MSC Income Fund (NYSE:MSIF) reported second-quarter 2026 results that included a 15.9% annualized return on equity, a 4% sequential increase in net asset value per share and $19 million of net fair value appreciation across its investment portfolio.
The business development company ended the quarter with net asset value of $16.51 per share, up $0.64 from the first quarter and $0.98 above its January 2025 public offering price. Net assets increased by $29.3 million, or $0.65 per share, during the quarter, Chief Financial Officer Cory Gilbert said.
Income, NAV and Dividends
Total investment income was $35.7 million in the second quarter, unchanged from the same period a year earlier and up $1.6 million, or 4.7%, from the first quarter. Gilbert said the sequential increase reflected higher interest and fee income, partly offset by changes in dividend income.
Adjusted net investment income before taxes was $16.3 million, or $0.36 per share, compared with $17.3 million, or $0.37 per share, in the second quarter of 2025. Adjusted net investment income was $0.33 per share, according to Hyzak.
The fund recorded $9.9 million of net realized gains and $9.1 million of net unrealized appreciation during the quarter. The appreciation was driven by a $10.7 million increase in the fair value of private-loan investments and a $10 million increase in the lower-middle-market portfolio, partly offset by a $1.6 million decline in the residual middle-market portfolio.
The board declared regular monthly dividends of $0.11 per share for each of October, November and December, along with a supplemental dividend of $0.03 per share payable in December. The $0.36 total fourth-quarter dividend is consistent with the quarterly dividend amount paid since the fund’s January 2025 listing.
Hyzak said the fund expects its dividend policy to generally target quarterly payouts consistent with adjusted net investment income before taxes per share. Based on the current stock price, he said the announced fourth-quarter dividends represented a current yield of more than 12%.
Private Loans Remain the Focus
Private loans remain the fund’s sole focus for new portfolio-company investments. Meserve said operating performance across most private-loan portfolio companies remained positive and supported the quarter’s results.
During the quarter, the fund invested $62 million in private loans. After repayments and other activity, private-loan investments rose by $10 million on a net basis. The portfolio ended the quarter with investments in 81 private-loan companies valued at $848 million, representing 61% of total portfolio fair value.
- 93% of the private-loan portfolio consisted of secured debt investments.
- More than 99% of secured debt investments were first-lien loans.
- 95% of the portfolio consisted of floating-rate loans.
- The weighted average yield was 10.4%, relatively unchanged from the prior quarter.
Meserve characterized the current private-loan pipeline as average, although the fund has closed investments in three new private-loan portfolio companies since quarter-end. Management expects merger-and-acquisition activity to increase in the second half of the year, which it believes could support a larger pipeline.
In response to analyst questions, Meserve said investment spreads had widened since January but were generally similar to the levels discussed on the previous quarterly call. He said the fund is not targeting a specific industry and is focused on opportunities consistent with its existing portfolio.
Management also said it does not expect software to become a focus area, despite discussion of potentially wider pricing and spreads in that sector. Hyzak said the fund has historically preferred mature, more basic businesses and has maintained relatively limited software exposure.
Legacy Lower-Middle-Market Holdings
The fund continues to manage its legacy lower-middle-market portfolio, though it no longer makes new investments in that strategy following the public listing. It can still make follow-on investments in existing portfolio companies.
The fund completed $13 million of lower-middle-market follow-on investments in the second quarter. Following aggregate activity, the portfolio declined by $2 million on a net basis. At quarter-end, the portfolio included 55 companies valued at $504 million, or 36% of total portfolio fair value.
Debt investments accounted for 54% of the lower-middle-market portfolio at fair value and equity investments accounted for 46%. Nearly all, or 99%, of the debt investments were first lien, with a weighted average yield of 12.7%. The fund held equity positions in all of those companies, averaging an 8% ownership stake.
President and Chief Investment Officer David Magdol highlighted the exit of Centre Technologies during the quarter. The investment generated a realized gain of $11.6 million. Hyzak said the realized value was approximately $1.5 million above the company’s March 31 fair value, while noting that broader appreciation across several private-loan and lower-middle-market investments also contributed to NAV growth.
Capital Management and Portfolio Outlook
The board authorized a new open-market share repurchase plan allowing the fund to repurchase up to $20 million of shares between September 2026 and February 2027 when shares trade at predetermined levels below NAV. Main Street Capital Corporation, through its investment adviser relationship, authorized a matching $20 million share purchase plan on identical terms. Any open-market purchases will be split between the fund and Main Street on a pro-rata basis.
Hyzak said management views the combined $40 million capacity as a balanced approach that can support shareholder value while preserving the ability to deploy capital into new private loans and follow-on opportunities.
Main Street’s investment adviser also permanently waived approximately $260,000 of incentive fees for the second quarter, bringing total incentive-fee waivers over the past year to $1.4 million, Hyzak said.
At quarter-end, investments on non-accrual represented 1.9% of the portfolio at fair value and 5.8% at cost. Hyzak said non-accruals were somewhat above the fund’s longer-term historical level, estimating that the cost-based figure was roughly 2 percentage points above its typical average.
The regulatory asset coverage ratio was 2.13 times and net debt-to-NAV was 0.85 times. Management is evaluating options for the $150 million of October 2026 Notes that mature Oct. 30. Hyzak said management’s best estimate is that the fund could return to its target leverage range over the next three or four quarters, depending on private-loan investment activity and repayment levels.
About MSC Income Fund (NYSE:MSIF)
MSC Income Fund (NYSE: MSIF) is a publicly traded investment company listed on the New York Stock Exchange that aims to provide shareholders with current income and the potential for capital appreciation through a diversified portfolio of income-producing assets. The fund offers investors a single vehicle to gain exposure to a variety of yield-generating securities managed under a unified investment strategy.
The fund’s portfolio strategy emphasizes a broad approach to income generation, with allocations that can include fixed-income instruments and other income-oriented securities.
