Q1 2025 MidCap Financial Investment Corp Earnings Call

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Operator: Good morning and welcome to the earnings conference call for the period ended March 31, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the star 2.

Speaker Change: Good morning, and welcome to the earnings Conference call for the period ended March 31, 2025 for mid cap financial investment Corporation.

At this time, all participants have been placed in a listen only mode. The.

Speaker Change: The call will be opened for a question answer session. Following the speakers prepared remarks.

Speaker Change: I'd like to ask a question at that time simply press star one on your telephone keypad. If you would like to withdraw your question press the star two.

Elizabeth Besen: I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation.

Speaker Change: I will now turn the call over to Elizabeth Besen Investor Relations manager for Midcap Financial Investment Corporation.

Speaker Change: Thank you operator, and thank you everyone for joining us today. We appreciate your interest in Midcap Financial Investment Corporation speaking on today's call are Tanner Powell, Chief Executive Officer, Ted Mcnulty President.

Elizabeth Besen: Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President. and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, is on the call and available for the Q&A portion of today's call.

Speaker Change: And Greg Hunt, Chief Financial Officer, Howard, where dry executive Chairman is on the call and available for the Q&A portion of today's call I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of Midcap financial investment Corporation and that any unauthorized broadcast in any form is strictly prohibited information about the audio replay of this call is avail.

Elizabeth Besen: I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release.

Speaker Change: In our press release.

Elizabeth Besen: I'd also like to call your attention to the customary Safe Harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law.

Speaker Change: I'd also like to call your attention to the customary safe Harbor disclosures in our press release regarding forward looking information today's conference call and webcast may include forward looking statements you should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward looking statements. We make we do not undertake to update our forward looking statements or projections unless required by law.

Elizabeth Besen: To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance.

Speaker Change: To obtain copies of our SEC filings. Please visit the Sec's website at Www Dot S. E C dot gov or our website at www Dot mid cap financial IC Dot Com I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance.

Elizabeth Besen: Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland.

Speaker Change: Throughout today's call, we will refer to mid cap financial investment Corporation, that's either M. F I C or the BDC and we will use midcap financial to refer to the lender headquartered in Bethesda, Maryland at this time I'd like to turn the call over to Tanner Powell unless Ice's Chief Executive Officer. Thank you Elizabeth Good morning, everyone and thank you for joining us for <unk> first.

Tanner Powell: At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer. Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's first quarter earnings conference call.

Speaker Change: Quarter earnings Conference call I'll begin today's call by providing an overview of M. A c's first quarter results and sharing our perspective on the current volatile and evolving market environment.

Tanner Powell: I will begin today's call by providing an overview of MFIC's first quarter results and sharing our perspective on the current volatile and evolving market environment.

Tanner Powell: I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio, including some comments on the impact of tariffs.

Speaker Change: And then turn the call over to Chad, who will discuss our investment activity and provide an update on the investment portfolio, including some comments on the impact of tariffs. Greg will then review our financial results and capital position in more detail yes.

Tanner Powell: Greg will then review our financial results and capital position. Yesterday, after market close, we reported solid first quarter results, including a healthy level of earnings and strong portfolio growth, with net investment income, or NII, per share of $0.37 for the March quarter, which corresponds to an annualized return on equity, or ROE, of $9.85. Gap net income per share was $0.32 for the quarter, which corresponds to an annualized ROE of $8.75. NavPershare was $14.93 at the end of March, down $0.05, or approximately $0.30. Nav4Share benefited by approximately one cent from stock repurchases below NAV made during the quarter.

Speaker Change: Yesterday after market close we reported solid first quarter results, including a healthy level of earnings and strong portfolio growth with net investment income or NII per share of 37 for the March quarter, which corresponds to an annualized return on equity or ROE of nine 8%.

Speaker Change: GAAP net income per share was 32 cents for the quarter, which corresponds to an annualized Roe of eight 7%.

Speaker Change: NAV per share was 14 93 at the end of March down five cents or approximately 30 basis points.

Speaker Change: NAV per share benefited by approximately one cent from stock repurchases below NAV made during the quarter, we continue to observe stable credit quality trends in our portfolio during the quarter. We saw sequential improvements in several credit metrics, including a decline in investments on nonaccrual status and a decline in pik income and a decline in the weighted average leverage of our borrower.

Tanner Powell: We continue to observe stable credit quality trends in our portfolio. During the quarter, we saw sequential improvements in several credit metrics, including a decline in investments on nonaccrual status, a decline in PIC income, and a decline in the weighted average leverage of our borrowers. MFIC has built a well-diversified portfolio of true first-line, floating-rate, direct corporate loans invested in less cyclical industries with granular positions. At the end of March, 99% of our direct origination portfolio was first lane, and our average direct lending position was approximately 13.1 million, or 0.5% of the total direct lending portfolio. These figures are at fair value.

Speaker Change: Yes.

Speaker Change: And in fact, she has built a well diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical industries with granular position sizes at the end of March 99% of our direct origination portfolio was first lien and our average direct lending position was approximately $13 1 million or 5% of the total.

Speaker Change: Direct lending portfolio. These figures are at fair value. We believe the current uncertain and evolving environment will showcase the advantages of <unk> portfolio of construction and the strength of midcap financials underwriting that said the current uncertainty stemming from the trade tariffs could pose challenges for some of our portfolio companies. Although we expect these potential.

Tanner Powell: We believe the current uncertain and evolving environment will showcase the advantages of MFIC's portfolio construction and the strength of MidCap Financial's underwriting.

Tanner Powell: That said, the current uncertainty stemming from the trade tariffs could pose challenges for some of our portfolio companies, although we expect these potential challenges to be relatively limited, as Ted will discuss later. We continue to be active in our investing and have continued to make progress deploying the capital from the mergers that closed last July. During the March quarter, MFIC made $376 million of new commitment. While we did observe some spread compression relative to last quarter's commitments, we also saw a slight decline in the net leverage of new commitments, resulting in an attractive spread per unit.

Ted McNulty: Challenges to be relatively limited as Ted will discuss later.

Ted McNulty: We continue to be active we continue to be active in our investing and have continued to make progress deploying the capital from the mergers that closed last July during the March quarter, and if I see made $376 million of new commitments, while we did observe some spread compression relative to last quarter's commitments. We also saw a slight decline in the net leverage of new commitments.

Ted McNulty: <unk> in an attractive spread per unit of leverage.

Tanner Powell: We also continue to sell certain assets acquired in connection with the mergers that do not align with our strategy and prudently deploy the proceeds along with the investment capacity generated from the mergers into first lien floating rate middle market loans originated by MidCap Financial. At the end of March, the non-direct origination assets onboarded from the mergers represented just 2% of the total portfolio fair value. While sourcing assets is generally considered to be among the biggest challenges for many market participants in this market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market and which is consistently ranked near or at the top of legal standards.

Ted McNulty: We also continued to sell certain assets acquired in connection with the mergers that do not align with our strategy and prudently deploy the proceeds along with your investment capacity generated from the mergers into first lien floating rate middle market loans originated by Midcap financial at the end of March the non direct origination assets onboard it from the mergers represented just two person.

Ted McNulty: <unk> of the total portfolio at fair value.

Ted McNulty: While sourcing assets is generally considered to be among the biggest challenges for many market participants in this market environment and if I see benefits from access to assets sourced by mid cap financial one of the largest and most experienced lenders in the middle market and which has consistently ranked near or at the top league tables.

Tanner Powell: Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. During the March quarter, MidCap Financial closed approximately $6.5 billion of commitments, which is particularly noteworthy given the overall muted sponsor M&A activity in the market.

Ted McNulty: Our affiliation with mid cap financial provides a significant deal sourcing advantage for MFC, we're fortunate to have access to the necessary origination to deploy this capital given the significant volume commitments originated by mid cap financial during the March quarter Midcap financial closed approximately $6 5 billion of commitments, which is particularly noteworthy given the overall muted spa.

Ted McNulty: Lance or M&A activity in the market.

Tanner Powell: MidCap Financial has what we believe to be one of the largest direct lending teams in the US with close to 200 investment MidCap Financial was founded in 2009 and has a long track record, which includes closing on over $136 billion of lending commitments since 2009. This origination track record provides us with a vast data set of middle market company financial information across all industries that we believe. This makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality.

Ted McNulty: Mid cap financial has what we believe to be one of the largest direct lending teams in the U S with close to 200 investment professionals Midcap financial was founded in 2009 and has a long track record, which includes closing on over 136 billion of lending commitments since 2013.

Ted McNulty: This origination track record provides us with a vast data set a middle market company financial information across all industries that we believe.

Ted McNulty: This makes our mid cap financial one of the most informed an experienced middle market lenders in the market.

Ted McNulty: Key members of my Cat Financial's management team had been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management.

Tanner Powell: We believe the core middle market offers attractive opportunities across cycles and does not compete directly with either the broadly syndicated market or the high yield market.

Ted McNulty: We believe the core middle market offers attractive opportunities across cycles and does not compete directly with either the broadly syndicated market or the high yield market.

Tanner Powell: Moving to Merck's, at the end of March, MFIC's investment in Merck's totaled approximately $185 million, representing 5.8% of the total portfolio at Fairbank.

Ted McNulty: Moving to <unk> at the end of March and <unk> investment in <unk> totaled approximately $185 million, representing five 8% up the total portfolio at fair value.

Tanner Powell: I'd like to provide an update on Merck's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022 and the imposition of sanctions, Merck's own portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS 29. In compliance with EU sanctions imposed on Russia due to the invasion, Merck's terminated the leases of those aircraft, but three were not returned and have remained in Russia. Merckx has brought legal action in the English courts seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent.

Ted McNulty: I'd like to provide an update on Mercer Merck's, Russia fleet insurance claims as a reminder, at the time of Russia's invasion of Ukraine in February 2022, and the imposition of sanctions merck's own portfolio included four aircraft on lease to Russian Airlines.

Ted McNulty: Those aircraft are held in aircraft securitization known as maps.

Ted McNulty: <unk> thousand 19.

Ted McNulty: In compliance with EU sanctions imposed on Russia due to the invasion merck's terminated the leases of those aircraft, but three were not returned an ever made in Russia. Since then.

Ted McNulty: She has brought legal action in the English courts seeking payment for those aircrafts under both the lessee reinsurance policies in its own contingent policy as mentioned on last quarter's call. We settled a portion of our contingent insurance claims with certain insurers during the first quarter. We recently reached a settlement with another insurer, bringing merck's as total proceeds to <unk>.

Tanner Powell: As mentioned on last quarter's call, we settled a portion of our contingent insurance claims with certain insurers during the first quarter. We recently reached a settlement with another insurer, bringing Merck's total proceeds to $16.5 million so far. We're currently waiting for final judgment for our remaining claims, which we expect to be made in the very near future.

Ted McNulty: $16 5 million. So far we're currently waiting for final judgment for remaining claims, which we expect to be made in the very near future as mentioned on last quarter's call marks has made substantial progress on multiple sales campaign covering the majority of the remaining aircrafts on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the very near future.

Tanner Powell: As mentioned on last quarter's call, Merck's has made substantial progress on multiple sales campaigns, covering a majority of the remaining aircraft on its fleet. We look forward to providing further updates on the process as purchase agreements are finalized. The blended yield across our total investment in Merck's was approximately 3.2% in fair value. And the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on MFIC.

Ted McNulty: The blended yield across our <unk>, our total investment in <unk> was approximately three 2% at fair value.

Ted McNulty: And the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on <unk>.

Tanner Powell: Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merck's to decline.

Ted McNulty: Assuming we are successful with our sales campaign, we expect them if ic's exposure to marks to decline in the coming quarters.

Tanner Powell: Now let me discuss current market conditions. Market conditions in the first quarter started on a relatively strong note as forward interest rates were expected to be lower but stable and the economic backdrop was solid. As the quarter progressed, we saw conditions deteriorate amid federal government layoffs, increasing tariff concerns, and their potential negative effects on business fundamentals and economic growth.

Ted McNulty: Now, let me discuss current market conditions market conditions in the first quarter started out in a relatively strong note as foreign interest rates were expected to be lower but stable and the economic backdrop of solid as the.

Ted McNulty: Quarter progressed, we saw conditions deteriorate amid federal government layoffs, increasing tariff concerns and their potential negative effect on business fundamentals and economic growth.

Tanner Powell: Although the trade tariffs were largely expected, their size and scope were far greater than Following the US China tariff truce that was announced yesterday, the probability of a US recession in 2025 has Lower tariffs are positive for the economy and markets, but there are other headwinds to U.S. economic growth. The key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates, and foreigners. While markets may recover quickly from this episode, we believe it will take some time before confidence is restored among consumers and corporates.

The trade tariffs were largely expected their size and scope were far greater than just stated.

Ted McNulty: Following the U S China tariff truth that was announced yesterday.

Ted McNulty: The probability of a U S recession in 2025 has decreased lower tariffs are positive for the economy and markets, but there are other headwinds to U S. Economic growth. The key issue for markets is to monitor the speed with which confidence is restored among consumers corporates and foreigners while markets may recover quickly from this episode, we believe it will take some time before confidence.

Ted McNulty: He has restored among consumers and corporates.

Tanner Powell: Amid ongoing volatility and uncertainty driven by the trade war and increasing fears of recession, newish activity has been fairly light as M&A activity remains. Due to the heightened economic uncertainty following the tariff announcements, there has been a lack of investor demand in the syndicated loan market, and banks have become more cautious when launching new syndication programs. Secondary loan and bond markets have experienced increased volatility and widening. We believe this uncertainty in the public debt markets creates the type of environment that causes borrowers to seek solutions in the private market. On one hand, we believe direct lenders are particularly well-poised to benefit in this type of environment as the syndicated loan market has become less certain and accessible for certain borrowers.

Ted McNulty: Amid ongoing volatility and uncertainty driven by the trade war and increasing fears of a recession new issue activity has been fairly light as M&A activity remains slow due to the heightened economic uncertainty following the tariff announcements there's been a lack of investor demand in the syndicated loan market and banks have become more cautious when launching new Sim.

Ted McNulty: Acacia transactions secondary loan and bond markets have experienced increased volatility and widening spreads.

Ted McNulty: Yeah.

Ted McNulty: We believe this uncertainty in the public debt markets creates the type of environment that causes borrowers to seek solutions in the private market on one hand, we believe direct lenders are particularly well poised to benefit in this type of environment as the syndicated loan market has become less certain and accessible for certain borrowers on the other hand, we believe the trade war induced uncertainty maybe firm.

Tanner Powell: On the other hand, we believe the trade war-induced uncertainty may further delay the long-awaited, anticipated increase in M&A outflows. Depending on the timing and and Outcome of the Tariff Policy.

Speaker Change: Other delay the long awaited anticipated.

Ted McNulty: Increase in M&A activity.

Speaker Change: Depending on the timing.

Speaker Change: And I'll come up the tariff policies. It may continue to be a slow year for LDL is M&A and ipos, which would negatively impact sponsor activity that said the mounting pressure on financial sponsors to return capital to investors could drive some activity. We believe the core middle market, where we our focus does not compete directly with either.

Tanner Powell: It may continue to be a slow year for LDOs, M&A and IPOs, which would negatively impact sponsor That said, the mounting pressure on financial sponsors to return capital to investors could drive... We believe the core middle market, where we are focused, does not compete directly with either the broadly syndicated loan market or the high yield market. Additionally, even with the slowdown in the M&A act. We see that many of our borrowers continue to have add-ons.

Speaker Change: Broadly syndicated loan market or the high yield bond market. Additionally, even with a slowdown in M&A activity, we see that many of our borrowers continue to have add on financing needs now.

Tanner Powell: Now turning to our dividend on May 7, 2025, our board declared a quarterly dividend of 38 cents per share for shareholders of record as of June 10, 2025, payable on June 26, 2025.

Ted: Now turning to our dividend on May seven 2025, our board declared a quarterly dividend up <unk> 38 per share for shareholders of record as of June 10th 2025 payable on June 26, 2025 with that I will now turn the call over to Ted. Thank.

Ted McNulty: With that, I will now turn the call over to Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis we've done with respect to tariff-related risk. In the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the March quarter totaled $376 million, with a weighted average spread of 513 basis points across 33 different companies.

Ted: Thank you Tanner good morning, everyone I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis, we've done with respect to tariff related risks in the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes as mentioned.

Ted: M F O sees new commitments in the March quarter totaled $376 million with a weighted average spread of 513 basis points across 13 different third 33 different companies, although we observed a decline in spreads on new commitments compared to the previous quarter. We also observed a slight decline in the net leverage on new commitments the weighted average net leverage on new commitments.

Ted McNulty: Although we observed a decline in spreads on new commitments compared to the previous quarter, we also observed a slight decline in the net leverage on MFIC. The weighted average net leverage on new commitments was 4.2 times in the March quarter, down from 4.3 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs even at current spreads. For the March quarter, gross fundings totaled $357 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $192 million, including $44 million of liquid assets acquired from the mergers.

Ted: It was four two times in the March quarter down from four three times in the prior quarter, our fee structure, which is one of the lowest among listed Bdcs allows us to produce attractive ROE is even at current spreads.

Ted: For the March quarter, gross fundings totaled $357 million, excluding revolvers sales and repayments, excluding revolvers totaled $192 million, including $44 million of liquid assets acquired from the mergers that revolver fundings were approximately $3 million and total net fundings for the quarter were $170 million given commitments.

Ted McNulty: Net revolver fundings were approximately $3 million. In total, net fundings for the quarter were $170 million. Given commitments closed so far in the June quarter and our robust pipeline for MidCap Financial, we expect fundings for the June quarter to be strong. Turning to our investment portfolio, at the end of March, our portfolio had a fair value of $3.19 billion and was invested in 240 companies across 49 different industries.

Ted: Closed so far in the June quarter, and a robust pipeline for mid cap financial we expect fundings for the June quarter to be strong.

Ted: Turning to our investment portfolio at the end of March our portfolio had a fair value of $3. One 9 billion and was invested in 240 companies across 49 different industries. Please note we've transitioned our industry classification from the Moody's industry system to the global industry classification system or gifts beginning this quarter.

Ted McNulty: Please note, we've transitioned our industry classification from the Moody's Industry System to the Global Industry Classification System, or GICS, beginning this quarter. Direct Origination and Other represented 92% of the total portfolio, up from 90% last quarter. This quarterly increase is the result of growth in the portfolio from fundings of MidCap financial source loans and from the sale of non-direct origination positions from the merger. At the end of March, the non-directly-originated loans acquired from the closed-end funds, which included high-yield bonds, broadly syndicated loans, and structured credit positions, totaled $73 million, representing just 2% of the portfolio.

Ted: Direct origination and other represented 92% of the total portfolio up from 90% last quarter. This quarterly increase is the result of growth in the portfolio from fundings of mid cap financial source loans and from the sale of non direct origination positions from the mergers.

Ted: At the end of March the non directly originated loans acquired from the closed end funds, which included high yield bonds broadly syndicated loans and structured credit positions totaled $73 million, representing just 2% of the portfolio.

Ted McNulty: Lastly, Merck's accounted for 5.8% of the total portfolio. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of March, 99% was first lien, and 92% was backed by a financial sponsor, both on a fair value basis. Approximately 97% have one or more financial covenants on a cost Covenant Quality is a key point of differentiation for the upper middle market as substantially all of our deals have at least one covenant compared to larger deals which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $46,000.

Ted: Lastly, merck's accounted for five 8% of the total portfolio. All of these figures are on a fair value basis.

Ted: Specific to the direct origination portfolio at the end of March 99% was first lien and 92% was backed by a financial sponsor both on a fair value basis, approximately 97% had one or more financial covenants on a cost basis covenant quality is a key point of differentiation for the upper middle market as such.

Ted: Stance really all of our deals are at least one covenant compared to larger deals which are generally without covenants. The average funded position was $13 1 million. The median EBITDA was approximately 46 million.

Ted McNulty: The weighted average yield at cost of our direct origination portfolio was 10.7% on average for the March quarter, down from 11% for the December quarter. The decline in the yield was primarily due to the decline in base rates. At the end of March, the weighted average spread on the directly originated corporate lending portfolio was 569 basis points, down 9 basis points compared to the end of the During periods of elevated volatility and uncertainty, we look at the potential impact on our existing portfolio companies.

Ted: The weighted average yield at cost of our direct origination portfolio was 10, 7% on average for the March quarter down from 11% for the December quarter. The decline in the yield was primarily due to the decline in base rates at the end of March the weighted average spread on the directly originated corporate lending portfolio was 569 basis points down.

Ted: 10 basis points compared to the end of December.

Ted: During periods of elevated volatility and uncertainty we look at the potential impact on our existing portfolio of companies as it relates to the recently announced U S. Tariffs. We've done a comprehensive review on M. S. Icd's portfolio to evaluate their direct impact on our borrowers as Tanner mentioned MFC has been focused on building a well diversified portfolio.

Ted McNulty: As it relates to the recently announced US tariffs, we've done a comprehensive review on MFIC's portfolio to evaluate their direct impact on our borrowers. As Tanner mentioned, MFIC has been focused on building a well-diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical end-of-life We primarily lend to US focused service oriented businesses. We're underway businesses that are heavily dependent on imports and At the end of March, MFIC's top three industry exposures, excluding Merck's, were software, health care providers and services, and financial services. MidCap Financial leads and serves as an administrative agent on the vast majority of the MFIC's direct lending deals, which allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during these uncertain periods.

Ted: A true first lien floating rate direct corporate loans invested in less cyclical industries.

Ted: We primarily lend to U S focused service oriented businesses were underway businesses that are heavily dependent on imports and exports at the end of March M. F. Ice's top three industry exposures, excluding works, where software health care providers and services and financial services.

Ted: Mid cap financial leads and serves as administrative agent on the vast majority of the M. F. Ice's direct lending deals, which allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during these uncertain periods being agent allows us to detect and address any issues early at the end of March mid cap financial or.

Ted McNulty: Being agent allows us to detect and address any issues early. At the end of March, MidCap Financial or Apollo is the agent on 72% of the MFIC's direct lending portfolio at cost and at fair value. We believe the first order impact of the tariffs to our portfolio is limited. We've defined the first order impact as businesses which have labor or service products from outside the US. We've categorized our direct lending portfolio into four categories based on what we believe to be the severity of the tariffs. No impact, minimal impact, medium impact, and meaningful impact. We've enhanced our monitoring of companies, which we have identified as having a meaningful impact.

Ted: All those the agent on 72% of the MF Ice's direct lending portfolio at cost and fair value.

Ted: We believe the first order impact of the tariffs to our portfolio is limited we have defined the first order impact as businesses, which have labor or source products from outside the U S. We've categorized our direct lending portfolio into four categories based on what we believe to be the severity of the tariffs no impact or minimal impact medium impact and meaningful impact.

Ted: We've enhanced our monitoring of companies, which we have identified as having a beautiful meaningful impact.

Ted McNulty: Of course, there could be second-order impact from an economic slowdown or a recession, which is more challenging to quantify. We've supplemented our underwriting process in response to tariffs. Our underwriting process has always included a downside scenario, such as a milder As Tanner mentioned, we continue to observe relatively stable credit quality trends in our portfolio. And we continue to believe that we have constructed a senior portfolio built for today's economic We are not observing any signs of general credit. Our portfolio companies continue to show good financial performance as evidenced by a modest improvement in revenue growth with continued positive EBITDA growth.

Ted: Of course, there could be second order impact from an economic slowdown or recession, which is more challenging to quantify we supplemented our underwriting process in response to tariffs. Our underwriting process is always included a downside scenarios such as a mild recession.

Ted: As Terry mentioned, we continued to observe relatively stable credit quality trends in our portfolio and we continue to believe that we have constructed a senior portfolio are built for today's economic uncertainty. We are not observing any signs of general credit weakness our portfolio of companies continue to show good financial performance as evidenced by our moderate a modest improvement in <unk>.

Ted: Revenue growth with continued positive EBITDA growth.

Ted McNulty: We saw an improvement in net leverage, or debt-to-eBITDA, of our borrowers. The weighted average net leverage was 5.25 times at the end of March, down from 5.5 times at the end of December, due to lower leverage on new assets and an improvement on certain At the end of March, the weighted average interest coverage was 2.1 times, flat compared to last quarter. This statistic is based on financial information as of the end of December 2024, and therefore does not reflect the benefit of lower base rates that occurred in the March quarter. We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of portfolio health.

Ted: We saw an improvement in net leverage or debt to EBITDA of our borrowers the weighted average net leverage was 525 times at the end of March down from five five times at the end of December due to lower leverage on new assets and an improvement on certain existing assets at the end of March the weighted average interest coverage was two one times flat compared to last quarter.

Ted: This statistic is based on financial information as of the end of December 2024, and therefore, it does not reflect the benefit of lower base rates that occurred in the March quarter.

Ted: We believe the stable level of revolver utilization, we're seeing from our portfolio of companies as an additional sign of portfolio health.

Ted McNulty: At the end of March, the percentage of our leverage lending revolver commitments that were drawn did not change materially from the prior quarter. We believe a steady revolver utilization rate is an indicator of greater financial stability. The number and dollar amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the previous quarter. No new positions were placed on non-accrual status this quarter. Our position in international cruise and excursion was restored to accrual status following a restructuring that occurred in the December quarter. Additionally, we received a paydown above fair value on a position acquired via the mergers, which exceeded our mark at the end of December.

Ted: At the end of March the percentage of our leveraged lending revolver commitments that were drawn did not change materially from the prior quarter.

Ted: We believe the study revolver utilization rate as an indicator of greater financial stability.

Ted: The number and dollar amount of investments on nonaccrual status decreased on both a cost and fair value basis compared to the previous quarter no new positions were placed on non accrual status. This quarter our position in international crews and excursion was restored to accrual status. Following a restructuring that occurred in December quarter. Additionally, we received a pay down above fair.

Ted: Value on a position acquired via the mergers, which exceeded our mark at the end of December as a result at the end of March investments on nonaccrual status were 0.9% of the portfolio at fair value down from one 3% last quarter.

Ted McNulty: As a result, at the end of March, investments on non-accrual status were 0.9% of the portfolio at fair value, down from 1.3% last quarter.

Ted McNulty: After quarter end, we received information about the ongoing restructuring of the new era technology. Business, which will be reflected in our June results. MFIC's PIC income declined to 4.5% of total investment income, down from 5.7% last quarter, as a few borrowers switched to cash pay from PIC during the quarter. Our level of PIC remains well below the average of BDCP. That said, we recognize that it makes sense to allow borrowers to elect PIC in certain circumstances.

Ted: After quarter end, we received the information about the ongoing restructuring of the newer technologies.

Ted: Business, which will be reflected in our June results.

Ted: M F. Ice's pick income declined to four 5% of total investment income down from five 7% last quarter. There's a few borrowers switched to cash pay from picked during the quarter our level of pick remains well below the average of BDC peers that said, we recognize that it makes sense to allow borrowers to elect pick in certain circumstances.

Ted McNulty: Our underwriting on MidCap financial source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized, net realized, and unrealized loss rate is around five basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy...

Ted: Our underwriting on Midcap financial source loans has proven to be south based on data since mid 2016, which is the approximate date upon which we began utilizing our co investment order our annualized net realized and unrealized loss rate is around five basis points on loan sourced by mid cap financial we think this performance data shows how well the strategy has performed.

Gregory Hunt: With that, I will now turn the call over to Greg to discuss our financial results. Thank you, Ted, and good morning, everyone. Starting with our operating results, total investment income for the March quarter was approximately $78.7 million, down $3.5 million, or 4.2 percent, compared to the prior quarter. This decline was primarily due to lower fee and prepayment income, as well as a decline in asset yield due to the impact of lower base rates on interest rates.

Greg Hunt: With that I will now turn the call over to Greg to discuss our financial results in detail.

Greg Hunt: Thank you Ted and good morning, everyone, starting with our operating results total investment income for the March quarter was approximately $78 7 million down $3 5 million or four 2% compared to the prior quarter. This decline was primarily due to lower fee and prepayment income as well as a decline in asset yields due to the <unk>.

Greg Hunt: Pact of lower base rates on interest income, partially offset by the growth in the size of the portfolio.

Gregory Hunt: partially offset by the growth in the size of... Fee income and prepayment income for the March quarter totaled $950,000, down from $2.3 million last quarter. Dividend income was approximately $250,000, essentially flat quarter-over. As a reminder, there's a lag effect between changes in base rates and their impact to interest income depending on the frequency of loan. During the December and March quarters, 3-month SOFR declined by approximately 28 basis points and 2 basis points respectively. while one month SOFR declined by 52 base. and OneBasisPoint, respectively. MFIC's investments are linked to both one month and three months so far.

Greg Hunt: Income and prepayment income for the March quarter totaled 950000 down from $2 3 million last quarter dividend income was approximately 250000 essentially flat quarter over quarter.

Greg Hunt: As a reminder, there's a lag effect between changes in base rates and their impact to interest income depending on the frequency of loan resets during the December and March quarters, three months sofa declined by approximately 28 basis points and two basis points, respectively, while one month.

Greg Hunt: <unk> declined by 52 basis points, and one basis point respectfully.

Greg Hunt: <unk> investments are linked to both one month and three months so for rates.

Gregory Hunt: with a grade proportion tied to three months SOFR. In short, the decline in base rates during the December quarter was a contributor to the decline in interest income recorded in the March. The average yield at cost on our direct-originated portfolio was 10.7% on average for the March quarter, down from 11% last quarter, largely due to lower base rates. Net expenses for the quarter were $44.4 million, down from $45.1 million last quarter. This decline was driven by lower management. Interest expenses and G&A expenses partially offset by a higher incentive fee. Interest expense benefited from the same base rate decline mentioned earlier, partially offset by a higher average debt.

Greg Hunt: With a greater proportion tied to three months sofa ensure at the decline in base rates. During the December quarter was a contributor to the decline in interest income.

Greg Hunt: And in the March quarter.

Greg Hunt: The average yield at cost on our directly originated portfolio was 10, 7% on average for the March quarter down from 11% last quarter, largely due to lower base rates net expenses for the quarter were $44 4 million down from $45 1 million last quarter.

Greg Hunt: This decline was driven by lower management fees interest expenses, and G&A expenses, partially offset by higher incentive fee interest expense benefited from the same base rate declines mentioned earlier, partially offset by a higher average.

Greg Hunt: <unk> debt balance as well as the impact of this CLO, which closed during the quarter as mentioned in last quarters call in late January M. F I see priced a $529 million CLO.

Gregory Hunt: as well as the impact of the CLO, which closed during the quarter.

Gregory Hunt: As mentioned in last quarter's call, in late January, MFIC priced a $529 million CLO. which closed on February. We sold through the single A tranche, adding approximately $399 million of relatively low-cost secured debt at a blended spread of $199 million. Proceeds from the CLO were effectively used to repay MFIC's $350 million. 5.25% unsecured notes that matured on March 3, 2025. At today's base rates, the cost of the CLO is slightly higher than the fixed rate debt. It affects. Other G&A expenses totaled $1.2 million for the quarter, down from $1.7 million in the previous quarter. During the March quarter, we received a reimbursement from Merck for certain expenses that MFIC previously incurred on Merck's behalf.

Greg Hunt: Which closed on February 24th.

Greg Hunt: We sold through the single a tranche, adding approximately $399 million at relatively low cost secured debt at a blended spread of 161 basis points. The proceeds from the CLO were effectively used to repay <unk> $350 million 505.25%.

Greg Hunt: Unsecured notes that matured on March 3rd 2025 at today's base rates the cost of the CLO is slightly higher than the fixed rate debt at effectively replaced other G&A expenses totaled $1 2 million for the quarter down from $1 7 million in the previous quarter during the March quarter, we risk.

Greg Hunt: If the reimbursement frameworks for certain expenses than MF IC previously incurred merck's behalf, which was recorded which was recorded as a contra expense. We expect other G&A to average around $1 6 million per quarter going forward. This is in addition to administrative expenses, which are around 1 million.

Gregory Hunt: recorded as a contra expense. We expect other GNA to average around $1.6 million per quarter going forward. This is in addition to administrative expenses, which are around $1 million. MFIC's incentive fee rate is 17 and a half. And it's subject to a total return with a 12-month or a 12-quarter look-back. Given the total return hurdle feature and the net loss incurred during the look-back period, MFIC's incentive fee for the March quarter was $6.4 million for a 15.8% return. Creation.

Greg Hunt: Per quarter.

Greg Hunt: <unk> incentive fee rate is 17, 5% and is subject to a total return with a 12 months.

Greg Hunt: Alright, 12 quarter look back.

Greg Hunt: Given the total return hurdle feature and the net loss incurred during the look back period M. S. Ics incentive fee for the March quarter was $6 4 million for 15, 8% of pre incentive fee <unk>.

Gregory Hunt: Thank you. For the March quarter, net investment income per share was $0.37, and GAAP EPS, or net income per share, was $0.37. These results correspond to an annualized return on equity. based net investment income of 9.8% and an annualized return based on net income of 8.7%.

Greg Hunt: Net income for the March quarter net investment income per share was 37.

Greg Hunt: GAAP EPS or net income per share was 32 cents.

Greg Hunt: These results correspond to an annualized return on equity base.

Greg Hunt: Base net investment income of nine 8% and an annualized return based on net income of eight 7% results for the quarter include a net loss of approximately $4 million or <unk> <unk> per share and net loss was primarily driven by a few concentrated positions that were already on non accrual.

Gregory Hunt: The results for the quarter include a net loss of approximately $4 million or $0.05 per share. The net loss was primarily driven by a few concentrated positions that were already on non-accrual status. We ended the quarter with net leverage of 1.31 times, up from 1.16 times last quarter. Our funding activity was weighted toward the second half of the quarter. Average leverage for the March quarter was approximately 1.2%. During the March quarter, we continued to make progress deploying the capital acquired from MFIC's merger with the closed-end funds, although we are operating below our target leverage at $1.5 billion.

Greg Hunt: <unk>.

Greg Hunt: We ended the quarter with net leverage of 131 times up from $1. One six times last quarter. Our funding activity was weighted towards the second half of the quarter average leverage for the March quarter was approximately one two times during the March quarter, we continued to make progress deploying that.

Capital acquired from Fic's Barger with the closed end funds, although we are operating below our target leverage at one four times gross and net fundings for the quarter were $357 million and $170 million respectfully at the end of March our portfolio had a fair value of $3. One 9 billion we had two.

Gregory Hunt: gross and net fundings for the quarter were $357 million and $170 million respectively. The end of March, our portfolio had a fair value of $3.19 billion. We had total principal debt outstanding. total net assets of $1.39 billion. for a NAV of $1,493 per share. Lastly, during the March quarter, we repurchased approximately 477,000 shares at a weighted average price of $1,275 for a total cost of $6.1 million. These five buybacks had an accretive impact on NAV per share of approximately one cent.

Greg Hunt: Total principal debt outstanding of $1 9 billion total net assets of 139 billion.

Greg Hunt: For our NAV of $14 93 per share lastly, during the March quarter, we repurchased approximately 477000 shares at a weighted average price of $12 75 for a total cost of $6 1 million. These five debt buybacks had an accretive impact on NAV per share of approximately <unk>.

Operator: This concludes our prepared remarks. Operator, please open the call. Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question.

Greg Hunt: This concludes our prepared remarks, operator, please open the call to questions.

Speaker Change: Thank you at this time, if you would like to ask a question. Please press the star one on your telephone keypad, you may lose move yourself from the queue at any time by pressing star to once again that is star one to ask a question. We will take our first question from Mark Hughes with Truest. Please go ahead.

Mark Hughes: We'll take our first question from Mark Hughes with Truist. Please go ahead. Yeah, thank you very much. Good morning. Morning. The funding's in 2Q. I think you said they're strong so far. Kind of interesting to hear, given the kind of cautious commentary from you and others around the overall backdrop.

Mark Hughes: Yes. Thank you very much good morning.

Good morning.

Speaker Change: The fundings in <unk> I think you said there are strong so far.

Speaker Change: Kind of interesting to hear given the cautious commentary from you and others around the overall backdrop could you talk a little bit more about that where you're seeing opportunity, what's driving that and then any comment on this.

Tanner Powell: Could you talk a little bit more about that, where you're seeing opportunity, what's driving that, and then any comment on the spread trajectory here in 2Q so far relative to 1Q? Yeah, sure. Thanks, Mark. And what we say oftentimes about many aspects of our business is that there's a lag. And so the activity – and we had a very strong deployment in Q1, the 376 million of new commits we made. And then the strength that we've seen in the quarter-to-date period reflects that level of activity that, frankly, was in many cases commenced before the end of the year or early in the year, kind of prior to some of the April volatility.

Speaker Change: The spread trajectory here in <unk>, so far relative to <unk>.

Speaker Change: Yeah sure. Thanks Marc.

Speaker Change: And what we say it often times about many aspects of our business is that there's a lag and so the activity and we had a very strong deployment in Q1 $376 million of new commits we made and then the strength that we've seen in the quarter to date period reflects that level of activity that frankly was.

Speaker Change: In many cases commenced before the end of the year or early in the year kind of prior to some of the April volatility and so it really is more just a function of that which was already in the pipeline ultimately being brought to a conclusion and what youre seeing and this is how we square that seemingly contradictory results is as you alluded to is that.

Tanner Powell: And so it really is more just a function of that which was already in the pipeline ultimately being brought to a conclusion. And what you're seeing – and this is how we square the seemingly contradictory results, as you alluded to – is that there's less – there's reason to believe that there's less auctions to be launched in the back half of the year or even in the back half of the second quarter. And so you'll start to see that – you should start to see that show up. But again, the relatively strong activity that we've seen is really just a holdover from that which was commenced earlier this year.

Speaker Change: There's less there's reason to believe that there's less auctions to be launched in the back half of the year or even in the back half of the second.

Speaker Change: Second quarter, and you said, you'll start to see that you should start to see that show up but again the deep debt relatively strong activity that we've seen is really just a holdover from that which was commenced earlier this year in terms of spreads.

Tanner Powell: In terms of spreads, our Q1 spreads declined to 513 down from Q4. We've definitely seen some stabilization in – more recently in where we're indicating and where our peers are indicating. And then from here, it's that tension with the technical mark, acknowledging that there's a lot of capital for private transactions out there, as well as also it's likely to be a muted investment opportunity – muted M&A environment, creating fewer credit creation opportunities. And thus, notwithstanding some volatility, it'll be the interplay of those.

Speaker Change: Our Q1 spreads declined to 513 down.

Speaker Change: Down from from Q4, we've definitely seen some stabilization.

Speaker Change: And in more.

Speaker Change: More recently, and where we're indicating in where our peers are indicating.

Speaker Change: And then from here, it's that it's that that tension with the technical Mark acknowledging that there's a lot of capital for private transactions out there.

Speaker Change: As well as also it's likely to be.

Speaker Change: You did investment opportunity muted M&A environment, creating fewer credit creation opportunities and thus notwithstanding some volatility it'll be the interplay of those and we would expect some some reprieve from that which we saw in Q1 or some widening but not materially and more more.

Tanner Powell: And we would expect some reprieve from that which we saw in Q1 or some widening, but not materially, and more just stabilization and less deals getting done in the fours in the broader market. Very good.

Speaker Change: Just stabilization and less.

Speaker Change: Less deals getting done in the fours and in the broader market.

Speaker Change: Very good and then could you talk about the dividend relative to NII in kind of the sustainability, how you think that.

Tanner Powell: And then that, could you talk about the dividend relative to NII, kind of the sustainability, how you think that will you know the underlying trend versus the current dividend as the year progresses and you're obviously making a lot of A lot of updates, changes in the portfolio. What about sustainability? Yeah, sure. So, as we alluded to, the activity that we had in the quarter was back half weighted, as well as also we were operating below our leverage level. And then, furthermore, you know, many of the aspects of our earnings profile are stable, but the prepayment income in a given quarter can have an inflow, and we were relatively light in this quarter.

Speaker Change: We'll.

Speaker Change: Lying trend versus the current dividend.

Speaker Change: The year progresses, and you're obviously, making a lot of.

Speaker Change: A lot of updates changes in the portfolio.

Speaker Change: What about sustainability.

Speaker Change: Yeah sure. So as we alluded to the activity that we had in the quarter was back half weighted as well as also we were operating below our leverage level and then Furthermore.

Speaker Change: Many of the aspects of our earnings profile are stable, but debt prepayment income in a given quarter can can ebb and flow and we were relatively light.

Tanner Powell: We also mentioned in our prepared remarks about the level of earnings that we're taking from our Merck's investment, which is 5.8 percent and is only 3.2 percent. The combination of those gives us a lot of comfort in our ability to increase earnings, and, you know, with the caveat, particularly as it relates to prepayment fees, that will ebb and flow. And so, you know, we still are, you know, slated our capital.

Speaker Change: In this quarter. We also mentioned in our prepared remarks about the level of earnings that we're taking from our <unk> investment, which is five 8% and it was only three 2%. The combination of those gives us a lot of comfort in our ability to increase earnings and with the <unk>.

Speaker Change: Yes, particularly as it relates to prepayment fees that will ebb and flow and so we still are very comfortable in our earnings power and how we've.

Speaker Change: Slade at our capital plan.

Tanner Powell: Very good, thank you. Thank you.

Speaker Change: Very good thank you.

Speaker Change: Thank you and as a reminder, ladies and gentlemen, it is star one for a question.

Operator: And as a reminder, ladies and gentlemen, it is star one for a question.

Kenneth Lee: We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead. Hey, good morning. Thanks for taking my question. Just on on originations. given the muted outlook for M&A activity there. remind us again the extent of MFIC's dependence on M&A activity for new originations, what's the outlook for potential add-ons and other activity from incumbents?

Speaker Change: Take our next question from Kenneth Lee with RBC capital markets. Please go ahead.

Kenneth Lee: Hey, good morning, Thanks for taking my question.

Kenneth Lee: Just on originations.

Speaker Change: Given the muted outlook for M&A activity there could.

Speaker Change: Could you just remind us again, the extent of MFA skus dependence on M&A activity for new.

Speaker Change: New originations.

Speaker Change: The outlook for potential add ons and other activity from from incumbents. Thanks.

Howard Widra: This is Howard. I'll, you know, across MidCap, it is not completely reliant at all on M&A activity. First of all, there is an existing portfolio that continues to grow and there's opportunity. future quarters and that also you know carries on to some of the some of the some of the reduced M&A activity is even is being replaced by continuation funds which is also sort of like a captive business which comes out of a portfolio and enables MFIC to sort of step into transactions they weren't in before and and there's some other products as well so certainly more M&A activity drives more volume but like even in the first quarter there was not you know huge volume in the market and there was six and a half billion dollars at MidCap, which you saw sort of work its way through at MFIC.

Howard: This is Howard.

Speaker Change: Across mid cap that it is not completely rely on at all.

Howard: On M&A activity.

Howard: First of all.

Howard: There is an existing portfolio that continues to grow and there's opportunities and we see you saw that this quarter and will continue to see a future.

Howard: Future quarters.

Howard: And that also.

Howard: Carriers onto some of the some of the some of the reduced M&A activity is even.

Howard: He is being replaced by continuation ponds.

Howard: Which is also sort of like a captive business, which comes out of a portfolio enables.

Howard: MFC to sort of step into transactions they werent in before.

Howard: And there are some other products as well so certainly more M&A activity drives more volume, but like even in the first quarter there was not.

Howard: Huge volume in the market than there was $6 $5 billion of originations at mid cap, which you saw sort of work its way through at MFC and <unk>.

Howard Widra: And so the answer is, and we've said this before, I think, like if we were a $20 billion BDC, it would be impactful for the amount of assets that MFIC is able to select of what MidCap originates.

Howard: So so the answer is we said this before I think like if we were at $20 billion BDC It would be impactful for the.

Howard: The amount of assets that might frankly was able to select off with mid caps originates it's not that impactful.

Kenneth Lee: It's not that important. Gotcha. Very helpful there. And one follow-up, if I may, just on the...

Howard: Got you very helpful. There and one follow up.

Speaker Change: If I may just on.

Speaker Change: In terms of the dividend coverage there could you remind us again of the.

Tanner Powell: Could you remind us again of the latest estimate for spillover income, and then perhaps just remind us again what's the overall policy and thoughts around usage of that. Thanks. When it comes to spillover income, we have minimal spillover income at this point. We provided our shareholders with a dividend following the closed-end funds. And Merck still will create, it does create at some points, additional spillover income. And we'll evaluate that as we continue to reduce that position. Gotcha. Very helpful there. Thanks again. Thank you.

Speaker Change: The latest estimate for spillover income and then perhaps.

Speaker Change: Just remind us again, what's the the overall policy and thoughts around usage of that thanks.

Speaker Change: Yes.

Speaker Change: When it comes to the spillover income.

Speaker Change: We have minimal spillover income at this point we provided.

Speaker Change: Our shareholders with a dividend.

Speaker Change: Dividend following the closed end funds and.

Speaker Change: Merck's there will create it does create at some point.

Speaker Change: Additional spillover income and we'll evaluate that.

Speaker Change: As we continue to reduce that position and move forward.

Speaker Change: Got you very helpful. Thanks again.

Speaker Change: Thank you next we'll take a question from Healy Seth with Raymond James. Please go ahead.

Healy Seth: Next we'll take our question from Healy Seth with Raymond James. Please go ahead. Hi, good morning. Thanks for the question.

Healy Seth: Hi, good morning, Thanks for the question.

Tanner Powell: Um, so in your conversations with private equity sponsors, and just looking at the current pipeline, what's your sense for M&A recovery and the timeline there? Do you guys feel like it's more 2025 back end loaded or going into 2020? Yeah, sure. I think it's going to be path-dependent. And, you know, I think it's very easy to look and survey the sponsor community landscape right now. And it's very hard, the calculus is very hard to launch an acquisition right now. And that's what we're seeing. As Howard alluded to, notwithstanding, you know, we take comfort in MFIC's position as a relatively small balance sheet amongst a bigger ecosystem and having opportunities for follow-ons within our existing portfolio companies.

Healy Seth: So in your conversations with private equity sponsors and just looking at the current pipeline, what's your sense for M&A recovery timeline. There do you guys feel like it's more of a 2025 backend loaded or going into 'twenty. Please.

Healy Seth: Yes sure.

Healy Seth: It's gonna be path dependent and.

Healy Seth: I think it's very easy to look in and surveyed the spot the sponsored community landscape right now and it's very hard.

Healy Seth: The calculus is very hard to launch a an acquisition right now and that's what we're seeing as Howard alluded to notwithstanding we take comfort in MF ice's position as they are relatively small balance sheet.

Healy Seth: Amongst the bigger ecosystem and having opportunities for follow ons within our our existing.

Tanner Powell: When we look out, and it's hard to project specifically whether it's going to be Q4, 2025, or 2026, you know, we and our peers often point to, which is objective and demonstrable, this significant level of private equity dry powder, as well as also, you know, a real pressure to return capital to LPs as, you know, again, difficult to predict when it will come, but it needs to come to return that capital and or deploy that capital that's already been raised. And then furthermore, we have a lot of dynamics here in the U.S. that, notwithstanding, you know, currently perhaps sidelined or amidst some volatility, but there's a lot to point to significant capital expenditures and infrastructure spending over the next several years that also will give rise to significant credit opportunities.

Healy Seth: On portfolio companies, when we look out and it's it's hard to project, specifically, whether its going to Q4 2025 or 2026.

Healy Seth: We and our peers often point to which is objective and demonstrable. This significant level of private equity dry powder as well as also.

Healy Seth: Real pressure to turn capital to Lps as again difficult to predict when it will come but it needs to come to return that capital and or deploy that capital that's already been raised.

Healy Seth: And then Furthermore, we have a lot of dynamics here in the U S that notwithstanding.

Healy Seth: Currently, perhaps sidelined or amidst some some volatility, but theres a lot to point to significant capital expenditures and infrastructure spending over the next several years that also will give rise to significant credit opportunities for ourselves for ourselves and other similarly, situated private capital lenders in the <unk>.

Tanner Powell: for ourselves and other similarly situated private capital. Guys, that's helpful.

Healy Seth: <unk>.

Healy Seth: Got it that's helpful and a quick follow up with your new investments. This quarter can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers.

Healy Seth: And a quick follow-up.

Tanner Powell: With your new investments this quarter, can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers? Yeah, sure. So we did, we did 33 new deals, 19 of which were to new companies, and 14 of which were to existing existing companies.

Healy Seth: Yes, sure. So we did a we get 33, new deals 19 of which were to new companies and 14.

Healy Seth: 2014 of which were two existing existing companies.

Healy Seth: Perfect, thank you.

Healy Seth: Perfect. Thank you.

Melissa Wedel: We'll take our next question from Melissa Wedel with J.P. Morgan. Please go ahead. Good morning. Thanks for taking my questions.

Speaker Change: We'll take our next question from Melissa Wedel with Jpmorgan. Please go ahead.

Melissa Wedel: Good morning, Thanks for taking my question.

Melissa Wedel: Following on your comments about the activity levels through, to date, sort of second quarter, does it stand to reason that prepayment income and accelerated OID might remain on the lower end in the near term? I'm curious if you're seeing slower repayment activity like we've heard from a lot of teams. If I did miss your comment on that, I apologize. Thank you.

Speaker Change: Following on your comments about the activity level is true.

Melissa Wedel: Today sort of second quarter.

Speaker Change: Does it stand to reason that.

Speaker Change: Prepayment income and accelerated OID might remain on the lower end in the near term.

Speaker Change: I'm curious, if you're seeing slower repayment activity right.

We've heard from from a lot of them, Brian If I did Miss your comments on that I apologize. Thank you.

Tanner Powell: Hi, Melissa. Yeah, I think consistent with what you're hearing across across the industry, from our peers, you know, we do expect that given the lack of, you know, M&A results in fewer prepayments and that can result in lower Okay, appreciate that clarification. As a follow up, I appreciate the commentary you've offered about limited direct tariff exposure in the portfolio.

Speaker Change: Hi, Melissa, Yes, I think consistent with what you are hearing across.

Speaker Change: <unk> the industry.

Speaker Change: From our peers, we do expect that given the lack of.

Speaker Change: M&A.

Speaker Change: Yes.

Speaker Change: And fewer prepayments and nothing to result in lower fees.

Speaker Change: Okay I appreciate that clarification.

Speaker Change: A follow up I appreciate the commentary you've offered about limited direct tariff exposure in the portfolio.

Tanner Powell: On a different but kind of related note, have you assessed the exposure in the portfolio from any government contracts or any sort of anything susceptible to lower revenues or reimbursements from doge cuts or fair spending cuts? All right. So as part of our underwriting, we have limited, you know, as a general matter, for years and years we've limited our exposure to sort of government. because of sort of stroke of the pen risk, obviously... We're volatile now, but we just don't have that much of it. Even our healthcare names are not directly reimbursed by the government and direct government contractors.

Speaker Change: On a different but kind of a related note.

Speaker Change: Do you have you assessed the exposure in the portfolio from any government contracts are.

Speaker Change: For us anything susceptible to lower revenues for our reimbursements from those pads are a health care spending guys.

Speaker Change: Hi.

Speaker Change: It's always part of our underwriting we have limited.

Speaker Change: As a general matter for years and years, we've limited our exposure to sort of government payments.

Speaker Change: Cause a sort of a stroke of the pen risk.

Speaker Change: Obviously.

Speaker Change: It's even more volatile now, but we just don't have that much of it even our health care names are not directly reimbursed by the government.

Speaker Change: And direct government contractors I don't I don't know if you have any.

Tanner Powell: I don't know. I don't think we have any. Always looking at all of those things, but those are those are sort of underwriting risks regardless of the It's just this one's more on text. Got it. Thank you.

Speaker Change: If you have any so.

Speaker Change: Always looking at all of those things, but those are those are sort of underwriting risks regardless of the administration.

Speaker Change: Just this once more.

Speaker Change: Tethered.

Speaker Change: Got it thank you.

Paul Johnson: We'll take our next question from Paul Johnson with KBW, please go ahead. Thanks. Good morning. Thanks for taking my questions.

Speaker Change: We will take our next question from Paul Johnson with <unk>. Please go ahead.

Paul Johnson: Thanks, Good morning, Thanks for taking my questions.

Paul Johnson: Sorry if I mislead, but I was just wondering, you know, kind of what the sort of underlying meaningful exposure to given poly comps is or, you know, any sort of the tariff countries or anything you can fall under, you know, your higher risk tariff classification, kind of what that is roughly. in the portfolio. So Paul, single digits and you know I think like we said in our prepared remarks you know we have the benefit of by statute we need to focus on U.S. companies in the middle market is far less likely to have real diverse supply chains on top of the fact that you were over indexed to those sectors that are more service related less capital intensive and you know I hope we tried to strike this balance within in the portfolio that that number is more important but as we think about our underwriting we and I think the market has as well notwithstanding we're not looking at those very very intently and and and looking at that you know single digits part of our portfolio in a very you know watching it very closely but we're really focused on you know the part of both corporates and consumers and and really looking at that second order of fact as being the primary driver for credit performance from here and and really the you know occupying the lion's share of our time as we assess the effects of the current environment on our current portfolio Got it.

Paul Johnson: Sorry, if I missed it but just.

Paul Johnson: Just wondering.

Paul Johnson: What the sort of underlying.

Paul Johnson: Meaningful exposure given.

Paul Johnson: Given call Acas is or any.

Paul Johnson: Any sort of the tariffs.

Paul Johnson: Our country is there anything you can fall under your higher risk right.

Paul Johnson: Classification kind of what that is roughly.

Paul Johnson: Within the portfolio.

Paul Johnson: So Paul are single digits.

Paul Johnson: And I think like we said in our prepared remarks, we have the benefit of it.

Paul Johnson: By statute, we need to focus on U S companies in the middle market is far less likely to have a.

Paul Johnson: A real diverse supply chains on top of the fact that.

Paul Johnson: We're over indexed to those sectors that are more service related less capital intensive and I hope we tried to strike this balance within in the portfolio that that number is more important but as we think about our underwriting we and I think the market has as well.

Paul Johnson: Notwithstanding we're not looking at those very very intently and looking at that single digit part of our portfolio.

Paul Johnson: In a very.

Paul Johnson: Watching it very closely but we're really focused on the second order effect, and we mentioned confidence and.

Paul Johnson: Part of both corporate and consumers and really looking at that second order effect as being the primary driver for credit performance from here.

Paul Johnson: And really the occupying the lion's share of our time.

Paul Johnson: As we assess the effects of the current environment on our current portfolio.

Paul Johnson: Yeah.

Speaker Change: Got it I appreciate that.

Paul Johnson: Appreciate that.

Paul Johnson: And then just on amendment activity, anything to note there in terms of just trends? How many amendments were addressed during the quarter in the portfolio? Yes, so amendments were relatively flat, quarter over quarter, and in particular, you know, some of the more involved amendments, you know, where you're talking about covenant violations or you're dealing with PIC or forbearance or those types of things, that particular segment was flat over quarter over quarter.

Paul Johnson: And then just on amendment activity.

Paul Johnson: Anything to note there in terms of just trends.

Paul Johnson: Yes.

Paul Johnson: Frequency, how many amendments were addressed during the quarter in the portfolio.

Paul Johnson: Yes, so amendments.

Paul Johnson: Relatively flat quarter over quarter.

Paul Johnson: In particular, some of the more involved amendments where you're talking about.

Paul Johnson: Covenant violations or youre dealing with pick or forbearance or those types of things.

Paul Johnson: Particular segment was flat over quarter over quarter.

Tanner Powell: Yeah, and I'd make another comment, Paul. This is the second time I'm going to bring up lag on this call, but, you know, recall, you know, so we're reporting March financials and the underlying companies of the amendments that we would otherwise, or the, you know, performance that we would be assessing within this quarter is Q4, by and large, right? You know, we get monthlies on certain of our borrowers, but the lion's share is quarterly, and certainly the tests, our covenant tests, which, you know, is a predictor of amendment activity, is from Q4 performance, and so, obviously, a different market, so hard to draw too many conclusions from that number, and we weren't surprised to see that that was flat.

Speaker Change: Yeah, and I'd make another comment Paul this is the second time I'm going to bring up lag on this call, but recall, so where we're reporting March financials and the the underlying companies of the amendments that we would otherwise or the performance that we would be assessing within this quarter is is Q4.

Speaker Change: But by and large right, we get monthly on certain of our borrowers, but the lion's share is quarterly is and certainly the tests are covenant tests, which.

Speaker Change: As a predictor of the amendment activity is from Q4 performance and so obviously a different market.

Speaker Change: So it's hard to draw too many conclusions from that number and we weren't surprised to see that that was that was flat.

Paul Johnson: in the quarter. Thanks again, I appreciate that.

Speaker Change: And in the quarter.

Speaker Change: Thanks, again, I appreciate that and then.

Paul Johnson: And then just on repurchases going forward... Congrats on the purchases in the quarter, with leverage kind of around 1.4 times. Stocks still trading a little bit below the repurchase price during the first quarter.

Speaker Change: Just on repurchases going forward.

Speaker Change: Congrats on the purchases in the quarter with leverage kind of.

Speaker Change: Around one four times stocks still trading a little bit low.

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Speaker Change: Repurchase price during the first quarter, but how you kind of thinking about that.

Tanner Powell: How are you kind of thinking about that with the deployment of capital and where the stock trades today? Well, we hope that question will be irrelevant after this call is over. But the chance is not, I mean, we say, like, we always assess the use, you know, the use of our capital based on sort of the discounts and that versus, like, other choices. And obviously, you know, other choices when we're at our full leverage includes effectively paying down debt and redeploying, so it becomes a higher bogey to buy back shares. But it's always, like, part of what we do.

Speaker Change: Capital with where the stock trades today.

Speaker Change: Well, we hope that question will be irrelevant. After this call's over.

Speaker Change: Uh huh.

Speaker Change: Hi.

Speaker Change: Sure It does not.

Speaker Change: We say, we always assess Dr.

Speaker Change: To use the use of our capital.

Speaker Change: Based on sort of the discounting that versus like other choices and obviously other choices when we're at our at our full leverage includes effectively paying down debt and redeploying so it becomes a higher bogey.

Speaker Change: Two to buy back shares, but it's always like part of what we do to the incremental investment would be buying back shares when it makes sense.

Tanner Powell: The incremental investment would be buying back shares when it makes sense, you know, but it's it's it's, you know, and I've said this before in a lot of calls, you know. The window of buying is not, you know, that many trading days during the during the quarter. And so, you know, sometimes when like tracking and people looking at how much we're buying back, we're limited by the amount we can buy each day, you know, when we can buy and we're limited the amount of days we can buy. So that also impacts whether we buy back shares in that, you know, is the timing at a time when the stock's trading at a level we want and our capital opportunities otherwise fit Thank you.

Speaker Change: You know, but it's it's and I've said this before and a lot of calls.

Speaker Change: The window by its not its not that many that many trading days during the during the quarter.

Speaker Change: And so you know.

Speaker Change: Sometimes when like tracking and people look at how much we're buying back with limited by the amount you can buy each day.

Speaker Change: When we can buy and were limited in the amount of data we can buy it so that also impacts whether we buy back shares in that.

Speaker Change: Is the timing at a time when the stocks trading.

Speaker Change: We want our capital opportunities otherwise fit with it.

Speaker Change: Thank you that's all for me.

Paul Johnson: It's all for me. Thank you.

Speaker Change: Thank you and as a reminder, ladies and gentlemen, it is star one for a question, we'll pause for a moment.

Operator: And as a reminder, ladies and gentlemen, it is star one for our question. We'll pause for a moment. At this time, we have no further questions.

Speaker Change: At this time, we have no further questions I'll return the call over to management for closing remarks.

Tanner Powell: I'll return the call over to management for closing remarks.

Tanner Powell: Thank you, operator. Thank you everyone for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Please have a good day. Thank you and this does conclude today's program. We thank you for your participation.

Speaker Change: Thank you operator, and thank you everyone for listening to today's call on behalf of the entire team. We thank you for your time today. Please feel free to reach out to US. If you have any other questions. Please have a good day.

Speaker Change: Thank you and this does conclude today's program. We thank you for your participation you may disconnect at any time.

Operator: You may disconnect at any time.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: [music].