MidCap Financial Investment Corporation

and welcome to the earnings conference call for the period ended March 31st, 2023 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you'd like to withdraw your question, press star 2. I will now turn the call over to Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporation.

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. Howard Ridra, Executive Chairman, as well as additional members of the management team are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's call and webcast may include forward-looking statements. You should refer to the most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial referred to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to our Chief Executive Officer, Tanner Powell.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us today. I will begin today's call by highlighting our results for the quarter and will then provide thoughts on the current environment. Following my remarks, Ted will review our investment activity and provide an update on credit quality. Lastly, Greg will review our financial results in detail. We will then open the call to questions. Beginning with our financial results, after market closed yesterday, we reported a strong March quarter with net investment income per share of 45 cents, well above the current 38-cent dividend, benefiting from the positive impact of higher base rates, strong fee and prepayment income, as well as our new fee structure, which became effective during the quarter. As a reminder, fee and prepayment income can fluctuate quarter to quarter. At the end of March, net asset value per share was 0%. $15.18, an increase of $0.08 or 0.5% from the end of December, primarily due to net investment income in excess of the dividend, as well as a slight net unrealized gain on the portfolio. Regarding investment activity, new corporate lending commitments made during the quarter totaled $110 million, all first lien floating rate, and across 15 distinct borrowers as we continue to emphasize portfolio diversification. As discussed on last quarter's call, Merck's executed a significant transaction during the March quarter by selling its interest in a joint venture which allowed Merck's to repay $65 million during the quarter. At the end of March, our investment in Merck's totaled $197 million, representing 8.3% of the total portfolio of fair value. We remain focused on reducing our investment in Merck's, and while we don't expect paydowns to occur evenly, we do expect to see some additional paydowns in the remainder of 2023 subject to market conditions. Shifting to our perspective on the current environment, the quarter began with a more constructive tone compared to a challenging market in 2022. However, in March, market sentiment shifted as regional banking challenges and renewed fears of a recession contributed to more uncertain financial markets. Even prior to recent issues, we were seeing a more favorable environment for direct lenders with new transactions, pricing with wider spreads, lower leverage, and better terms, although M&A activity in the middle market has declined as the landscape evolves. We believe recent events may cause banks to pull back from lending, which in turn should accelerate the ongoing shift to non-bank lenders and tighter financial conditions. Let me take a moment to compare today's investment opportunities versus a year ago. A typical investment today prices around SOFR 650 to 700 basis points with an issue discount of three points. A year ago, a typical deal would price at SOFR plus 575 to 600 with an issuance discount of two points. In addition to an increase in spreads and OID, base rates have increased significantly. Three months SOFR was 4.9% at the end of March compared to 0.7% a year ago, an increase of over 400 basis points. Taken together, this translates into unlevered asset yields of around 12.5% today compared to 7.5% a year ago. Moving to the dividend, our Board of Directors declared a dividend of $0.38 per share to shareholders of record as of June 13, 2023, payable on June 29, 2023. A $0.38 dividend represents an annualized dividend yield of 10% on NAV as of March 31. At current base rates, we are well-positioned to generate net investment income in excess of this dividend level. The forward rate curve has moved materially lower over the last month or so. We expect net investment income will continue to exceed the current dividend based on the current forward curve for the foreseeable future. With that, I will turn the call over to Ted.