KBRA Assigns Ratings to MidCap Financial Issuer Trust
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Key Terms
senior unsecured debtfinancial
A senior unsecured debt is a loan or bond that a company must repay before other unsecured obligations but is not backed by specific assets as collateral. Think of it as being earlier in line for repayment, like a preferred ticket in a queue, but without a guarantee you’ll get property if the company fails; that priority reduces risk compared with junior debt and affects expected interest rates and recovery prospects for investors.
junior subordinated debtfinancial
A type of long-term loan a company issues that ranks below other debts for repayment, so holders get paid only after higher-priority creditors if the company hits financial trouble. It usually pays a higher interest rate to compensate for greater risk and can behave more like a mix of debt and equity, so investors treat it as a riskier claim that can offer higher yield but greater chance of losses in bankruptcy — like holding a back-row ticket that costs less but gets you in only if earlier ticket-holders are satisfied.
collateralized loan obligations (CLOs)financial
Collateralized loan obligations (CLOs) are investment vehicles that pool many corporate loans and divide the resulting cash flows into different slices that are sold to investors. They matter to investors because each slice offers a different mix of risk and return—some provide steadier, lower yields while others aim for higher income with greater default risk—so changes in borrower health, interest rates, or credit markets can materially affect returns.
non-recoursefinancial
A non-recourse loan is a type of debt where the lender’s recovery is limited to a specific asset pledged as collateral, and the borrower cannot be personally pursued for any remaining balance if the asset’s value falls short. For investors, non-recourse financing shifts downside risk onto the lender and protects a borrower’s other assets, which can affect a company’s risk profile, borrowing costs, and potential returns — much like insurance that covers only the item left as collateral.
unencumbered collateralfinancial
Assets described as unencumbered collateral are items a borrower can pledge to secure a loan that are free of existing liens, legal claims or other promises to third parties. For investors, unencumbered collateral matters because it represents resources a lender could seize if a borrower defaults—more unencumbered assets generally mean lower lending risk, greater borrowing capacity and clearer recovery prospects, much like a car with a clean title is easier to sell than one already promised to someone else.
debt-to-equity ratiofinancial
Debt-to-equity ratio shows how much a company relies on borrowed money compared with the owners’ funds; think of it as the amount of debt owed for every dollar of owner’s savings. Investors use it to judge financial risk and flexibility — a higher number means more borrowing and potentially greater interest burden or vulnerability in downturns, while a lower number suggests a more conservative, less risky balance sheet.
interest-in-kind (PIK)financial
Interest-in-kind (PIK) is interest on a loan or bond that is paid by issuing more debt or equity instead of cash, so the borrower adds the interest to the outstanding balance. Think of it as paying a landlord with an extra IOU rather than money today. Investors care because PIK increases the amount owed or dilutes ownership, masking near-term cash needs and raising long-term credit and repayment risk.
non-accrualfinancial
A non-accrual loan or asset is one for which a lender has stopped counting expected interest as income because the borrower is very late on payments or in serious financial trouble. For investors, non-accruals signal that future cash from interest is uncertain and that the lender may need to write down the loan’s value or set aside extra reserves, similar to a landlord who stops recording rent when a tenant stops paying.
NEW YORK--(BUSINESS WIRE)--
KBRA assigns an issuer rating of A-, a senior unsecured debt rating of A-, and a junior subordinated debt rating of BBB to MidCap Financial Issuer Trust, a wholly-owed subsidiary of MidCap FinCo Intermediate LLC ("the company" or "MidCap"), which serves as guarantor of the debt. MidCap is a commercial financial company that provides senior secured debt solutions to companies across multiple industries. The company is headquartered in Bethesda, MD. The ratings Outlook is Stable.
Key Credit Considerations
The ratings reflect MidCap’s strong strategic relationship with Apollo Global Management (NYSE: APO or "Apollo"), which provides access to an experienced and expansive platform with approximately $908 billion of assets under management (“AUM”), including $723 million of AUM in credit-related products as of September 30, 2025. Apollo, Athene Holding Ltd, Apollo's insurance subsidiary, and other Apollo affiliates together own 50% of the company. MidCap has operated since 2008 and focuses on middle-market specialty finance, maintaining a highly diversified investment portfolio that includes leveraged lending, asset-based lending, commercial real estate lending, and collateralized loan obligations (CLOs). MidCap had balance sheet commitments of $18 billion with an additional $19 billion of sidecar commitments comprised of investments directly from Apollo vehicles and third-party investments which Apollo manages as a registered investment advisor as of September 30, 2025.
MidCap serves as Apollo’s primary direct origination platform in the private middle market, encompassing more than 560 borrower relationships and 500 sponsor relationships across its credit platforms. The company benefits from a seasoned management team, with senior leadership averaging over 21 years of experience working together. Strong underwriting standards and disciplined risk managed are supported by Apollo, with fiduciary oversight provided by the Board.
The ratings are further supported by stable earnings metrics driven by consistent net interest income and historically low impairment levels across the credit cycle. Capital support, primarily from Apollo, Athene, and institutional investors, is considered permanent in nature, with no obligation to provide liquidity and any redemption subject to Board discretion.
MidCap’s funding profile is diversified and well laddered, with a long-term funding strategy includes non-recourse collateralized loan obligations (CLOs), revolving credit facilities, and senior unsecured debt. The company’s recapitalization included the issuance of senior unsecured notes and junior subordinated notes (JSNs), which enhanced equity capitalization, further supported by recent capital raises totaling $400 million of which $91 million remains uncalled as of September 30, 2025. MidCap expects to repay a substantial portion of its secured debt using proceeds from senior unsecured debt issuances and additional financings in 2026. As a result, unencumbered collateral is projected to increase to a solid $8.0+ billion by year-end 2026.
The company’s projected debt-to-equity ratio, including these issuances, is relatively conservative at 1.04x at YE2026 and is expected to remain at or below 1.5x on a sustained basis. While the JSNs are deeply subordinated and carry 30-year maturities, approximately $593 million feature a five-year non-call period and $1.48 billion include a ten-year non-call period, exercisable at the company’s discretion. In the event of a call, company policy is to replace the JSNs with equity or refinance with similar subordinated instruments, thereby preserving loss absorption capacity for senior unsecured noteholders. Additionally, the company has the option to pay interest-in-kind (PIK) on the JSNs for up to 5 years.
These strengths are partially offset by risks inherent in investing in illiquid non-investment grade debt, as well as a somewhat elevated non-accrual rate for the investment portfolio as of 3Q25. Additionally, there is potential for increased investments on non-accrual status with a more uncertain economic environment characterized by elevated interest rates, inflationary pressures, and geopolitical risk. Nevertheless, KBRA believes MidCap maintains a manageable level of impairments, supported by low historical credit losses and a diversified portfolio primarily composed of first-lien, senior secured loans with modest company leverage when including JSNs.
Rating Sensitivities
Given the Stable Outlook, a rating upgrade is not expected over the medium term. Downward rating pressure could emerge if portfolio performance materially underperforms expectations, particularly if asset quality deterioration leads to significantly weaker finance performance and leverage metrics.
To access ratings and relevant documents, click here.
A description of all substantially material sources that were used to prepare the credit rating and information on the methodology(ies) (inclusive of any material models and sensitivity analyses of the relevant key rating assumptions, as applicable) used in determining the credit rating is available in the Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be located here.
Further disclosures relating to this rating action are available in the Information Disclosure Form(s) referenced above. Additional information regarding KBRA policies, methodologies, rating scales and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA), one of the major credit rating agencies (CRA), is a full-service CRA registered with the U.S. Securities and Exchange Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is registered as a CRA with the European Securities and Markets Authority. Kroll Bond Rating Agency UK Limited is registered as a CRA with the UK Financial Conduct Authority. In addition, KBRA is designated as a Designated Rating Organization (DRO) by the Ontario Securities Commission for issuers of asset-backed securities to file a short form prospectus or shelf prospectus. KBRA is also recognized as a Qualified Rating Agency by Taiwan’s Financial Supervisory Commission and is recognized by the National Association of Insurance Commissioners as a Credit Rating Provider (CRP) in the U.S.
