Monroe Capital(MRCC) - 2025 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides Monroe Capital Corporation's unaudited consolidated financial statements and management's discussion and analysis for the period ended March 31, 2025 Item 1. Consolidated Financial Statements This section presents Monroe Capital Corporation's unaudited consolidated financial statements for the period ended March 31, 2025, including statements of assets and liabilities, operations, changes in net assets, cash flows, and detailed schedules of investments Consolidated Statements of Assets and Liabilities Total assets and net assets decreased for Monroe Capital Corporation as of March 31, 2025, compared to December 31, 2024, primarily due to reduced investments at fair value | Metric | March 31, 2025 (unaudited) ($ thousands) | December 31, 2024 ($ thousands) | | :---------------------------------- | :--------------------------- | :-------------------- | | Total investments, at fair value | $430,571 | $457,048 | | Cash and cash equivalents | $6,463 | $9,044 | | Total assets | $461,518 | $490,671 | | Total debt, less unamortized costs | $269,092 | $291,975 | | Total liabilities | $274,641 | $298,909 | | Total net assets | $186,877 | $191,762 | | Net asset value per share | $8.63 | $8.85 | Consolidated Statements of Operations Net investment income declined and a larger net loss was recorded for the three months ended March 31, 2025, compared to 2024, due to decreased investment income and increased unrealized losses | Metric | Three Months Ended March 31, 2025 ($ thousands) | Three Months Ended March 31, 2024 ($ thousands) | | :-------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Total investment income | $11,638 | $15,182 | | Total operating expenses | $7,432 | $9,694 | | Net investment income | $4,086 | $5,470 | | Net realized gain (loss) | $(438) | $4 | | Net change in unrealized gain (loss) | $(3,116) | $(2,279) | | Net increase (decrease) in net assets resulting from operations | $532 | $3,195 | | Net investment income per share - basic and diluted | $0.19 | $0.25 | | Net increase (decrease) in net assets resulting from operations per share - basic and diluted | $0.03 | $0.15 | Consolidated Statements of Changes in Net Assets Total net assets decreased from $191,762 thousand at December 31, 2024, to $186,877 thousand at March 31, 2025, primarily due to stockholder distributions and net unrealized losses | Metric | March 31, 2025 ($ thousands) | March 31, 2024 ($ thousands) | | :------------------------------------------ | :------------- | :------------- | | Balances at December 31, 2024 (2023) | $191,762 | $203,724 | | Net investment income | $4,086 | $5,470 | | Net realized gain (loss) | $(438) | $4 | | Net change in unrealized gain (loss) | $(3,116) | $(2,279) | | Distributions to stockholders | $(5,417) | $(5,417) | | Balances at March 31, 2025 (2024) | $186,877 | $201,502 | Consolidated Statements of Cash Flows A net decrease in cash and cash equivalents of $2,581 thousand occurred for the three months ended March 31, 2025, driven by cash used in financing activities despite cash provided by operations | Metric | Three Months Ended March 31, 2025 ($ thousands) | Three Months Ended March 31, 2024 ($ thousands) | | :-------------------------------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $26,068 | $(12,285) | | Net cash provided by (used in) financing activities | $(28,649) | $12,183 | | Net increase (decrease) in cash and cash equivalents | $(2,581) | $(102) | | Cash and cash equivalents, beginning of year | $9,044 | $4,958 | | Cash and cash equivalents, end of year | $6,463 | $4,856 | Consolidated Schedules of Investments The company's investment portfolio decreased from $457,048 thousand to $430,571 thousand at fair value, with shifts in allocation across investment types and industries Investment Portfolio Composition (Fair Value) | Investment Type | March 31, 2025 ($ thousands) | % of Total | December 31, 2024 ($ thousands) | % of Total | | :-------------------------- | :------------- | :--------- | :---------------- | :--------- | | Senior secured loans | $330,893 | 76.8% | $357,994 | 78.3% | | Unitranche secured loans | $2,183 | 0.5% | $3,862 | 0.8% | | Junior secured loans | $32,017 | 7.5% | $29,634 | 6.5% | | LLC equity interest in SLF | $31,917 | 7.4% | $32,730 | 7.2% | | Equity investments | $33,561 | 7.8% | $32,828 | 7.2% | | Total | $430,571 | 100.0% | $457,048 | 100.0% | Investment Portfolio by Industry (Fair Value) | Industry | March 31, 2025 ($ thousands) | % of Total | December 31, 2024 ($ thousands) | % of Total | | :----------------------------- | :------------- | :--------- | :---------------- | :--------- | | FIRE: Real Estate | $88,755 | 20.6% | $83,037 | 18.2% | | Healthcare & Pharmaceuticals | $74,033 | 17.2% | $79,784 | 17.5% | | High Tech Industries | $51,034 | 11.9% | $41,240 | 9.0% | | Services: Business | $39,391 | 9.1% | $51,175 | 11.2% | | Media: Diversified & Production| $28,098 | 6.5% | $43,717 | 9.6% | | Services: Consumer | $24,386 | 5.8% | $24,113 | 5.3% | Notes to Consolidated Financial Statements These notes provide essential context and detailed explanations for the financial figures, covering organization, accounting policies, investment strategies, fair value, related party transactions, borrowings, distributions, and commitments Note 1. Organization and Principal Business Monroe Capital Corporation is a BDC and RIC focused on maximizing total return through debt and equity investments, with a recent change of control for its investment adviser * Monroe Capital Corporation (MRCC) is a BDC and RIC, aiming to maximize stockholder returns through debt and equity investments, primarily in senior secured, junior secured, and unitranche secured debt[84] * A change of control of MC Advisors, MRCC's investment adviser, became effective on March 31, 2025, with Wendel SE acquiring a 75% interest in Monroe Capital affiliates[85] Note 2. Summary of Significant Accounting Policies This note outlines significant accounting policies, including GAAP compliance, use of estimates, consolidation, fair value measurements, revenue recognition, and recent accounting pronouncements * The company prepares consolidated financial statements in accordance with GAAP and ASC Topic 946, recognizing interest and dividend income on an accrual basis, with specific policies for PIK income and non-accrual status[86][92][98] Investment Income Components (Three Months Ended March 31) | Component | 2025 ($ thousands) | 2024 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Interest income | $7,966 | $11,662 | | PIK interest income | $1,899 | $2,115 | | Dividend income (including PIK dividends) | $1,029 | $1,012 | | Other income | $229 | $37 | | Prepayment gain (loss) | $245 | $105 | | Accretion of discounts and amortization of premiums | $270 | $251 | | Total investment income | $11,638 | $15,182 | * As of March 31, 2025 and December 31, 2024, ten borrowers had debt or preferred equity investments on non-accrual status, with fair values of $14,511 thousand and $15,723 thousand, respectively[98] * The company recorded a net expense for U.S. federal excise tax of $119 thousand for the three months ended March 31, 2025, compared to $11 thousand for the same period in 2024[117] Note 3. Investments This note details the company's investment portfolio composition by type, region, and industry, at amortized cost and fair value, and provides extensive information on the MRCC Senior Loan Fund I, LLC (SLF) Investment Portfolio Composition (Amortized Cost) | Investment Type | March 31, 2025 ($ thousands) | % of Total | December 31, 2024 ($ thousands) | % of Total | | :-------------------------- | :------------- | :--------- | :---------------- | :--------- | | Senior secured loans | $346,796 | 73.4% | $372,074 | 75.0% | | Unitranche secured loans | $2,162 | 0.5% | $3,835 | 0.8% | | Junior secured loans | $38,281 | 8.1% | $35,771 | 7.2% | | LLC equity interest in SLF | $42,650 | 9.0% | $42,650 | 8.6% | | Equity investments | $42,547 | 9.0% | $41,467 | 8.4% | | Total | $472,436 | 100.0% | $495,797 | 100.0% | Investment Portfolio Composition (Fair Value) | Investment Type | March 31, 2025 ($ thousands) | % of Total | December 31, 2024 ($ thousands) | % of Total | | :-------------------------- | :------------- | :--------- | :---------------- | :--------- | | Senior secured loans | $330,893 | 76.8% | $357,994 | 78.3% | | Unitranche secured loans | $2,183 | 0.5% | $3,862 | 0.8% | | Junior secured loans | $32,017 | 7.5% | $29,634 | 6.5% | | LLC equity interest in SLF | $31,917 | 7.4% | $32,730 | 7.2% | | Equity investments | $33,561 | 7.8% | $32,828 | 7.2% | | Total | $430,571 | 100.0% | $457,048 | 100.0% | * The company's investment in SLF had a fair value of $31,917 thousand as of March 31, 2025, down from $32,730 thousand at December 31, 2024, and received $900 thousand in dividend income from SLF for both three-month periods ended March 31, 2025 and 2024[133][134] SLF Financial Summary (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :------------------------------------ | :------------- | :---------------- | | SLF Investments, at fair value | $78,375 | $97,951 | | SLF Revolving credit facility | $21,764 | $38,214 | | SLF Members' capital | $63,835 | $65,461 | SLF Operating Results (Three Months Ended March 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :---------------------------------------- | :----------------- | :----------------- | | SLF Total investment income | $2,279 | $4,038 | | SLF Net investment income | $1,557 | $2,121 | | SLF Net increase (decrease) in members' capital | $173 | $1,539 | Note 4. Fair Value Measurements This note details the company's fair value measurement policies for investments and financial instruments, adhering to ASC Topic 820, outlining the three-level hierarchy, valuation process, and quantitative disclosures * The company values all investments in accordance with ASC Topic 820, using a three-level hierarchy based on market price observability, with the Valuation Designee overseeing the process and engaging independent firms for Level 3 appraisals[159][161][162] Fair Value Measurements of Investments (March 31, 2025) | Investment Type | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | Total ($ thousands) | | :-------------------------- | :------ | :------ | :--------- | :--------- | | Senior secured loans | $— | $— | $330,893 | $330,893 | | Unitranche secured loans | $— | $— | $2,183 | $2,183 | | Junior secured loans | $— | $— | $32,017 | $32,017 | | Equity investments | $— | $— | $33,561 | $33,561 | | Investments measured at NAV | $— | $— | $— | $31,917 | | Total investments | $— | $— | $398,654 | $430,571 | Fair Value Measurements of Investments (December 31, 2024) | Investment Type | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | Total ($ thousands) | | :-------------------------- | :------ | :------ | :--------- | :--------- | | Senior secured loans | $— | $— | $357,994 | $357,994 | | Unitranche secured loans | $— | $— | $3,862 | $3,862 | | Junior secured loans | $— | $— | $29,634 | $29,634 | | Equity investments | $61 | $— | $32,767 | $32,828 | | Investments measured at NAV | $— | $— | $— | $32,730 | | Total investments | $61 | $— | $424,257 | $457,048 | Reconciliation of Level 3 Investments (Three Months Ended March 31, 2025) | Metric | Senior Secured Loans ($ thousands) | Unitranche Secured Loans ($ thousands) | Junior Secured Loans ($ thousands) | Equity Investments ($ thousands) | Total Level 3 Investments ($ thousands) | | :---------------------------------------- | :------------------- | :----------------------- | :------------------- | :----------------- | :------------------------ | | Balance as of December 31, 2024 | $357,994 | $3,862 | $29,634 | $32,767 | $424,257 | | Net realized gain (loss) on investments | $— | $— | $— | $(48) | $(48) | | Net change in unrealized gain (loss) | $(1,824) | $(7) | $(124) | $(426) | $(2,381) | | Purchases of investments and other adjustments to cost | $15,265 | $4 | $2,507 | $1,268 | $19,044 | | Proceeds from principal payments and sales of investments | $(40,542) | $(1,676) | $— | $— | $(42,218) | | Balance as of March 31, 2025 | $330,893 | $2,183 | $32,017 | $33,561 | $398,654 | Fair Value of Debt Obligations (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :--------------- | :------------- | :---------------- | | Carrying Value | $269,092 | $291,975 | | Fair Value | $265,286 | $287,033 | Note 5. Transactions with Affiliate Companies This note details transactions with affiliate companies, including changes in fair value, purchases, sales, PIK interest, and net unrealized gains/losses for both non-controlled and controlled affiliate investments Transactions with Non-Controlled Affiliate Companies (Three Months Ended March 31, 2025) | Portfolio Company (Selected) | Fair value at Dec 31, 2024 ($ thousands) | Purchases (cost) ($ thousands) | PIK interest capitalized (cost) ($ thousands) | Net change in unrealized gain (loss) ($ thousands) | Fair value at Mar 31, 2025 ($ thousands) | | :--------------------------- | :------------------------- | :--------------- | :------------------------------ | :----------------------------------- | :------------------------- | | American Community Homes, Inc. | $18,437 | $— | $336 | $16 | $18,789 | | Ascent Midco, LLC | $1,760 | $— | $— | $(281) | $1,479 | | HFZ Capital Group LLC | $34,433 | $— | $823 | $370 | $35,626 | | Mnine Holdings, Inc. | $6,783 | $288 | $83 | $(225) | $6,929 | | SFR Holdco, LLC | $10,390 | $— | $— | $247 | $10,637 | | SFR Holdco 2, LLC | $2,159 | $1,358 | $— | $45 | $3,562 | | TJ Management HoldCo, LLC | $3,076 | $— | $— | $11 | $3,087 | | Total non-controlled affiliate company investments | $80,483 | $1,646 | $1,242 | $271 | $83,642 | Transactions with Controlled Affiliate Companies (Three Months Ended March 31, 2025) | Portfolio Company | Fair value at Dec 31, 2024 ($ thousands) | Purchases (cost) ($ thousands) | PIK interest capitalized (cost) ($ thousands) | Net change in unrealized gain (loss) ($ thousands) | Fair value at Mar 31, 2025 ($ thousands) | | :--------------------------- | :------------------------- | :--------------- | :------------------------------ | :----------------------------------- | :------------------------- | | MRCC Senior Loan Fund I, LLC | $32,730 | $— | $— | $(813) | $31,917 | | Total controlled affiliate company investments | $32,730 | $— | $— | $(813) | $31,917 | Note 6. Transactions with Related Parties This note details transactions with related parties, including the Investment Advisory Agreement with MC Advisors, administrative service fees to MC Management, and the license agreement for the "Monroe Capital" name * On March 31, 2025, the company entered into a Second Amended and Restated Investment Advisory and Management Agreement with MC Advisors following a change of control (Wendel Transaction), with the fee structure remaining unchanged[206] Base Management Fees (Three Months Ended March 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :----------------- | :----------------- | :----------------- | | Base management fees | $1,851 | $2,048 | Incentive Fees (Three Months Ended March 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :---------------------- | :----------------- | :----------------- | | Part one incentive fees | $251 | $1,368 | | Incentive Fee Limitation| $(251) | $— | | Total incentive fees| $— | $1,368 | * The company incurred $842 thousand in administrative expenses for the three months ended March 31, 2025, compared to $695 thousand for the same period in 2024, under the Administration Agreement with MC Management[213] Note 7. Borrowings This note details the company's $255 million revolving credit facility and $130 million in 2026 Notes, outlining terms, covenants, interest rates, and the asset coverage ratio * As of March 31, 2025, the company's asset coverage ratio was 169%, exceeding the 1940 Act requirement of at least 150%[218][289] * The company has a $255 million revolving credit facility with ING Capital LLC, with an accordion feature up to $400 million, maturing on December 27, 2027, and was amended on February 27, 2025, to facilitate refinancing of the 2026 Notes[219][295] * As of March 31, 2025, the company had $141.2 million outstanding on its revolving credit facility and $130.0 million in 2026 Notes, which are senior unsecured notes maturing on February 15, 2026, bearing 4.75% annual interest[223][225][298][300] Components of Interest and Other Debt Financing Expenses (Three Months Ended March 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :---------------------------------------- | :----------------- | :----------------- | | Interest expense - revolving credit facility | $2,773 | $3,625 | | Interest expense - 2026 Notes | $1,555 | $1,555 | | Amortization of debt issuance costs | $349 | $327 | | Total interest and other debt financing expenses | $4,677 | $5,507 | | Average debt outstanding | $277,721 | $301,043 | | Average stated interest rate | 6.3% | 6.9% | Note 8. Derivative Instruments The company may use foreign currency forward contracts to mitigate exchange rate exposure, but held none as of March 31, 2025, and recognized no related gains or losses * The company uses foreign currency forward contracts to hedge against foreign exchange rate fluctuations, but held none as of March 31, 2025, and December 31, 2024[227] * No net change in unrealized or realized gain (loss) on foreign currency forward contracts was recognized for the three months ended March 31, 2025, and 2024[228] Note 9. Distributions The company declared distributions of $0.25 per share, totaling $5,417 thousand, for both Q1 2025 and Q1 2024, primarily in cash with a portion reinvested Distributions Declared (Three Months Ended March 31) | Date Declared | Per Share ($) | Total Distribution ($ thousands) | DRIP Shares Repurchased | Cost of DRIP Shares Repurchased ($ thousands) | | :------------ | :-------- | :----------------- | :---------------------- | :------------------------------ | | Mar 3, 2025 | $0.25 | $5,417 | 19,025 | $148 | | Mar 5, 2024 | $0.25 | $5,417 | 18,219 | $134 | * For both periods, none of the distributions were characterized as a tax return of capital to stockholders[242] Note 10. Stock Issuances and Repurchases The company has an At-The-Market (ATM) equity distribution program for up to $50 million of common stock, but no issuances occurred during Q1 2025 or Q1 2024 * The company has an ATM Program to sell up to $50 million of common stock, but no issuances occurred during the three months ended March 31, 2025, and 2024[231][294] Note 11. Commitments and Contingencies Outstanding commitments to fund investments totaled $37,899 thousand as of March 31, 2025, with additional unfunded commitments to SLF, and no material adverse effects from legal proceedings are anticipated Outstanding Commitments to Fund Investments | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :------------------------------------ | :------------- | :---------------- | | Total outstanding commitments | $37,899 | $38,509 | | Unfunded commitments to SLF | $7,350 | $7,350 | * Management believes available cash and the revolving credit facility provide sufficient funds for unfunded commitments[232] * The company is subject to credit, counterparty, and market risks, but expects the risk of future obligations under indemnification provisions to be remote and is not aware of any legal proceedings that would have a material adverse effect[238][239][240] Note 12. Financial Highlights This note presents key financial highlights for Q1 2025 and Q1 2024, including per share data, total returns, and various financial ratios, showing a decrease in net asset value per share Per Share Data (Three Months Ended March 31) | Metric | 2025 ($) | 2024 ($) | | :-------------------------------------------------------- | :----- | :----- | | Net asset value at beginning of period | $8.85 | $9.40 | | Net investment income | $0.19 | $0.25 | | Net gain (loss) | $(0.16) | $(0.10) | | Net increase (decrease) in net assets resulting from operations | $0.03 | $0.15 | | Stockholder distributions - income | $(0.25) | $(0.25) | | Net asset value at end of period | $8.63 | $9.30 | | Per share market value at end of period | $7.80 | $7.20 | Total Return and Ratios (Three Months Ended March 31) | Metric | 2025 | 2024 | | :------------------------------------------ | :-------- | :-------- | | Total return based on market value | (5.29)% | 5.30% | | Total return based on average net asset value | 0.58% | 1.58% | | Ratio of net investment income to average net assets | 8.71% | 12.90% | | Ratio of total expenses to average net assets | 16.22% | 17.24% | | Ratio of total investment income to average net assets | 24.93% | 30.14% | | Ratio of interest and other debt financing expenses to average net assets | 10.05% | 10.93% | | Ratio of total expenses (excluding incentive fees) to average net assets | 16.22% | 16.56% | | Ratio of incentive fees to average net assets | n/a | 0.68% | Note 13. Segment Reporting The company operates as a single operating and reporting segment, with performance assessed on a consolidated basis using net assets from operations and net investment income * The company operates as a single operating and reporting segment, with performance assessed on a consolidated basis using net income and net investment income as key metrics[244] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes Monroe Capital Corporation's financial condition and operating results for Q1 2025 vs. Q1 2024, covering business overview, investment activities, portfolio quality, liquidity, and market trends FORWARD-LOOKING STATEMENTS This section contains forward-looking statements based on current expectations, involving risks and uncertainties that could cause actual results to differ materially * The report contains forward-looking statements based on current expectations, estimates, and projections, which involve risks and uncertainties that could cause actual results to differ materially[247][248] * Key factors influencing future results include operating results, business prospects, general economy, political/regulatory conditions, market liquidity, competition, interest rates, inflation, and the ability to qualify as a RIC and BDC[247][254] Overview Monroe Capital Corporation is an externally managed BDC and RIC providing financing to lower middle-market companies, primarily through senior secured loans and equity investments * Monroe Capital Corporation is a BDC and RIC, specializing in financing lower middle-market companies in the U.S. and Canada[251][252] * The investment objective is to maximize total return through current income and capital appreciation, primarily via senior secured, unitranche secured, and junior secured debt, with some unsecured subordinated debt and equity investments[255] Portfolio Composition by Investment Type (Fair Value) | Investment Type | March 31, 2025 | December 31, 2024 | | :----------------------- | :------------- | :---------------- | | Senior secured loans | 76.8% | 78.3% | | Unitranche secured loans | 0.5% | 0.8% | | Junior secured loans | 7.5% | 6.5% | | Equity investments | 15.2% | 14.4% | Investment Income Investment income primarily derives from interest on debt investments, supplemented by PIK interest, fees, and dividends, with loan origination fees amortized into income * Investment income is primarily generated from interest on debt investments (senior secured, unitranche secured, junior secured) with 3-7 year terms and fixed/floating rates[257] * Other income sources include PIK interest, commitment/origination fees, and dividend income from preferred and common equity, with loan origination fees and discounts capitalized and amortized[257][258] Expenses Primary operating expenses include base management and incentive fees to MC Advisors, administrative fees to MC Management, and interest expense on indebtedness * Primary operating expenses include base management and incentive fees to MC Advisors, administrative fees to MC Management, and interest expense on debt[259] Net Gain (Loss) Realized gains or losses are recognized from investment dispositions, while unrealized gains or losses reflect current period changes in fair value of investments and foreign currency transactions * Realized gains/losses are recognized from dispositions (net proceeds vs. cost basis), while unrealized gains/losses reflect fair value changes in investments and foreign currency transactions[260] Portfolio and Investment Activity For Q1 2025, the company experienced a net decrease of $25.6 million in investments, with the weighted average effective yield decreasing to 9.2% from 10.2% due to lower spreads * For the three months ended March 31, 2025, the company invested $7.6 million in one new portfolio company and $8.8 million in 25 existing companies, with $42.0 million in sales and principal repayments, resulting in a net decrease of $25.6 million in investments[261] * For the three months ended March 31, 2024, the company invested $10.2 million in three new portfolio companies and $14.0 million in 29 existing companies, with $12.1 million in sales and principal repayments, resulting in a net increase of $12.1 million in investments[262] Portfolio Yield by Security Type | Security Type | Weighted Average Annualized Contractual Coupon Yield (Mar 31, 2025) | Weighted Average Annualized Effective Yield (Mar 31, 2025) | Weighted Average Annualized Contractual Coupon Yield (Dec 31, 2024) | Weighted Average Annualized Effective Yield (Dec 31, 2024) | | :--------------------- | :---------------------------------------------------------- | :------------------------------------------------------- | :---------------------------------------------------------- | :------------------------------------------------------- | | Senior secured loans | 10.5% | 9.5% | 10.7% | 10.7% | | Unitranche secured loans | 10.7% | 12.2% | 11.4% | 14.5% | | Junior secured loans | 8.1% | 8.1% | 7.5% | 7.5% | | Equity investments | 2.8% | 2.8% | 2.8% | 2.8% | | Total | 10.1% | 9.2% | 10.2% | 10.2% | * As of March 31, 2025, the effective yield decreased compared to December 31, 2024, primarily due to lower spreads on certain assets[265] Portfolio Asset Quality MC Advisors monitors investment performance using a 5-grade risk rating system, with 81.2% of investments rated Grade 2 and ten borrowers on non-accrual status totaling $14.5 million at fair value * MC Advisors uses a 5-grade internal investment performance risk rating system, with Grade 1 being the least risk and Grade 5 indicating substantial underperformance and anticipated non-repayment[270] Investment Performance Risk Rating Distribution (Fair Value) | Risk Rating | March 31, 2025 ($ thousands) | Percentage of Total Investments | December 31, 2024 ($ thousands) | Percentage of Total Investments | | :---------- | :------------- | :------------------------------ | :---------------- | :------------------------------ | | Grade 1 | $— | —% | $— | —% | | Grade 2 | $349,570 | 81.2% | $370,573 | 81.0% | | Grade 3 | $60,949 | 14.2% | $65,711 | 14.4% | | Grade 4 | $14,304 | 3.3% | $15,935 | 3.5% | | Grade 5 | $5,748 | 1.3% | $4,829 | 1.1% | | Total | $430,571 | 100.0% | $457,048 | 100.0% | * As of March 31, 2025, and December 31, 2024, ten borrowers had debt or preferred equity investments on non-accrual status, totaling $14.5 million and $15.7 million at fair value, respectively (3.4% of total investments)[274] Results of Operations Operating results for Q1 2025 showed a net increase in net assets of $0.5 million, a significant decrease from $3.2 million in the prior year, due to lower investment income and higher unrealized losses Operating Results (Three Months Ended March 31) | Metric | 2025 ($ thousands) | 2024 ($ thousands) | | :-------------------------------------------------------- | :----------------- | :----------------- | | Total investment income | $11,638 | $15,182 | | Total operating expenses | $7,432 | $9,694 | | Net investment income | $4,086 | $5,470 | | Net realized gain (loss) | $(438) | $4 | | Net change in unrealized gain (loss) | $(3,116) | $(2,279) | | Net increase (decrease) in net assets resulting from operations | $532 | $3,195 | Investment Income Total investment income decreased by $3.5 million to $11,638 thousand for Q1 2025, primarily due to lower interest and PIK interest income from reduced average invested assets and lower effective rates Investment Income Components (Three Months Ended March 31) | Component | 2025 ($ thousands) | 2024 ($ thousands) | | :------------------------------------------ | :----------------- | :----------------- | | Interest income | $7,966 | $11,662 | | PIK interest income | $1,899 | $2,115 | | Dividend income (including PIK dividends) | $1,029 | $1,012 | | Other income | $229 | $37 | | Prepayment gain (loss) | $245 | $105 | | Accretion of discounts and amortization of premiums | $270 | $251 | | Total investment income | $11,638 | $15,182 | * Total investment income decreased by $3.5 million YoY, primarily due to lower interest and PIK interest income, driven by decreased average invested assets, lower effective rates, and more non-accrual portfolio companies[275] Operating Expenses Total operating expenses decreased by $2.3 million to $7,432 thousand for Q1 2025, mainly due to lower incentive fees, reduced interest and debt financing expenses, and decreased base management fees Operating Expenses (Three Months Ended March 31) | Expense Category | 2025 ($ thousands) | 2024 ($ thousands) | | :-------------------------------------- | :----------------- | :----------------- | | Interest and other debt financing expenses | $4,677 | $5,507 | | Base management fees | $1,851 | $2,048 | | Incentive fees | $— | $1,368 | | Professional fees | $263 | $268 | | Administrative service fees | $353 | $209 | | General and administrative expenses | $226 | $218 | | Directors' fees | $62 | $76 | | Total operating expenses | $7,432 | $9,694 | * Total operating expenses decreased by $2.3 million YoY, primarily due to lower incentive fees (due to Incentive Fee Limitations), reduced interest and debt financing expenses (lower rates and debt), and decreased base management fees[278] Income Taxes, Including Excise Taxes The company recorded a net expense of $0.1 million for U.S. federal excise tax for Q1 2025, an increase from the prior year, while consolidated subsidiaries incurred a lower net tax expense * The company recorded a net expense of $0.1 million for U.S. federal excise tax for the three months ended March 31, 2025, compared to $11 thousand in the prior year[280] * Consolidated subsidiaries incurred a net tax expense of $1 thousand for the three months ended March 31, 2025, compared to $7 thousand in the prior year[281] Net Realized Gain (Loss) For Q1 2025, the company recorded a net realized loss on investments of $(0.4) million, a decrease from a net realized gain of $4 thousand in the prior year * Net realized gain (loss) on investments was $(0.4) million for the three months ended March 31, 2025, compared to $4 thousand in the prior year[282] Net Change in Unrealized Gain (Loss) For Q1 2025, the company experienced a net change in unrealized loss of $(3.1) million, an increase from $(2.3) million in the prior year, driven by mark-to-market losses from legacy portfolio companies and SLF * Net change in unrealized gain (loss) was $(3.1) million for the three months ended March 31, 2025, compared to $(2.3) million in the prior year[283] * The increased unrealized loss in 2025 was driven by mark-to-market losses from legacy portfolio companies and the investment in SLF, affected by macroeconomic and idiosyncratic challenges[284] Net Increase (Decrease) in Net Assets Resulting from Operations The net increase in net assets from operations for Q1 2025 was $0.5 million ($0.03 per share), a $2.7 million decrease from the prior year, due to lower net investment income and higher net losses * Net increase in net assets from operations was $0.5 million ($0.03 per share) for the three months ended March 31, 2025, down from $3.2 million ($0.15 per share) in the prior year[286] * The $2.7 million decrease was primarily due to lower net investment income and higher net losses on the portfolio[287] Liquidity and Capital Resources As of March 31, 2025, the company had $6.5 million in cash, $141.2 million outstanding on its revolving credit facility, and $130.0 million on 2026 Notes, with an asset coverage ratio of 169% * As of March 31, 2025, the company had $6.5 million in cash, $141.2 million outstanding on its revolving credit facility, and $130.0 million on 2026 Notes, with $113.8 million available for additional borrowings[288] * The asset coverage ratio was 169% as of March 31, 2025, meeting the 1940 Act requirement[289] Cash Flows For Q1 2025, a net decrease in cash and cash equivalents of $(2.6) million resulted from $26.1 million provided by operating activities offset by $28.6 million used in financing activities * Net decrease in cash and cash equivalents was $(2.6) million for the three months ended March 31, 2025[290] * Operating activities provided $26.1 million, while financing activities used $28.6 million, mainly for debt repayments and stockholder distributions[290] Capital Resources The company relies on future securities offerings, borrowings, and operational cash flows for capital, with stockholders approving the ability to issue common stock below NAV * The company relies on future securities offerings, borrowings, and operational cash flows for capital, distributing substantially all net income to stockholders[291] * Stockholders approved the ability to sell common stock below NAV, and the company has an ATM program, but no issuances occurred in Q1 2025 or Q1 2024[292][294] Borrowings The company maintains a $255 million revolving credit facility and $130 million in 2026 Notes, with the facility recently amended to facilitate refinancing and bearing a weighted average interest rate of 7.1% * The company has a $255.0 million revolving credit facility (accordion feature up to $400.0 million) secured by all assets, maturing December 27, 2027[295] * The facility was amended on February 27, 2025, to provide flexibility for refinancing the $130.0 million 2026 Notes (4.75% annual rate, maturing February 15, 2026)[295][300] * Borrowings under the revolving credit facility bear interest at SOFR (one-month or three-month) plus 2.625% or a daily rate based on prime/federal funds/SOFR, with a weighted average interest rate of 7.1% as of March 31, 2025[299] Distributions The Board determines quarterly distributions, aiming to distribute at least 90% of ordinary income to maintain RIC status, with Q1 2025 and Q1 2024 distributions totaling $5.4 million ($0.25 per share) * The Board determines quarterly distributions, aiming for at least 90% of ordinary income and net short-term capital gains to maintain RIC status[301] * Distributions for Q1 2025 and Q1 2024 totaled $5.4 million ($0.25 per share) each, with no portion characterized as a return of capital[301] * The company operates an 'opt out' Dividend Reinvestment Plan (DRIP) for common stockholders[302] MRCC Senior Loan Fund I, LLC SLF is an unconsolidated joint venture with LSW for co-investing in senior secured loans, with the company's 50% equity interest valued at $31.9 million and SLF's total assets at $78.4 million * SLF is an unconsolidated joint venture with LSW, with both owning 50.0% of equity interests, and the company's investment in SLF was valued at $31.9 million as of March 31, 2025[304][305] * SLF has a senior secured revolving credit facility with Capital One, N.A., with $21.8 million outstanding as of March 31, 2025, accruing at a weighted average interest rate of 6.7%[307] * SLF's total assets at fair value were $78.4 million as of March 31, 2025, with six portfolio companies on non-accrual status (fair value $5.9 million)[309] SLF Portfolio Summary (March 31, 2025 vs. December 31, 2024) | Metric | March 31, 2025 ($ thousands) | December 31, 2024 ($ thousands) | | :------------------------------------ | :------------- | :---------------- | | Secured loans (outstanding principal) | $81,884 | $101,624 | | Weighted average current interest rate | 8.8% | 9.3% | | Number of portfolio company investments | 30 | 36 | Related Party Transactions The company has various business relationships with affiliated parties, including the Amended Investment Advisory Agreement with MC Advisors, an Administration Agreement with MC Management, and a license agreement for the "Monroe Capital" name * The company entered into an Amended Investment Advisory Agreement with MC Advisors following the Wendel Transaction, maintaining the same fee structure and services[330] * An Administration Agreement with MC Management provides office facilities and administrative services, with SLF also having an administration agreement with MC Management[330] * Theodore L. Koenig (CEO/Chairman) and Lewis W. Solimene, Jr. (CFO/CIO) hold leadership roles in MC Advisors and MC Management, respectively[330] Commitments and Contingencies and Off-Balance Sheet Arrangements Outstanding commitments to fund investments (excluding SLF) were $37.9 million as of March 31, 2025, with additional unfunded commitments to SLF, and no other off-balance sheet arrangements * Outstanding commitments to fund investments (excluding SLF) were $37.9 million as of March 31, 2025, and $38.5 million as of December 31, 2024[328] * Unfunded commitments to SLF were $7.3 million for both periods, with drawdowns requiring authorization from company representatives[328] * The company has indemnification obligations but expects the risk of loss to be remote and has no other off-balance sheet arrangements[328][329] Market Trends The company identifies attractive middle-market lending opportunities driven by private equity demand, despite increased competition and macroeconomic uncertainty, with current conditions favoring lenders * The target market of U.S. and Canadian middle-market companies (revenues $10.0 million - $2.5 billion) represents a significant growth segment with specialized lending requirements[331][332] * Demand for debt capital is strong due to uninvested private equity capital seeking leverage for middle-market companies[333] * Increased competition in middle-market lending has led to spread compression, but current market conditions (widening spreads, lender-favorable documentation) create attractive risk-adjusted returns despite macroeconomic uncertainty and potential for increased default rates[334][335][336] Significant Accounting Estimates and Critical Accounting Policies This section details critical accounting policies for revenue recognition, valuation of portfolio investments, and net realized/unrealized gains/losses, including the subjective nature of fair value determination and capital gains incentive fee accruals * Revenue recognition is on an accrual basis, with specific policies for PIK interest, non-accrual loans, and capitalization/amortization of loan fees and discounts[337] * Valuation of portfolio investments, especially illiquid ones, is determined in good faith by the Valuation Designee using income and market approaches, involving subjective judgments and estimates[340][341][343][345] * The capital gains incentive fee is 20% of cumulative incentive fee capital gains (realized gains net of realized losses and unrealized depreciation), with an accrual for unrealized gains, though not payable until realized[349][350] * No further reductions in accrued capital gains incentive fees occurred in Q1 2025 or Q1 2024, as they were already at zero due to accumulated losses[351] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to valuation, interest rate, currency, and inflation risks, highlighting the subjective nature of fair value and the impact of floating interest rates Valuation Risk The company faces valuation risk due to the subjective nature of determining fair value for illiquid investments, which requires significant judgment and may differ materially from actual liquidation values * Valuation risk arises from the subjective determination of fair value for illiquid investments, requiring significant judgment and potentially leading to material differences from actual liquidation values[355] Interest Rate Risk Most loans have floating interest rates, while 2026 Notes are fixed; a hypothetical 300 basis point interest rate decrease could reduce net investment income by $(4,716) thousand, while an increase could raise it by $4,797 thousand * Most loans have floating interest rates (SOFR-based with reset provisions and floors), while the 2026 Notes have fixed rates[357] Annualized Impact of Hypothetical Base Rate Changes on Net Investment Income (March 31, 2025) | Change in Interest Rates | Increase (decrease) in interest income ($ thousands) | Increase (decrease) in interest expense ($ thousands) | Net increase (decrease) in net investment income ($ thousands) | | :----------------------- | :------------------------------------- | :-------------------------------------- | :----------------------------------------------- | | Down 300 basis points | $(8,952) | $(4,236) | $(4,716) | | Down 200 basis points | $(6,022) | $(2,824) | $(3,198) | | Down 100 basis points | $(3,011) | $(1,412) | $(1,599) | | Up 100 basis points | $3,011 | $1,412 | $1,599 | | Up 200 basis points | $6,022 | $2,824 | $3,198 | | Up 300 basis points | $9,033 | $4,236 | $4,797 | * The company may use hedging instruments (futures, options, forward contracts) to mitigate interest rate fluctuations, but this may limit participation in lower interest rate benefits[360] Currency Risk The company may have foreign currency exposure from investments, which can be hedged, but held no foreign currency investments or forward contracts as of March 31, 2025 * The company may have foreign currency exposure from investments, translated at spot rates, with hedging strategies including foreign currency borrowings or forward contracts[361] * As of March 31, 2025, no foreign currency investments or forward contracts were held[361] Inflation and Supply Chain Risk Elevated U.S. inflation has increased costs and negatively impacted portfolio companies, with persistent inflation and monetary policy tightening potentially affecting profit margins and debt servicing ability * Elevated U.S. inflation has increased costs and negatively impacted consumer spending and portfolio companies' operations[362] * Persistent inflation and monetary policy tightening could affect portfolio companies' profit margins and debt servicing ability, especially with rising interest rates[362] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, ensuring timely and accurate financial reporting, with no material changes in internal control * Disclosure controls and procedures were effective as of March 31, 2025, providing reasonable assurance for timely and accurate financial reporting[363] * No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025[364] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety disclosures, other information, and a list of exhibits Item 1. Legal Proceedings The company is subject to ordinary course legal and regulatory proceedings, but none are expected to have a material adverse effect on its financial condition or operations * The company is subject to ordinary course legal and regulatory proceedings, but none are expected to have a material adverse effect on its financial condition or results of operations[365] Item 1A. Risk Factors No material changes to the risk factors discussed in the company's annual report on Form 10-K for the year ended December 31, 2024, were identified during Q1 2025 * No material changes to risk factors from the annual report on Form 10-K were identified during the quarter ended March 31, 2025[366] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities or use of proceeds during the reporting period * No unregistered sales of equity securities or use of proceeds occurred[367] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period * No defaults upon senior securities occurred[368] Item 4. Mine Safety Disclosures This item is not applicable to the company * Mine Safety Disclosures are not applicable[369] Item 5. Other Information No director or executive officer adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended March 31, 2025 * No director or executive officer adopted or terminated any Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter[370] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, credit agreements, investment advisory agreements, certifications, and XBRL-related documents * Exhibits include Amended and Restated Articles of Incorporation, Bylaws, Amendment No. 7 to Senior Secured Revolving Credit Agreement, Second Amended and Restated Investment Advisory and Management Agreement, CEO/CFO certifications, and XBRL documents[371]