Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
⌧
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
◻
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
OR
For the transition period from: to
Commission File Number: 001-33723
Main Street Capital Corporation
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
1300 Post Oak Boulevard, 8th Floor
Houston, TX
(Address of principal executive offices)
41-2230745
(I.R.S. Employer
Identification No.)
77056
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
(713) 350-6000
(Registrant’s telephone number including area code)
Title of Each Class
Common Stock, par value $0.01 per share
Trading Symbol
MAIN
Name of Each Exchange on Which
Registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ⌧ No ◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ◻ No ⌧
Securities registered pursuant to Section 12(g) of the Act:
None
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over
financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ⌧
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ◻ No ⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of June 30, 2020, was approximately $1,948.5 million based
upon the last sale price for the registrant’s common stock on that date.
The number of shares outstanding of the issuer’s common stock as of February 26, 2021 was 67,963,233.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants’ definitive Proxy Statement for its 2021 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission, are
incorporated by reference in this Annual Report on Form 10-K in response to Part III.
Table of Contents
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
TABLE OF CONTENTS
PART I
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Consolidated Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
PART III
Principal Accountant Fees and Services
Exhibits and Consolidated Financial Statement Schedules
PART IV
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Signatures
Page
2
24
52
52
52
52
52
56
59
74
76
179
179
179
181
181
182
182
182
183
186
Table of Contents
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements regarding the plans and objectives of management for
future operations and which relate to future events or our future performance or financial condition. Any such forward-looking statements
may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to
be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-
looking statements, which involve assumptions and describe our future plans, strategies and expectations, are generally identifiable by use
of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these
words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that
may be incorrect, and we cannot assure you that the projections included in these forward-looking statements will come to pass. Our actual
results could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including,
without limitation, the factors discussed in Item 1A entitled “Risk Factors” in Part I of this Annual Report on Form 10-K and elsewhere in
this Annual Report on Form 10-K and in other filings we may make with the Securities and Exchange Comission (“SEC”) from time to
time. Other factors that could cause actual results to differ materially include changes in the economy and future changes in laws or
regulations and conditions in our operating areas.
We have based the forward-looking statements included in this Annual Report on Form 10-K on information available to us on the
date of this Annual Report on Form 10-K, and we assume no obligation to update any such forward-looking statements, unless we are
required to do so by applicable law. However, you are advised to refer to any additional disclosures that we may make directly to you or
through reports that we in the future may file with the SEC, including subsequent annual reports on Form 10-K, quarterly reports on Form
10-Q and current reports on Form 8-K.
1
Table of Contents
Item 1. Business
ORGANIZATION
PART I
Main Street Capital Corporation (“MSCC”) is a principal investment firm primarily focused on providing customized debt and
equity financing to lower middle market (“LMM”) companies and debt capital to middle market (“Middle Market”) companies. The
portfolio investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations,
growth financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with
entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its LMM portfolio.
MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of
LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the
United States.
MSCC was formed as a Maryland corporation in March 2007 to operate as an internally managed business development company
(“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). MSCC wholly owns several investment funds,
including Main Street Mezzanine Fund, LP (“MSMF”) and Main Street Capital III, LP (“MSC III” and, collectively with MSMF, the
“Funds”), and each of their general partners. The Funds are each licensed as a Small Business Investment Company (“SBIC”) by the United
States Small Business Administration (“SBA”). Because MSCC is internally managed, all of the executive officers and other employees are
employed by MSCC. Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the operating costs
associated with employing investment and portfolio management professionals.
MSC Adviser I, LLC (the “External Investment Manager”) was formed in November 2013 as a wholly owned subsidiary of MSCC
to provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies
(“External Parties”) and receives fee income for such services. MSCC has been granted no-action relief by the SEC to allow the External
Investment Manager to register as a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers
Act”). Since the External Investment Manager conducts all of its investment management activities for External Parties, it is accounted for
as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC’s consolidated financial statements.
MSCC has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a result, MSCC generally will not pay corporate-level
U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the “Taxable
Subsidiaries”). The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies
which are “pass-through” entities for tax purposes.
Unless otherwise noted or the context otherwise indicates, the terms “we,” “us,” “our,” the “Company” and “Main Street” refer to
MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.
2
Table of Contents
The following diagram depicts our organizational structure:
* Other Holding Companies includes the Taxable Subsidiaries and other entities formed for operational purposes. Each of these
companies is directly or indirectly wholly owned by MSCC.
** The External Investment Manager is accounted for as a portfolio investment at fair value, as opposed to a consolidated subsidiary, and
is indirectly wholly owned by MSCC.
CORPORATE INFORMATION
Our principal executive offices are located at 1300 Post Oak Boulevard, 8th Floor, Houston, Texas 77056. We maintain a Web site
on the Internet at www.mainstcapital.com. We make available free of charge on our Web site our annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such
material is electronically filed with or furnished to the SEC. Information contained on our Web site is not incorporated by reference into this
Annual Report on Form 10-K, and you should not consider that information to be part of this Annual Report on Form 10-K. Our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports and other public
filings are also available free of charge on the EDGAR Database on the SEC’s Web site at www.sec.gov.
OVERVIEW OF OUR BUSINESS
Our principal investment objective is to maximize our portfolio’s total return by generating current income from our debt
investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other
rights to acquire equity securities in a portfolio company. Our LMM companies generally have annual revenues between $10 million and
$150 million, and our LMM portfolio investments generally range in size from $5 million to $50 million. Our Middle Market investments
are made in businesses that are generally larger in size than our LMM portfolio companies, with annual revenues typically between $150
million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our private loan
(“Private Loan”) portfolio investments are primarily debt securities in privately held companies that have been originated through strategic
relationships with other investment funds on a collaborative basis, and are often referred to in the debt markets as “club deals.” Private Loan
investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio and Middle Market
portfolio.
We seek to fill the financing gap for LMM businesses, which, historically, have had limited access to financing from commercial
banks and other traditional sources. The underserved nature of the LMM creates the opportunity for us to meet the financing needs of LMM
companies while also negotiating favorable transaction terms and equity participations. Our ability to invest across a company’s capital
structure, from secured loans to equity securities, allows
3
Table of Contents
us to offer portfolio companies a comprehensive suite of financing options, or a “one stop” financing solution. Providing customized, “one
stop” financing solutions is important to LMM portfolio companies. We generally seek to partner directly with entrepreneurs, management
teams and business owners in making our investments. Our LMM portfolio debt investments are generally secured by a first or second lien
on the assets of the portfolio company and typically have a term of between five and seven years from the original investment date.
Our Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-bearing debt
securities in privately held companies based in the United States that are generally larger in size than the companies included in our LMM
portfolio. Our Middle Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of the
portfolio company and typically have an expected duration of between three and seven years from the original investment date.
Private Loan investments are typically similar in size, structure, terms and conditions to investments we hold in our LMM portfolio
and Middle Market portfolio. Our Private Loan portfolio debt investments are generally secured by either a first or second priority lien on
the assets of the portfolio company and typically have a term of between three and seven years from the original investment date.
Our other portfolio (“Other Portfolio”) investments primarily consist of investments that are not consistent with the typical profiles
for our LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third parties. In our
Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as investments in
other investment companies or private funds.
Our external asset management business is conducted through the External Investment Manager. The External Investment
Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest,
based on the performance of the funds managed. We have entered into an agreement with the External Investment Manager to share
employees in connection with its asset management business generally, and specifically for its relationship with MSC Income Fund, Inc., an
externally managed, non-listed BDC formerly known as HMS Income Fund, Inc. (“MSC Income”) and its other investment advisory
clients. Through this agreement, we share employees with the External Investment Manager, including their related infrastructure, business
relationships, management expertise and capital raising capabilities.
Our portfolio investments are generally made through MSCC and the Funds. MSCC and the Funds share the same investment
strategies and criteria, although they are subject to different regulatory regimes (see “Regulation”). An investor’s return in MSCC will
depend, in part, on the Funds’ investment returns as they are wholly owned subsidiaries of MSCC.
The level of new portfolio investment activity will fluctuate from period to period based upon our view of the current economic
fundamentals, our ability to identify new investment opportunities that meet our investment criteria, and our ability to consummate the
identified opportunities. The level of new investment activity, and associated interest and fee income, will directly impact future investment
income. In addition, the level of dividends paid by portfolio companies and the portion of our portfolio debt investments on non-accrual
status will directly impact future investment income. While we intend to grow our portfolio and our investment income over the long term,
our growth and our operating results may be more limited during depressed economic periods. However, we intend to appropriately manage
our cost structure and liquidity position based on applicable economic conditions and our investment outlook. The level of realized gains or
losses and unrealized appreciation or depreciation on our investments will also fluctuate depending upon portfolio activity, economic
conditions and the performance of our individual portfolio companies. The changes in realized gains and losses and unrealized appreciation
or depreciation could have a material impact on our operating results.
Because we are internally managed, we do not pay any external investment advisory fees, but instead directly incur the operating
costs associated with employing investment and portfolio management professionals. We believe that our internally managed structure
provides us with a beneficial operating expense structure when compared to other publicly traded and privately held investment firms which
are externally managed, and our internally managed structure allows us the opportunity to leverage our non-interest operating expenses as
we grow our Investment Portfolio (as
4
Table of Contents
defined below). For the years ended December 31, 2020 and 2019, the ratio of our total operating expenses, excluding interest expense, as a
percentage of our quarterly average total assets was 1.3% and 1.4%, respectively.
During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP (“HMS Adviser”), which was
the investment advisor to MSC Income at the time to provide certain investment advisory services to HMS Adviser in exchange for 50% of
the 2.0% annual base management fee and 20% incentive fee earned by HMS Adviser. In December 2013, after obtaining required no-
action relief from the SEC to allow us to own a registered investment adviser, we assigned the sub-advisory agreement to the External
Investment Manager since the fees received from such arrangement could otherwise have negative consequences on our ability to meet the
source-of-income requirement necessary for us to maintain our RIC tax treatment. On October 30, 2020, after successfully receiving the
required approval of the stockholders of MSC Income, we completed a transaction whereby the External Investment Manager became the
sole investment adviser and administrator to MSC Income pursuant to an Investment Advisory and Administrative Services Agreement (the
"Advisory Agreement"). Under the Advisory Agreement, the External Investment Manager earns a 1.75% annual base management fee and
a 20% incentive fee in exchange for providing investment advisory services to MSC Income.
In December 2020, the External Investment Manager entered into an Investment Management Agreement with MS Private Loan
Fund I, LP, a private investment fund with a strategy to invest in Private Loan portfolio investments (the “Private Loan Fund”), pursuant to
which the External Investment Manager provides investment advisory and management services to the Private Loan Fund in exchange for
an asset-based fee and certain incentive fees.
The External Investment Manager earns management fees based on the assets of the funds and accounts under management and
may earn incentive fees, or a carried interest, based on the performance of the funds and accounts managed. The total contribution of the
External Investment Manager to our net investment income consists of the combination of the expenses allocated to the External Investment
Manager and the dividend income earned from the External Investment Manager. For the years ended December 31, 2020, 2019 and 2018,
the total contribution of the External Investment Manager to our net investment income was $9.9 million, $11.7 million and $10.6 million,
respectively. The External Investment Manager agreed to waive the historical incentive fees otherwise earned through December 31, 2018.
During the year ended December 31, 2020, the External Investment Manager earned $10.7 million in base management fees and no
incentive fees compared to $11.1 million of base management fees and $2.0 million in incentive fees in 2019 and $11.6 million of base
management fees in 2018 for the investment advisory services provided related to MSC Income.
We have entered into an agreement with the External Investment Manager to share employees in connection with its asset
management business generally, and specifically for its relationship with MSC Income and its other clients. Through this agreement, we
share employees with the External Investment Manager, including their related infrastructure, business relationships, management expertise
and capital raising capabilities, and we allocate the related expenses to the External Investment Manager pursuant to the sharing agreement.
Our total expenses for the years ended December 31, 2020, 2019 and 2018 are net of expenses allocated to the External Investment Manager
of $7.4 million, $6.7 million and $6.8 million, respectively.
In April 2014, we received an exemptive order from the SEC permitting co-investments by us and MSC Income in certain
negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. During December 2020, we received an
amended exemptive order from the SEC permitting co-investments by us, MSC Income and other funds advised by the External Investment
Manager in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made co-
investments with MSC Income and in the future intend to make co-investments with MSC Income, the Private Loan Fund and other funds
advised by the External Investment Manager, in accordance with the conditions of the order. The order requires, among other things, that
we and the External Investment Manager consider whether each such investment opportunity is appropriate for us and the External
Investment Manager’s advised clients, including MSC Income, as applicable, and if it is appropriate, to propose an allocation of the
investment opportunity between such parties. Because the External Investment Manager may receive performance-based fee compensation
from funds advised by the External Investment Manager, including MSC Income and the Private Loan Fund, this may provide the Company
and the External Investment Manager an incentive to allocate opportunities to other participating funds instead of us. However, both we and
the External Investment Manager have
5
Table of Contents
policies and procedures in place to manage this conflict, including oversight by the independent members of our Board of Directors.
RECENT DEVELOPMENTS
In January 2021, we issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due July 14, 2026 (the “3.00%
Notes”) at an issue price of 99.004%. The total net proceeds from the offering of the 3.00% Notes, resulting from the public issue price and
after underwriting discounts and estimated offering expenses payable, were approximately $294.8 million.
During February 2021, we declared monthly dividends of $0.205 per share for each month of April, May and June of 2021. These
monthly dividends equal a total of $0.615 per share for the second quarter of 2021, unchanged from the monthly dividends paid in the
second quarter of 2020. Including the monthly dividends declared for the second quarter of 2021, we will have paid $30.830 per share in
cumulative dividends since our October 2007 initial public offering.
BUSINESS STRATEGIES
Our principal investment objective is to maximize our portfolio’s total return by generating current income from our debt
investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and other
rights to acquire equity securities in a portfolio company. We have adopted the following business strategies to achieve our investment
objective:
● Deliver Customized Financing Solutions in the Lower Middle Market. We offer LMM portfolio companies customized debt
and equity financing solutions that are tailored to the facts and circumstances of each situation. We believe our ability to
provide a broad range of customized financing solutions to LMM companies sets us apart from other capital providers that
focus on providing a limited number of financing solutions. Our ability to invest across a company’s capital structure, from
senior secured loans to subordinated debt to equity securities, allows us to offer LMM portfolio companies a comprehensive
suite of financing options, or a “one stop” financing solution.
●
●
●
Focus on Established Companies. We generally invest in companies with established market positions, experienced
management teams and proven revenue streams. We believe that those companies generally possess better risk-adjusted return
profiles than newer companies that are building their management teams or are in the early stages of building a revenue base.
We also believe that established companies in our targeted size range also generally provide opportunities for capital
appreciation.
Leverage the Skills and Experience of Our Investment Team. Our investment team has significant experience in lending to and
investing in LMM and Middle Market companies. The members of our investment team have broad investment backgrounds,
with prior experience at private investment funds, investment banks and other financial services companies and currently
include seven certified public accountants and two Chartered Financial Analyst® charter holders. The expertise of our
investment team in analyzing, valuing, structuring, negotiating and closing transactions should provide us with competitive
advantages by allowing us to consider customized financing solutions and non-traditional or complex structures for our
portfolio companies. Also, the reputation of our investment team has and should continue to enable us to generate additional
revenue in the form of management and incentive fees in connection with us providing advisory services to other investment
funds.
Invest Across Multiple Companies, Industries, Regions and End Markets. We seek to maintain a portfolio of investments that is
appropriately balanced among various companies, industries, geographic regions and end markets. This portfolio balance is
intended to mitigate the potential effects of negative economic events for particular companies, regions, industries and end
markets.
6
Table of Contents
● Capitalize on Strong Transaction Sourcing Network. Our investment team seeks to leverage its extensive network of referral
sources for portfolio company investments. We have developed a reputation in our marketplace as a responsive, efficient and
reliable source of financing, which has created a growing stream of proprietary deal flow for us.
● Grow our Asset Management Business. Our asset management business provides us with a recurring source of income,
additional income diversification from sources of income directly tied to invested capital and the opportunity for greater
shareholder returns through the utilization of our existing investment expertise, strong historical track record and favorable
reputation. We seek to grow our asset management business within our internally managed BDC structure in order to increase
the value of this unique benefit to our stakeholders. We expect such growth to come organically through the expansion of the
investment capital that we manage for third parties and the potential extension of our asset management business to new
investment strategies, and potentially through mergers and acquisition activities.
●
Benefit from Lower, Fixed, Long-Term Cost of Capital. The SBIC licenses held by the Funds have allowed them to issue SBA-
guaranteed debentures. SBA-guaranteed debentures carry long-term fixed interest rates that are generally lower than interest
rates on comparable bank loans and other debt. Because lower-cost SBA leverage is, and will continue to be, a significant part
of our capital base through the Funds, our relative cost of debt capital should be lower than many of our competitors. In
addition, the SBIC leverage that we receive through the Funds represents a stable, long-term component of our capital structure
with proper matching of duration and cost compared to our LMM portfolio investments. We also maintain an investment grade
rating from Standard & Poor’s Ratings Services which provides us the opportunity and flexibility to obtain additional, attractive
long-term financing options to supplement our capital structure, including the unsecured notes with fixed interest rates we
issued in 2017, 2019, 2020 and 2021.
INVESTMENT CRITERIA
Our investment team has identified the following investment criteria that it believes are important in evaluating prospective
portfolio companies. Our investment team uses these criteria in evaluating investment opportunities. However, not all of these criteria have
been, or will be, met in connection with each of our investments:
●
●
Proven Management Team with Meaningful Equity Stake. We look for operationally-oriented management with direct industry
experience and a successful track record. In addition, we expect the management team of each LMM portfolio company to have
meaningful equity ownership in the portfolio company to better align our respective economic interests. We believe
management teams with these attributes are more likely to manage the companies in a manner that both protects our debt
investment and enhances the value of our equity investment.
Established Companies with Positive Cash Flow. We seek to invest in established companies with sound historical financial
performance. We typically focus on LMM companies that have historically generated earnings before interest, taxes,
depreciation and amortization (“EBITDA”) of $3 million to $20 million and commensurate levels of free cash flow. We also
pursue investments in debt securities of Middle Market companies that are generally established companies with sound
historical financial performance that are generally larger in size than LMM companies. We generally do not invest in start-up
companies or companies with speculative business plans.
● Defensible Competitive Advantages/Favorable Industry Position. We primarily focus on companies having competitive
advantages in their respective markets and/or operating in industries with barriers to entry, which may help to protect their
market position and profitability.
●
Exit Alternatives. We exit our debt investments primarily through the repayment of our investment from internally generated
cash flow of the portfolio company and/or a refinancing. In addition, we seek to invest in companies whose business models
and expected future cash flows may provide alternate methods of
7
Table of Contents
repaying our investment, such as through a strategic acquisition by other industry participants or a recapitalization.
INVESTMENT PORTFOLIO
The “Investment Portfolio”, as used herein, refers to all of our investments in LMM portfolio companies, investments in Middle
Market portfolio companies, Private Loan portfolio investments, Other Portfolio investments, and our investment in the External
Investment Manager. Our LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in
privately held, LMM companies based in the United States. Our Middle Market portfolio investments primarily consist of direct
investments in or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are
generally larger in size than the companies included in our LMM portfolio. Our Private Loan portfolio investments primarily consist of
investments in interest-bearing debt securities in companies that are consistent with the size of companies in our LMM portfolio or our
Middle Market portfolio, but are investments that we originate on a collaborative basis with other investment funds, and are often referred to
in the debt markets as “club deals.” Our Other Portfolio investments primarily consist of investments that are not consistent with the typical
profiles for our LMM, Middle Market and Private Loan portfolio investments, including investments which may be managed by third
parties. In our Other Portfolio, we may incur indirect fees and expenses in connection with investments managed by third parties, such as
investments in other investment companies or private funds.
Debt Investments
Historically, we have made LMM debt investments principally in the form of single tranche debt. Single tranche debt financing
involves issuing one debt security that blends the risk and return profiles of both first lien secured and subordinated debt. We believe that
single tranche debt is more appropriate for many LMM companies given their size in order to reduce structural complexity and potential
conflicts among creditors.
Our LMM debt investments generally have a term of five to seven years from the original investment date, with limited required
amortization prior to maturity, and provide for monthly or quarterly payment of interest at interest rates generally between 10% and 14%
per annum, payable currently in cash. Interest rate terms can include either fixed or floating rate terms. In addition, certain LMM debt
investments may have a form of interest that is not paid currently but is accrued and added to the loan balance and paid at maturity. We
refer to this form of interest as payment-in-kind, or PIK, interest. We typically structure our LMM debt investments with the maximum
seniority and collateral that we can reasonably obtain while seeking to achieve our total return target. In most cases, our LMM debt
investment will be collateralized by a first priority lien on substantially all the assets of the portfolio company. In addition to seeking a
senior lien position in the capital structure of our LMM portfolio companies, we seek to limit the downside potential of our LMM debt
investments by negotiating covenants that are designed to protect our LMM debt investments while affording our portfolio companies as
much flexibility in managing their businesses as is reasonable. Such restrictions may include affirmative and negative covenants, default
penalties, lien protection, change of control or change of management provisions, key-man life insurance, guarantees, equity pledges,
personal guaranties, where appropriate, and put rights. In addition, we typically seek board representation or observation rights in all of our
LMM portfolio companies. Interest rate terms can include either fixed or floating rate terms.
While we will continue to focus our LMM debt investments primarily on single tranche debt investments, we also anticipate
structuring some of our debt investments as mezzanine loans. We expect that these mezzanine loans will be primarily junior secured or
unsecured, subordinated loans that provide for relatively high interest rates, payable currently in cash, and will provide us with significant
interest income. We also anticipate that these mezzanine loans will afford us the additional opportunity for income and gains through PIK
interest and equity warrants and other similar equity instruments issued in conjunction with these mezzanine loans. These loans typically
will have interest-only payments in the early years, with amortization of principal deferred to the later years of the mezzanine loan term.
Typically, our mezzanine loans will have maturities of three to five years. We will generally target interest rates of 12% to 14%, payable
currently in cash, for our mezzanine loan investments with higher targeted total returns from equity warrants or PIK interest.
8
Table of Contents
We also pursue debt investments in Middle Market companies. Our Middle Market portfolio investments primarily consist of
direct investments or secondary purchases of interest-bearing debt securities in privately held companies based in the United States that are
generally larger in size than the companies included in our LMM portfolio. Our Middle Market portfolio debt investments are generally
secured by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven
years from the original investment date. The debt investments in our Middle Market portfolio have rights and protections that are similar to
those in our LMM debt investments, which may include affirmative and negative covenants, default penalties, lien protection, change of
control provisions, guarantees and equity pledges. The Middle Market debt investments generally have floating interest rates at the London
Interbank Offered Rate (“LIBOR”) plus a margin, and are typically subject to LIBOR floors.
Our Private Loan portfolio investments primarily consist of investments in interest-bearing debt securities in companies that are
consistent with the size of companies in our LMM portfolio or our Middle Market portfolio, but are investments which have been
originated through strategic relationships with other investment funds on a collaborative basis. Our Private Loan portfolio debt investments
are generally secured by either a first or second priority lien and typically have a term of between three and seven years from the original
investment date.
Warrants
In connection with our debt investments, we occasionally receive equity warrants to establish or increase our equity interest in the
portfolio company. Warrants we receive in connection with a debt investment typically require only a nominal cost to exercise, and thus, as
a portfolio company appreciates in value, we may achieve additional investment return from this equity interest. We typically structure the
warrants to provide provisions protecting our rights as a minority-interest holder, as well as secured or unsecured put rights, or rights to sell
such securities back to the portfolio company, upon the occurrence of specified events. In certain cases, we also may obtain registration
rights in connection with these equity interests, which may include demand and “piggyback” registration rights.
Direct Equity Investments
We also will seek to make direct equity investments in situations where it is appropriate to align our interests with key
management and stockholders of our LMM portfolio companies, and to allow for participation in the appreciation in the equity values of our
LMM portfolio companies. We usually make our direct equity investments in connection with debt investments in our LMM portfolio
companies. In addition, we may have both equity warrants and direct equity positions in some of our LMM portfolio companies. We seek to
maintain fully diluted equity positions in our LMM portfolio companies of 5% to 50%, and may have controlling equity interests in some
instances. We have a value orientation toward our direct equity investments and have traditionally been able to purchase our equity
investments at reasonable valuations.
INVESTMENT PROCESS
Our management team’s investment committee is responsible for all aspects of our investment processes. The current members of
our investment committee are Dwayne L. Hyzak, our Chief Executive Officer, David Magdol, our President and Chief Investment Officer,
and Vincent D. Foster, our Executive Chairman.
The investment processes for LMM and Middle Market portfolio investments are outlined below. The investment processes for
Private Loan portfolio investments, from origination to close and to eventual exit, follow the processes for our LMM portfolio investments
or our Middle Market portfolio investments as outlined below, or a combination thereof. Our investment strategy involves a “team”
approach, whereby potential transactions are screened by several members of our investment team before being presented to the investment
committee. Our investment committee meets on an as-needed basis depending on transaction volume. We generally categorize our
investment process into seven distinct stages:
9
Table of Contents
Deal Generation/Origination
Deal generation and origination is maximized through long-standing and extensive relationships with industry contacts, brokers,
commercial and investment bankers, entrepreneurs, service providers such as lawyers, financial advisors and accountants, and current and
former portfolio companies and investors. Our investment team has focused its deal generation and origination efforts on LMM and Middle
Market companies, and we have developed a reputation as a knowledgeable, reliable and active source of capital and assistance in these
markets.
Screening
During the screening process, if a transaction initially meets our investment criteria, we will perform preliminary due diligence,
taking into consideration some or all of the following information:
●
●
●
●
●
●
a comprehensive financial model based on quantitative analysis of historical financial performance, projections and pro forma
adjustments to determine the estimated internal rate of return;
a brief industry and market analysis;
direct industry expertise imported from other portfolio companies or investors;
preliminary qualitative analysis of the management team’s competencies and backgrounds;
potential investment structures and pricing terms; and
regulatory compliance.
Upon successful screening of a proposed LMM transaction, the investment team makes a recommendation to our investment
committee. If our investment committee concurs with moving forward on the proposed LMM transaction, we typically issue a non-binding
term sheet to the company. For Middle Market portfolio investments, the initial term sheet is typically issued by the borrower, through the
syndicating bank, and is screened by the investment team which makes a recommendation to our investment committee.
Term Sheet
For proposed LMM transactions, the non-binding term sheet will include the key economic terms based upon our analysis
performed during the screening process, as well as a proposed timeline and our qualitative expectation for the transaction. While the term
sheet for LMM investments is non-binding, we typically receive an expense deposit in order to move the transaction to the due diligence
phase. Upon execution of a term sheet, we begin our formal due diligence process.
For proposed Middle Market transactions, the initial term sheet will include key economic terms and other conditions proposed by
the borrower and its representatives and the proposed timeline for the investment, which are reviewed by our investment team to determine
if such terms and conditions are in agreement with our investment objectives.
Due Diligence
Due diligence on a proposed LMM investment is performed by a minimum of three of our investment professionals, whom we
refer to collectively as the investment team, and certain external resources, who together conduct due diligence to understand the
relationships among the prospective portfolio company’s business plan, operations and financial performance. Our LMM due diligence
review includes some or all of the following:
●
site visits with management and key personnel;
10
Table of Contents
●
●
●
●
●
●
●
●
detailed review of historical and projected financial statements;
operational reviews and analysis;
interviews with customers and suppliers;
detailed evaluation of company management, including background checks;
review of material contracts;
in-depth industry, market and strategy analysis;
regulatory compliance analysis; and
review by legal, environmental or other consultants, if applicable.
Due diligence on a proposed Middle Market investment is generally performed on materials and information obtained from
certain external resources and assessed internally by a minimum of two of our investment professionals, who work to understand the
relationships among the prospective portfolio company’s business plan, operations and financial performance using the accumulated due
diligence information. Our Middle Market due diligence review includes some or all of the following:
●
●
●
●
detailed review of historical and projected financial statements;
in-depth industry, market, operational and strategy analysis;
regulatory compliance analysis; and
detailed review of the company’s management team and their capabilities.
During the due diligence process, significant attention is given to sensitivity analyses and how the company might be expected to
perform given downside, base-case and upside scenarios. In certain cases, we may decide not to make an investment based on the results of
the diligence process.
Document and Close
Upon completion of a satisfactory due diligence review of a proposed LMM portfolio investment, the investment team presents
the findings and a recommendation to our investment committee. The presentation contains information which can include, but is not
limited to, the following:
●
●
●
●
●
●
company history and overview;
transaction overview, history and rationale, including an analysis of transaction strengths and risks;
analysis of key customers and suppliers and key contracts;
a working capital analysis;
an analysis of the company’s business strategy;
a management and key equity investor background check and assessment;
11
Table of Contents
●
●
●
●
●
●
●
●
third-party accounting, legal, environmental or other due diligence findings;
investment structure and expected returns;
anticipated sources of repayment and potential exit strategies;
pro forma capitalization and ownership;
an analysis of historical financial results and key financial ratios;
sensitivities to management’s financial projections;
regulatory compliance analysis findings; and
detailed reconciliations of historical to pro forma results.
Upon completion of a satisfactory due diligence review of a proposed Middle Market portfolio investment, the investment team
presents the findings and a recommendation to our investment committee. The presentation contains information which can include, but is
not limited to, the following:
●
●
●
●
●
●
●
●
●
company history and overview;
transaction overview, history and rationale, including an analysis of transaction strengths and risks;
analysis of key customers and suppliers;
an analysis of the company’s business strategy;
investment structure and expected returns;
anticipated sources of repayment and potential exit strategies;
pro forma capitalization and ownership;
regulatory compliance analysis findings; and
an analysis of historical financial results and key financial ratios.
If any adjustments to the transaction terms or structures are proposed by the investment committee, such changes are made and
applicable analyses are updated prior to approval of the transaction. Approval for the transaction must be made by the affirmative vote from
a majority of the members of the investment committee, with the committee member managing the transaction, if any, abstaining from the
vote. Upon receipt of transaction approval, the investment team will re-confirm regulatory compliance, process and finalize all required
legal documents, and fund the investment.
Post-Investment
We continuously monitor the status and progress of the portfolio companies. We generally offer managerial assistance to our
portfolio companies, giving them access to our investment experience, direct industry expertise and contacts. The same investment team
that was involved in the investment process will continue its involvement in the portfolio company post-investment. This provides for
continuity of knowledge and allows the investment team to maintain a strong business relationship with key management of our portfolio
companies for post-investment assistance and monitoring purposes.
12
Table of Contents
As part of the monitoring process of LMM portfolio investments, the investment team will analyze monthly and quarterly financial
statements versus the previous periods and year, review financial projections, meet and discuss issues or opportunities with management,
attend board meetings and review all compliance certificates and covenants. While we maintain limited involvement in the ordinary course
operations of our LMM portfolio companies, we maintain a higher level of involvement in non-ordinary course financing or strategic
activities and any non-performing scenarios. We also monitor the performance of our Middle Market portfolio investments; however, due to
the larger size and higher sophistication level of these Middle Market companies in comparison to our LMM portfolio companies, it is not
necessary or practical to have as much direct management interface.
We utilize an internally developed investment rating system to rate the performance of each LMM portfolio company and to
monitor our expected level of returns on each of our LMM investments in relation to our expectations for the portfolio company. The
investment rating system takes into consideration various factors, including, but not limited to, each investment’s expected level of returns,
the collectability of our debt investments and the ability to receive a return of the invested capital in our equity investments, comparisons to
competitors and other industry participants, the portfolio company’s future outlook and other factors that are deemed to be significant to the
portfolio company.
Exit Strategies/Refinancing
While we generally exit most investments through the refinancing or repayment of our debt and redemption or sale of our equity
positions, we typically assist our LMM portfolio companies in developing and planning exit opportunities, including any sale or merger of
our portfolio companies. We may also assist in the structure, timing, execution and transition of the exit strategy. The refinancing or
repayment of Middle Market debt investments typically does not require our assistance due to the additional resources available to these
larger, Middle Market companies.
DETERMINATION OF NET ASSET VALUE AND INVESTMENT PORTFOLIO VALUATION PROCESS
We determine the net asset value per share of our common stock on a quarterly basis. The net asset value per share is equal to our
total assets minus total liabilities divided by the total number of shares of common stock outstanding.
We are required to report our investments at fair value. As a result, the most significant determination inherent in the preparation
of our consolidated financial statements is the valuation of our Investment Portfolio and the related amounts of unrealized appreciation and
depreciation. We follow the provisions of the Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 820, Fair
Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value,
establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair
value measurements. ASC 820 requires us to assume that the portfolio investment is to be sold in the principal market to independent
market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that
are independent, knowledgeable and willing and able to transact.
We determine in good faith the fair value of our Investment Portfolio pursuant to a valuation policy in accordance with ASC 820
and a valuation process approved by our Board of Directors and in accordance with the 1940 Act. Our valuation policies and processes are
intended to provide a consistent basis for determining the fair value of our Investment Portfolio. See “Note B.1. — Valuation of the
Investment Portfolio” in the notes to consolidated financial statements for a detailed discussion of our investment portfolio valuation
process and procedures.
Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ
materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market
environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or
losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value
of each individual investment and record changes in fair value as unrealized appreciation or depreciation.
13
Table of Contents
As described below, we undertake a multi-step valuation process each quarter in connection with determining the fair value of our
investments, with our Board of Directors having final responsibility for overseeing, reviewing and approving, in good faith, our
determination of the fair value for our Investment Portfolio and our valuation procedures, consistent with 1940 Act requirements. In
addition, the Audit Committee of our Board of Directors periodically evaluates the performance and methodologies of the financial
advisory services firm that we consult in connection with valuing our LMM and Private Loan portfolio company investments.
● Our quarterly valuation process begins with each LMM and Private Loan portfolio company investment being initially valued
by the investment team responsible for monitoring the portfolio investment;
●
●
The fair value determination for our Middle Market and Other Portfolio debt and equity investments and our investment in the
External Investment Manager consists of unobservable and observable inputs which are initially reviewed by the investment
professionals responsible for monitoring the portfolio investment;
Preliminary valuation conclusions are then reviewed by and discussed with senior management, and the investment team
considers and assesses, as appropriate, any changes that may be required to the preliminary valuations to address any
comments provided by senior management;
● A nationally recognized independent financial advisory services firm analyzes and provides observations, recommendations
and an assurance certification regarding the determinations of the fair value for our LMM and Private Loan portfolio
companies;
●
●
The Audit Committee of our Board of Directors reviews management’s valuations, and the investment team and senior
management consider and assess, as appropriate, any changes that may be required to management’s valuations to address any
comments provided by the Audit Committee; and
The Board of Directors assesses the valuations and ultimately approves the fair value of each investment in our portfolio in
good faith.
Determination of fair value involves subjective judgments and estimates. The notes to our consolidated financial statements refer
to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our financial results and
financial condition.
COMPETITION
We compete for investments with a number of investment funds (including private equity funds, mezzanine funds, BDCs, and
SBICs), as well as traditional financial services companies such as commercial banks and other sources of financing. Many of the entities
that compete with us are larger and have more resources available to them. We believe we are able to be competitive with these entities
primarily on the basis of our focus toward the underserved LMM, the experience and contacts of our management team, our responsive and
efficient investment analysis and decision-making processes, our comprehensive suite of customized financing solutions and the investment
terms we offer.
We believe that some of our competitors make senior secured loans, junior secured loans and subordinated debt investments with
interest rates and returns that are comparable to or lower than the rates and returns that we target. Therefore, we do not seek to compete
primarily on the interest rates and returns that we offer to potential portfolio companies. For additional information concerning the
competitive risks we face, see “Risk Factors — Risks Relating to Our Business and Structure — We face increasing competition for
investment opportunities.”
HUMAN CAPITAL
Our employees are vital to our success as a principal investment firm. As a human-capital intensive business, the long-term
success of our company depends on our people. We strive to attract, develop and retain our employees by
14
Table of Contents
offering unique employment opportunities, superior advancement and promotion opportunities, attractive compensation and benefit
structures and a close-knit culture. The departure of our key investment and other personnel could cause our operating results to suffer.
Our LMM business segment depends heavily on the business owners and management teams of our portfolio companies and their
respective employees, contractors and service providers. In our investment process for LMM portfolio investments, the analysis of these
individuals is a critical part of our overall investment underwriting process and as a result we carefully review the qualifications and
experience of the portfolio company’s business owners and management team and their employment practices. We strive to partner with
business owners and management teams whose business practices reflect our core values.
We strive to recruit talented and driven individuals who share our values. We have competitive programs dedicated to attracting
and retaining new talent and enhancing the skills of our employees. Our recruiting efforts utilize strong relationships with a variety of
sources from which we recruit. Among other opportunities, we offer selected students investment analyst internships, which are expected to
lead to permanent roles for high performing and high potential interns. Through our internship program, individuals who want to become
investment analysts have the opportunity to see the full investment process from origination to closing, as well as post-closing portfolio
management activities. We routinely recruit from within, promoting current employees who have shown the technical ability, attitude,
interest and the initiative to take on greater responsibility.
We have designed a compensation structure, including an array of benefit plans and programs, that we believe is attractive to our
current and prospective employees. We also offer formal and informal training and mentorship programs that provide employees with
access to senior level executives. Through our annual goal setting and performance review processes, our employees are annually evaluated
by supervisors and our senior management team to ensure employees continue to develop and advance as expected. We are committed to
having a diverse workforce, and an inclusive work environment is a natural extension of our culture. We also maintain a Women’s
Initiative that provides employees with opportunities to network internally at MSCC and externally with other women in the financial
services industry. Our employees have access to several programs designed to enable our employees to balance work, family and family-
related situations including flexible working arrangements and parental leave for birth and adoption placement. We are committed to
creating and maintaining an atmosphere where all employees feel welcomed, valued, respected and heard so that they feel motivated and
encouraged to contribute fully to their careers, our company and our communities.
We seek to maintain a close-knit culture, which we believe is an important factor in employee retention, which is reinforced by
our Community Building Committee. Our Community Building Committee, which is composed of a substantial cross section of employees
across our organization, develops programs and initiatives that promote an open and inclusive atmosphere and encourage employee
outreach with our community, in each case based upon feedback received from our employees. Recent initiatives generated by our
Community Building Committee include a volunteer time-off program, a matching donation policy and partnerships with local charitable
organizations. We encourage you to visit our website for more information about charitable organizations receiving our ongoing support.
Nothing on our website, however, shall be deemed incorporated by reference into this Annual Report on Form 10-K.
We monitor and evaluate various turnover and attrition metrics throughout our management team. Our annualized voluntary
turnover is relatively low, a record which we attribute to our strong corporate culture, commitment to career development and attractive
compensation and benefit programs.
In addition to our normal prioritization of the health and safety of our employees, during 2020, to address the specific safety and
health matters of our workforce in response to the COVID-19 pandemic, we implemented the following, among other steps:
●
Temporarily closing our offices and establishing new safety protocols and procedures;
● Maintaining regular communication regarding the impacts of the pandemic on our team members and operations;
15
Table of Contents
● Developing and distributing return-to-office guidelines to ensure the safe return of employees to our office;
●
●
●
Providing daily temperature checks and symptom screening and requiring those who are infected or exposed to the virus to
quarantine in accordance with public health guidelines;
Enhanced cleaning protocols;
Establishing physical distancing procedures, modifying workspaces, and providing personal protective equipment and cleaning
supplies for employees working onsite; and
● Creating and refining protocols to address actual and suspected COVID-19 cases and potential exposure of our employees and
our business partners.
As of December 31, 2020, we had approximately 76 employees, 48 of whom we characterize as investment and portfolio
management professionals, and the others include operations professionals and administrative staff. None of our employees are represented
by a collective bargaining agreement. As necessary, we will hire additional investment professionals and administrative personnel. All of
our employees are located in our Houston, Texas office.
REGULATION
Regulation as a Business Development Company
We have elected to be regulated as a BDC under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to
transactions between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters. The 1940 Act
requires that a majority of the members of the board of directors of a BDC be persons other than “interested persons,” as that term is
defined in the 1940 Act. In addition, the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to
withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities.
The 1940 Act defines “a majority of the outstanding voting securities” as the lesser of (i) 67% or more of the voting securities
present at a meeting if the holders of more than 50% of our outstanding voting securities are present or represented by proxy or (ii) more
than 50% of our outstanding voting securities.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which
are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the company’s
total assets. The principal categories of qualifying assets relevant to our business are any of the following:
(1)
(2)
(3)
Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer
(subject to certain limited exceptions) is an eligible portfolio company (as defined below), or from any person who is, or
has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person,
subject to such rules as may be prescribed by the SEC.
Securities of any eligible portfolio company that we control.
Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated
person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the
issuer, immediately prior to the purchase of its securities was unable to meet its obligations as they came due without
material assistance other than conventional lending or financing arrangements.
16
Table of Contents
(4)
(5)
(6)
Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market
for such securities and we already own 60% of the outstanding equity of the eligible portfolio company.
Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or
pursuant to the exercise of warrants or rights relating to such securities.
Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the
time of investment.
In addition, a BDC must have been organized and have its principal place of business in the United States and must be operated
for the purpose of making investments in the types of securities described in (1), (2) or (3) above.
An eligible portfolio company is defined in the 1940 Act as any issuer which:
(a)
(b)
is organized under the laws of, and has its principal place of business in, the United States;
is not an investment company (other than a small business investment company wholly owned by the BDC) or a company
that would be an investment company but for certain exclusions under the 1940 Act; and
(c)
satisfies any of the following:
(i)
(ii)
(iii)
does not have any class of securities that is traded on a national securities exchange or has a class of securities
listed on a national securities exchange but has an aggregate market value of outstanding voting and non-voting
common equity of less than $250 million;
is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a
director of the eligible portfolio company; or
is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less
than $2 million.
Managerial Assistance to Portfolio Companies
As noted above, a BDC must be operated for the purpose of making investments in the type of securities described in (1), (2) or (3)
above under the heading entitled “— Qualifying Assets.” In addition, BDCs must generally offer to make available to such issuer of the
securities (other than small and solvent companies described above) significant managerial assistance; except that, where we purchase such
securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such
managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its
directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the
management, operations or business objectives and policies of a portfolio company.
Temporary Investments
Pending investment in “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S.
government securities and high-quality debt securities maturing in one year or less from time of investment therein, so that 70% of our
assets are qualifying assets.
Senior Securities
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset
coverage, as defined in the 1940 Act, equals at least 200% of all debt and/or senior stock immediately
17
Table of Contents
after each such issuance. However, 2018 legislation modified the 1940 Act by allowing a BDC to increase the maximum amount of
leverage it may incur from an asset coverage ratio of 200% to an asset coverage ratio of 150%, if certain requirements are met. We are
permitted to increase our leverage capacity if stockholders representing at least a majority of the votes cast, when quorum is met, approve a
proposal to do so. If we receive such stockholder approval, we would be permitted to increase our leverage capacity on the first day after
such approval. Alternatively, we may increase the maximum amount of leverage we may incur to an asset coverage ratio of 150% if the
“required majority” of our independent directors as defined in Section 57(o) of the 1940 Act approve such increase with such approval
becoming effective after one year. In either case, we would be required to make certain disclosures on our website and in SEC filings
regarding, among other things, the receipt of approval to increase our leverage, our leverage capacity and usage, and risks related to
leverage. In addition, while any senior securities remain outstanding (other than senior securities representing indebtedness issued in
consideration of a privately arranged loan which is not intended to be publicly distributed), we must make provisions to prohibit any cash
distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time
of the distribution or repurchase. We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency
purposes without regard to asset coverage. For a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to Our
Debt Financing,” including, without limitation, “— Because we borrow money, the potential for gain or loss on amounts invested in us is
magnified and may increase the risk of investing in us.”
We have previously received an exemptive order from the SEC to exclude debt securities issued by MSMF and any other wholly
owned subsidiaries of ours which operate as SBICs from the asset coverage requirements of the 1940 Act as applicable to Main Street. The
exemptive order provides for the exclusion of all debt securities issued by the Funds, including the $309.8 million of outstanding debt as of
December 31, 2020, issued pursuant to the SBIC program. This exemptive order provides us with expanded capacity and flexibility in
obtaining future sources of capital for our investment and operational objectives.
Common Stock
We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our
common stock, warrants, options or rights to acquire our common stock, at a price below the current net asset value of the common stock if
our Board of Directors determines that such sale is in our best interests and that of our stockholders, and our stockholders approve such
sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price which, in the determination of
our Board of Directors, closely approximates the market value of such securities (less any distributing commission or discount). We did not
seek stockholder authorization to sell shares of our common stock below the then current net asset value per share of our common stock at
our 2020 annual meeting of stockholders because our common stock price had been trading significantly above the net asset value per share
of our common stock since 2011. Our stockholders have previously approved a proposal that authorizes us to issue securities to subscribe
to, convert to, or purchase shares of our common stock in one or more offerings. We may also make rights offerings to our stockholders at
prices per share less than the net asset value per share, subject to applicable requirements of the 1940 Act. See “Risk Factors — Risks
Relating to Our Securities — Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices
below the then current net asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our
common stock.”
Code of Ethics
We have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act that establishes procedures for personal investments
and restricts certain personal securities transactions. Personnel subject to the code may invest in securities for their personal investment
accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s
requirements. The code of ethics is available on the EDGAR Database on the SEC’s Web site at http://www.sec.gov.
18
Table of Contents
Proxy Voting Policies and Procedures
We vote proxies relating to our portfolio securities in a manner in which we believe is consistent with the best interest of our
stockholders. We review on a case-by-case basis each proposal submitted to a stockholder vote to determine its impact on the portfolio
securities held by us. Although we generally vote against proposals that we expect would have a negative impact on our portfolio securities,
we may vote for such a proposal if there exists compelling long-term reasons to do so.
Our proxy voting decisions are made by the investment team which is responsible for monitoring each of our investments. To
ensure that our vote is not the product of a conflict of interest, we require that anyone involved in the decision-making process discloses to
our chief compliance officer any potential conflict regarding a proxy vote of which he or she is aware.
Stockholders may obtain information, without charge, regarding how we voted proxies with respect to our portfolio securities by
making a written request for proxy voting information to: Chief Compliance Officer, 1300 Post Oak Boulevard, 8th Floor, Houston, Texas
77056.
Other 1940 Act Regulations
We are also prohibited under the 1940 Act from knowingly participating in certain transactions with our affiliates without the
prior approval of our Board of Directors who are not interested persons and, in some cases, prior approval by the SEC.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and
embezzlement. Furthermore, as a BDC, we are prohibited from protecting any director or officer against any liability to us or our
stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such
person’s office.
We are required to adopt and implement written policies and procedures reasonably designed to prevent violation of the federal
securities laws, review these policies and procedures no less frequently than annually for their adequacy and the effectiveness of their
implementation, and to designate a chief compliance officer to be responsible for administering the policies and procedures.
We may be periodically examined by the SEC for compliance with the 1940 Act.
Small Business Investment Company Regulations
Each of the Funds is licensed by the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of
1958. MSMF obtained its SBIC license in 2002, MSC II obtained its license in 2006 and MSC III obtained its license in 2016.
SBICs are designed to stimulate the flow of private capital to eligible small businesses. Under SBIC regulations, SBICs may make
loans to eligible small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services.
Each of the Funds has typically invested in secured debt, acquired warrants and/or made equity investments in qualifying small businesses.
The Funds are subject to regulation and oversight by the SBA, including requirements with respect to reporting financial
information, such as the extent of capital impairment if applicable, on a regular basis and annual examinations conducted by the SBA. The
SBA, as a creditor, will have a superior claim to the Funds’ assets over our securities holders in the event the Funds are liquidated or the
SBA exercises its remedies under the SBA-guaranteed debentures issued by the Funds upon an event of default.
We have received exemptive relief from the SEC to permit us to exclude the SBA-guaranteed debentures of the Funds from our
200% asset coverage test under the 1940 Act. As such, our ratio of total consolidated assets to
19
Table of Contents
outstanding indebtedness may be less than 200%. This provides us with increased investment flexibility but also increases our risks related
to leverage. See “Risk Factors — Risks Relating to Our Debt Financing — Because we borrow money, the potential for gain or loss on
amounts invested in us is magnified and may increase the risk of investing in us.”
Under present SBIC regulations, eligible small businesses generally include businesses that (together with their affiliates) have a
tangible net worth not exceeding $19.5 million or have average annual net income after U.S. federal income taxes not exceeding $6.5
million (average net income to be computed without benefit of any carryover loss) for the two most recent fiscal years. In addition, an
SBIC must devote 25% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise generally includes
businesses that have a tangible net worth not exceeding $6 million and have average annual net income after U.S. federal income taxes not
exceeding $2 million (average net income to be computed without benefit of any net carryover loss) for the two most recent fiscal years.
SBIC regulations also provide alternative size standard criteria to determine eligibility for designation as an eligible small business or
smaller enterprise, which criteria depend on the primary industry in which the business is engaged and are based on such factors as the
number of employees and gross revenue. However, once an SBIC has invested in a company, it generally may continue to make follow-on
investments in the company, regardless of the size of the portfolio company at the time of the follow-on investment, up to the time of the
portfolio company’s initial public offering.
The SBA prohibits an SBIC from providing funds to small businesses for certain purposes, such as relending and investment
outside the United States, to businesses engaged in certain prohibited industries, and to certain “passive” (non-operating) companies. In
addition, without prior SBA approval, an SBIC may not invest an amount equal to more than approximately 30% of the SBIC’s regulatory
capital, as defined by the SBA, in any one portfolio company and its affiliates.
The SBA places certain limitations on the financing terms of investments by SBICs in portfolio companies (such as limiting the
permissible interest rate on debt securities held by an SBIC in a portfolio company). Included in such limitations are SBIC regulations
which allow an SBIC to exercise control over a small business for a period of seven years from the date on which the SBIC initially
acquires its control position. This control period may be extended for an additional period of time with the SBA’s prior written approval.
The SBA restricts the ability of an SBIC to lend money to any of its officers, directors and employees or to invest in affiliates
thereof. The SBA also prohibits, without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person
(or a group of persons acting in concert) owning 10% or more of a class of equity of a licensed SBIC. A “change of control” is any event
which would result in the transfer of the power, direct or indirect, to direct the management and policies of an SBIC, whether through
ownership, contractual arrangements or otherwise.
The SBIC licenses allow the Funds to incur leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital
commitment and certain approvals by the SBA and customary procedures. SBA-guaranteed debentures carry long-term fixed rates that are
generally lower than rates on comparable bank and other debt. Under applicable regulations, an SBIC may generally have outstanding
debentures guaranteed by the SBA in amounts up to twice the amount of the privately raised funds of the SBIC. Debentures guaranteed by
the SBA have a maturity of ten years, require semiannual payments of interest, do not require any principal payments prior to maturity, and
are not subject to prepayment penalties. As of December 31, 2020, we, through the Funds, had $309.8 million of outstanding SBA-
guaranteed debentures, which had an annual weighted-average interest rate of approximately 3.4%.
SBICs must invest idle funds that are not being used to make loans in investments permitted under SBIC regulations in the
following limited types of securities: (i) direct obligations of, or obligations guaranteed as to principal and interest by, the United States
government, which mature within 15 months from the date of the investment; (ii) repurchase agreements with federally insured institutions
with a maturity of seven days or less (and the securities underlying the repurchase obligations must be direct obligations of or guaranteed
by the federal government); (iii) certificates of deposit with a maturity of one year or less, issued by a federally insured institution; (iv) a
deposit account in a federally insured institution that is subject to a withdrawal restriction of one year or less; (v) a checking account in a
federally insured institution; or (vi) a reasonable petty cash fund.
20
Table of Contents
SBICs are periodically examined and audited by the SBA’s staff to determine their compliance with SBIC regulations and are
periodically required to file certain financial information and other documents with the SBA.
Neither the SBA nor the U.S. government or any of its agencies or officers has approved any ownership interest to be issued by us
or any obligation that we or any of our subsidiaries may incur.
Securities Exchange Act of 1934 and Sarbanes-Oxley Act Compliance
We are subject to the reporting and disclosure requirements of the Securities Exchange Act of 1934 (the “Exchange Act”),
including the filing of quarterly, annual and current reports, proxy statements and other required items. In addition, we are subject to the
Sarbanes-Oxley Act of 2002, which imposes a wide variety of regulatory requirements on publicly-held companies and their insiders. For
example:
●
●
●
●
pursuant to Rule 13a-14 of the Exchange Act, our Chief Executive Officer and Chief Financial Officer are required to certify
the accuracy of the consolidated financial statements contained in our periodic reports;
pursuant to Item 307 of Regulation S-K, our periodic reports are required to disclose our conclusions about the effectiveness of
our disclosure controls and procedures;
pursuant to Rule 13a-15 of the Exchange Act, our management is required to prepare a report regarding its assessment of our
internal control over financial reporting, and our independent registered public accounting firm separately audits our internal
control over financial reporting; and
pursuant to Item 308 of Regulation S-K and Rule 13a-15 of the Exchange Act, our periodic reports must disclose whether there
were significant changes in our internal control over financial reporting or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and
material weaknesses.
The New York Stock Exchange Corporate Governance Regulations
The New York Stock Exchange (“NYSE”) has adopted corporate governance regulations that listed companies must comply with.
We believe we are in compliance with such corporate governance listing standards. We intend to monitor our compliance with all future
listing standards and to take all necessary actions to ensure that we stay in compliance.
Investment Adviser Regulations
The External Investment Manager, which is wholly owned by us, is subject to regulation under the Advisers Act. The Advisers Act
establishes, among other things, recordkeeping and reporting requirements, disclosure requirements, limitations on transactions between the
adviser’s account and an advisory client’s account, limitations on transactions between the accounts of advisory clients, and general anti-
fraud prohibitions. The External Investment Manager may be examined by the SEC from time to time for compliance with the Advisers Act.
Taxation as a Regulated Investment Company
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code. MSCC’s taxable
income includes the taxable income generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as
disregarded entities for tax purposes. As a RIC, we generally will not pay corporate-level U.S. federal income taxes on any income that we
distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset
diversification requirements (as described below). In addition, in order to obtain RIC tax treatment, we must distribute to our stockholders,
for each taxable year, at least 90% of our “investment company taxable income,” which is generally our net ordinary taxable income plus
the excess of realized net short-term capital gains over realized net long-term capital losses, and 90% of our tax-exempt income (the
21
Table of Contents
“Annual Distribution Requirement”). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-deductible U.S.
federal excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that fiscal year, provided
such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the
fifteenth day of the ninth month following the close of the year in which such taxable income was generated.
For any taxable year in which we qualify as a RIC and satisfy the Annual Distribution Requirement, we will not be subject to U.S.
federal income tax on the portion of our income or capital gains we distribute (or are deemed to distribute) to stockholders. We will be
subject to U.S. federal income tax at the regular corporate rates on any income or capital gains not distributed (or deemed distributed) to our
stockholders.
We are subject to a 4% non-deductible U.S. federal excise tax on certain undistributed income unless we distribute in a timely
manner an amount at least equal to the sum of (1) 98% of our net ordinary taxable income for each calendar year, (2) 98.2% of our capital
gain net income for the one-year period ending December 31 in that calendar year and (3) any taxable income recognized, but not
distributed, in preceding years on which we paid no U.S. federal income tax (the “Excise Tax Avoidance Requirement”). Dividends
declared and paid by us in a year will generally differ from taxable income for that year as such dividends may include the distribution of
current year taxable income, exclude amounts carried over into the following year, and include the distribution of prior year taxable income
carried over into and distributed in the current year. For amounts we carry over into the following year, we will be required to pay the 4%
U.S. federal excise tax on the excess of 98% of our annual investment company taxable income and 98.2% of our capital gain net income
over our distributions for the year.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
●
●
continue to qualify as a BDC under the 1940 Act at all times during each taxable year;
derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain
securities, loans, gains from the sale of stock or other securities, net income from certain “qualified publicly traded
partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income
Test”); and
●
diversify our holdings so that at the end of each quarter of the taxable year:
●
●
at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other
RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our
assets or more than 10% of the outstanding voting securities of the issuer; and
no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities
of other RICs, (i) of one issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules,
by us and that are engaged in the same or similar or related trades or businesses or (iii) of certain “qualified publicly traded
partnerships” (collectively, the “Diversification Tests”).
In order to comply with the 90% Income Test, we formed the Taxable Subsidiaries as wholly owned taxable subsidiaries for the
primary purpose of permitting us to own equity interests in portfolio companies which are “pass-through” entities for tax purposes. Absent
the taxable status of the Taxable Subsidiaries, a portion of the gross income from such portfolio companies would flow directly to us for
purposes of the 90% Income Test. To the extent such income did not consist of income derived from securities, such as dividends and
interest, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to incur significant U.S. federal income taxes. The
Taxable Subsidiaries are consolidated with Main Street for generally accepted accounting principles in the United States of America (“U.S.
GAAP”) purposes and are included in our consolidated financial statements, and the portfolio investments held by the Taxable Subsidiaries
are included in our consolidated financial statements. The Taxable Subsidiaries are not consolidated with Main Street for income tax
purposes and may generate income tax expense, or benefit, as a result of
22
Table of Contents
their ownership of the portfolio investments. The income tax expense, or benefit, if any, and any related tax assets and liabilities, are
reflected in our consolidated financial statements.
The External Investment Manager is accounted for as a portfolio investment for U.S. GAAP purposes and is an indirect wholly
owned subsidiary of MSCC, owned through a Taxable Subsidiary. The External Investment Manager is owned by a Taxable Subsidiary in
order to comply with the 90% Income Test, since the External Investment Manager’s income would likely not consist of income derived
from securities, such as dividends and interest, and as result, it could jeopardize our ability to qualify as a RIC and, therefore, cause us to
incur significant U.S. federal income taxes. As a result of its ownership by a Taxable Subsidiary, the External Investment Manager is a
disregarded entity for tax purposes. The External Investment Manager has also entered into a tax sharing agreement with its Taxable
Subsidiary owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a
consolidated subsidiary of MSCC in MSCC’s consolidated financial statements, and as a result of the tax sharing agreement with its
Taxable Subsidiary owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at
normal corporate tax rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The
income tax expense, or benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the
External Investment Manager’s separate financial statements.
We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt
obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants and
debt securities invested in at a discount to par), we must include in income each year a portion of the original issue discount that accrues
over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also
have to include in income other amounts that we have not yet received in cash such as PIK interest, cumulative dividends or amounts that
are received in non-cash compensation such as warrants or stock. Because any original issue discount or other amounts accrued will be
included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders
in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
Although we do not presently expect to do so, we are authorized to borrow funds and to sell assets in order to satisfy distribution
requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders in certain circumstances while
our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation — Regulation
as a Business Development Company — Senior Securities.” Moreover, our ability to dispose of assets to meet our distribution requirements
may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our status as a RIC, including the
Diversification Tests. If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance
Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the
U.S. Department of the Treasury (“Treasury”) regulations, distributions payable by us in cash or in shares of stock (at the stockholders
election) would satisfy the Annual Distribution Requirement. The Internal Revenue Service has issued guidance indicating that this rule
will apply even where the total amount of cash that may be distributed is limited to no more than 20% of the total distribution. According to
this guidance, if too many stockholders elect to receive their distributions in cash, each such stockholder would receive a pro rata share of
the total cash to be distributed and would receive the remainder of their distribution in shares of stock. Taxable stockholders receiving such
dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as (i)
ordinary income (including any qualified dividend income that, in the case of a noncorporate stockholder, may be eligible for the same
reduced maximum tax rate applicable to long-term capital gains to the extent such distribution is properly reported by us as qualified
dividend income and such stockholder satisfies certain minimum holding period requirements with respect to our stock) or (ii) long-term
capital gain (to the extent such distribution is properly reported as a capital gain dividend), to the extent of our current and accumulated
earnings and profits for U.S. federal income tax purposes. As a result, a U.S. stockholder may be required to pay tax with respect to such
dividends in excess of any cash received. If a U.S. stockholder sells the stock it receives in order to pay this tax, the sales proceeds may be
less than the amount included in income with respect to the dividend, depending on the market price of our stock
23
Table of Contents
at the time of the sale. Furthermore, with respect to non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such
dividends, including in respect of all or a portion of such dividend that is payable in stock. In addition, if a significant number of our
stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward pressure on the trading
price of our stock.
Failure to Qualify as a RIC
If we fail to satisfy the 90% Income Test or the Diversification Tests for any taxable year, we may nevertheless continue to qualify
as a RIC for such year if certain relief provisions are applicable (which may, among other things, require us to pay certain corporate-level
U.S. federal taxes or to dispose of certain assets).
If we were unable to qualify for treatment as a RIC and the foregoing relief provisions are not applicable, we would be subject to
tax on all of our taxable income at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would they be
required to be made. If we were subject to tax on all of our taxable income at regular corporate rates, then distributions we make after being
subject to such tax would be taxable to our stockholders and, provided certain holding period and other requirements were met, could
qualify for treatment as “qualified dividend income” eligible for the maximum 20% rate (plus a 3.8% Medicare surtax, if applicable)
applicable to qualified dividends to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the
Code, corporate taxpayers would be eligible for a dividends-received deduction on distributions they receive. Distributions in excess of our
current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any
remaining distributions would be treated as a capital gain. To requalify as a RIC in a subsequent taxable year, we would be required to
satisfy the RIC qualification requirements for that year and dispose of any earnings and profits from any year in which we failed to qualify
as a RIC. Subject to a limited exception applicable to RICs that qualified as such under Subchapter M of the Code for at least one year prior
to disqualification and that requalify as a RIC no later than the second year following the nonqualifying year, we could be subject to tax on
any unrealized net built-in gains in the assets held by us during the period in which we failed to qualify as a RIC that are recognized within
the subsequent five years, unless we made a special election to pay corporate-level U.S. federal income tax on such built-in gain at the time
of our requalification as a RIC.
Item 1A. Risk Factors
Investing in our securities involves a number of significant risks. In addition to the other information contained in this Annual
Report on Form 10-K, you should consider carefully the following information before making an investment in our securities. The risks set
out below are not the only risks we face. Additional risks and uncertainties not presently known to us or not presently deemed material by
us might also impair our operations and performance. If any of the following events occur, our business, financial condition and results of
operations could be materially and adversely affected. In such case, our net asset value, the trading price of our common stock and the
value of our other securities could decline, and you may lose all or part of your investment.
SUMMARY OF RISK FACTORS
The following is a summary of the principal risk factors associated with an investment in our securities. Further details regarding
each risk included in the below summary list can be found further below.
Risks Relating to Economic Conditions
●
Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of
operations.
Risks Relating to our Business and Structure
● Our Investment Portfolio is and will continue to be recorded at fair value, with our Board of Directors having final responsibility for
overseeing, reviewing and approving, in good faith, our determination of fair value and, as a result, there is and will continue to be
uncertainty as to the value of our portfolio investments.
● Our financial condition and results of operations depends on our ability to effectively manage and deploy capital.
● We face increasing competition for investment opportunities.
● We are dependent upon our key investment personnel for our future success.
24
Table of Contents
● Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop these
relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
Risks Relating to our Investment Management Activities
● Our executive officers and employees, through the External Investment Manager, may manage other investment funds, including MSC
Income, that operate in the same or a related line of business as we do, and may invest in such funds, which may result in significant
conflicts of interest.
● We, through the External Investment Manager, derive revenues from managing third party funds pursuant to management agreements
that may be terminated pursuant to the terms of such agreements or requirements under the 1940 Act.
Risks Related to BDCs and SBICs
● Operating under the constraints imposed on us as a BDC and RIC may hinder the achievement of our investment objectives.
●
●
Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
The Funds are licensed by the SBA, and therefore subject to SBIC regulations.
Risks Related to our Investments
● Our investments in portfolio companies involve higher levels of risk, and we could lose all or part of our investment.
●
● Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
●
The lack of liquidity in our investments may adversely affect our business.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to
lender liability claims.
Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors
with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority
creditors and us.
●
● Changes relating to the LIBOR calculation process, the phase-out of LIBOR and the use of replacement rates for LIBOR may adversely
affect the value of our portfolio securities.
● Changes in interest rates may affect our cost of capital, net investment income and value of our investments.
Risks Related to Our Debt Financing
● Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing
in us.
● All of our assets are subject to security interests under our secured Credit Facility or subject to a superior claim over our stockholders
by the SBA and if we default on our obligations under the Credit Facility or with respect to our SBA guaranteed debentures or under
the Notes, we may suffer adverse consequences, including foreclosure on our assets.
Risks Relating to our Securities
●
●
●
●
Investing in our securities may involve a high degree of risk.
Shares of closed end investment companies, including BDCs, may trade at a discount to their net asset value.
The market price of our securities may be volatile and fluctuate significantly.
Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net
asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock.
Provisions of the Maryland General Corporation Law and our articles of incorporation and bylaws could deter takeover attempts and
have an adverse impact on the price of our common stock.
The Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness, including indebtedness
under the Credit Facility.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The indentures under which the Notes were issued contain limited protection for holders of the Notes.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
●
●
●
●
●
Federal Income Tax Risks
● We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M of the Code.
25
Table of Contents
● We may have difficulty paying the distributions required to maintain RIC tax treatment under the Code if we recognize income before
or without receiving cash representing such income.
● Because we intend to distribute substantially all of our taxable income to our stockholders to maintain our status as a RIC, we will
continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our ability to,
and the way in which we, raise additional capital and make distributions.
RISKS RELATING TO ECONOMIC CONDITIONS
Events outside of our control, including public health crises, could negatively affect our portfolio companies and our results of
operations.
Periods of market volatility have occurred and could continue to occur in response to pandemics or other events outside of our
control. These types of events have adversely affected, and could continue to adversely affect, operating results for us and for our portfolio
companies. For example, the COVID-19 pandemic has led to, and for an unknown period of time will continue to lead to, disruptions in
local, regional, national and global markets and economies affected thereby, including the United States. With respect to U.S. and global
credit markets and the economy in general, this outbreak has resulted in, and until fully resolved is likely to continue to result in, the
following (among other things): (i) restrictions on travel and the temporary closure of many corporate offices, retail stores and
manufacturing facilities and factories, resulting in significant disruption to the business of many companies, including supply chains and
demand, as well as layoffs of employees; (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by
borrowers for amendments or waivers of their credit agreements to avoid default, increased defaults by borrowers and/or increased
difficulty in obtaining refinancing; (iv) volatility in credit markets, including greater volatility in pricing and spreads; and (v) evolving
proposals and actions by state and federal governments to address the problems being experienced by markets, businesses and the economy
in general, which may not adequately address the problems being faced. The pandemic is having, and any future continuation of the
pandemic could have, an adverse impact on the markets and the economy in general.
Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and
regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us and our portfolio
companies and investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and
our portfolio companies; in many instances the impact will be adverse and material. Any potential impact to our results of operations will
depend to a large extent on future developments and new information that could emerge regarding the duration and severity of the COVID-
19 pandemic and the actions taken by authorities and other entities to contain the spread or treat its impact, all of which are beyond our
control. These potential impacts, while uncertain, could adversely affect our and our portfolio companies' operating results and financial
condition.
The COVID-19 pandemic and the related disruption and financial distress experienced by our portfolio companies may have
material adverse effects on our financial results, including investment income received from our investments and the underlying value of
those investments. We may need to restructure our investments in certain portfolio companies as a result of the adverse effects of the
COVID-19 pandemic, which could reduce the amount or extend the time for payment of principal or the life of our investment or reduce the
amount or extend the time of payment of interest or dividends, among other things. In addition, if an investment included in the borrowing
base for our multi-year revolving, secured credit facility (the “Credit Facility”) is deemed to have a material impairment or loss, or if we
modify the terms of an investment included in the borrowing base for the Credit Facility, it may reduce the value of the borrowing base,
which may have a material adverse effect on our available liquidity, results of operations and financial condition. In addition, any decreases
in our net investment income would impact the portion of our cash flows dedicated to servicing existing borrowings under the Credit
Facility, any unsecured notes or other debt we have outstanding and funding the dividends paid to our stockholders. Depending on the
duration of the COVID-19 pandemic and the extent of its effects on our portfolio companies' operations and our operating results, any
future dividends to our stockholders may be for amounts less than our historical dividends, may be paid less frequently than historical
practices and may also include return of capital.
26
Table of Contents
The 1940 Act generally prohibits us, as a BDC, from incurring indebtedness unless immediately after such borrowing we have an
asset coverage, as defined in the 1940 Act, of at least 200% (or 150% if certain requirements are met). In addition, the Credit Facility and
the indentures governing our outstanding unsecured notes contain similar limitations or covenants requiring our compliance with the 1940
Act asset coverage requirements, and the Credit Facility also contains other affirmative and negative covenants. A continued significant
decrease in the value of our Investment Portfolio, resulting in significant reductions of our net asset value as a result of the effects of the
COVID-19 pandemic or otherwise increases the risk of us not meeting the required asset coverage requirement under the 1940 Act or
breaching covenants under the Credit Facility or under the indentures governing our outstanding unsecured notes. Any such result could
have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay dividends to our
stockholders and attributes thereof.
We are currently operating in a period of capital markets disruption and economic uncertainty. These conditions have historically
affected and could again materially and adversely affect debt and equity capital markets in the United States, which could have a
materially negative impact on our business, financial condition and results of operations.
The U.S. capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that
began in December 2019. Some economists and major investment banks have expressed concern that the continued spread of the virus
globally could lead to a world-wide economic downturn. Disruptions in the capital markets have increased the spread between the yields
realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. Additionally, the impact of potential
downgrades by rating agencies to the U.S. government’s sovereign credit rating or its perceived creditworthiness, as well as potential
government shutdowns could adversely affect the U.S. and global financial markets and economic conditions. Since 2010, several
European Union, or EU, countries have faced budget issues, some of which may have negative long-term effects for the economies of those
countries and other EU countries. There is concern about national-level support for the Euro and the accompanying coordination of fiscal
and wage policy among European Economic and Monetary Union member countries. In addition, the fiscal policy of foreign nations, such
as Russia and China, may have a severe impact on the worldwide and U.S. financial markets. The decision made in the United Kingdom
referendum to leave the EU (the so-called “Brexit”) has led to volatility in global financial markets and may lead to weakening in
consumer, corporate and financial confidence in the United Kingdom and Europe. While the United Kingdom commenced its withdrawal
from the EU, the transition and its surrounding negotiations are ongoing, which creates uncertainty, which may lead to continued volatility.
Additionally, trade wars and volatility in the U.S. repo market, the U.S. high yield bond markets, the Chinese stock markets and global
markets for commodities may affect other financial markets worldwide. In addition, while recent government stimulus measures worldwide
have reduced volatility in the financial markets, volatility may return as such measures are phased out, and the long-term impacts of such
stimulus on fiscal policy and inflation remain unknown.
These and future market disruptions and/or illiquidity would be expected to have an adverse effect on our business, financial
condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase our funding costs,
limit our access to the capital markets or result in a decision by lenders not to extend credit to us. These events could limit our investment
originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity
investments. We monitor developments in economic, political and market conditions and seek to manage our investments in a manner
consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.
RISKS RELATING TO OUR BUSINESS AND STRUCTURE
Our Investment Portfolio is and will continue to be recorded at fair value, with our Board of Directors having final responsibility for
overseeing, reviewing and approving, in good faith, our determination of fair value and, as a result, there is and will continue to be
uncertainty as to the value of our portfolio investments.
Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there is no readily available market
value, at fair value as determined by us with our Board of Directors having final responsibility for overseeing, reviewing and approving, in
good faith, our determination of fair value and our valuation procedures. Typically, there is not a public market for the securities of the
privately held LMM or Private Loan companies in which we have invested and will generally continue to invest. As a result, we value these
securities quarterly at fair value based
27
Table of Contents
on inputs from management, a nationally recognized independent financial advisory services firm (on a rotational basis) and the Audit
Committee of our Board of Directors with the oversight, review and approval of our Board of Directors. In addition, the market for
investments in Middle Market companies is generally not a liquid market, and therefore, we primarily use a combination of observable
inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and
unobservable inputs, which are reviewed by the Audit Committee with the oversight, review and approval of our Board of Directors. See
“Note B.1. — Valuation of the Investment Portfolio” in the notes to consolidated financial statements for a more detailed description of our
investment portfolio valuation process and procedures.
The determination of fair value and consequently, the amount of unrealized gains and losses in our portfolio, are to a certain
degree, subjective and dependent on a valuation process approved by our Board of Directors. Certain factors that may be considered in
determining the fair value of our investments include external events, such as private mergers, sales and acquisitions involving comparable
companies. Because such valuations, and particularly valuations of securities in privately held companies, are inherently uncertain, may
fluctuate over short periods of time and may be based on estimates, our determinations of fair value may differ materially from the values
that would have been used if a ready market for these securities existed. Due to this uncertainty, our fair value determinations may cause our
net asset value on a given date to materially understate or overstate the value that we may ultimately realize on one or more of our
investments. As a result, investors purchasing our securities based on an overstated net asset value would pay a higher price than the value
of our investments might warrant. Conversely, investors selling our securities during a period in which the net asset value understates the
value of our investments may receive a lower price for their securities than the value of our investments might warrant.
Our financial condition and results of operations depends on our ability to effectively manage and deploy capital.
Our ability to achieve our investment objective of maximizing our portfolio’s total return by generating current income from our
debt investments and capital appreciation from our equity and equity-related investments, including warrants, convertible securities and
other rights to acquire equity securities in a portfolio company, depends on our ability to effectively manage and deploy capital, which
depends, in turn, on our investment team’s ability to identify, evaluate and monitor, and our ability to finance and invest in, companies that
meet our investment criteria.
Accomplishing our investment objective on a cost-effective basis is largely a function of our investment team’s handling of the
investment process, its ability to provide competent, attentive and efficient services and our access to investments offering acceptable terms.
In addition to monitoring the performance of our existing investments, members of our investment team are also called upon, from time to
time, to provide managerial assistance to some of our portfolio companies. These demands on their time may distract them or slow the rate
of investment.
Even if we are able to grow and build upon our investment operations, any failure to manage our growth effectively could have a
material adverse effect on our business, financial condition, results of operations and prospects. The results of our operations will depend
on many factors, including the availability of opportunities for investment, readily accessible short and long-term funding alternatives in the
financial markets and economic conditions. Furthermore, if we cannot successfully operate our business or implement our investment
policies and strategies as described herein, it could negatively impact our ability to pay dividends.
We face increasing competition for investment opportunities.
We compete for investments with other investment funds (including private equity funds, debt funds, mezzanine funds,
collateralized loan obligation funds, or CLOs, BDCs and SBICs), as well as traditional financial services companies such as commercial
banks and other sources of funding. Many of our competitors are substantially larger and have considerably greater financial, technical and
marketing resources than we do. For example, some competitors may have a lower cost of capital and access to funding sources that are not
available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments than we have. These
characteristics could allow our competitors to consider a wider variety of investments, establish more relationships and offer better pricing
and more flexible structuring than we are able to do. We may lose investment opportunities if we do not match our competitors’ pricing,
terms and structure. If we are forced to match our competitors’ pricing, terms and structure, we may not be able to achieve acceptable
returns on our investments or may bear substantial risk of capital loss. A
28
Table of Contents
significant part of our competitive advantage stems from the fact that the market for investments in LMM companies is underserved by
traditional commercial banks and other financing sources. A significant increase in the number and/or the size of our competitors in this
target market could force us to accept less attractive investment terms. Furthermore, many of our competitors are not subject to the
regulatory restrictions that the 1940 Act imposes on us as a BDC.
We are dependent upon our key investment personnel for our future success.
We depend on the members of our investment team, particularly Dwayne L. Hyzak, David L. Magdol, Vincent D. Foster, Jesse E.
Morris, K. Colton Braud, III, Damian T. Burke, Nicholas T. Meserve and Samuel A. Cashiola, for the identification, review, final selection,
structuring, closing and monitoring of our investments. These employees have significant investment expertise and relationships that we
rely on to implement our business plan. Although we have entered into non-compete arrangements with all of our executive officers and
other key employees, we cannot guarantee that any employees will remain employed with us. If we lose the services of the individuals
mentioned above, we may not be able to operate our business as we expect, and our ability to compete could be harmed, which could cause
our operating results to suffer.
Our success depends on attracting and retaining qualified personnel in a competitive environment.
Our growth will require that we retain new investment and administrative personnel in a competitive market. Our ability to attract
and retain personnel with the requisite credentials, experience and skills depends on several factors including, but not limited to, our ability
to offer competitive wages, benefits and professional growth opportunities. Many of the entities, including investment funds (such as
private equity funds, debt funds and mezzanine funds) and traditional financial services companies, with which we compete for experienced
personnel have greater resources than we have.
The competitive environment for qualified personnel may require us to take certain measures to ensure that we are able to attract
and retain experienced personnel. Such measures may include increasing the attractiveness of our overall compensation packages, altering
the structure of our compensation packages through the use of additional forms of compensation, or other steps. The inability to attract and
retain experienced personnel would have a material adverse effect on our business.
Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop these
relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
We expect that members of our management team will maintain their relationships with intermediaries, financial institutions,
investment bankers, commercial bankers, financial advisors, attorneys, accountants, consultants and other individuals within our network,
and we will rely to a significant extent upon these relationships to provide us with potential investment opportunities. If our management
team fails to maintain its existing relationships or develop new relationships with sources of investment opportunities, we will not be able to
grow our Investment Portfolio. In addition, individuals with whom members of our management team have relationships are not obligated
to provide us with investment opportunities, and, therefore, there is no assurance that such relationships will generate investment
opportunities for us.
We may be unable to invest a significant portion of the net proceeds from an offering or from exiting an investment or other capital on
acceptable terms, which could harm our financial condition and operating results.
Delays in investing the net proceeds raised in an offering or other capital raised or proceeds resulting from exiting an investment
may cause our performance to be worse than that of other fully invested BDCs or other lenders or investors pursuing comparable
investment strategies. We cannot assure you that we will be able to identify any investments that meet our investment objective or that any
investment that we make will produce a positive return. We may be unable to invest the net proceeds of any offering or other capital raised
or proceeds resulting from exiting an investment on acceptable terms within the time period that we anticipate or at all, which could harm
our financial condition and operating results.
29
Table of Contents
We anticipate that, depending on market conditions and the amount of the capital, it may take us a substantial period of time to
invest substantially all the capital in securities meeting our investment objective. During this period, we may invest the capital primarily in
marketable securities and idle funds investments, which generally consist of debt investments, independently rated debt investments,
certificates of deposit with financial institutions, diversified bond funds and publicly traded debt and equity investments and may produce
returns that are significantly lower than the returns which we expect to achieve when our portfolio is fully invested in securities meeting our
investment objective. Most of the debt investments that meet our investment criteria are, or would be if rated, below investment grade
quality. Indebtedness of below investment grade quality, which is often referred to as “junk,” is regarded as having predominantly
speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. As a result, any distributions that we pay
during such period may be substantially lower than the distributions that we may be able to pay when our portfolio is fully invested in
securities meeting our investment objective. In addition, until such time as the net proceeds of any offering or from exiting an investment or
other capital are invested in new securities meeting our investment objective, the market price for our securities may decline. Thus, the
initial return on your investment may be lower than when, if ever, our portfolio is fully invested in securities meeting our investment
objective.
Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of
which may be adverse.
Our Board of Directors has the authority to modify or waive our current operating policies, investment criteria and strategies
without prior notice and without stockholder approval. We cannot predict the effect any changes to our current operating policies,
investment criteria and strategies would have on our business, net asset value, operating results and value of our stock. However, the effects
might be adverse, which could negatively impact our ability to pay interest and principal payments to holders of our debt instruments and
dividends to our stockholders and cause our investors to lose all or part of their investment in us.
We may not be able to pay distributions to our stockholders, our distributions may not grow over time, and a portion of distributions
paid to our stockholders may be a return of capital, which is a distribution of the stockholders’ invested capital.
We intend to pay distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we
will achieve investment results that will allow us to pay a specified level of cash distributions, previously projected distributions for future
periods, or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by, among other things,
the impact of one or more of the risk factors described herein. In addition, the inability to satisfy the asset coverage test applicable to us as a
BDC could limit our ability to pay distributions. All distributions will be paid at the discretion of our Board of Directors and will depend on
our earnings, our financial condition, maintenance of our RIC status, compliance with applicable BDC regulations, compliance with our
debt covenants, each of the Funds’ compliance with applicable SBIC regulations and such other factors as our Board of Directors may deem
relevant from time to time. We cannot assure you that we will pay distributions to our stockholders in the future.
When we make distributions, we will be required to determine the extent to which such distributions are paid out of current or
accumulated taxable earnings, recognized capital gains or capital. To the extent there is a return of capital, investors will be required to
reduce their basis in our stock for U.S. federal income tax purposes, which may result in higher tax liability when the shares are sold, even
if they have not increased in value or have lost value. In addition, any return of capital will be net of any sales load and offering expenses
associated with sales of shares of our common stock. In the future, our distributions may include a return of capital.
We are subject to risks related to corporate social responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage
to our brand and reputation if we fail to act responsibly in a number of areas, such as diversity and inclusion, environmental stewardship,
support for local communities, corporate governance and transparency and considering ESG factors in our investment processes. Adverse
incidents with respect to ESG activities could impact the
30
Table of Contents
value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of
operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business.
RISKS RELATED TO OUR INVESTMENT MANAGEMENT ACTIVITIES
Our executive officers and employees, through the External Investment Manager, may manage other investment funds, including MSC
Income, that operate in the same or a related line of business as we do, and may invest in such funds, which may result in significant
conflicts of interest.
Our executive officers and employees, through the External Investment Manager, may manage other investment funds that operate
in the same or a related line of business as we do, and which funds may be invested in by us and/or our executive officers and employees ,
including the Private Loan Fund. Accordingly, they may have obligations to , or pecuniary interests in, such other entities, and the
fulfillment of such obligations may not be in the best interests of us or our stockholders and may create conflicts of interest. During May
2012, we entered into an investment sub-advisory agreement with HMS Adviser, to provide certain investment advisory services to HMS
Adviser in connection with its role as investment adviser to MSC Income (then HMS Income Fund, Inc.) in exchange for 50% of the 2.0%
base management fee and 20% incentive fee earned by HMS Adviser. In December 2013, after obtaining required no-action relief from the
SEC to allow us to own a registered investment adviser, we assigned the sub-advisory agreement to the External Investment Manager since
the fees received from such arrangement could otherwise have negative consequences on our ability to meet the source-of-income
requirement necessary for us to maintain our RIC tax treatment. On October 30, 2020, after successfully receiving the required approval of
the stockholders of MSC Income, we completed a transaction whereby the External Investment Manager became the sole investment
adviser and administrator to MSC Income pursuant to the Advisory Agreement. Under the Advisory Agreement, the External Investment
Manager earns a 1.75% base management fee and a 20% incentive fee in exchange for providing investment advisory services to MSC
Income.
The investment advisory relationship requires us to commit resources to achieving MSC Income’s investment objective, while
such resources would otherwise be solely devoted to achieving our investment objective. Our investment objective and investment
strategies are very similar to those of MSC Income and it is likely that an investment appropriate for us or MSC Income would be
appropriate for the other entity. As a result, we and MSC Income requested an exemptive order from the SEC permitting co-investments by
us and MSC Income in certain negotiated transactions where our co-investing would otherwise be prohibited under the 1940 Act. The SEC
granted the exemptive order in April 2014, and in December 2020, we received an amended exemptive order from the SEC permitting co-
investments by us, MSC Income and other funds advised by the External Investment Manager in certain negotiated transactions where co-
investing would otherwise be prohibited under the 1940 Act. We have made co-investments with MSC Income and in the future intend to
make co-investments with MSC Income, the Private Loan Fund and other funds advised by the External Investment Manager in accordance
with the conditions of the order. The order requires, among other things, that we and the External Investment Manager consider whether
each such investment opportunity is appropriate for us and the External Investment Manager’s advised clients, including MSC Income, as
applicable, and if it is appropriate, to propose an allocation of the investment opportunity between such parties. As a consequence, it may be
more difficult for us to maintain or increase the size of our Investment Portfolio in the future. Although we will endeavor to allocate
investment opportunities in a fair and equitable manner, including in accordance with the conditions set forth in the exemptive order issued
by the SEC when relying on such order, we may face conflicts in allocating investment opportunities between us and other funds and
accounts managed by the External Investment Manager, including MSC Income and the Private Loan Fund. Because the External
Investment Manager may receive performance-based fee compensation from MSC Income and any other funds and accounts it manages,
this may provide the Company and the External Investment Manager an incentive to allocate opportunities to MSC Income and any other
funds and accounts the External Invesment Manager manages, including the Priate Loan Fund, instead of us. We and the External
Investment Manager have implemented an allocation policy to ensure the equitable distribution of investment opportunities and, as a result,
may be unable to participate in certain investments based upon such allocation policy.
31
Table of Contents
We, through the External Investment Manager, derive revenues from managing third-party funds pursuant to management agreements
that may be terminated pursuant to the terms of such agreements or requirements under the 1940 Act.
The External Investment Manager earns management fees based on the assets of the funds under management and may earn
incentive fees, or a carried interest, based on the performance of the funds managed, including MSC Income and the Private Loan Fund. The
terms of fund investment management agreements generally give the manager of the fund and the fund itself the right to terminate the
management agreement in certain circumstances. With respect to funds that are not exempt from regulation under the 1940 Act, the fund’s
investment management agreement must be approved annually by (a) such fund’s board of directors or by the vote of a majority of such
fund’s stockholders and (b) the majority of the independent members of such fund’s board of directors and, in certain cases, by its
stockholders, as required by law. The funds’ investment management agreements can also be terminated by the majority of such fund’s
stockholders. Termination of any such management agreements would reduce the fees we earn from the relevant funds through the External
Investment Manager, which could have a material adverse effect on our results of operations. Currently, MSC Income, an investment
company that has elected to be regulated as a BDC under the 1940 Act, is subject to these provisions of the 1940 Act.
RISKS RELATED TO BDCs and SBICs
Failure to comply with applicable laws or regulations and changes in laws or regulations governing our operations may adversely
affect our business or cause us to alter our business strategy.
We, the Funds, and our portfolio companies are subject to applicable local, state and federal laws and regulations. Failure to
comply with any applicable local, state or federal law or regulation could negatively impact our reputation and our business results. New
legislation may also be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of
investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect. In addition, any
change to the SBA’s current debenture SBIC program could have a significant impact on our ability to obtain lower-cost leverage through
the Funds, and therefore, our ability to compete with other finance companies.
Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to
alter our investment strategy in order to avail ourselves of new or different opportunities. Such changes could result in material differences
to the strategies and plans set forth herein and may result in our investment focus shifting from the areas of expertise of our investment
team to other types of investments in which our investment team may have less expertise or little or no experience. Thus, any such changes,
if they occur, could have a material adverse effect on our results of operations and the value of your investment.
Failure to maintain our status as a BDC would reduce our operating flexibility.
If we do not remain a BDC, we might be regulated as a closed-end investment company under the 1940 Act, which would subject
us to substantially more regulatory restrictions under the 1940 Act and correspondingly decrease our operating flexibility.
Operating under the constraints imposed on us as a BDC and RIC may hinder the achievement of our investment objectives.
The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to certain of the
other investment vehicles managed by the External Investment Manager. BDCs are required, for example, to invest at least 70% of their
total assets in certain qualifying assets, including U.S. private or thinly-traded public companies, cash, cash equivalents, U.S. government
securities and other high-quality debt instruments that mature in one year or less from the date of investment. Moreover, qualification for
taxation as a RIC requires satisfaction of source-of-income, asset diversification and distribution requirements. Operating under these
constraints may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objective. Any
failure to do so could subject us to enforcement action by the SEC, cause us to fail to satisfy the requirements associated with RIC
32
Table of Contents
status and subject us to entity-level corporate income taxation, cause us to fail the 70% test described above or otherwise have a material
adverse effect on our business, financial condition or results of operations.
Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
Our business will require capital to operate and grow. We may acquire such additional capital from the following sources:
Senior Securities. We may issue debt securities or preferred stock and/or borrow money from banks or other financial
institutions, which we refer to collectively as senior securities. As a result of issuing senior securities, we will be exposed to
additional risks, including the following:
● Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that
our asset coverage, as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements are met)
immediately after each issuance of senior securities. We have received exemptive relief from the SEC to permit us to
exclude the SBA-guaranteed debentures of the Funds from our asset coverage test under the 1940 Act. If the value of
our assets declines, we may be unable to satisfy this test. If that happens, we will be prohibited from issuing debt
securities or preferred stock and/or borrowing money from banks or other financial institutions and may not be
permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we
satisfy this test.
● Any amounts that we use to service our debt or make payments on preferred stock will not be available for dividends
to our common stockholders.
●
It is likely that any senior securities or other indebtedness we issue will be governed by an indenture or other
instrument containing covenants restricting our operating flexibility. Additionally, some of these securities or other
indebtedness may be rated by rating agencies, and in obtaining a rating for such securities and other indebtedness, we
may be required to abide by operating and investment guidelines that further restrict operating and financial
flexibility.
● We and, indirectly, our stockholders will bear the cost of issuing and servicing such securities and other indebtedness.
●
Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences
and privileges more favorable than those of our common stock, including separate voting rights and could delay or
prevent a transaction or a change in control to the detriment of the holders of our common stock.
● Any unsecured debt issued by us would generally rank (i) pari passu with our current and future unsecured
indebtedness and effectively subordinated to all of our existing and future secured indebtedness, to the extent of the
value of the assets securing such indebtedness, and (ii) structurally subordinated to all existing and future indebtedness
and other obligations of any of our subsidiaries, including the SBA-guaranteed debentures issued by the Funds.
Additional Common Stock. The 1940 Act prohibits us from selling shares of our common stock at a price below the
current net asset value per share of such stock, with certain exceptions. One such exception is prior stockholder approval of
issuances below current net asset value per share provided that our Board of Directors makes certain determinations. We did not
seek stockholder authorization to sell shares of our common stock below the then current net asset value per share of our common
stock at our 2020 annual meeting of stockholders because our common stock price had been trading significantly above the net asset
value per share of our common stock since 2011. We may, however, sell our common stock, warrants, options or rights to acquire
our common stock, at a price below the current net asset value of the common stock if our Board of Directors determines that such
sale is in the best interests of our stockholders, and our stockholders approve such sale. See “Risk Factors – Risks Relating to our
Securities — Stockholders may incur dilution if
33
Table of Contents
we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of our
common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion of the risks
related to us issuing shares of our common stock below net asset value. Our stockholders have authorized us to issue warrants,
options or rights to subscribe for, convert to, or purchase shares of our common stock at a price per share below the net asset value
per share, subject to the applicable requirements of the 1940 Act. There is no expiration date on our ability to issue such warrants,
options, rights or convertible securities based on this stockholder approval. If we raise additional funds by issuing more common
stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at
that time would decrease, and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and
sell additional equity securities in the future, on favorable terms or at all.
Previously enacted legislation may allow us to incur additional leverage.
The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset
coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). However,
legislation passed in March 2018 modified the 1940 Act by allowing a BDC to increase the maximum amount of leverage it may incur by
lowering the required asset coverage ratio of 200% to an asset coverage ratio of 150% (i.e., the amount of debt may not exceed 662/3% of
the value of our assets), if certain requirements are met. Under the legislation, we are allowed to increase our leverage capacity if
stockholders representing at least a majority of the votes cast, when a quorum is met, approve a proposal to do so. If we receive stockholder
approval, we would be allowed to increase our leverage capacity on the first day after such approval. Alternatively, the legislation allows a
“required majority” (as defined in Section 57(o) of the 1940 Act) of the members of our Board of Directors to approve an increase in our
leverage capacity, and such approval would become effective after one year from the date of approval. In either case, we would be required
to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to increase our
leverage, our leverage capacity and usage, and risks related to leverage. As a result of this legislation, we may be able to increase our
leverage up to an amount that reduces our asset coverage ratio from 200% to 150%. See “Risk Factors — Risks Relating to Our Debt
Financing — Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of
investing in us” for a discussion of the risks associated with leverage.
The Funds are licensed by the SBA, and therefore subject to SBIC regulations.
The Funds, our wholly owned subsidiaries, are licensed to act as SBICs and are regulated by the SBA. The SBA also places
certain limitations on the financing terms of investments by SBICs in portfolio companies and prohibits SBICs from providing funds for
certain purposes or to businesses in a few prohibited industries. Compliance with SBA requirements may cause the Funds to forego
attractive investment opportunities that are not permitted under SBIC regulations.
Further, the SBIC regulations require, among other things, that a licensed SBIC be periodically examined by the SBA and audited
by an independent auditor, in each case to determine the SBIC’s compliance with the relevant SBIC regulations. The SBA prohibits,
without prior SBA approval, a “change of control” of an SBIC or transfers that would result in any person (or a group of persons acting in
concert) owning 10% or more of a class of capital stock of a licensed SBIC. If the Funds fail to comply with applicable SBIC regulations,
the SBA could, depending on the severity of the violation, limit or prohibit their use of SBIC debentures, declare outstanding SBIC
debentures immediately due and payable, and/or limit them from making new investments. In addition, the SBA can revoke or suspend a
license for willful or repeated violation of, or willful or repeated failure to observe, any provision of the Small Business Investment Act of
1958 or any rule or regulation promulgated thereunder. Such actions by the SBA would, in turn, negatively affect us.
34
Table of Contents
RISKS RELATED TO OUR INVESTMENTS
Our investments in portfolio companies involve higher levels of risk, and we could lose all or part of our investment.
Investing in our portfolio companies exposes us indirectly to a number of significant risks. Among other things, these companies:
● may have limited financial resources and may be unable to meet their obligations under their debt instruments that we hold,
which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any
guarantees from subsidiaries or affiliates of our portfolio companies that we may have obtained in connection with our
investment, as well as a corresponding decrease in the value of the equity components of our investments;
● may have shorter operating histories, narrower product lines, smaller market shares and/or significant customer concentrations
than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as
general economic downturns;
●
●
●
are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability,
resignation, termination or significant under-performance of one or more of these persons could have a material adverse impact
on our portfolio company and, in turn, on us;
generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly
changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital
to support their operations, finance expansion or maintain their competitive position; and
generally have less publicly available information about their businesses, operations and financial condition. We are required to
rely on the ability of our management team and investment professionals to obtain adequate information to evaluate the
potential returns from investing in these companies. If we are unable to uncover all material information about these companies,
we may not make a fully informed investment decision, and may lose all or part of our investment.
In addition, in the course of providing significant managerial assistance to certain of our portfolio companies, certain of our
officers and directors may serve as directors on the boards of such companies. To the extent that litigation arises out of our investments in
these companies, our officers and directors may be named as defendants in such litigation, which could result in an expenditure of funds
(through our indemnification of such officers and directors) and the diversion of management time and resources.
We may be exposed to higher risks with respect to our investments that include original issue discount or PIK interest.
Our investments may include original issue discount and contractual PIK interest, which represents contractual interest added to a
loan balance and due at the end of such loan’s term. To the extent original issue discount or PIK interest constitute a portion of our income,
we are exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt
of cash, including the following:
●
●
original issue discount and PIK instruments may have higher yields, which reflect the payment deferral and credit risk
associated with these instruments;
for accounting purposes, cash distributions to investors representing original issue discount income are not derived from paid in
capital, although they may be effectively paid from any offering proceeds during any given period; thus, although the source
for the cash used to pay a distribution of original issue discount income may come from the cash invested by investors, the 1940
Act does not require that investors be given notice of this fact;
35
Table of Contents
●
●
original issue discount and PIK instruments may have unreliable valuations because their continuing accruals require
continuing judgments about the collectability of the deferred payments and the value of the collateral; and
original issue discount and PIK instruments may represent a higher credit risk than coupon loans; even if the conditions for
income accrual under generally accepted accounting principles in the United States of America are satisfied, a borrower could
still default when actual payment is due upon the maturity of such loan.
The lack of liquidity in our investments may adversely affect our business.
We generally invest in companies whose securities are not publicly traded, and whose securities will be subject to legal and other
restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of these investments may make it
difficult for us to sell these investments when desired. In addition, if we are required to liquidate all or a portion of our portfolio quickly, we
may realize significantly less than the value at which we had previously recorded these investments. As a result, we do not expect to
achieve liquidity in our investments in the near-term. Our investments are usually subject to contractual or legal restrictions on resale or are
otherwise illiquid because there is usually no established trading market for such investments. The illiquidity of most of our investments
may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
We may not have the funds or ability to make additional investments in our portfolio companies.
We may not have the funds or ability to make additional investments in our portfolio companies. After our initial investment in a
portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to
increase our investment through the extension of additional loans, the exercise of a warrant to purchase equity securities, or the funding of
additional equity investments. There is no assurance that we will make, or will have sufficient funds to make, follow-on investments. Any
decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a
portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful
operation, may reduce our ability to protect an existing investment or may reduce the expected yield on the investment.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
We invest primarily in the secured term debt of LMM, Private Loan and Middle Market companies and equity issued by LMM
companies. Our portfolio companies may have, or may be permitted to incur, other debt that ranks equally with, or senior to, the debt in
which we invest. By their terms, such debt instruments may entitle the holders to receive payment of interest or principal on or before the
dates on which we are entitled to receive payments with respect to the debt instruments in which we invest. Also, in the event of insolvency,
liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment
in that portfolio company would typically be entitled to receive payment in full before we receive any distribution. After repaying such
senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligation to us. In the case of debt
ranking equally with debt instruments in which we invest, we would have to share on an equal basis any distributions with other creditors
holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to
lender liability claims.
Even though we may have structured certain of our investments as secured loans, if one of our portfolio companies were to go
bankrupt, depending on the facts and circumstances, and based upon principles of equitable subordination as defined by existing case law, a
bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated
claim to the bankruptcy estate. The principles of equitable subordination defined by case law have generally indicated that a claim may be
subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior
lender has
36
Table of Contents
actually provided significant managerial assistance to the bankrupt debtor. We may also be subject to lender liability claims for actions
taken by us with respect to a borrower’s business or instances where we exercise control over the borrower. It is possible that we could
become subject to a lender liability claim, including as a result of actions taken in rendering significant managerial assistance or actions to
compel and collect payments from the borrower outside the ordinary course of business.
Second priority liens on collateral securing loans that we make to our portfolio companies may be subject to control by senior creditors
with first priority liens. If there is a default, the value of the collateral may not be sufficient to repay in full both the first priority
creditors and us.
Certain loans that we make are secured by a second priority security interest in the same collateral pledged by a portfolio company
to secure senior debt owed by the portfolio company to commercial banks or other traditional lenders. Often the senior lender has procured
covenants from the portfolio company prohibiting the incurrence of additional secured debt without the senior lender’s consent. Prior to and
as a condition of permitting the portfolio company to borrow money from us secured by the same collateral pledged to the senior lender, the
senior lender will require assurances that it will control the disposition of any collateral in the event of bankruptcy or other default. In many
such cases, the senior lender will require us to enter into an “intercreditor agreement” prior to permitting the portfolio company to borrow
from us. Typically the intercreditor agreements we are requested to execute expressly subordinate our debt instruments to those held by the
senior lender and further provide that the senior lender shall control: (1) the commencement of foreclosure or other proceedings to liquidate
and collect on the collateral; (2) the nature, timing and conduct of foreclosure or other collection proceedings; (3) the amendment of any
collateral document; (4) the release of the security interests in respect of any collateral; and (5) the waiver of defaults under any security
agreement. Because of the control we may cede to senior lenders under intercreditor agreements we may enter, we may be unable to realize
the proceeds of any collateral securing some of our loans.
Finally, the value of the collateral securing our debt investment will ultimately depend on market and economic conditions, the
availability of buyers and other factors. Therefore, there can be no assurance that the proceeds, if any, from the sale or sales of all of the
collateral would be sufficient to satisfy the loan obligations secured by our first or second priority liens. There is also a risk that such
collateral securing our investments will decrease in value over time, will be difficult to sell in a timely manner, will be difficult to appraise
and will fluctuate in value based upon the success of the portfolio company and market conditions. If such proceeds are not sufficient to
repay amounts outstanding under the loan obligations secured by our second priority liens, then we, to the extent not repaid from the
proceeds of the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.
We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the
proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not
limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. Under the 1940 Act, a
“diversified” investment company is required to invest at least 75% of the value of its total assets in cash and cash items, government
securities, securities of other investment companies and other securities limited in respect of any one issuer to an amount not greater than
5% of the value of the total assets of such company and no more than 10% of the outstanding voting securities of such issuer. As a non-
diversified investment company, we are not subject to this requirement. To the extent that we assume large positions in the securities of a
small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of
changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or
regulatory occurrence than a diversified investment company. Beyond our RIC asset diversification requirements, we do not have fixed
guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies. See “Risk Factors —
Federal Income Tax Risks — We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under
Subchapter M of the Code.”
37
Table of Contents
We generally will not control our portfolio companies.
We do not, and do not expect to, control the decision making in many of our portfolio companies, even though we may have board
representation or board observation rights, and our debt agreements may contain certain restrictive covenants. As a result, we are subject to
the risk that a portfolio company in which we invest will make business decisions with which we disagree and the management of such
company will take risks or otherwise act in ways that do not serve our interests as debt investors or minority equity holders. Due to the lack
of liquidity for our investments in non-traded companies, we may not be able to dispose of our interests in our portfolio companies as
readily as we would like or at an appropriate valuation. As a result, a portfolio company may make decisions that would decrease the value
of our portfolio holdings.
Defaults by our portfolio companies will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to non-payment
of interest and other defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-
defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that
we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the
waiver of certain financial covenants, with a defaulting portfolio company.
Any unrealized depreciation we experience in our portfolio may be an indication of future realized losses, which could reduce our
income and gains available for distribution.
As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as
determined in good faith by our Board of Directors. Decreases in the market values or fair values of our investments will be recorded as
unrealized depreciation. Any unrealized depreciation in our portfolio could be an indication of a portfolio company’s inability to meet its
repayment obligations to us with respect to affected loans or a potential impairment of the value of affected equity investments. This could
result in realized losses in the future and ultimately in reductions of our income and gains available for distribution in future periods.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return
on equity.
We are subject to the risk that the investments we make in our portfolio companies may be repaid prior to maturity. When this
occurs, we will generally reinvest these proceeds in temporary investments, pending their future investment in new portfolio companies.
These temporary investments will typically have substantially lower yields than the debt being prepaid and we could experience significant
delays in reinvesting these amounts. Any future investment in a new portfolio company may also be at lower yields than the debt that was
repaid. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay
amounts owed to us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market
price of our securities.
Changes relating to the LIBOR calculation process, the phase-out of LIBOR and the use of replacement rates for LIBOR may adversely
affect the value of our portfolio securities.
LIBOR is the basic rate of interest used in lending transactions between banks on the London interbank market and is widely used
as a reference for setting the interest rate on loans globally. We typically use LIBOR as a reference rate in floating rate loans we extend to
portfolio companies such that the interest due to us pursuant to a term loan extended to a portfolio company is calculated using LIBOR and
we use LIBOR as a reference rate in connection with our Credit Facility. The terms of our debt investments generally include minimum
interest rate floors which are calculated based on LIBOR.
In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out
LIBOR by the end of 2021. Although, on November 30, 2020, Intercontinental Exchange, Inc.
38
Table of Contents
(“ICE”) announced that it will consider extending the LIBOR transition deadline to June 30, 2023, U.S. regulators continue to urge financial
institutions to stop entering into new LIBOR transactions by the end of 2021. As such, the potential effect of a LIBOR phase out on our net
investment income cannot yet be determined. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a
steering committee comprised of large U.S. financial institutions, has identified the Secured Overnight Financing Rate (“SOFR”) as its
preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities,
and is based on directly observable U.S. Treasury-based repurchase transactions. Although SOFR appears to be the preferred replacement
rate for U.S. dollar LIBOR, at this time, it is not possible to predict whether SOFR will attain market traction as a LIBOR replacement tool
or the effect of any such changes as the establishment of alternative reference rates or other reforms to LIBOR may be enacted in the
United States, United Kingdom or elsewhere. If LIBOR ceases to exist, we may need to renegotiate the credit agreements with our portfolio
companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established, which
may have an adverse effect on our overall financial condition or results of operations. In addition, any further changes or reforms to the
determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an
adverse impact on the market value for or value of any LIBOR-linked securities, loans and other financial obligations or extensions of
credit held by or due to us and could have a material adverse effect on our business, financial condition, tax position and results of
operations.
Changes in interest rates may affect our cost of capital, net investment income and value of our investments.
Some of our debt investments will bear interest at variable rates and may be negatively affected by changes in market interest
rates. An increase in market interest rates would increase the interest costs and reduce the cash flows of our portfolio companies that have
variable rate debt instruments, a situation which could reduce the value of the investment. The value of our securities could also be reduced
from an increase in market interest rates as rates available to investors could make an investment in our securities less attractive than
alternative investments. In addition, an increase in interest rates would make it more expensive for us to use debt to finance our
investments. As a result, a significant increase in market interest rates could increase our cost of capital, which would reduce our net
investment income. Conversely, decreases in market interest rates could negatively impact the interest income from our variable rate debt
investments. A decrease in market interest rates may also have an adverse impact on our returns by requiring us to accept lower yields on
our debt investments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to
redeploy capital at potentially lower rates. See further discussion and analysis at “Item 7A. Quantitative and Qualitative Disclosures about
Market Risk”.
We may not realize gains from our equity investments.
Certain investments that we have made in the past and may make in the future include warrants or other equity securities.
Investments in equity securities involve a number of significant risks, including the risk of further dilution as a result of additional
issuances, inability to access additional capital and failure to pay current distributions. Investments in preferred securities involve special
risks, such as the risk of deferred distributions, credit risk, illiquidity and limited voting rights. In addition, we may from time to time make
non-control, equity investments in portfolio companies. Our goal is ultimately to realize gains upon our disposition of such equity interests.
However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to
realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to
offset any other losses we experience. We also may be unable to realize any value if a portfolio company does not have a liquidity event,
such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests. We often seek
puts or similar rights to give us the right to sell our equity securities back to the portfolio company issuer; however, we may be unable to
exercise these put rights for the consideration provided in our investment documents if the issuer is in financial distress.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our investment strategy contemplates potential investments in debt securities of foreign companies. Investing in foreign
companies may expose us to additional risks not typically associated with investing in securities of U.S.
39
Table of Contents
companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of foreign
taxes, less liquid markets and less available information than is generally the case in the U.S., higher transaction costs, less government
supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of
uniform accounting and auditing standards and greater price volatility.
Although most of our investments will be U.S. dollar denominated, any investments denominated in a foreign currency will be
subject to the risk that the value of a particular currency will change in relation to one or more other currencies. Among the factors that may
affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different
currencies, long-term opportunities for investment and capital appreciation, and political developments.
RISKS RELATING TO OUR DEBT FINANCING
Because we borrow money, the potential for gain or loss on amounts invested in us is magnified and may increase the risk of investing
in us.
Borrowings, also known as leverage, magnify the potential for loss on investments in our indebtedness and gain or loss on
investments in our equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing
in our securities. We, through the Funds, issue debt securities guaranteed by the SBA and sold in the capital markets. As a result of its
guarantee of the debt securities, the SBA has fixed dollar claims on the assets of the Funds that are superior to the claims of our securities
holders. We may also borrow from banks and other lenders, including under our Credit Facility, and may issue debt securities or enter into
other types of borrowing arrangements in the future. See “Management’s Discussion and Analysis of Financial Condition and Results of
Operations — Liquidity and Capital Resources — Capital Resources” for a discussion regarding our outstanding indebtedness. If the value
of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged
our business. Similarly, any decrease in our income would cause net investment income to decline more sharply than it would have had we
not leveraged our business. Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments or
other payments related to our securities. Use of leverage is generally considered a speculative investment technique.
As of December 31, 2020, we, through the Funds, had $309.8 million of outstanding indebtedness guaranteed by the SBA, which
had a weighted-average annualized interest cost of approximately 3.4%. The debentures guaranteed by the SBA have a maturity of ten
years, with a current weighted-average remaining maturity of 5.4 years as of December 31, 2020, and require semiannual payments of
interest. We will need to generate sufficient cash flow to make required interest payments on the debentures. If we are unable to meet the
financial obligations under the debentures, the SBA, as a creditor, will have a superior claim to the assets of the Funds over our securities
holders in the event we liquidate or the SBA exercises its remedies under such debentures as the result of a default by us.
In addition, as of December 31, 2020, we had $269.0 million outstanding under our Credit Facility. Borrowings under the Credit
Facility bear interest, subject to our election, on a per annum basis at a rate equal to the applicable LIBOR rate (0.2% as of the most recent
reset date for the period ended December 31, 2020) plus (i) 1.875% (or the applicable base rate (Prime Rate of 3.25% as of December 31,
2020) plus 0.875%), as long as we meet certain agreed upon excess collateral and maximum leverage requirements or (ii) 2.0% (or the
applicable base rate plus 1.0%) otherwise. We pay unused commitment fees of 0.25% per annum on the unused lender commitments under
the Credit Facility. If we are unable to meet the financial obligations under the Credit Facility, the Credit Facility lending group will have a
superior claim to the assets of MSCC and its subsidiaries (excluding the assets of the Funds) over our stockholders in the event we liquidate
or the lending group exercises its remedies under the Credit Facility as the result of a default by us.
In November 2017, we issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due 2022 (the “4.50%
Notes”) at an issue price of 99.16%. As of December 31, 2020, the outstanding balance of the 4.50% Notes was $185.0 million. The 4.50%
Notes are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future
indebtedness that expressly provides it is subordinated to the 4.50% Notes; effectively subordinated to all of our existing and future secured
indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and
structurally subordinated to all
40
Table of Contents
existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the
Funds. The 4.50% Notes mature on December 1, 2022, and may be redeemed in whole or in part at any time at our option subject to certain
make-whole provisions.
In April 2019, we issued $250.0 million in aggregate principal amount of 5.20% unsecured notes due 2024 (the “5.20% Notes”) at
an issue price of 99.125%. In December 2019, we issued an additional $75.0 million in aggregate principal amount of the 5.20% Notes at
an issue price of 105.0%. In July 2020, we issued an additional $125.0 million in aggregate principal amount of the 5.20% Notes at an issue
price of 102.674%. As of December 31, 2020, the outstanding balance of the 5.20% Notes was $450.0 million. The 5.20% Notes issued in
December 2019 and July 2020 have identical terms as, and are a part of a single series with, the 5.20% Notes issued in April 2019. The
aggregate net proceeds from the 5.20% Notes issuances were used to repay a portion of the borrowings outstanding under the Credit
Facility. The 5.20% Notes are unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any
of our future indebtedness that expressly provides it is subordinated to the 5.20% Notes; effectively subordinated to all of our existing and
future secured indebtedness, to the extent of the value of the assets securing such indebtedness, including borrowings under our Credit
Facility; and structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including
without limitation, the indebtedness of the Funds. The 5.20% Notes mature on May 1, 2024, and may be redeemed in whole or in part at
any time at our option subject to certain make-whole provisions.
In January 2021, we issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due 2026 (the “3.00% Notes”
and, together with the 4.50% Notes and the 5.20% Notes, the “Notes”) at an issue price of 99.004%. The 3.00% Notes are unsecured
obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that expressly
provides it is subordinated to the 3.00% Notes; effectively subordinated to all of our existing and future secured indebtedness, to the extent
of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally subordinated to all
existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the indebtedness of the
Funds. The 3.00% Notes mature on July 14, 2026, and may be redeemed in whole or in part at any time at our option subject to certain
make-whole provisions if redeemed prior to June 14, 2026.
Illustration. The following table illustrates the effect of leverage on returns from an investment in our common stock
assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be
higher or lower than those appearing below.
Assumed Return on Our Portfolio(1)
(net of expenses)
Corresponding Net Return to Common Stock Holder(2)
(10.0) %
(21.5) %
(5.0)%
(12.4) %
0.0 %
(3.2)%
5.0 %
5.9 %
10.0 %
15.1 %
(1) Assumes, as of December 31, 2020, $2,769.4 million in total assets, $1,213.8 million in debt outstanding, $1,514.8 million in net
assets, and a weighted-average interest rate of 4.0%. Actual interest payments may be different.
(2)
In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2020 total
assets of at least 1.8%.
Our ability to achieve our investment objective may depend in part on our ability to access additional leverage on favorable terms
by issuing debentures guaranteed by the SBA through the Funds, by borrowing from banks or insurance companies or by issuing other debt
securities and there can be no assurance that such additional leverage can in fact be achieved.
41
Table of Contents
All of our assets are subject to security interests under our secured Credit Facility or subject to a superior claim over our stockholders
by the SBA and if we default on our obligations under the Credit Facility or with respect to our SBA-guaranteed debentures, or under
the Notes, we may suffer adverse consequences, including foreclosure on our assets.
Substantially all of our assets are currently pledged as collateral under our Credit Facility or are subject to a superior claim over
our stockholders by the SBA. If we default on our obligations under the Credit Facility or our SBA-guaranteed debentures, the lenders
and/or the SBA may have the right to foreclose upon and sell, or otherwise transfer, the collateral subject to their security interests or their
superior claim. In such event, we may be forced to sell our investments to raise funds to repay our outstanding borrowings in order to avoid
foreclosure and these forced sales may be at times and at prices we would not consider advantageous. Moreover, such deleveraging of our
company could significantly impair our ability to effectively operate our business in the manner in which we have historically operated. As
a result, we could be forced to curtail or cease new investment activities and lower or eliminate the dividends that we have historically paid
to our stockholders. In addition, if the lenders exercise their right to sell the assets pledged under our Credit Facility, such sales may be
completed at distressed sale prices, thereby diminishing or potentially eliminating the amount of cash available to us after repayment of the
amounts outstanding under the Credit Facility.
If our operating performance declines and we are not able to generate sufficient cash flow to service our debt obligations, we may
in the future need to refinance or restructure our debt, including with respect to the Credit Facility and the Notes, sell assets, reduce or
delay capital investments, seek to raise additional capital or seek to obtain waivers from the required lenders under the Credit Facility or the
required holders of the Notes or other debt that we may incur in the future to avoid being in default. If we are unable to implement one or
more of these alternatives, we may not be able to meet our payment obligations under the Credit Facility, the Notes and our other debt. If
we breach our covenants under the Credit Facility or under the indentures governing the Notes or other debt and seek a waiver, we may
not be able to obtain a waiver from the required lenders or debt holders. If this occurs, we would be in default under the Credit Facility, the
Notes or other debt, the lenders or debt holders could exercise their rights as described above, and we could be forced into bankruptcy or
liquidation. If we are unable to repay debt, lenders having secured obligations could proceed against the collateral securing the debt.
Because the Credit Facility has, and any future credit facilities will likely have, and the indentures governing the Notes have customary
cross-default provisions, if the indebtedness under the Notes, the Credit Facility or under any future credit facility is accelerated, we may be
unable to repay or finance the amounts due.
RISKS RELATING TO OUR SECURITIES
Investing in our securities may involve a high degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative
investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk,
and therefore, an investment in our securities may not be suitable for someone with lower risk tolerance.
Shares of closed-end investment companies, including BDCs, may trade at a discount to their net asset value.
Shares of closed-end investment companies, including BDCs, may trade at a discount to net asset value. This characteristic of
closed-end investment companies and BDCs is separate and distinct from the risk that our net asset value per share may decline. We cannot
predict whether our common stock will trade at, above or below net asset value. In addition, if our common stock trades below our net asset
value per share, we will generally not be able to issue additional common stock at the market price unless our stockholders approve such a
sale and our Board of Directors makes certain determinations. See “Risk Factors — Risks Relating to Our Securities — Stockholders may
incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net asset value per share of
our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock” for a discussion related to us
issuing shares of our common stock below net asset value.
42
Table of Contents
The market price of our securities may be volatile and fluctuate significantly.
Fluctuations in the trading prices of our securities may adversely affect the liquidity of the trading market for our securities and, if
we seek to raise capital through future securities offerings, our ability to raise such capital. The market price and liquidity of the market for
our securities may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to
our operating performance. These factors include:
●
●
●
●
●
●
●
●
●
●
●
●
●
●
●
significant volatility in the market price and trading volume of securities of BDCs or other companies in our sector, which are
not necessarily related to the operating performance of these companies;
changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs, BDCs or
SBICs;
the exclusion of BDC common stock from certain market indices, such as what happened with respect to the Russell indices
and the Standard and Poor’s indices, could reduce the ability of certain investment funds to own our common stock and limit
the number of owners of our common stock and otherwise negatively impact the market price of our common stock;
inability to obtain any exemptive relief that may be required by us in the future from the SEC;
loss of our BDC or RIC status or any of the Funds’ status as an SBIC;
changes in our earnings or variations in our operating results;
changes in the value of our portfolio of investments;
any shortfall in our investment income or net investment income or any increase in losses from levels expected by investors or
securities analysts;
loss of a major funding source;
fluctuations in interest rates;
the operating performance of companies comparable to us;
departure of our key personnel;
proposed, or completed, offerings of our securities, including classes other than our common stock;
global or national credit market changes; and
general economic trends and other external factors.
Stockholders may incur dilution if we sell shares of our common stock in one or more offerings at prices below the then current net
asset value per share of our common stock or issue securities to subscribe to, convert to or purchase shares of our common stock.
The 1940 Act prohibits us from selling shares of our common stock at a price below the current net asset value per share of such
stock, with certain exceptions. One such exception is prior stockholder approval of issuances below net asset value provided that our Board
of Directors makes certain determinations. We did not seek stockholder authorization to sell shares of our common stock below the then
current net asset value per share of our common stock at our 2020 annual meeting of stockholders because our common stock price per
share had been trading significantly above the net asset value per share of our common stock since 2011. We may, however, seek such
authorization at future annual or special meetings of stockholders. Our stockholders have previously approved a proposal to authorize us to
43
Table of Contents
issue securities to subscribe to, convert to, or purchase shares of our common stock in one or more offerings. Any decision to sell shares of
our common stock below the then current net asset value per share of our common stock or securities to subscribe to, convert to, or
purchase shares of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our
stockholders’ best interests.
If we were to sell shares of our common stock below net asset value per share, such sales would result in an immediate dilution to
the net asset value per share. This dilution would occur as a result of the sale of shares at a price below the then current net asset value per
share of our common stock and a proportionately greater decrease in a stockholder’s interest in our earnings and assets and voting interest in
us than the increase in our assets resulting from such issuance. In addition, if we issue securities to subscribe to, convert to or purchase
shares of common stock, the exercise or conversion of such securities would increase the number of outstanding shares of our common
stock. Any such exercise would be dilutive on the voting power of existing stockholders, and could be dilutive with regard to dividends and
our net asset value, and other economic aspects of the common stock.
Because the number of shares of common stock that could be so issued and the timing of any issuance is not currently known, the
actual dilutive effect cannot be predicted; however, the example below illustrates the effect of dilution to existing stockholders resulting
from the sale of common stock at prices below the net asset value of such shares.
Illustration: Example of Dilutive Effect of the Issuance of Shares Below Net Asset Value. Assume that Company XYZ has
1,000,000 total shares outstanding, $15,000,000 in total assets and $5,000,000 in total liabilities. The net asset value per share of the
common stock of Company XYZ is $10.00. The following table illustrates the reduction to net asset value, or NAV, and the dilution
experienced by Stockholder A following the sale of 40,000 shares of the common stock of Company XYZ at $9.50 per share, a
price below its NAV per share.
Reduction to NAV
Total Shares Outstanding
NAV per share
Dilution to Existing Stockholder
Shares Held by Stockholder A
Percentage Held by Stockholder A
Total Interest of Stockholder A in NAV
Prior to Sale
Below NAV
Following Sale
Below NAV
Percentage
Change
1,000,000
$10.00
10,000
1.00%
$100,000
1,040,000
$9.98
10,000(1)
0.96%
$99,808
4.0%
(0.2)%
0.0%
(3.8)%
(0.2)%
(1) Assumes that Stockholder A does not purchase additional shares in the sale of shares below
NAV.
Provisions of the Maryland General Corporation Law and our articles of incorporation and bylaws could deter takeover attempts and
have an adverse impact on the price of our common stock.
The Maryland General Corporation Law and our articles of incorporation and bylaws contain provisions that may have the effect
of discouraging, delaying or making difficult a change in control of our company or the removal of our incumbent directors. The existence
of these provisions, among others, may have a negative impact on the price of our common stock and may discourage third-party bids for
ownership of our company. These provisions may prevent any premiums being offered to you for our common stock.
The Notes are unsecured and therefore effectively subordinated to any current or future secured indebtedness, including indebtedness
under the Credit Facility.
The Notes are not secured by any of our assets or any of the assets of our subsidiaries and rank equally in right of payment with all
of our existing and future unsubordinated, unsecured indebtedness. As a result, the Notes are effectively subordinated to any secured
indebtedness we or our subsidiaries have currently incurred and may incur in the future (or any indebtedness that is initially unsecured to
which we subsequently grant security) to the extent of the value
44
Table of Contents
of the assets securing such indebtedness. In any liquidation, dissolution, bankruptcy or other similar proceeding, the holders of any of our
existing or future secured indebtedness and the secured indebtedness of our subsidiaries may assert rights against the assets pledged to
secure that indebtedness in order to receive full payment of their indebtedness before the assets may be used to pay other creditors,
including the holders of the Notes. As of December 31, 2020, we had $269.0 million outstanding under the Credit Facility out of
$780.0 million in commitments. The indebtedness under the Credit Facility is senior to the Notes to the extent of the value of the assets
securing such indebtedness.
The Notes are structurally subordinated to the indebtedness and other liabilities of our subsidiaries.
The Notes are obligations exclusively of Main Street Capital Corporation and not of any of our subsidiaries. None of our
subsidiaries is a guarantor of the Notes, and the Notes are not required to be guaranteed by any subsidiaries we may acquire or create in the
future. In addition, several of our subsidiaries, specifically the Funds, maintain significant indebtedness and as a result the Notes are
structurally subordinated to the indebtedness of these subsidiaries. For example, as of December 31, 2020, the Funds had collectively issued
$309.8 million of the current regulatory maximum of $350.0 million of SBA-guaranteed debentures, which are included in our consolidated
financial statements. The assets of such subsidiaries are not directly available to satisfy the claims of our creditors, including holders of the
Notes. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources”
for more detail on the SBA-guaranteed debentures.
Except to the extent we are a creditor with recognized claims against our subsidiaries, all claims of other creditors of our
subsidiaries have priority over our equity interests in such subsidiaries (and therefore the claims of our creditors, including holders of the
Notes) with respect to the assets of such subsidiaries. Even if we are recognized as a creditor of one or more of our subsidiaries, our claims
would still be effectively subordinated to any security interests in the assets of any such subsidiary and to any indebtedness or other
liabilities of any such subsidiary senior to our claims. Consequently, the Notes are structurally subordinated to all indebtedness, including
the SBA-guaranteed debentures, and other liabilities of any of our subsidiaries and any subsidiaries that we may in the future acquire or
establish. In addition, our subsidiaries may incur substantial additional indebtedness in the future, all of which would be structurally senior
to the Notes.
The Notes may or may not have an established trading market. If a trading market in the Notes is developed, it may not be maintained.
The Notes may or may not have an established trading market. If a trading market in the Notes is developed, it may not be
maintained. If the Notes are traded, they may trade at a discount to their initial offering price depending on prevailing interest rates, the
market for similar securities, our credit ratings, our financial condition or other relevant factors. Accordingly, we cannot assure you that a
liquid trading market has been or will develop for the Notes, that you will be able to sell your Notes at a particular time or that the price you
receive when you sell will be favorable. To the extent an active trading market does not develop or is not maintained, the liquidity and
trading price for the Notes may be harmed. Accordingly, you may be required to bear the financial risk of an investment in the Notes for an
indefinite period of time.
A downgrade, suspension or withdrawal of the credit rating assigned by a rating agency to us or the Notes, if any, or change in the debt
markets could cause the liquidity or market value of the Notes to decline significantly.
Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due. Consequently, real or anticipated
changes in our credit ratings will generally affect the market value of the Notes. These credit ratings may not reflect the potential impact of
risks relating to the structure or marketing of the Notes. Credit ratings are not a recommendation to buy, sell or hold any security, and may
be revised or withdrawn at any time by the issuing organization in its sole discretion. We undertake no obligation to maintain our credit
ratings or to advise holders of Notes of any changes in our credit ratings. The Notes are currently rated by Standard & Poor’s Ratings
Services (“S&P”). There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will
not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit ratings,
such as adverse changes in our company, so warrant. In this regard, in March 2020, in connection with the onset of the COVID-19
pandemic, S&P downgraded our long-term issuer rating to "BBB–" with an
45
Table of Contents
"Outlook Stable." Further downgrades to us or our securities could increase our cost of capital or otherwise have a negative effect on our
results of operations and financial condition. The conditions of the financial markets and prevailing interest rates have fluctuated in the past
and are likely to fluctuate in the future, which could have an adverse effect on the market prices of the Notes.
The indentures under which the Notes were issued contain limited protection for holders of the Notes.
The indentures under which the Notes were issued offer limited protection to holders of the Notes. The terms of the indentures and
the Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions,
circumstances or events that could have an adverse impact on investments in the Notes. In particular, the terms of the indentures and the
Notes do not place any restrictions on our or our subsidiaries’ ability to:
●
●
●
●
●
issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other
obligations that would be equal in right of payment to the Notes, (2) any indebtedness or other obligations that would be
secured and therefore rank effectively senior in right of payment to the Notes to the extent of the values of the assets securing
such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally
senior to the Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to
our equity interests in our subsidiaries and therefore rank structurally senior to the Notes with respect to the assets of our
subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of
Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act or any successor provisions, but giving effect, in each
case, to any exemptive relief granted to us by the SEC (currently, this provision generally prohibits us from making additional
borrowings, including through the issuance of additional debt or the sale of additional debt securities, unless our asset coverage,
as defined in the 1940 Act, equals at least 200% (or 150% if certain requirements are met) after such borrowings);
pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in
right of payment to the Notes, including subordinated indebtedness;
sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our
assets);
enter into transactions with affiliates;
create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions;
● make investments; or
●
create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Furthermore, the terms of the indentures and the Notes do not protect holders of the Notes in the event that we experience changes
(including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that
we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
Our ability to recapitalize, incur additional debt and take a number of other actions that are not limited by the terms of the Notes
may have important consequences for holders of the Notes, including making it more difficult for us to satisfy our obligations with respect
to the Notes or negatively affecting the trading value of the Notes.
46
Table of Contents
Other debt we issue or incur in the future could contain more protections for its holders than the indentures and the Notes,
including additional covenants and events of default. The issuance or incurrence of any such debt with incremental protections could affect
the market for and trading levels and prices of the Notes.
The optional redemption provision may materially adversely affect your return on the Notes.
The Notes are redeemable in whole or in part upon certain conditions at any time or from time to time at our option. We may
choose to redeem the Notes at times when prevailing interest rates are lower than the interest rate paid on the Notes. In this circumstance,
you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the Notes being
redeemed.
We may not be able to repurchase the Notes upon a Change of Control Repurchase Event.
We may not be able to repurchase the Notes upon certain change in control events described in the indentures under which the
Notes were issued (each, a “Change of Control Repurchase Event”) because we may not have sufficient funds. Upon a Change of Control
Repurchase Event, holders of the Notes may require us to repurchase for cash some or all of the Notes at a repurchase price equal to 100%
of the aggregate principal amount of the Notes being repurchased, plus accrued and unpaid interest to, but not including, the repurchase
date. The terms of our Credit Facility provide that certain change of control events will constitute an event of default thereunder entitling
the lenders to accelerate any indebtedness outstanding under our Credit Facility at that time and to terminate the Credit Facility. Our and
our subsidiaries’ future financing facilities may contain similar restrictions and provisions. Our failure to purchase such tendered Notes
upon the occurrence of such Change of Control Repurchase Event would cause an event of default under the indentures governing the
Notes and a cross-default under the agreements governing certain of our other indebtedness, which may result in the acceleration of such
indebtedness requiring us to repay that indebtedness immediately. If a Change of Control Repurchase Event were to occur, we may not have
sufficient funds to repay any such accelerated indebtedness.
If we default on our obligations to pay our other indebtedness, we may not be able to make payments on the Notes.
As of December 31, 2020, we had approximately $1,213.8 million of principal indebtedness, including $269.0 million outstanding
under the Credit Facility, $309.8 million outstanding from SBA-guaranteed debentures, $185.0 million of the 4.50% Notes and
$450.0 million of the 5.20% Notes outstanding. Any default under the agreements governing our indebtedness, including a default under
the Credit Facility, under the Notes or under other indebtedness to which we may be a party that is not waived by the required lenders or
debt holders, and the remedies sought by the holders of such indebtedness could make us unable to pay principal, premium, if any, and
interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are
otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if
we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our
indebtedness, we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the
holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and
unpaid interest, the lenders under the Credit Facility or other debt we may incur in the future could elect to terminate their commitments,
cease making further loans and institute foreclosure proceedings against our assets, and we could be forced into bankruptcy or liquidation.
Our ability to generate sufficient cash flow in the future is, to some extent, subject to general economic, financial, competitive, legislative
and regulatory factors as well as other factors that are beyond our control. We cannot assure you that our business will generate cash flow
from operations, or that future borrowings will be available to us under the Credit Facility or otherwise, in an amount sufficient to enable us
to meet our payment obligations under the Notes and our other debt and to fund other liquidity needs.
We may in the future determine to issue preferred stock, which could adversely affect the market value of our common stock.
The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms
favorable to the holders of preferred stock could adversely affect the market price for our common stock
47
Table of Contents
by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock we issue must be
cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any dividends
or other payments to our common stockholders, and holders of preferred stock are not subject to any of our expenses or losses and are not
entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts
into common stock). In addition, under the 1940 Act, preferred stock constitutes a “senior security” for purposes of the asset coverage test.
FEDERAL INCOME TAX RISKS
We will be subject to corporate-level U.S. federal income tax if we are unable to qualify as a RIC under Subchapter M of the Code.
To maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset
diversification requirements:
●
●
●
The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least
90% of our net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital
losses, if any. Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in
excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such income. Any such
carryover taxable income must be distributed through a dividend declared prior to filing the final tax return related to the year
which generated such taxable income. For more information regarding tax treatment, see “Business — Regulation — Taxation
as a Regulated Investment Company.” Because we use debt financing, we are subject to certain asset coverage ratio
requirements under the 1940 Act and are (and may in the future become) subject to certain financial covenants under loan and
credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the
distribution requirement. In addition, because we receive non-cash sources of income such as PIK interest which involves us
recognizing taxable income without receiving the cash representing such income, we may have difficulty meeting the
distribution requirement. If we are unable to obtain cash from other sources, we could fail to qualify for RIC tax treatment and
thus become subject to corporate-level U.S. federal income tax.
The source-of-income requirement will be satisfied if we obtain at least 90% of our gross income for each year from
distributions, interest, gains from the sale of stock or securities or similar sources.
The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each
quarter of our taxable year. To satisfy this requirement, at least 50% of the value of our assets must consist of cash, cash
equivalents, U.S. government securities, securities of other RICs, and other acceptable securities; and no more than 25% of the
value of our assets can be invested in the securities, other than U.S. government securities or securities of other RICs, (i) of one
issuer, (ii) of two or more issuers that are controlled, as determined under applicable Code rules, by us and that are engaged in
the same or similar or related trades or businesses or (iii) of certain “qualified publicly traded partnerships.”
Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of
RIC status. Because most of our investments are in privately held companies, and therefore illiquid, any such dispositions could be made at
disadvantageous prices and could result in substantial losses. Moreover, if we fail to maintain RIC tax treatment for any reason and are
subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for
distribution and the amount of our distributions.
We may have difficulty paying the distributions required to maintain RIC tax treatment under the Code if we recognize income before
or without receiving cash representing such income.
We will include in income certain amounts that we have not yet received in cash, such as: (i) amortization of original issue
discount, which may arise if we receive warrants in connection with the origination of a loan such that ascribing a value to the warrants
creates original issue discount in the debt instrument, if we invest in a debt investment at a discount to the par value of the debt security or
possibly in other circumstances; (ii) contractual payment-in-kind, or
48
Table of Contents
PIK, interest, which represents contractual interest added to the loan balance and due at the end of the loan term; (iii) contractual preferred
dividends, which represents contractual dividends added to the preferred stock and due at the end of the preferred stock term, subject to
adequate profitability at the portfolio company; or (iv) amortization of market discount, which is associated with loans purchased in the
secondary market at a discount to par value. Such amortization of original issue discounts, increases in loan balances as a result of
contractual PIK arrangements, cumulative preferred dividends, or amortization of market discount will be included in income before we
receive the corresponding cash payments. We also may be required to include in income certain other amounts before we receive such
amounts in cash. Investments structured with these features may represent a higher level of credit risk compared to investments generating
income which must be paid in cash on a current basis. For the year ended December 31, 2020, (i) approximately 2.8% of our total
investment income was attributable to PIK income not paid currently in cash, (ii) approximately 0.3% of our total investment income was
attributable to amortization of original issue discount, (iii) approximately 0.8% of our total investment income was attributable to
cumulative dividend income not paid currently in cash, and (iv) approximately 2.3% of our total investment income was attributable to
amortization of market discount on loans purchased in the secondary market at a discount.
Since, in certain cases, we may recognize taxable income before or without receiving cash representing such income, we may have
difficulty meeting the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code. Accordingly, we may
have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or
forgo new investment opportunities for this purpose. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax
treatment and thus become subject to corporate-level U.S. federal income tax. For additional discussion regarding the tax implications of a
RIC, please see “Business — Regulation — Taxation as a Regulated Investment Company.”
We may in the future choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you
receive.
We may distribute taxable dividends that are payable in part in our stock. Under certain applicable provisions of the Code and the
Treasury regulations, distributions payable by us in cash or in shares of stock (at the stockholders election) would satisfy the Annual
Distribution Requirement. The Internal Revenue Service has issued guidance providing that a dividend payable in stock or in cash at the
election of the stockholders will be treated as a taxable dividend eligible for the dividends paid deduction provided that at least 20% of the
total dividend is payable in cash and certain other requirements are satisfied. Taxable stockholders receiving such dividends will be
required to include the full amount of the dividend as ordinary income (or as long-term capital gain to the extent such dividend is properly
reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.
As a result, a U.S. stockholder may be required to pay tax with respect to such dividends in excess of any cash received. If a U.S.
stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in
income with respect to the dividend, depending on the market price of our stock at the time of the sale. Furthermore, with respect to non-
U.S. stockholders, we may be required to withhold U.S. tax with respect to such dividends, including in respect of all or a portion of such
dividend that is payable in stock. In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay
taxes owed on dividends, it may put downward pressure on the trading price of our stock.
Legislative or regulatory tax changes could adversely affect our stockholders.
At any time, the federal income tax laws governing RICs or the administrative interpretations of those laws or regulations may be
amended. Any of those new laws, regulations or interpretations may take effect retroactively and could adversely affect the taxation of us
or our stockholders. Therefore, changes in tax laws, regulations or administrative interpretations or any amendments thereto could diminish
the value of an investment in our shares or the value or the resale potential of our investments. If we do not comply with applicable laws
and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to civil fines and criminal
penalties.
49
Table of Contents
Each of the Funds, as an SBIC, may be unable to make distributions to us that will enable us to meet or maintain RIC status, which
could result in the imposition of an entity-level tax.
In order for us to continue to qualify for RIC tax treatment and to minimize corporate-level U.S. federal taxes, we will be required
to distribute substantially all of our net ordinary taxable income and net capital gain income, including taxable income from certain of our
subsidiaries, which includes the income from the Funds. We will be partially dependent on the Funds for cash distributions to enable us to
meet the RIC distribution requirements. The Funds may be limited by SBIC regulations from making certain distributions to us that may be
necessary to enable us to maintain our status as a RIC. We may have to request a waiver of the SBA’s restrictions for the Funds to make
certain distributions to maintain our eligibility for RIC status. We cannot assure you that the SBA will grant such waiver and if the Funds
are unable to obtain a waiver, compliance with the SBIC regulations may result in loss of RIC tax treatment and a consequent imposition of
an entity-level tax on us.
Because we intend to distribute substantially all of our taxable income to our stockholders to maintain our status as a RIC, we will
continue to need additional capital to finance our growth, and regulations governing our operation as a BDC will affect our ability to,
and the way in which we, raise additional capital and make distributions.
In order to satisfy the requirements applicable to a RIC and to minimize corporate-level U.S. federal taxes, we intend to distribute
to our stockholders substantially all of our net ordinary taxable income and net capital gain income. We may carry forward excess
undistributed taxable income into the next year. Any such carryover taxable income must be distributed through a dividend declared prior
to filing the final tax return related to the year which generated such taxable income. As a BDC, we generally are required to meet an asset
coverage ratio, as defined in the 1940 Act, of at least 200% (or 150% if certain requirements are met) immediately after each issuance of
senior securities. This requirement limits the amount that we may borrow and may prohibit us from making distributions. Because we will
continue to need capital to grow our Investment Portfolio, this limitation may prevent us from incurring debt and require us to raise
additional equity at a time when it may be disadvantageous to do so.
While we expect to be able to borrow and to issue additional debt and equity securities, we cannot assure you that debt and equity
financing will be available to us on favorable terms, or at all. In addition, as a BDC, we generally are not permitted to issue equity securities
priced below net asset value without stockholder approval. If additional funds are not available to us, we could be forced to curtail or cease
new investment activities, and our net asset value could decline.
GENERAL RISK FACTORS
Deterioration in the economy and financial markets could impair our portfolio companies’ financial positions and operating results and
affect the industries in which we invest, which could, in turn, harm our operating results.
The broader fundamentals of the United States economy remain mixed. In the event that the United States economy contracts, it is
likely that the financial results of small to mid-sized companies, like those in which we invest, could experience deterioration or limited
growth from current levels, which could ultimately lead to difficulty in meeting their debt service requirements and an increase in defaults.
In addition, a decline in oil and natural gas prices would adversely affect the credit quality of our debt investments and the underlying
operating performance of our equity investments in energy-related businesses. Consequently, we can provide no assurance that the
performance of certain portfolio companies will not be negatively impacted by economic cycles, industry cycles or other conditions, which
could also have a negative impact on our future results.
Although we have been able to secure access to additional liquidity, including through our Credit Facility, public debt issuances,
leverage available through the SBIC program and equity offerings, the potential for volatility in the debt and equity capital markets provides
no assurance that debt or equity capital will be available to us in the future on favorable terms, or at all. Further, if the price of our common
stock falls below our net asset value per share, we will be limited in our ability to sell new shares if we do not have stockholder
authorization to sell shares at a price below net asset value per share. We did not seek stockholder authorization to sell shares of our
common stock below the then
50
Table of Contents
current net asset value per share of our common stock at our 2020 annual meeting of stockholders because our common stock price had
been trading significantly above the net asset value per share of our common stock since 2011.
We may experience fluctuations in our operating results.
We could experience fluctuations in our operating results due to a number of factors, including our ability or inability to make
investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of portfolio
dividend and fee income, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses,
the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, operating results
for any period should not be relied upon as being indicative of performance in future periods.
Terrorist attacks, acts of war, public health crises or natural disasters may affect any market for our securities, impact the businesses in
which we invest and harm our business, operating results and financial condition.
Terrorist acts, acts of war, public health crises (including the recent coronavirus outbreak) or natural disasters may disrupt our
operations, as well as the operations of the businesses in which we invest. Such acts have created, and continue to create, economic and
political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, public
health crises, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may
negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our
business, operating results and financial condition. Losses from terrorist attacks, public health crises and natural disasters are generally
uninsurable.
We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn,
negatively affect the market price of our common stock and our ability to pay dividends.
Our business is highly dependent on our and third parties’ communications and information systems. Any failure or interruption of
those systems, including as a result of the termination of an agreement with any third-party service providers, could cause delays or other
problems in our activities. Our financial, accounting, data processing, backup or other operating systems and facilities may fail to operate
properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control
and adversely affect our business. There could be:
●
●
●
●
●
sudden electrical or telecommunications outages;
natural disasters such as earthquakes, tornadoes and hurricanes;
disease pandemics;
events arising from local or larger scale political or social matters, including terrorist acts; and
cyber attacks, including software viruses, ransomware, malware and phishing and vishing schemes.
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and
management continuity planning could impair our ability to conduct business effectively.
The occurrence of a disaster such as a cyber-attack, a natural catastrophe, an industrial accident, a terrorist attack or war, events
unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to
conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data
processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the
event of a disaster, our ability to effectively conduct our business could be severely compromised.
51
Table of Contents
We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of
security measures, our computer systems could be subject to cyber-attacks and unauthorized access, such as physical and electronic break-
ins or unauthorized tampering. Like other companies, we may experience threats to our data and systems, including malware and computer
virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the
confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or
otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation,
increased costs, regulatory penalties and/or customer dissatisfaction or loss.
Third parties with which we do business (including, but not limited to, service providers, such as accountants, custodians, transfer
agents and administrators, and the issuers of securities in which we invest) may also be sources or targets of cyber security or other
technological risks. While we engage in actions to reduce our exposure resulting from outsourcing, we cannot control the cyber security
plans and systems put in place by these third parties and ongoing threats may result in unauthorized access, loss, exposure or destruction of
data, or other cybersecurity incidents, with increased costs and other consequences, including those described above. Privacy and
information security laws and regulation changes, and compliance with those changes, may also result in cost increases due to system
changes and the development of new administrative processes.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We do not own any real estate or other physical properties materially important to our operations. Currently, we lease office space
in Houston, Texas for our corporate headquarters.
Item 3. Legal Proceedings
We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise.
Furthermore, third parties may seek to impose liability on us in connection with the activities of our portfolio companies. While the
outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will
materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings
will have a material adverse effect on our financial condition or results of operations in any future reporting period.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
COMMON STOCK AND HOLDERS
Our common stock is traded on the New York Stock Exchange (“NYSE”) under the symbol “MAIN.”
52
Table of Contents
The following table sets forth, for the periods indicated, the range of high and low closing prices of our common stock as reported
on the NYSE, and the sales price as a percentage of the net asset value per share of our common stock.
Year ending December 31, 2021
First Quarter (through February 25, 2021)
Year ending December 31, 2020
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Year ending December 31, 2019
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
NAV(1)
High
Low
Price Range
$
$
$
$
$
*
22.35
21.52
20.85
20.73
23.91
24.20
24.17
24.41
36.92
32.59
33.01
35.82
45.00
43.68
44.34
41.80
39.21
$
$
$
31.35
27.39
28.66
17.34
15.74
41.27
40.90
37.49
33.99
Premium of
High Sales
Price to
NAV(2)
Premium
(Discount) of
Low Sales
Price to
NAV(2)
*
*
46 %
53 %
72 %
117 %
83 %
83 %
73 %
61 %
23 %
33 %
(17)%
(24)%
73 %
69 %
55 %
39 %
(1) Net asset value per share, or NAV, is determined as of the last day in the relevant quarter and therefore may not reflect the net asset value
per share on the date of the high and low closing prices. The net asset values shown are based on outstanding shares at the end of each
period. Net asset value has not yet been determined for the first quarter of 2021.
(2) Calculated for each quarter as (i) NAV subtracted from the respective high or low share price divided by (ii) NAV.
On February 25, 2021, the last sale price of our common stock on the NYSE was $35.70 per share, and there were approximately
428 holders of record of the common stock which did not include stockholders for whom shares are held in “nominee” or “street name.”
The net asset value per share of our common stock on December 31, 2020 was $22.35, and the premium of the February 25, 2021 closing
price of our common stock was 60% to this net asset value per share.
Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility
that our shares of common stock will trade at a discount from net asset value per share or at premiums that are unsustainable over the long
term are separate and distinct from the risk that our net asset value per share will decrease. It is not possible to predict whether our common
stock will trade at, above, or below net asset value per share. Since our IPO in October 2007, our shares of common stock have traded at
prices both less than and exceeding our net asset value per share.
DIVIDEND/DISTRIBUTION POLICY
We currently intend to distribute dividends or make distributions to our stockholders out of assets legally available for distribution.
Our dividends and other distributions, if any, will be determined by our Board of Directors from time to time. Our ability to declare
dividends depends on our earnings, our overall financial condition (including our liquidity position), maintenance of our RIC status and
such other factors as our Board of Directors may deem relevant from time to time. When we make distributions, we are required to
determine the extent to which such distributions are paid out of current or accumulated earnings, recognized capital gains or capital. To the
extent there is a return of capital (a distribution of the stockholders' invested capital), investors will be required to reduce their basis in our
stock for federal tax purposes. In the future, our distributions may include a return of capital.
We have adopted a dividend reinvestment and direct stock purchase plan (the “Plan”). The dividend reinvestment feature of the
Plan (the “DRIP”) provides for the reinvestment of dividends on behalf of our stockholders,
53
Table of Contents
unless a stockholder has elected to receive dividends in cash. As a result, if we declare a cash dividend, our stockholders who have not
“opted out” of the DRIP by the dividend record date will have their cash dividend automatically reinvested into additional shares of MSCC
common stock. The share requirements of the DRIP may be satisfied through the issuance of new shares of common stock or through open
market purchases of common stock by the DRIP plan administrator. Newly issued shares will be valued based upon the final closing price
of MSCC’s common stock on a valuation date determined for each dividend by our Board of Directors. Shares purchased in the open
market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan
administrator, before any associated brokerage or other costs. Our DRIP is administered by our transfer agent on behalf of our record
holders and participating brokerage firms. Brokerage firms and other financial intermediaries may decide not to participate in our DRIP but
may provide a similar dividend reinvestment plan for their clients.
SALES OF UNREGISTERED SECURITIES
During the year ended December 31, 2020, we issued a total of 517,796 shares of our common stock under the DRIP. These
issuances were not subject to the registration requirements of the Securities Act of 1933, as amended. The aggregate value of the shares of
our common stock issued under the DRIP during 2020 was approximately $16.2 million.
PURCHASES OF EQUITY SECURITIES
Upon vesting of restricted stock awarded pursuant to our employee equity compensation plan, shares may be withheld to meet
applicable tax withholding requirements. Any withheld shares are treated as common stock purchases by the Company in our consolidated
financial statements as they reduce the number of shares received by employees upon vesting (see “Purchase of vested stock for employee
payroll tax withholding” in the consolidated statements of changes in net assets for share amounts withheld).
STOCK PERFORMANCE GRAPH
The following graph compares the stockholder return on our common stock from October 5, 2007 to December 31, 2020 with the
S&P 500 Index, the Russell 2000 Index, the KBW Regional Bank Index and the Main Street Peer Group (as defined below). This
comparison assumes $100.00 was invested on October 5, 2007 (the date our common stock began to trade in connection with our initial
public offering) in our common stock and in the comparison groups and assumes the reinvestment of all cash dividends prior to any tax
effect. The comparisons in the graph below are based on historical data and are not intended to forecast the possible future performance of
our common stock.
54
Table of Contents
COMPARISON OF STOCKHOLDER RETURN(1)
Among Main Street Capital Corporation, the S&P 500 Index, the Russell 2000 Index, the KBW
Regional Bank Index, and the Main Street Peer Group(2)
(For the Period October 5, 2007 to December 31, 2020)
TOTAL RETURN PERFORMANCE SINCE IPO
(1) Total return includes reinvestment of dividends through December 31, 2020.
(2) The Main Street Peer Group is composed of Apollo Investment Corp., Ares Capital Corporation, Barings BDC, Inc., Blackrock Capital
Investment Corp., Crescent Capital BDC Inc, TCG BDC, Inc, Capital Southwest Corporation, Fidus Investment Corporation, FS KKR
Capital Corp., Gladstone Investment Corporation, Golub Capital BDC, Inc., Goldman Sachs BDC, Inc., Hercules Capital Inc., Monroe
Capital Corporation, Newtek Business Services Corp., New Mountain Finance Corporation, Oaktree Strategic Income Corp., Oaktree
Specialty Lending Corp., OFS Capital Corporation, PennantPark Floating Rate Capital Ltd., PennantPark Investment Corp., Prospect
Capital Corporation, Saratoga Investment Corp., Stellus Capital Investment Corp., Solar Capital Ltd., Solar Senior Capital Ltd,
BlackRock TCP Capital Corp., Triplepoint Venture Growth BDC Corp., Sixth Street Specialty Lending, Inc., and WhiteHorse Finance,
Inc.
55
Table of Contents
Item 6. Selected Financial Data
The selected financial and other data as of and for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 have been
derived from our consolidated financial statements. You should read this selected financial and other data in conjunction with our
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and
related notes included in this Annual Report on Form 10-K.
Statement of operations data:
Investment income:
Total interest, fee and dividend income
Interest from idle funds and other
$
Total investment income
Expenses:
Interest
Compensation
General and administrative
Share‑based compensation
Expenses allocated to the External
Investment Manager
Total expenses
Net investment income
Total net realized gain (loss) from
investments
Realized loss on extinguishment of debt
Total net unrealized appreciation
(depreciation) from investments
Total net unrealized appreciation
(depreciation) from SBIC debentures
Income tax benefit (provision)
Net increase in net assets resulting from
operations attributable to common stock
Net investment income per share — basic and
diluted
Net increase in net assets resulting from
operations attributable to common stock per
share — basic and diluted
Weighted‑average shares outstanding — basic
and diluted
2020
Twelve Months Ended December 31,
2018
(dollars in thousands, except per share amounts)
2017
2019
$
222,614
—
222,614
243,373
$
—
243,373
233,355
$
—
233,355
205,741
$
—
205,741
(49,587)
(18,981)
(12,702)
(10,828)
7,429
(84,669)
137,945
(115,947)
(534)
(50,258)
(19,792)
(12,546)
(10,083)
6,672
(86,007)
157,366
(15,112)
(5,689)
(43,493)
(18,966)
(11,868)
(9,151)
6,768
(76,710)
156,645
1,341
(2,896)
(36,479)
(18,560)
(11,674)
(10,027)
6,370
(70,370)
135,371
16,182
(5,217)
(6,082)
(10,204)
17,981
42,545
460
13,541
29,383
2.10
0.45
$
$
$
4,450
(1,242)
129,569
2.50
2.06
$
$
$
1,294
(6,152)
168,213
2.60
2.80
$
$
$
6,212
(24,471)
170,622
2.39
3.01
$
$
$
$
$
$
2016
178,165
174
178,339
(33,630)
(16,408)
(9,284)
(8,304)
5,089
(62,537)
115,802
29,389
—
(6,576)
(943)
1,227
138,899
2.23
2.67
65,705,963
62,960,591
60,176,843
56,691,913
52,025,002
56
Table of Contents
Balance sheet data:
Assets:
Total portfolio investments at fair value
Cash and cash equivalents
Interest receivable and other assets
Deferred financing costs, net of accumulated
amortization
Deferred tax asset, net
Total assets
Liabilities and net assets:
Credit facility
SBIC debentures at fair value(1)
5.20% Notes due 2024
4.50% Notes due 2022
4.50% Notes due 2019
6.125% Notes
Accounts payable and other liabilities
Payable for securities purchased
Interest payable
Dividend payable
Deferred tax liability, net
Total liabilities
Total net assets
Total liabilities and net assets
Other data:
Weighted‑average effective yield on LMM
debt investments(2),(3)
Number of LMM portfolio companies
Weighted‑average effective yield on Middle
Market debt investments(2),(3)
Number of Middle Market portfolio
companies
Weighted‑average effective yield on Private
Loan debt investments(2),(3)
Number of Private Loan portfolio companies
Expense ratios (as percentage of average net
assets):
Total expenses, including income tax
expense
Operating expenses
Operating expenses, excluding interest
expense
Total investment return(4)
Total return based on change in NAV(5)
2020
2019
As of December 31,
2018
(dollars in thousands)
2017
2016
$ 2,684,866
31,919
49,761
$ 2,602,324
55,246
50,458
$ 2,453,909
54,181
40,875
$ 2,171,305
51,528
38,725
$ 1,996,906
24,480
37,123
2,818
3,521
4,461
3,837
—
—
—
—
$ 2,769,364
$ 2,711,549
$ 2,553,426
$ 2,265,395
$
269,000
303,972
451,817
183,836
$
300,000
306,188
324,595
183,229
—
—
—
—
20,833
24,532
—
—
8,658
13,889
2,592
1,254,597
1,514,767
$ 2,769,364
7,292
13,174
16,149
1,175,159
1,536,390
$ 2,711,549
$
301,000
338,186
$
64,000
288,483
—
—
182,622
174,338
—
17,962
28,254
6,041
11,948
17,026
1,077,377
1,476,049
$ 2,553,426
182,015
173,616
89,057
20,168
40,716
5,273
11,146
10,553
885,027
1,380,368
$ 2,265,395
12,645
9,125
$ 2,080,279
$
343,000
239,603
—
—
175,000
90,655
14,205
2,184
4,103
10,048
—
878,798
1,201,481
$ 2,080,279
11.6 %
11.8 %
12.3 %
12.0 %
70
69
69
70
12.5 %
73
7.9 %
8.6 %
9.6 %
9.0 %
8.5 %
42
51
56
62
8.7 %
63
9.5 %
65
10.4 %
59
9.2 %
54
5.0 %
5.9 %
2.4 %
(19.1) %
1.9 %
5.7 %
5.7 %
2.4 %
36.9 %
8.8 %
5.7 %
5.3 %
2.3 %
(8.3)%
12.2 %
7.4 %
5.5 %
2.6 %
16.0 %
14.2 %
78
9.6 %
46
5.5 %
5.6 %
2.6 %
37.4 %
13.0 %
(1) SBIC debentures for December 31, 2020, 2019, 2018, 2017 and 2016 are $309,800, $311,800, $345,800, $298,800 and $240,000 at par,
respectively.
57
Table of Contents
(2) Weighted-average effective yield is calculated based on our debt investments at the end of each period and includes amortization of
deferred debt origination fees and accretion of original issue discount, but excludes liquidation fees payable upon repayment and any
debt investments on non-accrual status. The weighted-average annual effective yield is higher than what an investor in shares of our
common stock will realize on its investment because it does not reflect any debt investments on non-accrual status, our expenses or any
sales load paid by an investor. For information on our investments on non-accrual status, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations — Portfolio Asset Quality”.
(3)
Including investments on non-accrual status, the weighted-average effective yield for LMM, Middle Market, and Private Loan debt
investments was 10.4%, 7.9%, and 8.4%, respectively, as of December 31, 2020.
(4) Total investment return is based on the purchase of stock at the current market price on the first day and a sale at the current market price
on the last day of each period reported on the table and assumes reinvestment of dividends at prices obtained by our dividend
reinvestment plan during the period. The return does not reflect any sales load that may be paid by an investor.
(5) Total return is based on change in net asset value and was calculated using the sum of ending net asset value plus dividends to
stockholders and other non-operating changes during the period, as divided by the beginning net asset value. Non-operating changes
include any items that affect net asset value other than the net increase in net assets resulting from operations, such as the effects of stock
offerings, shares issued under the DRIP and equity incentive plans and other miscellaneous items.
58
Table of Contents
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our consolidated financial statements and the notes thereto included
elsewhere in this Annual Report on Form 10-K.
Statements we make in the following discussion which express a belief, expectation or intention, as well as those that are not
historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our actual results, performance or
achievements, or industry results, could differ materially from those we express in the following discussion as a result of a variety of
factors, including the risks and uncertainties we have referred to under the headings “Cautionary Statement Concerning Forward-Looking
Statements” and “Risk Factors” in Part I of this report.
COVID-19 UPDATE
The COVID-19 pandemic, and the related effect on the U.S. and global economies, has had, and threatens to continue to have,
adverse consequences for our business and operating results, and the businesses and operating results of our portfolio companies. During
the quarter ended December 31, 2020, we continued to work collectively with our employees and portfolio companies to navigate the
significant challenges created by the COVID-19 pandemic. We remain focused on ensuring the safety of our employees and the employees
of our portfolio companies, while also managing our ongoing business activities. In this regard, we remain heavily engaged with our
portfolio companies. As discussed below under “Discussion and Analysis of Results of Operations,” our investment income, principally our
interest and dividend income, was negatively impacted by the economic effects of COVID-19 in 2020. We continue to maintain access to
multiple sources of liquidity, including cash, unused capacity under our Credit Facility and remaining SBIC debenture capacity, and from
December 31, 2019 to December 31, 2020, our total liquidity improved from $495.5 million to $583.1 million. As of December 31, 2020,
we were in compliance with all debt covenants and do not anticipate any issues with our ability to comply with all covenants in the future.
Refer to “—Liquidity and Capital Resources” below for further discussion as of December 31, 2020.
Neither our management nor our Board of Directors is able to predict the full impact of the COVID-19 pandemic, including its
duration and the magnitude of its economic and societal impact. As such, while we will continue to monitor the rapidly evolving situation
and guidance from U.S. and international authorities, including federal, state and local public health authorities, we are unable to predict
with any certainty the extent to which the outbreak will negatively affect our portfolio companies’ operating results and financial condition
or the impact that such disruptions may have on our results of operations and financial condition in the future.
INVESTMENT PORTFOLIO ACTIVITY
The following tables provide a summary of our investments in the LMM, Middle Market and Private Loan portfolios as of
December 31, 2020 and 2019 (this information excludes the Other Portfolio investments and the External Investment Manager which are
discussed further below):
Number of portfolio companies
Fair value
Cost
Debt investments as a % of portfolio (at cost)
Equity investments as a % of portfolio (at cost)
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield (b)
Average EBITDA (c)
$
$
$
59
LMM (a)
As of December 31, 2020
Middle Market
(dollars in millions)
42
445.6 $
488.9 $
93.0 %
7.0 %
92.4 %
7.9 %
76.5 $
70
1,285.5 $
1,104.6 $
65.8 %
34.2 %
98.1 %
11.6 %
5.3 $
Private Loan
63
740.4
769.0
93.8 %
6.2 %
95.4 %
8.7 %
58.1
Table of Contents
(a) At December 31, 2020, we had equity ownership in approximately 99% of our LMM portfolio companies, and the average fully diluted
equity ownership in those portfolio companies was approximately 38%.
(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of
December 31, 2020, 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. Weighted-average annual effective
yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our
expenses or any sales load paid by an investor.
(c) The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and
Private Loan portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, one Middle
Market portfolio company and four Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for our
investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
Number of portfolio companies
Fair value
Cost
Debt investments as a % of portfolio (at cost)
Equity investments as a % of portfolio (at cost)
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield (b)
Average EBITDA (c)
$
$
$
LMM (a)
As of December 31, 2019
Middle Market
(dollars in millions)
51
522.1 $
572.3 $
94.8 %
5.2 %
91.3 %
8.6 %
85.0 $
69
1,206.9 $
1,002.2 $
65.9 %
34.1 %
98.1 %
11.8 %
5.1 $
Private Loan
65
692.1
734.8
94.6 %
5.4 %
95.4 %
9.5 %
57.8
(a) At December 31, 2019, we had equity ownership in approximately 99% of our LMM portfolio companies, and the average fully diluted
equity ownership in those portfolio companies was approximately 42%.
(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of
December 31, 2019, 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. Weighted-average annual effective
yield is higher than what an investor in shares of our common stock will realize on its investment because it does not reflect our
expenses or any sales load paid by an investor.
(c) The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and
Private Loan portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, two Middle
Market portfolio companies and three Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for our
investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
As of December 31, 2020, we had Other Portfolio investments in twelve companies, collectively totaling approximately
$96.6 million in fair value and approximately $124.7 million in cost basis and which comprised approximately 3.6% of our Investment
Portfolio at fair value. As of December 31, 2019, we had Other Portfolio investments in eleven companies, collectively totaling
approximately $106.7 million in fair value and approximately $118.4 million in cost basis and which comprised approximately 4.1% of our
Investment Portfolio at fair value.
As previously discussed, the External Investment Manager is a wholly owned subsidiary that is treated as a portfolio investment.
As of December 31, 2020, there was $29.5 million in cost basis in this investment and the investment had a fair value of approximately
$116.8 million, which comprised approximately 4.3% of our Investment
60
Table of Contents
Portfolio at fair value. As of December 31, 2019, there was no cost basis in this investment and the investment had a fair value of
approximately $74.5 million, which comprised approximately 2.9% of our Investment Portfolio at fair value.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. Critical
accounting policies are those that require management to make subjective or complex judgments about the effect of matters that are
inherently uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in
these areas could have a material impact on our current and future financial condition and results of operations.
Management has discussed the development and selection of each critical accounting policy and estimate with the Audit
Committee of the Board of Directors. Our critical accounting policies and estimates include the Investment Portfolio Valuation and
Revenue Recognition policies described below. Our significant accounting policies are described in greater detail in Note B to the
consolidated financial statements included in “Item 8.– Consolidated Financial Statements and Supplementary Data” of this Annual Report
on Form 10-K.
Investment Portfolio Valuation
The most significant determination inherent in the preparation of our consolidated financial statements is the valuation of our
Investment Portfolio and the related amounts of unrealized appreciation and depreciation. We consider this determination to be a critical
accounting estimate, given the significant judgments and subjective measurements required. As of December 31, 2020 and 2019, our
Investment Portfolio valued at fair value represented approximately 97% and 96% of our total assets, respectively. We are required to report
our investments at fair value. We follow the provisions of FASB ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC
820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs
used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires us to assume that the
portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market
participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact.
See “Note B.1.—Valuation of the Investment Portfolio” in the notes to consolidated financial statements for a detailed discussion of our
investment portfolio valuation process and procedures.
Due to the inherent uncertainty in the valuation process, our determination of fair value for our Investment Portfolio may differ
materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market
environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or
losses ultimately realized on these investments to be materially different than the valuations currently assigned. We determine the fair value
of each individual investment and record changes in fair value as unrealized appreciation or depreciation.
Our Board of Directors has the final responsibility for overseeing, reviewing and approving, in good faith, our determination of the
fair value for our Investment Portfolio and our valuation procedures, consistent with 1940 Act requirements. We believe our Investment
Portfolio as of December 31, 2020 and 2019 approximates fair value as of those dates based on the markets in which we operate and other
conditions in existence on those reporting dates.
The SEC recently adopted new Rule 2a-5 under the 1940 Act, which establishes requirements for determining fair value in good
faith for purposes of the 1940 Act. We will comply with the new rule’s valuation requirements on or before the SEC’s compliance date in
2022.
61
Table of Contents
Revenue Recognition
Interest and Dividend Income
We record interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income
is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a
distribution. In accordance with our valuation policies, we evaluate accrued interest and dividend income periodically for collectability.
When a loan or debt security becomes 90 days or more past due, and if we otherwise do not expect the debtor to be able to service all of its
debt or other obligations, we will generally place the loan or debt security on non-accrual status and cease recognizing interest income on
that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt
security’s status significantly improves regarding the debtor’s ability to service the debt or other obligations, or if a loan or debt security is
sold or written off, we remove it from non-accrual status.
Fee Income
We may periodically provide services, including structuring and advisory services, to our portfolio companies or other third
parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned, which
is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for
services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the
financing.
Payment-in-Kind (“PIK”) Interest and Cumulative Dividends
We hold certain debt and preferred equity instruments in our Investment Portfolio that contain PIK interest and cumulative
dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the
principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of
debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of
the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is
redeemed or sold. To maintain RIC tax treatment (as discussed in “Note B.9.—Income Taxes” in the notes to consolidated financial
statements), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though we may not
have collected the PIK interest and cumulative dividends in cash. We stop accruing PIK interest and cumulative dividends and write off any
accrued and uncollected interest and dividends in arrears when we determine that such PIK interest and dividends in arrears are no longer
collectible. For the years ended December 31, 2020, 2019, and 2018, (i) approximately 2.8%, 2.0% and 1.0%, respectively, of our total
investment income was attributable to PIK interest income not paid currently in cash and (ii) approximately 0.8%, 1.0% and 1.0%,
respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash.
INVESTMENT PORTFOLIO COMPOSITION
The following tables summarize the composition of our total combined LMM portfolio investments, Middle Market portfolio
investments and Private Loan portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM
portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments as of December 31, 2020 and 2019 (this
information excludes the Other Portfolio investments and the External Investment Manager).
Cost:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31, 2020
December 31, 2019
77.0 %
19.0 %
2.7 %
0.5 %
0.8 %
100.0 %
78.2 %
17.2 %
3.5 %
0.6 %
0.5 %
100.0 %
62
Table of Contents
Fair Value:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31, 2020
December 31, 2019
70.0 %
26.4 %
2.4 %
0.4 %
0.8 %
100.0 %
70.1 %
26.0 %
3.0 %
0.4 %
0.5 %
100.0 %
Our LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments carry a number of
risks including: (1) investing in companies which may have limited operating histories and financial resources; (2) holding investments that
generally are not publicly traded and which may be subject to legal and other restrictions on resale; and (3) other risks common to investing
in below investment grade debt and equity investments in our Investment Portfolio. Please see “Risk Factors — Risks Related to Our
Investments” for a more complete discussion of the risks involved with investing in our Investment Portfolio.
PORTFOLIO ASSET QUALITY
We utilize an internally developed investment rating system to rate the performance of each LMM portfolio company and to
monitor our expected level of returns on each of our LMM investments in relation to our expectations for the portfolio company. The
investment rating system takes into consideration various factors, including each investment’s expected level of returns, the collectability of
our debt investments and the ability to receive a return of the invested capital in our equity investments, comparisons to competitors and
other industry participants, the portfolio company’s future outlook and other factors that are deemed to be significant to the portfolio
company.
As of December 31, 2020, our total Investment Portfolio had seven investments on non-accrual status, which comprised
approximately 1.3% of its fair value and 3.6% of its cost. As of December 31, 2019, our total Investment Portfolio had eight investments on
non-accrual status, which comprised approximately 1.4% of its fair value and 4.8% of its cost.
The operating results of our portfolio companies are impacted by changes in the broader fundamentals of the United States
economy. In periods during which the United States economy contracts, as it has due to the impact of COVID-19, it is likely that the
financial results of small to mid-sized companies, like those in which we invest, could experience deterioration or limited growth from
current levels, which could ultimately lead to difficulty in meeting their debt service requirements, to an increase in defaults on our debt
investments or in realized losses on our investments and to difficulty in maintaining historical dividend payment rates and unrealized
appreciation on our equity investments. Consequently, we can provide no assurance that the performance of certain portfolio companies
will not be negatively impacted by future economic cycles or other conditions, which could also have a negative impact on our future
results.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31,
2020 and 2019. The comparison of, and changes between, the fiscal years ended December 31, 2019 and 2018 can be found within “Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Part II of our annual report on Form
10-K for the fiscal year ended December 31, 2019, which is incorporated herein by reference.
63
Table of Contents
Comparison of the years ended December 31, 2020 and 2019
Year Ended
December 31,
Total investment income
Total expenses
Net investment income
Net realized loss from investments
Net realized loss on extinguishment of debt
Net unrealized appreciation (depreciation) from:
Portfolio investments
SBIC debentures
Total net unrealized appreciation (depreciation)
Income tax benefit (provision)
Net increase (decrease) in net assets resulting from operations
2020
222,614
(84,669)
137,945
(115,947)
(534)
(6,082)
460
(5,622)
13,541
29,383
$
$
2019
Amount
(dollars in thousands)
Net Change
%
$
$
243,373
(86,007)
157,366
(15,112)
(5,689)
(10,204)
4,450
(5,754)
(1,242)
129,569
$
(20,759)
1,338
(19,421)
(100,835)
5,155
4,122
(3,990)
132
14,783
$ (100,186)
(9)%
(2)%
(12)%
NM
NM
NM
NM
NM
NM
NM
Net investment income
Share‑based compensation expense
Distributable net investment income(a)
Net investment income per share—Basic and diluted
Distributable net investment income per share—Basic and diluted(a)
NM Not
Meaningful
Year Ended
December 31,
Net Change
2020
2019
Amount
%
(dollars in thousands, except per share amounts)
$
$
$
$
137,945
10,828
148,773
2.10
2.26
$
$
$
$
157,366
10,083
167,449
2.50
2.66
$
$
$
$
(19,421)
745
(18,676)
(0.40)
(0.40)
(12)%
7 %
(11)%
(16)%
(15)%
(a) Distributable net investment income is net investment income as determined in accordance with U.S. GAAP, excluding the impact of
share-based compensation expense which is non-cash in nature. We believe presenting distributable net investment income and related
per share amounts is useful and appropriate supplemental disclosure of information for analyzing our financial performance since share-
based compensation does not require settlement in cash. However, distributable net investment income is a non-U.S. GAAP measure
and should not be considered as a replacement to net investment income and other earnings measures presented in accordance with
U.S. GAAP. Instead, distributable net investment income should be reviewed only in connection with such U.S. GAAP measures in
analyzing our financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to distributable net
investment income is presented in the table above.
Investment Income
Total investment income for the year ended December 31, 2020 was $222.6 million, a 9% decrease from the $243.4 million of
total investment income for the prior year. The following table provides a summary of the changes in the comparable period activity.
Year Ended
December 31,
Net Change
2020
2019
Amount
%
Interest Income
Dividend Income
Fee Income
Total Investment Income
$
$
173,676
36,373
12,565
222,614
$
$
64
$
(dollars in thousands)
187,381
49,782
6,210
243,373
$
(13,705)
(13,409)
6,355
(20,759)
(7) % (a)
(27)% (b)
102 % (c)
(9) % (d)
Table of Contents
(a) The decrease in interest income was primarily due to lower floating interest rates on investment portfolio debt investments based upon
the decline in the London Interbank Offered Rate (“LIBOR”) and an increase in the level non-accrual investments, partially offset by a
$2.5 million increase resulting from increased prepayment, repricing and other activities considered less consistent or non-recurring
involving existing Investment Portfolio debt investments.
(b) The decrease in dividend income was primarily the result of the negative impacts of the COVID-19 pandemic on certain of our portfolio
companies’ operating results, financial condition and liquidity, as well as the uncertainty relative to the duration of the pandemic’s
effects.
(c) The increase in fee income was primarily due to (i) a $4.6 million increase in fees from origination of debt investments resulting from
higher new investment activity and (ii) a $1.7 million increase in fees from repayment and refinancing activity on existing portfolio
investments.
(d) The decrease in total investment income includes the impact of a $4.2 million increase from accelerated prepayment, repricing and other
income activity considered less consistent or non-recurring, which incorporates the $2.5 million increase in interest income from
prepayment, repricing and other activities and the $1.7 million increase in fee income from repayment and repricing activity, both as
described above.
Expenses
Total expenses for the year ended December 31, 2020 decreased to $84.7 million from $86.0 million in the prior year. The
following table provides a summary of the changes in the comparable period activity.
Year Ended
December 31,
2020
2019
Amount
(dollars in thousands)
Net Change
%
Employee Compensation Expenses
Deferred Compensation Plan Expense
Total Compensation Expense
G&A Expense
Interest Expense
Share Based Compensation Expense
Gross Expenses
Allocation of Expenses to the External
Investment Manager
Total Expenses
$
$
$
18,197
784
18,981
12,702
49,587
10,828
92,098
$
18,896
896
19,792
12,546
50,258
10,083
92,679
(7,429)
84,669
$
(6,672)
86,007
$
(700)
(112)
(811)
156
(671)
745
(581)
(757)
(1,338)
(4) % (a)
(12)%
(4) %
1 %
(1) %
7 %
(1) %
11 % (b)
(2) %
(a) The decrease in employee compensation expenses was primarily due to a decline in incentive compensation, partially offset by an
increase in base compensation expense.
(b) The increase in expenses allocated to the External Investment Manager was generally attributable to expenses incurred in connection
with the transaction by with the External Investment Manager became the sole investment manager to MSC Income.
Net Investment Income
Net investment income for the year ended December 31, 2020 decreased 12% to $137.9 million, or $2.10 per share, compared to
net investment income of $157.4 million, or $2.50 per share, for the prior year. The decrease in net investment income was principally
attributable to the decrease in total investment income, partially offset by lower operating expenses, both as discussed above. The decrease
in net investment income per share reflects these changes, as well as the 4.4% increase in weighted average shares outstanding to
65.7 million for the year ended December 31, 2020, primarily due to shares issued through the ATM Program (as defined in “—Liquidity
and Capital Resources—Capital Resources” below), shares issued pursuant to our equity incentive plans and shares issued pursuant to our
dividend
65
Table of Contents
reinvestment plan. The decline in net investment income on a per share basis includes the impacts of an increase of $0.06 per share due to
the increase in investment income from accelerated prepayment, repricing and other income activity considered less consistent or non-
recurring, as discussed above.
Distributable Net Investment Income
Distributable net investment income for the year ended December 31, 2020 decreased 11% to $148.8 million, or $2.26 per share,
compared with $167.4 million, or $2.66 per share, in the prior year. The decline in distributable net investment income was primarily due to
the decreased level of total investment income, partially offset by lower operating expenses, both as discussed above. The decline in
distributable net investment income on a per share basis for the year ended December 31, 2020 also reflects a greater number of average
shares outstanding compared to the prior year and the impacts of the increase in investment income from accelerated prepayment, repricing
and other income activity considered less consistent or non-recurring, both as discussed above.
Net Realized Gain (Loss) from Investments
The following table provides a summary of the primary components of the total net realized loss on investments of $115.9
million for the year ended December 31, 2020:
Full Exits
Partial Exits
Restructures
Total
Net
Gain/(Loss)
# of
Investments
Net
Gain/(Loss)
# of
Investments
Net
Gain/(Loss)
# of
Investments
Net
Gain/(Loss)
# of
Investments
Year Ended December 31, 2020
LMM Portfolio
Middle Market Portfolio
Private Loan Portfolio
$
(5,937)
(22,503)
(29,075)
$
5
6
2
(12,880)
-
-
(dollars in thousands)
$
5
-
-
-
(30,594)
(14,914)
$
-
4
2
(18,817)
(53,097)
(43,989)
Total Net Realized Gain/(Loss)
$
(57,514)
13
$
(12,880)
5
$
(45,509)
6
$
(115,903)
10
10
4
24
The following table provides a summary of the primary components of the total net realized loss on investments of $15.1
million for the year ended December 31, 2019:
Full Exits
Partial Exits
Restructures
Total
Net Gain/Loss
Investments Net Gain/Loss
Investments Net Gain/Loss
Investments Net Gain/Loss
# of
# of
# of
# of
Investments
Year Ended December 31, 2019
LMM Portfolio
Middle Market Portfolio
Private Loan Portfolio
Total Net Realized Gain/(Loss)
$
$
13,788
(12,216)
616
$
4
2
4
-
(7,012)
-
(dollars in thousands)
$
-
1
-
-
(9,880)
-
$
-
2
-
13,788
(29,107)
616
2,189
10
$
(7,012)
1
$
(9,880)
2
$
(14,703)
4
5
4
13
66
Table of Contents
Net Unrealized Appreciation (Depreciation)
The following table provides a summary of the total net unrealized depreciation of $5.6 million for the year ended
December 31, 2020:
Year Ended December 31, 2020
Private
Market (b) Loan (c)
Middle
Other
LMM(a)
Total
Accounting reversals of net unrealized (appreciation) depreciation
recognized in prior periods due to net realized (gains / income) losses
recognized during the current period
Net unrealized depreciation relating to portfolio investments
Total net unrealized depreciation relating to portfolio investments
Unrealized appreciation relating to SBIC debentures (e)
Total net unrealized depreciation
(dollars in millions)
$
11.0
(34.7)
$ (23.7)
$
$
50.0
(43.1)
6.9
$
$
48.4
(34.6)
13.7
$
$
0.0
(3.0) (d)
$
(3.0)
$ 109.4
(115.5)
(6.1)
0.5
(5.6)
$
(a)
Includes unrealized appreciation on 31 LMM portfolio investments and unrealized depreciation on 34 LMM portfolio investments.
(b)
Includes unrealized appreciation on 16 Middle Market portfolio investments and unrealized depreciation on 33 Middle Market portfolio
investments.
(c)
Includes unrealized appreciation on 20 Private Loan portfolio investments and unrealized depreciation on 41 Private Loan portfolio
investments.
(d)
Includes $16.5 million of net unrealized depreciation relating to the Other Portfolio, partially offset primarily by $12.7 million of
unrealized appreciation relating to the External Investment Manager.
(e) Relates to unrealized depreciation on the SBIC debentures previously issued by MSC II, which were accounted for on a fair value basis.
The following table provides a summary of the total net unrealized depreciation of $5.8 million for the year ended December 31,
2019:
Accounting reversals of net unrealized (appreciation) depreciation
recognized in prior periods due to net
realized (gains / income) losses recognized during the current period
Net unrealized appreciation (depreciation) relating to portfolio
investments
Total net unrealized appreciation (depreciation) relating to portfolio
investments
Unrealized appreciation relating to SBIC debentures(e)
Total net unrealized depreciation
67
Year Ended December 31, 2019
LMM(a)
Middle
Private
Market (b) Loan (c)
Other
Total
(dollars in millions)
$ (14.0) $
23.6
$
(2.3) $
0.1
$
7.4
14.5
(42.0)
4.3
5.6 (d)
(17.6)
$
0.5
$ (18.4) $
2.0
$
5.7
$
(10.2)
4.4
(5.8)
$
Table of Contents
(a)
Includes unrealized appreciation on 33 LMM portfolio investments and unrealized depreciation on 27 LMM portfolio
investments.
(b)
Includes unrealized appreciation on 22 Middle Market portfolio investments and unrealized depreciation on 37 Middle Market portfolio
investments.
(c)
Includes unrealized appreciation on 42 Private Loan portfolio investments and unrealized depreciation on 21 Private Loan portfolio
investments.
(d)
Includes (i) $8.8 million of unrealized appreciation relating to the External Investment Manager and (ii) $0.9 million of unrealized
appreciation relating to the investment assets in the Main Street Capital Corporation Deferred Compensation Plan (see “Related Party
Transactions” below), partially offset by $4.0 million of net unrealized depreciation relating to the Other Portfolio.
(e) Relates to $5.7 million of unrealized appreciation on the SBIC debentures previously issued by MSC II which are accounted for on a
fair value basis and is primarily related to accounting reversals of previously recognized unrealized depreciation recorded since the date
of the MSC II acquisition on the debentures repaid during the year ended December 31, 2019, partially offset by $1.2 million of
unrealized depreciation on the SBIC debentures previously issued by MSC II, which are also accounted for on a fair value basis.
Income Tax Benefit (Provision)
The income tax benefit for the year ended December 31, 2020 of $13.5 million principally consisted of a deferred tax benefit of
$14.1 million, which is primarily the result of the net activity relating to our portfolio investments held in our Taxable Subsidiaries,
including changes in loss carryforwards, changes in net unrealized appreciation/depreciation and other temporary book-tax differences,
partially offset by a current tax provision of $0.5 million related to a $1.6 million provision for excise tax on our estimated undistributed
taxable income and a $1.1 million benefit for current U.S. federal and state income taxes.
The income tax provision for the year ended December 31, 2019 of $1.2 million principally consisted of a current tax expense of
$3.5 million related to (i) a $2.4 million provision for current U.S. federal and state income taxes and (ii) a $1.1 million provision for excise
tax on our estimated undistributed taxable income, partially offset by a deferred tax benefit of $2.3 million, which is primarily the result of
the net activity relating to our portfolio investments held in our Taxable Subsidiaries, including changes in loss carryforwards, changes in
net unrealized appreciation/depreciation and other temporary book-tax differences.
Net Increase (Decrease) in Net Assets Resulting from Operations
The net increase in net assets resulting from operations for the year ended December 31, 2020 was $29.4 million, or $0.45 per
share, compared with $129.6 million, or $2.06 per share, during the year ended December 31, 2019. The tables above provide a summary of
the reasons for the change in Net Increase in Net Assets Resulting from Operations for the year ended December 31, 2020 as compared to
the year ended December 31, 2019.
Liquidity and Capital Resources
This “Liquidity and Capital Resources” section should be read in conjunction with the “COVID-19 Update” section above.
Cash Flows
For the year ended December 31, 2020, we experienced a net decrease in cash and cash equivalents in the amount of $23.3 million,
which is the net result of $54.1 million of cash used in our operating activities and $30.8 million of cash provided by our financing
activities.
68
Table of Contents
The $54.1 million of cash used in our operating activities resulted primarily from cash uses totaling $669.0 million for the funding
of new and follow-on portfolio company investments, including the transaction pursuant to which the External Investment Manager became
the sole investment adviser to MSC Income, and settlement of accruals for portfolio investments existing as of December 31, 2019, partially
offset by (i) cash proceeds totaling $478.0 million from the sales and repayments of debt investments and sales of and return on capital of
equity investments, (ii) cash flows we generated from the operating profits earned totaling $131.5 million, which is our distributable net
investment income, excluding the non-cash effects of the accretion of unearned income, payment-in-kind interest income, cumulative
dividends and the amortization expense for deferred financing costs, and (iii) cash proceeds of $5.4 million related to changes in other
assets and liabilities.
The $30.8 million of cash provided by our financing activities principally consisted of (i) $125.0 million in proceeds from the
follow-on issuance of the 5.20% Notes in July 2020, (ii) $84.4 million in net cash proceeds from our ATM Program (described below) and
direct stock purchase plan, (iii) $40.0 million in cash proceeds from the issuance of SBIC debentures and (iv) $0.7 million for debt issuance
premiums, net of payments of deferred debt issuance costs, SBIC debenture fees and other costs, partially offset by (i) $144.5 million in
cash dividends paid to stockholders, (ii) $31.0 million in net repayments from the Credit Facility, (iii) $42.0 million in repayment of SBIC
debentures, and (iv) $1.9 million for purchases of vested restricted stock from employees to satisfy their tax withholding requirements upon
the vesting of such restricted stock.
For the year ended December 31, 2019, we experienced a net increase in cash and cash equivalents in the amount of $1.1 million,
which is the net result of $33.8 million of cash used in our operating activities and $34.9 million of cash provided by our financing
activities.
The $33.8 million of cash was used in our operating activities resulted primarily from cash uses totaling $664.1 million for the
funding of new portfolio company investments and settlement of accruals for portfolio investments existing as of December 31, 2018,
partially offset by (i) cash flows we generated from the operating profits earned totaling $151.6 million, which is our distributable net
investment income, excluding the non-cash effects of the accretion of unearned income, payment-in-kind interest income, cumulative
dividends and the amortization expense for deferred financing costs, (ii) cash proceeds totaling $477.9 million from the sales and
repayments of debt investments and sales of and return on capital of equity investments and (iii) cash proceeds of $0.8 million related to
changes in other assets and liabilities.
The $34.9 million of cash was used in our financing activities principally consisted of (i) $325.0 million in cash proceeds from the
issuance of the 5.20% Notes and (ii) $89.3 million in net cash proceeds from the ATM Program (described below), partially offset by
(i) $175.0 million cash used in repayment of 4.50% Notes due 2019, (ii) $164.3 million in cash dividends paid to stockholders,
(iii) $34.0 million in repayment of SBIC debentures, (iv) $3.9 million for purchases of vested restricted stock from employees to satisfy
their tax withholding requirements upon the vesting of such restricted stock, (v) $1.2 million for payment of deferred debt issuance costs,
SBIC debenture fees and other costs and (vi) and $1.0 in net repayments on the Credit Facility.
Capital Resources
As of December 31, 2020, we had $31.9 million in cash and cash equivalents and $511.0 million of unused capacity under the
Credit Facility, which we maintain to support our investment and operating activities. As of December 31, 2020, our net asset value totaled
$1,514.8 million, or $22.35 per share.
The Credit Facility, which provides additional liquidity to support our investment and operational activities, includes total
commitments of $780.0 million from a diversified group of 19 lenders. The Credit Facility matures in September 2023 and contains an
accordion feature, which allows us to increase the total commitments under the facility to up to $800.0 million from new and existing
lenders on the same terms and conditions as the existing commitments. Borrowings under the Credit Facility bear interest, subject to our
election and resetting on a monthly basis on the first of each month, on a per annum basis at a rate equal to the applicable LIBOR rate
(0.2% as of the most recent reset date for the period ended December 31, 2020) plus (i) 1.875% (or the applicable base rate (Prime Rate of
3.25% as of December 31, 2020) plus 0.875%) as long as we meet certain agreed upon excess collateral and maximum leverage
69
Table of Contents
requirements or (ii) 2.0% (or the applicable base rate plus 1.0%) otherwise. We pay unused commitment fees of 0.25% per annum on the
unused lender commitments under the Credit Facility. The Credit Facility is secured by a first lien on the assets of MSCC and its
subsidiaries, excluding the equity ownership or assets of the Funds and the External Investment Manager. The Credit Facility contains
certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum availability of at least 10% of the
borrowing base, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining an asset coverage ratio (tangible net worth
to Credit Facility borrowings) of at least 1.5 to 1.0 and (iv) maintaining a minimum tangible net worth. The Credit Facility is provided on a
revolving basis through its final maturity date in September 2023, and contains two, one-year extension options which could extend the
final maturity by up to two years, subject to certain conditions, including lender approval. As of December 31, 2020, we had $269.0 million
in borrowings outstanding under the Credit Facility, the interest rate on the Credit Facility was 2.0% and we were in compliance with all
financial covenants of the Credit Facility.
Through the Funds, we have the ability to issue SBIC debentures guaranteed by the SBA at favorable interest rates and favorable
terms and conditions. Under existing SBIC regulations, SBA-approved SBICs under common control have the ability to issue debentures
guaranteed by the SBA up to a regulatory maximum amount of $350.0 million. Under existing SBA-approved commitments, we had
$309.8 million of outstanding SBIC debentures guaranteed by the SBA as of December 31, 2020 through our wholly owned SBICs, which
bear a weighted-average annual fixed interest rate of approximately 3.4%, paid semiannually, and mature ten years from issuance. The first
maturity related to our SBIC debentures occurs in 2021, and the weighted-average remaining duration is approximately 5.4 years as of
December 31, 2020. During the year ended December 31, 2020, Main Street issued $40.0 million of SBIC debentures and prepaid
$42.0 million of existing SBIC debentures that were scheduled to mature over the next year as part of an effort to manage the maturity dates
of the oldest SBIC debentures. Debentures guaranteed by the SBA have fixed interest rates that equal prevailing 10-year Treasury
Note rates plus a market spread and have a maturity of ten years with interest payable semiannually. The principal amount of the debentures
is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. We expect to issue new SBIC
debentures under the SBIC program in the future in an amount up to the regulatory maximum amount for affiliated SBIC funds.
In November 2017, we issued $185.0 million in aggregate principal amount of the 4.50% Notes at an issue price of 99.16%. The
4.50% Notes are scheduled to mature on December 1, 2022 and are unsecured obligations and rank pari passu with our current and future
unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that
expressly provides it is subordinated to the 4.50% Notes; effectively subordinated to all of our existing and future secured indebtedness, to
the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally
subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the
indebtedness of the Funds. The 4.50% Notes may be redeemed in whole or in part at any time at our option subject to certain make-whole
provisions. The 4.50% Notes bear interest at a rate of 4.50% per year payable semiannually on June 1 and December 1 of each year. We
may from time to time repurchase the 4.50% Notes in accordance with the 1940 Act and the rules promulgated thereunder. As of
December 31, 2020, the outstanding balance of the 4.50% Notes was $185.0 million.
The indenture governing the 4.50% Notes (the “4.50% Notes Indenture”) contains certain covenants, including covenants
requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as
modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the 4.50%
Notes and the Trustee if we cease to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations
and exceptions that are described in the 4.50% Notes Indenture.
In April 2019, we issued $250.0 million in aggregate principal amount of the 5.20% Notes at an issue price of 99.125%.
Subsequently, in December 2019, we issued an additional $75.0 million in aggregate principal amount of the 5.20% Notes at an issue price
of 105.0%. Also, in July 2020, we issued an additional $125.0 million in aggregate principal amount of the 5.20% Notes at an issue price
of 102.674% of par, resulting in net proceeds to us of approximately $127.3 million after underwriting discounts and estimated offering
expenses payable by us. The 5.20% Notes issued in December 2019 and July 2020 have identical terms as, and are a part of a single series
with, the 5.20% Notes issued in April 2019 , all of which are scheduled to mature on May 1, 2024. The aggregate net proceeds from the
70
Table of Contents
5.20% Notes issuances were used to repay a portion of the borrowings outstanding under the Credit Facility. The 5.20% Notes are
unsecured obligations and rank pari passu with our current and future unsecured indebtedness; senior to any of our future indebtedness that
expressly provides it is subordinated to the 5.20% Notes; effectively subordinated to all of our existing and future secured indebtedness, to
the extent of the value of the assets securing such indebtedness, including borrowings under our Credit Facility; and structurally
subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries, including without limitation, the
indebtedness of the Funds. The 5.20% Notes may be redeemed in whole or in part at any time at our option subject to certain make-whole
provisions. The 5.20% Notes bear interest at a rate of 5.20% per year payable semiannually on May 1 and November 1 of each year. We
may from time to time repurchase the 5.20% Notes in accordance with the 1940 Act and the rules promulgated thereunder. As of
December 31, 2020, the outstanding balance of the 5.20% Notes was $450.0 million.
The indenture governing the 5.20% Notes (the “5.20% Notes Indenture”) contains certain covenants, including covenants
requiring our compliance with (regardless of whether we are subject to) the asset coverage requirements set forth in Section 18(a)(1)(A) as
modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring us to provide financial information to the holders of the 5.20%
Notes and the Trustee if we cease to be subject to the reporting requirements of the Exchange Act. These covenants are subject to limitations
and exceptions that are described in the 5.20% Notes Indenture.
We maintain a program with certain selling agents through which we can sell shares of our common stock by means of at-the-
market offerings from time to time (the “ATM Program”).
During the year ended December 31, 2020, we sold 2,645,778 shares of our common stock at a weighted-average price of $32.10
per share and raised $84.9 million of gross proceeds under the ATM Program. Net proceeds were $83.8 million after commissions to the
selling agents on shares sold and offering costs. As of December 31, 2020, sales transactions representing 87,179 shares had not settled and
are not included in shares issued and outstanding on the face of the consolidated balance sheet but are included in the weighted-average
shares outstanding in the consolidated statement of operations and in the shares used to calculate net asset value per share. As of
December 31, 2020, 5,713,372 shares remained available for sale under the ATM Program.
During the year ended December 31, 2019, we sold 2,247,187 shares of our common stock at a weighted-average price of $40.05
per share and raised $90.0 million of gross proceeds under the ATM Program. Net proceeds were $88.8 million after commissions to the
selling agents on shares sold and offering costs.
We anticipate that we will continue to fund our investment activities through existing cash and cash equivalents, cash flows
generated through our ongoing operating activities, utilization of available borrowings under our Credit Facility, and a combination of
future issuances of debt and equity capital. Our primary uses of funds will be investments in portfolio companies, operating expenses and
cash distributions to holders of our common stock.
We periodically invest excess cash balances into marketable securities and idle funds investments. The primary investment
objective of marketable securities and idle funds investments is to generate incremental cash returns on excess cash balances prior to
utilizing those funds for investment in our LMM, Middle Market and Private Loan portfolio investments. Marketable securities and idle
funds investments generally consist of debt investments, independently rated debt investments, certificates of deposit with financial
institutions, diversified bond funds and publicly traded debt and equity investments.
If our common stock trades below our net asset value per share, we will generally not be able to issue additional common stock at
the market price, unless our stockholders approve such a sale and our Board of Directors makes certain determinations. We did not seek
stockholder authorization to sell shares of our common stock below the then current net asset value per share of our common stock at our
2020 annual meeting of stockholders because our common stock price per share has generally traded significantly above the net asset value
per share of our common stock since 2011. We would therefore need future approval from our stockholders to issue shares below the then
current net asset value per share.
71
Table of Contents
In order to satisfy the Code requirements applicable to a RIC, we intend to distribute to our stockholders, after consideration and
application of our ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next
tax year, substantially all of our taxable income. In addition, as a BDC, we generally are required to meet a coverage ratio of total assets to
total senior securities, which include borrowings and any preferred stock we may issue in the future, of at least 200% (or 150% if certain
requirements are met). This requirement limits the amount that we may borrow. In January 2008, we received an exemptive order from the
SEC to exclude SBA-guaranteed debt securities issued by MSMF and any other wholly owned subsidiaries of ours which operate as SBICs
from the asset coverage requirements of the 1940 Act as applicable to us, which, in turn, enables us to fund more investments with debt
capital.
Although we have been able to secure access to additional liquidity, including through the Credit Facility, public debt issuances,
leverage available through the SBIC program and equity offerings, there is no assurance that debt or equity capital will be available to us in
the future on favorable terms, or at all.
Recently Issued or Adopted Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by
us as of the specified effective date. We believe that the impact of recently issued standards and any that are not yet effective will not have
a material impact on our consolidated financial statements upon adoption. For a description of recently issued or adopted accounting
standards, see Note B.13 to the consolidated financial statements included in “Item 8. Consolidated Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K.
Inflation
Inflation has not had a significant effect on our results of operations in any of the reporting periods presented herein. However, our
portfolio companies have experienced, and may in the future experience, the impacts of inflation on their operating results, including
periodic escalations in their costs for labor, raw materials and third-party services and required energy consumption.
Off-Balance Sheet Arrangements
We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs
of our portfolio companies. These instruments include commitments to extend credit and fund equity capital and involve, to varying
degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet. At December 31, 2020, we had a total
of $137.1 million in outstanding commitments comprised of (i) forty-three investments with commitments to fund revolving loans that had
not been fully drawn or term loans with additional commitments not yet funded and (ii) nine investments with equity capital commitments
that had not been fully called.
Contractual Obligations
As of December 31, 2020, the future fixed commitments for cash payments in connection with our SBIC debentures, the 4.50%
Notes, the 5.20% Notes and rent obligations under our office lease for each of the next five years and thereafter are as follows (dollars in
thousands):
SBIC debentures
Interest due on SBIC debentures
4.50% Notes due 2022
Interest due on 4.50% Notes due 2022
5.20% Notes due 2024
Interest due on 5.20% Notes due 2024
Operating Lease Obligation (1)
Total
2021
$ 40,000
9,766
-
8,325
-
23,400
776
$ 82,267
2022
$
-
8,784
185,000
8,325
-
23,400
790
$ 226,299
2023
$ 16,000
8,530
-
-
-
23,400
804
$ 48,734
$
2024
63,800
7,082
-
-
450,000
11,700
818
$ 533,400
2025
$
-
5,859
-
-
-
-
832
$ 6,691
Thereafter
$ 190,000
14,869
-
-
-
-
1,779
$ 206,648
$
Total
309,800
54,890
185,000
16,650
450,000
81,900
5,799
$ 1,104,039
72
Table of Contents
(1) Operating Lease Obligation means a rent payment obligation under a lease classified as an operating lease and disclosed pursuant to
ASC 842, as may be modified or supplemented.
As of December 31, 2020, we had $269.0 million in borrowings outstanding under our Credit Facility, and the Credit Facility is
currently scheduled to mature in September 2023. The Credit Facility contains two, one-year extension options which could extend the
maturity to September 2025, subject to lender approval. See further discussion of the Credit Facility terms above in “—Liquidity and
Capital Resources—Capital Resources.”
Related Party Transactions
As discussed further above, the External Investment Manager is treated as a wholly owned portfolio company of MSCC and is
included as part of our Investment Portfolio. At December 31, 2020, we had a receivable of approximately $3.5 million due from the
External Investment Manager, which included approximately $2.4 million related primarily to operating expenses incurred by us as
required to support the External Investment Manager’s business and amounts due from the External Investment Manager to Main Street
under a tax sharing agreement (see further discussion in Note D to the consolidated financial statements included in “Item 8. Consolidated
Financial Statements and Supplementary Data” of this Annual Report on Form 10-K) and approximately $1.1 million of dividends declared
but not paid by the External Investment Manager. We have entered into an agreement with the External Investment Manager to share
employees in connection with its asset management business generally, and specifically for the External Investment Manager’s relationship
with MSC Income and its other clients. See Note A.1 and Note D to the consolidated financial statements included in “Item 8. Consolidated
Financial Statements and Supplementary Data” of this Annual Report on Form 10-K for more information regarding the External
Investment Manager.
In November 2015, our Board of Directors approved and adopted the Main Street Capital Corporation Deferred Compensation
Plan (the “2015 Deferred Compensation Plan”). The 2015 Deferred Compensation Plan became effective on January 1, 2016 and replaced
the Deferred Compensation Plan for Non-Employee Directors previously adopted by the Board of Directors in June 2013 (the “2013
Deferred Compensation Plan”). Under the 2015 Deferred Compensation Plan, non-employee directors and certain key employees may
defer receipt of some or all of their cash compensation and directors’ fees, subject to certain limitations. Individuals participating in the
2015 Deferred Compensation Plan receive distributions of their respective balances based on predetermined payout schedules or other
events as defined by the plan and are also able to direct investments made on their behalf among investment alternatives permitted from
time to time under the plan, including phantom Main Street stock units. As of December 31, 2020, $11.9 million of compensation and
dividend reinvestments net of unrealized gains and losses and distributions had been deferred under the 2015 Deferred Compensation Plan
(including amounts previously deferred under the 2013 Deferred Compensation Plan). Of this amount, $5.2 million had been deferred into
phantom Main Street stock units, representing 160,352 shares of our common stock. Any amounts deferred under the plan represented by
phantom Main Street stock units will not be issued or included as outstanding on the consolidated statements of changes in net assets until
such shares are actually distributed to the participant in accordance with the plan, but the related phantom stock units are included in
weighted-average shares outstanding with the related dollar amount of the deferral included in total expenses in Main Street’s consolidated
statements of operations as earned. The dividend amounts related to additional phantom stock units are included in the statements of
changes in net assets as an increase to dividends to stockholders offset by a corresponding increase to additional paid-in capital.
In December 2020, the External Investment Manager entered into an Investment Management Agreement with the Private Loan
Fund, pursuant to which the External Investment Manager provides investment advisory and management services to the Private Loan Fund
in exchange for an asset-based fee and certain incentive fees. The Private Loan Fund is a private investment fund exempt from registration
under the 1940 Act that invests in debt investments in middle market companies generally with EBITDA between $7.5 million and $50
million and generally owned by a private equity sponsor, which we generally refer to as “Private Loan” investments. In connection with the
Private Loan Fund’s initial closing in December 2020, we committed to contribute up to $10.0 million as a limited partner and will be
entitled to distributions on such interest. In addition, certain of our officers and employees (and certain of their immediate family members)
made capital commitments to the Private Loan Fund as limited partners and therefore have direct pecuniary interest in the Private Loan
Fund.
73
Table of Contents
From time to time, we may make investments in clients of the External Investment Manager in the form of debt capital on terms
approved by our Board of Directors. In January 2021, we entered into a Term Loan Agreement with MSC Income (the “Term Loan
Agreement”). The Term Loan Agreement was unanimously approved by our Board, including each director who is not an “interested
person,” as such term is defined in Section 2(a)(19) of the 1940 Act and the board of directors of MSC Income, including each director who
is not an “interested person” of MSC Income or the External Investment Manager. The Term Loan Agreement provides for a term loan of
$40.0 million to MSC Income, bearing interest at a fixed rate of 5.00% per annum, and matures in January 2026. Borrowings under the
Term Loan Agreement are expressly subordinated and junior in right of payment to all secured indebtedness of MSC Income and are subject
to a two-year no-call period that expires on January 27, 2023. Additionally, we have provided the Private Loan Fund with a revolving line
of credit pursuant to an Unsecured Revolving Promissory Note, dated February 5, 2021 (the “Private Loan Fund Loan”), in an aggregate
amount equal to the amount of limited partner capital commitments to the Private Loan Fund up to $50.0 million. Borrowings under the
Private Loan Fund Loan bear interest at a fixed rate of 5.00% per annum and will mature on the earlier of June 30, 2022 and the date of the
Private Loan Fund’s final closing.
Recent Developments
In January 2021, we issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due July 14, 2026 (the “3.00%
Notes”) at an issue price of 99.004%. The total net proceeds from the 3.00% Notes, resulting from the issue price and after underwriting
discounts and estimated offering expenses payable, were approximately $294.8 million.
During February 2021, we declared monthly dividends of $0.205 per share for each month of April, May and June 2021. These
monthly dividends equal a total of $0.615 per share for the second quarter of 2021, unchanged from the monthly dividends paid in the
second quarter of 2020. Including the monthly dividends declared for the second quarter of 2021, we will have paid $30.830 per share in
cumulative dividends since our October 2007 initial public offering.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are subject to financial market risks, including changes in interest rates, and changes in interest rates may affect both our
interest expense on the debt outstanding under our Credit Facility and our interest income from portfolio investments. Our risk
management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually
monitor these risks. Our investment income will be affected by changes in various interest rates, including LIBOR and prime rates, to the
extent that any debt investments include floating interest rates. See “Risk Factors — Risks Relating to Our Investments — Changes relating
to the LIBOR calculation process, the phase-out of LIBOR and the use of replacement rates for LIBOR may adversely affect the value of
our portfolio securities.” and “Risk Factors — Risks Relating to Our Investments — Changes in interest rates may affect our cost of capital,
net investment income and value of our investments.” for more information regarding risks associated with our debt investments and
borrowings that utilize LIBOR as a reference rate.
The majority of our debt investments are made with either fixed interest rates or floating rates that are subject to contractual
minimum interest rates for the term of the investment. As of December 31, 2020, approximately 71% of our debt investment portfolio (at
cost) bore interest at floating rates, 87% of which were subject to contractual minimum interest rates. Our interest expense will be affected
by changes in the published LIBOR rate in connection with our Credit Facility; however, the interest rates on our outstanding SBIC
debentures, and the outstanding Notes, which collectively comprise the majority of our outstanding debt, are fixed for the life of such debt.
As of December 31, 2020, we had not entered into any interest rate hedging arrangements. Due to our limited use of derivatives, we have
claimed an exclusion from the definition of the term “commodity pool operator” under the Commodity Exchange Act and, therefore, are not
subject to registration or regulation as a pool operator under such Act. The following table shows the
74
Table of Contents
approximate annualized increase or decrease in the components of net investment income due to hypothetical base rate changes in interest
rates, assuming no changes in our investments and borrowings as of December 31, 2020.
Basis Point Change
(150)
(125)
(100)
(75)
(50)
(25)
25
50
75
100
125
150
Increase
Increase
(Decrease) in Net
(Decrease)
Investment
in Interest
Income
Income
(dollars in thousands, except per share amounts)
(Increase)
Decrease
in Interest
Expense
Increase
(Decrease) in Net
Investment
Income per Share
$
$
(397)
(397)
(388)
(380)
(371)
(363)
477
985
1,647
4,009
6,845
10,024
$
416
416
416
416
416
416
(673)
(1,345)
(2,018)
(2,690)
(3,363)
(4,035)
$
19
19
28
36
45
53
(196)
(360)
(371)
1,319
3,482
5,989
—
—
—
—
—
—
—
(0.01)
(0.01)
0.02
0.05
0.09
The hypothetical results assume that all LIBOR and prime rate changes would be effective on the first day of the period. However,
the contractual LIBOR and prime rate reset dates would vary throughout the period, on either a monthly or quarterly basis, for both our
investments and our Credit Facility. The hypothetical results would also be impacted by the changes in the amount of debt outstanding
under our Credit Facility (with an increase (decrease) in the debt outstanding under the Credit Facility resulting in an (increase) decrease in
the hypothetical interest expense).
75
Table of Contents
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—As of December 31, 2020 and December 31, 2019
Consolidated Statements of Operations—For the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Net Assets—For the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows— For the years ended December 31, 2020, 2019 and 2018
Consolidated Schedule of Investments—December 31, 2020
Consolidated Schedule of Investments—December 31, 2019
Notes to Consolidated Financial Statements
Consolidated Schedules of Investments in and Advances to Affiliates— For the years ended December 31, 2020 and 2019
77
82
83
84
85
86
108
129
169
76
Table of Contents
Board of Directors and Stockholders
Main Street Capital Corporation
Opinion on the financial statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheets of Main Street Capital Corporation (a Maryland corporation) and
subsidiaries (the “Company”), including the consolidated schedule of investments, as of December 31, 2020 and 2019, the related
consolidated statements of operations, changes in net assets, and cash flows for each of the three years in the period ended December 31,
2020, and the related notes (collectively referred to as the “financial statements”) and the financial highlights for each of the five years in the
period ended December 31, 2020. In our opinion, the financial statements present fairly, in all material respects, the financial position of the
Company as of December 31, 2020 and 2019, and the results of its operations, changes in net assets and its cash flows for each of the three
years in the period ended December 31, 2020, and the financial highlights for each of the five years in the period ended December 31, 2020,
in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013
Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”),
and our report dated February 26, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included
verification by confirmation of securities as of December 31, 2020 and 2019, by correspondence with custodians, portfolio companies or
agents, or by other appropriate auditing procedures where replies were not received. We believe that our audits provide a reasonable basis
for our opinion.
Critical audit matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
77
Table of Contents
Fair Value Investments
As described further in Note C to the financial statements, the Company’s investments at fair value were $2,684,866 thousand at
December 31, 2020 and were measured using significant unobservable inputs and assumptions, categorized as Level 3 investments within
the fair value hierarchy. Investment values are generally based on prices or valuation techniques, such as the income and market approach,
that require inputs that are significant to the overall fair value measurement, and are observable in non-active markets or unobservable. The
significant unobservable inputs disclosed by management include, among others, weighted-average cost of capital (“WACC”) inputs and
market multiples for equity investments, and risk adjusted discount rates, percentage of expected principal recovery and third-party quotes
for debt investments. Changes in these assumptions could have a significant impact on the determination of fair value. As such, we
identified fair value of investments as a critical audit matter.
The principal considerations for our determination that fair value of Level 3 investments are a critical audit matter are the
significant management judgements used in developing complex valuation techniques and inherent estimation uncertainty. Auditing these
investments requires a high degree of auditor judgement and subjectivity, in addition to the use of valuation professionals with specialized
skills and knowledge, to evaluate the reasonableness of unobservable inputs and assumptions.
The primary procedures we performed to address this critical audit matter included:
●
Testing the design and operating effectiveness of controls over management’s process to determine investment fair value.
Specifically, we identified and tested key attributes of management’s fair value determination review. These attributes
addressed the relevance, adequacy and appropriateness of the data, assumptions, valuation methods, and mathematical accuracy
used to determine investment fair value as of the reporting date.
● With the assistance of internal valuation specialists to evaluate and test management’s process to develop the valuation
estimates or develop an independent expectation, we performed substantive audit procedures to determine mathematical
accuracy and to determine that the data, valuation methods, and significant unobservable inputs and assumptions used to
determine investment fair value as of the Company’s reporting date were reasonable. Certain key inputs/assumptions tested by
us for a sample of investments, included the following:
●
enterprise values,
● weighted average cost of capital (“WACC”),
●
●
●
discount rates,
forecasted cash flows and long-term growth rates,
discount for lack of marketability,
● market multiples,
● weighting between valuation techniques,
●
●
●
risk adjusted discount factor,
percentage of expected principal recovery,
third party quotes, in conjunction with other inputs, and
78
Table of Contents
●
third-party appraisals.
●
In testing the above, we considered available third-party market information and published studies, current economic
conditions and subsequent events, and other information that could be corroborated to source information.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2007.
Houston, Texas
February 26, 2021
79
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Main Street Capital Corporation
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Main Street Capital Corporation (a Maryland corporation) and
subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in
all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in the 2013
Internal Control — Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, 2019, and our report dated
February 26, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
80
Table of Contents
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ GRANT THORNTON LLP
Houston, Texas
February 26, 2021
81
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Balance Sheets
(dollars in thousands, except shares and per share amounts)
ASSETS
Investments at fair value:
Control investments (cost: $831,490 and $778,367 as of December 31, 2020 and December 31, 2019,
respectively)
Affiliate investments (cost: $416,479 and $351,764 as of December 31, 2020 and December 31, 2019,
respectively)
Non‑Control/Non‑Affiliate investments (cost: $1,268,740 and $1,297,587 as of December 31, 2020 and
December 31, 2019, respectively)
Total investments (cost: $2,516,709 and $2,427,718 as of December 31, 2020 and
December 31, 2019, respectively)
Cash and cash equivalents
Interest receivable and other assets
Deferred financing costs (net of accumulated amortization of $8,477 and $7,501 as of December 31, 2020
and December 31, 2019, respectively)
Total assets
LIABILITIES
Credit facility
SBIC debentures (par: $309,800 ($40,000 due within one year) and $311,800 as of December 31, 2020
and December 31, 2019, respectively)
5.20% Notes due 2024 (par: $450,000 and $325,000 as of December 31, 2020 and December 31, 2019,
respectively)
4.50% Notes due 2022 (par: $185,000 as of both December 31, 2020 and December 31, 2019)
Accounts payable and other liabilities
Interest payable
Dividend payable
Deferred tax liability, net
Total liabilities
Commitments and contingencies (Note K)
NET ASSETS
Common stock, $0.01 par value per share (150,000,000 shares authorized; 67,674,853 and 64,241,341
shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively)
Additional paid‑in capital
Total undistributed (overdistributed) earnings
Total net assets
Total liabilities and net assets
NET ASSET VALUE PER SHARE
December 31,
2020
December 31,
2019
$ 1,113,725
$ 1,032,721
366,301
330,287
1,204,840
1,239,316
2,684,866
31,919
49,761
2,602,324
55,246
50,458
2,818
$ 2,769,364
3,521
$ 2,711,549
$
269,000
$
300,000
303,972
306,188
451,817
183,836
20,833
8,658
13,889
2,592
1,254,597
324,595
183,229
24,532
7,292
13,174
16,149
1,175,159
677
1,615,940
(101,850)
1,514,767
$ 2,769,364
22.35
$
643
1,512,435
23,312
1,536,390
$ 2,711,549
23.91
$
The accompanying notes are an integral part of these consolidated financial statements
82
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Operations
(dollars in thousands, except shares and per share amounts)
Twelve Months Ended December 31,
2019
2020
2018
INVESTMENT INCOME:
Interest, fee and dividend income:
Control investments
Affiliate investments
Non‑Control/Non‑Affiliate investments
Total investment income
EXPENSES:
Interest
Compensation
General and administrative
Share‑based compensation
Expenses allocated to the External Investment Manager
Total expenses
NET INVESTMENT INCOME
NET REALIZED GAIN (LOSS):
Control investments
Affiliate investments
Non‑Control/Non‑Affiliate investments
Realized loss on extinguishment of debt
Total net realized loss
NET UNREALIZED APPRECIATION (DEPRECIATION):
Control investments
Affiliate investments
Non‑Control/Non‑Affiliate investments
SBIC debentures
Total net unrealized appreciation (depreciation)
INCOME TAXES:
Federal and state income, excise and other taxes
Deferred taxes
Income tax benefit (provision)
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
NET INVESTMENT INCOME PER SHARE—BASIC AND DILUTED
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS PER
SHARE—BASIC AND DILUTED
WEIGHTED AVERAGE SHARES
OUTSTANDING—BASIC AND DILUTED
$
$
$
$
81,155
32,435
109,024
222,614
(49,587)
(18,981)
(12,702)
(10,828)
7,429
(84,669)
137,945
(59,594)
2,203
(58,556)
(534)
(116,481)
37,924
(29,038)
(14,968)
460
(5,622)
(590)
14,131
13,541
29,383
2.10
0.45
$
$
$
$
92,414
34,732
116,227
243,373
(50,258)
(19,792)
(12,546)
(10,083)
6,672
(86,007)
157,366
4,797
(565)
(19,344)
(5,689)
(20,801)
(980)
990
(10,214)
4,450
(5,754)
(3,546)
2,304
(1,242)
129,569
2.50
2.06
$
$
$
$
85,853
36,800
110,702
233,355
(43,493)
(18,966)
(11,868)
(9,151)
6,768
(76,710)
156,645
4,681
20
(3,360)
(2,896)
(1,555)
37,826
12,062
(31,907)
1,294
19,275
(319)
(5,833)
(6,152)
168,213
2.60
2.80
65,705,963
62,960,591
60,176,843
The accompanying notes are an integral part of these consolidated financial statements
83
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Changes in Net Assets
(dollars in thousands, except shares)
Common Stock
Balances at December 31, 2017
Public offering of common stock, net of offering costs
Share‑based compensation
Purchase of vested stock for employee payroll tax withholding
Dividend reinvestment
Amortization of directors’ deferred compensation
Issuance of restricted stock, net of forfeited shares
Dividends to stockholders
Net increase resulting from operations
Balances at December 31, 2018
Public offering of common stock, net of offering costs
Share‑based compensation
Purchase of vested stock for employee payroll tax withholding
Dividend reinvestment
Amortization of directors’ deferred compensation
Issuance of restricted stock, net of forfeited shares
Dividends to stockholders
Reclassification for certain permanent book-to-tax differences
Net increase resulting from operations
Balances at December 31, 2019
Public offering of common stock, net of offering costs
Share‑based compensation
Purchase of vested stock for employee payroll tax withholding
Dividend reinvestment
Amortization of directors’ deferred compensation
Issuance of restricted stock, net of forfeited shares
Dividends to stockholders
Reclassification for certain permanent book-to-tax differences
Net increase resulting from operations
Balances at December 31, 2020
Total
Undistributed
Earnings
69,002
(171,724)
168,213
65,491
Number of
Shares
58,660,680
2,069,103
—
(109,693)
394,403
250,368
—
—
—
Par
Value
$ 586
21
—
(1)
4
—
3
—
—
$
Additional
Paid‑In
Capital
$ 1,310,780
78,373
9,151
(4,076)
14,870
850
(3)
—
—
$
61,264,861
2,259,729
—
(103,730)
441,927
390,150
—
—
$ 613
23
—
(1)
4
—
4
—
$ 1,409,945
89,246
10,083
(3,941)
18,081
866
(4)
401
(12,242)
—
—
64,252,937
2,662,777
$ 643
27
—
(1)
4
—
4
$ 1,512,435
84,354
10,828
(1,890)
16,230
853
(4)
—
(89,447)
517,796
—
417,969
Total Net
Asset Value
$ 1,380,368
78,394
9,151
(4,077)
14,874
850
—
(171,724)
168,213
$ 1,476,049
89,269
10,083
(3,942)
18,085
866
—
(183,589)
—
129,569
$ 1,536,390
84,381
10,828
(1,891)
16,234
853
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(183,990)
12,242
129,569
23,312
—
$
—
—
—
—
—
—
385
(7,251)
—
(161,796)
7,251
29,383
(161,411)
—
29,383
$ (101,850) $ 1,514,767
67,762,032
$ 677
$ 1,615,940
The accompanying notes are an integral part of these consolidated financial statements
84
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Statements of Cash Flows
(dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations
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
Proceeds from sales and repayments of debt investments in portfolio companies
Proceeds from sales and return of capital of equity investments in portfolio companies
Net unrealized (appreciation) depreciation
Net realized loss
Accretion of unearned income
Payment-in-kind interest
Cumulative dividends
Share-based compensation expense
Amortization of deferred financing costs
Deferred tax (benefit) provision
Changes in other assets and liabilities:
Interest receivable and other assets
Interest payable
Accounts payable and other liabilities
Deferred fees and other
Net cash used in operating activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from public offering of common stock, net of offering costs
Proceeds from public offering of 5.20% Notes due 2024
Dividends paid
Proceeds from issuance of SBIC debentures
Repayments of SBIC debentures
Redemption of 6.125% Notes
Redemption of 4.50% Notes due 2019
Proceeds from credit facility
Repayments on credit facility
Debt issuance premiums (costs), net
Purchases of vested stock for employee payroll tax withholding
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
CASH AND CASH EQUIVALENTS AT END OF PERIOD
Supplemental cash flow disclosures:
Interest paid
Taxes paid
Operating non-cash activities:
Right-of-use assets obtained in exchange for operating lease liabilities
Non-cash financing activities:
Shares issued pursuant to the DRIP
Year Ended
December 31,
2019
2020
2018
$
29,383
$
129,569
$
168,213
(669,007)
443,573
34,439
5,622
116,481
(11,756)
(6,225)
(1,791)
10,828
2,513
(14,131)
4,599
1,366
(2,846)
2,868
(54,084)
84,381
125,000
(144,462)
40,000
(42,000)
-
-
399,000
(430,000)
729
(1,891)
30,757
(23,327)
55,246
31,919
45,582
3,136
-
16,234
$
$
$
$
$
(664,062)
439,363
38,536
5,754
20,801
(12,070)
(5,018)
(2,382)
10,083
3,717
(2,304)
(6,680)
1,251
7,436
2,172
(33,834)
89,269
325,000
(164,278)
-
(34,000)
-
(175,000)
639,000
(640,000)
(1,150)
(3,942)
34,899
1,065
54,181
55,246
45,167
2,300
5,240
18,085
$
$
$
$
$
$
$
$
$
$
(962,456)
626,059
77,103
(19,275)
1,555
(14,724)
(2,304)
(2,301)
9,151
3,299
5,833
(2,276)
768
(1,356)
3,645
(109,066)
78,394
-
(156,048)
54,000
(4,000)
(90,655)
-
632,000
(395,000)
(2,895)
(4,077)
111,719
2,653
51,528
54,181
39,300
5,112
-
14,874
The accompanying notes are an integral part of these consolidated financial statements
85
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
Control Investments (5)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4) Cost (4)
Fair
Value (18)
ASC Interests, LLC
August 1, 2013
Recreational and
Educational Shooting
Facility
Analytical Systems Keco, LLC
August 16, 2019 Manufacturer of Liquid and
Gas Analyzers
ATS Workholding, LLC
(10)
March 10, 2014 Manufacturer of Machine
Cutting Tools and
Accessories
Project BarFly, LLC
(10)
August 31, 2015 Casual Restaurant Group
Bolder Panther Group, LLC
December 31, 2020 Consumer Goods and Fuel
Retailer
Bond-Coat, Inc.
December 28, 2012 Casing and Tubing Coating
Services
Brewer Crane Holdings, LLC
January 9, 2018
Provider of Crane Rental
and Operating Services
Bridge Capital Solutions Corporation
April 18, 2012
Financial Services and Cash
Flow Solutions Provider
Secured Debt
Member Units
1,500
13.00%
7/31/2022
$
1,750 $
1,715 $
1,500
3,215
1,715
1,120
2,835
Secured Debt
Preferred Member Units
Warrants
3,200
420
12.00% (L+10.00%, Floor
2.00%)
8/16/2024
5,155
8/16/2029
Secured Debt
Preferred Member Units
3,725,862
5.00%
11/16/2021
4,982
Secured Debt
Member Units
37
7.00%
10/31/2024
343
4,874
3,200
316
8,390
4,824
3,726
8,550
343
1,584
1,927
4,874 (9)
3,200
10 (27)
8,084
3,347 (14)
-
3,347
343
1,584
1,927
Secured Debt
Class A Preferred
Member Units
Class B Preferred Member
Units
140,000
10.50% (L+9.00%, Floor
1.50%)
14.00%
12/31/2025
27,500
27,225
27,225 (9)
10,194
10,194 (30)
14,000
51,419
14,000 (30)
51,419
Common Stock
57,508
6,350
2,040
Secured Debt
Preferred Member Units
2,950
11.00% (L+10.00%, Floor
1.00%)
1/9/2023
8,556
Secured Debt
Warrants
Secured Debt
Preferred Member Units
82
17,742
13.00%
13.00%
12/11/2024
7/25/2026
12/11/2024
8,813
1,000
8,513
4,280
12,793
8,513 (9)
5,850 (8)
14,363
8,403
2,132
998
1,000
12,533
8,403
3,220 (27)
998 (30)
1,000 (8) (30)
13,621
Café Brazil, LLC
April 20, 2004
Casual Restaurant Group
Member Units
1,233
1,742
2,030 (8)
86
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
California Splendor Holdings LLC
March 30, 2018
Processor of Frozen Fruits
CBT Nuggets, LLC
June 1, 2006
Centre Technologies Holdings, LLC
January 4, 2019
Produces and Sells IT
Training Certification
Videos
Provider of IT Hardware
Services and Software
Solutions
Chamberlin Holding LLC
February 26, 2018 Roofing and Waterproofing
Specialty Contractor
Charps, LLC
February 3, 2017 Pipeline Maintenance and
Construction
Clad-Rex Steel, LLC
December 20, 2016 Specialty Manufacturer of
Vinyl-Clad Metal
CMS Minerals Investments
January 30, 2015 Oil & Gas Exploration &
Production
Cody Pools, Inc.
March 6, 2020
Designer of Residential and
Commercial Pools
CompareNetworks Topco, LLC
January 29, 2019
Internet Publishing and
Web Search Portals
Secured Debt
Secured Debt
Preferred Member Units
Preferred Member Units
6,725
6,157
9.00% (L+8.00%, Floor
1.00%)
11.00% (L+10.00%, Floor
1.00%)
3/30/2023
8,100
8,014
8,043 (9)
3/30/2023
28,000
27,854
8,255
10,775
54,898
27,789 (9)
8,255 (8)
6,241 (8)
50,328
Member Units
416
1,300
46,080 (8)
Secured Debt
Preferred Member Units
12,696
12.00% (L+10.00%, Floor
2.00%)
1/4/2024
11,628
Secured Debt
Member Units
Member Units
4,347
1,047,146
9.00% (L+8.00%, Floor
1.00%)
2/26/2023
15,212
Unsecured Debt
Secured Debt
Preferred Member Units
1,600
10.00% (8.67% Cash,
1.33% PIK)
15.00%
1/31/2024
6/5/2022
9,388
669
Secured Debt
Member Units
Secured Debt
Member Units
10.50% (L+9.50%, Floor
1.00%)
12/20/2021
10,880
10.00%
12/20/2036
1,111
717
800
11,549
5,840
17,389
11,549 (9)
6,160
17,709
15,136
11,440
1,322
27,898
15,212 (9)
28,070 (8)
1,270 (8) (30)
44,552
7,641
669
400
8,710
8,475 (19)
669
10,520 (8)
19,664
10,853
7,280
1,100
210
19,443
10,853 (9)
8,610 (8)
1,100 (30)
530 (30)
21,093
Member Units
100
2,179
1,624 (30)
Secured Debt
Preferred Member Units
587
12.25% (L+10.50%, Floor
1.75%)
3/6/2025
14,216
Secured Debt
Preferred Member Units
1,975
12.00% (L+11.00%, Floor
1.00%)
1/29/2024
7,954
14,092
8,317
22,409
14,216 (9)
14,940
29,156
7,910
1,975
9,885
7,953 (9)
6,780 (8)
14,733
87
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Copper Trail Fund Investments
(12) (13)
July 17, 2017
Investment Partnership
Datacom, LLC
May 30, 2014
Technology and
Telecommunications
Provider
LP Interests (CTMH, LP)
38.8%
747
747 (31)
Secured Debt
Secured Debt
Class A Preferred
Member Units
Class B Preferred
Member Units
-
6,453
8.00%
10.50% PIK
5/31/2021
5/31/2021
1,800
12,507
1,800
12,475
1,615 (14)
10,531 (14) (19)
Digital Products Holdings LLC
April 1, 2018
Designer and Distributor of
Consumer Electronics
Direct Marketing Solutions, Inc.
February 13, 2018 Provider of Omni-Channel
Direct Marketing Services
Gamber-Johnson Holdings, LLC ("GJH")
June 24, 2016 Manufacturer of
Ruggedized Computer
Mounting Systems
Garreco, LLC
July 15, 2013
Manufacturer and Supplier
of Dental Products
GRT Rubber Technologies LLC ("GRT")
December 19, 2014 Manufacturer of Engineered
Rubber Products
Gulf Manufacturing, LLC
August 31, 2007 Manufacturer of Specialty
Fabricated Industrial Piping
Products
Gulf Publishing Holdings, LLC
April 29, 2016
Energy Industry Focused
Media and Publishing
Secured Debt
Preferred Member Units
3,857
11.00% (L+10.00%, Floor
1.00%)
4/1/2023
18,173
Secured Debt
Preferred Stock
8,400
12.00% (L+11.00%, Floor
1.00%)
2/13/2023
15,090
Secured Debt
Member Units
Secured Debt
Member Units
Secured Debt
Member Units
9.00% (L+7.00%, Floor
2.00%)
6/24/2021
19,838
9.00% (L+8.00%, Floor
1.00%, Ceiling 1.50%)
1/31/2021
4,519
7.15% (L+7.00%)
12/31/2023
16,775
8,619
1,200
5,879
1,294
6,030
21,599
-
-
12,146
18,077
9,501
27,578
18,077 (9)
9,835 (8)
27,912
15,007
8,400
23,407
15,007 (9)
19,380
34,387
19,807
14,844
34,651
19,838 (9)
52,490 (8)
72,328
4,519
1,200
5,719
4,519 (9)
1,410
5,929
16,775
13,065
29,840
16,775
44,900 (8)
61,675
Member Units
438
2,980
4,510 (8)
10.50% (5.25% Cash,
5.25% PIK) (L+9.50%,
Floor 1.00%)
12.50% (6.25% Cash,
6.25% PIK)
3,681
9/30/2020
250
250
250 (9) (17) (19)
4/29/2021
13,147
13,135
3,681
17,066
12,044 (19)
-
12,294
Secured Debt
Secured Debt
Member Units
88
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Harris Preston Fund Investments
(12) (13)
October 1, 2017
Investment Partnership
Harrison Hydra-Gen, Ltd.
June 4, 2010
Manufacturer of Hydraulic
Generators
Jensen Jewelers of Idaho, LLC
November 14, 2006 Retail Jewelry Store
J&J Services, Inc.
October 31, 2019 Provider of Dumpster and
Portable Toilet Rental
Services
KBK Industries, LLC
January 23, 2006 Manufacturer of Specialty
Oilfield and Industrial
Products
Kickhaefer Manufacturing Company, LLC
October 31, 2018 Precision Metal Parts
Manufacturing
Market Force Information, LLC
July 28, 2017
Provider of Customer
Experience Management
Services
MH Corbin Holding LLC
August 31, 2015 Manufacturer and
Distributor of Traffic Safety
Products
LP Interests (2717 MH,
L.P.)
LP Interests (2717 HPP-
MS, L.P.)
49.3%
49.3%
2,599
2,702 (31)
250
2,849
250 (31)
2,952
Common Stock
107,456
718
5,450 (8)
Secured Debt
Member Units
627
10.00% (Prime+6.75%,
Floor 2.00%)
11/14/2023
3,400
3,374
811
4,185
3,400 (9)
7,620 (8)
11,020
Secured Debt
Preferred Stock
2,814
11.50%
10/31/2024
12,800
12,697
7,085
19,782
12,800
12,680
25,480
Member Units
325
783
13,200 (8)
Secured Debt
Member Units
Secured Debt
Member Units
581
800
11.50%
10/31/2023
22,415
9.00%
10/31/2048
3,948
22,269
12,240
3,909
992
39,410
22,269
12,240
3,909
1,160 (8) (30)
39,578
Secured Debt
Secured Debt
Member Units
743,921
12.00% (L+11.00%, Floor
1.00%)
12.00% PIK
7/28/2023
7/28/2023
1,600
26,079
1,600
25,952
16,642
44,194
1,600 (9)
13,562 (14) (19)
-
15,162
Secured Debt
Preferred Member Units
Preferred Member Units
66,000
4,000
13.00% (10.00% Cash,
3.00% PIK)
3/31/2022
8,570
MSC Adviser I, LLC
(16)
November 22, 2013 Third Party Investment
Advisory Services
Member Units
Mystic Logistics Holdings, LLC
August 18, 2014 Logistics and Distribution
Services Provider for Large
Volume Mailers
8,527
4,400
6,000
18,927
8,280 (19)
2,370
-
10,650
29,500
116,760 (8) (31)
NAPCO Precast, LLC
January 31, 2008 Precast Concrete
Manufacturing
Member Units
2,955
2,975
16,100 (8)
Secured Debt
Common Stock
5,873
12.00%
1/17/2022
6,733
6,723
2,720
9,443
6,723
8,990 (8)
15,713
89
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Nebraska Vet AcquireCo, LLC (NVS)
December 31, 2020 Mixed-Animal Veterinary
and Animal Health Product
Provider
NexRev LLC
February 28, 2018 Provider of Energy
Efficiency Products &
Services
NRI Clinical Research, LLC
September 8, 2011 Clinical Research Service
Provider
Secured Debt
Preferred Member Units
6,500
12.00%
12/31/2025
10,500
10,395
6,500
16,895
10,395
6,500
16,895
Secured Debt
Preferred Member Units
86,400,000
11.00%
2/28/2023
17,097
Secured Debt
Warrants
Member Units
251,723
1,454,167
9.00%
6/8/2022
6/8/2027
5,620
17,016
6,880
23,896
16,726
1,470 (8)
18,196
5,572
252
765
6,589
2,080
3,717
5,797
5,620
1,490 (27)
5,600 (8)
12,710
2,080
2,821 (8)
4,901
NRP Jones, LLC
December 22, 2011 Manufacturer of Hoses,
Fittings and Assemblies
Secured Debt
Member Units
65,962
12.00%
3/20/2023
2,080
NuStep, LLC
January 31, 2017 Designer, Manufacturer and
Distributor of Fitness
Equipment
OMi Holdings, Inc.
April 1, 2008
Manufacturer of Overhead
Cranes
Pearl Meyer Topco LLC
April 27, 2020
Provider of Executive
Compensation Consulting
Services
Pegasus Research Group, LLC
January 6, 2011
Provider of Telemarketing
and Data Services
PPL RVs, Inc.
June 10, 2010
Recreational Vehicle Dealer
Principle Environmental, LLC (d/b/a
TruHorizon Environmental Solutions)
February 1, 2011 Noise Abatement Service
Provider
Quality Lease Service, LLC
June 8, 2015
Provider of Rigsite
Accommodation Unit
Rentals and Related
Services
Secured Debt
Preferred Member Units
406
12.00%
1/31/2022
17,240
17,193
10,200
27,393
17,193
10,780
27,973
Common Stock
1,500
1,080
20,380 (8)
Secured Debt
Member Units
13,800
12.00%
4/27/2025
37,513
37,202
13,000
50,202
37,202
15,940 (8)
53,142
Member Units
460
1,290
8,830 (8)
Secured Debt
Common Stock
2,000
7.50% (L+7.00%, Floor
0.50%)
11/15/2022
11,855
Secured Debt
Preferred Member Units
Warrants
19,631
1,018
13.00%
4/30/2023
6,397
1/31/2021
11,781
2,150
13,931
11,806 (9)
11,500 (8)
23,306
6,335
4,600
1,200
12,135
6,397
10,500 (8)
870 (27)
17,767
Member Units
1,000
11,063
4,460
90
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
River Aggregates, LLC
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4) Cost (4)
Fair
Value (18)
March 30, 2011
Processor of Construction
Aggregates
Member Units
1,500
369
3,240 (30)
Tedder Industries, LLC
August 31, 2018 Manufacturer of Firearm
Holsters and Accessories
Trantech Radiator Topco, LLC
May 31, 2019
Transformer Cooling
Products and Services
UnionRock Energy Fund II, LP
(12) (13)
June 15, 2020
Oil & Gas Exploration &
Production
Vision Interests, Inc.
June 5, 2007
Manufacturer / Installer of
Commercial Signage
Ziegler's NYPD, LLC
October 1, 2008 Casual Restaurant Group
Subtotal Control Investments (73.5% of
net assets at fair value)
Secured Debt
Preferred Member Units
Secured Debt
Common Stock
479
615
12.00%
8/31/2023
16,400
12.00%
5/31/2024
8,720
16,301
8,136
24,437
16,301
8,136
24,437
8,644
4,655
13,299
8,644
6,030 (8)
14,674
LP Interests
49.6%
2,894
2,894 (31)
Secured Debt
Series A Preferred Stock
3,000,000
13.00%
9/30/2019
2,028
Secured Debt
Secured Debt
Secured Debt
Warrants
Preferred Member Units
587
10,072
6.50%
12.00%
14.00%
10/1/2022
10/1/2022
10/1/2022
10/1/2025
1,000
625
2,750
2,028
3,000
5,028
1,000
625
2,750
600
2,834
7,809
2,028 (17)
3,160
5,188
979
625
2,750
- (27)
1,780
6,134
$ 831,490 $ 1,113,725
91
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
Affiliate Investments (6)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4) Cost (4)
Fair
Value (18)
AAC Holdings, Inc.
(11)
June 30, 2017
Substance Abuse Treatment
Service Provider
AFG Capital Group, LLC
November 7, 2014 Provider of Rent-to-Own
Financing Solutions and
Services
American Trailer Rental Group LLC
June 7, 2017
BBB Tank Services, LLC
April 8, 2016
Provider of Short-term
Trailer and Container Rental
Maintenance, Repair and
Construction Services to the
Above-Ground Storage Tank
Market
Boccella Precast Products LLC
June 30, 2017
Manufacturer of Precast
Hollow Core Concrete
Buca C, LLC
June 30, 2015
Casual Restaurant Group
CAI Software LLC
October 10, 2014 Provider of Specialized
Enterprise Resource
Planning Software
Chandler Signs Holdings, LLC
(10)
January 4, 2016
Sign Manufacturer
Charlotte Russe, Inc
(11)
May 28, 2013
Fast-Fashion Retailer to
Young Women
Classic H&G Holdings, LLC
March 12, 2020
Provider of Engineered
Packaging Solutions
Secured Debt
Common Stock
Warrants
593,928
554,353
18.00% (10.00% Cash,
8.00% PIK)
6/25/2025
9,406
12/11/2025
9,187
3,148
-
12,335
9,187 (19)
3,148
2,938 (27)
15,273
Secured Debt
Preferred Member Units
186
10.00%
5/25/2022
491
491
1,200
1,691
491
5,810
6,301
Member Units
73,493
8,596
16,010 (30)
Unsecured Debt
Preferred Stock (non-
voting)
Member Units
12.00% (L+11.00%, Floor
1.00%)
4/8/2021
4,800
4,773
4,722 (9)
15.00% PIK
800,000
151
800
5,724
151 (8) (19)
280
5,153
Member Units
2,160,000
2,256
6,040 (8)
Secured Debt
Preferred Member Units
10.25% (L+9.25%, Floor
1.00%)
6.00% PIK
6
6/30/2020
19,004
19,004
4,770
23,774
14,256 (9) (17)
- (8) (19)
14,256
Secured Debt
Member Units
77,960
12.50%
12/7/2023
47,474
47,133
2,095
49,228
47,474
7,190 (8)
54,664
Class A Units
1,500,000
1,500
1,460
Common Stock
19,041
3,141
-
Secured Debt
Preferred Member Units
154
12.00%
3/12/2025
24,800
24,583
5,760
30,343
24,800
9,510 (8)
34,310
92
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Congruent Credit Opportunities Funds
(12) (13)
January 24, 2012
Investment Partnership
Copper Trail Fund Investments
(12) (13)
July 17, 2017
Investment Partnership
Dos Rios Partners
(12) (13)
April 25, 2013
Investment Partnership
East Teak Fine Hardwoods, Inc.
April 13, 2006
Distributor of Hardwood
Products
EIG Fund Investments
(12) (13)
November 6, 2015 Investment Partnership
Freeport Financial Funds
(12) (13)
June 13, 2013
Investment Partnership
Harris Preston Fund Investments
(12) (13)
August 9, 2017
Investment Partnership
Hawk Ridge Systems, LLC
(13)
December 2, 2016 Value-Added Reseller of
Engineering Design and
Manufacturing Solutions
Houston Plating and Coatings, LLC
January 8, 2003
Provider of Plating and
Industrial Coating Services
I-45 SLF LLC
(12) (13)
October 20, 2015
Investment Partnership
LP Interests (Congruent
Credit Opportunities Fund
II, LP)
LP Interests (Congruent
Credit Opportunities Fund
III, LP)
LP Interests (Copper Trail
Energy Fund I, LP)
LP Interests (Dos Rios
Partners, LP)
LP Interests (Dos Rios
Partners - A, LP)
19.8%
17.4%
12.4%
20.2%
6.4%
4,449
94 (31)
11,741
16,190
11,540 (8) (31)
11,634
2,161
1,782 (8) (31)
6,605
5,417 (31)
2,097
8,702
1,720 (31)
7,137
Common Stock
6,250
480
300
LP Interests (EIG Global
Private Debt Fund-A,
L.P.)
11.1%
LP Interests (Freeport
Financial SBIC Fund LP)
LP Interests (Freeport
First Lien Loan Fund III
LP)
LP Interests (HPEP 3,
L.P.)
Secured Debt
Preferred Member Units
Preferred Member Units
9.3%
6.0%
8.2%
226
226
Unsecured Convertible
Debt
Member Units
322,297
Member Units (Fully
diluted 20.0%; 24.40%
profits
interest) (8)
20.00% Fully
Diluted,
24.40%
Profits
Interest
93
739
526 (8) (31)
5,974
5,264 (31)
10,785
16,759
10,321 (8) (31)
15,585
3,071
3,258 (31)
18,366
2,850
150
21,366
18,400
8,030 (8)
420 (30)
26,850
11.00%
12/2/2023
18,400
8.00%
5/1/2022
3,000
3,000
2,352
5,352
2,900
5,080 (8)
7,980
20,200
15,789 (8) (31)
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
L.F. Manufacturing Holdings, LLC
(10)
December 23, 2013 Manufacturer of Fiberglass
Products
Preferred Member Units
(non-voting)
Member Units
2,179,001
14.00% PIK
93
2,019
2,112
93 (8) (19)
2,050
2,143
OnAsset Intelligence, Inc.
April 18, 2011
Provider of Transportation
Monitoring / Tracking
Products and Services
PCI Holding Company, Inc.
December 18, 2012 Manufacturer of Industrial
Gas Generating Systems
Rocaceia, LLC (Quality Lease and Rental
Holdings, LLC)
January 8, 2013
Provider of Rigsite
Accommodation Unit
Rentals and Related Services
Salado Stone Holdings, LLC
(10)
June 27, 2016
Limestone and Sandstone
Dimension Cut Stone
Mining Quarries
Slick Innovations, LLC
September 13, 2018 Text Message Marketing
Platform
SI East, LLC
August 31, 2018 Rigid Industrial Packaging
Manufacturing
Superior Rigging & Erecting Co.
August 31, 2020
Provider of Steel Erecting,
Crane Rental & Rigging
Services
UniTek Global Services, Inc.
(11)
April 15, 2011
Provider of Outsourced
Infrastructure Services
Secured Debt
Unsecured Debt
Preferred Stock
Warrants
12.00% PIK
10.00% PIK
912
5,333
6/30/2021
6/30/2021
4/18/2021
7,301
64
7,301
64
1,981
1,919
11,265
7,301 (19)
64 (19)
-
- (27)
7,365
Preferred Stock
1,500,000
3,927
4,130
Secured Debt
Preferred Member Units
250
12.00%
1/8/2018
30,369
29,865
2,500
32,365
- (14) (32)
-
-
Class A Preferred Units
2,000,000
2,000
1,250 (30)
Secured Debt
Common Stock
Warrants
70,000
18,084
13.00%
9/13/2023
5,720
9/13/2028
Secured Debt
Preferred Member Units
157
9.50%
8/31/2023
32,963
5,605
700
181
6,486
5,719
1,330
360 (27)
7,409
32,760
6,000
38,760
32,962
9,780 (8)
42,742
Secured Debt
Preferred Member Units
1,473
12.00%
8/31/2025
21,500
21,298
4,500
25,798
21,298
4,500
25,798
7.50% (L+6.50% Floor
1.00%)
20.00% PIK
20.00% PIK
19.00% PIK
13.50% PIK
1,133,102
1,521,122
2,281,682
4,336,866
945,507
8/20/2024
2,708
2,687
1,441
2,188
3,667
7,924
-
17,907
2,426 (9)
2,832 (8) (19)
375 (8) (19)
- (19)
- (19)
-
5,633
Secured Debt
Preferred Stock
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
94
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Universal Wellhead Services Holdings, LLC (10)
October 30, 2014 Provider of Wellhead
Volusion, LLC
January 26, 2015
Subtotal Affiliate Investments (24.2% of net
assets at fair value)
Equipment, Designs, and
Personnel to the Oil & Gas
Industry
Provider of Online Software-
as-a-Service eCommerce
Solutions
Preferred Member Units
Member Units
716,949
4,000,000
14.00% PIK
1,032
4,000
5,032
- (19) (30)
- (30)
-
Secured Debt
Unsecured Convertible
Debt
Preferred Member Units
Warrants
4,876,670
1,831,355
11.50%
1/26/2020
20,234
20,234
19,242 (17)
8.00%
11/16/2023
409
1/26/2025
409
14,000
2,576
37,219
291
5,990
- (27)
25,523
$ 416,479 $ 366,301
95
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
Non-Control/Non-Affiliate Investments
(7)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
Acousti Engineering Company of
Florida, Inc.
(10)
November 2, 2020 Interior Subcontractor
Providing Acoustical
Walls and Ceilings
Adams Publishing Group, LLC
(10)
November 19, 2015 Local Newspaper
ADS Tactical, Inc.
(10)
March 7, 2017
Operator
Value-Added Logistics
and Supply Chain
Provider to the Defense
Industry
Aethon United BR LP
(10)
September 8, 2017 Oil & Gas Exploration &
Affordable Care Holding Corp.
(10)
May 9, 2019
Production
Dental Support
Organization
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
10.00% (L+8.50%,
Floor 1.50%)
10/31/2025
13,000
12,858
12,858 (9)
8.75% (L+7.00%, Floor
1.75%)
7/3/2023
5,863
5,745
5,813 (9)
7.00% (L+6.25%, Floor
0.75%)
7/26/2023
19,633
19,529
19,633 (9)
7.75% (L+6.75%, Floor
1.00%)
9/8/2023
9,750
9,659
9,544 (9)
5.75% (L+4.75%, Floor
1.00%)
10/22/2022
14,246
14,066
14,044 (9)
ALKU, LLC.
(11)
October 18, 2019 Specialty National
Staffing Operator
Secured Debt
5.75% (L+5.50%)
7/29/2026
9,466
9,385
9,478
American Nuts, LLC
(10)
April 10, 2018
American Teleconferencing Services,
Ltd.
(11)
May 19, 2016
APTIM Corp.
(11)
August 17, 2018
Roaster, Mixer and
Packager of Bulk Nuts
and Seeds
Provider of Audio
Conferencing and Video
Collaboration Solutions
Engineering,
Construction &
Procurement
Arcus Hunting LLC
(10)
January 6, 2015 Manufacturer of
Bowhunting and Archery
Products and Accessories
Arrow International, Inc
(10)
December 21, 2020 Manufacturer and
ASC Ortho Management Company, LLC (10)
August 31, 2018
Distributor of Charitable
Gaming Supplies
Provider of Orthopedic
Services
Secured Debt
9.00% (L+8.00%, Floor
1.00%)
4/10/2023
12,130
11,954
12,111 (9)
Secured Debt
7.50% (L+6.50%, Floor
1.00%)
6/8/2023
17,358
16,634
8,071 (9)
Secured Debt
7.75%
6/15/2025
12,452
11,063
9,734
11.00% (L+10.00%,
Floor 1.00%)
3/31/2021
11,009
11,009
11,009 (9)
9.23% (L+7.98%, Floor
1.25%)
12/21/2025
10,000
9,901
9,901
(9) (23)
8.50% (L+7.50%, Floor
1.00%)
13.25% PIK
8/31/2023
12/1/2023
5,206
2,116
5,148
2,091
7,239
5,149 (9)
2,116 (19)
7,265
Secured Debt
Secured Debt
Secured Debt
Secured Debt
96
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
ATX Networks Corp.
(11) (13) (21)
June 30, 2015
Provider of Radio
Frequency Management
Equipment
Berry Aviation, Inc.
(10)
July 6, 2018
Charter Airline Services
BigName Commerce, LLC
(10)
May 11, 2017
Provider of Envelopes
and Complimentary
Stationery Products
Binswanger Enterprises, LLC
(10)
March 10, 2017 Glass Repair and
Installation Service
Provider
BLST Operating Company, LLC.
(11)
December 19, 2013 Multi-Channel Retailer
of General Merchandise
Brainworks Software, LLC
(10)
August 12, 2014 Advertising Sales and
Newspaper Circulation
Software
Brightwood Capital Fund Investments
(12) (13)
July 21, 2014
Investment Partnership
Cadence Aerospace LLC
(10)
November 14, 2017 Aerostructure
Manufacturing
Secured Debt
8.75% (7.25% Cash,
1.50% PIK) (1.50%
PIK + L+6.25%, Floor
1.00%)
12/31/2023
13,402
13,342
12,263 (9) (19)
Secured Debt
Preferred Member Units
Preferred Member Units
122,416
1,548,387
12.00% (10.50% Cash,
1.5% PIK)
16.00% PIK
8.00% PIK
1/6/2024
4,624
4,595
145
1,671
6,411
4,624 (19)
145 (8) (19) (30)
904 (19) (30)
5,673
Secured Debt
8.25% (L+7.25%, Floor
1.00%)
5/11/2022
2,044
2,037
2,011 (9)
Secured Debt
Member Units
1,050,000
9.50% (L+8.50%, Floor
1.00%)
3/9/2022
12,958
Secured Debt
Common Stock
Warrants
10.00% (L+8.50%,
Floor 1.50%)
8/28/2025
5,879
653
70
8/28/2030
12,798
1,050
13,848
12,958 (9)
670
13,628
5,879
-
-
5,879
5,879 (9)
-
- (27)
5,879
Secured Debt
12.50% (Prime+9.25%,
Floor 3.25%)
7/22/2019
7,817
7,817
5,332 (9) (14) (17)
LP Interests (Brightwood
Capital Fund III, LP)
LP Interests (Brightwood
Capital Fund IV, LP)
1.6%
0.6%
10,800
8,459 (8) (31)
5,000
15,800
4,745 (8) (31)
13,204
9.50% (4.25% Cash,
5.25% PIK) (5.25%
PIK + L+3.25%, Floor
1.00%)
11/14/2023
27,703
27,484
26,359 (9) (19)
Secured Debt
97
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
California Pizza Kitchen, Inc.
(11)
August 29, 2016 Casual Restaurant Group
Secured Debt
Secured Debt
Secured Debt
Common Stock
169,088
11.50% (L+10.00%,
Floor 1.50%)
13.50% (1.00% Cash,
12.50% PIK) (1.00%
Cash, L+11.00% PIK,
Floor 1.50%)
15.00% (1.00% Cash,
14.00% PIK) (1.00%
Cash + L+12.50% PIK,
Floor 1.50%)
11/23/2024
7,700
7,288
7,315 (9)
11/23/2024
2,657
2,590
2,524 (9) (19)
5/23/2025
2,291
2,291
949
13,118
1,833 (9) (19)
1,860
13,532
Secured Debt
Common Stock
329,084
7.00% (L+6.00%, Floor
1.00%)
10/16/2025
6,891
Secured Debt
Common Stock
177,130
10.50% (L+9.50%,
Floor 1.00%)
6/7/2023
5,250
6,891
1,481
8,372
5,823 (9)
1,645
7,468
5,129
5,309
10,438
4,909 (9)
2,613
7,522
Secured Debt
7.75% (L+6.25%, Floor
1.50%)
5/15/2026
3,571
3,498
3,274 (9)
Secured Debt
15.00% PIK
1/5/2015
2,832
2,832
31 (14) (17) (19)
Secured Debt
9.50% (L+8.50%, Floor
1.00%)
1/31/2025
7,850
7,750
7,850 (9)
Central Security Group, Inc.
(11)
December 4, 2017 Security Alarm
Monitoring Service
Provider
Cenveo Corporation
(11)
September 4, 2015 Provider of Digital
Marketing Agency
Services
Chisholm Energy Holdings, LLC
(10)
May 15, 2019
Oil & Gas Exploration &
Production
Clarius BIGS, LLC
(10)
September 23, 2014 Prints & Advertising
Film Financing
Clickbooth.com, LLC
(10)
December 5, 2017 Provider of Digital
Advertising Performance
Marketing Solutions
Construction Supply Investments, LLC (10)
December 29, 2016 Distribution Platform of
Specialty Construction
Materials to Professional
Concrete and Masonry
Contractors
Member Units
Copper Trail Fund Investments
(12) (13)
July 17, 2017
Investment Partnership
LP Interests (CTEF I, LP)
375
Corel Corporation
(11) (13) (21)
July 24, 2019
Publisher of Desktop and
Cloud-based Software
5,637
8,617
-
67
Darr Equipment LP
(10)
April 15, 2014
Heavy Equipment Dealer
Secured Debt
5.23% (L+5.00%)
7/2/2026
19,403
18,580
19,124
Secured Debt
Warrants
915,734
12.50% (11.50% Cash,
1.00% PIK)
6/22/2023
12/23/2023
5,959
5,959
474
6,433
5,959 (19)
- (29)
5,959
98
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
Digital River, Inc.
(11)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
February 24, 2015 Provider of Outsourced
e-Commerce Solutions
and Services
DTE Enterprises, LLC
(10)
April 13, 2018
Industrial Powertrain
Repair and Services
Dynamic Communities, LLC
(10)
July 17, 2018
Developer of Business
Events and Online
Community Groups
Eastern Wholesale Fence LLC
(10)
November 19, 2020 Manufacturer and
Distributor of Residential
and Commercial Fencing
Solutions
Echo US Holdings, LLC.
(10)
November 12, 2019 Developer and
Electronic Transaction Consultants, LLC (10)
July 24, 2020
Manufacturer of PVC
and Polypropylene
Materials
Technology Service
Provider for Toll Road
and Infrastructure
Operators
Secured Debt
8.00% (L+7.00%, Floor
1.00%)
2/12/2023
13,628
13,422
13,560 (9)
Secured Debt
Class AA Preferred
Member Units (non-
voting)
Class A Preferred
Member Units
776,316
10.00% (L+8.50%,
Floor 1.50%)
4/13/2023
9,324
9,213
9,004 (9)
10.00% PIK
951
951 (8) (19)
776
10,940
880
10,835
Secured Debt
12.50% (6.25% Cash,
6.25% PIK)
(L+11.50%, Floor
1.00%)
7/17/2023
5,320
5,256
4,921 (9) (19)
Secured Debt
7.50%, (L+6.50%,
Floor 1.00%)
10/30/2025
11,857
11,523
11,523 (9)
Secured Debt
7.88% (L+6.25%, Floor
1.63%)
10/25/2024
22,190
22,090
22,190 (9)
EnCap Energy Fund Investments
(12) (13)
December 28, 2010 Investment Partnership
Secured Debt
8.50% (L+7.50%, Floor
1.00%)
7/24/2025
10,000
9,829
9,829 (9)
LP Interests (EnCap
Energy Capital Fund VIII,
L.P.)
LP Interests (EnCap
Energy Capital Fund VIII
Co-
Investors, L.P.)
LP Interests (EnCap
Energy Capital Fund IX,
L.P.)
LP Interests (EnCap
Energy Capital Fund X,
L.P.)
LP Interests (EnCap
Flatrock Midstream Fund
II, L.P.)
LP Interests (EnCap
Flatrock Midstream Fund
III, L.P.)
0.1%
0.4%
0.1%
0.1%
0.8%
0.2%
Secured Debt
99
3,813
959 (31)
2,097
465 (31)
4,366
1,291 (8) (31)
8,720
6,426 (8) (31)
6,706
2,546 (8) (31)
6,982
32,684
5,793 (8) (31)
17,480
7.75% (L+6.75%, Floor
1.00%)
10/29/2025
9,000
8,932
8,297 (9)
Encino Acquisition Partners Holdings,
Inc.
(11)
November 16, 2018 Oil & Gas Exploration &
Production
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
EPIC Y-Grade Services, LP
(11)
June 22, 2018
Fortna, Inc.
(10)
July 23, 2019
NGL Transportation &
Storage
Process, Physical
Distribution and
Logistics Consulting
Services
Fuse, LLC
(11)
June 30, 2019
Cable Networks Operator
GeoStabilization International (GSI)
(11)
December 31, 2018 Geohazard Engineering
Services & Maintenance
GoWireless Holdings, Inc.
(11)
December 31, 2017 Provider of Wireless
Telecommunications
Carrier Services
Grupo Hima San Pablo, Inc.
(11)
March 7, 2013
Tertiary Care Hospitals
GS HVAM Intermediate, LLC
(10)
October 18, 2019 Specialized Food
Distributor
Gexpro Services
(10)
February 24, 2020 Distributor of Industrial
and Specialty Parts
HDC/HW Intermediate Holdings
(10)
December 21, 2018 Managed Services and
Hosting Provider
Heartland Dental, LLC
(10)
September 9, 2020 Dental Support
Organization
Hunter Defense Technologies, Inc.
(10)
March 29, 2018
Provider of Military and
Commercial Shelters and
Systems
HW Temps LLC
July 2, 2015
Temporary Staffing
Solutions
Hyperion Materials & Technologies, Inc. (11) (13)
September 12, 2019 Manufacturer of Cutting
and Machine Tools &
Specialty Polishing
Compounds
Secured Debt
7.00% (L+6.00%, Floor
1.00%)
6/30/2027
6,944
6,854
5,799 (9)
Secured Debt
5.15% (L+5.00%)
4/8/2025
7,673
7,553
7,486
Secured Debt
Common Stock
10,429
12.00%
6/28/2024
1,810
1,810
256
2,066
1,472
-
1,472
Secured Debt
5.40% (L+5.25%)
12/19/2025
11,224
11,137
11,196
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
7.50% (L+6.50%, Floor
1.00%)
12/22/2024
17,113
16,988
16,976 (9)
9.25% (L+7.00%, Floor
1.50%)
13.75%
4/30/2019
10/15/2018
4,504
2,055
4,504
2,040
6,544
3,375 (9) (17)
49 (17)
3,424
6.75% (L+5.75%, Floor
1.00%)
10/2/2024
11,053
10,952
11,007 (9)
8.00% (L+6.50%, Floor
1.50%)
2/24/2025
29,180
28,692
28,953 (9)
8.50% (L+7.50%, Floor
1.00%)
12/21/2023
3,474
3,429
3,351 (9)
7.50% (L+6.50%, Floor
1.00%)
4/30/2025
14,925
14,501
14,501 (9)
Secured Debt
8.00% (L+7.00%, Floor
1.00%)
3/29/2023
35,246
34,820
35,246 (9)
Secured Debt
12.00%
3/29/2023
9,801
9,698
8,994
Secured Debt
6.50% (L+5.50%, Floor
1.00%)
8/28/2026
22,275
21,894
20,813 (9)
100
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Ian, Evan & Alexander Corporation
(EverWatch)
(10)
July 31, 2020
Implus Footcare, LLC
(10)
June 1, 2017
Cybersecurity, Software
and Data Analytics
provider to the
Intelligence Community
Provider of Footwear
and Related Accessories
Secured Debt
Secured Debt
Independent Pet Partners Intermediate
Holdings, LLC
(10)
November 20, 2018 Omnichannel Retailer of
Specialty Pet Products
Secured Debt
Secured Debt
Preferred Stock (non-
voting)
Preferred Stock (non-
voting)
Member Units
1,558,333
9.50% (L+8.50%, Floor
1.00%)
7/31/2025
16,529
16,158
16,158 (9)
8.75% (L+7.75%, Floor
1.00%)
4/30/2024
18,890
18,566
17,172 (9)
6.31% PIK (L+6.00%
PIK)
6.00% PIK
12/22/2022
11/20/2023
6,111
16,670
6,111
15,086
6,111 (19)
15,086 (19)
3,235
3,235
-
1,558
25,990
-
-
24,432
Industrial Services Acquisition, LLC
(10)
June 17, 2016
Industrial Cleaning
Services
Inn of the Mountain Gods Resort and
Casino
(11)
October 30, 2013 Hotel & Casino Owner &
Operator
Interface Security Systems, L.L.C
(10)
August 7, 2019
Commercial Security &
Alarm Services
Intermedia Holdings, Inc.
(11)
August 3, 2018
Unified Communications
as a Service
Invincible Boat Company, LLC.
(10)
August 28, 2019 Manufacturer of Sport
Isagenix International, LLC
(11)
June 21, 2018
Jackmont Hospitality, Inc.
(10)
May 26, 2015
Fishing Boats
Direct Marketer of
Health & Wellness
Products
Franchisee of Casual
Dining Restaurants
Unsecured Debt
Preferred Member Units
Preferred Member Units
Member Units
13.00% (6.00% Cash,
7.00% PIK)
10.00% PIK
20.00% PIK
144
80
900
12/17/2022
5,624
5,579
112
71
900
6,662
5,624 (19)
112 (8) (19) (30)
71 (8) (19) (30)
530 (30)
6,337
Secured Debt
9.25%
11/30/2023
6,677
6,677
6,677
11.75% (8.75% Cash,
3.00% PIK) (3.00%
PIK + L+7.00%, Floor
1.75%)
8/7/2023
7,245
7,145
7,245 (9) (19)
7.00% (L+6.00%, Floor
1.00%)
7/19/2025
20,839
20,755
20,823 (9)
8.00% (L+6.50%, Floor
1.50%)
8/28/2025
8,876
8,793
8,876 (9)
6.75% (L+5.75%, Floor
1.00%)
6/14/2025
5,572
5,541
3,130 (9)
7.75% (L+6.75%, Floor
1.00%)
5/26/2021
3,954
3,953
3,157 (9)
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
101
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Joerns Healthcare, LLC
(11)
April 3, 2013
Manufacturer and
Distributor of Health
Care Equipment &
Supplies
Kemp Technologies Inc.
(10)
June 27, 2019
Provider of Application
Delivery Controllers
Klein Hersh, LLC
(10)
November 13, 2020 Executive and C-Suite
Placement for the Life
Sciences and Healthcare
Industries
Kore Wireless Group Inc.
(11)
December 31, 2018 Mission Critical
Software Platform
Larchmont Resources, LLC
(11)
August 13, 2013 Oil & Gas Exploration &
Production
Laredo Energy VI, LP
(10)
January 15, 2019 Oil & Gas Exploration &
Lightbox Holdings, L.P.
(11)
May 23, 2019
Production
Provider of Commercial
Real Estate Software
LKCM Headwater Investments I, L.P.
(12) (13)
January 25, 2013
Investment Partnership
LL Management, Inc.
(10)
May 2, 2019
Medical Transportation
Service Provider
Logix Acquisition Company, LLC
(10)
June 24, 2016
Looking Glass Investments, LLC
(12) (13)
July 1, 2015
LSF9 Atlantis Holdings, LLC
(11)
May 17, 2017
Competitive Local
Exchange Carrier
Specialty Consumer
Finance
Provider of Wireless
Telecommunications
Carrier Services
Secured Debt
Common Stock
472,579
7.00% (L+6.00%, Floor
1.00%)
8/21/2024
4,016
Secured Debt
Common Stock
1,000,000
7.50% (L+6.50%, Floor
1.00%)
3/29/2024
17,387
3,955
4,429
8,384
4,016 (9)
2,795
6,811
17,088
1,550
18,638
17,387 (9)
1,550
18,937
Secured Debt
8.75% (L+8.00%, Floor
0.75%)
11/13/2025
35,000
34,098
34,098 (9)
Secured Debt
5.75% (L+5.50%)
12/20/2024
19,090
19,003
18,828
Secured Debt
Member Units
2,828
11.00% PIK
(L+10.00% PIK, Floor
1.00%)
8/9/2021
2,185
2,185
353
2,538
983 (9) (19)
113 (30)
1,096
Member Units
1,155,952
11,560
10,238
Secured Debt
5.15% (L+5.00%)
5/9/2026
14,813
14,623
14,368
LP Interests
2.3%
1,746
3,524 (31)
Secured Debt
Secured Debt
8.25% (L+7.25%, Floor
1.00%)
9/25/2023
16,504
16,337
16,504 (9)
6.75% (L+5.75%, Floor
1.00%)
12/22/2024
26,131
24,550
24,171 (9)
Member Units
3
125
25
Secured Debt
7.00% (L+6.00%, Floor
1.00%)
5/1/2023
9,206
9,206
9,177 (9)
102
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
Lulu's Fashion Lounge, LLC
(10)
August 31, 2017
Fast Fashion E-
Commerce Retailer
Secured Debt
10.50% (8.00% Cash,
2.50% PIK) (2.50%
PIK + L+7.00%, Floor
1.00%)
8/28/2022
11,152
10,983
9,535 (9) (19)
Lynx FBO Operating LLC
(10)
September 30, 2019 Fixed Based Operator in
the General Aviation
Industry
Mac Lean-Fogg Company
(10)
April 22, 2019 Manufacturer and
MHVC Acquisition Corp.
(11)
May 8, 2017
Supplier for Auto and
Power Markets
Provider of
Differentiated
Information Solutions,
Systems Engineering,
and Analytics
Secured Debt
Member Units
4,872
7.25% (L+5.75%, Floor
1.50%)
9/30/2024
13,613
13,369
687
14,056
13,521 (9)
780
14,301
Secured Debt
Preferred Stock
5.63% (L+5.00%, Floor
0.625%)
13.75% (4.50% Cash,
9.25% PIK)
12/22/2025
17,251
17,149
17,251 (9)
1,870
1,870
19,019
1,841 (8) (19)
19,092
Secured Debt
6.25% (L+5.25%, Floor
1.00%)
4/29/2024
19,797
19,716
19,846 (9)
Mills Fleet Farm Group, LLC
(10)
October 24, 2018 Omnichannel Retailer of
Work, Farm and
Lifestyle Merchandise
NBG Acquisition Inc
(11)
April 28, 2017 Wholesaler of Home
Décor Products
NinjaTrader, LLC
(10)
December 18, 2019 Operator of Futures
Trading Platform
NNE Partners, LLC
(10)
March 2, 2017
Oil & Gas Exploration &
Production
Secured Debt
Secured Debt
Secured Debt
Secured Debt
7.00% (L+6.00%, Floor
1.00%)
10/24/2024
13,860
13,595
13,609 (9)
6.50% (L+5.50%, Floor
1.00%)
4/26/2024
4,070
4,034
3,399 (9)
8.25% (L+6.75%, Floor
1.50%)
12/18/2024
16,875
16,543
16,849 (9)
9.48% (4.75% Cash,
4.50% PIK) (4.50%
PIK + L+4.75%)
12/31/2023
23,683
23,572
21,025 (19)
Project Eagle Holdings, LLC
(10)
July 6, 2020
Novetta Solutions, LLC
(11)
June 21, 2017
Provider of Secure
Business Collaboration
Software
Provider of Advanced
Analytics Solutions for
Defense Agencies
Secured Debt
9.25% (L+8.25%, Floor
1.00%)
7/6/2026
14,963
14,583
14,583 (9)
Secured Debt
6.00% (L+5.00%, Floor
1.00%)
10/17/2022
22,912
22,629
22,864 (9)
103
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
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)
NTM Acquisition Corp.
(11)
July 12, 2016
Provider of B2B Travel
Information Content
Ospemifene Royalty Sub LLC (QuatRx)
(10)
July 8, 2013
Secured Debt
Estrogen-Deficiency
Drug Manufacturer and
Distributor
8.25% (7.25% Cash,
1.00% PIK) (1.00%PIK
+ L+6.25%, Floor
1.00%)
6/7/2024
4,694
4,694
4,224 (9) (19)
PaySimple, Inc.
(10)
September 9, 2019 Leading Technology
Services Commerce
Platform
PricewaterhouseCoopers Public Sector
LLP
(11)
May 24, 2018
Provider of Consulting
Services to Governments
PT Network, LLC
(10)
November 1, 2013 Provider of Outpatient
Physical Therapy and
Sports Medicine Services
Research Now Group, Inc. and Survey
Sampling International, LLC
(11)
December 31, 2017 Provider of Outsourced
Online Surveying
RM Bidder, LLC
(10)
November 12, 2015 Scripted and Unscripted
TV and Digital
Programming Provider
RTIC Subsidiary Holdings, LLC
(10)
September 1, 2020 Direct-To-Consumer
SAFETY Investment Holdings, LLC
April 29, 2016
Salient Partners L.P.
(11)
June 25, 2015
eCommerce Provider of
Outdoor Products
Provider of Intelligent
Driver Record
Monitoring Software and
Services
Provider of Asset
Management Services
Staples Canada ULC
(10) (13) (21) September 14, 2017 Office Supplies Retailer
TEAM Public Choices, LLC
(10)
October 28, 2019 Home-Based Care
Employment Service
Provider
Secured Debt
11.50%
11/15/2026
4,765
4,765
121 (14)
Secured Debt
5.65% (L+5.50%)
8/23/2025
24,448
24,225
23,959
Secured Debt
8.15% (L+8.00%)
5/1/2026
9,000
8,969
9,000
Secured Debt
Secured Debt
8.73% (6.73% Cash,
2.00% PIK) (2.00%
PIK + L+5.50%, Floor
1.00%)
11/30/2023
8,601
8,601
8,601 (9) (19)
6.50% (L+5.50%, Floor
1.00%)
12/20/2024
17,930
17,497
17,715 (9)
Warrants
Member Units
187,161
2,779
10/20/2025
425
46
471
- (26)
26
26
Secured Debt
9.00% (L+7.75%, Floor
1.25%)
9/1/2025
17,260
17,026
17,026 (9)
Member Units
2,000,000
2,000
2,350
Secured Debt
Secured Debt
7.00% (L+6.00%, Floor
1.00%)
8/31/2021
6,450
6,443
4,542 (9)
8.00% (L+7.00%, Floor
1.00%)
9/12/2024
13,032
12,896
12,382 (9) (22)
Secured Debt
6.00% (L+5.00%, Floor
1.00%)
12/18/2027
12,500
12,126
12,406 (9)
104
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
Portfolio Company (1) (20)
Tectonic Financial, Inc.
Investment
Date (24)
May 15, 2017
Business
Description
Financial Services
Organization
TGP Holdings III LLC
(11)
September 30, 2017 Outdoor Cooking &
Accessories
The Pasha Group
(11)
February 2, 2018 Diversified Logistics and
Transportation Provided
USA DeBusk LLC
(10)
October 22, 2019 Provider of Industrial
Cleaning Services
U.S. TelePacific Corp.
(11)
September 14, 2016 Provider of
Communications and
Managed Services
Veregy Consolidated, Inc.
(11)
November 9, 2020 Energy Service Company
Vida Capital, Inc
(11)
October 10, 2019 Alternative Asset
Manager
Vistar Media, Inc.
(10)
February 17, 2017 Operator of Digital Out-
of-Home Advertising
Platform
YS Garments, LLC
(11)
August 22, 2018 Designer and Provider of
Zilliant Incorporated
June 15, 2012
Branded Activewear
Price Optimization and
Margin Management
Solutions
Type of
Investment (2) (3) (15) Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
Common Stock
200,000
2,000
2,800
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
9.50% (L+8.50%, Floor
1.00%)
9/25/2025
5,500
5,448
5,307 (9)
9.00% (L+8.00%, Floor
1.00%)
1/26/2023
10,162
9,585
9,323 (9)
6.75% (L+5.75%, Floor
1.00%)
10/22/2024
24,948
24,561
24,591 (9)
6.50% (L+5.50%, Floor
1.00%)
7.00% (L+6.00%, Floor
1.00%)
5/2/2023
17,088
16,913
15,486 (9)
11/3/2027
15,000
14,587
14,888 (9)
Secured Debt
6.15% (L+6.00%)
10/1/2026
17,853
17,626
17,272
12.00% (8.50% Cash,
3.50% PIK) (3.50%
PIK + L+7.50%, Floor
1.00%)
Secured Debt
Preferred Stock
Warrants
70,207
69,675
4/3/2023
4,636
4/3/2029
4,513
767
-
5,280
4,636 (9) (19)
910
920 (25)
6,466
Secured Debt
7.00% (L+6.00%, Floor
1.00%)
8/9/2024
13,997
13,902
12,911 (9)
Subtotal Non-Control/Non-Affiliate
Investments (79.5% of net assets at fair
value)
Total Portfolio Investments, December
31, 2020 (177.2% of net assets at fair
value)
Preferred Stock
Warrants
186,777
952,500
6/15/2022
154
1,071
1,225
260
1,190 (28)
1,450
1,268,740
1,204,840
$ 2,516,709 $ 2,684,866
105
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note B for a description of Lower
Middle Market portfolio investments. All of the Company’s investments, unless otherwise noted, are encumbered either as
security for the Company’s Credit Facility or in support of the SBA-guaranteed debentures issued by the Funds.
Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless
otherwise noted.
See Note C and Schedule 12-14 for a summary of geographic location of portfolio companies.
Principal is net of repayments. Cost is net of repayments and accumulated unearned income.
Control investments are defined by the Investment Company Act of 1940, as amended ("1940 Act"), as investments in which
more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is
maintained.
Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% (inclusive) of the voting
securities are owned and the investments are not classified as Control investments.
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor
Affiliate investments.
Income producing through dividends or distributions.
Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the
Company’s investment portfolio bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base
Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly
at the borrower’s option. The borrower may also elect to have multiple interest reset periods for each loan. For each such loan,
the Company has provided the weighted average annual stated interest rate in effect at December 31, 2020. As noted in this
schedule, 61% of the loans (based on the par amount) contain LIBOR floors which range between 0.50% and 2.00%, with a
weighted-average LIBOR floor of approximately 1.11%.
Private Loan portfolio investment. See Note B for a description of Private Loan portfolio investments.
Middle Market portfolio investment. See Note B for a description of Middle Market portfolio investments.
Other Portfolio investment. See Note B for a description of Other Portfolio investments.
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70%
of total assets at the time of acquisition of any additional non-qualifying assets.
Non-accrual and non-income producing investment.
All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities.”
External Investment Manager. Investment is not encumbered as security for the Company's Credit Facility or in support of the
SBA-guaranteed debentures issued by the Funds.
Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C for further
discussion.
PIK interest income and cumulative dividend income represent income not paid currently in cash.
All portfolio company headquarters are based in the United States, unless otherwise noted.
Portfolio company headquarters are located outside of the United States.
In connection with the Company's debt investment in Staples Canada ULC and in an attempt to mitigate any potential adverse
change in foreign exchange rates during the term of the Company's investment, the Company maintains a forward foreign
currency contract with Cadence Bank to lend $15.8 million Canadian Dollars and receive $12.0 million U.S. Dollars with a
settlement date of September 14, 2021. The unrealized appreciation on the forward foreign currency contract is $0.4 million as of
December 31, 2020.
106
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2020
(dollars in thousands)
(23)
(24)
(25)
(26)
(27)
(28)
(29)
(30)
(31)
(32)
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien
secured loans, whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of
principal, interest, and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the
contractual stated interest rate of LIBOR plus 7.25% (Floor 1.25%) per the credit agreement and the Consolidated Schedule of
Investments above reflects such higher rate.
Investment date represents the date of initial investment in the portfolio company.
Warrants are presented in equivalent shares with a strike price of $10.92 per share.
Warrants are presented in equivalent units with a strike price of $14.28 per unit.
Warrants are presented in equivalent shares/units with a strike price of $0.01 per share/unit.
Warrants are presented in equivalent shares with a strike price of $0.001 per share.
Warrants are presented in equivalent units with a strike price of $1.50 per unit.
Shares/Units represent ownership in an underlying Real Estate or HoldCo entity.
Investment is not unitized. Presentation is made in percent of fully diluted ownership unless otherwise indicated.
Portfolio company is in a bankruptcy process and, as such, the maturity date of our debt investment in this portfolio company will
not be finally determined until such process is complete. As noted in footnote (14), our debt investment in this portfolio
company is on non-accrual status.
107
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments
December 31, 2019
(dollars in thousands)
Portfolio Company (1) (20)
Control Investments(5)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15)
Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
Access Media Holdings, LLC
(10)
7/22/2015 Private Cable Operator
Secured Debt
Preferred Member Units
Member Units
9,481,500
45
10.00% PIK
7/22/2020
23,828
23,828
9,375
1
33,204
6,387 (14) (19)
(284)(27)
-
6,103
ASC Interests, LLC
8/1/2013 Recreational and
Educational Shooting
Facility
Secured Debt
Member Units
Analytical Systems Keco, LLC
8/16/2019 Manufacturer of Liquid and
Gas Analyzers
Secured Debt
Preferred Member Units
Warrants
11.00%
7/31/2020
1,650
12.13% (L+10.00%, Floor
2.00%)
8/16/2024
5,565
8/16/2029
1,500
3,200
420
ATS Workholding, LLC
(10)
3/10/2014 Manufacturer of Machine
Cutting Tools and
Accessories
Secured Debt
Preferred Member Units
3,725,862
5.00%
11/16/2021
4,919
Bond-Coat, Inc.
12/28/2012 Casing and Tubing
Coating Services
Secured Debt
Common Stock
57,508
15.00%
12/28/2020
11,596
Brewer Crane Holdings, LLC
1/9/2018
Provider of Crane Rental
and Operating Services
Secured Debt
Preferred Member Units
2,950
11.71% (L+10.00%, Floor
1.00%)
1/9/2023
9,052
1,639
1,500
3,139
5,210
3,200
316
8,726
4,666
3,726
8,392
1,639
1,290
2,929
5,210 (9)
3,200
316 (29)
8,726
4,521
939
5,460
11,473
6,350
17,823
11,473
8,300
19,773
8,989
4,280
13,269
8,989 (9)
4,280 (8)
13,269
Bridge Capital Solutions Corporation
4/18/2012 Financial Services
and Cash Flow
Solutions Provider
Café Brazil, LLC
4/20/2004 Casual Restaurant
Group
California Splendor Holdings LLC
3/30/2018 Processor of Frozen Fruits
Secured Debt
Warrants
Secured Debt
Preferred Member Units
82
17,742
13.00%
13.00%
12/11/2024
7/25/2026
12/11/2024
8,813
1,000
7,797
2,132
996
1,000
11,925
7,797
3,500 (29)
996 (34)
1,000 (8) (34)
13,293
Member Units
1,233
1,742
2,440 (8)
Secured Debt
Secured Debt
Preferred Member Units
Preferred Member Units
6,725
6,157
10.13% (L+8.00%, Floor
1.00%)
12.13% (L+10.00%, Floor
1.00%)
3/30/2023
7,229
7,104
7,104 (9)
3/30/2023
28,000
27,801
7,163
10,775
52,843
27,801 (9)
7,163 (8)
7,382 (8)
49,450
108
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
CBT Nuggets, LLC ("CBT")
6/1/2006
Centre Technologies Holdings, LLC
1/4/2019
Produces and Sells IT
Training Certification
Videos
Provider of IT Hardware
Services and Software
Solutions
Chamberlin Holding LLC
2/26/2018 Roofing and Waterproofing
Specialty Contractor
Charps, LLC
2/3/2017
Pipeline Maintenance
and Construction
Clad-Rex Steel, LLC
12/20/2016 Specialty Manufacturer
of Vinyl-Clad Metal
CMS Minerals Investments
1/30/2015 Oil & Gas
Exploration
& Production
CompareNetworks Topco, LLC
1/29/2019 Internet Publishing and Web
Search Portals
Copper Trail Fund Investments
(12) (13)
7/17/2017 Investment Partnership
Datacom, LLC
5/30/2014 Technology and
Telecommunications
Provider
Digital Products Holdings LLC
4/1/2018 Designer and Distributor
of Consumer Electronics
Member Units
416
1,300
50,850 (8)
Secured Debt
Preferred Member Units
12,696
10.75% (L+9.00%, Floor
2.00%)
1/4/2024
12,240
Secured Debt
Member Units
Member Units
4,347
1,047,146
12.00% (L+10.00%, Floor
1.00%)
2/26/2023
17,773
Secured Debt
Preferred Member Units
1,600
15.00%
6/5/2022
2,000
Secured Debt
Member Units
Secured Debt
Member Units
10.71% (L+9.00%, Floor
1.00%)
12/20/2021
10,880
10.00%
12/20/2036
1,137
717
800
12,136
5,840
17,976
12,136 (9)
5,840
17,976
17,649
11,440
1,047
30,136
17,773 (9)
24,040 (8)
1,450 (8) (34)
43,263
2,000
400
2,400
2,000
6,920 (8)
8,920
10,830
7,280
1,126
210
19,446
10,781 (9)
9,630 (8)
1,137 (34)
460 (34)
22,008
Member Units
100
2,386
1,900 (8) (34)
Secured Debt
Preferred Member Units
1,975
12.75% (L+11.00%, Floor
1.00%)
1/29/2024
8,364
8,288
1,975
10,263
8,288 (9)
3,010
11,298
LP Interests
38.8%
872
872 (35) (36)
Secured Debt
Secured Debt
Class A Preferred
Member Units
Class B Preferred Member
Units
6,453
8.00%
10.50% PIK
5/31/2021
5/31/2021
1,800
12,507
Secured Debt
Preferred Member Units
3,857
11.75% (L+10.00%, Floor
1.00%)
4/1/2023
19,620
1,800
12,475
1,294
6,030
21,599
1,615 (14)
10,142 (14) (19)
-
-
11,757
19,478
9,501
28,979
18,452 (9)
5,174 (8)
23,626
109
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15)
Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
2/13/2018 Provider of Omni-Channel
Direct Marketing Services
Secured Debt
Preferred Stock
8,400
12.75% (L+11.00%, Floor
1.00%)
2/13/2023
15,717
Portfolio Company (1) (20)
Direct Marketing Solutions, Inc.
Gamber-Johnson Holdings, LLC ("GJH")
6/24/2016 Manufacturer of
Ruggedized Computer
Mounting Systems
Garreco, LLC
7/15/2013 Manufacturer and
Supplier of Dental
Products
GRT Rubber Technologies LLC ("GRT")
12/19/2014 Manufacturer of
Engineered Rubber
Products
Guerdon Modular Holdings, Inc.
8/13/2014 Multi-Family and
Commercial Modular
Construction Company
Gulf Manufacturing, LLC
8/31/2007 Manufacturer of
Specialty Fabricated
Industrial Piping
Products
Gulf Publishing Holdings, LLC
4/29/2016 Energy Industry Focused
Media and Publishing
Harborside Holdings, LLC
3/20/2017 Real Estate Holding
Company
Harris Preston Fund Investments
(12) (13)
10/1/2017 Investment Partnership
Harrison Hydra-Gen, Ltd.
6/4/2010 Manufacturer of
Hydraulic Generators
Secured Debt
Member Units
8,619
8.50% (L+6.50%, Floor
2.00%)
6/24/2021
19,022
Secured Debt
Member Units
Secured Debt
Member Units
1,200
5,879
9.50% (L+8.00%, Floor
1.00%, Ceiling 1.50%)
3/31/2020
4,519
8.71% (L+7.00%)
12/31/2023
15,016
15,597
8,400
23,997
15,707 (9)
20,200
35,907
18,949
14,844
33,793
19,022 (9)
53,410 (8)
72,432
4,515
1,200
5,715
4,515 (9)
2,560
7,075
15,016
13,065
28,081
15,016
47,450
62,466
Secured Debt
Secured Debt
Preferred Stock
Common Stock
Warrants
404,998
212,033
6,208,877
10.60% (L+8.50%, Floor
1.00%)
16.00%
10/1/2019
10/1/2019
1,010
12,588
4/25/2028
1,010
12,588
1,140
2,983
-
17,721
- (9) (14) (17)
- (14) (17)
-
-
- (30)
-
Member Units
438
2,980
7,430 (8)
11.21% (L+9.50%, Floor
1.00%)
12.50%
9/30/2020
4/29/2021
280
12,535
Secured Debt
Secured Debt
Member Units
Member units
LP Interests
3,681
100
49.3%
280
12,493
3,681
16,454
280 (9)
12,493
2,420
15,193
6,506
9,560
2,735
3,157 (35) (36)
Common Stock
107,456
718
7,970 (8)
110
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
IDX Broker, LLC
11/15/2013 Provider of Marketing
and CRM Tools for
the Real Estate
Industry
Jensen Jewelers of Idaho, LLC
11/14/2006 Retail Jewelry Store
J&J Services, Inc.
10/31/2019 Provider of Dumpster and
Portable Toilet Rental
Services
KBK Industries, LLC
1/23/2006 Manufacturer of Specialty
Oilfield and Industrial
Products
Kickhaefer Manufacturing Company, LLC
10/31/2018 Precision Metal Parts
Manufacturing
Market Force Information, LLC
7/28/2017 Provider of Customer
Experience Management
Services
MH Corbin Holding LLC
8/31/2015 Manufacturer and
Distributor of Traffic
Safety Products
Mid-Columbia Lumber Products, LLC
12/18/2006 Manufacturer of
Finger-Jointed
Lumber Products
Secured Debt
Preferred Member Units
5,607
11.50%
11/15/2020
13,400
11.50% (Prime+6.75%,
Floor 2.00%)
11/14/2023
4,000
13,358
5,952
19,310
13,400
15,040 (8)
28,440
3,960
811
4,771
4,000 (9)
8,270 (8)
12,270
Secured Debt
Member Units
Secured Debt
Preferred Stock
Member Units
Secured Debt
Member Units
Secured Debt
Member Units
627
2,814
325
581
800
11.50%
10/31/2024
17,600
17,430
7,160
24,590
17,430
7,160
24,590
11.50%
10/31/2023
25,200
9.00%
10/31/2048
3,978
783
15,470 (8)
24,982
12,240
3,939
992
42,153
24,982
12,240
3,939
1,160 (8) (34)
42,321
Secured Debt
Secured Debt
Member Units
8.00%
12.00% (6.00% Current,
6.00% PIK)
743,921
7/28/2022
2,786
2,786
2,695
7/28/2022
23,292
23,157
16,642
42,585
22,621 (19)
5,280
30,596
Secured Debt
Preferred Member Units
Preferred Member Units
66,000
4,000
10.00% (5.00% Current,
5.00% PIK)
3/31/2022
8,890
Secured Debt
Secured Debt
Member Units
Secured Debt
Member Units
10.00%
12.00%
9.50%
1/15/2020
1/15/2020
5/13/2025
1,750
3,900
701
7,874
500
8,815
4,400
6,000
19,215
1,750
3,898
3,239
701
790
10,378
8,890 (19)
4,770
20
13,680
1,602
3,644
-
701 (34)
1,640 (8) (34)
7,587
MSC Adviser I, LLC
(16)
11/22/2013 Third Party Investment
Advisory Services
Member Units
1
-
74,520 (8) (35)
111
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Mystic Logistics Holdings, LLC
8/18/2014 Logistics and Distribution
Services Provider for
Large Volume Mailers
NAPCO Precast, LLC
NexRev LLC
1/31/2008 Precast Concrete
Manufacturing
2/28/2018 Provider of Energy
Efficiency Products &
Services
NRI Clinical Research, LLC
9/8/2011 Clinical Research
Service Provider
NRP Jones, LLC
NuStep, LLC
12/22/2011 Manufacturer of
Hoses, Fittings and
Assemblies
1/31/2017 Designer, Manufacturer
and Distributor of Fitness
Equipment
OMi Holdings, Inc.
4/1/2008 Manufacturer of
Overhead Cranes
Pegasus Research Group, LLC
1/6/2011
Provider of
Telemarketing
and Data Services
PPL RVs, Inc.
6/10/2010 Recreational Vehicle
Dealer
Principle Environmental, LLC
(d/b/a TruHorizon
Environmental Solutions)
2/1/2011 Noise Abatement
Service Provider
Quality Lease Service, LLC
6/8/2015
Provider of Rigsite
Accommodation Unit
Rentals and Related
Services
Secured Debt (Maturity -
Common Stock
5,873
12.00%
8/15/2019
6,253
6,253
2,720
8,973
6,253 (17)
8,410 (8)
14,663
Member Units
2,955
2,975
14,760 (8)
Secured Debt
Preferred Member Units
86,400,000
11.00%
2/28/2023
17,586
Secured Debt
Warrants
Member Units
251,723
1,454,167
14.00%
6/8/2022
6/8/2027
5,981
Secured Debt
Member Units
65,962
12.00%
3/20/2023
6,376
Secured Debt
Preferred Member Units
406
12.00%
1/31/2022
19,800
17,469
6,880
24,349
17,469
6,310 (8)
23,779
5,885
252
765
6,902
5,981
1,230 (29)
4,988 (8)
12,199
6,376
3,717
10,093
6,376
4,710 (8)
11,086
19,703
10,200
29,903
19,703
10,200
29,903
Common Stock
1,500
1,080
16,950 (8)
Member Units
460
1,290
8,170
Secured Debt
Common Stock
1,962
10.85% (L+8.75%, Floor
0.50%)
11/15/2022
12,245
Secured Debt
Preferred Member Units
Warrants
19,631
1,018
13.00%
4/30/2020
6,397
1/31/2021
12,118
2,150
14,268
12,118 (9)
9,930
22,048
6,379
4,600
1,200
12,179
6,397
13,390 (8)
1,090 (29)
20,877
Member Units
1,000
11,013
9,289
112
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
Portfolio Company (1) (20)
River Aggregates, LLC
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15)
Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
3/30/2011 Processor of Construction
Aggregates
Tedder Industries, LLC
8/31/2018 Manufacturer of Firearm
Holsters and Accessories
The MPI Group, LLC
10/2/2007 Manufacturer of
Custom Hollow
Metal Doors, Frames
and Accessories
Trantech Radiator Topco, LLC
5/31/2019 Transformer Cooling
Products and Services
Vision Interests, Inc.
6/5/2007 Manufacturer / Installer
of Commercial Signage
Ziegler's NYPD, LLC
10/1/2008 Casual Restaurant
Group
Subtotal Control Investments (67.2% of net
assets at fair value)
Zero Coupon Secured
Debt
Member Units
Member Units
Secured Debt
Secured Debt
Preferred Member Units
Secured Debt
Series A Preferred Units
Warrants
Member Units
Secured Debt
Common Stock
1,150
1,500
479
2,500
1,424
100
615
6/30/2018
750
12.00%
12.00%
8/31/2020
8/31/2023
640
16,400
9.00%
12/31/2019
2,924
7/1/2024
750
1,150
369
2,269
640
16,272
8,136
25,048
2,924
2,500
1,096
2,300
8,820
722 (17)
4,990
3,169 (34)
8,881
640
16,272
8,136
25,048
2,924 (17)
-
- (29)
1,640 (8) (34)
4,564
12.00%
5/31/2024
9,200
9,102
4,655
13,757
9,102
4,655 (8)
13,757
Secured Debt
Series A Preferred Stock
Common Stock
3,000,000
1,126,242
13.00%
9/30/2019
2,028
Secured Debt
Secured Debt
Secured Debt
Warrants
Preferred Member Units
587
10,072
6.50%
12.00%
14.00%
10/1/2020
10/1/2020
10/1/2020
10/1/2020
1,000
625
2,750
2,028
3,000
3,706
8,734
1,000
625
2,750
600
2,834
7,809
2,028 (17)
4,089
409
6,526
1,000
625
2,750
- (29)
1,269
5,644
$
778,367 $ 1,032,721
113
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
Portfolio Company (1) (20)
Affiliate Investments (6)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15)
Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
AFG Capital Group, LLC
11/7/2014 Provider of Rent-to-Own
American Trailer Rental Group LLC
6/7/2017
Financing Solutions and
Services
Provider of Short-term
Trailer and Container
Rental
BBB Tank Services, LLC
4/8/2016 Maintenance, Repair and
Construction Services to
the Above-Ground
Storage Tank Market
Boccella Precast Products LLC
6/30/2017 Manufacturer of Precast
Hollow Core Concrete
Buca C, LLC
6/30/2015 Casual Restaurant
Group
CAI Software LLC
10/10/2014 Provider of Specialized
Enterprise Resource
Planning Software
Chandler Signs Holdings, LLC
(10)
1/4/2016
Sign Manufacturer
Charlotte Russe, Inc
(11)
5/28/2013 Fast-Fashion Retailer to
Young Women
Congruent Credit Opportunities
Funds
(12) (13)
1/24/2012 Investment Partnership
Copper Trail Fund Investments
(12) (13)
7/17/2017 Investment Partnership
Dos Rios Partners
(12) (13)
4/25/2013 Investment Partnership
Secured Debt
Preferred Member Units
186
10.00%
5/25/2022
838
838
1,200
2,038
838
5,180
6,018
Secured Debt
Member Units
48,555
9.34% (L+7.25%, Floor
1.00%)
6/7/2022
27,087
26,905
4,855
31,760
27,087 (9)
8,540 (34)
35,627
Secured Debt
Preferred Stock (non-
voting)
Member Units
800,000
12.71% (L+11.00%, Floor
1.00%)
4/8/2021
4,800
Secured Debt
Member Units
2,160,000
14.10% (L+12.00%, Floor
1.00%)
6/30/2022
13,244
4,698
131
800
5,629
4,698 (9)
131 (8)
290
5,119
13,106
2,256
15,362
13,244 (9)
6,270 (8)
19,514
Secured Debt
Preferred Member Units
10.94% (L+9.25%, Floor
1.00%)
6.00% PIK
6
6/30/2020
19,004
18,981
4,701
23,682
18,794 (9)
4,701 (8) (19)
23,495
Secured Debt
Member Units
66,968
11.00%
12/7/2023
9,160
9,077
751
9,828
9,160
5,210 (8)
14,370
Class A Units
1,500,000
1,500
2,740 (8)
Common Stock
19,041
3,141
-
LP Interests
LP Interests
LP Interests
LP Interests
LP Interests
19.8%
17.4%
12.4%
20.2%
6.4%
114
5,210
13,601
18,811
855 (35) (36)
13,915 (8) (35) (36)
14,770
1,997
2,362 (8) (35) (36)
5,846
1,856
7,702
7,033 (35) (36)
2,233 (35) (36)
9,266
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
East Teak Fine Hardwoods, Inc.
4/13/2006 Distributor of
Hardwood Products
EIG Fund Investments
(12) (13)
11/6/2015 Investment Partnership
Freeport Financial Funds
(12) (13)
6/13/2013 Investment Partnership
Fuse, LLC
(11)
6/30/2019 Cable Networks Operator
Harris Preston Fund Investments
(12) (13)
8/9/2017
Investment Partnership
Hawk Ridge Systems, LLC (13)
12/2/2016 Value-Added Reseller of
Engineering Design and
Manufacturing Solutions
Houston Plating and Coatings, LLC
1/8/2003
Provider of Plating and
Industrial Coating
Services
Common Stock
LP Interests
LP Interests
LP Interests
Secured Debt
Common Stock
6,250
11.1%
9.3%
6.0%
10,429
12.00%
6/28/2024
1,939
480
400 (8)
768
720 (8) (35) (36)
5,974
9,956
15,930
1,939
256
2,195
5,778 (35) (36)
9,696 (8) (35) (36)
15,474
1,939
256
2,195
LP Interests
8.2%
2,474
2,474 (35) (36)
Secured Debt
Secured Debt
Preferred Member Units
Preferred Member Units
226
226
7.71% (L+6.00%, Floor
1.00%)
11.00%
12/2/2021
12/2/2021
600
13,400
Unsecured Convertible
Debt
Member Units
322,297
8.00%
5/1/2022
3,000
I-45 SLF LLC
(12) (13)
10/20/2015 Investment Partnership
L.F. Manufacturing Holdings,
LLC
(10)
12/23/2013 Manufacturer of
Fiberglass Products
Member Units
20.0% (24.4%
profits interest)
Preferred Member Units
(non-voting)
Member Units
2,179,001
14.00% PIK
OnAsset Intelligence, Inc.
4/18/2011 Provider of Transportation
Monitoring / Tracking
Products and Services
PCI Holding Company, Inc.
12/18/2012 Manufacturer of Industrial
Gas Generating Systems
Secured Debt
Unsecured Debt
Preferred Stock
Warrants
12.00% PIK
10.00% PIK
6/30/2021
6/30/2021
4/18/2021
6,474
58
912
5,333
6,474
58
1,981
1,919
10,432
6,474 (19)
58 (19)
-
- (29)
6,532
Secured Debt
Preferred Stock (non-
voting)
Preferred Stock
1,740,000
1,500,000
115
12.00%
3/31/2020
11,356
11,356
11,356
1,740
3,927
17,023
4,350
2,680
18,386
600
13,335
2,850
150
16,935
600 (9)
13,400
7,900 (8)
420 (34)
22,320
3,000
2,352
5,352
4,260
10,330 (8)
14,590
17,000
14,407 (8)
81
2,019
2,100
81 (8) (19)
2,050
2,131
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Rocaceia, LLC (Quality Lease and Rental
Holdings, LLC)
1/8/2013
Provider of Rigsite
Accommodation Unit
Rentals and Related
Services
Salado Stone Holdings, LLC
(10)
6/27/2016 Limestone and Sandstone
Dimension Cut Stone
Mining Quarries
SI East, LLC
8/31/2018 Rigid Industrial Packaging
Manufacturing
Slick Innovations, Inc.
9/13/2018 Text Message Marketing
Platform
UniTek Global Services, Inc.
(11)
4/15/2011 Provider of Outsourced
Infrastructure Services
Universal Wellhead Services Holdings, LLC (10)
10/30/2014 Provider of Wellhead
Equipment, Designs,
and Personnel to the
Oil & Gas Industry
Volusion, LLC
1/26/2015 Provider of Online
Software-as-a-Service
eCommerce Solutions
Secured Debt
Preferred Member Units
250
12.00%
1/8/2018
30,369
29,865
2,500
32,365
- (14) (15)
-
-
Class A Preferred Units
2,000,000
2,000
570 (34)
Secured Debt
Preferred Member Units
157
9.50%
8/31/2023
32,963
Secured Debt
Common Stock
Warrants
70,000
18,084
14.00%
9/13/2023
6,360
9/13/2028
Secured Debt
Preferred Stock
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
8.41% (L+6.50%, Floor
1.00%)
20.00% PIK
19.00% PIK
19.00% PIK
13.50% PIK
755,401
1,521,122
2,281,682
4,336,866
945,507
8/20/2024
2,963
32,687
6,000
38,687
32,963
8,200 (8)
41,163
6,197
700
181
7,078
2,940
809
1,976
3,667
7,924
-
17,316
6,197
1,080 (8)
290 (29)
7,567
2,962 (9)
1,889 (8) (19)
2,282 (8) (19)
3,667 (8) (19)
2,684 (8) (19)
-
13,484
Preferred Member Units
Member Units
716,949
4,000,000
14.00% PIK
1,032
4,000
5,032
800 (8) (19) (34)
- (34)
800
Secured Debt
Unsecured Convertible
Debt
Preferred Member Units
Warrants
4,876,670
1,831,355
11.50%
1/26/2020
20,234
20,162
19,352
8.00%
11/16/2023
409
1/26/2025
409
14,000
2,576
37,147
291
14,000
150 (29)
33,793
Subtotal Affiliate Investments (21.5% of
net assets at fair value)
$
351,764 $
330,287
116
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
Portfolio Company (1) (20)
Non-Control/Non-Affiliate Investments (7)
AAC Holdings, Inc.
(11)
Investment
Date (24)
Business
Description
Type of
Investment (2) (3) (15)
Shares/Units
Rate
Maturity
Date
Principal (4)
Cost (4)
Fair
Value (18)
6/30/2017 Substance Abuse
Treatment Service
Provider
Adams Publishing Group, LLC
(10)
11/19/2015 Local Newspaper
Operator
ADS Tactical, Inc.
(10)
3/7/2017 Value-Added Logistics
and Supply Chain
Provider to the Defense
Industry
Aethon United BR LP
(10)
9/8/2017 Oil & Gas Exploration &
Production
Affordable Care Holding Corp.
(10)
5/9/2019 Dental Service
Organization
ALKU, LLC.
(11)
10/18/2019 Specialty National
Staffing Operator
Allen Media, LLC.
(11)
9/18/2018 Operator of Cable
Television Networks
Allen Media Broadcasting LLC
(10)
7/3/2019 Operator of Television
Broadcasting Networks
American Nuts, LLC
(10)
4/10/2018 Roaster, Mixer and
Packager of Bulk Nuts
and Seeds
American Teleconferencing Services, Ltd.
(11)
5/19/2016 Provider of Audio
Conferencing and Video
Collaboration Solutions
APTIM Corp.
(11)
8/17/2018 Engineering, Construction
& Procurement
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
13.03% (L+11.00%, Floor
1.00%)
16.50% (L+12.75%, Floor
1.00%)
4/15/2020
2,227
2,068
2,172 (9) (14)
6/30/2023
14,396
14,030
16,098
9,358 (9) (14)
11,530
8.75% (Prime+5.00%, Floor
1.50%)
9.44% (L+7.50%, Floor
1.50%)
9.50% (L+7.50%, Floor
1.50%)
7/3/2023
5,000
4,930
5,000 (9)
7/3/2023
6,158
6,058
6,158 (9)
7/3/2023
197
197
11,185
197 (9)
11,355
8.03% (L+6.25%, Floor
0.75%)
7/26/2023
19,843
19,703
19,843 (9)
8.46% (L+6.75%, Floor
1.00%)
9/8/2023
9,750
9,630
9,531 (9)
6.59% (L+4.75%, Floor
1.00%)
10/22/2022
14,396
14,126
14,036 (9)
7.44% (L+5.50%, Floor
1.00%)
7/29/2026
10,000
9,902
9,883 (9)
8.48% (L+6.50%, Floor
1.00%)
8/30/2023
16,270
15,894
15,863 (9)
8.21% (L+6.25%, Floor
1.00%)
7/3/2024
14,906
14,565
14,565 (9)
Secured Debt
11.60% (L+9.50%, Floor
1.00%)
4/10/2023
12,243
12,002
12,233 (9)
Secured Debt
8.36% (L+6.50%, Floor
1.00%)
6/8/2023
17,389
16,421
10,460 (9)
Secured Debt
7.75%
6/15/2025
12,452
10,836
7,471
117
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Arcus Hunting LLC
(10)
1/6/2015 Manufacturer of
Bowhunting and Archery
Products and Accessories
ASC Ortho Management Company, LLC (10)
8/31/2018 Provider of Orthopedic
Services
ATI Investment Sub, Inc.
(11)
7/11/2016 Manufacturer of Solar
Tracking Systems
ATX Networks Corp.
(11) (13) (21)
6/30/2015 Provider of Radio
Frequency Management
Equipment
Barfly Ventures, LLC
(10)
8/31/2015 Casual Restaurant
Group
Secured Debt
Secured Debt
Secured Debt
12.10% (L+10.00%, Floor
1.00%)
1/13/2020
13,857
13,856
13,856 (9)
9.60% (L+7.50%, Floor
1.00%)
13.25% PIK
8/31/2023
12/1/2023
4,543
1,854
4,465
1,821
6,286
4,490 (9)
1,854 (19)
6,344
Secured Debt
9.01% (L+7.25%, Floor
1.00%)
6/22/2021
2,885
2,859
2,853 (9)
8.94% (7.94% Current,
1.00% PIK) (L+6.00%,
Floor 1.00%)
6/11/2021
13,593
13,414
12,743 (9) (19)
Secured Debt
Secured Debt
Options
Warrants
12.00%
8/31/2020
10,185
3
2
8/31/2025
Berry Aviation, Inc.
(10)
7/6/2018 Charter Airline Services
Secured Debt
Preferred Member Units
Preferred Member Units
122,416
1,548,387
12.00% (10.50% Current,
1.50% PIK)
16.00% PIK
8.00% PIK
1/6/2024
4,554
BigName Commerce, LLC
(10)
5/11/2017 Provider of Envelopes
and Complimentary
Stationery Products
Binswanger Enterprises, LLC
(10)
3/10/2017 Glass Repair and
Installation Service
Provider
Bluestem Brands, Inc.
(11)
12/19/2013 Multi-Channel Retailer of
General Merchandise
Bojangles', Inc.
(11)
2/5/2019 Quick Service Restaurant
Group
Brainworks Software, LLC
(10)
8/12/2014 Advertising Sales and
Newspaper Circulation
Software
Secured Debt
9.35% (L+7.25%, Floor
1.00%)
5/11/2022
2,233
2,218
2,233 (9)
Secured Debt
Member Units
1,050,000
10.41% (L+8.50%, Floor
1.00%)
3/9/2022
13,731
13,443
1,050
14,493
13,731 (9)
950
14,681
Secured Debt
Secured Debt
Secured Debt
9.31% (L+7.50%, Floor
1.00%)
11/6/2020
10,622
10,571
7,973 (9)
6.50% (L+4.75%)
10.25% (L+8.50%)
1/28/2026
1/28/2027
7,782
5,000
7,642
4,907
12,549
7,827
5,012
12,839
Secured Debt
4.00%
7/22/2019
6,733
6,733
5,955 (9) (17)
118
10,073
607
473
11,153
4,518
125
1,671
6,314
7,736
-
- (37)
7,736
4,554 (19)
125 (8) (19) (34)
776 (8) (19) (34)
5,455
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Brightwood Capital Fund Investments
(12) (13)
7/21/2014 Investment Partnership
LP Interests
LP Interests
1.6%
0.6%
11,160
4,500
15,660
9,005 (8) (35) (36)
4,504 (8) (35) (36)
13,509
Cadence Aerospace LLC
(10)
11/14/2017 Aerostructure
Manufacturing
California Pizza Kitchen, Inc.
(11)
8/29/2016 Casual Restaurant Group
Central Security Group, Inc.
(11)
12/4/2017 Security Alarm Monitoring
Service Provider
Cenveo Corporation
(11)
9/4/2015 Provider of Digital
Marketing Agency
Services
Secured Debt
Secured Debt
Secured Debt
8.40% (L+6.50%, Floor
1.00%)
7.91% (L+6.00%, Floor
1.00%)
11/14/2023
25,287
25,089
25,287 (9)
8/23/2022
14,599
14,501
12,739 (9)
7.38% (L+5.63%, Floor
1.00%)
10/6/2021
13,776
13,734
11,985 (9)
Chisholm Energy Holdings, LLC
(10)
5/15/2019 Oil & Gas Exploration &
Production
Clarius BIGS, LLC
(10)
9/23/2014 Prints & Advertising
Film Financing
Clickbooth.com, LLC
(10)
12/5/2017 Provider of Digital
Advertising Performance
Marketing Solutions
Construction Supply Investments, LLC
(10)
12/29/2016 Distribution Platform of
Specialty Construction
Materials to
Professional Concrete
and Masonry Contractors
Corel Corporation
(11) (13) (21)
7/24/2019 Publisher of Desktop and
Cloud-based Software
Secured Debt
Common Stock
177,130
11.45% (L+9.50%, Floor
1.00%)
6/7/2023
5,674
5,498
5,309
10,807
5,674 (9)
2,923
8,597
Secured Debt
8.16% (L+6.25%, Floor
1.50%)
5/15/2026
3,571
3,488
3,488 (9)
Secured Debt
15.00% PIK
1/5/2015
2,846
2,846
40 (14) (17)
Secured Debt
10.59% (L+8.50%, Floor
1.00%)
12/5/2022
2,663
2,625
2,663 (9)
Member Units
46,152
4,866
7,667
CTVSH, PLLC
(10)
8/3/2017 Emergency Care and
Specialty Service Animal
Hospital
Darr Equipment LP
(10)
4/15/2014 Heavy Equipment Dealer
Secured Debt
Secured Debt
Digital River, Inc.
(11)
2/24/2015 Provider of Outsourced
e-Commerce Solutions
and Services
Secured Debt
Warrants
915,734
6.91% (L+5.00%, Floor
1.00%)
7/2/2026
15,000
14,293
14,531 (9)
9.91% (L+8.00%, Floor
1.00%)
12.50% (11.50% Current,
1.00% PIK)
8/3/2022
10,099
10,039
10,099 (9)
6/22/2023
12/23/2023
5,899
5,899
474
6,373
5,899 (19)
300 (31)
6,199
Secured Debt
7.90% (L+6.00%, Floor
1.00%)
2/12/2021
15,876
15,771
15,837 (9)
119
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
DTE Enterprises, LLC
(10)
4/13/2018 Industrial Powertrain
Repair and Services
Dynamic Communities, LLC
(10)
7/17/2018 Developer of Business
Events and Online
Community Groups
Echo US Holdings, LLC.
(10)
11/12/2019 Developer and
Manufacturer of PVC and
Polypropylene Materials
EnCap Energy Fund Investments
(12) (13)
12/28/2010 Investment Partnership
Encino Acquisition Partners Holdings, Inc. (11)
11/16/2018 Oil & Gas Exploration &
Production
EPIC Y-Grade Services, LP
(11)
6/22/2018 NGL Transportation &
Storage
Evergreen Skills Lux S.á r.l.
(d/b/a Skillsoft)
(11) (13)
5/5/2014 Technology-based
Performance Support
Solutions
Felix Investments Holdings II
(10)
8/9/2017 Oil & Gas Exploration &
Production
Flavors Holdings Inc.
(11)
10/15/2014 Global Provider of
Flavoring and
Sweetening Products
Fortna, Inc.
(10)
7/23/2019 Process, Physical
Distribution
and Logistics Consulting
Services
GeoStabilization International (GSI)
(11)
12/31/2018 Geohazard Engineering
Services & Maintenance
GoWireless Holdings, Inc.
(11)
12/31/2017 Provider of Wireless
Telecommunications
Carrier Services
Secured Debt
Class AA Preferred
Member Units (non-
voting)
Class A Preferred
Member Units
776,316
9.24% (L+7.50%, Floor
1.50%)
4/13/2023
10,992
10,827
10,982 (9)
10.00% PIK
860
860 (8) (19)
776
12,463
1,490
13,332
Secured Debt
Secured Debt
LP Interests
LP Interests
LP Interests
LP Interests
LP Interests
LP Interests
0.1%
0.4%
0.1%
0.1%
0.8%
0.2%
9.75% (L+8.00%, Floor
1.00%)
7/17/2023
5,460
5,375
5,458 (9)
7.96% (L+6.25%, Floor
1.63%)
10/25/2024
22,414
22,292
22,292 (9)
3,617
2,097
4,360
8,427
7,337
6,674
32,512
1,354 (8) (35) (36)
703 (35) (36)
2,780 (8) (35) (36)
8,822 (8) (35) (36)
5,669 (8) (35) (36)
6,677 (8) (35) (36)
26,005
Secured Debt
8.50% (L+6.75%, Floor
1.00%)
10/29/2025
9,000
8,921
6,795 (9)
Secured Debt
8.04% (L+6.00%)
6/13/2024
10,275
10,116
10,050
Secured Debt
Secured Debt
Secured Debt
10.45% (L+8.25%, Floor
1.00%)
4/28/2022
6,999
6,928
1,965 (9)
8.40% (L+6.50%, Floor
1.00%)
8/9/2022
5,000
4,944
5,000 (9)
7.77% (L+5.75%, Floor
1.00%)
4/3/2020
11,297
11,247
10,619 (9)
Secured Debt
6.75% (L+5.00%)
4/8/2025
7,751
7,577
7,577
Secured Debt
7.05% (L+5.25%)
12/19/2025
16,376
16,230
16,335
8.25% (L+6.50%, Floor
1.00%)
12/22/2024
18,120
17,964
17,471 (9)
Secured Debt
120
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Grupo Hima San Pablo, Inc.
(11)
3/7/2013 Tertiary Care Hospitals
GS HVAM Intermediate, LLC
(10)
10/18/2019 Specialized Food
Distributor
HDC/HW Intermediate Holdings
(10)
12/21/2018 Managed Services and
Hosting Provider
Hoover Group, Inc.
(10) (13)
10/21/2016 Provider of Storage
Tanks and Related
Products to the Energy
and Petrochemical
Markets
Hunter Defense Technologies, Inc.
(10)
3/29/2018 Provider of Military
and Commercial Shelters
and Systems
HW Temps LLC
7/2/2015 Temporary Staffing
Solutions
Hydrofarm Holdings LLC
(10)
5/18/2017 Wholesaler of
Horticultural Products
Hyperion Materials & Technologies, Inc.
(11) (13)
9/12/2019 Manufacturer of Cutting
and Machine Tools &
Speciality Polishing
Compounds
iEnergizer Limited
(10) (13) (21)
4/17/2019 Provider of Business
Outsourcing Solutions
Implus Footcare, LLC
(10)
6/1/2017 Provider of Footwear and
Related Accessories
Independent Pet Partners Intermediate
Holdings, LLC
(10)
11/20/2018 Omnichannel Retailer of
Specialty Pet Products
Industrial Services Acquisition, LLC
(10)
6/17/2016 Industrial Cleaning
Services
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
8.91% (L+7.00%, Floor
1.50%)
13.75%
4/30/2019
10/15/2018
4,504
2,055
4,504
2,040
6,544
3,343 (9) (17)
167 (17)
3,510
7.51% (L+5.75%, Floor
1.00%)
10/2/2024
11,364
11,233
11,233 (9)
9.53% (L+7.50%, Floor
1.00%)
12/21/2023
3,498
3,440
3,493 (9)
9.26% (L+7.25%, Floor
1.00%)
1/28/2021
20,764
20,119
19,206 (9)
9.02% (L+7.00%, Floor
1.00%)
3/29/2023
29,097
28,659
29,097 (9)
Secured Debt
8.00%
3/29/2023
10,181
10,025
8,913
Secured Debt
11.80% (3.54% Current,
8.26% PIK) (L+10.00%)
5/12/2022
7,660
7,547
6,414 (19)
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Member Units
7.25% (L+5.50%, Floor
1.00%)
8/28/2026
22,500
22,066
22,275 (9)
7.79% (L+6.00%, Floor
1.00%)
4/17/2024
12,963
12,848
12,962 (9)
8.27% (L+6.25%, Floor
1.00%)
4/30/2024
18,577
18,178
18,217 (9)
11.28% (L+9.00%, Floor
1.00%)
1,558,333
11/19/2023
18,799
18,487
18,799 (9)
1,558
20,045
1,260
20,059
Unsecured Debt
Preferred Member Units
Preferred Member Units
Member Units
13.00% (6.00% Current,
7.00% PIK)
10.00% PIK
20.00% PIK
144
80
900
12/17/2022
5,242
5,174
103
60
900
6,237
5,242 (19)
103 (8) (19) (34)
60 (8) (19) (34)
510 (34)
5,915
121
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Inn of the Mountain Gods Resort
and Casino
(11)
10/30/2013 Hotel & Casino Owner &
Operator
Interface Security Systems, L.L.C
(10)
8/7/2019 Commercial Security &
Alarm Services
Intermedia Holdings, Inc.
(11)
8/3/2018 Unified Communications
as a Service
Invincible Boat Company, LLC.
(10)
8/28/2019 Manufacturer of Sport
Fishing Boats
Isagenix International, LLC
(11)
6/21/2018 Direct Marketer of Health
& Wellness Products
JAB Wireless, Inc.
(10)
5/2/2018 Fixed Wireless
Broadband Provider
Jackmont Hospitality, Inc.
(10)
5/26/2015 Franchisee of Casual
Dining Restaurants
Joerns Healthcare, LLC
(11)
4/3/2013 Manufacturer and
Distributor of Health
Care Equipment &
Supplies
Kemp Technologies Inc.
(10)
6/27/2019 Provider of Application
Delivery Controllers
Kore Wireless Group Inc.
(11)
12/31/2018 Mission Critical Software
Platform
Larchmont Resources, LLC
(11)
8/13/2013 Oil & Gas Exploration
& Production
Laredo Energy VI, LP
(10)
1/15/2019 Oil & Gas Exploration &
Production
Secured Debt
9.25%
11/30/2020
7,762
7,584
7,684
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
8.77% (L+7.00%, Floor
1.75%)
8/7/2023
7,500
7,363
7,363 (9)
7.75% (L+6.00%, Floor
1.00%)
7/19/2025
20,130
20,033
20,180 (9)
8.53% (L+6.50%, Floor
1.00%)
8/28/2025
9,872
9,773
9,773 (9)
7.77% (L+5.75%, Floor
1.00%)
6/14/2025
5,943
5,893
4,273 (9)
9.74% (L+8.00%, Floor
1.00%)
5/2/2023
14,775
14,669
14,775 (9)
8.45% (L+6.75%, Floor
1.00%)
5/26/2021
4,059
4,055
4,059 (9)
Secured Debt
Common Stock
472,579
7.91% (L+6.00%, Floor
1.00%)
8/21/2024
4,016
3,942
4,429
8,371
3,942 (9)
4,429
8,371
Secured Debt
8.00% (L+6.25%, Floor
1.00%)
3/29/2024
7,462
7,326
7,463 (9)
Secured Debt
7.52% (L+5.50%)
12/20/2024
19,285
19,189
19,164
Secured Debt
Member Units
2,828
8.89% (L+7.00%, (Floor
1.00%)
8/7/2020
2,145
2,145
353
2,498
1,990 (9)
707 (34)
2,697
Secured Debt
11.64% (5.38% Current,
6.26% PIK) (L+9.63%,
Floor 2.00%)
11/19/2021
11,312
11,166
10,638 (9) (19)
Lightbox Holdings, L.P.
(11)
5/23/2019 Provider of Commercial
Real Estate Software
LKCM Headwater Investments I, L.P.
(12) (13)
1/25/2013 Investment Partnership
Secured Debt
6.74% (L+5.00%)
5/9/2026
14,925
14,713
14,738
LP Interests
2.3%
1,746
3,682 (8) (35) (36)
122
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
LL Management, Inc.
(10)
5/2/2019 Medical Transportation
Service Provider
Logix Acquisition Company, LLC
(10)
6/24/2016 Competitive Local
Exchange Carrier
Looking Glass Investments, LLC
(12) (13)
7/1/2015 Specialty Consumer
Finance
LSF9 Atlantis Holdings, LLC
(11)
5/17/2017 Provider of Wireless
Telecommunications
Carrier Services
Lulu's Fashion Lounge, LLC
(10)
8/31/2017 Fast Fashion E-Commerce
Retailer
Lynx FBO Operating LLC
(10)
9/30/2019 Fixed Based Operator in
the General Aviation
Industry
Mac Lean-Fogg Company
(10)
4/22/2019 Manufacturer and
Secured Debt
Secured Debt
8.56% (L+6.50%, Floor
1.00%)
9/25/2023
13,754
13,625
13,751 (9)
7.50% (L+5.75%, Floor
1.00%)
12/22/2024
18,381
18,199
18,197 (9)
Member Units
Member Units
3
190,712
125
49
174
25
16 (34)
41
Secured Debt
Secured Debt
7.74% (L+6.00%, Floor
1.00%)
5/1/2023
9,458
9,458
8,761 (9)
10.75% (L+9.00%, Floor
1.00%)
8/28/2022
11,335
11,070
11,109 (9)
Secured Debt
Member Units
3,704
7.86% (L+5.75%, Floor
1.00%)
9/30/2024
13,750
13,451
500
13,951
13,451 (9)
500
13,951
Supplier for Auto and
Power Markets
Secured Debt
Preferred Stock
1,516
6.75% (L+5.00%)
13.75% (4.50% Cash,
9.25% PIK)
12/22/2025
16,648
16,528
16,643
1,775
1,775
18,303
1,775 (8) (19)
18,418
MHVC Acquisition Corp.
(11)
5/8/2017 Provider of differentiated
information solutions,
systems engineering,
and analytics
Mills Fleet Farm Group, LLC
(10)
10/24/2018 Omnichannel Retailer of
Work, Farm and Lifestyle
Merchandise
Secured Debt
7.01% (L+5.25%, Floor
1.00%)
4/29/2024
19,950
19,855
19,950 (9)
NBG Acquisition Inc
(11)
4/28/2017 Wholesaler of Home
Décor Products
NinjaTrader, LLC
(10)
12/18/2019 Operator of Futures Trading
Platform
NNE Partners, LLC
(10)
3/2/2017 Oil & Gas Exploration
& Production
Secured Debt
Secured Debt
Secured Debt
9.04% (8.29% Current,
0.75% PIK) (L+6.25%,
Floor 1.00%)
10/24/2024
14,879
14,556
14,187 (9) (19)
7.52% (L+5.50%, Floor
1.00%)
4/26/2024
4,181
4,134
3,247 (9)
7.90% (L+6.00%, Floor
1.50%)
12/18/2024
9,675
9,490
9,490 (9)
Secured Debt
9.91% (L+8.00%)
3/2/2022
23,417
23,268
23,147
123
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
North American Lifting Holdings, Inc.
(11)
2/26/2015 Crane Service Provider
Novetta Solutions, LLC
(11)
6/21/2017 Provider of Advanced
Analytics Solutions for
Defense Agencies
NTM Acquisition Corp.
(11)
7/12/2016 Provider of B2B Travel
Information Content
Secured Debt
Secured Debt
Secured Debt
6.52% (L+4.50%, Floor
1.00%)
11/27/2020
7,584
7,300
6,417 (9)
6.76% (L+5.00%, Floor
1.00%)
10/17/2022
21,060
20,673
20,749 (9)
8.00% (L+6.25% ,Floor
1.00%)
6/7/2022
4,879
4,874
4,879 (9)
Ospemifene Royalty Sub LLC (QuatRx)
(10)
7/8/2013 Estrogen-Deficiency
Drug Manufacturer and
Distributor
PaySimple, Inc.
(10)
9/9/2019 Leading technology
services commerce platform
Permian Holdco 2, Inc.
(11)
2/12/2013 Storage Tank Manufacturer
Secured Debt
11.50%
11/15/2026
4,868
4,868
463 (14)
7.28% (L+5.50%, Floor
1.00%)
8/23/2025
15,845
15,586
15,766 (9)
Secured Debt
Unsecured Debt
Unsecured Debt
Preferred Stock
14.00% PIK
18.00% PIK
10/15/2021
6/30/2022
456
319
154,558
456
319
799
1,574
69
273
342
341 (19)
319 (19)
100 (34)
760
- (38)
-
-
Point.360
(10)
7/8/2015 Fully Integrated Provider
of Digital Media Services
Warrants
Common Stock
65,463
163,658
7/7/2020
PricewaterhouseCoopers Public Sector
LLP
(11)
5/24/2018 Provider of Consulting
Services to Governments
PT Network, LLC
(10)
11/1/2013 Provider of Outpatient
Physical Therapy and
Sports Medicine Services
Research Now Group, Inc. and Survey
Sampling International, LLC
(11)
12/31/2017 Provider of Outsourced
Online Surveying
RM Bidder, LLC
(10)
11/12/2015 Scripted and Unscripted
TV and Digital
Programming Provider
SAFETY Investment Holdings, LLC
4/29/2016 Provider of Intelligent
Driver Record
Monitoring Software
and Services
Salient Partners L.P.
(11)
6/25/2015 Provider of Asset
Management Services
Secured Debt
9.75% (L+8.00%)
5/1/2026
9,000
8,965
8,865
Secured Debt
Secured Debt
9.44% (7.44% Current,
2.00% PIK) (L+5.50%,
Floor 1.00%)
11/30/2023
8,491
8,491
8,414 (9) (19)
7.41% (L+5.50%, Floor
1.00%)
12/20/2024
18,115
17,590
18,140 (9)
Warrants
Member Units
327,532
2,779
10/20/2025
425
46
471
- (32)
18
18
Member Units
2,000,000
2,000
2,380
Secured Debt
7.69% (L+6.00%, Floor
1.00%)
6/9/2021
6,675
6,657
6,675 (9)
124
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
SMART Modular Technologies, Inc.
(10) (13)
8/18/2017 Provider of Specialty
Memory Solutions
Staples Canada ULC
(10) (13) (21)
9/14/2017 Office Supplies Retailer
TE Holdings, LLC
(11)
12/5/2013 Oil & Gas Exploration
& Production
TEAM Public Choices, LLC
(10)
10/28/2019 Home-Based Care
Employment Service
Provider
Tectonic Financial, Inc.
5/15/2017 Financial Services
Organization
TGP Holdings III LLC
(11)
9/30/2017 Outdoor Cooking &
Accessories
The Pasha Group
(11)
2/2/2018 Diversified Logistics and
Transportation Provided
TMC Merger Sub Corp.
(11)
12/22/2016 Refractory & Maintenance
Services Provider
TOMS Shoes, LLC
(11)
11/13/2014 Global Designer,
Distributor, and
Retailer of Casual
Footwear
USA DeBusk LLC
(10)
10/22/2019 Provider of Industrial
Cleaning Services
U.S. TelePacific Corp.
(11)
9/14/2016 Provider of
Vida Capital, Inc
VIP Cinema Holdings, Inc.
(11)
(11)
Communications and
Managed Services
10/10/2019 Alternative Asset Manager
3/9/2017 Supplier of Luxury
Seating to the Cinema
Industry
Secured Debt
Secured Debt
8.16% (L+6.25%, Floor
1.00%)
8.98% (L+7.00%, Floor
1.00%)
8/9/2022
18,484
18,332
18,669 (9)
9/12/2024
14,546
14,348
13,530 (9) (22)
Member Units
97,048
970
-
Secured Debt
7.75% (L+6.00%, Floor
1.00%)
9/20/2024
16,844
16,680
16,680 (9)
Common Stock
400,000
2,000
2,620 (8)
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Secured Debt
Member Units
Secured Debt
Secured Debt
10.25% (L+8.50%, Floor
1.00%)
9/25/2025
5,500
5,440
5,143 (9)
9.31% (L+7.50%, Floor
1.00%)
1/26/2023
8,984
8,793
9,074 (9)
8.53% (L+6.75%, Floor
1.00%)
10/31/2022
15,527
15,394
15,392 (9) (24)
7.46% (L+5.50%, Floor
1.00%)
6.96% (L+5.00%, Floor
1.00%)
16,321
9/30/2025
571
571
571 (9)
12/31/2025
1,637
1,637
245
2,453
1,637 (9)
245
2,453
7.54% (L+5.75%, Floor
1.00%)
10/22/2024
30,000
29,423
29,423 (9)
7.02% (L+5.00%, Floor
1.00%)
5/2/2023
17,088
16,887
16,447 (9)
Secured Debt
7.93% (L+6.00%)
10/1/2026
18,500
18,232
18,315
Secured Debt
9.91% (L+8.00%, Floor
1.00%)
3/1/2023
10,063
10,030
5,301 (9) (14)
125
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
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)
Vistar Media, Inc.
(10)
2/17/2017 Operator of Digital
Out-of-Home
Advertising Platform
Wireless Vision Holdings, LLC
(10)
9/29/2017 Provider of Wireless
Telecommunications
Carrier Services
YS Garments, LLC
(11)
8/22/2018 Designer and Provider of
Branded Activewear
Zilliant Incorporated
6/15/2012 Price Optimization and
Margin Management
Solutions
Subtotal Non-Control/Non-Affiliate
Investments (80.7% of net assets at fair
value)
Total Portfolio Investments, December 31,
2019 (169.4% of net assets at fair value)
Secured Debt
Preferred Stock
Warrants
70,207
69,675
10.00% (L+8.00%, Floor
1.00%)
4/3/2023
4,963
4/3/2029
4,784
767
-
5,551
4,939 (9)
1,610
1,630 (33)
8,179
Secured Debt
Secured Debt
12.57% (11.57% Current,
1.00% PIK) (L+9.65%,
Floor 1.00%)
11.67% (10.67% Current,
1.00% PIK) (L+8.91%,
Floor 1.00%)
9/29/2022
7,136
7,022
7,129 (9) (19) (23)
9/29/2022
6,201
6,132
13,154
6,200 (9) (19) (23)
13,329
Secured Debt
7.60% (L+6.00%, Floor
1.00%)
8/9/2024
14,531
14,412
14,404 (9)
Preferred Stock
Warrants
186,777
952,500
6/15/2022
154
1,071
1,225
260
1,190 (30)
1,450
$ 1,297,587 $ 1,239,316
$ 2,427,718 $ 2,602,324
126
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(14)
(15)
(16)
(17)
(18)
(19)
(20)
(21)
(22)
All investments are Lower Middle Market portfolio investments, unless otherwise noted. See Note B for a description of Lower
Middle Market portfolio investments. All of the Company’s investments, unless otherwise noted, are encumbered either as
security for the Company’s Credit Facility or in support of the SBA-guaranteed debentures issued by the Funds.
Debt investments are income producing, unless otherwise noted. Equity and warrants are non-income producing, unless
otherwise noted.
See Note C and Schedule 12-14 for a summary of geographic location of portfolio companies.
Principal is net of repayments. Cost is net of repayments and accumulated unearned income.
Control investments are defined by the Investment Company Act of 1940, as amended ("1940 Act"), as investments in which
more than 25% of the voting securities are owned or where the ability to nominate greater than 50% of the board representation is
maintained.
Affiliate investments are defined by the 1940 Act as investments in which between 5% and 25% (inclusive) of the voting
securities are owned and the investments are not classified as Control investments.
Non-Control/Non-Affiliate investments are defined by the 1940 Act as investments that are neither Control investments nor
Affiliate investments.
Income producing through dividends or distributions.
Index based floating interest rate is subject to contractual minimum interest rate. A majority of the variable rate loans in the
Company’s investment portfolio bear interest at a rate that may be determined by reference to either LIBOR or an alternate Base
Rate (commonly based on the Federal Funds Rate or the Prime Rate), which typically resets semi-annually, quarterly, or monthly
at the borrower’s option. The borrower may also elect to have multiple interest reset periods for each loan. For each such loan,
the Company has provided the weighted average annual stated interest rate in effect at December 31, 2019. As noted in this
schedule, 64% of the loans (based on the par amount) contain LIBOR floors which range between 0.50% and 2.00%, with a
weighted-average LIBOR floor of approximately 1.06%.
Private Loan portfolio investment. See Note B for a description of Private Loan portfolio investments.
Middle Market portfolio investment. See Note B for a description of Middle Market portfolio investments.
Other Portfolio investment. See Note B for a description of Other Portfolio investments.
Investment is not a qualifying asset as defined under Section 55(a) of the 1940 Act. Qualifying assets must represent at least 70%
of total assets at the time of acquisition of any additional non-qualifying assets.
Non-accrual and non-income producing investment.
Portfolio company is in a bankruptcy process and, as such, the maturity date of our debt investment in this portfolio company will
not be finally determined until such process is complete. As noted in footnote (14), our debt investment in this portfolio company
is on non-accrual status.
External Investment Manager. Investment is not encumbered as security for the Company's Credit Facility or in support of the
SBA-guaranteed debentures issued by the Funds.
Maturity date is under on-going negotiations with the portfolio company and other lenders, if applicable.
Investment fair value was determined using significant unobservable inputs, unless otherwise noted. See Note C for further
discussion.
PIK interest income and cumulative dividend income represent income not paid currently in cash.
All portfolio company headquarters are based in the United States, unless otherwise noted.
Portfolio company headquarters are located outside of the United States.
In connection with the Company's debt investment in Staples Canada ULC and in an attempt to mitigate any potential adverse
change in foreign exchange rates during the term of the Company's investment, the Company maintains a forward foreign
currency contract with Cadence Bank to lend $17.6 million Canadian Dollars and receive $13.4 million U.S. Dollars with a
settlement date of September 14, 2020. The unrealized depreciation on the forward foreign currency contract is $0.2 million as of
December 31, 2019.
127
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments (Continued)
December 31, 2019
(dollars in thousands)
(23)
(24)
(25)
(26)
(27)
The Company has entered into an intercreditor agreement that entitles the Company to the "last out" tranche of the first lien
secured loans, whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of
principal, interest, and any other amounts due thereunder. Therefore, the Company receives a higher interest rate than the
contractual stated interest rate of LIBOR plus 8.50% (Floor 1.00%) per the credit agreement and the Consolidated Schedule of
Investments above reflects such higher rate.
The Company has entered into an intercreditor agreement that entitles the Company to the "first out" tranche of the first lien
secured loans, whereby the "first out" tranche will receive priority as to the "last out" tranche with respect to payments of
principal, interest, and any other amounts due thereunder. Therefore, the Company receives a lower interest rate than the
contractual stated interest rate of LIBOR plus 7.14% (Floor 1.00%) per the credit agreement and the Consolidated Schedule of
Investments above reflects such lower rate.
All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities.”
Investment date represents the date of initial investment in the portfolio company.
Investment has an unfunded commitment as of December 31, 2019 (see Note K). The fair value of the investment includes the
impact of the fair value of any unfunded commitments.
Investment date represents the date of initial investment in the portfolio company.
Warrants are presented in equivalent shares/units with a strike price of $0.01 per share/unit.
(28)
(29)
(30) Warrants are presented in equivalent shares with a strike price of $0.001 per share.
(31) Warrants are presented in equivalent units with a strike price of $1.50 per unit.
(32) Warrants are presented in equivalent units with a strike price of $14.28 per unit.
(33) Warrants are presented in equivalent shares with a strike price of $10.92 per share.
(34)
(35)
Shares/Units represent ownership in an underlying Real Estate or HoldCo entity.
Investment is not unitized. Presentation is made in percent of fully diluted ownership unless otherwise
indicated.
Investment is in an underlying Limited Partnership that is managed by the respective Portfolio Company.
(36)
(37) Warrants are presented in equivalent units with a strike price of $1.00 per unit.
(38) Warrants are presented in equivalent shares with a strike price of $0.75 per share.
128
Table of Contents
MAIN STREET CAPITAL CORPORATION
Notes to Consolidated Financial Statements
NOTE A—ORGANIZATION AND BASIS OF PRESENTATION
1. Organization
Main Street Capital Corporation (“MSCC”) is a principal investment firm primarily focused on providing customized debt and
equity financing to lower middle market (“LMM”) companies and debt capital to middle market (“Middle Market”) companies. The
portfolio investments of MSCC and its consolidated subsidiaries are typically made to support management buyouts, recapitalizations,
growth financings, refinancings and acquisitions of companies that operate in a variety of industry sectors. MSCC seeks to partner with
entrepreneurs, business owners and management teams and generally provides “one stop” financing alternatives within its LMM portfolio.
MSCC and its consolidated subsidiaries invest primarily in secured debt investments, equity investments, warrants and other securities of
LMM companies based in the United States and in secured debt investments of Middle Market companies generally headquartered in the
United States.
MSCC was formed in March 2007 to operate as an internally managed business development company (“BDC”) under the
Investment Company Act of 1940, as amended (the “1940 Act”). MSCC wholly owns several investment funds, including Main Street
Mezzanine Fund, LP (“MSMF”) and Main Street Capital III, LP (“MSC III” and, collectively with MSMF, the “Funds”), and each of their
general partners. The Funds are each licensed as a Small Business Investment Company (“SBIC”) by the United States Small Business
Administration (“SBA”). Because MSCC is internally managed, all of the executive officers and other employees are employed by MSCC.
Therefore, MSCC does not pay any external investment advisory fees, but instead directly incurs the operating costs associated with
employing investment and portfolio management professionals.
MSC Adviser I, LLC (the “External Investment Manager”) was formed in November 2013 as a wholly owned subsidiary of MSCC
to provide investment management and other services to parties other than MSCC and its subsidiaries or their portfolio companies
(“External Parties”) and receives fee income for such services. MSCC has been granted no-action relief by the Securities and Exchange
Commission (“SEC”) to allow the External Investment Manager to register as a registered investment adviser under the Investment Advisers
Act of 1940, as amended. Since the External Investment Manager conducts all of its investment management activities for External Parties,
it is accounted for as a portfolio investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC’s consolidated
financial statements.
MSCC has elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under
Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a result, MSCC generally will not pay corporate-
level U.S. federal income taxes on any net ordinary taxable income or capital gains that it distributes to its stockholders.
MSCC has certain direct and indirect wholly owned subsidiaries that have elected to be taxable entities (the “Taxable
Subsidiaries”). The primary purpose of the Taxable Subsidiaries is to permit MSCC to hold equity investments in portfolio companies
which are “pass-through” entities for tax purposes.
Unless otherwise noted or the context otherwise indicates, the terms “we,” “us,” “our,” the “Company” and “Main Street” refer to
MSCC and its consolidated subsidiaries, which include the Funds and the Taxable Subsidiaries.
2. Basis of Presentation
Main Street’s consolidated financial statements are prepared in accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”). The Company is an investment company following accounting and reporting guidance in
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services—Investment
Companies (“ASC 946”). For each of the periods presented
129
Table of Contents
herein, Main Street’s consolidated financial statements include the accounts of MSCC and its consolidated subsidiaries. The Investment
Portfolio, as used herein, refers to all of Main Street’s investments in LMM portfolio companies, investments in Middle Market portfolio
companies, Private Loan (as defined in Note C) portfolio investments, Other Portfolio (as defined in Note C) investments and the
investment in the External Investment Manager (see “Note C—Fair Value Hierarchy for Investments and Debentures—Portfolio
Composition—Investment Portfolio Composition” for additional discussion of Main Street’s Investment Portfolio). Main Street’s results of
operations for the years ended December 31, 2020, 2019 and 2018, cash flows for the years ended December 31, 2020, 2019 and 2018 and
financial position as of December 31, 2020 and 2019, are presented on a consolidated basis. The effects of all intercompany transactions
between Main Street and its consolidated subsidiaries have been eliminated in consolidation.
Principles of Consolidation
Under ASC 946, Main Street is precluded from consolidating other entities in which Main Street has equity investments,
including those in which it has a controlling interest, unless the other entity is another investment company. An exception to this general
principle in ASC 946 occurs if Main Street holds a controlling interest in an operating company that provides all or substantially all of its
services directly to Main Street or to its portfolio companies. Accordingly, as noted above, MSCC’s consolidated financial statements
include the financial position and operating results for the Funds and the Taxable Subsidiaries. Main Street has determined that none of its
portfolio investments qualify for this exception, including the investment in the External Investment Manager. Therefore, Main Street’s
Investment Portfolio is carried on the consolidated balance sheet at fair value, as discussed further in Note B.1., with any adjustments to fair
value recognized as “Net Unrealized Appreciation (Depreciation)” on the consolidated statements of operations until the investment is
realized, usually upon exit, resulting in any gain or loss being recognized as a “Net Realized Gain (Loss).”
Portfolio Investment Classification
Main Street classifies its Investment Portfolio in accordance with the requirements of the 1940 Act. Under the 1940 Act,
(a) “Control Investments” are defined as investments in which Main Street owns more than 25% of the voting securities or has rights to
maintain greater than 50% of the board representation, (b) “Affiliate Investments” are defined as investments in which Main Street owns
between 5% and 25% (inclusive) of the voting securities and does not have rights to maintain greater than 50% of the board representation,
and (c) “Non-Control/Non-Affiliate Investments” are defined as investments that are neither Control Investments nor Affiliate Investments.
For purposes of determining the classification of its Investment Portfolio, Main Street has excluded consideration of any voting securities
or board appointment rights held by funds advised by the External Investment Manager.
NOTE B—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. Valuation of the Investment Portfolio
Main Street accounts for its Investment Portfolio at fair value. As a result, Main Street follows the provisions of ASC 820, Fair
Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework for measuring fair value,
establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair
value measurements. ASC 820 requires Main Street to assume that the portfolio investment is to be sold in the principal market to
independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal
market that are independent, knowledgeable and willing and able to transact.
Main Street’s portfolio strategy calls for it to invest primarily in illiquid debt and equity securities issued by privately held, LMM
companies and more liquid debt securities issued by Middle Market companies that are generally larger in size than the LMM companies.
Main Street categorizes some of its investments in LMM companies and Middle Market companies as Private Loan portfolio investments,
which are primarily debt securities in privately held companies that have been originated through strategic relationships with other
investment funds on a collaborative basis, and are often referred to in the debt markets as “club deals.” Private Loan investments are
typically similar in size, structure, terms and conditions to investments Main Street holds in its LMM portfolio and Middle Market portfolio.
Main Street’s
130
Table of Contents
portfolio also includes Other Portfolio investments which primarily consist of investments that are not consistent with the typical profiles
for its LMM portfolio investments, Middle Market portfolio investments or Private Loan portfolio investments, including investments
which may be managed by third parties. Main Street’s portfolio investments may be subject to restrictions on resale.
LMM investments and Other Portfolio investments generally have no established trading market while Middle Market securities
generally have established markets that are not active. Private Loan investments may include investments which have no established trading
market or have established markets that are not active. Main Street determines in good faith the fair value of its Investment Portfolio
pursuant to a valuation policy in accordance with ASC 820 and a valuation process approved by its Board of Directors and in accordance
with the 1940 Act. Main Street’s valuation policies and processes are intended to provide a consistent basis for determining the fair value of
Main Street’s Investment Portfolio.
For LMM portfolio investments, Main Street generally reviews external events, including private mergers, sales and acquisitions
involving comparable companies, and includes these events in the valuation process by using an enterprise value waterfall methodology
(“Waterfall”) for its LMM equity investments and an income approach using a yield-to-maturity model (“Yield-to-Maturity”) for its LMM
debt investments. For Middle Market portfolio investments, Main Street primarily uses quoted prices in the valuation process. Main Street
determines the appropriateness of the use of third-party broker quotes, if any, in determining fair value based on its understanding of the
level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer, the depth
and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company and
other market indices. For Middle Market and Private Loan portfolio investments in debt securities for which it has determined that third-
party quotes or other independent pricing are not available or appropriate, Main Street generally estimates the fair value based on the
assumptions that it believes hypothetical market participants would use to value the investment in a current hypothetical sale using the
Yield-to-Maturity valuation method. For its Other Portfolio equity investments, Main Street generally calculates the fair value of the
investment primarily based on the net asset value (“NAV”) of the fund and adjusts the fair value for other factors deemed relevant that
would affect the fair value of the investment. All of the valuation approaches for Main Street’s portfolio investments estimate the value of
the investment as if Main Street were to sell, or exit, the investment as of the measurement date.
These valuation approaches consider the value associated with Main Street’s ability to control the capital structure of the portfolio
company, as well as the timing of a potential exit. For valuation purposes, “control” portfolio investments are composed of debt and equity
securities in companies for which Main Street has a controlling interest in the equity ownership of the portfolio company or the ability to
nominate a majority of the portfolio company’s board of directors. For valuation purposes, “non-control” portfolio investments are
generally composed of debt and equity securities in companies for which Main Street does not have a controlling interest in the equity
ownership of the portfolio company or the ability to nominate a majority of the portfolio company’s board of directors.
Under the Waterfall valuation method, Main Street estimates the enterprise value of a portfolio company using a combination of
market and income approaches or other appropriate valuation methods, such as considering recent transactions in the equity securities of the
portfolio company or third-party valuations of the portfolio company, and then performs a waterfall calculation by allocating the enterprise
value over the portfolio company’s securities in order of their preference relative to one another. The enterprise value is the fair value at
which an enterprise could be sold in a transaction between two willing parties, other than through a forced or liquidation sale. Typically,
privately held companies are bought and sold based on multiples of earnings before interest, taxes, depreciation and amortization
(“EBITDA”), cash flows, net income, revenues, or in limited cases, book value. There is no single methodology for estimating enterprise
value. For any one portfolio company, enterprise value is generally described as a range of values from which a single estimate of enterprise
value is derived. In estimating the enterprise value of a portfolio company, Main Street analyzes various factors including the portfolio
company’s historical and projected financial results. Due to SEC deadlines for Main Street’s quarterly and annual financial reporting, the
operating results of a portfolio company used in the current period valuation are generally the results from the period ended three months
prior to such valuation date and may include unaudited, projected, budgeted or pro forma financial information and may require
adjustments for non-recurring items or to normalize the operating results that may require significant judgment in determining. In addition,
projecting future financial results requires significant judgment regarding future growth assumptions. In
131
Table of Contents
evaluating the operating results, Main Street also analyzes the impact of exposure to litigation, loss of customers or other contingencies.
After determining the appropriate enterprise value, Main Street allocates the enterprise value to investments in order of the legal priority of
the various components of the portfolio company’s capital structure. In applying the Waterfall valuation method, Main Street assumes the
loans are paid off at the principal amount in a change in control transaction and are not assumed by the buyer, which Main Street believes is
consistent with its past transaction history and standard industry practices.
Under the Yield-to-Maturity valuation method, Main Street also uses the income approach to determine the fair value of debt
securities based on projections of the discounted future free cash flows that the debt security will likely generate, including analyzing the
discounted cash flows of interest and principal amounts for the debt security, as set forth in the associated loan agreements, as well as the
financial position and credit risk of the portfolio company. Main Street’s estimate of the expected repayment date of its debt securities is
generally the maturity date of the instrument, as Main Street generally intends to hold its loans and debt securities to maturity. The Yield-to-
Maturity analysis also considers changes in leverage levels, credit quality, portfolio company performance and other factors. Main Street
will generally use the value determined by the Yield-to-Maturity analysis as the fair value for that security; however, because of Main
Street’s general intent to hold its loans to maturity, the fair value will not exceed the principal amount of the debt security valued using the
Yield-to-Maturity valuation method. A change in the assumptions that Main Street uses to estimate the fair value of its debt securities using
the Yield-to-Maturity valuation method could have a material impact on the determination of fair value. If there is deterioration in credit
quality or if a debt security is in workout status, Main Street may consider other factors in determining the fair value of the debt security,
including the value attributable to the debt security from the enterprise value of the portfolio company or the proceeds that would most
likely be received in a liquidation analysis.
Under the NAV valuation method, for an investment in an investment fund that does not have a readily determinable fair value,
Main Street measures the fair value of the investment predominately based on the NAV of the investment fund as of the measurement date
and adjusts the investment’s fair value for factors known to Main Street that would affect that fund’s NAV, including, but not limited to,
fair values for individual investments held by the fund if Main Street holds the same investment or for a publicly traded investment. In
addition, in determining the fair value of the investment, Main Street considers whether adjustments to the NAV are necessary in certain
circumstances, based on the analysis of any restrictions on redemption of Main Street’s investment as of the measurement date, recent
actual sales or redemptions of interests in the investment fund, and expected future cash flows available to equity holders, including the rate
of return on those cash flows compared to an implied market return on equity required by market participants, or other uncertainties
surrounding Main Street’s ability to realize the full NAV of its interests in the investment fund.
Pursuant to its internal valuation process and the requirements under the 1940 Act, Main Street performs valuation procedures on
each of its portfolio investments quarterly. In addition to its internal valuation process, in arriving at estimates of fair value for its
investments in its LMM portfolio companies, Main Street, among other things, consults with a nationally recognized independent financial
advisory services firm. The nationally recognized independent financial advisory services firm analyzes and provides observations,
recommendations and an assurance certification regarding the Company’s determinations of the fair value of its LMM portfolio company
investments. The nationally recognized independent financial advisory services firm is generally consulted relative to Main Street’s
investments in each LMM portfolio company at least once every calendar year, and for Main Street’s investments in new LMM portfolio
companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, Main Street may determine
that it is not cost-effective, and as a result is not in its stockholders’ best interest, to consult with the nationally recognized independent
financial advisory services firm on its investments in one or more LMM portfolio companies. Such instances include, but are not limited to,
situations where the fair value of Main Street’s investment in a LMM portfolio company is determined to be insignificant relative to the
total Investment Portfolio. Main Street consulted with and received an assurance certification from its independent financial advisory
services firm in arriving at Main Street’s determination of fair value on its investments in a total of 58 LMM portfolio companies for the
year ended December 31, 2020, representing approximately 91% of the total LMM portfolio at fair value as of December 31, 2020, and on
a total of 57 LMM portfolio companies for the year ended December 31, 2019, representing approximately 94% of the total LMM portfolio
at fair value as of December 31, 2019. Excluding its investments in LMM portfolio companies that, as of December 31, 2020 and 2019, as
applicable, had not been in the Investment Portfolio for at least twelve months subsequent to the initial investment or whose primary
purpose is to own real estate
132
Table of Contents
for which a third-party appraisal is obtained on at least an annual basis, the percentage of the LMM portfolio reviewed and certified by its
independent financial advisory services firm for the years ended December 31, 2020 and 2019 was 99% of the total LMM portfolio at fair
value as of both December 31, 2020 and 2019.
For valuation purposes, all of Main Street’s Middle Market portfolio investments are non-control investments. To the extent
sufficient observable inputs are available to determine fair value, Main Street uses observable inputs to determine the fair value of these
investments through obtaining third-party quotes or other independent pricing. For Middle Market portfolio investments for which it has
determined that third-party quotes or other independent pricing are not available or appropriate, Main Street generally estimates the fair
value based on the assumptions that it believes hypothetical market participants would use to value such Middle Market debt investments in
a current hypothetical sale using the Yield-to-Maturity valuation method and such Middle Market equity investments in a current
hypothetical sale using the Waterfall valuation method. Because the vast majority of the Middle Market portfolio investments are typically
valued using third-party quotes or other independent pricing services (including 90% and 91% of the Middle Market portfolio investments
as of December 31, 2020 and 2019, respectively), Main Street generally does not consult with any financial advisory services firms in
connection with determining the fair value of its Middle Market investments.
For valuation purposes, all of Main Street’s Private Loan portfolio investments are non-control investments. For Private Loan
portfolio investments for which it has determined that third-party quotes or other independent pricing are not available or appropriate, Main
Street generally estimates the fair value based on the assumptions that it believes hypothetical market participants would use to value such
Private Loan debt investments in a current hypothetical sale using the Yield-to-Maturity valuation method and such Private Loan equity
investments in a current hypothetical sale using the Waterfall valuation method.
In addition to its internal valuation process, in arriving at estimates of fair value for its investments in its Private Loan portfolio
companies, Main Street, among other things, consults with a nationally recognized independent financial advisory services firm. The
nationally recognized independent financial advisory services firm analyzes and provides observations and recommendations and an
assurance certification regarding the Company’s determinations of the fair value of its Private Loan portfolio company investments. The
nationally recognized independent financial advisory services firm is generally consulted relative to Main Street’s investments in each
Private Loan portfolio company at least once every calendar year, and for Main Street’s investments in new Private Loan portfolio
companies, at least once in the twelve-month period subsequent to the initial investment. In certain instances, Main Street may determine
that it is not cost-effective, and as a result is not in its stockholders’ best interest, to consult with the nationally recognized independent
financial advisory services firm on its investments in one or more Private Loan portfolio companies. Such instances include, but are not
limited to, situations where the fair value of Main Street’s investment in a Private Loan portfolio company is determined to be insignificant
relative to the total Investment Portfolio. Main Street consulted with and received an assurance certification from its independent financial
advisory services firm in arriving at its determination of fair value on its investments in a total of 36 Private Loan portfolio companies for
the year ended December 31, 2020, representing approximately 66% of the total Private Loan portfolio at fair value as of December, 2020,
and on a total of 37 Private Loan portfolio companies for the year ended December 31, 2019, representing approximately 62% of the total
Private Loan portfolio at fair value as of December 31, 2019. Excluding its investments in Private Loan portfolio companies that, as of
December 31, 2020 and 2019, as applicable, had not been in the Investment Portfolio for at least twelve months subsequent to the initial
investment and its investments in Private Loan portfolio companies that were not reviewed because the investment is valued based upon
third-party quotes or other independent pricing, the percentage of the Private Loan portfolio reviewed and certified by its independent
financial advisory services firm for the years ended December 31, 2020 and 2019 was 92% and 94% of the total Private Loan portfolio at
fair value as of December 31, 2020 and 2019, respectively.
For valuation purposes, all of Main Street’s Other Portfolio investments are non-control investments. Main Street’s Other
Portfolio investments comprised 3.6% and 4.1% of Main Street’s Investment Portfolio at fair value as of December 31, 2020 and 2019,
respectively. Similar to the LMM investment portfolio, market quotations for Other Portfolio equity investments are generally not readily
available. For its Other Portfolio equity investments, Main Street generally determines the fair value of these investments using the NAV
valuation method.
133
Table of Contents
For valuation purposes, Main Street’s investment in the External Investment Manager is a control investment. Market quotations
are not readily available for this investment, and as a result, Main Street determines the fair value of the External Investment Manager using
the Waterfall valuation method under the market approach. In estimating the enterprise value, Main Street analyzes various factors,
including the entity’s historical and projected financial results, as well as its size, marketability and performance relative to the population
of market comparables. This valuation approach estimates the value of the investment as if Main Street were to sell, or exit, the investment.
In addition, Main Street considers its ability to control the capital structure of the company, as well as the timing of a potential exit, in
connection with determining the fair value of the External Investment Manager.
Due to the inherent uncertainty in the valuation process, Main Street’s determination of fair value for its Investment Portfolio may
differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the
market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains
or losses ultimately realized on these investments to be materially different than the valuations currently assigned. Main Street determines
the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.
Main Street uses an internally developed portfolio investment rating system in connection with its investment oversight, portfolio
management and analysis and investment valuation procedures for its LMM portfolio companies. This system takes into account both
quantitative and qualitative factors of the LMM portfolio company and the investments held therein.
The Board of Directors of Main Street has the final responsibility for overseeing, reviewing and approving, in good faith, Main
Street’s determination of the fair value for its Investment Portfolio, as well as its valuation procedures, consistent with 1940 Act
requirements. Main Street believes its Investment Portfolio as of December 31, 2020 and 2019 approximates fair value as of those dates
based on the markets in which Main Street operates and other conditions in existence on those reporting dates.
2. Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period. Actual results may differ from these estimates under
different conditions or assumptions. Additionally, as explained in Note B.1., the consolidated financial statements include investments in
the Investment Portfolio whose values have been estimated by Main Street with the oversight, review and approval by Main Street’s Board
of Directors in the absence of readily ascertainable market values. Because of the inherent uncertainty of the Investment Portfolio
valuations, those estimated values may differ materially from the values that would have been determined had a ready market for the
securities existed.
The COVID-19 pandemic, and the related effect on the U.S. and global economies, has impacted, and threatens to continue to
impact, the businesses and operating results of certain of Main Street’s portfolio companies, as well as market interest spreads. As a result
of these and other current effects of the COVID-19 pandemic, as well as the uncertainty regarding the extent and duration of its impact, the
valuation of Main Street’s Investment Portfolio is volatile.
3. Cash and Cash Equivalents
Cash and cash equivalents consist of cash and highly liquid investments with an original maturity of three months or less at the
date of purchase. Cash and cash equivalents are carried at cost, which approximates fair value.
At December 31, 2020, cash balances totaling $29.1 million exceeded Federal Deposit Insurance Corporation insurance protection
levels, subjecting the Company to risk related to the uninsured balance. All of the Company’s cash deposits are held at large established
high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote.
134
Table of Contents
4. Interest, Dividend and Fee Income
Main Street records interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend
income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to
make a distribution. In accordance with Main Street’s valuation policies, Main Street evaluates accrued interest and dividend income
periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if Main Street otherwise does not expect
the debtor to be able to service all of its debt or other obligations, Main Street will generally place the loan or debt security on non-accrual
status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay
contractual amounts due. If a loan or debt security’s status significantly improves regarding the debtor’s ability to service the debt or other
obligations, or if a loan or debt security is sold or written off, Main Street removes it from non-accrual status.
As of December 31, 2020, Main Street’s total Investment Portfolio had seven investments on non-accrual status, which comprised
approximately 1.3% of its fair value and 3.6% of its cost. As of December 31, 2019, Main Street’s total Investment Portfolio had eight
investments on non-accrual status, which comprised approximately 1.4% of its fair value and 4.8% of its cost.
Main Street holds certain debt and preferred equity instruments in its Investment Portfolio that contain payment-in-kind (“PIK”)
interest and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is
periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be
deferred until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are
added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time
as the preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed in Note B.9. below), these non-cash sources of
income may need to be paid out to stockholders in the form of distributions, even though Main Street may not have collected the PIK
interest and cumulative dividends in cash. For the years ended December 31, 2020, 2019, and 2018, (i) approximately 2.8%, 2.0%, and
1.0%, respectively, of Main Street’s total investment income was attributable to PIK interest income not paid currently in cash and
(ii) approximately 0.8%, 1.0%, and 1.0%, respectively, of Main Street’s total investment income was attributable to cumulative dividend
income not paid currently in cash. Main Street stops accruing PIK interest and cumulative dividends and writes off any accrued and
uncollected interest and dividends in arrears when it determines that such PIK interest and dividends in arrears are no longer collectible.
Main Street may periodically provide services, including structuring and advisory services, to its portfolio companies or other
third parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned,
which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions
for services that do not meet these criteria are treated as debt origination fees and are deferred and accreted into income over the life of the
financing.
A presentation of total investment income Main Street received from its Investment Portfolio in each of the periods presented is as
follows:
Interest, fee and dividend income:
Interest income
Dividend income
Fee income
Total interest, fee and dividend income
135
Twelve Months Ended December 31,
2020
2019
(dollars in thousands)
2018
$
$
173,676
36,373
12,565
222,614
$
$
187,381
49,782
6,210
243,373
$
$
177,103
46,471
9,781
233,355
Table of Contents
5. Deferred Financing Costs
Deferred financing costs include commitment fees and other costs related to Main Street’s multi-year revolving credit facility (the
“Credit Facility”) and its unsecured notes, as well as the commitment fees and leverage fees (approximately 3.4% of the total commitment
and draw amounts, as applicable) on the SBIC debentures, which are not accounted for under the fair value option under ASC 825 (as
discussed further in Note B.11.). See further discussion of Main Street’s debt in Note E. Deferred financing costs in connection with the
Credit Facility are capitalized as an asset. Deferred financing costs in connection with all other debt arrangements not using the fair value
option are a direct deduction from the related debt liability.
6. Equity Offering Costs
The Company’s offering costs are charged against the proceeds from equity offerings when the proceeds are received.
7. Unearned Income—Debt Origination Fees and Original Issue Discount and Discounts / Premiums to Par Value
Main Street capitalizes debt origination fees received in connection with financings and reflects such fees as unearned income
netted against the applicable debt investments. The unearned income from the fees is accreted into income based on the effective interest
method over the life of the financing.
In connection with its portfolio debt investments, Main Street sometimes receives nominal cost warrants or warrants with an
exercise price below the fair value of the underlying equity (together, “nominal cost equity”) that are valued as part of the negotiation
process with the particular portfolio company. When Main Street receives nominal cost equity, Main Street allocates its cost basis in its
investment between its debt security and its nominal cost equity at the time of origination based on amounts negotiated with the particular
portfolio company. The allocated amounts are based upon the fair value of the nominal cost equity, which is then used to determine the
allocation of cost to the debt security. Any discount recorded on a debt investment resulting from this allocation is reflected as unearned
income, which is netted against the applicable debt investment, and accreted into interest income based on the effective interest method
over the life of the debt investment. The actual collection of this interest is deferred until the time of debt principal repayment.
Main Street may also purchase debt securities at a discount or at a premium to the par value of the debt security. In the case of a
purchase at a discount, Main Street records the investment at the par value of the debt security net of the discount, and the discount is
accreted into interest income based on the effective interest method over the life of the debt investment. In the case of a purchase at a
premium, Main Street records the investment at the par value of the debt security plus the premium, and the premium is amortized as a
reduction to interest income based on the effective interest method over the life of the debt investment.
To maintain RIC tax treatment (as discussed in Note B.9. below), these non-cash sources of income may need to be paid out to
stockholders in the form of distributions, even though Main Street may not have collected the interest income. For the years ended
December 31, 2020, 2019 and 2018, approximately 2.7%, 2.7% and 3.0%, respectively, of Main Street’s total investment income was
attributable to interest income from the accretion of discounts associated with debt investments, net of any premium reduction.
8. Share-Based Compensation
Main Street accounts for its share-based compensation plans using the fair value method, as prescribed by ASC 718,
Compensation—Stock Compensation. Accordingly, for restricted stock awards, Main Street measures the grant date fair value based upon
the market price of its common stock on the date of the grant and amortizes the fair value of the awards as share-based compensation
expense over the requisite service period, which is generally the vesting term.
136
Table of Contents
Main Street has also adopted Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation:
Improvements to Employee Share-Based Payment Accounting, which requires that all excess tax benefits and tax deficiencies (including tax
benefits of dividends on share-based payment awards) be recognized as income tax expense or benefit in the income statement and not
delay recognition of a tax benefit until the tax benefit is realized through a reduction to taxes payable. Accordingly, the tax effects of
exercised or vested awards are treated as discrete items in the reporting period in which they occur. Additionally, Main Street has elected to
account for forfeitures as they occur.
9. Income Taxes
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC’s taxable income includes the taxable
income generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes.
As a RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that
MSCC distributes to its stockholders. MSCC must generally distribute at least 90% of its “investment company taxable income” (which is
generally its net ordinary taxable income and realized net short-term capital gains in excess of realized net long-term capital losses) and
90% of its tax-exempt income to maintain its RIC status (pass-through tax treatment for amounts distributed). As part of maintaining RIC
status, undistributed taxable income (subject to a 4% non-deductible U.S. federal excise tax) pertaining to a given fiscal year may be
distributed up to 12 months subsequent to the end of that fiscal year, provided such dividends are declared on or prior to the later of (i) the
filing of the U.S. federal income tax return for the applicable fiscal year or (ii) the fifteenth day of the ninth month following the close of
the year in which such taxable income was generated.
The Taxable Subsidiaries primarily hold certain portfolio investments for Main Street. The Taxable Subsidiaries permit Main
Street to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes and to continue to comply with
the “source-of-income” requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with Main
Street for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in Main
Street’s consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated
with MSCC for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their
ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or
loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at their normal
corporate tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the
Taxable Subsidiaries are reflected in Main Street’s consolidated financial statements.
The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a
disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary
owner. Since the External Investment Manager is accounted for as a portfolio investment of MSCC and is not included as a consolidated
subsidiary of MSCC in MSCC’s consolidated financial statements, and as a result of the tax sharing agreement with its Taxable Subsidiary
owner, for its stand-alone financial reporting purposes the External Investment Manager is treated as if it is taxed at normal corporate tax
rates based on its taxable income and, as a result of its activities, may generate income tax expense or benefit. The income tax expense, or
benefit, if any, and the related tax assets and liabilities, of the External Investment Manager are reflected in the External Investment
Manager’s separate financial statements.
The Taxable Subsidiaries and the External Investment Manager use the liability method in accounting for income taxes. Deferred
tax assets and liabilities are recorded for temporary differences between the tax basis of assets and liabilities and their reported amounts in
the consolidated financial statements, using statutory tax rates in effect for the year in which the temporary differences are expected to
reverse. A valuation allowance is provided, if necessary, against deferred tax assets when it is more likely than not that some portion or all
of the deferred tax asset will not be realized. Our stockholder’s equity includes an adjustment to classification as a result of permanent
book-to-tax differences, which include differences in the book and tax treatment of income and expenses.
137
Table of Contents
Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in
the recognition of income and expenses. Taxable income generally excludes net unrealized appreciation or depreciation, as investment
gains or losses are not included in taxable income until they are realized.
10. Net Realized Gains or Losses and Net Unrealized Appreciation or Depreciation
Realized gains or losses are measured by the difference between the net proceeds from the sale or redemption of an investment or a
financial instrument and the cost basis of the investment or financial instrument, without regard to unrealized appreciation or depreciation
previously recognized, and includes investments written-off during the period net of recoveries and realized gains or losses from in-kind
redemptions. Net unrealized appreciation or depreciation reflects the net change in the fair value of the Investment Portfolio and financial
instruments and the reclassification of any prior period unrealized appreciation or depreciation on exited investments and financial
instruments to realized gains or losses.
11. Fair Value of Financial Instruments
Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature
and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Main Street believes that
the carrying amounts of its financial instruments, consisting of cash and cash equivalents, receivables, payables and other liabilities
approximate the fair values of such items due to the short-term nature of these instruments.
As part of Main Street’s acquisition of the majority of the equity interests of MSC II in January 2010 (the “MSC II Acquisition”),
Main Street elected the fair value option under ASC 825, Financial Instruments (“ASC 825”), relating to accounting for debt obligations at
their fair value, for the MSC II SBIC debentures acquired as part of the acquisition accounting related to the MSC II Acquisition and valued
those obligations as discussed further in Note C. In order to provide for a more consistent basis of presentation, Main Street elected the fair
value option for SBIC debentures issued by MSC II subsequent to the MSC II Acquisition. When the fair value option is elected for a given
SBIC debenture, the deferred loan costs associated with the debenture are fully expensed in the current period to “Net Unrealized
Appreciation (Depreciation)—SBIC debentures” as part of the fair value adjustment. Interest incurred in connection with SBIC debentures
which are valued at fair value is included in interest expense.
12. Earnings per Share
Basic and diluted per share calculations are computed utilizing the weighted-average number of shares of common stock
outstanding for the period. In accordance with ASC 260, Earnings Per Share, the unvested shares of restricted stock awarded pursuant to
Main Street’s equity compensation plans are participating securities and, therefore, are included in the basic earnings per share calculation.
As a result, for all periods presented, there is no difference between diluted earnings per share and basic earnings per share amounts.
13. Recently Issued or Adopted Accounting Standards
In February 2016, the FASB issued ASU 2016 02, Leases, which amended the FASB Accounting Standards Codification and
created ASC 842, Leases (“ASC 842”), to require lessees to recognize on the balance sheet a right of use asset, representing its right to use
the underlying asset for the lease term, and a lease liability for all leases with terms greater than 12 months, utilizing a modified
retrospective transition approach, which includes a number of optional practical expedients that entities may elect to apply. The guidance in
ASC 842 also requires qualitative and quantitative disclosures designed to assess the amount, timing and uncertainty of cash flows arising
from leases. Main Street adopted ASC 842 effective January 1, 2019. Under ASC 842, Main Street evaluates leases to determine if the
leases are considered financing or operating leases. Main Street currently has one operating lease for office space for which it has recorded
a right-of-use asset and lease liability for the operating lease obligation. Non-lease components (maintenance, property tax, insurance and
parking) are not included in the lease cost. The lease asset is presented as a single lease cost that is amortized on a straight-line basis over the
life of the lease.
138
Table of Contents
In March 2020, the FASB issued ASU 2020-04, “Reference rate reform (Topic 848)—Facilitation of the effects of reference rate
reform on financial reporting.” The amendments in this update provide optional expedients and exceptions for applying U.S. GAAP to
certain contracts and hedging relationships that reference LIBOR or another reference rate expected to be discontinued due to reference rate
reform and became effective upon issuance for all entities. The Company has agreements that have LIBOR as a reference rate with certain
portfolio companies and also with certain lenders. Many of these agreements include language for choosing an alternative successor rate if
LIBOR reference is no longer considered to be appropriate. Contract modifications are required to be evaluated in determining whether the
modifications result in the establishment of new contracts or the continuation of existing contracts. The Company adopted this amendment
in March 2020 and plans to apply the amendments in this update to account for contract modifications due to changes in reference rates. The
Company continues to evaluate the impact that the amendments in this update will have on its consolidated financial statements and
disclosures when applied.
In May 2020, the SEC published Release No. 33-10786 (the “May 2020 Release”), Amendments to Financial Disclosures about
Acquired and Disposed Businesses, announcing its adoption of rules amending Rule 1-02(w)(2) used in the determination of a significant
subsidiary specific to investment companies, including BDCs. In part, the rules adopted pursuant to the May 2020 Release eliminated the
use of the asset test, and amended the income and investment tests for determining whether an unconsolidated subsidiary requires additional
disclosure in the footnotes of the financial statements. Main Street adopted the rules pursuant to the May 2020 Release during the quarter
ended June 30, 2020. The impact of the adoption of these rules on Main Street’s consolidated financial statements was not material.
In December 2020, the SEC published Release No. IC-34084 (the “December 2020 Release”) Use of Derivatives by Registered
Investment Companies and Business Development Companies, announcing its adoption of rules amending Rule 18f-4 and Rule 6c-11 to
provide an updated, comprehensive approach to the regulation of registered investment companies’, including BDCs’, use of derivatives
and address investor protection concerns. In part, the rules adopted pursuant to the December 2020 Release require that funds using
derivatives generally will have to adopt a derivatives risk management program that a derivatives risk manager administers and that the
fund’s board of directors oversees, and comply with an outer limit on fund leverage. Funds that use derivatives only in a limited manner
will not be subject to these requirements, but they will have to adopt and implement policies and procedures reasonably designed to manage
the fund’s derivatives risks. Funds also will be subject to reporting and recordkeeping requirements regarding their derivatives use. Main
Street will adopt the rules pursuant to the December 2020 Release during the quarter ended March 31, 2021. As Main Street is a limited
user of derivatives, the impact of the adoption of these rules on the consolidated financial statements is not expected to be material.
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by
Main Street as of the specified effective date. Main Street believes that the impact of recently issued standards and any that are not yet
effective will not have a material impact on its consolidated financial statements upon adoption.
NOTE C—FAIR VALUE HIERARCHY FOR INVESTMENTS AND DEBENTURES—PORTFOLIO COMPOSITION
ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the
quality of inputs used to measure fair value, and enhances disclosure requirements for fair value measurements. Main Street accounts for its
investments at fair value.
Fair Value Hierarchy
In accordance with ASC 820, Main Street has categorized its investments based on the priority of the inputs to the valuation
technique into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for
identical investments (Level 1) and the lowest priority to unobservable inputs (Level 3).
139
Table of Contents
Investments recorded on Main Street’s balance sheet are categorized based on the inputs to the valuation techniques as follows:
Level 1—Investments whose values are based on unadjusted quoted prices for identical assets in an active market that
Main Street has the ability to access (examples include investments in active exchange-traded equity securities and investments in
most U.S. government and agency securities).
Level 2—Investments whose values are based on quoted prices in markets that are not active or model inputs that are
observable either directly or indirectly for substantially the full term of the investment. Level 2 inputs include the following:
● Quoted prices for similar assets in active markets (for example, investments in restricted stock);
● Quoted prices for identical or similar assets in non-active markets (for example, investments in thinly traded public
companies);
●
●
Pricing models whose inputs are observable for substantially the full term of the investment (for example, market
interest rate indices); and
Pricing models whose inputs are derived principally from, or corroborated by, observable market data through
correlation or other means for substantially the full term of the investment.
Level 3—Investments whose values are based on prices or valuation techniques that require inputs that are both
unobservable and significant to the overall fair value measurement (for example, investments in illiquid securities issued by
privately held companies). These inputs reflect management’s own assumptions about the assumptions a market participant would
use in pricing the investment.
As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within
which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its
entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable
(Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may
include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).
As of December 31, 2020 and 2019, all of Main Street’s LMM portfolio investments consisted of illiquid securities issued by
privately held companies and the fair value determination for these investments primarily consisted of unobservable inputs. As a result, all
of Main Street’s LMM portfolio investments were categorized as Level 3 as of December 31, 2020 and 2019.
As of December 31, 2020 and 2019, Main Street’s Middle Market portfolio investments consisted primarily of investments in
secured and unsecured debt investments and independently rated debt investments. The fair value determination for these investments
consisted of a combination of observable inputs in non-active markets for which sufficient observable inputs were not available to determine
the fair value of these investments and unobservable inputs. As a result, all of Main Street’s Middle Market portfolio investments were
categorized as Level 3 as of December 31, 2020 and 2019.
As of December 31, 2020 and 2019, Main Street’s Private Loan portfolio investments primarily consisted of investments in
interest-bearing secured debt investments. The fair value determination for these investments consisted of a combination of observable
inputs in non-active markets for which sufficient observable inputs were not available to determine the fair value of these investments and
unobservable inputs. As a result, all of Main Street’s Private Loan portfolio investments were categorized as Level 3 as of December 31,
2020 and 2019.
140
Table of Contents
As of December 31, 2020 and 2019, Main Street’s Other Portfolio investments consisted of illiquid securities issued by privately
held companies and the fair value determination for these investments primarily consisted of unobservable inputs. As a result, all of Main
Street’s Other Portfolio investments were categorized as Level 3 as of December 31, 2020 and 2019.
The fair value determination of each portfolio investment categorized as Level 3 required one or more of the following
unobservable inputs:
●
Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets
for the most recent period available as compared to budgeted numbers;
● Current and projected financial condition of the portfolio company;
● Current and projected ability of the portfolio company to service its debt obligations;
●
Type and amount of collateral, if any, underlying the investment;
● Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the
investment;
● Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);
●
●
Pending debt or capital restructuring of the portfolio company;
Projected operating results of the portfolio company;
● Current information regarding any offers to purchase the investment;
● Current ability of the portfolio company to raise any additional financing as needed;
● Changes in the economic environment which may have a material impact on the operating results of the portfolio company;
●
Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio
company;
● Qualitative assessment of key management;
● Contractual rights, obligations or restrictions associated with the investment; and
● Other factors deemed relevant.
The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The
significant unobservable inputs used in the fair value measurement of Main Street’s LMM equity securities, which are generally valued
through an average of the discounted cash flow technique and the market comparable/enterprise value technique (unless one of these
approaches is determined to not be appropriate), are (i) EBITDA multiples and (ii) the weighted-average cost of capital (“WACC”).
Significant increases (decreases) in EBITDA multiple inputs in isolation would result in a significantly higher (lower) fair value
measurement. On the contrary, significant increases (decreases) in WACC inputs in isolation would result in a significantly lower (higher)
fair value measurement. The significant unobservable inputs used in the fair value measurement of Main Street’s LMM, Middle Market and
Private Loan securities are (i) risk adjusted discount rates used in the Yield-to-Maturity valuation technique (see “Note B.1.—Valuation of
the Investment Portfolio”) and (ii) the percentage of expected principal recovery. Significant increases (decreases) in any of these discount
rates in isolation would result in a significantly lower
141
Table of Contents
(higher) fair value measurement. Significant increases (decreases) in any of these expected principal recovery percentages in isolation
would result in a significantly higher (lower) fair value measurement. However, due to the nature of certain investments, fair value
measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third
parties, which are not presented in the tables below.
The following tables provide a summary of the significant unobservable inputs used to fair value Main Street’s Level 3 portfolio
investments as of December 31, 2020 and 2019:
Fair Value as of
December 31,
2020
(in thousands)
Valuation Technique
877,732 Discounted cash flow WACC
Significant
Unobservable Inputs
Range(3)
Weighted
Average(3) Median(3)
9.4% - 21.0%
14.3 %
15.0 %
Market comparable /
Enterprise Value
EBITDA multiple (1)
4.5x - 8.5x(2)
7.0x
6.1x
1,339,079 Discounted cash flow Risk adjusted discount factor
7.4% - 15.3%(2)
10.6 %
10.8 %
468,055 Market approach
Expected principal recovery percentage
Third‑party quote
0.0% - 100.0%
45 - 100.3
99.4 %
94.7
100.0 %
96.5
2,684,866
(1) EBITDA may include proforma adjustments and/or other addbacks 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 2.2x - 15.0x and the range for risk adjusted discount factor is 5.4% - 29.5%.
(3) Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
Fair Value as of
December 31,
2019
(in thousands)
Valuation Technique
819,749 Discounted cash flow WACC
Significant
Unobservable Inputs
Range(3)
Weighted
Average(3) Median(3)
9.6% - 20.3%
13.6 %
14.2 %
Market comparable /
Enterprise Value
EBITDA multiple (1)
4.9x - 8.5x(2)
7.2x
6.4x
1,212,741 Discounted cash flow Risk adjusted discount factor
5.9% - 16.5%(2)
10.4 %
10.0 %
569,834 Market approach
Expected principal recovery percentage
Third‑party quote
1.4% - 100.0%
28.1 - 101.0
99.3 %
94.7
100.0 %
98.0
2,602,324
Type of
Investment
Equity
investments
Debt
investments
Debt
investments
Total Level 3
investments
Type of
Investment
Equity
investments
Debt
investments
Debt
investments
Total Level 3
investments
$
$
$
$
$
$
$
$
(1) EBITDA may include proforma adjustments and/or other addbacks 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 4.5x - 15.0x and the range for risk adjusted discount factor is 4.6% - 38.0%.
(3) Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
142
Table of Contents
The following tables provide a summary of changes in fair value of Main Street’s Level 3 portfolio investments for the years
ended December 31, 2020 and 2019 (amounts in thousands):
Type of
Investment
Debt
Equity
Equity Warrant
Fair Value
as of
December 31,
2019
1,782,575
809,538
10,211
2,602,324
$
$
Transfers
Into
Level 3
Redemptions/
New
Net
Changes
from
Net
Unrealized
Unrealized Appreciation
Fair Value
as of
December 31,
Hierarchy Repayments Investments to Realized (Depreciation) Other(1)
$
$
— $
—
—
— $
(544,545)
(51,251)
(2,245)
(598,041)
$
$
560,536
114,733
—
675,269
$ 110,099
8,938
2,245
$ 121,282
$
$
(78,866)
(38,404)
1,302
(115,968)
$
$
$
(22,665)
22,665
—
— $
2020
1,807,134
866,219
11,513
2,684,866
(1)
Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow
information at the consolidated statements of cash flows.
Type of
Investment
Debt
Equity
Equity Warrant
Fair Value
as of
December 31,
2018
1,686,753
755,710
11,446
2,453,909
$
$
Transfers
Into
Level 3
Hierarchy
Redemptions/
Repayments
$
$
— $
—
—
— $
(471,923)
(24,322)
1,217
(495,028)
New
Investments
595,285
$
46,046
316
641,647
$
Net
Changes
from
Unrealized
to Realized
35,204
$
(15,287)
(1,090)
18,827
$
Net
Unrealized
Appreciation
(Depreciation)
(43,969)
$
26,809
129
(17,031)
$
$
$
Fair Value
as of
December 31,
2019
1,782,575
809,538
10,211
2,602,324
$
Other(1)
(18,775)
20,582
(1,807)
— $
(1)
Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow
information at the consolidated statements of cash flows.
As of December 31, 2019, the fair value determination for the SBIC debentures recorded at fair value primarily consisted of
unobservable inputs. As a result, the SBIC debentures which were recorded at fair value were categorized as Level 3. Main Street
determined the fair value of these instruments primarily using a Yield-to-Maturity approach that analyzed the discounted cash flows of
interest and principal for each SBIC debenture recorded at fair value based on estimated market interest rates for debt instruments of similar
structure, terms, and maturity. Main Street’s estimate of the expected repayment date of principal for each SBIC debenture recorded at fair
value was the legal maturity date of the instrument. The significant unobservable inputs used in the fair value measurement of Main Street’s
SBIC debentures recorded at fair value were the estimated market interest rates used to fair value each debenture using the yield valuation
technique described above. As of December 31, 2020, all of the SBIC debentures previously accounted for on a fair value basis have been
repaid.
The following tables provide a summary of changes for the Level 3 SBIC debentures recorded at fair value for the years ended
December 31, 2020 and 2019 (amounts in thousands):
Type of
Investment
SBIC debentures at fair value
Type of
Investment
SBIC debentures at fair value
Fair Value
as of
December 31,
2019
21,927
$
Repayments
$ (22,000) $
Net Realized
Loss
533
Net
Unrealized
(Appreciation)
Depreciation
Fair Value
as of
December 31,
2020
(460) $
—
New SBIC
Debentures
$
— $
Fair Value
as of
December 31,
2018
44,688
$
Repayments
$ (24,000) $
Net Realized
Loss
5,689
143
Net
Unrealized
(Appreciation)
New SBIC
Debentures Depreciation
$
— $
(4,450) $
Fair Value
as of
December 31,
2019
21,927
Table of Contents
The following tables provide a summary of the significant unobservable inputs used to fair value Main Street’s Level 3 SBIC
debentures as of December 31, 2019 (amounts in thousands):
Type of
Investment
SBIC debentures
Fair Value
as of
December 31, 2019
$
Valuation Technique
21,927 Discounted cash flow
Significant
Unobservable Inputs
Estimated market interest rates
Range
3.2% - 3.5%
Weighted
Average
3.2 %
At December 31, 2020 and 2019, Main Street’s investments and SBIC debentures at fair value were categorized as follows in the
fair value hierarchy for ASC 820 purposes:
At December 31, 2020
LMM portfolio investments
Middle Market portfolio investments
Private Loan portfolio investments
Other Portfolio investments
External Investment Manager
Total investments
At December 31, 2019
LMM portfolio investments
Middle Market portfolio investments
Private Loan portfolio investments
Other Portfolio investments
External Investment Manager
Total investments
SBIC debentures at fair value
Investment Portfolio Composition
Fair Value Measurements
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
$
— $
—
—
—
—
— $
— $ 1,285,524
445,609
—
740,370
—
96,603
—
—
116,760
— $ 2,684,866
Fair Value Measurements
(in thousands)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
— $
—
—
—
—
— $
— $
— $ 1,206,865
522,083
—
692,117
—
106,739
—
—
74,520
— $ 2,602,324
21,927
— $
Fair Value
$ 1,285,524
445,609
740,370
96,603
116,760
$ 2,684,866
Fair Value
$ 1,206,865
522,083
692,117
106,739
74,520
$ 2,602,324
21,927
$
Main Street’s LMM portfolio investments primarily consist of secured debt, equity warrants and direct equity investments in
privately held, LMM companies based in the United States. Main Street’s LMM portfolio companies generally have annual revenues
between $10 million and $150 million, and its LMM investments generally range in size from $5 million to $50 million. The LMM debt
investments are typically secured by either a first or second priority lien on the assets of the portfolio company, can include either fixed or
floating rate terms and generally have a term of between five and seven years from the original investment date. In most LMM portfolio
investments, Main Street receives nominally priced equity warrants and/or makes direct equity investments in connection with a debt
investment.
Main Street’s Middle Market portfolio investments primarily consist of direct investments in or secondary purchases of interest-
bearing debt securities in privately held companies based in the United States that are generally larger in size than the companies included
in Main Street’s LMM portfolio. Main Street’s Middle Market portfolio companies generally have annual revenues between $150 million
and $1.5 billion, and its Middle Market investments generally range in size from $3 million to $20 million. Main Street’s Middle Market
portfolio debt investments are generally secured by either a first or second priority lien on the assets of the portfolio company and typically
have a term of between three and seven years from the original investment date.
144
Table of Contents
Main Street’s private loan (“Private Loan”) portfolio investments are primarily debt securities in privately held companies that
have been originated through strategic relationships with other investment funds on a collaborative basis, and are often referred to in the
debt markets as “club deals.” Private Loan investments are typically similar in size, structure, terms and conditions to investments Main
Street holds in its LMM portfolio and Middle Market portfolio. Main Street’s Private Loan portfolio debt investments are generally secured
by either a first or second priority lien on the assets of the portfolio company and typically have a term of between three and seven years
from the original investment date.
Main Street’s other portfolio (“Other Portfolio”) investments primarily consist of investments that are not consistent with the
typical profiles for its LMM, Middle Market or Private Loan portfolio investments, including investments which may be managed by third
parties. In the Other Portfolio, Main Street may incur indirect fees and expenses in connection with investments managed by third parties,
such as investments in other investment companies or private funds. For Other Portfolio investments, Main Street generally receives
distributions related to the assets held by the portfolio company. Those assets are typically expected to be liquidated over a five to ten-year
period.
Main Street’s external asset management business is conducted through its External Investment Manager. The External Investment
Manager earns management fees based on the assets of the funds under management and may earn incentive fees, or a carried interest,
based on the performance of the funds managed. Main Street entered into an agreement with the External Investment Manager to share
employees in connection with its asset management business generally, and specifically for its relationship with MSC Income Fund, Inc.
(“MSC Income”), formerly known as HMS Income Fund, Inc. Through this agreement, Main Street shares employees with the External
Investment Manager, including their related infrastructure, business relationships, management expertise and capital raising capabilities.
Main Street allocates the related expenses to the External Investment Manager pursuant to the sharing agreement. Main Street’s total
expenses for the year ended December 31, 2020, 2019, and 2018, are net of expenses allocated to the External Investment Manager of
$7.4 million, $6.7 million, and $6.8 million, respectively.
Investment income, consisting of interest, dividends and fees, can fluctuate dramatically due to various factors, including the level
of new investment activity, repayments of debt investments or sales of equity interests. Investment income in any given year could also be
highly concentrated among several portfolio companies. For the years ended December 31, 2020 and 2019, Main Street did not record
investment income from any single portfolio company in excess of 10% of total investment income.
The following tables provide a summary of Main Street’s investments in the LMM, Middle Market and Private Loan portfolios as
of December 31, 2020 and 2019 (this information excludes the Other Portfolio investments and the External Investment Manager which are
discussed further below):
Number of portfolio companies
Fair value
Cost
Debt investments as a % of portfolio (at cost)
Equity investments as a % of portfolio (at cost)
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield (b)
Average EBITDA (c)
$
$
$
LMM (a)
As of December 31, 2020
Middle Market
(dollars in millions)
42
445.6 $
488.9 $
93.0 %
7.0 %
92.4 %
7.9 %
76.5 $
70
1,285.5 $
1,104.6 $
65.8 %
34.2 %
98.1 %
11.6 %
5.3 $
Private Loan
63
740.4
769.0
93.8 %
6.2 %
95.4 %
8.7 %
58.1
(a) At December 31, 2020, Main Street had equity ownership in approximately 99% of its LMM portfolio companies, and the average fully
diluted equity ownership in those portfolio companies was approximately 38%.
(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of
December 31, 2020, 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
145
Table of Contents
investments on non-accrual status. The weighted-average annual effective yield is higher than what an investor in shares of Main
Street’s common stock will realize on its investment because it does not reflect Main Street’s expenses or any sales load paid by an
investor.
(c) The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and
Private Loan portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, one Middle
Market portfolio company and four Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for Main
Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
Number of portfolio companies
Fair value
Cost
Debt investments as a % of portfolio (at cost)
Equity investments as a % of portfolio (at cost)
% of debt investments at cost secured by first priority lien
Weighted-average annual effective yield (b)
Average EBITDA (c)
$
$
$
LMM (a)
As of December 31, 2019
Middle Market
(dollars in millions)
51
522.1 $
572.3 $
94.8 %
5.2 %
91.3 %
8.6 %
85.0 $
69
1,206.9 $
1,002.2 $
65.9 %
34.1 %
98.1 %
11.8 %
5.1 $
Private Loan
65
692.1
734.8
94.6 %
5.4 %
95.4 %
9.5 %
57.8
(a) At December 31, 2019, Main Street had equity ownership in approximately 99% of its LMM portfolio companies, and the average fully
diluted equity ownership in those portfolio companies was approximately 42%.
(b) The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of
December 31, 2019, 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 is higher than what an investor in shares of Main Street’s common stock will realize on its investment because it does not reflect
Main Street’s expenses or any sales load paid by an investor.
(c) The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Middle Market and
Private Loan portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, two Middle
Market portfolio companies and three Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for Main
Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
As of December 31, 2020, Main Street had Other Portfolio investments in twelve companies, collectively totaling approximately
$96.6 million in fair value and approximately $124.7 million in cost basis and which comprised approximately 3.6% of Main Street’s
Investment Portfolio at fair value. As of December 31, 2019, Main Street had Other Portfolio investments in eleven companies, collectively
totaling approximately $106.7 million in fair value and approximately $118.4 million in cost basis and which comprised approximately
4.1% of Main Street’s Investment Portfolio at fair value.
As discussed further in Note A.1., Main Street holds an investment in the External Investment Manager, a wholly owned
subsidiary that is treated as a portfolio investment. As of December 31, 2020, there was a $29.5 million cost basis in this investment and the
investment had a fair value of approximately $116.8 million, which comprised approximately 4.3% of Main Street’s Investment Portfolio at
fair value. As of December 31, 2019, there was no cost basis in this investment and the investment had a fair value of approximately
$74.5 million, which comprised approximately 2.9% of Main Street’s Investment Portfolio at fair value.
The following tables summarize the composition of Main Street’s total combined LMM portfolio investments, Middle Market
portfolio investments and Private Loan portfolio investments at cost and fair value by type of investment
146
Table of Contents
as a percentage of the total combined LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio
investments, as of December 31, 2020 and 2019 (this information excludes the Other Portfolio investments and the External Investment
Manager).
Cost:
First lien debt
Equity
Second lien debt
Equity warrants
Other
Fair Value:
First lien debt
Equity
Second lien debt
Equity warrants
Other
December 31, 2020
December 31, 2019
77.0 %
19.0 %
2.7 %
0.5 %
0.8 %
100.0 %
78.2 %
17.2 %
3.5 %
0.6 %
0.5 %
100.0 %
December 31, 2020
December 31, 2019
70.0 %
26.4 %
2.4 %
0.4 %
0.8 %
100.0 %
70.1 %
26.0 %
3.0 %
0.4 %
0.5 %
100.0 %
The following tables summarize the composition of Main Street’s total combined LMM portfolio investments, Middle Market
portfolio investments and Private Loan portfolio investments by geographic region of the United States and other countries at cost and fair
value as a percentage of the total combined LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio
investments, as of December 31, 2020 and 2019 (this information excludes the Other Portfolio investments and the External Investment
Manager). The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
Cost:
Southwest
Northeast
West
Midwest
Southeast
Canada
Other Non-United States
Fair Value:
Southwest
Northeast
West
Midwest
Southeast
Canada
Other Non-United States
December 31, 2020
December 31, 2019
24.3 %
22.6 %
21.0 %
18.2 %
12.8 %
1.1 %
0.0 %
100.0 %
25.0 %
14.8 %
24.6 %
20.6 %
13.2 %
1.2 %
0.6 %
100.0 %
December 31, 2020
December 31, 2019
24.7 %
21.7 %
21.4 %
19.7 %
11.5 %
1.0 %
0.0 %
100.0 %
26.7 %
14.4 %
25.1 %
20.6 %
11.6 %
1.1 %
0.5 %
100.0 %
Main Street’s LMM portfolio investments, Middle Market portfolio investments and Private Loan portfolio investments are in
companies conducting business in a variety of industries. The following tables summarize the composition of Main Street’s total combined
LMM portfolio investments, Middle Market portfolio investments and
147
Table of Contents
Private Loan portfolio investments by industry at cost and fair value as of December 31, 2020 and 2019 (this information excludes the
Other Portfolio investments and the External Investment Manager).
Cost:
Machinery
Construction & Engineering
Aerospace & Defense
Internet Software & Services
Health Care Providers & Services
Professional Services
Commercial Services & Supplies
Energy Equipment & Services
Software
Leisure Equipment & Products
IT Services
Communications Equipment
Oil, Gas & Consumable Fuels
Specialty Retail
Hotels, Restaurants & Leisure
Diversified Telecommunication Services
Food Products
Tobacco
Media
Distributors
Diversified Financial Services
Electronic Equipment, Instruments & Components
Containers & Packaging
Computers & Peripherals
Building Products
Life Sciences Tools & Services
Household Durables
Trading Companies & Distributors
Diversified Consumer Services
Transportation Infrastructure
Food & Staples Retailing
Chemicals
Construction Materials
Road & Rail
Other (1)
December 31, 2020
December 31, 2019
6.4 %
6.0 %
5.9 %
5.2 %
5.1 %
5.1 %
4.7 %
4.5 %
4.4 %
4.2 %
4.0 %
3.3 %
3.2 %
3.1 %
2.6 %
2.6 %
2.6 %
2.2 %
2.1 %
2.1 %
2.1 %
1.9 %
1.6 %
1.5 %
1.4 %
1.4 %
1.3 %
1.2 %
1.0 %
1.0 %
1.0 %
0.9 %
0.5 %
0.4 %
3.5 %
100.0 %
7.7 %
5.4 %
4.9 %
4.1 %
4.5 %
2.9 %
6.1 %
5.4 %
2.4 %
3.8 %
4.6 %
3.1 %
3.6 %
3.1 %
3.7 %
3.9 %
3.0 %
— %
5.3 %
1.1 %
1.9 %
3.5 %
1.7 %
2.3 %
1.3 %
— %
0.2 %
— %
0.4 %
1.0 %
1.0 %
1.0 %
1.0 %
1.4 %
4.7 %
100.0 %
(1)
Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio investments, Middle
Market portfolio investments and Private Loan portfolio investments at each date.
148
Table of Contents
Fair Value:
Machinery
Construction & Engineering
Aerospace & Defense
Health Care Providers & Services
Software
Commercial Services & Supplies
Internet Software & Services
Leisure Equipment & Products
Professional Services
IT Services
Specialty Retail
Energy Equipment & Services
Diversified Consumer Services
Computers & Peripherals
Communications Equipment
Oil, Gas & Consumable Fuels
Media
Diversified Financial Services
Food Products
Distributors
Tobacco
Diversified Telecommunication Services
Hotels, Restaurants & Leisure
Containers & Packaging
Building Products
Life Sciences Tools & Services
Construction Materials
Electronic Equipment, Instruments & Components
Household Durables
Trading Companies & Distributors
Transportation Infrastructure
Food & Staples Retailing
Road & Rail
Other (1)
December 31, 2020
December 31, 2019
8.1 %
6.1 %
5.7 %
5.2 %
4.6 %
4.5 %
4.5 %
4.0 %
4.0 %
3.8 %
3.4 %
3.0 %
3.0 %
2.9 %
2.7 %
2.7 %
2.5 %
2.3 %
2.2 %
2.1 %
2.1 %
2.0 %
2.0 %
1.7 %
1.4 %
1.4 %
1.4 %
1.3 %
1.3 %
1.2 %
1.0 %
0.9 %
0.6 %
4.4 %
100.0 %
9.9 %
5.6 %
4.7 %
4.3 %
2.7 %
5.5 %
3.8 %
3.5 %
2.2 %
4.8 %
3.4 %
4.9 %
2.2 %
3.8 %
2.7 %
3.2 %
4.7 %
2.1 %
2.7 %
1.0 %
— %
3.3 %
3.3 %
1.7 %
1.2 %
— %
1.5 %
2.7 %
0.1 %
— %
1.0 %
1.0 %
1.5 %
5.0 %
100.0 %
(1)
Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio investments, Middle
Market portfolio investments and Private Loan portfolio investments at each date.
At December 31, 2020 and 2019, Main Street had no portfolio investment that was greater than 10% of the Investment Portfolio at
fair value.
Unconsolidated Significant Subsidiaries
In accordance with Rules 3-09 and 4-08(g) of Regulation S-X, Main Street must determine which of its unconsolidated controlled
portfolio companies, if any, are considered “significant subsidiaries.” On May 20, 2020, the SEC published in Release No. 33-10786,
Amendments to Financial Disclosures about Acquired and Disposed Businesses, amendments to Rule 1-02(w)(2) of Regulation S-X used in
the determination of a significant subsidiary specific to investment companies, including BDCs. The amendments become effective on
January 1, 2021, but the SEC allowed for early application. Main Street elected to apply these revisions effective June 30, 2020. In
evaluating its unconsolidated controlled portfolio companies in accordance with the revised rules, there are two tests that Main Street must
utilize to determine if any of Main Street’s Control Investments (as defined in Note A, including those
149
Table of Contents
unconsolidated portfolio companies defined as Control Investments in which Main Street does not own greater than 50% of the voting
securities or maintain greater than 50% of the board representation) are considered significant subsidiaries: the investment test and the
income test. The investment test is generally measured by dividing Main Street’s investment in the Control Investment by the value of Main
Street’s total investments. The income test is generally measured by dividing the absolute value of the combined sum of total investment
income, net realized gain (loss) and net unrealized appreciation (depreciation) from the relevant Control Investment for the period being
tested by the absolute value of Main Street’s change in net assets resulting from operations for the same period. Rules 3-09 and 4-08(g) of
Regulation S-X, as interpreted by the SEC, require Main Street to include (1) separate audited financial statements of an unconsolidated
majority-owned subsidiary (Control Investments in which Main Street owns greater than 50% of the voting securities) in an annual report
and (2) summarized financial information of a Control Investment in a quarterly report, respectively, if certain thresholds of the investment
or income tests are exceeded and the unconsolidated portfolio company qualifies as a significant subsidiary.
As of December 31, 2020, 2019 and 2018, Main Street had no single investment that qualified as a significant subsidiary under
either the investment or income tests.
NOTE D—EXTERNAL INVESTMENT MANAGER
As discussed further in Note A.1., the External Investment Manager provides investment management and other services to
External Parties. The External Investment Manager is accounted for as a portfolio investment of MSCC since the External Investment
Manager conducts all of its investment management activities for External Parties.
During May 2012, Main Street entered into an investment sub-advisory agreement with HMS Adviser, LP (“HMS Adviser”),
which was the investment advisor to MSC Income at the time, to provide certain investment advisory services to HMS Adviser. In
December 2013, after obtaining required no-action relief from the SEC to allow it to own a registered investment adviser, Main Street
assigned the sub-advisory agreement to the External Investment Manager since the fees received from such arrangement could otherwise
have negative consequences on MSCC’s ability to meet the source-of-income requirement necessary for it to maintain its RIC tax treatment.
Under the investment sub-advisory agreement, the External Investment Manager was entitled to 50% of the annual base management fee
and the incentive fees earned by HMS Adviser under its advisory agreement with MSC Income. Effective October 30, 2020, the External
Investment Manager and HMS Adviser consummated the transactions contemplated by that certain asset purchase agreement by and among
the External Investment Manager, HMS Adviser and the other parties thereto whereby the External Investment Manager became the sole
investment adviser and administrator to MSC Income pursuant to an Investment Advisory and Administrative Services Agreement entered
into between the External Investment Manager and MSC Income (the “Advisory Agreement”). The Advisory Agreement includes a 1.75%
annual management fee, reduced from 2.00%, and the same incentive fee as under MSC Income’s prior advisory agreement with HMS
Adviser, with the External Investment Manager receiving 100% of such fee income (increased from 50% previously).
The External Investment Manager agreed to waive the historical incentive fees otherwise earned through December 31, 2018.
During the year ended December 31, 2020, the External Investment Manager earned $10.7 million in base management fee income and no
incentive fees compared to $11.1 million of base management fees and $2.0 million in incentive fees in 2019 and $11.6 million of base
management fees in 2018 for the investment advisory services provided to MSC Income.
The investment in the External Investment Manager is accounted for using fair value accounting, with the fair value determined by
Main Street and approved, in good faith, by Main Street’s Board of Directors. Main Street determines the fair value of the External
Investment Manager using the Waterfall valuation method under the market approach (see further discussion in Note B.1.). Any change in
fair value of the investment in the External Investment Manager is recognized on Main Street’s consolidated statements of operations in
“Net Unrealized Appreciation (Depreciation)—Control investments.”
The External Investment Manager is an indirect wholly owned subsidiary of MSCC owned through a Taxable Subsidiary and is a
disregarded entity for tax purposes. The External Investment Manager has entered into a tax sharing agreement with its Taxable Subsidiary
owner. Since the External Investment Manager is accounted for as a portfolio
150
Table of Contents
investment of MSCC and is not included as a consolidated subsidiary of MSCC in MSCC’s consolidated financial statements, and as a
result of the tax sharing agreement with its Taxable Subsidiary owner, for financial reporting purposes the External Investment Manager is
treated as if it is taxed at normal corporate tax rates based on its taxable income and, as a result of its activities, may generate income tax
expense or benefit. Main Street owns the External Investment Manager through the Taxable Subsidiary to allow MSCC to continue to
comply with the “source-of-income” requirements contained in the RIC tax provisions of the Code. The taxable income, or loss, of the
External Investment Manager may differ from its book income, or loss, due to temporary book and tax timing differences and permanent
differences. As a result of the above described financial reporting and tax treatment, the External Investment Manager provides for any
income tax expense, or benefit, and any tax assets or liabilities in its separate financial statements.
Main Street shares employees with the External Investment Manager and allocates costs related to such shared employees to the
External Investment Manager generally based on a combination of the direct time spent, new investment origination activity and assets
under management, depending on the nature of the expense. For the years ended December 31, 2020, 2019 and 2018, Main Street allocated
$7.4 million, $6.7 million and $6.8 million of total expenses, respectively, to the External Investment Manager. The total contribution of the
External Investment Manager to Main Street’s net investment income consists of the combination of the expenses allocated to the External
Investment Manager and the dividend income earned from the External Investment Manager. For the years ended December 31, 2020, 2019
and 2018, the total contribution to Main Street’s net investment income was $9.9 million, $11.7 million and $10.6 million, respectively.
Summarized financial information from the separate financial statements of the External Investment Manager as of
December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019 and 2018 is as follows:
As of
December 31,
2020
As of
December 31,
2019
Cash
Accounts receivable—MSC Income Fund
Total assets
Accounts payable to MSCC and its subsidiaries
Dividend payable to MSCC and its subsidiaries
Equity
Total liabilities and equity
$
$
$
$
(dollars in thousands)
— $
3,520
3,520
2,423
1,097
$
$
—
$
3,520
Management fee income
Incentive fees
Total revenues
Expenses allocated from MSCC or its subsidiaries:
Salaries, share‑based compensation and other personnel costs
Other G&A expenses
Total allocated expenses
Pre‑tax income
Tax expense
Net income
$
$
151
Twelve Months Ended
December 31,
2019
(dollars in thousands)
$
2020
10,665
$
—
11,116
1,972
13,088
10,665
(4,984)
(2,445)
(7,429)
3,236
(745)
2,491
(4,388)
(2,284)
(6,672)
6,416
(1,427)
4,989
$
$
—
2,708
2,708
1,592
1,116
—
2,708
2018
11,592
—
11,592
(4,324)
(2,444)
(6,768)
4,824
(1,002)
3,822
Table of Contents
NOTE E—DEBT
Summary of debt as of December 31, 2020 is as follows:
SBIC Debentures
Credit Facility
4.50% Notes due 2022
5.20% Notes due 2024
Total Debt
Summary of debt as of December 31, 2019 is as follows:
SBIC Debentures
Credit Facility
4.50% Notes due 2022
5.20% Notes due 2024
Total Debt
Outstanding
Balance
Unamortized
Debt Issuance
Costs/Premiums
Estimated Fair
Recorded Value
Value (1)
$
309,800
$
269,000
185,000
450,000
(in thousands)
(5,828) $
-
(1,164)
1,817
303,972
$
309,907
269,000
183,836
451,817
269,000
194,938
488,102
$ 1,213,800
$
(5,175) $ 1,208,625
$ 1,261,947
Unamortized
Debt Issuance
Costs/Premiums
and Fair Value
Adjustments
Outstanding
Balance
Recorded Value
Estimated Fair
Value (1)
$
311,800
$
300,000
185,000
325,000
(in thousands)
(5,612) $
-
(1,771)
(405)
306,188
$
310,210
300,000
183,229
324,595
300,000
194,812
350,929
$ 1,121,800
$
(7,788) $ 1,114,012
$ 1,155,951
(1) Estimated fair value for outstanding debt if Main Street had adopted the fair value option under ASC 825.
Summarized interest expense for the twelve months ended December 31, 2020, 2019 and 2018 is as follows (in thousands):
SBIC Debentures
Credit Facility
6.125% Notes
4.50% Notes Due 2019
4.50% Notes Due 2022
5.20% Notes Due 2024
Total Interest Expense
SBIC Debentures
$
$
$
$
Twelve Months Ended December 31,
2018
2019
2020
12,754
12,739
11,867
11,723
10,974
9,232
1,464
-
-
8,597
7,881
-
8,955
8,932
8,932
9,732
19,556
-
43,493
50,258
49,587
$
$
Under existing SBIC regulations, SBA-approved SBICs under common control have the ability to issue debentures guaranteed by
the SBA up to a regulatory maximum amount of $350.0 million. Main Street’s SBIC debentures payable, under existing SBA-approved
commitments, were $309.8 million and $311.8 million at December 31, 2020 and 2019, respectively. SBIC debentures provide for interest
to be paid semiannually, with principal due at the applicable 10-year maturity date of each debenture. During the year ended December 31,
2020, Main Street issued $40.0 million of SBIC debentures and prepaid the remaining $42.0 million of existing MSC II SBIC debentures.
As a result of this prepayment, Main Street recognized a realized loss of $0.5 million, due primarily to the write-off of the related
unamortized deferred financing costs. Main Street expects to issue new SBIC debentures under the SBIC
152
Table of Contents
program in the future in an amount up to the regulatory maximum amount for affiliated SBIC funds. The weighted-average annual interest
rate on the SBIC debentures was 3.4% and 3.6% as of December 31, 2020 and 2019, respectively. The first principal maturity due under the
existing SBIC debentures is in 2021, and the weighted-average remaining duration as of December 31, 2020 was approximately 5.4 years.
In accordance with SBIC regulations, the Funds are precluded from incurring additional non-SBIC debt without the prior approval of the
SBA.
As of December 31, 2020, the recorded value of the SBIC debentures was $304.0 million, which consisted of (i) $134.8 million
par value of SBIC debentures outstanding issued by MSMF, with a recorded value of $133.3 million that was net of unamortized debt
issuance costs of $1.5 million and (ii) $175.0 million par value of SBIC debentures issued by MSC III with a recorded value of
$170.7 million that was net of unamortized debt issuance costs of $4.3 million.
The maturity dates and fixed interest rates for Main Street’s SBIC Debentures as of December 31, 2020 and 2019 are summarized
in the following table:
Maturity Date
9/1/2020
9/1/2020
3/1/2021
3/1/2021
9/1/2021
9/1/2022
3/1/2023
3/1/2024
3/1/2024
3/1/2027
9/1/2027
3/1/2028
9/1/2028
3/1/2030
9/1/2030
9/1/2030
3/1/2031
Ending Balance
(1)
Fixed
Interest
Rate
December 31,
2020
December 31,
2019
3.50 %
3.93 %
4.37 %
4.60 %
3.39 %
2.53 %
3.16 %
3.95 %
3.55 %
3.52 %
3.19 %
3.41 %
3.55 %
2.35 %
1.13 %
1.31 %
0.81 %
$
$
-
-
10,000,000
20,000,000
10,000,000
-
16,000,000
39,000,000
24,800,000
40,400,000
34,600,000
43,000,000
32,000,000
15,000,000
10,000,000
10,000,000
5,000,000
309,800,000
$
$
35,000,000
2,000,000
10,000,000
20,000,000
10,000,000
5,000,000
16,000,000
39,000,000
24,800,000
40,400,000
34,600,000
43,000,000
32,000,000
-
-
-
-
311,800,000
(1) The interest rate for this tranche of SBIC debentures represents an initial rate that has not been fixed by the SBA as of December
31, 2020. In March 2021, the rate for this tranche of SBIC debentures will be determined and, thereafter, the rate will be fixed for
the ensuing 10 years.
Credit Facility
Main Street maintains the Credit Facility to provide additional liquidity to support its investment and operational activities. The
Credit Facility includes total commitments of $780.0 million from a diversified group of 19 lenders. The Credit Facility matures in
September 2023 and contains an accordion feature which allows Main Street to increase the total commitments under the facility to up to
$800.0 million from new and existing lenders on the same terms and conditions as the existing commitments.
Borrowings under the Credit Facility bear interest, subject to Main Street’s election and resetting on a monthly basis on the first of
each month, on a per annum basis at a rate equal to the applicable LIBOR rate (0.2% as of the most recent reset date for the period ended
December 31, 2020) plus (i) 1.875% (or the applicable base rate (Prime Rate of 3.25% as of December 31, 2020) plus 0.875%) as long as
Main Street meets certain agreed upon excess collateral and maximum leverage requirements or (ii) 2.0% (or the applicable base rate plus
1.0%) otherwise. Main Street pays unused
153
Table of Contents
commitment fees of 0.25% per annum on the unused lender commitments under the Credit Facility. The Credit Facility is secured by a first
lien on the assets of MSCC and its subsidiaries, excluding the equity ownership or assets of the Funds and the External Investment
Manager. The Credit Facility contains certain affirmative and negative covenants, including but not limited to: (i) maintaining a minimum
availability of at least 10% of the borrowing base, (ii) maintaining an interest coverage ratio of at least 2.0 to 1.0, (iii) maintaining an asset
coverage ratio (tangible net worth to Credit Facility borrowings) of at least 1.5 to 1.0 and (iv) maintaining a minimum tangible net worth.
The Credit Facility is provided on a revolving basis through its final maturity date in September 2023, and contains two, one-year extension
options which could extend the final maturity by up to two years, subject to certain conditions, including lender approval.
As of December 31, 2020, the interest rate on the Credit Facility was 2.0%. The average interest rate for borrowings under the
Credit Facility was 2.5% and 4.1% for the year ended December 31, 2020 and 2019, respectively. As of December 31, 2020, Main Street
was in compliance with all financial covenants of the Credit Facility.
6.125% Notes
In April 2013, Main Street issued $92.0 million, including the underwriters’ full exercise of their option to purchase additional
principal amounts to cover over-allotments, in aggregate principal amount of 6.125% Notes due 2023 (the “6.125% Notes”). The 6.125%
Notes bore interest at a rate of 6.125% per year payable quarterly on January 1, April 1, July 1 and October 1 of each year. On April 2,
2018, Main Street redeemed the entire principal amount of the issued and outstanding 6.125% Notes, effective April 1, 2018 (the
“Redemption Date”), at par value plus the accrued and unpaid interest thereon from January 1, 2018 through, but excluding, the
Redemption Date. As part of the redemption, Main Street recognized a realized loss on extinguishment of debt of $1.5 million in the second
quarter of 2018 related to the write-off of the related unamortized deferred financing costs.
4.50% Notes due 2019
In November 2014, Main Street issued $175.0 million in aggregate principal amount of 4.50% unsecured notes due 2019 (the
“4.50% Notes due 2019”) at an issue price of 99.53%. The 4.50% Notes due 2019 bore interest at a rate of 4.50% per year payable
semiannually on June 1 and December 1 of each year. On December 2, 2019, Main Street repaid the entire principal amount of the issued
and outstanding 4.50% Notes due 2019, effective December 1, 2019 (the “Maturity Date”), at par value plus the accrued and unpaid interest
thereon from June 1, 2019 through the Maturity Date.
4.50% Notes due 2022
In November 2017, Main Street issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due December 1,
2022 (the “4.50% Notes”) at an issue price of 99.16%. The 4.50% Notes are unsecured obligations and rank pari passu with Main Street’s
current and future unsecured indebtedness; senior to any of its future indebtedness that expressly provides it is subordinated to the 4.50%
Notes; effectively subordinated to all of its existing and future secured indebtedness, to the extent of the value of the assets securing such
indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all existing and future indebtedness and other
obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds. The 4.50% Notes may be redeemed in
whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The 4.50% Notes bear interest at a rate of
4.50% per year payable semiannually on June 1 and December 1 of each year. The total net proceeds from the 4.50% Notes, resulting from
the issue price and after underwriting discounts and estimated offering expenses payable, were approximately $182.2 million. Main Street
may from time to time repurchase the 4.50% Notes in accordance with the 1940 Act and the rules promulgated thereunder.
The indenture governing the 4.50% Notes (the “4.50% Notes Indenture”) contains certain covenants, including covenants
requiring Main Street’s compliance with (regardless of whether Main Street is subject to) the asset coverage requirements set forth in
Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring Main Street to provide financial
information to the holders of the 4.50% Notes and the Trustee if Main Street ceases to be subject to the reporting requirements of the
Exchange Act. These covenants are subject to limitations and
154
Table of Contents
exceptions that are described in the 4.50% Notes Indenture. As of December 31, 2020, Main Street was in compliance with these covenants.
5.20% Notes
In April 2019, Main Street issued $250.0 million in aggregate principal amount of 5.20% unsecured notes due May 1, 2024 (the
“5.20% Notes”) at an issue price of 99.125%. In December 2019, Main Street issued an additional $75.0 million in aggregate principal
amount of the 5.20% Notes at an issue price of 105.0% and, in July 2020, Main Street issued an additional $125.0 million in aggregate
principal amount of the 5.20% Notes at an issue price of 102.674%. The 5.20% Notes issued in December 2019 and July 2020 have
identical terms as, and are a part of a single series with, the 5.20% Notes issued in April 2019. The 5.20% Notes are unsecured obligations
and rank pari passu with Main Street’s current and future unsecured indebtedness; senior to any of its future indebtedness that expressly
provides it is subordinated to the 5.20% Notes; effectively subordinated to all of its existing and future secured indebtedness, to the extent of
the value of the assets securing such indebtedness, including borrowings under its Credit Facility; and structurally subordinated to all
existing and future indebtedness and other obligations of any of its subsidiaries, including without limitation, the indebtedness of the Funds.
The 5.20% Notes may be redeemed in whole or in part at any time at Main Street’s option subject to certain make-whole provisions. The
5.20% Notes bear interest at a rate of 5.20% per year payable semiannually on May 1 and November 1 of each year. The total net proceeds
from the 5.20% Notes, resulting from the issue price and after underwriting discounts and estimated offering expenses payable, were
approximately $451.4 million. Main Street may from time to time repurchase the 5.20% Notes in accordance with the 1940 Act and the
rules promulgated thereunder.
The indenture governing the 5.20% Notes (the “5.20% Notes Indenture”) contains certain covenants, including covenants
requiring Main Street’s compliance with (regardless of whether Main Street is subject to) the asset coverage requirements set forth in
Section 18(a)(1)(A) as modified by Section 61(a)(1) of the 1940 Act, as well as covenants requiring Main Street to provide financial
information to the holders of the 5.20% Notes and the Trustee if Main Street ceases to be subject to the reporting requirements of the
Exchange Act. These covenants are subject to limitations and exceptions that are described in the 5.20% Notes Indenture. As of
December 31, 2020, Main Street was in compliance with these covenants.
Contractual Payment Obligations
A summary of Main Street’s contractual payment obligations for the repayment of outstanding indebtedness at December 31, 2020
is as follows:
SBIC debentures
4.50% Notes due 2022
5.20% Notes due 2024
Credit Facility
Total
2021
$ 40,000
—
—
—
$ 40,000
2022
$
— $
185,000
—
—
$ 185,000
2023
16,000
—
—
269,000
$ 285,000
$
2024
63,800
—
450,000
—
$ 513,800
$
$
2025
Thereafter
— $ 190,000
—
—
—
—
—
—
— $ 190,000
$
Total
309,800
185,000
450,000
269,000
$ 1,213,800
155
Table of Contents
Senior Securities
Information about Main Street’s senior securities is shown in the following table as of December 31 for the years indicated in the
table, unless otherwise noted.
Class and Year
SBIC Debentures
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Credit Facility
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
6.125% Notes
2014
2015
2016
2017
4.50% Notes Due 2019
2015
2016
2017
2018
4.50% Notes Due 2022
2017
2018
2019
2020
5.20% Notes Due 2024
2019
2020
Total Amount
Outstanding
Exclusive of
Treasury
Securities(1)
(dollars in
thousands)
Asset
Coverage
per Unit(2)
$
$
$
$
$
$
220,000
225,000
200,200
225,000
225,000
240,000
295,800
345,800
311,800
309,800
107,000
132,000
237,000
218,000
291,000
343,000
64,000
301,000
300,000
269,000
90,823
90,738
90,655
90,655
175,000
175,000
175,000
175,000
185,000
185,000
185,000
185,000
325,000
450,000
2,202
2,763
2,476
2,323
2,368
2,415
2,687
2,455
2,363
2,244
2,202
2,763
2,476
2,323
2,368
2,415
2,687
2,455
2,363
2,244
2,323
2,368
2,415
2,687
2,368
2,415
2,687
2,455
2,687
2,455
2,363
2,244
2,363
2,244
(1) Total amount of each class of senior securities outstanding at the end of the period
presented.
156
Involuntary
Liquidating
Preference Market Value
per Unit(3)
per Unit(4)
Average
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
— $
—
—
—
24.78
25.40
25.76
25.93
—
—
—
—
—
—
—
—
—
—
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Table of Contents
(2) Asset coverage per unit is the ratio of the carrying value of Main Street’s total consolidated assets, less all liabilities and indebtedness
not represented by senior securities, to the aggregate amount of senior securities representing indebtedness. Asset coverage per unit is
expressed in terms of dollar amounts per $1,000 of indebtedness.
(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any
security junior to it. The “—” indicates information that the SEC expressly does not require to be disclosed for certain types of senior
securities.
(4) Average market value per unit for the 6.125% Notes represents the average of the daily closing prices as reported on the NYSE during
the period presented. Average market value per unit for the SBIC debentures, Credit Facility, 4.50% Notes due 2019, 4.50% Notes and
5.20% Notes are not applicable because these are not registered for public trading.
NOTE F—FINANCIAL HIGHLIGHTS
Per Share Data:
NAV at the beginning of the period
Net investment income(1)
Net realized loss(1)(2)
Net unrealized appreciation (depreciation)(1)(2)
Income tax benefit (provision)(1)(2)
Net increase (decrease) in net assets resulting from
operations(1)
Dividends paid
Impact of the net change in monthly dividends
declared prior to the end of the period and paid in
the subsequent period
Accretive effect of stock offerings (issuing shares
above NAV per share)
Accretive effect of DRIP issuance (issuing shares
above NAV per share)
Other(3)
NAV at the end of the period
Market value at the end of the period
Shares outstanding at the end of the period
Twelve Months Ended December 31,
2018
2019
2017
$
$
2020
23.91
2.10
(1.77)
(0.09)
0.21
0.45
(2.46)
$
24.09
2.50
(0.33)
(0.09)
(0.02)
2.06
(2.91)
—
(0.01)
0.41
0.55
$
23.53
2.60
(0.03)
0.32
(0.09)
2.80
(2.85)
(0.01)
0.47
$
22.10
2.39
0.19
0.86
(0.43)
3.01
(2.79)
(0.01)
1.07
2016
21.24
2.23
0.56
(0.14)
0.02
2.67
(2.73)
(0.01)
0.76
0.08
(0.04)
22.35
32.26
67,762,032
$
$
0.12
0.01
23.91
43.11
64,252,937
$
$
0.09
0.06
24.09
33.81
61,264,861
$
$
0.06
0.09
23.53
39.73
58,660,680
$
$
0.08
0.09
22.10
36.77
54,354,857
$
$
(1) Based on weighted-average number of common shares outstanding for the period.
(2) Net realized gains or losses, net unrealized appreciation or depreciation, and income taxes can fluctuate significantly from period to
(3)
period.
Includes the impact of the different share amounts as a result of calculating certain per share data based on the weighted-average basic
shares outstanding during the period and certain per share data based on the shares outstanding as of a period end or transaction date.
157
Table of Contents
NAV at end of period
Average NAV
Average outstanding debt
Ratio of total expenses, including income tax expense,
to average NAV (1)
Ratio of operating expenses to average NAV (2)
Ratio of operating expenses, excluding interest
expense, to average NAV (2)
Ratio of net investment income to average NAV
Portfolio turnover ratio
Total investment return (3)
Total return based on change in NAV (4)
2020
$ 1,514,767
$ 1,436,291
$ 1,152,108
2019
Twelve Months Ended December 31,
2018
(dollars in thousands)
$ 1,476,049
$ 1,441,163
947,694
$
$ 1,380,368
$ 1,287,639
843,993
$
2017
$ 1,536,390
$ 1,517,615
$ 1,055,800
2016
$ 1,201,481
$ 1,118,567
801,048
$
4.95 %
5.89 %
2.44 %
9.60 %
18.00 %
(19.11)%
1.91 %
5.75 %
5.67 %
2.36 %
10.37 %
18.86 %
36.86 %
8.78 %
5.75 %
5.32 %
2.30 %
10.87 %
29.13 %
(8.25) %
12.19 %
7.37 %
5.47 %
2.63 %
10.51 %
38.18 %
16.02 %
14.20 %
5.48 %
5.59 %
2.58 %
10.35 %
24.63 %
37.36 %
12.97 %
(1) Total expenses are the sum of operating expenses and net income tax provision/benefit. Net income tax provision/benefit includes the
accrual of net deferred tax provision/benefit relating to the net unrealized appreciation/depreciation on portfolio investments held in
Taxable Subsidiaries and due to the change in the loss carryforwards, which are non-cash in nature and may vary significantly from
period to period. Main Street is required to include net deferred tax provision/benefit in calculating its total expenses even though these
net deferred taxes are not currently payable/receivable.
(2) Unless otherwise noted, operating expenses include interest, compensation, general and administrative and share-based compensation
expenses, net of expenses allocated to the External Investment Manager.
(3) Total investment return is based on the purchase of stock at the current market price on the first day and a sale at the current market price
on the last day of each period reported on the table and assumes reinvestment of dividends at prices obtained by Main Street’s dividend
reinvestment plan during the period. The return does not reflect any sales load that may be paid by an investor.
(4) Total return is based on change in net asset value was calculated using the sum of ending net asset value plus dividends to stockholders
and other non-operating changes during the period, as divided by the beginning net asset value. Non-operating changes include any items
that affect net asset value other than the net increase in net assets resulting from operations, such as the effects of stock offerings, shares
issued under the DRIP and equity incentive plans and other miscellaneous items.
NOTE G—DIVIDENDS, DISTRIBUTIONS AND TAXABLE INCOME
Main Street currently pays monthly dividends to its stockholders. Its monthly dividends, if any, will be determined by its Board of
Directors on a quarterly basis. During 2020, Main Street paid monthly dividends of $0.205 per share for each month of January through
December 2020. The 2020 monthly dividends, which total $161.1 million, or $2.460 per share, represent a 1.9% increase from the monthly
dividends paid per share for the year ended 2019. During 2019, Main Street also paid supplemental dividends of $0.250 per share in June
2019 and $0.240 per share in December 2019.
For tax purposes, the 2020 dividends, which included the effects of dividends on an accrual basis, total $2.255 per share and were
comprised of (i) ordinary income totaling approximately $2.061 per share, and (ii) qualified dividend income totaling approximately $0.194
per share. As of December 31, 2020, Main Street estimates that it has generated undistributed taxable income of approximately $38.2
million, or $0.56 per share, that will be carried forward toward distributions to be paid in 2021.
MSCC has elected to be treated for U.S. federal income tax purposes as a RIC. MSCC’s taxable income includes the taxable
income generated by MSCC and certain of its subsidiaries, including the Funds, which are treated as disregarded entities for tax purposes.
As a RIC, MSCC generally will not pay corporate-level U.S. federal income taxes on any net ordinary taxable income or capital gains that
MSCC distributes to its stockholders. MSCC must generally
158
Table of Contents
distribute at least 90% of its “investment company taxable income” (which is generally its net ordinary taxable income and realized net
short-term capital gains in excess of realized net long-term capital losses) and 90% of its tax-exempt income to maintain its RIC status
(pass-through tax treatment for amounts distributed). As part of maintaining RIC status, undistributed taxable income (subject to a 4% non-
deductible U.S. federal excise tax) pertaining to a given fiscal year may be distributed up to 12 months subsequent to the end of that
fiscal year, provided such dividends are declared on or prior to the later of (i) filing of the U.S. federal income tax return for the applicable
fiscal year or (ii) the fifteenth day of the ninth month following the close of the year in which such taxable income was generated.
The determination of the tax attributes for Main Street’s distributions is made annually, based upon its taxable income for the
full year and distributions paid for the full year. Therefore, a determination made on an interim basis may not be representative of the actual
tax attributes of distributions for a full year. Ordinary dividend distributions from a RIC do not qualify for the 20% maximum tax rate (plus
a 3.8% Medicare surtax, if applicable) on dividend income from domestic corporations and qualified foreign corporations, except to the
extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations.
The tax attributes for distributions will generally include both ordinary income and qualified dividends, but may also include either one or
both of capital gains and return of capital. The tax character of distributions paid for the years ended December 31, 2020, 2019 and 2018
was as follows:
Ordinary income(1)
Qualified dividends
Distributions of long term capital gains
Distributions on tax basis
Twelve Months Ended December 31,
2018
2019
2020
(dollars in thousands)
$ 166,280
15,451
1,858
$ 183,589
$ 136,934
12,277
22,513
$ 171,724
$ 135,128
12,398
—
$ 147,526
(1) The years ended December 31, 2020, 2019 and 2018 include $1.5 million, $1.6 million and $1.4 million, respectively, that was
reported for tax purposes as compensation for services in accordance with Section 83 of the Code.
Listed below is a reconciliation of “Net increase (decrease) in net assets resulting from operations” to taxable income and to total
distributions declared to common stockholders for the years ended December 31, 2020, 2019 and 2018.
Net increase (decrease) in net assets resulting from operations
Book‑tax difference from share‑based compensation expense
Net unrealized (appreciation) depreciation
Income tax provision (benefit)
Pre-tax book (income) loss not consolidated for tax purposes
Book income and tax income differences, including debt origination, structuring
fees, dividends, realized gains and changes in estimates
Estimated taxable income(1)
Taxable income earned in prior year and carried forward for distribution in current year
Taxable income earned prior to period end and carried forward for distribution next period
Dividend payable as of period end and paid in the following period
Total distributions accrued or paid to common stockholders
$
2018
2020
Year ended December 31,
2019
(estimated, dollars in thousands)
$ 129,569
(354)
5,754
1,242
(30,690)
29,383
5,139
5,622
(13,541)
37,420
$ 168,213
(1,430)
(19,275)
6,152
(454)
93,025
157,048
29,107
(38,248)
13,889
$ 161,796
65,686
171,207
41,489
(42,281)
13,174
$ 183,589
17,649
170,855
42,357
(53,436)
11,948
$ 171,724
(1) Main Street’s taxable income for each period is an estimate and will not be finally determined until the company files its tax return for
each year. Therefore, the final taxable income, and the taxable income earned in each period and carried forward for distribution in the
following period, may be different than this estimate.
159
Table of Contents
The Taxable Subsidiaries primarily hold certain portfolio investments for Main Street. The Taxable Subsidiaries permit Main
Street to hold equity investments in portfolio companies which are “pass-through” entities for tax purposes and to continue to comply with
the “source-of-income” requirements contained in the RIC tax provisions of the Code. The Taxable Subsidiaries are consolidated with Main
Street for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in Main
Street’s consolidated financial statements as portfolio investments and recorded at fair value. The Taxable Subsidiaries are not consolidated
with MSCC for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities, as a result of their
ownership of certain portfolio investments. The taxable income, or loss, of the Taxable Subsidiaries may differ from their book income, or
loss, due to temporary book and tax timing differences and permanent differences. The Taxable Subsidiaries are each taxed at their normal
corporate tax rates based on their taxable income. The income tax expense, or benefit, if any, and the related tax assets and liabilities, of the
Taxable Subsidiaries are reflected in Main Street’s consolidated financial statements.
The income tax expense (benefit) for Main Street is generally composed of (i) deferred tax expense (benefit), which is primarily
the result of the net activity relating to the portfolio investments held in the Taxable Subsidiaries, including changes in loss carryforwards,
changes in net unrealized appreciation or depreciation and other temporary book tax differences, and (ii) current tax expense, which is
primarily the result of current U.S. federal income and state taxes and excise taxes on Main Street’s estimated undistributed taxable income.
The income tax expense, or benefit, and the related tax assets and liabilities generated by the Taxable Subsidiaries, if any, are reflected in
Main Street’s consolidated statement of operations. Main Street’s provision for income taxes was comprised of the following for the years
ended December 31, 2020, 2019 and 2018 (amounts in thousands):
Current tax expense (benefit):
Federal
State
Excise
Total current tax expense (benefit)
Deferred tax expense (benefit):
Federal
State
Total deferred tax expense (benefit)
Total income tax provision (benefit)
Twelve Months Ended
December 31,
2019
2020
2018
$
$
497
(1,554)
1,647
590
(13,082)
(1,049)
(14,131)
$
1,019
1,408
1,119
3,546
(1,267)
(1,037)
(2,304)
(2,398)
1,688
1,029
319
3,763
2,070
5,833
$ (13,541)
$
1,242
$
6,152
MSCC operates in a manner to maintain its RIC status and to eliminate corporate-level U.S. federal income tax (other than the 4%
excise tax) by distributing sufficient investment company taxable income and long-term capital gains. As a result, MSCC will have an
effective tax rate equal to 0% before the excise tax and income taxes incurred by the Taxable Subsidiaries. As such, a reconciliation of the
differences between Main Street’s reported income tax expense and its tax expense at the federal statutory rate of 21% is not meaningful.
As of December 31, 2020, the cost of investments for U.S. federal income tax purposes was $2,352.9 million, with such
investments having a gross unrealized appreciation of $544.8 million and gross unrealized depreciation of $212.8 million.
Management believes that the realization of the deferred tax assets is more likely than not based on expectations as to future
taxable income and scheduled reversals of temporary differences. Accordingly, Main Street did not record a valuation allowance related to
its deferred tax assets at December 31, 2020 and 2019. The following table sets forth the
160
Table of Contents
significant components of net deferred tax assets and liabilities as of December 31, 2020 and 2019 (amounts in thousands):
Deferred tax assets:
Net operating loss carryforwards
Interest Expense Carryforwards
Capital loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Net unrealized appreciation of portfolio investments
Net basis differences in portfolio investments
Total deferred tax liabilities
Total deferred tax asset (liabilities), net
Years Ended
December 31,
2020
2019
$
$
41,691
9,779
929
2,315
54,714
(28,351)
(28,955)
(57,306)
(2,592)
$
$
32,778
10,079
—
2,041
44,898
(31,851)
(29,196)
(61,047)
(16,149)
The net deferred tax liability at December, 31, 2020 was $2.6 million compared to $16.1 million at December 31, 2019, primarily
related to changes in net unrealized appreciation or depreciation, changes in loss carryforwards, and other temporary book-tax differences
relating to portfolio investments held by the Taxable Subsidiaries. At December 31, 2020, for U.S. federal income tax purposes, the Taxable
Subsidiaries had a net operating loss carryforward from prior years which, if unused, will expire in various taxable years from 2028 through
2037. Any net operating losses generated in 2019 and future periods are not subject to expiration and will carryforward indefinitely until
utilized. The timing and manner in which Main Street will utilize any loss carryforwards generated before December 31, 2019 may be
limited in the future under the provisions of the Code. At December 31, 2020, for U.S. federal income tax purposes, the Taxable
Subsidiaries had a net capital loss carryforward totaling approximately $4.2 million which, if unused, will expire in five years.
Additionally, the Taxable Subsidiaries have interest expense limitation carryforwards which have an indefinite carryforward. In addition,
for the year ended December 31, 2020, for U.S. federal income tax purposes at the RIC level, MSCC had net capital loss carryforwards
totaling approximately $103.0 million available to offset future capital gains, to the extent available and permitted by U.S. federal income
tax law. However, as long as MSCC maintains its RIC status, any capital loss carryforwards at the RIC are not subject to a federal income
tax-effect and are not subject to an expiration date.
NOTE H—COMMON STOCK
Main Street maintains a program with certain selling agents through which it can sell shares of its common stock by means of at-
the-market offerings from time to time (the “ATM Program”).
During the year ended December 31, 2020, Main Street sold 2,645,778 shares of its common stock at a weighted-average price of
$32.10 per share and raised $84.9 million of gross proceeds under the ATM Program. Net proceeds were $83.8 million after commissions
to the selling agents on shares sold and offering costs. As of December 31, 2020, sales transactions representing 87,179 shares had not
settled and are not included in shares issued and outstanding on the face of the consolidated balance sheet, but are included in the weighted-
average shares outstanding in the consolidated statement of operations and in the shares used to calculate net asset value per share. As of
December 31, 2020, 5,713,372 shares remained available for sale under the ATM Program.
During the year ended December 31, 2019, Main Street sold 2,247,187 shares of its common stock at a weighted-average price of
$40.05 per share and raised $90.0 million of gross proceeds under the ATM Program. Net proceeds were $88.8 million after commissions
to the selling agents on shares sold and offering costs.
During the year ended December 31, 2018, Main Street sold 2,060,019 shares of its common stock at a weighted-average price of
$38.48 per share and raised $79.3 million of gross proceeds under the ATM Program. Net proceeds were $78.0 million after commissions
to the selling agents on shares sold and offering costs.
161
Table of Contents
NOTE I—DIVIDEND REINVESTMENT PLAN
The dividend reinvestment feature of Main Street’s dividend reinvestment and direct stock purchase plan (the “DRIP”) provides
for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if
Main Street declares a cash dividend, its stockholders who have not “opted out” of the DRIP by the dividend record date will have their
cash dividend automatically reinvested into additional shares of MSCC common stock. The share requirements of the DRIP may be
satisfied through the issuance of shares of common stock or through open market purchases of common stock by the DRIP plan
administrator. Newly issued shares will be valued based upon the final closing price of MSCC’s common stock on the valuation date
determined for each dividend by Main Street’s Board of Directors. Shares purchased in the open market to satisfy the DRIP requirements
will be valued based upon the average price of the applicable shares purchased, before any associated brokerage or other costs. Main
Street’s DRIP is administered by its transfer agent on behalf of Main Street’s record holders and participating brokerage firms. Brokerage
firms and other financial intermediaries may decide not to participate in Main Street’s DRIP but may provide a similar dividend
reinvestment plan for their clients.
Summarized DRIP information for the years ended December 31, 2020, 2019 and 2018 is as follows:
Total dividends paid
DRIP participation
Shares issued for DRIP
NOTE J—SHARE-BASED COMPENSATION
Years Ended
December 31,
2019
($ in millions)
2020
2018
$
$
161.1 $
16.2 $
182.8 $
18.1 $
517,796
441,927
170.9
14.9
394,403
Main Street accounts for its share-based compensation plans using the fair value method, as prescribed by ASC 718,
Compensation—Stock Compensation. Accordingly, for restricted stock awards, Main Street measured the grant date fair value based upon
the market price of its common stock on the date of the grant and amortizes the fair value of the awards as share-based compensation
expense over the requisite service period, which is generally the vesting term.
Main Street’s Board of Directors approves the issuance of shares of restricted stock to Main Street employees pursuant to the
Main Street Capital Corporation 2015 Equity and Incentive Plan (the “Equity and Incentive Plan”). These shares generally vest over a
three-year period from the grant date. The fair value is expensed over the service period, starting on the grant date. The following table
summarizes the restricted stock issuances approved by Main Street’s Board of Directors under the Equity and Incentive Plan, net of shares
forfeited, if any, and the remaining shares of restricted stock available for issuance as of December 31, 2020.
Restricted stock authorized under the plan
Less net restricted stock granted during:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Year ended December 31, 2020
Restricted stock available for issuance as of December 31, 2020
3,000,000
(900)
(260,514)
(223,812)
(243,779)
(384,049)
(370,272)
1,516,674
As of December 31, 2020, the following table summarizes the restricted stock issued to Main Street’s non-employee directors and
the remaining shares of restricted stock available for issuance pursuant to the Main Street Capital Corporation 2015 Non-Employee
Director Restricted Stock Plan. These shares are granted upon appointment or
162
Table of Contents
election to the board and vest on the day immediately preceding the annual meeting of stockholders following the respective grant date and
are expensed over such service period.
Restricted stock authorized under the plan
Less net restricted stock granted during:
Year ended December 31, 2015
Year ended December 31, 2016
Year ended December 31, 2017
Year ended December 31, 2018
Year ended December 31, 2019
Year ended December 31, 2020
Restricted stock available for issuance as of December 31, 2020
300,000
(6,806)
(6,748)
(5,948)
(6,376)
(6,008)
(11,463)
256,651
For the years ended December 31, 2020, 2019 and 2018, Main Street recognized total share-based compensation expense of
$10.8 million, $10.1 million and $9.2 million, respectively, related to the restricted stock issued to Main Street employees and non-
employee directors.
As of December 31, 2020, there was $12.2 million of total unrecognized compensation expense related to Main Street’s non-
vested restricted shares. This compensation expense is expected to be recognized over a remaining weighted-average period of
approximately 1.8 years as of December 31, 2020.
NOTE K—COMMITMENTS AND CONTINGENCIES
At December 31, 2020, Main Street had the following outstanding commitments (in thousands):
Investments with equity capital commitments that have not yet funded:
Amount
Congruent Credit Opportunities Funds
Congruent Credit Opportunities Fund II, LP
Congruent Credit Opportunities Fund III, LP
Encap Energy Fund Investments
EnCap Energy Capital Fund IX, L.P.
EnCap Energy Capital Fund X, L.P.
EnCap Flatrock Midstream Fund II, L.P.
EnCap Flatrock Midstream Fund III, L.P.
EIG Fund Investments
Brightwood Capital Fund Investments
Brightwood Capital Fund III, LP
Freeport Fund Investments
Freeport Financial SBIC Fund LP
Freeport First Lien Loan Fund III LP
LKCM Headwater Investments I, L.P.
UnionRock Energy Fund Investments
UnionRock Energy Fund II, LP
Harris Preston Fund Investments
163
$
$
$
$
$
$
$
$
$
8,488
8,117
16,605
251
1,325
4,592
402
6,570
3,735
3,000
1,375
1,715
3,090
2,500
2,248
Table of Contents
HPEP 3, L.P.
Dos Rios Partners
Dos Rios Partners, LP
Dos Rios Partners - A, LP
MS Private Loan Fund I, LP
Total equity commitments
Investments with commitments to fund revolving loans that have not been fully drawn or term loans with additional commitments not yet
funded:
Eastern Wholesale Fence LLC
SI East, LLC
Adams Publishing Group, LLC
Bolder Panther Group, LLC
Classic H&G Holdco, LLC
Electronic Transaction Consultants, LLC
GS HVAM Intermediate, LLC
Market Force Information, LLC
Ian, Evan & Alexander Corporation (EverWatch)
Hunter Defense Technologies, Inc.
NinjaTrader, LLC
Arcus Hunting LLC
RTIC Subsidiary Holdings, LLC
Echo US Holdings, LLC.
Superior Rigging & Erecting Co.
Klein Hersh, LLC
Nebraska Vet AcquireCo, LLC
Pearl Meyer Topco LLC
Fortna, Inc.
PPL RVs, Inc.
Hawk Ridge Systems, LLC
Lynx FBO Operating LLC
Cody Pools, Inc.
Chamberlin Holding LLC
Direct Marketing Solutions, Inc.
Trantech Radiator Topco, LLC
GRT Rubber Technologies LLC
Project Eagle Holdings, LLC
Gamber-Johnson Holdings, LLC
Tedder Industries, LLC
Project BarFly, LLC
CompareNetworks Topco, LLC
NRI Clinical Research, LLC
Invincible Boat Company, LLC.
Mystic Logistics Holdings, LLC
DTE Enterprises RLOC
PT Network, LLC
ASC Interests, LLC
Jensen Jewelers of Idaho, LLC
Coastal Television Broadcasting Holdings LLC
Clickbooth.com, LLC
American Nuts, LLC
Dynamic Communities, LLC
Total loan commitments
Total commitments
164
$
$
$
$
$
$
Amount
1,929
835
265
1,100
214
40,991
8,143
7,500
5,000
5,000
4,000
3,704
3,636
3,400
3,333
3,230
3,078
2,892
2,740
2,586
2,500
2,500
2,500
2,488
2,027
2,000
2,000
1,875
1,600
1,600
1,600
1,600
1,340
1,250
1,200
1,200
1,127
1,000
1,000
864
800
750
658
600
500
500
457
281
250
$
$
96,309
137,300
Table of Contents
Main Street will fund its unfunded commitments from the same sources it uses to fund its investment commitments that are funded
at the time they are made (which are typically through existing cash and cash equivalents and borrowings under the Credit Facility). Main
Street follows a process to manage its liquidity and ensure that it has available capital to fund its unfunded commitments as necessary. The
Company had total unrealized depreciation of $0.1 million on the outstanding unfunded commitments as of December 31, 2020.
Effective January 1, 2019, ASC 842 required that a lessee evaluate its leases to determine whether they should be classified as
operating or financing leases. Main Street identified one operating lease for its office space. The lease commenced May 15, 2017 and
expires January 31, 2028. It contains two five-year extension options for a final expiration date of January 31, 2038.
As Main Street classified this lease as an operating lease prior to implementation, ASC 842-10-65-1 indicates that a right-of-use
asset and lease liability should be recorded based on the effective date. Main Street adopted ASC 842 effective January 1, 2019 and
recorded a right-of-use asset and a lease liability as of that date. After this date, Main Street has recorded lease expense on a straight-line
basis, consistent with the accounting treatment for lease expense prior to the adoption of ASC 842.
Total operating lease cost incurred by Main Street for each of the years ended December 31, 2020 and 2019 and 2018 was
$0.7 million. As of December 31, 2020, the asset related to the operating lease was $4.3 million and is included in the interest receivable
and other assets balance on the consolidated balance sheet. The lease liability was $5.0 million and is included in the accounts payable and
other liabilities balance on the consolidated balance sheet. As of December 31, 2020, the remaining lease term was 7.1 years and the
discount rate was 4.2%.
The following table shows future minimum payments under Main Street’s operating lease as of December 31, 2020 (in
thousands):
For the Years Ended December 31,
2021
2022
2023
2024
2025
Thereafter
Total
Amount
776
790
804
818
832
1,779
5,799
$
$
Main Street may, from time to time, be involved in litigation arising out of its operations in the normal course of business or
otherwise. Furthermore, third parties may try to impose liability on Main Street in connection with the activities of its portfolio companies.
While the outcome of any current legal proceedings cannot at this time be predicted with certainty, Main Street does not expect any current
matters will materially affect its financial condition or results of operations; however, there can be no assurance whether any pending legal
proceedings will have a material adverse effect on Main Street’s financial condition or results of operations in any future reporting period.
NOTE L – SELECTED QUARTERLY DATA (UNAUDITED)
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per share — basic and diluted
165
2020
(dollars in thousands,
except per share amounts)
Qtr. 3
Qtr. 2
52,007
31,294
43,369
0.48
0.66
$
$
$
$
$
51,954
30,462
78,195
0.46
1.18
$
$
$
$
$
Qtr. 4
62,503
39,644
79,257
0.59
1.19
Qtr. 1
56,150
36,545
(171,438)
0.57
(2.66)
$
$
$
$
$
$
$
$
$
$
Table of Contents
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per share — basic and diluted
Total investment income
Net investment income
Net increase in net assets resulting from operations
Net investment income per share — basic and diluted
Net increase in net assets resulting from operations per share — basic and diluted
NOTE M—RELATED PARTY TRANSACTIONS
2019
(dollars in thousands,
except per share amounts)
Qtr. 1
Qtr. 2
Qtr. 3
Qtr. 4
$
$
$
$
$
$
$
$
$
$
61,365
39,491
41,401
0.64
0.67
Qtr. 1
55,942
36,975
34,517
0.63
0.59
$
$
$
$
$
$
$
$
$
$
61,293
39,617
38,254
0.63
0.61
$
$
$
$
$
60,068
39,012
33,902
0.62
0.54
2018
(dollars in thousands,
except per share amounts)
Qtr. 2
Qtr. 3
59,869
39,512
55,451
0.66
0.93
$
$
$
$
$
58,263
38,075
68,740
0.63
1.13
$
$
$
$
$
$
$
$
$
$
60,649
39,247
16,014
0.62
0.25
Qtr. 4
59,280
42,083
9,505
0.69
0.16
As discussed further in Note D, the External Investment Manager is treated as a wholly owned portfolio company of MSCC and is
included as part of Main Street’s Investment Portfolio. At December 31, 2020, Main Street had a receivable of approximately $3.5 million
due from the External Investment Manager, which included (i) approximately $2.4 million related primarily to operating expenses incurred
by MSCC or its subsidiaries as required to support the External Investment Manager’s business and amounts due from the External
Investment Manager to Main Street under a tax sharing agreement (see further discussion in Note D) and (ii) approximately $1.1 million of
dividends declared but not paid by the External Investment Manager. MSCC has entered into an agreement with the External Investment
Manager to share employees in connection with its asset management business generally, and specifically for the External Investment
Manager’s relationship with MSC Income and its other clients (see further discussion in Note A.1 and Note D).
In November 2015, Main Street’s Board of Directors approved and adopted the Main Street Capital Corporation Deferred
Compensation Plan (the “2015 Deferred Compensation Plan”). The 2015 Deferred Compensation Plan became effective on January 1, 2016
and replaced the Deferred Compensation Plan for Non-Employee Directors previously adopted by the Board of Directors in June 2013 (the
“2013 Deferred Compensation Plan”). Under the 2015 Deferred Compensation Plan, non-employee directors and certain key employees
may defer receipt of some or all of their cash compensation and directors’ fees, subject to certain limitations. Individuals participating in the
2015 Deferred Compensation Plan receive distributions of their respective balances based on predetermined payout schedules or other
events as defined by the plan and are also able to direct investments made on their behalf among investment alternatives permitted from
time to time under the plan, including phantom Main Street stock units. As of December 31, 2020, $11.9 million of compensation and
dividend reinvestments net of unrealized gains and losses and distributions had been deferred under the 2015 Deferred Compensation Plan
(including amounts previously deferred under the 2013 Deferred Compensation Plan). Of this amount, $5.2 million had been deferred into
phantom Main Street stock units, representing 160,352 shares of Main Street’s common stock. Any amounts deferred under the plan
represented by phantom Main Street stock units will not be issued or included as outstanding on the consolidated statements of changes in
net assets until such shares are actually distributed to the participant in accordance with the plan, but the related phantom stock units are
included in weighted-average shares outstanding with the related dollar amount of the deferral included in total expenses in Main Street’s
consolidated statements of operations as earned. The dividend amounts related to additional phantom stock units are included in the
statements of changes in net assets as an increase to dividends to stockholders offset by a corresponding increase to additional paid-in
capital.
In December 2020, the External Investment Manager entered into an Investment Management Agreement with MS Private Loan
Fund I, LP, a private investment fund with a strategy to invest in Private Loan portfolio investments (the “Private Loan Fund”), pursuant to
which the External Investment Manager provides investment advisory and
166
Table of Contents
management services to the Private Loan Fund in exchange for an asset-based fee and certain incentive fees. The Private Loan Fund is a
private investment fund exempt from registration under the 1940 Act that invests in debt investments in middle market companies generally
with EBITDA between $7.5 million and $50 million and generally owned by a private equity sponsor, which Main Street generally refers
to as “Private Loan” investments. In connection with the Private Loan Fund’s initial closing in December 2020, Main Street committed to
contribute up to $10.0 million as a limited partner and will be entitled to distributions on such interest. In addition, certain of Main Street’s
officers and employees (and certain of their immediate family members) have made capital commitments to the Private Loan Fund as
limited partners and therefore have a direct pecuniary interests in the Private Loan Fund.
From time to time, Main Street may make investments in clients of the External Investment Manager in the form of debt capital on
terms approved by our Board of Directors. In January 2021, Main Street entered into a Term Loan Agreement with MSC Income (the
“Term Loan Agreement”). The Term Loan Agreement was unanimously approved by Main Street’s Board, including each director who is
not an “interested person,” as such term is defined in Section 2(a)(19) of the 1940 Act and the board of directors of MSC Income, including
each director who is not an “interested person” of MSC Income or the External Investment Manager. The Term Loan Agreement provides
for a term loan of $40.0 million to MSC Income, bearing interest at a fixed rate of 5.00% per annum, and matures in January 2026.
Borrowings under the Term Loan Agreement are expressly subordinated and junior in right of payment to all secured indebtedness of MSC
Income and are subject to a two-year no-call period that expires on January 27, 2023. Additionally, Main Street provided the Private Loan
Fund with a revolving line of credit pursuant to an Unsecured Revolving Promissory Note, dated February 5, 2021 (the “Private Loan Fund
Loan”), in an aggregate amount equal to the amount of limited partner capital commitments to the Private Loan Fund up to $50.0 million.
Borrowings under the Private Loan Fund Loan bear interest at a fixed rate of 5.00% per annum and will mature on the earlier of June 30,
2022 and the date of the Private Loan Fund’s final closing.
NOTE N—SUBSEQUENT EVENTS
In January 2021, Main Street issued $300.0 million in aggregate principal amount of 3.00% unsecured notes due July 14, 2026
(the “3.00% Notes”) at an issue price of 99.004%. The total net proceeds from the 3.00% Notes, resulting from the issue price and after
underwriting discounts and estimated offering expenses payable, were approximately $294.8 million.
During February 2021, Main Street declared monthly dividends of $0.205 per share for each month of April, May and June of
2021. These monthly dividends equal a total of $0.615 per share for the second quarter of 2021, unchanged from the monthly dividends
paid in the second quarter of 2020. Including the monthly dividends declared for the second quarter of 2021, Main Street will have paid
$30.830 per share in cumulative dividends since its October 2007 initial public offering.
167
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Main Street Capital Corporation
Opinion on financial statement schedule
We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(“PCAOB”) the consolidated financial statements of Main Street Capital Corporation and subsidiaries (the “Company”) referred to in our
report dated February 26, 2021, which is included in the annual report on Form 10-K. Our audits of the consolidated financial statements
also included the audit of the financial statement schedule (listed in the index appearing under Item 15(2)). In our opinion, this financial
statement schedule, when considered in relation to the consolidated financial statements as a whole, presents fairly, in all material respects,
the information set forth therein.
Basis for opinion
This financial statement schedule is the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statement schedule based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
/s/ GRANT THORNTON LLP
Houston, Texas
February 26, 2021
168
Table of Contents
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments In and Advances to Affiliates
December 31, 2020
(dollars in thousands)
Schedule 12-14
Company
Majority‑owned investments
Café Brazil, LLC
California Splendor Holdings
LLC
Investment(1)(10)(11)
Member Units
LIBOR Plus 8.00% (Floor 1.00%)
Clad-Rex Steel, LLC
CMS Minerals Investments
Cody Pools, Inc.
CompareNetworks Topco, LLC
Direct Marketing Solutions, Inc.
Gamber-Johnson Holdings, LLC
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
Preferred Member Units
LIBOR Plus 9.50% (Floor 1.00%)
Member Units
10% Secured Debt
Member Units
Member Units
LIBOR Plus 10.50% (Floor 1.75%)
Preferred Member Units
LIBOR Plus 11.00% (Floor 1.00%)
Preferred Member Units
LIBOR Plus 11.00% (Floor 1.00%)
Preferred Stock
LIBOR Plus 7.00% (Floor 2.00%)
GRT Rubber Technologies LLC
LIBOR Plus 7.00%
Member Units
Guerdon Modular Holdings, Inc.
Harborside Holdings, LLC
IDX Broker, LLC
Jensen Jewelers of Idaho, LLC
Kickhaefer Manufacturing
Company, LLC
Member Units
16.00% Secured Debt
LIBOR Plus 8.50% (Floor 1.00%)
Preferred Stock
Common Stock
Warrants
Member Units
11.00% Secured Debt
Preferred Member Units
Prime Plus 6.75% (Floor 2.00%)
Member Units
11.50% Secured Debt
Member Units
9.00% Secured Debt
Member Units
Market Force Information, LLC
12.00% PIK Secured Debt
LIBOR Plus 11.00% (Floor 1.00%)
MH Corbin Holding LLC
Mid-Columbia Lumber
Products, LLC
Member Units
13.00% Secured Debt
Preferred Member Units
Preferred Member Units
10.00% Secured Debt
12.00% Secured Debt
Member Units
9.50% Secured Debt
MSC Adviser I, LLC
Mystic Logistics Holdings, LLC
OMi Holdings, Inc.
Pearl Meyer Topco LLC
Member Units
Member Units
12.00% Secured Debt
Common Stock
Common Stock
12.00% Secured Debt
Member Units
Amount of
Realized
Geography Gain/(Loss) Gain/(Loss)
Amount of
Unrealized
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
December 31,
2019
Gross
Gross
Fair Value Additions(3) Reductions(4)
December 31,
2020
Fair Value
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(9)
(8)
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(9)
(9)
(9)
(5)
(5)
(5)
(9)
(9)
(9)
(9)
(9)
(8)
(6)
(6)
(8)
(6)
(6)
$
—
$
(410)
$
38
$
2,440
$
—
$
410
$
2,030
29
(65)
—
(1,141)
49
(1,020)
(11)
70
(69)
125
6,623
43
3,770
(110)
(820)
(41)
(920)
—
(2,550)
12,588
1,010
1,140
2,983
—
(3,054)
(42)
(9,088)
(14)
(650)
—
—
—
—
(11,762)
—
(5,280)
(322)
(20)
(2,400)
148
256
3,239
—
(850)
12,740
—
580
3,430
—
2,940
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(12,776)
(993)
(1,140)
(2,849)
—
(2,406)
—
9,337
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,240)
—
—
—
—
—
—
—
—
169
1,154
3,291
1,092
250
1,195
587
113
—
—
1,798
87
1,123
632
1,934
—
1,776
3,537
1,294
3,542
—
—
—
—
—
—
711
1,193
423
683
2,947
—
357
84
242
116
—
1,181
—
—
44
119
1
30
20
2,491
814
203
2,343
3,356
538
7,104
27,801
7,163
7,382
10,781
9,630
1,137
460
1,900
—
—
8,288
3,010
15,707
20,200
19,022
53,410
15,016
47,450
—
—
—
—
—
9,560
13,400
15,040
4,000
8,270
24,982
12,240
3,939
1,160
22,621
2,695
5,280
8,890
20
4,770
1,602
3,644
—
701
1,640
74,520
6,253
8,410
16,950
—
—
18,239
53
1,092
—
72
—
—
70
—
16,000
14,940
2,075
3,770
37
—
1,640
—
1,759
—
12,776
993
1,140
2,849
—
100
42
—
14
—
1,433
—
—
—
2,794
1,791
—
32
—
—
148
256
101
19
709
42,240
990
580
3,430
37,202
16,740
17,300
65
—
1,141
—
1,020
37
—
276
1,784
—
2,410
—
737
820
824
920
—
2,550
12,776
993
1,140
2,849
—
9,660
13,442
15,040
614
650
4,146
—
30
—
11,853
2,886
5,280
642
20
2,400
1,750
3,900
101
720
2,349
—
520
—
—
—
800
8,043
27,789
8,255
6,241
10,853
8,610
1,100
530
1,624
14,216
14,940
7,953
6,780
15,007
19,380
19,838
52,490
16,775
44,900
—
—
—
—
—
—
—
—
3,400
7,620
22,269
12,240
3,909
1,160
13,562
1,600
—
8,280
—
2,370
—
—
—
—
—
116,760
6,723
8,990
20,380
37,202
15,940
Table of Contents
Company
PPL RVs, Inc.
Principle Environmental, LLC
(d/b/a TruHorizon
Environmental Solutions)
Investment(1)(10)(11)
LIBOR Plus 7.00% (Floor 0.50%)
Common Stock
13.00% Secured Debt
Preferred Member Units
Quality Lease Service, LLC
Trantech Radiator Topco, LLC
Warrants
Member Units
Vision Interests, Inc.
Ziegler’s NYPD, LLC
12.00% Secured Debt
Common Stock
13.00% Secured Debt
Series A Preferred Stock
Common Stock
6.50% Secured Debt
12.00% Secured Debt
14.00% Secured Debt
Other controlled investments
Access Media Holdings, LLC
Warrants
Preferred Member Units
10.00% PIK Secured Debt
Preferred Member Units
Member Units
Analytical Systems Keco, LLC
LIBOR Plus 10.00% (Floor 2.00%)
Preferred Member Units
ASC Interests, LLC
13.00% Secured Debt
Warrants
Member Units
ATS Workholding, LLC
Bolder Panther Group, LLC
Bond-Coat, Inc.
Brewer Crane Holdings, LLC
Bridge Capital Solutions
Corporation
CBT Nuggets, LLC
Centre Technologies Holdings,
LLC
Chamberlin Holding LLC
Charps, LLC
Copper Trail Fund Investments
Datacom, LLC
Digital Products Holdings LLC
Garreco, LLC
Gulf Manufacturing, LLC
Gulf Publishing Holdings, LLC
Harris Preston Fund
Investments
Harrison Hydra-Gen, Ltd.
5.00% Secured Debt
Preferred Member Units
LIBOR Plus 9.00% (Floor 1.50%)
Preferred Member Units
Preferred Member Units
15.00% Secured Debt
Common Stock
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
13.00% Secured Debt
Warrants
13.00% Secured Debt
Preferred Member Units
Member Units
LIBOR Plus 10.00% (Floor 2.00%)
Preferred Member Units
LIBOR Plus 8.00% (Floor 1.00%)
Member Units
Member Units
15.00% Secured Debt
8.67% Current / 1.33% PIK
Preferred Member Units
LP Interests (CTMH, LP)
8.00% Secured Debt
10.50% PIK Secured Debt
Class A Preferred Member Units
Class B Preferred Member Units
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
LIBOR Plus 8.00% (Floor 1.00%,
Ceiling 1.50%)
Member Units
Member Units
LIBOR Plus 9.50% (Floor 1.00%),
Current Coupon 5.25% / 5.25% PIK
6.25% Current / 6.25% PIK
Member Units
LP Interests (2717 MH, L.P.)
LP Interests (2717 HPP-MH, L.P.)
Common Stock
Amount of
Realized
Geography Gain/(Loss) Gain/(Loss)
Amount of
Unrealized
(8)
(8)
(8)
(8)
(8)
(7)
(7)
(7)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(8)
(9)
(9)
(6)
(6)
(6)
(6)
(9)
(8)
(8)
(8)
(8)
(8)
(5)
(5)
(5)
(9)
(8)
(8)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
25
1,570
44
(2,890)
(220)
(4,880)
—
1,375
—
(929)
3,296
(21)
—
—
—
511
17,442
9,660
—
—
—
(306)
—
(170)
(1,332)
(939)
—
—
—
—
(6,260)
—
1,570
—
(280)
—
—
(4,770)
—
320
(47)
4,030
(455)
—
1,716
2,718
—
—
389
—
—
1,026
4,661
—
(1,150)
(2,920)
—
(1,091)
(2,420)
(319)
—
(2,520)
—
—
—
—
—
—
—
—
—
—
(3,586)
—
—
—
—
—
(19,698)
(9,376)
(1)
—
—
—
—
—
—
—
—
—
—
(3)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
693
—
—
170
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
1,204
690
877
—
—
—
1,105
116
268
—
—
66
76
391
—
—
50
—
—
724
—
—
237
—
282
—
579
—
—
1,399
—
1,012
120
1,771
—
135
100
954
1,480
120
1,942
4,134
68
258
1,499
559
—
—
—
—
—
2,177
200
428
—
135
27
1,650
—
—
—
104
December 31,
2019
Gross
Gross
Fair Value Additions(3) Reductions(4)
December 31,
2020
Fair Value
12,118
9,930
6,397
13,390
1,090
9,289
9,102
4,655
2,028
4,089
409
1,000
625
2,750
—
1,269
6,387
(284)
—
5,210
3,200
316
1,639
1,290
4,521
939
—
—
—
11,473
8,300
8,989
4,280
7,797
3,500
996
1,000
50,850
12,136
5,840
17,773
24,040
1,450
2,000
—
6,920
872
1,615
10,142
—
—
18,452
5,174
4,515
2,560
7,430
280
12,493
2,420
3,157
—
7,970
188
1,570
—
—
—
301
22
1,375
—
—
3,296
—
—
—
—
511
17,442
9,660
1
74
—
—
100
—
179
—
27,225
10,194
14,000
123
—
20
1,570
606
—
2
—
—
25
320
47
4,030
275
—
8,903
3,600
—
—
389
—
—
1,072
4,661
4
—
—
17
1,055
—
52
250
—
500
—
—
2,890
220
5,130
480
—
—
929
3,705
21
—
—
—
—
23,829
9,376
1
410
—
306
24
170
1,353
939
—
—
—
11,596
6,260
496
—
—
280
—
—
4,770
612
—
2,608
—
455
1,331
428
—
125
—
—
—
—
1,447
—
—
1,150
2,920
47
1,504
2,420
507
—
2,520
11,806
11,500
6,397
10,500
870
4,460
8,644
6,030
2,028
3,160
—
979
625
2,750
—
1,780
—
—
—
4,874
3,200
10
1,715
1,120
3,347
—
27,225
10,194
14,000
—
2,040
8,513
5,850
8,403
3,220
998
1,000
46,080
11,549
6,160
15,212
28,070
1,270
669
8,475
10,520
747
1,615
10,531
—
—
18,077
9,835
4,519
1,410
4,510
250
12,044
—
2,702
250
5,450
Investment(1)(10)(11)
Amount of
Realized
Geography Gain/(Loss) Gain/(Loss)
Amount of
Unrealized
Table of Contents
Company
J&J Services, Inc.
KBK Industries, LLC
NAPCO Precast, LLC
Nebraska Vet AcquireCo, LLC
(NVS)
NexRev LLC
NRI Clinical Research, LLC
NRP Jones, LLC
NuStep, LLC
11.50% Secured Debt
Preferred Stock
Member Units
Member Units
12.00% Secured Debt
Preferred Member Units
11.00% PIK Secured Debt
Preferred Member Units
9.00% Secured Debt
Warrants
Member Units
12.00% Secured Debt
Member Units
12.00% Secured Debt
Preferred Member Units
Pegasus Research Group, LLC Member Units
Member Units
Project BarFly, LLC
7.00% Secured Debt
7.00% Secured Debt
Warrants
7.00% Secured Debt
Warrants
River Aggregates, LLC
Zero Coupon Secured Debt
Member Units
Member Units
12.00% Secured Debt
Preferred Member Units
LP Interests
Tedder Industries, LLC
UnionRock Energy Fund II, LP
Other
Amounts related to investments
transferred to or from other
1940 Act classification during
the period
Total Control investments
Affiliate Investments
AAC Holdings, Inc.
AFG Capital Group, LLC
American Trailer Rental Group
LLC
BBB Tank Services, LLC
18.00% (10.00% Cash, 8.00% PIK)
Secured Debt
Common Stock
Warrants
10.00% Secured Debt
Preferred Member Units
LIBOR Plus 7.25% (Floor 1.00%)
Member Units
LIBOR Plus 11.00% (Floor 1.00%)
Preferred Member Units
Member Units
Boccella Precast Products LLC
LIBOR Plus 10.00% (Floor 1.00%)
Buca C, LLC
CAI Software LLC
Member Units
LIBOR Plus 9.25% (Floor 1.00%)
Preferred Member Units
12.50% Secured Debt
Chandler Signs Holdings, LLC
Charlotte Russe, Inc
Classic H&G Holdings, LLC
Congruent Credit Opportunities
Funds
Copper Trail Fund Investments
Dos Rios Partners
East Teak Fine Hardwoods, Inc.
EIG Fund Investments
Freeport Financial Funds
Harris Preston Fund
Investments
Member Units
Class A Units
Common Stock
12.00% Secured Debt
Preferred Member Units
LP Interests (Fund II)
LP Interests (Fund III)
LP Interests (Copper Trail Energy
Fund I, LP)
LP Interests (Dos Rios Partners,
LP)
LP Interests (Dos Rios Partners - A,
LP)
Common Stock
LP Interests (EIG Global Private
Debt fund-A, L.P.)
LP Interests (Freeport Financial
SBIC Fund LP)
LP Interests (Freeport First Lien
Loan Fund III LP)
LP Interests (HPEP 3, L.P.)
(7)
(7)
(5)
(8)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(8)
(5)
(5)
(5)
(5)
(5)
(5)
(8)
(8)
(8)
(9)
(9)
(9)
(7)
(7)
(7)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(6)
(6)
(7)
(7)
(6)
(6)
(8)
(9)
(6)
(6)
(8)
(8)
(9)
(8)
(8)
(7)
(8)
(5)
(5)
(8)
—
—
—
—
—
—
—
—
—
—
—
—
1,279
—
—
—
—
(8,591)
(110)
(607)
—
(473)
—
4,015
—
—
—
—
(8,069)
(59,594)
(11,210)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
6
—
—
—
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
1,943
—
454
642
December 31,
2019
Gross
Fair Value Additions(3)
170
5,595
—
1,340
17,430
7,160
15,470
14,760
223
—
1,973
(35)
752
—
548
764
384
2,444
—
491
—
—
—
—
3
—
—
187
—
2,097
—
—
—
—
17,469
6,310
5,981
1,230
4,988
6,376
4,710
19,703
10,200
8,170
—
7,736
—
—
—
—
722
4,990
3,169
16,912
8,136
—
10,395
6,500
201
—
1,566
260
1,160
—
—
196
580
660
1,584
2,438
110
607
343
473
28
—
71
29
—
2,894
Gross
Reductions(4)
December 31,
2020
Fair Value
4,800
75
2,270
—
—
—
944
4,840
1,927
—
548
4,296
1,889
2,706
—
—
—
10,174
110
607
—
473
750
4,990
—
640
—
—
12,800
12,680
13,200
16,100
10,395
6,500
16,726
1,470
5,620
1,490
5,600
2,080
2,821
17,193
10,780
8,830
1,584
—
—
—
343
—
—
—
3,240
16,301
8,136
2,894
103
5,595
(2,270)
1,340
—
—
(289)
(4,840)
(47)
260
612
—
(1,889)
—
580
660
—
8,961
—
607
—
473
28
(3,840)
71
—
—
—
4,251
37,924
9
81,155
(3,172)
1,032,721
—
336,485
—
258,653
—
1,113,725
4,568
—
2,938
—
630
(182)
3,729
(51)
—
(10)
(138)
(230)
(4,562)
(4,770)
257
636
(1,280)
—
217
3,750
—
(515)
(744)
(2,375)
(754)
(100)
(165)
(514)
(204)
187
171
119
—
—
66
—
1,119
—
668
20
—
982
619
2,032
69
3,001
10
(91)
—
3,112
469
—
823
698
—
—
—
141
—
930
—
11,530
—
—
838
5,180
27,087
8,540
4,698
131
290
13,244
6,270
18,794
4,701
9,160
5,210
2,740
—
—
—
855
13,915
2,362
7,033
2,233
400
720
5,778
9,696
2,474
21,359
3,148
2,938
—
630
182
7,470
75
20
—
138
—
24
69
40,830
1,980
—
—
26,000
9,510
—
—
—
759
241
—
110
—
989
784
23,702
—
—
347
—
27,269
—
51
—
10
13,382
230
4,562
4,770
2,516
—
1,280
—
1,200
—
761
2,375
580
2,375
754
100
304
514
364
—
9,187
3,148
2,938
491
5,810
—
16,010
4,722
151
280
—
6,040
14,256
—
47,474
7,190
1,460
—
24,800
9,510
94
11,540
1,782
5,417
1,720
300
526
5,264
10,321
3,258
Table of Contents
Company
Hawk Ridge Systems, LLC
Houston Plating and Coatings,
LLC
I-45 SLF LLC
L.F. Manufacturing Holdings,
LLC
OnAsset Intelligence, Inc.
PCI Holding Company, Inc.
Rocaceia, LLC (Quality Lease
and Rental Holdings, LLC)
Salado Stone Holdings, LLC
SI East, LLC
Slick Innovations, LLC
Investment(1)(10)(11)
LIBOR Plus 6.00% (Floor 1.00%)
11.00% Secured Debt
Preferred Member Units
Preferred Member Units
8.00% Unsecured Convertible Debt
Member Units
Member Units
Preferred Member Units
Member Units
12.00% PIK Secured Debt
10.00% PIK Secured Debt
Preferred Stock
Warrants
12.00% Current Secured Debt
Preferred Stock
Preferred Stock
12.00% Secured Debt
Preferred Member Units
Class A Preferred Units
9.50% Current, Secured Debt
Preferred Member Units
13.00% Current, Secured Debt
Warrants
Superior Rigging & Erecting Co.
UniTek Global Services, Inc.
Common Stock
12.00% Current, Secured Debt
Preferred Member Units
LIBOR Plus 6.50% (Floor 1.00%)
Preferred Stock
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
Preferred Member Units
Member Units
11.50% Secured Debt
8.00% Unsecured Convertible Debt
Preferred Member Units
Warrants
Universal Wellhead Services
Holdings, LLC
Volusion, LLC
Other
Amounts related to investments
transferred to or from other
1940 Act classification during
the period
Total Affiliate investments
Amount of
Realized
Geography Gain/(Loss) Gain/(Loss)
Amount of
Unrealized
(9)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(7)
(7)
(6)
(6)
(6)
(7)
(7)
(6)
(6)
(6)
(6)
(6)
(6)
(8)
(8)
(8)
(8)
(8)
(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
2,610
(413)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(31)
130
—
(1,360)
(5,250)
(1,818)
—
—
—
—
—
—
—
1,450
(2,610)
—
—
680
(74)
1,580
115
70
250
—
—
(283)
(2,684)
(2,119)
312
(3,667)
—
(800)
—
(181)
—
(8,010)
(150)
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
70
1,758
378
—
December 31,
2019
Gross
Fair Value Additions(3)
1,384
5,031
130
—
600
13,400
7,900
420
244
261
2,346
12
—
827
6
—
—
1,851
—
—
—
—
—
3,285
1,292
919
—
—
1,110
—
233
—
212
255
—
—
—
—
2,438
33
—
—
4,260
10,330
14,407
81
2,050
6,474
58
—
—
11,356
2,680
4,350
—
—
570
32,963
8,200
6,197
290
1,080
—
—
2,962
2,684
2,282
1,889
3,667
—
800
—
19,352
291
14,000
150
—
—
3,200
12
—
827
9
—
—
—
1,450
—
413
—
680
73
1,580
163
70
250
21,298
4,500
17
—
212
945
—
—
—
—
71
—
—
—
Gross
Reductions(4)
December 31,
2020
Fair Value
1,984
31
—
—
1,360
5,250
1,818
—
—
—
3
—
—
11,356
—
4,350
413
—
—
74
—
641
—
—
—
—
553
2,684
2,119
2
3,667
—
800
—
181
—
8,010
150
—
18,400
8,030
420
2,900
5,080
15,789
93
2,050
7,301
64
—
—
—
4,130
—
—
—
1,250
32,962
9,780
5,719
360
1,330
21,298
4,500
2,426
—
375
2,832
—
—
—
—
19,242
291
5,990
—
11,210
2,203
(4,906)
(29,038)
118
32,435
(9,335)
330,287
—
159,571
—
132,892
—
366,301
(1) The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the consolidated schedule
of investments.
(2) Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in
Control or Affiliate categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or
investment balances related to the time period it was in the category other than the one shown at period end is included in “Amounts from
investments transferred from other 1940 Act classifications during the period.”
(3) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK
interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized
appreciation or net decreases in net unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a
different category.
(4) Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more
existing securities for one or more new securities. Gross reductions also include net increases in net
172
Table of Contents
unrealized depreciation or net decreases in unrealized appreciation as well as the movement of an existing portfolio company out of this category and
into a different category.
(5) Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2020 for
control investments located in this region was $256,121. This represented 16.9% of net assets as of December 31, 2020. The fair value as of
December 31, 2020 for affiliate investments located in this region was $31,595. This represented 2.1% of net assets as of December 31, 2020.
(6) Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2020
for control investments located in this region was $82,476. This represented 5.4% of net assets as of December 31, 2020. The fair value as of
December 31, 2020 for affiliate investments located in this region was $108,056. This represented 7.1% of net assets as of December 31, 2020.
(7) Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2020
for control investments located in this region was $44,614. This represented 2.9% of net assets as of December 31, 2020. The fair value as of
December 31, 2020 for affiliate investments located in this region was $98,369. This represented 6.5% of net assets as of December 31, 2020.
(8) Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2020
for control investments located in this region was $442,075. This represented 29.2% of net assets as of December 31, 2020. The fair value as of
December 31, 2020 for affiliate investments located in this region was $95,519. This represented 6.3% of net assets as of December 31, 2020.
(9) Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of December 31, 2020 for
control investments located in this region was $288,439. This represented 19.0% of net assets as of December 31, 2020. The fair value as of
December 31, 2020 for affiliate investments located in this region was $32,762. This represented 2.2% of net assets as of December 31, 2020.
(10) All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities,” unless otherwise noted.
(11) This schedule should be read in conjunction with the consolidated schedule of investments and notes to the consolidated financial statements.
Supplemental information can be located within the schedule of investments including end of period interest rate, preferred dividend rate, maturity
date, investments not paid currently in cash and investments whose value was determined using significant unobservable inputs.
(12) Investment has an unfunded commitment as of December 31, 2020 (see Note K). The fair value of the investment includes the impact of the fair
value of any unfunded commitments.
173
Table of Contents
Company
Majority‑owned investments
Café Brazil, LLC
California Splendor Holdings
LLC
Clad-Rex Steel, LLC
MAIN STREET CAPITAL CORPORATION
Consolidated Schedule of Investments In and Advances to Affiliates
December 31, 2019
(dollars in thousands)
Schedule 12-14
Investment(1)(10)(11)
Geography
Member Units
LIBOR Plus 8.00% (Floor 1.00%)
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
Preferred Member Units
LIBOR Plus 9.00% (Floor 1.00%)
Member Units
10% Secured Debt
Member Units
Member Units
LIBOR Plus 11.00% (Floor 1.00%)
Preferred Member Units
LIBOR Plus 11.00% (Floor 1.00%)
Preferred Stock
LIBOR Plus 6.50% (Floor 2.00%)
CMS Minerals Investments
CompareNetworks Topco, LLC
Direct Marketing Solutions, Inc.
Gamber-Johnson Holdings, LLC
GRT Rubber Technologies LLC
LIBOR Plus 7.00%
Member Units
Guerdon Modular Holdings, Inc.
Harborside Holdings, LLC
IDX Broker, LLC
Jensen Jewelers of Idaho, LLC
Kickhaefer Manufacturing
Company, LLC
Lamb Ventures, LLC
Member Units
16% Secured Debt
LIBOR Plus 8.50% (Floor 1.00%)
Preferred Stock
Common Stock
Warrants
Member Units
11.5% Secured Debt
Preferred Member Units
Prime Plus 6.75% (Floor 2.00%)
Member Units
11.5% Secured Debt
Member Units
9.0% Secured Debt
Member Units
LIBOR Plus 5.75%
11% Secured Debt
Preferred Equity
Member Units
9.5% Secured Debt
Member Units
Market Force Information, LLC
8% Secured Debt
6% Current / 6% PIK Secured Debt
MH Corbin Holding LLC
Mid-Columbia Lumber Products,
LLC
Member Units
5% Current / 5% PIK Secured Debt
Preferred Member Units
Preferred Member Units
10% Secured Debt
12% Secured Debt
Member Units
9.5% Secured Debt
MSC Adviser I, LLC
Mystic Logistics Holdings, LLC
Member Units
Member Units
12% Secured Debt
Common Stock
LIBOR Plus 8.75% (Floor 0.50%)
Common Stock
PPL RVs, Inc.
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(9)
(9)
(9)
(9)
(9)
(5)
(5)
(8)
(8)
(9)
(9)
(9)
(9)
(9)
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(5)
(5)
(5)
(9)
(9)
(9)
(9)
(9)
(8)
(6)
(6)
(8)
(8)
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
December 31,
2018
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2019
Fair Value
$
—
$
(2,340)
$
233
$
4,780
$
—
$
2,340
$
2,440
—
—
—
(2,363)
(128)
(980)
—
110
(359)
—
1,035
110
5,300
(57)
7,950
(23)
8,390
(12,018)
(1,010)
—
—
—
(140)
(46)
1,520
22
3,180
—
—
—
168
(2)
(32)
—
(2,167)
(4)
(5)
(92)
(536)
(9,762)
462
(980)
370
(148)
(255)
(4,098)
—
170
8,772
—
8,200
(94)
(450)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(134)
—
—
—
—
—
—
—
—
—
—
—
—
—
6,006
—
(139)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
174
1,175
3,595
438
250
1,367
269
115
—
41
1,270
2
2,391
—
1,980
3,721
1,226
11,152
424
9
—
—
—
—
1,669
345
406
953
3,265
—
357
108
10
608
—
394
24
74
132
3,103
—
1,446
—
—
181
493
6
69
73
4,988
875
219
1,463
—
10,928
27,755
—
9,745
12,080
10,610
1,161
350
2,580
—
—
17,848
14,900
21,486
45,460
9,740
39,060
12,002
—
—
—
—
9,500
14,350
13,520
3,355
5,090
28,775
12,240
3,970
992
—
8,339
400
7,440
432
630
200
22,624
13,100
11,733
1,000
—
1,746
3,880
3,860
746
1,470
65,748
7,506
210
15,100
10,380
17,176
46
7,438
—
29
—
—
110
—
8,924
3,010
159
5,300
57
7,950
5,299
8,390
16
1,010
—
134
—
200
46
1,520
4,001
3,180
71
—
—
168
402
3,532
—
—
4
—
2,787
533
1,942
1,557
—
4,770
4
19
238
—
170
8,772
29
8,200
41
—
21,000
—
275
2,363
1,328
980
24
—
680
636
—
2,300
—
2,521
—
23
—
12,018
1,010
—
134
—
140
996
—
3,356
—
3,864
—
31
—
402
11,871
400
7,440
436
630
292
536
9,762
4,400
980
—
148
255
4,098
45
—
—
1,282
—
3,023
450
7,104
27,801
7,163
7,382
10,781
9,630
1,137
460
1,900
8,288
3,010
15,707
20,200
19,022
53,410
15,016
47,450
—
—
—
—
—
9,560
13,400
15,040
4,000
8,270
24,982
12,240
3,939
1,160
—
—
—
—
—
—
2,695
22,621
5,280
8,890
20
4,770
1,602
3,644
—
701
1,640
74,520
6,253
8,410
12,118
9,930
Table of Contents
Company
Principle Environmental, LLC
(d/b.a TruHorizon
Environmental Solutions)
Investment(1)(10)(11)
13% Secured Debt
Geography
(8)
Quality Lease Service, LLC
Zero Coupon Secured Debt
Preferred Member Units
Warrants
The MPI Group, LLC
Member Units
9% Secured Debt
Series A Preferred Units
Warrants
Member Units
Trantech Radiator Topco, LLC
Vision Interests, Inc.
Ziegler’s NYPD, LLC
12% Secured Debt
Common Stock
13% Secured Debt
Series A Preferred Stock
Common Stock
6.5% Secured Debt
12% Secured Debt
14% Secured Debt
Other controlled investments
Access Media Holdings, LLC
Analytical Systems Keco, LLC
ASC Interests, LLC
ATS Workholding, LLC
Bond-Coat, Inc.
Brewer Crane Holdings, LLC
Bridge Capital Solutions
Corporation
CBT Nuggets, LLC
Centre Technologies Holdings,
LLC
Chamberlin Holding LLC
Charps, LLC
Copper Trail Fund Investments
Datacom, LLC
Digital Products Holdings LLC
Garreco, LLC
Gulf Manufacturing, LLC
Gulf Publishing Holdings, LLC
Warrants
Preferred Member Units
10% PIK Secured Debt
Preferred Member Units (12)
Member Units
LIBOR Plus 10.00% (Floor 2.00%)
Preferred Member Units
Warrants
11% Secured Debt
Member Units
5% Secured Debt
Preferred Member Units
15% Secured Debt
Common Stock
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
13% Secured Debt
Warrants
13% Secured Debt
Preferred Member Units
Member Units
LIBOR Plus 9.00% (Floor 2.00%)
Preferred Member Units
LIBOR Plus 10.00% (Floor 1.00%)
Member Units
Member Units
11.50% Secured Debt
15% Secured Debt
Preferred Member Units
LP Interests (CTMH, LP)
8.00% Secured Debt
10.50% PIK Secured Debt
Class A Preferred Member Units
Class B Preferred Member Units
LIBOR Plus 10.00% (Floor 1.00%)
Preferred Member Units
LIBOR Plus 8.00% (Floor 1.00%,
Ceiling 1.50%)
Member Units
Member Units
LIBOR Plus 9.50% (Floor 1.00%)
12.5% Secured Debt
Member Units
Harris Preston Fund Investments
Harrison Hydra-Gen, Ltd.
KBK Industries, LLC
J&J Services, Inc.
LP Interests (2717 MH, L.P.)
Common Stock
Member Units
11.50% Secured Debt
NAPCO Precast, LLC
Preferred Stock
LIBOR Plus 8.50%
Member Units
(8)
(8)
(7)
(7)
(7)
(7)
(7)
(7)
(7)
(7)
(9)
(9)
(9)
(8)
(8)
(8)
(8)
(8)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(8)
(8)
(9)
(9)
(6)
(6)
(6)
(6)
(9)
(8)
(8)
(8)
(8)
(8)
(5)
(5)
(5)
(9)
(8)
(8)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(5)
(7)
(7)
(8)
(8)
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
December 31,
2018
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2019
Fair Value
(61)
300
310
891
(1,490)
342
(440)
—
(839)
—
—
—
349
129
(2)
—
—
—
20
(2,171)
—
—
—
—
—
—
(80)
(28)
(2,787)
(229)
(1,070)
—
—
—
(520)
(6)
—
(10,760)
—
—
125
5,100
403
(83)
—
4,650
—
(75)
361
—
—
(1,025)
(4,327)
—
(30)
(4,260)
—
—
(1,700)
329
(100)
6,860
—
—
(11)
770
—
—
—
(741)
—
—
(8)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
175
935
2,317
—
—
—
267
—
—
137
981
68
271
—
—
72
67
402
—
—
50
—
—
448
—
—
201
—
364
—
1,853
—
1,167
120
1,480
—
101
75
300
1,572
120
2,474
1,659
45
675
175
579
5
—
—
—
—
2,944
200
472
—
671
25
1,619
—
—
247
1,923
531
—
123
3,063
7,477
13,090
780
6,450
3,809
2,582
440
—
2,479
—
—
2,153
3,740
280
1,000
425
2,750
—
1,249
8,558
(284)
—
—
—
—
1,622
1,370
4,390
3,726
11,596
9,370
9,467
4,280
6,221
4,020
1,000
1,000
61,610
—
—
20,028
18,940
732
11,888
—
2,270
872
1,690
9,786
—
—
25,511
8,466
5,099
2,590
11,690
—
12,594
4,120
1,133
8,070
8,610
—
—
11,475
13,990
61
300
310
891
6,970
342
8
—
—
10,302
4,655
—
349
129
2
200
—
—
20
—
—
—
5,245
3,200
316
17
—
225
—
106
—
18
—
1,576
—
2
—
—
12,136
5,840
174
5,100
718
1,695
2,000
4,650
—
—
361
—
—
87
1,035
18
—
—
320
28
—
2,524
—
6,860
17,430
7,160
11
770
1,141
—
—
7,341
1,490
—
448
—
839
1,200
—
125
—
—
2
—
—
—
—
2,171
—
—
35
—
—
—
80
94
2,787
229
1,070
496
—
—
520
6
—
10,760
—
—
2,429
—
—
13,583
—
—
—
75
5
—
—
7,146
4,327
602
30
4,260
40
129
1,700
500
100
—
—
—
11,486
—
6,397
13,390
1,090
—
9,289
2,924
—
—
1,640
9,102
4,655
2,028
4,089
409
1,000
625
2,750
—
1,269
6,387
(284)
—
5,210
3,200
316
1,639
1,290
4,521
939
11,473
8,300
8,989
4,280
7,797
3,500
996
1,000
50,850
12,136
5,840
17,773
24,040
1,450
—
2,000
6,920
872
1,615
10,142
—
—
18,452
5,174
4,515
2,560
7,430
280
12,493
2,420
3,157
7,970
15,470
17,430
7,160
—
14,760
Table of Contents
Company
NexRev LLC
NRI Clinical Research, LLC
Investment(1)(10)(11)
11% Secured Debt
Preferred Member Units
LIBOR Plus 6.50% (Floor 1.50%)
14% Secured Debt
NRP Jones, LLC
Warrants
Member Units
12% Secured Debt
Member Units
NuStep, LLC
12% Secured Debt
Preferred Member Units
OMi Holdings, Inc.
Common Stock
Pegasus Research Group, LLC Member Units
River Aggregates, LLC
Zero Coupon Secured Debt
Member Units
Member Units
12%, Secured Debt
12%, Secured Debt
Preferred Member Units
Tedder Industries, LLC
Other
Amounts related to investments
transferred to or from other
1940 Act classification during the
period
Total Control investments
Affiliate Investments
AFG Capital Group, LLC
Warrants
American Trailer Rental Group
LLC
BBB Tank Services, LLC
10% Secured Debt
Preferred Member Units
LIBOR Plus 7.25% (Floor 1.00%)
Member Units
LIBOR Plus 11% (Floor 1.00%)
Preferred Member Units
Member Units
Boccella Precast Products LLC
LIBOR Plus 12% (Floor 1.00%)
Boss Industries, LLC
Buca C, LLC
CAI Software LLC
Member Units
Preferred Member Units
LIBOR Plus 9.25% (Floor 1.00%)
Preferred Member Units
11% Secured Debt
Member Units
Chandler Signs Holdings, LLC
Charlotte Russe, Inc
Condit Exhibits, LLC
Congruent Credit Opportunities
Funds
Copper Trail Fund Investments
Dos Rios Partners
East Teak Fine Hardwoods, Inc.
EIG Fund Investments
Freeport Financial Funds
Fuse, LLC
Harris Preston Fund Investments
Hawk Ridge Systems, LLC
Houston Plating and Coatings,
LLC
I-45 SLF LLC
12% Secured Debt
Class A Units
8.50% Secured Debt
Common Stock
Member Units
LP Interests (Fund II)
LP Interests (Fund III)
LP Interests (Copper Trail Energy
Fund I, LP)
LP Interests (Dos Rios Partners,
LP)
LP Interests (Dos Rios Partners -
A, LP)
Common Stock
LP Interests (EIG Global Private
Debt fund-A, L.P.)
LP Interests (Freeport Financial
SBIC Fund LP)
LP Interests (Freeport First Lien
Loan Fund III LP)
12% Secured Debt
Common Stock
LP Interests (HPEP 3, L.P.)
LIBOR Plus 6.00% (Floor 1.00%)
11.0% Secured Debt
Preferred Member Units
Preferred Member Units
8% Unsecured Convertible Debt
Member Units
Member Units
Geography
(8)
(8)
(9)
(9)
(9)
(9)
(5)
(5)
(5)
(5)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
Amount of
Realized
Gain/(Loss)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
1,956
195
11
971
—
32
776
323
2,556
—
1,920
—
—
—
—
69
2,021
—
Amount of
Unrealized
Gain/(Loss)
—
(1,580)
—
(44)
570
2,510
—
(1,250)
—
—
930
490
—
380
239
—
—
—
December 31,
2018
Fair Value
17,288
7,890
—
6,685
660
2,478
6,376
5,960
20,458
10,200
16,020
7,680
722
4,610
2,930
480
16,246
7,476
Gross
Additions(3)
835
—
200
44
570
2,510
—
—
44
—
930
490
—
380
239
1,200
26
660
Gross
Reductions(4)
654
1,580
200
748
—
—
—
1,250
799
—
—
—
—
—
—
1,040
—
—
December 31,
2019
Fair Value
17,469
6,310
—
5,981
1,230
4,988
6,376
4,710
19,703
10,200
16,950
8,170
722
4,990
3,169
640
16,272
8,136
(8)
(8)
(8)
(5)
(5)
(8)
(8)
(8)
(6)
(6)
(5)
(7)
(7)
(6)
(6)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(9)
(8)
(8)
(7)
(8)
(5)
(5)
(9)
(9)
(8)
(9)
(9)
(9)
(9)
(8)
(8)
(8)
260
(980)
(691)
—
1,200
182
2,760
—
—
60
(75)
1,094
(3,930)
(187)
—
(34)
2,493
(24)
620
4,003
—
(1,850)
—
(195)
(310)
(122)
(38)
(160)
—
379
(84)
—
—
—
—
(34)
640
40
540
1,884
(2,020)
(187)
4,797
781
—
—
—
—
—
—
—
—
—
3,771
—
—
—
—
—
—
(7,012)
—
1,850
—
—
37
—
—
—
8
—
—
—
—
—
—
—
—
—
—
—
—
176
(133)
92,414
5,809
1,004,993
—
219,523
—
185,986
—
1,032,721
—
66
(40)
2,655
—
680
18
—
2,187
236
611
2,260
270
1,239
31
581
39
—
—
132
—
1,447
583
—
—
16
137
—
1,059
119
—
—
26
1,460
375
—
243
544
3,204
950
—
3,980
20,312
5,780
3,833
113
230
15,724
5,080
6,176
19,038
4,431
10,880
2,717
4,546
2,120
3,930
—
1,950
855
17,468
4,170
7,153
2,271
560
505
5,399
10,980
—
—
1,733
—
14,300
7,260
380
3,720
8,330
15,627
—
1,040
1,200
8,729
2,760
865
18
60
475
1,190
—
43
270
34
2,493
47
620
4,003
—
—
—
—
—
—
—
—
283
379
799
1,939
256
741
600
34
640
40
540
2,000
800
950
202
—
1,954
—
—
—
—
2,955
—
6,176
287
—
1,754
—
4,593
—
7,933
—
1,950
—
3,553
1,808
120
38
160
68
—
2,083
—
—
—
—
934
—
—
—
—
2,020
—
838
5,180
27,087
8,540
4,698
131
290
13,244
6,270
—
18,794
4,701
9,160
5,210
—
2,740
—
—
—
855
13,915
2,362
7,033
2,233
400
720
5,778
9,696
1,939
256
2,474
600
13,400
7,900
420
4,260
10,330
14,407
Table of Contents
Investment(1)(10)(11)
Preferred Member Units
Geography
(8)
Member Units
12% PIK Secured Debt
10% PIK Secured Debt
Preferred Stock
Warrants
12% Current Secured Debt
Preferred Stock
Preferred Stock
12% Secured Debt
Preferred Member Units
Class A Preferred Units
9.50% Current, Secured Debt
Preferred Member Units
14% Current, Secured Debt
Warrants
Common Stock
LIBOR Plus 6.50% (Floor 1.00%)
Preferred Stock
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
Preferred Member Units
Member Units
11.50% Secured Debt
8% Unsecured Convertible Debt
Preferred Member Units
Warrants
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(8)
(8)
(8)
(7)
(7)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(6)
(8)
(8)
(8)
(8)
(8)
(8)
Company
L.F. Manufacturing Holdings,
LLC
OnAsset Intelligence, Inc.
PCI Holding Company, Inc.
Rocaceia, LLC (Quality Lease
and Rental Holdings, LLC)
Salado Stone Holdings, LLC
SI East, LLC
Slick Innovations, LLC
UniTek Global Services, Inc.
Universal Wellhead Services
Holdings, LLC
Volusion, LLC
Other
Amounts related to investments
transferred to or from other
1940 Act classification during the
period
Total Affiliate investments
Amount of
Realized
Gain/(Loss)
Amount of
Unrealized
Gain/(Loss)
Amount of
Interest,
Fees or
Dividends
Credited to
Income(2)
December 31,
2018
Fair Value
Gross
Additions(3)
Gross
Reductions(4)
December 31,
2019
Fair Value
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(10)
—
—
—
—
—
2,340
870
165
—
(470)
275
2,200
—
109
380
22
(5,240)
306
1,080
—
(1,420)
(345)
(2,330)
(810)
(118)
—
(1,740)
11
—
731
5
—
—
1,488
—
—
—
—
—
3,648
460
983
—
1,048
260
511
339
53
629
—
195
—
3,132
31
—
—
—
2,060
5,743
53
—
—
11,908
340
3,480
250
—
1,040
34,885
6,000
6,959
181
700
2,969
7,413
1,637
—
3,038
1,420
950
2,330
18,407
297
14,000
1,890
81
—
731
5
—
—
98
2,340
870
165
—
—
365
2,200
679
109
380
23
511
645
1,889
629
—
195
—
1,755
112
—
—
—
10
—
—
—
—
650
—
—
415
—
470
2,287
—
1,441
—
—
30
5,240
—
—
—
1,420
345
2,330
810
118
—
1,740
81
2,050
6,474
58
—
—
11,356
2,680
4,350
—
—
570
32,963
8,200
6,197
290
1,080
2,962
2,684
2,282
1,889
3,667
—
800
—
19,352
291
14,000
150
—
(565)
(415)
990
1,030
34,732
19,439
359,890
—
46,680
—
56,844
—
330,287
(1) The principal amount, the ownership detail for equity investments and if the investment is income producing is included in the consolidated schedule
of investments.
(2) Represents the total amount of interest, fees and dividends credited to income for the portion of the period for which an investment was included in
Control or Affiliate categories, respectively. For investments transferred between Control and Affiliate categories during the period, any income or
investment balances related to the time period it was in the category other than the one shown at period end is included in “Amounts from
investments transferred from other 1940 Act classifications during the period.”
(3) Gross additions include increases in the cost basis of investments resulting from new portfolio investments, follow-on investments and accrued PIK
interest, and the exchange of one or more existing securities for one or more new securities. Gross additions also include net increases in unrealized
appreciation or net decreases in net unrealized depreciation as well as the movement of an existing portfolio company into this category and out of a
different category.
(4) Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more
existing securities for one or more new securities. Gross reductions also include net increases in net unrealized depreciation or net decreases in
unrealized appreciation as well as the movement of an existing portfolio company out of this category and into a different category.
(5) Portfolio company located in the Midwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2019 for
control investments located in this region was $245,549. This represented 16.0% of net assets as of December 31, 2019. The fair value as of
December 31, 2019 for affiliate investments located in this region was $51,101. This represented 3.3% of net assets as of December 31, 2019.
177
Table of Contents
(6) Portfolio company located in the Northeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2019
for control investments located in this region was $27,956. This represented 1.8% of net assets as of December 31, 2019. The fair value as of
December 31, 2019 for affiliate investments located in this region was $54,935. This represented 3.6% of net assets as of December 31, 2019.
(7) Portfolio company located in the Southeast region as determined by location of the corporate headquarters. The fair value as of December 31, 2019
for control investments located in this region was $52,200. This represented 3.4% of net assets as of December 31, 2019. The fair value as of
December 31, 2019 for affiliate investments located in this region was $65,058. This represented 4.2% of net assets as of December 31, 2019.
(8) Portfolio company located in the Southwest region as determined by location of the corporate headquarters. The fair value as of December 31, 2019
for control investments located in this region was $415,344. This represented 27.0% of net assets as of December 31, 2019. The fair value as of
December 31, 2019 for affiliate investments located in this region was $113,930. This represented 7.4% of net assets as of December 31, 2019.
(9) Portfolio company located in the West region as determined by location of the corporate headquarters. The fair value as of December 31, 2019 for
control investments located in this region was $291,672. This represented 19.0% of net assets as of December 31, 2019. The fair value as of
December 31, 2019 for affiliate investments located in this region was $45,263. This represented 2.9% of net assets as of December 31, 2019.
(10) All of the Company’s portfolio investments are generally subject to restrictions on resale as “restricted securities,” unless otherwise noted.
(11) This schedule should be read in conjunction with the consolidated schedule of investments and notes to the consolidated financial statements.
Supplemental information can be located within the schedule of investments including end of period interest rate, preferred dividend rate, maturity
date, investments not paid currently in cash and investments whose value was determined using significant unobservable inputs.
(12) Investment has an unfunded commitment as of December 31, 2019 (see Note K). The fair value of the investment includes the impact of the fair
value of any unfunded commitments.
178
Table of Contents
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this annual report on Form 10-K,
we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer,
President, Chief Financial Officer, Chief Compliance Officer and Chief Accounting Officer, of our disclosure controls and procedures (as
defined in Rule 13a-15 of the Exchange Act). Based on that evaluation, our Chief Executive Officer, President, Chief Financial Officer,
Chief Compliance Officer and Chief Accounting Officer have concluded that our current disclosure controls and procedures are effective in
timely alerting them of material information relating to us that is required to be disclosed in the reports we file or submit under the
Exchange Act.
(b) Management’s Report on Internal Control Over Financial Reporting. The management of Main Street Capital Corporation
and its subsidiaries (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including the Chief
Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control
over financial reporting based on the criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s evaluation under the framework in Internal
Control — Integrated Framework, management concluded that the Company’s internal control over financial reporting was effective as of
December 31, 2020. Grant Thornton LLP, the Company’s independent registered public accounting firm, has issued an attestation report on
the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020, as stated in its report which is
included herein.
(c) Attestation Report of the Registered Public Accounting Firm. Our independent registered public accounting firm, Grant
Thornton LLP, has issued an attestation report on the effectiveness of our internal control over financial reporting, which is set forth above
under the heading “Reports of Independent Registered Public Accounting Firm” in Item 8. “Consolidated Financial Statements and
Supplementary Data” of this Annual Report on Form 10-K.
(d) Changes in Internal Control over Financial Reporting. There have been no changes in our internal control over financial
reporting that occurred during the fiscal quarter ended December 31, 2020 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
Item 9B. Other Information
Director Departure and Reduction in Size of Board
On February 22, 2021, Ms. Valerie Banner informed our Board of Directors that after four years of excellent service to our Board,
she has decided not stand for re-election to the Board of Directors at the end of her current term on the date of our 2021 annual meeting of
stockholders. Ms. Banner’s decision not to stand for re-election was not the result of any disagreement with management or the Board of
Directors. In connection with Ms. Banner’s departure, the Board of Directors passed a resolution reducing the number of directors that
constitutes the full Board of Directors from ten to nine directors, effective as of the date of our 2021 annual meeting of stockholders.
Fees and Expenses
The following table is being provided to update, as of December 31, 2020, certain information in the Company’s effective shelf
registration statement on Form N-2 (File No. 333-231146) filed with the SEC on April 30, 2019 as supplemented by the prospectus
supplements relating to our ATM Program and to the direct stock purchase feature of the Plan. The information is intended to assist you in
understanding the costs and expenses that an investor in the Company will bear directly or indirectly. We caution you that some of the
percentages indicated in the table below
179
Table of Contents
are estimates and may vary. Except where the context suggests otherwise, whenever this Annual Report on Form 10-K contains a reference
to fees or expenses paid by “you,” “us” or “Main Street,” or that “we” will pay fees or expenses, stockholders will indirectly bear such fees
or expenses as investors in us.
Stockholder Transaction Expenses:
Sales load (as a percentage of offering price)
Offering expenses (as a percentage of offering price)
Dividend reinvestment and direct stock purchase plan expenses
Total stockholder transaction expenses (as a percentage of offering price)
Annual Expenses of the Company (as a percentage of net assets attributable to common stock):
Operating expenses
Interest payments on borrowed funds
Income tax expense
Acquired fund fees and expenses
Total annual expenses
— %(1)
— %(2)
— %(3)
— %(4)
2.81 %(5)
3.43 %(6)
— %(7)
0.30 %(8)
6.54 %
(1) The maximum agent commission with respect to the shares of our common stock sold by us in the ATM Program is 1.00%. Purchasers
of shares of common stock through the direct stock purchase feature of the Plan will not pay any sales load. In the event that our
securities are sold to or through underwriters, a corresponding prospectus or prospectus supplement will disclose the applicable sales
load.
(2) Estimated offering expenses payable by us for the estimated duration of the ATM Program are approximately $0.6 million. In the event
that we conduct an offering of our securities, a corresponding prospectus or prospectus supplement will disclose the estimated offering
expenses.
(3) The expenses of administering the Plan are included in operating expenses. Additional costs may be charged to participants in the direct
stock purchase feature of the plan for certain types of transactions.
(4) Total stockholder transaction expenses may include sales load and will be disclosed in a future prospectus or prospectus supplement, if
any.
(5) Operating expenses in this table represent our estimated
expenses.
(6)
Interest payments on borrowed funds represent our estimated annual interest payments on borrowed funds based on current debt levels
as adjusted for projected increases (but not decreases) in debt levels over the next twelve months.
(7)
Income tax expense relates to the accrual of (a) deferred tax provision (benefit) primarily related to loss carryforwards, timing
differences in net unrealized appreciation or depreciation and other temporary book-tax differences from our portfolio investments held
in Taxable Subsidiaries and (b) excise, state and other taxes. Deferred taxes are non-cash in nature and may vary significantly from
period to period. We are required to include deferred taxes in calculating our annual expenses even though deferred taxes are not
currently payable or receivable. Due to the variable nature of deferred tax expense, which can be a large portion of the income tax
expense, and the difficulty in providing an estimate for future periods, this income tax expense estimate is based upon the actual
amount of income tax expense for the year ended December 31, 2020.
(8) Acquired fund fees and expenses represent the estimated indirect expense incurred due to investments in other investment companies
and private funds.
Example
The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various
periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed we
would have no additional leverage and that our annual operating
180
Table of Contents
expenses would remain at the levels set forth in the table above and that you would pay either no sales load or a sales load of up to 1.00%
(the commission to be paid by us with respect to common stock sold by us in the ATM Program).
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual
return and no sales load
You would pay the following expenses on a $1,000 investment, assuming a 5.0% annual
return and a 1.00% sales load
1 Year
3 Years 5 Years 10 Years
$
$
65
75
$
$
192
202
$
$
315
325
$
$
606
616
The example and the expenses in the table above should not be considered a representation of our future expenses, and
actual expenses may be greater or less than those shown. While the example assumes, as required by the SEC, a 5.0% annual return, our
performance will vary and may result in a return greater or less than 5.0%. In addition, while the example assumes reinvestment of all
dividends at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock,
determined by dividing the total dollar amount of the dividend payable to a participant by (i) the market price per share of our common
stock at the close of trading on a valuation date determined by our Board of Directors for each dividend in the event that we use newly
issued shares to satisfy the share requirements of the dividend reinvestment plan or (ii) the average purchase price of all shares of common
stock purchased by the plan administrator in the event that shares are purchased in the open market to satisfy the share requirements of the
dividend reinvestment plan, which may be at, above or below net asset value. See the description in “Item 5. Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Common Stock and Holders” for additional
information regarding our dividend reinvestment plan.
Item 10. Directors, Executive Officers and Corporate Governance
PART III
The information required by this Item will be contained in the definitive proxy statement relating to our 2021 annual meeting of
stockholders (the “Proxy Statement”) under the headings “Election of Directors,” “Corporate Governance” and “Executive Officers” to be
filed with the Securities and Exchange Commission on or prior to April 30, 2021, and is incorporated herein by reference.
We have adopted a code of business conduct and ethics that applies to directors, officers and employees of Main Street. This code
of ethics is published on our Web site at www.mainstcapital.com. We intend to disclose any substantive amendments to, or waivers from,
this code of conduct within four business days of the waiver or amendment through a Web site posting.
Item 11. Executive Compensation
The information required by this Item will be contained in the Proxy Statement under the headings “Compensation of Executive
Officers,” “Compensation of Directors,” “Compensation Discussion and Analysis,” “Compensation Committee Interlocks and Insider
Participation” and “Compensation Committee Report,” to be filed with the Securities and Exchange Commission on or prior to April 30,
2021, and is incorporated herein by reference.
181
Table of Contents
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table provides information regarding our equity compensation plans as of December 31, 2020:
Plan Category
Equity compensation plans approved by
security holders(1)
Equity compensation plans not approved by
security holders(2)
Total
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights
Weighted‑Average Exercise
Price of Outstanding
Options, Warrants and
Rights
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(Excluding Securities
Reflected in Column)
$
$
— $
160,352
160,352
$
— $
—
— $
1,773,325
—
1,773,325
(1) Consists of our Main Street Capital Corporation 2015 Equity and Incentive Plan and our Main Street Capital Corporation 2015 Non-
Employee Director Restricted Stock Plan. As of December 31, 2020, we had issued 1,572,612 shares of restricted stock pursuant to
these plans, of which 836,131 had vested and 45,631 shares were forfeited. Pursuant to each of these plans, if any award issued
thereunder shall for any reason expire or otherwise terminate or be forfeited, in whole or in part, the shares of stock not acquired under
such award shall revert to and again become available for issuance under such plan. For more information regarding these plans, see
“Note J — Share-Based Compensation” in the notes to the consolidated financial statements.
(2) Consists of our 2015 Deferred Compensation Plan. For more information regarding this plan, see “Note M — Related Party
Transactions” in the notes to the consolidated financial statements.
The other information required by this Item will be contained in the Proxy Statement under the heading “Security Ownership of
Certain Beneficial Owners and Management,” to be filed with the Securities and Exchange Commission on or prior to April 30, 2021, and
is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item will be contained in the Proxy Statement under the headings “Certain Relationships and
Related Party Transactions” and “Corporate Governance,” to be filed with the Securities and Exchange Commission on or prior to April 30,
2021, and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this Item will be contained in the Proxy Statement under the heading “Ratification of Appointment of
Independent Registered Public Accounting Firm for Year Ending December 31, 2021,” to be filed with the Securities and Exchange
Commission on or prior to April 30, 2021, and is incorporated herein by reference.
182
Table of Contents
Item 15. Exhibits and Consolidated Financial Statement Schedules
PART IV
The following documents are filed or incorporated by reference as part of this Annual Report:
1.
Consolidated Financial
Statements
Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—As of December 31, 2020 and December 31, 2019
Consolidated Statements of Operations—For the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Changes in Net Assets—For the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows—For the years ended December 31, 2020, 2019 and 2018
Consolidated Schedule of Investments—December 31, 2020
Consolidated Schedule of Investments—December 31, 2019
Notes to Consolidated Financial Statements
2.
Consolidated Financial Statement
Schedule
Report of Independent Registered Public Accounting Firm
Schedule of Investments in and Advances to Affiliates for the Years Ended December 31, 2020 and 2019
3.
Exhibits
77
82
83
84
85
86
108
129
168
169
Listed below are the exhibits which are filed as part of this report (according to the number assigned to them in Item 601 of
Regulation S-K):
Exhibit
Number
3.1*
3.2*
4.1*
4.2*
4.3*
4.4*
4.5*
Description
Articles of Amendment and Restatement of Main Street Capital Corporation (previously filed as Exhibit (a) to Main Street
Capital Corporation’s Pre-Effective Amendment No. 2 to the Registration Statement on Form N-2 filed on August 15, 2007
(Reg. No. 333-142879))
Amended and Restated Bylaws of Main Street Capital Corporation (previously filed as Exhibit 3.1 to Main Street Capital
Corporation’s Current Report on Form 8-K filed on March 6, 2013 (File No. 1-33723))
Form of Common Stock Certificate (previously filed as Exhibit (d) to Main Street Capital Corporation’s Pre-Effective
Amendment No. 2 to the Registration Statement on Form N-2 filed on August 15, 2007 (Reg. No. 333-142879))
Dividend Reinvestment and Direct Stock Purchase Plan, effective May 10, 2019 (previously filed as Exhibit 99.1 to Main
Street Capital Corporation’s Current Report on Form 8-K filed on May 10, 2019 (File No. 1-33723))
Main Street Mezzanine Fund, LP SBIC debentures guaranteed by the SBA (previously filed as Exhibit (f)(1) to Main Street
Capital Corporation’s Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 filed on June 22, 2007
(Reg. No. 333-142879))
Main Street Capital II, LP SBIC debentures guaranteed by the SBA (see Exhibit (f)(1) to Main Street Capital Corporation’s
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 filed on June 22, 2007 for a substantially
identical copy of the form of debentures)
Main Street Capital III, LP SBIC debentures guaranteed by the SBA (see Exhibit (f)(1) to Main Street Capital Corporation’s
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 filed on June 22, 2007 for a substantially
identical copy of the form of debentures)
183
Table of Contents
Exhibit
Number
4.6*
4.7*
4.8*
4.9*
4.10*
4.11*
4.12*
4.13*
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
Description
Form of Indenture between Main Street Capital Corporation and The Bank of New York Mellon Trust Company, N.A.
(previously filed as Exhibit (d)(6) to Main Street Capital Corporation’s Post-Effective Amendment No. 2 to the Registration
Statement on Form N-2 filed on March 28, 2013 (Reg. No. 333-183555))
Form of Third Supplemental Indenture relating to the 4.50% Notes due 2022, between Main Street Capital Corporation and
The Bank of New York Mellon Trust Company, N.A. (previously filed as Exhibit (d)(12) to Main Street Capital
Corporation’s Post-Effective Amendment No. 14 to the Registration Statement on Form N-2 filed on November 17, 2017
(Reg. No. 333-203147))
Form of 4.50% Notes due 2022 (incorporated by reference to Exhibit 4.7)
Form of Fourth Supplemental Indenture relating to the 5.20% Notes due 2024, between Main Street Capital Corporation and
The Bank of New York Mellon Trust Company, N.A. (previously filed as Exhibit (d)(11) to Main Street Capital
Corporation’s Post-Effective Amendment No. 7 to the Registration Statement on Form N-2 filed on April 18, 2019 (Reg.
No. 333-223483))
Form of 5.20% Notes due 2024 (incorporated by reference to Exhibit 4.9)
Fifth Supplemental Indenture relating to the 3.00% Notes due 2026, between Main Street Capital Corporation anfd The
Bank of New York Mellon Trust Company, N.A., as trustee (previously filed as Exhibit 4.1 to Main Street Capital
Corporation’s Current Report on Form 8-K filed on January 14, 2021 (File No. 1-33723))
Form of 3.00% Notes due 2026 (incorporated by reference to Exhibit 4.11)
Description of Main Street Capital Corporation’s securities registered pursuant to Section 12 of the Securities Exchange Act
of 1934 (previously filed as Exhibit 4.11 to Main Street Capital Corporation’s Annual Report on Form 10-K filed on
February 28, 2020 (File No. 1-33723))
Third Amended and Restated Credit Agreement dated June 5, 2018 (previously filed as Exhibit 10.1 to Main Street Capital
Corporation’s Current Report on Form 8-K filed on June 6, 2018 (File No. 1-33723))
Third Amended and Restated General Security Agreement dated June 5, 2018 (previously filed as Exhibit 10.2 to Main
Street Capital Corporation’s Current Report on Form 8-K filed on June 6, 2018 (File No. 1-33723))
Third Amended and Restated Equity Pledge Agreement dated June 5, 2018 (previously filed as Exhibit 10.3 to Main Street
Capital Corporation’s Current Report on Form 8-K filed on June 6, 2018 (File No. 1-33723))
Amended and Restated Custodial Agreement dated September 20, 2010 (previously filed as Exhibit 10.3 to Main Street
Capital Corporation’s Current Report on Form 8-K filed September 21, 2010 (File No. 1-33723))
Third Amendment to Amended and Restated Credit Agreement and First Amendment to Amended and Restated Custodial
Agreement dated November 21, 2011 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current Report
on Form 8-K filed November 22, 2011 (File No. 1-33723))
Supplement Agreement dated July 19, 2018 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current
Report on Form 8-K filed on July 20, 2018 (File No. 1-33723))
Supplement Agreement dated November 15, 2018 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s
Current Report on Form 8-K filed on November 15, 2018 (File No. 1-33723))
Supplement Agreement dated March 23, 2020 (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current
Report on Form 8-K filed on March 24, 2020 (File No. 1-33723))
First Amendment to Third Amended and Restated Credit Agreement dated May 28, 2020 (previously filed as Exhibit 10.1 to
Main Street Capital Corporation’s Quarterly Report on Form 10-Q filed on August 7, 2020 (File No. 1-33723))
10.10*
Supplement Agreement dated November 4, 2020 (previously filed as Exhibit 10.2 to Main Street Capital Corporation’s
Quarterly Report on Form 10-Q filed on November 6, 2020 (File No. 1-33723))
184
Table of Contents
Exhibit
Number
10.11*†
10.12*†
10.13*†
10.14*†
10.15*
10.16*†
10.17*†
10.18*
10.19*†
10.20*
14.1**
21.1**
23.1**
31.1**
31.2**
32.1**
32.2**
Description
Main Street Capital Corporation 2015 Equity and Incentive Plan (previously filed as Exhibit 4.4 to Main Street Capital
Corporation’s Registration Statement on Form S-8 filed on May 5, 2015 (Reg. No. 333-203893))
Main Street Capital Corporation 2015 Non-Employee Director Restricted Stock Plan (previously filed as Exhibit 4.5 to Main
Street Capital Corporation’s Registration Statement on Form S-8 filed on May 5, 2015 (Reg. No. 333-203893))
Form of Restricted Stock Agreement for Executive Officers — Main Street Capital Corporation 2015 Equity and Incentive
Plan (previously filed as Exhibit 4.6 to Main Street Capital Corporation’s Registration Statement on Form S-8 filed on
May 5, 2015 (Reg. No. 333-203893))
Form of Restricted Stock Agreement for Non-Employee Directors — Main Street Capital Corporation 2015 Non-Employee
Director Restricted Stock Plan (previously filed as Exhibit 4.7 to Main Street Capital Corporation’s Registration Statement
on Form S-8 filed on May 5, 2015 (Reg. No. 333-203893))
Custodian Agreement (previously filed as Exhibit (j) to Main Street Capital Corporation’s Pre-Effective Amendment No. 3
to the Registration Statement on Form N-2 filed on September 21, 2007 (Reg. No. 333-142879))
Form of Confidentiality and Non-Compete Agreement by and between Main Street Capital Corporation and Vincent D.
Foster (previously filed as Exhibit (k)(12) to Main Street Capital Corporation’s Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-2 filed on September 21, 2007 (Reg. No. 333-142879))
Form of Indemnification Agreement by and between Main Street Capital Corporation and each executive officer and
director (previously filed as Exhibit (k)(13) to Main Street Capital Corporation’s Pre-Effective Amendment No. 3 to the
Registration Statement on Form N-2 filed on September 21, 2007 (Reg. No. 333-142879))
Investment Advisory and Administrative Services Agreement dated October 30, 2020 by and among MSC Adviser I, LLC
and MSC Income Fund, Inc. (previously filed as Exhibit 10.1 to Main Street Capital Corporation’s Current Report on Form
8-K filed on November 3, 2020 (File No. 1-33723))
Main Street Capital Corporation Deferred Compensation Plan Adoption Agreement and Plan Document (previously filed as
Exhibit 4.1 to Main Street Capital Corporation’s Registration Statement on Form S-8 filed on December 18, 2015 (File
No. 333-208643))
Form of Equity Distribution Agreement dated May 16, 2019 (previously filed as Exhibit 1.1 to Main Street Capital
Corporation’s Current Report on Form 8-K filed on May 16, 2019 (File No. 1-33723))
Joint Code of Business Conduct and Ethics
List of Subsidiaries
Consent of Grant Thornton LLP, independent registered public accounting firm
Rule 13a-14(a)/15d-14(a) certification of Chief Executive Officer
Rule 13a-14(a)/15d-14(a) certification of Chief Financial Officer
Section 1350 certification of Chief Executive Officer
Section 1350 certification of Chief Financial Officer
*
Exhibit previously filed with the Securities and Exchange Commission, as indicated, and incorporated herein by
reference.
** Furnished
herewith.
† Management contract or compensatory plan or
arrangement.
185
Table of Contents
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
MAIN STREET CAPITAL CORPORATION
By:
/s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
Chief Executive Officer and Director
Date: February 26, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ DWAYNE L. HYZAK
Dwayne L. Hyzak
/s/ VINCENT D. FOSTER
Vincent D. Foster
/s/ BRENT D. SMITH
Brent D. Smith
/s/ LANCE A. PARKER
Lance A. Parker
/s/ VALERIE L. BANNER
Valerie L. Banner
/s/ ARTHUR L. FRENCH
Arthur L. French
/s/ J. KEVIN GRIFFIN
J. Kevin Griffin
/s/ JOHN E. JACKSON
John E. Jackson
/s/ BRIAN E. LANE
Brian E. Lane
/s/ KAY MATTHEWS
Kay Matthews
Chief Executive Officer and Director
(principal executive officer)
February 26, 2021
Executive Chairman of the Board of Directors
February 26, 2021
Chief Financial Officer and Treasurer
(principal financial officer)
Vice President, Chief Accounting Officer
(principal accounting officer)
Director
Director
Director
Director
Director
Director
186
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
February 26, 2021
Table of Contents
Signature
/s/ DUNIA A. SHIVE
Dunia A. Shive
/s/ STEPHEN B. SOLCHER
Stephen B. Solcher
Title
Director
Director
187
Date
February 26, 2021
February 26, 2021
Exhibit 14.1
MAIN STREET CAPITAL
CORPORATION
MSC INCOME FUND, INC.
MSC ADVISER I, LLC
JOINT CODE OF ETHICS
This Code of Ethics (the “Code”) has been adopted by the Board of Directors of each of Main Street Capital Corporation (“Main
Street”) and MSC Income Fund, Inc. (“MSIF” and, together with Main Street, the “BDCs”) in accordance with Rule 17j-l(c) under the
Investment Company Act of 1940, as amended (the “1940 Act”), and the May 9, 1994 Report of the Advisory Group on Personal Investing
by the Investment Company Institute (the “Report”). Rule 17j-1 generally describes fraudulent or manipulative practices with respect to
purchases or sales of securities held or to be acquired by business development companies if effected by access persons of such companies.
In addition, this Code Ethics shall serve as the code of ethics required to be adopted by Rule 204A-1 under the Investment
Advisers Act of 1940 (the “Advisers Act”) and, to the extent applicable, by Rule 17j-1 under the 1940 Act in connection with the provision
of investment advisory services by Main Street and its wholly owned subsidiary MSC Advisor I, LLC (“MSCA” and, together with the
BDCs, the “Company”) to third parties (“Clients”). Rule 204A-1 requires every registered investment adviser to establish, maintain, and
enforce a written investment adviser code of ethics that is applicable to its “supervised persons.” Section 202(a)(25) of the Advisers Act
defines the term “supervised persons” to include all of the officers, directors, and employees of the investment adviser, or other person who
provides investment advice on behalf of the investment adviser and is subject to the supervision and control of the investment adviser. As
used herein, the term “employees” consists of all employees of Main Street and MSCA who, in the course of their business, act as an
investment adviser as defined under the Advisers Act in providing investment advice to Clients and those employees that make, participate
in or obtain non-public information regarding the portfolio management decisions relating to the investment advisory services.
The purpose of this Code of Ethics is to reflect the following: (1) the duty at all times to place the interests of shareholders
and Clients, as appropriate, of the Company first; (2) the requirement that all personal securities transactions be conducted
consistent with the Code of Ethics and in such a manner as to avoid any actual or potential conflict of interest or any abuse of an
individual’s position of trust and responsibility; and (3) the fundamental standard that business development company and
investment advisory personnel, as appropriate, should not take inappropriate advantage of their positions.
PART A. RULE 17j-1 OF THE 1940 ACT
SECTION I:
STATEMENT OF PURPOSE AND APPLICABILITY
(A)
Statement of Purpose
It shall be a violation of the policy of the Company for any affiliated person of the Company, in connection with the
purchase or sale, directly or indirectly, by such person of any security held or to be acquired by the Company, to:
(1)
(2)
(3)
(4)
employ any device, scheme or artifice to defraud the Company;
make to the Company any untrue statement of a material fact or omit to state to the Company a material fact
necessary in order to make the statement made, in light of the circumstances under which it is made, not
misleading;
engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the
Company; or
engage in any manipulative practice with respect to the
Company.
1
(B)
Scope of the Code
In order to prevent the Access Persons, as defined in Section II, paragraph (A) below, of the Company from engaging in
any of these prohibited acts, practices or courses of business, the Board of Directors of the Company has adopted this
Code.
SECTION II: DEFINITIONS
(A)
(B)
(C)
(D)
(E)
(F)
(G)
(H)
(I)
Access Person. “Access Person” means any director, officer, or Advisory Person of the Company.
Advisory Person. “Advisory Person” of the Company means: (i) any employee of the Company or of any company in a
control relationship to the Company, who, in connection with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of a Covered Security by the Company, or whose functions relate to
the making of any recommendations with respect to such purchases or sales; and (ii) any natural person in a control
relationship to the Company who obtains information concerning recommendations made to the Company with regard to
the purchase or sale of Covered Security.
Beneficial Interest. “Beneficial Interest” includes any entity, person, trust, or account with respect to which an Access
Person exercises investment discretion or provides investment advice. A beneficial interest shall be presumed to include
all accounts in the name of or for the benefit of the Access Person, his or her spouse, dependent children, or any person
living with him or her or to whom he or she contributes economic support.
Beneficial Ownership. “Beneficial Ownership” shall be determined in accordance with Rule 16a-1(a)(2) under the
Securities Exchange Act of 1934, except that the determination of direct or indirect Beneficial Ownership shall apply to all
securities, and not just equity securities, that an Access Person has or acquires. Rule 16a-1(a)(2) provides that the term
“beneficial owner” means any person who, directly or indirectly, through any contract, arrangement, understanding,
relationship, or otherwise, has or shares a direct or indirect pecuniary interest in any equity security. Therefore, an Access
Person may be deemed to have Beneficial Ownership of securities held by members of his or her immediate family sharing
the same household, or by certain partnerships, trusts, corporations, or other arrangements.
Control. “Control” shall have the same meaning as that set forth in Section 2(a)(9) of the 1940 Act.
Covered Security. “Covered Security” means a security as defined in Section 2(a)(36) of the 1940 Act, except that it does
not include (i) direct obligations of the Government of the United States; (ii) banker’s acceptances, bank certificates of
deposit, commercial paper and high quality short-term debt instruments including repurchase agreements; and (iii) shares
issued by registered open-end investment companies (i.e., mutual funds); however, exchange traded funds structured as
unit investment trusts or open-end funds are considered “Covered Securities”.
Designated Officer. “Designated Officer” shall mean the officer of the Company designated by the Board of Directors
from time to time to be responsible for management of compliance with this Code, who shall initially be the Chief
Compliance Officer of the Company until such time as the Board of Directors shall appoint a successor. The Designated
Officer may appoint a designee to carry out certain of his or her functions pursuant to this Code.
Disinterested Director. “Disinterested Director” means a director of the Company who is not an “interested person” of
the Company within the meaning of Section 2(a)(19) of the 1940 Act.
Initial Public Offering. “Initial Public Offering” means an offering of securities registered under the Securities Act of
1933, as amended (the “Securities Act”), the issuer of which, immediately before the
2
registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934.
(J)
(K)
(L)
Investment Personnel. “Investment Personnel” means: (i) any employee of the Company (or of any company in a control
relationship to the Company) who, in connection with his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by the Company; and (ii) any natural person who
controls the Company and who obtains information concerning recommendations regarding the purchase or sale of
securities by the Company.
Limited Offering. “Limited Offering” means an offering that is exempt from registration under the Securities Act pursuant
to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505 or Rule 506 under the Securities Act.
Purchase or Sale of a Covered Security. “Purchase or Sale of a Covered Security” is broad and includes, among other
things, the writing of an option to purchase or sell a covered security, or the use of a derivative product to take a position in
a Covered Security.
SECTION III: STANDARDS OF CONDUCT
(A)
General Standards
(1)
(2)
(3)
No Access Person shall engage, directly or indirectly, in any business transaction or arrangement for personal
profit that is inconsistent with the best interests of the Company or its shareholders; nor shall he or she make use
of any confidential information gained by reason of his or her employment by or affiliation with the Company or
affiliates thereof in order to derive a personal profit for himself or herself or for any Beneficial Interest, in
violation of the fiduciary duty owed to the Company or its shareholders.
Any Access Person recommending or authorizing the purchase or sale of a Covered Security by the Company
shall, at the time of such recommendation or authorization, disclose any Beneficial Interest in, or Beneficial
Ownership of, such Covered Security or the issuer thereof.
No Access Person shall dispense any information concerning securities holdings or securities transactions of the
Company to anyone outside the Company, without obtaining prior written approval from the Designated
Officer, or such person or persons as these individuals may designate to act on their behalf. Notwithstanding the
preceding sentence, such Access Person may dispense such information without obtaining prior written
approval:
(a)
(b)
(c)
(d)
when
there
information;
is a public report containing
the same
when such information is dispensed in accordance with compliance procedures established to prevent
conflicts of interest between the Company and its affiliates;
when such information is reported to directors of the Company; or
in the ordinary course of his or her duties on behalf of the
Company.
(4)
All personal securities transactions should be conducted consistent with this Code and in such a manner as to
avoid actual or potential conflicts of interest, the appearance of a conflict of interest, or any abuse of an
individual’s position of trust and responsibility within the Company.
3
(B)
Prohibited Transactions
(1)
General Prohibition. No Access Person shall purchase or sell, directly or indirectly, any Covered Security in
which he or she has, or by reason of such transaction acquires, any direct or indirect Beneficial Ownership and
which such Access Person knows or should have known at the time of such purchase or sale is being considered
for purchase or sale by the Company, or is held in the portfolio of the Company unless such Access Person shall
have obtained prior written approval for such purpose from the Designated Officer.
(a)
(b)
(c)
(d)
An Access Person who becomes aware that the Company is considering the purchase or sale of any
Covered Security by any person (an issuer) must immediately notify the Designated Officer of any
interest that such Access Person may have in any outstanding Covered Securities of that issuer.
An Access Person shall similarly notify the Designated Officer of any other interest or connection that
such Access Person might have in or with such issuer.
Once an Access Person becomes aware that the Company is considering the purchase or sale of a
Covered Security or that the Company holds a Covered Security in its portfolio, such Access Person
may not engage, without prior approval of the Designated Officer, in any transaction in any Covered
Securities of that issuer.
The foregoing notifications or permission may be provided verbally, but should be confirmed in writing
as soon and with as much detail as possible.
Initial Public Offerings and Limited Offerings. Investment Personnel of the Company must obtain approval
from the Company before directly or indirectly acquiring beneficial ownership in any securities in an Initial
Public Offering or in a Limited Offering. For purposes of the pre-clearance requirements, transactions in digital
assets and cryptocurrencies, such as Bitcoin and Ethereum, as well as other tokens or similar assets shall be
treated as transactions in securities, thus requiring pre-clearance where such assets are acquired through a private
placement or initial public offering regardless of whether such assets are deemed to be “securities” for purposes
of the federal securities laws.
Blackout Periods. No Investment Personnel shall execute a securities transaction in any security that the
Company owns or is considering for purchase or sale.
Company Acquisition of Shares in Companies that Investment Personnel Hold Through Limited Offerings.
Investment Personnel who have been authorized to acquire securities in a Limited Offering must disclose that
investment to the Designated Officer when they are involved in the Company’s subsequent consideration of an
investment in the issuer, and the Company’s decision to purchase such securities must be independently
reviewed by Investment Personnel with no personal interest in that issuer.
Gifts and Entertainment. No Access Person may accept, directly or indirectly, any gift, favor, or service of more
than a de minimis value from any person with whom he or she transacts business on behalf of the Company
under circumstances when to do so would conflict with the Company’s best interests or would impair the ability
of such person to be completely disinterested when required, in the course of business, to make judgments and/or
recommendations on behalf of the Company. The foregoing restrictions do not apply to ordinary and usual
business entertainment. For an item to be considered “business entertainment,” a representative of the
vendor/host must be present at the event/meal and there must be an opportunity to discuss matters related to the
Company or Client business. Questions regarding these restrictions should be directed to the Designated
Officer.
(2)
(3)
(4)
(5)
4
(6)
Service as Director. No Access Person shall serve on the board of directors of a portfolio company of the
Company without prior written authorization of the Designated Officer based upon a determination that the
board service would be consistent with the interests of the Company and its shareholders.
SECTION IV: PROCEDURES TO IMPLEMENT CODE OF ETHICS
The following reporting procedures have been established to assist Access Persons in avoiding a violation of this Code, and to
assist the Company in preventing, detecting, and imposing sanctions for violations of this Code. Every Access Person must follow these
procedures. Questions regarding these procedures should be directed to the Designated Officer.
(A)
Applicability
All Access Persons are subject to the reporting requirements set forth in Section IV(B) except:
(1)
(2)
(3)
with respect to transactions effected for, and Covered Securities held in, any account over which the Access
Person has no direct or indirect influence or control;
a Disinterested Director, who would be required to make a report solely by reason of being a Director, need not
make: (1) an initial holdings or an annual holdings report; and (2) a quarterly transaction report, unless the
Disinterested Director knew or, in the ordinary course of fulfilling his or her official duties as a Director, should
have known that during the 15-day period immediately before or after such Disinterested Director’s transaction
in a Covered Security, the Company purchased or sold the Covered Security, or the Company considered
purchasing or selling the Covered Security; and
an Access Person need not make a quarterly transaction report if the report would duplicate information
contained in broker trade confirmations or account statements received by the Company with respect to the
Access Person in the time required by subsection (B)(2) of this Section IV, if all of the information required by
subsection (B)(2) of this Section IV is contained in the broker trade confirmations or account statements, or in
the records of the Company, as specified in subsection (B)(4) of this Section IV.
(B)
Report Types
(1)
Initial Holdings Report. An Access Person must file an initial report not later than 10 days after that person
became an Access Person. The initial report must: (a) contain the title, number of shares and principal amount
of each Covered Security in which the Access Person had any direct or indirect beneficial ownership when the
person became an Access Person; (b) identify any broker, dealer or bank with whom the Access Person
maintained an account in which any Covered Securities were held for the direct or indirect benefit of the Access
Person as of the date the person became an Access Person; and (c) indicate the date that the report is filed with
the Designated Person. A copy of a form of such report is attached hereto as Exhibit B.
(2)
Quarterly Transaction Report. An Access Person must file a quarterly transaction report not later than 30 days
after the end of a calendar quarter.
(a)
With respect to any transaction made during the reporting quarter in a Covered Security in which such
Access Person had any direct or indirect beneficial ownership, the quarterly transaction report must
contain: (i) the transaction date, title, interest date and maturity date (if applicable), the number of
shares and the principal amount of each Covered Security; (ii) the nature of the transaction (i.e.,
purchase, sale or any other type of acquisition or disposition); (iii) the price of the Covered Security at
which
5
the transaction was effected; (iv) the name of the broker, dealer or bank through which the transaction
was effected; and (v) the date that the report is submitted by the Access Person. A copy of a form of
such report is attached hereto as Exhibit C.
(b)
With respect to any account established by the Access Person in which any securities were held during
the quarter for the direct or indirect benefit of the Access Person, the quarterly transaction report must
contain: (i) the name of the broker, dealer or bank with whom the Access Person established the
account; (ii) the date the account was established; and (iii) the date that the report is submitted by the
Access Person. A copy of a form of such report is attached hereto as Exhibit E unless provided under
C.
Annual Holdings Report. An Access Person must file an annual holdings report not later than 30 days after the
end of a fiscal year. The annual report must contain the following information (which information must be
current as of a date no more than 30 days before the report is submitted): (a) the title, number of shares, and
principal amount of each Covered Security in which the Access Person had any direct or indirect beneficial
ownership; (b) the name of any broker, dealer or bank in which any Covered Securities are held for the direct or
indirect benefit of the Access Person; and (c) the date the report is submitted. A copy of a form of such report is
attached hereto as Exhibit D.
Account Statements. In lieu of providing a quarterly transaction report, an Access Person may direct his or her
broker to provide to the Designated Officer copies of periodic statements for all investment accounts in which
they have Beneficial Ownership that provide the information required in quarterly transaction reports, as set
forth above.
Company Reports. No less frequently than annually, the Company must furnish to the Board, and the Board
must consider, a written report that:
(a)
(b)
describes any issues arising under the Code or procedures since the last report to the Board, including
but not limited to, information about material violations of the code or procedures and sanctions
imposed in response to the material violations; and
certifies that the Company has adopted procedures reasonably necessary to prevent Access Persons
from violating the Code.
(3)
(4)
(5)
(C)
(D)
(E)
Disclaimer of Beneficial Ownership. Any report required under this Section IV may contain a statement that the report
shall not be construed as an admission by the person submitting such duplicate confirmation or account statement or
making such report that he or she has any direct or indirect beneficial ownership in the Covered Security to which the
report relates.
Review of Reports. The reports required to be submitted under this Section IV shall be delivered to the Designated
Officer. The Designated Officer shall review such reports to determine whether any transactions recorded therein
constitute a violation of the Code. Before making any determination that a violation has been committed by any Access
Person, such Access Person shall be given an opportunity to supply additional explanatory material. The Designated
Officer shall maintain copies of the reports as required by Rule 17j-1(f).
Acknowledgment and Certification. Upon becoming an Access Person and annually thereafter, all Access Persons shall
sign an acknowledgment and certification of their receipt of and intent to comply with this Code in the form attached
hereto as Exhibit A and return it to the Designated Officer. Each Access Person must also certify annually that he or she
has read and understands the Code and recognizes that he or she is subject to the Code. In addition, each access person
must certify annually that he or she has complied with the requirements of the Code and that he or she has disclosed or
reported all personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code.
6
(F)
Records. The Company shall maintain records with respect to this Code in the manner and to the extent set forth below,
which records may be maintained on microfilm or electronic storage media under the conditions described in Rule 31a-2(f)
under the 1940 Act and shall be available for examination by representatives of the Securities and Exchange Commission
(the “SEC”):
(1)
(2)
(3)
(4)
(5)
(6)
A copy of this Code and any other code of ethics of the Company that is, or at any time within the past five
years has been, in effect shall be maintained in an easily accessible place;
A record of any violation of this Code and of any action taken as a result of such violation shall be maintained in
an easily accessible place for a period of not less than five years following the end of the fiscal year in which the
violation occurs;
A copy of each report made by an Access Person or duplicate account statement received pursuant to this Code,
including any information provided in lieu of the reports under subsection (A)(3) of this Section IV shall be
maintained for a period of not less than five years from the end of the fiscal year in which it is made or the
information is provided, the first two years in an easily accessible place;
A record of all persons who are, or within the past five years have been, required to make reports pursuant to this
Code, or who are or were responsible for reviewing these reports, shall be maintained in an easily accessible
place;
A copy of each report required under subsection (B)(5) of this Section IV shall be maintained for at least five
years after the end of the fiscal year in which it is made, the first two years in an easily accessible place; and
A record of any decision, and the reasons supporting the decision, to approve the direct or indirect acquisition by
an Access Person of beneficial ownership in any securities in an Initial Public Offering or Limited Offering shall
be maintained for at least five years after the end of the fiscal year in which the approval is granted.
(G)
(H)
Obligation to Report a Violation. Every Access Person who becomes aware of a violation of this Code by any person
must report it to the Designated Officer, who shall report it to appropriate management personnel. The management
personnel will take such disciplinary action that they consider appropriate under the circumstances. In the case of officers
or other employees of the Company, such action may include removal from office. If the management personnel consider
disciplinary action against any person, they will cause notice thereof to be given to that person and provide to that person
the opportunity to be heard. The Board will be notified, in a timely manner, of remedial action taken with respect to
violations of the Code.
Confidentiality. All reports of Covered Securities transactions, duplicate confirmations, account statements and other
information filed with the Company or furnished to any person pursuant to this Code shall be treated as confidential, but
are subject to review as provided herein and by representatives of the SEC or otherwise to comply with applicable law or
the order of a court of competent jurisdiction.
7
SECTION V: SANCTIONS
Upon determination that a violation of this Code has occurred, appropriate management personnel of the Company may impose
such sanctions as they deem appropriate, including, among other things, disgorgement of profits, a letter of censure or suspension or
termination of the employment of the violator. All violations of this Code and any sanctions imposed with respect thereto shall be reported
in a timely manner to the Board of Directors of the Company.
PART B. RULE 204A-1 OF THE ADVISERS ACT/RULE 17j-1 OF THE 1940 ACT
For purposes of Rule 204A-1 of the Advisers Act and, to the extent applicable, Rule 17j-1 of the 1940 Act, the provisions set forth
in Part A to this Code of Ethics shall apply in connection with the Company’s provision of investment advisory services to Clients except
that it shall be interpreted in a manner to protect the interests of Clients, including prohibiting supervised persons of the Company from: (i)
employing any device, scheme or artifice to defraud the Client; (ii) making any untrue statement of a material fact to the Client or omitting
to state a material fact necessary in order to make the statements made to the Client, in light of the circumstances under which they are
made, not misleading; (iii) engaging in any act, practice or course of business conduct that operates or would operate as a fraud or deceit on
the Client; and (iv) engaging in any manipulative practice with respect to the Client.
Notwithstanding the foregoing, the administrative provisions, enforcement provisions, approval (including pre-approval)
provisions and recordkeeping provisions (which shall be read to refer to Rule 204-2 under the Advisers Act for purposes of this Part B) set
forth in Part A of this Code of Ethics shall continue to be the exclusive/sole province of the Company for purposes of Part B of this Code of
Ethics. For example, the initial, annual and quarterly holding report obligations set forth in Part A of this Code of Ethics shall be furnished
by supervised persons of the Company to the Company (and not to the Client) for purposes of Part B to this Code of Ethics.
v.11.2020
8
EXHIBIT A
ACKNOWLEDGMENT AND CERTIFICATION
I acknowledge receipt of the Code of Ethics of Main Street Capital Corporation, MSC Adviser I, LLC and MSC Income Fund, Inc.. I have
read and understand such Code of Ethics and agree to be governed by it at all times. Further, if I have been subject to the Code of Ethics
during the preceding year, I certify that I have complied with the requirements of the Code of Ethics and have disclosed or reported all
personal securities transactions required to be disclosed or reported pursuant to the requirements of the Code of Ethics.
(Signature)
(Please print name)
Date:
Date
Date Received:
Reviewed By:
Note – the form shown above is for illustrative purposes and is representative of the certification provided by employees of the
Company using the Company’s compliance portal, MyComplianceOffice, accessible to employees of the Company. The form itself is
not typically used in practice, but it would be an acceptable, temporary alternative if the compliance portal was not accessible.
9
Name
Date
EXHIBIT B
INITIAL HOLDINGS REPORT
NAME OF ISSUER
NUMBER OF SHARES
PRINCIPAL AMOUNT
I certify that the foregoing is a complete and accurate list of all securities in which I have any Beneficial Ownership.
Date Received:
Reviewed By:
(Signature)
Date
Note – the form shown above is for illustrative purposes and is representative of the report provided by employees of the Company
using the Company’s compliance portal, MyComplianceOffice, accessible to employees of the Company. The form itself is not
typically used in practice, but it would be an acceptable, temporary alternative if the compliance portal was not accessible.
10
Name
Date
EXHIBIT C
QUARTERLY TRANSACTION REPORT
DATE
NAME OF
ISSUER
NUMBER
OF
SHARES
INTEREST
DATE
MATURITY
DATE
PRINCIPAL
AMOUNT
TYPE OF
TRANSACTION
NAME OF
BROKER/
DEALER/
BANK
I certify that the foregoing is a complete and accurate list of all transactions for the covered period in securities in which I have any
Beneficial Ownership.
Date Received:
Reviewed By:
(Signature)
Date
Note – the form shown above is for illustrative purposes and is representative of the report provided by employees of the Company
using the Company’s compliance portal, MyComplianceOffice, accessible to employees of the Company. The form itself is not
typically used in practice, but it would be an acceptable, temporary alternative if the compliance portal was not accessible.
11
Name
Date
EXHIBIT D
ANNUAL HOLDINGS REPORT
NAME OF ISSUER
NUMBER OF SHARES
PRINCIPAL AMOUNT
NAME OF
BROKER/DEALER/ BANK
I certify that the foregoing is a complete and accurate list of all securities in which I have any Beneficial Ownership.
Date Received:
Reviewed By:
(Signature)
Date
Note – the form shown above is for illustrative purposes and is representative of the report provided by employees of the Company
using the Company’s compliance portal, MyComplianceOffice, accessible to employees of the Company. The form itself is not
typically used in practice, but it would be an acceptable, temporary alternative if the compliance portal was not accessible.
12
EXHIBIT E
PERSONAL SECURITIES ACCOUNT INFORMATION
Name
Date
SECURITIES
FIRM NAME AND ADDRESS
ACCOUNT NUMBER
ACCOUNT NAME(S)
I certify that the foregoing is a complete and accurate list of all securities accounts in which I have any Beneficial Ownership.
Date Received:
Reviewed By:
(Signature)
Date
Note – the form shown above is for illustrative purposes and is representative of the report provided by employees of the Company
using the Company’s compliance portal, MyComplianceOffice, accessible to employees of the Company. The form itself is not
typically used in practice, but it would be an acceptable, temporary alternative if the compliance portal was not accessible.
13
Exhibit 21.1
LIST OF SUBSIDIARIES
Main Street Capital Partners, LLC, a Delaware limited liability company
Main Street Mezzanine Management, LLC, a Delaware limited liability company
Main Street Equity Interests, Inc., a Delaware corporation
Main Street Mezzanine Fund, LP, a Delaware limited partnership
Main Street Capital II GP, LLC, a Delaware limited liability company
Main Street Capital II, LP, a Delaware limited partnership
Main Street Capital III GP, LLC, a Delaware limited liability company
Main Street Capital III, LP, a Delaware limited partnership
Main Street CA Lending, LLC, a Delaware limited liability company
MS Equity Holdings, Inc., a Delaware corporation
MS International Holdings, Inc., a Delaware corporation
1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have issued our reports dated February 26, 2021, with respect to the consolidated financial statements, financial highlights,
financial statement schedule and internal control over financial reporting included in the Annual Report of Main Street Capital Corporation
on Form 10-K for the year ended December 31, 2020. We consent to the incorporation by reference of said reports in the Registration
Statements of Main Street Capital Corporation on Form N-2 (File No. 333-231146) and Form S-8 (File Nos. 333-203893 and 333-208643).
Exhibit 23.1
/s/ GRANT THORNTON LLP
Houston, Texas
February 26, 2021
1
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Dwayne L. Hyzak, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2020 of Main Street Capital
Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing
the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 26, 2021
By:
/s/ Dwayne L. Hyzak
Dwayne L. Hyzak
Chief Executive Officer
1
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-14(a) and 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS AMENDED
I, Brent D. Smith, certify that:
1.
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2020 of Main Street Capital
Corporation (the “registrant”);
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this
report;
4.
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in
Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to
be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report
based on such evaluation; and
d)
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the Audit Committee of the registrant’s Board of Directors (or persons performing
the equivalent functions):
a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and
b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 26, 2021
By:
/s/ Brent D. Smith
Brent D. Smith
Chief Financial Officer
1
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the accompanying Annual Report of Main Street Capital Corporation (the “Company”) on Form 10-K for the
year ended December 31, 2020 (the “Report”), I, Dwayne L. Hyzak, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
1934, as amended; and
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 26, 2021
By:
/s/ Dwayne L. Hyzak
Dwayne L. Hyzak
Chief Executive Officer
1
CERTIFICATION PURSUANT TO
SECTION 1350, CHAPTER 63 OF TITLE 18, UNITED STATES CODE,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the accompanying Annual Report of Main Street Capital Corporation (the “Company”) on Form 10-K for the
year ended December 31, 2020 (the “Report”), I, Brent D. Smith, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
§1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1)
1934, as amended; and
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 26, 2021
By:
/s/ Brent D. Smith
Brent D. Smith
Chief Financial Officer
1