MONROE CAPITAL Corp Q1 FY2024 earnings call

• Adjusted net investment income covered the $0.25 per share dividend for the 16th consecutive quarter. - Dividend yield on trading price was nearly 14% as of May 7, 2024. - NAV decline due to net unrealized losses from portfolio companies with credit performance concerns. - Leverage increased due to debt and equity investments in new portfolio companies. - Focus on portfolio management and redeploying capital. - Macro market view: M&A and loan volumes down from prior quarter but year-over-year up 41%, competition in credit markets tightening spreads, gross yields attractive. - Affiliated with a best-in-class middle market product credit manager with $19 billion in assets under management. - Investment portfolio had 98 portfolio companies, funded $10.2 million to 3 new companies, received a $7.9 million payoff, and had $4.2 million in paydowns. - Adjusted net income was $5.5 million or $0.25 per share, effective yield decreased to 11.9% from 12.1%. - SLF average mark on portfolio decreased slightly, received $900,000 in income distribution.

In the first quarter of 2024, Monroe Capital Corporation's adjusted net investment income was $5.5 million or $0.25 per share, a slight decrease from $5.6 million or $0.26 per share in the prior quarter. The NAV as of March 31, 2024, was $201.5 million or $9.30 per share, down from $203.7 million or $9.40 per share at December 31, 2023, primarily due to net unrealized losses from portfolio companies with credit concerns. The debt-to-equity leverage increased from 1.49x at December 31, 2023, to 1.6x at March 31, 2024. The investment portfolio totaled $500.9 million as of March 31, 2024, a $12.5 million decrease from $488.4 million at December 31, 2023. SLF (Specialty Lending Fund) had investments in 41 borrowers aggregating $116.4 million at fair value as of March 31, 2024, with borrowings under its nonrecourse credit facility of $58 million.

• Management believes adjusted net investment income will continue to cover the $0.25 per share quarterly dividend on a run rate basis. - Targeting to maintain leverage in the 1.5 to 1.6x range. - Cautious approach to SLF portfolio due to economic headwinds, looser structures, and higher leverage in the upper middle market.

• Net unrealized losses from portfolio companies with underlying credit performance concerns. - Heightened competition in credit markets leading to spread compression. - Slight increase in nonaccrual investments to 2.1% of portfolio fair market value from 1.5% previously.

Q: Would you reinstitute the management fee waiver to support the dividend?

A: Historically aligned with shareholders, and no reason to think it would change in the near future.

Q: Direction of leverage?

A: Targeting to maintain leverage in the 1.5 to 1.6x range, currently at higher end due to portfolio ins and outs, and pipeline supports this range.

Q: SLF asset quality and fair value markdown?

A: SLF invests in upper middle market companies, been cautious due to economic headwinds, looser structures, higher leverage; nonaccrual percentage higher in SLF, at around 9%, with a more cautious approach to reinvesting in these assets