Quarterly report pursuant to Section 13 or 15(d)

DEBT

v3.23.3
DEBT
 9 Months Ended
Sep. 30, 2023
Debt Disclosure [Abstract]  
DEBT DEBT
Summary of debt as of September 30, 2023 is as follows:
Outstanding
Balance
Unamortized Debt
Issuance
(Costs)/Premiums (1)
Recorded Value
Estimated Fair
Value (2)
(dollars in thousands)
Corporate Facility $ 323,000  $ —  $ 323,000  $ 323,000 
SPV Facility 170,000  —  170,000  170,000 
July 2026 Notes
 500,000  (1,470) 498,530  442,405 
May 2024 Notes
 450,000  318  450,318  445,406 
SBIC Debentures 350,000  (5,761) 344,239  284,128 
December 2025 Notes
 150,000  (1,165) 148,835  150,781 
Total Debt $ 1,943,000  $ (8,078) $ 1,934,922  $ 1,815,720 
____________________
(1)The unamortized debt issuance costs for the Credit Facilities are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the July 2026 Notes, May 2024 Notes, SBIC Debentures and December 2025 Notes are reflected as contra-liabilities on the Consolidated Balance Sheets.
(2)Estimated fair value for outstanding debt if Main Street had adopted the fair value option under ASC 825. See discussion of the methods used to estimate the fair value of Main Street’s debt in Note B.11. — Summary of Significant Accounting Policies — Fair Value of Financial Instruments.
Summary of debt as of December 31, 2022 is as follows:
Outstanding
Balance
Unamortized Debt
Issuance
(Costs)/Premiums (1)
Recorded Value
Estimated Fair
Value (2)
(dollars in thousands)
Corporate Facility $ 407,000  $ —  $ 407,000  $ 407,000 
SPV Facility 200,000  —  200,000  200,000 
July 2026 Notes
 500,000  (1,864) 498,136  434,250 
May 2024 Notes
 450,000  727  450,727  444,749 
SBIC Debentures 350,000  (6,086) 343,914  290,204 
December 2025 Notes
 100,000  (675) 99,325  106,607 
Total Debt $ 2,007,000  $ (7,898) $ 1,999,102  $ 1,882,810 
____________________
(1)The unamortized debt issuance costs for the Credit Facilities are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the July 2026 Notes, May 2024 Notes, SBIC Debentures and December 2025 Notes are reflected as contra-liabilities on the Consolidated Balance Sheets.
(2)Estimated fair value for outstanding debt if Main Street had adopted the fair value option under ASC 825. See discussion of the methods used to estimate the fair value of Main Street’s debt in Note B.11. — Summary of Significant Accounting Policies — Fair Value of Financial Instruments.
Summarized interest expense for the three and nine months ended September 30, 2023 and 2022 is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2023
2022
2023
2022
(dollars in thousands)
Corporate Facility $ 7,157  $ 6,551  $ 21,666  $ 11,249 
SPV Facility 3,665  —  10,605  — 
July 2026 Notes
 3,882  3,882  11,645  11,645 
May 2024 Notes
 5,714  5,714  17,141  17,141 
SBIC Debentures 2,965  2,855  8,435  8,482 
December 2025 Notes
 3,031  —  8,673  — 
December 2022 Notes
 —  2,233  —  6,699 
Total Interest Expense $ 26,414  $ 21,234  $ 78,165  $ 55,216 
Corporate Facility
Main Street maintains the Corporate Facility to provide additional liquidity to support its investment and operational activities. As of September 30, 2023, the Corporate Facility included total commitments of $995.0 million from a diversified group of 18 lenders and contained an accordion feature with the right to request an increase in commitments under the facility from new and existing lenders on the same terms and conditions as the existing commitments up to a total of $1.4 billion. The revolving period under the Corporate Facility expires in August 2026 and the Corporate Facility is scheduled to mature in August 2027.
As of September 30, 2023, borrowings under the Corporate Facility bore interest, subject to Main Street’s election and resetting on a monthly basis on the first of each month, on a per annum basis at a rate equal to the applicable SOFR rate plus an applicable credit spread adjustment of 0.10% plus (i) 1.875% (or the applicable Prime rate plus 0.875%) as long as Main Street meets certain agreed upon excess collateral and maximum leverage requirements or (ii) 2.0% (or the applicable Prime Rate plus 1.0%) otherwise. Main Street pays unused commitment fees of 0.25% per annum on the unused
lender commitments under the Corporate Facility. The Corporate 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. In connection with the Corporate Facility, MSCC has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.
As of September 30, 2023, the interest rate on the Corporate Facility was 7.3%. The average interest rate for borrowings under the Corporate Facility was 7.2% and 4.1% for the three months ended September 30, 2023 and 2022, respectively, and 6.9% and 2.9% for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, Main Street was in compliance with all financial covenants of the Corporate Facility.
SPV Facility
In November 2022 and December 2022, MSCC Funding I, LLC (“MSCC Funding”), a wholly-owned Structured Subsidiary that primarily holds originated loan investments, entered into (i) the SPV Facility with MSCC as collateral manager and (ii) a lender joinder agreement (the “Joinder Agreement”) to the SPV Facility that increased the total number of lenders from three to four lenders and increased the total commitments under the SPV Facility from $240.0 million to $255.0 million, respectively. As of September 30, 2023, the SPV Facility included total commitments of $255.0 million and an accordion feature, subject to the satisfaction of various conditions, that could bring total commitments and borrowing availability to up to $450.0 million. The revolving period under the SPV Facility expires in November 2025 and the SPV Facility is scheduled to mature in November 2027. Advances under the SPV Facility bear interest at a per annum rate equal to the one-month SOFR in effect, plus a 0.10% credit spread adjustment plus an applicable margin of 2.50% during the revolving period and 2.625% and 2.75% during the first and second years thereafter, respectively. MSCC Funding pays a commitment fee of 0.50% per annum on the unused lender commitments up to 35% of the total lender commitments and 0.75% per annum on the unused lender commitments greater than 35% of the total lender commitments. The SPV Facility is secured by a collateral loan on the assets of MSCC Funding and its subsidiaries. In connection with the SPV Facility, MSCC Funding has made customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.
As of September 30, 2023, the interest rate on the SPV Facility was 7.9%. The average interest rate for borrowings under the SPV Facility was 7.9% for the three months ended September 30, 2023, and 7.5% for the nine months ended September 30, 2023. As of September 30, 2023, MSCC Funding was in compliance with all financial covenants of the SPV Facility.
MSCC Funding balance sheets as of September 30, 2023 and December 31, 2022 are as follows:
Balance Sheets
(dollars in thousands)
September 30, 2023 December 31, 2022
(Unaudited)
ASSETS
Investments at fair value:
Non-Control Investments (cost: $321,084 and $314,752 as of September 30, 2023 and December 31, 2022, respectively)
 $ 323,403  $ 316,507 
Cash and cash equivalents 11,555  10,838 
Interest and dividend receivable and other assets 3,305  2,828 
Accounts receivable to MSCC and its subsidiaries —  556 
Receivable for securities sold —  369 
Deferred financing costs (net of accumulated amortization of $572 and $141 as of September 30, 2023 and December 31, 2022, respectively)
 2,423  2,630 
Total assets 340,686  333,728 
LIABILITIES
SPV Facility $ 170,000  $ 200,000 
Accounts payable and other liabilities 7,076  112 
Interest payable 1,162  1,272 
Total liabilities 178,238  201,384 
NET ASSETS
Contributed capital 138,163  126,010 
Total undistributed earnings 24,285  6,334 
Total net assets 162,448  132,344 
Total liabilities and net assets $ 340,686  $ 333,728 
MSCC Funding statement of operations for the three and nine months ended September 30, 2023 are as follows:
Statement of Operations
(dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, 2023
INVESTMENT INCOME:
Interest, fee and dividend income:
Non‑Control/Non‑Affiliate investments $ 10,615  $ 29,205 
Total investment income 10,615  29,205 
EXPENSES:
Interest (3,666) (10,605)
Management Fee to MSCC (421) (1,107)
General and administrative (55) (105)
Total expenses (4,142) (11,817)
NET INVESTMENT INCOME 6,473  17,388 
NET UNREALIZED APPRECIATION (DEPRECIATION):
Non‑Control/Non‑Affiliate investments (1) 563 
Total net unrealized appreciation (depreciation) (1) 563 
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,472  $ 17,951 
July 2026 Notes
In January 2021, Main Street issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due July 14, 2026 (the “July 2026 Notes”) at an issue price of 99.004%. Subsequently, in October 2021, Main Street issued an additional $200.0 million aggregate principal amount of the July 2026 Notes at an issue price of 101.741%. The July 2026 Notes issued in October 2021 have identical terms as, and are a part of a single series with, the July 2026 Notes issued in January 2021. The July 2026 Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness. The July 2026 Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The July 2026 Notes bear interest at a rate of 3.00% per year payable semiannually on January 14 and July 14 of each year.
As of September 30, 2023, Main Street was in compliance with all covenants and other requirements of the July 2026 Notes.
May 2024 Notes
In April 2019, Main Street issued $250.0 million in aggregate principal amount of 5.20% unsecured notes due May 1, 2024 (the “May 2024 Notes”) at an issue price of 99.125%. Subsequently, in December 2019, Main Street issued an additional $75.0 million aggregate principal amount of the May 2024 Notes at an issue price of 105.0% and, in July 2020, Main Street issued an additional $125.0 million aggregate principal amount at an issue price of 102.7%. The May 2024 Notes issued in December 2019 and July 2020 have identical terms as, and are a part of a single series with, the May 2024 Notes issued in April 2019. The May 2024 Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness. The May 2024 Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The May 2024 Notes bear interest at a rate of 5.20% per year payable semiannually on May 1 and November 1 of each year.
As of September 30, 2023, Main Street was in compliance with all covenants and other requirements of the May 2024 Notes.
SBIC Debentures
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. Main Street’s SBIC debentures payable, under existing SBA-approved commitments, were $350.0 million as of both September 30, 2023 and December 31, 2022. SBIC debentures provide for interest to be paid semiannually, with principal due at the applicable 10-year maturity date of each debenture. Main Street expects to maintain SBIC debentures under the SBIC program in the future, subject to periodic repayments and borrowings, in an amount up to the regulatory maximum amount for affiliated SBIC funds. The weighted-average annual interest rate on the SBIC debentures was 3.0% and 2.9% as of September 30, 2023 and December 31, 2022, respectively. The first principal maturity due under the existing SBIC debentures is in 2024, and the weighted-average remaining duration as of September 30, 2023 was 4.9 years. In accordance with SBIC regulations, the Funds are precluded from incurring additional non-SBIC debt without the prior approval of the SBA.
As of September 30, 2023, the SBIC debentures consisted of (i) $175.0 million par value of SBIC debentures outstanding issued by MSMF, with a recorded value of $171.9 million that was net of unamortized debt issuance costs of $3.1 million and (ii) $175.0 million par value of SBIC debentures issued by MSC III with a recorded value of $172.3 million that was net of unamortized debt issuance costs of $2.7 million.
December 2025 Notes
In December 2022, Main Street issued $100.0 million in aggregate principal amount of 7.84% Series A unsecured notes due December 23, 2025 (the “December 2025 Series A Notes”) at par. In February 2023, Main Street issued an additional $50.0 million in aggregate principal amount of 7.53% Series B unsecured notes due December 23, 2025 (the “December 2025 Series B Notes” and, together with the December 2025 Series A Notes, the “December 2025 Notes”), at par. The December 2025 Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness. The December 2025 Notes may be redeemed in whole or in part at any time at Main Street’s option at par plus accrued interest to the prepayment date, subject to certain make-whole provisions. The December 2025 Series A Notes and the December 2025 Series B Notes bear interest at a rate of 7.84% and 7.53% per year, respectively, payable semiannually on June 23 and December 23 of each year. In addition, Main Street is obligated to offer to repay the December 2025 Notes at par plus accrued and unpaid interest if certain change in control events occur. The December 2025 Notes will bear interest at an increased rate from the date that (i) the December 2025 Notes receive a below investment grade rating by a rating agency if there is one or two rating agencies providing ratings of the December 2025 Notes, or two-thirds of the rating agencies if there are three rating agencies who are rating the notes (a “Below Investment Grade Event”), or (ii) the ratio of the Company’s consolidated secured indebtedness (other than indebtedness of the Funds or any Structured Subsidiaries) to the value of its consolidated total assets is greater than 0.35 to 1.00 (a “Secured Debt Ratio Event”), to and until the date on which the Below Investment Grade Event and the Secured Debt Ratio Event are no longer continuing. The governing agreement for the December 2025 Notes contains customary terms and conditions for senior unsecured notes issued in a private placement, as well as customary events of default with customary cure and notice periods.
As of September 30, 2023, Main Street was in compliance with all covenants and other requirements of the December 2025 Notes.
December 2022 Notes
In November 2017, Main Street issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due December 1, 2022 (the “December 2022 Notes”) at an issue price of 99.16%. The December 2022 Notes bore interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year. In December 2022, Main Street repaid the entire principal amount of the issued and outstanding December 2022 Notes at par value plus the accrued and unpaid interest.