MFIC Q3 2026 NAV Falls 3.8% as Non-Accruals Rise

MidCap Financial Investment Corporation reported a 3.8% sequential decline in net asset value for its fiscal third quarter, as credit-related weakness in a limited number of investments produced portfolio losses and pushed non-accruals higher. The results came shortly after Ares Capital Corporation agreed to acquire the business development company in a stock-and-cash transaction.

For the quarter ended September 30, 2026, MidCap Financial Investment Corporation (NASDAQ: MFIC) posted net investment income of $27.6 million, or $0.34 per share, down from $32.8 million, or $0.40 per share, in the preceding quarter. Net investment income remained above the $0.31-per-share quarterly distribution recorded for the period.

Net realized and unrealized investment losses totaled $44.0 million, or $0.54 per share. Those losses more than offset investment income, resulting in a $16.4 million decrease in net assets from operations, equivalent to a loss of $0.20 per share.

NAV fell to $12.86 per share at September 30 from $13.37 at June 30. The company attributed the decline to credit-related weakness concentrated in a limited number of positions, partly offset by net investment income exceeding the dividend. Total net assets declined to $1.06 billion from $1.10 billion.

Credit pressure and lower investment income

Non-accrual investments increased to 7.9% of the portfolio at amortized cost and 5.7% at fair value, compared with 4.6% and 2.8%, respectively, at the end of June. At quarter-end, investments on non-accrual status had a combined amortized cost of $226.2 million and fair value of $144.8 million.

The quarter’s investment losses were concentrated in the direct origination portfolio, which recorded a $45.2 million loss excluding assets acquired through previous mergers. Leveraged lending accounted for a $28.5 million loss, while asset-based and lender finance contributed a $10.7 million loss and franchise finance recorded a $6.0 million loss. Merx Aviation generated a $1.9 million gain.

Total investment income declined to $62.0 million from $68.2 million in the June quarter. Interest income excluding payment-in-kind income fell to $58.4 million from $63.0 million, while PIK interest income decreased to $2.9 million from $4.5 million. Net expenses were $34.4 million, compared with $35.5 million in the prior quarter.

Portfolio contracts as repayments exceed new activity

MFIC’s investment portfolio had a fair value of $2.55 billion at quarter-end, down from $2.77 billion three months earlier. The company made only $0.9 million of new commitments, all to existing borrowers, while exits of commitments totaled $186.1 million. Net repayments, including revolvers, Merx Aviation and acquired AFT/AIF assets, totaled $188.7 million.

The portfolio included 221 companies across 45 industries, down from 229 companies at the end of June. Direct origination and other investments represented 97.9% of fair value, while Merx Aviation accounted for 1.7% following a $28.0 million repayment during the quarter.

Leveraged lending remained the largest strategy at $2.22 billion, or 87% of the portfolio. The direct origination portfolio was 98% first-lien and entirely floating-rate, with 95% of investments in sponsored borrowers. Its weighted average yield was 9.6%, compared with 9.5% in the previous quarter, while the weighted average spread was 533 basis points.

Software was the largest industry exposure at 10.9% of portfolio fair value, representing $277 million across 24 companies. The software holdings were entirely first-lien, and no software companies excluding non-accrual positions generated PIK income during the quarter. MFIC said its software underwriting focuses on artificial-intelligence positioning, displacement risk, competitive durability and balance-sheet strength.

Net leverage decreased to 1.43 times from 1.54 times at June 30, while total debt fell to $1.58 billion from $1.74 billion. The company’s funding sources were predominantly floating-rate, and its weighted average annualized interest cost was 5.84%.

Dividend and pending Ares Capital transaction

On November 4, MFIC’s board declared a dividend of $0.31 per share, payable December 22 to shareholders of record on December 8. The company cautioned that there is no assurance the board will continue to declare the same base dividend. Before completion of the proposed acquisition, MFIC expects to declare one or more distributions covering previously undistributed investment company taxable income, any prior-year shortfall and net capital gains as needed to maintain its regulated investment company status.

Ares Capital (NASDAQ: ARCC) announced on October 27 that it had agreed to acquire MFIC in a transaction valued at $10.88 per MFIC common share, comprising $9.67 in ARCC stock and $1.21 in cash. Completion remains subject to MFIC shareholder approval, required regulatory clearances and other closing conditions.

The presentation identified additional risks including possible delays or termination of the transaction, competing proposals, integration challenges, unexpected costs and the potential failure to realize anticipated benefits. MFIC also remains exposed to changes in interest rates and credit spreads, portfolio-company performance and broader economic and market conditions.