UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2015

 

OR

 

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

 

Commission file number: 814-00866

  

MONROE CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

 

Maryland 27-4895840

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

   

311 South Wacker Drive, Suite 6400

Chicago, Illinois

60606
(Address of Principal Executive Office) (Zip Code)

 

(312) 258-8300

(Registrant’s Telephone Number, Including Area Code)

  

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

 

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

 

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

 

Large accelerated filer ¨ Accelerated filer x
       
Non-accelerated filer ¨  (Do not check if a smaller reporting company) Smaller reporting company ¨

 

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

 

As of August 7, 2015, the registrant had 12,449,861 shares of common stock, $0.001 par value, outstanding.

 

  
 

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION 3
     
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of  June 30, 2015 (unaudited) and December 31, 2014 3
     
  Consolidated Statements of Operations for the three and six months ended June 30, 2015 (unaudited) and 2014 (unaudited) 4
     
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2015 (unaudited) and 2014 (unaudited) 5
     
  Consolidated Statements of Cash Flows for the six months ended June 30, 2015 (unaudited) and 2014 (unaudited) 6
     
  Consolidated Schedules of Investments as of June 30, 2015 (unaudited) and December 31, 2014 7
     
  Notes to Consolidated Financial Statements (unaudited) 11
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 28
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 41
     
Item 4. Controls and Procedures 41
     
PART II. OTHER INFORMATION 42
     
Item 1. Legal Proceedings 42
     
Item 1A. Risk Factors 42
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 42
     
Item 3. Defaults upon Senior Securities 42
     
Item 4. Mine Safety Disclosures 42
     
Item 5. Other Information 42
     
Item 6. Exhibits 43
     
Signatures   44

 

2
 

Part I. Financial Information

Item 1. Consolidated Financial Statements

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

 

(in thousands, except per share data)

  

   June 30,
2015
   December 31,
2014
 
   (unaudited)     
ASSETS          
Investments, at fair value:          
Non-controlled/non-affiliate company investments  $244,233   $210,318 
Non-controlled affiliate company investments   31,939    16,596 
Controlled affiliate company investments   6,341    6,621 
Total investments, at fair value (cost of: $283,380 and $234,098, respectively)   282,513    233,535 
Cash   4,929    5,737 
Interest receivable   1,284    952 
Deferred financing costs, net   2,664    2,479 
Other assets   569    882 
Total assets   291,959    243,585 
           
LIABILITIES          
Revolving credit facility   49,700    82,300 
SBA debentures payable   40,000    20,000 
Secured borrowings, at fair value (proceeds of: $3,585 and $4,134, respectively)   3,450    4,008 
Payable for open trades   18,102    - 
Interest payable   395    244 
Management fees payable   1,188    1,050 
Incentive fees payable   1,268    1,140 
Accounts payable and accrued expenses   1,369    1,105 
Total liabilities   115,472    109,847 
Net assets  $176,487   $133,738 
           
Commitments and contingencies (See Note 10)          
           
ANALYSIS OF NET ASSETS          
Common stock, $0.001 par value, 100,000 shares authorized, 12,450 and 9,518 shares issued and outstanding, respectively  $12   $10 
Capital in excess of par value   176,338    134,803 
Undistributed net investment income (accumulated distributions in excess of net investment income)   871    (639)
Accumulated net realized gain (loss) on investments   -    - 
Accumulated net unrealized appreciation (depreciation) on investments and secured borrowings   (734)   (436)
Total net assets  $176,487   $133,738 
           
Net asset value per share  $14.18   $14.05 

 

See Notes to Consolidated Financial Statements.

 

3
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

(in thousands, except per share data)

 

   Three months ended June 30,   Six months ended June 30, 
   2015   2014   2015   2014 
Investment income:                    
Interest income                    
Non-controlled/non-affiliate company investments  $8,363   $6,883   $15,704   $13,291 
Non-controlled affiliate company investments   962    163    1,452    271 
Controlled affiliate company investments   194    -    444    - 
Total investment income   9,519    7,046    17,600    13,562 
                     
Operating expenses:                    
Interest and other debt financing expenses   1,251    1,115    2,354    2,082 
Base management fees   1,188    1,030    2,256    1,983 
Incentive fees   1,268    667    2,310    1,584 
Professional fees   193    298    431    489 
Administrative service fees   278    217    549    418 
General and administrative expenses   270    205    462    362 
Total expenses   4,448    3,532    8,362    6,918 
Net investment income   5,071    3,514    9,238    6,644 
                     
Net gain (loss) on investments and secured borrowings:                    
Net realized gain (loss) on investments:                    
Non-controlled/non-affiliate company investments   -    161    -    205 
Net realized gain (loss) on investments   -    161    -    205 
                     
Net change in unrealized appreciation (depreciation) on investments:                    
Non-controlled/non-affiliate company investments   665    (1,243)   37    (968)
Non-controlled affiliate company investments   698    110    981    385 
Controlled affiliate company investments   (1,339)   -    (1,324)   - 
Net change in unrealized appreciation (depreciation) on investments   24    (1,133)   (306)   (583)
                     
Net change in unrealized (appreciation) depreciation on secured borrowings   (31)   124    8    68 
                     
Net gain (loss) on investments and secured borrowings   (7)   (848)   (298)   (310)
                     
Net increase (decrease) in net assets resulting from operations  $5,064   $2,666   $8,940   $6,334 
                     
Per common share data:                    
Net investment income per share - basic and diluted  $0.43   $0.37   $0.87   $0.69 
                     
Net increase in net assets resulting from operations per share - basic and diluted  $0.43   $0.28   $0.84   $0.65 
                     
                     
Weighted average common shares outstanding - basic and diluted   11,718    9,582    10,646    9,671 

 

See Notes to Consolidated Financial Statements.

 

4
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

 

(in thousands, except per share data)

  

   Common Stock    Capital in
excess of
   Undistributed
net investment
income
(accumulated
distributions in
excess of net
    Accumulated
net realized
gain
   Accumulated net
unrealized
appreciation
(depreciation) on
investments and
     
   Number of
shares
   Par value   par
value
   investment
income)
   (loss) on
investments
   secured
borrowings
   Total net
assets
 
Balances at December 31, 2013   9,918   $10   $140,038   $(2,985)  $-   $1,029   $138,092 
Net increase in net assets resulting from operations   -    -    -    6,644    205    (515)   6,334 
Stockholder distributions paid - income distributions   -    -    -    (6,351)   (205)   -    (6,556)
Repurchases of common stock   (359)   -    (4,685)   -    -    -    (4,685)
Balances at June 30, 2014   9,559   $10   $135,353   $(2,692)  $-   $514   $133,185 
                                    
Balances at December 31, 2014   9,518   $10   $134,803   $(639)   -   $(436)  $133,738 
Issuance of common stock, net of offering and underwriting costs   2,932    2    41,535    -    -    -    41,537 
Net increase (decrease) in net assets resulting from operations   -    -    -    9,238    -    (298   8,940 
Stockholder distributions paid - income distributions   -    -    -    (7,728)   -    -    (7,728)
Balances at June 30, 2015   12,450   $12   $176,338   $871   $-   $(734)  $176,487 

 

See Notes to Consolidated Financial Statements.

 

5
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(in thousands, except per share data)

  

   Six months ended June 30, 
   2015   2014 
         
Cash flows from operating activities:          
Net increase (decrease) in net assets resulting from operations  $8,940   $6,334 
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:          
Net change in unrealized (appreciation) depreciation on investments   306    583 
Net change in unrealized appreciation (depreciation) on secured borrowings   (8)   (68)
Net realized (gain) loss on investments   -    (205)
Payment-in-kind interest income   (1,040)   (329)
Net accretion of discounts and amortization of premiums   (479)   (311)
Proceeds from principal payments and sales of investments   59,111    41,616 
Purchases of investments   (106,876)   (71,094)
Amortization of deferred financing costs   367    267 
Changes in operating assets and liabilities:          
Receivable for open trades   -    (58)
Interest receivable   (332)   (322)
Other assets   313    (67)
Payable for open trades   18,102    (281)
Interest payable   151    (104)
Management fees payable   138    185 
Incentive fees payable   128    (87)
Accounts payable and accrued expenses   264    276 
Net cash provided by (used in) operating activities   (20,915)   (23,665)
           
Cash flows from financing activities:          
Borrowings on credit facility   49,900    44,000 
Repayments of credit facility   (82,500)   (24,500)
SBA debentures borrowings   20,000    8,000 
Payments of deferred financing costs   (552)   (394)
Repayments on secured borrowings   (550)   (1,347)
Proceeds from shares sold, net of underwriting costs   41,537    - 
Repurchases of common stock   -    (5,244)
Stockholder distributions paid   (7,728)   (6,556)
Net cash provided by (used in) financing activities   20,107    13,959 
           
Net increase (decrease) in cash   (808)   (9,706)
Cash, beginning of period   5,737    14,603 
Cash, end of period  $4,929   $4,897 
           
Supplemental disclosure of cash flow information:          
Cash interest paid during the period  $1,855   $1,643 

 

See Notes to Consolidated Financial Statements.

 

6
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

 

June 30, 2015

 

(in thousands, except for units)

 

Portfolio Company (a)  Industry  Spread Above Index (b)  Interest Rate  Maturity  Principal   Amortized Cost   Fair Value (c)   % of
Net Assets (d)
 
Senior Secured Loans                                 
Alora Pharmaceuticals, LLC (e)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  9/13/2018  $11,947   $11,812   $11,929    6.8%
Alora Pharmaceuticals, LLC (Revolver) (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  9/13/2018   1,336    668    668    0.4%
American Community Homes, Inc. (g)  Banking, Finance, Insurance & Real Estate  L+8.00%  9.50%  7/22/2019   6,667    6,520    6,557    3.7%
American Community Homes, Inc. (g)  Banking, Finance, Insurance & Real Estate  L+12.50%  9.50% Cash/4.50% PIK  7/22/2019   3,443    3,369    3,460    2.0%
Answers Corporation  High Tech Industries  L+5.25%  6.25%  10/1/2021   2,933    2,826    2,527    1.4%
BCC Software, LLC (h)  High Tech Industries  L+8.00%  9.00%  6/20/2019   2,854    2,819    2,863    1.6%
BCC Software, LLC (Revolver) (f)  High Tech Industries  L+8.00%  9.00%  6/20/2019   469    -    -    0.0%
Bluestem Brands, Inc.  Consumer Goods: Non-Durable  L+7.50%  8.50%  11/6/2020   3,000    2,970    2,994    1.7%
BookIt Operating LLC (i)  Hotels, Gaming & Leisure  L+12.50%  14.00%  1/10/2019   5,355    5,243    5,165    2.9%
Cornerstone Detention Products, Inc. (j)  Construction & Building  L+10.50%  10.50% Cash/1.00% PIK  4/8/2019   4,440    4,370    4,336    2.5%
Cornerstone Detention Products, Inc. (Revolver) (f)  Construction & Building  L+9.50%  10.50%  4/8/2019   400    -    -    0.0%
Cyalume Technologies Holdings, Inc. (h)  Aerospace & Defense  L+9.00%  10.00%  5/18/2020   5,465    5,318    5,438    3.1%
Cyalume Technologies Holdings, Inc. (Delayed Draw) (f) (k)  Aerospace & Defense  L+9.00%  10.00%  5/18/2020   611    -    -    0.0%
Cyalume Technologies Holdings, Inc. (Revolver) (f)  Aerospace & Defense  L+9.00%  10.00%  5/18/2020   1,528    917    917    0.5%
Cytovance Biologics, Inc. (h)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   2,000    1,957    2,045    1.2%
Cytovance Biologics, Inc. (Revolver) (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   1,143    514    514    0.3%
Cytovance Biologics, Inc. (Capex)  (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   1,143    571    584    0.3%
Diesel Direct Holdings, Inc. (h)  Energy: Oil & Gas  L+9.00%  10.00%  2/17/2020   5,431    5,341    5,507    3.1%
EB Employee Solutions, LLC (h)  Services: Business  L+8.50%  10.00%  2/28/2019   3,642    3,566    3,622    2.1%
G&M Opco LLC (h)  Construction & Building  L+7.50%  8.00%  6/23/2020   3,250    3,169    3,169    1.8%
Landpoint, LLC  Energy: Oil & Gas  L+12.75%  12.00% Cash/2.25% PIK(q)  12/20/2018   4,071    3,994    4,051    2.3%
Landpoint, LLC (Revolver) (f)  Energy: Oil & Gas  L+10.50%  12.00%  12/20/2018   313    -    -    0.0%
L.A.R.K. Industries, Inc.  Construction & Building  L+10.00%  11.50%  9/3/2019   6,816    6,673    6,912    3.9%
Luxury Optical Holdings Co.  Retail  L+9.00%  9.00% Cash/1.00% PIK  9/12/2019   4,075    4,004    4,063    2.3%
Luxury Optical Holdings Co. (Revolver) (f)  Retail  L+8.00%  9.00%  9/12/2019   273    -    -    0.0%
Miles Media Group LLC  Hotels, Gaming & Leisure  L+8.00%  9.00%  9/12/2019   3,915    3,847    3,929    2.2%
Miles Media Group LLC (Delayed Draw) (f) (k)  Hotels, Gaming & Leisure  L+8.00%  9.00%  9/12/2019   1,600    -    -    0.0%
Miles Media Group LLC (Revolver) (f)  Hotels, Gaming & Leisure  L+8.00%  9.00%  9/12/2019   320    -    -    0.0%
O'Brien Industrial Holdings, LLC  Metals & Mining  L+11.50%  11.00% Cash/2.00% PIK  5/13/2019   6,633    6,500    6,490    3.7%
O'Brien Industrial Holdings, LLC (Revolver)(f)  Metals & Mining  L+9.50%  11.00%  5/13/2019   2,844    1,219    1,219    0.7%
PD Products, LLC  Consumer Goods: Non-Durable  L+13.00%  12.00% Cash/2.50% PIK  10/4/2018   13,027    12,899    12,988    7.4%
PD Products, LLC (Revolver) (f)  Consumer Goods: Non-Durable  L+13.00%  12.00% Cash/2.50% PIK  10/4/2018   2,500    1,248    1,244    0.7%
Precision Toxicology, LLC (h)  Healthcare & Pharmaceuticals  L+8.00%  8.00% Cash/1.00% PIK  3/24/2020   5,481    5,376    5,508    3.1%
Precision Toxicology, LLC (Revolver) (f)  Healthcare & Pharmaceuticals  L+8.00%  8.00% Cash/1.00% PIK  3/24/2020   635    -    -    0.0%
Rockdale Blackhawk, LLC (g)  Healthcare & Pharmaceuticals  L+11.00%  12.00%  3/31/2020   12,850    11,653    12,567    7.1%
Rockdale Blackhawk, LLC (Revolver) (f) (g)  Healthcare & Pharmaceuticals  L+11.00%  12.00%  3/31/2020   1,849    1,251    1,222    0.7%
Rockdale Blackhawk, LLC (Capex) (f) (g)  Healthcare & Pharmaceuticals  L+11.00%  12.00%  3/31/2020   2,311    245    237    0.1%
Rocket Dog Brands LLC (g)  Consumer Goods: Non-Durable  n/a  10.00%  5/2/2019   1,007    1,007    1,007    0.6%
SHI Holdings, Inc. (h)  Healthcare & Pharmaceuticals  L+9.25%  9.44%  7/10/2019   2,850    2,791    2,871    1.6%
SHI Holdings, Inc. (Revolver)(f)  Healthcare & Pharmaceuticals  L+9.25%  9.44%  7/10/2019   818    450    450    0.3%
SNI Companies (l)  Services: Business  L+10.00%  11.00%  12/31/2018   7,713    7,572    7,736    4.4%
SNI Companies (Revolver) (f)  Services: Business  L+10.00%  11.00%  12/31/2018   1,250    -    -    0.0%
Summit Container Corporation (g) (h)  Containers, Packaging & Glass  L+9.00%  11.00%  1/6/2019   3,700    3,625    3,733    2.1%
The Sandbox Group LLC (h)  Media: Advertising, Printing & Publishing  L+10.00%  9.00% cash/2.00% PIK  2/23/2020   5,470    5,342    5,260    3.0%
The Sandbox Group LLC (Revolver) (f)  Media: Advertising, Printing & Publishing  L+10.00%  9.00% cash/2.00% PIK  2/23/2020   1,250    1,007    968    0.5%
TRG, LLC  Hotels, Gaming & Leisure  L+17.92%  11.00% cash/7.92% PIK (r)  12/23/2019   3,037    2,981    3,044    1.7%
TRG, LLC (Revolver) (f)  Hotels, Gaming & Leisure  L+12.00%  13.00%  12/23/2019   131    66    66    0.0%
TRG, LLC (Delayed Draw) (f) (k)  Hotels, Gaming & Leisure  L+12.00%  13.00%  12/23/2019   790    -    -    0.0%
TTM Technologies, Inc.  High Tech Industries  L+5.00%  6.00%  5/31/2021   1,333    1,287    1,317    0.7%
West World Media, LLC  Media: Diversified & Production  L+11.00%  9.00% Cash/3.00% PIK  5/8/2019   7,784    7,647    7,780    4.4%
Yandy Holding, LLC  Retail  L+9.00%  10.00%  9/30/2019   6,500    6,414    6,477    3.7%
Yandy Holding, LLC (Revolver)(f)  Retail  L+9.00%  10.00%  9/30/2019   906    -    -    0.0%
Total Senior Secured Loans               181,109    161,048    163,434    92.6%
                                 
Unitranche Loans                                  
Accutest Corporation  Services: Business  L+7.50%  9.00%  6/5/2018   7,010    6,842    6,727    3.9%
Collaborative Neuroscience Network, LLC (m)  Healthcare & Pharmaceuticals  L+11.50%  13.00%  12/27/2017   7,808    7,699    7,398    4.2%
Fabco Automotive Corporation  Automotive  L+9.25%  10.25%  4/3/2017   8,250    8,199    5,169    2.9%
Gracelock Industries, LLC  Wholesale  L+12.05%  11.00% Cash/2.55% PIK (s)  5/7/2019   5,357    5,237    4,899    2.8%
Incipio Technologies, Inc. (n)  Consumer Goods: Non-Durable  L+6.00%  7.00%  12/26/2019   11,000    10,738    11,022    6.2%
MooreCo, Inc.  Consumer Goods: Durable  L+13.50%  12.50% Cash/2.50% PIK  12/27/2017   4,232    4,176    4,274    2.4%
Output Services Group, Inc.  Services: Business  L+9.00%  9.50% cash/1.00% PIK  12/17/2018   6,618    6,503    6,585    3.7%
Output Services Group, Inc.  Services: Business  L+9.00%  9.50% cash/1.00% PIK  12/17/2018   7,387    7,242    7,395    4.2%
Playtime, LLC (m)  Hotels, Gaming & Leisure  L+7.50%  9.00%  12/4/2017   5,977    5,912    5,397    3.1%
TPP Acquisition, Inc. (o)  Retail  L+11.00%  10.50% Cash/2.00% PIK  12/17/2017   6,766    6,685    5,551    3.1%
TPP Accquisition, Inc. (Delayed Draw) (f) (k)  Retail  L+11.00%  10.50% Cash/2.00% PIK  12/17/2017   2,203    963    790    0.4%
Total Unitranche Loans               72,608    70,196    65,207    36.9%

 

7
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

 

June 30, 2015

 

(in thousands, except for units)

 

Portfolio Company (a)  Industry  Spread
Above Index (b)
  Interest Rate  Maturity  Principal   Amortized Cost   Fair Value (c)   % of
Net Assets (d)
 
Junior Secured Loans                                
Confie Seguros Holdings II Co.  Banking, Finance, Insurance & Real Estate  L+9.00%  10.25%  5/8/2019   5,594    5,551    5,591    3.3%
CSM Bakery Supplies LLC  Beverage, Food & Tobacco  L+7.75%  8.75%  7/3/2021   5,792    5,633    5,517    3.1%
Hyland Software Inc.  High Tech Industries  L+7.25%  8.25%  7/1/2023   2,000    1,990    2,003    1.1%
Mergermarket USA, Inc.  Media: Broadcasting & Subscription  L+6.50%  7.50%  12/19/2021   4,500    4,377    4,219    2.4%
Micro Holding Corp.  High Tech Industries  L+7.50%  8.50%  7/8/2022   3,000    2,978    2,970    1.7%
Mud Pie, LLC  Consumer Goods: Non-Durable  n/a  10.00% Cash/1.50% PIK  11/4/2020   10,024    9,828    10,109    5.7%
Pre-Paid Legal Services, Inc. (Legal Shield)  Services: Consumer  L+8.50%  9.75%  7/1/2020   3,000    2,980    2,992    1.7%
Physiotherapy Corporation  Healthcare & Pharmaceuticals  L+8.50%  9.50%  6/3/2022   5,000    4,950    5,025    2.8%
Rocket Dog Brands LLC (g)  Consumer Goods: Non-Durable  n/a  15.00% PIK  5/2/2020   1,554    1,553    1,409    0.8%
Sterling Infosystems, Inc.  Services: Business  L+7.75%  8.75%  6/19/2023   5,000    4,950    5,012    2.8%
SCP TPZ Acquisition, Inc.  Media: Diversified & Production  L+8.25%  9.25%  5/29/2022   5,000    4,925    4,994    2.8%
Total Junior Secured Loans               50,464    49,715    49,841    28.2%
                                 
Equity Securities                                 
American Community Homes, Inc. (warrant to purchase up to 10.0% of the equity) (g)  Banking, Finance, Insurance & Real Estate  -  -  10/9/2024   -    -    377    0.2%
BookIt Operating LLC (warrant to purchase up to 4.2% of the equity) (p)  Hotels, Gaming & Leisure  -  -  12/21/2023   -    -    851    0.5%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.67 LLC units) (p)  Healthcare & Pharmaceuticals  -  -  12/27/2022   -    -    76    0.0%
Cyalume Technologies Holdings, Inc. - Series D Preferred Stock (3.06 shares) (o)  Aerospace & Defense  -  -  -   -    -    -    0.0%
Monte Nido Residential Center, LLC - Class A Units Common Units (1,762 units) (p)  Services: Consumer  -  -  -   -    74    74    0.0%
O'Brien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company) (p)  Metals & Mining  -  -  5/13/2024   -    -    -    0.0%
Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock) (p)  Services: Business  -  -  12/17/2022   -    -    730    0.4%
Playtime, LLC - Preferred Units (8,665 units) (p)  Hotels, Gaming & Leisure  -  -  -   -    200    113    0.1%
Rocket Dog Brands LLC - Common Units (75,502 units) (g)  Consumer Goods: Non-Durable  -  -  -   -    -    -    0.0%
Rocket Dog Brands LLC - Preferred Units (10 units) (g)  Consumer Goods: Non-Durable  -   15.00% PIK (t)  -   -    967    1    0.0%
Rockdale Blackhawk, LLC - LLC Units (11.56% of the LLC interest) (g)  Healthcare & Pharmaceuticals  -  -  -   -    1,093    1,369    0.8%
Summit Container Corporation (warrant to purchase up to 19.50% of the equity) (g)  Containers, Packaging & Glass  -  -  1/6/2024   -    -    -    0.0%
The Sandbox Group LLC (warrant to purchase up to 1.0% of the equity) (p)  Media: Advertising, Printing & Publishing  -  -  -   -         276    0.2%
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units) (p)  Retail  -  -  -   -    86    110    0.1%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units) (p)  Retail  -  -  -   -    1    -    0.0%
TPP Acquisition, Inc. (829 shares of common stock) (o)  Retail  -  -  -   -    -    -    0.0%
West World Media, LLC - Class A Membership Units  (representing 0.385% of the diluted equity)  (p)  Media: Diversified & Production  -  -  -   -    -    54    0.0%
Total Equity Securities               -    2,421    4,031    2.3%
TOTAL INVESTMENTS                    $283,380   $282,513    160.0%

 

 

(a)All of our investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940. All investments are non-controlled/non-affiliate company investments, unless otherwise noted.
(b)The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at June 30, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor.
(c)Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by our board of directors as required by the Investment Company Act of 1940. (See Note 4 in the accompanying notes to the consolidated financial statements.)
(d)Percentages are based on net assets of $176,487 as of June 30, 2015.
(e)A portion of this loan (principal of $4,930) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(f)All or a portion of this commitment was unfunded at June 30, 2015. As such, interest is earned only on the funded portion of this commitment.
(g)As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as it owns five percent or more of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control.)
(h)All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(i)A portion of this loan (principal of $2,783) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(j)A portion of this loan (principal of $2,644) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(k)This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.
(l)A portion of this loan (principal of $4,946) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(m)The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 — Transfers and Servicing, and therefore, the entire unitranche loan asset remains in the Consolidated Schedule of Investments.
(n)A portion of this loan (principal of $5,500) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.
(o)As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as it owns 25% percent or more of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.
(p)Represents less than 5% ownership of the class and the portfolio company.
(q)The PIK portion of the interest rate for Landpoint, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 2.25% per annum and is subject to a minimum payment upon termination of $338.
(r)A portion of the PIK interest rate for TRG, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 5.92% per annum and is subject to an estimated minimum payment upon termination of $891.
(s)The PIK portion of the interest rate for Gracelock Industries, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 2.55% per annum.
(t)This position includes a PIK dividend and is currently on non-accrual status.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

 

8
 

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS

 

December 31, 2014

 

(in thousands, except for units)

 

Portfolio Company (a)  Industry  Spread Above Index (b)  Interest Rate  Maturity  Principal   Amortized Cost   Fair Value (c)   % of
Net Assets (d)
 
Senior Secured Loans                                 
Alora Pharmaceuticals, LLC (e)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  9/13/2018  $11,282   $11,082   $11,277    8.4%
Alora Pharmaceuticals, LLC (Revolver) (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  9/13/2018   1,336    -    -    0.0%
American Community Homes, Inc. (g)  Banking, Finance, Insurance & Real Estate  L+8.00%  9.50%  7/22/2019   6,667    6,506    6,577    4.9%
American Community Homes, Inc. (g)  Banking, Finance, Insurance & Real Estate  L+12.50%  9.50% Cash/4.50% PIK  7/22/2019   3,366    3,286    3,404    2.5%
BCC Software, LLC (h)  High Tech Industries  L+8.00%  9.00%  6/20/2019   2,962    2,922    2,973    2.2%
BCC Software, LLC (Revolver) (f)  High Tech Industries  L+8.00%  9.00%  6/20/2019   469    -    -    0.0%
BookIt Operating LLC (i)  Hotels, Gaming & Leisure  L+14.50%  14.00% Cash/2.00% PIK  1/10/2019   5,655    5,525    5,477    4.1%
Cornerstone Detention Products, Inc. (j)  Construction & Building  L+9.50%  9.50% Cash/1.00% PIK  4/8/2019   4,663    4,581    4,633    3.5%
Cornerstone Detention Products, Inc. (Revolver) (f)  Construction & Building  L+8.50%  9.50%  4/8/2019   400    -    -    0.0%
Cytovance Biologics, Inc. (h)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   2,000    1,952    1,995    1.5%
Cytovance Biologics, Inc. (Revolver) (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   1,143    286    286    0.2%
Cytovance Biologics, Inc. (Capex)  (f)  Healthcare & Pharmaceuticals  L+9.00%  10.00%  10/24/2019   1,143    -    -    0.0%
EB Employee Solutions, LLC (h)  Services: Business  L+8.50%  10.00%  2/28/2019   3,950    3,860    3,930    2.9%
Fineline Technologies, Inc.  Consumer Goods: Non-Durable  L+6.75%  8.00%  5/6/2017   5,188    5,186    5,234    3.9%
Landpoint, LLC  Energy: Oil & Gas  L+12.75%  12.00% Cash/2.25% PIK (p)  12/20/2018   4,750    4,650    4,698    3.5%
Landpoint, LLC (Revolver) (f)  Energy: Oil & Gas  L+10.50%  12.00%  12/20/2018   313    -    -    0.0%
L.A.R.K. Industries, Inc.  Construction & Building  L+10.00%  11.50%  9/3/2019   6,993    6,827    7,004    5.2%
Luxury Optical Holdings Co.  Retail  L+9.00%  9.00% Cash/1.00% PIK  9/12/2019   4,002    3,926    4,000    3.0%
Luxury Optical Holdings Co. (Revolver) (f)  Retail  L+8.00%  9.00%  9/12/2019   273    -    -    0.0%
Miles Media Group LLC  Hotels, Gaming & Leisure  L+8.50%  9.50%  9/12/2019   3,980    3,904    3,996    3.0%
Miles Media Group LLC (Delayed Draw) (f) (k)  Hotels, Gaming & Leisure  L+8.50%  9.50%  9/12/2019   1,600    -    -    0.0%
Miles Media Group LLC (Revolver) (f)  Hotels, Gaming & Leisure  L+8.50%  9.50%  9/12/2019   320    160    160    0.1%
O'Brien Industrial Holdings, LLC  Metals & Mining  L+11.50%  11.00% Cash/2.00% PIK  5/13/2019   6,567    6,420    6,563    4.9%
O'Brien Industrial Holdings, LLC (Revolver)(f)  Metals & Mining  L+9.50%  11.00%  5/13/2019   2,844    -    -    0.0%
Pacific Labs, LLC (h)  Healthcare & Pharmaceuticals  L+10.50%  11.50%  10/28/2019   5,466    5,346    5,493    4.1%
Pacific Labs, LLC (Delayed Draw) (k)  Healthcare & Pharmaceuticals  L+10.50%  11.50%  10/28/2019   1,833    -    -    0.0%
PD Products, LLC  Consumer Goods: Non-Durable  L+10.50%  12.00%  10/4/2018   13,126    12,979    13,093    9.8%
PD Products, LLC (Revolver)(f)  Consumer Goods: Non-Durable  L+10.50%  12.00%  10/4/2018   2,500    1,225    1,224    0.9%
Rocket Dog Brands LLC (g)  Consumer Goods: Non-Durable  n/a  10.00%  5/2/2019   1,007    1,007    1,007    0.8%
SHI Holdings, Inc. (h)  Healthcare & Pharmaceuticals  L+9.25%  9.42%  7/10/2019   2,925    2,858    2,919    2.2%
SHI Holdings, Inc. (Revolver)(f)  Healthcare & Pharmaceuticals  L+9.25%  9.42%  7/10/2019   818    355    355    0.3%
SNI Companies (l)  Services: Business  L+8.00%  9.00%  12/31/2018   6,072    5,953    6,075    4.5%
SNI Companies (Revolver) (f)  Services: Business  L+8.00%  9.00%  12/31/2018   1,250    750    750    0.6%
Summit Container Corporation (g) (h)  Containers, Packaging & Glass  L+9.00%  11.00%  1/6/2019   3,800    3,712    3,838    2.9%
TRG, LLC  Hotels, Gaming & Leisure  L+17.92%  11.00% Cash/7.92% PIK (q)  12/23/2019   3,010    2,950    2,950    2.2%
TRG, LLC (Revolver) (f)  Hotels, Gaming & Leisure  L+10.00%  11.00%  12/23/2019   131    -    -    0.0%
TRG, LLC (Delayed Draw) (f) (k)  Hotels, Gaming & Leisure  L+10.00%  11.00%  12/23/2019   790    -    -    0.0%
West World Media, LLC  Media: Diversified & Production  L+11.00%  9.00% Cash/3.00% PIK  5/8/2019   7,743    7,599    7,747    5.8%
Yandy Holding, LLC  Retail  L+9.00%  10.00%  9/30/2019   6,500    6,406    6,503    4.9%
Yandy Holding, LLC (Revolver)(f)  Retail  L+9.00%  10.00%  9/30/2019   907    -    -    0.0%
Total Senior Secured Loans               139,744    122,213    124,161    92.8%

 

9
 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

 

December 31, 2014

 

(in thousands, except for units)

 

Portfolio Company (a)  Industry  Spread Above Index (b)  Interest Rate  Maturity  Principal   Amortized Cost   Fair Value (c)   % of
Net Assets (d)
 
Unitranche Loans                                  
Accutest Corporation  Services: Business  L+7.50%  9.00%  6/5/2018   7,435    7,243    6,952    5.2%
Collaborative Neuroscience Network, LLC (n)  Healthcare & Pharmaceuticals  L+11.50%  13.00%  12/27/2017   8,057    7,936    7,602    5.7%
Conisus, LLC  Media Advertising, Printing & Publishing  L+7.00%  8.25%  12/27/2017   10,660    10,412    10,628    7.9%
Consolidated Glass Holdings, Inc.  Capital Equipment  L+12.50%  11.50% Cash/2.00% PIK  4/17/2017   3,645    3,645    3,665    2.7%
Escort Holdings Corp.  Consumer Goods: Durable  L+9.00%  9.50%  10/7/2018   14,711    14,487    14,630    10.9%
Fabco Automotive Corporation  Automotive  L+9.25%  10.25%  4/3/2017   8,062    8,005    5,482    4.1%
FTJFundChoice, LLC  Banking, Finance, Insurance & Real Estate  L+10.00%  11.50%  7/17/2017   3,000    3,000    3,060    2.3%
Gracelock Industries, LLC  Wholesale  L+12.05%  11.00% Cash/2.55% PIK (r)  5/7/2019   5,604    5,466    5,624    4.2%
Incipio Technologies, Inc. (h)  Consumer Goods: Non-Durable  L+6.00%  7.00%  12/26/2019   5,500    5,363    5,362    4.0%
MooreCo, Inc.  Consumer Goods: Durable  L+13.50%  12.50% Cash/2.50% PIK  12/27/2017   4,605    4,532    4,651    3.5%
Output Services Group, Inc.  Services: Business  L+10.00%  10.50% cash/1.00% PIK  12/17/2018   11,929    11,696    11,911    8.9%
Playtime, LLC (n)  Hotels, Gaming & Leisure  L+7.50%  9.00%  12/4/2017   6,277    6,197    5,540    4.1%
The Tie Bar Operating Company, LLC  Retail  L+8.50%  9.75%  6/25/2018   5,100    4,995    5,108    3.8%
TPP Acquisition, Inc. (m)  Retail  L+13.00%  12.50% Cash/2.00% PIK  12/17/2017   6,698    6,603    6,420    4.8%
Total Unitranche Loans               101,283    99,580    96,635    72.1%
                                 
Junior Secured Loans                                
Confie Seguros Holdings II Co.  Banking, Finance, Insurance & Real Estate  L+9.00%  10.25%  5/8/2019   3,594    3,569    3,593    2.7%
CSM Bakery Supplies LLC  Beverage, Food & Tobacco  L+7.75%  8.75%  7/3/2021   3,000    2,990    2,900    2.2%
Pre-Paid Legal Services, Inc. (Legal Shield)  Services: Consumer  L+8.50%  9.75%  7/1/2020   3,000    2,973    2,940    2.2%
Rocket Dog Brands LLC (g)  Consumer Goods: Non-Durable  n/a  15.00% PIK  5/2/2020   1,444    1,444    1,370    1.0%
Total Junior Secured Loans               11,038    10,976    10,803    8.1%
                                 
Equity Securities                                 
American Community Homes, Inc. (warrant to purchase up to 10.0% of the equity) (g)  Banking, Finance, Insurance & Real Estate  -  -  10/9/2024   -    -    182    0.1%
BookIt Operating LLC (warrant to purchase up to 4.2% of the equity) (o)  Hotels, Gaming & Leisure  -  -  12/21/2023   -    -    436    0.3%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.67 LLC units) (o)  Healthcare & Pharmaceuticals  -  -  12/27/2022   -    -    2    0.0%
Monte Nido Residential Center, LLC - Class A Units Common Units (1,762 units) (o)  Services: Consumer  -  -  -   -    74    74    0.1%
O'Brien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company) (o)  Metals & Mining  -  -  5/13/2024   -    -    -    0.0%
Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock) (o)  Services: Business  -  -  12/17/2022   -    -    617    0.5%
Playtime, LLC - Preferred Units (8,665 units) (o)  Hotels, Gaming & Leisure  -  -  -   -    200    96    0.1%
Rocket Dog Brands LLC - Common Units (75,502 units) (g)  Consumer Goods: Non-Durable  -  -  -   -    -    -    0.0%
Rocket Dog Brands LLC - Preferred Units (10 units) (g)  Consumer Goods: Non-Durable  -   15.00% PIK (s)  -   -    967    77    0.1%
Summit Container Corporation (warrant to purchase up to 19.50% of the equity) (g)  Containers, Packaging & Glass  -  -  1/6/2024   -    -    141    0.1%
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units) (o)  Retail  -  -  -   -    87    110    0.1%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units) (o)  Retail  -  -  -   -    1    -    0.0%
TPP Acquisition, Inc. (829 shares of common stock) (m)  Retail  -  -  -   -    -    201    0.0%
Total Equity Securities               -    1,329    1,936    1.4%
TOTAL INVESTMENTS                    $234,098   $233,535    174.4%

 

 

(a)All of our investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940. All investments are non-controlled/non-affiliate company investments, unless otherwise noted.
(b)The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2014. Certain investments are subject to a LIBOR or Prime interest rate floor.
(c)Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by our board of directors as required by the Investment Company Act of 1940. (See Note 4 in the accompanying notes to the consolidated financial statements.)
(d)Percentages are based on net assets of $133,738 as of December 31, 2014.
(e)A portion of this loan (principal of $4,656) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.
(f)All or a portion of this commitment was unfunded at December 31, 2014. As such, interest is earned only on the funded portion of this commitment.
(g)As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as it owns five percent or more of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control.)
(h)All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.
(i)A portion of this loan (principal of $2,939) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.
(j)A portion of this loan (principal of $2,798) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.
(k)This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.
(l)A portion of this loan (principal of $3,238) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.
(m)As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as it owns 25% percent or more of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.
(n)The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 — Transfers and Servicing, and therefore, the entire unitranche loan asset remains in the Consolidated Schedule of Investments. (See Note 7 in the accompanying notes to the consolidated financial statements.)
(o)Represents less than 5% ownership of the class and the portfolio company.
(p)The PIK portion of the interest rate for Landpoint, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 2.25% per annum and is subject to a minimum payment upon termination of $338.
(q)A portion of the PIK interest rate for TRG, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 5.92% per annum and is subject to an estimated minimum payment upon termination of $891.
(r)The PIK portion of the interest rate for Gracelock Industries, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 2.55% per annum.
(s)This position includes a PIK dividend and is currently on non-accrual status.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

10
 

MONROE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in thousands, except share and per share data)

 

Note 1. Organization and Principal Business

 

Monroe Capital Corporation (“Monroe Capital” and together with its subsidiaries, the “Company”) was formed in February 2011 to act as an externally-managed nondiversified, closed-end management investment company and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company had no substantive operating activities prior to October 24, 2012, the date of its initial public offering. Monroe Capital’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through investment in senior secured, junior secured and unitranche (a combination of senior secured and junior secured debt in the same facility) debt and, to a lesser extent, unsecured subordinated debt and equity investments. Monroe Capital is managed by Monroe Capital BDC Advisors, LLC (“MC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. In addition, for U.S. federal income tax purposes, Monroe Capital has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

 

On February 6, 2015, the Company entered into an at-the-market (“ATM”) securities offering program with MLV & Co. LLC and JMP Securities LLC through which the Company may sell, by means of ATM offerings from time to time, up to $50,000 of the Company’s common stock. The Company has sold $1,684 (114,451 shares) under the ATM program through June 30, 2015. On April 20, 2015, the Company closed a public offering of 2,450,000 shares of its common stock at a public offering price of $14.85 per share, raising approximately $36,383 in gross proceeds. On May 18, 2015, the Company sold an additional 367,500 shares of its common stock, at a public offering price of $14.85 per share, raising approximately $5,457 in gross proceeds pursuant to the underwriters’ exercise of the over-allotment option. See Note 9 for additional information on share issuances.

 

On February 28, 2014, the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (“MRCC SBIC”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. As of June 30, 2015, MRCC SBIC had $20,000 in regulatory and leveragable capital and $40,000 in SBA-guaranteed debentures outstanding.

 

Note 2. Summary of Significant Accounting Policies

 

Basis of Presentation

 

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

 

Use of Estimates

 

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

 

Consolidation

 

As permitted under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries, MRCC SBIC and its wholly-owned general partner MCC SBIC GP, LLC, in its consolidated financial statements beginning with the commencement of their operations in September 2013.

 

Fair Value of Financial Instruments

 

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

 

11
 

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Company’s revolving credit facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. The Company believes that the carrying value of its revolving credit facility approximates the fair value.

 

Revenue Recognition

 

The Company’s revenue recognition policies are as follows:

 

Investments and related investment income: Interest and dividend income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest and dividend income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments. Interest is accrued on a daily basis. All other income is recorded into income when earned. The Company records prepayment fees and amendment fees on loans as interest income in the period earned. For the three and six months ended June 30, 2015, interest income included $559 and $1,125 of prepayment and amendment fees. For the three and six months ended June 30, 2014, interest income included $208 and $405 of prepayment and amendment fees. Dividend income is recorded as dividends when declared or at the point an obligation exists for the portfolio company to make a distribution. Distributions of earnings from portfolio companies are evaluated to determine if the distribution is income or a return of capital.

 

Loan origination fees, original issue discount and market discount or premiums are capitalized, and the Company then amortizes such amounts using the effective interest method as interest income over the life of the investment. Unamortized discounts and loan origination fees totaled $5,718 and $4,002 as of June 30, 2015 and December 31, 2014, respectively. Upfront loan origination and closing fees received for the three and six months ended June 30, 2015 totaled $630 and $1,548, respectively. For the three and six months ended June 30, 2015, interest income included $279 and $479 of accretion of loan origination fees, original issue discounts and market discounts or premiums, respectively. For the three and six months ended June 30, 2014, interest income included $150 and $311 of accretion of loan origination fees, original issue discounts and market discounts or premiums, respectively. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. For the three and six months ended June 30, 2015, interest income included $503 and $770 of unamortized discount or loan origination fees recorded as interest income upon prepayment of a loan or debt security, respectively. For the three and six months ended June 30, 2014, interest income included $145 and $373 of unamortized discount or loan origination fees recorded as interest income upon prepayment of a loan or debt security, respectively.

 

The Company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the three and six months ended June 30, 2015, interest income included $510 and $1,040 of PIK interest, respectively. For the three and six months ended June 30, 2014, interest income included $199 and $329 of PIK interest, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to stockholders in the form of distributions, even though the Company has not yet collected the cash.

 

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

 

Non-accrual: Loans or preferred equity securities are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal, interest or dividends are paid and, in management’s judgment, are likely to remain current. During the three and six months ended June 30, 2015 and 2014, no loans were on non-accrual status. During the three months ended June 30, 2014, the Company’s investments in one portfolio company were restructured and as part of the restructuring the Company received preferred units with a stated PIK interest rate. These preferred units were placed on non-accrual status at the time of the restructuring and remain on non-accrual status. There were no other portfolio company investments on non-accrual status for the three and six months ended June 30, 2015 and 2014.

 

12
 

 

Partial loan sales: The Company follows the guidance in ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”), when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s consolidated statements of assets and liabilities and the proceeds are recorded as a secured borrowing until the definition is met. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” in the accompanying consolidated statements of operations. Changes in the fair value of secured borrowings from the prior period, as determined by the Board through the application of the Company’s valuation policy, are included as changes in unrealized appreciation (depreciation) on secured borrowings in the consolidated statements of operations. See Note 7 “Secured Borrowings” for additional information.

 

Distributions

 

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

 

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

 

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. See Note 8 regarding distributions for additional information.

 

Earnings per Share

 

In accordance with the provisions of ASC Topic 260 — “Earnings per Share” (“ASC Topic 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. The weighted-average shares outstanding utilized in the calculation of earnings per share take into account share issues under the ATM program on the issuance date and the Company’s repurchases of its common stock on the repurchase date. See Note 9 for additional information on the Company’s share issuances and repurchases. For the periods presented in these consolidated financial statements, there were no potentially dilutive common shares issued.

 

Segments

 

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

 

Cash

 

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

 

Deferred Financing Costs

 

Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. As of June 30, 2015 and December 31, 2014, the Company had deferred financing costs of $2,664 and $2,479, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated average life of the borrowings. Amortization of deferred financing costs for the three and six months ended June 30, 2015 was $200 and $367, respectively. Amortization of deferred financing costs for the three and six months ended June 30, 2014 was $134 and $267, respectively.

 

13
 

 

Offering Costs

 

Offering costs include, among other things, fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity offerings. Offering costs are charged against the proceeds from equity offerings within the consolidated statements of changes in net assets. As of June 30, 2015 and December 31, 2014, other assets on the consolidated statements of assets and liabilities included $289 and $341, respectively, of deferred offering costs which will be charged against the proceeds from further equity offerings when received.

 

Income Taxes

 

The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment available to RICs. To maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to shareholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate-level federal income taxes on any income that the Company distributes to its shareholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. To the extent that the Company determines that its estimated current year annual taxable income may exceed estimated current year dividend distributions, the Company accrues excise tax, if any, calculated as 4% of the estimated excess taxable income as taxable income is earned. For the three and six months ended June 30, 2015, zero and $3 was recorded within general and administrative expenses for U.S. federal excise tax, respectively. For the three and six months ended June 30, 2014, no amount was recorded within general and administrative expenses for U.S. federal excise tax, respectively.

 

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through June 30, 2015. The 2014, 2013 and 2012 tax years remain subject to examination by U.S. federal and state tax authorities.

 

Recent Accounting Pronouncements

 

In February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

 

Note 3. Investments

 

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

 

   June 30, 2015   December 31, 2014 
Amortized Cost:                    
Senior secured loans  $161,048    56.8%  $122,213    52.2%
Unitranche loans   70,196    24.8    99,580    42.5 
Junior secured loans   49,715    17.6    10,976    4.7 
Equity securities   2,421    0.8    1,329    0.6 
Total  $283,380    100.0%  $234,098    100.0%

 

14
 

 

   June 30, 2015   December 31, 2014 
Fair Value:                    
Senior secured loans  $163,434    57.9%  $124,161    53.2%
Unitranche loans   65,207    23.1    96,635    41.4 
Junior secured loans   49,841    17.6    10,803    4.6 
Equity securities   4,031    1.4    1,936    0.8 
Total  $282,513    100.0%  $233,535    100.0%

 

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

 

   June 30, 2015   December 31, 2014 
Amortized Cost:                    
West  $92,644    32.7%  $76,642    32.7%
Northeast   52,320    18.5    26,077    11.1 
Southeast   51,629    18.2    55,136    23.6 
Midwest   42,449    15.0    45,434    19.4 
Southwest   37,496    13.2    23,566    10.1 
Mid-Atlantic   6,842    2.4    7,243    3.1 
Total  $283,380    100.0%  $234,098    100.0%

 

   June 30, 2015   December 31, 2014 
Fair Value:                    
West  $88,486    31.3%  $73,055    31.3%
Northeast   53,786    19.1    27,178    11.6 
Southeast   52,910    18.7    56,164    24.1 
Midwest   43,087    15.2    46,348    19.8 
Southwest   37,518    13.3    23,838    10.2 
Mid-Atlantic   6,726    2.4    6,952    3.0 
Total  $282,513    100.0%  $233,535    100.0%

 

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

 

   June 30, 2015   December 31, 2014 
Amortized Cost:                    
Healthcare & Pharmaceuticals  $51,030    18.0%  $29,814    12.7%
Consumer Goods: Non-Durable   41,210    14.6    28,170    12.0 
Services: Business   36,675    12.9    29,502    12.6 
Hotels, Gaming & Leisure   18,249    6.4    18,936    8.1 
Retail   18,153    6.4    22,017    9.4 
Banking, Finance, Insurance & Real Estate   15,440    5.5    16,361    7.0 
Construction & Building   14,212    5.0    11,409    4.9 
Media: Diversified & Production   12,572    4.4    7,599    3.3 
High Tech Industries   11,900    4.2    2,922    1.2 
Energy: Oil & Gas   9,335    3.3    4,650    2.0 
Automotive   8,199    2.9    8,005    3.4 
Metals & Mining   7,719    2.7    6,420    2.7 
Media: Advertising, Printing & Publishing   6,349    2.2    10,412    4.5 
Aerospace & Defense   6,235    2.2         
Beverage, Food & Tobacco   5,633    2.0    2,990    1.3 
Wholesale   5,237    1.9    5,466    2.3 
Media: Broadcasting & Subscription   4,377    1.5         
Consumer Goods: Durable   4,176    1.5    19,020    8.1 
Containers, Packaging & Glass   3,625    1.3    3,712    1.6 
Services: Consumer   3,054    1.1    3,048    1.3 
Capital Equipment           3,645    1.6 
 Total  $283,380    100.0%  $234,098    100.0%

 

15
 

 

   June 30, 2015   December 31, 2014 
Fair Value:                    
Healthcare & Pharmaceuticals  $52,463    18.6%  $29,929    12.8%
Consumer Goods: Non-Durable   40,774    14.4    27,367    11.7 
Services: Business   37,807    13.4    30,235    12.9 
Hotels, Gaming & Leisure   18,565    6.6    18,655    8.0 
Retail   16,991    6.0    22,342    9.6 
Banking, Finance, Insurance & Real Estate   15,985    5.7    16,815    7.2 
Construction & Building   14,417    5.1    11,637    5.0 
Media: Diversified & Production   12,828    4.5    7,747    3.3 
High Tech Industries   11,680    4.1    2,973    1.3 
Energy: Oil & Gas   9,558    3.4    4,698    2.0 
Metals & Mining   7,709    2.7    6,563    2.9 
Media: Advertising, Printing & Publishing   6,504    2.3    10,628    4.5 
Aerospace & Defense   6,355    2.3         
Beverage, Food & Tobacco   5,517    2.0    2,900    1.2 
Automotive   5,169    1.8    5,483    2.3 
Wholesale   4,899    1.7    5,624    2.4 
Consumer Goods: Durable   4,274    1.5    19,281    8.3 
Media: Broadcasting & Subscription   4,219    1.5         
Containers, Packaging & Glass   3,733    1.3    3,979    1.7 
Services: Consumer   3,066    1.1    3,014    1.3 
Capital Equipment           3,665    1.6 
Total  $282,513    100.0%  $233,535    100.0%

 

Note 4. Fair Value Measurements

 

Investments

 

The Company values all investments in accordance with ASC Topic 820. ASC Topic 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

 

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

 

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

 

  Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

 

  Level 2 — Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

 

  Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

 

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

 

16
 

 

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

 

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

  

  the Board also engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of investments for which market quotations are not readily available. The Company will consult with independent valuation firm(s) relative to each portfolio company at least once in every calendar year, and for new portfolio companies, at least once in the twelve-month period subsequent to the initial investment;

 

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

 

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

 

The availability of valuation techniques and observable inputs can vary from investment to investment and is affected by a wide variety of factors including the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

 

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions utilized in the valuation are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause an investment to be reclassified to a lower level within the fair value hierarchy.

 

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

 

Senior, unitranche and junior secured loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating, and are based on current market conditions and credit ratings of the borrower. The contractual interest rates on the loans ranged between 6.00% and 18.92% at June 30, 2015 and 7.00% and 18.92% at December 31, 2014. The maturity dates on the loans outstanding at June 30, 2015 range between April 2017 and July 2023. Management evaluates the collectability of the loans on an ongoing basis based upon various factors including, but not limited to, the credit history of the borrower, its financial status and its available collateral.

 

Under the yield approach, the Company uses discounted cash flow models to determine the present value of the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the yield approach, the Company also considers the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made. This evaluation will be updated quarterly for Level 3 debt instruments that are performing and are not performing, respectively, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third-party valuation agents and other data as may be acquired and analyzed by the Company.

 

17
 

 

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

 

Under the income approach, the Company prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company. In determining the fair value under the income approach, the Company considers various factors including, but not limited to, the portfolio company’s projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public.

 

Secured Borrowings

 

The Company has elected the fair value option under ASC Topic 825 — Financial Instruments (“ASC Topic 825”) relating to accounting for debt obligations at their fair value for its secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the fair value of its secured borrowings within net change in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and the principal amount due on maturity.

 

Due to the absence of a liquid trading market for these secured borrowings, they are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model. The discount rate considers projected performance of the related loan investment, applicable market yields and leverage levels, credit quality, prepayment penalties and comparable company analysis. The Company consults with an independent valuation firm relative to the fair value of its secured borrowings at least once in every calendar year.

 

Fair Value Disclosures

 

The following table presents fair value measurements of investments and secured borrowings, by major class, as of June 30, 2015, according to the fair value hierarchy:

 

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Investments:                    
Senior secured loans  $   $   $163,434   $163,434 
Unitranche loans           65,207    65,207 
Junior secured loans           49,841    49,841 
Equity securities           4,031    4,031 
Total Investments  $   $   $282,513   $282,513 
                     
Secured borrowings  $   $   $3,450   $3,450 

 

The following table presents fair value measurements of investments and secured borrowings, by major class, as of December 31, 2014, according to the fair value hierarchy:

 

   Fair Value Measurements 
   Level 1   Level 2   Level 3   Total 
Investments:                    
Senior secured loans  $   $   $124,161   $124,161 
Unitranche loans           96,635    96,635 
Junior secured loans           10,803    10,803 
Equity securities           1,936    1,936 
Total Investments  $   $   $233,535   $233,535 
                     
Secured borrowings  $   $   $4,008   $4,008 

 

18
 

 

The following tables provide a reconciliation of the beginning and ending balances for investments and secured borrowings that use Level 3 inputs for the three and six months ended June 30, 2015:

 

   Investments     
   Senior
secured loans
  

Unitranche

loans

  

Junior

secured loans

  

Equity

securities

  

Total

investments

  

Secured

borrowings

 
Balance as of March 31, 2015  $148,660   $89,165   $10,770   $4,052   $252,647   $3,819 
Net change in unrealized appreciation (depreciation) on investments   598    (944)   391    (21)   24     
Net realized gain (loss) on investments                        
Purchases of investments and other adjustments to cost (1)   25,858    6,717    38,680        71,255     
Proceeds from principal payments and sales on investments  (2)   (11,682)   (29,731)           (41,413)    
Net change in unrealized appreciation (depreciation) on secured borrowings                       31 
Proceeds from secured borrowings                        
Repayments on secured borrowings                       (400)
Balance as of June 30, 2015  $163,434   $65,207   $49,841   $4,031   $282,513   $3,450 

 

   Investments     
   Senior
secured loans
  

Unitranche

loans

  

Junior

secured loans

  

Equity

securities

  

Total

investments

  

Secured

borrowings

 
Balance as of December 31, 2014  $124,161   $96,635   $10,803   $1,936   $233,535   $4,008 
Net change in unrealized appreciation (depreciation) on investments   438    (2,044)   299    1,001    (306)    
Net realized gain (loss) on investments                        
Purchases of investments and other adjustments to cost (1)   59,698    8,864    38,739    1,094    108,395     
Proceeds from principal payments and sales on investments  (2)   (20,863)   (38,248)           (59,111)    
Net change in unrealized appreciation (depreciation) on secured borrowings                       (8)
Proceeds from secured borrowings                        
Repayments on secured borrowings                       (550)
Balance as of June 30, 2015  $163,434   $65,207   $49,841   $4,031   $282,513   $3,450 

 

 

  (1) Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.
  (2) Represents net proceeds from investments sold and principal paydowns received.

 

The following tables provide a reconciliation of the beginning and ending balances for investments and secured borrowings that use Level 3 inputs for the three and six months ended June 30, 2014:

 

   Investments     
   Senior
secured loans
  

Unitranche

loans

  

Junior

secured loans

  

Equity

securities

  

Total

investments

  

Secured

borrowings

 
Balance as of March 31, 2014  $102,698   $94,006   $26,843   $1,124   $224,671   $6,181 
Reclassifications(1)   (2,276)       1,309    967         
Net change in unrealized appreciation (depreciation) on investments   1,350    (1,681)   (71)   (731)   (1,133)    
Net realized gain (loss) on investments   97        64        161     
Purchases of investments and other adjustments to cost (2)   35,309    97    44        35,450    720 
Proceeds from principal payments and sales on investments  (3)   (16,051)   (2,666)   (2,772)       (21,489)    
Net change in unrealized appreciation (depreciation) on secured borrowings                       (124)
Proceeds from secured borrowings                        
Repayments on secured borrowings                       (250)
Balance as of June 30, 2014  $121,127   $89,756   $25,417   $1,360   $237,660   $6,527 

 

19
 

 

   Investments     
   Senior
secured loans
  

Unitranche

loans

  

Junior

secured loans

  

Equity

securities

  

Total

investments

  

Secured

borrowings

 
Balance as of December 31, 2013  $88,963   $96,217   $22,335   $405   $207,920   $7,943 
Reclassifications(1)   (2,276)       1,309    967          
Net change in unrealized appreciation (depreciation) on investments   1,788    (2,391)   32    (12)   (583)    
Net realized gain (loss) on investments   97        108        205     
Purchases of investments and other adjustments to cost (2)   58,490    820    12,424        71,734     
Proceeds from principal payments and sales on investments (3)   (25,935)   (4,890)   (10,791)       (41,616)    
Net change in unrealized appreciation (depreciation) on secured borrowings                       (68)
Proceeds from secured borrowings                        
Repayments on secured borrowings                       (1,347)
Balance as of June 30, 2014  $121,127   $89,756   $25,417   $1,360   $237,660   $6,527 

 

 

  (1) Represents reclassifications due to restructuring of the investments in portfolio companies.
  (2) Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.
  (3) Represents net proceeds from investments sold and principal paydowns received.

 

The total change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the three and six months ended June 30, 2015, attributable to Level 3 investments still held at June 30, 2015, was $222 and $441, respectively. The total change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the three and six months ended June 30, 2014, attributable to Level 3 investments still held at June 30, 2014, was ($923) and ($250), respectively. The total change in unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the three and six months ended June 30, 2015, attributable to Level 3 investments still held at June 30, 2015, was ($31) and $8, respectively. The total change in unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the three and six months ended June 30, 2014, attributable to Level 3 investments still held at June 30, 2014, was $124 and $68, respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 during the three and six months ended June 30, 2015 and 2014.

 

Significant Unobservable Inputs

 

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

 

 The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of June 30, 2015 were as follows:

 

                 Range  
   Fair Value   Valuation
Technique
  Unobservable Input  Mean     Minimum    Maximum  
Assets:                          
Senior secured loans  $152,420   Discounted cash flow  EBITDA multiples   6.7x   2.3x   11.5x
           Market yields   12.9%   9.5%   22.0%
Senior secured loans   1,007   Enterprise value  Revenue multiples   0.5x   0.5x   0.5x
Unitranche loans   53,697   Discounted cash flow  EBITDA multiples   6.4x   5.0x   7.5x
          Market yields   15.0%   11.6%   21.2%
Unitranche loans   5,169   Combination of discounted cash flow and enterprise value  EBITDA multiples   4.3x   4.0x   4.5x
          Market yields   25.8%   23.0%   28.6%
Unitranche loans   6,341   Enterprise value  EBITDA multiples   4.5x   4.3x   4.8x
Junior secured loans   10,109   Discounted cash flow  EBITDA multiples   7.8x   7.3x   8.3x
           Market yields   12.1%   11.2%   13.0%
Junior secured loans   1,409   Enterprise value  Revenue multiples   0.5x   0.5x   0.5x
Equity securities   3,846   Enterprise value  EBITDA multiples   6.3x   2.3x   11.5x
Total Level 3 Assets  $233,998(1)                     
                           
Liabilities:                          
Secured borrowings  3,450   Discounted cash flow  Market yields   6.9%   3.8%   10.3%

 

 

  (1) Excludes loans of $48,515 fair value where valuation is obtained from a third-party pricing service for which such disclosure is not required.

 

20
 

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of December 31, 2014 were as follows:

 

                 Range 
   Fair Value   Valuation Technique  Unobservable Input  Mean   Minimum   Maximum 
Assets:                          
Senior secured loans  $120,204   Discounted cash flow  EBITDA multiples   6.8x   3.5x   11.0x
           Market yields   12.2%   7.4%   18.0%
Senior secured loans   1,007   Enterprise value  Revenue multiples   0.5x   0.5x   0.5x
Unitranche loans   79,370   Discounted cash flow  EBITDA multiples   7.0x   5.0x   10.0x
           Market yields   13.5%   9.0%   19.1%
Unitranche loans   6,420   Enterprise value  EBITDA multiples   3.8x   3.5x   4.0x
                           
Unitranche loans   5,483   Combination of discounted cash flow and enterprise value  EBITDA multiples   5.3x   5.0x   5.5x
           Market yields   25.5%   22.8%   28.3%
Junior secured loans   1,370   Enterprise value  Revenue Multiples   0.5x   0.5x   0.5x
                           
Equity securities   1,862   Enterprise value  EBITDA multiples   6.3x   3.5x   10.0x
Total Level 3 Assets  $215,716(1)                     
                           
Liabilities:                          
Secured borrowings  $4,008   Discounted cash flow  Market yields   6.6%   3.5%   9.9%

 

 

  (1) Excludes loans of $17,819 at fair value where valuation is obtained from a third-party pricing service for which such disclosure is not required.

 

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

 

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

 

21
 

 

Other Financial Assets and Liabilities

 

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Company’s revolving credit facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if applicable. The Company believes that the carrying value of its revolving credit facility approximates fair value. SBA-guaranteed debentures are carried at cost and with their longer maturity dates, fair value is estimated by discounting remaining payments using current market rates for similar instruments and considering such factors as the legal maturity date and the ability of market participants to prepay the debentures. As of June 30, 2015, the fair value of the Company’s SBA debentures using Level 3 inputs is estimated at $40,000, which is the same as the Company’s carrying value of the SBA debentures.

 

Note 5. Transactions with Affiliated Companies

 

An affiliated company is a company in which the Company has an ownership of 5% or more of its voting securities. A controlled affiliate company is a company in which the Company has ownership of more than 25% of its voting securities. Transactions related to our investments with affiliates for the six months ended June 30, 2015 were as follows:

 

Portfolio Company  Fair Value
at
December
31, 2014
  Purchases
(cost)
  Sales and
paydowns
(cost)
  PIK
interest
(cost)
  Discount
accretion
  Net
realized
gains/
(losses)
  Net
unrealized
gains/
(losses)
  Fair Value
at
June
30, 2015
  Interest
Income
  Dividend
Income
 
Non-controlled affiliate company investments (1) :                                         
American Community Homes, Inc.  $10,163  $  $  $77  $21  $  $133  $10,394  $579  $ 
Rockdale Blackhawk LLC      14,200         43      1,152   15,395   472     
Rocket Dog Brands LLC   2,454         109         (146)  2,417   159    
Summit Container Corporation   3,979      (98)     10      (158)  3,733   242    
Total non-controlled affiliate company investments  $16,596  $14,200  $(98) $186  $74  $  $981  $31,939  $1,452  $ 
Controlled affiliate company investments (1) :                                         
TPP Acquisition, Inc.  $6,621  $960  $  $70  $14  $  $(1,324) $6,341  $444  $ 
Total controlled affiliate company investments  $6,621  $960  $  $70  $14  $  $(1,324) $6,341  $444  $ 

 

 

  (1) Includes both loan and equity security investment transactions for these portfolio companies.

 

Transactions related to our investments with affiliates for the six months ended June 30, 2014 were as follows:

 

Portfolio Company  Fair Value
at
December
31, 2013
  Transfers in
due to
restructuring
  Purchases
(cost)
  Sales and
paydowns
(cost)
  PIK
interest
(cost)
  Discount
accretion
  Net
realized
gains/
(losses)
  Net
unrealized
gains/
(losses)
  Fair Value
at
June 30,
2014
  Interest
Income
  Dividend
Income
 
Non-controlled affiliate company investments (1) :                                             
Rocket Dog Brands LLC(2)  $  $2,433  $  $  $32  $  $  $(37) $2,428  $49  $ 
Summit Container Corporation         3,890   (97)     10      422   4,225   222    
Total non-controlled affiliate company investments  $  $2,433  $3,890  $(97) $32  $10  $  $385  $6,653  $271  $ 

 

 

(1) Includes both loan and equity security investment transactions for these portfolio companies.
(2) The Company’s investment in Rocket Dog Brands LLC was restructured on May 2, 2014, resulting in the Company obtaining greater than 5% of the voting securities. For the purpose of this schedule, transfers in due to restructuring represents the fair value on the restructuring date and all activity presented is subsequent to the restructuring.

 

22
 

 

Note 6. Transactions with Related Parties

 

The Company has entered into the Investment Advisory and Management Agreement with MC Advisors, under which MC Advisors, subject to the overall supervision of the Board, provides investment advisory services to the Company. The Company pays MC Advisors a fee for its services under the Investment Advisory and Management Agreement consisting of two components—a base management fee and an incentive fee. The base management fee is calculated at an annual rate equal to 1.75% of invested assets (calculated as total assets excluding cash) and is payable in arrears. Base management fees for the three and six months ended June 30, 2015 were $1,188 and $2,256, respectively. Base management fees for the three and six months ended June 30, 2014 were $1,030 and $1,983, respectively.

 

The incentive fee consists of two parts. The first part is calculated and payable quarterly in arrears and equals 20% of “pre-incentive fee net investment income” for the immediately preceding quarter, subject to a 2% (8% annualized) preferred return, or “hurdle,” and a “catch up” feature. The foregoing incentive fee is subject to a total return requirement, which provides that no incentive fee in respect of preincentive fee net investment income will be payable except to the extent that 20.0% of the cumulative net increase in net assets resulting from operations over the then current and 11 preceding calendar quarters exceeds the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. Therefore, any ordinary income incentive fee that is payable in a calendar quarter will be limited to the lesser of (1) 20% of the amount by which preincentive fee net investment income for such calendar quarter exceeds the 2.0% hurdle, subject to the “catch-up” provision, and (2) (x) 20% of the cumulative net increase in net assets resulting from operations for the then current and 11 preceding calendar quarters minus (y) the cumulative incentive fees accrued and/or paid for the 11 preceding calendar quarters. For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the sum of preincentive fee net investment income, realized gains and losses and unrealized appreciation and depreciation for the then current and 11 preceding calendar quarters. The second part of the incentive fee is determined and payable in arrears as of the end of each fiscal year in an amount equal to 20% of realized capital gains, if any, on a cumulative basis from inception through the end of the year, computed net of all realized capital losses on a cumulative basis and unrealized depreciation, less the aggregate amount of any previously paid capital gain incentive fees.

 

Incentive fees for the three and six months ended June 30, 2015 were $1,268 and $2,310, respectively. Incentive fees for the three and six months ended June 30, 2015 consisted solely of part one incentive fees (based on net investment income) of $1,268 and $2,310, respectively. Incentive fees for the three and six months ended June 30, 2014 were $667 and $1,584, respectively. Incentive fees for the three and six months ended June 30, 2014, consisted of part one incentive fees (based on net investment income) of $836 and $1,645, respectively, reduced by the second part of the incentive fee (based upon net realized and unrealized gains and losses) of ($169) and ($62), respectively. The Company accrues, but does not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate. If, on a cumulative basis, the sum of net realized gains (losses) plus net unrealized appreciation (depreciation) decreases during a period, the Company will reverse any excess capital gains incentive fee previously accrued such that the amount of capital gains incentive fee accrued is no more than 20% of the sum of net realized gains (losses) plus net unrealized appreciation (depreciation).

 

The Company has entered into an Administration Agreement with Monroe Capital Management Advisors, LLC (“MC Management”), under which the Company reimburses MC Management (subject to the review and approval of the Board) for its allocable portion of overhead and other expenses, including the costs of furnishing the Company with office facilities and equipment and providing clerical, bookkeeping, record-keeping and other administrative services at such facilities, and the Company’s allocable portion of the cost of the chief financial officer and chief compliance officer and their respective staffs. To the extent that MC Management outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis, without incremental profit to MC Management. For the three and six months ended June 30, 2015, the Company incurred $741 and $1,442, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative on the consolidated statements of operations) under the Administration Agreement, of which $278 and $549, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. For the three and six months ended June 30, 2014, the Company incurred $720 and $1,269 in administrative expenses (included within Professional fees, Administrative service fees and General and administrative on the consolidated statements of operations) under the Administration Agreement, of which $217 and $418, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. As of June 30, 2015 and December 31, 2014, $278 and $208 of expenses were due to MC Management under this agreement and are included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities.

 

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

 

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As of June 30, 2015 and December 31, 2014, the Company did not have any accrued and unpaid compensation to members of the Board.

 

Note 7. Borrowings

 

Revolving Credit Facility:   As of June 30, 2015 and December 31, 2014, the Company had $49,700 and $82,300 outstanding, respectively, under its revolving credit facility with ING Capital LLC, as agent, to finance the purchase of the Company’s assets. As of June 30, 2015, the maximum amount the Company was able to borrow under the revolving credit facility is $110,000 and this maximum borrowing can be increased to $200,000 pursuant to an accordion feature (subject to maintaining 200% asset coverage, as defined by the 1940 Act). On July 31, 2015, the Company closed a $25,000 upsize to its revolving credit facility, to $135,000 in accordance with the accordion feature. 

 

The revolving credit facility is secured by a lien on all of the Company’s assets, including cash on hand, but excluding the assets of the Company’s wholly-owned subsidiary, MRCC SBIC. The Company’s ability to borrow under the credit facility is subject to availability under a defined borrowing base, which varies based on the Company’s portfolio characteristics and certain eligibility criteria and concentration limits, as well as required valuation methodologies. The Company may make draws under the revolving credit facility to make or purchase additional investments through December 2016 and for general working capital purposes until the maturity date of the revolving credit facility. Borrowings under the revolving credit facility bear interest, at the Company’s election, at an annual rate of LIBOR (one-month, two-month, three-month or six-month at the Company’s discretion based on the term of the borrowing) plus 3.25% or at a daily rate equal to 2.25% per annum plus the greater of the prime interest rate, the federal funds rate plus 0.5% or LIBOR plus 1.0%. In addition to the stated interest rate on borrowings under the revolving credit facility, the Company is required to pay a fee of 0.5% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is less than 50% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 50% of the then available maximum borrowing or a fee of 1.0% per annum on any unused portion of the revolving credit facility if the unused portion of the facility is greater than or equal to 50% of the then available maximum borrowing. The weighted average interest rate of the Company’s revolving credit facility borrowings (excluding debt issuance costs) for the three and six months ended June 30, 2015 was 3.7% and 3.6%, respectively. As of June 30, 2015, all of the outstanding borrowings were accruing at an interest rate of 3.4% (based on one-month LIBOR). The weighted average fee rate on the Company’s unused portion of the revolving credit facility for the three and six months ended June 30, 2015 was 0.5% and 0.5%, respectively. The weighted average interest rate of the Company’s revolving credit facility borrowings (excluding debt issuance costs) for the three and six months ended June 30, 2014 was 3.6% and 3.7%, respectively. The weighted average fee rate on the Company’s unused portion of the revolving credit facility for the three and six months ended June 30, 2014 was 0.5% and 0.5%, respectively.

 

The Company’s ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits the Company to borrow up to 70% of the fair market value of its portfolio company investments depending on the type of the investment the Company holds and whether the investment is quoted. The Company’s ability to borrow is also subject to certain concentration limits, and its continued compliance with the representations, warranties and covenants given by the Company under the facility. The revolving credit facility contains certain financial and restrictive covenants, including, but not limited to, the Company’s maintenance of: (1) a minimum consolidated net worth at least equal to the greater of (a) 55% of assets on the last day of each quarter (excluding from such calculation the portion of assets of MRCC SBIC financed with SBA debentures) or (b) 80% of the net proceeds to the Company from this offering plus 50% of the net proceeds of the sales of the Company’s securities after the effectiveness of the revolving credit facility; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 2.15 times; and (3) a ratio of earnings before interest and taxes to interest expense of at least 2.5 times. The credit facility also requires the Company to undertake customary indemnification obligations with respect to ING Capital LLC and other members of the lending group and to reimburse the lenders for expenses associated with entering into the credit facility. The revolving credit facility also has customary provisions regarding events of default, including events of default for nonpayment, change in control transactions at both the Company and MC Advisors, failure to comply with financial and negative covenants, and failure to maintain the Company’s relationship with MC Advisors. If the Company incurs an event of default under the revolving credit facility and fails to remedy such default under any applicable grace period, if any, then the entire revolving credit facility could become immediately due and payable, which would materially and adversely affect the Company’s liquidity, financial condition, results of operations and cash flows.

 

The Company’s credit facility also imposes certain conditions that may limit the amount of the Company’s distributions to stockholders. Distributions payable in the Company’s common stock under the DRIP are not limited by the credit facility. Distributions in cash or property other than common stock are generally limited to 110% (125% in certain instances) of the amount of distributions required to maintain the Company’s status as a RIC.

 

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

 

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The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis (pooling date) at a market-driven spread over U.S. Treasury Notes with 10-year maturities. The SBA, as a creditor, has a superior claim to MRCC SBIC’s assets over the Company’s stockholders in the event the Company liquidates MRCC SBIC or the SBA exercises its remedies upon an event of default. As of June 30, 2015, MRCC SBIC had $20,000 in regulatory capital and leveragable capital and $40,000 in SBA-guaranteed debentures outstanding. As of June 30, 2015, $12,920 in SBA-guaranteed debentures outstanding mature in September 2024 and bear interest at a fixed rate of 3.4% per annum, $14,800 in SBA-guaranteed debentures outstanding mature in March 2025 and bear interest at a fixed rate of 3.3% per annum and $7,080 SBA-guaranteed debentures outstanding mature in September 2024 and bear interest at a fixed rate of 2.9% per annum. Additionally, as of June 30, 2015, $5,200 in SBA-guaranteed debentures have not already pooled, mature in September 2025 and bear interest at an interim rate of 1.4% until the September 2015 pooling date.

 

Secured Borrowings: Certain partial loan sales do not qualify for sale accounting under ASC Topic 860 because these sales do not meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain as an investment on the accompanying consolidated statements of assets and liabilities and the portion sold is recorded as a secured borrowing in the liabilities section of the consolidated statements of assets and liabilities. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” in the accompanying consolidated statements of operations.

 

As of June 30, 2015, secured borrowings at fair value totaled $3,450 and the fair value of the loans that are associated with these secured borrowings was $12,795. As of December 31, 2014, secured borrowings at fair value totaled $4,008 and the fair value of the loans that are associated with these secured borrowings was $13,142. These secured borrowings were created as a result of the Company’s completion of partial loan sales of three unitranche loan assets totaling $10,000 during the year ended December 31, 2013 that did not meet the definition of a “participating interest.” As a result, sale treatment was not allowed and these partial loan sales were treated as secured borrowings. No such partial loan sales occurred during the year ended December 31, 2014 and the six months ended June 30, 2015. During the three and six months ended June 30, 2015, repayments on secured borrowings totaled $400 and $550, respectively. During the three and six months ended June 30, 2014, repayments on secured borrowings totaled $250 and $1,347, respectively. The weighted average interest rate on our secured borrowings was approximately 5.6% as of June 30, 2015.

 

Components of interest expense: The components of the Company’s interest expense and other debt financing expenses are as follows:

 

   Three months ended June 30, 
   2015   2014