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MI

MSC INCOME FUND, INC. (MSIF)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered solid NII and ROE with net investment income of $16.8M ($0.38 per share) and annualized ROE of ~9.5%; NAV/share ended at $15.35 .
  • Results were broadly in line with consensus: NII/share matched estimates (0.38 vs 0.381*), while total investment income modestly missed ($33.2M vs $34.2M*) as fee income and benchmark-rate-driven interest declined; dividend income was a positive offset .
  • Dividend policy remains supportive: Board declared a regular $0.35 and supplemental $0.01 per share payable Aug 1; management reiterated intent to pay supplemental dividends when NII exceeds regular dividends (current dividend yield ~9%) .
  • Capital structure was enhanced: Corporate Facility commitments increased to $245M, SPV spread cut by 80 bps and maturities extended, lowering funding costs and preserving liquidity ahead of planned leverage capacity expansion in Jan 2026 .
  • Near-term stock catalysts: visible dividend yield, continued portfolio growth into private loans, fee structure reductions post-NYSE listing, and path to expanded leverage capacity; watch non-accruals and realized losses from legacy middle market wind-down as risk factors .

What Went Well and What Went Wrong

What Went Well

  • Private loan portfolio growth: net increase of ~$89M cost (+13%), total investment portfolio grew ~6%; weighted avg yield 11.6% despite lower SOFR, with 99% first lien and 98% floating .
  • Expense reductions drove NII uplift: incentive fees and interest expense declined; operating expense ratio fell to 2.6% annualized (1.9% excluding incentive fees) post advisory agreement amendments .
  • Dividend income strength: increased by $2.7M YoY and $2.4M QoQ from LMM equity holdings, supporting NII resilience amid lower fee/interest income .
  • Quote: “We are pleased with the Fund's performance… visibility to… increased net investment income and dividends… as we work to grow the Fund's investment portfolio in 2025 and 2026” — CEO Dwayne Hyzak .

What Went Wrong

  • Modest top-line pressure: total investment income decreased 2% YoY and <1% QoQ, driven by lower fee income and lower benchmark rates impacting floating-rate interest .
  • Non-accruals increased: to 2.8% of FV and 6.1% of cost at quarter end, contributing to interest income declines .
  • Realized losses concentrated in legacy portfolios: $21.1M net realized losses (largely middle market exits/restructures); while largely previously marked, these still weigh on optics and near-term GAAP results .

Financial Results

MetricQ1 2024Q4 2024Q1 2025Consensus (Q1 2025)
Total Investment Income ($USD Millions)$33.95 $33.46 $33.23 $34.17*
Net Investment Income ($USD Millions)$14.55 $14.23 $16.79 —
NII per Share ($)$0.36 $0.35 $0.38 0.381*
Net Increase in Net Assets per Share ($)$0.26 $0.51 $0.36 —
NAV per Share ($)—$15.53 $15.35 —
Margin/Ratio MetricQ1 2024Q4 2024Q1 2025
Operating Expenses to Assets Ratio (annualized)2.2% 2.1% 2.6%
Operating Expenses (excl. incentive fees) Ratio (annualized)—2.1% 1.9%
Private Loan Weighted Avg Yield (%)—12.0% 11.6%
Segment Composition (Fair Value)Q4 2024Q1 2025
Private Loan (% of FV)58% 61%
LMM (% of FV)37% 35%
Middle Market (% of FV)3% 2%
Other (% of FV)2% 2%
Portfolio Detail (Q1 2025)Private LoanLMM
Number of Companies84 57
Fair Value ($USD Millions)$767.8 $439.7
Cost ($USD Millions)$790.0 $356.3
Debt % (at cost)93.5% 67.7%
Equity % (at cost)6.5% 32.3%
First Lien (% of debt at cost)99.9% 99.9%
Weighted Avg Yield (%)11.6% 13.1%
KPIsQ4 2024Q1 2025
Non-accruals (% FV)1.5% 2.8%
Non-accruals (% Cost)5.6% 6.1%
Debt-to-Equity Ratio (x)—0.79x
Regulatory Asset Coverage Ratio (x)—2.26x
Net Debt to NAV Ratio (x)—0.74x
Liquidity ($USD Millions)$77.7 $163.5
Cash & Equivalents ($USD Millions)$28.4 $39.5
Unused Credit Capacity ($USD Millions)$49.3 $124.0
Dividends Declared (Total per Share)$0.36 (Q1 2025 payable) $0.36 (Aug 2025 payable)
Current Dividend Yield (~)—~9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per ShareQ2 2025 payment (Aug 1)$0.36 total regular dividends declared for Q1 2025 payments $0.35 regular dividend Maintained (slight trim vs last quarter’s aggregate)
Supplemental Dividend per ShareQ2 2025 payment (Aug 1)N/A$0.01 supplemental dividend Introduced/maintained (as policy-driven)
Dividend PolicyOngoingN/AExpect supplemental dividends when NII exceeds regular dividends Formalized framework
Corporate Facility CommitmentsCurrent$165M commitments (Dec 31, 2024) $245M commitments; accordion to $300M Raised
SPV Facility SpreadCurrentSOFR + 3.00% SOFR + 2.20%; revolving period to Feb 2029; maturity to Feb 2030 Lowered cost, extended term
Leverage Capacity (Regulatory)Effective Jan 29, 20261x NAV debt capacity Expanded leverage capacity to ~2x current capacity effective Jan 29, 2026 Raised (future)
Tax Rate/OpEx/OI&E Guidance2025Not providedNot providedMaintained (no quantitative guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 2024)Previous Mentions (Q-1: Q4 2024)Current Period (Q1 2025)Trend
Tariffs/Macro UncertaintyNot available in corpusNot discussed in Q4 releaseManagement monitoring tariff exposure; potential to elongate recoveries in consumer-exposed names; comfort with estimated exposure Heightened focus
Credit SpreadsNot available in corpusNot discussed in Q4 releaseSpreads stabilized post “Liberation Day”; possible widening over next 6–12 months amid uncertainty Stabilizing with potential widening
Leverage TrajectoryNot available in corpusLeverage details/ratings reaffirmed Target leverage 0.85–0.95 near-term; expand capacity in Jan 2026; current 0.79 due to IPO proceeds Building toward target; future expansion
Dividend Income VariabilityNot available in corpusDividend income down YoY in Q4 Dividend income strong; expected to continue near-term given fewer reinvestment needs Improving near-term
Portfolio Strategy ShiftNot available in corpusLMM adds/new investments in Q4 New investments focused solely on private loans in new names; LMM follow-ons only Transitioning to private loans
Middle Market Wind-downNot available in corpusMiddle market FV 3% of portfolio De minimis exposure; realized losses concentrated in legacy names; minimal NAV impact due to prior marks Ongoing wind-down

Management Commentary

  • Strategy and outlook: “We believe that the first quarter performance provides visibility to the opportunity for continued favorable performance and the potential for increased net investment income and dividends in the future as we work to grow the Fund's investment portfolio in 2025 and 2026…” — CEO Dwayne Hyzak .
  • Dividend framework: “Going forward, the Fund expects to maintain a dividend policy… expected to include a regular quarterly dividend [and] a supplemental quarterly dividend… to the extent that Fund's NII exceed its regular quarterly dividends…” — CEO Dwayne Hyzak .
  • Private loans positioning: “94% of the private loan portfolio was comprised of secured debt… over 99%… first lien and 98%… floating rate… weighted average yield of 11.6%” — Nick Meserve .
  • Expense improvements: Advisory agreement reduced base fee to 1.5% and NII incentive fee to 17.5% with 50/50 catch-up; operating expense ratio down to 2.6% annualized (1.9% excl. incentive fees) — CFO Cory Gilbert .
  • Capital structure: Corporate Facility commitments raised; SPV spread reduced by 80 bps; maturity extended to 2030 — CFO Cory Gilbert .

Q&A Highlights

  • Macro/tariffs and activity: Management views recent events as a temporary positive; activity impact TBD pending longer-term resolution to remove uncertainty .
  • Leverage path: Targeting 0.85–0.95 leverage in coming quarters; will not push to high end until closer to Jan 2026; current 0.79 reflects IPO proceeds; expanded leverage capacity in 2026 .
  • Credit spreads: Stabilized after prior tightening; potential widening over 6–12 months as risk premiums adjust .
  • Dividend income trajectory: Expect continued strength near-term given LMM performance and fewer reinvestment needs; longer-term tied to macro and portfolio company performance .
  • Middle market wind-down and realized losses: Concentrated in long-term underperformers already heavily marked; timing of legal/tax restructuring drove recognition; ongoing lumpy exits with minimal incremental NAV impact .

Estimates Context

  • Q1 2025 comparison to consensus: NII per share was in line (actual $0.38 vs consensus $0.381*; 6 estimates*). Total investment income modestly missed (actual $33.23M vs consensus $34.17M*; 5 estimates*) .
  • Implications: Street may lift NII trajectory modestly given expense relief and dividend income strength; top-line revisions depend on pace of deployment and non-accrual resolution.

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • NII resilience with lower funding costs: Fee and interest expense reductions drove NII/share to $0.38 despite softer fee income; expect further benefit from SPV spread cuts and expanded facilities .
  • Portfolio growth and mix: Private loans are now the sole focus for new investments; net ~$89M cost growth in Q1 with attractive first-lien/floating profile (11.6% yield) supports recurring income .
  • Dividend support: Regular $0.35 plus supplemental $0.01 declared; management targets supplemental dividends when NII exceeds regulars (current yield ~9%), a potential trading catalyst around record/pay dates .
  • Watch credit quality: Non-accruals ticked up to 2.8% FV/6.1% cost; monitor consumer-exposed names and tariff outcomes for recovery timing .
  • Legacy middle market risk contained: Realized losses largely on previously marked positions; minimal fresh NAV impact expected as wind-down continues .
  • Leverage roadmap: Near-term deployment to reach 0.85–0.95x; structural capacity doubles in Jan 2026—key medium-term ROE lever .
  • Near-term trading setup: Inline NII, modest revenue miss, dividend declaration and capital structure improvements favor constructive bias; sensitivity to macro headlines and spread dynamics remains .