MONROE CAPITAL Corp Q2 FY2024 earnings call

Key Points

• 17th consecutive quarter adjusted net investment income covered $0.25 per share dividend. Annualized dividend yield on trading price was 14% as of August 6, 2024.
• Adjusted net investment income increased in Q2 2024. NAV slightly declined due to net unrealized losses offset by net investment income over dividend. Leverage decreased.
• Focus on managing and supporting portfolio companies, selective redeployment of capital. Portfolio companies in resistant sectors showed growth. Risk rating distribution stable, interest coverage ratio maintained despite elevated borrowing costs.
• Middle-market loan volumes rose, but competition tightened spreads. MRCC focuses on lower middle-market, effective yield stable at nearly 12%. Supports incumbent portfolio companies, generates deal flow through existing portfolio.
• Affiliated with best-in-class middle-market private credit manager with $20 billion AUM, supported by over 250 employees including 110 investment professionals.

In the second quarter of 2024, Monroe Capital Corporation's investment portfolio totaled $485.8 million, a $15.1 million decrease from the previous quarter. Adjusted net investment income was $6.7 million or $0.31 per share, an increase from $5.5 million or $0.25 per share in the first quarter. NAV was $199.3 million or $9.20 per share as of June 30, 2024, down from $201.5 million or $9.30 per share as of March 31, 2024. Debt to equity leverage decreased from 1.6 times to 1.54 times. The portfolio is predominantly first-lien senior secured investments in sectors resistant to economic challenges, with portfolio companies showing healthy revenue and EBITDA growth. The SLF had investments in 39 borrowers aggregating to $109.7 million fair value, with average mark decreasing modestly.

Forward-looking Statements

• Expect limitations on incentive fees to persist over next three quarters. Third quarter EPS is expected to cover the dividend.

Risks

• Net unrealized losses on certain portfolio companies. Intensifying credit market competition. Potential impact of changing interest rate environment on portfolio companies' debt service obligations.

Q: On the SLF, according to calculations, fair value decreased roughly quarter-over-quarter. Is this vehicle in runoff mode?

A: The fair market value of the SLF was flat during the quarter. We're evaluating how to be constructive in the market with this vehicle given the tightened rate environment and economic cycle. The SLF is about 6.8%-6.9% of MRCC's portfolio fair value, and we're evaluating the right time to re-enter the market.

Q: Focusing on non-accrual assets, what's the update on workout processes? Can some assets come back onto accrual?

A: Non-accruals represent 1.9% of fair market value, 4.8% of cost, across eight assets in various industries. We're working with internal workout team to maximize recoveries. These assets are in different phases of turnaround and exiting process, and we're confident in successful outcomes for these names.