MSCC(US:MAIN)2024-02-23 16:12Part I Business Overview MSCC is an internally managed BDC and RIC, providing debt and equity financing to LMM and Middle Market companies, and managing external funds - Main Street Capital Corporation (MSCC) is an internally managed Business Development Company (BDC) and Regulated Investment Company (RIC), focusing on customized debt and equity financing for lower middle market (LMM) and middle market companies161720 - The company's internally managed structure avoids external investment advisory fees, directly incurring operating costs for investment and portfolio management professionals, aiming for better interest alignment and optimized operating expenses1737 - MSCC wholly owns Main Street Mezzanine Fund, LP (MSMF) and Main Street Capital III, LP (MSC III), both licensed as Small Business Investment Companies (SBICs), enabling them to issue SBA-guaranteed debentures with favorable long-term fixed interest rates1845 - MSC Adviser I, LLC (External Investment Manager), a wholly-owned subsidiary, provides investment management services to external parties, generating fee income and contributing to MSCC's net investment income193440 External Investment Manager Contribution to Net Investment Income | Year Ended December 31, | Total Contribution (in millions) | | :---------------------- | :------------------------------- | | 2023 | $33.4 | | 2022 | $22.3 | | 2021 | $16.5 | External Investment Manager Fees Earned | Year Ended December 31, | Base Management Fees (in millions) | Incentive Fees (in millions) | Administrative Service Fee Income (in millions) | | :---------------------- | :--------------------------------- | :--------------------------- | :-------------------------------------------- | | 2023 | $22.4 | $13.4 | $0.6 | | 2022 | $21.8 | $2.5 | $0.6 | | 2021 | $17.7 | $0.6 | $0 | - MSCC's investment objective is to maximize total return through current income from debt and equity investments, and capital appreciation from equity, achieved via LMM, Private Loan, and Middle Market strategies2644 - Business strategies include delivering customized 'one-stop' financing solutions in the LMM, focusing on established companies, leveraging an experienced investment team, diversifying investments, capitalizing on a strong sourcing network, growing asset management, and benefiting from lower, fixed, long-term cost of capital through SBIC licenses and investment-grade ratings444546 - As a BDC, MSCC's asset coverage ratio decreased from 200% to 150% effective May 3, 2022, providing increased investment flexibility but also higher leverage risks97 SBIC Debentures Outstanding | As of December 31, 2023 | Amount (in millions) | Weighted-Average Interest Rate | | :---------------------- | :------------------- | :----------------------------- | | SBA-guaranteed debentures | $350.0 | 3.0% | ORGANIZATION This section details the organizational structure of Main Street Capital Corporation CORPORATE INFORMATION This section provides key corporate details and contact information for the company OVERVIEW OF OUR BUSINESS This section offers a general description of the company's business model and operations BUSINESS STRATEGIES This section outlines the core strategies employed by the company to achieve its investment objectives INVESTMENT CRITERIA This section describes the specific standards and guidelines used for evaluating potential investments INVESTMENT PORTFOLIO This section summarizes the composition and characteristics of the company's investment holdings INVESTMENT PROCESS This section details the systematic approach and stages involved in the company's investment activities DETERMINATION OF NET ASSET VALUE AND INVESTMENT PORTFOLIO VALUATION PROCESS This section explains the methodologies used to determine net asset value and value the investment portfolio COMPETITION This section discusses the competitive landscape and factors influencing the company's market position HUMAN CAPITAL This section provides information on the company's workforce, talent management, and related policies REGULATION This section outlines the regulatory framework and compliance requirements governing the company's operations Risk Factors This section details key investment risks: valuation uncertainty, capital management, interest rate sensitivity, competition, LMM/Middle Market company risks, leverage, regulatory constraints, and external factors - The fair value of the investment portfolio, especially for privately held LMM and Private Loan companies, is subjective and dependent on a valuation process, leading to uncertainty in reported values143144 - The company's success relies heavily on its ability to effectively manage and deploy capital, identify investment opportunities, and retain key investment personnel in a competitive environment145146154155 - Changes in interest rates significantly affect net investment income, as many debt investments and borrowings have floating rates, with rising rates increasing funding costs and declining rates reducing interest income149 - Investing in LMM and Middle Market companies involves significant risks, including limited financial resources, dependence on small management teams, less predictable operating results, and illiquidity of securities165174 - Leverage magnifies potential gains and losses, increasing investment risk, where a default on senior securities could lead to asset foreclosure, forced sales, and business impairment191192196 - Operating as a BDC and RIC imposes constraints on investment activities and capital raising, potentially hindering the achievement of investment objectives210211 - External factors such as public health crises, supply chain disruptions, and inflation can negatively affect portfolio companies' performance and the company's operating results240241242 Unresolved Staff Comments There are no unresolved staff comments to report for the period - No unresolved staff comments252 Cybersecurity The company maintains a comprehensive Cybersecurity Program, overseen by its IT Manager and Audit Committee, utilizing external advisers, and acknowledges potential material operational impacts from system failures - The Company maintains and routinely reviews its Cybersecurity Program, administered by its IT Manager, overseen by the General Counsel, Chief Compliance Officer, and an IT Steering Committee253 - External IT and cybersecurity advisers, consultants, and experts are utilized for system evaluation, periodic testing, and incident response253 - Cybersecurity risks are part of the annual enterprise risk management review, with oversight delegated to the Board's Audit Committee, which receives routine reports on the Cybersecurity Program254255256 - The company acknowledges that failures in its or its key service providers' cybersecurity systems could materially impact operating results254 Properties The company does not own any material real estate or physical properties, operating from leased office space in Houston, Texas - The company does not own any material real estate or physical properties257 - Current operations are conducted from leased office space in Houston, Texas257 Legal Proceedings The company may be involved in routine litigation, but current proceedings are not expected to materially affect financial condition or operations, though future impacts are not assured - The company may be involved in litigation in the normal course of business258 - No current legal proceedings are expected to materially affect financial condition or results of operations, but future impacts cannot be assured258 Mine Safety Disclosures This item is not applicable to the company - Not applicable259 Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer