MidCap Financial Investment Corporation

Good morning and welcome to the earnings conference call for the period ending September 30th, 2024 for Midcap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode and the call will be open for your questions and answers 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 would now like to turn the call over to Elizabeth Besson, investor relations manager for MidCap Financial Investment Corporation. Please go ahead.

Elizabeth Besson 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. Our executive chairman, Howard Widra, is 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... I'd also like to 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... 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... 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 mfic.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. 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 the At this time, I'd like to turn our call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining MFIC's call. I'll start today's call by discussing the successful completion of our mergers with Apollo Senior Floating Rate Fund, or AFT, and Apollo Tactical Income Fund, or AFT, listed closed-end funds previously managed by Apollo. I will then provide an overview of MFIC's third quarter results and share our perspective on the current market environment. to ted we'll discuss our investment activity and provide an update on the investment portfolio including the progress we've made rotating certain of the assets acquired in the mergers results and capital position in more detail let me start with a brief update on the closing of our mergers which we view as a significant and transformational event as i mentioned mfic successfully closed its mergers with aft and aif during the quarter as we said before we believe these mergers offer and financial benefits. We're excited about the long-term benefits that we believe this transaction will create. More importantly, we expect these mergers will be for all shareholders. As a result of the mergers, MFIC's net assets increased by over 40 percent, generating significant investment capacity. Last quarter, we onboarded approximately $600 million of investments from the CEF, with approximately one-third in directly originated loans, which are that are to be core and intend to retain. The remaining two-thirds were non-directly originated loans consisting of broadly syndicated loans, high-yield bonds, and acquisitions. We started rotating the non-directly originated assets when the mergers closed, prioritizing the lower-yielding assets. As Ted mentioned, the non-directly originated assets are progressing well, and we are on track to complete these sales over the next few quarters. We are focused on prudently deploying generated from these sales and additional investment capacity created from the mergers. Based on our target leverage ratio of 1.4 times and the remaining non-directed capital we intend to reposition, we have approximately $600 million of capital to deploy into directly originated middle market loans. We are fortunate to have access to all the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. Over the past four quarters, MidCap has closed $18.7 billion of commitments, including $5.1 billion in the third quarter. That said, we are committed to deploying this capital in a steady and measured manner while maintaining discipline in terms of AVAGOR and vintage exposure. We have a clear and straightforward plan to gradually increase leverage over the coming quarters, and we believe MFIC's future results are well-positioned to benefit as we re-lever back to our target level. We expect to be able to reach our target leverage in the next couple of quarters. Turning to our results for the September quarter, please note that the mergers closed on July 22nd. Consequently, results for the quarter include approximately 10 weeks of combined company revenue and income. MFIC's net investment income per share for the September quarter was $0.44, which corresponds to an annualized return on equity, or ROE, of 11.5% and reflects a partial incentive fee. Results for the quarter reflect strong recurring interest income from our predominantly floating rate portfolio. Recorded a modest net loss on our portfolio. GAAP EPS for the quarter was $0.31. NAV per share was $15.10 at the end of September, down $0.08 or approximately 0.5% from the end of June, excluding the impact of the one-time $0.20 per share special cash distribution paid during the quarter in connection with the mergers. These mergers were a deleveraging event for MFIC. And at the end of September, MFIC's net leverage was $116 compared to $145 at the end of June. The current market environment continues to benefit from a solid economic backdrop. Economic growth continues at a healthy rate, and we've witnessed continued strength in the consumer, strong wage growth, high stock prices, and strong credit markets. In terms of credit markets, we've seen an increase in activity levels, though volume in the year-to-date period has been more concentrated in opportunistic refinancing and repricing, lowering spreads, pushing out maturities, and improving capital structures. More recently, we have seen some pickup in new money transactions, and in particular, sponsor M&A, following the September rate cuts and are cautiously optimistic that activity levels will increase in the back half of Q4 and into 2025. In addition to rate cuts, and as we have mentioned in the past, we note the dynamics with financial sponsors seeking liquidity events for fundraisings, and the pressure to return capital as hold periods have continued to stretch in addition to significant dry powder may also serve to increase emitting volumes into 2025. As you know, MFIC is squarely focused on investing in first lien loans to middle market companies sourced by MidCap Financial, a leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial was founded in 2009 as a long track record, which includes closing on approximately $124 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. Turning to our dividend, as a reminder, during the September quarter, in addition to our regular quarterly dividend of $0.38, we paid a special $0.20 one-time special dividend to shareholders in connection with the mergers. On November 4th, 2024, our Board declared a quarterly dividend of $0.38 per share for shareholders of record as of December 10, 2024, payable on December 26, 2024. With that, I will now turn the call over to Ted.