Monroe Capital(US:MRCC)2025-11-05 22:10Investment Portfolio Composition - As of September 30, 2025, the portfolio included approximately 73.4% senior secured loans, 0.6% unitranche secured loans, 8.7% junior secured loans, and 17.3% equity investments, compared to December 31, 2024, when the portfolio included approximately 78.3% senior secured loans, 0.8% unitranche secured loans, 6.5% junior secured loans, and 14.4% equity investments [268]. - The investment objective is to maximize total return to stockholders through investment in senior secured, unitranche secured, and junior secured debt, with investments generally ranging between $2.0 million and $35.0 million each [268]. - As of September 30, 2025, the weighted average annualized contractual coupon yield for senior secured loans was 10.4%, while the total yield was 9.9% [280]. - The fair value of senior secured loans decreased to $264.7 million, representing 73.4% of total investments, down from $358.0 million or 78.3% as of December 31, 2024 [282]. - As of September 30, 2025, 79.5% of investments were rated Grade 2, indicating an acceptable level of risk, while 15.6% were rated Grade 3, indicating below-expectation performance [287]. - Investments on non-accrual status totaled $12.5 million at fair value, representing 3.5% of total investments as of September 30, 2025 [287]. Investment Activity - During the three months ended September 30, 2025, the company invested $9.0 million in 17 existing portfolio companies and had $15.2 million in aggregate sales and principal repayments, resulting in a net decrease in investments of $6.2 million for the period [277]. - For the nine months ended September 30, 2025, the company invested $7.6 million in one new portfolio company and $21.3 million in 59 existing portfolio companies, with $120.2 million in aggregate sales and principal repayments, resulting in a net decrease in investments of $91.3 million for the period [278]. - The company has not made investments in any new portfolio companies during the three months ended September 30, 2025 [277]. - During the nine months ended September 30, 2024, the company invested $27.6 million in six new portfolio companies and $44.1 million in 51 existing portfolio companies, resulting in a net decrease in investments of $14.6 million [280]. Financial Performance - The company's total investment income for the three months ended September 30, 2025, was $8.2 million, a decrease from $15.7 million in the same period of 2024 [288]. - For the nine months ended September 30, 2025, total investment income was $29.7 million, down from $46.5 million in 2024 [289]. - The net investment income before income taxes for the three months ended September 30, 2025, was $1.9 million, compared to $6.6 million in 2024 [288]. - The company reported a net realized loss on investments of $2.4 million for the three months ended September 30, 2025 [288]. - Total investment income decreased by $7.5 million (47.8%) and $16.8 million (36.2%) for the three and nine months ended September 30, 2025, compared to the same periods in 2024, primarily due to lower interest income, PIK interest income, and dividend income [291]. - For the three months ended September 30, 2025, the net increase (decrease) in net assets resulting from operations was $(1.1) million, compared to a net increase of $5.0 million in 2024 [303]. - For the nine months ended September 30, 2025, the net increase (decrease) in net assets resulting from operations was $(2.5) million, compared to a net increase of $11.4 million in 2024 [304]. Operating Expenses - The primary operating expenses include management and incentive fees to MC Advisors and other operating costs, including interest expense on indebtedness [275]. - Total operating expenses decreased by $2.8 million (30.9%) and $7.3 million (26.4%) during the three and nine months ended September 30, 2025, compared to the same periods in 2024, mainly due to lower interest and other debt financing expenses [294]. Debt and Liquidity - As of September 30, 2025, the company had $3.5 million in cash and cash equivalents, $82.8 million of total debt outstanding on the revolving credit facility, and $130.0 million on the 2026 Notes [305]. - The asset coverage ratio based on aggregate borrowings outstanding was 181% as of September 30, 2025, compared to 165% as of December 31, 2024 [306]. - For the nine months ended September 30, 2025, the company experienced a net decrease in cash and cash equivalents of $5.5 million, with operating activities providing $92.7 million [307]. - The company reduced its commitment of the Revolving Credit Facility from $255.0 million to $175.0 million on August 20, 2025 [313]. - The outstanding borrowings under the Revolving Credit Facility were accruing at a weighted average interest rate of 6.9% as of September 30, 2025, compared to 7.1% as of December 31, 2024 [317]. Market Conditions and Risks - Increased competition in the middle-market lending space has resulted in lower yields and weaker financial covenants for new assets [351]. - Middle market direct lending has historically outperformed U.S. high yield bonds and U.S. traded loans, generating considerable yield premiums during various economic cycles [1]. - Interest coverage ratios have increased above 2024 levels, indicating borrowers' earnings power sufficiently satisfies debt service obligations [1]. - U.S. inflation rates remain above historical levels, increasing costs for labor, energy, and raw materials, which could adversely affect portfolio companies' profit margins [380]. Valuation and Accounting - The Valuation Designee uses a multi-step valuation process for investments lacking readily available market quotations, including independent appraisals [2]. - As of September 30, 2025, the fair value of the investment portfolio was determined in accordance with GAAP and the company's valuation procedures [2]. - The company is currently evaluating the impact of new accounting standards but does not expect a material impact on its consolidated financial statements [2]. - The company is subject to financial market risks, including interest rate risk and inflation, which may affect the prices of securities held [2].