MidCap Financial Investment (US:MFIC)2020-08-07 03:41Financial Data and Key Metrics Changes - Net investment income for the quarter was $0.43 per share, reflecting a smaller portfolio and lower contribution from Merx [16][49] - The portfolio had a net loss of $25.2 million or $0.39 per share, driven by non-core and legacy assets, partially offset by a net gain on corporate lending [17][51] - Net asset value per share at the end of June was $15.29, a 2.6% decline quarter-over-quarter [18][52] - Total investment income was $56.7 million for the quarter, with a decline in interest income due to reduced income from Merx and non-accrual investments [46] Business Line Data and Key Metrics Changes - The corporate lending portfolio, representing 79% of the total portfolio, had a net gain of $4.7 million or $0.07 per share during the quarter [11][51] - Non-core and legacy assets had a net loss of $25.6 million or $0.39 per share due to carbon-free legacy positions in shipping and oil investments [51] - New corporate lending commitments for the quarter were only $17 million across two companies, with total exits of $233 million [29] Market Data and Key Metrics Changes - Leveraged loan prices have recovered since the March lows, and loan spreads have tightened significantly, positively impacting the fair value of the corporate lending portfolio [25] - Mid-cap leveraged loan revolvers were 23% utilized before the pandemic, peaking at 70% in mid-April and declining to 48% [15] Company Strategy and Development Direction - The company plans to further reduce leverage to within a target range of 1.4 to 1.6 times over the coming quarters [13] - The Board expects to declare a base distribution of $0.31 per share and a supplemental distribution of $0.05 per share, reflecting the long-term earning power of the core portfolio [23][21] - The company is focused on preserving liquidity and has not made any stock repurchases during the quarter [59] Management's Comments on Operating Environment and Future Outlook - Management believes the corporate lending portfolio demonstrates resiliency and quality despite significant economic headwinds from the COVID-19 pandemic [10] - There is visibility into meaningful additional repayments in the upcoming quarters, which will allow for new commitments as market activity resumes [30] - The company anticipates continued need for covenant relief in the portfolio over the next few quarters [44] Other Important Information - The company has made considerable progress in deleveraging the balance sheet, exiting approximately $233 million of assets [12] - At the end of June, the investment portfolio had a fair value of $2.67 billion across 149 companies in 29 different industries [58] Q&A Session Summary Question: Visibility into investment repayments - Management indicated that there are several companies in strategic transactions that are either pending or committed, providing comfort around visibility for repayments [63] Question: Supplemental dividend guidance - Management explained that the base dividend was set based on expected earnings from the corporate portfolio and Merx, with potential for supplemental dividends based on various income sources [66][70] Question: Capital allocation and new investment opportunities - Management stated that new investments would focus on both existing portfolio companies and new opportunities, depending on market conditions [74] Question: Corporate lending portfolio performance - Management noted that the corporate lending portfolio did not recover as much as competitors due to a more conservative approach to valuations based on fundamentals [108] Question: Merx's ability to cover interest expenses - Management expressed optimism about Merx's cash flow recovery, noting that early experiences with lessees have exceeded expectations [113]