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Operator
Welcome to Monroe Capital Corporation's second quarter 2024 earnings conference call. Before we begin, I'd 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, belief, future potential, operating results, and cash flows. Although we believe these statements are reasonable based on management's estimates, Assumptions and projections as of today, August 8, 2024, 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, 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'll now turn the conference call over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. Sir, please go ahead.
Ted Koenig
Good morning, and thank you to everyone who has joined our call today. Welcome to our second quarter 2024 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 second quarter 2024 earnings press release and filed our 10Q with the SEC. On today's call, I'll begin by addressing our second quarter results and then share thoughts and insights into the macroeconomic environment and the current market conditions. I am pleased to report that for the 17th consecutive quarter, our adjusted net investment income covered our 25 cents per share dividend. MRCC delivered a total annualized dividend yield on our trading price of 14% using our August 6, 2024 closing share price. We are proud of our track record of delivering stable and consistent dividends to our shareholders. In the second quarter of 2024, our adjusted net investment income was $6.7 million, or 31 cents per share, an increase from $5.5 million or $0.25 per share in the first quarter. Our adjusted net investment income covered our $0.25 per share dividend by nearly 1.25 times. We reported NAV of $199.3 million or $9.20 per share as of June 30, 2024, compared with NAV of $2.2 $201.5 million, or $9.30 per share as of March 31, 2024. The slight decline in NAV was primarily the result of net unrealized losses attributable to certain portfolio companies, partially offset by net investment income in excess of the dividend paid during the quarter. MRCC's debt-to-equity leverage decreased from 1.6 times as of March 31, 2024 to 1.54 times at June 30th, 2024, driven by several payoffs that occurred late in the quarter. Our focus remains primarily on managing and supporting our investment portfolio companies with add-on lending opportunities and maintaining a highly selective and disciplined approach when redeploying capital into attractive investment opportunities with new portfolio company relationships. MRCC is predominantly comprised of first lien senior secured investments in companies operating in sectors that are historically resistant to challenging macroeconomic environments. In the face of persistent inflationary pressures and a volatile economic climate, our portfolio companies have continued to demonstrate healthy revenue and EBITDA growth. The resiliency of our portfolio is further reflected in the stability of our risk rating distribution. Further, despite enduring elevated borrowing costs, MRCC's portfolio companies generally have maintained a sound interest coverage ratio. Thus, MRCC is well positioned to navigate a higher-for-longer interest rate environment should it persist. The challenges we have seen in the portfolio have been, for the most part, due to idiosyncratic factors that are not indicative broader fundamental stress within the portfolio. We will continue to leverage our deep roster of investment professionals, proven underwriting and portfolio management playbook, and experience to work through and turn around underperforming investments. We maintain a 20-year track record of navigating various market and economic environments and remain confident that we can continue to maximize outcomes and deliver value for our shareholders. I will now turn our view on the market environment. In the second quarter of 2024, we saw a rise in middle market loan volumes driven by increased private equity sponsor activity. According to LSEG LPC second quarter 2024 middle market analysis, middle market loan volumes increased 27% year over year. Middle market direct lending M&A volumes were up 71%. compared to prior year, and sponsored direct lending volumes were up over 90% from the prior year. Sponsored demand for capital to support the growth of their portfolio companies and position those companies for exits has heightened the need for direct lending solutions that provide flexibility and low execution risk. While we did see a pickup in syndicated loan activity, direct lenders still accounted for 4.6 times the volume of syndicated and bank deals in the quarter. The accelerated sponsor activity has presented us with compelling opportunities for incumbency lending to our existing portfolio companies, where historically we have been able to generate some of our most attractive risk-adjusted returns. The intensifying competition in the credit markets that we noted in our call last quarter has carried on throughout the second quarter. This has resulted in the tightening of spreads across the middle market, especially with the pickup in syndicated loan and repricing activity happening particularly in the upper middle market. Concurrently, we saw leverage levels slightly increase across the middle market transactions in the second quarter. Monroe focuses on providing capital solutions to the lower middle market, which has experienced less spread compression and leverage expansion than that of the upper middle market. As a result, MRCC's effective yield has remained stable at an attractive rate of nearly 12% on heavily weighted firstly senior secured portfolio. In the face of a market where overall spreads have decreased and leverage has increased, we continue to focus on supporting our incumbent portfolio companies. Our ability to consistently generate deal flow through our existing portfolio higher quality assets while maintaining a disciplined approach with our originations, underwriting, and deal execution. Though interest rate cuts by the Fed have become increasingly likely, we remain focused on our loan-to-value attachment points, which have remained stable throughout the first half of 2024. This approach is consistent with other middle market direct lenders who are being increasingly cautious with overburdening portfolio companies with debt service obligations. In this direct lending environment, we will execute on opportunities that meet our rigorous underwriting standards and that offer us the necessary structures and protections that align with our portfolio management playbook. MRCC enjoys a strong strategic advantage in being affiliated with a best-in-class middle market private credit manager with approximately $20 billion in assets under management. supported by a deep team consisting of over 250 employees, including 110 dedicated investment professionals as of July 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 now going to turn the call over to Mick, who is going to walk us through our financial results in greater detail.
Mick
Thank you, Ted. At quarter end, our investment portfolio totaled $485.8 million, a $15.1 million decrease from $500.9 million at the end of the last quarter. Our investment portfolio consisted of debt and equity investments in 94 portfolio companies compared to 98 portfolio companies at the prior quarter end. During the second quarter, we had revolver and delayed drop fundings and add-ons to existing portfolio companies of $21.7 million. We received four full payoffs aggregating to $13.5 million and incurred partial and normal force paydowns totaling $22.4 million. As Ted noted earlier, these full payoffs occurred later in the second quarter with two of those payoffs attributable to portfolio company sales and two of those payoffs attributable to refinancings. At June 30th, 2024, we had total borrowings of $307.8 million, including $177.8 million outstanding under our floating rate revolving credit facility and $130 million of our 4.75% fixed rate 2026 notes Total borrowings outstanding decreased by $13.9 million during the quarter as we utilize proceeds from various deal payoffs to pay down the revolving credit facility. At quarter end, the revolving credit facility had $77.2 million of availability subject to borrowing base capacity. Now turning to our financial results. Adjusted net investment income, a non-GAAP measure, was $6.7 million, or $0.31 per share this quarter, compared to $5.5 million, or $0.25 per share in the prior quarter. The increase in adjusted net investment income during the quarter was primarily driven by a $1 million part one incentive fee limitation, with the balance of the increase being a result of higher average invested assets over the period. Excluding the shareholder-friendly incentive fee limitation in the quarter, pro forma adjusted net investment income would have been 26 cents per share, still in excess of our 25 cent per share dividend. As a result of the total return requirement within MRCC's incentive fee calculation, we expect limitations on our incentive fees to persist at varying levels over the next three quarters. Our effective yield on the portfolio's debt and preferred equity investments remained stable during the quarter at 11.9 percent. As of June 30, 2024, our NAV was $199.3 million, which decreased slightly from $201.5 million as of March 31, 2024. Our corresponding NAV per share decreased by 10 cents from $9.30 per share to $9.20 per share. The decline in NAV this quarter was primarily the result of net unrealized losses attributable to certain portfolio companies that have been mostly impacted by idiosyncratic factors. These mark-to-market unrealized losses were partially offset by net investment income in excess of the dividend paid during the quarter. I will now Turn the call over to Alex, who will provide more details on our second quarter operating performance.
Alex
Thank you, Vic. Looking to our statement of operations, investment income totaled $15.6 million during the second quarter of 2024, a slight increase from $15.2 million in the first quarter of 2024. The $400,000 increase in investment income was primarily the result of higher averaged assets during the quarter. as well as an increase in other income as part of a portfolio company realization during the quarter. In the second quarter, we placed one new investment on non-accrual with a fair market value of $1.6 million. As of June 30th, 2024, we had eight investments on non-accrual status, representing 1.9% of the portfolio at fair market value, which is consistent with that of March 31st, 2024. Now shifting over to the expense side, Total expenses for the second quarter of 2024 were $9.1 billion, compared to $9.7 million of total expenses for the first quarter of 2024. Excluding the impact of the incentive fee limitation of $1 million, total expenses increased by $400,000, primarily due to an increase in interest and other debt financing expenses driven by increases in our average debt outstanding and in excise taxes resulting from net investment income exceeding our dividend. Our net loss for the quarter was $3.3 million, compared to a net loss of $2.3 million for the prior quarter. These net losses for the quarter ended June 30, 2024, were primarily attributable to unrealized mark-to-market losses on certain portfolio companies that have underlying credit performance concerns. These mark-to-market unrealized losses were partially offset by a net realized gain associated with the sale of an equity position in one of our portfolio companies. The average mark on the portfolio decreased slightly by 0.9%, from 95.3% across at March 31, 2024, to 94.4% across at June 30, 2024. Turning now to SLF. As of June 30, 2024, the SLF had investments in 39 different borrowers, aggregating to $109.7 million of fair value. The SLF's underlying investments are loans to middle market borrowers that are generally larger and more sensitive to market spread movements than the rest of MRCC's portfolio, which is focused predominantly on lower middle market companies. In the quarter, the average mark on the SLF portfolio decreased modestly by approximately 60 basis points, from 88.9% of amortized costs as of March 31, 2024, to 88.3% of amortized costs as of June 30, 2024. Consistent with the prior quarter, MRCC received income distributions from SLF totaling $900,000. As of June 30, 2024, SLF had borrowings under its non-reforce credit facility of $50.8 million and $59.2 million of available capacity, subject to borrowing-based availability. At this point, I will turn the call back to Ted for some closing remarks before we open up the line for some questions.
Ted Koenig
Thank you, Alex. In summary, we remain confident in the portfolio's ability to navigate an environment where there is uncertain macroeconomic backdrop and elevated interest rates. Our focus continues to be on portfolio management, where we can leverage our deep and experienced team of investment professionals to execute our portfolio management playbook and maximize recoveries for our challenging investments. In today's more competitive environment, we will lean on the scale of our originations platform and opportunities to support our incumbent portfolio through incremental investments. MRCC continues to offer stable and consistent dividends to our shareholders as this quarter marked the 17th consecutive quarter where our adjusted net investment income has met or exceeded our 25% per share dividend yield. We believe that our predominantly first-lane portfolio, which carries an average effective yield of nearly 12%, positions us well to continue delivering an attractive risk-adjusted return to our investors as highlighted by our current 14% dividend yield based on our August 6, 2024 closing share price. We believe that Monroe Capital Corporation, which is affiliated with an award-winning best-in-class external private credit manager with nearly $20 billion in assets under management, continues to provide a very attractive investment opportunity to our shareholders and to other investors. 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
Thank you. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. And we will begin the question and answer session. The first question comes from the line of Christopher Nolan from Leidenberg Bauman. Line is open.
Christopher Nolan
Hey, guys. On the SLF, according to my calculations, the SLF fair value decreased by roughly 5% or 6% quarter over quarter.
spk01
Is this vehicle sort of in a runoff mode?
Mick
So hi, Chris. Thank you for that question.
Mick
So if you look at the fair market value, the vehicle quarter over quarter was actually flat. It was actually flat during the quarter in the context of a very modest decline in the average market of the portfolio. We've been really conscious about bringing down our leverage in this portfolio while maintaining our $900,000 per quarter dividend to MRCC with our joint venture partner receiving as well a $900,000 dividend. We're evaluating how to be constructive in this market with this vehicle given the where we are in the titan rate environment where we are in the economic cycle but uh feel feel uh good about the the dividend contribution that this vehicle provides and also to put this in perspective slf is about 6.8 6.9 percent of the fair market value of mrc's portfolio with the dividend representing a little under 6% of our investment income. So we're evaluating this, the right time to kind of reenter the market and how to be constructive about the portfolio.
Alex
And Chris, in the quarter, we had a couple of payoffs. So that was the big driver there. As Mick noted, the market was pretty much stable. So we had two payoffs. The size of the portfolio decreased from 41 to 39. The payoffs amounted to about $6.5 million in fair value.
Christopher Nolan
Yeah, okay. The issue is, for me, on the SLF, is the fact is the non-accrual seemed to be a little high, particularly since it is, you know, for theoretically more stable companies, larger. But effectively, MRCC has a subordinate position here because it's holding equity, not the debt. So for the rest of your portfolio, you're doing a lot, first lien, senior secured. But for this, you're an equity holder. And I just want to make... Yeah, this is...
Mick
Yeah, that's a really good point, Chris. I mean, this is a joint venture that we created where the SLF position in our portfolio represents the equity in this portfolio. So at the end of the day, the equity ultimately represents the net value to the roughly 39 portfolio companies in the business. It's not unlike a lot of the joint ventures that you see in other BDCs, but you are correct that this represents an equity interest in a portfolio of loans in a levered vehicle.
Christopher Nolan
Okay. Switching over to Education Corp of America, and I know it's been here for a while, but I noticed going through the queue that it looked like the second lien debt position you guys have has a cost of $831,000 and a fair value of $2.3 million, while the preferred to the same company has a cost of $7.4 and worth zero on fair value. So how can the junior secured loan be at a premium to cost and the preferred be zilch?
Mick
Yeah, so you are correct.
Mick
Chris, that the fair value of the debt position is $2.3 million relative to an $800,000-ish cost, and the value of the preferred on a fair market value basis is zero relative to a $7.4 million-ish cost basis. This is really about the recovery waterfall on those two positions. And the fact that with respect to the debt position, we are getting fees and unaccrued interest above our cost. And that's been ticking along here for a handful of quarters and years. So as a result, that fair market value relative to the cost has eked up relative to our recovery analysis. And with the preferred being at the bottom of the ECA waterfall, that's entitled to the last degree of proceeds. over and above principal repayment on the debt plus the accrued but yet unpaid interest.
Christopher Nolan
Okay, thanks, Mick. Final question. Given the expectations for a repeated fee waiver to one degree or another over the next couple quarters, can we say at this point that third quarter EPS will cover the dividend?
Mick
Yes, third quarter EPS, we believe, will cover the dividend. That's it for me. Thanks, guys. Thank you, Chris.
Operator
Thank you. Again, if you have a question or if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Robert Dodd from Raymond James.
Robert Dodd
Hi, guys. Hi, guys. Hi, Ted. Focusing on, to your point in prepared marks, I mean, you focus on maximizing recoveries, and you've still got, what, 4.5% of the portfolio at cost is on monocore. Can you give us an update on that in terms of how far along you are in various workout plans this season? And do you think there's a possibility that some of those assets come back onto accrual, or is this a situation where it's work it out, recover capital, reinvest the capital, and any income recovery from that capital, which is 1.9% of fair value, any income recovery is going to be longer term post a prolonged workout process, or can some of these companies recover more short slash medium term?
Mick
Yeah, thank you for that question, Chris. Robert, sorry. Our non-accruals do represent 1.9% of fair market value, 4.8% of cost, represent eight assets in total across a range of industry with kind of no clear themes within those industries. ECA and NECB have been in the non-performing bucket for the longest amount of time, and we're kind of working through those. And with all these cases, we are working with our internal workout team in maximizing recoveries and, you know, candidly getting them, you know, out of that non-accrual bucket and into recovery mode as quickly as we can. Our ultimate goal with all of these is to maximize the long-term recovery on these assets, not necessarily short-term. and doing the right thing with respect to maximizing value on these assets. So we're confident in our ability to manage these assets. We're confident in our ability to help the companies reorient their earnings profiles and continue to actively manage each and every one of them.
Alex
And Robert, just to answer it directly as well, you know, I think when you look at the universe of these names, these eight names, they're all kind of in different phases and different stages of turnaround and exiting process. When I look at them, you know, you have a couple that are kind of a little bit more in the early stages, a little bit more, a little bit more time that it's going to take to get to where we want to go again, feel confident in getting there. We do have some that we feel are starting to see the light at the end of the tunnel, and we feel good about those as well. But when you look at them, it's pretty scattered over where they kind of are in the timeline. But as Nick alluded to, we feel good about the prospects of a successful outcome for these names.
Nick
Got it. Thank you.
Mick
Thank you, Robert.
Operator
Thank you. Now, seeing as there are no more questions in the queue, that does conclude our question and answer session. I will now turn the call back over to the Enroll Capital team for closing remarks.
Ted Koenig
I want to thank everyone for joining us on the call today. As always, to the extent you've got questions on an interim basis, please feel free to reach out to Mick and Alex. Otherwise, we will speak to you again next quarter.
Mick
Have a good day. Thank you all.
Operator
Ladies and gentlemen, that concludes today's call. Thank you all for joining. Have a pleasant day and you may now disconnect. Thank you. Bye. Thank you Thank you. music music you Welcome to Monroe Capital Corporation's second quarter 2024 earnings conference call. Before we begin, I'd 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, belief, future potential, operating results, and cash flows. Although we believe these statements are reasonable based on management's estimates, Assumptions and projections as of today, August 8, 2024, 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, 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'll now turn the conference call over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. Sir, please go ahead.
Ted Koenig
Good morning, and thank you to everyone who has joined our call today. Welcome to our second quarter 2024 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 second quarter 2024 earnings press release and filed our 10Q with the SEC. On today's call, I'll begin by addressing our second quarter results and then share thoughts and insights into the macroeconomic environment and the current market conditions. I am pleased to report that for the 17th consecutive quarter, our adjusted net investment income covered our 25 cents per share dividend. MRCC delivered a total annualized dividend yield on our trading price of 14% using our August 6, 2024 closing share price. We are proud of our track record of delivering stable and consistent dividends to our shareholders. In the second quarter of 2024, our adjusted net investment income was $6.7 million, or 31 cents per share, an increase from $5.5 million or $0.25 per share in the first quarter. Our adjusted net investment income covered our $0.25 per share dividend by nearly 1.25 times. We reported NAV of $199.3 million or $9.20 per share as of June 30, 2024, compared with NAV of $2.2 $201.5 million, or $9.30 per share as of March 31, 2024. The slight decline in NAV was primarily the result of net unrealized losses attributable to certain portfolio companies, partially offset by net investment income in excess of the dividend paid during the quarter. MRCC's debt-to-equity leverage decreased from 1.6 times as of March 31, 2024 to 1.54 times at June 30th, 2024, driven by several payoffs that occurred late in the quarter. Our focus remains primarily on managing and supporting our investment portfolio companies with add on lending opportunities and maintaining a highly selective and disciplined approach when redeploying capital into attractive investment opportunities with new portfolio company relationships. MRCC is predominantly comprised of first lien senior secured investments in companies operating in sectors that are historically resistant to challenging macroeconomic environments. In the face of persistent inflationary pressures and a volatile economic climate, our portfolio companies have continued to demonstrate healthy revenue and EBITDA growth. The resiliency of our portfolio is further reflected in the stability of our risk rating distribution. Further, despite enduring elevated borrowing costs, MRCC's portfolio companies generally have maintained a sound interest coverage ratio. Thus, MRCC is well-positioned to navigate a higher-for-longer interest rate environment should it persist. The challenges we have seen in the portfolio have been, for the most part, due to idiosyncratic factors that are not indicative broader fundamental stress within the portfolio. We will continue to leverage our deep roster of investment professionals, proven underwriting and portfolio management playbook, and experience to work through and turn around underperforming investments. We maintain a 20-year track record of navigating various market and economic environments and remain confident that we can continue to maximize outcomes and deliver value for our shareholders. I will now turn our view on the market environment. In the second quarter of 2024, we saw a rise in middle market loan volumes driven by increased private equity sponsor activity. According to LSEG LPC second quarter 2024 middle market analysis, middle market loan volumes increased 27% year over year. Middle market direct lending M&A volumes were up 71%. compared to prior year and sponsored direct lending volumes were up over 90% from the prior year. Sponsored demand for capital to support the growth of their portfolio companies and position those companies for exits has heightened the need for direct lending solutions that provide flexibility and low execution risk. While we did see a pickup in syndicated loan activity, direct lenders still accounted for 4.6 times the volume of syndicated and bank deals in the quarter. The accelerated sponsor activity has presented us with compelling opportunities for incumbency lending to our existing portfolio companies where historically we have been able to generate some of our most attractive risk-adjusted returns. The intensifying competition in the credit markets that we noted in our call last quarter has carried on throughout the second quarter. This has resulted in the tightening of spreads across the middle market, especially with the pickup in syndicated loan and repricing activity happening particularly in the upper middle market. Concurrently, we saw leverage levels slightly increase across the middle market transactions in the second quarter. Monroe focuses on providing capital solutions to the lower middle market, which has experienced less spread compression and leverage expansion than that of the upper middle market. As a result, MRCC's effective yield has remained stable at an attractive rate of nearly 12% on heavily weighted firstly senior secured portfolio. In the face of a market where overall spreads have decreased and leverage has increased, we continue to focus on supporting our incumbent portfolio companies. Our ability to consistently generate deal flow through our existing portfolio has allowed us to retain higher quality assets while maintaining a disciplined approach with our originations, underwriting and deal execution. Though interest rate cuts by the Fed have become increasingly likely, we remain focused on our loan to value attachment points, which have remained stable throughout the first half of 2024. This approach is consistent with other middle market direct lenders who are being increasingly cautious with overburdening portfolio companies with debt service obligations. In this direct lending environment, we will execute on opportunities that meet our rigorous underwriting standards and that offer us the necessary structures and protections that align with our portfolio management playbook. MRCC enjoys a strong strategic advantage in being affiliated with a best-in-class middle market private credit manager with approximately $20 billion in assets under management. supported by a deep team consisting of over 250 employees, including 110 dedicated investment professionals as of July 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 now going to turn the call over to Mick, who is going to walk us through our financial results in greater detail.
Mick
Thank you, Ted. At quarter end, our investment portfolio totaled $485.8 million, a $15.1 million decrease from $500.9 million at the end of the last quarter. Our investment portfolio consisted of debt and equity investments in 94 portfolio companies compared to 98 portfolio companies at the prior quarter end. During the second quarter, we had revolver and delayed drop fundings and add-ons to existing portfolio companies of $21.7 million. We received four full payoffs aggregating to $13.5 million and incurred partial and normal force paydowns totaling $22.4 million. As Ted noted earlier, these full payoffs occurred later in the second quarter with two of those payoffs attributable to portfolio company sales and two of those payoffs attributable to refinancings. At June 30th, 2024, we had total borrowings of $307.8 million, including $177.8 million outstanding under our floating rate revolving credit facility and $130 million of our 4.75% fixed rate 2026 notes. Total borrowings outstanding decreased by $13.9 million during the quarter as we utilized proceeds from various deal payoffs to pay down the revolving credit facility. At quarter end, the revolving credit facility had $77.2 million of availability subject to borrowing-based capacity. Now, turning to our financial results. Adjusted net investment income, a non-GAAP measure, was $6.7 million, or $0.31 per share this quarter, compared to $5.5 million, or $0.25 per share in the prior quarter. The increase in adjusted net investment income during the quarter was primarily driven by a $1 million Part 1 incentive fee limitation, with the balance of the increase being a result of higher average invested assets over the period. Excluding the shareholder-friendly incentive fee limitation in the quarter, pro forma adjusted net investment income would have been 26 cents per share, still in excess of our 25 cent per share dividend. As a result of the total return requirement within MRCC's incentive fee calculation, we expect limitations on our incentive fees to persist at varying levels over the next three quarters. Our effective yield on the portfolio's debt and preferred equity investments remained stable during the quarter at 11.9%. As of June 30th, 2024, our NAV was $199.3 million, which decreased slightly from $201.5 million as of March 31st, 2024. Our corresponding NAV per share decreased by 10 cents from $9.30 per share to $9.20 per share. The decline in NAV this quarter was primarily the result of net unrealized losses attributable to certain portfolio companies that have been mostly impacted by idiosyncratic factors. These mark-to-market unrealized losses were partially offset by net investment income in excess of the dividend paid during the quarter. I will now Turn the call over to Alex, who will provide more details on our second quarter operating performance.
Alex
Thank you, Mick. Looking to our statement of operations, investment income totaled $15.6 million during the second quarter of 2024, a slight increase from $15.2 million in the first quarter of 2024. The $400,000 increase in investment income was primarily the result of higher averaged assets during the quarter. as well as an increase in other income as part of a portfolio company realization during the quarter. In the second quarter, we placed one new investment on non-accrual with a fair market value of $1.6 million. As of June 30th, 2024, we had eight investments on non-accrual status, representing 1.9% of the portfolio at fair market value, which is consistent with that of March 31st, 2024. Now shifting over to the expense side, Total expenses for the second quarter of 2024 were $9.1 billion, compared to $9.7 million of total expenses for the first quarter of 2024. Excluding the impact of the incentive fee limitation of $1 million, total expenses increased by $400,000, primarily due to an increase in interest and other debt financing expenses driven by increases in our average debt outstanding and in excise taxes resulting from net investment income exceeding our dividend. Our net loss for the quarter was $3.3 million, compared to a net loss of $2.3 million for the prior quarter. These net losses for the quarter ended June 30, 2024, were primarily attributable to unrealized mark-to-market losses on certain portfolio companies that have underlying credit performance concerns. These mark-to-market unrealized losses were partially offset by a net realized gain associated with the sale of an equity position in one of our portfolio companies. The average mark on the portfolio decreased slightly by 0.9%, from 95.3% across at March 31, 2024, to 94.4% across at June 30, 2024. Turning now to SLF. As of June 30, 2024, the SLF had investments in 39 different borrowers, aggregating to $109.7 million of fair value. The SLF's underlying investments are loans to middle market borrowers that are generally larger and more sensitive to market spread movements than the rest of MRCC's portfolio, which is focused predominantly at lower middle market companies. In the quarter, the average mark on the SLF portfolio decreased modestly by approximately 60 basis points, from 88.9% of amortized costs as of March 31, 2024, to 88.3% of amortized costs as of June 30, 2024. Consistent with the prior quarter, MRCC received income distributions from SLF totaling $900,000. As of June 30, 2024, SLF had borrowings under its non-recourse credit facility of $50.8 million and $59.2 million of available capacity, subject to borrowing-based availability. At this point, I will turn the call back to Ty for some closing remarks before we open up the line for some questions.
Ted Koenig
Thank you, Alex. In summary, we remain confident in the portfolio's ability to navigate an environment where there is uncertain macroeconomic backdrop and elevated interest rates. Our focus continues to be on portfolio management, where we can leverage our deep and experienced team of investment professionals to execute our portfolio management playbook and maximize recoveries for our challenging investments. In today's more competitive environment, we will lean on the scale of our Originations platform and opportunities to support our incumbent portfolio through incremental investments. MRCC continues to offer stable and consistent dividends to our shareholders as this quarter marked the 17th consecutive quarter where our adjusted net investment income has met or exceeded our 25% per share dividend yield. We believe that our predominantly first-line portfolio, which carries an average effective yield of nearly 12%, positions us well to continue delivering an attractive risk-adjusted return to our investors as highlighted by our current 14% dividend yield based on our August 6, 2024 closing share price. We believe that Monroe Capital Corporation, which is affiliated with an award-winning best-in-class external private credit manager with nearly $20 billion in assets under management, continues to provide a very attractive investment opportunity to our shareholders and to other investors. 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
Thank you. As a reminder, if you'd like to ask a question, please press star and the number one on your telephone keypad. And we will begin the question and answer session. The first question comes from the line of Christopher Nolan from Leidenberg Bauman. Line is open.
Christopher Nolan
Hey, guys. On the SLF, according to my calculations, the SLF fair value decreased by roughly 5% or 6% quarter over quarter.
spk01
Is this vehicle sort of in a runoff mode?
Mick
So hi, Chris. Thank you for that question.
Mick
So if you look at the fair market value, the vehicle quarter over quarter was actually flat. It was actually flat during the quarter in the context of a very modest decline in the average market of the portfolio. We've been really conscious about bringing down our leverage in this portfolio while maintaining our $900,000 per quarter dividend to MRCC with our joint venture partner receiving as well a $900,000 dividend. We're evaluating how to be constructive in this market with this vehicle given where we are in the titan great environment where we are in the economic cycle but uh feel feel uh good about the the dividend contribution that this vehicle provides and also to put this in perspective slf is about 6.8 6.9 percent of the fair market value of mrc's portfolio with the dividend representing a little under 6% of our investment income. So we're evaluating this, the right time to kind of reenter the market and how to be constructive about the portfolio.
Alex
And Chris, in the quarter, we had a couple of payoffs. So that was the big driver there. As Mick noted, the market was pretty much stable. So we had two payoffs. The size of the portfolio decreased from 41 to 39. The payoffs amounted to about $6.5 million in fair value.
Christopher Nolan
Yeah, okay. The issue is, for me, on the SLF, is the fact is the non-accrual seem to be a little high, particularly since it is, you know, for theoretically more stable companies, larger. But effectively, MRCC has a subordinate position here because it's holding equity, not the debt. So for the rest of your portfolio, you're doing a lot, first lien, senior secured. But for this, you're an equity holder. And I just want to make... Yeah, this is...
Mick
Yeah, that's a really good point, Chris. I mean, this is a joint venture that we created where the SLF position in our portfolio represents the equity in this portfolio. So at the end of the day, the equity ultimately represents the net value to the roughly 39 portfolio companies in the business. It's not unlike a lot of the joint ventures that you see in other BDCs, but you are correct that this represents an equity interest in a portfolio of loans in a levered vehicle.
Christopher Nolan
Okay. Switching over to Education Corp of America, and I know it's been here for a while, but I noticed going through the queue that it looked like the second-leaned debt position you guys have has a cost of $831,000 and a fair value of $2.3 million, while the preferred to the same company has a cost of $7.4 and worth zero on fair value. So how can the junior secured loan be at a premium to cost and the preferred be zilch?
Mick
Yeah, so you are correct.
Mick
Chris, that the fair value of the debt position is $2.3 million relative to an $800,000-ish cost, and the value of the preferred on a fair market value basis is zero relative to a $7.4 million-ish cost basis. This is really about the recovery waterfall on those two positions. And the fact that with respect to the debt position, we are getting fees and unaccrued interest above our cost. And that's been ticking along here for a handful of quarters and years. So as a result, that fair market value relative to the cost has eked up relative to our recovery analysis. And with the preferred being at the bottom of the ECA waterfall, that's entitled to the last degree of proceeds. over and above principal repayment on the debt plus the accrued but yet unpaid interest.
Christopher Nolan
Okay, thanks, Mick. Final question. Given the expectations for a repeated fee waiver to one degree or another over the next couple quarters, can we say at this point that third quarter EPS will cover the dividend?
Mick
Yes, third quarter EPS, we believe, will cover the dividend. That's it for me. Thanks, guys. Thank you, Chris.
Operator
Thank you. Again, if you have a question or if you'd like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Robert Dodd from Raymond James.
Robert Dodd
Hi, guys. Hi, guys. Hi, Ted. Focusing on, to your point in prepared marks, I mean, you focus on maximizing recoveries, and you've still got, what, 4.5% of the portfolio at cost is on monocore. Can you give us an update on that in terms of how far along you are in various workout plans this season? And do you think there's a possibility that some of those assets come back onto accrual, or is this a situation where it's work it out, recover capital, reinvest the capital, and any income recovery from that capital, which is 1.9% of fair value, any income recovery is going to be longer-term post a prolonged workout process, or can some of these companies recover more short-slash-medians?
Mick
Yeah, thank you for that question, Chris. Robert, sorry. Our non-accruals do represent 1.9% of fair market value, 4.8% of cost, represent eight assets in total across a range of industry with kind of no clear themes within those industries. ECA and NECB have been, you know, in the non-performing bucket for the longest amount of time, and we're kind of working through those. And with all these cases, we are working with our internal workout team in maximizing recoveries and, you know, candidly getting them, you know, out of that non-accrual bucket and into recovery mode as quickly as we can. Our ultimate goal with all of these is to maximize the long-term recovery on these assets, not necessarily short-term recovery, and doing the right thing with respect to maximizing value on these assets. So we're confident in our ability to manage these assets. We're confident in our ability to help the companies reorient their earnings profiles and continue to actively manage each and every one of them.
Alex
And Robert, just to answer it directly as well, you know, I think when you look at the universe of these names, these eight names, they're all kind of in different phases and different stages of turnaround and exiting process. When I look at them, you know, you have a couple that are kind of a little bit more in the early stage with a little bit more, a little bit more time that it's going to take to get to where we want to go again, feel confident in getting there. We do have some that we feel are starting to see the light at the end of the tunnel, and we feel good about those as well. But when you look at them, it's pretty scattered over where they kind of are in the timeline. But as Nick alluded to, we feel good about the prospects of a successful outcome for these names.
Nick
Got it. Thank you.
Mick
Thank you, Robert.
Operator
Thank you. Now, seeing as there are no more questions in the queue, that does conclude our question and answer session. I will now turn the call back over to the Enroll Capital team for closing remarks.
Ted Koenig
I want to thank everyone for joining us on the call today. As always, to the extent you've got questions on an interim basis, please feel free to reach out to Mick and Alex. Otherwise, we will speak to you again next quarter.
Mick
Have a good day. Thank you all.
Operator
ladies and gentlemen that concludes today's call thank you all for joining have a pleasant day and you may now disconnect
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