MidCap Financial Investment Corp Q3 FY2024 earnings call

• Successfully completed mergers with Apollo Senior Floating Rate Fund and Apollo Tactical Income Fund, with net assets increasing by over 40%.
• Deploying approximately $600 million of capital into directly-originated middle-market loans based on target leverage ratio of 1.4x.
• Q3 new commitments totaled $371 million across 27 borrowers, with a weighted average spread of 533 basis points.
• Portfolio fair value was $3.03 billion, invested in 250 companies across 26 industries.
• Declared a quarterly dividend of $0.38 per share for Q4, with a one-time special dividend paid in Q3.

The portfolio had a fair value of $3.03 billion at the end of September, invested in 250 companies across 26 industries. Direct-origination and other (including directly-originated loans acquired from closed-in funds) represented 88% of the total portfolio. Non-directly-originated loans acquired from mergers were 6%, and Merx accounted for approximately 6% of the total portfolio at fair value. The directly-originated lending portfolio had a weighted average yield at cost of 11.6% in the September quarter, down from 12% in the previous quarter.

• Plan to gradually increase leverage over coming quarters to target 1.4x.
• Expect to reach target leverage in the next couple of quarters.
• Focused on steady and measured deployment of capital into directly-originated middle-market loans while maintaining discipline in underwriting and vintage exposure.

• Market dynamics affecting liquidity of certain loans acquired from mergers.
• Potential impact of regulatory changes and tariffs on borrowers' supply chains and underwriting risk.
• Uncertainty in the sales process of remaining non-directly-originated assets.

Q: Could you remind us again if MFIC is more levered to prepayments for fee income, and therefore as prepayments pick up, you should see a little bit more of a pickup there?

A: The loan asset class doesn't typically have a ton of call protection. Prepayments can pull forward OID, but outside of life sciences vertical, it's not too dramatic on any given loan.

Q: Just looking at the direct origination commitments, the average commitment size has been moving up the last few quarters. Anything to see there?

A: Had knowledge of merger closing and over-indexed into origination. Strong origination due to healthy M&A volumes earlier in the year and expected auction activity pickup post-election.

Q: Just talk about maybe your high-level thoughts about what the election could mean for your business or portfolio companies?

A: Forward curve move up indicates more benign regulatory and potentially more inflationary environment. Changes in FTC could affect merger practical implications, and tariffs could impact borrowers' supply chains which is important for underwriting.

Q: The $0.10 unrealized and realized loss per share for the quarter, can you give color on which portfolio companies drove that?

A: Losses included a restructuring name where moving from preferred equity to second lien caused a loss, and other names on watch list or sales process marked down slightly.

Q: Given the weakness in the stock during the quarter, post-closing the merger, any thoughts on buyback?

A: Will buy back stock when accretive versus other uses of capital. Balance options based on long-term spread expectations and not react to short-term spread movements.