Main Street Capital Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

FAIR VALUE HIERARCHY FOR INVESTMENTS???PORTFOLIO COMPOSITION (Tables)

FAIR VALUE HIERARCHY FOR INVESTMENTS—PORTFOLIO COMPOSITION (Tables)

12 Months Ended

Dec. 31, 2022

Schedule of Fair Value Measurement Inputs and Valuation Techniques

The following tables provide a summary of the significant unobservable inputs used to fair value Main Street’s Level 3 portfolio investments as of December 31, 2022 and 2021:


Type of Investment	Fair Value as of December 31, 2022 (in thousands)		Valuation Technique	Significant Unobservable Inputs	Range(3)	Weighted Average(3)		Median(3)
Equity investments	$	1,172,077	Discounted cash flow	WACC	9.4% - 22.5%	14.5	%	15.4	%
			Market comparable / Enterprise value	EBITDA multiple (1)	4.3x - 8.3x (2)	6.7x		6.0x
Debt investments	$	2,663,958	Discounted cash flow	Risk adjusted discount factor	5.7% - 15.7% (2)	10.0	%	10.3	%
				Expected principal recovery percentage	0.0% - 100.0%	99.4	%	100.0	%
Debt investments	$	264,238	Market approach	Third-party quote	5.6 - 98.5	87.0		91.4
Total Level 3 investments	$	4,100,273

______________________

(1)EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.

(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.0x - 15.7x and the range for risk adjusted discount factor is 3.8% - 43.3%.

(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.


Type of Investment	Fair Value as of December 31, 2021 (in thousands)		Valuation Technique	Significant Unobservable Inputs	Range(3)	Weighted Average(3)		Median(3)
Equity investments	$	1,050,269	Discounted cash flow	WACC	9.1% - 20.6%	13.8	%	14.8	%
			Market comparable / Enterprise value	EBITDA multiple (1)	4.8x - 7.7x (2)	6.6x		5.9x
Debt investments	$	2,158,424	Discounted cash flow	Risk adjusted discount factor	5.6% - 15.7%(2)	9.8	%	9.3	%
				Expected principal recovery percentage	0.0% - 100.0%	99.6	%	100.0	%
Debt investments	$	351,144	Market approach	Third-party quote	3.0 - 100.5	94.4		99.0
Total Level 3 investments	$	3,559,837

______________________

(1)EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.

(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.2x - 11.0x and the range for risk adjusted discount factor is 4.2% - 38.5%.

(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.

Summary of Changes in Fair Value of Main Street’s Level 3 Portfolio Investments

The following tables provide a summary of changes in fair value of Main Street’s Level 3 portfolio investments for the years ended December 31, 2022 and 2021 (amounts in thousands):


Type of Investment	Fair Value as of December 31, 2021		Transfers Into Level 3 Hierarchy		Redemptions/ Repayments		New Investments		Net Changes from Unrealized to Realized		Net Unrealized Appreciation (Depreciation)		Other(1)		Fair Value as of December 31, 2022
Debt	$	2,509,568	$	—	$	(590,740)	$	1,085,808	$	19,674	$	(89,178)	$	(6,936)	$	2,928,196
Equity	1,043,709		—		(55,197)		74,274		(12,234)		109,154		6,936		1,166,643
Equity Warrant	6,560		—		(655)		1,036		(1,834)		327		—		5,434
	$	3,559,837	$	—	$	(646,592)	$	1,161,118	$	5,606	$	20,303	$	—	$	4,100,273

______________________

(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.


Type of Investment	Fair Value as of December 31, 2020		Transfers Into Level 3 Hierarchy		Redemptions/ Repayments		New Investments		Net Changes from Unrealized to Realized		Net Unrealized Appreciation (Depreciation)		Other(1)		Fair Value as of December 31, 2021
Debt	$	1,807,134	$	—	$	(909,464)	$	1,608,143	$	18,397	$	(10,844)	$	(3,798)	$	2,509,568
Equity	866,734		—		(78,824)		106,193		(27,260)		170,786		6,080		1,043,709
Equity Warrant	10,998		—		(1,071)		—		(2,159)		1,074		(2,282)		6,560
	$	2,684,866	$	—	$	(989,359)	$	1,714,336	$	(11,022)	$	161,016	$	—	$	3,559,837

______________________

(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.

Schedule of Portfolio Investments by Level in the Fair Value Hierarchy

At December 31, 2022 and 2021, Main Street’s investments at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:


			Fair Value Measurements
			(in thousands)
At December 31, 2022	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
LMM portfolio investments	$	2,060,459	$	—	$	—	$	2,060,459
Private Loan portfolio investments	1,471,466		—		—		1,471,466
Middle Market portfolio investments	329,119		—		—		329,119
Other Portfolio investments	116,299		—		—		116,299
External Investment Manager	122,930		—		—		122,930
Short-term portfolio investments	1,904		—		1,904		—
Total investments	$	4,102,177	$	—	$	1,904	$	4,100,273


			Fair Value Measurements
			(in thousands)
At December 31, 2021	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
LMM portfolio investments	$	1,716,415	$	—	$	—	$	1,716,415
Private Loan portfolio investments	1,141,772		—		—		1,141,772
Middle Market portfolio investments	395,167		—		—		395,167
Other Portfolio investments	166,083		—		—		166,083
External Investment Manager	140,400		—		—		140,400
Short-term portfolio investments	1,994		—		1,994		—
Total investments	$	3,561,831	$	—	$	1,994	$	3,559,837

Summary Investment Holdings

The following tables provide a summary of Main Street’s investments in the LMM, Private Loan and Middle Market portfolios as of December 31, 2022 and 2021 (this information excludes Other Portfolio investments, short-term portfolio investments and the External Investment Manager, which are discussed further below):


	As of December 31, 2022
	LMM (a)			Private Loan			Middle Market
	(dollars in millions)
Number of portfolio companies	78			85			31
Fair value	$	2,060.5		$	1,471.5		$	329.1
Cost	$	1,719.9		$	1,500.3		$	401.7
Debt investments as a % of portfolio (at cost)	73.7		%	97.1		%	93.8		%
Equity investments as a % of portfolio (at cost)	26.3		%	2.9		%	6.2		%
% of debt investments at cost secured by first priority lien	99.1		%	99.6		%	98.8		%
Weighted-average annual effective yield (b)	12.3		%	11.6		%	11.0		%
Average EBITDA (c)	$	8.0		$	38.1		$	68.7

______________________

(a)At December 31, 2022, Main Street had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 41%.

(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2022, 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. The weighted-average annual effective yield on Main Street’s debt portfolio as of December 31, 2022 including debt investments on non-accrual status was 11.6% for its LMM portfolio, 11.2% for its Private Loan portfolio and 10.3% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of Main Street’s common stock will realize on its investment because it does not reflect changes in the market value of Main Street’s stock, Main Street’s utilization of debt capital in its capital structure, Main Street’s 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 Private Loan and Middle Market portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies and two Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for Main Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.


	As of December 31, 2021
	LMM (a)			Private Loan			Middle Market
	(dollars in millions)
Number of portfolio companies	73			75			36
Fair value	$	1,716.4		$	1,141.8		$	395.2
Cost	$	1,455.7		$	1,157.5		$	440.9
Debt investments as a % of portfolio (at cost)	70.9		%	95.7		%	93.3		%
Equity investments as a % of portfolio (at cost)	29.1		%	4.3		%	6.7		%
% of debt investments at cost secured by first priority lien	99.0		%	98.7		%	98.7		%
Weighted-average annual effective yield (b)	11.2		%	8.2		%	7.5		%
Average EBITDA (c)	$	6.2		$	41.3		$	76.0

______________________

(a)At December 31, 2021, Main Street had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 40%.

(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2021, 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. The weighted-average annual effective yield on Main Street’s debt portfolio as of December 31, 2021 including debt investments on non-accrual status was 10.6% for its LMM portfolio, 8.0% for its Private Loan portfolio and 6.9% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of Main Street’s common stock will realize on its investment because it does not reflect changes in the market value of Main Street’s stock, Main Street’s utilization of debt capital in its capital structure, Main Street’s 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 Private Loan and Middle Market portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, three Private Loan portfolio companies and one Middle Market portfolio company, as EBITDA is not a meaningful valuation metric for Main Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.

The following tables summarize the composition of Main Street’s total combined LMM, Private Loan and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM, Private Loan and Middle Market portfolio investments, as of December 31, 2022 and 2021 (this information excludes Other Portfolio investments, short-term portfolio investments and the External Investment Manager, which are discussed above).


Cost:	December 31, 2022		December 31, 2021
First lien debt	85.0	%	82.5	%
Equity	14.2		16.2
Second lien debt	0.3		0.6
Equity warrants	0.2		0.3
Other	0.3		0.4
	100.0	%	100.0	%


Fair Value:	December 31, 2022		December 31, 2021
First lien debt	75.2	%	74.3	%
Equity	24.1		24.6
Second lien debt	0.3		0.5
Equity warrants	0.1		0.2
Other	0.3		0.4
	100.0	%	100.0	%

The following tables summarize the composition of Main Street’s total combined LMM, Private Loan and Middle Market portfolio investments by geographic region of the United States and other countries at cost and fair value as a percentage of the total combined LMM, Private Loan and Middle Market portfolio investments, as of December 31, 2022 and 2021 (this information excludes Other Portfolio investments, short-term portfolio investments and the External Investment Manager). The geographic composition is determined by the location of the corporate headquarters of the portfolio company.


Cost:	December 31, 2022		December 31, 2021
West	28.5	%	28.3	%
Southwest	20.1		21.6
Northeast	19.0		22.6
Midwest	16.3		15.1
Southeast	14.0		11.6
Canada	0.6		0.8
Other Non-United States	1.5		—
	100.0	%	100.0	%


Fair Value:	December 31, 2022		December 31, 2021
West	28.7	%	28.5	%
Southwest	21.4		23.0
Northeast	18.8		21.9
Midwest	16.6		15.8
Southeast	12.4		10.0
Canada	0.6		0.8
Other Non-United States	1.5		—
	100.0	%	100.0	%

Main Street’s LMM, Private Loan and Middle Market portfolio investments are in companies conducting business in a variety of industries. The following tables summarize the composition of Main Street’s total combined LMM, Private Loan and Middle Market portfolio investments by industry at cost and fair value as of December 31, 2022 and 2021 (this information excludes Other Portfolio investments, short-term portfolio investments and the External Investment Manager).


Cost:	December 31, 2022		December 31, 2021
Internet Software & Services	8.0	%	7.2	%
Machinery	7.4		7.3
Commercial Services & Supplies	6.7		5.9
Construction & Engineering	5.8		7.8
Distributors	5.1		4.7
Health Care Providers & Services	4.7		3.9
Diversified Consumer Services	4.5		3.4
Leisure Equipment & Products	4.5		4.1
Professional Services	4.2		4.6
Energy Equipment & Services	3.7		4.0
IT Services	3.3		3.5
Specialty Retail	3.2		3.5
Tobacco	3.1		2.1
Containers & Packaging	2.6		2.3
Media	2.4		1.8
Aerospace & Defense	2.3		1.9
Computers & Peripherals	2.2		1.3
Building Products	1.9		2.3
Textiles, Apparel & Luxury Goods	1.9		2.2
Diversified Telecommunication Services	1.9		2.6
Software	1.9		1.8
Communications Equipment	1.8		2.3
Auto Components	1.7		0.9
Food Products	1.6		2.0
Electronic Equipment, Instruments & Components	1.6		1.4
Diversified Financial Services	1.5		2.1
Internet & Catalog Retail	1.3		1.6
Health Care Equipment & Supplies	1.3		0.3
Food & Staples Retailing	1.2		0.8
Chemicals	1.1		1.7
Hotels, Restaurants & Leisure	1.1		1.4
Electrical Equipment	1.0		0.7

Household Durables	0.8		1.0
Life Sciences Tools & Services	0.5		1.4
Oil, Gas & Consumable Fuels	0.4		1.8






















Other (1)	1.8		2.4
	100.0	%	100.0	%

______________________

(1)Includes various industries with each industry individually less than 1.0% of the total combined LMM, Private Loan and Middle Market portfolio investments at each date.


Fair Value:	December 31, 2022		December 31, 2021
Machinery	8.4	%	8.5	%
Diversified Consumer Services	6.8		5.9
Internet Software & Services	6.8		6.4
Commercial Services & Supplies	6.1		5.5
Construction & Engineering	5.7		7.7
Distributors	5.5		4.7
Health Care Providers & Services	4.3		3.6
Leisure Equipment & Products	4.0		4.0
Professional Services	3.8		3.9
Specialty Retail	3.5		4.1
Tobacco	3.4		2.2
IT Services	3.1		3.3
Media	3.0		2.2
Computers & Peripherals	3.0		2.2
Containers & Packaging	2.8		2.5
Energy Equipment & Services	2.7		2.8
Aerospace & Defense	2.2		1.7
Software	2.1		2.0
Building Products	1.9		2.2
Textiles, Apparel & Luxury Goods	1.8		2.1
Diversified Telecommunication Services	1.8		2.5
Food Products	1.8		1.9
Diversified Financial Services	1.7		2.3
Auto Components	1.6		0.8
Internet & Catalog Retail	1.3		1.5
Food & Staples Retailing	1.1		0.8
Chemicals	1.1		1.6
Health Care Equipment & Supplies	1.0		0.1
Construction Materials	1.0		1.1
Electrical Equipment	1.0		0.8
Communications Equipment	0.9		1.5


Hotels, Restaurants & Leisure	0.7		1.0


Life Sciences Tools & Services	0.4		1.3
Oil, Gas & Consumable Fuels	0.3		1.4




















Other (1)	3.4		3.9
	100.0	%	100.0	%

______________________

(1)Includes various industries with each industry individually less than 1.0% of the total combined LMM, Private Loan and Middle Market portfolio investments at each date.