MSCC(MAIN) - 2024 Q1 - Quarterly Report

Investment Strategy - Main Street Capital Corporation's investment strategy focuses on lower middle market companies with annual revenues between $10 million and$150 million, and investments typically range from $5 million to$100 million[431]. - Main Street's Middle Market investment strategy involves companies with annual revenues typically between $150 million and$1.5 billion, with investments generally ranging from $3 million to$25 million[431]. - The company has de-emphasized its Middle Market investment strategy in recent years and plans to continue this trend[434]. - Main Street's Private Loan investments generally range in size from $10 million to$75 million and are typically secured by a first priority lien on the assets of the portfolio company[431]. - The company aims to maximize total return by generating current income from debt investments and capital appreciation from equity investments[431]. Financial Performance - Total investment income for Q1 2024 was $131.6 million, a 9$120.3 million in Q1 2023[476]. - Net investment income for Q1 2024 increased 11% to $89.8 million, or$1.05 per share, compared to $80.9 million, or$1.02 per share, in Q1 2023[484]. - Distributable net investment income for Q1 2024 rose 10% to $94.4 million, or$1.11 per share, compared to $85.4 million, or$1.07 per share, in Q1 2023[485]. - The total return on investments for the three months ended March 31, 2024, is 16.7%, up from 13.4% for the same period in 2023[456]. - The net increase in net assets resulting from operations was $107.1 million, or$1.26 per share, compared to $79.6 million, or$1.00 per share, for the same period in 2023[493]. Investment Portfolio - As of March 31, 2024, the fair value of the LMM portfolio is $2,361.5 million, an increase from$2,273.0 million as of December 31, 2023, representing a growth of 3.9%[451][453]. - The weighted-average annual effective yield for the LMM portfolio is 12.8% as of March 31, 2024, compared to 13.0% as of December 31, 2023, indicating a slight decrease[451][453]. - The company has co-invested in 81 LMM portfolio companies, with an average fully diluted equity ownership of 40%[451]. - As of March 31, 2024, Other Portfolio investments totaled $139.8 million in fair value, down from$142.0 million as of December 31, 2023[457]. - The company has short-term portfolio investments totaling $103.4 million in fair value as of March 31, 2024, which were not present as of December 31, 2023[458]. Expenses and Income - The ratio of total operating expenses, excluding interest expense, as a percentage of quarterly average total assets was 1.3$41.8 million, a 6% increase from $39.3 million in Q1 2023[478]. - The increase in interest income was primarily due to higher interest rates on floating rate investments, resulting in a 7$100.1 million in Q1 2024[477]. - Fee income surged by 230% to $8.7 million in Q1 2024, driven by increased refinancing and prepayment activities[477]. Debt and Cash Management - The company had$115.0 million in cash and cash equivalents and $1,102.0 million of unused capacity under Credit Facilities as of March 31, 2024[498]. - The outstanding aggregate principal amount of the March 2029 Notes was$350.0 million as of March 31, 2024[502]. - The company had $288.0 million in outstanding commitments, including 83 investments with commitments to fund revolving loans and 13 investments with equity capital commitments[514]. - The company realized cash proceeds totaling$175.0 million from sales and repayments of debt investments and equity investments during the three months ended March 31, 2024[495]. - The company repaid the entire $450.0 million principal amount of the May 2024 Notes at par value in May 2024, funded through borrowings on Credit Facilities[520]. Risk Management - The company noted risks associated with investing in below investment-grade debt and equity investments, including potential economic downturns impacting portfolio performance[471]. - Interest expense sensitivity analysis indicates that a 200 basis point increase in interest rates could decrease net investment income by approximately$34.842 million[525]. - The company expects that changes in interest rates will affect both interest expense on debt and interest income from portfolio investments, highlighting the importance of risk management systems[523]. - The company has not entered into any interest rate hedging arrangements as of March 31, 2024, and operates as a "limited derivatives user" under applicable regulations[524]. - The company has policies in place to manage potential conflicts of interest arising from co-investments with the External Investment Manager[448]. Dividends - A supplemental dividend of $0.30 per share was declared in May 2024, in addition to regular monthly dividends of$0.24 per share for April, May, and June 2024, totaling $0.72 per share for Q2 2024[521]. - Regular monthly dividends of$0.245 per share were declared for July, August, and September 2024, representing a 6.5% increase from the same period in 2023[522].