Once again, that is star one to ask a question. Our first question is from Aaron Siganovich with Truist Securities. Your line is open.

Thanks. I guess, you know, as we're looking at these results and you're kind of, I guess, seeking to deliver and you work through your buybacks, how does this impact, I guess, your Thank you, Aaron. Thanks for the question. When we look at, I think this is one of the very compelling features of MSIC in the context of our broader middle market franchise mid-cap, in that we are roughly $3 billion of a $50 billion business. and so our participation or non-participation in a loan that's originated by MidCap does not ultimately affect our ability to provide that solution to that company or to that particular sponsor and as such in the current environment as you alluded to and we mentioned in our fair remarks where we are not participating in new transactions our MidCap franchise and our broader sponsor coverage effort And frankly, our broader direct lending effort is not in any way compromised by our non-participation. And so in that regard, we do benefit from being a relatively small piece of a much bigger business.

And what are you targeting from a leverage standpoint kind of going forward?

Yeah, sure. So the bottom end of our guidance, so in the low 1.4s. Okay. So not a whole – not a huge decline. It's a modest decline, and you expect to essentially kind of start to recycle to the extent that you start to see repayments pick up? On that point, Aaron, I would note that that is going to be evaluated at the time as you alluded to or implicit in your question was our focus right now is on deleveraging. And when we look out, notwithstanding a relatively tepid M&A environment, all things considered, The quantum of companies that we see that are either in process or soon to be in process, only probability weight, we feel good about our ability to get leverage down, obviously subject to market conditions. But as it relates to what we'll do at that time, it will be evaluated based on market conditions at that time and successful completion of the leveraging. Thank you.

Thank you for your question. Our next question is from Robert Dodd with Raymond James. Please go ahead.

Hi guys. Obviously there have been a lot of press reports about A lack of a term, strategic alternatives being reviewed for MFIC. You didn't have any comment about that in your prepared remarks, but can you either give us any color on that or confirm or deny whether such a review is being undertaken by the board?

Thanks, Robert. As you would probably imagine, as a matter of policy, we do not comment on third-party reporting or rumors in the market. That said, our focus remains and always has on maximizing value for stockholders, a principle that informs every decision we make, and we believe that our buyback Frankly, it's very much in that sphere. Any required disclosures would be made through the appropriate means if and when required. But as I said before, unfortunately, we do not have a comment on that.

Got it. Thank you. On to the markdowns. The number of non-accruals actually went down this quarter, but some of the markdowns, like I think Thompson Scientific is not on non-accrual currently, unless I'm incorrect there. And I mean, you said, you know, EBITDA pressure, rising leverage. I mean, what's the probability or what are your thoughts on whether some of these issue credits this quarter could migrate to non-accrual status? over the next couple of quarters if they're undergoing obviously EBITDA pressure and leverage going the wrong way?

Yeah, thanks, Robert. You know, when we look at the companies, you know, in the basket that we're watching very closely and that, you know, are having EBITDA and leverage pressure, you know, there's always a number of things going on, right? We're having conversations with the company. We're having conversations with the sponsor. We're having conversations with other lenders. In some cases, there are businesses that are looking to divest subsidiaries or divisions, which can result in deleveraging. There are situations where the sponsor is considering putting equity in. There are situations where the lender group is willing to put in additional funds or make other concessions to free up cash flow. And so when we look at the basket of those, I think if you probability weight that, you will have some of those that are resolved super satisfactorily, and then you'll have some of those where they continue to be challenged, and we'll evaluate quarter by quarter whether we think there's a reasonable prospect of I would also call attention to the fact that many of the names in this bucket that we're watching closely

perhaps not surprisingly are from the 2020-2021 vintage capital structure rules that were done in a different industry environment. And certainly the most recent slight tick up in rates and perhaps a prospect for higher for longer or even risk to the upside in terms of rates could challenge the cash flow prospects. But as Ted mentioned, Not to obfuscate or dodge the question, there are a lot of factors that go into evaluating each and every one of those decisions, and it's hard to say prospectively how the quantum of those dynamics filters out in this decision that's ultimately made.

If I can, one more, not related to any of that. You responded to the early question. I mean, you sounded more optimistic about the ability to deliver an active market. I mean, essentially all your competitors are saying the same thing. The M&A pipeline is building. We expect it to be – to be a much more active second half, etc. And I swear I can hear wolves howling in the distance. I mean, I've said the same thing, right? I mean, not a criticism, but what's your confidence that this time it will actually happen?

Look, I think as you're alluding to, a little humility is probably for all market participants on the sanguine prognostications on a pickup in M&A. So with that as a caveat, the repayment activity was actually relatively healthy in the particular quarter against a rather tepid M&A environment. and, you know, importantly, when we are making that judgment, Robert, you know, we are probability waiting, right? We're not saying everything in the process is going to get done. We're saying, you know, the quantum of either refines. In certain cases, you have a BSL market that's not You know, white hot, but is receptive and getting things done. And so there's opportunities for certain of our borrowers to graduate, if you will, as well as also the quantum of sale processes, some of which, you know, as you will probably be well aware, have been deferred. You know, this bid ask, everyone hoping that rates would come down and it seems that, you know, another Factor emerges that maybe pushes it long, and obviously many of these holdings within private equity firms are getting pretty long in the tubes, but ultimately it's informed by a probability weighting and a strong quantum of things that are in process or soon to be in process or need to be in process. to inform that. But the market caveat that it is subject to market conditions and then I think as your question implied, it's necessary a little bit of humility because we've all thought that M&A would come screaming back for many, many quarters and frankly years at this point.

Got it. Thank you.

Thank you for your question. Our next question is from Finian O'Shea, Wells Fargo Securities. Please go ahead.

Hey everyone, good morning. Just picking up on some of this dialogue and appreciate the color you gave on leverage and buybacks and understanding that a lot of it relates to future judgment calls. But zeroing in on the leverage dynamic, like as you contemplate buybacks versus new origination on the go forward, Why leave leverage so high given that might be a factor that builds on the discount? And then assuming it goes down the path of continued buybacks, does that 140 sort of leverage frame go down as a smaller BDC might have less tolerance for? for high leverage.

Yeah, thanks for the question, Finn, and certainly a subject that we debate and think critically about within the management team here. And your points are well taken in terms of Even at the lower end of our range, it's a high leverage level. I think when we look at it right now, we are very much focused on getting to the 1.4 and reevaluating. and, you know, as we evaluate there, you know, it will, to state the obvious, and again, not just to dodge the question, but it will be a factor of, you know, where we are trading, what the forward payment pipeline looks like. And then importantly also, which we haven't talked about for fairly obvious reasons in that we are not deploying right now, is that when we look at the market, We did see some widening post-Iran hostilities, some of which, particularly in the middle market, has been given back. And so all things being equal, that doesn't scream to us right now as a You know, overly compelling redeployment opportunity. And I offer that up as, you know, another factor that will go in to make that decision. But to answer your question specifically, our focus is right now on getting to the lower end of the range. But we take your points and know that we do debate that as a management team as well.

I appreciate that. In a follow-up on the picture of spillover, if you can give a – I know it's probably going to be complicated by equity positions, MERCs, et cetera, and can probably move around, but can you sort of outline that for us? Like what's the degree of spillover now and how much would sort of naturally roll off and where you – What the sort of, I guess, pro forma might be. Any color there would be helpful.

Yeah, thanks for the question. So approximately as of midpoint, the number came in just over $60 million as we're targeting through to year end. Obviously, as you mentioned, the impacts of tax around Merck's, some equity positions, some other challenging points. You know, we're targeting potentially up to $100 million, you know, subject to, sorry, $1 million subject to, you know, the tax invocations there.

Sorry, did you say a million or it goes from 60 to? Okay, that's all for me. Thank you so much.

Thank you for your question. Once again, if you would like to ask a question, please press star and one on your telephone keypad now. At this time, there are no further questions in the queue. I will turn the meeting back to management.

Thank you, operator. Thank you, everyone, for listening to today's call on behalf of the entire team. We thank you for your time today. Please feel free to reach out to any of us if you have any additional questions. Please have a nice day.

This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.