The BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to our Chief Executive Officer, Tanner Powell.
Thank you, Elizabeth. Good morning, everyone, and thank you for joining us today. I will begin today's call by highlighting our results for the quarter and will then provide thoughts on the current environment. Following my remarks, Ted will review our investment activity and provide an update on credit quality. Lastly, Greg will review our financial results in detail. We will then open the call to questions. Beginning with our financial results, after market close yesterday, we reported a strong March quarter with net investment income per share of $0.45, well above the current $0.38 dividend. Benefiting from the positive impact of higher base rates, strong fee and prepayment income, as well as our new fee structure, which became effective during the quarter. As a reminder, fee and prepayment income can fluctuate quarter to quarter.
At the end of March, net asset value per share was $15.18, an increase of $0.08 or 0.5% from the end of December, primarily due to net investment income in excess of the dividend, as well as a slight net unrealized gain on the portfolio. Regarding investment activity, new corporate lending commitments made during the quarter totaled $110 million, all first lien floating rate and across 15 distinct borrowers as we continue to emphasize portfolio diversification. As discussed on last quarter's call, Merx executed a significant transaction during the March quarter by selling its interest in a joint venture which allowed Merx to repay $65 million during the quarter. At the end of March, our investment in Merx totaled $197 million, representing 8.3% of the total portfolio fair value.
We remain focused on reducing our investment in Merx, and while we don't expect pay downs to occur evenly, we do expect to see some additional pay downs in the remainder of 2023 subject to market conditions. Shifting to our perspective on the current environment, the quarter began with a more constructive tone compared to a challenging market in 2022. However, in March, market sentiment shifted as regional banking challenges and renewed fears of a recession contributed to more uncertain financial markets. Even prior to recent issues, we were seeing a more favorable environment for direct lenders with new transactions pricing with wider spreads, lower leverage, and better terms. M&A activity in the middle market has declined as the landscape evolves.
We believe recent events may cause banks to pull back from lending, which in turn should accelerate the ongoing shift to non-bank lenders in tighter financial conditions. Let me take a moment to compare today's investment opportunities versus a year ago. A typical investment today prices around SOFR 650-700 basis points with an issue discount of 3 points. A year ago, a typical deal would price at SOFR plus 575-600 basis points with an issuance discount of 2 points. In addition to an increase in spreads and OID, base rates have increased significantly. 3-month SOFR was 4.9% at the end of March, compared to 0.7% a year ago, an increase of over 400 basis points.
Taken together, this translates into unlevered asset yields of around 12.5% today compared to 7.5% a year ago. Moving to the dividend, our board of directors declared a dividend of $0.38 per share to shareholders of record as of June 13, 2023, payable on June 29, 2023. A $0.38 dividend represents an annualized dividend yield of 10% on NAV as of March 31. At current base rates, we are well positioned to generate net investment income in excess of this dividend level. The forward rate curve has moved materially lower over the last month or so. We expect net investment income will continue to exceed the current dividend based on the current forward curve for the foreseeable future. With that, I will turn the call over to Ted.
Thank you, Tanner. Good morning, everyone. Beginning with the portfolio, we believe the quality of our corporate lending portfolio continues to improve, which should allow us to mitigate some of the risks that could arise in a slower economy. We saw improvements on several important metrics during the period. Our average position size decreased, enhancing the diversification of the portfolio. The net leverage of our underlying borrowers decreased, and the weighted average attachment point declined. Notably, we realized all of these improvements while also slightly increasing the spread on the portfolio. At the end of March, our investment portfolio had a fair value of $2.39 billion invested in 141 companies across 25 different industries. Corporate lending and other represented 92% of the total portfolio, and Merx represented 8% of the portfolio at fair value.
At the end of March, 94% of our corporate lending portfolio was first lien. The average funded corporate loan position was $16.2 million, down from $16.5 million last quarter. The overall weighted average portfolio net leverage declined slightly to 5.45x, down from 5.49x last quarter. The overall weighted average attachment point declined to 0.1x, down from 0.2x last quarter, demonstrating the true first lien nature of our loan book. The weighted average spread across the corporate lending portfolio was 613 basis points, up from 610 basis points last quarter. Despite a slowdown in new issue activity, MidCap Financial was active during the March quarter, closing approximately $3.5 billion in new commitments and $15.6 billion over the last 12 months.
In the March quarter, MFIC's new corporate lending commitments totaled $110 million, all first lien, across 15 different borrowers for an average new commitment of $7.4 million as we continue to focus on diversification by borrower. As mentioned, all new commitments were first lien floating rate loans with a weighted average spread of 665 basis points or 675 basis points excluding revolver commitments. The weighted average net leverage of new commitments made during the quarter was 4.2x, down from 4.8x last quarter. Growth fundings, excluding revolvers for the corporate lending portfolio totaled $106 million. Sales and repayments totaled $54 million, and net revolver paydowns totaled $7 million, resulting in net fundings of $44 million. In addition, as Tanner mentioned, we received a $65 million paydown from Merx.
In aggregate, MFIC had net repayments for the quarter totaling $20 million. Despite the more challenging macroeconomic environment, our borrowers have proven to be relatively resilient and continue to demonstrate solid fundamental performance. We continue to see positive operating trends among the vast majority of our corporate lending portfolios, which have largely been able to pass along cost increases, thereby limiting the impact on margins. Portfolio company revenue and EBITDA continue to trend positively, which supports the company's ability to service debt. Amendment activity continues to be quite low, although it picked up modestly since the prior quarter. The amendments were normal course in nature. As you know, amendments generally provide additional fee income, incremental spread, tighter terms, and sponsor equity infusions. Importantly, MFIC benefits from MidCap Financial's large, dedicated portfolio management team of nearly 60 investment professionals, which helps identify and address issues early to maximize value.
Moving to interest coverage, the weighted average interest coverage ratio was 2.3x , down from 2.5x last quarter. These weighted average interest coverage ratios are based on company data for the last 12 months through December. If we utilize December 31st base rates and LTM earnings, you would see interest coverage decline to 1.7x . Given the significant increase in base rates, we're focused on current and future interest coverage and fixed charge coverage ratios across the portfolio as a component of an active risk management process. No investments were placed on non-accrual status during the quarter. At the end of March, investments on non-accrual status totaled $8.7 million or 0.4% of the total portfolio at fair value.
As we discussed many times in the past, starting in 2016, we've shifted the BDC's portfolio into first lien corporate loans, primarily sourced by MidCap Financial, one of the world's leading middle market lenders with a proven track record. MidCap Financial is one of the largest direct lending teams in the United States, with close to 200 investment professionals. In mid 2016, concurrent with the receipt of our co-investment order, MFIC shifted its strategic focus to leverage Apollo Global's relationship with MidCap Financial. Based on data since mid 2016, which is the approximate date upon which we began utilizing our co-investment order, our annualized net realized and unrealized loss rate remains around 2 basis points on loans sourced by MidCap Financial. We think this performance data shows how well the strategy has performed.
With that, I will now turn the call over to Greg to discuss our financial results in detail.
Thank you, Ted, good morning. Beginning with our financial results, net investment income per share for the March quarter was $0.45. Net investment income benefited from higher base rates on our floating rate assets, strong fee and prepayment income, and our new fee structure. Prepayment income was $2.6 million, essentially flat quarter-over-quarter. Fee income was approximately $2.2 million compared to $700,000 last quarter, driven by a slight pickup in amendment activity. There was a nominal amount of dividend income earned during the quarter. Payment in kind or PIC income remains very low, representing less than 1.2% of our total income for the quarter. All else equal, the new fee structure increased NII per share by approximately $0.065 for the quarter.
The yield at cost of our corporate lending portfolio was 11.3% on average for the quarter, compared to 10.3% last quarter, driven by higher base rates. This yield figure is an average of the beginning and end of the quarter. As of the end of March, the yield on the corporate lending portfolio at cost was 11.5%, up from 11% at the end of December. NAV per share at the end of March was $15.18, an increase of $0.08 or 0.5% quarter-over-quarter. The increase was driven by $0.07 of net investment income of $0.45 relative to the $0.38 distribution recorded during the quarter. There was also a $0.01 per share increase due to net unrealized gains on the portfolio.
Additional details on net gains and losses are shown on page 16 in the earnings supplement. Total expenses for the quarter were $38.3 million, up from $35.3 million last quarter, primarily due to higher interest expense and higher incentive fees, partially offset by lower management fees. Gross management fees totaled $4.3 million compared to $8.8 million last quarter, a decrease of four and a half million or approximately 50%. As a reminder, MFIC's base management fee was reduced to 1.75 on equity beginning January 1, 2023. Among listed BDCs, MFIC's management fee is now the lowest, and we are the only one to charge the management fee on equity, which we believe provides greater alignment and focus on net asset value.
Gross incentive fees totaled $6.2 million, an increase of approximately $6 million from last quarter. Recall MFIC's incentive fees on income includes a total return hurdle with a rolling 12-quarter look-back. The total return fee nets losses, unrealized or realized, against pre-incentive net investment income over a trailing 12-quarter period. For March 2023, the look-back period used to calculate the incentive fee was the 12-quarter period between June 2020 and March 2023. The net loss recorded during the March 2020 quarter, which reflected the initial impact of the pandemic, fell out of the look-back period. As a result, the incentive fee cap resulted in a full 17.5% incentive fee for the March quarter. While this can create some volatility within our incentive fee, we believe this provides strong alignment of interest with our stakeholders.
Recall the incentive fee rate on income was permanently reduced from 20% to 17.5% beginning this quarter. Moving on, from a balance sheet perspective, our net leverage ratio stood at 1.4x at the end of March. As previously disclosed in April, we were pleased to extend the maturity of our senior secured revolving credit facility by over two years to April 2028. We greatly appreciate the support from our lending partners. The primary benchmark rate was changed from LIBOR to SOFR. The spread under the facility was reduced from 2% to 1.975%. The remaining material terms of the facility were unchanged. Our investment portfolio continues to transition from LIBOR to SOFR, and at the end of March, 65% of our corporate lending portfolio utilized SOFR.
Shifting gears a bit, in light of the recent banking crisis, we wanted to make a few comments about MFIC's exposure, or lack thereof, to the regional banks that have failed. MFIC did not hold any cash deposits or securities at the failed banks and did not have any creditor or debtor exposure to the failed banks. We also reviewed the exposure at our portfolio companies. Only a few of our portfolio companies had cash balances at the failed banks, and those were generally held in security accounts in the bank's broker-dealer. That said, all depositors at the banks are being made whole. We continue to believe there is a disconnect between how our stock currently trades, considering the repositioning of the portfolio into mostly first lien corporate loans sourced by MidCap Financial, which has a long and outstanding track record.
We believe MFIC presents an attractive investment opportunity. This concludes our remarks. We'd like to open it up to questions.
At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch tone phone. If at any time you'd like to remove yourself from the questioning queue, please press star two. Again, to ask a question, please press star one. We'll take our first question from Mark Hughes from Truist Securities.
Yeah, thank you. Good morning. You mentioned how the revenue and EBITDA growth within the portfolio was sustained through Q1. I wonder if you saw any kind of deceleration there and if that leads you to any conclusions about how the economy is performing here recently, particularly around the bank crisis. Just any thoughts on that topic would be great.
Yeah, sure. you know, we did see a slight deceleration, you know, relative to the last few quarters. Revenue growth was in the double digits, although just barely. EBITDA growth was in the single digits, high single digits. You know, what we do continue to see is that, you know, there are margins are not growing as fast as revenue. you know, and as we look out across the spectrum and we think about the impact of what the banking crisis would be, you know, I think, you know, it's kind of a double-edged sword. You've got on one hand, from an economic standpoint, you're going to have continued pressure on, you know, consumers, on small businesses and their ability to obtain credit and continue to spend.
You know, on the other side of the coin, you have private lenders like ourselves who will be able to, you know, take advantage of opportunities that pop up and, you know, continue to drive, you know, good pricing, and importantly, you know, good terms in terms of covenants and low advance rates in terms of leverage.
Just to add to that, you know, that data is mostly as of December, it's not consistent, you know, across the portfolio who actually reports monthly. When we've looked at those numbers and rolled forward since December, that'd be a continuation of the trend of a slight moderation but still healthy overall fundamentals.
Understood. With the economy perhaps absorbing the banking crisis, are you seeing any kind of early signs of a bit of a recovery? You said the first quarter started to show signs of life and then, slowed down as the news emerged. Are you seeing any inflection here recently?
I wouldn't say we're seeing any inflection. Obviously, you know, the quarter started off with a kind of more benign, more constructive environment. You know, we had the events with the regional banking issues emerge. I think the way we look at it, Mark, is certainly as we look forward, I think the volatility of outcomes has probably been enhanced from here. We are experiencing a market that was arguably very compelling from a private debt standpoint, even prior to the regional banking stress. We think over the longer term, are encouraged by the opportunities that that could help, you know, the nice secular trends that are benefiting private credit.
Are absolutely taking into account that increased potential for volatility of outcomes given, you know, the regional banking stress.
Yeah. Just to add on how we approach that from an underwriting perspective. You know, we have always done stressed underwriting. We run stress cases about how, you know, rates or, you know, costs or, you know, other parts of the economy could adversely impact the companies. You know, we do not underwrite to up into the right hockey sticks in terms of our approach to credit. While we do hope that there will be some rebound, you know, from an underwriting standpoint, it's kind of hope for the best, but we always plan for the worst and are very, you know, diligent in those stressed underwriting approaches.
Appreciate that. Thank you.
Our next question comes from Kenneth Lee from RBC Capital Markets.
Hi, good morning. Thanks for taking my question. Just one on Merx. I think in the prepared remarks you mentioned that you could expect some payments this year. Just want to see if you could just further expand upon that, some details on that. Thanks.
Yeah. Thanks, Ken. you know, as we mentioned in prepared remarks, we are very pleased to report as we did last quarter, you know, significant pay down to take us down to roughly 8%. I think the, you know, the emphasis from here is we have assets, you know, in all stages of the disposition process that will be, you know, market contingent and obviously also depending on the underlying financing arrangements. From here, while, you know, payments and repayments and reducing the exposure of MFIC's investment in Merx will continue. It won't be linear, and it will be dictated by those dynamics.
You know, from an industry perspective, we do remain encouraged by, you know, the fundamentals within the aviation space and aircraft leasing, in particular in terms of a good supply dynamics with all the canceled orders during COVID, and demand that's approaching 90% of pre-COVID levels, more recently, the opening up of China and better traffic volumes in Asia. While, you know. We believe that those dynamics, you know, should help to help us to reduce that exposure to Merx. The emphasis though, as I started with, is it's not gonna be linear, but as we've mentioned in recent quarters, very focused on doing everything we can to pull the exposure down.
Gotcha. Very helpful there. And then one follow-up, if I may. Wondering if there's any updated thoughts around leverage targets in the near term, just given the current macro backdrop. Thanks.
Yeah. We are not amending our leverage, our leverage guidance. You know, we ended, you know, kind of at the lower end of it. You know, the our approach in this market is obviously balancing our liquidity with what is clearly and likely to continue to be a very good vintage for private credit. I would expect, you know, we're not amending our leverage target. Again, Ken, I would emphasize that, you know, our new fee structure has changed, and we're only charging fees on equity. Increases in leverage do not affect the manager. We're very comfortable with our range.
Again, the where we operate in terms of leverage will be a balance of the very attractive environment and operating within that range.
Gotcha. Very helpful there. Thanks again.
Our next question comes from Kyle Joseph from Jefferies.
Yeah. Hey, good morning, guys. Thanks for taking my questions. Just kind of a follow-up there in terms of the deal environment versus, I think you guys referenced kind of your undervalued stock and how you're thinking about deploying capital into new deals versus buybacks, weighing leverage at the same time.
Yeah. Thanks, Kyle. I mean, I think we're balancing the opportunity and, you know, that we see in the marketplace, you know, versus, you know, keeping our leverage at the lower end of our, you know, target range at this point. I think, you know, we'll continue to evaluate it, and, you know, as we move forward.
Okay. Just a quick modeling question for Greg, probably. You know, in terms of interest dividend and other income, is this kind of the run rate we should expect going forward? Or were there any sort of one-time items in terms of dividend income being low?
Well, no, there aren't any. I mean, I think you can look at our recurring, you know, income, you know, interest income and, you know, pro forma that out. You know, obviously the fee income, and prepayment income does, you know, bounce around quarter to quarter.
Yeah. I would just, you know, and without going into the specifics, Kyle, broadly speaking, dividends, you know, have historically correlated with non-core. Some of our non-core investments in that those have come down. We would expect dividend income to come down. As it relates to our current earnings, we did call this out in our script.
You know, there was, you know, enhanced prepayment income, and that's a line item that, as you know and we know can be volatile, quarter to quarter depending on transaction activity, which is sometimes beyond our control.
Yep. Got it. All makes sense. Thanks. That's it for me.
Our next question comes from Sean-Paul Adams from Raymond James.
Hey, guys. Regarding your interest coverage, the portfolio average kind of sits at 1.7x right now. Some portion of that had to be significantly lower, but your PIC didn't rise. Have you guys had any discussions with sponsors regarding amendments by them or any incremental support from sponsors?
Yeah. I mean, this is Howard. I mean, the-- no, our PIC hasn't risen, nor do we sort of necessarily expect it to rise. I mean, we-- it's generally not sort of part of our, you know, like part of the normal course of things that we, you know, provide. Obviously, if a loan is on non-accrual, it may not be paying, it may be paying. We generally. Like, if something is PICing and it's a first lien loan, it generally will be on non-accrual, right? There hasn't been an uptick in that. Obviously, as Interest Coverage gets tighter, you know, there are more companies that potentially get tighter.
As Ted said, there hasn't really been a kick-up in amendment activities, and there's still EBITDA growth, and there's still sort of coverage. That doesn't mean anecdotally there aren't loans that, you know, we're always talking to because they're underperforming as there were prior to this environment. The answer is, you know, we have very little PIC. We don't expect it to tick up. We hope and expect non-accruals not to tick up that much, and certainly less than sort of our, you know, the market and our competitors because of the, you know, the quality of our portfolio. We're not, we are not, you know, seeing nor expecting, you know, our PIC to pick up, at least with regard to what is in our NII.
Okay. That's very helpful. Thank you.
As a reminder, if you'd like to ask a question, that is star and one. We'll take our next question from Paul Johnson from KBW.
Good morning, guys. Thanks for taking my questions. Just tacking on to Kyle's question a little bit, I'm just trying to get a sense of, obviously, fee income's a little bit higher, it sounds like this quarter, a little bit of prepayment income in there as well. Maybe just balancing that out a little bit with, you know, obviously the expected increase from higher base rates, you know, how do you guys, I guess, really look at this quarter's earnings, you know, run rate level, you know, based on this quarter? I mean, are you looking at this as kind of a pretty secure level of earnings that you think you can kind of generate, you know, into the future as far as, you know, this year is concerned?
you know, are we kind of looking at sort of a peak earnings level, again, based on this Q1? Thanks.
You know, we have guided before that we expect, you know, prepayment and fee income to be around on average $3 million a quarter. It can be more or less based on what Tanner said, it's timing. It isn't a hugely volatile part of our earnings or a high percentage part as opposed to sort of, you know, like, you know, some BDCs take transaction fees on closed deals, you know, as they originate things. We do not do that. Our fee income isn't driven by origination. It's only driven by sort of either, you know, amendments or one-time events or exit fees or things like that. It has been pretty consistent if you look over the last 3 or 4 years, around $12 million-$14 million a year.
You know, putting that aside, you know, you then would expect our if you pull that number out with full fees being paid, which they were this quarter, you would expect our net income to go up marginally because interest rates are going up, and because we are incrementally redeploying capital that's under earning. The answer is, in this interest rate environment and even in a slightly more benign one, we expect to sort of have continued coverage. You know, those fees are. I don't know. They can fluctuate from, you know, I don't know, $0.01-$0.05 a share during a given quarter.
Got it. Thanks. That's very helpful. Last question, just to kind of bigger picture, you know, you talked about it obviously a little bit on the call here. Just the broader corporate lending world. You know, at this point, I'm just trying to get a sense of, I guess, what the sponsor appetite really is, I guess, for deal activity, you know, today. You know, we're talking about EBITDA growth that's, you know, still in place for a lot of these portfolio companies. Obviously the cost of financing is going up as has the, you know, just risk in general. What are sponsors doing at this point? I mean, is it mainly just kind of a sitting tight waiting to see what happens with the economy?
Is there just a, you know, just a very wide disparity between, you know, valuations for between buyers and sellers? Kind of getting a sense of, you know, what the appetite is, I guess, for corporate activity.
Yeah. Thanks, Paul. Yeah, I'll make, I'll make two comments there. First, as it relates to the environment, I think the sponsor community is certainly trying to digest, you know, higher rates and what the impacts are on valuation. We've seen. You know, I think the numbers for Q1 were, you know, M&A down kind of 10% and if you know, compare it to peak, down as much as 30%. I think that bears out, you know, to that point about digesting, you know, different cost of capital.
You know, within that environment, private credit is certainly taking share, and you've seen what is, you know, relatively muted leverage loan market and the size of deal or the quality of deal that's required to access that market, which has increased opportunity for private credit lenders. You know, in terms of our business and more specifically what sponsors are looking at, this goes back to a theme that we've talked about quite a bit in these calls, is the power of incumbency. While, you know, undertaking a new LBL is difficult, you are seeing a lot of activity or sponsor focus on add-ons.
Whether we have delayed draws to these existing companies and/or they're looking for incremental commitments, that's one aspect of the, you know, over 500 borrowers that we have within the MidCap, MFIC system. You know, it enables, you know, a nice sourcing engine in what is, you know, to your, to your point, or to the nature of your question, you know, a more muted environment in terms of M&A and a higher cost of capital and sponsors digesting, you know, different valuation expectations.
Yeah, I appreciate that. That's all the questions for me. Thanks.
Our next question comes from Melissa Wedel from JP Morgan.
Good morning. Thanks for taking my questions today. Wanted to go back to your declared dividend, which you maintained at $0.38 a share. Also keeping in mind your earlier comment about expecting to over earn that amount, for the foreseeable future, just sort of based on the forward rate curve, I believe, and sort of current portfolio positioning. Is that something that we should expect to persist? I guess put differently, would you look to continue to use any out earnings to sort of support NAV through any volatility that we may face going forward?
Well, I, you know, we do not expect to be, you know, pay a tax. We will distribute, you know, special dividends, you know, at least consistent with that, whether that's 90% or 98%. Remain to be seen. I think it's a little bit of both. If we have this level of out earning, you know, consistently, which we as we said, we sort of expect, we would expect that there will be special dividends, but they will. You know, that we don't necessarily expect they'll be quarterly. We will use some to support NAV, but at this level, we would expect to be paying some special dividends as well.
Okay. Thanks for that. In terms of timing, I take your point that won't be a quarterly consideration. Should we expect something around? Is that part of a year-end planning process that you guys would approach that?
Yeah, that makes sense. That, you know, that probably from a timing point of view makes sense. Yeah. Yes.
Thank you.
Our next question comes from Finian O'Shea from Wells Fargo.
Hi, guys. In recent quarters, you've had kind of more of a tilt towards life sciences. This quarter we don't really see much in new origination. Should we be reading anything into that?
No, no. I think we're very lucky to have the various origination channels and what presents itself can modulate. Obviously in life sciences, MidCap has a tremendous franchise there and, you know, quite a bit of opportunity we would expect over the next several years. I wouldn't, I wouldn't take from that anything thematic or, you know, indicative of a trend.
Okay. Thank you.
Yeah. We show no further comments at this time. I will now turn back to management for closing remarks.
Thank you, operator. Thank you everyone for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions, and have a good day.
Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.