MidCap Financial Investment Corporation

Good afternoon and welcome to the earnings conference call for the period ended June 30th, 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 a 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 would like to redraw your question, please press star 2. I'll now turn the call over to Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporations. Please go ahead, ma'am.

Thank you, Operator, and thank you, everyone, for joining us today. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McDulty, President, and Greg Hunt, Chief Financial Officer. Howard Widger, 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 MidTap Financial Investment Corporation 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 like to also call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business. and then 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 to refer 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 afternoon, everyone, and thank you for joining us today. I will begin today's call by highlighting our results for the June quarter, and we'll then provide our thoughts on the current environment. Following my remarks, Ted will cover our investment activity and portfolio, and we'll also provide an update on credit quality. Lastly, Greg will review our financial results in detail. We'll then open the call to questions. Beginning with our results, we're very pleased with our performance for the June quarter, given our strong net investment income, a slight increase in net asset value per share, and stable credit quality. Net investment income per share for the June quarter was 44 cents, well above the current 38-cent dividend, as we continue to see the benefit of higher base rates on our floating rate assets. We are particularly pleased with these results when considering the relatively muted transaction environment, which resulted in below-normal prepayment income. At the end of June, NAV per share was $15.20, an increase of two cents from the end of March, which reflects earnings in excess of a dividend, stable credit quality, and includes approximately one cent per share accretion from stock buybacks. We are pleased to report that we continue to observe relatively stable credit quality in our portfolio. We're seeing that most of our portfolio companies are able to handle higher interest costs. We constructed our portfolio to withstand challenging periods. As a reminder, our corporate lending and other portfolio, which makes up 92% of our portfolio, primarily consists of first lien, top of the capital structure loans, is well diversified by borrower and industry, is largely sponsor-backed, and has what we consider to be robust documentation and financial covenants. At the end of June, 96% of our corporate lending debt portfolio on a cost basis or 97% on a fair value basis had one or more financial covenants. Let me give a brief update on Merck's. As discussed previously, we are focused on reducing our investment in Merck's. While we don't expect paydowns to occur evenly, we believe aircraft sales and servicing income should allow for the paydown of third-party trade-level debt and MFIC's equity and debt investment in Merck's. Although Merckx did not sell any aircraft in its portfolio during the June quarter, Merckx repaid $3.5 million to MFIC, which applied to the revolver, which was applied to the revolver. At the end of June, our investment in Merck's totaled $193 million, representing approximately 8% of our total portfolio at fair value. Turning now to the market environment, the heightened volatility that we saw in the first quarter stemming from the regional banking crisis subsided as the quarter progressed, despite ongoing concerns about inflation, higher interest rates, and fears about recession. Against this backdrop, new issue volumes were slow, driven primarily by slower M&A activity, partially offset by add-on activity as sponsors pursue bolt-on acquisitions. We still see financial sponsors, particularly those focused on the middle market, seeking financing solutions in the private credit market. We continue to observe more lender-friendly pricing and terms on new commitments compared to prior vintages, although we are seeing the pace of increases plateau. Moving to the dividend, our board of directors declared a dividend of $0.38 per share to shareholders of record as of September 12, 2023, payable on September 28, 2023. A $0.38 dividend represents an annualized dividend yield of 10% on NAV. At current base rates, we are well positioned to generate net investment income in excess of this dividend level. We believe our portfolio will continue to earn above the current dividend in a normalized rate environment. our board and management team continue to evaluate potential dividend increases versus retaining earnings. With that, I will turn the call over to Ted.