Earnings-call transcripts

Good morning and welcome to the earnings conference call for the period ended March 31, 2026 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for your question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the star 2. I will now turn the call over to Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporation.

Elizabeth Besson Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investments Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenny Seifert, Chief Financial Officer. Howard Widger, Executive Chairman, is available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcasts are being recorded. Please note that they are the property of MidCAP Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections on those required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcafffinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to Mid-Cap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial for the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive

Officer. Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's quarterly earnings conference call. Yesterday, after market closed, we issued our earnings press release and filed our quarterly form 10Q for the period ending March 31, 2026. I'll begin today's call with an overview of MFIC's first quarter results followed by a discussion of our share purchase activity and our dividend announcement. Following that, I'll hand the call over to Ted, who will walk through our investment activity for the quarter and provide a portfolio update, including a review of our software exposure. Kenny will then review our financial results in detail. Net investment income, or NII per share, for the quarter was $0.38, while GAAP net loss per share was $0.30. Net asset value per share at the end of March was $13.82, representing a 2.5% decline from the prior quarter. The $0.36 per share decrease in NAV was driven by a net loss of $0.67 on the portfolio, which was partially offset by net investment income exceeding the dividend by $0.07 per share, plus approximately $0.24 per share of accretion from stock repurchases executed below NIF. As a result of the net loss in our stock buyback activity, which I will discuss in more detail shortly, net leverage increased to 1.55 times at quarter end. We plan to reduce MFIC's net leverage by continuing to de-emphasize new commitments and through expected prepayments. Thus, quick to quarter end, we completed the existing share repurchase authorization and have received net repayments in excess of $100 million, demonstrating our commitment to enhancing shareholder value and deleverage. Our net loss for the quarter was driven by a combination of market-related write-downs, reflecting credit spread widening and multiple compression, particularly within the technology sector, including software as well as credit weakness across certain positions. Our net loss was roughly evenly split between market-related factors and credit-related weakness. The vast majority of our direct lending portfolio is valued using the yield approach. Changes in market spreads are incorporated into quarterly valuation of our investments. As always, our third-party valuation firms ensure our marks reflect current market conditions, including spread widening the impact of heightened market volatility, increasing uncertainty around software valuations, alongside broader macroeconomic and geopolitical pressures. Despite the loss this quarter, we believe our focus on personal positions, our cost usage of PIC, and low software exposure keeps us well positioned. As discussed last quarter, given the size of the stock's discount to NAV, we believe it was prudent to prioritize allocating capital towards stock repurchases rather than deploying capital into new investments. Consistent with that view, new investment activity during the March quarter was relatively modest, with MFIC making $50 million of new commitments across each transaction. Given the modest amount of new commitments, we had net repayments of $142 million in the quarter, which included a $22 million repayment from Merckx. At the end of March, MFIC's investment in Merckx totaled approximately $81 million at fair value, representing 2.7% of the portfolio at fair value. Let me remind you about what remains of Merckx. MFIC's remaining investment in Merckx consists of four aircraft, plus the value associated with Merckx's servicing platform. Merck serves income through its servicing activities for Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 36 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period and as such, the fund is opportunistically monetizing assets to optimize fund level terms. Merck receives a remarketing fee on each aircraft sale. At the end of March, the servicing business represents approximately 38% of the total value of Merck's. The servicing amount of marks will naturally decline as servicing income received. Turning back to stock repurchases, as mentioned, we have been actively repurchasing shares, including through a 10B5-1 trading plan. We have fully utilized our existing 107.9 million authorization, with 76 million repurchased in the first quarter, and the remaining 31.9 million repurchased post-quarter and in April. The authorization was fully utilized more quickly than anticipated, driven by the increase in our trading volume. Moving to the dividend, on May 5, 2026, our Board of Directors declared a quarterly dividend of $0.31 per share per stock dollars a record as of June 9, 2026, payable on June 25, 2026. With that, I will now turn the call over to Tim.

Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio. As Tanner mentioned, new investment activity during the March quarter was relatively modest. MFIC's new commitments in the quarter totaled $50 million, with a weighted average spread of 469 basis points across eight different companies. The vast majority of these new commitments were made prior to our decision to allocate more capital to stock buybacks. The weighted average net leverage on new commitments was 3.6 times in the quarter. Gross fundings, excluding revolvers, totaled $68 million. Sales and repayments, excluding revolvers and Merck's, totaled $181 million. Net revolver fundings were approximately $1 million. And as previously mentioned, we received a $22 million paydown from Merck's. In aggregate, net repayments for the quarter totaled $142 million. Shifting to our investment portfolio, at the end of March, our portfolio had a fair value of $2.97 billion and was invested in 236 companies across 45 different industries. Direct origination and other represented 96% of the total portfolio. Merch represented less than 3% of the total portfolio. And liquid positions acquired during our mergers with two funds in 2024 totaled approximately 1%. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of March, 99% was first lien, and 94% was backed by financial sponsors, both on a fair value basis. The average funding position was $12.6 million. The median EBITDA was approximately $51 million. Approximately 94% had one or more financial covenants on a cost basis. Covenant quality is the key point of differentiation for the core middle market, as substantially all of our deals have at least one covenant. The weighted average yield at cost on our direct origination portfolio was 9.6% on average for the March quarter, down from 10% for the December quarter. The sequential decrease in the portfolio yield was driven by lower base rates, as well as a decline in the average spread across the portfolio. At the end of March, the weighted average spread on the directly originated corporate lending portfolio was 538 basis points, down eight basis points compared to the end of December. Next, let me make a few comments about our software exposure. You can find additional details on our software exposure on page five of the earnings supplement. As of March 31st, software represented just 11% of MFIC's portfolio at fair value, which is well below the BGC industry average. These positions are primarily cash pay, 100% first lien, and highly diversified across 28 borrowers, with an average position size of $12 million. Our software vote is diversified across a wide range of in-markets and carries a low average LTV of 35%. The median EBITDA of our software portfolio companies is $50 million. Only one borrower's picking, and picking income from our software portfolio is de minimis. The weighted average interest coverage of our software portfolio is 2.3 times, in line with the overall portfolio. The weighted average net leverage is 4.4 times, down from 4.6 times in the prior quarter, and is below the overall portfolio. The weighted average spread of the software portfolio is 533 basis points, roughly in line with the overall portfolio. Midcap's approach to lending software companies has remained consistent, though it has become more selective in the current environment. The strategy is always centered on borrowers with mission-critical products, high switching costs, and strong revenue visibility supported by long-term contracts. Turning now to credit quality, on the overall portfolio, investments on non-equal status increased to 3.5% of the total portfolio at fair value, compared to 2.6% at the end of the prior quarter. The two largest contributors to the increase were Midwest Vision and Tasty Chicken. Underlying portfolio company credit metrics were stable quarter over quarter. Borrowers net leverage or debt to EBITDA was 5.29 times at the end of March, unchanged from the end of December. And the weighted average interest coverage ratio was 2.3 times, also unchanged from the end of December. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of March, the percentage of our leveraged lending revolver commembers that were drawn was essentially flat compared to the prior quarter. Big income represented 4.7% of total investment income for the month quarter, down slightly compared to the prior quarter. With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Thank you, Ted. Good morning, everyone. Total investment income for the March quarter was approximately $71.8 million, a decline of $6.5 million, or 8.3% in the prior quarter. The decrease was driven by lower interest income resuming from lower base rates, fewer accrual days in the quarter, a decrease in the size of the portfolio, an increase in non-accruals, as well as lower fee income. As a reminder, the impact of changes in base rates on our interest income occurs with a lag, depending on the reset frequency of our loans. During the December quarter, the average daily three months so far declined 38 basis points compared to the prior quarter. Repayment income was approximately $2.7 million, up from $2.4 million last quarter. Fee income was approximately $500,000, down from a million. Dividend income was approximately $300,000. Net expenses for the quarter were $37.6 million, a decline of $4.8 million, or 11.3% from the prior quarter. This decline was driven primarily by lower interest expense resulting from lower base rates as well as lower administrative service expenses. In addition, the total return feature in our incentive fee calculation eliminated the incentive fee again this quarter. Portfolio had a net loss of $61.1 million or 67 cents per share. For the March quarter, net investment income per share was 38 cents, while gap net loss per share was 30 cents. under the balance sheet. At the end of March, the portfolio had a fair value of $2.97 billion. Total principal debt outstanding was $1.87 billion, and total net assets stood at $1.18 billion, or $13.82 per share. Company ended the quarter at $1.55 net leverage. As Tanner mentioned, we plan to reduce MIFIC's net leverage by continuing to de-emphasize new commitments and through expected repayments. The cost of debt for the quarter declined to 5.61%, down from 5.95% in the prior quarter, largely given by lower base rates and somewhat from the refinancing activities that occurred during the December quarter. With respect to the $125 million of 4.5% fixed rate notes maturing in July 2026, we intend to repay those notes using availability under a revolving credit facility. At today's base rates, the revolving credit facility carries a higher cost to all the students' notes, which is expected to modestly increase our cost of debt. This concludes our prepared remarks. Operator, please open the phone questions.

Thank you. If you would like to ask a question, please press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question. And we'll pause for just a moment to allow everyone a chance to join the queue. We'll take our first question from Aaron Siganovich from Truth Securities. Please go ahead. Your line is open.

Hi, thanks. You utilized your share repurchases rather quickly. Maybe you could talk a little bit about future repurchases. I know you get a lot, you've used the entire approved repurchases. Is that something that you expect to continue to do, or do you think that you'll start to, you know, grow the portfolio again?

Yeah, thanks, Aaron. As we pulled out in the prepared remarks, the dynamic with the increased trading volume enabled us to, under our 10B-5-1 plan repurchase more quickly than we thought. We also separately had some prepays that pushed, and we guided to the fact that we've already seen $100 million in the quarter-to-date period since March 31st, and then obviously the loss leaves us at a leverage level that is elevated. And so at this juncture, we believe it prudent not to make a decision with respect to a share buyback or commencing of deployment until such time as we get down to the lower end of our range or lower. And then at that point, you know, evaluate the capital allocation decision. And importantly, I will also call your attention to the statements we made on our last earnings call. We are very focused on shareholder value, and we wanted to make a big statement with the size of the buyback and with the ultimate goal of trying to narrow the discount between our trading price and NAB. And that logic and that goal will be, you know, top of mind when we do make that decision as we get down to leverage level again at or below the bottom end of our range.

Okay. That makes sense. The non-accruals increased. I think they're over 5% at cost now. So it seems, I don't know, a little bit worse than what I would say for kind of a normal credit environment. You know, how are you viewing credit broadly and, you know, what led to these increases in non-equals? You mentioned the two companies.

Yeah, sure. Thanks, Aaron. And, you know, when we look at the overall portfolio, we did see very healthy revenue and EBITDA growth across, you know, the 200-plus borrowers that we have. You know, we do have, you know, some borrowers that are suffering challenges, you know, and some of that, you know, is thematic. You know, we have, you know, exposure, modest, very small exposure to quick service restaurant industries. One of the companies we mentioned, you know, is in that category. And so we also see, you know, some credit challenges in companies where they're seeing cost pressures, whether that's from, you know, goods inflation, labor inflation, et cetera, and pressure or revenue reliance on the low end of the consumer. And so when we see, you know, those factors coming together, you know, that's where we tend to see problems. Usually, if you have a credit go on nonaccrual, it's not due to one factor. It's due to a confluence of several factors. And as we think about the outlook, the vast majority of the credits are performing quite well. We are monitoring very closely the names on our watch list. And in conjunction with the portfolio management functions at New Cap Financial, we're on top of those names. And so, you know, I think your question kind of started off with for a normal credit cycle, it seems high. And I think if we kind of look across the, you know, lending environment, you know, you do start to see non-accounting up kind of around the sector. And so, I think that we should just all ask ourselves, like, where are we in the credit cycle?

And then just, Aaron, just to clean up, the other non-accrual that we called out is in Midwest Vision, and that happens to be an ophthalmology PPM. The good news, broadly speaking, is we're relatively under-indexed to PPMs. The bad news, we do have actually two, and this is one of them. The challenges there are well understood in terms of cost pressures and also a dynamic wherein those business models were particularly sensitive to cost capital, the ability to roll up and ultimately the valuation of those franchises to maintain the relationships with doctors and retain those doctors and so on. And unfortunately, in that particular case, those stresses resulted in a deterioration in that credit and hence that name also got put on. Cool. Thank you. Appreciate it. Thank you.

We'll take our next question from Rick Shane with JPMorgan. Please go ahead. Your line is open.

Hey, guys. Thanks for taking my question. Look, you guys have set out on a pretty different path from a lot of your peer companies in terms of how you're approaching returning capital and growth. And if you kind of look at the questions we've asked of many of your peers over the last quarter and similar companies, in theory, it's a view that we share. There is an interesting analog here, which is ARI, another Apollo vehicle, where they, facing the same dynamics, chose to sell off the vast majority of their assets at close to carrying value and are now sort of considering strategic alternatives. I am curious, given the analog, how you guys are thinking about growth long term and what is the path forward if BDCs continue to trade at discounts to NAV, if publicly traded BDCs continue to trade at discounts to NAV?

Yeah, thanks. Thanks for the question, Rick, and a very good one. So, you know, as we've stated, and then as you rightly pointed out, you know, manifest in the firm's approach to ARI, you know, we're very focused as a firm, you know, where we manage public vehicles, you know, making sure, you know, we are operating them with the objective of maximizing value to shareholders. What I would point you to is structurally a BDC and the ARI structure are different. And so, you know, the arrows and the quiver, so to speak, for a BDC are limited relative to ARI. And thus the path that was afforded in the case of ARI does not avail itself to us in quite the same way. And that said, I would, and at the risk of being redundant, you know, call your attention to, irrespective of all the options that are available, you know, our focus remains on, you know, delivering value to shareholders and doing our best to narrow the discount. And so, as a result, as we look at the situation right now, we've really focused on, you know, in the current moment, obviously, as I alluded to, getting leverage down. But, you know, also, you know, upon getting down to that leverage, making that capital allocation decision based on, you know, obviously where market is and where we are trading at the top.

Got it. And look, I think you guys realize I'm newly revisiting the name, but have a lot of history with the company. And, you know, my experience is that over time, you guys have been very thoughtful about premiums and discounts and thinking about what that means for shareholders. And it is interesting to see you take what I think is a pretty different path from some of your peers right now. At what point do you worry that if this continues, that not only is there a financial leverage issue, but you lose operating leverage on the platform?

So another very good question, Rick. So I appreciate it. So there's a couple things there. I think it's very important, and what we've kind of stressed as a team as we've evaluated these options is we have a, you know, kind of think of it as a macro framework of what we're operating to, but each individual decision as it presents itself has to be looked at, you know, kind of in the current market framework. I don't need to tell you that things are changing quite a bit, and thus it's informed by, you know, what's on the field at the particular time. You know, in terms of operating leverage, you know, we obviously have SG&A at the BDC. As we shrink, there is a deleterious effect there, but that's relatively modest. I think one of the other dynamics that's important to consider and one that enabled us to make this decision is, Rick, if you think about our mid-cap business, overall it's a $50 billion business between the balance sheet of mid-cap and the various sidecars and the assets that are managed there. And thus, when we thought about undertaking this decision, we were fortunate, given that setup, given those dynamics, that MFIC's non-participation in a particular deal, and hence indicative of where we are right now, where we're not deploying, does not impair our ability to deliver the solution for the client. You know, the capital, you know, on the MidCap balance sheet and in all those other sidecars enables us to continue to operate and make commitments at scale to our sponsor clients and our corporate clients. And as a result, you know, the operating leverage, if you will, is not impaired there. Or from a business standpoint, I should say, we still have the ability to prosecute our business. And so, you know, again, we're fortunate to be in this position that enabled us to undertake that decision. And then getting back to the other part of the question, there is a modest effect on SG&A, not as efficiently leathered. But, you know, again, in summation, we still feel that this is the prudent right approach for our company at this time.

Got it. Thank you. look, you know, whether people agree or disagree with the strategy, I think investors value an alternative way of looking at the space and their ability to express their views as well. So thank you, guys.

Thanks, Rick.

Thank you. And once again, if you would like to ask a question, please press star and one on your keypad now. We'll take our next question from Kenneth Lee with RBC. capital markets please go ahead your line is open hey good morning and thanks

for taking my question apologize this has been covered before I've just not different calls I think I heard in the prepared remarks that there's a potential emphasis on new investments go forward just curious does that mean go forward originations are mainly going to be driven by incumbent kind of financing and then obviously letting the prepayment activity slowly get leveraged back down to the more lower end of the leverage range there. Thanks.

Thanks, Dan. Thanks for the question. I think to summarize what we have said around deleveraging and origination of stock buybacks, one, which is what we're in right now, is to, you know, deleverage back to the lower end or slightly below of the targeted range that we have, you know, presented to the market, you know, over the last several years. And then once that, as we approach that level, you know, we, along with our board, will be evaluating the capital allocation decision for new originations versus stock buybacks and and kind of the inputs there, you know, are what are the market conditions at the time and where is our stock trading at the time? So we're not saying that we're not originating.

I would just add to that just for clarity, Ken, you know, a lot of the transactions that are done in the middle market or in the direct lending space, you know, come with delay draws and revolvers, and we've already committed to many of those across our borrowers, we will obviously be honoring those commitments. And then, you know, from time to time, it might make sense that even before we get down to the target leverage. So, we will still be, you know, standing up to those commitments. And then as Ted alluded to, the decision as to capital allocation will be made upon achieving our target leverage.

Gotcha. Very helpful there. And one follow-up, if I may, just in terms of the non-accruals, the pickup quarter to quarter, just to clarify the earlier comments, were some of the non-accruals, the relative newer ones, related to any of the 2022 vintages, or were they just throughout the portfolio there. Thanks.

Yes. Yes, Ken. I think what your question was was were the non-accruals, you know, from older advantages? And if that's the case, if that's what your question was, then the answer is yes. Yes.

Gotcha. Very helpful there. Thanks again.

Thank you. We'll take our next question from Healy Sheth with Raymond James. Please go ahead. Your line is open.

Good morning. Thanks for the question. So looking back to last year when we had Liberation Day, we kind of saw a muted M&A market following for the remainder of the year. So with the current macro factors, what are you expecting for the pipeline and activity for the remainder of the year?

Yeah, sure. So, you know, we obviously still see, you know, what comes off the mid-cap type line, notwithstanding we are at the current juncture not participating. And it's really become a fool's game trying to predict M&A because, you know, recent history has been littered with events that have conspired to take things offline. And so I think we're cautious. it's hard not to point to some of the geopolitical stress and the duration there as really influencing M&A. The backdrop and perhaps the reason that ourselves and many others in the market have been sanguine going into each successive year about the pickup in M&A is that, you know, you look at the private equity space and you look at the quantum of the dry powder and the limited TPI to date in returning capital shareholders makes them very motivated sellers in many cases. And, you know, unfortunately they've gotten nicked up or the market's gotten nicked up by these stresses. As you alluded to, tariffs was a big one amongst others. And so, So I think we're cautious. We exercise a little bit of humility in making such a prediction because of the spate of drivers that have impaired M&A volumes. But the broader term macro, the broader term dynamic around the sponsor capital and the The duration of those investments suggests to us that it's not a question of if, it's more of a question of when. Marcella Nunez- Got it.

Thanks for the caller. And a quick follow-up on leverage. Where do you see the pacing of reducing leverage going in the incremental detail there?

David Pacheco- Yeah, sure. We pulled out-we've got about $100 million. and this actually is not a terrible segue from your previous question there, is we've gotten 100 million in the quarter to date period. We have line of sight on a number of other prepayments, but to the question you asked previously, we are in an environment that can be, that should be characterized and is characterized by some volatility. And so it's unclear when that happens. Our business is one where we don't necessarily control the exit, and so we're susceptible to what happens. We do benefit from a very diverse portfolio with 236 names and are confident that over time we will be able to get back to that leverage level. but conceding that even though we have a line of sight into some specific pay downs, you know, the dynamics are ultimately to some extent out of our control and more a function of whether the market bears that out.

Got it. Thanks.

Thank you.

Thank you. And it appears we have no further questions at this time. I'll turn it back to our presenters for any closing comments.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day.

This concludes today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning, everyone. Welcome to the earnings conference call for the period ended December 31, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star one on your telephone. If you would like to withdraw your question, press star two. I will now turn the call over to Ms. Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead, ma'am.

Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenny Seifert, Chief Financial Officer. Howard Widger, Executive Chairman, and Greg Hunt, our former CFO who currently serves as a Senior Advisor, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast, which may include forward-looking statements, you should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or at our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's fourth quarter and year-end earnings conference call. Yesterday, after market closed, we issued our press release and filed our annual form 10-K for the period ended December 31, 2025. I'll begin today's call with an overview of MFIC's fourth quarter results, followed by a discussion of our share repurchase activity, including the board's increased authorization, as well as our dividend announcement. Following that, I'll hand the call over to Ted, who will walk through our investment activity for the quarter and provide a portfolio update, including a review of our software exposure. Kenny will then review our financial results in detail. Net investment income, or NII, per share for the quarter was $0.39. Gap net loss per share for the quarter was $0.14. This figure includes approximately $0.04 of one-time financing-related expenses. When excluding these one-time costs, gap net loss per share was $0.10 for the quarter. NAV per share was $14.18 at the end of December, down 3.3% compared to the prior quarter. The decline in NAV is primarily driven by a handful of investments predominantly from 2022 and earlier vintages. Despite the loss for this quarter, we believe our focus on first-lane positions, our cautious usage of PIC, and low software exposure keep us well positioned. Additionally, recent paydowns from Merck's and the full repayment of a position on non-accrual demonstrate our ability to maximize recoveries on challenge credits. During the December quarter, MFIC made $141 million of new commitments across 26 transactions. Net funded activity for the quarter was positive $25 million, which included a $7.5 million repayment from Merckx. At the end of December, MFIC's investment in Merckx totaled approximately $103 million at fair value, representing 3% of the portfolio at fair value. Susquent to quarter end in February, Merckx were paid an additional $22 million to MFIC for a total amount of $29.5 million. Let me remind you about what remains in Merck's. MFIC's remaining investment in Merck's consists of four aircraft, plus the value associated with Merck's servicing platform. Merck's earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 38 aircraft. Having deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund-level returns. Merckx receives a remarketing fee on each aircraft sale. At the end of December, the servicing business represented approximately 29% of the total value of Merckx. The servicing component of Merckx will naturally decline as servicing income is received. Moving on, Apollo's longstanding commitment has been to deliver positive outcomes in all instances where we manage investor capital. With respect to the public vehicles, we manage across different asset classes. We have been active in evaluating potential strategies and options with the objective of maximizing realizable value for stockholders. During the fourth quarter, the market presented us with what we viewed as an attractive opportunity to repurchase our stock at a significant discount to NAV. We purchased approximately 1.1 million shares at an average discount of 18% for an aggregate cost of $12.9 million, generating approximately $0.03 per share of NAV accretion. At these trading levels, we continue to believe allocating capital towards stock repurchases is more creative than deploying capital into new investments. Accordingly, the Board has authorized a new $100 million stock repurchase plan, which we expect to utilize aggressively in combination with a 10B51 trading plan to capitalize on what we believe is a compelling opportunity for our stockholders. This is in addition to our existing share repurchase authorization, of which approximately of 7.9 million of repurchase capacity remains. Accordingly, MFIC now has 107.9 million available for stock repurchases. If the current discount continues and the trading volumes remain in their current range, we anticipate fully utilizing our current authorization by late May. Importantly, we believe MFIC's investment portfolio is extremely well positioned, consisting of primarily true first lien loans, with granular position sizes and limited tech and software exposures. We remain convinced that the current market price does not appropriately reflect the intrinsic value of MFIC's high quality and physical work. We do not anticipate these stock repurchases will result in any material increase in our net leverage, given our visibility into expected repayments. Moving to the dividend, in light of the change to base rates and other factors, we have reassessed the long-term earning power of the company, and the Board has concluded that it was prudent to adjust the dividend at this time. Accordingly, on February 25th, 2026, our Board of Directors declared a quarterly dividend of 31 cents per share for stockholders' record as of March 10th, 2026, payable on March 26th, 2026. With that, I will now turn the call over to Ted.

Thank you, Tanner. Good morning, everyone. I'm going to spend a few moments reviewing our fourth quarter investment activity and then provide some details on our investment portfolio. you. MFIC's new commitments in the December quarter totaled $141 million, with a weighted average spread of 497 basis points across 26 different companies. The weighted average net leverage on new commitments was four times in the December quarter. Gross fundings, excluding revolvers and Merck's, totaled $156 million. Sales and repayments, excluding revolvers and Merck's, totaled $119 million. Net revolver fundings were approximately $12 million. And as previously mentioned, we received a $7.5 million paydown from Merckx. In aggregate, net fundings for the December quarter were positive $25 million. Shifting to our investment portfolio, at the end of December, our portfolio had a fair value of $3.17 billion and was invested in 247 companies across 46 different industries. Direct origination and other represented 96% of the total portfolio. Merck's represented 3% of the total portfolio, and liquid positions acquired from our mergers with two funds in 2024 totaled 1%. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of December, 99% was first lien, and 92% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.8 million. The median EBITDA was approximately $50 million. Approximately 94% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market, as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10% on average for the December quarter, down from 10.3% for the September quarter. The sequential decrease in the portfolio yield was driven by lower base rates, the placement of higher-yielding assets on non-accrual status, as well as the decline in the average spread across the portfolio. At the end of December, the weighted average spread on the directly originated corporate lending portfolio was 546 basis points, down 13 basis points compared to the end of September. Next, I'll make a few comments about our software exposure, given concerns about potential AI disruption to software borrowers. You can find details on our software exposure on page five of the earnings supplement. As of December 31st, 2025, software represented just 11.4% of MFIC's portfolio at fair value, which is well below the BDC industry average. These positions are primarily cash pay, 100% first lien, and highly diversified across 29 borrowers, with an average position size of $12 million. Our software book is diversified across a wide range of end markets and carries a low average LTV of 32%. The median EBITDA of our software portfolio companies is $52 million. Only two borrowers are picking, and pick income from our software portfolio is de minimis. The weighted average interest coverage of our software portfolio is 2.3 times, in line with the overall portfolio. The weighted average net leverage is 4.6 times, modestly below the overall portfolio. And the weighted average spread of the portfolio is 548 basis points, roughly in line with the overall portfolio. MidCAP's approach to lending to software companies has remained consistent, though we have become more selective in the current environment. Our strategy is always centered on borrowers with mission-critical products, high switching costs, and strong revenue visibility supported by long-term contracts. Moving to credit quality on the overall portfolio, investments on nonaccrual status declined to 2.6% of the portfolio at fair value, down from 3.1% at the end of the prior quarter. During the quarter, we restored two companies to accrual status, including our investment in LendingPoint following its restructuring, as well as our investment in Compass Health, which was fully repaid after the company's sale in February. We recognized a net gain of approximately $1 million on Compass Health in the December quarter, reflecting an increase in its valuation from $84 at the end of September to $94.5 at the end of December. We were repaid at par in February, and an additional gain of approximately $500,000 will be recorded in the March quarter. This is an example of our ability to maximize value from challenge names. During the quarter, we placed three investments on nonaccrual status, including our investments in Bird Rides, Banner Solutions, and Renovo. These three names accounted for about 36% of the total net loss for the quarter. Underlying portfolio company credit metrics were relatively stable quarter over quarter. Borrower net leverage, or debt to EBITDA, was 5.29 times at the end of December, unchanged from the end of September. And the weighted average interest coverage ratio improved to 2.3 times, up from 2.2 times last quarter, driven primarily by lower base rates into a lesser extent by earnings growth. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of December, the percentage of our leverage lending revolver commitments that were drawn was essentially flat compared to the prior quarter. PIC income represented 4.8% of total investment income for the December quarter, roughly stable quarter over quarter. With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Thank you, Ted. Good morning, everyone. Total investment income for the December quarter was approximately $78.4 million, a decline of $4.2 million, or 5.1% from the prior quarter. This reduction was largely driven by lower interest income, resulting from decreased base rates, new non-equal positions, and continued asset spread compression. Weighted average yield at cost of our directly originated lending portfolio averaged 10% for the December quarter, compared to 10.3% in the previous quarter. Pre-payment income was approximately $2.4 million, down from $3.2 million last quarter. The fee income was approximately $1 million, up from about a half a million dollars last quarter. The dividend income was $231,000, a relatively flat quarter over. Our net expenses for the quarter were $42.4 million, a decline of $4.9 million, or 10.4% of the prior quarter. This decline was driven primarily by the absence of incentive fees, reflecting the impact of the total return hurdle feature, which eliminated the incentive fee. as well as lower interest expense, partially offset by higher administrative services. Portfolio had a net loss of $45.3 million, or 49 cents per share. Negative contributors for the quarter included our investments in Lending Point, Renovo, Amplity, Bird Ride, New Era, and Banner Solutions, among others. Positive contributors to performance for the quarter included our investment in Merckx and Compass House, among others. As discussed on last quarter's call, in October, we extended and repriced our revolving credit facility and we upsized and repriced our first CLL. In connection with these financing activities, we recorded a realized loss of approximately $3.4 million, or 4 cents per share, in December. Cost of debt for the quarter declined to 5.95 percent, down from 6.37 percent in the prior largely driven by these refinancing activities as well as lower base rates. For the December quarter, net investment income per share was $0.39. Gap net loss per share was $0.14, or $0.10, excluding the four-set impact related to the one-time financing cost. Turning to the balance sheet, at the end of December, the portfolio had a fair value of $3.17 billion. Total principal debt outstanding was $2.00 billion, and total net assets stood at $1.31 billion, or 14.18 per share. The company ended the quarter at 1.45 net leverage. Gross fundings for the quarter, excluding revolvers, totaled $156 million, and net fundings for the quarter were positive $25 million. This concludes our prepared remarks. Operator, please open the call to questions.

Certainly. Thank you, sir. Ladies and gentlemen, at this time, If you would like to ask a question, please press star 1. You can remove yourself from the queue by pressing star 2. Again, star 1 for questions. We'll go first this morning to Rick Shane with J.P. Morgan.

Hey, guys. Thanks for taking my questions this morning. And, you know, look, our pattern on all these calls recently has been asked about buying back stock, and you guys have leaned into that a little bit. But, you know, look, we follow Apollo Commercial, ARI. They recently made a very interesting strategic decision sort of looking at the landscape for different types of closed-end funds and these types of vehicles. I am curious as you guys sort of look forward what you think the future is. For now, it looks like some of these discounts are going to be pretty persistent, makes it hard to grow these vehicles. Does it make sense to continue to run MFIC in this way, or would you consider some more aggressive strategies to sort of unlock that value?

Yeah, this is Howard. I mean, I think we'll consider everything. Like, if, you know, we continue to perceive that the discount is, you know, like I'm connected to the value, I think it's sort of, you know, the point we're trying to make, it's like our obligation, it was true with ARI2, our obligation is to get the shareholders sort of, you know, what their true return should be. So I think you're pointing out the right issues. I mean, I think we have to see how it plays out. You know, the persistence of these discounts certainly, you know, I agree feels likely given everything that's going on, you know, across the whole market right now. But, you know, the things have changed. So, you know, the answer is, you know, we'll continue to consider everything with an eye towards just sort of making sure that the shareholders get the, you know, the full value that we feel like, you know, they're entitled to in whatever form we can get it to them.

Got it. I appreciate that. I was almost hoping I was going to get a Greg Hunt answer to my question just so I could feel like an episode of This Is Your Life. Yeah. Thanks for taking my questions this morning, everybody.

Thank you. We'll go next now to Kenneth Lee with RBC.

Hey, good morning, and thanks for taking my question. Just to follow up on the repurchases there, to clarify, the new $100 million, is it discretionary? And I assume that the normal restrictions of open trading windows apply there, if that's the case. But I just wanted to check on that. Thanks.

Yeah, that's exactly right, Ken. Thanks for the question. As we noted in the prepared remarks, and as you alluded to, you do enter quiet periods. And for those periods, we would expect to implement a 10B51 that would enable us to be in market during those periods such that we can maximize our share purchase activity. And then I would also call your attention to the comment we made in the prepared remarks, whereby if the current level of activity continues, we would expect to be able to exhaust our current authorization by late May.

Gotcha. Very helpful there. And just one follow-up, if I may, just around dividends. In terms of the new level here, I wonder if you could just talk a little bit more about some of the macro assumptions that went to that and, you know, what gives you confidence that the new level is going to be sustainable over a certain period of time. Thanks.

Yeah, sure. And certainly, as we undertake these models and try to sensitize to the myriad factors that can influence, our assessment was that when we looked at the earnings power and we looked at the models, 31 cents was appropriate and achievable. And we've taken the action this quarter, and certainly, as I think we telegraphed in previous quarters, The move of rates from 5.4 to the 3.8 level, compounded by spreads in our primary market coming down, have certainly influenced the earnings power. We have made a lot of progress, as we've called out with Merckx. The Merckx exposure is yielding roughly 2% on our books today. And so as that comes back and we would expect the balance of our exposure to be – or a lion's share of our exposure to be repaid in the next 12 months, that presents some opportunity to cushion the dividend as well as also the capital structure initiatives that we have undertaken to reduce our cost of capital on our CLO, our first Bethesda CLO, as well as our revolver, which we were able to price down as ways to mitigate the effects of lower base rates and the current spread environment.

Gotcha. Very helpful there. Thanks again.

Thank you. Just a quick reminder, ladies and gentlemen, Star 1 for questions today. We'll go next now to Robert Dodd with Raymond James.

uh morning everybody um uh first yeah to to applaud the the uh the expansion of the buyback but not just that but the the aggressive plan to use it um i think that's uh it's kind of the uh the confidence business shareholders needs not particularly not just the any reacquition but you've got the liquidity to actually do that um on the the main other questions to flip to But software, you have below average exposure, 11.5%. Not only that, I appreciate the other metrics that you gave. The net leverage in your software book is 4.5%. There's a lot of fear out there, some of it probably well placed, that the software leverage might not apply. It might not even be EBITDA, but if it does exist, the leverage is much higher. So that's the average. I mean, can you tell us the type of businesses that enable you to get software exposure with portfolio average spreads and net leverage that's likely at least a turn, if not more below kind of what the market expectation is for the amount of leverage that's on a software business?

Yeah, this is Howard. Let me try to take a crack at that because some of this is, you know, derivative of what MidCap originates. So, like, you know, MidCap has financed itself historically through, you know, bank lines and CLOs and availability of credit on both of those, you know, was limited to, you know, effectively six times EBITDA and not and not really ARR availability. And so what we originated into as the market sort of elevated to doing seven, eight times deals or even just doing ARR only deals, we just, we was not where we focused. So we focused on sort of companies that inherently were sort of more, were already cash-long and had sort of more embedded consistency in their performance. Like, in other words, didn't need to spend huge amounts of money to continue to drive growth to sort of get to sort of some outside valuation, which obviously can be a great equity thesis, but sometimes isn't the debt. So, like, what ended up being, you know, the MFIC share of that was sort of that portion of the portfolio, if that makes sense. So it was sort of an offset of the strategy that MidCap had, which was driven some by the – so it wasn't like, you know, we had an unbelievably special sauce. where we found different deals than other people found. It's that the deals that we tried to win, you know, met those criteria.

Yeah. Thank you. Oh, sorry. No, go ahead. I would emphasize, Robert, as we've talked with you in the past, you know, as a derivative of mid-cap and our focus on the middle market, you know, the average average size of $52 million, And importantly, in those software names, in our software book, you know, 90% has financial covenants. And so there's also an element of it which is related to, you know, the part of the market that we are focusing on and also anchored to the dynamics that Howard mentioned with respect to our financing and how we've approached our entire business and software.

Got it. Got it. Thank you. I appreciate that incremental comment, and, again, congrats on the buyback. Thanks.

Thank you. We'll go next now to Casey Alexander with Compass Point.

Yeah, good morning, and thank you for taking my questions. My first really only question is pretty simple. Your statement that the handful of credits all share a similar vintage suggests that there's a common thread that runs through the issue there. And so I was wondering if you could speak to what the common thread is that ties them together that emanates from that particular vintage.

I mean, I don't – I think the common thread is really that these are not, like, you know, sort of new issues that have come up. These are, you know, credits that we have been working through over time. And so this is not, like – although, you know, the markdowns were a little bit higher, obviously, than we wanted this quarter, it wasn't like there was some precipitous change of what's going on. These are sort of longer data credits that have, you know, many of which have been on watch list, or I think all of which have been on watch list for a while.

Yeah, and I would emphasize also, you know, to some extent, the seasoning of a portfolio, it's natural that the vintage would be, you know, several years prior. Obviously, in that intervening time, we obviously had the increase of rates, you know, some level of support or moderation with the recent decline. And then, you know, to your point about, you know, your common themes, we have talked with you, Casey, and the market about, you know, there are pockets of stress in the market, notwithstanding, you know, against the backdrop of a fairly sanguine economic environment. You know, we've talked about the lower end of the K. And when we look at these credits, you know, these credits, you know, often have idiosyncratic issues that are sometimes compounded by some of those pockets of stress. And in particular, you know, some self-induced, you know, such as acquisition strategies that either were not properly integrated and or were very, very aggressive, which is a compounded some of those thematic. So a balance of idiosyncratic issues within those credits. You know, the vintage happened to be, one, where you naturally start to see some deterioration in terms of where you do have problems and obviously recognizing that in the intervening four years there's been a steep increase to borrowing rates, base rates, that has affected the companies as well.

All right. Thank you for taking my question. Thank you.

And just a final reminder, ladies and gentlemen, any further questions today, please press star 1, and we will pause for just one moment. And ladies and gentlemen, it appears we have no further questions today. I'd like to turn the conference back to management for any closing comments.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have

any other questions. Have a good day. Thank you. Again, ladies and gentlemen, that will conclude the MidCap Financial Investment Corporation's earnings call. Again, thanks so much for joining us, everyone.

Good morning, and welcome to the earnings conference call for the period ended September 30, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you wish to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2. I will now turn the call over to Elizabeth Bussin, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenny Seifert, Chief Financial Officer. Howard Ridger, Executive Chairman, and Greg Hunt, our former CFO, who currently serves as a senior advisor, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections less required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's third quarter earnings conference call. To begin today's call, I'll provide an overview of MFIC's third quarter results and the significant repayment from our investment in Merck's, our aircraft lending portfolio company, aircraft leasing portfolio company that we highlighted on our call last quarter. I'll also share some thoughts on the outlook for our dividend. Following that, I'll hand the call over to Ted, who will share our perspective on the current market environment, walk through our investment activity for the quarter, and provide a portfolio update. Kenny will then review our financial results in detail and recent financing-related activities. Yesterday, after market closed, we reported results for the third quarter. net investment income, or NIA per share, was $0.38 for the September quarter, which corresponds to an annualized return on equity, or ROE, of 10.3%. GAP net income per share was $0.29 for the quarter, which corresponds to an annualized ROE of 8%. As discussed last quarter's call, we're pleased to report that Merckx, our aircraft leasing portfolio company, repaid approximately $97 million to MFIC during the quarter. NAV per share was $14.66 at the end of September, down 0.6% compared to the prior quarter. The decline in NAV was primarily due to a handful of positions that were added to non-accrual status, partially offset by a gain on our investment in Merck's. The increase in non-accruals reflects company-specific issues and we believe is not representative of a broader deterioration in credit quality. During the September quarter, MFIC made $138 million of new commitments across 21 transactions. We believe MidCap Financial's strong incumbent position continues to be a significant competitive advantage, as evidenced by the fact that slightly more than half of our new commitments, by number, were made to existing portfolio companies. In a muted M&A environment, incremental commitments are an important source of deal flow. While sourcing assets is generally considered to be among the biggest challenges for many market participants in the market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market, which is consistently ranked nearer at the top of the league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have the access to significant volume of commitments originated by MidCap Financial, which allows MFIC to select assets which we believe to have the most attractive risk-reward characteristics. During the September quarter, MidCap Financial closed approximately $5.8 billion of commitments. MidCap Financial has what we believe one of the largest direct lending teams in the U.S. with over 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record. It includes closing on approximately $150 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries, and we believe that this makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. MFIC's affiliation with MidCap Financial has enabled us to successfully build a portfolio of predominantly first-lean loans to sponsor-backed companies. Moving on to Merck's, our aircraft leasing company. As discussed on last quarter's call, during the September quarter, Merck's completed a sale transaction covering the majority of its owned aircraft. In addition, Merck's received additional payments from insurers related to three aircraft detained in Russia. Both the sale transaction and the insurance proceeds exceeded the assumptions in Merck's June valuation, resulting in a $16.6 million gain recorded during the September quarter. Merckx were paid approximately $97 million to MFIC on a net basis during the September quarter. Approximately $72 million of the paydown was applied to equity, and the remaining $25 million was applied to the revolver. At the end of September, MFIC's investment in Merckx totaled $105 million at fair value, representing 3.3% of the portfolio, down from 5.6% at the end of June, which reflects the $97 million paydown and the net gain recorded during the quarter. As part of the sale transaction, Merckx expects to receive approximately $25 million of additional consideration by the end of 2025 or in early 2026, which will be paid to MFIC and further reduce our exposure. Let me remind you about what remains at Merckx. MFIC's remaining investment in Merckx consists of four aircraft plus the value associated with Merckx's servicing platform. Merckx earns income through its servicing activities for Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 39 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund-level returns. Merckx receives a remarketing fee on each aircraft sale. At the end of September, the servicing business represented approximately 25% of the total value of Merckx. The servicing component of Merckx will naturally decline as servicing income is received. Turning to our dividend, on November 4, 2025, our Board of Directors declared a quarterly dividend of $0.38 per share for stockholders of record as of December 9, 2025, payable on December 23, 2025. Before I turn the call over to Ted, I would like to take a moment and make a few comments about our dividend, giving increasing investor focus in light of the recent Fed cuts and market expectation for additional cuts and the resultant decline in the SOFR forward curve. Due to the asset-sensitive nature of our balance sheet, all else equal, declines in base rates will put pressure on net investment income. For context, the current SOFR forward curve is projected to trough around mid to late 2026 at around 3%, which is roughly 80 to 90 basis points below current levels. As shown on page 16 in the earnings supplement, a 100 basis point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or 10 cents per share, which includes the impact of incentive fees. We are actively working on a couple of initiatives to help offset the impact, to offset some of the impact from declining base rates. These initiatives, including pursuing additional paydowns from Merckx and resolving certain non-accrual and under-earning assets. Post-quarter end, we made a couple of enhancements to our capital structure, which will also improve MFIC's earnings power, which Kenny will discuss. With that, I will now turn the call over to Ted.

Thank you, Tanner. Good morning, everyone. Starting with the market backdrop, the U.S. economy has remained resilient, which has helped ease concerns about a recession. Inflation remains elevated. Consumer spending and business spending have been strong, although consumer sentiment is worsening. In response to rising unemployment risks, the Federal Reserve cut interest rates by 25 basis points in September. The Fed cut another 25 basis points in October. Torsten Slock, Apollo's chief economist, says private labor data suggests that the labor market is doing okay. He also sees growing upside risks to inflation driven by tariffs, a weakening U.S. dollar, a strong economy, and wage pressures in certain sectors. As the significant tariff-driven volatility is eased and there's more clarity with respect to the trajectory of rates, we're seeing an increase in sponsor M&A activity. That said, given the significant capital raise for direct lending, we continue to see pressure on both spreads and OID. We believe the core middle market, where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of recent M&A activity levels, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our third quarter investment activity and then provide some detail on our investment portfolio. In the September quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the September quarter totaled $138 million with a weighted average spread of 521 basis points across 21 different companies. Despite the competitive environment, MidCap Financial has remained disciplined in its underwriting. The weighted average net leverage on new commitments was 3.8 times in the September quarter, down from four times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to generate what we believe to be attractive ROEs even at current spreads. Gross fundings, excluding revolvers and MERCs, totaled $142 million. Sales and repayments, excluding revolvers and MERCs, totaled $197 million. Net revolver fundings were approximately $3 million. And as previously mentioned, we received a $97 million net pay down from Merckx. In aggregate, net repayments for the September quarter were $148 million. Excluding the $97 million net repayment for Merckx, net repayments for the quarter totaled $51 million. Shifting now to our investment portfolio, at the end of September, our portfolio had a fair value of $3.18 billion and was invested across 246 companies across 48 different industries. properties. Direct origination and other represented 95% of the total portfolio, up from 92% at the end of June, primarily driven by the Merck's paydown. Merck's accounted for 3.3% of the total portfolio at the end of September, down from 5.8% at the end of June. At the end of September, the non-directly originated loans acquired from the closed-end funds represented approximately 2% of the portfolio. All of these figures are on a fair value basis. With respect to recent headlines, we have no exposure to either first brands or tricolor. Specific to the direct origination portfolio, at the end of September, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.9 million. The median EBITDA was approximately $51 million. Approximately 95% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market, a substantial Essentially, all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10.3% on average for the September quarter, down from 10.5% for the June quarter. At the end of September, the weighted average spread on the directly originated corporate lending portfolio was 559 basis points, down nine basis points compared to the end of June. Underlying portfolio company credit metrics showed a slight improvement quarter over quarter, although we saw an uptick in investments on nonaccrual status. We observed a modest decrease in borrower net leverage or debt to EBITDA with the weighted average leverage decreasing to 5.29 times at the end of September, down from 5.32 times at the end of June. This trend reflects the lower leverage on new commitments, which helped offset increases in certain existing investments. Additionally, the weighted average interest coverage ratio improved slightly to 2.2 times, up from 2.1 times last quarter. Looking ahead, all else equal, if base rates decline as currently expected, we anticipate a positive impact on portfolio company credit quality through even higher interest coverage ratios. These metrics are generally based on financial information as of the end of June 2025. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information. Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of September, the percentage of our leverage lending revolver commitments that were drawn was essentially flat compared to the prior quarter. During the quarter, we reinstated a portion of our investment in new era to accrual status following a restructuring, which converted our first lien debt position into a combination of first lien debt and preferred equity. Conversely, we placed five investments on non-accrual status due to company-specific challenges, noting that one of these investments was acquired in last year's mergers. A portion of our investment in lending point was moved to non-accrual status in anticipation of a forthcoming restructuring. In total, investments on non-accrual status represented 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter. Subsequent to quarter in, we were repaid on our position in Global Evil, a position acquired in the mergers, which was on non-accrual. Toward the end of October, we became aware that one of our portfolio companies, Renovo, would be filing for bankruptcy. The company filed in early November. As of September 30th, MFIC had a $7.9 million exposure to the company. PIC income declined to 5.1% of total investment income for the September quarter and 5.8% over the LTM period. Our PIC income remains relatively low compared to other BDCs, which we view as a positive indicator of portfolio health and reflects our focus on cash pay investments. With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Kenny Kempfellas Thank you, Ted, and good morning, everyone. investment income for the September quarter was approximately $82.6 million, up $1.3 million, or 1.6% compared to the prior quarter. The increase was primarily driven by higher prepayment and fee income, partially offset by a decline in recurring interest income, which is due to a tightening of base rates, a modest uptick in non-accruals, and a slightly lower average portfolio size. Recainment income was approximately $3.2 million, up from $1.2 million last quarter. Our fee income was $458,000, up from $220,000 last quarter. The dividend income was $200,000 flat quarter over quarter. The weighted average yield at cost of our directly originated lead lending portfolio was 10.3% on average for the September quarter. This is down from 10.5% last quarter due to the aforementioned tightening in rates. Net expenses for the quarter were $47.3 million, up from $44.9 million in the prior quarter. This increase was primarily driven by higher incentive fees. Mythic's stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter lookback. Given the total return hurdle feature and the net loss incurred during the look-back period, MIFIC's incentive fee for the September quarter was $5.8 million, or 14.1% pre-incentive fee in that investment account. Other G&A expenses totaled $1.6 million for the quarter, and administrative service expenses totaled $1 million. Both figures are essentially unchanged from the prior quarter and in line with our previously communicated expectations of $1.6 million and $1 million, respectively. For the September quarter, net investment income per share was $0.38, and gap earnings per share or net income per share was $0.29. These results correspond to an annualized ROE-based net investment income of 10.3% and an annualized return on equity based on net income of 8%. Results for the quarter including net loss of approximately $7.9 million, excuse me, or $0.08 per share, primarily due to losses on a handful of investments as previously mentioned. Turning to the balance sheet, at the end of September, the portfolio had a fair value of $3.18 billion, total principal debt outstanding of $1.92 billion, and total net assets stood at $1.37 billion, or $14.66 per share. Company ended the quarter at net leverage of 1.35x with average net leverage excluding the impact of Merck's equating to 1.37x. This was up slightly from the prior quarter's average of 1.35x. Gross fundings for the quarter, including revolvers, totaled $142 million. Net repayments for the quarter were $148 million. Excluding the $97 million repayment from Merck's, net repayments for the quarter would have been $51 million. Turning to the liability side of the balance sheet, we have been focused extending our debt maturities and reducing our financing costs. On October 1st, we amended our revolving credit facility and extended the final maturity to October 2030. Part of this amendment, the funded spread on the facility was reduced by 10 basis points from 197.5 basis points to 187.5 basis points. Just a reminder, this includes the 10 basis points of credit spread adjustment. The unused fee was reduced from 37.5 basis points to 32.5 basis points. Size of the facility was reduced by $50 million to $1.61 billion dollars. The remaining material terms of the facility were unchanged. As a result of this amendment, we expect to recognize a one-time expense of approximately 1.5 million dollars in the December quarter due to the acceleration of unamortized debt issuance costs associated with one lender whose commitment was reduced. In addition, in October, we upsized and repriced MFIC Bethesda 1 CLO, which originally priced in September 2023. We increased the size of the CLO collateral from $400 million to $600 million. As part of this reset, we sold through the single-A trance, generating approximately $456 million of relatively low-cost secured debt, which equates to a blended advance rate of 76%. The blended cost of the nodes sold was 161 basis points. Spreads on middle market CLO debt trances have tightened considerably since this CLO originally priced. Spread on the senior AAA tranche on the CLO reset was 149 basis points, compared to 240 basis points when this CLO originally priced, tightening of 91 basis points. CLO has a reinvestment period of four years, and the net proceeds from the CLO transaction were used to repay borrowings under our revolving credit facility. As discussed on prior calls, we continue to view CLOs as an attractive source of term financing. We will recognize a one-time expense of approximately $1.8 million in the December quarter related to the reset, which reflects the acceleration of unamortized debt issuance costs for the original CLO. As always, MFIC benefited from Midcap Financial and Apollo's experience and expertise in CLO management and structuring this transaction. While these financing transactions will result in approximately $3.3 million of one-time expenses in the December quarter, the expected reduction in financing costs is expected to lead to a rapid payback period. Weighted average cost of debt for the September quarter was 6.37 percent. Weighted average spread on our floating rate liabilities will decline from 195 basis points as of September 30th to 176 basis points, a 19 basis point reduction. This decrease is driven by both the amendment of the revolving credit facility and the CLO reset. This concludes our prepared marks. Operator, please open the call to questions.

Thank you. If you'd like to ask a question, press star 1 on your keypad. To leave the queue at any time, press star 2. Once again, that is star 1 to ask a question, and we'll pause for just a moment to allow everyone a chance to join the queue. And we will take our first question from Aaron Szyganovich with True Securities. Please go ahead. Please go ahead, Aaron. Your line is open.

Aaron Szyganovich, I'd just like to discuss the increases and not accrual. It wasn't a lot, you know, maybe a percent or so on cost, but there were several companies. You know, is this – maybe you could just talk a little bit about what is driving this. Is there any kind of theme between them? Are they tariff-related? Maybe just a little bit more detail around the issues that were affecting those companies.

Yeah, sure, Aaron. This is Ted. Thanks for the question. If you look at the companies that went on non-accrual, there's not really a theme that ties them all together. You know, we have, you know, one that was impacted by tariffs. You know, we have one that does have some pressure from, you know, weakened consumer sentiment. But overall, you know, not a real theme, very idiosyncratic across each one.

Okay. But in terms of the, you know, the increase in M&A activity that you're seeing in the marketplace, is this something that you feel like will be, you know, sustainable through 2026? Maybe just a little more of your thoughts on the outlook for investing environment.

Yeah, I mean, I think. Yeah, sure. Go for it. Go ahead, Tanner.

No, go ahead. Go ahead.

Okay, sure. Yeah, I mean, Aaron, I think there's a couple factors at play. One, you have some private equity companies or held companies that have been in the portfolio for a long time. You also have dry powder. And so you need a combination of putting money to work as well as returning capital back to the LPs. So from that perspective, there should be ongoing demand. You also have, with tariffs not going away, but at least some of that volatility being muted, as we talked about, a little more certainty, which could narrow the bid-ask spread between buyer and seller. And then with rates starting to come down and you've got some consensus around where, you know, the curve is going to shake out, I think Tanner mentioned, you know, troughing mid-next year around 3%, you start to see, you know, the financing costs come down and the financing, you know, the cost of the certainty of that financing and the cost, you know, starts to stabilize. So all those factors should lead to ongoing activity.

Great. Thank you. Appreciate it.

Thank you. And we'll take our next question from Melissa Waddell with JPMorgan. Please go ahead.

Good morning. Thanks for taking my questions. I wanted to revisit the comment you made about some of the mitigating actions that you're taking to help offset the impact of lower base rates. I realize that those things can take a while to ramp up and it can take some time to rotate assets. I'm curious how your team is evaluating the timing difference there and how that could impact dividend decisions. Essentially, how long might you wait to, you know, give those efforts time to kick in?

Yeah, sure. Thanks, Melissa. When we look at deployment, as we've alluded to quite a bit, we're very lucky to be roughly $3 billion of a sourcing engine for $50 billion, and so have a lot of opportunities for deployment in an improving M&A market. And importantly, when we look at deployment, and I think this rhymes with our approach with respect to the proceeds we generated from the sales of the broadly syndicated and high yield loans, we want to do it in a deliberate manner. And importantly, instead of just getting right back to target leverage from the Merck's proceeds immediately, we want to continue to, one, not over-indexed in any one market, and then also take the opportunity, which we're afforded by virtue of that really wide origination funnel, to be very granular in what we're doing. And so, importantly, all things being equal, you'd love to get right back up to target leverage. And in the case of Merckx, we've gotten $97 million back, and we anticipate another $25 million, which was otherwise only earning 2.5% on our balance sheet. So, clearly a nice accretion opportunity. But when we go to deploy, it's got to be balanced by, and even if it does take a little bit of time, we want to err on the side of creating a really, really granular portfolio. And importantly, the other aspect of that is, of course, now, as Kenny alluded to, having reset our first CLO down 90 basis points and upsized our all-in secured cost of capital, which is our financing strategy to become more secured heavy in our liability side, is roughly $175 and putting us in a good position to be able to still generate nice NIMM in what is very clearly a tightening spread environment or a tight spread environment. So the conclusion is we can do it quickly. we want to be measured, and we want to do it consistent with how we've deployed across a really diverse pool of 244 obligors in our portfolio. I appreciate that detail. You mentioned

portfolio leverage as part of your answer. Can you give us an update on how you're thinking about portfolio leverage in the context of this environment, given where spreads are right now?

Thanks. Yeah, our target for leverage is unchanged, and we would endeavor over the next period of time to get back to the 1.4 level. You know, we do think, as we've said in the past, that the execution through very, very attractive levels of investment grade within the CLO is indicative of our confidence in being able to run at a little bit higher leverage level. And so we would endeavor to get back to that 1-4 level, again, drawing on the comment to your previous question, again, but doing it in a measured way.

Thank you. Thank you. And once again, if you would like to ask a question, please press the star and one on your telephone keypad now. And we'll pause for just one more moment to allow any further questions to queue. And we will take our next question from Paul Johnson with KPW. Please go ahead.

Yeah, good morning. Thanks for taking my question. I only have just one. I mean, with the recent just liability amendments and, I guess, you know, addressing kind of it looks like you're, you know, making room to kind of address the upcoming bond maturity, but kind of getting your ducks in a row, I guess, on the liability side, does that change anything around, you know, your interest in potentially repurchasing shares?

Yeah, thanks, Paul. I think when we look at share repurchases, which are obviously very topical now in light of where BDCs have traded as of recently, we have been an active repurchaser historically. It is a very compelling tool for driving shareholder value, which, of course, needs to be weighed against liquidity and where we stand in terms of leverage. And outlook, importantly, of course, weighed against the opportunity to deploy into new loans. But that said, we do believe, as we have in the past, that it is a compelling tool. And I would note also on share repurchases, Paul, historically, it has been our view that instead of implementing a 10v5, you know, we would prefer to utilize shareware purchases when the window is open, and thus we can have the latest and greatest information, which obviously limits the amount of time you can be repurchasing. But notwithstanding, you know, we do believe it's compelling, and we have a night's room under our current authorization. Thank you. Very helpful. That's all for me.

Thank you. And once again, if you would like to ask a question, please press the star and one on your telephone keypad now. And we will take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. This may have been already covered. Unfortunately, I'm just juggling a few calls. What's the latest and any updated thoughts around dividend coverage, just given the current rate outlook there? Thanks.

Yeah, sure. You know, when we look at the dividend, Ken, we were able to meet 38 cents, you know, benefiting from a slightly lower incentive fee in the current quarter. And then, as we mentioned in the prepared remarks, we do have considerable proceeds from Merck's that were yielding on our books a significantly lower yield. So that's a nice accretion opportunity for us. And then we've also undertaken an opportunity in the current market environment, which is as those spreads on our assets have come down, we've been able to remark our liabilities. And as that plays through our numbers between those dynamics and then in addition to the fact that there is an opportunity to work through our non-accrual positions, those three drivers give us an opportunity to mitigate the effects of lower base rates. And so the board has made a decision at the current moment to leave the dividend intact. And then as we see those three levers that we have playing through and we assess, importantly, the actual trajectory of rates versus what's anticipated, we will continue to reevaluate. We also did call out, you know, 100 basis point decline in rates would be about 10 cents of annual NII. And thus, you know, taking into account, you know, what the actual directory of rates is against those three levers will enable us to make kind of a more informed decision as we move forward over the coming quarters.

Gotcha. Super helpful there. That's all I had. Thanks. Thanks, Ken.

Thank you. And that is star and one to ask a question. We will pause for just another moment to allow any further questions to queue. And at this time, there are no further questions in queue. I will now turn the meeting back to Tanner Powell for any closing remarks.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us with any other questions and have a good day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good morning and welcome to the earnings conference call for the period ending June 30, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question-and-answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star and then one on your telephone keypad. If you would like to withdraw your question, press star, then two. I will now turn the call over to Elizabeth Besson, Investor Related.

Thank you, operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Kenny Seifert, our newly appointed Chief Financial Officer. Howard Widra, Executive Chairman, and Greg Hunt, our former CFO who now serves as an advisor, is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcasts are being recorded. Please note that they are the property of MidCAP Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Tanner Powell Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's second quarter earnings conference call. In case you missed our mid-June filing, we're pleased to share that Kenny Seifers has been appointed as MFIC's new chief financial officer, which took effect as of the close of business on June 30th. Kenny has been a key leader within Apollo's finance and accounting team since 2015. Kenny previously served as the CFO of both AFT and AIF, the two funds that MFIC merged with last year. Greg Hunt, MFIC's former CFO, will continue to support the company as an advisor through the end of December to ensure a smooth and effective transition. Additionally, Howard Widra, MFIC's Executive Chairman, informed our board of his intention to retire from Apollo at the end of 2026. We are thankful to both Greg and Howard for their many contributions to MFIC. For today's call, I will begin by providing an overview of MFIC's second quarter results, along with an update on the meaningful progress we've made reducing our investment in Merck's. I will then turn the call over to Ted, who will share our views on the current market environment, walk through our investment activity for the period, and provide an update on the portfolio. Kenny will then review our financial results and capital position. Yesterday, after market closed, we reported results for the second quarter. Net investment income, or NII, per share was $0.39 for the June quarter, which corresponds to an annualized return on equity, or ROE, of 10.5 percent. Gap net income per share was $0.19 for the quarter, which corresponds to an annualized ROE of 5.2%. NAB per share was $14.75 at the end of June, down 1.2% compared to the prior quarter. The decline in NAB per share was primarily due to a handful of positions that are experiencing company-specific challenges, partially offset by a gain on Merckx, which we will touch on shortly, and NII slightly exceeding the dividend. During the June quarter, MFIC made $262 million of new commitments across 29 transactions. Mid-cap's strong incumbent position continues to be a competitive advantage, as evidenced by the fact that slightly more than half of the 29 commitments were made to existing portfolio companies. This underscores the power of incumbency, particularly in a muted M&A environment. We also observed a slight increase in the spread per unit of leverage on new commitments compared to the prior quarter, which Ted will discuss later. Moving on to Merck's, our aircraft leasing portfolio company, which, as you know, we have been actively working to reduce. During the June quarter, Merck sold one aircraft, which resulted in an $8.5 million pay down to MFIC. We are very pleased to share several recent positive developments related to our investment in Merck's that occurred subsequent to quarter end. As mentioned on last quarter's call, we were working on multiple sales campaigns and anticipated MFIC's exposure to Merck's to decline in the coming quarters. We are happy to report that we've made significant progress toward this objective. Post-quarter end, Merck successfully completed a sales transaction covering the majority of its aircraft. Given the strong market environment, we were able to sell these aircraft above the value embedded in Merck's valuation, which resulted in a modest write-up on our investment during the June quarter. In addition, in July, Merck's received payments from insurers related to the three aircraft detained in Russia in the amount of $30.9 million, which brings Merck's total recoveries to date to approximately $47.4 million on those three aircraft. Similar to the sales transaction, the insurance proceeds were slightly above the amounts assumed in Merck's valuation. Following the sales transaction and the insurance recoveries, Merck's will be repaying approximately $90 million to MFIC on a net basis in the September quarter, reducing MFIC's investment by nearly half. As part of the sales transaction, Merck's is also expected to receive additional consideration of approximately $30 million anticipated by year-end 2025 or early 2026. Both the insurance recoveries and the sales transaction combined are expected to result in a positive impact to NAV in the high single-digit per share range relative to its June 30, 2025 carrying value. To facilitate the Merck's sales transaction, MFIC temporarily provided additional capital to Merck's. As a result, MFIC has incurred incremental interest expense associated with this temporary capital infusion in the September quarter of approximately $1 million, or one cent per share. On a pro forma basis, adjusting Merck's $185 million fair value as of the end of June for this $90 million net paydown. MFIC's investment in Merck's will total approximately $95 million, representing approximately 2.8 percent of the total portfolio, down from 5.6 percent at the end of June. Of the $90 million net repayment, approximately $25 million will be used to reduce the Merck's revolver and the remaining $65 million applied to our equity investment in Merck's. As mentioned, MFIC will be receiving additional consideration totaling approximately $30 million by the end of 2025 or in early 2026, which will further reduce MFIC's exposure to Merckx. Let me now walk you through what remains in Merckx. MFIC's remaining investment in Merckx consists of four aircraft plus the value associated with Merckx's servicing platform. As a reminder, Merckx earns income through its servicing activities for Navigator, Apollo's dedicated aircraft leasing fund. Navigator is actively pursuing the sale of its fleet. Merckx received a servicing fee on each aircraft sale. Pro forma for the sale transaction, the servicing business represents approximately 40 percent of the total value. Taking a step back, this reduction in our exposure to Merckx lowers MFIC's exposure to an under-yielding asset and provides us with capital to deploy into first-lean middle-market loans sourced by MidCap Financial, which we believe will deliver a higher and more attractive risk-adjusted return. At the current base rates, we estimate that reinvesting $90 million, comprising of $25 million from Merck's Revolver, and $65 million from equity is expected to generate approximately $0.06 per share in additional annual net investment income, enhancing long-term value for our shareholders. The remaining value of Merck's, once realized and reinvested, will generate another approximate $0.06 per share in additional net investment income at current base rates. Turning to our dividend, on August 5, 2025, our Board of Directors declared a quarterly dividend of $0.38 per share for shareholders of record as of September 9, 2025, payable on September 25, 2025. As mentioned, we intend to redeploy the capital repaid from Merck's, which should be accretive to MFIC's earnings power and strengthen our dividend

coverage going forward. With that, I will now turn the call over to Ted. Thank you, Tanner. Good morning, everyone. Beginning with the market environment, the quarter began with heightened volatility driven by the U.S. presidential administration's announcement of aggressive tariffs. This announcement temporarily disrupted activity, leading to a pause in new issuance. However, as the quarter progressed, we observed a significant improvement in market sentiment and issuance activity picked up, particularly after a pause on tariffs was announced and several trade deals were struck. Despite the turbulent start to the quarter, most major asset classes delivered positive returns. Importantly, we are beginning to see signs of a pickup in sponsor M&A activity. The U.S. economy has continued to show stability, characterized by high but gradually moderating inflation, despite the pressure from tariffs. The labor market has shown resilience, with unemployment holding steady. In response, the Federal Reserve has kept its policy rate unchanged, opting to wait for greater clarity on the economic impact of evolving trade and fiscal policies. We believe the core middle market, where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of muted M&A activity, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our second quarter investment activity and then provide some detail on our investment portfolio. As a reminder, MFIC is focused on lending to the core middle market on a first lien senior secured basis. We believe this segment of the direct lending market offers attractive risk-adjusted yields and is less competitive compared to other segments of the direct lending market. Mid-cap financials' longstanding presence in the middle market and its deep network of sponsor relationships enables us to continue to see a wide range of attractive investment opportunities. As a result, we believe the risk-adjusted returns available to firms like MidCap Financial and MFIC are among the most attractive in the direct lending market across cycles. In the June quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the June quarter totaled $262 million with a weighted average spread of 538 basis points across 29 different companies. Excluding two outliers, the weighted average spread on new commitments was 526 basis points. We also observed a slight decline in the net leverage on new commitments. The weighted average net leverage on new commitments was four times in the June quarter, down from 4.2 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs at current spreads. Gross fundings, excluding revolvers, totaled $254 million. Sales and repayments, excluding revolvers and Merck's, totaled $108 million. Net revolver fundings were approximately $7 million. And, as mentioned, we received an $8.5 million paydown for Merck's. In aggregate, net fundings were $144 million. Moving to our investment portfolio, At the end of June, our portfolio had a fair value of $3.33 billion and was invested in 249 companies across 51 industries. As a reminder, in the March quarter, we transitioned our industry classification from the Moody's Industry System to Global Industry Classification System, or GICS. Direct origination and other represented 92% of the total portfolio. We expect this percentage to increase next quarter given the Merck's paydown. At the end of June, the non-directly originated loans acquired from the closed-end funds represented just 2% of the portfolio. Merck's accounted for 5.6% of the total portfolio at the end of June, but today is closer to 2.8%, given the post-quarter end paydown. All of the figures above are on a fair value basis. Specific to the direct origination portfolio, at the end of June, 99% was first lien and 90% was backed by financial sponsors, both on a fair value basis. The average funded position was $13.1 million. The median EBITDA was approximately $50 million. Approximately 96% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market, as substantially all of our deals have at least one covenant compared to larger deals which are generally without covenants. The weighted average yield at cost of our direct origination portfolio was 10.5% on average for the June quarter, down from 10.7% for the March quarter. At the end of June, the weighted average spread on the directly originated corporate lending portfolio was 568 basis points, down one basis point compared to the end of March. Since the initial tariff announcements earlier this year, MidCap has been analyzing the potential impacts across the entire portfolio on a company-by-company basis. This review has been refined and is ongoing. As a reminder, we primarily lend to U.S. service-oriented businesses, and we are underweight businesses that are heavily dependent on imports and exports. Our underwriting process always includes a downside scenario, and we have supplemented our underwriting process in response to the tariffs. Mid-Cap Financial leads and serves as administrative agent on the vast majority of MFIC's direct lending deals. At the end of June, MidCap Financial, or Apollo, was the agent on 72% of MFIC's direct lending portfolio at fair value. This leadership position allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during volatile periods. Being agent allows us to detect and address any issues early. Our underwriting on MidCap Financial source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is approximately six basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy is performed. We observed a slight increase in net leverage or debt to EBITDA of our borrowers. The weighted average net leverage was 5.32 times at the end of June, up from 5.25 times at the end of March. The increase was due to a small number of existing positions, partially offset by new investments. As mentioned, new commitments made during the quarter had a net leverage of 4.0 times. At the end of June, the weighted average interest coverage ratio is 2.1 times, flat compared to last quarter. These metrics are generally based on financial information as of the end of March 2025. We believe the stable level of revolver utilization is an additional sign of the health of our portfolio companies. At the end of June, the percentage of our leverage lending revolver commitments that were drawn was roughly unchanged from the prior quarter. We believe a steady revolver utilization rate is an indicator of financial stability. During the quarter, we restored three positions to accrual status following the successful restructuring in two of these cases, highlighting our ability to navigate credit issues. We also placed three first lien positions on nonaccrual status due to company-specific challenges, New Era, Amplity, and Compass Health. Investments on nonaccrual status represented 2% of the portfolio at fair value, up from 0.9% last quarter, and the number of companies on nonaccrual decreased by one. PIC income represented 6.4% of total investment income for the June quarter. With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Thank you, Ted, and good morning, everyone. I'm honored to join MFIC as Chief Financial Officer and excited to be part of the team and look forward to connecting with each of you soon. Since stepping into the role a little over a month ago, I've been working closely with Greg to ensure a seamless transition. I will now review our second quarter results in greater detail. Total investment income for the June quarter was approximately $81.3 million, up $2.6 million, or 3.2% compared to the prior quarter. The increase was primarily attributable to higher interest income due to growth in the portfolio, as well as higher prepayment income, partially offset by a decline in fee income, and the impact from an increase in investments on non-accrual status. Repayment income was approximately $1.2 million, up from $0.6 million last quarter. B income was approximately $220,000, down from approximately $330,000 last quarter. Divided income was approximately $200,000, essentially flat quarter over quarter. The weighted average yield at cost of our directly originated lending portfolio was 10.5% on average for the June quarter, down from 10.7% last quarter. Net expenses for the quarter were $44.9 million, up from $44.4 million last quarter. This increase was driven by higher interest expenses and G&A expenses, partially offset by a lower incentive fee. Interest expense rose due to a higher amount of debt outstanding due to growth in the portfolio. Other G&A expenses devoted $1.6 million for the quarter, up from $1.2 million in the March quarter. As discussed on the last quarter's call, during the March quarter, we received a reimbursement from Merckx for certain expenses previously incurred by MFIC on Merckx's behalf. This was recorded as a contra expense. As mentioned on last quarter's call, we expect other G&A to average around $1.6 million per quarter. This amount is in addition to administrative service expenses, which are around $1 million per quarter. MFIC's stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter look back. Given the total return hurdle feature and the net loss incurred during the look back period, MFIC's incentive fee for the June quarter was $3.9 million, or 9.6% of pre-incentive fee NII. For the June quarter, net investment income per share was $0.39, and gap earning per share, or net income per share, was $0.19. These results correspond to an annualized ROE based on net investment income of 10.5% and an annualized ROE based on net income of 5.2%. Results for the quarter include a net loss of approximately $18.3 million, or $0.20 per share, primarily due to losses on a handful of investments as previously mentioned. Turning to the balance sheet, at the end of June, the portfolio had a fair value of $3.33 billion. Total principal debt outstanding of $2.05 billion, and total net assets stood at $1.3 billion, or $14.75 cents per share. Net leverage at the end of the quarter was 1.44 times. Average net leverage for the June quarter was 1.35 times, reflecting the timing of investment activity. This compares to average net leverage of 1.21 times for the March quarter. Given our visibility to the anticipated MERCS paydown, we adjusted our pace of deployment in the June quarter accordingly. On a pro forma basis, including the approximate $90 million net repayment for MERCS, net leverage at the end of June would have been around 1.37 times. Gross fundings for the quarter, excluding revolvers, totaled $254 million. Net fundings for the quarter were $144 million. Turning to our capital base, we currently intend to reprice and upsize our first CLO, MFIC Bethesda CLO I, in the fall. CLO spreads and tightened considerably since our first CLO priced in September 2023. Of course, the timing and pricing of any future CLO transaction is subject to prevailing market conditions. Lastly, we were pleased that in June, Prol affirmed MFIC's investment grade rating of BBB- with a positive outlook. This concludes our prepared remarks. Operator, please open the call to questions.

Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. Once again, that is star 1 to ask a question. We'll take our first question from Finian O'Shea with Wells Fargo Securities. Please go ahead.

Hey, everyone. Good morning. Congrats on Merck's and all the new appointments. I actually wanted to hit on Merck's again. There was a lot there. Is the pro forma going to be part, I think you said, 40% of servicing business? and the remaining equity, does that mean the remaining kind of looks like what it does now, a levered aircraft business and then part of servicing business, and that that will stay in place as a strategic, I guess, portfolio position?

So thanks, Finn. So that's generally correct. Let me modify how you described it. The 40% is correct, is that of the remaining roughly $95 million of exposure, 40% is in the servicing business. The slight modification I would make to how you described it, it is not a strategic investment. We are not taking on any more servicing contracts there. And the 40% represents previously signed contracts and, in particular, servicing of our drawdown commingled fund navigator. And those are revenues that will come in over time. And so it's not a strategic business but is related to the servicing of planes. So there's no balance sheet risk for Merckx. MERCs will be paid a portion of the rent that is paid to Navigator. And then when we sell transactions, MERCs will benefit from a payment with regards to the amount of the planes that are sold. So not strategic, but it is related to the servicing.

And, again, does that run off with the current Navigator fund family, or is that complex growing, and is that service business expected to grow?

No. So good question and helpful clarification. That will run off over time as we sell the remaining planes that are in Navigator. That is not expected to grow.

Okay, thanks. Just a follow-up on co-investment. It looks like you did sort of back-to-back orders here. I know there's some regulatory relief, but seeing what that sort of plain English means for mid-cap and if more Apollo funds are straightforwardly entitled to mid-cap origination.

So, generally speaking, the movement in the order has been positive. There were COVID-related modifications that were enhanced, some of which became permanent. And generally speaking, the direction has been one where it has allowed for greater flexibility. In terms of the mid-cap origination, the availability of the origination is the same as it always was, but the modification in the rules and the clarification, frankly, of some of the rules has generally meant a greater flexibility for balance sheets across Apollo to participate in transactions. You know, for instance, to get a little bit more granular, you know, some of the new rulemaking has enabled funds to come in, even if they didn't participate in the original transaction. And so generally speaking, given more flexibility. But, you know, in principle, the dynamic is the same as it was, wherein the origination is available more broadly. these rules just add to the flexibility.

Okay. All for me. Thanks so much.

Thank you. And next we'll go to Aaron with Truist. Please go ahead. Thanks.

I was hoping you could talk a little bit about investing expectations for the second half of the year, what you're seeing, how busy the pipeline is, et cetera.

Yeah. Oh, go ahead. Sorry. Oh, yeah. Thanks for the question, Aaron. You know, just taking it from the beginning of the year, there were high expectations, you know, for a pretty robust M&A market. And then in the first half, what kind of played out was uncertainty around tariffs and what type of legislation was going to get passed. I would say by the end of April, we started to see a little more clarity around all those things. The market sentiment started to get a little more bullish. If you look at most major markets, they're up for the year. And what we've seen over the last several months is that the M&A pipeline has continued to build. It's not always one-to-one in terms of the deals that we're screening and taking to investment committee you know, that actually get transacted. But just the number of deals that we're seeing, sponsors are very active. If you, if you, there's been reports out there about how, you know, the sponsors have a longer duration of their portfolio. They've been holding on to companies longer. There's still a lot of dry powder that needs to go to work. There's a lot of liquidity in the private credit markets. And so, you know, we see all of that coming together to be a pretty active second half. And to the extent that that doesn't play out for whatever reason, you know, with the power of incumbency that we have, you know, we think there'll be plenty of activities to deploy. You know, we've talked about in the past, you know, MidCap has a very large origination business, and MFIC only needs a small percentage of that to meet its quarterly and annual origination needs. And so, you know, within the broader market, but also within the mid-cap and Apollo ecosystem, we see plenty of activity and opportunities to deploy.

Great. I appreciate that. And then the other question was around leverage. It ticked up this quarter to 1.44 net. And I just want to know where you're expecting that to trend. and is that a bit higher than what you like or is that in the same ballpark that you're okay with?

Yeah, I mean, I think in terms, let's start with new deployments, right? We're deploying, you know, at four times, you know, four to four and a half times. You know, it was four times this quarter, it was 4.2 times last quarter. And so, you know, in that range is where the market is and where we like to be deploying. Like, we're very comfortable at that leverage level on new deployments. A lot of the deals that we do are kind of middle market strategies and the borrowers are acquisitive. And so you'll see sponsors purchase something at four times and their intent and our expectation is that as they do these add-on transactions, there will be periods of time where these companies do lever up to make acquisitions and then will ultimately begin to de-lever again over time. So we do see that kind of dynamic profile. And, you know, in terms of the weighted average numbers that we cite on the overall portfolio, you know, we were comfortable there. And then at the fund level, the net leverage ratio, you know, at 1.43 times, we knew that there was a Merck's transaction coming. And so we were deploying ahead of that so that we could take advantage of good opportunities in the market.

And I think to Ted's point, if I could add to that, Aaron, quickly, we assigned a non-zero probability of getting the Merck transaction done, so we came in a little hot. for the avoidance of doubt, it is our intention to operate in and around the bottom end of our range. And you should expect us to be going, you expect us to do that going forward. And then importantly, as we weigh the back half of the year, we're very hopeful, as Ted alluded to, that we will see the pickup in M&A and that will create some new credit creation opportunities and create a little bit more resiliency and stability to spreads. But we, as we always are, will be very deliberate and take account of the risk and what the market is showing us in terms of opportunities as we redeploy the Merck's proceeds that we received.

Got it. Okay, thanks very much. Appreciate it.

Thank you. Our next question will come from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning, and thanks for taking my question. Just one on Merck's. And to clarify, it sounds like after all the announced sales transactions, there's going to be four aircraft remaining in addition to the services platform. Is the four aircraft remaining to one of the two securizations you had left? Or just want to clarify, you know, how many of the securizations will be left to wind down? Thanks.

So, thanks, Ken. At this juncture, the securizations have been completely paid off. And so, these are four planes that we own on balance sheet at Merck's without any leverage.

Okay, great. And then just another point here, in terms of the insurer payments at this point, is there anything remaining there?

So, thanks, Ken. Good question. And without going into excruciating detail, the dynamics of the court process in the UK are such that the court finds with respect to the insurance claims, and then there's a subsequent trial that is needed to adjudicate the interest, the cost of carry, if you will, as well as the recovery of legal. And as is often the case in legal processes, irrespective of whether you're in the U.S. or the U.K., there are settlements in advance of trials, or one can settle at any given time. And so we have conservatively estimated what those remaining proceeds will be. But at this juncture, given that we have settled on the primary claims and we've settled a portion of those auxiliary claims, if you will, forgive the term, it would only be expected to be relatively modest in total size. The vast majority of our claims and potential inflows from our Russia exposures are largely already received.

Gotcha. Gotcha. Great. And just one follow-up, if I may, just on the new non-accruals in the quarter there. Any commonalities that you're seeing there and how many were either indirectly or directly related to tariffs perhaps? Thanks.

Yeah, you know, I think in terms of, you know, themes, you know, there are different types of businesses. You know, they've all seen some level of cost pressure, you know, across the board, you know, whether that's, you know, interest rates, labor, et cetera. But as with most restructuring transactions, there's no one single factor. You know, there's kind of a culmination of various levers that come together and result in restructuring. You know, and I would say one thing, you know, that we're kind of watching are just balance sheets that were constructed, you know, in a lower interest rate environment. And, you know, companies that where you have kind of good company, bad balance sheet situations. and that was a driver, you know, in particular of, you know, probably our biggest one.

Gotcha. Very helpful there. Thanks again.

Our next question comes from Robert Dodd with Raymond James. Please go ahead.

Hi, guys. Just on the spread environment and the opportunities going into the rest of the year, I think it was Ted said, right, the weighted average portfolio yield in his presentation was 568. The new deployments, excluding a couple of outliers, were 526. So there's about a 40 basis point gap between what's coming on versus what's in the portfolio. So should we continue to expect spread compression in the portfolio? Even if deployment spreads remain stable, should we expect spread compression? Or is that kind of a mixed thing, right? Because It's not necessarily like for like on the type of assets that have a 575 spread versus the type of assets that are coming on a 525 spread. I mean, what's kind of the outlook there?

Yeah, sure. Thanks, Robert. So part of the math is extraordinarily easy, right? If you look at our existing book, which itself was constructed over the last several years, and in particular in rather attractive vintages from a spread perspective of 22 and 23, the existing portfolio is at 568. The primary market is as low fives and, frankly, is dipping into the fours in many cases. And if you were to get more granular with our spread for the risk that we put on the books in this particular quarter, we benefited from the fact that the power of incumbency, wherein we were, generally speaking, where we were deploying into existing portfolio companies, it was a little bit higher than where the primary market was. And so very simply, if we're at 568 and the primary market is wrapped around five or even dipping into the fours, that would be expected to come down. What we have seen, Robert, is that the pricing activity has slowed down, in part due to the fact that a lot of it has already been done. And then when we look at the back half of the year to add some maybe dynamism to how we're thinking about it or how it could play out. I'll emphasize, and though we have, you know, the market has underperformed relative to expectations rather consistently in producing new M&A, new credit creation opportunities, but we're hopeful that that will come to bear in the back half of the year and add some stability to the spread environment. I think the emphasis is particularly as the liabilities have gotten to a better place, I'll draw your attention to what we were able to do in CLO Bethesda 2 earlier this year and the prospects for looking at the spread that we have on Bethesda 1. You know, L500 or S500 is still a level at which we can make good money, enhanced by the remarking of our liabilities to maintain them or otherwise to mitigate the effects of the spread environment. So we would expect it to come down, but generally speaking, and in part due to better execution on liabilities, better cost of capital, it's still a level at which we believe, particularly in light of where base rates are, where we can create good risk-adjusted return and ultimately returns for our shareholders.

Got it. Got it. Thank you. I mean, kind of tied to, obviously, I mean, leverage, you know, drop for new deployments was down to four this quarter, which I think is, you know, more than a turn below your overall portfolio average. When you, and I realize, like, you talked about, you know, the M&I A pipeline is starting to rebound. But, I mean, do you think the leverage ask is going to increase, you know, call it the second half this year into next year? Because obviously four turns for what you're putting on is considerably lower than the portfolio average. Again, I mean, it's kind of the spread per unit of risk. I mean, yeah, what are your thoughts there in terms of if the market activity is going to rebound, is it going to be at a higher leverage ask from sponsors? and what are your thoughts on, like, the pricing you'd do that for, so to speak?

Yeah. So as we get more into the prognosticating, I'll make the necessary caveats that, you know, a lot of things could ultimately influence that. Fair enough. But you're notwithstanding, I think, Robert, I think particularly at this moment in time where we've seen a little bit more clarity, where the tariff uncertainty is moderated, There's more clarity coming out of the legislation and the tax bill. And then the need to deploy this M&A capital. You know, it's generally been a borrower-friendly market, which itself is also influenced by the technical, which we're all very aware of, is in a muted M&A environment and significant supply of capital has resulted in tighter spreads and also generally borrower-friendly terms. And so when we look at the back half of the year or an end to 26, frankly, the balance there or how we're looking at it is we likely will see borrower-friendly requests come in, and you could see that leverage level tick up, which, of course, will be balanced by the first – my answer to your first question is we're very hopeful that M&A volumes will go up, which will help to alleviate that technical to some extent. And then the final point I would make, Robert, is generally speaking, when we look at our franchise relative to some of our peers, we generally will over-index into true first lien or stretch senior and are generally of the variety, you know, across the continuum of private credit players, one to accept lower spreads but for lower leverage. But that said, and to circle back to specific your question, I think four was maybe a little bit light in any event. And generally speaking, particularly if we don't see that M&A volumes materialize, and frankly even if we do, given the supply of capital and what sponsors need to make the math work for their IRRs, it wouldn't be surprising to see a tick up in leverage in the back half of the year.

Got it. Got it. Thank you for that. And one just final sort of clarification. To the point on the net leverage at the end of the quarter, I mean, you basically already redeployed the capital you're getting back from Merckx at the end of Q2, right? So there's not going to be a lag of you getting, you know, a chunk of cash coming in. It's already been redeployed into earning assets. Is that right?

Yes. And sorry, not to give you a longer answer here. That's generally correct. I would caution, you know, this is, there's a lot of things that you're managing going into year end and, sorry, quarter end. And, you know, coming out at 144 was a little hot, but not substantially so. And that number, particularly when things fund, can ebb and flow and is very much within the target. But yes, you know, the map is, you know, we would, as our guidance that we've repeated in the past, and I repeated earlier in the call, generally want to be at the bottom end of the range. And so, yes, part of the 90 million has already been deployed. But would caution that in any given quarter, you know, 144 is not, it's not surprising to see that number sort of, a little bit of volatility in that number, a quarter end, given that we're managing very disparate processes and when things fund can vacillate a bit. And there's no reason to try to be too prescriptive or too specific in how we manage it.

Yeah. And Robert, one just quick data point would be, if you include the $90 million net repayment for Merck's net leverage at the end of June, it would have been 1.37 times. So, to Tanner's point, you know, kind of 1.4 plus or minus, you know, is where we're trying to be.

Yeah, got it. Thank you.

Thank you. And we'll go next to Melissa Waddell with JPMorgan. Please go ahead.

Good morning. Thanks for taking my questions. A lot of them have been asked already and answered. But I wanted to touch base quickly on repayment expectations, obviously outside of MERV. He's done a great job detailing, you know, what you are expecting in the third quarter and then also later this year into early 26. Beyond Merck's, are you expecting, you know, if you do get that pickup in M&A activity, are you expecting something sort of commensurate in the repayment side, or is there anything else you have visibility to in the near term elsewhere in the portfolio?

Yeah, I wouldn't say that there are major specific deals that we have earmarked for repayment. We know that there are a handful of companies that are in processes via our dialogue with the sponsor. Most of our portfolio kind of falls below the threshold of term loan Bs, so getting taken out by that level of financing is quite episodic and it's pretty rare. And then in terms of M&A, I mean, yes, if M&A picks up, we're going to have opportunities to deploy, you know, and there will be, you know, deals that go away from us. But, you know, on a net-net basis, we believe we can continue to, you know, stay deployed, you know, at our target leverage levels.

Okay. Thanks for that. And then as I think about the rough math you gave in terms of expectations around additional earnings potential as you rotate that Merckx investment of about $0.06 a share annually in NII, are you thinking of that as being essentially an offset to any base rate pressure or declining base rates that we might see? And in terms of what that means for dividend coverage, are you feeling good about that 38 cents and fully covering that through NII, given these portfolio developments? Thanks.

Yeah, sure. I would modify what you said, Melissa. We don't think about it specifically, but you obviously identified really important drivers, right, all things being equal, base rates going down, pressures, pressures dividends. And one of the things that we have in the toolbox, so to speak, or one of the dynamics which we can point to is the redeployment of Merck. So it's not, we don't, again, there are a lot of factors there. And then to answer your specific question, you know, obviously, too, and hopefully this is apparent, you know, a lot of it depends on how steep the base rate cuts are. We feel good given the given trajectory, particularly in light of the six cents that we calculate to be the accretion from the redeployment of Merck's. But I think clearly there's a level. And if cuts prove to be significantly higher, You know, obviously the calculus is different and the math is different. But given the current trajectory, yes, we do feel good about where we sit with respect to the dividend.

Okay. Thanks for that. And I guess a clarifying point, too. The six cents per share is just from this first blog of repayment from Merckx. Is that right?

That's correct.

Okay. Thank you very much.

Again, as a reminder, ladies and gentlemen, if you would like to ask a question, that is star one on your telephone keypad. We'll go next to Chris Gastelou with CJ Advisors. Please go ahead.

Yeah, hi. Just a clarification on the impact of the Merck's transactions. The 10Q says they should result in a positive impact to NAV in the high single-digit per share range. by high single digit per share. Do you mean six to nine cents or something else?

Yes, yes, six to nine cents.

That's it. Thank you.

Thank you. And that does conclude our question and answer session. I'd like to now turn the call back to management for any final or closing remarks.

Thank you, Operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, and we thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day.

Thank you. And ladies and gentlemen, that does conclude today's conference. We appreciate your participation. Have a wonderful day.

Good morning and welcome to the earnings conference call for the period ended March 31st, 2025 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press the star 2. I will now turn the call over to Elizabeth Beeson, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's first quarter earnings conference call. I will begin today's call by providing an overview of MFIC's first quarter results and sharing our perspective on the current volatile and evolving market environment. I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio, including some comments on the impact of tariffs. Greg will then review our financial results and capital position in more detail. Yesterday, after market closed, we reported solid first quarter results, including a healthy level of earnings and strong portfolio growth with net investment income, or NII, per share of $0.37 for the March quarter, which corresponds to an annualized return on equity, or ROE, of 9.8%. Gap net income per share was $0.32 for the quarter, which corresponds to an annualized ROE of 8.7%. NAV per share was $14.93 at the end of March, down $0.05, or approximately 30 basis points. NAV per share benefited by approximately $0.01 from stock repurchases below NAV made during the quarter. We continue to observe stable credit quality trends in our portfolio. During the quarter, we saw sequential improvements in several credit metrics, including a decline in investments on non-accrual status, a decline in pick income, and a decline in the weighted average leverage of our borrowers. MFIC has built a well-diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical industries with granular position sizes. At the end of March, 99% of our direct origination portfolio was first lien, and our average direct lending position was approximately $13.1 million, or 0.5 percent of the total direct lending portfolio. These figures are at fair value. We believe the current uncertain and evolving environment will showcase the advantages of MFIC's portfolio construction and the strength of mid-cap financials underwriting. That said, the current uncertainty stemming from the trade tariffs could pose challenges for some of our portfolio companies, although we expect these potential challenges to be relatively limited, as Ted will discuss later. We continue to be active in our investing and have continued to make progress deploying the capital from the mergers that closed last July. During the March quarter, MFIC made $376 million of new commitments. While we did observe some spread compression relative to last quarter's commitments, we also saw a slight decline in the net leverage of new commitments, resulting in an attractive of spread per unit of leverage. We also continued to sell certain assets acquired in connection with the mergers that do not align with our strategy and prudently deployed the proceeds along with the investment capacity generated from the mergers into first-lean floating-rate middle-market loans originated by MidCap Financial. At the end of March, the non-direct origination assets onboarded from the mergers represented just 2% of the total portfolio at fair value. While sourcing assets is generally considered to be among the biggest challenges for many market participants in this market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market and which is consistently ranked near or at the top of league tables. Our affiliation with MidCap Financial provides a significant deal sourcing advantage for MFIC. We are fortunate to have access to the necessary origination to deploy this capital given the significant volume of commitments originated by MidCap Financial. During the March quarter, MidCap Financial closed approximately $6.5 billion of commitments, which is particularly noteworthy given the overall muted sponsor M&A activity in the market. MidCap Financial has what we believe to be one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record, which includes closing on over $136 billion of lending commitments since 2013. team. This origination track record provides us with a vast data set of middle market company financial information across all industries that we believe this makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive opportunities across cycles and does not compete directly with either the broadly syndicated market or the high-yield market. Moving to Merck's, at the end of March, MFIC's investment in Merck's totaled approximately $185 million, representing 5.8% of the total portfolio at fair value. I'd like to provide an update on Merck's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022 and the imposition of sanctions, Merck's own portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS 2019. In compliance with EU sanctions imposed on Russia due to the invasion, Merck's terminated the leases of those aircraft, but three were not returned and have remained in Russia since then. Merck's has brought legal action in the English court seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy. As mentioned on last quarter's call, we settled a portion of our contingent insurance claims with certain insurers during the first quarter. We recently reached a settlement with another insurer bringing Merckx's total proceeds to $16.5 million so far. We're currently waiting for final judgment for our remaining claims, which we expect to be made in the very near future. As mentioned on last quarter's call, Merckx has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the very near future. The blended yield across our total investment in Merck's was approximately 3.2% in fair value. And the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on MFIC's income. Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merck's to decline in the coming quarters. Now let me discuss current market conditions. Market conditions in the first quarter started on a relatively strong note as forward interest rates were expected to be lower but stable and the economic backdrop was solid. As the quarter progressed, we saw conditions deteriorate amid federal government layoffs, increasing tariff concerns, and their potential negative effects on business fundamentals and economic growth. Although the trade tariffs were largely expected, their size and scope were far greater than anticipated. Following the U.S.-China tariff truce that was announced yesterday, The probability of a U.S. recession in 2025 has decreased. Lower tariffs are positive for the economy and markets, but there are other headwinds to U.S. economic growth. The key issue for markets is to monitor the speed with which confidence is restored among consumers, corporates, and foreigners. While markets may recover quickly from this episode, we believe it will take some time before confidence is restored among consumers and corporates. Amid ongoing volatility and uncertainty driven by the trade war and increasing fears of recession, new activity has been fairly light as M&A activity remains slow. Due to the heightened economic uncertainty following the tariff announcements, there has been a lack of investor demand in the syndicated loan market, and banks have become more cautious when launching new syndication transactions. Secondary loan and bond markets have experienced increased volatility and widening spreads. We believe this uncertainty in the public debt market creates the type of environment that causes borrowers to seek solutions in the private market. On one hand, we believe direct lenders are particularly well poised to benefit in this type of environment as the syndicated loan market has become less certain and accessible for certain borrowers. On the other hand, we believe the trade war-induced uncertainty may further delay the long-awaited anticipated increase in M&A activity. Depending on the timing and outcome of the tariff policies, it may continue to be a slow year for LDOs, M&A, and IPOs, which would negatively impact sponsor activity. That said, the mounting pressure on financial sponsors to return capital to investors could drive some activity. We believe the core middle market, where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Additionally, even with the slowdown in M&A activity, we see that many of our borrowers continue to have add-on financing needs. Now turning to our dividend, on May 7, 2025, our Board declared a quarterly dividend of $0.38 per share for shareholders of record as of June 10, 2025, payable on June 26, 2025. With that, I will now turn the call over to Ted. Thank you, Tanner. Good morning, everyone.

I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis we've done with respect to tariff-related risks. In the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the March quarter totaled $376 million, with a weighted average spread of 513 basis points across 33 different companies. Although we observed a decline in spreads on new commitments compared to the previous quarter, we also observed a slight decline in the net leverage on new commitments. The weighted average net leverage on new commitments was 4.2 times in the March quarter, down from 4.3 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs even at current spreads. For the March quarter, gross fundings totaled $357 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $192 million, including $44 million of liquid assets acquired from the mergers. Net revolver fundings were approximately $3 million. In total, net fundings for the quarter were $170 million. Given commitments closed so far in the June quarter and our robust pipeline for mid-cap financial, we expect fundings for the June quarter to be strong. Turning to our investment portfolio, at the end of March, our portfolio had a fair value of $3.19 billion and was invested in 240 companies across 49 different industries. Please note, we have transitioned our industry classification from the Moody's industry system to the Global Industry Classification System, or GICS, beginning this quarter. Direct origination and other represented 92% of the total portfolio, up from 90% last quarter. This quarterly increase is the result of growth in the portfolio from funding to mid-cap financial source loans and from the sale of non-direct origination positions from the mergers. At the end of March, the non-directly originated loans acquired from the closed-end funds, which included high-yield bonds, broadly syndicated loans, and structured credit positions, totaled $73 million, representing just 2% of the portfolio. Lastly, Merck's accounted for 5.8% of the total portfolio. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of March, 99% was first lien, and 92% was backed by a financial sponsor, both on a fair value basis. Approximately 97% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the upper middle market, as substantially all of our deals have at least one covenant compared to larger deals, which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $46 million. The weighted average yield at cost of our direct origination portfolio was 10.7% on average for the March quarter, down from 11% for the December quarter. The decline in the yield was primarily due to the decline in base rates. At the end of March, the weighted average spread on the directly originated corporate lending portfolio was 569 basis points, down 9 basis points compared to the end of December. During periods of elevated volatility and uncertainty, we look at the potential impact on our existing portfolio companies. As it relates to the recently announced U.S. tariffs, we've done a comprehensive review on MFIC's portfolio to evaluate their direct impact on our borrowers. As Tanner mentioned, MFIC has been focused on building a well-diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical industries. We primarily lend to U.S.-focused service-oriented businesses, and we're underweight businesses that are heavily dependent on imports and exports. At the end of March, MFIC's top three industry exposures, excluding Merckx, were software, healthcare providers and services, and financial services. MidCap Financial leads and serves as administrative agent on the vast majority of the MFIC's direct lending deals, which allows us to be in active dialogue with our borrowers and have enhanced information flow, which is particularly valuable during these uncertain periods. Being agent allows us to detect and address any issues early. At the end of March, Midcap Financial or Apollo is the agent on 72% of MFIC's direct lending portfolio at cost and at fair value. We believe the first-order impact of the tariffs to our portfolio is limited. We've defined the first-order impact as businesses which have labor or source products from outside the U.S. We've categorized our direct lending portfolio into four categories based on what we believe to be the severity of the tariffs. No impact, minimal impact, medium impact, and meaningful impact. We've enhanced our monitoring of companies, which we have identified as having a meaningful impact. Of course, there could be second-order impact from an economic slowdown or a recession, which is more challenging to quantify. We've supplemented our underwriting process in response to tariffs. Our underwriting process has always included a downside scenario, such as a mild recession. As Tanner mentioned, we continue to observe relatively stable credit quality trends in our portfolio, and we continue to believe that we have constructed a senior portfolio built for today's economic uncertainty. We are not observing any signs of general credit weakness. Our portfolio companies continue to show good financial performance, as evidenced by a modest improvement in revenue growth with continued positive EBITDA growth. We saw an improvement in net leverage or debt to EBITDA of our borrowers. The weighted average net leverage was 5.25 times at the end of March, down from 5.5 times at the end of December due to lower leverage on new assets and an improvement on certain existing assets. At the end of March, the weighted average interest coverage was 2.1 times, flat compared to last quarter. This statistic is based on financial information as of the end of December 2024 and therefore does not reflect the benefit of lower base rates that occurred in the March quarter. We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of portfolio health. At the end of March, the percentage of our leverage lending revolver commitments that were drawn did not change materially from the prior quarter. We believe a steady revolver utilization rate is an indicator of greater financial stability. The number and dollar amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the previous quarter. No new positions were placed on non-accrual status this quarter. Our position in international cruise and excursion was restored to accrual status following a restructuring that occurred in the December quarter. Additionally, we received a paydown above fair value on a position acquired via the mergers, which exceeded our mark at the end of December. As a result, at the end of March, investments on non-accrual status were 0.9% of the portfolio at fair value, down from 1.3% last quarter. After quarter end, we received information about the ongoing restructuring of the New Era Technologies business, which will be reflected in our June results. MFIC's PIC income declined to 4.5% of total investment income, down from 5.7% last quarter as a few borrowers switched to cash pay from PIC during the quarter. Our level of PIC remains well below the average of BDC peers. That said, we recognize that it makes sense to allow borrowers to elect PIC in certain circumstances. Our underwriting on mid-cap financial source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is around five basis points on loans sourced by mid-cap financial. We think this performance data shows how well the strategy is performed. With that, I will now turn the call over to Greg to discuss our financial results in detail.

Greg Fossil, Thank you, Ted, and good morning, everyone. Starting with our operating results, total investment income for the March quarter was approximately $78.7 million, down $3.5 million, or 4.2 percent, compared to the prior quarter. This decline was primarily due to lower fee and prepayment income, as well as a decline in asset yield due to the impact of lower base rates on interest income, partially offset by the growth in the size of the portfolio. Fee income and prepayment income for the March quarter totaled $950,000, down from $2.3 million last quarter. Dividend income was approximately $250,000, essentially flat quarter over quarter. As a reminder, there's a lag effect between changes in base rates and their impact to interest income depending on the frequency of loan resets. During the December and March quarters, Three-month SOFR declined by approximately 28 basis points and two basis points, respectively, while one-month SOFR declined by 52 basis points and one basis point, respectively. MFIC's investments are linked to both one-month and three-month SOFR rates, with a great proportion tied to three-month SOFR. In short, the decline in base rates during the December quarter was a contributor to the decline in interest income recorded in the March quarter. The average yield at cost on our direct originated portfolio was 10.7 percent on average for the March quarter, down from 11 percent last quarter, largely due to lower base rates. Net expenses for the quarter were $44.4 million, down from $45.1 million last quarter. This decline was driven by lower management fees, interest expenses, and G&A expenses partially offset by a higher incentive fee. Interest expense benefited from the same base rate decline mentioned earlier, partially offset by a higher average debt balance, as well as the impact of the CLO, which closed during the quarter. As mentioned in last quarter's call, in late January, MFIC priced a $529 million CLO, which closed on February 24th. We sold through the single-A tranche, adding approximately $399 million of relatively low-cost secured debt at a blended spread of 161 basis points. The proceeds from the CLO were effectively used to repay MFIC's $350 million, 5.25 percent on secured notes that matured on March 3rd, 2025. At today's base rates, the cost of the CLO is slightly higher than the fixed rate debt it effectively replaced. Other G&A expenses totaled $1.2 million for the quarter, down from $1.7 million in the previous quarter. During the March quarter, we received a reimbursement from MERC for certain expenses that MFIC previously incurred on MERC's behalf, which was recorded as a contra expense. We expect other GNA to average around $1.6 million per quarter going forward. This is in addition to administrative expenses, which are around $1 million per quarter. MFIC's incentive fee rate is 17.5% and is subject to a total return with a 12-month a 12-quarter lookback. Given the total return hurdle feature and the net loss incurred during the lookback period, MFIC's incentive fee for the March quarter was $6.4 million for 15.8 percent of pre-incentive fee net investment income. For the March quarter, net investment income per share was $0.37, and GAAP EPS, or net income per share, was $0.32. These These results correspond to an annualized return on equity-based net investment income of 9.8 percent and an annualized return based on net income of 8.7 percent. Results for the quarter include a net loss of approximately $4 million or $0.05 per share. The net loss was primarily driven by a few concentrated positions that were already on non-accrual status. We ended the quarter with net leverage of 1.31 times, up from 1.16 times last quarter. Our funding activity was weighted toward the second half of the quarter. Average leverage for the March quarter was approximately 1.2 times. During the March quarter, we continued to make progress deploying the capital acquired from MFIC's merger with the closed-end funds, although we were operating below our target leverage at 1.4 times. Gross and net fundings for the quarter were $357 million and $170 million, respectfully. At the end of March, our portfolio had a fair value of $3.19 billion. We had total principal debt outstanding of $1.9 billion, and total net assets of $1.39 billion for a NAV of $1,493 per share. Lastly, during the March quarter, we repurchased approximately 477,000 shares at a weighted average price of $1,275 for a total cost of $6.1 million. These buybacks had an accretive impact on NAV per share of approximately one cent. This concludes our prepared remarks. Operator, please open the call to questions.

Thank you. At this time, if you would like to ask a question, please press the star 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 2. So once again, that is star one to ask a question. We'll take our first question from Mark Hughes with Truist. Please go ahead.

Yeah, thank you very much. Good morning.

Morning.

The funding is in 2Q. I think you said they're strong so far. Kind of interesting to hear, given the kind of cautious commentary from you and others around the overall backdrop. Could you talk a little bit more about that, where you're seeing opportunity, what's driving that, and then any comment on the spread trajectory here in 2Q so far relative to 1Q?

Yeah, sure. Thanks, Mark. And what we say oftentimes about many aspects of our business is that there's a lag. And so the activity, and we had a very strong deployment in Q1, the 376 million of new commits we made. And then the strength that we've seen in the quarter-to-date period reflects that level of activity that, frankly, was in many cases commenced before the end of the year or early in the year, kind of prior to some of the April volatility. And so it really is more just a function of that which was already in the pipeline ultimately being brought to a conclusion. And what you're seeing, and this is how we square the seemingly contradictory results, as you alluded to, is that there's reason to believe that there's less auctions to be launched in the back half of the year or even in the back half of the second quarter. And so you'll start to see that. You should start to see that show up. But, again, the relatively strong activity that we've seen is really just a holdover from that which was commenced earlier this year. In terms of spreads, your Q1 spreads declined to 513 down from Q4. We've definitely seen some stabilization more recently in where we're indicating and where our peers are indicating. And then from here, you know, it's that tension with the technical mark, acknowledging that there's a lot of capital for private transactions out there, as well as also it's likely to be a muted investment opportunity, muted M&A environment, creating fewer credit creation opportunities. And thus, notwithstanding some volatility, it'll be the interplay of those. And we would expect some reprieve from that which we saw in Q1 or some widening, but not materially and more just stabilization and less deals getting done in the fours in the broader market.

Very good. And then could you talk about the dividend relative to NII, kind of the sustainability, how you think that will, you know, the underlying trend versus the current dividend as the year progresses and you're obviously making a lot of updates, changes in the portfolio. What about sustainability?

Yeah, sure. So as we alluded to, the activity that we had in the quarter was back half-weighted, as well as also we were operating below our leverage level. And then, furthermore, you know, many of the aspects of our earnings profile are stable, but the prepayment income in a given quarter can have in flow, and we were relatively light in this quarter. We also mentioned in our prepared remarks about the level of earnings that we're taking from our Merck's investment, which is 5.8 percent and is only 3.2 percent. The combination of those gives us a lot of comfort in our ability to increase earnings. And, you know, with the caveat, particularly as it relates to prepayment fees, that will ebb and flow. And so, you know, we still are, you know, you're very comfortable in our earnings power and how we've slated our capital plan.

Very good. Thank you.

Thank you. And as a reminder, ladies and gentlemen, it is star one for a question. We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Just on originations, given the muted outlook for M&A activity there, could you just remind us again the extent of MFIC's dependence on M&A activity for new originations? What's the outlook for potential add-ons and other activity from incumbents? Thanks.

This is Howard. I'll, you know, across MidCap, it is not completely reliant at all on M&A activity. First of all, there is an existing portfolio that continues to grow, and there's opportunities there, and we saw that this quarter, and we'll continue to see it, future quarters. And that also, you know, carries on to some of the reduced M&A activity is even, is being replaced by continuation funds, which is also sort of like a captive business, which comes out of a portfolio and enables MFIC to sort of step into transactions they weren't in before. And there's some other products as well. So certainly more M&A activity drives more volume. But like even in the first quarter, there was not, you know, huge volume in the market. And there was six and a half billion dollars of originations at mid cap, which you saw sort of work its way through at MFIC. And so the answer is, we said this before, I think, like if we were a $20 billion BDC, it would be impactful for the amount of assets that MFIC is able to select of what mid-caps originates. It's not that impactful.

Gotcha. Very helpful there. And one follow-up, if I may, just in terms of the dividend coverage there. Could you remind us again of the latest estimate for spillover income? And then perhaps just remind us again what's the overall policy and thoughts around usage of that. Thanks.

Yeah, when it comes to spillover income, you know, we have minimal spillover income at this point. We, you know, provided, you know, our shareholders with a dividend following the closed-end funds. And, you know, MERC will create, it does create at some points, you know, additional spillover income, and we'll evaluate that, you know, as we continue to reduce that position and move forward.

Gotcha. Very helpful there. Thanks again.

Thank you. Next, we'll take our question from Healy Seth with Raymond James. Please go ahead.

Hi, good morning. Thanks for the question. So in your conversations with private equity sponsors and just looking at the current pipeline, what's your sense for M&A recovery and the timeline there? Do you guys feel like it's more 2025 back-end loaded or going into 2026?

Yeah, sure. I think it's going to be path-dependent, and, you know, I think it's very easy to look and survey the sponsor community landscape right now, and it's very hard, the calculus is very hard to launch an acquisition right now. And that's what we're seeing, as Howard alluded to, notwithstanding, we take comfort in MFIC's position as a relatively small balance sheet amongst a bigger ecosystem and having opportunities for follow-ons within our existing portfolio companies. When we look out, and it's hard to project specifically whether it's going to be Q4 or 2025 or 2026, you know, we and our peers often point to, which is objective and demonstrable, this significant level of private equity dry powder, as well as also, you know, a real pressure to return capital to LPs as, you know, again, difficult to predict when. it will come, but it needs to come to return that capital and or deploy that capital that's already been raised. And then furthermore, we have a lot of dynamics here in the U.S. that notwithstanding, you know, currently perhaps sidelined or amidst some volatility, but there's a lot to point to significant capital expenditures and infrastructure spending over the next several years that also will give rise to significant credit opportunities for ourselves and other similarly situated private capital lenders in the market.

Got it. That's helpful. And a quick follow-up with your new investments this quarter, can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers?

Yeah, sure. So we did 33 new deals, 19 of which were to new companies, and 14 of which were to existing companies.

Perfect. Thank you. We'll take our next question from Melissa Wiedel with J.P. Morgan. Please go ahead.

Good morning. Thanks for taking my questions. Following on your comments about the activity levels through to date, sort of second quarter, does it stand to reason that prepayment income and accelerated OID might remain on the lower end in the near term? I'm curious if you're seeing slower repayment activity like we've heard from a lot of teams. And if I did miss your comments on that, I apologize. Thank you.

Hi, Melissa. Yeah, I think consistent with what you're hearing across the industry from our peers, you know, we do expect that given the lack of, you know, M&A, that's going to result in fewer prepayments and that's going to result in lower fees.

Okay. Appreciate that clarification. As a follow-up, I appreciate the commentary you've offered about limited direct tariff exposure in the portfolio. On a different but kind of related note, have you assessed the exposure in the portfolio from any government contracts or anything susceptible to lower revenues or reimbursements from Doge cuts or healthcare spending cuts?

It's always part of our underwriting. We have limited, as a general matter, For years and years, we've limited our exposure to sort of government payments because of sort of stroke of the pen risk. Obviously, it's even more volatile now, but we just don't have that much of it. Even our health care names are not directly reimbursed by the government and direct government contractors. I don't know if we have any. I don't think we have any. So always looking at all of those things, but those are sort of underwriting risks regardless of the administration. It's just this one's more tethered.

Got it. Thank you. We'll take our next question from Paul Johnson with KBW. Please go ahead.

Thanks, Maureen. Thanks for taking my questions. And sorry if I missed it, but I was just wondering, you know, kind of what the sort of underlying meaningful exposure that you would call it kind of to or, you know, any sort of the tariff countries or anything in Follinger, you know, your higher risk tariff classification, kind of what that is roughly within the portfolio.

So, Paul, single digits. And, you know, I think, like we said in our prepared remarks, you know, we have the benefit of, by statute, we need to focus on U.S. companies and the middle market is far less likely to have real diverse supply chains on top of the fact that we're over-indexed to those sectors that are more service-related, less capital-intensive. And, you know, I hope we tried to strike this balance within the portfolio. That number is more important. But as we think about our underwriting, we, and I think the market has as well, notwithstanding, we're not looking at those very, very intently and looking at that, you know, single digits part of our portfolio in a very, you know, watching it very closely. But we're really focused on, you know, the second order effect. And we mentioned confidence on the part of both corporates and consumers and really looking at that second-order effect as being the primary driver for credit performance from here and really occupying the lion's share of our time as we assess the effects of the current environment on our current portfolio.

Got it. Appreciate that. And then just on amendment activity, anything to note there in terms of just trends, frequency, how many amendments you were transferring to the quarter in the portfolio?

So amendments were relatively flat quarter over quarter. And in particular, you know, some of the more involved amendments, you know, where you're talking about covenant violations or you're dealing with PIC or forbearance or those types of things. That particular segment was flat quarter over quarter.

Yeah, and I'd make another comment, Paul. This is the second time I'm going to bring up lag on this call. But, you know, recall, you know, so we're reporting March financials, and the underlying companies of the amendments that we would otherwise, or the, you know, performance that we would be assessing within this quarter is Q4 by and large, right? You know, we get monthlies on certain of our borrowers, but the lion's share is quarterly, and certainly the tests are covenant tests, which, you know, is a predictor of amendment activity, is from Q4 performance. And so, obviously, a different market. So, hard to draw too many conclusions from that number, and we weren't surprised to see that that was flat in the quarter.

Thanks again. I appreciate that. And then just on repurchases going forward, you know, congrats on the repurchases in the quarter, but leverage kind of around one, four times. Stocks still trading a little bit low or below the repurchase price during the first quarter. How are you kind of thinking about that with deployment of capital and where the stock trades today?

Well, we hope that question will be irrelevant after this call is over. but the chance is not. I mean, we say, like, we always assess the use, you know, the use of our capital based on sort of the discount and that versus, like, other choices. And obviously, you know, other choices when we're at our full leverage includes effectively paying down debt and redeploying, so it becomes a higher bogey to buy back shares. But it's always, like, part of what we do. the incremental investment would be buying back shares when it makes sense. You know, but it's, you know, and I've said this before in a lot of calls, you know, the window of buying is not, you know, that many trading days during the quarter. And so, you know, sometimes when, like, tracking and people looking at how much we're buying back, we're limited by the amount we can buy each day, you know, when we can buy and we're limited in the amount of days we can buy. So that also impacts whether we buy back shares in that, you know, is the timing at a time when the stock's trading at a level we want and our capital opportunities otherwise fit with it.

Thank you. That's all for me.

Thank you. And as a reminder, ladies and gentlemen, it is star one for our question. We'll pause for a moment. At this time, we have no further questions. questions, I'll return the call over to management for closing remarks. Thank you, operator. Thank you,

everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Please have a good day.

Thank you. And this does conclude today's program. We thank you for your participation. You may disconnect at any time.

Good morning and welcome to the earnings conference call for the period ended December 31st, 2024 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star and 1 on your telephone keypad. If you would like to remove your question, you may press star and 2. I will now turn the call over to Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's fourth quarter earnings conference call. I'll begin today's call by providing an overview of MFIC's fourth quarter results and share our perspective on the current market environment. I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio. Greg will then review our financial results and capital position in more detail. Beginning with our results, yesterday after market closed, we reported net investment income, or NII, per share of $0.40 for the December quarter and $1.71 for the full year. These results correspond to annualized return on equity, or ROE, of 10.5% for the quarter and 11.2% for the year. Gap net income per share was $0.26 for the December quarter and $1.27 for the full year. The vast majority of our portfolio is performing well, and we are observing stability in certain credit metrics. NAB per share was $14.98 at the end of December, down 12 cents, or approximately 0.8%. During the December quarter, we made $255 million of new commitments, and for the full year, we made $1.06.00 of new commitments. While our market remains competitive, we observed a modest increase in spreads on our new commitments compared to the previous quarter driven by commitments to existing borrowers at what we believe to be attractive leverage entry points. Spread compression in the core middle market has been less intense than what we see in the upper middle market. We have a clear and straightforward plan to gradually grow the portfolio over the coming quarters and we believe MFIC's future results are well positioned to benefit as we relever back to our target level. We expect to be able to reach our target leverage of approximately 1.4 times in the next couple of Take a step back as a reminder in July, MFIC completed its mergers with Apollo Senior Floating Rate Fund and Apollo Tactical Income Fund or the CEFs. We took advantage of strength in the liquid credit markets during the quarter and continued to sell certain assets acquired through the mergers that do not align with our strategy and prudently deployed the proceeds along with the investment capacity generated from the mergers into first lane floating rate middle market loans originated by MidCap Financial. Our affiliation with MidCap, a leading lender in the middle market, provides a significant deal sourcing advantage. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. In 2024, MidCap closed over $21.3 billion of commitments, including $6.6 billion in the fourth quarter. MidCap's origination volumes for the quarter and the full year are particularly notable given the overall muted sponsor M&A activity in the market. MidCap has what we believe to be one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial was founded in 2009, has a long track record, which includes closing on approximately $130 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle market company financial information across all industries and we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan or high yield market. As Greg will discuss in more detail, we continue to optimize MFIC's capital structure, including the closing of our second CLO post-quarter end, which we believe strengthens our balance sheet and aligns with our investment strategy. Moving to Merckx, as discussed previously, we are focused on reducing our investment in our aircraft leasing and servicing business. I'd like to provide an update on Merck's Russia fleet insurance claims. As a reminder, at the time of Russia's invasion of Ukraine in February 2022 and the imposition of sanctions, Merck's own portfolio included four aircraft on lease to two Russian airlines. Those aircraft are held in aircraft securitization known as MAPS-19. In compliance with the EU sanctions imposed on Russia due to the invasion, Merckx terminated the leases of those aircraft, but three were not returned and have remained in Russia since then. Merckx has brought legal action in the English courts seeking payment for those aircraft under both the lessee reinsurance policies and its own contingent policy, and we are pleased to announce that during the first quarter, we settled a portion of our contingent insurance claims with certain insurers. As mentioned on last quarter's call, we believe the current environment for selling aircraft is very attractive. Merckx has made substantial progress on multiple sales campaigns covering a majority of the remaining aircraft on its balance sheet. We look forward to providing further updates on the process as purchase agreements are finalized in the coming months. At the end of December, MFIC's investment in Merck's totaled approximately $183 million, representing 6.1% of the total portfolio at fair value. The blended yield across our total investment in Merck's was approximately 3.2% at fair value. And the continued rotation of capital from Merck's into directly originated corporate loans should have a beneficial impact on MFIC's income. Assuming we are successful with our sales campaign, we expect MFIC's exposure to Merck's to decline in the coming quarters. Moving to the economic environment, we entered 2025 with a solid economic backdrop underpinned by strong consumer spending, strong capital goods spending on infrastructure and AI, and a significant run-up in stock prices. However, investors are increasingly focused on the near-term impact of tariffs and federal government layoffs. The Fred's decision to increase their long-term dot implies that they are coming around to the view that interest rates will be permanently higher. Credit spreads have remained tight despite economic policy uncertainty rising. The probability of a recession has declined significantly over the past months and remains low for 2025. Specific to the direct lending market, we are seeing encouraging signs for an increase in sponsor-related M&A activity, including a strong economy, mounting pressure on financial sponsors to return capital, a potentially more favorable regulatory environment, and the stabilization of interest rates. As you know, private debt has become an increasingly important source of financing for sponsor transactions, especially in the middle market where we are focused. We are currently observing a notable increase in the number of deal screenings and indicating a pickup in activity. Repricing activity has continued at record levels with refinances and extensions continuing to increase as sponsors seek to address vintage investments and upcoming maturity. According to our dividend on February 21, 2025, our Board declared a quarterly dividend of $0.38 per share for shareholders of record as of March 11, 2025, payable March 27, 2025. With that, I will now turn the call over to Ted. Thank you, Tanner. Good morning, everyone. I'm

going to spend a few minutes reviewing our fourth quarter investment activity and then provide some details in our investment portfolio. In the December quarter, we continued to prudently deploy the capital acquired from the mergers. MFIC's new commitments in the December quarter totaled $255 million. As we've emphasized before, we intend to deploy this capital in a steady and measured manner, maintaining discipline in terms of obligor and vintage exposure. We are fortunate to have access to the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. As Tanner mentioned, MidCap Financial closed approximately $6.6 billion of new commitments during the December quarter. We believe it is prudent to gradually grow the portfolio in order to maintain our desired level of diversification. Despite significant competition for new deals, we observed a modest increase in spreads on new commitments compared to the previous quarter, driven by commitments to existing borrowers at what we believe to be attractive leverage entry points. The weighted average spread on new commitments in the December quarter was 546 basis points, up 13 basis points compared to commitments made in the December quarter, while the net leverage on new commitments decreased to 4.3 times in the December quarter, down from 4.7 times in the September quarter. We believe this attractive risk return profile reflects mid-cap financials' strong presence as a lender in the middle market and the power of incumbency. For the quarter, gross fundings totaled $248 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $254 million, including $96 million of assets acquired from the mergers. Net revolver repayments were less than $1 million. In total, net repayments for the quarter were $6 million. In the current quarter, we have continued to make progress selling assets acquired from the mergers. Turning to our investment portfolio, at the end of December, our portfolio had a fair value of $3.01 billion, and was invested in 233 companies across 25 different industries. Direct origination and other, including the directly originated loans acquired from the CEFs, represented 90% of the total portfolio, up from 88% last quarter. The non-directly originated loans acquired from the CEFs, which includes high-yield bonds, broadly syndicated loans, and structured credit positions, represented 4%, down from 6%. As you can see on page 6 of the earnings supplement, we break out the non-directly originated assets that we acquired from the mergers. Lastly, Merck's accounted for approximately 6% of the total portfolio. All of these figures are on a fair value basis. Specific to the direct origination portfolio, at the end of December, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. Approximately 99% had one or more financial covenants on a cost basis. Covenant quality is another key point of differentiation from the upper middle market, as substantially all of our deals have at least one covenant compared to larger deals, which are generally without covenants. The average funded position was $13.1 million. The median EBITDA was approximately $48 million. The weighted average yield at cost of our direct origination portfolio was 11% on average for the December quarter, down from 11.6% for the September quarter. The decline in the yield was primarily due to the decline in base rates. At the end of December, the weighted average spread on the directly originated corporate lending portfolio was 578 basis points, up one basis point compared to the end of September. Regarding credit quality, we believe the overall credit quality of MFIC's direct origination portfolio remains stable. We are not observing any signs of general credit weakness. Our portfolio companies continue to show good financial performance as evidenced by continued positive revenue and EBITDA growth. The financial sponsors and management teams of our borrowers have been effectively managing growth and liquidity. In a handful of more challenged situations, we are seeing good financial sponsor support. We have seen a slight decrease in amendment requests related to covenants or liquidity. We saw an improvement in the weighted average interest coverage ratio, which is primarily attributable to the decline in base rates and the origination of new investments with higher interest coverage ratios. At the end of December, the weighted average interest coverage ratio was 2.1 times, up from 1.9 times last quarter. At the end of December, the weighted average net leverage for the direct origination portfolio increased slightly to 5.0 times, up from 5.43 times last quarter. We believe the stable level of revolver utilization we are seeing from our portfolio companies is an additional sign of the health of our portfolio. At the end of December, the percentage of our leverage lending revolver commitments that were drawn was essentially unchanged quarter over quarter. We believe a steady revolver utilization rate is an indicator of financial stability. Our underwriting on mid-cap source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net, realized, and unrealized loss rate is around five basis points on loans sourced by MidCap Financial. We think this performance data shows how well this strategy is performed. The amount of investments on non-accrual status decreased on both a cost and fair value basis compared to the prior quarter. At the end of December, investments on non-accrual were 1.3% of the portfolio at fair value, down from 1.8% last quarter. During the December quarter, we exited one position that was on nonaccrual status, which we acquired from the CEFs, and we placed one legacy second lien position on nonaccrual status. MFIC's PIC income remains relatively low, representing approximately 5.7% of total investment income for the quarter and 4% for the full year. In addition, we are closely reviewing our portfolio for any potential impacts from tariffs or other changes to government policies. We are generally underweight businesses that rely on imports and exports to and from the targeted countries and thus believe the impact will be limited should tariffs be put in place. We supplement our underwriting process in response to the past and potential tariffs as well as other new risks that may emerge. With that, I will now turn the call over to Greg to discuss our financial results in detail.

Greg Fossil, Thank you, Ted. Good morning, everyone. Starting with our operating results, total investment income for December was approximately $82.2 million, flat compared to the prior quarter, as a sequential increase in interest income was offset by a decline in fee income. The sequential increase in interest income was driven by a full quarter impact from the mergers, an increase in prepayment income, higher average leverage partially offset by the impact of declining rates. The weighted average yield at cost on our directly originated portfolio was 11% for December, down from 11.6% last quarter, due primarily to lower base rates. Dividend income was flat quarter over quarter. Net expenses for the quarter were $45.1 million, an increase of $1.1 million compared to the prior quarter, driven by higher management and incentive fees, partially offset by a decline in interest expense and other GNA. Ethics management fee for the quarter was approximately $6.2 million compared to $4.4 million in the December quarter. As a reminder, our base fee is 1.75% on net assets, calculated as of the beginning of the quarter. The increase in net assets from the merger did not impact the management fee in the September quarter or resulted in a higher management fee in the December quarter. MFIC's incentive fee is 17.5%. It is subject to a total return hurdle with a rolling 12-quarter lookback. Given the total return feature and the net loss incurred during the lookback period, MFIC's incentive fee for the December quarter was $5.3 million, or 12.6% of free incentive fee income. Interest expense declined due to lower base rates, partially offset by higher leverage during the quarter. For the December quarter, net investment income was $0.40 per share, resulting in a full year net investment income per share of $1.71. For the December quarter, gap EPS, or net income, per share was $0.26, resulting in a full year gap EPS per share of $1.27. For the December quarter and the full year, annualized return on equity based on net investment income was 10.5% and 11.2% respectively. The December quarter and full year annualized return on equity-based net income was 6.8% and 8.3% respectively. Results for the quarter include a net loss of approximately $13 million or 14 cents per

share.

Approximately 60% of that net loss was from positions that were on non-accrual at the beginning of the quarter. We ended the year with net leverage of 1.16 times. We are operating below our target of around 1.4 times, given the deleveraging impact of the equity issued in July in connection with MFIC's mergers with the closed-end funds. As Tanner and Ted mentioned, we intend to prudently increase leverage over the coming quarters, and we see no impediment to do so. At the end of December, our portfolio had a fair value of $3 billion. We had approximately $1.75 billion in debt, and total assets were $1.4 billion, or $14.98 per share. Shifting to our capitalization, given the attractive nature of term-based financing in the CLO market, the composition of our corporate portfolio, and leveraging mid-cap financials, CLO success and expertise, we expect CLOs to be an important source of debt financing for MFIC going forward. In late December, MFIC priced a $529 million CLO, our second on balance sheet CLO, which closed earlier this week. We sold the single A tranche, adding approximately $400 million of low-cost, secured debt at a blended cost of 161 basis points spread. The spreads on middle market CLOs tranches have tightened considerably over the past year due to strong investor interest. The spread on the senior AAA in the second CLO was 148 basis points compared to 248 basis points in our inaugural CLO, which we closed in November of 23, a tightening of 92 basis points. We believe this was amongst one of the tightest levels achieved in the middle market CLO, reflecting the high quality of the underlying loans. The CLO has a reinvestment period through April 2029 and does not mature until January 2037. The proceeds from the CLO are effectively being used to repay $359 million of unsecured notes, which come due next week with the remaining balance used to pay down our evolving credit facility. This concludes our remarks. Operator, please open all the questions.

Absolutely. At this time, if you would like to ask a question, please press the star and one keys on your telephone keypad. Keep in mind you may remove yourself from the question queue at any time by pressing star and two. We'll take our first question from Finian O'Shea with Wells Fargo Securities. Please go ahead. Your line is open.

Hey, everyone. Good morning. Tanner, I appreciate the comments. The post-quarter insurance recovery for Merckx, can you talk about any impact there, or if that was a full recovery of what you have valued or if there's any earnings headwind if that came in short. Thanks.

Yeah, Finn, thanks. The recoveries are approximately at our mark, so we're very happy with the results.

And does that imply like a more expedited wind down or return of capital there as well?

Well, yes. I mean, if you think we do have three planes that we have insurance recoveries on. As Tanner mentioned, the court proceedings were done in London, and so we do expect resolution of those claims this year.

Okay, that's helpful. Then I guess like Merck's franchise-wide, what are you feeling nowadays for the eventual exit, maybe this year or more likely a next year thing?

Yeah, we, I mean, I think as Tanner mentioned, we have some good line of sight for the sale of a significant amount of the portfolio that Merck's has. And we'll be reporting when we are able to do so with signed contracts.

Okay, it's all for me. Thanks so much.

we'll take our next question from mark hughes with truest please go ahead your line is open

yeah thanks good morning if things calm down in uh russia and the ukraine would that be an opportunity for better recoveries or is that already locked in no the the recoveries are

locked i mean they're they're somewhat you know this is insurance based uh so it it's essentially what the insurers are willing to, you know, resolve the claims for. It's been very positive because the claims that we settled were pre the finalization of the court hearing. So it was more the momentum, trying some of the insurers to get out front of, you know, the ultimate conclusion by the courts, which we think will be positive on an insurance basis.

Yeah, to emphasize, the resolution of the claims are now inextricably linked to the insurance process unrelated to what's happening on the ground.

Yeah. Okay. Talked about the increase in spreads in the quarter, and then leverage was a little bit lower. How much of that was mixed, or was there some market movement that contributed to that?

Yeah, sure. Thanks, Mark. and we tried to capture the nuance in the prepared remarks. You know, we are still seeing spread compression, as we noted, not as significant or pronounced as maybe in other parts of the brother syndicated market or upper middle market, but notwithstanding, still some spread compression and new deployments are at lower spreads than, you know, what our average book is run writing at right now. The relative increase quarter over quarter had more to do, as we tried to call out in our prepared remarks, with the overweighting to existing portfolio companies. And so we did not intend for this to imply that spreads are widening, but rather just, you know, the power of incumbency and what we're able to drive with our existing borrowers where the friction costs are such that we typically do better when we're redeploying into existing portfolio companies versus new kind of credit creation opportunities, which continue to be at tight spreads relative to the rest of our book.

Thanks for that detail. How much more in your book is there to refi, do you think, the kind of investment into existing borrowers, current spreads? How much more do you anticipate might just be a natural consequence of this recent spread compression?

Yeah, I think it's tough to estimate. You know, you can look at what our average spread is at 578, and you can see where the market is deploying at 500 or so, or 525 on average. You know, obviously in our particular quarter, as I already alluded to, we were a little bit higher than on account of reinvesting into current portfolio companies. But notwithstanding, I would answer your question with that will have a lot to do with part of spreads going there is that M&A has been relatively muted. The bid-ask spread for financial sponsors on account of a higher cost of capital has made it harder to get deals done. And as a result, the level of repricing and the level of repayment is a function of that as well. So tough to estimate and would caveat that to the extent that we saw significant new credit creation opportunities, i.e. a pickup in M&A, you could see some stabilization in yields and even widening in certain cases because the market on average is still grappling with a little bit of a technical overhang where there's more capital than there are new credit creation opportunities, and that's one of the reasons you've seen spreads go as tight as they have, and that's true across all markets.

Yeah. And then pick income up a little bit compared to earlier in the year. I assume maybe that's part of the merger. Where should that trend as we progress through 2025?

Yeah. So thanks, Mark. The, you know, in terms of pick income, I think when you look at our overall portfolio, we continue to be comfortable with where the performance is by and large. You know, we've seen interest rates come down over the last few quarters. You know, that should help. You know, I don't think anyone's forecasting kind of lower interest, even lower interest rates going forward, but that'll be one component to it. And then, you know, obviously, you know, the performance of the underlying borrowers, which, you know, as with everyone else in the street, we have a handful of names that, you know, we watch very closely. But as we said in the prepared remarks, overall, the credit quality does remain stable.

Thank you. We'll take our next question from Sean Paul Adams with Raymond James. Please go ahead. Your line is open.

Hey, guys. Good morning. I did see nonaccruals did take a dip for the quarter. Is it correct there's only four nonaccruals remaining from the legacy CEF portfolio on the books? and what's the status of the existing non-accrual prospective resolutions? Thank you.

Yeah, sure. I'll kind of hit that in reverse. So the positions on non-accrual, without going into too much detail, there were a number of restructuring transactions that occurred in the fourth quarter or into the current quarter, which have put those in a more stable place. And so we'll be, you know, watching those going forward. Obviously, we have, from a portfolio standpoint, you know, a monitoring process around what's on non-accrual, you know, what's on a watch list, et cetera. And in terms of the, you know, kind of details of non-accrual, page 11 in the earnings supplement, you know, lays out, you know, all of the names that – and where they came from. And so, yeah, there are four names on non-accrual from the mergers. Got it.

Thank you. I appreciate it.

We'll take our next question from Matthew Hurwitt with Jefferies. Please go ahead. Your line is open.

Morning, everyone. Hope you're well. Just following on the non-accrual conversation, can you give an update on Naviga and Renovo? just what might be happening for those companies recently, and then what led to Securus being added to the list this quarter? Thanks.

Yeah, so, I mean, both of the, or I guess all three of those names, you know, are going through processes where lenders are collaborating and working together, you know, to try to maximize the recovery for, you know, where those ultimate recoveries do come out and what the right amount of debt is to be carried by the company going forward. And I think, you know, in terms of, you know, where we keep those on non-accrual and the addition of Securus as well as the, you know, ultimate outcome there is going to be driven by, you know, these restructuring processes and, you know, kind of underlying performance of the companies going forward.

Yeah, and I would just say also, you know, we talk a lot about, you know, all of these are from the vintage kind of prior to COVID, and we talk a lot about, you know, what has the increase in interest rates, and each of these companies had issues that have been exacerbated by the increase in interest rates and less cash flow to reinvest in the business. and it would be those types of names that have been impacted in the current environment made worse by underlying idiosyncratic issues within the companies.

Okay, thanks. That's helpful. And then just on your current dividend, it's obviously well-supported by earnings, but given interest rate headwinds and spread compression, how confident are you in the sustainability of the dividend? going forward.

We're very comfortable with it, considering where our leverage profile is and our expected origination pace.

Okay. Thanks very much.

We'll take our next question from Paul Johnson with KBW. Please go ahead. Your line is open.

Yeah, thanks. Thanks. Good morning. Thanks for taking my questions. In terms of just the stability in the credit metrics that, you know, the certain credit metrics that you're seeing, I was just wondering if you could expand on that a little bit in terms of what you're observing.

Yeah, sure. So, you know, one of the things that we've been pointing out for the last several quarters is revolver utilization. and that has been pretty stable quarter over quarter, which shows that the companies are able to grow without pulling on their working capital facilities and also just kind of manage overall working capital and produce positive cash flow. So, and then in terms of interest coverage ratio, we noted that that has improved. I think part of that is a combination of interest rates, the reduction in interest rates, but then also part of it is what we're seeing in terms of new opportunities and the leverage that's there out of the box. You know, our overall portfolio leverage did tick up a little bit, but that's, you know, primarily, that's a weighted average number that's based on, you know, a few positions. But if you look at it on an obligor basis, overall, it's steady to down.

Yeah, just to emphasize that last part of what Ted said is we report that on a, you know, and to be consistent with how we reported historically, it's a composite and it's a weighted average. And so that dynamics there, it can be influenced by some underperformers. And so our commentary and the nuance in our commentary had to do with the fact that, yes, we have seen some improvement on interest coverage. And then also when we look overall to borrowers or we look in quartiles, you know, we, consistent with the comments that we made in the prepared remarks, see a stability in underlying performance across the portfolio outside of some of the idiosyncratic names we've called out and mentioned in the supplement.

Thanks for that. that's helpful. And then just in terms of kind of the, the write downs this quarter, I understand there were some restructurings. So there's a few things going on, but was there anything in particular that was kind of driving the net depreciation this quarter? Was it in legacy assets or were there any particular investments that were kind of driving that?

I think as we said in our remarks, if you looked at it, over 60% of the decline were in positions that were already on non-accrual. Those are companies that both Ted and Tanner have addressed and that we're working through with the sponsors, restructurings of those and or sales of those businesses. So the valuation is going to be more based upon enterprise value. So therefore, you have more fluctuation quarter to quarter.

Got it. Okay. I missed that comment. And then last one for me in terms of the CLO financing, congrats on that. That's pretty attractive pricing. So do you expect that to change the unsecured funding mix at all going forward with potentially more attractive spread pricing in the securitization market?

Yes, we do. I think it's credit to the portfolio that we've been building over time and leveraging off of our relationship with MidCap Financial. They have 12 CLOs out there. Now we have two. And I think when you look at the BDC space, there's a convergence of not only unsecured kind of spreads and secured spreads. And so, therefore, the secured spreads are inside the unsecureds, and we believe it's a very favorable use or source of capital for us going forward. But it's a credit. If you look at the portfolio, it's a function of what we have, the type of borrowers we have, and the strength of that portfolio.

Thank you.

That's all for me.

And as a reminder, if you'd like to ask a question, please press the star and one keys on your telephone keypad. We'll take our next question from Melissa Weddle with J.P. Morgan. Please go ahead. Your line is open.

Thank you. Good morning. Most of my questions have already been asked and answered, but I wanted to follow up a little bit on just the volume of repayment activity or exit activity in 4Q. Just by virtue of you're talking about getting to target leverage in the next few quarters. It sounds like you're anticipating net deployments over the upcoming quarters, but I'm just curious, were you surprised at all by some of the repayment activity that you saw in 4Q? It seemed like it might have been a little bit elevated, even though you are doing a lot of sort of recycling of capital from the sort of post-merger period. I'd just like to understand and how do you think about that?

Yeah, sure. Thanks, Alyssa. So, I mean, first of all, on the deployment side, you know, if we kind of target, you know, 10% plus or minus of the portfolio of new commitments every quarter, you know, we'll be back to target leverage in the next few quarters. You know, the last, you know, third and fourth quarter of last year, you know, as you point out, were dragged down by the sales of the CEF. I think, you know, there were – that was on target, so I'd say none of that was a surprise. You know, we're almost done with the recycling of the capital from the CEF. And so going forward, you know, it will be really – re-levering will really be a function of the deployment, you know, which we feel very comfortable with given mid-caps, you know, recent track record – well, long-term track record, recent deployment, and what our pipeline looks like. And then it'll be kind of back to what I would say normal course of repayments, and that should allow us to achieve our goals in terms of relevering.

Okay. Appreciate that. And then just one follow-up question. I want to make sure we're understanding the realized losses correctly. just by going through some of the tables in the K, it looks like most of those realized losses were exited pretty close to where you had those investments marked. I've been referring more to the larger positions that drove that in 4Q.

Yes. And it was also, yes, it was. We did exit those. They were also, you were moving from unrealized to realized, right? We were cleaning up the SOI, cleaning up. You kind of come into the end of the year. And that's kind of what we typically do. So you're correct in that analysis.

Okay. Great. Thank you.

We'll take our next question from Casey Alexander with Compass Point. Please go ahead. Your line is open.

Yeah. Good morning. I'm just curious because the originations in the quarter were actually lower than your quarterly average for the year. as well as repayments. And you've often talked about how mid-cap has substantial origination capacity. And in the past, the reason that you didn't see more of it in the BDC was because the BDC was up against its leverage limits. So it seems to me that given those previous statements, that the decision not to take up the total value of the portfolio was a conscious decision. Can you speak to that? I mean, you talked about higher spreads. What was it that kept you from increasing the size of the portfolio and moving up the leverage ratio this quarter?

Yeah, sure. Thanks, Casey. And I think there are a number of factors, but I think the most kind of tangible in our estimation and how we very deliberately try to run the book is when you look at that that swath of origination, we quoted the all-in numbers from MidCap. The emphasis for us as a management team has been to, you know, stay true to that requisite level of granularity within the portfolio. And so you can see the number of names that we were deploying into was substantial, but the average deployment in a given name, you know, kind of lagged, and or we chose not to run it up. And as we've said in the past, yes, it was lower in this quarter versus last quarter. That does not reflect a decision not to. There are some things that are won and lost and ebbs and flows in what happens and what doesn't happen. And we're very comfortable with the level of deployment, as Ted alluded to. We feel very comfortable about the ability to get back up to 1.4 and are cognizant of wanting to build in the granularity. The number of obligors actually went down quarter over quarter as a result of the names that we were selling out of CEFs or on average lower position sizes. But we aspire as a lot of the larger BDCs and a function of the fact that we have 500 obligors across its business. over time. We would like to get to that. Ideally, we're at 233 right now. Ideally, get to a 300 number and show a really, really diverse level. And then finally, the decision or whatever part of this that was a deliberate decision goes to not wanting to over-index to any one quarter. So take your comment, Casey. Objectively, this was a lower commit than last quarter has a little bit to do with granularity, but overall very comfortable about the access to the origination and this not representing a deliberate decision on the part

of management not to deploy. Also, if I can... Go ahead. Yeah, Casey, just to jump in, Because I think, you know, the general theme is, you know, we are obviously targeting as interest rates have gone down or maybe stabilized now, having continuing to not only cover the dividend, but have pushing to cover the dividend. As you know, we have a few tailwinds to that, which is levering up and the redeployment of Merckx. And then we have, you know, and we added another tailwind this quarter, which is we got cheaper financing, I think, than we projected. Obviously, we have some headwinds, which is, you know, the repricing, you know, most notably. And so when we sort of like target to make sure that we continue to have comfort level to cover the dividend and actually expand that, that's sort of that's, you know, sort of our timeline. So when Tanner's talking about the choices that we're making, like levering up is, you know, an important part of our strategy, meaning like at the at the end point, we want to be at the right levers level. But we also are, you know, have luxury is the right word, but we have some flexibility in terms of sort of choosing granularity, which loans we pick, how we carry things forward, you know, when we exit and not. And so we're taking advantage of that. So I think Tanner's right. I don't think you should read into sort of exactly one quarter, but you hopefully will read into, you know, hopefully the consistency with which we can lay out a story that continues to have room to cover the dividend and have some cushion and different levers.

That's my only question. Thank you.

And there are no further questions on the line at this time. I'll turn the program back to management for any closing comments.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day.

This does conclude today's program. Thank you for your participation, and you may not.

Good morning and welcome to the earnings conference call for the period ending September 30, 2024 for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode and the call will be open for your questions and answers session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2. I would now like to turn the call over to Elizabeth Besson, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead.

Thank you, Operator, and thank you, everyone, for joining us today. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Our Executive Chairman, Howard Widra, is available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include refer to our most recent filings with the SEC for risks that apply to our business and then may adversely affect any forward-looking statements we make. We do not undertake to update the objections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.sec.ic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company of the company. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC. and we will use MidCap Financial to refer to the lender headquartered. At this time, I'd like to turn our call over to Tanner Powell, NFIC's Chief Executive Officer.

Tanner Powell Thank you, Elizabeth. Good morning, everyone, and thank you for joining NFIC's call. I'll start today's call by discussing the successful completion of our mergers with Apollo Senior Floating Rate Fund, or AFT, and Apollo Tactical Income Fund, or AFT, listed closed-in funds previously managed by Apollo. I will then provide an overview of MFIC's third quarter results and share our perspective on the current market environment. I will then provide an overview of MFIC's third quarter results and share our perspective on the current market environment. Ted, we will discuss our investment activity and provide an update on the investment portfolio, including the progress we've made rotating certain of the assets acquired in the mergers. Results and capital position in more detail. Let me start with a brief update on the closing of our mergers, which we view as a significant and transformational event. As I mentioned, MFIC successfully closed its mergers with AFT and AIF during the quarter. As we said before, we believe these mergers offer financial benefits. We're excited about the long-term benefits that we believe this transaction will create. More importantly, we expect these mergers will be ROI for all shareholders. As a result of the mergers, MFIC's net assets increased by over 40 percent, generating significant investment capacity. Last quarter, we onboarded approximately 600 million of investments from the CES, with approximately one-third in directly originated loans, which are considered to be core and intend to retain. The remaining two-thirds were non-directly originated loans consisting of broadly syndicated loans, high-yield bonds, and positions. We started rotating the non-directly originated assets when the mergers closed, prioritizing the lower-yielding assets. As Ted and I sell, the non-directly originated assets are progressing well, and we are on track to complete these sales over the next few quarters. We are focused on prudently deploying the inter-adminator sales and additional investment capacity created from the mergers. Based on our target leverage ratio of 1.4 times and the remaining non-directly tend to reposition, we have approximately $600 million of capital to deploy into directly-originated middle-market loans. We are fortunate to have access to all the necessary origination to deploy this capital, given the significant volume of commitments originated by MidCap Financial. Over the past four quarters, MidCap has closed $18.7 billion of commitments, including $5.1 billion in the third quarter. That said, we are committed to deploying this capital in a steady and measured manner while maintaining discipline in terms of obligor and vintage exposure. We have a clear and straightforward plan to gradually increase leverage over the coming quarters and we believe MFIC's future results are well positioned to benefit as we re-lever back to our target level. We expect to be able to reach our target leverage in the next couple of quarters. Turning to our results for the September quarter, please note that the mergers closed on July 22nd. Consequently, results for the quarter include approximately 10 weeks of combined company revenue and income. MFIC's net investment income per share for the September quarter was 44 cents, which corresponds to an annualized return on equity, or ROE, of 11.5 percent and reflects a partial incentive fee. Results for the quarter reflect strong recurring interest income from our predominantly floating rate portfolio. We recorded a modest net loss on our portfolio. GAAP EPS for the quarter was 31 cents. NAV per share was $15.10 at the end of September, down 8 cents or approximately 0.5% from the end of June, excluding the impact of the one-time 20-cent per share special cash distribution paid during the quarter in connection with the mergers. These mergers were a deleveraging event for MFIC. And at the end of September, MFIC's net leverage was 116 compared to 145 at the end of June. The current market environment continues to benefit from a solid economic backdrop. Economic growth continues at a healthy rate, and we've witnessed continued strength in the consumer, strong wage growth, high stock prices, and strong credit markets. In terms of credit markets, we've seen an increase in activity levels, though volume in the year-to-date period has been more concentrated in opportunistic refinancing and repricing, lowering spreads, pushing out maturities, and improving capital structures. More recently, we have seen some pick up in new money transactions, and in particular, M&A following the September rate cuts and are cautiously optimistic that activity levels will increase in the back half of Q4 and into 2025. In addition to rate cuts, and as we have mentioned in the past, we note the dynamics with financial sponsors seeking liquidity events for fundraising and the pressure to return capital as hold periods have continued to stretch, in addition to significant dry powder, may also serve to increase M&A in volumes into 2025. As you know, MFIC is squarely focused on investing in first lien loans to middle market companies sourced by MidCap Financial, a leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professionals. MidCap Financial was founded in 2009 as a long track record, which includes closing on approximately $124 billion of lending commitments since 2013. This origination track record provides us with a very large data set of middle market company financial information across all industries, and we believe makes Midcap Financial one of the most informed and experienced middle market lenders in the market. Apollo Global's affiliation with Midcap Financial provides MFIC and the broader Apollo platform with significant deal flow. In short, we believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high yield market. Turning to our dividend, as a reminder, during the September quarter, in addition to our regular quarterly dividend of $0.38, we paid a special $0.20 one-time special dividend to shareholders in connection with the mergers. On November 4, 2024, our board declared a quarterly dividend of $0.38 per share for shareholders of record as of December 10, 2024, payable on December 26, 2024. With that, I will now turn the call over to Ted.

Ted Kinsley- Thank you, Tanner. Good morning, everyone. I'll spend a few minutes reviewing our third quarter investment activity and then provide details in our portfolio. In the September quarter, we started actively deploying the capital from the mergers. MFIC's new commitments in the September quarter totaled $371 million, up 30 percent from the prior quarter and were across 27 different borrowers for an average new commitment of $13.7 million. All new commitments were first lien. The weighted average spread on our new commitments in the September quarter was 533 basis points. Net leverage on new commitments was 4.7 times. For the quarter, gross funding totaled $288 million, excluding revolvers and assets from the mergers. Net revolver fundings were $13 million, and we received a $7.5 million paydown from Merckx. In total, net fundings were $222 million excluding assets from the mergers. As mentioned on last quarter's call, we onboarded $596 million in assets from the closed-end funds of which $207 million or 35% were directly originated loans and $389 million or 65% were non-directly originated loans. We sold or were repaid on $234 million of these assets including two positions that were on nonaccrual status. In aggregate, net fundings for the quarter totaled $585 million, including assets from the mergers. With respect to the non-directly originated loans acquired in the mergers, these assets are held throughout the Apollo platform, which is facilitating both the credit monitoring and the sales process. Turning to our investment portfolio, at the end of September, our portfolio had a fair value of $3.03 billion and was invested in 250 companies across 26 industries. origination and other, including the directly originated loans acquired from the closed-end funds, represents 88% of the total portfolio. The non-directly originated loans acquired from the closed-end funds represented 6%, and Merck's also accounted for approximately 6% of the total portfolio on a fair value basis. As you can see on page 6 in the earnings supplement, we've added a row to break out the non-directly originated assets that we acquired from the mergers. Taking into account the remaining non-directly originated loans that we intend to sell, plus the additional investment capacity based on a target leverage of 1.4 times, we have approximately $600 million of capital to deploy in directly originated middle market loans. We continue to monetize the non-directly originated assets, although the pace may vary as we remain committed to deploying the capital in a steady and measured manner. At the end of September, 98% of our directly originated portfolio was first lien at fair value. Approximately 99% of our direct origination portfolio on a cost basis had one or more financial covenants. And 91% of our direct origination portfolio is backed by financial sponsors who we know well and with whom MidCap has longstanding relationships. The average funded direct origination debt position was $13 million. The weighted average yield at cost of our directly originated lending portfolio was 11.6% on average for the September quarter, down from 12% last quarter. The decline in the weighted average yield was mostly due to the decline in base rates and to a lesser extent the decline in the spread on assets. At the end of September, the weighted average spread on directly originated corporate lending portfolio was 577 basis points, down 24 basis points compared to the end of June. The decline in the yield on the direct origination portfolio was not materially impacted by the closed-in fund assets. In terms of credit quality, we believe the overall credit quality of the MFIC's direct origination portfolio remains healthy. The financial sponsors and management teams of our borrowers have been effectively managing their liquidity. In a handful of more challenged situations, we're seeing good financial sponsor support. We have not seen a significant increase in amendment requests related to covenants or liquidity, and the requests we have seen are generally accompanied with equity infusions. At the end of September, the weighted average net leverage of our direct origination portfolio increased slightly to 4.3 times, up from 4.38 times last quarter. At the end of September, the weighted average interest coverage ratio was 1.9 times flat compared to last quarter. The median EBITDA of MFIC's origination portfolio companies was approximately 52 million. We believe the stable level of revolver utilization we are seeing from our portfolio companies is also an indicator of portfolio health. At the end of September, approximately 31% of our leverage lending revolver commitments were drawn, which is consistent quarter over quarter. We believe a steady revolver utilization rate can indicate greater financial stability. Our underwriting on mid-cap source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is around four basis points on loans sourced by MidCat Financial. We think this performance data shows how well the strategy is performed. No investments were added to non-accrual status during the quarter. We exited two investments from the acquired closed-in fund portfolios that were on non-accrual status. At the end of September, investments on nonaccrual were 1.8% of the total portfolio at fair value, or 2.3% at cost. When assessing a BDC's credit quality, we think it is important to look at investments on nonaccrual status in combination with a BDC's level of PIC income. We believe allowing borrowers to pick can make non-accrual levels appear artificially low as the financial stress of borrowers is not fully reflected in the non-accrual statistics and potentially masking underlying issues. We do recognize that it makes sense to allow borrowers to opt to pick in certain circumstances. MFIC's pick income remains low, representing approximately 3.6% of total investment income from the quarter, well below the BDC average. Moving to MERCs, as we've discussed in the past, we're focused on reducing our investment in our aircraft leasing and servicing business. While we don't expect paydowns to occur evenly, we believe aircraft sales and servicing income should allow for the paydown of third-party debt and MFIC's investment in MERCs over time. During the September quarter, MERCs paid $9.1 million, including $1.6 million of interest and a $7.5 million return of capital, which we highlighted on our last earnings call. At the end of September, MFIC's investment in Merckx totaled $183 million, representing 6% of the total portfolio at fair value. The blended yield across our total investment in Merckx was approximately 3.3% at fair value, and the continued rotation of capital from Merckx into directly originated corporate loans should have a beneficial impact on MFIC's income. We expect MFIC's exposure to Merck's to decline in the coming quarters, driven by additional paydowns and the continued growth in the investment portfolio as we deploy the capital acquires and the mergers. We believe the current environment for selling aircraft is very attractive due to limited availability and strong demand, and we expect to make meaningful progress, reducing our exposure in the near future. With that, I will now turn the call over to Greg to discuss our financial results in detail.

Greg Fossil, Thank you, Ted, and good morning, everyone. Starting with our results, as previously mentioned, the mergers closed on July 22nd. Consequently, results for the September quarter include approximately 10 weeks of combined company revenue and income. Net investment income per share for the September quarter was $0.44, and GAAP EPS was $0.31, which reflects a $0.13 per share net loss. Results for the quarter correspond to an annualized return on equity, or ROE based on net investment income of 11.5%, an annualized ROE based on net income of 8.1%. I will now discuss several factors that impacted MFIC's results for the September quarter. First, as previously noted, the mergers were a deleveraging event for MFIC. Accordingly, results for the September quarter reflect below target leverage as we sold certain assets acquired in the mergers and deployed capital into directly originated loans. We ended the September quarter with a net leverage of 1.16 times below our target. As Tanner mentioned, we intend to prudently increase leverage over the coming quarters and we see no impediment to doing so. Second, prepayment and fee income were below normal levels. For the September quarter, prepayment income was approximately $900,000, down from $3.2 million in the prior quarter. Fee income was approximately $1 million, up slightly from last quarter. Third, MFIC's base management fee, $4.4 million, unchanged from the previous quarter. Your base fee is calculated as 1.75 on net assets as of the beginning of the quarter. Consequently, the increase in net assets from the merger did not impact the management fee in the September quarter. In the December quarter, the base management fee would be approximately 6.2. Fourth, results for the quarter include a net loss of 11.4 million, or 13 cents per share. MFIC's incentive fee for the quarter was approximately 4.6. We are focused on deploying the capital from the mergers and repositioning the remaining non-directly originated loans and increasing MFIC's earnings power. Taking all of this into account, at the end of September, MFIC's NAV per share was $15.10, down 8 cents quarter over quarter, or approximately 0.5%, excluding the one-time 20 cent per share special dividend paid in connection to the mergers. The $0.08 decline was driven by the $0.13 per share net loss, partially offset by net income in excess of a regular dividend. Moving to capital, MFIC issued 28.5 million shares at NAV during the quarter as part of the consideration for the merger. As a result, MFIC now has approximately 93.8 million shares outstanding. In accordance with IAS 33, MFIC's NII and EPS denominators were based on the weighted average shares outstanding during the quarter. Since 28.5 million shares were issued approximately three weeks into the quarter, the EPS denominator for the September quarter was approximately $87.3 billion. In terms of recent debt capital activity, as previously disclosed, in October, we were pleased to extend the maturity of our senior secured revolving credit facility by approximately 18 months, pushing the maturity to October 2029. We maintained existing pricing and terms. Several lender commitments under the facility were increased by $110 million to $1.6 billion, with the number of lenders increasing to 18. We announced MFIC's merger with the closed-end funds. We highlighted improved access to capital as a key potential benefit, and we are pleased to see this benefit materializing. We successfully added a new lender to the facility who was previously a credit provider to the closed-end funds. We greatly appreciate the support from our lending partners. I'd like to review the accounting aspects of the mergers. Mergers are being accounted for in accordance with the asset acquisition method of accounting under ASC 805-F3. As As a reminder, AFT and AIF merged with and into MFIC in a two stock-for-stock transactions. The shares being exchanged on a NAV-for-NAV basis. The exchange ratios for the mergers were based on each fund's NAV per share as of July 19, 2024. Accordingly, MFIC issued .9547 shares of its common stock for each AFT share and .9441 shares of its common stock for HAIF share. In total, MFIC issued 28.5 million shares of MFIC to the closed-end funds, resulting in and 93.8 million MFIC outstanding shares following the merger. Time of the merger closing MFIC was trading at a slight discount to its current NAF. In connection with the mergers, an affiliate of Apollo paid 25 cents per share special cash payment to the closed-end fund shareholders for a total payment of $7.5 million. In accordance with accounting guidance, a portion of this cash payment was due to the merger consideration, which resulted in the fair value of the consideration paid to both the closed-end funds being equal to the fair value of the acquired assets, resulting in no purchase discount or premium. As a result, there is no impact on the cost basis of the acquired assets and, therefore, no impact on our financial statements. The fair value of the closed-end assets at close became MFIC's cost basis in the without any adjustments. This concludes our prepared remarks. Please open the call to questions.

Certainly at this time. If you would like to ask a question, please press star 1 on your telephone keypad. You may withdraw your question at any time by pressing star 2. Once again, that is star 1 for any questions. We will take our first question from Kenneth Lee with RBC Capital Partner. Markets, please go ahead.

Kenneth Lee Lee Hey, good morning. Thanks for taking my question. Just one on the fee income there. Could you just remind us again if MFIC is more levered to prepayments for fee income and therefore as prepayments pick up you should see a little bit more of a pick up there? Thanks.

Kenneth Lee Lee So I think, thanks Ken. And good morning. So the, you know, the loan asset class doesn't typically have a ton of call protection. And in particular in markets like this, you start to see that become less robust in any event. And it's rarely ever more than 102, 101. Our practice is to take OID and amortize it over time. And so prepayments will create a pull forward of that OID, if you will, if the loan is redeemed prior to maturity. But it oftentimes outside of, and the one exception within our portfolio is in our life sciences vertical where we typically will have call protection. So notwithstanding, you've got a dynamic where, yes, there is a pickup when you do see prepayments, but outside of life sciences, it's not too dramatic on any given loan.

Gotcha. Very helpful there. And just one follow-up, if I may, in terms of the ongoing rotation for the non-directly originated assets and you mentioned during the prepared remarks that the pace could vary over the next few quarters any updated outlook in terms of what factors could drive the pace there is it based on on macro or or pricing or or rates just any kind of color around that thanks

Yeah, sure, Ken. It's a little bit of all of those things. We want to manage our deployment appropriately, and we don't want to over-index to one particular quarter in terms of vintage. As we noted, the mergers were a deleveraging event. And so as we look to redeploy capital, build back to our target leverage and thus full earnings capacity. We want to balance the risk of the market risk of the closed-end funds to also redeployment capacity as well as just exposure. And so I think that's kind of generally the overall sentiment. We did, when we started to sell these assets, we initially focused on the lowest yielding assets. So we were able to move those quickly and very efficiently. And so what we have in the book now has, you know, a better earnings capacity than the overall portfolio. And we'll continue to manage, you know, risk and earnings as we move forward over the next

few quarters. And I'd make one quick addition to that, Ken. and at the risk of stating the obvious, is within the pool of loans that came over, not surprisingly certain of those loans that were loans or high-yield bonds had varying degrees of liquidity. And obviously, as we're evaluating the framework that Ted just alluded to, a lot of emphasis is obviously given to, you know, the level of liquidity in the underlying loan and making sure that the selling of that loan or bond would not catalyze a loss. And we're trying to be very deliberate in that regard as well.

Michael Aucotton- Gotcha. Very helpful there. Thanks again.

Female Speaker- Thank you. We will take our next question from Mark Hughes with Truist. Please go ahead.

Mark Hughes- Yeah, thank you. Good morning. Just looking at the direct origination commitments, I guess this is eight on the presentation, And the average commitment size has been moving up the last few quarters. And I think you pointed out the net leverage for the loans this quarter is a little bit higher. Anything to see there? I know you're trying to kind of make that shift in assets expeditiously. Is that contributing to that evolution?

Yeah, I'd say really quickly is we did have knowledge of the merger closing and knowing that it was going to be a direct origination, sorry, a deleveraging event, we obviously tried to over-index into the origination. And as you know, or as we alluded to on the call, I'm sorry, in the prepared remarks, We were at 145 leverage going into this quarter. Furthermore, you know, what we saw was in certainly in the first part in Q2 and into the first part of this quarter was very healthy in terms of M&A or relatively healthy from the beginning of the year. And so there were also additional opportunities there. You know, just to take that one step further, we've seen somewhat a reduced level of activity, perhaps, you know, in anticipation of the election. And anecdotally, we have heard that and do expect auction activity to pick up kind of post-election and, you know, as evidenced by the number of NDAs that we're signing, obviously aided also by the rate cut that we saw in September. And while, you know, auction activity is expected to increase, obviously that has a gestation period so could drive deployment in the latter part of this quarter or, you know, kind of into 2025. So overall, strong origination had to do with, you know, kind of a good market, you know, healthy M&A volumes in the Q2 and early Q3 period and are optimistic as we look at the at the growing pipeline into the back half of this quarter and into 2025.

And how about the spread on the deal this quarter relative to last quarter? How do you

see the competitive environment? Yeah, I think overall the market has become more borrower friendly. If you look at, you know, where CLOs are pricing these days, you look at all all the money that private capital is raising. And on one hand, and then on the other hand, you see a slowdown in M&A activity, as Tanner mentioned, ahead of the election and anticipating rate cuts. You know, you see the supply-demand imbalance kind of tilt in the borrower's favor. And so we've certainly seen, really starting in last December, spread compression. You know, the spreads were, you know, I think admittedly, and, you know, we and our peers, I think, all see this, spreads were really high relative to historical norms in 2023. And so they've been coming back in. You know, similarly, leverage in 2023 in the first part of 24, you know, was well below where the historical norms are. And so, you know, what we're seeing now is, you know, more certainly borrower-friendly, fair amount of competition out there. So, you know, loans aren't as attractive as 2023, for sure, but still remain attractive on a historical basis. And, frankly, when we think about where we sit competitively with the large universe of borrowers we have and the power of incumbency, we feel like we're in a good spot.

Appreciate that. Thank you.

Thank you. We will take our next question from Matthew Hewitt with Jeffries. Please go ahead.

Hi, guys. Congrats on the quarter and the close of the mergers. Can you not ask me to be an expert on politics or policy, but can you just talk about maybe your high-level thoughts about what the election could mean for your business or portfolio companies at this point?

Yeah, this is Howard. You know, I think, you know, you've seen the forward curve move up. So that is probably the most sort of obvious indication of where, you know, the market thinks it's going, which is like a, you know, a more benign regulatory environment and also a, you know, potentially more inflationary environment, which is why they think interest rates are going up, you know, that generally, you know, it can cut both ways. But obviously, like, that's a more growth, you know, backdrop for companies. You know, and then the other part of it is, you know, just sort of like regulatory, you know, oversight. And obviously, like, a change at the FTC, I think, changes sort of people's view of mergers, probably. Or I don't even view of mergers. You know, the practical implications of merging will change, so you would expect the overflow to go up. So, like, those are probably the first-order effects. Second, third, fourth-order effects are hard to know. And obviously, specific companies have specific issues that come up as policies change.

And then just to add on to that, obviously, and much has been made of this, is like highly likely that tariffs go up. And so when we think about our borrowers and by statute, we have to be U.S. based. So it's less an effect of the markets that they're selling into. But, you know, looking very critically at the supply chains of our underlying borrowers and making sure we integrate that into our underwriting framework is going to be of utmost importance as we evaluate the risk on our books and we evaluate new investment opportunities.

Okay, thanks. That's great context. And then can I just ask, the 10-cent unrealized and realized loss per share for the quarter, can you maybe give some color on which portfolio companies drove that?

Sure. So the losses were, and we have, we think about the portfolio in a couple of different ways. One is what did we acquire from the closed-end funds? Those were largely flat. We did take small loss, which on exiting some of the nonaccrual status names, that was offset by gains in other sales. We had a restructuring name where probably one of our biggest losses was a company called Aved, which we restructured. We went from preferred equity into a second lien. So we think overall going from non-current income to current income and moving up to cap stack is very beneficial from an overall perspective. However, you know, in terms of getting out of the preferred equity security, we did have to realize a loss on that. And then, you know, a lot of the other loans were – a lot of the other bigger movement names were names that, you know, are on our watch list or are going through a sales process. And, you know, we wanted to, you know, highlight the uncertainty of the outcome there and mark them down slightly.

Thanks very much.

Thank you. And a reminder to ask a question that is one. And we'll take our next question from Paul Johnson with KBW.

Yeah, good morning. Thanks for taking my questions. My only question is just kind of, you know, given the weakness in the stock during the quarter, you know, post-closing the merger, You know, a market that's been pretty competitive, you know, weighted average spread on investments, 570 basis points or so. And your leverage is about as low as it's been in a while, obviously due to the closing of the merger. So can you just, you know, expand on maybe your thoughts around the buyback, you know, when you would look to potentially repurchase, you know, shares if that's an option and why not? you know, consider that, you know, here in this scenario with, you know, leverage you're looking to increase here in a pretty tight market. So, I think, first of all, it's ironic because

other questions were prior to the merger, why is your leverage so high? So, but I would say, like, we have always said, like, well, you know, we'll buy back stock when it's a freedom versus other uses of the capital. You know, the guideline we had given previously was around 0.8 was like, you know, price now was like even, you know, we think, you know, that the stock price has traded down versus peers since the merger as people who can't hold this stock have cleared out. So, you know, sort of, you know, I think that's an ongoing thing. And then the last thing I'll say is whatever you saw in the last quarter is not necessarily like indicative of whatever our strategy might be going forward because, you know, we're not open to sort of, you know, trade. And that's always been the case. Like the window is not open, you know, a huge amount of the trading days during the quarter. So the answer is the same as it was before. I don't think it changes based on sort of where it leverages. When we have available capital, we weigh the options. but we also think having available capital is a strength and it is one that was always pointed out to us as a strength that we could use so now we have it.

Does the relationship change to where you would potentially look to buy back that break even price? How does that change in relation to just overall market returns, you know, putting that into context of the 100, 150 basis points or so spread compression we've seen this year.

Well, yeah, look, I mean, obviously, like, there's lots of inputs. Cost of debt is going down, too, you know. So, like, lots of things play into it. And obviously, if long-term we thought all senior loans were going to be at 400 over, you know, there would be a different calculus. There'd also be a different expectation for ROE across the whole market from people. So, you know, that balance would, you know, but, you know, remember, like, there's been 150 basis point decline in spreads, but that followed 150 basis point increase in spreads, you know, just prior to that. You know, so like, it's, you know, you don't want to react to where you think, you know, spreads are on that day. It's where you think the spreads are over the cycle.

I appreciate that. That's all the questions for me. Congrats on the good quarter, guys. Thanks.

Thank you. And there are no further questions at this time. I'll turn the call to management for any closing remarks.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions, and have a good day.

Thank you. So this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Good morning and welcome to the earnings conference call for the period ended June 30, 2024 for MidCap Financial Investment Corporation. At this time, all participants have been placed in listenably mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, Now I'll turn the call over to Elizabeth Besson, Investor Relations Manager for MidCamp Financial Investment Corporation.

Elizabeth Besson, Thank you, Operator, and thank you, everyone, for joining us today. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widrick, Executive Chairman, as well as additional members of the management team are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcasts are being recorded. Please note that they are the property of Midcap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary State Harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent files with the SEC for risks that apply to our business to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC website at www.sec.gov or our website at www.capfinancialic.com. I'd also like to remind everyone that we posted a supplemental information package on our website which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Tanner Powell Thank you, Elizabeth, and thank you to everyone who has joined today's call, especially those of you who may be newer to MFIC. I will begin today's call with an update on the successful completion of our mergers with our previously affiliated funds, Apollo Senior Floating Rate Fund, Inc., and Apollo Tactical Income Fund, Inc., which we refer to as AFT and AIF, or the CEFs, throughout today's call. I will then provide an overview of MFIC's second quarter results and will also provide our perspective on the current environment. Ted will then discuss our investment activity and provide an update on the investment portfolio. He will also review the assets that we acquired in the connection with the mergers. Greg will then review our financial results in greater detail, and we'll also review some of the accounting aspects of the mergers. Beginning with the mergers, we are pleased to announce that on July 22nd, MFIC successfully closed its mergers with AFT and AIF, two listed closed-in funds managed by Apollo. We believe these mergers mark an important step in MFIC's evolution to becoming a leading pure-play middle-market BDC. We remain enthusiastic about realizing the potential benefits that we highlighted when we announced the mergers last November. Let me remind you of some of these key benefits. First, we expect these mergers will be both ROE and NII per share accretive for all shareholders as we rotate the CEF's lower-yielding investments in the ordinary course into higher-yielding, directly-originated loans that align with MFIC's investment strategy. Second, the mergers are expected to enhance MFIC's portfolio diversification and improve certain portfolio metrics. Third, we expect to be able to realize operational synergies from the elimination of certain duplicative expenses from the mergers. And lastly, we believe that the larger market capitalization for the combined company may broaden the universe of potential investors, which could result in greater stock liquidity. As Ted will discuss, we are currently focused on deploying the capital and rotating certain assets acquired in the mergers and have already made good progress in that regard. As a reminder, Apollo provided significant financial support for these mergers by reimbursing all merger-related expenses for all three funds and by making a one-time special cash payment to the CEF shareholders. As a result of the mergers, MFIC's net assets have increased by approximately 44%. With $1.45 billion in net assets, MFIC has significant investment capacity. As a result of this deleveraging, MFIC is well-positioned to deploy capital into true first-lane senior secured loans sourced by MidCap Financial, a leading middle market lender managed by Apollo. Moving to our results for the June quarter, as previously announced when the mergers closed, MFIC's net investment income per share for the June quarter was $0.45, which corresponds to an annualized return on equity, or ROE, of 11.8%. Results for the quarter reflect solid recurring interest income from our predominantly floating rate portfolio and strong fee and prepayment income. Gap EPS for the June quarter was 35 cents. NAV for share was $15.38 at the end of June, down 4 cents from the end of March. Beginning with the macro environment regarding rates, Apollo's chief economist believes that the Fed will cut rates by 25 basis points in September, but still expects a soft landing. He notes a continuing strength in a broad set of number of weekly indicators such as TSA data for air travel, restaurant bookings, retail sales, and hotel occupancy rates that suggest the economy will be able to avoid recession. With regard to markets, the credit market continued to be very strong and well-bid throughout Q2 and into the start of Q3 2024. M&A and LBO activity increased in Q2 from very low levels, though has lagged expectations, and thus issuers and sponsors have taken advantage of limited new supply, tapping the market for dividends and repricings. Auction activity has seen a meaningful pickup in the latter part of Q2 and into Q3, and we expect to see an increase in new deployment opportunities for direct lenders in the back half of the year. As you know, MFIC is squarely focused on investing in first-lean loans to middle market companies sourced by MidCap Financials. A leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professions. MidCap Financial was founded in 2009 as a long track record, which includes closing on over $118 billion of lending commitments since 2013. This origination track record provides us with a very large data set of middle market company financial information across all industries, and we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Apollo Global's affiliation with MidCap Financial provides MFIC and the broader Apollo platform with significant deal flow. In short, we believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. Despite the heightened level competition, we are pleased to report that MidCap Financial was active during the June quarter, closing approximately $4.4 billion in new commitments, or $9.6 billion in the first half of 2024. Next, let's turn to dividends. First, as previously announced, in connection with the mergers on July 21st, our Board of Directors declared a one-time special cash distribution of $0.20 per share to shareholders of record as of August 5th, 2024, payable on August 15, 2024. As a reminder, this special $0.20 dividend is being paid to all shareholders as of a record date, including former AFT and AIF shareholders. In addition, on August 6, 2024, our board declared a quarterly dividend of $0.38 per share, consistent with our prior quarterly dividend to shareholders of record as of September 10, 2024, payable on September 26, 2024.

With that, I will now turn the call over to Ted. Thank you, Tanner. Good morning, everyone. I'll spend a few minutes reviewing our second quarter investment activity and our investment portfolio. I will then review the investments we acquired via the mergers with the closed-end funds. During the June quarter, MFIC's new investment commitments totaled $285 million across 28 different borrowers for an average new commitment of $10.2 million as we continue to focus on diversification by borrower. 23% of new commitments were made to existing portfolio companies. Despite spread compression, we believe the risk return profile on these new commitments remains compelling. The weighted average spread on our new commitments in the June quarter was 559 basis points. Net leverage on new commitments was 3.3 times, down from 3.9 times last quarter. The weighted average OID for new commitments was approximately 157 basis points. This spread in OID translates into very attractive, unlevered asset yield of over 11%, assuming a 5% face rate. In terms of funded investment activity for the quarter, gross fundings for the corporate lending portfolio, excluding revolvers, totaled $214 million. Sales and repayments totaled $131 million. Net corporate lending revolver fundings were positive $10 million, and we received a $3 million paydown from Merck's. In aggregate, net fundings for the quarter totaled $90 million. Turning to our investment portfolio, we have built what we believe is a well-diversified senior corporate lending book. At the end of June, prior to the close of the mergers with the closed-end funds, our portfolio had a fair value of $2.4 billion and was invested in 165 companies across 23 different industries. Corporate lending and other represented over 92% of the total portfolio, and Merck's accounted for less than 8% of total portfolio on a fair value basis. 97% of corporate lending portfolio was first lien, and over 99% of our corporate lending debt portfolio had one or more financial covenants, and 88% of our corporate lending portfolio is backed by financial sponsors who we know well and with whom MidCap has longstanding financial relationships. The average funded corporate lending position was $14.1 million, or approximately 0.6% with the total corporate and other lending portfolio. The weighted average yield at cost of our corporate lending portfolio was 12% on average for the June quarter, down slightly from 12.1% in the March quarter. At the end of June, the weighted average spread on the corporate lending portfolio was 601 basis points, down 20 basis points compared to the end of March. Turning to credit quality, our focus on true first lien, top of the capital structure, middle market loans has resulted in what we consider to be stable credit quality. Overall, we feel good about the health and quality of our corporate lending portfolio, as our underlying borrowers have largely been able to handle higher borrowing costs. We have not seen a significant increase in the amendment requests, and the requests we have seen are generally accompanied with good sponsor support. Portfolio companies are generally maintaining performance, continuing the trend of solid fundamentals demonstrated in 2023 and into early 2024. On a median basis for the March quarter, portfolio company revenue and EBITDA both increased by mid-single digits year-over-year. This has been achieved despite a downturn in acquisition activity, indicating that much of the growth demonstrated has been organic. At the end of June, the weighted average net leverage of our corporate lending portfolio was 5.38 times, up very slightly from 5.36 times last quarter. At the end of June, the weighted average interest coverage ratio remained 1.9 times, unchanged, quarter over quarter, with four companies below one times. We are closely monitoring these situations and believe they are manageable as the companies have strong current liquidity, good underlying business performance, or have strong financial sponsor support. The median EBITDA of the MFIC's corporate lending portfolio companies was approximately $46 million. Our underwriting on mid-cap source loans has proven to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss is around three basis points on loans sourced by mid-cap financial. We think this performance data shows how well the strategy is performed. As of the closing of the mergers, investments on non-accrual were 1.8% of the total portfolio at fair value, or 2.3% at amortized cost across 11 names, including six companies acquired from the closed-in fund portfolio, two of which we have exited near cost in the secondary market. We wanted to take a few minutes to highlight some metrics that we think can provide insight into how we assess the risk of the portfolios of BDCs. Lenders have a number of ways they can mask liquidity challenges of their underlying borrowers. First, lenders increase the use of pick interest. Whether at origination or as part of the restructuring, PIC income is a proxy for borrowers who cannot currently service their debt. In this regard, MFIC's PIC income remains very low compared to the BDC industry average. Second, lenders allow a revolving loan senior to their cash flow term debt while still categorizing their cash flow loan as first lien. We focus on what we often refer to as true first lien or top of the capital structure, meaning there's no debt senior to our position, is evidenced by our attachment point of 0.04 times. Third, some lenders provide covenant-like loans where even draws on the revolvers do not spring a covenant, effectively making the whole revolver available for payment of interest regardless of the state of the company. As a reminder, over 99% of the MFIC's corporate lending portfolio has at least one financial covenant, and any covenant-like loans we may hold would have a spring covenant when the revolver is drawn above certain levels. And fourth, some lenders have added structures where they increase their debt to pay their own interest, sometimes referred to as synthetic PIC. Although hard to account for the myriad structures of lenders, of structures lenders can use to achieve these results, we generally do not advance credit to borrowers to cover interest. Importantly, MFIC benefits from MidCap Financial's large, dedicated portfolio management team, which helps identify and address issues early. It's also important to note that MidCamp Financial leads and serves as administrative agent on the vast majority of our deals, which provides meaningful downside protection. As agent, we are in active dialogue with the borrower and have enhanced information flow, which allows us to be proactive in resolving problem credits. Moving on to Merck's, as we've discussed in the past, we're focused on reducing our investment in our aircraft leasing and servicing business. While we don't expect paydowns to occur evenly, we believe aircraft sales and servicing income should allow for the paydown of third-party debt and the MFIC's investment in Merckx over time. The blended yield across our total investment in Merckx is less than 4%, and the continued rotation of capital from Merckx has the potential to have a meaningful beneficial impact on income. As of June 30, 2024, our investment in Merckx totaled $187 million, representing 7.7% of the total portfolio at fair value. During the June quarter, Merck's paid MFIC $4.7 million, including $1.7 million of interest and a $3 million return of capital. Since the end of June, MFIC's investment in Merck's has decreased to approximately 5.8% of the total portfolio due to a combination of the growth in the portfolio from the mergers, as well as an additional $7.5 million paydown from MERCs, which occurred in July. Turning to the mergers with AFT and AIF, to echo Tanner's comments, we are excited about the long-term benefits that we believe this transaction will create. I'd like to take a few minutes to discuss the assets we acquired as part of our mergers with AFT and AIF. We onboarded approximately $596 million of investments from the closed-end funds, increasing increasing the size of MFIC's portfolio to approximately $3.1 billion as of the closing date. Of the $596 million of onboarded assets, approximately $207 million, or 35 percent, of these assets were directly originated loans across 37 obligors with a weighted average spread of 564 basis points. The remaining $389 million of these assets consists of broadly syndicated loans, high yield bonds, and structured credit positions. As Tanner mentioned, we are currently in the process of selling the non-directly originated assets and redeploying those assets, redeploying those proceeds into assets that are more consistent with MFIC's investment strategy. The good news is that these non-directly originated assets are held throughout the Apollo platform, which facilitates risk monitoring while on our books, as well as the selling process. Since the closing of the mergers on June 22nd and through yesterday, we have sold approximately 125 million of these assets near our cost basis. We are very much on track with our plan to sell these assets, which we expect to complete over the next few quarters. In addition, the mergers were a significant deleveraging event for MFIC and created an investment capacity of approximately 386 million, assuming a net leverage ratio of 1.4 times, taking into account the 389 million of non-directly originated assets that we intend to sell, plus the $386 million of additional investment capacity, we have approximately $775 million of capital to deploy. Given the significant deal flow generated by MidCap, we are confident that we can deploy this capital in attractive opportunities. As Tanner mentioned earlier, MidCap closed on $9.6 billion of commitments in the first half of 2024. We expect to reach our target leverage in the next two to three quarters and see no impediment to doing so. We want to emphasize that we will remain committed to our disciplined approach to portfolio construction as we deploy this capital. With that, I will now turn the call over to Greg to discuss our financial results in detail. Thank you, Ted, and good morning, everyone.

Beginning with our financial results, net investment income per share for the June quarter was $0.45, which reflects solid recurring interest income as well as strong fee and prepayment income. For the quarter, prepayment income was $3.2 million and fee income was approximately $900,000. PIC income remains low, representing approximately 3.6% of total investment income for the quarter. Gap net income per share for the quarter was $0.35. Results for the quarter correspond to an annualized return on equity, or ROE, based on net investment income of 11.8%, and an annualized ROE based on an income of 9%. Results for the latest 12-month period correspond to an annualized ROE based on net investment income of 11.6% and an annualized ROE based on net income of 11.1%. MFIC's NAV per share at the end of June was $15.38, down $0.04 quarter over quarter, which reflected net investment income of $0.45, which is $0.07 above the $0.38 distribution, and an $0.11 per share net loss in the portfolio. As Ted mentioned, the vast majority of our corporate lending portfolio continues to have strong fundamental performance. MFIC's net assets increased by $450 million from the mergers, Both the NAV per share of $15.38 and the $450 million increase in net assets exclude the impact of the one-time special distribution of $0.20, or $18.8 million, made in connection with the mergers. Net expenses for the quarter were $39.6 million, down slightly compared to the prior quarter, primarily due to lower incentive fees and lower administrative expenses offset by higher interest expense given the increase in the size of the portfolio. The weighted average interest rate on our debt for the quarter was approximately 7%. We intend to continue to evaluate and monitor capital raising transactions going forward. Management fees totaled $4.4 million for the June quarter, essentially flat compared to the prior quarter. As a reminder, MFIC's base management fee was reduced to 1.75% on equity and is one of the only listed BDCs to charge management fees on equity, which we believe provides greater shareholder alignment, and focus on net asset value. Incentive fees totaled $5.6 million for the June quarter. As a reminder, our incentive fee on income is 17.5% and includes a total return hurdle with a rolling 12-quarter look back. The effective incentive fee rate for the June quarter was 15.9%, impacted by the net loss recorded during the quarter and the impact of the look-back feature. Moving to our balance sheet, MFIC's net leverage was 1.45 times at the end of June compared to 1.35 times at the end of March, reflecting the $90 million of net fundings during the quarter. MFIC's net leverage as of closing of the mergers was 1.13 times. I'd like to take a few minutes to cover some of the accounting aspects of the mergers. Mergers are being accounted for in accordance with the asset acquisition method of accounting under ASC 805-50. As a reminder, AFT and AIF merged into MFIC in stock-for-stock transactions, with shares being exchanged on a NAV-for-NAV basis. The The exchange ratios for the mergers were based on the fund's NAV per share as of July 19, 2024. Accordingly, MFIC issued .9547 shares of its common stock for each AFT share and .9441 shares of its common stock for each AIF share. In total, MFIC issued approximately 28.5 million shares of MFIC to the closed-end fund shareholders, resulting in 93.8 million MFIC outstanding shares following the merger. At the time of the merger, MFIC was trading at a slight discount to its current net. In connections with the merger, an affiliate of Apollo made a 25 cents per share special cash payment to each AFT and AIF shareholder for a total payment of $7.5 million. In accordance with the accounting guidance, a portion of this cash payment was deemed to be merger consideration, which resulted in the fair value of the consideration paid to both AFT and AIF shareholders being equal to the fair value of the assets acquired, resulting in no purchase, discount, or premium. As a result, there will be no impact on the cost basis of the acquired assets and therefore no impact on our financial statements. Fair value of the closed-end fund assets at close became MFIC's cost basis in these assets without any adjustment. This concludes our prepared remarks. Operator, please open the call to questions.

At this time, if you would like to ask a question, please press star 1 now on your telephone keypad. To withdraw yourself from the queue, you may press star 2. Again, to ask a question, that is star 1 now on your telephone keypad. One moment while we queue. We'll take our first question from Kenneth Lee of RBC Capital Markets.

Hey, good morning. Thanks for taking my question. Just in terms of the portfolio rotation over the next few quarters, the non-directly originated assets being sold, I assume you're talking about the BSL, the structured credit, and the high-yield bonds from the closed-end funds. Granted, the BSL market is fairly liquid, but I just want to get a better understanding of any kind of key constraints around the pace of sales, for example, like the structured credit, the high-yield bonds. Thanks.

Yeah, thanks, Ken, and thanks for the question. I think, so first of all, as we mentioned in the prepared remarks, we've already, even since closing the mergers on July 22nd, made some good progress and sold, you know, raised roughly $125 million of proceeds. So some really good progress out of the gate. And I think your question is alluding to a very important piece of how we are going to proceed from here, And that being, if you look across the roughly $400 million that's in those three respective buckets of type of investment, there's going to be a number of securities or loans that are not as liquid. And so we would look at this program and this rotation strategy as not contingent on selling every last broadly syndicated loan or high-yield bond. bond. And, you know, obviously certain of those securities or loans don't have the same liquidity, would require us to take a discount to fair market value, which we would, you know, not want to take. And as a result, you should see us continue to make progress in reducing that, but by no means should expect us to sell out of all $400 million, and importantly, consider reinvestment yield and the type of discount one might have to take in order to transact on those bonds and loans.

Great. Very helpful there. And just one follow-up, if I may. Any updated outlook on potential ROE or ROE accretion just going forward? Thanks.

No, we are not going to update that guidance. Obviously, we're looking at the potential for lower base rates, but as we outlined in our prepared remarks, as well as which referenced our November materials, we see significant synergies to improve both ROE and NII.

Gotcha. Very helpful. Thanks again.

We'll take our next question from Melissa Weddle of JPMorgan.

Good morning. Thanks for taking my questions. I'm trying to sort of reconcile the math around the rotation strategy that you described and also growing leverage or building leverage in the portfolio. back up to target levels. It seems like there's a lot of rotation and just sort of organic churn that we should be expecting in the portfolio, but also it seems like a pretty short timeframe within two quarters or so to get back to the target. Hoping you can help walk us through that a little bit, but also just confirm the target range that you're thinking about in this environment. Thank you.

Yeah, sure. Thanks, Melissa. So if we start with the lower end of our guided leverage range of 1.4 and the pro-forma leverage that we reported or we disclosed in the prepared remarks of 1.13 times, if you just took up leverage, if you just got to that 1.4, that would be investment capacity of nearly $400 million, 386 to be more exact. And obviously that's growth, net of any sell-offs you have there. And then, you know, this will reference my answer to Ken's question, is if you look at the broadly syndicated, and I did allow for the fact that the goal is not necessarily to sell every last bond and loan and to be discriminating in how we sell and ensure that we're not sacrificing FMV to move that risk. But just for argument's sake, if you were to, you know, rotate out of all that $389 million of non-directly originated assets that came over with the mergers, it brings us to total investment capacity of roughly $775 million. And so that's-so if you think about, you know, this from two perspectives, Melissa. On one hand, we have the $389 to sell, of which we've sold $125 million, and caveat that the goal is not necessarily to sell all $389. That's one piece of it, and that will be market-dependent over the next couple quarters. Importantly, and I think this has been a really important piece of our strategy, of our story for quite some time, and thus it's worth emphasizing, is on the other side in terms of deployment, we're extremely lucky to be now just over $3 billion of assets, which itself is roughly only one-tenth of the assets within the mid-cap financial ecosystem. That's in excess of a $30 billion business. And so from a deployment standpoint, we have never had an issue with deployment or access to assets. And with this incremental capital, whether it's playing an increased number of deals or increased a roughly higher average size of deal, that piece of the equation, i.e. the redeployment itself, is very much provided for by the breadth of the mid-cap financial origination platform that we're very lucky to have access to.

Thank you.

We'll take our next question from Finian O'Shea of Wells Fargo Securities.

Hey, everyone. Good morning. Higher-level question. With Howard moving over to Apollo and taking on what seems to be building out the direct origination effort and marrying that with mid-caps, Can you outline the sort of firm-wide direct lending setup, such as how do you collaborate and maybe compete? Do you split up sponsors? Do you go by deal size on who leads? Anything that you think would be important for the mid-cap investor? Thank you.

Yeah, I can take that, Sam. It's Howard. So, again, like, you know, to the market, we have one offering, which is, you know, the combined Apollo mid-cap, you know, menu of direct lending options. So we, you know, there is a calling effort to sponsors, which combines resources at Apollo and mid-cap, which I'm responsible for, which basically goes to market and says, we're available for your capital needs. Those capital needs are these direct lending loans, which you see go into sort of the large market Apollo effort and the mid-cap effort. There's also other things we provide, you know, sponsors, which could be NAV loans or GP capital generally or, you know, rediscount loans when they have finance capacity, equipment loans, whatever, you know, the case may be. So we are going to the market and we are saying, here is our, you know, here is our catalog of capabilities. And then when a deal comes in, you know, there are sort of two strategies which overlap, which I think is the most relevant part of the question. So one is if there is a core middle market deal, say $50 million, $40 million, $50 million of EBITDA being done at five times, that is being executed by mid-cap. And often, you know, portions of the Apollo ecosystem, you know, will take some of that loan, especially because in the 40 Act, you want to be part of transactions as they grow. So they may take a little bit. On the other side of the spectrum, $300 million EBITDA company that's doing a $1.5 billion private credit deal, three parties $500 million, let's say Apollo's taking down. That will be by and large, or that will be done by sort of the ABS, CDC, and other satellite entities. And, you know, we have the option, meaning MFIC has the option to take part in those, but generally won't. Might, you know, occasionally and generally won't. And in fact, the closed-end funds were part of that ADF ecosystem and more recently had some pieces of some of those loans. So some of the loans that came over as part of the CEFs are in those loans and are now classified in our corporate portfolio. So things that we're not going to rotate out of. with regard to like how, you know, that risk in particular and how MFIC is making choices, you know, because we're all integrated and because I'm responsible for the sponsor origination, you know, we see and have access to everything and we know which deals, not only that we brought with CES loans, but which we have options to. So it actually goes back to what Melissa said, how do we know that we can generate flow? It's not only all of this mid-cap assets, but it's also from time to time picking off certain of the larger assets that we decide that they fit whatever, you know, whatever criteria we may have. So, you know, I think for the shareholders of mid-cap, you know, they should view our strategy, core middle market, we say, you know, 20 million to 100 million of EBITDA, but tied into a sort of a global platform that provides a lot of sponsors, so we have a lot of relevance to them, with lots of flow that's available on the periphery of that. And then sort of most importantly, I think, our strategy being sort of one of the centerpieces that Apollo's taking to market as part of their whole value proposition. As indicated, you know, most, you know, most relevantly in that, you know, you know, me and Claire Baillet, who's responsible for, you know, the mid-cap sponsor lead, are sort of leading that effort across Apollo.

Awesome. A lot of color and really appreciate that. I guess just another high-level follow-up with the murders complete, and congratulations on that. What's your, you know, I assume you probably want to be one of these $5 billion BDCs, maybe, maybe not. What would the sort of path forward be? You know, some of your peers do large private to publics. There's a lot of those going on. some are going in public secondary style growth. Like, how do you look at all that? And I guess what is the – anything in the immediate future?

Well, just to – I'm going to channel Mark Brown for a second, which is he sort of says, like, the size of the BDC is not the goal, it's the reward for doing the business the right way. So we're focused on, and our expectation is we will continue to sort of generate appealing risk-adjusted returns. So there will be an ability to grow in a normal course, meaning hopefully trading well on an absolute basis in order for people to want to invest more. So that's like the core focus. Continue to execute and we will be rewarded and we will be able to grow. You know, with regard to sort of other sort of less, you know, less tactical growth opportunities, I think, you know, generally our view has been everything we and this almost goes to the other thing. Everything we do, we want to be accretive to our shareholders. So in other words, we don't want to grow at the expense of that. And so we'll look at everything. That could be, which, as you know, we haven't seen in our industry. Everybody would love to merge in another BDC and take in another contract and grow if you think you could deploy the capital well. That stuff hasn't really happened. so it's hard to predict that. But any ways to sort of access capital that are accretive to our current shareholder base, we'll consider. I'll stop there. I don't know, Greg or Tanner, if anything to add.

No, no. And I think that's well stated.

All right.

Thanks so much, everybody. And once again, to ask a question, please press star 1 now on your telephone keypad. One moment while we queue. We'll take our next question from Mark Hughes of Truist.

Yeah, thank you. Good morning. I wonder if you could talk a little bit about the commitment activity in the quarter. Your average borrower exposure continues to move down a little bit. The leverage of 3.3 versus 3.9 is down sequentially in this quarter's activity, well below the overall portfolio net leverage. What are you seeing in the market? What are you kind of focusing on? Just really curious with those movements.

Yeah, sure, Mark. Hi, it's Ted. And, you know, in the first half of the year, you know, broadly speaking, M&A was down. But as we kind of moved through the second quarter, you know, in the marketplace, we saw the pipeline building as private equity firms were starting to line up more LBO activity. That may not have shown itself in all of the stats that are more backward looking. But I think certainly, and you probably heard this from others, as we look at our pipeline, you know, going forward, you know, it's building very nicely. And in terms of deployment, you know, in the second quarter, we did, you know, some of which were, you know, based on incumbency. But then part of that was as we looked to accelerate ahead of the merger, we knew where that was coming out. So we did accelerate, you know, our deployment. So we finished at 1.45 times, still on the low end of the range, but, you know, certainly was in anticipation of the merger closing and then deleveraging down, you know, post that closing. So, you know, in terms of activity, like, again, what are we focusing on? And, you know, we focus on the same thing quarter after quarter, which is, you know, middle market loans, top of the capital structure, cash pay, floating rate, and, you know, continue to try to build and stay diverse across, you know, sectors and sponsors.

I'd add one thing, your specific question around commitment amount, and I'll actually allude to a comment that Howard made, is that given the limitations from a 40-act standpoint, it behooves us to participate at the time the deal is originally originated, Mark, such that we'll have the opportunity to do follow-ons. To the extent that we don't participate, we're necessarily crowded out. So you'll see that. And then also with regard to commitment size, And Ted alluded to this, but just to maybe dig another level deeper, is ultimately, you know, a lot comes from, you know, incumbency, as he said. And ultimately, that will have a lot to do with how big of an acquisition that particular company is doing, and that would influence our commitment size. And so I think I wouldn't read too much into it. It's going to ebb and flow based on that. But for emphasis, one of the real – I'll go back to this point about our access to the mid-cap origination. If you look at mid-cap, there's roughly 500 borrowers. Pro forma, for the merger, we obviously have a significant number of obligors. And over time, we hope to be able to, though roughly $1.4 billion in net assets, be able to run a really, really diversified portfolio and show obligors well in excess of $200 to stress the benefit our platform has of access to very, very diverse deal flow and be reflected in the diversification of our portfolio.

it. Thank you for that. And then the expense synergies associated with the merger, have you talked about timing on that and a potential impact on returns or NII?

Yeah, well, the expense are when you kind of looked at the consolidated group, right, with the closed-end funds and MFIC. So the expenses, you know, essentially are eliminated at this closed-end funds. And very little increase in expenses at MFIC. You'll have some valuation increases. So it's already happened, okay? So it was really looking at that consolidated expense level. It was about three, a little bit over $3 million of expenses taken out of the closed-end funds. And so the MFIC will stay relatively the same from an SG&A basis.

Thank you. And there are no further questions at this time. I'd be happy to return the call to our hosts for any concluding remarks.

Thank you, Operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Have a good day.

This does conclude the MidCap Investment Corporation for the period-ended June 30, 2024 earnings call. You may now disconnect your lines. And everyone, have a great day.

Good morning and welcome to the earnings conference call for the period ended March 31, 2024 for MidCap Financial Investment Corporation. At this time, all participants have been placed in listen-only mode. The call will be open for a question and answer session following the speaker's prepared remarks. If you would like to ask a question at that time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 on your telephone keypad. If you would like to withdraw your question, press star 2. I will now turn the call over to Elizabeth Thesson, Investor Relations Manager for Mid-Cap Financial Investment Corporation. Please go ahead.

Elizabeth Thesson Thank you, operator, and thank you, everyone, for joining us today. Speaking on today's call are Tanner Powell, Chief Executive Officer, Ted McNulty, President, and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, as well as additional members of the management team, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's webcasts are being recorded. Please note that they are the property of Midcap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibitive. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to a customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward- looking statements. You should refer to our most recent SEC filings, our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward looking statements we make. We do not undertake to update our forward looking statements or projections unless required by law. To obtain copies of our SEC filings please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth, and thank you, everyone, for joining today's call. I will begin today's call with a summary of our results and will also provide our perspective on the current environment. I will then provide an update to our proposed merger with Apollo Senior Floating Rate Fund, Inc., and Apollo Tactical Income Fund, Inc. Ted will then cover our investment activity and provide an update on the investment portfolio and credit quality. Lastly, Greg will review our financial results in greater detail. Yesterday, after market close, we reported solid results for the March quarter, which included a slight increase in net asset value per share, relatively stable credit performance, and continued de-risking of the portfolio. Net investment income per share for the March quarter was 44 cents, which corresponds to an annualized return on equity, or ROE, of 11.4%. Results for the quarter reflect solid recurring interest income from our predominantly floating rate portfolio and strong fee and prepayment income. Gap EPS for the March quarter was 39 cents. Similar to last quarter, we continued to improve the risk profile of our portfolio by reducing our exposure in Merck's, our aircraft leasing portfolio company, as well as our second lien exposure. At the end of March, corporate lending and other represented 92 percent of the total portfolio, of which 97 percent was first lien on a fair value basis, up from 96 percent in the last quarter. With the repayment of one of our few remaining second lien positions, our second lien and other debt exposure is now only about 0.7 percent of the total corporate lending portfolio. We believe MFIC has one of the most senior corporate lending portfolios among BDCs as evidenced by our weighted average attachment point of essentially zero. We believe we have constructed a corporate lending portfolio that will perform well even during a potential economic downturn. Overall, we feel good about the health and quality of our corporate lending portfolio as our underlying borrowers have largely been able to handle higher borrowing costs. We have not seen any significant signs of credit weakness across the portfolio. We are, of course, closely monitoring our portfolio and mindful of the potential impacts of a higher for longer rate environment. I would not like to provide our perspective on the current environment. Despite high interest rates, elevated inflation, and geopolitical uncertainty, U.S. economy has proven to be resilient and continues to display strong growth. At the beginning of 2024, investors expected the Federal Reserve to cut rates multiple times during the year. However, as the quarter progressed, sovereign inflation has pushed out the expectation for the start of rate cuts, and the market generally believes that we are in a higher-for-longer scenario. Apollo's chief economist believes that there is a reasonable chance that the Fed may not cut at all in 2024, while the market is currently pricing in only one cut this year. According to the lending market, during the first quarter there has been an increase in activity in the syndicated loan market. MFIC is focused on the middle market which is less susceptible to competition from the syndicated loan market. Although spreads in our market have decreased, the decline has been less than what we have observed in liquid loan markets. Spreads in our market are still healthy by historical standards and we continue to believe risk return in the middle market remains compelling. In our market today, a typical deal would price with a spread of around 500 to 550 basis points. As you know, MFIC is squarely focused on the core middle market. Mid-Cap Financial, which was founded in 2009, has a long track record which includes closing on approximately $114 billion of lending commitments since 2013. Its origination track record provides us with a very large data set of middle market company financial information across all industries and we believe makes MidCap Financial one of the most informed and experienced middle market lenders in the market. Apollo's affiliation with MidCap Financial is a significant competitive advantage for MFIC. In short, we believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high yield market. Next, let's turn to the dividend. to dividend seeks to provide shareholders with an attractive current yield while also retaining some earnings for NAV stability and growth. To that end, our Board of Directors declared a dividend of $0.38 per share, consistent with our prior quarter dividend to shareholders of record as of June 11, 2024, payable on June 27, 2024. A $0.38 dividend represents an annualized yield of approximately 9.9 percent based on NAV per share as of March 31. Our dividend continues to be well covered by net investment income. Before handling the call over to Ted, I would like to provide a brief update on MFIC's proposed mergers with AFT and AIF. We remain excited about these proposed mergers and we believe that their consummation, which is subject to receipt of certain stockholder approvals and satisfaction of other customary closing conditions, will create a stronger combined company. We look forward to realizing the potential benefits of a larger combined company, including enhanced returns for all stockholders, greater scale, and enhanced portfolio diversification after closing. As a reminder, if one or both of these mergers close, MFIC will pay a one-time cash dividend of 20 cents per share to all stockholders following the closing. The exact record date for this dividend will be determined by MFIC's Board of Directors based on the timing of the closing. We filed a definitive joint proxy statement slash prospectus related to the mergers on April 4th. And the special meetings for the stockholders of all three funds to vote on the merger proposals have been scheduled for May 28th. We have officially commenced the proxy solicitation process related to these proposals. And we kindly request that any stockholders of MFIC, AFT, or AIF who have not yet kept their votes on these proposals do so in the coming days. Please note that we will not be able to answer any questions related to the current vote count on today's call. With that, I will turn the call over to Tim.

TIM TAYLOR, Thank you, Tanner. Good morning, everyone. Beginning with investment activity, as a reminder, MFIC is focused on investing in loans sourced by MidCap Financial, which provides MFIC with a large pipeline of investment opportunities. MidCap Financial is a leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professionals. On last quarter's call, we mentioned we were seeing a noticeable pickup in pipeline activities. We're pleased to report that this has led to a strong level of closings during the March quarter. Mid-cap financial was active during the March quarter, closing approximately $5.1 billion in new commitments, an increase of approximately 31 percent from the December quarter. During the March quarter, MFIC's new investment commitments totaled $149 million of new first lien commitments across 16 different borrowers for an average new commitment of $9.3 million as we continue to focus on diversification by borrower. 38% of new commitments were made to existing portfolio companies. Although we are seeing some pricing compression in the market, the weighted average spread of our new commitments in a quarter was relatively unchanged at 624 basis points, one basis point lower than commitments made during the December quarter. The weighted average OID for new commitments was approximately 211 basis points. This spread in OID translates into a very attractive unlevered asset yield of around 12%, assuming a 5% base rate. The weighted average net leverage of new commitments was 3.9 times. We believe the risk return on these new commitments is very compelling. Our pipeline of investment opportunities remains strong. In terms of funded investment activity, gross fundings for the corporate lending portfolio, excluding revolvers, totaled $129 million. Sales and repayments totaled $95 million. Net corporate lending revolver paydowns were $14 million, and we received a $4 million paydown from Merckx. In aggregate, net fundings for the quarter totaled $16 million. Our portfolio turnover continues to drive a positive shift in the composition of our portfolio. Sales and repayments included the exit of a $15 million second lien position, which reduced our already low second lien and other debt exposure by half to just $13.8 million, or 0.7% of the total corporate lending portfolio at fair value. We believe this negligible amount of non-first lien exposure highlights the very senior nature of our corporate lending portfolio. Turning to our investment portfolio, we have built a well-diversified senior corporate lending book. At the end of March, our portfolio had a fair value of $2.35 billion and was invested in 154 companies across 23 different industries. Corporate lending and other represented approximately 92% of the total portfolio, and Merck's accounted for 8% of the total portfolio on a fair value basis. The average funded corporate lending position was $14.6 million, or approximately 0.7% of the total corporate and other lending portfolio. 97% of our corporate lending portfolio was first lien, up from 96% last quarter, and over 99% of our corporate lending debt portfolio on a cost basis had one or more financial covenants, and 88% of our corporate lending portfolio is backed by financial sponsors who we know well and with whom MidCap Financial has longstanding relationships. Despite the higher for longer interest rate environment, our portfolio companies continue to exhibit strong fundamental performance and meet our expectations. On a median basis for the quarter, portfolio company revenue and EBITDA both increased by mid-single digits year over year. The growth in revenue is attributable to organic expansion, while improvements in margins are due to borrowers optimizing their cost structures. We believe the sustained positive improvement is an encouraging indicator of the portfolio's underlying strength. The weighted average yield at cost of our corporate lending portfolio was 12.1% on average for the March quarter, down slightly from 12.2% in the December quarter. At the end of March, the weighted average spread on the corporate lending portfolio was 621 basis points down two basis points compared to the end of December. Turning to credit quality, our focus on true first lien top of the capital structure middle market loans has resulted in what we consider to be strong and resilient credit metrics. Given the second lien repayment I mentioned, the weighted average attachment point for our corporate lending portfolio is essentially zero, or to be more precise, 0.04 times. This metric means that there is no senior debt to our positions, illustrating that our corporate lending portfolio is indeed first lien. We believe it is key to look at this metric as not all debt labeled first lien is actually top of the capital structure, as its name would suggest. At the end of March, the weighted average net leverage of our corporate lending portfolio was 5.36 times, up from 5.27 times last quarter. Moving to interest coverage, the weighted average interest coverage ratio remained at 1.9 times unchanged with four companies below one times. We're closely monitoring these situations and believe they are manageable as the companies have strong current liquidity, good underlying business performance, or have strong financial sponsor support. The median EBITDA of the MFIC's corporate lending portfolio was approximately $47 million. We have not seen a meaningful increase in covenant breaches or a pickup an amendment activity. We believe our credit quality has benefited from MidCap Financial's strong sourcing and underwriting capabilities. Our underwriting on MidCap source loans has proved to be sound. Based on data since mid-2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate is around two basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy is performed. Although we added our $12 million investment in Naviga to non-accrual status during the quarter, investments on non-accrual remain very low, totaling 14.4 million, or 0.6 percent of the total portfolio, at fair value across three names. Naviga is currently in a sales process, and initial bids are reflected in our mark. We believe these stable credit metrics reflect the way in which we have constructed our portfolio, and is the direct result a focus on sourcing assets from Midcap Financial, one of the leading middle market lenders. Importantly, MFIC benefits from Midcap Financial's large dedicated portfolio management team of over 60 investment professionals, which helps identify and address issues early. It is also important to note that Midcap Financial leads and serves as administrative agent on the vast majority of our deals, which provides meaningful downside protection. As agent, we're in active dialogue with the borrower and have enhanced information flow, which allows us to be proactive in resolving problem credits. Moving on to MERCs. As discussed previously, we are focused on reducing our investment in our aircraft leasing and servicing businesses. While we don't expect paydowns to occur evenly, we believe aircraft sales and servicing income should allow for the paydown of third-party debt and MFIC's investment in MERCs over time. As of March 31, our investment in Marks totaled approximately $190 million, representing approximately 8 percent of the total portfolio at fair value. During the March quarter, Marks paid MFIC approximately $5.9 million, which included $1.9 million of interest and a $4 million return of capital. With that, I will now turn the call over to Greg to discuss our financial results in detail.

GREGORY DELLINGER, Thank you, Ted, and good morning, everyone. Beginning with our financial results, net investment income per share for the March quarter was $0.44, which reflects solid recurring interest income, as well as strong fee and prepayment income. For the quarter, prepayment income was $2.2 million, and fee income was $1.7 million. PIC income remains very low, representing approximately 3% of the total investment income for the quarter. Gap net income per share for the quarter was $0.39, which reflects a $0.05 loss on our investment portfolio. Results for the quarter correspond to an annualized return on equity based on net investment income of 11.4%, and an annualized ROE based on net income of 10.1%. MSIC's NAV per share at the end of March was $15.42, up one cent over the prior quarter, which reflects net investment income of $0.44, which is $0.06 above the $0.38 distribution, and a $0.05 per share loss on the portfolio. As Ted mentioned, the vast majority of our corporate lending portfolio continues to have strong fundamental performance. Additional details on the change in unrealized gains and losses by strategy are shown on slide 17 in the earnings supplement deck. Net expenses for the quarter were $39.8 million, down $2.4 million compared to the prior quarter, primarily due to lower general administrative expenses as well as lower interest expense and lower incentive fees. We recruited a diminished amount of excise tax in March compared to approximately $1.1 million in the December quarter. The weighted average interest rate on our debt for the quarter was 7.09 percent, up from 6.94 percent last quarter, which reflects a full quarter impact of the CLO notes and the baby bonds, which both closed during the December quarter. As stated on last quarter's call, we intend to continue to evaluate and monitor capital raising transactions going forward. Management fees totaled $4.4 million for this March quarter essentially flat compared to the prior quarter. As a reminder, MFIC's base management fee was reduced to 1.75% on equity beginning January 1, 2023 and is one of the only listed BDCs to charge management fees on equity. which we believe provides greater alignment and focus on net asset value. Incentive fees totaled $6 million for the March quarter. As a reminder, our incentive fee on income is 17.5% and includes a total return hurdle with a 12-quarter look back. Our current estimate of undistributable taxable income or spillover income at the end of 2023 was $67.3 million, or $1.03 per share. Moving to our balance sheet, MFIC net leverage was 1.35 times at the end of March compared to 1.34 times at the end of December, reflecting $17 million of net funding during the quarter. This concludes our prepared remarks. Operator, please open the call to questions. The floor is now open for questions. If you would like to ask a question at this time, please press star 1 on your telephone keypad. Again, you may remove yourself at any time by pressing star 2. Once again, to ask a question, please press star 1. Our first question will come from Mark Hughes with Truist. Please go ahead.

Mark Hughes- Thank you. Good morning. We've seen much in the way of competitive moves, say, given the broadly syndicated market, a little more activity there. We've seen some lenders get down more into the middle market and impacting spreads and all maybe along with that. I think you talked about 500 to 550 basis point spread today. Has that been relatively stable lately or has that been moving through the quarter? How would you say it is, you know, kind of the trend there?

Yes, Tanner, I'll comment on that, Howard. Not so immediately, and that's really because, you know, obviously you may see large sponsors that are covered and doing larger deals occasionally get down to the middle market. But in order to cover the middle market, you know, you need to have a comprehensive coverage effort, which is, you know, and continuity in the market with a lot of those sponsors. And so you just don't see, you know, the capability of the people who are focused on the larger market, you know, competing directly, probably syndicated with the capabilities to sort of just step into that market, you know, holistically. It doesn't mean it doesn't happen on occasional deals. I mean, as a separate matter, there's capital being created in the middle market all the time. And then those teams may or may not have comprehensive coverage as well. So there is definitely competition that's causing compression, but it's not really the result of the broadly syndicated market. The middle market is one of the strengths of it is being sort of insulated from that variation.

And then any comment on the trajectory of spreads, you know, this year, if you think about where they were in January to where we are today?

Mark, I would call your attention to, we alluded to the fact that deals are between 500 and 550. And in the quarter, we actually executed at 624. And that has to do with what we talk about a lot. There's a gestation period for deals getting done, and that reflects a lot of sale processes that have been commenced last year. And so, you know, so that pretty significant tightening that we see, what we are seeing is some modicum of stability as at this juncture, you know, post December, where conditions improved and you saw some of the spread tightening and rally in markets more broadly, those sale processes are hitting, are now at a point where we're able to create new credit assets and our pipelines are very full. So I would say, you know, certainly the, my initial comment there reflects the tightening overall that we've seen in the middle market, but seeing some stability now that sell prices have had an opportunity to run their course and the opportunity for new credit asset creation.

Male Speaker 1 Yeah, thank you for that. One more in, you probably have addressed this, but I wonder if you could update us on the kind of the seniority profile. You certainly emphasize the focus on First Lean. Once you do the merger with the other Apollo funds, how will that look, roughly speaking?

Yeah, it will look similarly. Those funds, which is obviously publicly available, have some more broadly syndicated type loans, but predominantly first lien. And then, Mark, as we've talked about, both in our prepared remarks in the filings as well as also our investor decks, the intention is obviously over time is as those loans mature or we can sell out of them to obviously reposition them into our core strategy of mid-cap loans, you know, first lien, floating rate loans that are sourced by the MidCap platform. Thank you very much. Thank you. Our next question will come from Kyle Joseph with Jeffries. Please go ahead.

Yeah, great. Thanks for taking my questions. And sorry if I missed this. But did you give a sensor pro-formal leverage or ballpark area post-merger?

It will be somewhere around, you know, between 115 and 1.2 times leverage.

Okay, got it. Helpful. And I'm going to segue to my next. You know, over the last couple of years, you guys have been focused on reducing core and lowering all leverage. And now, especially with the merger, are we kind of at the point where you can think about more transitioning to kind of the offensive side, if that's fair to ask?

So, Kyle, I mean, certainly we're really excited by the prospect, should we be successful, of having an opportunity to deploy even more capital. Yeah, I wouldn't attach the offensive, defensive valence to it, per se, because our strategy, since we got the ability to go up in leverage has been, you know, 100 percent focused on sourcing or, sorry, participating in or investing in loans that are originated at mid-cap. And so our approach doesn't change. I think this is just a very elegant opportunity to do even more of it and to kind of create the, you know, an even bigger percentage of the portfolio with those mid-cap source loans.

Okay. Very helpful. And then one follow-up for me, probably Greg, just where we are on rates. I'm not going to ask you to predict where rates are going to go, but just how you're thinking about the right side of the balance sheet in the mix between floating rate and fixed rate liabilities. And that's it for me. Thanks, guys.

Okay. I mean, I think that, you know, from our point of view, we do have, you know, our $350 million 10-year note coming due in March of 2025, which is fixed rate. I do think we did our baby bond, which was fixed rate, and we didn't swap it because we have a two-year call option on it. I do think that as we go out, we'll match our liabilities with our assets.

Great. Thanks for taking my questions.

As a reminder, if you would like to ask a question, please press star 1 at this time. Our next question will come from Robert Dodd with Brandon James. Please go ahead.

Morning. On credit quality, obviously, looks really good. PIC's not going up and always getting paid down, etc. Have you seen or heard any initial increased discussion from sponsors? I mean, it was five months ago. It looks like there were going to be six cuts and sponsors could afford to sit on their hands, so to speak, and wait maybe interest coverage that's still above one, but moving might resolve itself, if I'm going to put it in this way. But with the possibility of no cuts, but the same one, the high interest costs are going to live longer in the portfolio. So has there been any change in what sponsors are doing proactively? Is there no increasing amendment requests yet? Are there any preliminary discussions there? Or any color you can give on what the outlook is given? And it looks like rates are going to stay extremely high for quite a lot longer at this point.

Yeah, yeah, happy to take that. So there's a couple things going on. One, you know, over the, you know, kind of, I would say, economic environment over the last few years, the sponsors and the companies have focused on, you know, really becoming more efficient so that they could prepare for a longer-term hold if necessary. And then as you alluded to, when there was a view that there were going to be five rate cuts, people got excited about doing M&A. So with the prospect of rates cuts going away, I think we can at least kind of fall back from a fundamental performance standpoint that the companies are doing well. And then secondly, if you think about the technicals of the private equity market, you still have a lot of dry powder that needs to be put to work. You still have a number of sponsors that need to return capital in order to be able to raise their next fund. So that's going to drive transactions. And, you know, there's going to be a period of time, like any time that there is volatility in, you know, rate expectations or market valuations, for the bid-ask to come together. And so I think that's happening. And then, you know, that'll take a little bit of time to play out. And then the third thing that we're seeing, you know, is more and more continuation vehicles where sponsors, you know, have companies within their funds and they need to hold on to those longer to really realize the multiples that they're looking for. And then I guess finally, you know, the last thing I would say is that in terms of discussions with sponsors about other alternatives, you know, there are some early conversations around extensions and repricings where they're coming back and saying, you know, we thought we were going to monetize this year, but we're going to look to next year. You know, they're not at the point in their fund where they need to do a continuation vehicle or they don't feel the pressure to return capital. And so, you know, there are very constructive discussions around the lending groups, extending maturity, and addressing the overall structure. So I would say those are kind of the four dynamics at play.

Really helpful. Thank you. I mean, quick follow-up to that one. Does a continuation vehicle constitute a change in control and a mandatory refinancing? I mean, does that get you refinanced that was automatic that you get ported across to the vehicle with the existing log.

Yeah, so it is typical that that would be a change of control, but it's also typical in the direct lending space that, you know, you don't just show up one day at your desk and get a notice that it's going to happen, right? There's an ongoing dialogue about what the strategy is, what the financing is going to be. And, you know, there's some visibility around, you know, the sponsor will come and say, hey, do you want to support this, you know, going forward? And sometimes we say yes, and sometimes we say no, at which point they launch a financing process that aligns with their continuation

vehicle. Got it. Thank you. And then one more, again, hypothetically, the mergers close sometime in the not too distant future has the the something of changing the competitive environment out there bsl etc has that changed your plan about how fast you would um you churn the assets within those acquired vehicles if they were to close

Thanks, Robert. I think I would say no. I think that you should rely on us or expect us to always be evaluating risk-reward in the context of the market environment and what makes sense. And then furthermore, as we think about investing, we're always cognizant of vintage and wanting to do things with a measured approach. And that would be the same if hypothetically these were to close. And so if we are confronting an environment such as what we do today, we would be evaluating the market in a similar fashion and evaluating risk-reward. And our intention has always been to not take outsized exposure to any one particular vintage and would expect to conduct ourselves in a similar manner should the mergers be successful. James A. Got it. Thank you. Male Speaker 1 Thank you. We show no further questions at this time. I would like to turn the call back to management for closing remarks. James A. Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach Reach out to us with any other questions and have a good day.

This does conclude today's call.

We thank you for your participation. You may disconnect your line at this time and have a wonderful-