Main Street Announces Third Quarter 2017 Financial Results

HOUSTON, Nov. 2, 2017 /PRNewswire/ -- Main Street Capital Corporation (NYSE: MAIN) ("Main Street") announced today its financial results for the third quarter of 2017.

Third Quarter 2017 Highlights

• Net investment income of $34.0 million (or $0.60 per share), representing an 11% increase from the third quarter of 2016
• Distributable net investment income⁽¹⁾ of $36.5 million (or $0.64 per share), representing a 12% increase from the third quarter of 2016
• Total investment income of $51.8 million, representing an 11% increase from the third quarter of 2016
• Industry leading ratio of total non-interest operating expenses as a percentage of quarterly average total assets ("Operating Expense to Assets Ratio") on an annualized basis of 1.5%
• Net asset value of $23.02 per share at September 30, 2017, representing an increase of $0.92 per share, or 4.2%, compared to $22.10 per share at December 31, 2016, or an increase of $1.20 per share, or 5.4%, after excluding the effect of the semi-annual supplemental cash dividend paid in June 2017
• Net increase in net assets resulting from operations of $34.9 million (or $0.61 per share)
• Return on equity⁽²⁾ for the trailing twelve month period ended September 30, 2017 of 12.7%
• Declared regular monthly dividends totaling $0.57 per share for the fourth quarter of 2017, or $0.19 per share for each of October, November and December 2017, representing a 2.7% increase from the regular monthly dividends paid for the fourth quarter of 2016
• Completed $45.0 million in total lower middle market ("LMM") portfolio investments, including investments totaling $38.7 million in one new LMM portfolio company, which after aggregate repayments of debt principal and return of invested equity capital from several LMM portfolio investments resulted in a net decrease of $10.8 million in total LMM portfolio investments
• Net decrease of $14.5 million in middle market portfolio investments
• Net increase of $105.4 million in private loan portfolio investments
• Amended our long-term revolving credit facility ("Credit Facility") to increase the total commitments to $585.0 million from a diversified group of fifteen participating lenders

In commenting on Main Street's results, Vincent D. Foster, Main Street's Chairman and Chief Executive Officer, stated, "We are pleased with our operating results for the third quarter of 2017, a quarter during which we increased our total investment income and our distributable net investment income per share, both on a sequential basis over the second quarter of 2017 and over the same period in the prior year. As a result of our positive performance, we again generated distributable net investment income per share in excess of our regular monthly dividends, exceeding the regular monthly dividends paid during the quarter by over 15%."

Third Quarter 2017 Operating Results

The following table provides a summary of our operating results for the third quarter of 2017:

The $5.2 million increase in total investment income in the third quarter of 2017 from the comparable period of the prior year was principally attributable to (i) a $4.2 million increase in interest income primarily related to higher average levels of portfolio debt investments, (ii) a $0.6 million increase in fee income, and (iii) a $0.4 million increase in dividend income from investment portfolio equity investments. The total investment income in the third quarter of 2017 includes $1.7 million related to dividend income activity from portfolio companies that is considered to be less consistent on a recurring basis or non-recurring which is consistent with the amount from such dividend activity in the same period in 2016 and an increase of $0.4 million primarily related to higher accelerated prepayment, repricing and other activity for certain middle market portfolio debt investments when compared to the same period in 2016.

Cash operating expenses (total operating expenses excluding non-cash, share-based compensation expense) increased to $15.3 million in the third quarter of 2017 from $13.9 million for the corresponding period of 2016. This comparable period increase in cash operating expenses was principally attributable to (i) a $0.8 million increase in interest expense primarily due to the higher average interest rate on our Credit Facility in the third quarter of 2017, (ii) a $0.5 million increase in general and administrative expenses and (iii) a $0.5 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 $0.4 million increase in the expenses allocated to the external investment manager, a wholly owned portfolio company and registered investment advisor that provides investment management services to third parties (the "External Investment Manager"), in each case when compared to the same period in the prior year. For the third quarter of 2017, our Operating Expense to Assets Ratio was 1.5% on an annualized basis, which is consistent with the ratio on an annualized basis for the third quarter of 2016 and for the year ended December 31, 2016.

The $3.8 million increase in distributable net investment income, which is net investment income before non-cash, share-based compensation expense, was primarily due to the higher level of total investment income, partially offset by higher operating expenses as discussed above.⁽¹⁾ Distributable net investment income on a per share basis for the third quarter of 2017 reflects (i) an increase of approximately $0.01 per share from the comparable period in 2016 attributable to the net increase in the comparable levels of accelerated prepayment, repricing and other activity for certain investment portfolio debt investments and (ii) a greater number of average shares outstanding compared to the corresponding period in 2016 primarily due to shares issued through our at-the-market, or ATM, program, shares issued pursuant to our equity incentive plans and shares issued pursuant to our dividend reinvestment plan.

The $8.3 million decrease in the net increase in net assets resulting from operations was primarily the result of (i) a $15.0 million decrease in the net realized gain (loss) from investments, from a net realized gain from investments of $4.3 million for the third quarter of 2016 to a net realized loss from investments of $10.7 million for the third quarter of 2017, and (ii) a $5.1 million change in the income tax benefit (provision) to a $4.6 million income tax provision for the third quarter of 2017, with these changes partially offset by (i) an $8.0 million increase in net change in unrealized appreciation (depreciation) from portfolio investments, including the impact of accounting reversals relating to realized gains/income (losses) and (ii) a $3.5 million increase in net investment income as discussed above. The net realized loss from investments of $10.7 million for the third quarter of 2017 was primarily the result of (i) the net realized loss of $9.2 million resulting from losses on the exit of two LMM investments, partially offset by the gains on the exit of three LMM investments and (ii) the net realized loss of $1.8 million in our middle market portfolio, which is primarily the result of the loss of $2.3 million on the exit of a middle market investment, partially offset by $0.5 million of net gains on other activity in our middle market portfolio.

The following table provides a summary of the total net unrealized appreciation of $16.1 million for the third quarter of 2017:

The income tax provision for the third quarter of 2017 of $4.6 million principally consisted of a deferred tax provision of $3.8 million, which is primarily the result of the net activity relating to our portfolio investments held in our taxable subsidiaries, including changes in net operating loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences, and other current tax expense of $0.8 million related to (i) a $0.5 million accrual for excise tax on our estimated undistributed taxable income and (ii) other current tax expense of $0.3 million related to accruals for U.S. federal and state income taxes.

Liquidity and Capital Resources

As of September 30, 2017, we had $30.1 million in cash and cash equivalents and $230.0 million of unused capacity under our Credit Facility, which we maintain to support our investment and operating activities.

Several details regarding our capital structure as of September 30, 2017 are as follows:

• Our Credit Facility included $585.0 million in total commitments from a diversified group of fifteen participating lenders, plus an accordion feature which allows us to increase the total commitments under the facility to up to $750.0 million.
• $355.0 million in outstanding borrowings under our Credit Facility, bearing interest at an annual interest rate of 3.1%.
• $274.8 million of outstanding SBIC debentures through our three wholly owned SBIC subsidiaries, with $75.2 million of remaining capacity under the permitted maximum amount of SBIC debentures of $350.0 million. These debentures, which are guaranteed by the U.S. Small Business Administration, had a weighted-average annual fixed interest rate of approximately 3.8% and mature ten years from original issuance. The first maturity related to our SBIC debentures does not occur until 2019, and the weighted-average remaining duration was approximately 5.8 years.
• $175.0 million of notes outstanding that bear interest at a rate of 4.50% per year (the "4.50% Notes"). The 4.50% Notes 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.
• $90.7 million of notes outstanding that bear interest at a rate of 6.125% per year (the "6.125% Notes"). The 6.125% Notes mature on April 1, 2023, and may be redeemed in whole or in part at our option on or after April 1, 2018. The 6.125% Notes are listed on the New York Stock Exchange and trade under the symbol "MSCA."
• Our net asset value totaled $1,329.7 million, or $23.02 per share.

Investment Portfolio Information as of September 30, 2017⁽³⁾

The following table provides a summary of the investments in our LMM portfolio, middle market portfolio and private loan portfolio as of September 30, 2017:

The fair value of our LMM portfolio company equity investments was approximately 168% of the cost of such equity investments and our LMM portfolio companies had a median net senior debt (senior interest-bearing debt through our debt position less cash and cash equivalents) to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) ratio of 3.0 to 1.0 and a median total EBITDA to senior interest expense ratio of 2.6 to 1.0. Including all debt that is junior in priority to our debt position, these median ratios were 3.3 to 1.0 and 2.4 to 1.0, respectively.^{(3) (4)}

As of September 30, 2017, we had other portfolio investments in eleven companies, collectively totaling $99.2 million in fair value and $105.6 million in cost basis, which comprised approximately 4.6% of our investment portfolio at fair value.

As of September 30, 2017, there was no cost basis in our investment in the External Investment Manager and this investment had a fair value of $39.3 million, which comprised approximately 1.8% of our investment portfolio at fair value.

As of September 30, 2017, we had six investments on non-accrual status, which comprised approximately 0.4% of the total investment portfolio at fair value and approximately 2.7% of its cost. Our total portfolio investments at fair value were approximately 106% of the related cost basis as of September 30, 2017.

External Investment Manager

The External Investment Manager maintains an investment sub-advisory relationship with HMS Income Fund, Inc., a non-listed business development company ("HMS Income"), and earns management fees for the services provided to HMS Income. During the third quarter of 2017, the External Investment Manager generated $2.8 million of fee income from this relationship, and HMS Income ended the third quarter of 2017 with total assets of over $1.1 billion. The relationship with HMS Income benefited our net investment income by $2.4 million in the third quarter of 2017 through a $1.7 million reduction of our operating expenses for expenses we allocated to the External Investment Manager for services we provided to it and $0.7 million of dividend income we received from the External Investment Manager.

Third Quarter 2017 Financial Results Conference Call / Webcast

Main Street has scheduled a conference call for Friday, November 3, 2017 at 10:00 a.m. Eastern Time to discuss the third quarter 2017 financial results.

You may access the conference call by dialing 412-902-0030 at least 10 minutes prior to the start time. The conference call can also be accessed via a simultaneous webcast by logging into the investor relations section of the Main Street web site at http://www.mainstcapital.com.

A telephonic replay of the conference call will be available through Friday, November 10, 2017 and may be accessed by dialing 201-612-7415 and using the passcode 13672313#. An audio archive of the conference call will also be available on the investor relations section of the company's website at http://www.mainstcapital.com shortly after the call and will be accessible for approximately 90 days.

For a more detailed discussion of the financial and other information included in this press release, please refer to the Main Street Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2017 to be filed with the Securities and Exchange Commission (www.sec.gov) and Main Street's Third Quarter 2017 Investor Presentation to be posted on the investor relations section of the Main Street website at http://www.mainstcapital.com.

ABOUT MAIN STREET CAPITAL CORPORATION

Main Street (www.mainstcapital.com) is a principal investment firm that primarily provides long-term debt and equity capital to lower middle market companies and debt capital to middle market companies. Main Street's portfolio investments are typically made to support management buyouts, recapitalizations, growth financings, refinancings and acquisitions of companies that operate in diverse industry sectors. Main Street seeks to partner with entrepreneurs, business owners and management teams and generally provides "one stop" financing alternatives within its lower middle market portfolio. Main Street's lower middle market companies generally have annual revenues between $10 million and $150 million. Main Street's middle market debt investments are made in businesses that are generally larger in size than its lower middle market portfolio companies.

Main Street's common stock trades on the New York Stock Exchange ("NYSE") under the symbol "MAIN." In addition, Main Street has outstanding 6.125% Notes due 2023, which trade on the NYSE under the symbol "MSCA."

FORWARD-LOOKING STATEMENTS

Main Street cautions that statements in this press release which are forward-looking and provide other than historical information involve risks and uncertainties that may impact its future results of operations. The forward-looking statements in this press release are based on current conditions and include statements regarding Main Street's goals, beliefs, strategies and future operating results and cash flows. Although its management believes that the expectations reflected in those forward-looking statements are reasonable, Main Street can give no assurance that those expectations will prove to have been correct. Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: Main Street's continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which its portfolio companies operate; changes in laws and regulations that may adversely impact its operations or the operations of one or more of its portfolio companies; the operating and financial performance of its portfolio companies; retention of key investment personnel; competitive factors; and such other factors described under the captions "Cautionary Statement Concerning Forward Looking Statements" and "Risk Factors" included in its filings with the Securities and Exchange Commission (www.sec.gov). Main Street undertakes no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations.

Contacts:
Main Street Capital Corporation
Dwayne L. Hyzak, President & COO, dhyzak@mainstcapital.com
Brent D. Smith, CFO, bsmith@mainstcapital.com
713-350-6000

Dennard Lascar Investor Relations
Ken Dennard / ken@dennardlascar.com
Mark Roberson / mroberson@dennardlascar.com
713-529-6600

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SOURCE Main Street Capital Corporation