Monroe Capital(MRCC) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS This section presents Monroe Capital Corporation's unaudited consolidated financial statements for the period ended June 30, 2025, including statements of assets and liabilities, operations, changes in net assets, cash flows, schedules of investments, and detailed notes on accounting policies and recent developments Consolidated Statements of Assets and Liabilities Total assets and net assets decreased from December 31, 2024, to June 30, 2025, primarily due to reductions in investments at fair value and cash, alongside a decrease in total debt | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total investments, at fair value | $367,700 | $457,048 | | Cash and cash equivalents | $2,425 | $9,044 | | Total assets | $394,617 | $490,671 | | Total debt, less unamortized debt issuance costs | $208,578 | $291,975 | | Total liabilities | $215,025 | $298,909 | | Total net assets | $179,592 | $191,762 | | Net asset value per share | $8.29 | $8.85 | Consolidated Statements of Operations Total investment income and net investment income significantly decreased for the three and six months ended June 30, 2025, leading to a net decrease in net assets from operations, contrasting with an increase in 2024 | Metric (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | | Total investment income | $9,873 | $15,627 | | Total operating expenses | $6,618 | $8,933 | | Net investment income | $3,298 | $6,559 | | Net gain (loss) | $(5,167) | $(3,301) | | Net increase (decrease) in net assets resulting from operations | $(1,869) | $3,258 | | Net investment income per share - basic and diluted | $0.15 | $0.30 | | Net increase (decrease) in net assets resulting from operations per share - basic and diluted | $(0.09) | $0.15 | | Metric (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Total investment income | $21,511 | $30,809 | | Total operating expenses | $14,051 | $18,627 | | Net investment income | $7,383 | $12,029 | | Net gain (loss) | $(8,720) | $(5,576) | | Net increase (decrease) in net assets resulting from operations | $(1,337) | $6,453 | | Net investment income per share - basic and diluted | $0.34 | $0.56 | | Net increase (decrease) in net assets resulting from operations per share - basic and diluted | $(0.06) | $0.30 | Consolidated Statements of Changes in Net Assets Total net assets decreased from $191,762 thousand at December 31, 2024, to $179,592 thousand at June 30, 2025, mainly due to net change in unrealized loss and stockholder distributions, partially offset by net investment income | Metric (in thousands) | Six months ended June 30, 2025 | | :-------------------- | :----------------------------- | | Balances at December 31, 2024 | $191,762 | | Net investment income | $7,383 | | Net realized gain (loss) | $(361) | | Net change in unrealized gain (loss) | $(8,359) | | Distributions to stockholders | $(10,833) |\n| Balances at June 30, 2025 | $179,592 | | Metric (in thousands) | Six months ended June 30, 2024 | | :-------------------- | :----------------------------- | | Balances at December 31, 2023 | $203,724 | | Net investment income | $12,029 |\n| Net realized gain (loss) | $510 | | Net change in unrealized gain (loss) | $(6,086) | | Distributions to stockholders | $(10,833) |\n| Balances at June 30, 2024 | $199,344 | Consolidated Statements of Cash Flows A net decrease in cash and cash equivalents for the six months ended June 30, 2025, resulted primarily from significant net cash used in financing activities, despite positive cash flow from operating activities | Metric (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $88,361 | $6,051 | | Net cash provided by (used in) financing activities | $(94,980) | $(7,133) | | Net increase (decrease) in cash and cash equivalents | $(6,619) | $(1,082) | | Cash and cash equivalents, end of period | $2,425 | $3,876 | Consolidated Schedules of Investments as of June 30, 2025 The investment portfolio at fair value totaled $367,700 thousand as of June 30, 2025, primarily comprising senior secured loans (73.5%) and equity investments (9.1%), with FIRE: Real Estate (24.4%) and Healthcare & Pharmaceuticals (15.5%) as top industry concentrations | Investment Type | Amortized Cost (in thousands) | % of Total | Fair Value (in thousands) | % of Total | | :---------------------- | :---------------------------- | :--------- | :------------------------ | :--------- | | Senior secured loans | $285,753 | 68.9% | $270,091 | 73.5% | | Unitranche secured loans | $2,163 | 0.5% | $2,183 | 0.6% | | Junior secured loans | $41,810 | 10.1% | $31,679 | 8.6% | | LLC equity interest in SLF | $42,650 | 10.3% | $30,157 | 8.2% | | Equity investments | $42,432 | 10.2% | $33,590 | 9.1% | | Total | $414,808 | 100.0% | $367,700 | 100.0% | Industry (Fair Value in thousands) | Industry (Fair Value in thousands) | June 30, 2025 | % of Total | | :--------------------------------- | :------------ | :--------- | | FIRE: Real Estate | $89,625 | 24.4% | | Healthcare & Pharmaceuticals | $56,713 | 15.5% | | High Tech Industries | $37,155 | 10.1% | | Investment Funds & Vehicles | $30,157 | 8.2% | | Services: Business | $29,644 | 8.1% | | Media: Diversified & Production | $24,752 | 6.7% | Consolidated Schedules of Investments as of December 31, 2024 The investment portfolio at fair value totaled $457,048 thousand as of December 31, 2024, with senior secured loans constituting 78.3% and top industry concentrations in FIRE: Real Estate (18.2%) and Healthcare & Pharmaceuticals (17.5%) | Investment Type | Amortized Cost (in thousands) | % of Total | Fair Value (in thousands) | % of Total | | :---------------------- | :---------------------------- | :--------- | :------------------------ | :--------- | | Senior secured loans | $372,074 | 75.0% | $357,994 | 78.3% | | Unitranche secured loans | $3,835 | 0.8% | $3,862 | 0.8% | | Junior secured loans | $35,771 | 7.2% | $29,634 | 6.5% | | LLC equity interest in SLF | $42,650 | 8.6% | $32,730 | 7.2% | | Equity investments | $41,467 | 8.4% | $32,828 | 7.2% | | Total | $495,797 | 100.0% | $457,048 | 100.0% | Industry (Fair Value in thousands) | Industry (Fair Value in thousands) | December 31, 2024 | % of Total | | :--------------------------------- | :---------------- | :--------- | | FIRE: Real Estate | $83,037 | 18.2% | | Healthcare & Pharmaceuticals | $79,784 | 17.5% | | Services: Business | $51,175 | 11.2% | | Media: Diversified & Production | $43,717 | 9.6% | | High Tech Industries | $41,240 | 9.0% | | Investment Funds & Vehicles | $32,730 | 7.2% | Notes to Consolidated Financial Statements This section details the company's accounting policies, investment valuation, related party transactions, and recent developments, including the Adviser Change in Control and subsequent merger agreements Note 1. Organization and Principal Business Monroe Capital Corporation, an externally managed BDC and RIC, aims to maximize stockholder returns through debt and equity investments, with a change of control in its investment adviser effective March 31, 2025 - Monroe Capital Corporation is an externally managed, non-diversified, closed-end management investment company regulated as a Business Development Company (BDC) under the 1940 Act and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[80] - The company's investment objective is to maximize total return to stockholders through current income and capital appreciation via investments in senior secured, junior secured, and unitranche secured debt, and to a lesser extent, unsecured subordinated debt and equity co-investments[80] - An Adviser Change in Control became effective on March 31, 2025, with Momentum US Bidco LLC, an affiliate of Wendel SE, acquiring a 75% interest in Monroe Capital, the parent of MC Advisors[81] Note 2. Summary of Significant Accounting Policies This note outlines the company's GAAP-compliant accounting policies, including fair value measurement, revenue recognition for investments, non-accrual status, distributions, and debt issuance costs - The company prepares consolidated financial statements in accordance with GAAP, following ASC Topic 946 for investment companies, and consolidates wholly-owned taxable subsidiaries[82][85] - Fair value is applied to substantially all financial instruments, categorized into a three-level hierarchy based on input observability (ASC Topic 820)[86][164] - Interest and dividend income are recorded on an accrual basis, with PIK provisions added to principal[88][91][92] Loan origination fees and discounts are capitalized and amortized using the effective interest method[92] Investments are placed on non-accrual status when payments are materially past due or collection is doubtful[96] Total Investment Income (in thousands) | Income Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Interest income | $6,864 | $11,850 | | PIK interest income | $1,660 | $2,099 | | Dividend income | $829 | $1,017 | | Other income | $54 | $265 | | Prepayment gain (loss) | $288 | $145 | | Accretion of discounts and amortization of premiums | $178 | $251 | | Total investment income | $9,873 | $15,627 | Total Investment Income (in thousands) | Income Type | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $14,830 | $23,512 | | PIK interest income | $3,560 | $4,214 | | Dividend income | $1,858 | $2,029 | | Other income | $282 | $302 | | Prepayment gain (loss) | $532 | $250 | | Accretion of discounts and amortization of premiums | $449 | $502 | | Total investment income | $21,511 | $30,809 | Note 3. Investments This note details the investment portfolio's composition by type, region, and industry, along with a comprehensive overview of MRCC Senior Loan Fund I, LLC, an unconsolidated co-investment entity Investment Portfolio Composition (in thousands) | Investment Type | June 30, 2025 (Fair Value) | % of Total | December 31, 2024 (Fair Value) | % of Total | | :---------------------- | :------------------------- | :--------- | :----------------------------- | :--------- | | Senior secured loans | $270,091 | 73.5% | $357,994 | 78.3% | | Unitranche secured loans | $2,183 | 0.6% | $3,862 | 0.8% | | Junior secured loans | $31,679 | 8.6% | $29,634 | 6.5% | | LLC equity interest in SLF | $30,157 | 8.2% | $32,730 | 7.2% | | Equity investments | $33,590 | 9.1% | $32,828 | 7.2% | | Total | $367,700 | 100.0% | $457,048 | 100.0% | Investment Portfolio by Geographic Region (Fair Value in thousands) | Region | June 30, 2025 | % of Total | December 31, 2024 | % of Total | | :------------ | :------------ | :--------- | :---------------- | :--------- | | Midwest | $142,353 | 38.7% | $152,880 | 33.4% | | Northeast | $84,604 | 23.0% | $94,766 | 20.7% | | Southeast | $64,628 | 17.6% | $111,115 | 24.4% | | West | $66,051 | 18.0% | $79,683 | 17.4% | | Southwest | $8,738 | 2.4% | $13,186 | 2.9% | | International | $1,326 | 0.3% | $1,388 | 0.3% | Investment Portfolio by Industry (Fair Value in thousands) | Industry | June 30, 2025 | % of Total | December 31, 2024 | % of Total | | :--------------------------- | :------------ | :--------- | :---------------- | :--------- | | FIRE: Real Estate | $89,625 | 24.4% | $83,037 | 18.2% | | Healthcare & Pharmaceuticals | $56,713 | 15.5% | $79,784 | 17.5% | | High Tech Industries | $37,155 | 10.1% | $41,240 | 9.0% | | Investment Funds & Vehicles | $30,157 | 8.2% | $32,730 | 7.2% | | Services: Business | $29,644 | 8.1% | $51,175 | 11.2% | | Media: Diversified & Production | $24,752 | 6.7% | $43,717 | 9.6% | - As of June 30, 2025, ten borrowers had debt or preferred equity investments on non-accrual status, totaling $13,373 thousand at fair value (3.6% of total investments)[96] MRCC Senior Loan Fund I, LLC (SLF) Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------------- | :------------ | :---------------- | | Company's investment in SLF (fair value) | $30,157 | $32,730 | | SLF Total assets (fair value) | $75,899 | $104,159 | | SLF Secured loans (outstanding principal) | $70,941 | $101,624 | | SLF Weighted average current interest rate on secured loans | 8.7% | 9.3% | | SLF Portfolio company investments on non-accrual status (fair value) | $5,560 | $5,184 | Note 4. Fair Value Measurements This note details the company's fair value measurement policies for investments, categorizing them into a three-level hierarchy, with the Valuation Designee overseeing the process using income and market approaches for Level 3 assets - The company values all investments in accordance with ASC Topic 820, using a three-level fair value hierarchy based on market price observability of inputs[159][161] - The Board has designated MC Advisors as the Valuation Designee, responsible for determining fair value, especially for investments lacking readily available market quotations, through a multi-step valuation process involving internal evaluations and independent appraisals[162][163][170] - Valuation techniques for Level 3 debt include the income approach (discounted cash flow models) and market approach (enterprise value methodology, often based on EBITDA or revenue multiples)[166][167][168] Fair Value Measurements of Investments (in thousands) | Category | June 30, 2025 (Level 3) | December 31, 2024 (Level 3) | | :------------------------ | :---------------------- | :-------------------------- | | Senior secured loans | $270,091 | $357,994 | | Unitranche secured loans | $2,183 | $3,862 | | Junior secured loans | $31,679 | $29,634 | | Equity investments | $33,590 | $32,767 | | Investments measured at NAV | $30,157 | $32,730 | | Total investments | $367,700 | $457,048 | Debt Carrying Value vs. Fair Value (in thousands) | Debt Type | June 30, 2025 (Carrying Value) | June 30, 2025 (Fair Value) | December 31, 2024 (Carrying Value) | December 31, 2024 (Fair Value) | | :-------------------- | :----------------------------- | :------------------------- | :--------------------------------- | :----------------------------- | | Revolving Credit Facility | $79,080 | $79,080 | $162,872 | $162,872 | | 2026 Notes | $129,498 | $127,830 | $129,103 | $124,161 | | Total Debt | $208,578 | $206,910 | $291,975 | $287,033 | Note 5. Transactions with Affiliate Companies This note details transactions with non-controlled and controlled affiliate companies, including changes in fair value, purchases, sales, and income generated, highlighting the impact of PIK interest and unrealized gains/losses - An affiliate company is defined as one where the Company holds 5% or more of voting securities, while a controlled affiliate company involves more than 25% ownership[195] Non-Controlled Affiliate Company Investments (Fair Value in thousands) | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------------- | :---------------- | :------------ | | Total non-controlled affiliate company investments | $80,483 | $76,379 | | Net change in unrealized gain (loss) | N/A | $(610) | | PIK interest capitalized (cost) | N/A | $1,919 | Controlled Affiliate Company Investments (Fair Value in thousands) | Metric | December 31, 2024 | June 30, 2025 | | :-------------------------------------- | :---------------- | :------------ | | Total controlled affiliate company investments | $32,730 | $30,157 | | Net change in unrealized gain (loss) | N/A | $(2,573) | Investment Income from Affiliate Companies (Six months ended June 30, in thousands) | Income Type | 2025 (Interest Income) | 2025 (Dividend Income) | 2024 (Interest Income) | 2024 (Dividend Income) | | :-------------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Non-controlled affiliate company investments | $2,469 | $117 | $5,096 | $108 | | Controlled affiliate company investments | $0 | $1,600 | $0 | $1,800 | Note 6. Transactions with Related Parties This note details the company's relationships and transactions with related parties, including the Amended Investment Advisory Agreement with MC Advisors and the Administration Agreement with MC Management, outlining fee structures and the impact of the Wendel Transaction - On March 31, 2025, the company entered into the Second Amended and Restated Investment Advisory and Management Agreement with MC Advisors following a change of control where Wendel SE acquired a 75% interest in Monroe Capital[206] The terms, including fee structure, remained unchanged[206] - The base management fee is 1.75% annually of average invested assets, reduced to 1.00% for assets exceeding 200% of average net assets[207] - The incentive fee has two parts: 20% of pre-incentive fee net investment income (subject to a 2% hurdle and catch-up, and a total return limitation) and 20% of cumulative realized capital gains (net of losses and unrealized depreciation)[211][212] Management and Incentive Fees (in thousands) | Fee Type (in thousands) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :---------------------- | :------------------------------- | :------------------------------- | | Base management fees | $1,742 | $2,037 | | Incentive fees | $0 | $351 | Management and Incentive Fees (in thousands) | Fee Type (in thousands) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------- | :----------------------------- | :----------------------------- | | Base management fees | $3,593 | $4,085 | | Incentive fees | $0 | $1,719 | - The company incurred $873 thousand and $1,716 thousand in administrative expenses for the three and six months ended June 30, 2025, respectively, under the Administration Agreement with MC Management[215] Note 7. Borrowings This note details the company's borrowing arrangements, including a $255 million revolving credit facility and $130 million in 2026 Notes, outlining terms, covenants, interest rates, and the company's 185% asset coverage ratio - The company's asset coverage ratio was 185% as of June 30, 2025, and 165% as of December 31, 2024, exceeding the 1940 Act requirement of at least 150%[218] - The company has a $255,000 thousand revolving credit facility with ING Capital LLC, maturing on December 27, 2027, with an accordion feature up to $400,000 thousand[219][224] Borrowings bear interest at SOFR plus 2.625% or a daily rate based on prime/federal funds/SOFR, with a SOFR floor of 0.5%[224] - As of June 30, 2025, $80,300 thousand was outstanding on the revolving credit facility, with $174,700 thousand available for additional borrowings[306] - The company has $130,000 thousand in senior unsecured 2026 Notes outstanding, maturing on February 15, 2026, bearing interest at an annual rate of 4.75%[225] Interest and Other Debt Financing Expenses (in thousands) | Expense Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Interest expense - revolving credit facility | $1,977 | $3,898 | | Interest expense - 2026 Notes | $1,555 | $1,555 | | Amortization of debt issuance costs | $401 | $327 | | Total interest and other debt financing expenses | $3,933 | $5,780 | | Average debt outstanding | $228,226 | $315,611 | | Average stated interest rate | 6.2% | 6.9% | Interest and Other Debt Financing Expenses (in thousands) | Expense Type | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Interest expense - revolving credit facility | $4,750 | $7,523 | | Interest expense - 2026 Notes | $3,110 | $3,110 | | Amortization of debt issuance costs | $750 | $654 | | Total interest and other debt financing expenses | $8,610 | $11,287 | | Average debt outstanding | $252,837 | $308,327 | | 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 no such contracts as of June 30, 2025, or December 31, 2024, resulting in no related gains or losses - The company may use foreign currency forward contracts to mitigate foreign currency exchange rate fluctuations[228] - As of June 30, 2025, and December 31, 2024, the company held no foreign currency forward contracts[43][75][228] - No net realized or unrealized gain (loss) on foreign currency forward contracts was recognized for the three and six months ended June 30, 2025 and 2024[229] Note 9. Distributions The company declared total distributions of $0.50 per share ($10,833 thousand) for both the six months ended June 30, 2025, and 2024, primarily as cash with a portion reinvested through the Dividend Reinvestment Plan Distributions Declared (Six months ended June 30, in thousands) | Period | Amount Per Share | Total Cash Distribution | DRIP Shares Repurchased (shares) | Cost of DRIP Shares Repurchased | | :---------------------- | :--------------- | :---------------------- | :------------------------------- | :------------------------------ | | Six months ended June 30, 2025 | $0.50 | $10,833 | 54,778 | $383 | | Six months ended June 30, 2024 | $0.50 | $10,833 | 36,735 | $274 | - The company adopted an 'opt out' Dividend Reinvestment Plan (DRIP) in October 2012, allowing stockholders to automatically reinvest cash distributions into additional common stock unless they elect to receive cash[99][321] Note 10. Stock Issuances and Repurchases The company had no stock issuances through its At-The-Market (ATM) equity distribution program during the six months ended June 30, 2025, or 2024 - The company has an At-The-Market (ATM) equity distribution program, established in May 2017 and amended in May 2020, allowing for the sale of up to $50,000 thousand of common stock[232][313] - There were no stock issuances through the ATM Program during the six months ended June 30, 2025, and 2024[232][313] Note 11. Commitments and Contingencies The company had outstanding commitments to fund investments totaling $31,605 thousand as of June 30, 2025, and $38,509 thousand as of December 31, 2024, and faces credit, counterparty, and market risks, but no material legal proceedings - As of June 30, 2025, and December 31, 2024, the company had outstanding commitments to fund investments of $31,605 thousand and $38,509 thousand, respectively, excluding unfunded commitments in SLF[233][347] - The company had unfunded commitments of $7,350 thousand to SLF as of both June 30, 2025, and December 31, 2024[233][347] - The company is subject to credit risk, counterparty risk, and market risk, but expects the risk of future obligations under indemnification provisions to be remote[239][240] - The company is not currently aware of any material legal proceedings that would have a material adverse effect on its consolidated financial statements[242] Note 12. Financial Highlights This note provides key financial highlights for the six months ended June 30, 2025, and 2024, showing a decrease in net asset value per share and a negative total return based on market value in 2025 Financial Highlights (Six months ended June 30) | Metric | June 30, 2025 | June 30, 2024 | | :-------------------------------------- | :------------ | :------------ | | Net asset value at beginning of period | $8.85 | $9.40 | | Net increase (decrease) in net assets resulting from operations | $(0.06) | $0.30 | | Stockholder distributions - income | $(0.50) | $(0.50) | | Net asset value at end of period | $8.29 | $9.20 | | Total return based on market value | (19.84)% | 14.97% | | Total return based on average net asset value | 0.34% | 4.54% | | Ratio of net investment income to average net assets | 8.00% | 12.87% | | Ratio of total expenses to average net assets | 15.31% | 17.88% | Note 13. Segment Reporting The company operates as a single operating and reporting segment, with its CEO and CFO serving as Chief Operating Decision Makers, assessing performance on a consolidated basis using net income and net investment income - The company operates through a single operating and reporting segment, with an investment objective to generate current income and capital appreciation through debt and equity investments[246] - The Chief Operating Decision Makers (CODM) are the Chief Executive Officer and Chief Financial Officer, who assess performance and make operating decisions on a consolidated basis, primarily using net increase (decrease) in net assets and net investment income[246] Note 14. Subsequent Events Subsequent to June 30, 2025, the company entered into a Merger Agreement with Horizon Technology Finance Corporation and an Asset Purchase Agreement with Monroe Capital Income Plus Corporation, outlining an asset sale followed by a merger - On August 7, 2025, the company entered into a Merger Agreement with Horizon Technology Finance Corporation (HRZN) and an Asset Purchase Agreement with Monroe Capital Income Plus Corporation (MCIP)[247][254] - The Asset Purchase Agreement stipulates that MCIP will acquire the company's investment assets at fair value for cash, immediately prior to the merger with HRZN[254][255] - In the merger, each share of the company's common stock will be converted into HRZN common stock based on an Exchange Ratio, calculated from the respective Net Asset Values (NAVs) of the companies[248][251] - The transactions are anticipated to close in the fourth quarter of 2025, subject to stockholder and regulatory approvals[253][257] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section discusses Monroe Capital Corporation's financial condition, operations, and liquidity, highlighting a net decrease in investments and net assets from operations, and significant merger and asset sale agreements FORWARD-LOOKING STATEMENTS This section contains forward-looking statements based on current expectations and assumptions, which involve risks and uncertainties that could cause actual results to differ materially - The report contains forward-looking statements based on current expectations, estimates, and projections about the company, its industry, beliefs, and assumptions[262] - These statements involve risks and uncertainties, and actual results could differ materially due to factors such as future operating results, business prospects, general economy, political and regulatory conditions, market liquidity, competition, interest rates, inflation, and the valuation of investments[262][263] - The company uses words like 'anticipates,' 'believes,' 'expects,' 'intends,' 'seeks,' 'plans,' 'estimates,' and 'targets' to identify forward-looking statements[263] Overview Monroe Capital Corporation is an externally managed BDC and RIC providing financing to lower middle-market companies, aiming to maximize total return through senior secured, unitranche secured, junior secured debt, and equity investments - Monroe Capital Corporation is an externally managed, closed-end, non-diversified management investment company regulated as a BDC and elected as a RIC[266] - The company specializes in providing financing solutions primarily to lower middle-market companies in the United States and Canada[267] - Investment objective is to maximize total return to stockholders through current income and capital appreciation via senior secured, unitranche secured, and junior secured debt, and equity investments[270] Portfolio Composition by Investment Type (Fair Value) | Investment Type | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :---------------- | | Senior secured loans | 73.5% | 78.3% | | Unitranche secured loans | 0.6% | 0.8% | | Junior secured loans | 8.6% | 6.5% | | Equity investments | 17.3% | 14.4% | Investment income Investment income is primarily generated from interest on debt investments (senior secured, unitranche secured, junior secured) and dividend income on preferred and common equity, including contractual interest, PIK interest, loan origination fees, and prepayment premiums, all recognized on an accrual basis - Investment income is generated from interest on debt investments (senior secured, unitranche secured, junior secured) and dividend income on preferred and common equity investments[272][273] - Income sources include contractual interest, payment-in-kind (PIK) interest, commitment, origination, amendment, structuring or due diligence fees, and prepayment premiums[272] - Loan origination fees, original issue discount, and market discount/premium are capitalized and amortized into interest income using the effective interest method[272] Expenses The company's primary operating expenses include base management and incentive fees to MC Advisors, administrative fees to MC Management, interest expense on indebtedness, and other out-of-pocket operational and transactional costs - Primary operating expenses include base management and incentive fees paid to MC Advisors under the Amended Investment Advisory Agreement[274] - Fees are also paid to MC Management for allocable overhead and other expenses under the Administration Agreement[274] - Other operating costs include interest expense on indebtedness and all other out-of-pocket expenses of operations and transactions[274] Net gain (loss) Net realized gains or losses result from investment dispositions and derivative instruments, while net change in unrealized gain or loss reflects period-over-period fair value changes in investments and derivative instruments - Net realized gains or losses on investments, foreign currency forward contracts, and other foreign currency transactions are recognized based on the difference between net disposition proceeds and cost basis[275] - Net change in unrealized gain or loss reflects current period changes in the fair value of investments and derivative instruments[275] Portfolio and Investment Activity For the six months ended June 30, 2025, the company experienced a net decrease in investments of $85.1 million, with a weighted average effective yield decreasing to 8.8% from 10.2% due to lower spreads and payoffs of higher-yielding assets Investment Activity (in millions) | Period | Investments in new portfolio companies | Investments in existing portfolio companies | Sales and principal repayments | Net decrease in investments | | :----------------------------- | :------------------------------------- | :------------------------------------------ | :----------------------------- | :-------------------------- | | Three months ended June 30, 2025 | $0.0 | $3.5 | $63.0 | $59.5 | | Six months ended June 30, 2025 | $7.6 | $12.3 | $105.0 | $85.1 | | Three months ended June 30, 2024 | $0.0 | $21.7 | $35.9 | $14.2 | | Six months ended June 30, 2024 | $10.2 | $35.7 | $48.0 | $2.1 | Portfolio Yield by Investment Type | Investment Type | June 30, 2025 (Weighted Average Annualized Effective Yield) | December 31, 2024 (Weighted Average Annualized Effective Yield) | | :--------------------- | :-------------------------------------------------------- | :-------------------------------------------------------------- | | Senior secured loans | 9.2% | 10.7% | | Unitranche secured loans | 12.2% | 14.5% | | Junior secured loans | 7.6% | 7.5% | | Equity investments | 2.8% | 2.8% | | Total | 8.8% | 10.2% | - The decrease in effective yield was primarily due to lower spreads on certain assets and the payoff of certain higher yielding assets during the six months ended June 30, 2025[282] Portfolio Asset Quality MC Advisors monitors portfolio asset quality using a 1-to-5 risk rating scale, with 80.6% of investments rated Grade 2 (acceptable risk) and 14.4% Grade 3 (below expectations) as of June 30, 2025 - MC Advisors monitors portfolio asset quality using an internal proprietary 1-to-5 investment performance risk rating system[286] - Investments rated Grade 3, 4, or 5 trigger increased monitoring and action plans by the Portfolio Management Group (PMG)[286][287] Investment Performance Risk Rating Distribution (Fair Value in thousands) | Risk Rating | June 30, 2025 (Fair Value) | Percentage of Total Investments | | :---------- | :------------------------- | :------------------------------ | | Grade 1 | $0 | 0% | | Grade 2 | $296,419 | 80.6% | | Grade 3 | $52,725 | 14.4% | | Grade 4 | $13,351 | 3.6% | | Grade 5 | $5,205 | 1.4% | | Total | $367,700 | 100.0% | - As of June 30, 2025, ten borrowers had debt or preferred equity investments on non-accrual status, totaling $13.4 million at fair value (3.6% of total investments)[289] Results of Operations The company experienced a significant decline in net investment income and a net decrease in net assets from operations for the three and six months ended June 30, 2025, primarily due to lower investment income and increased unrealized losses Operating Results (in thousands) | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Total investment income | $9,873 | $15,627 | | Total operating expenses | $6,618 | $8,933 | | Net investment income | $3,298 | $6,559 | | Net realized gain (loss) | $77 | $506 | | Net change in unrealized gain (loss) | $(5,244) | $(3,807) | | Net increase (decrease) in net assets resulting from operations | $(1,869) | $3,258 | Operating Results (in thousands) | Metric | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $21,511 | $30,809 | | Total operating expenses | $14,051 | $18,627 | | Net investment income | $7,383 | $12,029 | | Net realized gain (loss) | $(361) | $510 | | Net change in unrealized gain (loss) | $(8,359) | $(6,086) | | Net increase (decrease) in net assets resulting from operations | $(1,337) | $6,453 | Investment Income Total investment income decreased by $5.8 million and $9.3 million for the three and six months ended June 30, 2025, respectively, primarily due to lower interest and PIK interest income from reduced average invested assets and more non-accrual portfolio companies Investment Income (in thousands) | Income Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Interest income | $6,864 | $11,850 | | PIK interest income | $1,660 | $2,099 | | Dividend income | $829 | $1,017 | | Other income | $54 | $265 | | Prepayment gain (loss) | $288 | $145 | | Accretion of discounts and amortization of premiums | $178 | $251 | | Total investment income | $9,873 | $15,627 | Investment Income (in thousands) | Income Type | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $14,830 | $23,512 | | PIK interest income | $3,560 | $4,214 | | Dividend income | $1,858 | $2,029 | | Other income | $282 | $302 | | Prepayment gain (loss) | $532 | $250 | | Accretion of discounts and amortization of premiums | $449 | $502 | | Total investment income | $21,511 | $30,809 | - Total investment income decreased by $5.8 million and $9.3 million during the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024[293] - The reduction was primarily due to lower interest and PIK interest income, driven by a decrease in average invested assets, lower effective rates, and the placement of additional portfolio companies on non-accrual status[293] Operating Expenses Total operating expenses decreased by $2.3 million and $4.6 million for the three and six months ended June 30, 2025, respectively, mainly due to lower interest and other debt financing expenses, incentive fees, and base management fees Operating Expenses (in thousands) | Expense Type | Three months ended June 30, 2025 | Three months ended June 30, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | | Interest and other debt financing expenses | $3,933 | $5,780 | | Base management fees | $1,742 | $2,037 | | Incentive fees | $0 | $351 | | Professional fees | $267 | $199 | | Administrative service fees | $374 | $250 | | General and administrative expenses | $232 | $243 | | Directors' fees | $70 | $73 | | Total operating expenses | $6,618 | $8,933 | Operating Expenses (in thousands) | Expense Type | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Interest and other debt financing expenses | $8,610 | $11,287 | | Base management fees | $3,593 | $4,085 | | Incentive fees | $0 | $1,719 | | Professional fees | $530 | $467 | | Administrative service fees | $727 | $459 | | General and administrative expenses | $459 | $461 | | Directors' fees | $132 | $149 | | Total operating expenses | $14,051 | $18,627 | - Total operating expenses decreased by $2.3 million and $4.6 million during the three and six months ended June 30, 2025, respectively, compared to the same periods in 2024[296] - The decrease was primarily due to lower interest and other debt financing expenses from a reduced interest rate environment and lower average debt outstanding, as well as decreases in incentive fees and base management fees[296] Income Taxes, Including Excise Taxes As a RIC, the company distributes at least 90% of its taxable income to avoid federal income tax, accruing excise tax on estimated excess taxable income, and recorded a net excise tax expense of $70 thousand for the six months ended June 30, 2025 - The company operates as a RIC, requiring annual distribution of at least 90% of its investment company taxable income to avoid U.S. federal income tax[297] - For the three and six months ended June 30, 2025, the company recorded a net expense (benefit) of $(49) thousand and $70 thousand, respectively, for U.S. federal excise tax[298] - For the three and six months ended June 30, 2025, the company recorded a net tax expense of $6 thousand and $7 thousand, respectively, for its consolidated taxable subsidiaries[299] Net Realized Gain (Loss) For the three months ended June 30, 2025, the company recorded a net realized gain of $0.1 million on investments, while for the six months ended June 30, 2025, it recorded a net realized loss of $(0.4) million Net Realized Gain (Loss) on Investments (in millions) | Period | 2025 | 2024 | | :----------------------------- | :--- | :--- | | Three months ended June 30, 2025 | $0.1 | $0.5 | | Six months ended June 30, 2025 | $(0.4) | $0.5 | Net Change in Unrealized Gain (Loss) The company experienced net unrealized losses of $(5.2) million and $(8.4) million for the three and six months ended June 30, 2025, respectively, primarily from mark-to-market losses on portfolio companies with credit performance concerns and unrealized losses on the SLF equity investment Net Change in Unrealized Gain (Loss) on Investments (in millions) | Period | 2025 | 2024 | | :----------------------------- | :----- | :----- | | Three months ended June 30, 2025 | $(5.2) | $(3.8) | | Six months ended June 30, 2025 | $(8.4) | $(6.1) | - The net change in unrealized loss on investments for the three and six months ended June 30, 2025, was primarily driven by mark-to-market losses from portfolio companies with underlying credit performance concerns (risk rating of Grade 3, 4 or 5) and unrealized losses on the equity investment in SLF[302] Net Increase (Decrease) in Net Assets Resulting from Operations For the three and six months ended June 30, 2025, the net increase (decrease) in net assets from operations was a decrease of $(1.9) million and $(1.3) million, respectively, translating to $(0.09) and $(0.06) per share Net Increase (Decrease) in Net Assets from Operations | Period | Net Increase (Decrease) (in millions) | Per Share | | :----------------------------- | :------------------------------------ | :-------- | | Three months ended June 30, 2025 | $(1.9) | $(0.09) | | Three months ended June 30, 2024 | $3.3 | $0.15 | | Six months ended June 30, 2025 | $(1.3) | $(0.06) | | Six months ended June 30, 2024 | $6.5 | $0.30 | Liquidity and Capital Resources As of June 30, 2025, the company had $2.4 million in cash, $80.3 million outstanding on its revolving credit facility, and $130.0 million on its 2026 Notes, maintaining an 185% asset coverage ratio and relying on future offerings and borrowings for capital - As of June 30, 2025, the company had $2.4 million in cash and cash equivalents, $80.3 million of total debt outstanding on its revolving credit facility, and $130.0 million on the 2026 Notes[306] - The company had $174.7 million available for additional borrowings on its revolving credit facility, subject to borrowing base availability[306] - The asset coverage ratio was 185% as of June 30, 2025, exceeding the 1940 Act requirement of at least 150%[307] Cash Flows For the six months ended June 30, 2025, the company experienced a net decrease in cash and cash equivalents of $6.6 million, with $88.4 million provided by operating activities and $95.0 million used in financing activities Cash Flow Summary (Six months ended June 30, in millions) | Activity | 2025 | 2024 | | :-------------------------------------- | :----- | :----- | | Net cash provided by (used in) operating activities | $88.4 | $6.1 | | Net cash provided by (used in) financing activities | $(95.0) | $(7.1) |\n| Net increase (decrease) in cash and cash equivalents | $(6.6) | $(1.0) | Capital Resources As a BDC, the company distributes substantially all net income, requiring additional capital from future securities offerings, borrowings, and operational cash flows, with stockholder approval obtained to issue common stock below NAV - As a BDC, the company distributes substantially all net income, necessitating additional capital for investment purposes[310] - Capital will be generated from future securities offerings, borrowings, and cash flows from operations[310] - On June 17, 2025, stockholders approved the ability to sell common stock below Net Asset Value (NAV) per share for one year, subject to limitations[311] - The company has a standing authorization, approved on June 24, 2015, to issue warrants, options, or rights to purchase common stock[312] Borrowings The company's borrowing capacity includes a $255 million revolving credit facility and $130 million in 4.75% senior unsecured 2026 Notes, with the credit facility amended to provide refinancing flexibility and subject to borrowing base and financial covenants - The company has a $255 million revolving credit facility with ING Capital LLC, maturing December 27, 2027, with an accordion feature up to $400 million[314] - The revolving credit facility was amended on February 27, 2025, to provide additional flexibility for refinancing the 2026 Notes[314] - Borrowing under the facility is subject to borrowing base availability (up to 72.5% of fair market value of portfolio investments), concentration limits, and financial covenants, including a minimum consolidated total net assets and asset coverage ratios[315] - As of June 30, 2025, $80.3 million in U.S. dollar borrowings were outstanding on the revolving credit facility, accruing at a weighted average interest rate of 7.1%[317][318] - The company has $130.0 million in 4.75% senior unsecured 2026 Notes outstanding, maturing on February 15, 2026[319] Distributions The Board determines quarterly distributions, aiming to distribute at least 90% of ordinary income to maintain RIC status, with total distributions of $10.8 million ($0.50 per share) for the six months ended June 30, 2025 and 2024, under an 'opt out' Dividend Reinvestment Plan - The Board determines quarterly distributions, aiming to distribute at least 90% of ordinary income and realized net short-term capital gains to maintain RIC status[320] - Total distributions for both the three and six months ended June 30, 2025 and 2024, totaled $5.4 million ($0.25 per share) and $10.8 million ($0.50 per share), respectively, with no portion characterized as a return of capital[320] - The company operates an 'opt out' Dividend Reinvestment Plan (DRIP), where cash distributions are automatically reinvested in common stock unless stockholders elect to receive cash[321] MRCC Senior Loan Fund I, LLC The company co-invests with LSW in senior secured loans through MRCC Senior Loan Fund I, LLC (SLF), an unconsolidated entity, with the company's 50.0% equity interest valued at $30.2 million as of June 30, 2025 - The company co-invests with Life Insurance Company of the Southwest (LSW) in senior secured loans through MRCC Senior Loan Fund I, LLC (SLF), an unconsolidated Delaware LLC[322] - As of June 30, 2025, and December 31, 2024, the company and LSW each owned 50.0% of SLF's LLC equity interests[323] - The company's investment in SLF had a fair value of $30.2 million as of June 30, 2025, and $32.7 million as of December 31, 2024[324] - For the six months ended June 30, 2025, the company received $1.6 million in dividend income from its SLF equity interest[325] - As of June 30, 2025, SLF had total assets at fair value of $75.9 million and $15.2 million outstanding on its senior secured revolving credit facility[328] - As of June 30, 2025, SLF had seven portfolio company investments on non-accrual status with a fair value of $5.6 million[328] Related Party Transactions The company has various business relationships with affiliated parties, including MC Advisors (investment adviser), MC Management (administrator), and Monroe Capital LLC (licensor of name), involving advisory and administrative services, fee structures, and a non-exclusive license - The company has an Amended Investment Advisory Agreement with MC Advisors, approved by stockholders, for investment advisory services, including base management and incentive fees[349] - An Administration Agreement with MC Management provides office facilities and administrative services, with the company reimbursing allocable overhead and expenses[349] - SLF also has an administration agreement with MC Management for loan servicing and administrative functions[349] - Theodore L. Koenig (CEO and Chairman) and Lewis W. Solimene, Jr. (CFO and CIO) hold management positions across MC Advisors and MC Management[349] - The company has a license agreement with Monroe Capital LLC for a non-exclusive, royalty-free use of the 'Monroe Capital' name[349] Commitments and Contingencies and Off-Balance Sheet Arrangements As of June 30, 2025, the company had $31.6 million in outstanding commitments to fund investments and $7.3 million in unfunded commitments