Main Street Capital (MAIN) 4 Nov 222022 Q3 Earnings call transcript

Greetings and welcome to the Main Street Capital Corporation’s Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Please go ahead.

Thank you, operator and good morning everyone. us conference Street call. joining quarter Corporation’s for earnings XXXX you for Capital Main third Thank

the press Chief third Street Jesse XX. Joining and call document Managing beginning available Dwayne website Chief today’s portion Officer; Investor Credit and of will and Hyzak, Private on today of Operating Head details Chief company’s operating Officer; of Information issued quarter me results. release. with until to access that the for Group. release how be company’s is Relations is was an Investment Executive of David remain financial prepared Officer. available This Also the yesterday Magdol, the the hour the the at and replay will replay the Officer call Chief mainstcapital.com. afternoon Director after A Financial available the included Morris, yesterday’s comments a participating are November Investment on call Main and and Q&A of section President in Meserve, Nick completion

forward-looking expressions. the will, Many these replay expects, transcript reading. of believes, may or of listening Today’s speaks information should, call on use advised also the assumptions such can longer and set factors therefore, no these that risks, or company’s being that any Main a that filings assumes by you Please this performance. results is as advise forth this contain and the at which may factors, materially are the as only the November and the accurate anticipates, Securities to, statements of Commission, or on limited the today, based not these and be website forward-looking of Exchange there X, law. will of are date from no conference on differ statements with update XXXX projections note can uncertainties broadcast may required Internet on implied similar words by unless of as be live result intends, the statements. call future time at company’s no be sec.gov. call Actual are in We but this of any of in of results you guarantees including, as company’s accessed homepage. through statements expressed the These identified management’s or other found to call reported be and obligation and the time-sensitive information statements Street estimates, can

been distributable not investment During has to discussed to information today’s portfolio third-party verified. call, to call, including net management GAAP financial refer a of companies, and information including from income. this on reconciliation yesterday’s directly measures, press Please release the sources will Certain financial for derived measures. measures discuss non-GAAP most comparable was related these independently

over the Now, Street’s to Dwayne Main I turn Hyzak. will CEO, call

while also Thanks, for appreciate usual will today. this us Zach. is on management doing on everyone providing On I morning, Good everyone performance morning’s updates We joining in provide the We our everyone’s and that call. thank quarter, call, regarding my asset well. hope today’s you activities. our updates participation

our supplemental another several for of and other to dividend pipeline the current of XXXX, quarter for investment declarations in updates. December recent going monthly our our Our and dividends an dividends increase first forward, noteworthy and investment payable expectations activities recent

happy future Jesse income to questions. our investment net impact portfolio, and investment the our your results, will quarter will additional investment and our fourth rates interest take provide structure of capital strategy, Following my and and in we comments third financial for which comments, the quarter, expectations regarding leverage, David after rising be

from and investment strong Street’s with income, investment our and with which income per exceeding per each our another records positive for net DNII records over pleased or with quarter four of as net per monthly share quarters. net share contributions by included our investment include results very set These strong of regular dividends income matched share results, share core prior per of exceeded Main results are distributable a investment XX%. performance, result each We the our we third strategies. or the And quarter DNII

pleased We equity continue another to investments value middle-market performance this portfolio lower of be in resulted with of the which in the fair quarter portfolio. in our companies appreciation

during made to also these companies follow-on to-date the existing investments growth we support middle-market strategies the the quarter. are portfolio fourth the excited the and in new investments quarter we about in companies have We lower made of third platform

success in our positive These in recommendations fourth Our Private of will detail Board its continued also for Group our investment activities in quarter. more favorable and recent the announcements, our outlook resulted to quarter results Directors later. with its most dividend our I discuss which Credit the third for

these with performance allow pleased private remain be management that to middle-market of our loan asset to strategies, results to the our of the with our business, deliver continue combined and for We benefits confident diversified continue investment strategies will shareholders. us lower and superior

per results which will value cover quarter the in of different changes issuances net the impact due components of and impact of more our detail. Jesse share equity increased in and the the in positive investment fair asset the value the our to Our quarter, of portfolio mixed

middle-market portfolio. of portfolio with quarter our another lower performance resulted appreciation value companies, are pleased fair in in which the We of continued favorable this

benefited uncertainty, and we loan loan to deliver pleased realized both generated market continued We have a unrealized very gain lower between and strategies private restructured depreciation private the attractive in investment opportunities. this volatility from the quarter middle-market increased portfolio. realized of investment, fair that a value our and previously also our are net significant Despite increase gain and exit recent which the in the

increase for repayments in investments middle-market million investments in lower $XX the in net quarter quarter. lower Our of middle-market a after $XXX of the million resulted

We benefits the the that of third investment the net last our results the over for in loan X years. increase portfolio quarter private in our $XXX investment quarter. Our believe resulted of growth investments of operating loan million activities a private reflect

we grow continue enhancements attractive and investment view continue in structure, and We at-the-market, opportunity investment Given in quality expected our equity portfolio our growth, the which XXXX. developments portfolio, into offering our issuance we an and fourth equity pipeline. our have in allow as future investment the expect quarter, of plan for activities continue our the us program results quarter under further strength incremental To investment the current continued our benefit and to on portfolio pipeline, our and growth expect capital to increased operating which to third support we investment will our ATM to to August. or execute positive of to the future to to these completed

the quarter. third our We we other a positive We performance dividend excess will to supplemental of fourth Fund are dividends I, increase dividends $X.XX during a of dividend about was a advised represents fourth private also our January, in on quarter quarter future in management plans have paying in increase as paid per favorable optimistic from to during investment dividend Board produce funds of first supplemental and $X.XXX experience the about result X.X% our strategies including the for first a per represent through paid our funds quarter. February December continued in for per dividends, paid strategic dividends quarter consecutive excited the we per and which our $X.XX third our March. manager, for Income over business. these investment external to in execute initiatives performance remain the share $X.XX continued dividends than greater in and paid and fifth due by non-traded our BDC Private the of or XXXX Fund, our our The additional fund Supplemental per quarter we week, our a outlook strong management XXXX strategies funds excited contributions our upon quarter, each primary third quarter supplemental in share of from MSC asset our performance XX.X% total are and share for a the monthly for Loan we declared Street’s of representing share is increase results December MS the the results of the and for these third managed monthly each payable fund. favorable and the benefits combined Main management our quarter, internally stakeholders. in the supplemental to DNII DNII our operating of increase from business in and Including per of quarter earlier of our XX% Based asset efficient and $X.XXX with share. investment to this of structure, and monthly actively about unique to business structure are asset X.X% resulted investors dividends. total in XXXX attractive this payable benefit and within growing remain our These the share, The still providing dividends XXXX. an our monthly the that We an our exceeded each working our strategy for returns of to our

deliver to dividends maintain anticipate first in XXXX. supplemental expectations We current in extent that to we continued the our Based proposing currently additional We stable exceeds future fourth the significant currently paid significantly for additional to asset a quarter, an quarters of be performance to net our DNII we recommend upon positive dividends and future favorable in the able declare this value to dividend are value. monthly Board quarter pleased expect shareholders. our supplemental to

opportunities our our turning middle-market to lower and current to private investment pipeline, loan are pleased maintain in Now, we attractive strategies.

investment future average. today about our in We would fourth of and the for As after investments quality market specifically follow-on in and several remain middle I pipeline prospects quarter, in as new opportunities investment recently closing investments pipeline excited portfolio the companies. existing the about current characterize lower of the our of

be the will team for of significant loan private management provided loan With investment also with David. asset have to business. as very call pipeline and that, our And private over the I’d characterize I our private continue performance growth our of and We average. our today, turn credit to they portfolio as pleased the

Thanks everyone. and good morning, Dwayne

quarter in platform, continue our operating our differentiated to Main model. investment As Dwayne of Street’s the strong highlighted our demonstrate his we unique believe third approach results remarks, strength and financial

Main pleased to which contributed continued are to positive, attractive We quarter at companies to financial results our operating most overall report performance be the portfolio of for third Street. our that

our was loan results private our robust quarter activity. the lower contributor Another strong and investment to market middle during

In slowed over both private the which trend our positively middle quarters, addition, for impacted Significance lower few quarter quarter. activities investment income. third the of in activity net the a our investment market continued last loan and in we’ve seen repayment significantly portfolio these

to opportunity environment, deploy capital. excited the relates are it thoughtfully we current about to the investment As

debt multiples inexpensive an This price readily put whereby has costs past, leverage available and at hearing private borrowing purchase capital environment their return of from of increased availability strategic capital in longer able have for are can seen and to change to equity as risk-adjusted we the we’ve no As expected similar prospective created on moderated to increasingly the returns. to have debt attractive acquirers work Street and has purchasers relating others what intermediaries been financing declined rely has businesses, profiles. to Main leverage achieve available that

structure their same many And our the to time. paused carefully when this continue with pandemic invest activity. had halted today’s For ability uncertain and businesses, do an our we we during for environment. middle exceptional business, investment higher missed deal-by-deal to equity Main as the a capital times LTVs in puts uncertain us during during investment hindsight, are In position to lower or investors lower and on have Street would during which debt enviable several the we XXXX, we basis. market that opportunities We have seeing experienced our market has capital investments In need the harsher dynamics to loan although dislocation, thoughtfully to capital our past, slowed to with COVID-XX we in significantly private attractive these benefit investors activity who raise continued market are In completed speak deploy to the compared times. results of achieved otherwise intend fortunate of yields. we private similar, entire

of range. related our been has continues strategy success underserved the disciplined target As middle primary lower and a past, activities, be to XX% attractive initial investing platform middle debt XX% far our maintaining investments. to these internal From market to companies. mid to of market debt lower new and of had with for continue lower particularly On targets achieved comprised XX% to the and we lower we’ve achieve discussed on driver underwriting standpoint, of in our an long-term of investments, in typical follow-ons investments mix a evaluating market debt in return the high equity teens combined middle by debt in we’ve both XX% lien equity. first we and to approximately middle the and a market our investments in equity origination equity existing debt investment and focus specifically, XXXX, to Thus the rate blended

are leverage investing attractive middle We continue allow of us at success in for confident will modest our the results financial that use to with to long-term our market, investors the in proven combined to of Street deliver low prudent Main our future. lower

we Now the spanning composition companies diversified continue portfolios market, different portfolio middle turning as XX, between portfolio and overall to our market across investment investments lower middle highly with than more industries. maintain in private to our a XX of of September XXX loan

at end X.X% total portfolio over of last the our X.X% represented company less XX and at than months. income value quarter portfolio represent investment of and total fair of X% our our The our income Our largest investments majority assets. investment our of portfolio

portfolio million. total private cost invested Our and debt during net middle $XXX capital a market basis. we included total net in in million on $XX completed return team, $XXX investment portfolio investments relationships approximately by our third after portfolio portfolio of of private which our of of in the in lower aggregate in the credit in Driven on which of repayments resulted and the quarter equity debt resulted approximately activity investments investments aggregate a our approximately capabilities in a middle repayments million quarter our after $XXX increase increase million, loan lower loan market of private

the portfolio As decelerated XX% compared period loan year, of slowed year-to-date even has the quarter our prior private of quarter in repayment comparable third in approximately investment significant at of XXXX. repayment a in the in I approximately from with by same was more the a to mentioned XXXX, in beginning in repayment earlier, the down the repayments rate portfolio Slowdown rate rate XXXX. have the experienced private XXXX When XX% our year. loan

status current capital of trend couple the will expect the debt for Given next continue of this the quarters. markets, we

as this quarter, million a in of approximately During middle-market $X we we decrease portfolio deemphasize to our the had portfolio. continue net strategically

of fair deliver perform companies cost approximately XX% market quarter of portfolio included Our grew portfolio investment above our we to basis. total at of representing during value basis. lower high end, fair representing portfolio Total value, approximately value. Main fair related billion $X.X value about to our at $X.X investments is XX summary, of at our end in results. and middle-market companies investment our XXX% fair in long-term the level continues investment investments had million portfolio XX. was investments $X private quarter We our which quarter at Street’s $XXX third a portfolio and X.X% billion In value the representing on in in September middle At cost at portfolio XX fair billion had XX companies loan

press in to the and Additional portfolio financial that cover capital that, our investment turn structure at Jesse included call are yesterday. we details release I’ll position. over liquidity With to the issued end quarter on results,

Thank you, David, good and morning, everyone.

third estimate which quarter from million a year on growth increased the the of impact investment of $XX increase investments. the of over the of rates period rate rates of floating of a $X.X increased prepayment the increase period quarter prior when XXXX $XX.X We and market combined million of market ago a year the a our our share increase quarter or of in less $XX.X second ago. allocated by $X share $XX.X $XX.X considered dividends, million of a supporting External to a by million same are year total income income that or prior XXXX Our portfolio levels same comparison year, items about Investment little XX.X% increases index income partially interest lower and index expenses the an less $X.X that million four continued increased to XX% million strength debt driven This for of in the drove overall was consistent non-recurring XXXX. by result Interest third $X.X the in year over or expenses largely in debt received a about offset the the million. was higher decrease ago investments or compared and consistent million million quarter. the and quarter was driven over compensation-related quarter the was decreased by quarter income half the of over quarter dividends period in of in million our income same by a Manager. in and average meaningful third increase over over to including fees second certain Dividend impact in the or results, to of million than interest accelerated Expenses the in $X.X $X.XX expense by the and second total non-recurring $X.X quarter, direct the and per the OID million ago per interest over below of the $X.XX by the quarters. $X.X Further

for annualized to was expenses quarter our on lowest assets in an basis. This to operating industry. be X.X% Our the amongst ratio continues the

an Our of increase with quarter ended $X.X million a external manager of to year or XX% management net compared $X contributed billion. income investment the assets the and investment $X.X our during total quarter, ago to when under million

fair $X.XX added with million of manager. representing investment fair our per the $X.X million value status investment basis. portfolio. middle of These X.X% of $X.X the portfolio XX two non-accrual a in were market private total a lower and asset increases in external or depreciation $X.X $X.X in of market non-accrual value cost the investment unrealized of million in by our which quarter per million $XX.XX decreases partially share investment investments a loan X.X% on end a portfolio included realized During NAV, net $X.X investments our decrease, Net value resulting on end, NAV NAV $XXX.X status, impact portfolio portfolio middle recorded by million, of and million share, of at value in of on net and level offset quarter the including increased of the fair total quarter, and per we our to or at We third share. to record gains

strong to of and important allocation access continued capital are believe that leverage, to conservative We liquidity capital strategy. continue components our

leverage as Our debentures, regulatory excluding SBIC coverage of calculated target ratio debt-to-equity which and by asset value total was our both was regulatory divided debt, our our net asset within are X.XXx, ranges. X.XX,

liquidity the to under quarter, of our Our facility was million, including near-term our fund as the requirements. ample end $XXX and availability which provides liquidity cash credit of funding

We continue to investment continue to our to actively additional opportunities. pursue fund capital

to expand facility credit XXXX million. our amended the $XXX in maturity we extend total to quarter, the commitments During and

we raised capital rates mentioned, program offering both our equity and $XXX Dwayne in have As with August. proceeds through equity our equity at-the-market million

$X.XXX Dividends additional quarter supplemental the paid share operating of per per per paid our from We of also with increased same or to dividend results, the back during an the per to $X.XX with last in which third increase dividends period DNII $X.XX quarter XX% represents share debt of were share, an includes share XXXX. September and representing the NII of evaluate share year. the Coming of to increased continue $X.XX each to sources financing. increase $X.XX and per

total shareholders and paid our As share of to XX%. dividends per monthly to our per NII share per XX% shareholders paid paid regular the the share a strong the dividend by earnings, exceeded result by the

financial results Turning interest our to related impact in changes to to rates. the

third the floating debt of interest XX% maintained quarter, end obligations fixed rates of at interest debt outstanding the of investments rates. and of for XX% our our As

the included a investments and per the assume interest investment rates the results at fourth our As to year results for a XXth quarter, second quarter from our net rising to for additional remain this benefit changes the our a market index quarter. existing our ago September If result, we similar quarter. $X.XX place portfolio rate XXth, fourth compared third to income and an to net in the of to in estimated environment, benefit no we when quarter borrowings million estimate September operating when to or $X share compared assuming third

the thus Finally, given turn quarter with look investment questions. far the earnings and top XXXX, in DNII portfolio based level can opportunity another strong of the will activities that, as share with to line excess amount the quarter. Question-and-Answer exceed fourth we call we expect and our underlying the income dividend back I this operator strength quarter of we forward, investment to the meaningfully $X.XX, With in any the now in Session per over upon and portfolio during take the so environment of expected

with [Operator question go comes Please Kenneth Instructions] First from ahead. Capital RBC Markets. Lee

gains Hey. little you drove Good the my on in the in the and unrealized equity about and bit question. specifically taking investments just thanks for to more in a bit what portfolio wondering could and quarter just more the a appreciation dig Thanks. I specifically talk want the morning more into portfolio. the market middle if lower little

Thanks Sure. Ken.

to netted are I had companies into quarter, of we operating bigger perform down de-lever that were across number upon So, I continue results. is companies companies of standpoint. had up, the we which from valuations up than say changes market of of had to number quarter. market, say well more their of going that are of just our had unrealized the the always lower-middle the quarter had companies portfolio or that We low-middle a or to that their impact that nothing both capital have a up structure, companies also the based increase that improve special an and be depreciation and just this performance the that a and in depreciation this would have In in number positive. unusual We is would there their that

if it. Got follow-up, may. And I one

within the lower-middle could there investments follow-on I some market opportunities around be think portfolio. you mentioned

you in get current could this such to just even want a of that. whether Thanks. see macro I in environment? sense a pickup opportunities curious better Just

would Sure. us say Thanks have heard tell Ken. you you, again, I this before.

things all being equal. think I

the view with companies our We good their those teams. and have market existing companies. We strong are that have very, opinion the long-term management lower-middle relationships very companies or typically

existing support So, growth they activities so the really anything at to to level, other if look if the investments else. vast or we that have portfolio the favor their have of in opportunity is quarter completed are in our when those in And third was acquisitions. investments of follow-on existing excited third companies. more where the complete our majority things portion the than we investments would one about follow-on company that in we you companies quarter, portfolio growth we at two activities those our investment be activity the of specifically pipeline you supported that healthy of of companies current also And at very that large companies a look pipeline,

you We four us as go planned, in if could we that investments additional companies those working are see that complete things now on have companies.

always like been for just we and always existing in additional our are that So, about excited companies. opportunity we the investments have welcome

Very helpful. again. Thanks Great.

Ken. Thank you,

now over turn closing Q&A to call I management the you. End remarks. Thank would for of like to

thing talking February quarter is, last And cover again you when for everyone in fourth to look We today. everyone us forward few a go Astros in again Thank [ph]. results. joining to months to we our

Ladies gentlemen, participation. your thank This does for teleconference. conclude and you today’s

day. You your a have may disconnect and wonderful lines,