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Operator
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.
Ted Koenig
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.
Aaron Peck
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.
Ted Koenig
Thanks, Aaron. In closing, we continue to benefit from the resiliency of the financial markets and the strong portfolio management skills at Monroe to generate significant improvements in the portfolio and to create differentiated risk-adjusted returns for our shareholders. Our overall Monroe Capital platform 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, a purposefully defensive portfolio, and our access to a large and experienced portfolio management team with experience managing through multiple economic cycles. 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 adjusted net investment income per share. We have steadily improved our NAV, and we have sufficient liquidity to continue to grow our portfolio and reach our targeted leverage. We believe that MRCC is affiliated with an award-winning, best-in-class external manager, which has decades of experience, over 140 highly skilled employees, and approximately $10.3 billion in assets under management. Thank you all for your time today, and this concludes our prepared remarks. I'm going to ask the operator to open the call now for questions.
Operator
As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star then the number one. And your first question is from Christopher Nolan with Leidenberg Thalmann.
Christopher Nolan
Hey, guys. Aaron, in your comments about the 20 cents in NAV accretion, I thought I heard you said that was for value improvement for underperforming assets. Does that mean non-accrual assets?
Aaron Peck
It could be some non-accrual assets. It will also be assets that are on accrual but are just assets that were lower on our risk rating scale.
Christopher Nolan
Okay. And then on the non-accruals, any idea you can give us in terms of when we might start seeing the – overall volume of non-accrual start to go down relative to the overall size of the portfolio?
Aaron Peck
It's a great question. It's one that's difficult to answer because not all of these are deals that we control, although a lot of them are. And it really has to do with performance. And as we see these deals, many of them mark up. That's an indication that performance is improving. So we would expect that for some of these deals that are non-accrual status in that group, that they would start to to be in a position to start to generate accrued interest, either because they turn back on from an accrual standpoint or because they get realized and that capital can be reinvested in new performing assets that accrue. But it's difficult to give you any real timing guidance on that at this time, but we are seeing, as we said, significant improvements in many of those names, and so we would expect some of those to do one of two things that I described, either start to accrue again or be monetized and be reinvested in accrual assets. Great. I'll get back in the queue. Thank you. Thanks, Chris.
Operator
Your next question is from Sarkis with B. Reilly Securities.
spk06
Hi. Good morning, and thank you for taking my question here. First question relates to just kind of the expectation for repayment activity here. Obviously, first quarter was extremely elevated, and here in the second quarter, I think maybe more elevated than historical standards, I suppose. When do you expect to kind of see prepayments normalize, if we can call it that? And then part and parcel to that is from an origination standpoint, do you think you'll be able to kind of continue to drive net originations in the second half of the year?
Ted Koenig
I'll take a stab at that, Sarkis, and I'll let Aaron comment as well. The economy coming out of COVID has been red hot, and the M&A market has been red hot. We've seen more M&A in the first six months of 2021 than we have in any six-month period. Almost $2 trillion of M&A was done across the board. So we anticipate this subsiding a little bit now. We went through a heavy prepayment period in quarters one and quarters two. I think that the back half of the year we'll see a return to normalcy, I think, on the prepayment side. And, you know, I think you can expect to see more, you know, history in line with our numbers that we've seen before. And on the second question, originations, we've got a very, very strong pipeline right now at Monroe. It's over a billion dollars of total pipeline. You know, the BDC, MRCC benefits in that on a pro rata basis across the board. So I would expect to see our originations continue to increase over the next couple of quarters. Aaron, I don't know if you've got anything to add or not.
Aaron
No, I think you covered it.
spk06
Okay. Oh, great. Thanks for that. And as far as just kind of maybe loan pricing in the areas that you compete in, any kind of incremental comments or color that you can provide us with, you know, whether things are tightening or, or whether you're able to still get good spreads on the underwriting that you're doing.
Ted Koenig
Thank you. It's a competitive market, Circus, and it's been a competitive market. The good news is that the players in the market all have basically very similar cost of funds and are also all similarly trying to drive similar returns for their shareholders. So while there's not an agreement on pricing, there tends to be a range where, you know, a bottom end of the range where, you know, people don't tend to go from a competitive standpoint. And again, the difference, we've grown quite a bit over the last 10 years. And because of our size, we're able to digest much larger pieces of transactional finance than many of our competitors in the lower middle market. So because of that, we're able to drive better pricing, and that's because we can speak for $200 million, $250 million across the cap stack. That's a real strategic advantage in the lower end of the middle market. So I anticipate the pricing that you see to hold, and we should be consistent going forward.
spk05
Thank you. I'll hop back in the queue.
Operator
Your next question is from Robert Dodd with Raymond James.
Robert Dodd
Hi, guys. Yeah, going to kind of follow up on the earlier question. On the underperforming assets, I mean, if I look, in aggregate, the non-accruals didn't go up much in terms of market. Some did. Some went the other way, obviously. So on the non, you know, the underperforming assets that weren't on non-accrual, The markups there, was there any kind of theme? That was, by the prepared remarks, it sounds like it was performance-driven rather than just market spread. But was there anything, any commonalities across what was driving those underperformers that were slightly underperforming before but less so now, maybe?
Aaron Peck
I can answer that, Ted. So just like there was no specific theme as to why these credits started to underperform, it was all idiosyncratic, so has been the recovery. And a lot of it comes based on our very strong portfolio management team that works with underperforming credits and does some very challenging work to make sure that we see a recovery. And so we are very aggressive on underperforming credits in terms of managing the process, making sure the right team is in place, looking for ways to improve the businesses that we're involved with, getting involved in some cases, as you know, taking over equity of the business if need be, and driving recovery. We are all about driving performance, and we're seeing the fruits of that. We're seeing great progress prior to COVID. COVID set us back a little bit. Some of these companies were negatively impacted by COVID, and coming out of the COVID world a little bit and seeing business recover, We just took a very aggressive step to help these companies recover, and we're seeing the benefits of that effort.
Robert Dodd
Got it. Got it. Thank you. On the non-accrual side, to your point, Aaron, earlier, I think of your non-accruals, 60% of the fair value non-accruals are marked at roughly 90 or better, which sounds pretty good. So, I mean, of that, and again, I mean, 60% of the non-accruals are fair value, is it can you give us any idea on a timeline? Obviously, it's hard to predict when there could be a monetization, but, you know, if something's marked at, you know, 105 as a non-accrual, it would tend to imply that it might be close, at least, to coming back onto accrual, even if it's not a monetization event. You know, so can you give us any color on how much of the non-accruals, given those marks, could come back to actually generating income in you know, over the, say, next six to nine months?
Aaron Peck
Yeah, again, it's difficult to give you a timeline. I will note that there are no credits in our portfolio that would be marked at par or above par or that close to par that would be on non-accrual status. That would be highly unusual. So, you know, if you're seeing marks, it's largely because there's, you know, you're going to see marks that are lower than that for non-accrual assets. So I agree with you if you see an asset marked very high. Well, that's one that is a trade, and that would be the only one. And that moved up quite a bit in the period. That would be an example of one where maybe there could be a more near-term realization. That's not a name that we control. We're part of a syndicate on that name. But outside of that, it's very difficult to put a timeline other than to say there are some assets on this list, that we think could become accrual or become monetized to create accrual assets for us sooner than others. And we're certainly working to that goal. We're highly aware that one thing that probably the number one lever that could improve our NII and our NII coverage is converting non-accrual assets to accrual assets. What we don't wanna do is accrue assets without a clear path to full recovery because we wanna make sure that we're not accruing an asset without having some visibility on when it can come back to a performance level where it's appropriate. So we tend to be very thoughtful and careful about turning something back to accrual, and we're also thoughtful and careful about predicting timelines. I appreciate all that. Thank you. Thank you, Robert.
Operator
And again, if you would like to ask a question, please press star, then the number 1 on your telephone keypad. And there are no further questions at this time.
Ted Koenig
Great. I thank everyone for joining us on the call today. We very much appreciate your involvement with us. And to the extent you have any other questions or thoughts, please feel free to reach out to Aaron or to me directly. And we will see you again and speak to you next quarter. Thank you.
Operator
Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect. you Thank you. Thank you. Thank you. you you 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.
Ted Koenig
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.
Aaron Peck
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.
Ted Koenig
Thanks, Aaron. In closing, we continue to benefit from the resiliency of the financial markets and the strong portfolio management skills at Monroe to generate significant improvements in the portfolio and to create differentiated risk-adjusted returns for our shareholders. Our overall Monroe Capital platform 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, a purposefully defensive portfolio, and our access to a large and experienced portfolio management team with experience managing through multiple economic cycles. 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 adjusted net investment income per share. We have steadily improved our NAV, and we have sufficient liquidity to continue to grow our portfolio and reach our targeted leverage. We believe that MRCC is affiliated with an award-winning, best-in-class external manager, which has decades of experience, over 140 highly skilled employees, and approximately $10.3 billion in assets under management. Thank you all for your time today, and this concludes our prepared remarks. I'm going to ask the operator to open the call now for questions.
Operator
As a reminder, if you would like to ask a question, please press star then the number one on your telephone keypad. Again, that is star then the number one. And your first question is from Christopher Nolan with Leidenberg Thalmann.
Christopher Nolan
Hey, guys. Aaron, in your comments about the 20 cents in NAV accretion, I thought I heard you said that was for value improvement for underperforming assets. Does that mean non-accrual assets?
Aaron Peck
It could be some non-accrual assets. It will also be assets that are on accrual but are just assets that were lower on our risk rating scale.
Christopher Nolan
Okay. And then on the non-accruals, any idea you can give us in terms of when we might start seeing the – overall volume of non-accrual start to go down relative to the overall size of the portfolio?
Aaron Peck
It's a great question. It's one that's difficult to answer because not all of these are deals that we control, although a lot of them are. And it really has to do with, you know, performance. And as we see, you know, these deals, many of them mark up. That's an indication that performance is improving. So we would expect that for some of these deals that are non-accrual status in that group that they would start to to be in a position to start to generate accrued interest, either because they turn back on from an accrual standpoint or because they get realized and that capital can be reinvested in new performing assets that accrue. But it's difficult to give you any real timing guidance on that at this time, but we are seeing, as we said, significant improvements in many of those names, and so we would expect some of those to do one of two things that I described, either start to accrue again or be monetized and be reinvested in accrual assets. Great. I'll get back in the queue. Thank you. Thanks, Chris.
Operator
Your next question is from Sarkis with B. Reilly Securities.
spk06
Hi, good morning, and thank you for taking my question here. First question relates to just kind of the expectation for repayment activity here. Obviously, first quarter was extremely elevated, and here in the second quarter, I think maybe more elevated than historical standards. I suppose When do you expect to kind of see prepayments normalize, if we can call it that? And then part and parcel to that is, from an origination standpoint, do you think you'll be able to kind of continue to drive net originations in the second half of the year?
Ted Koenig
I'll take a stab at that, Sarkis, and I'll let Aaron comment as well. The economy coming out of COVID has been red hot, and the M&A market has been red hot. We've seen more M&A in the first six months of 2021 than we have in any six-month period. Almost $2 trillion of M&A was done across the board. So we anticipate this subsiding a little bit now. We went through a heavy prepayment period in quarters one and quarters two. I think that the back half of the year we'll see a return to normalcy, I think, on the prepayment side. And, you know, I think you can expect to see more, you know, history in line with our numbers that we've seen before. And on the second question, originations, we've got a very, very strong pipeline right now at Monroe. It's over a billion dollars of total pipeline. You know, the BDC, MRCC benefits in that on a pro-rata basis across the board. So I would expect to see you know, our originations continue to increase over the next couple quarters. Aaron, I don't know if you've got anything to add or not.
Aaron
No, I think you covered it.
Ted Koenig
Okay.
spk06
Oh, great. Thanks for that. And as far as just kind of maybe loan pricing in the areas that you compete in, any kind of incremental comments or color that you can provide us with, you know, whether things are tightening or or whether you're able to still get good spreads on the underwriting that you're doing.
Ted Koenig
Thank you. It's a competitive market, Circus, and it's been a competitive market. The good news is that the players in the market all have basically very similar cost of funds and are also all similarly trying to drive similar returns for their shareholders. So while there's not an agreement on pricing there tends to be a range where, you know, a bottom end of the range where, you know, people don't tend to go from a competitive standpoint. And again, the difference, we've grown quite a bit over the last 10 years. And because of our size, we're able to digest much larger pieces of transactional finance than many of our competitors in the lower middle market. So because of that, we're able to drive better pricing. and that's because we can speak for $200 million, $250 million across the cap stack. That's a real strategic advantage in the lower end of the middle market. So I anticipate the pricing that you see to hold, and we should be consistent going forward.
spk05
Thank you. I'll hop back in the queue.
Operator
Your next question is from Robert Dodd with Raymond James.
Robert Dodd
Hi, guys. Go ahead and kind of follow up on the earlier question. On the underperforming assets, I mean, if I look, in aggregate, the non-accruals didn't go up much in terms of market. Some did. Some went the other way, obviously. So on the non, you know, the underperforming assets that weren't on non-accrual, The markups there, was there any kind of theme? That was, by the prepared remarks, it sounds like it was performance-driven rather than just market spread. But was there anything, any commonalities across what was driving those underperformers that were slightly underperforming before but less so now, maybe?
Aaron Peck
I can answer that, Ted. So just like there was no specific theme as to why these credits started to underperform, it was all idiosyncratic, so has been the recovery. And a lot of it comes based on our very strong portfolio management team that works with underperforming credits and does some very challenging work to make sure that we see a recovery. And so we are very aggressive on underperforming credits in terms of managing the process, making sure the right team is in place, looking for ways to improve the businesses that we're involved with, getting involved in some cases, as you know, taking over equity of the business if need be, and driving recovery. We are all about driving performance, and we're seeing the fruits of that. We're seeing great progress prior to COVID. COVID set us back a little bit. Some of these companies were negatively impacted by COVID, and coming out of the COVID world a little bit and seeing business recover, We just took a very aggressive step to help these companies recover, and we're seeing the benefits of that effort.
Robert Dodd
Got it. Got it. Thank you. On the non-accrual side, to your point, Aaron, earlier, I think of your non-accruals, 60% of the fair value non-accruals are marked at roughly 90 or better, which sounds pretty good. So, I mean, of that, and again, I mean, 60% of the non-accruals are fair value, is it Can you give us any idea on a timeline? Obviously, it's hard to predict when there could be a monetization, but if something's marked at 105 as a non-accrual, it would tend to imply that it might be close at least to coming back onto accrual, even if it's not a monetization event. So can you give us any color on how much of a non-accrual's given those marks, could come back to actually generating income in, you know, over the next, say, next six to nine months?
Aaron Peck
Yeah, again, it's difficult to give you a timeline. I will note that there are no credits in our portfolio that would be marked at par or above par or that close to par that would be on non-accrual status. That would be highly unusual. So, you know, if you're seeing marks, it's largely because there's, you know, you're going to see marks that are lower than that for non-accrual assets. So I agree with you if you see an asset marked very high. Yeah. Well, that's one that is a traded name. That would be the only one, and that moved up quite a bit in the period. That would be an example of one where maybe there could be a more near-term realization. That's not a name that we control. We're part of a syndicate on that name. But outside of that, it's very difficult to put a timeline other than to say there are some assets on this list, that we think could become accrual or become monetized to create accrual assets for us sooner than others. And we're certainly working to that goal. We're highly aware that probably the number one lever that could improve our NII and our NII coverage is converting non-accrual assets to accrual assets. What we don't want to do is accrue assets without a clear path to full recovery because we want to make sure that we're not accruing an asset without having some visibility on when it can come back to a performance level where it's appropriate. So we tend to be very thoughtful and careful about turning something back to accrual, and we're also thoughtful and careful about predicting timelines. I appreciate all that. Thank you. Thank you, Robert.
Operator
And again, if you would like to ask a question, please press star, then the number one on your telephone keypad. And there are no further questions at this time.
Ted Koenig
Great. I thank everyone for joining us on the call today. We very much appreciate your involvement with us. And to the extent you have any other questions or thoughts, please feel free to reach out to Aaron or to me directly. And we will see you again and speak to you next quarter. Thank you.
Operator
Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.
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