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MF

MidCap Financial Investment Corp (MFIC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 NII per share was $0.40 (vs $0.44 in Q3), GAAP EPS was $0.26, and NAV/share declined 0.8% to $14.98; total investment income was approximately flat sequentially at ~$82.2M, with the QoQ pressure driven by lower base rates and modest fee income .
  • Capital structure strengthened post-quarter: MFIC closed a $529.6M second on-balance sheet CLO at among the tightest middle-market levels (AAA at SOFR+148 bps; blended ~SOFR+161 bps), using proceeds to repay 2025 notes and reduce revolver borrowings .
  • Portfolio and credit: new commitments were $255M; nonaccruals fell to 1.3% of fair value (from 1.8% in Q3); weighted average interest coverage improved to 2.1x; spreads on new commitments modestly increased due to incumbency mix despite ongoing market compression .
  • Outlook: management plans to re-lever to ~1.4x in the next couple of quarters; the quarterly dividend of $0.38 was declared and management expressed confidence in sustainability given leverage plans and origination pace .
  • Catalysts: re-levering back to target, CLO-driven funding cost tailwinds, continued rotation out of CEF-acquired and Merx aviation assets with insurance recoveries underway, and improving coverage metrics could support NII stability and sentiment .

What Went Well and What Went Wrong

What Went Well

  • Secured low-cost term financing: Closed a $529.6M CLO; CFO: “adds attractive term-based financing at what we believe to be among the tightest levels achieved for a middle market CLO” .
  • Credit stabilization: Nonaccruals decreased to 1.3% of FV (from 1.8%); management: “We are not observing any signs of general credit weakness” and interest coverage improved to 2.1x from 1.9x .
  • Portfolio rotation and deployment: Continued selling non-directly originated CEF assets and redeploying into first lien floating-rate core middle-market loans; new Q4 commitments of $255M .

What Went Wrong

  • Earnings softness QoQ: NII/share declined to $0.40 (from $0.44) as fee income was modest and base rates fell, pressuring portfolio yield (direct origination yield at cost down to 11.0% from 11.6%) .
  • NAV dipped: NAV/share fell $0.12 (-0.8%) to $14.98; net losses of $13M ($0.14/share), with ~60% from positions already on nonaccrual .
  • Competitive spreads: Market-wide spread compression persists; Q4’s modest spread improvement was mix-driven (incumbency) rather than broad-based widening .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Investment Income ($USD Millions)$69.156 $82.138 ~$82.2
Net Investment Income ($USD Millions)$29.541 $38.135 $37.1
NII per Share ($)$0.45 $0.44 $0.40
GAAP EPS ($)$0.35 $0.31 $0.26
Net Realized & Unrealized Gains/Losses ($USD Millions)$(6.986) $(11.419) $(13.0)
NAV per Share ($)$15.38 $15.10 $14.98
Net Leverage Ratio (x)1.45x 1.16x 1.16x
Weighted Avg Yield at Amortized Cost – Total Debt Portfolio (%)11.9% 11.1% 10.8%
New Investment Commitments ($USD Millions)$285 $371 $255

Segment/Portfolio Composition (% of fair value)

SegmentQ2 2024Q3 2024Q4 2024
First Lien Secured Debt90% 91% 92%
Second Lien Secured Debt1% 1% 1%
Total Secured Debt91% 92% 93%
Structured Products & Other1% 2% 1%
Preferred Equity1% 1% 1%
Common Equity/Interests & Warrants7% 5% 5%

Key Operating KPIs

KPIQ2 2024Q3 2024Q4 2024
Portfolio Companies (End of Period)165 250 233
Gross Fundings ex Revolvers ($USD Millions)$214 $288 $248
Net Fundings/Repayments incl Revolvers ($USD Millions)$90 (net fundings) $222 (net fundings) $(6) (net repayments)
Nonaccruals (% of FV)n/a1.8% (prior quarter reference) 1.3%
Weighted Avg Interest Coverage (x)n/a1.9x (prior quarter) 2.1x
Weighted Avg Spread (Direct Origination)n/an/a578 bps; up 1 bp vs Sep.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Base Dividend per ShareQuarterly$0.38 (declared Nov 6, 2024 for Dec 2024 payment) $0.38 (payable Mar 27, 2025) Maintained
Target Net Leverage“Next couple of quarters”Target “around 1.4x” (ongoing framework) Reiterated plan to reach ~1.4x in next couple of quarters Maintained/timing reiterated
Funding Mix (CLO Usage)OngoingNot explicitly prioritizedCLOs expected to be an important source of debt financing going forward New emphasis
Merx Exposure“Coming quarters”Focused on reducing aircraft leasing exposure (ongoing) Expect exposure to decline, insurance recoveries at marks, progress on sales campaigns De-risking trajectory reiterated

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2 and Q-1)Current Period (Q4 2024)Trend
Leverage and balance sheetNet leverage 1.45x (Q2); fell to 1.16x post-merger (Q3) Plan to re-lever to ~1.4x in next couple of quarters Re-levering underway
Funding costs / CLO strategyCLO outstanding acknowledged; amended/extended facility in Q3 Second CLO closed at tight spreads; CLOs to be key funding source Improving cost of funds; term funding
Portfolio rotation (CEF assets)Post-merger rotation priority (Q2/Q3) Continued sales; $96M CEF assets sold in Q4; redeployed to first lien loans De-risking, core focus
Credit quality metricsStable credit; yield high in Q2; Q3 noted M&A muted Nonaccruals down to 1.3% FV; interest coverage up to 2.1x; “no general credit weakness” Stable-to-improving metrics
Spreads/competitionCompetitive market implied (Q3) New-commit spreads modestly higher due to incumbency; broader market still compressing Competitive tension persists
Macro/tariffsLimited commentary in Q2/Q3 filings Monitoring tariffs/federal layoffs; recession odds seen low; sponsor M&A may pick up Constructive macro with watch items
Merx (aviation)Ongoing reduction of exposure implied Insurance recoveries settled approx. at marks; sales campaigns advancing Resolution progressing

Management Commentary

  • “We generated solid net investment income despite a modest amount of fee income and the impact of lower base rates... We observed a modest increase in spreads on new commitments compared to the previous quarter... We have a clear and straightforward plan to gradually increase leverage over the coming quarters” — Tanner Powell, CEO .
  • “We are pleased to announce MFIC closed its second on balance sheet CLO... at among the tightest levels achieved for a middle market CLO” — Gregory Hunt, CFO .
  • “We are not observing any signs of general credit weakness... weighted average interest coverage ratio was 2.1x, up from 1.9x last quarter... investments on nonaccrual were 1.3% of the portfolio at fair value, down from 1.8%” — Ted McNulty, President .
  • “Results for the quarter include a net loss of approximately $13 million... Approximately 60% of that net loss was from positions that were on nonaccrual at the beginning of the quarter” — Gregory Hunt, CFO .

Q&A Highlights

  • Merx insurance recovery: Recoveries are approximately at MFIC’s marks; expectation for resolution of remaining claims this year; supports planned reductions in Merx exposure .
  • Spreads and competition: Modest QoQ spread increase driven by redeployment to existing borrowers; market-wide compression persists; potential M&A pickup could stabilize/widen yields .
  • Dividend sustainability: Management “very comfortable” given leverage trajectory and expected origination pace .
  • Nonaccruals and restructurings: Four legacy CEF names remain; restructurings put positions on a more stable footing; Q4 net losses largely from pre-existing nonaccruals .
  • Funding mix outlook: CLOs likely to become a larger component of financing given favorable spreads vs unsecured; reflects portfolio quality and MidCap/Apollo CLO expertise .

Estimates Context

  • Wall Street consensus (S&P Global) for EPS/revenue was unavailable due to a data access limit today. As a result, we cannot provide a vs-consensus comparison for Q4 at this time [SPGI request limit reached in tool]. Where relevant, management indicated NII per share softness reflected lower base rates and modest fee income, while lower funding costs (CLO) and re-levering should help forward earnings capacity .

Key Takeaways for Investors

  • NII/share declined to $0.40 on lower base rates and modest fees, but total investment income held roughly flat sequentially; dividend remains $0.38 with management confidence in coverage as leverage rises back to ~1.4x .
  • Funding tailwind: Second CLO priced at tight levels (AAA +148; blended +161), reducing cost of capital and extending term; proceeds repay near-term unsecured maturity and reduce revolver draws .
  • Credit steady: Nonaccruals fell to 1.3% of FV and interest coverage improved to 2.1x; management sees no general credit weakness, supporting portfolio resilience .
  • Core focus strengthened: Continued exit of CEF-acquired non-core assets and redeployment into first-lien, sponsor-backed, covenanted loans sourced via MidCap incumbency advantage .
  • Yield pressure vs mix benefits: Market spreads remain tight, but incumbency-driven redeployments can support better pricing than new-to-bank deals; re-levering and lower funding cost can offset yield compression .
  • Merx resolution a de-risking catalyst: Insurance recoveries at marks and active sale campaigns should reduce low-yield aviation exposure and lift portfolio income mix over coming quarters .
  • Near-term trading setup: Watch for updates on portfolio growth toward 1.4x leverage, further CLO/securitization steps, Merx asset sales/claim resolutions, and sponsor M&A normalization that could stabilize spreads and accelerate deployment .

Additional Data References

  • Q4 Highlights: NII $37.1M; NII/share $0.40; GAAP EPS $0.26; NAV $14.98; new commitments $255M; gross fundings ex revolvers $248M; net repayments $6M; net leverage 1.16x .
  • Q3 Comparables: NII/share $0.44; NAV $15.10; new commitments $371M; gross fundings ex revolvers $288M; net fundings $222M; net leverage 1.16x .
  • Q2 Comparables: NII/share $0.45; NAV $15.38; gross fundings ex revolvers $214M; net fundings $90M; net leverage 1.45x .