2023 ANNUAL REPORT

May 2023

Dear Shareholders,

We would like to begin by saying thank you for your interest in MidCap Financial Investment Corporation ("MFIC", "the Company", "our" or "we").1 We are pleased to present you with the 2022 Annual Report for MFIC.2

In 2022, MFIC made a few transformative changes reinforcing its position as a pure play senior secured middle market listed business development company ("BDC") providing public access to institutional-quality private credit with an industry-leading fee structure.

Rebranded to MidCap Financial Investment Corporation

In August 2022, the Company was rebranded from Apollo Investment Corporation (NASDAQ: AINV) to MidCap Financial Investment Corporation (NASDAQ: MFIC) reflecting the Company's strategy of primarily investing in loans sourced by MidCap Financial3, a leading middle market lender. MidCap Financial is the primary middle market lending platform for Apollo Global Management Inc. ("Apollo") which manages both MFIC and MidCap Financial.4 In conjunction with the rebranding, the Company's common stock ticker changed from "AINV" to "MFIC". 5

MidCap Financial Investment Corporation Primarily Invests in Loans Sourced by MidCap Financial

Founded in 2008, MidCap Financial is a privately held leading middle market-focused specialty finance firm that provides senior debt solutions to companies across all industries through first lien secured loans and asset-based loans. MidCap Financial has one of the largest direct lending teams in the United States with almost 200 investment professionals.

We believe the scale of MidCap Financial, combined with other Apollo-managed capital, makes MFIC part of one of the largest market participants in U.S. middle market lending. In 2022,

  1. On August 1, 2022, the Company changed its name from "Apollo Investment Corporation" to "MidCap Financial Investment Corporation".
  2. All references to 2022 or year refer to the calendar year ended December 31, 2022, unless otherwise specified.
  3. MidCap Financial refers to MidCap FinCo Designated Activity Company, a designated activity company limited by shares incorporated under the laws of Ireland, and its subsidiaries, including MidCap Financial Services, LLC. MidCap Financial is managed by Apollo Capital Management, L.P., a subsidiary of Apollo, pursuant to an investment management agreement between Apollo Capital Management, L.P. and MidCap FinCo Designated Activity Company. MidCap Financial is not an investment adviser, subadviser or fiduciary to the Company or to the Company's Investment Adviser. MidCap Financial is not obligated to take into account the Company's interests (or those of other potential participants in assets sourced) when sourcing loans across its platform.
  4. MFIC is managed by Apollo Investment Management, L.P. (the "Investment Adviser"), an affiliate of Apollo. MidCap Financial is managed by Apollo Capital Management, L.P., a subsidiary of Apollo.
  5. The Company's common stock began to trade under the ticker "MFIC" on the NASDAQ Global Stock Market on August 12, 2022. Prior to August 12, 2022, the Company's common stock traded on the NASDAQ Global Select Market under the ticker "AINV".

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MidCap Financial sourced over $16 billion of commitments. MidCap Financial has successfully managed through multiple economic cycles and has what we consider to be an exceptionally strong track record. MidCap Financial's years of experience, strong balance sheet, and flexibility make it the lender of choice for companies across all stages of growth and complexity.

MFIC is very fortunate to be in a unique position to have access to loans sourced by MidCap Financial, given the strategic relationship between MidCap Financial and Apollo. We believe MFIC's ability to invest in loans sourced by MidCap Financial is one of MFIC's most significant competitive advantages, providing us with a wide origination funnel which allows for investment selectivity.

In addition to the benefits that MFIC derives from MidCap Financial, MFIC greatly benefits from its affiliation with Apollo, a high-growth global alternative asset manager with approximately $548 billion of assets under management6 as of December 31, 2022. Being part of Apollo's platform provides MFIC with significant scale and differentiated access to information.

New Industry-Leading Fee Structure 7

To support MFIC's investment strategy, MFIC's Board of Directors (the "Board") and its Investment Adviser8 established what we consider to be the industry-leading fee structure, among listed BDCs, with substantial and permanent reductions to both management and incentive fees. Historically, MidCap Financial, and Apollo as its manager, predominantly sourced assets for institutional investors. The new fee structure significantly reduced MFIC's cost of capital and expanded the universe of loans sourced by MidCap Financial that are suitable for MFIC and that otherwise would have gone to institutional investors.

MFIC's base management fee was permanently reduced to 1.75% on net assets (i.e. equity), which we believe to be the lowest effective rate among listed BDCs and represents a fee reduction of approximately 50%. In addition, the base management fee is now calculated on net assets (i.e. equity) instead of gross assets, which we believe provides greater alignment and focus on net asset value. The incentive fee on income was also permanently reduced from 20% to 17.5%.

Senior Leadership Promotions

In August 2022, the Company announced several senior management promotions and Board changes. I (Howard T. Widra) was named Executive Chairman of the Board having previously served as the Company's Chief Executive Officer from May 2018 to August 2022 and as President from June 2016 to May 2018. I (Tanner Powell) was promoted to Chief Executive Officer of the Company having served as President of the Company from May 2018 to August 2022 and as Chief Investment Officer for the Company's Investment Adviser from June 2016 to August 2022. Ted McNulty, who has been key member of Apollo's Direct Origination business since he joined Apollo in 2014, was promoted to President of the Company and Chief Investment Officer for our Investment Adviser. Kristin Hester, who has been a senior member of our legal team since 2015

  1. See definition of Asset Under Manager at the end of this letter.
  2. The new fee structure became effective beginning January 1, 2023. Prior to this reduction, the base management fee was 1.5% on gross assets financed using leverage up to 1.0x debt-to-equity and 1.0% on gross assets financed using leverage over 1.0x debt-to equity. For the comparisons presented, a debt-to-equity of 1.40x is assumed.
  3. MidCap Financial Investment Corporation's ("MFIC") investment adviser is Apollo Investment Management, L.P. (the "Investment Adviser"), an affiliate of Apollo.

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and has served as the General Counsel of the Company since May 2020, was promoted to Chief Legal Officer and Secretary of the Company. These promotions recognize the valuable contributions made by these members of our team over the years.

A Review of MFIC's Investment Activity, Portfolio, and Financial Results

The market backdrop changed significantly in 2022 due to several factors including a rapid increase in inflation, a sudden tightening of monetary policy, ongoing supply chain disruptions, and heightened geopolitical tensions - all of which contributed to significant volatility in the capital markets. As we have stated in prior communications, we believe that MFIC's corporate lending portfolio is constructed to perform across market environments. Our approach to credit underwriting, asset selection, and portfolio construction contemplates the potential for economic weakness. This approach has resulted in what we believe to be a high quality well-diversified portfolio which proved to be relatively resilient from the economic challenges created by the coronavirus pandemic, and which we believe is equally well-positioned for the current operating environment.

During 2022, MFIC continued to focus on its core strategy of investing in senior secured loans to middle market companies which represented 87% of the total portfolio at the end of December 2022. In last year's letter, we discussed our plan to reduce our investment in Merx Aviation, our aircraft leasing portfolio company. Despite a challenging period in the capital markets, we are pleased to report that we made significant progress in this regard. Merx was able to monetize some of its aircraft exposure and MFIC was able to reduce its exposure in Merx to approximately 8%9 of the total portfolio, at fair value, compared to 12% at the end of 2021. We remain focused on continuing to reduce our aircraft leasing exposure. Given the many challenges facing companies today, including elevated inflation and the significant and rapid increase in interest rates, we have been focused on monitoring and communicating with our portfolio companies and sponsors. MFIC benefits from MidCap Financial's large, dedicated portfolio management team of nearly 60 investment professionals who help identify and address issues early.

During 202210, MFIC made $405 million in new investment commitments to 46 different borrowers for an average new commitment of $8.8 million. Consistent with our investment strategy, all new debt commitments were first lien floating rate loans. Also, during the year, the Company exited approximately $610 million of investment commitments. Gross fundings in 2022 of $720 million were offset by sales and repayments of $861 million resulting in net repayments of $141 million. We ended 2022 with a $2.40 billion investment portfolio, at fair value, invested across 135 borrowers in 26 different industries.

Financial results in 2022 benefitted from the positive impact of rising base rates on our floating rate assets. For the twelve months ended December 31, 2022, total investment income was $230.4 million, net investment income was $101.0 million, and net investment income per share was $1.57. Net asset value was negatively impacted by the depreciation of certain investments outside of our first lien corporate lending strategy. Net asset value per share was $15.10 as of December 31, 2022.

  1. Includes the impact of a $62 million paydown from Merx to MFIC in January 2023.
  2. Calendar year.

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Apollo Investment Corporation published this content on 02 May 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 04 May 2023 13:02:09 UTC.