Note 2. Significant Accounting Policies

The following is a summary of the significant accounting and reporting policies used in preparing the consolidated financial statements.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) pursuant to the requirements on Form 10-Q, ASC 946, Financial Services — Investment Companies (“ASC 946”), and Articles 6, 10 and 12 of Regulation S-X. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of the consolidated financial statements for the periods presented, have been included.

Under the 1940 Act, ASC 946, and the regulations pursuant to Article 6 of Regulation S-X, we are precluded from consolidating any entity other than another investment company or an operating company which provides substantially all of its services to benefit us.

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the twelve months ended December 31, 2023.

Use of Estimates

The preparation of consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, gains and losses during the reported periods. Changes in the economic environment, financial markets, credit worthiness of our portfolio companies, and any other parameters used in determining these estimates could cause actual results to differ materially.

Consolidation

As provided under Regulation S-X and ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

As of June 30, 2024 the Company's consolidated subsidiaries were MFIC Bethesda CLO 1 LLC, Bethesda CLO 1 Depositor LLC, MFIC Amplify SPV LLC, MFIC Omada SPV LLC, MFIC Ostrich SPV LLC and MFIC Transformer SPV LLC.

Cash and Cash Equivalents

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and near maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain money market funds, U.S. Treasury bills, repurchase agreements, and other high-quality, short-term debt securities would qualify as cash equivalents.

Cash and cash equivalents are carried at cost which approximates fair value. Cash and cash equivalents held as of June 30, 2024 was $66,169. Cash and cash equivalents held as of December 31, 2023 was $93,575.

Collateral on Option Contracts

Collateral on option contracts represents restricted cash held by our counterparty as collateral against our derivative instruments until such contracts mature or are settled upon per agreement of buyer and seller of the contract. In accordance with ASC 230, Statement of Cash Flows, the Statements of Cash Flows outline the changes in cash, including both restricted and unrestricted cash, cash equivalents and foreign currencies. As of and for the periods ended June 30, 2024 and December 31, 2023, the Company did not hold any derivative contracts.

Investment Transactions

Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains and losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as a receivable for investments sold and a payable for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement (“ASC 820”), where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the Consolidated financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

Investment Valuation Process

The Board has designated the Investment Adviser as its “valuation designee” pursuant to Rule 2a-5 under the 1940 Act, and in that role the Investment Adviser is responsible for performing fair value determinations relating to all of the Company's investments, including periodically assessing and managing any material valuation risks and establishing and applying fair value methodologies, in accordance with valuation policies and procedures that have been approved by the Board. Even though the Board designated the Company's Investment Adviser as “valuation designee,” the Board continues to be responsible for overseeing the processes for determining fair valuation.

Under the Company's valuation policies and procedures, the Investment Adviser values investments, including certain secured debt, unsecured debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker, primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are unavailable or are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Investments purchased within the quarter before the valuation date and debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount accreted/premium amortized to the date of maturity (although they are typically valued at available market quotations), unless such valuation, in the judgment of our Investment Adviser, does not represent fair value. In this case such investments shall be valued at fair value as determined in good faith by or under the direction of the Investment Adviser including using market quotations where available. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Investment Adviser. Such determination of fair values may involve subjective judgments and estimates.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Investment Adviser undertakes a multi-step valuation process each quarter, as described below:

Our quarterly valuation process begins with independent valuation firms conducting independent appraisals and assessments for all the investments they have been engaged to review. If an independent valuation firm is not engaged
during a particular quarter, the valuation may be conducted by the Investment Adviser;

Preliminary valuation conclusions are then documented and discussed with senior management of our Investment Adviser.

The Investment Adviser discusses valuations and determines in good faith the fair value of each investment in our portfolio based on the input of the applicable independent valuation firm.

For Level 3 investments entered into within the current quarter, the cost (purchase price adjusted for accreted original issue discount/amortized premium) or any recent comparable trade activity on the security investment shall be considered to reasonably approximate the fair value of the investment, provided that no material change has since occurred in the issuer’s business, significant inputs or the relevant environment.

Investments determined by these valuation procedures which have a fair value of less than $1 million during the prior fiscal quarter may be valued based on inputs identified by the Investment Adviser without the necessity of obtaining valuation from an independent valuation firm, if once annually an independent valuation firm using the procedures described herein provides an independent assessment of value. Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. During the three months ended June 30, 2024, there were no significant changes to the Company’s valuation techniques and related inputs considered in the valuation process.

Derivative Instruments

The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements. Derivative contracts entered into by the Company are not designated as hedging instruments, and as a result the Company presents changes in fair value and realized gains or losses through current period earnings.

Derivative instruments are measured in terms of the notional contract amount and derive their value based upon one or more underlying instruments. Derivative instruments are subject to various risks similar to non-derivative instruments including market, credit, liquidity, and operational risks. The Company manages these risks on an aggregate basis as part of its risk management process. The derivatives may require the Company to pay or receive an upfront fee or premium. These upfront fees or premiums are carried forward as cost or proceeds to the derivatives.

Exchange-traded derivatives which include put and call options are valued based on the last reported sales price on the date of valuation. Over-the-counter (“OTC”) derivatives, including credit default swaps, are valued by the Investment Adviser using quotations from counterparties. In instances where models are used, the value of the OTC derivative is derived from the contractual terms of, and specific risks inherent in, the instrument as well as the availability and reliability of observable inputs, such as credit spreads.

As of and for the periods ended June 30, 2024 and December 31, 2023, the Company did not hold any derivative contracts.

Offsetting Assets and Liabilities

The Company has elected not to offset cash collateral against the fair value of derivative contracts. The fair values of these derivatives are presented on a gross basis, even when derivatives are subject to master netting agreements.

As of and for the periods ended June 30, 2024 and December 31, 2023, the Company did not hold any derivative contracts.

Valuation of Other Financial Assets and Financial Liabilities

ASC 825, Financial Instruments, permits an entity to choose, at specified election dates, to measure certain assets and liabilities at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. Debt issued by the Company is reported at amortized cost (see Note 6 to the consolidated financial statements). The carrying value of all other financial assets and liabilities approximates fair value due to their short maturities or their close proximity of the originations to the measurement date.

Realized Gains or Losses

Security transactions are accounted for on a trade date basis. Realized gains or losses on investments are calculated by using the specific identification method. Securities that have been called by the issuer are recorded at the call price on the call effective date.

Investment Income Recognition

The Company records interest and dividend income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Some of our loans and other investments, including certain preferred equity investments, may have contractual payment-in-kind (“PIK”) interest or dividends. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not fully expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company believes that PIK is expected to be realized.

Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on non-accrual designated investments may be recognized as income or applied to principal depending upon management’s judgment.

Loan origination fees, original issue discount (“OID”), and market discounts are capitalized and accreted into interest income over the respective terms of the applicable loans using the effective interest method or straight-line, as applicable. Upon the prepayment of a loan, prepayment premiums, any unamortized loan origination fees, OID, or market discounts are recorded as interest income. Other income generally includes amendment fees, bridge fees, and structuring fees which are recorded when earned.

The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. Such assumptions include the rate and timing of principal and interest receipts (which may be subject to prepayments and defaults) of the underlying pool of assets. These assumptions are updated on at least a quarterly basis to reflect changes related to a particular security, actual historical data, and market changes. A structured product investment typically has an underlying pool of assets. Payments on structured product investments are and will be payable solely from the cash flows from such assets. As such, any unforeseen event in these underlying pools of assets might impact the expected recovery of principal and future accrual of income.

Expenses

Expenses include management fees, performance-based incentive fees, interest expense, insurance expenses, administrative service fees, legal fees, directors’ fees, audit and tax service expenses, third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis.

Financing Costs

The Company records expenses related to shelf filings and applicable offering costs as deferred financing costs in the Consolidated Statements of Assets and Liabilities. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of capital upon utilization, in accordance with ASC 946-20-25, or charged to expense if no offering is completed.

The Company records origination and other expenses related to its debt obligations as deferred financing costs. The deferred financing cost for all outstanding debt is presented as a direct deduction from the carrying amount of the related debt liability, except that incurred under the Senior Secured Facility (as defined in Note 6 to the consolidated financial statements), which the Company presents as an asset on the Consolidated Statements of Assets and Liabilities. These expenses are deferred and amortized as part of interest expense using the straight-line method over the stated life of the obligation which approximates the effective yield method. In the event that we modify or extinguish our debt before maturity, the Company follows the guidance in ASC 470-50, Modification and Extinguishments (“ASC 470-50”). For modifications to or exchanges of our Senior Secured Facility (as defined in Note 6 to the consolidated financial statements), any unamortized deferred financing costs relating to lenders who are not part of the new lending group are expensed. For extinguishments of our senior secured notes and senior unsecured notes, any unamortized deferred financing costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.

Foreign Currency Translations

The accounting records of the Company are maintained in U.S. dollars. All assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the foreign exchange rate on the date of valuation. The Company does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. The Company’s investments in foreign securities may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments and therefore the earnings of the Company.

Dividends and Distributions

Dividends and distributions to common stockholders are recorded as of the ex-dividend date. The amount to be paid out as a distribution is determined by the Board each quarter. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Share Repurchases

In connection with the Company’s share repurchase program, the cost of shares repurchased is charged to net assets on the trade date.

Federal and State Income Taxes

We have elected to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must (among other requirements) meet certain source-of-income and asset diversification requirements and timely distribute to its stockholders at least 90% of its investment company taxable income as defined by the Code, for each year. The Company (among other requirements) has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from corporate-level income taxes. For income tax purposes, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of distributions paid to stockholders through June 30, 2024 may include return of capital, however, the exact amount cannot be determined at this point. The final determination of the tax character of distributions will not be made until we file our tax return for the tax year ending December 31, 2024. The character of income and gains that we will distribute is determined in accordance with income tax regulations that may differ from GAAP. Book and tax basis differences relating to stockholder dividend and distributions and other permanent book and tax difference are reclassified to paid-in capital.

If we do not distribute (or are not deemed to have distributed) at least 98% of our annual ordinary income and 98.2% of our capital gains in the calendar year earned, we will generally be required to pay excise tax equal to 4% of the amount by which 98% of our annual ordinary income and 98.2% of our capital gains exceed the distributions from such taxable income for the year. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated undistributed taxable income.

If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. Distribution would generally be taxable to our individual and other non-corporate taxable stockholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits provided certain holding period and other requirements are met. Subject to certain limitation under the Code, corporate distributions would be eligible for the dividend-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our stockholders our accumulated earnings and profits attributable to non RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.

We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other operating expenses in the consolidated financial statements. As of June 30, 2024, there were no uncertain tax positions and no amounts accrued for interest or penalties. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an on-going analysis of tax laws, regulations and interpretations thereof. Although we file both federal and state income tax returns, our major tax jurisdiction is federal.

Retroactive Adjustments for Common Stock Reverse Split

The Company’s Board approved a one-for-three reverse stock split of the Company’s common stock on October 30, 2018, which was effective as of close of business as of November 30, 2018 (the “Reverse Stock Split”). All common share and common per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this reverse stock split as disclosed in Note 7.

Note 5. Investments

Fair Value Measurement and Disclosures

The following table shows the composition of our investment portfolio as of June 30, 2024, with the fair value disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820:


					Fair Value Hierarchy
	Cost		Fair Value		Level 1		Level 2		Level 3
First Lien Secured Debt	$	2,222,375	$	2,202,813	$	—	$	—	$	2,202,813
Second Lien Secured Debt		15,520		13,401		—		7,955		5,446
Unsecured Debt		2,672		325		—		—		325
Structured Products and Other		44,438		34,705		—		—		34,705
Preferred Equity		25,802		32,610		—		—		32,610
Common Equity/Interests		323,558		160,328		1,745		—		158,583
Warrants		965		170		—		—		170
Total Investments	$	2,635,330	$	2,444,352	$	1,745	$	7,955	$	2,434,652
Money Market Fund	$	675	$	675	$	675	$	—	$	—
Total Cash Equivalents	$	675	$	675	$	675	$	—	$	—
Total Investments after Cash Equivalents	$	2,636,005	$	2,445,027	$	2,420	$	7,955	$	2,434,652

The following table shows the composition of our investment portfolio as of December 31, 2023, with the fair value disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820:


					Fair Value Hierarchy
	Cost		Fair Value		Level 1		Level 2		Level 3
First Lien Secured Debt	$	2,093,887	$	2,075,031	$	—	$	—	$	2,075,031
Second Lien Secured Debt		46,274		31,887		—		—		31,887
Unsecured Debt		—		—		—		—		—
Structured Products and Other		44,993		41,333		—		—		41,333
Preferred Equity		25,685		32,405		—		—		32,405
Common Equity/Interests		326,914		153,344		1,217		—		152,127
Warrants		389		199		—		—		199
Total Investments	$	2,538,142	$	2,334,199	$	1,217	$	—	$	2,332,982
Money Market Fund	$	252	$	252	$	252	$	—	$	—
Total Cash Equivalents	$	252	$	252	$	252	$	—	$	—
Total Investments after Cash Equivalents	$	2,538,394	$	2,334,451	$	1,469	$	—	$	2,332,982

The following table shows changes in the fair value of our Level 3 investments during the three months ended June 30, 2024:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other			Preferred Equity			Common Equity/Interests			Warrants			Total
Fair value as of March 31, 2024	$	2,111,478		$	5,559		$	329		$	35,639		$	32,752		$	157,406		$	258		$	2,343,421
Net realized gains (losses)		3,171			—			—			—			—			(15,700	)		—			(12,529	)
Net change in unrealized gains (losses)		(5,288	)		(265	)		(12	)		(2,725	)		(142	)		16,949			(88	)		8,429
Net amortization on investments		1,642			—			—			—			—			—			—			1,642
Purchases, including capitalized PIK (3)		245,797			152			8			2,533			—			77			—			248,567
Sales (3)		(153,987	)		—			—			(742	)		—			(149	)		—			(154,878	)
Transfers out of Level 3 (1)		—			—			—			—			—			—			—			—
Transfers into Level 3 (1)		—			—			—			—			—			—			—			—
Fair value as of June 30, 2024	$	2,202,813		$	5,446		$	325		$	34,705		$	32,610		$	158,583		$	170		$	2,434,652

Net change in unrealized gains (losses) on Level 3 investments still held as of June 30, 2024	$	(6,256	)	$	(228	)	$	42		$	(2,725	)	$	(142	)	$	1,208		$	(87	)	$	(8,188	)

The following table shows changes in the fair value of our Level 3 investments during the six months ended June 30, 2024:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other			Preferred Equity		Common Equity/Interests			Warrants			Total
Fair value as of December 31, 2023	$	2,075,031		$	31,887		$	—		$	41,333		$	32,405	$	152,127		$	199		$	2,332,982
Net realized gains (losses)		(2,787	)		273			—			—			—		(15,341	)		—			(17,855	)
Net change in unrealized gains (losses)		(707	)		12,031			(2,347	)		(6,072	)		89		9,811			(605	)		12,200
Net amortization on investments		3,574			6			—			—			—		—			—			3,580
Purchases, including capitalized PIK (3)		468,019			299			8			2,533			116		78			—			471,053
Sales (3)		(340,317	)		(31,340	)		2,664			(3,089	)		—		11,908			576			(359,598	)
Transfers out of Level 3 (1)		—			(7,710	)		—			—			—		—			—			(7,710	)
Transfers into Level 3 (1)		—			—			—			—			—		—			—			—
Fair value as of June 30, 2024	$	2,202,813		$	5,446		$	325		$	34,705		$	32,610	$	158,583		$	170		$	2,434,652

Net change in unrealized gains (losses) on Level 3 investments still held as of June 30, 2024	$	(9,558	)	$	(858	)	$	(2,347	)	$	(6,072	)	$	89	$	7,058		$	(605	)	$	(12,293	)

(1)

Transfers out (if any) of Level 3 are due to an increase in the quantity and reliability of broker quotes obtained and transfers into (if any) Level 3 are due to a decrease in the quantity and reliability of broker quotes obtained as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)

Includes unfunded commitments measured at fair value of $(4,072).

(3)

Includes reorganizations and restructuring of investments

The following table shows changes in the fair value of our Level 3 investments during the three months ended June 30, 2023:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other			Preferred Equity			Common Equity/Interests			Warrants			Total
Fair value as of March 31, 2023	$	2,114,795		$	69,357		$	31		$	10,902		$	36,611		$	151,361		$	461		$	2,383,518
Net realized gains (losses)		448			—			—			—			—			—			—			448
Net change in unrealized gains (losses)		2,381			(967	)		—			(412	)		(226	)		(2,553	)		(124	)		(1,901	)
Net amortization on investments		2,041			49			—			—			—			—			—			2,090
Purchases, including capitalized PIK (3)		208,572			—			1			29,947			—			152			—			238,672
Sales (3)		(211,871	)		—			(6	)		—			—			(3,615	)		—			(215,492	)
Transfers out of Level 3 (1)		—			—			—			—			—			—			—			—
Transfers into Level 3 (1)		—			—			—			—			—			592			—			592
Fair value as of June 30, 2023	$	2,116,366		$	68,439		$	26		$	40,437		$	36,385		$	145,937		$	337		$	2,407,927

Net change in unrealized gains (losses) on Level 3 investments still held as of June 30, 2023	$	899		$	(965	)	$	—		$	872		$	(227	)	$	(2,283	)	$	(123	)	$	(1,827	)

The following table shows changes in the fair value of our Level 3 investments during the six months ended June 30, 2023:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other		Preferred Equity		Common Equity/Interests			Warrants			Total
Fair value as of December 31, 2022	$	2,130,309		$	70,919		$	50		$	9,413	$	35,557	$	149,314		$	474		$	2,396,036
Net realized gains (losses)		2,980			(1,128	)		—			—		—		367			—			2,219
Net change in unrealized gains (losses)		2,653			21,016			(2	)		972		778		(24,287	)		(137	)		993
Net amortization on investments		4,463			160			—			—		—		(36	)		—			4,587
Purchases, including capitalized PIK (3)		360,080			—			2			30,052		50		23,625			—			413,809
Sales (3)		(384,119	)		(22,528	)		(24	)		—		—		(3,638	)		—			(410,309	)
Transfers out of Level 3 (1)		—			—			—			—		—		—			—			—
Transfers into Level 3 (1)		—			—			—			—		—		592			—			592
Fair value as of June 30, 2023	$	2,116,366		$	68,439		$	26		$	40,437	$	36,385	$	145,937		$	337		$	2,407,927

Net change in unrealized gains (losses) on Level 3 investments still held as of June 30, 2023	$	1,342		$	(1,200	)	$	(2	)	$	2,025	$	777	$	(1,799	)	$	(137	)	$	1,006

(1)

(2)

Includes unfunded commitments measured at fair value of $(4,137).

(3)

Includes reorganizations and restructuring of investments.

The following tables summarize the significant unobservable inputs the Company used to value its investments categorized within Level 3 as of June 30, 2024 and December 31, 2023. In addition to the techniques and inputs noted in the tables below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The below tables are not intended to be all-inclusive, but rather provide information on the significant unobservable inputs as they relate to the Company’s determination of fair values.

The unobservable inputs used in the fair value measurement of our Level 3 investments as of June 30, 2024 were as follows:


				Quantitative Information about Level 3 Fair Value Measurements
Asset Category		Fair Value		Valuation Techniques/Methodologies	Unobservable Input	Range		Weighted Average (1)
First Lien Secured Debt	$		1,913,912	Yield Analysis	Discount Rate	6.8%	22.4%	12.1%
			132,181	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			124,227	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			32,493	Market Comparable Technique	Comparable Multiple	3.3x	25.2x	13.7x
Second Lien Secured Debt			5,446	Market Comparable Technique	Comparable Multiple	5.8x	5.8x	5.8x
Unsecured Debt			325	Yield Analysis	Discount Rate	11.8%	11.8%	11.8%
Structured Products and Other			34,705	Yield Analysis	Discount Rate	11.3%	12.4%	11.6%
Preferred Equity			32,350	Market Comparable Technique	Comparable Multiple	0.5x	16.9x	11.7x
			241	Yield Analysis	Discount Rate	13.3%	13.3%	13.3%
			19	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
Common Equity/Interests			120,315	Yield Analysis	Discount Rate	10.5%	13.3%	10.5%
			21,034	Estimated Proceeds	Estimated Proceeds	N/A	N/A	N/A
			16,946	Market Comparable Technique	Comparable Multiple	2.8x	23.5x	11.4x
			211	Option Pricing Model	Expected Volatility	30.0%	105.0%	64.1%
			77	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
Warrants			148	Option Pricing Model	Expected Volatility	50.0%	50.0%	50.0%
			22	Market Comparable Technique	Comparable Multiple	6.5x	6.5x	6.5x
Total Level 3 Investments	$		2,434,652

_________________

(1)

The weighted average information is generally derived by assigning each disclosed unobservable input a proportionate weight based on the fair value of the related investment. For the commodity price unobservable input, the weighted average price is an undiscounted price based upon the estimated production level from the underlying reserves.

The unobservable inputs used in the fair value measurement of our Level 3 investments as of December 31, 2023 were as follows:


				Quantitative Information about Level 3 Fair Value Measurements
Asset Category		Fair Value		Valuation Techniques/Methodologies	Unobservable Input	Range		Weighted Average (1)
First Lien Secured Debt	$		59,746	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			111,468	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			1,903,817	Yield Analysis	Discount Rate	6.6%	25.1%	12.2%
Second Lien Secured Debt			2,207	Market Comparable Technique	Comparable Multiple	8.5x	8.5x	8.5x
			238	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			29,442	Yield Analysis	Discount Rate	13.7%	25.8%	17.3%
Structured Products and Other			41,333	Yield Analysis	Discount Rate	13.0%	15.6%	14.9%
Preferred Equity			31,950	Market Comparable Technique	Comparable Multiple	2.8x	12.5x	11.1x
			268	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			78	Residual Value	Residual Value	N/A	N/A	N/A
			109	Yield Analysis	Discount Rate	13.5%	13.5%	13.5%
Common Equity/Interests			12,898	Market Comparable Technique	Comparable Multiple	3.6x	26.0x	11.8x
			281	Option Pricing Model	Expected Volatility	30.0%	115.0%	59.1%
			125	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			117,454	Yield Analysis	Discount Rate	13.5%	14.3%	14.3%
			21,369	Estimated Proceeds	Estimated Proceeds	N/A	N/A	N/A
Warrants			199	Option Pricing Model	Expected Volatility	50.0%	50.0%	50.0%
Total Level 3 Investments	$		2,332,982

____________________

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity securities are primarily earnings before interest, taxes, depreciation and amortization (“EBITDA”) comparable multiples and market discount rates. The Company typically uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount rates for debt securities to determine if the effective yield on a debt security is commensurate with the market yields for that type of debt security. If a debt security’s effective yield is significantly less than the market yield for a similar debt security with a similar credit profile, the resulting fair value of the debt security may be lower. For certain investments where fair value is derived based on a recovery analysis, the Company uses underlying commodity prices from third party market pricing services to determine the fair value and/or recoverable amount, which represents the proceeds expected to be collected through asset sales or liquidation. Further, for certain investments, the Company also considered the probability of future events which are not in management’s control. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the structured products include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks. For certain investments such as warrants, the Company may use an option pricing technique, of which the applicable method is the Black-Scholes Option Pricing Method (“BSM”), to perform valuations. The BSM is a model of price variation over time of financial instruments, such as equity, that is used to determine the price of call or put options. Various inputs are required but the primary unobservable input into the BSM model is the underlying asset volatility.

Investment Transactions

For the three and six months ended June 30, 2024, purchases of investments on a trade date basis were $245,362 and $398,153, respectively. For the three and six months ended June 30, 2023, purchases of investments on a trade date basis were $101,601 and $252,659, respectively.

For the three and six months ended June 30, 2024, sales and repayments (including prepayments and unamortized fees) of investments on a trade date basis were $154,878 and $291,746, respectively. For the three and six months ended June 30, 2023, sales and repayments (including prepayments and unamortized fees) of investments on a trade date basis were $79,235 and $250,764, respectively.

PIK Income

The Company holds loans and other investments, including certain preferred equity investments, that have contractual PIK income. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. During the three and six months ended June 30, 2024, PIK income earned was $2,473 and $4,502, respectively. During the three and six months ended June 30, 2023, PIK income earned was $812 and $1,597, respectively.

The following table shows the change in capitalized PIK balance for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023				2024			2023
PIK balance at beginning of period	$	26,834	$	22,325		$		24,485	$		21,534
PIK income capitalized		2,075		811				4,424			1,602
Adjustments due to investments exited or written off		—		(19	)			—			(19	)
PIK income received in cash		—		—				—			—
PIK balance at end of period	$	28,909	$	23,117		$		28,909	$		23,117

Dividend Income on CLOs and Structured Finance Products

The Company holds structured finance products and other investments. The CLO equity investments and structured finance products are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. During the three and six months ended June 30, 2024, dividend income from structured products was $235 and $235, respectively. During the three and six months ended June 30, 2023, there was no dividend income from structured products.

Investments on Non-Accrual Status

As of June 30, 2024, 2.1% of total investments at amortized cost, or 1.5% of total investments at fair value, were on non-accrual status. 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.

Note 6. Debt and Foreign Currency Transactions and Translations

On April 4, 2018, the Company’s Board, including a “required majority” (as defined in Section 57(o) of the Investment Company Act of 1940, as amended) of the Board, approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the Investment Company Act of 1940. As a result, effective on April 4, 2019, our asset coverage requirement applicable to senior securities was reduced from 200% to 150% (i.e., the revised regulatory leverage limitation permits BDCs to double the amount of borrowings, such that we would be able to borrow up to two dollars for every dollar we have in assets less all liabilities and indebtedness not represented by senior securities issued by us).

The Company’s outstanding debt obligations as of June 30, 2024 were as follows:


	Date Issued/ Amended	Total Aggregate Principal Amount Committed			Principal Amount Outstanding				Fair Value				Final Maturity Date
Senior Secured Facility	4/19/2023	$	1,705,000	**	$	731,176		*	$	731,176	(1	)	4/19/2028
MFIC Bethesda CLO I LLC Class A-1 Notes	11/2/2023		232,000			232,000				232,909	(2	)	10/23/2035
2025 Notes	3/3/2015		350,000			350,000				346,555	(2	)	3/3/2025
2026 Notes	7/16/2021		125,000			125,000				117,907	(2	)	7/16/2026
2028 Notes	12/13/2023		80,000			80,000				80,512	(3	)	12/15/2028
Total Debt Obligations		$	2,492,000		$	1,518,176			$	1,509,059
Deferred Financing Costs and Debt Discount						(6,624	)
Total Debt Obligations, net of Deferred Financing Cost and Debt Discount					$	1,511,552

* Includes foreign currency debt obligations as outlined in Foreign Currency Transactions and Translations within this note to the consolidated financial statements.

** Prior to November 19, 2022, total lender commitments were $1,810,000. As of June 30, 2024, total lender commitments were $1,705,000. The total lender commitments will remain $1,705,000 until December 22, 2024 and will decrease to $1,550,000 thereafter.

(1)

The fair value of these debt obligations would be categorized as Level 3 under ASC 820 as of June 30, 2024. The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.

(2)

The fair value of these debt obligations would be categorized as Level 2 under ASC 820 as of June 30, 2024. The valuation is based on broker quoted prices.

(3)

The fair value of these debt obligations would be categorized as Level 1 under ASC 820 as of June 30, 2024. The valuation is arrived using the closing price on exchange as on the relevant date.

The Company’s outstanding debt obligations as of December 31, 2023 were as follows:


	Date Issued/ Amended	Total Aggregate Principal Amount Committed			Principal Amount Outstanding				Fair Value				Final Maturity Date
Senior Secured Facility	4/19/2023	$	1,705,000	**	$	682,977		*	$	682,977	(1	)	4/19/2028
Bethesda CLO 1 Class A-1	11/2/2023		232,000			232,000				232,000	(2	)	10/23/2035
2025 Notes	3/3/2015		350,000			350,000				336,013	(2	)	3/3/2025
2026 Notes	7/16/2021		125,000			125,000				114,291	(2	)	7/16/2026
2028 Notes	12/13/2023		80,000			80,000				81,600	(3	)	12/15/2028
Total Debt Obligations		$	2,492,000		$	1,469,977			$	1,446,881
Deferred Financing Costs and Debt Discount					$	(7,710	)
Total Debt Obligations, net of Deferred Financing Cost and Debt Discount					$	1,462,267

* Includes foreign currency debt obligations as outlined in Foreign Currency Transactions and Translations within this note to the consolidated financial statements.

** Prior to November 19, 2022, total lender commitments were $1,810,000. As of December 31, 2023, total lender commitments were $1,705,000.

(1)

The fair value of these debt obligations would be categorized as Level 3 under ASC 820 as of December 31, 2023. The valuation is based on a yield analysis and discount rate commensurate with the market yields for similar types of debt.

(2)

The fair value of these debt obligations would be categorized as Level 2 under ASC 820 as of December 31, 2023. The valuation is based on broker quoted prices.

(3)

The fair value of these debt obligations would be categorized as Level 1 under ASC 820 as of December 31, 2023. The valuation is arrived using the closing price on exchange as on the relevant date.

Senior Secured Facility

On April 19, 2023, the Company amended and restated its senior secured, multi-currency, revolving credit facility (the “Senior Secured Facility”), previously amended and restated as of December 22, 2020 and November 19, 2018. The amended and restated agreement extended the final maturity date through April 19, 2028. Lender commitments under the Senior Secured Facility were $1,810,000 prior to November 19, 2022 and decreased to $1,705,000 as non-extending commitments were paid down. The total lender commitments will remain $1,705,000 until December 22, 2024 and will decrease to $1,550,000 thereafter. The Senior Secured Facility includes an “accordion” feature that allows the Company to increase the size of the Facility to $2,325,000. The Senior Secured Facility is secured by substantially all of the assets in the Company’s portfolio, including cash and cash equivalents.

Commencing April 19, 2027, the Company is required to repay, in twelve consecutive monthly installments of equal size, the outstanding amount under the Senior Secured Facility as of April 19, 2027. The stated interest rates on outstanding borrowings under the Senior Secured Facility depend on the type of borrowing and the “gross borrowing base” at the time. USD borrowings accrue at (a) either Term SOFR plus 1.85% per annum or Term SOFR plus 1.975% per annum, or (b) either Alternate Base Rate plus 0.75% per annum or Alternate Base Rate plus 0.875% per annum. The Company is required to pay a commitment fee of 0.375% per annum on any unused portion of the Senior Secured Facility and fronting fees of up to 2.25% per annum on the letters of credit issued.

The Senior Secured Facility contains affirmative and restrictive covenants, events of default and other customary provisions for similar debt facilities, including: (a) periodic financial reporting requirements, (b) maintaining minimum stockholders’ equity of the greater of (i) 30% of the total assets of the Company and its consolidated subsidiaries as of the last day of any fiscal quarter and (ii) the sum of (A) $705,000 plus (B) 25% of the net proceeds from the sale of equity interests in the Company after the closing date of the Senior Secured Facility, (c) maintaining a ratio of total assets, less total liabilities (other than indebtedness) to total indebtedness, in each case of the Company and its consolidated subsidiaries, of not less than 1.5:1.0, (d) limitations on the incurrence of additional indebtedness, including a requirement to meet a certain minimum liquidity threshold before the Company can incur such additional debt, (e) limitations on liens, (f) limitations on investments (other than in the ordinary course of the Company’s business), (g) limitations on mergers and disposition of assets (other than in the normal course of the Company’s business activities), (h) limitations on the creation or existence of agreements that permit liens on properties of the Company’s consolidated subsidiaries and (i) limitations on the repurchase or redemption of certain unsecured debt and debt securities. In addition to the asset coverage ratio described in clause (c) of the preceding sentence, borrowings under the Senior Secured Facility (and the incurrence of certain other permitted debt) are subject to compliance with a borrowing base that applies different advance rates to different types of assets in the Company’s portfolio. The advance rate applicable to any specific type of asset in the Company’s portfolio will also depend on the relevant asset coverage ratio as of the date of determination. Borrowings under the Senior Secured Facility will also continue to be subject to the leverage restrictions contained in the Investment Company Act of 1940, as amended.

The Senior Secured Facility also provides for the issuance of letters of credit up to an aggregate amount of $150,000. As of June 30, 2024 and December 31, 2023, the Company had $15,982 and $17,291, respectively, in standby letters of credit issued through the Senior Secured Facility. The amount available for borrowing under the Senior Secured Facility is reduced by any standby letters of credit issued through the Senior Secured Facility. Under GAAP, these letters of credit are considered commitments because no funding has been made and as such are not considered a liability. These letters of credit are not senior securities because they are not in the form of a typical financial guarantee and the portfolio companies are obligated to refund any drawn amounts. The available remaining capacity under the Senior Secured Facility was $957,842 and $1,004,732 as of June 30, 2024 and December 31, 2023, respectively. Terms used in this disclosure have the meanings set forth in the Senior Secured Facility agreement.

Senior Unsecured Notes

2025 Notes

On March 3, 2015, the Company issued $350,000 aggregate principal amount of senior unsecured notes for net proceeds of $343,650 (the “2025 Notes”). The 2025 Notes will mature on March 3, 2025. Interest on the 2025 Notes is due semi-annually on March 3 and September 3, at an annual rate of 5.25%, commencing on September 3, 2015. The 2025 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness

2026 Notes

On July 16, 2021, the Company issued $125,000 aggregate principal amount of general unsecured notes for net proceeds of $122,965 (the “2026 Notes”). The 2026 Notes will mature on July 16, 2026. Interest on the 2026 Notes is due semi-annually on January 16 and July 16, at an annual rate of 4.50%, commencing on January 16, 2022. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future senior unsecured indebtedness.

2028 Notes

On December 13, 2023, the Company issued $80,000 aggregate principal amount of 8.00% Notes due 2028 (inclusive of $5,000 aggregate principal amount pursuant to the underwriters’ overallotment option to purchase additional Notes) (the “2028 Notes”). As of December 31, 2023, the principal amount outstanding was $80,000. The 2028 Notes will mature on December 15, 2028. The 2028 Notes bear interest at a rate of 8.00% per year, commencing December 13, 2023. The Company will pay interest on the 2028 Notes on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2024. The 2028 Notes may be redeemed in whole or in part at any time or from time to time at our option on or after December 15, 2025, at a redemption price of $25 per Note plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to, but excluding, the date fixed for redemption.

MFIC Bethesda CLO 1 LLC Debt Securitization

On November 2, 2023, the Company completed a $402,360 term debt securitization (the “Bethesda CLO 1”). Term debt securitizations are also known as collateralized loan obligations and are a form of secured financing incurred by the Company, which is consolidated by the Company for financial reporting purposes and subject to its overall asset coverage requirement. The notes offered in the Bethesda CLO 1 (collectively, the “Bethesda CLO 1 Notes”) were issued by MFIC Bethesda CLO 1 LLC (the “Bethesda CLO 1 Issuer”), an indirectly wholly-owned and consolidated (for tax and accounting purposes) subsidiary of the Company, and are primarily secured by a diversified portfolio of middle market loans and participation interests therein. The following table presents information on the secured and unsecured notes issued in the Bethesda CLO 1:


			June 30, 2024
Description	Type	Principal Outstanding			Interest Rate	Credit Rating
Class A-1 Notes	Senior Secured Floating Rate			232,000	SOFR + 2.40%	AAA(sf)/ AAAsf
Class A-2 Notes (1)	Senior Secured Floating Rate			16,000	SOFR + 2.90%	AAA(sf)
Total Secured Notes				248,000
Subordinated Notes (1)				154,360	None	NR
Total Bethesda CLO 1 Notes		$		402,360

(1) The Company retained (in the Bethesda CLO 1 Depositor) all of the Class A-2 Notes and the Subordinated Notes issued in the Bethesda CLO 1 Debt Securitization which are eliminated in consolidation.

The Company retained (in a newly formed wholly owned subsidiary of the Company (the “Bethesda CLO 1 Depositor”)) all of the Class A-2 Notes and the Subordinated Notes issued in the Bethesda CLO 1 in part in exchange for the Company’s sale and contribution to the Bethesda CLO 1 Issuer of the initial closing date portfolio. The Class A-1 Notes and the Class A-2 Notes are scheduled to mature in October 2035 and the Subordinated Notes are scheduled to mature in October 2123; however the Bethesda CLO 1 Notes may be redeemed by the Issuer, at the direction of the Bethesda CLO 1 Depositor (at the direction of the Company) as holder of the Subordinated Notes, on any business day after October 23, 2025. In connection with the sale and contribution, the Company has made customary representations, warranties and covenants to the Issuer. The Class A-1 Notes and Class A-2 Notes are secured obligations of the Bethesda CLO 1 Issuer, the Subordinated Notes are the unsecured obligations of the Bethesda CLO 1 Issuer, and the indenture governing the Bethesda CLO 1 Notes includes customary covenants and events of default.

The Bethesda CLO 1 Notes has not been, and will not be, registered under the Securities Act, or any state securities or “blue sky” laws and may not be offered or sold in the United States absent registration with the SEC or an applicable exemption from registration.

The Company serves as collateral manager to the Bethesda CLO 1 Issuer under a collateral management agreement and has agreed to irrevocably waive all collateral management fees payable pursuant to the collateral management agreement.

The following table summarizes the average and maximum debt outstanding, and the interest and debt issuance cost for the three and six months ended June 30, 2024 and 2023:


	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Average debt outstanding	$		1,439,084		$		1,466,636		$		1,404,912		$		1,459,102
Maximum amount of debt outstanding			1,511,548				1,482,511				1,511,548				1,484,362

Weighted average annualized interest cost (1)			7.05	%			6.62	%			7.05	%			6.54	%
Annualized amortized debt issuance cost			0.44	%			0.41	%			0.50	%			0.40	%
Total annualized interest cost			7.49	%			7.04	%			7.55	%			6.94	%

________________

(1)

Includes the stated interest expense and commitment fees on the unused portion of the Senior Secured Facility. Commitment fees for the three and six months ended June 30, 2024 were $958 and $1,997, respectively. Commitment fees for the three and six months ended June 30, 2023 were $625 and $1,295, respectively.

Foreign Currency Transactions and Translations

The Company had the following foreign-denominated debt outstanding on the Senior Secured Facility as of June 30, 2024:


	Original Principal Amount (Local)		Original Principal Amount (USD)		Principal Amount Outstanding		Unrealized Gain/(Loss)			Reset Date
British Pound	£	17,300	$	21,560	$	21,876	$	(316	)		7/31/2024
Total			$	21,560	$	21,876	$	(316	)

The Company had the following foreign-denominated debt outstanding on the Senior Secured Facility as of December 31, 2023:


	Original Principal Amount (Local)		Original Principal Amount (USD)		Principal Amount Outstanding		Unrealized Gain/(Loss)			Reset Date
British Pound	£	36,900	$	45,909	$	46,977	$	(1,068	)		1/31/2024
Total			$	45,909	$	46,977	$	(1,068	)

As of June 30, 2024 and December 31, 2023, the Company was in compliance with all debt covenants for all outstanding debt obligations.

To the stockholders and Board of Directors of MidCap Financial Investment Corporation

We have reviewed the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, of MidCap Financial Investment Corporation (the “Company”) as of June 30, 2024, the related consolidated statements of operations and changes in net assets for the three-month and six-month periods ended June 30, 2024 and 2023, the consolidated statements of cash flows and the financial highlights for the six-month periods ended June 30, 2024 and 2023, and the related notes (collectively referred to as the "interim financial information"). Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial information for it to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statement of assets and liabilities, including the consolidated schedule of investments, of the Company as of December 31, 2023, the related consolidated statements of operations, changes in net assets, and cash flows for the year then ended (not presented herein), and the financial highlights for the year then ended (not presented herein); and in our report dated February 26, 2024, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated statement of assets and liabilities, including the consolidated schedule of investments, as of December 31, 2023, is fairly stated, in all material respects, in relation to the consolidated statement of assets and liabilities, including the consolidated schedule of investments, from which it has been derived.

This interim financial information is the responsibility of the Company's management. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our reviews in accordance with standards of the PCAOB. A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the PCAOB, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this report. Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission (“SEC”), including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

MidCap Financial Investment Corporation (the “Company,” “MFIC,” “we,” “us,” or “our”) was incorporated under the Maryland General Corporation Law in February 2004. We have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” including securities of private or thinly traded public U.S. companies, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Pursuant to this election and assuming we qualify as a RIC, we generally do not have to pay corporate-level federal income taxes on any income we distribute to our stockholders. We commenced operations on April 8, 2004 upon completion of our initial public offering that raised $870 million in net proceeds from selling 62 million shares of common stock at a price of $15.00 per share (20.7 million shares at a price of $45.00 per share adjusted for the one-for-three reverse stock split). Since then, and through June 30, 2024, we have raised approximately $2.24 billion in net proceeds from additional offerings of common stock and we have repurchased common stock for $248.1 million.

On August 1, 2022, the Company changed its name from “Apollo Investment Corporation” to “MidCap Financial Investment Corporation.” Our common stock began to trade under the ticker “MFIC” on the NASDAQ Global Stock Market on August 12, 2022.

Apollo Investment Management, L.P. (the “Investment Adviser” or “AIM”) is our investment adviser and an affiliate of Apollo Global Management, Inc. and its consolidated subsidiaries (“AGM”). The Investment Adviser, subject to the overall supervision of our Board of Directors (the “Board”) , manages the day-to-day operations of, and provides investment advisory services to the Company. AGM and other affiliates manage other funds that may have investment mandates that are similar, in whole or in part, with ours. AIM and its affiliates may determine that an investment is appropriate both for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, AIM may determine that we should invest on a side-by-side basis with one or more other funds. We make all such investments subject to compliance with applicable regulations and interpretations, and our allocation procedures. Certain types of negotiated co-investments may be made only in accordance with the terms of the exemptive order (the “Order”) we received from the SEC permitting us to do so. Under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must be able to reach certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our Board’s approved criteria. In certain situations where co-investment with one or more funds managed by AIM or its affiliates is not covered by the Order, the personnel of AIM or its affiliates will need to decide which fund will proceed with the investment. Such personnel will make these determinations based on allocation policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations. The Order is subject to certain terms and conditions so there can be no assurance that we will be permitted to co-invest with certain of our affiliates other than in the circumstances currently permitted by regulatory guidance and the Order.

Apollo Investment Administration, LLC (the “Administrator” or “AIA”), an affiliate of AGM, provides, among other things, administrative services and facilities for the Company. In addition to furnishing us with office facilities, equipment, and clerical, bookkeeping and recordkeeping services, AIA also oversees our financial records as well as prepares our reports to stockholders and reports filed with the SEC. AIA also performs the calculation and publication of our net asset value, the payment of our expenses and oversees the performance of various third-party service providers and the preparation and filing of our tax returns. Furthermore, AIA provides on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance.

Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment, the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). As of June 30, 2024, non-qualifying assets represented approximately 5.2% of the total assets of the Company.

We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may acquire in portfolio companies. Our debt investments, whether in the form of mezzanine or senior secured loans, generally have a stated term of five to ten years and bear interest at a fixed rate or a floating rate usually determined on the basis of a benchmark, such as SOFR, the federal funds rate, or the prime rate. Interest on debt securities is generally payable quarterly or semiannually and while U.S. subordinated debt and corporate notes typically accrue interest at fixed rates, some of our investments may include zero coupon and/or step-up bonds that accrue income on a constant yield to call or maturity basis. In addition, some of our investments provide for payment-in-kind (“PIK”) interest or dividends. Such amounts of accrued PIK interest or dividends are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.

For all investment professionals of AIM and their staff, when and to the extent engaged in providing investment advisory and management services to us, the compensation and routine overhead expenses of that personnel which is allocable to those services are provided and paid for by AIM. We bear all other costs and expenses of our operations and transactions, including those relating to:

We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.

Our portfolio and investment activity during the three and six months ended June 30, 2024 and 2023, was as follows:

Our portfolio composition and weighted average yields as of June 30, 2024 and December 31, 2023 were as follows:

Since the initial public offering of the Company in April 2004 and through June 30, 2024, invested capital totaled $24.3 billion in 652 portfolio companies. Over the same period, the Company completed transactions with more than 100 different financial sponsors.

On July 22, 2024, we completed our previously announced acquisition of AFT. Pursuant to the AFT Merger Agreement, AFT Merger Sub was first merged with and into AFT, with AFT continuing as the surviving company, and, following the effectiveness of the AFT First Merger, AFT was then merged with and into us, with us continuing as the surviving company. In accordance with the terms of the AFT Merger Agreement, at the effective time of the AFT First Merger, each outstanding share of common stock, par value $0.001 per share, of AFT was converted into the right to receive 0.9547 shares of our common stock, par value $0.001 per share. As a result, we issued an aggregate of approximately 14,868,092 shares of its common stock to AFT’s former stockholders, excluding the impact for cash paid in lieu of fractional shares.

The AFT Mergers were considered asset acquisitions under generally accepted accounting principles with us being the accounting survivor. The AFT Mergers were accounted for under the asset acquisition method of accounting by us in accordance with ASC 805-50. Under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. Per ASC 805-50-30-1, assets are recognized based on their cost to the acquiring entity, which generally includes transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s records. ASC 805-50-30-2 provides that asset acquisitions in which the consideration given is cash are measured by the amount of cash paid. However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the cost to the acquiring entity or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measured.

The Company determined the fair value of the shares of the Company's common stock that were issued to former AFT shareholders pursuant to the AFT Merger Agreement plus transaction costs to be the consideration paid in connection with the AFT Mergers under ASC 805. The consideration paid to AFT shareholders was less than the aggregate fair values of the AFT assets acquired and liabilities assumed, which resulted in a purchase discount. The consideration paid was allocated to the individual AFT assets acquired and liabilities assumed based on the relative fair values of net identifiable assets acquired other than “non-qualifying” assets and liabilities (for example, cash) and did not give rise to goodwill. As a result, the purchase discount was allocated to the cost basis of the AFT investments acquired by the Company on a pro-rata basis based on their relative fair values as of the effective time of the AFT Mergers. Immediately following the AFT Mergers, the investments were marked to their respective fair values in accordance with ASC 820 which resulted in immediate recognition of net unrealized appreciation in the Consolidated Statement of Operations as a result of the AFT Mergers. The purchase discount allocated to the AFT debt investments acquired will amortize over the remaining life of each respective debt investment through interest income, with a corresponding adjustment recorded to unrealized appreciation or depreciation on such investment acquired through its ultimate disposition. The purchase discount allocated to AFT equity investments acquired will not amortize over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, the Company may recognize a realized gain or loss with a corresponding reversal of the unrealized appreciation on disposition of such equity investments acquired.

On July 22, 2024, we completed our previously announced acquisition of AIF. Pursuant to the AIF Merger Agreement, AIF Merger Sub was first merged with and into AIF, with AIF continuing as the surviving company, and, following the effectiveness of the AIF First Merger, AIF was then merged with and into us, with us continuing as the surviving company. In accordance with the terms of the AIF Merger Agreement, at the effective time of the AIF First Merger, each outstanding share of common stock, par value $0.001 per share, of AIF was converted into the right to receive 0.9441 shares of our common stock, par value $0.001 per share. As a result, we issued an aggregate of approximately 13,658,992 shares of its common stock to AIF’s former stockholders, excluding the impact for cash paid in lieu of fractional shares.

The AIF Mergers were considered asset acquisitions under generally accepted accounting principles with the Company being the accounting survivor. The AIF Mergers were accounted for under the asset acquisition method of accounting by the Company in accordance with ASC 805-50. Under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. Per ASC 805-50-30-1, assets are recognized based on their cost to the acquiring entity, which generally includes transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets’ carrying amounts on the acquiring entity’s records. ASC 805-50-30-2 provides that asset acquisitions in which the consideration given is cash are measured by the amount of cash paid. However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the cost to the acquiring entity or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measured.

The Company determined the fair value of the shares of the Company's common stock that were issued to former AIF shareholders pursuant to the AIF Merger Agreement plus transaction costs to be the consideration paid in connection with the AIF Mergers under ASC 805. The consideration paid to AIF shareholders was less than the aggregate fair values of the AIF assets acquired and liabilities assumed, which resulted in a purchase discount. The consideration paid was allocated to the individual AIF assets acquired and liabilities assumed based on the relative fair values of net identifiable assets acquired other than “non-qualifying” assets and liabilities (for example, cash) and did not give rise to goodwill. As a result, the purchase discount was allocated to the cost basis of the AIF investments acquired by the Company on a pro-rata basis based on their relative fair values as of the effective time of the AIF Mergers. Immediately following the AIF Mergers, the investments were marked to their respective fair values in accordance with ASC 820 which resulted in immediate recognition of net unrealized appreciation in the Consolidated Statement of Operations as a result of the AIF Mergers. The purchase discount allocated to the AIF debt investments acquired will amortize over the remaining life of each respective debt investment through interest income, with a corresponding adjustment recorded to unrealized appreciation or depreciation on such investment acquired through its ultimate disposition. The purchase discount allocated to AIF equity investments acquired will not amortize over the life of such investments through interest income and, assuming no subsequent change to the fair value of the equity investments acquired and disposition of such equity investments at fair value, the Company may recognize a realized gain or loss with a corresponding reversal of the unrealized appreciation on disposition of such equity investments acquired.

In connection with the Mergers, on July 21, 2024, our Board declared a special distribution of $0.20 per share of common stock, which will be paid on August 15, 2024 to stockholders of record as of August 5, 2024.

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, gains and losses. Changes in the economic environment, financial markets, credit worthiness of portfolio companies and any other parameters used in determining such estimates could cause actual results to differ materially. In addition to the discussion below, our significant accounting policies are further described in the notes to the consolidated financial statements.

maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

As of June 30, 2024, $2.43 billion or 99.6% of the Company’s investments were classified as Level 3. The high proportion of Level 3 investments relative to our total investments is directly related to our investment philosophy and target portfolio, which consists primarily of long-term secured debt, as well as unsecured and mezzanine positions of private middle-market companies. A fundamental difference exists between our investments and those of comparable publicly traded fixed income investments, namely high-yield bonds, and this difference affects the valuation of our private investments relative to comparable publicly traded instruments.

Senior secured loans, or senior loans, are higher in the capital structure than high-yield bonds, and are typically secured by assets of the borrowing company. This improves their recovery prospects in the event of default and affords senior loans a structural advantage over high-yield bonds. Many of the Company’s investments are also privately negotiated and contain covenant protections that limit the issuer to take actions that could harm us as a creditor. High-yield bonds typically do not contain such covenants.

Given the structural advantages of capital seniority and covenant protection, the valuation of our private debt portfolio is driven more by investment specific credit factors than movements in the broader debt capital markets. Each security is evaluated individually and as indicated below, we value our private investments based upon a multi-step valuation process, including valuation recommendations from independent valuation firms.

Pursuant to Rule 2a-5 under the 1940 Act, the Company’s Board has designated the Investment Adviser as its “valuation designee” to perform the fair value determinations for all investments held by the Company. The Company's Board continues to be responsible for overseeing the processes for determining fair valuation.

Under the Company's valuation policies and procedures, the Investment Adviser values investments, including certain secured debt, unsecured debt, and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker, primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are unavailable or are deemed not to represent fair value, we typically utilize independent third party valuation firms to assist us in determining fair value. Accordingly, such investments go through our multi-step valuation process as described below. In each case, our independent third party valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations for such investments. Investments purchased within the quarter before the valuation date and debt investments with remaining maturities of 60 days or less may each be valued at cost with interest accrued or discount accreted/premium amortized to the date of maturity (although they are typically valued at available market quotations), unless such valuation, in the judgment of our Investment Adviser, does not represent fair value. In this case, such investments shall be valued at fair value as determined in good faith by or under the direction of the Investment Adviser, including using market quotations where available. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of the Investment Adviser. Such determination of fair values may involve subjective judgments and estimates.

Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, seniority of investment in the investee company’s capital structure, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When readily available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. During the six months ended June 30, 2024, there were no significant changes to the Company’s valuation techniques and related inputs considered in the valuation process.

Because there is not a readily available market value for most of the investments in our portfolio, substantially all of our portfolio investments are valued at fair value as determined in good faith by our investment adviser, as the valuation designee, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had an active market existed for such investments and may differ materially from the values that we may ultimately realize.

In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Operating results for the three and six months ended June 30, 2024 and 2023 were as follows:

(1) Based on the weighted average number of shares outstanding for the period presented.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023

The increase in total investment income for the three months ended June 30, 2024 compared to the three months ended June 30, 2023 was primarily driven by increase in interest income (including PIK) of $0.5 million. The increase in total interest income was due to an increase in the average yield for the total debt portfolio, from 11.6% for the three months ended June 30, 2023 to 11.9% for the three months ended June 30, 2024. Prepayment fees and income recognized from the acceleration of discount, premium, or deferred fees on repaid investments increased from $0.6 million for the three months ended June 30, 2023 to $3.2 million for the three months ended June 30, 2024.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023

The increase in total investment income for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by increase in interest income (including PIK) of $1.5 million. The increase in total interest income was due to an increase in the average yield for the total debt portfolio, from 11.3% for the six months ended June 30, 2023 to 12.0% for the six months ended June 30, 2024. Prepayment fees and income recognized from the acceleration of discount, premium, or deferred fees on repaid investments increased from $3.3 million for the six months ended June 30, 2023 to $5.3 million for the six months ended June 30, 2024.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023

Net expenses decreased by $0.1 million for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The decrease in administrative services expense and decrease in management fee and performance-based incentive fee was partially offset by the increase in interest and other debt expenses of $1.1 million. The decrease of $0.5 million in management and performance-based incentive fees (net of amounts waived) was driven by lower incentive fee resulted from lower pre-incentive fee net investment income. Further, the increase in interest and other debt expenses was attributed to an increase in the total annualized cost of debt, from 7.04% for the three months ended June 30, 2023 to 7.49% for the three months ended June 30, 2024 which was partially offset by decrease in average debt outstanding from $1.47 billion as of June 30, 2023 to $1.44 billion as of June 30, 2024.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023

The increase in net expenses for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 was primarily driven by the increase in interest and other debt expenses of $2.7 million which was partially offset by the decrease in administrative services expense. The increase in interest and other debt expenses was attributed to an increase in the total annualized cost of debt, from 6.94% for the six months ended June 30, 2023 to 7.55% for the six months ended June 30, 2024 which was partially offset by decrease in average debt outstanding from $1.46 billion as of June 30, 2023 to $1.40 billion as of June 30, 2024.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023

During the three months ended June 30, 2024, we recognized gross realized gains of $0.1 million and gross realized losses of $15.7 million, resulting in net realized losses of $15.6 million. Net realized losses for the three months ended June 30, 2024 was primarily driven by the write off of the Company's investment in MSEA Tankers LLC. Significant realized gains (losses) for the three months ended June 30, 2024 are summarized below:

During the three months ended June 30, 2023, we recognized gross realized gains of $0.0 million and gross realized losses of $0.2 million, resulting in net realized losses of $0.2 million. There were no significant realized gains (losses) for the three months ended June 30, 2023.

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023

During the six months ended June 30, 2024, we recognized gross realized gains of $0.6 million and gross realized losses of $24.3 million, resulting in net realized losses of $23.7 million. Net realized losses for the six months ended June 30, 2024 was primarily driven by the write off of the Company's investment in MSEA Tankers LLC and ViewRay. Significant realized gains (losses) for the six months ended June 30, 2024 are summarized below:

During the six months ended June 30, 2023, we recognized gross realized gains of $0.1 million and gross realized losses of $1.1 million, resulting in net realized losses of $1.0 million. There were no significant realized gains (losses) for the six months ended June 30, 2023.

For the three months ended June 30, 2024 as compared to the three months ended June 30, 2023

During the three months ended June 30, 2024, we recognized gross unrealized gains of $23.8 million and gross unrealized losses of $15.1 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized gains of $8.7 million. Net change in unrealized gains (losses) for the three months ended June 30, 2024 was primarily driven by the write off of MSEA Tankers LLC and the financial under-performance of US Auto, Renovo and PHS. Significant changes in unrealized gains (losses) for the three months ended June 30, 2024 are summarized below:

During the three months ended June 30, 2023, we recognized gross unrealized gains of $8.2 million and gross unrealized losses of $11.5 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized losses of $3.3 million. Net change in unrealized gains (losses) for the three months ended June 30, 2023 was primarily driven by the financial under-performance of Ambrosia Buyer Group and widening credit spreads. Significant changes in unrealized gains (losses) for the three months ended June 30, 2023 are summarized below:

For the six months ended June 30, 2024 as compared to the six months ended June 30, 2023

During the six months ended June 30, 2024, we recognized gross unrealized gains of $42.2 million and gross unrealized losses of $28.5 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized gains of $13.7 million. Net change in unrealized gains for the six months ended June 30, 2024 was primarily driven by write off of MSEA Tankers LLC and ViewRay, the increase in cashflows and new lease extensions from Merx Aviation Finance, partially offset by the underperformance of US Auto, International Cruise & Excursion Gallery and Naviga. Significant changes in unrealized gains (losses) for the six months ended June 30, 2024 are summarized below:

During the six months ended June 30, 2023, we recognized gross unrealized gains of $14.2 million and gross unrealized losses of $16.0 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized losses of $1.8 million. Net change in unrealized gains (losses) for the six months ended June 30, 2023 was primarily driven by the financial under-performance of Ambrosia Buyer Group and Berner Foods and widening credit spreads. Significant changes in unrealized gains (losses) for the six months ended June 30, 2023 are summarized below:

The Company’s liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, our Senior Secured Facility (as defined in Note 6 to the consolidated financial statements), our senior secured notes, our senior unsecured notes, investments in special purpose entities in which we hold and finance particular investments on a non-recourse basis, as well as from cash flows from operations, investment sales of liquid assets and repayments of senior and subordinated loans and income earned from investments.

We believe that our current cash and cash equivalents on hand, our short-term investments, proceeds from the sale of our 2025 Notes, 2026 Notes, 2028 Notes and Bethesda CLO 1, our available borrowing capacity under our Senior Secured Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months.

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain money market funds, U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents (See Note 2 to the consolidated financial statements) At the end of each fiscal quarter, we consider taking proactive steps utilizing cash equivalents with the objective of enhancing our investment flexibility during the following quarter, pursuant to Section 55 of the 1940 Act. More specifically, we may purchase U.S. Treasury bills from time-to-time on the last business day of the quarter and typically close out that position on the following business day, settling the sale transaction on a net cash basis with the purchase, subsequent to quarter end. The Company may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our Senior Secured Facility, as we deem appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined.

See Note 6 to the consolidated financial statements for information on the Company’s debt.

The following table shows the contractual maturities of our debt obligations as of June 30, 2024:

See Note 7 to the consolidated financial statements for information on the Company’s public offerings and share repurchase plans.

Distributions paid to stockholders during the three and six months ended June 30, 2024 totaled $24.8 million ($0.38 per share) and $49.6 million ($0.76 per share), respectively. Distributions paid to stockholders during the three and six months ended June 30, 2023 totaled $24.8 million ($0.38 per share) and $49.7 million ($0.76 per share), respectively. For income tax purposes, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. Although the tax character of distributions paid to stockholders through June 30, 2024 may include return of capital, the exact amount cannot be determined at this point. The final determination of the tax character of distributions will not be made until we file our tax return for the tax year ended December 31, 2024. Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Our quarterly distributions, if any, will be determined by our Board.

To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. Currently, we have substantial net capital loss carryforwards and consequently do not expect to generate cumulative net capital gains in the foreseeable future.

We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a dividend, then stockholders’ cash dividends will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash dividends.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a BDC, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare dividends if we default under certain provisions or fail to satisfy certain other conditions. If we do not distribute a certain percentage of our income annually, we may suffer adverse tax consequences, including possible loss of the tax benefits available to us as a RIC. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual PIK, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may not be able to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC.

With respect to the distributions to stockholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, distributed to stockholders.

For the three and six months ended June 30, 2024, PIK income totaled $2.5 million and $4.5 million on total investment income of $69.2 million and $137.5 million, respectively. For the three and six months ended June 30, 2023, PIK income totaled $0.8 million and $1.6 million on total investment income of $68.6 million and $136.4 million, respectively. In order to maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders annually in the form of distributions, even though the Company has not yet collected the cash. See Note 5 to the consolidated financial statements for more information on the Company’s PIK income.

See Note 3 to the consolidated financial statements for information on the Company’s related party transactions.

We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.

Because there is not a readily available market value for most of the investments in our portfolio, we value all of our portfolio investments at fair value as determined in good faith by our Board based on, among other things, the input of our management and audit committee and independent valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotation (with certain de minimis exceptions). Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” and “—Fair Value Measurements” as well as Notes 2 and 5 to our financial statements for the three and six months ended June 30, 2024 for more information relating to our investment valuation.

Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

As of June 30, 2024, the majority of our debt portfolio investments bore interest at variable rates, which generally are SOFR-based (or based on an equivalent applicable currency rate) and typically have durations of one to six months after which they reset to current market interest rates, and many of which are subject to certain floors. Further, our Senior Secured Facility and Class A-1 Notes under the CLO bears interest at SOFR rates with no interest rate floors, while our 2025 Notes, 2026 Notes and 2028 Notes bears interest at a fixed rate.

We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.

The following table shows the estimated annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for variable rate instruments) to our loan portfolio and outstanding debt as of June 30, 2024, assuming no changes in our investment and borrowing structure:

We may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.

As of June 30, 2024 (the end of the period covered by this report), we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the 1934 Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of such possible controls and procedures.

Management has not identified any change in the Company’s internal control over financial reporting that occurred during the three months ended June 30, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

We are not currently subject to any material legal proceedings, nor, to our knowledge are any material legal proceedings threatened against us. From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters if they arise would materially affect our business, financial condition or results of operations, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources.

The Company adopted the following plans, approved by the Board, for the purpose of repurchasing its common stock in accordance with applicable rules specified in the 1934 Act (the “Repurchase Plans”):

The Repurchase Plans were designed to allow the Company to repurchase its shares both during its open window periods and at times when it otherwise might be prevented from doing so under applicable insider trading laws or because of self-imposed trading blackout periods. A broker selected by the Company will have the authority under the terms and limitations specified in an agreement with the Company to repurchase shares on the Company’s behalf in accordance with the terms of the Repurchase Plans. Repurchases are subject to SEC regulations as well as certain price, market volume and timing constraints specified in the Repurchase Plans. Pursuant to the Repurchase Plans, the Company may from time to time repurchase a portion of its shares of common stock and the Company is hereby notifying stockholders of its intention as required by applicable securities laws.

Under the Repurchase Plans described above, the Company allocated the following amounts to be repurchased in accordance with SEC Rule 10b5-1 (the “10b5-1 Repurchase Plans”):

The following table presents information with respect to the Company’s purchases of its common stock since adoption of the Repurchase Plans through June 30, 2024:

During the fiscal quarter ended June 30, 2024, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 7, 2024.