MRCC - Earnings call transcript Q4 2024 | Monroe Capital Corporation

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Operator

Welcome to Monroe Capital Corporation's Fourth Quarter and Full Year 2024 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 3, 2025, 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 will call of Executive conference turn Monroe to Corporation. I the Chief over now Ted Koenig, Capital Officer

Theodore Koenig

with us quarter you full and we Parmacek, Last XXXX our earnings earnings here who and CFO fourth am year to Friday, full our I Mick XX-K Investment morning, to our thank has issued XXXX Good joined with Manager. today. call. we and Welcome quarter morning, this everyone fourth Portfolio Solimene, Officer; the our and press and Deputy and Alex year our SEC, filed release. Chief

of today's On update that partnership $X.XX our to with our delivered total some income begin annualized share commentary our dividend quarter. XX, overview price. per an share price using on I the the investment Wendel on of adjusted Monroe's at Group. environment MRCC report providing am for an the our XXXX call, closing current pleased a results provide XX.X% covered then yield share I'll our financial February and market net by and dividend trading

landscapes shareholders track a are to of returns delivering variety our environments. market We attractive proud of risk-adjusted of record long-standing our economic and across

this paydowns share primarily million The of during result net per XXXX, portfolio at of XXXX. quarter. quarter to company, December $X.XX XX, the that certain September or quarter debt-to-equity September timing after million In the $X.XX reduce to attributable per to $X.X investment MRCC's year-end. were our million to $XXX.X XXXX. per share, the net as company paid end NAV due or last decline not XXXX, or on dividend $XXX.X of a by the to X.XXx the or $X.X investment losses share until fourth million unrealized in We increased share of $X.XX decrease outstanding slight quarter which adjusted increase our portfolio XXXX, was December was leverage X.XXx in income excess of facility X.X% net the from borrowings NAV of applied as per The reported from income was was offset of XX, quarter. a partially credit revolving of specific XX, compared at $X.XX NAV XX,

As market conditions first-lien we predominantly dedicated maintaining management portfolio a our remain continue highly and are to approach. investment prudent to evolve, selective of portfolio

our further backdrop rates Our coverage portfolio In portfolio's companies the economic have revenue steadying companies EBITDA growth and portfolio trends, interest XXXX, healthy and from benefited coupled declining fourth sound inflation. positive a demonstrated throughout ratio. interest and with the quarter increasing

team the Our portfolio continues focus the asset portfolio. quality to on maintaining management of

outlook. portfolio portfolio companies investments loan-to-value new industries, These In from believe In compelling half several resilient benefit spreads at well conservative are MRCC's the we of XXXX, invested previously and favorable portfolio companies. a list. were XXXX, attachment transactions operate companies in executed the X at points. as were as new in exited that we that to watch We credit our second well positioned market on successfully

remain However, opportunities. lending grow attractive with to us our allows what investments new existing is our well with incumbency provides to highly ability with us as companies portfolio as selective

for to year follow-on over and most attractive reduce capital where our of returns. has of spread portfolio spreads historically incremental we accounted compression, deployment. existing investments capital well and our made portfolio to a companies significant Deploying that at experienced into middle know XX% MRCC's has some market companies proven risk attractive generated risk-adjusted existing underwriting In

deal sustainable expect environment highly The dynamics active and to support lower improved and XXXX. interest are economic M&A rates, sponsor throughout outlook we activity a accelerated that

and will rigorous platform underwriting on credit to tailwinds. standards and middle private originations leading in-house capitalize continue lean to We market on our lending

redeploying investment selectively new on payoffs focused existing into company legacy from and relationships. We attractive will portfolio capital be

Before update with year. the quick to provide Mick and a announced the I late want to partnership call last strategic Wendel over Group on Alex, I turn that Monroe

of the company Monroe, and plans As of is the Wendel Monroe external to the existing French platform. you $X Europe's strategies firms. partner commit investment purchasing capital to with majority Monroe a MRCC's ownership owner Group, one investment of seed will and adviser, leading new a and new interest may investment in recall, Wendel of billion support

management On February consummation XX, new shareholders the of transaction. for agreement that XXXX, required and the investment was MRCC's approved advisory

While external fee and, to advisory by operations changes transaction, will management services agreements our investment in the a there terms, Monroe and was of the approval have are investment and continue Wendel same. operate new and strategy process. including autonomously a extension, adviser, structure of its remain the to role result no the shareholders required Monroe as process, the will not and by exact investment will the independently, provided.

The MRCC's driving for first I going to now behalf step XXXX. close Board, over and greater your voting is is management approving in going Mick am who's the received to to turn shareholders. participation to thank new shareholders this walk you of we financial the of our transaction that expected quarter support detail. for value results to call through the the We On the later in investment in like advisory and important Monroe an strong agreement. our in that I MRCC believe would

Lewis Solimene

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

XXXX, equity sponsor middle in rise, by primarily portfolio consisted equity increased portfolio portfolio we the investment driven activity. private of debt of prior end XX and loan at the compared XX saw to quarter In market continue companies investments to quarter. the volumes companies Our fourth of

exits. quarter volumes to in to middle in analysis, capital that in direct sponsors be companies can volumes continue such a the According play middle support to market Monroe companies quarter LPC's fourth and the for for XXXX. used to annual since growth. portfolio existing the a role quarterly middle-market of year-over-year ultimately market This LSEG strategic offering sponsored sponsored for as M&A supporting XX% critical new solutions compelling represented record direct lending fourth quarter led to initiatives fourth in position an lenders XXXX of transactions, increase results those XXXX XXXX, lending strongest Direct

private much XXXX, draw indicated middle LSEG's market report record. were this X.Xx in further than loan funded XXXX, new growth X.Xx in to term which of in delayed existing that than lending. a loan issuance credit was deal by greater also term was XXXX greater was annual deal support draw syndicated In issuance fundings volumes investments. Delayed driven

those generally platform and accounted incremental transactions in investment private growing much our acquisitive to activity portfolio to the strong companies competitive Investment across platform Capital equity us portfolio of reflective in industry MRCC's activity affiliation sponsors. fourth with to made remain commit Monroe our our and of of existing MRCC has for allows quarter best-in-class been scale portions throughout and dynamics. companies Further, at in and a with XXXX. investments

During the new million year, we existing $XX.X portfolio in invested and portfolio companies. X companies $XX.X million through

quarter, into redeploy out we X assets fourth companies. and deal of million million Throughout to MRCC existing vintages well company new the received as from portfolio higher-performing key $X.X X to to allow normal quarter, more strategic portfolio totaling $XX.X in and attractive legacy new assets capital paydowns companies in $XXX for incurred In A on MRCC into payoffs aggregate initiatives. aggregating rotate and million and $XX.X repayments, invested we portfolio $XX.X During in active environment fourth existing partial million to course million. had XXXX. as sales full execute that XXXX, $XXX million will are the seeking and up more

floating At was increase rate XX, borrowings $XXX December XX, $XXX.X XXXX, $XXX.X September December at had slight million credit under revolving facilities and leverage notes. including At we debt-to-equity, X.X% of a rate X.XXx million, our outstanding XXXX. X.XXx our total from XXXX, our fixed of XX, million debt-to-equity XXXX

cash January facility borrowing the in the the used credit quarter down revolving at on -- year-end, had we of debt. to week of to occurred of that first $XX.X However, million hand availability, the capacity. January At end payoffs in base first subject XXXX, pay the quarter for excess of

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

of decrease in effective lower decline September of investment to The in or rates, portfolio ended incentive income or $X.X third $X.XX would XX, quarters, limitations in XXXX, per investment adjusted the adjusted XXXX. $X.XX well decreases million $X ended XX, of $X.X the in base driven quarter income share the and the fourth been million impact decline share as net in a share for other average have quarter per $XXX,XXX respectively, and and of rate primarily the by per size and December million was Excluding income. or fee quarter the net as interest $XXX,XXX due $X.XX

the quarter of rates nonaccrual base quarter decline our As was expect total average persist during on largely well portfolio's to the MRCC's preferred compares XX.X%, XX% in onetime on status. a The we in of to effective equity -- fee decline effective calculation, result debt weighted of yield to the the due requirement The ago. incentive fees investment within return addition the the which and throughout shareholder-friendly currently yield to incentive was as one investments next a quarter. limitations as investment

of million X.X% million, decreased XXXX. as XXXX, $XXX.X was $XXX.X by XX, September December XX, As from of our NAV which

primarily share. to The from of result NAV decline Our net portfolio decreased losses to the by quarter $X.XX $X.XX corresponding in attributable $X.XX NAV a this per was company. share specific share per unrealized per

value, on company offset While dividend asset. it will the expected in our cash the who'll The details flow quarter of via loss solid a unrealized impacted of more now excess income to provide generally model, market the has Alex, fourth net monetization which the to by performance, was the demonstrated over quarter I fair by turn in discounted determined timing was related investment performance. this portfolio paid. operating is partially mark-to-market

Alex M. Parmacek

Mick. you, Thank

quarter our income million a led statement of investment direct investment half quarter to our totaled market, of decrease lower the $XX.X rates of to decrease a with decline compression portfolio. in from during of continued XXX point spread income rates. which the primarily This, million in coupled million amounted yields of XXXX, consecutive third interest the for fourth interest declining our basis The the operations, second the a investment of -- in put base X for result in Fed XXXX, interest lenders. Looking on quarters $X.X rate to the nearly was XXXX. on to $XX environment, cut has pressure In base

widen the the of quarter spreads saw the in XXXX, since time fourth of XXXX. first However, quarter we for first

that While the reversal indeed potentially spreads. pricing a we leveling modest, off could was in the believe increase indicate

income. the and lower status also to nonaccrual assets company investment contributed interest the impact the the In on declining placement addition average rate the of quarter environment, of decrease additional invested portfolio to an in during

the on or challenges part, portfolio the represented of the investments portfolio. idiosyncratic specific broader from value as XXXX, value the are we've XX, stress of status total X.X% have slight XX, borrowers most nonaccrual fair portfolio Our December seen fair of XXXX. The portfolio been, of of the a factors not in as market due increase of indicative of X.X% September a of for that within to pattern market

We to will playbook management to stable investment continue proven in deep portfolio base professionals of roster and our dynamic asset leverage maintain market our environment. a a underwriting and

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

interest quarter, credit expenses driven primarily impact fourth base debt and the during a periods, revolving average in other both due borrowings during debt rates and total $XXX,XXX under financing limitations of expenses, decrease by on fee our outstanding our facility. decreased the in declines Excluding the lower incentive to by

the X-quarter was related for to prior million of Our net the were on change portfolio in Mick loss for to net the that remainder company September at The the the value net portfolio the Despite last X.X% for fair rated his attributable million the average of on cost an the with our the XX, unrealized portfolio with of XX% loss XXXX. XX.X% trailing primarily with approximately in is internal on remarks, consistent risk while of the quarter associated mentioned XX.X% X December to a our rating decreased by decrease XXXX, fair earlier December in These from mark-to-market stable. cost XX, to the average XX, end mark, line accounted of companies as scale and value, the in of generally quarter loss losses $X.X ended compared relatively mark $X.X quarter the average. for portfolio over of portfolio XXXX, quarter. slight

Turning to now SLF.

middle underlying aggregating rest that $XX larger value. had to The are more of market basis MRCC's average portfolio amortized different focused is amortized XX% which borrowers, December costs portfolio, investments market movements as As by of investments spread borrowers SLF market nominally SLF's on points of million of on companies. XXXX, XX, are the than the as XXXX. decreased XXXX, loans of in from the XX, in of the September the sensitive quarter, lower middle mark and generally In cost to approximately fair XX December XX, XX XX.X% SLF to

quarter, from of the income prior distribution with received MRCC Consistent SLF $XXX,XXX.

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

Theodore Koenig

Thank you, Alex.

leveraging delivering underwriting through our time-tested management portfolio, resulting portfolio which an committed annualized returns, remain we average we playbook. long-term A dividend yield stockholders and value standards carries effective credit to over on As of for XX.X% our predominantly yield. produce continues rigorous in first-lien an risk-adjusted deep strong XXXX, experience, focus to XX.X%

the MRCC manager team over with consisting enjoys being $XX XXX with of going operator now Corporation remarks. provide all billion X, award-winning January investment supported an advantage as the affiliated strong XXXX. today, We believe for an professionals this Capital open call in to by your under to ask assets employees, private over best-in-class and a management, our approximately investors. prepared XXX questions. market Monroe to Thank opportunity investment our a middle continues dedicated time including other to credit in that and of strategic shareholders for you I'm concludes to attractive

Operator

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

Christopher Nolan

congratulations on share almost a all, because the the is per real with First that's par price improvement. share NAV of and

might the you've slightly here for, to to earnings, quarter, portfolio? Going you years whether in quarter, of the portfolio there almost X leverage terms been grow everything a early smaller strategy in Because is reversal be the guys decreasing I grow forward, first portfolio, just portfolio what cards. that and the the see the think, yield highlighted the given not in contracting now or lower the

Theodore Koenig

question. good Chris,

and plan to put legacy You're place the some in it. on the was to of top issues, The ourselves that. portfolio old a up allow clean of market rightsized understand

portfolio step close I'm We're you'll our do position mentioned, do stock on now now over of now think some internal a price working effort very we're and couple And right things plans grow that some our on some see play I to NAV. right that. as a and you to to the And is the think to hopeful interesting to accelerator. in here XXXX. offense I

Christopher Nolan

names some And have I some been see then have for which on nonaccrual these could we guess, And very you Great. nonaccrual some long time. a coming resolutions quarters? investments on larger of in

Theodore Koenig

one? you Mick, that take why don't

Lewis Solimene

sure. Not

books on workout include working we these on our into our our for to a couple for we've of nonaccruals assure team assets. we're management on our in can hope finalizing. that held accretive kind litigation progress of them of circa this that you assets to nonaccruals, actively dedicated trust been of otherwise on names the it's out to the during make actively in put been course our I rotate while. are some newer So portfolio XXXX. But nonaccrual that working we've and more that in vintage portfolio on working real with process a and cash the matters and while. are proceeds a Basically, and on of But names include legacy we got have XX nonaccrual Does

Christopher Nolan

question. Final Great.

on a now. heavy your reliance structure in guys BDCs are for terms unique credit facilities debt of you You bank have among

any light consideration something? not credit commercial nonbank to for commercial valuations. some swapping a nonbank starting And the lenders headwinds other is bonds see of facilities which that focus, bank I generally in of I real banks. cover, the of the for -- mostly this, estate real baby And see, sign in of to in turn, And real want good just are estate in out or terms terms regional

Theodore Koenig

real in never financial market a well-diversified Right We're portfolios. interest always first-lien estate. than very more seen is regulated estate from and providing capital and Chris. consideration, corporate. That's I've now, non, to middle credit Real both different not loan institutions,

in always we've lots think we're But works. think I So looking got of unsecured, regard. that provided we options the arbitrage at that

Christopher Nolan

No, you guys. of Yes. estate being my banks, not regional for point real commercial area for is an vulnerability

really availability really a credit And facilities. terms of then so crisis if wave it have estate I'm something that's could hit, the your raising. commercial just a real effect just of And knock-on hits, in

Theodore Koenig

we're and we're process are optimizing it. thought and always very capital focused focused structure. Mick as our And good Alex said, always looking at... a It's I on on And

Alex M. Parmacek

We're not on really dependent regional bank. heavily X

Our fairly well credit are diversified. facilities

Operator

not as do to have [Operator closing Ted this time, any will at the we I Instructions] call more Seeing questions remarks. over turn now Koenig for back

Theodore Koenig

for you us Thank all joining today.

mentioned or I working day. to willing we're things. free always questions to so weren't And next feel you, of on and Mick extent a earlier, call a interested our please We're to interesting have that for thank our about you in look business. We're speak excited And next the Alex. today, XXXX. forward number contact prospects good I quarter, about As to have answered

Operator

call. that and Ladies gentlemen, Thank you concludes for today's all joining.

disconnect. now You may

Monroe Capital (MRCC) 3 Mar 252024 Q4 Earnings call transcript