MidCap Financial Investment (MFIC) risk factors, 2025 10-K

Risks Relating to the Current Environment

1. 01Capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect the debt and equity capital markets in the United States and abroad, which may have a negative impact on our business and operations
2. 02Cybersecurity risks and cyber incidents may adversely affect our business by causing a disruption to our operations, a compromise or corruption of our confidential information, a misappropriation of funds, and/or damage to our business relationships, all of which could negatively impact our financial results
3. 03We are exposed to risks associated with changes in interest rates
4. 04Inflation and supply chain risks have had and may continue to have an adverse impact on our business, results of operations and financial condition of our portfolio companies
5. 05Economic and trade sanctions could make it more difficult or costly for us to conduct our operations or achieve our business objectives
6. 06The ongoing armed conflicts as a result of the Russian invasion of Ukraine and the conflict in the Middle East may have a material adverse impact on us and our portfolio companies
7. 07Price declines and illiquidity in the corporate debt markets have adversely affected, and may in the future adversely affect, the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation
8. 08The current state of economy and volatility in the global financial markets could have a material adverse effect on our business, financial condition and results of operations
9. 09Uncertainty with respect to the financial stability of the United States and several countries in the EU could have a significant adverse effect on our business, financial condition, and results of operations
10. 10We may form one or more CLOs, which may subject us to certain structured financing risks
11. 11To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by us as owner of equity interests. Finally, any equity interests that we retain in a CLO will not be secured by the assets of the CLO and we will rank behind all creditors of the CLO
12. 12Changes in interest rates may adversely affect the value of our portfolio investments which could have an adverse effect on our business, financial condition and results of operations
13. 13If MFIC can no longer claim exemption from being deemed a “commodity pool operator” pursuant to Commodity Futures Trading Commission (the “CFTC”) rules, MFIC and AIM could be subject to additional regulatory requirements
14. 14The continued uncertainty relating to the U.S. and global economy could have a negative impact on our business
15. 15Changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders
16. 16We are subject to risks associated with artificial intelligence, including the application of various forms of artificial intelligence such as machine learning technology
17. 17Certain of our portfolio companies’ businesses could be adversely affected by the effects of health pandemics or epidemics, which could have a negative impact on our and our portfolio companies’ businesses and operations
18. 18We and/or our portfolio companies may be materially and adversely impacted by global climate change

Risks Relating to our Business and Structure

1. 19We may suffer credit losses
2. 20We are dependent upon Apollo Investment Management’s key personnel for our future success and upon their access to AGM’s investment professionals and partners
3. 21Our financial condition and results of operations depend on our ability to manage future growth effectively
4. 22We operate in a highly competitive market for investment opportunities
5. 23We do not seek to compete primarily based on the interest rates we offer, and we believe that some of our competitors make loans with interest rates that are comparable to or lower than the rates we offer
6. 24Any failure on our part to maintain our status as a BDC would reduce our operating flexibility
7. 25We will be subject to corporate-level income tax if we are unable to maintain our status as a RIC
8. 26We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income
9. 27Regulations governing our operation as a BDC affect our ability to raise, and the way in which we raise, additional capital
10. 28We currently use borrowed funds to make investments and are exposed to the typical risks associated with leverage
11. 29We fund a portion of our investments with borrowed money, which magnifies the potential for gain or loss on amounts invested and may increase the risk of investing in us
12. 30Corresponding Return to Common Stockholders (2)
13. 31Effective April 4, 2019, our asset coverage requirement was reduced from 200% to 150%, which may increase the risk of investing with us
14. 32We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings
15. 33Changes in interest rates may affect our cost of capital and net investment income
16. 34Our business requires a substantial amount of capital to grow because we must distribute most of our income
17. 35As required by the 1940 Act, a significant portion of our investment portfolio is and will be recorded at fair value as determined in good faith and, as a result, there is and will be uncertainty as to the value of our portfolio investments
18. 36The lack of liquidity in our investments may adversely affect our business
19. 37We may experience fluctuations in our periodic results
20. 38Our ability to enter into transactions with our affiliates is restricted
21. 39Co-Investment Activity and Allocation of Investment Opportunities
22. 40To the extent OID and PIK interest constitute a portion of our income, we will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income
23. 41OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of our cash distributions
24. 42Market prices of zero-coupon or PIK securities may be affected to a greater extent by interest rate changes and may be more volatile than securities that pay interest periodically and in cash
25. 43Changes in the laws or regulations governing our business or the businesses of our portfolio companies and any failure by us or our portfolio companies to comply with these laws or regulations, could negatively affect the profitability of our operations or of our portfolio companies
26. 44Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock
27. 45We may choose to pay dividends in our own common stock, in which case you may be required to pay federal income taxes in excess of the cash dividends you receive
28. 46We and our portfolio companies may experience cyber security incidents and are subject to cyber security risks
29. 47The failure in cyber security systems, as well as the occurrence of events unanticipated in our disaster recovery systems and management continuity planning could impair our ability to conduct business effectively
30. 48We are dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends
31. 49The effect of global climate change may impact the operations of our portfolio companies
32. 50Our Investment Adviser and Administrator have the right to resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our business, financial condition and results of operations

Risks Relating to our Investments

1. 51Our investments in portfolio companies are risky, and we could lose all or part of our investment
2. 52The prices of commodities are subject to a variety of factors such as political and regulatory changes, seasonal variations, weather, technology and market conditions. These factors and the volatility of the commodities markets make it extremely difficult to predict price movements
3. 53Economic recessions or downturns could impair our portfolio companies and harm our operating results
4. 54Our portfolio companies may be highly leveraged and a covenant breach by our portfolio companies may harm our operating results
5. 55There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to, among other things, lender liability or fraudulent conveyance claims
6. 56If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy
7. 57Our portfolio contains a limited number of portfolio companies, which subjects us to a greater risk of significant loss if any of these companies defaults on its obligations under any of its debt securities
8. 58Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio
9. 59When we do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments
10. 60An investment strategy focused primarily on privately-held companies presents certain challenges, including the lack of available information about these companies, a dependence on the talents and efforts of only a few key portfolio company personnel and a greater vulnerability to economic downturns
11. 61Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies
12. 62Our incentive fee may induce AIM to make certain investments, including speculative investments
13. 63Our investments in foreign securities may involve significant risks in addition to the risks inherent in U.S. investments
14. 64Hedging transactions may expose us to additional risks
15. 65The Dodd-Frank Act, as amended, made broad changes to the OTC derivatives market, granted significant new authority to the Commodity Futures Trading Commission, or CFTC, and the SEC to regulate OTC derivatives (swaps and security-based swaps) and participants in these markets
16. 66Our ability to enter into transactions involving derivatives and financial commitment transactions may be limited
17. 67The effects of various environmental regulations may negatively affect the aviation industry and some of our portfolio companies
18. 68Our investments in the healthcare and pharmaceutical services industry sector are subject to extensive government regulation and certain other risks particular to that industry

Risks Relating to our Debt Instruments

1. 69Our senior secured credit facility begins amortizing in October 2028 and any inability to renew, extend or replace the facility could adversely impact our liquidity and ability to find new investments or maintain distributions to our stockholders
2. 70On December 13, 2023, we issued $80 million aggregate principal amount of 8.00% notes due December 15, 2028 (the “2028 Notes”)
3. 71The trading market or market value of our debt securities may fluctuate
4. 72market rates of interest higher or lower than rates borne by the debt securities
5. 73Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue
6. 74Our credit ratings may not reflect all risks of an investment in our debt securities
7. 75We are subject to certain risks as a result of our interests in the membership interests in the CLO Issuers
8. 76We have limited prior experience managing CLOs
9. 77We are subject to significant restrictions on our ability to advise the CLO Issuers
10. 78The subordination of the Membership Interests will affect our right to payment
11. 79The holders of certain of the CLO Notes will control many rights under the CLO Indenture and therefore, we will have limited rights in connection with an event of default or distributions thereunder
12. 80Under the documents governing the CLO Issuers, there are two coverage tests (the “Coverage Tests”) applicable to the CLO Notes
13. 81We may resign or be removed or terminated as collateral manager of the CLO Issuers
14. 82Changes in existing laws or regulations, the interpretations thereof or newly enacted laws or regulations may negatively impact our business

Risks Relating to an Investment in our Common Stock

1. 83Investing in our securities involves a high degree of risk and is highly speculative
2. 84There is a risk that investors in our equity securities may not receive distributions or that our distributions may not grow over time and that investors in our debt securities may not receive all of the interest income to which they are entitled
3. 85Our shares may trade at discounts from net asset value or at premiums that are unsustainable over the long term
4. 86The market price of our securities may fluctuate significantly
5. 87We may be unable to invest the net proceeds raised from offerings on acceptable terms, which would harm our financial condition and operating results
6. 88If you do not fully exercise your subscription rights in any rights offering of our common stock, your interest in us may be diluted and, if the subscription price is less than our net asset value per share, you may experience an immediate dilution of the aggregate net asset value of your shares
7. 89Stockholders may experience dilution in their ownership percentage if they do not participate in our dividend reinvestment plan

Risks Relating to Issuance of our Preferred Stock

1. 90If we issue preferred stock, the net asset value and market value of our common stock may become more volatile
2. 91Holders of any preferred stock we might issue would have the right to elect members of the Board and class voting rights on certain matters