MidCap Financial Investment Corporation

Good morning and welcome to the earnings conference call for the period ended December 31st, 2024 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 and one on your telephone keypad. If you would like to remove your question, you may press star and two. I'll 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. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, is 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 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 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 Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us. for MFIC's fourth quarter earnings conference call. I'll begin today's call by providing an overview of MFIC's fourth quarter results and share our perspective on the current market environment. I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio. Greg will then review our financial results and capital position in more detail. Beginning with our results yesterday after market closed, we reported net investment income or NII per share of 40 cents for the December quarter and $1.71 for the full year. These results correspond to annualized return on equity or ROE of 10.5% for the quarter and 11.2% for the year. Gap net income per share was 26 cents for the December quarter and $1.27 for the full year. The vast majority of our portfolio is performing well, and we are observing stability in certain credit metrics. NAV per share was $14.98 at the end of December, down 12 cents, or approximately 0.8%. During the December quarter, we made $255 million of new commitments, and for the full year, we made $1.06 billion of new commitments. While our market remains competitive, we observed a modest increase in spreads on our new commitments compared to the previous quarter, driven by commitments to existing borrowers at what we believe to be attractive leverage entry points. Spread compression in the quarter middle market has been less intense than what we see in the upper middle market. We have a clear and straightforward plan to gradually grow the portfolio over the coming quarters, and we believe MFIC's future results are well positioned to benefit as we re-lever back to our target levels. We expect to be able to reach our target leverage of approximately 1.4 times in the next couple of quarters. Taking a step back, as a reminder, in July, MFIC completed its mergers with Apollo Senior Floating Rate Fund and Apollo Tactical Income Fund, or the CEFs. We took advantage of strength in the liquid credit markets during the quarter and continued to sell certain assets acquired through the mergers that do not align with our strategy. and prudently deployed the proceeds along with the investment capacity generated from the mergers into first lane floating rate middle market loans originated by MidCap Financial. Our affiliation with MidCap, a leading lender in the middle market, provides a significant deal sourcing advantage. We are fortunate to have access to the necessary origination to deploy this capital given the significant volume of commitments originated by MidCap Financial. In 2024, MidCap closed over $21.3 billion of commitments, including $6.6 billion in the fourth quarter. MidCap's origination volumes for the quarter and the full year are particularly notable given the overall muted sponsor M&A activity in the market. MidCap has what we believe to be one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial was founded in 2009, has a long track record, which includes closing on approximately $130 billion of lending commitments since 2013. This origination track record provides us with a vast 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. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan or high-yield loans. As Greg will discuss in more detail, we continue to optimize MFIC's capital structure, including the closing of our second CLO post-quarter end, which we believe strengthens our balance sheet and aligns with our investment strategy. Moving to Merckx, as discussed previously, we are focused on reducing our investment in our aircraft leasing and servicing business. I'd like to provide an update on Merckx's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022, and the imposition of sanctions, Merck's own portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS-19. In compliance with the EU sanctions imposed on Russia due to the invasion, Merck's terminated the leases of those aircraft, but three were not returned and have remained in Russia since then. Merckx has brought legal action in the English courts seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy, and we are pleased to announce that during the first quarter we settled a portion of our contingent insurance claims with certain insurers. As mentioned on last quarter's call, we believe the current environment for selling aircraft is very attractive. Merckx has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the coming months. At the end of December, MFIC's investment in Merck's totaled approximately $183 million, representing 6.1% of the total portfolio at fair value. The blended yield across our total investment in Merck's was approximately 3.2% at fair value. and the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on MFIC's income. Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merck's to decline in the coming quarters. Moving to the economic environment, we entered 2025 with a solid economic backdrop underpinned by strong consumer spending, strong capital goods spending on infrastructure and AI, and a significant run-up in stock prices. However, investors are increasingly focused on the near-term impact of tariffs and federal government layoffs. The Fed's decision to increase their long-term DOT implies that they are coming around to the view that interest rates will be permanently higher. Credit spreads have remained tight despite economic policy uncertainty rising. The probability of a recession has declined significantly over the past months and remains low for 2025. Specific to the direct lending market, we are seeing encouraging signs for an increase in sponsor-related M&A activity, including a strong economy, mounting pressure on financial sponsors to return capital, a potentially more favorable regulatory environment, and the stabilization of interest rates. As you know, private debt has become an increasingly important source of financing for sponsor transactions, especially in the middle market where we are focused. We are currently observing a notable increase in the number of deal screenings and indicating a pickup in activity. Repricing activity has continued at record levels with refinances and extensions continuing to increase as sponsors seek to address vintage investments in upcoming maturity. According to our dividend on February 21st, 2025, Our board declared a quarterly dividend of 38 cents per share for shareholders of record as of March 11, 2025, payable March 27, 2025. With that, I will now turn the call over to Ted. Thank you, Tanner.