MRCC - Earnings call transcript Q2 2024 | Monroe Capital Corporation

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Operator

Welcome to Monroe Capital Corporation's Second Quarter 2024 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, August 8, 2024, these statements are not guarantees of future performance. Further, time-sensitive information may no longer be accurate as at 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

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

Theodore Koenig

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

filed XXXX evening, addressing with our environment we conditions. and market and issued and press Last macroeconomic call, our by into the thoughts insights results, XX-Q quarter SEC. begin earnings today's second quarter On then the share current and the release our I'll second

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

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

the $X.X second $X.XX increase quarter. of an investment net per share, per million adjusted from was our $X.X or in income the or $X.XX share first In million XXXX, quarter

net X.XXx. $X.XX by our Our income per dividend share investment adjusted covered nearly

quarter. unrealized $X.XX per in NAV dividend XXXX, was reported of excess million the million attributable XXXX. of paid slight income by in decline as share certain XX, losses The net net $XXX.X to partially We offset the with as of primarily June per NAV result XX, NAV $X.XX share or portfolio compared or investment $XXX.X of of during companies, of March the

by the payoffs June March XX, quarter. XX, that as occurred debt-to-equity MRCC's XXXX, to XXXX, of in X.Xx X.XXx from late leverage at several driven decreased

and with portfolio supporting opportunities approach primarily our new disciplined with investment a on add-on when company selective highly managing companies, relationships. Our focus opportunities capital redeploying attractive and remains into maintaining lending portfolio investment and

to historically portfolio climate, sectors In challenging inflationary operating and to MRCC economic secured continued senior investments companies of have in and revenue persistent are is predominantly healthy that our the comprised face companies of resistant in pressures macroeconomic volatile demonstrate growth. EBITDA first lien a environments.

portfolio further of our Further, sound maintained environment Thus, persist. borrowing portfolio stability of costs, companies risk-weighting interest reflected positioned is in have generally MRCC MRCC's resiliency elevated rate enduring coverage to it a longer The for our well despite is interest a navigate ratio. should distribution. higher the

to The challenges seen we the fundamental idiosyncratic that the portfolio have not of stress are been, due most have portfolio. the in for broader indicative part, factors within

leverage experience proven to management of deliver XX-year and underwriting through maintain of playbook our professionals, record a remain we underperforming and outcomes investments. continue portfolio that confident our roster to and We deep maximize investment market can and We for will shareholders. economic track environments various and and continue value to navigating work turnaround

increased XX% I will equity XXXX view LPC's saw our loan we market loan a In year-over-year. private activity. rise LSEG on increased quarter middle now middle XXXX, volumes volumes, middle market second environment. analysis, driven turn by the of to market the quarter in According market sponsor second

direct flexibility risk. has portfolio sponsor low Middle capital for were Sponsor and provide volumes support market need year, prior volumes exits up solutions growth direct to were for XX% the execution lending the XX% heightened year. demand the lending and those direct M&A of to prior that compared and from up over their position companies for lending companies

returns. where incumbency in existing our and lending bank risk-adjusted to activity, have While volume of companies, deals to some of portfolio in we opportunities did the X.Xx historically, loan syndicated accelerated still generate most see lenders with been a sponsor our activity syndicated compelling presented The quarter. for accounted has attractive pickup we able us the direct for

call our The market, especially carried quarter upper quarter. market. in happening, middle of intensifying competition the has in repricing the This across has particularly with activity loan last we noted pickup tightening in on middle in spreads resulted the credit the the the markets second in throughout syndicated that and

increased on leverage market the upper which second the slightly market. has transactions we that solutions the Concurrently, middle and spread market, quarter. the capital compression Monroe providing across experienced expansion middle less in leverage saw of levels middle lower to than focuses

yield As at weighted a nearly stable lien secured heavily rate portfolio. result, remained on MRCC's XX% of has an attractive senior effective first

a market to on leverage and of increased, In decreased the have supporting has focus we spreads companies. incumbent where continue face our overall portfolio

us our flow originations, allowed to through portfolio retain deal underwriting our Our a existing assets, deal disciplined ability quality maintaining execution. and consistently higher has while to generate with approach

we Though interest direct lenders who increasingly playbook. overburdening focused opportunities will on are execute have our which our structures we then middle first standards remained cautious become Fed on half rate XXXX. direct is remain us environment, with other This companies cuts underwriting stable obligations. points, attachment throughout consistent rigorous our that protections debt offer the with necessary approach market this management increasingly portfolio likely, portfolio meet of loan-to-value and the lending with by have and the being align In with that service

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

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

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

Lewis Solimene

a end $XX.X last from totaled Thank decrease at quarter. of you, Ted. At $XXX.X our the portfolio quarter $XXX.X million million end, million, investment

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

and We we received totaling companies partial second paydowns quarter, and revolver and the $XX.X During million million. portfolio existing aggregating incurred had and full delayed normal million. drop fundings a of X $XX.X payoffs add-ons to $XX.X course to

and attributable second of with the X those payoffs refinancings. later payoffs of occurred to in payoffs X attributable sales noted earlier, quarter, those Ted As company portfolio these full to

XX, $XX.X million various fixed credit $XXX Total of we million deal million million, floating as by borrowings quarter XXXX end, decreased down revolving revolving facility June X.XX% notes. total XXXX, utilized At of and our pay rate $XXX.X $XX.X to borrowings facility million our At under including the from the had $XXX.X outstanding outstanding the to capacity. availability had revolving payoffs quarter credit borrowing during facility. proceeds base credit we of subject rate

a non-GAAP to to our in increase measure, incentive fee balance prior assets limitation, a $X.X Part in was X investment primarily higher Adjusted share with income, $X.XX period. by invested Now quarter. of average $X.X $X $X.XX quarter, million or the turning increase adjusted net The the investment share was the the compared results. income during being this per a per or million financial net the quarter of million over driven result

still the investment Excluding per per net income been shareholder-friendly share, forma fee adjusted have incentive limitation the excess our quarter, would $X.XX XX% $X.XX in -- of in pro dividend. share

expect quarters. return incentive the persist fees varying As calculation, requirement our of we MRCC's within on limitations a to incentive next result total over fee X the at levels

effective quarter stable on investments remained preferred XX.X%. equity Our debt and the at during the yield portfolio's

March XXXX, XX, XX, slightly decreased was our June of $XXX.X of which as million from As $XXX.X XXXX. million, NAV

net share. factors. in during quarter. share Our corresponding that NAV portfolio net mark-to-market was from idiosyncratic unrealized per partially attributable $X.XX have the quarter dividend by were of per been NAV $X.XX by companies losses result certain per investment decline losses to primarily this impacted The mostly offset in decreased of income to $X.XX by the These share the excess unrealized paid

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

Alex M. Parmacek

Thank you, Mick.

was realization assets quarter during totaled the increase $XX.X an quarter as the first in Looking second a to average of increase higher result portfolio in of income our million of from the the income million as $XXX,XXX during other The company investment $XX.X primarily quarter XXXX. during investment well operations, as a statement slight part XXXX, of increase of the quarter. income in

second placed of million. with nonaccrual, new the $X.X on quarter, fair In value we one market a investment

consistent X.X% XX, X status, with we fair of June on market XX, XXXX, March is of that the investments portfolio XXXX. nonaccrual As value, at had representing which of

shifting expense first quarter million Total expenses million for total to the over XXXX of were expenses quarter $X.X side. Now of XXXX. for the of to the compared second $X.X

the fee by limitation interest driven net $XXX,XXX, of in in increases by due average $X investment in million, and impact from excise financing an expenses increased total to incentive our of outstanding our income dividend. increase primarily the debt and expenses, Excluding other resulting exceeding taxes debt

performance average of portfolio from of mark-to-market June with on XX, XXXX. have prior associated loss loss certain to gain XXXX, one unrealized underlying $X.X quarter partially the mark-to-market net an mark losses for net the portfolio June unrealized net position portfolio our to slightly losses of to at realized ended cost XX.X% decreased at were offset The quarter. quarter equity million XXXX, on $X.X of X.X% by for primarily These credit a in for XX, Our a by attributable million losses that concerns. XX.X% XX, the of March net the sale were the was cost companies. companies compared These

Turning to now SLF.

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

with mark on the SLF XX.X% $XXX,XXX. from basis decreased June approximately XX, received points of of to cost income as modestly XXXX, average In XX XXXX. of distributions Consistent March amortized portfolio the quarter, the from amortized as cost quarter, MRCC SLF by XX.X% totaling XX, prior the of

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

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

Theodore Koenig

interest to Thank you, backdrop in macroeconomic was where environment summary, navigate uncertain confident Alex. remain ability and elevated an portfolio's In rates. the there we

our to recoveries and our continues and professionals deep management, portfolio to leverage playbook team be management portfolio can where challenging our investment experienced of focus on investments. maximize execute for Our we

share environment, the through $X.XX dividend to our the where and quarter dividends incremental net investments. more consecutive per and consistent MRCC XXth today's our income our incumbent marked shareholders In scale or yield. our investment quarter competitive platform opportunities offer our met lean we stable portfolio support continues of on adjusted has will as to exceeded originations this to

believe our nearly return an We which price. risk-adjusted dividend highlighted first yield predominantly by of to share portfolio, continue August to lien XX%, carries average on XXXX, effective as our well our an XX% positions closing investors, our X, us current that active delivering yield based

manager, is a provide to shareholders billion very $XX believe that credit and We Capital our affiliated other Monroe best-in-class investment award-winning, management, in attractive Corporation, with external to continues under an investors. nearly with which private to assets opportunity

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

Operator

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

Christopher Nolan

value calculations, On the my X% fair Is according quarter-over-quarter. -- of sort X% the SLF mode? in decreased or roughly runoff by this a to vehicle SLF

Lewis Solimene

thank you Chris, So that for question.

vehicle, the portfolio. the if was flat. the in So market look the quarter-over-quarter at in context value flat average of very was the fair during decline quarter actually you modest the of of value -- actually the a market It

We've with our about economic evaluating be conscious cycle, $XXX,XXX dividend. the provides. tightened this our where environment down vehicle given in dividend leverage We're a where but we dividend are market MRCC, joint the bringing to this how good $XXX,XXX portfolio, are in well constructive we been rate this partner contribution venture maintaining per quarter receiving that this as feel while really vehicle with in about the to our in

X.X%, dividend And the about MRCC's in is SLF put of under also of our portfolio, representing X.X% this fair X% income. to value of with market a the investment little perspective,

the So portfolio. we're to market the this be how kind to reenter constructive of right evaluating and about the time

Alex M. Parmacek

had Yes. a couple we payoffs. And Chris, in of the quarter,

was the there. driver big that So

Mick market much pretty noted, As stable. the was

XX fair So we to in decreased had XX. the value. to $X.X of X size The The about portfolio million payoffs. amounted from payoffs

Christopher Nolan

Yes.

more particularly MRCC since subordinate on the equity, effectively, seem me has be the is is the a fact theoretically, companies little Okay. a The here larger. But debt. not stable it because the for high, to that is position issue it's SLF holding nonaccrual

first make... want lot an for But So a this, for I holder. senior And you're of the doing just secured. rest your you're to portfolio, equity lien

Lewis Solimene

the yes, -- good really venture is position point, where this created, I portfolio. SLF this our equity a joint that's this in we Yes, the represents that portfolio in mean Chris. is a

-- ventures So a the that you to this ultimately, you loans of value the at that lot equity the the net in XX a represents represents It's BDCs, in portfolio going see you're interest portfolio the correct vehicle. the not an other end joint equity to of the of but companies roughly see unlike day, levered a business. that are in in

Christopher Nolan

Okay. $XXX,XXX you for guys and America, of X a Switching while million, but lien the the has looked -- here queue of cost the second over while, a I of and fair a going and has it the been to same a Education through know value. I fair Corporation worth that debt the it's have noticed of position million $X.X preferred value cost company to $X.X at like

So and the the a how loan at junior premium secured cost can preferred zilch? be be to

Lewis Solimene

Yes.

million-ish fair correct, value that cost, the market $XXX,XXX-ish value basis. to and a the to an of is the debt basis, value Chris, fair $X.X are X is a million on $X.X you the So relative cost preferred, of position relative

to X above getting and positions. debt the unaccrued quarters And that's fact cost. respect our about really with here those And for along a the we position, is and on are that, interest been years. ticked recovery handful the waterfall This of fees

a fair entitled that as but repayment the the to So that's last bottom waterfall, accrued of market the cost interest. principal and And debt, being to result, to degree has our unpaid analysis. preferred proceeds up over of recovery peaked the plus at the with relative yet relative ECA the the on above value

Christopher Nolan

question. Final Okay.

dividend? for that will another of a quarters, couple the this repeat expectations degree EPS the cover we -- can Given one waiver for this point, next the to quarter limited at the of say, third fee over or

Lewis Solimene

will quarter believe, dividend. EPS, cover third we the Yes,

Operator

[Operator Instructions] of question Raymond Our Robert from James. from comes line the Dodd next

Robert Dodd

there's of your to a -- nonaccruals? point on various like season? is are possibility own of terms got focused that in remarks. on update cost mean workouts a give your What And you the onto you far for Focusing prepared an accrual? do portfolio on you those in assets the how along think you can and of recoveries I that back still some of maximizing you the X.X% come us

process? reinvest recovery any it's is term post companies of was this cover some capital, the to more capital fair recover the value? longer short/medium? prolonged income where And is situation a of capital, be that can going which will Or working out, recovery from X.X% these a workout Or and income

Lewis Solimene

sorry. Thanks or Yes. -- for that question, Chris Robert,

within and industry assets a the or across cost, X.X% represent represents no of fair of with themes NECB do have in X.X% of for of those market kind through working longest and nonaccruals Our value total of those. industries. X in range time the been kind ECA of clear nonperforming buckets amount

bucket these And into quickly as out maximizing team with all that and recoveries nonaccrual working cases, our getting in internal them we workout with we and mode as of candidly can. recovery are

is doing respect maximizing on goal not maximizing long-term these to recovery ultimate with necessarily recovery, fair these to all Our value with value and maximize on short-term of right these thing -- the assets. assets, the

these profiles manage ability continue reorient them. help the to every and We're companies earnings -- each to actively ability reorient in confident our and confident of manage one to their we're assets. our to So in

Alex M. Parmacek

the when look process. And as all it answer these of names, turnaround Robert, different [ of of kind just well, to think universe directly in their exciting you and different I stages and ] phases names, they're at

the early it's of there. to have go. to a stage, to in little more we confident little time bit bit And I going you a where them, couple feel getting kind take that that a looked Again, we more are at in want get with to

when and are their you the Mick at it's successful we at in well. these light they about kind look that see -- over are a their tunnel, those to We good But line. do the in as good we feel have end time the But are about them, to starting feel some of scattered where feel pretty of time we -- outcome as alluded names. getting it, for of prospects the

Operator

no conclude for more are question-and-answer the will back session. I as that over in the seeing queue, remarks. to team the call Monroe turn Now there closing now questions Capital our does

Theodore Koenig

us the today. for everyone I want on call thank to joining

the again out Otherwise, free day. As extent and always, got to Mick we to speak feel please to next Have quarter. Alex. questions, an basis, reach you good a to on interim will you've

Lewis Solimene

you, Thank all.

Operator

call. that now all day, may gentlemen, you concludes and joining. and for disconnect. Have today's Ladies you pleasant Thank a

Monroe Capital (MRCC) 8 Aug 242024 Q2 Earnings call transcript