Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this report. Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to:

We generally use words such as "anticipates," "believes," "expects," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in "Risk Factors" and elsewhere in this report.

We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the Securities and Exchange Commission ("SEC"), including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Overview

MidCap Apollo Institutional Private Lending (the "Company," "we," "us," or "our") was organized as a Delaware statutory trust on November 6, 2023. We are a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act") on March 15, 2024 (the "Conversion Date"). As such, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities of private or thinly traded public U.S. companies, cash equivalents, U.S. government securities and high-quality debt investments that mature in one year or less. In addition, for federal income tax purposes, we have elected to be treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Pursuant to this election and assuming we qualify as a RIC, we generally do not have to pay corporate-level federal income taxes on any income we distribute to our shareholders. We commenced operations on December 15, 2023, upon the admission of two beneficial owners (the "Limited Owners") in the Company in exchange for $433,333 in Capital Commitments including $33,333 committed by an affiliate of the Adviser. Of the $433,333 in investor commitments to purchase common shares of beneficial interest ("Capital Commitments"), the Company called $293,587 prior to its election to be regulated as a BDC (the "Conversion Date"). All Limited Owners' funded Capital Commitments were converted into 12,145,597 common shares of beneficial interest ("Common Shares") at the Conversion Date. Since the Conversion Date, and through September 30, 2026, we have raised approximately $121,290 in net proceeds from additional offerings of Common Shares. All dollar amounts in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" are in thousands, unless otherwise noted.

Portfolio and Investment Activity

Our portfolio and investment activity during the three and nine months ended September 30, 2026 and 2025 were as follows:

* Totals may not foot due to rounding.

Our portfolio composition and weighted average yields as of September 30, 2026 and December 31, 2025 were as follows:

(1) An investor's yield may be lower than the portfolio yield due to sales loads and other expenses.

(2) Calculated exclusive of investments on non-accrual status.

(3) Inclusive of all income generating investments, non-income generating investments and investments on non-accrual status.

Since the commencement of operations and through September 30, 2026, invested capital totaled $1,386.7 million in 219 portfolio companies.

Recent Developments

See Note 9 to the consolidated financial statements for a summary of recent developments.

Critical Accounting Estimates

The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, our significant accounting policies are further described in the notes to the consolidated financial statements. See "Item 1. Consolidated Financial Statements-Notes to Consolidated Financial Statements-Note 2. Significant Accounting Policies" of our Quarterly Report on Form 10-Q for the quarter ended September 30, 2026.

Fair Value Measurements

The Company follows guidance in ASC 820, Fair Value Measurement ("ASC 820"), where fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value measurements are determined within a framework that establishes a three-tier hierarchy which maximizes the use of observable market data and minimizes the use of unobservable inputs to establish a classification of fair value measurements for disclosure purposes. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, such as the risk inherent in a particular valuation technique used to measure fair value using a pricing model and/or the risk inherent in the inputs for the valuation technique. Inputs may be observable or unobservable. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company's own assumptions about the assumptions market participants would use in pricing the asset or liability based on the information available. The inputs or methodology used for valuing assets or liabilities may not be an indication of the risks associated with investing in those assets or liabilities.

ASC 820 classifies the inputs used to measure these fair values into the following hierarchy:

Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by us at the measurement date.

Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices.

Level 3: Unobservable inputs for the asset or liability.

In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The level assigned to the investment valuations may not be indicative of the risk or liquidity associated with investing in such investments. Because of the inherent uncertainties of valuation, the values reflected in the consolidated financial statements may differ materially from the values that would be received upon an actual disposition of such investments.

As of September 30, 2026, $923.5 million or 99.5% of the Company's investments were classified as Level 3. The high proportion of Level 3 investments relative to our total investments is directly related to our investment philosophy and target portfolio, which consists primarily of long-term secured debt, as well as unsecured and mezzanine positions of private middle-market companies. A fundamental difference exists between our investments and those of comparable publicly traded fixed income investments, namely high-yield bonds, and this difference affects the valuation of our private investments relative to comparable publicly traded instruments.

Senior secured loans, or senior loans, are higher in the capital structure than high-yield bonds, and are typically secured by assets of the borrowing company. This improves their recovery prospects in the event of default and affords senior loans a structural advantage over high-yield bonds. Many of the Company's investments are also privately negotiated and contain covenant protections that limit the issuer to take actions that could harm us as a creditor. High-yield bonds typically do not contain such covenants.

Given the structural advantages of capital seniority and covenant protection, the valuation of our private debt portfolio is driven more by investment specific credit factors than movements in the broader debt capital markets. Each security is evaluated individually and as indicated below, we value our private investments based upon a multi-step valuation process, including valuation recommendations from independent valuation firms.

Results of Operations

Operating results for the three and nine months ended September 30, 2026 and 2025 were as follows:

* Totals may not foot due to rounding.

(1) Based on the weighted average number of shares outstanding for the period presented.

Total Investment Income

For the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

The decrease in total investment income for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 was primarily driven by a $2.1 million decrease in interest income (including PIK). The decrease in interest income was primarily due to a lower weighted average yield on the total debt portfolio, which declined from 9.9% to 9.6%. Interest income was also reduced by an increase in investments on non-accrual status, which rose to 3.8% of total investments at amortized cost as of September 30, 2026 from 1.8% as of September 30, 2025. These decreases were partially offset by a larger average debt portfolio, which increased from $911.0 million to $931.6 million at amortized cost.

For the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.

The decrease in total investment income for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 was primarily driven by a $6.6 million decrease in interest income (including PIK). The decrease in interest income was primarily due to a lower weighted average yield on the total debt portfolio, which declined from 10.9% to 9.6%. Interest income was also reduced by an increase in investments on non-accrual status, which rose to 3.8% of total investments at amortized cost as of September 30, 2026 from 1.8% as of September 30, 2025, as five portfolio companies were placed on non-accrual status during the period. These decreases were partially offset by a larger average debt portfolio, which increased from $898.5 million to $928.8 million at amortized cost.

Net Expenses

For the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

Net expenses decreased by $1.6 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025. Management and performance-based incentive fees, net of amounts waived, decreased by $1.3 million. During the current quarter, the Adviser waived $2.4 million of fees, consisting of $1.2 million attributable to the current quarter and $1.2 million attributable to the three months ended June 30, 2026 that was recognized in the current quarter (see Note 3 to the consolidated financial statements). Interest and other debt expenses decreased by $0.7 million, driven by a lower weighted average annualized interest cost (5.98% compared to 6.56%), partially offset by higher average debt outstanding ($575.7 million compared to $554.3 million). These decreases were partially offset by a $0.4 million increase in administrative services and other general and administrative expenses.

For the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.

Net expenses decreased by $0.9 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025. Interest and other debt expenses decreased by $3.0 million, driven by a lower weighted average annualized interest cost (5.87% compared to 6.68%), partially offset by higher average debt outstanding ($573.3 million compared to $564.9 million). This decrease was partially offset by a $1.2 million increase in administrative services and other general and administrative expenses and a $0.9 million increase in management and performance-based incentive fees, net of amounts waived. The increase in net fees reflects the prior-year period benefiting from a 100% fee waiver through March 15, 2025, compared to a 50% fee waiver in the current period, as well as no fee waiver being in effect from March 16, 2026 through March 31, 2026 (see Note 3 to the consolidated financial statements).

Net Realized Gains (Losses)

For the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

During the three months ended September 30, 2026, we recognized gross realized gains on investments of less than $0.1 million and gross realized losses on investments of $5.1 million, resulting in net realized losses on investments of $5.1 million. Net realized losses for the three months ended September 30, 2026 were primarily driven by the restructuring of Kauffman. The Company also had a $0.2 million realized loss on the settlement of foreign currency forward contracts, resulting in total net realized losses of $5.3 million. Significant realized gains (losses) for the three months ended September 30, 2026 are summarized below:

During the three months ended September 30, 2025, we recognized gross realized gains of $0 million and gross realized losses of $9.5 million, resulting in net realized losses of $9.5 million.

For the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.

During the nine months ended September 30, 2026, we recognized gross realized gains on investments of less than $0.1 million and gross realized losses on investments of $5.1 million, resulting in net realized losses on investments of $5.1 million. Net realized losses for the nine months ended September 30, 2026 were primarily driven by the restructuring of Kauffman. Net realized gains (losses) on foreign currency forward contracts and foreign currency transactions were not material, resulting in total net realized losses of $5.1 million. Significant realized gains (losses) for the nine months ended September 30, 2026 are summarized below:

During the nine months ended September 30, 2025, we recognized gross realized gains of $0 million and gross realized losses of $9.9 million, resulting in net realized losses of $9.9 million.

Net Change in Unrealized Gains (Losses)

For the three months ended September 30, 2026 as compared to the three months ended September 30, 2025.

During the three months ended September 30, 2026, we recognized gross unrealized gains on investments of $7.6 million and gross unrealized losses on investments of $9.2 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized losses on investments of $1.6 million. The net change in unrealized losses was primarily driven by credit-related weakness in a limited number of positions, including Parcelshield Holdings LLC, Wellbeam Consumer Health Intermediate, LLC and Congruex. This was partially offset by the reversal of previously recognized unrealized losses on Kauffman upon its restructuring. The Company also had a $0.2 million net unrealized gain on foreign currency forward contracts and foreign currency translations, resulting in a total net change in unrealized losses of $1.4 million. Significant changes in unrealized gains (losses) for the three months ended September 30, 2026 are summarized below:

During the three months ended September 30, 2025, we recognized gross unrealized gains of $11.4 million and gross unrealized losses of $7.9 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized gain of $3.5 million, which was primarily driven by the gain associated with flipping FEV Acquisition Corporation and LAV Gear Holdings INC to realized loss. Other significant drivers of unrealized gains (losses) include the financial underperformance of SEKO Global Logistics Network, LLC and Kauffman. Significant changes in unrealized gains (losses) for the three months ended September 30, 2025 are summarized below:

For the nine months ended September 30, 2026 as compared to the nine months ended September 30, 2025.

During the nine months ended September 30, 2026, we recognized gross unrealized gains on investments of $8.7 million and gross unrealized losses on investments of $31.5 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized losses on investments of $22.8 million. The net change in unrealized losses was primarily driven by credit-related weakness in a limited number of positions, including Midwest Vision, LAV Gear Holdings INC and Congruex. The loss is partially offset by unrealized gains on Veristat Group Inc. and the reversal of previously recognized unrealized losses on Kauffman upon its restructuring. The Company also had a $0.5 million net unrealized gain on foreign currency forward contracts and foreign currency translations, resulting in a total net change in unrealized losses of $22.3 million. Significant changes in unrealized gains (losses) for the nine months ended September 30, 2026 are summarized below:

During the nine months ended September 30, 2025, we recognized gross unrealized gains of $8.4 million and gross unrealized losses of $13.2 million, including the impact of transferring unrealized to realized gains (losses), resulting in net change in unrealized losses of $4.8 million which was primarily driven by financial underperformance of Veristat Group, Inc., Kauffman, and SEKO Global Logistics Network, LLC. Significant changes in unrealized gains (losses) for the nine months ended September 30, 2025 are summarized below:

Liquidity and Capital Resources

The Company's liquidity and capital resources are generated and generally available through periodic follow-on equity and debt offerings, the AP Leaf Secured Credit Facility (as defined in Note 5 to the consolidated financial statements), our Capital Commitments, as well as from cash flows from operations, investment sales of liquid assets and repayments of senior and subordinated loans and income earned from investments.

We believe that our current cash and cash equivalents on hand, our short-term investments, the AP Leaf Secured Credit Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months.

Cash Equivalents

The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less from the date of purchase would qualify, with limited exceptions. The Company deems that certain money market funds, U.S. Treasury Bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents (see Note 2 to the consolidated financial statements). At the end of each fiscal quarter, we consider taking proactive steps utilizing cash equivalents with the objective of enhancing our investment flexibility during the following quarter, pursuant to Section 55 of the 1940 Act. More specifically, we may purchase U.S. Treasury Bills from time-to-time on the last business day of the quarter and typically close out that position on the following business day, settling the sale transaction on a net cash basis with the purchase, subsequent to quarter end. The Company may also utilize other balance sheet transactions, including calling Capital Commitments, as we deem appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined.

Debt

See Note 5 to the consolidated financial statements for information on the Company's debt.

The following table shows the contractual maturities of our debt obligations as of September 30, 2026:

Shareholders' Equity

See Note 6 to the consolidated financial statements for information on the Company's capital commitments.

Distributions

For income tax purposes, distributions made to shareholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. Although the tax character of distributions paid to shareholders through September 30, 2026 may include return of capital and the exact amount cannot be determined at this point. The final determination of the tax character of distributions will not be made until we file our tax return for the tax year ended December 31, 2026. Tax characteristics of all distributions will be reported to shareholders on Form 1099 after the end of the calendar year. Our quarterly distributions, if any, will be determined by our Board of Trustees (the "Board").

To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. Currently, we have substantial net capital loss carryforwards and consequently do not expect to generate cumulative net capital gains in the foreseeable future.

We maintain an "opt out" distribution reinvestment plan for our shareholders. As a result, if we declare a distribution, then shareholders' cash distributions will be automatically reinvested in additional shares of our Common Shares, unless they specifically "opt out" of the distribution reinvestment plan so as to receive cash distributions.

We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a BDC, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions or fail to satisfy certain other conditions. If we do not distribute a certain percentage of our income annually, we may suffer adverse tax consequences, including possible loss of the tax benefits available to us as a RIC. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual PIK, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may not be able to meet the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC.

With respect to the distributions to shareholders, income from origination, structuring, closing, commitment and other upfront fees associated with investments in portfolio companies is treated as taxable income and accordingly, distributed to shareholders.

PIK Income

For the three and nine months ended September 30, 2026, PIK income totaled $0.4 million and $1.7 million on total investment income of $22.9 million and $68.2 million, respectively. For the three and nine months ended September 30, 2025, PIK income totaled $0.8 million and $2.4 million on total investment income of $25.0 million and $74.7 million, respectively. In order to maintain the Company's status as a RIC, this non-cash source of income must be paid out to shareholders annually in the form of distributions, even though the Company has not yet collected the cash. See Note 4 to the consolidated financial statements for more information on the Company's PIK income.

Related Party Transactions

See Note 3 to the consolidated financial statements for information on the Company's related party transactions.