MSCC(MAIN) - 2023 Q3 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the unaudited consolidated financial statements and management's discussion and analysis of Main Street Capital Corporation Item 1. Consolidated Financial Statements This section presents Main Street Capital Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed investment schedules, along with comprehensive explanatory notes Consolidated Balance Sheets The consolidated balance sheets detail Main Street Capital Corporation's financial position, showing increased total assets and net assets, and decreased total liabilities Consolidated Balance Sheets (thousands of dollars) | Metric | September 30, 2023 (thousands of dollars) | December 31, 2022 (thousands of dollars) | | :----------------------------- | :---------------------------------------- | :---------------------------------------- | | Total Assets | $4,467,760 | $4,241,885 | | Total Investments at Fair Value | $4,294,722 | $4,102,177 | | Cash and Cash Equivalents | $77,047 | $49,121 | | Total Liabilities | $2,096,953 | $2,133,299 | | Credit Facilities | $493,000 | $607,000 | | Total Net Assets | $2,370,807 | $2,108,586 | | Net Asset Value Per Share | $28.33 | $26.86 | Consolidated Statements of Operations The statements of operations show a significant increase in net investment income and net increase in net assets resulting from operations for both the three and nine months ended September 30, 2023, compared to the same periods in 2022 Consolidated Statements of Operations (thousands of dollars) | Metric | Three Months Ended Sept 30, 2023 (thousands of dollars) | Three Months Ended Sept 30, 2022 (thousands of dollars) | Nine Months Ended Sept 30, 2023 (thousands of dollars) | Nine Months Ended Sept 30, 2022 (thousands of dollars) | | :--------------------------------------- | :------------------------------------------------------ | :------------------------------------------------------ | :----------------------------------------------------- | :----------------------------------------------------- | | Total Investment Income | $123,237 | $98,387 | $371,074 | $262,981 | | Net Investment Income | $82,179 | $62,448 | $248,872 | $169,384 | | Net Unrealized Appreciation (Depreciation) | $27,011 | $(10,081) | $167,070 | $(19,922) | | Net Increase in Net Assets from Operations | $103,261 | $55,338 | $289,366 | $135,287 | | Net Investment Income Per Share | $0.99 | $0.83 | $3.07 | $2.31 | Consolidated Statements of Changes in Net Assets The statements show a substantial increase in total net assets from December 31, 2022, to September 30, 2023, primarily driven by the net increase from operations and public offerings of common stock, partially offset by dividends to stockholders Consolidated Statements of Changes in Net Assets (thousands of dollars) | Metric | September 30, 2023 (thousands of dollars) | December 31, 2022 (thousands of dollars) | | :--------------------------------- | :---------------------------------------- | :--------------------------------------- | | Balances at Period End | $2,370,807 | $2,108,586 | | Net Increase Resulting from Operations | $289,366 | $135,287 | | Public Offering of Common Stock, net of offering costs | $165,160 | $194,504 | | Dividends to Stockholders | $(222,283) | $(161,418) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, the company generated significant cash from operating activities, primarily from net increase in net assets and proceeds from investment sales/repayments, which was partially offset by cash used in financing activities Consolidated Statements of Cash Flows (thousands of dollars) | Metric | Nine Months Ended Sept 30, 2023 (thousands of dollars) | Nine Months Ended Sept 30, 2022 (thousands of dollars) | | :------------------------------------ | :----------------------------------------------------- | :----------------------------------------------------- | | Net Cash Provided by Operating Activities | $131,646 | $(257,328) | | Net Cash Provided by (Used in) Financing Activities | $(103,720) | $285,857 | | Dividends Paid | $(197,053) | $(143,075) | | Net Increase in Cash and Cash Equivalents | $27,926 | $28,529 | | Cash and Cash Equivalents at End of Period | $77,047 | $61,158 | Consolidated Schedule of Investments (September 30, 2023) This schedule provides a detailed breakdown of the company's investment portfolio as of September 30, 2023, categorized into Control, Affiliate, and Non-Control/Non-Affiliate investments, with a total fair value of $4,294,722 thousand Investment Portfolio Fair Value (thousands of dollars) | Investment Category | Fair Value (thousands of dollars) | | :------------------------------ | :-------------------------------- | | Control Investments | $1,927,019 | | Affiliate Investments | $565,942 | | Non-Control/Non-Affiliate Investments | $1,801,761 | | Money Market Funds | $37,404 | | Total Investments | $4,294,722 | Consolidated Schedule of Investments (December 31, 2022) This schedule details the company's investment portfolio as of December 31, 2022, categorized similarly to the September 30, 2023 schedule, with a total fair value of $4,102,177 thousand Investment Portfolio Fair Value (thousands of dollars) | Investment Category | Fair Value (thousands of dollars) | | :------------------------------ | :-------------------------------- | | Control Investments | $1,703,172 | | Affiliate Investments | $618,359 | | Non-Control/Non-Affiliate Investments | $1,780,646 | | Total Investments | $4,102,177 | Notes to Consolidated Financial Statements This section provides detailed explanations of Main Street's organization, accounting policies, fair value measurements, debt, financial highlights, and other significant financial disclosures NOTE A — ORGANIZATION AND BASIS OF PRESENTATION Main Street Capital Corporation operates as an internally managed Business Development Company, providing debt and equity financing to lower middle market and middle market companies, and is treated as a Regulated Investment Company for tax purposes - Main Street Capital Corporation (MSCC) is an internally managed Business Development Company (BDC) focused on providing customized debt and equity financing to lower middle market (LMM) and middle market companies[155] - MSCC wholly owns several investment funds, including Main Street Mezzanine Fund, LP and Main Street Capital III, LP, which are licensed as Small Business Investment Companies (SBICs)[156] - MSC Adviser I, LLC (External Investment Manager), a wholly-owned subsidiary, provides investment management and other services to external parties and is accounted for as a portfolio investment[157] - MSCC has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes, generally avoiding corporate-level taxes on distributed income[158] - Investment classifications under the 1940 Act are defined as: Control Investments (>25% voting or >50% board), Affiliate Investments (5-25% voting, not control), and Non-Control/Non-Affiliate Investments (neither control nor affiliate)[165] NOTE B — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines Main Street's key accounting policies, including fair value valuation of its investment portfolio, income recognition, and tax treatment, emphasizing the subjective nature of illiquid investment measurements - Main Street accounts for its Investment Portfolio at fair value in accordance with ASC 820, which defines fair value and establishes a hierarchy for its measurement[166] - Valuation methods include the Waterfall methodology for LMM equity investments, Yield-to-Maturity for LMM/Private Loan debt investments, and Net Asset Value (NAV) for Other Portfolio equity investments[171] - The valuation process is approved by the Board of Directors and involves consultation with an independent financial advisory firm for LMM and Private Loan portfolio companies[170][180][182] - Loans or debt securities are generally placed on non-accrual status when 90 days or more past due, or when collectability is not expected[197] - Payment-in-Kind (PIK) interest and cumulative dividends are recorded as income, but actual cash collection may be deferred until debt principal repayment or preferred equity redemption/sale[199] - MSCC maintains RIC tax treatment, requiring distribution of taxable income; Taxable Subsidiaries are taxed at corporate rates, generating deferred tax assets and liabilities[215][217] - Main Street early adopted ASU 2022-03, 'Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions,' as of December 31, 2022, with no material impact[227] NOTE C — FAIR VALUE HIERARCHY FOR INVESTMENTS—PORTFOLIO COMPOSITION This note details the fair value hierarchy for investments, with most portfolio assets categorized as Level 3 due to unobservable inputs, and provides a breakdown of the investment portfolio by strategy, geography, and industry - Main Street categorizes investments into a three-level fair value hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs in non-active markets), and Level 3 (significant unobservable inputs)[230][232][233] - All LMM, Private Loan, Middle Market, and Other Portfolio investments are categorized as Level 3 due to illiquidity and reliance on unobservable inputs[235][236][237][241] - Significant unobservable inputs for Level 3 valuations include WACC and EBITDA multiples for equity, and risk-adjusted discount rates and expected principal recovery percentages for debt[243][245] Fair Value Measurements by Level (thousands of dollars) | Investment Category | September 30, 2023 (Level 3) | December 31, 2022 (Level 3) | | :------------------------------ | :--------------------------- | :-------------------------- | | LMM portfolio investments | $2,190,371 | $2,060,459 | | Private Loan portfolio investments | $1,543,958 | $1,471,466 | | Middle Market portfolio investments | $290,613 | $329,119 | | Other Portfolio investments | $123,649 | $116,299 | | External Investment Manager | $146,131 | $122,930 | | Short-term portfolio investments | — | $1,904 (Level 2) | | Total Investments | $4,294,722 | $4,102,177 | Investment Portfolio Composition (September 30, 2023 vs. December 31, 2022) | Metric | LMM (Sept 30, 2023) | LMM (Dec 31, 2022) | Private Loan (Sept 30, 2023) | Private Loan (Dec 31, 2022) | Middle Market (Sept 30, 2023) | Middle Market (Dec 31, 2022) | | :------------------------------------ | :------------------ | :----------------- | :--------------------------- | :-------------------------- | :---------------------------- | :--------------------------- | | Number of portfolio companies | 79 | 78 | 89 | 85 | 27 | 31 | | Fair value (millions of dollars) | $2,190.4 | $2,060.5 | $1,544.0 | $1,471.5 | $290.6 | $329.1 | | Cost (millions of dollars) | $1,716.9 | $1,719.9 | $1,577.5 | $1,500.3 | $343.3 | $401.7 | | Debt investments as % of portfolio (at cost) | 71.9% | 73.7% | 96.2% | 97.1% | 92.7% | 93.8% | | Equity investments as % of portfolio (at cost) | 28.1% | 26.3% | 3.8% | 2.9% | 7.3% | 6.2% | | Weighted-average annual effective yield | 12.9% | 12.3% | 12.9% | 11.6% | 12.3% | 11.0% | Total Return on Investments (Annualized) | Period | Return | | :------------------------------------ | :----- | | Three months ended September 30, 2023 | 16.0% | | Three months ended September 30, 2022 | 10.5% | | Nine months ended September 30, 2023 | 15.4% | | Nine months ended September 30, 2022 | 9.6% | | Year ended December 31, 2022 | 11.1% | Investment Portfolio by Type (at Cost) | Type of Investment | September 30, 2023 | December 31, 2022 | | :----------------- | :----------------- | :---------------- | | First lien debt | 83.9% | 85.0% | | Equity | 15.4% | 14.2% | | Second lien debt | 0.3% | 0.3% | | Equity warrants | 0.2% | 0.2% | | Other | 0.2% | 0.3% | | Total | 100.0% | 100.0% | Investment Portfolio by Type (at Fair Value) | Type of Investment | September 30, 2023 | December 31, 2022 | | :----------------- | :----------------- | :---------------- | | First lien debt | 73.2% | 75.2% | | Equity | 26.0% | 24.1% | | Second lien debt | 0.4% | 0.3% | | Equity warrants | 0.2% | 0.1% | | Other | 0.2% | 0.3% | | Total | 100.0% | 100.0% | Investment Portfolio by Geographic Region (at Cost) | Region | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :---------------- | | West | 25.5% | 28.5% | | Northeast | 23.2% | 19.0% | | Southwest | 19.0% | 20.1% | | Midwest | 15.8% | 16.3% | | Southeast | 14.4% | 14.0% | | Other Non-United States | 1.7% | 1.5% | | Canada | 0.4% | 0.6% | | Total | 100.0% | 100.0% | Investment Portfolio by Geographic Region (at Fair Value) | Region | September 30, 2023 | December 31, 2022 | | :---------------------- | :----------------- | :---------------- | | West | 25.6% | 28.7% | | Northeast | 22.4% | 18.8% | | Southwest | 21.1% | 21.4% | | Midwest | 16.5% | 16.6% | | Southeast | 12.5% | 12.4% | | Other Non-United States | 1.6% | 1.5% | | Canada | 0.3% | 0.6% | | Total | 100.0% | 100.0% | Investment Portfolio by Industry (at Cost) | Industry | September 30, 2023 | December 31, 2022 | | :---------------------------- | :----------------- | :---------------- | | Internet Software & Services | 8.2% | 8.0% | | Machinery | 7.0% | 7.4% | | Commercial Services & Supplies | 6.2% | 6.7% | | Professional Services | 6.2% | 4.2% | | Construction & Engineering | 5.7% | 5.8% | | Health Care Providers & Services | 5.1% | 4.7% | | IT Services | 4.9% | 3.3% | | Diversified Consumer Services | 4.7% | 4.5% | | Distributors | 4.3% | 5.1% | | Textiles, Apparel & Luxury Goods | 3.2% | 1.9% | | Leisure Equipment & Products | 3.1% | 4.5% | | Energy Equipment & Services | 3.1% | 3.7% | | Tobacco | 3.0% | 3.1% | | Computers & Peripherals | 2.7% | 2.2% | | Media | 2.4% | 2.4% | | Specialty Retail | 2.1% | 3.2% | | Software | 2.0% | 1.9% | | Electrical Equipment | 1.9% | 1.0% | | Building Products | 1.7% | 1.9% | | Aerospace & Defense | 1.7% | 2.3% | | Containers & Packaging | 1.7% | 2.6% | | Diversified Telecommunication Services | 1.6% | 1.9% | | Auto Components | 1.6% | 1.7% | | Food Products | 1.5% | 1.6% | | Electronic Equipment, Instruments & Components | 1.5% | 1.6% | | Communications Equipment | 1.5% | 1.8% | | Diversified Financial Services | 1.4% | 1.5% | | Internet & Catalog Retail | 1.3% | 1.3% | | Health Care Equipment & Supplies | 1.3% | 1.3% | | Food & Staples Retailing | 1.2% | 1.2% | | Hotels, Restaurants & Leisure | 1.1% | 1.1% | | Chemicals | 1.0% | 1.1% | | Household Products | 1.0% | 0.4% | | Other | 3.1% | 3.1% | | Total | 100.0% | 100.0% | Investment Portfolio by Industry (at Fair Value) | Industry | September 30, 2023 | December 31, 2022 | | :---------------------------- | :----------------- | :---------------- | | Machinery | 8.1% | 8.4% | | Diversified Consumer Services | 7.0% | 6.8% | | Internet Software & Services | 6.8% | 6.8% | | Professional Services | 6.7% | 3.8% | | Construction & Engineering | 5.7% | 5.7% | | Commercial Services & Supplies | 5.1% | 6.1% | | Health Care Providers & Services | 4.8% | 4.3% | | Distributors | 4.6% | 5.5% | | IT Services | 4.5% | 3.1% | | Computers & Peripherals | 4.0% | 3.0% | | Tobacco | 3.2% | 3.4% | | Energy Equipment & Services | 2.8% | 2.7% | | Specialty Retail | 2.7% | 3.5% | | Media | 2.7% | 3.0% | | Leisure Equipment & Products | 2.7% | 4.0% | | Textiles, Apparel & Luxury Goods | 2.6% | 1.8% | | Software | 2.1% | 2.1% | | Electrical Equipment | 2.0% | 1.0% | | Containers & Packaging | 1.9% | 2.8% | | Aerospace & Defense | 1.6% | 2.2% | | Food Products | 1.6% | 1.8% | | Building Products | 1.5% | 1.9% | | Auto Components | 1.5% | 1.6% | | Diversified Telecommunication Services | 1.4% | 1.8% | | Diversified Financial Services | 1.4% | 1.7% | | Internet & Catalog Retail | 1.2% | 1.3% | | Air Freight & Logistics | 1.1% | 0.9% | | Construction Materials | 1.0% | 1.0% | | Health Care Equipment & Supplies | 1.0% | 1.0% | | Chemicals | 0.9% | 1.1% | | Food & Staples Retailing | 0.8% | 1.1% | | Other | 5.0% | 4.8% | | Total | 100.0% | 100.0% | NOTE D — EXTERNAL INVESTMENT MANAGER The External Investment Manager, a wholly-owned portfolio company, provides investment management and administrative services to external clients, earning management and incentive fees, significantly contributing to Main Street's net investment income - The External Investment Manager (EIM) provides investment management and administrative services to external parties, including MSC Income Fund, MS Private Loan Fund I, LP, and MS Private Loan Fund II, LP[292][293][294] - The EIM earns asset-based management fees and incentive fees from its advised funds[293][294] - The fair value of the EIM investment is determined using the Waterfall valuation method under the market approach, with changes recognized as 'Net Unrealized Appreciation (Depreciation) — Control investments'[296] EIM Contribution to Net Investment Income (thousands of dollars) | Period | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Three months ended September 30 | $7,600 | $5,000 | | Nine months ended September 30 | $24,200 | $15,200 | EIM Total Revenues (thousands of dollars) | Revenue Type | Nine Months Ended Sept 30, 2023 (thousands of dollars) | Nine Months Ended Sept 30, 2022 (thousands of dollars) | | :------------------------ | :----------------------------------------------------- | :----------------------------------------------------- | | Management fee income | $16,667 | $16,337 | | Incentive fees | $9,594 | $45 | | Administrative services fees | $456 | $458 | | Total Revenues | $26,717 | $16,840 | NOTE E — DEBT This note details Main Street's debt structure, including Credit Facilities, Notes, and SBIC Debentures, providing outstanding balances, recorded values, estimated fair values, and a summary of interest expenses and covenant compliance - The Corporate Facility has total commitments of $995.0 million, with $323.0 million outstanding as of September 30, 2023, bearing interest at 7.3% and maturing in August 2027[309][313] - The SPV Facility has total commitments of $255.0 million, with $170.0 million outstanding as of September 30, 2023, bearing interest at 7.9% and maturing in November 2027[314][315] - SBIC debentures outstanding totaled $350.0 million as of September 30, 2023, with a weighted-average annual interest rate of 3.0% and the first principal maturity due in 2024[327] Debt Summary as of September 30, 2023 (thousands of dollars) | Debt Instrument | Outstanding Balance (thousands of dollars) | Recorded Value (thousands of dollars) | Estimated Fair Value (thousands of dollars) | | :-------------------- | :----------------------------------------- | :------------------------------------ | :------------------------------------------ | | Corporate Facility | $323,000 | $323,000 | $323,000 | | SPV Facility | $170,000 | $170,000 | $170,000 | | July 2026 Notes | $500,000 | $498,530 | $442,405 | | May 2024 Notes | $450,000 | $450,318 | $445,406 | | SBIC Debentures | $350,000 | $344,239 | $284,128 | | December 2025 Notes | $150,000 | $148,835 | $150,781 | | Total Debt | $1,943,000 | $1,934,922 | $1,815,720 | Interest Expense for Nine Months Ended September 30 (thousands of dollars) | Debt Instrument | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :-------------------- | :-------------------------- | :-------------------------- | | Corporate Facility | $21,666 | $11,249 | | SPV Facility | $10,605 | — | | July 2026 Notes | $11,645 | $11,645 | | May 2024 Notes | $17,141 | $17,141 | | SBIC Debentures | $8,435 | $8,482 | | December 2025 Notes | $8,673 | — | | December 2022 Notes | — | $6,699 | | Total Interest Expense | $78,165 | $55,216 | NOTE F — FINANCIAL HIGHLIGHTS This note presents key financial highlights, including Net Asset Value per share, net investment income per share, and various financial ratios, showing improved total return metrics for the nine months ended September 30, 2023 Per Share Data for Nine Months Ended September 30 | Metric | 2023 | 2022 | | :-------------------------------------- | :---- | :---- | | NAV at the beginning of the period | $26.86 | $25.29 | | Net investment income | $3.07 | $2.31 | | Net increase in net assets from operations | $3.57 | $1.84 | | NAV at the end of the period | $28.33 | $25.94 | | Market value at the end of the period | $40.63 | $33.64 | Key Financial Ratios for Nine Months Ended September 30 | Metric | 2023 | 2022 | | :-------------------------------------- | :------ | :------ | | Ratio of net investment income to average NAV | 11.18% | 9.03% | | Total investment return | 17.72% | (20.81)% | | Total return based on change in NAV | 13.72% | 7.56% | NOTE G — DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME Main Street pays regular monthly and supplemental dividends, distributing at least 90% of its taxable income as a RIC to avoid corporate-level taxes, with this note reconciling net assets to taxable income and distributions Dividends Paid (Nine Months Ended September 30) | Dividend Type | 2023 (thousands of dollars) | 2023 (per share) | 2022 (thousands of dollars) | 2022 (per share) | | :------------------ | :-------------------------- | :--------------- | :-------------------------- | :--------------- | | Regular monthly dividends | $164,900 | $2.04 | $141,200 | $1.935 | | Supplemental dividends | $55,300 | $0.675 | $18,500 | $0.25 | Reconciliation of Net Increase in Net Assets to Taxable Income and Distributions (Nine Months Ended September 30, thousands of dollars) | Metric | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :-------------------------------------- | :-------------------------- | :-------------------------- | | Net increase in net assets from operations | $289,366 | $135,287 | | Estimated taxable income | $221,743 | $164,923 | | Total distributions accrued or paid to common stockholders | $222,283 | $161,418 | Income Tax Provision (Nine Months Ended September 30, thousands of dollars) | Tax Type | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :-------------------- | :-------------------------- | :-------------------------- | | Total current tax expense | $4,663 | $3,658 | | Total deferred tax expense | $18,690 | $13,819 | | Total income tax provision | $23,353 | $17,477 | NOTE H — COMMON STOCK Main Street utilizes an At-The-Market (ATM) Program for selling common stock, having sold 4,186,856 shares for $166.8 million in gross proceeds during the nine months ended September 30, 2023 - During the nine months ended September 30, 2023, Main Street sold 4,186,856 shares of common stock under its ATM Program at a weighted-average price of $39.84 per share, generating $166.8 million in gross proceeds and $165.1 million in net proceeds[350] - As of September 30, 2023, 6,275,828 shares remained available for sale under the ATM Program[350] NOTE I — DIVIDEND REINVESTMENT PLAN The Dividend Reinvestment Plan allows stockholders to reinvest cash dividends into additional shares of common stock, with $22.8 million in participation and 574,323 shares issued for DRIP during the nine months ended September 30, 2023 DRIP Information (Nine Months Ended September 30) | Metric | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :---------------- | :-------------------------- | :-------------------------- | | DRIP participation | $22,791 | $16,370 | | Shares issued for DRIP | 574,323 | 410,415 | NOTE J — SHARE-BASED COMPENSATION Main Street accounts for share-based compensation using the fair value method for restricted stock awards granted to employees and non-employee directors, with compensation expense amortized over the vesting period - As of September 30, 2023, total unrecognized compensation expense related to non-vested restricted shares was $34.4 million, expected to be recognized over a remaining weighted-average period of 2.7 years[364] Share-Based Compensation Expense (thousands of dollars) | Period | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Three months ended September 30 | $4,200 | $3,600 | | Nine months ended September 30 | $12,400 | $10,000 | Restricted Stock Awards (RSAs) Activity (Nine Months Ended September 30, 2023) | Metric | Number of Shares | Weighted-Average Grant-Date Fair Value ($ per share) | | :-------------------------------------- | :--------------- | :--------------------------------------------------- | | Non-vested, December 31, 2022 | 817,401 | $38.78 | | Granted | 551,730 | $39.43 | | Vested | (398,914) | $39.20 | | Forfeited | (11,992) | $40.47 | | Non-vested, September 30, 2023 | 958,225 | $40.48 | | Aggregate intrinsic value (Sept 30, 2023) | — | $38,933 (thousands of dollars) | NOTE K — COMMITMENTS AND CONTINGENCIES Main Street has outstanding commitments for equity capital and revolving/term loans to portfolio companies, totaling $325.3 million as of September 30, 2023, which it expects to fund through existing liquidity and future capital raises - Main Street expects to fund its unfunded commitments using existing cash, cash equivalents, and borrowings under its Credit Facilities[375] Outstanding Commitments as of September 30, 2023 (thousands of dollars) | Commitment Type | Amount (thousands of dollars) | | :------------------ | :---------------------------- | | Total Equity Commitments | $41,325 | | Total Loan Commitments | $284,020 | | Total Commitments | $325,345 | NOTE L — RELATED PARTY TRANSACTIONS Main Street engages in various related party transactions, including investments in clients of its External Investment Manager, co-investments with advised funds, and a deferred compensation plan for directors and employees - As of September 30, 2023, Main Street had a $9.4 million receivable from the External Investment Manager, including operating expenses and declared but unpaid dividends[380] - Main Street owned 814,379 shares of MSC Income Fund as of September 30, 2023, following several purchases[382] - Main Street committed up to $15.0 million to MS Private Loan Fund I, LP, having funded $14.3 million with $0.7 million unfunded as of September 30, 2023[383] - Main Street committed up to $15.0 million to MS Private Loan Fund II, LP, having funded $1.2 million with $6.5 million unfunded as of September 30, 2023[387] - Main Street provided MS Private Loan Fund II, LP with a $50.0 million revolving line of credit, with $11.0 million outstanding as of September 30, 2023[388] - As of September 30, 2023, $18.9 million of compensation was deferred under the 2015 Deferred Compensation Plan, including $7.1 million in phantom Main Street stock units and $11.8 million in funded investments within a rabbi trust[390][391] NOTE M — SUBSEQUENT EVENTS Subsequent to September 30, 2023, Main Street expanded its SPV Facility commitments, declared a supplemental cash dividend for December 2023, and increased regular monthly dividends for Q1 2024 - In October 2023, Main Street expanded its total commitments under the SPV Facility from $255.0 million to $430.0 million[392] - A supplemental cash dividend of $0.275 per share was declared in October 2023, payable in December 2023[393] - Regular monthly dividends of $0.24 per share were declared for January, February, and March 2024, totaling $0.72 per share for Q1 2024, representing a 6.7% increase from Q1 2023[394][541][542] Consolidated Schedules of Investments in and Advances to Affiliates These schedules provide detailed breakdowns of investments in and advances to affiliates, categorized by Control and Affiliate investments, showing realized and unrealized gains/losses, income credited, and fair value for September 30, 2023, and 2022 Total Control Investments (thousands of dollars) | Metric | September 30, 2023 (thousands of dollars) | September 30, 2022 (thousands of dollars) | | :------------------ | :---------------------------------------- | :---------------------------------------- | | Realized Gain/(Loss) | $(50,532) | $(5,822) | | Unrealized Gain/(Loss) | $122,779 | $20,618 | | Income Credited | $145,485 | $110,751 | | Fair Value | $1,927,019 | $1,599,429 | Total Affiliate Investments (thousands of dollars) | Metric | September 30, 2023 (thousands of dollars) | September 30, 2022 (thousands of dollars) | | :------------------ | :---------------------------------------- | :---------------------------------------- | | Realized Gain/(Loss) | $(16,495) | $1,340 | | Unrealized Gain/(Loss) | $26,859 | $3,703 | | Income Credited | $53,722 | $38,300 | | Fair Value | $565,942 | $552,581 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Main Street's financial condition, operating results, investment portfolio, asset quality, and liquidity for the periods ended September 30, 2023 and 2022 - Main Street's principal investment objective is to maximize total return by generating current income from debt investments and capital appreciation from equity and equity-related investments in LMM and Middle Market companies[437] - The company operates with an internally managed structure, which is believed to provide better alignment of interests with shareholders and a beneficial operating expense structure compared to externally managed firms[447] Operating Expenses as a Percentage of Average Total Assets | Metric | Trailing 12 months ended Sept 30, 2023 | Trailing 12 months ended Sept 30, 2022 | Year ended Dec 31, 2022 | | :-------------------------------------- | :------------------------------------- | :------------------------------------- | :---------------------- | | Total operating expenses (excluding interest) | 1.4% | 1.4% | 1.4% | | Total operating expenses (including interest) | 3.7% | 3.3% | 3.3% | External Investment Manager Contribution to Net Investment Income (thousands of dollars) | Period | 2023 (thousands of dollars) | 2022 (thousands of dollars) | | :------------------------------------ | :-------------------------- | :-------------------------- | | Three months ended September 30 | $7,600 | $5,000 | | Nine months ended September 30 | $24,200 | $15,200 | - The valuation of the Investment Portfolio is considered a critical accounting estimate due to the significant judgments and subjective measurements required for illiquid investments[464] Comparison of Results of Operations (Three Months Ended September 30, thousands of dollars) | Metric | 2023 (thousands of dollars) | 2022 (thousands of dollars) | Net Change (Amount, thousands of dollars) | Net Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------- | :------------- | | Total investment income | $123,237 | $98,387 | $24,850 | 25% | | Total expenses | $(41,058) | $(35,939) | $(5,119) | 14% | | Net investment income | $82,179 | $62,448 | $19,731 | 32% | | Net realized gain from investments | $664 | $5,031 | $(4,367) | NM | | Net unrealized appreciation (depreciation) from investments | $27,011 | $(10,081) | $37,092 | NM | | Income tax provision | $(6,593) | $(2,060) | $(4,533) | NM | | Net increase in net assets from operations | $103,261 | $55,338 | $47,923 | 87% | Comparison of Results of Operations (Nine Months Ended September 30, thousands of dollars) | Metric | 2023 (thousands of dollars) | 2022 (thousands of dollars) | Net Change (Amount, thousands of dollars) | Net Change (%) | | :-------------------------------------- | :-------------------------- | :-------------------------- | :---------------------------------------- | :------------- | | Total investment income | $371,074 | $262,981 | $108,093 | 41% | | Total expenses | $(122,202) | $(93,597) | $(28,605) | 31% | | Net investment income | $248,872 | $169,384 | $79,488 | 47% | | Net realized gain (loss) from investments | $(103,223) | $3,302 | $(106,525) | NM | | Net unrealized appreciation (depreciation) from investments | $167,070 | $(19,922) | $186,992 | NM | | Income tax provision | $(23,353) | $(17,477) | $(5,876) | NM | | Net increase in net assets from operations | $289,366 | $135,287 | $154,079 | 114% | - As of September 30, 2023, cash and cash equivalents totaled $77.0 million, with $757.0 million of unused capacity under Credit Facilities[517] - The BDC asset coverage ratio was 248% as of September 30, 2023, exceeding the required minimum of 150%[529] - Portfolio companies have experienced increasing impacts of inflation on operating results, potentially affecting debt service, defaults, and fair value of investments[532] Contractual Obligations as of September 30, 2023 (thousands of dollars) | Obligation | Total (thousands of dollars) | | :------------------------- | :--------------------------- | | July 2026 Notes | $500,000 | | Interest due on July 2026 Notes | $45,000 | | May 2024 Notes | $450,000 | | Interest due on May 2024 Notes | $23,400 | | SBIC debentures | $350,000 | | Interest due on SBIC debentures | $47,484 | | December 2025 Notes | $150,000 | | Interest due on December 2025 Notes | $29,045 | | Operating Lease Obligation | $12,293 | | Total | $1,607,222 | - Subsequent to September 30, 2023, Main Street expanded its SPV Facility commitments from $255.0 million to $430.0 million, declared a supplemental cash dividend of $0.275 per share for December 2023, and increased regular monthly dividends for Q1 2024 to $0.24 per share (total $0.72/share)[539][540][541][542] Item 3. Quantitative and Qualitative Disclosures about Market Risk Main Street is exposed to market risks, primarily interest rate risk, affecting both interest income from investments and interest expense on debt, with most debt investments having floating rates and most debt obligations being fixed rate - Main Street is subject to financial market risks, including changes in interest rates, which affect both interest expense on debt and interest income from portfolio investments[543] - As of September 30, 2023, 70% of the debt Investment Portfolio (at cost) bore floating rates, with 91% of these subject to contractual minimum interest rates[544] - As of September 30, 2023, 75% of Main Street's debt obligations bore fixed rates[544] - Main Street had not entered into any interest rate hedging arrangements as of September 30, 2023[544] Annualized Net Investment Income Sensitivity to Hypothetical Base Rate Changes (as of September 30, 2023, thousands of dollars, except per share amounts) | Basis Point Change | Net Investment Income (thousands of dollars) | Net Investment Income per Share | | :----------------- | :----------------------------------------- | :------------------------------ | | (200) | $(32,003) | $(0.38) | | (100) | $(16,001) | $(0.19) | | 100 | $16,001 | $0.19 | | 200 | $32,003 | $0.38 | Item 4. Controls and Procedures Management evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they are effective, with no material changes to internal control over financial reporting during the quarter - An evaluation of the effectiveness of disclosure controls and procedures was carried out as of September 30, 2023, and management concluded they are effective[548] - There have been no material changes in internal control over financial reporting during the quarter ended September 30, 2023[548] PART II OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity sales, other disclosures, and exhibits Item 1. Legal Proceedings Main Street may be involved in litigation in the normal course of business but does not expect any current matters to materially affect its financial condition or results of operations - Main Street does not expect any current legal proceedings to materially affect its financial condition or results of operations[550] Item 1A. Risk Factors There are no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for fiscal year ended December 31, 2022, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 - There are no material changes to the risk factors as previously disclosed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2022, and the Quarterly Report on Form 10-Q for the quarter ended March 31, 2023[553] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During the three months ended September 30, 2023, Main Street issued 200,150 shares of common stock under its dividend reinvestment plan, totaling $8.1 million, which were not subject to registration requirements - During the three months ended September 30, 2023, 200,150 shares of common stock were issued under the dividend reinvestment plan, with an aggregate value of $8.1 million, not subject to registration requirements[554] - Shares were withheld to meet applicable tax withholding requirements upon vesting of restricted stock awarded under the employee equity compensation plan[555] Item 5. Other Information Main Street terminated its equity distribution agreement with Comerica Securities, Inc. for the ATM Program, with other sales agents continuing, and no insider trading arrangements were adopted or terminated during the quarter - The equity distribution agreement with Comerica Securities, Inc. for the ATM Program was terminated effective November 3, 2023[556] - No contract, instruction, or written plan for the purchase or sale of securities under Exchange Act Rule 10b5-1(c) or any 'non-Rule 10b5-1 trading arrangement' was adopted or terminated during the fiscal quarter ended September 30, 2023[557] Item 6. Exhibits This section lists the exhibits filed as part of the report, including lender joinder agreements, certifications from executive officers, and financial information formatted in iXBRL - Exhibits filed include Lender Joinder Agreements (10.1, 10.2), Certifications of Chief Executive Officer and Chief Financial Officer (31.1, 31.2, 32.1, 32.2), and financial information formatted in Inline Extensible Business Reporting Language (iXBRL) (101, 104)[558] Signatures The report is duly signed on behalf of Main Street Capital Corporation by its Chief Executive Officer, Chief Financial Officer and Chief Operating Officer, and Chief Accounting Officer on November 3, 2023 - The report was signed by Dwayne L. Hyzak (Chief Executive Officer), Jesse E. Morris (Chief Financial Officer and Chief Operating Officer), and Ryan R. Nelson (Chief Accounting Officer)[561] - The report was signed on November 3, 2023[561]