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Filed Pursuant to Rule 497
Registration Statement No. 333-223483

PROSPECTUS SUPPLEMENT
(to Prospectus dated April 27, 2018)

LOGO

Up to 4,500,000 Shares
Common Stock



          We have entered into separate equity distribution agreements, each dated May 10, 2018, with Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC, each a "Sales Agent" and, collectively, the "Sales Agents," relating to the shares of common stock offered by this prospectus supplement and the accompanying prospectus. The equity distribution agreements provide that we may offer and sell up to 4,500,000 shares of our common stock from time to time through the Sales Agents. Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be "at the market," as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on the New York Stock Exchange ("NYSE") or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices. See "Plan of Distribution." As of the date of this prospectus supplement, we have not sold any shares of our common stock under the equity distribution agreements.

          We are a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. Our LMM companies generally have annual revenues between $10 million and $150 million, and our LMM portfolio investments generally range in size from $5 million to $50 million. Our Middle Market investments are made in businesses that are generally larger in size than our LMM portfolio companies, with annual revenues typically between $150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million.

          The LMM and Middle Market securities in which we invest generally would be rated below investment grade if they were rated by rating agencies. Below investment grade securities, which are often referred to as "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. They may also be difficult to value and are illiquid.

          Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company.

          We are an internally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended.

          Our common stock is listed on the NYSE under the symbol "MAIN." On May 9, 2018, the last reported sale price of our common stock on the NYSE was $38.57 per share, and the net asset value per share of our common stock on March 31, 2018 (the last date prior to the date of this prospectus supplement on which we determined our net asset value per share) was $23.67.

          Under the terms of the equity distribution agreements, the Sales Agents will receive a commission from us equal to up to 1.0% of the gross sales price of any shares of our common stock sold through the Sales Agents under the equity distribution agreements. The Sales Agents are not required to sell any specific number or dollar amount of common stock, but will use their commercially reasonable efforts consistent with their sales and trading practices to sell the shares of our common stock offered by this prospectus supplement and the accompanying prospectus. We may also sell shares of our common stock to a Sales Agent, as principal for its own respective account, at a price agreed upon at the time of sale. If we sell shares to a Sales Agent as principal, we will enter into a separate terms agreement with the applicable Sales Agent, setting forth the terms of such transaction, and we will describe the agreement in a separate prospectus supplement. See "Plan of Distribution" beginning on page S-34 of this prospectus supplement.

          Investing in our common stock involves a high degree of risk, and should be considered highly speculative. See "Risk Factors" beginning on page 15 of the accompanying prospectus to read about factors you should consider, including the risk of leverage and dilution, before investing in our common stock.

          This prospectus supplement and the accompanying prospectus contain important information about us that a prospective investor should know before investing in our common stock. Please read this prospectus supplement and the accompanying prospectus before investing and keep them for future reference. We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission, or SEC. This information is available free of charge by contacting us at 1300 Post Oak Boulevard, 8th Floor, Houston, Texas 77056 or by telephone at (713) 350-6000 or on our website at www.mainstcapital.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider that information to be part of this prospectus supplement or the accompanying prospectus. The SEC also maintains a website at www.sec.gov that contains such information.

          Neither the Securities and Exchange Commission nor any state securities commission, nor any other regulatory body, has approved or disapproved of these securities or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

GOLDMAN SACHS & CO. LLC   RAYMOND JAMES   RBC CAPITAL MARKETS

BB&T CAPITAL MARKETS

The date of this prospectus supplement is May 10, 2018


Table of Contents


TABLE OF CONTENTS

Prospectus Supplement


Prospectus

 
  Page  

Prospectus Summary

    1  

Fees and Expenses

    13  

Risk Factors

    15  

Cautionary Statement Concerning Forward-Looking Statements

    42  

Use of Proceeds

    43  

Price Range of Common Stock and Distributions

    44  

Ratios of Earnings to Fixed Charges

    50  

Selected Financial Data

    51  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    53  

Senior Securities

    79  

Business

    80  

Portfolio Companies

    93  

Management

    121  

Certain Relationships and Related Party Transactions

    148  

Control Persons and Principal Stockholders

    148  

Sales of Common Stock Below Net Asset Value

    151  

Dividend Reinvestment and Direct Stock Purchase Plan

    156  

Description of Common Stock

    157  

Description of Our Preferred Stock

    164  

Description of Our Subscription Rights

    165  

Description of Our Debt Securities

    166  

Material U.S. Federal Income Tax Considerations

    180  

Regulation

    188  

Plan of Distribution

    194  

Custodian, Transfer and Distribution Paying Agent and Registrar

    195  

Brokerage Allocation and Other Practices

    195  

Legal Matters

    196  

Independent Registered Public Accounting Firm

    196  

Available Information

    196  

Privacy Notice

    196  

Index to Financial Statements

    F-1  

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ABOUT THE PROSPECTUS

        This document is in two parts. The first part is this prospectus supplement, which describes the terms of this offering of common stock and also adds to and updates information contained in the accompanying prospectus. The second part is the accompanying prospectus, which provides more information about us and related matters. To the extent the information contained in this prospectus supplement differs from the information contained in the accompanying prospectus, the information in this prospectus supplement shall control.

        You should rely only on the information contained in this prospectus supplement and the accompanying prospectus. Neither we nor the Sales Agents have authorized any other person to provide you with different information from that contained in this prospectus supplement or the accompanying prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. This prospectus supplement and the accompanying prospectus do not constitute an offer to sell, or a solicitation of an offer to buy, any shares of our common stock by any person in any jurisdiction where it is unlawful for that person to make such an offer or solicitation or to any person in any jurisdiction to whom it is unlawful to make such an offer or solicitation. The information contained in this prospectus supplement and the accompanying prospectus is complete and accurate only as of their respective dates, regardless of the time of their delivery or sale of our common stock. This prospectus supplement supersedes the accompanying prospectus to the extent it contains information different from or additional to the information in that prospectus.

Forward-Looking Statements

        Information contained in this prospectus supplement and the accompanying prospectus may contain forward-looking statements, which can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "anticipate," "estimate," or "continue" or the negative thereof or other variations thereon or comparable terminology. The matters described in the section titled "Risk Factors" in the accompanying prospectus and certain other factors noted throughout this prospectus supplement and the accompanying prospectus constitute cautionary statements identifying important factors with respect to any such forward-looking statements, including certain risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. We undertake no obligation to revise or update any forward-looking statements but advise you to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. We note that the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995 does not apply to statements made in this prospectus supplement or the accompanying prospectus.

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PROSPECTUS SUMMARY

        This summary highlights some of the information in this prospectus supplement and the accompanying prospectus. It is not complete and may not contain all of the information that you may want to consider. To understand the terms of the common stock offered hereby, you should read the entire prospectus supplement and the accompanying prospectus carefully. Together, these documents describe the specific terms of the shares we are offering. You should carefully read the sections titled "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Financial Statements" and "Risk Factors," as well as the documents identified in the section titled "Available Information," in the accompanying prospectus.

Organization

        Main Street Capital Corporation ("MSCC") is a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. The portfolio investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its LMM portfolio. MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the United States.

        MSCC was formed in March 2007 to operate as an internally managed business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). MSCC wholly owns several investment funds, including Main Street Mezzanine Fund, LP ("MSMF"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and MSC II, the "Funds"), and each of their general partners. The Funds are each licensed as a Small Business Investment Company ("SBIC") by the United States Small Business Administration ("SBA"). Because MSCC is internally managed, all of the executive officers and other employees are employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the operating costs associated with employing investment and portfolio management professionals.

        MSC Adviser I, LLC (the "External Investment Manager") was formed in November 2013 as a wholly owned subsidiary of MSCC to provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies ("External Parties") and receives fee income for such services. MSCC has been granted no-action relief by the Securities and Exchange Commission ("SEC") to allow the External Investment Manager to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended. Since the External Investment Manager conducts all of its investment management activities for External Parties, it is accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated financial statements.

        MSCC has elected to be treated for U.S. federal income tax purposes as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.

        MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries"). The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies which are "pass-through" entities for tax purposes.

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        Unless otherwise noted or the context otherwise indicates, the terms "we," "us," "our," the "Company" and "Main Street" refer to MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.

Overview

        Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. Our LMM companies generally have annual revenues between $10 million and $150 million, and our LMM portfolio investments generally range in size from $5 million to $50 million. Our Middle Market investments are made in businesses that are generally larger in size than our LMM portfolio companies, with annual revenues typically between $150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our private loan ("Private Loan") portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis. Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio.

        We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company's capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options, or a "one stop" financing solution. Providing customized, "one stop" financing solutions is important to LMM portfolio companies. We generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Our LMM portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date.

        Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies that are generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

        Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals." Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

        Our other portfolio ("Other Portfolio") investments primarily consist of investments which are not consistent with the typical profiles for our LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties. In our Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.

        Our external asset management business is conducted through the External Investment Manager. The External Investment Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the performance of the funds managed. We have entered into an agreement with the External Investment Manager to share

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employees in connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc. ("HMS Income"). Through this agreement, we share employees with the External Investment Manager, including their related infrastructure, business relationships, management expertise and capital raising capabilities.

        Our portfolio investments are generally made through MSCC and the Funds. MSCC and the Funds share the same investment strategies and criteria, although they are subject to different regulatory regimes (see "Regulation" in the accompanying prospectus). An investor's return in MSCC will depend, in part, on the Funds' investment returns as they are wholly owned subsidiaries of MSCC.

        The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals, our ability to identify new investment opportunities that meet our investment criteria, and our ability to consummate the identified opportunities. The level of new investment activity, and associated interest and fee income, will directly impact future investment income. In addition, the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long term, our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results.

        Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our Investment Portfolio.

        During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is the investment advisor to HMS Income, a non-listed BDC, to provide certain investment advisory services to HMS Adviser. In December 2013, after obtaining required no-action relief from the SEC to allow us to own a registered investment adviser, we assigned the sub-advisory agreement to the External Investment Manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to maintain our RIC tax treatment. Under the investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with HMS Income.

        During April 2014, we received an exemptive order from the SEC permitting co-investments by us and HMS Income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made, and in the future intend to continue to make, such co-investments with HMS Income in accordance with the conditions of the order. The order requires, among other things, that we and the External Investment Manager consider whether each such investment opportunity is appropriate for HMS Income and, if it is appropriate, to propose an allocation of the investment opportunity between us and HMS Income. Because the External Investment Manager may receive performance-based fee compensation from HMS Income, this may provide it an incentive to allocate opportunities to HMS Income instead of us. However, both we and the External Investment Manager have policies and procedures in place to manage this conflict.

        You should be aware that investments in our portfolio companies carry a number of risks including, but not limited to, investing in companies which may have limited operating histories and

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financial resources and other risks common to investing in below investment grade debt and equity investments in private, smaller companies. Please see "Risk Factors—Risks Related to Our Investments" in the accompanying prospectus for a more complete discussion of the risks involved with investing in our portfolio companies.

        Our principal executive offices are located at 1300 Post Oak Boulevard, 8th Floor, Houston, Texas 77056, and our telephone number is (713) 350-6000. We maintain a website at http://www.mainstcapital.com. Information contained on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus, and you should not consider that information to be part of this prospectus supplement or the accompanying prospectus.

Business Strategies

        Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments and capital appreciation from our equity and equity related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. We have adopted the following business strategies to achieve our investment objective. Please see "Business—Business Strategies" in the accompanying prospectus for a more complete discussion of our business strategies.

    Deliver Customized Financing Solutions in the Lower Middle Market.  We offer LMM portfolio companies customized debt and equity financing solutions that are tailored to the facts and circumstances of each situation.

    Focus on Established Companies.  We generally invest in companies with established market positions, experienced management teams and proven revenue streams.

    Leverage the Skills and Experience of Our Investment Team.  Our investment team has significant experience in lending to and investing in LMM and Middle Market companies.

    Invest Across Multiple Companies, Industries, Regions and End Markets.  We seek to maintain a portfolio of investments that is appropriately balanced among various companies, industries, geographic regions and end markets.

    Capitalize on Strong Transaction Sourcing Network.  Our investment team seeks to leverage its extensive network of referral sources for portfolio company investments.

    Benefit from Lower, Fixed, Long-Term Cost of Capital.  The SBIC licenses held by the Funds have allowed them to issue SBA-guaranteed debentures. SBA-guaranteed debentures carry long-term fixed interest rates that are generally lower than interest rates on comparable bank loans and other debt.

Investment Criteria

        Our investment team has identified the following investment criteria that it believes are important in evaluating prospective portfolio companies. Our investment team uses these criteria in evaluating investment opportunities. However, not all of these criteria have been, or will be, met in connection with each of our investments. Please see "Business—Investment Criteria" in the accompanying prospectus for a more complete discussion of our investment criteria.

    Proven Management Team with Meaningful Equity Stake.  We look for operationally-oriented management with direct industry experience and a successful track record. In addition, we expect the management team of each LMM portfolio company to have meaningful equity ownership in the portfolio company to better align our respective economic interests.

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    Established Companies with Positive Cash Flow.  We seek to invest in established companies with sound historical financial performance.

    Defensible Competitive Advantages/Favorable Industry Position.  We primarily focus on companies having competitive advantages in their respective markets and/or operating in industries with barriers to entry, which may help to protect their market position and profitability.

    Exit Alternatives.  We exit our debt investments primarily through the repayment of our investment from internally generated cash flow of the portfolio company and/or a refinancing. In addition, we seek to invest in companies whose business models and expected future cash flows may provide alternate methods of repaying our investment, such as through a strategic acquisition by other industry participants or a recapitalization.

Recent Developments

        In April 2018, we made a new portfolio investment to facilitate the minority recapitalization of DPI, Inc. ("DPI"), a leading designer, developer, and distributor of a broad assortment of consumer electronics to national retailers under several proprietary brands. We, along with a co-investor, partnered with DPI's management team to facilitate the transaction, with us funding $35.2 million in a combination of first-lien, senior secured term debt and a direct equity investment. Headquartered in St. Louis, Missouri, DPI offers consumer electronics products designed for value-conscious consumers.

        In April 2018, we redeemed the entire principal amount of the issued and outstanding 6.125% Notes effective April 1, 2018 (the "Redemption Date"). The 6.125% Notes were redeemed at par value, plus the accrued and unpaid interest thereon from January 1, 2018, through, but excluding, the Redemption Date. As part of the redemption, we recognized a realized loss of $1.5 million in the second quarter related to the write-off of the remaining unamortized deferred financing costs.

        During April 2018, we declared a semi-annual supplemental cash dividend of $0.275 per share payable in June 2018. This supplemental cash dividend is in addition to the previously announced regular monthly cash dividends that we declared for the second quarter of 2018 of $0.19 per share for each of April, May and June 2018.

        During May 2018, we declared regular monthly dividends of $0.19 per share for each month of July, August and September of 2018. These regular monthly dividends equal a total of $0.57 per share for the third quarter of 2018 and represent a 2.7% increase from the regular monthly dividends declared for the third quarter of 2017. Including the semi-annual supplemental dividend declared for June 2018 and the regular monthly dividends declared for the second and third quarters of 2018, we will have paid $23.375 per share in cumulative dividends since our October 2007 initial public offering.

Pre-Existing Offering

        On May 10, 2017, we established an at-the-market program to sell up to 4,500,000 shares of our common stock (the "Prior ATM Program"). As of May 9, 2018, 1,356,868 shares of common stock remained available for sale under the Prior ATM Program. The Prior ATM Program will terminate upon the commencement of this offering.

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The Offering

Common stock offered by us

  Up to 4,500,000 shares of our common stock.

Manner of offering

 

"At the market offering" that may be made from time to time through Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC, each a "Sales Agent" and, collectively, "Sales Agents," using commercially reasonable efforts. See "Plan of Distribution."

Use of proceeds

 

If we sell all 4,500,000 shares of our common stock available for sale under the equity distribution agreements with the Sales Agents at a price of $38.57 per share (the last reported sale price of our common stock on May 9, 2018), we anticipate that our net proceeds, after deducting the sales agent commissions and estimated expenses payable by us will be approximately $171.4 million.

 

We intend to initially use the net proceeds from this offering to repay outstanding debt borrowed under our Credit Facility. However, through re-borrowing of the initial repayments under our Credit Facility, we intend to use the net proceeds from this offering to make investments in accordance with our investment objective and strategies described in this prospectus supplement and the accompanying prospectus, to make investments in marketable securities and idle funds investments, which may include investments in secured intermediate term bank debt, rated debt securities and other income producing investments, to pay our operating expenses and other cash obligations, and for general corporate purposes.

 

On May 9, 2018, we had approximately $288.0 million outstanding under our Credit Facility. Our Credit Facility matures in September 2021, unless extended, and bears interest, at our election, on a per annum basis equal to (A)(i) the applicable LIBOR rate plus 1.875% or (ii) the applicable base rate plus 0.875% so long as we maintain an investment grade rating and satisfy certain agreed upon excess collateral and leverage requirements, (B) 0.125% higher in each case so long as we maintain an investment grade rating but not the agreed upon excess collateral and/or leverage requirements, and (C) 0.375% higher in each case so long as we do not maintain an investment grade rating. Amounts repaid under our Credit Facility will remain available for future borrowings.

 

See "Use of Proceeds" in this prospectus supplement for more information.

Dividends and distributions

 

Our dividends and other distributions, if any, will be determined by our Board of Directors from time to time.

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Our ability to declare dividends depends on our earnings, our overall financial condition (including our liquidity position), maintenance of our RIC status and such other factors as our Board of Directors may deem relevant from time to time.

 

When we make distributions, we are required to determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital. To the extent there is a return of capital (a distribution of the stockholders' invested capital), investors will be required to reduce their basis in our stock for federal tax purposes. In the future, our distributions may include a return of capital.

Taxation

 

MSCC has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. Accordingly, we generally will not pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we distribute to our stockholders as dividends. To maintain our qualification as a RIC for U.S. federal income tax purposes, we must meet specified source-of-income and asset diversification requirements and distribute annually at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.

 

Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such income. Any such carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year which generated such taxable income. See "Material U.S. Federal Income Tax Considerations" in the accompanying prospectus.

Risk factors

 

See "Risk Factors" beginning on page 12 of the accompanying prospectus for a discussion of risks you should carefully consider before deciding to invest in shares of our common stock.

New York Stock Exchange symbol

 

"MAIN"

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FEES AND EXPENSES

        The following table is intended to assist you in understanding the costs and expenses that an investor in this offering will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this prospectus supplement contains a reference to fees or expenses paid by "you," "us" or "Main Street," or that "we" will pay fees or expenses, stockholders will indirectly bear such fees or expenses as investors in us.

Stockholder Transaction Expenses:

       

Sales load (as a percentage of offering price)

    1.00% (1)

Offering expenses (as a percentage of offering price)

    0.26% (2)

Dividend reinvestment and direct stock purchase plan expenses

    —% (3)

Total stockholder transaction expenses (as a percentage of offering price)

    1.26%  

Annual Expenses of the Company (as a percentage of net assets attributable to common stock):

       

Operating expenses

    2.96% (4)

Interest payments on borrowed funds

    3.28% (5)

Income tax expense

    1.75% (6)

Acquired fund fees and expenses

    0.50% (7)

Total annual expenses

    8.49%  

(1)
Represents the maximum agent commission with respect to the shares of our common stock sold by us in this offering. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus.

(2)
The percentage reflects estimated offering expenses payable by us of approximately $450,000 for the estimated duration of this offering.

(3)
The expenses of administering our dividend reinvestment and direct stock purchase plan are included in operating expenses.

(4)
Operating expenses in this table represent the estimated expenses of MSCC and its consolidated subsidiaries.

(5)
Interest payments on borrowed funds represent our estimated annual interest payments on borrowed funds based on current debt levels as adjusted for projected increases (but not decreases) in debt levels over the next twelve months.

(6)
Income tax expense relates to the accrual of (a) deferred tax provision (benefit) primarily related to loss carryforwards, timing differences in net unrealized appreciation or depreciation and other temporary book tax differences from our portfolio investments held in Taxable Subsidiaries and (b) excise, state and other taxes. Deferred taxes are non cash in nature and may vary significantly from period to period. We are required to include deferred taxes in calculating our annual expenses even though deferred taxes are not currently payable or receivable. Due to the variable nature of deferred tax expense, which can be a large portion of the income tax expense, and the difficulty in providing an estimate for future periods, this income tax expense estimate is based upon the actual amount of income tax expense for the year ended December 31, 2017.

(7)
Acquired fund fees and expenses represent the estimated indirect expense incurred due to investments in other investment companies and private funds.

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Example

        The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we would have no additional leverage and that our annual operating expenses would remain at the levels set forth in the table above, and that you would pay a sales load of up to 1.0% (the commission to be paid by us with respect to common stock sold by us in this offering).

 
  1 Year   3 Years   5 Years   10 Years  

You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual return

  $ 96   $ 254   $ 402   $ 727  

        The example and the expenses in the table above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our performance will vary and may result in a return greater or less than 5.0%. In addition, while the example assumes reinvestment of all dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the dividend payable to a participant by (i) the market price per share of our common stock at the close of trading on a valuation date determined by our Board of Directors for each dividend in the event that we use newly issued shares to satisfy the share requirements of the dividend reinvestment plan or (ii) the average purchase price of all shares of common stock purchased by the plan administrator in the event that shares are purchased in the open market to satisfy the share requirements of the dividend reinvestment plan, which may be at, above or below net asset value. See "Dividend Reinvestment and Direct Stock Purchase Plan" in the accompanying prospectus for additional information regarding our dividend reinvestment plan.

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USE OF PROCEEDS

        Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be "at the market" as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or sales made to or through a market maker other than on an exchange. There is no guarantee that there will be any sales of our common stock pursuant to this prospectus supplement and the accompanying prospectus. Actual sales, if any, of our common stock under this prospectus supplement and the accompanying prospectus may be less than as set forth in this paragraph depending on, among other things, the market price of our common stock at the time of any such sale. As a result, the actual net proceeds we receive may be more or less than the amount of net proceeds estimated in this prospectus supplement. Assuming the sale of all 4,500,000 shares of common stock available for sale under the equity distribution agreements with the Sales Agents at a price of $38.57 per share (the last reported sales price of our common stock on May 9, 2018), we estimate that the net proceeds of this offering will be approximately $171.4 million after deducting the estimated sales commission payable to the Sales Agent and our estimated offering expenses.

        We intend to initially use the net proceeds from this offering to repay outstanding debt borrowed under our Credit Facility. However, through re-borrowing of the initial repayments under our Credit Facility, we intend to use the net proceeds from this offering to make investments in accordance with our investment objective and strategies described in this prospectus supplement and the accompanying prospectus, to make investments in marketable securities and idle funds investments, which may include investments in secured intermediate term bank debt, rated debt securities and other income producing investments, to pay our operating expenses and other cash obligations, and for general corporate purposes. Our ability to achieve our investment objective may be limited to the extent that the net proceeds from an offering, pending full investment, are held in interest bearing deposits or other short-term instruments. See "Risk Factors—Risks Relating to Our Securities—We may be unable to invest a significant portion of the net proceeds from an offering or from exiting an investment or other capital on acceptable terms, which could harm our financial condition and operating results" in the accompanying prospectus.

        On May 9, 2018, we had approximately $288.0 million outstanding under our Credit Facility. Our Credit Facility matures in September 2021, unless extended, and bears interest, at our election, on a per annum basis equal to (A)(i) the applicable LIBOR rate plus 1.875% or (ii) the applicable base rate plus 0.875% so long as we maintain an investment grade rating and satisfy certain agreed upon excess collateral and leverage requirements, (B) 0.125% higher in each case so long as we maintain an investment grade rating but not the agreed upon excess collateral and/or leverage requirements, and (C) 0.375% higher in each case so long as we do not maintain an investment grade rating. Amounts repaid under our Credit Facility will remain available for future borrowings.

        Affiliates of Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC, Sales Agents in this offering, act as lenders and/or agents under our Credit Facility. As described above, we intend to use net proceeds of this offering to repay the outstanding indebtedness under this Credit Facility, and such affiliates therefore may receive a portion of the proceeds from this offering through the repayment of those borrowings. See "Plan of Distribution" below.

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SELECTED FINANCIAL DATA

        The selected financial and other data below reflects the consolidated financial condition and the consolidated statement of operations of Main Street and its subsidiaries as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, and as of March 31, 2018 and for the three months ended March 31, 2018 and 2017. The selected financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 have been derived from consolidated financial statements that have been audited by Grant Thornton LLP, an independent registered public accounting firm. The selected financial data as of March 31, 2018, and for the three months ended March 31, 2018 and 2017, have been derived from unaudited financial data but, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary to present fairly the financial condition and operating results for such interim periods. Interim results as of and for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. You should read this selected financial and other data in conjunction with our "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Senior Securities" and the financial statements and related notes thereto in the accompanying prospectus and "Interim Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Interim Financial Statements" in this prospectus supplement.

 
  Three Months Ended
March 31,
  Twelve Months Ended December 31,  
 
  2018   2017   2017   2016   2015   2014   2013  
 
  (dollars in thousands, except per share amounts)
 
 
  (Unaudited)
   
   
   
   
   
 

Statement of operations data:

                                           

Investment income:

                                           

Total interest, fee and dividend income

  $ 55,942   $ 47,889   $ 205,741   $ 178,165   $ 163,603   $ 139,939   $ 115,158  

Interest from idle funds and other

                174     986     824     1,339  

Total investment income

    55,942     47,889     205,741     178,339     164,589     140,763     116,497  

Expenses:

                                           

Interest

    (10,265 )   (8,608 )   (36,479 )   (33,630 )   (32,115 )   (23,589 )   (20,238 )

Compensation

    (5,491 )   (4,430 )   (18,560 )   (16,408 )   (14,852 )   (12,337 )   (8,560 )

General and administrative

    (2,974 )   (2,940 )   (11,674 )   (9,284 )   (8,621 )   (7,134 )   (4,877 )

Share-based compensation

    (2,303 )   (2,269 )   (10,027 )   (8,304 )   (6,262 )   (4,215 )   (4,210 )

Expenses allocated to the External Investment Manager

    2,066     1,524     6,370     5,089     4,335     2,048      

Expenses reimbursed to MSCP(1)

                            (3,189 )

Total expenses

    (18,967 )   (16,723 )   (70,370 )   (62,537 )   (57,515 )   (45,227 )   (41,074 )

Net investment income

    36,975     31,166     135,371     115,802     107,074     95,536     75,423  

Total net realized gain (loss) from investments

    7,460     27,565     16,182     29,389     (21,316 )   23,206     7,277  

Total net realized loss from SBIC debentures

    (1,374 )   (5,217 )   (5,217 )               (4,775 )

Total net unrealized appreciation (depreciation) from investments

    (10,882 )   (22,091 )   42,545     (6,576 )   10,871     (776 )   14,503  

Total net unrealized appreciation (depreciation) from SBIC debentures and investment in MSCP(1)

    1,359     5,665     6,212     (943 )   (879 )   (10,931 )   4,392  

Income tax benefit (provision)

    979     (5,638 )   (24,471 )   1,227     8,687     (6,287 )   35  

Net increase in net assets resulting from operations attributable to common stock

  $ 34,517   $ 31,450   $ 170,622   $ 138,899   $ 104,437   $ 100,748   $ 96,855  

Net investment income per share—basic and diluted

  $ 0.63   $ 0.57   $ 2.39   $ 2.23   $ 2.18   $ 2.20   $ 2.06  

Net increase in net assets resulting from operations attributable to common stock per share—basic and diluted

  $ 0.59   $ 0.57   $ 3.01   $ 2.67   $ 2.13   $ 2.31   $ 2.65  

Weighted-average shares outstanding—basic and diluted

    58,852,252     55,125,170     56,691,913     52,025,002     49,071,492     43,522,397     36,617,850  

(1)
Main Street Capital Partners, LLC

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  As of December 31,  
 
  As of
March 31,
2018
 
 
  2017   2016   2015   2014   2013  
 
   
  (dollars in thousands)
 

Balance sheet data:

                                     

Assets:

                                     

Total portfolio investments at fair value

  $ 2,314,034   $ 2,171,305   $ 1,996,906   $ 1,799,996   $ 1,563,330   $ 1,286,188  

Marketable securities and idle funds investments

                3,693     9,067     13,301  

Cash and cash equivalents

    29,090     51,528     24,480     20,331     60,432     34,701  

Interest receivable and other assets

    54,470     38,725     37,123     37,638     46,406     16,054  

Deferred financing costs, net of accumulated amortization

    3,581     3,837     12,645     13,267     14,550     9,931  

Deferred tax asset, net

            9,125     4,003          

Total assets

  $ 2,401,175   $ 2,265,395   $ 2,080,279   $ 1,878,928   $ 1,693,785   $ 1,360,175  

Liabilities and net assets:

                                     

Credit facility

  $ 188,000   $ 64,000   $ 343,000   $ 291,000   $ 218,000   $ 237,000  

SBIC debentures at fair value(1)

    306,182     288,483     239,603     223,660     222,781     187,050  

4.50% Notes due 2022

    182,167     182,015                  

4.50% Notes due 2019

    173,796     173,616     175,000     175,000     175,000      

6.125% Notes

    89,133     89,057     90,655     90,738     90,823     90,882  

Accounts payable and other liabilities

    15,049     20,168     14,205     12,292     10,701     10,549  

Payable for securities purchased

    21,859     40,716     2,184     2,311     14,773     27,088  

Interest payable

    8,510     5,273     4,103     3,959     4,848     2,556  

Dividend payable

    11,192     11,146     10,048     9,074     7,663     6,577  

Deferred tax liability, net

    8,687     10,553             9,214     5,940  

Total liabilities

    1,004,575     885,027     878,798     808,034     753,803     567,642  

Total net asset value

    1,396,600     1,380,368     1,201,481     1,070,894     939,982     792,533  

Total liabilities and net assets

  $ 2,401,175   $ 2,265,395   $ 2,080,279   $ 1,878,928   $ 1,693,785   $ 1,360,175  

Other data:

                                     

Weighted-average effective yield on LMM debt investments(2),(3)

    12.1%     12.0%     12.5%     12.2%     13.2%     14.7%  

Number of LMM portfolio companies

    73     70     73     71     66     62  

Weighted-average effective yield on Middle Market debt investments(2),(3)

    9.2%     9.0%     8.5%     8.0%     7.8%     7.8%  

Number of Middle Market portfolio companies              

    59     62     78     86     86     92  

Weighted-average effective yield on Private Loan debt investments(2),(3)

    9.4%     9.2%     9.6%     9.5%     10.1%     11.3%  

Number of Private Loan portfolio companies

    55     54     46     40     31     15  

Expense ratios (as percentage of average net assets):

                                     

Total expenses, including income tax expense              

    1.3% (6)   7.4%     5.5%     4.6%     5.8%     5.8%  

Operating expenses

    1.4% (6)   5.5%     5.6%     5.5%     5.1%     5.8%  

Operating expenses, excluding interest expense              

    0.6% (6)   2.6%     2.6%     2.4%     2.4%     3.0%  

Total investment return(4)

    –5.7% (6)   16.0%     37.4%     8.5%     –3.1%     16.7%  

Total return based on change in NAV(5)

    2.5% (6)   14.2%     13.0%     11.1%     12.7%     15.1%  

(1)
SBIC debentures for March 31, 2018, December 31, 2017, 2016, 2015, 2014 and 2013 are $313,800, $295,800, $240,000, $225,000, $225,000, and $200,200 at par, respectively, with par of $46,000 for March 31, 2018, $50,000 for December 31, 2017, $75,200 for December 31, 2016, 2015, 2014 and 2013 recorded at fair value of $44,623, $48,608, $74,803, $73,860, $72,981 and $62,050, as of March 31, 2018 and December 31, 2017, 2016, 2015, 2014, and 2013, respectively.

(2)
Weighted-average effective yield is calculated based on our debt investments at the end of each period and includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes liquidation fees payable upon repayment and any debt investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares of Main Street's common stock will realize on its investment because it does not reflect any debt investments on non-accrual status, Main Street's expenses or any sales load paid by an investor. For information on our investments on non-accrual status, see "Interim Management's Discussion and Analysis of Financial Condition and Results of Operations—Portfolio Asset Quality" elsewhere in this prospectus supplement.

(3)
Including investments on non-accrual status, the weighted-average effective yield for LMM, Middle Market, and Private Loan debt investments is 11.4%, 9.2%, and 8.8%, respectively, as of March 31, 2018.

(4)
Total investment return based on purchase of stock at the current market price on the first day and a sale at the current market price on the last day of each period reported on the table and assumes reinvestment of dividends at prices obtained by Main Street's dividend reinvestment plan during the period. The return does not reflect any sales load that may be paid by an investor.

(5)
Total return based on change in net asset value was calculated using the sum of ending net asset value plus dividends to stockholders and other non-operating changes during the period, as divided by the beginning net asset value.

(6)
Not annualized.

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INTERIM MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        The following discussion should be read in conjunction with our interim financial statements and notes thereto contained elsewhere in this prospectus supplement.

        Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings "Forward-Looking Statements" in this prospectus supplement and "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors" in the accompanying prospectus.

ORGANIZATION

        Main Street Capital Corporation ("MSCC") is a principal investment firm primarily focused on providing customized debt and equity financing to lower middle market ("LMM") companies and debt capital to middle market ("Middle Market") companies. The portfolio investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its LMM portfolio. MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the United States.

        MSCC was formed in March 2007 to operate as an internally managed business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). MSCC wholly owns several investment funds, including Main Street Mezzanine Fund, LP ("MSMF"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and MSC II, the "Funds"), and each of their general partners. The Funds are each licensed as a Small Business Investment Company ("SBIC") by the United States Small Business Administration ("SBA"). Because MSCC is internally managed, all of the executive officers and other employees are employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the operating costs associated with employing investment and portfolio management professionals.

        MSC Adviser I, LLC (the "External Investment Manager") was formed in November 2013 as a wholly owned subsidiary of MSCC to provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies ("External Parties") and receives fee income for such services. MSCC has been granted no-action relief by the Securities and Exchange Commission ("SEC") to allow the External Investment Manager to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended. Since the External Investment Manager conducts all of its investment management activities for External Parties, it is accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated financial statements.

        MSCC has elected to be treated for U.S. federal income tax purposes as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a result, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.

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        MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the "Taxable Subsidiaries"). The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies which are "pass-through" entities for tax purposes.

        Unless otherwise noted or the context otherwise indicates, the terms "we," "us," "our," the "Company" and "Main Street" refer to MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.

OVERVIEW

        Our principal investment objective is to maximize our portfolio's total return by generating current income from our debt investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other rights to acquire equity securities in a portfolio company. Our LMM companies generally have annual revenues between $10 million and $150 million, and our LMM portfolio investments generally range in size from $5 million to $50 million. Our Middle Market investments are made in businesses that are generally larger in size than our LMM portfolio companies, with annual revenues typically between $150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our private loan ("Private Loan") portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis. Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio.

        We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company's capital structure, from secured loans to equity securities, allows us to offer portfolio companies a comprehensive suite of financing options, or a "one stop" financing solution. Providing customized, "one stop" financing solutions is important to LMM portfolio companies. We generally seek to partner directly with entrepreneurs, management teams and business owners in making our investments. Our LMM portfolio debt investments are generally secured by a first lien on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date.

        Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies that are generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have an expected duration of between three and seven years from the original investment date.

        Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals." Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

        Our other portfolio ("Other Portfolio") investments primarily consist of investments which are not consistent with the typical profiles for our LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties. In our Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.

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        Our external asset management business is conducted through the External Investment Manager. The External Investment Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the performance of the funds managed. We have entered into an agreement with the External Investment Manager to share employees in connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc. ("HMS Income"). Through this agreement, we share employees with the External Investment Manager, including their related infrastructure, business relationships, management expertise and capital raising capabilities.

        The following tables provide a summary of our investments in the LMM, Middle Market and Private Loan portfolios as of March 31, 2018 and December 31, 2017 (this information excludes the Other Portfolio investments and the External Investment Manager which are discussed further below):

 
  As of March 31, 2018  
 
  LMM(a)   Middle
Market
  Private
Loan
 
 
  (dollars in millions)
 

Number of portfolio companies

    73     59     55  

Fair value

  $ 1,049.8   $ 617.9   $ 496.5  

Cost

  $ 898.9   $ 629.9   $ 521.6  

% of portfolio at cost—debt

    67.7%     96.7%     93.7%  

% of portfolio at cost—equity

    32.3%     3.3%     6.3%  

% of debt investments at cost secured by first priority lien

    98.4%     91.0%     94.3%  

Weighted-average annual effective yield(b)

    12.1%     9.2%     9.4%  

Average EBITDA(c)

  $ 4.8   $ 86.3   $ 43.0  

(a)
At March 31, 2018, we had equity ownership in approximately 97% of our LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was approximately 38%.

(b)
The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of March 31, 2018, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

(c)
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including six LMM portfolio companies and three Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.

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  As of December 31, 2017  
 
  LMM(a)   Middle
Market
  Private
Loan
 
 
  (dollars in millions)
 

Number of portfolio companies

    70     62     54  

Fair value

  $ 948.2   $ 609.3   $ 467.5  

Cost

  $ 776.5   $ 629.7   $ 489.2  

% of portfolio at cost—debt

    67.1%     97.3%     93.6%  

% of portfolio at cost—equity

    32.9%     2.7%     6.4%  

% of debt investments at cost secured by first priority lien

    98.1%     90.5%     94.5%  

Weighted-average annual effective yield(b)

    12.0%     9.0%     9.2%  

Average EBITDA(c)

  $ 4.4   $ 78.3   $ 39.6  

(a)
At December 31, 2017, we had equity ownership in approximately 97% of our LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was approximately 39%.

(b)
The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2017, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. Weighted-average annual effective yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our expenses or any sales load paid by an investor.

(c)
The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and Private Loan portfolios. These calculations exclude certain portfolio companies, including six LMM portfolio companies, one Middle Market portfolio company and three Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for our investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.

        As of March 31, 2018, we had Other Portfolio investments in eleven companies, collectively totaling approximately $101.1 million in fair value and approximately $107.1 million in cost basis and which comprised approximately 4.4% of our Investment Portfolio (as defined in "—Critical Accounting Policies—Basis of Presentation" below) at fair value. As of December 31, 2017, we had Other Portfolio investments in eleven companies, collectively totaling approximately $104.6 million in fair value and approximately $109.4 million in cost basis and which comprised approximately 4.8% of our Investment Portfolio at fair value.

        As previously discussed, the External Investment Manager is a wholly owned subsidiary that is treated as a portfolio investment. As of March 31, 2018, there was no cost basis in this investment and the investment had a fair value of approximately $48.7 million, which comprised approximately 2.1% of our Investment Portfolio at fair value. As of December 31, 2017, there was no cost basis in this investment and the investment had a fair value of approximately $41.8 million, which comprised approximately 1.9% of our Investment Portfolio at fair value.

        Our portfolio investments are generally made through MSCC and the Funds. MSCC and the Funds share the same investment strategies and criteria, although they are subject to different regulatory regimes. An investor's return in MSCC will depend, in part, on the Funds' investment returns as they are wholly owned subsidiaries of MSCC.

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        The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic fundamentals, our ability to identify new investment opportunities that meet our investment criteria, and our ability to consummate the identified opportunities. The level of new investment activity, and associated interest and fee income, will directly impact future investment income. In addition, the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual status will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long term, our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation or depreciation could have a material impact on our operating results.

        Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating costs associated with employing investment and portfolio management professionals. We believe that our internally managed structure provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as we grow our Investment Portfolio. For the three months ended March 31, 2018 and 2017, the ratio of our total operating expenses, excluding interest expense, as a percentage of our quarterly average total assets was 1.5% and 1.6%, respectively, on an annualized basis and 1.5% for the year ended December 31, 2017, excluding certain non-recurring professional fees and other expenses. Including those expenses, the ratio for the year ended December 31, 2017 was 1.6%.

        During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is the investment advisor to HMS Income, a non-listed BDC, to provide certain investment advisory services to HMS Adviser. In December 2013, after obtaining required no-action relief from the SEC to allow us to own a registered investment adviser, we assigned the sub-advisory agreement to the External Investment Manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income requirement necessary for us to maintain our RIC tax treatment. Under the investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with HMS Income. The External Investment Manager has conditionally agreed to waive a limited amount of the historical incentive fees otherwise earned. During the three months ended March 31, 2018 and 2017, the External Investment Manager earned $2.8 million and $2.6 million, respectively, of management fees (net of fees waived, if any) under the sub-advisory agreement with HMS Adviser.

        During April 2014, we received an exemptive order from the SEC permitting co-investments by us and HMS Income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made, and in the future intend to continue to make, such co-investments with HMS Income in accordance with the conditions of the order. The order requires, among other things, that we and the External Investment Manager consider whether each such investment opportunity is appropriate for HMS Income and, if it is appropriate, to propose an allocation of the investment opportunity between us and HMS Income. Because the External Investment Manager may receive performance-based fee compensation from HMS Income, this may provide it an incentive to allocate opportunities to HMS Income instead of us. However, both we and the External Investment Manager have policies and procedures in place to manage this conflict.

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CRITICAL ACCOUNTING POLICIES

    Basis of Presentation

        Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). For each of the periods presented herein, our consolidated financial statements include the accounts of MSCC and its consolidated subsidiaries. The Investment Portfolio, as used herein, refers to all of our investments in LMM portfolio companies, investments in Middle Market portfolio companies, Private Loan portfolio investments, Other Portfolio investments, and the investment in the External Investment Manager. Our results of operations and cash flows for the three months ended March 31, 2018 and 2017 and financial position as of March 31, 2018 and December 31, 2017, are presented on a consolidated basis. The effects of all intercompany transactions between us and our consolidated subsidiaries have been eliminated in consolidation. Certain reclassifications have been made to prior period balances to conform with the current presentation.

        Our accompanying unaudited consolidated financial statements are presented in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. The results of operations for the three months ended March 31, 2018 and 2017 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2017. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

        We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Services—Investment Companies ("ASC 946"). Under regulations pursuant to Article 6 of Regulation S-X applicable to BDCs and ASC 946, we are precluded from consolidating other entities in which we have equity investments, including those in which we have a controlling interest, unless the other entity is another investment company. An exception to this general principle in ASC 946 occurs if we hold a controlling interest in an operating company that provides all or substantially all of its services directly to us or to any of our portfolio companies. Accordingly, as noted above, our consolidated financial statements include the financial position and operating results for the Funds and the Taxable Subsidiaries. We have determined that all of our portfolio investments do not qualify for this exception, including the investment in the External Investment Manager. Therefore, our Investment Portfolio is carried on the consolidated balance sheet at fair value with any adjustments to fair value recognized as "Net Unrealized Appreciation (Depreciation)" on the consolidated statements of operations until the investment is realized, usually upon exit, resulting in any gain or loss being recognized as a "Net Realized Gain (Loss)."

    Investment Portfolio Valuation

        The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our Investment Portfolio and the related amounts of unrealized appreciation and depreciation. As of both March 31, 2018 and December 31, 2017, our Investment Portfolio valued at fair value represented approximately 96% of our total assets. We are required to

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report our investments at fair value. We follow the provisions of Financial Accounting Standards Board ("FASB") ASC 820, Fair Value Measurements and Disclosures ("ASC 820"). ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. See "Note B.1.—Valuation of the Investment Portfolio" in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation process and procedures.

        Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value of each individual investment and record changes in fair value as unrealized appreciation or depreciation.

        Our Board of Directors has the final responsibility for overseeing, reviewing and approving, in good faith, our determination of the fair value for our Investment Portfolio and our valuation procedures, consistent with 1940 Act requirements. We believe our Investment Portfolio as of March 31, 2018 and December 31, 2017 approximates fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.

    Revenue Recognition

    Interest and Dividend Income

        We record interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. In accordance with our valuation policies, we evaluate accrued interest and dividend income periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service all of its debt or other obligations, we will generally place the loan or debt security on non-accrual status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security's status significantly improves regarding the debtor's ability to service the debt or other obligations, or if a loan or debt security is sold or written off, we remove it from non-accrual status.

    Fee Income

        We may periodically provide services, including structuring and advisory services, to our portfolio companies or other third parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the financing.

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    Payment-in-Kind ("PIK") Interest and Cumulative Dividends

        We hold certain debt and preferred equity instruments in our Investment Portfolio that contain PIK interest and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed below), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though we may not have collected the PIK interest and cumulative dividends in cash. We stop accruing PIK interest and cumulative dividends and write off any accrued and uncollected interest and dividends in arrears when we determine that such PIK interest and dividends in arrears are no longer collectible. For the three months ended March 31, 2018 and 2017, (i) approximately 1.0% and 3.4%, respectively, of our total investment income was attributable to PIK interest income not paid currently in cash and (ii) approximately 1.0% and 1.8%, respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash.

    Share-Based Compensation

        We account for our share-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation—Stock Compensation. Accordingly, for restricted stock awards, we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period, which is generally the vesting term.

    Income Taxes

        MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC's taxable income includes the taxable income generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes. As a RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that MSCC distributes to its stockholders. MSCC must generally distribute at least 90% of its "investment company taxable income" (which is generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and 90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.

        The Taxable Subsidiaries primarily hold certain portfolio investments for us. The Taxable Subsidiaries permit us to hold equity investments in portfolio companies which are "pass-through" entities for tax purposes and to continue to comply with the "source-of-income" requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with us for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in our consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated with MSCC for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or loss, due to temporary book and tax timing differences and permanent

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differences. The Taxable Subsidiaries are each taxed at their normal corporate tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the Taxable Subsidiaries are reflected in our consolidated financial statements.

        The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC's consolidated financial statements, and as a result of the tax sharing agreement with its Taxable Subsidiary owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at normal corporate tax rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the External Investment Manager's separate financial statements.

        In December 2017, the "Tax Cuts and Jobs Act" legislation was enacted. The Tax Cuts and Jobs Act includes significant changes to the U.S. corporate tax system, including a U.S. Federal corporate income tax rate reduction from 35% to 21% and other changes. ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation was enacted. As such, we have accounted for the tax effects as a result of the enactment of the Tax Cuts and Jobs Act beginning with the period ended December 31, 2017.

        The Taxable Subsidiaries and the External Investment Manager use the liability method in accounting for income taxes. Deferred tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in the consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to reverse. A valuation allowance is provided, if necessary, against deferred tax assets when it is more likely than not that some portion or all of the deferred tax asset will not be realized.

        Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.

INVESTMENT PORTFOLIO COMPOSITION

        Our LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in privately held, LMM companies based in the United States. Our LMM portfolio companies generally have annual revenues between $10 million and $150 million, and our LMM investments generally range in size from $5 million to $50 million. The LMM debt investments are typically secured by either a first or second priority lien on the assets of the portfolio company, generally bear interest at fixed rates, and generally have a term of between five and seven years from the original investment date. In most LMM portfolio companies, we receive nominally priced equity warrants and/or make direct equity investments in connection with a debt investment.

        Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio companies generally have annual revenues between $150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our Middle Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

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        Our Private Loan portfolio investments are primarily debt securities in privately held companies which have been originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as "club deals." Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.

        Our Other Portfolio investments primarily consist of investments which are not consistent with the typical profiles for LMM, Middle Market and Private Loan portfolio investments, including investments which may be managed by third parties. In the Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in other investment companies or private funds.

        Our external asset management business is conducted through the External Investment Manager. The External Investment Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the performance of the funds managed. We have entered into an agreement with the External Investment Manager to share employees in connection with its asset management business generally, and specifically for its relationship with HMS Income. Through this agreement, we share employees with the External Investment Manager, including their related infrastructure, business relationships, management expertise and capital raising capabilities, and we allocate the related expenses to the External Investment Manager pursuant to the sharing agreement. Our total expenses for the three months ended March 31, 2018 and 2017 are net of expenses allocated to the External Investment Manager of $2.1 million and $1.5 million, respectively. The External Investment Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest, based on the performance of the funds managed. The total contribution of the External Investment Manager to our net investment income consists of the combination of the expenses allocated to the External Investment Manager and the dividend income received from the External Investment Manager. For the three months ended March 31, 2018 and 2017, the total contribution to our net investment income was $2.6 million and $2.2 million, respectively.

        The following tables summarize the composition of our total combined LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments as of March 31, 2018 and December 31, 2017 (this information excludes the Other Portfolio investments and the External Investment Manager).

Cost:
  March 31,
2018
  December 31,
2017
 

First lien debt

    78.7%     79.0%  

Equity

    16.1%     15.3%  

Second lien debt

    4.1%     4.5%  

Equity warrants

    0.7%     0.7%  

Other

    0.4%     0.5%  

    100.0%     100.0%  

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Fair Value:
  March 31,
2018
  December 31,
2017
 

First lien debt

    71.5%     70.5%  

Equity

    23.7%     24.4%  

Second lien debt

    3.8%     4.1%  

Equity warrants

    0.6%     0.6%  

Other

    0.4%     0.4%  

    100.0%     100.0%  

        Our LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments carry a number of risks including: (1) investing in companies which may have limited operating histories and financial resources; (2) holding investments that generally are not publicly traded and which may be subject to legal and other restrictions on resale; and (3) other risks common to investing in below investment grade debt and equity investments in our Investment Portfolio. Please see "Risk Factors—Risks Related to Our Investments" contained in the accompanying prospectus for a more complete discussion of the risks involved with investing in our Investment Portfolio.

PORTFOLIO ASSET QUALITY

        As of March 31, 2018, our total Investment Portfolio had six investments on non-accrual status, which comprised approximately 0.8% of its fair value and 3.3% of its cost. As of December 31, 2017, our total Investment Portfolio had five investments on non-accrual status, which comprised approximately 0.2% of its fair value and 2.3% of its cost.

        The operating results of our portfolio companies are impacted by changes in the broader fundamentals of the United States economy. In the event that the United States economy contracts, it is likely that the financial results of small to mid-sized companies, like those in which we invest, could experience deterioration or limited growth from current levels, which could ultimately lead to difficulty in meeting their debt service requirements, to an increase in defaults on our debt investments or in realized losses on our investments and to difficulty in maintaining historical dividend payment rates and unrealized appreciation on our equity investments. Consequently, we can provide no assurance that the performance of certain portfolio companies will not be negatively impacted by economic cycles or other conditions, which could also have a negative impact on our future results.

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DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS

    Comparison of the three months ended March 31, 2018 and March 31, 2017

 
  Three Months Ended
March 31,
  Net Change  
 
  2018   2017   Amount   %  
 
  (dollars in thousands)
 

Total investment income

  $ 55,942   $ 47,889   $ 8,053     17%  

Total expenses

    (18,967 )   (16,723 )   (2,244 )   13%  

Net investment income

    36,975     31,166     5,809     19%  

Net realized gain from investments

    7,460     27,565     (20,105 )      

Net realized loss from SBIC debentures

    (1,374 )   (5,217 )   3,843        

Net unrealized appreciation (depreciation) from:

                         

Portfolio investments

    (10,882 )   (22,091 )   11,209        

SBIC debentures

    1,359     5,665     (4,306 )      

Total net unrealized appreciation (depreciation)

    (9,523 )   (16,426 )   6,903        

Income tax benefit (provision)

    979     (5,638 )   6,617        

Net increase in net assets resulting from operations

  $ 34,517   $ 31,450   $ 3,067     10%  

 

 
  Three Months Ended
March 31,
  Net Change  
 
  2018   2017   Amount   %  
 
  (dollars in thousands, except per share
amounts)

 

Net investment income

  $ 36,975   $ 31,166   $ 5,809     19%  

Share-based compensation expense

    2,303     2,269     34     1%  

Distributable net investment income(a)

  $ 39,278   $ 33,435   $ 5,843     17%  

Net investment income per share—Basic and diluted

  $ 0.63   $ 0.57   $ 0.06     11%  

Distributable net investment income per share—Basic and diluted(a)

  $ 0.67   $ 0.61   $ 0.06     10%  

(a)
Distributable net investment income is net investment income as determined in accordance with U.S. GAAP, excluding the impact of share-based compensation expense which is non-cash in nature. We believe presenting distributable net investment income and related per share amounts is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share-based compensation does not require settlement in cash. However, distributable net investment income is a non-U.S. GAAP measure and should not be considered as a replacement to net investment income and other earnings measures presented in accordance with U.S. GAAP. Instead, distributable net investment income should be reviewed only in connection with such U.S. GAAP measures in analyzing our financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to distributable net investment income is presented in the table above.

    Investment Income

        For the three months ended March 31, 2018, total investment income was $55.9 million, a 17% increase over the $47.9 million of total investment income for the corresponding period of 2017. This comparable period increase was principally attributable to a $6.8 million increase in dividend income from Investment Portfolio equity investments and $1.1 million net increase in interest income primarily

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related to higher average levels of Investment Portfolio debt investments, partially offset by a decrease in interest income associated with decreased repricing and other activities involving existing Investment Portfolio debt investments when compared to prior year. The $8.1 million increase in total investment income in the three months ended March 31, 2018 includes elevated levels of dividend income activity from certain Investment Portfolio equity investments, partially offset by a decrease of $1.8 million related to lower accelerated prepayment, repricing and other activity for certain Investment Portfolio debt investments when compared to the same period in 2017.

    Expenses

        For the three months ended March 31, 2018, total expenses increased to $19.0 million from $16.7 million for the corresponding period of 2017. This comparable period increase in operating expenses was principally attributable to (i) a $1.7 million increase in interest expense, primarily due to (a) a $2.2 million increase as a result of the issuance of our 4.50% Notes due 2022 in November 2017 and (b) a $0.4 million increase from the SBIC debentures due to the higher average balance as compared to the same period in 2017, with these increases partially offset by a decrease of $1.0 million related to the Credit Facility due to the lower average balance during 2018 and (ii) a $1.1 million increase in compensation expense related to increases in the number of personnel, base compensation levels and incentive compensation accruals, with these increases partially offset by a $0.5 million increase in the expenses allocated to the External Investment Manager as a result of elevated non-recurring strategic activities at the External Investment Manager during the three months ended March 31, 2018, in each case when compared to the same period in the prior year. The ratio of our total operating expenses, excluding interest expense, as a percentage of our quarterly average total assets for the three months ended March 31, 2018 was 1.5% on an annualized basis compared to 1.6% for the three months ended March 31, 2017 and 1.5% for the year ended December 31, 2017, excluding certain non-recurring professional fees and other expenses incurred in 2017. Including the effect of those non-recurring expenses, the ratio for the year ended December 31, 2017 was 1.6%.

    Net Investment Income

        Net investment income for the three months ended March 31, 2018 was $37.0 million, or a 19% increase, compared to net investment income of $31.2 million for the corresponding period of 2017. The increase in net investment income was principally attributable to the increase in total investment income, partially offset by higher operating expenses both as discussed above.

    Distributable Net Investment Income

        For the three months ended March 31, 2018, distributable net investment income increased 17% to $39.3 million, or $0.67 per share, compared with $33.4 million, or $0.61 per share in the corresponding period of 2017. The increase in distributable net investment income was primarily due to the higher level of total investment income, partially offset by higher operating expenses both as discussed above. Distributable net investment income on a per share basis for the three months ended March 31, 2018 reflects (i) elevated levels of dividend income activity from certain Investment Portfolio equity investments, (ii) a decrease of approximately $0.03 per share from the comparable period in 2017 attributable to the net decrease in the comparable levels of accelerated prepayment, repricing and other unusual activity for certain Investment Portfolio debt investments and (iii) a greater number of average shares outstanding compared to the corresponding period in 2017 primarily due to shares issued through the ATM Program (as defined in "—Liquidity and Capital Resources—Capital Resources" below), shares issued pursuant to our equity incentive plans and shares issued pursuant to our dividend reinvestment plan.

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    Net Increase in Net Assets Resulting from Operations

        The net increase in net assets resulting from operations during the three months ended March 31, 2018 was $34.5 million, or $0.59 per share, compared with $31.5 million, or $0.57 per share, during the three months ended March 31, 2017. This $3.1 million improvement from the prior year was primarily the result of (i) a $6.9 million improvement in net unrealized appreciation (depreciation) from portfolio investments and SBIC debentures, including the impact of accounting reversals relating to realized gains/income (losses), (ii) a $6.6 million change in the income tax benefit (provision) from an income tax provision of $5.6 million for the three months ended March 31, 2017 to an income tax benefit of $1.0 million for the three months ended March 31, 2018, (iii) a $5.8 million increase in net investment income as discussed above and (iv) a $3.8 million improvement in the net realized loss from SBIC debentures outstanding at MSC II which had previously been accounted for on the fair value method of accounting, with these increases partially offset by a $20.1 million decrease in the net realized gain from investments to a total net realized gain from investments of $7.5 million for the three months ended March 31, 2018. The net realized gain from investments of $7.5 million for the three months ended March 31, 2018 was primarily the result of (i) the realized gain of $13.1 million resulting from gains on the exits of two LMM investments and (ii) realized gains of $3.2 million due to activity in our Other Portfolio, with these gains partially offset by the net realized loss of $8.6 million in our Middle Market portfolio, which is primarily the result of (a) the realized loss of $3.3 million on the exit of a Middle Market investment and (b) the realized loss of $5.3 million on the restructure of a Middle Market investment. The realized loss of $1.4 million on the repayment of SBIC debentures is related to the previously recognized bargain purchase gain resulting from recording the MSC II debentures at fair value on the date of the acquisition of the majority of the equity interests of MSC II in 2010. The effect of the realized loss is offset by the reversal of all previously recognized unrealized depreciation on these SBIC debentures due to fair value adjustments since the date of the acquisition in 2010.

        The following table provides a summary of the total net unrealized depreciation of $9.5 million for the three months ended March 31, 2018:

 
  Three Months Ended March 31, 2018  
 
  LMM(a)   Middle
Market
  Private
Loan
  Other(b)   Total  
 
  (dollars in millions)
 

Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains)/(income) losses recognized during the current period

  $ (18.8 ) $ 8.8   $ (0.3 ) $ (0.4 ) $ (10.7 )

Net unrealized appreciation (depreciation) relating to portfolio investments

    (3.3 )   (0.3 )   (2.6 )   6.0     (0.2 )

Total net unrealized appreciation (depreciation) relating to portfolio investments

  $ (22.1 ) $ 8.5   $ (2.9 ) $ 5.6   $ (10.9 )

Unrealized appreciation relating to SBIC debentures(c)

                            1.4  

Total net unrealized depreciation

                          $ (9.5 )

(a)
LMM includes unrealized appreciation on 26 LMM portfolio investments and unrealized depreciation on 9 LMM portfolio investments.

(b)
Other includes $7.0 million of unrealized appreciation relating to the External Investment Manager, partially offset by $1.0 million of net unrealized depreciation relating to the Other Portfolio.

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(c)
The $1.4 million of unrealized appreciation on the SBIC debentures held by MSC II which are accounted for on a fair value basis is due to the accounting reversals of previously recognized unrealized depreciation recorded due to fair value adjustments since the date of acquisition of MSC II on the debentures repaid.

        The income tax benefit for the three months ended March 31, 2018 of $1.0 million principally consisted of a deferred tax benefit of $1.9 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries, including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences, and other current tax expense of $0.9 million related to (i) a $0.4 million accrual for excise tax on our estimated undistributed taxable income and (ii) current tax expense of $0.5 million related to accruals for U.S. federal and state income taxes.

    Liquidity and Capital Resources

    Cash Flows

        For the three months ended March 31, 2018, we experienced a net decrease in cash and cash equivalents in the amount of approximately $22.4 million, which is the net result of approximately $143.2 million of cash used in our operating activities and approximately $120.7 million of cash provided by our financing activities.

        During the period, $143.2 million of cash was used in our operating activities, which resulted primarily from (i) cash flows we generated from the operating profits earned through our operating activities totaling $35.8 million, which is our $39.3 million of distributable net investment income, excluding the non-cash effects of the accretion of unearned income of $3.2 million, payment-in-kind interest income of $0.6 million, cumulative dividends of $0.6 million and the amortization expense for deferred financing costs of $0.9 million, (ii) cash uses totaling $345.0 million consisting of (a) $340.4 million for the funding of new portfolio company investments and settlement of accruals for portfolio investments existing as of December 31, 2017, (b) $2.5 million related to increases in other assets and (c) $2.1 million related to decreases in payables and accruals and (iii) cash proceeds totaling $166.1 million which resulted from the sales and repayments of debt investments and sales of and return on capital of equity investments.

        During the three months ended March 31, 2018, $120.7 million in cash was provided by our financing activities, which principally consisted of (i) $11.3 million in net cash proceeds from the ATM Program (described below), (ii) $124.0 million in cash proceeds from the Credit Facility and (iii) $22.0 million in cash proceeds from issuance of SBIC debentures, partially offset by (i) $31.9 million in cash dividends paid to stockholders, (ii) $4.0 million in repayment of SBIC debentures, (iii) $0.2 million for purchases of vested restricted stock from employees to satisfy their tax withholding requirements upon the vesting of such restricted stock and (iv) $0.5 million for payment of deferred debt issuance costs, SBIC debenture fees and other costs.

    Capital Resources

        As of March 31, 2018, we had $29.1 million in cash and cash equivalents and $397.0 million of unused capacity under the Credit Facility, which we maintain to support our investment and operating activities. As of March 31, 2018, our net asset value totaled $1,396.6 million, or $23.67 per share.

        The Credit Facility, which provides additional liquidity to support our investment and operational activities, provides for total commitments of $585.0 million from a diversified group of fifteen lenders. The Credit Facility matures in September 2021 and contains an accordion feature which allows us to increase the total commitments under the facility to up to $750.0 million from new and existing lenders on the same terms and conditions as the existing commitments.

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        Borrowings under the Credit Facility bear interest, subject to our election, on a per annum basis at a rate equal to the applicable LIBOR rate (1.88% as of March 31, 2018) plus (i) 1.875% (or the applicable base rate (Prime Rate of 4.75% as of March 31, 2018) plus 0.875%) as long as we maintain an investment grade rating and meet certain agreed upon excess collateral and maximum leverage requirements, (ii) 2.0% (or the applicable base rate plus 1.0%) if we maintain an investment grade rating but do not meet certain excess collateral and maximum leverage requirements or (iii) 2.25% (or the applicable base rate plus 1.25%) if we do not maintain an investment grade rating. We pay unused commitment fees of 0.25% per annum on the unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of MSCC and its subsidiaries, excluding the equity ownership or assets of the Funds and the External Investment Manager. The Credit Facility contains certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum availability of at least 10% of the borrowing base, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining an asset coverage ratio of at least 1.5 to 1.0 and (iv) maintaining a minimum tangible net worth. The Credit Facility is provided on a revolving basis through its final maturity date in September 2021, and contains two, one-year extension options which could extend the final maturity by up to two years, subject to certain conditions, including lender approval. As of March 31, 2018, we had $188.0 million in borrowings outstanding under the Credit Facility, the interest rate on the Credit Facility was 3.5% and we were in compliance with all financial covenants of the Credit Facility.

        Through the Funds, we have the ability to issue SBIC debentures guaranteed by the SBA at favorable interest rates and favorable terms and conditions. Under existing SBIC regulations, SBA approved SBICs under common control have the ability to issue debentures guaranteed by the SBA up to a regulatory maximum amount of $350.0 million. Through the Funds, we have an effective maximum amount of $346.0 million following the prepayment of $4.0 million of existing SBIC debentures as discussed below. During the three months ended March 31, 2018, we issued $22.0 million of SBIC debentures and opportunistically prepaid $4.0 million of our existing SBIC debentures as part of an effort to manage the maturity dates of our oldest SBIC debentures, leaving $32.2 million of remaining capacity under our SBIC licenses. Debentures guaranteed by the SBA have fixed interest rates that equal prevailing 10-year Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semiannually. The principal amount of the debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. We expect to issue new SBIC debentures under the SBIC program in the future in an amount up to the regulatory maximum amount for affiliated SBIC funds. As of March 31, 2018, through our three wholly owned SBICs, we had $313.8 million of outstanding SBIC debentures guaranteed by the SBA, which bear a weighted-average annual fixed interest rate of approximately 3.7%, paid semiannually, and mature ten years from issuance. The first maturity related to our SBIC debentures occurs in 2019, and the weighted-average remaining duration is approximately 5.9 years as of March 31, 2018.

        In April 2013, we issued $92.0 million, including the underwriters' full exercise of their over-allotment option, in aggregate principal amount of the 6.125% Notes (the "6.125% Notes"). The 6.125% Notes are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 6.125% Notes; effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 6.125% Notes mature on April 1, 2023, and may be redeemed in whole or in part at any time or from time to time at our option on or after April 1, 2018. We maintained the right from time to time repurchase 6.125% Notes in accordance with the 1940 Act and the rules promulgated thereunder. On March 1, 2018, we announced our intent to redeem the 6.125% Notes on April 1, 2018. As of March 31, 2018, the outstanding balance of the 6.125% Notes was $90.7 million.

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        The indenture governing the 6.125% Notes (the "6.125% Notes Indenture") contains certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the 6.125% Notes and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 6.125% Notes Indenture.

        In November 2014, we issued $175.0 million in aggregate principal amount of 4.50% Notes (the "4.50% Notes due 2019") at an issue price of 99.53%. The 4.50% Notes due 2019 are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 4.50% Notes due 2019; effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes due 2019 mature on December 1, 2019, and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions. The 4.50% Notes due 2019 bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year, beginning June 1, 2015. We may from time to time repurchase 4.50% Notes due 2019 in accordance with the 1940 Act and the rules promulgated thereunder. As of March 31, 2018, the outstanding balance of the 4.50% Notes due 2019 was $175.0 million.

        The indenture governing the 4.50% Notes due 2019 (the "4.50% Notes due 2019 Indenture") contains certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the 4.50% Notes due 2019 and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 4.50% Notes due 2019 Indenture.

        In November 2017, we issued $185.0 million in aggregate principal amount of 4.50% Notes (the "4.50% Notes due 2022") at an issue price of 99.16%. The 4.50% Notes due 2022 are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that expressly provides it is subordinated to the 4.50% Notes due 2022; effectively subordinated to all of our existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes due 2022 mature on December 1, 2022, and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions. The 4.50% Notes due 2022 bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year, beginning June 1, 2018. We may from time to time repurchase 4.50% Notes due 2022 in accordance with the 1940 Act and the rules promulgated thereunder. As of March 31, 2018, the outstanding balance of the 4.50% Notes due 2022 was $185.0 million.

        The indenture governing the 4.50% Notes due 2022 (the "4.50% Notes due 2022 Indenture") contains certain covenants, including covenants requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the 4.50% Notes due 2022 and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934. These covenants are subject to limitations and exceptions that are described in the 4.50% Notes due 2022 Indenture.

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        We maintain a program with certain selling agents through which we can sell shares of our common stock by means of at-the-market offerings from time to time (the "ATM Program"). During the three months ended March 31, 2018, we sold 308,678 shares of our common stock at a weighted-average price of $37.27 per share and raised $11.5 million of gross proceeds under the ATM Program. Net proceeds were $11.3 million after commissions to the selling agents on shares sold and offering costs. As of March 31, 2018, sales transactions representing 20,400 shares had not settled and are not included in shares issued and outstanding on the face of the consolidated balance sheet, but are included in the weighted-average shares outstanding in the consolidated statement of operations and in the shares used to calculate net asset value per share. As of March 31, 2018, there were 1,602,678 shares available for sale under the ATM Program.

        During the year ended December 31, 2017, we sold 3,944,972 shares of our common stock at a weighted-average price of $38.72 per share and raised $152.8 million of gross proceeds under the ATM Program. Net proceeds were $150.9 million after commissions to the selling agents on shares sold and offering costs. As of December 31, 2017, 1,911,356 shares remained available for sale under the ATM Program.

        We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows generated through our ongoing operating activities, utilization of available borrowings under our Credit Facility, and a combination of future issuances of debt and equity capital. Our primary uses of funds will be investments in portfolio companies, operating expenses and cash distributions to holders of our common stock.

        We periodically invest excess cash balances into marketable securities and idle funds investments. The primary investment objective of marketable securities and idle funds investments is to generate incremental cash returns on excess cash balances prior to utilizing those funds for investment in our LMM, Middle Market and Private Loan portfolio investments. Marketable securities and idle funds investments generally consist of debt investments, independently rated debt investments, certificates of deposit with financial institutions, diversified bond funds and publicly traded debt and equity investments.

        If our common stock trades below our net asset value per share, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a sale and our Board of Directors makes certain determinations. We did not seek stockholder authorization to sell shares of our common stock below the then current net asset value per share of our common stock at our 2018 annual meeting of stockholders because our common stock price per share had been trading significantly above the net asset value per share of our common stock since 2011. We would therefore need future approval from our stockholders to issue shares below the then current net asset value per share.

        In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders, after consideration and application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of our taxable income. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200%. This requirement limits the amount that we may borrow. In January 2008, we received an exemptive order from the SEC to exclude SBA-guaranteed debt securities issued by MSMF and any other wholly owned subsidiaries of ours which operate as SBICs from the asset coverage requirements of the 1940 Act as applicable to us, which, in turn, enables us to fund more investments with debt capital.

        Although we have been able to secure access to additional liquidity, including through the Credit Facility, public debt issuances, leverage available through the SBIC program and equity offerings, there

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is no assurance that debt or equity capital will be available to us in the future on favorable terms, or at all.

    Recently Issued or Adopted Accounting Standards

        In May 2014, the FASB issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the new guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance will significantly enhance comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)—Narrow-Scope Improvements and Practical Expedients, which clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters. In December 2016, the FASB issued ASU No. 2016-20, Revenue from Contracts with Customers (Topic 606)—Technical Corrections and Improvements, which provided disclosure relief, and clarified the scope and application of the new revenue standard and related cost guidance. The guidance is effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Substantially all of our income is not within the scope of ASU 2014-09. For those income items that are within the scope (primarily fee income), we have similar performance obligations as compared with deliverables and separate units of account previously identified. As a result, our timing of income recognition remains the same and the adoption of the standard was not material.

        In February 2016, the FASB issued ASU 2016-02, Leases, which requires lessees to recognize on the balance sheet a right-of-use asset, representing its right to use the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months. The guidance also requires qualitative and quantitative disclosures designed to assess the amount, timing, and uncertainty of cash flows arising from leases. The standard requires the use of a modified retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The new guidance is effective for annual periods beginning after December 15, 2018, and interim periods therein. Early application is permitted. While we continue to assess the effect of adoption, we currently believe the most significant change relates to the recognition of a new right-of-use asset and lease liability on our consolidated balance sheet for our office space operating lease. We currently have one operating lease for office space and do not expect a significant change in our leasing activity between now and adoption. See further discussion of our operating lease obligation in "Note M—Commitments and Contingences" in the notes to the consolidated financial statements.

        In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance is effective for annual periods

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beginning after December 15, 2017, and interim periods therein. Early application is permitted. The impact of the adoption of this new accounting standard on our consolidated financial statements was not material.

        From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by us as of the specified effective date. We believe that the impact of recently issued standards and any that are not yet effective will not have a material impact on our consolidated financial statements upon adoption.

    Inflation

        Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results, including periodic escalations in their costs for labor, raw materials and third-party services and required energy consumption.

    Off-Balance Sheet Arrangements

        We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. These instruments include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. At March 31, 2018, we had a total of $138.6 million in outstanding commitments comprised of (i) 37 investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional commitments not yet funded and (ii) 11 investments with equity capital commitments that had not been fully called.

    Contractual Obligations

        As of March 31, 2018, the future fixed commitments for cash payments in connection with our SBIC debentures, the 4.50% Notes due 2019, the 4.50% Notes due 2022 and the 6.125% Notes and rent obligations under our office lease for each of the next five years and thereafter are as follows:

 
  2018   2019   2020   2021   2022   Thereafter   Total  

SBIC debentures

  $   $ 16,000   $ 55,000   $ 40,000   $ 5,000   $ 197,800   $ 313,800  

Interest due on SBIC debentures

    5,862     11,798     10,610     8,054     7,042     23,939     67,305  

6.125% Notes

                        90,655     90,655  

Interest due on 6.125% Notes

    5,553     5,553     5,553     5,553     5,553     1,386     29,151  

4.50% Notes due 2019

        175,000                     175,000  

Interest due on 4.50% Notes due 2019

    7,875     7,875                     15,750  

4.50% Notes due 2022

                    185,000         185,000  

Interest due on 4.50% Notes due 2022

    8,533     8,325     8,325     8,325     8,325         41,833  

Operating Lease Obligation(1)

    346     749     763     777     791     4,239     7,665  

Total

  $ 28,169   $ 225,300   $ 80,251   $ 62,709   $ 211,711   $ 318,019   $ 926,159  

(1)
Operating Lease Obligation means a rent payment obligation under a lease classified as an operating lease and disclosed pursuant to FASB ASC 840, as may be modified or supplemented.

        As of March 31, 2018, we had $188.0 million in borrowings outstanding under our Credit Facility, and the Credit Facility is currently scheduled to mature in September 2021. The Credit Facility contains two, one-year extension options which could extend the maturity to September 2023, subject to lender approval. See further discussion of the Credit Facility terms in "—Liquidity and Capital Resources—Capital Resources."

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    Related Party Transactions

        As discussed further above, the External Investment Manager is treated as a wholly owned portfolio company of MSCC and is included as part of our Investment Portfolio. At March 31, 2018, we had a receivable of approximately $2.8 million due from the External Investment Manager which included approximately $2.3 million primarily related to operating expenses incurred by us as required to support the External Investment Manager's business and amounts due from the External Investment Manager to Main Street under a tax sharing agreement (see further discussion above in "—Critical Accounting Policies—Income Taxes") and approximately $0.6 million of dividends declared but not paid by the External Investment Manager.

        In November 2015, our Board of Directors approved and adopted the Main Street Capital Corporation Deferred Compensation Plan (the "2015 Deferred Compensation Plan"). The 2015 Deferred Compensation Plan became effective on January 1, 2016 and replaced the Deferred Compensation Plan for Non-Employee Directors previously adopted by the Board of Directors in June 2013 (the "2013 Deferred Compensation Plan"). Under the 2015 Deferred Compensation Plan, non-employee directors and certain key employees may defer receipt of some or all of their cash compensation and directors' fees, subject to certain limitations. Individuals participating in the 2015 Deferred Compensation Plan receive distributions of their respective balances based on predetermined payout schedules or other events as defined by the plan and are also able to direct investments made on their behalf among investment alternatives permitted from time to time under the plan, including phantom Main Street stock units. As of March 31, 2018, $4.8 million of compensation and directors' fees had been deferred under the 2015 Deferred Compensation Plan (including amounts previously deferred under the 2013 Deferred Compensation Plan). Of this amount, $2.5 million was deferred into phantom Main Street stock units, representing 74,503 shares of our common stock. Including phantom stock units issued through dividend reinvestment, the phantom stock units outstanding as of March 31, 2018 represented 90,411 shares of our common stock. Any amounts deferred under the plan represented by phantom Main Street stock units will not be issued or included as outstanding on the consolidated statements of changes in net assets until such shares are actually distributed to the participant in accordance with the plan, but are included in operating expenses and weighted-average shares outstanding in our consolidated statements of operations as earned.

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PLAN OF DISTRIBUTION

        We have entered into separate equity distribution agreements, each dated May 10, 2018, with each of Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC, under which each will act as our sales agent (each, a "Sales Agent" and, collectively, the "Sales Agents") in connection with the offer and sale of shares of our common stock pursuant to this prospectus supplement and the accompanying prospectus. Upon written instructions from us, a Sales Agent will use its commercially reasonable efforts consistent with its sales and trading practices to sell, as our sales agent, our common stock under the terms and subject to the conditions set forth in the respective equity distribution agreement. We will instruct each Sales Agent as to the amount of common stock to be sold by it. We may instruct the Sales Agent not to sell common stock if the sales cannot be effected at or above the price designated by us in any instruction. We or the Sales Agent may suspend the offering of shares of common stock upon proper notice and subject to other conditions.

        Sales of our common stock, if any, under this prospectus supplement and the accompanying prospectus may be made in negotiated transactions or transactions that are deemed to be "at the market," as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange at prices related to the prevailing market prices or at negotiated prices.

        The Sales Agent will provide written confirmation of a sale to us no later than the opening of the trading day on the NYSE following each trading day in which shares of our common stock are sold under the equity distribution agreement. Each confirmation will include the number of shares of common stock sold on the preceding day, the net proceeds to us and the compensation payable by us to the Sales Agent in connection with the sales.

        Under the terms of the equity distribution agreements, Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC will be entitled to compensation equal to up to 1.0% of the gross sales price of shares of our common stock sold through it as Sales Agent. We estimate that the total expenses for the offering, excluding compensation payable to the Sales Agents under the terms of each equity distribution agreement, will be approximately $450,000 (which includes up to $7,500 per fiscal quarter in reimbursement of the Sales Agents' aggregate reasonable legal fees and expenses of counsel).

        Settlement for sales of shares of common stock will occur on the second trading day following the date on which such sales are made, or on some other date that is agreed upon by us and the Sales Agent in connection with a particular transaction, in return for payment of the net proceeds to us. There is no arrangement for funds to be received in an escrow, trust or similar arrangement.

        Under the terms of the equity distribution agreements, we also may sell shares of our common stock to the Sales Agents as principal for their own accounts at a price agreed upon at the time of sale. The Sales Agents may offer the common stock sold to them as principals from time to time through public or private transactions at market prices prevailing at the time of sale, at fixed prices, at negotiated prices, at various prices determined at the time of sale or at prices related to prevailing market prices. If we sell shares to a Sales Agent as principal, we will enter into a separate terms agreement with the applicable Sales Agent, setting forth the terms of such transaction, and we will describe the agreement in a separate prospectus supplement.

        We will report at least quarterly the number of shares of our common stock sold through the Sales Agents under the equity distribution agreements and the net proceeds to us.

        In connection with the sale of the common stock on our behalf, the Sales Agents may be deemed to be an "underwriter" within the meaning of the Securities Act, and the compensation of the Sales Agent may be deemed to be underwriting commissions or discounts. We have agreed to provide

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indemnification and contribution to the Sales Agents with respect to certain civil liabilities, including liabilities under the Securities Act.

        The offering of our shares of common stock pursuant to the equity distribution agreement will terminate upon the earlier of (i) the sale of all common stock subject to the equity distribution agreement or (ii) the termination of the equity distribution agreements as permitted therein.

Conflicts of Interest

        Affiliates of Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC, Sales Agents in this offering, act as lenders and/or agents under our Credit Facility. Certain of the net proceeds from the sale of our common stock, not including selling compensation, may be paid to such affiliates of Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC in connection with the repayment of debt owed under our Credit Facility. As a result, Goldman Sachs & Co. LLC, Raymond James & Associates, Inc., RBC Capital Markets, LLC and BB&T Capital Markets, a division of BB&T Securities, LLC and/or their affiliates may receive more than 5% of the net proceeds of this offering, not including selling compensation.

        The Sales Agents and their respective affiliates are full service financial institutions engaged in various activities, which may include sales and trading, commercial and investment banking, advisory, investment management, investment research, principal investment, hedging, market making, brokerage and other financial and non-financial activities and services. The Sales Agents and/or their affiliates from time to time provide and may in the future provide investment banking, commercial banking and financial advisory services to us, for which they have received and may receive customary compensation.

        In the ordinary course of their various business activities, the Sales Agents and their respective affiliates, officers, directors and employees may purchase, sell or hold a broad array of investments and actively traded securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments for their own account and for the accounts of their customers, and such investment and trading activities may involve or relate to our assets, securities and/or instruments (directly, as collateral securing other obligations or otherwise) and/or persons and entities with relationships with us. The Sales Agents and their respective affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such assets, securities or instruments and may at any time hold, or recommend to clients that they should acquire, long and/or short positions in such assets, securities and instruments. In addition, the Sales Agents and/or their affiliates may from time to time refer investment banking clients to us as potential portfolio investments. If we invest in those clients, we may utilize net proceeds from this offering to fund such investments, and the referring Sales Agent or its affiliate may receive placement fees from its client in connection with such financing, which placement fees may be paid out of the amount funded by us.

        The addresses of the Sales Agents are: Goldman Sachs & Co. LLC, 200 West Street, New York, NY 10282; Raymond James & Associates, Inc., 880 Carillon Parkway, St. Petersburg, Florida 33716; RBC Capital Markets, LLC, Three World Financial Center, 8th Floor, 200 Vesey Street, New York, NY 10281; and BB&T Capital Markets, a division of BB&T Securities, LLC, 901 East Byrd Street, Suite 300, Richmond, Virginia 23219.

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LEGAL MATTERS

        Certain legal matters regarding the shares of common stock offered hereby will be passed upon for us by Eversheds Sutherland (US) LLP, Washington D.C., and certain legal matters in connection with this offering will be passed upon for the Sales Agents by Fried, Frank, Harris, Shriver & Jacobson LLP, New York, New York.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        The audited consolidated financial statements, financial highlights, Schedule 12-14 and the schedule of Senior Securities of Main Street Capital Corporation, included in this prospectus supplement and elsewhere in the registration statement have been so included in reliance upon the reports of Grant Thornton LLP, independent registered public accountants, as stated in their reports appearing herein. Grant Thornton LLP's principal business address is Grant Thornton Tower, 171 North Clark, Suite 200, Chicago, Illinois, 60601.

AVAILABLE INFORMATION

        We have filed with the SEC a universal shelf registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to our shares of common stock offered by this prospectus supplement. The registration statement contains additional information about us and our shares of common stock being offered by this prospectus supplement.

        We file with or submit to the SEC annual, quarterly and current reports, proxy statements and other information meeting the informational requirements of the Securities Exchange Act of 1934. You may inspect and copy these reports, proxy statements and other information, as well as the registration statement and related exhibits and schedules, at the Public Reference Room of the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information filed electronically by us with the SEC, which are available on the SEC's website at www.sec.gov. Copies of these reports, proxy and information statements and other information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov, or by writing the SEC's Public Reference Section, 100 F Street, N.E., Washington, D.C. 20549.

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INTERIM FINANCIAL STATEMENTS

MAIN STREET CAPITAL CORPORATION

Consolidated Balance Sheets

(dollars in thousands, except shares and per share amounts)

 
  March 31,
2018
  December 31,
2017
 
 
  (Unaudited)
   
 

ASSETS

             

Investments at fair value:

             

Control investments (cost: $649,096 and $530,034 as of March 31, 2018 and December 31, 2017, respectively)

  $ 846,797   $ 750,706  

Affiliate investments (cost: $382,351 and $367,317 as of March 31, 2018 and December 31, 2017, respectively)

    359,460     338,854  

Non-Control/Non-Affiliate investments (cost: $1,126,103 and $1,107,447 as of March 31, 2018 and December 31, 2017, respectively)

    1,107,777     1,081,745  

Total investments (cost: $2,157,550 and $2,004,798 as of March 31, 2018 and December 31, 2017, respectively)

    2,314,034     2,171,305  

Cash and cash equivalents

    29,090     51,528  

Interest receivable and other assets

    40,159     36,343  

Receivable for securities sold

    14,311     2,382  

Deferred financing costs (net of accumulated amortization of $5,856 and $5,600 as of March 31, 2018 and December 31, 2017, respectively)

    3,581     3,837  

Total assets

  $ 2,401,175   $ 2,265,395  

LIABILITIES

             

Credit facility

  $ 188,000   $ 64,000  

SBIC debentures (par: $313,800 and $295,800 as of March 31, 2018 and December 31, 2017, respectively)

    306,182     288,483  

4.50% Notes due 2022 (par: $185,000 as of both March 31, 2018 and December 31, 2017)

    182,167     182,015  

4.50% Notes due 2019 (par: $175,000 as of both March 31, 2018 and December 31, 2017)

    173,796     173,616  

6.125% Notes (par: $90,655 as of both March 31, 2018 and December 31, 2017)

    89,133     89,057  

Accounts payable and other liabilities

    15,049     20,168  

Payable for securities purchased

    21,859     40,716  

Interest payable

    8,510     5,273  

Dividend payable

    11,192     11,146  

Deferred tax liability, net

    8,687     10,553  

Total liabilities

    1,004,575     885,027  

Commitments and contingencies (Note M)

             

NET ASSETS

             

Common stock, $0.01 par value per share (150,000,000 shares authorized; 58,987,330 and 58,660,680 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively)

    590     586  

Additional paid-in capital

    1,325,998     1,310,780  

Accumulated net investment income, net of cumulative dividends of $696,070 and $662,563 as of March 31, 2018 and December 31, 2017, respectively           

    10,015     7,921  

Accumulated net realized gain from investments (accumulated net realized gain from investments of $72,036 before cumulative dividends of $124,690 as of March 31, 2018 and accumulated net realized gain from investments of $64,576 before cumulative dividends of $124,690 as of December 31, 2017)

    (52,654 )   (60,114 )

Net unrealized appreciation, net of income taxes

    112,651     121,195  

Total net assets

    1,396,600     1,380,368  

Total liabilities and net assets

  $ 2,401,175   $ 2,265,395  

NET ASSET VALUE PER SHARE

  $ 23.67   $ 23.53  

   

The accompanying notes are an integral part of these consolidated financial statements

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MAIN STREET CAPITAL CORPORATION

Consolidated Statements of Operations

(dollars in thousands, except shares and per share amounts)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2018   2017  

INVESTMENT INCOME:

             

Interest, fee and dividend income:

             

Control investments

  $ 21,955   $ 12,988  

Affiliate investments

    9,071     9,899  

Non-Control/Non-Affiliate investments

    24,916     25,002  

Total investment income

    55,942     47,889  

EXPENSES:

             

Interest

    (10,265 )   (8,608 )

Compensation

    (5,491 )   (4,430 )

General and administrative

    (2,974 )   (2,940 )

Share-based compensation

    (2,303 )   (2,269 )

Expenses allocated to the External Investment Manager

    2,066     1,524  

Total expenses

    (18,967 )   (16,723 )

NET INVESTMENT INCOME

    36,975     31,166  

NET REALIZED GAIN (LOSS):

             

Control investments

    13,094     (682 )

Affiliate investments

        22,930  

Non-Control/Non-Affiliate investments

    (5,634 )   5,317  

SBIC debentures

    (1,374 )   (5,217 )

Total net realized gain

    6,086     22,348  

NET UNREALIZED APPRECIATION (DEPRECIATION):

             

Control investments

    (22,974 )   11,880  

Affiliate investments

    14,238     (26,121 )

Non-Control/Non-Affiliate investments

    (2,146 )   (7,850 )

SBIC debentures

    1,359     5,665  

Total net unrealized depreciation

    (9,523 )   (16,426 )

INCOME TAXES:

             

Federal and state income, excise and other taxes

    (887 )   (1,252 )

Deferred taxes

    1,866     (4,386 )

Income tax benefit (provision)

    979     (5,638 )

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

  $ 34,517   $ 31,450  

NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED

  $ 0.63   $ 0.57  

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE—BASIC AND DILUTED

  $ 0.59   $ 0.57  

DIVIDENDS PAID PER SHARE:

             

Regular monthly dividends

  $ 0.570   $ 0.555  

Supplemental dividends

         

Total dividends

  $ 0.570   $ 0.555  

WEIGHTED AVERAGE SHARES OUTSTANDING—BASIC AND DILUTED

    58,852,252     55,125,170  

   

The accompanying notes are an integral part of these consolidated financial statements

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MAIN STREET CAPITAL CORPORATION

Consolidated Statements of Changes in Net Assets

(dollars in thousands, except shares)

(Unaudited)

 
   
   
   
   
  Accumulated
Net Realized
Gain From
Investments,
Net of
Dividends
  Net Unrealized
Appreciation
from
Investments,
Net of
Income Taxes
   
 
 
  Common Stock    
  Accumulated
Net
Investment
Income, Net
of Dividends
   
 
 
  Number of
Shares
  Par
Value
  Additional
Paid-In
Capital
  Total Net
Asset Value
 

Balances at December 31, 2016

    54,354,857   $ 543   $ 1,143,883   $ 19,033   $ (58,887 ) $ 96,909   $ 1,201,481  

Public offering of common stock, net of offering costs

    1,035,286     11     37,700                 37,711  

Share-based compensation

            2,269                 2,269  

Purchase of vested stock for employee payroll tax withholding

    (8,964 )       (343 )               (343 )

Dividend reinvestment

    48,675         1,806                 1,806  

Amortization of directors' deferred compensation

            163                 163  

Forfeited shares of terminated employees

    (6,479 )                        

Dividends to stockholders

                (11,039 )   (19,564 )       (30,603 )

Net increase (decrease) resulting from operations

                25,949     27,565     (22,064 )   31,450  

Balances at March 31, 2017

    55,423,375   $ 554   $ 1,185,478   $ 33,943   $ (50,886 ) $ 74,845   $ 1,243,934  

Balances at December 31, 2017

    58,660,680   $ 586   $ 1,310,780   $ 7,921   $ (60,114 ) $ 121,195   $ 1,380,368  

Public offering of common stock, net of offering costs

    309,895     4     11,332                 11,336  

Share-based compensation

            2,303                 2,303  

Purchase of vested stock for employee payroll tax withholding

    (5,392 )       (212 )               (212 )

Dividend reinvestment

    42,423         1,589                 1,589  

Amortization of directors' deferred compensation

            206                 206  

Issuance of restricted stock

    124                          

Dividends to stockholders

                (33,507 )           (33,507 )

Net increase (decrease) resulting from operations

                35,601     7,460     (8,544 )   34,517  

Balances at March 31, 2018

    59,007,730   $ 590   $ 1,325,998   $ 10,015   $ (52,654 ) $ 112,651   $ 1,396,600  

   

The accompanying notes are an integral part of these consolidated financial statements

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MAIN STREET CAPITAL CORPORATION

Consolidated Statements of Cash Flows

(dollars in thousands)

(Unaudited)

 
  Three Months Ended
March 31,
 
 
  2018   2017  

CASH FLOWS FROM OPERATING ACTIVITIES

             

Net increase in net assets resulting from operations

  $ 34,517   $ 31,450  

Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:

             

Investments in portfolio companies

    (340,405 )   (186,922 )

Proceeds from sales and repayments of debt investments in portfolio companies          

    133,835     184,487  

Proceeds from sales and return of capital of equity investments in portfolio companies          

    32,268     37,041  

Net unrealized depreciation

    9,523     16,426  

Net realized gain

    (6,086 )   (22,348 )

Accretion of unearned income

    (3,238 )   (4,703 )

Payment-in-kind interest

    (576 )   (1,607 )

Cumulative dividends

    (562 )   (877 )

Share-based compensation expense

    2,303     2,269  

Amortization of deferred financing costs

    881     658  

Deferred tax (benefit) provision

    (1,866 )   4,386  

Changes in other assets and liabilities:

             

Interest receivable and other assets

    (3,467 )   (2,175 )

Interest payable

    3,237     (632 )

Accounts payable and other liabilities

    (4,913 )   (2,284 )

Deferred fees and other

    1,392     597  

Net cash provided by (used in) operating activities

    (143,157 )   55,766  

CASH FLOWS FROM FINANCING ACTIVITIES

             

Proceeds from public offering of common stock, net of offering costs

    11,336     37,711  

Dividends paid

    (31,872 )   (28,593 )

Proceeds from issuance of SBIC debentures

    22,000     25,400  

Repayments of SBIC debentures

    (4,000 )   (25,200 )

Proceeds from credit facility

    194,000     83,000  

Repayments on credit facility

    (70,000 )   (138,000 )

Payment of deferred issuance costs and SBIC debenture fees

    (533 )   (616 )

Purchases of vested stock for employee payroll tax withholding

    (212 )   (343 )

Net cash provided by (used in) financing activities

    120,719     (46,641 )

Net increase (decrease) in cash and cash equivalents

    (22,438 )   9,125  

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

    51,528     24,480  

CASH AND CASH EQUIVALENTS AT END OF PERIOD

  $ 29,090   $ 33,605  

Supplemental cash flow disclosures:

             

Interest paid

  $ 6,116   $ 8,552  

Taxes paid

  $ 3,320   $ 1,677  

Non-cash financing activities:

             

Shares issued pursuant to the DRIP

  $ 1,589   $ 1,806  

   

The accompanying notes are an integral part of these consolidated financial statements

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MAIN STREET CAPITAL CORPORATION

Consolidated Schedule of Investments

March 31, 2018

(dollars in thousands)

(unaudited)

Portfolio Company(1)(20)
  Business Description
  Type of Investment(2)(3)(27)
  Principal(4)
  Cost(4)
  Fair Value(18)
 
   

Control Investments(5)

 

 

 

 

                   

                           

Access Media Holdings, LLC(10)

 

Private Cable Operator

                       

     

10% PIK Secured Debt (Maturity—July 22, 2020)(14)(19)

  $ 23,828   $ 23,828   $ 15,120  

     

Preferred Member Units (8,550,000 units)

          8,444      

     

Member Units (45 units)

          1      

                  32,273     15,120  

                           

ASC Interests, LLC

 

Recreational and Educational Shooting Facility

                       

     

11% Secured Debt (Maturity—July 31, 2018)

    1,650     1,647     1,647  

     

Member Units (1,500 units)

          1,500     1,370  

                  3,147     3,017  

                           

ATS Workholding, LLC(10)

 

Manufacturer of Machine Cutting Tools and Accessories

                       

     

5% Secured Debt (Maturity—November 16, 2021)

    4,186     3,735     3,735  

     

Preferred Member Units (3,725,862 units)

          3,726     3,726  

                  7,461     7,461  

                           

Bond-Coat, Inc.

 

Casing and Tubing Coating Services

                       

     

12% Secured Debt (Maturity—December 28, 2020)

    11,596     11,596     11,596  

     

Common Stock (57,508 shares)

          6,350     9,370  

                  17,946     20,966  

                           

Brewer Crane Holdings, LLC

 

Provider of Crane Rental and Operating Services

                       

     

LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.66%, Secured Debt (Maturity—January 9, 2023)(9)

    9,920     9,825     9,825  

     

Preferred Member Units (2,950 units)(8)

          4,280     4,280  

                  14,105     14,105  

                           

Café Brazil, LLC

 

Casual Restaurant Group

                       

     

Member Units (1,233 units)(8)

          1,742     4,900  

                           

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MAIN STREET CAPITAL CORPORATION

Consolidated Schedule of Investments (Continued)

March 31, 2018

(dollars in thousands)

(unaudited)

Portfolio Company(1)(20)
  Business Description
  Type of Investment(2)(3)(27)
  Principal(4)
  Cost(4)
  Fair Value(18)
 
   

California Splendor Holdings LLC

 

Processor of Frozen Fruits

                       

     

LIBOR Plus 8.00% (Floor 1.00%), Current Coupon 10.38%, Secured Debt (Maturity—March 30, 2023)(9)

    3,730     3,610     3,610  

     

LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.38%, Secured Debt (Maturity—March 30, 2023)(9)

    28,000     27,723     27,723  

     

Preferred Member Units (7,143 units)

          12,500     12,500  

                  43,833     43,833  

                           

CBT Nuggets, LLC

 

Produces and Sells IT Training Certification Videos

                       

     

Member Units (416 units)(8)

          1,300     67,340  

                           

Chamberlin Holding LLC

 

Roofing and Waterproofing Specialty Subcontractor

                       

     

LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 12.13%, Secured Debt (Maturity—February 26, 2023)(9)

    21,600     21,389     21,389  

     

Member Units (4,347 units)

          11,440     11,440  

                  32,829     32,829  

                           

Charps, LLC

 

Pipeline Maintenance and Construction

                       

     

12% Secured Debt (Maturity—February 3, 2022)

    16,800     16,646     16,646  

     

Preferred Member Units (1,600 units)

          400     1,190  

                  17,046     17,836  

                           

Clad-Rex Steel, LLC

 

Specialty Manufacturer of Vinyl-Clad Metal

                       

     

LIBOR Plus 9.50% (Floor 1.00%), Current Coupon 11.16%, Secured Debt (Maturity—December 20, 2021)(9)

    13,280     13,174     13,280  

     

Member Units (717 units)(8)

          7,280     9,780  

     

10% Secured Debt (Clad-Rex Steel RE Investor, LLC) (Maturity—December 20, 2036)

    1,178     1,166     1,178  

     

Member Units (Clad-Rex Steel RE Investor, LLC) (800 units)

          210     280  

                  21,830     24,518  

                           

CMS Minerals Investments

 

Oil & Gas Exploration & Production

                       

     

Member Units (CMS Minerals II, LLC) (100 units)(8)

          3,294     2,385  

                           

Copper Trail Energy Fund I, LP(12)(13)

 

Investment Partnership

                       

     

LP Interests (Fully diluted 30.1%)(8)

          2,500     2,500  

                           

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MAIN STREET CAPITAL CORPORATION

Consolidated Schedule of Investments (Continued)

March 31, 2018

(dollars in thousands)

(unaudited)

Portfolio Company(1)(20)
  Business Description
  Type of Investment(2)(3)(27)
  Principal(4)
  Cost(4)
  Fair Value(18)
 
   

Datacom, LLC

 

Technology and Telecommunications Provider

                       

     

8% Secured Debt (Maturity—May 30, 2018)

    1,755     1,755     1,755  

     

5.25% Current / 5.25% PIK Secured Debt (Maturity—May 30, 2019)(19)

    12,511     12,479     10,780  

     

Class A Preferred Member Units

          1,181     220  

     

Class B Preferred Member Units (6,453 units)

          6,030      

                  21,445     12,755  

                           

Direct Marketing Solutions, Inc.

 

Provider of Omni-Channel Direct Marketing Services

                       

     

LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.75%, Secured Debt (Maturity—February 13, 2023)(9)

    18,722     18,523     18,523  

     

Preferred Stock (8,400 shares)

          8,400     8,400  

                  26,923     26,923  

                           

Gamber-Johnson Holdings, LLC

 

Manufacturer of Ruggedized Computer Mounting Systems

                       

     

LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.66%, Secured Debt (Maturity—June 24, 2021)(9)

    22,910     22,737     22,910  

     

Member Units (8,619 units)(8)

          14,844     26,530  

                  37,581     49,440  

                           

Garreco, LLC

 

Manufacturer and Supplier of Dental Products

                       

     

LIBOR Plus 10.00% (Floor 1.00%), Current Coupon 11.69%, Secured Debt (Maturity—March 31, 2020)(9)

    5,362     5,327     5,327  

     

Member Units (1,200 units)

          1,200     1,940  

                  6,527     7,267  

                           

GRT Rubber Technologies LLC

 

Manufacturer of Engineered Rubber Products

                       

     

LIBOR Plus 9.00% (Floor 1.00%), Current Coupon 10.66%, Secured Debt (Maturity—December 19, 2019)(9)

    11,393     11,347     11,393  

     

Member Units (5,879 units)(8)

          13,065     23,420  

                  24,412     34,813  

                           

Gulf Manufacturing, LLC

 

Manufacturer of Specialty Fabricated Industrial Piping Products

                       

     

Member Units (438 units)(8)

          2,980     10,830  

                           

S-43


Table of Contents


MAIN STREET CAPITAL CORPORATION

Consolidated Schedule of Investments (Continued)

March 31, 2018

(dollars in thousands)

(unaudited)

Portfolio Company(1)(20)
  Business Description
  Type of Investment(2)(3)(27)
  Principal(4)
  Cost(4)
  Fair Value(18)
 
   

Gulf Publishing Holdings, LLC

 

Energy Industry Focused Media and Publishing

                       

     

12.5% Secured Debt (Maturity—April 29, 2021)

    12,698     12,608     12,608  

     

Member Units (3,681 units)

          3,681     4,840  

                  16,289     17,448  

                           

Harborside Holdings, LLC

 

Real Estate Holding Company

                       

     

Member units (100 units)

          6,306     9,500  

                           

Harris Preston Fund Investments(12)(13)

 

Investment Partnership

                       

     

LP Interests (2717 MH, L.P.) (Fully diluted 49.3%)

          536     536  

                           

Harrison Hydra-Gen, Ltd.

 

Manufacturer of Hydraulic Generators

                       

     

Common Stock (107,456 shares)

          718     4,980  

                           

HW Temps LLC

 

Temporary Staffing Solutions

                       

     

LIBOR Plus 11.00% (Floor 1.00%), Current Coupon 12.66%, Secured Debt (Maturity July 2, 2020)(9)

    9,976     9,922     9,922  

     

Preferred Member Units (3,200 units)

          3,942     3,940  

                  13,864     13,862  

                           

IDX Broker, LLC

 

Provider of Marketing and CRM Tools for the Real Estate Industry

                       

     

11.5% Secured Debt (Maturity—November 15, 2020)

    14,950     14,828     14,950  

     

Preferred Member Units (5,607 units)(8)

          5,952     11,550  

                  20,780     26,500  

                           

Jensen Jewelers of Idaho, LLC

 

Retail Jewelry Store

                       

     

Prime Plus 6.75% (Floor 2.00%), Current Coupon 11.25%, Secured Debt (Maturity—November 14, 2019)(9)

    3,805     3,771     3,805  

     

Member Units (627 units)(8)

          811     5,100  

                  4,582     8,905  

                           

KBK Industries, LLC

 

Manufacturer of Specialty Oilfield and Industrial Products

                       

     

10% Secured Debt (Maturity—September 28, 2020)

    75     72     75  

     

12.5% Secured Debt (Maturity—September 28, 2020)

    5,900     5,870     5,900  

     

Member Units (325 units)(8)

          783     4,740  

                  6,725     10,715  

                           

S-44


Table of Contents


MAIN STREET CAPITAL CORPORATION

Consolidated Schedule of Investments (Continued)

March 31, 2018

(dollars in thousands)

(unaudited)

Portfolio Company(1)(20)
  Business Description
  Type of Investment(2)(3)(27)
  Principal(4)
  Cost(4)
  Fair Value(18)
 
   

Lamb Ventures, LLC

 

Aftermarket Automotive Services Chain

                       

     

11% Secured Debt (Maturity—July 1, 2022)

    8,339     8,298     8,339  

     

Preferred Equity (non-voting)

          400     400  

     

Member Units (742 units)

          5,273     6,730  

     

9.5% Secured Debt (Lamb's Real Estate Investment I, LLC) (Maturity—March 31, 2027)

    432     428     432  

     

Member Units (Lamb's Real Estate Investment I, LLC) (1,000 units)(8)

          625     520