Main Street Capital Corporation

Greetings and welcome to the Main Street Capital Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Zach Vaughn. Please go ahead, sir.

Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's second quarter 2026 earnings conference call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer, David Magdol, President and Chief Investment Officer, and Ryan Nelson, Chief Financial Officer. Also participating in the Q&A portion of the call is Nick Mazerve, Managing Director and Head of Main Street's Private Credit Investment Group. Main Street issued a press release yesterday afternoon that details the company's second quarter financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until August 14th. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the internet and can be accessed on the company's homepage. Please note that information reported on this call speaks only as of today. August 7th, 2026 and therefore you are advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward looking statements. Any of these forward looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may or similar expressions. These statements are based on management's estimates, assumptions and projections as of the date of this call and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov. Treat assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income, or DNII, and DNII before taxes. DNII is Net Investment Income, or NII, as determined in accordance with U.S. generally accepted accounting principles, or GAAP, excluding the impact of non-cash compensation expenses. DNII before taxes is NII, as determined in accordance with GAAP, excluding the impact of non-cash compensation expenses and any tax expenses included in NII. Management believes that presenting DNII and DNII before taxes and the related per share amounts is a useful and appropriate supplemental disclosure for analyzing Main Street Capital Corporation's financial performance since non-cash compensation expenses do not result in a net cash impact to Main Street upon settlement and tax expenses included in NII may include excise tax expense which is not solely attributable to NII and deferred taxes which are not payable in the current period. Please refer to yesterday's press release for a reconciliation of these non-GAAP measures to the most directly comparable GAAP financial measures. Two additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. Main Street defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third party sources and has not been independently verified. Now, I'll turn the call over to Main Street CEO, Dwayne Hyzak.

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call, and we hope that everyone's doing well. On today's call, we provide our key quarterly updates, after which we'll be happy to take your questions. We're very pleased with our performance in the second quarter. which resulted in strong quarterly operating results highlighted by an annualized return on equity of 18.9%, favorable levels of DNII per share, and a significant increase in NAV per share. We believe that these results continue to demonstrate the sustainable strength of our overall platform, the benefits of our differentiated and diversified investment strategies, and the continued strength and quality of our portfolio companies. We are also pleased that we've further strengthened our capital structure in the second quarter which Ryan will discuss in more detail. Given our strong liquidity position and conservative leverage profile, we are very well positioned to continue the growth of our investment portfolio for the foreseeable future and we are excited about the current opportunities we are seeing. We remain confident that our unique investment, income, and value creation drivers together with our cost efficient operations and conservative capital structure will allow us to continue to deliver superior results for our shareholders in the future. Our favorable results for the second quarter, combined with our continued positive outlook for the future, resulted in our most recent dividend announcements, which I will discuss in more detail later. Our NAV per share increase in the quarter, primarily due to the impact of significant net fair value appreciation in both our lower middle market and private loan investment portfolios, including the benefits of another material net realized gain in our lower middle market investment portfolio. Ryan will discuss our NAV per share increase in more detail. The continued favorable performance of the majority of our lower middle market portfolio companies resulted in another quarter of meaningful dividend income contributions and net fair value appreciation in our lower middle market equity investments. Consistent with my comments on our last call, we continue to see increased variability between our overperforming and underperforming portfolio companies, and the impact of that variability is reflected in our results. Overall, based upon our current views of the investment portfolio and the feedback from our portfolio company management teams, We continue to maintain a positive view regarding the expected future contributions from our lower middle market portfolio companies. Consistent with our guidance over the last few quarters, and as David will discuss in more detail, we are pleased to have supported our portfolio company management team partners in another highly successful exit of our investments in a high-performing lower middle market portfolio company, Center Technologies, in the second quarter at a realized gain of over $46 million, and a meaningful premium to our March 31st fair value. Our investment in Center serves as yet another great example of the benefits of our highly unique lower middle market investment strategy, which delivered significant benefits for both Main Street and our management team partners at Center, including significant dividend income, fair value appreciation and realized gains, resulting in best-in-class returns on our equity investment, in addition to the opportunity to back Center's management team by funding their growth initiatives, primarily with follow-on Main Street debt investments. We continue to see significant interest from potential buyers in several of our lower middle market portfolio companies, which we expect will lead to additional favorable realizations over the next few quarters, and which we believe further highlights the strength and quality of our portfolio companies and their exceptional leadership teams. Now turning to our investment activity, we are excited about the new and follow-on investments we made in our lower middle market strategy during the quarter. These investments were offset by elevated repayment activity, driven in part by the center exit, resulting in a net decrease in our lower middle market investments of $31 million. Our private loan investment activity improved significantly in the second quarter, but we also experienced increased levels of repayments resulting in a net increase in private loan investments of $60 million. David will discuss our investment activity in more detail. We also continue to produce favorable results in our asset management business. The funds we advise through our external investment manager continue to experience favorable performance in the second quarter, resulting in meaningful incentive fee income for our asset management business, and together with our recurring base management fees, a significant contribution to our net investment income. We remain excited about our plans for the external funds that we manage and are optimistic about the future performance of the funds and the expected returns for the investors of each fund. We also continue to be excited about our strategy for growing our asset management business within our internally managed structure. As part of these efforts, we remain focused on growing the investment portfolio of MSC Income Fund, a publicly traded BDC advised by our external investment manager, which is solely focused on our private loan investment strategy with respect to new portfolio company investments. The fund continues to maintain the capacity for significant future growth. MSC Income's second quarter 2026 financial results conference call will be held later this morning for those who would like additional details. Based upon our results for the second quarter, and our favorable outlook for the future. Earlier this week, our board declared a supplemental dividend of 30 cents per share payable in September representing our 20th consecutive quarterly supplemental dividends and regular monthly dividends for the fourth quarter of 2026 of 26.5 cents per share representing a 3.9% increase from the regular monthly dividends paid in the fourth quarter of 2025. The supplemental dividend for September is a result of our strong performance in the second quarter and our net realized gains over the last few quarters and will result in total supplemental dividends paid during the trailing 12-month period of $1.20 per share, representing an additional 38% paid to our shareholders in excess of our regular monthly dividends. We currently expect to recommend that our Board declare future supplemental dividends to the extent DNII before taxes significantly exceeds our regular monthly dividends paid or we generate net realized gains and we maintain a stable to positive NAV per share in future quarters. Based upon our expectations for continued favorable performance in the third quarter, we currently anticipate proposing an additional significant supplemental dividend payable in December 2026. Now turning to our current investment pipeline, as of today I would characterize our lower middle market investment pipeline as average. Consistent with our experience in prior periods of broad economic uncertainty, we believe that our ability to provide highly flexible and customized financing solutions to lower middle market companies and their owners and management teams, together with our differentiated long-term to permanent holding periods, represent an even more attractive solution to the needs of many lower middle market companies, and we are excited about our expectations for the continued growth of our lower middle market investment portfolio. Similarly, in our private loan investment strategy, we continue to see an improved lending environment and significant opportunities, which we believe has us well positioned to capitalize on new private loan investment opportunities and to generate growth for our private loan portfolio and our asset management business. And as of today, I would also characterize our private loan investment pipeline as average. With that, I will turn the call over to David.

Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe that our strong second quarter financial results continue to demonstrate the strengths of MainStreet's platform, our differentiated investment approach, and our unique operating model. We're pleased to report that the overall operating performance for most of our portfolio companies continues to be positive, which contributed to our attractive second quarter financial results. Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of our portfolio companies to continue to navigate the current environment. As we've previously discussed, we believe that one of the primary drivers of our long-term success has been and will continue to be are a unique focus on investing both the debt and equity investments in the underserved lower middle market. Most notably and uniquely, our lower middle market strategy provides attractive leverage points and yields on our first lien debt investments while also creating a true partnership with the existing owners and management teams of our portfolio companies through our flexible equity ownership positions. In short, we believe that this approach provides significant downside protection through our first lien debt investment, combined with the benefits of alignment of interest and significant upside potential through our equity investment. Each quarter, we try to highlight different key aspects of our investment strategy and differentiated approach that allow us to consistently produce best-in-class results. In today's call, I'm going to spend some time discussing the benefits we receive from the equity investments in our lower middle market strategy. As a result of our lower middle market equity investments, in the fourth quarter of 2025 and the first half of 2026, we were able to generate approximately $88 million of realized gains from the exits of our equity investments in three lower middle market portfolio companies. These three realizations included a $24 million realized gain in Mystic Logistics, which in addition to total dividends of $22 million received over the life of our equity investment, represented an annualized internal rate of return of 33% and 18 times money invested on our equity investment. $17 million realized gain in KBK Industries, which in addition to total dividends of $25 million received over the life of our equity investment, resulted in an annualized internal rate of return of 127% and 63 times money invested on our equity investment. and finally a $46 million realized gain in Center Technologies which in addition to total dividends of $2 million received over the life of the equity investment represented an annualized internal rate of return of 40% and nine times money invested on our equity investment. Realized gains like these provide the ability to offset the inevitable credit losses that will be experienced when investing in non-investment grade debt consistent with the debt investments executed by investors in the private credit industry. Based upon our historical experience and current portfolio, we expect that our future net realized gains on lower middle market equity investments will exceed any future credit losses from our current investment strategies. Another advantage of having equity ownership positions in our lower middle market portfolio companies is our ability to provide additional growth capital to our companies as they find opportunities to expand both organically and through acquisitions. For example, after we made our initial investment in Center Technologies, they executed multiple value-creating acquisitions almost exclusively with additional debt capital that we provided. Similar to our experiences with Center Technologies and other historical lower middle market portfolio companies, a meaningful portion of our lower middle market portfolio companies represent the opportunity for us to invest additional capital in our highest performing proven portfolio companies as they execute their acquisition and other growth strategies. As a result of these follow-on investments, both we and our portfolio company management team partners are able to benefit from the significant value created by these growth initiatives. We have multiple examples in which we have greatly increased our national investment sizes in our highest performing lower minimum market portfolio companies through a combination of debt and equity follow-on investments, and we look forward to continuing to execute this part of our strategy in the future. In addition to the benefits received from net realized gains and net unrealized appreciation, we also benefit from dividend income received from our lower middle market equity investments. As we have stated in the past, as our lower middle market portfolio companies perform over time, they naturally be leveraged through operating cash flows, which provides the opportunity for those companies to pay dividends to their equity owners. Additionally, our unique long-term to permanent holding period capabilities for our lower middle market portfolio companies enhances our ability to benefit from the long-term free cash flow generation and resulting dividends received from these companies. We are pleased to report that in the second quarter, we, alongside our portfolio company management team owners, continue to receive the benefit of significant dividends from our lower middle market equity investments. While Main Street's dividend income can be lumpy on a quarter-to-quarter basis as a result of exits of certain high-performing companies, and changes in our portfolio companies' cash flow and capital allocation decisions, given the diversity and quality of our existing lower middle market investment portfolio, we expect dividend income to continue to be a significant contributor to our results in the future. Now, turning to the composition of our investment portfolio, as of June 30th, we continue to maintain a highly diversified portfolio with investments in 191 companies spanning across numerous industries and end markets. Our largest portfolio companies, excluding the external investment manager, represented only 3.9% of our total investment income for the trailing 12-month period and 3.5% of our total investment portfolio fair value a quarter end. The majority of our portfolio investments represented less than 1% of our income and our assets. Our lower middle market investment strategy in the second quarter included total investments of approximately $100 million, including total investments of $46 million in two new lower middle market portfolio companies which after aggregate investment activity resulted in a net decrease in our lower middle market portfolios, $31 million. In our private loan strategy, we completed $239 million in total private loan investments which after aggregate investment activity resulted in a net increase in our private loan portfolio of $60 million. At the end of the second quarter, our lower middle market portfolio included investments in 94 companies representing $3.2 billion of fair value, which is 26% above our related cost basis, and our private loan portfolio included investments in 86 companies representing $2.1 billion of fair value. Total investment portfolio at fair value at quarter end was 116% of our related cost basis. Additional details in our investment portfolio at quarter end are included in the press release that we issued yesterday. With that, I'll turn the call over to Ryan to cover our financial results, capital structure, and liquidity positions.

Thank you, David. To echo Dwayne's and David's comments, we are pleased with our operating results for the second quarter, which included favorable levels of NII per share and DNII per share and another increase in NAB per share. Our total investment income for the second quarter was $149.6 million, increasing by $5.6 million or 3.9% over the second quarter of 2025 and by $9.5 million or 6.8% from the first quarter of 2026. Interest income increased by $11.8 million from a year ago and by $7.3 million from the first quarter of 2026. The increase for prior year was principally attributable to the impact of higher levels of income producing debt investments partially offset by a decrease in interest rates primarily resulting from decreases in benchmark index rates on our floating rate debt investments and the negative impact from investments on non-accrual status. The increase from the first quarter was principally attributable to the impact of higher levels of income producing debt investments and an increase in prepayment activity partially offset by the negative impact from investments on non-accrual status. Dividend income decreased by $10.4 million when compared to a year ago including a $2.5 million decrease in unusual or non-recurring dividends and decreased by $800,000 from the first quarter after a $1 million increase in unusual non-recurring dividends. The decrease in dividend income from prior year is primarily due to a decrease in dividends from our lower middle market companies as a result of exits since the beginning of the comparable period in prior year and changes in the performance in capital allocation decisions of our existing lower middle market companies relative to the prior period, decreases from our external investment manager and our other portfolio companies, and the decrease in non-recurring dividends. The decrease in dividend income from the first quarter is primarily due to decreased dividends from our external investment manager and other portfolio companies, partially offset by an increase in dividends from our lower middle market companies as a result of their improved performance and their capital allocation decisions relative to prior quarter and an increase in non-recurring dividends. Fee income increased by $4.3 million from a year ago and by $2.9 million from the first quarter. The increases in fee income for both comparable periods are primarily due to an increase in fee income from the refinancing and prepayment of debt investments and other investment activity, partially offset by lower closing fees on new and follow-on lower middle market investments. The income considered non-recurring increased by $3.1 million from a year ago and by $2.2 million from the first quarter of 2026. The second quarter included income considered less consistent or non-recurring in nature, primarily related to accelerated fee and interest income and dividend income, which totaled $9.5 million. These income items were $1.4 million, or one cent per share, higher than the second quarter of 2025, 5.4 million dollars or six cents per share higher than the first quarter and 3.5 million dollars or four cents per share higher than the prior four quarter average. These increases were primarily due to higher non-recurring fees, accelerated interest income, and dividend income across all comparative periods with the exception of non-recurring dividends which were lower in the second quarter of 2026 when compared to the second quarter of 2025. Our operating expenses increased by $5.1 million over the second quarter of 2025 and by $3.5 million from the first quarter. The increases in operating expenses from the prior year and first quarter were largely driven by increases in interest expense and compensation related expenses, partially offset by an increase in expenses allocated to the external investment manager. The increase in interest expense from a year ago was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio partially offset by a decrease in the weighted average interest rate on our credit facilities resulting from decreases in benchmark index rates. The increase in interest expense from the first quarter was primarily driven by an increase in average borrowings to fund the growth of our investment portfolio and an increase in the weighted average interest rate on our unsecured debt obligations resulting from the additional issuance under our March 2029 notes and the issuance of our April 2031 notes. The ratio of our total operating expenses excluding interest expense as a percentage of our average total assets was 1.3% for the quarter on an annualized basis in the trailing 12 month period and continues to be among the lowest in our industry. Our external investment manager contributed $8.7 million to our net investment income during the second quarter which was consistent with the contribution from the same quarter a year ago and represents an increase of $400,000 from the first quarter. Our external investment manager earned gross incentive fees of $3.2 million during the second quarter and waived $300,000 in incentive fees from MSC Income Fund, resulting in net incentive fees of $3 million. This net result represents a decrease of $700,000 in net incentive fees from the prior year and a net amount consistent with the first quarter of 2026. Our external investment manager ended the quarter with total assets under management of $1.8 billion. During the quarter, we recorded net fair value appreciation, including net unrealized appreciation and net realized gains, on the investment portfolio of $65 million. The increase was primarily driven by net fair value appreciation in our lower middle market and private loan investment portfolios, partially offset by net fair value depreciation of our external investment manager. The net fair value appreciation in our lower middle market portfolio was largely driven by the continued positive performance of certain of our portfolio companies. The net fair value appreciation in our private loan portfolio is primarily driven by net appreciation on specific portfolio equity investments and decreases in market spreads. The net fair value depreciation of our external investment manager was primarily driven by decreases in the valuation multiples of publicly traded peers, which we use as a benchmark for valuation purposes. partially offset by increased fee income. We recognize net realized gains of $33 million in the quarter, primarily as a result of the exit of Center Technologies as previously discussed by Dwayne and David. Additional details on our net realized fair value activity are included in the press release that we issued yesterday. We ended the second quarter with investments on non-accrual status comprising approximately 1.1% of the total investment and many more. was 0.69 times and our regulatory asset coverage ratio was 2.44 times. These ratios continue to be more conservative than our long-term target ranges of 0.8 times to 0.9 times and 2.25 to 2.1 times respectively. We continue to be active this quarter on capital activities aided by our strong relationships as we continue to manage our near-term maturities and overall capital structure diversity. These activities included the issuance of $150 million of private placement unsecured notes maturing in April 2031 with an interest rate of 6.93% and the amendment of our corporate credit facility, increasing our total commitments by $65 million to $1.24 billion and extending the maturity to June 2031. Given our current liquidity position and recent net investment activity, we were less active in our at-the-market or ATM program raising net proceeds of $18.8 million from equity issuances during the second quarter. After giving effect to the capital activities in the second quarter of 2026 and the repayment of our $500 million July 2026 notes at maturity, we enter the third quarter with strong liquidity including cash and unused capacity under our credit facilities totaling $1.2 billion with our next term debt maturity of $400 million in June 2027. We continue to believe that our conservative leverage, strong liquidity, and continued access to capital are significant strengths that are proven to benefit us historically and have us well positioned for the future, allowing us to continue to execute our attractive investment strategies despite the current market uncertainty. Coming back to our operating results, DNII before taxes per share for the quarter of $1.08 was 3 cents per share lower than the second quarter of last year and 4 cents per share higher than the first quarter. Looking forward, we expect third quarter of 2026 DNII before taxes at least 97 cents per share. This outlook reflects the impacts of an expected meaningful decline in non-recurring income from the second quarter and the increased cost of capital following the refinancing of our July 2026 notes, with the potential for upside driven by portfolio investment activities during the quarter. With that, I will now turn the call over to the operator so we can take any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. One moment while we poll for questions. And our first question we'll hear from Robert Dodd with Raymond James.

Robert, are you there?

Just one moment.

Robert Dodd, please go ahead. Can you hear me now?

We can hear you, Robert. Good morning. Excellent. Thank you.

So on one of your comments in the opening remarks, Wayne, I mean, you said there's an increased variability, and I don't think this is new per se, I just want to follow up, increased variability between the over-performers and the under-performers. I mean, obviously, there's a lot more good slash over-performers than there are under, so there's not The End of the Works. But on the underperformers, are there any themes that show up there in terms of industry structures, types of business that you've learned from already or can learn from in terms of which kind of deals to avoid going forward? Or is it just idiosyncratic and stuff happens with credit?

I'd say it's the latter. It's idiosyncratic. I think you have situations where a management team might underperform, and that could be attributable to the company, could be attributable to the broader industry, but we're not seeing a consistent broad theme or pattern. We are seeing when you have companies that are overperforming as we try to communicate in the script that they're overperforming at a high level or higher level, and when you see the pressure, I think you're seeing more pressure, and I put that I attribute that to just the overall economy uncertainty and just some of the things that are going on across the economy more broadly. But I don't think it's anything that is a broad trend or a specific trend in any area.

Got it. Got it. Thank you. On the asset management business, I mean, you know, obviously it's performing well. The incentive fees are good. You do plan on growing it further, obviously. You've made some hires, or a hire at least, I think, in that area. Yeah. relatively recently obviously but I mean any update on any new initiatives that are being contemplated or implemented in that business to produce you know accelerated growth maybe obviously beyond you know MSIS which is obviously the bigger biggest piece of it today.

Sure Robert nothing other than what you hit on is as you said we hired a individual who will have a sole focus on fundraising for us. So we plan to have a private fund number three at some point into this year, early next year. Obviously, we hope to be successful there. We hope that that third fund is larger than funds one and two, but time will tell how successful we are. But I'd say other than that, that activity, that initiative, nothing else new. But we are excited about those plans and we look forward to seeing how that launch goes here in a couple of months.

Thank you. One more if I can. On the pipeline data you give us, which is always helpful, that's kind of a relatively near term, you know, one or two quarter kind of outlook on that front. Are you seeing, you know, from some businesses that you end up, you know, doing deals with, you have built relationships over years rather than just a couple of months. I mean, are you seeing anything change? Changing the really early stage discussion pipeline, I mean, is that continuing to build? In the past, sometimes that's been impacted by political or administration changes. Obviously, we've got midterms, but not an administration change coming up. But I mean, anything on the really early stage kind of discussions that's shifting?

I don't think there's anything that's shifting or changing there. I think we've Thank you. Thank you, Robert.

And next question, we'll hear from Kenneth Lee with RBC Capital Markets.

Hey, good morning, and thanks for taking my question. Just a follow-up question around the lower mid-market pipeline there. Are you able to maybe just comment in terms of any kind of outlook between either follow-on opportunities? It sounds like there's not much in the early stage for the newer deal platforms. Once again, just wanted to Get some color on that. Thanks.

Morning, Ken, and thanks for the question. I'd say we feel good about both the new investment opportunities we have. We have several transactions that are in advanced stages of diligence and documentation, so we feel good about those. And I think on the existing portfolio company side, we continue to see add-on opportunities there. So nothing that's changed to the negative. We do expect to have both new investments and follow-ons in the Q3 and Q4 that will be consistent with what we've seen in the past.

Got it. Very helpful there. And one follow-up, if I may, just in terms of the dividend income you get from the portfolio companies, any color in terms of what you're seeing around capital allocation priorities over the near term and any potential? I'll look around the income there. Thanks.

I wouldn't say there's a huge shift there, Ken, and I'll let David add on if he has any additional comments. I do think that you're seeing some companies that are changing capital allocation views, at least as we sit here today, and that could be for growth purposes. It could be them just becoming a little more conservative in their approach and not expecting to pay as much dividend income as they may have paid if there wasn't the continued uncertainty across the economy. We don't think there's huge changes there, but you are seeing some companies that are either prioritizing capital for growth or maybe being a little more conservative. But David, if you want to add anything on to that. No, nothing to add.

Gotcha. Very helpful there. And just if I could squeeze one more in. Maybe could you remind us again in terms of your supplemental dividend framework there, any updated thoughts around that or perhaps just remind us how you think about that? Go for it. Thanks.

I'd say that the plans for the supplemental continue to be consistent with what we've been trying to communicate the last couple of quarters. First, we look at our DNII before taxes to the extent that is a significant difference versus the monthly, which has continued to be a meaningful difference. That's the first source of funding for the supplemental. But we've also, as you know, have had a significant amount of realized gains over the last couple of quarters, not just the last two, but really for the last A year and a half, plus or minus, I think the number we calculated here recently was about $130 million of net realized gains. Increasingly, that's becoming part of the calculus on the supplemental dividend. It will not be the primary driver, but it is part of the calculus when you look at that level of realized gains, trying to look forward at managing the supplemental dividend to help us manage spillover Income, those types of considerations are coming into play largely just because of the significance of the net realized gains.

Got you. Very helpful there. Thanks again.

Thank you, Ken.

And our next question, we'll hear from Aaron Syknowicz with Truist Securities.

Thank you. Kind of just following up on Robert's initial questioning, How would you say the underperformers versus overperformers, how that differs historically from different periods? Because you've been obviously doing this for a long time. And what's your approach whenever you do have a period like this where you might have some underperformers that you might need to put a little bit more focus on?

Sure, Aaron. The way I would respond to that is I'd say if you look at a Your portfolio today and historically for us, it's a bell curve. You've got some companies that want one end of the curve that are underperforming. You've got other companies at the opposite end that are overperforming and a bunch that are in the middle. And I would say if you look at the number of companies, I would say that distribution is not different, at least not maturely different than what it's been in the past. It's just when you see the overperformance, you have some companies on the right side of that, that when they're overperforming, they're overperforming in a very meaningful or significant way, and more so than they would have done historically. And I think on the other side, just given the uncertainty in the economy and some of the challenges out there, when a company is struggling, it's also probably struggling to a greater extent. So I think our view, our philosophy approach has always been, not just in times like this, but in all times, when you have a high performing company, more importantly, a high performing management team, we're going to work with them. Obviously, it's their decision first and foremost, but we're going to work with them to support their growth plans. And if they want to grow, we're going to be very interested in funding that growth. So you're seeing us continue to do that today, and you'll see us continue to do that going forward. On the flip side, where there's underperformance, the first thing that our teams, whether it's a lower middle market investment or private loan investment, the first thing our teams do is work with that team. And if it's a private loan investment, work with the private equity sponsor to figure out how do we fix this, how do we address the shortcomings or the shortfalls. But eventually, if the determination is that the underperformance is so extreme or so drastic, then the approach we try to take is just don't put good money after bad. One thing we can control on the downside is how much money we lose. And if we're disciplined and consistent and not putting good money after bad, you can limit the downside. Whereas on the upside, if a company's performing There probably is a limit, but theoretically, there's no limit to what the upside is. So that's the way that I would frame it. That's been our consistent strategy for 20 years, and nothing's really changed there. Great. Thanks, Dwayne.

Thank you.

And as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Next, we'll hear from Chris Mueller with Citizens Bank.

Hey guys, thanks for taking the questions and nice to be on with you this morning and congrats on a strong quarter here. Maybe following up on the question on MSC Advisor, so when that fundraising process does start, how long does it typically take from start to finish and do you guys get paid management fees on total commitments or when the capital is actually deployed there? Just trying to understand that dynamic a little better.

Sure Chris, good morning and thanks for joining us and happy to have you on board for the call. When you look at the two questions you have there, I'd say once we launch, you're probably looking at an 18-month time period for the fundraising period. Likely, the fundraising starts off a little bit slower just because you're trying to get the initial investors in, and it'll pick up steam kind of halfway through that 18-month time period if you kind of look at our history. So I would expect something similar to that to be the case once we launch Fund 3. In terms of what drives our fees, it is on deployed capital. So it's assets invested. So similar to what I just said, you probably will likely start seeing the benefits 12, 18, 24 months after we start raising capital because you first have to raise the capital. You put a credit facility in place and then start deploying it. But that's the time period approach I would expect. And Nick, if you have a different view or something you want to add, feel free to add on.

I think that covers it. I think probably the full cycle fundraise for Fund 3 is probably that 18 to 24-month window.

Got it. That's very helpful. And then maybe shifting gears a little bit, looks like we're in an environment where rates are poised to move higher in the next eight months or so. Typically, in a rising rate environment, we see spreads tighten up a little bit. Does that dynamic hold true on the private loan side for you guys as well?

Yeah, to some degree. You know, it kind of depends on the underlying business and where the overall M&A activity will be, but I'd say that's relatively accurate.

Got it. Well, I appreciate you guys taking the questions today, and congrats again on a strong quarter.

Thank you. Appreciate it.

This will conclude the question and answer session. I would now like to turn the floor back to the management team for closing remarks.

Thank you and thank you again everyone for joining us this morning for the call. We appreciate the continued support of our shareholders and we look forward to talking to you again in early November after the release of our results for the third quarter. Thank you.

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.