Q4 2024 Monroe Capital Corp Earnings Call
Operator: Welcome to Monroe Capital Corporation's fourth quarter and full year 2024 earnings conference call.
Welcome to Monroe capital Corporation's fourth quarter, and full year 'twenty 'twenty four 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.
Operator: 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's estimates, assumptions, and projections as of today, March 3, 2025, these statements are not guarantees of future performance.
Strategies beliefs 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 March 3rd 2025. These statements are not guarantees of future performance further I'm sensing.
Operator: Further, time-sensitive information may no longer be accurate as of the time of any replay or discussion. 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.
The information may no longer be accurate as of the time of an 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 S E T.
Monroe capital takes no obligation to update or revise these forward looking statements I will now turn the conference call over to Ted <unk>, Chief Executive Officer of Monroe Capital Corporation.
Ted Koenig: 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 2024 earnings call. I am here with Mick Solimene, our CFO and chief investment officer, and Alex Parmacek, our deputy portfolio manager. Last Friday we filed our 10-K with the SEC, and this morning we issued our fourth quarter and full year 2024 earnings press release. On today's call, I'll begin by providing an overview of our financial results and then share some commentary on the current market environment and provide an update on Monroe's partnership with the Wendell Group.
Ted: Good morning, and thank you to everyone, who has joined US today welcome to our fourth quarter and full year 2024 earnings call I.
Speaker Change: I am here with mixed <unk>, our CFO and Chief investment Officer, and Alex Pardon me sick or jeopardy portfolio manager.
Speaker Change: Last Friday, we filed our 10-K with the SEC and this morning, we issued our fourth quarter and full year 2024 earnings press release and.
Speaker Change: On today's call I'll begin by providing an overview of our financial results and then share some commentary on the current market environment and provide an update on minerals partnership with the window group.
Ted Koenig: I am pleased to report that our adjusted net investment income covered our $0.25 per share dividend for the quarter. MRCC delivered a total annualized dividend yield at our trading price of 11.4 percent using our February 28, 2025 closing share price. We are proud of our longstanding track record of delivering attractive, risk-adjusted returns. to our shareholders across a variety of economic landscapes and market environments. In the fourth quarter of 2024, our adjusted net investment income was $6.2 million or $0.29 per share, which was a slight decrease from $6.6 million or $0.31 per share last quarter. We reported NAV of $191.8 million, or $8.85 per share as of December 31st, 2024, compared to NAV of $198.9 million, or $9.99 per share.
Speaker Change: I am pleased to report that our adjusted net investment income covered our 25 cent per share dividend for the quarter.
Speaker Change: <unk> delivered a total annualized dividend yield and our trading price of 11, 4% using our February 28, 2025 closing share price.
Speaker Change: We are proud of our long standing track record of delivering attractive risk rejected returns.
Speaker Change: To our shareholders across a variety of economic landscapes and market environments.
Speaker Change: In the fourth quarter of 2024, our adjusted net investment income was $6 $2 million or 29 cents per share, which was a slight decrease from $6 $6 million or <unk> 31 cents per share last quarter.
Speaker Change: We reported <unk> of.
Speaker Change: Of 191 $8 million or $8 85 per share as of December 31st 2024, compared to <unk> of $198 $9 million or $9.
Ted Koenig: and $0.18 per share as of September 30, 2024. A 3.6% decline in an AV this quarter was primarily the result of net unrealized losses attributable to a specific portfolio company, partially offset by net investment income in excess of the dividend paid during the quarter. MRCC's leverage increased from 1.50 times debt to equity at September 30, 2024 to 1.53 times at December 31, 2024. The increase was due to the timing of certain quarter-end portfolio company paydowns that were not applied to reduce the outstanding borrowings on our revolving credit facility until after year-end. As market conditions continue to evolve, we remain dedicated to prudent portfolio management of our predominantly first lien portfolio and are maintaining a highly selective investment approach.
Speaker Change: And <unk> 18 per share as of September 32024.
Speaker Change: The three 6% decline in the Navy this quarter was primarily the result.
Speaker Change: Net unrealized losses attributable to our specific portfolio company, partially offset by net investment income in excess of the dividend paid during the quarter.
Speaker Change: Emergency CS leverage increased from 1.50 times debt to equity at September 32024.
Speaker Change: 153 times at December 31, 2024.
The increase was due to the timing of certain quarter and portfolio company pay downs.
Speaker Change: Yet were not applied to reduce the outstanding borrowings on our revolving credit facility until after year end.
Speaker Change: As market conditions conditions continue to evolve we remain dedicated to prudent portfolio management.
Speaker Change: Our predominantly first lien portfolio and are maintaining.
Speaker Change: Highly selective investment approach.
Ted Koenig: Our portfolio companies have benefited from a positive economic backdrop coupled with declining interest rates and steadying inflation. In the fourth quarter and throughout 2024, our portfolio companies demonstrated healthy revenue and EBITDA growth trends, further increasing the portfolio's sound interest coverage ratio. Our portfolio management team continues to focus on maintaining the asset quality of the portfolio. In the second half of 2024, we successfully exited several investments that were previously on our credit watch list. We believe that MRCC's portfolio companies are positioned well to benefit from a favorable market outlook. In 2024, we invested in seven new portfolio companies.
Speaker Change: Portfolio companies have benefited from a positive economic backdrop, coupled with declining interest rates and steady inflation in.
Speaker Change: In the fourth quarter and throughout 2024.
Speaker Change: Portfolio companies demonstrated healthy revenue and EBITDA growth trends further increasing the portfolio's sound interest coverage ratio.
Speaker Change: Our portfolio management team continues to focus on maintaining the asset quality of the portfolio.
Speaker Change: In the second half of 2024, we successfully execute exited several investments that were previously on our credit watch list. We believe that MRC six portfolio companies are positioned well to benefit from a favorable market outlook.
Speaker Change: In 2024, we invested in seven new portfolio companies. These new portfolio companies operate in a resilient industries and the transactions were executed at compelling spreads as well was at conservative loan to value attachment points. However.
Ted Koenig: These new portfolio companies operate in resilient industries, and the transactions were executed at compelling spreads, as well as at conservative loan to value attachment points. However, our ability to grow with our existing portfolio companies is what allows us to remain highly selective with new investments, as well as provides us with attractive incumbency lending opportunities. Deploying capital into existing portfolio companies that we know well has proven to reduce underwriting risk and has historically generated some of our most attractive risk-adjusted returns. In a year where middle market experienced significant spread compression, incremental and follow-on investments made to our existing portfolio companies at attractive spreads accounted for over 65% of MRCC's capital deployment.
Speaker Change: However, our ability to grow with our existing portfolio of companies is what allows us to remain highly selective with new investments as well as provides us with attractive incumbency lending opportunities.
Speaker Change: Deploying capital into existing portfolio of companies that we know well has proven to reduce underwriting risk and has historically generated some of our most attractive risk adjusted returns.
Speaker Change: In a year, where middle market experienced significant spread compression incremental and follow on investments made to our existing portfolio companies at attractive spreads accounted for over 65% of MRC six capital deployment.
Ted Koenig: The lower interest rates, improved economic outlook, and accelerated sponsor M&A activity are dynamics that we expect to support a sustainable and highly active deal environment throughout 2025. We will continue to lean on our leading in-house Originations platform and rigorous underwriting standards to capitalize on private credit and middle market lending tailings. We will be focused on selectively redeploying capital from legacy investment payoffs into attractive new and existing portfolio company relationships.
Speaker Change: The lower interest rates improved economic outlook and accelerated sponsor M&A activity or dynamics that we expect to support a sustainable and highly active deal environment throughout 2025.
Speaker Change: We will continue to lean out our leading in house or originations platform and rigorous underwriting standards to capitalize and private credit and middle market lending <unk> we.
Speaker Change: We will be focused on selectively redeploying capital from legacy investment payoffs into attractive new and existing portfolio company relationships.
Ted Koenig: Before I turn the call over to Mick and Alex, I want to provide a quick update on the strategic partnership with Lindell Group that Monroe announced late last year. As you may recall, Monroe, the owner of MRCC's external advisor, plans to partner with the Wendell Group, a French investment company, and one of Europe's leading investment firms. Wendell is purchasing a majority ownership interest in Monroe and will commit $1 billion of new seed capital to support new and existing investment strategies of the Monroe platform. On February 21, 2025, MRCC shareholders approved the new investment advisory and management agreement that was required for consummation of the transaction.
Speaker Change: Before I turn the call over to Mick and Alex I want to provide a quick update on the strategic partnership with one delegates at Monroe announced late last year.
As you May recall Monroe, the owner of MRC seize external adviser plans to partner with the window group, a French investment company and one of Europe's leading investment firms.
Speaker Change: When Dell is purchasing a majority ownership interest in Monroe and will commit $1 billion of new seed capital to support new and existing investment strategies of the Monroe platform.
Speaker Change: On February 21 2025.
Speaker Change: <unk> shareholders approved the new investment Advisory and management agreement that was required for consummation of the transaction.
Ted Koenig: While the approval of the new investment advisory and management agreements by shareholders was required as a result of the transaction, there are no changes to the terms. including fee structure and services provided. and by extension our external advisor, will continue to operate autonomously and independently and its investment process, strategy and operations will remain the exact same.
Speaker Change: While the approval of the new investment Advisory and management agreement by shareholders was required as a result of the transaction there are no changes to the terms.
Speaker Change: <unk> fee structure and services provided.
Speaker Change: Monroe and by extension, our external advisor will continue to operate autonomously and independently.
Speaker Change: Investment process strategy and operations will remain the exact same.
Ted Koenig: when Dell will not have a role in the Monroe investment process. On behalf of Monroe and the MRCC board, I would like to thank our shareholders for your voting participation and the strong support that we received in approving the new Investment Advisory Management Agreement. We believe that this is an important step in driving value for our shareholders.
Speaker Change: When Dell will not have a role in the Monroe investment process.
Speaker Change: On behalf of Monroe in the MRC Seaboard I would like to thank our shareholders for your voting participation and the strong support that we received in approving the new investment advisory and management agreement.
Speaker Change: We believe that this is an important step in driving value for our shareholders.
Ted Koenig: Transaction is expected to close later in the first quarter of 2025.
Speaker Change: The transaction is expected to close later in the first quarter of 'twenty 'twenty five.
Mick Solimene: I am now going to turn the call over to Nick who is going to walk you through MRCC's financial results in greater detail. Thank you, Ted. At year-end, our investment portfolio totaled $457 million. A $17.3 million decrease from $474.3 million at the end of the last quarter. Our investment portfolio consisted of debt and equity investments in 91 portfolio companies compared to 94 portfolio companies at the end of the prior quarter. In the fourth quarter of 2024, we saw middle market loan volumes continue to rise, primarily driven by increased private equity sponsor activity. According to LSEG LPC's fourth quarter 2024 middle market analysis, middle market direct lending M&A volumes in the fourth quarter of 2024 represented the strongest quarterly results since the fourth quarter of 2021.
Speaker Change: I am now going to turn the call over to Mick Who's going to walk you through <unk> financial results in greater detail.
Mick: Thank you Kevin.
Speaker Change: At year end, our investment portfolio totaled $457 million, a $17 $3 million decrease.
Speaker Change: $474 3 million at the end of last quarter.
Speaker Change: Our investment portfolio consisted of debt and equity investments and 91 portfolio companies compared to 94 portfolio companies at the end of the prior quarter.
Speaker Change: In the fourth quarter of 2024, we saw middle market loan volumes continue to rise primarily driven by increased private equity sponsor activity.
Speaker Change: According to the outbound EG Rpc's fourth quarter 2020 for middle market analysis middle market direct lending M&A volumes in the fourth quarter of 2024 represented the strongest quarterly result, since the fourth quarter of 2021.
Mick Solimene: This led to an 85% year-over-year increase in sponsored direct lending volumes in 2024, a new record for annual growth. Direct lenders, such as Monroe, continue to play a critical role in supporting sponsored middle market transactions offering sponsors compelling capital solutions that can be used to support strategic initiatives for existing portfolio companies and to ultimately position those companies for exit. In 2024, private credit middle market deal issuance was 2.9 times greater than syndicated deal lending. LSEG's report further indicated that much of this growth in issuance was driven by delayed drop term loan funding volumes to support existing investors.
Speaker Change: This led to an 85% year over year increase in sponsored direct lending volumes in 2020 for a new record for annual growth.
Speaker Change: Direct lenders such as an unrivaled continue to play a critical role in supporting sponsor middle market transactions offer sponsors compiling capital solutions that can be used to support strategic initiatives for existing portfolio companies.
Speaker Change: Ultimately position most confidence for exits.
Speaker Change: In 2020 for private credit Middle market CLO issuance was two nine times greater than syndicated deal on it.
Speaker Change: <unk> report further indicated that much of the growth in Asia was driven by delayed draw term loan by alliance to support existing investments.
Mick Solimene: The delay to draw term loan fundings were 2.4 times greater in 2024 than in 2023, which was also a new annual record. Investment activity across our platform and at MRCC has been generally reflected of those industry dynamics. MRCC's affiliation with a best-in-class scale platform in Monroe Capital allows us to remain competitive and commit to portions of transactions in inquisitive and growing portfolio companies with strong private responsibility. Further, incremental investments made to our existing portfolio companies, accounting for much of our investment activity in the fourth quarter and throughout 2024. During the year, we invested $30.4 million in seven new portfolio companies and $57.6 million to existing portfolio companies.
Speaker Change: <unk> draw term loan fundings were two four times greater in 2024 and in 2023, which was also a new record.
Speaker Change: Investment activity across our platform and at MRC has been generally reflected reflective of those industry dynamics.
Speaker Change: MRC MRC affiliation with a best in class scalable platform and Monroe capital.
Speaker Change: <unk> us to remain competitive.
Speaker Change: To remain competitive and commit to a portion of our transactions.
Speaker Change: <unk> and growing portfolio of companies with strong private equity sponsors.
Speaker Change: Further incremental investments made to our existing portfolio accounted for most of our investment activity in the fourth quarter and throughout 2024.
During the year, we invested $34 million in seven new portfolio companies and $57 $6 million to existing portfolio companies during the fourth quarter.
Mick Solimene: During the fourth quarter, we invested $2.2 million in one new portfolio company and $14.2 million to existing portfolios. A more active deal environment will allow MRCC to rotate out of legacy assets and redeploy capital into new assets from more attractive ventures, as well as into higher-performing existing portfolio companies that are seeking to execute on key strategic initiatives. Throughout 2024, MRCC had $115 million in aggregate sales and retainments, up from $103 million in 2023. In the fourth quarter, we received five full payoffs aggregating to $14.5 million and incurred partial and normal course paydowns totaling $14.5 million.
Speaker Change: And $2 2 million in one new portfolio company at $14 to $9 two existing portfolio.
Speaker Change: A more active deal environment environment will allow MRC to rotate out of legacy assets and redeploy capital into new assets more attractive vintages as well as into higher performing existing portfolio companies that are seeking to execute on key strategic initiatives.
Speaker Change: Throughout 2020 for MRC at $115 million in aggregate sales and repayments.
$103 million in 2023.
Speaker Change: In the fourth quarter, we received five full payout aggregating a $14 5 million.
Speaker Change: And incur parcel in normal course, payoffs totaling $14 5 million.
Mick Solimene: At December 31, 2024, we had total borrowings of $293.9 million, including $163.9 million outstanding under our floating rate revolving credit facilities and $130 million of our 4.7% fixed rate 2026 notes. At December 31st, 2024, our leverage was 1.53 times debt-to-equity, a slight increase from 1.50 times debt-to-equity at September 30th, 2024. However, in the first week of January 2025, we used excess cash on hand for payouts that occurred at the end of the quarter to pay down debt. A year in, the revolving credit facility had $91.1 million of availability subject to borrowing-based capacity.
Speaker Change: At December 31, 2024, we had total borrowings of $293 9 million.
Speaker Change: $163 $9 million outstanding on our floating rate revolving credit facility and $130 million of our four 7% fixed rate 2026 notes.
Speaker Change: Number 31 2024, our leverage was 13153 times debt to equity a slight increase from one five times debt to equity at September 32024.
Speaker Change: However, in the first quarter January and first week of January 2025, we use excess cash on hand, or payouts that occurred at the end of the quarter to pay down debt at.
Speaker Change: At year end, the revolving credit facility had $91 1 million of availability subject to borrowing base capacity.
Mick Solimene: Now turning to our financial Adjusted net investment income, a non-GAAP measure, was $6.2 million or $0.29 per share this quarter compared to $6.6 million or $0.31 per share in the prior quarter. excluding the impact of incentive fee limitations of $1.2 million and $700,000 for the fourth quarter and third quarters respectively. Adjusted net investment income would have been $5 million or $0.23 per share in quarter ended December 31, 2024 and $5.9 million or $0.27 per share per share in the quarter ended September 30, 2024. The decrease of $900,000, or $0.04 per share, in adjusted net investment income was primarily due to a decline in effective interest rates driven by base rate debt.
Speaker Change: Now turning to our financial results adjusted net investment income a non-GAAP measure was $6 2 million or 29 per share this quarter compared to $6 6 million.
Speaker Change: Or <unk> 31 per share in the prior quarter.
Speaker Change: Excluding the impact of incentive fee limitations of one $2 million and $700000 for the fourth quarter and third quarters, respectively. Adjusted net investment income would have been $5 million 5 million or 23 per share in quarter ended December 31 2020.
Speaker Change: Four and $5 9 million or.
Speaker Change: <unk> or <unk> <unk> per share.
Speaker Change: Per share in the quarter ended September 32024.
Speaker Change: A decrease of $900000 or <unk> <unk> per share and adjusted net investment income was primarily due to a decline in effective interest rates driven by base rate decreases as well as a decline in the average size of the portfolio and lower other income.
Mick Solimene: as well as the decline in the average size of the portfolio and lower other income levels. As a result of the shareholder-friendly total return requirement within MRCC's incentive fee calculation, we currently expect limitations on our incentive fees to persist throughout the next quarter. The weighted average effective yield on the portfolio's debt and preferred equity investments was 10.2%, which compares to 11% a quarter ago. The decline in effective yield was largely due to the declining base rates during the quarter, as well as the addition of one-time investment, of one investment to non-accrual status. As of December 31st, 2024, our NAV was $191.8 million, which decreased by 3.6% from $198.9 million as of September 30th, 2024.
Speaker Change: As a result of the shareholder friendly total return requirement within MRC fees incentive fee calculation. We currently expect limitations on our incentive fees to persist throughout the next quarter.
Speaker Change: The weighted average effective yield on our portfolio of debt and preferred equity investments was 10, 2%, which compares to 11% a quarter ago.
Speaker Change: The decline in effective yield was largely due to the decline in base rates during the quarter as well as the addition of one time investments while investments in non accrual status.
Speaker Change: As of December 31, 2024, our LTV was $191 $8 million, which decreased by three 6% from $198 9 million.
Speaker Change: As of September 32024.
Mick Solimene: Our corresponding NAV per share decreased by $0.33, from $9.18 per share to $8.85. The decline in NAV this quarter was primarily the result of net unrealized losses attributable to a specific portfolio company. While this portfolio company has generally demonstrated solid performance, the fair market value, which is determined to be a discounted cash flow model, was impacted by expected timing related to the monetization of the asset. The mark-to-market unrealized loss in the quarter was partially offset by net investment income in excess of the dividend payout.
Speaker Change: Corresponding NAV per share decreased by 33 from $9 18 per share to $8 85 per share.
Speaker Change: The decline in NAV. This quarter was primarily the result of net unrealized losses attributed attributable to a specific portfolio company.
Speaker Change: This portfolio company is generally demonstrated solid performance the fair market value, which is the Permian via a discounted cash flow model was impacted by the expected timing related to the monetization of the asset.
Speaker Change: The mark to market unrealized loss in the quarter was partially offset by net investment income in excess of the dividend paid.
Alex Parmacek: I will now turn it over to Alex who will provide more details on our fourth quarter operating performance. Thank you, Matt. Looking to our Statement of Operations, investment income totaled $14 million during the fourth quarter of 2024, a decrease from $15.7 million in the third quarter of 2024. The $1.7 million decrease in investment income was primarily the result of a declining interest rate environment, which led to lower base interest rates on our investment portfolio. In the second half of 2024, the sidetracked amounted to nearly a 100 basis point decline in base rates. This, coupled with six consecutive quarters of spread compression in the market, has continued to put pressure on interest yields for direct lenders.
Speaker Change: I will now turn it over to apps.
Speaker Change: We'll provide more details on our fourth quarter operating performance.
Apps: Thank you Matt.
Apps: Looking to our statement of operations investment income totaled $14 million during the fourth quarter of 2024, a decrease from $15 7 million in the third quarter of 2024.
Apps: $1 $7 million decrease in investment was primarily the result of a declining interest rate environment, which led to lower base interest rates on our investment portfolio.
Apps: In the second half of 2024, the fact ophthalmology nearly a 100 basis point decline in base rates.
Apps: This coupled with six consecutive quarters of spread compression in the market has continued to put pressure on interest yields for our direct lenders. However in the fourth quarter of 2004, we saw spreads widen to the first time since the first quarter 2023.
Alex Parmacek: However, in the fourth quarter of 2024, we saw spreads widen for the first time since the first quarter of 2023. While the pricing increase was indeed modest, we believe that the reversal could potentially indicate a leveling off in spreads. In addition to the impact of the declining interest rate environment, the placement of an additional portfolio company on non-accrual status and lower average invested assets during the quarter also contributed to the decrease in investment income. Our total investments on non-accrual status represented 3.4% of the portfolio fair market value as of December 31st, 2024, a slight increase from 3.1% of the portfolio fair market value as of September 30th, 2024.
Apps: Pricing increase was in the model, we believe that the reversal of the perpetually indicate elaborating on spreads and <unk>.
Apps: Addition to the impact of the decline in interest bearing market.
Apps: <unk> are an additional portfolio company on nonaccrual status and lower average invested assets during the quarter also contributed to the decrease in investment income.
Apps: Our total investment on nonaccrual status represented three 4% of the portfolio at fair market value as of December 31, 2024, a slight increase of three 1% of the portfolio at fair market value as of September 32024.
Alex Parmacek: The challenges we have seen in the portfolio have been, for the most part, due to idiosyncratic factors of specific borrowers that are not indicative of a broader pattern or stress within the portfolio.
Apps: The challenges we are seeing in the portfolio have been for the most part.
Apps: <unk>.
Apps: That's a big borrowers that are not indicative of a broader pattern or stress within the portfolio.
Alex Parmacek: We will continue to leverage our deep roster of investment professionals and our proven underwriting and portfolio management playbook to maintain a stable asset base in a dynamic market environment.
Apps: We will continue to leverage our deep roster of investment professionals, and our proven underwriting and portfolio management playbook maintained stable asset base and a dynamic market environment.
Alex Parmacek: Now shifting over to the expense side. Total expenses for the fourth quarter of 2024 were $8 million compared to $9.2 million of total expenses for the third quarter of 2024. excluding the impact of incentive fee limitations during both periods. Total expenses decreased by $700,000 during the fourth quarter, primarily due to lower interest and other debt financing expenses, driven by a decrease in our average debt outstanding and declines in base rates on our borrowing under the revolving credit facility. Our net loss on the portfolio for the quarter was $7.7 million compared to a net loss of $1.5 million for the prior quarter.
Apps: Shifting over to the expense side.
Apps: Total expenses for the fourth quarter of 2024 were $8 million compared to $9 $2 million of total expenses for the third quarter of 2024, excluding the impact of incentive fee limitations during both periods.
Apps: Total expenses decreased by $700000 during the fourth quarter, primarily due to lower interest and other debt financing expenses driven by a decrease in our average debt outstanding and declines in base rate on our borrowings under the revolving credit facility.
Apps: Our net loss on the portfolio for the quarter was $7 7 million.
Apps: Compared to a net loss of $1 $5 million from the prior quarter.
Alex Parmacek: The net losses for the quarter ended December 31, 2024, were primarily attributable to an unrealized mark-to-market loss associated with the change in fair value related to the portfolio company that Nick mentioned earlier in his remarks, while the remainder of the portfolio is generally stable. The average mark on the portfolio decreased by approximately 1.7% from 93.9% of costs as of September 30, 2024, to 92.2% of costs as of December 31, 2024. Despite the slight decrease in the average mark, portfolio companies rated 2 on our internal risk rating scale, accounting for over 81% of the fair value, consistent with the end of last quarter and relatively in line with our trailing 8th quarter average.
Apps: Net losses for the quarter ended December 31, 2024 were primarily attributable to an unrealized mark to market loss associated with the change in fair value related to the portfolio.
And earlier in his remarks, while the remainder of the portfolio was generally stable the average mark on our portfolio decreased by approximately one 7% from 93, 9% of cost at September 38 point plan for the 92% at cost as of December 31, 2024.
Apps: The slight decrease in the average Mar portfolio companies rated two on our internal rating scale accounted for over 81% of the fair value.
Apps: Before the end of last quarter and relatively in line with our trailing eight quarter average.
Alex Parmacek: Turning now to SLS. As of December 31st, 2024, the SLS had investments in 36 different borrowers, aggregating $98 million in fair value. The SLS'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 on lower middle market.
Speaker Change: Turning now to <unk>.
Speaker Change: December 31, 2020 for the actual outside investments in 36 different borrowers aggregating $98 million in fair value.
Speaker Change: Underlying investments are loans to middle market borrowers that are generally larger and more saturated the market spread movements in the <unk>.
Speaker Change: <unk> portfolio, which is focused on lower middle market companies.
Alex Parmacek: In the quarter, the average mark on the SLF portfolio decreased nominally by approximately 14 basis points. from 87% of amortized costs as of September 30th, 2024 to 86.9% of amortized costs as of December 31st, 2024.
Speaker Change: In the quarter the average mark on the Epsilon portfolio decreased nominally by approximately 14 basis points from 87% at amortized cost at September 38, four to $86, 9% of amortized cost at December 31 points Encore.
Alex Parmacek: Consisting with the prior quarter, MRCC received income distributions from ESOLAT of $900,000. As of December 31, 2024, the SLS had borrowings under its non-reforced credit facility of $38.2 million and $71.8 million in available capacity, subject to borrowing-based availability.
Speaker Change: Consistent with the prior quarter MRC DSD income distributions from <unk> of $900.
Speaker Change: As of December 31.
Speaker Change: For the <unk> had borrowings under our nonrecourse credit facility of $38 2 million and $71 $8 million in available capacity subject to borrowing base availability.
Ted Koenig: At this point, I will turn the call back to Ted for some closing remarks before we open up the line for some questions.
At this point I will turn the call back to Todd for some closing remarks before we open up the liners and questions.
Ted Koenig: Thank you, Alex. As we focus on 2025, we remain committed to delivering long-term value for stockholders through leveraging our deep credit experience. rigorous underwriting standards and time-tested portfolio management playbook. A predominantly first-line portfolio which carries an effective average yield of over 10.2% continues to produce strong risk-adjusted returns resulting in an 11.4% annualized dividend yield. MRC enjoys a strong strategic advantage in being affiliated with an award-winning, best-in-class, middle-market private credit manager with over $20 billion in assets under management, supported by a team consisting of over 275 employees, including approximately 120 dedicated investment professionals as of January 1st.
Todd: Thank you Alex as we focused on 2025.
Todd: We remain committed to delivering long term value for our stockholders through leveraging our deep credit experience.
Todd: <unk> underwriting standards and time tested portfolio management playbook.
Todd: Predominantly first lien portfolio, which carries an effective average yields of over 10, 2%.
Todd: <unk> to produce strong risk adjusted returns, resulting in an 11, 4% annualized dividend yields.
Todd: MRC enjoys a strong strategic advantage in being affiliated with an award winning best in class Middle market private credit manager with over $20 billion in assets under management supported by a team consisting of over 275 employees.
Todd: Including approximately a 120 dedicated investment professionals as of January one.
Ted Koenig: 2025. We believe that Monroe Capital Corporation continues to provide an attractive investment opportunity to our shareholders and to other investors.
Todd: 2025.
Todd: We believe that Monroe Capital Corporation continues to provide an attractive investment opportunity to our shareholders and to other investors.
Operator: 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. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you.
Todd: Thank you all for your time today.
Todd: This concludes our prepared remarks, I'm going to ask the operator to open the call now for questions.
Todd: If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question Press Star. One again. Thank you we will pause for just a moment to compile the Q&A roster.
Operator: We will pause for just a moment to compile the Q&A rock.
Christopher Nolan: Your first question comes from the line of Christopher Nolan with Ledenburg-Ballman. Please go ahead. Hi, thanks for taking my question. First of all, congratulations because the share price is almost... in par with the NAF per share.
Speaker Change: Your first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Christopher Nolan: Hi, Thanks for taking my question first of all congratulations because the share price is almost on par with the.
Christopher Nolan: NAV per share, so and Thats real improvement.
Ted Koenig: Going forward, given everything that you guys highlighted in terms of Lower portfolio yields slightly decreasing leverage early in the quarter the first The Smaller Portfolio What is the strategy here to grow earnings, to grow the portfolio? that you've been contracting the portfolio for. almost two years now, and just see whether or not there might be a reaction. Chris, good question. You're on top of it. The plan was to put ourselves in a light-sized place. and clean up some of the old legacy portfolio issues. allow the markets to understand that. I think as you mentioned our stock price right now is very close to our NAV and I'm hopeful that you know now we're in a position to play some offense and step on the accelerator.
Christopher Nolan: Going forward.
Christopher Nolan: Given everything that you guys highlighted in terms of the.
Christopher Nolan: The lower portfolio yield slightly decreasing leverage early in the quarter the first quarter.
Christopher Nolan: The smaller portfolio.
Christopher Nolan: What is the strategy here to grow earnings to grow the portfolio.
Christopher Nolan: You mean, keeping contracted the portfolio for.
Christopher Nolan: I think almost two years now and just see whether or not that might be reversal in the cards.
Chris: Chris Good question.
Chris: You are on top of it.
Chris: <unk> was too.
Chris: <unk> put ourselves in a right size place.
Chris: And clean up some of the old.
Chris: Legacy portfolio issues.
Chris: Allow the markets to understand that I think as you mentioned our stock price right now is very close to our NAV.
Chris: And I'm hopeful that.
Chris: Now we're in a position to play some offense and stuff on the accelerator we're working.
Ted Koenig: We're working on a you know a couple of internal plans right now to do that and you know I think you'll see some you'll see some effort to grow the portfolio here and to do some interesting things over 2025. Great.
Chris: A couple of internal plans right now.
Chris: Do that and.
Chris: I think youll see some.
Chris: Youll see some effort to grow the portfolio here and to introduce some interesting things over 2024.
Chris: Great.
Mick Solimene: And then, I guess, you have some non-accrual investments which have been non-accrual for a very long time. And can we see some resolutions on some of these larger names coming up?
Chris: And then I guess you have some non accrual investments, which had been on non accrual for a very long time.
Chris: And could we see some resolutions on some of these larger names in coming quarters.
Chris: Yeah.
Mick Solimene: Mick, why don't you take that one? Not sure. So, you know, our non-accruals, we've got, you know, circa 10 names on non-accrual, and it includes some legacy assets that have been on our books for a while. Those include a couple of litigation matters that we are in the process of finalizing. Basically, it's, you know, proceeds held in trust and otherwise that we've been working on for a while. But we are, you know, actively working on, you know, our non-accrual names to rotate them out of the portfolio to put in, you know, our cash into more accretive newer vintage assets.
Nick: Nick why don't you take that one.
Nick: Not sure so our non accruals, we got circa 10 names on non accrual and that includes some legacy assets.
Nick: And then our folks have done on our books for a while.
Nick: It does include a call litigation matters that were in the process.
Nick: Finalizing basically it's.
Nick: Proceeds held in trust and otherwise that we've been working on for a while but we are actively working on.
Nick: Our non accrual banks to rotate them out of the portfolio to go.
Nick: To put in our our cash into more accretive.
Nick: Vintage assets, but I can assure you that we're kind of actively working on this.
Mick Solimene: But, you know, I can assure you that we're kind of actively working on this, on these non-accruals with our dedicated portfolio management and workout team, and hope to make real progress on this during the course of 2025.
Nick: These non accruals with our dedicated.
Nick: Portfolio management.
Nick: And workout team and look to automate more progress on this.
Nick: During the course of.
Nick: 2025.
Mick Solimene: Great.
Christopher Nolan: Final question. You guys are unique among BDCs in terms of you have a heavy reliance on bank credit facilities for your debt structure. and some of the other non-bank lenders which I cover. but mostly commercial real estate focus are starting to see real headway. Commercial Real Estate. valuations, and in turn, that generally is not a good sign for reaching And I just want to see, in light of this, any consideration in terms of swapping out the bank credit facilities for, you know, baby boomers? that's always a consideration, Chris, you know, we're not real estate, you know, real estate is very different than corporate right now.
Nick: Final question you guys are unique among bdcs in terms of you have a heavy reliance on bank credit facilities for your debt structure now.
Nick: And.
Nick: Some of the nonbank other nonbank lenders, which I cover.
Mostly commercial real estate focus are starting to see real headwinds.
Nick: In terms of the commercial real estate.
Nick: Valuations and in turn led generally is not a good sign for regional banks.
Nick: And I just want to see in light of this any consideration in terms of swapping out the bank.
Nick: Bank credit facilities for.
Nick: Baby bonds or something.
Nick: Well, that's always a consideration.
Nick: Chris.
Nick: We're not real estate real estate is very different than corporate right now.
Ted Koenig: I've never seen more interest from financial institutions, both regulated and non, in providing capital and credit to well-diversified middle market first lien loan portfolios. So I think we've got lots of options in that regard. But we're always looking at unsecured, provided we think that the arbitrage will. My point being, commercial real estate is an area of vulnerability for regional banks. And so if commercial real estate crisis really hits, a wave really hits, then, you know, it could happen. and that's just what. It's a good thought process, and we're always focused on it. And as I said, Nick and Alex are very focused on optimizing their.
Nick: I've never seen more interest from financial institutions.
Nick: Regulated and non <unk>.
Nick: In providing cap.
Nick: Capital and credit.
Nick: <unk> well diversified middlemen.
Nick: Middle market.
Nick: First lien loan portfolios. So I think we've got lots of options in that regard, but we're always looking at.
Nick: Unsecured.
Nick: Provided that we think that the.
Nick: Arbitrage works.
Nick: No my point being commercial real estate is.
Speaker Change: Area of vulnerability for regional banks for you guys.
Speaker Change: So if commercial real estate crisis really hits, a wave really hits then could have a knock on effect in terms of the availability of your credit facilities and that's just something I'm just raising settlements.
Speaker Change: It's a good thought.
Speaker Change: So we're always focused on it and as I said, Nick and Alex are very focused on optimizing their.
Ted Koenig: our capital structure, and we're always looking at.
Speaker Change: Our capital structure, and we're always looking at.
Ted Koenig: Good.
Ted Koenig: That's it for me. We're not heavily... We're not really heavily dependent on one regional bank. Our credit facilities are fairly well diversified.
Speaker Change: They are not heavily.
Speaker Change: We are not really heavily dependent on one regional bank, our credit facilities are fairly well diversified.
Christopher Nolan: Okay, thanks guys.
Speaker Change: Okay. Okay. Thanks, guys.
Ted Koenig: Thanks, Chris.
Chris: Thanks, Chris.
Operator: Again, if you would like to ask a question, press star 1 on your telephone keypad.
Speaker Change: Again, if you would like to ask a question press star one on your telephone keypad, we will pause for just a moment.
Operator: We will pause for just a moment.
Ted Koenig: Seeing as we do not have any more questions at this time, I will now turn the call back over to Ted Koenig for closing remarks. Thank you all for joining us today. As I mentioned earlier, we're excited about prospects for 2025. We're working on a number of interesting things. And to the extent you have questions that weren't answered today, please feel free to contact Nick or Alex. We're always interested and willing to speak about our business. And I look forward to our next call next quarter. So thank you and have a good day.
Speaker Change: Seeing if we do not have any more questions. At this time I will now turn the call back over to Ted Koenig for closing remarks.
Speaker Change: Thank you all for joining us today.
Ted Koenig: As I mentioned earlier, we're excited about prospects for 2025, we are working on a number of <unk>.
Speaker Change: Interesting things and to.
Speaker Change: To the extent you have questions that weren't answered today, please feel free to contact nickel Alex will always.
Speaker Change: Interested and willing to speak.
Speaker Change: But our business and all.
Speaker Change: I look forward to our next call next quarter. So thank you and have a good day.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Operator: Thanks for watching!
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].