Good morning, and welcome to the earnings conference call for the period ended March 31, 2024, for MidCap Financial Investment Corporation. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation. Please go ahead.

Thank you, operator, and thank you, everyone for joining us today. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman, as well as additional members of the management team are on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's 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 prohibitive. Information about the audio replay of this call is available on press release. I'd also like to call your attention to the customary safe harbor disclosure on 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 SEC filings -- 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 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'll 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.

Thank you, Elizabeth, and thank you, everyone, for joining today's call. I will begin today's call with a summary of our results and we'll also provide our perspective on the current environment. I will then provide an update to our proposed merger with Apollo Senior Floating Rate Fund Inc and Apollo Tactical Income Fund Inc. Ted will then cover our investment activity and provide an update on the investment portfolio and credit quality. Lastly, Greg will review our financial results in greater detail. Yesterday, after market close, we reported solid results for the March quarter, which included a slight increase in net asset value per share, relatively stable credit performance, and continued de-risking of the portfolio. Net investment income per share for the March quarter was $0.44, which corresponds to an annualized return on equity or ROE of 11.4%. Results for the quarter reflect solid recurring interest income from our predominantly floating rate portfolio and strong fee in prepayment income. GAAP EPS for the March quarter was $0.39. Similar to last quarter, we continued to improve the risk profile of our portfolio by reducing our exposure in Merx, our aircraft leasing portfolio company, as well as our second lien exposure. At the end of March, corporate lending and other represented 92% of the total portfolio, of which 97% was first lien on a fair value basis up from 96% in the last quarter. With the repayment of one of our few remaining second lien positions, our second lien and other debt exposure is now only about 0.7% of the total corporate lending portfolio. We believe MFIC has one of the most senior corporate lending portfolios among BDCs as evidenced by our weighted average attachment point of essentially 0. We believe we have constructed a corporate lending portfolio that will perform…

Thank you, Tanner. Good morning, everyone. Beginning with investment activity, as a reminder, MFIC is focused on investing in loans sourced by MidCap Financial, which provides MFIC with a large pipeline of investment opportunities. MidCap Financial is a leading middle market lender with one of the largest direct lending teams in the U.S. with close to 200 investment professionals. On last quarter's call we mentioned we were seeing a noticeable pickup in pipeline activity. We're pleased to report that this has led to a strong level of closings during the March quarter. MidCap Financial was active during the March quarter, closing approximately $5.1 billion in new commitments, an increase of approximately 31% from the December quarter. During the March quarter MFIC's new investment commitments totaled $149 million of new first lien commitments across 16 different borrowers for an average new commitment of $9.3 million as we continue to focus on diversification by borrower. 38% of new commitments were made to existing portfolio companies. Although we are seeing some pricing compression in the market, the weighted average spread of our new commitments in the quarter was relatively unchanged at 624 basis points, 1 basis point lower than commitments made during the December quarter. The weighted average OID for new commitments was approximately 211 basis points. The spread in OID translates into a very attractive unlevered asset yield of around 12%, assuming a 5% base rate. The weighted average net leverage of new commitments was 3.9x. We believe the risk return on these new commitments is very compelling. Our pipeline of investment opportunities remain strong. In terms of funded investment activity, gross fundings for the corporate lending portfolio, excluding revolvers totaled $129 million. Sales and repayments totaled $95 million. Net corporate lending revolver pay downs were $14 million and we received a…

Thank you, Ted, and good morning, everyone. Beginning with our financial results, net investment income per share for the March quarter was $0.44, which reflects solid recurring interest income as well as strong fee and prepayment income. For the quarter, prepayment income was $2.2 million and fee income was $1.7 million. PIK income remains very low, representing approximately 3% of the total investment income for the quarter. GAAP net income per share for the quarter was $0.39, which reflects a $0.05 loss on the net on our investment portfolio. Results for the quarter correspond to an annualized return on equity based on net investment income of 11.4% and annualized ROE based on net income of 10.1%. MFIC's NAV per share at the end of March was $15.42, up $0.01 over the prior quarter, which reflects net investment income of $0.44 which is $0.06 above the $0.38 distribution and a $0.05 [indiscernible] per share loss on the portfolio. As Ted mentioned, the vast majority of our corporate lending portfolio continues to have strong fundamental performance. Additional details on the change in unrealized gains and losses by strategy are shown on Slide 17 in the earnings supplement deck. Net expenses for the quarter were $39.8 million, down $2.4 million compared to the prior quarter, primarily due to lower general and administrative expenses as well as lower interest expense and lower incentive fees. We recruited de minimis amount of excise tax in March compared to approximately $1.1 million in the December quarter. The weighted average interest rate on our debt for the quarter was 7.09%, up from 6.94% last quarter, which reflects a full quarter impact of the CLO notes and the baby bonds, which both closed during the December quarter. As stated on last quarter's call, we intend to continue to evaluate and monitor capital-raising transactions going forward. Management fees totaled $4.4 million for the March quarter, essentially flat compared to the prior quarter. As a reminder, MFIC's base management fee was reduced to 1.75% on equity beginning January 1, 2023, and is one of the only listed BDCs. We change management fees on equity which we believe provides greater alignment and focus on net asset value. Incentive fees totaled $6 million for the March quarter. As a reminder, our incentive fee on income is 17.5% and includes a total return hurdle with a 12-quarter look back. Our current estimate of undistributable taxable income or spillover income at the end of 2023 was $67.3 million or $1.03 per share. Moving to our balance sheet. MFIC's net leverage was 1.35x at the end of March compared to 1.34x at the end of December, reflecting $17 million of net fundings during the quarter. This concludes our prepared remarks. Operator, please open the call to questions.

[Operator Instructions] Our first question will come from Mark Hughes with Truist.

Seeing much in the way of a competitive move to say, given the broadly syndicated market a little more activity there, you've seen some lenders dip down more into the middle market and impacting spreads and all -- maybe along with that, I think you talked about 500 to 550 basis point spread today. Has that been relatively stable lately? Or has that been moving through the quarter? How would you say it is kind of the trend --

Yes, Tanner let me -- I'll comment on that. This is Howard. The not so immediately, and that's really because obviously you may see large sponsors that are covered and doing larger deals occasionally get down to the middle market. But in order to cover the middle market, you need to have a comprehensive coverage effort, which is -- and continuity in the market with a lot of those sponsors. And so you just don't see the capability of the people who are focused on the larger markets competing directly probably syndicated with the capabilities to sort of just step into that market holistically. It doesn't mean it doesn't happen on occasional deals. I mean as a separate matter, there's capital being created in the middle market all the time. And then those teams may or may not have comprehensive coverage as well. So there is definitely competition that's causing compression, but it's not really the result of the broadly syndicated market. The middle market is, one of the strengths of it [indiscernible] that variation.

And then, any comment on the trajectory of spread this year, to think about where they were in January to where we are today?

Yes, I'm happy to take that. So Mark, I would call your attention to, we alluded to the fact that deals are between 500 and 550. And in the quarter, we actually executed at 624, and that has to do with what we talk about a lot, there's a gestation period for deals getting done, and that reflects a lot of self-processes that have been commenced last year. And so that's a pretty significant tightening that we see. What we are seeing is some modicum of stability as at this juncture, post December, where conditions improved and you saw some of the spread tightening and rally in markets more broadly, those sale processes are hitting -- are now at a point where there -- we're able to create new credit assets and our pipelines are very full. So I would say certainly the -- my initial comment there reflects the tightening overall that we've seen in the middle market, but seeing some stability now that sale prices have had an opportunity to run their course and the opportunity for credit asset creation.

One more in, you probably have addressed this, but I wonder if you could update us kind of the seniority profile? You certainly emphasize the focus on first lien once you do the merger with the other Apollo funds. How will that look, roughly speaking?

Yes. It will look similarly, those funds which is obviously publicly available have some more broadly syndicated type loans but predominantly first lien. And then Mark, as we've talked about, both in our prepared remarks in the filings as well as also our investor decks that the intention is obviously over time as those loans mature or we can sell out of them to obviously reposition them into our core strategy of MidCap loans, first lien floating rate loans that we source -- that are sourced by the MidCap platform.

Our next question will come from Kyle Joseph with Jefferies.

Sorry if I missed [indiscernible]. But can you give a sense for pro forma leverage or ballpark area post merger?

It will be somewhere around between 115 and 1.2x lever.

Okay. Got it. Helpful. And good segue to my next. Over the last couple of years you guys have been focused on reducing core and lowering all leverage and now, especially with the merger where we're at the point where you can think about more transitioning to kind of the offensive side, is that fair to ask?

So Kyle, I mean, certainly, we're really excited by the prospects should we be successful of having an opportunity to deploy even more capital. Yes, I wouldn't attach the offensive, defensive valance to it per se because our strategy since we got the ability to go up and leverage has been 100% focused on sourcing -- or sorry, participating in or investing in loans that are originated at mid-cap. And so our approach doesn't change. I think this is just a very elegant opportunity to do even more of it and to kind of create the -- an even bigger percentage of the portfolio with those MidCap-sources loans.

Got it. Very helpful. And then one follow-up for me, probably Greg, it's where we are on rate. I'm not going to ask you to predict where rates are going to go. But just how you're thinking about the right side of the balance sheet and the mix between floating rate and fixed rate liabilities. And that's it for me.

Okay. I mean I think that from our point of view, we do have our $350 million 10-year note coming due in March of 25, which is fixed rate. I do think we did our baby bond which was fixed rate, and we didn't swap it because we have a 2-year call option on it. I do think that as we go out, we'll match our liabilities with their assets.

[Operator Instructions] Our next question will come from Robert Dodd with Raymond James.

On credit quality, obviously it looks [indiscernible] always getting paid down, et cetera. How have you seen or heard any initial increased discussion from sponsors? I mean it was 5 months ago but it looks like there were going to be 6 cuts and sponsors couldn't afford to sit on their hand, so to speak, and wait [indiscernible] interest coverage that's still above 1. Moving might result resolve itself [indiscernible]. But with the possibility of no cuts [indiscernible] that the high interest cost live longer in the portfolio. So has there been any change in what sponsors are doing proactively? I said no one increasing amendment request yet? Are there any preliminary discussions there? Or any color you can give on what the outlook is given it looks like rates are going to stay extremely high for quite a lot longer at this point?

Yes. Yes. Happy to take that. So there's a couple of things going on. One, over the kind of, I would say, economic environment over the last few years, the sponsors and the companies are focused on really becoming more efficient so that they could prepare for a longer-term hold, if necessary. And then as you alluded to, when there was a view of there are going to be 5 rate cuts, people got excited about doing M&A. So with the prospect of rate cuts going away, I think we can at least kind of fall back from a fundamental performance standpoint that the companies are doing well. And then secondly, if you think about the technicals of the private equity market, you still have a lot of dry powder that needs to be put to work, you still have a number of sponsors that need to return capital in order to be able to raise their next fund. So that's going to drive transactions. And there is going to be a period of time like any time that there is volatility in rate expectations or market valuations for the bid ask to come together. And so I think that's happening. And then that will take a little bit of time to play out. And then the third thing that we're seeing is more and more continuation vehicles where sponsors have companies within their funds and they need to hold on to those longer to really realize the multiples that they're looking for. And then I guess, finally, the last thing I would say is that in terms of discussions with sponsors about other alternatives, there are some early conversations around extensions and repricings where they're coming back and saying, we thought we were going to monitor size this year, but we're going to look to next year. They're not at the point in their fund where they need to do a continuation vehicle or they don't feel the pressure to return capital. And so there are very constructive discussions around the lending groups extending the maturity and addressing the overall structure. So I would say those are kind of the 4 dynamics at play?

Really helpful. A quick follow-up to that one. Does a continuation vehicle constitute a change in control in the mandatory refinancing? I mean, [indiscernible] automatic that you get ported across to the new vehicle with the existing loan?

Yes. So it is typical that that would be a change of control, but it's also typical in the direct lending space that you don't show up one day at your desk and get a notice that it's going to happen, right. There's an ongoing dialogue about what the strategy is, what the financing is going to be. And there's some visibility around the sponsor will come and say, hey, do you want to support this going forward. And sometimes we'll say yes and sometimes we say no. At which point they lost their financial process. That aligns with their continuation vehicle.

Got it. And then one more, if I can. If hypothetically, if the mergers close sometime in the not too distant future, has the [indiscernible] change in the competitive environment out there [indiscernible] et cetera, has that changed your plan about how fast you would, you churn the assets within those acquired vehicles if they were [indiscernible].

Thanks, Robert. I would say no, I think that you should rely on [indiscernible] and always be evaluating risk reward in the context of the market environment, what makes sense. And then furthermore, as faced with -- as we think about investing, we're always cognizant of vintage and wanting to do things with a measured approach. And that would be the same if hypothetically these were to close. And so if we are confronting an environment such as what we do today, we would be evaluating the market in a similar fashion and evaluating risk reward and our intention has always been to not take outsized exposure to any one particular vintage and would expect to conduct ourselves in a similar manner should the merges be successful.

We show no further questions at this time. I would like to turn the call back to management for closing remarks.

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.

This does conclude today's call. We thank you for your participation. You may disconnect your line at this time, and have a wonderful day.