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 September 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 November 12, 2021 was 79,826,954.

Table of Contents

MSC Income Fund, Inc.

Consolidated Balance Sheets

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


	September 30,		December 31,
	2021		2020
	(unaudited)
ASSETS
Investments at fair value:
Control investments (cost: $18,223 and $18,152 as of September 30, 2021 and December 31, 2020, respectively)	$	34,471	$	33,831
Affiliate investments (cost: $194,908 and $143,740 as of September 30, 2021 and December 31, 2020, respectively)		218,875		157,690
Non‑Control/Non‑Affiliate investments (cost: $783,920 and $678,764 as of September 30, 2021 and December 31, 2020, respectively)		748,934		634,001
Total investments (cost: $997,051 and $840,656 as of September 30, 2021 and December 31, 2020, respectively)		1,002,280		825,522
Cash and cash equivalents		21,442		8,586
Restricted cash		—		40,480
Dividends and interest receivable		10,728		8,303
Receivable for securities sold		563		—
Deferred financing costs (net of accumulated amortization of $960 and $4,443 as of September 30, 2021 and December 31, 2020, respectively)		4,321		2,691
Prepaids and other assets		1,462		2,439
Total assets	$	1,040,796	$	888,021
LIABILITIES
Credit facilities	$	353,688	$	301,816
Unsecured term debt		60,000		—
Accounts payable and other liabilities		2,712		2,093
Interest payable		3,441		286
Dividend payable		11,964		—
Management fees payable		4,473		4,202
Payable for securities purchased		1,169		—
Total liabilities		437,447		308,397
Commitments and contingencies (Note I)
NET ASSETS
Common stock, $0.001 par value per share (150,000,000 shares authorized, 79,756,378 and 79,608,304 issued and outstanding at September 30, 2021 and December 31, 2020, respectively)		80		80
Additional paid‑in capital		683,194		682,028
Total undistributed (overdistributed) earnings		(79,925)		(102,484)
Total net assets		603,349		579,624
Total liabilities and net assets	$	1,040,796	$	888,021
NET ASSET VALUE PER SHARE	$	7.56	$	7.28

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

Table of Contents

MSC Income Fund, Inc.

Consolidated Statements of Operations

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

(unaudited)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
INVESTMENT INCOME:
Interest, fee and dividend income:
Control investments	$	845	$	780	$	2,188	$	1,876
Affiliate investments		5,365		3,676		13,461		11,129
Non‑Control/Non‑Affiliate investments		16,544		15,063		49,873		52,761
Total investment income		22,754		19,519		65,522		65,766
EXPENSES:
Interest		3,759		4,000		10,223		13,503
Base management fees		4,473		4,701		12,534		14,325
Internal administrative service expenses		1,152		959		3,247		2,495
Offering costs		55		28		110		205
Professional fees		490		226		1,298		1,726
Insurance		114		103		343		310
Board of director fees		97		86		295		309
General and administrative		644		388		1,411		863
Total expenses before fee and expense waivers		10,784		10,491		29,461		33,736
Waiver of internal administrative services expenses		(1,152)		(959)		(3,247)		(2,495)
Total expenses, net of fee and expense waivers		9,632		9,532		26,214		31,241
NET INVESTMENT INCOME		13,122		9,987		39,308		34,525
NET REALIZED GAIN (LOSS):
Affiliate investments		(203)		—		(2,673)		(4,054)
Non‑Control/Non‑Affiliate investments		(3,473)		(17,868)		(1,176)		(31,507)
Realized loss on extinguishment of debt		—		—		(2,091)		—
Total net realized gain (loss)		(3,676)		(17,868)		(5,940)		(35,561)
NET UNREALIZED APPRECIATION (DEPRECIATION):
Control investments		572		300		569		(881)
Affiliate investments		3,987		4,157		10,017		2,617
Non‑Control/Non‑Affiliate investments		2,784		43,467		9,777		(24,753)
Total net unrealized appreciation (depreciation)		7,343		47,924		20,363		(23,017)
INCOME TAXES:
Federal and state income, excise and other taxes		453		97		1,283		192
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	16,336	$	39,946	$	52,448	$	(24,245)
NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED	$	0.16	$	0.12	$	0.49	$	0.43
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE—BASIC AND DILUTED	$	0.20	$	0.50	$	0.66	$	(0.31)
WEIGHTED-AVERAGE SHARES OUTSTANDING—BASIC AND DILUTED		79,908,827		79,608,304		79,831,292		79,079,204

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

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	$	681,234	$	(158,038)	$	523,275
Dividend reinvestment	290,676		1		1,919		—		1,920
Net increase resulting from operations	—		—		—		39,946		39,946
Dividends to stockholders	—		—		—		—		—
Balances at September 30, 2020	79,608,304	$	80	$	683,153	$	(118,092)	$	565,141

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
Dividend reinvestment	478,309		1		3,682		—		3,683
Common stock repurchased	(438,292)		(1)		(3,317)		—		(3,318)
Net increase resulting from operations	—		—		—		16,336		16,336
Dividends to stockholders	—		—		—		(11,964)		(11,964)
Balances at September 30, 2021	79,756,378	$	80	$	683,194	$	(79,925)	$	603,349

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)


	Nine Months Ended
	September 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in net assets resulting from operations	$	52,448	$	(24,245)
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		(334,947)		(72,635)
Proceeds from sales and repayments of debt investments in portfolio companies		182,367		147,792
Net unrealized (appreciation) depreciation		(20,363)		23,017
Net realized loss on the sale of portfolio investments		3,986		35,561
Realized loss on extinguishment of debt		2,091		—
Amortization of deferred financing costs		886		1,078
Amortization of deferred offering costs		110		205
Accretion of unearned income		(3,425)		(4,230)
Payment-in-kind interest		(4,376)		(3,230)
Changes in other assets and liabilities:
Dividends and interest receivable		(2,425)		171
Receivable for investments sold		(563)		—
Prepaid and other assets		977		1,560
Payable for investments purchased		1,169		—
Management fees payable		272		(690)
Interest payable		3,155		—
Accounts payable and other liabilities		619		380
Net cash provided by (used in) operating activities		(118,019)		104,734
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from offering of common stock		500		—
Redemption of common stock		(6,179)		(6,094)
Payment of offering costs		(110)		(205)
Dividends paid		(11,081)		(18,494)
Repayments on Credit Facilities payable		(340,816)		(149,198)
Proceeds from Credit Facilities payable		392,688		79,327
Proceeds from unsecured term debt		60,000		—
Payment of deferred financing costs		(4,607)		(623)
Net cash provided by (used in) financing activities		90,395		(95,287)
Net increase (decrease) in cash, cash equivalents and restricted cash		(27,624)		9,447
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT BEGINNING OF PERIOD		49,066		21,846
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF PERIOD	$	21,442	$	31,293

Supplemental cash flow disclosures:
Interest paid	$	6,183	$	12,294
Taxes paid	$	1,328	$	795
Non-cash financing activities:
Dividends declared and unpaid	$	11,964	$	—
Value of shares issued pursuant to the dividend reinvestment plan	$	6,845	$	13,695

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

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments

September 30, 2021

(dollars in thousands)

(unaudited)


Portfolio Company (1) (20)		Investment Date (22)	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)	(24)	38.8%					$	835	$	710

GRT Rubber Technologies LLC		December 19, 2014	Manufacturer of Engineered Rubber Products
				Secured Debt			7.10% (L+7.00%)	12/31/2023		8,262		8,250		8,250
				Member Units	(8)	2,896						6,435		22,120
												14,685		30,370
Harris Preston Fund Investments	(12) (13)	October 1, 2017	Investment Partnership
				LP Interests (2717 MH, L.P.)	(24)	49.3%						2,703		3,391

Subtotal Control Investments (5.7% of net assets at fair value)											$	18,223	$	34,471
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		58		58		58
				Preferred Member Units	(8)	46						300		1,850
												358		1,908
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		1,254		1,191		1,191
				Preferred Member Units		800						800		-
				Preferred Member Units		607						607		1,200
				Warrants	(27)	105		8/16/2029				79		-
												2,677		2,391
ATX Networks Corp.	(11)	June 30, 2015	Provider of Radio Frequency Management Equipment
				Secured Debt	(9)		8.50% (L+7.50%, Floor 1.00%)	9/1/2026		7,698		7,121		7,121
				Unsecured Debt	(19)		10.00% PIK	9/1/2028		3,082		1,973		1,973
				Common Stock		585						-		-
												9,094		9,094
Barfly Ventures, LLC	(10)	August 31, 2015	Casual Restaurant Group
				Member Units		12						528		643

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		2,046		2,033		2,033

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

September 30, 2021

(dollars in thousands)

(unaudited)


Portfolio Company (1) (20)	Investment Date (22)	Business Description	Type of Investment (2) (3) (15)		Shares/Units	Rate	Maturity Date	Principal (4)		Cost (4)		Fair Value (18)
			Preferred Member Units	(8)	737						1,070		1,070
											3,103		3,103
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		2,392		2,367		2,367
			Preferred Member Units		3,174						1,460		1,460
											3,827		3,827
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		4,454		4,396		4,454
			Member Units	(8)	1,087						2,860		6,030
			Member Units	(8) (23)	261,786						330		358
											7,586		10,842
Charps, LLC	February 3, 2017	Pipeline Maintenance and Construction
			Preferred Member Units	(8)	400						100		3,560

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		2,617		2,617
			Member Units	(8)	179						1,820		2,560
			Secured Debt			10.00%	12/20/2036		272		270		270
			Member Units	(23)	200						53		133
											4,760		5,580
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		4,512		4,432		4,509
			Preferred Member Units	(8)	147						2,079		7,600
											6,511		12,109
Colonial Electric Company LLC	March 31, 2021	Provider of Electrical Contracting Services
			Secured Debt			12.00%	3/31/2026		6,221		6,077		6,077
			Preferred Member Units		4,320						1,920		2,110
											7,997		8,187
Datacom, LLC	May 30, 2014	Technology and Telecommunications Provider
			Secured Debt			5.00%	12/31/2025		991		901		901
			Preferred Member Units		1,000						290		290
											1,191		1,191

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

September 30, 2021

(dollars in thousands)

(unaudited)


Portfolio Company (1) (20)		Investment Date (22)	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	(9)		11.00% (L+10.00%, Floor 1.00%)	4/1/2023		4,296		4,262		4,262
				Preferred Member Units	(8)	964						2,375		2,459
												6,637		6,721
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		3,714		3,677		3,677
				Preferred Stock	(8)	2,100						2,100		4,290
												5,777		7,967
Freeport Financial Funds	(12) (13)	June 13, 2013	Investment Partnership
				LP Interests (Freeport First Lien Loan Fund III LP)	(8) (24)	6.0%						7,629		7,231

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		13,840
												9,583		19,000
GFG Group, LLC.		July 31, 2015	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		3,049		3,049
				Preferred Member Units	(8)	56						1,225		1,750
												4,274		4,799
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		3,391		3,391		2,616
				Member Units		920						920		-
												4,375		2,680
Harris Preston Fund Investments	(12) (13)	August 9, 2017	Investment Partnership
				LP Interests (HPEP 3, L.P.)	(24)	8.2%						3,193		4,183

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

September 30, 2021

(dollars in thousands)

(unaudited)


Portfolio Company (1) (20)		Investment Date (22)	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	(9)		7.00% (L+6.00%, Floor 1.00%)	12/2/2023		646		646		646
				Secured Debt			9.00%	12/2/2023		3,350		3,347		3,350
				Preferred Member Units	(8)	56						713		3,290
				Preferred Member Units	(23)	56						38		170
												4,744		7,456
J&J Services, Inc.		October 31, 2019	Provider of Dumpster and Portable Toilet Rental Services
				Secured Debt			11.50%	10/31/2024		2,700		2,665		2,700
				Preferred Stock		703						1,771		3,850
												4,436		6,550
Kickhaefer Manufacturing Company, LLC		October 31, 2018	Precision Metal Parts Manufacturing
				Secured Debt			11.50%	10/31/2023		5,104		5,032		5,032
				Member Units		145						3,060		3,060
				Secured Debt			9.00%	10/31/2048		982		972		972
				Member Units	(8) (23)	200						248		302
												9,312		9,366
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		2,790
				Member Units		185,980						4,160		-
												10,623		2,790
MH Corbin Holding LLC		August 31, 2015	Manufacturer and Distributor of Traffic Safety Products
				Secured Debt			13.00%	3/31/2022		2,083		2,078		1,502
				Preferred Member Units		16,500						1,100		-
				Preferred Member Units		1,000						1,500		-
												4,678		1,502
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		1,677
				Common Stock	(8)	1,468						680		1,792
												2,357		3,469
NexRev LLC		February 28, 2018	Provider of Energy Efficiency Products & Services
				Secured Debt			11.00%	2/28/2023		4,111		4,082		3,687
				Preferred Member Units	(8)	21,600,000						1,720		820
												5,802		4,507

Table of Contents

MSC Income Fund, Inc.

Consolidated Schedule of Investments (Continued)

September 30, 2021

(dollars in thousands)

(unaudited)


Portfolio Company (1) (20)	Investment Date (22)	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	(9)		7.50% (L+6.50%, Floor 1.00%)	1/31/2025		400		400		400
			Secured Debt			10.50%	1/31/2025		4,310		4,303		4,310
			Preferred Member Units		102						2,550		3,380
											7,253		8,090
Oneliance, LLC	August 6, 2021	Construction Cleaning Company
			Secured Debt	(9)		12.00% (L+11.00%, Floor 1.00%)	8/6/2026		1,400		1,373		1,373
			Preferred Stock		264						264		264
											1,637		1,637
Orttech Holdings, LLC	July 30, 2021	Distributor of Industrial Clutches, Brakes and Other Components
			Secured Debt	(9)		12.00% (L+11.00%, Floor 1.00%)	7/31/2026		6,094		5,972		5,972
			Preferred Stock	(23)	2,900						2,900		2,900


PART I
FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements
	Consolidated Balance Sheets—September 30, 2021 (unaudited) and December 31, 2020	1
	Consolidated Statements of Operations (unaudited)—Three and nine months ended September 30, 2021 and 2020	2
	Consolidated Statements of Changes in Net Assets (unaudited)—Nine months ended September 30, 2021 and 2020	3
	Consolidated Statements of Cash Flows (unaudited)—Nine months ended September 30, 2021 and 2020	4
	Consolidated Schedule of Investments (unaudited)—September 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)—Nine months ended September 30, 2021 and 2020	67
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	73
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	87
Item 4.	Controls and Procedures	88
PART II
OTHER INFORMATION
Item 1.	Legal Proceedings	88
Item 1A.	Risk Factors	88
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88
Item 5.	Other Information	89
Item 6.	Exhibits	90
	Signatures	91