The company is targeting opportunities in the lower middle-market private credit sector as lenders retreat, with a $1.3 billion pipeline focused on sponsor-backed borrowers generating $5 million to $15 million of EBITDA. Its portfolio grew to $290 million across 17 companies, entirely in senior secured first-lien loans, with a 13.2% weighted average yield. Legacy cannabis loans remain the main source of credit stress.
AFC is pursuing asset sales and foreclosure actions on troubled exposures, while maintaining caution about new cannabis lending because borrowers have limited access to equity capital. AFC Gamma (NASDAQ:AFCG) reported second-quarter net investment income of $3.5 million, or $0.15 per weighted average common share, while emphasizing opportunities to deploy capital in the lower middle-market private credit sector as lenders retreat amid broader market stress. The company's board declared a quarterly distribution of $0.05 per share, paid July 15 to shareholders of record June 30.
The distribution was covered three times by quarterly net investment income, according to Chief Financial Officer Brandon Hetzel. → AST SpaceMobile Earnings Just Reminded Investors How Risky Space Can Be President and Chief Investment Officer Robyn Tannenbaum said default rates have risen across private credit, citing a 6% default rate reported by Fitch as of July 2026. She said lenders have pulled back from the lower middle market or shifted their focus to larger borrowers, reducing available capital for smaller companies. Tannenbaum said AFC views the environment as a potentially attractive origination vintage, particularly for lenders that can source transactions, maintain sponsor relationships and negotiate protective loan terms.
The company generally targets investments supported by enterprise value and asset coverage, with maintenance covenants including leverage and fixed-charge coverage tests, she said. → Nebius' Q2 Beat Shows the AI Bottleneck Is Capacity, Not Demand Chief Executive Officer Dan Neville said AFC's pipeline stood at $1.3 billion across a range of industries. The company is focused on cash-flowing borrowers with EBITDA of $5 million to $15 million, primarily in sponsor-backed transactions. "Originations are going to be lumpy," Neville said in response to an analyst question, noting the company made roughly $80 million of originations in the first quarter and less in the second quarter.
He said AFC was advancing several opportunities and was satisfied with the quality and pricing of transactions in its pipeline. → On Holding's Price Stumble May Be an Opening for a Company Built to Run As of June 30, AFC's investment portfolio had a fair value of $290 million across 17 portfolio companies, compared with $279 million across 15 companies at March 31. The portfolio was entirely invested in senior secured first-lien debt, and its weighted average yield, excluding non-accrual loans, was 13.2%. During the quarter, AFC funded $17 million, consisting of $5 million to two new portfolio companies and $12 million to two existing companies.
The company recorded $8 million in fundings against $9 million of amortization and repayments. After the quarter ended, AFC committed $7 million to a $25 million senior secured credit facility for an outpatient behavioral health platform, funding $3.1 million at closing. Neville said the platform operates 10 locations in the Northeast and provides services including talk therapy, medication management and partial hospitalization programs.
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