Earnings call transcript: MidCap Financial's Q3 2025 results show steady performance

MidCap Financial Investment Corporation (MFIC) reported its Q3 2025 earnings, revealing an EPS of $0.38, slightly surpassing the forecast of $0.3788. Despite this, the company's revenue came in at $82.58 million, falling short of the anticipated $83.82 million. The stock responded with a 0.98% decrease in aftermarket trading, closing at $12.12, reflecting investor concerns over revenue shortfall.

Key Takeaways

• MidCap Financial's EPS surpassed expectations, but revenue fell short.
• Stock price decreased by 0.98% in aftermarket trading.
• The company's net investment income per share was $0.38.
• MidCap Financial maintained its quarterly dividend at $0.38.
• The Federal Reserve's recent rate cuts were highlighted as a potential challenge.

Company Performance

MidCap Financial demonstrated resilience in Q3 2025 with a net investment income (NII) per share of $0.38 and an annualized return on equity of 10.3%. The company reported total investment income of $82.6 million, marking a 1.6% increase from the previous quarter. Despite a slight revenue miss, the company maintained its strong position in the middle market lending sector, supported by its affiliation with MidCap Financial.

Financial Highlights

• Revenue: $82.6 million, a 1.6% increase quarter-over-quarter
• Earnings per share: $0.38, slightly above forecast
• GAAP net income per share: $0.29
• Net assets: $1.37 billion, or $14.66 per share
• Portfolio fair value: $3.18 billion

Earnings vs. Forecast

MidCap Financial's EPS of $0.38 exceeded the forecast of $0.3788 by a small margin, reflecting a surprise of 0.32%. However, the revenue of $82.58 million fell short of the expected $83.82 million, marking a negative surprise of 1.48%. This mixed performance suggests a cautious investor sentiment.

Market Reaction

Following the earnings announcement, MidCap Financial's stock saw a 0.98% decline in aftermarket trading, closing at $12.12. This movement reflects investor concerns about the revenue shortfall despite the EPS beat. The stock remains within its 52-week range, between a high of $14.74 and a low of $10.18.

Outlook & Guidance

Looking forward, MidCap Financial aims to maintain its portfolio leverage at 1.4x and mitigate the impact of lower base rates. The company continues to uphold its quarterly dividend of $0.38 per share. A 100 basis point decline in rates could reduce annual NII by $0.10 per share, which the company is actively working to address.

Executive Commentary

CEO Tanner Powell emphasized the company's strong market position, stating, "We are fortunate to have access to a significant volume of commitments originated by MidCap Financial." He also highlighted the attractiveness of the core middle market, saying, "The core middle market offers attractive investment opportunities across cycles." Powell reassured investors about the dividend's sustainability, noting, "We will continue to reevaluate [dividend] as we see the trajectory of rates."

Risks and Challenges

• Potential impact of declining base rates on net investment income.
• Increased non-accrual investments, though described as company-specific.
• Pressure on spreads and original issue discounts in the current market.
• Exposure to macroeconomic conditions and Federal Reserve rate policies.
• Dependence on sponsor M&A activity, which is subject to market conditions.

Q&A

During the earnings call, analysts inquired about the increase in non-accrual investments, which management attributed to specific company issues rather than systemic problems. Questions also focused on the outlook for M&A activity, driven by private equity portfolio timing and improving market conditions. The sustainability of the dividend and potential share repurchases were also key topics of discussion.

Full transcript - MidCap Financial Investment Corp (MFIC) Q3 2025:

Conference Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press star zero, and a member of our team will be happy to help you. Please stand by. Your meeting is about to begin. Good morning and welcome to the earnings conference call for the period ended September 30, 2025, for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode.

The call will be open for a question-and-answer session following the speaker's prepared remarks. If you wish to ask a question at that time, simply press star one on your telephone keypad. If you would like to withdraw your question, press star two. I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Elizabeth Besen, Investor Relations Manager, MidCap Financial Investment Corporation: Thank you, Operator, and thank you, everyone, for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Kenny Seifert, Chief Financial Officer. Howard Widra, Executive Chairman, and Greg Hunt, our former CFO, who currently serves as a Senior Advisor, are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosure in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements.

You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MidCap Financial Investment Corporation's third-quarter earnings conference call. To begin today's call, I'll provide an overview of MFIC's third-quarter results and the significant repayment from our investment in Merck, our aircraft lending portfolio company, aircraft leasing portfolio company, that we highlighted on our call last quarter. I'll also share some thoughts on the outlook for our dividend. Following that, I'll hand the call over to Ted, who will share our perspective on the current market environment, walk through our investment activity for the quarter, and provide a portfolio update. Kenny will then review our financial results in detail and recent financing-related activities. Yesterday, after market close, we reported results for the third quarter. Net investment income, or NII per share, was $0.38 for the September quarter, which corresponds to an annualized return on equity, or ROE, of 10.3%.

GAAP net income per share was $0.29 for the quarter, which corresponds to an annualized ROE of 8%. As discussed last quarter's call, we're pleased to report that Merck, our aircraft leasing portfolio company, repaid approximately $97 million to MFIC during the quarter. NAV per share was $14.66 at the end of September, down 0.6% compared to the prior quarter. The decline in NAV was primarily due to a handful of positions that were added to non-accrual status, partially offset by a gain on our investment in Merck. The increase in non-accruals reflects company-specific issues and, we believe, is not representative of a broader deterioration in credit quality. During the September quarter, MFIC made $138 million of new commitments across 21 transactions.

We believe MidCap Financial's strong incumbent position continues to be a significant competitive advantage, as evidenced by the fact that slightly more than half of our new commitments, by number, were made to existing portfolio companies. In a muted M&A environment, incremental commitments are an important source of deal flow. While sourcing assets is generally considered to be among the biggest challenges for many market participants in the market environment, MFIC benefits from access to assets sourced by MidCap Financial, one of the largest and most experienced lenders in the middle market, which is consistently ranked near the top of the league tables. Our affiliation with MidCap Financial provides a significant deal-sourcing advantage for MFIC.

We are fortunate to have the access to a significant volume of commitments originated by MidCap Financial, which allows MFIC to select assets which we believe to have the most attractive risk-reward characteristics. During the September quarter, MidCap Financial closed approximately $5.8 billion of commitments. MidCap Financial has what we believe is one of the largest direct lending teams in the U.S., with over 200 investment professionals. MidCap Financial was founded in 2009 and has a long track record, including closing on approximately $150 billion of lending commitments since 2013. This origination track record provides us with a vast data set of middle-market company financial information across all industries, and we believe that this makes MidCap Financial one of the most informed and experienced middle-market lenders in the market.

Key members of MidCap Financial's management team have been working together for more than 25 years, resulting in strong collaboration and an enhanced ability to navigate challenging market conditions, leading to improved credit quality and risk management. We believe the core middle market offers attractive investment opportunities across cycles and does not compete directly with either the broadly syndicated loan market or the high-yield market. MFIC's affiliation with MidCap Financial has enabled us to successfully build a portfolio of predominantly first lien loans to sponsor-backed companies. Moving on to Merck, our aircraft leasing company, as discussed on last quarter's call, during the September quarter, Merck completed a sale transaction covering the majority of its owned aircraft. In addition, Merck received additional payments from insurers related to three aircraft detained in Russia.

Both the sale transaction and the insurance proceeds exceeded the assumptions in Merck's June valuation, resulting in a $16.6 million gain recorded during the September quarter. Merck repaid approximately $97 million to MFIC on a net basis during the September quarter. Approximately $72 million of the paydown was applied to equity, and the remaining $25 million was applied to the revolver. At the end of September, MFIC's investment in Merck totaled $105 million at fair value, representing 3.3% of the portfolio, down from 5.6% at the end of June, which reflects the $97 million paydown and a net gain recorded during the quarter. As part of the sale transaction, Merck expects to receive approximately $25 million of additional consideration by the end of 2025 or in early 2026, which will be repaid to MFIC and further reduce our exposure. Let me remind you about what remains at Merck.

MFIC's remaining investment in Merck consists of four aircraft plus the value associated with Merck's servicing platform. Merck earns income through its servicing activities from Navigator, Apollo's dedicated aircraft leasing fund, which currently owns 39 aircraft. Having fully deployed its equity commitments, Navigator is in the harvest period, and as such, the fund is opportunistically monetizing assets to optimize fund-level returns. Merck receives a remarketing fee on each aircraft sale. At the end of September, the servicing business represented approximately 25% of the total value of Merck. The servicing component of Merck will naturally decline as servicing income is received. Turning to our dividend, on November 4, 2025, our board of directors declared a quarterly dividend of $0.38 per share for stockholders of record as of December 9, 2025, payable on December 23, 2025.

Before I turn the call over to Ted, I would like to take a moment and make a few comments about our dividend, given increasing investor focus in light of the recent Fed cuts and market expectation for additional cuts and the resultant decline in the SOFR forward curve. Due to the asset-sensitive nature of our balance sheet, all else equal, declines in base rates will put pressure on net investment income. For context, the current SOFR forward curve is projected to trough around mid to late 2026 at around 3%, which is roughly 80-90 basis points below current levels. As shown on page 16 in the earnings supplement, a 100-basis-point reduction in base rates would reduce MFIC's annual net investment income by approximately $9.4 million or $0.10 per share, which includes the impact of incentive fees.

We are actively working on a couple of initiatives to help offset the impact, some to offset some of the impact from declining base rates. These initiatives include pursuing additional paydowns from Merck and resolving certain non-accrual and under-earning assets. Post-quarter end, we made a couple of enhancements to our capital structure, which will also improve MFIC's earnings power, which Kenny will discuss. With that, I will now turn the call over to Ted.

Ted McNulty, President, MidCap Financial Investment Corporation: Thank you, Tanner. Good morning, everyone. Starting with the market backdrop, the U.S. economy has remained resilient, which has helped ease concerns about a recession. Inflation remains elevated. Consumer spending and business spending have been strong, although consumer sentiment is worsening. In response to rising unemployment risks, the Federal Reserve cut interest rates by 25 basis points in September. The Fed cut another 25 basis points in October. Torsten Slok, Apollo's Chief Economist, says private labor data suggests that the labor market is doing okay. He also sees growing upside risks to inflation driven by tariffs, a weakening U.S. dollar, a strong economy, and wage pressures in certain sectors. As the significant tariff-driven volatility is eased and there is more clarity with respect to the trajectory of rates, we are seeing an increase in sponsor M&A activity.

That said, given the significant capital raised for direct lending, we continue to see pressure on both spreads and OID. We believe the core middle market, where we are focused, does not compete directly with either the broadly syndicated loan market or the high-yield bond market. Regardless of recent M&A activity levels, we see that many of our borrowers continue to have add-on financing needs, which is an important source of deal flow. Next, I'm going to spend a few minutes reviewing our third-quarter investment activity and then provide some detail on our investment portfolio. In the September quarter, we continued to deploy capital into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the September quarter totaled $138 million, with a weighted average spread of 521 basis points across 21 different companies.

Despite the competitive environment, MidCap Financial has remained disciplined in its underwriting. The weighted average net leverage on new commitments was 3.8 times in the September quarter, down from 4 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to generate what we believe to be attractive ROEs, even at current spreads. Gross fundings, excluding revolvers and Merck, totaled $142 million. Sales and repayments, excluding revolvers and Merck, totaled $197 million. Net revolver fundings were approximately $3 million. As previously mentioned, we received a $97 million net paydown for Merck. In aggregate, net repayments for the September quarter were $148 million. Excluding the $97 million net repayment for Merck, net repayments for the quarter totaled $51 million. Shifting now to our investment portfolio.

At the end of September, our portfolio had a fair value of $3.18 billion and was invested across 246 companies across 48 different industries. Direct origination and other represented 95% of the total portfolio, up from 92% at the end of June, primarily driven by the Merck paydown. Merck accounted for 3.3% of the total portfolio at the end of September, down from 5.8% at the end of June. At the end of September, the non-directly originated loans acquired from the closed-end funds represented approximately 2% of the portfolio. All of these figures are on a fair value basis. With respect to recent headlines, we have no exposure to either First Brands or Tricolor. Specific to the direct origination portfolio, at the end of September, 98% was first lien and 91% was backed by financial sponsors, both on a fair value basis. The average funded position was $12.9 million.

The median EBITDA was approximately $51 million. Approximately 95% had one or more financial covenants on a cost basis. Covenant quality is a key point of differentiation for the core middle market, as substantially all of our deals have at least one covenant. The weighted average yield at cost of our direct origination portfolio was 10.3% on average for the September quarter, down from 10.5% for the June quarter. At the end of September, the weighted average spread on the directly originated corporate lending portfolio was 559 basis points, down 9 basis points compared to the end of June. Underlying portfolio company credit metrics showed a slight improvement quarter over quarter, although we saw an uptick in investments on non-accrual status.

We observed a modest decrease in borrower net leverage, or debt to EBITDA, with the weighted average leverage decreasing to 5.29 times at the end of September, down from 5.32 times at the end of June. This trend reflects the lower leverage on new commitments, which helped offset increases in certain existing investments. Additionally, the weighted average interest coverage ratio improved slightly to 2.2 times, up from 2.1 times last quarter. Looking ahead, all else equal, if base rates decline as currently expected, we anticipate a positive impact on portfolio company credit quality through even higher interest coverage ratios. These metrics are generally based on financial information as of the end of June 2025. We believe the steady revolver utilization rate we see from our borrowers is an indicator of greater financial stability and provides us with incremental and more frequent financial information.

Revolving facilities provide insight into a company's liquidity position through draw behavior. At the end of September, the percentage of our leveraged lending revolver commitments that were drawn was essentially flat compared to the prior quarter. During the quarter, we reinstated a portion of our investment in New Era to accrual status following a restructuring, which converted our first lien debt position into a combination of first lien debt and preferred equity. Conversely, we placed five investments on non-accrual status due to company-specific challenges, noting that one of these investments was acquired in last year's mergers. A portion of our investment in LendingPoint was moved to non-accrual status in anticipation of a forthcoming restructuring. In total, investments on non-accrual status represented 3.1% of the portfolio at fair value, up from 2% at the end of the prior quarter.

Subsequent to quarter end, we were repaid on our position in Global Eagle, a position acquired in the mergers, which was on non-accrual. Toward the end of October, we became aware that one of our portfolio companies, Renovo, would be filing for bankruptcy. The company filed in early November. As of September 30, MFIC had a $7.9 million exposure to the company. PIK income declined to 5.1% of total investment income for the September quarter and 5.8% over the LTM period. Our PIK income remains relatively low compared to other BDCs, which we view as a positive indicator of portfolio health and reflects our focus on cash pay investments. With that, I will now turn the call over to Kenny to discuss our financial results in detail.

Kenny Seifert, Chief Financial Officer, MidCap Financial Investment Corporation: Thank you, Ted, and good morning, everyone. Total investment income for the September quarter was approximately $82.6 million, up $1.3 million, or 1.6% compared to the prior quarter. The increase was primarily driven by higher prepayment and fee income, partially offset by a decline in recurring interest income, which is due to a tightening of base rates, a modest uptick in non-accruals, and a slightly lower average portfolio size. Prepayment income was approximately $3.2 million, up from $1.2 million last quarter. Our fee income was $458,000, up from $220,000 last quarter. Dividend income was $200,000 flat quarter over quarter. The weighted average yield at cost of our directly originated lending portfolio was 10.3% on average for the September quarter. This is down from 10.5% last quarter due to the aforementioned tightening in rates. Net expenses for the quarter were $47.3 million, up from $44.9 million in the prior quarter.

This increase was primarily driven by higher incentive fees. MidCap's stated incentive fee rate is 17.5% and is subject to a total return hurdle with a rolling 12-quarter lookback. Given the total return hurdle feature and the net loss incurred during the lookback period, MidCap's incentive fee for the September quarter was $5.8 million, or 14.1% of pre-incentive fee net investment income. Other G&A expenses totaled $1.6 million for the quarter and administrative service expenses totaled $1 million. Both figures are essentially unchanged from the prior quarter and in line with our previously communicated expectations of $1.6 million and $1 million, respectively. For the September quarter, net investment income per share was $0.38, and GAAP earnings per share or net income per share was $0.29. These results correspond to an annualized ROE-based net investment income of 10.3% and an annualized return on equity based on net income of 8%.

Results for the quarter included net loss of approximately $7.9 million, excuse me, or $0.08 per share, primarily due to losses on a handful of investments, as previously mentioned. Turning to the balance sheet, at the end of September, the portfolio was $1.8 billion. Total principal debt outstanding of $1.92 billion and total net assets stood at $1.37 billion, or $14.66 per share. Company ended the quarter at net leverage of 1.35x, with average net leverage, excluding the impact of Merck, equating to 1.37x. This was up slightly from the prior quarter's average of 1.35x. Gross fundings for the quarter, excluding revolvers, totaled $142 million. Net repayments for the quarter were $148 million. Excluding the $97 million repayment from Merck, net repayments for the quarter would have been $51 million.

Turning to the liability side of the balance sheet, we have been focused on extending our debt maturities and reducing our financing costs. On October 1, we amended our revolving credit facility and extended the final maturity to October 2030. As part of this amendment, the funded spread on the facility was reduced by 10 basis points, from 197.5 basis points to 187.5 basis points. Just a reminder, this includes the 10 basis points of credit spread adjustment. The unused fee was reduced from 37.5 basis points to 32.5 basis points. The size of the facility was reduced by $50 million to $1.61 billion. The remaining material terms of the facility were unchanged.

As a result of this amendment, we expect to recognize a one-time expense of approximately $1.5 million in the December quarter due to the acceleration of unamortized debt issuance costs associated with one lender whose commitment was reduced. In addition, in October, we upsized and repriced MFIC Bethesda One CLL, which originally priced in September 2023. We increased the size of the CLL collateral from $400 million to $600 million. As part of this reset, we sold through the single-A tranche, generating approximately $456 million of relatively low-cost secured debt, which equates to a blended advance rate of 76%. The blended cost of the notes sold was 161 basis points. Spreads on middle-market CLL debt tranches have tightened considerably since this CLL originally priced.

Spread on the senior AAA tranche on the CLL reset was 149 basis points, compared to 240 basis points when this CLL originally priced, tightening of 91 basis points. The CLL has a reinvestment period of four years, and the net proceeds from the CLL transaction were used to repay borrowings under our revolving credit facility. As discussed on prior calls, we continue to view CLLs as an attractive source of term financing. We will recognize a one-time expense of approximately $1.8 million in the December quarter related to the reset, which reflects the acceleration of unamortized debt issuance costs for the original CLL. As always, MFIC benefited from MidCap Financial and Apollo's experience and expertise in CLL management and structuring this transaction.

While these financing transactions will result in approximately $3.3 million of one-time expenses in the December quarter, the expected reduction in financing costs is expected to lead to a rapid payback period. Weighted average cost of debt for the September quarter was 6.37%. Weighted average spread on our floating rate liabilities will decline from 195 basis points as of September 30 to 176 basis points, a 19-basis-point reduction. This decrease is driven by both the amendment of the revolving credit facility and the CLL reset. This concludes our prepared marks. Operator, please open the call to questions.

Conference Operator: Thank you. If you'd like to ask a question, press Star 1 on your keypad. To leave the queue at any time, press Star 2. Once again, that is Star 1 to ask a question, and we'll pause for just a moment to allow everyone a chance to join the queue. We will take our first question from Aaron Segonovich with Truist Securities. Please go ahead. Please go ahead, Aaron. Your line is open.

Aaron Segonovich, Analyst, Truist Securities: Apologies, had it muted. I'd just like to discuss the increases in non-accrual. It wasn't a lot, maybe a percent or so on cost, but there were several companies. Maybe you could just talk a little bit about what was driving this. Is there any kind of theme between them? Are they tariff-related? Maybe just a little bit more detail around the issues that were affecting those companies.

Ted McNulty, President, MidCap Financial Investment Corporation: Yeah, sure, Aaron. This is Ted. Thanks for the question. If you look at the companies that went on non-accrual, there's not really a theme that ties them all together. We have one that was impacted by tariffs. We have one that does have some pressure from weakened consumer sentiment, but overall, not a real theme, very idiosyncratic across each one.

Aaron Segonovich, Analyst, Truist Securities: Okay. In terms of the increase in M&A activity that you're seeing in the marketplace, is this something that you feel like will be sustainable through 2026? Maybe just a little more of your thoughts on the outlook for investing environment.

Ted McNulty, President, MidCap Financial Investment Corporation: Yeah, I mean, I think.

Aaron Segonovich, Analyst, Truist Securities: Yeah, sure.

Ted McNulty, President, MidCap Financial Investment Corporation: Go for it.

Aaron Segonovich, Analyst, Truist Securities: Go ahead, Tanner.

Ted McNulty, President, MidCap Financial Investment Corporation: No, go ahead, Ted. Okay, sure. Yeah, I mean, Aaron, I think there's a couple of factors at play. One, you have some private equity companies or held companies that have been in the portfolio for a long time. You also have dry powder, and so you need a combination of putting money to work as well as returning capital back to the LPs. From that perspective, there should be ongoing demand. You also have, with kind of tariffs not going away, but at least some of that volatility being muted, as we talked about, a little more certainty, which could narrow the bid-ask spread between buyer and seller.

With rates starting to come down and kind of some consensus around where the curve is going to shake out, I think Tanner mentioned troughing mid-next year around 3%, you start to see the financing costs come down and the financing, the cost, the certainty of that financing and the cost start to stabilize. All those factors should lead to ongoing activity.

Aaron Segonovich, Analyst, Truist Securities: Great. Thank you. Appreciate it.

Conference Operator: Thank you. We will take our next question from Melissa Waddell with JPMorgan. Please go ahead.

Melissa Waddell, Analyst, JPMorgan: Good morning. Thanks for taking my questions. I wanted to revisit the comment you made about some of the mitigating actions that you're taking to help offset the impact of lower base rates. I realize that those things can take a while to ramp up, and it can take some time to rotate assets. I'm curious how your team is evaluating the timing difference there and how that could impact dividend decisions. Essentially, how long might you wait to give those efforts time to kick in?

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Yeah, sure. Thanks, Melissa. When we look at deployment, as we've alluded to quite a bit, we're very lucky to be roughly $3 billion of a sourcing engine for $50 billion, and have a lot of opportunities for deployment in an improving M&A market. Importantly, when we look at deployment, and I think this rhymes with our approach with respect to the proceeds we generated from the sales of the broadly syndicated and high-yield loans, we want to do it in a deliberate manner. Importantly, instead of just getting right back to target leverage from the Merck proceeds immediately, we want to continue to, one, not over-index in any one market, and then also take the opportunity, which we're afforded by virtue of that really wide origination funnel, to be very granular in what we're doing.

Importantly, all things being equal, you'd love to get right back up to target leverage. In the case of Merck, we've gotten $97 million back, and we anticipate another $25 million, which was otherwise only earning 2.5% on our balance sheet. Clearly, a nice accretion opportunity. When we go to deploy, it's got to be balanced by, and even if it does take a little bit of time, we want to err on the side of creating a really, really granular portfolio.

Importantly, the other aspect of that is, of course, now, as Kenny alluded to, having reset our first CLL down 90 basis points and upsized our all-in secured cost of capital, which is our financing strategy to become more secured-heavy in our liability side, is roughly $175 and putting us in a good position to be able to still generate nice NIM in what is very clearly a tightening spread environment or a tight spread environment. The conclusion is we can do it quickly. We want to be measured, and we want to do it consistent with how we've deployed across a really diverse pool of 244 obligors in our portfolio.

Melissa Waddell, Analyst, JPMorgan: I appreciate that detail. You mentioned portfolio leverage as part of your answer. Can you give us an update on how you're thinking about portfolio leverage in the context of this environment, given where spreads are right now? Thanks.

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Yeah. Our target for leverage is unchanged, and we would endeavor over the next period of time to get back to the 1.4 level. We do think, as we've said in the past, that the execution through very, very attractive levels of investment grade within the CLL is indicative of our confidence in being able to run at a little bit higher leverage level. We would endeavor to get back to that 1.4 level, again, drawing on the comment to your previous question, again, but doing it in a measured way.

Melissa Waddell, Analyst, JPMorgan: Thank you.

Conference Operator: Thank you. If you would like to ask a question, please press the Star and 1 on your telephone keypad now, and we'll pause for just one more moment to allow any further questions to queue. We will take our next question from Paul Johnson with KBW. Please go ahead.

Aaron Segonovich, Analyst, Truist Securities: Hey, good morning. Thanks for taking my question. I only have just one. I mean, with the recent liability amendments and, I guess, addressing kind of it looks like you're making room to kind of address the upcoming bond maturity, but kind of getting your ducks in a row, I guess, on the liability side. Does that change anything around your interest in potentially repurchasing shares?

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Yeah. Thanks, Paul. I think when we look at share repurchases, which are obviously very topical now in light of where BDCs have traded as of recently, we have been an active repurchaser historically. It is a very compelling tool for driving shareholder value, which, of course, needs to be weighed against liquidity and where we stand in terms of leverage and outlook. Importantly, of course, weighed against the opportunity to deploy into new loans. That said, we do believe, as we have in the past, that it is a compelling tool. I would note also on share repurchases, Paul, historically, it has been our view that instead of implementing a 10B5, we would prefer to utilize share repurchases when the windows open, and thus we can have the latest and greatest information, which obviously limits the amount of time you can be repurchasing.

Notwithstanding, we do believe it's compelling, and we have a nice room under our current authorization.

Aaron Segonovich, Analyst, Truist Securities: Thank you. Very helpful. That's all for me.

Conference Operator: Thank you. If you would like to ask a question, please press the Star and 1 on your telephone keypad now. We will take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Kenneth Lee, Analyst, RBC Capital Markets: Hey, good morning. Thanks for taking my question. This may have been already covered. Unfortunately, I'm just juggling a few calls. What's the latest and any updated thoughts around dividend coverage, just given the current rate outlook there? Thanks.

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Yeah, sure. When we look at the dividend, Ken, we were able to meet $0.38, benefiting from a slightly lower incentive fee in the current quarter. As we mentioned in the prepared remarks, we do have considerable proceeds from Merck that were yielding on our books a significantly lower yield. That is a nice accretion opportunity for us. We have also undertaken an opportunity in the current market environment, which is, as those spreads on our assets have come down, we have been able to remark our liabilities. As that plays through our numbers, between those dynamics and in addition to the fact that there is an opportunity to work through our non-accrual positions, those three drivers give us an opportunity to mitigate the effects of lower base rates.

The board has made a decision at the current moment to leave the dividend intact. As we see those three levers that we have playing through, and we assess, importantly, the actual trajectory of rates versus what's anticipated, we will continue to reevaluate. We also did call out 100 basis points. Decline in rates would be about $0.10 of annual NII. Thus, taking into account what the actual trajectory of rates is against those three levers will enable us to make kind of a more informed decision as we move forward over the coming quarters.

Kenneth Lee, Analyst, RBC Capital Markets: Gotcha. Super helpful there. That's all I had. Thanks.

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Thanks, Ken.

Conference Operator: Thank you. That is Star and 1 to ask a question. We will pause for just another moment to allow any further questions to queue. At this time, there are no further questions in queue. I will now turn the meeting back to Tanner Powell for any closing remarks.

Tanner Powell, Chief Executive Officer, MidCap Financial Investment Corporation: Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us with any other questions and have a good day.

Conference Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now.

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