MSC Income Fund NYSE: MSIF reported third-quarter adjusted net investment income of $0.34 per share and a rise in net asset value, while management pointed to a stronger private loan pipeline following a slowdown in investment activity.
Adjusted net investment income before taxes was $0.36 per share, matching the fund’s announced total quarterly dividend for the first quarter of 2027. The result included support from a voluntary waiver of approximately $600,000 in incentive fees by the fund’s investment adviser.
CEO Dwayne Hyzak said the fund generated an annualized return on equity of 9.7% for the quarter. Net asset value rose to $16.56 per share at September 30, up $0.05 from the prior quarter.
Hyzak also confirmed that Nick Meserve, managing director and head of the private credit investment group, will become CEO on November 9, consistent with an announcement made in June.
Income and Portfolio Results
Total investment income was $35.5 million, relatively unchanged from both the prior-year quarter and the second quarter of 2026, CFO Cory Gilbert said. Adjusted net investment income before taxes was $16.3 million, down from $17 million a year earlier, though the per-share figure remained at $0.36.
The quarter included $2.3 million of income considered less consistent or non-recurring, primarily from interest and dividend income. Gilbert said such items can vary from quarter to quarter.
The fund recorded a $5.2 million net increase in the fair value of its investments, reflecting $9 million of net unrealized appreciation partially offset by $3.9 million of net realized losses. The net increase in assets resulting from operations was $18.1 million, or $0.40 per share.
Meserve said the fund realized an $11 million gain from exiting its equity investment in Core Transformers. Separately, when asked about losses on a private loan restructuring and a lower middle market exit, Hyzak said the latter involved a longstanding company that had underperformed for years. He said much of its unrealized depreciation had been recognized earlier.
At quarter end, investments on non-accrual status represented 1.4% of the portfolio at fair value and 5.2% at cost. The fund’s net debt-to-net asset value ratio was 0.83 times.
Private Loan Pipeline Improves
MSC Income Fund invested $61 million in private loans during the quarter, but aggregate activity produced a net decrease of $11 million in that portfolio. Its private loan holdings totaled $844 million at fair value across 81 companies at quarter end, representing 61% of the total investment portfolio.
Meserve said 91% of the private loan portfolio consisted of secured debt, with more than 99% of that debt in first-lien positions. The portfolio’s weighted average yield was 10.5%.
Management described the private loan pipeline as well above average. Meserve said the fund had closed one new private loan portfolio company since quarter end and was optimistic about closing several more transactions before year-end.
Hyzak said successful closings could move the fund significantly closer to its target leverage profile in the fourth quarter, although he did not provide a specific timetable. Meserve cautioned that the pipeline assessment was on a gross basis and that increased originations usually come alongside higher repayments.
Most pipeline transactions involve new leveraged buyouts, Meserve said, while Hyzak noted a smaller pool of follow-on financing opportunities for existing companies pursuing acquisitions. Meserve said spreads and terms had been roughly flat since March and April.
The fund’s legacy lower middle market portfolio totaled $503 million at fair value across 53 companies, or 37% of the overall portfolio. President and Chief Investment Officer David Magdol said the fund invested $4 million in follow-on transactions in that portfolio during the quarter, but aggregate activity resulted in a $10 million net decrease.
Since its January 2025 listing, the fund has focused new portfolio-company investments on private loans. It continues to make follow-on investments in existing lower middle market holdings.
Dividends and Share Purchases
The board declared monthly dividends of $0.11 per share for January, February and March 2027, plus a $0.03 supplemental dividend payable in March. The $0.36 quarterly total is consistent with each quarter since the fund’s listing, Hyzak said.
The fund expects to set total quarterly dividends generally in line with adjusted net investment income before taxes per share. Hyzak said new investment activity is expected to be the biggest driver of growth in investment income, alongside contributions from lower middle market equity holdings. Management’s expectation is to cover the $0.36 distribution without the fee waiver as the portfolio grows.
The fund had repurchased more than $2.5 million of its shares under an open-market plan running from September 2026 through February 2027. Main Street Capital, whose subsidiary advises the fund, had purchased more than $2.5 million under a parallel plan, Hyzak said. Both plans use predetermined trading levels below net asset value.
To address the maturity of its $150 million of October 2026 notes, the fund issued $75 million of September 2029 notes in September and another $75 million in October, Gilbert said. He also said Kroll Bond Rating Agency reaffirmed the fund’s BBB- investment-grade issuer and senior unsecured debt ratings with a stable outlook.
About MSC Income Fund (NYSE:MSIF)
MSC Income Fund NYSE: MSIF is a business development company that invests in privately held, primarily U.S.-based businesses. The fund seeks to provide capital to lower middle-market companies that may have limited access to traditional financing sources.
Its investment activities generally include providing senior secured loans, subordinated debt and other forms of financing, along with selective equity investments. MSC Income Fund works with portfolio companies across a range of industries and may support acquisitions, recapitalizations, growth initiatives and other corporate financing needs.
The fund is externally managed by MSC Adviser I, LLC, an affiliate of Main Street Capital Corporation.
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