Monroe treads carefully as mid-market heats up

The Chicago-based BDC boosted net asset value by $0.33 per share last year.

Monroe Capital Corporation will maintain its current level of direct originations for the first half of this year, with caution in an increasingly aggressive market, executives said on an earnings call Wednesday.

Theodore Koenig, chief executive officer at Monroe, said on the call that because both non-traded and public BDCs have increased the amount of capital they are raising, more and more players are chasing fewer deals in the lower-to-mid-market.

However, his BDC will not become aggressive in response, he said. 

“New managers putting money to work and existing BDCs replacing run off due to M&A activity has caused a supply and demand imbalance, so we continue to do our disciplined approach,” Koenig said.

Last year, Monroe passed on more than 90 percent of investment opportunities the firm identified, he noted.

However, he anticipated an increase of investment opportunities as a result of borrowers being more bullish ahead of a potential tax reduction this year. Monroe will maintain the deal flow momentum that the firm saw last quarter into the first half of 2017, while still prioritising credit quality, Koenig said.

The company had grown its portfolio from a total fair value of $376.7 million during the third quarter to $412.9 million by the end of fourth quarter, bringing the total number of investments to 70 portfolio companies, according to the earnings results. That compares to $341.1 million at 31 December 2015.               

Koenig said in a statement that the majority of the firm’s growth last quarter stemmed from its small business investment company subsidiary, Monroe Capital Corporation SBIC.

The SBIC swelled from $64.9 million in total investments and $20 million in leverage at 30 September to $97.1 million in investments and $41 million in leverage by year’s end, earnings results show.

The company’s total portfolio consists primarily of first lien loans, representing 79.2 percent of the portfolio by 31 December. The weighted average yield on the portfolio investments was 9.5 percent at the end of the quarter, slightly down from 9.7 percent at 30 September.

The firm grew its net asset value over the last quarter and over the entire year. As of 31 December, the firm’s NAV was $14.52 per share, compared to $14.42 per share at 30 September and $14.19 per share at the end of 2015.

Net investment income for the quarter ended 31 December totaled $5.4 million, or $0.32 per share, compared to $5.6 million, or $0.36 per share, for the third quarter.