Q2 2026 MidCap Financial Investment Corp Earnings Call

August 6, 2026

Speaker #1: Your meeting is about to begin Good morning and welcome to the earnings conference call for the period ending June 30th , 2026 for MidCap Financial investment Corporation .

Operator: Good morning, welcome to the earnings conference call for the period ending 30 June 2026 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 one on your telephone keypad.

Speaker #1: At this time , all participants have been placed in a listen only mode . The call will be open for a question and answer session .

Speaker #1: Following the speakers prepared remarks . If you would like to ask a question at that time , simply press star one on your telephone keypad .

Speaker #1: If you would like to withdraw your question , press star two . I will now turn the call over to Elizabeth Bazan , Investor Relations manager for MidCap Financial Investment Corporation

Operator 3: If you would like to withdraw your question, press star two. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Operator: If you would like to withdraw your question, press star two. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Speaker #2: Thank you . Operator , and thank you , everyone , for joining us today . We appreciate your interest in MidCap Financial Investment Corporation .

Elizabeth Besen: Thank you, operator, thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenny Seifert, Chief Financial Officer. 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 other authorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make.

Speaker #2: Please note that they are the property of MidCap Financial Investment Corporation and that any and other authorized broadcast in any form is strictly prohibited Information about the audio replay of this call is our press release .

Speaker #2: I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward looking information . Today's conference call and webcast may include forward looking statements .

Speaker #2: 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 .

Speaker #2: We do not undertake to update our forward looking statements or projections unless required by law , to obtain copies of our SEC filings .

Elizabeth Besen: We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Speaker #2: Please visit either the SEC's website at w w w dot sec.gov or our website at w w w dot MidCap Financial dot com .

Speaker #2: 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 #2: Throughout today's call , we will refer to MidCap Financial Investment Corporation as Ida , Ms. , ESI , or and we will use MidCap Financial to refer to the lender headquartered in Bethesda .

Speaker #2: At this time , I'd like to turn the call over to Tanner Powell M Chief Executive Officer .

Speaker #3: Thank you , Elizabeth . Good morning , everyone , and thank you for joining us for MidCap Financial Investment Corporation's quarterly earnings conference call .

Tanner Powell: Thank you, Elizabeth. Good morning, everyone, and thank you for joining for MidCap Financial Investment Corporation's quarterly earnings conference call. Earlier this morning, we issued our press release and filed our Form 10-Q for the period ending 30 June 2026. I'll begin today's call with an overview of MFIC's second quarter results and investment activity. Following that, I'll hand the call over to Ted, who will walk through our investment activity in detail and provide a portfolio update. Kenny will review our financial results in detail. Beginning with an overview of the results, net investment income or NII per share for the quarter was $0.40 while GAAP net loss per share was $0.21. Net assets value per share at the end of June was $13.37, representing a 3.2% decline from the prior quarter.

Speaker #3: Earlier this morning , we issued our press release and filed our form 10-q for the period ended June 30th , 2026 . I'll begin today's call with an overview of second quarter results and investment activity .

Speaker #3: Following that , I'll hand the call over to Ted , who will walk through our investment activity in detail and provide a portfolio update .

Speaker #3: Kenny will then review our financial results in detail , beginning with an overview of our results . Net investment income , or NII per share for the quarter was $0.40 , while GAAP net loss per share was $0.21 .

Speaker #3: Then , value per share at the end of June was 1337 , 3.2% decline from the prior quarter . The 45 cent decrease in Nav was driven by a net loss of $0.61 on the portfolio , which was partially offset by net investment income exceeding the dividend by $0.09 plus approximately $0.07 of accretion from stock repurchases executed below Nav .

Tanner Powell: The $0.45 decrease in NAV was driven by a net loss of $0.61 on the portfolio, which was partially offset by net investment income exceeding the dividend by $0.09, plus approximately $0.07 of accretion on stock repurchases executed below NAV. The quarter reflected some credit pressure within the portfolio with a net loss of $50 million, $50.3 million, or $0.61 per share, concentrated among a limited number of positions. Ted will address the largest negative contributors shortly. MFIC new commitments were intentionally modest at $5.8 million for the quarter to support three existing borrowers. Net repayments were $160 million in aggregate. As a result of the net loss and stock buyback activity, MFIC's net leverage declined only modestly to 1.54x at quarter end. Excluding stock buybacks made during the quarter, MFIC's net leverage would have declined to 1.5x at quarter end.

Speaker #3: The quarter reflected some credit pressure within the portfolio , with a net loss of 50 million , 50.3 million , or $0.61 per share .

Speaker #3: Concentrated among a limited number of positions . Ted will address the largest negative contributors shortly . MFC new commitments were intentionally modest at $5.8 million for the quarter to support three existing borrowers , net were $160 million in aggregate as a result of the net loss and stock buyback activity .

Speaker #3: Mfc's net leverage declined modestly , declined only modestly to 1.54 times at quarter end . Excluding stock buybacks made during the quarter Mfc's net leverage would have declined to 1.5 times at quarter end Looking ahead , we will make capital allocation decisions based on leverage and market conditions .

Tanner Powell: Looking ahead, we will make capital allocation decisions based on leverage and market conditions. At the end of June, MFIC's investment in Merx totaled approximately $68.6 million at fair value, representing 2.5% of our portfolio. This reflects a $12.5 million pay down during the June quarter from the sale of one aircraft in a joint venture, plus a modest write-up. As a reminder, Merx earns income from its servicing activities for Navigator, Apollo's dedicated aircraft leasing fund. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund level returns. Merx receives a remarketing fee on each aircraft sale. Subsequent to quarter end, Merx has sold one aircraft and is in the process of closing on the sale of an engine.

Speaker #3: At the end of June , MFI sees investment in totaled approximately $68.6 million at fair value , representing 2.5% of our portfolio . This reflects a $12.5 million pay down during the June quarter from the sale of one aircraft in a joint venture , plus a modest write off .

Speaker #3: As a reminder , merks earns income from its servicing activities for navigator , Apollo's dedicated aircraft leasing site . Having fully deployed its equity commitments , navigator is in the hardest period , and as such , the fund is opportunistically monetizing assets to optimize fund level returns Merks receives a remarketing fee on each aircraft sale subsequent to quarter end .

Speaker #3: sold one aircraft and is in the process of closing on the sale of an engine . Navigator is the process of portfolio of aircraft which will generate servicing income for merks .

Tanner Powell: Navigator is in the process of selling a large portfolio of aircraft, which will generate servicing income for Merx. We expect to receive additional paydowns from Merx in the Q3 from these transactions. Turning back to the stock repurchases, as discussed on last quarter's call in April, we repurchased $31.9 million of stock through our 10b5-1 trading plan, fully utilizing our authorization. Given our focus on reducing MFIC's leverage, we are currently prioritizing capital allocation towards that objective rather than towards additional stock repurchases. Moving on to the dividend on 5 August 2026, our board of directors declared a quarterly dividend of $0.31 per share for stockholders of record as of 8 September 2026, payable on 24 September 2026. With that, I will now turn the call over to Ted.

Speaker #3: We expect to receive additional paydowns from marks in the September quarter . From these transactions Turning back to the stock repurchases As discussed on last quarter's call in April , we repurchased 31.9 million of stock through our ten B five one trading plan fully utilizing our authorization .

Speaker #3: Given our focus on reducing Mfc's leverage , we are currently prioritizing capital allocation towards that objective rather than towards additional stock repurchases . Moving on to the dividend On August 5th , 2026 , our Board of Directors declared a quarterly dividend of $0.31 per share for stockholders of record as of September 8th , 2026 , payable on September 24th , 2026 , with that , I will now turn the call over to Tim

Speaker #4: Thank you . Tanner . Good morning everyone . I will summarize our investment activity for the quarter and then provide some details on our investment portfolio .

Ted McNulty: Thank you, Tanner. Good morning, everyone. I will summarize our investment activity for the quarter and then provide some details on our investment portfolio. As Tanner noted, MFIC's new commitments in the Q2 were $5.8 million, all in support of three existing borrowers. In aggregate, net repayments for the quarter totaled $160 million. Shifting to our investment portfolio. At the end of June, our portfolio had a fair value of $2.77 billion and was invested in 229 companies across 45 different industries. Direct origination and other represented 97% of the portfolio. Merx represented approximately 2.5% of the portfolio, and liquid positions from our mergers with two funds in 2024 totaled approximately 1%. All of these figures are on a fair value basis.

Speaker #4: As Tanner noted , Mfc's new commitments in the second quarter were 5.8 million , all in support of three existing borrowers . In aggregate net repayments for the quarter totaled 160 million .

Speaker #4: Shifting to our investment portfolio at the end of June , our portfolio had a fair value of 2.77 billion and was invested in 229 companies across 45 different industries .

Speaker #4: Direct origination and other represented 97% of the portfolio . Mercs represented approximately 2.5% of the portfolio , and liquid positions from our mergers , with two funds in 2024 totaled approximately 1% .

Speaker #4: All of these figures are on a fair value basis Specific to the direct origination portfolio at the end of June , 97% was first lien and 95% was backed by financial sponsors , both on a fair value basis .

Ted McNulty: Specific to the direct origination portfolio, at the end of June, 97% was first lien and 95% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.1 million. The median EBITDA was approximately $53 million. Approximately 94% had one or more financial covenants on a cost basis. The weighted average yield at cost of our direct origination portfolio was 9.5% on average for the June quarter, compared to 9.6% in the prior quarter. At the end of June, the weighted average spread on the directly originated corporate lending portfolio was 539 basis points, up one basis point compared to the end of March. Regarding software, our exposure was essentially flat quarter-over-quarter in dollar terms. As of 30 June 2026, software exposure represented just 11.9% of MFIC's portfolio at fair value, which is well below the BDC industry average.

Speaker #4: The average funded position was 12.1 million . The median EBITDA was approximately 53 million , approximately 94% had one or more financial covenants on a cost basis , the weighted average yield at cost of our direct origination portfolio was 9.5% .

Speaker #4: On average for the June quarter , compared to 9.6% in the prior quarter . At the end of June , the weighted average spread on the directly originated corporate lending portfolio was 539 basis points , up one basis point compared to the end of March Regarding software , our exposure was essentially flat quarter over quarter in dollar terms as of June 30th , 2026 , software exposure represented just 11.9% of MFI portfolio at fair value , which is well below the BDC industry average .

Speaker #4: You can find additional details on our software exposure on page five of the earnings supplement As Tanner mentioned , the portfolio generated a net loss of 50.3 million , driven by credit related weakness , concentrated in a limited number of positions Five names contributed approximately 80% of the net loss .

Ted McNulty: You can find additional details on our software exposure on page five of the earnings supplement. As Tanner mentioned, the portfolio generated a net loss of $50.3 million, driven by credit-related weakness concentrated in a limited number of positions. Five names contributed approximately 80% of the net loss. I will now provide some color on the largest contributors. Starting with ChyronHego, a company that provides workflow technology for graphics creation and real-time data visualization for news and sports productions. During the quarter, MFIC completed a debt for equity exchange, converting $60 million of term debt into preferred equity and reducing the commitment on the revolver. A contraction in market multiples and a decline in EBITDA drove the value of the preferred equity lower, resulting in a $21.5 million net loss for the quarter.

Speaker #4: I will now provide some color on the largest contributors Starting with Chiron Ego , a company that provides workflow technology for graphics creation and real time data visualization for news and sports productions .

Speaker #4: During the quarter , MFC completed a debt for equity exchange converting , converting $60 million of term debt into preferred equity and reducing the commitment on the revolver .

Speaker #4: A contraction in market multiples and a decline in EBITDA drove the value of the preferred equity lower, resulting in a $21.5 million net loss for the quarter.

Speaker #4: The next four contributors to the net loss included Midwest Vision Partners New ERA Technology , American Restoration , and Thomas Scientific , each of which is experiencing EBITDA pressure and rising leverage .

Ted McNulty: The next four contributors to the net loss included Midwest Vision Partners, New Era Technology, American Restoration, and Thomas Scientific, each of which is experiencing EBITDA pressure and rising leverage. We in mid-cap remain proactive in managing these underperforming credits. Turning to overall credit quality, no investments were placed on non-accrual status during the quarter, and two investments were restructured and restored to accrual status. At quarter end, investments on non-accrual status totaled $77.6 million, representing 2.8% of total portfolio at fair value. Borrower net leverage or debt to EBITDA increased to 5.36 times from 5.29 times at the end of March, while the weighted average interest coverage ratio remained 2.3 times. Borrower revolver utilization was roughly flat quarter over quarter. PIK income represented 6.2% of total investment income for the June quarter.

Speaker #4: We and MidCap remain proactive in managing these underperforming credits Turning to overall credit quality . No investments were placed on Non-accrual status during the quarter , and two investments were restructured and restored to accrual status at the end .

Speaker #4: At quarter end , investments on Non-accrual status totaled 77.6 million , representing 2.8% of total portfolio at fair value Borrower net leverage or debt to EBITDA increased to 5.36 times from 5.29 times at the end of March , while the weighted average interest coverage ratio remained 2.3 times .

Speaker #4: Borrower revolver utilization was roughly flat quarter over quarter pick income represented 6.2% of total investment income for the June quarter . With that , I will now turn the call over to Kenny to discuss our financial results in detail

Ted McNulty: With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Speaker #5: Thank you , Ted , and good morning , everyone . I will begin by reviewing certain key financial information for the followed by a review of our capital position Total investment income for the June quarter was approximately $68.2 million , a decline of $3.6 million percent from the .

Kenneth Seifert: Thank you, Ted, and good morning, everyone. I will begin by reviewing certain key financial information for the quarter, followed by a review of our capital position. Total investment income for the June quarter was approximately $68.2 million, a decline of $3.6 million.

Kenny Seifert: Thank you, Ted, and good morning, everyone. I will begin by reviewing certain key financial information for the quarter, followed by a review of our capital position. Total investment income for the June quarter was approximately $68.2 million, a decline of $3.6 million.

Kenneth Seifert: The decrease was primarily driven by lower interest income resulting from a decrease in the size of the portfolio. Prepayment income was approximately $2.7 million, and fee income was approximately $600,000, both flat compared to the prior quarter. Dividend income was approximately $200,000. Net expenses for the quarter were $35.5 million, a decline of $2.1 million or 5.6% from the prior quarter. The decrease was driven primarily by lower interest expenses resulting from a lower average debt balance as well as lower management fees and administrative service expenses. The portfolio had a net loss of approximately $50.3 million or $0.61 per share, which eliminated the incentive fee again this quarter.

Speaker #5: The quarter . The decrease was primarily driven by lower interest income resulting from a decrease in the size of the portfolio Prepayment income was approximately $2.7 million , and fee income was approximately $600,000 .

Kenny Seifert: The decrease was primarily driven by lower interest income resulting from a decrease in the size of the portfolio. Prepayment income was approximately $2.7 million, and fee income was approximately $600,000, both flat compared to the prior quarter. Dividend income was approximately $200,000. Net expenses for the quarter were $35.5 million, a decline of $2.1 million or 5.6% from the prior quarter. The decrease was driven primarily by lower interest expenses resulting from a lower average debt balance as well as lower management fees and administrative service expenses. The portfolio had a net loss of approximately $50.3 million or $0.61 per share, which eliminated the incentive fee again this quarter.

Speaker #5: Both flat compared to the prior quarter Dividend income was approximately $200,000 . Net expenses for the quarter were $35.5 million , a decline of $2.1 million , or 5.6% from the prior quarter The decrease was driven primarily by lower interest expenses , resulting from a lower average debt balance , as well as lower management fees and administrative service expenses .

Speaker #5: The portfolio had a net loss of approximately $50.3 million , or $0.61 per share , which eliminated the incentive fee again this quarter .

Kenneth Seifert: For the Q2, net investment income per share was $0.40, while GAAP net loss was $0.21. Turning to the balance sheet. At the end of June, the portfolio had a fair value of $2.77 billion. Total principal debt outstanding was $1.74 billion, and total net assets stood at $1.1 billion or $13.37 per share. Company ended the quarter at 1.54x net leverage. As discussed on last quarter's call, during the Q2, we repurchased approximately 2.76 million shares at an average price of $11.58 inclusive of commissions for a total cost of $31.9 million. As Tanner mentioned, we are currently prioritizing capital allocation towards reducing leverage rather than stock repurchases.

Kenny Seifert: For the Q2, net investment income per share was $0.40, while GAAP net loss was $0.21. Turning to the balance sheet. At the end of June, the portfolio had a fair value of $2.77 billion. Total principal debt outstanding was $1.74 billion, and total net assets stood at $1.1 billion or $13.37 per share. Company ended the quarter at 1.54x net leverage. As discussed on last quarter's call, during the Q2, we repurchased approximately 2.76 million shares at an average price of $11.58 inclusive of commissions for a total cost of $31.9 million. As Tanner mentioned, we are currently prioritizing capital allocation towards reducing leverage rather than stock repurchases.

Speaker #5: For the June quarter , net investment income per share was $0.40 , while GAAP net loss was $0.21 . Turning to the balance sheet at the end of June , the portfolio had a fair value of $2.77 billion .

Speaker #5: Total principal debt outstanding was $1.74 billion , and total net assets stood at $1.1 billion , or $13.37 per share Company ended the quarter at 1.54 times net leverage As discussed on last quarter's call During the June quarter , we repurchased approximately 2.76 million shares at an average price of $11.58 , inclusive of commissions , for a total cost of $31.9 million .

Speaker #5: As Tanner mentioned , we are currently prioritizing capital allocation towards reducing leverage rather than stock repurchases . Our cost of debt for the quarter increased slightly to 5.66% , up from 5.61% in the prior quarter .

Kenneth Seifert: Our cost of debt for the quarter increased slightly to 5.66%, up from 5.61% in the prior quarter. Post quarter end, we refinanced the $125 million of 4.5% notes that matured in July with our revolving credit facility. At today's base rates, the revolving credit facility carries a higher cost relative to the notes, which is expected to modestly increase our cost of debt. The fixed liquidity position remains sound with sufficient access to capital under a revolving credit facility. As of the end of the quarter, the undrawn capacity under the revolving credit facility was $925 million. Adjusting for the recent maturity of the 2026 notes, the undrawn capacity is $800 million.

Kenny Seifert: Our cost of debt for the quarter increased slightly to 5.66%, up from 5.61% in the prior quarter. Post quarter end, we refinanced the $125 million of 4.5% notes that matured in July with our revolving credit facility. At today's base rates, the revolving credit facility carries a higher cost relative to the notes, which is expected to modestly increase our cost of debt. The fixed liquidity position remains sound with sufficient access to capital under a revolving credit facility. As of the end of the quarter, the undrawn capacity under the revolving credit facility was $925 million. Adjusting for the recent maturity of the 2026 notes, the undrawn capacity is $800 million.

Speaker #5: Post quarter end , we refinanced $125 million of 4.5% , notes that matured in July , with our revolving credit facility at today's base rates , the revolving credit facility carries a higher cost relative to the notes , which is expected to modestly increase our cost of debt .

Speaker #5: The fixed liquidity position remains sound , with sufficient access to capital under our revolving credit facility As of the end of the quarter , the undrawn capacity under the revolving credit facility was $925 million .

Speaker #5: Adjusting for the recent maturity of the 2026 notes , the ongoing capacity is $800 million . Our ability to utilize this capacity is subject to compliance with the borrowing base that applies varying advance rates to different types of assets as Memphis continues to reduce its leverage , we expect our liquidity position to improve .

Kenneth Seifert: Our ability to utilize this capacity is subject to compliance with the borrowing base that applies varying advance rates to different types of assets. As MFIC continues to reduce its leverage, we expect our liquidity position to improve. This concludes our prepared remarks. Operator, you can please open the call to questions.

Kenny Seifert: Our ability to utilize this capacity is subject to compliance with the borrowing base that applies varying advance rates to different types of assets. As MFIC continues to reduce its leverage, we expect our liquidity position to improve. This concludes our prepared remarks. Operator, you can please open the call to questions.

Speaker #5: This concludes our prepared remarks Operator , would you please open the call to questions

Speaker #1: Thank you . If you would like to ask a question , press star one on your keypad to leave the queue at any time , press star two .

Operator 3: Thank you. If you would like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. Our first question is from Aaron Cyganowicz with Truist Securities. Your line is open.

Operator: Thank you. If you would like to ask a question, press star one on your keypad. To leave the queue at any time, press star two. Once again, that is star one to ask a question. Our first question is from Aaron Cyganowicz with Truist Securities. Your line is open.

Speaker #1: Once again , that is star one . To ask a question . Our first question is from Erin Ciganovic with Truist Securities Your line is open

Speaker #6: Great .

Speaker #7: Thanks . , I , I guess , you know , as as we're looking at at these results in your kind of , I guess , seeking to deliver and you work through your , , buybacks , , how , how does this impact , I guess your , I ability to continue to be relevant .

Aaron Cyganowicz: Thanks. I guess as we are looking at these results and you are kind of, I guess, seeking to delever and you work through your buybacks, how does this impact, I guess, your, I don't know, ability to continue to be relevant? I know you have other funds. Maybe just talk a little about some of the dynamics of how you think about this portfolio and how you will be managing future investments.

Arren Cyganovich: Thanks. I guess as we are looking at these results and you are kind of, I guess, seeking to delever and you work through your buybacks, how does this impact, I guess, your, I don't know, ability to continue to be relevant? I know you have other funds. Maybe just talk a little about some of the dynamics of how you think about this portfolio and how you will be managing future investments.

Speaker #7: I know you have other funds . , but maybe you just talk a little bit about some of the dynamics of how you think about this , , this portfolio and , and how you'll be managing , , you know , future investments

Speaker #3: Yeah . Thanks , Erin . , thanks for the question When we look at , I think this is one of the , , , you know , very compelling features of MF , IC in the context of our broader middle market franchise .

Kenneth Seifert: Yeah. Thanks, Aaron. Thanks for the question. When we look at, I think this is one of the very compelling features of MFIC in the context of our broader middle market franchise MidCap, in that we are roughly 3 billion of a $50 billion business. Our participation or non-participation in a loan that is originated by MidCap does not ultimately affect our ability to provide that solution to that company or to that particular sponsor. As such, in the current environment, as you alluded to and we mentioned in our prepared remarks where we are not participating in new transactions, our MidCap franchise and our broader sponsor coverage effort, and frankly, our broader direct lending effort is not in any way compromised by our non-participation. In that regard, we do benefit from being a relatively small piece of a much bigger business.

Kenny Seifert: Yeah. Thanks, Aaron. Thanks for the question. When we look at, I think this is one of the very compelling features of MFIC in the context of our broader middle market franchise MidCap, in that we are roughly 3 billion of a $50 billion business. Our participation or non-participation in a loan that is originated by MidCap does not ultimately affect our ability to provide that solution to that company or to that particular sponsor. As such, in the current environment, as you alluded to and we mentioned in our prepared remarks where we are not participating in new transactions, our MidCap franchise and our broader sponsor coverage effort, and frankly, our broader direct lending effort is not in any way compromised by our non-participation. In that regard, we do benefit from being a relatively small piece of a much bigger business.

Speaker #3: Mid-Cap in that we are roughly $3 billion of a $50 billion business . And so our participation or non-participation in a loan , that's originated by mid cap does not ultimately affect our ability to provide that solution to that company or to that particular sponsor .

Speaker #3: And as such , in the current environment , as you alluded to , and we mentioned in our prepared remarks where we are not participating in New transactions or mid-cap franchise and our broader sponsor coverage effort .

Speaker #3: , and frankly , our broader , broader direct lending effort is not in any way compromised by our non-participation . And so in that , in that regard , we do benefit from being a relatively small piece of a much bigger business .

Speaker #7: And what are you targeting from a leverage standpoint , kind of going forward

Aaron Cyganowicz: What are you targeting from a leverage standpoint kind of going forward?

Arren Cyganovich: What are you targeting from a leverage standpoint kind of going forward?

Speaker #3: Yeah , sure . So the , the , the bottom end of our guidance , , you know , so in , in the low one fours

Kenneth Seifert: Yeah, sure. The bottom end of our guidance, in the low 1.4s.

Kenny Seifert: Yeah, sure. The bottom end of our guidance, in the low 1.4s.

Aaron Cyganowicz: Okay. Not a huge decline, just a modest decline. You expect to essentially kind of start to recycle to the extent that you start to see repayments pick up?

Arren Cyganovich: Okay. Not a huge decline, just a modest decline. You expect to essentially kind of start to recycle to the extent that you start to see repayments pick up?

Speaker #7: Okay . So not a whole , not a huge decline , just a modest decline in , in you expect to essentially kind of start to to the extent that you start to see repayments pick up

Speaker #3: Yeah . On that point , Erin , I would note that that is going to be , , evaluated at the time as , as you alluded to , or implicit in your question was our focus right now is on deleveraging .

Kenneth Seifert: Yeah. On that point, Aaron, I would note that that is going to be evaluated at the time as you alluded to or implicit in your question was our focus right now is on deleveraging. When we look out, notwithstanding a relatively tepid M&A environment, all things considered

Kenny Seifert: Yeah. On that point, Aaron, I would note that that is going to be evaluated at the time as you alluded to or implicit in your question was our focus right now is on deleveraging. When we look out, notwithstanding a relatively tepid M&A environment, all things considered

Speaker #3: And when we look out , notwithstanding a relatively tepid M&A environment , all things considered , you know , the quantum of companies that we see that are either in process or soon to be in process , and we probably wait , we feel good about our , ability to get to get leverage down .

Tanner Powell: The quantum of companies that we see that are either in process or soon to be in process, we probability weight. We feel good about our ability to get leverage down, obviously subject to market conditions. As it relates to what we'll do at that time, it will be evaluated based on market conditions at that time and successful completion of de-leveraging.

Speaker #3: Obviously subject to , market conditions . , but , but as it relates to , , what we'll do at that time , it will be evaluated based on , on market conditions at that time .

Speaker #3: And successful completion of , of deleveraging

Speaker #7: Thank you

Aaron Cyganowicz: Thank you.

Arren Cyganovich: Thank you.

Speaker #1: Thank you for your question . Our next question is from Robert Dodd with Raymond James . Please go ahead .

Operator 3: Thank you for your question. Our next question is from Robert Dodd with Raymond James. Please go ahead.

Operator: Thank you for your question. Our next question is from Robert Dodd with Raymond James. Please go ahead.

Speaker #8: Hi guys . obviously there have been a lot of press reports about , , a lack of a better term , strategic alternatives being , , reviewed for , for MFI .

Robert Dodd: Hi, guys. Obviously, there have been a lot of press reports about the lack of strategic alternatives being reviewed for MFIC. You didn't have any comment about that in your prepared remarks, can you either give us any color on that or confirm or deny whether such a review is being undertaken by the board?

Speaker #8: See , you didn't have any comment about that in your prepared remarks , but can you either give us any color on that or confirm or deny whether such a review is being undertaken by , by the board

Speaker #3: Yeah . Thanks , Robert . And , , as you would probably imagine , , you know , as a matter of policy , we do not comment on , , third party reporting or rumors in the market .

Tanner Powell: Yeah. Thanks, Robert. As you would probably imagine, as a matter of policy, we do not comment on third-party reporting or rumors in the market. That said, our focus remains and always has on maximizing value for stockholders, a principle that informs every decision we make, and we believe that our buyback, frankly, is very much in that spirit. Any required disclosures would be made through the appropriate means if, and when required. As I said before, unfortunately, we do not have a comment on that.

Speaker #3: , you know , that said , our focus remains and always has on maximizing value for , for stockholders . , you know , a principle that informs every decision we make and we believe that our buyback , , frankly , is very much in that spirit , you know , any required disclosures , , would , would be made through the appropriate means if and when required .

Speaker #3: But , but as I said before , unfortunately we do not have a comment on that .

Speaker #8: Got it , got it . Thank you . , on to the , the , the , the markdowns , I mean , , you know , obviously .

Robert Dodd: Got it. Thank you. On to the markdowns. Obviously, yeah, the number of non-accruals actually went down this quarter, but some of the markdowns, like I think Thomas Scientific is not on non-accrual currently, unless I'm incorrect there. You said, EBITDA pressure, rising leverage. What's the probability, or what are your thoughts on whether some of these issue credits this quarter could migrate to non-accrual status over the next couple of quarters if they're undergoing, obviously, EBITDA pressure and leverage going the wrong way?

Speaker #8: Yeah . The number of non-accruals actually went down this quarter , but some of the markdowns , I think Thompson Scientific is not on Non-accrual currently unless I'm incorrect .

Speaker #8: There . And I mean , you said , you know , EBITDA pressure , rising leverage . I mean , what do you what's the probability ?

Speaker #8: , or what are your thoughts on whether some of these issue credits this quarter could migrate to Non-accrual status over the next couple of quarters ?

Speaker #8: If they're undergoing , obviously , EBITDA pressure and leverage going the wrong way .

Speaker #4: Yeah . Thanks , Robert . , you know , when we look at the companies , you know , in the basket that that we're watching very closely and that , you know , are having EBITDA and leverage pressure , , you know , there's always a number of things going on , right ?

Ted McNulty: Yeah. Thanks, Robert. When we look at the companies in the basket that we're watching very closely and that are having EBITDA and leverage pressure, there's always a number of things going on, right? We're having conversations with the company, we're having conversations with the sponsor, we're having conversations with other lenders. In some cases, there are businesses that are looking to divest subsidiaries or divisions which could result in de-leveraging. There are situations where the sponsor is considering putting equity in. There are situations where the lender group is willing to put in additional funds or make other concessions to free up cash flow. When we look at the basket of those, I think if you probability weight that, you will have some of those that are resolved super satisfactorily, and then you'll have some of those where they continue to be challenged.

Speaker #4: We , we're having conversations with the company we're having conversations with the sponsor , we're having conversations with other lenders . , you know , in some cases , there are businesses that are looking to divest .

Speaker #4: , you know , subsidiaries or divisions , you know , which could result in deleveraging . There are situations where , , you know , the sponsors considering putting equity in .

Speaker #4: There are situations where the lender group , , you know , is willing to put in additional funds , you know , or make other concessions to free up cash flow .

Speaker #4: , and so when we look at the basket of those , , you know , I think if you , if you probability weight that , you know , you will have , , some of those that , , are resolved super satisfactorily and then you'll have some of those where , you know , they continue to be challenged and , you know , we'll evaluate quarter by quarter , you know , whether , you know , we think there's a reasonable prospect of , , , you know , of putting it on non-accrual or not at that point in time .

Ted McNulty: We'll evaluate quarter by quarter whether we think there's a reasonable prospect of putting it on non-accrual or not at that point in time.

Speaker #3: Yeah . But certainly , as Ted alluded to , certainly this is the bucket where there is , there is more scrutiny . I would also call attention , , to the fact that many of these names are or many of the names in this bucket that we're watching closely .

Tanner Powell: Yeah. Certainly as Ted alluded to, certainly this is the bucket where there is more scrutiny. I would also call attention to the fact that many of the names in this bucket that we're watching closely, perhaps not surprisingly, are from the 2020, 2021 vintage capital structure rules that were done in a different interest rate environment. Certainly the most recent slight tick up in rates and perhaps a prospect for higher for longer or even risk to the upside in terms of rates could challenge the cash flow prospects. As Ted mentioned, not to obfuscate or dodge the question, there are a lot of factors that go into evaluating each and every one of those decisions, and it's hard to say prospectively how the quantum of those dynamics filters out in the decision that's ultimately made.

Speaker #3: , perhaps not surprisingly , are from the 2020 2021 vintage . , capital structure that were , , , done in a different , , interest rate environment and , , you know , certainly the , the most recent , , slight tick up in rates and perhaps a prospect for higher , for longer , even risk to the upside in terms of rates , , you know , could , could challenge the cash flow prospects .

Speaker #3: But as Ted mentioned , , you know , not , not to , not to obfuscate or dodge the question , there are a lot of , factors that go into evaluating each and every one of those decisions .

Speaker #3: And it's hard to say prospectively , , how the quantum of those dynamics , , filters out , , in the decision that's ultimately made .

Speaker #8: Got it , got it . If I , if I can , one more not related to any of that . , you respond to the earlier question .

Robert Dodd: Got it. If I can, one more, not related to any of that. You respond to the earlier question. You sounded more optimistic about the ability to deliver an active market. Essentially all your competitors are saying the same thing. The M&A pipeline is building. We expect it to be a much more active H2, et cetera. I swear I can hear wolves howling in the distance. I've said the same thing. Not a criticism, but what's your confidence that this time it will actually happen?

Speaker #8: I mean , you , you sounded more optimistic . , , about the ability to deliver an active market . I mean , essentially all your competitors , , are saying the same thing .

Speaker #8: , the M&A pipeline is building . We expect it to be , , , , you know , to , to , to , to , to , to be a much more active second half , etc.

Speaker #8: . And I swear I can hear wolves howling in the distance . I mean , I've said the same thing . I mean , it's not a criticism , but like , what's your confidence that that this time it will actually happen

Speaker #3: Look , I think as you're alluding to a little humility is probably , , for , for all market participants on , , you know , the sanguine prognostications on a pickup in M&A .

Tanner Powell: I think as you're alluding to, a little humility is probably for all market participants on the sanguine prognostications on a pickup in M&A. With that as a caveat, the repayment activity was actually relatively healthy in the particular quarter against a rather tepid M&A environment. Importantly, when we are making that judgment, Robert, we are probability weighting, right? We're not saying everything in a process is going to get done. We're saying the quantum of either refis in certain cases. You have a BSL market that's not white hot, but is receptive in getting things done. There's opportunities for certain of our borrowers to graduate, if you will, as well as also the quantum of sale processes, some of which as you will probably be well aware, have been deferred.

Speaker #3: , so with that as a caveat , you know , the , you know , the , the repayment activity was actually relatively healthy in the particular quarter against a , you know , rather tepid M&A environment .

Speaker #3: , and , you know , importantly , when we are making that judgment , Robert , you know , we are probability weighting , right ?

Speaker #3: We're not saying everything in a process is going to get done . We're saying , you know , the quantum of either reifies , , in certain cases , you have , you have a BSL market that's not , you know , white hot , but is , is receptive in getting things done .

Speaker #3: And so there's opportunities for certain of our borrowers to , to graduate , if you will , as well as also the quantum of sale processes .

Speaker #3: Some of which you know , as you will probably , , be well aware , have been deferred , you know , this , this bid ask everyone hoping that that rates would come down and , and it seems that , you know , another factor , , emerges that that may pushes it long .

Tanner Powell: This bid ask, everyone hoping that rates would come down and it seems that another factor emerges that maybe pushes it long and obviously, many of these holdings within private equity firms are getting pretty long in the tooth. Ultimately, it's informed by a probability weighting and a strong quantum of things that are in process or soon to be in process or need to be in process to inform that. The market caveat that it is subject to market conditions, I think as your question implied, it's necessary as a little bit of humility because we've all thought that M&A would come screaming back for many, many quarters and frankly, years at this point.

Speaker #3: And obviously the many of these holdings within private equity firms are getting pretty long in the tooth . But ultimately it's informed by a probability weighting and , and a strong quantum of things that are , , that , that are in process or soon to be in process or need to be , need to be in process , , to inform that .

Speaker #3: And , but the , the market caveat that it is subject to market conditions . And then I think as your question implied , you know , it's , it's , it's necessary .

Speaker #3: A little bit of humility because we've all thought that M&A would come screaming back for , for many , many quarters . And frankly , years at this point .

Speaker #8: Got it . Thank you .

Robert Dodd: Got it. Thank you.

Speaker #1: Thank you for your question . Our next question is from Finian O'Shea . Wells Fargo Securities . Please go ahead .

Operator 3: Thank you for your question. Our next question is from Finian O'Shea, Wells Fargo Securities. Please go ahead.

Operator: Thank you for your question. Our next question is from Finian O'Shea, Wells Fargo Securities. Please go ahead.

Speaker #9: , hey , everyone . Good morning . , just picking up on on some of this dialogue and appreciate the color you gave on , on leverage and buybacks and understanding that , , a lot of it relates to future judgment calls .

Finian O'Shea: Hey, everyone. Good morning. Just picking up on some of this dialogue and appreciate the color you gave on leverage and buybacks and understanding that a lot of it relates to future judgment calls. Zeroing in on the leverage dynamic, as you contemplate buybacks versus new origination on the go forward, why leave leverage so high given that might be a factor that builds on the discount? Assuming it goes down the path of continued buybacks, does that 140 sort of leverage frame go down as a smaller BDC might have less tolerance for high leverage?

Speaker #9: , but zeroing in on the leverage dynamic , like as you contemplate buybacks versus new origination on the go forward , , why , why leave leverage ?

Speaker #9: So high given that might be a factor that builds on the discount and then assuming you , you , you know , it goes down the path of continued buybacks , does that 140 sort of leverage frame go down ?

Speaker #9: , as you know , a smaller BDC might have less tolerance for , for high leverage .

Speaker #5: Yeah .

Tanner Powell: Yeah. Thanks for the question, Fin, and certainly a subject that we debate and think critically about within the management team here. Your points are well taken in terms of even at the lower end of our range, it's a high leverage level. I think when we look at it right now, we are very much focused on getting to the 1.4 and reevaluating. As we evaluate there, to state the obvious and again, not to dodge the question, but it will be a factor of where we are trading, what the forward fee payment pipeline looks like. Importantly also, which we haven't talked about for fairly obvious reasons and that we are not deploying right now, is that when we look at the market, we did see some widening post Iran hostilities, some of which, particularly in the middle market, has been given back.

Speaker #3: Thanks for the question . , Finn and certainly , , a subject that , that we debate and think critically about , , within , within the management team here , , and your points are well taken , , in terms of even at , at the lower end of our range , , it's a , it's a , it's a high leverage level .

Speaker #3: I think when we look at it right now , , we are very much focused on , on , on getting to the , to the one four and , and , and reevaluating , , and , , you know , as we , we evaluate there , you know , it will , to state the obvious and again , not to , to dodge the question , but it will be a factor of where , where we are trading , what the , what the , , the forward , the forward , , payment pipeline looks like .

Speaker #3: And then importantly , also , which we haven't talked about for fairly obvious reasons in that we are not deploying right now , is that when we look at the market , , we , we did see some widening , you know , post Iran hostilities .

Speaker #3: , some of which particularly in the middle market has been given back , , and so , you know , all things being equal , that doesn't scream to us right now as a , you know , overly compelling , , redeployment , , opportunity .

Tanner Powell: All things being equal, that doesn't scream to us right now as an overly compelling redeployment opportunity. I offer that up as another factor that will go in to make that decision. But to answer your question specifically, our focus is right now on getting to the lower end of the range, but we take your points and know that we do debate that as a management team as well.

Speaker #3: And then , and I , and I offer that up as , another factor that will go in to , to make that decision .

Speaker #3: But , to answer your question specifically , , our focus is right now on getting to the lower end of the range , but we take your , your , your points and , and , and , , and know that we , we do debate that as a management team as well .

Finian O'Shea: Appreciate that. A follow-up on the picture of spillover. I know it's probably going to be complicated by equity positions, Merx, et cetera, and can probably move around, but can you sort of outline that for us? What's the degree of spillover now, and how much would sort of naturally roll off and what the sort of pro forma might be? Any color there would be helpful.

Speaker #9: Appreciate that . , in , a , a follow up on the , the picture of spillover , if you can give a , I know it's probably going to be complicated by , , equity positions .

Speaker #9: Merck's , etc. and can probably move around , but can you sort of outline that for us ? Like what's the , what's the degree of spillover now and how much would sort of naturally roll off and where you , what the sort of , I guess pro forma might be , , any color there would be helpful

Speaker #5: Yeah . Thanks for the question . So approximately , , as of midpoint Number came in just over $60 million . , and we're targeting through two year end , obviously , as you mentioned , you know , the impacts of tax around Merck's , , some equity positions , some other challenging points , , you know , we're targeting potentially up to $100 million , you know , subject to , , sorry , $1 million subject to , , you know , the , the tax implications there

[Company Representative] (MidCap Financial Investment Corporation): Yeah, thanks for the question. Approximately as of midpoint number came in just over $60 million, and we're targeting through to year-end, obviously, as you mentioned, the impacts of tax around Merx, some equity positions, some other challenging points. We're targeting potentially up to $1 million subject to the tax implications there.

Speaker #9: Sorry . , did you say a million or it goes from 60 to Okay . That's all for me . Thank you so much

Finian O'Shea: Sorry. Did you say $1 million or it goes from 60 to?

[Company Representative] (MidCap Financial Investment Corporation): $1 million.

Finian O'Shea: Okay. That's all for me. Thank you so much.

Operator 3: Thank you for your question. Once again, if you would like to ask a question, please press star and one on your telephone keypad now. At this time, there are no further questions in the queue. I will turn the meeting back to management.

Operator: Thank you for your question. Once again, if you would like to ask a question, please press star and one on your telephone keypad now. At this time, there are no further questions in the queue. I will turn the meeting back to management.

Speaker #1: Thank you for your question . Once again . If you would like to ask a question , please press star one on your telephone keypad .

Speaker #1: Now At this time , there are no further questions in the queue . I will turn the meeting back to management

Speaker #3: 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 .

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 any of us if you have any additional questions. Please have a nice day.

Speaker #3: Please feel free to reach out to any of us if you have any additional questions , please have a nice day .

Operator 3: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Q2 2026 MidCap Financial Investment Corp Earnings Call

Request DemoDemo

MidCap Financial

Earnings