Main Street Capital Corp.'s Senior Unsecured Notes Rated 'BBB'

NEW YORK (S&P Global Ratings) April 17, 2019--S&P Global Ratings today assigned its 'BBB' debt rating on Main Street Capital Corp.'s senior unsecured notes due 2024. We expect the issuance to be about $150 million (with potential to upsize). Our issuer credit rating on Main Street is 'BBB' with a stable outlook.
In the near term, the company intends to use the proceeds to repay a portion of the amount outstanding under its revolving credit facility and then re-borrow under this facility to repay notes due December 2019. Therefore, we expect the transaction to be neutral from a leverage perspective. As of Dec. 31, 2018, Main Street's debt to adjusted total equity (ATE) was about 0.8x.
The stable outlook reflects S&P Global Ratings' expectation that the firm's net investment income will be greater than its regular dividend over the next 12 to 24 months, and that it will operate with total debt to ATE of less than 1.0x and debt (excluding Small Business Investment Company debt) to reported equity below 0.85x. If the operating environment remains favorable, we expect the company to continue to issue equity and grow the portfolio modestly.
We could downgrade the company if leverage were to increase significantly while it maintains its relatively high level of equity exposure to lower middle-market companies. We believe that these investments are more illiquid than typical business development company investments and could show greater volatility during times of stress. Specifically, we could downgrade the company if debt to ATE were to increase above 1.0x or if the company significantly increases its equity investments (on a cost basis).
An upgrade is unlikely due to its monoline business of middle-market investing, as well as the high-yielding, illiquid nature of the portfolio relative to financial institutions we rate higher.
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