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MarketScreener Homepage  >  Equities  >  Nyse  >  Main Street Capital Corporation    MAIN

MAIN STREET CAPITAL CORPORATION

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MAIN STREET CAPITAL : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

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11/08/2019 | 11:21am EST

The information in this section contains forward-looking statements that involve risks and uncertainties. Please see "Risk Factors" and "Cautionary Statement Concerning Forward-Looking Statements" in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the "SEC") on March 1, 2019, for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with the consolidated financial statements and related notes and other financial information included elsewhere in this Quarterly Report and in the Annual Report on Form 10-K for the year ended December 31, 2018.

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"), Main Street Capital II, LP ("MSC II") and Main Street Capital III, LP ("MSC III" and, collectively with MSMF and MSC II, 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.


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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.

OVERVIEW

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 which have been originated through strategic relationships with other investment funds on a collaborative basis. 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 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 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 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.

Our Private Loan portfolio investments are primarily debt securities in privately held companies which 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. 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 which 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


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employees in connection with its asset management business generally, and specifically for its relationship with HMS Income Fund, Inc. ("HMS Income"). Through this agreement, we share employees with the External Investment Manager, including their related infrastructure, business relationships, management expertise and capital raising capabilities.

The following tables provide a summary of our investments in the LMM, Middle Market and Private Loan portfolios as of September 30, 2019 and December 31, 2018 (this information excludes the Other Portfolio investments and the External Investment Manager which are discussed further below):


                                                         As of September 30, 2019
                                                                 Middle
                                                     LMM(a)      Market    Private Loan
                                                           (dollars in millions)
Number of portfolio companies                               68        52              62
Fair value                                         $   1,199.6$ 548.7$       627.9
Cost                                               $     987.7$ 589.4$       662.3
% of portfolio at cost-debt                              66.3%     95.0%           93.7%
% of portfolio at cost-equity                            33.7%      5.0%            6.3%
% of debt investments at cost secured by first
priority lien                                            98.1%     89.8%           94.4%
Weighted-average annual effective yield(b)               12.0%      8.9%            9.8%
Average EBITDA(c)                                  $       4.9$  93.5$        56.3

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   º (a)
   º At September 30, 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 41%.

   º (b)
   º The weighted-average annual effective yields were computed using the
     effective interest rates for all debt investments at cost as of
     September 30, 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.

   º (c)
   º 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 two LMM portfolio companies, two Middle Market portfolio
     companies and three Private Loan portfolio companies, as EBITDA is

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     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, 2018
                                                                 Middle
                                                      LMM(a)     Market    Private Loan
                                                           (dollars in millions)
Number of portfolio companies                               69        56              59
Fair value                                          $  1,195.0$ 576.9$       507.9
Cost                                                $    990.9$ 608.8$       553.3
% of portfolio at cost-debt                              68.7%     96.3%           93.0%
% of portfolio at cost-equity                            31.3%      3.7%            7.0%
% of debt investments at cost secured by first
priority lien                                            98.5%     87.9%           92.0%
Weighted-average annual effective yield(b)               12.3%      9.6%           10.4%
Average EBITDA(c)                                   $      4.7$  99.1$        46.1

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   º (a)
   º At December 31, 2018, 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 40%.

   º (b)
   º The weighted-average annual effective yields were computed using the
     effective interest rates for all debt investments at cost as of
     December 31, 2018, 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.

   º (c)
   º 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 two 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.

As of September 30, 2019, we had Other Portfolio investments in eleven companies, collectively totaling approximately $110.6 million in fair value and approximately $119.4 million in cost basis and which comprised approximately 4.3% of our Investment Portfolio (as defined in "-Critical Accounting Policies-Basis of Presentation" below) at fair value. As of December 31, 2018, we had Other Portfolio investments in eleven companies, collectively totaling approximately $108.3 million in fair value and approximately $116.0 million in cost basis and which comprised approximately 4.4% 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 September 30, 2019, there was no cost basis in this investment and the investment had a fair value of approximately $70.3 million, which comprised approximately 2.8% of our Investment Portfolio at fair value. As of December 31, 2018, there was no cost basis in this investment and the investment had a fair value of approximately $65.7 million, which comprised approximately 2.7% of our Investment Portfolio at fair value.

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


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regulatory regimes. 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. For the trailing twelve months ended September 30, 2019 and 2018, the ratio of our total operating expenses, excluding interest expense, as a percentage of our quarterly average total assets was 1.3% and 1.5%, respectively, and 1.4% for the year ended December 31, 2018.

During May 2012, we entered into an investment sub-advisory agreement with HMS Adviser, LP ("HMS Adviser"), which is the investment advisor to HMS Income, a non-listed BDC, to provide certain investment advisory services to 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. Under the investment sub-advisory agreement, the External Investment Manager is entitled to 50% of the base management fee and the incentive fees earned by HMS Adviser under its advisory agreement with HMS Income. The External Investment Manager agreed to waive the historical incentive fees otherwise earned through December 31, 2018. During the three months ended September 30, 2019, the External Investment Manager earned $2.9 million in fees, which consisted of $2.7 million of base management fees and $0.2 million in incentive fees, compared to $3.0 million in base management fees for the comparable period in 2018 under the sub-advisory agreement with HMS Adviser. During the nine months ended September 30, 2019, the External Investment Manager earned $10.0 million in fee income, which consisted of $8.4 million of base management fees and $1.6 million in incentive fees compared to $8.7 million of base management fees for the comparable period in 2018 under the sub-advisory agreement with HMS Adviser.

During April 2014, we received an exemptive order from the SEC permitting co-investments by us and HMS Income in certain negotiated transactions where co-investing would otherwise be prohibited under the 1940 Act. We have made, and in the future intend to continue to make, such co-investments with HMS Income 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 HMS Income and, if it is appropriate, to propose an allocation of the investment opportunity between us and HMS Income. Because the External Investment Manager may receive performance-based fee compensation from HMS Income, this may provide it an incentive to allocate opportunities to HMS Income instead of us. However, both we and the External Investment Manager have policies and procedures in place to manage this conflict.


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CRITICAL ACCOUNTING POLICIES

     Basis of Presentation

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). For each of the periods presented herein, our consolidated financial statements include the accounts of MSCC and its consolidated subsidiaries. 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 the investment in the External Investment Manager. Our results of operations for the three and nine months ended September 30, 2019 and 2018, cash flows for the nine months ended September 30, 2019 and 2018, and financial position as of September 30, 2019 and December 31, 2018, are presented on a consolidated basis. The effects of all intercompany transactions between us and our consolidated subsidiaries have been eliminated in consolidation.

Our accompanying unaudited consolidated financial statements are presented in conformity with U.S. GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. The results of operations for the three and nine months ended September 30, 2019 and 2018 are not necessarily indicative of the operating results to be expected for the full year. Also, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2018. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

We are an investment company following the accounting and reporting guidance in Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") 946, Financial Services-Investment Companies ("ASC 946"). Under ASC 946, we are precluded from consolidating other entities in which we have equity investments, including those in which we have a controlling interest, unless the other entity is another investment company. An exception to this general principle in ASC 946 occurs if we hold a controlling interest in an operating company that provides all or substantially all of its services directly to us or to any of our portfolio companies. Accordingly, as noted above, our consolidated financial statements include the financial position and operating results for the Funds and the Taxable Subsidiaries. We have determined that all of our portfolio investments do not qualify for this exception, including the investment in the External Investment Manager. Therefore, our Investment Portfolio is carried on the consolidated balance sheet at fair value 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)."

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. As of both September 30, 2019 and December 31, 2018, our Investment Portfolio valued at fair value represented approximately 96% of our total assets. 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


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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 September 30, 2019 and December 31, 2018 approximates fair value as of those dates based on the markets in which we operate and other conditions in existence on those reporting dates.

     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


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dividends in arrears may be deferred until such time as the preferred equity is redeemed or sold. To maintain RIC tax treatment (as discussed below), 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 three months ended September 30, 2019 and 2018, (i) approximately 1.6% and 1.4%, respectively, of our total investment income was attributable to PIK interest income not paid currently in cash and (ii) approximately 1.0% and 1.1%, respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash. For the nine months ended September 30, 2019 and 2018, (i) approximately 1.9% and 1.0%, respectively, of our total investment income was attributable to PIK interest income not paid currently in cash and (ii) approximately 1.1% and 1.0%, respectively, of our total investment income was attributable to cumulative dividend income not paid currently in cash.

Share-Based Compensation

We account for our share-based compensation plans using the fair value method, as prescribed by ASC 718, Compensation-Stock Compensation. Accordingly, for restricted stock awards, we measure the grant date fair value based upon the market price of our common stock on the date of the grant and amortize the fair value of the awards as share-based compensation expense over the requisite service period, which is generally the vesting term.

We have 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, we have elected to account for forfeitures as they occur.

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) 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 us. The Taxable Subsidiaries permit us 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 us for U.S. GAAP financial reporting purposes, and the portfolio investments held by the Taxable Subsidiaries are included in our 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


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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 our 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.

In December 2017, the "Tax Cuts and Jobs Act" legislation was enacted. The Tax Cuts and Jobs Act includes significant changes to the U.S. corporate tax system, including a U.S. federal corporate income tax rate reduction from 35% to 21% and other changes. ASC 740, Income Taxes, requires the effects of changes in tax rates and laws on deferred tax balances to be recognized in the period in which the legislation was enacted. As such, we have accounted for the tax effects as a result of the enactment of the Tax Cuts and Jobs Act beginning with the period ended December 31, 2017.

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.

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.

INVESTMENT PORTFOLIO COMPOSITION

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 LMM portfolio companies generally have annual revenues between $10 million and $150 million, and our 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, we receive nominally priced equity warrants and/or make direct equity investments in connection with a debt investment.

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 companies generally have annual revenues between $150 million and $1.5 billion, and our Middle Market investments generally range in size from $3 million to $20 million. Our Middle Market portfolio debt investments are generally secured by either a first or second priority lien on the assets of


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the portfolio company and typically have a term of between three and seven years from the original investment date.

Our Private Loan portfolio investments are primarily debt securities in privately held companies which 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. 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 investments primarily consist of investments which are not consistent with the typical profiles for LMM, Middle Market and Private Loan portfolio investments, including investments which may be managed by third parties. In the 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 HMS Income. 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 three months ended September 30, 2019 and 2018 are net of expenses allocated to the External Investment Manager of $1.7 million and $1.6 million, respectively. Our total expenses for the nine months ended September 30, 2019 and 2018 are net of expenses allocated to the External Investment Manager of $5.0 million and $5.3 million, respectively. 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. 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 received from the External Investment Manager. For the three months ended September 30, 2019 and 2018, the total contribution to our net investment income was $2.6 million and $2.7 million, respectively. For the nine months ended September 30, 2019 and 2018, the total contribution to our net investment income was $8.9 million and $8.0 million, respectively.

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 September 30, 2019


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and December 31, 2018 (this information excludes the Other Portfolio investments and the External Investment Manager).

                                     September 30,     December 31,
                 Cost:                   2019              2018
                 First lien debt              77.3%            77.1%
                 Equity                       17.4%            16.6%
                 Second lien debt              4.3%             5.3%
                 Equity warrants               0.6%             0.6%
                 Other                         0.4%             0.4%

                                             100.0%           100.0%







                                     September 30,     December 31,
                 Fair Value:             2019              2018
                 First lien debt              69.4%            69.0%
                 Equity                       26.2%            25.5%
                 Second lien debt              3.6%             4.6%
                 Equity warrants               0.4%             0.5%
                 Other                         0.4%             0.4%

                                             100.0%           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" contained in our Form 10-K for the fiscal year ended December 31, 2018 and "Risk Factors" below 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 September 30, 2019, our total Investment Portfolio had seven investments on non-accrual status, which comprised approximately 1.6% of its fair value and 4.4% of its cost. As of December 31, 2018, our total Investment Portfolio had six investments on non-accrual status, which comprised approximately 1.3% of its fair value and 3.9% of its cost.

The operating results of our portfolio companies are impacted by changes in the broader fundamentals of the United States economy. 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, 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


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performance of certain portfolio companies will not be negatively impacted by economic cycles or other conditions, which could also have a negative impact on our future results.

DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS


     Comparison of the three months ended September 30, 2019 and September 30,
     2018

                                                 Three Months Ended
                                                   September 30,            Net Change
                                                  2019        2018       Amount        %
                                                          (dollars in thousands)
Total investment income                        $   60,068$  58,263$   1,805        3%
Total expenses                                    (21,056 )   (20,188 )      (868 )    (4)%

Net investment income                              39,012      38,075         937        2%
Net realized gain (loss) from investments          (5,876 )     9,238     (15,114 )
Net unrealized appreciation (depreciation)
from:
Portfolio investments                              (2,927 )    25,261     (28,188 )
SBIC debentures                                      (319 )       (53 )      (266 )

Total net unrealized appreciation
(depreciation)                                     (3,246 )    25,208     (28,454 )
Income tax benefit (provision)                      4,012      (3,781 )     7,793

Net increase in net assets resulting from
operations                                     $   33,902$  68,740$ (34,838 )   (51)%







                                                    Three Months Ended
                                                      September 30,           Net Change
                                                     2019         2018     Amount      %
                                                        (dollars in thousands, except
                                                             per share amounts)
 Net investment income                            $    39,012$ 38,075$   937       2%
 Share-based compensation expense                       2,572      2,147       425      20%

 Distributable net investment income(a)           $    41,584$ 40,222$ 1,362       3%



Net investment income per share-

 Basic and diluted                                $      0.62$   0.63$ (0.01 )   (2)%



Distributable net investment income per share-

 Basic and diluted(a)                             $      0.66$   0.66   $     -       0%




--------------------------------------------------------------------------------

   º (a)
   º 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.

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     Investment Income

Total investment income for the three months ended September 30, 2019 was $60.1 million, a 3% increase over the $58.3 million of total investment income for the corresponding period of 2018. This comparable period increase was principally attributable to a $4.0 million increase in dividend income from Investment Portfolio equity investments, partially offset by (i) a $2.0 million decrease in fee income and (ii) a $0.2 million decrease in interest income. The $1.8 million increase in total investment income in the three months ended September 30, 2019 is net of the negative impact of a decrease of $1.9 million related to lower accelerated prepayment, repricing and other activity for certain Investment Portfolio debt investments.

Expenses

Total expenses for the three months ended September 30, 2019 increased to $21.1 million from $20.2 million in the corresponding period of 2018. This increase in operating expenses was principally attributable to (i) a $2.0 million increase in interest expense, primarily due to an increase in interest expense related to our 5.20% Notes (as defined in "-Liquidity and Capital Resources-Capital Resources" below) issued in April 2019, partially offset by decreased interest expense relating to our multi-year revolving credit facility (the "Credit Facility") due to the lower average balance outstanding and (ii) a $0.4 million increase in share-based compensation expense, partially offset by a $1.5 million decrease in compensation expense primarily due to a decrease in incentive compensation accruals.

Net Investment Income

Net investment income for the three months ended September 30, 2019 increased 2% to $39.0 million, or $0.62 per share, compared to net investment income of $38.1 million, or $0.63 per share, for the corresponding period of 2018. The increase in net investment income was principally attributable to the increase in total investment income, partially offset by higher operating expenses both as discussed above.

Distributable Net Investment Income

Distributable net investment income for the three months ended September 30, 2019 increased 3% to $41.6 million, or $0.66 per share, compared with $40.2 million, or $0.66 per share, in the corresponding period of 2018. The increase in distributable net investment income was primarily due to the higher level of total investment income, partially offset by higher operating expenses both as discussed above. Distributable net investment income on a per share basis for the three months ended September 30, 2019 includes the impacts of (i) a decrease of approximately $0.03 per share from the comparable period in 2018 attributable to the decrease in the comparable levels of accelerated prepayment, repricing and other activity for certain investment portfolio debt investments as discussed above and (ii) a greater number of average shares outstanding compared to the corresponding period in 2018 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 reinvestment plan.

Net Increase in Net Assets Resulting from Operations

The net increase in net assets resulting from operations for the three months ended September 30, 2019 was $33.9 million, or $0.54 per share, compared with $68.7 million, or $1.13 per share, during the three months ended September 30, 2018. This $34.8 million decrease from the prior year was primarily the result of (i) a $28.5 million decrease in net unrealized appreciation (depreciation) from portfolio investments, including the impact of accounting reversals relating to realized gains/income (losses), and SBIC debentures and (ii) a $15.1 million decrease in the net realized gain (loss) from investments, with


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these decreases partially offset by (i) a $7.8 million benefit from the change in the income tax benefit (provision) and (ii) a $0.9 million increase in net investment income as discussed above. The net realized loss from investments of $5.9 million for the three months ended September 30, 2019 was primarily the result of (i) the realized loss of $7.0 million from the restructure of a Middle Market investment and (ii) the realized loss of $6.9 million resulting from the exit of a Middle Market investment, with these realized losses partially offset by the realized gain of $7.7 million resulting from the exit of two LMM investments.

The following table provides a summary of the total net unrealized depreciation of $3.2 million for the three months ended September 30, 2019:

                                           Three Months Ended September 30, 2019
                              LMM(a)      Middle Market      Private Loan    Other      Total
                                                   (dollars in millions)
Accounting reversals of
net unrealized
(appreciation)
depreciation recognized in
prior periods due to net
realized (gains / income)
losses recognized during
the current period           $   (8.2 )  $          13.9    $         (0.9 ) $    -     $  4.8
Net unrealized
appreciation
(depreciation) relating to
portfolio investments             2.7              (12.2 )             1.5      0.3 (b)   (7.7 )

Total net unrealized
appreciation
(depreciation) relating to
portfolio investments        $   (5.5 )  $           1.7    $          0.6   $  0.3$ (2.9 )



Unrealized depreciation
relating to SBIC
debentures(c)                                                                             (0.3 )

Total net unrealized
depreciation                                                                            $ (3.2 )

--------------------------------------------------------------------------------

   º (a)
   º LMM includes unrealized appreciation on 27 LMM portfolio investments and
     unrealized depreciation on 17 LMM portfolio investments.

   º (b)
   º Other includes (i) $0.8 million of unrealized appreciation relating to the
     External Investment Manager, partially offset by $0.5 million of net
     unrealized depreciation relating to the Other Portfolio.

   º (c)
   º Relates to unrealized depreciation on the SBIC debentures previously issued
     by MSC II which are accounted for on a fair value basis.

The income tax benefit for the three months ended September 30, 2019 of $4.0 million principally consisted of a deferred tax benefit of $5.1 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 current tax expense of $1.1 million related to (i) a $0.7 million provision for current U.S. federal and state income taxes and (ii) a $0.4 million provision for excise tax on our estimated undistributed taxable income.


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     Comparison of the nine months ended September 30, 2019 and September 30,
     2018

                                    Nine Months Ended September 30,        Net Change
                                         2019              2018         Amount        %
                                                    (dollars in thousands)
Total investment income             $      182,724$      174,075$   8,649        5%
Total expenses                             (64,605 )         (59,514 )    (5,091 )    (9)%

Net investment income                      118,119           114,561       3,558        3%
Net realized gain (loss) from
investments                                (14,163 )           2,754     (16,917 )
Net realized loss on
extinguishment of debt                      (5,689 )          (2,896 )    (2,793 )
Net unrealized appreciation
(depreciation) from:
Portfolio investments                       13,154            47,090     (33,936 )
SBIC debentures                              4,625             1,296       3,329

Total net unrealized appreciation           17,779            48,386     (30,607 )
Income tax provision                        (2,491 )          (4,097 )     1,606

Net increase in net assets
resulting from operations           $      113,555$      158,708$ (45,153 )   (28)%







                                     Nine Months Ended September 30,         Net Change
                                         2019                2018         Amount      %
                                      (dollars in thousands, except per share amounts)
Net investment income              $        118,119$       114,561$ 3,558       3%
Share-based compensation expense              7,279               6,883       396       6%

Distributable net investment
income(a)                          $        125,398$       121,444$ 3,954       3%



Net investment income per share-
Basic and diluted                  $           1.88     $          1.91   $ (0.03 )   (2)%



Distributable net investment
income per share-
Basic and diluted(a)               $           2.00     $          2.03   $ (0.03 )   (1)%




--------------------------------------------------------------------------------

   º (a)
   º 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 nine months ended September 30, 2019 was $182.7 million, a 5% increase over the $174.1 million of total investment income for the corresponding period of 2018. This comparable period increase was principally attributable to (i) a $10.5 million net increase in interest income primarily related to higher average levels of Investment Portfolio debt investments, partially offset by decreased income from lower accelerated prepayment, repricing and other activities involving


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existing Investment Portfolio debt investments and (ii) a $1.7 million increase in dividend income from Investment Portfolio equity investments, partially offset by a $3.6 million decrease in fee income. The $8.6 million increase in total investment income in the nine months ended September 30, 2019 is net of the negative impacts of (i) a decrease of $8.0 million related to elevated dividend income activity from certain Investment Portfolio equity investments that is considered to be less consistent on a recurring basis or non-recurring and (ii) a decrease of $3.6 million related to lower accelerated prepayment, repricing and other activity from certain Middle Market and Private Loan Investment Portfolio debt investments, both when compared to the same period in 2018.

Expenses

Total expenses for the nine months ended September 30, 2019 increased to $64.6 million from $59.5 million for the corresponding period of 2018. This comparable period increase in operating expenses was principally attributable to (i) a $5.2 million increase in interest expense, primarily due to an increase in interest expense related to our 5.20% Notes issued in April 2019, partially offset by a decrease in interest expense resulting from the redemption of the 6.125% Notes (as defined in "-Liquidity and Capital Resources-Capital Resources" below) in April 2018, (ii) a $0.4 million increase in share-based compensation expense, (iii) a $0.3 million increase in general and administrative expenses and (iv) a $0.3 million decrease in the expenses allocated to the External Investment Manager primarily as a result of the non-recurring strategic activities at the External Investment Manager during the nine months ended September 30, 2018 which did not occur during the nine months ended September 30, 2019, with these increases partially offset by a $1.1 million decrease in compensation expense primarily due (i) to a decrease in incentive compensation accruals and (ii) a decrease of $0.4 million in the fair value of our deferred compensation plan assets.

Net Investment Income

Net investment income for the nine months ended September 30, 2019 increased 3% to $118.1 million, or $1.88 per share, compared to net investment income of $114.6 million, or $1.91 per share, for the corresponding period of 2018. The increase in net investment income was principally attributable to the increase in total investment income, partially offset by higher operating expenses both as discussed above.

Distributable Net Investment Income

Distributable net investment income for the nine months ended September 30, 2019 increased 3% to $125.4 million, or $2.00 per share, compared with $121.4 million, or $2.03 per share, in the corresponding period of 2018. The increase in distributable net investment income was primarily due to the higher level of total investment income, partially offset by higher operating expenses both as discussed above. Distributable net investment income on a per share basis for the nine months ended September 30, 2019 includes the impacts of (i) a decrease of approximately $0.20 per share from the comparable period in 2018 attributable to the net effect of the lower dividend income activity that is considered less recurring or non-recurring and the decrease in the comparable levels of accelerated prepayment, repricing and other activity as discussed above, (ii) a decrease of $0.01 per share due to the increase in the fair value of the deferred compensation plan assets as discussed above and (iii) a greater number of average shares outstanding compared to the corresponding period in 2018 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 reinvestment plan.


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     Net Increase in Net Assets Resulting from Operations

The net increase in net assets resulting from operations for the nine months ended September 30, 2019 was $113.6 million, or $1.81 per share, compared with $158.7 million, or $2.65 per share, during the nine months ended September 30, 2018. This $45.2 million decrease from the prior year was primarily the result of (i) a $30.6 million decrease in net unrealized appreciation (depreciation) from portfolio investments and SBIC debentures, including the impact of accounting reversals relating to realized gains/income (losses), (ii) a $16.9 million decrease in the net realized gain (loss) from investments, (iii) a $2.8 million increase in the net realized loss on extinguishment of debt, with these increases partially offset by (i) a $3.6 million increase in net investment income as discussed above and (ii) a $1.6 million decrease in the income tax provision. The net realized loss from investments of $14.2 million for the nine months ended September 30, 2019 was primarily the result of (i) the realized loss of $12.2 million resulting from the exit of two Middle Market investments, (ii) the realized loss of $7.0 million resulting from the partial exit of a Middle Market investment, (iii) the realized loss of $7.0 million resulting from the restructure of a Middle Market investment and (iv) the net realized loss of $1.8 million resulting from the exit of three Private Loan investments, with these net realized losses partially offset by realized gains of $13.8 million resulting from the exit of four LMM investments.

The following table provides a summary of the total net unrealized appreciation of $17.8 million for the nine months ended September 30, 2019:

                                           Nine Months Ended September 30, 2019
                              LMM(a)       Middle Market     Private Loan    Other      Total
                                                   (dollars in millions)
Accounting reversals of
net unrealized
(appreciation)
depreciation recognized in
prior periods due to net
realized (gains / income)
losses recognized during
the current period           $   (14.0 )  $          22.2   $         (0.7 ) $    -     $  7.5
Net unrealized
appreciation
(depreciation) relating to
portfolio investments             21.4              (30.9 )           11.1      4.1 (b)    5.7

Total net unrealized
appreciation
(depreciation) relating to
portfolio investments        $     7.4    $          (8.7 ) $         10.4   $  4.1$ 13.2



Unrealized appreciation
relating to SBIC
debentures(c)                                                                              4.6

Total net unrealized
appreciation                                                                            $ 17.8

--------------------------------------------------------------------------------

   º (a)
   º LMM includes unrealized appreciation on 31 LMM portfolio investments and
     unrealized depreciation on 28 LMM portfolio investments.

   º (b)
   º Other includes (i) $4.6 million of unrealized appreciation relating to the
     External Investment Manager and (ii) $0.6 million of unrealized
     appreciation relating to the Main Street Capital Corporation Deferred
     Compensation Plan (see "Related Party Transactions"), partially offset by
     $1.1 million of net unrealized depreciation relating to the Other
     Portfolio.

   º (c)
   º 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 nine months ended September 30, 2019,
     partially offset by $1.1 million of unrealized depreciation on the SBIC
     debentures previously issued by MSC II which are accounted for on a fair
     value basis.

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The income tax provision for the nine months ended September 30, 2019 of $2.5 million principally consisted of a current tax expense of $2.7 million related to (i) a $2.0 million provision for current U.S. federal and state income taxes and (ii) a $0.7 million provision for excise tax on our estimated undistributed taxable income, partially offset by a deferred tax benefit of $0.3 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.

     Liquidity and Capital Resources

     Cash Flows

For the nine months ended September 30, 2019, we experienced a net decrease in cash and cash equivalents in the amount of $1.9 million, which is the net result of $1.9 million of cash provided by our operating activities and $3.8 million of cash used in our financing activities.

The $1.9 million of cash provided by our operating activities resulted primarily from (i) cash flows we generated from the operating profits earned through our operating activities totaling $113.6 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 uses totaling $477.3 million for the funding of new portfolio company investments and settlement of accruals for portfolio investments existing as of December 31, 2018, (iii) cash proceeds totaling $363.6 million from the sales and repayments of debt investments and sales of and return on capital of equity investments and (iv) cash proceeds of $2.0 million related to changes in other assets and liabilities.

The $3.8 million of cash used in our financing activities principally consisted of (i) $250.0 million in cash proceeds from the issuance of the 5.20% Notes in April 2019 and (ii) $54.2 million in net cash proceeds from the ATM Program (described below), offset by (i) $151.0 million in net repayments on the Credit Facility, (ii) $115.3 million in cash dividends paid to stockholders, (iii) $34.0 million in repayment of SBIC debentures, (iv) $4.3 million for payment of deferred debt issuance costs, SBIC debenture fees and other costs and (v) $3.4 million for purchases of vested restricted stock from employees to satisfy their tax withholding requirements upon the vesting of such restricted stock.

Capital Resources

As of September 30, 2019, we had $52.3 million in cash and cash equivalents and $555.0 million of unused capacity under the Credit Facility, which we maintain to support our investment and operating activities. As of September 30, 2019, our net asset value totaled $1,532.1 million, or $24.20 per share.

The Credit Facility, which provides additional liquidity to support our investment and operational activities, provides for total commitments of $705.0 million from a diversified group of 17 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 (2.0% as of September 30, 2019) plus (i) 1.875% (or the applicable base rate (Prime Rate of 5.0% as of September 30, 2019) 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. 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


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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 September 30, 2019, we had $150.0 million in borrowings outstanding under the Credit Facility, the interest rate on the Credit Facility was 4.0% (based on the LIBOR rate of 2.1% as of the most recent reset date of September 1, 2019 plus 1.875%) 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. Through the Funds, we have an effective maximum amount of $347.0 million as a result of certain voluntary prepayments of SBIC debentures under historical commitments from the SBA. During the nine months ended September 30, 2019, Main Street received a $25.0 million commitment from the SBA in order to issue new SBIC debentures in the future and opportunistically prepaid $34.0 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. As of September 30, 2019, through our three wholly owned SBICs, we had $311.8 million of outstanding SBIC debentures guaranteed by the SBA, which bear a weighted-average annual fixed interest rate of approximately 3.6%, paid semiannually, and mature ten years from issuance. The first maturity related to our SBIC debentures occurs in 2020, and the weighted-average remaining duration is approximately 5.4 years as of September 30, 2019.

In April 2013, we issued $92.0 million, including the underwriters' full exercise of their over-allotment option, in aggregate principal amount of the 6.125% Notes (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. The total net proceeds to us from the 6.125% Notes, after underwriting discounts and estimated offering expenses payable, were approximately $89.0 million. On April 2, 2018, we redeemed the entire principal amount of the issued and outstanding 6.125% Notes effective April 1, 2018 (the "Redemption Date"). The 6.125% Notes were redeemed 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, we 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.

In November 2014, we 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 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 due 2019; 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 due 2019 mature on December 1, 2019, and may be redeemed in whole or in part at any time at our option subject to certain make-whole provisions. The 4.50% Notes due 2019 bear interest at a rate of 4.50%


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per year payable semiannually on June 1 and December 1 of each year. We may from time to time repurchase 4.50% Notes due 2019 in accordance with the 1940 Act and the rules promulgated thereunder. As of September 30, 2019, the outstanding balance of the 4.50% Notes due 2019 was $175.0 million.

The indenture governing the 4.50% Notes due 2019 (the "4.50% Notes due 2019 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 due 2019 and the Trustee if we cease to be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). These covenants are subject to limitations and exceptions that are described in the 4.50% Notes due 2019 Indenture.

In November 2017, we issued $185.0 million in aggregate principal amount of 4.50% unsecured notes due 2022 (the "4.50% Notes due 2022") at an issue price of 99.16%. The 4.50% Notes due 2022 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 due 2022; 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 due 2022 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. The 4.50% Notes due 2022 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 4.50% Notes due 2022 in accordance with the 1940 Act and the rules promulgated thereunder. As of September 30, 2019, the outstanding balance of the 4.50% Notes due 2022 was $185.0 million.

The indenture governing the 4.50% Notes due 2022 (the "4.50% Notes due 2022 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 due 2022 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 due 2022 Indenture.

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%. The net proceeds were used to repay a portion of the borrowings outstanding under the Credit Facility and we currently expect that we will re-borrow under the Credit Facility to repay the 4.50% Notes due 2019 upon maturity in December 2019. 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. 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 5.20% Notes in accordance with the 1940 Act and the rules promulgated thereunder. As of September 30, 2019, the outstanding balance of the 5.20% Notes was $250.0 million.


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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 nine months ended September 30, 2019, we sold 1,423,042 shares of our common stock at a weighted-average price of $38.41 per share and raised $54.7 million of gross proceeds under the ATM Program. Net proceeds were $53.8 million after commissions to the selling agents on shares sold and offering costs. As of September 30, 2019, sales transactions representing 5,000 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 September 30, 2019, 9,183,295 shares remained available for sale under the ATM Program.

During the year ended December 31, 2018, we sold 2,060,019 shares of our 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.

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 2019 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 would therefore need future approval from our stockholders to issue shares below the then current net asset value per share.

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


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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

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 supersedes the revenue recognition requirements under ASC 605, Revenue Recognition, and most industry-specific guidance throughout the Industry Topics of the ASC. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. Under the guidance, an entity is required to perform the following five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The guidance significantly enhances comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets. Additionally, the guidance requires improved disclosures as to the nature, amount, timing and uncertainty of revenue that is recognized. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net), which clarified the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which clarified the implementation guidance regarding performance obligations and licensing arrangements. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606)-Narrow-Scope Improvements and Practical Expedients, which clarified guidance on assessing collectability, presenting sales tax, measuring noncash consideration, and certain transition matters. In December 2016, the FASB issued ASU No. 2016-20, Revenue from Contracts with Customers (Topic 606)-Technical Corrections and Improvements, which provided disclosure relief, and clarified the scope and application of the new revenue standard and related cost guidance. The guidance was effective for the annual reporting period beginning after December 15, 2017, including interim periods within that reporting period. Substantially all of our income is outside the scope of ASU 2014-09. For those income items that are within the scope (primarily fee income), we have similar performance obligations as compared with deliverables and separate units of account previously identified. As a result, our timing of income recognition remains the same and the adoption of the standard was not material.

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. We adopted ASC 842 effective January 1, 2019. Under ASC 842, we evaluate leases to determine if the leases are considered financing or operating leases. We currently have one operating lease for office space for which we have 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


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cost. The lease expense is presented as a single lease cost that is amortized on a straight-line basis over the life of the lease.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230), which is intended to reduce the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The guidance was effective for annual periods beginning after December 15, 2017, and interim periods therein. We adopted ASU 2016-15 effective January 1, 2018. The impact of the adoption of this accounting standard on our consolidated financial statements was not material.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820), which is intended to improve fair value and defined benefit disclosure requirements by removing disclosures that are not cost-beneficial, clarifying disclosures' specific requirements, and adding relevant disclosure requirements. The amendments take effect for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. We elected to early adopt ASU 2018-13 during the year ended December 31, 2018. No significant changes to our fair value disclosures were necessary in the notes to the consolidated financial statements in order to comply with ASU 2018-13.

In August 2018, the SEC adopted rules (the "SEC Release") amending certain disclosure requirements intended to eliminate redundant, duplicative, overlapping, outdated or superseded, in light of other SEC disclosure requirements, U.S. GAAP requirements or changes in the information environment. In part, the SEC Release requires an investment company to present distributable earnings in total on the consolidated balance sheet and consolidated statement of changes in net assets, rather than showing the three components of distributable earnings as previously shown. We adopted this part of the SEC Release during the year ended December 31, 2018. The impact of the adoption of these rules on our consolidated financial statements was not material. Additionally, the SEC Release requires disclosure of changes in net assets within a registrant's Form 10-Q filing on a quarter-to-date and year-to-date basis for both the current year and prior year comparative periods. We adopted the new requirement to present changes in net assets in interim financial statements within Form 10-Q filings effective January 1, 2019. The adoption of these rules did not have a material impact on the consolidated financial statements.

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.

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 September 30, 2019, we had a total of $116.5 million in outstanding commitments comprised of (i) 38 investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional


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commitments not yet funded and (ii) 10 investments with equity capital commitments that had not been fully called.

Contractual Obligations

As of September 30, 2019, the future fixed commitments for cash payments in connection with our SBIC debentures, the 4.50% Notes due 2019, the 4.50% Notes due 2022, the 5.20% Notes and rent obligations under our office lease for each of the next five years and thereafter are as follows:

                  2019        2020       2021       2022        2023      Thereafter       Total
SBIC
debentures      $       -   $ 37,000$ 40,000$   5,000$ 16,000$    213,800$   311,800
Interest due
on SBIC
debentures              -     11,271      9,260       8,248      7,868         23,317        59,964
4.50% Notes
due 2019          175,000          -          -           -          -              -       175,000
Interest due
on 4.50%
Notes due
2019                3,938          -          -           -          -              -         3,938
4.50% Notes
due 2022                -          -          -     185,000          -              -       185,000
Interest due
on 4.50%
Notes due
2022                4,163      8,325      8,325       8,325          -              -        29,138
5.20% Notes
due 2024                -          -          -           -          -        250,000       250,000
Interest due
on 5.20%
Notes               6,789     13,000     13,000      13,000     13,000          6,500        65,289
Operating
Lease
Obligation(1)         188        762        776         790        804          3,428         6,748

Total           $ 190,078$ 70,358$ 71,361$ 220,363$ 37,672$    497,045$ 1,086,877

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   º (1)
   º 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 September 30, 2019, we had $150.0 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 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 September 30, 2019, we had a receivable of approximately $3.0 million due from the External Investment Manager which included approximately $2.0 million primarily related 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 above in "-Critical Accounting Policies-Income Taxes") and approximately $1.0 million of dividends declared but not paid by 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


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on their behalf among investment alternatives permitted from time to time under the plan, including phantom Main Street stock units. As of September 30, 2019, $7.8 million of compensation and directors' fees had been deferred under the 2015 Deferred Compensation Plan (including amounts previously deferred under the 2013 Deferred Compensation Plan). Of this amount, $4.2 million was deferred into phantom Main Street stock units, representing 119,064 shares of our common stock. Including phantom stock units issued through dividend reinvestment and net of any shares distributed, the phantom stock units outstanding as of September 30, 2019 represented 147,994 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 amounts related to additional phantom stock units are included in the statement of changes in net assets as an increase to dividends to stockholders offset by a corresponding increase to additional paid-in capital.

Recent Developments

In October 2019, we declared a semi-annual supplemental cash dividend of $0.24 per share payable in December 2019. This supplemental cash dividend is in addition to the previously announced regular monthly cash dividends that we declared for the fourth quarter of 2019 of $0.205 per share for each of October, November and December 2019.

During November 2019, we declared regular monthly dividends of $0.205 per share for each month of January, February and March of 2020. These regular monthly dividends equal a total of $0.615 per share for the first quarter of 2020 and represent a 5.1% increase from the regular monthly dividends declared for the first quarter of 2019. Including the semi-annual supplemental dividend declared payable for December 2019 and the regular monthly dividends declared for the fourth quarter of 2019 and first quarter of 2020, we will have paid $27.755 per share in cumulative dividends since our October 2007 initial public offering.

In November 2019, we led a new portfolio investment to facilitate the recapitalization of J&J Services, Inc. ("J&J"), a leading provider of roll-off dumpster and portable toilet rental services. We, along with our co-investors, partnered with the J&J's founders and senior management team to facilitate the recapitalization and provide growth capital, with us funding $24.8 million in a combination of first-lien, senior secured term debt and a direct equity investment. Founded in 2000, and headquartered in Nashville, Tennessee, J&J is a second-generation family-owned business providing roll-off dumpster and portable toilet rental services to an expansive base of residential, commercial, and demolition customers.

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