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Monroe Capital Corporation BDC Announces Third Quarter Results

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CHICAGO, Nov. 06, 2018 (GLOBE NEWSWIRE) -- Monroe Capital Corporation (NASDAQ:MRCC) ("Monroe") today announced its financial results for the third quarter ended September 30, 2018. 

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

Third Quarter 2018 Financial Highlights

  • Net investment income of $7.7 million, or $0.38 per share
  • Adjusted Net Investment Income (a non-GAAP measure described below) of $7.7 million, or $0.38 per share
  • Net decrease in net assets resulting from operations of $1.0 million, or ($0.05) per share
  • Net asset value ("NAV") of $264.8 million, or $12.95 per share
  • Completed public debt offering of $69.0 million in aggregate principal amount of 5.75% notes due in 2023
  • Paid quarterly dividend of $0.35 per share on September 28, 2018
  • Current annual cash dividend yield to shareholders of approximately 11.1% (1)
    (1) Based on an annualized dividend and closing share price as of November 5, 2018.

Chief Executive Officer Theodore L. Koenig commented, "We are pleased to report another quarter of consistent net investment income, with Adjusted Net Investment Income of $0.38 per share, representing the 18th straight quarter where per share Adjusted Net Investment Income met or exceeded our quarterly per share dividend. We have also made our 24th consecutive quarterly dividend payment to our shareholders without any reduction in our distributions. As of quarter end, our portfolio totaled $482.3 million in investments at fair value, which represented a slight decrease in the portfolio since the end of the second quarter primarily as a result of significant prepayment activity. However, since the end of the quarter we have added approximately $30.3 million of investments to the portfolio, net of prepayments. During the quarter we completed a public debt offering, which generated net proceeds of approximately $66.4 million. This debt raise combined with our available capacity on our revolving credit facility will allow us to continue to grow our portfolio, including our MRCC Senior Loan Fund joint venture, increase our regulatory debt leverage and create long term value for our shareholders."

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

 
Selected Financial Highlights
(in thousands, except per share data)
 
  September 30, 2018   June 30, 2018
       
Consolidated Statements of Assets and Liabilities data: (unaudited)
Investments, at fair value $ 482,293     $ 498,235  
Total assets $ 499,074     $ 513,603  
Net asset value $ 264,752     $ 270,708  
Net asset value per share $ 12.95     $ 13.35  
       
  For the quarter ended
  September 30, 2018   June 30, 2018
       
Consolidated Statements of Operations data: (unaudited)
Net investment income $ 7,726     $ 7,906  
Adjusted net investment income (1) $ 7,726     $ 7,906  
Net gain (loss) $ (8,719 )   $ (3,626 )
Net increase (decrease) in net assets resulting from operations $ (993 )   $ 4,280  
       
Per share data:      
Net investment income $ 0.38     $ 0.39  
Adjusted net investment income (1) $ 0.38     $ 0.39  
Net gain (loss) $ (0.43 )   $ (0.18 )
Net increase (decrease) in net assets resulting from operations $ (0.05 )   $ 0.21  
 
(1) 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 66 portfolio companies, with a total fair value of $482.3 million as of September 30, 2018, as compared to debt and equity investments in 71 portfolio companies, with a total fair value of $498.2 million, as of June 30, 2018. The Company's portfolio consists primarily of first lien loans, representing 86.3% of the portfolio as of September 30, 2018, and 88.1% of the portfolio as of June 30, 2018. As of September 30, 2018, the weighted average contractual and effective yield on the Company's debt and preferred equity investments was 9.7% and 9.7%, respectively, as compared to the weighted average contractual and effective yield of 9.9% and 10.0%, respectively, as of June 30, 2018. 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).

Financial Review

Net investment income and Adjusted Net Investment Income for the quarter ended September 30, 2018 totaled $7.7 million, or $0.38 per share, compared to $7.9 million, or $0.39 per share, for the quarter ended June 30, 2018. The Company believes that Adjusted Net Investment Income is a consistent measure of the Company's earnings. See Non-GAAP Financial Measure – Adjusted Net Investment Income discussion below. Investment income for the quarter ended September 30, 2018 totaled $13.8 million, compared to $14.8 million for the quarter ended June 30, 2018. The $1.0 million decrease during the quarter was primarily the result of a decline in interest and fee income, primarily due to a lower effective yield on the portfolio, including declines in the effective rate due to the placement of additional loans on non-accrual status, and reduced prepayment fee activity. Total expenses for the quarter ended September 30, 2018 totaled $6.1 million, compared to $6.9 million for the quarter ended June 30, 2018. The $0.8 million decrease during the quarter was primarily driven by a $1.0 million decrease in incentive fees. Incentive fees were limited due to the total return requirement during both periods presented. Please refer to the Company's Form 10-Q for additional information of the incentive fee calculation and associated limitation. 

Net gain (loss) was ($8.7) million for the quarter ended September 30, 2018, compared to ($3.6) million for the quarter ended June 30, 2018. The net loss during the quarter ended September 30, 2018 was primarily the result of realized losses on investments and net unrealized mark-to-market losses on investments in the portfolio during the quarter. During the quarter the Company experienced mark-to-market valuation declines on certain investments in the portfolio, most notably the Company's investment in Rockdale Blackhawk, LLC. Please refer to the Company's Form 10-Q for additional information concerning the Company's investment in Rockdale Blackhawk, LLC. In addition, the Company sold its debt investments in Millennial Brands, LLC during the quarter. This position had been significantly marked down in previous periods and this quarter represented a shift of those losses from unrealized to realized.

Net increase (decrease) in net assets resulting from operations was ($1.0) million, or ($0.05) per share, for the quarter ended September 30, 2018, compared to $4.3 million, or $0.21 per share, for the quarter ended June 30, 2018. This decrease is primarily the result of net mark-to-market losses and the realization of losses on certain portfolio investments during the quarter. The Company's NAV per share decreased to $12.95 per share at September 30, 2018 from $13.35 per share at June 30, 2018. 

Liquidity and Capital Resources

At September 30, 2018, the Company had $4.0 million in cash, $5.9 million in restricted cash at Monroe Capital Corporation SBIC LP ("MRCC SBIC," the Company's wholly-owned SBIC subsidiary), $51.5 million of total debt outstanding on its revolving credit facility, $69.0 million of debt outstanding on its notes issued during the quarter, and $115.0 million in outstanding Small Business Administration ("SBA") debentures. As of September 30, 2018, the Company had $148.5 million available for additional borrowings on its revolving credit facility. 

SBIC Subsidiary

As of September 30, 2018, MRCC SBIC had $57.6 million in leverageable capital, $5.9 million in cash and $170.4 million in investments at fair value. Additionally, MRCC SBIC had $115.0 million in SBA-guaranteed debentures outstanding. 

As of September 30, 2018, the Company has fully drawn all available debentures at MRCC SBIC. The SBA-guaranteed debentures are long-term, fixed rate financing with the advantage of being excluded from the Company's 200% asset coverage test under the Investment Company Act of 1940.

2023 Notes

On September 12, 2018, the Company closed a public offering of $69.0 million in aggregate principal amount of senior unsecured notes (the "2023 Notes"). This resulted in net proceeds to the Company of approximately $66.4 million after deducting payment of underwriting discounts and commissions and estimated offering expenses payable by the Company. The 2023 Notes bear interest at a rate of 5.75% per annum and will mature on October 31, 2023. The 2023 Notes may be redeemed in whole or in part at any time, or from time to time, at the Company's option on or after October 31, 2020. The Company used the proceeds from 2023 Notes to repay its revolving credit facility and intends to use the additional capacity under its revolving credit facility to facilitate portfolio growth.

MRCC Senior Loan Fund

The Company formed a joint venture with NLV Financial Corporation ("NLV"), the parent of National Life Insurance Company ("National Life"), to create MRCC Senior Loan Fund I, LLC (the "SLF") during the fourth quarter of 2017. SLF invests primarily in senior secured loans to middle market companies in the United States. The Company and NLV have each initially committed $50.0 million of capital to the joint venture. As of September 30, 2018, SLF had a $100.0 million secured revolving credit facility with Capital One, N.A. (the "SLF Credit Facility"). On October 31, 2018, SLF closed an amendment to the SLF Credit Facility, increasing the commitments under the facility to $150.0 million. As of September 30, 2018, the Company had made net capital contributions of $25.2 million in SLF with a fair value of $26.3 million, as compared to net capital contributions of $17.9 million in SLF with a fair value of $18.7 million at June 30, 2018. During the quarter ended September 30, 2018, the Company received an income distribution from SLF of $0.6 million, compared to the $0.3 million received during the quarter ended June 30, 2018. 

As of September 30, 2018, SLF had total assets of $142.1 million (including investments at fair value of $134.9 million), total liabilities of $89.5 million (including borrowings under the SLF Credit Facility of $81.4 million) and total members' capital of $52.6 million. As of June 30, 2018, SLF had total assets of $98.6 million (including investments at fair value of $94.8 million), total liabilities of $61.2 million (including borrowings under the SLF Credit Facility of $56.4 million) and total members' capital of $37.4 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 excise 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:

   
  For the quarter ended
  September 30, 2018   June 30, 2018
  Amount   Per Share
Amount
  Amount   Per Share
Amount
               
  (in thousands, except per share data)
Net investment income $ 7,726   $ 0.38   $ 7,906   $ 0.39
Net capital gains incentive fee   -     -     -     -
Excise taxes   -     -     -     -
Adjusted Net Investment Income $ 7,726   $ 0.38   $ 7,906   $ 0.39
               
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