Risk Factor Summary
The following is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The following should be read in conjunction with the more complete discussion of the risk factors we face, which are set forth in the section titled “Item 1A. Risk Factors” in this report.
Risk Relating to the Current Environment
Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations.
We are exposed to risks associated with changes in interest rates, including the current rising interest rate environment.
Inflation has adversely affected and may continue to adversely affect the business, results of operations and financial condition of our portfolio companies.
The war in Ukraine and Russia may continue to have a material adverse impact on us and our portfolio companies.
Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.
Uncertainty with respect to the financial stability of the United States and several countries in the EU could have a significant adverse effect on our business, financial condition, and results of operations.
The interest rates of some of our floating-rate loans to our portfolio companies may be priced using a spread over LIBOR, which is being phased out.
Changes in existing laws or regulations, the interpretations thereof or newly enacted laws or regulations may negatively impact our business.
The continued uncertainty relating to the U.S. and global economy could have a negative impact on our business.
Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.
Disruptions to the global supply chain may have adverse impact on our portfolio companies and, in turn, harm us.
Certain of our portfolio companies’ businesses could be adversely affected by the effects of health pandemics or epidemics, including the ongoing COVID-19 pandemic, which has had, and may continue to have, a negative impact on our and our portfolio companies’ businesses and operations.
Risks Relating to our Business and Structure
We may suffer credit losses.
We are dependent upon Apollo Investment Management’s key personnel for our future success and upon their access to AGM’s investment professionals and partners.
Our financial condition and results of operations depend on our ability to manage future growth effectively.
We operate in a highly competitive market for investment opportunities.
Any failure on our part to maintain our status as a BDC would reduce our operating flexibility.
We will be subject to corporate-level income tax if we are unable to maintain our status as a RIC.
We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.
Regulations governing our operation as a BDC affect our ability to raise, and the way in which we raise, additional capital.
Our business requires a substantial amount of capital to grow because we must distribute most of our income.
Many of our portfolio investments are recorded at fair value as determined in good faith by the Investment Advisor and under the direction of our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments.
The lack of liquidity in our investments may adversely affect our business.
We may experience fluctuations in our periodic results.
Our ability to enter into transactions with our affiliates is restricted.
There are significant potential conflicts of interest which could adversely affect our investment returns.
Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to comply with these laws or regulations, could negatively affect the profitability of our operations or of our portfolio companies.
We may choose to pay dividends in our own common stock, in which case you may be required to pay federal income taxes in excess of the cash dividends you receive.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud.
The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively.
We and our portfolio companies may experience cyber security incidents and are subject to cyber security risks.
We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.
The effect of global climate change may impact the operations of our portfolio companies.
Risks Relating to our Investments
Our investments in portfolio companies are risky, and we could lose all or part of our investment.
Economic recessions or downturns could impair our portfolio companies and harm our operating results.
Our portfolio companies may be highly leveraged and a covenant breach by our portfolio companies may harm our operating results.
There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to, among other things, lender liability or fraudulent conveyance claims.
If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.
Our portfolio contains a limited number of portfolio companies, which subjects us to a greater risk of significant loss if any of these companies defaults on its obligations under any of its debt securities.
An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.
Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments.
Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.
Risks Relating to our Debt Instruments
The trading market or market value of our debt securities may fluctuate.
Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue.
Our credit ratings may not reflect all risks of an investment in our debt securities.
Uncertainty related to alternative reference rates due to the phase out of London Interbank Offered Rates (“LIBOR”)
Risks Relating to an Investment in our Common Stock
Investing in our securities involves a high degree of risk and is highly speculative.
There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time and that investors in our debt securities may not receive all of the interest income to which they are entitled.
We may be unable to invest the net proceeds raised from offerings on acceptable terms, which would harm our financial condition and operating results.
Sales of substantial amounts of our securities may have an adverse effect on the market price of our securities.
Stockholders may experience dilution in their ownership percentage.
Item 1. Business
In this report, the terms the “Company”, "MidCap Investment", “MFIC”, “we”, “us”, and “our” refer to MidCap Financial Investment Corporation unless the context specifically states otherwise.
General
MidCap Financial Investment Corporation, a Maryland corporation organized on February 2, 2004, is a closed-end, externally managed, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). In addition, for tax purposes we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We commenced operations on April 8, 2004 upon completion of our initial public offering that raised $870 million in net proceeds from selling 62 million shares of common stock at a price of $15.00 per share (20.7 million shares at a price of $45.00 per share adjusted for the one-for-three reverse stock split). Since then, and through December 31, 2022, we have raised approximately $2.24 billion in net proceeds from additional offerings of common stock and we have repurchased common stock for $245.8 million.