MFIC - Earnings call transcript Q1 2024 | MidCap Financial Investment Corporation

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Operator

Good morning, and welcome to the earnings conference call for the period ended March 31, 2024, for MidCap Financial Investment Corporation. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead.

Elizabeth Besen

Thank you, operator, and thank you, everyone for joining us today.

Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. like as on additional for recorded. the portion today's Chairman, management of the Executive that of are everyone team call call.I'd Widra, well are members as the Q&A today's Howard webcast advise being to and available note prohibitive. property MidCap Corporation are Financial in any the unauthorized that any broadcast they form that Investment Please of and is strictly of the call is release. audio press replay this about Information on available release call to statements. disclosure your attention forward-looking customary and the call harbor press forward-looking like to on safe webcast our also regarding include conference information.Today's I'd may

financial BDC, MidCap we Officer. as as lender package performance.Throughout a call, financial the the the supplemental call refer Executive to should we'll as headquartered SEC or our website unless the contains most over SEC's You do refer information apply the Corporation that undertake also www.midcapfinancialic.com. -- obtain time that Chief to everyone which risks company's on forward-looking please for affect forward-looking recent and law. to like the our Financial our turn to well to To MFIC with We SEC filings projections our statements Powell, in of filings the like will adversely business we use this refer visit remind either make. statements or and by most to today's at may not MidCap or Financial I'd Bethesda, Maryland.At recent that copies Tanner www.sec.gov information our about required our our filings, SEC Investment I'd any posted to MFIC's website to at to portfolio we either website update

Tanner Powell

also call quality. you, an today's will our and will cover Tactical provide then will Fund I update to results Elizabeth, we'll Fund Inc. Inc provide with Apollo Rate perspective then Apollo the our with and you, and call. I investment everyone, begin the update provide our Floating an investment joining environment. on and of and summary Income our on merger current a credit proposed today's activity Ted thank Thank for Senior portfolio

will leasing rate which the in well portfolio. in second lien basis the to last aircraft quarter slight was which from corresponds Net portfolio, as was of net solid share, fee last for income March of our exposure. a on reported GAAP company, XX% profile March after value increase XX% from an for the or detail.Yesterday, for reflect our quarter, floating asset performance, strong March solid continued our our interest quarter the March, to Results of fair we financial relatively of lending to review Lastly, first the results included our exposure the value and the annualized total quarter. end income reducing of per on a corporate investment Greg At in greater lien in represented and XX% up of other credit market stable continued de-risking in ROE $X.XX.Similar which EPS results per recurring the was portfolio Merx, share and equity quarter improve XX.X%. return for risk by we quarter, the predominantly income. our $X.XX, portfolio as prepayment portfolio close,

among to exposure of corporate underlying the will we second is attachment BDCs our lending With borrowers the one portfolio. and our of a We senior quality well most as second has about able perform evidenced lending potential borrowing average portfolio of weighted our handle MFIC constructed total point lien costs. as now essentially corporate corporate the of downturn.Overall, lien during have lending economic one been and the positions, higher We X. a X.X% remaining of believe good our that feel portfolios only we corporate by repayment health have lending even largely portfolio few about of believe our debt other

We significant have weakness not seen any signs portfolio. of across credit the

of of like not to a rates, high I higher-for-longer potential of investors mindful has portfolio and the We perspective Despite are the to be inflation Federal growth.At uncertainty, times rate the proven environment. closely and impacts our during rates interest beginning elevated geopolitical resilient provide continues course of Reserve on year. strong environment. U.S. monitoring the would to cut our economy and current to multiple display the XXXX, expected

that the inflation as economists there's quarter may out that scenario. are pushed However, the cut reasonable not rate generally chief a in at the believes all we a the stubborn higher-for-longer in that chance for the market and has progressed, Apollo's XXXX. of cuts Fed expectation start believes

is the the from the is market in an susceptible only loan market. in to to pricing first has cut X the this less the currently during which market, the is middle syndicated focused quarter While increase market, on competition MFIC activity syndicated lending year.Specific been loan in market. there

in deal XXX a our has decreased, than In to market loan are market continue of observed risk in remains return believe XXX our Spreads around by liquid middle what in been and spreads Although our basis still less would market we the the to market. market a today price have healthy compelling. in decline spread points. with we've typical historical standards

founded on record turn middle industries across let's market.Next to the opportunities makes of This billion focused XXXX. the of middle MFIC very most with MFIC. does of financial market across Financial directly for MidCap offers affiliation record MidCap Financial, high lending a market experienced commitments competitive lenders significant XXXX, believe not attractive or the and the market large the closing all advantage in in a broadly with and market is data provides syndicated informed compete approximately company believe the market.MidCap long investment includes cycles squarely which short, which we information one either was $XXX origination middle the track In As we dividend. a and since is with you Financial set has us loan market.Apollo's on core know, track middle core yield

to earnings current while board X.X% of of growth. $X.XX of also prior dividend a shareholders year directors yield of XX, June an retaining approach record per quarter as end, Our stability NAV annualized A of on declared prior XXXX, our an that March represents shareholders seeks dividend XXXX. with share, dividends approximately some dividend for June -- share To $X.XX to our consistent to payable NAV per yield on attractive of and with XX, XXst. as provide based

We on with AFT We a call income.Before and Our funds closing.As this The believe have about mergers we remain dividend been to reminder, of continues date a these April MFIC and Directors merger proposed investment dividend net over portfolio XXth. proposed Ted, filed close, exact one-time like or that brief I of be MFIC's by excited mergers AIF. update be the based to the on would handing to one the mergers confirmation, will definitive the and cash on to for approvals well-covered stockholders share mergers MFIC's proposals on their a diversification for of Board of a Xth these combined special statement/prospectus record related both determined returns and all vote including a other subject to customary a dividend potential stockholders, stronger will enhanced company. company by look of following We the the will create of is certain conditions closing. enhanced the receipt for closing larger closing. for and scheduled which realizing stockholder pay benefits forward combined if to per after all stockholders to timing scale the greater X satisfactory of joint May proxy all meetings provide the of to $X.XX

officially or any will in so Please commenced AIF today's turn vote that cast stockholders that proposals questions on we note these their who able to coming be Ted. MFIC, related on that, proposals AFT have the count we the related kindly to have days. call.With process will not We not request of votes current the these call proxy solicitation do any answer and yet to the over I to

Ted McNulty

in professionals. closings approximately from MFIC of is focused March December leading of was everyone. market largest On noticeable in activity. activity, of last investing We're close in the has lending Thank MFIC opportunities. quarter's of pickup teams to billion an with $X.X increase which XXX you, U.S. loans large Financial with call quarter. a March pipeline level the lender Financial, pleased investment led by investment on a XX% the closing report quarter.MidCap in during a active to that this we sourced new reminder, mentioned provides middle the with direct a is one were Beginning we quarter, strong Good investment with seeing pipeline approximately MidCap a during MidCap commitments, Tanner. to Financial as the morning,

average borrowers focus diversification as totaled commitments investment across new existing MFIC's $X.X new portfolio commitment new quarter million of commitments lien on different borrower. million March new an commitments to XX continue first to companies. the During were of made $XXX XX% of for by we

commitments seeing are X some December commitments points, average was the commitments very We rate. OID in of than new XXX basis XXX compelling. the very market, is net The the the at approximately quarter. on of average the assuming translates in spread for new lower pricing risk of The weighted relatively in The these quarter was attractive compression average around commitments basis asset weighted unlevered new commitments into a spread base new we weighted our a made points. basis Although OID return unchanged X.Xx. point X% yield XX%, believe leverage during was

totaled pay Sales of the $XX were Merx. and the gross totaled corporate investment lending million Our opportunities funded Net revolvers for million. $XX we down investment and terms repayments excluding for million $X fundings downs million. of pay revolver remain strong.In for $XXX totaled aggregate, activity, fundings In a quarter received $XX corporate portfolio, net million. lending pipeline

end second basis lien total our value. and X% XX our very second position, turnover lending drive the March a approximately of portfolio a billion in million corporate of total of the accounted had have end portfolio of of just our repayments continues senior for of and across covenants, total sponsors strong financial fundamental portfolio. by believe indicator portfolio funded corporate our by consider improvements X.X% $X.XX other points value and portfolio average from revenue a companies the $XX.X backed at We to built longstanding resilient the basis credit and is cost different are March continue exit portfolio value shift market and was a The XXX corporate senior Merx portfolio, lending portfolio our Financial revenue lending fair performance corporate XX% positive of reduced and portfolio's invested composition and basis expansion X.X% of rate metrics. our last corporate $XX lien XX% the had the industries. from borrowers nature fair average X quarter, lending of low sustained median focus and highlights portfolio, of December.Turning know by to in the lien to At exposure Sales we interest growth corporate the basis. quarter. loans to XX.X% corporate financial and to our their weighted whom strength. the due slightly lending negligible or we X lending a down We Corporate structures. digits quality, At portfolio.Turning quarter, encouraging strong both corporate cost has XX.X% our amount meet while of organic On the in improvement this and fair nonfirst book. already margins our position was lending portfolio has at end our for XX% the weighted spread cost represented half portfolio. yield was underlying of attributable portfolio on corporate on believe structure was exhibit the in first points positive basis environment, lending capital MidCap increased in what is XX% the year-over-year. million investment exposure well-diversified companies of Our to lending relationships.Despite to which be lien on March, The average well the on debt XXX lending December to with million our the included true an other average the of top the portfolio $XX.X higher-for-longer and we over corporate is liens, more portfolio portfolio middle credit down and for of expectations. or the other of up company or first total quarter, on our the of who mid approximately EBITDA lending of optimizing The debt single was resulted to compared a in XX% a

end corporate labeled is first repayment first suggest. it structure or believe indeed below the EBITDA or be median point average more portfolio weighted our X lien the essentially coverage, of mentioned, is up to This debt senior name last have manageable lien of not X.XXx, X, actually We're have of there corporate closely precise, the financial interest remained capital monitoring portfolio as second is leverage look current metric $XX and attachment as coverage that top debt million. lending I lending good is was our companies support. of its performance, X.XXx all was underlying for X.XXx. March portfolio weighted liquidity, the MFIC's illustrating this unchanged sponsor believe average with net lending the corporate positions, At are the metric weighted our companies our at at lien.We means The average business no the approximately corporate strong lending interest strong Given to that ratio quarter.Moving X.Xx from key would as to these situations is Xx. to portfolio they

benefited in seen and amendment in or has capabilities. have pickup covenant a from meaningful activity. We credit our sourcing not a We strong believe underwriting MidCap increase Financial's breaches quality

by on around on we on Financial. the realized think shows rate strategy the be began upon data our net sourced has points to Our loans well sound.Based this unrealized MidCap-sourced order, annualized our which co-investment We mid-XXXX, is and performance proved MidCap underwriting basis which utilizing performed. approximate data is has loss X how loans since date

metrics totaling X.X% X in of million investments sales and our is believe reflected the initial at across which Although investment is We million total way bids low, these we reflect our $XX.X portfolio fair constructed mark. the on $XX names. currently the during status are credit in process Navigator a we added Navigator, nonaccrual value remain or and have portfolio in in quarter, stable nonaccrual very our important and early. downside deals, and vast identify of investment the leads assets market portfolio one the also that issues is on to from leading of sourcing helps administrative address management over of team as on direct focus It which our majority of professionals, result Financial, Financial's MidCap which the protection. note serves large MidCap middle agent MFIC Financial benefits dedicated meaningful from provides MidCap lenders.Importantly, XX

with allows dialogue on us borrower active which enhanced proactive in in problem be flow, and we're agent, have As to to resolving the information credits.Moving Merx.

in As discussed previously, aircraft we are focused businesses. on reducing servicing leasing our our investment and

paydowns should expect and aircraft paydown of don't debt third-party we While Merx investment and income over evenly, occur we in servicing sales the MFIC's time. for believe to allow

X% in approximately As XX, March at approximately million, investment of totaled our total the representing Merx of fair value. $XXX portfolio

results will million to detail. in MFIC included paid interest million, which that, Merx financial With quarter, the March the capital. of approximately our During to I a $X.X and $X $X.X million Greg over discuss now of return call turn

Gregory Hunt

Beginning Thank quarter $X.XX, for as results, strong recurring financial investment was income you, net share Ted, reflects income. as the our and prepayment and March interest with solid good income per which fee morning, well everyone.

for share on $X.X prepayment $X.XX fee share quarter is of the income investment of which For [indiscernible] was million. $X.XX low, prior $X.XX the based which loss net X% annualized above to income the our GAAP the was share a NAV total at of on and over March remains Results and $X.X the on a investment loss approximately based was reflects net the $X.XX income PIK an ROE the portfolio. per correspond up income return reflects income distribution income XX.X%.MFIC's was very quarter. of $X.XX, the for XX.X% equity on investment quarter, for annualized per of investment $X.XX representing million net $X.XX the and net quarter, income end on the on which income $XX.XX, net per portfolio. quarter

performance. to strong have As vast majority portfolio continues the Ted our corporate fundamental lending mentioned, of

details unrealized prior deck.Net due expense We the strategy to amount our as $XX.X expenses The quarter notes recruited million approximately the quarter. expenses and on excise incentive XX to Slide quarter compared both last and rate closed bonds, minimis in as reflects lower the March million primarily shown quarter CLO $X.X Additional earnings well during lower debt compared which and quarter, which losses in baby for de X.XX%, quarter, of change gains on on the $X.X the lower was weighted quarter. impact December interest administrative the in general December down interest fees. by to the million, tax of supplement average full the X.XX% for the are in from were up and a

As intend the monitor continue to $X.X transactions prior totaled going to we compared flat quarter. to the last million for March call, evaluate on quarter's essentially capital-raising fees stated and quarter, forward.Management

a January fee one alignment totaled is listed quarter. of fees was the to focus MFIC's We for asset on As X, provides we greater Incentive on X.XX% management reminder, and beginning and fees the believe equity base million BDCs. reduced which management net March on change only equity $X value. XXXX,

on reminder, our hurdle total is back. and look fee a income As with XX.X% includes a incentive a XX-quarter return

of quarter.This the concludes open Operator, of December, the during was the or X.XXx to our of reflecting million March end per fundings at $XX.X MFIC's compared income at balance was share.Moving sheet. or income of to of Our please XXXX remarks. X.XXx prepared net to $XX net current estimate call end leverage the undistributable our million at taxable $X.XX spillover end questions. the

Operator

Instructions] with Our Mark come [Operator Truist. from first question Hughes will

Mark Hughes

spread dip maybe market has I Or along that lately? How down of spreads say competitive impacting in the seen basis about of all given Has been think would market XXX through relatively to point quarter? that more a is you there, the more talked -- little syndicated that, into stable broadly and move been lenders much it a to XXX you and way middle say, kind -- the the the moving today. trend with some Seeing you've activity

Howard Widra

market, Tanner not and obviously middle effort, you to may Yes, the I'll order comprehensive a and -- so But have of is is in which continuity in and let see get sponsors because the This The larger you middle that. with on market sponsors. cover lot occasionally that -- immediately, Howard. that's really deals to doing to coverage comment covered large me a the down market. those are need

capability it on the just doesn't not people the happen occasional the you competing markets And with may in created of then the focused market larger as coverage see probably being sort doesn't well. who so to And into don't matter, mean just have It are capabilities that capital the separate holistically. the mean middle directly all as syndicated teams on step a may market comprehensive deals. I or there's time. those of

it's So not broadly of there that it competition middle that's result the market. the market one is, is really but The compression, [indiscernible] definitely of the causing of syndicated variation. strengths

Mark Hughes

the And they we of were are to year, about to spread January think in where today? then, comment on this trajectory any where

Tanner Powell

that. I'm take Yes, to happy

reflects has what Mark, been that deals And would your in call that commenced the XXX. actually of lot, at done, self-processes we for a and quarter, I that So XXX, alluded about and XXX a last talk lot attention period fact to there's and do to, executed getting gestation that a with we we between have deals are year. the to

we markets saw in What some seeing assets juncture, rally at are create those the to pipelines credit you there post a are that improved -- are broadly, And where see. a December, we're able we and full. point at -- significant sale very modicum of pretty is now are more stability so spread some where hitting as and processes of conditions our and tightening that's this tightening new

there So had tightening now their asset seeing run I comment market, credit have the opportunity that opportunity -- certainly in creation. stability prices that course an would middle reflects the some say we've to overall for initial my the and the sale seen but

Mark Hughes

of on One the you more first the merger but that I other certainly addressed lien wonder once this, How speaking? emphasize funds. update do will seniority in, us profile? probably the the You you with focus kind look, have Apollo could you roughly if

Tanner Powell

then them available also more both decks but is look will those as funds broadly in well loans, the time Mark, the MidCap first by which talked filings It some as about, MidCap strategy them remarks intention loans Yes. can the in investor publicly lien syndicated predominantly And are into lien. platform. core out -- that obviously as reposition have type obviously floating over mature as we sell those is rate our that of our we or loans similarly, we've prepared to source sourced that loans first our obviously of

Operator

Joseph next with will from Kyle come question Our Jefferies.

Kyle Joseph

Sorry leverage a [indiscernible]. ballpark or give if can merger? post I forma area for But missed you sense pro

Gregory Hunt

somewhere lever. It around X.Xx XXX will and between be

Kyle Joseph

Okay. Got segue next. Helpful. my And to it. good

reducing lowering years you the leverage all where and at fair offensive with Over guys to transitioning been kind core side, we're have of the the ask? last the of that on point can couple you think focused to is more where merger about now, especially and

Tanner Powell

leverage So Kyle, we defensive having per excited by Yes, the should been at investing sourcing -- has or valance that to I in got we're the opportunity sorry, our the it capital. up wouldn't really mean, focused to are more to because successful go since deploy ability on attach originated offensive, XXX% loans and prospects in strategy even or mid-cap. be certainly, se we an of participating I

change. so our doesn't And approach

to of is an think portfolio with MidCap-sources do the even I just the even of more -- it loans. elegant opportunity a kind very this to percentage and of create those bigger

Kyle Joseph

predict liabilities. to mix rate rates of and sheet And rate Got the just probably go. for one floating then right But between for it's about fixed thinking going the me, on where rate. Very Greg, you're how we to to where ask that's follow-up not and helpful. are me. I'm the going balance are And it. you it side

Gregory Hunt

swap think in I coming fixed $XXX baby did out, I March which from option as is million our with that of we that our do it and didn't bond think liabilities a note it. I have we we we of due rate, our think fixed have do because mean match rate. which I X-year XX-year assets. our on point we'll do was Okay. XX, their call we view, go

Operator

next from Robert Our Instructions] Raymond [Operator come Dodd James. question with will

Robert Dodd

credit you How On heard down, cetera. seen months any it have et paid I getting looks or initial quality, discussion always [indiscernible] X obviously from increased sponsors? was ago it mean but it so cuts like above on to be sponsors to their couldn't [indiscernible] going looks were there X to and and wait sit speak, hand, X. still afford interest coverage that's

itself Moving in But possibility might longer with result of high the interest resolve live that portfolio. cuts the no [indiscernible]. cost [indiscernible] the

has Are any outlook sponsors yet? on the any it give said amendment rates this proactively? there? discussions what one color Or So are what no is there for like given been longer are any increasing lot preliminary request extremely quite going looks to stay I point? you at change doing a there in can high

Ted McNulty

that. Happy Yes. take to Yes.

the few kind things so the could if excited a of got One, on. there M&A. about to as when the would there be hold, say, on rate for cuts, a And X longer-term that alluded environment the efficient of are you sponsors last they of, companies are over couple then going view really focused to, was becoming more prepare over I a necessary. doing there's years, economic going So and people

their of the you kind a equity if performance And to be a return private doing still back of secondly, dry think well. sponsors work, have that need be needs the are about raise the fall powder order cuts standpoint you with from to rate have at able capital prospect to lot we a you in market, then put fundamental fund. going that to I number of So still the companies least to that technicals think can next of of away,

a to that's for like there expectations or rate drive bid any transactions. that there market together. valuations is to time So be going the And time to in volatility come ask period of is going

will that vehicles time those within looking need And say more third bit we're hold is realize where I for. that's companies And saying, monitor around and repricings to multiples of of and other in are we alternatives, early there extensions and And the terms were but to capital. that not I the year. return and they're their coming where take so more to little their the then in a out. we're they sponsors don't to pressure happening. really size have about then They're seeing last play thought going a look where to would think thing to they is to we back year, fund do next that or thing longer sponsors And funds some this continuation on discussions then they're the to guess, they point vehicle need finally, continuation feel I going to at that with conversations the

extending the addressing the And overall so there lending maturity are very constructive the structure. groups and discussions around

are kind play? X dynamics of those would I at say the So

Robert Dodd

quick the constitute I control get the to change in vehicle across A mean, [indiscernible] a automatic new follow-up with Does in to the ported helpful. Really refinancing? one. continuation that a that vehicle loan? existing you mandatory

Ted McNulty

Yes.

one typical typical There's right. control, it's this a ongoing don't show going say, the a an and in visibility happen, to notice that about also hey, is it's to that it support is would forward. will at dialogue there's strategy the you come the sponsor some is, And you up So desk lending the space do around be financing that be. want what day get and but change going of to direct that your going what

point and aligns no. yes their say we'll That financial process. which lost say we with At sometimes And sometimes vehicle. they their continuation

Robert Dodd

competitive [indiscernible] those assets within the If mergers the you more, vehicles you [indiscernible]. too they close it. sometime cetera, hypothetically, plan if your change how if future, distant [indiscernible] I has changed et the were Got in there can. the that out then if environment fast has And about one in churn not would, the acquired

Tanner Powell

sense. Thanks, Robert. what that I risk environment, then makes the you no, evaluating furthermore, the say I as on think be of in reward rely And always always context market would same hypothetically should we're close. would [indiscernible] of to were faced do with to cognizant approach. vintage be that And -- measured think the investing, as with these things a if about and and wanting we

environment And would today, manner evaluating to to we one vintage in particular what always intention fashion outsized be do expect so ourselves been and has would are such successful. our take if as confronting merges risk not we similar in and be a and reward to a exposure an any we the conduct should the similar evaluating market

Operator

to closing questions this We like turn time. would remarks. I no management at call for to further show the back

Tanner Powell

Thank for On listening free to other you, behalf any Please operator. time of questions, good everyone, thank to feel you, the entire have your day. you out reach we to Thank with today. and for us team, call. today's a

Operator

This today's We your participation. you does for thank call. conclude

may your wonderful and at a time, disconnect have day. line You this

MidCap Financial Investment (MFIC) 8 May 242024 Q1 Earnings call transcript