MidCap Financial Investment Corporation (NASDAQ: MFIC), Apollo Senior Floating Rate Fund Inc. (NYSE: AFT) and Apollo Tactical Income Fund Inc. (NYSE: AIF) (AFT and AIF, together, the “CEFs”) today announced that they have entered into separate definitive agreements pursuant to which AFT and AIF will merge with and into MFIC (the “Mergers” or the “Transactions”), subject to certain shareholder approvals and customary closing conditions. MFIC is a publicly traded business development company (“BDC”) managed by an affiliate of Apollo Global Management, Inc. (“Apollo”, NYSE: APO), and the CEFs are publicly traded closed-end management investment companies also managed by an affiliate of Apollo.ii Under the terms of the merger agreements, MFIC will be the surviving entity and will continue to operate as a BDC and trade on the NASDAQ Global Select Exchange under the ticker symbol “MFIC.” MFIC’s investment strategy will continue to focus on first lien floating rate loans to middle market companies, primarily sourced by MidCap Financial,iii a leading middle market lender. All current MFIC officers and directors will remain in their current positions.
Under the terms of the merger agreements, shareholders of the CEFs will receive an amount of newly issued shares of MFIC common stock based on the ratio of the net asset value (“NAV”) per share of the applicable CEF divided by the NAV per share of MFIC, each determined shortly before the closing of each Merger (the “Exchange Ratios”).iv Assuming both Mergers close, the estimated pro forma post-merger shareholder ownership is approximately 69% for current MFIC shareholders, 16% for current AFT shareholders, and 15% for current AIF shareholders.v In addition, in consideration of the closing of each Merger, following the closing of the Merger, an affiliate of Apollo will make a special cash payment of $0.25 per share to each AFT or AIF shareholder of record as of the closing date of the applicable transaction.vi In addition, following the closing of the Merger(s), as applicable, MFIC will pay a cash dividend of $0.20 per share. The exact record date for the $0.20 per share special dividend will be determined by the MFIC Board of Directors based upon the timing of the closings of the Merger(s).vii
Mr. Howard Widra, MFIC’s Executive Chairman, said “We are excited to announce a transformative merger of AFT and AIF with MFIC, which we believe will create a stronger combined company. We look forward to realizing the benefits of a larger combined company, including enhanced returns for all shareholders, greater scale, and enhanced portfolio diversification. We also believe that a larger combined company may improve market visibility and lead to increased market value for its shareholders.”
Key Transaction Highlights
- Accretive to Return on Equity and Net Investment Income Per Share: The Mergers are expected to be accretive to net investment income per share for all shareholders reflecting operational synergies from the elimination of duplicative expenses, the ability to grow the CEFs’ portfolios through additional leverage, and the proposed rotation in the ordinary course of the CEFs’ lower yielding liquid assets into first lien middle market loans sourced by MidCap Financial.
- Special Cash Payment to CEF Shareholders: In consideration of the closing of each Merger, following the closing of the Merger, an affiliate of Apollo will make a special cash payment of $0.25 per share to each AFT or AIF shareholder of record as of the closing date of the applicable transaction.vi
- Special Cash Dividend to Shareholders: Following the closing of the Merger(s), as applicable, MFIC will pay a cash dividend of $0.20 per share. The exact record date for the $0.20 per share special dividend will be determined by the MFIC Board of Directors based upon the timing of the closings of the Merger(s).vii
- Additional Investing Capacity: The Mergers are expected to unlock approximately $330 million of incremental asset capacity due to MFIC’s lower minimum asset coverage requirement relative to those of the CEFs.viii
- Enhanced Scale: The combined company is expected to have total investments of approximately $3.4 billion and net assets of approximately $1.4 billion.i
- Seamless Portfolio Rotation: Affiliates of Apollo manage MFIC, AFT, and AIF, which mitigates the diligence concerns typically associated with mergers of unaffiliated entities. The CEFs’ portfolios are primarily comprised of liquid assets that are owned throughout the Apollo platform, which will help facilitate a seamless rotation in the ordinary course into directly originated assets that align with MFIC’s investment strategy.
- Improved MFIC Portfolio Metrics: The pro forma portfolio will have a higher exposure to directly originated loans with more individual borrowers.
- Enhanced Stock Liquidity: The larger market capitalization following the completion of the Mergers may result in greater secondary market trading liquidity and increased equity research coverage.
- Improved Access to Capital: As a larger entity, the combined company is expected to have better access to capital, including the potential for better pricing and more favorable terms.
- Transaction Expense Reimbursement: All merger-related expenses will be reimbursed by an affiliate of Apollo for each successful transaction. A portion of the merger-related expenses of AFT or AIF, as applicable, will be reimbursed by an affiliate of Apollo, if the respective transaction is not successful; the remainder will be borne by AFT or AIF, as applicable. In addition, a portion of the merger-related expenses of MFIC will be reimbursed by an affiliate of Apollo if neither transaction is successful; the remainder will be borne by MFIC.
The Transactions, which are intended to be treated as tax-free reorganizations, are subject to various approvals of MFIC, AFT, and AIF shareholders, which will be described in further detail in the Joint Proxy Statement and Registration Statement (each as defined below), which will be filed in the coming weeks, and other customary closing conditions. Assuming satisfaction of these conditions, the Transactions are expected to close in the first half of 2024. Each Merger will not be contingent on the other, and MFIC may merge with only one of the CEFs if shareholder approval is not received for both sets of CEF shareholders. Prior to the anticipated closings of the Mergers, MFIC, AFT, and AIF intend to operate in the normal course including declaring regular distributions.ix
The CEFs’ existing indebtedness will be repaid by MFIC contemporaneously with the closings of the Mergers.
To aid in the analysis of the Transactions, the Boards of Directors of MFIC and the CEFs each established a special committee, consisting solely of certain of their respective independent directors. The Boards of Directors of MFIC and the CEFs, on the recommendation of their respective special committees, have unanimously approved the Transactions.
Lazard served as financial advisor and Proskauer Rose LLP as legal counsel to the special committee of MFIC.
Keefe, Bruyette & Woods, A Stifel Company, served as financial advisor and Dechert LLP as legal counsel to the special committees of the CEFs.
Simpson Thacher & Bartlett LLP served as legal counsel to MFIC, AFT and AIF with respect to the Mergers.
Conference Call and Webcast
MFIC will host a conference call on Wednesday, November 8, 2023, at 8:30 a.m. Eastern Time to discuss the Transactions as well as results for the quarter ended September 30, 2023. All interested parties are welcome to participate in the conference call by dialing (800) 274-8461 approximately 5-10 minutes prior to the call; international callers should dial (203) 518-9848. Participants should reference either MidCap Financial Investment Corporation Earnings or Conference ID: MFIC1108 when prompted. A simultaneous webcast of the conference call will be available to the public on a listen-only basis and can be accessed through the Events Calendar in the Shareholders section of our website at www.midcapfinancialic.com. Following the call, you may access a replay of the event either telephonically or via audio webcast. The telephonic replay will be available approximately two hours after the live call and through November 29, 2023, by dialing (888) 566-0184; international callers should dial (402) 351-0788. A replay of the audio webcast will also be available later that same day. To access the audio webcast please visit the Events Calendar in the Shareholders section of our website at www.midcapfinancialic.com.
About MidCap Financial Investment Corporation
MidCap Financial Investment Corporation (NASDAQ: MFIC) is a closed-end, externally managed, diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940 (the “1940 Act”). For tax purposes, MFIC has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). MFIC is externally managed by Apollo Investment Management, L.P. (“MFIC Adviser”), an affiliate of Apollo and its consolidated subsidiaries, a high-growth global alternative asset manager. MFIC’s investment objective is to generate current income and, to a lesser extent, long-term capital appreciation. MFIC primarily invests in directly originated and privately negotiated first lien senior secured loans to privately held U.S. middle-market companies, which MFIC generally defines as companies with less than $75 million in EBITDA, as may be adjusted for market disruptions, mergers and acquisitions-related charges and synergies, and other items. To a lesser extent, MFIC may invest in other types of securities including, first lien unitranche, second lien senior secured, unsecured, subordinated, and mezzanine loans, and equities in both private and public middle market companies. For more information, please visit www.midcapfinancialic.com.
About Apollo Senior Floating Rate Fund Inc.
Apollo Senior Floating Rate Fund Inc. (NYSE: AFT) is registered under the 1940 Act as a diversified closed-end management investment company. AFT’s investment objective is to seek current income and preservation of capital by investing primarily in senior, secured loans made to companies whose debt is rated below investment grade and investments with similar economic characteristics. Senior loans typically hold a first lien priority and pay floating rates of interest, generally quoted as a spread over a reference floating rate benchmark. Under normal market conditions, AFT invests at least 80% of its managed assets (which includes leverage) in floating rate senior loans and investments with similar economic characteristics. Apollo Credit Management, LLC, an affiliate of Apollo, serves as AFT’s investment adviser. For tax purposes, AFT has elected to be treated as a RIC under the Code. For more information, please visit www.apollofunds.com/apollo-senior-floating-rate-fund.
About Apollo Tactical Income Fund Inc.
Apollo Tactical Income Fund Inc. (NYSE: AIF) is registered under the 1940 Act as a diversified closed-end management investment company. AIF’s primary investment objective is to seek current income with a secondary objective of preservation of capital by investing in a portfolio of senior loans, corporate bonds and other credit instruments of varying maturities. AIF seeks to generate current income and preservation of capital primarily by allocating assets among different types of credit instruments based on absolute and relative value considerations. Under normal market conditions, AIF invests at least 80% of its managed assets (which includes leverage) in credit instruments and investments with similar economic characteristics. Apollo Credit Management, LLC, an affiliate of Apollo, serves as AIF’s investment adviser. For tax purposes, AFT has elected to be treated as a RIC under the Code. For more information, please visit www.apollofunds.com/apollo-tactical-income-fund.