Earnings call transcript Q2 2023

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Operator

Welcome to Monroe Capital Corporation's Second Quarter 2023 Earnings Conference Call.

Before we begin, I would like to take a moment to remind our listeners that remarks made during this call 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, August 10, 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.

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

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

Ted Koenig

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

Last to lenders evening, in middle with volatility earnings filed share continue direct Monroe as make Direct lending elevated we and the issued larger of release XX-Q the and continue XXXX rates the our lenders sources such bank backdrop, second our of consistent economic capital. interest press to Capital quarter and SEC. syndicated market reliable a uncertain An amass markets and capital landscape.

lenders of since expense the Further, of of to to valuations cost level M&A lowest accounted XXXX. a and According due of during to its period XXXX for and activity of capital financing direct new activity third the quarter XX% of Refinitiv, dipped second in correction. the LBO quarter

enterprise lenders enhance have value. portfolio up to companies During such support as this to continued period, existing growth on as direct Monroe to strategies step they execute

for of the certainty ability proven of lower and clients. variety began signs the execution to with in quarter show latter of distinct second be to solutions a a a activity part the up underwritten offer Transaction Monroe's advantage to particularly has third our picking into market. middle in of quarter, the

half our $X.X middle of X-year of half direct last activity market funded to pricing The first increase offer XXXX, and lenders billion, nearly first platform transaction continues terms over a market the attractive structures. slight the year. In when marked a low,

with leverage are equity completed higher at contributions. transactions being lower our levels Simultaneously,

new risk into that capital offer deploy to continue recession these sectors compelling dynamics. return selectively We resilient

attractive, on We that as capitalizing strong will older legacy in focus most on history. we add of repay. risk-adjusted to returns believe one where assets are vintages positioned recent compelling generate we higher-yielding assets can by supported the opportunities We

has higher resiliency continue costs lingering companies impact and economy had inflationary the than many demonstrated to While more borrowing anticipated, of pressures. face the

line, We've bigger where margins, faced seen certain been many consumer-facing instances more have with to albeit compressed top their able grow sectors at models companies business yet have challenges.

Through has the highly probable. rate backdrop the slowdown interest latest more uncertain, Fed's remains economic an economic increase made

engaging the portfolio emphasize flows to in monitoring management, developing teams trends industries. on our continue portfolio companies in management cash to actively a these We and with keep the pulse

sound of that the believe defensive navigate current sufficient weather remains will The portfolio the challenging portfolio's We with ahead. interest to the coverage conditions allow to potentially cushion rate interest economic environment. our purposely positioning MRCC

Additionally, loan-to-value equity indicate our portfolio across below the average and debt. meaningful the value portfolio leverage company cushions

As maintaining borrowers. of the focus portfolio value-add become apparent, the on primary economy of will be while more partners to being the interest rates the and our quality direction our

with team management time-tested outcomes. potential and our portfolio challenges a maximize experienced highly and to deep a playbook maintain We navigate

share year-over-year $X.X Turning $X.XX net and share, Adjusted per investment million per XXXX. now results. quarter Adjusted to our net of covered our declined was dividend last a investment for by second $X.X million or which represented income quarter. quarter $X.XX XX% income second or from to X.XXx the increase

as $XX.XX per or reported $XXX share million per NAV of of as compared We June XXXX. share also $XXX.X XXXX XX, or March $X.XX XX, of to million

These consumer The difficult were remaining those to portfolio companies NAV sectors. and has market decline to X markets, attributed in portfolio affecting end by nominal was conditions realizations specific net in primarily our defensive exposure on household companies. impacted losses

The increase well economy. was and in positioned current debt-to-equity. leverage debt-to-equity rate potential MRCC's decrease driven NAV. quarter, portfolio the face aforementioned by the the During in resulting from slowdown interest ride in challenges is the eventual to leverage X.XXx to an increased environment debt-to-equity The X.XXx from

XX, be models, approximately experienced to management management continues defendable private $XX.X enjoys affiliated in with companies those management focus proven of and underwriting middle under asset exceptional assets owners. as resilient best-in-class and a strategic billion XXX positions, business advantage on market with teams or a sponsors loan with in credit strong being firm XXXX. Our employees MRCC approximately June and market

call on who through our the We and that in our net investment meets to going results or to am to adjusted restoring dividend now generating focus going long-term Mick, performance. financial is greater income I continue exceeds positive you over turn detail. to NAV walk

Mick Solimene

Ted. you, Thank

portfolio totaled As debt the XX, prior our end companies $XXX.X portfolio At million investment portfolio to quarter. XX $XXX.X of XXXX, from June end XXXX. XXX a companies equity in of $XX.X of of the March and our million XX, quarter, million, investment consisted compared at as decrease the of portfolio investments the of

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

investment We portfolio one also equity those nominal in of made a companies.

$XXX.X totaling draw existing total portfolio Further, $XXX totaling rate we million. our normal XXXX fixed and million and facility of million. add-ons for have incurred including $XX.X June payoffs companies floating borrowings course million $XX At had million revolver under X and million, X.XX% full $XXX.X to fundings $XX.X our XX, or We paydowns delayed credit rate we notes. revolving received XXXX, outstanding of

the had decreased nominally to facility revolving availability of during The Total subject borrowing borrowings outstanding credit million base capacity. $XX.X quarter.

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

as a XX.X% income and slightly of increased portfolio of reversal of March XX a restructuring which offset average June fee XX.X% gains, accrued from to Our as related prepayment yield and average of to in portfolio interest Forman by previously XX, was the lower balances. decrease Mills

we rate a quarterly things on basis, the dividend. All continue will run current our environment income and a leverage interest favorable levels, believe percentage fixed that fund the rate net our leverage investment other our $X.XX current share considering cover per of When rate, meaningful. to adjusted at

our of XX, asset of quarter, share As as which net per XX, from from decreased per net share In million, our $XXX March asset NAV $XX.XX value value $X.XX the share. decreased June $XXX.X million XXXX. was in per to XXXX,

value Kitchen. asset by net market Pizza and this was on which Mills realizations affected impacted Our quarter our in California negatively Forman investments conditions,

held of where These we brick-and-mortar in SLF. due partially exposure. for These only investment portfolio to The portfolio were of and fundamental of nominal X decreases the to dividend asset result offset retail our mark-to-market in the by investments our couple unrealized net performance the in space were specific quarter. legacy losses the balance have value net was of still net a remaining of outperformance decrease the companies, the income

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

Alex Parmacek

you, Thank Mick.

total our Former restructuring in portfolio in the The investment our offset accrued by equity prepayment quarter to income yield operations, during several in the with previously of in and increase balances, on second of lower statement the million was income on the XXXX, our $XX.X of of realization first reversal Looking was portfolio quarter gains onetime Mills. majority fee a and debt income investment interest $XX.X preferred the effective including XXXX. of factors, from and associated decrease down million to slightly average

on investment income income. environment, losses and tied income, investment rate the and interest rising we'll transactions, continue to prepayment improve our portfolio are increase in yield to may cause investment gains While volatility fee and which our

on X.X% status, had XX, As fair value investments we XXXX, which representing XX, status nonaccrual of value, market market fair nonaccrual X X.X% March X of investments the of as to on of and portfolio at June the XXXX. portfolio compares

resulted an share Arcstor on of remaining impact of X new Forman During Mills. and restructured which we position the NII in per approximately Midco, quarter, placed in our investments nonaccrual. $X.XX

nonaccrual asset, the quarter, Additionally, Brands. Vinci a we of disposed during previous

other expenses Total expenses increase $XX.X financing was Moving the over the in rate expenses and interest quarter environment. debt second from the in in an during million increase by million increased the $X.X the from The quarter. expense to interest in million resulting primarily of to XXXX first $XX.X quarter slightly rising driven side.

Our first million net of net $XX.X of loss million loss for compared the XXXX. was $X.X second of quarter XXXX the quarter for to a

unrealized contracts totaled used forward and Other were comprised net investments for million currency were $XX.X foreign the hedge quarter, $X.X on on quarter. the for on realized currency which foreign gains to losses investments currency losses primarily in Net exposure of net denominated million.

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

XXXX, during approximately costs the portfolio XXX value XX.X% of costs decreased in XX, March SLF quarter XX.X% points from June XX, of as to amortized XXXX. of The amortized by basis at

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

As to million of base $XXX.X and capacity, $X.X its credit valuable of June the borrowing million XX, borrowings XXXX, facility under nonrecourse SLF subject of availability.

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

Ted Koenig

and market Mick to the positioning of In ever. remain a and quality Alex. and the challenging overall you, portfolio we economic Thank summary, its in navigate confident

one company, exposure our space is primarily and in This with retail normal. sector challenge quarter's the was isolated Forman remaining Mills

remain actively teams, our is engaged management management primary our in Portfolio we portfolio with volatile especially focus, and and this environment. a companies

team. proven We XXXX. into transaction half enduring experienced the a middle a market historically strong Monroe have period management a is And heading highly of pipeline and portfolio low is the activity, the playbook time-tested while second of

for flow sectors We underwriting environment structures about have will attractive are favorable advantage lending benefiting off, we deal take legacy we standards we pay resiliency opportunity demonstrated assets pricing, as and recession our this increasingly characteristics. terms and of from to are MRCC we redeploy maintain into capital as cash rigorous selectively excited where compelling the

award-winning affiliated other credit dividends shareholders MRCC in that risk-adjusted is private deliver external across $XX.X under opportunity various our X-decade for continues attractive assets track best-in-class be investors. which this Monroe Corporation, at point solid investment provides positioned our believe delivering our and manager approximately management economic well Capital for billion consistently shareholders very to to of a to stable cycles. maintains to shareholders. consistent with returns record and a entry to Monroe We an

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

Operator

line Christopher Nolan Instructions] from first Thalmann. with Your is Ladenburg [Operator of question the

Christopher Nolan

[indiscernible]. covered in prepared remarks was you SLF the fair if the Sorry the this driver for the What in value? decline

Alex Parmacek

SLF a in the handful due largely of value mark-to-market So in names. to was the adjustments decline on

MRCC. loans. syndicated know, broadly loans, portfolio a SLF As and differentiated It's you relative Chris, mostly to is middle market upper

quarter. the were dropped there it that so handful during names course a And basically of basis mark-to-market downward of a the on

Ted Koenig

imagine, spread mostly when to would the market retracts, it versus what decline up. That's legacy back we it's I is happens Chris, in Yes. market. a market again. goes We to tend up attributable see usually then current when pick widening market the slight

Christopher Nolan

Great. care emphasis on care-related investments? another an MRCC's in actually And then more external seeing health seeing strategic on question, guess I Do investment technology BDC book manager focused MRCC's more has with acquired space start a health technology. we start

Ted Koenig

some Monroe returns they MRCC manager, incorporate pursue does. that PMs that believe specific portfolio. the developed MRCC. some external the there's question. to benefit the into the are Good for valuable certainly Technology and the Alex Horizon Finance Mick we'll through gets through risk-adjusted can that MRCC's has origination extent sector And And of and that the of we everything Capital that

debt does standpoint, financing and is from But the business a business a market Horizon from than middle leverage flow the different EBITDA. cash a venture that

I take be on will there EBITDA. basis. that selective will So there the when companies good take which advantage MRCC in expect ability of those are to overlap, that and is advantage have a generating

Operator

CEO, There call Instructions] further now this are ahead. go will at the to time. Ted Koenig. turn no I Please [Operator questions back

Ted Koenig

everyone all Thank for up please any very Mick follow we summer. time today. with seeing look the you very and your extent our you call, to to And To you Thank feel We other of the and Alex. forward and time. rest much enjoy free again have next your questions the appreciate now between much.

Operator

thank gentlemen, call. conference and Ladies for participating. This you today's concludes

You now disconnect. may

Monroe Capital (MRCC) 10 Aug 232023 Q2 Earnings call transcript