Greetings, and welcome to the Main Street Capital Corporation first quarter earnings conference call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan with Dennard Lascar Investor Relations. Thank you, Zach. You may begin.
Thank you, operator, and good morning, everyone. Thank you for joining us for Main Street Capital Corporation's first quarter 2022 earnings conference call. Main Street issued a press release yesterday afternoon that details the company's first quarter financial and operating results. This document is available on the investor relations section of the company's website at mainstcapital.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until May 13th. Information on how to access the replay was included in yesterday's release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the company's homepage.
Please note that information reported on this call speaks only as of today, May 6th, 2022, and therefore you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. These statements are based on management's estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission, which can be found on the company's website or at sec.gov.
Main Street assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss non-GAAP financial measures, including distributable net investment income. Please refer to yesterday's press release for a reconciliation of these measures to the most directly comparable GAAP financial measures. Certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. Now I'll turn the call over to Main Street CEO, Dwayne Hyzak. Dwayne.
Thanks, Zach. Good morning, everyone, and thank you for joining us today. We appreciate you taking the time to join us. We hope that everyone's doing well. Joining me today with prepared comments are David Magdol, our President and Chief Investment Officer, and Jesse Morris, our Chief Financial Officer and Chief Operating Officer. Also participating for the Q&A portion of our call is Nick Meserve, our Managing Director and Head of our Private Credit Investment Group. On today's call, I will provide my usual updates regarding our performance in the quarter, while also providing updates on our asset management activities, our recent declarations of our supplemental dividend in June and monthly dividends for the third quarter, our expectations for dividends going forward, our recent investment activities and current investment pipeline, and several other noteworthy updates.
Following my comments, David and Jesse will provide additional comments regarding our investment strategy, investment portfolio, financial results, capital structure and leverage, the impact of rising interest rates on our future net investment income, and our expectations for the second quarter. After which, we'll be happy to take your questions. We are pleased that Main Street delivered very strong first quarter results with net investment income per share and distributable net investment income, or DNII per share amounts that matched our quarterly record set in the fourth quarter and with a DNII per share that exceeded the monthly dividends paid to our shareholders during the quarter by over 19%.
The continued strong performance of our underlying portfolio companies resulted in additional fair value appreciation of our investments in these companies, and when combined with our continued success in executing new lower middle market and private loan investments, increased the fair value of our total investment portfolio at quarter end to $3.7 billion and resulted in a record net asset value per share of $25.89. These positive results and the continued momentum in each of our core strategies provided us with the confidence to recommend that our board of directors approve another supplemental dividend payable in June 2022, representing our third consecutive quarter with a supplemental dividend.
Our lower middle market and private loan strategies, which we consider to be our primary investment strategies, both delivered positive investment originations in the quarter, resulting in a net increase in lower middle market investments of $57 million and a net increase in private loan investments of $114 million. We continue to believe that the strength of our differentiated investment strategies, including our highly unique lower middle market strategy, combined with our diversified group of portfolio companies and our growing asset management business, will allow us to consistently deliver superior results for our shareholders, and we are very excited about our outlook for the remainder of 2022.
The operating performance across most of our portfolio companies has continued to be strong, and this strong performance, combined with ongoing organic and acquisition growth activities at several of our high-performing portfolio companies, also provides us continued optimism about our ability to generate incremental fair value and net asset value per share increases in the future. We've also continued to make considerable progress in our asset management business. This includes progress at MSC Income Fund, the non-traded BDC we advise through our external investment manager, which maintained a fully invested portfolio at the end of the first quarter. We remain excited about our plans for the fund as we continue to execute on our investment strategies and other strategic initiatives. We are optimistic with our outlook for the future performance of the fund.
At MS Private Loan Fund I, we continue to grow both its capital commitments from investors and its investment portfolio through its co-investment activities with Main Street and MSC Income Fund in our private loan investment strategy. We are excited about the growing benefits we expect to receive from this relationship in 2022. After completing our fundraising activities for the fund, we expect a total portfolio of approximately $200 million when fully invested. The continued growth and favorable performance of both funds provides us confidence that we will receive increased future contributions from our asset management business. The growth of our asset management business has also been significantly beneficial to our ability to execute our private loan strategy, and we expect these benefits to increase in the future.
With our fundraising activities for MS Private Loan Fund now complete, we are excited about moving on to the next stage in the growth of our asset management business. We remain excited about our strategy for growing our asset management business within our internally managed structure and increasing the contributions from this unique benefit to our Main Street stakeholders. Based upon our results for the first quarter and the positive performance of our existing portfolio companies, combined with our favorable outlook in each of our core investment strategies and for our growing asset management business, and the benefits of our, for our efficient operating structure and strong liquidity position.
Earlier this week, our board declared a supplemental dividend of $0.075 per share payable in June, and monthly dividends for the third quarter of 2022 of $0.215 per share payable in each of July, August, and September, representing a 4.9% increase from the third quarter of 2021. The supplemental dividend for June, which is our third consecutive quarter with a supplemental dividend, is due to our favorable performance in the first quarter, which resulted in DNII per share that was $0.13 or over 19% greater than our monthly dividends paid during the quarter. As a reminder, we currently expect to recommend that our board of directors declare future supplemental dividends to the extent DNII significantly exceeds monthly dividends paid in future quarters, consistent with our practice for the last three quarters.
As we previously communicated, as a result of the combination of our favorable outlook for the year and our current expectations for future supplemental dividends, we currently expect a significant increase in total dividends paid to shareholders over the next few quarters when compared to the prior year. Now turning to our current investment pipeline. We are pleased to maintain a number of attractive opportunities in our lower middle market and private loan strategies. As of today, I would characterize our lower middle market investment pipeline as average. We remain excited about the quality of the investment opportunities in our current pipeline and about the prospects for follow-on investments in existing portfolio companies as we and our companies actively look to execute on various growth opportunities.
Based upon the combination of these highly attractive opportunities for follow-on investments in some of our top-performing companies and with some of our best management teams, and our position as the industry-leading partner for lower middle market companies and their management teams, which results from the benefits of our unique combined debt and equity investment offering and our ability to be a long-term to permanent partner for the companies we invest in, we are confident in our expectations for continued attractive new lower middle market originations in 2022. We are also very pleased with the performance of our private credit team over the last few years and the significant growth they have provided for our private loan portfolio and our growing asset management business. As of today, I would characterize our private loan investment pipeline as above average.
With that, I will turn the call over to David.
Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we believe our strong first quarter financial results demonstrate the strength of Main Street's platform, our differentiated investment approach, and our unique operating model. We're excited that our performance during the quarter resulted in a record level of interest income earned, which is a direct result of our strong lower middle market and private loan originations in the fourth quarter. We're also pleased to report that the overall operating performance for the majority of our portfolio companies continued to be strong in the first quarter, resulting in both a significant increase in our NAV per share and attractive dividend income received from our lower middle market portfolio companies during the quarter.
As a result of our strong performance, our first quarter operating results achieved a GAAP return on equity or ROE of 14.2% on an annualized basis for the quarter and 19.9% for the TTM period, which we believe is very attractive. Each quarter, we try to highlight key aspects of our differentiated investment strategy and/or discuss relevant trends in our business that we believe our shareholders would be interested in learning more about. We have generally focused these discussions on our lower middle market strategy, which continues to be the largest and most profitable segment of our investment portfolio. For today's call, we thought it would be useful to spend some time on the second largest segment of our investment focus, which is our private loan portfolio.
This strategy has grown significantly over the last five years and invests primarily in the senior secured debt of private equity-sponsored businesses. Our private loan investments are generally originated either directly by our internal investment professionals or through strategic relationships with other investment funds. Our private loan investments are typically first lien debt investments with attractive yield profiles and favorable terms. As of quarter end, 99% of our private loan secured debt investments are first lien floating rate loans, which have an attractive weighted average yield of 8.2%.
Five years ago, we announced our strategic decision to dedicate significant resources towards growing the middle market segment of our business while de-emphasizing our middle market portfolio, which as a reminder, are typically investments in larger syndicated loans. We set a goal of having our private loan portfolio grow to a greater percentage of our assets than our middle market portfolio, which seemed ambitious at the time, since the middle market portfolio is 1.8 times the size of our private loan portfolio. During this period of repositioning, we are also purposeful in setting a goal to maintain our emphasis on our lower middle market portfolio and growing our lower middle market portfolio to approximately 50% of our total assets at fair value.
From year-end 2016 through the first quarter of this year, we've increased our private loan portfolio from $342 million, or 17% of our total portfolio at fair value, to $1.26 billion and 34% of our total portfolio at fair value. This represents an increase of 268%. Over the same period of time, we reduced our middle market portfolio from $631 million, or 31% of our total portfolio at fair value, to $397 million or 11% of our total portfolio at fair value, which represents a 37% decline. We also doubled our cornerstone lower middle market portfolio from $893 million to $1.8 billion.
Today, the lower middle market portfolio represents close to 50% of our total assets at fair value and more than the private loan and middle market portfolios combined. Our purposeful and intentional strategic shift to grow our private loan portfolio was primarily driven by our belief that an attractive and growing direct lending environment would exist in the future, and that private loan investments provide an attractive risk-adjusted return profile. Today, the weighted average yields in our private loan portfolio is meaningfully higher than in our middle market debt investments. In addition to higher yields, we're confident that the smaller size of our private loans and the negotiated nature of our private loan credit agreements provide better structural protections when compared to larger middle market loans, for which we do not typically have significant input into the underlying credit agreements.
Based on the capabilities and relationships of our Private Credit team, the growth of our Private Loan platform and the velocity of our deal flow, Main Street has also benefited from our ability to share our Private Loan investments with other funds Main Street manages. Through our External Manager, our Private Loan strategy effectively allows Main Street to leverage our investment professionals' time and platform, so Main Street can benefit from the attractive fee-based income we receive from third-party clients, while at the same time providing highly attractive investment opportunities and returns for those clients. Today, we manage portfolios of primarily Private Loans on behalf of third parties, including the MSC Income Fund and our recently closed MS Private Loan Fund I. We look forward to continuing to grow our fee income and opportunities to manage additional third-party clients in the future.
Now turning to the overall composition and results from our investment portfolio. The contributions from our lower middle market portfolio continue to be well diversified, with 60% of our lower middle market companies with equity investments having appreciation at quarter end, and with 63% of our lower middle market companies contributing to our dividend income over the last 12 months. Our investment activity in the first quarter included total investments in our lower middle market portfolio of approximately $78 million, which, after aggregate repayments on debt investments and return of invested equity capital, resulted in a net increase in our lower middle market portfolio of approximately $57 million.
During the quarter, we also made approximately $201 million in total private loan portfolio investments, which, after aggregate repayments of debt, result in net increase in our private loan portfolio of approximately $114 million. Finally, we had a net increase in our middle market portfolio of approximately $2 million. As of March 31st, we had investments in 205 portfolio companies spanning across over 50 different industry segments. Our largest portfolio company represented approximately 2% of our total investment portfolio fair value at quarter end and 3% of our total investment income for the last 12 months. Vast majority of our portfolio investments represented less than 1% of our assets and our income.
At quarter end, our lower middle market portfolio included investments in 75 companies representing over $1.8 billion of fair value, which is 19% above our cost basis. As of March 31st, Main Street's private loan portfolio included total investments of approximately $1.3 billion of fair value across 79 unique companies. In our middle market portfolio, we had investments in 36 companies representing approximately $397 million of fair value. The total investment portfolio at fair value at quarter end was approximately 109% of the related cost basis. In summary, Main Street's investment portfolio continues to perform at a high level and deliver on our long-term goals. With that, I will turn the call over to Jesse to cover our financial results, capital structure and liquidity position.
Thank you, David. Now turning to a summary of Main Street's financial results. As Dwayne and David commented, we are very pleased with our operating results for the first quarter. Total investment income increased by $16.6 million or 26% over the same period in 2021 to a total of $79.4 million, driven by increases in interest and fee income, which were partially offset by a decline in dividend income. Interest income for the quarter represents a new quarterly record and is a result of our record investment activity in 2021. Included in the total investment income for the quarter is a reduction of $2.1 million, and the net impact of certain income items considered less consistent or non-recurring when compared to the first quarter of 2021.
These items were also $3.9 million lower than the average of the prior four quarters, which speaks to the overall strength and quality of the earnings in the quarter. Operating expenses, excluding non-cash share-based compensation expense, increased by $3.6 million or 18% over the same period of the prior year, largely driven by increases in interest expense and compensation expense. The increase in interest expense was driven by higher borrowing levels to support the increase in portfolio investments, partially offset by a lower weighted average interest rates on borrowings as compared to a year ago. The increase in compensation expense is primarily due to increased headcount, higher base compensation, and increased incentive accruals. These increases were partially offset by a reduction to compensation expense resulting from changes in the fair value of deferred compensation plan assets and corresponding liabilities.
The ratio of total operating expenses, excluding interest expense as a percentage of average total assets, was 1.5% for the trailing 12 months and 1.1% for the quarter on an annualized basis, which continues to be among the lowest in our industry. As the assets managed by the external investment manager continue to grow, the benefit to our operating results increases. The manager earned $5.7 million of management fee income during the quarter, which represents an increase of $1.8 million from the first quarter of 2021.
The contribution of the manager to our net investment income was $5.1 million during the first quarter, an increase of $1.5 million from the same period of the prior year through the allocation of $2.8 million of operating expenses for services we provided to, and $2.3 million of dividend income received from the External Investment Manager. The External Investment Manager ended the first quarter 2022 with total capital under management of over $1.5 billion. Net investment income increased by $12.5 million or 31%, while distributable net investment income, or DNII, increased by $12.9 million or 31%, both over the same period last year. DNII, which is net investment income excluding the impact of non-cash share-based compensation expense, is a key measure of our performance.
We recorded net unrealized appreciation on the investment portfolio of $17.0 million during the quarter, including net appreciation of $20.7 million in the lower middle market portfolio, $3.2 million in the private loan portfolio, and $1.6 million in the other portfolio. These were partially offset by unrealized depreciation of $7.5 million, the valuation of the external investment manager, $0.6 million in the middle market portfolio, and $0.4 million relating to deferred compensation plan assets, all before accounting for reversals of net realized gains and losses recognized during the quarter. The decrease in the fair value of our external investment manager was driven primarily by a reduction in market multiples for its publicly traded peer set, partially offset by the growth in the external investment manager's revenues due to increased assets under management.
The operating results for the first quarter resulted in an increase in net asset value, or NAV, of $65.2 million and an increase in NAV per share of $0.60 to end the quarter with NAV of $25.89 per share. There's no change in the number of investments on non-accrual status at nine, which comprise 0.6% of the total investment portfolio at fair value and 3.1% on a cost basis. Overall capitalization and liquidity remain very strong, with total liquidity in excess of $535 million as of March 31st. We continue to believe that our conservative leverage profile, strong liquidity, and continued access to capital are significant strengths that have us well positioned for the future.
Earlier this week, our shareholders approved the reduction of our regulatory minimum asset coverage ratio from 200% to 150%, which became effective on May 3rd. As we stated on our last earnings call, the primary goal in obtaining the approval for the reduced minimum asset coverage ratio is to provide us greater operational flexibility during times of significant macroeconomic disruptions. An additional benefit of the reduced coverage ratio is the flexibility it provides us to protect and grow our investment portfolio under certain market conditions, such as periods of robust net originations when we may not be able to raise additional equity capital at a pace which keeps up with our investment activity.
We expect to continue to be prudent in our utilization of leverage and intend to operate with a regulatory asset coverage ratio target range of 240%-210% and a regulatory debt-to-equity ratio target range of 0.7x-0.9x. Coming back to our operating results, DNII per share for the first quarter matched the record established in the fourth quarter of 2021 at $0.77 per share, an increase of $0.15 or 24% from the same period last year. In addition, DNII per share for the quarter exceeded the regular monthly dividends per share paid to our shareholders by $0.13 per share or 19%, the sixth consecutive quarter that DNII per share has exceeded the monthly dividends paid during the quarter.
Including the marked supplemental dividend of $0.075, dividends paid during the quarter were $0.72, an increase of 8.9% over dividends paid during the same period in the prior year. Our board also recently approved a supplemental dividend for the third consecutive quarter of $0.075 payable in June of 2022. One additional item that I wanted to touch on is the impact of rising interest rates. With the additional $500 million in low cost fixed rate notes that we issued in 2021, as of the end of the first quarter, 81% of Main Street's outstanding debt obligations maintain fixed interest rates. This mitigates our exposure to higher interest expense during a rising interest rate environment.
On the other hand, as of the end of the first quarter, approximately 73% of our debt investments bear interest at floating rates, with the majority subject to contractual interest rate floors and with a weighted average floor of approximately 105 basis points. As a result, future increases in interest rates will result in increases to interest income, which will exceed the increases to interest expense. We maintain an interest rate sensitivity table in our quarterly investment presentation, which will be posted on our website today. As an example, an increase in interest rates of 50 basis points from those in effect at quarter end would have a net positive impact to net investment income of approximately $4.9 million or $0.07 per share on an annual basis.
A 100 basis point increase in interest rates from those in effect at quarter end would result in a benefit of approximately $12.5 million or $0.17 per share on an annual basis. It is important to note that the majority of our variable interest rate investments are based on contracts which reset quarterly, whereas our credit facility interest rate resets monthly. As a result, we will have a quarterly lag in the realization of benefits from these rate increases in interest income and net investment income until the third quarter, with a small increase in interest expense in the second quarter. Lastly, rising interest rates in general can have an unfavorable impact to the fair value of our investments.
Finally, as we look forward, given the strength of our underlying portfolio and the investment environment thus far in the first half of 2022 that Dwayne and David mentioned in their remarks, we expect another strong earnings quarter in the second quarter of 2022, with expected DNII per share of at least $0.72 per share or more. With that, I will now turn the call back over to the operator so we can take any questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing your star keys. One moment please while we poll for questions. Thank you. Our first question is from Robert Dodd with Raymond James. Please proceed with your question.
Hi, guys, and congratulations on the quarter. If I may ask , on dividend income from portfolio companies, obviously the asset manager was up year over year. 45, I don't know yet, but it's not that big. It looks like from the lower middle market portfolio companies, the dividend income was down double-digit percentages. That point is still higher than any quarter other than the quarters last year. Is there anything thematic there in terms of is it just because, you know, the quarters of last year were perhaps outsized? Is there any segments, particular industry segments where the dividend income from the lower middle market was down more than others? Any color you can give us there?
Sure, Robert. You know, good morning. Thanks for joining us again.
Good morning.
You know what I would say on the dividend income is it is down, you know, quarter-over-quarter, particularly when you look at, you know, the last couple of quarters which we had highlighted, you know, were quarters of elevated income. I think we always try to, you know, call out items that could be either unusual or non-recurring. I would say that the last couple of quarters we did have, you know, higher amounts of dividend income that fit that category. This quarter, we really don't have any of that, you know, that type of income. It's a much more stable recurring level of dividend income. If you look at the companies that contributed, I'd say that it's no surprise, you know, our best performing companies.
If you look at you know the top 10 companies in the first quarter, it would be very consistent with what you would have seen for the top 10 companies in the fourth quarter of last year as well as the full year. I wouldn't say there's anything there that is you know kind of a trend or anything that's troubling to us. Obviously, we'd like dividend income to be as high as possible, but we still view the level that we achieved in the first quarter to be a healthy level of dividend income. If I was to point at anything, it could be just given the environment we're in, which obviously you know includes a lot of uncertainty.
I do think you're seeing some of our companies, you know, kind of tend to be a little more conservative in the you know, kind of the uncertain backdrop we have, and that could have contributed to the number being down slightly in the first quarter versus the last couple of quarters. Overall, I think we're still very pleased with how the operating companies are performing as a whole and we're, you know, happy with that level of dividend income.
Got it. Thank you. Yeah, and that relates to the next question. I mean, obviously you have great relationships with these lower middle market portfolio companies. I mean, what are you hearing from them now, say, you know, on labor costs, raw materials costs per se? I mean, obviously we all know the macro. You know, has anything changed over the last few months or versus six months ago in terms of what they're telling you about concerns on the macro front, or are they just dealing with it and carrying on?
Sure, Robert, I'll give some comments, then I'll let David add on, to the extent he has some additional comments that he'd add on. But I'd say, you know, just like they have for the last couple of quarters, you know, the portfolio companies, you know, are dealing with challenges across the board on each of the, you know, the items that you touched on, you know, labor, higher cost of material supplies, and then just availability of both of those. It's not just a cost issue, but it's just actually, you know, finding availability of both labor and supplies and materials. That has continued to be a challenge, and, you know, we expect will continue to be a growing challenge going forward.
You know, we're fortunate at least to date, you know, that our companies have been able to navigate that. I think you've always heard us say that we really like our position in the lower middle market, you know, being partners for, you know, individuals that have owned these companies and managed these companies for, you know, for decades, not years. We really think they do a great job of managing, you know, opportunities as well as, you know, challenges. We continue to see them, you know, do a really good job here in the current environment, just like they have for the last, you know, couple of quarters and the last couple of years, going back to the COVID, you know, kind of environment and dealing with those challenges.
I'll let David, you know, add on if he has any additional comments there.
No, I think you covered it, Dwayne. Thanks.
Okay. Well, thank you on that. Last question for me. On the asset management side, I mean, obviously revenue's up another, you know, I think it was the dividend was $2.3 million in the fourth quarter, $2.3 million again, which is, you know, more than double what it was in the first quarter last year. So, you know, significant, and that's not including the OpEx offset. What I won't say expectations but hopes. I mean, it's been a good performer for you. You've now got obviously the MSC Income Fund that contributes to that. You've got the private fund. Any incremental initiatives, that you can talk about on growing that asset management business? Because obviously it's great return to shareholders without having to put, you know, additional, you know, capital at risk.
Sure, Robert. What I would say is obviously for the last year or so, you know, we've been focused on, you know, both the changes we've been implementing at MSC Income Fund after becoming the sole advisor at the end of 2020. Then more recently on raising and growing MS Private Loan Fund I, which as I indicated in my comments, we finalized the fundraising process and have been actively investing in that portfolio. While we don't have an answer for what the next iteration of the asset management business growth initiatives will be, it is something that we have now turned our attention to see what is that next evolution.
Is it another private fund or is it something else, you know, in the asset management business largely focused on our private loan strategy that we can, you know, look to execute on. We're, you know, in the stages of working on that, but it's too early to really announce anything or give you much more color than it's in process and we expect to have, you know, success on something in the next, you know, kind of six to 12 months.
Yeah, I appreciate it. Thank you. Yeah, congrats on the quarter and the outlook for next quarter as well.
Yeah. Thanks a lot, Robert. We appreciate it.
Thank you. Our next question comes from Bryce Rowe with the Hovde Group. Please proceed with your question.
Great. Thank you. Good morning. Let's see, wanted to maybe start as a follow-up to one of Robert's questions there. You know, he asked about the impact of the current environment on the lower middle market portfolio, and some of those borrowers. You know, you all have a diverse portfolio and get looks into larger companies, smaller companies, and that's you know, certainly a bit different and unique for the space. You know, are you seeing any divergence in terms of borrower health, you know, between those lower middle market, and then the larger private loan and middle market companies?
Bryce, I wouldn't say that we've seen a big divergence. I think, you know, similar to the lower middle market, the private loan companies in our portfolio have performed well. You know, I think that, you know, as you said, we are closer to the lower middle market just given our position as a, you know, significant equity owner versus, you know, the primary lending relationship we have in that private loan portfolio. All the feedback we get, both from the companies and the sponsors, and then what we see come through from a quarterly and monthly reporting standpoint on their financials has continued to be positive.
I think, you know, they are similarly dealing with all the challenges that exist in the marketplace, but to date, we haven't seen anything that was, you know, kind of a broad trend across the board. You do, as we always have had in the past, you have certain companies in the portfolio that are performing higher or better than others. That's always been the case, but I'd say those are more company specific issues than anything that's more broad-based from an overall economy or, you know, kind of supply chain inflation, you know, standpoint.
Okay. That's helpful, Dwayne. And then, you know, maybe just around some of the pipeline comments. You know, you described lower middle market as average. Private Loan is above average. You know, on the other side of originations, I guess there's prospects that you'll see slowing repayment activity with higher rates. Just curious if that affects, you know, lower middle market and Private Loan, you know, equally. You know, if that is in fact the case, you know, is there some potential for maybe, you know, stronger net portfolio growth, you know, as repayments possibly slow?
Yeah, Bryce, I would say when you look at the impact of the current rate environment, you know, on repayments, if there's gonna be an impact, I would say it would be on the private loan segment. You know, with that being said, I would say that so far in the quarter, we've had a couple of our investments pay off. So we, you know, we haven't seen, you know, a significant impact on the, you know, repayment expectations purely because of the rate environment. But I do think longer term, as you see rates increase, if there's gonna be a bigger impact, it's most likely on that private loan and middle market, you know, segments for that matter, as opposed to lower middle market.
I'd say that's always been our view that the lower middle market companies are gonna repay us, you know, much more based upon just free cash flow from operations or some type of an exit transaction as opposed to a, you know, more traditional refinancing, where the private loan portfolio would, you know, be more based upon your kind of market activity trends. If they see an opportunity to refinance at a lower rate, you know, you could see that refinancing activity happen more in that portfolio than you would in the lower middle market. But we, you know, haven't seen that impact happen, you know, to date.
As I referenced earlier, did see a couple of our, you know, private loan investments, you know, repay through a refinancing here in the most recent couple of months.
Yeah. Okay. All right, maybe one more from me. You know, on the right side of the balance sheet, you've got a debt maturity, notes maturity coming up here in 2022. You know, just curious how you're thinking about that, you know, especially with higher base rates, and possibly wider spreads in that notes market. Are you comfortable perhaps, you know, taking the outstandings on the credit facility a bit higher or will you kind of approach that in a different way? Thanks.
Sure, Bryce. I think what you said is, you know, the way we're looking at it. As Jesse mentioned in his comments, we were active, you know, in 2021, specifically near the end of 2021. You know, in October, we went out and raised an additional $200 million of IG debt. Obviously, with hindsight, that timing was really good. Probably should've done, you know, should've done more, but, you know, that was kinda all we had capacity for at the time. But that was intentionally done to set us up to make sure we had enough liquidity and kinda flexibility to deal with that, you know, pending maturity as well as, you know, the very significant growing pipeline that we had seen, you know, developing for the fourth quarter.
We feel like we've got our capital structure and balance sheet in good position to deal with that maturity. We also, as you know, have the option to continue to issue equity under the ATM. As we continue to see good portfolio activity, you know, you'll likely see us utilize a combination of the ATM issuance and the revolver, you know, to fund our needs, including, you know, the potential needs in December. Obviously, if there is an opportunity where there's you know, an opportunity in the IG market to take advantage of an issuance, then we'll continue to monitor that. I think that's you know, that's the approach that we're taking when we look at that pending maturity.
Great. Thanks, Dwayne. Thanks for your time this morning.
Thank you. Appreciate it.
Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. Our next question comes from Kenneth Lee with RBC Capital Markets. Please proceed with your question.
Hi, good morning, and thanks for taking my question. Just one on the private loan side. Really appreciate the additional disclosures there. Wonder if you could just give a little bit more color into what's driving the above average pipeline there and how you think about the potential growth there this year? Thanks.
Sure. I don't know if I can point to anything other than, you know, our private credit team, you know, has done a great job the last couple of years of, you know, forming new relationships across the private equity sponsor universe. We're, you know, seeing their efforts, not just here recently, but over the last couple of years, you know, kinda come to fruition with a, you know, number of, you know, really attractive, you know, recurring opportunities from some sponsors. I've got Nick here with me. Nick, if there's anything else that you'd wanna add in terms of that, you know, the pipeline we're seeing.
Yeah. I'd say, you know, our current pipeline is above average. I would say overall, the market does feel softer than last year. Last year was a record-breaking year, you know, across the board, both in private credit and, you know, M&A. I think, you know, looking at 2022, it still feels above average if you look at a long-term cycle. It's definitely a little slower than last year.
Gotcha. Very helpful there. And then in terms of a follow-on question, if I may. You mentioned in the remarks how rising rates could have an impact on valuation on investments. I wonder if you could just further expand upon this. I presume this is specifically within the equity investments, but just wanted to get a little bit more details about that. Thanks.
Sure. I think it's hard to give much detail there, Ken, other than, you know, when Jesse provided that comment, I think what we're communicating is that, you know, all things being equal, you know, a rising rate environment, while it would be good for our income statement, you know, will not be good for our balance sheet, and that's purely, you know, based upon valuation methodologies, which will include, you know, kinda cost of capital, you know, as part of the valuation process. As cost of capital goes up, particularly on the debt side, you know, that net-net will be a negative factor for equity valuations.
If you look at our debt investments, if the marketplace today allows the opportunity to invest in new debt investments that have a higher yield than your existing portfolio, then just on a relative comparable basis, you know, your existing investments, you know, the value of those investments from a, you know, from a valuation process will, you know, be negatively impacted. That's what Jesse was, you know, referring to when we talked about that. Other than kind of those broad-brushed, you know, comments, it, you know, remains to be seen what the long-term impact is.
If you look at, you know, kind of the rising rate environment and inflation as a whole, you know, if those issues continue to persist and get worse, then, you know, it's expected that's not a good thing for the economy, which again, long term is not a good thing for equity valuation. At a macro level, that's what, you know, that's what Jesse was referring to in his comments.
Gotcha. Very helpful. Thanks again.
Thank you, Ken. We appreciate it.
Thank you. There are no further questions at this time. This now concludes our question and answer session. I'd like to turn the floor back over to management for any closing comments.
Thank you again to everyone for joining us this morning. We appreciate your interest in Main Street, and we'll look forward to talking to you again in early August.
Ladies and gentlemen, thank you for your participation. This does conclude today's conference. You may now disconnect your lines and have a wonderful day.