CHICAGO, Aug 05, 2020 (GLOBE NEWSWIRE via COMTEX) -- Monroe Capital Corporation /zigman2/quotes/200285859/composite MRCC +1.03% ("Monroe") today announced its financial results for the second quarter ended June 30, 2020.
Except where the context suggests otherwise, the terms "Monroe," "we," "us," "our," and "Company" refer to Monroe Capital Corporation.
Second Quarter 2020 Financial Highlights
-- Net Investment Income of $12.6 million, or $0.61 per share
-- Adjusted Net Investment Income (a non-GAAP measure described below) of $12.8 million, or $0.62 per share
-- Net increase in net assets resulting from operations of $14.2 million, or $0.69 per share
-- Net Asset Value ("NAV") of $220.6 million, or $10.37 per share
-- Paid quarterly dividend of $0.25 per share on June 30, 2020
Chief Executive Officer Theodore L. Koenig commented, "In a challenging environment, we are extremely pleased to report strong financial results. During the second quarter, we reported record Net Investment Income, an increased Net Asset Value, significantly reduced leverage and again, fully covered our dividend with Net Investment Income. Last quarter we discussed our near term goals of reducing leverage and maintaining stability within our investment portfolio. Primarily through paydowns on the portfolio, including a significant recovery on our investment in Rockdale Blackhawk, LLC ("Rockdale"), we were able to materially reduce leverage during the quarter. We continue to believe the vast majority of our portfolio companies have strong long-term outlooks and will recover from the short-term challenges they are facing as a result of the COVID-19 pandemic. As market volatility resulting from uncertainty related to the impacts of COVID-19 has declined when compared to the end of the first quarter, we saw spreads tighten and valuations for portfolio companies without significant long-term COVID-19 impact rebound during the quarter. As always, we continue to be focused on the interests of our shareholders and will operate with caution and remain focused on generation of Net Investment Income, preservation of capital and creation of shareholder value."
Monroe Capital Corporation is a business development company affiliate of the award winning private credit investment firm and lender, Monroe Capital LLC.
Monroe's large and experienced credit team continues to be focused on actively managing our portfolio and working with our portfolio company borrowers and their respective financial sponsors and management teams to ensure we provide the right support for our portfolio companies through this pandemic and ultimately, obtain the best possible outcome for our shareholders. Given the continued uncertainty in the long-term economic impacts associated with COVID-19, the unprecedented levels of unemployment, and the potential for a COVID-19 induced recession of uncertain length, we have been primarily focused on reducing leverage and maintaining a strong liquidity position to allow us to continue to support our portfolio companies.
In this volatile and uncertain period, we are pleased to report Adjusted Net Investment Income of $12.8 million or $0.62 per share for the quarter ended June 30, 2020. This compares with $6.8 million or $0.33 per share for the quarter ended March 31, 2020. Adjusted Net Investment Income for the quarter ended June 30, 2020 includes $7.4 million, or $0.36 per share, of previously unrecorded interest and fees associated with our investment in Rockdale. See Rockdale Blackhawk, LLC below for a detailed discussion of the impacts of the recovery related to the Rockdale investment on our results of operations for the quarter ended June 30, 2020. See Non-GAAP Financial Measure - Adjusted Net Investment Income discussion below.
NAV increased by $0.33 per share, or 3.3%, to $220.6 million or $10.37 per share as of June 30, 2020, compared to $205.4 million or $10.04 per share as of March 31, 2020. The NAV increase of $0.33 per share was primarily the result of $1.5 million, or $0.07 per share, of net income associated with our investment in Rockdale (described in further detail below) and net realized and unrealized gains of $7.5 million, or $0.36 per share, excluding the impacts of our investment in Rockdale. These NAV increases were partially offset by the impacts of recent share issuances under the ATM program, which had the effect of reducing our per share NAV by approximately $0.10 per share. During the quarter, we issued 825,460 shares under our ATM program totaling approximately $6.3 million in net proceeds. Net investment income, excluding the impacts of Rockdale, was approximately $0.25 share, consistent with the second quarter dividend of $0.25 per share.
Below are our estimates of the components of the $0.36 increase in per share NAV for the quarter attributable to net realized and unrealized gains, excluding the impacts of Rockdale:
-- $0.46 of the per share increase in NAV was attributable to broad market movements and tightening of credit spreads in the loan markets. Of that $0.46 per share, approximately $0.26 per share, was attributable to names held in the portfolio directly, while approximately $0.20 per share was attributable to our investment in MRCC Senior Loan Fund I, LLC ("SLF").
-- $0.01 of the per share increase in NAV was attributable to other gains which are primarily attributable to unrealized gains associated with foreign currency associated with our borrowings denominated in British pounds.
-- These increases were offset by a $0.11 per share per share decrease in NAV attributable to specific credit or fundamental performance of certain underlying portfolio companies, a significant portion of which is a result of the impact of the COVID-19 pandemic on individual credit performance.
The SLF's underlying investments are loans to middle-market borrowers that are generally larger than the rest of MRCC's portfolio, which is focused on lower middle-market companies. These upper middle-market loans held within the SLF experienced higher volatility in valuation during the last two quarters than the rest of the MRCC portfolio. See MRCC Senior Loan Fund below for additional information on SLF. The mark-to-market valuation changes on the SLF portfolio contributed $4.2 million, or $0.20 per share, to the increase in NAV for the second quarter compared with an $11.1 million, or $0.54 per share, decrease in the first quarter.
During the quarter, we reduced MRCC's regulatory debt-to-equity leverage from 1.47 times debt-to-equity to 1.16 times, returning to approximately the same level of regulatory leverage as of December 31, 2019. The decline in leverage was primarily driven by strong repayment activity during the quarter, including the realization on Rockdale. We continue to focus on managing our investment portfolio at the appropriate risk-adjusted leverage level.
Rockdale Blackhawk, LLC
In May 2020, an arbitrator issued a final award in favor of the estate of Rockdale (the "Estate") in the legal proceeding between the Estate and a national insurance carrier. The Company's share of the net proceeds from the award exceeded the contractual obligations due to the Company as a result of its right to receive excess proceeds pursuant to the terms of a sharing agreement between the lenders and the Estate. In June 2020, the Company received $33.1 million as an initial payment of proceeds from the legal proceedings from the Estate, of which $19.5 million was recorded as a reduction in the cost basis of the Company's investment in Rockdale, $3.9 million was recorded as the collection of previously accrued interest, $7.4 million, or $0.36 per share, was recorded as investment income for previously unaccrued interest and fees and $2.3 million, or $0.11 per share, was recorded as realized gains. Additionally, as an offset, the Company recorded net change in unrealized (loss) of ($8.2) million, or ($0.40) per share, primarily as a result of the reversal associated with the collection of proceeds from the Estate. Total net income associated with the Company's investment in Rockdale was $1.5 million, or $0.07 per share, during the quarter ended June 30, 2020. As of June 30, 2020, the Company's has a remaining investment in Rockdale associated with residual proceeds currently expected from the Estate of $1.8 million.
Selected Financial Highlights
(in thousands, except per share data)
June 30, 2020 March 31, 2020 Consolidated Statements of Assets and Liabilities data: (unaudited) Investments, at fair value $ 563,296 $ 590,837 Total assets $ 590,097 $ 620,415 Net asset value $ 220,596 $ 205,352 Net asset value per share $ 10.37 $ 10.04 For the quarter ended June 30, 2020 March 31, 2020 Consolidated Statements of Operations data: (unaudited) Net investment income $ 12,636 $ 6,782 Adjusted net investment income $ 12,763 $ 6,802 Net gain (loss) $ 1,598 $ (43,632 ) Net increase (decrease) in net assets resulting from operations $ 14,234 $ (36,850 ) Per share data: Net investment income $ 0.61 $ 0.33 Adjusted net investment income $ 0.62 $ 0.33 Net gain (loss) $ 0.08 $ (2.14 ) Net increase (decrease) in net assets resulting from operations $ 0.69 $ (1.81 )
(1) See Non-GAAP Financial Measure - Adjusted Net Investment Income below for a detailed description of this non-GAAP measure and a reconciliation from net investment income to Adjusted Net Investment Income. The Company uses this non-GAAP financial measure internally in analyzing financial results and believes that this non-GAAP financial measure is useful to investors as an additional tool to evaluate ongoing results and trends for the Company.
The Company had debt and equity investments in 83 portfolio companies, with a total fair value of $563.3 million as of June 30, 2020, as compared to debt and equity investments in 83 portfolio companies, with a total fair value of $590.8 million, as of March 31, 2020. The Company's portfolio consists primarily of first lien loans, representing 89.5% of the portfolio as of June 30, 2020, and 90.9% of the portfolio as of March 31, 2020. As of June 30, 2020, the weighted average contractual and effective yield on the Company's debt and preferred equity investments was 7.7% and 7.7%, respectively, as compared to the weighted average contractual and effective yield of 8.0% and 8.1%, respectively, as of March 31, 2020. The decrease in portfolio yield is primarily attributable to general decreases in LIBOR; Three month LIBOR has reduced from 1.45% at March 31, 2020 to 0.30% as of June 30, 2020. Portfolio yield is calculated only on the portion of the portfolio that has a contractual coupon and therefore does not account for dividends on equity investments (other than preferred equity). As of June 30, 2020, 4.7% of the Company's total investments at fair value are on non-accrual as compared to 7.4% as of March 31, 2020.
Net investment income for the quarter ended June 30, 2020 totaled $12.6 million, or $0.61 per share, compared to $6.8 million or $0.33 per share for the quarter ended March 31, 2020. Adjusted Net Investment Income was $12.8 million, or $0.62 per share, for the quarter ended June 30, 2020, compared to $6.8 million, or $0.33 per share, for the quarter ended March 31, 2020. Investment income for the quarter ended June 30, 2020 totaled $20.6 million, compared to $15.0 million for the quarter ended March 31, 2020. The $5.6 million increase during the quarter was primarily the result of the inclusion of $7.4 million of previously unrecorded interest and fee income associated with the Company's investment in Rockdale, partially offset by declines in LIBOR and the size of the investment portfolio during the period. Total expenses for the quarter ended June 30, 2020 totaled $8.0 million, compared to $8.2 million for the quarter ended March 31, 2020. The $0.2 million decrease during the quarter was primarily driven by lower interest expense as a result of lower average debt outstanding and a reduction in LIBOR rates. Incentive fees were fully limited due to the total return requirement during the quarters ended June 30, 2020 and March 31, 2020. Please refer to the Company's Form 10-Q for additional information on the incentive fee calculation.
Net gain (loss) was $1.6 million for the quarter ended June 30, 2020, compared to ($43.6) million for the quarter ended March 31, 2020. Excluding the impact of Rockdale, net gains for the quarter ended June 30, 2020 totaled $7.5 million. During the quarter ended March 31, 2020, the U.S. loan market exhibited a heightened level of volatility with the economic ramifications of COVID-19 and credit spread widening leading to a decline in U.S. loan prices during the quarter. During the quarter ended June 30, 2020, spreads tightened and U.S. loan prices began to rebound. Excluding the Company's investment in Rockdale, the Company's portfolio increased in value by 1.0%, from 88.4% of amortized cost as of March 31, 2020 to 89.4% of amortized cost as of June 30, 2020.
Net increase (decrease) in net assets resulting from operations was $14.2 million, or $0.69 per share, for the quarter ended June 30, 2020, compared to ($36.9) million, or ($1.81) per share, for the quarter ended March 31, 2020.
Liquidity and Capital Resources