MSC Income Fund Inc.
02/27/2026 | Press release | Distributed by Public on 02/27/2026 10:58
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with MSC Income's consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K.
Statements made in the following discussion which express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. The Fund's actual results, performance or achievements, or industry results, could differ materially from those expressed in the following discussion as a result of a variety of factors, including the risks and uncertainties it has referred to under the headings "Cautionary Statement Concerning Forward-Looking Statements" and "Risk Factors" in this report.
INVESTMENT PORTFOLIO SUMMARY
A summary of the Fund's Private Loan and LMM portfolio investments as of December 31, 2025 and 2024 is as follows (this information excludes Middle Market portfolio investments and Other Portfolio investments, which are discussed further below):
|
December 31, 2025
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| Private Loan | LMM (a) | ||||||||||
| (dollars in millions) | |||||||||||
| Number of portfolio companies | 81 | 55 | |||||||||
| Fair value | $ | 809.0 | $ | 487.6 | |||||||
| Cost | $ | 821.7 | $ | 384.8 | |||||||
| Debt investments as a % of portfolio (at cost) | 92.1 | % | 70.6 | % | |||||||
| Equity investments as a % of portfolio (at cost) | 7.9 | % | 29.4 | % | |||||||
| % of debt investments at cost secured by first priority lien | 99.9 | % | 99.9 | % | |||||||
| Weighted-average annual effective yield (b) | 10.7 | % | 12.4 | % | |||||||
| Average EBITDA (c) | $ | 30.0 | $ | 11.7 | |||||||
(a)As of December 31, 2025, MSC Income had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 8%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments as of December 31, 2025, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt investments and any debt investments on non-accrual status, and are weighted based upon the principal amount of each applicable debt investment as of December 31, 2025. The weighted-average annual effective yield on the Fund's debt portfolio as of December 31, 2025, including debt investments on non-accrual status, was 10.3% for the Private Loan portfolio investments and 11.7% for the LMM portfolio investments. The weighted-average annual effective yield is not reflective of what an investor in shares of MSC Income's common stock will realize on its investment because it does not reflect changes in the market value of MSC Income's stock, MSC Income's utilization of debt capital in its capital structure, MSC Income's expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a weighted-average for Private Loan portfolio companies and a simple average for LMM portfolio companies. These calculations exclude certain portfolio companies, including four Private Loan portfolio companies and three LMM portfolio companies, as EBITDA is not a meaningful valuation metric for the Fund's investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate and those portfolio companies whose primary operations have ceased and only residual value remains.
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| December 31, 2024 | |||||||||||
| Private Loan | LMM (a) | ||||||||||
| (dollars in millions) | |||||||||||
| Number of portfolio companies | 84 | 57 | |||||||||
| Fair value | $ | 677.9 | $ | 436.1 | |||||||
| Cost | $ | 697.5 | $ | 357.1 | |||||||
| Debt investments as a % of portfolio (at cost) | 93.9 | % | 67.8 | % | |||||||
| Equity investments as a % of portfolio (at cost) | 6.1 | % | 32.2 | % | |||||||
| % of debt investments at cost secured by first priority lien | 99.9 | % | 99.9 | % | |||||||
| Weighted-average annual effective yield (b) | 12.0 | % | 13.0 | % | |||||||
| Average EBITDA (c) | $ | 28.6 | $ | 10.8 | |||||||
(a)As of December 31, 2024, MSC Income had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 9%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments as of December 31, 2024, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt investments and any debt investments on non-accrual status, and are weighted based upon the principal amount of each applicable debt investment as of December 31, 2024. The weighted-average annual effective yield on the Fund's debt portfolio as of December 31, 2024, including debt investments on non-accrual status, was 11.4% for the Private Loan portfolio investments and 12.2% for the LMM portfolio investments. The weighted-average annual effective yield is not reflective of what an investor in shares of MSC Income's common stock will realize on its investment because it does not reflect MSC Income's utilization of debt capital in its capital structure, MSC Income's expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a weighted-average for Private Loan portfolio companies and a simple average for LMM portfolio companies. These calculations exclude certain portfolio companies, including two Private Loan portfolio companies and three LMM portfolio companies, as EBITDA is not a meaningful valuation metric for the Fund's investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate and those portfolio companies whose primary operations have ceased and only residual value remains.
For the years ended December 31, 2025 and 2024, MSC Income achieved a total return on investments of 13.9% and 12.4%, respectively. Total return on investments equals the total interest, dividend and fee income plus realized and unrealized changes in the fair value of the Investment Portfolio divided by the average quarterly Investment Portfolio balance at cost, in each case for the specified period. The Fund's total return on investments is not reflective of what an investor in shares of its common stock will realize on its investment because it does not reflect changes in the market value of its stock, utilization of debt capital in its capital structure, expenses or any sales load paid by an investor.
As of December 31, 2025, MSC Income had Middle Market portfolio investments in eight portfolio companies, collectively totaling $23.3 million in fair value and $39.8 million in cost basis, which comprised 1.7% and 3.2% of the Investment Portfolio at fair value and cost, respectively. As of December 31, 2024, MSC Income had Middle Market portfolio investments in ten portfolio companies, collectively totaling $39.4 million in fair value and $66.3 million in cost basis, which comprised 3.3% and 5.8% of the Investment Portfolio at fair value and cost, respectively.
As of December 31, 2025, MSC Income had Other Portfolio investments in six entities, spread across four investment managers, collectively totaling $15.5 million in fair value and $13.7 million in cost basis, which comprised 1.2% and 1.1% of the Investment Portfolio at fair value and cost, respectively. As of December 31, 2024, MSC Income had Other Portfolio investments in six entities, spread across four investment managers, collectively totaling $24.1 million in fair value and $17.9 million in cost basis, which comprised 2.0% and 1.6% of the Investment Portfolio at fair value and cost, respectively.
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CRITICAL ACCOUNTING POLICIES
The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities as of the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. Critical accounting policies are those that require management to make subjective or complex judgments about the effect of matters that are inherently uncertain and may change in subsequent periods. Changes that may be required in the underlying assumptions or estimates in these areas could have a material impact on MSC Income's current and future financial condition and results of operations.
Management has discussed the development and selection of each critical accounting policy and estimate with the Audit Committee of the Board of Directors. MSC Income's critical accounting policies and estimates include the Investment Portfolio Valuation and Revenue Recognition policies described below. MSC Income's significant accounting policies are described in greater detail in Note B - Summary of Significant Accounting Policiesin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K.
Investment Portfolio Valuation
The most significant determination inherent in the preparation of MSC Income's consolidated financial statements is the valuation of the Investment Portfolio and the related amounts of unrealized appreciation and depreciation. The Fund considers this determination to be a critical accounting estimate, given the significant judgments and subjective measurements required. As of December 31, 2025 and 2024, the Fund's Investment Portfolio valued at fair value represented 97% and 96%, respectively, of its total assets. MSC Income is required to report its investments at fair value. The Fund follows the provisions of ASC 820. ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the quality of inputs used to measure fair value and enhances disclosure requirements for fair value measurements. ASC 820 requires the Fund to assume that the portfolio investment is to be sold in the principal market to independent market participants, which may be a hypothetical market. Market participants are defined as buyers and sellers in the principal market that are independent, knowledgeable and willing and able to transact. See Note B.1. - Summary of Significant Accounting Policies - Valuation of the Investment Portfolioin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K for a detailed discussion of the Valuation Procedures.
Due to the inherent uncertainty in the valuation process, MSC Income's determination of fair value for the Investment Portfolio may differ materially from the values that would have been determined had a ready market for the securities existed. In addition, changes in the market environment, portfolio company performance and other events that may occur over the lives of the investments may cause the gains or losses ultimately realized on these investments to be materially different than the valuations currently assigned. MSC Income determines the fair value of each individual investment and records changes in fair value as unrealized appreciation or depreciation.
Rule 2a-5 under the 1940 Act permits a BDC's board of directors to designate its executive officers or investment adviser as a valuation designee to determine the fair value for its investment portfolio, subject to the active oversight of the board. MSC Income's Board of Directors has approved the Valuation Procedures and has designated the Adviser, led by the Valuation Committee, to serve as the Board of Directors' valuation designee. MSC Income believes the Investment Portfolio as of December 31, 2025 and 2024 approximates fair value as of those dates based on the markets in which the Fund operates and other conditions in existence on those reporting dates.
Revenue Recognition
Interest and Dividend Income
MSC Income records interest and dividend income on the accrual basis to the extent amounts are expected to be collected. Dividend income is recorded as dividends are declared by the portfolio company or at the point an obligation exists for the portfolio company to make a distribution. The Fund evaluates accrued interest and dividend income periodically for collectability. When a loan or debt security becomes 90 days or more past due, and if the Fund otherwise does not expect the debtor to be able to service its debt obligation, it will generally place the loan or debt security on non-accrual status and cease recognizing interest income on that loan or debt security until the borrower has demonstrated the ability and intent to pay contractual amounts due. If a loan or debt security's status significantly improves regarding the debtor's ability to service the debt obligation, or if a loan or debt security is sold or written off, the Fund removes it from non-accrual status.
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Fee Income
MSC Income may periodically provide services, including structuring and advisory services, to portfolio companies or other third parties. For services that are separately identifiable and evidence exists to substantiate fair value, fee income is recognized as earned, which is generally when the investment or other applicable transaction closes. Fees received in connection with debt financing transactions for services that do not meet these criteria are treated as debt origination fees and are generally deferred and accreted into income over the life of the financing.
Payment-in-Kind ("PIK") Interest and Cumulative Dividends
MSC Income holds certain debt and preferred equity instruments in its Investment Portfolio that contain PIK interest and cumulative dividend provisions. The PIK interest, computed at the contractual rate specified in each debt agreement, is periodically added to the principal balance of the debt and is recorded as interest income. Thus, the actual collection of this interest may be deferred until the time of debt principal repayment. Cumulative dividends are recorded as dividend income, and any dividends in arrears are added to the balance of the preferred equity investment. The actual collection of these dividends in arrears may be deferred until such time as the preferred equity is redeemed or sold. To maintain RIC tax treatment (see Note B.8. - Summary of Significant Accounting Policies - Income Taxesin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K), these non-cash sources of income may need to be paid out to stockholders in the form of distributions, even though MSC Income may not have collected the PIK interest and cumulative dividends in cash. MSC Income stops accruing PIK interest and cumulative dividends and writes off any accrued and uncollected interest and dividends in arrears when it determines that such PIK interest and dividends in arrears are no longer collectible. For the years ended December 31, 2025, 2024 and 2023 (i) 6.0%, 6.2% and 3.8%, respectively, of MSC Income's total investment income was attributable to PIK interest income not paid currently in cash and (ii) 0.9%, 0.1% and 0.1%, respectively, of MSC Income's total investment income was attributable to cumulative dividend income not paid currently in cash.
INVESTMENT PORTFOLIO COMPOSITION
A summary of the composition of MSC Income's total combined Private Loan, LMM and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined Private Loan, LMM and Middle Market portfolio investments as of December 31, 2025 and 2024 is as follows (this information excludes Other Portfolio investments, which are discussed above):
| Cost: | December 31, 2025 | December 31, 2024 | ||||||||||||
| First lien debt | 85.1 | % | 85.2 | % | ||||||||||
| Equity | 14.7 | 14.5 | ||||||||||||
| Equity warrants | 0.2 | 0.3 | ||||||||||||
| Other | - | - | ||||||||||||
| 100.0 | % | 100.0 | % | |||||||||||
| Fair Value: | December 31, 2025 | December 31, 2024 | ||||||||||||
| First lien debt | 77.1 | % | 77.6 | % | ||||||||||
| Equity | 22.3 | 22.0 | ||||||||||||
| Equity warrants | 0.6 | 0.4 | ||||||||||||
| Other | - | - | ||||||||||||
| 100.0 | % | 100.0 | % | |||||||||||
The Fund's Private Loan, LMM and Middle Market portfolio investments carry a number of risks, including: (1) investing in companies which may have limited operating histories and financial resources; (2) holding investments that generally are not publicly traded and which may be subject to legal and other restrictions on resale; and (3) other risks common to investing in below investment-grade debt and equity investments in the Investment Portfolio. See Item 1A. Risk Factors - Risks Related to MSC Income's Investments for a more complete discussion of the risks included with investing in MSC Income's Investment Portfolio.
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PORTFOLIO ASSET QUALITY
The Adviser utilizes an internally developed investment rating system to rate the performance of each Private Loan, LMM and Middle Market portfolio company and to monitor the expected level of returns on each of the Private Loan, LMM and Middle Market investments in relation to the expectations for the portfolio company. The investment rating system takes into consideration various factors, including, but not limited to, each investment's expected level of returns, the collectability of debt investments and the ability to receive a return of the invested capital in the Fund's equity investments, comparisons to competitors and other industry participants, the portfolio company's future outlook and other factors that are deemed to be significant to the portfolio company.
As of December 31, 2025, investments on non-accrual status comprised 1.4% of MSC Income's total Investment Portfolio at fair value and 4.6% at cost. As of December 31, 2024, investments on non-accrual status comprised 1.5% of MSC Income's total Investment Portfolio at fair value and 5.6% at cost.
The operating results of the Fund's portfolio companies are impacted by changes in the broader fundamentals of the U.S. economy. In periods during which the U.S. economy contracts, it is likely that the financial results of small to mid-sized companies, like those in which the Fund invests, could experience deterioration or limited growth from current levels, which could ultimately lead to difficulty in meeting their debt service requirements, to an increase in defaults on debt investments or in realized losses on investments and to difficulty in maintaining historical dividend payment rates and unrealized appreciation on the Fund's equity investments. Consequently, the Fund can provide no assurance that the performance of certain portfolio companies will not be negatively impacted by future economic cycles or other conditions, which could also have a negative impact on the Fund's future results.
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
Set forth below is a comparison of the results of operations and a reconciliation of net investment income to adjusted net investment income and to adjusted net investment income before taxes, for the years ended December 31, 2025 and 2024. The comparison of, and changes between, the fiscal years ended December 31, 2024 and 2023 can be found in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operationsincluded in the Fund's Annual Report on Form 10-Kfor the fiscal year ended December 31, 2024, which is incorporated herein by reference. All prior period net investment income, net investment income per share, adjusted net investment income and adjusted net investment income per share amounts presented in this section have been retrospectively adjusted to conform to the current presentation. See Note A.4. - Organization and Basis of Presentation - Revisions to the Presentation of Previously Issued Financial Statementsin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K for additional details on these adjustments.
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Comparison of the years ended December 31, 2025 and 2024
|
Year Ended December 31, |
Net Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Total investment income | $ | 139,153 | $ | 134,828 | $ | 4,325 | 3 | % | |||||||||||||||
| Total expenses, net of expense waivers | (73,630) | (77,506) | 3,876 | (5) | % | ||||||||||||||||||
| Net investment income before taxes | 65,523 | 57,322 | 8,201 | 14 | % | ||||||||||||||||||
| Excise tax expense | (510) | (851) | 341 | (40) | % | ||||||||||||||||||
| Federal and state income and other tax expenses | (3,260) | (2,590) | (670) | 26 | % | ||||||||||||||||||
| Net investment income | 61,753 | 53,881 | 7,872 | 15 | % | ||||||||||||||||||
| Net realized gain (loss) | (9,503) | 15,776 | (25,279) | NM | |||||||||||||||||||
| Net unrealized appreciation (depreciation) | 36,428 | (15,439) | 51,867 | NM | |||||||||||||||||||
| Income tax benefit on net realized gain (loss) and net unrealized appreciation (depreciation) | 50 | 2,335 | (2,285) | NM | |||||||||||||||||||
| Net increase in net assets resulting from operations | $ | 88,728 | $ | 56,553 | $ | 32,175 | 57 | % | |||||||||||||||
|
Year Ended December 31, |
Net Change | ||||||||||||||||||||||
| 2025 | 2024 | Amount | % | ||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||
| Net investment income | $ | 61,753 | $ | 53,881 | $ | 7,872 | 15 | % | |||||||||||||||
| Incentive fee on capital gains (a) | 2,763 | - | 2,763 | NM | |||||||||||||||||||
| Adjusted net investment income (b) | $ | 64,516 | $ | 53,881 | $ | 10,635 | 20 | % | |||||||||||||||
| Excise tax expense | 510 | 851 | (341) | (40) | % | ||||||||||||||||||
| Federal and state income and other tax expenses | 3,260 | 2,590 | 670 | 26 | % | ||||||||||||||||||
| Adjusted net investment income before taxes (c) | $ | 68,286 | $ | 57,322 | $ | 10,964 | 19 | % | |||||||||||||||
| Net investment income per share-Basic and diluted | $ | 1.33 | $ | 1.34 | $ | (0.01) | (1) | % | |||||||||||||||
| Adjusted net investment income per share-Basic and diluted (b) | $ | 1.39 | $ | 1.34 | $ | 0.05 | 4 | % | |||||||||||||||
| Adjusted net investment income before taxes per share-Basic and diluted (c) | $ | 1.47 | $ | 1.43 | $ | 0.04 | 3 | % | |||||||||||||||
NM - Net Change % not meaningful
(a)Pursuant to the Advisory Agreement effective upon the MSC Income Listing, the incentive fee on capital gains is determined and payable to the Adviser in arrears, if any, as of the end of each calendar year. This fee equals (a) 17.5% of the Fund's incentive fee capital gain, which is calculated as the Fund's (i) cumulative net realized gains (net of any related net income tax expense), minus (ii) cumulative unrealized depreciation (net of any related income tax benefit, and excluding any unrealized appreciation), minus (b) the aggregate amount of any previously paid capital gains incentive fee, in each case from the MSC Income Listing date through the applicable calendar year ended. In accordance with U.S. GAAP, at the end of each reporting period, the Fund estimates the capital gains incentive fee and accrues the fee based upon a hypothetical liquidation of its investment portfolio at the then current fair value. Therefore, the calculation of the accrual equals (a) the Fund's cumulative change in net fair value, including both (i) the cumulative net realized gain/loss and (ii) the cumulative net unrealized appreciation/depreciation (in both cases, net of any related cumulative net income tax expense or benefit), minus (b) the aggregate amount of any previously paid capital gains incentive fee, in each case from the MSC Income Listing date through the applicable period ended. However, any capital gains incentive fee accrued related to the unrealized appreciation is neither earned nor payable to the Adviser until such time that it is realized, and assuming at the end of a calendar year such incentive fee capital gain exists excluding any cumulative unrealized appreciation (in each case, net of any related net income tax expense or benefits). For the year ended December 31, 2025, the Fund accrued a capital gains incentive fee of $2.8 million. See Note J - Related Party Transactions and Arrangementsin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
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(b)Adjusted net investment income is net investment income as determined in accordance with U.S. GAAP, excluding the impact of the capital gains incentive fee. MSC Income believes presenting adjusted net investment income and the related per share amounts is useful and appropriate supplemental disclosure for analyzing the Fund's financial performance since the calculation of the capital gains incentive fee is based on realized gains and losses and unrealized fair value appreciation and depreciation, none of which are included in net investment income. However, adjusted net investment income is a non-U.S. GAAP measure and should not be considered as a replacement for net investment income or other earnings measures presented in accordance with U.S. GAAP and should be reviewed only in connection with such U.S. GAAP measures in analyzing MSC Income's financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to adjusted net investment income is detailed in the table above.
(c)Adjusted net investment income before taxes is net investment income as determined in accordance with U.S. GAAP, excluding the impact of any tax expenses included in net investment income and the capital gains incentive fee. MSC Income believes presenting adjusted net investment income before taxes and the related per share amounts is useful and appropriate supplemental disclosure for analyzing the Fund's financial performance since (i) the calculation of the capital gains incentive fee is based on realized gains and losses and unrealized fair value appreciation and depreciation, none of which are included in net investment income and (ii) tax expenses included in net investment income may include (a) excise tax expense, which is not solely attributable to net investment income, and (b) deferred taxes, which are not payable in the current period. However, adjusted net investment income before taxes is a non-U.S. GAAP measure and should not be considered as a replacement for net investment income, net investment income before taxes or other earnings measures presented in accordance with U.S. GAAP and should be reviewed only in connection with such U.S. GAAP measures in analyzing MSC Income's financial performance. A reconciliation of net investment income in accordance with U.S. GAAP to adjusted net investment income before taxes is detailed in the table above.
Investment Income
Total investment income for the year ended December 31, 2025 was $139.2 million, a 3% increase from the $134.8 million for the prior year. A summary of the changes in the comparable period activity is as follows:
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Year Ended December 31, |
Net Change | |||||||||||||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Interest income | $ | 115,750 | $ | 117,816 | $ | (2,066) | (2) | % | (a) | |||||||||||||||||
| Dividend income | 19,057 | 11,696 | 7,361 | 63 | % | (b) | ||||||||||||||||||||
| Fee income | 4,346 | 5,316 | (970) | (18) | % | (c) | ||||||||||||||||||||
| Total investment income | $ | 139,153 | $ | 134,828 | $ | 4,325 | 3 | % | (d) | |||||||||||||||||
(a)The decrease in interest income was primarily attributable to (i) a larger negative impact from investments on non-accrual status and (ii) a decrease in interest rates, primarily resulting from decreases in benchmark index interest rates on floating rate debt investments and other decreases in interest rates on existing debt investments, partially offset by higher average levels of income producing Investment Portfolio debt investments.
(b)The increase in dividend income was primarily a result of dividend income increases of (i) $6.7 million from LMM portfolio companies and (ii) $1.2 million from Private Loan portfolio companies, partially offset by a decrease of $0.5 million in dividend income from Other Portfolio investments.
(c)The decrease in fee income was primarily related to a decrease in fee income of $1.6 million from lower exit, prepayment and amendment activity, partially offset by an increase in fee income of $0.6 million in fees related to increased investment activity.
(d)The increase in total investment income is after a net decrease of $0.1 million in certain income considered less consistent or non-recurring, primarily due to a $1.7 million decrease in such fee income, partially offset by increases of (i) $1.1 million in such dividend income and $0.6 million in such interest income from accelerated prepayment, repricing and other activity related to certain Investment Portfolio debt investments.
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Expenses
Total expenses, net of expense waivers, for the year ended December 31, 2025 were $73.6 million, a 5% decrease from $77.5 million in the prior year. A summary of the changes in the comparable period activity is as follows:
|
Year Ended December 31, |
Net Change | |||||||||||||||||||||||||
| 2025 | 2024 | Amount | % | |||||||||||||||||||||||
| (dollars in thousands) | ||||||||||||||||||||||||||
| Interest | $ | 33,927 | $ | 39,035 | $ | (5,108) | (13) | % | (a) | |||||||||||||||||
| Base management fee | 19,757 | 20,922 | (1,165) | (6) | % | (b) | ||||||||||||||||||||
| Incentive fee on income | 12,145 | 12,494 | (349) | (3) | % | |||||||||||||||||||||
| Incentive fee on capital gains | 2,763 | - | 2,763 | NM | (c) | |||||||||||||||||||||
| General and administrative | 4,337 | 4,416 | (79) | (2) | % | |||||||||||||||||||||
|
Internal administrative services expenses
|
701 | 10,089 | (9,388) | (93) | % | (d) | ||||||||||||||||||||
| Total expenses before expense waivers | 73,630 | 86,956 | (13,326) | (15) | % | |||||||||||||||||||||
| Waiver of internal administrative services expenses | - | (9,450) | 9,450 | (100) | % | (d) | ||||||||||||||||||||
| Total expenses, net of expense waivers | $ | 73,630 | $ | 77,506 | $ | (3,876) | (5) | % | ||||||||||||||||||
NM - Net Change % not meaningful
(a)The decrease in interest expense was primarily related to decreased weighted-average interest rates on the Credit Facilities due to (i) decreases in benchmark index interest rates and (ii) decreases to the applicable spreads resulting from amendments of the Credit Facilities, partially offset by an increase in weighted-average outstanding borrowings used to fund a portion of the growth of the Investment Portfolio.
(b)The decrease in base management fees was due to a decrease in the annual base management fee percentage attributable to the amended Advisory Agreement that became effective upon the MSC Income Listing during the first quarter of 2025, partially offset by an increase in the Fund's average total assets.
(c)The capital gains incentive fee accrued in 2025 is the result of the significant net fair value appreciation of the Fund's investments recognized during the fourth quarter of 2025.
(d)Under the Prior Investment Advisory Agreement, the Adviser historically waived reimbursement of all internal administrative services expenses except for services that were previously provided by an external third-party that were later internalized by the Adviser. Beginning in January 2025, under the Advisory Agreement, the waivers for those costs (except for services that were previously provided by the external third-party) were memorialized as a quarterly cap on the Fund's obligation to reimburse the Adviser for such internal administrative services expenses. As a result, the historical waiver of such costs is no longer required after the MSC Income Listing.
Net Investment Income
Net investment income for the year ended December 31, 2025 increased 15% to $61.8 million, or $1.33 per share, compared to $53.9 million, or $1.34 per share, in 2024. The increase in net investment income was primarily attributable to an increase in total investment income and a decrease in total expenses, each as discussed above. The increase in net investment income on a per share basis reflects the increase in net investment income after the impact of a 16% increase in the weighted-average shares outstanding compared to the year ended December 31, 2024, primarily due to new shares issued through the MSC Income Offering and the DRIP, partially offset by shares repurchased by the Fund, in each case since the beginning of the prior year. The decrease in net investment income on a per share basis includes a $0.02 per share decrease in investment income considered less consistent or non-recurring in nature.
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Adjusted Net Investment Income
Adjusted net investment income for the year ended December 31, 2025 increased 20% to $64.5 million, or $1.39 per share, compared to $53.9 million, or $1.34 per share, in 2024. The increase in adjusted net investment income was primarily due to an increase in net investment income as discussed above, excluding the impact of the capital gains incentive fee accrual. The increase in adjusted net investment income per share reflects the increase in adjusted net investment income after the impact of the increase in weighted-average shares outstanding for the year ended December 31, 2025, as discussed above. The increase in adjusted net investment income on a per share basis includes a $0.02 per share decrease in investment income considered less consistent or non-recurring in nature.
Net Realized Loss
A summary of the primary components of the total net realized loss on investments of $9.5 million for the year ended December 31, 2025 is as follows:
| Year Ended December 31, 2025 | |||||||||||||||||||||||||||||||||||||||||||||||
| Full Exits | Partial Exits | Restructures | Other (a) | Total | |||||||||||||||||||||||||||||||||||||||||||
| Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | Net Gain/(Loss) | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Private Loan portfolio | $ | 22,427 | 6 | $ | (336) | 1 | $ | (22,499) | 6 | $ | 36 | $ | (372) | ||||||||||||||||||||||||||||||||||
| LMM portfolio | 4,832 | 3 | - | - | - | - | 56 | 4,888 | |||||||||||||||||||||||||||||||||||||||
| Middle Market portfolio | (13,465) | 1 | (5,533) | 1 | (1,153) | 1 | 837 | (19,314) | |||||||||||||||||||||||||||||||||||||||
| Other Portfolio | - | - | 5,295 | 1 | - | - | - | 5,295 | |||||||||||||||||||||||||||||||||||||||
| Total net realized gain (loss) | $ | 13,794 | 10 | $ | (574) | 3 | $ | (23,652) | 7 | $ | 929 | $ | (9,503) | ||||||||||||||||||||||||||||||||||
(a)Other activity includes realized gains and losses from transactions involving 12 portfolio companies which are not considered to be significant individually or in the aggregate.
A summary of the primary components of the total net realized gain on investments of $15.8 million for the year ended December 31, 2024 is as follows:
| Year Ended December 31, 2024 | |||||||||||||||||||||||||||||||||||||||||||||||
| Full Exits | Partial Exits | Restructures | Other (a) | Total | |||||||||||||||||||||||||||||||||||||||||||
| Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | # of Investments | Net Gain/(Loss) | Net Gain/(Loss) | ||||||||||||||||||||||||||||||||||||||||
| (dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Private Loan portfolio | $ | 24,832 | 2 | $ | - | - | $ | (5,617) | 2 | $ | (17) | $ | 19,198 | ||||||||||||||||||||||||||||||||||
| LMM portfolio | (3,560) | 1 | 2,591 | 1 | - | - | 163 | (806) | |||||||||||||||||||||||||||||||||||||||
| Middle Market portfolio | (2,842) | 2 | - | - | (773) | 1 | 852 | (2,763) | |||||||||||||||||||||||||||||||||||||||
| Other Portfolio | - | - | - | - | - | - | 147 | 147 | |||||||||||||||||||||||||||||||||||||||
| Total net realized gain (loss) | $ | 18,430 | 5 | $ | 2,591 | 1 | $ | (6,390) | 3 | $ | 1,145 | $ | 15,776 | ||||||||||||||||||||||||||||||||||
(a)Other activity includes realized gains and losses from transactions involving 15 portfolio companies which are not considered to be significant individually or in the aggregate.
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Net Unrealized Appreciation
A summary of the total net unrealized appreciation of $36.4 million for the year ended December 31, 2025 is as follows:
| Year Ended December 31, 2025 | |||||||||||||||||||||||||||||
|
Private Loan |
LMM (a) |
Middle Market |
Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains / income) losses recognized during the current period | $ | (1,891) | $ | (5,845) | $ | 20,150 | $ | (5,295) | $ | 7,119 | |||||||||||||||||||
| Net unrealized appreciation (depreciation) relating to portfolio investments | 8,548 | 29,541 | (9,770) | 990 | 29,309 | ||||||||||||||||||||||||
| Total net unrealized appreciation (depreciation) relating to portfolio investments | $ | 6,657 | $ | 23,696 | $ | 10,380 | $ | (4,305) | $ | 36,428 | |||||||||||||||||||
(a)Includes unrealized appreciation on 37 LMM portfolio investments and unrealized depreciation on 17 LMM portfolio investments.
A summary of the total net unrealized depreciation of $15.4 million for the year ended December 31, 2024 is as follows:
| Year Ended December 31, 2024 | |||||||||||||||||||||||||||||
|
Private Loan(a) |
LMM(b) |
Middle Market |
Other | Total | |||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||
| Accounting reversals of net unrealized (appreciation) depreciation recognized in prior periods due to net realized (gains / income) losses recognized during the current period | $ | (20,676) | $ | 169 | $ | 3,513 | $ | (147) | $ | (17,141) | |||||||||||||||||||
| Net unrealized appreciation (depreciation) relating to portfolio investments | (7,482) | 7,651 | (1,647) | 3,180 | 1,702 | ||||||||||||||||||||||||
| Total net unrealized appreciation (depreciation) relating to portfolio investments | $ | (28,158) | $ | 7,820 | $ | 1,866 | $ | 3,033 | $ | (15,439) | |||||||||||||||||||
(a)The $20.7 million reversal of net unrealized appreciation on the Private Loan investment portfolio is primarily due to a realized gain of $25.5 million on the full exit of one Private Loan portfolio investment.
(b)Includes unrealized appreciation on 30 LMM portfolio investments and unrealized depreciation on 21 LMM portfolio investments.
Income Taxes
MSC Income's income taxes include excise tax expense at MSIF and federal and state income and other tax expenses at the Taxable Subsidiaries. MSIF has elected to be treated for U.S. federal income tax purposes as a RIC. MSIF's taxable income includes the taxable income generated by MSIF and certain of its subsidiaries, including the Structured Subsidiaries, which are treated as disregarded entities for tax purposes. As a result of its investment activities and dividend policy and activities, MSIF incurs federal excise tax on its estimated undistributed taxable income. The Taxable Subsidiaries incur federal and state income and other taxes related to net investment income resulting from the Taxable Subsidiaries' investment activities. The excise tax expense decrease for the year ended December 31, 2025 when compared to the prior year is due to a reduction in the estimated undistributed taxable income at MSIF, which is taxed at a 4% rate. The net investment income related federal and state income and other tax expenses increase for the year ended December 31, 2025 when compared to the prior year is due to increases in taxable net investment income at the Taxable Subsidiaries.
The Taxable Subsidiaries also incur taxes on realized gains (losses) and unrealized appreciation (depreciation). These taxes will change over time due to changes in the valuations of portfolio investments and realized gains and losses, in each case, on investments owned by the Taxable Subsidiaries.
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Net Increase in Net Assets Resulting from Operations
The net increase in net assets resulting from operations for the year ended December 31, 2025 was $88.7 million, or $1.91 per share, compared with $56.6 million, or $1.41 per share, for the year ended December 31, 2024. The tables above provide a summary of the reasons for the change in net increase in net assets resulting from operations for the year ended December 31, 2025 as compared to the year ended December 31, 2024.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
For the year ended December 31, 2025, MSC Income realized a net decrease in cash and cash equivalents of $7.7 million, which is the net result of $70.4 million of cash used in operating activities and $62.6 million of cash provided by financing activities.
The $70.4 million of cash used in operating activities resulted primarily from (i) cash uses totaling $411.1 million for the funding of new and follow-on portfolio investments and (ii) $9.7 million in net cash uses related to changes in other assets and liabilities, partially offset by (i) cash proceeds totaling $298.9 million from the sales and repayments of debt investments and sales of and return of capital from equity investments and (ii) cash flows generated from operating profits earned totaling $51.5 million, which is net investment income, excluding the non-cash effects of deferred taxes, the accretion of unearned income, PIK interest income, cumulative dividends and the amortization expense for deferred financing costs.
The $62.6 million of cash provided by financing activities principally consisted of (i) $90.5 million in cash proceeds related to common stock issuance and (ii) $37.3 million in net cash borrowings on the Credit Facilities, partially offset by (i) $51.6 million in cash dividends paid to stockholders, (ii) $11.6 million for the repurchases of common stock and (iii) $2.0 million for the payment of deferred financing costs.
For the year ended December 31, 2024, MSC Income realized a net decrease in cash and cash equivalents of $2.4 million, which is the net result of $28.1 million of cash used in operating activities and $25.7 million of cash provided by financing activities.
The $28.1 million of cash used in operating activities resulted primarily from (i) cash uses totaling $325.1 million for the funding of new and follow-on portfolio investments and (ii) $1.0 million in cash outflows related to changes in other assets and liabilities, partially offset by (i) cash proceeds totaling $259.0 million from the sales and repayments of debt investments and sales of and return of capital from equity investments and (ii) cash flows generated from the operating profits earned totaling $44.0 million, which is net investment income, excluding the non-cash effects of the accretion of unearned income, PIK interest income, cumulative dividends and the amortization expense for deferred financing costs.
The $25.7 million of cash provided by financing activities principally consisted of (i) $80.0 million in net cash borrowings related to the Credit Facilities and (ii) $7.0 million in cash proceeds related to common stock issuances, partially offset by (i) $39.8 million in cash dividends paid to stockholders and (ii) $20.7 million for the repurchases of common stock.
Share Repurchases
See Note G - Share Repurchasesin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K for a description of the 10b5-1 Repurchase Plan and shares repurchased thereunder during the year ended December 31, 2025.
Capital Resources
As of December 31, 2025, MSC Income had $20.6 million in cash and cash equivalents and $91.4 million of unused capacity under the Credit Facilities, which the Fund maintains to support investment and operating activities. As of December 31, 2025, the Fund's NAV totaled $738.7 million, or $15.85 per share.
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As of December 31, 2025, MSC Income had $209.0 million outstanding and $36.0 million of undrawn commitments under its floating rate multi-year revolving credit facility (the "Corporate Facility") and, through MSIF Funding, had $244.0 million outstanding and $56.0 million of undrawn commitments under its special purpose vehicle revolving credit facility (the "SPV Facility" and, together with the Corporate Facility, the "Credit Facilities"), both of which approximated fair value. Availability under the Credit Facilities is subject to certain leverage and borrowing base limitations, covenants, reporting and other requirements customary for similar credit facilities. On February 27, 2025, the Corporate Facility was amended to, among other things: (i) increase the total commitments from $165.0 million to $245.0 million and (ii) increase the accordion feature from up to a total of $200.0 million to up to a total of $300.0 million. On March 24, 2025, the SPV facility was amended to, among other things (i) decrease the interest rate for advances to the applicable SOFR plus 2.20% from the prior interest rate of the applicable SOFR plus 3.00%, (ii) extend the revolving period from February 2027 to February 2029 and (iii) extend the final maturity date from February 2028 to February 2030.
For further information on the Credit Facilities, including key terms and financial covenants, refer to Note D - Debt in the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K.
In October 2021, the Fund issued $77.5 million in aggregate principal amount of 4.04% Series A Senior Notes due 2026 (the "Series A Notes"), and an additional $72.5 million in aggregate principal amount of Series A Notes in January 2022. The outstanding aggregate principal amount of the Series A Notes was $150.0 million as of both December 31, 2025 and 2024. For more information on the Series A Notes, including key terms and financial covenants, refer to Note D - Debt in the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K.
On January 30, 2025, the Fund closed a follow-on public offering of 5,500,000 shares of its common stock, at the public offering price of $15.53 per share, in connection with the MSC Income Listing. In addition, on February 3, 2025, the Fund issued and sold 825,000 additional shares of its common stock, at the public offering price of $15.53 per share, pursuant to the underwriters' full exercise of their overallotment option. Net of underwriting discounts and commissions and offering costs, the Fund received net cash proceeds of $90.5 million in connection with the follow-on public equity offering.
MSC Income periodically invests excess cash balances into marketable securities. The primary investment objective of marketable securities is to generate incremental cash returns on excess cash balances prior to utilizing those funds for investment in Private Loan and LMM portfolio investments. Marketable securities generally consist of money market funds and certificates of deposit with financial institutions.
If MSC Income's common stock trades below NAV per share, the Fund will generally not be able to issue additional common stock at the market price, unless the stockholders approve such a sale and the Board of Directors makes certain determinations. At the 2025 Annual Meeting of Stockholders, MSC Income received approval from its stockholders to have the flexibility, with the approval of the Board of Directors, to offer and sell shares of its common stock at a price below the current NAV per share until September 9, 2026. The Fund may also seek such authorization at future annual or special meetings of stockholders. Any decision to sell shares of MSC Income's common stock below the then current NAV per share of the common stock would be subject to the determination by the Board of Directors that such issuance is in the Fund's and its stockholders' best interests.
In order to satisfy the Code requirements applicable to a RIC, MSC Income intends to distribute to its stockholders, after consideration and application of its ability under the Code to carry forward certain excess undistributed taxable income from one tax year into the next tax year, substantially all of the Fund's taxable income.
In addition, as a BDC, MSC Income is allowed to borrow amounts such that its asset coverage ratio, or BDC asset coverage ratio, of its total assets to its total senior securities, which includes borrowings and any preferred stock the Fund may issue in the future, of at least 200% (or 150% if certain requirements are met). On January 29, 2025, the Board of Directors, including a "required majority" (as such term is defined in Section 57(o) of the 1940 Act) of the Board of Directors, approved the application of the reduced BDC asset coverage ratio. As a result the BDC asset coverage ratio requirement applicable to MSC Income decreased from 200% to 150% effective January 29, 2026. As of December 31, 2025, the Fund's BDC asset coverage ratio was 222%.
Although MSC Income has been able to secure access to additional liquidity, including through the Credit Facilities and the Master Note Purchase Agreement dated October 22, 2021 governing the Series A Notes (the "Note Purchase Agreement"), there is no assurance that debt or equity capital will be available to the Fund in the future on favorable terms, or at all.
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Recently Issued or Adopted Accounting Standards
From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by MSC Income as of the specified effective date. The Fund believes that the impact of recently issued standards and any that are not yet effective will not have a material impact on its consolidated financial statements upon adoption. For a description of recently issued or adopted accounting standards, see Note B.13. - Summary of Significant Accounting Policies - Recently Issued or Adopted Accounting Standardsin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Inflation
Inflation has not historically had a significant effect on the Fund's results of operations in any of the reporting periods presented herein. However, the Fund's portfolio companies have experienced, specifically including over the last few years, as a result of recent geopolitical events, uncertainty with respect to the imposition of tariffs on and trade disputes with certain countries, supply chain and labor issues, and may continue to experience, the increasing impacts of inflation on their operating results, including periodic escalations in their costs for labor, raw materials and third-party services and required energy consumption. These issues and challenges related to inflation are receiving significant attention from the Fund's investment teams and the management teams of its portfolio companies as they work to manage these growing challenges. Prolonged or more severe impacts of inflation to portfolio companies could continue to affect their operating profits and, thereby, increase their borrowing costs, and as a result negatively impact their ability to service their debt obligations and/or reduce their available cash for distributions. In addition, these factors could have a negative effect on the fair value of investments in these portfolio companies. The combined impacts therefrom in turn could negatively affect the Fund's results of operations.
Off-Balance Sheet Arrangements
MSC Income may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of its portfolio companies. These instruments include commitments to extend credit and fund equity capital and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the Consolidated Balance Sheets. As of December 31, 2025, MSC Income had a total of $130.5 million in outstanding commitments comprised of (i) 62 investments with commitments to fund revolving loans that had not been fully drawn or term loans with additional commitments not yet funded and (ii) three investments with equity capital commitments that had not been fully called.
Contractual Obligations
As of December 31, 2025, the Fund's future commitments for cash payments in connection with the Credit Facilities and the Series A Notes for each of the next five years and thereafter are as follows:
| 2026 | 2027 | 2028 | 2029 | 2030 | Thereafter | Total | |||||||||||||||||||||||||||||||||||
| (in thousands) | |||||||||||||||||||||||||||||||||||||||||
| SPV Facility (1) | $ | - | $ | - | $ | - | $ | - | $ | 244,000 | $ | - | $ | 244,000 | |||||||||||||||||||||||||||
| Corporate Facility (1) | - | - | - | 209,000 | - | - | 209,000 | ||||||||||||||||||||||||||||||||||
| Series A Notes | 150,000 | - | - | - | - | - | 150,000 | ||||||||||||||||||||||||||||||||||
| Interest due on Series A Notes | 6,060 | - | - | - | - | - | 6,060 | ||||||||||||||||||||||||||||||||||
| Total | $ | 156,060 | $ | - | $ | - | $ | 209,000 | $ | 244,000 | $ | - | $ | 609,060 | |||||||||||||||||||||||||||
(1)Future interest payments on the Credit Facilities have not been included, as these amounts fluctuate over time depending on the current interest rates and amounts outstanding.
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Related Party Transactions and Agreements
MSC Income has entered into agreements with the Adviser and/or certain of its affiliates and other parties whereby the Fund pays certain fees and reimbursements to these entities. In addition, the Fund makes payments to the Adviser for certain services that include the identification, execution and management of investments and also the management of day-to-day operations provided by the Adviser, pursuant to various agreements that MSC Income has entered into. See Note J - Related Party Transactionsin the notes to the consolidated financial statements included in Item 8. Consolidated Financial Statements and Supplementary Dataof this Annual Report on Form 10-K for additional information regarding these related party transactions and agreements.
Recent Developments
In February 2026, MSC Income declared a regular quarterly dividend of $0.35 per share and a supplemental dividend of $0.01 per share, both payable on May 1, 2026 to stockholders of record as of March 31, 2026.
From January 1, 2026 through February 26, 2026, MSC Income repurchased 562,131 shares at an average price of $12.90 (including broker commissions), as part of the Fund's 10b5-1 Repurchase Plan.
MSC Income Fund Inc. published this content on February 27, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on February 27, 2026 at 16:59 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]