Quarterly report pursuant to Section 13 or 15(d)

DEBT

v3.22.2.2
DEBT
 9 Months Ended
Sep. 30, 2022
Debt Disclosure [Abstract]  
DEBT DEBT
Summary of debt as of September 30, 2022 is as follows:
Outstanding
Balance		 Unamortized Debt
Issuance
(Costs)/Premiums (2)		 Recorded Value Estimated Fair
Value (1)
(in thousands)
Credit Facility $ 561,000  $ —  $ 561,000  $ 561,000 
3.00% Notes due 2026
 500,000  (1,996) 498,004  422,715 
5.20% Notes due 2024
 450,000  863  450,863  444,114 
SBIC Debentures 350,000  (6,382) 343,618  288,546 
4.50% Notes due 2022
 185,000  (101) 184,899  184,819 
Total Debt $ 2,046,000  $ (7,616) $ 2,038,384  $ 1,901,194 
____________________
(1)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.
(2)The unamortized debt issuance costs for the Credit Facility are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the 3.00% Notes due 2026, 5.20% Notes due 2024, 4.50% Notes due 2022 and SBIC Debentures are reflected as contra-liabilities on the Consolidated Balance Sheets.
Summary of debt as of December 31, 2021 is as follows:
Outstanding
Balance		 Unamortized Debt
Issuance
(Costs)/Premiums (2)		 Recorded Value Estimated Fair
Value (1)
(in thousands)
Credit Facility $ 320,000  $ —  $ 320,000  $ 320,000 
3.00% Notes due 2026
 500,000  (2,391) 497,609  502,285 
5.20% Notes due 2024
 450,000  1,272  451,272  480,767 
SBIC Debentures 350,000  (7,269) 342,731  328,206 
4.50% Notes due 2022
 185,000  (556) 184,444  190,043 
Total Debt $ 1,805,000  $ (8,944) $ 1,796,056  $ 1,821,301 
____________________
(1)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.
(2)The unamortized debt issuance costs for the Credit Facility are reflected as Deferred financing costs on the Consolidated Balance Sheets, while the deferred debt issuance costs related to the 3.00% Notes due 2026, 5.20% Notes due 2024, 4.50% Notes due 2022 and SBIC Debentures are reflected as contra-liabilities on the Consolidated Balance Sheets.
Summarized interest expense for the three and nine months ended September 30, 2022 and 2021 is as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2022
2021
2022
2021
(dollars in thousands)
Credit Facility $ 6,551  $ 1,574  $ 11,249  $ 3,948 
3.00% Notes due 2026
 3,882  2,487  11,645  7,124 
5.20% Notes due 2024
 5,714  5,714  17,141  17,141 
SBIC Debentures 2,855  2,704  8,482  8,002 
4.50% Notes due 2022
 2,233  2,233  6,699  6,699 
Total Interest Expense $ 21,234  $ 14,711  $ 55,216  $ 42,914 
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 at both September 30, 2022 and December 31, 2021. 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 2.9% as of September 30, 2022 and December 31, 2021. The first principal maturity due under the existing SBIC debentures is in 2023, and the weighted-average remaining duration as of September 30, 2022 was 5.4 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, 2022, 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 $171.7 million that was net of unamortized debt issuance costs of $3.3 million.
Credit Facility
Main Street maintains the Credit Facility to provide additional liquidity to support its investment and operational activities. As of September 30, 2022, the Credit Facility included total commitments of $920.0 million from a diversified group of 18 lenders, held a maturity date in August 2027 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.
As of September 30, 2022, borrowings under the Credit 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 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. As of September 30, 2022, the Credit Facility contained certain affirmative and negative covenants, including but not limited to: (i) maintaining minimum liquidity, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining a 1940 Act asset coverage ratio of at least 1.5 to 1.0, (iv) maintaining a minimum tangible net worth and (v) maintaining a minimum asset coverage ratio of 200% with respect to the consolidated assets (with certain limitations on the contribution of equity in financing subsidiaries as specified therein) of MSCC and the guarantors under the Credit Facility to the secured debt of MSCC and the guarantors.
As of September 30, 2022, the interest rate on the Credit Facility was 4.5%. The average interest rate for borrowings under the Credit Facility was 4.1% and 2.0% for the three months ended September 30, 2022 and 2021, respectively, and 2.9% and 2.0% for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, Main Street was in compliance with all financial covenants of the Credit Facility.
4.50% Notes due 2022
In November 2017, Main Street issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due December 1, 2022 (the “4.50% Notes”) at an issue price of 99.16%. The 4.50% Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 4.50% Notes; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The 4.50% Notes bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year. The total net proceeds from the 4.50% Notes, resulting from the issue price and after underwriting discounts and estimated offering expenses payable, were $182.2 million. Main Street may from time to time repurchase the 4.50% Notes in accordance with the 1940 Act and the rules promulgated thereunder.
The indenture governing the 4.50% Notes (the “4.50% Notes Indenture”) contains certain covenants, including covenants requiring Main Street’s compliance with (regardless of whether Main Street is 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 Main Street to provide financial information to the holders of the 4.50% Notes and the trustee if Main Street ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the 4.50% Notes Indenture. As of September 30, 2022, Main Street was in compliance with these covenants.
5.20% Notes due 2024
In April 2019, Main Street issued $250.0 million in aggregate principal amount of 5.20% unsecured notes due May 1, 2024 (the “5.20% 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 5.20% 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 102.674%. The 5.20% Notes issued in December 2019 and July 2020 have identical terms as, and are a part of a single series with, the 5.20% Notes issued in April 2019. The 5.20% Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 5.20% Notes; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 5.20% Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The 5.20% Notes bear interest at a rate of 5.20% per year payable semiannually on May 1 and November 1 of each year. The total net proceeds from the 5.20% Notes, resulting from the issue price and after net issue price premiums and estimated offering expenses payable, were $451.4 million. Main Street may from time to time repurchase the 5.20% Notes in accordance with the 1940 Act and the rules promulgated thereunder.
The indenture governing the 5.20% Notes (the “5.20% Notes Indenture”) contains certain covenants, including covenants requiring Main Street’s compliance with (regardless of whether Main Street is 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 Main Street to provide financial information to the holders of the 5.20% Notes and the trustee if Main Street ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the 5.20% Notes Indenture. As of September 30, 2022, Main Street was in compliance with these covenants.
3.00% Notes due 2026
In January 2021, Main Street issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due July 14, 2026 (the “3.00% 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 3.00% Notes at an issue price of 101.741%. The 3.00% Notes issued in October 2021 have identical terms as, and are a part of a single series with, the 3.00% Notes issued in January 2021. The 3.00% Notes are unsecured obligations and rank pari passu with Main Street’s current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 3.00% Notes; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 3.00% Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The 3.00% Notes bear interest at a rate of 3.00% per year payable semiannually on January 14 and July 14 of each year. The total net proceeds from the 3.00% Notes, resulting from the issue price and after net issue price premiums and estimated offering expenses payable, were $498.3 million. Main Street may from time to time repurchase the 3.00% Notes in accordance with the 1940 Act and the rules promulgated thereunder.
The indenture governing the 3.00% Notes (the “3.00% Notes Indenture”) contains certain covenants, including covenants requiring Main Street’s compliance with (regardless of whether Main Street is 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 Main Street to provide financial information to the holders of the 3.00% Notes and the trustee if Main Street ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations and exceptions that are described in the 3.00% Notes Indenture. As of September 30, 2022, Main Street was in compliance with these covenants.