Monroe Capital Corporation

Welcome to Monroe Capital Corporation's second quarter 2021 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 are cash flows, particularly in the light of the COVID-19 pandemic. Although we believe these statements are reasonable based on management's estimates, assumptions, and projections as of today, August 4th, 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. Actual results may differ materially as a result of risk, uncertainty, or other factors, including but not limited to the risk factors described from time to time in the company's filings with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements. I will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation.

Good morning, and thank you to everyone who has joined us on our call today. Welcome to our second quarter 2021 earnings conference call. I am joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening, we issued our second quarter 2021 earnings earnings press release and filed our 10Q with the SEC. We are pleased to report another strong quarter of financial results with solid net investment income and increased NAV performance. During the second quarter, the financial markets remain strong and the loan markets remain stable. This can be seen in the performance of a couple of key market indicators. For the second quarter of 2021, The S&P index was up 8.2% after an increase of 5.7% in the first quarter and after ending 2020 up over 15%. Price increases were also seen in traded credit investments as the S&P LSTA leveraged loan index was up an additional 1.1% during the second quarter after being up 1% during the first quarter. Turning now, To the second quarter results, we are pleased to report adjusted net investment income of 25 cents per share, flat when compared to the prior quarter results. Erin 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 $11.3 million, or 53 cents per share during the quarter, which was driven primarily by the increase in the fair value of our investment portfolio. As a result, our NAV and a per share basis grew from $11.08 at March 31st to $11.36 per share at the end of the second quarter. This represents the fifth consecutive quarter of growth in NAV per share, which has increased by over 13% since the end of the first quarter of 2020. During the quarter, MRCC's regulatory debt to equity leverage increased from 0.9 times debt to equity to over 1.0 times. This increase in leverage was primarily driven by an increase in the size of the portfolio during the quarter. Despite the portfolio growth from the end of the prior quarter, Average portfolio size during the second quarter was down slightly from the prior quarter as we experienced strong prepayment activity during the quarter and a significant portion of the portfolio growth occurred near the end of the second quarter. New origination activity remains strong and we expect to continue to increase leverage over the next couple of quarters. we continue to target regulatory leverage in the range of 1.1 to 1.2 times debt to equity in the near term. Given the substantial pipeline of new deals of Monroe, we would expect to increase the leverage at MRCC carefully over the next couple of quarters in order to reach our near-term leverage target, which should benefit adjusted net investment income in future periods. As we have discussed on prior calls, Our continued focus for the next several quarters is on making new investments in portfolio companies with compelling risk-return dynamics while remaining dedicated to generating the best possible recovery on the underperforming assets in our portfolio. We have a strong track record in generating solid recoveries on difficult deals, and we expect that to continue going forward. Our focus is on strong loan documentation with reasonable financial covenants In most all our deals, this allows us to be proactively engaged with our borrowers and their financial sponsors. 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. MRCC enjoys a strong strategic advantage in being affiliated with a best-in-class middle-market private credit asset management firm, with approximately $10.3 billion in assets under management and over 140 employees as of July 1st, 2021. We will continue to focus on generating adjusted net investment income and positive NAV performance, just as we have shown in the last five consecutive quarters. I'm now going to turn the call over to Aaron, who is going to walk you through our financial results.

Thank you, Ted. During the quarter, we funded a total of approximately $55.8 million in investments, which consisted of $41.2 million in fundings to 11 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 $55.4 million during the quarter. At June 30th, we had total borrowings of $343.6 million, including $126.7 million outstanding under our revolving credit facility, $130 million of our 2026 notes, and $86.9 million of SBA debentures payable. Total borrowings outstanding increased by $33.8 million during the quarter. 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 $128.3 million of availability as of June 30th, subject to borrowing base capacity. Turning to our results for the quarter ended June 30th, adjusted net investment income, a non-GET measure, was $5.3 million or 25 cents per share, virtually unchanged from the prior quarter. The external manager voluntarily waived approximately $420,000 in incentive fees to generate per share adjusted net investment income in line with our dividend. When considering our targeted leverage and the current credit performance at MRCC, we continue to believe that on a run rate basis, our adjusted NII 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, with three-month LIBOR at approximately 15 basis points at June 30th. We maintained LIBOR floors in nearly all of our deals, with the majority of the floors at a level of at least 1%. As of June 30th, our net asset value was $244.8 million, which increased from the $236.2 million in net asset value as of March 31st. Our NAV per share increased from $11.08 per share at March 31st to $11.36 per share as of June 30th. We estimate that of the 28 cents per share increase in NAV during the quarter, approximately 20 cents per share was attributable to net increases in the valuation of our portfolio companies that were previously underperforming, as credit performance improved for most of these assets during the quarter. During the quarter, we also experienced an increase in book value of approximately 5 cents per share which was attributable to increases in portfolio valuation primarily as a result of broad market movements or improvements in fundamental performance on the remainder of the portfolio. Of that $0.05 per share increase in NAV, approximately $0.03 per share, or two-thirds of it, was attributable to assets held directly by us, while $0.02 per share, or one-third, was as a result of net markups on assets held in the MRCC Senior Loan Fund joint venture. Finally, approximately 4 cents per share of the increase in book value is associated with other gains, primarily associated with realized gains. Looking to our statement of operations, total investment income decreased slightly during the quarter, primarily due to a decrease in interest income due to, in part, a decrease in average portfolio size during the quarter. During the quarter, we placed no additional borrowers on non-accrual status. and total non-accruals approximate 5% of the portfolio at fair value. Moving over to the expense side, total expenses for the quarter decreased, primarily driven by lower interest and other debt financing expenses due to the lower weighted average portfolio balance during the quarter and the reduction in our borrowing costs due to the full quarter impact of the refinance of our bonds. At the end of the quarter, our regulatory leverage was back up to approximately one times debt to equity, a small increase from the regulatory leverage level of 0.9 times at the end of the prior quarter as a result of portfolio growth during the quarter. The current level of regulatory leverage remains below the targeted leverage range we've guided you to on prior calls of 1.1 to 1.2 times debt to equity. As Ted discussed in his prior remarks, we would expect to continue to grow our portfolio at a measured pace and slightly increase our regulatory leverage over the next couple of quarters. As of June 30th, we had restricted cash in our SBIC subsidiary of approximately $29.5 million. We would expect to use a portion of this restricted cash to pay down debentures at the next available pay down date in September. As of June 30th, the SLF had investments in 54 different borrowers, aggregating $196.5 million at fair value, with a weighted average interest rate of approximately 5.9%. The SLF had borrowings under its non-recourse credit facility of $117.8 million and $52.2 million of available capacity under this credit facility, subject to borrowing base availability. The SLF continues to be in compliance with all covenants in its credit facility. I will now turn the call back to Ted for some closing remarks before we open the line for questions.