MidCap Financial Investment Corporation

ended June 30, 2024, for MIPCAP 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 the star 2. I will now turn the call over to Elizabeth Besson, Investor Relations Manager for MidCamp 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 Widrick, 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 the customary State 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 files 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 website at www.sec.gov or our website at www.financialic.com. I'd also like to remind everyone that we posted a supplemental 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 and 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 Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth, and thank you to everyone who has joined today's call, especially those of you who may be newer to MFIC. I will begin today's call with an update on the successful completion of our mergers with our previously affiliated funds, Apollo Senior Floating Rate Fund, Inc., and Apollo Tactical Income Fund, Inc., which we refer to as AFT and AIF, or the CEFs, throughout today's call. I will then provide an overview of MFIC's second quarter results and will also provide our perspective on the current environment. Ted will then discuss our investment activity and provide an update on the investment portfolio. He will also review the assets that we acquired in the connection with the mergers. Greg will then review our financial results in greater detail and will also review some of the accounting aspects of the mergers. Beginning with the mergers, we are pleased to announce that on July 22nd, MFIC successfully closed its mergers with AFT and AIF, two listed closed-in funds managed by Apollo. We believe these mergers mark an important step in MFIC's evolution to becoming a leading pure play middle market BDC. We remain enthusiastic about realizing the potential benefits that we highlighted when we announced the mergers last November. Let me remind you of some of these key benefits. First, we expect these mergers will be both ROE and NII per share accretive for all shareholders as we rotate the CEF's lower yielding investments in the ordinary course into higher yielding directly originated loans that align with MFIC's investment strategy. Second, the mergers are expected to enhance MFIC's portfolio diversification and improve certain portfolio metrics. Third, we expect to be able to realize operational synergies from the elimination of certain duplicative expenses from the mergers. And lastly, we believe that the larger market capitalization for the combined company may broaden the universe of potential investors, which could result in greater stock liquidity. As Ted will discuss, we are currently focused on deploying the capital and rotating certain assets acquired in the mergers and have already made good progress in that regard. As a reminder, Apollo provided significant financial support for these mergers by reimbursing all merger-related expenses for all three funds and by making a one-time special cash payment to the CEF shareholders. As a result of the mergers, MFIC's net assets have increased by approximately 44%. With $1.45 billion in net assets, MFIC has significant investment contributions. As a result of this deleveraging, MFIC is well-positioned to deploy capital into true first-lane senior secured loans sourced by MidCap Financial, a leading middle market lender managed by Apollo. Moving to our results for the June quarter, as previously announced when the mergers closed, MFIC's net investment income per share for the June quarter was $0.45, which corresponds to an annualized return on equity, or ROE, of 11.8%. 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 June quarter was 35 cents. NAV per share was $15.38 at the end of June, down 4 cents from the end of March. Beginning with the macro environment regarding rates, Apollo's chief economist believes that the Fed will cut rates by 25 basis points in September, but still expects a soft landing. He notes a continuing strength in a broad set of number of weekly indicators, such as TSA data for air travel, restaurant bookings, retail sales, and hotel occupancy rates that suggest the economy will be able to avoid recession. With regard to markets, the credit market continued to be very strong and well bid throughout Q2 and into the start of Q3 2024. M&A and LBO activity increased in Q2 from very low levels, though has lagged expectations, and thus issuers and sponsors have taken advantage of limited new supply tapping the market for dividends and repricings. Auction activity has seen a meaningful pickup in the latter part of Q2 and into Q3, and we expect to see an increase in new deployment opportunities for direct lenders in the back half of the year. As you know, MFIC is squarely focused on investing in first lien loans to middle market companies sourced by MidCap Financials. a leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professions. Midcap Financial was founded in 2009, has a long track record, which includes closing on over $118 billion of lending commitments since 2013. This 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 Global's affiliation with MidCap Financial provides MFIC and the broader Apollo platform with significant deal flow. 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. Despite the heightened level of competition, we are pleased to report that MidCap Financial was active during the June quarter, closing approximately $4.4 billion in new commitments, or $9.6 billion in the first half of 2024. Next, let's turn to dividends. First, as previously announced, in connection with the mergers on July 21st, our Board of Directors declared a one-time special cash distribution of $0.20 per share to shareholders of record as of August 5th, 2024, payable on August 15, 2024. As a reminder, this special $0.20 dividend is being paid to all shareholders as of a record date, including former AFT and AIF shareholders. In addition, on August 6, 2024, our board declared a quarterly dividend of $0.38 per share, consistent with our prior quarterly dividend to shareholders of record as of September 10, 2024, payable on September 26th.