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Operator
Welcome to Monroe Capital Corporation's fourth quarter and four-year 2020 earnings conference call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain certain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results, or cash flows, particularly in light of the COVID-19 pandemic. Although we believe statements are reasonable, Based on management estimates, assumptions, and projections as of today, March 3rd, 2021, these statements are not guarantees of future performance. Further time-sensitive information may no longer be accurate as of the time of any replay or listening. Action results may differ materially as a result of risk, uncertainties, or other factors, including but not limited to risk factors described from time to time in the company's findings with the SEC. Monroe Capital takes no obligation to update or advise these forward-looking statements. I will now turn the call over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation.
Ted Koenig
Good morning, and thank you to everyone who has joined us on our call today. Welcome to our fourth quarter and full year 2020 earnings conference call. I am joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening, we issued our fourth quarter and full year 2020 earnings press release and filed our 10K with the SEC. First and foremost, we hope you and your families remain healthy and safe. We are pleased to report another strong quarter of solid net investment income and increased NAV performance again during the fourth quarter of 2020. We are also pleased to announce our quarterly dividend of 25 cents per share for the first quarter of 2021. During the fourth quarter, the financial markets remained strong and loan markets demonstrated continued resiliency. This can be seen in the performance of a couple of key markets. After being down as much as 30% for the year in late March, the S&P index shook off all effects of the COVID pandemic and ended up the year up over 15%. Price increases were also seen in traded credits investments as the S&P LSTA leverage loan index, which was down as much as 22% in March, has fully rebounded and was up almost 2% for the year. The continued reduction in credit spreads has benefited our portfolio marks, which have contributed to a significant improvement in our per share NAV over this period. including another increase in the fourth quarter. This normalization of the financial markets contributed to a resurgence of activity in the direct lending markets and from Monroe Capital specifically. In fact, Monroe experienced a record quarter of originations, closing 20 new loan transactions and several add-ons to existing loans, which aggregated approximately $1.1 billion of total commitments in the fourth quarter of 2020. Monroe benefited from the significant, MRCC benefited from this significant origination volume as evidenced by its strong portfolio growth in the fourth quarter, which was approximately 5% net of payoffs and ordinary course paydowns. Turning now to fourth quarter results, we are pleased to report adjusted net investment income of 25 cents per share, slightly lower than the adjusted net investment income of 27 cents per share in the prior quarter. Aaron will go into more detail regarding the components of our net investment income later in the call. We also reported a net increase in assets resulting from operations of $9.1 million or 42 cents per share during the quarter, which was driven primarily by the increase in fair value of our investment portfolio. As a result, our NAV on a per share basis grew from $10.83 per share at September 30th to $11 per share at the end of the year. a 1.6% increase. This represents the third consecutive quarter of growth in NAV per share, which has increased nearly 10% since the end of the first quarter. During the quarter, we increased MRCC's regulatory debt to equity leverage from 0.9 times debt to equity to 1.0 times debt This increase in leverage was primarily driven by strong asset growth at the end of the quarter, partially offset by normal repayment activity, as well as the increase in the fair value of our investments during the quarter. As much of the asset growth occurred near the end of the quarter, the resulting positive impact to NII has not yet fully materialized into our results for the fourth quarter. We continue to focus on managing our investment portfolio at the appropriate risk-adjusted leverage level going forward and are continuing to target regulatory leverage in a ratio of 1.1 to 1.2 times debt to equity in the near term. We have maintained an investment-grade corporate rating and recently announced a refinancing of our unsecured bonds with new bonds that carry a coupon, which is a full percentage point 100 basis below the bonds we recently redeemed, which should have a significant impact on our earnings going forward. Given the substantial pipeline of new deals at Monroe, we would expect to increase the leverage of MRCC carefully over the next few quarters in order to reach our near-term leverage target, which should benefit adjusted net investment income for future periods. Our focus for the next several quarters will be to make new investments in portfolio companies with compelling risk return dynamics, just as we have done at Monroe in the years following the last economic downturn in 2010 and 2011. We are very well positioned to do this. We will also remain dedicated to generating the best possible recovery on underperforming assets in our portfolio. We still have a couple COVID-related credits that we are in the process of working out. We have a strong track record in generating solid recoveries, and we expect that to continue going forward. Recent examples of our portfolio management successes include the recovery we have generated on Rockdale Blackhawk, and the significantly improved valuation of American community homes, just as examples. We remain heavily focused on generating similar recoveries for most of the other lower-rated credits and are optimistic that we can achieve this type of recovery for many of them. Besides strong portfolio management experience, our success in generating recoveries comes from the fact that we are typically a control lender and our agents on more than 80% of our loans and our investments. We have good loan documentation with tight baskets regarding indebtedness and restricted payments with no collateral leakage potential. We have at least two and often more financial covenants on most all of our deals, including maintenance and occurrence tests on leverage. This allows us to be proactively engaged with our borrowers and their financial sponsors, which can result in early intervention when performance begins to lag. Our recovery prospects are also enhanced by the fact that we maintain conservative starting leverage and loan to values when we underwrite our loans, often in the neighborhood of 50% loan to value. This morning, an affiliate of our external manager, Monroe Capital, issued a press release announcing that it has sold passive non-voting minority interest to Bon Accord Capital Partners. Bon Accord is the private capital markets group of Aberdeen Standard Investments, which is the largest asset management firm in the UK with approximately $600 billion in assets. While we certainly expect this transaction to be beneficial to the continued growth of the asset management platform at Monroe Capital, we also expect it to have benefits available to the MRCC shareholders and MRCC as it will open a window into the European market and shareholders to purchase MRCC and enjoy the consistent and stable dividend that we've been paying. MRCC enjoys a strong strategic advantage in being affiliated with a best-in-class middle-market private credit asset management firm with almost $10 billion in assets under management and over 130 employees as of January 1, 2021. We will continue to focus on generating adjusted net investment income, and positive NAV performance, just as we have shown in the last three consecutive quarters. I am now going to turn the call over to Aaron, who's going to walk you through our financial results in more detail. Thank you, Ted.
Aaron Peck
During the quarter, we funded a total of approximately $46.9 million in investments, which consisted of $32.3 million in fundings to 13 new portfolio companies, and $14.6 million of revolver and delayed draw fundings to existing portfolio companies. This solid portfolio growth was offset by sales and repayments on portfolio assets, which aggregated $31.2 million during the quarter. At December 31st, we had total borrowings of $350.6 million, including $126.6 million outstanding under our revolving credit facility, $109 million of our 2023 notes, and SBA debentures payable of $115 million. Our outstandings under our revolver increased by approximately $27.2 million during the quarter as we increased our leverage during the period. We are well situated to continue to carefully grow our portfolio through participating in the substantial pipeline of opportunities generated at Monroe. The ING-led revolving credit facility had $128.4 million of availability as of December 31st, subject to borrowing base capacity. Additionally, in January 2021, we issued $130 million in senior unsecured notes at an interest rate of 4.75 percent. These proceeds were used to redeem all of the $109 million in outstanding 5.75 percent 2023 notes and repaid a portion of the outstandings on our revolving credit facility. Any future portfolio growth, revolver draws, or advances to existing borrowers will predominantly be funded by the availability remaining under our revolving credit facility. Turning to our results for the quarter ended December 31st, adjusted net investment income, a non-GAAP measure, was $5.4 million, or 25 cents per share, a decrease from the prior quarter's adjusted net investment income of $5.8 million, or 27 cents per share. The reduction in per share adjusted NII was predominantly as a result of a decrease in our average investment portfolio size during the quarter, as a majority of the new fundings occurred late in the fourth quarter. While total assets were higher at the end of the quarter, the weighted average level of total assets declined from the previous quarter. The external manager voluntarily waived approximately $430,000 in base management fees at $712,000 in incentive fees to generate net investment income in line with our dividend. When considering our targeted leverage, the refinance of our bonds, and the current credit performance at MRCC, we continue to believe that on a run rate basis, our adjusted net investment income can cover the 25 cents per share quarterly dividend without significant fee waivers in the future, all other things being equal. LIBOR rates remained basically flat during the period, and three-month LIBOR, as an example, was approximately 24 basis points as of December 31st. We maintain LIBOR floors in nearly all of our deals, with the majority of floors at a level of at least 1%. As of December 31st, our net asset value was $234.4 million, which was up approximately 1.6% from the $230.7 million in net asset value as of September 30th. Our NAV per share increased from $10.83 per share at September 30th to $11 per share as of December 31st. We estimate that of the 17 cents per share in net gains during the quarter, approximately 29 cents per share was attributable to increases in the portfolio valuation primarily as a result of the tightening of credit spreads during the period, unrelated to individual credit performance. During the quarter, according to a refinitive LPC, all in the yields for first lien and institutional middle market loans tightened by over 100 basis points to 6.57% in the fourth quarter, compared to 7.62% in the third quarter of 2020. Of that 29 cents per share of NAV increase, primarily attributable to spread tightening, approximately 21 cents per share, or around 70%, was attributable to assets held directly by us, while $0.08 per share, or 30%, was as a result of net markups on assets held in the MRCC Senior Loan Fund joint venture. During the quarter, we also experienced a decrease in book value of approximately $0.05 per share attributable to net reductions in the valuation of our portfolio companies that have a risk rating of grade 3, 4, or 5 on our internal risk rating system. a significant portion of which was as a result of the residual impact of the COVID-19 pandemic on these borrowers. Finally, approximately 7 cents per share of the decrease in book value is associated with other losses primarily associated with unrealized foreign currency fluctuations on our borrowings denominated in British pounds. These borrowings were used to finance investments denominated in pounds, and as such, we have corresponding gains in the fair value of these assets, which is part of the positive marks described earlier. Looking to our statement of operations, total investment income decreased during the quarter primarily due to a decrease in interest income due to the smaller average portfolio size during the quarter. This decrease was partially offset by an increase in dividend income from the SLF during the period. During the quarter, we placed no additional positions on non-accrual status. Total non-accruals now approximate 4.1% of the portfolio at fair value, which compares to 5.2% as of September 30th. The decrease in non-accruals at fair market value is primarily because of the increase in the size of the investment portfolio during the period, as well as the reduction in the fair value of the non-accrual assets as of December 31st. Moving over to the expense side, total expenses for the quarter decreased, primarily driven by the partial waiver of base management fees in the quarter and the lower average debt outstanding, which reduced interest in other debt financing expenses. At the end of the quarter, our regulatory leverage was approximately 1.0 debt to equity, a small increase from the regulatory leverage of nearly 0.9 at the end of the prior quarter. The increase in regulatory leverage is primarily due to the portfolio growth at the end of the quarter. The current level of regulatory leverage is below the targeted leverage range we have guided you to on prior calls. We are currently comfortably in compliance with the SEC asset coverage ratio limitations, and slightly below our previously discussed near-term target regulatory leverage level of 1.1 to 1.2 times debt to equity. As Ted discussed in his prior remarks, we would expect to grow our portfolio at a measured pace and slightly increase our regulatory leverage over the next few quarters. We also announced that on March 1st, we prepaid $28.1 million in SBIC to ventures with excess available cash at the SBIC subsidiary. This should have the effect of removing the cash drag we've experienced due to prepayments and income generated at our SBIC subsidiary. We have made no decision regarding any additional near-term debenture repayments at this time. The result of this repayment will not impact regulatory leverage, but will slightly reduce our total leverage calculation on a pro forma basis. The SLF had invested in 57 different borrowers, aggregating $205.7 million of fair value. with a weighted average interest rate of approximately 5.8%. The SLF had borrowings under its non-recourse credit facility of $131.5 million and $38.5 million of available capacity under this credit facility, subject to borrowing base availability. We do not expect to significantly grow the assets held in the SLF at this time, and the SLF continues to be in compliance with all covenants in its credit facility. As discussed earlier, the loans held in the SLF saw significant unrealized mark-to-market increases during the period as a result of continued market spread tightening. I will now turn the call back to Ted for some closing remarks before we open the line for questions.
Ted Koenig
Thank you, Aaron. In closing, we continue to benefit from the resiliency of the financial markets and the strong proprietary origination network at Monroe to create differentiated risk-adjusted returns for our shareholders. Our overall Monroe Capital platform caused a record amount of new loan origination in the fourth quarter and continues to maintain a very strong pipeline of high-quality investment opportunities for all funds at Monroe, including MRCC. As a result, we are excited about our investment portfolio and our prospects. The key is our conservative underwriting, our purposefully defensive portfolio. and our access to a large and experienced portfolio management team with experience managing through multiple economic cycles. We have a defensively positioned portfolio with solid loan documentation and a lot of control over our own destiny in terms of risk management. As such, we continue to believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders. Our dividend remains fully covered by net investment income, and we have sufficient liquidity to continue to play offense in this market. We believe that MRCC is affiliated with an award-winning, best-in-class external manager, which has decades of experience, over 130 highly skilled employees, and almost $10 billion of assets under management. We would like to thank our shareholders for their loyalty and confidence I would also like to thank the entire team at Monroe Capital Organization for their hard work and dedication through 2020, which was a tough COVID year, as well as a work remote year. Thank you for all your time today. And that concludes our prepared remarks. I'm going to ask the operator to open the call now for questions.
Operator
Thank you. To ask a question, you will need to press Start and 1 on your telephone. To withdraw your question, please press the pound key. Our first question comes from the line of Devin Ryan with JMP Securities. Your line is now open.
Devin Ryan
Good morning. This is Kevin Fulton for Devin. My first question, the current deal environment has been described as frothy on a number of earnings calls this quarter. Can you discuss the attractiveness of deals you're seeing in the lower middle market from a risk-reward perspective?
Ted Koenig
Sure. Sure. Thanks for the question, Kevin. The market generally is frothy overall. There's a lot of the loan demand that we saw that we would have seen in Q2 and Q3 in 2020 was put off. PE firms put off acquisitions, platform acquisitions, as well as add-ons. until they really could get their hands around the COVID effects and adjustments. Once we got into Q4, primarily towards the back half of Q4, we started to see things open up again. And from an activity level, the market really took off, probably towards early December. And through the first quarter, it hasn't stopped. So we're seeing a lot of pent-up, I think, demand there. from 2020 that's fallen over into 21. We're starting to see a fair amount of new sponsor platform acquisitions, but a ton of add-on, tuck-ins, bolt-on type transactions. So we've been very disciplined in terms of how we're looking at the market. We've got COVID now in our rear view mirror. So we've had the ability to analyze COVID effects But also, more importantly, we've got the ability, from an underwriting standpoint, to remain disciplined in terms of our covenants, leverage covenants, debt service coverage, interest, EBITDA covenants, collateral packages. In the lower middle market where we play, we're not burdened by a lot of the high-yield market or some of the bigger players that are doing deals with no covenants So that's how we're differentiating what we do at McGraw as well as our investment portfolio.
Devin Ryan
Okay, that's helpful, Ted. And then just to follow on there, are there any pockets that you find particularly attractive right now?
Ted Koenig
Yeah, we've really focused on some of the business services opportunities, the software opportunities, data storage, cloud, computing, things that don't tend to have in-person need of interpersonal reaction. We're trying to stay away from health clubs, proprietary leisure type things, you know, the orange theories, the pure bars in the world, restaurants, things. We're still not out of the woods yet with COVID, and we're still not sure how long it's going to take for the vaccine to to take effect. So we're very, very focused on things that have shown resiliency and have performed well during the last nine months.
Devin Ryan
Okay, that's helpful. I appreciate that. And then pivoting to PIC income, as a percent of total investment income, it rose sharply quarter to quarter, I think 29%. Can you discuss what caused the increase? I don't know if that was amendment driven or possibly new investments that were structured with a PIC component. and then your overall level of concern with elevated BIC income.
Ted Koenig
Yeah, I'll let Aaron address that.
Aaron Peck
Yeah, so yes, right. In the quarter, BIC interest went up $7 million, I think, in the quarter, which is compared to about $6 million in the previous period. It really comes from three portfolio companies that have changed, Familia Dental and then a couple of the HFZ Capital entities. And so some of this is I would consider about a million dollars of this to be what I would consider non-reoccurring, sort of one-time pick interest that we got in connection with some restructuring activities. So we did like, for example, we did a restructuring that was very favorable on Familia where we refinanced out a significant portion of our debt and got some pick interest as a result and then took back a considerable amount of upside equity as it applied to that deal. It's not likely to reoccur. And then on HFZ and HFZ member RB, we did a restructuring there as well that was also favorable. The valuations are still very strong. And we took in some pick interest that was kind of one time associated with it. There are some of that interest that will recur, but some will not. And I'd say that makes up sort of another call at $500,000 or so of non-reoccurring. So that's what was the reason for the pickup. So we don't expect it to continue at this level, all things being equal. But it doesn't give us great concern because we're very confident as to exactly, you know, where those came from and why they arose, and we're confident with those workouts.
Devin Ryan
Okay. Thanks, Aaron. And that's it for me. I appreciate you taking my questions today. Thank you.
Operator
Thank you. Our next question comes from the line of Robert Dodd with Raymond James. Your line is now open.
Robert Dodd
Hi, guys, and congratulations on making way through 2020. A couple of semi-housekeeping first. I mean, Ted, you said, obviously, that a lot of the asset growth occurred at the end of the quarter. Can you give us any color on where the prepayments occurred? Because, obviously, the portfolio grew, non-accruals fell. Your portfolio looks in better shape, but income dropped. So can you give us an idea of, like, kind of how much lower the weighted average portfolio was? size was this quarter versus, say, Q3? Anything on that?
Aaron Peck
Yeah, hi, it's Aaron. I'll try to answer this, Ted. So, yeah, you're right. I mean, that's exactly what went on. We had a significant amount of pickup very near the end of the quarter, and the repayment activity was a little bit more spread out over the quarter. I don't have in front of me the exact weighted average portfolio balance for the quarter, and so I understand that it's just challenging for you to see that. But given that the, you know, Effective yield in the portfolio is basically flat. They're a little bit up from last period. And you can see kind of where we were at the end of the year on portfolio balance. That should give you a pretty good idea of the capability of the portfolio to generate yield going forward. I can't really, unfortunately, on this call reconcile specifically for you exactly what the weighted average change was. I think, you know, if I were guessing, I'd say the weighted average portfolio size in the quarter was probably – $30 or $40 million less than the prior quarter's average portfolio size. I think that's a pretty good number to use. So it's probably, and this would be me guessing, it's probably about $530 million of weighted average portfolio balance for the quarter would be a reasonable number to use. Got it.
Robert Dodd
That's really helpful. I appreciate that. Just to go back to the picking conference, I mean, the press release indicates some of it was reclassification rather than it doesn't mention one time in the press release. So a million and a half of that was one time, or was that one time that was reclassified? Or can you clarify exactly, you know, a one and a half million higher, or how did it move around? Sorry, go ahead.
Aaron Peck
Yeah, no, no, no, good question. And it's not one and a half that I would categorize as reoccurring, just to be clear. It would be about a million that I would consider to be non-reoccurring. And, you know... So the answer is that basically it's stuff that we previously recorded as cash that we ultimately ended up capitalizing into the position for those particular restructurings. So that's why we said reclassify. So it's things that we had already taken in as expected cash income we accrued as cash, and then we ended up capitalizing into the position related to the restructuring.
Robert Dodd
Understood. Understood. Got it. Ted, if I can go back to your preparer. I mean, you talked about, obviously, the goal is best possible recovery. Obviously, that's not always 100%. Sometimes it is. But you've currently got unrealized depreciation, depreciation of the portfolio. So it's a little over $2. I mean, how much of that do you think you can get back? I mean, not next quarter, obviously, but over time. How much of that do you think is truly recoverable? I mean, basically, is it 100% would be the best possible on all of that, or is it lower than any kind of idea on the timeframe of that?
Ted Koenig
Yeah, so, you know, you know how this works, Rob. You know, what we do is we take current valuations, and we have independent third parties provide current valuations. You know, the independent third parties don't look at the future valuations. And they don't look at some of our strategies that we have employed. We've shown a very strong history of recovering close to 100% in a lot of our assets. If you look at, you know, we took a big depreciation hit on a company called Rockdale. We took a big depreciation hit on a company called American Community Homes. So we feel confident that our underwriting thesis is, was good on these companies, and we've got several ways out. Unfortunately, you know, COVID threw us for a loop on a couple of the companies. And we're working through right now some COVID-related strategies on a few of the companies. I'm bullish overall, generally, on our recoveries. We've got a couple portfolio companies that are, you know, consumer-facing. that we're we're very focused and we're focused on strategies not only for the company today in terms of its doing business but also thinking about how we can transform those companies and you know perhaps there's acquisitions there's joint ventures there's European partners you know the advantage that we have is that we've got a lot of resources at the firm to dig down and to find ways to maximize value that may not be apparent to a firm that's doing a quarterly valuation based upon historical EBITDA for the quarter, historical revenues. And I can assure you that that's my number one priority in terms of resources that we're putting on MRCC because The best way to increase value for MRCC and to create value for our shareholders is to do exactly what you just asked me about, is to take that unrealized depreciation and turn that into recovery dollars.
Aaron Peck
If I could just add, Ted, you know, Bob, is it the case that every single asset that has been marked down has a high probability of getting back to par? No. No. But I think what I would say is if you look at our history, and Rockdale is a great example of it, there are assets in this group that are marked below par today that we believe with the kind of work that we do have an opportunity to recover for us greater than par. And so it's a difficult question to answer as to what is the potential recovery amount that we could get from those unrealized losses because some of them may be at a premium. And so on an aggregate basis, we still feel really good about our ability to recover and considerable amount of the unrealized losses. But that doesn't mean that's true for every single name. It just means as a portfolio of three, four and five rated credits, we're confident that we can recover a significant portion of potentially all of that unrealized loss by good portfolio management skills, and by not not looking at or setting a goal line at just a recovery of our principal, but looking at what is the most recovery we can generate. And we did that on Rockdale, and we'll do it on other assets.
Ted Koenig
We've got a couple assets, Robin, we've got a couple assets that we think that, you know, based upon what we've done to date, we've got a substantial recovery built in, you know, from our CC over par.
Robert Dodd
I appreciate that answer. Yeah, I understand. It's, it's not an easy question, but I like to fish in. Yes. It doesn't get factored in by the third party guys today. Obviously one more, if I, if I can, um, congratulations on the relationship with, with Aberdeen. That's a, it's a pretty big player globally. Um, should we expect that? I mean, in principle, I mean, that could, that can result in obviously seeing more international deals. You see some, we have some in the UK already. Um, Are we going to see more international deals in the portfolio, maybe in the JV, since obviously they're not qualified assets? I mean, can you give us any idea about that?
Ted Koenig
I would say that's not our goal for the partnership today, is to create more international exposure. I think we've got plenty. I mean, as a firm, we did over $2 billion of investments last year. Our We've never had an issue with generating flow for the firm in North America, U.S. So I think we're going to be okay there. The real benefit of this Aberdeen Standard relationship, from my view, which I think is going to be very, very powerful, is that we have the largest asset management firm in all of the U.K. now as our joint venture partner. with distribution throughout the U.K., Europe, and Asia. And they need the Monroe Capital investment current income products. They don't have anything like the products we have in terms of the quality and the consistency of current income. So we expect this relationship to open up a whole nother group of potential investors to various Monroe Capital products, including MRCC, for investors, you know, throughout the world.
Operator
Thank you. Thank you. Our next question comes from the line of Christopher Nolan with Latimer Thalman. Your line is now open.
Christopher Nolan
Hey, guys. On the follow-up to Robert's question, any particular non-accrual assets that which we should keep an eye on for a possible earlier resolution?
Aaron Peck
Good question, Chris. I'd say we haven't really disclosed anything specifically in regards to individual assets and near-term recoveries. I think it's kind of a dangerous game to play because you're often in a very protracted negotiation and workout, and you don't ever want to be out there specifically showing the world your cards when it comes to what you're trying to do. But, you know, there are assets, you know, that I can talk about, you know, that should be in a position to generate income again. ACH would be the one that I would point to as a pretty good-sized hold in MRCC, which has been on non-accrual but is seeing a massive recovery. I'm sorry, I take that back. It is on accrual status. I'm confusing that. It's just – but other than that, I mean, there's really not one that I could point to to say specifically that, you know, that we expect to come back other than to say – There's plenty of things in the portfolio we expect to see recovery on and repurpose those dollars into accruing assets and in the near term. But I'd be remiss to talk specifically about individual credits.
Christopher Nolan
Great. And as a follow-up, Aaron, on the comments that there's no need for the waiver in coming quarters to cover the dividend, will that be from higher leverage in the portfolio, lower expenses? Could you give a little color on that?
Aaron Peck
Yeah, sure. So I think what I said specifically is that given where the portfolio is and what we expect to see and given the current status of our portfolio workouts and our accrual status, that we believe when you put everything into the soup that we are generating, we will be able to generate enough NII to cover the $0.25 per share dividend. Obviously, lots of things can change positive and negative, but that's our current belief. And that would come from taking the leverage, continuing to take the leverage up a little bit to where we target it, It's from just what we did at the end of the quarter materializing into our NII. And it's from getting the benefit of the lower cost of money on our debt facility. All those things together are, you know, what gives me the viewpoint that I think we can cover the dividend without waivers today on a run rate basis.
Christopher Nolan
Great. Thanks, guys.
Aaron Peck
Thank you, Chris.
Operator
Thank you. As a reminder to ask the questions, You would need to press star then one on your telephone. Our next question comes from the line of Sarkis Serbetian with B. Reilly Securities. Your line is now open.
Sarkis Serbetian
Thank you for taking my question, Ted and Eric. You talked about gradual growth in the portfolio and the prepared remarks. I just wanted to see if you can speak to the cadence of origination activity or repayments and prepayments as fiscal 21 progresses. Do you want me to handle that?
Ted Koenig
Yeah, why don't you take that?
Aaron Peck
Okay. Great question, Sargi. So, you know, the portfolio had grew a lot in the fourth quarter on a gross basis. We did have some money come back to us, but we saw significant new origination, and it was back-end loaded, as we mentioned. The pipeline at Monroe remains incredibly strong. And when I look out to the first quarter, for example, we are seeing a little bit of a similar dynamic in the first quarter where a lot of our expected closings do seem to be pushing to the end of the quarter. So that could occur again this quarter. But there is a significant amount earmarked to go into MRCC, which would go a long way to continue to increase the leverage to the targeted level. So I think, look, I think we're looking to get that leverage up to the range that we discussed earlier. as reasonably quickly as it makes sense from the deal flow. And right now the deal flow is very strong and we'd expect to chip away at, at, at that leverage increase, you know, relatively quickly. What we can never predict, as you know, is what goes out the back door, right? You know, there's always opportunities for us to be refinanced out of deals. And we, we certainly have seen some of that in the quarter. I, I wouldn't say it's a materially large number for MRCC, but we see it. And so, you know, that's what we can't control and we don't always get a lot of advance notice. So, um, I think the takeaway is there's no lack of great deal flow from the Monroe Capital Origination Engine to feed MRCC to get us to our leverage target relatively quickly. And the one thing that toggles that down is whatever might go out in terms of refinance activity, which we really can't control.
Ted Koenig
What I'll add to Sarkis on that is that 2020 was an aberrational year. We had Q2 and Q3 and the early part of Q4 that the market was really on edge. And, you know, we were very careful in terms of underwriting because we wanted to see effects of COVID run through portfolio companies. I think you're going to see 2021 with MRCC come back to more of a normalized year, like an 18 or a 19, where we've got significant pipeline demand. We generate on an average year we'll probably put $3 billion in the ground as a firm. And we'll have plenty of capacity to allocate to MRCC. You know, names on a more readable basis. Now, you know, as Aaron mentioned, deals may close early in a quarter, mid quarter, late quarter, you know, those are quarter to quarter dynamics. But if you smooth it out over the year, I anticipate that 2021 is going to be a very good year for us.
Sarkis Serbetian
Great. Thank you for the extra color there. I really appreciate that. And I guess as you kind of look towards the pipeline as it sits today, maybe if you can talk about some of the underwritten yields or potential underwritten yields on the various security types. I think, you know, As you kind of see spreads tighten, are you sacrificing some on the yield side to get better quality assets in the book? Just trying to get your sense of what you're seeing real time in the market environment.
Ted Koenig
I'll make a comment and then I'll let Aaron give you some specifics. What we're trying to do is we're trying to take the best quality assets we can and put them into our various funds, put them into our various funds. Now, the key to that is having a very wide funnel. You know, remember, we do both sponsored transactions and non sponsored transactions. During a COVID year, there's gonna be very little in the way of non sponsored transactions. So in 2020, we saw very little non sponsored transactions and deals that we did were primarily sponsored. What we're seeing now in 21 we're seeing much more non-sponsored transactions come into play. Those non-sponsored transactions tend to be 300 to 400 basis points of overall return higher than the sponsor transactions. So while on the sponsor side we're looking for quality, we're looking for some type of excess spread, Sometimes it's in industries. Sometimes it's in companies. Sometimes it's because of a proprietary relationship. But we're also looking to sprinkle in a little more non-sponsored into the overall portfolio to drive some additional yield.
Aaron Peck
Yeah, and the only thing I would add, Sarkis, is, you know, We do always think about risk as the first and foremost consideration before we would close a deal across the portfolio and across the entire platform. And we don't put a line in the sand on yield. What we try to do is be a good portfolio manager and manage our portfolios to a blended yield and a blended risk. And what you've seen us do over the last several years is you've seen our yield come down. Some of that has been market environment, but some of that has been a shift in the portfolio since inception away from higher risk types of structures like last out transactions, which we still like and still do. But, you know, the portfolio is much more turned towards straight first lien senior secured loans. And if you look at what we're originating these days and has been true for the last couple of years, for Monroe, on average, in our new origination, we're typically attaching at around 50% loan to value and leverage levels that are relatively conservative when compared to the broad markets. of, you know, on average, maybe four to four and a quarter times EBITDA. So I think you'll see us continue to take advantage of the great origination network at Monroe, which has trended towards kind of lower risk structures and straight first lien loans. And I don't necessarily think that's going to result in us seeing a reduction in our effective yield. I think it's been relatively consistent in terms of what we've put onto the book over the last couple of periods. And, you know, we hope to keep it relatively consistent going forward.
Sarkis Serbetian
Thanks so much for the comments. That's all for me. Great. Thank you very much.
Operator
Thank you. There are no further questions. I will now turn the call back to Ted Koenig for any further remarks.
Ted Koenig
I just want to say thank you to everyone on the call today. We really appreciate your time, your questions. It's important to us to make sure we answer your questions. As you can tell, the market is back. Deals are back. There's lots of activity. We're very busy across the firm. And I'm very excited about 2021. I think the year is going to be a really good vintage in credit. And, you know, we've got a significant market share. And we expect to, you know, to take a fair amount from the market this year. So we will talk to you next quarter. And as always, to the extent you have any individual questions, please don't hesitate to reach out to us in the interim. But thank you. We wish you all a safe and happy and healthy 2021.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
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