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Monroe Capital Corporation BDC Announces Fourth Quarter And Full Year 2018 Results

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CHICAGO, March 05, 2019 (GLOBE NEWSWIRE) -- Monroe Capital Corporation (NASDAQ:MRCC) ("Monroe") today announced its financial results for the fourth quarter and full year ended December 31, 2018.  The Board of Directors of Monroe also declared its first quarter distribution of $0.35 per share, payable on March 29, 2019 to stockholders of record on March 15, 2019.

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

Fourth Quarter 2018 Financial Highlights

  • Net investment income of $7.8 million, or $0.38 per share
  • Adjusted Net Investment Income (a non-GAAP measure described below) of $7.8 million, or $0.38 per share
  • Net increase in net assets resulting from operations of $1.2 million, or $0.06 per share
  • Net asset value ("NAV") of $258.8 million, or $12.66 per share
  • Paid quarterly dividend of $0.35 per share on December 28, 2018
  • Current annual cash dividend yield to shareholders of approximately 11.6% (1)

(1) Based on an annualized dividend and closing share price as of March 4, 2019.

Full Year 2018 Financial Highlights

  • Net investment income of $31.9 million, or $1.57 per share
  • Adjusted Net Investment Income (a non-GAAP measure described below) of $31.9 million, or $1.57 per share
  • Net increase in net assets resulting from operations of $5.8 million, or $0.29 per share

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 19th straight quarter where per share Adjusted Net Investment Income met or exceeded our quarterly per share dividend. We have also made our 25th consecutive quarterly dividend payment to our shareholders without any reduction in our distributions.  As of quarter end, our portfolio totaled $553.6 million in investments at fair value, which represented a $71.3 million increase in the portfolio during the fourth quarter, or about a 15% increase in the quarter, as we utilized additional leverage capacity available to us after the public debt offering at the end of the third quarter.  The volume of investment activity in the first quarter of 2019 has remained strong and we have already added approximately $37.6 million of investments to the portfolio, net of prepayments, since quarter end.  We are also pleased to announce we recently closed on an amendment and extension of our revolving credit facility, increasing our immediately available capacity by $55.0 million, extending the term of the facility another five years and decreasing pricing from LIBOR plus 2.75% to LIBOR plus 2.375%.  This amendment will allow us to continue to grow our portfolio, expand our leverage, and should positively contribute to our earnings in future quarters."

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

Selected Financial Highlights
(in thousands, except per share data)

  December 31, 2018   September 30, 2018
       
Consolidated Statements of Assets and Liabilities data:     (unaudited)
Investments, at fair value $   553,621     $   482,293  
Total assets $   579,829     $   499,074  
Net asset value  $   258,767     $   264,752  
Net asset value per share $   12.66     $   12.95  
       
  For the quarter ended
  December 31, 2018   September 30, 2018
   
Consolidated Statements of Operations data: (unaudited)
Net investment income $   7,803     $   7,726  
Adjusted net investment income (1) $   7,803     $   7,726  
Net gain (loss) $   (6,632 )   $   (8,719 )
Net increase (decrease) in net assets resulting from operations $   1,171     $   (993 )
       
Per share data:      
Net investment income $   0.38     $   0.38  
Adjusted net investment income (1) $   0.38     $   0.38  
Net gain (loss)  $   (0.32 )   $   (0.43 )
Net increase (decrease) in net assets resulting from operations $   0.06     $   (0.05 )
       

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(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 74 portfolio companies, with a total fair value of $553.6 million as of December 31, 2018, as compared to debt and equity investments in 66 portfolio companies, with a total fair value of $482.3 million, as of September 30, 2018. The Company's portfolio consists primarily of first lien loans, representing 89.9% of the portfolio as of December 31, 2018, and 86.3% of the portfolio as of September 30, 2018.  As of December 31, 2018, the weighted average contractual and effective yield on the Company's debt and preferred equity investments was 10.0% and 10.0%, respectively, as compared to the weighted average contractual and effective yield of 9.7% and 9.7%, respectively, as of September 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

Results of Operations: Fourth Quarter 2018

Net investment income and Adjusted Net Investment Income for the quarter ended December 31, 2018 totaled $7.8 million, or $0.38 per share, compared to $7.7 million, or $0.38 per share, for the quarter ended September 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 December 31, 2018 totaled $14.8 million, compared to $13.8 million for the quarter ended September 30, 2018.  The $1.0 million increase during the quarter was primarily the result of an increase in interest and fee income, primarily due to a larger average investment portfolio size during the quarter. Total expenses for the quarter ended December 31, 2018 totaled $7.0 million, compared to $6.1 million for the quarter ended September 30, 2018. The $0.9 million increase during the quarter was primarily driven by an increase in interest expense as a result of additional borrowings required to support the growth of the portfolio.

Net gain (loss) was ($6.6) million for the quarter ended December 31, 2018, compared to ($8.7) million for the quarter ended September 30, 2018. During the quarter the Company experienced net mark-to-market valuation declines on investments in the portfolio, including unrealized losses from the impact of the fourth quarter widening of credit spreads on the valuation of the Company's portfolio. In addition, the Company wound down its investments in TPP Operating, Inc. ("TPP") during the quarter. This position had been marked down to zero 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 $1.1 million, or $0.06 per share, for the quarter ended December 31, 2018, compared to ($1.0) million, or ($0.05) per share, for the quarter ended September 30, 2018.  This increase is primarily the result of fewer net mark-to-market losses during the quarter. The Company's NAV per share decreased to $12.66 per share at December 31, 2018 from $12.95 per share at September 30, 2018. 

Results of Operations: Full Year 2018

Net investment income for the year ended December 31, 2018 totaled $31.9 million, or $1.57 per share, compared to $26.0 million, or $1.40 per share, for the year ended December 31, 2017. Adjusted Net Investment Income was $31.9 million, or $1.57 per share, for the year ended December 31, 2018, compared to $25.9 million, or $1.39 per share, for the year ended December 31, 2017. Total investment income for the year ended December 31, 2018 totaled $58.4 million, compared to $51.1 million for the year ended December 31, 2017. The $7.3 million increase during the year was primarily driven by increases in interest income as a result of a larger average portfolio size and an increase in dividend income on the Company's MRCC Senior Loan Fund. Total expenses, net of incentive fee waiver, for the year ended December 31, 2018 totaled $26.5 million, compared to $25.1 million for the year ended December 31, 2017. The $1.4 million increase during the year was primarily driven by an increase in interest expense as a result of additional borrowings on our various financing sources (including the SBA debentures, 2023 Notes, and revolving credit facility) required to support the growth of the portfolio and an increase in base management fees due to the growth in invested assets. These increases were partially offset by a decrease in incentive fees. Incentive fees were limited during the year ended December 31, 2018 due to the total return requirement.  Please refer to the Company's Form 10-K for additional information of the incentive fee calculation and associated limitation.

Net gain (loss) was ($26.1) million for the year ended December 31, 2018, compared to ($13.9) million for the year ended December 31, 2017. The net loss during the year ended December 31, 2018 was primarily the result of net unrealized mark-to-market losses on investments in the portfolio during the year. 

Net increase in net assets resulting from operations was $5.8 million, or $0.29 per share, for the year ended December 31, 2018, compared to $12.2 million, or $0.65 per share, for the year ended December 31, 2017. This decrease is primarily the result of net gain (loss) on investments in the portfolio, partially offset by an increase in net investment income during the year. 

Liquidity and Capital Resources

At December 31, 2018, the Company had $3.7 million in cash, $14.0 million in restricted cash at Monroe Capital Corporation SBIC LP ("MRCC SBIC," the Company's wholly-owned SBIC subsidiary), $136.0 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 December 31, 2018, the Company had $64.0 million available for additional borrowings on its revolving credit facility. 

On March 1, 2019 the Company completed an amendment and extension of its revolving credit facility with ING Capital LLC, as Administrative agent.  Among other things, the amendment to the revolving credit facility increased the maximum amount the Company can borrow from $200.0 million to $255.0 million (which can be further increased to $400.0 million pursuant to an accordion feature), extended the maturity date on the facility to March 1, 2024, decreased pricing from LIBOR plus 2.75% to LIBOR plus 2.375% and reduced the asset coverage covenant from 2.1 to 1 to 1.5 to 1.

SBIC Subsidiary

As of December 31, 2018, MRCC SBIC had $57.6 million in leverageable capital, $14.0 million in cash and $161.0 million in investments at fair value.  Additionally, MRCC SBIC had $115.0 million in SBA debentures outstanding. 

As of December 31, 2018, the Company has fully drawn all available debentures at MRCC SBIC.  The SBA debentures are long-term, fixed rate financing with the advantage of being excluded from the Company's 150% asset coverage test under the Investment Company Act of 1940.

MRCC Senior Loan Fund

The Company formed a joint venture with NLV Financial Corporation ("NLV"), the parent of National Life Insurance Company, to create MRCC Senior Loan Fund I, LLC ("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 December 31, 2018, SLF had a $150.0 million secured revolving credit facility with Capital One, N.A. (the "SLF Credit Facility").  On January 9, 2019, SLF closed an amendment to the SLF Credit Facility, increasing the commitments under the facility to $170.0 million.  As of December 31, 2018, the Company had made net capital contributions of $27.2 million in SLF with a fair value of $27.6 million, as compared to net capital contributions of $25.2 million in SLF with a fair value of $26.3 million at September 30, 2018.  During the quarter ended December 31, 2018, the Company received an income distribution from SLF of $0.6 million, compared to the $0.6 million received during the quarter ended September 30, 2018. 

As of December 31, 2018, SLF had total assets of $177.1 million (including investments at fair value of $172.3 million), total liabilities of $121.9 million (including borrowings under the SLF Credit Facility of $101.1 million) and total members' capital of $55.3 million.  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.

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
  December 31, 2018   September 30, 2018
  Amount   Per Share Amount   Amount   Per Share Amount
   
  (in thousands, except per share data)
Net investment income $   7,803   $   0.38   $   7,726     $   0.38  
Net capital gains incentive fee     -        -        -          -   
Excise taxes     -        -        -          -   
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