Main Street Capital (NYSE:MAIN) executives highlighted record net asset value and elevated investment activity in the company’s fourth-quarter 2025 earnings call, while also pointing to continued momentum entering 2026. Management emphasized the contributions from its lower middle market equity strategy, steady growth in its private loan portfolio, and incentive income from its asset management business.
Record NAV and strong returns
CEO Dwayne Hyzak said the company delivered “continued strong performance” in the fourth quarter, closing what he described as “another great year” for the business. Main Street reported return on equity of 17.7% for the fourth quarter and 17.1% for the full year, supported by “strong levels” of distributable net investment income (DNII) per share and a record net asset value (NAV) per share for the 14th consecutive quarter.
Lower middle market realizations and record deployment
Management pointed to realizations as a key driver of results. Hyzak said Main Street exited Mystic Logistics in the fourth quarter and exited KBK Industries in the first quarter of 2026, with both producing “material realized gains” alongside “significant dividends received over the life” of the equity investments.
President and CIO David Magdol provided more detail on Mystic Logistics, describing it as an example of the firm’s lower middle market model. He said the exit generated a realized gain of $24 million, and the company received $22 million of total dividends over the life of the investment.
Magdol also said the company invested more than $700 million into its lower middle market strategy in 2025, the “largest year of lower middle market originations” in the firm’s history. That total included:
- $482 million deployed across 13 new lower middle market platform companies
- $219 million of follow-on investments, primarily in existing portfolio companies
In the fourth quarter alone, Main Street made $300 million of lower middle market investments, including $241 million across five new portfolio companies, resulting in a net increase of $253 million. Hyzak called the quarterly net investment activity the highest since the fourth quarter of 2021 and said the company added five new lower middle market portfolio companies during the period.
Magdol said Main Street expects lower middle market dividend income to remain a meaningful contributor, citing the tendency of portfolio companies to deleverage over time and generate more free cash flow available for equity distributions. He also reported that in 2025 the lower middle market portfolio produced $150 million in net fair value appreciation and $77 million in net realized gains, including what he characterized as the largest realized gain in the firm’s history.
Private loan growth and equity co-investment gains
On the private loan side, Hyzak said fourth-quarter activity returned to a “normal level of quarterly activity,” producing a net increase of $109 million. Magdol said Main Street completed $231 million of private loan investments in the quarter, and at year-end the private loan portfolio represented 43% of total investments at cost.
Magdol also highlighted a realized gain of $34 million in the fourth quarter tied to the company’s investment in “Pergeright,” describing it as evidence of the potential benefits of Main Street’s private loan equity co-investment activity.
At year-end, Main Street reported investments in 189 portfolio companies. Magdol said the largest portfolio companies (excluding the external investment manager) accounted for 5.2% of total investment income for the year and 3.3% of portfolio fair value at year-end, while most investments represented less than 1% of income and assets.
Income mix, non-accruals, leverage, and dividends
Nelson said fourth-quarter total investment income was $145.5 million, up 3.6% from the year-ago quarter and up 4.1% from the third quarter. Interest income declined versus both comparable periods, which he attributed primarily to a “larger negative impact from investments on non-accrual status” and to lower interest rates, including declines in benchmark index rates on floating-rate investments.
Dividend income rose $11.4 million year over year and $4.6 million sequentially, including higher “unusual or non-recurring dividends,” which Nelson tied to the positive performance and capital allocation decisions of lower middle market portfolio companies. Fee income also increased, driven primarily by higher closing fees on new and follow-on investments.
Nelson said investments on non-accrual status ended the quarter at approximately 1% of the portfolio at fair value and 3.3% at cost. He also reported net fair value appreciation of $42.5 million for the quarter, alongside net realized gains of $50.8 million.
On the balance sheet, Nelson said regulatory debt-to-equity leverage (excluding SBIC debentures) was 0.71x and regulatory asset coverage was 2.41x, both more conservative than the firm’s long-term target ranges. He said Main Street entered 2026 with over $1.2 billion of liquidity, including cash and unused capacity under credit facilities, and noted a near-term debt maturity of $500 million in July 2026. He added that the company expects to operate “over the next few quarters” at leverage levels more conservative than long-term targets due to market uncertainty.
For dividends, Hyzak said the board declared a $0.30 per share supplemental dividend payable in March, the company’s 18th consecutive quarterly supplemental dividend. The board also declared regular monthly dividends for the second quarter of 2026 of $0.26 per share, which represents a 4% increase from the second quarter of 2025. Hyzak said supplemental dividends paid over the trailing 12 months totaled $1.20 per share, which he said represented “an additional 39%” beyond regular monthly dividends.
Looking ahead, Nelson said DNII before taxes was $1.11 per share in the fourth quarter. For the first quarter of 2026, he said the company expects DNII before taxes of at least $1.04 per share, with potential upside tied to portfolio investment activity. Hyzak added that, based on expectations for continued favorable first-quarter performance, the company currently anticipates proposing “an additional significant supplemental dividend” payable in June 2026.
Pipeline and management commentary from Q&A
In the question-and-answer portion, management characterized both the lower middle market and private loan pipelines as “above average.” Hyzak said the company has been intentional about increasing lower middle market activity over the last couple of years, citing team growth, internal execution improvements, and what he described as an attractive environment for owner-operators seeking liquidity without selling outright amid economic uncertainty.
Magdol cautioned that the fourth quarter was “a particularly strong originations quarter” and said it should not necessarily be viewed as indicative of future origination levels, though management said staffing additions imply expectations for growth over time.
When asked about sector exposure, Hyzak said Main Street has limited software exposure and described the firm as “value-based investors” that prefers “basic industries.” He said software and healthcare are areas where Main Street is underweight, adding that the company is paying close attention to software given the rise of AI. Head of the Private Credit Investment Group Nick Meserve said the company has historically focused on “cash flow software deals” when it invests in the space and expects future activity to skew more toward infrastructure-related opportunities rather than high-growth software models.
On asset management, Hyzak said the company expects growth in base management fees as MSC Income Fund expands its portfolio and said Main Street was exploring additional avenues to grow beyond MSC Income Fund, adding that he hoped for “some news over the next month or so” about those efforts.
About Main Street Capital (NYSE:MAIN)
Main Street Capital Corporation (NYSE: MAIN) is a publicly traded business development company that provides flexible debt and equity capital to lower middle market companies in the United States. Headquartered in Houston, Texas, Main Street Capital was formed in 2007 and operates under the Investment Company Act of 1940. The firm’s management services are provided by Main Street Capital Management, L.P., which focuses on identifying growing private companies with enterprise values typically between $10 million and $150 million.
Main Street Capital’s primary offerings include first-lien senior secured loans, second-lien loans, subordinated debt, and equity co-investments or minority equity positions.
