MidCap Financial Investment Corporation (MFIC) Q4 2022 Earnings Call Transcript

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MidCap Financial Investment Corporation (NASDAQ:MFIC) Q4 2022 Earnings Conference Call February 21, 2023 5:00 PM ET

Company Participants

Elizabeth Besen - Investor Relations Manager

Tanner Powell - Chief Executive Officer

Ted McNulty - President

Greg Hunt - Chief Financial Officer

Howard Widra - Executive Chairman

Conference Call Participants

Mark Hughes - Truist

Robert Dodd - Raymond James

Ryan Lynch - KBW

Melissa Wedel - JPMorgan


Good afternoon, and invited to nan net convention telephone for nan play ended December 31, 2022 for MidCap Financial Investment Corporation. [Operator Instructions]

I will now move nan telephone complete to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Elizabeth Besen

Thank you, operator, and convey you, everyone, for joining america today. Speaking connected today’s telephone are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, arsenic good arsenic further members of nan guidance squad are connected nan telephone and disposable for nan Q&A information of today’s call.

I’d for illustration to counsel everyone that today’s telephone and webcast are being recorded. Please statement that they are nan spot of MidCap Financial Investment Corporation and that immoderate unauthorized broadcast successful immoderate shape is strictly prohibited. Information astir nan audio replay of this telephone is disposable successful our property release.

I’d besides for illustration to telephone your attraction to nan customary safe harbor disclosure successful our property merchandise regarding forward-looking information. Today’s convention telephone and webcast whitethorn see forward-looking statements. You should mention to our astir caller filings pinch nan SEC for risks that use to our business and that whitethorn adversely impact immoderate forward-looking statements we make. We do not undertake to update our forward-looking statements aliases projections unless required by law. To get copies of our SEC filings, please sojourn our website astatine

I’d besides for illustration to punctual everyone that we posted a supplemental financial accusation package connected our website, which contains accusation astir nan portfolio arsenic good arsenic nan company’s financial performance. Throughout today's call, we'll mention to MidCap Financial Investment Corporation arsenic either MFIC aliases nan BDC and we'll reappraisal it's MidCap Financial to mention to nan lender headquartered successful Bethesda, Maryland.

At this time, I’d for illustration to move nan telephone complete to our Chief Executive Officer, Tanner Powell.

Tanner Powell

Thank you, Elizabeth. Good afternoon, everyone, and convey you for joining america today. I'd for illustration to statesman today's telephone by highlighting our results for nan 4th followed by a reappraisal of our finance strategy, including immoderate capacity data, which we judge shows why we're truthful assured successful our strategy. I'll past supply an update connected nan bully advancement we've made reducing our finance successful Merx, and we'll reason pinch nan summation to our quarterly dividend. Following my remarks, Ted will reappraisal our finance activity and supply an update connected portfolio in installments quality. Lastly, Greg will reappraisal our financial results successful item and supply immoderate further comments connected Merx. We will past unfastened nan telephone to questions.

Beginning pinch our financial results, aft marketplace adjacent today, we reported nett finance income per stock of $0.43, which benefited from nan affirmative effect of higher guidelines rates. As a reminder, there's mostly immoderate lag earlier we spot nan afloat effect of higher guidelines rates owed to nan timing of indebtedness resets. At nan extremity of December, nett plus worth per stock was $15.10, a diminution of 2.3% quarter-over-quarter, mostly owed to losses extracurricular of our first-lien firm lending strategy.

Regarding finance activity, caller commitments proceed to attraction connected first-lien firm loans originated by MidCap Financial. We person besides made important advancement reducing our exposures extracurricular of our halfway strategy. Sales and repayments during nan 4th included astir each of our remaining lipid and state exposure, which is now little than $1 cardinal astatine adjacent value. In addition, station 4th end, we received a important paydown from Merx, reducing our position by astir 24%. Pro forma for this paydown, Merx represents astir 8.3% of nan portfolio astatine adjacent value.

Shifting to a reappraisal of our finance strategy, arsenic you whitethorn recall, successful August, we made respective cardinal announcements, which underscored Apollo Global Management's committedness to being astatine nan forefront of nan democratization of finance. These announcements included nan constitution of a caller and industry-leading interest building for MFIC and equity finance into nan BDC by MidCap Financial and a alteration successful nan company's name.

These announcements reenforce MFIC's position arsenic a pure-play senior-secure mediate marketplace BDC. providing nationalist shareholder entree to organization value backstage in installments astatine a best-in-class c structure, among listed BDCs. As you've heard america talk connected our erstwhile calls over, nan past respective years, we person shifted nan BDC's portfolio into first lien firm loans, chiefly originated by nan MidCap Financial, 1 of nan world's starring mediate marketplace lenders pinch a proven way record.

MidCap Financial has 1 of nan largest nonstop lending teams successful nan United States, pinch adjacent to 200 finance professionals. We judge nan standard of MidCap Financial mixed pinch different Apollo managed superior makes MFIC, portion of 1 of nan largest marketplace participants successful mediate marketplace lending. For reference successful 2022, MidCap Financial closed astir $16.4 cardinal successful caller commitments, including $4 cardinal successful nan December quarter. The BDC is fortunate to beryllium successful a unsocial position to person entree to loans originated by MidCap Financial, fixed nan strategical narration betwixt MidCap Financial and Apollo Global.

In Mid '16, concurrent pinch nan receipt of our co-investment order, MFIC shifted its strategical attraction to leverage Apollo Global's narration pinch MidCap Financial. I wanted to return a infinitesimal to supply immoderate humanities capacity data, which we deliberation shows really good this strategy has performed. As of June 2016, which is astir nan day upon which we began utilizing our co-investment order, our first lien firm lending portfolio totaled astir $300 million.

At nan extremity of December 2022, our first lien firm lending portfolio had grown successful astir $2 cardinal astatine adjacent value. Over that 6.5 twelvemonth period, we funded astir $5.7 cardinal of caller first lien firm loans originated by MidCap Financial. Total losses connected those first lien firm loans during that play person been astir $7 cardinal aliases 12 ground points connected a cumulative basis. Our cumulative ground are 2 ground points annually.

We are highlighting this way grounds because we do not judge nan marketplace has afloat appreciated really these assets person performed complete an extended play of time, and because we judge it whitethorn thief to pass really our firstly lien firm lending portfolio should execute going forward.

It is besides worthy noting that today's first lien firm lending portfolio is not only well-diversified by borrowing industry, but besides crossed 5 chopped merchandise groups; leverage lending, asset-based lending, lender finance, life subject lending and franchise finance.

Moving to Merx's accordant pinch our strategical attraction connected being a axenic play, elder secured mediate marketplace BDC, we stay focused connected accelerating nan simplification of our finance successful Merx. We are pleased to study that we person made important advancement successful this regard.

At nan extremity of December, MFIC's finance successful Merx had a adjacent worth of $261 million, representing 10.9% of nan full portfolio astatine adjacent value. Post 4th end, Merx executed a important transaction by trading its liking successful a associated task and repaid astir $62 cardinal to MFIC, which was applied to nan revolver, reducing nan size of MFIC's finance successful Merx to astir $199 cardinal aliases 8.3% of nan portfolio astatine adjacent value.

We stay focused connected continuing to trim our finance successful Merx, and while we don't expect paydowns to hap evenly, we do expect to spot further salary downs successful 2023 taxable to trading conditions. Greg will supply immoderate further colour connected nan simplification successful Merx later during nan call.

Moving to our quarterly dividend, fixed nan use we are seeing from higher guidelines rates, nan exit of little yielding and nonearning bequest assets and nan expected use from our caller interest structure, which became effective connected January 01, 2023, our committee has accrued MFIC's regular quarterly dividend by $0.01 from $0.37 to $0.38, which equates to a 10% dividend output based connected December NAV. This dividend summation marks nan 3rd consecutive summation successful our quarterly guidelines dividend. At existent guidelines rates, we are good positioned to make nett finance income successful excess of this caller dividend level. The guardant curve indicates that location will beryllium further complaint increases and rates will stay elevated for immoderate time. As nan operating situation continues to evolve, our committee will proceed to measure whether to clasp further earnings, summation nan guidelines dividend aliases state supplemental dividend.

With that, I will move nan telephone complete to Ted.

Ted McNulty

Thank you, Tanner. Beginning pinch a fewer thoughts connected nan existent evolving macroeconomic environment, volatility successful nan leveraged finance and equity superior markets continued during nan play arsenic nan Federal Reserve continued to raise liking rates to curb ostentation amid ongoing concerns astir slowing economical growth. In 2022, nan Federal Reserve accrued rates 425 ground points and has accrued rates by an further 25 ground points truthful acold this year, pinch much complaint increases expected, albeit astatine a slower pace.

More recently, we person seen immoderate signs of easing inflation, however, and fed hawkishness is expected to support markets volatile successful nan adjacent term. As a result, superior caller issuance successful nan leverage indebtedness and precocious output markets continues to beryllium negatively impacted. We judge it will return clip for nan Federal Reserve's actions to beryllium afloat absorbed by nan economy, and therefore, M&A transaction volumes will stay slower successful nan adjacent term.

We judge that nan accrued volatility successful nan nationalist markets has created much charismatic finance opportunities for nonstop lenders, arsenic much companies move to nan backstage indebtedness markets. We're seeing wider spreads, little leverage and tighter archiving crossed our origination level and proceed to beryllium selective, seeking to finance companies pinch defensible marketplace stock and resilient equilibrium sheets. For example, in installments spreads are astatine slightest 1 100 ground points to 150 ground points higher than past year, crossed our origination platform.

With this arsenic nan marketplace backdrop, we thought it would beryllium worthwhile to punctual everyone really we person constructed our firm lending finance portfolio. We judge MFIC has 1 of nan astir elder secured portfolios among BDCs. Our firm lending portfolio is focused connected floating complaint investments astatine nan apical of nan superior structure, which we judge positions america good going into a weaker economical environment. In bid to understand nan stableness and information of our portfolio, we deliberation it is important to attraction connected attachment point.

At nan extremity of December, nan weighted mean attachment constituent of our firm lending portfolio was 0.2 times, which underscores that we are invested successful nan astir elder portion of nan superior building for what we mention to arsenic existent first lien. By focusing connected nan apical of nan superior structure, we judge we will beryllium capable to mitigate immoderate of nan in installments risks that could originate successful a much challenging operating environment.

Despite nan much uncertain macroeconomic landscape, our borrowers person mostly been capable to navigate nan existent situation well, arsenic evidenced by their basal performance. Our portfolio companies knowledgeable affirmative year-over-year gross maturation successful nan astir caller 4th and sound, but somewhat little EBITDA growth. We judge our portfolio companies are mostly entering 2023 pinch coagulated fundamentals and will beryllium capable to upwind perchance much challenging conditions. To date, we person not seen immoderate meaningful summation successful either amendment activity aliases revolver drawdowns beyond nan normal levels.

That said, we admit that immoderate companies will person challenges successful a slower economical situation and we tin spot a pickup successful amendment activity successful nan coming quarters. Importantly, MFIC benefits from MidCap Financial's, dedicated portfolio guidance squad of astir 60 finance professionals, which thief place and reside issues early to maximize value.

Moving to finance activity, we judge nan mediate marketplace is generating charismatic finance opportunities. As mentioned earlier, MidCap Financial was progressive during nan December quarter, closing astir $4 cardinal successful caller commitments. In nan December quarter, MFIC's caller firm lending commitments totaled $73 cardinal crossed 9 companies for an mean caller committedness of $8.1 million. These caller commitments were each first lien floating complaint loans pinch a weighted mean dispersed of 680 ground points up 41 ground points compared to commitments made successful nan anterior quarter.

A higher dispersed connected caller commitments is different net tailwind we proceed to see. The weighted mean nett leverage of caller commitments made during nan 4th was 4.8 times, which is 0.7 times beneath nan 5.5 times mean of our portfolio. Excluding revolvers, maturation fundings for nan 4th totalled $105 million, and income and repayments totalled $141 million. Net repayments for revolvers totaled $11 million. In aggregate nett repayments for nan 4th totalled $48 million.

Especially notable, income and repayments included astir $21 cardinal from our remaining lipid and state exposure, which is now little than $1 cardinal astatine adjacent value. In 2022, we sold each of our ships and lipid and state assets arsenic we proceed to accelerate nan execution of our existent first lien strategy.

Turning to nan wide portfolio, our finance portfolio had a adjacent worth of $2.4 cardinal astatine nan extremity of December crossed 135 companies successful 26 different industries. Corporate lending and different represented 89% of nan full portfolio, and Merx represented 11% of nan portfolio astatine adjacent value. As Tanner mentioned, station 4th end, Merx has been reduced to astir 8% of nan full portfolio astatine adjacent value. At nan extremity of December, 94% of our firm lending portfolio was first lien, pinch a weighted mean dispersed of 610 ground points.

Our portfolio institution in installments metrics stay comparatively unchangeable during nan quarter. At nan extremity of December, nan weighted mean nett leverage of nan firm lending portfolio was 5.49 times down from 5.52 times past quarter. The weighted mean liking sum ratio was 2.5 times, down from 2.7 times past quarter. These weighted mean liking sum ratios are based connected institution information for nan past 12 months done September. The weighted mean liking sum ratio was 1.9 times based connected an annualized liking disbursal for nan September 4th and utilizing nan past 12 months of EBITDA.

Given nan important and accelerated summation successful guidelines rates, we're focused connected existent and early liking sum and fixed complaint sum ratios crossed nan portfolio, arsenic a constituent of an progressive consequence monitoring process. No investments were placed connected nonaccrual position during nan quarter. At nan extremity of December, investments connected nonaccrual position full $10 million, aliases 0.4% of nan full portfolio astatine adjacent value.

With that, I will now move nan telephone complete to Greg to talk our financial results successful detail.

Greg Hunt

Thank you, Ted, and bully afternoon, everyone. Before discussing our results, I wanted to punctual everyone that MFIC has changed its fiscal twelvemonth extremity from March 31 to December 31. The alteration successful fiscal twelvemonth was done to amended align MFIC's reporting almanac pinch different Apollo Global entities. The modulation study connected Form-K -- connected shape Form-10K, which was revenge today, includes a 9 period play from April 01, 2022 to December 31, 2022. MFIC's adjacent fiscal twelvemonth will screen nan play from January 01, 2023 to December 31, 2023. You tin spot nan year-over-year results successful nan 10-K that we revenge today.

Shifting to our results, nett finance income per stock for nan December 4th was $0.43 compared to $0.35 for nan September 4th and $0.35 successful nan twelvemonth agone quarter. Net finance income for nan December 4th continued to use from higher guidelines rates connected our floating complaint assets, coagulated interest and prepayment income, arsenic good arsenic a little inducement interest compared to nan comparable periods.

Prepayment income was $2.8 million, down somewhat from past 4th and interest income was astir $700,000 compared to $1.5 cardinal past quarter. Dividend income was fundamentally level quarter-over-quarter. The yielding costs connected our firm lending portfolio was 10.3% connected mean for nan quarter, an summation of 140 ground points from past quarter, driven by nan summation successful guidelines rates. This shield fig is an mean of nan opening and nan extremity of nan quarter. At nan extremity of December, nan output of nan firm lending portfolio was astir 11%, compared to 9.6% astatine nan extremity of September.

NAV per stock astatine nan extremity of December was $15.10, a 2.3% decreased quarter-over-quarter, chiefly driven by losses extracurricular of our first lien lending book. In that respect and arsenic antecedently indicated, our firm lending portfolio of $2.1 cardinal is made up of 94% first liens. Losses, little than 10% of our losses aliases $2.3 cardinal were attributed to our first lien firm lending book and was chiefly owed to mark-to-market adjustments from dispersed widening arsenic opposed to basal in installments loss. Additional specifications connected nan nett nonaccomplishment -- our nett losses are shown connected Page 16 successful nan net supplement.

MFIC's inducement interest connected income includes a full return hurdle pinch a rolling 12 months -- 12 4th look back. Given nan nett nonaccomplishment connected nan portfolio, inducement fees successful nan December 4th were importantly reduced. As a reminder, opening connected January 01, 2023, MFIC's guidelines guidance interest was permanently reduced to 1 successful 3 quarters connected equity. Among listed BDCs MFIC's guidance interest is now nan lowest and is nan only listed BDC to complaint guidance fees connected equity, which we judge provides a greater alignment and attraction connected nett plus value. The inducement interest complaint connected income was besides permanently reduced from 20% to 17.5% and we clasp nan full return feature.

Moving connected from our equilibrium expanse perspective, our nett leverage stood astatine 1.4 times astatine nan extremity of December, wrong our target range. We intend to amend and widen our revolving in installments installation successful nan adjacent fewer months. Although nary banal was purchased during nan quarter, we judge MFIC's trading discount to NAV implies a nonaccomplishment complaint importantly higher than our first lien firm lending portfolio has knowledgeable complete nan past 6.5 years.

Moving to Merx, arsenic Tanner mentioned, successful January, Merx sold its 50% liking successful a associated venture, reducing Merx's fleet from 57 craft to 43 today. Proceeds from nan waste were applied to nan MFIC statement reducing our finance successful Merx to astir 8.3% of nan portfolio astatine adjacent value. This sale, successful operation pinch different steps taken successful relationship pinch nan simplification of our vulnerability to Merx, resulting successful a nominal write-down connected our finance during nan quarter.

Turning to our outlook, we judge we are good positioned to turn net successful nan coming quarters owed to nan rising liking complaint environment. For perspective, based connected 4th and rates, we estimate that a 50 ground constituent and a 100 ground constituent summation successful guidelines rates riser would person resulted successful incremental yearly net of astir $0.06 and $0.13 respectively. We person provided further accusation connected nan sensitivity successful our 10-K.

As we participate 2023, we consciousness very constructive astir nan outlook for MFIC, fixed nan diverseness of our firm lending portfolio, which we judge is designed to upwind a much challenging economical environment. This concludes our prepared remarks, and operator, please unfastened up nan telephone to questions.

Question-and-Answer Session


[Operator instructions] And our first mobility will travel from Mark Hughes pinch Truist. Your statement is open.

Mark Hughes

Yeah, convey you. Good afternoon. For Merx, I deliberation you talked astir opportunity for much paydown successful 2023. Are transactions required successful bid to make that aliases tin they salary down conscionable from operating rate flow?

Tanner Powell

Yes, truthful thanks, Mark. So nan reply location is, it is not basal for large wholesale transactions. We've got, arsenic Greg mentioned, 43 planes successful nan portfolio today. To authorities nan obvious, these are not CUSIP securities. So they're not -- cannot beryllium traded connected nan wire. They return agelong -- it's a agelong process successful bid to execute connected these income and location are taxation considerations arsenic well. We person -- we do person a output connected nan portfolio coming to spot important moves successful nan simplification of nan -- of our vulnerability there. You would expect to request income of assets either individually aliases successful larger groups.

Mark Hughes

Maybe wrong nan portfolio, nan precocious tech manufacture is astir 17% I think. Any effect location has been immoderate volatility successful nan tech -- connected nan occupation beforehand aliases are you seeing immoderate of that wrong your portfolio?

Tanner Powell

No, successful our and precocious tech, this was a delineation that was made backmost successful '06 erstwhile nan money was founded and it catches a batch of things, including software, which is thing that nan broader marketplace has done rather a bit. When we deliberation astir nan vulnerability there, nan bully news from a package standpoint is oftentimes, nan package itself is nan different companies are targeting different underlying markets pinch different fundamentals and oftentimes, we're creating -- those deals typically are astatine an moreover little LTV than our mean LTV crossed our leverage lending portfolio, which is astir 50%. So there's important cushion successful immoderate event, notwithstanding arsenic you rightly pointed out, location are immoderate broader challenges successful nan matter space.


Our adjacent mobility will travel from Robert Dodd pinch Raymond James. Your statement is open.

Robert Dodd

Hi, guys. Just 1 of nan questions, I deliberation successful your prepared remarks, you said, spreads widening importantly to 150 ground points, and we heard others opportunity nan aforesaid thing, but to that point, erstwhile I look astatine your caller commitments 680 ground points this quarter, it was 639 ground points past quarter, but it was besides 639 a twelvemonth ago. So that's astir 40 ground points successful widening connected nan caller commitment. So that leverages is astir nan same. So could you springiness america -- person you taken nan opportunity -- I presume that 100 ground points to 150 ground points is benignant of like-for-like and complete nan people of nan year, person you taken nan opportunity to spell moreover much cautious connected nan assets and possibly that's folding backmost nan visibility of nan dispersed description successful caller commitments aliases immoderate colour you tin springiness america connected that?

Tanner Powell

Yes, thanks, Robert. I deliberation it's perfectly that, and it's a small spot besides that erstwhile we quote those numbers, we're looking benignant of crossed our businesses, crossed our mediate marketplace lending level and what we're doing astatine mid-cap, and I deliberation this is simply a bully constituent to emphasize. This is 1 of nan dynamics that drove our determination to trim our costs building and springiness america nan expertise to participate successful an moreover greater percent of what mid-cap is sourcing.

And so, while we were ever trying to beryllium successful nan 600s ground points wherever we could successful nan astir caller quarter, you do spot america deploying a astir $75 cardinal astatine nan 680 ground points, which we deliberation is reflective of nan market, and to your point, reflects some one, that we're trying to enactment a small spot much blimpish arsenic good arsenic besides successful anticipation of nan broader market. Sorry, nan interest alteration that we tin participate successful a greater percent of nan deals and effectively, our costs of superior has travel down.

Robert Dodd

I admit that. One more, connected 1 benignant of nan power exists, was that, I don't want to activity this is simply a way. I presume that's thing that has been worked connected a while alternatively than conscionable arsenic a determination to conscionable get retired aliases erstwhile this quarter. So, obviously, location were immoderate realized losses that we benignant of knew that, but either is, could you springiness america immoderate remark connected getting free of a much than 1 quarter, which is rather active, yeah, what really, I dream that was conscionable to travel together?

Tanner Powell

Yes, sure, Robert. Happy to reside that. So respective years ago, we began nan process of migrating towards nan broader strategy, and starting successful 2020 and past successful 2021, we took nan opportunity to activity pinch nan guidance teams and restructure nan business and get those businesses fresh to spell to marketplace and past did truthful successful 2022 successful immoderate cases hiring advisers, moving processes.

And this is crossed nan lipid and state arsenic good arsenic nan shipping assets that we sold past year, and it conscionable truthful turns retired that for some of nan assets, they ended up closing successful nan quarter, nan 2 lipid and state assets. So they person been worked connected for operationally, financially for a mates of years and past successful position of existent M&A process complete nan people of nan year.

Robert Dodd

Got it. convey you.


[Operator instructions] Our adjacent mobility will travel from Ryan Lynch pinch KBW. Your statement is open.

Ryan Lynch

Hey, bully afternoon. I had -- my first mobility was conscionable connected benignant of nan quality that you guys described nan writedown from nan NAV this quarter. I judge you said, they were mostly owed to dispersed widening, but wasn't nan largest markdown really coming from your firm lending book, and that was really conscionable driven by nan indebtedness equity restructuring of KNN, which to america would look for illustration benignant of a in installments people down. So I conjecture I'm conscionable a small spot confused and what's connected misunderstanding of why nan markdown this 4th were benignant of described arsenic mostly dispersed widening versus credit.

Tanner Powell

Yes, no, I deliberation I deliberation and acknowledgment for nan comment, and we're happy to explain that. You're right, location was 1 portion of nan constitute down constituent that was secondly lien, that was nan KNN finance that went done a restructuring, which was completed, station 4th end, and past I deliberation successful nan prepared comments, nan remark was wrong nan first lien in installments book nan writedown wrong nan first lien in installments was nan mark-to-market. So it was really benignant of 2 different components there.

Greg Hunt

Yeah, nan prepared remarks, Ryan, were emphasizing that it was extracurricular of nan first lien strategy that we saw nan large decline, and you're precisely right, that had was mostly owed to nan KNN writedown.

Tanner Powell

Okay. And wrong nan firm strategy, it wasn't mark-to-market.

Ryan Lynch

And past you guys gave immoderate statistic connected measurement that peculiar covers 2.5 times connected trailing 12 months, 1.9 times successful September annualized. Have you guys done immoderate benignant of study that looks astatine what that liking sum is going to look for illustration successful almanac 2023 erstwhile benignant of LIBOR/SOFR, benignant of highest retired and past obviously, nan weighted mean liking sum is benignant of nan mostly quoted statistic.

But from a in installments standpoint, I don't deliberation astir investors are benignant of worried astir nan mean barroom we're defaulting and I deliberation it's much apt successful nan risks aliases much successful nan tailwinds of imaginable borrowers having issues. So person you guys done immoderate benignant of study connected what liking sum would look for illustration connected a guardant ground and what percent of your portfolio would autumn beneath that that 1 times liking sum level?

Greg Hunt

Yes, sure, truthful appreciate, these numbers are a small spot backward looking, and truthful what we've done aliases of each nan study to distil it down to nan conclusion, erstwhile you return nan existent LIBOR benignant of reasoning nan 4.77% aliases nan LIBOR arsenic of 12 nan LIBOR/SOFR astatine nan extremity of nan year, we conscionable person a fistful benignant of little than 5 names that autumn beneath 1 times coverage. And past we accent that different 100 ground points, which is somewhat supra what nan marketplace is pricing in, successful position of increases to LIBOR/SOFR/interest rates.

That number only increases by 3 aliases 4 MIMs and truthful still successful that context, moreover pinch telephone it 5.75% to 6% SOFR, we're seeing, less than 10 names, beneath 1 to one, and that, of course, is earlier nan use of nan twelvemonth to reside and offset immoderate of that summation successful nan underlying companies.

Ryan Lynch

Okay. That's really helpful. And past conscionable 1 last one, connected nan simplification successful Merx that those interests being sold, is that what we should benignant of expect going guardant arsenic much benignant of these chunkier dispositions that benignant of travel complete time? Or do you guys expect benignant of a gradual repayment schedule of some to nan grade that you guys tin foretell thing for illustration that, which whitethorn not beryllium possible?

Tanner Powell

Yes, I deliberation we would expect it to beryllium a small spot of a measurement function, which would beryllium lumpy, but astir apt not arsenic lumpy arsenic nan 1 this quarter. So, location are for illustration sets of assets that benignant of evidently spell together, aforesaid little aliases for example, let's see, for example, that we would expect to exit. So yes, so, I deliberation it will beryllium much plane-by-plane arsenic opposed to for illustration complete entities, but it won't needfully beryllium conscionable like, 1 by 1 by one. So I cognize that's for illustration an imperfect answer, but that's our expectation.

Ryan Lynch

It make sense. In cleanable benignant of process, trying to effort to waste these things also, I decidedly understand nan unpredictability of it. I admit nan clip this afternoon.


[Operator instructions] And our adjacent mobility will travel from Melissa Wedel from JPMorgan. Your statement is open.

Melissa Wedel

Good afternoon. Thanks for taking my questions today. I was hoping you could touch connected portfolio leverage and really you're emotion astir existent levels. I would presume that pinch wherever you're astatine presently and astir conscionable astir 1.4% connected a nett ground that you're still successful benignant of a spot of a superior recycling mode arsenic repayments travel successful and beryllium occur, is that a adjacent presumption aliases are you reasoning astir things differently?

Tanner Powell

I deliberation that's a adjacent assumption. That is 1 for 1 wherever we came retired this 4th is astatine nan bottommost of our range. We did supply guidance past 4th that we would expect to run successful and astir that range, and to your point, redeploying what comes backmost to us. I would statement and that is hopefully, it's evident from immoderate of nan different comments and questions is we do judge that further economical volatility notwithstanding, this will beryllium a bully vintage for in installments lenders connected relationship of a bully spread, improving archiving and little all-in leverage, and truthful we do want to participate successful this marketplace and make judge we are -- and you're decently indexed to what we judge is simply a bully marketplace for backstage in installments and make sure, and if I spot it, nan beneficiary of that.

Melissa Wedel

Okay. I admit that, and I deliberation nan travel up connected immoderate of nan outstanding commitments, and I'm looking astatine Slide 18 successful your backmost specifically, arsenic you deliberation astir benignant of nan commitments disposable to beryllium drawn down on, I deliberation I'm looking astir $193 cardinal benignant of rounding, $193 million, arsenic you deliberation astir nan imaginable for a much challenging operating environment, are you expecting to spot that number commencement being drawn upon by existing portfolio companies, and if that's nan case, I presume that nan position person already been set. So they're not benignant of dictated by nan existent environment, but by nan position that were agreed upon, erstwhile that committedness was made. Could you conscionable elaborate connected that process a small and really you're reasoning astir it, acknowledgment truthful much?

Tanner Powell

Yes, sure, Melissa, very bully question, and truthful nan first constituent is we've not seen a tick up successful revolver utilization crossed MFIC aliases our broader business and I deliberation connected this account, bully news, bad news is and nan bad news is we went through, we went done COVID, but nan bully news is successful having gone done COVID and knowledgeable those instances wherein location was nan preemptive drafting down of nan revolvers, we had nan opportunity some successful caller loans arsenic good arsenic besides successful existing loans to put successful nan type of position to protect connected nan separator against specified arsenic anti-cash hoarding, and eliminating netting successful position of covenant compliance.

And truthful well, if stresses are much acute than we expect aliases are continuing astatine nan level, obviously, rate travel whitethorn go challenging, you would expect a higher utilization, but we haven't seen and astatine a minimum, connected relationship of what we've been capable to do from a archiving standpoint, I deliberation that, that consequence of excessive drawdowns wrong our revolvers to beryllium overmuch little consequence than what we've seen historically.

Greg Hunt

And past connected nan word loans, those person defined usage of proceeds arsenic well. So they're chiefly successful spot to support sponsors going to make acquisitions to turn their portfolio of companies and truthful nan delayed tie word loans, which I deliberation what you're pointing at, and connected nan slide, those can't beryllium drawn down conscionable for liquidity purposes.


And astatine this time, we person nary further questions successful nan queue. So I would for illustration to move it backmost complete to guidance for immoderate further aliases closing remarks.

Tanner Powell

Thank you, operator. Thank you, everyone for listening to today's call. On behalf of nan full team, we convey you for your clip today. Please consciousness free to scope retired to america if you person immoderate different questions. Have a bully evening.


Thank you. Ladies and gentlemen, this does reason today's convention call, and we admit your participation. You whitethorn disconnect astatine immoderate time.

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