Quarterly report pursuant to Section 13 or 15(d)

FAIR VALUE HIERARCHY FOR INVESTMENTS???PORTFOLIO COMPOSITION (Tables)

v3.22.2.2
FAIR VALUE HIERARCHY FOR INVESTMENTS—PORTFOLIO COMPOSITION (Tables)
 9 Months Ended
Sep. 30, 2022
Fair Value Disclosures [Abstract]  
Schedule of Fair Value Measurement Inputs and Valuation Techniques
The following tables provide a summary of the significant unobservable inputs used to fair value Main Street’s Level 3 portfolio investments as of September 30, 2022 and December 31, 2021:
Type of
Investment
Fair Value as of
September 30, 2022
(in thousands)
 Valuation Technique Significant Unobservable Inputs Range(3) Weighted Average(3) Median(3)
Equity investments $ 1,105,236  Discounted cash flow WACC
9.4% - 22.4%
 14.5  % 15.6  %
Market comparable / Enterprise value EBITDA multiple (1)
4.3x - 8.3x (2)
 6.7x 6.0x
Debt investments $ 2,548,347  Discounted cash flow Risk adjusted discount factor
6.5% - 17.0% (2)
 10.3  % 10.4  %
Expected principal recovery percentage
0.0% - 200.0%
 99.6  % 100.0  %
Debt investments $ 318,052  Market approach Third-party quote
5.6 - 98.9
 90.6 93.0
Total Level 3 investments $ 3,971,635 
____________________
(1)EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.
(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.2x - 15.7x and the range for risk adjusted discount factor is 5.0% - 35.4%.
(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
Type of Investment
Fair Value as of December 31, 2021
(in thousands)
 Valuation Technique Significant Unobservable Inputs Range(3) Weighted Average(3) Median(3)
Equity investments $ 1,050,269  Discounted cash flow WACC
9.1% - 20.6%
 13.8  % 14.8  %
Market comparable / Enterprise value EBITDA multiple (1)
4.8x - 7.7x(2)
 6.6x 5.9x
Debt investments $ 2,158,424  Discounted cash flow Risk adjusted discount factor
5.6% - 15.7%(2)
 9.8  % 9.3  %
Expected principal recovery percentage
0.0% - 100.0%
 99.6  % 100.0  %
Debt investments $ 351,144  Market approach Third-party quote
3.0 - 100.5
 94.4 99.0
Total Level 3 investments $ 3,559,837 
____________________
(1)EBITDA may include proforma adjustments and/or other addbacks based on specific circumstances related to each investment.
(2)Range excludes outliers that are greater than one standard deviation from the mean. Including these outliers, the range for EBITDA multiple is 2.2x - 11.0x and the range for risk adjusted discount factor is 4.2% - 38.5%.
(3)Does not include investments for which the valuation technique does not include the use of the applicable fair value input.
Summary of Changes in Fair Value of Main Street’s Level 3 Portfolio Investments
The following tables provide a summary of changes in fair value of Main Street’s Level 3 portfolio investments for the nine-month periods ended September 30, 2022 and 2021 (amounts in thousands):
Type of Investment
Fair Value
as of
December 31, 2021
 Transfers Into Level 3 Hierarchy Redemptions/ Repayments New Investments Net Changes from Unrealized to Realized Net Unrealized Appreciation (Depreciation) Other(1)
Fair Value
as of
September 30, 2022
Debt $ 2,509,568  $ —  $ (436,372) $ 869,214  $ 9,632  $ (78,710) $ (6,933) $ 2,866,399 
Equity 1,043,709  —  (49,447) 47,475  (11,801) 63,591  6,933  1,100,460 
Equity Warrant 6,560  —  (474) —  (615) (696) —  4,775 
$ 3,559,837  $ —  $ (486,293) $ 916,689  $ (2,784) $ (15,815) $ —  $ 3,971,635 
____________________
(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.
Type of Investment
Fair Value
as of
December 31, 2020
 Transfers Into Level 3 Hierarchy Redemptions/ Repayments New Investments Net Changes from Unrealized to Realized Net Unrealized Appreciation (Depreciation) Other(1)
Fair Value
as of
September 30, 2021
Debt $ 1,807,134  $ —  $ (528,158) $ 814,863  $ 13,279  $ 2,115  $ (3,485) $ 2,105,748 
Equity 866,734  —  (64,335) 48,181  (2,826) 115,774  5,767  969,295 
Equity Warrant 10,998  —  —  —  (1,940) 944  (2,282) 7,720 
$ 2,684,866  $ —  $ (592,493) $ 863,044  $ 8,513  $ 118,833  $ —  $ 3,082,763 
____________________
(1)Includes the impact of non-cash conversions. These transactions represent non-cash investing activities. See additional cash flow information in the Consolidated Statements of Cash Flows.
Schedule of Portfolio Investments by Level in the Fair Value Hierarchy
At September 30, 2022 and December 31, 2021, Main Street’s investments at fair value were categorized as follows in the fair value hierarchy for ASC 820 purposes:
Fair Value Measurements
(in thousands)
At September 30, 2022
 Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
LMM portfolio investments $ 1,910,915  $ —  $ —  $ 1,910,915 
Private Loan portfolio investments 1,476,934  —  —  1,476,934 
Middle Market portfolio investments 354,286  —  —  354,286 
Other Portfolio investments 117,010  —  —  117,010 
External Investment Manager 112,490  —  —  112,490 
Short-term portfolio investments 1,855  —  1,855  — 
Total investments $ 3,973,490  $ —  $ 1,855  $ 3,971,635 
Fair Value Measurements
(in thousands)
At December 31, 2021
 Fair Value Quoted Prices in
Active Markets for
Identical Assets
(Level 1)		 Significant Other
Observable Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
LMM portfolio investments $ 1,716,415  $ —  $ —  $ 1,716,415 
Private Loan portfolio investments 1,141,772  —  —  1,141,772 
Middle Market portfolio investments 395,167  —  —  395,167 
Other Portfolio investments 166,083  —  —  166,083 
External Investment Manager 140,400  —  —  140,400 
Short-term portfolio investments 1,994  —  1,994  — 
Total investments $ 3,561,831  $ —  $ 1,994  $ 3,559,837 
Summary Investment Holdings
The following tables provide a summary of Main Street’s investments in the LMM, Private Loan and Middle Market portfolios as of September 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio, short-term portfolio investments and the External Investment Manager, which are discussed further below):
As of September 30, 2022
LMM (a) Private Loan Middle Market
(dollars in millions)
Number of portfolio companies 75  87  33 
Fair value $ 1,910.9  $ 1,476.9  $ 354.3 
Cost $ 1,593.7  $ 1,523.8  $ 419.4 
Debt investments as a % of portfolio (at cost) 73.0  % 97.1  % 94.4  %
Equity investments as a % of portfolio (at cost) 27.0  % 2.9  % 5.6  %
% of debt investments at cost secured by first priority lien 99.1  % 99.9  % 98.8  %
Weighted-average annual effective yield (b) 11.8  % 9.9  % 9.6  %
Average EBITDA (c) $ 7.7  $ 41.9  $ 70.7 
____________________
(a)At September 30, 2022, Main Street had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 41%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of September 30, 2022, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on Main Street’s debt portfolio as of September 30, 2022 including debt investments on non-accrual status was 11.1% for its LMM portfolio, 9.6% for its Private Loan portfolio and 9.1% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of Main Street’s common stock will realize on its investment because it does not reflect changes in the market value of Main Street’s stock, Main Street’s utilization of debt capital in its capital structure, Main Street’s expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Private Loan and Middle Market portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies and two Private Loan portfolio companies, as EBITDA is not a meaningful valuation metric for Main Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
As of December 31, 2021
LMM (a) Private Loan Middle Market
(dollars in millions)
Number of portfolio companies 73 75 36
Fair value $ 1,716.4  $ 1,141.8  $ 395.2 
Cost $ 1,455.7  $ 1,157.5  $ 440.9 
Debt investments as a % of portfolio (at cost) 70.9  % 95.7  % 93.3  %
Equity investments as a % of portfolio (at cost) 29.1  % 4.3  % 6.7  %
% of debt investments at cost secured by first priority lien 99.0  % 98.7  % 98.7  %
Weighted-average annual effective yield (b) 11.2  % 8.2  % 7.5  %
Average EBITDA (c) $ 6.2  $ 41.3  $ 76.0 
____________________
(a)At December 31, 2021, Main Street had equity ownership in all of its LMM portfolio companies, and the average fully diluted equity ownership in those portfolio companies was 40%.
(b)The weighted-average annual effective yields were computed using the effective interest rates for all debt investments at cost as of December 31, 2021, including amortization of deferred debt origination fees and accretion of original issue discount but excluding fees payable upon repayment of the debt instruments and any debt investments on non-accrual status. The weighted-average annual effective yield on Main Street’s debt portfolio as of December 31, 2021 including debt investments on non-accrual status was 10.6% for its LMM portfolio, 8.0% for its Private Loan portfolio and 6.9% for its Middle Market portfolio. The weighted-average annual effective yield is not reflective of what an investor in shares of Main Street’s common stock will realize on its investment because it does not reflect changes in the market value of Main Street’s stock, Main Street’s utilization of debt capital in its capital structure, Main Street’s expenses or any sales load paid by an investor.
(c)The average EBITDA is calculated using a simple average for the LMM portfolio and a weighted-average for the Private Loan and Middle Market portfolios. These calculations exclude certain portfolio companies, including three LMM portfolio companies, three Private Loan portfolio companies and one Middle Market portfolio company, as EBITDA is not a meaningful valuation metric for Main Street’s investments in these portfolio companies, and those portfolio companies whose primary purpose is to own real estate.
The following tables summarize the composition of Main Street’s total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments at cost and fair value by type of investment as a percentage of the total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments, as of September 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio investments, short-term portfolio investments and the External Investment Manager, which are discussed above).
Cost: September 30, 2022 December 31, 2021
First lien debt 85.4  % 82.5  %
Equity 13.9  16.2 
Second lien debt 0.1  0.6 
Equity warrants 0.2  0.3 
Other 0.4  0.4 
100.0  % 100.0  %
Fair Value: September 30, 2022 December 31, 2021
First lien debt 76.1  % 74.3  %
Equity 23.2  24.6 
Second lien debt 0.2  0.5 
Equity warrants 0.1  0.2 
Other 0.4  0.4 
100.0  % 100.0  %
The following tables summarize the composition of Main Street’s total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments by geographic region of the United States and other countries at cost and fair value as a percentage of the total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments, as of September 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio, short-term portfolio investments and the External Investment Manager). The geographic composition is determined by the location of the corporate headquarters of the portfolio company.
Cost: September 30, 2022 December 31, 2021
West 28.1  % 28.3  %
Southwest 20.7  21.6 
Northeast 20.6  22.6 
Midwest 15.2  15.1 
Southeast 13.2  11.6 
Canada 0.6  0.8 
Other Non-United States 1.6  — 
100.0  % 100.0  %
Fair Value: September 30, 2022 December 31, 2021
West 28.4  % 28.5  %
Southwest 22.1  23.0 
Northeast 20.3  21.9 
Midwest 15.4  15.8 
Southeast 11.7  10.0 
Canada 0.6  0.8 
Other Non-United States 1.5  — 
100.0  % 100.0  %
Main Street’s LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments are in companies conducting business in a variety of industries. The following tables summarize the composition of Main Street’s total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments by industry at cost and fair value as of September 30, 2022 and December 31, 2021 (this information excludes the Other Portfolio, short-term portfolio investments and the External Investment Manager).
Cost: September 30, 2022 December 31, 2021
Internet Software & Services 8.0  % 7.2  %
Machinery 8.0  7.3 
Commercial Services & Supplies 6.9  5.9 
Construction & Engineering 6.3  7.8 
Diversified Consumer Services 4.8  3.4 
Leisure Equipment & Products 4.6  4.1 
Health Care Providers & Services 4.6  3.9 
Professional Services 4.2  4.6 
Distributors 4.2  4.7 
Energy Equipment & Services 3.8  4.0 
IT Services 3.4  3.5 
Specialty Retail 3.2  3.5 
Tobacco 3.2  2.1 
Containers & Packaging 2.9  2.3 
Aerospace & Defense 2.4  1.9 
Media 2.4  1.8 
Building Products 2.0  2.3 
Textiles, Apparel & Luxury Goods 1.9  2.2 
Communications Equipment 1.8  2.3 
Diversified Telecommunication Services 1.8  2.6 
Software 1.7  1.8 
Diversified Financial Services 1.5  2.1 
Food Products 1.6  2.0 
Internet & Catalog Retail 1.4  1.6 
Health Care Equipment & Supplies 1.3  0.3 
Food & Staples Retailing 1.2  0.8 
Chemicals 1.2  1.7 
Computers & Peripherals 1.2  1.3 
Oil, Gas & Consumable Fuels 1.1  1.8 
Electronic Equipment, Instruments & Components 1.1  1.4 
Hotels, Restaurants & Leisure 1.1  1.4 
Household Durables 0.8  1.0 
Life Sciences Tools & Services 0.5  1.4 
Other (1) 3.9  4.0 
100.0  % 100.0  %
____________________
(1)Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments at each date.
Fair Value: September 30, 2022 December 31, 2021
Machinery 8.9  % 8.5  %
Diversified Consumer Services 7.0  5.9 
Internet Software & Services 6.9  6.4 
Commercial Services & Supplies 6.3  5.5 
Construction & Engineering 6.1  7.7 
Distributors 4.5  4.7 
Health Care Providers & Services 4.3  3.6 
Leisure Equipment & Products 4.1  4.0 
Professional Services 3.9  3.9 
Specialty Retail 3.7  4.1 
Tobacco 3.4  2.2 
IT Services 3.2  3.3 
Containers & Packaging 3.1  2.5 
Media 3.0  2.2 
Energy Equipment & Services 2.8  2.8 
Aerospace & Defense 2.2  1.7 
Software 2.0  2.0 
Textiles, Apparel & Luxury Goods 1.9  2.1 
Building Products 1.9  2.2 
Computers & Peripherals 1.9  2.2 
Diversified Financial Services 1.7  2.3 
Diversified Telecommunication Services 1.7  2.5 
Food Products 1.7  1.9 
Internet & Catalog Retail 1.5  1.5 
Food & Staples Retailing 1.2  0.8 
Chemicals 1.1  1.6 
Health Care Equipment & Supplies 1.0  0.1 
Communications Equipment 1.0  1.5 
Construction Materials 1.0  1.1 
Oil, Gas & Consumable Fuels 0.9  1.4 
Hotels, Restaurants & Leisure 0.8  1.0 
Life Sciences Tools & Services 0.4  1.3 
Other (1) 4.9  5.5 
100.0  100.0 
____________________
(1)Includes various industries with each industry individually less than 1.0% of the total combined LMM portfolio investments, Private Loan portfolio investments and Middle Market portfolio investments at each date.