Monroe Capital Corporation

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.

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.

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.