MRCC - Earnings call transcript Q2 2021 | Monroe Capital Corporation

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Operator

Welcome to Monroe Capital Corporation's Second Quarter 2021 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 potential, operating results or cash flows, particularly in the light of the COVID-19 pandemic.

Although we believe these statements are reasonable based on management's estimates, assumptions and projections as of today, August 4, 2021, 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, uncertainty or other factors, including, but not limited to, the risk factors described from time to time in the company's filings with SEC. obligation or no statements. these takes Capital to revise update forward-looking Monroe will over Monroe Officer conference turn Capital Ted I the Executive to now Koenig, Chief Corporation. of

Theodore Koenig

our on everyone morning. evening, quarter second we with Officer. quarter our conference XX-Q joined second has Good CFO you am earnings today. XXXX to issued I release Aaron thank joined to our And XXXX and us SEC. earnings Last by our call. our and call Welcome Investment filed who the press Peck, Chief

pleased to with are performance. and report We of another financial solid increased strong results, income quarter net investment NAV

During the the quarter, financial in of performance stable. remained and markets remained couple second loan markets the seen the can of indicators. be market This a strong key

of X.X%, traded XXXX, as was XXXX in during up X% during the quarter Leveraged of X.X% second up Index S&P were additional Loan after X.X% in the Index credit increases first Price increase after quarter. also second up quarter, after being up the quarter first the seen over investments the and ending S&P/LSTA an an For the was XX%.

now Turning second results. the quarter to

results. more when our adjusted are per will flat We income prior income later compared investment Aaron net detail into quarter of to call. report investment go regarding share, the the of $X.XX pleased net to components the in

driven quarter, value from was assets fair also the investment of portfolio. $XX.X by operations in We which or in million per a resulting net our during reported $X.XX share the of increase the primarily increase

second per by the which to the first in of basis XXXX. March on quarter the our from result, share end since $XX.XX end quarter. over $XX.XX share, share NAV fifth represents XXst NAV the growth consecutive a per of increased As This quarter of at has XX% grew of the per at a

by an MRCC's leverage During prior the was portion growth X.X increase the during of from over quarter. portfolio portfolio from occurred the driven leverage of activity quarter, second size increase was times. strong times portfolio in This the the the the quarter - increased debt-to-equity average the end during debt-to-equity significant a primarily during portfolio size from second experienced as the regulatory the quarter, slightly prepayment X.X to growth Despite quarter. second we quarter end near and prior of the during of quarter, the the the in down

remains of expect continue couple activity origination to leverage quarters. strong, New increase and we over the to next

X.X the leverage X.X We term. continue of times range target to regulatory to near in in the debt-to-equity

MRCC we term investment net the near pipeline which expect new substantial would next to order increase should benefit the periods. target deals leverage leverage of quarters to the Monroe, income couple our of Given reach at carefully of in future adjusted in over

next investments calls, As remaining to is new several making portfolio the focus discussed risk in on generating have companies on possible for in best continued we portfolio. assets on dynamics, our the with while dedicated recovery underperforming the compelling our prior quarters return

generating We deals, expect to forward. recoveries that going difficult a record we and track continue in strong have solid at

with be documentation most deals. us covenants with allows loan This proactively reasonable all on Our to focus and financial borrowers strong is sponsors. financial our in their engaged our

MRCC of of values the that enjoys often we when conservative prospects leverage by fact also loan loan a and XXXX. underwrite July XX% in firm Our to neighborhood management credit the middle billion market strong with $XX.X maintain Xst, and with are over XXX in asset a starting employees private recovery advantage enhanced best-in-class as loans, to our in under approximately we management value. affiliated strategic assets being

to in we to quarters. positive turn I'm NAV walk going results. net last adjusted is our just performance, call you to continue shown over have through to now the will going investment consecutive We generating the and as focus financial five on Aaron, income who

Aaron Peck

Ted. you, Thank

During which to assets, and including borrowings to XXXX portfolio the of sales during outstanding investments, At in million draw by facility, companies million in growth we was new which the payable. and $XX.X June Total offset of SBA our consisted million $XX.X This quarter. companies. million during $XX.X and $XX.X repayments portfolio under a outstanding by $XX.X existing fundings funded portfolio portfolio aggregated million of delayed million had revolver approximately borrowings XX fundings $XXX $XXX.X and the million total XXth, credit solid million, quarter. quarter, debentures of $XX.X of our we total million $XXX.X increased revolving notes of on

situated portfolio generated opportunities availability to ING-led in the of had well million revolving as of borrowing $XXX.X The our substantial are subject XXth, carefully continue facility through capacity. at base Monroe. of participating to June grow to We pipeline credit

our results. to Turning

in basis, period, nearly our future, at majority dividend at of the points flat For We LIBOR in on June June month net things a incentive with targeted X%. from virtually share, unchanged XXth, basically or equal. $XXX,XXX least waived the of with current rate all considering remained performance income, investment other dividend. quarter. floors income approximately generate $X.XX net $X.X quarter run the to measure, continue LIBOR a adjusted we with external the X a maintain LIBOR of the adjusted during The believe was line share share ended NII without our in the voluntarily to our manager and adjusted that fee per level floors per basis per $X.XX MRCC, approximately non-GAAP million fees all deals, XX significant prior When our credit at at waivers rates cover the can leverage investment XXth. at the quarterly being in

$XXX.X asset was from in which of value $XXX.X million, increased March of As million our asset XXth, as the net value June net XXst.

in XXst $XX.XX increase increased of share share $X.XX to per performance the for the as of share March during of most valuation increases to during $XX.XX estimate was assets approximately in NAV these Our We of net our XXth. the were underperforming, that per attributable per as companies at the from June quarter, improved $X.XX per that credit quarter. portfolio share share previously NAV per

of experienced of a portfolio $X.XX or increase thirds we share NAV, MRCC increase market share fundamental in of in share per or third held an primarily was net result also attributable improvements quarter, which During held was the approximately increases fund assets senior in venture. to movements performance share broad $X.XX was on the two of approximately while the per joint directly valuation, loan of mark-ups us, attributable Of on per portfolio. book by assets one as remainder it or value result the as $X.XX in in a to $X.XX that per

per book associated other is $X.XX with in increase of approximately associated share the gains. Finally, with realized value gains primarily

due quarter, the the due our to operations. Looking size investment quarter. statement interest income income to in decreased in slightly in decrease a Total to, portfolio part, during a of during primarily average decrease

placed During - and portfolio borrowers non-accrual on value. non-accruals the status X% no we approximate the of quarter, total additional approximately at fair

of of side. of full the over our quarter our Total lower quarter expenses, regulatory of quarter, expenses the by the was debt the the of impact regulatory for at The times result of Moving to remains driven level refinance to the you of during our back decreased, on in borrowing the prior range debt-to-equity. leverage interest to calls leverage leverage one reduction the prior costs the X.X lower portfolio approximately have financing and growth up end as other we end expense primarily regulatory leverage the to due balance due and quarter weighted the At increase level the during the below times current the times debt-to-equity, a portfolio X.X to bonds. quarter, of average to a small quarter. guided from targeted X.X

portfolio to a increase to measured the we our pace As quarters. and leverage would next our couple Ted prior discussed at grow his in regulatory remarks, of over expect continue slightly

of had of paydown our cash to in $XX.X We a XXth, As to available debentures restricted expect next down this would subsidiary at of September. cash we the use June date portion million. approximately in restricted pay SBIC

different continues XXth, available average $XXX.X of interest had The in at a its of SLF facility, to X.X%. remarks rate million had covenants capacity turn of for fair its the and be some I approximately with under open credit weighted borrowings investments aggregating will in to facility. of subject facility $XXX.X we this credit closing The As in to all for now line June with borrowing compliance $XX.X SLF value, million non-recourse XX availability. million under borrowers, before base Ted SLF the credit the call back questions.

Theodore Koenig

continue benefit to create and the we for in our of and the differentiated the to from significant In at Aaron. Monroe management portfolio to resiliency returns portfolio shareholders. the skills improvements closing, strong financial adjusted generate risk Thanks, markets

funds all pipeline maintain to continues platform high Capital opportunities MRCC. Monroe a Monroe, overall quality of investment for strong very including Our at

our and key result, underwriting, purposefully portfolio a cycles. with and to investment experience is our about management As economic portfolio experienced excited The our are multiple portfolio and a team prospects. access conservative large through we managing a our defensive

continue shareholders. As our opportunity to Corporation we provides attractive believe Monroe investment to a that very such, Capital

adjusted remains per dividend by fully covered Our income investment net share.

going with NAV. liquidity this the management. skilled has that to leverage. is decades to remarks. your manager, employees and concludes the We of reach best-in-class call an now targeted improved steadily for over We all to believe our we highly under to affiliated continue And you open And have in our assets today. have approximately prepared Thank billion $XX.X MRCC for XXX grow I'm operator which portfolio sufficient and our ask award-winning, experience, time our external questions.

Operator

your Nolan [Operator Christopher Thalmann. first from is Instructions] with question And Ladenburg

Christopher Nolan

I said Does that non-accrual about comments assets? thought value in mean guys. Hey, underperforming Aaron, $X.XX your for you accretion. was heard that in NAV I for the assets. improvement

Aaron Peck

that non-accrual on It rating are accrual, be are will assets. were but risk that It lower some could scale. just on assets also assets be our

Christopher Nolan

on terms overall size of we relative the non-accrual give seeing down the idea to overall any to the volume us the then portfolio? And non-accruals, might in you of go of can start start Okay. when

Aaron Peck

that's It's them to control, And to a as that has these difficult question. improving. mark one performance. lot that's performance It's them answer these a are all because see many it an up, of of is of that we with we And great really indication deals, although are. do deals not

can turn we that position they standpoint would they start timing an assets back So for to give reinvested on they guidance those many real get realized either of and of in group non-accrual we or because would accrued that you in in on But said, generate accrual some in these names. time. that because this are at expect interest, it's as from to status improvements difficult are deals But to we capital start that that be that a to performing significant new be any that accrue. seeing,

and monetized of assets. be reinvested expect I one start two to those would accrue some or we either do of that described, so be accrual to in And again things

Christopher Nolan

Great. I’ll Thank back in you. queue. the

Theodore Koenig

Thanks, Chris.

Operator

Sarkis question Securities. with next Riley is Your [Sherbetchyan] from B.

Sarkis Sherbetchyan

Hi, thank good morning. And here. you taking question my for

normalize, here. the to relates historical it elevated, net of if kind extremely able we and to was the quarter when from for here expect standards. the of I then elevated to do quarter, repayment question be an you'll parcel you second second think kind year? just prepayments to call drive activity origination the maybe Obviously, think than do suppose, of see First kind more can is that I And and originations first to that? in in expectation you half part standpoint, continue of

Theodore Koenig

market Sarkis, XXXX and M&A was stab trillion board. has have six than COVID Aaron six We've The And seen out as of any red a M&A across month we the been almost M&A done comment hot. hot. red let of that, in of well. period, in at been take $X has months the first coming the economy I'll more I'll

a went one this heavy anticipate We subsiding two. bit through now. prepayment in quarters we period So little quarters a and

think on back I a before. side. And think $X The right total I benefits return question, billion the numbers across MRCC over history very, at pipeline. we've prepayment in the see then second line now pro can think, normalcy, pipeline year, more of seen the see board. I expect on we'll to in rata Monroe, that a the our you basis it's half at very to BDC with the a strong originations. of got that We've And

over or to increase don't So of I continue Aaron, quarters. got not. if next you've I would to expect anything couple to see our add originations know the

Aaron Peck

covered you think I No, it.

Theodore Koenig

Okay.

Sarkis Sherbetchyan

you're or loan you're for maybe that. far areas kind just you get pricing you you. can And any whether Thanks are comments whether still Great. with, good us the that in, that incremental Thank things of in able as on compete underwriting kind to doing? that as spreads tightening of the color or provide

Theodore Koenig

it's and very to funds a have all – Sarkis, basically cost for competitive market also similar is drive are and similarly been competitive the a the players news market. returns that all of It's market, their The all good similar in shareholders. trying

an - pricing, competitive range So difference end standpoint. the agreement we've while competitors bottom things digest from a a tends there our range not on of don't much grown know, transactional And years. lower you than over last many people there's the where And go in a able the of of of to a size, to the again, market. we're be finance quite bit XX our tend larger where, to pieces middle because

the $XXX a that, middle So on pricing to real $XXX able of we're cap advantage the can for market. across that stack. better strategic in because speak of we lower That's million, drive because end million the

consistent be - hold forward. and be So pricing to should that to I anticipate we just see going you the

Sarkis Sherbetchyan

I’ll you. back queue. hop the in Thank

Theodore Koenig

Okay.

Operator

Dodd Your James. from Raymond next question Robert with is

Robert Dodd

And a of follow-up on question. earlier going guys. in, the kind Hi,

I non-accruals aggregate, assets, underperforming - I the On go mean much terms didn't look of up in if in the market.

some did, the obviously. other Some went way,

like - was remarks, there that any there it do underperformers was that was before, kind So that But performance-driven it less of market slightly - weren't non - was those were but the on your you than rather maybe? assets underperforming mark-ups by just on was the what any underperforming across prepared non-accrual, there, commonalities seen sounds spread? now though driving anything, the

Aaron Peck

that, answer Ted. can I

idiosyncratic, perform, been very these So recovery. some management does so our recovery. credits the that team work was on as of make it was why a under a And we and just to like lot has with very challenging theme started all no comes based it works to see there strong specific sure makes to portfolio - credits underperforming that

of making involved with, in so aggressive and be credits for terms is getting the in are involved right to some we're in of businesses place, on sure over recovery. as we looking business improve the the need the very driving ways process, you taking know, underperforming And cases, team managing that equity if

We are us that. COVID. all prior great seeing a of to bit. progress about the little back driving performance, seeing and COVID we're fruits set We're

step the by negatively recover, COVID little help to companies these we we're a of these out our COVID. took impacted benefits aggressive of Some coming world were very bit And companies seeing business and seeing recover, that, and just effort. of a the that

Robert Dodd

your then better, it. are the Got point, the earlier, it. marked at your you. Got on sounds side, think Aaron, also or XX% to Thank XX% I And non-accrual pretty good. non-accrual of which non-accruals fair roughly value

coming it not at non-accrual, marked to as time and a least So is any give value, of Obviously, to I event. at something to predict if But close is on tend X.XX there monetization monetization. that if fair to our that be it imply mean, XX% - [ph] of non-accruals would at it's mean, hard even a back be can us might accrual on when - - line? could idea it's you a again, I

give on non-accruals, next in those how generating - of color to given us X say, income come any actually could marks, back can months? you X to the over much So next

Aaron Peck

be give Yeah. on par par a our that would par be I close no it's to highly difficult note or non-accrual Again, marked that time that would will there will above That at credits unusual. to you that in status. line. or be are portfolio

markets see you're are for than going you're assets. seeing if So largely non-accrual there's that - that lower markets to because

agree I you... the So with

Robert Dodd

LSTA... The

Aaron Peck

that We're name. think example to one, term than and others. that clear number working realization. don't accrual assets could a It's be it improve to back a converting to that'd that lever assets. We're that'd line on a that the some NII difficult time - can that the to bit monetized certainly of full quite But That's to we're other highly it's moved assets level is could one is we a name a where accrual to of because that we be thing an become there to - to that, there one sooner maybe up outside be to than become What we're And that our when aware that accrue that having we probably an not one want performance and without in that's - and our NII control. a non-accrual part want a us only a we list of that say assets on could syndicate for one where assets without we're create more very sure coverage very goal. some path do or high. on are visibility - period, is this accrual that recovery not accruing put appropriate. it's become make near Yes. the trade and Well, asset

to careful back tend accrual, to and and we're thoughtful and about we So time predicting also be lines. about very careful thoughtful turning something

Robert Dodd

appreciate that. Thank I all you.

Theodore Koenig

time. Robert. there Operator further And questions no are at this Instructions] you, [Operator Thank

Theodore Koenig

Great. everyone We the call us. reach very feel next to you. will to out have us your to Thank free other quarter. much you directly, And on to or I speak you extent for me any and questions and or with we thank thoughts, to joining you again see today. the Aaron involvement appreciate please

Operator

participating. Ladies today's and call. you conference gentlemen, this concludes Thank for

disconnect. now may You

Monroe Capital (MRCC) 4 Aug 212021 Q2 Earnings call transcript