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MONROE CAPITAL Corp - Quarter Report: 2019 September (Form 10-Q)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number: 814-00866

 

MONROE CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Maryland 27-4895840
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
   
311 South Wacker Drive, Suite 6400
Chicago, Illinois
60606
(Address of Principal Executive Office) (Zip Code)

 

(312) 258-8300

(Registrant’s Telephone Number, Including Area Code) 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Trading Symbol(s)   Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share
5.75% Notes due 2023
  MRCC
MRCCL
  The Nasdaq Global Select Market
The Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  x  No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨ Accelerated filer x
     
Non-accelerated filer ¨ Smaller reporting company ¨
       
Emerging growth company ¨    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ¨    No x

 

As of November 5, 2019, the registrant had 20,444,564 shares of common stock, $0.001 par value, outstanding.

 

 

 

 

 

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of September 30, 2019 (unaudited) and December 31, 2018 3
     
  Consolidated Statements of Operations for the three and nine months ended September 30, 2019 (unaudited) and 2018 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 (unaudited) and 2018 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 (unaudited) and 2018 (unaudited) 6
     
  Consolidated Schedules of Investments as of September 30, 2019 (unaudited) and December 31, 2018 7
     
  Notes to Consolidated Financial Statements (unaudited) 20
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 47
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 66
     
Item 4. Controls and Procedures 67
     
PART II. OTHER INFORMATION 68
     
Item 1. Legal Proceedings 68
     
Item 1A. Risk Factors 68
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 69
     
Item 3. Defaults Upon Senior Securities 69
     
Item 4. Mine Safety Disclosures 69
     
Item 5. Other Information 69
     
Item 6. Exhibits 70
     
Signatures   71

 

 2 

 

Part I. Financial Information

Item 1. Consolidated Financial Statements

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share data)

 

   September 30,
2019
   December 31,
2018
 
   (unaudited)     
ASSETS          
Investments, at fair value:          
Non-controlled/non-affiliate company investments  $553,035   $468,720 
Non-controlled affiliate company investments   61,746    57,267 
Controlled affiliate company investments   42,669    27,634 
Total investments, at fair value (amortized cost of: $675,060 and $564,124, respectively)   657,450    553,621 
Cash   3,199    3,744 
Restricted cash   20,776    13,982 
Unrealized gain on foreign currency forward contracts   83    16 
Interest receivable   10,714    7,774 
Other assets   576    692 
Total assets   692,798    579,829 
           
LIABILITIES          
Debt:          
Revolving credit facility   216,638    136,026 
2023 Notes   109,000    69,000 
SBA debentures payable   115,000    115,000 
    Total debt   440,638    320,026 
Less:  Unamortized deferred financing costs   (8,504)   (6,262)
    Total debt, less unamortized deferred financing costs   432,134    313,764 
Interest payable   1,787    2,550 
Management fees payable   2,785    2,318 
Incentive fees payable   853     
Accounts payable and accrued expenses   2,814    2,430 
Directors' fees payable   40     
Total liabilities   440,413    321,062 
Net assets  $252,385   $258,767 
           
Commitments and contingencies (See Note 11)          
           
ANALYSIS OF NET ASSETS          
Common stock, $0.001 par value, 100,000 shares authorized, 20,445 and 20,445 shares issued and outstanding, respectively  $20   $20 
Capital in excess of par value   288,911    288,911 
Accumulated undistributed (overdistributed) earnings   (36,546)   (30,164)
Total net assets  $252,385   $258,767 
           
Net asset value per share  $12.34   $12.66 

 

See Notes to Consolidated Financial Statements.

 

 3 

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

(in thousands, except per share data)

 

   Three months ended September 30,   Nine months ended September 30, 
   2019   2018   2019   2018 
Investment income:                    
Non-controlled/non-affiliate company investments:                    
Interest income  $14,308   $10,817   $40,881   $34,305 
Payment-in-kind interest income   156    121    369    384 
Dividend income   13    288    39    813 
Fee income   57    188    686    1,495 
Total investment income from non-controlled/non-affiliate company investments   14,534    11,414    41,975    36,997 
Non-controlled affiliate company investments:                    
Interest income   231    1,203    1,921    4,389 
Payment-in-kind interest income   1,465    612    3,567    1,005 
Fee income               83 
Total investment income from non-controlled affiliate company investments   1,696    1,815    5,488    5,477 
Controlled affiliate company investments:                    
Dividend income   1,100    550    2,745    1,075 
Total investment income from controlled affiliate company investments   1,100    550    2,745    1,075 
Total investment income   17,330    13,779    50,208    43,549 
                     
Operating expenses:                    
Interest and other debt financing expenses   5,549    2,895    15,010    8,437 
Base management fees   2,785    2,196    8,029    6,561 
Incentive fees   1,469        4,237    1,751 
Professional fees   262    260    823    869 
Administrative service fees   322    327    988    973 
General and administrative expenses   281    338    793    739 
Excise taxes           10    11 
Directors' fees   40    37    115    111 
Expenses before incentive fee waiver   10,708    6,053    30,005    19,452 
Incentive fee waiver   (616)       (1,182)    
Total expenses, net of incentive fee waiver   10,092    6,053    28,823    19,452 
Net investment income   7,238    7,726    21,385    24,097 
                     
Net gain (loss):                    
Net realized gain (loss):                    
Non-controlled/non-affiliate company investments   11    (1,414)   46    (1,414)
Non-controlled affiliate company investments       (4,186)       (4,186)
Foreign currency forward contracts   16        10     
Foreign currency and other transactions   (1)   (11)   (3)   (8)
Net realized gain (loss)   26    (5,611)   53    (5,608)
                     
Net change in unrealized gain (loss):                    
Non-controlled/non-affiliate company investments   (1,568)   (5,981)   (2,029)   (6,661)
Non-controlled affiliate company investments   (2,355)   2,396    (5,163)   (8,684)
Controlled affiliate company investments   (350)   275    85    978 
Foreign currency forward contracts   60    (58)   67    (58)
Foreign currency and other transactions   602    260    688    613 
Net change in unrealized gain (loss)   (3,611)   (3,108)   (6,352)   (13,812)
                     
Net gain (loss)   (3,585)   (8,719)   (6,299)   (19,420)
                     
Net increase (decrease) in net assets resulting from operations  $3,653   $(993)  $15,086   $4,677 
                     
Per common share data:                    
Net investment income per share - basic and diluted  $0.35   $0.38   $1.05   $1.19 
Net increase (decrease) in net assets resulting from operations per share - basic and diluted  $0.17   $(0.05)  $0.73   $0.23 
Weighted average common shares outstanding - basic and diluted   20,445    20,417    20,445    20,301 

 

See Notes to Consolidated Financial Statements.

 4 

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

 

(in thousands)

 

   Common Stock   Capital in   Accumulated
undistributed
     
   Number of
shares
   Par
value
   excess of
par value
   (overdistributed)
earnings
   Total net
assets
 
Balances at June 30, 2018   20,279   $20   $286,651   $(15,963)  $270,708 
Net investment income               7,726    7,726 
Net realized gain (loss)               (5,611)   (5,611)
Net change in unrealized gain (loss)               (3,108)   (3,108)
Issuance of common stock, net of offering and underwriting costs   166        2,193        2,193 
Distributions to stockholders               (7,156)   (7,156)
Balances at September 30, 2018   20,445   $20   $288,844   $(24,112)  $264,752 
                          
Balances at June 30, 2019   20,445   $20   $288,911   $(33,043)  $255,888 
Net investment income               7,238    7,238 
Net realized gain (loss)               26    26 
Net change in unrealized gain (loss)               (3,611)   (3,611)
Issuance of common stock, net of offering and underwriting costs                    
Distributions to stockholders               (7,156)   (7,156)
Balances at September 30, 2019   20,445   $20   $288,911   $(36,546)  $252,385 
                 
   Common Stock   Capital in   Accumulated
undistributed
     
   Number of
shares
   Par
value
   excess of
par value
   (overdistributed) earnings   Total net
assets
 
Balances at December 31, 2017   20,240   $20   $286,141   $(7,462)  $278,699 
Net investment income               24,097    24,097 
Net realized gain (loss)               (5,608)   (5,608)
Net change in unrealized gain (loss)               (13,812)   (13,812)
Issuance of common stock, net of offering and underwriting costs   183        2,402        2,402 
Distributions to stockholders   22        301    (21,327)   (21,026)
Balances at September 30, 2018   20,445   $20   $288,844   $(24,112)  $264,752 
                          
Balances at December 31, 2018   20,445   $20   $288,911   $(30,164)  $258,767 
Net investment income               21,385    21,385 
Net realized gain (loss)               53    53 
Net change in unrealized gain (loss)               (6,352)   (6,352)
Issuance of common stock, net of offering and underwriting costs                    
Distributions to stockholders               (21,468)   (21,468)
Balances at September 30, 2019   20,445   $20   $288,911   $(36,546)  $252,385 

 

See Notes to Consolidated Financial Statements.

 

 5 

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(in thousands)

 

   Nine months ended September 30, 
   2019   2018 
         
Cash flows from operating activities:          
Net increase (decrease) in net assets resulting from operations  $15,086   $4,677 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:          
Net realized (gain) loss on investments   (46)   5,600 
Net realized (gain) loss on foreign currency forward contracts   (10)    
Net realized (gain) loss on foreign currency and other transactions   3    8 
Net change in unrealized (gain) loss on investments   7,107    14,367 
Net change in unrealized (gain) loss on foreign currency forward contracts   (67)   58 
Net change in unrealized (gain) loss on foreign currency and other transactions   (688)   (613)
Payment-in-kind interest income   (3,936)   (1,389)
Payment-in-kind dividend income       (792)
Net accretion of discounts and amortization of premiums   (1,180)   (1,837)
Proceeds from principal payments, sales of investments and settlement of forward contracts   82,599    120,840 
Purchases of investments   (188,363)   (124,944)
Amortization of deferred financing costs   1,374    951 
Changes in operating assets and liabilities:          
Interest receivable   (2,940)   (1,047)
Other assets   116    268 
Interest payable   (763)   (769)
Management fees payable   467    132 
Incentive fees payable   853    (1,157)
Accounts payable and accrued expenses   384    415 
Directors' fees payable   40    37 
Net cash provided by (used in) operating activities   (89,964)   14,805 
           
Cash flows from financing activities:          
Borrowings on revolving credit facility   309,250    86,107 
Repayments of revolving credit facility   (227,950)   (151,050)
Proceeds from 2023 Notes   40,000    69,000 
SBA debentures borrowings       5,480 
Payments of deferred financing costs   (3,616)   (3,002)
Proceeds from shares sold, net of offering and underwriting costs       2,402 
Stockholder distributions paid, net of stock issued under the dividend reinvestment plan of $0 and $301, respectively   (21,468)   (21,026)
Net cash provided by (used in) financing activities   96,216    (12,089)
           
Net increase (decrease) in Cash and Restricted Cash   6,252    2,716 
Effect of foreign currency exchange rates   (3)   (8)
Cash and Restricted Cash, beginning of period   17,726    7,199 
Cash and Restricted Cash, end of period  $23,975   $9,907 
           
Supplemental disclosure of cash flow information:          
Cash interest paid during the period  $14,343   $8,197 
Cash paid (refund received) for excise taxes during the period  $(13)  $91 

 

The following tables provide a reconciliation of cash and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows:

 

   September 30,
2019
   December 31,
2018
 
Cash  $3,199   $3,744 
Restricted cash   20,776    13,982 
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows  $23,975   $17,726 

 

   September 30,
2018
   December 31,
2017
 
Cash  $3,969   $4,332 
Restricted cash   5,938    2,867 
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows  $9,907   $7,199 

 

See Notes to Consolidated Financial Statements.  

 6 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
    Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Non-Controlled/Non-Affiliate Company Investments                                   
Senior Secured Loans                                   
Automotive                                   
Hastings Manufacturing Company  L+ 8.25%  10.29%   4/24/2018  4/24/2023    2,850   $2,805   $2,623    1.0%
Magneto & Diesel Acquisition, Inc.  L+ 5.50%  7.54%   12/18/2018  12/18/2023    4,963    4,886    4,964    2.0%
Magneto & Diesel Acquisition, Inc. (Revolver) (f)  L+ 5.50%  7.54%   12/18/2018  12/18/2023    500    125    125    0.1%
                   8,313    7,816    7,712    3.1%
Banking, Finance, Insurance & Real Estate                                   
777 SPV I LLC (Delayed Draw) (g) (h)  L+ 8.50%  10.54%   4/15/2019  4/14/2023    5,404    5,343    5,439    2.2%
Echelon Funding I, LLC (Delayed Draw) (f) (g) (h)  L+ 7.50%  9.60%   2/24/2017  2/24/2022    18,900    14,731    14,731    5.8%
HFZ Capital Group, LLC (h)   L+ 10.17%   12.32% Cash/
0.17% PIK
(i)   10/20/2017   11/12/2019       18,000       17,988       18,002       7.1 %
HFZ Member RB Portfolio LLC (Delayed Draw) (f) (g) (h)  L+ 12.00%  14.32%   10/30/2018  10/29/2021    9,000    5,164    5,086    2.0%
Liftforward SPV II, LLC (f) (g) (h)  L+ 10.75%  12.79%   11/10/2016  11/10/2020    10,000    3,985    4,006    1.6%
PKS Holdings, LLC (h)  L+ 12.75%  14.85%   11/30/2017  11/30/2022    1,688    1,549    1,694    0.7%
PKS Holdings, LLC (Revolver) (f) (h)  L+ 10.75%  12.85%   11/30/2017  11/30/2022    80            0.0%
TCP-NG (U.S.), L.L.C. (h)  L+ 7.25%  9.35%   8/23/2019  8/22/2024    3,000    2,952    2,998    1.2%
TCP-NG (U.S.), L.L.C. (Revolver) (f) (h)  L+ 7.25%  9.35%   8/23/2019  8/22/2024    180            0.0%
                   66,252    51,712    51,956    20.6%
Beverage, Food & Tobacco                                   
California Pizza Kitchen, Inc.  L+ 6.00%  8.53%   8/19/2016  8/23/2022    6,790    6,750    6,090    2.4%
Toojay's Management LLC  L+ 5.50%  7.54%   10/26/2018  10/26/2022    3,474    3,417    3,470    1.4%
Toojay's Management LLC  L+ 5.50%  7.54%   10/26/2018  10/26/2022    476    476    476    0.2%
Toojay's Management LLC (Revolver)  L+ 5.50%  7.54%   10/26/2018  10/26/2022    318    318    318    0.1%
                   11,058    10,961    10,354    4.1%
Chemicals, Plastics & Rubber                                   
Midwest Composite Technologies, LLC  L+ 6.50%  8.54%   8/31/2018  8/31/2023    891    876    909    0.4%
Midwest Composite Technologies, LLC (Delayed Draw) (f) (g)  L+ 6.50%  8.54%   8/31/2018  8/31/2023    510    60    61    0.0%
Midwest Composite Technologies, LLC (Revolver) (f)  L+ 6.50%  8.54%   8/31/2018  8/31/2023    90            0.0%
Valudor Products, LLC  L+ 7.50%  9.54%   6/18/2018  6/19/2023    1,574    1,548    1,552    0.6%
Valudor Products, LLC (j)  L+ 7.50%  9.54%   6/18/2018  6/19/2023    211    206    207    0.1%
Valudor Products, LLC (Revolver) (f)  L+ 9.50%  11.54%   6/18/2018  6/19/2023    818    341    336    0.1%
                   4,094    3,031    3,065    1.2%
Construction & Building                                  
Cali Bamboo, LLC  L+ 7.00%  9.04%  7/10/2015  7/10/2020    7,875   7,829   7,750    3.0%
Cali Bamboo, LLC (Revolver) (f)  L+ 7.00%  9.04%  7/10/2015  7/10/2020    2,165    758    746    0.3%
Construction Supply Acquisition, LLC  L+ 6.00%  8.12%  11/27/2018  6/30/2023    4,368    4,349    4,357    1.7%
Dude Solutions Holdings, Inc.  L+ 7.00%  9.04%  6/14/2019  6/13/2025    10,000    9,781    9,995    4.0%
Dude Solutions Holdings, Inc. (Revolver) (f)  L+ 7.00%  9.04%  6/14/2019  6/13/2025    1,304            0.0%
                  25,712    22,717    22,848    9.0%
Consumer Goods: Durable                                  
Nova Wildcat Amerock, LLC  L+ 5.75%  7.79%  10/12/2018  10/12/2023    9,392    9,232    9,393    3.7%
Nova Wildcat Amerock, LLC (Revolver) (f)  L+ 5.75%  7.79%  10/12/2018  10/12/2023    931            0.0%
Parterre Flooring & Surface Systems, LLC (k)  L+ 9.00%  11.04%  8/22/2017  8/22/2022    8,550    8,441    8,135    3.2%
Parterre Flooring & Surface Systems, LLC (Revolver)  L+ 9.00%  11.04%  8/22/2017  8/22/2022    696    696    659    0.3%
                  19,569    18,369    18,187    7.2%
Consumer Goods: Non-Durable                                  
Quirch Foods Holdings, LLC  L+ 6.00%  8.05%  2/14/2019  12/19/2025    1,985    1,966    1,985    0.8%
                  1,985    1,966    1,985    0.8%
Energy: Oil & Gas                                  
BJ Services, LLC  L+ 7.00%  9.10%  1/28/2019  1/3/2023    4,387    4,350    4,384    1.7%
Landpoint, LLC  L+ 10.00%  12.04%  12/17/2013  12/20/2019    1,821    1,820    1,821    0.7%
Landpoint, LLC (Revolver) (f)  L+ 10.00%  12.04%  12/17/2013  12/20/2019    313            0.0%
                  6,521    6,170    6,205    2.4%
Environmental Industries                                  
StormTrap, LLC  L+ 5.50%  7.54%  12/10/2018  12/8/2023    7,940    7,818    7,880    3.1%
StormTrap, LLC (Revolver) (f)  L+ 5.50%  7.54%  12/10/2018  12/8/2023    432            0.0%
Synergy Environmental Corporation (k)  L+ 7.00%  9.04%  4/29/2016  9/30/2021    2,893    2,864    2,880    1.1%
Synergy Environmental Corporation (k)  L+ 7.00%  9.04%  4/29/2016  9/30/2021    484    479    481    0.2%
Synergy Environmental Corporation (Delayed Draw) (f) (g)  L+ 7.00%  9.04%  4/29/2016  9/30/2021    1,310    827    823    0.3%
Synergy Environmental Corporation (Revolver) (f)  L+ 7.00%  9.04%  4/29/2016  9/30/2021    671    471    469    0.2%
                  13,730    12,459    12,533    4.9%

 

 7 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
   Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Healthcare & Pharmaceuticals                                  
American Optics Holdco, Inc. (h) (l)  L+ 7.00%  9.04%  9/13/2017  9/13/2022    4,238   $4,182   $4,212    1.7%
American Optics Holdco, Inc. (h) (l)  L+ 7.00%  9.04%  9/13/2017  9/13/2022    1,648    1,623    1,638    0.6%
American Optics Holdco, Inc. (Revolver) (f) (h) (l)  L+ 7.00%  9.04%  9/13/2017  9/13/2022    440            0.0%
American Optics Holdco, Inc. (Revolver) (f) (h) (l)  L+ 7.00%  9.04%  9/13/2017  9/13/2022    440            0.0%
Apotheco, LLC  L+ 5.25%  7.29%  4/8/2019  4/8/2024    3,491    3,426    3,491    1.4%
Apotheco, LLC (Delayed Draw) (f) (g)  L+ 5.25%  7.29%  4/8/2019  4/8/2024    1,647            0.0%
Apotheco, LLC (Revolver) (f)  L+ 5.25%  7.29%  4/8/2019  4/8/2024    909    159    159    0.1%
Familia Dental Group Holdings, LLC (k)  L+ 8.00%  10.04%  4/8/2016  4/8/2021    5,019    4,988    4,648    1.8%
Familia Dental Group Holdings, LLC  L+ 8.00%  10.04%  4/8/2016  4/8/2021    483    483    447    0.2%
Familia Dental Group Holdings, LLC (Revolver) (f)  L+ 8.00%  10.04%  4/8/2016  4/8/2021    573    372    345    0.1%
Rockdale Blackhawk, LLC (DIP Facility)  n/a  15.10%  8/30/2018  n/a(m)    198    198    198    0.1%
Rockdale Blackhawk, LLC (DIP Facility)  n/a  15.10%  8/6/2018  n/a(m)    8,877    8,877    8,877    3.5%
Rockdale Blackhawk, LLC  L+ 13.00%  15.04%(n)   3/31/2015  3/31/2020    10,923    10,465    8,842    3.5%
                  38,886    34,773    32,857    13.0%
High Tech Industries                                  
Host Analytics, Inc.  L+ 6.00%  8.10%  12/28/2018  12/28/2023    9,500    9,332    9,481    3.8%
Host Analytics, Inc. (Revolver) (f)  L+ 6.00%  8.10%  12/28/2018  12/28/2023    442            0.0%
Mindbody, Inc.  L+ 7.00%  9.06%  2/15/2019  2/14/2025    6,333    6,220    6,330    2.5%
Mindbody, Inc. (Revolver) (f)  L+ 7.00%  9.06%  2/15/2019  2/14/2025    667            0.0%
Newforma, Inc. (k)  L+ 5.50%  7.60%  6/30/2017  6/30/2022    13,345    13,224    13,345    5.3%
Newforma, Inc. (Revolver) (f)  L+ 5.50%  7.60%  6/30/2017  6/30/2022    1,250            0.0%
Prototek Sheetmetal Fabrication, LLC  L+ 7.50%  9.54%  12/11/2017  12/12/2022    3,368    3,321    3,349    1.3%
Prototek Sheetmetal Fabrication, LLC  L+ 7.50%  9.54%  6/27/2019  12/12/2022    1,600    1,570    1,591    0.6%
Prototek Sheetmetal Fabrication, LLC  L+ 7.50%  9.54%  12/11/2017  12/12/2022    2,301    2,301    2,288    0.9%
Prototek Sheetmetal Fabrication, LLC (Revolver) (f)  L+ 7.50%  9.54%  12/11/2017  12/12/2022    233            0.0%
Recorded Future, Inc.  L+ 6.75%  8.79%  7/3/2019  7/3/2025    7,333    7,190    7,332    2.9%
Recorded Future, Inc. (Delayed Draw) (f) (g)  L+ 6.75%  8.79%  7/3/2019  7/3/2025    587            0.0%
Recorded Future, Inc. (Revolver) (f)  L+ 6.75%  8.79%  7/3/2019  7/3/2025    880            0.0%
RPL Bidco Limited (h) (l) (o)  L+ 7.50%  8.26%  11/9/2017  11/9/2023    13,207    14,073    13,208    5.2%
RPL Bidco Limited (Delayed Draw) (f) (g) (h) (l) (o)  L+ 7.50%  8.26%  5/22/2018  11/9/2023    1,966            0.0%
RPL Bidco Limited (Revolver) (f) (h) (l) (o)  L+ 7.50%  8.26%  11/9/2017  11/9/2023    492            0.0%
WillowTree, LLC  L+ 5.50%  7.54%  10/9/2018  10/9/2023    7,920    7,802    7,964    3.2%
WillowTree, LLC (Revolver) (f)  L+ 5.50%  7.54%  10/9/2018  10/9/2023    1,000    962    962    0.4%
                  72,424    65,995    65,850    26.1%
Hotels, Gaming & Leisure                                  
TRG, LLC  L+ 12.96%  9.60% Cash/
5.46% PIK
(p)   12/23/2014  2/14/2020    17,110    17,094    18,308    7.2%
TRG, LLC (CapEx)  L+ 9.50%  9.60% Cash/
2.00% PIK
   9/1/2015  2/14/2020    1,363    1,362    1,458    0.6%
TRG, LLC (Revolver) (f)  L+ 9.50%  11.60%  12/23/2014  2/14/2020    262    131    140    0.1%
                  18,735    18,587    19,906    7.9%
Media: Advertising, Printing & Publishing                                   
AdTheorent, Inc.  L+ 8.50%  10.60%   12/22/2016  12/22/2021    3,460   3,425   3,465    1.4%
Destination Media, Inc. (k)  L+ 5.50%  7.54%   4/7/2017  4/7/2022    4,825    4,783    4,867    1.9%
Destination Media, Inc. (Revolver) (f)  L+ 5.50%  7.54%   4/7/2017  4/7/2022    542            0.0%
MC Sign Lessor Corp.  L+ 7.00%  9.11%   12/22/2017  8/30/2024    15,720    15,636    15,779    6.3%
MC Sign Lessor Corp. (Revolver) (f)  L+ 7.00%  9.11%   12/22/2017  8/30/2024    3,490    1,047    1,047    0.4%
                   28,037    24,891    25,158    10.0%
Media: Broadcasting & Subscription                                   
Vice Group Holding Inc.  L+ 12.00%  6.62% Cash/
8.00% PIK
    5/2/2019  11/2/2022    1,225    1,213    1,219    0.5%
Vice Group Holding Inc. (Delayed Draw) (f) (g)   L+ 9.00%  11.62%   5/2/2019  11/2/2022    400            0.0%
Vice Group Holding Inc. (Delayed Draw) (f) (g)   L+ 9.00%  11.62%   5/2/2019  11/2/2022    400            0.0%
                   2,025    1,213    1,219    0.5%
Media: Diversified & Production                                   
Attom Intermediate Holdco, LLC  L+ 5.75%  7.79%   1/4/2019  1/4/2024    1,985    1,950    1,984    0.8%
Attom Intermediate Holdco, LLC (Revolver) (f)  L+ 5.75%  7.79%   1/4/2019  1/4/2024    320            0.0%
Crownpeak Technology, Inc.  L+ 6.25%  8.35%   2/28/2019  2/28/2024    4,000    3,928    4,029    1.6%
Crownpeak Technology, Inc. (Delayed Draw) (f) (g)   L+ 6.25%  8.37%   2/28/2019  2/28/2024    333    60    60    0.0%
Crownpeak Technology, Inc. (Revolver) (f)  L+ 6.25%  8.37%   2/28/2019  2/28/2024    167            0.0%
                   6,805    5,938    6,073    2.4%

 

 8 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
   Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Retail                                   
Bluestem Brands, Inc.  L+ 7.50%  9.54%   6/26/2015  11/6/2020    2,315   $2,309   $1,756    0.7%
Forman Mills, Inc. (k)  L+ 9.50%  9.54% Cash/
2.00% PIK
    10/4/2016  10/4/2021    8,202    8,125    7,628    3.0%
LuLu's Fashion Lounge, LLC  L+ 9.00%  11.04%   8/21/2017  8/29/2022    4,250    4,168    4,182    1.7%
The Worth Collection, Ltd. (k)  L+ 8.50%  6.29% Cash/
4.25% PIK
(n)    9/29/2016  9/29/2021    10,709    10,364    6,816    2.7%
Yandy Holding, LLC  L+ 11.00%  13.04%   9/30/2014  n/a(m)    3,643    3,643    3,639    1.4%
Yandy Holding, LLC (Revolver) (f)  L+ 11.00%  13.04%   9/30/2014  n/a(m)    907            0.0%
                   30,026    28,609    24,021    9.5%
Services: Business                                  
APCO Worldwide, Inc.  L+ 8.00%  10.04%  6/30/2017  6/30/2022    4,687    4,629    4,641    1.8%
Arcserve (USA) LLC  L+ 6.00%  8.12%  5/1/2019  5/1/2024    4,785    4,694    4,792    1.9%
Atlas Sign Industries of FLA, LLC (k)  L+ 11.50%  12.54% Cash/
1.00% PIK
   5/14/2018  5/15/2023    3,518    3,323    3,300    1.3%
Burroughs, Inc. (k)  L+ 8.00%  9.60% Cash/
0.50% PIK
   12/22/2017  12/22/2022    5,790    5,728    5,679    2.3%
Burroughs, Inc. (Revolver) (f)  L+ 8.00%  9.60% Cash/
0.50% PIK
   12/22/2017  12/22/2022    1,215    1,165    1,165    0.5%
Certify, Inc.  L+ 5.75%  7.79%  2/28/2019  2/28/2024    9,000    8,876    8,921    3.5%
Certify, Inc. (Delayed Draw) (f) (g)   L+ 5.75%  7.79%  2/28/2019  2/28/2024    1,227    409    406    0.2%
Certify, Inc. (Revolver) (f)  L+ 5.75%  7.79%  2/28/2019  2/28/2024    409            0.0%
First Call Resolution, LLC (k)  L+ 7.00%  9.10%  9/22/2017  9/22/2022    3,721    3,679    3,758    1.5%
First Call Resolution, LLC  L+ 7.00%  9.10%  9/28/2018  9/22/2022    9,077    8,960    9,167    3.6%
HaystackID LLC  L+ 6.50%  8.54%  1/14/2019  1/12/2024    4,962    4,876    4,958    2.0%
HaystackID LLC (Revolver) (f)  L+ 6.50%  8.54%  1/14/2019  1/12/2024    403    81    80    0.0%
HS4 Acquisitionco, Inc.  L+ 6.75%  8.85%  7/9/2019  7/9/2025    10,050    9,853    10,040    4.0%
HS4 Acquisitionco, Inc. (Revolver) (f)  L+ 6.75%  8.85%  7/9/2019  7/9/2025    817            0.0%
IT Global Holding LLC  L+ 9.00%  11.04%  11/15/2018  11/10/2023    10,303    10,124    10,281    4.1%
IT Global Holding LLC  L+ 9.00%  11.04%  7/19/2019  11/10/2023    3,840    3,764    3,832    1.5%
IT Global Holding LLC (Revolver)  L+ 9.00%  11.04%  11/15/2018  11/10/2023    875    875    875    0.3%
Kaseya Traverse, Inc.  L+ 6.50%  7.72% Cash/
1.00% PIK
   5/3/2019  5/2/2025    6,010    5,895    5,988    2.4%
Kaseya Traverse, Inc. (Delayed Draw) (f) (g)  L+ 6.50%  7.69% Cash/
1.00% PIK
   5/3/2019  5/2/2025    723    94    94    0.0%
Kaseya Traverse, Inc. (Revolver) (f)  L+ 6.50%  8.60%  5/3/2019  5/2/2025    506    145    144    0.1%
Madison Logic, Inc. (k)  L+ 8.00%  10.04%  11/30/2016  11/30/2021    9,681    9,582    9,681    3.8%
Madison Logic, Inc. (Revolver) (f)  L+ 8.00%  10.04%  11/30/2016  11/30/2021    988            0.0%
RedZone Robotics, Inc.  L+ 8.75%  8.79% Cash/
2.00% PIK
   6/1/2018  6/5/2023    646    636    588    0.2%
RedZone Robotics, Inc. (Revolver) (f)  L+ 6.75%  8.79%  6/1/2018  6/5/2023    158            0.0%
Security Services Acquisition Sub Corp. (k)  L+ 6.00%  8.03%  2/15/2019  2/15/2024    3,483    3,422    3,476    1.4%
Security Services Acquisition Sub Corp. (Delayed Draw) (f) (g) (k)   L+ 6.00%  8.03%  2/15/2019  2/15/2024    2,496    1,766    1,763    0.7%
Security Services Acquisition Sub Corp. (Delayed Draw) (f) (g) (k)   L+ 6.00%  8.03%  2/15/2019  2/15/2024    2,186    520    518    0.2%
Security Services Acquisition Sub Corp. (Revolver) (f)  L+ 6.00%  8.03%  2/15/2019  2/15/2024    1,042    104    104    0.1%
TRP Construction Group, LLC (k)  L+ 7.50%  9.54%  10/5/2017  10/5/2022    7,863    7,760    7,800    3.1%
TRP Construction Group, LLC  L+ 7.50%  9.54%  9/5/2018  10/5/2022    6,709    6,709    6,655    2.6%
TRP Construction Group, LLC (Revolver) (f)  L+ 7.50%  9.54%  10/5/2017  10/5/2022    2,133            0.0%
VPS Holdings, LLC  L+ 7.00%  9.04%  10/5/2018  10/4/2024    4,906    4,819    4,818    1.9%
VPS Holdings, LLC  L+ 7.00%  9.04%  10/5/2018  10/4/2024    4,000    4,000    3,928    1.6%
VPS Holdings, LLC (Revolver) (f)  L+ 7.00%  9.04%  10/5/2018  10/4/2024    1,000    100    100    0.1%
                  129,209    116,588    117,552    46.7%
Services: Consumer                                  
Mammoth Holdings, LLC  L+ 6.00%  8.32%  10/16/2018  10/16/2023    1,985    1,952    1,981    0.8%
Mammoth Holdings, LLC (Delayed Draw) (f) (g)  L+ 6.00%  8.32%  10/16/2018  10/16/2023    4,167    3,260    3,253    1.3%
Mammoth Holdings, LLC (Revolver) (f)  L+ 6.00%  8.32%  10/16/2018  10/16/2023    500            0.0%
PeopleConnect Intermediate, LLC  L+ 6.50%  8.61%  7/1/2015  7/1/2020    4,072    4,056    4,072    1.6%
PeopleConnect Intermediate, LLC  L+ 12.50%  14.61%  7/1/2015  7/1/2020    4,536    4,516    4,529    1.8%
PeopleConnect Intermediate, LLC (Revolver) (f)  L+ 9.50%  11.61%  7/1/2015  7/1/2020    236            0.0%
                  15,496    13,784    13,835    5.5%
Wholesale                                  
Mid-West Wholesale Hardware Co. (q)  L+ 8.00%  10.04%  2/9/2017  2/9/2022    19,423    19,184    19,423    7.7%
Mid-West Wholesale Hardware Co. (Revolver) (f)  L+ 8.00%  10.04%  2/9/2017  2/9/2022    5,491    5,034    5,034    2.0%
Nearly Natural, Inc. (k)  L+ 7.00%  9.10%  12/15/2017  12/15/2022    6,878    6,782    6,811    2.7%
Nearly Natural, Inc. (Delayed Draw) (f) (g) (k)  L+ 7.00%  9.10%  8/28/2019  12/15/2022    1,924    349    346    0.1%
Nearly Natural, Inc. (Revolver) (f)  L+ 7.00%  9.10%  12/15/2017  12/15/2022    1,522    457    457    0.2%
                  35,238    31,806    32,071    12.7%
Total Non-Controlled/Non-Affiliate Senior Secured Loans                 534,115    477,385    473,387    187.6%

 

 9 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
   Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Unitranche Secured Loans (r)                                  
Chemicals, Plastics & Rubber                                  
MFG Chemical, LLC (k)  L+ 6.00%  8.04%  6/23/2017  6/23/2022    10,477   $10,381   $10,178    4.0%
MFG Chemical, LLC  L+ 6.00%  8.04%  3/15/2018  6/23/2022    1,124    1,124    1,091    0.4%
                 11,601    11,505    11,269    4.4%
Construction & Building                                  
Inland Pipe Rehabilitation LLC  L+ 5.50%  7.60%  12/27/2018  12/26/2024    12,406    12,178    12,515    5.0%
                  12,406    12,178    12,515    5.0%
Consumer Goods: Durable                                  
RugsUSA, LLC  L+ 6.50%  8.55%  5/2/2018  4/28/2023    4,000    3,971    3,992    1.6%
                  4,000    3,971    3,992    1.6%
Healthcare & Pharmaceuticals                                  
Priority Ambulance, LLC (s)  L+ 6.50%  8.60%  7/18/2019  4/12/2022    10,015    10,015    10,015    4.0%
Priority Ambulance, LLC (t)  L+ 6.50%  8.60%  4/12/2017  4/12/2022    1,253    1,232    1,255    0.5%
Priority Ambulance, LLC (Delayed Draw) (f) (g)  L+ 6.50%  8.60%  7/18/2019  4/12/2022    246            0.0%
Priority Ambulance, LLC (Delayed Draw) (f) (g)  L+ 6.50%  8.60%  12/13/2018  4/12/2022    2,480    691    692    0.2%
                  13,994    11,938    11,962    4.7%
High Tech Industries                                  
Energy Services Group, LLC  L+ 8.42%  10.46%  5/4/2017  5/4/2022    4,226    4,192    4,210    1.7%
Energy Services Group, LLC (h) (o)  L+ 8.42%  9.42%  5/4/2017  5/4/2022    4,677    5,001    4,665    1.8%
Energy Services Group, LLC  L+ 8.42%  10.46%  5/4/2017  5/4/2022    1,203    1,188    1,198    0.5%
Mnine Holdings, Inc.  P+ 8.75%  13.50%  11/2/2018  11/2/2023    7,940    7,803    7,747    3.1%
                  18,046    18,184    17,820    7.1%
Total Non-Controlled/Non-Affiliate Unitranche Secured Loans                 60,047    57,776    57,558    22.8%
                                   
Junior Secured Loans                                  
Beverage, Food & Tobacco                                  
CSM Bakery Supplies, LLC  L+ 7.75%  10.04%  5/23/2013  7/5/2021    5,792    5,792    5,387    2.1%
                  5,792    5,792    5,387    2.1%
High Tech Industries                                  
Micro Holdings Corp.  L+ 7.50%  9.54%  8/16/2017  8/18/2025    3,000    2,974    3,022    1.2%
                  3,000    2,974    3,022    1.2%
Media: Diversified & Production                                  
The Octave Music Group, Inc.  L+ 8.25%  10.32%  5/29/2015  5/27/2022    4,355    4,323    4,355    1.7%
                  4,355    4,323    4,355    1.7%
Services: Consumer                                  
Education Corporation of America   L+ 11.00%   7.60% Cash/
5.50% PIK
(n)    9/3/2015   3/31/2020       833       831       757       0.3 %
                  833    831    757    0.3%
Total Non-Controlled/Non-Affiliate Junior Secured Loans                 13,980    13,920    13,521    5.3%
                                   
Equity Securities (u) (v)                                  
Banking, Finance, Insurance & Real Estate                                  
PKS Holdings, LLC (warrant to purchase up to 0.8% of the equity) (h)     (w)    11/30/2017   11/30/2027             116       7       0.0
                       116    7    0.0%
Chemicals, Plastics & Rubber                                  
Valudor Products, LLC (501,014 class A-1 units)  n/a  10.00% PIK   6/18/2018          501    276    0.1%
                       501    276    0.1%
High Tech Industries                                  
Answers Finance, LLC (76,539 shares of common stock)    (w)  4/14/2017          2,344    50    0.0%
Host Analytics, Inc. (441,860 class A units)    (w)  12/28/2018          442    510    0.2%
Recorded Future, Inc. (80,080 class A units) (x)    (w)  7/3/2019          80    80    0.0%
                       2,866    640    0.2%
Hotels, Gaming & Leisure                                  
Playtime, LLC - Preferred Units (8,665 units)    (w)  12/4/2012         200       0.0%
                       200        0.0%
Media: Advertising, Printing & Publishing                                  
AdTheorent, Inc. (128,866 class A voting units)    (w)  12/22/2016          129    409    0.2%
MC Sign Lessor Corp. (686 shares of common stock)    (w)  8/30/2019          872    878    0.3%
InMobi Pte, Ltd. (warrant to purchase up to 2.8% of the equity) (h) (l)     (w)    9/18/2015   9/18/2025                     209       0.1 %
                       1,001    1,496    0.6%
Media: Diversified & Production                                  
Attom Intermediate Holdco, LLC (260,000 class A units)    (w)  1/4/2019          260    252    0.1%
                       260    252    0.1%
Retail                                  
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)       6/25/2013          87    110    0.0%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units)       6/25/2013                  0.0%
                       87    110    0.0%
Services: Business                                  
APCO Worldwide, Inc. (100 class A voting common stock)    (w)  11/1/2017          395    287    0.1%
Atlas Sign Industries of FLA, LLC (warrants to purchase up to 0.8% of the equity)    (w)  5/14/2018  5/14/2026        125    175    0.1%
                       520    462    0.2%

 10 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
   Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Services: Consumer                                  
Education Corporation of America - Series G Preferred Stock (8,333 shares)   n/a   12.00% PIK (n)    9/3/2015             $ 7,492     $ 5,182       2.1 %
                       7,492    5,182    2.1%
Wholesale                                  
Nearly Natural, Inc. (152,174 class A units)    (w)  12/15/2017          152    144    0.1%
                       152    144    0.1%
Total Non-Controlled/Non-Affiliate Equity Securities                      13,195    8,569    3.4%
Total Non-Controlled/Non-Affiliate Company Investments                     $562,276   $553,035    219.1%
                                   
Non-Controlled Affiliate Company Investments (y)                                  
Senior Secured Loans                                  
Banking, Finance, Insurance & Real Estate                                  
American Community Homes, Inc.  L+ 10.00%  12.04% PIK   7/22/2014  12/31/2020    8,571   $8,560   $6,653    2.6%
American Community Homes, Inc.  L+ 14.50%  16.54% PIK   7/22/2014  12/31/2020    5,374    5,369    4,172    1.7%
American Community Homes, Inc.  L+ 10.00%  12.04% PIK   3/17/2016  12/31/2020    648    647    503    0.2%
American Community Homes, Inc.  L+ 10.00%  12.04% PIK   5/24/2017  12/31/2020    519    518    403    0.2%
American Community Homes, Inc.  L+ 14.50%  16.54% PIK   5/24/2017  12/31/2020    289    288    224    0.1%
American Community Homes, Inc.  L+ 8.00%  10.04% PIK   8/10/2018  12/31/2020    1,875    1,875    1,455    0.6%
American Community Homes, Inc.  L+ 8.00%  10.04% PIK   3/29/2019  12/31/2020    3,515    3,515    2,729    1.1%
American Community Homes, Inc.  L+ 8.00%  10.04% PIK   9/30/2019  12/31/2020    1,111    1,111    1,111    0.3%
                  21,902    21,883    17,250    6.8%
Containers, Packaging & Glass                                  
Summit Container Corporation (k)  L+ 8.00%  10.04%  12/5/2013  1/6/2021    3,259    3,269    3,059    1.2%
Summit Container Corporation (Revolver) (f) (k)  L+ 8.00%  10.04%  6/15/2018  1/6/2021    7,700    4,834    4,783    1.9%
                  10,959    8,103    7,842    3.1%
Healthcare & Pharmaceuticals                                  
SHI Holdings, Inc. (k)  L+ 10.25%  12.29% PIK   7/10/2014  12/31/2020    2,812    2,811    2,640    1.0%
SHI Holdings, Inc. (Revolver) (f)   L+ 10.25%  12.29% PIK   7/10/2014  12/31/2020    4,539    4,111    3,865    1.5%
                  7,351    6,922    6,505    2.5%
Retail                                  
Luxury Optical Holdings Co.  L+ 8.00%  10.04% PIK(n)   9/12/2014  9/30/2020    5,086    4,949    4,022    1.6%
Luxury Optical Holdings Co. (Delayed Draw)  L+ 11.50%  13.54%(n)   9/29/2017  9/30/2020    624    624    620    0.2%
Luxury Optical Holdings Co. (Revolver)  L+ 8.00%  10.04% PIK(n)   9/12/2014  9/30/2020    234    228    185    0.1%
                  5,944    5,801    4,827    1.9%
Services: Business                                  
Curion Holdings, LLC (k)  n/a  14.00% PIK(n)   5/2/2017  5/2/2022    4,382    4,189    3,412    1.4%
Curion Holdings, LLC (Revolver)  n/a  14.00% PIK(n)  5/2/2017  5/2/2022    405    405    395    0.2%
                  4,787    4,594    3,807    1.6%
Services: Consumer                                  
New England College of Business and Finance, LLC (Revolver) (f)  L+ 11.00%  13.10%  6/25/2019  6/30/2021    1,050    735    735    0.3%
                  1,050    735    735    0.3%
Total Non-Controlled Affiliate Senior Secured Loans                 51,993    48,038    40,966    16.2%
                                   
Unitranche Secured Loans (r)                                  
Consumer Goods: Non-Durable                                  
Incipio, LLC (z)  L+ 8.72%  10.82% PIK(aa)   12/26/2014  8/22/2022    14,198   14,173   13,311    5.3%
Incipio, LLC (ab)  L+ 8.50%  10.60% PIK   3/9/2018  8/22/2022    3,717    3,717    3,660    1.4%
Incipio, LLC  L+ 8.50%  10.60% PIK   7/6/2018  8/22/2022    1,579    1,579    1,568    0.6%
Incipio, LLC  L+ 8.50%  10.60% PIK   4/17/2019  8/22/2022    674    674    669    0.3%
                  20,168    20,143    19,208    7.6%
Total Non-Controlled Affiliate Unitranche Secured Loans                 20,168    20,143    19,208    7.6%
                                   
Junior Secured Loans                                  
Consumer Goods: Non-Durable                                  
Incipio, LLC (ac)  n/a  10.70% PIK(n)   6/18/2018  8/22/2022    3,766        444    0.2%
Incipio, LLC (ad)  n/a  10.70% PIK(n)   6/18/2018  8/22/2022    7,194            0.0%
                  10,960        444    0.2%
Services: Business                                  
Curion Holdings, LLC (k)  n/a  15.00% PIK(n)   8/17/2018  1/2/2023    1,720    1        0.0%
Curion Holdings, LLC (k)  n/a  15.00% PIK(n)   8/17/2018  1/2/2023    44            0.0%
                  1,764    1        0.0%
Total Non-Controlled Affiliate Company Junior Secured Loans                 12,724    1    444    0.2%
                                   
Equity Securities (v) (y)                                  
Banking, Finance, Insurance & Real Estate                                  
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)    (w)  10/9/2014  12/18/2024                0.0%
                               0.0%
Consumer Goods: Non-Durable                                  
Incipio, LLC (1,774 shares of series C common units)    (w)  7/6/2018                  0.0%
Millennial Brands LLC (10 preferred units)    (w)  5/2/2014          967        0.0%
Millennial Brands LLC (75,502 common units)    (w)  5/2/2014                  0.0%
                       967        0.0%

 11 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate
   Acquisition
Date (c)
  Maturity   Principal   Amortized
Cost
   Fair
Value (d)
   % of Net
Assets (e)
 
Containers, Packaging & Glass                                  
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)    (w)   1/6/2014  1/6/2024       $   $    0.0%
                               0.0%
Healthcare & Pharmaceuticals                                  
SHI Holdings, Inc. (24 shares of common stock)    (w)   12/14/2016          27    76    0.0%
                       27    76    0.0%
Retail                                  
Luxury Optical Holdings Co. (86 shares of common stock)    (w)   9/29/2017                  0.0%
                               0.0%
Services: Business                                  
Curion Holdings, LLC (58,779 shares of common stock)    (w)   8/17/2018                  0.0%
                               0.0%
Services: Consumer                                  
New England College of Business and Finance, LLC (20.8% of units)    (w)  6/21/2019          1,458    1,052    0.4%
                       1,458    1,052    0.4%
Total Non-Controlled Affiliate Equity Securities                      2,452    1,128    0.4%
Total Non-Controlled Affiliate Company Investments                     $70,634   $61,746    24.4%
                                   
Controlled Affiliate Company Investments (ae)                                  
Equity Securities                                  
Investment Funds & Vehicles                                  
MRCC Senior Loan Fund I, LLC (50.0% of the equity interests) (h)        10/31/2017         $42,150   $42,669    17.0%
Total Controlled Affiliate Equity Securities                      42,150    42,669    17.0%
Total Controlled Affiliate Company Investments                     $42,150   $42,669    17.0%
                                   
TOTAL INVESTMENTS                     $675,060   $657,450    260.5%

 

Derivative Instruments

 

Foreign currency forward contracts

 

   Notional Amount   Notional Amount        Unrealized Gain 
Description  to be Purchased   to be Sold   Counterparty  Settlement Date  (Loss) 
Foreign currency forward contract  $134   £105   Bannockburn Global Forex, LLC  10/1/2019  6 
Foreign currency forward contract  $295   £230   Bannockburn Global Forex, LLC  11/29/2019   12 
Foreign currency forward contract  $133   £104   Bannockburn Global Forex, LLC  1/2/2020   6 
Foreign currency forward contract  $296   £231   Bannockburn Global Forex, LLC  2/28/2020   12 
Foreign currency forward contract  $132   £103   Bannockburn Global Forex, LLC  4/1/2020   6 
Foreign currency forward contract  $130   £102   Bannockburn Global Forex, LLC  5/5/2020   5 
Foreign currency forward contract  $296   £230   Bannockburn Global Forex, LLC  5/29/2020   12 
Foreign currency forward contract  $295   £230   Bannockburn Global Forex, LLC  8/28/2020   12 
Foreign currency forward contract  $294   £229   Bannockburn Global Forex, LLC  11/30/2020   12 
                  $83 

 

 12 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2019

(in thousands, except for shares and units)

 

 

(a) All of the Company’s investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of the Company’s investments are issued by U.S. portfolio companies unless otherwise noted.
(b) The majority of the investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at September 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor, or rate cap.
(c) Except as otherwise noted, all of the Company’s portfolio company investments, which as of September 30, 2019 represented 260.5% of the Company’s net assets or 94.9% of the Company’s total assets, are subject to legal restrictions on sales.
(d) Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith using significant unobservable inputs by our board of directors as required by the Investment Company Act of 1940. (See Note 4 in the accompanying notes to the consolidated financial statements.)
(e) Percentages are based on net assets of $252,385 as of September 30, 2019.
(f) All or a portion of this commitment was unfunded at September 30, 2019. As such, interest is earned only on the funded portion of this commitment.
(g) This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.
(h) This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of September 30, 2019, non-qualifying assets totaled 17.1% of the Company’s total assets.
(i) The PIK portion of the interest rate for HFZ Capital Group, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.17% per annum.
(j) This investment represents a note convertible to preferred shares of the borrower.
(k) All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(l) This is an international company.
(m) This is a demand note with no stated maturity.
(n) This position was on non-accrual status as of September 30, 2019, meaning that the Company has ceased accruing interest income on the position. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s accounting policies.
(o) This loan is denominated in Great Britain pounds and is translated into U.S. dollars as of the valuation date.
(p) A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 3.46% per annum.
(q) A portion of this loan (principal of $17,174) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(r) The Company structures its unitranche secured loans as senior secured loans. The Company obtains security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of a portfolio company. Generally, the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan, in which case the “first out” portion of the loan will generally receive priority with respect to payments of principal, interest and any other amounts due thereunder. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and the Company’s unitranche secured loans will expose the Company to the risks associated with second lien and subordinated loans and may limit the Company’s recourse or ability to recover collateral upon a portfolio company’s bankruptcy. Unitranche secured loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Unitranche secured loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases the Company, together with its affiliates, are the sole or majority lender of these unitranche secured loans, which can afford the Company additional influence with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.
(s) A portion of this loan (principal of $9,258) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(t) A portion of this loan (principal of $525) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(u) Represents less than 5% ownership of the portfolio company’s voting securities.
(v) Ownership of certain equity investments may occur through a holding company or partnership.
(w) Represents a non-income producing security.
(x) As of September 30, 2019, the Company was party to a subscription agreement with a commitment to fund an additional equity investment of $16.
(y) As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of the portfolio company as it owns 5% or more of the portfolio company’s voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control).
(z) A portion of this loan (principal of $5,206) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(aa) A portion of the PIK interest rate for Incipio Technologies, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.22% per annum.
(ab) A portion of this loan (principal of $47) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ac) A portion of this loan (principal of $1,015) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ad) A portion of this loan (principal of $1,938) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ae) As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and to “Control” this portfolio company as it owns more than 25% in company’s voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

 13 

 

MONROE CAPITAL CORPORATION  

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
 Index (b)
  Interest
Rate
   Maturity  Principal   Amortized
Cost
   Fair
Value (c)
   % of Net
Assets (d)
 
Non-Controlled/Non-Affiliate Company Investments                               
Senior Secured Loans                               
Automotive                               
Hastings Manufacturing Company  L+8.25%   10.76%  4/24/2023   2,944   $2,891   $2,883    1.1%
Hastings Manufacturing Company (Delayed Draw) (e) (f)  L+8.25%   10.76%  4/24/2023   899            0.0%
Magneto & Diesel Acquisition, Inc.  L+5.50%   8.01%  12/18/2023   5,000    4,913    4,913    1.9%
Magneto & Diesel Acquisition, Inc. (Revolver) (e)  L+5.50%   8.01%  12/18/2023   500    83    82    0.0%
               9,343    7,887    7,878    3.0%
Banking, Finance, Insurance & Real Estate                               
Echelon Funding I, LLC (Delayed Draw) (e) (f) (g)  L+7.50%   9.85%  2/24/2021   15,750    15,253    15,146    5.9%
HFZ Capital Group, LLC (g)   L+10.17%   12.39% Cash/
0.17% PIK
(h)   10/21/2019   18,000    17,819    18,009    7.0%
HFZ Member RB Portfolio LLC (Delayed Draw) (e) (f) (g)  L+12.00%   14.54%  10/29/2021   9,000    3,708    3,706    1.4%
Liftforward SPV II, LLC (e) (g)  L+10.75%   13.27%  11/10/2020   10,000    4,088    4,132    1.6%
PKS Holdings, LLC (g)  L+10.00%   12.35%  11/30/2022   1,755    1,605    1,675    0.6%
PKS Holdings, LLC (Revolver) (e) (g)   L+10.00%   12.35%  11/30/2022   80            0.0%
               54,585    42,473    42,668    16.5%
Beverage, Food & Tobacco                               
California Pizza Kitchen, Inc.  L+6.00%   8.53%  8/23/2022   6,843    6,793    6,654    2.6%
Toojay's Management LLC  L+5.50%   8.01%  10/26/2022   3,500    3,433    3,497    1.4%
Toojay's Management LLC (Delayed Draw) (e) (f)  L+5.50%   8.01%  10/26/2022   477            0.0%
Toojay's Management LLC (Revolver) (e)  L+5.50%   8.01%  10/26/2022   159    79    79    0.0%
               10,979    10,305    10,230    4.0%
Chemicals, Plastics & Rubber                               
Midwest Composite Technologies, LLC  L+6.75%   9.26%  8/31/2023   898    881    907    0.4%
Midwest Composite Technologies, LLC (Delayed Draw) (e) (f)  L+6.75%   9.26%  8/31/2023   600            0.0%
Midwest Composite Technologies, LLC (Revolver) (e)  L+6.75%   9.26%  8/31/2023   90            0.0%
Valudor Products LLC  L+7.50%   10.01%  6/19/2023   1,604    1,575    1,600    0.6%
Valudor Products LLC (i)  L+7.50%   10.01%  6/19/2023   211    205    210    0.1%
Valudor Products LLC (Revolver) (e)  L+9.50%   12.01%  6/19/2023   818    606    607    0.2%
               4,221    3,267    3,324    1.3%
Construction & Building                               
Cali Bamboo, LLC  L+6.25%   8.76%  7/10/2020   5,264   5,231   5,264    2.0%
Cali Bamboo, LLC (Revolver) (e)  L+6.25%   8.76%  7/10/2020   2,165    1,689    1,689    0.7%
Construction Supply Acquisition, LLC  L+6.00%   8.62%  6/30/2023   4,791    4,767    4,779    1.8%
Cornerstone Detention Products, Inc. (j)   L+11.83%   11.01% Cash/
3.33% PIK
(k)   4/8/2019   3,350    3,346    3,350    1.3%
Cornerstone Detention Products, Inc. (Revolver) (e)  L+8.50%   11.01%  4/8/2019   1,000    200    200    0.1%
Inland Pipe Rehabilitation LLC  L+5.50%   8.29%  12/26/2024   12,500    12,251    12,250    4.7%
Inland Pipe Rehabilitation LLC (Revolver) (e)  L+5.50%   7.87%  12/26/2024   4,118    2,305    2,259    0.9%
               33,188    29,789    29,791    11.5%
Consumer Goods: Durable                               
Nova Wildcat Amerock, LLC  L+5.75%   8.26%  10/12/2023   9,500    9,317    9,372    3.6%
Nova Wildcat Amerock, LLC (Revolver) (e)  L+5.75%   8.26%  10/12/2023   931    292    288    0.1%
Parterre Flooring & Surface Systems, LLC (l)  L+7.25%   9.76%  8/22/2022   11,250    11,076    10,879    4.2%
Parterre Flooring & Surface Systems, LLC (Revolver)  (e)  L+7.25%   9.76%  8/22/2022   2,400    696    671    0.3%
               24,081    21,381    21,210    8.2%
Energy: Oil & Gas                               
Landpoint, LLC  L+12.75%   

13.01% Cash/

2.25% PIK

(m)   12/20/2019   2,256    2,253    2,244    0.9%
Landpoint, LLC (Revolver) (e)  L+10.50%   13.01%  12/20/2019   313    274    272    0.1%
               2,569    2,527    2,516    1.0%
Environmental Industries                               
StormTrap, LLC  L+5.50%   8.01%  12/8/2023   8,000    7,861    7,860    3.0%
StormTrap, LLC (Revolver) (e)  L+5.50%   8.01%  12/8/2023   432            0.0%
Synergy Environmental Corporation (l)  L+6.50%   9.01%  4/29/2021   2,932    2,893    2,919    1.1%
Synergy Environmental Corporation (l)  L+6.50%   9.01%  4/29/2021   490    484    488    0.2%
Synergy Environmental Corporation (Delayed Draw) (e) (f)  L+6.50%   9.01%  4/29/2021   1,320    837    834    0.3%
Synergy Environmental Corporation (Revolver) (e)  L+6.50%   9.01%  4/29/2021   671    94    94    0.0%
               13,845    12,169    12,195    4.6%
Healthcare & Pharmaceuticals                               
American Optics Holdco, Inc. (g) (n)  L+8.00%   10.51%  9/13/2022   4,076    4,012    4,127    1.6%
American Optics Holdco, Inc. (g) (n)  L+8.00%   10.51%  9/13/2022   750    738    759    0.3%
American Optics Holdco, Inc. (Revolver) (e) (g) (n)  L+8.00%   10.51%  9/13/2022   440    242    242    0.1%
American Optics Holdco, Inc. (Revolver) (e) (g) (n)  L+8.00%   10.51%  9/13/2022   440    165    165    0.1%
Familia Dental Group Holdings, LLC (l)  L+8.00%   10.51%  4/8/2021   5,053    5,011    5,083    2.0%
Familia Dental Group Holdings, LLC  L+8.00%   10.51%  4/8/2021   486    486    489    0.2%
Familia Dental Group Holdings, LLC (Revolver) (e)  L+8.00%   10.51%  4/8/2021   573    229    229    0.1%
Rockdale Blackhawk, LLC (DIP Facility)  n/a   15.10%  n/a(o)  226    226    226    0.1%
Rockdale Blackhawk, LLC (DIP Facility)  n/a   15.10%  n/a(o)  8,877    8,877    8,877    3.4%
Rockdale Blackhawk, LLC  L+13.00%   15.51%(p)  3/31/2020   10,923    10,465    8,667    3.3%
               31,844    30,451    28,864    11.2%

 

 14 

 

MONROE CAPITAL CORPORATION 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
 Index (b)
  Interest
Rate
   Maturity  Principal   Amortized
Cost
   Fair
Value (c)
   % of Net
Assets (d)
 
High Tech Industries                               
Corbett Technology Solutions, Inc. (l)  L+7.00%   9.51%  11/8/2021   4,917   4,868   4,956    1.9%
Corbett Technology Solutions, Inc. (Revolver) (e)  L+7.00%   9.51%  11/8/2021   867            0.0%
Energy Services Group, LLC  L+8.42%   10.94%  5/4/2022   4,393    4,349    4,404    1.7%
Energy Services Group, LLC (g) (q)  L+8.42%   9.42%  5/4/2022   5,046    5,186    5,033    1.9%
Energy Services Group, LLC  L+8.42%   10.94%  5/4/2022   1,250    1,235    1,253    0.5%
Host Analytics, Inc.  L+6.00%   8.51%  12/28/2023   9,500    9,310    9,310    3.6%
Host Analytics, Inc. (Revolver) (e)  L+6.00%   8.51%  12/28/2023   442            0.0%
Newforma, Inc. (l)  L+5.50%   8.31%  6/30/2022   14,813    14,649    14,961    5.8%
Newforma, Inc. (Revolver) (e)  L+5.50%   8.31%  6/30/2022   1,250            0.0%
Prototek Sheetmetal Fabrication, LLC  L+7.00%   9.51%  12/12/2022   3,465    3,408    3,451    1.3%
Prototek Sheetmetal Fabrication, LLC (Delayed Draw) (e) (f)  L+7.00%   9.51%  12/12/2022   2,329    813    809    0.3%
Prototek Sheetmetal Fabrication, LLC (Revolver) (e)  L+7.00%   9.51%  12/12/2022   233            0.0%
RPL Bidco Limited  (g) (n) (q)  L+7.50%   8.39%  11/9/2023   13,774    14,122    13,912    5.4%
RPL Bidco Limited (Delayed Draw) (e) (f) (g) (n) (q)  L+7.50%   8.39%  11/9/2023   2,041            0.0%
RPL Bidco Limited (Revolver) (e) (g) (n) (q)  L+7.50%   8.39%  11/9/2023   510            0.0%
WillowTree, LLC  L+5.50%   8.01%  10/9/2023   7,980    7,846    7,972    3.1%
WillowTree, LLC (Revolver) (e)  L+5.50%   8.01%  10/9/2023   1,000    480    479    0.2%
               73,810    66,266    66,540    25.7%
Hotels, Gaming & Leisure                               
TRG, LLC  L+12.79%   9.85% Cash/
5.29% PIK
(r)   3/31/2021   17,144    17,086    18,636    7.2%
TRG, LLC (CapEx)  L+9.50%   9.85% Cash/
2.00% PIK
   3/31/2021   1,367    1,363    1,486    0.6%
TRG, LLC (Revolver) (e)  L+9.50%   11.85%  3/31/2021   262    131    142    0.1%
               18,773    18,580    20,264    7.9%
Media: Advertising, Printing & Publishing                               
AdTheorent, Inc.  L+8.50%   10.85%  12/22/2021   4,092    4,039    4,098    1.6%
Destination Media, Inc. (l)  L+6.50%   9.01%  4/7/2022   7,366    7,289    7,421    2.9%
Destination Media, Inc. (Revolver) (e)  L+6.50%   9.01%  4/7/2022   542            0.0%
MC Sign Lessor Corp.  L+7.00%   9.35%  12/22/2022   9,925    9,760    10,024    3.9%
MC Sign Lessor Corp. (Delayed Draw) (e) (f)  L+7.00%   9.35%  12/22/2022   2,083            0.0%
MC Sign Lessor Corp. (Revolver) (e)  L+7.00%   9.35%  12/22/2022   625            0.0%
               24,633    21,088    21,543    8.4%
Retail                               
Bluestem Brands, Inc.  L+7.50%   10.03%  11/6/2020   2,436   2,426    1,575    0.6%
Forman Mills, Inc. (l)  L+9.50%   10.01% Cash/
2.00% PIK
  10/4/2021   8,362    8,261    8,149    3.1%
LuLu's Fashion Lounge, LLC  L+7.00%   9.52%  8/29/2022   4,531    4,426    4,606    1.8%
The Worth Collection, Ltd. (l)  L+8.50%   11.01%  9/29/2021   10,588    10,459    8,639    3.3%
Yandy Holding, LLC  L+11.00%   13.51%  9/30/2019   3,643    3,633    3,632    1.4%
Yandy Holding, LLC (Revolver) (e)  L+11.00%   13.51%  9/30/2019   907            0.0%
               30,467    29,205    26,601    10.2%
Services: Business                               
APCO Worldwide, Inc.  L+8.00%   10.51%  6/30/2022   4,875    4,802    4,790    2.0%
Atlas Sign Industries of FLA, LLC (l)  L+10.50%   13.01%  5/15/2023   3,500    3,305    3,336    1.3%
Burroughs, Inc. (l)  L+7.50%   9.85%  12/22/2022   5,888    5,814    5,767    2.2%
Burroughs, Inc. (Revolver) (e)  L+7.50%   9.85%  12/22/2022   1,215    975    975    0.4%
First Call Resolution, LLC (l)  L+7.00%   9.35%  9/22/2022   4,097    4,042    4,101    1.6%
First Call Resolution, LLC  L+7.00%   9.35%  9/22/2022   10,000    9,842    10,010    3.8%
IT Global Holding LLC  L+7.00%   9.51%  11/10/2023   10,500    10,294    10,421    4.0%
IT Global Holding LLC (Revolver) (e)  L+7.00%   9.51%  11/10/2023   875    263    263    0.1%
Madison Logic, Inc. (l)  L+8.00%   10.51%  11/30/2021   9,933    9,805    9,933    3.7%
Madison Logic, Inc. (Revolver) (e)  L+8.00%   10.51%  11/30/2021   988            0.0%
RedZone Robotics, Inc.  L+6.75%   9.26%  6/5/2023   946    929    868    0.3%
RedZone Robotics, Inc. (Revolver) (e)  L+6.75%   9.26%  6/5/2023   158            0.0%
TRP Construction Group, LLC (l)  L+6.50%   9.01%  10/5/2022   7,960    7,834    7,920    3.1%
TRP Construction Group, LLC (Delayed Draw) (e) (f)  L+6.50%   9.01%  10/5/2022   7,000    5,684    5,656    2.2%
TRP Construction Group, LLC (Revolver) (e)  L+6.50%   9.01%  10/5/2022   2,133            0.0%
VPS Holdings, LLC  L+7.00%   9.51%  10/4/2024   5,000    4,902    4,960    1.9%
VPS Holdings, LLC (Delayed Draw) (e) (f)  L+7.00%   9.51%  10/4/2024   4,000            0.0%
VPS Holdings, LLC (Revolver) (e)  L+7.00%   9.51%  10/4/2024   1,000    100    100    0.0%
               80,068    68,591    69,100    26.6%
Services: Consumer                               
Mammoth Holdings, LLC  L+6.00%   8.44%  10/16/2023   2,000    1,961    1,997    0.8%
Mammoth Holdings, LLC (Delayed Draw) (e) (f)  L+6.00%   8.44%  10/16/2023   4,167            0.0%
Mammoth Holdings, LLC (Revolver) (e)  L+6.00%   8.44%  10/16/2023   500            0.0%
PeopleConnect Intermediate, LLC  L+6.50%   9.30%  7/1/2020   4,272    4,239    4,253    1.6%
PeopleConnect Intermediate, LLC  L+12.50%   15.30%  7/1/2020   4,636    4,597    4,603    1.8%
PeopleConnect Intermediate, LLC (Revolver) (e)  L+9.50%   12.30%  7/1/2020   236    118    118    0.0%
               15,811    10,915    10,971    4.2%

 

 15 

 

MONROE CAPITAL CORPORATION 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)  Spread
Above
 Index (b)
  Interest
Rate
   Maturity  Principal   Amortized
Cost
   Fair
Value (c)
   % of Net
Assets (d)
 
Wholesale                               
Mid-West Wholesale Hardware Co. (l)  L+8.00%   10.51%  2/9/2022   16,402   $16,173   $16,312    6.3%
Mid-West Wholesale Hardware Co. (Revolver) (e)  L+8.00%   10.51%  2/9/2022   4,421    3,789    3,767    1.5%
Nearly Natural, Inc. (l)  L+7.00%   9.81%  12/15/2022   6,930    6,816    6,906    2.7%
Nearly Natural, Inc. (Revolver) (e)  L+7.00%   9.81%  12/15/2022   1,522    609    609    0.2%
               29,275    27,387    27,594    10.7%
Total Non-Controlled/Non-Affiliate Senior Secured Loans      457,492    402,281    401,289    155.0%
                                
Unitranche Secured Loans (s)                               
Chemicals, Plastics & Rubber                               
MFG Chemical, LLC (l)  L+6.00%   8.51%  6/23/2022   10,477    10,359    10,319    4.0%
MFG Chemical, LLC  L+6.00%   8.51%  6/23/2022   1,132    1,132    1,115    0.4%
               11,609    11,491    11,434    4.4%
Consumer Goods: Durable                               
RugsUSA, LLC  L+6.50%   9.31%  4/28/2023   4,000    3,964    4,002    1.5%
               4,000    3,964    4,002    1.5%
Healthcare & Pharmaceuticals                               
Collaborative Neuroscience Network, LLC  L+11.50%   14.01%  n/a(o)   6,120    6,096    5,894    2.3%
Collaborative Neuroscience Network, LLC  n/a   12.00% Cash/
3.00% PIK
   n/a(o)   304    304    304    0.1%
Collaborative Neuroscience Network, LLC (Revolver)  L+10.00%   12.51%  n/a(o)   200    193    200    0.1%
Priority Ambulance, LLC (t)  L+6.50%   9.31%  4/12/2022   10,015    10,015    9,905    3.8%
Priority Ambulance, LLC (u)  L+6.50%   9.31%  4/12/2022   1,253    1,226    1,240    0.5%
Priority Ambulance, LLC (Delayed Draw) (e) (f)  L+6.50%   9.31%  4/12/2022   246            0.0%
Priority Ambulance, LLC (Delayed Draw) (e) (f)  L+6.50%   9.31%  4/12/2022   2,485            0.0%
               20,623    17,834    17,543    6.8%
High Tech Industries                               
Mnine Holdings, Inc.  L+6.75%   9.31%  11/2/2023   8,000    7,843    7,952    3.1%
               8,000    7,843    7,952    3.1%
Total Non-Controlled/Non-Affiliate Unitranche Secured Loans   44,232    41,132    40,931    15.8%
                                
Junior Secured Loans                               
Beverage, Food & Tobacco                               
CSM Bakery Supplies, LLC  L+7.75%   10.16%  7/5/2021   5,792    5,792    5,314    2.1%
               5,792    5,792    5,314    2.1%
High Tech Industries                               
Micro Holdings Corp.  L+7.50%   10.00%  8/18/2025   3,000    2,972    2,805    1.1%
               3,000    2,972    2,805    1.1%
Media: Broadcasting & Subscription                                 
Mergermarket Bidco Limited  L+7.25%    9.76%    8/4/2025   4,500   4,458    4,483    1.7%
                 4,500    4,458    4,483    1.7%
Media: Diversified & Production                                 
The Octave Music Group, Inc.  L+8.25%    10.63%    5/27/2022   5,000    4,957    5,000    1.9%
                 5,000    4,957    5,000    1.9%
Services: Consumer                                 
Education Corporation of America  L+11.00%    8.31% Cash/
5.50% PIK
(p)    3/31/2020   2,292    2,288    2,292    0.9%
                 2,292    2,288    2,292    0.9%
Total Non-Controlled/Non-Affiliate Junior Secured Loans   20,584    20,467    19,894    7.7%
                                  
Equity Securities  (v) (w)                                 
Banking, Finance, Insurance & Real Estate                                 
PKS Holdings, LLC (warrant to purchase up to 0.8% of the equity) (g)      (x)    11/30/2027       116    18    0.0%
                      116    18    0.0%
Chemicals, Plastics & Rubber                                 
Valudor Products, LLC (501,014 class A-1 units)   n/a     10.00% PIK           501    213    0.1%
                      501    213    0.1%
Healthcare & Pharmaceuticals                                 
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.5% of the equity)      (x)    12/27/2022           115    0.0%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 2.1% of the equity)      (x)    12/31/2027               0.0%
                          115    0.0%
High Tech Industries                                 
Answers Finance, LLC (76,539 shares of common stock)      (x)           2,413    215    0.1%
Host Analytics, Inc. (441,860 class A Units)      (x)           442    442    0.2%
                      2,855    657    0.3%
Hotels, Gaming & Leisure                                 
Playtime, LLC - Preferred Units (8,665 units)      (x)           200        0.0%
                      200        0.0%

 

 16 

 

MONROE CAPITAL CORPORATION 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units) 

 

Portfolio Company (a)  Spread
Above
 Index (b)
    Interest
Rate
    Maturity  Principal   Amortized
Cost
   Fair
Value (c)
   % of Net
Assets (d)
 
Media: Advertising, Printing & Publishing                                 
AdTheorent, Inc. (128,866 class A voting units)      (x)          $129   $156    0.1%
InMobi Pte, Ltd. (warrant to purchase up to 2.8% of the equity) (g) (n)      (x)    9/18/2025           209    0.1%
                      129    365    0.2%
Retail                                 
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)                 87    109    0.0%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units)                         0.0%
                      87    109    0.0
Services: Business                                 
APCO Worldwide, Inc. (100 shares class A voting common stock)      (x)           395    317    0.1%
Atlas Sign Industries of FLA, LLC (warrants to purchase up to 0.8% of the equity)      (x)    5/14/2026       125    83    0.0%
                      520    400    0.1%
Services: Consumer                                 
Education Corporation of America - Series G Preferred Stock (8,333 shares)   n/a    12.00% PIK(p)           7,492    4,583    1.8%
                      7,492    4,583    1.8%
Wholesale                                 
Nearly Natural, Inc. (152,174 class A units)      (x)           152    146    0.1%
                      152    146    0.1%
Total Non-Controlled/Non-Affiliate Equity Securities        12,052    6,606    2.6%
Total Non-Controlled/Non-Affiliate Company Investments       $475,932   $468,720    181.1%
                                  
Non-Controlled Affiliate Company Investments (y)                    
Senior Secured Loans                                 
Banking, Finance, Insurance & Real Estate                    
American Community Homes, Inc.  L+10.00%    12.51% PIK    7/22/2019   7,797   $7,770   $6,596    2.5%
American Community Homes, Inc.  L+14.50%    17.01% PIK    7/22/2019   4,725    4,711    3,997    1.5%
American Community Homes, Inc.  L+10.00%    12.51% PIK    7/22/2019   590    587    499    0.2%
American Community Homes, Inc.  L+10.00%    12.51% PIK    7/22/2019   473    469    400    0.2%
American Community Homes, Inc.  L+14.50%    17.01% PIK    7/22/2019   254    252    215    0.1%
American Community Homes, Inc.  L+8.00%    10.51% PIK    7/22/2019   1,710    1,710    1,446    0.6%
                 15,549    15,499    13,153    5.1%
Containers, Packaging & Glass                                 
Summit Container Corporation (l)  L+8.00%    10.51   1/6/2021   3,259    3,269    3,034    1.2%
Summit Container Corporation (Revolver) (e) (l)  L+8.00%    10.51   1/6/2021   8,000    6,714    6,660    2.5%
                 11,259    9,983    9,694    3.7%
Healthcare & Pharmaceuticals                                 
SHI Holdings, Inc. (l)  L+10.25%    12.76   7/10/2019   2,598    2,592    2,598    1.0%
SHI Holdings, Inc. (Revolver) (e)   L+10.25%    12.76   7/10/2019   4,227    3,339    3,342    1.3%
                 6,825    5,931    5,940    2.3%
Retail                                 
Luxury Optical Holdings Co.  L+8.00%    10.51% PIK    9/12/2019   4,698    4,684    4,334    1.7%
Luxury Optical Holdings Co. (Delayed Draw) (e) (f)  L+11.50%    14.01   9/12/2019   1,059    624    622    0.2%
Luxury Optical Holdings Co. (Revolver)  L+8.00%    10.51% PIK    9/12/2019   217    217    200    0.1%
                 5,974    5,525    5,156    2.0%
Services: Business                                                
Curion Holdings, LLC (l)    n/a     4.00% Cash/
10.00% PIK
    5/2/2022     3,953       3,912       3,592       1.4 %
Curion Holdings, LLC (Revolver) (e)    n/a     14.00   5/2/2022     308       250       244       0.1 %
                      4,261       4,162       3,836       1.5 %
Total Non-Controlled Affiliate Senior Secured Loans     43,868       41,100       37,779       14.6 %
                                                 
Unitranche Secured Loans (s)                                                
Consumer Goods: Non-Durable                                                
Incipio, LLC (z)   L+9.06%     11.01% Cash/
0.56% PIK
(aa)    7/1/2019     13,803       13,749       12,830       5.0 %
Incipio, LLC (ab)   L+8.50%     11.01 %    7/1/2019     3,613       3,613       3,573       1.4 %
Incipio, LLC   L+8.50%     11.01 %    7/1/2019     1,535       1,535       1,518       0.6 %
                      18,951       18,897       17,921       7.0 %
Total Non-Controlled Affiliate Unitranche Secured Loans   18,951       18,897       17,921       7.0 %
                                                 
Junior Secured Loans                                                
Consumer Goods: Non-Durable                                                
Incipio, LLC (ac)   n/a     10.70% PIK (p)    12/31/2020     3,766             1,260       0.4 %
Incipio, LLC (ad)   n/a     10.70% PIK (p)    12/31/2020     7,194                   0.0 %
                      10,960             1,260       0.4 %
Services: Business                                                
Curion Holdings, LLC (l)   n/a     15.00% PIK (p)    1/2/2023     1,720       1             0.0 %
Curion Holdings, LLC (l)   n/a     15.00% PIK (p)    1/2/2023     44                   0.0 %
                      1,764       1             0.0 %
Total Non-Controlled Affiliate Company Junior Secured Loans   12,724       1       1,260       0.4 %
                                                 

 17 

 

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units) 

 

Portfolio Company (a)  Spread
Above
 Index (b)
  Interest
Rate
   Maturity  Principal   Amortized
Cost
   Fair
Value (c)
   % of Net
Assets (d)
 
Equity Securities (w) (y)                                                
Banking, Finance, Insurance & Real Estate                                
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)       (x)    12/18/2024         $     $       0.0 %
                                          0.0 %
Consumer Goods: Non-Durable                                                
Incipio, LLC (1,774 shares of series C common units)       (x)                          0.0 %
Millennial Brands LLC (10 preferred units)       (x)              967             0.0 %
Millennial Brands LLC (75,502 common units)       (x)                          0.0 %
                              967             0.0
Containers, Packaging & Glass                                                
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)       (x)    1/6/2024                       0.0 %
                                          0.0
Healthcare & Pharmaceuticals                               
SHI Holdings, Inc. (24 shares of common stock)     (x)          27    307    0.1%
                    27    307    0.1%
Retail                               
Luxury Optical Holdings Co. (86 shares of common stock)     (x)                  0.0%
                            0.0%
Services: Business                               
Curion Holdings, LLC (58,779 shares of common stock)     (x)                  0.0%
                            0.0%
Total Non-Controlled Affiliate Equity Securities        994    307    0.1%
Total Non-Controlled Affiliate Company Investments       $60,992   $57,267    22.1%
                                
Controlled Affiliate Company Investments (ae)                               
Equity Securities                               
Investment Funds & Vehicles                               
MRCC Senior Loan Fund I, LLC (50.0% of the equity interests) (g)              $27,200   $27,634    10.7%
Total Controlled Affiliate Equity Securities        27,200    27,634    10.7%
Total Controlled Affiliate Company Investments       $27,200   $27,634    10.7%
                                
TOTAL INVESTMENTS                  $564,124   $553,621    213.9%

  

Derivative Instruments

 

Foreign currency forward contracts       
                   
   Notional Amount   Notional Amount         Unrealized Gain 
Description  to be Purchased   to be Sold   Counterparty  Settlement Date  (Loss) 
Foreign currency forward contract  $137   £107   Bannockburn Global Forex, LLC  1/2/2019  $1 
Foreign currency forward contract  $292   £228   Bannockburn Global Forex, LLC  2/28/2019  1 
Foreign currency forward contract  $136   £106   Bannockburn Global Forex, LLC  4/1/2019  1 
Foreign currency forward contract  $293   £229   Bannockburn Global Forex, LLC  5/31/2019  1 
Foreign currency forward contract  $136   £106   Bannockburn Global Forex, LLC  7/1/2019  1 
Foreign currency forward contract  $294   £230   Bannockburn Global Forex, LLC  8/30/2019  1 
Foreign currency forward contract  $134   £105   Bannockburn Global Forex, LLC  10/1/2019  1 
Foreign currency forward contract  $295   £230   Bannockburn Global Forex, LLC  11/29/2019  1 
Foreign currency forward contract  $133   £104   Bannockburn Global Forex, LLC  1/2/2020  1 
Foreign currency forward contract  $296   £231   Bannockburn Global Forex, LLC  2/28/2020  1 
Foreign currency forward contract  $132   £103   Bannockburn Global Forex, LLC  4/1/2020  1 
Foreign currency forward contract  $130   £102   Bannockburn Global Forex, LLC  5/5/2020  1 
Foreign currency forward contract  $296   £230   Bannockburn Global Forex, LLC  5/29/2020  1 
Foreign currency forward contract  $295   £230   Bannockburn Global Forex, LLC  8/28/2020  1 
Foreign currency forward contract  $294   £229   Bannockburn Global Forex, LLC  11/30/2020  2 
                   16 

 

 18 

 

MONROE CAPITAL CORPORATION 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

 

(a)All of the Company’s investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of the Company’s investments are issued by U.S. portfolio companies unless otherwise noted.
(b)The majority of the investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor, or rate cap.
(c)Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith using significant unobservable inputs by our board of directors as required by the Investment Company Act of 1940. (See Note 4 in the accompanying notes to the consolidated financial statements.)
(d)Percentages are based on net assets of $258,767 as of December 31, 2018.
(e)All or a portion of this commitment was unfunded at December 31, 2018. As such, interest is earned only on the funded portion of this commitment.
(f)This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.
(g)This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2018, non-qualifying assets totaled 16.36% of the Company’s total assets.
(h)The PIK portion of the interest rate for HFZ Capital Group, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.17% per annum.
(i)This investment represents a note convertible to preferred shares of the borrower.
(j)A portion of this loan (principal of $2,010) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(k)A portion of the PIK interest rate for Cornerstone Detention Products, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 2.33% per annum.
(l)All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(m)The PIK portion of the interest rate for Landpoint, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 2.25% per annum.
(n)This is an international company.
(o)This is a demand note with no stated maturity.
(p)This position was on non-accrual status as of December 31, 2018, meaning that the Company has ceased accruing interest income on the position. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s accounting policies.
(q)This loan is denominated in Great Britain pounds and is translated into U.S. dollars as of the valuation date.
(r)A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 3.29% per annum.
(s)The Company structures its unitranche secured loans as senior secured loans. The Company obtains security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of a portfolio company. Generally, the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan, in which case the “first out” portion of the loan will generally receive priority with respect to payments of principal, interest and any other amounts due thereunder. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and the Company’s unitranche secured loans will expose the Company to the risks associated with second lien and subordinated loans and may limit the Company’s recourse or ability to recover collateral upon a portfolio company’s bankruptcy. Unitranche secured loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Unitranche secured loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases the Company, together with its affiliates, are the sole or majority lender of these unitranche secured loans, which can afford the Company additional influence with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.
(t)A portion of this loan (principal of $9,258) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(u)A portion of this loan (principal of $525) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.

(v)Represents less than 5% ownership of the portfolio company’s voting securities.
(w)Ownership of certain equity investments may occur through a holding company or partnership.
(x)Represents a non-income producing security.
(y)As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of the portfolio company as it owns five percent or more of the portfolio company’s voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control).
(z)A portion of this loan (principal of $5,061) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(aa)The PIK portion of the interest rate for Incipio Technologies, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.56% per annum.
(ab)A portion of this loan (principal of $46) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ac)A portion of this loan (principal of $1,015) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ad)A portion of this loan (principal of $1,938) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP, and is therefore not collateral to the Company’s revolving credit facility.
(ae)As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” of and to “Control” this portfolio company as it owns more than 25% in company’s voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

 

 19 

 

MONROE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in thousands, except share and per share data)

 

Note 1. Organization and Principal Business

 

Monroe Capital Corporation (together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company and has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through investment in senior secured, junior secured and unitranche secured (a combination of senior secured and junior secured debt in the same facility in which the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan) debt and, to a lesser extent, unsecured subordinated debt and equity investments. The Company is managed by Monroe Capital BDC Advisors, LLC (“MC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. In addition, for U.S. federal income tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

On February 28, 2014, the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (“MRCC SBIC”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. See Note 7 for additional information.

 

On September 12, 2018, the Company closed a public offering of $69,000 in aggregate principal amount of senior unsecured notes (“2023 Notes”). On March 20, 2019, the Company completed a registered direct offering of $40,000 in additional aggregate principal amount of the 2023 Notes. See Note 7 for additional information.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 - Financial Services - Investment Companies (“ASC Topic 946”). Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Use of Estimates

 

The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Consolidation

 

As permitted under ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries, MRCC SBIC and its wholly-owned general partner MCC SBIC GP, LLC, MRCC Holding Company I, LLC, MRCC Holding Company II, LLC, MRCC Holding Company III, LLC, and MRCC Holding Company IV, LLC, in its consolidated financial statements. All intercompany balances and transactions have been eliminated. The Company does not consolidate its non-controlling interest in MRCC Senior Loan Fund I, LLC (“SLF”). See further description of the Company’s investment in SLF in Note 3.

 

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Fair Value of Financial Instruments

 

The Company applies fair value to substantially all of its financial instruments in accordance with ASC Topic 820 - Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 for further discussion regarding the fair value measurements and hierarchy.

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments.

 

Revenue Recognition

 

The Company’s revenue recognition policies are as follows:

 

Investments and related investment income: Interest and dividend income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments. Interest is accrued on a daily basis. The Company records fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three and nine months ended September 30, 2019, the Company received return of capital distributions from its equity investments of $69 and $69, respectively. For the three and nine months ended September 30, 2018, the Company received return of capital distributions from its equity investments of zero and $9,500, respectively.

 

The Company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. The Company stops accruing PIK interest or PIK dividend when it is determined that PIK interest or PIK dividend is no longer collectible. To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to stockholders in the form of distributions, even though the Company has not yet collected the cash. 

 

Loan origination fees, original issue discount and market discount or premiums are capitalized, and the Company then amortizes such amounts using the effective interest method as interest income over the life of the investment. Unamortized discounts and loan origination fees totaled $5,380 and $5,172 as of September 30, 2019 and December 31, 2018, respectively. Upfront loan origination and closing fees received for the three and nine months ended September 30, 2019 totaled $883 and $2,683, respectively. Upfront loan origination and closing fees received for the three and nine months ended September 30, 2018 totaled $381 and $1,320, respectively. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income.

 

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The components of the Company’s investment income were as follows:

 

   Three months ended September 30, 
   2019   2018 
Interest income  $13,960   $11,289 
PIK interest income   1,621    733 
Dividend income (1)   1,113    838 
Fee income   57    188 
Prepayment gain (loss)   218    450 
Accretion of discounts and amortization of premium   361    281 
Total investment income  $17,330   $13,779 

 

   Nine months ended September 30, 
   2019   2018 
Interest income  $41,200   $35,962 
PIK interest income   3,936    1,389 
Dividend income (2)   2,784    1,888 
Fee income   686    1,578 
Prepayment gain (loss)   422    895 
Accretion of discounts and amortization of premium   1,180    1,837 
Total investment income  $50,208   $43,549 

 

 

 

(1) Includes PIK dividends of $13 and $288, respectively.
(2) Includes PIK dividends of $39 and $813, respectively.

 

Investment transactions are recorded on a trade-date basis. Realized gains or losses on portfolio investments are calculated based upon the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains or losses previously recognized. Realized gains and losses are recorded within net realized gain (loss) on the consolidated statements of operations. Changes in the fair value of investments from the prior period, as determined by the Company’s board of directors (the “Board”) through the application of the Company’s valuation policy, are included within net change in unrealized gain (loss) on the consolidated statements of operations.

 

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Non-accrual: Loans or preferred equity securities are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal, interest, or dividends are paid, and, in management’s judgment are likely to remain current. The fair value of the Company’s investments on non-accrual status totaled $30,675 and $16,802 at September 30, 2019 and December 31, 2018, respectively.

 

Partial loan sales: The Company follows the guidance in ASC Topic 860 - Transfers and Servicing (“ASC Topic 860”), when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the Company’s consolidated statements of assets and liabilities and the proceeds are recorded as a secured borrowing in the liabilities section of the consolidated statements of assets and liabilities until the definition of a sale is met. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” on the accompanying consolidated statements of operations. Changes in the fair value of secured borrowings from the prior period, as determined by the Board through the application of the Company’s valuation policy, are included as changes in unrealized gain (loss) on secured borrowings on the consolidated statements of operations. There were no partial loan sales for the periods reported.

 

Distributions

 

Distributions to common stockholders are recorded on the record date. The amount, if any, to be distributed is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed at least annually.

 

The determination of the tax attributes for the Company’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and capital gains, but may also include qualified dividends or return of capital.

 

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. See Note 9 for additional information on the Company’s distributions.

 

Earnings per Share

 

In accordance with the provisions of ASC Topic 260 - Earnings per Share (“ASC Topic 260”), basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. The weighted average shares outstanding utilized in the calculation of earnings per share take into account share issues on the issuance date and the Company’s repurchases of its common stock on the repurchase date. See Note 10 for additional information on the Company’s share activity. For the periods presented in these consolidated financial statements, there were no potentially dilutive common shares issued.

 

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Segments

 

In accordance with ASC Topic 280 - Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

 

Cash

 

The Company deposits its cash in a financial institution and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

 

Restricted Cash

 

Restricted cash includes amounts held within MRCC SBIC. Cash held within an SBIC is generally restricted to the originations of new loans from the SBIC and the payment of SBA debentures and related interest expense.

 

Unamortized Deferred Financing Costs

 

Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. As of September 30, 2019 and December 31, 2018, the Company had unamortized deferred financing costs of $8,504 and $6,262, respectively, presented as a direct reduction of the carrying amount of debt on the consolidated statements of assets and liabilities. These amounts are amortized and included in interest and other debt financing expenses on the consolidated statements of operations over the estimated average life of the borrowings. Amortization of deferred financing costs for the three and nine months ended September 30, 2019 was $473 and $1,374, respectively. Amortization of deferred financing costs for the three and nine months ended September 30, 2018 was $355 and $951, respectively.

 

Offering Costs

 

Offering costs include, among other things, fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of debt and equity offerings. Offering costs from equity offerings are charged against the proceeds from the offering within the consolidated statements of changes in net assets. Offering costs from debt offerings are reclassified to unamortized deferred financing costs on the consolidated statements of assets and liabilities as noted above. As of September 30, 2019 and December 31, 2018, other assets on the consolidated statements of assets and liabilities included $306 and $328, respectively, of deferred offering costs which will be charged against the proceeds from future debt or equity offerings when completed.

 

Investments Denominated in Foreign Currency

 

As of both September 30, 2019 and December 31, 2018, the Company held investments in two portfolio companies that were denominated in Great Britain pounds.

 

At each balance sheet date, portfolio company investments denominated in foreign currencies are translated into U.S. dollars using the spot exchange rate on the last business day of the period. Purchases and sales of foreign portfolio company investments, and any income from such investments, are translated into U.S. dollars using the rates of exchange prevailing on the respective dates of such transactions.

 

Although the fair values of foreign portfolio company investments and the fluctuation in such fair values are translated into U.S. dollars using the applicable foreign exchange rates described above, the Company does not isolate the portion of the change in fair value resulting from foreign currency exchange rates fluctuations from the change in fair value of the underlying investment. All fluctuations in fair value are included in net change in unrealized gain (loss) on the Company’s consolidated statements of operations.

 

Investments denominated in foreign currencies and foreign currency transactions may involve certain consideration and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

 

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Derivative Instruments

 

The Company may enter into foreign currency forward contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations. In a foreign currency forward contract, the Company agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Foreign currency forward contracts are marked-to-market based on the difference between the forward rate and the exchange rate at the current period end. Unrealized gain (loss) on foreign currency forward contracts are recorded on the Company’s consolidated statements of assets and liabilities by counterparty on a net basis.

 

The Company does not utilize hedge accounting and as such values its foreign currency forward contracts at fair value with the change in unrealized gain or loss recorded in net change in unrealized gain (loss) from foreign currency forward contracts and the realized gain or loss recorded in net realized gain (loss) from foreign currency forward contracts on the Company’s consolidated statements of operations.

 

Income Taxes

 

The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment available to RICs. To maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to stockholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate-level federal income taxes on any income that the Company distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company is also subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. To the extent that the Company determines that its estimated current year annual taxable income may exceed estimated current year dividend distributions, the Company accrues excise tax, calculated as 4% of the estimated excess taxable income, if any, as taxable income is earned. For the three and nine months ended September 30, 2019, zero and $10, respectively, were recorded on the consolidated statements of operations for U.S. federal excise taxes. For the three and nine months ended September 30, 2018, zero and $11, respectively, were recorded on the consolidated statements of operations for U.S. federal excise taxes. As of September 30, 2019 and December 31, 2018, payables for excise taxes of $23 and zero, respectively, were included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities.

 

 The Company accounts for income taxes in conformity with ASC Topic 740 - Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through September 30, 2019. The 2015 through 2018 tax years remain subject to examination by U.S. federal and state tax authorities.

 

Subsequent Events

 

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the nine months ended September 30, 2019.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary objective of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements in the notes to the financial statements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

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Note 3. Investments

 

The following tables show the composition of the investment portfolio, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

 

   September 30, 2019   December 31, 2018 
Amortized Cost:                    
Senior secured loans  $525,423    77.8%  $443,381    78.6%
Unitranche secured loans   77,919    11.5    60,029    10.7 
Junior secured loans   13,921    2.1    20,468    3.6 
LLC equity interest in SLF   42,150    6.3    27,200    4.8 
Equity securities   15,647    2.3    13,046    2.3 
Total  $675,060    100.0%  $564,124    100.0%

 

   September 30, 2019   December 31, 2018 
Fair Value:                    
Senior secured loans  $514,353    78.2%  $439,068    79.3%
Unitranche secured loans   76,766    11.7    58,852    10.6 
Junior secured loans   13,965    2.1    21,154    3.8 
LLC equity interest in SLF   42,669    6.5    27,634    5.0 
Equity securities   9,697    1.5    6,913    1.3 
Total  $657,450    100.0%  $553,621    100.0%

 

The following tables show the composition of the investment portfolio by geographic region, at amortized cost and fair value (with corresponding percentage of total portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business:

 

   September 30, 2019   December 31, 2018 
Amortized Cost:                    
International  $19,878    2.9%  $19,279    3.4%
Midwest   162,905    24.1    127,364    22.6 
Northeast   152,562    22.6    129,417    22.9 
Southeast   151,078    22.4    121,312    21.5 
Southwest   61,776    9.2    52,272    9.3 
West   126,861    18.8    114,480    20.3 
Total  $675,060    100.0%  $564,124    100.0%

 

   September 30, 2019   December 31, 2018 
Fair Value:                    
International  $19,058    2.9%  $19,205    3.5%
Midwest   157,318    23.9    124,667    22.5 
Northeast   147,923    22.5    127,607    23.0 
Southeast   149,034    22.7    118,161    21.3 
Southwest   60,472    9.2    50,657    9.2 
West   123,645    18.8    113,324    20.5 
Total  $657,450    100.0%  $553,621    100.0%

 

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The following tables show the composition of the investment portfolio by industry, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

 

   September 30, 2019   December 31, 2018 
Amortized Cost:                    
Automotive  $7,816    1.2%  $7,887    1.4%
Banking, Finance, Insurance & Real Estate   73,711    10.9    58,088    10.3 
Beverage, Food & Tobacco   16,753    2.5    16,097    2.9 
Chemicals, Plastics & Rubber   15,037    2.2    15,259    2.7 
Construction & Building   34,895    5.2    29,789    5.3 
Consumer Goods: Durable   22,340    3.3    25,345    4.5 
Consumer Goods: Non-Durable   23,076    3.4    19,864    3.5 
Containers, Packaging & Glass   8,103    1.2    9,983    1.8 
Energy: Oil & Gas   6,170    0.9    2,527    0.4 
Environmental Industries   12,459    1.9    12,169    2.2 
Healthcare & Pharmaceuticals   53,660    8.0    54,243    9.6 
High Tech Industries   90,019    13.3    79,936    14.2 
Hotels, Gaming & Leisure   18,787    2.8    18,780    3.3 
Investment Funds & Vehicles   42,150    6.2    27,200    4.8 
Media: Advertising, Printing & Publishing   25,892    3.8    21,217    3.8 
Media: Broadcasting & Subscription   1,213    0.2    4,458    0.8 
Media: Diversified & Production   10,521    1.6    4,957    0.9 
Retail   34,497    5.1    34,817    6.1 
Services: Business   121,703    18.0    73,274    13.0 
Services: Consumer   24,300    3.6    20,695    3.6 
Wholesale   31,958    4.7    27,539    4.9 
Total  $675,060    100.0%  $564,124    100.0%

 

   September 30, 2019   December 31, 2018 
Fair Value:                    
Automotive  $7,712    1.2%  $7,878    1.4%
Banking, Finance, Insurance & Real Estate   69,213    10.5    55,839    10.1 
Beverage, Food & Tobacco   15,741    2.4    15,544    2.8 
Chemicals, Plastics & Rubber   14,610    2.2    14,971    2.7 
Construction & Building   35,363    5.4    29,791    5.4 
Consumer Goods: Durable   22,179    3.4    25,212    4.5 
Consumer Goods: Non-Durable   21,637    3.3    19,181    3.5 
Containers, Packaging & Glass   7,842    1.2    9,694    1.8 
Energy: Oil & Gas   6,205    0.9    2,516    0.4 
Environmental Industries   12,533    1.9    12,195    2.2 
Healthcare & Pharmaceuticals   51,400    7.8    52,769    9.5 
High Tech Industries   87,332    13.3    77,954    14.1 
Hotels, Gaming & Leisure   19,906    3.0    20,264    3.7 
Investment Funds & Vehicles   42,669    6.5    27,634    5.0 
Media: Advertising, Printing & Publishing   26,654    4.1    21,908    4.0 
Media: Broadcasting & Subscription   1,219    0.2    4,483    0.8 
Media: Diversified & Production   10,680    1.6    5,000    0.9 
Retail   28,958    4.4    31,866    5.8 
Services: Business   121,821    18.5    73,336    13.2 
Services: Consumer   21,561    3.3    17,846    3.2 
Wholesale   32,215    4.9    27,740    5.0 
Total  $657,450    100.0%  $553,621    100.0%

 

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MRCC Senior Loan Fund I, LLC

 

The Company co-invests with NLV Financial Corporation (“NLV”) in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as underlying investment transactions are completed, taking into account available debt and equity commitments available for funding these investments. All portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee, consisting of one representative from the Company and one representative from NLV. SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business. Investments held by SLF are measured at fair value using the same valuation methodologies as described in Note 4. The Company’s investment is illiquid in nature as SLF does not allow for withdrawal from the LLC or the sale of a member’s interest unless approved by the board members of SLF. The full withdrawal of a member would result in an orderly wind-down of SLF.

 

SLF’s profits and losses are allocated to the Company and NLV in accordance with their respective ownership interests. As of both September 30, 2019 and December 31, 2018, the Company and NLV each owned 50.0% of the LLC equity interests of SLF. As of September 30, 2019, SLF had $100,000 in equity commitments from its members (in the aggregate), of which $84,300 was funded. As of December 31, 2018, SLF had $100,000 in commitments from its members (in the aggregate), of which $54,400 was funded.

 

As of both September 30, 2019 and December 31, 2018, the Company had committed to fund $50,000 of LLC equity interest subscriptions to SLF. As of September 30, 2019 and December 31, 2018, $42,150 and $27,200 of the Company’s LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall, respectively.

 

For the three and nine months ended September 30, 2019, the Company received dividend income of $1,100 and $2,745 from its LLC equity interest in SLF, respectively. For the three and nine months ended September 30, 2018, the Company received dividend income of $550 and $1,075 from its LLC equity interest in SLF, respectively.

 

SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Capital One, N.A., through its wholly-owned subsidiary MRCC Senior Loan Fund I Financing SPV, LLC (“SLF SPV”), which as of September 30, 2019 allowed SLF SPV to borrow up to $170,000 at any one time, subject to leverage and borrowing base restrictions. On January 9, 2019, the SLF SPV closed a $20,000 upsize to the SLF Credit Facility, bringing the maximum amount the SLF SPV is able to borrow up to the now current $170,000. Borrowings under the SLF Credit Facility bear interest at an annual rate of LIBOR (three-month) plus 2.25%. The maturity date on the SLF Credit Facility is March 22, 2023.

 

SLF does not pay any fees to MC Advisors or its affiliates; however, SLF has entered into an administration agreement with Monroe Capital Management Advisors, LLC (“MC Management”), pursuant to which certain loan servicing and administrative functions are delegated to MC Management. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. For the three and nine months ended September 30, 2019, SLF incurred $51 and $144, respectively, of allocable expenses. For the three and nine months ended September 30, 2018, SLF incurred $29 and $29, respectively, of allocable expenses. There are no agreements or understandings by which the Company guarantees any SLF obligations.

 

As of September 30, 2019 and December 31, 2018, SLF had total assets at fair value of $244,842 and $177,122, respectively. As of both September 30, 2019 and December 31, 2018, SLF had zero portfolio company investments on non-accrual status. The portfolio companies in SLF are in industries and geographies similar to those in which the Company may invest directly. Additionally, as of September 30, 2019 and December 31, 2018, SLF had $5,450 and $5,466, respectively, in outstanding commitments to fund investments under undrawn revolvers and delayed draw commitments.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual investments in SLF’s portfolio as of September 30, 2019 and December 31, 2018:

 

   As of 
   September 30, 2019   December 31, 2018 
Senior secured loans (1)   239,971    174,267 
Weighted average current interest rate on senior secured loans (2)   7.2%   7.6%
Number of borrowers in SLF   64    50 
Largest portfolio company investment (1)   6,878    6,930 
Total of five largest portfolio company investments (1)   28,765    27,489 

 

 

 

(1) Represents outstanding principal amount, excluding unfunded commitments.
(2) Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at outstanding principal amount.

 

 28 

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

September 30, 2019

(in thousands)

 

Portfolio Company (a)  Spread
Above
Index (b)
  Interest
Rate (b)
   Maturity  Principal   Fair
Value
 
Non-Controlled/Non-Affiliate Company Investments                     
Senior Secured Loans                     
Aerospace & Defense                     
IMIA Holdings, Inc.  L+4.50%   6.60%  10/28/2024   4,287   $4,307 
IMIA Holdings, Inc. (Revolver) (c)  L+4.50%   6.60%  10/28/2024   680     
MAG Aerospace Industries, Inc.  L+4.75%   6.79%  6/6/2025   3,259    3,242 
Novaria Holdings, LLC  L+4.75%   6.79%  12/19/2024   4,301    4,301 
Trident Maritime SH, Inc.  L+5.50%   7.60%  6/4/2024   4,435    4,386 
Trident Maritime SH, Inc. (Revolver) (c)  L+5.50%   7.60%  6/4/2024   340     
               17,302    16,236 
Automotive                     
Innovative Aftermarkets Systems  L+5.50%   7.54%  1/25/2021   1,920    1,918 
Wheel Pros, LLC  L+4.75%   6.79%  4/4/2025   4,945    4,875 
               6,865    6,793 
Banking, Finance, Insurance & Real Estate                     
Avison Young (USA) Inc. (e)  L+5.00%   7.10%  1/30/2026   4,963    4,876 
Lightbox Intermediate, L.P.  L+5.00%   7.05%  5/11/2026   4,988    4,938 
Minotaur Acquisition, Inc.  L+5.00%   7.04%  3/27/2026   2,985    2,907 
Nuvei Technologies Corp. (e)  L+5.00%   7.06%  9/26/2025   4,963    4,913 
Zenith Merger Sub, Inc.  L+5.25%   7.35%  12/13/2024   4,712    4,690 
Zenith Merger Sub, Inc. (Delayed Draw) (c)  L+5.25%   7.29%  12/13/2024   265    66 
               22,876    22,390 
Beverage, Food & Tobacco                     
CBC Restaurant Corp.  L+6.50%   8.54%  11/10/2022   2,551    2,519 
SW Ingredients Holdings, LLC  L+4.00%   6.21%  7/3/2025   3,703    3,703 
US Salt, LLC  L+4.75%   6.79%  1/16/2026   2,736    2,753 
               8,990    8,975 
Capital Equipment                     
Analogic Corporation  L+6.00%   8.04%  6/24/2024   4,950    4,805 
               4,950    4,805 
Chemicals, Plastics & Rubber                     
Polymer Solutions Group  L+6.75%   8.86%  6/30/2021   2,828    2,763 
               2,828    2,763 
Construction & Building                     
ISC Purchaser, LLC  L+5.00%   7.10%  7/11/2025   5,000    5,000 
The Cook & Boardman Group, LLC  L+5.75%   8.37%  10/20/2025   2,978    2,963 
               7,978    7,963 
Consumer Goods: Durable                     
International Textile Group, Inc.  L+5.00%   7.10%  5/1/2024   1,816    1,553 
SSH Group Holdings, Inc.  L+4.25%   6.29%  7/30/2025   2,310    2,312 
               4,126    3,865 
Consumer Goods: Non-Durable                     
PH Beauty Holdings III, Inc.  L+5.00%   7.04%  9/26/2025   2,474    2,375 
               2,474    2,375 
Containers, Packaging & Glass                     
Liqui-Box Holdings, Inc. (d)  L+4.50%   6.54%  6/3/2026   4,333    4,301 
Polychem Acquisition, LLC  L+5.00%   7.05%  3/17/2025   2,985    2,985 
Port Townsend Holdings Company, Inc.  L+4.75%   6.80%  4/3/2024   4,850    4,844 
PVHC Holding Corp  L+4.75%   6.85%  8/5/2024   3,292    2,954 
PVHC Holding Corp (Delayed Draw) (c)  L+4.75%   6.85%  8/5/2024   425     
               15,885    15,084 
Energy: Oil & Gas                     
Drilling Info Holdings, Inc.  L+4.25%   6.29%  7/30/2025   4,621    4,602 
Offen, Inc.  L+5.00%   7.10%  6/22/2026   2,442    2,442 
Offen, Inc. (Delayed Draw) (c)  L+5.00%   7.10%  6/22/2026   885     
               7,948    7,044 
Healthcare & Pharmaceuticals                     
LSCS Holdings, Inc.  L+4.25%   6.31%  3/17/2025   2,328    2,316 
LSCS Holdings, Inc.  L+4.25%   6.31%  3/17/2025   601    598 
P&L Developments, LLC  L+7.50%   9.55%  6/28/2024   3,000    2,970 
Radiology Partners, Inc.  L+4.75%   7.06%  7/9/2025   4,950    4,893 
Solara Medical Supplies, LLC  L+6.00%   8.04%  2/27/2024   5,529    5,529 
Solara Medical Supplies, LLC (Delayed Draw) (c)  L+6.00%   8.04%  2/27/2024   1,070    999 
Solara Medical Supplies, LLC (Revolver) (c)  L+6.00%   8.04%  2/27/2024   714     
               18,192    17,305 
High Tech Industries                     
AQA Acquisition Holding, Inc.  L+4.25%   6.35%  5/24/2023   3,300    3,283 
Corel, Inc. (e)  L+5.00%   7.09%  7/2/2026   4,000    3,885 
Datto, Inc.  L+4.25%   6.29%  4/2/2026   3,325    3,362 
Gigamon, Inc.  L+4.25%   6.29%  12/27/2024   2,948    2,866 
LW Buyer, LLC  L+5.00%   7.04%  12/30/2024   4,988    4,963 
Perforce Software, Inc.  L+4.50%   6.54%  7/1/2026   3,333    3,337 
TGG TS Acquisition Company  L+6.50%   8.53%  12/12/2025   4,174    4,158 
               26,068    25,854 
Hotels, Gaming & Leisure                     
North Haven Spartan US Holdco, LLC (d)  L+5.00%   7.04%  6/25/2025   2,350    2,327 
Tait LLC  L+5.00%   7.11%  3/28/2025   4,210    4,222 
Tait LLC (Revolver) (c)  L+5.00%   7.11%  3/28/2025   769     
               7,329    6,549 
Media: Advertising, Printing & Publishing                     
Cadent, LLC  L+5.25%   7.30%  9/11/2023   4,950    4,938 
Cadent, LLC (Revolver) (c)  L+5.25%   7.30%  9/11/2023   167     
Digital Room Holdings, Inc.  L+5.00%   7.04%  5/21/2026   4,418    4,223 
               9,535    9,161 
Media: Diversified & Production                     
Research Now Group, Inc. and Survey Sampling International, LLC  L+5.50%   7.75%  12/20/2024   6,878    6,910 
Stats Intermediate Holding, LLC  L+5.25%   7.30%  7/10/2026   5,000    4,900 
               11,878    11,810 
Services: Business                     
AQ Carver Buyer, Inc. (d)  L+5.00%   7.04%  9/24/2025   5,000    4,973 
CHA Holdings, Inc.  L+4.50%   6.60%  4/10/2025   2,028    2,025 
CHA Holdings, Inc. (Delayed Draw) (c)  L+4.50%   6.60%  4/10/2025   445    427 
Eliassen Group, LLC  L+4.50%   6.54%  11/5/2024   3,036    3,022 
Engage2Excel, Inc.  L+6.50%   8.71%  3/7/2023   4,309    4,238 
Engage2Excel, Inc.  L+6.50%   8.78%  3/7/2023   777    765 
Engage2Excel, Inc. (Delayed Draw) (c)  L+6.50%   8.78%  3/7/2023   500     
Engage2Excel, Inc. (Revolver) (c)  P+5.50%   10.50%  3/7/2023   545    273 
GI Revelation Acquisition LLC  L+5.00%   7.04%  4/16/2025   1,383    1,329 
Orbit Purchaser LLC  L+4.50%   6.64%  10/21/2024   2,488    2,488 
Orbit Purchaser LLC  L+4.50%   6.82%  10/21/2024   1,921    1,921 
Orbit Purchaser LLC  L+4.50%   6.64%  10/21/2024   562    562 
Output Services Group, Inc.  L+4.50%   6.54%  3/27/2024   4,927    4,311 
SIRVA Worldwide, Inc.  L+5.50%   7.54%  8/4/2025   1,963    1,904 
Teneo Holdings LLC  L+5.25%   7.29%  7/11/2025   5,000    4,794 
The Kleinfelder Group, Inc.  L+4.75%   6.70%  11/29/2024   2,481    2,470 
               37,365    35,502 
Services: Consumer                     
Cambium Learning Group, Inc.  L+4.50%   6.54%  12/18/2025   4,963    4,863 
LegalZoom.com, Inc.  L+4.50%   6.54%  11/21/2024   2,729    2,743 
WeddingWire, Inc.  L+4.50%   6.54%  12/19/2025   1,158    1,159 
               8,850    8,765 
Telecommunications                     
Intermedia Holdings, Inc.  L+6.00%   8.04%  7/21/2025   1,820    1,822 
Mavenir Systems, Inc.  L+6.00%   8.34%  5/8/2025   3,950    3,901 
               5,770    5,723 
Transportation: Cargo                     
GlobalTranz Enterprises LLC  L+5.00%   7.06%  5/15/2026   3,304    3,172 
               3,304    3,172 
Utilities: Oil & Gas                     
NGS US Finco, LLC  L+4.25%   6.29%  10/1/2025   1,737    1,736 
               1,737    1,736 
Wholesale                     
AmeriLife Group, LLC  L+4.50%   6.54%  6/12/2026   2,917    2,917 
AmeriLife Group, LLC (Delayed Draw) (c)  L+4.50%   6.54%  6/12/2026   409     
BMC Acquisition, Inc.  L+5.25%   7.35%  12/30/2024   4,913    4,888 
HALO Buyer, Inc.  L+4.50%   6.54%  6/30/2025   4,938    4,888 
               13,177    12,693 
                      
TOTAL INVESTMENTS                  $236,563 

 

 

 

(a)All investments are U.S. companies unless otherwise noted.

(b)The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at September 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)All or a portion of this commitment was unfunded as of September 30, 2019. As such, interest is earned only on the funded portion of this commitment. Principal reflects the commitment outstanding.

(d)Investment position or portion thereof unsettled as of September 30, 2019.
(e)This is an international company.

 29 

 

  

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

 (in thousands)

 

Portfolio Company (a)   Spread
Above
Index (b)
    Interest
Rate (b)
    Maturity   Principal     Fair
Value
 
Non-Controlled/Non-Affiliate Company Investments                                
Senior Secured Loans                                
Aerospace & Defense                                
IMIA Holdings, Inc.   L+4.50%     7.30 %   10/28/2024     4,320     $ 4,341  
IMIA Holdings, Inc. (Revolver) (c)   L+4.50%     7.30 %   10/28/2024     680        
MAG Aerospace Industries, Inc.   L+4.75%     7.27 %   6/6/2025     3,284       3,267  
Novaria Holdings, LLC (d)   L+4.75%     7.27 %   12/19/2024     4,333       4,290  
The KEYW Corporation   L+4.50%     6.89 %   5/8/2024     1,488       1,473  
Trident Maritime SH, Inc.   L+5.50%     8.30 %   6/4/2024     4,637       4,623  
Trident Maritime SH, Inc. (Revolver) (c)   L+5.50%     8.30 %   6/4/2024     340        
                      19,082       17,994  
Automotive                                
Wheel Pros, LLC   L+4.75%     7.27 %   4/4/2025     3,980       3,920  
                      3,980       3,920  
Banking, Finance, Insurance & Real Estate                                
Kestra Financial, Inc. (d)   L+4.25%     6.77 %   6/24/2022     3,564       3,537  
MTC Intermediate Holdco, Inc.   L+4.50%     7.02 %   1/30/2023     4,963       4,963  
Pivotal Payments Inc.   P+3.50%     9.00 %   9/26/2025     2,902       2,873  
Pivotal Payments Inc. (Delayed Draw) (c)   L+4.50%     6.98 %   9/26/2025     841       518  
Zenith Merger Sub, Inc.   L+5.50%     8.30 %   12/13/2023     3,713       3,701  
                      15,983       15,592  
Beverage, Food & Tobacco                                
Il Fornaio (America) Corporation   L+6.50%     9.02 %   11/10/2022     4,894       4,847  
SW Ingredients Holdings, LLC   L+4.25%     7.05 %   7/3/2025     3,731       3,709  
US Salt, LLC   L+4.75%     7.27 %   11/30/2023     3,474       3,474  
                      12,099       12,030  
Capital Equipment                                
Analogic Corporation   L+6.00%     8.52 %   6/24/2024     4,988       4,786  
                      4,988       4,786  
Chemicals, Plastics & Rubber                                
Loparex International B.V. (e)   L+4.25%     7.05 %   4/11/2025     498       490  
Peach State Labs, LLC   L+6.50%     8.85 %   6/30/2021     2,850       2,825  
                      3,348       3,315  
Construction & Building                                
Fastener Acquisition, Inc.   L+4.25%     7.05 %   3/28/2025     1,323       1,256  
The Cook & Boardman Group, LLC   L+5.75%     8.55 %   10/20/2025     3,000       2,978  
                      4,323       4,234  
Consumer Goods: Durable                                
International Textile Group, Inc.   L+5.00%     7.35 %   5/1/2024     1,852       1,819  
SSH Group Holdings, Inc.   L+4.25%     6.77 %   7/30/2025     2,327       2,240  
                      4,179       4,059  
Consumer Goods: Non-Durable                                
PH Beauty Holdings III, Inc.   L+5.00%     7.52 %   9/26/2025     1,995       1,925  
                      1,995       1,925  
Containers, Packaging & Glass                                
Port Townsend Holdings Company, Inc.   L+4.75%     7.27 %   4/3/2024     4,887       4,893  
PVHC Holding Corp   L+4.75%     7.57 %   8/5/2024     3,317       3,333  
PVHC Holding Corp (Delayed Draw) (c)   L+4.75%     7.57 %   8/5/2024     425        
                      8,629       8,226  
Energy: Oil & Gas                                
Drilling Info Holdings, Inc.   L+4.25%     6.77 %   7/30/2025     4,307       4,296  
Drilling Info Holdings, Inc. (Delayed Draw) (c)   L+4.25%     6.77 %   7/30/2025     350        
                      4,657       4,296  
Healthcare & Pharmaceuticals                                
LSCS Holdings, Inc.   L+4.25%     6.77 %   3/17/2025     2,328       2,316  
LSCS Holdings, Inc.   L+4.25%     6.96 %   3/17/2025     601       598  
Radiology Partners, Inc.   L+4.25%     6.87 %   7/9/2025     4,988       4,900  
Solara Medical Supplies, LLC   L+6.00%     8.52 %   5/31/2023     5,571       5,594  
Solara Medical Supplies, LLC (Delayed Draw) (c)   L+6.00%     8.52 %   5/31/2023     1,071        
Solara Medical Supplies, LLC (Revolver) (c)   L+6.00%     8.52 %   5/31/2023     714        
                      15,273       13,408  
High Tech Industries                                
AQA Acquisition Holding, Inc.   L+4.25%     7.05 %   5/24/2023     3,325       3,308  
Corel, Inc. (d) (e)   L+5.00%     7.71 %   6/4/2024     3,786       3,749  
Gigamon, Inc.   L+4.25%     7.05 %   12/27/2024     2,970       2,933  
TGG TS Acquisition Company (d)   L+6.50%     9.02 %   12/12/2025     4,400       4,241  
                      14,481       14,231  
Media: Advertising, Printing & Publishing                                
Cadent, LLC   L+5.25%     7.71 %   9/11/2023     4,988       4,975  
Cadent, LLC (Revolver) (c)   L+5.25%     7.71 %   9/11/2023     167        
                      5,155       4,975  
Media: Diversified & Production                                
Research Now Group, Inc. and Survey Sampling International, LLC   L+5.50%     8.02 %   12/20/2024     6,930       6,817  
                      6,930       6,817  
Services: Business                                
CHA Holdings, Inc.   L+4.50%     7.30 %   4/10/2025     2,043       2,041  
CHA Holdings, Inc. (Delayed Draw) (c)   L+4.50%     7.30 %   4/10/2025     446        
Eliassen Group, LLC   L+4.50%     7.02 %   11/5/2024     2,500       2,475  
Engage2Excel, Inc.   L+6.50%     8.93 %   3/7/2023     4,342       4,320  
Engage2Excel, Inc. (Revolver) (c)   L+6.50%     8.95 %   3/7/2023     545       155  
GI Revelation Acquisition LLC   L+5.00%     7.52 %   4/16/2025     1,393       1,374  
North Haven CA Holdings, Inc.   L+4.50%     7.02 %   9/29/2023     5,000       4,972  
Orbit Purchaser LLC   L+4.50%     7.17 %   10/21/2024     1,931       1,919  
Orbit Purchaser LLC (Delayed Draw) (c)   L+4.50%     7.17 %   10/21/2024     565        
Output Services Group, Inc.   L+4.25%     6.77 %   3/27/2024     4,965       4,828  
SIRVA Worldwide, Inc.   L+5.50%     8.02 %   8/4/2025     2,000       1,965  
The Kleinfelder Group, Inc. (d)   L+4.75%     7.27 %   11/29/2024     2,500       2,475  
                      28,230       26,524  
Services: Consumer                                
Cambium Learning Group, Inc. (d)   L+4.50%     7.02 %   12/18/2025     5,000       4,769  
LegalZoom.com, Inc.   L+4.50%     7.00 %   11/21/2024     2,749       2,708  
WeddingWire, Inc. (d)   L+4.50%     7.02 %   12/19/2025     1,167       1,149  
                      8,916       8,626  
Telecommunications                                
Intermedia Holdings, Inc.   L+6.00%     8.52 %   7/21/2025     1,833       1,831  
Mavenir Systems, Inc.   L+6.00%     8.39 %   5/8/2025     3,980       3,968  
                      5,813       5,799  
Utilities: Oil & Gas                                
NGS US Finco, LLC   L+4.25%     6.76 %   10/1/2025     1,750       1,746  
                      1,750       1,746  
Wholesale                                
BMC Acquisition, Inc.   L+5.25%     8.13 %   12/30/2024     4,950       4,962  
Halo Buyer, Inc.   L+4.50%     7.02 %   6/27/2025     3,501       3,431  
Halo Buyer, Inc.   L+4.50%     7.02 %   6/27/2025     1,474       1,445  
                      9,925       9,838  
                                 
TOTAL INVESTMENTS                           $ 172,341  

 

 

 

(a)All investments are U.S. companies unless otherwise noted.

(b)The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)All or a portion of this commitment was unfunded as of December 31, 2018. As such, interest is earned only on the funded portion of this commitment. Principal reflects the commitment outstanding.

(d)Investment position or portion thereof unsettled as of December 31, 2018.
(e)This is an international company.

 30 

 

 

 Below is certain summarized financial information for SLF as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018:

 

   September 30,
2019
   December 31,
2018
 
   (unaudited)     
Assets          
Investments, at fair value  $236,563   $172,341 
Cash   389    448 
Restricted cash   7,044    3,838 
Interest receivable   807    456 
Other assets   39    39 
Total assets  $244,842   $177,122 
Liabilities          
Revolving credit facility  $148,532   $101,060 
Less: Unamortized deferred financing costs   (1,517)   (1,625)
Total debt, less unamortized deferred financing costs   147,015    99,435 
Payable for open trades   11,567    21,746 
Interest payable   572    457 
Accounts payable and accrued expenses   351    216 
Total liabilities   159,505    121,854 
Members’ capital   85,337    55,268 
Total liabilities and members’ capital  $244,842   $177,122 

 

   Three months ended September 30,   Nine months ended September 30, 
   2019   2018   2019   2018 
   (unaudited)   (unaudited) 
Investment income:                    
Interest income  $4,637   $2,262   $11,972   $4,441 
Total investment income   4,637    2,262    11,972    4,441 
Expenses:                    
Interest and other debt financing expenses   1,918    922    5,287    1,571 
Organizational costs               11 
Professional fees   214    139    554    201 
Total expenses   2,132    1,061    5,841    1,783 
Net investment income (loss)   2,505    1,201    6,131    2,658 
Net gain (loss):                    
Net change in unrealized gain (loss)   (1,005)   448    (472)   1,447 
Net gain (loss)   (1,005)   448    (472)   1,447 
Net increase (decrease) in members’ capital  $1,500   $1,649   $5,659   $4,105 

 

Note 4. Fair Value Measurements

 

Investments

 

The Company values all investments in accordance with ASC Topic 820. ASC Topic 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity.

 

 31 

 

 

ASC Topic 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

 

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

 

  · Level 1 - Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

 

  · Level 2 - Valuations based on inputs other than quoted prices in active markets, including quoted prices for similar assets or liabilities, which are either directly or indirectly observable.

 

  · Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. This includes situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. All investments, with the exception of investments measured at fair value using net asset value (“NAV”), as of September 30, 2019 and December 31, 2018 were categorized as Level 3 investments.

 

With respect to investments for which market quotations are not readily available, the Company’s Board undertakes a multi-step valuation process each quarter, as described below:

 

  · the quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of MC Advisors responsible for the credit monitoring of the portfolio investment;
     
  · the Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of investments for which market quotations are not readily available. The Company will consult with independent valuation firm(s) relative to each portfolio company at least once in every calendar year, but the independent appraisals are generally received quarterly;

 

  · to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available, the investment will be valued by the MC Advisors investment professional responsible for the credit monitoring;
     
  · preliminary valuation conclusions are then documented and discussed with the investment committee of the Company;
     
  · the audit committee of the Board reviews the preliminary valuations of MC Advisors and of the independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments provided by the audit committee; and
     
  · the Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee.

 

The accompanying consolidated schedules of investments held by the Company consist primarily of private debt instruments (“Level 3 debt”). The Company generally uses the income approach to determine fair value for loans where market quotations are not readily available, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. This liquidation analysis may include probability weighting of alternative outcomes. The Company generally considers its Level 3 debt to be performing loans if the borrower is not in default, the borrower is remitting payments in a timely manner; the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Company considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Company will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

 

Under the income approach, the Company uses discounted cash flow models to determine the present value of the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the income approach, the Company also considers the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

 

 32 

 

 

Under the market approach, the Company typically uses the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which the Company derives a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio company’s historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public. Typically, the enterprise values of private companies are based on multiples of earnings before interest, income taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues, or in limited cases, book value.

 

In addition, for certain debt investments, the Company may base its valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that the Company and others may be willing to pay. Ask prices represent the lowest price that the Company and others may be willing to accept. The Company generally uses the midpoint of the bid/ask range as its best estimate of fair value of such investment.

 

Foreign Currency Forward Contracts

 

The valuation for the Company’s foreign currency forward contracts is based on the difference between the exchange rate associated with the forward contract and the exchange rate at the current period end. Foreign currency forward contracts are categorized as Level 2 in the fair value hierarchy.

 

Fair Value Disclosures

 

The following table presents fair value measurements of investments and foreign currency forward contracts, by major class, as of September 30, 2019, according to the fair value hierarchy:

 

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Investments:                
Senior secured loans  $   $   $514,353   $514,353 
Unitranche secured loans           76,766    76,766 
Junior secured loans           13,965    13,965 
Equity securities           9,697    9,697 
Investments measured at NAV (1) (2)               42,669 
Total investments  $   $   $614,781   $657,450 
Foreign currency forward contracts asset (liability)  $   $83   $   $83 

 

 

(1) Certain investments that are measured at fair value using the NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

(2) Represents the Company’s investment in LLC equity interests in SLF. The fair value of this investment has been determined using the NAV of the Company’s ownership interest in members’ capital.

 

The following table presents fair value measurements of investments, by major class, as of December 31, 2018, according to the fair value hierarchy:

 

    Fair Value Measurements  
    Level 1     Level 2     Level 3     Total  
Investments:                        
Senior secured loans   $     $     $ 439,068     $ 439,068  
Unitranche secured loans           58,852    58,852 
Junior secured loans           21,154    21,154 
Equity securities           6,913    6,913 
Investments measured at NAV (1) (2)               27,634 
Total investments  $   $   $525,987   $553,621 
Foreign currency forward contracts asset (liability)  $   $16   $   $16 

 

 

(1) Certain investments that are measured at fair value using the NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

(2) Represents the Company’s investment in LLC equity interests in SLF. The fair value of this investment has been determined using the NAV of the Company’s ownership interest in members’ capital.

 

 33 

 

 

Senior secured, unitranche secured and junior secured loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating and are based on current market conditions and credit ratings of the borrower. Excluding loans on non-accrual, the contractual interest rates on the loans ranged between 7.29% to 16.54% at September 30, 2019 and 7.87% to 17.01% at December 31, 2018. The maturity dates on the loans outstanding at September 30, 2019 range between November 2019 and December 2025.

 

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three and nine months ended September 30, 2019:

 

    Investments 
    Senior
secured loans
    Unitranche
secured loans
    Junior
secured loans
    Equity
securities
    Total
investments
 
Balance as of June 30, 2019  $483,682   $83,343   $18,858   $8,977   $594,860 
Net change in unrealized gain (loss)   (2,953)   (369)   (437)   (164)   (3,923)
Purchases of investments and other adjustments to cost (1)   51,064    599    3    953    52,619 
Proceeds from principal payments and sales on investments (2)   (17,451)   (6,807)   (4,459)   (69)   (28,786)
Net realized gain (loss) on investments   11                11 
Reclassifications                    
Balance as of September 30, 2019  $514,353   $76,766   $13,965   $9,697   $614,781 

 

   Investments 
   Senior
secured loans
   Unitranche
secured loans
   Junior
secured loans
   Equity
securities
   Total
investments
 
Balance as of December 31, 2018  $439,068   $58,852   $21,154   $6,913   $525,987 
Net change in unrealized gain (loss)   (6,632)   (100)   (642)   182    (7,192)
Purchases of investments and other adjustments to cost (1)   175,259    2,047    10    1,213    178,529 
Proceeds from principal payments and sales on investments (2)   (70,266)   (7,155)   (5,099)   (69)   (82,589)
Net realized gain (loss) on investments   46                46 
Reclassifications   (23,122)   23,122    (1,458)   1,458     
Balance as of September 30, 2019  $514,353   $76,766   $13,965   $9,697   $614,781 

 

 

(1) Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

(2) Represents net proceeds from investments sold and principal paydowns received.

 

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three and nine months ended September 30, 2018: 

 

    Investments  
    Senior
secured loans
    Unitranche
secured loans
    Junior
secured loans
    Equity
securities
    Total
investments
 
Balance as of June 30, 2018   $ 387,639     $ 51,485     $ 28,515     $ 11,903     $ 479,542  
Net change in unrealized gain (loss)     (5,145 )     (572     2,373       (241 )     (3,585 )
Purchases of investments and other adjustments to cost (1)     43,954       1,818       48       270       46,090  
Proceeds from principal payments and sales on investments (2)     (56,706 )     (3,765 )     (1 )           (60,472 )
Net realized gain (loss) on investments     (2,495           (2,011     (1,094     (5,600
Reclassifications                              
Balance as of September 30, 2018   $ 367,247     $ 48,966     $ 28,924     $ 10,838     $ 455,975  

 

 34 

 

 

    Investments  
    Senior
secured loans
    Unitranche
secured loans
    Junior
secured loans
    Equity
securities
    Total
investments
 
Balance as of December 31, 2017   $ 387,874     $ 40,295     $ 38,549     $ 17,780     $ 484,498  
Net change in unrealized gain (loss)     (10,631 )     (599 )     3,152       (7,267 )     (15,345 )
Purchases of investments and other adjustments to cost (1)     88,864       13,338       141       1,419       103,762  
Proceeds from principal payments and sales on investments (2)     (96,365 )     (4,068 )     (10,907 )           (111,340 )
Net realized gain (loss) on investments     (2,495           (2,011     (1,094     (5,600
Reclassifications                              
Balance as of September 30, 2018   $ 367,247     $ 48,966     $ 28,924     $ 10,838     $ 455,975  

 

 

(1) Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

(2) Represents net proceeds from investments sold and principal paydowns received.

 

The total net change in unrealized gain (loss) included in the consolidated statements of operations for the three and nine months ended September 30, 2019, attributable to Level 3 investments still held at September 30, 2019, was ($3,670) and ($7,202), respectively. The total net change in unrealized gain (loss) included in the consolidated statements of operations within net change in unrealized gain (loss) on investments for the three and nine months ended September 30, 2018, attributable to Level 3 investments still held at September 30, 2018, was ($8,712) and ($13,198), respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 during the three and nine months ended September 30, 2019 and 2018.

 

Significant Unobservable Inputs

 

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner. The tables below are not intended to be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company. 

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of September 30, 2019 were as follows:

 

              Unobservable   Weighted
Average
    Range  
    Fair Value     Valuation Technique   Input   Mean     Minimum     Maximum  
Assets:                                        
Senior secured loans   $ 352,337     Discounted cash flow   EBITDA multiples     6.7 x     4.0 x     14.0 x
                Market yields     10.4 %     6.4 %     16.8 %
Senior secured loans     90,986     Discounted cash flow   Revenue multiples     5.8 x     0.9 x     11.8 x
                Market yields     7.8 %     6.2 %     16.3 %
Senior secured loans     18,652     Liquidation   Probability weighting of alternative outcomes     87.0 %     81.0 %     100.0 %
Senior secured loans     17,250     Enterprise value   Tangible book value multiples     1.6 x     1.6 x     1.6 x
Senior secured loans     10,712     Enterprise value   EBITDA multiples     7.4 x     6.5 x     8.8 x
Senior secured loans     10,228     Enterprise value   Revenue multiples     0.5 x     0.4 x     0.9 x
Unitranche secured loans     55,708     Discounted cash flow   EBITDA multiples     8.0 x     5.4 x     10.0 x
                Market yields     9.1 %     7.2 %     11.3 %
Unitranche secured loans     13,311     Enterprise value   EBITDA multiples     5.4 x     5.4 x     5.4 x
Unitranche secured loans     7,747     Discounted cash flow   Revenue multiples     4.7 x     4.7 x     4.7 x
                Market yields     10.4 %     10.4 %     10.4 %
Junior secured loans     757     Liquidation   Probability weighting of alternative outcomes     51.5 %     51.5 %     51.5 %
Junior secured loans     444     Enterprise value   EBITDA multiples     5.4 x     5.4 x     5.4 x
Equity securities     6,234     Liquidation   Probability weighting of alterative outcomes     57.2 %     54.2 %     72.1 %
Equity securities     2,614     Enterprise value   EBITDA multiples     7.9 x     4.0 x     13.8 x
Equity securities     799     Enterprise value   Revenue multiples     4.4 x     0.9 x     11.8 x
Total Level 3 Assets   $ 587,779  (1)                                

 

 
(1)Excludes loans of $27,002 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required.

 

 35 

 

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of December 31, 2018 were as follows:

 

              Unobservable   Weighted
Average
    Range  
    Fair Value     Valuation Technique   Input   Mean     Minimum     Maximum  
Assets:                                        
Senior secured loans   $ 337,840     Discounted cash flow   EBITDA multiples      6.8 x      3.8 x      13.0 x
                Market yields     11.1 %     7.4 %     19.0 %
Senior secured loans     38,183     Discounted cash flow   Revenue multiples      3.5 x      3.1 x      4.5 x
                Market yields     8.1 %     7.7 %     8.5 %
Senior secured loans     17,770     Liquidation   Probability weighting of alternative outcomes     90.0 %     79.4 %     100.0 %
Senior secured loans     13,153     Enterprise value   Tangible book value multiples      1.5 x      1.5 x      1.5 x
Senior secured loans     10,474     Enterprise value   EBITDA multiples      7.5 x      6.5 x      8.3 x
Senior secured loans     8,639     Enterprise value   Revenue multiples      0.4 x      0.4 x      0.4 x
Unitranche secured loans     37,766     Discounted cash flow   EBITDA multiples      7.3 x      4.5 x      8.5 x
                Market yields     12.6 %     10.0 %     20.2 %
Unitranche secured loans     13,134     Enterprise value   EBITDA multiples      4.6 x      4.5 x      8.5 x
Unitranche secured loans     7,952     Enterprise value   Revenue multiples     4.5 x     4.5 x     4.5 x
Junior secured loans     2,292     Liquidation   Probability weighting of alternative outcomes     78.5 %     78.5 %     78.5 %
Junior secured loans     1,260     Enterprise value   EBITDA multiples      4.5 x      4.5 x      4.5 x
Equity securities     4,583     Liquidation   Probability weighting of alternative outcomes     59.0 %     59.0 %     59.0 %
Equity securities     1,465     Enterprise value   EBITDA multiples      7.2 x      4.5 x      10.5 x
Equity securities     650     Enterprise value   Revenue multiples      3.7 x      2.0 x      4.5 x
Total Level 3 Assets   $ 495,161  (1)                                 

 

 

(1) Excludes loans of $30,826 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required.

 

The significant unobservable inputs used in the income approach of fair value measurement of the Company’s investments is the discount rate used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Increases (decreases) in the discount rate would result in a decrease (increase) in the fair value estimate of the investment. Included in the consideration and selection of discount rates are the following factors: risk of default, rating of the investment and comparable investments, and call provisions.

 

The significant unobservable inputs used in the market approach of fair value measurement of the Company’s investments are the market multiples of EBITDA or revenue of the comparable guideline public companies. The Company selects a population of public companies for each investment with similar operations and attributes of the portfolio company. Using these guideline public companies’ data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The Company selects percentages from the range of multiples for purposes of determining the portfolio company’s estimated enterprise value based on said multiple and generally the latest twelve months EBITDA or revenue of the portfolio company (or other meaningful measure). Increases (decreases) in the multiple will result in an increase (decrease) in enterprise value, resulting in an increase (decrease) in the fair value estimate of the investment.

 

Other Financial Assets and Liabilities

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Company’s revolving credit facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if applicable. The Company believes that the carrying value of its revolving credit facility approximates fair value. As of September 30, 2019, the 2023 Notes were trading on The Nasdaq Global Select Market for $25.26 per unit at par value. The par value at underwriting for the 2023 Notes was $25.00 per unit. Based on this Level 1 input, the fair value of the $109,000 in principal outstanding 2023 Notes was $110,134. As of December 31, 2018, the 2023 Notes were trading on The Nasdaq Global Select Market for $23.50 per unit at par value. Based on this Level 1 input, the fair value of the $69,000 in principal outstanding 2023 Notes was $64,860. SBA debentures are carried at cost and with their longer maturity dates, fair value is estimated by discounting remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the debentures. As of both September 30, 2019 and December 31, 2018, the fair value of the Company’s SBA debentures using Level 3 inputs were estimated at $115,000, which is the same as the Company’s carrying value of the SBA debentures.

 36 

 

 

Note 5. Transactions with Affiliated Companies

 

An affiliated company is a company in which the Company has an ownership interest of 5% or more of its voting securities. A controlled affiliate company is a company in which the Company has an ownership interest of more than 25% of its voting securities. Please see the Company’s consolidated schedule of investments for the type of investment, principal amount, interest rate including the spread, and the maturity date. Transactions related to the Company’s investments with affiliates for the nine months ended September 30, 2019 and 2018 were as follows:

 

Portfolio Company  Fair value at
December 31, 2018
   Transfers
in (out)
   Purchases
(cost)
   Sales and
paydowns
(cost)
   PIK
interest
(cost)
   Discount
accretion
   Net
realized
gain (loss)
   Net
unrealized
gain (loss)
   Fair value at
September 30, 2019
 
Non-controlled affiliate company investments:                                             
American Community Homes, Inc.  $6,596   $   $   $   $773   $17   $   $(733)  $6,653 
American Community Homes, Inc.   3,997                649    9        (483)   4,172 
American Community Homes, Inc.   499                59    1        (56)   503 
American Community Homes, Inc.   400                47    2        (46)   403 
American Community Homes, Inc.   215                35    1        (27)   224 
American Community Homes, Inc.   1,446                165            (156)   1,455 
American Community Homes, Inc.           3,333        182            (786)   2,729 
American Community Homes, Inc.           1,111                        1,111 
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)                                    
    13,153        4,444        1,910    30        (2,287)   17,250 
                                              
Curion Holdings, LLC   3,592                273    4        (457)   3,412 
Curion Holdings, LLC (Revolver)   244        138        17            (4)   395 
Curion Holdings, LLC (Junior secured loan)                                    
Curion Holdings, LLC (Junior secured loan)                                    
Curion Holdings, LLC (58,779 shares of common stock)                                    
    3,836        138        290    4        (461)   3,807 
                                              
Incipio, LLC   12,830                395    29        57    13,311 
Incipio, LLC   3,573                104            (17)   3,660 
Incipio, LLC   1,518                44            6    1,568 
Incipio, LLC           656        18            (5)   669 
Incipio, LLC (Junior secured loan)   1,260                            (816)   444 
Incipio, LLC (Junior secured loan)                                    
Incipio, LLC (1,774 shares of Series C common units)                                    
    19,181        656        561    29        (775)   19,652 
                                              
Luxury Optical Holdings Co.   4,334                255    10        (577)   4,022 
Luxury Optical Holdings Co. (Delayed Draw)   622                            (2)   620 
Luxury Optical Holdings Co. (Revolver)   200                11            (26)   185 
Luxury Optical Holdings Co. (86 shares of common stock)                                    
    5,156                266    10        (605)   4,827 
                                              
Millennial Brands LLC (10 preferred units)                                    
Millennial Brands LLC (75,502 common units)                                    
                                     
                                              
New England College of Business and Finance, LLC (Revolver) (1)           735                        735 
New England College of Business and Finance, LLC (20.8% of units) (1)       1,458                        (406)   1,052 
        1,458    735                    (406)   1,787 
                                              
SHI Holdings, Inc.   2,598            (14)   229    4        (177)   2,640 
SHI Holdings, Inc. (Revolver)   3,342        464        311    (3)       (249)   3,865 
SHI Holdings, Inc. (24 shares of common stock)   307                            (231)   76 
    6,247        464    (14)   540    1        (657)   6,581 
                                              
Summit Container Corporation   3,034                            25    3,059 
Summit Container Corporation (Revolver)   6,660        23,898    (25,778)               3    4,783 
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)                                    
    9,694        23,898    (25,778)               28    7,842 
Total non-controlled affiliate company investments  $57,267   $1,458   $30,335   $(25,792)  $3,567   $74   $   $(5,163)  $61,746 
                                              
Controlled affiliate company investments:                                             
MRCC Senior Loan Fund I, LLC  $27,634   $   $14,950   $   $   $   $   $85   $42,669 
    27,634        14,950                    85    42,669 
Total controlled affiliate company investments  $27,634   $   $14,950   $   $   $   $   $85   $42,669 

 

 37 

 

 

Portfolio Company  Fair value at
December 31, 2017
   Transfers
in (out)
   Purchases
(cost)
   Sales and
paydowns
(cost)
   PIK
interest
(cost)
   Discount
accretion
   Net
realized
gain
(loss)
   Net
unrealized
gain (loss)
   Fair value at
September 30, 2018
 
Non-controlled affiliate company investments:                                             
American Community Homes, Inc.  $7,441   $   $   $(331)  $226   $31   $   $(624)  $6,743 
American Community Homes, Inc.   4,329            (165)   283    14        (420)   4,041 
American Community Homes, Inc.   542                30    2        (64)   510 
American Community Homes, Inc.   431                14    4        (40)   409 
American Community Homes, Inc.   224                15    3        (25)   217 
American Community Homes, Inc. (Delayed Draw)                                    
American Community Homes, Inc. (Delayed Draw)                                    
American Community Homes, Inc. (Delayed Draw)           1,577                    (171)   1,406 
American Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)   353                            (353)    
    13,320        1,577    (496)   568    54        (1,697)   13,326 
                                              
Curion Holdings, LLC (2)       3,775        (25)   45    3        (130)   3,668 
Curion Holdings, LLC (Revolver) (2)       76    112                    (2)   186 
Curion Holdings, LLC (2)           1                    (1)    
Curion Holdings, LLC (2)                                    
Curion Holdings, LLC (58,779 shares of common stock) (2)                                    
        3,851    113    (25)   45    3        (133)   3,854 
                                              
Incipio, LLC (3)       13,307                33        (413)   12,927 
Incipio, LLC (3)       3,613                            3,613 
Incipio, LLC (Delayed Draw)           1,271                        1,271 
Incipio, LLC (3)       1,143                        279    1,422 
Incipio, LLC (3)                                    
Incipio, LLC (1,774 shares of Series C common units) (3)                                    
        18,063    1,271            33        (134)   19,233 
                                              
Luxury Optical Holdings Co.   3,697                328    13            4,038 
Luxury Optical Holdings Co. (Delayed Draw)   741            (118)               (1)   622 
Luxury Optical Holdings Co. (Revolver)   170                15            1    186 
Luxury Optical Holdings Co. (86 shares of common stock)                                    
    4,608            (118)   343    13            4,846 
                                              
Millennial Brands LLC                           (1,157)   1,157     
Millennial Brands LLC                           (416)   416     
Millennial Brands LLC                           (235)   235     
Millennial Brands LLC   550            (167)           (367)   (16)    
Millennial Brands LLC                           (2,011)   2,011     
Millennial Brands LLC (10 preferred units)                                    
Millennial Brands LLC (75,502 common units)                                    
    550            (167)           (4,186)   3,803     
                                              
Rockdale Blackhawk, LLC (4)   10,594    (12,753)               110        2,049     
Rockdale Blackhawk, LLC (Capex) (4)   533    (641)                       108     
Rockdale Blackhawk, LLC (Revolver) (4)   1,797    (2,159)                       362     
Rockdale Blackhawk, LLC (Revolver) (4)   3,145    (3,778)                       633     
Rockdale Blackhawk, LLC (Revolver) (4)       (2,672)   2,288                    384     
Rockdale Blackhawk, LLC – LLC Units (4)   5,673                            (5,673)    
    21,742    (22,003)   2,288            110        (2,137)    
                                              
SHI Holdings, Inc.   2,625            (20)       8        (8)   2,605 
SHI Holdings, Inc. (Revolver)   2,226        768            4        (5)   2,993 
SHI Holdings, Inc. (24 shares of common stock)   786                            20    806 
    5,637        768    (20)       12        7    6,404 
                                              
Summit Container Corporation   3,421            (227)   34    20        13    3,261 
Summit Container Corporation   1,507            (1,523)   15            1     
Summit Container Corporation (Revolver)           19,329    (14,070)                   5,259 
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)                                    
    4,928        19,329    (15,820)   49    20        14    8,520 
                                              
TPP Operating, Inc. (5)                                     
TPP Operating, Inc. (5)    3,373    724    63    (42)               (4,118)    
TPP Operating, Inc. (5)    4,593    (724)   467    (47)               (4,289)    
TPP Operating, Inc. (24 shares of common stock) (5)                                     
TPP Operating, Inc. (16 shares of common stock) (5)                                     
    7,966        530    (89)               (8,407)    
Total non-controlled affiliate company investments  $58,751   $(89)  $25,876   $(16,735)  $1,005   $245   $(4,186)  $(8,684)  $56,183 
                                              
Controlled affiliate company investments:                                             
MRCC Senior Loan Fund I, LLC  $9,640   $   $25,200   $(9,500)  $   $   $   $978   $26,318 
    9,640        25,200    (9,500)               978    26,318 
Total controlled affiliate company investments  $9,640   $   $25,200   $(9,500)  $   $   $   $978   $26,318 

 

 

 

(1) During the three months ended June 30, 2019, the Company participated in a credit bid to acquire the assets of New England College of Business (“NECB”), which was a subsidiary of Education Corporation of America (“ECA”). As a result, the Company obtained a 20.8% equity stake in NECB in exchange for a $1,458 reduction of secured loan position in ECA. The Company also provided a follow-on revolver commitment to NECB.
(2) The Company provided a follow-on investment to Curion Holdings, LLC (“Curion”) as a part of a restructuring during the three months ended September 30, 2018. As part of the restructuring, the Company also received 12.1% of the equity of Curion. For the purpose of this schedule, transfers in represents the fair value at June 30, 2018.
(3) The Company provided a follow-on investment to Incipio Technologies, Inc. (“Incipio”) as a part of a restructuring during the three months ended September 30, 2018. As part of the restructuring, the Company also received 17.7% of the equity of Incipio. For the purpose of this schedule, transfers in represents the fair value at June 30, 2018.
(4) The Company provided a follow-on investment to Rockdale Blackhawk, LLC (“Rockdale”) during the six months ended June 30, 2018. In conjunction with the follow-on investment, the Company also received an additional 4.6% of the equity of Rockdale, increasing total equity ownership to 22.7%. On July 20, 2018, the Company put back its 22.7% equity investment in Rockdale in advance of a bankruptcy filing and therefore it is no longer an affiliated investment. For the purpose of this schedule, transfers out represents the fair value at June 30, 2018.
(5) In December 2017, the Company transferred 16.0% of the equity interest in TPP Operating, Inc. (“TPP”) shares to a wholly-owned entity, MCC Holdco Equity Manager I, LLC (“MCC Holdco”), which has an independent manager who has full control over the operations of MCC Holdco, including the right to vote the shares of TPP Holdco LLC, the holding company which owns the Company’s equity interest in TPP. As a result, the Company then only controlled 24.0% of the voting interests in TPP, which is presented as a non-controlled affiliate company investment. During the year ended December 31, 2018, TPP ceased operations and the Company, along with the other owners, appointed an assignee and pursuant to Delaware state law completed a General Assignment for the Benefit of Creditors to the assignee. The purpose of the assignment was to wind down the TPP business and distribute the assets to its creditors. The assignee has informed the Company that it will have de minimis assets, if any, to distribute to its creditors. As a result, the Company fully realized a loss on TPP of $24,503 during the year ended December 31, 2018.

 

 38 

 

 

   For the nine months ended September 30, 
   2019   2018 
Portfolio Company  Interest
income
   Dividend
income
   Fee
income
   Interest
income
   Dividend
income
   Fee
income
 
Non-controlled affiliate company investments:                              
American Community Homes, Inc  $781   $   $   $806   $   $ 
American Community Homes, Inc.   652            617         
American Community Homes, Inc.   60            72         
American Community Homes, Inc.   48            50         
American Community Homes, Inc.   36            34         
American Community Homes, Inc.   142            23         
American Community Homes, Inc.   183                     
American Community Homes, Inc.                        
American Community Homes, Inc. (Warrant)                        
    1,902            1,602         
                               
Curion Holdings, LLC   286            115         
Curion Holdings, LLC (Revolver)   20            4         
Curion Holdings, LLC (Junior secured loan)                        
Curion Holdings, LLC (Junior secured loan)                        
Curion Holdings, LLC (Common Units)                        
    306            119         
                               
Incipio, LLC   1,164            486         
Incipio, LLC   298            139         
Incipio, LLC   128            28         
Incipio, LLC   33                     
Incipio, LLC (Junior secured loan)                        
Incipio, LLC (Junior secured loan)                        
Incipio, LLC (Common Units)                        
    1,623            653         
                               
Luxury Optical Holdings Co.   259            343         
Luxury Optical Holdings Co. (Delayed Draw)   65            66         
Luxury Optical Holdings Co. (Revolver)   12            15         
Luxury Optical Holdings Co. (Common Stock)                        
    336            424         
                               
Millennial Brands LLC (Preferred Units)                        
Millennial Brands LLC (Common Units)                        
                         
                               
New England College of Business and Finance, LLC (Revolver)   15            n/a    n/a    n/a 
New England College of Business and Finance, LLC (LLC units)               n/a    n/a    n/a 
    15            n/a    n/a    n/a 
                               
Rockdale Blackhawk, LLC   n/a    n/a    n/a    920         
Rockdale Blackhawk, LLC (Capex)   n/a    n/a    n/a    41         
Rockdale Blackhawk, LLC (Revolver)   n/a    n/a    n/a    137         
Rockdale Blackhawk, LLC (Revolver)   n/a    n/a    n/a    240         
Rockdale Blackhawk, LLC (Revolver)   n/a    n/a    n/a    104         
Rockdale Blackhawk, LLC (LLC interest)   n/a    n/a    n/a             
    n/a    n/a    n/a    1,442         
                               
SHI Holdings, Inc.   261            249         
SHI Holdings, Inc. (Revolver)   349            249         
SHI Holdings, Inc. (Common Stock)                        
    610            498         
                               
Summit Container Corporation   257            399        83 
Summit Container Corporation               108         
Summit Container Corporation (Revolver)   439            149         
Summit Container Corporation (Warrant)                        
    696            656        83 
                               
TPP Operating, Inc.   n/a    n/a    n/a             
TPP Operating, Inc.   n/a    n/a    n/a             
TPP Operating, Inc.   n/a    n/a    n/a             
TPP Operating, Inc. (Common Stock)   n/a    n/a    n/a             
TPP Operating, Inc. (Common Stock)   n/a    n/a    n/a             
    n/a    n/a    n/a             
Total non-controlled affiliate company investments  $5,488   $   $   $5,394   $   $83 
                               
Controlled affiliate company investments:                              
MRCC Senior Loan Fund I, LLC  $   $2,745   $   $   $1,075   $ 
        2,745            1,075     
Total controlled affiliate company investments  $   $2,745   $   $   $1,075   $ 

 39 

 

 

Note 6. Transactions with Related Parties

 

The Company has entered into an investment advisory agreement with MC Advisors, (the “Investment Advisory Agreement”), under which MC Advisors, subject to the overall supervision of the Board, provides investment advisory services to the Company. The Company pays MC Advisors a fee for its services under the Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee.

 

On November 4, 2019, the Board approved a change to the Investment Advisory Agreement to amend the base management fee structure. Effective July 1, 2019, the base management fee is calculated initially at an annual rate equal to 1.75% of average invested assets (calculated as total assets excluding cash, which includes assets financed using leverage); provided, however, the base management fee is calculated at an annual rate equal to 1.00% of the Company’s average invested assets (calculated as total assets excluding cash, which includes assets financed using leverage) that exceeds the product of (i) 200% and (ii) the Company’s average net assets. For the avoidance of doubt, the 200% is calculated in accordance with the asset coverage limitation as defined in the 1940 Act to give effect to the Company’s exemptive relief with respect to MRCC SBIC’s SBA debentures. This change has the effect of reducing the Company’s base management fee rate on assets in excess of regulatory leverage of 1:1 debt to equity to 1.00% per annum. The base management fee is payable quarterly in arrears.

 

For the period from January 1, 2018 through June 30, 2019, the base management fee was calculated at an annual rate equal to 1.75% of average invested assets (calculated as total assets excluding cash, which included assets financed using leverage) and was payable quarterly in arrears.

 

Base management fees for the three and nine months ended September 30, 2019 were $2,785 and $8,029, respectively. Base management fees for the three and nine months ended September 30, 2018 were $2,196 and $6,561, respectively.

 

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of “pre-incentive fee net investment income” for the immediately preceding quarter, subject to a 2% (8% annualized) preferred return, or “hurdle,” and a “catch up” feature. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of pre-incentive fee net investment income will be payable except to the extent that 20% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters (the “Incentive Fee Limitation”). Therefore, any ordinary income incentive fee that is payable in a calendar quarter will be limited to the lesser of (1) 20% of the amount by which pre-incentive fee net investment income for such calendar quarter exceeds the 2% hurdle, subject to the “catch-up” provision, and (2) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of pre-incentive fee net investment income, realized gains and losses and unrealized gains and losses for the then current and 11 preceding calendar quarters. The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year in an amount equal to 20% of realized capital gains, if any, on a cumulative basis from inception through the end of the year, computed net of all realized capital losses on a cumulative basis and unrealized depreciation, less the aggregate amount of any previously paid capital gain incentive fees.

 

The composition of the Company’s incentive fees was as follows:

 

   Three months ended September 30,   Nine months ended September 30, 
   2019   2018   2019   2018 
Part one incentive fees (1)  $1,618   $1,545   $4,888   $5,170 
Part two incentive fees (2)                
Incentive Fee Limitation   (149)   (1,545)   (651)   (3,419)
Incentive fees, excluding the impact of the incentive fee waiver   1,469        4,237    1,751 
Incentive fee waiver (3)   (616)       (1,182)    
Total incentive fees, net of incentive fee waiver  $853   $   $3,055   $1,751 

 

 

(1) Based on net investment income.
(2) Based upon net realized and unrealized gains and losses, or capital gains. The Company accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. If, on a cumulative basis, the sum of net realized gain (loss) plus net unrealized gain (loss) decreases during a period, the Company will reverse any excess capital gains incentive fee previously accrued such that the amount of capital gains incentive fee accrued is no more than 20% of the sum of net realized gain (loss) plus net unrealized gain (loss).
(3) Represents part one incentive fees waived by MC Advisors.

 

 40 

 

 

The Company has entered into an administration agreement with MC Management (the “Administration Agreement”), under which the Company reimburses MC Management, subject to the review and approval of the Board, for its allocable portion of overhead and other expenses, including the costs of furnishing the Company with office facilities and equipment and providing clerical, bookkeeping, record-keeping and other administrative services at such facilities, and the Company’s allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs. To the extent that MC Management outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit to MC Management. For the three and nine months ended September 30, 2019, the Company incurred $865 and $2,604, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, of which $322 and $988, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. For the three and nine months ended September 30, 2018, the Company incurred $925 and $2,581, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, of which $327 and $973, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. As of September 30, 2019 and December 31, 2018, $322 and $342, respectively, of expenses were due to MC Management under this agreement and are included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities.

 

The Company has entered into a license agreement with Monroe Capital LLC under which Monroe Capital LLC has agreed to grant the Company a non-exclusive, royalty-free license to use the name “Monroe Capital” for specified purposes in its business. Under this agreement, the Company has the right to use the “Monroe Capital” name at no cost, subject to certain conditions, for so long as MC Advisors or one of its affiliates remains its investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Monroe Capital” name or logo.

 

Note 7. Borrowings

 

On June 20, 2018, the Company’s stockholders approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act to the Company. As a result of this approval, the Company is now permitted to borrow amounts such that its asset coverage ratio, as defined in the 1940 Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of September 30, 2019 and December 31, 2018, the Company’s asset coverage ratio based on aggregate borrowings outstanding was 175% and 223%, respectively.

 

Revolving Credit Facility: On March 1, 2019, the Company amended and restated its revolving credit facility (as amended and restated and further amended on March 20, 2019, the “Amended Credit Agreement”) with ING Capital LLC, as agent. Among other things, the Amended Credit Agreement increased the size of the facility from $200,000 to $255,000 (with an accordion feature that permits the Company, under certain circumstances, to increase the size of the facility up to $400,000), extended the period during which the Company may make draws under the revolving credit facility from expiring on December 14, 2019 to expiring on March 1, 2023, extended the final maturity date from December 14, 2020 to March 1, 2024, lowered the interest rate margins (a) for LIBOR loans (which may be one, three or six month, at the Company’s option), from 2.75% to 2.375% and (b) for alternate base rate loans, from 1.75% to 1.375%, reduced the asset coverage covenant from 2.1 to 1 to 1.5 to 1, replaced the consolidated interest coverage ratio with a minimum senior debt coverage ratio of 2 to 1 (in addition to the asset coverage ratio noted above), and increased the advance rate against certain types of assets in the Company’s portfolio. The Company incurred expenses of $1,751 in conjunction with the amendment and restatement which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

On September 27, 2019, the Company entered into a second amendment to its revolving credit facility to, among other things, amend the borrowing base to increase the amount of borrowing that can be collateralized by investments structured based on loan-to-value metrics, with corresponding adjustments to the concentration limits. The size, pricing and other significant terms of the revolving credit facility remain unchanged. The Company incurred expenses of $180 in conjunction with this amendment which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

As of September 30, 2019, the maximum amount the Company was able to borrow was $255,000 and this maximum can be increased to $400,000 pursuant to an accordion feature (subject to maintaining 150% asset coverage, as defined by the 1940 Act). The revolving credit facility is secured by a lien on all of the Company’s assets, including cash on hand, but excluding the assets of the Company’s wholly-owned subsidiary, MRCC SBIC. The Company may make draws under the revolving credit facility to make or purchase additional investments through March 1, 2023 and for general working capital purposes until March 1, 2024, the maturity date of the revolving credit facility.

 

The Company’s ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits the Company to borrow up to 72.5% of the fair market value of its portfolio company investments depending on the type of the investment the Company holds and whether the investment is quoted. The Company’s ability to borrow is also subject to certain concentration limits, and continued compliance with the representations, warranties and covenants given by the Company under the facility. The revolving credit facility contains certain financial and restrictive covenants, including, but not limited to, the Company’s maintenance of: (1) a minimum consolidated total net assets at least equal to $175,000 plus 65% of the net proceeds to the Company from sales of its equity securities after March 1, 2019; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 1.5 to 1; and (3) a senior debt coverage ratio of at least 2 to 1. The revolving credit facility also requires the Company to undertake customary indemnification obligations with respect to ING Capital LLC and other members of the lending group and to reimburse the lenders for expenses associated with entering into the credit facility. The revolving credit facility also has customary provisions regarding events of default, including events of default for nonpayment, change in control transactions at both Monroe Capital Corporation and MC Advisors, failure to comply with financial and negative covenants, and failure to maintain the Company’s relationship with MC Advisors. If the Company incurs an event of default under the revolving credit facility and fails to remedy such default under any applicable grace period, if any, then the entire revolving credit facility could become immediately due and payable, which would materially and adversely affect the Company’s liquidity, financial condition, results of operations and cash flows.

 

The Company’s revolving credit facility also imposes certain conditions that may limit the amount of the Company’s distributions to stockholders. Distributions payable in the Company’s common stock under the DRIP are not limited by the revolving credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain the Company’s status as a RIC.

 

 41 

 

 

As of September 30, 2019, the Company had U.S. dollar borrowings of $198,450 and non-U.S. dollar borrowings denominated in Great Britain pounds of £14,800 ($18,188 in U.S. dollars) under the revolving credit facility. As of December 31, 2018, the Company had U.S. dollar borrowings of $117,150 and non-U.S. dollar borrowings denominated in Great Britain pounds of £14,800 ($18,876 in U.S. dollars) under the revolving credit facility. The borrowings denominated in Great Britain pounds may be positively or negatively affected by movements in the rate of exchange between the U.S. dollar and the Great Britain pound. These movements are beyond the control of the Company and cannot be predicted. The borrowings denominated in Great Britain pounds are translated into U.S. dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign currency borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions on the Company’s consolidated statements of operations and totaled $602 and $688 for the three and nine months ended September 30, 2019 and $260 and $613 for the three and nine months ended September 30, 2018, respectively.

 

Borrowings under the revolving credit facility bear interest, at the Company’s election, at an annual rate of LIBOR (one-month, three-month or six-month at the Company’s discretion based on the term of the borrowing) plus 2.375% or at a daily rate equal to 1.375% per annum plus the greater of the prime interest rate, the federal funds rate plus 0.5% or LIBOR plus 1.0%. In addition to the stated interest rate on borrowings under the revolving credit facility, the Company is required to pay a fee of 0.5% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 35% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 35% of the then available maximum borrowing. As of September 30, 2019 and December 31, 2018, the outstanding borrowings were accruing at a weighted average interest rate of 4.4% and 5.0%, respectively.

 

2023 Notes: On September 12, 2018, the Company closed a public offering of 2,760,000 units of senior unsecured notes at a public offering price of $25.00 per unit, resulting in aggregate principal and gross proceeds of $69,000. Aggregate underwriters’ discounts and commissions were $2,156 and deferred financing costs were $450, resulting in net proceeds of approximately $66,394. On March 20, 2019, the Company closed a registered direct offering of 1,600,000 units of 2023 Notes at an offering price of $24.75 per unit, resulting in additional aggregate principal of $40,000 and gross proceeds of $39,600. Placement agent fees were $530 and deferred financing costs were $754, resulting in net proceeds of approximately $38,316. The 2023 Notes mature on October 31, 2023. Interest on the 2023 Notes is paid quarterly on January 31, April 30, July 31, and October 31, at an annual rate of 5.75%. The Company may redeem the 2023 Notes in whole or in part at any time or from time to time on or after October 31, 2020. The 2023 Notes are general, unsecured obligations and rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness. The 2023 Notes are listed on The Nasdaq Global Select Market under the trading symbol MRCCL.

 

SBA Debentures: On February 28, 2014, the Company’s wholly-owned subsidiary, MRCC SBIC received a license from the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013.

 

The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, has a superior claim to MRCC SBIC’s assets over the Company’s stockholders in the event the Company liquidates MRCC SBIC, or the SBA exercises its remedies upon an event of default. As of September 30, 2019, MRCC SBIC had $20,776 in cash and $148,228 in investments at fair value. As of December 31, 2018, MRCC SBIC had $13,982 in cash and $161,014 in investments at fair value.

 

SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $175,000 when it has at least $87,500 in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also limits a related group of SBICs (commonly referred to as a “family of funds”) to a maximum of $350,000 in total borrowings.

 

As of both September 30, 2019 and December 31, 2018, MRCC SBIC had $57,624 in leverageable capital and the following SBA debentures outstanding:

 

Maturity Date  Interest Rate   Amount 
September 2024   3.4%  $12,920 
March 2025   3.3%   14,800 
March 2025   2.9%   7,080 
September 2025   3.6%   5,200 
March 2027   3.5%   20,000 
September 2027   3.2%   32,100 
March 2028   3.9%   18,520 
September 2028   4.2%   4,380 
Total       $115,000 

 

 42 

 

 

On October 2, 2014, the Company was granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the asset coverage test under the 1940 Act. The receipt of this exemption for this SBA debt increases flexibility under the asset coverage test.

 

Components of interest expense: The components of the Company’s interest expense and other debt financing expenses, average outstanding balances and average stated interest rates (i.e. the rate in effect plus spread) were as follows:

 

   Three months ended September 30, 
   2019   2018 
Interest expense – revolving credit facility  $2,518   $1,347 
Interest expense – 2023 Notes   1,567    209 
Interest expense – SBA debentures   991    984 
Amortization of deferred financing costs   473    355 
Total interest and other debt financing expenses  $5,549   $2,895 
Average outstanding balance  $436,080   $231,492 
Average stated interest rate   4.6%   4.3%

 

   Nine months ended September 30, 
   2019   2018 
Interest expense – revolving credit facility  $6,505   $4,455 
Interest expense – 2023 Notes   4,189    209 
Interest expense – SBA debentures   2,942    2,822 
Amortization of deferred financing costs   1,374    951 
Total interest and other debt financing expenses  $15,010   $8,437 
Average outstanding balance  $388,728   $235,520 
Average stated interest rate   4.5%   4.2%

 

 Note 8. Derivative Instruments

 

The Company enters into foreign currency forward contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on future interest cash flows from the Company’s investments denominated in foreign currencies. As of September 30, 2019 and December 31, 2018, the counterparty to these foreign currency forward contracts was Bannockburn Global Forex, LLC. Net unrealized gain or loss on foreign currency forward contracts are included in net change in unrealized gain (loss) from foreign currency forward contracts and net realized gain or loss on forward currency forward contracts are included in net realized gain (loss) from foreign currency forward contracts on the accompanying consolidated statements of operations.

 

Certain information related to the Company’s foreign currency forward contracts is presented below as of September 30, 2019 and December 31, 2018.

  

   As of September 30, 2019
  

Notional

Amount to be
Sold

  

Settlement

Date

 

Gross
Amount of

Unrealized
Gain

  

Gross

Amount of

Unrealized

Loss

   Balance Sheet location of Net Amounts
Foreign currency forward contract  £105   10/1/2019  $6   $         —   Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   11/29/2019   12       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £104   1/2/2020   6       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £231   2/28/2020   12       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £103   4/1/2020   6       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £102   5/5/2020   5       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   5/29/2020   12       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   8/28/2020   12       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £229   11/30/2020   12       Unrealized gain on foreign currency forward contracts
Total  £1,564      $83   $    

 

 43 

 

 

   As of December 31, 2018
  

Notional

Amount to be
Sold

  

Settlement

Date

 

Gross
Amount of

Unrealized
Gain

  

Gross

Amount of

Unrealized

Loss

   Balance Sheet location of Net Amounts
Foreign currency forward contract  £107   1/2/2019  $1   $          —   Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £228   2/28/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £106   4/1/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £229   5/31/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £106   7/1/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   8/30/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £105   10/1/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   11/29/2019   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £104   1/2/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £231   2/28/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £103   4/1/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £102   5/5/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   5/29/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £230   8/28/2020   1       Unrealized gain on foreign currency forward contracts
Foreign currency forward contract  £229   11/30/2020   2       Unrealized gain on foreign currency forward contracts
Total  £2,570      $16   $    

 

For the three and nine months ended September 30, 2019, the Company recognized net change in unrealized gain (loss) on foreign currency forward contracts of $60 and $67, respectively. For the three and nine months ended September 30, 2018, the Company recognized net change in unrealized gain (loss) on foreign currency forward contracts of ($58) and ($58), respectively. For the three and nine months ended September 30, 2019, the Company recognized net realized gain (loss) on foreign currency forward contracts of $16 and $10, respectively. For both the three and nine months ended September 30, 2018, the Company recognized net realized gain (loss) on foreign currency forward contracts of zero.

 

 Note 9. Distributions

 

 The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the nine months ended September 30, 2019 and 2018:

  

Date
Declared
  Record
Date
  Payment
Date
  Amount
Per Share
   Cash
Distribution
   DRIP
Shares
Issued
   DRIP
Shares
Value
   DRIP Shares
Repurchased
in the Open
Market
   Cost of
DRIP Shares
Repurchased
 
Nine months ended September 30, 2019:                                    
March 5, 2019  March 15, 2019  March 29, 2019  $0.35   $7,156       $    27,498   $342 
May 31, 2019  June 14, 2019  June 28, 2019   0.35    7,156            30,802    363 
September 3, 2019  September 16, 2019  September 30, 2019   0.35    7,156            33,674    355 
Total distributions declared        $1.05   $21,468       $    91,974   $1,060 
                                     
Nine months ended September 30, 2018:                                    
March 1, 2018  March 16, 2018  March 30, 2018  $0.35   $7,084       $    23,908   $301 
June 1, 2018  June 15, 2018  June 29, 2018   0.35    6,786    22,308    301         
August 31, 2018  September 14, 2018  September 28, 2018   0.35    7,156            24,946    338 
Total distributions declared        $1.05   $21,026    22,308   $301    48,854   $639 

 

Note 10. Stock Issuances and Repurchases

 

Stock Issuances: On May 12, 2017, the Company entered into its current at-the-market (“ATM”) securities offering program with JMP Securities LLC (“JMP”) and FBR Capital Markets & Co. (“FBR”) (the “ATM Program”). During the nine months ended September 30, 2018, the Company sold 182,299 shares at an average price of $13.82 per share for gross proceeds of $2,519 under the ATM program. Aggregate underwriter’s discounts and commissions were $38 and offering costs were $79, resulting in net proceeds of approximately $2,402. There were no stock issuances during the nine months ended September 30, 2019.

 

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Note 11. Commitments and Contingencies

 

Commitments: As of September 30, 2019 and December 31, 2018, the Company had $57,651 and $56,041, respectively, in outstanding commitments to fund investments under undrawn revolvers, capital expenditure loans, delayed draw commitments and subscription agreements (excluding SLF). As described in Note 3, the Company had unfunded commitments of $7,850 and $22,800, respectively, to SLF, as of September 30, 2019 and December 31, 2018 that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee. Drawdowns of the commitments to SLF require authorization from one of the Company’s representatives on SLF’s board of managers. Management believes the Company’s available cash balances and/or ability to draw on the revolving credit facility provide sufficient funds to cover its unfunded commitments as of September 30, 2019.

 

Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these agreements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnifications to be remote.

 

Concentration of credit and counterparty risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. It is the Company’s policy to review, as necessary, the credit standing of each counterparty.

 

Market risk: The Company’s investments and borrowings are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments and borrowings are traded.

 

Legal proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company is not currently aware of any such proceedings or disposition that would have a material adverse effect on the Company’s consolidated financial statements.

 

 Note 12. Financial Highlights

 

The following is a schedule of financial highlights for the nine months ended September 30, 2019 and 2018:

 

   September 30, 2019   September 30, 2018 
Per share data:          
Net asset value at beginning of period  $12.66   $13.77 
Net investment income (1)   1.05    1.19 
Net gain (loss) (1)   (0.32)   (0.96)
Net increase in net assets from operations (1)   0.73    0.23 
Stockholder distributions - income (2)   (1.05)   (1.05)
Net asset value at end of period  $12.34   $12.95 
Net assets at end of period  $252,385   $264,752 
Shares outstanding at end of period   20,444,564    20,444,564 
Per share market value at end of period  $10.55   $13.57 
Total return based on market value (3)   20.21%   6.75%
Total return based on average net asset value (4)   5.88%   1.72%
Ratio/Supplemental data:          
Ratio of net investment income to average net assets (5)   11.55%   12.07%
Ratio of total expenses, net of incentive fee waiver, to average net assets (5) (6)   14.62%   9.35%
Portfolio turnover (7)   13.55%   24.53%

 

 

 

(1)   Calculated using the weighted average shares outstanding during the periods presented.
(2) Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. To the extent the Company’s taxable earnings fall below the total amount of the Company’s distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to the Company’s stockholders. The tax character of distributions will be determined at the end of the fiscal year. However, if the character of such distributions were determined as of September 30, 2019 and 2018, none of the distributions would have been characterized as a tax return of capital to the Company’s stockholders; this tax return of capital may differ from the return of capital calculated with reference to net investment income for financial reporting purposes.
(3) Total return based on market value is calculated assuming a purchase of common shares at the market value on the first day and a sale at the market value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s DRIP. Total return based on market value does not reflect brokerage commissions. Return calculations are not annualized.
(4) Total return based on average net asset value is calculated by dividing the net increase in net assets from operations by the average net asset value. Return calculations are not annualized.
(5) Ratios are annualized. Incentive fees included within the ratio are not annualized.

 

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(6) The following is a schedule of supplemental ratios for the nine months ended September 30, 2019 and 2018. These ratios have been annualized unless otherwise noted.

 

   September 30, 2019   September 30, 2018 
Ratio of interest and other debt financing expenses to average net assets   7.82%   4.15%
Ratio of total expenses (without incentive fees) to average net assets   13.43%   8.71%
Ratio of incentive fees, net of incentive fee waiver, to average net assets (7) (8)     1.19%   0.64%

 

(7) Ratios are not annualized.
(8) The ratio of waived incentive fees to average net assets was 0.46% and zero for nine months ended September 30, 2019 and 2018, respectively.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Except as otherwise specified, references to “we,” “us” and “our” refer to Monroe Capital Corporation and its consolidated subsidiaries; MC Advisors refers to Monroe Capital BDC Advisors, LLC, our investment adviser and a Delaware limited liability company; MC Management refers to Monroe Capital Management Advisors, LLC, our administrator and a Delaware limited liability company; and Monroe Capital refers to Monroe Capital LLC, a Delaware limited liability company, and its subsidiaries and affiliates. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in our annual report on Form 10-K (the “Annual Report”) for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2019. The information contained in this section should also be read in conjunction with our unaudited consolidated financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q (the “Quarterly Report”).

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to future events or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties, including statements as to:

 

  our future operating results;

 

  our business prospects and the prospects of our portfolio companies;

 

  the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

  the impact of a protracted decline in the liquidity of credit markets on our business;

 

  the impact of increased competition;

 

  the impact of fluctuations in interest rates on our business and our portfolio companies;

 

  our contractual arrangements and relationships with third parties;

 

  the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

  actual and potential conflicts of interest with MC Advisors, MC Management and other affiliates of Monroe Capital;

 

  the ability of our portfolio companies to achieve their objectives;

 

  the use of borrowed money to finance a portion of our investments;

 

  the adequacy of our financing sources and working capital;

 

  the timing of cash flows, if any, from the operations of our portfolio companies;

 

  the ability of MC Advisors to locate suitable investments for us and to monitor and administer our investments;

 

  the ability of MC Advisors or its affiliates to attract and retain highly talented professionals;

 

  our ability to qualify and maintain our qualification as a regulated investment company and as a business development company; and

 

  the impact of future legislation and regulation on our business and our portfolio companies.

 

We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks,” “plans,” “estimates,” “targets” and similar expressions to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I-Item 1A. Risk Factors” in our Annual Report and “Part II-Item 1A. Risk Factors” in this Quarterly Report.

 

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statements in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved.

 

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We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K.

 

Overview 

 

Monroe Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, we have elected to be treated as a regulated investment company (“RIC”) under the subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the United States and Canada. We provide customized financing solutions focused primarily on senior secured, junior secured and unitranche secured (a combination of senior secured and junior secured debt in the same facility in which we syndicate a “first out” portion of the loan to an investor and retain a “last out” portion of the loan) debt and, to a lesser extent, unsecured subordinated debt and equity, including equity co-investments in preferred and common stock, and warrants.

 

Our shares are currently listed on the NASDAQ Global Select Market under the symbol “MRCC”.

 

Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured, unitranche secured and junior secured debt and, to a lesser extent, subordinated debt and equity investments. We seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured, unitranche secured and junior secured debt of middle-market companies. Our investments will generally range between $2.0 million and $18.0 million each, although this investment size may vary proportionately with the size of our capital base. As of September 30, 2019, our portfolio included approximately 78.2% senior secured debt, 11.7% unitranche secured debt, 2.1% junior secured debt and 8.0% equity securities, compared to December 31, 2018, when our portfolio included approximately 79.3% senior secured debt, 10.6% unitranche secured debt, 3.8% junior secured debt and 6.3% equity securities. We expect that the companies in which we invest may be leveraged, often as a result of leveraged buy-outs or other recapitalization transactions, and, in certain cases, will not be rated by national ratings agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor’s system) from the national rating agencies.

 

While our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private U.S. companies, we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in high-yield bonds, distressed debt, private equity or securities of public companies that are not thinly traded, and securities of middle-market companies located outside of the United States. We expect that these public companies generally will have debt securities that are non-investment grade.

 

On February 28, 2014, our wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (“MRCC SBIC”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Act of 1958. MRCC SBIC commenced operations on September 16, 2013. See “SBA Debentures” below for more information.

 

On September 12, 2018, we closed a public offering of $69.0 million in aggregate principal amount of senior unsecured notes (“2023 Notes”). On March 20, 2019, we completed a registered direct offering of $40.0 million in additional aggregate principal amount of our 2023 Notes. See “2023 Notes” below for more information.

 

Investment income

 

We generate interest income on the debt investments in portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, unitranche secured or junior secured debt, typically have an initial term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investment based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. In some cases, our investments provide for deferred interest of payment-in-kind (“PIK”) interest. In addition, we may generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums and prepayment gains (losses) on loans as interest income. As the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains (losses) may fluctuate significantly from period to period, the associated interest income recorded may also fluctuate significantly from period to period. Interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts. Interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments. Interest is accrued on a daily basis. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

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Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. The frequency and volume of the distributions on common equity securities and LLC and LP investments may fluctuate significantly from period to period.

 

Expenses

 

Our primary operating expenses include the payment of base management and incentive fees to MC Advisors, under the investment advisory and management agreement (the “Investment Advisory Agreement”), the payment of fees to MC Management for our allocable portion of overhead and other expenses under the administration agreement (the “Administration Agreement”) and other operating costs. See Note 6 to our consolidated financial statements and “Related Party Transactions” below for additional information on our Investment Advisory Agreement and Administration Agreement. Our expenses also include interest expense on our various forms of indebtedness. We bear all other out-of-pocket costs and expenses of our operations and transactions.

 

Net gain (loss)

 

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments, foreign currency forward contracts, foreign currency and other transactions within net change in unrealized gain (loss) on the consolidated statements of operations.

 

Portfolio and Investment Activity

 

During the three months ended September 30, 2019, we invested $20.7 million in three new portfolio companies and $37.0 million in 28 existing portfolio companies and had $28.8 million in aggregate amount of sales and principal repayments, resulting in net investments of $28.9 million for the period.

 

During the nine months ended September 30, 2019, we invested $91.6 million in 17 new portfolio companies and $96.7 million in 32 existing portfolio companies and had $82.6 million in aggregate amount of sales and principal repayments, resulting in net investments of $105.7 million for the period.

 

During the three months ended September 30, 2018, we invested $0.9 million in one new portfolio company and $51.2 million in 20 existing portfolio companies and had $60.4 million in aggregate amount of sales and principal repayments, resulting in net repayments of $8.3 million for the period.

 

During the nine months ended September 30, 2018, we invested $19.4 million in seven new portfolio companies and $105.5 million in 27 existing portfolio companies and had $120.8 million in aggregate amount of sales and principal repayments, resulting in net investments of $4.1 million for the period.

 

The following table shows portfolio yield by security type:

 

   September 30, 2019   December 31, 2018 
   Weighted Average
Annualized
Contractual
Coupon
Yield (1)
   Weighted
Average
Annualized
Effective
Yield (2)
   Weighted Average
Annualized
Contractual
Coupon
Yield (1)
   Weighted
Average
Annualized
Effective
Yield (2)
 
Senior secured loans   9.3%   9.3%   10.2%   10.2%
Unitranche secured loans   9.6    10.1    10.3    10.8 
Junior secured loans   9.4    9.4    9.0    9.0 
Preferred equity securities   0.5    0.5    0.5    0.5 
Total   9.2%   9.3%   10.0%   10.0%

 

 

(1) The weighted average annualized contractual coupon yield at period end is computed by dividing (a) the interest income on debt investments and preferred equity investments (with a stated coupon rate) at the period end contractual coupon rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual within this metric as management believes this disclosure provides a better indication of return on invested capital. This exclusion impacts only the junior secured loans and total disclosed above. The weighted average contractual coupon yield including debt investments acquired for no cost in a restructuring on non-accrual status was 4.9% for junior secured loans and 9.0% in total as of September 30, 2019. The weighted average contractual coupon yield including debt investments acquired for no cost in a restructuring on non-accrual status was 5.6% for junior secured loans and 9.8% in total as of December 31, 2018.

 

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(2) The weighted average annualized effective yield on portfolio investments at period end is computed by dividing (a) interest income on debt investments and preferred equity investments (with a stated coupon rate) at the period end effective rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual within this metric as management believes this disclosure provides a better indication of return on invested capital. This exclusion impacts only the junior secured loans and total disclosed above. The weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 4.9% for junior secured loans and 9.1% in total as of September 30, 2019. The weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 5.6% for junior secured loans and 9.8% in total as of December 31, 2018. The weighted average annualized effective yield on portfolio investments is a metric on the investment portfolio alone and does not represent a return to stockholders. This metric is not inclusive of our fees and expenses, the impact of leverage on the portfolio or sales load that may be paid by investors.

 

The following table shows the composition of our investment portfolio (in thousands):

 

   September 30, 2019   December 31, 2018 
Fair Value:                
Senior secured loans  $514,353    78.2%  $439,068    79.3%
Unitranche secured loans   76,766    11.7    58,852    10.6 
Junior secured loans   13,965    2.1    21,154    3.8 
LLC equity interest in SLF   42,669    6.5    27,634    5.0 
Equity securities   9,697    1.5    6,913    1.3 
Total  $657,450    100.0%  $553,621    100.0%

 

Our portfolio composition remained relatively consistent with December 31, 2018. The decrease in total contractual and effective yields on the portfolio during the nine months ended September 30, 2019 was primarily attributed to general decreases in LIBOR and moving three additional portfolio companies to non-accrual status.

 

The following table shows the portfolio composition by industry (in thousands):

 

   September 30, 2019   December 31, 2018 
Fair Value:                
Automotive  $7,712    1.2%  $7,878    1.4%
Banking, Finance, Insurance & Real Estate   69,213    10.5    55,839    10.1 
Beverage, Food & Tobacco   15,741    2.4    15,544    2.8 
Chemicals, Plastics & Rubber   14,610    2.2    14,971    2.7 
Construction & Building   35,363    5.4    29,791    5.4 
Consumer Goods: Durable   22,179    3.4    25,212    4.5 
Consumer Goods: Non-Durable   21,637    3.3    19,181    3.5 
Containers, Packaging & Glass   7,842    1.2    9,694    1.8 
Energy: Oil & Gas   6,205    0.9    2,516    0.4 
Environmental Industries   12,533    1.9    12,195    2.2 
Healthcare & Pharmaceuticals   51,400    7.8    52,769    9.5 
High Tech Industries   87,332    13.3    77,954    14.1 
Hotels, Gaming & Leisure   19,906    3.0    20,264    3.7 
Investment Funds & Vehicles   42,669    6.5    27,634    5.0 
Media: Advertising, Printing & Publishing   26,654    4.1    21,908    4.0 
Media: Broadcasting & Subscription   1,219    0.2    4,483    0.8 
Media: Diversified & Production   10,680    1.6    5,000    0.9 
Retail   28,958    4.4    31,866    5.8 
Services: Business   121,821    18.5    73,336    13.2 
Services: Consumer   21,561    3.3    17,846    3.2 
Wholesale   32,215    4.9    27,740    5.0 
Total  $657,450    100.0%  $553,621    100.0%

 

Portfolio Asset Quality

 

MC Advisors’ portfolio management staff closely monitors all credits, with senior portfolio managers covering agented and more complex investments. MC Advisors segregates our capital markets investments by industry. The MC Advisors’ monitoring process and projections developed by Monroe Capital both have daily, weekly, monthly and quarterly components and related reports, each to evaluate performance against historical, budget and underwriting expectations. MC Advisors’ analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance. When necessary, MC Advisors will update our internal risk ratings, borrowing base criteria and covenant compliance reports.

 

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As part of the monitoring process, MC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below, which we refer to as MC Advisors’ investment performance rating. For any investment rated in grades 3, 4 or 5, MC Advisors, through its internal Portfolio Management Group (“PMG”), will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions. The PMG is responsible for oversight and management of any investments rated in grades 3, 4, or 5. MC Advisors monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with our valuation process, MC Advisors reviews these investment ratings on a quarterly basis, and our board of directors (the “Board”) reviews and affirms such ratings. A definition of the rating system follows:

 

Investment
Performance
Risk Rating
  Summary Description
Grade 1   Includes investments exhibiting the least amount of risk in our portfolio. The issuer is performing above expectations or the issuer’s operating trends and risk factors are generally positive.
     
Grade 2   Includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination. The issuer is generally performing as expected or the risk factors are neutral to positive.
     
Grade 3   Includes investments performing below expectations and indicates that the investment’s risk has increased somewhat since origination. The issuer may be out of compliance with debt covenants; however, scheduled loan payments are generally not past due.
     
Grade 4   Includes an issuer performing materially below expectations and indicates that the issuer’s risk has increased materially since origination. In addition to the issuer being generally out of compliance with debt covenants, scheduled loan payments may be past due (but generally not more than six months past due).
     
Grade 5   Indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination. Most or all of the debt covenants are out of compliance or payments are substantially delinquent. Investments graded 5 are not anticipated to be repaid in full.

 

Our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments.

 

In the event of a delinquency or a decision to rate an investment grade 4 or grade 5, the PMG, in consultation with the investment committee, will develop an action plan. Such a plan may require a meeting with the borrower’s management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance, as well as amendments and waivers that may be required. In the event of a dramatic deterioration of a credit, MC Advisors and the PMG will form a team or engage outside advisors to analyze, evaluate and take further steps to preserve our value in the credit. In this regard, we would expect to explore all options, including in a private equity sponsored investment, assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us. The PMG and the investment committee have extensive experience in running debt work-out transactions and bankruptcies.

 

The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of September 30, 2019 (in thousands):

 

Investment Performance Risk Rating  Investments at
Fair Value
   Percentage of
Total Investments
 
1  $    %
2   535,293    81.4 
3   81,775    12.4 
4   40,382    6.2 
5        
Total  $657,450    100.0%

 

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The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of December 31, 2018 (in thousands):

 

Investment Performance Risk Rating  Investments at
Fair Value
   Percentage of
Total Investments
 
1  $    %
2   452,549    81.8 
3   57,741    10.4 
4   43,331    7.8 
5        
Total  $553,621    100.0%

 

As of September 30, 2019, we had seven borrowers with loans or preferred equity securities on non-accrual status (Curion Holdings, LLC (“Curion”), Education Corporation of America (“ECA”), Luxury Optical Holdings Co., Incipio, LLC (“Incipio”) third lien tranches, Millennial Brands LLC (“Millennial”), Rockdale Blackhawk, LLC (“Rockdale”) pre-petition debt, and The Worth Collection, Ltd.), and these investments totaled $30.7 million in fair value, or 4.7% of our total investments at fair value. As of December 31, 2018, we had five borrowers with loans or preferred equity securities on non-accrual status (Curion promissory notes, ECA, Incipio third lien tranches, Millennial, and Rockdale pre-petition debt), and these investments totaled $16.8 million in fair value, or 3.0% of our total investments at fair value. The Curion promissory notes and the Incipio third lien tranches were obtained in restructurings during the year ended December 31, 2018 for no cost. Loans or preferred equity securities are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected.

 

Results of Operations

 

Operating results were as follows (in thousands):

 

   Three months ended September 30, 
   2019   2018 
Total investment income  $17,330   $13,779 
Total expenses, net of incentive fee waiver   10,092    6,053 
Net investment income   7,238    7,726 
Net realized gain (loss) on investments   11    (5,600)
Net realized gain (loss) on foreign currency forward contracts   16     
Net realized gain (loss) on foreign currency and other transactions   (1)   (11)
Net realized gain (loss)   26    (5,611)
Net change in unrealized gain (loss) on investments   (4,273)   (3,310)
Net change in unrealized gain (loss) on foreign currency forward contracts   60    (58)
Net change in unrealized gain (loss) on foreign currency and other transactions   602    260 
Net change in unrealized gain (loss)   (3,611)   (3,108)
Net increase (decrease) in net assets resulting from operations  $3,653   $(993)

 

   Nine months ended September 30, 
   2019   2018 
Total investment income  $50,208   $43,549 
Total expenses, net of incentive fee waiver   28,823    19,452 
Net investment income   21,385    24,097 
Net realized gain (loss) on investments   46    (5,600)
Net realized gain (loss) on foreign currency forward contracts   10     
Net realized gain (loss) on foreign currency and other transactions   (3)   (8)
Net realized gain (loss)   53    (5,608)
Net change in unrealized gain (loss) on investments   (7,107)   (14,367)
Net change in unrealized gain (loss) on foreign currency forward contracts   67    (58)
Net change in unrealized gain (loss) on foreign currency and other transactions   688    613 
Net change in unrealized gain (loss)   (6,352)   (13,812)
Net increase (decrease) in net assets resulting from operations  $15,086   $4,677 

 

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Investment Income

 

The composition of our investment income was as follows (in thousands):

 

   Three months ended September 30, 
   2019   2018 
Interest income  $13,960   $11,289 
PIK interest income   1,621    733 
Dividend income (1)   1,113    838 
Fee income   57    188 
Prepayment gain (loss)   218    450 
Accretion of discounts and amortization of premium   361    281 
Total investment income  $17,330   $13,779 

 

   Nine months ended September 30, 
   2019   2018 
Interest income  $41,200   $35,962 
PIK interest income   3,936    1,389 
Dividend income (2)   2,784    1,888 
Fee income   686    1,578 
Prepayment gain (loss)   422    895 
Accretion of discounts and amortization of premium   1,180    1,837 
Total investment income  $50,208   $43,549 

 

 

(1) Includes PIK dividends of $13 and $288, respectively.
(2) Includes PIK dividends of $39 and $813, respectively.

  

The increase in investment income of $3.6 million and $6.7 million during the three and nine months ended September 30, 2019 as compared to the three and nine months ended September 30, 2018, respectively, is primarily the result of an increase in interest income (including PIK interest income) due to an increase in average outstanding loan balances and an increase in dividend income from our investment in SLF, partially offset by a decrease in fee income and prepayment gain (loss).

  

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Operating Expenses

 

The composition of our operating expenses was as follows (in thousands):

 

   Three months ended September 30, 
   2019   2018 
Interest and other debt financing expenses  $5,549   $2,895 
Base management fees   2,785    2,196 
Incentive fees, net of incentive fee waiver (1)   853     
Professional fees   262    260 
Administrative service fees   322    327 
General and administrative expenses   281    338 
Excise taxes        
Directors’ fees   40    37 
Total expenses, net of incentive fee waiver  $10,092   $6,053 

 

    Nine months ended September 30,  
    2019     2018  
Interest and other debt financing expenses   $  15,010     $ 8,437  
Base management fees     8,029       6,561  
Incentive fees, net of incentive fee waiver (1)     3,055       1,751  
Professional fees      823       869  
Administrative service fees      988       973  
General and administrative expenses      793       739  
Excise taxes      10       11  
Directors’ fees      115       111  
Total expenses, net of incentive fee waiver   $ 28,823     $ 19,452  

 

 

(1) During the three and nine months ended September 30, 2019, MC Advisors waived part one incentive fees (based on net investment income) of $616 thousand and $1,182 thousand, respectively. During the three and nine months ended September 30, 2018, no incentive fees were waived. Incentive fees during the three and nine months ended September 30, 2019 were limited by $149 thousand and $651 thousand, respectively, due to the Incentive Fee Limitation. During the three and nine months ended September 30, 2018, incentive fees were limited by $1,545 thousand and $3,419 thousand, respectively, due to the Incentive Fee Limitation. See Note 6 in our attached consolidated financial statements for additional information on the Incentive Fee Limitation.

 

The composition of our interest and other debt financing expenses, average outstanding balances and average stated interest rates (i.e. the rate in effect plus spread) were as follows (in thousands): 

 

   Three months ended September 30, 
   2019   2018 
Interest expense – revolving credit facility  $2,518   $1,347 
Interest expense – 2023 Notes   1,567    209 
Interest expense – SBA debentures   991    984 
Amortization of deferred financing costs   473    355 
Total interest and other debt financing expenses  $5,549   $2,895 
Average outstanding balance  $436,080   $231,492 
Average stated interest rate   4.6%   4.3%

 

   Nine months ended September 30, 
   2019   2018 
Interest expense – revolving credit facility  $6,505   $4,455 
Interest expense – 2023 Notes   4,189    209 
Interest expense – SBA debentures   2,942    2,822 
Amortization of deferred financing costs   1,374    951 
Total interest and other debt financing expenses  $15,010   $8,437 
Average outstanding balance  $388,728   $235,520 
Average stated interest rate   4.5%   4.2%

 

The increase in expenses of $4.0 million and $9.4 million during the three and nine months ended September 30, 2019, as compared to the three and nine months ended September 30, 2018, respectively, is primarily due to an increase in interest expense as a result of additional borrowings (primarily the 2023 Notes and revolving credit facility) to support the larger average portfolio size, an increase in base management fees due to the growth in invested assets, and an increase in incentive fees primarily due to the more significant Incentive Fee Limitation during the prior year periods.

 

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Net Realized Gain (Loss)

 

During the three months ended September 30, 2019 and 2018, we had sales of investments of $0.8 million and $10.0 million, respectively, resulting in $11 thousand and ($5.6) million of net realized gain (loss), respectively. During the nine months ended September 30, 2019 and 2018, we had sales of investments of $1.5 million and $10.0 million, respectively, resulting in $46 thousand and ($5.6) million of net realized gain (loss), respectively.

 

We may enter into foreign currency forward contracts to reduce our exposure to foreign currency exchange rate fluctuations. During the three months ended September 30, 2019 and 2018, we had $16 thousand and zero of net realized gain (loss) on foreign currency forward contracts, respectively. For the nine months ended September 30, 2019 and 2018, the Company recognized net realized gain (loss) on foreign currency forward contracts of $10 thousand and zero, respectively. During the three months ended September 30, 2019 and 2018, we had ($1) thousand and ($11) thousand of net realized gain (loss) on foreign currency and other transactions, respectively. During the nine months ended September 30, 2019 and 2018, we had ($3) thousand and ($8) thousand of net realized gain (loss) on foreign currency and other transactions, respectively.

 

Net Change in Unrealized Gain (Loss)

 

For the three months ended September 30, 2019 and 2018, our investments had ($4.3) million and ($3.3) million of net change in unrealized gain (loss), respectively. The net change in unrealized gain (loss) includes both unrealized gain on investments in our portfolio with mark-to-market gains during the period and unrealized loss on investments in our portfolio with mark-to-market losses during the period. For the three months ended September 30, 2019 and 2018, our foreign currency forward contracts had $60 thousand and ($58) thousand of net change in unrealized gain (loss), respectively. For the three months ended September 30, 2019 and 2018, our foreign currency borrowings had $0.6 million and $0.3 million of net change in unrealized gain (loss), respectively.

 

For the nine months ended September 30, 2019 and 2018, our investments had ($7.1) million and ($14.4) million of net change in unrealized gain (loss), respectively. The net change in unrealized gain (loss) includes both unrealized gain on investments in our portfolio with mark-to-market gains during the period and unrealized loss on investments in our portfolio with mark-to-market losses during the period. For the nine months ended September 30, 2019 and 2018, our foreign currency forward contracts had $67 thousand and ($58) thousand of net change in unrealized gain (loss), respectively. For the nine months ended September 30, 2019 and 2018, our foreign currency borrowings had $0.7 million and $0.6 million of net change in unrealized gain (loss), respectively.

 

Net Increase (Decrease) in Net Assets Resulting from Operations

 

For the three months ended September 30, 2019 and 2018, the net increase (decrease) in net assets from operations was $3.7 million and ($1.0) million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended September 30, 2019 and 2018, our per share net increase (decrease) in net assets resulting from operations was $0.17 and ($0.05), respectively. The $4.7 million increase during the three months ended September 30, 2019 as compared to the three months ended September 30, 2018, is primarily the result of a decrease in net unrealized mark-to-market losses on investments in the portfolio, partially offset by a decrease in net investment income.

  

For the nine months ended September 30, 2019 and 2018, the net increase (decrease) in net assets from operations was $15.1 million and $4.7 million, respectively. Based on the weighted average shares of common stock outstanding for the nine months ended September 30, 2019 and 2018, our per share net increase (decrease) in net assets resulting from operations was $0.73 and $0.23, respectively. The $10.4 million increase during the nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, is primarily the result of a decrease in net unrealized mark-to-market losses on investments in the portfolio, partially offset by a decrease in net investment income.

 

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Liquidity and Capital Resources

 

As of September 30, 2019, we had $3.2 million in cash, $20.8 million in cash at MRCC SBIC, $216.6 million of total debt outstanding on our revolving credit facility, $109.0 million in 2023 Notes and $115.0 million in outstanding SBA debentures. We had $38.4 million available for additional borrowings on our revolving credit facility. See “Borrowings” below for additional information.

 

Cash Flows

 

For the nine months ended September 30, 2019 and 2018, we experienced a net increase (decrease) in cash and restricted cash of $6.2 million and $2.7 million, respectively. For the nine months ended September 30, 2019, operating activities used $90.0 million, primarily as a result of purchases of portfolio investments and net investment income, partially offset by principal repayments on portfolio investments. For the nine months ended September 30, 2018, operating activities provided $14.8 million, primarily as a result of principal repayments on portfolio investments and net investment income, partially offset by purchases of portfolio investments. During the nine months ended September 30, 2019, we generated $96.2 million from financing activities, primarily as a result of net proceeds from net borrowings on our revolving credit facility and 2023 Notes, partially offset by distributions to stockholders. During the nine months ended September 30, 2018, we used $12.1 million in financing activities, primarily as a result of distributions to stockholders and net repayments on our revolving credit facility, partially offset by proceeds from our 2023 Notes (net of deferred financing costs payments) and SBA debenture borrowings.

 

Capital Resources

 

As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. We intend to generate additional cash primarily from future offerings of securities, future borrowings and cash flows from operations, including income earned from investments in our portfolio companies. On both a short-term and long-term basis, our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders.

 

As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board, including independent directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders have approved such sales. On June 19, 2019 our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year, subject to certain limitations. As of September 30, 2019 and December 31, 2018, we had 20,444,564 and 20,444,564 shares outstanding, respectively.

 

On June 24, 2015, our stockholders approved a proposal to authorize us to issue warrants, options or rights to subscribe to, convert to, or purchase our common stock in one or more offerings. This is a standing authorization and does not require annual re-approval by our stockholders.

 

On June 20, 2018, our stockholders approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result of this approval, we are now permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of September 30, 2019 and December 31, 2018, our asset coverage ratio based on aggregate borrowings outstanding was 175% and 223%, respectively.

 

Stock Issuances: On May 12, 2017, we entered into our current at-the-market (“ATM”) securities offering program with JMP Securities LLC (“JMP”) and FBR Capital Markets & Co. (“FBR”) (the “ATM Program”). During the nine months ended September 30, 2018, we sold 182,299 shares at an average price of $13.82 per share for gross proceeds of $2.5 million under the ATM. Aggregate underwriters’ discounts and commissions were $38 thousand and offering costs were $79 thousand, resulting in net proceeds of approximately $2.4 million. There were no stock issuances during the nine months ended September 30, 2019.

 

Borrowings

 

Revolving Credit Facility: On March 1, 2019, we amended and restated our revolving credit facility (as amended and restated and further amended on March 20, 2019, the “Amended Credit Agreement”) with ING Capital LLC, as agent. Among other things, the Amended Credit Agreement increased the size of the facility from $200.0 million to $255.0 million (with an accordion feature that permits us, under certain circumstances, to increase the size of the facility up to $400.0 million), extended the period during which we may make draws under the revolving credit facility from expiring on December 14, 2019 to expiring on March 1, 2023, extended the final maturity date from December 14, 2020 to March 1, 2024, lowered the interest rate margins (a) for LIBOR loans (which may be one, three or six month, at the Company’s option), from 2.75% to 2.375% and (b) for alternate base rate loans, from 1.75% to 1.375%, reduced the asset coverage covenant from 2.1 to 1 to 1.5 to 1, replaced the consolidated interest coverage ratio with a minimum senior debt coverage ratio of 2 to 1 (in addition to the asset coverage ratio noted above), and increased the advance rate against certain types of assets in our portfolio. We incurred expenses of $1.8 million in conjunction with the amendment and restatement which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

On September 27, 2019, we entered into a second amendment to our revolving credit facility to, among other things, amend the borrowing base to increase the amount of borrowing that can be collateralized by investments structured based on loan-to-value metrics, with corresponding adjustments to the concentration limits. The size, pricing and other significant terms of the revolving credit facility remain unchanged. We incurred expenses of $0.2 million in conjunction with this amendment which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

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As of September 30, 2019, the maximum amount we are able to borrow was $255.0 million and this maximum can be increased to $400.0 million pursuant to an accordion feature (subject to maintaining 150% asset coverage, as defined by the 1940 Act). The revolving credit facility is secured by a lien on all of our assets, including cash on hand, but excluding the assets of our wholly-owned subsidiary, MRCC SBIC. We may make draws under the revolving credit facility to make or purchase additional investments through March 1, 2023 and for general working capital purposes until March 1, 2024, the maturity date of the revolving credit facility.

 

Our ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits us to borrow up to 72.5% of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted. Our ability to borrow is also subject to certain concentration limits, and continued compliance with the representations, warranties and covenants given by us under the facility. The revolving credit facility contains certain financial and restrictive covenants, including, but not limited to, our maintenance of: (1) a minimum consolidated total net assets at least equal to $175.0 million plus 65% of the net proceeds to us from sales of our equity securities after March 1, 2019; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 1.5 to 1; and (3) a senior debt coverage ratio of at least 2 to 1. The revolving credit facility also requires us to undertake customary indemnification obligations with respect to ING Capital LLC and other members of the lending group and to reimburse the lenders for expenses associated with entering into the credit facility. The revolving credit facility also has customary provisions regarding events of default, including events of default for nonpayment, change in control transactions at both Monroe Capital Corporation and MC Advisors, failure to comply with financial and negative covenants, and failure to maintain our relationship with MC Advisors. If we incur an event of default under the revolving credit facility and fail to remedy such default under any applicable grace period, if any, then the entire revolving credit facility could become immediately due and payable, which would materially and adversely affect our liquidity, financial condition, results of operations and cash flows.

 

Our revolving credit facility also imposes certain conditions that may limit the amount of our distributions to stockholders. Distributions payable in our common stock under the DRIP are not limited by the revolving credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain our status as a RIC.

 

As of September 30, 2019, we had U.S. dollar borrowings of $198.4 million and non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.2 million in U.S. dollars) under the revolving credit facility. As of December 31, 2018, we had U.S. dollar borrowings of $117.1 million and non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.9 million in U.S. dollars) under the revolving credit facility. The borrowings denominated in Great Britain pounds may be positively or negatively affected by movements in the rate of exchange between the U.S. dollar and the Great Britain pound. These movements are beyond our control and cannot be predicted. The borrowings denominated in Great Britain pounds are translated into U.S. dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign currency borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions on our consolidated statements of operations and totaled $0.6 million and $0.7 million for the three and nine months ended September 30, 2019, and $0.3 million and $0.6 million for the three and nine months ended September 30, 2018, respectively.

 

Borrowings under the revolving credit facility bear interest, at our election, at an annual rate of LIBOR (one-month, three-month or six-month at our discretion based on the term of the borrowing) plus 2.375% or at a daily rate equal to 1.375% per annum plus the greater of the prime interest rate, the federal funds rate plus 0.5% or LIBOR plus 1.0%. In addition to the stated interest rate on borrowings under the revolving credit facility, we are required to pay a fee of 0.5% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 35% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 35% of the then available maximum borrowing. As of September 30, 2019 and December 31, 2018, the outstanding borrowings were accruing at a weighted average interest rate of 4.4% and 5.0%, respectively.

 

2023 Notes: On September 12, 2018, we closed a public offering of 2,760,000 units of senior unsecured notes at a public offering price of $25.00 per unit, resulting in aggregate principal and gross proceeds of $69.0 million. Aggregate underwriter’s discounts and commissions were $2.2 million and deferred financing costs were $0.4 million, resulting in net proceeds of approximately $66.4 million. On March 20, 2019, we closed a registered direct offering of 1,600,000 units of 2023 Notes at an offering price of $24.75 per unit, resulting in additional aggregate principal of $40.0 million and gross proceeds of $39.6 million. Placement agent fees were $0.5 million and deferred financing costs were $0.8 million, resulting in net proceeds of approximately $38.3 million. The 2023 Notes mature on October 31, 2023. Interest on the 2023 Notes is paid quarterly on January 31, April 30, July 31, and October 31, at an annual rate of 5.75%. We may redeem the 2023 Notes in whole or in part at any time or from time to time on or after October 31, 2020. The 2023 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness. The 2023 Notes are listed on The Nasdaq Global Select Market under the trading symbol MRCCL.

 

SBA Debentures: On February 28, 2014, our wholly-owned subsidiary, MRCC SBIC, received a license from the SBA to operate as a SBIC under Section 301(c) of the Small Business Investment Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013.

 

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The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, has a superior claim to MRCC SBIC’s assets over our stockholders in the event we liquidate MRCC SBIC, or the SBA exercises its remedies upon an event of default. As of September 30, 2019, MRCC SBIC had $20.8 million in cash and $148.2 million in investments at fair value. As of December 31, 2018, MRCC SBIC had $14.0 million in cash and $161.0 million in investments at fair value.

 

SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $175.0 million when it has at least $87.5 million in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also limits a related group of SBICs (commonly referred to as a “family of funds”) to a maximum of $350.0 million in total borrowings.

 

As of both September 30, 2019 and December 31, 2018, MRCC SBIC had $57.6 million in leverageable capital and the following SBA debentures outstanding (in thousands):

 

Maturity Date  Interest Rate   Amount 
September 2024   3.4%  $12,920 
March 2025   3.3%   14,800 
March 2025   2.9%   7,080 
September 2025   3.6%   5,200 
March 2027   3.5%   20,000 
September 2027   3.2%   32,100 
March 2028   3.9%   18,520 
September 2028   4.2%   4,380 
Total       $115,000 

 

On October 2, 2014, we were granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the asset coverage test under the 1940 Act. The receipt of this exemption for this SBA debt increases flexibility under the asset coverage test.

 

Distributions

 

Our Board will determine the timing and amount, if any, of our distributions. We intend to pay distributions on a quarterly basis. In order to avoid corporate-level tax on the income we distribute as a RIC, we must distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, on an annual basis out of the assets legally available for such distributions. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually out of the assets legally available for such distributions. Distributions to stockholders for the three and nine months ended September 30, 2019, totaled $7.2 million ($0.35 per share) and $21.5 million ($1.05 per share), respectively. Distributions to stockholders for the three and nine months ended September 30, 2018, totaled $7.2 million ($0.35 per share) and $21.3 million ($1.05 per share), respectively. The tax character of such distributions is determined at the end of the fiscal year. However, if the character of such distributions were determined as of September 30, 2019 and 2018, no portion of these distributions would have been characterized as a tax return of capital to stockholders.

 

We have adopted an “opt out” dividend reinvestment plan (“DRIP”) for our common stockholders. As a result, if we declare a distribution, our stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes.

 

MRCC Senior Loan Fund I, LLC

 

We co-invest with NLV Financial Corporation (“NLV”), in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as underlying investment transactions are completed, taking into account available debt and equity commitments available for funding these investments. All portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee, consisting of one representative of each of us and NLV. SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business. Investments held by SLF are measured at fair value using the same valuation methodologies as described below. Our investment is illiquid in nature as SLF does not allow for withdrawal from the LLC or the sale of a member’s interest unless approved by the board of members of SLF. The full withdrawal of a member would result in an orderly wind-down of SLF.

 

SLF’s profits and losses are allocated to us and NLV in accordance with the respective ownership interests. As of both September 30, 2019 and December 31, 2018, we and NLV each owned 50.0% of the LLC equity interests of SLF. As of September 30, 2019, SLF had $100.0 million in equity commitments from its members (in the aggregate), of which $84.3 million was funded. As of December 31, 2018, SLF had $100.0 million in equity commitments from its members (in the aggregate), of which $54.4 million was funded.

 

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As of both September 30, 2019 and December 31, 2018, we have committed to fund $50.0 million of LLC equity interest subscriptions to SLF. As of September 30, 2019 and December 31, 2018, $42.2 million and $27.2 million of our LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall, respectively.

 

For the three and nine months ended September 30, 2019, we received $1.1 million and $2.7 million of dividend income from our LLC equity interest in SLF, respectively. For the three and nine months ended September 30, 2018, we received $0.6 million and $1.1 million of dividend income from our LLC equity interest in SLF, respectively.

 

SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Capital One, N.A., through its wholly-owned subsidiary MRCC Senior Loan Fund I Financing SPV, LLC (“SLF SPV”), which as of September 30, 2019 allowed SLF SPV to borrow up to $170.0 million at any one time, subject to leverage and borrowing base restrictions. On January 9, 2019, the SLF SPV closed a $20.0 million upsize to the SLF Credit Facility, bringing the maximum amount the SLF SPV is able to borrow up to the now current $170.0 million. Borrowings under the SLF Credit Facility bear interest at an annual rate of LIBOR (three-month) plus 2.25%. The maturity date on the SLF Credit Facility is March 22, 2023.

 

SLF does not pay any fees to MC Advisors or its affiliates; however, SLF has entered into an administration agreement with MC Management, pursuant to which certain loan servicing and administrative functions are delegated to MC Management. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. For the three and nine months ended September 30, 2019, SLF incurred $51 thousand and $144 thousand, respectively, of allocable expenses. For the three and nine months ended September 30, 2018, SLF incurred $29 thousand and $29 thousand, respectively, of allocable expenses. There are no agreements or understandings by which we guarantee any SLF obligations.

 

As of September 30, 2019 and December 31, 2018, SLF had total assets at fair value of $244.8 million and $177.1 million, respectively. As of September 30, 2019 and December 31, 2018, SLF had zero and zero portfolio company investments on non-accrual status, respectively. The portfolio companies in SLF are in industries and geographies similar to those in which we may invest directly. Additionally, as of September 30, 2019 and December 31, 2018, SLF had commitments to fund various undrawn revolvers and delayed draw loans to its portfolio companies totaling $5.5 million and $5.5 million, respectively.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual investments in SLF’s portfolio as of September 30, 2019 and December 31, 2018: 

 

   As of 
   September 30, 2019   December 31, 2018 
Senior secured loans (1)   239,971    174,267 
Weighted average current interest rate on senior secured loans (2)   7.2%   7.6%
Number of borrowers in SLF   64    50 
Largest portfolio company investment (1)   6,878    6,930 
Total of five largest portfolio company investments (1)   28,765    27,489 

 

 

 

(1) Represents outstanding principal amount, excluding unfunded commitments. Principal amounts in thousands.
(2) Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at outstanding principal amount.

 

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MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

September 30, 2019

(in thousands)

 

Portfolio Company (a)  Spread Above
Index (b)
  Interest
Rate (b)
   Maturity  Principal   Fair
Value
 
Non-Controlled/Non-Affiliate Company Investments                     
Senior Secured Loans                     
Aerospace & Defense                     
IMIA Holdings, Inc.  L+4.50%   6.60%  10/28/2024   4,287   $4,307 
IMIA Holdings, Inc. (Revolver) (c)  L+4.50%   6.60%  10/28/2024   680     
MAG Aerospace Industries, Inc.  L+4.75%   6.79%  6/6/2025   3,259    3,242 
Novaria Holdings, LLC  L+4.75%   6.79%  12/19/2024   4,301    4,301 
Trident Maritime SH, Inc.  L+5.50%   7.60%  6/4/2024   4,435    4,386 
Trident Maritime SH, Inc. (Revolver) (c)  L+5.50%   7.60%  6/4/2024   340     
               17,302    16,236 
Automotive                     
Innovative Aftermarkets Systems  L+5.50%   7.54%  1/25/2021   1,920    1,918 
Wheel Pros, LLC  L+4.75%   6.79%  4/4/2025   4,945    4,875 
               6,865    6,793 
Banking, Finance, Insurance & Real Estate                     
Avison Young (USA) Inc. (e)  L+5.00%   7.10%  1/30/2026   4,963    4,876 
Lightbox Intermediate, L.P.  L+5.00%   7.05%  5/11/2026   4,988    4,938 
Minotaur Acquisition, Inc.  L+5.00%   7.04%  3/27/2026   2,985    2,907 
Nuvei Technologies Corp. (e)  L+5.00%   7.06%  9/26/2025   4,963    4,913 
Zenith Merger Sub, Inc.  L+5.25%   7.35%  12/13/2024   4,712    4,690 
Zenith Merger Sub, Inc. (Delayed Draw) (c)  L+5.25%   7.29%  12/13/2024   265    66 
               22,876    22,390 
Beverage, Food & Tobacco                     
CBC Restaurant Corp.  L+6.50%   8.54%  11/10/2022   2,551    2,519 
SW Ingredients Holdings, LLC  L+4.00%   6.21%  7/3/2025   3,703    3,703 
US Salt, LLC  L+4.75%   6.79%  1/16/2026   2,736    2,753 
               8,990    8,975 
Capital Equipment                     
Analogic Corporation  L+6.00%   8.04%  6/24/2024   4,950    4,805 
               4,950    4,805 
Chemicals, Plastics & Rubber                     
Polymer Solutions Group  L+6.75%   8.86%  6/30/2021   2,828    2,763 
               2,828    2,763 
Construction & Building                     
ISC Purchaser, LLC  L+5.00%   7.10%  7/11/2025   5,000    5,000 
The Cook & Boardman Group, LLC  L+5.75%   8.37%  10/20/2025   2,978    2,963 
               7,978    7,963 
Consumer Goods: Durable                     
International Textile Group, Inc.  L+5.00%   7.10%  5/1/2024   1,816    1,553 
SSH Group Holdings, Inc.  L+4.25%   6.29%  7/30/2025   2,310    2,312 
               4,126    3,865 
Consumer Goods: Non-Durable                     
PH Beauty Holdings III, Inc.  L+5.00%   7.04%  9/26/2025   2,474    2,375 
               2,474    2,375 
Containers, Packaging & Glass                     
Liqui-Box Holdings, Inc. (d)  L+4.50%   6.54%  6/3/2026   4,333    4,301 
Polychem Acquisition, LLC  L+5.00%   7.05%  3/17/2025   2,985    2,985 
Port Townsend Holdings Company, Inc.  L+4.75%   6.80%  4/3/2024   4,850    4,844 
PVHC Holding Corp  L+4.75%   6.85%  8/5/2024   3,292    2,954 
PVHC Holding Corp (Delayed Draw) (c)  L+4.75%   6.85%  8/5/2024   425     
               15,885    15,084 
Energy: Oil & Gas                     
Drilling Info Holdings, Inc.  L+4.25%   6.29%  7/30/2025   4,621    4,602 
Offen, Inc.  L+5.00%   7.10%  6/22/2026   2,442    2,442 
Offen, Inc. (Delayed Draw) (c)  L+5.00%   7.10%  6/22/2026   885     
               7,948    7,044 
Healthcare & Pharmaceuticals                     
LSCS Holdings, Inc.  L+4.25%   6.31%  3/17/2025   2,328    2,316 
LSCS Holdings, Inc.  L+4.25%   6.31%  3/17/2025   601    598 
P&L Developments, LLC  L+7.50%   9.55%  6/28/2024   3,000    2,970 
Radiology Partners, Inc.  L+4.75%   7.06%  7/9/2025   4,950    4,893 
Solara Medical Supplies, LLC  L+6.00%   8.04%  2/27/2024   5,529    5,529 
Solara Medical Supplies, LLC (Delayed Draw) (c)  L+6.00%   8.04%  2/27/2024   1,070    999 
Solara Medical Supplies, LLC (Revolver) (c)  L+6.00%   8.04%  2/27/2024   714     
               18,192    17,305 
High Tech Industries                     
AQA Acquisition Holding, Inc.  L+4.25%   6.35%  5/24/2023   3,300    3,283 
Corel, Inc. (e)  L+5.00%   7.09%  7/2/2026   4,000    3,885 
Datto, Inc.  L+4.25%   6.29%  4/2/2026   3,325    3,362 
Gigamon, Inc.  L+4.25%   6.29%  12/27/2024   2,948    2,866 
LW Buyer, LLC  L+5.00%   7.04%  12/30/2024   4,988    4,963 
Perforce Software, Inc.  L+4.50%   6.54%  7/1/2026   3,333    3,337 
TGG TS Acquisition Company  L+6.50%   8.53%  12/12/2025   4,174    4,158 
               26,068    25,854 
Hotels, Gaming & Leisure                     
North Haven Spartan US Holdco, LLC (d)  L+5.00%   7.04%  6/25/2025   2,350    2,327 
Tait LLC  L+5.00%   7.11%  3/28/2025   4,210    4,222 
Tait LLC (Revolver) (c)  L+5.00%   7.11%  3/28/2025   769     
               7,329    6,549 
Media: Advertising, Printing & Publishing                     
Cadent, LLC  L+5.25%   7.30%  9/11/2023   4,950    4,938 
Cadent, LLC (Revolver) (c)  L+5.25%   7.30%  9/11/2023   167     
Digital Room Holdings, Inc.  L+5.00%   7.04%  5/21/2026   4,418    4,223 
               9,535    9,161 
Media: Diversified & Production                     
Research Now Group, Inc. and Survey Sampling International, LLC  L+5.50%   7.75%  12/20/2024   6,878    6,910 
Stats Intermediate Holding, LLC  L+5.25%   7.30%  7/10/2026   5,000    4,900 
               11,878    11,810 
Services: Business                     
AQ Carver Buyer, Inc. (d)  L+5.00%   7.04%  9/24/2025   5,000    4,973 
CHA Holdings, Inc.  L+4.50%   6.60%  4/10/2025   2,028    2,025 
CHA Holdings, Inc. (Delayed Draw) (c)  L+4.50%   6.60%  4/10/2025   445    427 
Eliassen Group, LLC  L+4.50%   6.54%  11/5/2024   3,036    3,022 
Engage2Excel, Inc.  L+6.50%   8.71%  3/7/2023   4,309    4,238 
Engage2Excel, Inc.  L+6.50%   8.78%  3/7/2023   777    765 
Engage2Excel, Inc. (Delayed Draw) (c)  L+6.50%   8.78%  3/7/2023   500     
Engage2Excel, Inc. (Revolver) (c)  P+5.50%   10.50%  3/7/2023   545    273 
GI Revelation Acquisition LLC  L+5.00%   7.04%  4/16/2025   1,383    1,329 
Orbit Purchaser LLC  L+4.50%   6.64%  10/21/2024   2,488    2,488 
Orbit Purchaser LLC  L+4.50%   6.82%  10/21/2024   1,921    1,921 
Orbit Purchaser LLC  L+4.50%   6.64%  10/21/2024   562    562 
Output Services Group, Inc.  L+4.50%   6.54%  3/27/2024   4,927    4,311 
SIRVA Worldwide, Inc.  L+5.50%   7.54%  8/4/2025   1,963    1,904 
Teneo Holdings LLC  L+5.25%   7.29%  7/11/2025   5,000    4,794 
The Kleinfelder Group, Inc.  L+4.75%   6.70%  11/29/2024   2,481    2,470 
               37,365    35,502 
Services: Consumer                     
Cambium Learning Group, Inc.  L+4.50%   6.54%  12/18/2025   4,963    4,863 
LegalZoom.com, Inc.  L+4.50%   6.54%  11/21/2024   2,729    2,743 
WeddingWire, Inc.  L+4.50%   6.54%  12/19/2025   1,158    1,159 
               8,850    8,765 
Telecommunications                     
Intermedia Holdings, Inc.  L+6.00%   8.04%  7/21/2025   1,820    1,822 
Mavenir Systems, Inc.  L+6.00%   8.34%  5/8/2025   3,950    3,901 
               5,770    5,723 
Transportation: Cargo                     
GlobalTranz Enterprises LLC  L+5.00%   7.06%  5/15/2026   3,304    3,172 
               3,304    3,172 
Utilities: Oil & Gas                     
NGS US Finco, LLC  L+4.25%   6.29%  10/1/2025   1,737    1,736 
               1,737    1,736 
Wholesale                     
AmeriLife Group, LLC  L+4.50%   6.54%  6/12/2026   2,917    2,917 
AmeriLife Group, LLC (Delayed Draw) (c)  L+4.50%   6.54%  6/12/2026   409     
BMC Acquisition, Inc.  L+5.25%   7.35%  12/30/2024   4,913    4,888 
HALO Buyer, Inc.  L+4.50%   6.54%  6/30/2025   4,938    4,888 
               13,177    12,693 
                      
TOTAL INVESTMENTS                  $236,563 

 

 

 

(a) All investments are U.S. companies unless otherwise noted.
(b) The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at September 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor.
(c) All or a portion of this commitment was unfunded as of September 30, 2019. As such, interest is earned only on the funded portion of this commitment. Principal reflects the commitment outstanding.
(d) Investment position or portion thereof unsettled as of September 30, 2019.
(e)This is an international company.

 60 

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

 (in thousands)

 

Portfolio Company (a)  Spread Above
Index (b)
  Interest
Rate (b)
   Maturity  Principal   Fair
Value
 
Non-Controlled/Non-Affiliate Company Investments                     
Senior Secured Loans                     
Aerospace & Defense                     
IMIA Holdings, Inc.  L+4.50%   7.30%  10/28/2024   4,320   $4,341 
IMIA Holdings, Inc. (Revolver) (c)  L+4.50%   7.30%  10/28/2024   680     
MAG Aerospace Industries, Inc.  L+4.75%   7.27%  6/6/2025   3,284    3,267 
Novaria Holdings, LLC (d)  L+4.75%   7.27%  12/19/2024   4,333    4,290 
The KEYW Corporation  L+4.50%   6.89%  5/8/2024   1,488    1,473 
Trident Maritime SH, Inc.  L+5.50%   8.30%  6/4/2024   4,637    4,623 
Trident Maritime SH, Inc. (Revolver) (c)  L+5.50%   8.30%  6/4/2024   340     
               19,082    17,994 
Automotive                     
Wheel Pros, LLC  L+4.75%   7.27%  4/4/2025   3,980    3,920 
               3,980    3,920 
Banking, Finance, Insurance & Real Estate                     
Kestra Financial, Inc. (d)  L+4.25%   6.77%  6/24/2022   3,564    3,537 
MTC Intermediate Holdco, Inc.  L+4.50%   7.02%  1/30/2023   4,963    4,963 
Pivotal Payments Inc.  P+3.50%   9.00%  9/26/2025   2,902    2,873 
Pivotal Payments Inc. (Delayed Draw) (c)  L+4.50%   6.98%  9/26/2025   841    518 
Zenith Merger Sub, Inc.  L+5.50%   8.30%  12/13/2023   3,713    3,701 
               15,983    15,592 
Beverage, Food & Tobacco                     
Il Fornaio (America) Corporation  L+6.50%   9.02%  11/10/2022   4,894    4,847 
SW Ingredients Holdings, LLC  L+4.25%   7.05%  7/3/2025   3,731    3,709 
US Salt, LLC  L+4.75%   7.27%  11/30/2023   3,474    3,474 
               12,099    12,030 
Capital Equipment                     
Analogic Corporation  L+6.00%   8.52%  6/24/2024   4,988    4,786 
               4,988    4,786 
Chemicals, Plastics & Rubber                     
Loparex International B.V. (e)  L+4.25%   7.05%  4/11/2025   498    490 
Peach State Labs, LLC  L+6.50%   8.85%  6/30/2021   2,850    2,825 
               3,348    3,315 
Construction & Building                     
Fastener Acquisition, Inc.  L+4.25%   7.05%  3/28/2025   1,323    1,256 
The Cook & Boardman Group, LLC  L+5.75%   8.55%  10/20/2025   3,000    2,978 
               4,323    4,234 
Consumer Goods: Durable                     
International Textile Group, Inc.  L+5.00%   7.35%  5/1/2024   1,852    1,819 
SSH Group Holdings, Inc.  L+4.25%   6.77%  7/30/2025   2,327    2,240 
               4,179    4,059 
Consumer Goods: Non-Durable                     
PH Beauty Holdings III, Inc.  L+5.00%   7.52%  9/26/2025   1,995    1,925 
               1,995    1,925 
Containers, Packaging & Glass                     
Port Townsend Holdings Company, Inc.  L+4.75%   7.27%  4/3/2024   4,887    4,893 
PVHC Holding Corp  L+4.75%   7.57%  8/5/2024   3,317    3,333 
PVHC Holding Corp (Delayed Draw) (c)  L+4.75%   7.57%  8/5/2024   425     
               8,629    8,226 
Energy: Oil & Gas                     
Drilling Info Holdings, Inc.  L+4.25%   6.77%  7/30/2025   4,307    4,296 
Drilling Info Holdings, Inc. (Delayed Draw) (c)  L+4.25%   6.77%  7/30/2025   350     
               4,657    4,296 
Healthcare & Pharmaceuticals                     
LSCS Holdings, Inc.  L+4.25%   6.77%  3/17/2025   2,328    2,316 
LSCS Holdings, Inc.  L+4.25%   6.96%  3/17/2025   601    598 
Radiology Partners, Inc.  L+4.25%   6.87%  7/9/2025   4,988    4,900 
Solara Medical Supplies, LLC  L+6.00%   8.52%  5/31/2023   5,571    5,594 
Solara Medical Supplies, LLC (Delayed Draw) (c)  L+6.00%   8.52%  5/31/2023   1,071     
Solara Medical Supplies, LLC (Revolver) (c)  L+6.00%   8.52%  5/31/2023   714     
               15,273    13,408 
High Tech Industries                     
AQA Acquisition Holding, Inc.  L+4.25%   7.05%  5/24/2023   3,325    3,308 
Corel, Inc. (d) (e)  L+5.00%   7.71%  6/4/2024   3,786    3,749 
Gigamon, Inc.  L+4.25%   7.05%  12/27/2024   2,970    2,933 
TGG TS Acquisition Company (d)  L+6.50%   9.02%  12/12/2025   4,400    4,241 
               14,481    14,231 
Media: Advertising, Printing & Publishing                     
Cadent, LLC  L+5.25%   7.71%  9/11/2023   4,988    4,975 
Cadent, LLC (Revolver) (c)  L+5.25%   7.71%  9/11/2023   167     
               5,155    4,975 
Media: Diversified & Production                     
Research Now Group, Inc. and Survey Sampling International, LLC  L+5.50%   8.02%  12/20/2024   6,930    6,817 
               6,930    6,817 
Services: Business                     
CHA Holdings, Inc.  L+4.50%   7.30%  4/10/2025   2,043    2,041 
CHA Holdings, Inc. (Delayed Draw) (c)  L+4.50%   7.30%  4/10/2025   446     
Eliassen Group, LLC  L+4.50%   7.02%  11/5/2024   2,500    2,475 
Engage2Excel, Inc.  L+6.50%   8.93%  3/7/2023   4,342    4,320 
Engage2Excel, Inc. (Revolver) (c)  L+6.50%   8.95%  3/7/2023   545    155 
GI Revelation Acquisition LLC  L+5.00%   7.52%  4/16/2025   1,393    1,374 
North Haven CA Holdings, Inc.  L+4.50%   7.02%  9/29/2023   5,000    4,972 
Orbit Purchaser LLC  L+4.50%   7.17%  10/21/2024   1,931    1,919 
Orbit Purchaser LLC (Delayed Draw) (c)  L+4.50%   7.17%  10/21/2024   565     
Output Services Group, Inc.  L+4.25%   6.77%  3/27/2024   4,965    4,828 
SIRVA Worldwide, Inc.  L+5.50%   8.02%  8/4/2025   2,000    1,965 
The Kleinfelder Group, Inc. (d)  L+4.75%   7.27%  11/29/2024   2,500    2,475 
               28,230    26,524 
Services: Consumer                     
Cambium Learning Group, Inc. (d)  L+4.50%   7.02%  12/18/2025   5,000    4,769 
LegalZoom.com, Inc.  L+4.50%   7.00%  11/21/2024   2,749    2,708 
WeddingWire, Inc. (d)  L+4.50%   7.02%  12/19/2025   1,167    1,149 
               8,916    8,626 
Telecommunications                     
Intermedia Holdings, Inc.  L+6.00%   8.52%  7/21/2025   1,833    1,831 
Mavenir Systems, Inc.  L+6.00%   8.39%  5/8/2025   3,980    3,968 
               5,813    5,799 
Utilities: Oil & Gas                     
NGS US Finco, LLC  L+4.25%   6.76%  10/1/2025   1,750    1,746 
               1,750    1,746 
Wholesale                     
BMC Acquisition, Inc.  L+5.25%   8.13%  12/30/2024   4,950    4,962 
Halo Buyer, Inc.  L+4.50%   7.02%  6/27/2025   3,501    3,431 
Halo Buyer, Inc.  L+4.50%   7.02%  6/27/2025   1,474    1,445 
               9,925    9,838 
                      
TOTAL INVESTMENTS                  $172,341 

 

 

 

(a) All investments are U.S. companies unless otherwise noted.
(b) The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. We have provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor.
(c) All or a portion of this commitment was unfunded as of December 31, 2018. As such, interest is earned only on the funded portion of this commitment. Principal reflects the commitment outstanding.
(d) Investment position or portion thereof unsettled as of December 31, 2018.
(e)This is an international company.

 61 

 

 

Below is certain summarized financial information for SLF as of September 30, 2019 and December 31, 2018 and for the three and nine months ended September 30, 2019 and 2018 (in thousands):

 

   September 30, 2019   December 31, 2018 
   (unaudited)     
Assets          
Investments, at fair value  $236,563   $172,341 
Cash   389    448 
Restricted cash   7,044    3,838 
Interest receivable   807    456 
Other assets   39    39 
Total assets  $244,842   $177,122 
Liabilities          
Revolving credit facility  $148,532   $101,060 
Less: Unamortized deferred financing costs   (1,517)   (1,625)
Total debt, less unamortized deferred financing costs   147,015    99,435 
Payable for open trades   11,567    21,746 
Interest payable   572    457 
Accounts payable and accrued expenses   351    216 
Total liabilities   159,505    121,854 
Members’ capital   85,337    55,268 
Total liabilities and members’ capital  $244,842   $177,122 

 

   Three months ended September 30,   Nine months ended September 30, 
   2019   2018   2019   2018 
   (unaudited)   (unaudited) 
Investment income:                    
Interest income  $4,637   $2,262   $11,972   $4,441 
Total investment income   4,637    2,262    11,972    4,441 
Expenses:                    
Interest and other debt financing expenses   1,918    922    5,287    1,571 
Organizational costs               11 
Professional fees   214    139    554    201 
Total expenses   2,132    1,061    5,841    1,783 
Net investment income (loss)   2,505    1,201    6,131    2,658 
Net gain (loss):                    
Net change in unrealized gain (loss)   (1,005)   448    (472)   1,447 
Net gain (loss)   (1,005)   448    (472)   1,447 
Net increase (decrease) in members’ capital  $1,500   $1,649   $5,659   $4,105 

 

 62 

 

 

Related Party Transactions

 

We have a number of business relationships with affiliated or related parties, including the following:

 

  · We have an Investment Advisory Agreement with MC Advisors, an investment advisor registered with the SEC, to manage our day-to-day operating and investing activities. We pay MC Advisors a fee for its services under the Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee. On November 4, 2019, we amended the base management fee under the Investment Advisory Agreement, effective July 1, 2019. See Note 6 to our consolidated financial statements and “Significant Accounting Estimates and Critical Accounting Policies - Capital Gains Incentive Fee” for additional information.

 

  · We have an Administration Agreement with MC Management to provide us with the office facilities and administrative services necessary to conduct our day-to-day operations. See Note 6 to our consolidated financial statements for additional information.

 

  · SLF has an administration agreement with MC Management to provide SLF with certain loan servicing and administrative functions. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. See Note 3 to our consolidated financial statements and “Liquidity and Capital Resources - MRCC Senior Loan Fund I, LLC” for additional information.

 

  · Theodore L. Koenig, our Chief Executive Officer and Chairman of our Board is also a manager of MC Advisors and the President and Chief Executive Officer of MC Management. Aaron D. Peck, our Chief Financial Officer and Chief Investment Officer, serves as a director on our Board and is also a managing director of MC Management.

 

  · We have a license agreement with Monroe Capital LLC, under which Monroe Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Monroe Capital” for specified purposes in our business.

 

In addition, we have adopted a formal code of ethics that governs the conduct of MC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and Maryland General Corporation Law.

 

Commitments and Contingencies and Off-Balance Sheet Arrangements

 

Commitments and Contingencies

 

As of September 30, 2019, and December 31, 2018, we had outstanding commitments to fund investments, excluding investments in SLF, totaling $57.6 million and $56.0 million, respectively. As of September 30, 2019, and December 31, 2018, we had unfunded commitments to SLF of $7.8 million and $22.8 million, respectively, that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee. Drawdowns of the commitments to SLF require authorization from one of our representatives on SLF’s board of managers. Additionally, we have entered into certain contracts with other parties that contain a variety of indemnifications. Our maximum exposure under these arrangements is unknown. However, we have not experienced claims or losses pursuant to these contracts and believe the risk of loss related to such indemnifications to be remote.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Market Trends

 

We have identified the following trends that may affect our business:

 

Target Market: We believe that small and middle-market companies in the United States with annual revenues between $10.0 million and $2.5 billion represent a significant growth segment of the U.S. economy and often require substantial capital investments to grow. Middle-market companies have generated a significant number of investment opportunities for investment funds managed or advised by Monroe Capital, and we believe that this market segment will continue to produce significant investment opportunities for us.

 

Specialized Lending Requirements: We believe that several factors render many U.S. financial institutions ill-suited to lend to U.S. middle-market companies. For example, based on the experience of our management team, lending to U.S. middle-market companies (1) is generally more labor intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of information for such companies, (2) requires due diligence and underwriting practices consistent with the demands and economic limitations of the middle-market and (3) may also require more extensive ongoing monitoring by the lender. 

 

Demand for Debt Capital: We believe there is a large pool of uninvested private equity capital for middle-market companies. We expect private equity firms will seek to leverage their investments by combining equity capital with senior secured loans and mezzanine debt from other sources, such as us.

 

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Competition from Other Lenders: We believe that many traditional bank lenders, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital market transactions. In addition, many commercial banks face significant balance sheet constraints as they seek to build capital and meet future regulatory capital requirements. These factors may result in opportunities for alternative funding sources to middle-market companies and therefore drive increased new investment opportunities for us. Conversely, there has been a significant amount of capital raised over the past several years dedicated to middle market lending which has increased competitive pressure in the BDC and investment company marketplace for senior and subordinated debt which could result in lower yields and weaker financial covenants for new assets.

 

Pricing and Deal Structures: We believe that the volatility in global markets over the last several years and current macroeconomic issues including changes in bank regulations for middle-market banks has reduced access to, and availability of, debt capital to middle-market companies, causing a reduction in competition and generally more favorable capital structures and deal terms. Recent capital raises in the BDC and investment company marketplace have created increased competition; however, we believe that current market conditions may continue to create favorable opportunities to invest at attractive risk-adjusted returns.

 

Significant Accounting Estimates and Critical Accounting Policies

 

Revenue Recognition

 

We record interest and fee income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium are capitalized, and then we amortize such amounts using the effective interest method as interest income over the life of the investment. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts. Interest income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments. Interest is accrued on a daily basis. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from LLC and LP investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

 

Valuation of Portfolio Investments

 

As a BDC, we generally invest in illiquid securities including debt and, to a lesser extent, equity securities of middle-market companies. Under procedures established by our Board, we value investments for which market quotations are readily available and within a recent date at such market quotations. When doing so, we determine whether the quote obtained is sufficient in accordance with generally accepted accounting principles in the United States of America to determine the fair value of the security. Debt and equity securities that are not publicly traded or whose market prices are not readily available or whose market prices are not regularly updated are valued at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and estimates. Investments purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.

  

Our Board is ultimately and solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by our Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

 

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With respect to investments for which market quotations are not readily available, our Board undertakes a multi-step valuation process each quarter, as described below:

 

  · the quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals responsible for the credit monitoring of the portfolio investment;

 

  · our Board engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of investments for which market quotations are not readily available. We will consult with independent valuation firm(s) relative to each portfolio company at least once in every calendar year, but the independent appraisals are generally received quarterly;

 

  · to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available, the investment will be valued by the MC Advisors investment professional responsible for the credit monitoring;

 

  · preliminary valuation conclusions are then documented and discussed with the investment committee;

 

  · the audit committee of our Board reviews the preliminary valuations of MC Advisors and of the independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments provided by the audit committee; and

 

  · our Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee.

 

The Board generally uses the income approach to determine fair value for loans where market quotations are not readily available, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, we may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. This liquidation analysis may also include probability weighting of alternative outcomes. We generally consider our Level 3 debt to be performing loans if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance and is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, we consider fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, we will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

 

Under the income approach, we utilize discounted cash flow models to determine the present value of the future cash flow streams of our debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the income approach, we also consider the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

 

Under the market approach, we typically use the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which we derive a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, we analyze various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio company’s historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public. Typically, the enterprise values of private companies are based on multiples of earnings before interest, income taxes, depreciation and amortization, cash flows, net income, revenues, or in limited cases, book value.

 

In addition, for certain debt investments, we may base our valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that we and others may be willing to pay. Ask prices represent the lowest price that we and others may be willing to accept. We generally use the midpoint of the bid/ask range as our best estimate of fair value of such investment.

 

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss 

 

We measure realized gain or loss by the difference between the net proceeds from the sale and the amortized cost basis of the investment, without regard to unrealized gain or loss previously recognized. Net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gain or loss, when gain or loss is realized. Additionally, we do not isolate the portion of the change in fair value resulting from foreign currency exchange rate fluctuations from the changes in fair values of the underlying investment. All fluctuations in fair value are included in net change in unrealized gain (loss) on our consolidated statements of operations. We report changes in the fair value of secured borrowings that are measured at fair value as a component of the net change in unrealized gain (loss) on secured borrowings on the consolidated statements of operations. The impact resulting from changes in foreign exchange rates on the revolving credit facility borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions.

 

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Capital Gains Incentive Fee

 

Pursuant to the terms of the Investment Advisory with MC Advisors, the incentive fee on capital gains earned on liquidated investments of our portfolio is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Administrative Agreement). This fee equals 20% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

 

While the Investment Advisory Agreement with MC Advisors neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to MC Advisors if our entire portfolio was liquidated at its fair value as of the balance sheet date even though MC Advisors is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

 

During the three and nine months ended September 30, 2019 and 2018, we did not have any further reductions in accrued capital gains incentive fees as they were already at zero, primarily as a result of accumulated realized and unrealized losses on the portfolio.

 

New Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary objective of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements in the notes to the financial statements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. We are currently evaluating the impact these changes will have on our consolidated financial statements and disclosures.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are subject to financial market risks, including changes in interest rates. The majority of the loans in our portfolio have floating interest rates, and we expect that our loans in the future may also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate re-set provisions that adjust applicable interest rates under such loans to current market rates on a monthly or quarterly basis. The majority of the loans in our current portfolio have interest rate floors which will effectively convert the loans to fixed rate loans in the event interest rates decrease. In addition, our revolving credit facility has a floating interest rate provision, whereas our SBA debentures and the 2023 Notes have fixed interest rates until maturity. We expect that other credit facilities into which we may enter in the future may have floating interest rate provisions.

 

Assuming that the consolidated statement of assets and liabilities as of September 30, 2019 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (in thousands):

 

   Increase 
(decrease) in
   Increase 
(decrease) in
   Net increase 
(decrease) in net
 
Change in Interest Rates  interest income   interest expense   investment income 
Down 25 basis points  $(1,439)  $(541)  $(898)
Up 100 basis points   5,401    2,166    3,235 
Up 200 basis points   11,205    4,333    6,872 
Up 300 basis points   17,009    6,499    10,510 

 

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the credit facility or other borrowings that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

 

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates or interest rate floors.

 

We may also have exposure to foreign currencies (currently the Great Britain pound) related to certain investments. Such investments are translated into U.S. dollars based on the spot rate at each balance sheet date, exposing us to movements in the exchange rate. In order to reduce our exposure to fluctuations in exchange rates, we generally borrow in Great Britain pounds under our revolving credit facility to finance such investments. As of September 30, 2019, we have non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.2 million U.S. dollars) outstanding under the revolving credit facility. We may also enter into foreign currency forward contracts to mitigate foreign currency exposure. As of September 30, 2019, we had foreign currency forward contracts in place for £1.6 million associated with future interest payments on certain investments.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that, at the end of the period covered by our Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

 

No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II

 

OTHER INFORMATION

Item 1. Legal Proceedings

 

Neither we nor our investment adviser are currently subject to any material legal proceedings.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 5, 2019, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than as set forth below, there have been no material changes during the three months ended September 30, 2019 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Recently-enacted legislation allows us to incur additional leverage, which could increase the risk of investing in us.

 

The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets). However, on March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA amended the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150% (i.e. the amount of debt may not exceed 66.7% of the value of our total assets), if certain requirements are met. Under the SBCAA, BDCs are allowed to reduce their asset coverage requirement to 150%, and thereby increase leverage capacity, if stockholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. If a BDC receives stockholder approval, it would be allowed to reduce its asset coverage requirement to 150% on the first day after such approval. Alternatively, the SBCAA allows the majority of a BDCs independent directors to approve the reduction in its asset coverage requirement to 150%, and such approval would become effective after one year. In either case, a BDC would be required to make certain disclosures on its website and in SEC filings regarding, among other things, the receipt of approval to reduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage.

 

On March 27, 2018, our board of directors unanimously approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCAA. On March 27, 2018, our board of directors also recommended the submission of a proposal for stockholders to approve the application of the 150% minimum asset coverage requirements at our annual meeting of stockholders held on June 20, 2018. At the annual meeting, our stockholders approved this proposal, and we became subject to the 150% minimum asset coverage ratio, effective June 21, 2018.

 

Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay distributions, scheduled debt payments or other payments related to our securities. The effects of leverage would cause any decrease in net asset value for any losses to be greater than any increase in net asset value for any corresponding gains. If we incur additional leverage, you will experience increased risks of investing in our common stock. 

 

We maintain a revolving credit facility and use other borrowed funds to make investments or fund our business operations, which exposes us to risks typically associated with leverage and increases the risk of investing in us.

 

We maintain a revolving credit facility, have issued debt securities and may borrow money, including through the issuance of additional debt securities or preferred stock, to leverage our capital structure, which is generally considered a speculative investment technique. As a result:

 

  ·  our common stock is exposed to an increased risk of loss because a decrease in the value of our investments would have a greater negative impact on the value of our common stock than if we did not use leverage;

 

  · if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;

 

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  · our ability to pay distributions on our common stock may be restricted if our asset coverage ratio, as provided in the 1940 Act, is not at least 150% and any amounts used to service indebtedness or preferred stock would not be available for such distributions;

 

  · any credit facility is subject to periodic renewal by its lenders, whose continued participation cannot be guaranteed;

 

  · our revolving credit facility with ING Capital LLC, as agent, is, and any other credit facility we may enter into would be, subject to various financial and operating covenants, including that our portfolio of investments satisfies certain eligibility and concentration limits as well as valuation methodologies;

 

  · such securities would be governed by an indenture or other instrument containing covenants restricting our operating flexibility;

 

  · we bear the cost of issuing and paying interest or distributions on such securities, which costs are entirely borne by our common stockholders; and

 

  · any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common stock.

 

The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

 

  

Assumed Return on Our Portfolio

(Net of Expenses) (1)

 
   -10%   -5%   0%   5%   10% 
Corresponding return to common stockholder (2)(3)   -28.11%   -16.91%   -5.71%   5.50%   16.70%

 

 

 

(1) The assumed return on our portfolio is required by regulation of the SEC to assist investors in understanding the effects of leverage and is not a prediction of, and does not represent, our projected or actual performance.
(2) Assumes $579.8 million in total assets, $321.0 million in debt outstanding, of which $205.0 million is senior securities outstanding, $258.8 million in net assets and an average cost of funds of 4.60%, which was the weighted average interest rate of borrowing on our revolving credit facility, SBA debentures and 2023 Notes as of December 31, 2018. The interest rate on our revolving credit facility is a variable rate. Actual interest payments may be different.  
(3) In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2018 total portfolio assets of at least 2.55%.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

None.

 

Item 5. Other Information

 

None.

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Item 6. Exhibits

 

Exhibit    
Number   Description of Document
     
3.1   Amended and Restated Articles of Incorporation of Monroe Capital Corporation (Incorporated by reference to Exhibit (a)(1) of the Registrant’s Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)
     
3.2   Bylaws of Monroe Capital Corporation (Incorporated by reference to Exhibit (b)(1) of the Registrant’s Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)
     
10.1  

Amendment No. 2 to Second Amended and Restated Senior Secured Revolving Credit Agreement among the Registrant, as borrower, the Lenders party thereto, and ING Capital LLC, as Administrative Agent, dated September 27, 2019 (Incorporated by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K (File No. 814-00866) filed on October 2, 2019)

     
31.1   Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
     
31.2   Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
     
32.1   Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: November 6, 2019 By /s/ Theodore L. Koenig
    Theodore L. Koenig
    Chairman, Chief Executive Officer and Director
    (Principal Executive Officer)
    Monroe Capital Corporation
     
Date: November 6, 2019 By /s/ Aaron D. Peck
    Aaron D. Peck
    Chief Financial Officer, Chief Investment Officer and Director
    (Principal Financial and Accounting Officer)
    Monroe Capital Corporation

 

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