UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One) | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended | |
OR | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the transition period from: to | |
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
|
(
(Registrant’s telephone number including area code)
n/a
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
| Trading Symbol |
| Name of Each Exchange on Which |
None | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Smaller reporting company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares outstanding of the issuer’s common stock as of August 12, 2022 was
TABLE OF CONTENTS
MSC INCOME FUND, INC.
Consolidated Balance Sheets
(in thousands, except shares and per share amounts)
June 30, | December 31, | |||||
| 2022 |
| 2021 | |||
ASSETS |
| (Unaudited) |
|
| ||
Investments at fair value: |
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|
| |||
Control investments (cost: $30,100 and $28,903 as of June 30, 2022 and December 31, 2021, respectively) | $ | 49,166 | $ | 46,583 | ||
Affiliate investments (cost: $221,056 and $209,971 as of June 30, 2022 and December 31, 2021, respectively) |
| 245,731 |
| 234,158 | ||
Non‑Control/Non‑Affiliate investments (cost: $851,577 and $828,301 as of June 30, 2022 and December 31, 2021, respectively) |
| 810,780 |
| 796,395 | ||
Total investments (cost: $1,102,733 and $1,067,175 as of June 30, 2022 and December 31, 2021, respectively) |
| 1,105,677 |
| 1,077,136 | ||
Cash and cash equivalents |
| 9,995 |
| 25,813 | ||
Interest and dividend receivable |
| 10,238 |
| 12,991 | ||
Deferred financing costs (net of accumulated amortization of $1,797 and $1,290 as of June 30, 2022 and December 31, 2021, respectively) | 3,524 | 4,049 | ||||
Receivable for securities sold |
| 432 |
| 21,729 | ||
Prepaids and other assets | 1,575 | 2,059 | ||||
Total assets | $ | 1,131,441 | $ | 1,143,777 | ||
LIABILITIES |
|
| ||||
Credit facilities | $ | 351,688 | $ | 426,688 | ||
Series A Notes due 2026 (par: $150,000 and $77,500 as of June 30, 2022 and December 31, 2021, respectively) |
| 148,707 |
|
| 76,184 | |
Accounts payable and other liabilities |
| 2,121 |
|
| 3,159 | |
Interest payable | 3,978 | 3,093 | ||||
Dividend payable |
| 12,802 |
|
| 11,974 | |
Management and incentive fees payable |
| 5,108 |
| 5,339 | ||
Payable for securities purchased |
| — |
| 4,170 | ||
Deferred tax liability, net |
| 178 |
| — | ||
Total liabilities |
| 524,582 |
| 530,607 | ||
Commitments and contingencies (Note J) |
|
| ||||
NET ASSETS |
|
| ||||
Common stock, $0.001 par value per share (450,000,000 shares authorized; 80,011,721 and 79,826,605 shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively) |
| 80 |
| 80 | ||
Additional paid‑in capital |
| 684,059 |
| 682,426 | ||
Total overdistributed earnings |
| (77,280) |
| (69,336) | ||
Total net assets |
| 606,859 |
| 613,170 | ||
Total liabilities and net assets | $ | 1,131,441 | $ | 1,143,777 | ||
NET ASSET VALUE PER SHARE | $ | 7.58 | $ | 7.68 | ||
The accompanying notes are an integral part of these consolidated financial statements
1
MSC INCOME FUND, INC.
Consolidated Statements of Operations
(in thousands, except shares and per share amounts)
(Unaudited)
Three Months Ended | Six Months Ended | ||||||||||||
| June 30, | June 30, |
| ||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||||
INVESTMENT INCOME: |
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| ||||
Interest, fee and dividend income: |
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| |||||||
Control investments | $ | 1,039 | $ | 743 | $ | 2,040 | $ | 1,343 | |||||
Affiliate investments |
| 5,852 | 4,446 |
| 11,058 |
| 8,096 | ||||||
Non‑Control/Non‑Affiliate investments |
| 17,448 | 17,307 |
| 34,642 |
| 33,329 | ||||||
Total investment income |
| 24,339 | 22,496 |
| 47,740 |
| 42,768 | ||||||
EXPENSES: |
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|
|
| |||||||||
Interest |
| (5,299) | (3,300) |
| (9,827) |
| (6,464) | ||||||
Base management fees |
| (4,955) | (4,158) |
| (9,945) |
| (8,061) | ||||||
Internal administrative services expenses | (1,302) | (1,040) | (2,483) | (2,095) | |||||||||
General and administrative | (1,037) | (794) | (2,075) | (2,057) | |||||||||
Total expenses before expense waivers | (12,593) | (9,292) | (24,330) | (18,677) | |||||||||
Waiver of internal administrative services expenses |
| 1,149 | 1,040 |
| 2,179 |
| 2,095 | ||||||
Total expenses, net of expense waivers |
| (11,444) | (8,252) |
| (22,151) |
| (16,582) | ||||||
NET INVESTMENT INCOME |
| 12,895 | 14,244 |
| 25,589 |
| 26,186 | ||||||
NET REALIZED GAIN (LOSS): |
|
|
|
| |||||||||
Control investments |
| — | (2,470) |
| — |
| (2,470) | ||||||
Affiliate investments |
| 333 | — |
| 779 |
| — | ||||||
Non‑Control/Non‑Affiliate investments |
| 39 | 4,288 |
| (154) |
| 2,297 | ||||||
Realized loss on extinguishment of debt | — | — | — | (2,091) | |||||||||
Total net realized gain (loss) |
| 372 | 1,818 |
| 625 |
| (2,264) | ||||||
NET UNREALIZED APPRECIATION (DEPRECIATION): |
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|
|
| |||||||||
Control investments |
| 1,207 | 63 |
| 1,385 |
| (3) | ||||||
Affiliate investments |
| 415 | 5,027 |
| 492 |
| 6,030 | ||||||
Non‑Control/Non‑Affiliate investments |
| (12,371) | 2,737 |
| (8,894) |
| 6,993 | ||||||
Total net unrealized appreciation (depreciation) |
| (10,749) | 7,827 |
| (7,017) |
| 13,020 | ||||||
INCOME TAXES: |
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|
|
| |||||||||
Federal and state income, excise and other taxes |
| (638) | (434) |
| (981) |
| (830) | ||||||
Deferred taxes | (57) | — | (178) | — | |||||||||
Income tax benefit (provision) | (695) | (434) | (1,159) | (830) | |||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 1,823 | $ | 23,455 | $ | 18,038 | $ | 36,112 | |||||
NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED | $ | 0.16 | $ | 0.18 | $ | 0.32 | $ | 0.33 | |||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER | $ | 0.02 | $ | 0.29 | $ | 0.23 | $ | 0.45 | |||||
WEIGHTED-AVERAGE SHARES |
| 79,968,597 | 79,973,441 |
| 79,915,291 |
| 79,791,881 | ||||||
The accompanying notes are an integral part of these consolidated financial statements
2
MSC INCOME FUND, INC.
Consolidated Statements of Changes in Net Assets
(in thousands, except shares)
(Unaudited)
Common Stock | Additional | Total | ||||||||||||
Number of | Par | Paid‑In | Overdistributed | Total Net | ||||||||||
| Shares |
| Value |
| Capital |
| Earnings |
| Asset Value | |||||
Balances at December 31, 2020 |
| 79,608,304 | $ | 80 | $ | 682,028 | $ | (102,484) | $ | 579,624 | ||||
Net increase resulting from operations | — | — | — | 12,657 | 12,657 | |||||||||
Dividends to stockholders | — | — | — | (7,961) | (7,961) | |||||||||
Balances at March 31, 2021 | 79,608,304 | $ | 80 | $ | 682,028 | $ | (97,788) | $ | 584,320 | |||||
Offering of common stock | 67,114 | — | 500 | — | 500 | |||||||||
Dividend reinvestment | 424,455 | — | 3,162 | — | 3,162 | |||||||||
Common stock repurchased | (383,512) | — | (2,861) | — | (2,861) | |||||||||
Net increase resulting from operations | — | — | — | 23,455 | 23,455 | |||||||||
Dividends to stockholders | — | — | — | (9,964) | (9,964) | |||||||||
Balances at June 30, 2021 | 79,716,361 | $ | 80 | $ | 682,829 | $ | (84,297) | $ | 598,612 | |||||
Balances at December 31, 2021 | 79,826,605 | $ | 80 | $ | 682,426 | $ | (69,336) | $ | 613,170 | |||||
Dividend reinvestment | 533,062 | — | 4,212 | — | 4,212 | |||||||||
Common stock repurchased | (489,031) | — | (3,790) | — | (3,790) | |||||||||
Net increase resulting from operations | — | — | — | 16,213 | 16,213 | |||||||||
Dividends to stockholders | — | — | — | (13,178) | (13,178) | |||||||||
Balances at March 31, 2022 | 79,870,636 | $ | 80 | $ | 682,848 | $ | (66,301) | $ | 616,627 | |||||
Offering of common stock | 94,697 | — | 750 | — | 750 | |||||||||
Dividend reinvestment | 582,453 | 1 | 4,612 | — | 4,613 | |||||||||
Common stock repurchased | (536,065) | (1) | (4,151) | — | (4,152) | |||||||||
Net increase resulting from operations | — | — | — | 1,823 | 1,823 | |||||||||
Dividends to stockholders | — | — | — | (12,802) | (12,802) | |||||||||
Balances at June 30, 2022 | 80,011,721 | $ | 80 | $ | 684,059 | $ | (77,280) | $ | 606,859 | |||||
The accompanying notes are an integral part of these consolidated financial statements
3
MSC INCOME FUND, INC.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended | ||||||
June 30, | ||||||
2022 | 2021 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net increase in net assets resulting from operations | $ | 18,038 | $ | 36,112 | ||
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities: | ||||||
Investments in portfolio companies | (115,879) | (223,398) | ||||
Proceeds from sales and repayments of debt investments in portfolio companies | 83,636 | 88,861 | ||||
Proceeds from sales and return of capital of equity investments in portfolio companies | 1,872 | 6,273 | ||||
Net unrealized (appreciation) depreciation | 7,017 | (13,020) | ||||
Net realized (gain) loss on the sale of portfolio investments | (625) | 173 | ||||
Realized loss on extinguishment of debt | — | 2,091 | ||||
Amortization of deferred financing costs | 697 | 593 | ||||
Amortization of deferred offering costs | — | 55 | ||||
Accretion of unearned income | (2,622) | (2,096) | ||||
Payment-in-kind interest | (1,940) | (3,411) | ||||
Deferred tax provision | 178 | — | ||||
Changes in other assets and liabilities: | ||||||
Interest and dividend receivable | 2,753 | (2,706) | ||||
Receivable for securities sold | 21,297 | (7,988) | ||||
Prepaid and other assets | 484 | 1,233 | ||||
Payable for securities purchased | (4,170) | 20,357 | ||||
Management and incentive fees payable | (231) | (44) | ||||
Interest payable | 885 | 2,485 | ||||
Accounts payable and other liabilities | (1,038) | (366) | ||||
Net cash provided by (used in) operating activities | 10,352 | (94,796) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Issuance of common stock | 750 | 500 | ||||
Redemption of common stock | (7,942) | (2,861) | ||||
Dividends paid | (16,329) | (4,798) | ||||
Repayments on Credit Facilities | (141,000) | (311,816) | ||||
Proceeds from Credit Facilities | 66,000 | 336,688 | ||||
Proceeds from Series A Notes due 2026 | 72,500 | 40,000 | ||||
Payment of deferred financing costs | (149) | (3,713) | ||||
Net cash provided by (used in) financing activities | (26,170) | 53,945 | ||||
Net increase (decrease) in cash, cash equivalents and restricted cash | (15,818) | (40,851) | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD | 25,813 | 49,066 | ||||
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD | $ | 9,995 | $ | 8,215 | ||
Supplemental cash flow disclosures: | ||||||
Interest paid | $ | 5,788 | $ | 3,387 | ||
Taxes paid | $ | 1,562 | $ | 1,283 | ||
Non-cash financing activities: | ||||||
Value of shares issued pursuant to the DRIP | $ | 8,825 | $ | 3,162 | ||
The accompanying notes are an integral part of these consolidated financial statements
4
MSC INCOME FUND, INC.
Consolidated Schedule of Investments
June 30, 2022
(dollars in thousands)
(Unaudited)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate (32) | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
Control Investments (5) |
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Copper Trail Fund Investments | (12) (13) | Investment Partnership |
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| LP Interests (CTMH, LP) | (24) | 7/17/2017 | 38.8% |
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| $ | 835 | $ | 710 | ||
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GRT Rubber Technologies LLC |
| Manufacturer of Engineered Rubber Products |
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| Secured Debt |
| 12/19/2014 |
| 9.06% (L+8.00%) | 10/29/2026 | 19,152 | 18,953 | 19,152 | |||
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| Member Units | (8) | 12/19/2014 | 2,896 |
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| 6,435 | 22,750 | ||||
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| 25,388 | 41,902 | |||
Harris Preston Fund Investments | (12) (13) | Investment Partnership |
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| LP Interests (2717 MH, L.P.) | (24) | 10/1/2017 | 49.3% |
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| 3,877 | 6,554 | ||||
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Subtotal Control Investments (8.1% of net assets at fair value) |
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| $ | 30,100 | $ | 49,166 | |
Affiliate Investments (6) |
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AFG Capital Group, LLC |
| Provider of Rent-to-Own Financing Solutions and Services |
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| Preferred Member Units | (8) | 11/7/2014 | 46 |
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| $ | 300 | $ | 2,190 | ||
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Analytical Systems Keco Holdings, LLC |
| Manufacturer of Liquid and Gas Analyzers |
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| Secured Debt | (9) | 8/16/2019 |
| 12.00% (L+10.00%, Floor 2.00%) | 8/16/2024 | 1,201 | 1,156 | 1,156 | |||
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| Preferred Member Units |
| 8/16/2019 | 800 |
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| 800 | - | ||||
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| Preferred Member Units |
| 5/20/2021 | 607 |
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| 607 | 1,080 | ||||
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| Warrants | (27) | 8/16/2019 | 105 |
| 8/16/2029 | 79 | - | ||||
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| 2,642 | 2,236 | |||
ATX Networks Corp. | (11) | Provider of Radio Frequency Management Equipment |
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| Secured Debt | (9) | 9/1/2021 |
| 8.92% (L+7.50%, Floor 1.00%) | 9/1/2026 | 7,003 | 6,458 | 6,128 | |||
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| Unsecured Debt | (19) | 9/1/2021 |
| 10.00% PIK | 9/1/2028 | 3,246 | 2,167 | 2,256 | |||
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| Common Stock |
| 9/1/2021 | 585 |
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| - | - | ||||
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| 8,625 | 8,384 | |||
Barfly Ventures, LLC | (10) | Casual Restaurant Group |
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| Member Units |
| 10/26/2020 | 12 |
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| 528 | 800 | ||||
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Batjer TopCo, LLC |
| HVAC Mechanical Contractor |
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| Secured Debt |
| 3/7/2022 |
| 11.00% | 3/31/2027 | 1,225 | 1,201 | 1,201 | |||
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| Preferred Stock |
| 3/7/2022 | 453 |
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| 453 | 453 | ||||
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| 1,654 | 1,654 | |||
Brewer Crane Holdings, LLC |
| Provider of Crane Rental and Operating Services |
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| Secured Debt | (9) | 1/9/2018 |
| 11.06% (L+10.00%, Floor 1.00%) | 1/9/2023 | 1,953 | 1,948 | 1,948 | |||
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| Preferred Member Units | (8) | 1/9/2018 | 737 |
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| 1,070 | 1,760 | ||||
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| 3,018 | 3,708 | |||
Centre Technologies Holdings, LLC |
| Provider of IT Hardware Services and Software Solutions |
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| Secured Debt | (9) | 1/4/2019 |
| 12.00% (L+10.00%, Floor 2.00%) | 1/4/2026 | 3,758 | 3,726 | 3,726 | |||
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| Preferred Member Units |
| 1/4/2019 | 3,327 |
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| 1,531 | 1,720 | ||||
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| 5,257 | 5,446 | |||
5
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Chamberlin Holding LLC |
| Roofing and Waterproofing Specialty Contractor |
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| Secured Debt | (9) | 2/26/2018 |
| 9.13% (L+8.00%, Floor 1.00%) | 2/26/2023 | 4,366 | 4,339 | 4,366 | |||
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| Member Units | (8) | 2/26/2018 | 1,087 |
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| 2,860 | 5,630 | ||||
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| Member Units | (8) (23) | 11/2/2018 | 261,786 |
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| 330 | 358 | ||||
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| 7,529 | 10,354 | |||
Charps, LLC |
| Pipeline Maintenance and Construction |
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| Preferred Member Units | (8) | 2/3/2017 | 457 |
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| 491 | 3,360 | ||||
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Clad-Rex Steel, LLC |
| Specialty Manufacturer of Vinyl-Clad Metal |
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| Secured Debt | (9) | 12/20/2016 |
| 10.63% (L+9.50%, Floor 1.00%) | 1/15/2024 | 2,620 | 2,620 | 2,620 | |||
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| Secured Debt |
| 12/20/2016 |
| 10.00% | 12/20/2036 | 266 | 264 | 264 | |||
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| Member Units | (8) | 12/20/2016 | 179 |
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| 1,820 | 2,560 | ||||
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| Member Units | (23) | 12/20/2016 | 200 |
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| 53 | 152 | ||||
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| 4,757 | 5,596 | |||
Cody Pools, Inc. |
| Designer of Residential and Commercial Pools |
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| Secured Debt | (9) | 3/6/2020 |
| 12.25% (L+10.50%, Floor 1.75%) | 12/17/2026 | 7,034 | 6,913 | 7,034 | |||
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| Preferred Member Units | (8) (23) | 3/6/2020 | 147 |
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| 2,079 | 12,800 | ||||
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| 8,992 | 19,834 | |||
Colonial Electric Company LLC |
| Provider of Electrical Contracting Services |
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| Secured Debt |
| 3/31/2021 |
| 12.00% | 3/31/2026 | 6,385 | 6,268 | 6,268 | |||
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| Preferred Member Units | (8) | 3/31/2021 | 4,320 |
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| 1,920 | 2,240 | ||||
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| 8,188 | 8,508 | |||
Datacom, LLC |
| Technology and Telecommunications Provider |
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| Secured Debt |
| 3/31/2021 |
| 7.50% | 12/31/2025 | 973 | 898 | 846 | |||
|
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| Preferred Member Units | (8) | 3/31/2021 | 1,000 |
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| 290 | 300 | ||||
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| 1,188 | 1,146 | |||
Digital Products Holdings LLC |
| Designer and Distributor of Consumer Electronics |
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| Secured Debt | (9) | 4/1/2018 |
| 11.13% (L+10.00%, Floor 1.00%) | 4/1/2023 | 4,048 | 4,032 | 4,032 | |||
|
|
| Preferred Member Units | (8) | 4/1/2018 | 964 |
|
| 2,375 | 2,459 | ||||
|
|
|
|
|
|
|
|
|
| 6,407 | 6,491 | |||
Direct Marketing Solutions, Inc. |
| Provider of Omni-Channel Direct Marketing Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 2/13/2018 |
| 12.13% (L+11.00%, Floor 1.00%) | 2/13/2024 | 4,791 | 4,745 | 4,791 | |||
|
|
| Preferred Stock | (8) | 2/13/2018 | 2,100 |
|
| 2,100 | 5,390 | ||||
|
|
|
|
|
|
|
|
|
| 6,845 | 10,181 | |||
Flame King Holdings, LLC |
| Propane Tank and Accessories Distributor |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 10/31/2026 | 1,900 | 1,883 | 1,900 | |||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 10/31/2026 | 5,300 | 5,161 | 5,300 | |||
|
|
| Preferred Equity | (8) | 10/29/2021 | 2,340 |
|
| 2,600 | 3,350 | ||||
|
|
|
|
|
|
|
|
|
| 9,644 | 10,550 | |||
Freeport Financial Funds | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
| ||||
|
|
| LP Interests (Freeport First Lien Loan Fund III LP) | (8) (24) | 7/31/2015 | 6.0% |
|
| 7,250 | 6,795 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Gamber-Johnson Holdings, LLC |
| Manufacturer of Ruggedized Computer Mounting Systems |
|
|
|
|
|
|
|
|
6
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
|
|
| Secured Debt | (9) | 6/24/2016 |
| 10.00% (L+8.00%, Floor 2.00%) | 1/1/2025 | 5,400 | 5,385 | 5,400 | |||
|
|
| Member Units | (8) | 6/24/2016 | 2,261 |
|
| 4,423 | 11,580 | ||||
|
|
|
|
|
|
|
|
|
| 9,808 | 16,980 | |||
GFG Group, LLC. |
| Grower and Distributor of a Variety of Plants and Products to Other Wholesalers, Retailers and Garden Centers |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 3/31/2021 |
| 9.00% | 3/31/2026 | 3,136 | 3,063 | 3,136 | |||
|
|
| Preferred Member Units | (8) | 3/31/2021 | 56 |
|
| 1,225 | 1,750 | ||||
|
|
|
|
|
|
|
|
|
| 4,288 | 4,886 | |||
Gulf Publishing Holdings, LLC |
| Energy Industry Focused Media and Publishing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (17) (19) | 9/29/2017 |
| 10.60% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%) | 9/30/2020 | 64 | 64 | 64 | |||
|
|
| Secured Debt | (17) (19) | 4/29/2016 |
| 12.50% (6.25% Cash, 6.25% PIK) | 4/29/2021 | 3,391 | 3,391 | 1,882 | |||
|
|
| Member Units |
| 4/29/2016 | 920 |
|
| 920 | - | ||||
|
|
|
|
|
|
|
|
|
| 4,375 | 1,946 | |||
Harris Preston Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
| ||||
|
|
| LP Interests (HPEP 3, L.P.) | (8) (24) | 8/9/2017 | 8.2% |
|
| 2,833 | 4,331 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Kickhaefer Manufacturing Company, LLC |
| Precision Metal Parts Manufacturing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 10/31/2018 |
| 11.50% | 10/31/2023 | 5,104 | 5,058 | 5,058 | |||
|
|
| Secured Debt |
| 10/31/2018 |
| 9.00% | 10/31/2048 | 974 | 965 | 965 | |||
|
|
| Member Units |
| 10/31/2018 | 145 |
|
| 3,060 | 3,060 | ||||
|
|
| Member Units | (8) (23) | 10/31/2018 | 200 |
|
| 248 | 615 | ||||
|
|
|
|
|
|
|
|
|
| 9,331 | 9,698 | |||
Market Force Information, LLC |
| Provider of Customer Experience Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (14) (19) | 7/28/2017 |
| 12.00% PIK | 7/28/2023 | 6,520 | 6,476 | 1,883 | |||
|
|
| Member Units |
| 7/28/2017 | 185,980 |
|
| 4,160 | - | ||||
|
|
|
|
|
|
|
|
|
| 10,636 | 1,883 | |||
MH Corbin Holding LLC |
| Manufacturer and Distributor of Traffic Safety Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (17) | 8/31/2015 |
| 13.00% | 3/31/2022 | 2,023 | 2,023 | 1,072 | |||
|
|
| Preferred Member Units |
| 3/15/2019 | 16,500 |
|
| 1,100 | - | ||||
|
|
| Preferred Member Units |
| 9/1/2015 | 1,000 |
|
| 1,500 | - | ||||
|
|
|
|
|
|
|
|
|
| 4,623 | 1,072 | |||
Mystic Logistics Holdings, LLC |
| Logistics and Distribution Services Provider for Large Volume Mailers |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/18/2014 |
| 10.00% | 1/31/2024 | 1,524 | 1,524 | 1,524 | |||
|
|
| Common Stock | (8) | 8/18/2014 | 1,468 |
|
| 680 | 4,053 | ||||
|
|
|
|
|
|
|
|
|
| 2,204 | 5,577 | |||
NexRev LLC |
| Provider of Energy Efficiency Products & Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 2/28/2018 |
| 11.00% | 2/28/2025 | 3,066 | 3,015 | 2,066 | |||
|
|
| Preferred Member Units | (8) | 2/28/2018 | 25,786,046 |
|
| 2,053 | 230 | ||||
|
|
|
|
|
|
|
|
|
| 5,068 | 2,296 | |||
NuStep, LLC |
| Designer, Manufacturer and Distributor of Fitness Equipment |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 1/31/2017 |
| 7.63% (L+6.50%, Floor 1.00%) | 1/31/2025 | 800 | 798 | 800 | |||
|
|
| Secured Debt |
| 1/31/2017 |
| 12.00% | 1/31/2025 | 4,610 | 4,601 | 4,610 | |||
|
|
| Preferred Member Units |
| 1/31/2017 | 102 |
|
| 2,550 | 2,890 | ||||
|
|
|
|
|
|
|
|
|
| 7,949 | 8,300 |
7
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Oneliance, LLC |
| Construction Cleaning Company |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/6/2021 |
| 12.06% (L+11.00%, Floor 1.00%) | 8/6/2026 | 1,400 | 1,377 | 1,377 | |||
|
|
| Preferred Stock |
| 8/6/2021 | 264 |
|
| 264 | 264 | ||||
|
|
|
|
|
|
|
|
|
| 1,641 | 1,641 | |||
Orttech Holdings, LLC |
| Distributor of Industrial Clutches, Brakes and Other Components |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/30/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 7/31/2026 | 5,994 | 5,892 | 5,892 | |||
|
|
| Preferred Stock | (8) (23) | 7/30/2021 | 2,500 |
|
| 2,500 | 2,500 | ||||
|
|
|
|
|
|
|
|
|
| 8,392 | 8,392 | |||
Robbins Bros. Jewelry, Inc. |
| Bridal Jewelry Retailer |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/15/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 12/15/2026 | 4,015 | 3,934 | 3,934 | |||
|
|
| Preferred Equity |
| 12/15/2021 | 1,230 |
|
| 1,230 | 1,750 | ||||
|
|
|
|
|
|
|
|
|
| 5,164 | 5,684 | |||
SI East, LLC |
| Rigid Industrial Packaging Manufacturing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/31/2018 |
| 10.25% | 8/31/2023 | 21,454 | 21,325 | 21,454 | |||
|
|
| Preferred Member Units | (8) | 8/31/2018 | 52 |
|
| 406 | 4,280 | ||||
|
|
|
|
|
|
|
|
|
| 21,731 | 25,734 | |||
Sonic Systems International, LLC | (10) | Nuclear Power Staffing Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/20/2021 |
| 8.50% (L+7.50%, Floor 1.00%) | 8/20/2026 | 18,425 | 18,104 | 17,833 | |||
|
|
| Common Stock |
| 8/20/2021 | 11,647 |
|
| 1,584 | 1,650 | ||||
|
|
|
|
|
|
|
|
|
| 19,688 | 19,483 | |||
Tedder Industries, LLC |
| Manufacturer of Firearm Holsters and Accessories |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/31/2018 |
| 12.00% | 8/31/2022 | 460 | 459 | 460 | |||
|
|
| Secured Debt |
| 8/31/2018 |
| 12.00% | 8/31/2023 | 3,800 | 3,789 | 3,796 | |||
|
|
| Preferred Member Units |
| 8/31/2018 | 129 |
|
| 2,200 | 1,828 | ||||
|
|
|
|
|
|
|
|
|
| 6,448 | 6,084 | |||
Trantech Radiator Topco, LLC |
| Transformer Cooling Products and Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 5/31/2019 |
| 12.00% | 5/31/2024 | 2,080 | 2,047 | 2,080 | |||
|
|
| Common Stock | (8) | 5/31/2019 | 154 |
|
| 1,164 | 2,020 | ||||
|
|
|
|
|
|
|
|
|
| 3,211 | 4,100 | |||
VVS Holdco LLC |
| Omnichannel Retailer of Animal Health Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (23) | 12/1/2021 |
| 11.50% | 12/1/2026 | 7,600 | 7,391 | 7,391 | |||
|
|
| Preferred Equity | (8) (23) | 12/1/2021 | 2,960 |
|
| 2,960 | 3,020 | ||||
|
|
|
|
|
|
|
|
|
| 10,351 | 10,411 | |||
Subtotal Affiliate Investments (40.5% of net assets at fair value) |
|
|
|
|
|
|
|
|
| 221,056 | 245,731 |
8
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate (32) | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
Non-Control/Non-Affiliate Investments (7) |
|
|
|
|
|
|
|
|
|
|
| |||
AAC Holdings, Inc. | (11) | Substance Abuse Treatment Service Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (19) | 12/11/2020 |
| 18.00% PIK | 6/25/2025 | 3,785 | $ | 3,533 | $ | 3,596 | |
|
|
| Common Stock |
| 12/11/2020 | 593,927 |
|
| 3,148 | 800 | ||||
|
|
| Warrants | (27) | 12/11/2020 | 197,717 |
| 12/11/2025 | — | 264 | ||||
|
|
|
|
|
|
|
|
|
| 6,681 | 4,660 | |||
Acumera, Inc. | (10) | Managed Security Service Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/28/2022 |
| 10.56% (L+9.50%, Floor 1.00%) | 10/26/2027 | 5,609 | 5,459 | 5,459 | |||
|
|
|
|
|
|
|
|
|
| |||||
Adams Publishing Group, LLC | (10) | Local Newspaper Operator |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 3/11/2022 |
| 10.75% | 3/11/2027 | 94 | 94 | 94 | |||
|
|
| Secured Debt | (9) | 3/11/2022 |
| 8.72% (L+7.00%, Floor 1.00%) | 3/11/2027 | 2,979 | 2,971 | 2,971 | |||
|
|
|
|
|
|
|
|
|
| 3,065 | 3,065 | |||
ADS Tactical, Inc. | (11) | Value-Added Logistics and Supply Chain Provider to the Defense Industry |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 3/29/2021 |
| 7.20% (L+5.75%, Floor 1.00%) | 3/19/2026 | 9,375 | 9,224 | 8,668 | |||
|
|
|
|
|
|
|
|
|
| |||||
American Health Staffing Group, Inc. | (10) | Healthcare Temporary Staffing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/19/2021 |
| 8.01% (L+6.00%, Floor 1.00%) | 11/19/2026 | 8,313 | 8,224 | 7,905 | |||
|
|
|
|
|
|
|
|
|
| |||||
American Nuts, LLC | (10) | Roaster, Mixer and Packager of Bulk Nuts and Seeds |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 3/11/2022 |
| 7.75% (SOFR+6.75%, Floor 1.00%) | 4/10/2026 | 5,964 | 5,911 | 5,911 | |||
|
|
| Secured Debt | (9) (32) | 3/11/2022 |
| 9.75% (SOFR+8.75%, Floor 1.00%) | 4/10/2026 | 5,964 | 5,911 | 5,911 | |||
|
|
|
|
|
|
|
|
|
| 11,822 | 11,822 | |||
American Teleconferencing Services, Ltd. | (11) | Provider of Audio Conferencing and Video Collaboration Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (14) | 9/17/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 6/30/2022 | 2,425 | 2,375 | 139 | |||
|
|
| Secured Debt | (9) (14) | 5/19/2016 |
| 7.50% (L+6.50%, Floor 1.00%) | 6/28/2023 | 11,693 | 11,451 | 672 | |||
|
|
|
|
|
|
|
|
|
| 13,826 | 811 | |||
ArborWorks, LLC | (10) | Vegetation Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/9/2021 |
| 9.00% (L+7.00%, Floor 1.00%) | 11/9/2026 | 1,491 | 1,426 | 1,358 | |||
|
|
| Secured Debt | (9) | 11/9/2021 |
| 8.37% (L+7.00%, Floor 1.00%) | 11/9/2026 | 16,028 | 15,748 | 14,601 | |||
|
|
| Common Equity |
| 11/9/2021 | 124 |
|
| 124 | 7 | ||||
9
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| 17,298 | 15,966 | |||
ATS Operating, LLC | (10) | For-Profit Thrift Retailer |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 1/18/2022 |
| 6.50%(SOFR+5.50%, Floor 1.00%) | 1/18/2027 | 925 | 905 | 905 | |||
|
|
| Secured Debt | (9) (32) | 1/18/2022 |
| 8.50%(SOFR+7.50%, Floor 1.00%) | 1/18/2027 | 925 | 905 | 905 | |||
|
|
| Common Stock |
| 1/18/2022 | 100,000 |
|
| 100 | 100 | ||||
|
|
|
|
|
|
|
|
|
| 1,910 | 1,910 | |||
AVEX Aviation Holdings, LLC | (10) | Specialty Aircraft Dealer |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/15/2021 |
| 8.82% (L+7.00%, Floor 1.00%) | 12/15/2026 | 1,692 | 1,661 | 1,555 | |||
|
|
| Secured Debt | (9) | 12/15/2021 |
| 9.06% (L+7.00%, Floor 1.00%) | 12/15/2026 | 200 | 191 | 184 | |||
|
|
| Common Equity |
| 12/15/2021 | 50 |
|
| 50 | 36 | ||||
|
|
|
|
|
|
|
|
|
| 1,902 | 1,775 | |||
BBB Tank Services, LLC |
| Maintenance, Repair and Construction Services to the Above-Ground Storage Tank Market |
|
|
|
|
|
|
|
| ||||
|
|
| Unsecured Debt | (9) (17) | 4/8/2016 |
| 12.06% (L+11.00%, Floor 1.00%) | 4/8/2021 | 1,200 | 1,200 | 575 | |||
|
|
| Preferred Stock (non-voting) | (19) | 12/17/2018 |
| 15.00% PIK |
| 41 | — | ||||
|
|
| Member Units |
| 4/8/2016 | 200,000 |
|
| 200 | — | ||||
|
|
|
|
|
|
|
|
|
| 1,441 | 575 | |||
Berry Aviation, Inc. | (10) | Charter Airline Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (19) | 7/6/2018 |
| 12.00% (10.50% Cash, 1.50% PIK) | 1/6/2024 | 188 | 187 | 188 | |||
|
|
| Preferred Member Units | (8) (19) (23) | 11/12/2019 | 122,416 | 16.00% PIK |
| 182 | 372 | ||||
|
|
| Preferred Member Units | (8) (19) (23) | 7/6/2018 | 1,548,387 | 8.00% PIK |
| 2,076 | 4,475 | ||||
|
|
|
|
|
|
|
|
|
| 2,445 | 5,035 | |||
Bettercloud, Inc. | (10) | SaaS Provider of Workflow Management and Business Application Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (19) (32) | 6/30/2022 |
| 8.53% (1.00% Cash, 7.53% PIK) (SOFR+7.25%, Floor 0.75%) | 6/30/2028 | 7,784 | 7,604 | 7,604 | |||
|
|
|
|
|
|
|
|
|
| |||||
Binswanger Enterprises, LLC | (10) | Glass Repair and Installation Service Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 3/10/2017 |
| 10.12% (SOFR+8.50%, Floor 1.00%) | 6/10/2024 | 11,807 | 11,735 | 11,658 | |||
|
|
| Member Units |
| 3/10/2017 | 1,050,000 |
|
| 1,050 | 560 | ||||
|
|
|
|
|
|
|
|
|
| 12,785 | 12,218 | |||
Bluestem Brands, Inc. | (11) | Multi-Channel Retailer of General Merchandise |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/28/2020 |
| 10.00% (L+8.50%, Floor 1.50%) | 8/28/2025 | 5,745 | 5,745 | 5,733 | |||
|
|
| Common Stock | (8) | 10/1/2020 | 700,446 |
|
| — | 5,607 | ||||
|
|
|
|
|
|
|
|
|
| 5,745 | 11,340 | |||
Boccella Precast Products LLC |
| Manufacturer of Precast Hollow Core Concrete |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 9/23/2021 |
| 10.00% | 2/28/2027 | 80 | 80 | 80 | |||
|
|
| Member Units | (8) | 6/30/2017 | 540,000 |
|
| 564 | 1,127 | ||||
|
|
|
|
|
|
|
|
|
| 644 | 1,207 | |||
Brightwood Capital Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
|
10
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
|
|
| LP Interests (Brightwood Capital Fund III, LP) | (8) (24) | 7/21/2014 | 0.5% |
|
| 2,449 | 1,485 | ||||
|
|
| LP Interests (Brightwood Capital Fund IV, LP) | (8) (24) | 10/26/2016 | 1.2% |
|
| 8,737 | 8,788 | ||||
|
|
|
|
|
|
|
|
|
| 11,186 | 10,273 | |||
Buca C, LLC |
| Casual Restaurant Group |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/30/2015 |
| 10.37% (L+9.25%, Floor 1.00%) | 6/30/2023 | 12,350 | 12,350 | 8,888 | |||
|
|
| Preferred Member Units | (19) | 6/30/2015 | 4 | 6.00% PIK |
| 3,040 | — | ||||
|
|
|
|
|
|
|
|
|
| 15,390 | 8,888 | |||
Burning Glass Intermediate Holding Company, Inc. | (10) | Provider of Skills-Based Labor Market Analytics |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 6.12% (L+5.00%, Floor 1.00%) | 6/10/2026 | 620 | 598 | 608 | |||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 6.06% (L+5.00%, Floor 1.00%) | 6/10/2028 | 13,322 | 13,119 | 13,084 | |||
|
|
|
|
|
|
|
|
|
| 13,717 | 13,692 | |||
Cadence Aerospace LLC | (10) | Aerostructure Manufacturing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (19) (30) | 11/14/2017 |
| 9.49% Cash, 0.24% PIK | 11/14/2023 | 20,193 | 20,120 | 19,783 | |||
|
|
|
|
|
|
|
|
|
| |||||
CAI Software LLC |
| Provider of Specialized Enterprise Resource Planning Software |
|
|
|
|
|
|
|
| ||||
|
|
| Preferred Equity | 12/13/2021 | 379,338 |
|
| 379 | 379 | |||||
|
|
| Preferred Equity |
| 12/13/2021 | 126,446 |
|
| — | — | ||||
|
|
|
|
|
|
|
|
|
| 379 | 379 | |||
Camin Cargo Control, Inc. | (11) | Provider of Mission Critical Inspection, Testing and Fuel Treatment Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 7.86% (L+6.50%, Floor 1.00%) | 6/4/2026 | 7,669 | 7,605 | 7,630 | |||
|
|
|
|
|
|
|
|
|
| |||||
Career Team Holdings, LLC |
| Provider of Workforce Training and Career Development Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 12/17/2021 |
| 12.50% | 12/17/2026 | 2,250 | 2,187 | 2,187 | |||
|
|
| Common Stock |
| 12/17/2021 | 50,000 |
|
| 500 | 500 | ||||
|
|
|
|
|
|
|
|
|
| 2,687 | 2,687 | |||
CaseWorthy, Inc. | (10) | SaaS Provider of Case Management Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 5/18/2022 |
| 7.46% (SOFR+6.00%, Floor 1.00%) | 5/18/2027 | 2,000 | 1,976 | 1,976 | |||
|
|
|
|
|
|
|
|
|
| |||||
Cenveo Corporation | (11) | Provider of Digital Marketing Agency Services |
|
|
|
|
|
|
|
| ||||
|
|
| Common Stock |
| 9/7/2018 | 253,194 |
|
| 4,848 | 5,662 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Channel Partners Intermediateco, LLC | (10) | Outsourced Consumer |
|
|
|
|
|
|
|
|
11
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Services Provider | ||||||||||||||
|
|
| Secured Debt | (9) (32) | 2/7/2022 |
| 8.00% (SOFR+6.50%, Floor 1.00%) | 2/7/2027 | 477 | 466 | 466 | |||
|
|
| Secured Debt | (9) | 2/7/2022 |
| 7.74% | 2/7/2027 | 3,609 | 3,542 | 3,542 | |||
|
|
|
|
|
|
|
|
|
| 4,008 | 4,008 | |||
Clarius BIGS, LLC | (10) | Prints & Advertising Film Financing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (14) (17) (19) | 9/23/2014 |
| 15.00% PIK | 1/5/2015 | 2,750 | 2,406 | 17 | |||
|
|
|
|
|
|
|
|
|
| |||||
Classic H&G Holdings, LLC |
| Provider of Engineered Packaging Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 3/12/2020 |
| 7.00% (L+6.00%, Floor 1.00%) | 3/12/2025 | 1,390 | 1,374 | 1,390 | |||
|
|
| Secured Debt |
| 3/12/2020 |
| 8.00% | 3/12/2025 | 4,819 | 4,733 | 4,819 | |||
|
|
| Preferred Member Units | (8) | 3/12/2020 | 39 |
|
| 1,440 | 5,950 | ||||
|
|
|
|
|
|
|
|
|
| 7,547 | 12,159 | |||
Computer Data Source, LLC | (10) | Third Party Maintenance Provider to the Data Center Ecosystem |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/6/2021 |
| 8.87% (L+7.50%, Floor 1.00%) | 8/6/2026 | 19,886 | 19,555 | 18,624 | |||
|
|
|
|
|
|
|
|
|
| |||||
Construction Supply Investments, LLC | (10) | Distribution Platform of Specialty Construction Materials to Professional Concrete and Masonry Contractors |
|
|
|
|
|
|
|
| ||||
|
|
| Member Units | (8) | 12/29/2016 | 861,618 |
|
| 3,335 | 19,320 | ||||
|
|
|
|
|
|
|
|
|
| |||||
DMA Industries, LLC |
| Distributor of aftermarket ride control products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 11/19/2021 |
| 12.00% | 11/19/2026 | 5,300 | 5,206 | 5,300 | |||
|
|
| Preferred Equity |
| 11/19/2021 | 1,486 |
|
| 1,486 | 1,730 | ||||
|
|
|
|
|
|
|
|
|
| 6,692 | 7,030 | |||
DTE Enterprises, LLC | (10) | Industrial Powertrain Repair and Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 4/13/2018 |
| 9.00% (L+7.50%, Floor 1.50%) | 4/13/2023 | 8,619 | 8,587 | 8,149 | |||
|
|
| Class AA Preferred Member Units (non-voting) | (8) (19) | 4/13/2018 |
| 10.00% PIK |
| 1,104 | 1,104 | ||||
|
|
| Class A Preferred Member Units | (19) | 4/13/2018 | 776,316 | 8.00% PIK |
| 776 | 180 | ||||
|
|
|
|
|
|
|
|
|
| 10,467 | 9,433 | |||
Dynamic Communities, LLC | (10) | Developer of Business Events and Online Community Groups |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/17/2018 |
| 10.13% (L+8.50%, Floor 1.00%) | 7/17/2023 | 5,611 | 5,584 | 5,049 | |||
|
|
|
|
|
|
|
|
|
| |||||
Emerald Technologies Acquisition Co, Inc. | (11) | Design & Manufacturing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 2/10/2022 |
| 7.25% (SOFR+6.25%, Floor 0.75%) | 2/10/2028 | 2,484 | 2,437 | 2,410 | |||
|
|
|
|
|
|
|
|
|
| |||||
Engineering Research & Consulting, LLC | (10) | Provider of Engineering & |
|
|
|
|
|
|
|
|
12
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Consulting Services to US Department of Defense | ||||||||||||||
|
|
| Secured Debt | (9) | 5/23/2022 |
| 9.50% (Prime+5.50%, Floor 0.75%) | 5/23/2027 | 269 | 253 | 253 | |||
|
|
| Secured Debt | (9) | 5/23/2022 |
| 9.50% (Prime+5.50%, Floor 0.75%) | 5/23/2028 | 5,172 | 5,070 | 5,070 | |||
|
|
|
|
|
|
|
|
|
| 5,323 | 5,323 | |||
EPIC Y-Grade Services, LP | (11) | NGL Transportation & Storage |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/22/2018 |
| 8.08% (L+6.00%, Floor 1.00%) | 6/30/2027 | 6,857 | 6,787 | 6,017 | |||
|
|
|
|
|
|
|
|
|
| |||||
Event Holdco, LLC | (10) | Event and Learning Management Software for Healthcare Organizations and Systems |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (23) | 12/22/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 12/22/2026 | 308 | 305 | 293 | |||
|
|
| Secured Debt | (9) (23) | 12/22/2021 |
| 7.75% (L+6.75%, Floor 1.00%) | 12/22/2026 | 3,692 | 3,659 | 3,520 | |||
|
|
|
|
|
|
|
|
|
| 3,964 | 3,813 | |||
Flip Electronics LLC | (10) | Distributor of Hard-to-Find and Obsolete Electronic Components |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 1/4/2021 |
| 9.60% (SOFR+7.50%, Floor 1.00%) | 1/2/2026 | 6,873 | 6,741 | 6,741 | |||
|
|
| Secured Debt | (9) (32) | 3/24/2022 |
| 8.50% (SOFR+7.50%, Floor 1.00%) | 1/2/2026 | 273 | 273 | 273 | |||
|
|
|
|
|
|
|
|
|
| 7,014 | 7,014 | |||
Hawk Ridge Systems, LLC |
| Value-Added Reseller of Engineering Design and Manufacturing Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/2/2016 |
| 7.13% (L+6.00%, Floor 1.00%) | 1/15/2026 | 646 | 646 | 646 | |||
|
|
| Secured Debt |
| 12/2/2016 |
| 8.00% | 1/15/2026 | 7,450 | 7,396 | 7,450 | |||
|
|
| Preferred Member Units | (8) | 12/2/2016 | 56 |
|
| 713 | 5,010 | ||||
|
|
| Preferred Member Units | (23) | 12/2/2016 | 56 |
|
| 38 | 260 | ||||
|
|
|
|
|
|
|
|
|
| 8,793 | 13,366 | |||
HDC/HW Intermediate Holdings | (10) | Managed Services and Hosting Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/21/2018 |
| 8.51% (L+7.50%, Floor 1.00%) | 12/21/2023 | 1,934 | 1,921 | 1,719 | |||
|
|
|
|
|
|
|
|
|
| |||||
Hybrid Promotions, LLC | (10) | Wholesaler of Licensed, Branded and Private Label Apparel |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 6/30/2021 |
| 9.25% (SOFR+8.25%, Floor 1.00%) | 6/30/2026 | 7,875 | 7,746 | 7,277 | |||
|
|
|
|
|
|
|
|
|
| |||||
IG Parent Corporation | (11) | Software Engineering |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/30/2021 |
| 6.96% (L+5.75%, Floor 1.00%) | 7/30/2026 | 125 | 105 | 121 | |||
|
|
| Secured Debt | (9) | 7/30/2021 |
| 6.99% (L+5.75%, Floor 1.00%) | 7/30/2026 | 6,362 | 6,281 | 6,137 | |||
|
|
|
|
|
|
|
|
|
| 6,386 | 6,258 |
13
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Implus Footcare, LLC | (10) | Provider of Footwear and Related Accessories |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (19) | 6/1/2017 |
| 9.01% (8.76% Cash, 0.25% PIK) (0.25% PIK + L+7.75%, Floor 1.00%) | 4/30/2024 | 17,007 | 16,997 | 15,691 | |||
|
|
|
|
|
|
|
|
|
| |||||
Independent Pet Partners Intermediate Holdings, LLC | (10) | Omnichannel Retailer of Specialty Pet Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (19) | 12/10/2020 |
| 6.00% PIK | 11/20/2023 | 10,902 | 10,443 | 10,129 | |||
|
|
| Preferred Stock (non-voting) | (19) | 12/10/2020 |
| 6.00% PIK |
| 2,470 | 2,200 | ||||
|
|
| Preferred Stock (non-voting) |
| 12/10/2020 |
|
|
| — | — | ||||
|
|
| Member Units |
| 11/20/2018 | 185,757 |
|
| — | — | ||||
|
|
|
|
|
| 1,191,667 |
|
| 1,192 | 1,192 | — | |||
|
|
|
|
|
|
|
|
|
| 14,105 | 12,329 | |||
Industrial Services Acquisition, LLC | (10) | Industrial Cleaning Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/13/2021 |
| 8.38% (L+6.75%, Floor 1.00%) | 8/13/2026 | 387 | 355 | 355 | |||
|
|
| Secured Debt | (9) | 8/13/2021 |
| 7.81% (L+6.75%, Floor 1.00%) | 8/13/2026 | 17,929 | 17,628 | 17,604 | |||
|
|
| Preferred Member Units | (8) (19) (23) | 1/31/2018 | 336 | 10.00% PIK |
| 291 | 371 | ||||
|
|
| Preferred Member Units | (8) (19) (23) | 5/17/2019 | 187 | 20.00% PIK |
| 202 | 229 | ||||
|
|
| Member Units | (23) | 6/17/2016 | 2,100 |
|
| 2,100 | 1,620 | ||||
|
|
|
|
|
|
|
|
|
| 20,576 | 20,179 | |||
Infolinks Media Buyco, LLC | (10) | Exclusive Placement Provider to the Advertising Ecosystem |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/1/2021 |
| 6.76% (L+5.75%, Floor 1.00%) | 11/1/2026 | 10,796 | 10,553 | 10,384 | |||
|
|
|
|
|
|
|
|
|
| |||||
Interface Security Systems, L.L.C | (10) | Commercial Security & Alarm Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/9/2021 |
| 11.75% (L+10.00%, Floor 1.75%) | 8/7/2023 | 938 | 938 | 938 | |||
|
|
| Secured Debt | (9) (14) (19) | 8/7/2019 |
| 9.75% PIK (L+8.00% PIK, Floor 1.75%) | 8/7/2023 | 7,334 | 7,254 | 3,561 | |||
|
|
| Common Stock |
| 12/7/2021 | 2,143 |
|
| — | — | ||||
|
|
|
|
|
|
|
|
|
| 8,192 | 4,499 | |||
Intermedia Holdings, Inc. | (11) | Unified Communications as a Service |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/3/2018 |
| 7.36% (L+6.00%, Floor 1.00%) | 7/19/2025 | 5,650 | 5,641 | 5,339 | |||
|
|
|
|
|
|
|
|
|
| |||||
Invincible Boat Company, LLC. | (10) | Manufacturer of Sport Fishing Boats |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/28/2019 |
| 8.73% (L+6.50%, Floor 1.50%) | 8/28/2025 | 311 | 306 | 306 | |||
|
|
| Secured Debt | (9) | 8/28/2019 |
| 8.00% (L+6.50%, Floor 1.50%) | 8/28/2025 | 17,148 | 17,032 | 16,494 | |||
|
|
|
|
|
|
|
|
|
| 17,338 | 16,800 | |||
INW Manufacturing, LLC | (11) | Manufacturer of Nutrition and Wellness Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 5/19/2021 |
| 7.38% (L+5.75%, Floor 0.75%) | 3/25/2027 | 7,172 | 6,989 | 6,777 | |||
|
|
|
|
|
|
|
|
|
| |||||
Iron-Main Investments, LLC |
| Consumer Reporting Agency |
|
|
|
|
|
|
|
|
14
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Providing Employment Background Checks and Drug Testing | ||||||||||||||
|
|
| Secured Debt |
| 8/2/2021 |
| 12.50% | 11/15/2026 | 1,150 | 1,121 | 1,121 | |||
|
|
| Secured Debt |
| 9/1/2021 |
| 12.50% | 11/15/2026 | 800 | 780 | 780 | |||
|
|
| Secured Debt |
| 11/15/2021 |
| 12.50% | 11/15/2026 | 7,236 | 7,104 | 7,104 | |||
|
|
| Common Stock |
| 8/3/2021 | 44,944 |
|
| 449 | 449 | ||||
|
|
|
|
|
|
|
|
|
| 9,454 | 9,454 | |||
Isagenix International, LLC | (11) | Direct Marketer of Health & Wellness Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/21/2018 |
| 7.34% (L+5.75%, Floor 1.00%) | 6/14/2025 | 4,951 | 4,927 | 2,966 | |||
|
|
|
|
|
|
|
|
|
| |||||
Jackmont Hospitality, Inc. | (10) | Franchisee of Casual Dining Restaurants |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 5/26/2015 |
| 7.51% (L+6.50%, Floor 1.00%) | 11/4/2024 | 4,189 | 4,189 | 3,995 | |||
|
|
| Preferred Equity | (8) | 11/8/2021 | 5,653,333 |
|
| 216 | 1,220 | ||||
|
|
|
|
|
|
|
|
|
| 4,405 | 5,215 | |||
Joerns Healthcare, LLC | (11) | Manufacturer and Distributor of Health Care Equipment & Supplies |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/21/2019 |
| 7.55% (L+6.00%, Floor 1.00%) | 8/21/2024 | 3,351 | 3,325 | 2,181 | |||
|
|
| Secured Debt | (19) | 11/15/2021 |
| 15.00% PIK | 11/8/2022 | 1,489 | 1,489 | 1,489 | |||
|
|
| Common Stock |
| 8/21/2019 | 392,514 |
|
| 3,678 | — | ||||
|
|
|
|
|
|
|
|
|
| 8,492 | 3,670 | |||
Johnson Downie Opco, LLC |
| Executive Search Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/10/2021 |
| 13.00% (L+11.50%, Floor 1.50%) | 12/10/2026 | 1,160 | 1,135 | 1,160 | |||
|
|
| Preferred Equity | (8) | 12/10/2021 | 350 |
|
| 350 | 650 | ||||
|
|
|
|
|
|
|
|
|
| 1,485 | 1,810 | |||
JorVet Holdings, LLC |
| Supplier and Distributor of Veterinary Equipment and Supplies |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 3/28/2022 |
| 12.00% | 3/28/2027 | 2,850 | 2,797 | 2,797 | |||
|
|
| Common Stock |
| 3/28/2022 | 11,934 |
|
| 1,193 | 1,193 | ||||
|
|
|
|
|
|
|
|
|
| 3,990 | 3,990 | |||
JTI Electrical & Mechanical, LLC | (10) | Electrical, Mechanical and Automation Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/22/2021 |
| 7.01% (L+6.00%, Floor 1.00%) | 12/22/2026 | 3,118 | 3,050 | 3,030 | |||
|
|
| Common Equity |
| 12/22/2021 | 140,351 |
|
| 140 | 150 | ||||
|
|
|
|
|
|
|
|
|
| 3,190 | 3,180 | |||
KMS, LLC | (10) | Wholesaler of Closeout and Value-priced Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 10/4/2021 |
| 8.31% (L+7.25%, Floor 1.00%) | 10/4/2026 | 9,429 | 9,267 | 8,676 | |||
|
|
| Secured Debt | (9) | 10/4/2021 |
| 9.31% (L+7.25%, Floor 1.00%) | 10/4/2026 | 1,357 | 1,267 | 1,267 | |||
|
|
|
|
|
|
|
|
|
| 10,534 | 9,943 | |||
Knight Energy Services LLC | (11) | Oil and Gas Equipment & Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (19) | 1/9/2015 |
| 8.50% PIK | 2/9/2024 | 1,003 | 1,003 | 788 | |||
|
|
| Common Stock |
| 11/14/2018 | 25,692 |
|
| 1,843 | — | ||||
|
|
|
|
|
|
|
|
|
| 2,846 | 788 |
15
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Laredo Energy, LLC | (10) | Oil & Gas Exploration & Production |
|
|
|
|
|
|
|
| ||||
|
|
| Member Units |
| 5/4/2020 | 1,155,952 |
|
| 11,560 | 11,383 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Lightbox Holdings, L.P. | (11) | Provider of Commercial Real Estate Software |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 5/23/2019 |
| 6.63% (L+5.00%) | 5/9/2026 | 5,856 | 5,807 | 5,709 | |||
|
|
|
|
|
|
|
|
|
| |||||
LL Management, Inc. | (10) | Medical Transportation Service Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 5/2/2019 |
| 8.25% (SOFR+7.25%, Floor 1.00%) | 9/25/2023 | 14,260 | 14,206 | 14,140 | |||
|
|
| Secured Debt | (9) (32) | 5/12/2022 |
| 8.25% (SOFR+7.25%, Floor 1.00%) | 9/25/2023 | 8,929 | 8,803 | 8,803 | |||
|
|
|
|
|
|
|
|
|
| 23,009 | 22,943 | |||
LLFlex, LLC | (10) | Provider of Metal-Based Laminates |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/16/2021 |
| 10.00% (L+9.00%, Floor 1.00%) | 8/16/2026 | 4,950 | 4,857 | 4,589 | |||
|
|
|
|
|
|
|
|
|
| |||||
Logix Acquisition Company, LLC | (10) | Competitive Local Exchange Carrier |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 1/8/2018 |
| 6.81% (L+5.75%, Floor 1.00%) | 12/22/2024 | 9,506 | 9,468 | 8,858 | |||
|
|
|
|
|
|
|
|
|
| |||||
Mac Lean-Fogg Company | (10) | Manufacturer and Supplier for Auto and Power Markets |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 4/22/2019 |
| 6.06% (L+5.25%, Floor 0.625%) | 12/22/2025 | 7,263 | 7,233 | 6,974 | |||
|
|
| Preferred Stock | (19) | 10/1/2019 |
| 13.75% (4.50% Cash, 9.25% PIK) |
| 817 | 743 | ||||
|
|
|
|
|
|
|
|
| 8,050 | 7,717 | ||||
Mako Steel, LP | (10) | Self-Storage Design & Construction |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (31) | 3/15/2021 |
| 8.81% (L+7.25%, Floor 0.75%) | 3/13/2026 | 2,840 | 2,779 | 2,654 | |||
|
|
| Secured Debt | (9) | 3/15/2021 |
| 8.38 % (L+7.25%, Floor 0.75%) | 3/13/2026 | 17,269 | 17,006 | 16,139 | |||
|
|
|
|
|
|
|
|
|
| 19,785 | 18,793 | |||
MB2 Dental Solutions, LLC | (11) | Dental Partnership Organization |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 1/28/2021 |
| 7.24% (L+6.00%, Floor 1.00%) | 1/29/2027 | 7,916 | 7,811 | 7,712 | |||
|
|
| Secured Debt | (9) (28) | 1/28/2021 |
| 7.52% | 1/29/2027 | 6,189 | 6,060 | 6,029 | |||
|
|
|
|
|
|
|
|
|
| 13,871 | 13,741 | |||
Microbe Formulas, LLC | (10) | Nutritional Supplements Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 4/4/2022 |
| 7.48% (SOFR+6.25%, Floor 1.00%) | 4/3/2028 | 3,653 | 3,576 | 3,576 | |||
|
|
|
|
|
|
|
|
|
| |||||
Mills Fleet Farm Group, LLC | (10) | Omnichannel Retailer of Work, Farm and Lifestyle Merchandise |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 10/24/2018 |
| 7.31% (L+6.25%, Floor 1.00%) | 10/24/2024 | 17,300 | 17,122 | 16,759 | |||
|
|
|
|
|
|
|
|
|
| |||||
MonitorUS Holding, LLC | (10) (13) (33) | SaaS Provider of Media Intelligence Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 5/24/2022 |
| 8.51% (L+7.00%, Floor 1.00%) | 5/24/2027 | 4,906 | 4,759 | 4,759 | |||
|
|
|
|
|
|
|
|
|
|
16
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
NinjaTrader, LLC | (10) | Operator of Futures Trading Platform |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/18/2019 |
| 7.25% (L+6.25%, Floor 1.00%) | 12/18/2024 | 16,875 | 16,647 | 16,506 | |||
|
|
|
|
|
|
|
|
|
| |||||
NNE Partners, LLC | (10) | Oil & Gas Exploration & Production |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 3/2/2017 |
| 10.31% (L+9.25%) | 12/31/2023 | 21,607 | 21,601 | 20,478 | |||
|
|
|
|
|
|
|
|
|
| |||||
NTM Acquisition Corp. | (11) | Provider of B2B Travel Information Content |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (19) | 7/12/2016 |
| 8.26% (7.26% Cash, 1.00% PIK) (1.00%PIK + L+6.25%, Floor 1.00%) | 6/7/2024 | 4,157 | 4,153 | 4,011 | |||
|
|
|
|
|
|
|
|
|
| |||||
NWN Corporation | (10) | Value Added Reseller and Provider of Managed Services to a Diverse Set of Industries |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 5/7/2021 |
| 7.87% (L+6.50%, Floor 1.00%) | 5/7/2026 | 21,239 | 20,817 | 19,421 | |||
|
|
|
|
|
|
|
|
|
| |||||
OVG Business Services, LLC | (10) | Venue Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/29/2021 |
| 7.25% (L+6.25%, Floor 1.00%) | 11/19/2028 | 17,456 | 17,296 | 16,583 | |||
|
|
|
|
|
|
|
|
|
| |||||
Paragon Healthcare, Inc. | (10) | Infusion Therapy Treatment Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 1/19/2022 |
| 6.75% (SOFR+5.75%, Floor 1.00%) | 1/19/2027 | 2,446 | 2,352 | 2,352 | |||
|
|
|
|
|
|
|
|
|
| |||||
RA Outdoors LLC | (10) | Software Solutions Provider for Outdoor Activity Management |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 4/8/2021 |
| 8.10% (SOFR+6.75%, Floor 1.00%) | 4/8/2026 | 12,917 | 12,758 | 11,481 | |||
|
|
|
|
|
|
|
|
|
| |||||
Research Now Group, Inc. and Survey Sampling International, LLC | (11) | Provider of Outsourced Online Surveying |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/29/2017 |
| 6.50% (L+5.50%, Floor 1.00%) | 12/20/2024 | 9,845 | 9,845 | 9,127 | |||
|
|
|
|
|
|
|
|
|
| |||||
RM Bidder, LLC | (10) | Scripted and Unscripted TV and Digital Programming Provider |
|
|
|
|
|
|
|
| ||||
|
|
| Member Units |
| 11/12/2015 | 1,854 |
|
| 31 | 23 | ||||
|
|
| Warrants | (26) | 11/12/2015 |
|
| 10/20/2025 | 284 | — | ||||
|
|
|
|
|
|
|
|
|
| 315 | 23 | |||
Roof Opco, LLC | (10) | Residential Re-Roofing/Repair |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/27/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 8/27/2026 | 3,500 | 3,425 | 3,199 | |||
|
|
| Secured Debt | (9) | 8/27/2021 |
| 7.01% (L+6.00%, Floor 1.00%) | 8/27/2026 | 2,411 | 2,324 | 2,215 | |||
|
|
|
|
|
|
|
|
|
| 5,749 | 5,414 |
17
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Rug Doctor, LLC. | (10) | Carpet Cleaning Products and Machinery |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/16/2021 |
| 7.31% (L+6.25%, Floor 1.00%) | 11/16/2024 | 15,750 | 15,626 | 13,603 | |||
|
|
|
|
|
|
|
|
|
| |||||
Salient Partners L.P. | (11) | Provider of Asset Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/31/2018 |
| 7.01% (L+6.00%, Floor 1.00%) | 10/30/2022 | 6,251 | 6,278 | 4,920 | |||
|
|
| Secured Debt | (9) | 9/30/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 10/30/2022 | 1,250 | 1,250 | 2,435 | |||
|
|
|
|
|
|
|
|
|
| 7,528 | 7,355 | |||
Savers, Inc. | (11) | For-Profit Thrift Retailer |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 5/14/2021 |
| 7.13% (L+5.75%, Floor 0.75%) | 4/26/2028 | 4,303 | 4,290 | 4,070 | |||
|
|
|
|
|
|
|
|
|
| |||||
SIB Holdings, LLC | (10) | Provider of Cost Reduction Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 7.58% (L+6.00%, Floor 1.00%) | 10/29/2026 | 10,616 | 10,412 | 10,412 | |||
|
|
| Common Equity |
| 10/29/2021 | 119,048 |
|
| 250 | 250 | ||||
|
|
|
|
|
|
|
|
|
| 10,662 | 10,662 | |||
Slick Innovations, LLC |
| Text Message Marketing Platform |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 9/13/2018 |
| 12.00% | 9/13/2023 | 1,160 | 1,088 | 1,160 | |||
|
|
| Common Stock |
| 9/13/2018 | 17,500 |
|
| 175 | 410 | ||||
|
|
| Warrants | (27) | 9/13/2018 | 4,521 |
| 9/13/2028 | 45 | 110 | ||||
|
|
|
|
|
|
|
|
|
| 1,308 | 1,680 | |||
South Coast Terminals Holdings, LLC | (10) | Specialty Toll Chemical Manufacturer |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/10/2021 |
| 7.51% (L+6.25%, Floor 1.00%) | 12/13/2026 | 3,540 | 3,470 | 3,470 | |||
|
|
| Common Equity |
| 12/10/2021 | 60,606 |
|
| 61 | 65 | ||||
|
|
|
|
|
|
|
|
|
| 3,531 | 3,535 | |||
Student Resource Center, LLC | (10) | Higher Education Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 6/25/2021 |
| 9.01% (L+8.00%, Floor 1.00%) | 6/25/2026 | 11,764 | 11,556 | 10,100 | |||
|
|
|
|
|
|
|
|
|
| |||||
Tex Tech Tennis, LLC | (10) | Sporting Goods & Textiles |
|
|
|
|
|
|
|
| ||||
|
|
| Common Stock | (23) | 7/7/2021 | 1,000,000 |
|
| 1,000 | 1,320 | ||||
|
|
|
|
|
|
|
|
|
| |||||
The Affiliati Network, LLC |
| Performance Marketing Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/9/2021 |
| 11.83% | 8/9/2026 | 2,940 | 2,881 | 2,881 | |||
|
|
| Preferred Stock | (8) | 8/9/2021 | 388,889 |
|
| 1,600 | 1,600 | ||||
|
|
|
|
|
|
|
|
|
| 4,481 | 4,481 | |||
U.S. TelePacific Corp. | (11) | Provider of Communications and Managed Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (19) (29) (32) | 5/17/2017 |
| 9.25% (2.00% Cash, 7.25% PIK) (SOFR+1.00%, Floor 1.00%, 7.25% PIK) | 5/2/2026 | 12,941 | 12,864 | 5,500 | |||
|
|
|
|
|
|
|
|
|
| |||||
USA DeBusk LLC | (10) | Provider of Industrial Cleaning Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 10/22/2019 |
| 6.81% (L+5.75%, Floor 1.00%) | 9/8/2026 | 19,900 | 19,671 | 19,060 | |||
|
|
|
|
|
|
|
|
|
|
18
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Vida Capital, Inc | (11) | Alternative Asset Manager |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 10/10/2019 |
| 7.36% (L+6.00%) | 10/1/2026 | 6,544 | 6,481 | 5,300 | |||
|
|
|
|
|
|
|
|
|
| |||||
Vistar Media, Inc. | (10) | Operator of Digital Out-of-Home Advertising Platform |
|
|
|
|
|
|
|
| ||||
|
|
| Preferred Stock |
| 4/3/2019 | 70,207 |
|
| 767 | 2,350 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Volusion, LLC |
| Provider of Online Software-as-a-Service eCommerce Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (17) | 1/26/2015 |
| 11.50% | 1/26/2020 | 7,322 | 7,322 | 7,322 | |||
|
|
| Unsecured Convertible Debt |
| 5/16/2018 |
| 8.00% | 11/16/2023 | 175 | 175 | 175 | |||
|
|
| Preferred Member Units |
| 1/26/2015 | 2,090,001 |
|
| 6,000 | 1,260 | ||||
|
|
| Warrants | (27) | 1/26/2015 | 784,867 |
| 1/26/2025 | 1,104 | — | ||||
|
|
|
|
|
|
|
|
|
| 14,601 | 8,757 | |||
VORTEQ Coil Finishers, LLC | (10) | Specialty Coating of Aluminum and Light-Gauge Steel |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/30/2021 |
| 8.26% (L+7.25%, Floor 1.00%) | 11/30/2026 | 18,990 | 18,652 | 18,510 | |||
|
|
| Common Equity | (8) | 11/30/2021 | 769,231 |
|
| 769 | 1,660 | ||||
|
|
|
|
|
|
|
|
|
| 19,421 | 20,170 | |||
Wall Street Prep, Inc. | (10) | Financial Training Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/19/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 7/19/2026 | 5,363 | 5,266 | 4,950 | |||
|
|
| Common Stock |
| 7/19/2021 | 500,000 |
|
| 500 | 500 | ||||
|
|
|
|
|
|
|
|
|
| 5,766 | 5,450 | |||
Watterson Brands, LLC | (10) | Facility Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/17/2021 |
| 7.01% (L+6.00%, Floor 1.00%) | 12/17/2026 | 4,152 | 4,079 | 4,079 | |||
|
|
|
|
|
|
|
|
|
| |||||
West Star Aviation Acquisition, LLC | (10) | Aircraft, Aircraft Engine and Engine Parts |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (32) | 3/1/2022 |
| 6.75% (SOFR+6.0%, Floor 0.75%) | 3/1/2028 | 3,000 | 2,938 | 2,938 | |||
|
|
| Common Stock |
| 3/1/2022 | 200,000 |
|
| 200 | 200 | ||||
|
|
|
|
|
|
|
|
|
| 3,138 | 3,138 | |||
Winter Services LLC | (10) | Provider of Snow Removal and Ice Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 11/19/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 11/19/2026 | 12,500 | 12,182 | 11,778 | |||
|
|
|
|
|
|
|
|
|
| |||||
Xenon Arc, Inc. | (10) | Tech-enabled Distribution Services to Chemicals and Food Ingredients Primary Producers |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 12/17/2021 |
| 6.75% (L+6.00%, Floor 0.75%) | 12/17/2026 | 2,388 | 2,317 | 2,277 | |||
|
|
|
|
|
|
|
|
|
| |||||
YS Garments, LLC | (11) | Designer and Provider of |
|
|
|
|
|
|
|
|
19
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
Branded Activewear | ||||||||||||||
|
|
| Secured Debt | (9) (29) | 8/22/2018 |
| 6.54% (L+5.50%, Floor 1.00%) | 8/9/2024 | 6,376 | 6,351 | 6,153 | |||
|
|
|
|
|
|
|
|
|
| |||||
Zips Car Wash, LLC | (10) | Express Car Wash Operator |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 2/11/2022 |
| 8.26%(L+7.25%, Floor 1.00%) | 3/1/2024 | 2,400 | 2,355 | 2,355 | |||
|
|
| Secured Debt | (9) (32) | 2/11/2022 |
| 8.72% | 3/1/2024 | 548 | 543 | 543 | |||
|
|
|
|
|
|
|
|
|
| 2,898 | 2,898 | |||
Subtotal Non-Control/Non-Affiliate Investments (133.6% of net assets at fair value) |
|
|
|
|
|
|
|
|
| $ | 851,577 | $ | 810,780 | |
Total Portfolio Investments, June 30, 2022 (182.2% of net assets at fair value) |
|
|
|
|
|
|
|
|
| $ | 1,102,733 | $ | 1,105,677 | |
Short-Term Investments (16) |
|
|
|
|
|
|
|
|
|
| ||||
US Bank Money Market Account (21) | 2,498 | 2,498 | ||||||||||||
Total Short-Term Investments | $ | 2,498 | $ | 2,498 |
momitor
(1) | All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Lower Middle Market portfolio investments. All of the Company’s investments, unless otherwise noted, are encumbered as security for one of the Company’s Credit Facilities. |
(2) | Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted by footnote (8), as described below. |
(3) | See Note C—Fair Value Hierarchy for Investments—Portfolio Composition and Schedule 12-14 for a summary of geographic location of portfolio companies. |
(4) | Principal is net of repayments. Cost is net of repayments and accumulated unearned income. |
(5) | Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. |
(6) | Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% (inclusive) of the voting securities are owned and the investments are not classified as Control investments. |
(7) | Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments. |
(8) | Income producing through dividends or distributions. |
(9) | Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the Company’s investment portfolio bear interest at a rate that may be determined by reference to either LIBOR, SOFR or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets every one, three, or six months at the borrower’s option. As noted in this schedule, 74% of the loans (based on the par amount) contain LIBOR or Term SOFR ("SOFR") floors which range between 0.63% and 2.00%, with a weighted-average floor of 1.03%. |
(10) | Private Loan portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Private Loan portfolio investments. |
(11) | Middle Market portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Middle Market portfolio investments. |
(12) | Other Portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Other Portfolio investments. |
(13) | Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. |
(14) | Non-accrual and non-income producing investment. |
20
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
June 30, 2022
(dollars in thousands)
(Unaudited)
(15) | All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities.” |
(16) | Short-term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less. These short-term investments are included as Cash and cash equivalents on the Consolidated Balance Sheets. |
(17) | Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable. |
(18) | Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for further discussion. |
(19) | PIK interest income and cumulative dividend income represent income not paid currently in cash. |
(20) | All portfolio company headquarters are based in the United States, unless otherwise noted. |
(21) | Effective yield as of June 30, 2022 was approximately 0.005% on the US Bank Money Market Account. |
(22) | Investment date represents the date of initial investment in the security position. |
(23) | Shares/Units represent ownership in a related Real Estate or HoldCo entity. |
(24) | Investment is not unitized. Presentation is made in percent of fully diluted ownership unless otherwise indicated. |
(25) | Warrants are presented in equivalent shares with a strike price of $10.92 per share. |
(26) | Warrants are presented in equivalent units with a strike price of $14.28 per unit. |
(27) | Warrants are presented in equivalent shares/units with a strike price of $0.01 per share/unit. |
(28) | As of June 30, 2022, borrowings under the loan facility bear interest at LIBOR+6.00% (Floor 1.00%) or Prime+5.00%. Delayed draw term loan facility permits the borrower to make an interest rate election regarding the base rate on each draw under the facility. The rate presented represents a weighted-average rate for borrowings under the facility. |
(29) | As of June 30, 2022, borrowings under the loan facility bear interest at LIBOR+6.50% (Floor 1.00%). Each new draw on the delayed draw term loan facility has a different floating rate reset date. The rate presented represents a weighted-average rate for borrowings under the facility. |
(30) | As of June 30, 2022, borrowings under the loan facility bear interest at LIBOR+7.25% (Floor 1.00%). Each new draw on the delayed draw term loan facility has a different floating rate reset date. The rate presented represents a weighted-average rate for borrowings under the facility. |
(31) | The security has an effective contractual interest rate of 2.00% PIK + LIBOR+6.50%, Floor 1.00%, but the issuer may, in its discretion, elect to pay the PIK interest in cash. The rate presented represents the effective current yield based on actual payments received during the period. |
(32) | SOFR based contracts may include a credit spread adjustment (the “Adjustment”) that is charged in addition to the stated spread. The Adjustment is applied when the SOFR rate, plus the Adjustment, exceeds the stated floor rate, as applicable. As of June 30, 2022, SOFR based contracts in the portfolio had Adjustments ranging from 0.10% to 0.26%. |
(33) | Portfolio company headquarters are located outside of the United States. |
21
MSC INCOME FUND, INC.
Consolidated Schedule of Investments
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Control Investments (5) |
|
|
|
|
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Copper Trail Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
|
| |||
|
|
| LP Interests (CTMH, LP) | (24) | 7/17/2017 | 38.8% |
|
| $ | 835 | $ | 710 | ||
|
|
|
|
|
|
|
|
|
|
|
| |||
GRT Rubber Technologies LLC |
| Manufacturer of Engineered Rubber Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 12/19/2014 |
| 8.10% (L+8.00%) | 10/29/2026 | $ | 19,152 | 18,930 | 19,152 | ||
|
|
| Member Units | (8) | 12/19/2014 | 2,896 |
|
| 6,435 | 22,750 | ||||
|
|
|
|
|
|
|
|
|
| 25,365 | 41,902 | |||
Harris Preston Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
|
| |||
|
|
| LP Interests (2717 MH, L.P.) | (24) | 10/1/2017 | 49.3% |
|
| 2,703 | 3,971 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Subtotal Control Investments (7.6% of net assets at fair value) |
|
|
|
|
|
|
|
|
| $ | 28,903 | $ | 46,583 | |
Affiliate Investments (6) |
|
|
|
|
|
|
|
|
|
|
| |||
AFG Capital Group, LLC |
| Provider of Rent-to-Own Financing Solutions and Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 4/25/2019 |
| 10.00% | 5/25/2022 | 36 | 36 | 36 | |||
|
|
| Preferred Member Units | (8) | 11/7/2014 | 46 |
|
| 300 | 1,930 | ||||
|
|
|
|
|
|
|
|
|
| 336 | 1,966 | |||
Analytical Systems Keco Holdings, LLC |
| Manufacturer of Liquid and Gas Analyzers |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/16/2019 |
| 12.00% (L+10.00%, Floor 2.00%) | 8/16/2024 | 1,236 | 1,178 | 1,178 | |||
|
|
| Preferred Member Units |
| 8/16/2019 | 800 |
|
| 800 | - | ||||
|
|
| Preferred Member Units |
| 5/20/2021 | 607 |
|
| 607 | 1,220 | ||||
|
|
| Warrants | (27) | 8/16/2019 | 105 |
| 8/16/2029 | 79 | - | ||||
|
|
|
|
|
|
|
|
|
| 2,664 | 2,398 | |||
ATX Networks Corp. | (11) | Provider of Radio Frequency Management Equipment |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 9/1/2021 |
| 8.50% (L+7.50%, Floor 1.00%) | 9/1/2026 | 7,698 | 7,153 | 7,121 | |||
|
|
| Unsecured Debt | (19) | 9/1/2021 |
| 10.00% PIK | 9/1/2028 | 3,090 | 2,010 | 1,977 | |||
|
|
| Common Stock |
| 9/1/2021 | 585 |
|
| - | - | ||||
|
|
|
|
|
|
|
|
|
| 9,163 | 9,098 | |||
Barfly Ventures, LLC | (10) | Casual Restaurant Group |
|
|
|
|
|
|
|
| ||||
|
|
| Member Units |
| 10/26/2020 | 12 |
|
| 528 | 643 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Brewer Crane Holdings, LLC |
| Provider of Crane Rental and Operating Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 1/9/2018 |
| 11.00% (L+10.00%, Floor 1.00%) | 1/9/2023 | 2,015 | 2,005 | 2,005 | |||
|
|
| Preferred Member Units | (8) | 1/9/2018 | 737 |
|
| 1,070 | 1,930 | ||||
|
|
|
|
|
|
|
|
|
| 3,075 | 3,935 | |||
Centre Technologies Holdings, LLC |
| Provider of IT Hardware Services and Software Solutions |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 1/4/2019 |
| 12.00% (L+10.00%, Floor 2.00%) | 1/4/2024 | 2,354 | 2,331 | 2,216 | |||
|
|
| Preferred Member Units |
| 1/4/2019 | 3,174 |
|
| 1,460 | 1,460 | ||||
|
|
|
|
|
|
|
|
|
| 3,791 | 3,676 | |||
Chamberlin Holding LLC |
| Roofing and Waterproofing Specialty Contractor |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 2/26/2018 |
| 9.00% (L+8.00%, Floor 1.00%) | 2/26/2023 | 4,454 | 4,406 | 4,454 | |||
|
|
| Member Units | (8) | 2/26/2018 | 1,087 |
|
| 2,860 | 6,030 | ||||
|
|
| Member Units | (8) (23) | 11/2/2018 | 261,786 |
|
| 330 | 385 | ||||
|
|
|
|
|
|
|
|
| 7,596 | 10,869 | ||||
Charps, LLC |
| Pipeline Maintenance and Construction |
|
|
|
|
|
|
|
|
| |||
22
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| Preferred Member Units | (8) | 2/3/2017 | 457 |
|
| 491 | 3,500 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Clad-Rex Steel, LLC |
| Specialty Manufacturer of Vinyl-Clad Metal |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/20/2016 |
| 10.50% (L+9.50%, Floor 1.00%) | 1/15/2024 | 2,620 | 2,620 | 2,620 | |||
|
|
| Member Units | (8) | 12/20/2016 | 179 |
|
| 1,820 | 2,560 | ||||
|
|
| Secured Debt |
| 12/20/2016 |
| 10.00% | 12/20/2036 | 270 | 268 | 268 | |||
|
|
| Member Units | (23) | 12/20/2016 | 200 |
|
| 53 | 133 | ||||
|
|
|
|
|
|
|
|
| 4,761 | 5,581 | ||||
Cody Pools, Inc. |
| Designer of Residential and Commercial Pools |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 3/6/2020 |
| 12.25% (L+10.50%, Floor 1.75%) | 12/17/2026 | 7,187 | 7,055 | 7,181 | |||
|
|
| Preferred Member Units | (8) (23) | 3/6/2020 | 147 |
|
| 2,079 | 11,910 | ||||
|
|
|
|
|
|
|
|
|
| 9,134 | 19,091 | |||
Colonial Electric Company LLC |
| Provider of Electrical Contracting Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 3/31/2021 |
| 12.00% | 3/31/2026 | 6,143 | 6,007 | 6,007 | |||
|
|
| Preferred Member Units | (8) | 3/31/2021 | 4,320 |
|
| 1,920 | 2,280 | ||||
|
|
|
|
|
|
|
|
|
| 7,927 | 8,287 | |||
Datacom, LLC |
| Technology and Telecommunications Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 3/31/2021 |
| 5.00% | 12/31/2025 | 988 | 901 | 852 | |||
|
|
| Preferred Member Units |
| 3/31/2021 | 1,000 |
|
| 290 | 290 | ||||
|
|
|
|
|
|
|
|
|
| 1,191 | 1,142 | |||
Digital Products Holdings LLC |
| Designer and Distributor of Consumer Electronics |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 4/1/2018 |
| 11.00% (L+10.00%, Floor 1.00%) | 4/1/2023 | 4,213 | 4,186 | 4,186 | |||
|
|
| Preferred Member Units | (8) | 4/1/2018 | 964 |
|
| 2,375 | 2,459 | ||||
|
|
|
|
|
|
|
|
|
| 6,561 | 6,645 | |||
Direct Marketing Solutions, Inc. |
| Provider of Omni-Channel Direct Marketing Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 2/13/2018 |
| 12.00% (L+11.00%, Floor 1.00%) | 2/13/2024 | 4,705 | 4,644 | 4,698 | |||
|
|
| Preferred Stock | (8) | 2/13/2018 | 2,100 |
|
| 2,100 | 4,590 | ||||
|
|
|
|
|
|
|
|
|
| 6,744 | 9,288 | |||
Flame King Holdings, LLC |
| Propane Tank and Accessories Distributor |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 10/31/2026 | 1,600 | 1,581 | 1,581 | |||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 10/31/2026 | 5,300 | 5,145 | 5,145 | |||
|
|
| Preferred Equity |
| 10/29/2021 | 2,340 |
|
| 2,600 | 2,600 | ||||
|
|
|
|
|
|
|
|
|
| 9,326 | 9,326 | |||
Freeport Financial Funds | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
|
| |||
|
|
| LP Interests (Freeport First Lien Loan Fund III LP) | (8) (24) | 7/31/2015 | 6.0% |
|
| 7,629 | 7,231 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Gamber-Johnson Holdings, LLC |
| Manufacturer of Ruggedized Computer Mounting Systems |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/24/2016 |
| 9.50% (L+7.50%, Floor 2.00%) | 1/1/2025 | 5,400 | 5,382 | 5,400 | |||
|
|
| Member Units | (8) | 6/24/2016 | 2,261 |
|
| 4,423 | 12,430 | ||||
|
|
|
|
|
|
|
|
|
| 9,805 | 17,830 | |||
GFG Group, LLC. |
| Grower and Distributor of a Variety of Plants and Products to Other Wholesalers, Retailers and Garden Centers |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 3/31/2021 |
| 12.00% | 3/31/2026 | 3,136 | 3,053 | 3,136 | |||
|
|
| Preferred Member Units | (8) | 3/31/2021 | 56 |
|
| 1,225 | 1,750 | ||||
23
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
| 4,278 | 4,886 | |||
Gulf Publishing Holdings, LLC |
| Energy Industry Focused Media and Publishing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (17) (19) | 9/29/2017 |
| 10.50% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%) | 9/30/2020 | 64 | 64 | 64 | |||
|
|
| Secured Debt | (17) (19) | 4/29/2016 |
| 12.50% (6.25% Cash, 6.25% PIK) | 4/29/2021 | 3,391 | 3,391 | 2,429 | |||
|
|
| Member Units |
| 4/29/2016 | 920 |
|
| 920 | - | ||||
|
|
|
|
|
|
|
|
|
| 4,375 | 2,493 | |||
Harris Preston Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
| ||||
|
|
| LP Interests (HPEP 3, L.P.) | (24) | 8/9/2017 | 8.2% |
|
| 3,193 | 4,712 | ||||
|
|
|
|
|
|
|
|
|
| |||||
Kickhaefer Manufacturing Company, LLC |
| Precision Metal Parts Manufacturing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 10/31/2018 |
| 11.50% | 10/31/2023 | 5,104 | 5,040 | 5,040 | |||
|
|
| Member Units |
| 10/31/2018 | 145 |
|
| 3,060 | 3,080 | ||||
|
|
| Secured Debt |
| 10/31/2018 |
| 9.00% | 10/31/2048 | 979 | 970 | 970 | |||
|
|
| Member Units | (8) (23) | 10/31/2018 | 200 |
|
| 248 | 615 | ||||
|
|
|
|
|
|
|
|
|
| 9,318 | 9,705 | |||
Market Force Information, LLC |
| Provider of Customer Experience Management Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (14) (19) | 7/28/2017 |
| 12.00% PIK | 7/28/2023 | 6,520 | 6,463 | 2,234 | |||
|
|
| Member Units |
| 7/28/2017 | 185,980 |
|
| 4,160 | - | ||||
|
|
|
|
|
|
|
|
| 10,623 | 2,234 | ||||
MH Corbin Holding LLC |
| Manufacturer and Distributor of Traffic Safety Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 8/31/2015 |
| 13.00% | 3/31/2022 | 2,063 | 2,061 | 1,484 | |||
|
|
| Preferred Member Units |
| 3/15/2019 | 16,500 |
|
| 1,100 | - | ||||
|
|
| Preferred Member Units |
| 9/1/2015 | 1,000 |
|
| 1,500 | - | ||||
|
|
|
|
|
|
|
|
|
| 4,661 | 1,484 | |||
Mystic Logistics Holdings, LLC |
| Logistics and Distribution Services Provider for Large Volume Mailers |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 8/18/2014 |
| 12.00% | 1/17/2022 | 1,595 | 1,594 | 1,595 | |||
|
|
| Common Stock | (8) | 8/18/2014 | 1,468 |
|
| 680 | 2,210 | ||||
|
|
|
|
|
|
|
|
| 2,274 | 3,805 | ||||
NexRev LLC |
| Provider of Energy Efficiency Products & Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 2/28/2018 |
| 11.00% | 2/28/2023 | 4,054 | 4,031 | 3,510 | |||
|
|
| Preferred Member Units | (8) | 2/28/2018 | 21,600,000 |
|
| 1,720 | 670 | ||||
|
|
|
|
|
|
|
|
| 5,751 | 4,180 | ||||
NuStep, LLC |
| Designer, Manufacturer and Distributor of Fitness Equipment |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 1/31/2017 |
| 7.50% (L+6.50%, Floor 1.00%) | 1/31/2025 | 430 | 430 | 430 | |||
|
|
| Secured Debt |
| 1/31/2017 |
| 11.00% | 1/31/2025 | 4,310 | 4,308 | 4,310 | |||
|
|
| Preferred Member Units |
| 1/31/2017 | 102 |
|
| 2,550 | 3,380 | ||||
|
|
|
|
|
|
|
|
| 7,288 | 8,120 | ||||
Oneliance, LLC |
| Construction Cleaning Company |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/6/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 8/6/2026 | 1,400 | 1,374 | 1,374 | |||
|
|
| Preferred Stock |
| 8/6/2021 | 264 |
|
| 264 | 264 | ||||
|
|
|
|
|
|
|
|
|
| 1,638 | 1,638 | |||
Orttech Holdings, LLC |
| Distributor of Industrial Clutches, Brakes and Other Components |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 7/30/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 7/31/2026 | 6,094 | 5,978 | 5,978 | |||
|
|
| Preferred Stock | (8) (23) | 7/30/2021 | 2,500 |
|
| 2,500 | 2,500 | ||||
|
|
|
|
|
|
|
|
|
| 8,478 | 8,478 | |||
SI East, LLC |
| Rigid Industrial Packaging Manufacturing |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/31/2018 |
| 10.25% | 8/31/2023 | 21,950 | 21,892 | 21,950 | |||
24
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| Preferred Member Units | (8) | 8/31/2018 | 52 |
|
| 406 | 3,860 | ||||
|
|
|
|
|
|
|
|
|
| 22,298 | 25,810 | |||
Sonic Systems International, LLC | (10) | Nuclear Power Staffing Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) | 8/20/2021 |
| 8.50% (L+7.50%, Floor 1.00%) | 8/20/2026 | 14,000 | 13,738 | 13,738 | |||
|
|
| Common Stock |
| 8/20/2021 | 9,191 |
|
| 1,250 | 1,250 | ||||
|
|
|
|
|
|
|
|
|
| 14,988 | 14,988 | |||
Tedder Industries, LLC |
| Manufacturer of Firearm Holsters and Accessories |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 8/31/2018 |
| 12.00% | 8/31/2022 | 4,060 | 4,013 | 4,013 | |||
|
|
| Preferred Member Units |
| 8/31/2018 | 126 |
|
| 2,145 | 2,145 | ||||
|
|
|
|
|
|
|
|
|
| 6,158 | 6,158 | |||
Trantech Radiator Topco, LLC |
| Transformer Cooling Products and Services |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt |
| 5/31/2019 |
| 12.00% | 5/31/2024 | 2,180 | 2,137 | 2,174 | |||
|
|
| Common Stock | (8) | 5/31/2019 | 154 |
|
| 1,164 | 2,160 | ||||
|
|
|
|
|
|
|
|
|
| 3,301 | 4,334 | |||
VVS Holdco LLC |
| Omnichannel Retailer of Animal Health Products |
|
|
|
|
|
|
|
| ||||
|
|
| Secured Debt | (9) (23) | 12/1/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 12/1/2026 | 300 | 292 | 292 | |||
|
|
| Secured Debt | (23) | 12/1/2021 |
| 11.50% | 12/1/2026 | 7,600 | 7,375 | 7,375 | |||
|
|
| Preferred Equity | (23) | 12/1/2021 | 2,960 |
|
| 2,960 | 2,960 | ||||
|
|
|
|
|
|
|
|
| 10,627 | 10,627 | ||||
Subtotal Affiliate Investments (38.2% of net assets at fair value) |
|
|
|
|
|
|
|
|
| $ | 209,971 | $ | 234,158 | |
25
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Non-Control/Non-Affiliate Investments (7) |
|
|
|
|
|
|
|
|
|
|
| |||
AAC Holdings, Inc. | (11) | Substance Abuse Treatment Service Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (19) | 12/11/2020 |
| 18.00% (10.00% Cash, 8.00% PIK) | 6/25/2025 | $ | 3,636 | $ | 3,342 | $ | 3,491 |
|
|
| Common Stock |
| 12/11/2020 | 593,927 |
|
|
| 3,148 | 2,079 | |||
|
|
| Warrants | (27) | 12/11/2020 | 197,717 |
| 12/11/2025 |
| — | 692 | |||
|
|
|
|
|
|
|
|
|
| 6,490 | 6,262 | |||
ADS Tactical, Inc. | (11) | Value-Added Logistics and Supply Chain Provider to the Defense Industry |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 3/29/2021 |
| 6.75% (L+5.75%, Floor 1.00%) | 3/19/2026 | 9,625 | 9,450 | 9,571 | |||
|
|
|
|
|
|
|
|
|
| |||||
American Health Staffing Group, Inc. | (10) | Healthcare Temporary Staffing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/19/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 11/19/2026 | 8,833 | 8,736 | 8,736 | |||
|
|
|
|
|
|
|
|
|
| |||||
American Nuts, LLC | (10) | Roaster, Mixer and Packager of Bulk Nuts and Seeds |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/21/2018 |
| 9.00% (L+8.00%, Floor 1.00%) | 4/10/2025 | 12,016 | 11,892 | 12,016 | |||
|
|
|
|
|
|
|
|
|
| |||||
American Teleconferencing Services, Ltd. | (11) | Provider of Audio Conferencing and Video Collaboration Solutions |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (14) (17) | 9/17/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 9/9/2021 | 2,425 | 2,375 | 73 | |||
|
|
| Secured Debt | (9) (14) | 5/19/2016 |
| 7.50% (L+6.50%, Floor 1.00%) | 6/28/2023 | 11,693 | 11,451 | 351 | |||
|
|
|
|
|
|
|
|
|
| 13,826 | 424 | |||
ArborWorks, LLC | (10) | Vegetation Management Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/9/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 11/9/2026 | 17,317 | 16,929 | 16,929 | |||
|
|
| Common Equity |
| 11/9/2021 | 124 |
|
|
| 124 | 124 | |||
|
|
|
|
|
|
|
|
|
| 17,053 | 17,053 | |||
AVEX Aviation Holdings, LLC | (10) | Specialty Aircraft Dealer |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/15/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 12/15/2026 | 1,850 | 1,806 | 1,806 | |||
|
|
| Common Equity |
| 12/15/2021 | 50 |
|
|
| 50 | 50 | |||
|
|
|
|
|
|
|
|
|
| 1,856 | 1,856 | |||
BBB Tank Services, LLC |
| Maintenance, Repair and Construction Services to the Above-Ground Storage Tank Market |
|
|
|
|
|
|
|
|
| |||
|
|
| Unsecured Debt | (9) (17) | 4/8/2016 |
| 12.00% (L+11.00%, Floor 1.00%) | 4/8/2021 | 1,200 | 1,200 | 625 | |||
|
|
| Preferred Stock (non-voting) | (19) | 12/17/2018 |
| 15.00% PIK |
|
| 41 | — | |||
|
|
| Member Units |
| 4/8/2016 | 200,000 |
|
|
| 200 | — | |||
|
|
|
|
|
|
|
|
|
| 1,441 | 625 | |||
Berry Aviation, Inc. | (10) | Charter Airline Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (19) | 7/6/2018 |
| 12.00% (10.50% Cash, 1.50% PIK) | 1/6/2024 | 4,688 | 4,658 | 4,688 | |||
|
|
| Preferred Member Units | (8) (19) (23) | 11/12/2019 | 122,416 | 16.00% PIK |
|
| 168 | 208 | |||
|
|
| Preferred Member Units | (19) (23) | 7/6/2018 | 1,548,387 | 8.00% PIK |
|
| 1,671 | 2,487 | |||
|
|
|
|
|
|
|
|
|
| 6,497 | 7,383 | |||
Binswanger Enterprises, LLC | (10) | Glass Repair and Installation Service Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 3/10/2017 |
| 9.50% (L+8.50%, Floor 1.00%) | 3/10/2023 | 12,001 | 11,977 | 12,001 | |||
|
|
| Member Units |
| 3/10/2017 | 1,050,000 |
|
|
| 1,050 | 730 | |||
|
|
|
|
|
|
|
|
|
| 13,027 | 12,731 | |||
Bluestem Brands, Inc. | (11) | Multi-Channel Retailer of General Merchandise |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/28/2020 |
| 10.00% (L+8.50%, Floor 1.50%) | 8/28/2025 | 5,745 | 5,745 | 5,724 | |||
|
|
| Common Stock | (8) | 10/1/2020 | 700,446 |
|
|
| — | 1,471 | |||
26
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
| 5,745 | 7,195 | |||
Boccella Precast Products LLC |
| Manufacturer of Precast Hollow Core Concrete |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 9/23/2021 |
| 10.00% | 2/28/2027 | 80 | 80 | 80 | |||
|
|
| Member Units | (8) | 6/30/2017 | 540,000 |
|
|
| 564 | 1,207 | |||
|
|
|
|
|
|
|
|
|
| 644 | 1,287 | |||
Brightwood Capital Fund Investments | (12) (13) | Investment Partnership |
|
|
|
|
|
|
|
|
| |||
|
|
| LP Interests (Brightwood Capital Fund III, LP) | (8) (24) | 7/21/2014 | 0.5% |
|
|
| 2,495 | 1,423 | |||
|
|
| LP Interests (Brightwood Capital Fund IV, LP) | (8) (24) | 10/26/2016 | 1.2% |
|
|
| 8,737 | 8,788 | |||
|
|
|
|
|
|
|
|
|
| 11,232 | 10,211 | |||
Buca C, LLC |
| Casual Restaurant Group |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (17) | 6/30/2015 |
| 10.25% (L+9.25%, Floor 1.00%) | 6/30/2020 | 13,164 | 13,164 | 9,705 | |||
|
|
| Preferred Member Units | (19) | 6/30/2015 | 4 | 6.00% PIK |
|
| 3,040 | — | |||
|
|
|
|
|
|
|
|
|
| 16,204 | 9,705 | |||
Burning Glass Intermediate Holding Company, Inc. | (10) | Provider of Skills-Based Labor Market Analytics |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 6.00% (L+5.00%, Floor 1.00%) | 6/10/2026 | 310 | 285 | 285 | |||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 6.00% (L+5.00%, Floor 1.00%) | 6/10/2028 | 13,389 | 13,168 | 13,290 | |||
|
|
|
|
|
|
|
|
|
| 13,453 | 13,575 | |||
Cadence Aerospace LLC | (10) | Aerostructure Manufacturing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (19) | 11/14/2017 |
| 9.28% Cash, 0.22% PIK | 11/14/2023 | 20,276 | 20,174 | 19,017 | |||
|
|
|
|
|
|
|
|
|
| |||||
CAI Software LLC |
| Provider of Specialized Enterprise Resource Planning Software |
|
|
|
|
|
|
|
|
| |||
|
|
| Preferred Equity |
| 12/13/2021 | 379,338 |
|
|
| 379 | 379 | |||
|
|
| Preferred Equity |
| 12/13/2021 | 126,446 |
|
|
| — | — | |||
|
|
|
|
|
|
|
|
|
| 379 | 379 | |||
Camin Cargo Control, Inc. | (11) | Provider of Mission Critical Inspection, Testing and Fuel Treatment Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/14/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 6/4/2026 | 7,960 | 7,888 | 7,920 | |||
|
|
|
|
|
|
|
|
|
| |||||
Career Team Holdings, LLC |
| Provider of Workforce Training and Career Development Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 12/17/2021 |
| 12.50% | 12/17/2026 | 2,250 | 2,180 | 2,180 | |||
|
|
| Class A Common Units |
| 12/17/2021 | 50,000 |
|
|
| 500 | 500 | |||
|
|
|
|
|
|
|
|
|
| 2,680 | 2,680 | |||
Cenveo Corporation | (11) | Provider of Digital Marketing Agency Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Common Stock |
| 9/7/2018 | 253,194 |
|
|
| 4,848 | 2,236 | |||
|
|
|
|
|
|
|
|
|
| |||||
Chisholm Energy Holdings, LLC | (10) | Oil & Gas Exploration & Production |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/15/2019 |
| 7.75% (L+6.25%, Floor 1.50%) | 5/15/2026 | 2,857 | 2,817 | 2,663 | |||
|
|
|
|
|
|
|
|
|
| |||||
Clarius BIGS, LLC | (10) | Prints & Advertising Film Financing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (14) (17) (19) | 9/23/2014 |
| 15.00% PIK | 1/5/2015 | 2,772 | 2,431 | 33 | |||
|
|
|
|
|
|
|
|
|
| |||||
Classic H&G Holdings, LLC |
| Provider of Engineered Packaging Solutions |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 3/12/2020 |
| 7.00% (L+6.00%, Floor 1.00%) | 3/12/2025 | 1,000 | 997 | 1,000 | |||
|
|
| Secured Debt |
| 3/12/2020 |
| 8.00% | 3/12/2025 | 4,819 | 4,717 | 4,819 | |||
27
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| Preferred Member Units | (8) | 3/12/2020 | 39 |
|
|
| 1,440 | 3,810 | |||
|
|
|
|
|
|
|
|
|
| 7,154 | 9,629 | |||
Computer Data Source, LLC | (10) | Third Party Maintenance Provider to the Data Center Ecosystem |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/6/2021 |
| 8.50% (L+7.50%, Floor 1.00%) | 8/6/2026 | 18,011 | 17,639 | 17,639 | |||
|
|
|
|
|
|
|
|
|
| |||||
Construction Supply Investments, LLC | (10) | Distribution Platform of Specialty Construction Materials to Professional Concrete and Masonry Contractors |
|
|
|
|
|
|
|
|
| |||
|
|
| Member Units | (8) | 12/29/2016 | 861,618 |
|
|
| 3,335 | 14,640 | |||
|
|
|
|
|
|
|
|
|
| |||||
DMA Industries, LLC |
| Distributor of aftermarket ride control products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 11/19/2021 |
| 12.00% | 11/19/2026 | 5,300 | 5,196 | 5,196 | |||
|
|
| Preferred Equity |
| 11/19/2021 | 1,486 |
|
|
| 1,486 | 1,486 | |||
|
|
|
|
|
|
|
|
|
| 6,682 | 6,682 | |||
DTE Enterprises, LLC | (10) | Industrial Powertrain Repair and Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 4/13/2018 |
| 9.50% (L+8.00%, Floor 1.50%) | 4/13/2023 | 9,369 | 9,311 | 8,926 | |||
|
|
| Class AA Preferred Member Units (non-voting) | (8) (19) | 4/13/2018 |
| 10.00% PIK |
|
| 1,051 | 1,051 | |||
|
|
| Class A Preferred Member Units | (19) | 4/13/2018 | 776,316 | 8.00% PIK |
|
| 776 | 320 | |||
|
|
|
|
|
|
|
|
|
| 11,138 | 10,297 | |||
Dynamic Communities, LLC | (10) | Developer of Business Events and Online Community Groups |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 7/17/2018 |
| 9.50% (L+8.50%, Floor 1.00%) | 7/17/2023 | 5,681 | 5,641 | 5,570 | |||
|
|
|
|
|
|
|
|
|
| |||||
EPIC Y-Grade Services, LP | (11) | NGL Transportation & Storage |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/22/2018 |
| 7.00% (L+6.00%, Floor 1.00%) | 6/30/2027 | 6,892 | 6,814 | 5,861 | |||
|
|
|
|
|
|
|
|
|
| |||||
Event Holdco, LLC | (10) | Event and Learning Management Software for Healthcare Organizations and Systems |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (23) | 12/22/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 12/22/2026 | 3,692 | 3,653 | 3,653 | |||
|
|
|
|
|
|
|
|
|
| |||||
Flip Electronics LLC | (10) | Distributor of Hard-to-Find and Obsolete Electronic Components |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 1/4/2021 |
| 9.09% (L+8.09%, Floor 1.00%) | 1/2/2026 | 6,000 | 5,891 | 5,874 | |||
|
|
|
|
|
|
|
|
|
| |||||
GoWireless Holdings, Inc. | (11) | Provider of Wireless Telecommunications Carrier Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 1/10/2018 |
| 7.50% (L+6.50%, Floor 1.00%) | 12/22/2024 | 15,018 | 14,953 | 15,052 | |||
|
|
|
|
|
|
|
|
|
| |||||
GS Operating, LLC | (10) | Distributor of Industrial and Specialty Parts |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 2/24/2020 |
| 8.00% (L+6.50%, Floor 1.50%) | 2/24/2025 | 12,193 | 11,960 | 12,193 | |||
|
|
|
|
|
|
|
|
|
| |||||
Hawk Ridge Systems, LLC | (13) | Value-Added Reseller of Engineering Design and Manufacturing Solutions |
|
|
|
|
|
|
|
|
| |||
28
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| Secured Debt | (9) | 12/2/2016 |
| 7.00% (L+6.00%, Floor 1.00%) | 1/15/2026 | 646 | 646 | 646 | |||
|
|
| Secured Debt |
| 12/2/2016 |
| 8.00% | 1/15/2026 | 7,450 | 7,388 | 7,450 | |||
|
|
| Preferred Member Units | (8) | 12/2/2016 | 56 |
|
|
| 713 | 3,670 | |||
|
|
| Preferred Member Units | (23) | 12/2/2016 | 56 |
|
|
| 38 | 190 | |||
|
|
|
|
|
|
|
|
|
| 8,785 | 11,956 | |||
HDC/HW Intermediate Holdings | (10) | Managed Services and Hosting Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/21/2018 |
| 8.50% (L+7.50%, Floor 1.00%) | 12/21/2023 | 1,934 | 1,916 | 1,715 | |||
|
|
|
|
|
|
|
|
|
| |||||
Hybrid Promotions, LLC | (10) | Wholesaler of Licensed, Branded and Private Label Apparel |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/30/2021 |
| 9.25% (L+8.25%, Floor 1.00%) | 6/30/2026 | 7,875 | 7,730 | 7,809 | |||
|
|
|
|
|
|
|
|
|
| |||||
IG Parent Corporation | (11) | Software Engineering |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 7/30/2021 |
| 6.75% (L+5.75%, Floor 1.00%) | 7/30/2026 | 6,394 | 6,278 | 6,280 | |||
|
|
|
|
|
|
|
|
|
| |||||
Implus Footcare, LLC | (10) | Provider of Footwear and Related Accessories |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/1/2017 |
| 8.75% (L+7.75%, Floor 1.00%) | 4/30/2024 | 17,093 | 17,080 | 16,216 | |||
|
|
|
|
|
|
|
|
|
| |||||
Independent Pet Partners Intermediate Holdings, LLC | (10) | Omnichannel Retailer of Specialty Pet Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (19) | 12/10/2020 |
| 6.00% PIK | 11/20/2023 | 10,415 | 9,795 | 9,815 | |||
|
|
| Preferred Stock (non-voting) | (19) | 12/10/2020 |
| 6.00% PIK |
|
| 2,470 | 3,310 | |||
|
|
| Preferred Stock (non-voting) |
| 12/10/2020 |
|
|
|
| — | — | |||
|
|
| Member Units |
| 11/20/2018 | 1,191,667 |
|
|
| 1,192 | — | |||
|
|
|
|
|
|
|
|
|
| 13,457 | 13,125 | |||
Industrial Services Acquisition, LLC | (10) | Industrial Cleaning Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/13/2021 |
| 7.75% (L+6.75%, Floor 1.00%) | 8/13/2026 | 18,406 | 18,033 | 18,033 | |||
|
|
| Preferred Member Units | (8) (19) (23) | 1/31/2018 | 336 | 10.00% PIK |
|
| 281 | 383 | |||
|
|
| Preferred Member Units | (8) (19) (23) | 5/17/2019 | 187 | 20.00% PIK |
|
| 190 | 231 | |||
|
|
| Member Units | (23) | 6/17/2016 | 2,100 |
|
|
| 2,100 | 1,710 | |||
|
|
|
|
|
|
|
|
|
| 20,604 | 20,357 | |||
Infolinks Media Buyco, LLC | (10) | Exclusive Placement Provider to the Advertising Ecosystem |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/1/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 11/1/2026 | 10,850 | 10,578 | 10,578 | |||
|
|
|
|
|
|
|
|
|
| |||||
Interface Security Systems, L.L.C | (10) | Commercial Security & Alarm Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/9/2021 |
| 11.75% (L+10.00%, Floor 1.75%) | 8/7/2023 | 343 | 343 | 343 | |||
|
|
| Secured Debt | (9) (14) (19) | 8/7/2019 |
| 9.75% (8.75% Cash, 1.00% PIK) (1.00% PIK + L+7.00%, Floor 1.75%) | 8/7/2023 | 7,334 | 7,249 | 5,248 | |||
|
|
|
|
|
|
|
|
|
| 7,592 | 5,591 | |||
Intermedia Holdings, Inc. | (11) | Unified Communications as a Service |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/3/2018 |
| 7.00% (L+6.00%, Floor 1.00%) | 7/19/2025 | 5,659 | 5,649 | 5,632 | |||
|
|
|
|
|
|
|
|
|
| |||||
Invincible Boat Company, LLC. | (10) | Manufacturer of Sport Fishing Boats |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/28/2019 |
| 8.00% (L+6.50%, Floor 1.50%) | 8/28/2025 | 17,770 | 17,624 | 17,770 | |||
|
|
|
|
|
|
|
|
|
| |||||
INW Manufacturing, LLC | (11) | Manufacturer of Nutrition and Wellness Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/19/2021 |
| 6.50% (L+5.75%, Floor 0.75%) | 3/25/2027 | 7,359 | 7,155 | 7,212 | |||
29
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
| |||||
Iron-Main Investments, LLC |
| Consumer Reporting Agency Providing Employment Background Checks and Drug Testing |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 8/3/2021 |
| 13.00% | 8/1/2026 | 1,150 | 1,118 | 1,118 | |||
|
|
| Secured Debt |
| 9/1/2021 |
| 12.50% | 9/1/2026 | 800 | 777 | 777 | |||
|
|
| Secured Debt |
| 8/3/2021 |
| 12.50% | 11/30/2026 | 5,000 | 4,853 | 4,853 | |||
|
|
| Secured Debt | (19) | 8/3/2021 |
| 12.50% PIK | 3/31/2022 | 2,212 | 2,148 | 2,148 | |||
|
|
| Common Stock |
| 8/3/2021 | 44,944 |
|
|
| 449 | 449 | |||
|
|
|
|
|
|
|
|
|
| 9,345 | 9,345 | |||
Isagenix International, LLC | (11) | Direct Marketer of Health & Wellness Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/21/2018 |
| 6.75% (L+5.75%, Floor 1.00%) | 6/14/2025 | 5,158 | 5,129 | 3,865 | |||
|
|
|
|
|
|
|
|
|
| |||||
Jackmont Hospitality, Inc. | (10) | Franchisee of Casual Dining Restaurants |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/26/2015 |
| 8.00% (L+7.00%, Floor 1.00%) | 11/4/2024 | 4,200 | 4,200 | 4,200 | |||
|
|
| Preferred Equity |
| 11/8/2021 | 5,653,333 |
|
|
| 624 | 628 | |||
|
|
|
|
|
|
|
|
|
| 4,824 | 4,828 | |||
Joerns Healthcare, LLC | (11) | Manufacturer and Distributor of Health Care Equipment & Supplies |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/21/2019 |
| 7.00% (L+6.00%, Floor 1.00%) | 8/21/2024 | 3,351 | 3,320 | 3,039 | |||
|
|
| Secured Debt | (19) | 11/15/2021 |
| 15.00% PIK | 11/8/2022 | 862 | 862 | 862 | |||
|
|
| Common Stock |
| 8/21/2019 | 392,514 |
|
|
| 3,678 | — | |||
|
|
|
|
|
|
|
|
|
| 7,860 | 3,901 | |||
Johnson Downie Opco, LLC |
| Executive Search Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/10/2021 |
| 13.00% (L+11.50%, Floor 1.50%) | 12/10/2026 | 1,275 | 1,246 | 1,246 | |||
|
|
| Preferred Equity |
| 12/10/2021 | 350 |
|
|
| 350 | 350 | |||
|
|
|
|
|
|
|
|
|
| 1,596 | 1,596 | |||
JTI Electrical & Mechanical, LLC | (10) | Electrical, Mechanical and Automation Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/22/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 12/22/2026 | 3,158 | 3,081 | 3,081 | |||
|
|
| Common Equity |
| 12/22/2021 | 140,351 |
|
|
| 140 | 140 | |||
|
|
|
|
|
|
|
|
|
| 3,221 | 3,221 | |||
KMS, LLC | (10) | Wholesaler of Closeout and Value-priced Products |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/4/2021 |
| 8.25% (L+7.25%, Floor 1.00%) | 10/4/2026 | 9,476 | 9,242 | 9,242 | |||
|
|
|
|
|
|
|
|
|
| |||||
Knight Energy Services LLC | (11) | Oil and Gas Equipment & Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (19) | 1/9/2015 |
| 8.50% PIK | 2/9/2024 | 961 | 961 | 677 | |||
|
|
| Common Stock |
| 11/14/2018 | 25,692 |
|
|
| 1,843 | — | |||
|
|
|
|
|
|
|
|
|
| 2,804 | 677 | |||
Laredo Energy, LLC | (10) | Oil & Gas Exploration & Production |
|
|
|
|
|
|
|
|
| |||
|
|
| Member Units |
| 5/4/2020 | 1,155,952 |
|
|
| 11,560 | 9,659 | |||
|
|
|
|
|
|
|
|
|
| |||||
LaserAway Intermediate Holdings II, LLC | (11) | Aesthetic Dermatology Service Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/18/2021 |
| 6.50% (L+5.75%, Floor 0.75%) | 10/14/2027 | 4,130 | 4,050 | 4,115 | |||
|
|
|
|
|
|
|
|
|
| |||||
Lightbox Holdings, L.P. | (11) | Provider of Commercial Real Estate Software |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 5/23/2019 |
| 5.22% (L+5.00%) | 5/9/2026 | 5,886 | 5,831 | 5,812 | |||
|
|
|
|
|
|
|
|
|
| |||||
LL Management, Inc. | (10) | Medical Transportation Service Provider |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/2/2019 |
| 8.25% (L+7.25%, Floor 1.00%) | 9/25/2023 | 14,332 | 14,256 | 14,332 | |||
|
|
|
|
|
|
|
|
|
| |||||
LLFlex, LLC | (10) | Provider of Metal-Based Laminates |
|
|
|
|
|
|
|
|
| |||
30
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
| Secured Debt | (9) | 8/16/2021 |
| 10.00% (L+9.00%, Floor 1.00%) | 8/16/2026 | 4,988 | 4,882 | 4,882 | |||
|
|
|
|
|
|
|
|
|
| |||||
Logix Acquisition Company, LLC | (10) | Competitive Local Exchange Carrier |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 1/8/2018 |
| 6.75% (L+5.75%, Floor 1.00%) | 12/22/2024 | 12,484 | 12,438 | 11,798 | |||
|
|
|
|
|
|
|
|
|
| |||||
Mac Lean-Fogg Company | (10) | Manufacturer and Supplier for Auto and Power Markets |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 4/22/2019 |
| 5.88% (L+5.25%, Floor 0.625%) | 12/22/2025 | 7,301 | 7,266 | 7,301 | |||
|
|
| Preferred Stock | (19) | 10/1/2019 |
| 13.75% (4.50% Cash, 9.25% PIK) |
|
| 760 | 760 | |||
|
|
|
|
|
|
|
|
|
| 8,026 | 8,061 | |||
Mako Steel, LP | (10) | Self-Storage Design & Construction |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 3/15/2021 |
| 8.00% (L+7.25%, Floor 0.75%) | 3/13/2026 | 19,544 | 19,175 | 19,544 | |||
|
|
|
|
|
|
|
|
|
| |||||
MB2 Dental Solutions, LLC | (11) | Dental Partnership Organization |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 1/28/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 1/29/2027 | 11,697 | 11,462 | 11,697 | |||
|
|
|
|
|
|
|
|
|
| |||||
Mills Fleet Farm Group, LLC | (10) | Omnichannel Retailer of Work, Farm and Lifestyle Merchandise |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/24/2018 |
| 7.25% (L+6.25%, Floor 1.00%) | 10/24/2024 | 17,781 | 17,555 | 17,781 | |||
|
|
|
|
|
|
|
|
|
| |||||
NinjaTrader, LLC | (10) | Operator of Futures Trading Platform |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/18/2019 |
| 7.25% (L+6.25%, Floor 1.00%) | 12/18/2024 | 16,875 | 16,602 | 16,840 | |||
|
|
|
|
|
|
|
|
|
| |||||
NNE Partners, LLC | (10) | Oil & Gas Exploration & Production |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (19) | 3/2/2017 |
| 9.37% (4.87% Cash, 4.50% PIK) (4.50% PIK + L+4.75%) | 12/31/2023 | 21,607 | 21,599 | 20,188 | |||
|
|
|
|
|
|
|
|
|
| |||||
NTM Acquisition Corp. | (11) | Provider of B2B Travel Information Content |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) (19) | 7/12/2016 |
| 8.25% (7.25% Cash, 1.00% PIK) (1.00%PIK + L+6.25%, Floor 1.00%) | 6/7/2024 | 4,258 | 4,254 | 4,216 | |||
|
|
|
|
|
|
|
|
|
| |||||
NWN Corporation | (10) | Value Added Reseller and Provider of Managed Services to a Diverse Set of Industries |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/7/2021 |
| 7.50% (L+6.50%, Floor 1.00%) | 5/7/2026 | 22,162 | 21,687 | 21,786 | |||
|
|
|
|
|
|
|
|
|
| |||||
OVG Business Services, LLC | (10) | Venue Management Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/29/2021 |
| 7.25% (L+6.25%, Floor 1.00%) | 11/19/2028 | 17,500 | 17,327 | 17,327 | |||
|
|
|
|
|
|
|
|
|
| |||||
RA Outdoors LLC | (10) | Software Solutions Provider for Outdoor Activity Management |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 4/8/2021 |
| 7.75% (L+6.75%, Floor 1.00%) | 4/8/2026 | 18,719 | 18,544 | 17,731 | |||
|
|
|
|
|
|
|
|
|
| |||||
Research Now Group, Inc. and Survey Sampling International, LLC | (11) | Provider of Outsourced Online Surveying |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/29/2017 |
| 6.50% (L+5.50%, Floor 1.00%) | 12/20/2024 | 9,897 | 9,897 | 9,787 | |||
|
|
|
|
|
|
|
|
|
| |||||
RM Bidder, LLC | (10) | Scripted and Unscripted TV and |
|
|
|
|
|
|
|
|
| |||
31
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Digital Programming Provider | ||||||||||||||
|
|
| Member Units |
| 11/12/2015 | 1,854 |
|
|
| 31 | 18 | |||
|
|
| Warrants | (26) | 11/12/2015 |
|
| 10/20/2025 |
| 284 | — | |||
|
|
|
|
|
|
|
|
|
| 315 | 18 | |||
Robbins Bros. Jewelry, Inc. |
| Bridal Jewelry Retailer |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/15/2021 |
| 12.00% (L+11.00%, Floor 1.00%) | 12/15/2026 | 4,040 | 3,950 | 3,950 | |||
|
|
| Preferred Equity |
| 12/15/2021 | 1,230 |
|
|
| 1,230 | 1,230 | |||
|
|
|
|
|
|
|
|
|
| 5,180 | 5,180 | |||
Roof Opco, LLC | (10) | Residential Re-Roofing/Repair |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/27/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 8/27/2026 | 3,500 | 3,343 | 3,343 | |||
|
|
|
|
|
|
|
|
|
| |||||
Rug Doctor, LLC. | (10) | Carpet Cleaning Products and Machinery |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 7/16/2021 |
| 7.25% (L+6.25%, Floor 1.00%) | 11/16/2024 | 12,367 | 12,217 | 12,099 | |||
|
|
|
|
|
|
|
|
|
| |||||
Salient Partners L.P. | (11) | Provider of Asset Management Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/31/2018 |
| 7.00% (L+6.00%, Floor 1.00%) | 10/30/2022 | 6,251 | 6,292 | 4,063 | |||
|
|
| Secured Debt | (9) | 9/30/2021 |
| 6.00% (L+5.00%, Floor 1.00%) | 10/30/2022 | 1,250 | 1,250 | 2,435 | |||
|
|
|
|
|
|
|
|
|
| 7,542 | 6,498 | |||
Savers, Inc. | (11) | For-Profit Thrift Retailer |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/14/2021 |
| 6.25% (L+5.50%, Floor 0.75%) | 4/26/2028 | 4,372 | 4,331 | 4,366 | |||
|
|
|
|
|
|
|
|
|
| |||||
SIB Holdings, LLC | (10) | Provider of Cost Reduction Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/29/2021 |
| 7.00% (L+6.00%, Floor 1.00%) | 10/29/2026 | 7,853 | 7,661 | 7,674 | |||
|
|
| Common Equity |
| 10/29/2021 | 119,048 |
|
|
| 250 | 250 | |||
|
|
|
|
|
|
|
|
|
| 7,911 | 7,924 | |||
Slick Innovations, LLC |
| Text Message Marketing Platform |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 9/13/2018 |
| 13.00% | 9/13/2023 | 1,330 | 1,211 | 1,330 | |||
|
|
| Common Stock |
| 9/13/2018 | 17,500 |
|
|
| 175 | 380 | |||
|
|
| Warrants | (27) | 9/13/2018 | 4,521 |
| 9/13/2028 | 45 | 100 | ||||
|
|
|
|
|
|
|
|
|
| 1,431 | 1,810 | |||
South Coast Terminals Holdings, LLC | (10) | Specialty Toll Chemical Manufacturer |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/10/2021 |
| 7.25% (L+6.25%, Floor 1.00%) | 12/13/2026 | 3,558 | 3,480 | 3,480 | |||
|
|
| Common Equity |
| 12/10/2021 | 60,606 |
|
|
| 61 | 61 | |||
|
|
|
|
|
|
|
|
|
| 3,541 | 3,541 | |||
Student Resource Center, LLC | (10) | Higher Education Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 6/25/2021 |
| 9.00% (L+8.00%, Floor 1.00%) | 6/25/2026 | 12,188 | 11,949 | 12,029 | |||
|
|
|
|
|
|
|
|
|
| |||||
Tex Tech Tennis, LLC | (10) | Sporting Goods & Textiles |
|
|
|
|
|
|
|
| ||||
|
|
| Common Stock | (23) | 7/7/2021 | 1,000,000 |
|
|
| 1,000 | 1,000 | |||
|
|
|
|
|
|
|
|
|
| |||||
The Affiliati Network, LLC |
| Performance Marketing Solutions |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 8/9/2021 |
| 7.00% | 8/9/2026 | 70 | 65 | 65 | |||
|
|
| Secured Debt |
| 8/9/2021 |
| 11.83% | 8/9/2026 | 3,340 | 3,270 | 3,270 | |||
|
|
| Preferred Stock | (8) | 8/9/2021 | 320,000 |
|
|
| 1,600 | 1,600 | |||
|
|
|
|
|
|
|
|
|
| 4,935 | 4,935 | |||
U.S. TelePacific Corp. | (11) | Provider of Communications and Managed Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 5/17/2017 |
| 7.00% (L+6.00%, Floor 1.00%) | 5/2/2023 | 12,500 | 12,400 | 9,449 | |||
|
|
|
|
|
|
|
|
|
| |||||
USA DeBusk LLC | (10) | Provider of Industrial Cleaning Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 10/22/2019 |
| 6.75% (L+5.75%, Floor 1.00%) | 9/8/2026 | 19,950 | 19,692 | 19,950 | |||
|
|
|
|
|
|
|
|
|
| |||||
Vida Capital, Inc | (11) | Alternative Asset Manager |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt |
| 10/10/2019 |
| 6.10% (L+6.00%) | 10/1/2026 | 6,825 | 6,752 | 6,330 | |||
32
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
Portfolio Company (1) (20) | Business Description | Type of Investment (2) (3) (15) | Investment Date (22) | Shares/Units | Rate | Maturity Date | Principal (4) | Cost (4) | Fair Value (18) | |||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
|
|
|
|
|
|
|
| |||||
Vistar Media, Inc. | (10) | Operator of Digital Out-of-Home Advertising Platform |
|
|
|
|
|
|
|
| ||||
|
|
| Preferred Stock |
| 4/3/2019 | 70,207 |
|
|
| 767 | 1,720 | |||
|
|
|
|
|
|
|
|
|
| |||||
Volusion, LLC |
| Provider of Online Software-as-a-Service eCommerce Solutions |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (17) | 1/26/2015 |
| 11.50% | 1/26/2020 | 7,472 | 7,472 | 7,472 | |||
|
|
| Unsecured Convertible Debt |
| 5/16/2018 |
| 8.00% | 11/16/2023 | 175 | 175 | 175 | |||
|
|
| Preferred Member Units |
| 1/26/2015 | 2,090,001 |
|
|
| 6,000 | 2,570 | |||
|
|
| Warrants | (27) | 1/26/2015 | 784,867 |
| 1/26/2025 |
| 1,104 | — | |||
|
|
|
|
|
|
|
|
|
| 14,751 | 10,217 | |||
VORTEQ Coil Finishers, LLC | (10) | Specialty Coating of Aluminum and Light-Gauge Steel |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/30/2021 |
| 8.50% (L+7.50%, Floor 1.00%) | 11/30/2026 | 19,231 | 18,852 | 18,852 | |||
|
|
| Common Equity |
| 11/30/2021 | 769,231 |
|
|
| 770 | 769 | |||
|
|
|
|
|
|
|
|
|
| 19,622 | 19,621 | |||
Wall Street Prep, Inc. | (10) | Financial Training Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 7/19/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 7/19/2026 | 5,466 | 5,355 | 5,355 | |||
|
|
| Common Stock |
| 7/19/2021 | 500,000 |
|
| 500 | 500 | ||||
|
|
|
|
|
|
|
|
|
| 5,855 | 5,855 | |||
Watterson Brands, LLC | (10) | Facility Management Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/17/2021 |
| 7.25% (L+6.25%, Floor 1.00%) | 12/17/2026 | 2,337 | 2,278 | 2,278 | |||
|
|
|
|
|
|
|
|
|
| |||||
Winter Services LLC | (10) | Provider of Snow Removal and Ice Management Services |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 11/19/2021 |
| 8.00% (L+7.00%, Floor 1.00%) | 11/19/2026 | 12,847 | 12,494 | 12,548 | |||
|
|
|
|
|
|
|
|
|
| |||||
Xenon Arc, Inc. | (10) | Tech-enabled Distribution Services to Chemicals and Food Ingredients Primary Producers |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 12/17/2021 |
| 6.75% (L+6.00%, Floor 0.75%) | 12/17/2026 | 2,400 | 2,320 | 2,320 | |||
|
|
|
|
|
|
|
|
|
| |||||
YS Garments, LLC | (11) | Designer and Provider of Branded Activewear |
|
|
|
|
|
|
|
|
| |||
|
|
| Secured Debt | (9) | 8/22/2018 |
| 6.50% (L+5.50%, Floor 1.00%) | 8/9/2024 | 6,470 | 6,438 | 6,244 | |||
|
|
|
|
|
|
|
|
| ||||||
Subtotal Non-Control/Non-Affiliate Investments (129.9% of net assets at fair value) |
|
|
|
|
|
|
|
|
| $ | 828,301 | $ | 796,395 | |
Total Portfolio Investments, December 31, 2021 (175.7% of net assets at fair value) |
|
|
|
|
|
|
|
|
|
| $ | 1,067,175 | $ | 1,077,136 |
Short-Term Investments (16) |
|
|
|
|
|
|
|
|
|
| ||||
Fidelity Institutional Money Market Funds (21) |
|
| Prime Money Market Portfolio |
|
|
|
| $ | 4,881 | $ | 4,881 | |||
|
|
|
|
|
|
|
|
|
|
| ||||
US Bank Money Market Account (21) |
|
|
|
|
|
|
|
| 10,566 | 10,566 | ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total Short-Term Investments |
|
|
|
|
|
|
|
| $ | 15,447 | $ | 15,447 | ||
(1) | All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Lower Middle Market portfolio |
33
MSC INCOME FUND, INC.
Consolidated Schedule of Investments (Continued)
December 31, 2021
(dollars in thousands)
investments. All of the Company’s investments, unless otherwise noted, are encumbered as security for one of the Company’s Credit Facilities. | |
(2) | Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless otherwise noted by footnote (8), as described below. |
(3) | See Note C—Fair Value Hierarchy for Investments—Portfolio Composition and Schedule 12-14 for a summary of geographic location of portfolio companies. |
(4) | Principal is net of repayments. Cost is net of repayments and accumulated unearned income. |
(5) | Control investments are defined by the 1940 Act as investments in which more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is maintained. |
(6) | Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% (inclusive) of the voting securities are owned and the investments are not classified as Control investments. |
(7) | Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor Affiliate investments. |
(8) | Income producing through dividends or distributions. |
(9) | Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the Company’s investment portfolio bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets every one, three, or six months at the borrower's option. As noted in this schedule, 79% of the loans (based on the par amount) contain LIBOR floors which range between 0.63% and 2.00%, with a weighted-average LIBOR floor of 1.04%. |
(10) | Private Loan portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Private Loan portfolio investments. |
(11) | Middle Market portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Middle Market portfolio investments. |
(12) | Other Portfolio investment. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for a description of Other Portfolio investments. |
(13) | Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70% of total assets at the time of acquisition of any additional non-qualifying assets. |
(14) | Non-accrual and non-income producing investment. |
(15) | All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities.” |
(16) | Short-term investments represent an investment in a fund that invests in highly liquid investments with average original maturity dates of three months or less. These short-term investments are included as Cash and cash equivalents on the Consolidated Balance Sheets. |
(17) | Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable. |
(18) | Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C—Fair Value Hierarchy for Investments—Portfolio Composition for further discussion. |
(19) | PIK interest income and cumulative dividend income represent income not paid currently in cash. |
(20) | All portfolio company headquarters are based in the United States, unless otherwise noted. |
(21) | Effective yield as of December 31, 2021 was approximately 0.005% on the US Bank Money Market Account and 0.01% on the Fidelity Institutional Money Market Funds. |
(22) | Investment date represents the date of initial investment in the security position. |
(23) | Shares/Units represent ownership in a related Real Estate or HoldCo entity. |
(24) | Investment is not unitized. Presentation is made in percent of fully diluted ownership unless otherwise indicated. |
(25) | Warrants are presented in equivalent shares with a strike price of $10.92 per share. |
(26) | Warrants are presented in equivalent units with a strike price of $14.28 per unit. |
(27) | Warrants are presented in equivalent shares/units with a strike price of $0.01 per share/unit. |
34
MSC INCOME FUND, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE A—ORGANIZATION AND BASIS OF PRESENTATION
1. Organization
MSC Income Fund, Inc. (“MSC Income Fund”) is a principal investment firm primarily focused on providing debt capital to middle market (“Middle Market”) companies and customized debt and equity financing to lower middle market (“LMM”) companies. The portfolio investments of MSC Income Fund and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSC Income Fund and its consolidated subsidiaries invest primarily in secured debt investments of Middle Market companies generally headquartered in the United States and in secured debt investments, equity investments, warrants and other securities of LMM companies based in the United States. MSC Income Fund seeks to partner with entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its LMM portfolio.
MSC Income Fund was formed in November 2011 to operate as an externally managed business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). MSC Income Fund has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a result, MSC Income Fund generally does not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
On October 28, 2020, MSC Income Fund’s stockholders approved the appointment of MSC Adviser I, LLC (the “Adviser”), which is wholly-owned by Main Street Capital Corporation (“Main Street”), a New York Stock Exchange listed BDC, as MSC Income Fund’s investment adviser and administrator under an Investment Advisory and Administrative Services Agreement dated October 30, 2020 (the “Investment Advisory Agreement”). In such role, the Adviser has the responsibility to manage the business of MSC Income Fund, including the responsibility to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management decisions, monitor MSC Income Fund’s investment portfolio and provide ongoing administrative services.
MSC Income Fund has certain direct and indirect wholly-owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The primary purpose of the Taxable Subsidiaries is to permit MSC Income Fund to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes. MSC Income Fund also has certain direct and indirect wholly-owned subsidiaries formed for financing purposes (“Structured Subsidiaries”).
Unless otherwise noted or the context otherwise indicates, the terms “we,” “us,” “our” and the “Company” refer to MSC Income Fund and its consolidated subsidiaries, which includes the Taxable Subsidiaries and the Structured Subsidiaries.
2. Basis of Presentation
The Company’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The Company is an investment company following accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment Companies (“ASC 946”). For each of the periods presented herein, the Company’s consolidated financial statements include the accounts of MSC Income Fund and its consolidated subsidiaries. The Investment Portfolio, as used herein, refers to all of the Company’s investments in Private Loan portfolio companies, investments in LMM portfolio companies, investments in Middle Market portfolio companies and Other Portfolio investments (see Note C—Fair Value Hierarchy for Investments—Portfolio Composition for additional discussion of the Company’s Investment Portfolio and definitions for the defined terms Private Loan and Other Portfolio). The Company’s results of operations for the three and six months ended June 30, 2022 and 2021, cash flows
35
for the six months ended June 30, 2022 and 2021, and financial position as of June 30, 2022 and December 31, 2021, are presented on a consolidated basis. The effects of all intercompany transactions between MSC Income Fund and its consolidated subsidiaries have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements of the Company are presented in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP are omitted. The unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2021. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. The results of operations for the three and six months ended June 30, 2022 are not necessarily indicative of the operating results to be expected for the full year. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.
Principles of Consolidation
Under ASC 946, the Company is precluded from consolidating other entities in which the Company has equity investments, including those in which it has a controlling interest, unless the other entity is another investment company. An exception to this general principle in ASC 946 occurs if the Company holds a controlling interest in an operating company that provides all or substantially all of its services directly to the Company or to its portfolio companies. Accordingly, as noted above, the Company’s consolidated financial statements include the financial position and operating results for the Taxable Subsidiaries and its Structured Subsidiaries. The Company has determined that none of its portfolio investments qualify for this exception. Therefore, the Company’s Investment Portfolio is carried on the Consolidated Balance Sheets at fair value, as discussed further in Note B.1.—Summary of Significant Accounting Policies—Valuation of the Investment Portfolio, with any adjustments to fair value recognized as “Net Unrealized Appreciation (Depreciation)” until the investment is realized, usually upon exit, resulting in any gain or loss being recognized as a “Net Realized Gain (Loss)”, in both cases, on the Consolidated Statements of Operations.
Portfolio Investment Classification
The Company classifies its Investment Portfolio in accordance with the requirements of the 1940 Act. Under the 1940 Act, (a) “Control Investments” are defined as investments in which the Company owns more than 25% of the voting securities or has rights to maintain greater than 50% of the board representation, (b) “Affiliate Investments” are defined as investments in which the Company owns between 5% and 25% (inclusive) of the voting securities and does not have rights to maintain greater than 50% of the board representation and (c) “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments. For purposes of determining the classification of its Investment Portfolio, the Company has excluded consideration of any voting securities or board appointment rights held by Main Street and third-party investment funds advised by the Adviser.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Valuation of the Investment Portfolio
The Company accounts for its Investment Portfolio at fair value. As a result, the Company follows the provisions of ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Company to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact.
The Company’s portfolio strategy calls for it to invest primarily in debt securities issued by Middle Market companies and illiquid debt and equity securities issued by privately held, LMM companies. The Middle Market
36
companies in which the Company invests are generally larger in size and can be more liquid than the LMM companies. The Company categorizes some of its investments in Middle Market companies and LMM companies as Private Loan portfolio investments, which are primarily debt securities in privately held companies that have been originated directly by Main Street or through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as “club deals.” Private Loan investments are made in companies that are consistent with the size of companies the Company invests in through its Middle Market portfolio and LMM portfolio. The Company’s portfolio also includes Other Portfolio investments which primarily consist of investments that are not consistent with the typical profiles for its Private Loan portfolio investments, LMM portfolio investments or Middle Market portfolio investments, including investments which may be managed by third parties. The Company’s portfolio may also include short-term portfolio investments that are atypical of the Company’s Private Loan, LMM and Middle Market portfolio investments in that they are intended to be a short-term deployment of capital and are more liquid than investments within the other portfolios. The Company’s portfolio investments may be subject to restrictions on resale.
Private Loan investments may include investments which have no established trading market or have established markets that are not active. LMM investments and Other Portfolio investments generally have no established trading market, while Middle Market and short-term portfolio investments generally have established markets that are not active. The Company determines in good faith the fair value of its Investment Portfolio pursuant to a valuation policy in accordance with ASC 820, with such valuation process approved by its Board of Directors and in accordance with the 1940 Act. The Company’s valuation policies and processes are intended to provide a consistent basis for determining the fair value of the Company’s Investment Portfolio.
For Private Loan and Middle Market portfolio investments in debt securities for which it has determined that third-party quotes or other independent pricing are not available or appropriate, the Company generally estimates the fair value based on the assumptions that it believes hypothetical market participants would use to value the investment in a current hypothetical sale using a yield-to-maturity model (“Yield-to-Maturity”) valuation method. For LMM portfolio investments, the Company generally reviews external events, including private mergers, sales and acquisitions involving comparable companies, and includes these events in the valuation process by using an enterprise value waterfall methodology (“Waterfall”) for its LMM equity investments and an income approach using a Yield-to-Maturity valuation method for its LMM debt investments. For Middle Market portfolio investments, the Company primarily uses quoted prices in the valuation process. The Company determines the appropriateness of the use of third-party broker quotes, if any, in determining fair value based on its understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer, the depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company and other market indices. For its Other Portfolio equity investments, the Company generally calculates the fair value of the investment primarily based on the net asset value (“NAV”) of the fund and adjusts the fair value for other factors deemed relevant that would affect the fair value of the investment. All of the valuation approaches for the Company’s portfolio investments estimate the value of the investment as if the Company was to sell, or exit, the investment as of the measurement date.
These valuation approaches consider the value associated with the Company’s ability to control the capital structure of the portfolio company, as well as the timing of a potential exit. For valuation purposes, “control” portfolio investments are composed of debt and equity securities in companies for which the Company has a controlling interest in the equity ownership of the portfolio company or the ability to nominate a majority of the portfolio company’s board of directors. For valuation purposes, “non-control” portfolio investments are generally composed of debt and equity securities in companies for which the Company does not have a controlling interest in the equity ownership of the portfolio company or the ability to nominate a majority of the portfolio company’s board of directors.
Under the Waterfall valuation method, the Company estimates the enterprise value of a portfolio company using a combination of market and income approaches or other appropriate valuation methods, such as considering recent transactions in the equity securities of the portfolio company or third-party valuations of the portfolio company, and then performs a Waterfall calculation by allocating the enterprise value over the portfolio company’s securities in order of their preference relative to one another. The enterprise value is the fair value at which an enterprise could be sold in a transaction between two willing parties, other than through a forced or liquidation sale. Typically, privately held companies are bought and sold based on multiples of earnings before interest, taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues, or in limited cases, book value. There is no single methodology for estimating enterprise value. For any one portfolio company, enterprise value is generally described as a range of values
37
from which a single estimate of enterprise value is derived. In estimating the enterprise value of a portfolio company, the Company analyzes various factors including the portfolio company’s historical and projected financial results. Due to SEC deadlines for the Company’s quarterly and annual financial reporting, the operating results of a portfolio company used in the current period valuation are generally the results from the period ended three months prior to such valuation date and may include unaudited, projected, budgeted or pro forma financial information and may require adjustments for non-recurring items or to normalize the operating results that may require significant judgment in determining. In addition, projecting future financial results requires significant judgment regarding future growth assumptions. In evaluating the operating results, the Company also analyzes the impact of exposure to litigation, loss of customers or other contingencies. After determining the appropriate enterprise value, the Company allocates the enterprise value to investments in order of the legal priority of the various components of the portfolio company’s capital structure. In applying the Waterfall valuation method, the Company assumes the loans are paid off at the principal amount in a change in control transaction and are not assumed by the buyer, which the Company believes is consistent with its past transaction history and standard industry practices.
Under the Yield-to-Maturity valuation method, the Company also uses the income approach to determine the fair value of debt securities based on projections of the discounted future free cash flows that the debt security will likely generate, including analyzing the discounted cash flows of interest and principal amounts for the debt security, as set forth in the associated loan agreements, as well as the financial position and credit risk of the portfolio company. The Company’s estimate of the expected repayment date of its debt securities is generally the maturity date of the instrument, as the Company generally intends to hold its loans and debt securities to maturity. The Yield-to-Maturity analysis also considers changes in leverage levels, credit quality, portfolio company performance, changes in market-based interest rates and other factors. The Company will generally use the value determined by the Yield-to-Maturity analysis as the fair value for that security; however, because of the Company’s general intent to hold its loans to maturity, the fair value will not exceed the principal amount of the debt security valued using the Yield-to-Maturity valuation method. A change in the assumptions that the Company uses to estimate the fair value of its debt securities using the Yield-to-Maturity valuation method could have a material impact on the determination of fair value. If there is deterioration in credit quality or if a debt security is in workout status, the Company may consider other factors in determining the fair value of the debt security, including the value attributable to the debt security from the enterprise value of the portfolio company or the proceeds that would most likely be received in a liquidation analysis.
Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value, the Company measures the fair value of the investment predominately based on the NAV of the investment fund as of the measurement date and adjusts the investment’s fair value for factors known to the Company that would affect that fund’s NAV, including, but not limited to, fair values for individual investments held by the fund if the Company holds the same investment or for a publicly traded investment. In addition, in determining the fair value of the investment, the Company considers whether adjustments to the NAV are necessary in certain circumstances, based on the analysis of any restrictions on redemption of the Company’s investment as of the measurement date, recent actual sales or redemptions of interests in the investment fund, and expected future cash flows available to equity holders, including the rate of return on those cash flows compared to an implied market return on equity required by market participants, or other uncertainties surrounding the Company’s ability to realize the full NAV of its interests in the investment fund.
Pursuant to its internal valuation process and the requirements under the 1940 Act, the Company performs valuation procedures on each of its portfolio investments quarterly. For valuation purposes, all of the Company’s Private Loan portfolio investments are non-control investments. For Private Loan portfolio investments for which it has determined that third-party quotes or other independent pricing are not available or appropriate, the Company generally estimates the fair value based on the assumptions that it believes hypothetical market participants would use to value such Private Loan debt investments in a current hypothetical sale using the Yield-to-Maturity valuation method and such Private Loan equity investments in a current hypothetical sale using the Waterfall valuation method.
In addition to its internal valuation process, in arriving at estimates of fair value for its investments in its Private Loan portfolio companies, the Company, among other things, consults with a nationally recognized independent financial advisory services firm. The nationally recognized independent financial advisory services firm analyzes and provides observations and recommendations and an assurance certification regarding the Company’s determinations of the fair value of its Private Loan portfolio company investments. The nationally recognized independent financial advisory services firm is generally consulted relative to the Company’s investments in each Private Loan portfolio
38
company at least once every calendar year, and for the Company’s investments in new Private Loan portfolio companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, the Company may determine that it is not cost effective, and as a result is not in its stockholders’ best interest, to consult with the nationally recognized independent financial advisory services firm on its investments in one or more Private Loan portfolio companies. Such instances include, but are not limited to, situations where the fair value of the Company’s investment in a Private Loan portfolio company is determined to be insignificant relative to the total Investment Portfolio. The Company consulted with and received an assurance certification from its independent financial advisory services firm in arriving at its determination of fair value on its investments in a total of 22 Private Loan portfolio companies for the six months ended June 30, 2022, representing 41% of the total Private Loan portfolio at fair value as of June 30, 2022, and on a total of 12 Private Loan portfolio companies for the six months ended June 30, 2021, representing 30% of the total Private Loan portfolio at fair value as of June 30, 2021. Excluding its investments in Private Loan portfolio companies that, as of June 30, 2022 and 2021, as applicable, had not been in the Investment Portfolio for at least twelve months subsequent to the initial investment and its investments in Private Loan portfolio companies that were not reviewed because the investment is valued based upon third-party quotes or other independent pricing, the percentage of the Private Loan portfolio reviewed and certified by the Company’s independent financial advisory services firm for the six months ended June 30, 2022 and 2021 was 48% and 42% of the total Private Loan portfolio at fair value as of June 30, 2022 and 2021, respectively.
In addition to its internal valuation process, in arriving at estimates of fair value for its investments in its LMM portfolio companies, the Company, among other things, consults with a nationally recognized independent financial advisory services firm. The nationally recognized independent financial advisory services firm analyzes and provides observations, recommendations and an assurance certification regarding the Company’s determinations of the fair value of its LMM portfolio company investments. The nationally recognized independent financial advisory services firm is generally consulted relative to the Company’s investments in each LMM portfolio company at least once every calendar year, and for the Company’s investments in new LMM portfolio companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, the Company may determine that it is not cost-effective, and as a result is not in its stockholders’ best interest, to consult with the nationally recognized independent financial advisory services firm on its investments in one or more LMM portfolio companies. Such instances include, but are not limited to, situations where the fair value of the Company’s investment in a LMM portfolio company is determined to be insignificant relative to the total Investment Portfolio. The Company consulted with and received an assurance certification from its independent financial advisory services firm in arriving at the Company’s determination of fair value on its investments in a total of 24 LMM portfolio companies for six months ended June 30, 2022, representing 60% of the total LMM portfolio at fair value as of June 30, 2022 and on a total of 18 LMM portfolio companies for the six months ended June 30, 2021, representing 55% of the total LMM portfolio at fair value as of June 30, 2021. Excluding its investments in LMM portfolio companies that, as of June 30, 2022 and 2021, as applicable, had not been in the Investment Portfolio for at least twelve months subsequent to the initial investment or whose primary purpose is to own real estate for which a third-party appraisal is obtained on at least an annual basis, the percentage of the LMM portfolio reviewed and certified by the Company’s independent financial advisory services firm was 63% and 59% of the total LMM portfolio at fair value as of June 30, 2022 and 2021, respectively.
For valuation purposes, all of the Company’s Middle Market portfolio investments are non-control investments. To the extent sufficient observable inputs are available to determine fair value, the Company uses observable inputs to determine the fair value of these investments through obtaining third-party quotes or other independent pricing. For Middle Market portfolio investments for which it has determined that third-party quotes or other independent pricing are not available or appropriate, the Company generally estimates the fair value based on the assumptions that it believes hypothetical market participants would use to value such Middle Market debt investments in a current hypothetical sale using the Yield-to-Maturity valuation method and such Middle Market equity investments in a current hypothetical sale using the Waterfall valuation method. The Company generally consults on a limited basis with a financial advisory services firm in connection with determining the fair value of its Middle Market portfolio investments due to the nature of these investments. The vast majority (87% and 93% as of June 30, 2022 and December 31, 2021, respectively) of the Middle Market portfolio investments (i) are valued using third party quotes or other independent pricing services, (ii) have received an assurance certification from independent financial services firm within the last twelve months or (iii) are new investments that have not been in the Investment Portfolio for at least twelve months subsequent to the initial investment.
For valuation purposes, all of the Company’s Other Portfolio investments are non-control investments. The Company’s Other Portfolio investments comprised 2.6% and 2.5% of the Company’s Investment Portfolio at fair value
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as of June 30, 2022 and December 31, 2021, respectively. Similar to the LMM investment portfolio, market quotations for Other Portfolio equity investments are generally not readily available. For its Other Portfolio equity investments, the Company generally determines the fair value of these investments using the NAV valuation method.
Due to the inherent uncertainty in the valuation process, the Company’s determination of fair value for its Investment Portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. The Company determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.
The Company uses an internally developed portfolio investment rating system in connection with its investment oversight, portfolio management and analysis and investment valuation procedures for its Private Loan, LMM and Middle Market portfolio companies. This system takes into account both quantitative and qualitative factors of the Private Loan, LMM and Middle Market portfolio companies.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, which permits a BDC’s board of directors to designate its executive officers or investment adviser as a valuation designee to determine the fair value for its investment portfolio, subject to the active oversight of the board. The Company’s Board of Directors has approved policies and procedures pursuant to Rule 2a-5 (the “Valuation Procedures”) and has designated the Adviser, led by a group of Main Street’s and the Adviser’s executive officers, to serve as the Board of Directors’ valuation designee. The Company adopted the Valuation Procedures effective April 1, 2021. The Company believes its Investment Portfolio as of June 30, 2022 and December 31, 2021 approximates fair value as of those dates based on the markets in which the Company operates and other conditions in existence on those reporting dates.
2. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results may differ from these estimates under different conditions or assumptions. Additionally, as explained in Note B.1.—Summary of Significant Accounting Policies—Valuation of the Investment Portfolio, the consolidated financial statements include investments in the Investment Portfolio whose values have been estimated by the Company pursuant to valuation policies and procedures approved and overseen by the Company’s Board of Directors, in the absence of readily ascertainable market values. Because of the inherent uncertainty of the Investment Portfolio valuations, those estimated values may differ materially from the values that would have been determined had a ready market for the securities existed.
Macroeconomic factors, including the COVID-19 pandemic, risk of recession, inflation, supply chain constraints or disruptions and rising interest rates, and the related effect on the U.S. and global economies, have impacted, and may continue to impact, the businesses and operating results of certain of the Company’s portfolio companies, as well as market interest rate spreads. As a result of these and other current effects of macroeconomic factors, as well as the uncertainty regarding the extent and duration of their impact, the valuation of the Company’s Investment Portfolio has and may continue to experience increased volatility.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the date of purchase. These highly liquid, short-term investments are included in the Consolidated Schedule of Investments. Cash and cash equivalents are carried at cost, which approximates fair value. At June 30, 2022, the Company had investments in short-term money market accounts totaling $2.5 million classified as cash equivalents.
At June 30, 2022, cash balances totaling $4.6 million exceeded Federal Deposit Insurance Corporation insurance protection levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held at large established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote.
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4. Interest, Dividend and Fee Income
The Company records interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. In accordance with the Company’s valuation policies, the Company evaluates accrued interest and dividend income periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if the Company otherwise does not expect the debtor to be able to service its debt obligation, the Company will generally place the loan or debt security on non-accrual status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding the debtor’s ability to service the debt obligation, or if a loan or debt security is sold or written off, the Company removes it from non-accrual status.
As of June 30, 2022, the Company’s total Investment Portfolio had four investments on non-accrual status, which comprised 0.6% of its fair value and 2.7% of its cost. As of December 31, 2021, the Company’s total Investment Portfolio had four investments on non-accrual status, which comprised 0.7% of its fair value and 2.8% of its cost.
Interest income from investments in the “equity” class of security of collateralized loan obligation (“CLO”) funds (typically subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing estimated projected cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized Financial Assets. The Company monitors the expected cash inflows from its investment in a CLO, including the expected residual payments, and the effective yield is determined and updated periodically.
The Company holds certain debt and preferred equity instruments in its Investment Portfolio that contain payment-in-kind (“PIK”) interest and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed in Note B.7.—Summary of Significant Accounting Policies —Income Taxes below), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though the Company may not have collected the PIK interest and cumulative dividends in cash. The Company stops accruing PIK interest and cumulative dividends and writes off any accrued and uncollected interest and dividends in arrears when it determines that such PIK interest and dividends in arrears are no longer collectible. For the three months ended June 30, 2022 and 2021, (i) 3.5% and 2.5%, respectively, of the Company’s total investment income was attributable to PIK interest income not paid currently in cash and (ii) 0.3% and 0.6%, respectively, of the Company’s total investment income was attributable to cumulative dividend income not paid currently in cash. For the six months ended June 30, 2022 and 2021, (i) 2.7% and 2.4%, respectively, of the Company’s total investment income was attributable to PIK interest income not paid currently in cash and (ii) 1.1% and 0.7%, respectively, of the Company’s total investment income was attributable to cumulative dividend income not paid currently in cash.
The Company may periodically provide services, including structuring and advisory services, to its portfolio companies or other third parties. For services that are separately identifiable, fee income is recognized as earned. Fees received in connection with debt financing transactions are generally deferred and are accreted into income over the life of the financing.
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A presentation of total investment income the Company received from its Investment Portfolio in each of the periods presented is as follows:
Three Months Ended | Six Months Ended | |||||||||||
June 30, | June 30, | |||||||||||
2022 |
| 2021 |
| 2022 |
| 2021 |
| |||||
(dollars in thousands) | ||||||||||||
Interest, fee and dividend income: | ||||||||||||
Interest income | $ | 21,162 | $ | 17,320 | $ | 41,231 | $ | 33,400 | ||||
Dividend income |
| 2,471 |
| 5,026 |
| 5,264 |
| 8,978 | ||||
Fee income |
| 706 |
| 150 |
| 1,245 |
| 390 | ||||
Total interest, fee and dividend income | $ | 24,339 | $ | 22,496 | $ | 47,740 | $ | 42,768 | ||||
5. Deferred Financing Costs
Deferred financing costs include commitment fees and other direct costs incurred in connection with arranging the Company’s borrowings. These costs were incurred in connection with the Company’s Credit Facilities (see Note E—Debt) and have been capitalized as an asset and reflected in the Consolidated Balance Sheets as Deferred financing costs. Deferred financing costs incurred in connection with the Series A Notes (as defined below in Note E—Debt) are recorded as a direct deduction from the principal amount outstanding.
6. Unearned Income—Debt Origination Fees and Original Issue Discount and Discounts / Premiums to Par Value
The Company capitalizes debt origination fees received in connection with financings and reflects such fees as unearned income netted against the applicable debt investments. The unearned income from the fees is accreted into income over the life of the financing.
In connection with its portfolio debt investments, the Company sometimes receives nominal cost warrants or warrants with an exercise price below the fair value of the underlying equity (together, “nominal cost equity”) that are valued as part of the negotiation process with the particular portfolio company. When the Company receives nominal cost equity, it allocates its cost basis in its investment between its debt security and its nominal cost equity at the time of origination based on amounts negotiated with the particular portfolio company. The allocated amounts are based upon the fair value of the nominal cost equity, which is then used to determine the allocation of cost to the debt security. Any discount recorded on a debt investment resulting from this allocation is reflected as unearned income, which is netted against the applicable debt investment, and accreted into interest income over the life of the debt investment. The actual collection of this interest is deferred until the time of debt principal repayment.
The Company may also purchase debt securities at a discount or at a premium to the par value of the debt security. In the case of a purchase at a discount, the Company records the investment at the par value of the debt security net of the discount, and the discount is accreted into interest income over the life of the debt investment. In the case of a purchase at a premium, the Company records the investment at the par value of the debt security plus the premium, and the premium is amortized as a reduction to interest income over the life of the debt investment.
To maintain RIC tax treatment (as discussed in Note B.7.—Summary of Significant Accounting Policies —Income Taxes below), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though the Company may not have collected the interest income. For the three months ended June 30, 2022 and 2021, 2.6% and 4.8%, respectively, of the Company’s total investment income was attributable to interest income from the accretion of discounts associated with debt investments, net of any premium reduction. For the six months ended June 30, 2022 and 2021, 2.7% and 4.9%, respectively, of the Company’s total investment income was attributable to interest income from the accretion of discounts associated with debt investments, net of any premium reduction.
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7. Income Taxes
MSC Income Fund has elected to be treated for U.S. federal income tax purposes as a RIC. MSC Income Fund’s taxable income includes the taxable income generated by MSC Income Fund and certain of its subsidiaries, including the Structured Subsidiaries, which are treated as disregarded entities for tax purposes. As a RIC, MSC Income Fund generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that MSC Income Fund distributes to its stockholders. MSC Income Fund must generally distribute at least 90% of its “investment company taxable income” (which is generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be distributed up to twelve months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) the filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.
The Taxable Subsidiaries primarily hold certain portfolio equity investments for the Company. The Taxable Subsidiaries permit the Company to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes and to continue to comply with the “source-of-income” requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with the Company for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in the Company’s consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated with MSC Income Fund for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at corporate income tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the Taxable Subsidiaries are reflected in the Company’s consolidated financial statements.
The Taxable Subsidiaries use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided, if necessary, against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized. The Company’s net assets as included on the Consolidated Balance Sheets and Consolidated Statements of Changes in Net Assets include an adjustment to classification as a result of permanent book-to-tax differences, which include differences in the book and tax treatment of income and expenses.
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
8. Net Realized Gains or Losses and Net Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation previously recognized, and includes investments written-off during the period net of recoveries and realized gains or losses from in-kind redemptions. Net unrealized appreciation or depreciation reflects the net change in the fair value of the Investment Portfolio and financial instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial instruments to realized gains or losses.
9. Fair Value of Financial Instruments
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash and cash
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equivalents, receivables, payables and other liabilities approximate the fair values of such items due to the short-term nature of these instruments.
To estimate the fair value of the Company’s Series A Notes as disclosed in Note E—Debt, the Company uses the Yield-to-Maturity valuation method based on projections of the discounted future free cash flows that the debt security will likely generate, including both the discounted cash flows of the associated interest and principal amounts for the debt security.
10. Earnings per Share
Net increase in net assets resulting from operations per share and net investment income per share are computed utilizing the weighted-average number of shares of common stock outstanding for the period.
11. Recently Issued or Adopted Accounting Standards
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848)—Facilitation of the effects of reference rate reform on financial reporting.” The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain portfolio companies and also with certain lenders. Many of these agreements include language for choosing an alternative successor rate if LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the modifications result in the establishment of new contracts or the continuation of existing contracts. The Company adopted this amendment in March 2020 and plans to apply the amendments in this update to account for contract modifications due to changes in reference rates when LIBOR reference is no longer used. The Company utilized the optional expedients and exceptions provided by ASU 2020-04 during the six months ended June 30, 2022, the effect of which was not material to the consolidated financial statements and the notes thereto. The Company continues to evaluate the potential impact that the amendments in this update will have on its consolidated financial statements and disclosures.
From time to time, new accounting pronouncements are issued by the FASB or other standards-setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards and any that are not yet effective will not have a material impact on its consolidated financial statements upon adoption.
NOTE C—FAIR VALUE HIERARCHY FOR INVESTMENTS—PORTFOLIO COMPOSITION
ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. The Company accounts for its investments at fair value.
Fair Value Hierarchy
In accordance with ASC 820, the Company has categorized its investments based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical investments (Level 1) and the lowest priority to unobservable inputs (Level 3).
Investments recorded on the Company’s balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1—Investments whose values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access (examples include investments in active exchange-traded equity securities and investments in most U.S. government and agency securities).
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Level 2—Investments whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the investment. Level 2 inputs include the following:
| ● | Quoted prices for similar assets in active markets (for example, investments in restricted stock); |
| ● | Quoted prices for identical or similar assets in non-active markets (for example, investments in thinly traded public companies); |
| ● | Pricing models whose inputs are observable for substantially the full term of the investment (for example, market interest rate indices); and |
| ● | Pricing models whose inputs are derived principally from, or corroborated by, observable market data through correlation or other means for substantially the full term of the investment. |
Level 3—Investments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement (for example, investments in illiquid securities issued by privately held companies). These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the investment.
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
As of June 30, 2022 and December 31, 2021, the Company’s Private Loan portfolio investments primarily consisted of investments in interest-bearing secured debt investments. The fair value determination for these investments consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and unobservable inputs. As a result, all of the Company’s Private Loan portfolio investments were categorized as Level 3 as of June 30, 2022 and December 31, 2021.
As of June 30, 2022 and December 31, 2021, all of the Company’s LMM portfolio investments consisted of illiquid securities issued by privately held companies and the fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of the Company’s LMM portfolio investments were categorized as Level 3 as of June 30, 2022 and December 31, 2021.
As of June 30, 2022 and December 31, 2021, the Company’s Middle Market portfolio investments consisted primarily of investments in secured and unsecured debt investments and independently rated debt investments. The fair value determination for these investments consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and unobservable inputs. As a result, all of the Company’s Middle Market portfolio investments were categorized as Level 3 as of June 30, 2022 and December 31, 2021.
As of June 30, 2022 and December 31, 2021, the Company’s Other Portfolio investments consisted of illiquid securities issued by privately held companies and the fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of the Company’s Other Portfolio investments were categorized as Level 3 as of June 30, 2022 and December 31, 2021.
The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following unobservable inputs:
| ● | Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers; |
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| ● | Current and projected financial condition of the portfolio company; |
| ● | Current and projected ability of the portfolio company to service its debt obligations; |
| ● | Type and amount of collateral, if any, underlying the investment; |
| ● | Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the investment; |
| ● | Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio); |
| ● | Pending debt or capital restructuring of the portfolio company; |
| ● | Projected operating results of the portfolio company; |
| ● | Current information regarding any offers to purchase the investment; |
| ● | Current ability of the portfolio company to raise any additional financing as needed; |
| ● | Changes in the economic environment which may have a material impact on the operating results of the portfolio company; |
| ● | Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company; |
| ● | Qualitative assessment of key management; |
| ● | Contractual rights, obligations or restrictions associated with the investment; and |
| ● | Other factors deemed relevant. |
The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement of the Company’s LMM equity securities, which are generally valued through an average of the discounted cash flow technique and the market comparable/enterprise value technique (unless one of these approaches is determined to not be appropriate), are (i) EBITDA multiples and (ii) the weighted-average cost of capital (“WACC”). Significant increases (decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. On the contrary, significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s Private Loan, LMM and Middle Market securities are (i) risk adjusted discount rates used in the Yield-to-Maturity valuation technique (see Note B.1.—Valuation of the Investment Portfolio) and (ii) the percentage of expected principal recovery. Significant increases (decreases) in any of these discount rates in isolation would result in a significantly lower (higher) fair value measurement. Significant increases (decreases) in any of these expected principal recovery percentages in isolation would result in a significantly higher (lower) fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third parties, which are not presented in the tables below.
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The following tables provide a summary of the significant unobservable inputs used to fair value the Company’s Level 3 portfolio investments as of June 30, 2022 and December 31, 2021:
| Fair Value as of |
|
|
|
|
| ||||||||
June 30, |
| |||||||||||||
Type of | 2022 | Significant | Weighted |
| ||||||||||
Investment |
| (in thousands) | Valuation Technique | Unobservable Inputs | Range(3) | Average(3) | Median(3) | |||||||
Equity investments | $ | 222,161 |
| Discounted cash flow |
| WACC |
| 10.6% - 21.8% |
| 14.4 | % | 15.8 | % | |
| Market comparable / Enterprise value |
| EBITDA multiple(1) |
| 4.3x - 8.9x(2) |
| 7.2x |
| 6.1x | |||||
Debt investments | 759,854 |
| Discounted cash flow |
| Risk adjusted discount factor |
| 6.5% - 15.0%(2) |
| 10.7 | % | 10.3 | % | ||
| Expected principal recovery percentage |
| 0.6% - 200.0% |
| 99.6 | % | 100.0 | % | ||||||
Debt investments | 123,662 |
| Market approach |
| Third‑party quote |
| 5.8 - 99.8 |
| 89.7 |
| 94.5 | |||
Total Level 3 investments | $ | 1,105,677 | ||||||||||||
| (1) | EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment. |
| (2) | Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 3.0x - 15.7x and the range for risk adjusted discount factor is 5.0% - 38.5%. |
| (3) | Does not include investments for which the valuation technique does not include the use of the applicable fair value input. |
| Fair Value as of |
|
|
|
|
|
| |||||||
December 31, |
| |||||||||||||
Type of | 2021 | Significant | Weighted |
| ||||||||||
Investment |
| (in thousands) | Valuation Technique | Unobservable Inputs | Range(3) | Average(3) | Median(3) | |||||||
Equity investments | $ | 197,926 |
| Discounted cash flow |
| WACC |
| 10.1% - 19.1% |
| 13.4 | % | 14.8 | % | |
| Market comparable / Enterprise value |
| EBITDA multiple(1) |
| 4.9x - 8.3x(2) |
| 7.3x |
| 6.2x | |||||
Debt investments | 743,211 |
| Discounted cash flow |
| Risk adjusted discount factor |
| 5.2% - 15.0%(2) |
| 8.1 | % | 9.0 | % | ||
| Expected principal recovery percentage |
| 1.2% - 100.0% |
| 100.0 | % | 100.0 | % | ||||||
Debt investments | 135,999 |
| Market approach |
| Third‑party quote |
| 3 - 100.2 |
| 94.3 |
| 97.3 | |||
Total Level 3 investments | $ | 1,077,136 | ||||||||||||
| (1) | EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment. |
| (2) | Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 3.8x - 10.0x and the range for risk adjusted discount factor is 4.4% - 38.5%. |
| (3) | Does not include investments for which the valuation technique does not include the use of the applicable fair value input. |
The following tables provide a summary of changes in fair value of the Company’s Level 3 portfolio investments for the six-month periods ended June 30, 2022 and 2021 (amounts in thousands):
Net | ||||||||||||||||||||||||
Fair Value | Transfers | Changes | Net | Fair Value | ||||||||||||||||||||
as of | Into | from | Unrealized | as of | ||||||||||||||||||||
Type of |
| December 31, |
| Level 3 |
| Redemptions/ |
| New |
| Unrealized |
| Appreciation |
| June 30, | ||||||||||
Investment |
| 2021 |
| Hierarchy |
| Repayments |
| Investments |
| to Realized |
| (Depreciation) |
| Other(1) |
| 2022 | ||||||||
Debt | $ | 879,970 | $ | — | $ | (82,934) | $ | 115,610 | $ | (699) | $ | (28,098) | $ | (333) | $ | 883,516 | ||||||||
Equity | 196,374 | — | (1,217) | 4,099 | (820) | 23,018 | 333 | 221,787 | ||||||||||||||||
Equity Warrant | 792 | — | — | — | — | (418) | — | 374 | ||||||||||||||||
$ | 1,077,136 | $ | — | $ | (84,151) | $ | 119,709 | $ | (1,519) | $ | (5,498) | $ | — | $ | 1,105,677 | |||||||||
| (1) | Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows. |
47
|
|
|
|
| Net |
|
|
| ||||||||||||||||
Fair Value | Transfers | Changes | Net | Fair Value | ||||||||||||||||||||
as of | Into | from | Unrealized | as of | ||||||||||||||||||||
Type of | December 31, | Level 3 | Redemptions/ | New | Unrealized | Appreciation | June 30, | |||||||||||||||||
Investment | 2020 | Hierarchy | Repayments | Investments |
| to Realized | (Depreciation) | Other(1) | 2021 | |||||||||||||||
Debt | $ | 638,423 | $ | — | $ | (95,438) | $ | 237,146 | $ | 1,070 | $ | 4,183 | $ | (976) | $ | 784,408 | ||||||||
Equity(2) |
| 185,041 |
| — | (12,997) | 4,750 | 993 | 6,750 | 976 | 185,513 | ||||||||||||||
Equity Warrant |
| 2,058 |
| — | — | — | — | 24 | — | 2,082 | ||||||||||||||
$ | 825,522 | $ | — | $ | (108,435) | $ | 241,896 | $ | 2,063 | $ | 10,957 | $ | — | $ | 972,003 | |||||||||
| (1) | Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information at the Consolidated Statements of Cash Flows. |
| (2) | Includes the Company’s investment in CLO subordinated notes. (See Note D — Investment in Signal Peak CLO 7, Ltd.). |
At June 30, 2022 and December 31, 2021, the Company's investments at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:
Fair Value Measurements | ||||||||||||
(in thousands) | ||||||||||||
|
| Quoted Prices in |
|
| Significant | |||||||
| Active Markets for |
| Significant Other |
| Unobservable | |||||||
| Identical Assets |
| Observable Inputs |
| Inputs | |||||||
At June 30, 2022 | Fair Value |
| (Level 1) | (Level 2) |
| (Level 3) | ||||||
Private Loan portfolio investments | $ | 611,151 | $ | — | $ | — | $ | 611,151 | ||||
LMM portfolio investments | 324,303 | — | — | 324,303 | ||||||||
Middle Market portfolio investments |
| 141,561 |
| — |
| — |
| 141,561 | ||||
Other Portfolio investments |
| 28,662 |
| — |
| — |
| 28,662 | ||||
Total investments | $ | 1,105,677 | $ | — | $ | — | $ | 1,105,677 | ||||
| Fair Value Measurements | |||||||||||
(in thousands) | ||||||||||||
Quoted Prices in | Significant | |||||||||||
| Active Markets for |
| Significant Other | Unobservable | ||||||||
| Identical Assets |
| Observable Inputs |
| Inputs | |||||||
At December 31, 2021 | Fair Value |
| (Level 1) |
| (Level 2) |
| (Level 3) | |||||
Private Loan portfolio investments | $ | 575,865 | $ | — | $ | — | $ | 575,865 | ||||
LMM portfolio investments | 315,415 | — | — | 315,415 | ||||||||
Middle Market portfolio investments |
| 159,021 |
| — |
| — |
| 159,021 | ||||
Other Portfolio investments |
| 26,835 |
| — |
| — |
| 26,835 | ||||
Total investments | $ | 1,077,136 | $ | — | $ | — | $ | 1,077,136 | ||||
Investment Portfolio Composition
The Company’s principal investment objective is to maximize its portfolio’s total return by generating current income from its debt investments and current income and capital appreciation from its equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. The Company seeks to achieve its investment objective through its Private Loan, LMM and Middle Market investment strategies.
The Company’s private loan (“Private Loan”) investment strategy involves investments in privately held companies that are generally consistent with the size of its Middle Market portfolio companies or LMM portfolio companies, and its Private Loan investments generally range in size from $1 million to $20 million. The Company’s Private Loan investments generally consist of loans that have been originated directly by Main Street or through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as “club deals.” The Company’s Private Loan portfolio debt investments are generally secured by a first priority lien on the assets
48
of the portfolio company and typically have a term of between three and seven years from the original investment date. The Company may also invest alongside the sponsor in the equity securities of its Private Loan portfolio companies.
The Company’s LMM investment strategy involves investments in secured debt, equity warrants and direct equity investments in privately held, LMM companies based in the United States. The Company’s LMM portfolio companies generally have annual revenues between $10 million and $150 million, and its LMM investments generally range in size from $1 million to $20 million. The LMM debt investments are typically secured by a first priority lien on the assets of the portfolio company, can include either fixed or floating rate terms and generally have a term of between five and seven years from the original investment date. In most LMM portfolio investments, the Company receives nominally priced equity warrants and/or makes direct equity investments in connection with a debt investment.
The Company’s Middle Market investment strategy involves investments in syndicated loans to or debt securities in Middle Market companies, which the Company defines as companies with annual revenues between $150 million and $1.5 billion, and its Middle Market investments generally range in size from $1 million to $20 million. The Company’s Middle Market portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.
The Company’s other portfolio (“Other Portfolio”) investments primarily consist of investments that are not consistent with the typical profiles for its Private Loan, LMM or Middle Market portfolio investments, including investments which may be managed by third parties. In the Other Portfolio, the Company may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds. For Other Portfolio investments, the Company generally receives distributions related to the assets held by the portfolio company. Those assets are typically expected to be liquidated over a five to ten-year period.
Investment income, consisting of interest, dividends and fees, can fluctuate dramatically due to various factors, including the level of new investment activity, repayments of debt investments or sales of equity interests. Investment income in any given year could also be highly concentrated among several portfolio companies. For the three and six months ended June 30, 2022 and 2021, the Company did not record investment income from any single portfolio company in excess of 10% of total investment income.
The following tables provide a summary of the Company’s investments in the Private Loan, LMM and Middle Market portfolios as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments, which are discussed further below):
| As of June 30, 2022 |
| ||||||||
Private Loan | LMM (a) | Middle Market |
| |||||||
(dollars in millions) |
| |||||||||
Number of portfolio companies | 67 |
| 45 |
| 23 | |||||
Fair value | $ | 611.2 |
| $ | 324.3 |
| $ | 141.6 | ||
Cost | $ | 620.9 |
| $ | 286.4 |
| $ | 169.4 | ||
Debt investments as a % of portfolio (at cost) | 94.4 | % | 72.0 | % | 93.1 | % | ||||
Equity investments as a % of portfolio (at cost) | 5.6 | % | 28.0 | % | 6.9 | % | ||||
% of debt investments at cost secured by first priority lien | 99.9 | % | 99.9 | % | 98.6 | % | ||||
Weighted-average annual effective yield (b) | 8.6 | % | 11.2 | % | 8.2 | % | ||||
Average EBITDA(c) | $ | 39.5 |
| $ | 8.6 |
| $ | 74.3 | ||
| (a) | At June 30, 2022, the Company had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%. |
| (b) | The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of June 30, 2022, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on the Company’s debt portfolio as of June 30, 2022 including debt investments on non-accrual status was 8.4% for its Private Loan portfolio, 10.8% for its LMM portfolio and 7.5% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of the Company’s common stock will realize on its investment because it |
49
| does not reflect the Company’s utilization of debt capital in its capital structure, the Company’s expenses or any sales load paid by an investor. |
| (c) | The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including two Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for the Company’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate. |
| As of December 31, 2021 |
| ||||||||
Private Loan |
| LMM (a) | Middle Market | |||||||
(dollars in millions) | ||||||||||
Number of portfolio companies | 57 | 43 |
| 25 |
| |||||
Fair value | $ | 575.9 | $ | 315.4 |
| $ | 159.0 |
| ||
Cost | $ | 576.3 | $ | 281.0 |
| $ | 184.2 |
| ||
Debt investments as a % of portfolio (at cost) | 94.0 | % | 72.2 | % | 93.7 | % | ||||
Equity investments as a % of portfolio (at cost) | 6.0 | % | 27.8 | % | 6.3 | % | ||||
% of debt investments at cost secured by first priority lien | 98.5 | % | 99.8 | % | 98.8 | % | ||||
Weighted-average annual effective yield (b) | 8.4 | % | 10.8 | % | 7.6 | % | ||||
Average EBITDA (c) | $ | 38.0 | $ | 7.3 |
| $ | 85.9 |
| ||
| (a) | At December 31, 2021, the Company had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%. |
| (b) | The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2021, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on the Company’s debt portfolio as of December 31, 2021 including debt investments on non-accrual status was 8.3% for its Private Loan portfolio, 10.5% for its LMM portfolio and 7.1% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of the Company’s common stock will realize on its investment because it does not reflect the Company’s utilization of debt capital in its capital structure, the Company’s expenses or any sales load paid by an investor. |
| (c) | The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including two Private Loan portfolio companies and one Middle Market portfolio company, as EBITDA is not a meaningful valuation metric for the Company’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate. |
For the three months ended June 30, 2022 and 2021, the Company achieved an annualized total return on investments of 5.2% and 15.0%, respectively. For the six months ended June 30, 2022 and 2021, the Company achieved an annualized total return on investments of 7.7% and 12.5%, respectively. For the year ended December 31, 2021, the Company achieved an annualized total return on investments of 17.9%. Total return on investments is calculated using the interest, dividend and fee income, as well as the realized and unrealized change in fair value of the Investment Portfolio for the specified period. The Company’s total return on investments is not reflective of what an investor in shares of the Company’s common stock will realize on its investment because it does not reflect the Company’s utilization of debt capital in its capital structure, the Company’s expenses or any sales load paid by an investor.
As of June 30, 2022, the Company had Other Portfolio investments in four companies, collectively totaling $28.7 million in fair value and $26.0 million in cost basis and which comprised 2.6% and 2.4% of the Company’s Investment Portfolio at fair value and cost, respectively. As of December 31, 2021, the Company had Other Portfolio investments in four companies, collectively totaling $26.8 million in fair value and $25.6 million in cost basis and which comprised 2.5% and 2.4% of the Company’s Investment Portfolio at fair value and cost, respectively.
The following tables summarize the composition of the Company’s total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined Private Loan portfolio investments, LMM portfolio investments and
50
Middle Market portfolio investments, as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments, which are discussed above).
Cost: |
| June 30, 2022 |
| December 31, 2021 | |
First lien debt |
| 88.0 | % | 87.2 | % |
Equity |
| 11.6 | % | 11.7 | % |
Second lien debt |
| — | % | 0.7 | % |
Equity warrants |
| 0.1 | % | 0.1 | % |
Other |
| 0.3 | % | 0.3 | % |
| 100.0 | % | 100.0 | % |
Fair Value: |
| June 30, 2022 |
| December 31, 2021 | |
First lien debt |
| 81.8 | % | 82.8 | % |
Equity |
| 17.9 | % | 16.1 | % |
Second lien debt |
| — | % | 0.7 | % |
Equity warrants |
| — | % | 0.1 | % |
Other |
| 0.3 | % | 0.3 | % |
| 100.0 | % | 100.0 | % |
The following tables summarize the composition of the Company’s total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments by geographic region of the United States and other countries at cost and fair value as a percentage of the total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments, as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
|
|
| ||||
Cost: |
| June 30, 2022 |
| December 31, 2021 | ||
Northeast |
| 23.1 | % | 21.4 | % |
|
Southwest |
| 22.7 | % | 24.8 | % |
|
West |
| 20.9 | % | 22.3 | % |
|
Southeast |
| 18.0 | % | 16.6 | % |
|
Midwest |
| 14.1 | % | 14.0 | % |
|
Canada |
| 0.8 | % | 0.9 | % |
|
Other Non-United States |
| 0.4 | % | — | % |
|
| 100.0 | % | 100.0 | % |
|
Fair Value: |
| June 30, 2022 |
| December 31, 2021 | |
Southwest |
| 25.2 | % | 27.1 | % |
Northeast |
| 23.4 | % | 21.4 | % |
West |
| 19.7 | % | 21.4 | % |
Southeast |
| 15.7 | % | 14.4 | % |
Midwest |
| 14.8 | % | 14.8 | % |
Canada |
| 0.8 | % | 0.9 | % |
Other Non-United States |
| 0.4 | % | — | % |
| 100.0 | % | 100.0 | % |
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The Company’s Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments are in companies conducting business in a variety of industries. The following tables summarize the composition of the Company’s total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments by industry at cost and fair value as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments).
Cost: | June 30, 2022 | December 31, 2021 | ||||
Commercial Services & Supplies |
| 11.6 | % | 11.1 | % | |
Machinery |
| 7.9 | % | 7.9 | % | |
Internet Software & Services |
| 7.1 | % | 6.1 | % | |
Diversified Consumer Services |
| 5.0 | % | 4.4 | % | |
Distributors |
| 4.5 | % | 4.5 | % | |
IT Services |
| 4.5 | % | 4.3 | % | |
Health Care Providers & Services |
| 4.3 | % | 3.5 | % | |
Oil, Gas & Consumable Fuels |
| 3.8 | % | 4.2 | % | |
Specialty Retail |
| 3.7 | % | 3.8 | % | |
Construction & Engineering |
| 3.6 | % | 3.8 | % | |
Professional Services |
| 3.5 | % | 3.7 | % | |
Aerospace & Defense |
| 3.5 | % | 2.8 | % | |
Communications Equipment |
| 3.4 | % | 3.7 | % | |
Leisure Equipment & Products |
| 2.9 | % | 3.0 | % | |
Diversified Telecommunication Services |
| 2.8 | % | 4.5 | % | |
Containers & Packaging |
| 2.5 | % | 2.6 | % | |
Building Products |
| 2.3 | % | 2.3 | % | |
Media |
| 2.2 | % | 2.0 | % | |
Diversified Financial Services |
| 2.2 | % | 2.3 | % | |
Textiles, Apparel & Luxury Goods |
| 1.9 | % | 2.0 | % | |
Hotels, Restaurants & Leisure |
| 1.9 | % | 2.1 | % | |
Internet & Catalog Retail |
| 1.5 | % | 1.6 | % | |
Household Products |
| 1.5 | % | 1.2 | % | |
Energy Equipment & Services |
| 1.4 | % | 1.4 | % | |
Health Care Equipment & Supplies |
| 1.2 | % | 0.8 | % | |
Electrical Equipment |
| 1.2 | % | 0.9 | % | |
Food Products | 1.1 | % | 1.2 | % | ||
Food & Staples Retailing | 1.1 | % | 1.1 | % | ||
Software | 1.0 | % | 1.0 | % | ||
Trading Companies & Distributors | — | % | 1.1 | % | ||
Other (1) | 4.9 | % | 5.1 | % | ||
| 100.0 | % | 100.0 | % |
| (1) | Includes various industries with each industry individually less than 1.0% of the total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments at each date. |
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Fair Value: | June 30, 2022 | December 31, 2021 | ||||
Commercial Services & Supplies |
| 11.1 | % | 10.6 | % | |
Machinery |
| 9.4 | % | 9.3 | % | |
Internet Software & Services |
| 6.3 | % | 5.5 | % | |
Diversified Consumer Services |
| 5.8 | % | 5.3 | % | |
Distributors |
| 4.9 | % | 4.6 | % | |
IT Services |
| 4.3 | % | 4.2 | % | |
Health Care Providers & Services |
| 4.1 | % | 3.5 | % | |
Construction & Engineering |
| 3.9 | % | 4.2 | % | |
Oil, Gas & Consumable Fuels |
| 3.6 | % | 3.7 | % | |
Specialty Retail |
| 3.5 | % | 3.8 | % | |
Aerospace & Defense |
| 3.4 | % | 2.7 | % | |
Leisure Equipment & Products |
| 2.9 | % | 3.1 | % | |
Containers & Packaging |
| 2.8 | % | 2.9 | % | |
Professional Services |
| 2.7 | % | 2.9 | % | |
Diversified Telecommunication Services |
| 2.7 | % | 4.5 | % | |
Media |
| 2.4 | % | 2.1 | % | |
Building Products |
| 2.3 | % | 2.4 | % | |
Diversified Financial Services |
| 2.2 | % | 2.4 | % | |
Internet & Catalog Retail |
| 2.0 | % | 1.7 | % | |
Textiles, Apparel & Luxury Goods |
| 1.9 | % | 1.9 | % | |
Construction Materials |
| 1.9 | % | 1.5 | % | |
Computers & Peripherals |
| 1.6 | % | 1.7 | % | |
Software |
| 1.4 | % | 1.3 | % | |
Communications Equipment |
| 1.4 | % | 2.1 | % | |
Hotels, Restaurants & Leisure |
| 1.4 | % | 1.4 | % | |
Electrical Equipment |
| 1.3 | % | 1.0 | % | |
Household Products | 1.3 | % | 1.2 | % | ||
Food & Staples Retailing | 1.1 | % | 1.1 | % | ||
Energy Equipment & Services | 1.0 | % | 1.1 | % | ||
Air Freight & Logistics | 1.0 | % | 1.1 | % | ||
Food Products | 0.9 | % | 1.1 | % | ||
Trading Companies & Distributors | — | % | 1.2 | % | ||
Other (1) | 3.5 | % | 2.9 | % | ||
| 100.0 | % | 100.0 | % |
| (1) | Includes various industries with each industry individually less than 1.0% of the total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments at each date. |
At June 30, 2022 and December 31, 2021, the Company had no portfolio investment that was greater than 10% of the Investment Portfolio at fair value.
Unconsolidated Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, the Company must determine which of its unconsolidated controlled portfolio companies, if any, are considered “significant subsidiaries.” In evaluating its unconsolidated controlled portfolio companies in accordance with Regulation S-X, there are two tests that the Company must utilize to determine if any of the Company’s Control Investments (as defined in Note A—Organization and Basis of Presentation, including those unconsolidated portfolio companies defined as Control Investments in which the Company does not own greater than 50% of the voting securities or maintain greater than 50% of the board representation) are considered significant subsidiaries: the investment test and the income test. The investment test is generally measured by dividing the Company’s investment in the Control Investment by the value of the Company’s total investments. The income test is generally measured by dividing the absolute value of the combined sum of total investment income, net realized gain (loss) and net unrealized appreciation (depreciation) from the relevant Control Investment for the period being tested by the absolute value of the Company’s change in net assets resulting from operations for the same period. Rules 3-09 and 4-08(g) of Regulation S-X require the Company to include (1) separate audited financial statements of an
53
unconsolidated majority-owned subsidiary (Control Investments in which the Company owns greater than 50% of the voting securities) in an annual report and (2) summarized financial information of a Control Investment in a quarterly report, respectively, if certain thresholds of the investment or income tests are exceeded and the unconsolidated portfolio company qualifies as a significant subsidiary.
As of June 30, 2022 and December 31, 2021, the Company had no single investment that qualified as a significant subsidiary under either the investment or income tests.
Note D – Investment in Signal Peak CLO 7, LTD.
On April 4, 2017, the Company and ORIX Funds Corp. (“Orix”) entered into a limited liability company agreement to co-manage HMS-ORIX SLF LLC (“HMS-ORIX”), which invested primarily in broadly-syndicated loans. Pursuant to the terms of the limited liability agreement and through representation on the HMS-ORIX Board of Managers, the Company and Orix each had 50% voting control of HMS-ORIX and together were required to agree on all portfolio and investment decisions as well as all other significant actions for HMS-ORIX. The Company did not have sole control of significant actions of HMS-ORIX and, accordingly, did not consolidate the operations of HMS-ORIX within the consolidated financial statements. The Company and Orix funded an aggregate of $50.0 million of equity to HMS-ORIX, with the Company providing $30.0 million (60% of the equity) and Orix providing $20.0 million (40% of the equity).
On May 8, 2019, HMS-ORIX Holdings I LLC, a wholly-owned subsidiary of HMS-ORIX, which held all of the investments in broadly-syndicated loans held by HMS-ORIX, was merged (the “HMS-ORIX Holdings Merger”) into Mariner CLO 7, Ltd., an exempted company incorporated under the laws of the Cayman Islands (“Mariner CLO”). In connection with the HMS-ORIX Holdings Merger, HMS-ORIX made certain distributions to its members. The Company used the cash proceeds it received from the HMS-ORIX Holdings Merger to purchase an aggregate principal amount of $25.9 million of the “Subordinated Notes” (the equity tranche of the CLO’s securities) due in 2032 issued by Mariner CLO in connection with an offering of $405.9 million aggregate principal amount of notes (the “CLO Offering”). After distribution to its members of residual cash remaining after the HMS-ORIX Holdings Merger, HMS-ORIX was fully liquidated on September 26, 2019. On October 8, 2020, Mariner CLO changed its name to Signal Peak CLO 7, Ltd. (“Signal Peak CLO”). The Company sold its entire position in the Signal Peak CLO on December 16, 2021.
For the three and six months ended June 30, 2021, the Company recognized $0.6 million and $1.3 million, respectively, of interest income in respect of its investment in Signal Peak CLO.
NOTE E—DEBT
Summary of debt as of June 30, 2022 is as follows:
Outstanding Balance | Unamortized Debt Issuance Costs (2) | Recorded Value | Estimated Fair Value (1) | |||||||||
(dollars in thousands) | ||||||||||||
JPM SPV Facility | $ | 267,688 | $ | — | $ | 267,688 | $ | 267,688 | ||||
Series A Notes | 150,000 | (1,293) | 148,707 | 143,293 | ||||||||
TIAA Credit Facility | 84,000 | — | 84,000 | 84,000 | ||||||||
Total Debt | $ | 501,688 | $ | (1,293) | $ | 500,395 | $ | 494,981 | ||||
(1) | Estimated fair value for outstanding debt if the Company had adopted the fair value option under ASC 825. See discussion of the methods used to estimate the fair value of the Company’s debt in Note B.9.—Fair Value of Financial Instruments. |
(2) | The unamortized debt issuance costs for the Credit Facilities are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the Series A Notes are reflected as a direct deduction to the Series A Notes on the Consolidated Balance Sheets. |
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Summary of debt as of December 31, 2021 is as follows:
Outstanding Balance | Unamortized Debt Issuance Costs (2) | Recorded Value | Estimated Fair Value (1) | |||||||||
(dollars in thousands) | ||||||||||||
JPM SPV Facility | $ | 273,688 | $ | — | $ | 273,688 | $ | 273,688 | ||||
TIAA Credit Facility | 153,000 | — | 153,000 | 153,000 | ||||||||
Series A Notes | 77,500 | (1,316) | 76,184 | 77,491 | ||||||||
Total Debt | $ | 504,188 | $ | (1,316) | $ | 502,872 | $ | 504,179 | ||||
(1) | Estimated fair value for outstanding debt if the Company had adopted the fair value option under ASC 825. See discussion of the methods used to estimate the fair value of the Company’s debt in Note B.9.—Fair Value of Financial Instruments. |
(2) | The unamortized debt issuance costs for the Credit Facilities are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the Series A Notes are reflected as a direct deduction to the Series A Notes on the Consolidated Balance Sheets. |
Summarized interest expense for the three and six months ended June 30, 2022 and 2021 is as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
(dollars in thousands) | ||||||||||||
JPM SPV Facility | $ | 2,881 | $ | 2,206 | $ | 5,274 | $ | 3,572 | ||||
Series A Notes | 1,584 | — | 3,004 | — | ||||||||
TIAA Credit Facility | 834 | 568 | 1,549 | 956 | ||||||||
Deutsche Bank Credit Facility (1) | — | — | — | 1,046 | ||||||||
Main Street Term Loan (2) | — | 526 | — | 890 | ||||||||
Total Interest Expense | $ | 5,299 | $ | 3,300 | $ | 9,827 | $ | 6,464 | ||||
| (1) | Deutsche Bank Credit Facility was fully repaid and extinguished on February 3, 2021. |
| (2) | Main Street Term Loan was fully repaid and extinguished on October 22, 2021. |
TIAA Credit Facility
The Company is a party to a senior secured revolving credit agreement dated March 6, 2017 (as amended, the “TIAA Credit Facility”) with TIAA, FSB (“TIAA Bank”), as administrative agent, and with TIAA Bank and other financial institutions as lenders. As of June 30, 2022, the TIAA Credit Facility included (i) total commitments of $165.0 million, (ii) an accordion feature with the right to request an increase of commitments under the facility from new and existing lenders on the same terms and conditions as the existing commitments up to $200.0 million of total commitments and (iii) a revolving period and maturity date to September 1, 2025 and March 1, 2026, respectively, with two, one-year extension options with lender approval.
Borrowings under the TIAA Credit Facility bear interest, subject to the Company’s election, on a per annum basis at a rate equal to (i) LIBOR plus 2.40% or (ii) the base rate plus 1.40%. The base rate is defined as the higher of (a) the prime rate, (b) the Federal Funds Rate (as defined in the credit agreement) plus 0.5% or (c) LIBOR plus 1.0%. Additionally, the Company pays an annual unused commitment fee of 0.30% on the unused revolver commitments if more than 50% or more of the revolver commitments are being used and an annual unused commitment fee of 0.625% on the unused revolver commitments if less than 50% of the revolver commitments are being used.
The TIAA Credit Facility permits the creation of certain “Structured Subsidiaries,” which are not guarantors under the TIAA Credit Facility and which are permitted to incur debt outside of the TIAA Credit Facility. Borrowings under the TIAA Credit Facility are secured by all of the Company’s assets, other than the assets of Structured Subsidiaries, or immaterial subsidiaries, as well as all of the assets, and a pledge of equity ownership interests, of any
55
future subsidiaries of the Company (other than Structured Subsidiaries or immaterial subsidiaries). The TIAA Credit Facility contains affirmative and negative covenants usual and customary for credit facilities of this nature, including: (i) maintaining a minimum interest coverage ratio of at least 2.00 to 1.00; (ii) maintaining an asset coverage ratio of at least 2.00 to 1.00; and (iii) maintaining a minimum consolidated tangible net worth, excluding Structured Subsidiaries, of at least the greater of (a) the aggregate amount of the revolver commitments or (b) $50.0 million. Further, the TIAA Credit Facility contains limitations on incurrence of other indebtedness (other than by the Structured Subsidiaries), limitations on industry concentration, and an anti hoarding provision to protect the collateral under the TIAA Credit Facility. Additionally, the Company must provide information to TIAA Bank on a regular basis, preserve its corporate existence, comply with applicable laws, including the 1940 Act, pay obligations when they become due, and invest the proceeds of the sales of common stock in accordance with its investment objectives and strategies (as set forth in the TIAA Credit Facility). Further, the credit agreement contains usual and customary default provisions including: (i) a default in the payment of interest and principal; (ii) insolvency or bankruptcy of the Company; (iii) a material adverse change in the Company’s business; or (iv) breach of any covenant, representation or warranty in the loan agreement or other credit documents and failure to cure such breach within defined periods. Additionally, the TIAA Credit Facility requires the Company to obtain written approval from the administrative agent prior to entering into any material amendment, waiver or other modification of any provision of the Investment Advisory Agreement.
As of June 30, 2022, the interest rate on the TIAA Credit Facility was 3.46%. The average interest rate for borrowings under the TIAA Credit Facility was 3.17% and 2.71% per annum for the three months ended June 30, 2022 and 2021 respectively, and 2.86% and 2.70% per annum for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the Company was not aware of any instances of noncompliance with covenants related to the TIAA Credit Facility.
JPM SPV Facility
On February 3, 2021, MSIF Funding LLC (“MSIF Funding”), a wholly-owned Structured Subsidiary that primarily holds originated loan investments, entered into a senior secured revolving credit facility (as amended from time to time, the “JPM SPV Facility”) by and among JPMorgan Chase Bank, National Association (“JPM”), as administrative agent, and U.S. Bank, N.A., as collateral agent and collateral administrator and the Company as portfolio manager. The revolving period under the JPM SPV Facility expires on February 3, 2024 and the JPM SPV Facility is scheduled to mature on February 3, 2025. Advances under the JPM SPV Facility bear interest at a per annum rate equal to the three month LIBOR in effect, plus the applicable margin of 2.90% per annum. MSIF Funding also pays a commitment fee of 0.75% per annum on the average daily unused amount of the financing commitments until the third anniversary of the JPM SPV Facility. As of June 30, 2022, the JPM SPV Facility included total commitments of $325.0 million and an accordion feature, subject to the satisfaction of various conditions, which could bring total commitments and borrowing availability to up to $450.0 million.
As of June 30, 2022, the interest rate on the JPM SPV Facility, excluding amortization of deferred financing costs and unused fees, was 3.94%. The average cost of borrowings on the JPM SPV Facility, excluding amortization of deferred financing costs and unused fees, was 3.88% and 3.10% per annum for the three months ended June 30, 2022 and June 30, 2021, respectively, and 3.50% and 3.10% per annum for the six months ended June 30, 2022 and 2021, respectively. As of June 30, 2022, the Company was not aware of any instances of noncompliance with covenants related to the JPM SPV Facility.
Series A Notes
On October 22, 2021, the Company and certain qualified institutional investors entered into a Master Note Purchase Agreement (the “Note Purchase Agreement”), which governs the issuance of $150.0 million in aggregate principal amount of the Company’s 4.04% Series A Senior Notes due 2026 (the “Series A Notes”). The Series A Notes bear a fixed interest rate of 4.04% per year and will mature on October 30, 2026, unless redeemed, purchased or prepaid prior to such date by the Company in accordance with their terms. The Company issued $77.5 million of Series A Notes upon entering into the Note Purchase Agreement, and issued an additional $72.5 million on January 21, 2022. Net proceeds from the Series A Note issuances were used to repay outstanding debt borrowed under the Main Street Term Loan (as defined below), which was fully repaid and extinguished in October 2021, and the TIAA Credit Facility.
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Interest on the Series A Notes is due semiannually on April 30 and October 30 each year, beginning on April 30, 2022. The Series A Notes may be redeemed in whole or in part at any time or from time to time at the Company’s option at par plus accrued interest to the prepayment date and, if applicable, a make-whole premium. In addition, the Company is obligated to offer to prepay the Series A Notes at par plus accrued and unpaid interest up to, but excluding, the date of prepayment, if certain change in control events occur. The Series A Notes are general unsecured obligations of the Company that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by the Company.
The Note Purchase Agreement contains customary terms and conditions for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of the Company’s status as a BDC within the meaning of the 1940 Act, a minimum asset coverage ratio of 2.00 to 1.00, subject to reduction to 1.50 to 1.00 upon the Company obtaining the approval required under the 1940 Act, a minimum interest coverage ratio of 2.00 to 1.00, which may be reduced to 1.25 to 1.00 under certain conditions, and minimum unsecured debt coverage ratio of 1.25 to 1.00. In addition, in the event that a Below Investment Grade Event (as defined in the Note Purchase Agreement) occurs, the Series A Notes will bear interest at a fixed rate of 5.04% per year from the date of the occurrence of the Below Investment Grade Event to and until the date on which the Below Investment Grade Event ends.
The Note Purchase Agreement also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under other indebtedness of the Company or subsidiary guarantors subject to a cure pass-through, certain judgments and orders and certain events of bankruptcy. As of June 30, 2022, the Company was not aware of any instances of noncompliance with covenants related to the Series A Notes.
Main Street Term Loan
On January 27, 2021, the Company entered into a term loan agreement (the “Main Street Term Loan”) with Main Street, which initially provided up to an aggregate principal amount of $40.0 million in borrowings. The Company paid a 1.0% upfront fee to Main Street on the closing date. On July 27, 2021, the Company entered into an amendment to the Main Street Term Loan that allowed the Company to draw an additional $20.0 million, with another $15.0 million available to be drawn in two separate $7.5 million tranches (each a “Delayed Draw Term Loan”) at a later date.
Borrowings under the Main Street Term Loan were expressly subordinated and junior in right of payment to all secured indebtedness of the Company. On October 22, 2021, in connection with the issuance of the Series A Notes (discussed above), the Company fully repaid all borrowings outstanding under the Main Street Term Loan, and the Main Street Term Loan was extinguished. As a result, the Company recorded a loss on the extinguishment of debt in the amount of $0.3 million, which represented the write-off of the unamortized deferred financing fees related to the Main Street Term Loan.
Deutsche Bank Credit Facility
On May 18, 2015, HMS Funding I LLC (“HMS Funding”), a wholly-owned Structured Subsidiary, entered into an amended and restated credit agreement (as amended, the “Deutsche Bank Credit Facility”) among HMS Funding, as borrower, the Company, as equity holder and as servicer, Deutsche Bank AG, New York Branch (“Deutsche Bank”), as administrative agent, the financial institutions party thereto as lenders (together with Deutsche Bank, the “HMS Funding Lenders”), and U.S. Bank National Association, as collateral agent and collateral custodian. On February 3, 2021, the total amount outstanding on the facility under the Deutsche Bank Credit Facility was fully repaid. As a result, the Company recorded a loss on the extinguishment of debt in the amount of $2.1 million, which represented the write-off of the unamortized deferred financing fees related to the Deutsche Bank Credit Facility.
For the six months ended June 30, 2021, the average cost of borrowings on the Deutsche Bank Credit Facility was 2.93% per annum.
57
NOTE F—FINANCIAL HIGHLIGHTS
| Six Months Ended June 30, |
| |||||
Per Share Data: |
| 2022 |
| 2021 |
| ||
NAV at the beginning of the period | $ | 7.68 | $ | 7.28 | |||
Net investment income(1) |
| 0.32 | 0.33 | ||||
Net realized gain (loss) (1)(2) |
| 0.01 | (0.04) | ||||
Net unrealized appreciation (depreciation)(1)(2) |
| (0.09) | 0.16 | ||||
Income tax benefit (provision)(1)(2) | (0.01) | — | |||||
Net increase in net assets resulting from operations(1) |
| 0.23 | 0.45 | ||||
Dividends paid from net investment income | (0.32) | (0.23) | |||||
Distributions from capital gains | (0.01) | — | |||||
Dividends paid or accrued(3) |
| (0.33) | (0.23) | ||||
Other(4) |
| — | 0.01 | ||||
NAV at the end of the period | $ | 7.58 | $ | 7.51 | |||
Shares outstanding at the end of the period | 80,011,721 | 79,716,361 | |||||
Weighted-average shares of common stock outstanding |
| 79,915,291 | 79,791,881 | ||||
| (1) | Based on weighted-average number of common shares outstanding for the period. |
| (2) | Net realized gains or losses, net unrealized appreciation or depreciation, and income taxes can fluctuate significantly from period to period. |
| (3) | Represents stockholder dividends paid or accrued for the period. |
| (4) | Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted-average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date. |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
(dollars in thousands) | ||||||||
NAV at end of period | $ | 606,859 | $ | 598,612 | ||||
Average NAV | $ | 612,219 | $ | 587,519 | ||||
Average outstanding debt | $ | 489,188 | $ | 260,568 | ||||
Ratios to average NAV: | ||||||||
Ratio of total expenses to average NAV(1)(2)(3)(5) | 3.81 | % | 2.96 | % | ||||
Ratio of operating expenses to average NAV(2)(3)(5) | 3.62 | % | 2.82 | % | ||||
Ratio of operating expenses, excluding interest expense, to average NAV(2)(3)(5) | 2.01 | % | 1.72 | % | ||||
Ratio of net investment income to average NAV(2)(5) | 4.18 | % | 4.46 | % | ||||
Portfolio turnover ratio(2) | 6.79 | % | 11.17 | % | ||||
Total return based on change in NAV(2)(4)(5) | 2.94 | % | 6.32 | % | ||||
| (1) | Total expenses are the sum of operating expenses and net income tax provision/benefit. Net income tax provision/benefit includes the accrual of net deferred tax provision/benefit relating to the net unrealized appreciation/depreciation on portfolio investments held in Taxable Subsidiaries and due to the change in the loss carryforwards, which are non-cash in nature and may vary significantly from period to period. The Company is required to include net deferred tax provision/benefit in calculating its total expenses even though these net deferred taxes are not currently payable/receivable. |
| (2) | Not annualized. |
| (3) | Unless otherwise noted, operating expenses include interest and general and administrative expenses. |
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| (4) | Total return is calculated based on the change in NAV per share and stockholder distributions declared per share during the reporting period, divided by the NAV per share at the beginning of the period. The total return does not reflect the sales load from the sale of the Company’s common stock. |
| (5) | Net of expense waivers of $2.2 million and $2.1 million for the six months ended June 30, 2022 and June 30, 2021, respectively. Excluding these expense waivers, the expense and income ratios are as follows: |
Six Months Ended June 30, | ||||||||
2022 | 2021 | |||||||
Ratio of total expenses to average NAV(1)(2)(3) | 4.16 | % | 3.33 | % | ||||
Ratio of operating expenses to average NAV(2)(3) | 3.97 | % | 3.18 | % | ||||
Ratio of operating expenses excluding interest expense to average NAV(2)(3) | 2.37 | % | 2.08 | % | ||||
Ratio of net investment income to average NAV(2) | 3.82 | % | 4.11 | % | ||||
Total return based on change in NAV(2)(4) | 2.59 | % | 5.88 | % | ||||
See footnotes (1), (2), (3) and (4) immediately prior to this table.
NOTE G—DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME
The Company currently pays quarterly dividends to its stockholders. Future quarterly dividends, if any, will be determined by its Board of Directors on a quarterly basis. The Company paid or accrued dividends to its common stockholders of $12.8 million, or $0.16 per share, during the three months ended June 30, 2022, and $26.0 million, or $0.325 per share, during the six months ended June 30, 2022, compared to $10.0 million, or $0.125 per share, during the three months ended June 30, 2021, and $17.9 million, or $0.225 per share, during the six months ended June 30, 2021.
MSC Income Fund has elected to be treated for U.S. federal income tax purposes as a RIC. MSC Income Fund’s taxable income includes the taxable income generated by MSC Income Fund and certain of its subsidiaries which are treated as disregarded entities for tax purposes. As a RIC, MSC Income Fund generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that MSC Income Fund distributes to its stockholders. MSC Income Fund must generally distribute at least 90% of its “investment company taxable income” (which is generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be distributed up to twelve months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.
The determination of the tax attributes for MSC Income Fund’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Therefore, a determination made on an interim basis may not be representative of the actual tax attributes of distributions for a full year. Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus a 3.8% Medicare surtax, if applicable) on dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and qualified dividends, but may also include either one or both of capital gains and return of capital.
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Listed below is a reconciliation of “Net increase in net assets resulting from operations” to taxable income and to total distributions declared to common stockholders for the six months ended June 30, 2022 and 2021.
Six Months Ended June 30, | |||||
2022 | 2021 | ||||
(estimated, | |||||
Net increase in net assets resulting from operations | $ | 18,038 | $ | 36,112 | |
Net unrealized (appreciation) depreciation | 7,017 | (13,020) | |||
Income tax provision | 1,159 | 830 | |||
Pre-tax book (income) loss not consolidated for tax purposes | (2,366) | (8,770) | |||
Book income (loss) and tax income differences, including debt origination, structuring fees, dividends, realized gains and changes in estimates | (536) | 673 | |||
Estimated taxable income (1) | 23,312 | 15,825 | |||
Taxable income earned in prior year and carried forward for distribution in current year | 23,276 | 29,173 | |||
Taxable income earned prior to period end and carried forward for distribution next period | (33,410) | (37,037) | |||
Dividend accrued as of period end and paid-in the following period | 12,802 | 9,964 | |||
Taxable income earned to be carried forward | (20,608) | (27,073) | |||
Total distributions accrued or paid to common stockholders | $ | 25,980 | $ | 17,925 | |
| (1) | MSC Income Fund’s taxable income for each period is an estimate and will not be finally determined until MSC Income Fund files its tax return for each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the following period, may be different than this estimate. |
The Taxable Subsidiaries primarily hold certain equity portfolio investments for the Company. The Taxable Subsidiaries permit the Company to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes and to continue to comply with the “source-of-income” requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with MSC Income Fund for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in the Company’s consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated with MSC Income Fund for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at corporate income tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the Taxable Subsidiaries are reflected in the Company’s consolidated financial statements.
The income tax expense (benefit) for the Company is generally composed of (i) deferred tax expense (benefit), which is primarily the result of the net activity relating to the portfolio investments held in the Taxable Subsidiaries, including changes in loss carryforwards, changes in net unrealized appreciation or depreciation and other temporary book tax differences, and (ii) current tax expense, which is primarily the result of current U.S. federal income and state taxes and excise taxes on the Company’s estimated undistributed taxable income. The income tax expense, or benefit, and the related tax assets and liabilities generated by the Taxable Subsidiaries, if any, are reflected in the Company’s
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Consolidated Statements of Operations. The Company’s provision for income taxes was comprised of the following for the three and six months ended June 30, 2022 and 2021 (amounts in thousands):
|
|
|
|
|
|
| |||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||
Current tax expense (benefit): | |||||||||||
Federal | $ | (5) | $ | — | $ | 3 | $ | — | |||
State | 168 | 82 | 315 | 169 | |||||||
Excise | 475 | 352 | 663 | 661 | |||||||
Total current tax expense (benefit) | 638 | 434 | 981 | 830 | |||||||
Deferred tax expense (benefit): | |||||||||||
Federal | 53 | — | 168 | — | |||||||
State | 4 | — | 10 | — | |||||||
Total deferred tax expense (benefit) | 57 | — | 178 | — | |||||||
Total income tax provision (benefit) | $ | 695 | $ | 434 | $ | 1,159 | $ | 830 | |||
The net deferred tax liability at June 30, 2022 and December 31, 2021 was $0.2 million and $0, respectively, with the change primarily related to net unrealized appreciation or depreciation, loss carryforwards and other temporary book-tax differences relating to portfolio investments held by the Taxable Subsidiaries. The Company recorded a valuation allowance to reduce the carrying value of certain deferred tax assets to the amount that more likely than not can be realized.
At June 30, 2022, for U.S. federal income tax purposes, the Taxable Subsidiaries had net operating loss carryforwards generated in 2019 and future periods that are not subject to expiration. The net operating losses will carryforward indefinitely until utilized. The net capital loss carryforwards of the Company will expire in various taxable years 2023 through 2025. Additionally, the Taxable Subsidiaries have interest expense limitation carryforwards which have an indefinite carryforward period.
NOTE H—SHARE REPURCHASE PROGRAM
Prior to March 31, 2020, the Company historically conducted quarterly tender offers pursuant to its share repurchase program. On March 31, 2020, the Company’s Board of Directors unanimously approved a temporary suspension of the Company’s share repurchase program commencing with the second quarter of 2020. The Company’s Board of Directors determined that it was in the best interest of the Company to suspend the share repurchase program in order to preserve financial flexibility and liquidity given the potential prolonged impact of COVID-19. From April 2020 through March 2021, the share repurchase program remained suspended due to the impacts of the COVID-19 pandemic. On March 8, 2021, the Company announced that the Board of Directors approved the reinstatement of the share repurchase program following the payment of the dividend declared by the Board of Directors for payment on April 1, 2021, and the Company has conducted quarterly tender offers pursuant to its share repurchase program since then.
Under the terms of the reinstated share repurchase program, the Company offers to purchase shares at the NAV per share on the repurchase date. The amount of shares of the Company’s common stock to be repurchased during any calendar quarter may be equal to the lesser of (i) the number of shares of common stock the Company could repurchase with the proceeds it received from the issuance of common stock under the Company’s dividend reinvestment plan or (ii) 2.5% of the weighted-average number of shares of common stock outstanding in the prior four calendar quarters. Upon resuming making offers to repurchase shares pursuant to the share repurchase program in April 2021, the Company has limited repurchase offers to the number of shares of common stock it can repurchase with 90% of the cash retained as a result of issuances of common stock under the Company’s dividend reinvestment plan.
At the discretion of the Board of Directors, the Company may also use cash on hand, cash available from borrowings and cash from the sale of investments as of the end of the applicable period to repurchase shares. The Company’s Board of Directors may amend, suspend or terminate the share repurchase program upon 30 days’ notice. Since inception of its share repurchase program, the Company has funded the repurchase of $121.0 million in shares of common stock as of June 30, 2022. For the three months ended June 30, 2022 and 2021, the Company funded $4.5 million and $2.9 million, respectively, for shares of its common stock tendered for repurchase under the plan. For the six
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months ended June 30, 2022 and 2021, the Company funded $8.0 million and $2.9 million, respectively, for shares of its common stock tendered for repurchase under the plan.
NOTE I—DIVIDEND REINVESTMENT PLAN
The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of stockholders. As a result, if the Company declares a cash dividend, stockholders who have “opted in” to the DRIP will have their cash dividend automatically reinvested into additional shares of MSC Income Fund common stock. The number of shares of common stock to be issued to a stockholder under the DRIP shall be determined by dividing the total dollar amount of the distribution payable to such stockholder by a price per share of common stock determined by the Company’s Board of Directors or a committee thereof, in its sole discretion, that is (i) not less than the net asset value per share of common stock determined in good faith by the Board of Directors or a committee thereof, in its sole discretion, within 48 hours prior to the payment of the distribution (the “NAV per share”) and (ii) not more than 2.5% greater than the NAV per share as of such date.
Summarized DRIP information for the six months ended June 30, 2022 and 2021 is as follows:
Six Months Ended June 30, | |||||||
2022 | 2021 | ||||||
($ in millions) | |||||||
DRIP participation | $ | 8.8 | $ | 3.2 | |||
Shares issued for DRIP | 1,115,516 | 424,455 | |||||
NOTE J—COMMITMENTS AND CONTINGENCIES
At June 30, 2022, the Company had the following outstanding commitments (in thousands):
Investments with equity capital commitments that have not yet funded: |
| Amount |
| |
| ||||
Brightwood Capital Fund III, LP | $ | 100 | ||
Freeport First Lien Loan Fund III LP | 4,871 | |||
HPEP 3, L.P. | 1,555 | |||
Total Equity Commitments | $ | 6,526 | ||
Investments with commitments to fund revolving loans that have not been fully drawn or term loans with additional commitments not yet funded: | ||||
Winter Services LLC | $ | 5,556 | ||
MonitorUS Holding, LLC | 4,093 | |||
NWN Corporation | 3,488 | |||
CaseWorthy, Inc. | 3,400 | |||
Infolinks Media Buyco, LLC | 3,150 | |||
NinjaTrader, LLC | 3,078 | |||
Roof Opco, LLC | 2,450 | |||
ArborWorks, LLC | 2,236 | |||
SI East, LLC | 1,750 | |||
American Health Staffing Group, Inc. | 1,667 | |||
Xenon Arc, Inc. | 1,600 | |||
Evergreen North America Acquisitions, LLC | 1,548 | |||
IG Parent Corporation | 1,542 | |||
KMS, LLC | 1,357 | |||
RA Outdoors LLC | 1,235 | |||
Mako Steel, LP | 1,217 | |||
Bettercloud, Inc. | 1,216 | |||
Paragon Healthcare, Inc. | 1,000 | |||
Burning Glass Intermediate Holding Company, Inc. | 929 | |||
Interface Security Systems, L.L.C | 898 | |||
Adams Publishing Group, LLC | 847 | |||
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Student Resource Center, LLC | 833 | |||
Flip Electronics LLC | 818 | |||
VVS Holdco, LLC | 800 | |||
Watterson Brands, LLC | 789 | |||
Invincible Boat Company, LLC. | 768 | |||
DTE Enterprises, LLC | 750 | |||
JTI Electrical & Mechanical, LLC | 702 | |||
West Star Aviation Acquisition, LLC | 667 | |||
GRT Rubber Technologies LLC | 660 | |||
MB2 Dental Solutions, LLC | 656 | |||
Classic H&G Holdco, LLC | 610 | |||
Centre Technologies Holdings, LLC | 600 | |||
Engineering Research & Consulting, LLC | 559 | |||
Cody Pools, Inc. | 550 | |||
Robbins Bros. Jewelry, Inc. | 500 | |||
The Affiliati Network, LLC | 500 | |||
Wall Street Prep, Inc. | 500 | |||
SIB Holdings, LLC | 442 | |||
Trantech Radiator Topco, LLC | 400 | |||
Chamberlin Holding LLC | 400 | |||
Acumera, Inc. | 391 | |||
South Coast Terminals Holdings, LLC | 381 | |||
Direct Marketing Solutions, Inc. | 375 | |||
Hawk Ridge Systems, LLC | 354 | |||
Microbe Formulas, LLC | 347 | |||
AVEX Aviation Holdings, LLC | 300 | |||
Batjer TopCo, LLC | 300 | |||
Gamber-Johnson Holdings, LLC | 300 | |||
NuStep, LLC | 300 | |||
ATS Operating, LLC | 250 | |||
Dynamic Communities, LLC | 250 | |||
Mystic Logistics Holdings, LLC | 200 | |||
Career Team Acquireco LLC | 200 | |||
Johnson Downie Opco, LLC | 200 | |||
Orttech Holdings, LLC | 156 | |||
Flame King Holdings, LLC | 100 | |||
BDS Solutions IntermediateCo, LLC | 95 | |||
Zips Car Wash, LLC | 52 | |||
Datacom, LLC | 50 | |||
Total Loan Commitments | $ | 61,362 | ||
Total Commitments | $ | 67,888 |
The Company will fund its unfunded commitments from the same sources it uses to fund its investment commitments that are funded at the time they are made (which are typically through existing cash and cash equivalents and borrowings under the Credit Facilities). The Company follows a process to manage its liquidity and ensure that it has available capital to fund its unfunded commitments as necessary. The Company had no unrealized appreciation or depreciation on the outstanding unfunded commitments as of June 30, 2022.
The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, the Company does not expect any current matters will materially affect its financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on the Company’s financial condition or results of operations in any future reporting period.
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NOTE K - RELATED PARTY TRANSACTIONS
1. Advisory Agreements and Conditional Fee and Expense Reimbursement Waivers
On October 30, 2020, the Company entered into the Investment Advisory Agreement with the Adviser which states that the Adviser will oversee the management of the Company’s activities and is responsible for making investment decisions with respect to, and providing day-to-day management and administration of, the Company’s investment portfolio.
Pursuant to the Investment Advisory Agreement, the Company pays the Adviser a base management fee and incentive fees as compensation for the services described above. The base management fee is calculated at an annual rate of 1.75% of the Company’s average gross assets. The term “gross assets” means total assets of the Company as disclosed on the Company’s balance sheets. “Average gross assets” are calculated based on the Company’s gross assets at the end of the two most recently completed calendar quarters. The base management fee is payable quarterly in arrears. The base management fee is expensed as incurred.
The incentive fee under the Investment Advisory Agreement consists of two parts. The first part, referred to as the subordinated incentive fee on income, is calculated and payable quarterly in arrears based on Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding quarter. The subordinated incentive fee on income is equal to 20.0% of the Company’s Pre-Incentive Fee Net Investment Income for the immediately preceding quarter, expressed as a quarterly rate of return on adjusted capital at the beginning of the most recently completed calendar quarter, exceeding 1.875% (or 7.5% annualized), subject to a “catch up” feature (as described below).
For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the management fee, expenses payable under any proposed administration agreement and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding taxes and the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount debt instruments and PIK interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. For purposes of this fee, adjusted capital means cumulative gross proceeds generated from sales of the Company’s common stock (including proceeds from the Company’s dividend reinvestment plan) reduced for non-liquidating distributions, other than distributions of profits, paid to the Company’s stockholders and amounts paid for share repurchases pursuant to the Company’s share repurchase program. The subordinated incentive fee on income is expensed in the quarter in which it is incurred.
The calculation of the subordinated incentive fee on income for each quarter is as follows:
| ● | No subordinated incentive fee on income shall be payable to the Adviser in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the hurdle rate of 1.875% (or 7.5% annualized) on adjusted capital; |
| ● | 100% of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than or equal to 2.34375% in any calendar quarter (9.375% annualized) shall be payable to the Adviser. This portion of the subordinated incentive fee on income is referred to as the “catch up” and is intended to provide the Adviser with an incentive fee of 20.0% on all of the Company’s Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply when the Pre-Incentive Fee Net Investment Income exceeds 2.34375% (9.375% annualized) in any calendar quarter; and |
| ● | For any quarter in which the Company’s Pre-Incentive Fee Net Investment Income exceeds 2.34375% (9.375% annualized), the subordinated incentive fee on income shall equal 20.0% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, as the hurdle rate and catch-up will have been achieved. |
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The second part of the incentive fee, referred to as the incentive fee on capital gains, is an incentive fee on realized capital gains earned from the portfolio of the Company and is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement). This fee equals 20.0% of the Company’s incentive fee capital gains, which equals the Company’s realized capital gains on a cumulative basis from inception, calculated as of the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. At the end of each reporting period, the Company estimates the incentive fee on capital gains and accrues the fee based on a hypothetical liquidation of its portfolio. Therefore, the accrual includes both net realized gains and net unrealized gains (the net unrealized difference between the fair value and the par value of its portfolio), if any. The incentive fee accrued pertaining to the unrealized gain is neither earned nor payable to the Adviser until such time it is realized.
For the three months ended June 30, 2022 and 2021, the Company incurred base management fees of $5.0 million and $4.2 million, respectively. The Adviser did not waive any portion of the base management fees incurred in the three months ended June 30, 2022 and 2021. For both of the three months ended June 30, 2022 and 2021, the Company did not incur any subordinated incentive fees on income or any capital gains incentive fees. For the six months ended June 30, 2022 and 2021, the Company incurred base management fees of $9.9 million and $8.1 million, respectively. The Adviser did not waive any portion of the base management fees incurred in the six months ended June 30, 2022 and 2021. For both of the six months ended June 30, 2022 and 2021, the Company did not incur any subordinated incentive fees on income or any capital gains incentive fees.
Pursuant to the Investment Advisory Agreement, the Company is required to pay or reimburse the Adviser for administrative services expenses, which include all costs and expenses related to the Company’s day-to-day administration and management not related to advisory services, whether such administrative services were performed by a third-party service provider or the Adviser or its affiliates (to the extent performed by the Adviser, or its affiliates, the “Internal Administrative Services”). Internal Administrative Services include, but are not limited to, the cost of the Adviser’s personnel performing accounting and compliance functions and other administrative services on behalf of the Company.
The Adviser waived reimbursement of all Internal Administrative Services expenses from October 30, 2020 through December 31, 2021. On January 1, 2022, the Adviser assumed responsibility of certain administrative services that were previously provided for the Company by a third-party sub-administrator. From January 1, 2022 through June 30, 2022, the Adviser continued to waive reimbursement of all Internal Administrative Services expenses, except for the cost of the services previously provided by the sub-administrator. For the three months ended June 30, 2022 and 2021, the Company incurred Internal Administrative Services Expenses of $1.3 million and $1.0 million, respectively. For the six months ended June 30, 2022 and 2021, the Company incurred Internal Administrative Services Expenses of $2.5 million and $2.1 million, respectively. For the three months ended June 30, 2022 and 2021, the Adviser waived the reimbursements of Internal Administrative Services expenses of $1.1 million and $1.0 million, respectively. For the six months ended June 30, 2022 and 2021, the Adviser waived the reimbursements of Internal Administrative Services expenses of $2.2 million and $2.1 million, respectively. Waived Internal Administrative Services expenses are permanently waived and are not subject to future reimbursement.
2. Offering Costs
In accordance with the investment advisory agreement (the “Original Investment Advisory Agreement”) with HMS Adviser LP, the Company’s previous investment adviser (“HMS Adviser”), the Company reimbursed HMS Adviser for any offering costs that were paid on the Company’s behalf, which consisted of, among other costs, actual legal, accounting, bona fide out-of-pocket itemized and detailed due diligence costs, printing, filing fees, transfer agent costs, postage, escrow fees, advertising and sales literature and other costs incurred in connection with the offering of the Company’s common stock, including through the Company’s dividend reinvestment plan. HMS Adviser was responsible for the payment of offering costs to the extent they exceeded 1.5% of the aggregate gross stock offering proceeds. Pursuant to the transaction whereby the Adviser became the investment adviser to the Company, HMS Adviser agreed to permanently waive reimbursement of organizational and offering expenses except for $0.6 million which remained payable to HMS Adviser and would be reimbursed as part of future issuances of common stock by the Company. For the three months ended June 30, 2022, the Company reimbursed HMS Adviser $0.08 million in connection with stock issuances. For the six months ended June 30, 2022, the Company reimbursed HMS Adviser $0.14 million in connection with stock issuances. For the three and six months ended June 30, 2021, the Company reimbursed HMS Adviser $0.01
65
million in connection with stock issuances. As of June 30, 2022, $0.26 million of the Company’s reimbursement obligation to HMS Adviser for organizational and offering expenses remained outstanding.
The Investment Advisory Agreement provides that the Adviser and its officers, directors, controlling persons and any other person or entity affiliated with it acting as the Company’s agent are entitled to indemnification (including reasonable attorneys’ fees and amounts reasonably paid in settlement) for any liability or loss suffered by such indemnitee, and such indemnitee will be held harmless for any loss or liability suffered by the Company, if (i) the indemnitee has determined, in good faith, that the course of conduct which caused the loss or liability was in the Company’s best interests, (ii) the indemnitee was acting on behalf of or performing services for the Company, (iii) the liability or loss suffered was not the result of negligence, willful malfeasance, bad faith or misconduct by the indemnitee or an affiliate thereof acting as the Company’s agent and (iv) the indemnification or agreement to hold the indemnitee harmless is only recoverable out of the Company’s net assets and not from the Company’s stockholders.
In the ordinary course of business, the Company enters into transactions with other parties that may be considered related party transactions. The Company has implemented certain policies and procedures, both written and unwritten, to ensure that it does not engage in any prohibited transactions with any persons affiliated with the Company. If such affiliations are found to exist, the Company seeks the Board of Directors and/or appropriate Board of Directors committee review and approval for such transactions and otherwise comply with, or seek, orders for exemptive relief from the SEC, as appropriate.
The Company has received an exemptive order from the SEC permitting co-investments among the Company, Main Street and other funds and clients advised by the Adviser in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. The Company has made co-investments, and in the future intends to continue to make co-investments with Main Street and other funds and clients advised by the Adviser, in accordance with the conditions of the order. The order requires, among other things, that the Adviser and Main Street consider whether each such investment opportunity is appropriate for the Company, Main Street and the other funds and clients advised by the Adviser, as applicable, and if it is appropriate, to propose an allocation of the investment opportunity between such parties. Because the Adviser is wholly-owned by Main Street and is not managing the Company’s investment activities as its sole activity, this may provide the Adviser an incentive to allocate opportunities to other participating funds and clients instead of the Company. However, the Adviser has policies and procedures in place to manage this conflict, including oversight by the independent members of the Board of Directors. Additional information regarding the operation of the co-investment program is set forth in the order granting exemptive relief, which may be reviewed on the SEC’s website at www.sec.gov. In addition to the co-investment program described above, the Company also co-invests in syndicated deals and other transactions where price is the only negotiated point by the Company and its affiliates.
5. Other Related Party Transactions
On January 27, 2021, the Company entered into the Main Street Term Loan, which initially provided for an aggregate principal amount of $40.0 million in borrowings. The Company paid a 1.0% upfront fee to Main Street on the closing date.
On July 27, 2021, the Company entered into an amendment to the Main Street Term Loan that allowed the Company to initially draw an additional $20.0 million, with another $15.0 million available to be drawn in two separate $7.5 million tranches at a later date. Following the amendment, as of September 30, 2021, the aggregate principal amount outstanding under the Main Street Term Loan was $60.0 million bearing interest at a fixed rate of 5.00% per annum and maturing on January 27, 2026.
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Borrowings under the Main Street Term Loan were expressly subordinated and junior in right of payment to all secured indebtedness of the Company. The Main Street Term Loan was unanimously approved by the Board of Directors, including each director who is not an “interested person,” as such term is defined in Section 2(a)(19) of the 1940 Act, of the Company or the Adviser. On October 22, 2021, the Company fully repaid all borrowings outstanding under the Main Street Term Loan and the Main Street Term Loan was extinguished.
On May 2, 2022, the Company sold 94,697 shares of its common stock to Main Street at $7.92 per share, the price at which the Company issued new shares in connection with reinvestments of the May 2, 2022 dividend pursuant to the dividend reinvestment plan, for total proceeds to the Company of $750,000. The issuance and sale were made pursuant to the exemption from registration under Section 4(a)(2) of the Securities Act of 1933, as amended, and was unanimously approved by the Company’s Board of Directors, including each director who is not an “interested person,” as such term is defined in Section 2(a)(19) of the 1940 Act, of the Company or the Adviser.
NOTE L—SUBSEQUENT EVENTS
On August 1, 2022, the Company repurchased 527,508 shares of its common stock validly tendered and not withdrawn on the terms set forth in the tender offer statement on Schedule TO and Offer to Purchase filed with the SEC on August 3, 2022. The shares were repurchased at a price of $7.64 per share, which was the Company’s net asset value per share as of August 1, 2022, for an aggregate purchase price of $4.0 million (an amount equal to 90% of the proceeds the Company received from the issuance of shares under the Company’s dividend reinvestment plan from the August 1, 2022 dividend payment).
On August 11, 2022, the Board of Directors declared a quarterly cash dividend of $0.16 per share payable November 1, 2022 to stockholders of record as of September 30, 2022.
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Schedule 12-14
MSC INCOME FUND, INC.
Consolidated Schedule of Investments In and Advances to Affiliates
June 30, 2022
(dollars in thousands)
(unaudited)
Amount of | |||||||||||||||||||||||||
Interest, | |||||||||||||||||||||||||
Fees or | |||||||||||||||||||||||||
Amount of | Amount of | Dividends | December 31, | June 30, | |||||||||||||||||||||
Realized | Unrealized | Credited to | 2021 | Gross | Gross | 2022 | |||||||||||||||||||
Company |
| Investment(1)(10)(11) |
| Geography |
| Gain/(Loss) |
| Gain/(Loss) |
| Income(2) |
| Fair Value |
| Additions(3) |
| Reductions(4) |
| Fair Value | |||||||
Control Investments |
|
|
|
|
|
|
|
|
| ||||||||||||||||
GRT Rubber Technologies LLC |
| 9.06% (L+8.00%) Secured Debt | (8) | $ | - | $ | (23) | $ | 1,202 | $ | 19,152 | $ | 23 | $ | 23 | $ | 19,152 | ||||||||
| Member Units | (8) |
| - | - | 838 | 22,750 | - | - | 22,750 | |||||||||||||||
Harris Preston Fund Investments |
| LP Interests (2717 MH, L.P.) |
| (8) |
| - | 1,408 | - | 3,971 | 2,583 | - | 6,554 | |||||||||||||
LP Interests (2717 HPP-MS, L.P.) | (8) | - | - | - | - | - | - | - | |||||||||||||||||
Copper Trail Energy Fund I, LP - CTMH |
| LP Interests (CTMH, LP) |
| (9) |
| - | - | - | 710 | - | - | 710 | |||||||||||||
Other | - | - | - | - | - | - | - | ||||||||||||||||||
Total Control Investments | $ | - | $ | 1,385 | $ | 2,040 | $ | 46,583 | $ | 2,606 | $ | 23 | $ | 49,166 | |||||||||||
Affiliate Investments | |||||||||||||||||||||||||
AFG Capital Group, LLC |
| 10.00% Secured Debt |
| (8) | $ | - | $ | - | $ | 1 | $ | 36 | $ | - | $ | 36 | $ | - | |||||||
| Preferred Member Units |
| (8) |
| - | 260 | - | 1,930 | 260 | - | 2,190 | ||||||||||||||
ASK (Analytical Systems Keco Holdings, LLC) |
| 12.00% (L+10.00%, Floor 2.00%) Secured Debt |
| (8) |
| - | - | 85 | 1,178 | 13 | 35 | 1,156 | |||||||||||||
| Preferred Member Units |
| (8) |
| - | (140) | 1 | 1,220 | - | 140 | 1,080 | ||||||||||||||
| Warrants |
| (8) |
| - | - | - | - | - | - | - | ||||||||||||||
ATX Networks Corp. | 8.92% (L+7.50%, Floor 1.00%) Secured Debt | (6) | - | (298) | 389 | 7,121 | 229 | 1,222 | 6,128 | ||||||||||||||||
10.00% PIK Unsecured Debt | (6) | - | 122 | 156 | 1,977 | 279 | - | 2,256 | |||||||||||||||||
Barfly Ventures, LLC |
| Preferred Member Units |
| (5) |
| - | 157 | - | 643 | 157 | - | 800 | |||||||||||||
Batjer TopCo, LLC | 11.00% Secured Debt | (8) | - | - | 45 | - | 1,252 | 51 | 1,201 | ||||||||||||||||
Member Units | (8) | - | - | - | - | 453 | - | 453 | |||||||||||||||||
Brewer Crane Holdings, LLC |
| 11.06% (L+10.00%, Floor 1.00%) Secured Debt |
| (9) |
| - | - | 114 | 2,005 | 5 | 62 | 1,948 | |||||||||||||
| Preferred Member Units |
| (9) |
| - | (170) | 133 | 1,930 | - | 170 | 1,760 | ||||||||||||||
Centre Technologies Holdings, LLC |
| 12.00% (L+10.00%, Floor 2.00%) Secured Debt |
| (8) |
| - | 115 | 212 | 2,216 | 1,967 | 457 | 3,726 | |||||||||||||
| Preferred Member Units |
| (8) |
| - | 189 | 15 | 1,460 | 260 | - | 1,720 | ||||||||||||||
Chamberlin Holding LLC |
| 9.13% (L+8.00%, Floor 1.00%) Secured Debt |
| (8) |
| - | (21) | 224 | 4,454 | 21 | 109 | 4,366 | |||||||||||||
(8) | - | - | 8 | 385 | - | 27 | 358 | ||||||||||||||||||
| Member Units |
| (8) |
| - | (427) | 87 | 6,030 | - | 400 | 5,630 | ||||||||||||||
Charps, LLC |
| 10.00% Unsecured Debt |
| (5) |
| - | - | - | - | - | - | - | |||||||||||||
| Preferred Member Units |
| (5) |
| - | (140) | 104 | 3,500 | - | 140 | 3,360 | ||||||||||||||
Clad-Rex Steel, LLC |
| 10.63% (L+9.50%, Floor 1.00%) Secured Debt |
| (5) |
| - | - | 139 | 2,620 | - | - | 2,620 | |||||||||||||
| 10.00% Secured Debt |
| (5) |
| - | - | 14 | 268 | - | 4 | 264 | ||||||||||||||
Member Units | (5) | - | 20 | - | 132 | 20 | - | 152 | |||||||||||||||||
| Member Units |
| (5) |
| - | - | 191 | 2,561 | - | 1 | 2,560 | ||||||||||||||
Cody Pools, Inc. |
| 12.25% (L+10.50%, Floor 1.75%) Secured Debt |
| (8) | - | (4) | 463 | 7,181 | 656 | 803 | 7,034 | ||||||||||||||
| Preferred Member Units |
| (8) | - | 890 | 437 | 11,910 | 890 | - | 12,800 | |||||||||||||||
Colonial Electric Company LLC |
| 12.00% Secured Debt |
| (6) |
| - | - | 390 | 6,007 | 419 | 158 | 6,268 | |||||||||||||
| Preferred Member Units |
| (6) |
| - | (40) | 248 | 2,280 | - | 40 | 2,240 | ||||||||||||||
Datacom, LLC |
| 7.50% Secured Debt |
| (8) |
| - | (3) | 49 | 852 | 12 | 18 | 846 | |||||||||||||
| Preferred Member Units |
| (8) |
| - | 10 | 5 | 290 | 10 | - | 300 | ||||||||||||||
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Digital Products Holdings LLC |
| 11.13% (L+10.00%, Floor 1.00%) Secured Debt |
| (5) |
| - | - | 238 | 4,186 | 12 | 166 | 4,032 | |||||||||||||
| Preferred Member Units |
| (5) |
| - | - | 25 | 2,459 | - | - | 2,459 | ||||||||||||||
Direct Marketing Solutions, Inc. |
| 12.13% (L+11.00%, Floor 1.00%) Secured Debt |
| (9) |
| - | (8) | 305 | 4,698 | 246 | 153 | 4,791 | |||||||||||||
| Preferred Stock |
| (9) |
| - | 800 | 171 | 4,590 | 800 | - | 5,390 | ||||||||||||||
Flame King Holdings, LLC | 12.00% (L+11.00%, Floor 1.00%) Secured Debt | (9) | - | 139 | 336 | 5,145 | 155 | - | 5,300 | ||||||||||||||||
7.50% (L+6.50%, Floor 1.00%) Secured Debt | (9) | - | 17 | 72 | 1,581 | 319 | - | 1,900 | |||||||||||||||||
Preferred Equity | (9) | - | 750 | 140 | 2,600 | 750 | - | 3,350 | |||||||||||||||||
Freeport Financial Funds |
| LP Interests (Freeport First Lien Loan Fund III LP) |
| (5) |
| - | (57) | 221 | 7,231 | - | 436 | 6,795 | |||||||||||||
Gamber-Johnson Holdings, LLC |
| 10.00% (L+8.00%, Floor 2.00%) Secured Debt |
| (5) |
| - | (3) | 275 | 5,400 | 3 | 3 | 5,400 | |||||||||||||
| Member Units |
| (5) |
| - | (850) | 90 | 12,430 | - | 850 | 11,580 | ||||||||||||||
GFG Group, LLC. |
| 9.00% Secured Debt |
| (5) |
| - | (10) | 175 | 3,136 | 10 | 10 | 3,136 | |||||||||||||
| Preferred Member Units |
| (5) |
| - | - | 95 | 1,750 | - | - | 1,750 | ||||||||||||||
Gulf Publishing Holdings, LLC |
| 10.60% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%) Secured Debt |
| (8) |
| - | - | 2 | 64 | - | - | 64 | |||||||||||||
| 12.50% (6.25% Cash, 6.25% PIK) Secured Debt |
| (8) |
| - | (547) | 107 | 2,429 | - | 547 | 1,882 | ||||||||||||||
HPEP 3, L.P. |
| LP Interests (HPEP 3, L.P.) |
| (8) |
| 779 | (21) | (81) | 4,712 | 333 | 714 | 4,331 | |||||||||||||
Kickhaefer Manufacturing Company, LLC |
| 11.50% Secured Debt |
| (5) |
| - | - | 312 | 5,040 | 18 | - | 5,058 | |||||||||||||
| 9.00% Secured Debt |
| (5) |
| - | - | 44 | 970 | - | 5 | 965 | ||||||||||||||
Member Units | (5) | - | (20) | - | 3,080 | - | 20 | 3,060 | |||||||||||||||||
| Member Units |
| (5) |
| - | - | 14 | 615 | - | - | 615 | ||||||||||||||
Market Force Information, LLC |
| 12.00% PIK Secured Debt |
| (9) |
| - | (364) | 13 | 2,234 | 13 | 364 | 1,883 | |||||||||||||
MH Corbin Holding LLC |
| 13.00% Secured Debt |
| (5) |
| - | (374) | 135 | 1,484 | 2 | 414 | 1,072 | |||||||||||||
| Preferred Member Units |
| (5) |
| - | - | - | - | - | - | - | ||||||||||||||
Mystic Logistics Holdings, LLC |
| 10.00% Secured Debt |
| (6) |
| - | - | 77 | 1,595 | - | 71 | 1,524 | |||||||||||||
| Common Stock |
| (6) |
| - | 1,842 | 399 | 2,210 | 1,843 | - | 4,053 | ||||||||||||||
NexRev LLC |
| 11.00% Secured Debt |
| (8) |
| - | (429) | 310 | 3,510 | - | 1,444 | 2,066 | |||||||||||||
| Preferred Member Units |
| (8) |
| - | (773) | 10 | 670 | 333 | 773 | 230 | ||||||||||||||
NuStep, LLC |
| 7.63% (L+6.50%, Floor 1.00%) Secured Debt |
| (5) |
| - | 2 | 26 | 430 | 370 | - | 800 | |||||||||||||
12.00% Secured Debt | (5) | - | 7 | 261 | 4,310 | 300 | - | 4,610 | |||||||||||||||||
| Preferred Member Units |
| (5) |
| - | (490) | - | 3,380 | - | 490 | 2,890 | ||||||||||||||
Oneliance, LLC | Preferred Stock | (7) | - | - | - | 264 | - | - | 264 | ||||||||||||||||
12.06% (L+11.00%, Floor 1.00%) Secured Debt | (7) | - | - | 88 | 1,374 | 3 | - | 1,377 | |||||||||||||||||
Orttech Holdings, LLC | 12.00% (L+11.00%, Floor 1.00%) Secured Debt | (5) | - | - | 381 | 5,978 | 14 | 100 | 5,892 | ||||||||||||||||
Preferred Stock | (5) | - | - | 96 | 2,500 | - | - | 2,500 | |||||||||||||||||
Robbins Bros. Jewelry, Inc. | 12.00% (L+11.00%, Floor 1.00%) Secured Debt | (9) | - | - | 254 | - | 3,960 | 26 | 3,934 | ||||||||||||||||
Preferred Equity | (9) | - | 520 | 31 | - | 1,750 | - | 1,750 | |||||||||||||||||
SI East, LLC |
| 10.25% Secured Debt |
| (7) |
| - | 74 | 1,164 | 21,950 | - | 496 | 21,454 | |||||||||||||
Preferred Member Units |
| (7) |
| - | 420 | 115 | 3,860 | 420 | - | 4,280 | |||||||||||||||
Sonic Systems International, LLC | 8.50% (L+7.50%, Floor 1.00%) Secured Debt | (8) | - | (272) | 660 | 13,738 | 4,367 | 272 | 17,833 | ||||||||||||||||
Common Stock | (8) | - | 66 | 25 | 1,250 | 400 | - | 1,650 | |||||||||||||||||
Tedder Industries, LLC |
| 12.00% Secured Debt |
| (9) |
| - | 8 | 263 | 3,754 | 42 | - | 3,796 | |||||||||||||
12.00% Secured Debt | (9) | - | 1 | 25 | 259 | 201 | - | 460 | |||||||||||||||||
| Preferred Member Units |
| (9) |
| - | (372) | - | 2,145 | 55 | 372 | 1,828 | ||||||||||||||
Trantech Radiator Topco, LLC |
| 12.00% Secured Debt |
| (7) |
| - | (4) | 139 | 2,174 | 15 | 109 | 2,080 | |||||||||||||
| Common Stock |
| (7) |
| - | (140) | 15 | 2,160 | - | 140 | 2,020 | ||||||||||||||
VVS Holdco, LLC | 11.50% Secured Debt | (5) | - | - | 470 | 7,667 | 24 | 300 | 7,391 | ||||||||||||||||
Preferred Equity | (5) | - | 60 | 50 | 2,960 | 60 | - | 3,020 | |||||||||||||||||
Other | - | - | - | - | - | - | - | ||||||||||||||||||
Total Affiliate investments | $ | 779 | $ | 492 | $ | 11,058 | $ | 234,158 | $ | 23,721 | $ | 12,148 | $ | 245,731 |
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| (1) | The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the Consolidated Schedule of Investments included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q. |
| (2) | Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in Control or Affiliate categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or investment balances related to the time period it was in the category other than the one shown at period end is included in “Amounts related to investments transferred to or from other 1940 Act classifications during the period.” |
| (3) | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in net unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a different category. |
| (4) | Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include net increases in net unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category. |
| (5) | Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of June 30, 2022 for affiliate investments located in this region was $82,781. This represented 12.1% of net assets as of June 30, 2022. |
| (6) | Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of June 30, 2022 for affiliate investments located in this region was $22,469. This represented 3.3% of net assets as of June 30, 2022. |
| (7) | Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of June 30, 2022 for affiliate investments located in this region was $31,475. This represented 4.6% of net assets as of June 30, 2022. |
| (8) | Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of June 30, 2022 for control investments located in this region was $48,456. This represented 7.1% of net assets as of June 30, 2022. The fair value as of June 30, 2022 for affiliate investments located in this region was $70,916. This represented 10.4% of net assets as of June 30, 2022. |
| (9) | Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of June 30, 2022 for control investments located in this region was $710. This represented 0.1% of net assets as of June 30, 2022. The fair value as of June 30, 2022 for affiliate investments located in this region was $38,090. This represented 5.6% of net assets as of June 30, 2022. |
| (10) | All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities,” unless otherwise noted. |
| (11) | This schedule should be read in conjunction with the Consolidated Schedule of Investments and Notes to the Consolidated Financial Statements included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Supplemental information can be located within the Consolidated Schedule of Investments including end of period interest rate, preferred dividend rate, maturity date, investments not paid currently in cash and investments whose value was determined using significant unobservable inputs. |
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Schedule 12-14
MSC INCOME FUND, INC.
Consolidated Schedule of Investments in and Advances to Affiliates
June 31, 2021
(dollars in thousands)
(unaudited)
Amount of | |||||||||||||||||||||||||
Interest, | |||||||||||||||||||||||||
Fees or | |||||||||||||||||||||||||
Amount of | Amount of | Dividends | December 31, | June 30, | |||||||||||||||||||||
Realized | Unrealized | Credited to | 2020 | Gross | Gross | 2021 | |||||||||||||||||||
Company |
| Investment(1)(10)(11) |
| Geography |
| Gain/(Loss) |
| Gain/(Loss) |
| Income(2) |
| Fair Value |
| Additions(3) |
| Reductions(4) |
| Fair Value | |||||||
|
|
|
|
|
|
|
|
| |||||||||||||||||
GRT Rubber Technologies LLC |
| 7.09% (L+7.00%) Secured Debt |
| (8) |
| - | (3) | 298 | 8,262 | 3 | 3 | 8,262 | |||||||||||||
| Member Units |
| (8) |
| - | - | 1,045 | 22,120 | - | - | 22,120 | ||||||||||||||
Harris Preston Fund Investments |
| LP Interests (2717 MH, L.P.) |
| (8) |
| - | - | - | 2,702 | 47 | - | 2,749 | |||||||||||||
Copper Trail Energy Fund I, LP - CTMH |
| LP Interests (CTMH, LP) |
| (9) |
| - | - | - | 747 | - | 37 | 710 | |||||||||||||
Other | - | - | - | - | - | - | - | ||||||||||||||||||
Total Control Investments | $ | - | $ | (3) | $ | 1,343 | $ | 33,831 | $ | 50 | $ | 40 | $ | 33,841 | |||||||||||
Affiliate Investments | |||||||||||||||||||||||||
AFG Capital Group, LLC |
| Preferred Member Units |
| (8) | $ | - | $ | 290 | $ | - | $ | 1,450 | $ | 290 | $ | - | $ | 1,740 | |||||||
| 10.00% Secured Debt |
| (8) |
| - | - | 5 | 123 | - | 44 | 79 | ||||||||||||||
ASK (Analytical Systems Keco Holdings, LLC) |
| Preferred Member Units |
| (8) |
| - | (460) | - | 800 | - | 460 | 340 | |||||||||||||
Preferred Member Units | (8) | - | 246 | - | - | 410 | - | 410 | |||||||||||||||||
| 12.00% (L+10.00%, Floor 2.00%) Secured Debt |
| (8) |
| - | (4) | 122 | 1,180 | 45 | 22 | 1,203 | ||||||||||||||
| Warrants |
| (8) |
| - | - | - | - | - | - | - | ||||||||||||||
Barfly Ventures, LLC |
| Preferred Member Units |
| (5) |
| - | 39 | - | 528 | 39 | - | 567 | |||||||||||||
Brewer Crane Holdings, LLC |
| Preferred Member Units |
| (9) |
| - | (170) | 92 | 1,460 | - | 170 | 1,290 | |||||||||||||
| 11.00% (L+10.00%, Floor 1.00%) Secured Debt |
| (9) |
| - | - | 121 | 2,119 | 5 | 62 | 2,062 | ||||||||||||||
Centre Technologies Holdings, LLC |
| 12.00% (L+10.00%, Floor 2.00%) Secured Debt |
| (8) |
| - | - | 171 | 2,868 | 11 | 477 | 2,402 | |||||||||||||
| Preferred Member Units |
| (8) |
| - | (80) | - | 1,540 | - | 80 | 1,460 | ||||||||||||||
Chamberlin Holding LLC |
| 9.00% (L+8.00%, Floor 1.00%) Secured Debt |
| (8) |
| - | (17) | 182 | 3,803 | 17 | 366 | 3,454 | |||||||||||||
| Member Units |
| (8) |
| - | (360) | 860 | 7,020 | - | 360 | 6,660 | ||||||||||||||
| Member Units |
| (8) |
| - | 28 | 8 | 317 | 28 | - | 345 | ||||||||||||||
Charps, LLC |
| Preferred Member Units |
| (5) |
| - | 270 | 386 | 2,630 | 270 | - | 2,900 | |||||||||||||
| 0.15 Secured Debt |
| (5) |
| - | - | 1 | 167 | - | 167 | - | ||||||||||||||
Clad-Rex Steel, LLC |
| 10.50% (L+9.50%, Floor 1.00%) Secured Debt |
| (5) |
| - | - | 172 | 2,706 | 7 | 100 | 2,613 | |||||||||||||
| Member Units |
| (5) |
| - | 207 | 36 | 2,153 | 207 | - | 2,360 | ||||||||||||||
| Member Units |
| (5) |
| - | 1 | - | 132 | 1 | - | 133 | ||||||||||||||
| 10.00% Secured Debt |
| (5) |
| - | - | 14 | 275 | 1 | 4 | 272 | ||||||||||||||
Cody Pools, Inc. |
| 12.25% (L+10.50%, Floor 1.75%) Secured Debt |
| (8) | - | (15) | 218 | 3,554 | 15 | 607 | 2,962 | ||||||||||||||
| Preferred Member Units |
| (8) | - | 1,810 | - | 3,740 | 1,810 | - | 5,550 | |||||||||||||||
Colonial Electric Company LLC |
| 12.00% Secured Debt |
| (6) |
| - | - | 199 | - | 6,148 | - | 6,148 | |||||||||||||
| Preferred Member Units |
| (6) |
| - | - | - | - | 1,920 | - | 1,920 | ||||||||||||||
Copper Trail Energy Fund I, LP |
| LP Interests (Copper Trail Energy Fund I, LP) |
| (9) |
| - | 60 | 317 | 1,782 | 61 | - | 1,843 | |||||||||||||
Datacom, LLC |
| Preferred Member Units |
| (8) |
| - | - | - | - | 290 | - | 290 | |||||||||||||
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| 5.00% Secured Debt |
| (8) |
| - | - | 32 | - | 906 | 6 | 900 | ||||||||||||||
Digital Products Holdings LLC |
| 11.00% (L+10.00%, Floor 1.00%) Secured Debt |
| (5) |
| - | - | 256 | 4,493 | 11 | 165 | 4,339 | |||||||||||||
| Preferred Member Units |
| (5) |
| - | - | 25 | 2,459 | - | - | 2,459 | ||||||||||||||
Direct Marketing Solutions, Inc. |
| Preferred Stock |
| (9) |
| - | (383) | - | 4,840 | - | 383 | 4,457 | |||||||||||||
| 12.00% (L+11.00%, Floor 1.00%) Secured Debt |
| (9) |
| - | - | 239 | 3,717 | 15 | - | 3,732 | ||||||||||||||
Freeport Financial Funds |
| LP Interests (Freeport First Lien Loan Fund III LP) |
| (5) |
| - | - | 455 | 10,321 | - | 2,317 | 8,004 | |||||||||||||
Gamber-Johnson Holdings, LLC |
| 9.00% (L+7.00%, Floor 2.00%) Secured Debt |
| (5) |
| - | (25) | 256 | 4,960 | 225 | 25 | 5,160 | |||||||||||||
| Member Units |
| (5) |
| - | 228 | 825 | 13,120 | 940 | - | 14,060 | ||||||||||||||
GFG Group, LLC. |
| Preferred Member Units |
| (5) |
| - | - | 73 | - | 1,225 | - | 1,225 | |||||||||||||
| 12.00% Secured Debt |
| (5) |
| - | - | 95 | - | 3,846 | 800 | 3,046 | ||||||||||||||
Gulf Publishing Holdings, LLC |
| 10.50% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%) Secured Debt |
| (8) |
| - | - | 4 | 63 | 1 | - | 64 | |||||||||||||
| 12.50% (6.25% Cash, 6.25% PIK) Secured Debt |
| (8) |
| - | (431) | 215 | 2,988 | 110 | 431 | 2,667 | ||||||||||||||
Hawk Ridge Systems, LLC |
| 9.50% Secured Debt |
| (9) |
| - | (9) | 173 | 3,350 | 9 | 9 | 3,350 | |||||||||||||
| Preferred Member Units |
| (9) |
| - | 649 | 173 | 2,008 | 650 | - | 2,658 | ||||||||||||||
| Preferred Member Units |
| (9) |
| - | 35 | - | 105 | 35 | - | 140 | ||||||||||||||
HPEP 3, L.P. |
| LP Interests (HPEP 3, L.P.) |
| (8) |
| - | 531 | - | 3,258 | 905 | - | 4,163 | |||||||||||||
J&J Services, Inc. |
| 11.50% Secured Debt |
| (7) |
| - | (8) | 198 | 3,200 | 8 | 208 | 3,000 | |||||||||||||
| Preferred Stock |
| (7) |
| - | 90 | - | 3,170 | 90 | - | 3,260 | ||||||||||||||
Kickhaefer Manufacturing Company, LLC |
| Member Units |
| (5) |
| - | - | 13 | 3,060 | - | - | 3,060 | |||||||||||||
| 11.50% Secured Debt |
| (5) |
| - | - | 337 | 5,500 | 21 | 300 | 5,221 | ||||||||||||||
| 9.00% Secured Debt |
| (5) |
| - | - | 44 | 978 | - | 4 | 974 | ||||||||||||||
| Member Units |
| (5) |
| - | 13 | - | 290 | 13 | - | 303 | ||||||||||||||
Market Force Information, LLC |
| PIK Secured Debt |
| (9) |
| - | (74) | - | 3,391 | - | 74 | 3,317 | |||||||||||||
MH Corbin Holding LLC |
| 13.00% (10.00% Cash, 3.00% PIK) Secured Debt |
| (5) |
| - | (131) | 143 | 2,070 | 5 | 171 | 1,904 | |||||||||||||
| Preferred Member Units |
| (5) |
| - | (590) | - | 590 | - | 590 | - | ||||||||||||||
Mystic Logistics Holdings, LLC |
| 12.00% Secured Debt |
| (6) |
| - | (1) | 102 | 1,682 | 2 | 8 | 1,676 | |||||||||||||
| Common Stock |
| (6) |
| - | (768) | 137 | 2,248 | - | 768 | 1,480 | ||||||||||||||
NexRev LLC |
| Preferred Member Units |
| (8) |
| - | 450 | 10 | 370 | 450 | - | 820 | |||||||||||||
| 11.00% Secured Debt |
| (8) |
| - | 43 | 241 | 4,177 | 53 | 109 | 4,121 | ||||||||||||||
NuStep, LLC |
| Preferred Member Units |
| (5) |
| - | 390 | - | 2,700 | 390 | - | 3,090 | |||||||||||||
| 12.00% Secured Debt |
| (5) |
| - | 12 | 259 | 4,288 | 22 | - | 4,310 | ||||||||||||||
SI East, LLC |
| 8.75% Secured Debt |
| (7) |
| - | (27) | 482 | 10,987 | 27 | 1,290 | 9,724 | |||||||||||||
Preferred Member Units |
| (7) |
| - | 1,750 | - | 3,260 | 1,750 | - | 5,010 | |||||||||||||||
Tedder Industries, LLC |
| 12.00% Secured Debt |
| (9) |
| - | - | 247 | 4,025 | 18 | 400 | 3,643 | |||||||||||||
| Preferred Member Units |
| (9) |
| - | - | - | 2,034 | - | - | 2,034 | ||||||||||||||
| 12.00% Secured Debt |
| (9) |
| - | - | 6 | - | 140 | - | 140 | ||||||||||||||
Trantech Radiator Topco, LLC |
| Common Stock |
| (7) |
| - | (10) | 15 | 1,510 | - | 10 | 1,500 | |||||||||||||
| 12.00% Secured Debt |
| (7) |
| - | (7) | 137 | 2,131 | 6 | 7 | 2,130 | ||||||||||||||
Other | (2,470) | 2,458 | - | - | 2,470 | 2,470 | - | ||||||||||||||||||
Total Affiliate investments | $ | (2,470) | $ | 6,030 | $ | 8,096 | $ | 157,690 | $ | 25,918 | $ | 13,464 | $ | 170,144 |
| (1) | The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the Consolidated Schedule of Investments included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q. |
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| (2) | Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in Control or Affiliate categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or investment balances related to the time period it was in the category other than the one shown at period end is included in “Amounts related to investments transferred to or from other 1940 Act classifications during the period.” |
| (3) | Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or net decreases in net unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a different category. |
| (4) | Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include net increases in net unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category. |
| (5) | Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of June 30, 2021 for affiliate investments located in this region was $65,998. This represented 11.0% of net assets as of June 30, 2021. |
| (6) | Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of June 30, 2021 for affiliate investments located in this region was $11,224. This represented 1.9% of net assets as of June 30, 2021. |
| (7) | Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of June 30, 2021 for affiliate investments located in this region was $24,624. This represented 4.1% of net assets as of June 30, 2021. |
| (8) | Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of June 30, 2021 for control investments located in this region was $33,131. This represented 5.5% of net assets as of June 30, 2021. The fair value as of June 30, 2021 for affiliate investments located in this region was $39,630. This represented 6.6% of net assets as of June 30, 2021. |
| (9) | Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of June 30, 2021 for control investments located in this region was $710. This represented 0.1% of net assets as of June 30, 2021. The fair value as of June 30, 2021 for affiliate investments located in this region was $28,665. This represented 4.8% of net assets as of June 30, 2021. |
| (10) | All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities,” unless otherwise noted. |
| (11) | This schedule should be read in conjunction with the Consolidated Schedule of Investments and Notes to the Consolidated Financial Statements included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q. Supplemental information can be located within the Consolidated Schedule of Investments including end of period interest rate, preferred dividend rate, maturity date, investments not paid currently in cash and investments whose value was determined using significant unobservable inputs. |
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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements regarding the plans and objectives of management for future operations and which relate to future events or our future performance or financial condition. Any such forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Our actual results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including, without limitation the factors referenced in Item 1A entitled “Risk Factors” below in Part II of this Quarterly Report on Form 10-Q, if any, and discussed in Item 1A entitled “Risk Factors” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (“SEC”) on March 14, 2022 and elsewhere in this Quarterly Report on Form 10-Q and our other SEC filings. Other factors that could cause actual results to differ materially include changes in the economy and future changes in laws or regulations and conditions in our operating areas.
We have based the forward-looking statements included in this Quarterly Report on Form 10-Q on information available to us on the date of this Quarterly Report on Form 10-Q, and we assume no obligation to update any such forward-looking statements, unless we are required to do so by applicable law. However, you are advised to refer to any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including subsequent periodic and current reports.
This discussion should be read in conjunction with our consolidated financial statements as of December 31, 2021, and for the year then ended, and Management’s Discussion and Analysis of Financial Condition and Results of Operations, both contained in our Annual Report on Form 10-K for the year ended December 31, 2021, as well as the consolidated financial statements (unaudited) and notes to the consolidated financial statements (unaudited) contained in this report.
ORGANIZATION
MSC Income Fund, Inc. (“MSC Income Fund”) is a principal investment firm. MSC Income Fund has certain direct and indirect wholly-owned subsidiaries that have elected to be taxable entities (the “Taxable Subsidiaries”). The primary purpose of the Taxable Subsidiaries is to permit MSC Income Fund to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes. MSC Income Fund also has certain direct and indirect wholly-owned subsidiaries formed for financing purposes (“Structured Subsidiaries”).
On October 28, 2020, MSC Income Fund’s stockholders approved the appointment of MSC Adviser I, LLC (the “Adviser”), which is wholly-owned by Main Street Capital Corporation (“Main Street”), a New York Stock Exchange listed BDC, as MSC Income Fund’s investment adviser and administrator under an Investment Advisory and Administrative Services Agreement dated October 30, 2020 (the “Investment Advisory Agreement”). In such role, the Adviser has the responsibility to manage the business of MSC Income Fund, including the responsibility to identify, evaluate, negotiate and structure prospective investments, make investment and portfolio management decisions, monitor MSC Income Fund’s investment portfolio and provide ongoing administrative services.
COVID-19 UPDATE
The COVID-19 pandemic and its effect on the U.S. and global economies, including the current related impacts to supply chain delays, labor and material availability and price increases, has had, and threatens to continue to have, adverse consequences for our business and operating results, and the businesses and operating results of our portfolio companies. During the quarter ended June 30, 2022, our Adviser continued to work collectively with its employees and our portfolio companies to navigate these significant challenges. Neither our Adviser nor our Board of Directors is able to predict the full impact of the COVID-19 pandemic, including its duration and the magnitude of its economic and
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societal impact. As such, while our Adviser will continue to monitor the evolving situation, it is unable to predict with any certainty the extent to which these events, or any future impacts related to the pandemic, will negatively affect our portfolio companies’ operating results and financial condition or the impact that such disruptions may have on our results of operations and financial condition in the future.
OVERVIEW OF OUR BUSINESS
Our principal investment objective is to maximize our portfolio’s total return by generating current income from our debt investments and current income and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. We seek to achieve our investment objective through our Private Loan (as defined below), lower middle market (“LMM”) and middle market (“Middle Market”) investment strategies. Our Middle Market investment strategy involves investments in companies with annual revenues typically between $150 million and $1.5 billion. Our LMM investment strategy involves investments in companies that are generally smaller in size than our Middle Market companies, with annual revenues typically between $10 million and $150 million. Our Private Loan investment strategy involves investments in companies that are generally consistent with the size of our Middle Market portfolio companies or LMM portfolio companies. Private Loan, LMM and Middle Market portfolio investments generally range in size from $1 million to $20 million.
Private Loan investments generally consist of loans that have been originated directly by Main Street or through strategic relationships with other investment funds on a collaborative basis and are often referred to in the debt markets as “club deals.” Our Private Loan portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date. We may also invest alongside the sponsor in the equity securities of our Private Loan portfolio companies.
We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company’s capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options, or a “one stop” financing solution. Providing customized, “one stop” financing solutions is important to LMM portfolio companies. We generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Our LMM portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date.
Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing syndicated loans or debt securities in privately held companies based in the United States that are generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio debt investments are generally secured by a first priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.
Our other portfolio (“Other Portfolio”) investments primarily consist of investments that are not consistent with the typical profiles for our Private Loan, LMM or Middle Market portfolio investments, including investments which may be managed by third parties. In our Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.
Our portfolio investments are generally made through MSC Income Fund, the Taxable Subsidiaries and Structured Subsidiaries. MSC Income Fund, the Taxable Subsidiaries and Structured Subsidiaries share the same investment strategies and criteria. An investor’s return in MSC Income Fund will depend, in part, on the Taxable Subsidiaries’ and the Structured Subsidiaries’ investment returns as they are wholly-owned subsidiaries of MSC Income Fund.
The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals, our ability to identify new investment opportunities that meet our investment criteria, our ability to consummate the identified opportunities and available liquidity. The level of new investment activity, and associated interest and fee income, will directly impact future investment income. In addition, the level of dividends paid
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by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income. Our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation and depreciation could have a material impact on our operating results.
We have received an exemptive order from the SEC permitting co-investments among us, Main Street and other funds and clients advised by our Adviser in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made co-investments, and in the future intend to continue to make co-investments with Main Street and other funds and clients advised by our Adviser, in accordance with the conditions of the order. The order requires, among other things, that we and our Adviser consider whether each such investment opportunity is appropriate for us and the other funds and clients advised by our Adviser, as applicable, and if it is appropriate, to propose an allocation of the investment opportunity between such parties. Because our Adviser is wholly-owned by Main Street and is not managing our investment activities as its sole activity, this may provide our Adviser an incentive to allocate opportunities to other participating funds and clients instead of us. However, our Adviser has policies and procedures in place to manage this conflict, including oversight by the independent members of our Board of Directors. Additional information regarding the operation of the co-investment program is set forth in the order granting exemptive relief, which may be reviewed on the SEC’s website at www.sec.gov. In addition to the co-investment program described above, we also co-invest in syndicated deals and other transactions where price is the only negotiated point by us and our affiliates.
INVESTMENT PORTFOLIO SUMMARY
The following tables provide a summary of our investments in the Private Loan, LMM and Middle Market portfolios as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments, which are discussed further below):
| As of June 30, 2022 |
| ||||||||
Private Loan | LMM (a) | Middle Market |
| |||||||
(dollars in millions) |
| |||||||||
Number of portfolio companies | 67 |
| 45 |
| 23 | |||||
Fair value | $ | 611.2 |
| $ | 324.3 |
| $ | 141.6 | ||
Cost | $ | 620.9 |
| $ | 286.4 |
| $ | 169.4 | ||
Debt investments as a % of portfolio (at cost) | 94.4 | % | 72.0 | % | 93.1 | % | ||||
Equity investments as a % of portfolio (at cost) | 5.6 | % | 28.0 | % | 6.9 | % | ||||
% of debt investments at cost secured by first priority lien | 99.9 | % | 99.9 | % | 98.6 | % | ||||
Weighted-average annual effective yield (b) | 8.6 | % | 11.2 | % | 8.2 | % | ||||
Average EBITDA(c) | $ | 39.5 |
| $ | 8.6 |
| $ | 74.3 | ||
| (a) | At June 30, 2022, we had equity ownership in all of our LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%. |
| (b) | The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of June 30, 2022, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on our debt portfolio as of June 30, 2022 including debt investments on non-accrual status was 8.4% for our Private Loan portfolio, 10.8% for our LMM portfolio and 7.5% for our Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of our common stock will realize on its investment because it does not reflect our utilization of debt capital in our capital structure, our expenses or any sales load paid by an investor. |
| (c) | The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including two Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate. |
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| As of December 31, 2021 |
| ||||||||
Private Loan |
| LMM (a) | Middle Market | |||||||
(dollars in millions) | ||||||||||
Number of portfolio companies | 57 | 43 |
| 25 |
| |||||
Fair value | $ | 575.9 | $ | 315.4 |
| $ | 159.0 |
| ||
Cost | $ | 576.3 | $ | 281.0 |
| $ | 184.2 |
| ||
Debt investments as a % of portfolio (at cost) | 94.0 | % | 72.2 | % | 93.7 | % | ||||
Equity investments as a % of portfolio (at cost) | 6.0 | % | 27.8 | % | 6.3 | % | ||||
% of debt investments at cost secured by first priority lien | 98.5 | % | 99.8 | % | 98.8 | % | ||||
Weighted-average annual effective yield (b) | 8.4 | % | 10.8 | % | 7.6 | % | ||||
Average EBITDA (c) | $ | 38.0 | $ | 7.3 |
| $ | 85.9 |
| ||
| (a) | At December 31, 2021, we had equity ownership in all of our LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%. |
| (b) | The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2021, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on our debt portfolio as of December 31, 2021 including debt investments on non-accrual status was 8.3% for our Private Loan portfolio, 10.5% for our LMM portfolio and 7.1% for our Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of our common stock will realize on its investment because it does not reflect our utilization of debt capital in our capital structure, our expenses or any sales load paid by an investor. |
| (c) | The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including two Private Loan portfolio companies and one Middle Market portfolio company, as EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate. |
For the three months ended June 30, 2022 and 2021, we achieved an annualized total return on investments of 5.2% and 15.0%, respectively. For the six months ended June 30, 2022 and 2021, we achieved an annualized total return on investments of 7.7% and 12.5%, respectively. For the year ended December 31, 2021, we achieved a total return on investments of 17.9%. Total return on investments is calculated using the interest, dividend and fee income, as well as the realized and unrealized change in fair value of the Investment Portfolio for the specified period. Our total return on investments is not reflective of what an investor in shares of our common stock will realize on its investment because it does not reflect our utilization of debt capital in our capital structure, our expenses or any sales load paid by an investor.
As of June 30, 2022, we had Other Portfolio investments in four companies, collectively totaling $28.7 million in fair value and $26.0 million in cost basis and which comprised 2.6% and 2.4% of our Investment Portfolio at fair value and cost, respectively. As of December 31, 2021, we had Other Portfolio investments in four companies, collectively totaling $26.8 million in fair value and $25.6 million in cost basis and which comprised 2.5% and 2.4% of our Investment Portfolio at fair value and cost, respectively.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. Critical accounting policies are those that require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas could have a material impact on our current and future financial condition and results of operations.
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Management has discussed the development and selection of each critical accounting policy and estimate with the Audit Committee of the Board of Directors. Our critical accounting policies and estimates include the Investment Portfolio Valuation and Revenue Recognition policies described below. Our significant accounting policies are described in greater detail in Note B–Summary of Significant Accounting Policies to the consolidated financial statements included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Investment Portfolio Valuation
The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our Investment Portfolio and the related amounts of unrealized appreciation and depreciation. We consider this determination to be a critical accounting estimate, given the significant judgments and subjective measurements required. As of June 30, 2022 and December 31, 2021, our Investment Portfolio valued at fair value represented 98% and 94% of our total assets, respectively. We are required to report our investments at fair value. We follow the provisions of FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. See Note B.1.—Valuation of the Investment Portfolio included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q for a detailed discussion of our investment portfolio valuation process and procedures.
Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.
In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, which permits a BDC’s board of directors to designate its executive officers or investment adviser as a valuation designee to determine the fair value for its investment portfolio, subject to the active oversight of the board. Our Board of Directors has approved policies and procedures pursuant to Rule 2a-5 (the “Valuation Procedures”) and has designated our Adviser, led by a group of Main Street’s and our Adviser’s executive officers, to serve as the Board of Directors’ valuation designee. We adopted the Valuation Procedures effective April 1, 2021. We believe our Investment Portfolio as of June 30, 2022 and December 31, 2021 approximates fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.
Revenue Recognition
Interest and Dividend Income
We record interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. In accordance with our valuation policies, we evaluate accrued interest and dividend income periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service its debt obligation, we will generally place the loan or debt security on non-accrual status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security’s status significantly improves regarding the debtor’s ability to service the debt obligation, or if a loan or debt security is sold or written off, we remove it from non-accrual status.
Fee Income
We may periodically provide services, including structuring and advisory services to our portfolio companies or other third parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income
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is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the financing.
Payment-in-Kind (“PIK”) Interest and Cumulative Dividends
We hold certain debt and preferred equity instruments in our Investment Portfolio that contain PIK interest and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed in Note B.7.–Summary of Significant Accounting Policies–Income Taxes included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though we may not have collected the PIK interest and cumulative dividends in cash. We stop accruing PIK interest and cumulative dividends and write off any accrued and uncollected interest and dividends in arrears when we determine that such PIK interest and dividends in arrears are no longer collectible. For the three months ended June 30, 2022 and 2021, (i) 3.5% and 2.5%, respectively, of our total investment income was attributable to PIK interest income not paid currently in cash and (ii) 0.3% and 0.6%, respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash. For the six months ended June 30, 2022 and 2021, (i) 2.7% and 2.4%, respectively, of our total investment income was attributable to PIK interest income not paid currently in cash and (ii) 1.1% and 0.7%, respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash.
INVESTMENT PORTFOLIO COMPOSITION
The following tables summarize the composition of our total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments as of June 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments).
Cost: |
| June 30, 2022 |
| December 31, 2021 | |
First lien debt |
| 88.0 | % | 87.2 | % |
Equity |
| 11.6 | % | 11.7 | % |
Second lien debt |
| — | % | 0.7 | % |
Equity warrants |
| 0.1 | % | 0.1 | % |
Other |
| 0.3 | % | 0.3 | % |
| 100.0 | % | 100.0 | % |
Fair Value: |
| June 30, 2022 |
| December 31, 2021 | |
First lien debt |
| 81.8 | % | 82.8 | % |
Equity |
| 17.9 | % | 16.1 | % |
Second lien debt |
| — | % | 0.7 | % |
Equity warrants |
| — | % | 0.1 | % |
Other |
| 0.3 | % | 0.3 | % |
| 100.0 | % | 100.0 | % |
Our Private Loan portfolio investments, LMM portfolio investments and Middle Market portfolio investments carry a number of risks including: (1) investing in companies which may have limited operating histories and financial resources; (2) holding investments that generally are not publicly traded and which may be subject to legal and other restrictions on resale; and (3) other risks common to investing in below investment-grade debt and equity investments in our Investment Portfolio. Please see “Item 1A. Risk Factors—Risks Related to our Investments” contained in our
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Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for a more complete discussion of the risks involved with investing in our Investment Portfolio.
PORTFOLIO ASSET QUALITY
We utilize an internally developed investment rating system to rate the performance of each Private Loan, LMM and Middle Market portfolio company and to monitor our expected level of returns on each of our Private Loan, LMM and Middle Market investments in relation to our expectations for the portfolio company. The investment rating system takes into consideration various factors, including each investment’s expected level of returns, the collectability of our debt investments and the ability to receive a return of the invested capital in our equity investments, comparisons to competitors and other industry participants, the portfolio company’s future outlook and other factors that are deemed to be significant to the portfolio company.
As of June 30, 2022, our total Investment Portfolio had four investments on non-accrual status, which comprised 0.6% of its fair value and 2.7% of its cost. As of December 31, 2021, our total Investment Portfolio had four investments on non-accrual status, which comprised 0.7% of its fair value and 2.8% of its cost.
The operating results of our portfolio companies are impacted by changes in the broader fundamentals of the United States economy. In periods during which the United States economy contracts, it is likely that the financial results of small to mid-sized companies, like those in which we invest, could experience deterioration or limited growth from current levels, which could ultimately lead to difficulty in meeting their debt service requirements, to an increase in defaults on our debt investments or in realized losses on our investments and to difficulty in maintaining historical dividend payment rates and unrealized appreciation on our equity investments. Consequently, we can provide no assurance that the performance of certain portfolio companies will not be negatively impacted by future economic cycles or other conditions, which could also have a negative impact on our future results.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Comparison of the three months ended June 30, 2022 and June 30, 2021
Set forth below is a comparison of the results of operations for the three months ended June 30, 2022 and June 30, 2021.
Three Months Ended |
| ||||||||||||
June 30, | Net Change | ||||||||||||
| 2022 |
| 2021 |
| Amount |
| % |
| |||||
(dollars in thousands) | |||||||||||||
Total investment income | $ | 24,339 | $ | 22,496 | $ | 1,843 | 8 | % | |||||
Total expenses (net of expense waivers) | (11,444) | (8,252) | (3,192) | 39 | % | ||||||||
Net investment income | 12,895 | 14,244 | (1,349) | (9) | % | ||||||||
Net realized gain (loss) from investments | 372 | 1,818 | (1,446) | NM | |||||||||
Net unrealized appreciation (depreciation) from investments | (10,749) | 7,827 | (18,576) | NM | |||||||||
Income tax benefit (provision) | (695) | (434) | (261) | NM | |||||||||
Net increase in net assets resulting from operations | $ | 1,823 | $ | 23,455 | $ | (21,632) | (92) | % | |||||
NM | Net change % not meaningful |
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Investment Income
Total investment income for the three months ended June 30, 2022 was $24.3 million, an 8% increase from the $22.5 million of total investment income for the corresponding period of 2021. The following table provides a summary of the changes in the comparable period activity.
Three Months Ended | |||||||||||||
June 30, | Net Change | ||||||||||||
2022 | 2021 | Amount | % | ||||||||||
Interest income | $ | 21,162 | $ | 17,320 | $ | 3,842 | 22 | % | (a) | ||||
Dividend income | 2,471 | 5,026 | (2,555) | (51) | % | (b) | |||||||
Fee income | 706 | 150 | 556 | 371 | % | (c) | |||||||
Total investment income | $ | 24,339 | $ | 22,496 | $ | 1,843 | 8 | % | |||||
| (a) | The increase in interest income was primarily due to higher average levels of Investment Portfolio debt investments following (i) net origination activity in our LMM portfolio of $88.8 million and $5.1 million for the year ended December 31, 2021 and six months ended June 30, 2022, respectively, and (ii) net origination activity in our Private Loan portfolio of $190.6 million and $42.4 million for the year ended December 31, 2021 and six months ended June 30, 2022, respectively. |
| (b) | The decrease in dividend income from Investment Portfolio equity investments was primarily a result of a $2.3 million decrease in dividend income considered to be less consistent or non-recurring due to elevated levels of such income in the prior year. |
| (c) | The increase in fee income was primarily related to higher amendment and prepayment fees. |
Expenses
Total expenses, net of fee and expense waivers, for the three months ended June 30, 2022 were $11.4 million, a 39% increase from $8.3 million in the corresponding period of 2021. The following table provides a summary of the changes in the comparable period activity.
Three Months Ended | |||||||||||||
June 30, | Net Change | ||||||||||||
2022 | 2021 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Interest expense | $ | 5,299 | $ | 3,300 | $ | 1,999 | 61 | % | (a) | ||||
Base management fees | 4,955 | 4,158 | 797 | 19 | % | (b) | |||||||
Internal administrative services fees | 1,302 | 1,040 | 262 | 25 | % | ||||||||
General and administrative | 1,037 | 794 | 243 | 31 | % | ||||||||
Total expenses before fee and expense waivers | 12,593 | 9,292 | 3,301 | 36 | % | ||||||||
Waiver of internal administrative services expenses | (1,149) | (1,040) | (109) | 10 | % | ||||||||
Total expenses | $ | 11,444 | $ | 8,252 | $ | 3,192 | 39 | % | |||||
| (a) | The increase in interest expense was primarily related to (i) higher weighted average debt balances to support the larger Investment Portfolio resulting from the investment activity since the prior year and (ii) higher floating interest rates on our revolving lines of credit based upon the increase in LIBOR. |
| (b) | The increase in base management fees was due to an increase in average gross assets subject to the base management fee. |
Net Investment Income
Net investment income for the three months ended June 30, 2022 decreased 9% to $12.9 million, or $0.16 per share, compared to net investment income of $14.2 million, or $0.18 per share, for the corresponding period of 2021. The decrease in net investment income was principally attributable to the increase in total expenses, partially offset by
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the increase in total investment income, both as discussed above. The decrease in net investment income and net investment income per share includes a $2.3 million, or $0.03 per share, decrease in dividend income considered to be less consistent or non-recurring, as discussed above.
Net Realized Gain (Loss) from Investments
The following table provides a summary of the primary components of the total net realized gain on investments of $0.4 million for the three months ended June 30, 2022:
Three Months Ended June 30, 2022 | |||||||||||||||||||||
Full Exits | Partial Exits | Restructures | Other (a) | Total (a) | |||||||||||||||||
Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | Net Gain/(Loss) | ||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Private Loan Portfolio | $ | — | — | $ | — | — | $ | — | — | $ | 23 | $ | 23 | ||||||||
LMM Portfolio | — | — | — | — | — | — | (41) | (41) | |||||||||||||
Middle Market Portfolio | — | — | — | — | — | — | (2) | (2) | |||||||||||||
Other Portfolio | — | — | 333 | 1 | — | — | 59 | 392 | |||||||||||||
Total net realized gain/(loss) | $ | — | — | $ | 333 | 1 | $ | — | — | $ | 39 | $ | 372 | ||||||||
| (a) | Other activity includes realized gains and losses from transactions involving five portfolio companies which are not considered to be significant individually or in the aggregate. |
Net Unrealized Appreciation (Depreciation)
The following table provides a summary of the total net unrealized depreciation of $10.7 million for the three months ended June 30, 2022:
Three Months Ended June 30, 2022 | |||||||||||||||
Private | Middle | ||||||||||||||
| Loan | LMM(a) | Market |
| Other | Total | |||||||||
| (dollars in millions) | ||||||||||||||
Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains/income) losses recognized during the current period | $ | (0.3) | $ | — | $ | — | $ | (0.4) | $ | (0.7) | |||||
Net unrealized appreciation (depreciation) relating to portfolio investments |
| (11.1) | (b) |
| 2.6 |
| (3.4) |
| 1.9 |
| (10.0) | ||||
Total net unrealized appreciation (depreciation) relating to portfolio investments | $ | (11.4) | $ | 2.6 | $ | (3.4) | $ | 1.5 | $ | (10.7) | |||||
| (a) | Includes unrealized appreciation on 15 LMM portfolio investments and unrealized depreciation on 20 LMM portfolio investments. |
| (b) | Primarily driven by increased market spreads. |
Income Tax Benefit (Provision)
The income tax provision for the three months ended June 30, 2022 of $0.7 million principally consisted of (i) a current tax provision of $0.6 million related to a $0.5 million provision for excise tax on our estimated undistributed taxable income and $0.1 million provision for current state income taxes and (ii) a deferred tax provision of $0.1 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries, including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences. The income tax provision for the three months ended June 30, 2021 of $0.4 million principally consisted of a current tax provision of $0.4 million related to a $0.3 million provision for excise tax on our estimated undistributed taxable income and $0.1 million provision for current state income taxes.
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Net Increase in Net Assets Resulting from Operations
The net increase in net assets resulting from operations for the three months ended June 30, 2022 was $1.8 million, or $0.02 per share, compared with a net increase in net assets of $23.5 million, or $0.29 per share, during the three months ended June 30, 2021. The tables above provide a summary of the reasons for the change in net increase in net assets resulting from operations for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021.
Comparison of the six months ended June 30, 2022 and June 30, 2021
Set forth below is a comparison of the results of operations for the six months ended June 30, 2022 and June 30, 2021.
Six Months Ended |
| |||||||||||
June 30, | Net Change | |||||||||||
| 2022 |
| 2021 |
| Amount |
| % | |||||
(dollars in thousands) | ||||||||||||
Total investment income | $ | 47,740 | $ | 42,768 | $ | 4,972 | 12 | % | ||||
Total expenses (net of fee and expense waivers) | (22,151) | (16,582) | (5,569) | 34 | % | |||||||
Net investment income | 25,589 | 26,186 | (597) | (2) | % | |||||||
Net realized gain (loss) from investments | 625 | (173) | 798 | NM | ||||||||
Net realized loss on extinguishment of debt | — | (2,091) | 2,091 | NM | ||||||||
Net unrealized appreciation (depreciation) from investments | (7,017) | 13,020 | (20,037) | NM | ||||||||
Income tax benefit (provision) | (1,159) | (830) | (329) | NM | ||||||||
Net increase in net assets resulting from operations | $ | 18,038 | $ | 36,112 | $ | (18,074) | (50) | % | ||||
NM | Net change % not meaningful |
Investment Income
Total investment income for the six months ended June 30, 2022 was $47.7 million as compared to $42.8 million of total investment income for the corresponding period of 2021. The following table provides a summary of the changes in the comparable period activity.
Six Months Ended | |||||||||||||
June 30, | Net Change | ||||||||||||
2022 | 2021 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Interest income | $ | 41,231 | $ | 33,400 | $ | 7,831 | 23 | % | (a) | ||||
Dividend income | 5,264 | 8,978 | (3,714) | (41) | % | (b) | |||||||
Fee income | 1,245 | 390 | 855 | 219 | % | (c) | |||||||
Total investment income | $ | 47,740 | $ | 42,768 | $ | 4,972 | 12 | % | |||||
| (a) | The increase in interest income was primarily due to higher average levels of Investment Portfolio debt investments following (i) net origination activity in our LMM portfolio of $88.8 million and $5.1 million for the year ended December 31, 2021 and six months ended June 30, 2022, respectively, and (ii) net origination activity in our Private Loan portfolio of $190.6 million and $42.4 million for the year ended December 31, 2021 and six months ended June 30, 2022, respectively. |
| (b) | The decrease in dividend income from Investment Portfolio equity investments was primarily a result of a $2.3 million decrease in dividend income considered to be less consistent or non-recurring due to elevated levels of such income in the prior year. |
| (c) | The increase in fee income was primarily related to an increase in management fee income from our equity portfolio investments. |
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Expenses
Total expenses, net of fee and expense waivers, for the six months ended June 30, 2022 were $22.2 million, a 34% increase from $16.6 million in the corresponding period of 2021. The following table provides a summary of the changes in the comparable period activity.
Six Months Ended | |||||||||||||
June 30, | Net Change | ||||||||||||
2022 | 2021 | Amount | % | ||||||||||
(dollars in thousands) | |||||||||||||
Interest expense | $ | 9,827 | $ | 6,464 | $ | 3,363 | 52 | % | (a) | ||||
Base management fees | 9,945 | 8,061 | 1,884 | 23 | % | (b) | |||||||
Internal administrative services fees | 2,483 | 2,095 | 388 | 19 | % | ||||||||
General and administrative | 2,075 | 2,057 | 18 | 1 | % | ||||||||
Total expenses before fee and expense waivers | 24,330 | 18,677 | 5,653 | 30 | % | ||||||||
Waiver of internal administrative services expenses | (2,179) | (2,095) | (84) | 4 | % | ||||||||
Total expenses | $ | 22,151 | $ | 16,582 | $ | 5,569 | 34 | % | |||||
| (a) | The increase in interest expense was primarily related to higher weighted average debt balances to support the larger Investment Portfolio resulting from the investment activity since the prior year, partially offset by lower effective interest rates on our Credit Facilities due to the termination of the Deutsche Bank Credit Facility in February 2021. |
| (b) | The increase in base management fees was due to an increase in average gross assets subject to the base management fee. |
Net Investment Income
Net investment income for the six months ended June 30, 2022 decreased 2% to $25.6 million, or $0.32 per share, compared to net investment income of $26.2 million, or $0.33 per share, for the corresponding period of 2021. The decrease in net investment income was principally attributable to the increase in total expenses, partially offset by the increase in total investment income, both as discussed above. The decrease in net investment income and net investment income per share includes a $2.3 million, or $0.03 per share, decrease in dividend income considered to be less consistent or non-recurring, as discussed above.
Net Realized Gain (Loss) from Investments
The following table provides a summary of the primary components of the total net realized gain on investments of $0.6 million for the six months ended June 30, 2022:
Six Months Ended June 30, 2022 | |||||||||||||||||||||
Full Exits | Partial Exits | Restructures | Other (a) | Total (a) | |||||||||||||||||
Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | Net Gain/(Loss) | ||||||||||||||
(dollars in thousands) | |||||||||||||||||||||
Private Loan Portfolio | $ | — | — | $ | — | — | $ | — | — | $ | 7 | $ | 7 | ||||||||
LMM Portfolio | — | — | — | — | — | — | (41) | (41) | |||||||||||||
Middle Market Portfolio | — | — | — | — | — | — | (42) | (42) | |||||||||||||
Other Portfolio | — | — | 779 | 1 | — | — | (78) | 701 | |||||||||||||
Total net realized gain/(loss) | $ | — | — | $ | 779 | 1 | $ | — | — | $ | (154) | $ | 625 | ||||||||
| (a) | Other activity includes realized gains and losses from transactions involving ten portfolio companies which are not considered to be significant individually or in the aggregate. |
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Net Unrealized Appreciation (Depreciation)
The following table provides a summary of the total net unrealized depreciation of $7.0 million for the six months ended June 30, 2022:
Six Months Ended June 30, 2022 | |||||||||||||||
Private | Middle | ||||||||||||||
| Loan |
| LMM(a) |
| Market |
| Other | Total | |||||||
| (dollars in millions) | ||||||||||||||
Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains/income) losses recognized during the current period | $ | (0.5) | $ | — | $ | (0.2) | $ | (0.8) | $ | (1.5) | |||||
Net unrealized appreciation (depreciation) relating to portfolio investments |
| (8.8) | (b) |
| 3.5 |
| (2.5) |
| 2.3 |
| (5.5) | ||||
Total net unrealized appreciation (depreciation) relating to portfolio investments | $ | (9.3) | $ | 3.5 | $ | (2.7) | $ | 1.5 | $ | (7.0) | |||||
| (a) | Includes unrealized appreciation on 16 LMM portfolio investments and unrealized depreciation on 23 LMM portfolio investments. |
| (b) | Primarily driven by increased market spreads. |
Income Tax Benefit (Provision)
The income tax provision for the six months ended June 30, 2022 of $1.2 million consisted of (i) a current tax provision of $1.0 million related to a $0.7 million provision for excise tax on our estimated undistributed taxable income and $0.3 million provision for current federal and state income taxes and (ii) a deferred tax provision of $0.2 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries, including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences. The income tax provision for the six months ended June 30, 2021 of $0.8 million consisted of a current tax provision of $0.8 million related to a $0.7 million provision for excise tax on our estimated undistributed taxable income and $0.1 million provision for current state income taxes.
Net Increase in Net Assets Resulting from Operations
The net increase in net assets resulting from operations for the six months ended June 30, 2022 was $18.0 million, or $0.23 per share, compared with a net increase in net assets of $36.1 million, or $0.45 per share, during the six months ended June 30, 2021. The tables above provide a summary of the reasons for the change in net increase in net assets resulting from operations for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.
Liquidity and Capital Resources
This “Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Update” section above.
Cash Flows
For the six months ended June 30, 2022, we experienced a net decrease in cash, cash equivalents and restricted cash of $15.8 million, which is the result of $26.2 million of cash used in our financing activities, partially offset by $10.4 million of cash provided by our operating activities.
The $10.4 million of cash provided by our operating activities resulted primarily from (i) cash proceeds totaling $85.5 million from the sales and repayments of debt investments and sales of and return of capital from equity investments, (ii) cash flows we generated from the operating profits earned totaling $20.6 million, which is our net investment income, excluding the non-cash effects of the accretion of unearned income, payment-in-kind interest income, cumulative dividends and the amortization of expenses for deferred financing costs and (iii) cash proceeds of
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$20.3 million related to the change in other assets and liabilities, partially offset by the funding of new portfolio investments of $115.9 million.
The $26.2 million used in financing activities principally consisted of (i) $75.0 million net cash repayments related to our TIAA Credit Facility and JPM SPV Facility (together, the “Credit Facilities”), (ii) $16.3 million in cash dividends paid to stockholders, (iii) $7.9 million for the repurchase of common stock and (iv) $0.1 million for deferred financing costs, partially offset by (i) $72.5 million of cash proceeds from our Series A Notes (defined below) issued in January 2022 and (ii) $0.7 million net cash proceeds related to our common stock issuance.
Share Repurchase Program
On March 31, 2020, our Board of Directors unanimously approved a temporary suspension of the share repurchase program commencing with the second quarter of 2020. The Board of Directors determined that it was the best interest of the Company to suspend the share repurchase program in order to preserve the financial flexibility and liquidity given the prolonged impact of COVID-19.
On March 2, 2021, our Board of Directors unanimously approved the reinstatement of the share repurchase program commencing in April 2021 with repurchases effectuated via tender offers, and the Company has conducted quarterly tender offers pursuant to its share repurchase program since then. The quarterly tender offers are generally equal to 90% of the aggregate dividend reinvestment plan proceeds resulting from dividend payments. See Item 2. Unregistered Sales of Equity Securities and Use of Proceeds of Part II of this Quarterly Report on Form 10-Q for more information regarding repurchases of our common stock during the three months ended June 30, 2022.
Capital Resources
As of June 30, 2022, we had $10.0 million in cash and cash equivalents and $138.3 million of unused capacity under the Credit Facilities, which we maintain to support our investment and operating activities. As of June 30, 2022, our net asset value totaled $1,131.4 million, or $7.58 per share.
As of June 30, 2022, we had $84.0 million outstanding and $81.0 million of undrawn commitments under our TIAA Credit Facility, and $267.7 million outstanding and $57.3 million of undrawn commitments under our JPM SPV Facility, both of which we estimated approximated fair value. Availability under the TIAA Credit Facility is subject to certain borrowing base limitations and the asset coverage restrictions. Availability under the JPM SPV Facility is subject to certain borrowing base limitations. For further information on our Credit Facilities, including key terms and financial covenants, refer to Note E — Debt included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
On October 22, 2021, we and certain qualified institutional investors entered into a Master Note Purchase Agreement (the “Note Purchase Agreement”), which governs the issuance of $150.0 million in aggregate principal amount of the Company’s 4.04% Series A Senior Notes due 2026 (the “Series A Notes”). The Series A Notes bear a fixed interest rate of 4.04% per year and will mature on October 30, 2026, unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. We issued $77.5 million of Series A Notes upon entering into the Note Purchase Agreement, and issued an additional $72.5 million in January 2022. Net proceeds from the Series A Note issuance were used to repay outstanding debt borrowed under the Company’s Credit Facilities, including the Main Street Term Loan, which was fully repaid and extinguished in October 2021, and the TIAA Credit Facility, on which amounts may be re-borrowed to make investments in accordance with our investment objective and strategies and for general corporate purposes. For more information on our Series A Notes and the Main Street Term Loan, including key terms and financial covenants, refer to Note E—Debt included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
We closed our continuous follow-on public offering of shares to new investors effective September 2017. As such, our ability to raise additional equity is limited. As a BDC, we generally are required to maintain a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200%. The combination of these factors limits our access to capital to fund future investment activities or operating requirements, including our ability to grow the investment portfolio. We anticipate that we will continue to fund our investment activities and operating requirements through existing cash and cash equivalents, cash flows
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generated through our ongoing operating activities, including cash proceeds from the repayments and from the sales of investments in our portfolio companies, and utilization of available borrowings under our Credit Facilities. Our primary uses of funds will be investments in portfolio companies, operating expenses, cash distributions to holders of our common stock and share repurchases under our share repurchase program.
We periodically invest excess cash balances into marketable securities and idle funds investments. The primary investment objective of marketable securities and idle funds investments is to generate incremental cash returns on excess cash balances prior to utilizing those funds for investment in our Private Loan, LMM and Middle Market portfolio investments. Marketable securities and idle funds investments generally consist of debt investments, independently rated debt investments, certificates of deposit with financial institutions, diversified bond funds and publicly traded debt and equity investments.
In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders, after consideration and application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of our taxable income. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if certain requirements are met). This requirement limits the amount that we may borrow.
Although we have been able to secure access to additional liquidity, including through the Credit Facilities and the Note Purchase Agreement, there is no assurance that debt or equity capital will be available to us in the future on favorable terms, or at all.
Recently Issued or Adopted Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards and any that are not yet effective will not have a material impact on our consolidated financial statements upon adoption. For a description of recently issued or adopted accounting standards, see Note B.11.—Recently Issued or Adopted Accounting Standards included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
Inflation
Inflation has not historically had a significant effect on our results of operations in any of the reporting periods presented herein. However, our portfolio companies have experienced, specifically including over the last few quarters as a result of the COVID-19 pandemic, recent geopolitical events and the related supply chain and labor issues, and may continue to experience, the increasing impacts of inflation on their operating results, including periodic escalations in their costs for labor, raw materials and third-party services and required energy consumption. These issues and challenges related to inflation are receiving significant attention from our investment teams and the management teams of our portfolio companies as we work to manage these growing challenges. Prolonged or more severe impacts of inflation to our portfolio companies could continue to impact their operating profits and, thereby, increase their borrowing costs, and as a result negatively impact their ability to service their debt obligations and/or reduce their available cash for distributions. In addition, these factors could have a negative impact on the fair value of our investments in these portfolio companies. The combined impacts of these impacts in turn could negatively affect our results of operations.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized on the balance sheets. At June 30, 2022, we had a total of $67.9 million in outstanding commitments comprised of (i) 60 investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional commitments not yet funded and (ii) three investments with equity capital commitments that had not been fully called.
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Contractual Obligations
As of June 30, 2022, we had $351.7 million in total borrowings outstanding under our Credit Facilities and Series A Notes. The TIAA Credit Facility will mature on March 1, 2026. The JPM SPV Facility will mature on February 3, 2025. The Series A Notes will mature on October 30, 2026. See further discussion of the terms of our Credit Facilities, Series A Notes and other debt in Note E—Debt included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
A summary of our significant contractual payment obligations for the repayment of outstanding borrowings at June 30, 2022 is as follows:
2022 |
| 2023 |
| 2024 |
| 2025 |
| 2026 |
| Thereafter |
| Total | ||||||||||
(dollars in thousands) | ||||||||||||||||||||||
JPM SPV Facility(2) | $ | — | $ | — | $ | — | $ | 267,688 | $ | — | $ | — | $ | 267,688 | ||||||||
Series A Notes | — | — | — | — | 150,000 | — | 150,000 | |||||||||||||||
Interest due on Series A Senior Notes | 3,030 | 6,060 | 6,060 | 6,060 | 6,060 | — | 27,270 | |||||||||||||||
TIAA Credit Facility(1) | — | — | — | — | 84,000 | — | 84,000 | |||||||||||||||
Total | $ | 3,030 | $ | 6,060 | $ | 6,060 | $ | 273,748 | $ | 240,060 | $ | — | $ | 528,958 | ||||||||
(1)At June 30, 2022, $81.0 million remained available to borrow under the TIAA Credit Facility; however, our borrowing ability is limited to the asset coverage restrictions imposed by the TIAA Credit Facility and the 1940 Act, as discussed above.
(2)At June 30, 2022, $57.3 million remained available to borrow under the JPM SPV Facility; however, our borrowing ability is limited to the asset coverage restrictions imposed by the JPM SPV Facility and the 1940 Act, as discussed above.
Related Party Transactions and Agreements
We have entered into agreements with our Adviser and/or certain of its affiliates and other parties whereby we pay certain fees and reimbursements to these entities. These included payments for selling commissions and fees and for reimbursement of offering costs. In addition, we make payments for certain services that include the identification, execution and management of our investments and also the management of our day-to-day operations provided to us by our Adviser, pursuant to various agreements that we have entered into. See Note K—Related Party Transactions included in Item 1. Consolidated Financial Statements of this Quarterly Report on Form 10-Q for additional information regarding related party transactions.
Recent Developments
On August 1, 2022, we repurchased 527,508 shares of our common stock validly tendered and not withdrawn on the terms set forth in our tender offer statement on Schedule TO and Offer to Purchase filed with the SEC on August 3, 2022. The shares were repurchased at a price of $7.64 per share, which was our net asset value per share as of August 1, 2022, for an aggregate purchase price of $4.0 million (an amount equal to 90% of the proceeds we received from the issuance of shares under our dividend reinvestment plan from our August 1, 2022 dividend payment).
On August 11, 2022, our Board of Directors declared a quarterly cash dividend of $0.16 per share payable November 1, 2022 to stockholders of record as of September 30, 2022.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates, and changes in interest rates may affect both our interest expense on the debt outstanding under our Credit Facilities and our interest income from portfolio investments. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. Our investment income will be affected by changes in various interest rates, including LIBOR, SOFR and prime rates, to the extent that any debt investments
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include floating interest rates. See “Risk Factors — Risks Related to our Investments — Changes relating to the LIBOR calculation process, the phase-out of LIBOR and the use of replacement rates for LIBOR may adversely affect the value of our portfolio securities.”, “Risk Factors — Risks Related to our Investments — We are subject to risks associated with the current interest rate environment and changes in interest rates will affect our cost of capital, net investment income and the value of our investments.” and “Risk Factors — Risks Related to Leverage — Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing in us.” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for more information regarding risks associated with our debt investments and borrowings that utilize LIBOR, SOFR or Prime as a reference rate.
The majority of our debt investments are made with either fixed interest rates or floating rates that are subject to contractual minimum interest rates for the term of the investment. As of June 30, 2022, 85% of our debt investment portfolio (at cost) bore interest at floating rates, 93% of which were subject to contractual minimum interest rates. Our interest expense associated with our Credit Facilities will be affected by changes in the published LIBOR or SOFR rates, as applicable. However, the interest rates on our outstanding Series A Notes due 2026 (the “Series A Notes”) are fixed for the life of such debt. As of June 30, 2022, we had not entered into any interest rate hedging arrangements. Due to our limited use of derivatives, we have claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act and, therefore, are not subject to registration or regulation as a pool operator under such Act. The following table shows the approximate annualized increase or decrease in the components of net investment income due to hypothetical base rate changes in interest rates, assuming no changes in our investments and borrowings as of June 30, 2022.
Increase | (Increase) | Increase | Increase | |||||||||
(Decrease) | Decrease | (Decrease) in Net | (Decrease) in Net | |||||||||
in Interest | in Interest | Investment | Investment | |||||||||
Basis Point Change | Income | Expense | Income | Income per Share | ||||||||
(dollars in thousands, except per share amounts) | ||||||||||||
(150) | $ | (9,558) | $ | 3,716 | $ | (5,842) | $ | (0.07) | ||||
(125) | (9,133) | 3,716 | (5,417) | (0.07) | ||||||||
(100) | (7,631) | 3,517 | (4,114) | (0.05) | ||||||||
(75) | (6,030) | 2,638 | (3,392) | (0.04) | ||||||||
(50) | (4,062) | 1,758 | (2,304) | (0.03) | ||||||||
(25) | (2,066) | 879 | (1,187) | (0.01) | ||||||||
25 | 1,981 | (879) | 1,102 | 0.01 | ||||||||
50 | 4,036 | (1,758) | 2,278 | 0.03 | ||||||||
75 | 6,091 | (2,638) | 3,453 | 0.04 | ||||||||
100 | 8,147 | (3,517) | 4,630 | 0.06 | ||||||||
125 | 10,202 | (4,396) | 5,806 | 0.07 | ||||||||
150 | 12,257 | (5,275) | 6,982 | 0.09 | ||||||||
The hypothetical results assume that all LIBOR, SOFR and prime rate changes would be effective on the first day of the period. However, the contractual LIBOR, SOFR and prime rate reset dates would vary throughout the period, on either a monthly or quarterly basis, for both our investments and our Credit Facilities. The hypothetical results would also be impacted by the changes in the amount of debt outstanding under our Credit Facilities (with an increase (decrease) in the debt outstanding under the Credit Facilities resulting in an (increase) decrease in the hypothetical interest expense).
Item 4. Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer, President, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15 of the Exchange Act). Based on that evaluation, our Chief Executive Officer, President, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer have concluded that our current disclosure controls and procedures are effective in timely alerting them of material information relating to us that is required to be disclosed in the reports we file or submit under the Exchange Act. There have been no changes in
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our internal control over financial reporting that occurred during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
We or our Adviser may, from time to time, be involved in litigation arising out of our respective operations in the normal course of business or otherwise. Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will materially affect our or our Adviser’s financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our or our Adviser’s financial condition or results of operations in any future reporting period.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the risk factors described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 that we filed with the SEC on March 14, 2022, which could materially affect our business, financial condition and/or operating results. There have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities
During the three months ended June 30, 2022, we issued 582,496 shares of our common stock under our dividend reinvestment plan, which are not subject to the registration requirements of the Securities Act of 1933, as amended. On May 2, 2022 we also sold 94,697 shares of our common stock to Main Street at $7.92 per share, the price set by the Company to issue shares under the dividend reinvestment plan for the May 2, 2022 dividend payment. This sale of shares was exempt from registration under section 4(a)(2) of the Securities Act of 1933, as amended. The aggregate value of the shares of common stock issued during the three months ended June 30, 2022 under the dividend reinvestment plan and pursuant to exempt sale transaction was $4.6 million.
Issuer Purchases of Equity Securities
The following chart summarizes repurchases of our common stock for the three months ended June 30, 2022:
Period | Total number of shares purchased |
| Average price paid per share |
| Total number of shares purchased as part of publicly announced plans or programs |
| Approximate dollar value of shares that may yet be purchased under the plans or programs | |
April 1 through April 30, 2022 | — | — | — | — | ||||
May 1 through May 31, 2022 | 536,065 | 7.77 | 536,065 | N/A | ||||
June 1 through June 30, 2022 | — | — | — | — | ||||
Total | 536,065 | 536,065 |
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Item 6. Exhibits
Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of Regulation S-K):
Exhibit |
| Description of Exhibit |
31.1 | ||
31.2 | ||
32.1 | ||
32.2 | ||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
MSC INCOME FUND, INC. | |
/s/ DWAYNE L. HYZAK | |
Date: August 12, 2022 | Dwayne L. Hyzak |
Chief Executive Officer | |
(principal executive officer) | |
/s/ JESSE E. MORRIS | |
Date: August 12, 2022 | Jesse E. Morris |
Chief Financial Officer and Chief Operating Officer | |
(principal financial officer) | |
/s/ CORY E. GILBERT | |
Date: August 12, 2022 | Cory E. Gilbert |
Vice President and Chief Accounting Officer | |
(principal accounting officer) |
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