Monroe Capital reported adjusted new investment income of $6.8 million in Q1/20 compared with $7.7 million for Q4/19. The company also reported a Q1/20 new decrease in net assets resulting from operations of $36.9 million. Q1/20 net asset value fell by 18% to $205.4 million in the quarter compared with the Q4/19 level of $249.4 million.
Monroe Capital has debt and equity investments in 83 portfolio companies, with a total fair value of $590.8 million as of March 31, as compared with debt and equity investments in 81 portfolio companies, with a total fair value of $616.2 million, as of Dec. 31, 2019. The company’s portfolio consists primarily of first lien loans, representing 90.9% of the portfolio as of March 31 and 89.5% of the portfolio as of Dec. 31, 2019.
As of March 31, the weighted average contractual and effective yield on the company’s debt and preferred equity investments was 8.0% and 8.1%, respectively, as compared with the weighted average contractual and effective yield of 8.8% and 8.9%, respectively, as of Dec. 31, 2019. Monroe noted that decreases in portfolio yield are attributed to general decreases in LIBOR and three investments moving to non-accrual during the quarter.
Investment income for Q1/20 totaled $15 million, compared with $18 million for Q4/19. The decrease during the quarter was primarily the result of lower interest income driven by decreases in LIBOR and the placement of new investments on non-accrual status and a decrease in fee income, according to Monroe Capital.
Monroe Capital paid a dividend of $0.35 per share on March 31. The company will reduce its Q2/20 dividend to $0.25 per share.
“Through the beginning of March, we were focused on our previously discussed strategy of reinvesting available capital in strong, resilient portfolio companies in defensive sectors. Our disciplined underwriting and credit process resulted in us having limited to no direct portfolio exposure in the high risk cyclical industries of airlines, automotive, travel, leisure, oil and gas, minerals, and mining and energy,” Ted Koenig, CEO of Monroe Capital, said. “However, the unprecedented uncertainty associated with the COVID-19 pandemic has created concerns related to overall economic conditions and also specific unanticipated challenges for many companies due to business interruptions and a slowdown in economic activity.
“Further, this uncertainty has caused negative impacts in the general loan market which has put downward pressure on loan valuations for all lenders. Our focus for the foreseeable future is on maintaining strong liquidity and funding and supporting our portfolio companies, as warranted. We believe the vast majority of our portfolio companies have strong long-term outlooks and will recover from the short-term challenges they are facing as a result of COVID-19. Over 97% of our portfolio companies that were current on interest payments prior to COVID-19 paid their first quarter interest as scheduled. As always, we will continue to be focused on the interests of our shareholders and will operate with caution and remain focused on generation of net investment income, preservation of capital and creation of shareholder value.”
Total expenses for Q1/20 totaled $8.2 million, compared with $10.3 million for Q4/20. The decrease was primarily driven by a $1.4 million reduction in incentive fees and lower interest expense as a result of lower average debt outstanding and a reduction in LIBOR rates, according to Monroe Capital.
Net gain (loss) was $43.6 million for Q1/20 compared with $3.5 million for Q4/19. The company’s portfolio declined in value by 6.8% during Q1/20, from 97.1% of amortized cost as of Dec. 31, 2019 to 90.3% of amortized cost as of March 31.
Net increase (decrease) in net assets resulting from operations was $36.9 million in Q1/20 compared with $4.1 million in Q4/19. This decrease during the quarter is primarily the result of net unrealized mark-to-market adjustments, according to Monroe Capital.
During Q1/20, Monroe Capital experienced what it called a significant increase in revolver draw requests from its borrowers and the company has met all borrower draw requests and expects to meet future requests.
At March 31, Monroe Capital had $9.3 million in cash, $9.9 million in restricted cash at Monroe Capital Corporation SBIC, $192 million of debt outstanding on its revolving credit facility, $109 million of debt outstanding on its 2023 notes, and $115 million in outstanding Small Business Administration debentures. As of March 31, 2020, the company had approximately $63.0 million available for additional borrowings on its revolving credit facility, subject to borrowing base availability.
As of March 31, Monroe Capital Corporation SBIC had $57.6 million in leverageable capital, $9.9 million in cash and $143.4 million in investments at fair value. Additionally, MRCC SBIC has fully drawn all available debentures and as of March 31, 2020 had $115.0 million in SBA debentures outstanding.
Monroe Capital’s joint venture with NLV Financial, MRCC Senior Loan Fund I, experienced a decline in its portfolio of 9.3% during the quarter, from 99.8% of amortized cost as of Dec. 31, 2019 to 90.5% of amortized cost as of March 31. At the end of Q1/20, the fund had total assets of $222.5 million (including investments at fair value of $217.2 million), total liabilities of $159.9 million (including borrowings under the $170.0 million secured revolving credit facility with Capital One of $150.7 million) and total members’ capital of $62.6 million. As of Dec. 31, 2019, the fund had total assets of $245.5 million (including investments at fair value of $239.8 million), total liabilities of $160.6 million (including borrowings under the Capital One credit facility of $147.2 million) and total members’ capital of $84.8 million.