Monroe BDC exploring growth options

The firm reported strong second quarter earnings with net investment income per share more than covering the firm’s 35 cent per share dividend.

Monroe Capital Corp (MCC) is exploring all options to facilitate further growth including acquisitions, said Ted Koenig (pictured), president and chief executive officer of MCC’s investment advisor, Monroe Capital, during the BDC’s second quarter results call. The vehicle reported net investment income of $5.1 million, or 43 cents per share, well above its 35 cent per share quarterly dividend paid at the end of June.

Asked if the BDC would consider exploiting the fact that MCC trades at a premium to net asset value (NAV) while many other BDCs trade below book value to expand via portfolio acquisitions or if Monroe intends to stick with organic growth, Koenig said that “all options are on the table” and that the firm’s goal is to increase shareholder value.

MCC increased its capital base by just shy of $40 million in the second quarter with two separate secondary public share offerings, both of which were priced at $14.85 per share. NAV stood at $176.5 million at the end of June, equating to $14.18 per share. 

The firm put the capital raised to work by buying into a number of liquid second lien lines. That reduced the share of first lien debt in the portfolio to 81 percent as of 30 June but Aaron Peck, managing director and portfolio manager for the BDC explained that the firm will gradually rotate the funds into directly originated first lien debt as deals come through. Putting the cash to work in junior credit opportunities was the better option relative to the relatively thin liquid senior broadly syndicated market, Peck added. 

The share of first lien debt fell from 94.1 percent at the end of March to 81 percent on 30 June. The weighted average yield of the portfolio was 10.8 percent, down from 11.1 percent at the end of March.

The firm reported a net loss on investments and secured borrowings of $7,000 for the second quarter, mainly due to unrealised mark-to-market losses. Most of the loans that reported mark-to-market falls in fair value are under review and are not expected to result in losses, Peck said. 

During the second quarter, MCC restructured a loan to Rocket Dog Brands leaving the firm with an equity stake in the form of preferred units with a stated PIK interest rate and a voting stake of more than 5 percent, according to the firm’s results filing. 

Asked about the outlook for the economic cycle, Koenig reiterated what he said on the firm’s first quarter earnings call, namely that the US economy is in the eighth innings of the credit cycle. He also that deal flow is very strong and Monroe has around twenty facilities in due diligence which should close over the next couple of quarters, bringing it to a full year total of between 40 and 50 directly originated loans. Monroe’s 20 origination specialists are all very busy with deals, he added. 

At the end of July, MCC increased its revolving credit facility by $25 million to a total of $135 million. The facility includes an accordion feature that allows the firm to increase the capital available to up to $200 million. The firm is slightly under-levered at the moment following the capital raises but plans to increase its leverage to around 0.7x or 0.8x, Peck said.