MidCap Financial Investment Corp Q4 FY2024 earnings call

Overview of Q4 Results

• Net investment income per share was $0.40 for the December quarter and $1.71 for the full year. GAAP net income per share was $0.26 for the December quarter and $1.27 for the full year. NAV per share was $14.98 at the end of December, down $0.12, or approximately 0.8%.

Investment Activity

• During the December quarter, $255 million of new commitments were made, and for the full year, $1.06 billion of new commitments. MidCap Financial closed over $6.6 billion of new commitments in the fourth quarter.

Portfolio Composition

• Direct origination and other, including directly originated loans acquired from the CEFs, represented 90% of the total portfolio at fair value, up from 88% last quarter. Non-directly originated loans acquired from the CEFs represented 4%, down from 6%. Merx accounted for approximately 6% of the total portfolio.

Credit Quality

• The overall credit quality of MFIC's direct origination portfolio remains stable. Non-accrual investments were 1.3% of the portfolio at fair value at the end of December, down from 1.8% last quarter.

CLO Financing

• MFIC priced a $529 million CLO, its second on-balance sheet CLO, selling the single A tranche and adding approximately $400 million of low-cost secured debt at a blended cost of 161 basis point spread.

The portfolio had a fair value of $3.01 billion at the end of December 2024. Direct Origination and Other, including directly originated loans acquired from the CEFs, represented 90% of the total portfolio. The non-directly originated loans acquired from the CEFs, which includes high-yield bonds, broadly syndicated loans, and structured credit positions, represented 4%. Merx accounted for approximately 6% of the total portfolio. At the end of December, MFIC's investment in Merx totaled approximately $183 million representing 6.1% of the total portfolio of fair value, with a blended yield across the total investment in Merx of approximately 3.2% at fair value.

Leverage Target

• Intend to gradually grow the portfolio and re-lever back to the target leverage of approximately 1.4 times in the next couple of quarters.

Merx Exit

• Expect resolution of Merx Russia fleet insurance claims this year and have good line of sight for the sale of a significant amount of the Merx portfolio, with reporting when signed contracts are available.

• Potential impact from tariffs or government policies, generally underweight businesses reliant on imports and exports to targeted countries.
• Uncertainties in the exit process of Merx aircraft leasing and servicing business.

Q: Post-quarter insurance recovery for Merx, impact and expedited wind down.

A: Recoveries are approximately in our mark, very happy with the results. Expect resolution of claims this year and have good line of sight for sale of significant portion of Merx portfolio.

Q: Impact of Russia-Ukraine calm on recoveries.

A: Recoveries are locked in, insurance-based, positive from insurance standpoint, unrelated to ground situation.

Q: Spread increase, leverage lower, market movement.

A: Mixed, part due to reinvesting in current portfolio companies, M&A muted affecting repricing.

Q: PIK income trend.

A: Comfortable with portfolio performance, interest rates down, underlying borrowers stable.

Q: Non-accrual update, Naviga, Renova, Securitas.

A: Companies in restructuring processes, impact of interest rate increase on cash flow of these companies.

Q: Dividend sustainability.

A: Comfortable with dividend, leverage profile and origination pace support it.

Q: CLO financing, write-downs, net depreciation.

A: CLO financing attractive, write-downs mostly in non-accrual positions, restructuring-driven.

Q: Origination lower than average, conscious decision.

A: Granularity, comfort with deployment, aim to build granularity and reach target leverage