MSC Income Fund, Inc. Q1 FY2025 earnings call

• Dwayne Hyzak noted the Fund had a ROE just under 10% in Q1, NII per share of $0.38, and recommended a regular quarterly dividend of $0.35 per share and a supplemental of $0.01 per share. NAV per share was $15.35.
• Focus on deploying liquidity from the equity offering into private loan investments; private loan portfolio increased by $89 million. Main Street Capital Corporation has supported the Fund with over $21 million in equity purchases, including part of the January public offering.
• Nick Meserve discussed private loan portfolio performance, softness in consumer-exposed companies, working on recoveries, and the portfolio's composition (94% secured, 99% first lien, 98% floating rate).
• David Magdol talked about lower middle market portfolio's positive operating performance, minimal investment activity, and its composition (52% debt, 48% equity).
• Cory Gilbert reported financial results: total investment income $33.2 million, expenses decreased, NII $16.8 million, NAV per share $15.35, regulatory ratios, and debt structure amendments.

The Fund has two main segments: Private Loan Portfolio and Lower Middle Market Portfolio. The private loan portfolio had a fair value of $768 million at quarter end, representing 61% of the total investment portfolio, and saw a net increase of $89 million during the quarter. It consisted of 94% secured debt, over 99% first lien, and 98% floating rate loans, with a weighted average yield of 11.6%. The lower middle market portfolio had a fair value of $440 million, representing 35% of the total investment portfolio, with a net decrease of $1 million during the quarter. It was composed of 52% debt investments (weighted average yield 13%) and 48% equity investments, with investments in 57 portfolio companies.

• The Fund aims to be fully invested by January 2026, then benefit from expanded regulatory leverage capacity.
• Dividend policy to maintain total quarterly dividends around net investment income.
• Confident in generating attractive new investment opportunities despite economic uncertainty, with the private loan investment pipeline characterized as average but expecting growth.

• Market uncertainty related to tariffs affecting recovery of consumer-exposed private loan portfolio companies.
• Fluctuations in dividend income due to portfolio company performance and capital allocation.
• Potential for additional realized losses in winding down the middle market portfolio as it's being exited strategically.

Q: Any sense on when M&A recovery will be happening?

A: Dwayne Hyzak said there's pent-up demand, but need resolution to tariff situation for M&A activity to resume normal.

Q: What about spreads on new private loan investments?

A: Dwayne and Nick mentioned spreads were stable, with potential to widen due to market uncertainty.

Q: Trend in dividend income over next few quarters?

A: Lower middle market portfolio performing well, but longer term depends on economy and portfolio company performance.

Q: Realized losses in middle market portfolio and exit decisions?

A: Realized losses were in de minimis middle market, strategy to wind down that portfolio with fair value marks in place, outcomes lumpy based on portfolio company performance.