Midcap Financial Investment Corporation · NASDAQ:MFIC
Midcap Financial Investment — Merger or Acquisition (March 2024)
61 slides from Midcap Financial Investment's merger presentation, Mar 4, 2024
Slide 1: MidCap Financial Investment Corporation Investor Presentation March 2024
MidCap Financial Investment Corporation Investor Presentation March 2024 Unless otherwise noted, information as of December 31, 2023. Confidential and Proprietary - Not for distribution, in whole or in part, without the express written consent of Apollo Global Management, Inc. It should not be assum
Slide 2: Disclaimers, Definitions and Important Notes
Disclaimers, Definitions and Important Notes Forward-Looking Statements statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that they may make directly to you or through reports that MFIC, AFT, and/or AIF Some of the s
Slide 3: Disclaimers, Definitions and Important Notes
Disclaimers, Definitions and Important Notes “Assets Under Management”, or “AUM”, refers to the assets of the funds, partnerships and accounts to No Offer or Solicitation which Apollo provides investment management, advisory, or certain other investment-related services, This Presentation is not, an
Slide 4: Table of Contents
Introduction MFIC Investment Highlights Table of Contents MFIC Accomplishment and Portfolio Review Proposed Mergers of MFIC, AFT, and AIF Conclusion Appendix 4
Slide 5: Introduction
APOLLO Introduction
Slide 6: MFIC Positioned to be a Pure Play Senior Secured Middle Market BDC
INTRODUCTION MidCap Financial Investment Corporation (“MFIC”) Positioned to be a Pure Play Senior Secured Middle Market BDC MFIC is a publicly traded (NASDAQ: Apollo is a high growth MFIC) business development company 1 MidCap Financial is a global alternative asset (“BDC”) treated as a regulated in
Slide 7: MFIC Snapshot
INTRODUCTION MFIC Snapshot General Corporate Information Investment Portfolio MFIC $2.33 billion Ticker Investment Portfolio NASDAQ Global Select 152 Exchange # of Portfolio Companies Net Assets $1.01 billion # of Industries 23 2 1 Kroll Bond Rating Agency BBB- / Stable Corporate Lending and Other %
Slide 8: Apollo Today: Integrated Asset Management and Retirement Services Capabilities
INTRODUCTION Apollo Today: Integrated Asset Management and Retirement Services Capabilities GLOBAL MANAGEMENT $63B 4,000+ ASSET Market RETIREMENT Employees 1 MANAGEMENT Capitalization SERVICES Globally A / A2 / A- Rated by Fitch, Moody’s, S&P ASSET MANAGEMENT $651B ~$21B A / A2 / A- A+ / A1 / A+ / A
Slide 9: MidCap Financial is a Leading Middle Market Lender
INTRODUCTION 1 MidCap Financial is a Leading Middle Market Lender Key Members of Management Team Working Together Full-Service Finance Company Scaled Platform with Strong Credit Track Record 25+ Years • Founded in 2008 • Well-established provider of senior debt • Focused on senior debt solutions to
Slide 10: MFIC Investment Highlights
MFIC Investment Highlights 10
Slide 11: MFIC Investment Highlights
MFIC INVESTMENT HIGHLIGHTS MFIC Investment Highlights § Bank retrenchment from lending expands opportunity set for non-bank lenders resulting in attractive environment for private credit origination Secular Tailwinds 1 § Value proposition for direct lending in terms of flexibility and reliability ha
Slide 12: Bank Retrenchment from Middle Market Lending Expands Opportunity for Non-Bank Lenders
MFIC INVESTMENT HIGHLIGHTS: SECULAR TAILWINDS Bank Continued Retrenchment from Middle Market Lending Expands the 1 Opportunity for Non-Bank Lenders 1 2, 3 Total Number of U.S. Banks Continues to Decline Banks’ Reduced Participation in Loan Market 12,000 100% ~ 65%+ reduction in bank share of the loa
Slide 13: Strong Demand for Loans to Middle Market Companies
MFIC INVESTMENT HIGHLIGHTS: SECULAR TAILWINDS Strong Demand for Loans to Middle Market Companies 1 th 2 U.S. Middle Market is equivalent to the 5 largest global economy¹ Private Equity Dry Powder and Implied Loan Demand ($ in billions) $645 $645 Significant dry powder Significant dry powder should t
Slide 14: How Private Credit Produces Better Outcomes for Lenders
MFIC INVESTMENT HIGHLIGHTS: SECULAR TAILWINDS How Private Credit Produces Better Outcomes for Lenders 1 Broadly Syndicated Direct Origination Loans Credit Documentation Control Due Diligence Access Partial Full Relationship with Borrower Limited Comprehensive Origination and Spread Economics Syndica
Slide 15: MidCap Financial's Strong Strategic Partnership with Apollo
MFIC INVESTMENT HIGHLIGHTS: ROBUST ORIGINATION CAPABILITIES 1 MidCap Financial’s Strong Strategic Partnership with Apollo 2 Apollo Platforms MidCap Financial is Apollo’s primary direct origination Yield Origination Assets + Capabilities Demand platform in private middle market credit § Full service
Slide 16: MidCap Financial Offers a Broad Suite of Products
MFIC INVESTMENT HIGHLIGHTS: ROBUST ORIGINATION CAPABILITIES 1 MidCap Financial Offers a Broad Suite of Products, Providing Solutions to 2 Nearly All Financing Needs of Middle Market Clients Business Segments Leveraged Asset Based Real Estate Lender Life Sciences and Franchise Lending Lending Lending
Slide 17: MidCap Financial Proven Leadership in Industry
MFIC INVESTMENT HIGHLIGHTS: ROBUST ORIGINATION CAPABILITIES 1 MidCap Financial Proven Leadership in Industry 2 2 Middle Market Lending League Table Rank Lender # Deals 1 Antares Capital 183 MIDCAP FINANCIAL 159 2 3 TPG Twin Brook 138 Churchill 124 4 Ares Capital Corp 107 5 6 Crescent Capital 89 Apog
Slide 18: Investment Strategy: Focused on First Lien Loans to Middle Market Companies
MFIC INVESTMENT HIGHLIGHTS: PRUDENT PORTFOLIO CONSTRUCTION Investment Strategy 3 Focused on First Lien Loans to Middle Market Companies Focused on true first lien assets, top of the capital structure, with flexibility to invest across the capital structure 1 Assets Primarily Sourced by MidCap Financ
Slide 19: MFIC Compares Favorably to BDC Averages on Select Key Metrics
MFIC INVESTMENT HIGHLIGHTS: PRUDENT PORTFOLIO CONSTRUCTION MFIC Compares Favorably to BDC Averages on Select Key Metrics 3 We believe MFIC’s revenue We believe MFIC’s portfolio is We believe MFIC’s relatively quality is higher compared to more senior when compared to high exposure to floating rate p
Slide 20: MFIC Has the Lowest Fee Structure Among Listed BDCs
MFIC INVESTMENT HIGHLIGHTS: SHAREHOLDER FRIENDLY FEE STRUCTURE MFIC Has the Lowest Fee Structure, Among Listed BDCs 4 MFIC charges a management fee of 1.75% on net assets (i.e., equity) (equates to ~0.75% on gross assets) while all comparable listed BDCs charge on gross assets at a higher comparable
Slide 21: MFIC 2023 Accomplishments and Portfolio Review
MFIC 2023 Accomplishments and Portfolio Review 21
Slide 22: 2023 Key Accomplishments
MFIC 2023 ACCOMPLISHMENTS AND PORTFOLIO REVIEW 2023 Key Accomplishments • Net Investment Income ROE of 11.7% benefitted from elevated base rates, solid fee and prepayment income, and MFIC’s industry leading fee structure Generated ü 1 Solid ROE’s • Net Income ROE of 11.9% aided by modest portfolio a
Slide 23: MFIC Senior Secured Diversified Investment Portfolio
MFIC Senior Secured Diversified Investment Portfolio Portfolio Snapshot Portfolio by Strategy Portfolio by Industry Portfolio $2.33 bn # of Portfolio Companies 152 # of Industries 23 8% 17.8% 19.3% 1 Corporate Lending and Other % Total Portfolio 92% 9% Non-Accrual % Total Portfolio 0.2% 2.6% 7% 2.9%
Slide 24: MFIC Credit Quality Remains Resilient
MFIC 2023 ACCOMPLISHMENTS AND PORTFOLIO REVIEW MFIC Credit Quality Remains Resilient 1 2 Median LTM EBITDA Net Leverage and Attachment Point Net Leverage Attachment Point $55 $54 5.49 x 5.45 x 5.45 x 5.44 x 5.27 x $50 $48 $47 0.2 x 0.1 x 0.1 x 0.1 x 0.1 x Dec-22 Mar-23 Jun-23 Sep-23 Dec-23 Dec-22 Ma
Slide 25: Proposed Mergers of MFIC, AFT, and AIF
Proposed Mergers of MFIC, AFT, and AIF 25
Slide 26: Proposed Mergers are in the Best Interests of All Shareholders
PROPOSED MERGERS OF MFIC, AFT, AND AIF We Believe the Proposed Mergers of AFT and AIF with MFIC 1 are in the Best Interests of All Shareholders & MFIC AFT & AIF 2 2 P Expected to be accretive to return on equity and net investment income per share ü Expected to be accretive to return on equity and n
Slide 27: Significant Shareholder Financial Benefits Related to the Transactions
PROPOSED MERGERS OF MFIC, AFT, AND AIF Significant Shareholder Financial Benefits Related to the Transactions Special Cash Payment to • An affiliate of Apollo will make a special cash payment of $0.25 per share to each AFT or AIF shareholder of record as of the closing 1 AFT and AIF Shareholders dat
Slide 28: Overview of MFIC, AFT, and AIF
PROPOSED MERGERS OF MFIC, AFT, AND AIF Overview of MFIC, AFT, and AIF MidCap Financial Apollo Senior Apollo Tactical Investment Corporation Floating Rate Fund Inc. Income Fund Inc. NASDAQ: MFIC NYSE: AFT NYSE: AIF Listed Business Development Company (“BDC”) Listed Closed End Fund (“CEF”) Listed Clos
Slide 29: Summary of Key Terms of the Transactions
PROPOSED MERGERS OF MFIC, AFT, AND AIF 1 Summary of Key Terms of the Transactions 2 • MFIC to acquire 100% of AFT and AIF in two parallel stock-for-stock transactions, with shares to be exchanged on a NAV-for-NAV basis • The Mergers will result in an ownership split of the combined company proportio
Slide 30: Illustrative Exchange Ratios and MFIC Pro Forma Ownership
PROPOSED MERGERS OF MFIC, AFT, AND AIF Illustrative Exchange Ratios and MFIC Pro Forma Ownership 1 Illustrative Exchange Ratios Pro Forma Ownership AFT AIF $15.05 $14.63 AFT NAV Per Share AIF NAV Per Share $15.28 $15.28 AIF MFIC NAV Per Share MFIC NAV Per Share 15% 0.9849 x 0.9577 x Exchange Ratio E
Slide 31: Total Consideration to AFT and AIF
PROPOSED MERGERS OF MFIC, AFT, AND AIF 1 Total Consideration to AFT and AIF (Illustrative ) 2 MFIC to acquire 100% of AFT and AIF in two parallel stock-for-stock transactions, with shares to be exchanged on a NAV-for-NAV basis. In addition, an affiliate of Apollo will make a special cash payment of
Slide 32: Post Transaction MFIC Has Greater Scale and More Earnings Power
PROPOSED MERGERS OF MFIC, AFT, AND AIF Post Transaction MFIC Has Greater Scale and More Earnings Power Greater Portfolio Diversification Potential ROE Expansion Enhanced Size and Liquidity 1 2 3 MFIC Net Assets ($ in millions) MFIC Investment Portfolio ($ in millions) MFIC Net Investment Income Retu
Slide 33: Expense Synergies
PROPOSED MERGERS OF MFIC, AFT, AND AIF Expense Synergies The proposed mergers of AFT and AIF with MFIC are expected to be accretive to net investment income in part due to the opportunity for operating synergies by eliminating certain duplicative corporate expenses 1 Category Potential Savings Annua
Slide 34: Increased Scale and Secondary Market Liquidity
Average Daily Valued Traded 3 Month PROPOSED MERGERS OF MFIC, AFT, AND AIF Increased Scale and Secondary Market Liquidity Potential for increased stock liquidity could lead to increased institutional ownership 2 1 Market Cap, Trading Volume & Research Coverage ($ in millions) Net Asset Value ($ in m
Slide 35: Investment Portfolios
PROPOSED MERGERS OF MFIC, AFT, AND AIF Investment Portfolios Affiliates of Apollo manage MFIC, AFT, and AIF, which mitigates the diligence concerns typically associated with mergers of unaffiliated entities. The CEFs’ portfolios primarily include liquid assets that are owned throughout the Apollo pl
Slide 36: Pro Forma Portfolio Metrics Improve Once Rotated and Deployed
PROPOSED MERGERS OF MFIC, AFT, AND AIF Pro Forma Portfolio Metrics Improve Once Rotated and Deployed Portfolio Rotation, at Fair Value ($ in millions) 215 companies Deploy into direct origination Ø Portfolio increases by ~$1.0 billion $3,358 6%, $195 Ø Merx decreases to <6% $656 $332 149 companies 3
Slide 37: Existing Sources of Financing in Place to Execute the Mergers
PROPOSED MERGERS OF MFIC, AFT, AND AIF Existing Sources of Financing in Place to Execute the Mergers MFIC Debt ($ in millions) $2,500 $2,500 $2,412 $2,412 $2,180 $374 $2,000 $2,000 Debt Outstanding $974 $2,038 $742 $600 $1,500 $1,500 Debt Outstanding Debt Outstanding $1,438 $1,438 $731 $731 $1,000 $
Slide 38: Combined Company Expected to Generate Significant Value for All Shareholders
PROPOSED MERGERS OF MFIC, AFT, AND AIF Combined Company Expected to Generate Significant Value for All Shareholders Financially Attractive Transactions for All Shareholders Upfront cash payments and accretive to return on equity and net investment income per share Potential for Increased Shareholder
Slide 39: Apollo Senior Floating Rate Fund Inc. (AFT) at a Glance
PROPOSED MERGERS OF MFIC, AFT, AND AIF Apollo Senior Floating Rate Fund Inc. (NYSE: AFT) at a Glance Objective and Strategy 1 Portfolio Characteristics AFT is a diversified, closed-end management investment company. AFT’s investment objective Weighted Average Floating Rate Spread / % Floating Rate 4
Slide 40: Apollo Tactical Income Fund Inc. (AIF) at a Glance
PROPOSED MERGERS OF MFIC, AFT, AND AIF Apollo Tactical Income Fund Inc. (NYSE: AIF) at a Glance 1 Portfolio Characteristics Objective and Strategy AIF is a diversified, closed-end management investment company. The Fund’s primary Weighted Average Floating Rate Spread / % Floating Rate 5.57% / 84.3%
Slide 41: Conclusion
APOLLO Conclusion
Slide 42: Reasons to Own MFIC
CONCLUSION Reasons to Own MFIC SECULAR TAILWINDS AND RECENT VOLATILITY CREATE ATTRACTIVE ENVIRONMENT FOR PRIVATE CREDIT 1 1 ROBUST ORIGINATION CAPABILITIES OF MIDCAP FINANCIAL / APOLLO PROVIDE ATTRACTIVE AND SIGNIFICANT 2 DEAL FLOW PRUDENT PORTFOLIO CONSTRUCTION WITH FOCUS ON FIRST LIEN, CASH PAY, F
Slide 43: Appendix
APOLLO Appendix
Slide 44: MFIC Senior Leadership Team
MFIC Senior Leadership Team Howard T. Widra Executive Chairman Mr. Widra has been with Apollo and/or its affiliates since 2013 and serves as Apollo’s Head of Direct Origination. He was appointed Executive Chairman in August 2022. He served as the Company’s Chief Executive Officer from May 2018 to Au
Slide 45: MFIC Senior Leadership Team (continued)
MFIC Senior Leadership Team (continued) Kristin Hester Chief Legal Officer and Secretary Ms. Hester joined Apollo in 2015 and currently serves as Senior Counsel for Apollo. She was promoted to Chief Legal Officer for the Company in August 2022 and served as General Counsel for the Company from May 2
Slide 46: MFIC Top Corporate Lending Issuers as of December 31, 2023
1 MFIC Top Corporate Lending Issuers as of December 31, 2023 Fair Value % of Total ($ in millions) Portfolio 2 1 ChyronHego Corporation $ 129 5.5% 2 Lending Point $ 44 1.9% 3 LashCo $ 43 1.9% Top 10 4 Beacon Mobility $ 37 1.6% 19.2% Corporate Lending 5 PSI Services, LLC $ 36 1.5% 6 UpStack $ 32 1.4%
Slide 47: Financial Highlights
Financial Highlights ($ in thousands, except per share data) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Financial Highlights Net investment income per share $0.46 $0.43 $0.44 $0.45 $0.43 Net realized and change in unrealized gains (losses) from investments and $0.05 $0.03 ($0.05) $0.01 ($0.41) foreign curre
Slide 48: Portfolio Highlights
Portfolio Highlights ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Portfolio by Strategy, at fair value ($) Leveraged lending $1,788,586 $1,788,540 $1,830,834 $1,803,762 $1,733,659 Life sciences 153,666 187,698 189,687 204,036 213,278 Asset based, franchise finance and lender finance 155,000 1
Slide 49: Corporate Lending Portfolio Detail
1 Corporate Lending Portfolio Detail ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Portfolio by Asset Class, measured at fair value ($) First Lien $2,016,930 $2,010,175 $2,050,105 $2,015,709 $1,965,800 Second lien 31,886 $66,558 $68,441 69,357 70,919 Other 48,435 $50,122 $49,636 50,852 47,994
Slide 50: Corporate Lending Commitments
1 Corporate Lending Commitments ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Gross Commitments Made by Asset Class First lien $174,923 $19,745 $78,733 $110,020 $73,178 Second lien and Other 16 - - 311 90 Gross commitments made $174,939 $19,745 $78,733 $110,331 $73,269 Gross Commitments Made I
Slide 51: Funded Investment Activity
Funded Investment Activity ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Fundings, excluding Merx Aviation and Revolvers Gross fundings $113,518 $16,188 $72,828 $105,792 $104,551 Sales and syndications - - - - (27,500) Repayments (152,086) (58,552) (57,666) (54,151) (113,460) Net fundings, exc
Slide 52: Credit Quality
Credit Quality As of December 31, 2023, 1.2% of total investments at amortized cost, or 0.2% of total investments at fair value, were on non-accrual status ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Investments on Non-Accrual Status Non-accrual investments at amortized cost $31,568 $33,065
Slide 53: Net Asset Value Rollforward
Net Asset Value Rollforward ($ in thousands, except per share data) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Per Share NAV, beginning of period $15.28 $15.20 $15.18 $15.10 $15.45 Net investment income 0.46 0.43 0.44 0.45 0.43 Net realized and change in unrealized gains (losses) 0.05 0.03 (0.05) 0.01 (0.41
Slide 54: Quarterly Operating Results
Quarterly Operating Results ($ in thousands, except per share data) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Total investment income Interest income (excluding PIK) $70,065 $66,681 $66,655 $64,787 $61,543 Dividend income 473 740 115 23 191 PIK interest income 930 479 812 784 851 Other income 484 275 1,034
Slide 55: Quarterly Balance Sheet
Quarterly Balance Sheet ($ in thousands, except share and per share data) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Assets Investments at fair value $2,334,199 $2,369,108 $2,409,287 $2,385,211 $2,398,120 Cash and cash equivalents (including foreign currencies) 122,127 43,150 50,197 70,063 87,091 Interest r
Slide 56: Funding Sources as of December 31, 2023
Funding Sources as of December 31, 2023 Debt Facilities ($ in thousands) Debt Issued/ Final Maturity Interest Principal Amount Amended Date Rate Outstanding Secured Facilities: 1 4 Senior Secured Facility ($1.705 billion) 4/19/2023 4/19/2028 SOFR + 187.5 +10bps $ 682, 977 6 5 MFIC Bethesda CLO 1 LLC
Slide 57: Interest Rate Exposure as of December 31, 2023
Interest Rate Exposure as of December 31, 2023 1 Investment Portfolio by Interest Rate Type Funding Sources by Interest Rate Type Variable rate assets Fixed rate debt 2% Fixed rate assets 22% 4% Non yielding and non-accrual assets 8% Common equity 41% Floating rate debt Floating rate 37% assets 86%
Slide 58: Realized and Change in Unrealized Gains (Losses) by Strategy
Realized and Change in Unrealized Gains (Losses) by Strategy ($ in millions) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Leveraged lending $4.5 $0.0 ($0.5) $1.0 ($13.6) Life sciences ($3.3) ($2.2) ($2.0) $0.1 $1.3 Franchise Finance $0.0 $0.1 $0.1 ($0.1) ($0.1) Asset based and Lender finance $2.7 $0.2 $1.8 $0
Slide 59: Outstanding Commitments
Outstanding Commitments ($ in thousands) Dec-23 Sep-23 Jun-23 Mar-23 Dec-22 Revolver Obligations and Bridge Loans 1 $89,089 $89,691 $88,357 $100,566 $106,919 Funded 1, 2 Unfunded 176,723 175,720 181,088 182,462 196,408 Par $265,811 $265,411 $269,445 $283,029 $303,327 3 Unfunded Revolver and Bridge L
Slide 60: Portfolio by Strategy and Lien Type
Portfolio by Strategy and Lien Type $ in 000's First Lien Second Lien Other Total Corporate lending $ 2,018,751 $ 31,887 $ 48,435 $ 2,099,072 Merx Aviation 74,075 - 117,043 191,118 Other 14,646 - 31,183 45,829 Total Potfolio $ 2,107,472 $ 31,887 $ 196,660 $ 2,336,019 % Total Portfolio First Lien Sec
Slide 61: Contact Information
Contact Information Elizabeth Besen Gregory W. Hunt Investor Relations Manager Chief Financial Officer and Treasurer Phone: (212) 822-0625 Phone: (212) 822-0655 Email: ebesen@apollo.com Email: ghunt@apollo.com 61
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