Monroe Capital Corporation

today's conference will begin momentarily please continue to stand by thank you for your patience Thank you. Welcome to Monroe Capital Corporation's fourth quarter and full year 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, or cash flows, particularly in light of the COVID-19 pandemic. Although we believe these statements are reasonable based on management's estimates, assumptions, and projections as of today, March 3, 2022, 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 risks, uncertainties, and 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 fourth quarter and full year 2021 earnings conference call. I'm joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening, We issued our fourth quarter and full year 2021 earnings press release and filed our 10K with the SEC. We are pleased to report another strong quarter of financial results with solid net investment income and increased NAV performance. 2021 was a year punctuated by very strong M&A buyout and related financing activity, particularly in the fourth quarter as transaction volumes increased across the board. Total US middle market volume across direct and syndicated lending markets hit a record of $319 billion in 2021, up 85% from 173 billion in the year earlier and a prior high of 2018 by 12%. Activity was strong in anticipation of expected tax law changes and in the face of inflationary pressures, supply chain shortages, and employment challenges. Turning now to the fourth quarter results, we are pleased to report adjusted net investment income of $5.4 million or 25 cents per share. We also reported a net increase in assets resulting from operations of $6 million or 32 cents per share during the quarter, which was driven by net investment income of $5.4 million or 25 cents per share and net gains of almost $1.5 million or seven cents per share. As a result, our NAV and a per share basis grew from $11.45 per share on September 30th to $11.51 per share at the end of the year. This represents the seventh consecutive quarter of growth in NAV per share which has increased by almost 15% since the end of first quarter 2020. During the quarter, MRCC's regulatory debt to equity leverage increased slightly from 1.11 times debt to equity to 1.13 times debt to equity. Total leverage also increased slightly from 1.34 times debt to equity to 1.35 times debt to equity during the quarter. This modest increase in leverage was primarily driven by an increase in the size of the portfolio during the quarter. New origination activity at Monroe remains strong and we expect to continue to modestly increase leverage with a new target total leverage range of 1.3 to 1.4 times debt to equity in the near term after giving effect to the repayment of our SBIC debt and transfer of loan assets from our SBIC subsidiary to MRCC. Erin will discuss this development later in the call. This targeted level of gap leverage should support strong adjusted net investment income performance in future periods. As we have discussed in prior calls, Our continued focus is on making new investments with attractive risk return dynamics while proactively managing and constructing our portfolio. Most of our portfolio companies have continued to see performance improvements as the economy has rebounded, which has contributed to the positive NAV performance in the quarter. Our loan underwriting focus continues to be on those companies with defendable market positions, resilient business models, exceptional management teams, and strong sponsors or owners. MRCC enjoys a strong strategic advantage in being affiliated with a best-in-class middle market private credit asset management firm with approximately $13 billion in assets under management and over 150 employees as of December 31, 2021. We will continue to focus on generating adjusted net investment income that meets or exceeds our dividend and positive NAV performance, just as we have shown in the last seven consecutive quarters. I am 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 $45.1 million in investments, which consisted of $13.8 million in fundings to five new portfolio companies and $31.5 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 $40.9 million during the quarter. At December 31st, we had total borrowings of $337.9 million, including $151 million outstanding on our revolving credit facility, $130 million of our 2026 notes, and $56.9 million of SBA debentures payable. Total borrowings outstanding increased by $6.6 million during the quarter driven by borrowings on our ING-led revolving credit facility to support portfolio growth outside of our SBIC subsidiary. We are well situated to continue to carefully grow our portfolio through participating in the substantial pipeline of opportunities generated at Monroe. The revolving credit facility had $104 million of availability as of December 31st, subject to borrowing-based capacity. 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, down from the $6.4 million, or 30 cents per share, in the prior quarter. 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 $0.25 per share quarterly dividend without significant fee waivers in the future, all other things being equal. LIBOR rates remained at historically low levels during the quarter, with three-month LIBOR at approximately 21 basis points as of December 31st. We maintain LIBOR floors in nearly all our deals, with a majority of floors at a level of at least 1%. On most amendments and on virtually all of our new originated deals, we are now focused on pricing our deals as a spread to the secured overnight financing rate, or SOFR, in advance of LIBOR going away, which is anticipated to occur in 2023. As of December 31st, our net asset value was $249.5 million, which increased from the $246.7 million in net asset value as of September 30th. Our NAV per share increased from $11.45 per share at September 30th to $11.51 per share as of December 31st. The $0.06 per share NAV increase was substantially the result of net realized and unrealized gains on the portfolio during the fourth quarter of $0.07 per share. Looking to our statement of operations, total investment income was $13 million during the fourth quarter down from $15.2 million in the third quarter. Total investment income for the third quarter included $1.7 million in additional interest and dividend income from certain investments that were returned to accrual status due to improvements in underlying credit performance. During the fourth quarter, we placed no additional borrowers on non-accrual status. Total non-accruals approximate 2.6% of the portfolio at fair value at December 31st, down from 3.1% of the portfolio at fair value at September 30th. and 4.1% at December 31, 2020. The effective yield on our debt and preferred equity portfolio increased slightly to 8% at year-end, up from 7.9% at September 30. Moving over to the expense side, total expenses for the quarter decreased from $8.9 million in the third quarter to $7.7 million in the fourth quarter, primarily due to lower incentive fees, net of associated fee waivers, as a result of lower net investment income. At the end of the quarter, our regulatory leverage was back up a little to approximately 1.13 times debt to equity, which is a slight increase from the regulatory leverage level of 1.1 times at the end of the prior quarter as a result of portfolio growth during the quarter. Total leverage was 1.35 times debt to equity at year end, up modestly from the 1.34 times debt to equity level at the end of the third quarter. The level of regulatory leverage at December 31st is consistent with the targeted leverage range we have guided you to on prior calls of 1.1 to 1.2 times debt to equity. As of December 31st, we had restricted cash in our SBIC subsidiary of approximately $15.5 million, up from restricted cash of $8 million at September 30th. On March 1st, the MRCC SBIC subsidiary repaid all its remaining SBA debentures and transferred its loan positions to MRCC. This was achieved through borrowings on our revolving credit facility and the use of the restricted cash held in our SBIC subsidiary. While the repayment of the SBA debentures will increase the level of regulatory leverage at MRCC, it will slightly reduce total leverage, all other things being equal. In recent quarters, we have had substantial restricted cash in the SBIC subsidiary and resulting from loan repayments, which could only be used to repay SBA debentures on a semi-annual basis. The full repayment of our SBA debentures will help reduce the drag associated with the large cash balance previously held at the subsidiary and should positively impact net investment income going forward. As a result of the repayment of the SBA debentures and the transfer of loan positions to MRCC, we are no longer providing regulatory leverage guidance and instead are targeting total gap leverage in the 1.3 to 1.4 times debt to equity range, as with the repayment of our SBA to ventures, there is no longer a difference between our regulatory leverage and our gap leverage. As of December 31st, the SLF had investments in 57 different borrowers, aggregating $189.1 million at fair value, with a weighted average interest rate of approximately 5.9 percent. The SLF had borrowings under its non-recourse credit facility of $94.8 million and $80.2 million of available capacity under this credit facility subject to borrowing-based availability. I will now turn the call back to Ted for some closing remarks before we open the line for questions.