Hi YXI friends,

Today, we are going to review Main Street Capital Corporation (MAIN), a BDC specialising in the lower-middle market of private credit.

With MAIN currently trading at a substantial 65% premium to its net asset value (NAV), it’s clear that investors love this BDC.

But is MAIN really worth the hefty price tag? Let’s find out.

DISCLAIMER: This newsletter is strictly educational. Any information or analysis in this note is not an offer to sell or the solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice and nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.

1. Context: Understanding MAIN’s Position in the Market

MAIN enjoys a portfolio of $4.7 billion in NAV (at fair value). With a healthy dose of price premium, MAIN is the 6th largest BDC by enterprise value.

MAIN’s target market is further downstream than ARCC, BXSL, and FSK that we have recently covered.

Boasting 194 portfolio companies, MAIN makes investments in 3 strategic areas:

1. the Lower Middle Market (LMM) with an average EBTIDA of $9m

2. Private Loans: proprietary debt backed by Private Equity sponsored companies with an average EBITDA of $32m and

3. the Middle Market with an average EBITDA of $58m

For borrowers, MAIN’s USP is to offer a “single source” solution with first-lien, senior secured debt and equity financing.

It is important to note that MAIN has substantial equity holdings in the LMM companies as part of its strategy. This in theory helps boost MAIN’s returns through periodic realised gain, either via dividends or sale of shares down the line.

The overall strategy seems riskier than the other names we have covered. But it’s been working so far, evidenced by the high price premium investors are willing to pay. Let’s further dig in.

2. MAIN’s Investment Portfolio: A Closer Look at Its Holdings

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