Earnings call transcript Q1 2023

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Operator

Welcome to Monroe Capital Corporation's First Quarter 2023 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 certain 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, May 11, 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

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

Ted Koenig

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

volume quarter turmoil XXXX and XX-Q led first press regional Last release An activity of our XXXX. quarter evening, fourth the our in market from the a in height year we since system filed earnings third last XX% quarter the with of to transaction M&A uncertain and first the issued volatility of deal banking in increased to macroeconomic 'XX. fell quarter in quarter its in the of According SEC. decline the the backdrop and the lowest to pandemic level market Refinitiv, middle

slipped a diligent economic still -- Fed and the and regulated general banking around inflation in the amid industry. combating of excuse high These towards rising long-run conditions, the among a credit its that rates particularly XXXX inflation trend remain general environment remainder and -- me inflation see dynamics interest more towards expectation let's diligent point of combating the in will X%. growth the to challenging for tightening of Economic

MRCC market And periods on outperformed private economic broader this and in has compelling the for similar credit dislocation opportunity in more previous calls, however, as remain within a distinct cautious that for a of a period thrive. certainty to and this advantage discussed Monroe to may slowing unique portfolio a Against economy the with backdrop, We and Historically, clients. execution ability variety presents create of a market. of of solutions offer and stress we underwritten Monroe's our volatility. remains mindful

LBO spreads. terms, lenders. increase dynamics with a in assets While documentation there we a analysis, lenders put activity in the with loan-to-value market first broad Consistent capabilities volumes. have attractive quarter to to corresponding transaction first was position our see continue we of XXXX and platform deals assets older dominate as leverage deal structures favorably quarter, recession-resilient pricing, Further, shifted rigorous and in a the and These strong middle Refinitiv's in lower to add slowdown in in levels utilize to decline the sectors direct overall to continue underwriting Monroe share private pay. vintage

our we this twofold. period As volatility, navigate of focus will be

We will portfolio concentrated to get ahead team to and Concurrently, maximize the look outcomes. on be experienced on where private of deep market and management quality, on develop pricing portfolio opportunities early intervention presented playbook our our will our share to lead challenges we and capitalize strategies to we potential maintaining credit. and

in number in markets, historical slowdown are deals assessed have we Despite levels. M&A with of the line the

in our approach maintaining new deal yields. to and attractive as assets originations, Our look be a capital disciplined, will come on structures we to redeploy selective focus favorable that with highly new

I will our first now transition quarter results. to highlight

effective first We interest the million environment. share, year-over-year quarter. $X.X in result XXXX, portfolio of a per net representing This the increase are report quarter $X.XX last to on a rising investment rates increase from to of pleased from or increase the primarily increases adjusted XX% rate and the income XX% of is

the primarily from companies quarter. -- The the of NAV reported portfolio on decline couple that during as XXXX, of March to NAV per factors. macroeconomic of decline $XXX of $XX.XX the or March XX share a the in XXXX. a December also as of portfolio relatively slight or to On remainder million was $XXX were share We $XX.XX remains on the the -- XX performance specific the of resulting compared valuations attributable losses million primarily per basis result flat net financial portfolio that unrealized saw net declining XX,

quarter at of to debt unchanged times. X.XX MRCC's times long-term target to above slightly our times debt-to-equity leverage X.X the During was range X.X equity

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

portfolio believe coverage We environment cushioned challenging average and the to portfolio sustain remains further rate to defensive our our interest hikes. that generally weighted able macro purposely will sound rate The interest higher economic increasingly navigate environment. across be and existing is

portfolio high-quality we a this relationships coupled weighted modest with loan that support provides with our developed us and believe track continues of meaningful maintain demonstrating downside the to companies a portfolio. of protection Further strong with sponsors have we the their with on average to record value portfolio

lower Our redeploying loan older from with benefit profiles strong to higher be with overall continues will with be underwriting enhancing models, assets on into defensible vintage or attractive and from that assets risk By of market selectively capital companies resilient new yields business the teams owners. exceptional new dynamics, quality recycle investments positions, return focus those able and sponsors risk management to payoffs the we portfolio.

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

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

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

Mick Solimene

Ted. you, Thank

million, XX, As from portfolio XX. $XXX.X XXXX million December decrease $XXX of investment of March as of million totaled $X.X our a

companies debt as equity companies as XX, XXX in portfolio in Our March compared investments and investment XXXX. of portfolio December XX, consisted XXX and to investments of XXXX as of debt portfolio equity

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

both fundings companies revolver We had XX draw add-ons also made delayed equity million. new portfolio totaling to Further, existing in companies. investments or nominal and we portfolio $XX.X

million. payoffs $XX.X quarter, the we During totaling full received five

no investments this partial paydowns $XX.X a syndication and course normal sales incurred we of portfolio syndications Outside million. also of totaling quarter. We had small

fixed $XXX XX, Total March we of million $XX.X total facility $XXX.X floating outstanding borrowings credit million March had had to borrowing XX as facility availability during outstanding subject million of XXXX revolving including borrowings our million revolving of $XXX.X nominally capacity. the decreased XXXX XXXX notes. rate and of The credit quarter. under X.XX% our rate At base

Now million turning to XX, non-GAAP to for this a levels. or the This ended higher on by quarter $X.XX or share was March $X.X ended driven share million the during quarter asset $X.XX increase in XXXX per the in the prior result March XXXX. quarter. our yield financial an average XX, net portfolio primarily per compared results income $X.X average quarter investment measure Adjusted was

the target the rising net investment credit a of cover our $X.XX MRCC, favorable considering fund income per quarterly we equal. on interest will a all When our the comfortably leverage, dividend the other at that current rate rate and leverage our fixed performance at current believe run environment, share rate adjusted being percentage basis things

XXXX, value As of slightly net asset decreased million our XX, which from in XXXX. of $XXX $XXX million March asset the was December as net XX, value

of of our the Our our per offset companies outperformance couple dividend. XXst XXst. as from X% per was March net investment losses of result share net substantially net of as $XX.XX share specific unrealized $XX.XX share value by the asset during portfolio a The mark-to-market income decreased of to period, of decrease December slightly per partially

over who operating provide first our details will performance. I turn will Alex now more it on to quarter

Alex Parmacek

Thank you, Mick.

during our quarter in of to fourth Looking quarter million up the investment from total was million income XXXX. of of statement operations, $XX.X the XXXX, first $XX.X

effective the yield see and of income. to continued impact was on December up we quarter, equity from our the on XX% at During debt investment our rate XXst, increases March preferred the portfolio interest XXst. XX.X%, At

All one SOFR at the quarter the to rising from a in investment improve rising portfolio interest the increased by SOFR income. things the other equal, rate the will being of XXX with end to basis rates on end month continue yield our and points XXX year continued March environment increase net of to points XXXX investment first of basis XXXX.

restoring market X.X% investments compared portfolio At investments non-accrual value on of we XXst. March status due representing operating accrual The positive to at This due was the value reduction to sustained four to X.X% to performance. non-accrual Company which in XXXX, three quarter. Operating XX, status, the at at had fair represented the December of BLST fair market portfolio during non-accruals on status, was

additional non-accrual During on we status. no placed borrowers the first quarter

investment in to increase the XXXX $XX.X environment, in of fees Total increased over the to from $X.X other slightly resulting increase associated fourth from higher financing and quarter the Moving side. rate debt the as interest first in expense incentive the an net increase driven with well expenses interest an as million by income. quarter in of XXXX expenses million in

unrealized losses quarter. net net December were for a by denominated of XXXX. attributable quarter million the contracts forward losses were that performance These XX, to to quarter first realized net currency partially specific in million primarily million portfolio net Net foreign currency. The exposure on $X.X fundamental offset during companies. foreign million, loss $X.X currency of were gains couple $X.X investments on unrealized for the was for used to losses compared on and quarter investments the the of of ended $X hedge losses are Our

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

quarter of amortized amortized of in value March the of The as decreased just XX.XX% points SLF nominally to XX.XX% four XXst. costs from costs during basis portfolio as by of December

its quarter. loss Restaurant on previously unrealized CBC Corp. during realized SLF on the recorded Additionally

no investments XXst, non-accrual of status. As had March SLF on

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

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

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

Ted Koenig

conclusion, to and we believe in purposely defensive market will Mick that increasingly of composition to portfolio remain experienced allow we in maintaining take QX our headwinds, volatile the economic investment environment. and the us dedicated quality an Thanks portfolio Alex. but and advantage team face potential QX In

for accelerated and and credit. banking Prior ongoing similar best dislocation has the have opportunity to lending. vintages this of MRCC very a private that view created represents the that year unique enhanced compelling for has market recently our periods due crisis volatility The private further

structures. market provide constrained and capital middle solutions demonstrated and valuable will certainty and of time resiliency with of and tighter characteristics to deal us increasingly into flexibility, to terms to at favorable dynamic conditions from liquidity solid ability Our to banks. This lower while benefiting capital economic sectors companies has allow credit become redeploy flow execution this cash in cycles pricing

and is yield consistent effective our Corporation well our for XXXX stable be of the shareholders. predominantly our portfolio Monroe first which Further, remainder to for to well lien positioned and and portends Capital XX.X%, continues dividends deliver

We its are economic in portfolio to and positioning navigate our environment confident ahead. investment the

that billion stock is in is $XX which external investors, believe currently trading. affiliated to fund at manager Corporation opportunity assets attractive under shareholders a private award-winning particularly credit Monroe the very approximately and levels investment We best-in-class Capital provides our with other our with MRCC, an management, that

all you operator your questions. of to going for our I'm this open now for time concludes the to up today, the prepared and Thank call ask remarks.

Operator

Thank you. line first Adams James. from with your Sean-Paul question Raymond ahead. Please the go comes [Operator And Instructions] of

Sean-Paul Adams

XQ adjusted net great your and My is and investment on first XXXX guys quarter. Q a congrats morning, only Good for XXXX. regarding income question

a not way to bit XX basis since XXXX. to the your curve the XQ into the going you the that down current by it guys of Do current actually points, risk income investment trended XXXX? curve about goes any the concerns exceed currently will little on is there And With net of view updated, another what gap adjusted it's have end lower that? SOFR $X.XX. a a XX dividend is you If do be

Ted Koenig

Mick, you why take don't that one?

Mick Solimene

Sure.

investment time will curve, our interest We believe remain line We contracts So moderate. investment that of of with -- even adjusted the of and context benchmarks. that kind Those the basis over of levels a do comfortable as levels context are is on where SOFR a kind will rate view market in that on our lagged kind income, our in net the will is. curve support of terms by we're of even curve. sentiment contracts of in in And reset. driven dividend expect in downshift which at income, the slight primarily the based

XX maintained to If any a where NII X% historical the consecutive you kind benchmark look the quarters of on we've third we our performance, dividend and dividend terms cover $X.XX were at that the a for were of including able in past quarter coverage, dividend coverage dividend waivers. fee NII rates around or in without

the be confident we at term we dividend. So, intermediate able we as feel cover curve to into that look the our will comfortably

Ted Koenig

would parts Sean and to factored there's Sean. just spread. that is a Yes, What into haven't I add, two you

If you terms and look SOFR our at -- to spread there's yield. of pieces two overall in

north, the of to XXXX, good spread Our spreads rest move going XXXX I have in we're continued anticipate to see and into trends well. as that and some

Sean-Paul Adams

Thank you for it. color. I appreciate that

Operator

next of comes question line Christopher Ladenburg go Your Thalmann. from ahead. the with Nolan Please

Christopher Nolan

this EPS the run decent a quarterly rest expect be you Do rate to guys. XXXX? for Hey, of

Mick Solimene

the could question? repeat Hey Chris, you

Christopher Nolan

year. earnings, just a trying whether good I is for run I'm Yes, apologize. see rest first the not the quarter rate the to of or

Mick Solimene

to peak of about believe the QX, think of we're certainly the coming we way The Yes. we cycle. rate kind

above our is Our leverage range. slightly

about had a of come but to feel a good quarter cycle this kind as possibilities. expenses rate our maybe on of rate we first comfortable -- think I about earnings the more and really at basis, run we peak really

Christopher Nolan

Thank Great. you.

Operator

next Please ahead. go question the from Your B. Rowe Bryce Instructions] with line comes Riley. of [Operator

Bryce Rowe

I about morning. of Good wanted to the start. ask SLF a Thanks. to question kind

that of to attractive and around to you've capacity SLF commentary some got spreads opportunities. thought on trying vehicle's some in environment? balance up the Any the this kind credit of and bit that little indicated sheet You facility take at a leverage wider investment given

Mick Solimene

That's good a question. really

different includes SLF, kind upper SLF end their cautious So of of more as portfolio. We're syndicated which we also MRCC is broadly and a than candidly market in look middle little a market. loans in is at that portfolio the

little in quite as a and Spreads You'll a higher. leverage higher. that find volatility multiples that. little are more to Loan attractive probably aren't a are there's values little

the that. as SLF, of at kind really mindful transactions we prosecuting in look So of we're

more kind we protections. best tone are we're utilize of values as something looking get kind is better that better to cautious end a considering of We probably that this and to credit closely. the and loan we around possibilities decent than effectively the pretty pipeline the as within progress how we'll middle of SLF core to we to look we assess we that spreads But have continue leverage of metrics in able are where at for little our definitely But kind through SLF. portfolio of come leverage market covenant sure. into market the a at it year But do

Bryce Rowe

That's helpful, Mick.

turn wanted of Let's that. a see couple I to maybe maybe to credit quality around and questions

movement couple some address here the continued just speak non-accruals made Mick in weakness depreciation. maybe So can you quarter? off seen you've kind that. working to last that of the some progress drove in number then companies one Any hard that came at you obviously situations. to beyond further comment And troubled around of a the lower the portfolio

color Thanks. this of from forward? any outlook Just be that around might what kind point the

Mick Solimene

question. Great sure. For

we place noted, operating levels on significant did doing We back kind continuing our during performance. quarter time. over Bluestem the have you of non-performing made Brands reducing first So positive as accrual progress in

of still the We non-performers of kind have out. that three are working legacy in we process

stay tuned So that. on

what's the In marketplace rate on driven company decline going I that did of today. both a credits unrealized that kind couple specific by is interest impacted of during at of And revenues. credits by As directly of our most the performance that we those one the of its mention cases were course of to had look quarter. the impacted in kind environment gave the those loss of rise change we in

working in of in terms kind P&L actually doing of their all are the The the market. closely team. market its and the things with management is rightsizing of in leader right interestingly They're company share taking field a this context

in sponsor all consumer discretion valuation The acutely management kind it's management focused on retail and business to and space. other are the decline some of team right generally of -- showed and a Management liquidity that company doing right? that things. is inventory a has lower-income in weakness and some the exposure So of a portfolio product kind are to business was the a kind led consumer,

two those credit some pretty the from rest a are the that The fundamentals strong. names showed of weakness are in the So perspective. portfolio valuation

mark at We was under the points. the If basis handful our XX and down look slightly did by average you some it from little migration names. into quarter-over-quarter, category, a have category two of three a

not rate rule. was x-ray seeing it related idiosyncratic in kind pace companies at as kind and quarter. that, I into kind EBITDA fourth our revenue interest credit where strong As to of to the what's of to portfolio, of candidly the inflationary But in continue of fundamentals a -- in about going continue we the feel than grow on slower we're world most saw although kind a of grow we

Bryce Rowe

to And good see for It's some color. activity. at repayment the into Were me. next I surprised mean quarter? activity or think across some more kind nice others. the than repayments repayment payoffs either That's BDCs Okay. in some so of five quarter the certainly we've I balance visibility One seen space, full more the the you for to the here year? see of any

Mick Solimene

so, good question. Yeah, another

So quarter. in $XX over ways -- million a the totaled we little full surprise In that ways for they five weren't. some payoffs XX they some were had a

if to going We up pretty get are have know accurately sale going refinanced. get our or whether repaid to companies for whether visibility and we we're kind into pipeline. of we're And

result were of case M&A the of in And activity. the they repayments primarily five a

fees like that. pleasant are us, stuff and payoffs can were we because good things for accelerate you capital know surprises those generally as So recycle and like

anticipated activity some first in this So the certainly we of had quarter.

-- pipeline potential from I quarter. is kind say. of as be average first I the we as don't we of for would We that repayment the sure. kind it don't kind high, we saw kind on transactions here repayment activity, at see any of As out M&A accelerating of look will know in

we of of that But kind seeing are end activity post M&A a the started really quarter. generally in the first pickup

remarks his QX opening of in said, is Ted in As light pretty terms activity. M&A

secondly some favorable favorable is opportunities that and believe repayments; us: and of Now, we're translate one will twofold financing levels then we rates. at to terms pickup higher seeing and obviously

Bryce Rowe

a appreciate it. Thanks I Mick. lot

Mick Solimene

welcome You're

Operator

Koenig. to, no the further And there I call are at time. turn this will Ted questions back

Ted Koenig

asking for have. forward, opportunity all our and we extent, appreciate contact feel are you forward to today Thank questions there quarterly or look call call. the that any To And next answer attending questions. you Alex. any to the to the free please We going speaking on our again Mick

a day. thanks. have good So And

Operator

This call. today's concludes conference

You disconnect lines. may your now

Monroe Capital (MRCC) 11 May 232023 Q1 Earnings call transcript