MidCap Financial Q2 2025 slides: NII rises to $0.39/share as non-accruals increase

Introduction & Market Context

MidCap Financial Investment Corporation (NASDAQ:MFIC) released its second quarter 2025 financial results on August 11, 2025, showing improved net investment income despite rising non-accrual investments. The business development company, which focuses on middle market lending, reported a quarter marked by portfolio growth and higher yields, but also faced some credit quality challenges.

MFIC shares closed at $12.59 on August 11, 2025, up 0.24% for the day, and currently trade significantly below the reported net asset value of $14.75 per share. The stock has traded between $10.18 and $14.74 over the past 52 weeks.

Quarterly Performance Highlights

MidCap Financial reported net investment income of $36.4 million ($0.39 per share) for the quarter ended June 30, 2025, representing an increase from $0.37 per share in the previous quarter. However, the company recorded net realized and unrealized losses of $18.0 million ($0.20 per share), resulting in earnings per share of $0.19, down from $0.32 in the prior quarter.

The company’s net asset value per share decreased to $14.75, a 1.2% decline from $14.93 as of March 31, 2025, continuing a downward trend observed over the past year. Despite this decline, MFIC maintained its quarterly dividend at $0.38 per share, payable on September 25, 2025.

As shown in the following chart of financial highlights across five quarters, MFIC has experienced declining NAV while maintaining stable distributions:

The company’s investment activity remained robust, with new investment commitments totaling $262 million across 31 companies during the quarter. Gross fundings were $254 million, with net fundings of $144 million, contributing to portfolio growth.

Detailed Financial Analysis

MFIC’s total investment portfolio reached $3.33 billion as of June 30, 2025, spread across 249 portfolio companies in 51 industries. The portfolio remains heavily concentrated in software (28.0%) and diversified consumer services (15.4%), with a strong emphasis on senior secured investments.

The following chart illustrates the company’s portfolio composition and industry diversification:

The weighted average yield on debt investments in the direct origination portfolio increased to 10.5% from 10.0% in the previous quarter, reflecting the benefit of higher interest rates. The portfolio maintains a strong focus on first lien investments (99%) and floating rate assets (100%), providing both security and potential upside in a rising rate environment.

One concerning trend is the increase in non-accrual investments, which rose to 2.0% of the total portfolio at fair value, up from 0.9% in the previous quarter. At amortized cost, non-accruals increased from 1.7% to 2.8% of the portfolio.

The following chart details the company’s credit quality metrics and non-accrual investments:

The company’s balance sheet showed an increase in total assets to $3.46 billion from $3.36 billion in the previous quarter, while debt increased to $2.05 billion from $1.94 billion. This resulted in a net leverage ratio of 1.44x, up from 1.31x in the previous quarter.

Strategic Initiatives

MidCap Financial announced several strategic developments during the quarter. Kenneth Seifert was appointed as Chief Financial Officer and Treasurer, effective June 30, 2025, bringing new leadership to the company’s financial operations.

The company also highlighted an expected net repayment of approximately $90 million from Merx Aviation Finance, LLC, which would reduce MFIC’s exposure to the aviation sector to approximately 2.8% of the total portfolio. This move aligns with the company’s strategy to focus on its core direct origination business.

MFIC’s funding sources as of June 30, 2025, provide the company with flexibility to continue its investment strategy:

The company’s interest rate exposure remains well-positioned for the current environment, with 89% of the investment portfolio in floating rate assets and 90% of funding sources in floating rate debt. This positioning provides a net benefit in a rising rate environment, as illustrated in the following sensitivity analysis:

Forward-Looking Statements

MFIC’s presentation highlighted its interest rate sensitivity, noting that a 150 basis point increase in rates would generate an additional $14.2 million in annual net investment income ($0.15 per share). Conversely, a 150 basis point decrease would reduce annual net investment income by $13.5 million ($0.14 per share).

The company’s credit rating was affirmed by KBRA at BBB- with a Positive Outlook, providing external validation of its financial position and strategy.

Looking at quarterly trends, MFIC has maintained consistent investment activity while navigating a challenging credit environment. The company’s focus on first lien, floating rate investments provides some protection against market volatility, though the rising non-accrual rate bears monitoring in coming quarters.

The NAV rollforward shows the impact of both investment income and realized/unrealized losses on the company’s book value:

While MFIC continues to generate sufficient net investment income to cover its dividend, the persistent decline in NAV over multiple quarters suggests ongoing challenges in preserving capital in the current middle market lending environment. Investors will likely focus on whether the company can stabilize its NAV while maintaining its income generation in future quarters.

Full presentation:

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