MSCC(US:MAIN)2025-11-07 16:39Investment Strategy - Main Street Capital Corporation focuses on providing customized long-term debt and equity capital solutions to lower middle market companies, with LMM investments typically ranging from $5 million to $125 million [397]. - The company’s LMM investment strategy targets companies with annual revenues between $10 million and $150 million and EBITDA between $3 million and $20 million [406]. - Private Loan investments generally range in size from $10 million to $100 million, targeting companies with annual revenues between $25 million and $500 million [406]. - The company has generally stopped making new Middle Market investments and expects the size of its Middle Market investment portfolio to continue to decline [398]. - The level of new portfolio investment activity will fluctuate based on economic fundamentals and the ability to identify new investment opportunities [415]. - The company’s legacy portfolio includes investments in larger Middle Market companies, which are expected to decline as existing investments are repaid or sold [410]. - Main Street Capital Corporation has a comprehensive suite of financing options, allowing it to offer a "one-stop" financing solution to LMM portfolio companies [407]. Financial Performance - Total investment income for Q3 2025 was $139.8 million, a 2% increase from $136.8 million in Q3 2024 [453]. - Interest income decreased by 7% to $103.3 million in Q3 2025, primarily due to lower interest rates and an increase in non-accrual investments [455]. - Dividend income increased by 35% to $31.3 million in Q3 2025, driven by higher dividends from LMM portfolio companies [455]. - Fee income rose by 74% to $5.3 million in Q3 2025, attributed to increased investment activity and refinancing [455]. - Net investment income before taxes for Q3 2025 was $89.5 million, a 2% increase from $87.6 million in Q3 2024 [450]. - Net realized loss for Q3 2025 was $19.1 million, compared to a gain of $26.4 million in Q3 2024 [450]. - Net unrealized appreciation for Q3 2025 was $63.0 million, significantly higher than $21.7 million in Q3 2024 [450]. - For the three months ended September 30, 2025, net investment income increased by 3% to $86.5 million, or $0.97 per share, compared to $84.4 million, or $0.96 per share, in the same period of 2024 [459]. - Distributable net investment income for the three months ended September 30, 2025, rose by 3% to $92.7 million, or $1.03 per share, compared to $89.8 million, or $1.03 per share, in the corresponding period of 2024 [460]. - Total investment income for the nine months ended September 30, 2025, was $420.9 million, a 5% increase from $400.6 million in the corresponding period of 2024 [475]. - Net investment income rose by 2% to $260.6 million, or $2.92 per share, despite an increase in weighted-average shares outstanding [479]. - Distributable net investment income increased by 3% to $278.0 million, or $3.12 per share, reflecting the overall growth in net investment income [480]. - The net increase in net assets resulting from operations was $362.3 million, or $4.06 per share, compared to $333.8 million, or $3.87 per share, in the prior year [490]. Expenses and Fees - The ratio of total operating expenses, excluding interest expense, as a percentage of quarterly average total assets was 1.3% for the trailing twelve months ended September 30, 2025 and 2024 [417]. - The ratio of total operating expenses, including interest expense, as a percentage of quarterly average total assets was 3.8% for the trailing twelve months ended September 30, 2025 [417]. - Total expenses for the three months ended September 30, 2025, were $5.7 million, compared to $5.3 million in the same period of 2024 [421]. - Total expenses for Q3 2025 were $50.3 million, a 2% increase from $49.2 million in Q3 2024 [456]. - Total expenses increased by 9% to $148.2 million, driven by higher cash compensation, general and administrative expenses, and interest expenses [477]. - Share-based compensation expense increased by 12% to $5.433 million for the three months ended September 30, 2025, compared to $4.868 million in the same period of 2024 [457]. - The External Investment Manager earns a 1.5% annual base management fee on MSC Income's average total assets starting January 29, 2025, down from 1.75% [418]. - For the three months ended September 30, 2025, the External Investment Manager earned $5.6 million in base management fees, a decrease of 8.2% from $6.1 million in the same period of 2024 [420]. - The total contribution of the External Investment Manager to net investment income for the three months ended September 30, 2025, was $8.8 million, up 11.4% from $7.9 million in 2024 [423]. Portfolio Valuation - As of September 30, 2025, the fair value of the LMM portfolio was $2,782.2 million, an increase from $2,502.9 million as of December 31, 2024 [426]. - The weighted-average annual effective yield for the LMM portfolio as of September 30, 2025, was 12.7%, slightly down from 12.8% as of December 31, 2024 [426]. - The average EBITDA for the Private Loan portfolio as of September 30, 2025, was $34.3 million, compared to $30.5 million as of December 31, 2024 [426]. - As of September 30, 2025, Other Portfolio investments totaled $122.8 million in fair value, representing 2.4% of the total Investment Portfolio [432]. - The investment in the External Investment Manager had a fair value of $266.4 million as of September 30, 2025, up from $246.0 million as of December 31, 2024 [435]. - Investments on non-accrual status comprised 1.2% of the total Investment Portfolio at fair value as of September 30, 2025 [447]. - The company anticipates potential negative impacts on portfolio company performance due to broader economic conditions [448]. - The total net unrealized appreciation for the three months ended September 30, 2025, was $63.0 million, with $50.8 million related to LMM portfolio investments [464]. - The company experienced a net unrealized appreciation of $107.2 million for the nine months ended September 30, 2025, compared to $85.4 million in the same period of 2024 [471]. Cash and Debt Management - As of September 30, 2025, the company had $30.6 million in cash and cash equivalents and $1.530 billion of unused capacity under its Credit Facilities [494]. - The company amended its Corporate Facility in April 2025, decreasing the interest rate and increasing revolving commitments to $1.145 billion [496]. - The company has a total future cash payment commitment of $2.441 billion related to various debt instruments and obligations over the next five years [516]. - The company has $350.0 million of outstanding SBIC debentures guaranteed by the SBA, with a weighted-average annual fixed interest rate of 3.3% [503]. - As of September 30, 2025, 64% of the debt investment portfolio (at cost) bore interest at floating rates, with 96% subject to contractual minimum interest rates [524]. - 90% of the company's debt obligations bore interest at fixed rates as of September 30, 2025 [524]. - The company issued $300.0 million in 3.00% unsecured notes due July 14, 2026, and an additional $200.0 million in October 2021, totaling $500.0 million outstanding as of September 30, 2025 [499]. - In June 2024, the company issued $300.0 million in 6.50% unsecured notes due June 4, 2027, and an additional $100.0 million in September 2024, with a total outstanding amount of $400.0 million [500]. - The company issued $350.0 million in 5.40% unsecured notes due August 15, 2028, with the full amount outstanding as of September 30, 2025 [501]. Dividends - The company declared a supplemental dividend of $0.30 per share in November 2025, in addition to regular monthly dividends of $0.255 per share for October, November, and December 2025, totaling $1.065 per share for the fourth quarter [520]. - Regular monthly dividends of $0.26 per share were declared for January, February, and March 2026, representing a 4.0% increase from the first quarter of 2025 [521]. Interest Rate Sensitivity - A hypothetical 200 basis point decrease in interest rates would result in a decrease of $42,668,000 in net investment income [527]. - A hypothetical 200 basis point increase in interest rates would lead to an increase of $40,819,000 in net investment income [527]. - The company has not entered into any interest rate hedging arrangements as of September 30, 2025 [524]. - The analysis of interest rate changes does not account for future changes in the credit market or economic developments that could affect net investment income [528]. - The majority of investments reset quarterly, while Credit Facilities and related debt obligations reset monthly [528]. - The company operates as a "limited derivatives user" under Rule 18f-4 under the 1940 Act [524]. - Changes in floating benchmark index interest rates will affect the incentive fees earned by the External Investment Manager [524]. - The company expects that changes in interest rates will impact its cost of capital, net investment income, and the value of its investments [523].