MAIN Main Street Capital Corp

Filed Pursuant to Rule 433

Issuer Free Writing Prospectus dated November 6, 2020

Relating to Registration Statement No. 333-231146

 

Main Street Capital CorporationNYSE: MAINmainstcapital.com Page 1 Investor Presentation Third Quarter – 2020 Main Street Capital CorporationNYSE: MAINmainstcapital.com

 

Disclaimers Main Street Capital Corporation (MAIN) cautions that statements in this presentation that are forward-looking, and provide other than historical information, involve risks and uncertainties that may impact our future results of operations. The forward-looking statements in this presentation are based on current conditions as of November 6, 2020, and include, but are not limited to, statements regarding our goals, beliefs, strategies, future operating results and cash flows, operating expenses, investment originations and performance, available capital, payment and the tax attributes of future dividends and shareholder returns. Although our management believes that the expectations reflected in any forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct. Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: our continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which our portfolio companies operate; the potential impacts of the COVID-19 pandemic on our and our portfolio companies’ business and operations, liquidity and access to capital, and on the U.S. and global economies, including public health requirements in response to the pandemic; changes in laws and regulations or business, political and/or regulatory conditions that may adversely impact our operations or the operations of our portfolio companies; the operating and financial performance of our portfolio companies and their access to capital; retention of key investment personnel; competitive factors; and such other factors described under the captions “Cautionary Statement Concerning Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in our filings with the Securities and Exchange Commission (www.sec.gov), including our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q. We undertake no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations. MAIN has filed a registration statement (including a prospectus and prospectus supplements) with the SEC for any offering to which this communication may relate and may file one or more supplements to the prospectus in the future. Before you invest in any of MAIN’s securities, you should read the registration statement and the applicable prospectus and prospectus supplement(s) in order to fully understand all of the implications and risks of an offering of MAIN’s securities. You should also read other documents MAIN has filed with the SEC for more complete information about MAIN and its securities offerings. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, MAIN will arrange to send you any applicable prospectus and prospectus supplement if you request such materials by calling us at (713) 350-6000. These materials are also made available, free of charge, on our website at www.mainstcapital.com. Information contained on our website is not incorporated by reference into this communication. The summary descriptions and other information included herein are intended only for informational purposes and convenient reference. The information contained herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Before making an investment decision with respect to MAIN, investors are advised to carefully review an applicable prospectus to review the risk factors described or incorporated by reference therein, and to consult with their tax, financial, investment and legal advisors. These materials do not purport to be complete, and are qualified in their entirety by reference to the more detailed disclosures contained in an applicable prospectus and MAIN’s related documentation.

 

Main Street Capital Corporation Corporate Overview and Investment Strategy 3rdQuarter–2020

 

Hybrid debt and equity investment strategy, internally managed operating structure and focus on Lower Middle Market differentiates MAIN from other investment firms Internally-managed Business Development Company (BDC) •IPO in 2007 •Over $4.3 billion in capital under management(1) – Over $3.1 billion internally at MAIN(1) – Over $1.1 billion as a sub-adviser to a third party(1) Primarily invests in the under-served Lower Middle Market (LMM) •Targets companies with revenue between $10 million - $150 million; EBITDA between $3 million - $20 million •Provides single source solutions including a combination of first lien, senior secured debt and equity financing Debt investments in Middle Market companies •Issuances of first lien, senior secured and/or rated debt investments •Larger companies than LMM investment strategy Debt investments originated in collaboration with other funds •First lien, senior secured debt investments in privately held companies originated through strategic relationships with other investment funds •Similar in size, structure and terms to LMM and Middle Market investments Attractive asset management advisory business Significant management ownership / investment in MAIN Headquartered in Houston, Texas (1) Capital under management includes undrawn portion of debt capital as of September 30, 2020

 

MAIN’s unique investment strategy, efficient operating structure and conservative capitalization are designed to provide sustainable, long-term growth in recurring monthly dividends and long-term capital appreciation to our shareholders Long-term focus on delivering our shareholders sustainable growth in net asset value and recurring dividends per share Consistent cash dividend yield – dividends paid monthly •MAIN has never decreased its monthly dividend rate •86% increase in monthly dividends from $0.33 per share paid in Q4 2007 to declared dividends of $0.615 per share for Q1 2021 Owns two Small Business Investment Company (SBIC) Funds •Main Street Mezzanine Fund (2002 vintage) and Main Street Capital III (2016 vintage) •Provides access to 10-year, low cost, fixed rate government-backed leverage Strong capitalization and liquidity position – stable, long-term debt and significant available liquidity to take advantage of opportunities •Favorable opportunities in capital markets through investment grade rating of BBB-/Stable from Standard & Poor’s Rating Services •Total SBIC debenture regulatory financing capacity of $350.0 million

 

Focus on LMM equity investments and efficient operating structure differentiates MAIN and provides opportunity for significant total returns for our shareholders Equity investments in LMM portfolio provide both the opportunity to grow net asset value (NAV) per share and generate recurring dividend income and periodic realized gains to support MAIN’s dividend growth •NAV growth of $8.67 per share (or 67%) since 2007 •Cumulative net realized gains from LMM portfolio investments of $120.9 million ($6.5 million net for the total investment portfolio) since the Initial Public Offering •Approximately $2.49 per share in cumulative, pre-tax net unrealized appreciation on LMM portfolio at September 30, 2020 •Realized gains provide taxable income in excess of net investment income and help fund MAIN’s dividends Internally managed operating structure provides significant operating leverage •Favorable ratio of total operating expenses, excluding interest expense, to average total assets of approximately 1.3%(1) •Greater portion of gross portfolio returns are delivered to our shareholders •Significant positive impact to Net Investment Income •Alignment of interests between MAIN management and our shareholders (1) Based upon the trailing twelve months ended September 30, 2020

 

MAIN Strategy Produces Differentiated Returns Enhanced Value Proposition - Three Ways to Win are Better Than One 1. Sustain and Grow Dividends •Efficient operating structure provides operating leverage to grow distributable net investment income, and dividends paid, as investment portfolio and total investment income grow •86% increase in monthly dividends from $0.33 per share paid in Q4 2007 to declared dividends of $0.615 per share for Q1 2021 •Never decreased regular monthly dividends (including through 2008/2009 recession) •Paid or declared $30.215 per share in total dividends since October 2007 IPO at $15.00 per share ($26.175 per share in regular dividends and $4.040 per share in supplemental dividends) •Multi-faceted investment strategy supports growth of dividends over various cycles and markets 2. Meaningfully Grow Net Asset Value (“NAV”) Per Share •$12.85 at December 31, 2007 to $21.52 at September 30, 2020 – 67% growth; CAGR of 4.1% •Represents incremental economic return to investors beyond dividends •MAIN’s debt-focused peers (which comprises most BDCs) cannot generate NAV per share growth through the cycles •Unrealized appreciation is a good proxy for future dividend growth without the need for additional capital through growing portfolio dividend income and harvested realized gains from equity investments •Ability to grow NAV per share provides opportunity for MAIN stock share price appreciation and additional shareholder returns 3. Supplement Growth in Distributable Net Investment Income with Periodic Realized Gains •LMM equity component of investment strategy provides opportunity for meaningful realized gains (analogous to PIK income on debt investments from cash flow perspective, but more tax efficient and without cap on upside) •Realized gains validate the quality of MAIN’s unrealized appreciation •Realized gains can be paid to shareholders as dividends or retained for future reinvestment due to MAIN’s unique tax structure

 

Distributable Net Investment Income (“DNII”)(1) Per Share MAIN’s unique focus on equity investments in the Lower Middle Market provides the opportunity for significant NAV per share growth MAIN’s efficient operating structure provides significant operating leverage, greater dividends and greater overall returns for our shareholders $0.80 DNII and Dividends Per Share $0.60 $0.50 $0.40 $0.30 $0.20 2007 Recessionary Period 2008200920102011201220132014201520162017201820192020 $26.00 $24.00 $22.00 $20.00 $18.00 $16.00 $14.00 $12.00 $8.00 $0.00 2021 Monthly DividendsDNII per share (1) NAV per share NAV Per Share • In addition to monthly dividends above, $4.04 per share of supplemental dividends have been paid • Annual return on equity averaging approximately 12.8% from 2010 through the third quarter of 2020 (1) See reconciliation of DNII per share to Net Investment Income per share and Non-GAAP Information disclosures included on pages 37 and 47 of this presentation

 

Lower Middle Market (LMM) Investment Strategy LMM investment strategy differentiates MAIN from its competitors and provides attractive risk-adjusted returns Investment Objectives •High cash yield from secured debt investments (10.8% weighted-average cash coupon as of September 30, 2020); plus •Dividend income and periodic capital gains from equity investments Investments are structured for (i) protection of capital, (ii) high recurring income and (iii) meaningful capital gain opportunity Focus on self-sponsored, “one stop” financing opportunities •Partner with business owners and entrepreneurs •Recapitalization, buyout, growth and acquisition capital •Extensive network of grass roots referral sources •Strong and growing “Main Street” brand recognition / reputation Provide customized financing solutions Investments have low correlation to the broader debt and equity markets and attractive risk-adjusted returns

 

MAIN targets LMM investments in established, profitable companies Characteristics of LMM provide beneficial risk-reward investment opportunities Large and critical portion of U.S. economy •175,000+ domestic LMM businesses(1) LMM is under-served from a capital perspective and less competitive Inefficient asset class generates pricing inefficiencies •Typical entry enterprise values between 4.5X – 6.5X EBITDA •Typical entry leverage multiples between 2.0X – 4.0X EBITDA to MAIN debt investment Partner relationship with the management teams of our portfolio companies vs a “commoditized vendor of capital” (1) Source: U.S. Census 2012 – U.S. Data Table by Enterprise Receipt Size; 2012 County Business Patterns and 2012 Economic Census; includes Number of Firms with Enterprise Receipt Size between $10,000,000 and $99,999,999

 

Private Loan portfolio investments are primarily debt investments 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” Investment Objectives •Access proprietary investments with attractive risk-adjusted return characteristics •Generate cash yield to support MAIN monthly dividend Investment Characteristics •Investments in companies that are consistent with the size of companies in our LMM and Middle Market portfolios •Proprietary investments originated through strategic relationships with other investment funds on a collaborative basis •Current Private Loan portfolio companies have weighted-average EBITDA of approximately $54.2 million(1) Investments in secured debt investments •First lien, senior secured debt investments •Floating rate debt investments 8% – 12% targeted gross yields •Weighted-average effective yield(2) of 8.6%(3) •Net returns positively impacted by lower overhead requirements and modest use of leverage •Floating rate debt investments provide matching with MAIN’s floating rate credit facility (1) This calculation excludes four Private Loan portfolio companies as EBITDA is not a meaningful metric for these portfolio companies (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) Weighted-average effective yield is calculated using the applicable floating interest rate as of September 30, 2020

 

Middle Market Debt Investment Strategy MAIN maintains a portfolio of debt investments in Middle Market companies Investment Objective •Generate cash yield to support MAIN monthly dividend Investments in secured and/or rated debt investments •First lien, senior secured debt investments •Floating rate debt investments Larger companies than the LMM investment strategy •Current Middle Market portfolio companies have weighted-average EBITDA of approximately $75.7 million(1) Large and critical portion of U.S. economy •Nearly 200,000 domestic Middle Market businesses(2) More relative liquidity than LMM investments 6% – 10% targeted gross yields •Weighted-average effective yield(3) of 7.9%(4) •Net returns positively impacted by lower overhead requirements and modest use of leverage •Floating rate debt investments provide matching with MAIN’s floating rate credit facility (1) This calculation excludes two Middle Market portfolio companies as EBITDA is not a meaningful metric for these portfolio companies (2) Source: National Center for The Middle Market; includes number of U.S. domestic businesses with revenues between $10 million and $1 billion (3) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (4) Weighted-average effective yield is calculated using the applicable floating interest rate as of September 30, 2020

 

MAIN’s asset management business represents additional income diversification and the opportunity for greater shareholder returns MAIN’s internally managed operating structure provides MAIN’s shareholders the benefits of this asset management business In May 2012, MAIN(1) entered into an investment sub-advisory agreement with the investment adviser to MSC Income Fund, Inc. (“MSIF”)(2), a non-listed BDC •MAIN(1) provided asset management services, including sourcing, diligence and post-investment monitoring •MAIN(1) historically received 50% of the total management fees and incentive fees paid by MSIF – Base management fee of 2% of total assets – Inventive fees – 20% of net investment income above a hurdle rate and 20% of net realized capital gains In October 2020, MAIN(1) closed an agreement with the former investment adviser to MSIF to become the sole investment adviser to and administrator of MSIF •The fund changed its name to MSC Income Fund, Inc. •MAIN(1) will receive 100% of the management fees and incentive fees – Base management fee reduced from 2.0% to 1.75% of total assets – No change to incentive fee calculation Benefits to MAIN •No significant increases to MAIN’s operating costs to provide services (utilize existing infrastructure and leverage fixed costs and existing investment capabilities) •Monetizing the value of MAIN franchise

 

 

Highly regulated structure provides significant advantages and protections to our shareholders, including investment transparency, tax efficiency and beneficial leverage Operates as a Business Development Company •Regulated by Securities and Exchange Commission - 1940 Act •Publicly-traded, private investment company Regulated Investment Company (RIC) tax structure •Eliminates corporate level income tax •Efficient tax structure providing high yield to investors •Passes through capital gains to investors Small Business Investment Company (SBIC) subsidiaries •Regulated by the U.S. Small Business Administration (SBA) •Access to low cost, fixed rate, long-term leverage •Total SBIC debenture regulatory financing capacity of $350.0 million •Total outstanding leverage of $304.8 million through two wholly owned SBIC Funds •MAIN is a previous SBIC of the Year Award recipient

 

“Internally managed” structure means no external management fees or expenses are paid, providing operating leverage to MAIN’s business; MAIN targets total operating and administrative costs at or less than 2% of assets Main Street Capital Corporation (BDC/RIC) Assets: ~$2,160 million Line of Credit: $253 million ($740.0 million facility)(1) Notes: ~$635 million(2) Main Street Mezzanine Fund, LP (2002 vintage SBIC) Main Street Capital III, LP (2016 vintage SBIC) Assets: ~$204 million SBIC Debt: ~$130 million outstanding Assets: ~$293 million SBIC Debt: $175 million outstanding (1) As of September 30, 2020, MAIN’s credit facility had $740.0 million in total commitments. MAIN’s credit facility includes an accordion feature which could increase total commitments up to $800.0 million; as of November 4, 2020, the total commitments under MAIN’s credit facility were increased to $780.0 million (2) $450.0 million of 5.20% Notes due May 2024 and $185.0 million of 4.50% Notes due December 2022

 

Dwayne Hyzak; CPA(1)(2) CEO • Co-founded MAIN; Joined Main Street group in 2002; affiliated with Main Street group since 1999 • Director of acquisitions / integration with Quanta Services (NYSE: PWR) • Manager with a Big 5 Accounting Firm’s audit and transaction services groups David Magdol(1)(2) President and CIO(3) • Co-founded MAIN; Joined Main Street group in 2002 • Vice President in Lazard Freres Investment Banking Division • Vice President of McMullen Group (John J. McMullen’s Family Office) Vince Foster; CPA & JD(1)(2) Executive Chairman Jesse Morris; CPA COO(4) and Executive Vice President • Co-founded MAIN and MAIN predecessor funds (1997) • Co-founded Quanta Services (NYSE: PWR) • Partner in charge of a Big 5 Accounting Firm’s Corporate Finance/Mergers and Acquisitions practice for the Southwest United States • Joined MAIN in 2019 • Previously Executive Vice President with Quanta Services (NYSE: PWR) • Prior experience with a Big 5 Accounting Firm and a publicly-traded foodservice distribution company Brent Smith; CPA CFO and Treasurer • Joined MAIN in 2014 • Previously CFO with a publicly-traded oilfield services company • Prior experience with a Big 5 Accounting Firm and a publicly-traded financial consulting firm Jason Beauvais; JD SVP, GC, CCO(5) and Secretary • Joined MAIN in 2008 • Previously attorney for Occidental Petroleum Corporation (NYSE: OXY) and associate in the corporate and securities section at Baker Botts LLP (1) Member of MAIN Executive Committee (2) Member of MAIN Investment Committee (3) Chief Investment Officer (4) Chief Operating Officer (5) Chief Compliance Officer

 

Recurring monthly dividend has never been decreased and has shown meaningful (86%) growth since IPO Trailing Twelve Months Monthly Dividends Per Share $2.50 Based upon the current annualized monthly dividends for the first quarter of 2021, the annual effective yield on MAIN’s stock is 8.6%(1) MAIN has also paid $4.040 in supplemental dividends Cumulative dividends paid or declared, including supplemental dividends, from October 2007 IPO (at $15.00 per share) through Q1 2021 $2.25 $2.00 $1.75 $1.50 $1.25 21 2008200920102011201220132014201520162017201820192020 2021 equal $30.215 per share(2) Monthly Dividends (2) (1) As of November 4, 2020; based upon the closing market price of $28.76 per share and the annualized most recently declared monthly dividends (2) Based upon dividends which have been paid or declared as of November 4, 2020

 

Main Street Capital Corporation Investment Portfolio 3rdQuarter–2020

 

Total Investment Portfolio Diversity provides structural protection to investment portfolio, revenue sources, income, cash flows and shareholder dividends Includes complementary LMM debt and equity investments, Private Loan debt investments and Middle Market debt investments Total investment portfolio at fair value consists of approximately 47% LMM / 29% Private Loan / 17% Middle Market / 7% Other(1) Portfolio investments 180 LMM, Private Loan and Middle Market portfolio companies •Average investment size of $13.3 million(2) •Largest individual portfolio company represents 2.9%(3) of total investment income and 2.8% of total portfolio fair value (most investments are less than 1%) •Twelve non-accrual investments, which represent 2.6% of the total investment portfolio at fair value and 7.1% at cost. •Weighted-average effective yield(4) of 9.5% Significant diversification •Issuer •Industry •Transaction type •Geography •End markets •Vintage (1) Other includes MSC Adviser I, LLC, MAIN’s External Investment Manager (2) As of September 30, 2020; based on cost (3) Based upon total investment income for the trailing twelve month period ended September 30, 2020 (4) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status

 

Machinery, 7%Construction & Engineering, 6% Aerospace & Defense, 6%Health Care Providers & Services, 5% Internet Software & Services, 5%Commercial Services & Supplies, 5% Professional Services, 5%Energy Equipment & Services, 5% Media, 4%IT Services, 4% Leisure Equipment & Products, 4%Hotels, Restaurants & Leisure, 4% Diversified Telecommunication Services, 4%Software, 3% Electronic Equipment, Instruments & Components, 3%Communications Equipment, 3% Oil, Gas & Consumable Fuels, 3%Specialty Retail, 3% Food Products, 3%Distributors, 2% Diversified Financial Services, 2%Containers & Packaging, 2% Computers & Peripherals, 1%Trading Companies & Distributors, 1% Diversified Consumer Services, 1%Transportation Infrastructure, 1% Food & Staples Retailing, 1%Other, 7% (1) Excluding MAIN’s Other Portfolio investments and the External Investment Manager, as described in MAIN’s public filings, which represent approximately 5% of the total portfolio

 

Invested Capital by Transaction TypeInvested Capital by Geography (2) LBO/MBO 39% 21%20% 19% 12% 45% 26%14% 4% Acquisition Growth Capital Recapitalization/ Refinancing (1) Excluding MAIN’s Other Portfolio investments and the External Investment Manager, as described in MAIN’s public filings, which represent approximately 5% of the total portfolio (2) Based upon portfolio company headquarters and excluding any MAIN investments headquartered outside the U.S., which represent approximately 2% of the total portfolio

 

LMM Investment Portfolio consists of a diversified mix of secured debt and lower cost basis equity investments 70 portfolio companies / $1,228.1 million in fair value •47% of total investment portfolio at fair value Debt yielding 11.6%(1) (66% of LMM portfolio at cost) •97% of debt investments have first lien position •66% of debt investments earn fixed-rate interest •Approximately 790 basis point net cash interest margin vs “matched” fixed interest rate on SBIC debentures Equity in 99% of LMM portfolio companies representing 41% average ownership position (34% of LMM portfolio at cost) •Opportunity for fair value appreciation, capital gains and cash dividend income •61% of LMM companies(2) with direct equity investment are currently paying dividends •Fair value appreciation of equity investments supports Net Asset Value per share growth •Lower entry multiple valuations, lower cost basis •$164.5 million, or $2.49 per share, of cumulative pre-tax net unrealized appreciation at September 30, 2020 (1) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (2) Includes the LMM companies which (a) MAIN is invested in direct equity and (b) are treated as flow-through entities for tax purposes; based upon dividend income for the trailing twelve month period ended September 30, 2020

 

LMM Investment Portfolio is a pool of high quality, seasoned assets with attractive risk-adjusted return characteristics Median LMM portfolio credit statistics: •Senior leverage of 2.7x EBITDA through MAIN debt position •2.7x EBITDA to senior interest coverage •Total leverage of 2.8x EBITDA including debt junior in priority to MAIN •Free cash flow de-leveraging improves credit metrics and increases equity appreciation Average investment size of $17.5 million at fair value or $15.2 million on a cost basis (less than 1% of total investment portfolio) Opportunistic, selective posture toward new investment activity over the economic cycle High quality, seasoned LMM portfolio •Total LMM portfolio investments at fair value equals 115% of cost •Equity component of LMM portfolio at fair value equals 159% of cost •Significant portion of LMM portfolio has de-leveraged and a majority of the LMM portfolio investments have experienced equity appreciation

 

Machinery, 10%Professional Services, 10% Construction & Engineering, 9%Energy Equipment & Services, 8% Electronic Equipment, Instruments & Components, 7%Food Products, 6% Software, 5%Leisure Equipment & Products, 5% Internet Software & Services, 4%Containers & Packaging, 4% Media, 3%Hotels, Restaurants & Leisure, 3% Computers & Peripherals, 3%Commercial Services & Supplies, 3% Distributors, 3%Diversified Consumer Services, 2% Diversified Telecommunication Services, 2%Building Products, 2% Specialty Retail, 2%IT Services, 2% Diversified Financial Services, 1%Electrical Equipment, 1% Health Care Providers & Services, 1%Other, 4%

 

Invested Capital by Transaction Type Invested Capital by Geography (1) LBO/MBO Recapitalization/ Refinancing 38% 52% 23%19% 31%13% 14% 4% 6% Acquisition Growth Capital (1) Based upon portfolio company headquarters

 

High yielding secured debt investments coupled with significant equity Security Position on Debt Capital as a Percentage of Cost Fully Diluted Equity Ownership % participation = Attractive risk-adjusted returns Weighted-Average Effective Yield = 11.6% Average Fully Diluted Equity Ownership = 41% 1st Lien 97% 2nd Lien/ Other 3% 50.0% and greater 33% 29% 38% 1.0% - 24.9% 25.0% - 49.9%

 

LMM Debt Investments Original Term Total Interest Coupon (1) < 5 years> 5 years 1% 4% N/A – Floating Interest Rate (Wtd. Avg. of 10.4%)(2) 38% 11% 14% Current Interest 13% Current Interest 95% 1% 7% <10% Current Interest 36% 5 years 10% Current Interest 11% Current Interest 12% Current Interest Debt Investments generally have a 5-Year Original Term and ~2.5 Year Weighted-Average Remaining Duration;Weighted-Average Effective Yield of 11.6% on Debt Portfolio (1) Interest coupon excludes amortization of deferred upfront fees, original issue discount, exit fees and any debt investments on non-accrual status (2) Floating interest rates generally include contractual minimum “floor” rates; Interest rate of 10.4% is based on weighted-average principal balance of floating rate debt investments as of September 30, 2020

 

Private Loan Investment Portfolio Private Loan Investment Portfolio provides a diversified mix of investments and sources of income to complement the LMM Investment Portfolio 68 investments / $743.7 million in fair value •29% of total investment portfolio at fair value Average investment size of $12.1 million(1) (less than 1% of total portfolio) Investments in secured debt instruments • 93% of Private Loan portfolio is secured debt • 96% of Private Loan debt portfolio is first lien term debt Debt yielding 8.6%(2) • 91% of Private Loan debt investments bear interest at floating rates(3), providing matching with MAIN’s floating rate credit facility • Greater than 550 basis point net cash interest margin vs “matched” floating rate on the MAIN credit facility (1) As of September 30, 2020; based on cost (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) 89% of floating interest rates on Private Loan debt investments are subject to contractual minimum “floor” rates

 

Middle Market Investment Portfolio provides a diversified mix of investments and diverse sources of income to complement the LMM Investment Portfolio and a potential source of liquidity for MAIN’s future investment activities 42 investments / $441.3 million in fair value •17% of total investment portfolio at fair value Average investment size of $12.3 million(1) (less than 1% of total portfolio) Investments in secured and/or rated debt investments • 94% of Middle Market portfolio is secured debt • 92% of Middle Market debt portfolio is first lien term debt Debt yielding 7.9%(2) • 94% of Middle Market debt investments bear interest at floating rates(3), providing matching with MAIN’s floating rate credit facility • Greater than 500 basis point net cash interest margin vs “matched” floating rate on the MAIN credit facility More investment liquidity compared to LMM (1) As of September 30, 2020; based on cost (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) 74% of floating interest rates on Middle Market debt investments are subject to contractual minimum “floor” rates

 

Private Loan & Middle Market Portfolios by Industry (as a Percentage of Cost) Aerospace & Defense, 10%Health Care Providers & Services, 8% Commercial Services & Supplies, 6%Internet Software & Services, 6% Communications Equipment, 6%IT Services, 6% Machinery, 5%Diversified Telecommunication Services, 5% Oil, Gas & Consumable Fuels, 5%Media, 4% Specialty Retail, 4% Hotels, Restaurants & Leisure, 4% Construction & Engineering, 4% Leisure Equipment & Products, 3% Diversified Financial Services, 3% Energy Equipment & Services, 2% Trading Companies & Distributors, 2% Software, 2% Distributors, 2%Transportation Infrastructure, 2% Chemicals, 2%Food & Staples Retailing, 2% Internet & Catalog Retail, 1%Professional Services, 1% Textiles, Apparel & Luxury Goods, 1%Other, 4%

 

Diversified Private Loan & Middle Market Investments (as a Percentage of Cost) Invested Capital by Transaction TypeInvested Capital by Geography (1) Recapitalization/ Refinancing 39% 40% 20%20% 24% 19% 2% Growth 22%14% LBO/MBOAcquisition (1) Based upon portfolio company headquarters and excluding any MAIN investments headquartered outside the U.S., which represent approximately 3% of the combined Private Loan and Middle Market portfolios

 

Main Street Capital Corporation Financial Overview 3ndQuarter–2020

 

 

 

MAIN Financial Performance Total Investment Income ($ in millions) Distributable Net Investment Income(1) ($ in millions) Year over Year GrowthYear over Year Growth $260.0 $240.0 8%15% 13% 4%(12)%(2) $180.0 10% 17% 14% 1%(15)%(2) $220.0 $200.0 $180.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 $160.0 $140.0 $120.0 $100.0 $80.0 $60.0 $40.0 $20.0 $0.0 $113.3 $124.1 $145.4 $165.8$167.4 $106.5 $243.4 $233.4 $205.7 $178.3 $164.6 $160.1 2020 20152016201720182019YTD (3) 2020 (1) See reconciliation of DNII to Net Investment Income and Non-GAAP Information disclosures included on pages 37 and 47 of this presentation (2) Reflects year-to-date September 30, 2020 performance compared with year-to-date September 30, 2019 performance (3) Through September 30, 2020

 

MAIN has consistently grown Portfolio Investments and DNII per share ($ in millions, except per share data) $2,800 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $2.09 $1.77 $2.17 $1,286 $2.39 $2.29 $2.31 $1,997 $1,800 $1,563 $2.56 $2,171 $2.76$2.66 $2,602 $2,454 $2,585 $2.29 $2.80 $2.60 $2.40 $2.20 $2.00 $1.80 $1.60 $1.40 $1.20 Portfolio Investments $800 $600 $400 $200 $0.76 $1.19 $1.02 $1.25 $408 $658 $924 $1.00 $0.80 $0.60 $0.40 $0.20 $0$106$127$159 2007200820092010201120122013201420152016201720182019 Sept 30, 2020 $0.00 (2) DNII per share Portfolio InvestmentsDNII per Share (1) See reconciliation of DNII per share to Net Investment Income per share and Non-GAAP Information disclosures included on pages 37 and 47 of this presentation (2) DNII per share for the trailing twelve-month period ended September 30, 2020

 

MAIN’s internally managed operating structure provides significant operating leverage and greater returns for our shareholders “Internally managed” structure means no external management fees or expenses are paid Alignment of interest between management and investors •Greater incentives to maximize increases to shareholder value and rationalize debt and equity capital raises •100% of MAIN’s management efforts and activities are for the benefit of the BDC MAIN targets total operating expenses(1) as a percentage of average assets (Operating Expense to Assets Ratio) at or less than 2% •Long-term actual results have significantly outperformed target •Industry leading Operating Expense to Assets Ratio of 1.3%(2) Significant portion of total operating expenses (1) are non-cash •Non-cash expense for restricted stock amortization was 33.1%(2) of total operating expenses (1) •Operating Expense to Assets Ratio of 0.9%(2) excluding non-cash restricted stock amortization expense (1) Total operating expenses, including non-cash share-based compensation expense and excluding interest expense (2) Based upon the trailing twelve-month period ended September 30, 2020

 

MAIN Maintains a Significant Operating Cost Advantage Operating Expenses as a Percentage of Total Assets(1) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% MAIN (2) MAIN Excl. Share-Based Comp. (3) Other BDCs (4)(5) Other BDCs Excl. Share-Based Comp. (4)(6) Commercial Banks (7) (1) Total operating expenses excluding interest expense (2) For the trailing twelve month period ended September 30, 2020 (3) For the trailing twelve month period ended September 30, 2020, excluding non-cash share-based compensation expense (4) Other BDCs includes dividend paying BDCs that have been publicly-traded for at least two years and have total assets greater than $500 million based on individual SEC Filings as of December 31, 2019; specifically includes: AINV, ARCC, BBDC, BKCC, CCAP, CGBD, CSWC, FDUS, FSK, GAIN, GBDC, GSBD, HTGC, MRCC, NEWT, NMFC, OCSI, OCSL, OFS, PFLT, PNNT, PSEC, SAR, SCM, SLRC, SUNS, TCPC, TPVG, TSLX and WHF (5) Calculation represents the average for the companies included in the group and is based upon the trailing twelve month period ended June 30, 2020 as derived from each company’s SEC filings (6) Calculation represents the average for the companies included in the group and excludes non-cash share-based compensation. Based upon the trailing twelve month period ended June 30, 2020 as derived from each company’s SEC filings (7) Source: SNL Financial. Calculation represents the average for the trailing twelve month period ended June 30, 2020 and includes commercial banks with a market capitalization between $500 million and $3 billion

 

 

 

Q3 20 vs. Q3 19 ($ in 000's) Q3 19 Q4 19 Q1 20(1) Q2 20 Q3 20 % Change(2) Total Investment Income $ 60,068 $ 60,649 $ 56,150 $ 52,007 $ 51,954 (14)% Expenses: Interest Expense (12,893) (13,122) (12,441) (11,898) (12,489) 3% G&A Expense (5,591) (5,477) (4,327) (5,998) (6,442) (15)% Distributable Net Investment Income (DNII)(3) 41,584 42,050 39,382 34,111 33,023 (21)% DNII Margin % 69.2% 69.3% 70.1% 65.6% 63.6% Share-based compensation (2,572) (2,803) (2,837) (2,817) (2,561) NM Net Investment Income 39,012 39,247 36,545 31,294 30,462 (22)% Net Realized Loss (5,876) (949) (21,866) (8,584) (13,874) (136)% Net Unrealized Appreciation (Depreciation) (3,246) (23,533) (194,381) 13,164 63,114 2,044% Income Tax Benefit (Provision) 4,012 1,249 8,264 7,495 (1,507) (138%) Net Increase in Net Assets $ 33,902 $ 16,014 $ (171,438) $ 43,369 $ 78,195 131% Net Investment Income Per Share $ 0.62 $ 0.62 $ 0.57 $ 0.48 $ 0.46 (26)% DNII Per Share $ 0.66 $ 0.66 $ 0.61 $ 0.52 $ 0.50 (24)% (1) Excludes the effect of the $0.5 million realized loss recognized in the first quarter of 2020 on the repayment of the SBIC debentures issued prior to the date of the Main Street Capital II, LP acquisition which had previously been accounted for on the fair value method of accounting and the related accounting reversals of prior unrealized depreciation; The net effect of this item has no effect on Net Increase in Net Assets or Distributable Net Investment Income (2) Percent change from prior year is based upon impact (increase/(decrease)) on Net Increase (Decrease) in Net Assets (3) See Non-GAAP Information disclosures included on page 47 of this presentation. NM – Not Measurable / Not Meaningful

 

($ per share) Q3 19 Q4 19 Q1 20(1) Q2 20 Q3 20 Beginning NAV $ 24.17 $ 24.20 $ 23.91 $ 20.73 $ 20.85 Distributable Net Investment Income(4) 0.66 0.66 0.61 0.52 0.50 Share-Based Compensation Expense (0.04) (0.04) (0.04) (0.04) (0.04) Net Realized Loss (0.09) (0.01) (0.34) (0.13) (0.21) Net Unrealized Appreciation (Depreciation) (0.05) (0.37) (3.01) 0.20 0.95 Income Tax Benefit (Provision) 0.06 0.02 0.13 0.11 (0.02) Net Increase (Decrease) in Net Assets 0.54 0.26 (2.65) 0.66 1.18 Regular Monthly Dividends to Shareholders (0.615) (0.615) (0.615) (0.615) (0.615) Supplemental Dividends to Shareholders - (0.24) - - - Accretive Impact of Stock Offerings (2) 0.09 0.28 0.06 0.16 0.06 Other(3) 0.01 0.02 0.02 (0.09) 0.04 Ending NAV $ 24.20 $ 23.91 $ 20.73 $ 20.85 $ 21.52 Weighted Average Shares 63,297,943 63,775,000 64,536,471 65,303,580 66,110,555 Certain fluctuations in per share amounts are due to rounding differences between quarters. (1) Excludes the effect of the $0.5 million realized loss recognized in the first quarter of 2020 on the repayment of the SBIC debentures issued prior to the date of the Main Street Capital II, LP acquisition which had previously been accounted for on the fair value method of accounting and the related accounting reversals of prior unrealized depreciation; The net effect of this item has no effect on Net Increase in Net Assets or Distributable Net Investment Income (2) Includes accretive impact of shares issued through the Dividend Reinvestment Plan (DRIP) and ATM program (3) Includes differences in weighted-average shares utilized for calculating changes in NAV during the period and actual shares outstanding utilized in computing ending NAV and other minor changes (4) See reconciliation of DNII per share to Net Investment Income per share and Non-GAAP Information disclosures included on pages 37 and 47 of this presentation

 

 

 

($ in 000's, except per share amounts) Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 LMM Portfolio Investments $ 1,199,633 $ 1,206,865 $ 1,168,150 $ 1,188,006 $ 1,228,060 Middle Market Portfolio Investments 548,710 522,083 418,442 410,501 441,292 Private Loan Investments 627,893 692,117 629,094 653,824 743,684 Other Portfolio Investments 110,632 106,739 95,481 98,142 100,529 External Investment Manager 70,328 74,520 61,580 69,080 71,080 Cash and Cash Equivalents 52,281 55,246 54,188 68,539 27,121 Other Assets 55,901 53,979 48,553 57,703 45,702 Total Assets $ 2,665,378 $ 2,711,549 $ 2,475,488 $ 2,545,795 $ 2,657,468 Credit Facility $ 150,000 $ 300,000 $ 277,000 $ 315,000 $ 253,000 SBIC Debentures(1) 305,768 306,188 299,146 308,814 298,835 Notes Payable(2) 604,215 507,824 507,892 508,074 635,638 Other Liabilities 73,340 61,147 55,279 42,963 46,813 Net Asset Value (NAV) 1,532,055 1,536,390 1,336,170 1,370,944 1,423,182 Total Liabilities and Net Assets $ 2,665,378 $ 2,711,549 $ 2,475,487 $ 2,545,795 $ 2,657,468 Total Portfolio Fair Value as % of Cost 108% 107% 99% 100% 102% Common Stock Price Data: High Close $ 44.34 $ 43.68 $ 45.00 $ 35.82 $ 33.01 Low Close 40.90 41.27 15.74 17.34 28.66 Quarter End Close 43.21 43.11 20.51 31.13 29.57 (1) Includes adjustment to the face value of MSC II SBIC debentures pursuant to the fair value method of accounting elected for such MSC II SBIC borrowings for the periods from Q3 19 to Q1 20; Total par value of MAIN’s SBIC debentures at September 30, 2020 was $304.8 million (2) Includes $450.0 million of 5.20% Notes due May 2024 and $185.0 million of 4.50% Notes due December 2022

 

(1) As of September 30, 2020, MAIN’s credit facility had $740.0 million in total commitments with an accordion feature to increase up to $800.0 million; As of November 4, 2020, the total commitments under this facility were increased to $780.0 million; Borrowings under this facility are available to provide additional liquidity for investment and operational activities (2) Includes both the par value of the 5.20% notes ($450.0 million) and the 4.50% notes ($185.0 million). (3) SBIC Debentures are not included as “senior debt” for purposes of the BDC 200% asset coverage requirements pursuant to exemptive relief received by MAIN Debt to NAV Ratio is calculated based upon the par value of debt (4) Non-SBIC Debt to NAV Ratio is calculated based upon the par value of debt of both the credit facility and notes payable (5) Net debt in this ratio includes par value of total debt less cash and cash equivalents (6) DNII(7) + interest expense / interest expense on a trailing twelve month basis (7) See reconciliation of DNII to Net Investment Income and Non-GAAP Information disclosures included on pages 37 and 47 of this presentation.

 

Stable, Long-Term Leverage – Significant Unused Capacity MAIN maintains a conservative capital Facility Interest Rate Maturity Principal Draw n structure, with limited overall leverage and low cost, long-term debt $740.0 million Credit Facility (1) L+1.875% floating (2.0%(2)) September 2023 (fully revolving until maturity) Redeemable at MAIN's option at any time, subject $253.0 million Capital structure is designed to correlate, and compliment expected duration and fixed/floating rate nature of investment portfolio assets Notes Payable 4.5% fixed Notes Payable 5.2% fixed to certain make whole provisions; Matures December 1, 2022 Redeemable at MAIN's option at any time, subject to certain make whole provisions; Matures May 1, 2024 $185.0 million $450.0 million SBIC Debentures (3) 3.4% fixed (weighted average) Various dates between 2021 - 2030 (weighted average duration = 5.5 years) $304.8 million (1) As of September 30, 2020 MAIN’s credit facility had $740.0 million in total commitments from 18 relationship banks, with an accordion feature which could increase total commitments up to $800.0 million; As of November 4, 2020, the total commitments under this facility were increased to $780.0 million (2) Revolver rate reflects the rate based on LIBOR as of September 30, 2020 and effective as of the contractual reset date as of October 1, 2020 (3) MAIN’s SBIC licenses provided for total SBIC debenture capacity of $350.0 million, resulting in undrawn capacity at September 30, 2020 of $45.2 million

 

MAIN’s conservative capital structure provides long-term access to attractively-priced and structured debt facilities (in millions) •Provides downside protection and liquidity through economic cycles •Allows MAIN to be $400 $350 $300 $250 $200 $150 $100 $50 $0 $40.0 $185.0 $16.0 $253.0 $450.0 $75.0$75.0 $63.8 $35.0 opportunistic during periods of economic 20202021202220232024202520262027202820292030 uncertainty Credit Facility (1) SBIC debentures4.50% Notes due 2022 (2) 5.20% Notes due 2024 (3) (1) Based upon outstanding balance as of September 30, 2020; Total commitments at September 30, 2020 were $740.0 million; As of November 4, 2020, total commitments were increased to $780.0 million (2) Issued in November 2017; redeemable at MAIN’s option at any time, subject to certain make-whole provisions (3) Originally issued in April 2019 with follow-on issuances in December 2019 and July 2020; redeemable at MAIN’s option at any time, subject to certain make-whole provisions

 

While MAIN’s financial results are subject to significant impact from changes in interest rates, upside is greater than downside due to The following table illustrates the approximate annual changes in the components of MAIN’s net investment income due to hypothetical increases (decreases) in interest rates(1)(2) (dollars in thousands): Increase majority fixed rate debt obligations and majority floating rate debt investments with minimum interest Basis Point Increase (Decrease) in Interest Rate Increase (Decrease) in Interest Income (Increase) Decrease in Interest Expense(3) Increase (Decrease) in Net Investment Income (Decrease) in Net Investment Income per Share(6) rate floors •79% of MAIN’s outstanding debt obligations have fixed interest rates(4), limiting the increase in interest expense •72% of MAIN’s debt investments bear interest at floating rates(4), the majority of which contain contractual minimum index rates, or “interest rate floors” (weighted-average floor of approximately 110 basis points)(5) •Provides MAIN the opportunity to achieve significant increases in net investment income if interest rates increase, with limited remaining negative impact if interest rates decrease (150) (974) 392 (582) (0.01) (125) (883) 392 (491) (0.01) (100) (783) 392 (391) (0.01) (75) (683) 392 (291) - (50)(583)392(191)-(25)(483)392 (91)-25626(633)(7)-501,280(1,265)15-751,965(1,898)67-100 4,581 (2,530) 2,051 0.03 125 7,712 (3,163) 4,549 0.07 150 11,029 (3,795) 7,234 0.11 (1) Assumes no changes in the portfolio investments, outstanding revolving credit facility borrowings or other debt obligations existing as of September 30, 2020 (2) Assumes that all LIBOR and prime rates would change effective immediately on the first day of the period. However, the actual contractual LIBOR rate reset dates would vary in future periods generally on either a monthly or quarterly basis across both the investments and our revolving credit facility (3) The hypothetical (increase) decrease in interest expense would be impacted by the changes in the amount of debt outstanding under our revolving credit facility, with interest expense (increasing) decreasing as the debt outstanding under our revolving credit facility increases (decreases) (4) As of September 30, 2020 (5) Weighted-average interest rate floor calculated based on debt principal balances as of September 30, 2020 (6) Per share amount is calculated using shares outstanding as of September 30, 2020

 

Significant equity # of Shares (2) September 30, 2020 (3) ownership by MAIN’s management team, coupled with internally managed structure, provides alignment of interest between MAIN’s management and our shareholders Management (1) 3,322,151 $98,236,005 (1) Includes members of MAIN’s executive and senior management team and the members of MAIN’s Board of Directors (2) Includes 1,132,207 shares, or approximately $29.6 million, purchased by Management as part of, or subsequent to, the MAIN IPO, including 14,056 shares, or approximately $0.4 million, purchased, directly or through MAIN’s dividend reinvestment plan, in the quarter ended September 30, 2020 (3) Based upon closing market price of $29.57/share on September 30, 2020

 

Recessionary Period Notes: (1) Assumes dividends reinvested on date paid (2) The Main Street Peer Group includes all BDCs that have been publicly-traded for at least one year and that have total assets greater than $500 million based on individual SEC Filings as of December 31, 2019; specifically includes: AINV, ARCC, BBDC, BKCC, CCAP, CGBD, CSWC, FDUS, FSK, GAIN, GBDC, GSBD, HTGC, MRCC, NEWT, NMFC, OCSI, OCSL, OFS, PFLT, PNNT, PSEC, SAR, SCM, SLRC, SUNS, TCPC, TPVG, TSLX, and WHF. (3) Main Street Peer Group is equal weighted (4) Indexed as of October 5, 2007 and last trading date is September 30, 2020 Consistent market outperformance through various economic cycles

 

Unique focus on under-served Lower Middle Market • Inefficient asset class with less competition • Unique market opportunity with attractive risk-adjusted returns • Generally first lien, senior secured debt investments plus meaningful equity participation Invest in complementary interest-bearing Private Loan and Middle Market debt investments • Lower risk / more liquid asset class • Opportunity for consistent investment activity • Generally first lien, senior secured debt investments Growing Asset Management Business drives additional investment income Efficient internally managed operating structure drives greater shareholder returns • Alignment of interests between management and our shareholders • Maintains the lowest operating cost structure in the BDC industry • Favorable operating cost comparison to other yield oriented investment options Attractive, recurring monthly dividend yield and historical net asset value per share growth • Periodic increases in monthly dividends • Increase in net asset value per share creates opportunity for stock price appreciation Strong liquidity and stable capitalization for sustainable growth Highly invested management team with successful track record Niche investment strategy with lower correlation to broader debt / equity markets

 

Distributable net investment income is net investment income, as determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, excluding the impact of share-based compensation expense which is non-cash in nature. MAIN believes presenting distributable net investment income and the related per share amount is useful and appropriate supplemental disclosure of information for analyzing its 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 for 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 MAIN’s financial performance. Net Debt to NAV Ratio is calculated as the Debt to NAV Ratio as determined in accordance with U.S. GAAP, except that total debt is reduced by cash and cash equivalents. The Non-SBIC Debt to NAV Ratio is calculated in the same manner as the Debt to NAV Ratio, except that outstanding SBIC debentures are excluded from the debt pursuant to an exemptive order Main Street received from the Securities and Exchange Commission. Main Street believes presenting the Net Debt to NAV Ratio is useful and appropriate supplemental disclosure for analyzing its financial position and leverage. Main Street believes presenting the Non-SBIC Debt to NAV Ratio is useful and appropriate supplemental disclosure because Main Street, a business development company, is permitted to exclude such borrowings from its regulatory asset coverage ratio calculation pursuant to an exemptive order received from the Securities and Exchange Commission. However, the Net Debt to NAV Ratio and the Non-SBIC Debt to NAV Ratio are non-U.S. GAAP measures and should not be considered as replacements for the Debt to NAV Ratio and other financial measures presented in accordance with U.S. GAAP. Instead, the Net Debt to NAV Ratio and the Non-SBIC Debt to NAV Ratio should be reviewed only in connection with such U.S. GAAP measures in analyzing Main Street's financial position.

 

Please visit our website at www.mainstcapital.com for additional information Board of Directors Valerie L. Banner SVP, Governance & Risk Exterran Corporation Vincent D. Foster Executive Chairman Main Street Capital Corporation Arthur L. French Retired CEO/Executive J. Kevin Griffin SVP, Financial Planning & Analysis Novant Health, Inc. Dwayne L. Hyzak CEO Main Street Capital Corporation John E. Jackson President & CEO Spartan Energy Partners, LP Brian E. Lane CEO & President Comfort Systems USA Kay Matthews Board of Directors SVB Financial Group and Coherent, Inc. Dunia A. Shive Board of Directors Kimberly-Clark Corporation and Trinity Industries, Inc. Board of Directors (cont.) Stephen B. Solcher Executive Advisor BMC Software Executive Officers Dwayne L. Hyzak Chief Executive Officer David L. Magdol President & Chief Investment Officer Vincent D. Foster, Executive Chairman Jesse E. Morris Chief Operating Officer and Executive Vice President Brent D. Smith Chief Financial Officer & Treasurer Jason B. Beauvais SVP, General Counsel, Secretary & Chief Compliance Officer Nicholas T. Meserve Managing Director (MD) Lance A. Parker Vice President & Chief Accounting Officer Research Coverage Mitchel Penn Janney Montgomery Scott (410) 583-5976 Bryce Rowe National Securities Corporation (212) 417-8243 Robert J. Dodd Raymond James (901) 579-4560 Kenneth S. Lee RBC Capital Markets (212) 905-5995 Michael Ramirez Truist Securities (404) 926-5607 Corporate Headquarters 1300 Post Oak Blvd, 8th Floor Houston, TX 77056 Tel: (713) 350-6000 Fax: (713) 350-6042 Independent Registered Public Accounting Firm Grant Thornton, LLP Houston, TX Corporate Counsel Dechert, LLP Washington, D.C. Securities Listing Common Stock – NYSE: MAIN Transfer Agent American Stock Transfer & Trust Co. Tel: (800) 937-5449 www.astfinancial.com Investor Relation Contacts Dwayne L. Hyzak Chief Executive Officer Brent D. Smith Chief Financial Officer Tel: (713) 350-6000 Ken Dennard Zach Vaughan Dennard Lascar Investor Relations Tel: (713) 529-6600 Management Executive Committee Dwayne L. Hyzak, Chief Executive Officer David L. Magdol, President & Chief Investment Officer Vincent D. Foster, Executive Chairman Investment Committee Dwayne L. Hyzak, Chief Executive Officer David L. Magdol, President & Chief Investment Officer Vincent D. Foster, Executive Chairman

 

Main Street Capital CorporationNYSE: MAINmainstcapital.com Page 1 Debt Capital Markets Presentation Third Quarter – 2020 Main Street Capital CorporationNYSE: MAINmainstcapital.com

 

Disclaimers Main Street Capital Corporation (MAIN) cautions that statements in this presentation that are forward-looking, and provide other than historical information, involve risks and uncertainties that may impact our future results of operations. The forward-looking statements in this presentation are based on current conditions as of November 6, 2020, and include, but are not limited to, statements regarding our goals, beliefs, strategies, future operating results and cash flows, operating expenses, investment originations and performance, available capital, payment and the tax attributes of future dividends and stakeholder returns. Although our management believes that the expectations reflected in any forward-looking statements are reasonable, we can give no assurance that those expectations will prove to have been correct. Those statements are made based on various underlying assumptions and are subject to numerous uncertainties and risks, including, without limitation: our continued effectiveness in raising, investing and managing capital; adverse changes in the economy generally or in the industries in which our portfolio companies operate; the potential impacts of the COVID-19 pandemic on our and our portfolio companies’ business and operations, liquidity and access to capital, and on the U.S. and global economies, including public health requirements in response to the pandemic; changes in laws and regulations or business, political and/or regulatory conditions that may adversely impact our operations or the operations of our portfolio companies; the operating and financial performance of our portfolio companies and their access to capital; retention of key investment personnel; competitive factors; and such other factors described under the captions “Cautionary Statement Concerning Forward-Looking Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” included in our filings with the Securities and Exchange Commission (www.sec.gov), including our most recent annual report on Form 10-K and subsequently filed quarterly reports on Form 10-Q. We undertake no obligation to update the information contained herein to reflect subsequently occurring events or circumstances, except as required by applicable securities laws and regulations. MAIN has filed a registration statement (including a prospectus and prospectus supplements) with the SEC for any offering to which this communication may relate and may file one or more supplements to the prospectus in the future. Before you invest in any of MAIN’s securities, you should read the registration statement and the applicable prospectus and prospectus supplement(s) in order to fully understand all of the implications and risks of an offering of MAIN’s securities. You should also read other documents MAIN has filed with the SEC for more complete information about MAIN and its securities offerings. You may get these documents for free by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, MAIN will arrange to send you any applicable prospectus and prospectus supplement if you request such materials by calling us at (713) 350-6000. These materials are also made available, free of charge, on our website at www.mainstcapital.com. Information contained on our website is not incorporated by reference into this communication. The summary descriptions and other information included herein are intended only for informational purposes and convenient reference. The information contained herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. Before making an investment decision with respect to MAIN, investors are advised to carefully review an applicable prospectus to review the risk factors described or incorporated by reference therein, and to consult with their tax, financial, investment and legal advisors. These materials do not purport to be complete, and are qualified in their entirety by reference to the more detailed disclosures contained in an applicable prospectus and MAIN’s related documentation.

 

3rdQuarter –2020

 

Unique investment strategy, internally managed operating structure and focus on Lower Middle Market differentiates MAIN from other investment firms Conservative capital structure with S&P rating of BBB-/Stable outlook Internally-managed Business Development Company (BDC) •IPO in 2007 •$4.3 billion in capital under management(1) – $3.1 billion internally at MAIN(1) – $1.1 billion as a sub-adviser to a third party(1) Primarily invests in the under-served Lower Middle Market (LMM) •Targets companies with revenue between $10 million - $150 million; EBITDA between $3 million - $20 million Debt investments in Middle Market companies •Larger companies than LMM investment strategy, with EBITDA between $20 million - $100 million Debt investments originated in collaboration with other funds •Similar in size, structure and terms to LMM and Middle Market investments Attractive asset management advisory business Significant management ownership / investment in MAIN Headquartered in Houston, Texas (1) Capital under management includes undrawn portion of debt capital as of September 30, 2020

 

Total Investment Portfolio $2,584.6 million Total Debt Investments $1,799.2 million Other Portfolio, 3.9%, $100.5m Debt Investments, 69.6%, $1,799.2m First Lien Debt, 95.2%, $1,713.5m Equity, 26.5%, $684.9m Junior Debt, 4.8%, $85.7m (1) Fair value as of September 30, 2020

 

MAIN’s investment strategy differentiates MAIN from its competitors and provides highly attractive risk-adjusted returns Lower Middle Market (LMM) •Proprietary investments that are difficult for investors to access •Companies with $10 - $150 million of revenues and $3 - $20 million of EBITDA •Customized financing solutions which include a combination of first lien, senior secured debt and equity •Large addressable market •High cash yield from debt investments •Dividend income, NAV growth and net realized gains from equity investments Private Loans •Companies that are similar in size to LMM and Middle Market •First lien, senior secured debt investments in privately held companies originated through strategic relationships with other investment funds •Floating rate debt investments •Proprietary investments that can be difficult for investors to access •Investments with attractive risk-adjusted returns Middle Market Asset Management Business •Larger companies than LMM strategy, with EBITDA between $20 - $100 million •First lien, senior secured debt investments •Floating rate debt investments •Large addressable market •Can provide source of liquidity for MAIN as needed •No investment capital at risk; monetizing value of MAIN’s intangible assets •Significant contribution to net investment income •Source of stable, recurring fee income •Returns benefit MAIN stakeholders due to internally managed structure

 

The benefits of MAIN’s unique investment strategy has resulted in a high quality, diversified and mature investment portfolio Lower Middle Market • $1,228.1 million of total investments • 70 companies • $655.4 million of debt investments (53%) • $572.7 million of equity investments (47%) • Typical initial investment target of 75% debt / 25% equity • 97% of debt investments are first lien(2) • Average investment size of $17.5 million at fair value or $15.2 million at cost • Weighted-average effective yield on debt of 11.6%(3) Private Loans •$743.7 million of total investments •68 companies •$712.3 million of debt investments (96% of Private Loan portfolio) •96% of debt investments are first lien(2) •Average investment size of $12.1 million(2) •91% of debt investments bear interest at floating rates(2) •Weighted-average effective yield of 8.6%(3) Middle Market Total Portfolio(4) •$441.2 million of total investments •42 companies •$431.5 million of debt investments (98% of Middle Market portfolio) •92% of debt investments are first lien(2) •Average investment size of $12.3 million(2) •94% of debt investments bear interest at floating rates(2) •Weighted-average effective yield of 7.9%(3) (1) As of September 30, 2020; investment amounts at fair value, unless otherwise noted (2) As of September 30, 2020; based on cost • $2,584.6 million of total investments • 193 companies • $1,799.2 million of debt investments (70%) • $785.4 million of equity investments (30%), including $100.5 million of Other Portfolio investments (4%) • 95% of debt investments are first lien(2) • 72% of debt investments bear interest at floating rates(2) • Weighted-average effective yield on debt investments of 9.5%(3) (3) As of September 30, 2020; weighted-average effective yield based on principal and includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status; Weighted average yield is calculated using the applicable floating rate as of September 30, 2020 (4) Includes $71.1 million of equity investment relating to MAIN’s wholly owned unconsolidated subsidiary, MSC Adviser I, LLC

 

Created by Congress in 1980 through the Small Business Investment Incentive Act of 1980 to facilitate the flow of capital to small and mid-sized U.S. businesses Highly regulated by the Securities and Exchange Commission under the Investment Company Act of 1940 (1940 Act) Provide a way for individual investors to participate in equity and debt investments in private companies Leverage •Regulatory restrictions on debt leverage levels require BDCs to maintain conservative leverage •Must maintain an asset to debt coverage ratio of at least 2.0x, unless the BDC has obtained Board or Shareholder approval to decrease the required asset to debt coverage ratio to 1.5x as provided for under the Small Business Credit Availability Act passed in December 2017 Portfolio Diversification •BDCs maintain sufficient diversification in order to protect stakeholders from excessive risks •BDCs must limit individual investment size and limit certain types of investments Full Transparency •Detailed schedule of all investments (and related key terms) in quarterly reporting •Quarterly fair value mark to market accounting Income Tax Treatment •As a Regulated Investment Company (RIC), BDCs generally do not pay corporate income taxes •To maintain RIC status and avoid paying corporate income taxes, BDCs must distribute at least 90% of taxable income (other than net capital gain) to investors •To avoid federal excise taxes, BDC’s must distribute at least 98% of taxable income to investors •Tax treatment is similar to Real Estate Investment Trusts (REIT)

 

Current capitalization ($ in 000's)September 30, 2020% of Capitalization Cash $27,121 Debt at parent Credit Facility253,0009.7% 5.20% Notes due 2024(1) 450,00017.2% 4.50% Notes due 2022(1) 185,0007.1% Total debt at parent888,00033.9% Debt at subsidiaries SBIC Debentures(1)304,80011.7% Total debt at subsidiaries304,80011.7% Total debt1,192,80045.6% Book value of equity 1,423,182 54.4% Total capitalization $ 2,615,982 100.0% Debt / Capitalization 0.46x Debt / Book equity 0.84x Debt / Enterprise value(2) 0.38x Debt / Market capitalization(2) 0.61x Stock price / Net asset value per share(2) 1.37x (1) Debt amounts reflected at par value (2) Based on stock price of $29.57 as of September 30, 2020

 

 

 

Conservative Leverage As of September 30, 2020 ($ in 000's) Parent(1) SBICs Total Total Assets $ 2,080,766 $ 576,702 $ 2,657,468 Debt Capital: Revolving Credit Facility (2) 253,000 - 253,000 SBIC Debentures - 298,835 298,835 Notes Payable(3) 635,638 - 635,638 Total Debt 888,638 298,835 1,187,473 Net Asset Value (NAV) 1,147,098 276,084 1,423,182 Ke y Le ve ra ge Sta ts Interest Coverage Ratio(4) 3.80x 4.52x 3.97x Asset Coverage Ratio(5) 2.34x 1.89x 2.23x Consolidated Asset Coverage Ratio - Regulatory (6) N/A N/A 2.60x Debt to Assets Ratio 0.43x 0.52x 0.45x Debt to NAV Ratio(7) 0.77x 1.10x 0.84x Net Debt to NAV Ratio(8)(9) 0.76x 1.05x 0.82x (1) Assets at the BDC/RIC parent level represent the collateral available to MAIN’s debt capital market investors (2) As of September 30, 2020, MAIN’s credit facility had $740.0 million in total commitments with an accordion feature to increase up to $800.0 million; As of November 4, 2020, the total commitments under MAIN’s credit facility were increased to $780.0 million; Borrowings under this facility are available to provide additional liquidity for investment and operational activities (3) Includes the carry value of both the 5.20% Notes ($452.0 million; $450.0 million par) and the 4.5% Notes ($183.7 million; $185.0 million par) (4) Distributable Net Investment Income (DNII)(9) + interest expense / interest expense on a trailing twelve month basis (5) Calculated as total assets divided by total debt at par, including SBIC Debentures ($304.8 million), 5.20% Notes ($450.0 million), and 4.50% Notes ($185.0 million) (6) Calculated per BDC regulations; SBIC Debentures are not included as “senior debt” for purposes of the BDC 200% asset coverage requirements pursuant to exemptive relief received by MAIN (7) Debt to NAV Ratio is calculated based upon the par value of debt (8) Net debt in this ratio includes par value of debt less cash and cash equivalents of $13.0 million, $14.1 million and $27.1 million for the Parent, SBICs, and Total, respectively (9) See reconciliation of DNII to Net Investment Income and Non-GAAP Information disclosures included on pages 37 and 39 of this presentation

 

Passage of the Small Business Credit Availability Act in December 2017 provides the opportunity for BDCs to obtain board or shareholder approval to access additional leverage by lowering the required asset coverage to 1.50x (from 2.00x) MAIN has historically operated at conservative regulatory leverage levels, in all cases with significant cushion to the historical (2.00x) regulatory limits, and proven through historical performance that MAIN does not require access to additional leverage to generate market leading returns MAIN's Historical Asset Coverage Ratio: 2013 2014 2015 2016 2017 2018 2019 Q3 20 Consolidated Asset Coverage Ratio - Regulatory (1) 3.37x 2.93x 2.92x 2.97x 3.67x 3.22x 2.89x 2.60x Minimum Required Asset Coverage(2) 2.00x 2.00x 2.00x 2.00x 2.00x 2.00x 2.00x 2.00x Cushion % above Miniumum Required Asset Coverage69% 47% 46% 49% 84% 61% 45% 30% (1) Calculated per BDC regulations; SBIC Debentures are not included as “senior debt” for purposes of the 200% Minimum Asset Coverage Ratio requirements pursuant to exemptive relief received by MAIN (2) Minimum required asset coverage of 2.00x prior to passage of the Small Business Credit Availability Act; Minimum requirement of 2.00x remains in place for all BDCs unless board or shareholder approval is obtained to lower minimum requirement to 1.50x

 

provides protection to lenders MAIN’s management of its capital structure Less: Secured Debt (revolver borrowings) Excess Collateral Available to Unsecured Lenders $(287)$ $1,068$ (253) 2,099 results in reduced risk profile for debt investors over time Excess collateral available to unsecured lenders has increased by 97% since MAIN’s first investment grade (“IG”) debt issuance Increase since first IG debt issuance (3) 97% Less: Unsecured Debt Outstanding (par value)(91)(635) (4) Remaining Excess Collateral Available to Unsecured Lenders9771,464 Increase since first IG debt issuance (3) 50% (1) Most recent information publicly reported prior to first IG debt issuance (2) Represents asset value in excess of SBIC debt; SBIC assets contain negative pledge in relation to SBIC debt; therefore equity at SBIC entities is effectively collateral for lenders (3) First IG notes issued in November 2014 (4) Includes additional IG debt issuances in November 2017, April 2019 and December 2019

 

Experienced Management Team with Strong Track Record Efficient and Leverageable Internally Managed Operating Structure Conservative Leverage • Core executive management team has been together as a team for 15+ years • Extensive investment expertise and relationships • Significant management equity ownership • Meaningful operating cost advantage through efficient internally managed structure • Significant benefits through alignment of interests between management (stock ownership and incentive compensation) and investors • Industry leading operating expense efficiency • 1940 Act requires a minimum 2.0x regulatory asset coverage ratio(1) • MAIN’s asset coverage ratio is ~2.3x at the Parent level; ~2.6x on a regulatory basis • Conservative leverage position further enhanced through ongoing efficient capital raises through at-the-market, or ATM, equity issuance program Unique Investment Strategy • Unique investment strategy differentiates MAIN from its competitors and provides highly attractive risk-adjusted returns • Asset management advisory business significantly enhances MAIN’s returns to its investors High Quality Portfolio • Significant diversification • Debt investments primarily carry a first priority lien on the assets of the business • Permanent capital structure of BDC allows for long-term, patient investment strategy and overall approach (1) Minimum required asset coverage of 2.00x prior to passage of the Small Business Credit Availability Act; Minimum requirement of 2.00x remains in place unless Board or Shareholder approval is obtained to lower minimum requirement to 1.50x

 

Dwayne Hyzak; CPA(1)(2) CEO • Co-founded MAIN; Joined Main Street group in 2002; affiliated with Main Street group since 1999 • Director of acquisitions / integration with Quanta Services (NYSE: PWR) • Manager with a Big 5 Accounting Firm’s audit and transaction services groups David Magdol(1)(2) President and CIO(3) • Co-founded MAIN; Joined Main Street group in 2002 • Vice President in Lazard Freres Investment Banking Division • Vice President of McMullen Group (John J. McMullen’s Family Office) Vince Foster; CPA & JD(1)(2) Executive Chairman Jesse Morris; CPA COO(4) and Executive Vice President • Co-founded MAIN and MAIN predecessor funds (1997) • Co-founded Quanta Services (NYSE: PWR) • Partner in charge of a Big 5 Accounting Firm’s Corporate Finance/Mergers and Acquisitions practice for the Southwest United States • Joined MAIN in 2019 • Previously Executive Vice President with Quanta Services (NYSE: PWR) • Prior experience with a Big 5 Accounting Firm and a publicly-traded foodservice distribution company Brent Smith; CPA CFO and Treasurer • Joined MAIN in 2014 • Previously CFO with a publicly-traded oilfield services company • Prior experience with a Big 5 Accounting Firm and a publicly-traded financial consulting firm Jason Beauvais; JD SVP, GC, CCO(5) and Secretary • Joined MAIN in 2008 • Previously attorney for Occidental Petroleum Corporation (NYSE: OXY) and associate in the corporate and securities section at Baker Botts LLP (1) Member of MAIN Executive Committee (2) Member of MAIN Investment Committee (3) Chief Investment Officer (4) Chief Operating Officer (5) Chief Compliance Officer

 

Significant equity # of Shares (2) September 30, 2020 (3) ownership by MAIN’s management team, coupled with internally managed structure, provides alignment of interest between MAIN’s management and our stakeholders Management (1) 3,322,151 $98,236,005 (1) Includes members of MAIN’s executive and senior management team and the members of MAIN’s Board of Directors (2) Includes 1,132,207 shares, or approximately $29.6 million, purchased by Management as part of, or subsequent to, the MAIN IPO, including 14,056 shares, or approximately $0.4 million, purchased, directly or through MAIN’s dividend reinvestment plan, in the quarter ended September 30, 2020 (3) Based upon closing market price of $29.57/share on September 30, 2020

 

MAIN’s internally managed operating structure provides significant operating leverage and greater returns for our stakeholders “Internally managed” structure means no external management fees or expenses are paid Alignment of interest between management and investors •Greater incentives to maximize increases to stakeholder value and rationalize debt and equity capital raises •100% of MAIN’s management efforts and activities are for the benefit of the BDC MAIN targets total operating expenses(1) as a percentage of average assets (Operating Expense to Assets Ratio) at or less than 2% •Long-term actual results have significantly outperformed target •Industry leading Operating Expense to Assets Ratio of 1.3%(2) Significant portion of total operating expenses (1) are non-cash •Non-cash expense for restricted stock amortization was 33.1%(2) of total operating expenses (1) •Operating Expense to Assets Ratio of 0.9%(2) excluding non-cash restricted stock amortization expense (1) Total operating expenses, including non-cash share-based compensation expense and excluding interest expense (2) Based upon the trailing twelve-month period ended September 30, 2020

 

MAIN Maintains a Significant Operating Cost Advantage Operating Expenses as a Percentage of Total Assets(1) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% MAIN (2) MAIN Excl. Share-Based Comp. (3) Other BDCs (4)(5) Other BDCs Excl. Share-Based Comp. (4)(6) Commercial Banks (7) (1) Total operating expenses excluding interest expense (2) For the trailing twelve month period ended September 30, 2020 (3) For the trailing twelve month period ended September 30, 2020, excluding non-cash share-based compensation expense (4) Other BDCs includes dividend paying BDCs that have been publicly-traded for at least two years and have total assets greater than $500 million based on individual SEC Filings as of December 31, 2019; specifically includes: AINV, ARCC, BBDC, BKCC, CCAP, CGBD, CSWC, FDUS, FSK, GAIN, GBDC, GSBD, HTGC, MRCC, NEWT, NMFC, OCSI, OCSL, OFS, PFLT, PNNT, PSEC, SAR, SCM, SLRC, SUNS, TCPC, TPVG, TSLX and WHF (5) Calculation represents the average for the companies included in the group and is based upon the trailing twelve month period ended June 30, 2020 as derived from each company’s SEC filings (6) Calculation represents the average for the companies included in the group and excludes non-cash share-based compensation. Based upon the trailing twelve month period ended June 30, 2020 as derived from each company’s SEC filings (7) Source: SNL Financial. Calculation represents the average for the trailing twelve month period ended June 30, 2020 and includes commercial banks with a market capitalization between $500 million and $3 billion

 

Stable, Long-Term Leverage – Significant Unused Capacity MAIN maintains a conservative capital Facility Interest Rate Maturity Principal Draw n structure, with limited overall leverage and low cost, long-term debt $740.0 million Credit Facility (1) L+1.875% floating (2.0%(2)) September 2023 (fully revolving until maturity) Redeemable at MAIN's option at any time, subject $253.0 million Capital structure is designed to correlate, and compliment expected duration and fixed/floating rate nature of investment portfolio assets Notes Payable 4.5% fixed Notes Payable 5.2% fixed to certain make whole provisions; Matures December 1, 2022 Redeemable at MAIN's option at any time, subject to certain make whole provisions; Matures May 1, 2024 $185.0 million $450.0 million SBIC Debentures (3) 3.4% fixed (weighted average) Various dates between 2021 - 2030 (weighted average duration = 5.5 years) $304.8 million (1) As of September 30, 2020 MAIN’s credit facility had $740.0 million in total commitments from 18 relationship banks, with an accordion feature which could increase total commitments up to $800.0 million; As of November 4, 2020, the total commitments under this facility were increased to $780.0 million (2) Revolver rate reflects the rate based on LIBOR as of September 30, 2020 and effective as of the contractual reset date as of October 1, 2020 (3) MAIN’s SBIC licenses provided for total SBIC debenture capacity of $350.0 million, resulting in undrawn capacity at September 30, 2020 of $45.2 million

 

MAIN’s conservative capital structure provides long-term access to attractively-priced and structured debt facilities (in millions) •Provides downside protection and liquidity through economic cycles •Allows MAIN to be $400 $350 $300 $250 $200 $150 $100 $50 $0 $40.0 $185.0 $16.0 $253.0 $450.0 $75.0$75.0 $63.8 $35.0 opportunistic during periods of economic 20202021202220232024202520262027202820292030 uncertainty Credit Facility (1) SBIC debentures4.50% Notes due 2022 (2) 5.20% Notes due 2024 (3) (1) Based upon outstanding balance as of September 30, 2020; Total commitments at September 30, 2020 were $740.0 million; As of November 4, 2020, total commitments were increased to $780.0 million (2) Issued in November 2017; redeemable at MAIN’s option at any time, subject to certain make-whole provisions (3) Originally issued in April 2019 with follow-on issuances in December 2019 and July 2020; redeemable at MAIN’s option at any time, subject to certain make-whole provisions

 

While MAIN’s financial results are subject to significant impact from changes in interest rates, upside is greater than downside due to The following table illustrates the approximate annual changes in the components of MAIN’s net investment income due to hypothetical increases (decreases) in interest rates(1)(2) (dollars in thousands): Increase majority fixed rate debt obligations and majority floating rate debt investments with minimum interest Basis Point Increase (Decrease) in Interest Rate Increase (Decrease) in Interest Income (Increase) Decrease in Interest Expense(3) Increase (Decrease) in Net Investment Income (Decrease) in Net Investment Income per Share(6) rate floors •79% of MAIN’s outstanding debt obligations have fixed interest rates(4), limiting the increase in interest expense •72% of MAIN’s debt investments bear interest at floating rates(4), the majority of which contain contractual minimum index rates, or “interest rate floors” (weighted-average floor of approximately 110 basis points)(5) •Provides MAIN the opportunity to achieve significant increases in net investment income if interest rates increase, with limited remaining negative impact if interest rates decrease (150) (974) 392 (582) (0.01) (125) (883) 392 (491) (0.01) (100) (783) 392 (391) (0.01) (75) (683) 392 (291) - (50)(583)392(191)-(25)(483)392 (91)-25626(633)(7)-501,280(1,265)15-751,965(1,898)67-100 4,581 (2,530) 2,051 0.03 125 7,712 (3,163) 4,549 0.07 150 11,029 (3,795) 7,234 0.11 (1) Assumes no changes in the portfolio investments, outstanding revolving credit facility borrowings or other debt obligations existing as of September 30, 2020 (2) Assumes that all LIBOR and prime rates would change effective immediately on the first day of the period. However, the actual contractual LIBOR rate reset dates would in future periods generally on either a monthly or quarterly basis across both the investments and our revolving credit facility (3) The hypothetical (increase) decrease in interest expense would be impacted by the changes in the amount of debt outstanding under our revolving credit facility, with interest expense (increasing) decreasing as the debt outstanding under our revolving credit facility increases (decreases) (4) As of September 30, 2020 (5) Weighted-average interest rate floor calculated based on debt principal balances as of September 30, 2020 (6) Per share amount is calculated using shares outstanding as of September 30, 2020

 

ATM Equity Program provides efficient, low cost capital •Provides permanent capital to match growth of LMM investments on an as-needed basis •Provides significant economic cost savings compared to traditional overnight equity offerings Provides permanent capital to match indefinite or long-term holding period for LMM investments Facilitates maintenance of conservative leverage position Issued equity is accretive to NAV per share Provides significant benefits vs traditional overnight equity offerings •Provides equity capital and liquidity on an as-needed basis, avoiding dilution from larger overnight equity offerings •Provides equity capital at significantly lower cost •Avoids negative impact to stock price from larger overnight equity offerings Raised net proceeds of $471.2 million since inception in 2015(1) •Average sale price is approximately 63% above average NAV per share over same period(1) •Resulted in economic cost savings of approximately $23.9 million when compared to traditional overnight equity offering(1)(2) (1) Through September 30, 2020 (2) Assumes 6% all-in cost for traditional overnight equity offering

 

LMM investment strategy differentiates MAIN from its competitors and provides attractive risk-adjusted returns Investment Objectives •High cash yield from secured debt investments (10.8% weighted-average cash coupon as of September 30, 2020); plus •Dividend income and periodic capital gains from equity investments Investments are structured for (i) protection of capital, (ii) high recurring income and (iii) meaningful capital gain opportunity Focus on self-sponsored, “one stop” financing opportunities •Partner with business owners and entrepreneurs •Recapitalization, buyout, growth and acquisition capital •Extensive network of grass roots referral sources •Strong and growing “Main Street” brand recognition / reputation Provide customized financing solutions Investments have low correlation to the broader debt and equity markets and attractive risk-adjusted returns

 

MAIN targets LMM investments in established, profitable companies Characteristics of LMM provide beneficial risk-reward investment opportunities Large and critical portion of U.S. economy •175,000+ domestic LMM businesses(1) LMM is under-served from a capital perspective and less competitive Inefficient asset class generates pricing inefficiencies •Typical entry enterprise values between 4.5X – 6.5X EBITDA •Typical entry leverage multiples between 2.0X – 4.0X EBITDA to MAIN debt investment Partner relationship with the management teams of our portfolio companies vs a “commoditized vendor of capital” (1) Source: U.S. Census 2012 – U.S. Data Table by Enterprise Receipt Size; 2012 County Business Patterns and 2012 Economic Census; includes Number of Firms with Enterprise Receipt Size between $10,000,000 and $99,999,999

 

Private Loan portfolio investments are primarily debt investments 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” Investment Objectives •Access proprietary investments with attractive risk-adjusted return characteristics •Generate cash yield to support MAIN monthly dividend Investment Characteristics •Investments in companies that are consistent with the size of companies in our LMM and Middle Market portfolios •Proprietary investments originated through strategic relationships with other investment funds on a collaborative basis •Current Private Loan portfolio companies have weighted-average EBITDA of approximately $54.2 million(1) Investments in secured debt investments •First lien, senior secured debt investments •Floating rate debt investments 8% – 12% targeted gross yields •Weighted-average effective yield(2) of 8.6%(3) •Net returns positively impacted by lower overhead requirements and modest use of leverage •Floating rate debt investments provide matching with MAIN’s floating rate credit facility (1) This calculation excludes four Private Loan portfolio companies as EBITDA is not a meaningful metric for these portfolio companies (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) Weighted-average effective yield is calculated using the applicable floating interest rate as of September 30, 2020

 

Middle Market Debt Investment Strategy MAIN maintains a portfolio of debt investments in Middle Market companies Investment Objective •Generate cash yield to support MAIN monthly dividend Investments in secured and/or rated debt investments •First lien, senior secured debt investments •Floating rate debt investments Larger companies than the LMM investment strategy •Current Middle Market portfolio companies have weighted-average EBITDA of approximately $110.5 million(1) Large and critical portion of U.S. economy •Nearly 200,000 domestic Middle Market businesses(2) More relative liquidity than LMM investments 6% – 10% targeted gross yields •Weighted-average effective yield(3) of 7.9%(4) •Net returns positively impacted by lower overhead requirements and modest use of leverage •Floating rate debt investments provide matching with MAIN’s floating rate credit facility (1) This calculation excludes one Middle Market portfolio company as EBITDA is not a meaningful metric for this portfolio company (2) Source: National Center for The Middle Market; includes number of U.S. domestic businesses with revenues between $10 million and $1 billion (3) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (4) Weighted-average effective yield is calculated using the applicable floating interest rate as of September 30, 2020

 

Asset Management Business MAIN’s asset management business represents additional income diversification and the opportunity for greater shareholder returns MAIN’s internally managed operating structure provides MAIN’s shareholders the benefits of this asset management business In May 2012, MAIN(1) entered into an investment sub-advisory agreement with the investment adviser to MSC Income Fund, Inc. (“MSIF”)(2), a non-listed BDC •MAIN(1) provided asset management services, including sourcing, diligence and post-investment monitoring •MAIN(1) historically received 50% of the total management fees and incentive fees paid by MSIF – Base management fee of 2% of total assets – Inventive fees – 20% of net investment income above a hurdle rate and 20% of net realized capital gains In October 2020, MAIN(1) closed an agreement with the former investment adviser to MSIF to become the sole investment adviser to and administrator of MSIF •The fund changed its name to MSC Income Fund, Inc. •MAIN(1) will receive 100% of the management fees and incentive fees – Base management fee reduced from 2.0% to 1.75% of total assets – No change to incentive fee calculation Benefits to MAIN •No significant increases to MAIN’s operating costs to provide services (utilize existing infrastructure and leverage fixed costs and existing investment capabilities) •Monetizing the value of MAIN franchise •Significant positive impact on MAIN’s financial results – $2.2 million contribution to net investment income in the third quarter of 2020(2) – $6.7 million contribution to net investment income in the nine months ended September 30, 2020(2) – $11.7 million contribution to net investment income for the year ended December 31, 2019(2) – $71.1 million of cumulative unrealized appreciation as of September 30, 2020 (1) Through MAIN’s wholly owned unconsolidated subsidiary, MSC Adviser I, LLC (2) Formerly known as HMS Income Fund, Inc. prior to name change effective October 30, 2020 (3) Contribution to Net Investment Income includes (a) dividend income received by MAIN from MSC Adviser I, LLC and (b) operating expenses allocated from MAIN to MSC Adviser I, LLC

 

Diversity provides structural protection to investment portfolio, revenue sources, income, and cash flows Includes complementary LMM debt and equity investments, Private Loan debt investments and Middle Market debt investments Total investment portfolio at fair value consists of approximately 47% LMM / 29% Private Loan / 17% Middle Market / 7% Other(1) Portfolio investments 180 LMM, Private Loan and Middle Market portfolio companies •Average investment size of $13.3 million(2) •Largest individual portfolio company represents 2.9%(3) of total investment income and 2.8% of total portfolio fair value (most investments are less than 1%) •Twelve non-accrual investments, which represent 2.6% of the total investment portfolio at fair value and 7.1% at cost. •Weighted-average effective yield(4) of 9.5% Significant diversification •Issuer •Industry •Transaction type •Geography •End markets •Vintage (1) Other includes MSC Adviser I, LLC, MAIN’s External Investment Manager (2) As of September 30, 2020; based on cost (3) Based upon total investment income for the trailing twelve month period ended September 30, 2020 (4) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status

 

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Machinery, 7%Construction & Engineering, 6% Aerospace & Defense, 6%Health Care Providers & Services, 5% Internet Software & Services, 5%Commercial Services & Supplies, 5% Professional Services, 5%Energy Equipment & Services, 5% Media, 4%IT Services, 4% Leisure Equipment & Products, 4%Hotels, Restaurants & Leisure, 4% Diversified Telecommunication Services, 4%Software, 3% Electronic Equipment, Instruments & Components, 3%Communications Equipment, 3% Oil, Gas & Consumable Fuels, 3%Specialty Retail, 3% Food Products, 3%Distributors, 2% Diversified Financial Services, 2%Containers & Packaging, 2% Computers & Peripherals, 1%Trading Companies & Distributors, 1% Diversified Consumer Services, 1%Transportation Infrastructure, 1% Food & Staples Retailing, 1%Other, 7% (1) Excluding MAIN’s Other Portfolio investments and the External Investment Manager, as described in MAIN’s public filings, which represent approximately 5% of the total portfolio

 

Invested Capital by Transaction TypeInvested Capital by Geography (2) LBO/MBO 39% 21%20% 19% 12% 45% 26%14% 4% Acquisition Growth Capital Recapitalization/ Refinancing (1) Excluding MAIN’s Other Portfolio investments and the External Investment Manager, as described in MAIN’s public filings, which represent approximately 5% of the total portfolio (2) Based upon portfolio company headquarters and excluding any MAIN investments headquartered outside the U.S., which represent approximately 2% of the total portfolio

 

LMM Investment Portfolio consists of a diversified mix of secured debt and lower cost basis equity investments 70 portfolio companies / $1,228.1 million in fair value •47% of total investment portfolio at fair value Debt yielding 11.6%(1) (66% of LMM portfolio at cost) •97% of debt investments have first lien position •66% of debt investments earn fixed-rate interest •Approximately 790 basis point net cash interest margin vs “matched” fixed interest rate on SBIC debentures Equity in 99% of LMM portfolio companies representing 41% average ownership position (34% of LMM portfolio at cost) •Opportunity for fair value appreciation, capital gains and cash dividend income •61% of LMM companies(2) with direct equity investment are currently paying dividends •Fair value appreciation of equity investments supports Net Asset Value per share growth •Lower entry multiple valuations, lower cost basis •$164.5 million, or $2.49 per share, of cumulative pre-tax net unrealized appreciation at September 30, 2020 (1) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (2) Includes the LMM companies which (a) MAIN is invested in direct equity and (b) are treated as flow-through entities for tax purposes; based upon dividend income for the trailing twelve month period ended September 30, 2020

 

LMM Investment Portfolio is a pool of high quality, seasoned assets with attractive risk-adjusted return characteristics Median LMM portfolio credit statistics: •Senior leverage of 2.7x EBITDA through MAIN debt position •2.7x EBITDA to senior interest coverage •Total leverage of 2.8x EBITDA including debt junior in priority to MAIN •Free cash flow de-leveraging improves credit metrics and increases equity appreciation Average investment size of $17.5 million at fair value or $15.2 million on a cost basis (less than 1% of total investment portfolio) Opportunistic, selective posture toward new investment activity over the economic cycle High quality, seasoned LMM portfolio •Total LMM portfolio investments at fair value equals 115% of cost •Equity component of LMM portfolio at fair value equals 159% of cost •Significant portion of LMM portfolio has de-leveraged and a majority of the LMM portfolio investments have experienced equity appreciation

 

Private Loan Investment Portfolio provides a diversified mix of investments and sources of income to complement the LMM Investment Portfolio 68 investments / $743.7 million in fair value •29% of total investment portfolio at fair value Average investment size of $12.1 million(1) (less than 1% of total portfolio) Investments in secured debt instruments • 93% of Private Loan portfolio is secured debt • 96% of Private Loan debt portfolio is first lien term debt Debt yielding 8.6%(2) • 91% of Private Loan debt investments bear interest at floating rates(3), providing matching with MAIN’s floating rate credit facility • Greater than 550 basis point net cash interest margin vs “matched” floating rate on the MAIN credit facility (1) As of September 30, 2020; based on cost (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) 89% of floating interest rates on Private Loan debt investments are subject to contractual minimum “floor” rates

 

Middle Market Investment Portfolio provides a diversified mix of investments and diverse sources of income to complement the LMM Investment Portfolio and a potential source of liquidity for MAIN’s future investment activities 42 investments / $441.3 million in fair value •17% of total investment portfolio at fair value Average investment size of $12.3 million(1) (less than 1% of total portfolio) Investments in secured and/or rated debt investments • 94% of Middle Market portfolio is secured debt • 92% of Middle Market debt portfolio is first lien term debt Debt yielding 7.9%(2) • 94% of Middle Market debt investments bear interest at floating rates(3), providing matching with MAIN’s floating rate credit facility • Greater than 500 basis point net cash interest margin vs “matched” floating rate on the MAIN credit facility More investment liquidity compared to LMM (1) As of September 30, 2020; based on cost (2) Weighted-average effective yield includes amortization of deferred debt origination fees and accretion of original issue discount, but excludes fees payable upon repayment of the debt instruments and any debt investments on non-accrual status (3) 74% of floating interest rates on Middle Market debt investments are subject to contractual minimum “floor” rates

 

Distributable net investment income is net investment income, as determined in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, excluding the impact of share-based compensation expense which is non-cash in nature. MAIN believes presenting distributable net investment income and the related per share amount is useful and appropriate supplemental disclosure of information for analyzing its 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 for 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 MAIN’s financial performance. Net Debt to NAV Ratio is calculated as the Debt to NAV Ratio as determined in accordance with U.S. GAAP, except that total debt is reduced by cash and cash equivalents. Main Street believes presenting the Net Debt to NAV Ratio is useful and appropriate supplemental disclosure for analyzing its financial position and leverage. However, the Net Debt to NAV Ratio is a non-U.S. GAAP measure and should not be considered as a replacement for the Debt to NAV Ratio and other financial measures presented in accordance with U.S. GAAP. Instead, the Net Debt to NAV Ratio should be reviewed only in connection with such U.S. GAAP measures in analyzing Main Street's financial position.

 

Appendix

 

 

 

Q3 20 vs. Q3 19 ($ in 000's) Q3 19 Q4 19 Q1 20(1) Q2 20 Q3 20 % Change(2) Total Investment Income $ 60,068 $ 60,649 $ 56,150 $ 52,007 $ 51,954 (14)% Expenses: Interest Expense (12,893) (13,122) (12,441) (11,898) (12,489) 3% G&A Expense (5,591) (5,477) (4,327) (5,998) (6,442) (15)% Distributable Net Investment Income (DNII)(3) 41,584 42,050 39,382 34,111 33,023 (21)% DNII Margin % 69.2% 69.3% 70.1% 65.6% 63.6% Share-based compensation (2,572) (2,803) (2,837) (2,817) (2,561) NM Net Investment Income 39,012 39,247 36,545 31,294 30,462 (22)% Net Realized Loss (5,876) (949) (21,866) (8,584) (13,874) (136)% Net Unrealized Appreciation (Depreciation) (3,246) (23,533) (194,381) 13,164 63,114 2,044% Income Tax Benefit (Provision) 4,012 1,249 8,264 7,495 (1,507) (138%) Net Increase in Net Assets $ 33,902 $ 16,014 $ (171,438) $ 43,369 $ 78,195 131% Net Investment Income Per Share $ 0.62 $ 0.62 $ 0.57 $ 0.48 $ 0.46 (26)% DNII Per Share $ 0.66 $ 0.66 $ 0.61 $ 0.52 $ 0.50 (24)% (1) Excludes the effect of the $0.5 million realized loss recognized in the first quarter of 2020 on the repayment of the SBIC debentures issued prior to the date of the Main Street Capital II, LP acquisition which had previously been accounted for on the fair value method of accounting and the related accounting reversals of prior unrealized depreciation; The net effect of this item has no effect on Net Increase in Net Assets or Distributable Net Investment Income (2) Percent change from prior year is based upon impact (increase/(decrease)) on Net Increase (Decrease) in Net Assets (3) See Non-GAAP Information disclosures included on page 37 of this presentation. NM – Not Measurable / Not Meaningful

 

($ per share) Q3 19 Q4 19 Q1 20(1) Q2 20 Q3 20 Beginning NAV $ 24.17 $ 24.20 $ 23.91 $ 20.73 $ 20.85 Distributable Net Investment Income(4) 0.66 0.66 0.61 0.52 0.50 Share-Based Compensation Expense (0.04) (0.04) (0.04) (0.04) (0.04) Net Realized Loss (0.09) (0.01) (0.34) (0.13) (0.21) Net Unrealized Appreciation (Depreciation) (0.05) (0.37) (3.01) 0.20 0.95 Income Tax Benefit (Provision) 0.06 0.02 0.13 0.11 (0.02) Net Increase (Decrease) in Net Assets 0.54 0.26 (2.65) 0.66 1.18 Regular Monthly Dividends to Shareholders (0.615) (0.615) (0.615) (0.615) (0.615) Supplemental Dividends to Shareholders - (0.24) - - - Accretive Impact of Stock Offerings (2) 0.09 0.28 0.06 0.16 0.06 Other(3) 0.01 0.02 0.02 (0.09) 0.04 Ending NAV $ 24.20 $ 23.91 $ 20.73 $ 20.85 $ 21.52 Weighted Average Shares 63,297,943 63,775,000 64,536,471 65,303,580 66,110,555 Certain fluctuations in per share amounts are due to rounding differences between quarters. (1) Excludes the effect of the $0.5 million realized loss recognized in the first quarter of 2020 on the repayment of the SBIC debentures issued prior to the date of the Main Street Capital II, LP acquisition which had previously been accounted for on the fair value method of accounting and the related accounting reversals of prior unrealized depreciation; The net effect of this item has no effect on Net Increase in Net Assets or Distributable Net Investment Income (2) Includes accretive impact of shares issued through the Dividend Reinvestment Plan (DRIP) and ATM program (3) Includes differences in weighted-average shares utilized for calculating changes in NAV during the period and actual shares outstanding utilized in computing ending NAV and other minor changes (4) See reconciliation of DNII to Net Investment Income and Non-GAAP Information disclosures included on pages 37 and 39 of this presentation

 

 

 

($ in 000's, except per share amounts) Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 LMM Portfolio Investments $ 1,199,633 $ 1,206,865 $ 1,168,150 $ 1,188,006 $ 1,228,060 Middle Market Portfolio Investments 548,710 522,083 418,442 410,501 441,292 Private Loan Investments 627,893 692,117 629,094 653,824 743,684 Other Portfolio Investments 110,632 106,739 95,481 98,142 100,529 External Investment Manager 70,328 74,520 61,580 69,080 71,080 Cash and Cash Equivalents 52,281 55,246 54,188 68,539 27,121 Other Assets 55,901 53,979 48,553 57,703 45,702 Total Assets $ 2,665,378 $ 2,711,549 $ 2,475,488 $ 2,545,795 $ 2,657,468 Credit Facility $ 150,000 $ 300,000 $ 277,000 $ 315,000 $ 253,000 SBIC Debentures(1) 305,768 306,188 299,146 308,814 298,835 Notes Payable(2) 604,215 507,824 507,892 508,074 635,638 Other Liabilities 73,340 61,147 55,279 42,963 46,813 Net Asset Value (NAV) 1,532,055 1,536,390 1,336,170 1,370,944 1,423,182 Total Liabilities and Net Assets $ 2,665,378 $ 2,711,549 $ 2,475,487 $ 2,545,795 $ 2,657,468 Total Portfolio Fair Value as % of Cost 108% 107% 99% 100% 102% Common Stock Price Data: High Close $ 44.34 $ 43.68 $ 45.00 $ 35.82 $ 33.01 Low Close 40.90 41.27 15.74 17.34 28.66 Quarter End Close 43.21 43.11 20.51 31.13 29.57 (1) Includes adjustment to the face value of MSC II SBIC debentures pursuant to the fair value method of accounting elected for such MSC II SBIC borrowings for the periods from Q2 19 to Q1 20; Total par value of MAIN’s SBIC debentures at September 30, 2020 was $304.8 million (2) Includes $450.0 million of 5.20% Notes due May 2024 and $185.0 million of 4.50% Notes due December 2022

 

Please visit our website at www.mainstcapital.com for additional information Board of Directors Valerie L. Banner SVP, Governance & Risk Exterran Corporation Vincent D. Foster Executive Chairman Main Street Capital Corporation Arthur L. French Retired CEO/Executive J. Kevin Griffin SVP, Financial Planning & Analysis Novant Health, Inc. Dwayne L. Hyzak CEO Main Street Capital Corporation John E. Jackson President & CEO Spartan Energy Partners, LP Brian E. Lane CEO & President Comfort Systems USA Kay Matthews Board of Directors SVB Financial Group and Coherent, Inc. Dunia A. Shive Board of Directors Kimberly-Clark Corporation and Trinity Industries, Inc. Board of Directors (cont.) Stephen B. Solcher Executive Advisor BMC Software Executive Officers Dwayne L. Hyzak Chief Executive Officer David L. Magdol President & Chief Investment Officer Vincent D. Foster, Executive Chairman Jesse E. Morris Chief Operating Officer and Executive Vice President Brent D. Smith Chief Financial Officer & Treasurer Jason B. Beauvais SVP, General Counsel, Secretary & Chief Compliance Officer Nicholas T. Meserve Managing Director (MD) Lance A. Parker Vice President & Chief Accounting Officer Research Coverage Mitchel Penn Janney Montgomery Scott (410) 583-5976 Bryce Rowe National Securities Corporation (212) 417-8243 Robert J. Dodd Raymond James (901) 579-4560 Kenneth S. Lee RBC Capital Markets (212) 905-5995 Michael Ramirez Truist Securities (404) 926-5607 Corporate Headquarters 1300 Post Oak Blvd, 8th Floor Houston, TX 77056 Tel: (713) 350-6000 Fax: (713) 350-6042 Independent Registered Public Accounting Firm Grant Thornton, LLP Houston, TX Corporate Counsel Dechert, LLP Washington, D.C. Securities Listing Common Stock – NYSE: MAIN Transfer Agent American Stock Transfer & Trust Co. Tel: (800) 937-5449 www.astfinancial.com Investor Relation Contacts Dwayne L. Hyzak Chief Executive Officer Brent D. Smith Chief Financial Officer Tel: (713) 350-6000 Ken Dennard Zach Vaughan Dennard Lascar Investor Relations Tel: (713) 529-6600 Management Executive Committee Dwayne L. Hyzak, Chief Executive Officer David L. Magdol, President & Chief Investment Officer Vincent D. Foster, Executive Chairman Investment Committee Dwayne L. Hyzak, Chief Executive Officer David L. Magdol, President & Chief Investment Officer Vincent D. Foster, Executive Chairman