Monroe Capital(US:MRCC)2019-03-06 18:25Financial Data and Key Metrics Changes - For Q4 2018, adjusted net investment income was $7.8 million or $0.38 per share, exceeding the quarterly dividend of $0.35 per share, marking the 19th consecutive quarter of dividend coverage by adjusted net investment income [5][22][33] - The investment portfolio's fair value increased to $553.6 million, a $71.3 million or 15% increase from the prior quarter [7][8] - Net asset value (NAV) decreased from $264.8 million to $258.8 million, with NAV per share dropping from $12.95 to $12.66 due to unrealized mark-to-market valuation adjustments [18][22] Business Line Data and Key Metrics Changes - The SLF (Senior Loan Fund) experienced a fair value increase to $172.3 million, a 28% increase from the previous quarter, with a weighted average yield rising to 7.6% [11][28] - Total investment income for the quarter was $14.8 million, up from $13.8 million in the prior quarter, driven by increased interest income and fee income [24] Market Data and Key Metrics Changes - The company reported $115.5 million in investment fundings during the quarter, offset by $38.3 million in sales repayments and prepayment activity [8][16] - The company has continued to see new deal momentum into early 2019, with net fundings of an additional $37.6 million through March 4 [8] Company Strategy and Development Direction - The company aims to maintain a strong investment momentum, expecting continued growth in both its core portfolio and within the SLF [32][96] - The recent amendment to the revolving credit facility increased borrowing capacity and flexibility, allowing for continued portfolio growth [9][14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the current market conditions, noting low default rates and strong performance among borrowers, driven by tax cuts and increased cash flow [92][93] - The company anticipates a stable U.S. economy in 2019, with pockets of strength in software and healthcare, while remaining cautious about retail and commodity sectors [100][102] Other Important Information - The company has a significant amount of fixed-rate liabilities, which positions it well for future interest rate increases [13][14] - The SLF's leverage facility was reported at $101.1 million at a rate of approximately 5% [12] Q&A Session Summary Question: What is the leverage limit on the SLF? - Management indicated that there isn't an express leverage limitation, but reasonable limitations exist based on credit facilities, typically capping around 70-72% advance rate on first lien middle market loans [37] Question: When might the incentive fee be back on track? - Management noted that the ability to earn incentive fees depends on NAV performance and could potentially be seen in the second quarter if conditions stabilize [39][41] Question: What is the current concentration of the high-tech industry in the portfolio? - Management clarified that the high-tech industry represents about 16.9% of the portfolio, not the previously mentioned 31% [45][46] Question: What is the outlook for watchlist credits? - Management mentioned that Blue Stem and ECA are on the watchlist, with expectations for recovery in some cases, while others remain under scrutiny [55][56] Question: What are the plans for share buybacks in 2019? - Management stated that there have been no discussions regarding share buybacks as the stock is trading close to book value [82] Question: What is the expected ROE from the SLF over the next three to five years? - Management targeted a low double-digit ROE of around 10% to 11% from the SLF [89] Question: How does the company view the competitive environment and economic conditions? - Management expressed that the market is favorable for lenders, with high purchase price multiples and ample capital available, while also noting challenges in certain sectors like retail and commodities [92][100]