Financial Data and Key Metrics Changes - MFIC's net investment income per share for Q3 2024 was 0.31, with NAV per share at 0.08 or approximately 0.5% from the end of June [16][42] - The company recorded a modest net loss on its portfolio, with a net loss of 0.13 per share [42][46] - At the end of September, MFIC's net leverage was 1.16 times compared to 1.45 times at the end of June [17][43] Business Line Data and Key Metrics Changes - In Q3, MFIC onboarded approximately 371 million, up 30% from the prior quarter, across 27 different borrowers [23] - The weighted average yield at cost of the directly-originated lending portfolio was 11.6%, down from 12% in the previous quarter [29] Market Data and Key Metrics Changes - The current market environment benefits from solid economic growth, strong consumer activity, and robust credit markets [17][18] - There has been an increase in activity levels in credit markets, particularly in opportunistic refinancings and M&A transactions [18][19] - The weighted average spread on directly-originated corporate lending was 577 basis points, down 24 basis points compared to the end of June [30] Company Strategy and Development Direction - MFIC views the mergers with Apollo Senior Floating Rate Fund and Apollo Tactical Income Fund as transformational, increasing net assets by over 40% [10] - The company plans to gradually increase leverage over the coming quarters to reach its target leverage ratio of 1.4 times [14][43] - MFIC is focused on investing in first lien loans to middle-market companies, leveraging its strong origination capabilities [20][21] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism regarding increased M&A activity in the latter half of Q4 and into 2025, driven by recent rate cuts and liquidity events [18][19] - The company is closely monitoring the impact of potential regulatory changes and tariffs on its borrowers and investment strategy [62][63] - Management noted that the overall credit quality of MFIC's direct-origination portfolio remains healthy, with no significant increase in amendment requests related to covenants or liquidity [30][31] Other Important Information - During the September quarter, MFIC paid a special one-time dividend of 0.38 [22] - The company issued 28.5 million shares at NAV during the quarter as part of the merger consideration, resulting in approximately 93.8 million shares outstanding [47][51] Q&A Session Summary Question: Is MFIC more levered to prepayments for fee income? - Management indicated that while prepayments can lead to a pickup in fee income, the impact is not dramatic outside of the Life Sciences vertical [54][55] Question: What factors could drive the pace of rotating non-directly originated assets? - Management noted that the pace is influenced by macroeconomic conditions, pricing, and market risk, with a focus on managing deployment appropriately [56][57] Question: What are the implications of the election on the business? - Management highlighted potential changes in regulatory oversight and a more growth-oriented backdrop, which could increase M&A activity [62] Question: Can you provide color on the unrealized and realized loss per share for the quarter? - Management explained that losses were primarily from a restructuring of a specific company, with some offsetting gains from other sales [64] Question: What are the thoughts around share buybacks given the current leverage and market conditions? - Management stated that share buybacks would be considered when it is accretive compared to other uses of capital, emphasizing the importance of maintaining available capital [68][69]
MidCap Financial Investment (MFIC) - 2024 Q3 - Earnings Call Transcript