MRCC - Earnings call transcript Q4 2023 | Monroe Capital Corporation

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Operator

Welcome to Monroe Capital Corporation's Fourth Quarter and Full-Year 2023 Earnings Conference Call.

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

Although we believe these statements are reasonable based on management's estimates, assumptions and projections as of today, March 12, 2024, these statements are not guarantees of future performances. Further, time-sensitive information may no longer be accurate 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

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

Theodore Koenig

us you full and XXXX earnings who and fourth year to morning, to our thank has Good joined today. call. Welcome quarter everyone

and Chief earnings quarter Portfolio addressing our am evening, Manager. I'll filed I and we with press and Alex SEC. and issued call, conditions. results Solimene, Mick Officer; here fourth full our and Last XXXX year Parmacek, release CFO our the today's with our Investment our quarter XX-K market fourth Deputy current On by begin

MRCC to investment X, annualized dividend delivered our I'm that price XXth the yield, adjusted and report our income consecutive over March $X.XX net our our trading XX% using quarter, price. dividend. a pleased covered of XXXX, total for share share closing per

record to stable of We delivering and of proud dividends consistent our are shareholders. track our

and adjusted was share or last quarter share reported slight million December per per share per of $X.XX companies In that per of or The of $XXX.X continue or NAV increase XX, from compared investment $XXX.X as or a primarily challenges. few $X.X legacy portfolio net of XXXX, quarter. the unrealized share, a $X.XX $X.XX million $X.X idiosyncratic specific macroeconomic million XXXX, fourth decline our losses September to XX, million income mark-to-market to impacted We XXXX. in to as $X.XX X.X% due was NAV attributable by to be

from X.XXx to MRCC's equity debt decreased debt-to-equity X.XXx. leverage

opportunities. capital, attractive our selectively managing on into and to investment repayments from redeploying We continue new resulting portfolio focus investment

revenue companies growth. withstand Further, the stable. vast resilience risk portfolio our our environment. and interest sound distribution portfolio's portfolio higher with underlying the overall to as generated proved majority longer for rate cushion remains coverage Our interest rating EBITDA sufficient of The portfolio remains solid

as construct portfolio the environment economic defensive focus remains lean direction We and uncertain. purposely management the continue on our on portfolio to of

were volumes Turning XXXX. the from increasing Overall activity Analytics. the lending LSEG to to & market. began volumes in down according broader loan in and now Transaction quarter to substantially with Data lending by XX% fourth quarter third the direct M&A activity rebound

volumes late We The this deal trend carried into and early signs from quarter. and inflation momentum seeking Xx XXXX accounting volume to loan and private market deploy rates capital. continue equity dry as middle in syndicated dominate Direct powder that continue share actively activity are has have for lenders fourth LP in in anticipate the the investors of XXXX. and bank will of interest to loan stabilization shown of

ability While in the provide we market, our execution a have solutions to true our be heightened differentiator. competition with borrowers capital has to overall low to proven seen flexible risk

in relatively long-standing from active opportunity a believe more that As middle Direct environment. stand such as Monroe market insulated. position growing M&A our set a is such, we lenders lower the to benefit and

favorable current dynamics provide The continue tailwinds credit. to private for market

risk-adjusted returns attachment levels. remain compelling predominantly lien lenders. deal recent While for months, generally off and in pricing points structures leveled secured at loan-to-value first senior attractive These leverage offer has

lower approach selective continue within when opportunities. has opportunities underwriting maintain investment risk We leverage our allowed a us to portfolio, incumbency to highly the new which lending

being a XXX including affiliated best-in-class in assets deep dedicated management, approximately strong of employees, team private $XX.X manager a enjoys of credit X, as by XXXX. billion market with in investment MRCC XXX professionals advantage with under a consisting January middle supported

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

walk you results through going is in to I'm turn who now detail. financial greater to the Mick, call to over our going

Lewis Solimene

Ted. you, Thank

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

XX to equity and debt companies quarter. compared the end companies portfolio of consisted portfolio the investment in portfolio from Our prior of investments XX

the approximately portfolio existing rate companies we an and new effective funded of interest and to XX.X%. During quarter, million $XX.X

made we rate a payoffs, of an in also one $XX.X approximate these million weighted aggregating equity we investment average X Additionally, at In of XX.X%. nominal received full portfolio the quarter, companies. interest

associated of One had company, the with sale equity gain we the that of of payoffs produced an was a realized which in portfolio a position also $XXX,XXX.

payoffs floating of partial quarter, fourth of including million totaling down $XXX borrowings facility. decreased pay $XXX.X and At facility rate course under fixed million, quarter rate credit borrowings of incurred utilized paydowns our we during X.XX% million. Further, normal outstanding had outstanding the total and and from million Total XXXX the credit to revolving $X.X we the notes. our sales we $XXX.X revolving end proceeds the as

$XX.X XX, December million had base availability revolving of capacity. the of borrowing to XXXX, facility credit subject As

partially to higher or of net the of our average decrease in XX. investment in a this results. size gains, by our investment December portfolio yield, XX.X% effective was and our by turning which prepayment in non-GAAP million was as adjusted income interest XX.X% to as of in a average increase was a in a share compared financial per and XX $X.X result income. million portfolio offset decrease $X.XX driven weighted measure, of income September The decreased decrease reduction income, from fee Adjusted or interest a to per The the prior $X.X Now quarter. in net income quarter $X.XX share

We fee in $XXX,XXX also remaining from of loan Global. accrued IT income our former off the investment wrote

the the favorable interest have our that environment adjusted and equal. investment per this been our things rate, continue the write-off cover basis, rate investment net the have believe per $X.XX to on receivable, and to income at adjusted interest percentage share we current levels, IT been fixed share, income over rate considering fund run net When all dividend, $X.XX will X.Xx. coverage Global would a other leverage of a quarterly would leverage our dividend being Excluding related current

from per specific primarily September be to share as of share. quarter. our the $X.XX XXXX, including of losses NAV NAV As XX, quarter in $XXX.X $XXX.X portfolio, XXXX, the $X.XX this NAV million, $X.XX and idiosyncratic The was the per of December remainder companies unrealized XX, per a our was corresponding continue investment from stable million attributable affected by the decreased decline NAV decreased of which of value to portfolio and that few in by attributable The factors. our macroeconomic relatively SLF, for to to net on was portfolio share

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

Alex M. Parmacek

Thank you, Mick.

investment Both $XX.X of Looking million for down investment million accrued from the statement fourth income the the ended XXXX. XX/XX, quarter reversal income included $XXX,XXX an of for Global. fee in XXXX, former to million ended quarter totaled associated and impact IT Global. for has $X The our company's quarter the the with of XXXX. in no previously associated loan with during fee third accrued X/XX, quarters IT remaining of quarter company slightly $XX.X 'XX income the operations,

fee effective Excluding decrease a $XXX,XXX portfolio. quarter the investment decreased income on rates portfolio to impact by during the income these in reduction the of size of due reversals, and the in the average investment

quarter, the placed In new we fourth one investment nonaccrual. on

December of XX, portfolio fair portfolio on we at of the at from a status, September of X.X% increase value, representing value fair of the nonaccrual As investments as market market X XXXX. X.X% slight XX, XXXX, had

expense expenses average fourth a at for reduction increase driven Now taxes income blocker million and equity expense offset debt remained hold our investments. Total side. weighted $XX.X was leverage of shifting by primarily XXXX. expenses certain by the of in associated that over other to in quarter in A consistent level the financing interest an with our decline entities

primarily a compared for loss net portfolio few losses to were was net quarter the losses quarter. million specific million $X.X mark-to-market loss $X.X Our of to companies. prior attributable unrealized for the These net a of

SLF. Turning now to

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

had to the December under nonrecourse of million SLF $XX XX, and base borrowing $XX borrowings subject XXXX, of its capacity As facility of available availability. million

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

Theodore Koenig

Thanks, Alex.

environment. conclude, To volatile ability to its of quality higher in in interest overall the the longer portfolio confident rates navigate and economic for we remain

return risk Our lien XX.X%, our portfolio investors. an of compelling first yield average predominantly effective dynamics to carries offering

capital from redeploying current management focus new remains balanced from into between Our investments vintage. the and selectively portfolio payoffs attractive

net for a or continues stable shareholders. income the consecutive our This where dividend MRCC marked deliver our dividend. has XXth exceeded investment our to met consistent and quarter

dividend an investors. our rate opportunity assets We best-in-class and very other award-winning billion believe of private is as manager that under March Our X, with provides management, XX% over Corporation yield with investment XXXX. of an at is Monroe $XX.X over external shareholders which affiliated attractive to Capital attractive a credit in

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

Operator

Instructions] [Operator

Christopher Nolan question first Thalmann. line Our the of comes from with Ladenburg

Christopher Nolan

was X. are there I Is X to going Monroe's to nonaccruals, SLF, quarter and responsibility I the it's On through last that work believe noticed those? be

Lewis Solimene

Chris, good question.

also one-off, added SLF got Cano quarter, to quarter we company at took this were it company a had nonaccruals nonaccrual, called a just So end, clarify, nonaccruals. Branford, X We Health. which X called realized. Last a at new

flat So rest credits, of the market basically which the market nonaccrual direct a middle while profile in upper of the than for MRCC. bit in have yes, migration little was these And middle net loans different the are category -- quarter-over-quarter.

like We of our portfolio. participating in are we resolution the nonaccruals, do much actively these direct in

Christopher Nolan

that yield MRCC of sort And question, amount that thus follow-up does leverage the from SLF take the can of that? Okay. a as affect guess income of the and would level nonaccrual on I

Lewis Solimene

it nonaccruals the just a terms upper little being favorable. our of little vintage, themselves that affected XXXX of the are the less where are deliberately are a participant are structures less less SLF leverage To terms market a does. hasn't favorable. in favorable, a extent, the either at little borrowing kind We've a less or quo Yields really these that are capacity. maintained end given are companies middle But in -- yields little our a certain reluctant the in more status of

And We the fund pretty fund level have, levels you've though, -- generally of course vehicle. decided leverage the leverage approach at seen XXXX, the cautious maintain in why coming this SLF over that's down. kind the of of structure to a at in terms

Operator

our to team. [Operator Instructions] you. There will I this are no further turn Thank at over time. call questions the now back

Theodore Koenig

any all XXXX. want again or you excited We always I Mick In the the to today. interim, questions up or please talking to feel substantially. market think happy we between to to next forward the you is reach extent talk out quarter. free about We're the to quarters. there's and we're pick to thank call for Alex, to look And to thoughts, joining going

you. thank So day. Have good a

Monroe Capital (MRCC) 12 Mar 242023 Q4 Earnings call transcript