MRCC - Earnings call transcript Q4 2019 | Monroe Capital Corporation

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Operator

Welcome to Monroe Capital Corporation’s Fourth Quarter and Full Year 2019 Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain certain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potentials, operating results or cash flows.

Although we believe these statements are reasonable based on management’s estimates, assumptions and projections as of today, March 4, 2020, these statements are not guarantees of future performance. Further, time-sensitive information may no longer be accurate as of the time of any replay or listening.

Actual results may differ materially as a result of risks, uncertainties or other factors, including, but not limited to the factors described from time to time in the company’s filings with the SEC. obligation or no forward-looking takes Capital to revises update statements. Monroe

over now Capital Koenig, turn will to Corporation. the Monroe I of conference Ted Officer Chief Executive

Ted Koenig

Good issued Peck, press our our has and Chief XXXX everyone call morning earnings Last release I’m quarter CFO you XX-K evening, and Officer. SEC. on year we today. Aaron filed us fourth with our who by joined Investment and thank our and joined the to full

net investment $X.XX For of quarter, net adjusted higher covered the in generated adjusted quarter. represents our income of income. fourth share, investment the per dividend than investment This have than our share the per income dividend higher $X.XX net we $X.XX and per XXrd with of third we our consecutive quarterly adjusted share, quarter

below. the generating are to in strong define lower for Turning that believe increasingly we million or market, market well to private asset non-regulated both $XX turning conditions and of managers believe as market, financial overall medium-size which lenders companies credit small remain business and middle solutions. positioned in middle We we companies MRCC this market, to is the continue EBITDA

in each Monroe is have those better reviews reason major be see upper and leveraged platform. and of to fact the lower proprietary We end market investment today. These opportunities credit evidence structures origination by this the year. our approximately of the that deals than The X,XXX for middle deals covenant turn

our is allows to existing This our most us customers. from deal important grow our and of sources own flow One of expand borrowers. best

company fourth provide We and That management of had performance increasing borrowers. coin. investments our we attractive exposure believe the experience typically to XX% for our before that accounted in fundings side investment portfolio observe of these opportunities time XX% in and the incumbent the to as is and have proprietary positive these XXXX, quarter. the Our

of flows our be that continues sector. is there side new negative capital to strong The into

turn the to million pressure both put higher as pricing magnified structures. per on middle-market, in and we broader EBITDA entrants define loan is $XX with New which than year. This trend borrowers

part of to packages not lower of while the has we type sustainable lower Munro behavior spreads, where do much see our increased due and see deals able structures. maintain brand, to spreads do significant the market covenant of middle LIBOR we this part competition built and and In seen the yields, has and strong we have been market, primarily reasonable of a

our Despite that the in and we Given the we be more limited tend more cycle of long and market the We remain we to U.S. industry later credit likely expansion market are acutely signs weakness, innings aware in underwriting are that standards and we in a passing find economy. of more deals specific. on currently. focus, seeing sector very of

In coronavirus. likely unknown XXXX a divisive presidential addition, election the uncertainty of still added we have and economic be impacts of long-term what campaign will

lower policy for a combined rate combinative another As be rates of week, witnessed cut we monetary by interest longer. a this result with uncertainty, this will feel yet

from We will private believe wait-and-see a factors sponsors. this equity to combination approach borrowers of of more contribute and

market believe not As to to with we and leverage covenants. continued origination and up the have in our either several structuring efforts a the defensive average and or on that loose companies been careful on quarters, over deals pushing have measure focus covenants past we industries less no we follow extremely are larger cyclical

to floors, LIBOR are which all yield of the pullback Most include structured to helps recent our given deals in rates. maintain our

during Additionally, we recent have quarter. reduced our regulatory most the leverage

strong covenant we to deals origination with underwriting and believe is continue structure our We have remained disciplined which important. packages, in and

origination throughout healthcare, direct equity discipline finance, maintain market media, to following result services, which team, areas: the close of coverage business the course, vertical in deals industry consists the community. the in the specialty professionals our middle multiple and proprietary is selective deal real software, private located broad estate, technology, in teams U.S., this offices we origination XX and large remain and ability of Our of our

we monitoring as X,XXX closed were diverse XXXX funded large allows invest platform, and the protect and of and us investments. us Monroe extremely which borrowers, investment we these deals were provide the only evaluated to close to borrowers. what of necessary new XX and Across in team our remain our deals covenants to our the opportunities selective of we approximately pipeline strongest and in by in believe opportunities to with in we we XX a are tools originated we funds, This result, that and our structure investments,

X.X% of investment On in investment the average, highly portfolio, in in estate as the of arbitrator issued favor evaluate the a the Monroe January XX-K, new closes an luxury of platform opportunities and we borrowers, approximately Specific award our in in our earnings decisions. us the Blackhawk, year, which our of one given of insurance a Rockdale affords carrier. disclosed of selective we legal estate and an between our proceeding XXXX, national to the in release being pending

with other because will the to certain exact part to interests, of The yet as attorneys’ of this included has finalized. award in determined and need the amounts finalized fees, arbitration be and lenders The including the Rockdale, to proceeds be estate. of award still MRCC, share this amount award

be that based this this the to this next few to resolve We the basis quarters, the value outstanding Rockdale exceed of very to our of mark previously proceeds of the cost over we balances on expect expect our loan development at calls. quarter, fourth with Accordingly, but believe award, to on We has holdings Rockdale. a discussed something end and in quarterly we you a fair increased. positive have

growth offset of net fundings portfolio by new attributable pay-offs $XX.X million deals, quarter. a attributable portfolio decline decreased This the and our portfolio quarter, fourth by $XX.X loan million to of $XX.X expansion. the was existing was during existing pay these to $XX.X million company During on downs of million Approximately on basis. partially

quarter in see course portfolio during the of said end our after conference the which call, in anticipated just we the ordinary decrease third expect As pay-offs prior have fourth as the the several quarter, we we in quarter occurred. a to

our investors than over share enjoyed the and At fourth of share, strong $XX.XX Monroe from in NAV was period of Capital low and end defaults Capital very a the quarter. per recoveries direct quarter, of loans. greater prior end in direct per the X% history has decline time, have a lending XX-year that operating the Monroe

and recent senior strategies. continuing management are borrowers, time issues on these a analyzing to select significant our team believe declines a collection amount our few credits we that idiosyncratic spend related credit is our of many unrealized mark-to-market While focusing to with of and workout specific

We the possible award example is on a effort. are that arbitrator's highest good that very on realizing assets been have recoveries Blackhawk Rockdale the of marked. recent focused The

performance a enjoys necessary billion the X, strategic divulge management being assets of Capital investment as strong net and January of generate MRCCL improve are XXXX. and over forward. to XXX income management private under very affiliated with market over adjusted Monroe employees MRCC best-in-class in to with going $X of NAV will whatever middle asset levels in acceptable advantage continue firm credit resources

to Aaron, over the turn results. with to call going going now am is who to through walk you I financial our

Aaron Peck

Thank you, Ted.

million in million of million loans in existing borrowers, aggregated under fundings million and on $XX.X of million offset total $XX a delayed portfolio in in funded $X.X we consisting borrowers, of lines quarter, term credit, $XX.X investments $XX.X was which repayments to draw fundings This and existing assets, new by to new quarter. revolving and during sales existing the growth loans. partial During the

we and of million, million million. XX, SBA facility, debentures our payable total including $XXX December At our of notes, borrowings credit had $XXX.X revolving outstanding XXXX of million $XXX $XXX.X under

be SBIC subsidiary, of future the under Any predominantly availability portion our and significant held revolving Since progress subsidiary. which quarter. million investing have in we made substantial end un-invested cash funded totaled facility SBIC $XX.X the portfolio at quarter-end, remaining will in our of the the the growth a the cash un-invested in credit by

results. our to Turning

income $X.X or $X.X share. this or covered of adjusted quarterly $X.XX or measure was adjusted dividend share. $X.XX non-GAAP per prior the increase share, million level, investment investment ended $X.XX from per NII per For December net At quarter our of an share the per quarters adjusted XX, income million net

December million in of $XXX.X from value asset asset net net our XX, $XXX.X As was as September the down slightly million, XX. of was value which

of XX unrealized Our September mark-to-market NAV per This result adjustments. share share was share decreased X% XX. from to decrease $XX.XX valuation $XX.XX of a primarily December as per at per

portfolio a investment statement our a result of of the due income increase to the average Tap principally income income, Interest upon in of operations, the due by in investment quarter, success LIBOR Looking to LIBOR, during fee payoff balance, a in increased portfolio the quarter, quarter. lower fee realized declined reduction in during and spread yielding higher our gaming. decreases our an as in assets primarily during the driven repayments to room of total

the we did status. During additional on positions any put not quarter, non-accrual fourth

This portfolio increased we due Interest expense smaller dividend quarter necessary fees. a our fourth Moving driven reduction quarter the quarters, fees during increase on as not balance expenses result the adjusted the quarter. and over a also the by incentive exceeded to debt coverage. during of other net borrowings, expenses its own. as the NII prior dividend In in slightly the ensure primarily quarter total financing was for declined an average the side, incentive to in voluntarily many waived in to

the XX, on a $XX million credit the facility. decrease of of targeted end is of under leverage of prior leverage have to nearly X.XX current regulatory our quarter, the had you At within The approximately prior as debt-to-equity, guided we December level we calls. of was range the our regulatory end liquidity, leverage leverage the revolving approximately capacity quarter. X.X Regarding of the regulatory at from

quarter, in higher quarter some leverage as result quarter repayments we fourth portfolio portion a in XXXX. regulatory first the going of which in We the do of could of reinvest level first forward expect net the growth a

investments average XX, with $XXX.X at December fair X%. As million value interest of rate weighted of had different in borrowers approximately XX aggregating SOF The a

excuse borrowings our capacity in credit currently of the under this of facility of under At XXX, had level of and this funding, $XX.X generating partner. to is SOF dividend $XXX.X equity JV me million XX% the SOF credit yield available million a over its The and MRCC non-recourse facility.

due MRCC XXXX. private underlying amount Ted the in claim to to award An were loan as serves and claim and mid-August issued discussed, for proceedings was January the in insurance carrier was receivable an a with September. a confidential dispute. with arbitration Blackhawk the pending Blackhawk. there trial national submitted of as Rockdale collateral briefs late and arbitration arbitrator in in final Rockdale The Regarding accounts were completed That material

and the exact payable over a in that other cost As uncertainty positive initial a earlier and the of estate but to and excess sharing the the MRCC between the for in lenders of will excess should of to estate. the Ted the proceeds amount stated available pursuant be our result amount lenders, lenders balances very to is still Rockdale and there to due recovery some lenders in outstanding terms the to receive was call, the of agreement the the substantial award to loan right basis

could appropriate If are at time. that the updates value negative, the we on positive have a the there either position, material will of effect update or this any shareholders

business. investment During apparel is the a Collection. Headquartered New on our decline mark-to-market direct-to-consumer our experienced in Worth Worth The City, luxury quarter, contemporary and York we women's in

quarters, in fourth sponsor equity it which of of quarter, declined reps. the an Worth its previous indications sponsor the support. the further would company's private Despite increased liquidity, owns further the declines the continue that done support In had to sales experienced attrition company its prior PE sales, provide to in of

ability to result, doubt. and there As a that company's a the doubt to going the mark about current is as survive reflects substantial concern, continue

back to we closing I line Ted before remarks the call some will for now for turn open the questions.

Ted Koenig

Being same resources years, highly we portfolio you, selective origination a to discipline. net maintaining had active XX and on the and to deal at investing proprietary and our Thank the plan In possible strong underwriting cash Aaron. of closing, Monroe execute for last continue flow. widest management in we the as

are largest us That XXXX and competitive recognizing ability discipline presents continued We overall entering private the most gives firm selectively that U.S. when the credit our stable middle situation and with in market platform itself. one lower of to the right and and space. be the caution is

the we and believe ability gives more also market when not more which will the It with in right, challenges us to we pass situation are coming uncertainty. the confronted important and year be is as

and shareholders a provides to We Corporation Capital reasons. attractive our continue to investment opportunity investors for Monroe other believe following very that the

incentive we income high XX consistently external adjusted very dividend investment straight where Our fees fully management coverage and the been leverage asset stock adviser periods points. dividend agreement by a payable material limits net our higher in our supported any quarters, net currency fees and pays a in for and in place had rate, that there base decline reduced friendly value was last management is shareholder have at

throughout with and $X.X And assets as lastly, we time the employees your approximately with best-in-class much the management all were offices XXX over billion Thank you XXXX. very today. external X, affiliated under January of manager U.S. in for

going the call the open ask And to to with for operator I'm questions. that,

Operator

Blair. Napoli Instructions] from [Operator is our you. Thank go with William Bob And first question Please ahead.

Bob Napoli

Thank you good and morning.

doesn't to in you quite at is to as base, effect but are most or you virus, have by the this could that broader – are that virus you coronavirus for the the there, was add you I travel U.S. I at become obviously at investments the just out seem potentially susceptible it risk areas macro your and industry have to currently? do although – Just guess, who affected have did curious have investments what do a borrower look yet, with most

Ted Koenig

pretty leisure, in a not I very Good we’re a that. do several last We so you, if have hope transportation good the have from I shape Bob. private standpoint, any and as space, that the done I weeks most question. much think anticipated exposure have. I portfolio intensive our question of review on Thank travel, managers in we credit portfolio think over aircraft, pretty

of You more tangential know effects you I’m I the we’re position know, – a in and about to know don’t it, concerned think we’re yet.

and there participants I the you Europe Trade What’s private in that people. happening? Berlin were roughly participants no week, will last XX,XXX equity In there Italian world I which canceled, were and in Association and the mean, was was about in Chicago, was no Asian I conference I largest at Housewares tell was there. the the there

can and QX So, panic think everybody be today, the lot general and is that, you market I as know, you will that concern get that focus Monroe we shape Capital a there facts, this long and the there. to you relatively at you well risk. know, from and a information QX. business, portfolio know, QX hopefully standpoint, I of on don’t you back in we good portfolio, But, tell we need as, MRCC you a in is and in All as the not as know, know, issue more can is

Bob Napoli

first Great, thank the you. and I motion hopefully. second quarter second the affects, on

some a Just when on you get And, Is have potential that write-up you Is that? did paid? in is amount? that right Rockdale the – the more up I mean from Blackhawk, how conservative? Or to quarter? there know, there risk do you

Ted Koenig

Yes.

So, here tell you. is what I can

may is of spoke under cut on be the on procedure. that but and what marked can example we’ll say asset of we’re analyst on other firm don’t you tell our that, and calls if a that change, able in change because You that this and the as it it, know, recovery to as anticipate you right we’re being case know in can is confidentiality future, is does I members previous the credits. the the run to and we community challenge arbitration then – arrangements with you more now we a that as I we some transparent the

marks. shareholders be we may transparent public we with on Now, and can you know, as and, try we marks, take you to the our as

than we know, last the value Just collectible a marks because and others, distinction believe marks are full at important doesn't because in assets some or – you level believe take a at quarters, the that doesn't industries. higher that over very that’s taken several that the not that we marks we’ve mean like certain

because within pursuing with to is just a year of there winner effort know, community. may team we our a others counsel and over as, we portfolio But you can in and it the and and amount this converts, limit spent we you say a significant our are until were in management on do senior experts claim actually this of and thought We’ve our and other we a to believe knew we know, legal what portfolio. claims we management

have to what resolutions And that’s know, that’s to continue So, come credits, you that what very community favorable ruling do; of it on I but you understand we you tell with one I’m that what asking, what a we’re the our that arbitration. in portfolio. today at just in to we calls future to and and marks that’s on business; going talk that’s credits me and good wouldn’t other do can received other surprise we to the this about we’re our be of to the is particular all able

that be over out expect in because guess be determined we is arbitration, need part quarters and the of are finally substantially our agreed We recoveries my to were to – and play couple of order. its awarded of excess those reimbursement of to cost costs as the the basis, and part to there and and certain of our next that’s expenses going

to I So, on you I’m patient possibly as Aaron we and will us be to you can. asking and with soon as this back be

Bob Napoli

to Thank continue just you. question to the dividend and your the me, for level confidence being Last cover – in able dividend. maintain the

question picture interest if XX% know, to maintain, able dividend, need point, that book a that job the thoughts just yield a be that support would, obviously, rate to you able to and continue so if you dividend to it, market big good to value value you around is be some would? you've and to a dividend maintaining this X% book you have You done the

Ted Koenig

this I you you future, we point, about good know, Yes, where are predict with I’m we but on can’t the feel company. the obviously, telling particular listen,

We’re SBIC a deployed to We’ve and on of think a along credit our a is got got I on we’re humming – in money been here. bunch collect a our development sub. money facilities, bunch lot you I going has be We’ve this know, we’re of going good so, Rockdale. from really that headroom think to

Bob Napoli

Alright. it. Appreciate Thank you.

Operator

you. Thank

with comes FBR. Our Riley next Tim question Hayes B. from

Tim Hayes

your know, Thanks know, covering consistently good to fees? you Bob's follow-up you and, incentive that loan for with My first you the questions. put morning, think repayments, NII foregoing] for just Rockdale one you guys. the from on Hi, [signs dividend a the last do there, and question proceeds redeploying is will upon how adjusted close taking

Aaron Peck

Yes, thanks Tim. This is Aaron.

So, current that to pretty know, good can our question. let If focused deploy in our very that that back ability assets on non-accrual that. you our getting meaningful NII. you All certainly to is substantial. say about changes, we’re to this but, it. to I We continue you asset that’s level It’s feel at a in know, supports cash we’ll ability good do

If NAV, tied favorable. know, can that’s you you cash fair get that our when this, basis, there’s back amount on very versus look up to we at accrual an it, a capital in work of so

Tim Hayes

near-term you probably capital you the And, do your that the to currently? And, long near know, term companies and are portfolio little around you portfolio obviously that on more you you demand follow-up know, perspective fears have volume the in outlook coronavirus, given, as markets, know, from uncertainty? front bit know, you seeing a the or it know, in see the any you changes think volatility you you And, given, and given know, falling know, to will of just off you? companies redeploy do in you uncertain the pipeline take you but, the coronavirus how just you

Ted Koenig

Good question, take that. This I’ll Ted. Tim. is

pipeline in billion now right $X firm. over have in the We

of a we we’ve – Now, $X.X billion know as firm, you managed got assets.

don’t any is come due BDC able the issue to happened know smaller. obviously the You I assets BDC. much as in prepayments being redeploy see or they as with

over know, six next to shape you standpoint, months. we’re three to the going in good MRCC really an from So, be here think I

our effect I term. to ability in as see market but deploy the in going that obviously, remarks, you earlier don't is have Now coronavirus my impacting in near an capital general, the told I virus to

Tim Hayes

about Got your dividend I'm to of stock yield, amount quarter, curious de-levered stock and That’s just know, a how helpful. as currently Okay. good And levels? XX% then, this you you you at it. towards about so potentially allocating buybacks a XX.X% think NAV you trading capital at know, just these

Ted Koenig

a a had too. and obviously, know You haven’t about to at into Board dig good the question we level, everything. really We that that’s talked chance

our deploy over think you’ll very in arbitrage think be got we a is I goal positive deals, doing. on that that’s deploying we’re know, deals, and, the what here that you going see in Number we’ve in and focused term next near very, good good capital to you capital X know,

Tim Hayes

And you okay. you Got in me, the have it, leverage for more it average be then, if just companies? coverage you and/or that LTV one on to would front multiple is debt able disclose interest portfolio of

Aaron Peck

closer I have the don’t from to coverage a different that's lower neighborhood, but play as where and market upper of there’s you know why in in middle for better speaking X.X a the that and middle today the around from the mentioned in of a is close the coverage lower market now, Upper similarly market we middle margin standpoint, know, and, market my in would terms I – in know, middle like market terms I me, a leverage got lower generally to we’re and leverage in standpoint, level is market. of I’m you tell and information that of to middle we there – a general market, market. you six the in you earlier front remarks, it's situated we’re

Tim Hayes

have in up guess they’ve front you of metrics to again, Or over you stable? creep have the you, level whether high kind trended year touch be I bit? then just I have past of those a provide on data a able know, – how would the I but seen know been don’t don’t you exact them

Ted Koenig

XX it’s can the moved last little or – over so, tell year a the Again, in months. general I speaking, bit sure. is you that Yes, what

half look at a moved has larger market, turn probably that the market a full turn. you almost to If

to You X know market pretty market turns. X we’re is X.X today space we X lower leverages today, to around to and closer larger see to market space probably used common is the times middle turns in that seeing and and X turns in the middle up

good think I that's So, flavor. a

leverage that you cycle X ask full in, middle turns how lower me we’re if of we probably most and middle probably the in of we In does the market, lower closer you compare the to know, of career? that middle almost cycle turn higher in was to so we’re Now, market up last a are thought at in market. to the my frothy in X.X probably turns the up XXXX, I about end X the were end

Aaron Peck

I though, then were Ted, going higher pre-cycle than were level that would different where general because as of quite the not guess a are back bit today. coverage’s probably rates we

Ted Koenig

Yes, from you’re a coverage right. standpoint,

Aaron Peck

Right.

Tim Hayes

sense. makes Yes,

Okay, appreciate color I there. got the it.

Ted Koenig

that's separate question comment on I our stock is and price is low, a last think I so to stock your the comment. guess too the Yes,

Tim Hayes

Thanks guys. Understood.

Operator

you. Thank

Our next question comes from Christopher Nolan Ladenburg Thalmann. with

Christopher Nolan

Ted, guys. Monroe on Hi, Capital impressive. growing X.X that’s billion, to congratulations

Ted Koenig

Chris. you, Thank

Christopher Nolan

headset. a second, Rockdale, hold on Hello? my

Aaron Peck

Chris. here, We’re

Christopher Nolan

in fair Okay, that cause this great. Rockdale, last increase fair this and adjudicator January $X value? quarter the from the December XX, XXXX, was $XX the what increased was was On million on of announced in given value million that court about

Aaron Peck

the pointed we information, advice you time Clearly, and the some got as great getting, know, it correct, probability on end felt from as went comes we of this thoughtful post position on, on have because it’s increased resolution. Chris, felt bolstered we we Yes, something that know, to a you’re have the we valuations of positive reads are as been and be that we we you when all that have the that out like period all of that, time for and that we've saying extended quarter question, as legal XX/XX. of you would our based that really were

incorporate And believe It XX/XX total at recovery necessarily the reflects so, be the because not [renewable] probability resolution. does was mark a not a XX/XX. to at we that positive of what higher

Christopher Nolan

Got it.

on because to Ted’s happens PE tangential question so shortage will chain sponsor? of second start supply lenders it as forth? work step The companies of that and the what up? does be out? capital Will a having sort if such the to Will coronavirus, comment portfolio relates yourself? your earlier working Who be it the How exposure issues

Aaron Peck

the a into down, go that for its translates liquidity receivables payables borrowers, come short come is the to in heavy reason are what down, – It a Good time, when that’s and like that liquidity for revenues a particularly because best an sales why something the it extend. issue probably questions have tell into the issue of issue down, a question. manufacturing down right very away really a happens you period P&L you one tends borrowers. translate I most companies inventory come and a business – will translates coronavirus, into issue, for to doesn't tend

So, need these and they you in what cash. capital a squeeze working happens, companies get

companies or So, you is subject liquidity importing. our not heavily are the that that manufacturing services, are portfolio medical, of more business to primarily that are or know, or a that capital software, by reimbursements, much driven things Companies susceptible squeeze. working

last know, rotated You the position a cyclical, into of base manufacturing over a we years, less that good feel the dependent pretty know, importing several portfolio. in things are purposefully metals borrower MRCC and, we’re so, and and our or on gas, oil we you more heavy with

within that the additional more covenants. company squeeze, is was covenants that credit when the guideline is that happens liquidity there’s I often then you leverage within if and question general very tell generally may of nature happens what leverage You will extend their and a the lender

they the intended have fully some or that if normal step is interim time where covenants leverage provide comes period is when, short the and you of know, back. However, in at private a company to be may capital up bridge equity type at guideline working its of firm then reimbursable to

So, that’s how to answer your question.

Christopher Nolan

taking Great. offline. for Thanks my questions I’ll and follow-up

Operator

you. Thank

comes Our with Dodd next question Raymond Robert James. from

Robert Dodd

on congratulations you of gain then – to under and Rockdale picture house first ones settlement and and fee would it’s but that on the quarter. it question, realized constitute what housekeeping A couple is income the arbitration a to depending would would an – guys of that go etcetera, sort know confidentiality on Hi, I bigger or ultimately?

Aaron Peck

Yes, it’s a good question.

examining probably that the be gain, settlement would owed. still a over most be considered other we through. It flow income likely are some will how potential income, fee elements out of will real realized what on for of a how it and it and what will there – time We’re considered all most depending not and through be that plays

some that accrual of P&L. our will that not for be interest, currently there calculated So, in is example, accrued is

that but an be to try where. best clear metric, try people exactly we’ll so, break to components And to our settled through interesting we that this more it's flowing as is what's the and out have so income to very once for could say

Robert Dodd

Alright.

Ted Koenig

of to things time and you make just clear, the Yes, you that different expenses. a Aaron will be clear more like income, items know, we’re arbitrator know, one member interest, fees on, we’re accrued for a and a so waiting a current but, right in interest, rule on interest, to default this. number business Robert, of additional remember, that’s something the our is goes as question, here of line charging of there’s great interest, fee now

really MRCC. good I and it’s happens, much than that for to until be development a So, it's you more other positive give very going really can’t guidance

Robert Dodd

so tell while a in quarter, doesn’t which was you of on some well, quarter? obviously that’s then going any would Yes, high mean, understood so prepayment was income us flush I income as I now on far been can going to that source the on the and exactly what look filings, from I give this there’s income as imagine point. the catch-up color its that fee very can and the it’s and

Aaron Peck

sure. Yes,

So, you’re it right. fee; related prepayment prepayment It wasn’t to a was necessarily though.

So, an a our something of a we value a that fee on value had would the of part upon loan, company our Gaming of room had called we and loan. and the in investment called Tap for of repayment based success be on of sale the our a the the investment, company structured repayment as company

the income of quarter fee the in in occurred was that the with so, most and associated And that. quarter

Now, it in we’ve previous very certainly inconsistent you been levels quarters, with It’s than higher high quarter. in in the recent say not it it’s years. is had but was

of definitely what seen not historically. higher extremely couple versus quarters, would last what the I but we’ve So, high than consider

Ted Koenig

that on seen tend the Yes, of, couple is prepayment you income. heavy last of too, refinanced just Aaron we haven't know, Robert, that know, periods prepayment in activity, a we quarters, more lot historically, mentioned, in two you see and as things of income, to

Tap number know, really occurred and not know, of that the to in portfolio, return and we have additional in fees Gaming it by our have deals portfolio yet, back see understood this a is market not small deals is portfolio of book so your opportunities you success you go non-sponsored that's we area, and we a of that you our pay but a we is think plan we make when lower things if, middle income, know, you can’t that hasn’t to you you used sell. create in companies fair that the we’ve really refinance because room way our you in If couple I additional that, market, know, play created from but the one end the the or portfolio good to amount of manageable of and income because prepayment focusing easily business example a years,

then benefit. warrant room and example to where a excellent equity And structured an the refinanced deal was Gaming opposed the as when was deal of know, as Tap sold, you fee or company, in the got success opposed to a we or a we the

Now, to are size things are that the a happen. got portfolio, of expect know, you’ve over time going we of portfolio, a those you but our episodic, lot when those

the want to that, just you with hopefully in to I you that know, other understand and you understands sure make that, this is community you future back coming know, the will be So, instances. that something with

Robert Dodd

generate middle from I of company. portfolio only Ted. know your sources understood, a in are mean yes, Yes, you OID can lower I coupon, income not market that the

to prepared of, know, us – you obviously, mean the last effect XX LIBOR give I the in force the you On its mentioned secondary any Fed virus, cut, to comments, basis more the your you and back can speak, for but so color me a points, one now? in point? the today flow got protection average where much play speak again how them if some moves many within moves How of moved much since for that of so you’ve the – is? And are the additional how at LIBOR, has LIBOR portfolio to LIBOR obviously Fed

Ted Koenig

a question actually. good Yes,

effect to and know, down, in cost value funds So, banks companies lesson how of every this financial floors most institutions our we very LIBOR companies. particularly we on of have was as funds tied the our XX have. insurance credit work. this on negative week this private have and cut cost In a much basis go business, middle deals and and MRCC virtually quickly. deal insurance short that in and very market, are understand in lower you business, Banks you the Monroe point We a to

usually those set LIBOR LIBOR where We is. floors at

at in point maybe, a LIBOR or it our we point whatever set if the that tend So, is a floors to quarter level.

LIBOR set point portfolio, So, a spreads and our in a if you with with that tends extent see we floors. look do we exposure the LIBOR at to to lot somewhere LIBOR to we and and our much quarter a deals, between asset floors don’t our a tend more, of move point

Robert Dodd

thank Appreciate that, you.

Operator

Thank you.

comes next from Our Chris Kotowski Oppenheimer. with question

Chris Kotowski

been in clarification more asked, Yes, just bit most capacity of mine a subsidiary. the maybe SBIC but have on little the

and Does mean flow or $XX You financials? the leverageable $XX capital. and use that work million can then $XX through are that of debentures your further million million that you of said there – Or would there's draw? how and cash cash first, like, you would of

Aaron Peck

confused we on sorry Yes, I’m if that. somehow

of available. There’s cash $XX there's debentures December that’s more no, at investable. So no that’s XX million

in increase a capital that’s a by cash additional in in have subsidiary SBIC SBIC no have of reserve of at invest We we use the expect need draw, that amount SBIC in maximum but we necessarily there all to available in subsidiary. because we the SBIC that available cash, exposure least cash million do that’s of investments to the our some draw to wouldn’t case the substantially get So, to loan ability sub. for of but we investment the portion some the term of is $XX delayed that

Chris Kotowski

this then, I in clarify to you – the obviously, I a guess a mean bit investments. this know, get saw bit, we I quarter wanted Ted decline and little just, your to the say would should again in quarter of BDCs, Okay. a The but pipeline opening AUM you not say and was that the cautionary, with investment problem know, maintaining then $X in be also $X there portfolio. any in comments I billion of know, you that, you billion I language heard

know, that in you investments, to know the you made quarters? So, kind does quarter’s expect this up mean of in should total see one decline coming

Ted Koenig

fourth anticipated. of again that good a had a question. the we had quarter sold. activity were companies a that of number So, prepayment level high We in We being

gave in see think So, we are nice prepayment kind some we don't up We’ve quarter expecting to activity call pipeline. I you heads see quarterly in there. got a quarter. our this of coming the We third same last that the

We’re putting work. money to

but having always, you deployment can a anticipate to a know now, I thing try large quarter, we’ve pretty words normalized running firm as and again the trying chased the cautionary give you as was got hot careful be to we’re I market. to of pipeline a from and more be made decision that too. that us Fourth large you some nice very that about a think platform market a thoughtful very the only we

large the if too decisions you’ve that got hot. running You a you the know, is little make you ability a market to got see firm, those when

think think back of get don't with we’re to to in going hotness that right the currently and coronavirus now, some other of the and same facing I the we see level market, the things we’re I business.

Aaron Peck

thing the that, say which talk targets consistent on related because be live directly willing we that, add portfolio more you’re of it depends you portfolio be likely one that portfolio is, to we’re to certain just side, a leverage just when you to on And one see, the doing on leverage the in on on think are about we’re willing about is the perceived conservative we’ve I the been be we a know can't higher what to and we’ve putting thing, would assets that we slightly risk be will more at leverage. and vacuum going the the point on leverage

more did late competitor first that in also advantage in more of take defensive yield pressures a really which why positioning bit And contributed to years into last LIBOR come more declines, the it’s our be what a portfolio, bit take of senior straight, loans, little cycle we but part little couple is less thing the the which and a to pushed thought secured over a a a other shift to have and yield more to portfolio have which better has we down, little also we more risky can purposefully leverage leverage, in of portfolio. a was course

always that’s part as so, the And well. of thinking

a that’s have little the to go have here thought knew opportunities, a on a risk. where we and to higher bit bunch would we and of up based mix, in the terms leverage ability it from with quarter portfolio probably moderated we to to in about, the what as said go where the prepayments portfolio lower also here the end we little be were course do the terms we of we’ll the was mix leverage final thought on consider assess and little and at So, to wanted gotten first taking last we that of end we than we look get but otherwise of portfolio a see in level of quarter would we it’s the allowed we going have what we a

Chris Kotowski

was called give color us can is a for there accrual, think but Okay. about on on any me XX% cost company is, Forman you it’s last a there And that? XX%, now, Mills, still it’s mark then on of I

Aaron Peck

Sure. Yes.

obviously as name heavily a were that names with our below So, we Forman par. we’re do particularly names monitoring very is of marked are Mills all

I ill-conceived, low So, some purchases inventory they’ve, think Mills back what’s is segment, price some in that challenges Forman put growing some a company the systems Forman with had its really a really again. and were owned Mills in The sponsor to general retail happened company regards business. of the internal start and to with position it’s

you're their company base, provided capital, seeing in additional some capital us their as they given was really good result feel but and customer more the what some of some that prospects They a market the of sponsor the by as about to so a their about is issues, both and needed working loan.

to what decline just major you So, balance, the which higher everything saw was the terms a is this didn't based of what in which but was you shift we’re EBITDA on contributed of enterprise in some position a to company, see inventory value factors, their mark, the loan the were they improvements would good to regards support of expect levels in prior with because positional year. we revenue a over and of see with and inventory right seeing not the

well to point that So, to get our company which It trajectory this all a both looks still interest. accrual regards at par still of recovery why think to amount status. we here here on really as with the is continue is expects our the positive, just as

Chris Kotowski

Okay. me. That's it for Thank you.

Operator

Thank our Chris from York of you. And JMP Securities. question next is

Chris York

my for hi Ted, Aaron, Hi questions. taking thanks

you post do and an provide have what the but to you the that accrual this material and proceeding? legal close not it’s interest is do I us, return expect are on a limited Rockdale to can accruing you earnings, recognize of you First so to here loan is investment on

Aaron Peck

is, additional no and you the receive settlements so everything the and can in payment that’s mark we’d that a There what us other assets. once and redeploy loan cash starts again about earning as is and operations then expect this then our expectation. so to where this to real there a recovery that see will we is recoveries from for cash Rockdale, it’s the loan get more Chris happen interest situation because no any No. that loan expect with concluded, ongoing hopefully is paying at redeploying we of

Chris York

confused a operating leverage a a makes on and X.XX times regulatory the I'm but term? of are I X.X little ratio a depends that Elaborating you it. still balance to sheet lot leverage risk, of it Got bit portfolio on targeting and little sense. longer know

Aaron Peck

based we of and consistent X.X] with that’s We sort [X.X on portfolio that range correct. in between what the what still see for would a reasonable think mix, expect regulatory is leverage we that’s here, anywhere

Chris York

management the here strategy, on and Perfect. market bit market remarks, you leader seen And middle deals. lower middle . a market in the then middle assets compete lower under platform on we’ve traditional is in in Monroe I has last as Monroe is in Monroe said question that focused prepared growth and think little That the larger said, generally strong more achieved is Ted and things your the some

in leading should why style? growth that your drift a think is So, to investors not

Ted Koenig

significantly. Good I not We portfolio the our grown We’ve question, case. Chris. tell listen, can't you that it’s

management some We’re we’ve we’ve our a and to asset Capital have been is, of able we’ve is, expanded wider new as with billion done we’ve about opposed and a go platform, Monroe way, gotten to against unique is, others player like What $XX the in up-market market done larger products. in the much and and today compete what do we’ve it platforms. deeper

we those areas into and that software professionals As of we hired that remarks, pull relationships we’ve knowledgeable these are finance various more we’ve market can in specialty we focus deep context so where a make areas difference technology and niche the think we in and basis proprietary prepared with a and and a can on from niches. developed the mentioned healthcare transactions and

XX over ago, we’ve, across average that’s today to around platform platform, EBITDA our probably across probably entire we and companies. million million, So, close we’re XX look XX you years if of are we average Monroe the million you an the XXX probably level, EBITDA, EBITDA of were at somewhere couple of know

certain the been at obviously expertise end in deals directly we We're his that Aaron that mentioned may bring we’ve deals the competitors some few because to our larger our some into mentioned, are of of getting remarks our XX amount are lower deals are look the the certain because sticking market. value, in core of which if middle a knitting. in we of us larger So, originated add those involved inviting earlier, core a a transactions but originations, deals you XX or

top well at the that and in as business over but CLO active an that’s manage of does CLO's a top upper of and have decile We’ve got of the end continue more business to different business We grow middle – CLO firm. $X.X market, of the has weighted that’s CLO more billion play we unique, aggressively. the in market. business been that performing one entire Now, the growing businesses will

middle to the lower I will market continue that business like grow. anticipate and So market. that I

and MRCC the think space going will largest continue that brand a we’re I that’s that we’ve player of the the we're goodwill, in think advantage in trade created to to and and take and I we’ve the where space play. see probably that built you brand

Aaron Peck

than structure a market the just of things it’s you the the if think they about what go sponsorship, lower lower out middle larger even to deal slightly those value, attachment thing EBITDA. part but those those the what mean, us about good the I’ll covenants to you're good features the the and are market the like more typically of important in loan when be market consider one I will larger on And might we conservative important that think we space still motion lot focus our we we the referred it deals market, like is in most deals, we are and doing if see low deals that point are covenants of have middle and higher leverage but earlier in a terms in Chris. of EBITDA, the seeing like things has slightly higher like leverage, that do what middle add and about are lower to middle that so middle market Ted about to

Chris York

from Perfect. the me. insight That's context. it you for and Thank the

Ted Koenig

Chris. Thanks,

Operator

And James. a you. Dodd we from follow-up with Robert Raymond have Thank

Robert Dodd

the a do more when the either the forward, to dividend is waive quarter-by-quarter necessary. than pattern we we same cover in whatever guys, of cover look this you one didn't the order you that you quarter dividend, kind will dividend. in And expect slightly over the on covered and dividend Hi waived question basis, year this obviously just more on fact in or should

might remarks a may quarterly said dividend you not your to Rockdale because a or year do coming what think little cover evaluate be you back some basis versus I full dynamics maybe different for obviously to need year on what income with in or do from the about full the based up to the earnings? quarter-to-quarter prepared catch there, expect may proceeds on you

Ted Koenig

tell very I future. is our going management through of our on in to for Robert. performance change We're maximizing create very, we Corporation can years to maximize Monroe Capital question, the many we’ve you possibly to value focused and value you that historical shareholders. creating that Good shown everything shareholders. do value is can focus at and going That not value for

Robert Dodd

you. Thank Understood.

Operator

Thank Ted session the turn Q&A today. back you. call And his ends thoughts. for this would final I for our to like Koenig to

Ted Koenig

trying are with much we you do and and everyone. and good Thank where to of very questions Okay. feel from we what hopefully are, now better focus Lots a strategic thought got which were I Monroe today, we're you’ve a where going.

know or of Rockdale for a can lot last invest it’s on lot focused presidential very the the us whether usual, get Mills whether piece a tell getting back, this coronavirus, You doing very, capital interest just we’re it’s of our and elections, which and back. that of and particularly we what fees in our this and there’s whether it’s best, as capital is noise you the do is it’s Forman business capital I on know is market whether you Blackhawk, earn

focused loans focused good are because example, experience and think of carrying of are back all Blackhawk what very all Rockdale I The for what it value the we’re back. irrespective marks capital very is factual and of we a us our our are and getting on of that our

anticipate team, I I I you that, adding and and all on with joining want financial to we finance Monroe, for credit private forward for and that exemplify to want year want all look reporting thank in we here here first-class that to to Relations to and to next our So, I maintaining thank talking Investor our for teams and XXXX improving and everything us, at want thank a thank you call. organization, team, and legal our doing to to do the we Aaron relationships,

you have day. thank good So, and a

Operator

ladies you today's participating that, And in we and gentlemen, thank conference. with for

You may now disconnect.

Monroe Capital (MRCC) 4 Mar 202019 Q4 Earnings call transcript