MidCap Financial Investment Corporation

Good morning and welcome to the earnings conference call for the period ended March 31st, 2024 for MidCap Financial Investment Corporation. At this time, all participants have been placed in 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 withdraw your question, Press star 2. I will now turn the call over to Elizabeth Thessen, Investor Relations Manager for MidCamp Financial Investment Corporation. Please go ahead.

Elizabeth Thessen 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 Woodruff, 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 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 a 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 SEC filings our 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 either the SEC's website at www.sec.gov or 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 Jenner Powell, NFIC's Chief Executive Officer.

Thank you, Elizabeth, and thank you, everyone, for joining today's call. I will begin today's call with a summary of our results and will also provide our perspective on the current environment. I will then provide an update to our proposed merger with Apollo Senior Floating Rate Fund, Inc., and Apollo Tactical Income Fund, Inc. Ted will then cover our investment and activity and provide an update on the investment portfolio and credit quality. Lastly, Greg will review our financial results in greater detail. Yesterday, after market closed, we reported solid results for the March quarter, which included a slight increase in net asset value per share, relatively stable credit performance, and continued de-risking of the portfolio. Net investment income per share for the March quarter was 44 cents, which corresponds to an annualized return on equity, or ROE, of 11.4%. Results for the quarter reflect solid recurring interest income from our predominantly floating rate portfolio and strong fee and prepayment income. GAAP EPS for the March quarter was $0.39. Similar to last quarter, we continue to improve the risk profile of our portfolio by reducing our exposure in Merck's, our aircraft leasing portfolio company, as well as our second lien exposure. At the end of March, corporate lending and other represented 92% of the total portfolio, of which 97% was first lien on a fair value basis, up from 96% in the last quarter. With the repayment of one of our few remaining second lien positions, our second lien and other debt exposure is now only about 0.7% of the total corporate lending portfolio. We believe MFIC has one of the most senior corporate lending portfolios among BDCs as evidenced by our weighted average attachment point of essentially zero. We believe we have constructed a corporate lending portfolio that will perform well even during a potential economic downturn. Overall, we feel good about the health and quality of our corporate lending portfolio as our underlying borrowers have largely been able to handle higher borrowing costs. We have not seen any significant signs of credit weakness across the portfolio. We are, of course, closely monitoring our portfolio and mindful of the potential impacts of a higher for longer rate environment. I would now like to provide our perspective on the current environment. Despite high interest rates, elevated inflation, and geopolitical uncertainty, the U.S. economy has proven to be resilient and continues to display strong growth. At the beginning of 2024, investors expected the Federal Reserve to cut rates multiple times during the year. However, as the quarter progressed, sovereign inflation has pushed out the expectation for the start of rate cuts, and the market generally believes that we are in a higher-for-longer scenario. Economists believe that there's a reasonable chance that the Fed may not cut at all in 2024, while the market is currently pricing in only one cut this year. Specific to the lending market, during the first quarter, there has been an increase in activity in the syndicated loan market. MFIC is focused on the middle market, which is less susceptible to competition from the syndicated loan market. Although spreads in our market have decreased, the decline has been less than what we've observed in liquid loan markets. Spreads in our market are still healthy by historical standards, and we continue to believe risk return in the middle market remains compelling. In our market today, a typical deal would price with a spread of around 500 to 550 basis points. As you know, MFIC is squarely focused on the core middle market. MidCap Financial, which was founded in 2009, has a long track record, which includes closing on approximately $114 billion of lending commitments since 2013. Its origination track record provides us with a very large data set of middle market company financial information across all industries, and we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Apollo's affiliation with MidCap Financial is a significant competitive advantage for MFIC. In short, we believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. Next, let's turn to the dividend. Our approach to dividends seeks to provide shareholders with an attractive current yield while also retaining some earnings for NAF stability and growth. To that end, our Board of Directors declared a dividend of $0.38 per share, consistent with our prior quarter dividend to shareholders of record as of June 11, 2024, payable on June 27, 2024. A 38-cent dividend represents an annualized yield of approximately 9.9 percent based on NAV per share as of March 31st. Our dividend continues to be well covered by net investment income. Before handling the call over to Ted, I would like to provide a brief update on MFIC's proposed mergers with AFT and AIF. We remain excited about these proposed mergers, and we believe that their consummation, which is subject to receipt of certain stockholder approvals and satisfaction of other customary closing conditions, will create a stronger combined company. We look forward to realizing the potential benefits of a larger combined company, including enhanced returns for all stockholders, greater scale, and enhanced portfolio diversification after closing. As a reminder, if one or both of these mergers close, MFIC will pay a one-time cash dividend of 20 cents per share to all stockholders following the closing. The exact record date for this dividend will be determined by MFIC's Board of Directors based on the timing of the closing. We filed a definitive joint proxy statement slash prospectus related to the mergers on April 4th, and the special meetings for the stockholders of all three funds to vote on the merger proposals have been scheduled for May 28th. We have officially commenced the proxy solicitation process related to these proposals, and we kindly request that any stockholders of MFIC, AFT, or AIF who have not yet cast their votes on these proposals do so in the coming days. Please note that we will not be able to answer any questions related to the current vote count on today's call. With that, I will turn the call over to Ted.