Greetings, and welcome to the MSC Income Fund Third Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Zach Vaughan. Thank you, sir. You may begin.

Thank you, operator, and good morning, everyone. Thank you for joining us for MSC Income Fund's Third Quarter Earnings Conference Call. Joining me today with prepared comments are Dwayne Hyzak, Chief Executive Officer; David Magdol, President and Chief Investment Officer; Nick Meserve, Managing Director and Head of the Private Credit Investment Group; and Cory Gilbert, Chief Financial Officer. MSC Income Fund issued a press release yesterday afternoon that details the Fund's third quarter financial and operating results. This document is available on the Investor Relations section of the Fund's website at mscincomefund.com. A replay of today's call will be available beginning an hour after the completion of the call and will remain available until November 21. Information on how to access the replay was included in yesterday's earnings release. We also advise you that this conference call is being broadcast live through the Internet and can be accessed on the Fund's homepage. Please note that information reported on this call speaks only as of today, November 14, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call may contain forward-looking statements. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, or similar expressions. These statements are based on management's estimates, assumptions, and projections as of the date of this call, and there are no guarantees of future performance. Actual results may differ materially from the results expressed or implied in these statements as a result of risks, uncertainties, and other factors, including, but not limited to, the factors set forth in the Fund's filings with the Securities and Exchange Commission, which can be found on the Fund's website or at sec.gov. MSC Income Fund assumes no obligation to update any of these statements unless required by law. During today's call, management will discuss net asset value or NAV and return on equity, or ROE. NAV is defined as total assets minus total liabilities and is also reported on a per share basis. MSC Income Fund defines ROE as the net increase to net assets resulting from operations divided by the average quarterly NAV. As previously announced, the Fund effectuated a 2-for-1 reverse stock split on December 16, 2024. All per share amounts, shared data, and related information discussed on today's call reflect the effect of the reverse stock split. Please note that certain information discussed on this call, including information related to portfolio companies, was derived from third-party sources and has not been independently verified. And now I'll turn the call over to MSC Income Fund's CEO, Dwayne Hyzak.

Thanks, Zach. Good morning, everyone, and thank you for joining us. We appreciate your participation on this morning's call. We hope that everyone is doing well. On today's call, we will provide you with the Fund's key quarterly updates, after which we'll be happy to take your questions. We are pleased with the Fund's performance in the third quarter, which resulted in a return on equity of 14.6% and favorable net investment income. We believe that the quality of the Fund's existing investment portfolio, combined with the Fund's existing liquidity, near-term expanded regulatory leverage capacity, which will become effective at the end of January 2026, and the current attractive pipeline of new private loan investment opportunities provided the opportunity for increased net investment income and shareholder dividends as we work to enhance the Fund's investment portfolio over the next several quarters. We are also confident that the Fund's sole focus on its private loan strategy for investments in new portfolio companies, together with the Fund's contractual future base management fee reductions as the Fund's lower middle market investments decrease as a percentage of its total investment portfolio, will strengthen the Fund's ability to deliver attractive recurring dividends and favorable total returns to the Fund shareholders in the future. The Fund generated NII per share of $0.35 in the quarter, after excise tax and NII-related income taxes of $0.01 per share or $0.36 on a pretax NII basis. These results, combined with our positive outlook for the future, resulted in our most recent dividend announcements, which I will discuss in more detail later. The Fund finished the quarter with an NAV per share of $15.54, a $0.21 per share increase from the prior quarter, and we continue to be pleased with the performance of the Fund's investment portfolio, including both the private loan and lower middle market portfolios. Cory will discuss our financial results in more detail. Now turning to investment activity. The Fund's private loan investment activity in the quarter continues to be slower than our expected normal quarterly activity, resulting in a net decrease in private loan investments of $6.7 million. Despite the slower-than-expected activity in the third quarter, we remain confident in our ability to grow the Fund's investment portfolio in the future. The Fund remains highly focused on executing new investment opportunities that are consistent with its historical private loan investments, both to deploy its current liquidity and to position the Fund to deploy the additional liquidity the Fund expects to have access to through the increased regulatory debt capacity that will become effective at the end of January 2026. In addition, the Fund is focused on maximizing the benefits from the Fund's legacy lower middle market investment portfolio and recycling this existing capital into private loan investments as investments are exited or repaid. We've also continued to see significant interest from potential buyers in several of the Fund's lower middle market portfolio companies, which we expect will lead to favorable realizations over the next few quarters, and we'll move the Fund closer to achieving the benefits of a reduced future base management fee percentage. Similar to the potential for investment realizations in the Fund's lower middle market portfolio, the Fund recently exited one of its private loan portfolio company equity investments and has a second exit in process, subject to customary closing conditions and regulatory approvals. With these exits expected to represent total realized gains of approximately $15 million or approximately $0.30 per share, both at meaningful premiums to the Fund's quarter-end fair values. Nick will cover the Fund's investment activity in more detail. Based upon the Fund results for the quarter and its future outlook, earlier this week, the Fund's Board of Directors declared a regular quarterly dividend of $0.35 per share and a supplemental quarterly dividend of $0.01 per share, both of which are payable on January 30, 2026, to shareholders of record as of December 31, 2025. Going forward, the Fund expects to continue to maintain a dividend policy that provides for total quarterly dividends, which are expected to include a regular quarterly dividend and a supplemental quarterly dividend to be set at a level generally consistent with the Fund's pretax NII. Based upon the most recently declared regular and supplemental quarterly dividends and the current stock price, the Fund is currently providing its shareholders a dividend yield of approximately 12%. As the Fund executes its transition to a private loan-only investment strategy and investment portfolio and optimizes its use of leverage, our long-term goal is for the Fund to increase the total dividends paid to the shareholders in the future. As we look forward to the Fund's near-term investment activities, as of today, I would characterize the private loan investment pipeline as above average. Despite the slower investment activity over the last 2 quarters, we are excited about the current pipeline of new investment opportunities and we remain confident in our ability to generate attractive new private loan investment opportunities and grow the Fund's investment portfolio over the next several quarters. My last few comments are reminders of the continued support the Fund has received from Main Street Capital Corporation. Since Main Street's wholly owned subsidiary was appointed the sole adviser to the Fund in October 2020, Main Street has purchased over $23 million of equity in the Fund. In conjunction with the Fund's equity offering in January, Main Street entered into an open market share purchase plan to purchase up to $20 million of the Fund's shares for a 12-month period beginning in March 2025, at times when the Fund shares are trading at predetermined levels below the Fund's NAV per share. With the terms of such a plan being identical to the Fund's open market share repurchase plan to purchase up to $65 million of the Fund shares, and with any open market share purchases being split by the Fund and Main Street on a pro rata basis. Through today, Main Street has purchased over $2 million, and the Fund has repurchased over $7 million under these plans. As additional support for the Fund, Main Street, through its wholly owned investment adviser, voluntarily agreed to permanently waive a portion of its incentive fees earned for the third quarter to provide the Fund a resulting pretax NII of $0.36 per share. We believe these actions demonstrate Main Street's commitment to the future success of the Fund and reinforce Main Street's confidence in the strength and quality of the Fund's investment portfolio and investment strategy. With that, I will turn the call over to Nick.

Thanks, Dwayne, and good morning, everyone. As Dwayne highlighted in his remarks, we are pleased with the performance of the Fund's private loan investment portfolio in the third quarter. The overall operating performance for most of the Fund's private loan portfolio companies continues to be positive, which contributed to the Fund's favorable third quarter financial results. The Fund has continued to see softness in certain private loan portfolio companies, particularly those with consumer exposure, and we are working on maximizing recoveries on those specific investments over the next few years. One of the favorable realized exits in the fourth quarter that Dwayne mentioned was a previously restructured portfolio company with consumer exposure. Due to the significant efforts and successes of that portfolio company's management team, the hard work of our team, and the patience to work through a difficult situation, we ended up with a positive outcome. We hope to have a similar outcome on several previously restructured investments in the future. We continue to work with the Fund's private loan portfolio companies to understand their current performance, plans, and future expectations given the current economic uncertainty that exists across certain parts of the economy. Based upon those discussions and activities to date and the overall diversity of the private loan portfolio, we are comfortable with the future outlook for these portfolio companies. The largest portion of the Fund's investment continues to be in its private loan strategy, which, as a reminder, is now the Fund's sole focus with respect to new portfolio company investments. At quarter-end, 92% of the private loan portfolio was comprised of secured debt investments, over 99% of which were first lien and 97% of which were floating rate loans. The portfolio had an attractive weighted average yield of 11.3%, which was down 70 basis points from the end of 2024, primarily as a result of decreases in the SOFR rates for these floating rate debt investments. During the third quarter, the Fund invested $75 million in the private loan portfolio, which after aggregate investment activity resulted in a net decrease of $7 million. The Fund ended the third quarter with investments in 81 private loan portfolio companies, totaling $751 million of fair value and representing 60% of the Fund's total investment portfolio at fair value. As Dwayne mentioned, our private loan pipeline is above average. As we all know, M&A activity overall and especially within the private equity industry has been lower than historical averages for the past few years. Since mid-third quarter, we have seen a meaningful pickup in M&A activity in both our late-stage and early-stage pipelines, and are very full at the moment. As a result, we expect to have favorable new investment activity over the next 2 quarters. With that, I'll turn the call over to David.

Thanks, Nick, and good morning, everyone. In addition to the private loan portfolio that Nick just covered, the Fund also maintains a portfolio of legacy lower middle market investments. As a reminder, these are combined debt and equity investments in smaller privately held companies, whereby the Fund partnered directly with the company's existing business owners and management team through co-investments with Main Street Capital Corporation, utilizing the customized one-stop debt and equity financing solutions provided by Main Street's lower middle market investment strategy. After listing of the Fund shares on the New York Stock Exchange at the end of January, the Fund no longer makes any investments in new lower middle market portfolio companies, but continues to participate in follow-on investments in its existing lower middle market portfolio companies. We're pleased to report that the overall operating performance for most of the Fund's lower middle market portfolio companies continues to be positive, which contributed to the attractive third quarter financial results. These contributions included both strong dividend income and continued fair value appreciation. Despite the continued heightened level of concern and uncertainty in the overall economy, we remain confident in the ability of the Fund's lower middle market portfolio companies to continue to navigate the current climate. During the third quarter, the Fund completed $6 million in total lower middle market portfolio investments, which after aggregate investment activity, resulted in a net decrease in the lower middle market portfolio of $2.6 million. At quarter-end, the lower middle market portfolio had investments in 55 portfolio companies totaling $467 million of fair value and representing 37% of the Fund's total investment portfolio. The lower middle market portfolio at fair value is comprised of 53% debt investments and 47% equity investments. These debt investments had an attractive weighted average yield of approximately 13%, consistent with the prior year and over 99% were first lien loans. The Fund had equity ownership positions in all of its lower middle market portfolio companies, representing a 9% average ownership position. We expect these investments will continue to provide significant benefits in the future, including the opportunity for continued dividend income, fair value appreciation, and eventually meaningful realized gains upon the future exit of these lower middle market portfolio company investments. As Dwayne mentioned, we've seen significant interest from potential buyers in several of the Fund's lower middle market portfolio companies, which we expect will lead to favorable realizations and additional fair value appreciation over the next few quarters. Turning to the Fund's total investment portfolio as of September 30, the Fund continued to maintain a highly diversified portfolio with investments in 144 portfolio companies spanning across numerous industries and end markets. The Fund's largest portfolio companies represented less than 4% of the total investment portfolio at fair value at quarter-end and less than 4% of the total investment income for the trailing 12 months ended September 30, with most portfolio investments representing less than 1% of the Fund's income and assets. With that, I will turn the call over to Cory.

Thank you, David, and thank you to everyone who has joined us today. The Fund's total investment income for the third quarter was $35.4 million, an increase of $1.9 million or 5.6% from the third quarter of 2024 and consistent with the second quarter. The third quarter included income considered less consistent or nonrecurring in nature of $1.4 million, and we previously discussed these nonrecurring items vary quarter-to-quarter and can include dividend income from equity investments and interest and fee income from accelerated prepayment, repricing, and other activities related to debt investments. For the third quarter, these items were $0.6 million higher than the average of the prior 4 quarters, $0.9 million higher than the third quarter of 2024, and $0.5 million higher than the second quarter. Dividend income for the third quarter increased by $1.2 million from a year ago but decreased by $1.3 million from the second quarter. The increase in dividend income from the prior year was primarily due to an increase in dividends from lower middle market and private loan equity investments. The decrease in dividend income from the second quarter was primarily due to a decrease in dividends from lower middle market equity investments. As previously discussed, dividend income will fluctuate quarter-to-quarter based on the underlying performance, cash flows, and capital allocation activities of the Fund's portfolio companies. Fee income for the third quarter increased by $0.8 million from a year ago and by $0.3 million from the second quarter. The increase in fee income from both the prior year and the second quarter was primarily due to the refinancing and prepayment of debt investments. Interest income was consistent with the third quarter of 2024 and increased by $0.8 million from the second quarter. The Fund's expenses, net of waivers for the third quarter decreased by $1 million from the prior year and were consistent with the second quarter. The decrease from the prior year was primarily driven by a $1.7 million decrease in interest expense and a $0.5 million decrease in base management fees, partially offset by a $1.2 million increase in incentive fees. The decrease in interest expense from a year ago was largely driven by decreases in the weighted average interest rate on the Fund's credit facilities due to decreases in benchmark index rates and a decrease to the applicable spreads resulting from amendments of the credit facilities since the first quarter of 2024, partially offset by an increase in weighted average outstanding borrowings used to fund the growth of the Fund's investment portfolio. The increase in incentive fees, which is after a $0.2 million voluntary permanent waiver provided by the Fund's investment adviser in the third quarter of 2025, is primarily attributable to an increase in the pre-incentive fee, NII. The Fund's expense ratio calculated as the Fund's total operating expenses net of any waivers and excluding interest expense as a percentage of the Fund's average total assets was 3% on an annualized basis for the third quarter, consistent with both the prior year and the second quarter. Excluding incentive fees, the Fund's expense ratio was 2% on an annualized basis for the third quarter a decrease from 2.2% in the prior year and an increase from 1.9% in the second quarter. The Fund's NII before taxes in the third quarter was $17 million or $0.36 per share, increasing from $14.2 million or $0.35 per share from the prior year. The Fund's NII in the third quarter was $16.6 million or $0.35 per share, increasing from $12.9 million or $0.32 per share from the prior year. During the quarter, the Fund recorded a net increase in the fair value of its investments of $11.2 million, representing the impact of $21 million of net unrealized appreciation, partially offset by $9.9 million of net realized losses. The net fair value increase was attributable to increases of $9.4 million in the lower middle market portfolio and $4 million in the private loan portfolio, partially offset by a decrease of $2.6 million in the middle market portfolio. Overall, the Fund's operating results for the third quarter resulted in a net increase in net assets of $26.5 million and an NAV per share of $15.54, a $0.21 increase from the second quarter and $0.01 above the Fund's public offering price per share in its public offering and listing on the New York Stock Exchange in January of this year. As of quarter-end, the Fund had nonaccrual investments comprising 1.4% of the total investment portfolio at fair value and 4.6% at cost. As of quarter-end, the Fund's regulatory asset coverage ratio was 2.39, and its net debt to NAV ratio was below the Fund's targeted leverage levels. As Dwayne mentioned, the Fund's focus remains on achieving a fully invested portfolio within its current leverage limits through January 2026, at which point the Fund will benefit from expanded regulatory leverage capacity as previously approved by the Fund's Board in January 2025. With that, I will now turn the call back to the operator so we can take any questions.

Our first question comes from Robert Dodd with Raymond James.

Congratulations on a successful quarter and moving forward. The private loan book was slower this quarter, but it appears to be picking up pace. Last quarter, I believe you mentioned that you missed out on some deals due to pricing, which has become increasingly competitive in the private loan market. Can you provide an update on that? Was the situation similar in the third quarter, and have you adjusted pricing in the fourth quarter, contributing to the increased optimism regarding activity? Additionally, could you elaborate on what has driven the shift from slower to accelerated growth?

Sure, Robert. Thanks for the question, and I'll give a few comments, and I'll let Nick add on if he has anything that he wants to add. But I'd say that the biggest change for us is more the activity levels than it is the competitive nature. The market is definitely still competitive. I do think that the pricing today is inside of where it would have been a year ago and even 6 months ago. But I'd say that most of the improvement on our side is just pure volume at the front end and the later stages of the pipeline on our side. You still do see some transactions that are inside of where we are willing to go, but we probably moved a little bit and then just seeing a significant uptick or increase in the pipeline. But Nick, add any additional color that you would add.

I'd say, overall, I don't think pricing has gotten tighter in the last 3 or 4 months. It really is just a deal volume pickup. And I think that really happened in early to mid-third quarter. And there were a few deals, I think, that we thought would close by quarter end that got pushed into the fourth quarter. And so we'll see that flow through hopefully in the fourth quarter.

The only thing I would add is that we hope to see more of our existing borrowers continue with add-ons, either through new commitments or by executing on the unfunded commitments we have with the DDTLs, whether for acquisitions or other growth activities. We've had more discussions recently with some of the borrowers about these activities. So, hopefully, I can't say if it will be this quarter or next quarter, or if it will take a couple of quarters, but I would say we're seeing continued good demand there as well, which we find attractive.

In terms of the activity rebound, I mean, you've talked obviously about consumer being a problem area for a while. What areas are really attractive in terms of sectors are attractive right now to you looking into '26, '27? Or is there enough bad news in consumer that some of the opportunities are actually on much worse terms? I mean basically, what are the sectors you're particularly looking at the moment?

Sure, Robert. I would say that we continue to be risk-off in general on the consumer side. It's not that we won't ever do a consumer deal. I think if it's a very, very attractive opportunity you'll still see us look at it. But in general, we continue to be risk-off in that area. And I'd say we're probably even more risk-off if it's a loan-only opportunity; we've got something on the lower middle market side, and we find the management team and the industry of the company attractive. You could see us do something there. I know that's less relevant for the fund going forward. But as a platform, I think that's the way we would look at the consumer side. I'd say most of what we're seeing broadly are kind of B2B type opportunities. But again, Nick, feel free to add additional color.

Yes, our focus is on our traditional businesses, industrials, manufacturing, aerospace, and defense, I would say it's everything outside of consumer. And like Dwayne says, we will still do consumer, but it's got a higher bar and usually does not have a direct exposure to just the ups and downs of a consumer more of a generic buy.

Our next question comes from the line of Brian McKenna with Citizens.

So it's great to hear all the positive commentary around the outlook for originations. Assuming pipelines continue to build here into year-end, what kind of acceleration could we see in fundings into next year? And then is there a way to think about the base case or even the bull case for portfolio growth in 2026? And I guess what I'm getting at is how does this all play into the trajectory of earnings and really the dividend throughout next year? And then related to that, the $0.30 per share of expected realized gains, how should we think about the uses of those gains and proceeds from that investment and just kind of the redeployment opportunity or how much of that will get paid out in the dividend?

Sure, Brian. Thank you for your question. There are a few points I’d like to discuss, so if I miss any, please feel free to ask a follow-up. We're very excited about the increasing pipeline for the Fund. As we mentioned in the past two quarters, we have fallen short of our budget and expectations for origination. Nevertheless, we are pleased with our top-line investment income and even more satisfied with our net investment income. We believe we have achieved solid returns for shareholders despite falling behind on origination. To increase the dividend in the future, we plan to leverage our under-utilized position. Currently, we have about $100 million in leverage available under our regulatory limit, and that amount will rise by approximately $250 million at the end of January. We have significant resources ready to deploy; we just need the pipeline to materialize, which we are beginning to see. We are optimistic about our position and believe we can generate attractive net investment income while also having a chance to increase dividends by 2026. Additionally, as we implement our growth strategy within the investment portfolio, it will be heavily focused on private loans. We will also benefit from a reduction in advisory fees from 1.5% to 1.25% as we grow, which we see as a key catalyst for improving net investment income and increasing shareholder dividends. Regarding realized gains, we are pleased with the results we've shared. While we didn’t provide specific amounts yet, we did mention that several lower middle market investments are attracting considerable third-party interest and potential exits. This gives us two advantages: the potential for fair value appreciation, both unrealized and realized, which is beneficial for our NAV and ROE, and the significant liquidity we have that will allow us to transition out of equity investments with minimal contractual income into private loans that provide higher contractual interest income. This strategy will support our aim to grow interest income, net investment income, and hopefully dividends. We also have a structure that could let us retain some of those gains in our blockers, depending on the exiting company and our corporate structure, allowing for redeployment. We're excited about these opportunities, especially given the strong performance of our portfolio companies and the external interest we're receiving. I've addressed your questions, Brian, but if I missed anything, please feel free to ask again or follow up.

Yes. No, that's perfect. I appreciate all the detail. There were a few questions in there, so I'll hop back into the queue, but congrats on the strong quarter.

Our next question comes from the line of Kenneth Lee with RBC Capital Markets.

Just one on the above-average private loan pipeline you talked about. Any further color around that? Any particular drivers you're seeing within the segments that you're focusing on?

Thank you for the question. I wouldn't say there's anything specific. I think our view is it's just you've seen private equity sponsors and investors become more active. I think that's probably a combination of a couple of things. One is the environment. I think in general, most people are viewing it more positively than they would have 6 or 12 months ago. I think you also have a lot of private equity sponsors that are sitting on a lot of dry powder, and they have other investments that they're well into their investment period on, and they're likely getting some discussion or having some discussion with their private equity fund LPs about liquidity. So I think all those things are contributing factors to a better environment today than 12 months ago. But again, Nick, if there's something else you would add, feel free to add additional color.

One thing I'd add on the pipeline is that it also just feels more real, if you will. And so I think some of the deals we worked on in the past year or 2, it never felt like it was going to transact. And I'd say everything in the pipeline today feels like the business will actually transact versus just an efficient exercise on what value might be.

Very helpful there. Just one follow-up on the realized gain you mentioned. If I understood correctly, it seems like it was a restructuring with a favorable exit. I’m curious about what you believe contributed to such a positive outcome in those positions.

Sure, Ken. So I'd say the realized gains on the private loan side, there's 2 different portfolio companies, one of which has already been exited. The other has been announced as just going through the customary regulatory and other kind of closing approvals or processes. So those 2 investments, those 2 companies were very different. One of them, you performed extremely well or extremely strong performance from day one, continue to have growth and has a lot of future growth in front of it, and that led to a really good outcome for us, as an equity co-investor as well as for the other owners of that portfolio company. So that's just a company that from day one performed well. The second one, and it is not a massive investment for the Fund, but it's one that we think shows the opportunity we have, on some of these restructured investments if you have the ability to be patient, which we and the Fund clearly do, and then you have the wherewithal to work through the issues with that portfolio company with that management team. So it was a company that got restructured was very, very significantly impacted to the negative during COVID, but we and our co-investor, co-lender in that company took the steps to preserve the value and allow that company post-COVID or when things started to rebound to have a really good recovery. That management team, as Nick said in his comments, did a fantastic job, which we're very, very much appreciative of. And then on our side, our team do what we needed to do to give the company the opportunity to not only survive, but survive and then have the opportunity to perform really well post the restructuring. So all that stuff played out, it took a couple of years, but we ended up having a really nice exit here in the fourth quarter that led to that realized gain.

Our next question comes from the line of Arren Cyganovich with Truist.

The higher expected pipeline activity often leads to increased repayment activity. What are your expectations regarding repayments moving forward, especially when you might potentially exit through a sale?

Yes. I'd say, Arren, thanks for the question. I'd say that in the last 2 quarters, in addition to having our investment activity being a little bit slower on the outbound side, we also had some elevated repayments. I think there will be some repayments in the fourth quarter. But I think that, that level has returned more than normal. But Nick, if you have a different view, kind of add on here.

Yes. I would say you are correct in general. As the market for mergers and acquisitions increases, typically, originations and repayments also rise. So far, we haven't seen that connection, but I expect that in the first half of 2026, we will likely see it return to the usual pattern of a third of the duration of any given deal.

Yes. I would say that our plan for leverage is working in 2 ways. One is the current situation with the existing regulatory limits we have, which is the old BDC requirements, and then come end of January of '26, the Board has already approved the expanded leverage, which will become effective. So I'll let Cory kind of give color on both of those levels.

Yes. So currently, our leverage targets are at 0.85 to 0.95 debt to equity at the end of 09/30. We were running below that at 0.72, that's just due to the kind of the production and slower origination on the private loan pipeline and portfolio. As we look to this expanded leverage, regulatory leverage at the end of January, our leverage targets are going to increase to 1.15 to 1.25, but that's the range we plan to work within.

Our next question comes from the line of Paul Johnson with KBW.

You guys have been talking about the risk in the consumer part of the economy and potentially just in the portfolio. I was wondering if there's any kind of specific goal there if there's an objective to cut the exposure in consumer names or potentially to try to exit or accelerate the exit of specific names in the portfolio? Or if it's just simply just kind of a higher level of monitoring and a higher bar, I guess, on new names going forward?

Sure, Paul. Thanks for the question. I'd say we've been having these calls here for a couple of quarters in this format. Obviously, on the Main Street Capital Corporation side, we've been doing this forever. So I'd say we have been signaling for the last couple of years. I can't remember now if it's 2.5 years or so, but we've been signaling for a while that we're seeing stress on some of the consumer names and that we were also generally risk-off, not willing to do anything risk-off, but just taking a more conservative view toward new consumer opportunities. So we've been in that stance or posture for a while. So as a result, we have not been aggressively or actively adding exposure and trying to minimize it to the extent we can. And in relation to the existing names we have that have had some level of underperformance. I think each situation is different, and we have to evaluate it with our co-investors, whether it's another co-lender or if it's the equity sponsor or both plus the management team to try and figure out what's the best answer. So I'd say each situation is a little bit different. But in general, the approach we're taking is to try not to add aggressively to the exposure from a new investment standpoint. And then for the existing names figure out whatever the best path is, whether that's a short-term path or a long-term path to maximize the opportunity, both for us, the management team, and our co-investors. I know that's not a specific answer because every situation is going to be different. But I think that's the way we're looking at it broadly.

Appreciate that's helpful. And would you say that, that exposure is primarily in the private loan portfolio are mainly in the lower middle market, just roughly?

I would say it's a combination of the two. They both have some exposure, and that exposure has underperformed and has been restructured. So, both of them share that exposure. Yes. From a strategic viewpoint, our asset management efforts are concentrated on the private credit and private loan strategy. Both our initial and subsequent private funds share the same investment strategy as the MSC Income Fund. Currently, we do not have any plans to merge these funds; they will follow their customary investment periods and transition into a standard wind-down or liquidation process after that. This is our current outlook for these funds.

Our next question comes from the line of Doug Harter with UBS.

The adviser kind of waived some of the incentive fee this quarter. I guess how should we think about that going forward? And what would be the situations where that might happen again?

Thank you for the question, Doug. Our perspective is that Main Street, through its wholly owned adviser, will continue to support the Fund as we have previously. While there is no contractual obligation, we see this reflected in both the equity investments Main Street has made in the Fund and the small waiver we provided this quarter. These actions indicate our expectation of ongoing support. We also believe that the strategy, the current investment portfolio, and the investment opportunities are all favorable. That's how we view the situation.

Our next question comes from the line of Mickey Schleien with Clear Street.

We've generally heard that activity picked up in the third quarter, and it sounds like you're fairly optimistic on your deal flow outlook. So that could help balance the direct lending loan market. With that in mind, what is your sense of the market's supply and demand balance? And what's your outlook for spreads?

Yes, thanks for joining us and for the question. I believe we have a favorable view of the short-term outlook, specifically for Q4 and Q1. It's challenging to predict beyond that, but we see the environment as productive. We are hopeful that activity will not only continue through Q4 and Q1 of next year but also extend into 2026. Regarding spreads, like everyone else, we've noticed they have compressed over the past year. However, today we see a bit more stability. It remains uncertain if this will persist, but in general, the changes in spreads are less pronounced now compared to the previous 12 months. Nick can provide further comments from his perspective.

Yes, on the supply demand balance, I'd say one thing on the amount of fundraising in the private credit space, the vast majority has been on, I'd say, the upper middle market and larger deals. So on the smaller end, it's still a little bit too much in demand right now, but I think there's an opening there that allows us to continue to find the right size. And so I'd say our wind over there, we feel really good about the next 12 months; they expect volumes to pick up from there. On the spread side, I mean, obviously, has tightened over the last 12 months. I do think we've found a little bit of a floor here for a little while as there's a limit of how much pricing can go below that, I suppose.

That's helpful. It's taken a couple of quarters, but I'm starting to see the impact of tariffs on some companies at some BDCs, and that's a slow process. I'd like to understand how much of that risk you see remaining in the portfolio in relation to tariffs.

Yes, Mickey, I would say it's been a while since we gave detailed commentary. I think it was the Q1 conference call, and we get pretty detailed commentary there, just given the nature of our businesses, they have some tariff exposure. I think we acknowledge that early on. But I'd say that when you look at the companies broadly, both the private loan and the lower middle market portfolios, the companies have been able to navigate that risk well, and we're not seeing broad-based negative impacts there. That could change in the future, but I think we feel pretty good about how the portfolio companies and their management teams have been able to navigate that risk.

Dwayne, do you see any tail risks related to that issue?

I mean, not as we sit here today. I mean, that could change, obviously, but as we sit here today, I think we feel pretty good about it.

That's good to hear. My last question, given that you've operated in the lower middle market for a long time, I'm curious how long you think it will take for the Fund's lower middle market portfolio to run off?

That's a great question, Mickey. I don't have a definitive answer for you. As you may recall from your historical tracking of Main Street Capital Corporation, we have a long-term to permanent holding strategy. We're not like traditional private equity firms that follow a specific exit timeline. We aim to do what's best for the company and align with the management teams of those businesses. This often results in a prolonged holding period. Therefore, we cannot predict how soon we will exit our lower middle market investments. However, we have a clearer strategy for growing the private loan portion of our portfolio, supported by the liquidity that both Cory and I mentioned earlier, along with the pipeline that Nick and his team are working on. We feel more confident about that growth. In fact, when analyzing the lower middle market portfolio relative to the overall portfolio, we believe that the expansion of the private loan portfolio will be a more significant factor than the exits from the lower middle market, and that's our current focus.

That's helpful and really interesting. I just thought of one other question I'd like to ask, if I might. Besides reversals, how much of this quarter's unrealized gains were driven by the underlying performance of portfolio companies versus comparable multiples?

Yes. So the gains, just to be clear, Mickey, those will be Q4 gains as opposed to Q3, if I get you.

No, no the one the Q3 that you've just reported.

I'm sorry, so you're talking about the unrealized fair value. I'd say it's a combination of the two. For the companies that are getting a lot of inbound interest, as you probably would expect, we can't ignore inbound interest, particularly if it's something that is pretty well defined. So it would be a combination both of EBITDA multiple expansion, but also just fundamental EBITDA growth. So you can see in our footnotes, which you'll see it in the 10-Q, we give a schedule that shows the weighted average EBITDA multiples. And I think you will see those go up slightly, but it won't be a massive increase in the multiple when you look at it on a weighted average basis across the portfolio.

This now concludes our question-and-answer session. I would like to turn the floor back over to management for closing comments.

We just want to say thank you again to everyone for joining us this morning. We appreciate the continued support of the fund shareholders, and we look forward to speaking to everyone again in February after the release of our results for the fourth quarter.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.