MSC Income Fund, Inc.

Greetings and welcome to the MSC Income Fund first 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for MSC Income Fund's first quarter earnings conference call. Joining me today with prepared comments are Duane Hijock, Chief Executive Officer, David Magdahl, President and Chief Investment Officer, Nick Mazur, Managing Director and Head of the Private Credit Investment Group, and Corey Gilbert, Chief Financial Officer. MSC Income Fund issued a press release yesterday afternoon that details the funds first quarter financial and operating results. This document is available on the investor relations section of the funds website at MSCIncomeFund.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 20th. Information on how to access the replay was included in yesterday's earnings release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the funds homepage. Please note that information reported on this call speaks only as of today, May 13th, 2025, and therefore you're advised that time-sensitive information may no longer be accurate at the time of any replay listening. Today's call may contain forward-looking statements. Many 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 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 funds filings with the Securities and Exchange Commission which can be found on the funds website or at sec.gov. MSCIncomeFund assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss 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. MSCIncomeFund defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. As previously announced, the fund effectuated a -for-one reverse stock split on December 16, 2024. All per share amounts, shared data, and related information discussed on today's call reflect the effect of the reverse stock split. 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. And now I'll turn the call over to MSCIncomeFund CEO, Duane Hesock.

Thanks, Zach. Good morning everyone and thank you for joining us for the MSCIncomeFund First Quarter 2025 Conference Call. We appreciate your participation on this morning's call and we hope that everyone's doing well. On today's call, I will provide a few highlights regarding the fund's operating performance in the quarter, followed by updates on the fund's investment activities and current investment pipeline, dividend plans, future outlook, and several other noteworthy items. Following my comments, Nick will provide comments on the fund's private loan investment strategy, investment activity, and investment portfolio. David will provide comments on the fund's lower middle market investment portfolio and total investment portfolio, and Corey will cover the fund's financial results, capital structure, and liquidity position, after which we'll be happy to take your questions. We are pleased with the fund's performance in the first quarter, which delivers favorable results and return on equity of just under 10%. We believe that the first quarter performance provides visibility to the opportunity for continued favorable performance and the potential for increased net investment income and dividends in the future as we work to grow the fund's investment portfolio in 2025 and 2026 and achieve further investment portfolio diversification through the increased current liquidity and path to additional debt capacity obtained through the fund's successful listing on the New York Stock Exchange and the related equity offering in January. We remain confident that these benefits, together with the change in the fund's investment strategy to be solely focused on this private loan strategy for investments in new portfolio companies, will strengthen the fund's ability to deliver attractive recurring total dividends and favorable total returns to the fund shareholders in the future. The fund generated NII per share of 38 cents in the quarter, which Corey will discuss in more detail. This favorable performance gave us the confidence to recommend that the fund's board of directors declare a regular quarterly dividend of 35 cents per share and a supplemental quarterly dividend of one cent per share, which I'll discuss in more detail later. The fund finished the quarter with a NIV per share of $15.35, which Corey will discuss in more detail. While we are pleased with the fund's recent results, we continue to believe that the fund has the opportunity to increase its ROE in the future through several post listing changes and activities, including the favorable changes to the fund's fee structure, which, among other changes, provided for an immediate reduction in the fund's annual base management fee percentage upon the listing, an additional future contractual reductions in the fee percentage as the fund's lower middle market investments decrease as a percentage of the fund's total investment portfolio. The listing also provided the fund the opportunity to expand its utilization of debt capital, and we believe this gives the fund the opportunity to achieve a lower cost of capital in the future, as evidenced by the fund's recent amendments to its credit facilities, which Corey will discuss in more detail. We continue to be encouraged by the favorable overall performance of the fund's portfolio companies and remain confident in the ability of these companies to maintain positive performance despite the significant market uncertainty associated with tariffs, which Nick and David will discuss in more detail. During the quarter, the fund was highly focused on deploying the liquidity achieved in the recent equity offering and this corresponding increase in available debt capacity into new private loan investments, maximizing the benefits from the fund's lower middle market investment portfolio and recycling existing capital into private loan investments as investments are exited or repaid. Based upon the fund's net investment activities in the quarter, the fund's private loan investment portfolio increased by $89 million on a cost basis, or approximately 13%, which Nick will cover in more detail, resulting in growth of the fund's total investment portfolio of approximately 6%. For the balance of 2025, the fund will continue to maintain its focus on deploying its available liquidity and then focus on maintaining its investment portfolio in a fully invested position through the end of January 2026, at which point the fund will achieve expanded regulatory leverage capacity, effectively doubling the fund's current regulatory leverage limit and providing the fund the opportunity to deploy additional capital into new private loan investments and further grow its investment portfolio. Based upon the fund's results for the quarter, we are pleased that we are in position to recommend that the fund's board of directors declare a regular quarterly dividend of 35 cents per share and a supplemental quarterly dividend of $1.01 per share, both of which are payable on August 1, 2025, to shareholders of record as of June 30, 2025. Going forward, the fund expects to maintain a dividend policy that provides for its total quarterly dividends, which are expected to include a regular quarterly dividend and a supplemental quarterly dividend, to be set at an amount equal to or at a slight discount to the fund's net investment income. As such, we expect to recommend that our board continue to declare future supplemental quarterly dividends to the extent the fund's NII exceeds its regular quarterly dividends paid in future quarters. Based upon the most recently declared regular and supplemental quarterly dividends and the current stock price, the fund is currently providing its shareholders a dividend yield of approximately 9%. As the fund executes its transition to a private loan-only investment strategy and investment portfolio and optimizes the use of leverage, our goal is for the fund to be able to increase the total dividends paid to shareholders in the future. As we look forward to the fund's near-term investment activities, we are pleased with our current investment pipeline. The fund has continued to be active in its private loan investment strategy since quarter end, and as of today, our characterized private loan investment pipeline as average. Despite the current broad economic uncertainty, we remain highly confident in our ability to continue to generate attractive new investment opportunities over the next few quarters, and through these investment activities, we remain confident in our ability to grow the fund's investment portfolio. My last comment is a reminder on the continued support the fund has received from Main Street Capital Corporation. Since Main Street's wholly-owned subsidiary was appointed the sole advisor to the fund in October 2020, Main Street has purchased over $21 million of equity in the fund, over $4 million of which was purchased as part of the fund's public equity offering in January. In conjunction with the offering, Main Street also entered into an open market share purchase plan to purchase up to $20 million of the fund's shares for a 12-month period beginning in March 2025 at times if and when the fund's shares are trading at predetermined levels below the fund's NAV per share, with the terms of such plan being identical to the fund's open market share repurchase plan to purchase up to of the fund's shares, and with any open market share purchases being split by the fund and Main Street on a pro-rata basis. We believe Main Street's significant equity ownership in the fund and its participation in the post-listing share purchase plan demonstrates Main Street's commitment to the future success of the fund and reinforces Main Street's confidence in the strength and quality of the fund's investment portfolio and investment strategy. With that, I will turn the call over to Nick.

Thanks, Duane, and good morning, everyone. As Duane highlighted in his remarks, we are pleased with the performance of the fund's private loan investment portfolio in the first quarter. The overall operating performance for most of the fund's private loan portfolio companies continue to be positive, which contributes to the fund's favorable first quarter financial results. The fund is continuing to see softness in certain private loan portfolio companies with consumer exposure, and we continue to actively work on maximizing recoveries on those specific investments. The potential tariff situation will more than likely elongate the recovery on those names. We have been and continue to work with the private equity owners and management teams of our private loan portfolio companies to understand their current tariff exposures and mitigation plans. Based upon those discussions and activities to date, we are comfortable with our estimated tariff exposure. The largest portion of the fund's investments continues to be in its private loan strategy, which, as a reminder, is now the fund's sole focus with respect to new portfolio company investments. The fund's private loans are typically made to private equity owned businesses, whereby the private equity firms have substantial cash equity investments in those businesses. These equity investments are by definition junior to the first lien senior secure debt investments made by the fund. Should a specific private loan portfolio company underperform, the general practice and expectation is that the private equity owner of the company will support the business with new equity to protect its existing investment. As a result, a key factor in underwriting is the historical track record and quality of the private equity sponsor, as well as their reputation for supporting their portfolio companies with both managerial assistance and additional equity capital in the event of underperformance. At quarter end, 94% of the private loan portfolio was comprised of secure debt investments, over 99% of which were first lien and 98% of which were floating rate loans. The portfolio had an attractive weighted average yield of 11.6%, which was down 40 basis points from the end of 2024, primarily as a result of decreases in the SOFR rates for these floating rate debt investments. During the first quarter, the fund invested $138 million in the private loan portfolio, which after aggregate investment activity, resulted in a net increase of $89 million. The fund ended the first quarter with investments in 84 private loan portfolio companies, totaling $768 million of fair value and representing 61% of the fund's total investment portfolio at fair value. With that, I'll turn the call over to David.

Thanks, Nick, and good morning, everyone. In addition to the private loan portfolio that Nick just covered, the fund also maintains a portfolio of legacy lower middle market investments. These are combined debt and equity investments in smaller privately held companies, whereby the fund partnered directly with the company's existing business owners and management team through co-investments with Main Street Capital Corporation, utilizing the customized one-stop debt and equity financing solutions provided in Main Street's lower middle market investment strategy. As a reminder, after the listing of the fund shares on the New York Stock Exchange at the end of January, the fund will not make any investments in new lower middle market companies, but will continue to participate in follow-on investments in its existing lower middle market portfolio companies. We are pleased to report that the overall operating performance for most of our lower middle market portfolio companies continues to be positive, which contributed to our attractive first quarter financial results. These contributions included both strong dividend income and meaningful fair value appreciation. Due to the heightened level of concern and uncertainty in the market regarding the potential negative impacts from tariffs and consistent with our practices and other times of heightened market uncertainty, we have been and remain in regular contact with our lower middle market portfolio companies to support them and discuss the proactive actions they are taking to address the current implications and potential challenges in the current market. To date, we have seen limited negative impact to the overall portfolio, and we believe that our relationships with -in-class managers as our partners in our lower middle market portfolio companies and our intentional highly diversified investment strategy and portfolio will continue to serve us well as it has in the past. During the first quarter, the fund had minimal investment activity related to its existing lower middle market investments, which resulted in a net decrease in the lower middle market portfolio of $1 million. At quarter end, the lower middle market portfolio had investments in 57 portfolio companies, totaling $440 million of fair value and representing 35% of the fund's total investment portfolio. The lower middle market portfolio at fair value was comprised of 52% debt investments and 48% equity investments. These debt investments had an attractive weighted average yield of 13% consistent with the prior year and over 99% were first lien loans. The fund had equity ownership positions in all of its lower middle market portfolio companies, representing a 9% average ownership position. We expect these investments will continue to provide significant benefits in the future, including the opportunity for continued dividend income, fair value appreciation, and eventually meaningful realized gains upon the future exit of these lower middle market portfolio investments. Turning to the fund's total investment portfolio as of March 31st, the fund continued to maintain a highly diversified portfolio with investments in 149 portfolio companies spanning across numerous industries and end markets. The fund's largest portfolio companies represented less than 4% of the total investment portfolio fair value at quarter end and less than 3% of the total investment income for the trailing 12 months ended March 31st, 2025, with most portfolio investments representing less than 1% of the fund's income and assets. With that, I will turn the call over to Corey.

Thank you, David, and thank you to everyone who has joined us today. The fund's total investment income for the first quarter was $33.2 million, a decrease of $0.7 million or .1% from the first quarter of 2024 and less than 1% lower compared to the fourth quarter of 2024. The first quarter included income considered less consistent or non-reoccurring in nature of $0.9 million. Have we previously discussed these non-reoccurring items vary quarter to quarter and can include dividend income from equity investments and interest and fee income from accelerated prepayment, repricing, and other activity related to debt investments. For the first quarter, these items were $0.4 million lower than the average of the prior four quarters, $1.3 million lower than the first quarter of 2024, and consistent with the fourth quarter of 2024. Interest income decreased by $1.6 million from the first quarter of 2024 and by $2.2 million from the fourth quarter of 2024. The decrease from the fourth quarter was primarily due to an increase in investments on non-recurral status and a decline in interest rates on floating rate debt investments, primarily resulting from decreases in benchmark index rates, partially offset by higher average levels of income producing debt investments. Dividend income for the first quarter increased by $2.7 million from a year ago and increased by $2.4 million from the fourth quarter. The increase in dividend income from both prior year and prior quarter was primarily due to increase in dividends from the lower middle market equity investments. Have we previously discussed dividend income will fluctuate quarter to quarter based on the underlying performance, cash flows, and capital allocation activities of the funds portfolio companies? Fee income for the first quarter decreased by $1.8 million from a year ago and decreased by $0.4 million from the fourth quarter. The decrease in fee income from both the prior year and the fourth quarter was primarily due to a decline in exit prepayment and amendment fees related to investment activity. The funds expenses for the first quarter decreased by $3 million from the prior year and decreased by $2.8 million from the fourth quarter of 2024. The $2.8 million decrease from the fourth quarter was primarily driven by a $1.3 million decrease in interest expense, a $1.1 million decrease in incentive fees, and a $0.4 million decrease in base management fees. The decrease in interest expense from a year ago was primarily due to a decrease in weighted average interest rates on the funds credit facilities based upon the decline in benchmark market index rates and reductions to contractual spreads, partially offset by an increase in weighted average borrowings used to fund a portion of the growth of the investment portfolio. The reduction in incentive fees reflects the transition to the amended advisory agreement effective upon the listing of the funds shares on the New York Stock Exchange on January 29, 2025. The funds expense ratio calculated as the funds total operating expenses, net of any waivers, and excluding interest expense as a percentage of the funds average total assets was .6% on an annualized basis for the first quarter compared to .4% for the prior year and .2% for the fourth quarter. The decreases were primarily due to changes to the incentive fees and base management fee under the amended advisory agreement after the listing on January 29, 2025. Excluding incentive fees, the funds expense ratio was .9% on an annualized basis for the first quarter, a decrease from .2% in the prior year and .1% in the fourth quarter. Following the funds listing, the advisory agreement was amended to, among other things, reduce its annual base management fee from .75% to .5% with an additional future contractual reductions based upon changes to the funds investment portfolio composition and reduce the NII incentive fee from 20% to .5% subject to a unique 50-50 catch-up feature. The funds NII in the first quarter was $16.8 million or $0.38 per share, increasing from $14.5 million or $0.36 per share from the prior year. During the quarter, the fund recorded a net decrease in fair value of its investments of $2.3 million, representing the combined impact of $21.1 million of net realized losses, partially offset by $18.8 million of net unrealized appreciation. The net fair value decrease was attributable to decreases of $4.3 million in the private loan portfolio and $2.3 million in the middle market portfolio, partially offset by an increase of $4.3 million in the lower middle market portfolio. Overall, the funds operating results for the first quarter resulted in a net increase in net assets of $15.9 million and an NAV per share of $15.35, an 18-cent decrease from year end. As of quarter end, the fund had non-accrual investments comprising .8% of the total investment portfolio at fair value and .1% at cost. As of quarter end, the funds regulatory asset coverage ratio was 2.26 and its net debt to NAV ratio was 0.74. This remains below the funds targeted leverage levels, primarily due to the proceeds received in connection with the follow on equity offering completed in January in connection with the listing. In addition to the equity offering in January, the fund took several actions to strengthen its debt capital structure during the quarter, including an amendment of its corporate facility to increase total commitments by $80 million and an amendment of its SPV credit facility to reduce the interest rate spread by 80 basis points and extend its maturity date by two years to 2030. As Duane mentioned, the funds focus remains on achieving and maintaining a fully invested portfolio within its current leverage limits through January 2026, at which point the fund will benefit from expanded regulatory leverage capacity as previously approved by the funds board in January 2025. With that, I will now turn the call back 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 one on your telephone A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. We ask that analysts limit themselves to one question and a follow up so that others may have the opportunity to do so as well. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. A moment, please, while we pull for questions. Our first question comes from Mark Hughes with Trues Securities. Please proceed with your question.

Yeah. Good morning. Thank you. I know it's early, the post-liberation day, maybe the unwinding of that perhaps. But do you think with the recent events, you might see an uptick in activity perhaps sooner than you might have thought a week or two ago?

Sure, Mark. I'd say that from my standpoint, it's probably too early to tell. Obviously, the events over the weekend change things fairly significantly, but I think right now it looks like it's still a temporary change. There's a 90 day window for continued discussions and negotiations. So I think net-net it's a positive, but I would say if we see here today, probably not significant enough of a positive to have a meaningful impact. But I'll let Nick and David add on if they have a different view or opinion on it.

No, I think it's the same thing. I think it's a positive, but it's still temporary and really TBD on how long that lasts and how quickly it can move.

Clearly, Mark, I think we view it as a positive. We just hopefully see additional progress from here forward because the longer term resolution to the matter is really going to be the driver from our standpoint, just trying to take that uncertainty out of the marketplace so that activity can resume to normal.

Yeah. Okay. And then latest thoughts on leverage, how you might see that progressing through the year, I guess it's a related question, what happens in terms of the capital markets, but any updated thoughts on the leverage trajectory?

Sure. So I'll give a couple of quick comments. I'll let Corey add on anything that he wants to add on, but I think the biggest driver in the funds ability to get to its leverage targets, obviously we're very, focused on deploying capital, deploying the liquidity, both that we received through the equity offering and also the additional leverage capacity that was provided to the fund, given that equity raise and then the activities we've completed since then to expand leverage capacity or availability. I think the biggest driver in the fund getting to its leverage targets over the next couple of quarters really is going to be the overall marketplace, the uncertainty we just talked about and the receptiveness of private equity sponsors to be active. McCoury is going to give me any additional updates there?

Sure. You know, we came in at the leverage of 0.79 at the end of March. That's below our target. Primarily that was driven due to the IPO proceeds we received in January as we try to redeploy them, we try to be working at our leverage targets that's anywhere between 0.85 and 0.95, but we won't work to the high end of that target range until we get closer to next January.

Just as a reminder, Mark, I think you likely recall this, but the benefits of the listing and the equity offering, one is you got the immediate additional liquidity from the equity proceeds. You know, you get a benefit of one time that from a debt capacity, but just as a reminder, the board subsequent to the listing voted to adopt the expanded leverage. So at the end of January of 2026, you know, the funds leverage capacity will expand significantly in line with where you see most of the other BDCs in the externally managed model, where you see them execute from a leverage capacity standpoint.

Thank you very much. Thank you, Mark.

Our next question comes from Haley Schest with the Raymond James. Please proceed with your question.

Hi, good morning. Thanks for the question. Just a quick one on M&A based on your conversation with private equity users. Any sense on when M&A recovery will be happening? Do you feel like it's back in 2025 or further out in 2026?

Yeah, so I think if I heard your question correctly,

it was around M&A. I think when we look at it, we continue to believe that there should be a fair amount of pin up demand, both from the fact that private equity funds in general, you have a fairly significant amount of liquidity that's available. The M&A marketplace as a whole, which I'm sure you've heard this from everybody that you've talked to, the M&A overall has been a little bit subdued for the last couple of years. I think as you likely heard from us last conference call, our last quarter, we were expecting significant amount of activity in 25. So I do think that whenever there's a resolution, a long term resolution to the current tariff situation, I think there continues to be a significant amount of capital that's available, significant amount of pin up demand in the overall marketplace. They should drive significant amounts of activity. We just have to get through the current situation, get some resolution, get some of the uncertainty out of the marketplace, so we can see the markets from an M&A and an investment standpoint, resume to more of a normal operating situation.

But that'd be our view on our side.

Perfect. Thank you so much.

Thank

you.

As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. Our next question comes from Kenneth Lee with RBC Capital Markets. Please proceed with your question.

Hey, good morning. Thanks for taking my question. Just staying on the topic of the private loans and then within the pipeline there, could you talk about what you're seeing in terms of spreads on new investments and just given all the market dynamics, where do you think they could trend over the near term there?

Thanks. Sure. Good morning, Ken. Thanks for the question. I'll give some initial comments. I'll let Nick add on. But I think when you look at spreads and I'll kind of give a little commentary going back a little bit further, I think if you looked at spreads clearly second half of 24, there was some downward pressure on spreads just from a competitive, dynamic standpoint. I think that was something you definitely saw in the upper middle market. You also saw it to some extent in our part of the marketplace. I think you started to see that downward pressure start to flatten out a little bit or stabilize. I think here more recently post-liberation day, I think we've seen it continue to be stable. I think our expectation is that some of those spreads would actually start to widen a little bit, just acknowledging the uncertainty and the heightened level of risk that's in the marketplace. But honestly, when you look at the investment activity, it has been muted for all the reasons we just talked about. A lot of our existing activity, both here recently and in the pipeline, is more follow-on or add-on investments to existing positions. So you don't see as much of a clear read-through to the market in terms of where spreads are going. I think things are stabilized. But as you continue to see market uncertainty and higher risk, I think in general, you would expect to see your spreads to be a little bit wider. But that's my quick comments. I'll let Nick add on anything else he has.

I've got to agree with that. We're expecting to see kind of flat spreads with some potential widening, depending on where the stabilization goes here the next six to 12 months. But like Duane said, we've really seen it tighten up over the last 12 months. That's really flattened out to the

last 30 to 60 days.

Great. Very helpful there.

And just one follow-up, if I may, just in terms of the dividend income from the portfolio, and I realize that it could fluctuate from quarter to quarter. But any line of sight over the next few quarters in terms of how dividend income could trend?

Thanks. Sure, Ken. So the dividend income

is always going to be the piece that is going to be the biggest variable. Obviously, it's not contractual, like interest income would be on loans. So it really is much more directly tied to the actual performance of the portfolio companies. And then secondarily, their decisions on capital allocation. Do they have reasons to deploy that capital back into the business, either for organic or acquisition growth activities? So there's a lot of variables there. But as you've heard us say in the past and as we said late last week on the Main Street Capital Corporation Conference call, the lower middle market portfolio as a whole continues to perform very well. And that's despite the current uncertainty. Maybe in today's environment, there are less opportunities to invest back into the business from an acquisition standpoint for all the reasons that we talked about. So we've seen significant amounts of dividend income contributions from those high performing lower middle market portfolio companies. And at least based upon the current dialogue we've been having with those companies, we expect that to continue to be the case in the second quarter. Obviously, longer term, Q3 and Q4, it's going to come down to the overall economy and specifically how our portfolio companies are performing. But as we sit here today, we continue to feel pretty good about it.

Great, very helpful there. Thanks again. Thank you, Ken.

Our next question comes from Doug Harter with UBS. Please proceed with your question.

Hi, this is actually Corey Johnson for Doug. Morning, Doug. So it looks like, good morning. So we're seeing a lot of real-life losses in the middle market portfolio. I guess, like, what can we expect maybe in terms of the, in regards to the pace of decline in the middle market portfolio and the potential for additional realized losses, sort of like what kind of goes into the decisions when determining how when to exit the middle market portfolio position? Sure, Corey. So I'll get a couple

of comments. I'll let Nick again add on anything on his side. I'd say in the first quarter, the realized losses that we had, which is, as you said, were concentrated in the middle market portfolio. They were also concentrated really in two larger, kind of longer term, historical underperforming mains, the largest of which I think had been written down almost to zero fair value for a long time, several years. So it's not something that had deteriorated here in the most recent quarter and definitely hadn't even really deteriorated over the last 12 months or so. When you look at the middle market, just as a reminder, we historically were in that marketplace, we made the decision strategically to exit it because we were not seeing the net returns over the investments we were making in that strategy, not just from a current income standpoint, but from a net return after impairments and realized losses. So we decided five, six years ago, maybe seven years ago actually now to get to exit that business and have been continuing to do so to the point that MSD income funds exposure to the middle market is de minimis now, less than 3%, might be less than 2% at the top of my head. But anytime you're winding down a portfolio, as I think you would expect, the A students, B students, they either graduate earlier or they graduate on time. So as you kind of go through this process, you end up with the investments that either have decided to stay with the current facility for a long time or they don't have a choice, they've underperformed and as a result, the investment's going to sit out there. And I'd say that definitely was the case with the two realized losses we had in the quarter. But we continue to decrease that portfolio to the point that it's very small now. We feel good about our fair value marks, but obviously the ultimate resolution of those portfolio companies' performance and our investments in them, some of which will be driven by the overall economy, it'll be lumpy as we exit those positions and either have good outcomes, get our money back or have a good recovery or have less optimal outcomes, you could see more realized losses. But I think the thing that I would point out on my side is that we feel good about where the fair value marks are. And even when you see the realized loss, it's not really having a big MAP impact. We're just realizing the prior unrealized depreciation. But Nick, feel free to add on.

The other thing I'd add there is that the main one of those was really just when the legal and tax restructuring could be taken. And so like Duane said, that the fair value on both those are really taken a year or two or three before this. And so really just when we could legally take the restructuring

and book the full loss.

Thanks. And then I guess just similarly, regarding the lower middle market portfolio, you know, I guess the you guys are still making follow on investments into that. But over time, that's supposed to, I guess, wind down as well. So I guess, like, how are you thinking in regards to the exits from low middle market positions? Is that more just going to be, you know, as some of those companies have exit events? Or would you be a little bit more active at times in terms of winding down some of the positions in there as well?

Yeah,

I'd say that we we view the lower middle market existing investments that the fund has. We view those to be very significant positives. So I think the ultimate resolution of the lower middle market portfolio declining over time and then eventually being zero, it's going to take a long time. We look at the Main Street lower middle market strategy as one that is a long term to permanent strategy. It won't be permanent because our partners in those businesses, which, again, are the management teams, the individual owner operators of the business, they will ultimately decide what the what the exit plan timing and event is. We're just going to be as good a partner for those companies and those individuals as we can be. But we don't control the outcome. We're typically a significant or a meaningful equity investor, but we're not control. The control is maintained by the individual owner operator in most situations. So we think it's going to be a long tail. Obviously, the portfolio as a percentage of the overall portfolio would decline over time because for the for all intents and purposes, the lion's share of new capital will be deployed into the private loan strategy. But we will periodically have some some opportunities to have add on or follow on investments in those lower middle market companies. And when we have those opportunities, you know, I would say we're going to embrace them because they typically end up being very attractive, very significant value creation events or opportunities. But it's really, really difficult to predict the timing just because one, we're not in control and because we do try to provide a long term to permanent solution to the companies that

we invest in. So hopefully that gives you a little color there. Thank you. Thank you.

This now concludes our question and answer session. I would like to turn the floor back over to management for closing comments.

We want to say thank you again, everyone, for joining us this morning. We appreciate the continued support of the fund shareholders and we look forward to our next update call in early August

after the release of the fund results for the second quarter.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.