MidCap Financial Investment NASDAQ: MFIC reported second-quarter 2026 net investment income of $0.40 per share and a GAAP net loss of $0.21 per share, as credit-related markdowns concentrated in a small group of portfolio companies reduced net asset value.
Net asset value per share was $13.37 at June 30, down 3.2% from the prior quarter. Chief Executive Officer Tanner Powell said the $0.45 per-share NAV decline reflected a $0.61 per-share net loss on investments, partly offset by net investment income exceeding the dividend by $0.09 per share and roughly $0.07 per share of accretion from repurchasing stock below NAV.
The company recorded a $50.3 million portfolio net loss during the quarter. Five positions accounted for about 80% of that loss, President Ted McNulty said.
Credit pressure drove portfolio markdowns
The largest negative contributor was ChyronHego, a provider of graphics workflow technology and real-time data visualization tools for news and sports productions. During the quarter, MFIC completed a debt-for-equity exchange, converting $60 million of term debt into preferred equity and reducing its revolver commitment. McNulty said lower market multiples and an EBITDA decline reduced the value of the preferred equity, resulting in a $21.5 million quarterly net loss.
Other major contributors to the portfolio loss were Midwest Vision Partners, New Era Technology, American Restoration and Thomas Scientific. McNulty said those businesses are experiencing EBITDA pressure and rising leverage.
MFIC said it remains proactive in managing underperforming credits, including discussions with companies, sponsors and other lenders. Potential outcomes could include asset divestitures, sponsor equity contributions, additional lender funding or changes intended to free up borrower cash flow, management said during the question-and-answer session.
Two investments were restructured and returned to accrual status during the quarter. At quarter-end, non-accrual investments totaled $77.6 million, or 2.8% of the portfolio at fair value. Borrower net leverage increased to 5.36x debt to EBITDA from 5.29x at the end of March, while weighted-average interest coverage remained 2.3x.
Limited new originations as company prioritizes deleveraging
MFIC made $5.8 million of new commitments in the quarter, all supporting three existing borrowers, while net repayments totaled $160 million. Powell said the company is currently focused on reducing leverage rather than making new investments or pursuing further stock repurchases.
Net leverage ended the quarter at 1.54x, although Powell said it would have been 1.5x excluding the effect of stock buybacks. Management identified the low 1.4x range as the bottom end of its leverage guidance and said future capital-allocation decisions will depend on leverage, market conditions, the company’s trading level and prospective repayment activity.
Powell said MFIC’s position as part of the broader MidCap Financial lending franchise allows it to step back from new transactions without affecting the lender’s ability to serve borrowers and financial sponsors. MFIC represents roughly $3 billion of a broader $50 billion MidCap business, he said.
The company repurchased approximately 2.76 million shares at an average price of $11.58 per share, including commissions, during the quarter. The $31.9 million of repurchases fully used its authorization. Management said it is now prioritizing deleveraging over additional buybacks.
Portfolio and earnings details
MFIC’s portfolio had a fair value of $2.77 billion at quarter-end, invested across 229 companies in 45 industries. Direct originations and other investments represented 97% of the portfolio on a fair-value basis. Merx accounted for about 2.5%, while liquid positions received in the company’s 2024 mergers with two funds represented approximately 1%.
- 97% of the direct-origination portfolio was first lien at fair value.
- 95% was backed by financial sponsors.
- The weighted-average yield at cost for direct originations was 9.5%, compared with 9.6% in the prior quarter.
- The weighted-average spread was 539 basis points, up 1 basis point from March.
- Software exposure was 11.9% of the portfolio at fair value, with dollar exposure essentially unchanged from the prior quarter.
- PIK income represented 6.2% of total investment income.
Total investment income was $68.2 million, down $3.6 million from the first quarter, primarily because of a smaller portfolio. Net expenses declined $2.1 million to $35.5 million, reflecting lower average debt balances, management fees and administrative service expenses. The portfolio loss eliminated the incentive fee for a second consecutive quarter.
MFIC ended June with $1.74 billion of principal debt outstanding and net assets of $1.1 billion. Its cost of debt rose slightly to 5.66% from 5.61% in the prior quarter. After quarter-end, the company refinanced $125 million of 4.5% notes that matured in July using its revolving credit facility, a move management said is expected to modestly increase borrowing costs at current base rates.
Undrawn revolver capacity stood at $925 million at quarter-end, or $800 million after accounting for the notes maturity. Management said available capacity remains subject to borrowing-base requirements and expects liquidity to improve as leverage declines.
Merx paydowns and dividend
MFIC’s investment in Merx was valued at approximately $68.6 million at June 30, or 2.5% of the portfolio. The value included a $12.5 million paydown during the quarter tied to the sale of an aircraft in a joint venture, along with a modest write-up. Powell said Merx has since sold another aircraft and is closing on an engine sale, while Navigator, Apollo’s aircraft leasing fund, is selling a larger aircraft portfolio. MFIC expects additional Merx paydowns in the September quarter.
On Aug. 5, MFIC’s board declared a quarterly dividend of $0.31 per share. The dividend is payable Sept. 24 to stockholders of record on Sept. 8.
About MidCap Financial Investment (NASDAQ:MFIC)
MidCap Financial Investment Corporation NASDAQ: MFIC is a business development company that provides financing solutions to middle-market companies across the United States. The firm specializes in direct lending and asset-based financing, offering a range of debt instruments designed to support working capital needs, equipment acquisitions, lease financing and corporate recapitalizations. Its focus on senior secured loans, unitranche structures and equipment financings positions it to serve clients in sectors such as manufacturing, healthcare, transportation and energy.
Through its lending platform, MidCap Financial Investment Corporation partners with privately held and sponsor-backed companies that typically generate annual revenues between $25 million and $500 million.
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