Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE HIERARCHY FOR INVESTMENTS???PORTFOLIO COMPOSITION (Tables)

v3.23.3
FAIR VALUE HIERARCHY FOR INVESTMENTS—PORTFOLIO COMPOSITION (Tables)
 9 Months Ended
Sep. 30, 2023
Fair Value Disclosures [Abstract]  
Schedule of Fair Value Measurement Inputs and Valuation Techniques
The following tables provide a summary of the significant unobservable inputs used to fair value MSC Income Fund’s Level 3 portfolio investments as of September 30, 2023 and December 31, 2022:
Type of
Investment
Fair Value as of
September 30,
2023
(in thousands)
 Valuation Technique Significant
Unobservable Inputs		 Range(3) Weighted Average(3) Median(3)
Equity investments $ 236,631  Discounted cash flow WACC
10.7% - 22.5%
 14.4  % 15.6  %
Market comparable / Enterprise value EBITDA multiple (1)
4.5x - 9.0x (2)
 7.2x 6.4x
Debt investments $ 791,484  Discounted cash flow Risk adjusted discount factor (4)
9.8% - 17.7% (2)
 13.6  % 13.0  %
Expected principal recovery percentage
0.7% - 100.0%
 99.2  % 100.0  %
Debt investments $ 75,698  Market approach Third-party quote
4.5 - 98.4
 86.7 94.0
Total Level 3 investments $ 1,103,813 
_____________________
(1)EBITDA may include proforma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.0x - 15.7x and the range for risk adjusted discount factor is 7.5% - 33.5%.
(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
(4)Discount rate includes the effect of the standard LIBOR and SOFR base rate, as applicable.
Type of
Investment
Fair Value as of
December 31, 2022
(in thousands)
 Valuation Technique Significant
Unobservable Inputs		 Range(3) Weighted
Average(3)		 Median(3)
Equity investments $ 215,861  Discounted cash flow WACC
10.4% - 22.5%
 14.3  % 15.7  %
Market comparable / Enterprise value EBITDA multiple (1)
4.3x - 8.5x (2)
 7.2x 6.4x
Debt investments $ 743,887  Discounted cash flow Risk adjusted discount factor (4)
8.5% - 18.2% (2)
 13.0  % 12.4  %
Expected principal recovery percentage
0.7% - 100.0%
 99.1  % 100.0  %
Debt investments $ 108,395  Market approach Third-party quote
5.6 - 98.5
 85.7 90.0
Total Level 3 investments $ 1,068,143 
_____________________
(1)EBITDA may include proforma adjustments and/or other add-backs based on specific circumstances related to each investment.
(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.0x - 15.7x and the range for risk adjusted discount factor is 6.5% - 43.3%.
(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
(4)Discount rate includes the effect of the standard LIBOR and SOFR base rate, as applicable.
Schedule of MSC Income Fund’s Level 3 Portfolio Investments
The following tables provide a summary of changes in fair value of MSC Income Fund’s Level 3 portfolio investments for the nine months ended September 30, 2023 and 2022 (amounts in thousands):
Type of
Investment
Fair Value
as of
December 31,
2022
 Transfers
Into
Level 3
Hierarchy		 Redemptions/
Repayments		 New
Investments		 Net
Changes
from
Unrealized
to Realized		 Net
Unrealized
Appreciation
(Depreciation)		 Other(1)
Fair Value
as of
September 30,
2023
Debt $ 852,282  $ —  $ (146,652) $ 155,357  $ 25,417  $ (7,776) $ (11,446) $ 867,182 
Equity 214,687  —  (12,686) 8,713  621  11,854  12,551  235,740 
Equity Warrant 1,174  —  —  523  —  299  (1,105) 891 
$ 1,068,143  $ —  $ (159,338) $ 164,593  $ 26,038  $ 4,377  $ —  $ 1,103,813 
______________________
(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.
Type of
Investment
Fair Value
as of
December 31,
2021
 Transfers
Into
Level 3
Hierarchy		 Redemptions/
Repayments		 New
Investments		 Net
Changes
from
Unrealized
to Realized		 Net
Unrealized
Appreciation
(Depreciation)		 Other(1)
Fair Value
as of
September 30,
2022
Debt $ 879,970  $ —  $ (124,061) $ 168,053  $ 855  $ (33,407) $ (1,733) $ 889,677 
Equity 196,374  —  (18,520) 5,011  (8,806) 30,562  1,733  206,354 
Equity Warrant 792  —  —  —  —  (655) —  137 
$ 1,077,136  $ —  $ (142,581) $ 173,064  $ (7,951) $ (3,500) $ —  $ 1,096,168 
_____________________
(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.
Schedule of MSC Income Fund's Investments at Fair Value Hierarchy
At September 30, 2023 and December 31, 2022, MSC Income Fund's investments at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:
Fair Value Measurements
(in thousands)
At September 30, 2023
 Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Private Loan portfolio investments $ 608,953  $ —  $ —  $ 608,953 
LMM portfolio investments 367,565  —  —  367,565 
Middle Market portfolio investments 101,104  —  —  101,104 
Other Portfolio investments 26,191  —  —  26,191 
Total investments $ 1,103,813  $ —  $ —  $ 1,103,813 
Fair Value Measurements
(in thousands)
At December 31, 2022
 Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Private Loan portfolio investments $ 559,763  $ —  $ —  $ 559,763 
LMM portfolio investments 352,661  —  —  352,661 
Middle Market portfolio investments 126,744  —  —  126,744 
Other Portfolio investments 28,975  —  —  28,975 
Total investments $ 1,068,143  $ —  $ —  $ 1,068,143 
Schedule of Investment Holdings
The following tables provide a summary of MSC Income Fund’s investments in the Private Loan, LMM and Middle Market portfolios as of September 30, 2023 and December 31, 2022 (this information excludes Other Portfolio investments, which are discussed further below).
As of September 30, 2023
Private Loan LMM (a) Middle Market
(dollars in millions)
Number of portfolio companies 78  49  18 
Fair value $ 609.0  $ 367.6  $ 101.1 
Cost $ 611.3  $ 301.4  $ 130.0 
Debt investments as a % of portfolio (at cost) 95.9  % 70.1  % 93.9  %
Equity investments as a % of portfolio (at cost) 4.1  % 29.9  % 6.1  %
% of debt investments at cost secured by first priority lien 99.4  % 100.0  % 100.0  %
Weighted-average annual effective yield (b) 13.1  % 12.9  % 12.8  %
Average EBITDA (c) $ 32.6  $ 8.6  $ 74.6 
___________________
(a)At September 30, 2023, MSC Income Fund had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of September 30, 2023, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on MSC Income Fund’s debt portfolio as of September 30, 2023 including debt investments on non-accrual status was 12.3% for its Private Loan portfolio, 12.9% for its LMM portfolio and 10.2% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of MSC Income Fund’s common stock will realize on its investment because it does not reflect MSC Income Fund’s utilization of debt capital in its capital structure, MSC Income Fund’s expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including one Private Loan portfolio company, as EBITDA is not a meaningful valuation metric for MSC Income Fund’s investment in this portfolio company, and those portfolio companies whose primary purpose is to own real estate.
As of December 31, 2022
Private Loan LMM (a) Middle Market
(dollars in millions)
Number of portfolio companies 70  48  21 
Fair value $ 559.8  $ 352.7  $ 126.7 
Cost $ 563.0  $ 312.5  $ 159.7 
Debt investments as a % of portfolio (at cost) 96.2  % 73.2  % 95.0  %
Equity investments as a % of portfolio (at cost) 3.8  % 26.8  % 5.0  %
% of debt investments at cost secured by first priority lien 99.4  % 99.9  % 98.5  %
Weighted-average annual effective yield (b) 11.8  % 12.1  % 11.3  %
Average EBITDA (c) $ 36.8  $ 8.6  $ 79.2 
___________________
(a)At December 31, 2022, MSC Income Fund had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2022, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on MSC Income Fund’s debt portfolio as of December 31, 2022 including debt investments on non-accrual status was 11.4% for its Private Loan portfolio, 11.7% for its LMM portfolio and 9.7% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of MSC Income Fund’s common stock will realize on its investment because it does not reflect MSC Income Fund’s utilization of debt capital in its capital structure, MSC Income Fund’s expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a weighted-average for the Private Loan and Middle Market portfolios and a simple average for the LMM portfolio. These calculations exclude certain portfolio companies, including one Private Loan portfolio company, as EBITDA is not a meaningful valuation metric for MSC Income Fund’s investment in this portfolio company, and those portfolio companies whose primary purpose is to own real estate.
The following tables summarize the composition of MSC Income Fund’s total combined Private Loan, LMM and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined Private Loan, LMM and Middle Market portfolio investments, as of September 30, 2023 and December 31, 2022 (this information excludes Other Portfolio investments, which are discussed above).
Cost: September 30, 2023 December 31, 2022
First lien debt 87.7  % 88.5  %
Equity 11.7  10.8 
Second lien debt 0.4  0.3 
Equity warrants 0.2  0.2 
Other —  0.2 
100.0  % 100.0  %
Fair Value: September 30, 2023 December 31, 2022
First lien debt 80.1  % 81.4  %
Equity 19.4  17.9 
Second lien debt 0.4  0.3 
Equity warrants 0.1  0.1 
Other —  0.3 
100.0  % 100.0  %
The following tables summarize the composition of MSC Income Fund’s total combined Private Loan, LMM and Middle Market portfolio investments by geographic region of the United States and other countries at cost and fair value as a percentage of the total combined Private Loan, LMM and Middle Market portfolio investments, as of September 30, 2023 and December 31, 2022 (this information excludes Other Portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
Cost: September 30, 2023 December 31, 2022
Northeast 22.8  % 20.3  %
Southwest 22.4  22.2 
Southeast 19.6  17.8 
West 17.8  22.9 
Midwest 15.5  15.1 
Other Non-United States 1.1  0.9 
Canada 0.8  0.8 
100.0  % 100.0  %
Fair Value: September 30, 2023 December 31, 2022
Southwest 25.6  % 25.3  %
Northeast 23.0  20.3 
West 16.8  21.1 
Southeast 16.7  15.2 
Midwest 16.1  15.9 
Other Non-United States 1.0  1.0 
Canada 0.8  1.2 
100.0  % 100.0  %
MSC Income Fund’s Private Loan, LMM and Middle Market portfolio investments are in companies conducting business in a variety of industries. The following tables summarize the composition of MSC Income Fund’s total combined Private Loan, LMM and Middle Market portfolio investments by industry at cost and fair value as of September 30, 2023 and December 31, 2022 (this information excludes Other Portfolio investments).
Cost: September 30, 2023 December 31, 2022
Commercial Services & Supplies 10.4  % 11.3  %
Internet Software & Services 8.6  7.8 
Health Care Providers & Services 6.2  4.9 
Machinery 5.3  5.9 
Professional Services 5.2  3.7 
IT Services 5.1  4.9 
Diversified Consumer Services 5.0  4.7 
Distributors 4.3  5.0 
Leisure Equipment & Products 3.7  3.7 
Electrical Equipment 3.4  1.8 
Textiles, Apparel & Luxury Goods 3.1  2.0 
Computers & Peripherals 2.9  1.9 
Specialty Retail 2.8  4.0 
Communications Equipment 2.7  3.5 
Media 2.6  2.4 
Construction & Engineering 2.5  2.5 
Diversified Telecommunication Services 2.4  3.4 
Containers & Packaging 2.3  3.4 
Aerospace & Defense 2.2  3.6 
Building Products 2.1  2.4 
Hotels, Restaurants & Leisure 2.0  2.0 
Household Products 2.0  1.5 
Diversified Financial Services 1.7  1.7 
Internet & Catalog Retail 1.6  1.3 
Software 1.4  1.3 
Health Care Equipment & Supplies 1.3  1.2 
Energy Equipment & Services 1.2  1.2 
Food Products 0.9  1.1 
Other (1) 5.1  5.9 
100.0  % 100.0  %
___________________
(1)Includes various industries with each industry individually less than 1.0% of the total combined Private Loan, LMM and Middle Market portfolio investments at each date.
Fair Value: September 30, 2023 December 31, 2022
Commercial Services & Supplies 8.4  % 10.3  %
Internet Software & Services 7.3  6.7 
Machinery 6.8  7.5 
Diversified Consumer Services 6.3  5.9 
Health Care Providers & Services 5.8  4.6 
Professional Services 5.1  2.8 
IT Services 5.0  4.7 
Distributors 4.6  5.5 
Computers & Peripherals 4.3  2.8 
Electrical Equipment 3.5  1.9 
Leisure Equipment & Products 3.4  3.7 
Construction & Engineering 3.0  2.9 
Textiles, Apparel & Luxury Goods 2.9  2.0 
Specialty Retail 2.7  3.1 
Media 2.7  2.6 
Containers & Packaging 2.7  3.8 
Diversified Telecommunication Services 2.3  3.6 
Construction Materials 2.2  2.1 
Aerospace & Defense 2.1  3.5 
Building Products 2.0  2.5 
Household Products 1.9  1.3 
Software 1.7  1.7 
Internet & Catalog Retail 1.6  1.9 
Air Freight & Logistics 1.6  1.2 
Diversified Financial Services 1.6  1.8 
Hotels, Restaurants & Leisure 1.5  1.5 
Communications Equipment 1.2  1.3 
Energy Equipment & Services 1.0  1.0 
Other (1) 4.8  5.8 
100.0  % 100.0  %
___________________
(1)Includes various industries with each industry individually less than 1.0% of the total combined Private Loan, LMM and Middle Market portfolio investments at each date.