MRCC - Earnings call 3 2023 | Monroe Capital Corporation

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Operator

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

Before we begin, I would like to take the moment to remind our listeners that remarks made during this call today may contain a certain forward statements -- 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, assumption and projection as of today, November 9, 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 factor described from time to time in the company's filings with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements. I will now turn the conference -- the call over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. ahead. go Please

Theodore Koenig

our thank earnings and Solimene, I XXXX XXth SEC. consecutive in adjusted investment everyone has Alex who CFO pleased third quarter, issued evening, Good with today. you quarter I filed our Parmacek, the XX-Q and that Officer; call income Chief Mick Portfolio am joined Manager. Last and we our press morning, our Investment to Deputy earnings our to here our dividend. quarter and report release our the am the covered for net with

adjusted million million share Our net last $X.XX investment per $X.XX $X.X income quarter. $X.X or with was compared share per or

a We XXXX. to net as per NAV or also $X.XX affected increased attributable $X.XX or XX, The SLF, that was of factors as primarily losses. the losses $XXX.X as per million specific portfolio unrealized of June portfolio million decline of by of share on reported in XX, companies share The as in a XXXX, few mark-to-market NAV value $XXX.X attributable the unrealized September by idiosyncratic portfolio compared was to driven decrease remaining were modestly. value to well which at

debt-to-equity MRCC's the was During increased the in NAV. decrease to debt-to-equity X.XXx increase from in primarily quarter, The X.XXx aforementioned debt-to-equity. by leverage leverage driven

incumbency seeking on transactions uncertain Capital face an to some capital to of I Monroe deploy attractive the a Before where of remains The deal years, add-on to Alex, emphasis Direct robust be activity an and longer. lending our new outlook, such economic returns. environment in market. In than underwriting middle financing turn remain lending has new as execution volatile pipeline on our an investment portfolio likely the has preferred a exciting the direct to certainty selective are providing investment to environment yet fourth call This steady the insights relate rate ongoing macroeconomic the us demonstrating quarter. will for be resulted consistently to prior of which in solution share assessing support includes companies. the lower-risk higher to heading with and for and interest and Mick risk-adjusted into lower new for in would opportunities. In like there it market approach over companies Fed order lenders the I opportunities higher to time manage to allowed new which inflation, environment highly continues financings, maintain when flow current economic

opportunity on historically have At of as cost financing resiliency XX% direct end of wage private maintains Capital. many to mark a as overall second as pressure into and GDP leverage fourth heightened rate contributions. uptick than our We This the being turn, lenders and points lower an within volumes growing dry anticipated. loan inflation, increased believe focused middle transactions XXXX. despite the We Given cuts interest the the and investors quarter market activity M&A the higher more solid These signs at on borrowers and has economy financial remain trend set nearly this quarter continue with fundamentals higher completed on attachment performance of in sponsored Refinitiv. powder and equity lending credit XXXX, deploy to the more no healthy seen we direct in to provide conservative other quarter attractive private compelling market of relative will the the dynamics levels, tailwinds per in quarter. in XX% this in the time, the third job growth across private facing capitalizing expansion, see market and we of equity are to had credit. Throughout statistics In and horizon. the middle led portfolio average these LP our has shown same

a although have growth, companies margin. top continued slightly with strong portfolio growth EBITDA line Our demonstrated lower at

Our have overall their weather more coverage sufficient companies combat to continue to benefits. extended and adapt and begun interest environment. potentially an of business with portfolio's interest of The those remains realize sound impacts models economic cushion rates elevated the to lingering to challenging period a inflation

Companies ahead, geopolitical a volatility higher costs markets borrowing of are long-term challenging combination against a uncertainty we seems environment, Looking potential slowdown, around capital economic to rate environment. heightened anticipate the economic and the that an some in higher globe interest inevitable. facing

and believe emphasize In positioned addition on potentially to to our leading navigate We portfolio to capital portfolio construct, management focus continue downturn. we well a defensive prolonged our that defensive our preservation. portfolio economic and diversified is

industries, our have senior and points. first cyclical is exposure lien nominal attachment to of comprised conservative predominantly secured loan-to-value portfolio loans, highly a We

performance highly Our and actively experienced given team our cash loan-to-value below portfolio portfolio real-time the cushions management meaningful companies, portfolio's modest our portfolio and average with and debt. Complementing trends. regularly informed deep leverage stay management industry provides and our risk company value our key continues monitor on at portfolio operating team, comfort equity to while averse to composition the engaging as the flows position teams portfolio's

to identify portfolio of early middle in course private professionals strong with proactively market the segment. asset develop XXXX. credit approximately stands middle advantage that firm dedicated XXX believe credit maximize being lower Our to September employees in management time with benefit under best-in-class management billion over our market XX, strategic $XX playbook, private management the a and MRCC tested us with nearly We which from assets investment the been of enjoys affiliated as in and nearly decades, has to strategies X challenges tailwinds portfolio and allow the over outcomes. to XXX

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

Lewis Solimene

Ted. you, Thank

million, XXXX. the June of prior end the $XXX.X of portfolio an our our quarter, consisted end and equity totaled the investment debt XX portfolio of increase from companies, $X.X investment in million of $XXX.X the unchanged As from of of At September XX, portfolio investments million quarter. XX, as XXXX,

an the we rate During XX.X%. funding investment million $X interest company, at in of one quarter, portfolio an new effective made

made of we a a investment paydowns of the received We this full course for equity also add-ons million Further, outstanding the revolver increased our borrowing quarter. fixed availability million. The million to subject during delayed $XXX outstanding Total amount X.XX% quarter, had payoff total the third revolving portfolio facility XXXX $X.X nominal million nominal company. notes. credit million, have incurred nominally revolving $XX.X had fundings At borrowings draw $XX.X and we capacity. credit end $XXX.X $XXX.X and or and totaling million. We of borrowings rate portfolio in new totaling existing normal companies to including floating facility our one base a under of rate

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

loan yield adjusted million offset with company. weighted from fully a off XX. reversal previously The of XX.X% investment accrued XX.X% to portfolio XX of fee was IT XXXX. This liquidity the Our on paid in effective increase in income fee a loan in by to from investment future event with portfolio June as as yield incremental former positive a was this in was be that of net $X associated our increased conjunction Global Holdings, average income income effect paid of September

However, XX income. that monetized in the Chapter sale resulted fee a company's unforeseen for we circumstances where filing to prior would have

recovery Global, and from $XXX,XXX IT of income to accrued this for process bankruptcy the we likelihood fee of remaining have the exposure. We monitoring actively are assess

reversal nearly equal $X.XX will equal. our X.Xx. interest continue on leverage the At of favorable dividend, fund from current our increased the interest fixed by basis, quarter per leverage current Excluding an per dividend When in things coverage being rate, would being adjusted -- share, cover all portfolio would all up rising $X.XX our previously run investment $X.XX considering yield, onetime share our a this from per rate the fee believe share last been things been accrued adjusted quarter. Further, environment of due we driven income, level, last net by other have income investment a to this at have percentage quarterly given that investment income rates. net to income rate increase $XXX,XXX and levels,

share attributable $XXX.X was value our Alex As quarter factors. losses net who provide impacted a was to asset of idiosyncratic NAV asset few per million, to from specific September on third per per unrealized the $X.XX in decreased conditions of mark-to-market net result $X.XX portfolio performance. The of quarter losses the $X.XX now was net decrease that market $XXX.X of the value various net a turn this by net share. by that of details were SLF. I decreased corresponding as value net to And over million asset more of which value XXXX. share our call to affected operating XXXX, XX, The balance will our result negatively value the will June from XX, decline asset unrealized of companies and

Alex M. Parmacek

Mick. Thank you,

XXXX, of million $XX.X the Looking our quarter investment down statement to second of operations, in $XX.X million from quarter during total XXXX. the third totaled of income

quarter investment to by on income tied reversal were Fee fee $XXX,XXX a and prepayment investment income contributors related improve increased investment the income As accrued rate which continue investment the yield X volatility investment, rising the interest average IT million the Global yield, the Mick investment rising driven will to increase to excluding of our $X compared while transactions, our previously and gains the income. environment, to to and in environment interest losses last mentioned, income cause former portfolio of to not income prepayment by the significant portfolio higher quarters. can are Fee last income. due rate over and gains the

of X.X% of portfolio XX, investments decrease had place on slight nonaccrual. value did fair As portfolio of third new XXXX, not we a of on fair investments status, market from June as the the XX, any value quarter, X.X% representing September we at the nonaccrual In market XXXX. X

the financing in $XX.X of expenses expense decrease net quarter second the decrease to excise expenses over the quarter. in and partially other in $XX.X shifting decreased taxes. in by and million driven expenses interest slightly by The during lower driven interest fees third a rates. from Now in debt XXXX million was income increase the side. $XXX,XXX decreases primarily These Total from an offset rising from by a quarter investment in incentive were decrease

was and SLF companies the few portfolio $X.X unrealized slight mark-to-market losses loss million in specific investment. quarter. primarily compared net of a realized $XX.X Our was of were third to second the XXXX Net for million loss of unrealized investments XXXX. of and quarter net on losses quarter attributable a the to investments net decline This for $X.X our the on loss for valuation million of

lower companies. investments are costs million portfolio, As quarter, in market on received had the In September value borrowers, market at aggregating with distributions investments approximately value of with amortized portfolio spread MRCC's June X.X% are middle of XX. prior income quarter, $XXX,XXX. rate fair The the SLF underlying XX, to to SLF from costs rest market decreased than September from movements of a of is of MRCC the generally to as middle the borrowers by of which interest as amortized SLF of Consistent focused that the XX $XXX.X XX.X% XX in XX.X% loans SLF sensitive the XX.X%. more than of average and larger different weighted

facility $X.X up credit to closing before I base this Mick XX, nonrecourse September the and to the the subject point, of any had million for questions. capacity will $XXX.X open of borrowings remarks we XXXX, As back call borrowing of its million availability. At line some turn SLF available for under

Lewis Solimene

confident engage portfolio headwinds. our and To ability teams, the of remain to you, companies their conclude, actively prospective continue in Portfolio overall the management top and navigate we of management this and Alex. Thank economic especially portfolio in remains we environment. its quality to volatile mind, with

on may in the a mindful XXXX are predominantly vintages for private our stable into well average of we challenges remainder of first Further, XXXX. MRCC volatility approximately and have of very shareholders. portends lien of potential the effective deliver the portfolio credit. some yield ahead, prior of that lie While XX.X% continues consistent dividends our to and best created similar periods for

income long-standing and as a earlier, highlighted met quarter track record, have where has net Ted this the quarter exceeded marked or investment consecutive our dividend. We XXth our dividend

prepared your is operator for credit up you assets attractive questions. to to at call concludes an private to November X, award-winning very remarks. shareholders ask and believe of yield XX.X% is a the manager our nearly affiliated opportunity Monroe that in provides dividend all as investment We best-in-class Corporation, Our I'm now and with time to which for under other the XXXX. open our that an management attractive $XX with today, investors. Thank Capital billion external going

Operator

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

Christopher Nolan

valuations of capital? the and On if your X% the a But SLF, put it partner know given -- decline, to the little continues -- the decline provisions small. in is is SLF more to I partner do in you JV require -- to

Lewis Solimene

the And we new put don't capital. vehicle. of agreement us required this will be to in provisions JV the The any point, not did anticipate at that capital for require

Christopher Nolan

uncertain addressing by and we guys environment you see really Got on the more mean, leverage I a think you has in guys as put asset the on you. you the asset And given holding one then way, down of leverage the -- paid congratulations that the that going of view quality. that the And could the as in the off. terms lot that on of that cautious if efforts get being I quality past going environment in line those should those But outlined, question leverage. we about the forward, things BDC. of

Lewis Solimene

Yes, question, good really it's a Chris.

and end in comfortable we as third size levels which of levels the our around the conjunction at lien of slightly course guide given over out, We decline and portfolio increase X.Xx, nearly distribution, would pointed and portfolio rating was the of had portfolio today's of our change quarter with at with in risk We increased slight slightly leverage levels the we're in our Our term. quarter. mark weight towards in our didn't that and feel you associated the higher average first leverage NAV, a the near leverage $X.XX comfortable quarter-over-quarter. the debt

Christopher Nolan

that about has in do Okay. the thinking value in discount those Final your rates marks? on rise specifically you fair interest portfolio, question. rates affected The marks I'm short-term DCFs. how

Lewis Solimene

coverage yield impact, at know, Yes. affected enterprise the our we every our It's flat as third-party basis. question, gone calculations quarter really marks a we which of good our fair mark considerable a quarterly portfolio as has with of value on Chris. you when names cushion have we have value rates that one do And The Discount portfolio look was in companies, context. calculations. relatively this market that up,

Operator

Raymond Next James. question comes from Dodd Robert the line with of

Robert Dodd

kept previously remaining is be you prolonged Or that to evaluate the do think whether Global you'll mean, that, IT what on What's pile. -- -- be frame likely the clarity able accrued be the to could there's and for income. I whether fee bankruptcy that thank On you X-quarter think event? should be a -- reversed on I it a you time or the income, is said $XXX,XXX given

Lewis Solimene

got of of and That event XX.X% MOIC fee a to company liquidity just made in sale event slip the full clarity Chris, The an for IT for when liability the in Chapter to But for fee fourth incremental XXXX. we'll million Chapter that loan company quarter had related that was around question. The quarter. I the of this in for a this as in a loan that of receivable that X.XXx. to way had Global around was Yes. the that, related and kind Chris, MRCC. hence, XXXX, of more do in in background, It have the fee was a company. significant tax a future quarter. could with $XX.X future Thank -- think process, the you first of sale about exclusive of way The was a IRR XX. third loan in repaid into was filed the event XX the filed around

are of roughly process we might the monitoring treatment to the the from ultimate what influence receivable. see and be, emergence that results that will proceeding analysis, So waterfall pursuant the a that $XXX,XXX of to

Robert Dodd

-- being in -- of on so companies. Got any mean handful color issues credit just give on And with the stable that QX, talked beginning left that it's I unrelated more to Then operations. little wildcard it's versus of event bit a mean, than couple can obviously, [indiscernible] completely you something operational issues? the sort. or Because beyond that can it's just I it. any markdowns if concerning underperform, obviously, if to more give the I mean, Was operations color? us was quarter some just -- us congratulations you out about that. you idiosyncratic some a are

So color can you us -- yes. give on

Lewis Solimene

Yes, question, Robert. good

impacted we idiosyncratic the look quarter-over-quarter, management as kind outside the of team is we it. kind took kind the that the in of was And business subject There as the look of change to adapt with of of management the an company their event, the sure team So to of case, really the that. plan it same external process really of other quick can -- that setup. and make one loss at company. it to an control unrealized model is idiosyncratic readopting affected event was that event had its situation -- kind factors in to I of and [ the kind and factors have idiosyncratic of was of reacting and in look kind the it, the really A at that the and team was right taking case of ] matter management the charge deal to that

impacted explains of kind idiosyncratic during a events of that couple quarter. course the the that's that names the So of

Theodore Koenig

on unforeseen I'm very the outside of but business, to Robert, of of nuts of either much kind And actual the focused the factors and your not not, noted, operations the Yes. or much point, so Mick operation. as bolts

Operator

at this time. Mr. questions further no There are

you. Solimene, over I to turn the call back

Lewis Solimene

We next with joining everyone you forward look you, you and thank quarter. to Thank us for speaking morning. operator, this for again

Operator

conference today's concludes call. This

disconnect. You may now

Monroe Capital (MRCC) 9 Nov 232023 Q3 Earnings call transcript