Monroe Capital Corporation, a business development company affiliate of Monroe Capital, reported net investment income of $12.6 million, or $0.61 per share, in Q2/20 compared with $6.8 million, or $0.33 per share, for the quarter ended March 31, 2020. 

The company also reported:

• Adjusted net Investment income of $12.8 million, or $0.62 per share, compared with $6.8 million, or $0.33 per share, for the quarter ended March 31, 2020
• Net increase in net assets resulting from operations of $14.2 million, or $0.69 per share
• NAV increased by $0.33 per share, or 3.3%, to $220.6 million, or $10.37, per share as of June 30, 2020, compared with $205.4 million, or $10.04 per share, as of March 31, 2020
• That it paid a quarterly dividend of $0.25 per share on June 30, 2020

“In a challenging environment, we are extremely pleased to report strong financial results,” Theodore L. Koenig, CEO of Monroe Capital, said. “During the second quarter, we reported record net investment income, an increased net asset value, significantly reduced leverage and again, fully covered our dividend with net investment income.  

“Last quarter we discussed our near term goals of reducing leverage and maintaining stability within our investment portfolio. Primarily through paydowns on the portfolio, including a significant recovery on our investment in Rockdale Blackhawk, LLC (Rockdale), we were able to materially reduce leverage during the quarter. We continue to 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 the COVID-19 pandemic. As market volatility resulting from uncertainty related to the impacts of COVID-19 has declined when compared to the end of the first quarter, we saw spreads tighten and valuations for portfolio companies without significant long-term COVID-19 impact rebound during the quarter. As always, we 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.”

Portfolio Review

Monroe Capital Corporation had debt and equity investments in 83 portfolio companies, with a total fair value of $563.3 million, as of June 30, 2020 compared with debt and equity investments in 83 portfolio companies, with a total fair value of $590.8 million, as of March 31, 2020. The company’s portfolio consists primarily of first lien loans, representing 89.5% of the portfolio as of June 30, 2020, and 90.9% of the portfolio as of March 31, 2020. 

As of June 30, 2020, the weighted average contractual and effective yield on the company’s debt and preferred equity investments was 7.7% and 7.7%, respectively, as compared with the weighted average contractual and effective yield of 8% and 8.1%, respectively, as of March 31, 2020. The decrease in portfolio yield is primarily attributable to general decreases in LIBOR. Three-month LIBOR has reduced from 1.45% at March 31, 2020 to 0.3% as of June 30, 2020. 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, 2020, 4.7% of the company’s total investments at fair value are on non-accrual as compared with 7.4% as of March 31, 2020.

Financial Review

Investment income for the quarter ended June 30, 2020 totaled $20.6 million compared with $15 million for the quarter ended March 31, 2020. The $5.6 million increase during the quarter was primarily the result of the inclusion of $7.4 million of previously unrecorded interest and fee income associated with the company’s investment in Rockdale Blackhawk, partially offset by declines in LIBOR and the size of the investment portfolio during the period.  

Total expenses for the quarter ended June 30, 2020 totaled $8 million compared with $8.2 million for the quarter ended March 31, 2020. The $0.2 million decrease during the quarter was primarily driven by lower interest expense as a result of lower average debt outstanding and a reduction in LIBOR rates. Incentive fees were fully limited due to the total return requirement during the quarters ended June 30, 2020 and March 31, 2020. 

Net gain (loss) was $1.6 million for the quarter ended June 30, 2020 compared with $43.6 million for the quarter ended March 31, 2020. Excluding the impact of Rockdale, net gains for the quarter ended June 30, 2020 totaled $7.5 million. 

During the quarter ended March 31, 2020, the U.S. loan market exhibited a heightened level of volatility with the economic ramifications of COVID-19 and credit spread widening leading to a decline in U.S. loan prices during the quarter. During the quarter ended June 30, 2020, spreads tightened and U.S. loan prices began to rebound.  Excluding the company’s investment in Rockdale, Monroe’s portfolio increased in value by 1% from 88.4% of amortized cost as of March 31, 2020 to 89.4% of amortized cost as of June 30, 2020.   

Net increase (decrease) in net assets resulting from operations was $14.2 million, or $0.69 per share, for the quarter ended June 30, 2020 compared with $36.9 million, or $1.81 per share, for the quarter ended March 31, 2020.

Liquidity and Capital Resources

At June 30, 2020, Monroe Capital Corporation had $7.4 million in cash, $13.4 million in restricted cash at Monroe Capital Corporation SBIC (MRCC SBIC), $146 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 June 30, 2020, the company had approximately $109 million available for additional borrowings on its revolving credit facility, subject to borrowing base availability.  Revolver draw requests from borrowers subsided during the three months ended June 30, 2020 from the significant increase in draw requests the company experienced during the quarter ended March 31, 2020. The company has met all borrower draw requests and expects to meet future requests.

On May 21, Monroe Capital Corporation amended and restated its revolving credit facility with ING Capital as agent. The amendment provided certain relief during a temporary COVID-19 relief period of up to nine months, including expanded borrowing base capacity, flexibility within the asset coverage ratio definition to utilize an expanded base of assets to determine compliance and flexibility for the company to utilize SEC COVID-19 relief for the calculation thereof. Additionally, the amendment provided for certain permanent amendments, including removing the liquidity covenant and reducing the total net assets and net worth requirements. The amendment also set out certain temporary restrictions during the period that the company utilizes the temporary COVID-19 relief.

As conditions of the amendment, Monroe Capital Corporation agreed to certain pricing considerations, including an increase in the stated interest rate from LIBOR plus 2.375% to LIBOR plus 2.625%, the introduction of a LIBOR floor of 0.5% and the payment of certain conditional fees based on usage of the expanded borrowing base and usage of the asset coverage ratio flexibility. The size and other significant terms of the credit facility remain unchanged. 

MRCC SBIC

As of June 30, 2020, MRCC SBIC had $57.6 million in leverageable capital, $13.4 million in cash and $141.5 million in investments at fair value. Additionally, MRCC SBIC has fully drawn all available debentures and as of June 30, 2020, had $115 million in SBA debentures outstanding. 

Senior Loan Fund

Monroe Capital Corporation’s senior loan fund is a joint venture with NLV Financial, the parent of National Life Insurance Company. The loan invests primarily in senior secured loans to middle market companies in the United States. Monroe and NLV have each committed $50 million of capital to the joint venture. As of June 30, 2020, Monroe had made net capital contributions of $42.2 million in the fund with a fair value of $35.6 million compared with net capital contributions of $42.2 million in the fund with a fair value of $31.3 million at March 31, 2020. 

During the quarter ended June 30, 2020, Monroe received an income distribution from the fund of $0.9 million compared with the $1.2 million received during the quarter ended March 31, 2020. The fund’s portfolio increased value by 3.1% during the quarter from 90.5% of amortized cost as of March 31, 2020 to 93.6% of amortized cost as of June 30, 2020. 

As of June 30, 2020, the fund had total assets of $224.4 million (including investments at fair value of $219 million), total liabilities of $153.3 million (including borrowings under the $170 million secured revolving credit facility with Capital One of $153.7 million) and total members’ capital of $71.1 million. As of March 31, 2020, 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 credit facility with Capital One of $150.7 million) and total members’ capital of $62.6 million.