MSC Income Fund, Inc.

Greetings and welcome to the MSC Income Fund Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow a 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.

Thank you, Operator, and good morning, everyone. Thank you for joining us for MSC Income Fund's fourth quarter 2025 earnings conference call. Joining me with prepared comments are Dwayne Hijak, Chief Executive Officer, David Magdolf, President and Chief Investment Officer, Nick Meserve, 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 fund's fourth quarter and full year financial and operating results. This document is available in the investor relations section of the fund's website at mscincomefund.com. The replay of today's call will be available beginning an hour after the completion of the call and will remain available until March 6th. Information on how to access the replay was included in yesterday's earnings release. I also advise you that this conference call is being broadcast live to the internet and can be accessed on the fund's homepage. Please note that information reported on this call speaks only as of today. February 27, 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 may 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 fund's filings with the Securities and Exchange Commission, which can be found on the fund's website or at sec.gov. The SEC Income Fund 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 Adjusted Net Investment Income, or ANII. ANII is net investment income, or NII, as determined in accordance with U.S. generally accepted accounting principles, or GAAP, excluding the impact of the capital gains incentive fee. The MSC Income Fund believes presenting ANII and the related per share amount is useful and appropriate supplemental disclosure for analyzing the fund's financial performance since the calculation of the capital gains incentive fee is based on realized gains and losses and unrealized fair value appreciation and depreciation. none of which are included in NII. These refer to yesterday's press release for 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. The Missing Income Fund defines ROE as the net increase in net assets resulting from operations divided by average quarterly NAV. As a reminder, the fund effectuated a two-for-one reverse stock split on December 16, 2024. All per-share amounts, share data, related information discussed on this call today 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. Now I'll turn the call over to MSC Income Fund CEO, Dwayne Ejok.

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone's doing well. On today's call, we will provide you with the fund's key quarterly updates. We're also providing a few updates on the fund's performance for the full year. Following our comments, we'll be happy to take your questions. We're very pleased with the fund's performance in the fourth quarter, which resulted in a return on equity of 16.3%, favorable adjusted net investment income per share, and a significant increase in the fair value of the fund's investments, including the benefits of net realized gains in both the fund's private loan and lower middle market portfolios, which resulted in a significant increase in NAV per share. The fund also produced favorable investment activity in the fourth quarter, which generated meaningful growth of its investment portfolio. After the fund's positive performance in the first three quarters of 2025, the fund's strong performance in the fourth quarter resulted in an ROE of 12.5% for the full year and pre-tax adjusted NII per share in excess of the fund's total dividends paid. Based upon the quality of the fund's existing investment portfolio, combined with the fund's expanded regulatory leverage capacity, which became effective at the end of January, 2026, and which provides the fund significant capacity to add additional debt to fund the future growth of its investment portfolio, and the current attractive pipeline of new private loan investment opportunities, we remain excited about the future expectations for the fund. We are also confident that the fund's sole focus on its private loan strategy with respect to new portfolio company investments and the growth of recurring interest income from such debt investments, together with the fund's contractual future-based management fee reductions as the fund's lower middle market investments decrease as a percentage of its total investment portfolio, will strengthen the fund's ability to deliver attractive recurring dividends and favorable total returns to the fund shareholders in the future. Fund-generated adjusted net investment income, or ANII, which is NII excluding the impact of the capital gains incentive fee of $0.34 per share on the quarter, or $0.37 per share on a pre-tax ANII basis. These results, combined with our positive outlook for the future, resulted in our most recent dividend announcements, which I will discuss in more detail later. The fund finished the quarter with NAV per share of $15.85, a $0.31 increase from the prior quarter, and we continue to be pleased with the performance of the fund's investment portfolio, including both the private loan and lower middle market portfolios. Corey will discuss our financial results in more detail. Consistent with our guidance last quarter, the fund's private loan investment activity in the fourth quarter returned to our expected normal level of quarterly activity, and resulted in a net increase in private loan investments of $57 million. The fund remains highly focused on executing new investment opportunities that are consistent with its historical private loan investments as we work to grow the fund's investment portfolio. Consistent with my comments last quarter, we're pleased that the fund successfully exited two private loan portfolio equity investments in the fourth quarter, with these activities resulting in total realized gains of $16 million, or 34 cents per share, both at meaningful premiums to the fund's third quarter fair values. The fund is also focused on maximizing the benefits from its legacy lower middle market investment portfolio and recycling this existing capital into private loan investments as investments are exited or repaid. As part of these activities, the fund fully exited its investments in one high-performing lower middle market portfolio company, Mystic Logistics, in the first quarter, resulting in a $6 million realized gain. We also continue to see significant interest from potential buyers in several of the fund's lower middle market portfolio companies, which we expect will lead to additional favorable realizations over the next few quarters. The fund also continues to benefit from attractive follow-on investments in existing lower middle market portfolio companies, which we believe are beneficial to both current investment income and future value creation. Nick and David will cover the fund's investment activity in more detail. Based upon the fund's results for the quarter and its future outlook, Earlier this week, the fund's Board of Directors declared a regular quarterly dividend of $0.35 per share and a supplemental dividend of $0.01 per share, both of which are payable on May 1, 2026 to shareholders of record as of March 31, 2026. Going forward, the fund expects to continue to maintain a dividend policy that provides for its total quarterly dividends, which are expected to include a regular quarterly dividend and a supplemental dividend. to be set at a level generally consistent with the fund's pre-tax ANII per share. Based upon the total dividends payable on May 1st and the current stock price, the fund is currently providing its shareholders a dividend yield of 11.5%. As we look forward to the fund's near-term investment activities, as of today, I would characterize the private loan investment pipeline as above average. We're excited about the current pipeline of new investment opportunities and follow-on investment opportunities in existing portfolio companies. and we remain confident in our ability to generate attractive new private loan investment opportunities and grow the fund's investment portfolio over the next several quarters. My last few comments are reminders of the continued support the fund has received from Main Street Capital Corporation. Main Street's wholly owned subsidiary was appointed the sole advisor to the fund in October 2020. Main Street has purchased over $27 million of the fund's common stock. In junction with the fund's equity offering in January 2025, Main Street 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 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 $65 million 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. Through today, Main Street has purchased over $5 million, and the fund has repurchased over $18 million under these plans. 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, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we are pleased with the performance of the fund's private loan investment portfolio in the fourth quarter, which represents the largest portion of the fund's investment portfolio and which, as a reminder, is now the fund's sole focus with respect to new portfolio company investments. The overall operating performance for most of the fund's private loan portfolio companies continue to be positive, which contributed to the fund's favorable fourth quarter financial results. As we previously noted, over the past few years, the fund has seen softness in certain private loan portfolio companies within the consumer space. We have been and are working on maximizing recoveries on those specific investments over the next few years. One of the favorable realized exits in the fourth quarter that Duane mentioned was a previously restructured portfolio company with consumer exposure. Due to the significant efforts and successes of that portfolio company's management team, the hard work of our team, and the patience to work through a difficult situation, we ended up with a positive outcome. We expect and hope to have similar outcomes on several previously restructured investments in the future. The fund also benefited from a realized gain of $13.5 million from the exit of one of its equity investments in a private loan portfolio company in the fourth quarter, which illustrates the opportunity that can be available in the future from these equity co-investments. Given the current economic uncertainty that exists across certain parts of the economy, we are diligently working to stay in front of the fund's portfolio companies to understand their exposures to changing environments. To date, based upon these ever-evolving discussions, we are comfortable with the future outlook for the portfolio. At quarter end, 92% of the private loan portfolio was comprised of secured debt investments, over 99% of which were first lien and 96% of which were floating rate loans. The portfolio had an attractive weighted average yield of 10.7%, which was down 130 basis points from the end of 2024, primarily as a result of decreases in the SOFR rates for these floating rate debt investments. but we're also starting to see the tighter spreads on new investments start to bring down the portfolio average. During the fourth quarter, the fund invested $101 million in the private loan portfolio, which, after aggregate investment activity, resulted in a net increase of $57 million. The fund ended the fourth quarter of investments in 81 private loan portfolio companies, totaling $809 million of fair value and representing 61% of the fund's total investment portfolio at fair value. As Duane mentioned, our private loan pipeline is above average. continue to see increasing private equity activity, and that is delivering both good new origination levels and replenishing the pipeline. 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. As a reminder, 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. After the listing of the fund shares on New York Stock Exchange in January of 2025, the fund no longer makes investments in new lower middle market portfolio companies, but continues 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 the fund's lower middle market portfolio companies continues to be positive, which contributed to the attractive fourth quarter financial results. These contributions included both strong dividend income and continued fair value appreciation. During the fourth quarter, the fund completed $23 million in total lower middle market follow-on investments, which after aggregate investment activity resulted in a net increase in the lower middle market portfolio of $15 million. At quarter end, the lower middle market portfolio had investments in 55 portfolio companies, totaling $488 million of fair value and representing 36% of the fund's total investment portfolio. The lower middle market portfolio at fair value was comprised of 53% debt investments and 47% equity investments. 99% of these debt investments were first lien loans, and they had an attractive weighted average yield of over 12%. The fund had equity ownership positions in all of its lower middle market portfolio companies, representing an 8% 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 investments. As Duane mentioned, we continue to see significant interest from potential buyers in several of the fund's lower middle market portfolio companies, which we expect will lead to favorable realizations and additional fair value appreciation over the next few quarters. A great recent example of the benefits of these portfolio companies can provide is the recent exit of the fund's investment in Mystic Logistics in the fourth quarter. This exit resulted in a realized gain of $6 million. Also notable is the fact that Mystic Logistics paid total dividends to the fund of $5.5 million over the life of the investment. During the fund's total investment portfolio as of December 31st, the fund continued to maintain a highly diversified portfolio with investments in 144 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 4% of total investment income for the year ended December 31st, with most of the portfolio investments representing less than 1% of the fund's income and assets. With that, I'll 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 fourth quarter was $34.9 million, an increase of $1.5 million, or 4.4%, from the fourth quarter of 2024 and a decrease of $0.5 million or 1.3% from the third quarter. Fourth quarter included income considered less consistent or non-recurring in nature of $1.9 million. As we've previously discussed, these non-recurring 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 fourth quarter, these items were $0.9 million higher than the average of the prior four quarters, $1.1 million higher than the fourth quarter of 2024, and $0.6 million higher than the third quarter. Dividend income for the fourth quarter increased by $2.6 million from a year ago and by $1.7 million from the third quarter. The increase in dividend income from both the prior year and the third quarter was primarily due to an increase in dividends from lower middle market equity investments and included $1.2 million of non-recurring items. As we previously discussed, dividend income will fluctuate quarter to quarter based on the underlying performance, cash flows, and capital allocation activities of the fund's portfolio companies and certain non-recurring items. Interest income for the fourth quarter decreased by $0.8 million from a year ago and by $1.3 million from the third quarter. The decrease in interest income from both the prior year and the third quarter was principally attributable to a decrease in interest rates, primarily resulting from decreases in benchmark index rates on floating rate debt investments and an increased negative impact from investments on non-accrual status. partially offset by the growth of the investment portfolio. Fee income for the fourth quarter decreased by $0.3 million from a year ago and by $0.9 million from the third quarter. The decrease in fee income from both the prior year and the third quarter was primarily due to the refinancing and prepayment of debt investments. Funds expenses net of waivers for the fourth quarter increased by $1.3 million from the prior year and by $2.2 million from the third quarter. These increases were primarily driven by a $2.8 million capital gains incentive fee accrued in the fourth quarter of 2025. This accrual was partially offset by a $1.2 million decrease in interest expense and a $0.4 million decrease in base management fee from the prior year and a $0.5 million decrease in general and administrative expenses, and a $0.3 million decrease in interest expense from the third quarter. The capital gains incentive fee accrual is primarily the result of the significant net fair value appreciation of the fund's investments since the listing and was recognized during the fourth quarter of 2025. However, this amount is not currently payable and is not expected to be payable in the near future, if ever. The decrease in interest expense from a year ago was largely driven by a decreased weighted average interest rate on the credit facilities due to a decrease in the applicable spreads resulting from amendments of the credit facilities since the fourth quarter of 2024 and decreases in floating benchmark index rates. The decrease in interest expense from the third quarter is primarily driven by a decreased weighted average interest rate in the credit facilities due to decreases in floating benchmark index rates. The fund's expense ratio calculated as the ratio of total non-interest operating expenses excluding incentive fees as a percentage of the fund's average total assets was 1.8% on an annualized basis for the fourth quarter a decrease from 2.1% in the prior year, and a decrease from 2% in the third quarter. The funds NII, excluding the impact of the capital gains incentive fee and NII-related taxes in the fourth quarter, was $17.2 million, or 37 cents per share, increasing from $14.2 million, or 35 cents per share, from the prior year. During the quarter, the fund recorded a net increase in the fair value of its investments of $17.2 million, representing the impact of $16.6 million of net realized gains and a $.5 million of net unrealized appreciation. The net fair value increase was attributable to increases of $12 million in the lower middle market portfolio and $8.1 million in the private loan portfolio. partially offset by a decrease of $3.1 million in the residual middle market portfolio. Overall, the fund's operating results for the fourth quarter resulted in a net increase in net assets of $30 million and an NAV per share of $15.85, a 31-cent increase from the third quarter and 32 cents above the fund's public offering price per share in its public offering and listing on the New York Stock Exchange. in January 2025. As of year end, the fund had investments on non-accrual status comprising 1% of the total investment portfolio at fair value and 3.9% at cost. As of year end, the fund's regulatory asset coverage ratio was 2.22 and its net debt to NAV ratio was 0.79. As Duane mentioned, The fund's focus remains on achieving a fully invested portfolio through its expanded regulatory leverage capacity, which became effective on January the 29th, 2026. With that, I will now turn the call back to the operator so we can take any questions.

Thank you. We'll 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 your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys.

One moment, please, while we poll for questions. Thank you. Our first question is from Brian McKenna with Citizens.

Great, thanks. So it was good to see the strong quarter of originations and then just kind of growth in the overall investment portfolio. Sorry if I missed this, but I'm just trying to figure out how much of the decline in interest income quarter on quarter was from lower base rates and then why we didn't see really any meaningful offsets there from growth in this portfolio. I'm assuming it's timing related, but any thoughts here would be helpful.

Sure, Brian. Thanks for the question. I'd say to the second part, it is timing. I think a lot of the investment activity was back-ended. It was in the second half of the quarter, so that's why you don't see as much of a benefit there. You did see some decline from rates, and I'd say that that was about just over half a million dollars was the decline from a SOFR movement standpoint inside the quarter.

Okay, got it. That's helpful information. And then just given the commentary on the main call around the outlook for the lower middle market portfolio and what will likely be some additional markup and realization events across that portfolio, it would seem like some of this is going to flow through to MSIS as well, similar to 3Q and 4Q. So given this dynamic and then the upside that's created in net assets from that, along with low levels of leverage today, is there an opportunity to lean in further on the buyback just so you start accruing even more NAV?

Yes, I'd say, Brian, when you look at it, the benefit or the impact to MSC Income Fund will be the same as Maine, obviously just a different allocation. Historically, Main Street had about 80% of lower middle market investments and MSC Income Fund had 20%. That's assuming they had liquidity at the time. But in general, somewhere in that area code would be the sharing between Main Street and MSC Income Fund on historical lower middle market investments. I think when you look at those proceeds, I think we'll just have to continue to look at what's the best use of that capital. Is it to provide a buyback or some other similar activity for the shareholders? Is it to pay out more dividends or is it to retain that capital? If we can do so on a tax cost efficient basis, retain that capital and grow the portfolio. So we haven't had those significant realizations come through yet. But if we see that type of activity, those will be the three things we have to weigh and determine what's the best path for the fund and for the shareholders.

Got it. Thank you, Dwayne. Thank you. Our next question is from Robert Dodd with Raymond James.

Hi. Morning, guys. Several of mine have already answered on the prior call, but I do have one here. On the MIT, I mean, you're at 36% lower middle market at the end of December. Obviously, Mystic exited. Sounds like you're expecting several more realizations from the lower middle market portfolio. So there'll be some fair value appreciation probably there. And on the other hand, growth in the private loan portfolio as well. I'm just going to pull out a crystal ball first. What do you think the odds are that you get down close to... say, 20% lower middle market by the end of this year or even the end of next year, because that's where the fee trigger changes for the base management fee. So do you, with the expectations of realizations in the low-middle market, do you think it's actually going to shift the mix significantly over the next, say, 12 to 24 months?

Sure, Robert. Thanks for the question. I'd say Similar to some of our comments in the past, I think the movement from where we are today with 36% lower middle market to being at or below 20%, that's going to take an extended period of time, and that's going to be the case for a couple of reasons. One, we think this is a huge positive for the investment portfolio. It's a very, very diversified portfolio, so there's no individual name on the lower middle market side that I would say is significant. I think the largest name we have from memory is about 3.5%. So even if you exit that, you'd have to have several of those exit, obviously trying to drop 16%, 17%. You'd have to have five or six of them exit if they were all the same size, but that's the largest. So you've got a very diversified portfolio. So as you exit these investments, it's just going to take time. I think when you look at the other factor, and Mystic is a good example, if you go back and look at the press releases, that was issued for the Mystic transaction. We did realize the exit in Mystic, but in that situation, it was a merger with a larger kind of complementary business. So as a result, the fund stayed in that investment for a part of its investment, both debt and equity, basically moved up the capital structure from a larger equity investment relative to total investment to something that was more personally senior secured debt and a smaller investment equity investment. But some of those proceeds stayed invested in that business, which is now called UBM or United Business Mail, I think is what the UBM stands for. So you'll have some of that. So sometimes when we exit our lower middle market companies, it's not a 100% full exit. You could have some rollover, a continuation in the new business. So again, like we said in the past, it's going to be a while. I'd say the biggest catalyst for bringing that percentage down is going to be less about The exits of the lower middle market investments are going to be more about the growth of the portfolio, first through the additional debt capacity that the fund has, and then after that, any other ability that we have to grow the portfolio. So the example would be XYZ company, say it's 3%, that gets proceeds, but then you take those proceeds, and to Brian's point from earlier, if you retain them as opposed to paying them out and use that retained capital to grow the business, that should get you closer to a 20%. percentage over time as opposed to paying that out and not growing the portfolio. So those would be the ways that we would look at that transition.

Got it. Thank you. Thank you, Robert. Our next question is from Kenneth Lee with RBC Capital Markets.

Hey, good morning. Thanks for taking my question. Just one in terms of the portfolio leverage there. I wonder if you could share any update outlook you might have just given the originations pipeline, given the current environment, some of the opportunities you're seeing now that you've gone past the regulatory limits there. Thanks.

Sure, Ken. Thanks for the question. Thanks for joining us. Yeah, I'd say we have the expanded regulatory leverage. We received that just with the passage of time. That happened at the end of So in conjunction with that, we obviously have to go get the leverage. It's one thing to have the capacity, but you also have to have access to it. So I'd say we've been actively working to get additional liquidity. Obviously, we haven't announced anything yet, but I think we feel good about where we sit in terms of the fund's ability to gain additional debt capacity, both secured and unsecured. We just have to go execute to it. So I think we feel good about leverage. We feel good about liquidity. We just got to have those activities get finalized and get executed.

Gotcha. Very helpful there. And just in terms of the private loan side, in terms of some of the more recent deals you've been seeing, some of the more recent investments there, I wonder if you could talk a little bit more about some of the spreads you're seeing and then what are your expectations around that go forward? Thanks.

Sure. I'll give super high level and then I'll let Nick add on additional color. I'd say you've I hear more recently, the last quarter or two, I say that our view or my view is that spreads have started to stabilize. They are less than they were 12 or 18 months ago. But overall, I think the spreads have stabilized. I think that's likely because of some of the uncertainty in the marketplace. I think a bigger factor is just the overall increase in private equity activity as a whole would be my view. But Nick, you give your views or additional color.

Yeah, I'd say since the beginning of third quarter, we've seen spreads kind of stabilize in that 5 to 550 range. I think what we have also seen is I'd say the outliers of maybe a deal at S plus 600 or 650, we're seeing less and less of those. And so really seeing a tighter band of pricing kind of in that five to 575 range on the wide end. You know, on the smaller end of deals that we focus on, we have not seen a lot of crossover to the 475. I think from a cost of capital perspective in the industry, once you dip below that, it gets tougher. And so I think we'll hopefully see that, you know, continue into 2026 and like we would expect kind of a flattish year on spreads in that five, five 50 range.

Great. Very helpful. Thanks again. Thanks again. Our next question is from Aaron with Truist Financial.

Thanks. I was wondering if you'd just provide a little detail on, you know, how the underlying portfolio companies are doing in general, what you're seeing in terms of revenue, EBITDA growth, trends you're seeing for the portfolio overall?

Yeah, Aaron, thanks for the question. I'd say we, in both the lower middle market and the private credit, I would say we're seeing consistent good performance, nothing significant one direction or another in terms of significant outperformance or underperformance. Obviously, having a big diverse portfolio is you're always going to have some companies that are outperforming and others that are not performing in the way that we would want them to or where we expected them to. But overall, I wouldn't say there's been anything that is a significant change over the last couple of quarters in either direction. David, Nick, if you guys have a different view or anything you want to add. Nothing there.

Thanks. And then on the LMM portfolio kind of coming down over time, can you remind me if What's the plan long-term? Is there always going to be some element of LMM? I mean, I see that as personally view the LMM portfolio as a net positive given the history you've had in terms of equity realizations with a lot of those investments.

Yeah, and I'd say the plan there is that eventually, I just don't know when eventually is, could be 10, 15, 20 years, eventually lower middle market As it sits today, it will eventually get to a very, very small amount and eventually zero. And the reason I say that is because the fund strategy after the listing at the end of January of 2025 is that it will not make any new lower middle market investments. It will continue to support and participate in any add-on or follow-on investments in existing companies, just like we talked about related to Mystic and UBM. We have also had a number of companies in the fourth quarter and first quarter that have had follow-on investment opportunities, and the fund is going to participate in those on a pro-rata basis with Main Street. So because of that, it's going to take a long time, but eventually, even though we have a permanent holding period ability on our side at MSC Income Fund and at Main Street, our partners typically don't. They're individuals. They're going to age out. They're going to want to retire. In certain situations, their management team might be able to buy them out and give them full liquidity, but Most situations, that likely results in a transaction where the company is sold to a third party in most situations. So that's going to be the driver. It's just going to take a long time. I think longer term, we view that as a positive for the fund. The fund's goal is to produce a very consistent, well-covered dividend, covered by recurring interest income. So as you have investments in the lower middle market that have a mix of debt and equity, as they get repaid, exited, and we take those proceeds and deploy them into first lien senior secured private loan investment opportunities. One, you're moving up the capital structure from a risk standpoint. You're also generating more consistent contractual predictable income. So we think that's consistent with the fund's plan, and that is our expectation or our intent. Longer term, and this is do not have anything planned here, but longer term, Main Street's always looking for different avenues or opportunities to create value from an investment standpoint. There's nothing that Main Street is doing today. But if Main Street as a platform decides to enter into a new strategy that we think is attractive for Main Street, you know, then we would offer that, you know, to MSC Income Fund. We have to have an agreement with the MSC Income Fund board. But if it was attractive to Main Street, I would, you know, bet that it's, you know, there's a good chance it's attractive to MSC Income Fund as long as it's supportive with the fund's goal, as I said earlier, with producing a very consistent, well-covered, you know, kind of highly predictable dividend. So I think, You could see something else change, but longer term, as we sit here today, it's more status quo, and it's just going to take a while for the low-eminent market portfolio to roll off.

Thank you. You're welcome. Our next question is from Doug Harder with UBS.

Thanks. Mindful of your prior answer about needing to get the leverage facilities, can you just remind us what the target leverage is?

Thanks for your question. Yeah, our target leverage under the new expanded regulatory leverage range is going to be 1.15 to 1.25 debt to equity.

And do you expect that to change as, you know, kind of as the mix shifts away from lower middle markets? Just, you know, how should we think about the inherent leverage of the two strategies?

I would say, as we sit here today, I would not expect it to change. I think we always want to have some reasonable amount of flexibility and liquidity. So I think, you know, if you start going above that, just from our perspective or my perspective, I think it starts getting tight. So I think that, you know, that 115 to 125 is probably a pretty good range. I think as you have the portfolio migrate from lower middle market to private loan, that's when you probably move up inside of that range. But as we sit here today, I would not expect us to go above that range.

Great. Appreciate the answer. Thank you.

Our next question is from Mickey Schleen with Leidenberg Thalmann.

Yes, good morning, everyone. Dwayne, your software allocation at about 7%, it's not particularly high, but it is meaningful. So I'd love to hear what your thesis is on the impact of AI on these companies and how have you been underwriting investments in those companies over the last couple of years?

Sure, Mickey. Thanks for the question and thanks for joining us. As you said, the funds, exposure to software, is very limited, kind of that mid-single-digit type percentage. Inside of that, and you've probably heard us say this before, just given your longer-term history with Main Street over the years, we as a platform are very much value-based or value-focused investors. So software, particularly high-growth software, think about some of the stuff you hear about in the industry, ARR-type loans or Loans, we expect a bunch of growth before the loan can be serviced from a desk service standpoint. Those are things that just don't fit our profile. They never have, and they don't today. So that's why when we look at our exposure here, even though we've got kind of a mid-single-digit type percentage exposed to software, we think those software names are pretty well protected. Obviously, they and we are talking about their exposures to AI, but as we sit here today, we're not – There's nothing there that we're overly concerned about. Nick, if you want to add any additional color there, any different takes on it.

Like Dwayne said, we just didn't really focus. We haven't historically focused on, I'd say, high growth in the software space, and we won't do that going forward. So I think our exposure we do have there is a little less exposed or we're a little insulated from some of the AI boom as there's just less growth there. I think we've focused a little more on infrastructure software versus pure growth SaaS software.

So when you refer to infrastructure software, are you referring to sort of enterprise-level software that's really ingrained into the portfolio company's operations?

Yeah, to that degree. I think a lot of times there'll be a different moat they might have where it's more of a niche software for a very specific industry. Those, I think, would be less impacted by AI as you go forward. They eventually will have that impact, but I think that's where we focus historically.

Okay, thank you for that. Those are all my questions this morning. I appreciate your time.

Thank you, Mickey.

Thank you. This concludes our question and answer session. I would now like to hand the floor back to management for any closing remarks.

We just want to thank everyone again for joining us this morning. We appreciate the continued support of the fund shareholders, and we look forward to our next update call in May after the release of our results for the first quarter. Thank you.

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