MidCap Financial Investment Corporation (NASDAQ:MFIC) Q2 2023 Earnings Call Transcript

Kyle Joseph: Got it. Thanks very much for answering my questions.

Operator: Our next question comes from Sean-Paul Adams, Raymond James.

Sean-Paul Adams: Hey, guys. I think you guys said — shared some light on the amount of companies you guys had that have below 1X interest coverage ratio. Do you guys have the exact numbers about the portion of the total portfolio that those companies represent, and maybe share some thoughts on your total outlook for your general portfolio as interest coverage might continue to decline later in the year?

Greg Hunt: Yes, sure, and thanks for your question. I’ll start with the outlook, which is if base rates — to state the obvious, if base rates continue to increase, our borrowers as well as everyone else’s borrowers are going to face increased pressures. We’ve run a number of different stress tests and scenarios around what those numbers could look like in different types of situations. As to the existing portfolio, the ones that we have that are below one times now, in some cases sponsors are putting in equity to cover that. In other cases, there’s still sufficient liquidity, and we’re in active dialogue with those.

Sean-Paul Adams: Got it. Thanks, Greg, I appreciate your answer.

Operator: Our next question comes from Melissa Wedel, J.P. Morgan.

Melissa Wedel: Good afternoon. Thanks for taking my questions today. First, wanted to start with some of the capital returns on activities and comments you made on the call. I know, last quarter, you talked about a potential special dividend at some point. Based on the comments you made today about the Board continuing to evaluate over-earning and whether to pay that out versus retain it. I guess the question would be, is the Board still thinking about a potential payout in the form of a special or has that conversation evolved a bit to something else?

Howard Widra: This is Howard. I think, effectively, everything is on the table, meaning we have — it is a cornerstone of our — of the goal for us to have stable NAV. We are helped by that by over-running the dividend. We also have both requirements, obviously, to pay out a certain amount of income, as well as a desire, obviously, to return to the shareholders the — some excess return. And so, the answer is, if you did this over a longer period of time and we were out-earning what is our core dividend, $0.06-$0.07 a share each quarter, as were the last two quarters, there’s sort of room for both. But it’s a year — it’s effectively a decision, I would say as much as we — the thing that sort of has been decided is the decision that we will make at the end of the year, so that we’ll retain it for now, and then make a decision in a year about the size of what we may or may not do.

So, I know that’s not that definitive, but we’re just trying to balance all things. And obviously, if base rates continue to go up or even — they went up on July, obviously just now, and our fee income builds off a very low base, we could even out-earn the dividend by even more, and so then there’s even more room for both options.

Melissa Wedel: Okay, understood. I appreciate the building into the framework, that way it’s helpful. In terms of the share repurchase activity that you did, noticed that, obviously, it ticked up. I think the last repurchase activity was about a year ago. As we think about moving forward and the capital allocation choices that you have in front of you, you’ve got early attractive investment environment, you’ve got net leverage kind of where it is, I think towards the midpoint of your target range if I’m looking at this right. And how should we think about you guys evaluating those opportunities for appetite for additional share repurchase versus deploying capital into an attractive environment?