Monroe Capital Corporation

Welcome to Monroe Capital Corporation's fourth quarter and full year 2023 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, and cash flows. Although we believe these statements are reasonable based on management estimates, assumptions, and projections, as of today, March 12, 2024. These statements are not guarantees of future performances. 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, uncertainty, or other factors, including but not limited to the risk factors described from time to time in the company's filings for the SEC Monroe's Capital takes no obligation to update or revise these forward-looking statements. I will now turn the conference call over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation.

Good morning and thank you to everyone who has joined us today. Welcome to our fourth quarter and full year 2023 earnings call. I am here with Mick Salamini, our CFO, and Chief Investment Officer and Alex Parmasek, our Deputy Portfolio Manager. Last evening, we issued our fourth quarter and full year 2023 earnings press release and filed our 10K with the SEC. On today's call, I'll begin by addressing our fourth quarter results and current market conditions. I am pleased to report that for the 15th consecutive quarter, our adjusted net investment income covered our 25 cents per share dividend, MRCC delivered a total annualized dividend yield and our trading price of over 13% using our March 8, 2024 closing share price. We are proud of our track record of delivering stable and consistent dividends to our shareholders. In the fourth quarter of 2023, our adjusted net investment income was $5.6 million or $0.26 per share, a slight increase from $5.5 million or $0.25 per share last quarter. We reported NAV of $203.7 million, or $9.40 per share, as of December 31, 2023, compared to $207.6 million, or $9.58 per share, as of September 30, 2023. The 1.9% decline in the NAV was primarily due to mark-to-market unrealized losses attributable to a few specific legacy portfolio companies that continue to be impacted by macroeconomic and idiosyncratic challenges. MRCC's debt-to-equity leverage decreased from 1.60 times to debt equity to 1.50 times. We continue to focus on managing our investment portfolio and selectively redeploying capital resulting from repayments into attractive new investment opportunities. Our underlying portfolio proved resilient as the vast majority of our portfolio companies generated solid revenue and EBITDA growth. The portfolio's overall interest coverage remains sound, with sufficient cushion to withstand a higher for longer interest rate environment. Further, our portfolio risk rating distribution remains stable. We continue to lean on our purposely defensive portfolio construct and focus on portfolio management as the direction of the economic environment remains uncertain. Turning now to the broader lending market, overall M&A activity and loan volumes were down in 2023. Transaction activity began to rebound substantially in the fourth quarter with direct lending volumes increasing by 31% from the third quarter according to LSEG data and analytics. The momentum in deal activity from late 2023 is carried into early 2024. We anticipate this trend will continue as inflation and interest rates have shown signs of stabilization, and private equity investors are actively seeking to deploy dry powder and LP capital. Direct lenders continue to dominate share of loan volume in the middle market, accounting for eight times that of syndicated loan and bank volumes in the fourth quarter. While we have seen heightened competition in the overall market, our ability to provide flexible capital solutions with low execution risks to our borrowers has proven to be a true differentiator. As such, we believe that our longstanding position in the lower middle market is relatively insulated. Direct lenders such as Monroe stand to benefit from a growing opportunity set and a more active M&A environment. The current market dynamics continue to provide favorable tailwinds for private credit. While pricing has generally leveled off in recent months, loan-to-value and leverage attachment points remain at attractive levels. These deal structures offer compelling risk-adjusted returns for predominantly first-lane senior secured lenders. We continue to leverage our lower-risk incumbency lending opportunities within the portfolio, which has allowed us to maintain a highly selective approach when underwriting new investment opportunities. MRCC enjoys a strong advantage in being affiliated with the best-in-class middle market private credit manager with $18.4 billion in assets under management. supported by a deep team consisting of approximately 245 employees, including 105 dedicated investment professionals as of January 1, 2024. We continue to focus on generating adjusted net investment income that meets or exceeds our dividend and achieving positive long-term NAV performance. I'm going to turn the call over now to Mick was going to walk you through our financial results in greater detail.

Thank you, Ted. As of December 31st, 2023, our investment portfolio totaled $488.4 million, a $29.9 million decrease from $518.3 million as of September 30th, 2023. Our investment portfolio consisted of debt and equity investments in 96 portfolio companies compared to 99 portfolio companies from the end of the prior quarter. During the quarter, we funded $10.7 million to new and existing portfolio companies and an effective interest rate of approximately 12.4%. Additionally, we made a nominal equity investment in one of these portfolio companies. In the quarter, we also received three full payoffs aggregating $32.6 million at an approximate weighted average interest rate of 11.8 percent. One of the payoffs was associated with the sale of a portfolio company in which we had an equity position that also produced a realized gain of $275,000. Further, we incurred partial and normal course paydowns totaling $6.4 million. At the end of the fourth quarter, we had total borrowings of $304.1 million including $174.1 million outstanding under our floating rate revolving credit facility and $130 million of our 4.75 fixed rate 2026 notes. Total borrowings outstanding decreased during the quarter as we utilized proceeds from payoffs and sales to pay down revolving credit facility. As of December 31st, 2023, the revolving credit facility had $80.9 million of availability subject to borrowing-based capacity. Now, turning to our financial results, adjusted net investment income, a non-GAAP measure, was $5.6 million, or 26 cents per share this quarter, compared to $5.5 million, or 25 cents per share in the prior quarter. The increase in adjusted net investment income was a result of higher fee income and prepayment gains, partially offset by a decrease in interest income. The decrease in interest income was driven by a decrease in the average size of our portfolio and a reduction in our weighted average portfolio effective yield, which decreased from 12.5 percent as of September 30th to 12.1 percent as of December 31st. We also wrote off the remaining $512,000 of accrued fee income from our former loan investment in IT Global. Excluding this write-off related to the IT Global interest receivable, adjusted net investment income would have been 28 cents per share, and our dividend coverage would have been over 1.1 times. When considering current leverage levels, the interest rate environment, and the favorable percentage of our fund leverage at a fixed rate, we believe that on a run rate basis, our adjusted net investment income will continue to cover the current 25 cents per share quarterly dividend, all other things being equal. As of December 31st, 2023, our NAV was $203.7 million, which decreased from $207.6 million of NAV as of September 30th, 2023. And our corresponding NAV per share being decreased by 18 cents from $9.58 per share to $9.40 per share. The decline in NAV this quarter was primarily attributable to net unrealized losses on the portfolio attributable to a few specific portfolio companies that continue to be affected by macroeconomic and idiosyncratic factors. The value of the remainder of the portfolio, including our investment in SLF, was relatively stable for the quarter. I will now turn it over to Alex, who will provide more details on our fourth quarter operating performance.