KBRA Affirms Ratings for MidCap Financial Investment Corporation

KBRA affirms the issuer and senior unsecured debt ratings of BBB- for MidCap Financial Investment Corporation ("MFIC" or "the company"). The rating Outlook is Positive.

Key Credit Considerations

The ratings and Outlook are supported by MFIC’s ties to Apollo Global Management, Inc.'s ("AGM") $785 billion AUM investment platform, including a $641 billion credit platform, of which $55 billion via MidCap Financial (“MidCap”) is in private middle market direct lending. MidCap is a Bethesda, MD based middle market focused specialty finance firm that was established in 2008 and has a long history of solid credit performance. MFIC maintains SEC exemptive relief to co-invest among certain AGM affiliates and investment vehicles, which is supportive of the ratings. As of March 31, 2025, MFIC had a diversified $3.2 billion investment portfolio at fair value comprised of 240 portfolio companies across 49 sectors with a high percentage at 92.7% (99% direct origination) first lien senior secured loans, up from 77.9% as of March 31, 2021. MFIC's portfolio company median EBITDA was $46.3 million, a comparatively less competitive segment than the upper middle market. The top three portfolio sectors are Software (14.6%), Health Care Providers & Services (9.0%), and Passenger Airlines (5.8%).

Further supporting the ratings and Outlook are MFIC’s sound asset quality with low non-accruals at 1.7% of the investment portfolio at cost and 0.9% at fair value and the continued reduction in its aviation investment, Merx, which comprised about 6% of the portfolio at 1Q25.

The company has solid access to the capital markets with a diversified funding mix of a secured bank revolving facility, unsecured senior debt, and two CLOs. Liquidity is adequate with $632.8 million of availability, including $85 million of cash (including foreign currency) and $547.8 million of credit line availability (including standby letters of credit), set against $125 million of near-term unsecured debt maturities (July 2026) and $527.3 million of unfunded commitments. As of March 31, 2025, the company’s gross leverage was 1.39x, which is higher than peers but is consistent with the company's target leverage range of 1.40x-1.45x, which KBRA believes is adequate given the company’s conservative asset mix with a high percentage of first lien senior secured debt investments. Asset coverage stands at 172%, providing a 15% cushion relative to the 150% regulatory minimum, indicating that asset values could decline by this proportion of the required threshold before breaching the limit. While somewhat lower than peers, the cushion should allow the company to withstand an increase in market volatility in a less favorable economic environment.

Counterbalancing the strengths is the high ratio of secured debt to gross assets at 52%. Further counterbalancing strengths are potential risks related to MFIC’s illiquid assets, retained earnings constraints as a regulated investment company ("RIC"), and uncertain economic environment with high base rates, inflation, and geopolitical risks.

Incorporated in 2004 as a Maryland corporation, MFIC is a closed-end, externally managed, non-diversified investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940 and a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company is externally managed by Apollo Investment Management Inc., an affiliate of AGM. The company changed its name from Apollo Investment Corporation in August 2022 to more closely align its strategy and ties with MidCap Financial.

Rating Sensitivities

Given the Positive Outlook, the ratings are likely to be upgraded over the medium term if credit quality remains solid with low non-accruals, leverage remains near the low end of the company's target range, senior secured loans remain a high proportion of the company's total investments, and the company's secured debt to total assets ratio declines with additional unsecured debt in the funding mix and/or lower leverage. Rating pressure is possible if a prolonged downturn in the U.S. economy has material impacts on performance and non-accruals that significantly affect capital, leverage, and liquidity metrics. An increased focus on riskier investments or a significant change in the current management structure coupled with a negative change in strategy, credit monitoring, and/or originations could also precipitate negative rating action.

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Methodologies