Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from:             to             

Commission File Number: 814-00939

MSC Income Fund, Inc.

(Exact name of registrant as specified in its charter)

Maryland
(State or other jurisdiction of
incorporation or organization)

45-3999996
(I.R.S. Employer
Identification No.)

1300 Post Oak Boulevard, 8th Floor
Houston, TX
(Address of principal executive offices)

77056
(Zip Code)

(713) 350-6000

(Registrant’s telephone number including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

  

Trading Symbol

 

Name of Each Exchange on Which
Registered

None

N/A

N/A

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company
Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 

The number of shares outstanding of the issuer’s common stock as of May 14, 2021 was 80,099,874.


Table of Contents

TABLE OF CONTENTS

PART I

FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements

Consolidated Balance Sheets—March 31, 2021 (unaudited) and December 31, 2020

1

Consolidated Statements of Operations (unaudited)—Three months ended March 31, 2021 and 2020

2

Consolidated Statements of Changes in Net Assets (unaudited)—Three months ended March 31, 2021 and 2020

3

Consolidated Statements of Cash Flows (unaudited)—Three months ended March 31, 2021 and 2020

4

Consolidated Schedule of Investments (unaudited)—March 31, 2021

5

Consolidated Schedule of Investments—December 31, 2020

20

Notes to Consolidated Financial Statements (unaudited)

33

Consolidated Schedules of Investments in and Advances to Affiliates (unaudited)—Three months ended March 31, 2021 and 2020

65

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

71

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

82

Item 4.

Controls and Procedures

83

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

83

Item 1A.

Risk Factors

83

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 5.

Other Information

84

Item 6.

Exhibits

85

Signatures

86


Table of Contents

MSC Income Fund, Inc.

Consolidated Balance Sheets

(dollars in thousands, except shares and per share amounts)

March 31, 

December 31, 

    

2021

    

2020

(unaudited)

ASSETS

 

 

  

Investments at fair value:

 

 

  

Control investments (cost: $18,163 and $18,152 as of March 31, 2021 and December 31, 2020, respectively)

$

33,776

$

33,831

Affiliate investments (cost: $156,007 and $143,740 as of March 31, 2021 and December 31, 2020, respectively)

 

170,959

 

157,690

Non‑Control/Non‑Affiliate investments (cost: $685,503 and $678,764 as of March 31, 2021 and December 31, 2020, respectively)

 

644,997

 

634,001

Total investments (cost: $859,673 and $840,656 as of March 31, 2021 and December 31, 2020, respectively)

 

849,732

 

825,522

Cash and cash equivalents

 

28,604

 

8,586

Restricted cash

40,480

Dividends and interest receivable

 

10,659

 

8,303

Deferred financing costs (net of accumulated amortization of $4,740 and $4,443 as of March 31, 2021 and December 31, 2020, respectively)

 

3,975

 

2,691

Prepaids and other assets

1,520

2,439

Receivable for investments sold

1,789

Total assets

$

896,279

$

888,021

LIABILITIES

 

 

Credit facilities payable

$

284,688

$

301,816

Accounts payable and other liabilities

 

2,854

 

2,093

Interest payable

 

1,771

 

286

Dividend payable

 

7,961

 

Base management and incentive fees payable

3,903

4,202

Payable for investment purchases

10,782

Total liabilities

 

311,959

 

308,397

Commitments and contingencies (Note I)

 

 

NET ASSETS

 

 

Common stock, $0.001 par value per share (150,000,000 shares authorized; 79,608,304 and 79,608,304 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively)

 

80

 

80

Additional paid‑in capital

 

682,028

 

682,028

Total undistributed (overdistributed) earnings

 

(97,788)

 

(102,484)

Total net assets

 

584,320

 

579,624

Total liabilities and net assets

$

896,279

$

888,021

NET ASSET VALUE PER SHARE

$

7.34

$

7.28

The accompanying notes are an integral part of these consolidated financial statements

1


Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Operations

(dollars in thousands, except shares and per share amounts)

(unaudited)

Three Months Ended

    

March 31, 

    

2021

    

2020

    

INVESTMENT INCOME:

 

  

 

  

 

Interest, fee and dividend income:

 

 

Control investments

$

600

$

591

Affiliate investments

 

3,650

3,540

Non‑Control/Non‑Affiliate investments

 

16,022

19,869

Total investment income

 

20,272

24,000

EXPENSES:

 

Interest

 

3,164

5,229

Base management fees

 

3,903

4,994

Internal administrative service expenses

1,055

784

Offering costs

88

Professional fees

558

710

Insurance

114

103

Board of director fees

108

102

Other general and administrative

483

240

Total expenses before fee and expense waivers

9,385

12,250

Waiver of internal administrative services expenses

 

(1,055)

(784)

Total expenses, net of fee and expense waivers

 

8,330

11,466

NET INVESTMENT INCOME

 

11,942

12,534

NET REALIZED GAIN (LOSS):

 

Affiliate investments

 

(3,044)

Non‑Control/Non‑Affiliate investments

 

(1,991)

(321)

Realized loss on extinguishment of debt

(2,091)

Total net realized loss

 

(4,082)

(3,365)

NET UNREALIZED APPRECIATION (DEPRECIATION):

 

Control investments

 

(66)

(998)

Affiliate investments

 

1,003

(3,254)

Non‑Control/Non‑Affiliate investments

 

4,256

(90,657)

Total net change in unrealized appreciation (depreciation)

 

5,193

(94,909)

INCOME TAXES:

 

Federal and state income, excise and other taxes

 

396

76

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS

$

12,657

$

(85,816)

NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED

$

0.15

$

0.16

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER
SHARE—BASIC AND DILUTED

$

0.16

$

(1.09)

WEIGHTED AVERAGE SHARES
OUTSTANDING—BASIC AND DILUTED

 

79,608,304

78,607,063

The accompanying notes are an integral part of these consolidated financial statements

2


Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Changes in Net Assets

(dollars in thousands, except shares)

(unaudited)

Total

Common Stock

Additional

Undistributed

Number of

Par

PaidIn

(Overdistributed)

Total Net

    

Shares

    

Value

    

Capital

    

Earnings

    

Asset Value

Balances at December 31, 2019

 

78,463,377

$

78

$

675,554

$

(66,327)

$

609,305

Dividend reinvestment

 

751,240

1

5,898

5,899

Common stock repurchased

 

(791,488)

(1)

(6,094)

(6,095)

Net decrease resulting from operations

 

(85,816)

(85,816)

Dividends to stockholders

 

(13,729)

(13,729)

Balances at March 31, 2020

 

78,423,129

$

78

$

675,358

$

(165,872)

$

509,564

Balances at December 31, 2020

 

79,608,304

$

80

$

682,028

$

(102,484)

$

579,624

Net increase resulting from operations

12,657

12,657

Dividends to stockholders

(7,961)

(7,961)

Balances at March 31, 2021

79,608,304

$

80

$

682,028

$

(97,788)

$

584,320

The accompanying notes are an integral part of these consolidated financial statements

3


Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)

Three Months Ended

March 31,

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES

Net increase (decrease) in net assets resulting from operations

$

12,657

$

(85,816)

Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash generated from operating activities:

Investments in portfolio companies

(79,381)

(46,895)

Proceeds from sales and repayments of debt investments in portfolio companies

60,744

86,496

Net change in unrealized (appreciation) depreciation

(5,193)

94,909

Net realized loss on the sale of portfolio investments

1,991

3,365

Realized loss on extinguishment of debt

2,091

Amortization of deferred financing costs

311

351

Amortization of deferred offering costs

88

Accretion of unearned income

(959)

(2,021)

Payment-in-kind interest

(1,412)

(828)

Changes in other assets and liabilities:

Dividends and interest receivable

(2,356)

99

Receivable for investments sold

(1,789)

Prepaid and other assets

919

875

Payable for investments purchased

10,782

Base management and incentive fees payable

(299)

(394)

Interest payable

1,485

Accounts payable and other liabilities

620

652

Net cash provided by (used in) operating activities

211

50,881

CASH FLOWS FROM FINANCING ACTIVITIES

Redemption of common stock

(6,094)

Payment of offering costs

(88)

Dividends paid

(7,831)

Repayments on Credit Facilities payable

(311,816)

(117,000)

Proceeds from Credit Facilities payable

294,688

75,000

Payment of deferred financing costs

(3,545)

(462)

Net cash provided by (used in) financing activities

(20,673)

(56,475)

Net increase (decrease) in cash, cash equivalents and restricted cash

(20,462)

(5,594)

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT THE BEGINNING OF THE PERIOD

49,066

21,846

CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT THE END OF THE PERIOD

$

28,604

$

16,252

Supplemental cash flow disclosures:

Cash paid for interest

$

1,369

$

4,493

Cash paid for taxes

$

396

$

685

Non-cash financing activities:

Dividends declared and unpaid

$

7,961

$

4,669

Shares issued pursuant to the dividend reinvestment plan

$

$

751

The accompanying notes are an integral part of these consolidated financial statements

4


Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments

March 31, 2021

(dollars in thousands)

(unaudited)

Portfolio Company (1) (20)

Investment Date (24)

Business Description

Type of Investment (2) (3) (15)

Shares/Units

Rate

Maturity Date

Principal (4)

Cost (4)

Fair Value (18)

Control Investments (5)

Copper Trail Fund Investments

(12) (13)

July 17, 2017

Investment Partnership

LP Interests (CTMH, LP)

38.8%

$

835

$

710

(31)

GRT Rubber Technologies LLC ("GRT")

December 19, 2014

Manufacturer of Engineered Rubber Products

Secured Debt

7.12% (L+7.00%)

12/31/2023

$

8,262

8,247

8,262

Member Units

5,879

6,435

22,120

(8)

14,682

30,382

Harris Preston Fund Investments

(12) (13)

October 1, 2017

Investment Partnership

LP Interests (2717 MH, L.P.)

49.3%

2,646

2,684

(31)

Subtotal Control Investments (5.8% of net assets at fair value)

$

18,163

$

33,776

Affiliate Investments (6)

AFG Capital Group, LLC

November 7, 2014

Provider of Rent-to-Own Financing Solutions and Services

Secured Debt

10.00%

5/25/2022

101

101

101

Preferred Member Units

186

300

1,580

401

1,681

Analytical Systems Keco, LLC

August 16, 2019

Manufacturer of Liquid and Gas Analyzers

Secured Debt

12.00% (L+10.00%, Floor 2.00%)

8/16/2024

1,289

1,219

1,219

(9)

Preferred Member Units

3,200

800

680

Warrants

420

8/16/2029

79

-

(27)

2,098

1,899

Brewer Crane Holdings, LLC

January 9, 2018

Provider of Crane Rental and Operating Services

Secured Debt

11.00% (L+10.00%, Floor 1.00%)

1/9/2023

2,108

2,090

2,090

(9)

Preferred Member Units

2,950

1,070

1,370

(8)

3,160

3,460

Centre Technologies Holdings, LLC

January 4, 2019

Provider of IT Hardware Services and Software Solutions

Secured Debt

12.00% (L+10.00%, Floor 2.00%)

1/4/2024

2,869

2,833

2,833

(9)

Preferred Member Units

12,696

1,460

1,540

4,293

4,373

5


Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

March 31, 2021

(dollars in thousands)

(unaudited)

Portfolio Company (1) (20)

Investment Date (24)

Business Description

Type of Investment (2) (3) (15)

Shares/Units

Rate

Maturity Date

Principal (4)

Cost (4)

Fair Value (18)

Chamberlin Holding LLC

February 26, 2018

Roofing and Waterproofing Specialty Contractor

Secured Debt

9.00% (L+8.00%, Floor 1.00%)

2/26/2023

3,803

3,751

3,803

(9)

Member Units

4,347

2,860

7,070

(8)

Member Units

1,047,146

330

332

(8) (30)

6,941

11,205

Charlotte Russe, Inc

(11)

May 28, 2013

Fast-Fashion Retailer to Young Women

Common Stock

19,041

2,470

-

Charps, LLC

February 3, 2017

Pipeline Maintenance and Construction

Preferred Member Units

1,600

100

2,830

(8)

Clad-Rex Steel, LLC

December 20, 2016

Specialty Manufacturer of Vinyl-Clad Metal

Secured Debt

10.50% (L+9.50%, Floor 1.00%)

1/15/2024

2,720

2,710

2,710

(9)

Member Units

717

1,820

2,152

(8)

Secured Debt

10.00%

12/20/2036

276

273

273

(30)

Member Units

800

53

132

(30)

4,856

5,267

Cody Pools, Inc.

March 6, 2020

Designer of Residential and Commercial Pools

Secured Debt

12.25% (L+10.50%, Floor 1.75%)

3/6/2025

3,504

3,442

3,504

(9)

Preferred Member Units

587

2,079

4,720

5,521

8,224

Colonial Electric Company LLC

March 31, 2021

Provider of Electrical Contracting Services

Secured Debt

12.00%

3/31/2026

6,300

6,143

6,143

Preferred Member Units

17,280

1,920

1,920

8,063

8,063

Copper Trail Fund Investments

(12) (13)

July 17, 2017

Investment Partnership

LP Interests (Copper Trail Energy Fund I, LP)

12.4%

2,161

1,843

(8) (31)

-

-

Datacom, LLC

May 30, 2014

Technology and Telecommunications Provider

Secured Debt

5.00%

12/31/2025

997

901

901

Preferred Member Units

9,000

290

290

1,191

1,191

6


Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

March 31, 2021

(dollars in thousands)

(unaudited)

Portfolio Company (1) (20)

Investment Date (24)

Business Description

Type of Investment (2) (3) (15)

Shares/Units

Rate

Maturity Date

Principal (4)

Cost (4)

Fair Value (18)

Digital Products Holdings LLC

April 1, 2018

Designer and Distributor of Consumer Electronics

Secured Debt

11.00% (L+10.00%, Floor 1.00%)

4/1/2023

4,461

4,416

4,416

(9)

Preferred Member Units

3,857

2,375

2,459

(8)

6,791

6,875

Direct Marketing Solutions, Inc.

February 13, 2018

Provider of Omni-Channel Direct Marketing Services

Secured Debt

12.00% (L+11.00%, Floor 1.00%)

2/13/2023

3,772

3,723

3,723

(9)

Preferred Stock

8,400

2,100

4,460

5,823

8,183

Freeport Financial Funds

(12) (13)

July 31, 2015

Investment Partnership

LP Interests (Freeport First Lien Loan Fund III LP)

6.0%

9,387

8,923

(8) (31)

Gamber-Johnson Holdings, LLC ("GJH")

June 24, 2016

Manufacturer of Ruggedized Computer Mounting Systems

Secured Debt

9.00% (L+7.00%, Floor 2.00%)

6/24/2021

5,160

5,148

5,160

(9)

Member Units

9,042

4,423

13,810

(8)

9,571

18,970

GFG Group, LLC.

March 31, 2021

Grower and Distributor of a Variety of Plants and Products to Other Wholesalers, Retailers and Garden Centers

Secured Debt

12.00%

3/31/2026

3,936

3,818

3,818

Preferred Member Units

226

1,225

1,225

5,043

5,043

Gulf Publishing Holdings, LLC

April 29, 2016

Energy Industry Focused Media and Publishing

Secured Debt

10.50% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%)

9/30/2020

64

64

64

(9) (17) (19)

Secured Debt

12.50% (6.25% Cash, 6.25% PIK)

4/29/2021

3,320

3,319

3,048

(19)

Member Units

3,681

920

-

4,303

3,112

Harris Preston Fund Investments

(12) (13)

August 9, 2017

Investment Partnership

LP Interests (HPEP 3, L.P.)

8.2%

3,445

3,632

(31)

7


Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

March 31, 2021

(dollars in thousands)

(unaudited)

Portfolio Company (1) (20)

Investment Date (24)

Business Description

Type of Investment (2) (3) (15)

Shares/Units

Rate

Maturity Date

Principal (4)

Cost (4)

Fair Value (18)

Hawk Ridge Systems, LLC

(13)

December 2, 2016

Value-Added Reseller of Engineering Design and Manufacturing Solutions

Secured Debt

10.00%

12/2/2023

3,350

3,339

3,350

Preferred Member Units

226

713

2,330

(8)

Preferred Member Units

226

38

120

(30)

4,090

5,800

J&J Services, Inc.

October 31, 2019

Provider of Dumpster and Portable Toilet Rental Services

Secured Debt

11.50%

10/31/2024

3,200

3,152

3,200

Preferred Stock

2,814

1,771

3,170

4,923

6,370

Kickhaefer Manufacturing Company, LLC

October 31, 2018

Precision Metal Parts Manufacturing

Secured Debt

11.50%

10/31/2023

5,604

5,508

5,508

Member Units

581

3,060

3,060

Secured Debt

9.00%

10/31/2048

986

976

976

Member Units

800

248

290

(8) (30)

9,792

9,834

Market Force Information, LLC

July 28, 2017

Provider of Customer Experience Management Services

Secured Debt

12.00% PIK

7/28/2023

6,520

6,463

3,317

(14) (19)

Member Units

743,921

4,160

-

10,623

3,317

MH Corbin Holding LLC

August 31, 2015

Manufacturer and Distributor of Traffic Safety Products

Secured Debt

13.00% (10.00% Cash, 3.00% PIK)

3/31/2022

2,123

2,113

2,052

(19)

Preferred Member Units

66,000

1,100

300

Preferred Member Units

4,000

1,500

-

4,713

2,352

Mystic Logistics Holdings, LLC

August 18, 2014

Logistics and Distribution Services Provider for Large Volume Mailers

Secured Debt

12.00%

1/17/2022

1,683

1,682

1,682

Common Stock

587278.0%

680

1,820

(8)

2,362

3,502

NexRev LLC

February 28, 2018

Provider of Energy Efficiency Products & Services

Secured Debt

11.00%

2/28/2023

4,220

4,181

4,173

Preferred Member Units

86,400,000

1,720

820

(8)

5,901

4,993

8


Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

March 31, 2021

(dollars in thousands)

(unaudited)

Portfolio Company (1) (20)

Investment Date (24)

Business Description

Type of Investment (2) (3) (15)

Shares/Units

Rate

Maturity Date

Principal (4)

Cost (4)

Fair Value (18)

NuStep, LLC

January 31, 2017

Designer, Manufacturer and Distributor of Fitness Equipment

Secured Debt

12.00%

1/31/2022

4,310

4,293

4,293

Preferred Member Units

406

2,550

2,850

6,843

7,143

Project BarFly, LLC

(10)

August 31, 2015

Casual Restaurant Group

Member Units

12

528

528

SI East, LLC

August 31, 2018

Rigid Industrial Packaging Manufacturing

Secured Debt

9.50%

8/31/2023

9,738

9,654

9,738

Preferred Member Units

157

2,000

3,390

(8)

11,654

13,128

Tedder Industries, LLC

August 31, 2018

Manufacturer of Firearm Holsters and Accessories

Secured Debt

12.00%

8/31/2023

3,700

3,636

3,638

Preferred Member Units

479

2,034

2,034

5,670

5,672

Trantech Radiator Topco, LLC

May 31, 2019

Transformer Cooling Products and Services

Secured Debt

12.00%

5/31/2024

2,180

2,126

2,126

Common Stock

615

1,164

1,420

(8)

3,290

3,546

Subtotal Affiliate Investments (29.3% of net assets at fair value)

$

156,007

$

170,959

Non-Control/Non-Affiliate Investments (7)