Fidus Investment NASDAQ: FDUS said its adjusted net investment income covered its base dividend in the second quarter of 2026, while the business development company expanded its portfolio through primarily M&A-driven first-lien investments and realized gains from three equity monetizations.
Chairman and Chief Executive Officer Ed Ross said adjusted net investment income was $0.50 per share for the quarter. The company also recorded $6.4 million, or $0.17 per share, in net realized gains from equity investments in Midshire Holdings, USG Holdings and Worldwide Express Operations.
Net asset value was $738.5 million at June 30, equivalent to $19.46 per share. Fidus' board declared a total third-quarter dividend of $0.50 per share, including a $0.43 base dividend and a $0.07 supplemental dividend. The dividend is payable Sept. 29 to stockholders of record on Sept. 15.
Portfolio activity and credit performance
Fidus originated $98 million of investments during the second quarter, with the “vast majority” consisting of M&A-driven first-lien investments, Ross said. The company invested $48.1 million across four new portfolio companies and also provided debt and equity capital to existing portfolio companies for acquisitions.
Repayments and realizations totaled $39.2 million during the quarter. At quarter-end, the portfolio had a fair value of $1.4 billion, or 102% of cost, including $1.3 billion in debt investments and $147.2 million in equity investments.
Ross said the portfolio continued to be concentrated in companies providing essential products and services, with an emphasis on manufacturing, distribution and service enterprises. He said the portfolio was structured to provide recurring income as well as potential gains from equity investments.
One investment, Virtex, remained on non-accrual at June 30 and represented less than 1% of the total portfolio on both a fair-value and cost basis. Subsequent to quarter-end, Fidus exited its second-lien and subordinated debt investments in Virtex Enterprises LP, receiving $20.2 million and recording an aggregate realized loss of $11 million. Ross said the company had no investments on non-accrual status as of the earnings call.
During the question-and-answer session, Ross said Fidus added one company to its internal watch list of “grade 3-plus” investments during the quarter due to an idiosyncratic issue. He added that management expects several portfolio companies may be sold over the next six to nine months, potentially improving that group.
Fidus reported portfolio-company EBITDA growth of about 6% for the quarter, according to Ross. He said management was not seeing systemic credit concerns, despite pressure on lower-end consumers and higher oil prices.
Income, expenses and financing
Chief Financial Officer Shelby Sherard said total investment income was $43.5 million for the three months ended June 30, down $4 million from the first quarter. Higher interest income from increased average debt investments outstanding and higher dividend income from equity investments were offset by lower fee income, including the absence of fees related to the American Alloys debt refinancing recognized in the first quarter.
Total expenses, including the income tax provision, were $24.8 million, up $1.9 million from the prior quarter. Sherard cited higher interest expense, increased base management fees, proxy solicitation costs and a higher capital gains fee accrual. The increase in interest expense reflected higher average debt balances and the refinancing of unsecured notes due in November 2026, which resulted in approximately $0.4 million of duplicative interest expense during the quarter.
Net investment income was $0.49 per share, compared with $0.65 per share in the first quarter. Adjusted net investment income, excluding capital gains incentive fee accruals or reversals related to realized and unrealized investment gains and losses, was $0.50 per share, compared with $0.62 per share in the first quarter.
- Weighted average effective yield on debt investments was 12.5%, unchanged from the first quarter.
- Fidus held equity investments in approximately 82.4% of portfolio companies, with average fully diluted equity ownership of 2.1%.
- Its weighted average loan-to-value ratio was 41%, while Ross said the company generally targets loan-to-value ratios of 50% or less.
- The debt portfolio was 88% first lien, and Ross said that percentage could remain stable or rise over time.
The weighted average interest rate on outstanding debt rose to 5.8% from 5.2% in the first quarter, reflecting the refinancing of 3.5% unsecured notes due in November with 6.625% unsecured notes due in June 2029. Sherard said the refinancing pushed the company’s earliest debt maturity to June 2029.
As of June 30, Fidus had $39.3 million in cash, $112.3 million available under its credit facility and $18.5 million of available SBA debentures, for total liquidity of approximately $170.1 million. Net debt-to-equity was 1.0 times, while statutory leverage excluding exempt SBA debentures was 0.6 times.
Outlook for deal activity
Ross said geopolitical uncertainty and market volatility had constrained lower-middle-market deal activity during the first half, and deal quality had also been “lackluster” in the first quarter and second quarter. However, he said Fidus was seeing a higher level of deal flow than it had 60 days earlier.
“I think that bodes well for Q4 in particular,” Ross said, while noting that the timing remains uncertain and external developments could affect transaction activity.
Fidus has also continued to source investments through its existing portfolio. Ross said the company funded one commitment made during the second quarter and completed two sizable acquisition-related add-on investments in July. If investment growth accelerates, he said Fidus could use its at-the-market equity program as appropriate, while targeting net leverage in a range of 0.9 to 1.1 times.
About Fidus Investment (NASDAQ:FDUS)
Fidus Investment Corporation NASDAQ: FDUS is a closed-end, externally managed business development company (BDC) that provides specialized financing solutions to U.S. middle-market companies. Operated by Fidus Investment Advisors, LLC, a registered investment adviser, the company is regulated under the Investment Company Act of 1940 and trades on the Nasdaq Capital Market.
The firm focuses on structuring senior secured and unitranche loans, mezzanine debt and equity investments for established businesses across a range of industries.
This instant news alert was generated by narrative science technology and financial data from MarketBeat in order to provide readers with the fastest reporting and unbiased coverage. Please send any questions or comments about this story to contact@marketbeat.com.
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