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 June 30, 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, 8^th 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 August 13, 2021 was 79,756,460.

Table of Contents

MSC Income Fund, Inc.

Consolidated Balance Sheets

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


	June 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Investments at fair value:
Control investments (cost: $18,165 and $18,152 as of June 30, 2021 and December 31, 2020, respectively)	$	33,841	$	33,831
Affiliate investments (cost: $150,164 and $143,740 as of June 30, 2021 and December 31, 2020, respectively)		170,144		157,690
Non‑Control/Non‑Affiliate investments (cost: $805,788 and $678,764 as of June 30, 2021 and December 31, 2020, respectively)		768,018		634,001
Total investments (cost: $974,117 and $840,656 as of June 30, 2021 and December 31, 2020, respectively)		972,003		825,522
Cash and cash equivalents		8,215		8,586
Restricted cash		—		40,480
Dividends and interest receivable		11,009		8,303
Receivable for investments sold		7,988		—
Deferred financing costs (net of accumulated amortization of $5,002 and $4,443 as of June 30, 2021 and December 31, 2020, respectively)		3,720		2,691
Prepaids and other assets		1,343		2,439
Total assets	$	1,004,278	$	888,021
LIABILITIES
Credit facilities payable	$	326,688	$	301,816
Unsecured term debt		40,000		—
Accounts payable and other liabilities		1,728		2,093
Interest payable		2,771		286
Dividend payable		9,964		—
Management fees payable		4,158		4,202
Payable for investment purchases		20,357		—
Total liabilities		405,666		308,397
Commitments and contingencies (Note I)
NET ASSETS
Common stock, $0.001 par value per share (150,000,000 shares authorized, 79,716,361 and 79,608,304 issued and outstanding at June 30, 2021 and December 31, 2020, respectively)		80		80
Additional paid‑in capital		682,829		682,028
Total undistributed (overdistributed) earnings		(84,297)		(102,484)
Total net assets		598,612		579,624
Total liabilities and net assets	$	1,004,278	$	888,021
NET ASSET VALUE PER SHARE	$	7.51	$	7.28

Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Operations

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

(unaudited)


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
INVESTMENT INCOME:
Interest, fee and dividend income:
Control investments	$	743	$	505	$	1,343	$	1,096
Affiliate investments		4,446		3,913		8,096		7,453
Non‑Control/Non‑Affiliate investments		17,307		17,829		33,329		37,698
Total investment income		22,496		22,247		42,768		46,247
EXPENSES:
Interest		3,300		4,274		6,464		9,503
Base management fees		4,158		4,630		8,061		9,624
Internal administrative service expenses		1,040		752		2,095		1,536
Offering costs		55		89		55		177
Professional fees		250		791		808		1,500
Insurance		115		104		229		207
Board of director fees		90		121		198		223
Other general and administrative		284		234		767		475
Total expenses before fee and expense waivers		9,292		10,995		18,677		23,245
Waiver of internal administrative services expenses		(1,040)		(752)		(2,095)		(1,536)
Total expenses, net of fee and expense waivers		8,252		10,243		16,582		21,709
NET INVESTMENT INCOME		14,244		12,004		26,186		24,538
NET REALIZED GAIN (LOSS):
Control investments		(2,470)		—		(2,470)		—
Affiliate investments		—		(1,010)		—		(4,054)
Non‑Control/Non‑Affiliate investments		4,288		(13,318)		2,297		(13,639)
Realized loss on extinguishment of debt		—		—		(2,091)		—
Total net realized gain (loss)		1,818		(14,328)		(2,264)		(17,693)
NET UNREALIZED APPRECIATION (DEPRECIATION):
Control investments		63		(183)		(3)		(1,181)
Affiliate investments		5,027		1,714		6,030		(1,540)
Non‑Control/Non‑Affiliate investments		2,737		22,437		6,993		(68,220)
Total net change in unrealized appreciation (depreciation)		7,827		23,968		13,020		(70,941)
INCOME TAXES:
Federal and state income, excise and other taxes		434		19		830		95
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	23,455	$	21,625	$	36,112	$	(64,191)
NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED	$	0.18	$	0.15	$	0.33	$	0.31
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE—BASIC AND DILUTED	$	0.29	$	0.28	$	0.45	$	(0.81)
WEIGHTED AVERAGE SHARES OUTSTANDING—BASIC AND DILUTED		79,973,441		79,016,406		79,791,881		78,811,735

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		Paid‑In		(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)		(6,093)		—		(6,094)
Net decrease resulting from operations	—		—		—		(85,816)		(85,816)
Dividends to stockholders	—		—		—		(13,730)		(13,730)
Balances at March 31, 2020	78,423,129	$	78	$	675,359	$	(165,873)	$	509,564
Dividend reinvestment	894,499		1		5,875		—		5,876
Net increase resulting from operations	—		—		—		21,625		21,625
Dividends to stockholders	—		—		—		(13,790)		(13,790)
Balances at June 30, 2020	79,317,628	$	79	$	681,233	$	(158,038)	$	523,275

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
Offering of common stock	67,114		—		500		—		500
Dividend reinvestment	424,455		—		3,162		—		3,162
Common stock repurchased	(383,512)		—		(2,861)		—		(2,861)
Net increase resulting from operations	—		—		—		23,455		23,455
Dividends to stockholders	—		—		—		(9,964)		(9,964)
Balances at June 30, 2021	79,716,361	$	80	$	682,829	$	(84,297)	$	598,612

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

Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Cash Flows

(dollars in thousands)

(unaudited)


	Six Months Ended
	June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations	$	36,112	$	(64,191)
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Investments in portfolio companies		(223,398)		(64,027)
Proceeds from sales and repayments of debt investments in portfolio companies		95,134		127,890
Net change in unrealized (appreciation) depreciation		(13,020)		70,941
Net realized loss on the sale of portfolio investments		173		17,693
Realized loss on extinguishment of debt		2,091		-
Amortization of deferred financing costs		593		715
Amortization of deferred offering costs		55		177
Accretion of unearned income		(2,096)		(3,322)
Payment-in-kind interest		(3,411)		(1,977)
Changes in other assets and liabilities:
Dividends and interest receivable		(2,706)		(82)
Receivable for investments sold		(7,988)		—
Prepaid and other assets		1,233		192
Payable for investments purchased		20,357		—
Management fees payable		(44)		4,236
Interest payable		2,485		—
Accounts payable and other liabilities		(366)		643
Net cash provided by (used in) operating activities		(94,796)		88,888
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from offering of common stock		500		—
Redemption of common stock		(2,861)		(6,094)
Payment of offering costs		(55)		(177)
Dividends paid		(4,798)		(15,843)
Repayments on Credit Facilities payable		(311,816)		(139,418)
Proceeds from Credit Facilities payable		336,688		79,326
Proceeds from unsecured term debt		40,000		—
Payment of deferred financing costs		(3,713)		(604)
Net cash provided by (used in) financing activities		53,945		(82,810)
Net increase (decrease) in cash, cash equivalents and restricted cash		(40,851)		6,078
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	$	8,215	$	27,924

Supplemental cash flow disclosures:
Cash paid for interest	$	3,387	$	8,646
Cash paid for taxes	$	1,283	$	794
Non-cash financing activities:
Dividends declared and unpaid	$	9,964	$	4,571
Shares issued pursuant to the dividend reinvestment plan	$	3,162	$	11,775

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

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments

June 30, 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)	(31)	38.8%					$	835	$	710

GRT Rubber Technologies LLC		December 19, 2014	Manufacturer of Engineered Rubber Products
				Secured Debt			7.09% (L+7.00%)	12/31/2023		8,262		8,249		8,262
				Member Units	(8)	2,896						6,435		22,120
												14,684		30,382
Harris Preston Fund Investments	(12) (13)	October 1, 2017	Investment Partnership
				LP Interests (2717 MH, L.P.)	(31)	49.3%						2,646		2,749

Subtotal Control Investments (5.7% of net assets at fair value)											$	18,165	$	33,841
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		79		79		79
				Preferred Member Units		46						300		1,740
												379		1,819
Analytical Systems Keco Holdings, LLC		August 16, 2019	Manufacturer of Liquid and Gas Analyzers
				Secured Debt	(9)		12.00% (L+10.00%, Floor 2.00%)	8/16/2024		1,271		1,203		1,203
				Preferred Member Units		800						800		340
				Preferred Member Units		164						164		410
				Warrants	(27)	105		8/16/2029				79		-
												2,246		1,953
Barfly Ventures, LLC	(10)	August 31, 2015	Casual Restaurant Group
				Member Units		12						528		567

Brewer Crane Holdings, LLC		January 9, 2018	Provider of Crane Rental and Operating Services
				Secured Debt	(9)		11.00% (L+10.00%, Floor 1.00%)	1/9/2023		2,077		2,062		2,062
				Preferred Member Units	(8)	737						1,070		1,290
												3,132		3,352
Centre Technologies Holdings, LLC		January 4, 2019	Provider of IT Hardware Services and Software Solutions
				Secured Debt	(9)		12.00% (L+10.00%, Floor 2.00%)	1/4/2024		2,431		2,402		2,402
				Preferred Member Units		3,174						1,460		1,460
												3,862		3,862

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

June 30, 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)		9.00% (L+8.00%, Floor 1.00%)	2/26/2023		3,454		3,413		3,454
				Member Units	(8)	1,087						2,860		6,660
				Member Units	(8) (30)	261,786						330		345
												6,603		10,459
Charps, LLC		February 3, 2017	Pipeline Maintenance and Construction
				Preferred Member Units	(8)	400						100		2,900

Clad-Rex Steel, LLC		December 20, 2016	Specialty Manufacturer of Vinyl-Clad Metal
				Secured Debt	(9)		10.50% (L+9.50%, Floor 1.00%)	1/15/2024		2,620		2,613		2,613
				Member Units	(8)	179						1,820		2,360
				Secured Debt	(30)		10.00%	12/20/2036		274		272		272
				Member Units	(30)	200						53		133
												4,758		5,378
Cody Pools, Inc.		March 6, 2020	Designer of Residential and Commercial Pools
				Secured Debt	(9)		12.25% (L+10.50%, Floor 1.75%)	3/6/2025		2,962		2,911		2,962
				Preferred Member Units		147						2,079		5,550
												4,990		8,512
Colonial Electric Company LLC		March 31, 2021	Provider of Electrical Contracting Services
				Secured Debt			12.00%	3/31/2026		6,300		6,148		6,148
				Preferred Member Units		4,320						1,920		1,920
												8,068		8,068
Copper Trail Fund Investments	(12) (13)	July 17, 2017	Investment Partnership
				LP Interests (Copper Trail Energy Fund I, LP)	(8) (31)	12.4%						2,161		1,843

Datacom, LLC		May 30, 2014	Technology and Telecommunications Provider
				Secured Debt			5.00%	12/31/2025		994		900		900
				Preferred Member Units		1,000						290		290
												1,190		1,190
Digital Products Holdings LLC		April 1, 2018	Designer and Distributor of Consumer Electronics
				Secured Debt	(9)		11.00% (L+10.00%, Floor 1.00%)	4/1/2023		4,378		4,339		4,339
				Preferred Member Units	(8)	964						2,375		2,459
												6,714		6,798

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

June 30, 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)
Direct Marketing Solutions, Inc.		February 13, 2018	Provider of Omni-Channel Direct Marketing Services
				Secured Debt	(9)		12.00% (L+11.00%, Floor 1.00%)	2/13/2023		3,772		3,729		3,729
				Preferred Stock		2,100						2,100		4,460
												5,829		8,189
Freeport Financial Funds	(12) (13)	June 13, 2013	Investment Partnership
		July 31, 2015		LP Interests (Freeport First Lien Loan Fund III LP)	(8) (31)	6.0%						8,468		8,004

Gamber-Johnson Holdings, LLC		June 24, 2016	Manufacturer of Ruggedized Computer Mounting Systems
				Secured Debt	(9) (17)		9.00% (L+7.00%, Floor 2.00%)	6/24/2021		5,160		5,160		5,160
				Member Units	(8)	2,261						4,423		14,060
												9,583		19,220
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		3,136		3,046		3,046
				Preferred Member Units	(8)	56						1,225		1,225
												4,271		4,271
Gulf Publishing Holdings, LLC		April 29, 2016	Energy Industry Focused Media and Publishing
				Secured Debt	(9) (17) (19)		10.50% (5.25% Cash, 5.25% PIK) (L+9.50%, Floor 1.00%)	9/30/2020		64		64		64
				Secured Debt	(17) (19)		12.50% (6.25% Cash, 6.25% PIK)	4/29/2021		3,374		3,374		2,667
				Member Units		920						920		-
												4,358		2,731
Harris Preston Fund Investments	(12) (13)	August 9, 2017	Investment Partnership
				LP Interests (HPEP 3, L.P.)	(31)	8.2%						3,445		4,164

Hawk Ridge Systems, LLC	(13)	December 2, 2016	Value-Added Reseller of Engineering Design and Manufacturing Solutions
				Secured Debt			9.50%	12/2/2023		3,350		3,343		3,350
				Preferred Member Units	(8)	56						713		2,658
				Preferred Member Units	(30)	56						38		140
												4,094		6,148

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

June 30, 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)
J&J Services, Inc.	October 31, 2019	Provider of Dumpster and Portable Toilet Rental Services
			Secured Debt			11.50%	10/31/2024		3,000		2,958		3,000
			Preferred Stock		703						1,771		3,260
											4,729		6,260
Kickhaefer Manufacturing Company, LLC	October 31, 2018	Precision Metal Parts Manufacturing
			Secured Debt			11.50%	10/31/2023		5,304		5,221		5,221
			Member Units		145						3,060		3,060
			Secured Debt			9.00%	10/31/2048		984		974		974
			Member Units	(8) (30)	200						248		302
											9,503		9,557
Market Force Information, LLC	July 28, 2017	Provider of Customer Experience Management Services
			Secured Debt	(14) (19)		12.00% PIK	7/28/2023		6,520		6,463		3,317
			Member Units		185,980						4,160		-
											10,623		3,317
MH Corbin Holding LLC	August 31, 2015	Manufacturer and Distributor of Traffic Safety Products
			Secured Debt	(19)		13.00% (10.00% Cash, 3.00% PIK)	3/31/2022		2,103		2,096		1,904
			Preferred Member Units		16,500						1,100		-
			Preferred Member Units		1,000						1,500		-
											4,696		1,904
Mystic Logistics Holdings, LLC	August 18, 2014	Logistics and Distribution Services Provider for Large Volume Mailers
			Secured Debt			12.00%	1/17/2022		1,677		1,677		1,676
			Common Stock	(8)	1,468						680		1,480
											2,357		3,156
NexRev LLC	February 28, 2018	Provider of Energy Efficiency Products & Services
			Secured Debt			11.00%	2/28/2023		4,165		4,132		4,121
			Preferred Member Units	(8)	21,600,000						1,720		820
											5,852		4,941
NuStep, LLC	January 31, 2017	Designer, Manufacturer and Distributor of Fitness Equipment
			Secured Debt			11.00%	1/31/2022		4,310		4,298		4,310
			Preferred Member Units		102						2,550		3,090
											6,848		7,400

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

June 30, 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)
SI East, LLC		August 31, 2018	Rigid Industrial Packaging Manufacturing
				Secured Debt			8.75%	8/31/2023		9,725		9,668		9,724
				Preferred Member Units	(8)	52						2,000		5,010
												11,668		14,734
Tedder Industries, LLC		August 31, 2018	Manufacturer of Firearm Holsters and Accessories
				Secured Debt			12.00%	8/31/2023		3,840		3,781		3,783
				Preferred Member Units		120						2,034		2,034
												5,815		5,817
Trantech Radiator Topco, LLC		May 31, 2019	Transformer Cooling Products and Services
				Secured Debt			12.00%	5/31/2024		2,180		2,130		2,130
				Common Stock	(8)	154						1,164		1,500
												3,294		3,630
Subtotal Affiliate Investments (28.4% of net assets at fair value)											$	150,164	$	170,144
Non-Control Investments (7)
AAC Holdings, Inc.	(11)	June 30, 2017	Substance Abuse Treatment Service Provider
				Secured Debt	(19)		18.00% (10.00% Cash, 8.00% PIK)	6/25/2025		3,491		3,164		3,387
				Common Stock		593,927						3,148		2,079
				Warrants	(27)	197,717		12/11/2025				-		692
												6,312		6,158
Adams Publishing Group, LLC	(10)	November 19, 2015	Local Newspaper Operator
				Secured Debt	(9)		8.75% (L+7.00%, Floor 1.75%)	7/3/2023		5,139		5,048		5,099

ADS Tactical, Inc.	(11)	March 7, 2017	Value-Added Logistics and Supply Chain Provider to the Defense Industry


PART I
FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets—June 30, 2021 (unaudited) and December 31, 2020	1
	Consolidated Statements of Operations (unaudited)—Three and six months ended June 30, 2021 and 2020	2
	Consolidated Statements of Changes in Net Assets (unaudited)—Six months ended June 30, 2021 and 2020	3
	Consolidated Statements of Cash Flows (unaudited)—Six months ended June 30, 2021 and 2020	4
	Consolidated Schedule of Investments (unaudited)—June 30, 2021	5
	Consolidated Schedule of Investments—December 31, 2020	21
	Notes to Consolidated Financial Statements (unaudited)	35
	Consolidated Schedules of Investments in and Advances to Affiliates (unaudited)—Six months ended June 30, 2021 and 2020	66
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	72
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	84
Item 4.	Controls and Procedures	85
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	86
Item 1A.	Risk Factors	86
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	86
Item 5.	Other Information	86
Item 6.	Exhibits	87
	Signatures	88