Main Street Capital Corp.

The stable outlook reflects Main Street Capital Corp.'s strong capital position, history of good performance, and diverse funding sources. Over the next 12-24 months--despite macroeconomic headwinds--S&P Global Ratings expects the company will operate with debt to ATE of 1.0x-1.5x, cushion to the minimum 150% asset coverage ratio, and sufficient liquidity. We could lower the ratings in the next 12-24 months if: Debt to ATE exceeds 1.5x, The regulatory asset coverage ratio declines to 165%, Asset quality or earnings materially weaken, or The company significantly increases its equity investments (on a cost basis). An upgrade is unlikely over the next 12-24 months. Houston-based Main Street is a specialty finance company that primarily provides long-term debt and equity capital to lower-middle-market companies

...Main Street's asset quality remains stable, despite sticky inflation and higher-for-longer interest rates that could weigh on select portfolio companies' operating performance. Loans on nonaccrual at cost were 2.5% as of March 31, 2024, and payment-in-kind (PIK) income was 2.7% of gross investment income for the 12 months ended March 2024 (versus 2.1% a year prior). We expect asset quality challenges will persist for rated business development companies (BDCs) because borrowers in certain sectors will have difficulty passing through higher costs to end-users. Our base case assumes PIK income will increase for most BDCs in the next few quarters while borrowers continue to face liquidity pressure. The company's leverage remains within our expectations and well below our downside threshold. By our measure, debt to adjusted total equity (ATE) was about 1.0x as of March 31, 2024, while our downside threshold is 1.5x. The...

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