Monroe Capital Corporation BDC Announces Second Quarter 2023 Results

CHICAGO, Aug. 09, 2023 (GLOBE NEWSWIRE) -- Monroe Capital Corporation ( MRCC) (“Monroe”) today announced its financial results for the second quarter ended June 30, 2023.

Except where the context suggests otherwise, the terms “Monroe,” “we,” “us,” “our,” and “Company” refer to Monroe Capital Corporation.

Second Quarter 2023 Financial Highlights

• Net Investment Income of $5.9 million, or $0.27 per share
• Adjusted Net Investment Income (a non-GAAP measure described below) of $6.1 million, or $0.28 per share
• Net decrease in net assets resulting from operations of $4.3 million, or $0.20 per share
• Net Asset Value (“NAV”) of $213.2 million, or $9.84 per share
• Paid quarterly dividend of $0.25 per share on June 30, 2023
• Current annual cash dividend yield to shareholders of approximately 11.7%⁽¹⁾

Chief Executive Officer Theodore L. Koenig commented, “We are pleased to report another quarter where Adjusted Net Investment Income exceeded our dividend. We continue to believe that tighter credit conditions as well as volatility in the bank and syndicated markets offer compelling value in the current direct lending environment. As we look ahead into the second half of 2023, we will focus on portfolio credit quality while maximizing Adjusted Net Investment Income and generating strong risk-adjusted returns for our shareholders.”

Monroe Capital Corporation is a business development company affiliate of the award-winning private credit investment firm and lender, Monroe Capital LLC.

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(1)} Based on an annualized dividend and closing share price as of August 8, 2023.

Management Commentary

Adjusted Net Investment Income totaled $6.1 million or $0.28 per share for the quarter ended June 30, 2023. This compares with $6.9 million or $0.32 per share for the quarter ended March 31, 2023. While the average portfolio yield increased during the quarter ended June 30, 2023 as a result of the rising rate environment, this increase in average portfolio yield was offset by lower average portfolio balances, lower fee income and prepayment gains and the one-time reversal of previously accrued interest income associated with the realization of an investment during the quarter. See Non-GAAP Financial Measure – Adjusted Net Investment Income discussion below.

NAV decreased by $0.45 per share, or 4.4%, to $213.2 million or $9.84 per share as of June 30, 2023, compared to $223.0 million or $10.29 per share as of March 31, 2023. Our NAV this quarter was primarily affected by market conditions, which negatively impacted realizations on two specific legacy investments in the brick-and-mortar retail space, where we have only nominal remaining exposure. Additionally, the fundamental performance of a couple specific portfolio companies still held in the portfolio and the Company’s investment in MRCC Senior Loan Fund I, LLC (“SLF”) contributed to the NAV decline. The decrease in value at the SLF was driven by unrealized mark-to-market losses on SLF’s investments, which are loans to traditional upper middle-market borrowers. The SLF has continued to experience higher volatility in mark-to-market valuations.

During the quarter, MRCC’s debt-to-equity leverage increased from 1.49 times debt-to-equity to 1.54 times debt-to-equity. We continue to focus on managing our investment portfolio and selectively redeploying capital resulting from repayments.

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(2) See Non-GAAP Financial Measure – Adjusted Net Investment Income below for a detailed description of this non-GAAP measure and a reconciliation from net investment income to Adjusted Net Investment Income. The Company uses this non-GAAP financial measure internally in analyzing financial results and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company.

Portfolio Review

The Company had debt and equity investments in 99 portfolio companies, with a total fair value of $515.4 million as of June 30, 2023, as compared to debt and equity investments in 102 portfolio companies, with a total fair value of $532.1 million, as of March 31, 2023. The Company’s portfolio consists primarily of first lien loans, representing 83.3% of the portfolio as of June 30, 2023, and 83.7% of the portfolio as of March 31, 2023. As of June 30, 2023, the weighted average contractual and effective yield on the Company’s debt and preferred equity investments was 12.2% and 12.2%, respectively, as compared to the weighted average contractual and effective yield of 11.5% and 11.6%, respectively, as of March 31, 2023. Portfolio yield is calculated only on the portion of the portfolio that has a contractual coupon and therefore does not account for dividends on equity investments (other than preferred equity). As of June 30, 2023, 1.3% of the Company’s total investments at fair value were on non-accrual as compared to 0.4% as of March 31, 2023.

Financial Review

Net Investment Income for the quarter ended June 30, 2023 totaled $5.9 million, or $0.27 per share, compared to $6.6 million, or $0.31 per share, for the quarter ended March 31, 2023. Adjusted Net Investment Income was $6.1 million, or $0.28 per share, for the quarter ended June 30, 2023, compared to $6.9 million, or $0.32 per share, for the quarter ended March 31, 2023. Investment income for the quarter ended June 30, 2023 totaled $16.3 million, compared to $16.8 million for the quarter ended March 31, 2023. The $0.5 million decrease in investment income was primarily the result of a decrease in fee income and prepayment gains during the quarter and the one-time reversal of previously accrued interest income associated with the realization of an investment during the quarter. The increase in the average portfolio yield resulting from the rising rate environment was offset by lower average portfolio balances. Total expenses for the quarter ended June 30, 2023 totaled $10.4 million, compared to $10.2 million for the quarter ended March 31, 2023. The $0.2 million increase in expenses during the quarter was primarily driven by an increase in interest and other debt financing expenses resulting from the rising interest rate environment.

Net gain (loss) was ($10.3) million for the quarter ended June 30, 2023, compared to ($3.3) million for the quarter ended March 31, 2023. Net realized and unrealized gains (losses) on investments were ($10.2) million for the quarter. This net loss was primarily attributable to net losses on the disposition of two portfolio company investments which resulted in net losses of $7.4 million during the quarter. Additionally, unrealized mark-to-market losses related to fundamental performance of a couple of specific portfolio companies still held in the portfolio and unrealized mark-to-market losses on SLF contributed to the net losses on investments for the quarter. Other net gains (losses) totaled ($0.1) million for the quarter ended June 30, 2023.

Net increase (decrease) in net assets resulting from operations was ($4.3) million, or ($0.20) per share, for the quarter ended June 30, 2023, compared to $3.4 million, or $0.16, for the quarter ended March 31, 2023.

Liquidity and Capital Resources

At June 30, 2023, the Company had $12.3 million in cash, $197.4 million of debt outstanding on its revolving credit facility and $130.0 million of debt outstanding on its 2026 Notes. As of June 30, 2023, the Company had approximately $57.6 million available for additional borrowings on its revolving credit facility, subject to borrowing base availability.

MRCC Senior Loan Fund

SLF is a joint venture with Life Insurance Company of the Southwest (“LSW”), an affiliate of National Life Insurance Company. SLF invests primarily in senior secured loans to middle market companies in the United States. The Company and LSW have each committed $50.0 million of capital to the joint venture. As of June 30, 2023, the Company had made net capital contributions of $42.7 million in SLF with a fair value of $34.5 million, as compared to net capital contributions of $42.7 million in SLF with a fair value of $35.8 million at March 31, 2023. During the quarter ended June 30, 2023, the Company received an income distribution from SLF of $0.9 million, consistent with the $0.9 million received during the quarter ended March 31, 2023. The SLF’s underlying investments are loans to middle-market borrowers that are generally larger than the rest of MRCC’s portfolio which is focused on lower middle-market companies. The SLF’s portfolio decreased in value by 2.0% during the quarter, from 93.5% of amortized cost as of March 31, 2023, to 91.5% of amortized cost as of June 30, 2023.

As of June 30, 2023, SLF had total assets of $176.9 million (including investments at fair value of $168.2 million), total liabilities of $107.8 million (including borrowings under the $110.0 million secured revolving credit facility with Capital One, N.A. (the “SLF Credit Facility”) of $107.9 million) and total members’ capital of $69.1 million. As of March 31, 2023, SLF had total assets of $187.0 million (including investments at fair value of $178.2 million), total liabilities of $115.5 million (including borrowings under the SLF Credit Facility of $115.7 million) and total members’ capital of $71.5 million.

Non-GAAP Financial Measure – Adjusted Net Investment Income

On a supplemental basis, the Company discloses Adjusted Net Investment Income (including on a per share basis) which is a financial measure that is calculated and presented on a basis of methodology other than in accordance with generally accepted accounting principles of the United States of America (“non-GAAP”). Adjusted Net Investment Income represents net investment income, excluding the net capital gains incentive fee and income taxes. The Company uses this non-GAAP financial measure internally in analyzing financial results and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company. The management agreement with the Company’s advisor provides that a capital gains incentive fee is determined and paid annually with respect to realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized capital losses for such year. Management believes that Adjusted Net Investment Income is a useful indicator of operations exclusive of any net capital gains incentive fee as net investment income does not include gains associated with the capital gains incentive fee.

The following table provides a reconciliation from net investment income (the most comparable GAAP measure) to Adjusted Net Investment Income for the periods presented:

Adjusted Net Investment Income may not be comparable to similar measures presented by other companies, as it is a non-GAAP financial measure that is not based on a comprehensive set of accounting rules or principles and therefore may be defined differently by other companies. In addition, Adjusted Net Investment Income should be considered in addition to, not as a substitute for, or superior to, financial measures determined in accordance with GAAP.

Second Quarter 2023 Financial Results Conference Call

The Company will host a webcast and conference call to discuss these operating and financial results on Thursday, August 10, 2023 at 11:00 am ET. The webcast will be hosted on a webcast link located in the Investor Relations section of the Company’s website at http://ir.monroebdc.com/events.cfm. To participate in the conference call, please dial (800) 715-9871 approximately 10 minutes prior to the call. Please reference conference ID # 2857464.

For those unable to listen to the live broadcast, the webcast will be available for replay on the Company’s website approximately two hours after the event.

For a more detailed discussion of the financial and other information included in this press release, please also refer to the Company’s Form 10-Q for the quarter ended June 30, 2023 to be filed with the SEC (www.sec.gov) on August 9, 2023.