MSC Income Fund (MSIF) Q3 2026 Earnings Call Transcript

DATE

Friday, Nov. 6, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Dwayne Louis Hyzak
• Managing Director and Head of the Private Credit Investment Group - Nicholas T. Meserve
• President and Chief Investment Officer - David L. Magdol
• Chief Financial Officer - Cory Elvan Gilbert

TAKEAWAYS

• Total Investment Income -- $35.5 million, reflecting stable interest income and higher average levels of income-producing debt investments.
• Adjusted Net Investment Income Before Taxes -- $0.36 per share, supported by a $600,000 voluntary incentive fee waiver from the investment adviser.
• Net Asset Value -- $16.56 per share, representing a $0.05 increase from the prior quarter.
• Return on Equity -- 9.7% on an annualized basis, driven by investment portfolio performance and realized gains.
• Private Loan Portfolio Fair Value -- $844 million, accounting for 61% of the total investment portfolio across 81 companies.
• Lower Middle Market Portfolio Fair Value -- $503 million, representing 37% of the total investment portfolio across 53 companies.
• Private Loan Weighted Average Yield -- 10.5%, remaining relatively consistent with the previous quarter.
• Lower Middle Market Weighted Average Yield -- 12.7%, with 99% of debt investments held as first-lien loans.
• Net Investment Activity (Private Loan) -- a decrease of $11 million, as investment activity was slower than expected during the quarter.
• Net Investment Activity (Lower Middle Market) -- a decrease of $10 million, reflecting the fund's strategy to recycle legacy capital into private loan investments.
• Realized Gain (Core Transformers) -- $11 million, resulting from the exit of an equity investment in the third quarter.
• Nonaccrual Status -- 1.4% of the total investment portfolio at fair value, representing 5.2% on a cost basis.
• Asset Coverage Ratio -- 2.16x, compared to a net debt-to-NAV ratio of 0.83x at quarter end.
• Dividends Declared -- $0.36 per share for the first quarter of 2027, including $0.11 monthly payouts and a $0.03 supplemental dividend.
• Share Repurchases -- over $2.5 million, executed under an open market share repurchase plan active through February 2027.
• Total Expenses -- $20.1 million net of waivers, an increase of $1.8 million year over year due to higher interest expense and capital gains incentive fee accruals.
• Interest Expense -- increased $1.3 million year over year, driven by higher average borrowings and increased rates on unsecured debt.
• Unsecured Notes Issuance -- $150 million total under September 2029 Notes, with $75 million issued in September and $75 million in October.
• Capital Liquidity -- $224.7 million, comprising $27.3 million in cash and $197.4 million in unused credit facility capacity.
• Main Street Capital Ownership -- over 5%, following more than $32 million in common stock purchases by the parent company's subsidiary.

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RISKS

• Gilbert stated that interest income was "partially offset by the negative impact from debt investments on non-accrual status and a decrease in interest rates," during the third quarter.

SUMMARY

MSC Income Fund, Inc. (NYSE:MSIF) reported total investment income of $35.5 million and a sequential increase in net asset value per share. Management reported a leadership transition where Nicholas T. Meserve will succeed Dwayne Louis Hyzak as chief executive officer on Nov. 9. The company stated that it intends to maintain its dividend policy while focusing new investment activity on the private loan strategy. Financial results for the period were influenced by realized gains from equity exits and voluntary fee waivers provided by the investment adviser.

• Nicholas T. Meserve stated that the private loan investment pipeline has improved in quality and volume, characterizing it as "well above average."
• Management reported that the fund no longer makes investments in new lower middle market companies, focusing exclusively on follow-on investments for existing holdings in that segment.
• Dwayne Louis Hyzak stated, "the fund expects to maintain a dividend policy that provides total quarterly dividends... to be set at a level generally consistent with the funds ANII before taxes per share."
• Nicholas T. Meserve indicated that most of the current pipeline consists of fresh leveraged buyouts, involving combinations of sponsors or founders.
• David L. Magdol noted that potential buyers have shown interest in several lower middle market portfolio companies, which may lead to realizations over the next few quarters.
• The company stated that Main Street Capital has waived $2 million in total incentive fees since the third quarter of 2025 to support per-share earnings.

INDUSTRY GLOSSARY

• Adjusted Net Investment Income (ANII): A non-GAAP financial measure that excludes capital gains incentive fees from net investment income to provide a view of recurring earnings.
• Lower Middle Market (LMM): A segment of the economy typically consisting of companies with annual revenues between $10 million to $150 million.
• First-lien debt: A type of lending that gives the lender first priority for repayment if a borrower defaults or files for bankruptcy.
• Nonaccrual status: A designation for a loan that is no longer generating its stated interest rate, typically because the borrower is more than 90 days delinquent on payments.
• Net Asset Value (NAV): The total value of an entity's assets minus its total liabilities, often expressed on a per-share basis.
• SOFR (Secured Overnight Financing Rate): A benchmark interest rate that banks use to price dollar-denominated derivatives and loans.
• BDC (Business Development Company): A form of investment company that invests in small and mid-sized businesses and helps them grow.

Full Conference Call Transcript

Operator: Greetings, and welcome to the MSC Income Fund Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Zach Vaughan. Please go ahead.

Zach Vaughan: Thank you, operator, and good morning, everyone. Thank you for joining us for MSC Income Fund's third quarter 2026 earnings conference call. Joining me today with prepared comments are Dwayne Louis Hyzak, Chief Executive Officer Nicholas T. Meserve, Managing Director and Head of the Private Credit Investment Group David L. Magdol, president and chief investment officer Cory Elvan Gilbert, chief financial officer. Investing Income Fund issued a press release yesterday afternoon that details the funds third quarter financial and operating results. Document is available on the Investor Relations section of the Fund's website at mscincomefund.com. A replay of today's call will be available beginning 1 hour after the completion of the call and will remain available until November 13.

Information on how to access the replay was included in yesterday's earnings release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the Fund's homepage. Please note that information reported on this call speaks only as of today, November 6, 2026, and therefore, you are advised that any time sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call may contain forward looking statements. Any of these forward looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions.

Statements are based on management's estimates, assumptions, and projections as of the date of this call, there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties and other factors, including not limited to the factors set forth in the Fund's filings with the Securities and Exchange Commission can be found on the fund's website at sec.gov. MSC Income Fund assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non GAAP financial measures, including adjusted net investment income, or Adjusted Net Investment Income, and ANII before taxes.

ANII is net investment income, or NII, as determined in accordance with US generally accepted accounting principles or GAAP, excluding the impact of capital gains incentive fee. NII before taxes is NII As determined in accordance with GAAP. Excluding the impact of the capital gains incentive fee and any tax expenses included in NII.

The income fund believes that presenting a NII and ANII before taxes and the related per share amounts is useful and appropriate supplemental disclosure for analyzing the fund's financial performance since the calculation of the capital gains incentive fee is based on realized gains and losses and unrealized fair value appreciation and depreciation none of which are included in NII and tax expenses included in NII may include excise tax expense is not solely attributable to NII and deferred taxes, are not payable in the current period. Please refer to yesterday's press release for a reconciliation of these non GAAP measures to the most directly comparable GAAP financial measures.

2 additional key performance indicators that management will be discussing on this call are net asset value, or NAV, and return on equity, or ROE. NAV is defined as total assets minus total liabilities, is also reported on a per share basis. MSC Income Fund defines ROE as the net increase in net assets resulting from operations divided by the average quarterly NAV. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third party sources and has not been independently verified. Now I will turn the call over to MSC Income Fund's CEO Dwayne Louis Hyzak.

Dwayne Louis Hyzak: Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone's doing well. On today's call, we will provide you with the fund's key quarterly updates, after which we will be happy to take your questions. Before we provide these updates, I will start by congratulating Nicholas T. Meserve on his transition to chief executive officer of the fund. Effective on Monday, November 9. Consistent with the fund's previous announcement in June. Nick currently serves as the head of the private credit investment strategy for Main Street, and has served as a managing director for Main Street since 2012.

And has been executing investments for the funds since it was founded. Nick has been a key member of our team and has been instrumental as we have grown the fund and focused its investments on the private loan strategy and we are excited about the fund's bright future under Nick's leadership. Now turning to the Fund's most recent operating results. We are pleased with the Fund's performance in the third quarter. Which resulted in an annualized return on equity of 9.7% and another increase in NAV per share. Based upon the quality of the fund's existing investment portfolio, together with its favorable liquidity position, and current investment pipeline we remain excited about our future expectations for the fund.

The fund generated adjusted net investment income or ANII of 34¢ per share in the quarter, or 36¢ per share on a before-taxes basis. These results, combined with our positive outlook for the future, resulted in the Fund's most recent dividend announcements which I will discuss in more detail later. The Fund finished the quarter with an NAV per share, of $16.56, a $0.05 increase from prior quarter. And we continue to be pleased with the performance of the fund's investment portfolio. Cory will discuss the fund's financial results in more detail.

Fund's private loan investment activity in the third quarter was slower than our expected normal quarterly activity and resulted in a net decrease in private loan investments of $11 million Despite the slower investment activity, the fund remains highly focused on executing new investment opportunities consistent with its historical private loan investments as we work to grow the fund's investment portfolio. And we are excited about the current private loan investment opportunities we are seeing which I will discuss in more detail later. The fund also continues to focus on the benefits from its legacy lower middle market investment portfolio. And eventually recycling this capital into private loan investments as investments are exited or repaid.

Part of this focus, the fund continues to benefit from attractive follow-on investments in existing lower middle market portfolio companies, which we believe are beneficial to both current investment income and future value creation on these existing investments. Nick and David will cover the fund's investment activity in more detail. Based upon the Fund's results for the third quarter, the Fund's Board of Directors declared regular monthly dividends for the first quarter of 2027 of 11¢ per share payable on each of January, February, and March. And a supplemental dividend of 3¢ per share payable in March 2027.

Resulting in total dividends paid in the first quarter of 2027 of 36¢ per share consistent with the Fund's total quarterly dividends for each quarter since the Fund's listing in January 2025. Going forward, the fund expects to maintain a dividend policy that provides total quarterly dividends which are expected to include regular monthly dividends and a quarterly supplemental dividend, to be set at a level generally consistent with the funds ANII before taxes per share. Based upon the total dividends payable for the first quarter of 2 thousand 27, and the current stock price, the fund is currently providing its shareholders a dividend yield of over 11 and a half percent.

As we look forward to the fund's near term investment activities, as of today, I would characterize the private loan investment pipeline as well above average. We are excited about the current pipeline of new investment opportunities and follow on investment opportunities in existing portfolio companies, we remain confident in our ability to generate attractive new private loan investment opportunities and grow the fund's investment portfolio, over the next several quarters. Now turning to other activities intended to create value for the Fund shareholders. In August, the fund entered into an open market share repurchase plan to repurchase its shares beginning in September 2026, through February 2027.

At times when the fund shares are trading at predetermined levels below the fund's NAV per share. To date, the fund has repurchased over $2.5 million of its shares under this plan. As noted earlier, we have a high level of comfort about the quality of the fund's investment portfolio And as a result, we believe that this repurchase plan can be used to create additional value for the fund shareholders. My last few comments are reminders of the continued support the fund has received from Main Street Capital Corporation.

Since Main Street's wholly owned subsidiary was appointed the sole adviser to the fund in October 2020, Main Street is purchased over $32 million of the fund's common stock and now owns over 5% of the fund. In conjunction with the fund's repurchase plan, Main Street also entered into a share purchase plan to purchase the fund shares with the terms of such plan being identical to the fund's open market share repurchase plan. And with any open market share purchases being split by the fund and Main Street on a pro rata basis. To date, Main Street has purchased over $2.5 million of fund shares under this plan.

An additional show of support for the fund, Main Street through its wholly owned investment adviser, voluntarily agreed to permanently waive approximately $600 thousand of incentive fees on income earned for the third quarter to support the funds resulting ANII before taxes per share resulting in total incentive fees on income waivers of $2 million since the third quarter of 2 thousand 25. We believe these actions demonstrate the Main Street's commitment to the future success of the fund and reinforce Main Street's confidence in the strength and quality of the fund's investment portfolio and investment strategy. With that, I will turn the call over to Nick.

Nicholas T. Meserve: Thanks, Duane, and good morning, everyone. We are pleased with the performance of the Fund's private loan investment portfolio in the third quarter. Which represents the largest portion of the Fund's investment portfolio. And as a reminder, is the fund's sole focus with respect to new portfolio company investments. The overall operating performance for most of the fund's private loan portfolio companies continue to be positive. Which contributed the Fund's third quarter financial results. Fund also benefited in the quarter from meaningful net fair value appreciation based upon the positive performance and outlook for certain private loan portfolio companies where the fund has an equity investment.

A recent example of benefits these portfolio companies can provide is the recent exit of the Fund's equity investment in core transformers in the third quarter. Which resulted in a realized gain of $11 million At quarter end, 91% of the private loan portfolio was composed secured debt investments, over 99% of which were first lien, 95% of which were floating-rate loans. Portfolio had an attractive weighted average yield of 10.5%,, relatively consistent with prior quarter end.

During the third quarter, the fund invested $61 million in the private loan portfolio, which after aggregate investment activity resulted in a net decrease of $11 million Funds ended the third quarter with investment investments in 81 private-loan portfolio companies totaling $844 million of fair value and representing 61% of the fund's total investment portfolio at fair value. As Duane mentioned, our current private-- private loan pipeline has continued to improve both in terms of quality of the opportunities and the overall volume. And is now well above average. Since the end of the third quarter, we have closed 1 new private-loan portfolio company and are optimistic we will close several more transactions before year end.

With that, I will turn the call over to David.

David L. Magdol: Thanks, Nick, and good morning, everyone. In addition to the private loan portfolio that Nick covered, the fund also maintains a portfolio of legacy lower middle market investments. As a reminder, these are combined debt and equity investments in smaller privately held companies whereby the fund partnered directly with the company's existing business owners and management team through co investments with Main Street Capital Corporation utilizing the customized 1 stop debt and equity financing solutions provided in Main Street's lower middle market investment strategy.

After the listing of the fund shares on the New York Stock Exchange in January 2025,, the fund no longer makes investments in new lower middle market portfolio companies but continues to participate in follow on investments in its existing lower middle market portfolio companies. We are pleased to report that the overall operating performance for most of the funds lower middle market portfolio companies continues to be positive which contributed to the Fund's third quarter results. Despite the continued heightened level of uncertainty in the overall economy, we remain confident in the ability of these lower middle market portfolio companies to continue to successfully navigate the current environment.

During the third quarter, the Fund $4 million in total new lower middle market portfolio follow on investments which after aggregate investment activity resulted in a net decrease in the lower middle market portfolio of $10 million At quarter end, the lower middle market portfolio had investments in 53 portfolio companies, totaling $503 million of fair value and representing 37% of the fund's total investment portfolio. Lower middle market portfolio at fair value is comprised of 54% debt investments and 46% equity investments. 99% of those debt investments were first-lien loans and had an attractive weighted average yield of 12.7%. Fund had equity ownership positions in all of its lower middle market portfolio companies representing an average 8% ownership position.

We expect these lower middle market investments will continue to provide significant benefits in the future, including the opportunity for continued dividend income, fair value appreciation, and eventually, meaningful realized gains upon the future exit of these lower middle market Finally, and consistent with prior quarters, we continue to see interest from potential buyers in several of the funds lower middle market portfolio companies, which we expect will lead to favorable outcomes over the next few quarters. Turning to the Fund's total investment portfolio as of September 30, the Fund continued to maintain a highly diversified portfolio with investments in 141 portfolio companies spanning across numerous industries and end markets.

Fund's largest portfolio companies represented less than 4% of the total investment portfolio fair value at quarter end and less than 4% of the total investment income for the trailing 12 month period with most portfolio investments representing less than 1% of the fund's income and assets. With that, I will turn the call over to Cory.

Cory Elvan Gilbert: Thank you, David, and thank you to everyone who has joined us today. Fund's total investment income for the third quarter was $35.5 million, relatively unchanged from the third quarter of 2025 and the second quarter of 2026. Interest income for the third quarter was also relatively unchanged from these prior periods. Interest income in the third quarter compared to the prior year was positively impacted by higher average levels of income producing investment portfolio debt investments. Partially offset by the negative impact from debt investments on nonaccrual status and a decrease in interest rates.

Interest income in the third quarter compared to the second quarter was positively impacted by 1 additional day of interest income in the quarter and higher average levels of income producing investment portfolio debt investments. Partially offset by the negative impact from debt investments on non-accrual status. Dividend income for the third quarter increased slightly from a year ago and was consistent with the second quarter. The increase in dividend income from the prior year was primarily due to an increase in dividends from private loan portfolio companies partially offset by a decrease in dividends from lower middle market portfolio companies. In the third quarter of 26, dividend income included $700 thousand of non-recurring items.

As we previously discussed, dividend income will fluctuate quarter to quarter based on the underlying performance in capital allocation activities of the funds portfolio companies and certain non-recurring items. Fee income for the third quarter was relatively unchanged from a year ago and decreased by $400 thousand from the second quarter. The changes in fee income from both the prior year and the second quarter were primarily due to a decrease in fees related to decreased investment activity. The third quarter included income considered less consistent or non-recurring in nature of $2.3 million primarily related to interest and dividend income items.

These items were $900 thousand higher than the third quarter of 2025 and $100 thousand higher than the second quarter and $700 thousand higher than the average of the prior 4 quarters. As we have previously discussed, these nonrecurring items vary quarter to quarter and can include dividend income from equity investments, and interest and fee income from accelerated prepayment repricing, and other activity related to debt investments. The fund's expenses, net of waivers, for the third quarter increased by $1.8 million from the third quarter of 2025 and decreased by $2.2 million from the second quarter.

The increase from the prior year was principally attributable to a $1.3 million increase in interest expense a $900 thousand increase in the capital gains incentive fee accrual, and a $500 thousand increase in base management fee partially offset by an $800 thousand decrease in incentive fee on income net of waivers. The $2.2 million decrease from the second quarter in the funds expenses, net of waivers, was primarily driven by decreases of $2.1 million in the capital gains incentive fee accrual and $400 thousand in the incentive fee on income net of waivers.

The increase in interest expense from a year ago was largely driven by an increase in average borrowings outstanding, used to fund the growth of the fund's investment portfolio and an increased weighted average interest rate on the fund's unsecured debt obligations. As a result of the issuance of the May 2029 notes, and the issuance of the September 2029 notes. partially offset by a decreased weighted average interest rate on the credit facilities due to decreases in benchmark index rates. The capital gains incentive fee accrual for the quarter was $900 thousand compared to no accrual a year ago and $2.9 million in the second quarter.

With the variances due to the changes in the net fair value appreciation of the funds investments in the third quarter of 26 relative to the prior periods. The increase in base management fees from a year ago is the result of the funds increased average total asset. The decreases in incentive fee on income net of waiver of $800 thousand from a year ago and $400 thousand from the second quarter is a result of $500 thousand and $400 thousand increases in the voluntary waiver of incentive fee on income by the fund's investment adviser, respectively. And a $400 thousand decrease in the gross calculated incentive fee on income compared to the prior year.

Primarily driven by a decrease in pre incentive fee NII. The fund's expense ratio calculated as the ratio of total non interest operating expenses excluding incentive fees net of waivers as a percentage of the fund's average total assets, was 1.9% on an annualized basis for the third quarter a decrease from 2% in the prior year and consistent with the second quarter. The Fund's adjusted NII before taxes in the third quarter was $16.3 million or $0.36 per share, slightly decreasing from $17 million or $0.36 per share from the prior year.

During the quarter, the fund recorded a net increase in the fair value of its investments of $5.2 million, representing the impact of $9 million of net unrealized appreciation partially offset by $3.9 million of net realized losses. The net fair value increase was primarily attributable to an increase of $3.8 million in the private loan portfolio and $2.2 million in the lower middle market portfolio partially offset by a decrease of $600 thousand in the residual middle portfolio. Overall, the Fund's operating results for the third quarter resulted in a net increase in net of $18.1 million or 40¢ per share.

The fund's NAV per share was $16.56 a $0.05 increase from the second quarter and $1.03 above the fund's public offering price per share in its public offering and listing on the New York Stock Exchange in January 2025. As of quarter end, the fund had investments on nonaccrual status comprising 1.4% of the total investment portfolio at fair value and 5.2% at cost. As of quarter end, the fund's regulatory asset coverage ratio was 2.16x and its net debt to NAV ratio was 0.83x.

Over the last few months, we have completed the actions we discussed last quarter to address the maturity of the Fund's $150 million of October 2026 notes the fund issued $75 million in September, $75 million in October, for a total of $150 million issued under the September 2029 notes. In October, Kroll Bond Rating Agency also reaffirmed the fund's investment grade issuer and senior unsecured debt rating of BBB- with a stable outlook. We remain confident in our ability to support the fund's growth in a way that reflects our conservative approach to the Fund's capital structure. With that, I will now turn the call back over to the operator so we can take any questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the * keys. 1 moment, please, while we poll for questions. Our first question is from Kenneth Lee with RBC Capital Markets.

Kenneth Lee: Hey, good morning, and thanks for taking my question. Just 1 around the pipeline there, the private loan pipeline. And the color of being well above average there. And once again, I apologize if this was covered in the other call. I have just been hopping around. Do you attribute the outlook there more to the network that you are seeing, the relationships or is this just a signal of just broader market of activity there? Thanks.

Dwayne Louis Hyzak: Sure, Kenneth. Good morning. And we did cover it on the Main Street call, so you can get some additional details there. But I will give you a couple of thoughts, and then Nick can add on. I would say that when we look at the pipeline, there is nothing specific we attribute it to. it is really right place, right time and seeing a number of transactions that fit us well and that we also, you know, feel like we are a really good fit for. I do not know if I would add anything different than that, Nick.

Nicholas T. Meserve: Yeah. So the volume does feel like it is picked up in the third, fourth quarter and just does that continue into 2027? I think we are hopeful. But I think we are seeing signs that M&A activity has picked up drastically from earlier in the year or anything yet.

Kenneth Lee: Gotcha. that is great. And just 1 quick follow-up, somewhat relatedly. In terms of the time frames roughly for, ramping up the portfolio more towards an optimal leverage level. And once again, I realized it can be a little difficult to predict, but just any updated thoughts around that? Thanks.

Dwayne Louis Hyzak: Sure. We have not given specific time frames on that, Kenneth. I do think if the if the pipeline, you know, that Nick and his team are executing to and working on, you know, if that actually, you know, gets to closing, you know, we will make a significant move in Q4. And, obviously, beyond that, it really is going to be dependent upon the overall market and the transactions we see fitting us. I think we do not really have a change in terms of you know, guidance or timing, but, you know, the pipeline right now will definitely be helpful in moving you know, moving the fund closer to that target leverage profile.

Kenneth Lee: Great. Very helpful there. Thanks again.

Operator: Thank you. Our next question is from Arren Cyganovich with Truist Securities.

Arren Cyganovich: Yes. Maybe within the pipeline itself, are there, you know, any particular industries or themes that you could talk about and some of the aspects of, you know, spreads and documentation, everything, and anything notable in terms of going on within that pipeline?

Dwayne Louis Hyzak: Yeah. I would not say there is anything from my perspective that is notable. it is just like our portfolio, it is diversified in terms of industry, geography and types of companies. Terms, conditions, kind of spread. They are all you know, in line with what we have seen historically. Maybe some of the transactions are a little bit bigger than what we have, you know, had success with historically, but not out of line with, what we have actually-- So I do not really see anything that is, you know, really different than historical. But, Nick, if you want. Give some additional color.

Nicholas T. Meserve: Yeah. I would say spreads and terms are probably you know, flattish, you know, since kind of the March, April time frame. You know, before that, it widened out a little bit. But we are kinda the same ballpark as we have been most of the year at this point.

Arren Cyganovich: Great. And are these financing M&A? Are they refi, dividend recap? what is what is the bulk of those within the pipeline?

Nicholas T. Meserve: Yes. So most of our, you know, pipeline and most of our transaction all time are going to be fresh LBOs. You know, big combination of a sponsor to sponsor or founder to sponsor.

Dwayne Louis Hyzak: The only thing I might add, if you can add any additional color, we are seeing healthy amount of follow ons as well with our, high-performing, well performing portfolio companies that have the desire to go through acquisitions. We are seeing a number of opportunities there as well. that is probably a smaller part of the part of the pipeline, but we are seeing that, which we view as a big positive.

Arren Cyganovich: Thanks. Appreciate it.

Operator: Thank you. Our next question is from Brian Mckenna with Citizens Capital Markets.

Analyst: You just remind me on the 2029 notes, will both those tranches price the same or is it dependent on where the market is when those get issued?

Cory Elvan Gilbert: They are both priced the same rate. it is just that they have kind of a delay draw, delayed funding.

Analyst: Got it. Got it. And then, I guess, on the share buyback, it sounds like that is a formulaic buyback. I guess, 1, is that correct? And then 2, how do you guys think about balancing buybacks with the above-average pipe that you guys mentioned?

Dwayne Louis Hyzak: Sure. I think, Chris, it is a. it is a 10b5 plan, so it is, you know, kind of a grid that gets set and it does not move, and it is not executed by us, it is executed by a third party subject to that you know, that grid. So it, it is, you know, what you what you described there on the buyback, and that applies both to what MSC Income Fund's doing and what Main Street is doing through its, you know, its pro rata share of purchasing shares of MSC Income Fund. I think when you when you look at the second part, I think we, you know, we. We are balanced between the 2.

We think both, new investments, particularly given the, you know, the attractive nature of the investments that we are seeing through the private loan pipeline. You know, we think that is a great way to, you create value. We also think, you know, we can do the same thing through the through the repurchase plans. We think both of them are good, you know, value creation opportunities or activities. So we are looking to deploy both of those as we execute. Over the next couple of months.

Analyst: Got it. it is very helpful. Appreciate you guys taking the questions today.

Operator: Thank you. Our next question is from Paul Johnson with KBW.

Paul Johnson: Hey, good afternoon. Thanks for taking my questions. Terms of kind of like the NII roll forward, and just kind of thinking about that, you know, several quarters out and getting up to, you know, the distribution rate, 36¢ total dividends. What sort of, I guess, is the walk to get there? I obviously get higher rates. But we have some higher debt financing costs coming in. I guess, what as well as, I guess, the fee waiver too. I do not wanna forget that as well. there is a little bit of fee waiver support in there.

So I guess how should investors be kind of thinking about, like, the offset Is it just simply from deployment or do you see the other things ahead as we get into next year dividend income, fee income from, you know, investment activity, spreads? You know, what do you kind of see as the bridge to NII eventually surfacing above that level.

Dwayne Louis Hyzak: Right. I think it is it is a. It is a combination of what you what you hit on there. I would say the biggest driver, is the new investment activity. So that, you know, that is gonna be the, you know, the most direct catalyst. We do have dividend income, which continues to be a meaningful portion of MSC income funds overall, investment income. And that, as you know, is variable. But if we can continue to get good contributions from the lower middle market equity investments alongside, you know, growth of the portfolio, with the growth being concentrated in debt only investments that have a an immediate, you know, current return on them, on the private loan side.

You know, that. that is the, you know, that is the expectation on the behalf to continue to have NII grow and cover the 36 without the waiver.

Paul Johnson: Got it. Thanks for that. And then thinking about just like a private loan portfolio, given there is, you know, a different nature of those loans from, you know, your typical kind of lower middle market, you know, borrower structure. Do you believe that the private loan portfolio can benefit as much as kind of the lower middle market funnel does from just the sort of infrastructure beneficiaries, those types of companies that have been, you know, pretty successful in this environment, kind of pointing to, you know, core transformers this quarter. But there is there is clearly others in the portfolio definitely in the Main Street portfolio. Does the private loan vertical, do you think.

Would that participate in sort of this same channel or same type of investments as much Or is it just a little bit less cyclical, I guess, in nature?

Dwayne Louis Hyzak: Yeah. I would say that. And Nick can add on here. But I would say that the nature of the companies that we find attractive as a firm, whether it is lower middle market or private loan, I said we find the same types of companies, industries, attractive. So we, you know, we have long been fans of infrastructure, infrastructure broadly. That applies to both lower middle market and private loan.

So I think we, you know, we think those you know, those companies, those investments, particularly given the environment that we have been for the last couple of years really since, since COVID where you have got combination of onshoring, reshoring activities as well as just overall needs on the infrastructure, whether it is electric utility, you will oil and gas pipeline, or anything else, that is related. You know, those are things that again, Main Street for 30 plus years, we found those things attractive. We continue to find them attractive today. And that applies to both private loan and lower middle market. So I do not know if that if that answers your question.

But, Nick, if you have anything to add, feel free to add on. If we did not answer your question, Paul, just ask it a different way.

Paul Johnson: No. That answers my question. that is great. You very much. that is all for me.

Operator: Thank you. Our next question is from Melissa Wedel with UBS.

Melissa Wedel: Good morning. Thanks for taking my questions today. A quick follow-up on your comments about the pipeline picking up a little bit into the fourth quarter. Is that just to clarify on a gross basis or also on a net basis?

Nicholas T. Meserve: I would say we look at it on a gross basis. it is kinda where we just. Look at the pipeline. But they will usually kinda go hand in hand as the gross origination picks up. Usually, you will see a matching. A similar pickup on the repayment side.

Melissa Wedel: Got it. And then just a follow-up too on some comments, I think, from the main call about expecting some lower middle market originations. To the extent there is any crossover between the 2 portfolios, is it something we should also be thinking about for the MSC Income Fund portfolio as well? Thank you.

Dwayne Louis Hyzak: You are welcome. Just to make sure we are clear so that on the existing portfolios, you know, there is a 100% crossover. There are obviously different allocations,, but you know, both lower middle market, and private loan, what MSC Income Fund has as its investments, Main Street also has. But just to be sure on the lower middle market new investment side, in conjunction with the listing in January 2025,, MSC Income Fund it is sole strategy for new investment activities or investments in new portfolio companies is 100% private loan. No new lower middle market. So any lower middle market activity at MSC Income Fund, it is, you know, co investments with Main Street.

They would only participate in follow ons. They would not participate in any investments in new portfolio companies. Okay. And just to clarify, in terms of realization, in the main portfolio, those would also be occurring naturally in the MSC Income Fund portfolio. They would with the, you know, the caveat that Main Street has some lower middle market investments that MSC Income Fund does not. And that is a result of 2 things. 1, Main been around longer than MSC income funds, so anything that existed from a new investment standpoint prior to MSC Income Fund's existence which we have some of that because Main Street maintains a long-term to permanent holding period.

You know, those investments clearly would not be in MSC Income Fund. And then there was a time period during the COVID-19 pandemic time period where MSC Income Fund was not investing at all. Main Street, you know, continued to invest you know, throughout that time period. So there is some investments that Main Street made during that time period. MSC Income Fund is also not in. But everything MSC Income Fund has Main Street has. It just does not apply, the other direction.

Operator: Our next question is from Mickey Schleien with Clear Street.

Mickey Schleien: So the MSC Income Fund portfolio declined by $11 million net cost, and it grew $10 million in the previous quarter. And that is a trend we have seen pretty much across the BDC space in the third calendar quarter. What are your thoughts on what caused that trend in terms of underlying themes?

Dwayne Louis Hyzak: Yeah. Mickey, thanks for the question. I would say we, you know, we cannot really comment on the industry as a whole. We can give you our thoughts. But I would say, in general, it is likely the result of just a continued you know, subdued or less active overall private equity investment environment. We saw that, you know, have seen that for the last couple of quarters. I think the space as a whole has seen that. I think that is what, you know, what I would attribute the Q3, you know, activities to. Nick, if you have a different view, add on any additional color. Yeah.

The only thing I would add is there is a few you know, random deals that just did not come our way during the quarter. And so, you know, if 1 or 2 of those tipped our direction, it would have been probably different net basis. Than what we ended up with. there is the-- I would say the random misorigination is you do have something moved quarter to quarter. It might, you know, push into fourth quarter versus third quarter. Or we lose the finish line and just do not get to the finish line of that transaction. I understand.

Mickey Schleien: And You had $9 million of realized losses on a private loan restructuring and $6 million on an LMM exit. But at the same time, your nonaccruals did decline a little bit. Can you provide more color on the restructuring loss and the LMM exit?

Dwayne Louis Hyzak: Yeah. In general, I would say that the lower middle market loss was a long standing, you know, company we have been involved in. You know, had under underperformed for a long time. You know, we took the, you know, the pain in terms of unrealized depreciation a long time ago, probably during, you know, during COVID. It. From, you know, best of my recollection, or memory. You know, we finally had the opportunity after working through that investment.

We got a good outcome relative to where we were during COVID in terms of your cash payments over the last couple of years and then the eventual exit But we finally got to the point, you know, this quarter where we got to a resolution to, you know, to wrap that up, and you see the, you the realized loss, come through as a result of that. On the private loan side, it was a mix of 1 exit that was a gain. I think Nick touched on that in his, you know, his script or his prepared comments. We had a couple of others that were restructuring related activities. that took place in the quarter.

Mickey Schleien: Fair enough. And, Duane, the fund has relatively low exposure to software. But we are hearing, again, by many BDCs that deal terms that sector are becoming a lot more interesting given the perception of risk in that sector. How are you viewing that opportunity? Is it a fit for MSIF, and are the economics interesting enough for you to dive in a little bit more?

Dwayne Louis Hyzak: Yeah. I would say each situation is gonna be different. So we may look at some of that, but in general, software does not fit us, you know, high leverage, high valuations. Or companies that, you know, do not produce, you know, EBITDA or cash flows. You know, those items do not, you know, do not fit us. They have never fit us, and I would say they, you know, they really would not be a good fit for us going forward. And that is a. that is across the Main Street platform. Okay.

Mickey Schleien: And lastly, we have seen this amazing, you know, continued spread compression in the BSL market. While some direct lenders, including yourself, have reported stable or even wider spreads on new originations. So those markets are diverging With the tight BSL, how does the tight BSL market impact your interest in further investment in the Capturin JV given that my understanding is, you know, it is sort of a first out, more plain vanilla portfolio.

Nicholas T. Meserve: Yeah. it is a. You know, the broad syndicated market just does not-- it impacts us to some degree, but there is really not a. it is not a competition in the sense that, you know, our borrowers and the size that we are playing in and $10 million to $30 million EBITDA range either option is not to go to. Hit the broadly syndicated market. We will see that in a much more on the upper middle market than you would in the lower market private credit side. And then the JVs, I think, probably is a different business and not related to us.

Mickey Schleien: Okay. I understand. that is it for me this morning. Thank you for taking my questions.

Operator: Thank you, Mickey. Thank you. This concludes today's question and answer session. We would now like to hand the floor back over to management for any closing remarks.

Dwayne Louis Hyzak: Just want to say thank you again, everyone, for joining us today. We appreciate your support of the fund. We look forward to talking to you again in February.

Operator: Thank you. This concludes today's call. You may disconnect your lines at this time. Thank you again for your participation.

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