Earnings call transcript Q4 2022

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Operator

Welcome to Monroe Capital Corporation's Fourth Quarter and Full Year 2022 Earnings Conference Call.

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

Although we believe these statements are reasonable based on management's estimates, assumptions, and projections as of today, March 2nd, 2023, 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 the SEC. obligation or no statements. these takes Capital to revise update forward-looking Monroe

ahead, will over Monroe Officer go call turn Capital Ted Please I the Executive to now Koenig, Chief Corporation. sir. of

Theodore Koenig

Officer; to Deputy Mick everyone morning our today. and Solimene, call. year our to Welcome I thank Portfolio full Investment Good fourth and earnings who CFO call quarter and and our XXXX joined our us has am Manager. Alex on Parmacek, you conference joined Chief by

full and SEC. quarter XXXX fourth our issued we our the evening, release press with filed year and Last earnings XX-K

thoughts I'd the general like response to to begun M&A and fourth in open of observations volatility In compelling market environment. the XXXX the up quarter the have the with opportunities and early emerge XXXX wary MRCC tone and some and the to market in the and markets. of on financing economic period, for

today's to XX% middle still and volume according historical M&A record-setting work above trends billion in approximately This what and to transition, XXXX, in volume of the macroeconomic well averages. year XXXX Refinitiv. consider through mark we market almost a $XXX was markets financing behind totaled As but financing be

Monroe XXXX. made billion As a investments in $X firm, new of approximately

favorable third In in terms transactions that began have more last are enhanced as and the also leverage that market economics, documentation, of trend the come executing response pricing to that year. volatility, as we well but current a on not only quarter with reduced

assets leverage in markets cushions, will assets we us pay. With attractive current equity market vintage older selectively conditions levels, coupled higher lower with showing as pursue we

lenders most and present capital from deploying market traditional lenders. is will well-positioned, that -- continues especially toward that the regulated private is view itself for as direct capital move XXXX private to one share very away as MRCC credit vintages Our attractive of

within private ahead, could we and credit environment that stress also macroeconomic potentially anticipated higher headwinds broader the portfolios. excited about mindful are While interest present are we opportunities the rate loan

capital meaningful that at a value with recession-resilient across structure cushions focused intentionally built of on MRCC -- portfolio investments at equity sectors. We've sectors is the the top resilience,

been resilience. are our and of We that to signs we portfolio withstand challenges already are constructed seeing defensive those confident has

borrowers to have of course from input what towards costs supply Many seen begun relief the experience have and as altered we've our last year. chain normalization

despite such, As interest stability rate been has demonstrate from quality the last increases our to credit portfolio able year. substantial

supplement financial approach clients. portfolio with and portfolio which trusted component uncertain key the to that of makeup, investment we in a allows to experienced get is strategy, This us portfolio execute intervention. conjunction management a continue to To navigating maximize team take environment. management ahead outcomes, our maintain are of our actively this defensive while early potential a we works and deep core a team. to teams remaining Ultimately, proactive we to will to challenges believe we positioned our through partner This

share of repayment net of from to now will the for I income share, of of one-time per the or million in adjusted Curion snapshot previously Adjusted or transition the $X.X million net on per quarter, our $X.XX income fourth included income results. investment was quarter receipts unrecorded down our $X.XX third which interest successful of benefits investment Holdings. $X.X a

quarter net Curion the one-time unaccrued this with of impact third fourth associated the the income in the grew during investment Excluding benefit X.X%. income by previously of adjusted from interest receipt quarter,

to NAV $XXX losses from Senior of was result Fund of MRCC NAV XXst, as as $X.XX of $XX.XX Loan the NAV $XXX decline million million per share a per substantially the December per XXXX, which XXXX. we reported loan, share SLF. as also This investments $XX.XX our September mark-to-market or refer decrease We of on of share XXth, or of in in

SLF volatility these relatively the upper-middle valuations continued valuations the on XXXX. at mark-to-market experience market value a and net investments, as interest unrealized higher traditional are flat by portfolio have XXth, driven SLF to of loans the the and borrowers on more basis, The remainder to losses decrease On increases. to a which was in of September rate recent result remained

range debt coupled the the times. During increased lighter-than-expected primarily driven to strong slightly from portfolio with X.XX investment leverage our payoff debt-to-equity MRCC's quarter, times long-term X.X equity equity, leverage above in was increase debt activity fourth The during times quarter, to X.XX to to X.X activity. by target of

focus our portfolio investment selectively resulting repayments. to managing continue on We from and redeploying capital

performing coverage line is current Based of interest companies solid generally forecasted XXX majority portfolio in our on across market with and expectations. significant our portfolio. are interest The rates, existing

loan-to-value believe with of equity we invested weighted average us from continue these protection addition, investments portfolio our benefit strong in portfolio amount and the that the our cushion will provides modest and the meaningful to to companies. downside In in

scenarios stress and New performance slowdown. rates, pressures, to that volatility an process a interest underwriting rising from to deals and overall continue economic undergo cushion includes margin assess downside comprehensive

MRCC under advantage with approximately enjoys asset award-winning strong as of employees XXX approximately management private firm XXst, strategic and a credit middle-market billion XXXX. being $XX December best-in-class affiliated a with management in in assets

positively. coverage dividend Our to continues trend

despite or performance our long-term mark-to-market and We positive will income macro focus adjusted on NAV headwinds net meets dividend continue to generating anticipated investment market adjustments. exceeds unrealized that and

to the turn going greater I is to point, the in this call who will you through walk results over detail. Mick, At financial

Mick Solimene

you, Thank Ted.

XXth, from portfolio million $XXX up As $XXX $XX XXst, investment totaled our of of million, XXXX, September as December XXXX. million

to equity Our XXXX. debt of September portfolio and as XXth, XX as in and portfolio investments companies in portfolio consisted companies December of equity of investments as compared XXXX XXX XXst, debt

million eight with weighted XX.X%. portfolio During at a rate quarter, interest new of companies in average fundings investments made totaling we the $XX.X

nominal made companies. also portfolio We these of investments in equity two

fundings add-ons companies Further, totaling we had existing revolver portfolio or million. delayed draw to $XX.X and various

one During the which full a received immaterial for amount. is payoff, nominal quarter, we

incurred also million of $X normal and this We partial sales no had quarter. paydowns course and

rates future structures favorable in and at generated through repayments opportunities carefully increases benefit from to deploy and attractive in more will capital participating pipeline that to of the well-positioned are assets We interest Monroe. substantial from

outstanding $XXX.X $XXX fixed million our million XXXX As total $XXX.X revolving we XXst, rate notes. X.XX% including and rate under of of December our of facility million, floating had credit borrowings

outstanding during million by of of availability revolving XXst, to $XX.X facility million the borrowings $XX.X as The borrowing quarter. December increased subject credit had Total capacity. base

$X.XX turning compared non-GAAP the Now, share XXXX. investment million quarter share results or prior $X.X a XXst, to was our $X.XX quarter. million for ended the income, $X.X in December financial Adjusted per net or per to measure,

of the income repayment associated status, ending primarily of the been result XXth, non-accrual of on Holdings as portfolio that unaccrued with during While income the declined had quarter quarter September net a average previously Curion investment interest ended occurred the in the XXst, a benefit yield of XXXX. receipt adjusted increased XXXX, which December previously one-time

we cover rate, all credit income leverage, basis, dividend, one-time run When the environment, the third targeted benefit considering adjusted fund Curion at our adjusted and fourth on the at the MRCC, current X.X% the things rising the percentage that of quarter believe interest net $XXX,XXX results, during leverage increased rate a rate current will quarter. our Excluding fixed equal. investment favorable performance investment from income or the comfortably quarterly by being of a our net

XXth. which As from $XXX of asset value asset $XXX December million, million our was the XXst, our decreased -- net of value net in total September as

XXst. to substantially per $XX.XX from losses $X.XX per share NAV share per decreased Senior MRCC December per XXth at decrease investment result Loan of on share September NAV The Fund of mark-to-market $XX.XX the the as Our share was in I.

to SLF on at was basis market by of to the the value the investments, which higher quarter. losses experience valuations. these mark-to-market remainder driven in have a in compared remained prior decrease to relatively on continued traditional Valuations the upper-middle and portfolio volatility SLF the flat are loans The on net borrowers

our third to from million statement was of $XX.X quarter, the during investment million fourth income quarter. Looking the operations. $XX.X in Total down

Curion, of $X increased one-time income portfolio and as in actually Excluding or million in million investment increase on the average of benefit size. yield third a primarily interest $X.X X.X%, result by portfolio income quarter

impact during across portfolio all fully borrowers the rate benchmark see during rates income the quarter, we their portfolio fourth rate the continued increases on addition, from exceeded investment as floors to quarter. increases were we in and the In base our interest quarter, the the benefiting during of interest

approximately things XXst, preferred portfolio being at equity approximately investment was increase month yields basis up and on investment improve during rising latter on the XXX in December of yield as SOFR interest X.X% will September continue rose equal, basis SOFR the one and the from XXth. September December as our All to points XXth. rates, half income. effective a continued year, to at net the increase rate XXst debt of of environment XX%, the portfolio points At versus have our with quarter XXX which

on to fair value of status, non-accrual on market investments four represented the status non-accrual had at X.X% which compared market September X.X% we XXst, investments fair at portfolio value portfolio December At representing XXth. of four at the

Our steadily portfolio our in provided the is capabilities performance resources the been result we in they the we we improved area turnaround this and have our calls. and working to us. as This as companies on underperforming external workout the have direct would out Capital, previous has said of manager, of Monroe

we remained performance investment quarter, rating status. During stable. risk no on the placed has borrowers the Further, additional fourth distribution relatively non-accrual

associated primarily lower $X.X expenses in to $X.X lower decreased to and investments Moving quarter Total expense taxes, incentive fourth the that equity primarily over by from of certain with fees. blocker driven hold the entities quarter, million income slightly third side. the the in million company's

rate decreases and expenses outstanding. due interest rising increase an average mostly environment offset to financing debt by the higher and These other debt were interest in

million of the $XXX,XXX fourth and quarter. the unrealized to in the $X for were investments realized compared for quarter million loss loss a third Net in Net losses quarter. totaled net $X

fourth certain totaling losses to contracts approximately quarter $XXX,XXX exposure hedge the investments. to related forward net currency used on Other currency were during foreign

X.X%. $XXX.X middle middle-market SLF's December companies. SLF MRCC's interest XX spread rest average of a to value market XXst, fair million and within of market sensitive weighted in investments investments on the portfolio, borrowers, are rate borrowers to larger at that movements loans more focused is of aggregating As the underlying The different generally which with are had lower

December The value September points basis SLF in quarter as as of nominally XXth of during from XX.X% XX the amortized XXst. by of costs portfolio amortized of XX.X% cost to decreased

on on Additionally, Holding loss during unrealized recorded its previously Townsend the quarter. SLF Company Port realized

the with of consistent received prior During SLF quarter, quarter. income from the distributions MRCC $XXX,XXX fourth

borrowings $XXX.X facility under As had credit availability. of the of subject SLF available of December million XXXX, under credit base to million its and borrowing non-recourse $XX.X XXst, its capacity facility

will some before for point, line for turn call this Ted the I back we At open questions. to the closing remarks

Theodore Koenig

compelling may that lie In emerge private that from on ahead. transitional we market credit believe to capitalize a closing, uncertainty we Mick. well-positioned XXXX for Thanks the opportunities navigate are to and

of XXXX. asset current Our deals, yield average portends portfolio for of rest excess on XX% is the which well in

experience The our and teams we to deploy capital resiliency to economic to continue allow and underwriting sectors depth us selectively demonstrated of in cycles. originations that will have

As from deal to, to economics demand we heightened but of remain private structures. benefits and not more overall and expect realize middle-market active lower market, in the for limited companies, the capital including, favorable we receiving

historical providing This senior to on our well-protected, companies insulated sponsors. lien strategy strong market focus teams first positions models, loans reliable by is well-structured led with reliable consistent business with secured management and and

lean core our to beyond. continue principles uncertainties of while underwriting navigating returns will risk-adjusted generate We and to XXXX and attractive team and the differentiated on

dividends and to an interest MRCC stable consistent where is from our well-positioned our for earnings market to benefit especially rates. shareholders, in and increase stand dividends deliver

Capital continue our an and investors. Capital, best-in-class manager, to about Monroe affiliated very excited opportunity investment to Monroe prospects are continue and provides and believe which other with that investment attractive award-winning We our to external shareholders a Corporation, portfolio our is

going to time concludes to And for Thank this call I your the ask questions. operator now open today. am prepared for our the you all up remarks.

Operator

Thank you. [Operator Instructions]

JMP We'll hear Kevin with Fultz from Securities. first today

Kevin Fultz

in by Hi, component curious the of for related thank is PIK the questions. XX.X% fourth was or up deals that with new PIK prior amendment quarter. was be which insight I'm income possibly good structured that would I represented income that increase the if driven meaningfully helpful? any from quarter, maybe X.X% my taking the morning noticed about and in you interest were

Theodore Koenig

Sure. the Good you morning question. Kevin. Thank for

one in [ph] see the during borrowers of by an to that in reason income increase our PIK The quarter. option income quarter. of increase PIK course exercise So, election plateau its the was primary for during at we the did the the

I kind If of year-over-year, that of income to quarter-over-quarter, kind we've at in range. XX% been PIK trends XX% our look

income the So, is kind we of feel with PIK that comfortable income. our investment our component But where quarter. of was increase main the the a cause as during total for

Kevin Fultz

increase questioning, December of how that I seen quarter trended Okay. kind Thanks. in in if And continue the an just you've line amendment requests, guess I'm of recently? guess, that's and to curious on I

Theodore Koenig

good question, Kevin. Really Yes.

our didn't amendment LIBOR technical really add-on of our no quarter, related and portfolio. activity activity fourth SOFR meaningful activity meaningful in transition, amendment the transactions to notable was increase to Most related the in amendment across transaction see any related we During and to amendments but portfolio. activity

Kevin Fultz

great can. I drove expense Okay, guess, trying G&A in I'm And to I that's what a the hear. one noticed increase? quarter. should expenses were model? slightly I just discuss just other fourth be you the if that sense scaling if we then more to get up our G&A in can

Theodore Koenig

Yes.

in slight model. pattern bump. historical G&A about on the of a G&A guide as I your So, of you that meaningful towards think nothing terms you front would kind

Kevin Fultz

I time there. Okay, I'll appreciate it your morning. this great. leave

Theodore Koenig

Thanks Kevin.

Operator

Ladenburg with Thalmann. We'll hear Christopher Nolan next from

Christopher Nolan

by investments main the SLF, any secured any Hey guys. portfolio? borrowings MRCC SLS by the the in The of

Theodore Koenig

are They not.

Christopher Nolan

then now? that? thinking the I around look And if liability loans MRCC if reason, in thinking I would -- put whatever time fixed hedges? terms what guess easing view rate right of on the start What's or asset get Okay. the would mean, was to ahead Fed for you're more of management,

Mick Solimene

Yes.

we So, -- the favorable very structure. note fixed capital very, we're we've a did note. mindful capital terms rate of structure XXXX, got of in of in $X.XXX that We're matures kind that

and eye to we have keeping dedicated imminent. of of being nothing the capital our markets of But we might balance we balance if when internally liability side see our the quite work think are fine-tune -- closely about that approach and an side to we but are sheet, our to with the kind an right-hand sheet on markets

Christopher Nolan

Final question--

Theodore Koenig

Yes, in is we're the and continue that where we're upside it more Christopher, want see in here -- -- than from likely think downside signaled this not rates to some I slight near-term. Inflation my still overall increases. is some perspective, now to increases going Fed see and interest see they've they to funds right

Christopher Nolan

final Capital will overall question the how And strategy of then and acquiring guess work if recently related. management the I together, at together? announced And What all Monroe is another BDC. BDC strategy there? MRCC

Theodore Koenig

a that company on of a of We've we Technology BDC the Good amount Horizon debt Finance question. with discussions weeks announced Monroe, About ago, investment management HRZN, gotten venture acquire private another this. two fair will adviser the business. media asset that's NASDAQ,

best-in-class business history. They've billion is about record $X there They in for combination about manage team institutional management XX BDC of The of comprised a today about people. been in years, and XX track their capital.

Monroe. the And for behalf I've space quite been of a looking at on while

think firms. general attractive are times markets I debt in the particularly that fundraising are venture is private for exits closed, difficult, is credit, when the difficult venture in IPO space in

these large is risk. of Instead good down is Pricing financings, of look instead. credit enterprise high-growth doing to value, value companies on many round Leverage good. low enterprise will equity

offer that opportunity for So, it's firm a we asset and categories an opportunistic develop can class -- acquisition acquisition to a institutional our continue to us it was as investors.

be MRCC investment. will this think don't I an

other think represents at But different of opportunity we to the alpha. our attractive and asset our tactical a type a Monroe, can investors excess our take for funds us adviser level this earn market in a it's very at place institutional I advantage class. where of for

Christopher Nolan

Thanks from Great. me. it Ted. That’s

Theodore Koenig

Thanks Chris.

Operator

[Operator Instructions]

now with Dodd from hear Raymond Robert We'll James.

Robert Dodd

-- is on portfolio earnings, guys. very sensitive obviously as SLF, the Question Hi I well. mean, its the

but SLF. that XX% Obviously, north dividend have SLF to within within improved. of earnings been So, from the the increased QX markdowns QX, about there's has the

the high of to back dividend something like the the is is XX% where But fourth of equity dividend that quarter, you the above before kind of you like you from book to think in or the should own the earnings get ratio of that was to opportunity having of because SLF earnings get obviously, $XX a million we payout in has XX% watermark as the XX% it. MRCC

sensitive So, color quite are we MRCC? the think can how any earnings that the give SLF on given you at rate the us that should about as

Theodore Koenig

sensitive. rate quite are They

on You SLF. I front. per guide that run as offer guidance of towards rate $XXX,XXX kind That's the are quarter right, a level our the would would you I for you

Robert Dodd

give solely why or Or is your decision. I the color dividend power to -- you any realize markdowns there the what's decision? recovered? been need out? decision there could us it be not and those MRCC the Is this an about But -- mismatch and within the But is paid that increasing has between obviously, that scenario where the earnings a it's changes?

Theodore Koenig

Life. loss potential Yes, consider partners, our assess have of, quarter portfolio We of yield it's make that we both in and did We and I to the something portfolio context dividend when last the when a we're obviously, us and both do the consider as think in of we National Port future form realized always performance distribution distribution the we from the mindful that that of determination. SLF in performance Townsend portfolio. dividend we

Robert Dodd

Got it.

Okay. horizon, I revenue the within asked back to business I is there some MRCC. you recurring but appreciate question, that. software And then have I Chris just mean already -- mean the

an focuses that. You on obviously have fund entirely different that

So, MRCC within is of advantage of has to sometimes I expertise take mean other that taken areas Monroe. the opportunity place.

there you for venture that is all? grew is of consider small debt? So, is room this sleeve -- vehicle just a appropriate something at don't MRCC Or

Theodore Koenig

try benefit manage for the investment entire across we platform. the allocations a is policies, our MRCC of the specific to appropriate platform. $XX do allocation billion great Robert. question, do when gets deal of vehicle. the what our That's for across in fund platform We each provide the we it's And

Mick sports, these mandate the managers, assets. as within care, across fits vertical, investment deals from Alex, the we from it's that lending our I by and media, entertainment, when MRCC portfolio see may be in whether you managed Horizon, originate our platform, it's time-to-time, attractive accretive appropriate and that whether highly anticipate software health there's and going the to

it's But and a to been pretty knitting we've that's leverage MRCC good good coverage. and interest and secured senior got developing portfolio historically our high-quality sticking low

necessarily businesses to and a debt two As debt those good leverage good enterprise may venture usually growth you interest have cornerstones value, prospects. against loan good have portfolio. venture are don't coverage know, value, loan qualities. We the of may We have but not

I venture to in with debt MRCC going area. we're the tread So, slowly, think,

Robert Dodd

Thank that. it. Got you for

Operator

Riley, next Rowe. B. from we'll And from Bryce hear

Bryce Rowe

ask investments. I maybe visibility fund and future good activity about Hi, wanted just balance to help sheet into repayment morning. to leverage newer

balance a curious happen of the understand have stay So, high current going if range, obviously, leverage just time-to-time, visibility have but you from that you kind activity to end comfortable repayment up your above at of should the made leverage tick end certainly balance you we sheet of if the some can high levels above expect target? or that sheet into

Theodore Koenig

Bryce good and So, question. great morning

into manage if portfolio, into repayments borrowers terms the also borrowers. So, XXX of the looking we're the originations expect close we over our kind cadence of were pipeline, two We're as we you in with in our we're future will. our those to trying and contact from looking things,

during We at looked quarter, had payoffs our -- than and the really, came pipeline. strong projected we as our origination payoffs payout lighter fourth expected activity really

So, in the at our we targets. came year end leverage of the above

we of manage way the the we term top the are we is kind where you short But still of the forward leverage maintain is X.X targeting long-term portfolio. to X.X and would target going to which to guide of about range, end this that think our in

Bryce Rowe

a one more about non-accrual how any quality. of and migration can or kind non-accrual for within ratings. kind bulk around just might beyond obviously, what's in number, makes bucket. positive quarter to and you think maybe saw there relate And credit that pretty up helpful. maybe it of mean Mick, negative that, kind you internal I of X left risk talk then you had But investment steady that's the of you, Okay, I the

Mick Solimene

Yes.

So, little the one We Brands, we a on during did about progress make of four is of non-performers. bit down -- pay further which more a received non-accruals further on our quarter. $XXX,XXX Bluestem

that. pleased with So,

category the quarter, were the during in the three we rating terms course million the $X rated of at portfolio about look distribution, migration our or during course $X of if of In quarter. up our you million

couple a a of that migrated into our rating three the credits So, quarter. few we had during

we the that rate migrate basis, category five a during recall into on You three one deals through quarter. the few had names but a

the feel portfolio, are interest I comfortable believe sound. really portfolio ratio quality overall, generally But an of basis is companies the coverage the at on reporting the portfolio our with and that

Bryce Rowe

assume maybe that's that, that that's to ones that-- just a going What's -- Mick. there what And there helpful. then is follow-up the did -- I three, What the migrate Okay, on into idiosyncratic. --

Mick Solimene

Yes.

good So, question.

the are rising still some that. effect oil costs, like input experiencing costs, things So, rising freight from companies

that migrated in have because the that category margin three So impact kind seen companies that. have of of some

ultimately reducing kinds very to those take, cases, that very, those along companies by the passing improvement And their things companies focused on costs in margin that. price are actions or like of typically customer, increases strategically

actually to our What supply two kind initiatives during we're portfolio see the get of broad effectively in execute the increases, also price quarter -- of investment strategic line. you companies our into category of able rating as that distributions risk along inflation don't back kind chain, margins three of some of the out we and migration that effects the in experienced pass some early of and had

adjust companies to market evolving conditions. as So, in to of kind we economic an continue adapt see landscape and

Bryce Rowe

ton a makes this the sense. Thanks. Appreciate morning. comments It it. Got of

Mick Solimene

you. Thank

Operator

company closing to And remarks. this with to turn like no other things I'd the questions time, at back for

Theodore Koenig

all to you We quarter. us well the for again look as and Thank questions speaking joining conversation next enjoy as the forward today. we

you our speak in And always, to to extent the we'll free Mick next willing we're any directly. And and feel questions soon. quarterly engage. and safe call, reach be anyone always wanting the out like to before has to to So, interim

So, good thank Have all. a you day.

Operator

joining for all you thank Again, conference. us. today's conclude will that And

now disconnect. may You

Monroe Capital (MRCC) 2 Mar 232022 Q4 Earnings call transcript