reevaluate based on rate trajectory and mitigating levers