MSC INCOME FUND, INC. current report, 07 October 2016

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Business Context and Reporting Period

Company: HMS Income Fund, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: October 7, 2016
Event Date: October 7, 2016
Context: The Company entered into a conditional income incentive fee waiver agreement with its advisers, HMS Adviser LP and MSC Adviser I, LLC, covering the third quarter of 2016 (July 1, 2016, through September 30, 2016).

Key Financial Metrics

This filing does not provide specific revenue, profit, cash flow, margin, debt, or liquidity figures. The document focuses exclusively on the terms of a fee waiver agreement and potential future reimbursement obligations.

Material Changes and Agreements

Fee Waiver Agreement: The Advisers agreed to waive the "subordinated incentive fee on income" for Q3 2016 if deemed necessary in their sole discretion.
Repayment Obligations: The agreement creates a contingent liability where the Company may be required to repay previously waived fees (base management fees, incentive fees) and "Expense Support Payments" (operating expense reimbursements) if a surplus exists in future quarters.
Repayment Priority: Surplus funds, subject to board approval, must be used to reimburse:

  1. Expense Support Payments (starting with the earliest eligible year).
  2. Waived fees (starting with the earliest eligible year).
Repayment Window: Repayment of waived fees, if required, must occur within three years of the date of the respective waiver.

Outlook, Risks, and Contingencies

Contingent Liability: The primary risk disclosed is the potential future cash outflow required to reimburse the Advisers for past fee waivers and expense support if the Company generates a surplus.
Management Discretion: The initial waiver of the incentive fee is subject to the Advisers' sole discretion regarding the necessity of the waiver.
Board Approval: The utilization of any surplus to reimburse these amounts requires approval by the Company's board of directors.

Investor Verification Checklist

  • Verify the total amount of "Expense Support Payments" and waived fees accumulated prior to Q3 2016 to assess the magnitude of potential future repayments.
  • Review the Investment Advisory and Administrative Services Agreement dated May 31, 2012, to understand the definition of "subordinated incentive fee on income."
  • Monitor future quarterly reports for the existence of a "surplus" that would trigger the repayment mechanism.
  • Confirm the specific terms of the Third Quarter 2016 Fee Waiver Agreement filed as Exhibit 10.1.