MSC Income Fund: IVQ 2025 Preliminary Results In Context
Step Up
INTRODUCTION
There was a great deal of excitement in the BDC investor community surrounding the initial public offering of MSC Investment, Inc. in January of 2025. The newly minted public BDC is managed by an affiliate of internally managed Main Street Capital (MAIN) – arguably the most successful BDC in history. The hope in many quarters would be that some of MAIN’s magic – the BDC often trades at 2x its book value – would rub off on MSIF. Admittedly, MSIF is one-fifth the size of its external manager, but even a MAIN “mini-me” seemed like an attractive proposition.
Unfortunately, MSIF’s performance in its initial three quarters as a public entity proved disappointing. Earnings were on the low side, partly because the BDC is still far less leveraged than most other sector players, and as a result of multiple bad loans on the books. Furthermore, after booking $15.8mn in realized gains in its final year as a non-traded BDC, MFIC racked up net realized losses of ($26.1mn) in just 9 months as a public company.
MSIF’s stock price was launched at $15.53 and, on a wave of enthusiasm, reached a high of $18.09 on June 9, 2025. However, sentiment turned as MSIF’s shortcomings became more obvious, and the stock dropped as low as $11.78 in November, but had recovered to a price of $13.08 before the earnings preview was published.
So we were more intrigued than usual to see whether MSIF’s preliminary IVQ 2025 metrics might offer hints of where the BDC’s performance is headed.
ANALYSIS
Here are the key metrics included in MSIF’s press release:
MSC Income’s preliminary estimate of fourth quarter 2025 net investment income (“NII”) is $0.26 to $0.30 per share, including an estimated capital gains incentive fee of $0.06 per share(1). MSC Income’s preliminary estimate of adjusted net investment income (“ANII”)(2), which is NII excluding the impact of the capital gains incentive fee, is $0.32 to $0.36 per share and ANII before taxes(3), which is NII before taxes excluding the impact of the capital gains incentive fee, is $0.35 to $0.39 per share.
In the IIIQ 2025, NII was $0.35 per share, and the NII Before Taxes was $0.36.
We assume the ANII mentioned above is the best comparison to determine recurring earnings.
The mid-point in the IVQ 2025 preview is $0.34, very close to the IIIQ 2025 result. The same can be said for the NII Before Taxes, whose mid-point is $0.37.
Book Value
More pronounced is the change in net asset value per share (NAVPS):
MSC Income’s preliminary estimate of net asset value (“NAV”) per share as of December 31, 2025, is $15.81 to $15.89, representing an increase of $0.27 to $0.35 per share, or 1.8% to 2.3%, from the NAV per share of $15.54 as of September 30, 2025.
In the prior four quarters ending in September 2025, NAVPS had been down quarter over quarter twice and up twice as well. Over a 12 month period, NAVPS had increased, but only 1.0%.
In this most recent quarter – if the preview is correct – the move upwards will be much more substantial.
In fact, the latest NAVPS will be the highest on record for MSIF in the BDC NAV Change Table, whose metrics go back 5 years.
Realized Gains Or Losses
What we don’t know from the disclosure is whether the series of net realized losses that have occurred in the first 9 months of 2025 has continued in the last quarter of the year. Through 3 quarters, those losses amounted to more than 50% of MSIFF’s NII over this time frame.
At the last minute, will MSIF be able to offset its initial losses? Or is the improvement in the NAVPS due to other factors, such as unrealized appreciation on investments, which amounted to $ 36 million in the first nine months?
ROE
MSIF claims its annualized return on equity in the IVQ 2025 amounts to an annualized 16%.
Assuming no change in its book value, that would suggest the BDC will be booking $29.4mn in its “Net Increase In Net Assets”, up from $26.5mn in the IIIQ 2025.
However, this is just an approximation as MSIF admits to having bought back shares in the period, which will have decreased its capital base.
Non-Accruals
As to credit issues, MSIF had this to say about the level of its non-accruals:
MSC Income preliminarily estimates that investments on non-accrual status comprised 1.0% of the total investment portfolio at fair value and 3.9% at cost as of December 31, 2025.
Both metrics have improved in the IVQ 2025, compared to 1.4% at FMV and 4.6% at cost. However, the improvement is likely due to the two reported losses incurred in the private loan portfolio.
Portfolio Size
Going by the data in the preview, the overall MSIF portfolio appears to have increased by $72mn across its Private Loan and Lower Middle Market portfolios.
That would represent a 6% quarterly gain and 24% annualized, which is a rapid pace for any BDC.
Management has been promising to bulk up MSIF’s portfolio ever since going public and will be taking advantage of the BDC rules to target a debt-to-equity ratio of up to 1.25x.
At that level – using IIIQ 2025 numbers – the total portfolio would reach over $1.5bn at cost, up from $1.185bn in September 2025 and our estimated $1.257bn at year-end.
We assume that – as before – the FMV of the portfolio remains above its cost.
VIEWS
Undeniable
One has to read between the lines and throw in some assumptions, but MSIF’s IVQ 2025 preview suggests the BDC performed well in the period, even if realized losses were – once again – booked.
We already know that MSIF booked a $6mn realized equity gain on the sale of its stake in a mail company, but we don’t know if that was booked in the IVQ 2025 or will be showing up in 2026.
In any case, the gain will go some way to offset realized losses booked earlier.
Unclear
Still, we will have to wait to see the full IVQ 2025 disclosures to see if the BDC’s long list of underperforming portfolio companies gets shortened.
The BDC Credit Reporter counts 25 companies rated 3 to 5 on its 5-point scale, out of 135 as of the IIIQ 2025.
That’s nearly a fifth of the total and too high for any BDC.