UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 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, 2019

 

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) 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share 5.75% Notes due 2023		MRCC MRCCL		The Nasdaq Global Select Market The Nasdaq Global Select Market

 

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 every Interactive Data File required to be submitted 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 such files).  Yes  x    No  ¨

 

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

 

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨
Emerging growth company	¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

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 5, 2019, the registrant had 20,444,564 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, 2019 (unaudited) and December 31, 2018	3
	Consolidated Statements of Operations for the three and six months ended June 30, 2019 (unaudited) and 2018 (unaudited)	4
	Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2019 (unaudited) and 2018 (unaudited)	5
	Consolidated Statements of Cash Flows for the six months ended June 30, 2019 (unaudited) and 2018 (unaudited)	6
	Consolidated Schedules of Investments as of June 30, 2019 (unaudited) and December 31, 2018	7
	Notes to Consolidated Financial Statements (unaudited)	27
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69
Item 4.	Controls and Procedures	70
PART II. OTHER INFORMATION		71
Item 1.	Legal Proceedings	71
Item 1A.	Risk Factors	71
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	72
Item 3.	Defaults Upon Senior Securities	72
Item 4.	Mine Safety Disclosures	72
Item 5.	Other Information	72
Item 6.	Exhibits	73
Signatures		74

 

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, 2019				December 31, 2018
		(unaudited)
ASSETS
Investments, at fair value:
Non-controlled/non-affiliate company investments		$	533,779			$	468,720
Non-controlled affiliate company investments			61,081				57,267
Controlled affiliate company investments			35,944				27,634
Total investments, at fair value (amortized cost of: $644,141 and $564,124, respectively)			630,804				553,621
Cash			2,985				3,744
Restricted cash			23,884				13,982
Unrealized gain on foreign currency forward contracts			23				16
Interest receivable			10,330				7,774
Other assets			537				692
Total assets			668,563				579,829
LIABILITIES
Debt:
Revolving credit facility			188,640				136,026
2023 Notes			109,000				69,000
SBA debentures payable			115,000				115,000
Total debt			412,640				320,026
Less:  Unamortized deferred financing costs			(8,797	)			(6,262	)
Total debt, less unamortized deferred financing costs			403,843				313,764
Interest payable			2,681				2,550
Management fees payable			2,723				2,318
Incentive fees payable			883				—
Accounts payable and accrued expenses			2,545				2,430
Total liabilities			412,675				321,062
Net assets		$	255,888			$	258,767
Commitments and contingencies (See Note 11)
ANALYSIS OF NET ASSETS
Common stock, $0.001 par value, 100,000 shares authorized, 20,445 and 20,445 shares issued and outstanding, respectively		$	20			$	20
Capital in excess of par value			288,911				288,911
Accumulated undistributed (overdistributed) earnings			(33,043	)			(30,164	)
Total net assets		$	255,888			$	258,767
Net asset value per share		$	12.52			$	12.66

 

See Notes to Consolidated Financial Statements.

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

(in thousands, except per share data)

 

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
Investment income:
Non-controlled/non-affiliate company investments:
Interest income		$	13,743			$	11,662			$	26,573			$	23,488
Payment-in-kind interest income			115				126				213				263
Dividend income			13				265				26				525
Fee income			60				583				629				1,307
Total investment income from non-controlled/non-affiliate company investments			13,931				12,636				27,441				25,583
Non-controlled affiliate company investments:
Interest income			767				1,550				1,690				3,186
Payment-in-kind interest income			1,146				201				2,102				393
Fee income			—				83				—				83
Total investment income from non-controlled affiliate company investments			1,913				1,834				3,792				3,662
Controlled affiliate company investments:
Dividend income			875				350				1,645				525
Total investment income from controlled affiliate company investments			875				350				1,645				525
Total investment income			16,719				14,820				32,878				29,770
Operating expenses:
Interest and other debt financing expenses			5,107				2,836				9,461				5,542
Base management fees			2,723				2,202				5,244				4,365
Incentive fees			1,168				990				2,768				1,751
Professional fees			272				302				561				609
Administrative service fees			319				322				666				646
General and administrative expenses			285				225				512				401
Excise taxes			17				—				10				11
Directors' fees			40				37				75				74
Expenses before incentive fee waiver			9,931				6,914				19,297				13,399
Incentive fee waiver			(285	)			—				(566	)			—
Total expenses, net of incentive fee waiver			9,646				6,914				18,731				13,399
Net investment income			7,073				7,906				14,147				16,371
Net gain (loss):
Net realized gain (loss):
Non-controlled/non-affiliate company investments			35				—				35				—
Foreign currency forward contracts			2				—				(6	)			—
Foreign currency and other transactions			(1	)			(9	)			(2	)			3
Net realized gain (loss)			36				(9	)			27				3
Net change in unrealized gain (loss):
Non-controlled/non-affiliate company investments			(2,749	)			(515	)			(461	)			(680	)
Non-controlled affiliate company investments			(1,054	)			(4,157	)			(2,808	)			(11,080	)
Controlled affiliate company investments			112				260				435				703
Foreign currency forward contracts			72				—				7				—
Foreign currency and other transactions			502				795				86				353
Net change in unrealized gain (loss)			(3,117	)			(3,617	)			(2,741	)			(10,704	)
Net gain (loss)			(3,081	)			(3,626	)			(2,714	)			(10,701	)
Net increase (decrease) in net assets resulting from operations		$	3,992			$	4,280			$	11,433			$	5,670
Per common share data:
Net investment income per share - basic and diluted		$	0.35			$	0.39			$	0.69			$	0.81
Net increase (decrease) in net assets resulting from operations per share - basic and diluted		$	0.20			$	0.21			$	0.56			$	0.28
Weighted average common shares outstanding - basic and diluted			20,445				20,244				20,445				20,242

 

See Notes to Consolidated Financial Statements. 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

 

(in thousands)

 

		Common Stock								Capital in				Accumulated undistributed
		Number of shares				Par value				excess of par value				(overdistributed) earnings				Total net assets
Balances at March 31, 2018			20,240			$	20			$	286,141			$	(13,156	)		$	273,005
Net investment income			—				—				—				7,906				7,906
Net realized gain (loss)			—				—				—				(9	)			(9	)
Net change in unrealized gain (loss)			—				—				—				(3,617	)			(3,617	)
Issuance of common stock, net of offering and underwriting costs			17				—				209				—				209
Distributions to stockholders			22				—				301				(7,087	)			(6,786	)
Balances at June 30, 2018			20,279			$	20			$	286,651			$	(15,963	)		$	270,708
Balances at March 31, 2019			20,445			$	20			$	288,911			$	(29,879	)		$	259,052
Net investment income			—				—				—				7,073				7,073
Net realized gain (loss)			—				—				—				36				36
Net change in unrealized gain (loss)			—				—				—				(3,117	)			(3,117	)
Issuance of common stock, net of offering and underwriting costs			—				—				—				—				—
Distributions to stockholders			—				—				—				(7,156	)			(7,156	)
Balances at June 30, 2019			20,445			$	20			$	288,911			$	(33,043	)		$	255,888

 

		Common Stock								Capital in				Accumulated undistributed
		Number of shares				Par value				excess of par value				(overdistributed) earnings				Total net assets
Balances at December 31, 2017			20,240			$	20			$	286,141			$	(7,462	)		$	278,699
Net investment income			—				—				—				16,371				16,371
Net realized gain (loss)			—				—				—				3				3
Net change in unrealized gain (loss)			—				—				—				(10,704	)			(10,704	)
Issuance of common stock, net of offering and underwriting costs			17				—				209				—				209
Distributions to stockholders			22				—				301				(14,171	)			(13,870	)
Balances at June 30, 2018			20,279			$	20			$	286,651			$	(15,963	)		$	270,708
Balances at December 31, 2018			20,445			$	20			$	288,911			$	(30,164	)		$	258,767
Net investment income			—				—				—				14,147				14,147
Net realized gain (loss)			—				—				—				27				27
Net change in unrealized gain (loss)			—				—				—				(2,741	)			(2,741	)
Issuance of common stock, net of offering and underwriting costs			—				—				—				—				—
Distributions to stockholders			—				—				—				(14,312	)			(14,312	)
Balances at June 30, 2019			20,445			$	20			$	288,911			$	(33,043	)		$	255,888

 

See Notes to Consolidated Financial Statements.

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

(in thousands)

 

		Six months ended June 30,
		2019				2018
Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations		$	11,433			$	5,670
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Net realized (gain) loss on investments			(35	)			—
Net realized (gain) loss on foreign currency forward contracts			6				—
Net realized (gain) loss on foreign currency and other transactions			2				(3	)
Net change in unrealized (gain) loss on investments			2,834				11,057
Net change in unrealized (gain) loss on foreign currency forward contracts			(7	)			—
Net change in unrealized (gain) loss on foreign currency and other transactions			(86	)			(353	)
Payment-in-kind interest income			(2,315	)			(656	)
Payment-in-kind dividend income			—				(522	)
Net accretion of discounts and amortization of premiums			(819	)			(1,556	)
Proceeds from principal payments, sales of investments and settlement of forward contracts			53,797				60,368
Purchases of investments			(130,651	)			(72,788	)
Amortization of deferred financing costs			901				596
Changes in operating assets and liabilities:
Interest receivable			(2,556	)			(1,904	)
Other assets			155				(338	)
Interest payable			131				122
Management fees payable			405				138
Incentive fees payable			883				(167	)
Accounts payable and accrued expenses			115				(23	)
Net cash provided by (used in) operating activities			(65,807	)			(359	)
Cash flows from financing activities:
Borrowings on revolving credit facility			264,450				67,107
Repayments of revolving credit facility			(211,750	)			(58,350	)
Proceeds from 2023 Notes			40,000				—
SBA debentures borrowings			—				5,480
Payments of deferred financing costs			(3,436	)			(388	)
Proceeds from shares sold, net of offering and underwriting costs			—				209
Stockholder distributions paid, net of stock issued under the dividend reinvestment plan of $0 and $301, respectively			(14,312	)			(13,870	)
Net cash provided by (used in) financing activities			74,952				188
Net increase (decrease) in Cash and Restricted Cash			9,145				(171	)
Effect of foreign currency exchange rates			(2	)			3
Cash and Restricted Cash, beginning of period			17,726				7,199
Cash and Restricted Cash, end of period		$	26,869			$	7,031
Supplemental disclosure of cash flow information:
Cash interest paid during the period		$	8,391			$	4,786
Cash paid (refunded) for excise taxes during the period		$	(13	)		$	91

 

The following table provides a reconciliation of cash and restricted cash reported within the Consolidated Statements of Assets and Liabilities that sum to the total of the same such amounts in the Consolidated Statements of Cash Flows:

 

		June 30, 2019				December 31, 2018
Cash		$	2,985			$	3,744
Restricted cash			23,884				13,982
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows		$	26,869			$	17,726
			June 30, 2018				December 31, 2017
Cash		$	2,779			$	4,332
Restricted cash			4,252				2,867
Total cash and restricted cash shown in the Consolidated Statements of Cash Flows		$	7,031			$	7,199

 

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Automotive
Hastings Manufacturing Company		L+ 8.25%		10.65	%		4/24/2018		4/24/2023				2,888			$	2,840			$	2,720				1.1	%
Magneto & Diesel Acquisition, Inc.		L+ 5.50%		7.90	%		12/18/2018		12/18/2023				4,975				4,895				5,007				1.9	%
Magneto & Diesel Acquisition, Inc. (Revolver) (f)		L+ 5.50%		7.90	%		12/18/2018		12/18/2023				500				—				—				0.0	%
													8,363				7,735				7,727				3.0	%
Banking, Finance, Insurance & Real Estate
777 SPV I LLC (Delayed Draw) (g) (h)		L+ 8.50%		10.90	%		4/15/2019		4/14/2023				5,252				5,189				5,270				2.0	%
Echelon Funding I, LLC (Delayed Draw) (f) (g) (h)		L+ 7.50%		9.94	%		2/24/2017		2/24/2022				18,900				16,533				16,541				6.5	%
HFZ Capital Group, LLC (h)		L+ 10.17%		12.59% Cash/ 0.17% PIK	(i)		10/20/2017		10/21/2019				18,000				17,930				18,000				7.0	%
HFZ Member RB Portfolio LLC (Delayed Draw) (f) (g) (h)		L+ 12.00%		14.59	%		10/30/2018		10/29/2021				9,000				5,164				5,156				2.0	%
Liftforward SPV II, LLC (f) (g) (h)		L+ 10.75%		13.15	%		11/10/2016		11/10/2020				10,000				3,994				4,021				1.6	%
PKS Holdings, LLC (h)		L+ 10.50%		12.94	%		11/30/2017		11/30/2022				1,710				1,568				1,694				0.7	%
PKS Holdings, LLC (Revolver) (f) (h)		L+ 10.50%		12.94	%		11/30/2017		11/30/2022				80				—				—				0.0	%
													62,942				50,378				50,682				19.8	%
Beverage, Food & Tobacco
California Pizza Kitchen, Inc.		L+ 6.00%		8.53	%		8/19/2016		8/23/2022				6,808				6,764				6,671				2.6	%
Toojay's Management LLC		L+ 5.50%		7.90	%		10/26/2018		10/26/2022				3,483				3,423				3,474				1.4	%
Toojay's Management LLC		L+ 5.50%		7.90	%		10/26/2018		10/26/2022				477				477				476				0.2	%
Toojay's Management LLC (Revolver) (f)		L+ 5.50%		7.90	%		10/26/2018		10/26/2022				159				80				79				0.0	%
													10,927				10,744				10,700				4.2	%
Chemicals, Plastics & Rubber
Midwest Composite Technologies, LLC		L+ 6.25%		8.65	%		8/31/2018		8/31/2023				893				878				911				0.4	%
Midwest Composite Technologies, LLC (Delayed Draw) (f) (g)		L+ 6.25%		8.65	%		8/31/2018		8/31/2023				600				60				61				0.0	%
Midwest Composite Technologies, LLC (Revolver) (f)		L+ 6.25%		8.65	%		8/31/2018		8/31/2023				90				—				—				0.0	%
Valudor Products, LLC		L+ 7.50%		9.90	%		6/18/2018		6/19/2023				1,584				1,557				1,562				0.6	%
Valudor Products, LLC (j)		L+ 7.50%		9.90	%		6/18/2018		6/19/2023				211				206				208				0.1	%
Valudor Products, LLC (Revolver) (f)		L+ 9.50%		11.90	%		6/18/2018		6/19/2023				818				336				333				0.1	%
													4,196				3,037				3,075				1.2	%
Construction & Building
Cali Bamboo, LLC		L+ 7.00%		9.40	%		7/10/2015		7/10/2020				7,896				7,836				7,896				3.1	%
Cali Bamboo, LLC (Revolver) (f)		L+ 7.00%		9.40	%		7/10/2015		7/10/2020				2,165				—				—				0.0	%
Construction Supply Acquisition, LLC		L+ 6.00%		8.41	%		11/27/2018		6/30/2023				4,509				4,489				4,498				1.8	%
Dude Solutions Holdings, Inc.		L+ 7.00%		9.40	%		6/14/2019		6/13/2025				10,000				9,777				9,775				3.8	%
Dude Solutions Holdings, Inc. (Revolver) (f)		L+ 7.00%		9.40	%		6/14/2019		6/13/2025				1,304				365				357				0.1	%
													25,874				22,467				22,526				8.8	%
Consumer Goods: Durable
Nova Wildcat Amerock, LLC		L+ 5.75%		8.15	%		10/12/2018		10/12/2023				9,453				9,285				9,358				3.7	%
Nova Wildcat Amerock, LLC (Revolver) (f)		L+ 5.75%		8.15	%		10/12/2018		10/12/2023				931				—				—				0.0	%
Parterre Flooring & Surface Systems, LLC (k)		L+ 9.00%		11.40	%		8/22/2017		8/22/2022				9,030				8,906				8,606				3.4	%
Parterre Flooring & Surface Systems, LLC (Revolver)		L+ 9.00%		11.40	%		8/22/2017		8/22/2022				696				696				660				0.2	%
													20,110				18,887				18,624				7.3	%
Consumer Goods: Non-Durable
Quirch Foods Holdings, LLC		L+ 6.00%		8.40	%		2/14/2019		12/19/2025				1,990				1,971				1,990				0.8	%
													1,990				1,971				1,990				0.8	%
Energy: Oil & Gas
BJ Services, LLC		L+ 7.00%		9.59	%		1/28/2019		1/3/2023				4,500				4,460				4,502				1.7	%
Landpoint, LLC		L+ 10.00%		12.40	%		12/17/2013		12/20/2019				2,069				2,067				2,069				0.8	%
Landpoint, LLC (Revolver) (f)		L+ 10.00%		12.40	%		12/17/2013		12/20/2019				313				156				156				0.1	%
													6,882				6,683				6,727				2.6	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Environmental Industries
StormTrap, LLC		L+ 5.50%		7.90	%		12/10/2018		12/8/2023				7,960			$	7,833			$	7,896				3.1	%
StormTrap, LLC (Revolver) (f)		L+ 5.50%		7.90	%		12/10/2018		12/8/2023				432				108				108				0.0	%
Synergy Environmental Corporation (k)		L+ 7.00%		9.40	%		4/29/2016		4/29/2021				2,893				2,861				2,885				1.1	%
Synergy Environmental Corporation (k)		L+ 7.00%		9.40	%		4/29/2016		4/29/2021				484				479				482				0.2	%
Synergy Environmental Corporation (Delayed Draw) (f) (g)		L+ 7.00%		9.40	%		4/29/2016		4/29/2021				1,310				827				824				0.3	%
Synergy Environmental Corporation (Revolver) (f)		L+ 7.00%		9.40	%		4/29/2016		4/29/2021				671				437				436				0.2	%
													13,750				12,545				12,631				4.9	%
Healthcare & Pharmaceuticals
American Optics Holdco, Inc. (h) (l)		L+ 7.00%		9.40	%		9/13/2017		9/13/2022				4,267				4,206				4,250				1.7	%
American Optics Holdco, Inc. (h) (l)		L+ 7.00%		9.40	%		9/13/2017		9/13/2022				1,664				1,637				1,658				0.6	%
American Optics Holdco, Inc. (Revolver) (f) (h) (l)		L+ 7.00%		9.40	%		9/13/2017		9/13/2022				440				—				—				0.0	%
American Optics Holdco, Inc. (Revolver) (f) (h) (l)		L+ 7.00%		9.40	%		9/13/2017		9/13/2022				440				—				—				0.0	%
Apotheco, LLC		L+ 5.50%		7.90	%		4/8/2019		4/8/2024				3,500				3,433				3,493				1.4	%
Apotheco, LLC (Delayed Draw) (f) (g)		L+ 5.50%		7.90	%		4/8/2019		4/8/2024				1,647				—				—				0.0	%
Apotheco, LLC (Revolver) (f)		L+ 5.50%		7.90	%		4/8/2019		4/8/2024				909				159				159				0.1	%
Familia Dental Group Holdings, LLC (k)		L+ 8.00%		10.40	%		4/8/2016		4/8/2021				5,019				4,985				4,715				1.8	%
Familia Dental Group Holdings, LLC		L+ 8.00%		10.40	%		4/8/2016		4/8/2021				483				483				454				0.2	%
Familia Dental Group Holdings, LLC (Revolver) (f)		L+ 8.00%		10.40	%		4/8/2016		4/8/2021				573				372				350				0.1	%
Rockdale Blackhawk, LLC (DIP Facility)		n/a		15.10	%		8/30/2018		n/a	(m)			198				198				198				0.1	%
Rockdale Blackhawk, LLC (DIP Facility)		n/a		15.10	%		8/6/2018		n/a	(m)			8,877				8,877				8,877				3.5	%
Rockdale Blackhawk, LLC		L+ 13.00%		15.40	%(n)		3/31/2015		3/31/2020				10,923				10,465				8,826				3.4	%
													38,940				34,815				32,980				12.9	%
High Tech Industries
Host Analytics, Inc.		L+ 6.00%		8.44	%		12/28/2018		12/28/2023				9,500				9,325				9,538				3.7	%
Host Analytics, Inc. (Revolver) (f)		L+ 6.00%		8.44	%		12/28/2018		12/28/2023				442				—				—				0.0	%
Mindbody, Inc.		L+ 7.00%		9.39	%		2/15/2019		2/14/2025				6,333				6,216				6,330				2.5	%
Mindbody, Inc. (Revolver) (f)		L+ 7.00%		9.39	%		2/15/2019		2/14/2025				667				—				—				0.0	%
Newforma, Inc. (k)		L+ 5.50%		7.83	%		6/30/2017		6/30/2022				13,382				13,254				13,382				5.2	%
Newforma, Inc. (Revolver) (f)		L+ 5.50%		7.83	%		6/30/2017		6/30/2022				1,250				—				—				0.0	%
Prototek Sheetmetal Fabrication, LLC		L+ 7.00%		9.40	%		12/11/2017		12/12/2022				3,377				3,327				3,353				1.3	%
Prototek Sheetmetal Fabrication, LLC		L+ 7.00%		9.40	%		6/27/2019		12/12/2022				1,604				1,572				1,593				0.6	%
Prototek Sheetmetal Fabrication, LLC (Delayed Draw) (f) (g)		L+ 7.00%		9.40	%		12/11/2017		12/12/2022				2,306				1,723				1,711				0.7	%
Prototek Sheetmetal Fabrication, LLC (Revolver) (f)		L+ 7.00%		9.40	%		12/11/2017		12/12/2022				233				—				—				0.0	%
RPL Bidco Limited  (h) (l) (o)		L+ 7.50%		8.29	%		11/9/2017		11/9/2023				13,667				14,090				13,804				5.4	%
RPL Bidco Limited (Delayed Draw) (f) (g) (h) (l) (o)		L+ 7.50%		8.29	%		5/22/2018		11/9/2023				2,031				—				—				0.0	%
RPL Bidco Limited (Revolver) (f) (h) (l) (o)		L+ 7.50%		8.29	%		11/9/2017		11/9/2023				508				—				—				0.0	%
WillowTree, LLC		L+ 5.50%		7.90	%		10/9/2018		10/9/2023				7,940				7,817				7,976				3.1	%
WillowTree, LLC (Revolver) (f)		L+ 5.50%		7.90	%		10/9/2018		10/9/2023				1,000				920				920				0.4	%
													64,240				58,244				58,607				22.9	%

 

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Hotels, Gaming & Leisure
TRG, LLC		L+ 13.63%		9.94% Cash/ 6.13% PIK	(p)		12/23/2014		2/14/2020				17,096			$	17,069			$	18,617				7.2	%
TRG, LLC (CapEx)		L+ 9.50%		9.94% Cash/ 2.00% PIK			9/1/2015		2/14/2020				1,364				1,362				1,486				0.6	%
TRG, LLC (Revolver) (f)		L+ 9.50%		11.94	%		12/23/2014		2/14/2020				262				131				143				0.1	%
													18,722				18,562				20,246				7.9	%
Media: Advertising, Printing & Publishing
AdTheorent, Inc.		L+ 8.50%		10.94	%		12/22/2016		12/22/2021				3,523				3,484				3,519				1.4	%
Destination Media, Inc. (k)		L+ 5.50%		7.90	%		4/7/2017		4/7/2022				5,024				4,979				5,070				2.0	%
Destination Media, Inc. (Revolver) (f)		L+ 5.50%		7.90	%		4/7/2017		4/7/2022				542				—				—				0.0	%
MC Sign Lessor Corp.		L+ 7.00%		9.44	%		12/22/2017		12/22/2022				9,134				8,997				9,225				3.6	%
MC Sign Lessor Corp.		L+ 7.00%		9.44	%		12/22/2017		12/22/2022				2,078				2,078				2,099				0.8	%
MC Sign Lessor Corp. (Revolver)		L+ 7.00%		9.40	%		12/22/2017		12/22/2022				625				625				625				0.2	%
													20,926				20,163				20,538				8.0	%
Media: Broadcasting & Subscription
Vice Group Holding Inc.		L+ 12.00%		6.62% Cash/ 8.00% PIK			5/2/2019		11/2/2022				1,200				1,188				1,193				0.5	%
Vice Group Holding Inc. (Delayed Draw) (f) (g)		L+ 9.00%		11.62	%		5/2/2019		11/2/2022				400				—				—				0.0	%
Vice Group Holding Inc. (Delayed Draw) (f) (g)		L+ 9.00%		11.62	%		5/2/2019		11/2/2022				400				—				—				0.0	%
													2,000				1,188				1,193				0.5	%
Media: Diversified & Production
Attom Intermediate Holdco, LLC		L+ 5.75%		8.15	%		1/4/2019		1/4/2024				1,990				1,954				1,987				0.8	%
Attom Intermediate Holdco, LLC (Revolver) (f)		L+ 5.75%		8.15	%		1/4/2019		1/4/2024				320				—				—				0.0	%
Crownpeak Technology, Inc.		L+ 6.25%		8.69	%		2/28/2019		2/28/2024				4,000				3,925				4,012				1.5	%
Crownpeak Technology, Inc. (Delayed Draw) (f) (g)		L+ 6.25%		8.69	%		2/28/2019		2/28/2024				333				—				—				0.0	%
Crownpeak Technology, Inc. (Revolver) (f)		L+ 6.25%		8.69	%		2/28/2019		2/28/2024				167				—				—				0.0	%
													6,810				5,879				5,999				2.3	%
Retail
Bluestem Brands, Inc.		L+ 7.50%		9.90	%		6/26/2015		11/6/2020				2,355				2,348				1,796				0.7	%
Forman Mills, Inc. (k)		L+ 9.50%		9.90% Cash/ 2.00% PIK			10/4/2016		10/4/2021				8,256				8,171				7,859				3.1	%
LuLu's Fashion Lounge, LLC		L+ 9.00%		11.40	%		8/21/2017		8/29/2022				4,344				4,254				4,294				1.7	%
The Worth Collection, Ltd. (k)		L+ 8.50%		6.65% Cash/ 4.25% PIK			9/29/2016		9/29/2021				10,588				10,480				7,379				2.9	%
Yandy Holding, LLC		L+ 11.00%		13.40	%		9/30/2014		9/30/2019				3,643				3,640				3,635				1.4	%
Yandy Holding, LLC (Revolver) (f)		L+ 11.00%		13.40	%		9/30/2014		9/30/2019				907				—				—				0.0	%
													30,093				28,893				24,963				9.8	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Services: Business
APCO Worldwide, Inc.		L+ 8.00%		10.40	%		6/30/2017		6/30/2022				4,750			$	4,687			$	4,691				1.8	%
Arcserve (USA) LLC		L+ 6.00%		8.52	%		5/1/2019		5/1/2024				5,000				4,902				5,000				2.0	%
Arcserve (USA) LLC (Revolver) (f)		L+ 6.00%		8.52	%		5/1/2019		5/1/2024				641				—				—				0.0	%
Atlas Sign Industries of FLA, LLC (k)		L+ 11.50%		12.90% Cash/ 1.00% PIK			5/14/2018		5/15/2023				3,509				3,314				3,353				1.3	%
Burroughs, Inc. (k)		L+ 8.50%		9.94% Cash/ 1.00% PIK			12/22/2017		12/22/2022				5,813				5,749				5,746				2.2	%
Burroughs, Inc. (Revolver)		L+ 8.50%		9.94% Cash/ 1.00% PIK			12/22/2017		12/22/2022				1,215				1,125				1,125				0.4	%
Certify, Inc.		L+ 5.75%		8.15	%		2/28/2019		2/28/2024				9,000				8,872				8,924				3.5	%
Certify, Inc. (Delayed Draw) (f) (g)		L+ 5.75%		8.15	%		2/28/2019		2/28/2024				1,227				205				203				0.1	%
Certify, Inc. (Revolver) (f)		L+ 5.75%		8.15	%		2/28/2019		2/28/2024				409				—				—				0.0	%
First Call Resolution, LLC (k)		L+ 7.00%		9.44	%		9/22/2017		9/22/2022				3,733				3,688				3,771				1.5	%
First Call Resolution, LLC		L+ 7.00%		9.44	%		9/28/2018		9/22/2022				9,077				8,952				9,167				3.6	%
HaystackID LLC		L+ 6.50%		8.90	%		1/14/2019		1/12/2024				4,975				4,884				4,965				1.9	%
HaystackID LLC (Revolver) (f)		L+ 6.50%		8.90	%		1/14/2019		1/12/2024				403				161				161				0.1	%
IT Global Holding LLC		L+ 7.00%		9.40	%		11/15/2018		11/10/2023				10,369				10,182				10,400				4.0	%
IT Global Holding LLC (Revolver) (f)		L+ 7.00%		9.40	%		11/15/2018		11/10/2023				875				263				263				0.1	%
Kaseya Traverse, Inc.		L+ 6.50%		7.94% Cash/ 1.00% PIK			5/3/2019		5/2/2025				6,005				5,887				6,038				2.4	%
Kaseya Traverse, Inc. (Delayed Draw) (f) (g)		L+ 5.50%		7.94	%		5/3/2019		5/2/2025				723				—				—				0.0	%
Kaseya Traverse, Inc. (Revolver) (f)		L+ 6.50%		8.94	%		5/3/2019		5/2/2025				506				—				—				0.0	%
Madison Logic, Inc. (k)		L+ 8.00%		10.40	%		11/30/2016		11/30/2021				9,741				9,634				9,741				3.8	%
Madison Logic, Inc. (Revolver) (f)		L+ 8.00%		10.40	%		11/30/2016		11/30/2021				988				—				—				0.0	%
RedZone Robotics, Inc.		L+ 7.75%		9.15% Cash/ 1.00% PIK			6/1/2018		6/5/2023				755				743				679				0.3	%
RedZone Robotics, Inc. (Revolver) (f) (g)		L+ 6.75%		9.15	%		6/1/2018		6/5/2023				158				—				—				0.0	%
Security Services Acquisition Sub Corp.(k)		L+ 6.00%		8.39	%		2/15/2019		2/15/2024				3,491				3,427				3,486				1.4	%
Security Services Acquisition Sub Corp. (Delayed Draw) (f) (g) (k)		L+ 6.00%		8.39	%		2/15/2019		2/15/2024				2,500				—				—				0.0	%
Security Services Acquisition Sub Corp. (Delayed Draw) (f) (g) (k)		L+ 6.00%		8.39	%		2/15/2019		2/15/2024				2,188				—				—				0.0	%
Security Services Acquisition Sub Corp. (Revolver) (f)		L+ 6.00%		8.39	%		2/15/2019		2/15/2024				1,042				—				—				0.0	%
TRP Construction Group, LLC (k)		L+ 7.00%		9.40	%		10/5/2017		10/5/2022				7,863				7,752				7,819				3.1	%
TRP Construction Group, LLC		L+ 7.00%		9.40	%		9/5/2018		10/5/2022				6,741				6,741				6,704				2.6	%
TRP Construction Group, LLC (Revolver) (f)		L+ 7.00%		9.40	%		10/5/2017		10/5/2022				2,133				—				—				0.0	%
VPS Holdings, LLC		L+ 7.00%		9.40	%		10/5/2018		10/4/2024				4,938				4,847				4,977				1.9	%
VPS Holdings, LLC		L+ 7.00%		9.40	%		10/5/2018		10/4/2024				4,000				4,000				4,032				1.6	%
VPS Holdings, LLC (Revolver) (f)		L+ 7.00%		9.40	%		10/5/2018		10/4/2024				1,000				100				100				0.0	%
													115,768				100,115				101,345				39.6	%
Services: Consumer
Mammoth Holdings, LLC		L+ 6.00%		8.59	%		10/16/2018		10/16/2023				1,990				1,956				1,983				0.8	%
Mammoth Holdings, LLC (Delayed Draw) (f) (g)		L+ 6.00%		8.55	%		10/16/2018		10/16/2023				4,167				2,827				2,817				1.1	%
Mammoth Holdings, LLC (Revolver) (f)		L+ 6.00%		8.59	%		10/16/2018		10/16/2023				500				—				—				0.0	%
PeopleConnect Intermediate, LLC		L+ 6.50%		9.10	%		7/1/2015		7/1/2020				4,168				4,146				4,159				1.6	%
PeopleConnect Intermediate, LLC		L+ 12.50%		15.10	%		7/1/2015		7/1/2020				4,584				4,558				4,567				1.8	%
PeopleConnect Intermediate, LLC (Revolver) (f)		L+ 9.50%		12.10	%		7/1/2015		7/1/2020				236				118				118				0.0	%
													15,645				13,605				13,644				5.3	%
Wholesale
Mid-West Wholesale Hardware Co. (q)		L+ 8.00%		10.40	%		2/9/2017		2/9/2022				19,472				19,214				19,443				7.6	%
Mid-West Wholesale Hardware Co. (Revolver) (f)		L+ 8.00%		10.40	%		2/9/2017		2/9/2022				5,491				3,844				3,838				1.5	%
Nearly Natural, Inc. (k)		L+ 7.00%		9.33	%		12/15/2017		12/15/2022				6,895				6,794				6,854				2.7	%
Nearly Natural, Inc. (Revolver) (f)		L+ 7.00%		9.33	%		12/15/2017		12/15/2022				1,522				457				457				0.2	%
													33,380				30,309				30,592				12.0	%
Total Non-Controlled/Non-Affiliate Senior Secured Loans													501,558				446,220				444,789				173.8	%
Unitranche Secured Loans (r)
Chemicals, Plastics & Rubber
MFG Chemical, LLC (k)		L+ 6.00%		8.40	%		6/23/2017		6/23/2022				10,477				10,373				10,257				4.0	%
MFG Chemical, LLC		L+ 6.00%		8.40	%		3/15/2018		6/23/2022				1,126				1,126				1,103				0.4	%
													11,603				11,499				11,360				4.4	%
Construction & Building
Inland Pipe Rehabilitation LLC		L+ 5.50%		7.83	%		12/27/2018		12/26/2024				12,438				12,202				12,487				4.9	%
													12,438				12,202				12,487				4.9	%
Consumer Goods: Durable
RugsUSA, LLC		L+ 6.00%		8.33	%		5/2/2018		4/28/2023				4,000				3,969				4,008				1.6	%
													4,000				3,969				4,008				1.6	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Healthcare & Pharmaceuticals
Collaborative Neuroscience Network, LLC		L+ 11.50%		13.90	%		12/27/2012		n/a	(m)			6,120			$	6,108			$	6,096				2.4	%
Collaborative Neuroscience Network, LLC		n/a		12.00% Cash/ 3.00% PIK			4/14/2016		n/a	(m)			308				308				308				0.1	%
Collaborative Neuroscience Network, LLC (Revolver)		L+ 10.00%		12.40	%		5/25/2017		n/a	(m)			200				193				200				0.1	%
Priority Ambulance, LLC (s)		L+ 6.50%		8.83	%		7/18/2019		4/12/2022				10,015				10,015				10,000				3.9	%
Priority Ambulance, LLC (t)		L+ 6.50%		8.83	%		4/12/2017		4/12/2022				1,253				1,230				1,251				0.5	%
Priority Ambulance, LLC (Delayed Draw) (f) (g)		L+ 6.50%		8.83	%		7/18/2019		4/12/2022				246				—				—				0.0	%
Priority Ambulance, LLC (Delayed Draw) (f) (g)		L+ 6.50%		8.83	%		12/13/2018		4/12/2022				2,482				693				692				0.3	%
													20,624				18,547				18,547				7.3	%
High Tech Industries
Energy Services Group, LLC		L+ 8.42%		10.82	%		5/4/2017		5/4/2022				4,281				4,244				4,275				1.6	%
Energy Services Group, LLC (h) (o)		L+ 8.42%		9.42	%		5/4/2017		5/4/2022				4,896				5,061				4,896				1.9	%
Energy Services Group, LLC		L+ 8.42%		10.82	%		5/4/2017		5/4/2022				1,219				1,204				1,217				0.5	%
Mnine Holdings, Inc.		L+ 6.75%		9.16	%		11/2/2018		11/2/2023				7,960				7,817				7,861				3.1	%
													18,356				18,326				18,249				7.1	%
Total Non-Controlled/Non-Affiliate Unitranche Secured Loans													67,021				64,543				64,651				25.3	%
Junior Secured Loans
Beverage, Food & Tobacco
CSM Bakery Supplies, LLC		L+ 7.75%		10.34	%		5/23/2013		7/5/2021				5,792				5,792				5,392				2.1	%
													5,792				5,792				5,392				2.1	%
High Tech Industries
Micro Holdings Corp.		L+ 7.50%		9.90	%		8/16/2017		8/18/2025				3,000				2,973				3,015				1.2	%
													3,000				2,973				3,015				1.2	%
Media: Broadcasting & Subscription
Mergermarket Bidco Limited		L+ 7.25%		9.64	%		7/26/2017		8/4/2025				4,500				4,459				4,483				1.7	%
													4,500				4,459				4,483				1.7	%
Media: Diversified & Production
The Octave Music Group, Inc.		L+ 8.25%		10.68	%		5/29/2015		5/27/2022				4,355				4,322				4,355				1.7	%
													4,355				4,322				4,355				1.7	%
Services: Consumer
Education Corporation of America		L+ 11.00%		7.83% Cash/ 5.50% PIK	(n)		9/3/2015		3/31/2020				833				831				813				0.3	%
													833				831				813				0.3	%
Total Non-Controlled/Non-Affiliate Junior Secured Loans													18,480				18,377				18,058				7.0	%
Equity Securities  (u) (v)
Banking, Finance, Insurance & Real Estate
PKS Holdings, LLC (warrant to purchase up to 0.8% of the equity) (h)		—		—	(w)		11/30/2017		11/30/2027				—				116				—				0.0	%
																	116				—				0.0	%
Chemicals, Plastics & Rubber
Valudor Products, LLC (501,014 class A-1 units)		n/a		10.00% PIK			6/18/2018		—				—				501				351				0.1	%
																	501				351				0.1	%
Healthcare & Pharmaceuticals
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.5% of the equity)		—		—	(w)		12/27/2012		12/27/2022				—				—				234				0.1	%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 2.1% of the equity)		—		—	(w)		7/19/2016		12/31/2027				—				—				—				0.0	%
																	—				234				0.1	%
High Tech Industries
Answers Finance, LLC (76,539 shares of common stock)		—		—	(w)		4/14/2017		—				—				2,413				126				0.1	%
Host Analytics, Inc. (441,860 class A Units)		—		—	(w)		12/28/2018		—				—				442				543				0.2	%
																	2,855				669				0.3	%
Hotels, Gaming & Leisure
Playtime, LLC - Preferred Units (8,665 units)		—		—	(w)		12/4/2012		—				—				200				—				0.0	%
																	200				—				0.0	%
Media: Advertising, Printing & Publishing
AdTheorent, Inc. (128,866 class A voting units)		—		—	(w)		12/22/2016		—				—				129				332				0.1	%
InMobi Pte, Ltd. (warrant to purchase up to 2.8% of the equity) (h) (l)		—		—	(w)		9/18/2015		9/18/2025				—				—				209				0.1	%
																	129				541				0.2	%
Media: Diversified & Production
Attom Intermediate Holdco, LLC (260,000 class A units)		—		—	(w)		1/4/2019		—				—				260				257				0.1	%
																	260				257				0.1	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Retail
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)		—		—			6/25/2013		—				—			$	87			$	110				0.0	%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units)		—		—			6/25/2013		—				—				—				—				0.0	%
																	87				110				0.0	%
Services: Business
APCO Worldwide, Inc. (100 class A voting common stock)		—		—	(w)		11/1/2017		—				—				395				311				0.1	%
Atlas Sign Industries of FLA, LLC (warrants to purchase up to 0.8% of the equity)		—		—	(w)		5/14/2018		5/14/2026				—				125				86				0.1	%
																	520				397				0.2	%
Services: Consumer
Education Corporation of America - Series G Preferred Stock (8,333 shares)		n/a		12.00% PIK	(n)		9/3/2015		—				—				7,492				3,571				1.4	%
																	7,492				3,571				1.4	%
Wholesale
Nearly Natural, Inc. (152,174 class A units)		—		—	(w)		12/15/2017		—				—				152				151				0.1	%
																	152				151				0.1	%
Total Non-Controlled/Non-Affiliate Equity Securities																	12,312				6,281				2.5	%
Total Non-Controlled/Non-Affiliate Company Investments																$	541,452			$	533,779				208.6	%
Non-Controlled Affiliate Company Investments (x)
Senior Secured Loans
Banking, Finance, Insurance & Real Estate
American Community Homes, Inc.		L+ 10.00%		12.40% PIK			7/22/2014		12/31/2020				8,302			$	8,290			$	6,202				2.4	%
American Community Homes, Inc.		L+ 14.50%		16.90% PIK			7/22/2014		12/31/2020				5,145				5,140				3,844				1.5	%
American Community Homes, Inc.		L+ 10.00%		12.40% PIK			3/17/2016		12/31/2020				628				627				469				0.2	%
American Community Homes, Inc.		L+ 10.00%		12.40% PIK			5/24/2017		12/31/2020				503				501				376				0.2	%
American Community Homes, Inc.		L+ 14.50%		16.90% PIK			5/24/2017		12/31/2020				277				276				207				0.1	%
American Community Homes, Inc.		L+ 8.00%		10.40% PIK			8/10/2018		12/31/2020				1,825				1,825				1,363				0.5	%
American Community Homes, Inc.		L+ 8.00%		10.40% PIK			3/29/2019		12/31/2020				3,422				3,422				2,557				1.0	%
													20,102				20,081				15,018				5.9	%
Containers, Packaging & Glass
Summit Container Corporation (k)		L+ 8.00%		10.40	%		12/5/2013		1/6/2021				3,259				3,269				3,026				1.2	%
Summit Container Corporation (Revolver) (f) (k)		L+ 8.00%		10.40	%		6/15/2018		1/6/2021				8,000				5,369				5,305				2.0	%
													11,259				8,638				8,331				3.2	%
Healthcare & Pharmaceuticals
SHI Holdings, Inc. (k)		L+ 10.25%		12.65% PIK			7/10/2014		12/31/2020				2,723				2,721				2,680				1.1	%
SHI Holdings, Inc. (Revolver) (f)		L+ 10.25%		12.65% PIK			7/10/2014		12/31/2020				4,413				3,656				3,608				1.4	%
													7,136				6,377				6,288				2.5	%
Retail
Luxury Optical Holdings Co.		L+ 8.00%		10.40% PIK			9/12/2014		9/12/2019				4,953				4,949				4,346				1.7	%
Luxury Optical Holdings Co. (Delayed Draw) (f) (g)		L+ 11.50%		13.90	%		9/29/2017		9/12/2019				1,059				624				623				0.2	%
Luxury Optical Holdings Co. (Revolver)		L+ 8.00%		10.40% PIK			9/12/2014		9/12/2019				228				228				200				0.1	%
													6,240				5,801				5,169				2.0	%
Services: Business
Curion Holdings, LLC (k)		n/a		14.00% PIK			5/2/2017		5/2/2022				4,226				4,189				3,602				1.4	%
Curion Holdings, LLC (Revolver) (f)		n/a		14.00% PIK			5/2/2017		5/2/2022				478				344				335				0.1	%
													4,704				4,533				3,937				1.5	%
Services: Consumer
New England College of Business and Finance, LLC (Revolver) (f)		L+ 11.00%		13.40	%		6/25/2019		12/31/2019				450				150				150				0.1	%
													450				150				150				0.1	%
Total Non-Controlled Affiliate Senior Secured Loans													49,891				45,580				38,893				15.2	%
Unitranche Secured Loans (r)
Consumer Goods: Non-Durable
Incipio, LLC (y)		L+ 8.72%		10.94% Cash/ 0.22% PIK	(z)		12/26/2014		8/22/2022				13,803				13,777				12,941				5.1	%
Incipio, LLC (aa)		L+ 8.50%		10.94	%		3/9/2018		8/22/2022				3,613				3,613				3,568				1.4	%
Incipio, LLC		L+ 8.50%		10.94	%		7/6/2018		8/22/2022				1,535				1,535				1,530				0.6	%
Incipio, LLC		L+ 8.50%		10.94	%		4/17/2019		8/22/2022				656				656				653				0.2	%
													19,607				19,581				18,692				7.3	%
Total Non-Controlled Affiliate Unitranche Secured Loans													19,607				19,581				18,692				7.3	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate			Acquisition Date (c)		Maturity			Principal				Amortized Cost				Fair Value (d)				% of Net Assets (e)
Junior Secured Loans
Consumer Goods: Non-Durable
Incipio, LLC (ab)		n/a		10.70% PIK	(n)		6/18/2018		8/22/2022				3,766			$	—			$	800				0.3	%
Incipio, LLC (ac)		n/a		10.70% PIK	(n)		6/18/2018		8/22/2022				7,194				—				—				0.0	%
													10,960				—				800				0.3	%
Services: Business
Curion Holdings, LLC (k)		n/a		15.00% PIK	(n)		8/17/2018		1/2/2023				1,720				1				—				0.0	%
Curion Holdings, LLC (k)		n/a		15.00% PIK	(n)		8/17/2018		1/2/2023				44				—				—				0.0	%
													1,764				1				—				0.0	%
Total Non-Controlled Affiliate Company Junior Secured Loans													12,724				1				800				0.3	%
Equity Securities (v) (x)
Banking, Finance, Insurance & Real Estate
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)		—		—	(w)		10/9/2014		12/18/2024				—				—				—				0.0	%
																	—				—				0.0	%
Consumer Goods: Non-Durable
Incipio, LLC (1,774 shares of series C common units)		—		—	(w)		7/6/2018		—				—				—				—				0.0	%
Millennial Brands LLC (10 preferred units)		—		—	(w)		5/2/2014		—				—				967				—				0.0	%
Millennial Brands LLC (75,502 common units)		—		—	(w)		5/2/2014		—				—				—				—				0.0	%
																	967				—				0.0	%
Containers, Packaging & Glass
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)		—		—	(w)		1/6/2014		1/6/2024				—				—				—				0.0	%
																	—				—				0.0	%
Healthcare & Pharmaceuticals
SHI Holdings, Inc. (24 shares of common stock)		—		—	(w)		12/14/2016		—				—				27				102				0.1	%
																	27				102				0.1	%
Retail
Luxury Optical Holdings Co. (86 shares of common stock)		—		—	(w)		9/29/2017		—				—				—				—				0.0	%
																	—				—				0.0	%
Services: Business
Curion Holdings, LLC (58,779 shares of common stock)		—		—	(w)		8/17/2018		—				—				—				—				0.0	%
																	—				—				0.0	%
Services: Consumer
New England College of Business and Finance, LLC (20.8% of units)		—		—	(w)		6/21/2019		—				—				1,458				2,594				1.0	%
																	1,458				2,594				1.0	%
Total Non-Controlled Affiliate Equity Securities																	2,452				2,696				1.1	%
Total Non-Controlled Affiliate Company Investments																$	67,614			$	61,081				23.9	%
Controlled Affiliate Company Investments (ad)
Equity Securities
Investment Funds & Vehicles
MRCC Senior Loan Fund I, LLC (50.0% of the equity interests) (h)		—		—			10/31/2017		—				—			$	35,075			$	35,944				14.0	%
Total Controlled Affiliate Equity Securities																	35,075				35,944				14.0	%
Total Controlled Affiliate Company Investments																$	35,075			$	35,944				14.0	%
TOTAL INVESTMENTS																$	644,141			$	630,804				246.5	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

Derivative Instruments

 

Foreign currency forward contracts

 

		Notional Amount				Notional Amount								Unrealized Gain
Description		to be Purchased				to be Sold				Counterparty		Settlement Date		(Loss)
Foreign currency forward contract		$	53			£	41			Bannockburn Global Forex, LLC		7/1/2019		$	1
Foreign currency forward contract		$	294			£	230			Bannockburn Global Forex, LLC		8/30/2019			3
Foreign currency forward contract		$	134			£	105			Bannockburn Global Forex, LLC		10/1/2019			1
Foreign currency forward contract		$	295			£	230			Bannockburn Global Forex, LLC		11/29/2019			3
Foreign currency forward contract		$	133			£	104			Bannockburn Global Forex, LLC		1/2/2020			1
Foreign currency forward contract		$	296			£	231			Bannockburn Global Forex, LLC		2/28/2020			3
Foreign currency forward contract		$	132			£	103			Bannockburn Global Forex, LLC		4/1/2020			1
Foreign currency forward contract		$	130			£	102			Bannockburn Global Forex, LLC		5/5/2020			1
Foreign currency forward contract		$	296			£	230			Bannockburn Global Forex, LLC		5/29/2020			3
Foreign currency forward contract		$	295			£	230			Bannockburn Global Forex, LLC		8/28/2020			3
Foreign currency forward contract		$	294			£	229			Bannockburn Global Forex, LLC		11/30/2020			3
														$	23

 

(a)

All of our investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of our investments are issued by U.S. portfolio companies unless otherwise noted.

(b)

The majority of the investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at June 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor, or rate cap.

(c)

Except as otherwise noted, all of the Company’s portfolio company investments, which as of June 30, 2019 represented 246.5% of the Company’s net assets or 94.4% of the Company’s total assets, are subject to legal restrictions on sales.

(d)

Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith using significant unobservable inputs 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.)

(e)

Percentages are based on net assets of $255,888 as of June 30, 2019.

(f)

All or a portion of this commitment was unfunded at June 30, 2019. As such, interest is earned only on the funded portion of this commitment.

(g)

This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.

(h)

This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of June 30, 2019, non-qualifying assets totaled 16.7% of the Company’s total assets.

(i)

The PIK portion of the interest rate for HFZ Capital Group, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.17% per annum.

(j)

This investment represents a note convertible to preferred shares of the borrower.

(k)

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.

(l)

This is an international company.

(m)

This is a demand note with no stated maturity.

(n)

This position was on non-accrual status as of June 30, 2019, meaning that the Company has ceased accruing interest income on the position. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s accounting policies.

(o)

This loan is denominated in Great Britain pounds and is translated into U.S. dollars as of the valuation date.

(p)

A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 4.13% per annum.

(q)

A portion of this loan (principal of $17,218) 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.

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

June 30, 2019

(in thousands, except for shares and units)

 

(r)

The Company structures its unitranche secured loans as senior secured loans. The Company obtains security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of a portfolio company. Generally, the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan, in which case the “first out” portion of the loan will generally receive priority with respect to payments of principal, interest and any other amounts due thereunder. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and the Company’s unitranche secured loans will expose the Company to the risks associated with second lien and subordinated loans and may limit the Company’s recourse or ability to recover collateral upon a portfolio company’s bankruptcy. Unitranche secured loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Unitranche secured loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases the Company, together with its affiliates, are the sole or majority lender of these unitranche secured loans, which can afford the Company additional influence with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.

(s)

A portion of this loan (principal of $9,258) 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.

(t)

A portion of this loan (principal of $525) 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.

(u)

Represents less than 5% ownership of the portfolio company’s voting securities.

(v)

Ownership of certain equity investments may occur through a holding company or partnership.

(w)

Represents a non-income producing security.

(x)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of the portfolio company as it owns 5% 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).

(y)

A portion of this loan (principal of $5,061) 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.

(z)

The PIK portion of the interest rate for Incipio Technologies, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.22% per annum.

(aa)

A portion of this loan (principal of $46) 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.

(ab)

A portion of this loan (principal of $1,015) 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.

(ac)

A portion of this loan (principal of $1,938) 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.

(ad)

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 more than 25% in 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 both an Affiliated Person and a portfolio company that the Company is deemed to Control.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

 

MONROE CAPITAL CORPORATION 

 

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Automotive
Hastings Manufacturing Company		L+8.25%			10.76	%		4/24/2023			2,944			$	2,891			$	2,883				1.1	%
Hastings Manufacturing Company (Delayed Draw) (e) (f)		L+8.25%			10.76	%		4/24/2023			899				—				—				0.0	%
Magneto & Diesel Acquisition, Inc.		L+5.50%			8.01	%		12/18/2023			5,000				4,913				4,913				1.9	%
Magneto & Diesel Acquisition, Inc. (Revolver) (e)		L+5.50%			8.01	%		12/18/2023			500				83				82				0.0	%
											9,343				7,887				7,878				3.0	%
Banking, Finance, Insurance & Real Estate
Echelon Funding I, LLC (Delayed Draw) (e) (f) (g)		L+7.50%			9.85	%		2/24/2021			15,750				15,253				15,146				5.9	%
HFZ Capital Group, LLC (g)		L+10.17%			12.39% Cash/ 0.17% PIK	(h)		10/21/2019			18,000				17,819				18,009				7.0	%
HFZ Member RB Portfolio LLC (Delayed Draw) (e) (f) (g)		L+12.00%			14.54	%		10/29/2021			9,000				3,708				3,706				1.4	%
Liftforward SPV II, LLC (e) (g)		L+10.75%			13.27	%		11/10/2020			10,000				4,088				4,132				1.6	%
PKS Holdings, LLC (g)		L+10.00%			12.35	%		11/30/2022			1,755				1,605				1,675				0.6	%
PKS Holdings, LLC (Revolver) (e) (g)		L+10.00%			12.35	%		11/30/2022			80				—				—				0.0	%
											54,585				42,473				42,668				16.5	%
Beverage, Food & Tobacco
California Pizza Kitchen, Inc.		L+6.00%			8.53	%		8/23/2022			6,843				6,793				6,654				2.6	%
Toojay's Management LLC		L+5.50%			8.01	%		10/26/2022			3,500				3,433				3,497				1.4	%
Toojay's Management LLC (Delayed Draw) (e) (f)		L+5.50%			8.01	%		10/26/2022			477				—				—				0.0	%
Toojay's Management LLC (Revolver) (e)		L+5.50%			8.01	%		10/26/2022			159				79				79				0.0	%
											10,979				10,305				10,230				4.0	%
Chemicals, Plastics & Rubber
Midwest Composite Technologies, LLC		L+6.75%			9.26	%		8/31/2023			898				881				907				0.4	%
Midwest Composite Technologies, LLC (Delayed Draw) (e) (f)		L+6.75%			9.26	%		8/31/2023			600				—				—				0.0	%
Midwest Composite Technologies, LLC (Revolver) (e)		L+6.75%			9.26	%		8/31/2023			90				—				—				0.0	%
Valudor Products LLC		L+7.50%			10.01	%		6/19/2023			1,604				1,575				1,600				0.6	%
Valudor Products LLC (i)		L+7.50%			10.01	%		6/19/2023			211				205				210				0.1	%
Valudor Products LLC (Revolver) (e)		L+9.50%			12.01	%		6/19/2023			818				606				607				0.2	%
											4,221				3,267				3,324				1.3	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Construction & Building
Cali Bamboo, LLC		L+6.25%			8.76	%		7/10/2020			5,264			$	5,231			$	5,264				2.0	%
Cali Bamboo, LLC (Revolver) (e)		L+6.25%			8.76	%		7/10/2020			2,165				1,689				1,689				0.7	%
Construction Supply Acquisition, LLC		L+6.00%			8.62	%		6/30/2023			4,791				4,767				4,779				1.8	%
Cornerstone Detention Products, Inc. (j)		L+11.83%			11.01% Cash/ 3.33% PIK	(k)		4/8/2019			3,350				3,346				3,350				1.3	%
Cornerstone Detention Products, Inc. (Revolver) (e)		L+8.50%			11.01	%		4/8/2019			1,000				200				200				0.1	%
Inland Pipe Rehabilitation LLC		L+5.50%			8.29	%		12/26/2024			12,500				12,251				12,250				4.7	%
Inland Pipe Rehabilitation LLC (Revolver) (e)		L+5.50%			7.87	%		12/26/2024			4,118				2,305				2,259				0.9	%
											33,188				29,789				29,791				11.5	%
Consumer Goods: Durable
Nova Wildcat Amerock, LLC		L+5.75%			8.26	%		10/12/2023			9,500				9,317				9,372				3.6	%
Nova Wildcat Amerock, LLC (Revolver) (e)		L+5.75%			8.26	%		10/12/2023			931				292				288				0.1	%
Parterre Flooring & Surface Systems, LLC (l)		L+7.25%			9.76	%		8/22/2022			11,250				11,076				10,879				4.2	%
Parterre Flooring & Surface Systems, LLC (Revolver)  (e)		L+7.25%			9.76	%		8/22/2022			2,400				696				671				0.3	%
											24,081				21,381				21,210				8.2	%
Energy: Oil & Gas
Landpoint, LLC		L+12.75%			13.01% Cash/ 2.25% PIK	(m)		12/20/2019			2,256				2,253				2,244				0.9	%
Landpoint, LLC (Revolver) (e)		L+10.50%			13.01	%		12/20/2019			313				274				272				0.1	%
											2,569				2,527				2,516				1.0	%
Environmental Industries
StormTrap, LLC		L+5.50%			8.01	%		12/8/2023			8,000				7,861				7,860				3.0	%
StormTrap, LLC (Revolver) (e)		L+5.50%			8.01	%		12/8/2023			432				—				—				0.0	%
Synergy Environmental Corporation (l)		L+6.50%			9.01	%		4/29/2021			2,932				2,893				2,919				1.1	%
Synergy Environmental Corporation (l)		L+6.50%			9.01	%		4/29/2021			490				484				488				0.2	%
Synergy Environmental Corporation (Delayed Draw) (e) (f)		L+6.50%			9.01	%		4/29/2021			1,320				837				834				0.3	%
Synergy Environmental Corporation (Revolver) (e)		L+6.50%			9.01	%		4/29/2021			671				94				94				0.0	%
											13,845				12,169				12,195				4.6	%
Healthcare & Pharmaceuticals
American Optics Holdco, Inc. (g) (n)		L+8.00%			10.51	%		9/13/2022			4,076				4,012				4,127				1.6	%
American Optics Holdco, Inc. (g) (n)		L+8.00%			10.51	%		9/13/2022			750				738				759				0.3	%
American Optics Holdco, Inc. (Revolver) (e) (g) (n)		L+8.00%			10.51	%		9/13/2022			440				242				242				0.1	%
American Optics Holdco, Inc. (Revolver) (e) (g) (n)		L+8.00%			10.51	%		9/13/2022			440				165				165				0.1	%
Familia Dental Group Holdings, LLC (l)		L+8.00%			10.51	%		4/8/2021			5,053				5,011				5,083				2.0	%
Familia Dental Group Holdings, LLC		L+8.00%			10.51	%		4/8/2021			486				486				489				0.2	%
Familia Dental Group Holdings, LLC (Revolver) (e)		L+8.00%			10.51	%		4/8/2021			573				229				229				0.1	%
Rockdale Blackhawk, LLC (DIP Facility)		n/a			15.10	%		n/a	(o)		226				226				226				0.1	%
Rockdale Blackhawk, LLC (DIP Facility)		n/a			15.10	%		n/a	(o)		8,877				8,877				8,877				3.4	%
Rockdale Blackhawk, LLC		L+13.00%			15.51	%(p)		3/31/2020			10,923				10,465				8,667				3.3	%
											31,844				30,451				28,864				11.2	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
High Tech Industries
Corbett Technology Solutions, Inc. (l)		L+7.00%			9.51	%		11/8/2021			4,917			$	4,868			$	4,956				1.9	%
Corbett Technology Solutions, Inc. (Revolver) (e)		L+7.00%			9.51	%		11/8/2021			867				—				—				0.0	%
Energy Services Group, LLC		L+8.42%			10.94	%		5/4/2022			4,393				4,349				4,404				1.7	%
Energy Services Group, LLC (g) (q)		L+8.42%			9.42	%		5/4/2022			5,046				5,186				5,033				1.9	%
Energy Services Group, LLC		L+8.42%			10.94	%		5/4/2022			1,250				1,235				1,253				0.5	%
Host Analytics, Inc.		L+6.00%			8.51	%		12/28/2023			9,500				9,310				9,310				3.6	%
Host Analytics, Inc. (Revolver) (e)		L+6.00%			8.51	%		12/28/2023			442				—				—				0.0	%
Newforma, Inc. (l)		L+5.50%			8.31	%		6/30/2022			14,813				14,649				14,961				5.8	%
Newforma, Inc. (Revolver) (e)		L+5.50%			8.31	%		6/30/2022			1,250				—				—				0.0	%
Prototek Sheetmetal Fabrication, LLC		L+7.00%			9.51	%		12/12/2022			3,465				3,408				3,451				1.3	%
Prototek Sheetmetal Fabrication, LLC (Delayed Draw) (e) (f)		L+7.00%			9.51	%		12/12/2022			2,329				813				809				0.3	%
Prototek Sheetmetal Fabrication, LLC (Revolver) (e)		L+7.00%			9.51	%		12/12/2022			233				—				—				0.0	%
RPL Bidco Limited  (g) (n) (q)		L+7.50%			8.39	%		11/9/2023			13,774				14,122				13,912				5.4	%
RPL Bidco Limited (Delayed Draw) (e) (f) (g) (n) (q)		L+7.50%			8.39	%		11/9/2023			2,041				—				—				0.0	%
RPL Bidco Limited (Revolver) (e) (g) (n) (q)		L+7.50%			8.39	%		11/9/2023			510				—				—				0.0	%
WillowTree, LLC		L+5.50%			8.01	%		10/9/2023			7,980				7,846				7,972				3.1	%
WillowTree, LLC (Revolver) (e)		L+5.50%			8.01	%		10/9/2023			1,000				480				479				0.2	%
											73,810				66,266				66,540				25.7	%
Hotels, Gaming & Leisure
TRG, LLC		L+12.79%			9.85% Cash/ 5.29% PIK	(r)		3/31/2021			17,144				17,086				18,636				7.2	%
TRG, LLC (CapEx)		L+9.50%			9.85% Cash/ 2.00% PIK			3/31/2021			1,367				1,363				1,486				0.6	%
TRG, LLC (Revolver) (e)		L+9.50%			11.85	%		3/31/2021			262				131				142				0.1	%
											18,773				18,580				20,264				7.9	%
Media: Advertising, Printing & Publishing
AdTheorent, Inc.		L+8.50%			10.85	%		12/22/2021			4,092				4,039				4,098				1.6	%
Destination Media, Inc. (l)		L+6.50%			9.01	%		4/7/2022			7,366				7,289				7,421				2.9	%
Destination Media, Inc. (Revolver) (e)		L+6.50%			9.01	%		4/7/2022			542				—				—				0.0	%
MC Sign Lessor Corp.		L+7.00%			9.35	%		12/22/2022			9,925				9,760				10,024				3.9	%
MC Sign Lessor Corp. (Delayed Draw) (e) (f)		L+7.00%			9.35	%		12/22/2022			2,083				—				—				0.0	%
MC Sign Lessor Corp. (Revolver) (e)		L+7.00%			9.35	%		12/22/2022			625				—				—				0.0	%
											24,633				21,088				21,543				8.4	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Retail
Bluestem Brands, Inc.		L+7.50%			10.03	%		11/6/2020			2,436			$	2,426			$	1,575				0.6	%
Forman Mills, Inc. (l)		L+9.50%			10.01% Cash/ 2.00% PIK			10/4/2021			8,362				8,261				8,149				3.1	%
LuLu's Fashion Lounge, LLC		L+7.00%			9.52	%		8/29/2022			4,531				4,426				4,606				1.8	%
The Worth Collection, Ltd. (l)		L+8.50%			11.01	%		9/29/2021			10,588				10,459				8,639				3.3	%
Yandy Holding, LLC		L+11.00%			13.51	%		9/30/2019			3,643				3,633				3,632				1.4	%
Yandy Holding, LLC (Revolver) (e)		L+11.00%			13.51	%		9/30/2019			907				—				—				0.0	%
											30,467				29,205				26,601				10.2	%
Services: Business
APCO Worldwide, Inc.		L+8.00%			10.51	%		6/30/2022			4,875				4,802				4,790				2.0	%
Atlas Sign Industries of FLA, LLC (l)		L+10.50%			13.01	%		5/15/2023			3,500				3,305				3,336				1.3	%
Burroughs, Inc. (l)		L+7.50%			9.85	%		12/22/2022			5,888				5,814				5,767				2.2	%
Burroughs, Inc. (Revolver) (e)		L+7.50%			9.85	%		12/22/2022			1,215				975				975				0.4	%
First Call Resolution, LLC (l)		L+7.00%			9.35	%		9/22/2022			4,097				4,042				4,101				1.6	%
First Call Resolution, LLC		L+7.00%			9.35	%		9/22/2022			10,000				9,842				10,010				3.8	%
IT Global Holding LLC		L+7.00%			9.51	%		11/10/2023			10,500				10,294				10,421				4.0	%
IT Global Holding LLC (Revolver) (e)		L+7.00%			9.51	%		11/10/2023			875				263				263				0.1	%
Madison Logic, Inc. (l)		L+8.00%			10.51	%		11/30/2021			9,933				9,805				9,933				3.7	%
Madison Logic, Inc. (Revolver) (e)		L+8.00%			10.51	%		11/30/2021			988				—				—				0.0	%
RedZone Robotics, Inc.		L+6.75%			9.26	%		6/5/2023			946				929				868				0.3	%
RedZone Robotics, Inc. (Revolver) (e)		L+6.75%			9.26	%		6/5/2023			158				—				—				0.0	%
TRP Construction Group, LLC (l)		L+6.50%			9.01	%		10/5/2022			7,960				7,834				7,920				3.1	%
TRP Construction Group, LLC (Delayed Draw) (e) (f)		L+6.50%			9.01	%		10/5/2022			7,000				5,684				5,656				2.2	%
TRP Construction Group, LLC (Revolver) (e)		L+6.50%			9.01	%		10/5/2022			2,133				—				—				0.0	%
VPS Holdings, LLC		L+7.00%			9.51	%		10/4/2024			5,000				4,902				4,960				1.9	%
VPS Holdings, LLC (Delayed Draw) (e) (f)		L+7.00%			9.51	%		10/4/2024			4,000				—				—				0.0	%
VPS Holdings, LLC (Revolver) (e)		L+7.00%			9.51	%		10/4/2024			1,000				100				100				0.0	%
											80,068				68,591				69,100				26.6	%
Services: Consumer
Mammoth Holdings, LLC		L+6.00%			8.44	%		10/16/2023			2,000				1,961				1,997				0.8	%
Mammoth Holdings, LLC (Delayed Draw) (e) (f)		L+6.00%			8.44	%		10/16/2023			4,167				—				—				0.0	%
Mammoth Holdings, LLC (Revolver) (e)		L+6.00%			8.44	%		10/16/2023			500				—				—				0.0	%
PeopleConnect Intermediate, LLC		L+6.50%			9.30	%		7/1/2020			4,272				4,239				4,253				1.6	%
PeopleConnect Intermediate, LLC		L+12.50%			15.30	%		7/1/2020			4,636				4,597				4,603				1.8	%
PeopleConnect Intermediate, LLC (Revolver) (e)		L+9.50%			12.30	%		7/1/2020			236				118				118				0.0	%
											15,811				10,915				10,971				4.2	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Wholesale
Mid-West Wholesale Hardware Co. (l)		L+8.00%			10.51	%		2/9/2022			16,402			$	16,173			$	16,312				6.3	%
Mid-West Wholesale Hardware Co. (Revolver) (e)		L+8.00%			10.51	%		2/9/2022			4,421				3,789				3,767				1.5	%
Nearly Natural, Inc. (l)		L+7.00%			9.81	%		12/15/2022			6,930				6,816				6,906				2.7	%
Nearly Natural, Inc. (Revolver) (e)		L+7.00%			9.81	%		12/15/2022			1,522				609				609				0.2	%
											29,275				27,387				27,594				10.7	%
Total Non-Controlled/Non-Affiliate Senior Secured Loans											457,492				402,281				401,289				155.0	%
Unitranche Secured Loans (s)
Chemicals, Plastics & Rubber
MFG Chemical, LLC (l)		L+6.00%			8.51	%		6/23/2022			10,477				10,359				10,319				4.0	%
MFG Chemical, LLC		L+6.00%			8.51	%		6/23/2022			1,132				1,132				1,115				0.4	%
											11,609				11,491				11,434				4.4	%
Consumer Goods: Durable
RugsUSA, LLC		L+6.50%			9.31	%		4/28/2023			4,000				3,964				4,002				1.5	%
											4,000				3,964				4,002				1.5	%
Healthcare & Pharmaceuticals
Collaborative Neuroscience Network, LLC		L+11.50%			14.01	%		n/a	(o)		6,120				6,096				5,894				2.3	%
Collaborative Neuroscience Network, LLC		n/a			12.00% Cash/ 3.00% PIK			n/a	(o)		304				304				304				0.1	%
Collaborative Neuroscience Network, LLC (Revolver)		L+10.00%			12.51	%		n/a	(o)		200				193				200				0.1	%
Priority Ambulance, LLC (t)		L+6.50%			9.31	%		4/12/2022			10,015				10,015				9,905				3.8	%
Priority Ambulance, LLC (u)		L+6.50%			9.31	%		4/12/2022			1,253				1,226				1,240				0.5	%
Priority Ambulance, LLC (Delayed Draw) (e) (f)		L+6.50%			9.31	%		4/12/2022			246				—				—				0.0	%
Priority Ambulance, LLC (Delayed Draw) (e) (f)		L+6.50%			9.31	%		4/12/2022			2,485				—				—				0.0	%
											20,623				17,834				17,543				6.8	%
High Tech Industries
Mnine Holdings, Inc.		L+6.75%			9.31	%		11/2/2023			8,000				7,843				7,952				3.1	%
											8,000				7,843				7,952				3.1	%
Total Non-Controlled/Non-Affiliate Unitranche Secured Loans											44,232				41,132				40,931				15.8	%
Junior Secured Loans
Beverage, Food & Tobacco
CSM Bakery Supplies, LLC		L+7.75%			10.16	%		7/5/2021			5,792				5,792				5,314				2.1	%
											5,792				5,792				5,314				2.1	%
High Tech Industries
Micro Holdings Corp.		L+7.50%			10.00	%		8/18/2025			3,000				2,972				2,805				1.1	%
											3,000				2,972				2,805				1.1	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)			Interest Rate			Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Media: Broadcasting & Subscription
Mergermarket Bidco Limited		L+7.25%			9.76	%		8/4/2025			4,500			$	4,458			$	4,483				1.7	%
											4,500				4,458				4,483				1.7	%
Media: Diversified & Production
The Octave Music Group, Inc.		L+8.25%			10.63	%		5/27/2022			5,000				4,957				5,000				1.9	%
											5,000				4,957				5,000				1.9	%
Services: Consumer
Education Corporation of America		L+11.00%			8.31% Cash/ 5.50% PIK	(p)		3/31/2020			2,292				2,288				2,292				0.9	%
											2,292				2,288				2,292				0.9	%
Total Non-Controlled/Non-Affiliate Junior Secured Loans											20,584				20,467				19,894				7.7	%
Equity Securities  (v) (w)
Banking, Finance, Insurance & Real Estate
PKS Holdings, LLC (warrant to purchase up to 0.8% of the equity) (g)		—			—	(x)		11/30/2027			—				116				18				0.0	%
															116				18				0.0	%
Chemicals, Plastics & Rubber
Valudor Products, LLC (501,014 class A-1 units)		n/a			10.00% PIK			—			—				501				213				0.1	%
															501				213				0.1	%
Healthcare & Pharmaceuticals
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.5% of the equity)		—			—	(x)		12/27/2022			—				—				115				0.0	%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 2.1% of the equity)		—			—	(x)		12/31/2027			—				—				—				0.0	%
															—				115				0.0	%
High Tech Industries
Answers Finance, LLC (76,539 shares of common stock)		—			—	(x)		—			—				2,413				215				0.1	%
Host Analytics, Inc. (441,860 class A Units)		—			—	(x)		—			—				442				442				0.2	%
															2,855				657				0.3	%
Hotels, Gaming & Leisure
Playtime, LLC - Preferred Units (8,665 units)		—			—	(x)		—			—				200				—				0.0	%
															200				—				0.0	%
Media: Advertising, Printing & Publishing
AdTheorent, Inc. (128,866 class A voting units)		—			—	(x)		—			—				129				156				0.1	%
InMobi Pte, Ltd. (warrant to purchase up to 2.8% of the equity) (g) (n)		—			—	(x)		9/18/2025			—				—				209				0.1	%
															129				365				0.2	%
Retail
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)		—			—			—			—				87				109				0.0	%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units)		—			—			—			—				—				—				0.0	%
															87				109				0.0	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units) 

 

Portfolio Company (a)		Spread Above  Index (b)			Interest Rate			Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Services: Business
APCO Worldwide, Inc. (100 shares class A voting common stock)		—			—	(x)		—			—			$	395			$	317				0.1	%
Atlas Sign Industries of FLA, LLC (warrants to purchase up to 0.8% of the equity)		—			—	(x)		5/14/2026			—				125				83				0.0	%
															520				400				0.1	%
Services: Consumer
Education Corporation of America - Series G Preferred Stock (8,333 shares)		n/a			12.00% PIK	(p)		—			—				7,492				4,583				1.8	%
															7,492				4,583				1.8	%
Wholesale
Nearly Natural, Inc. (152,174 class A units)		—			—	(x)		—			—				152				146				0.1	%
															152				146				0.1	%
Total Non-Controlled/Non-Affiliate Equity Securities															12,052				6,606				2.6	%
Total Non-Controlled/Non-Affiliate Company Investments														$	475,932			$	468,720				181.1	%
Non-Controlled Affiliate Company Investments (y)
Senior Secured Loans
Banking, Finance, Insurance & Real Estate
American Community Homes, Inc.		L+10.00%			12.51% PIK			7/22/2019			7,797			$	7,770			$	6,596				2.5	%
American Community Homes, Inc.		L+14.50%			17.01% PIK			7/22/2019			4,725				4,711				3,997				1.5	%
American Community Homes, Inc.		L+10.00%			12.51% PIK			7/22/2019			590				587				499				0.2	%
American Community Homes, Inc.		L+10.00%			12.51% PIK			7/22/2019			473				469				400				0.2	%
American Community Homes, Inc.		L+14.50%			17.01% PIK			7/22/2019			254				252				215				0.1	%
American Community Homes, Inc.		L+8.00%			10.51% PIK			7/22/2019			1,710				1,710				1,446				0.6	%
											15,549				15,499				13,153				5.1	%
Containers, Packaging & Glass
Summit Container Corporation (l)		L+8.00%			10.51	%		1/6/2021			3,259				3,269				3,034				1.2	%
Summit Container Corporation (Revolver) (e) (l)		L+8.00%			10.51	%		1/6/2021			8,000				6,714				6,660				2.5	%
											11,259				9,983				9,694				3.7	%
Healthcare & Pharmaceuticals
SHI Holdings, Inc. (l)		L+10.25%			12.76	%		7/10/2019			2,598				2,592				2,598				1.0	%
SHI Holdings, Inc. (Revolver) (e)		L+10.25%			12.76	%		7/10/2019			4,227				3,339				3,342				1.3	%
											6,825				5,931				5,940				2.3	%
Retail
Luxury Optical Holdings Co.		L+8.00%			10.51% PIK			9/12/2019			4,698				4,684				4,334				1.7	%
Luxury Optical Holdings Co. (Delayed Draw) (e) (f)		L+11.50%			14.01	%		9/12/2019			1,059				624				622				0.2	%
Luxury Optical Holdings Co. (Revolver)		L+8.00%			10.51% PIK			9/12/2019			217				217				200				0.1	%
											5,974				5,525				5,156				2.0	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)			Interest Rate			Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Services: Business
Curion Holdings, LLC (l)		n/a			4.00% Cash/ 10.00% PIK			5/2/2022			3,953			$	3,912			$	3,592				1.4	%
Curion Holdings, LLC (Revolver) (e)		n/a			14.00	%		5/2/2022			308				250				244				0.1	%
											4,261				4,162				3,836				1.5	%
Total Non-Controlled Affiliate Senior Secured Loans											43,868				41,100				37,779				14.6	%
Unitranche Secured Loans (s)
Consumer Goods: Non-Durable
Incipio, LLC (z)		L+9.06%			11.01% Cash/ 0.56% PIK	(aa)		7/1/2019			13,803				13,749				12,830				5.0	%
Incipio, LLC (ab)		L+8.50%			11.01	%		7/1/2019			3,613				3,613				3,573				1.4	%
Incipio, LLC		L+8.50%			11.01	%		7/1/2019			1,535				1,535				1,518				0.6	%
											18,951				18,897				17,921				7.0	%
Total Non-Controlled Affiliate Unitranche Secured Loans											18,951				18,897				17,921				7.0	%
Junior Secured Loans
Consumer Goods: Non-Durable
Incipio, LLC (ac)		n/a			10.70% PIK	(p)		12/31/2020			3,766				—				1,260				0.4	%
Incipio, LLC (ad)		n/a			10.70% PIK	(p)		12/31/2020			7,194				—				—				0.0	%
											10,960				—				1,260				0.4	%
Services: Business
Curion Holdings, LLC (l)		n/a			15.00% PIK	(p)		1/2/2023			1,720				1				—				0.0	%
Curion Holdings, LLC (l)		n/a			15.00% PIK	(p)		1/2/2023			44				—				—				0.0	%
											1,764				1				—				0.0	%
Total Non-Controlled Affiliate Company Junior Secured Loans											12,724				1				1,260				0.4	%
Equity Securities (w) (y)
Banking, Finance, Insurance & Real Estate
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)		—			—	(x)		12/18/2024			—				—				—				0.0	%
															—				—				0.0	%
Consumer Goods: Non-Durable
Incipio, LLC (1,774 shares of series C common units)		—			—	(x)		—			—				—				—				0.0	%
Millennial Brands LLC (10 preferred units)		—			—	(x)		—			—				967				—				0.0	%
Millennial Brands LLC (75,502 common units)		—			—	(x)		—			—				—				—				0.0	%
															967				—				0.0	%
Containers, Packaging & Glass
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)		—			—	(x)		1/6/2024			—				—				—				0.0	%
															—				—				0.0	%

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

Portfolio Company (a)		Spread Above  Index (b)		Interest Rate				Maturity		Principal				Amortized Cost				Fair Value (c)				% of Net Assets (d)
Healthcare & Pharmaceuticals
SHI Holdings, Inc. (24 shares of common stock)		—			—	(x)		—			—			$	27			$	307				0.1	%
															27				307				0.1	%
Retail
Luxury Optical Holdings Co. (86 shares of common stock)		—			—	(x)		—			—				—				—				0.0	%
															—				—				0.0	%
Services: Business
Curion Holdings, LLC (58,779 shares of common stock)		—			—	(x)		—			—				—				—				0.0	%
															—				—				0.0	%
Total Non-Controlled Affiliate Equity Securities															994				307				0.1	%
Total Non-Controlled Affiliate Company Investments														$	60,992			$	57,267				22.1	%
Controlled Affiliate Company Investments (ae)
Equity Securities
Investment Funds & Vehicles
MRCC Senior Loan Fund I, LLC (50.0% of the equity interests) (g)		—			—			—			—			$	27,200			$	27,634				10.7	%
Total Controlled Affiliate Equity Securities															27,200				27,634				10.7	%
Total Controlled Affiliate Company Investments														$	27,200			$	27,634				10.7	%
TOTAL INVESTMENTS														$	564,124			$	553,621				213.9	%

  

Derivative Instruments

 

Foreign currency forward contracts
		Notional Amount				Notional Amount								Unrealized Gain
Description		to be Purchased				to be Sold				Counterparty		Settlement Date		(Loss)
Foreign currency forward contract		$	137			£	107			Bannockburn Global Forex, LLC		1/2/2019		$	1
Foreign currency forward contract		$	292			£	228			Bannockburn Global Forex, LLC		2/28/2019			1
Foreign currency forward contract		$	136			£	106			Bannockburn Global Forex, LLC		4/1/2019			1
Foreign currency forward contract		$	293			£	229			Bannockburn Global Forex, LLC		5/31/2019			1
Foreign currency forward contract		$	136			£	106			Bannockburn Global Forex, LLC		7/1/2019			1
Foreign currency forward contract		$	294			£	230			Bannockburn Global Forex, LLC		8/30/2019			1
Foreign currency forward contract		$	134			£	105			Bannockburn Global Forex, LLC		10/1/2019			1
Foreign currency forward contract		$	295			£	230			Bannockburn Global Forex, LLC		11/29/2019			1
Foreign currency forward contract		$	133			£	104			Bannockburn Global Forex, LLC		1/2/2020			1
Foreign currency forward contract		$	296			£	231			Bannockburn Global Forex, LLC		2/28/2020			1
Foreign currency forward contract		$	132			£	103			Bannockburn Global Forex, LLC		4/1/2020			1
Foreign currency forward contract		$	130			£	102			Bannockburn Global Forex, LLC		5/5/2020			1
Foreign currency forward contract		$	296			£	230			Bannockburn Global Forex, LLC		5/29/2020			1
Foreign currency forward contract		$	295			£	230			Bannockburn Global Forex, LLC		8/28/2020			1
Foreign currency forward contract		$	294			£	229			Bannockburn Global Forex, LLC		11/30/2020			2
														$	16

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

(a)

All of our investments are issued by eligible portfolio companies, as defined in the Investment Company Act of 1940 (the “1940 Act”), unless otherwise noted. All of our investments are issued by U.S. portfolio companies unless otherwise noted.

(b)

The majority of the investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly, or semiannually. For each such investment, the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor, or rate cap.

(c)

Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith using significant unobservable inputs 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 $258,767 as of December 31, 2018.

(e)

All or a portion of this commitment was unfunded at December 31, 2018. As such, interest is earned only on the funded portion of this commitment.

(f)

This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.

(g)

This investment is treated as a non-qualifying investment under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2018, non-qualifying assets totaled 16.36% of the Company’s total assets.

(h)

The PIK portion of the interest rate for HFZ Capital Group, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.17% per annum.

(i)

This investment represents a note convertible to preferred shares of the borrower.

(j)

A portion of this loan (principal of $2,010) 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)

A portion of the PIK interest rate for Cornerstone Detention Products, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 2.33% per annum.

(l)

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.

(m)

The PIK portion of the interest rate for Landpoint, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 2.25% per annum.

(n)

This is an international company.

(o)

This is a demand note with no stated maturity.

(p)

This position was on non-accrual status as of December 31, 2018, meaning that the Company has ceased accruing interest income on the position. See Note 2 in the accompanying notes to the consolidated financial statements for additional information on the Company’s accounting policies.

(q)

This loan is denominated in Great Britain pounds and is translated into U.S. dollars as of the valuation date.

(r)

A portion of the PIK interest rate for TRG, LLC is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 3.29% per annum.

(s)

The Company structures its unitranche secured loans as senior secured loans. The Company obtains security interests in the assets of these portfolio companies that serve as collateral in support of the repayment of these loans. This collateral may take the form of first-priority liens on the assets of a portfolio company. Generally, the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan, in which case the “first out” portion of the loan will generally receive priority with respect to payments of principal, interest and any other amounts due thereunder. Unitranche structures combine characteristics of traditional first lien senior secured as well as second lien and subordinated loans and the Company’s unitranche secured loans will expose the Company to the risks associated with second lien and subordinated loans and may limit the Company’s recourse or ability to recover collateral upon a portfolio company’s bankruptcy. Unitranche secured loans typically provide for moderate loan amortization in the initial years of the facility, with the majority of the amortization deferred until loan maturity. Unitranche secured loans generally allow the borrower to make a large lump sum payment of principal at the end of the loan term, and there is a risk of loss if the borrower is unable to pay the lump sum or refinance the amount owed at maturity. In many cases the Company, together with its affiliates, are the sole or majority lender of these unitranche secured loans, which can afford the Company additional influence with a borrower in terms of monitoring and, if necessary, remediation in the event of underperformance.

(t)

A portion of this loan (principal of $9,258) 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.

(u)

A portion of this loan (principal of $525) 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.

 

MONROE CAPITAL CORPORATION

 

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2018

(in thousands, except for shares and units)

 

(v)

Represents less than 5% ownership of the portfolio company’s voting securities.

(w)

Ownership of certain equity investments may occur through a holding company or partnership.

(x)

Represents a non-income producing security.

(y)

As defined in the 1940 Act, the Company is deemed to be an “Affiliated Person” of the portfolio company as it owns 5% 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).

(z)

A portion of this loan (principal of $5,061) 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.

(aa)

The PIK portion of the interest rate for Incipio Technologies, Inc. is structured as a fee paid upon the termination of the commitment. The fee currently accrues at 0.56% per annum.

(ab)

A portion of this loan (principal of $46) 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.

(ac)

A portion of this loan (principal of $1,015) 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.

(ad)

A portion of this loan (principal of $1,938) 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.

(ae)

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 more than 25% in 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 both an Affiliated Person and a portfolio company that the Company is deemed to Control.

n/a - not applicable

 

See Notes to Consolidated Financial Statements.

 

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 (together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company and has elected to be regulated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company’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 secured (a combination of senior secured and junior secured debt in the same facility in which the Company syndicates a “first out” portion of the loan to an investor and retains a “last out” portion of the loan) debt and, to a lesser extent, unsecured subordinated debt and equity investments. The Company 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, the Company 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 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 Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. See Note 7 for additional information.

 

On September 12, 2018, the Company closed a public offering of $69,000 in aggregate principal amount of senior unsecured notes (“2023 Notes”). On March 20, 2019, the Company completed a registered direct offering of $40,000 in additional aggregate principal amount of the 2023 Notes. See Note 7 for additional information.

 

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”). Certain prior period amounts have been reclassified to conform to the current period presentation.

 

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 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, MRCC Holding Company I, LLC, MRCC Holding Company II, LLC, MRCC Holding Company III, LLC, and MRCC Holding Company IV, LLC, in its consolidated financial statements. All intercompany balances and transactions have been eliminated. The Company does not consolidate its non-controlling interest in MRCC Senior Loan Fund I, LLC (“SLF”). See further description of the Company’s investment in SLF in Note 3.

 

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 for further discussion regarding the fair value measurements and hierarchy.

 

 

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.

 

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 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. The Company records fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three and six months ended June 30, 2019, the Company did not receive return of capital distributions from its preferred equity investments and its investment in LLC equity interests in SLF. For the three and six months ended June 30, 2018, the Company received return of capital distributions from its preferred equity investments and its investment in LLC equity interests in SLF of zero and $9,500, 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. The Company stops accruing PIK interest or PIK dividend when it is determined that PIK interest or PIK dividend 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. 

 

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 $5,455 and $5,172 as of June 30, 2019 and December 31, 2018, respectively. Upfront loan origination and closing fees received for the three and six months ended June 30, 2019 totaled $884 and $1,800, respectively. Upfront loan origination and closing fees received for the three and six months ended June 30, 2018 totaled $623 and $939, respectively. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income.

 

The components of the Company’s investment income were as follows:

 

		Three months ended June 30,
		2019				2018
Interest income		$	14,026			$	12,376
PIK interest income			1,261				327
Dividend income (1)			888				615
Fee income			60				666
Prepayment gain (loss)			91				312
Accretion of discounts and amortization of premium			393				524
Total investment income		$	16,719			$	14,820

 

		Six months ended June 30,
		2019				2018
Interest income		$	27,240			$	24,673
PIK interest income			2,315				656
Dividend income (2)			1,671				1,050
Fee income			629				1,390
Prepayment gain (loss)			204				445
Accretion of discounts and amortization of premium			819				1,556
Total investment income		$	32,878			$	29,770

 

	(1)	Includes PIK dividends of $13 and $265, respectively.
	(2)	Includes PIK dividends of $26 and $525, respectively.

 

 

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 or losses previously recognized. Realized gains and losses are recorded within net realized gain (loss) 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 gain (loss) 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. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. 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. The fair value of the Company’s investments on non-accrual status totaled $14,010 and $16,802 at June 30, 2019 and December 31, 2018, respectively.

 

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 as an investment on the Company’s consolidated statements of assets and liabilities and the proceeds are recorded as a secured borrowing in the liabilities section of the consolidated statements of assets and liabilities until the definition of a sale 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 gain (loss) on secured borrowings in the consolidated statements of operations. There were no partial loan sales for the periods reported.

 

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.

 

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 9 for additional information on the Company’s distributions.

 

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 stockholders 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 on the issuance date and the Company’s repurchases of its common stock on the repurchase date. See Note 10 for additional information on the Company’s share activity. 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.

 

Restricted Cash

 

Restricted cash includes amounts held within MRCC SBIC. Cash held within an SBIC is generally restricted to the originations of new loans from the SBIC and the payment of SBA debentures and related interest expense.

 

Unamortized 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, 2019 and December 31, 2018, the Company had unamortized deferred financing costs of $8,797 and $6,262, respectively, presented as a direct reduction of the carrying amount of debt on the consolidated statements of assets and liabilities. These amounts are amortized and included in interest and other debt financing expenses 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, 2019 was $468 and $901, respectively. Amortization of deferred financing costs for the three and six months ended June 30, 2018 was $315 and $596, respectively.

 

Offering Costs

 

Offering costs include, among other things, fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of debt and equity offerings. Offering costs from equity offerings are charged against the proceeds from the offering within the consolidated statements of changes in net assets. Offering costs from debt offerings are reclassified to unamortized deferred financing costs on the consolidated statements of assets and liabilities as noted above. As of June 30, 2019 and December 31, 2018, other assets on the consolidated statements of assets and liabilities included $275 and $328, respectively, of deferred offering costs which will be charged against the proceeds from future debt or equity offerings when completed.

 

Investments Denominated in Foreign Currency

 

As of both June 30, 2019 and December 31, 2018, the Company held investments in two portfolio companies that were denominated in Great Britain pounds.

 

At each balance sheet date, portfolio company investments denominated in foreign currencies are translated into U.S. dollars using the spot exchange rate on the last business day of the period. Purchases and sales of foreign portfolio company investments, and any income from such investments, are translated into U.S. dollars using the rates of exchange prevailing on the respective dates of such transactions.

 

Although the fair values of foreign portfolio company investments and the fluctuation in such fair values are translated into U.S. dollars using the applicable foreign exchange rates described above, the Company does not isolate the portion of the change in fair value resulting from foreign currency exchange rates fluctuations from the change in fair value of the underlying investment. All fluctuations in fair value are included in net change in unrealized gain (loss) in the Company’s consolidated statements of operations.

 

Investments denominated in foreign currencies and foreign currency transactions may involve certain consideration and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. dollar.

 

Derivative Instruments

 

The Company may enter into foreign currency forward contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations. In a foreign currency forward contract, the Company agrees to receive or deliver a fixed quantity of one currency for another, at a pre-determined price at a future date. Foreign currency forward contracts are marked-to-market based on the difference between the forward rate and the exchange rate at the current period end. Unrealized gain (loss) on foreign currency forward contracts are recorded on the Company’s consolidated statements of assets and liabilities by counterparty on a net basis.

 

The Company does not utilize hedge accounting and as such values its foreign currency forward contracts at fair value with the change in unrealized gain or loss recorded in net change in unrealized gain (loss) from foreign currency forward contracts and the realized gain or loss recorded in net realized gain (loss) from foreign currency forward contracts in the Company’s consolidated statements of operations.

 

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 stockholders, 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 stockholders. 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 is also 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, calculated as 4% of the estimated excess taxable income, if any, as taxable income is earned. For the three and six months ended June 30, 2019, $17 and $10, respectively, were recorded on the consolidated statements of operations for U.S. federal excise taxes. For the three and six months ended June 30, 2018, zero and $11, respectively, were recorded on the consolidated statements of operations for U.S. federal excise taxes. As of June 30, 2019 and December 31, 2018, payables for excise taxes of $23 and zero, respectively, were included in accounts payable and accrued expenses on the consolidated statements of assets and liabilities.

 

 

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, 2019. The 2015 through 2018 tax years remain subject to examination by U.S. federal and state tax authorities.

 

Subsequent Events

 

The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the consolidated financial statements as of and for the six months ended June 30, 2019.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary objective of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements in the notes to the financial statements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although 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 tables show the composition of the investment portfolio, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

 

		June 30, 2019								December 31, 2018
Amortized Cost:
Senior secured loans		$	491,800				76.3	%		$	443,381				78.6	%
Unitranche secured loans			84,124				13.1				60,029				10.7
Junior secured loans			18,378				2.9				20,468				3.6
LLC equity interest in SLF			35,075				5.4				27,200				4.8
Equity securities			14,764				2.3				13,046				2.3
Total		$	644,141				100.0	%		$	564,124				100.0	%

 

		June 30, 2019								December 31, 2018
Fair Value:
Senior secured loans		$	483,682				76.7	%		$	439,068				79.3	%
Unitranche secured loans			83,343				13.2				58,852				10.6
Junior secured loans			18,858				3.0				21,154				3.8
LLC equity interest in SLF			35,944				5.7				27,634				5.0
Equity securities			8,977				1.4				6,913				1.3
Total		$	630,804				100.0	%		$	553,621				100.0	%

 

The following tables show 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, 2019								December 31, 2018
Amortized Cost:
International		$	19,933				3.1	%		$	19,279				3.4	%
Midwest			147,638				22.9				127,364				22.6
Northeast			149,243				23.2				129,417				22.9
Southeast			140,207				21.8				121,312				21.5
Southwest			57,473				8.9				52,272				9.3
West			129,647				20.1				114,480				20.3
Total		$	644,141				100.0	%		$	564,124				100.0	%

 

 

		June 30, 2019								December 31, 2018
Fair Value:
International		$	19,712				3.1	%		$	19,205				3.5	%
Midwest			142,626				22.6				124,667				22.5
Northeast			145,573				23.1				127,607				23.0
Southeast			137,847				21.9				118,161				21.3
Southwest			56,231				8.9				50,657				9.2
West			128,815				20.4				113,324				20.5
Total		$	630,804				100.0	%		$	553,621				100.0	%

 

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

 

		June 30, 2019								December 31, 2018
Amortized Cost:
Automotive		$	7,735				1.2	%		$	7,887				1.4	%
Banking, Finance, Insurance & Real Estate			70,575				11.0				58,088				10.3
Beverage, Food & Tobacco			16,536				2.6				16,097				2.9
Chemicals, Plastics & Rubber			15,037				2.3				15,259				2.7
Construction & Building			34,669				5.4				29,789				5.3
Consumer Goods: Durable			22,856				3.6				25,345				4.5
Consumer Goods: Non-Durable			22,519				3.5				19,864				3.5
Containers, Packaging & Glass			8,638				1.3				9,983				1.8
Energy: Oil & Gas			6,683				1.0				2,527				0.4
Environmental Industries			12,545				1.9				12,169				2.2
Healthcare & Pharmaceuticals			59,766				9.3				54,243				9.6
High Tech Industries			82,398				12.8				79,936				14.2
Hotels, Gaming & Leisure			18,762				2.9				18,780				3.3
Investment Funds & Vehicles			35,075				5.4				27,200				4.8
Media: Advertising, Printing & Publishing			20,292				3.2				21,217				3.8
Media: Broadcasting & Subscription			5,647				0.9				4,458				0.8
Media: Diversified & Production			10,461				1.6				4,957				0.9
Retail			34,781				5.4				34,817				6.1
Services: Business			105,169				16.3				73,274				13.0
Services: Consumer			23,536				3.7				20,695				3.6
Wholesale			30,461				4.7				27,539				4.9
Total		$	644,141				100.0	%		$	564,124				100.0	%

 

		June 30, 2019								December 31, 2018
Fair Value:
Automotive		$	7,727				1.2	%		$	7,878				1.4	%
Banking, Finance, Insurance & Real Estate			65,700				10.4				55,839				10.1
Beverage, Food & Tobacco			16,092				2.6				15,544				2.8
Chemicals, Plastics & Rubber			14,786				2.3				14,971				2.7
Construction & Building			35,013				5.6				29,791				5.4
Consumer Goods: Durable			22,632				3.6				25,212				4.5
Consumer Goods: Non-Durable			21,482				3.4				19,181				3.5
Containers, Packaging & Glass			8,331				1.3				9,694				1.8
Energy: Oil & Gas			6,727				1.1				2,516				0.4
Environmental Industries			12,631				2.0				12,195				2.2
Healthcare & Pharmaceuticals			58,151				9.2				52,769				9.5
High Tech Industries			80,540				12.8				77,954				14.1
Hotels, Gaming & Leisure			20,246				3.2				20,264				3.7
Investment Funds & Vehicles			35,944				5.7				27,634				5.0
Media: Advertising, Printing & Publishing			21,079				3.3				21,908				4.0
Media: Broadcasting & Subscription			5,676				0.9				4,483				0.8
Media: Diversified & Production			10,611				1.7				5,000				0.9
Retail			30,242				4.8				31,866				5.8
Services: Business			105,679				16.7				73,336				13.2
Services: Consumer			20,772				3.3				17,846				3.2
Wholesale			30,743				4.9				27,740				5.0
Total		$	630,804				100.0	%		$	553,621				100.0	%

 

 

MRCC Senior Loan Fund I, LLC

 

The Company co-invests with NLV Financial Corporation (“NLV”) in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as underlying investment transactions are completed, taking into account available debt and equity commitments available for funding these investments. All portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee, consisting of one representative from the Company and one representative from NLV. SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business. Investments held by SLF are measured at fair value using the same valuation methodologies as described in Note 4. The Company’s investment is illiquid in nature as SLF does not allow for withdrawal from the LLC or the sale of a member’s interest unless approved by the board of members of SLF. The full withdrawal of a member would result in an orderly wind-down of SLF.

 

SLF’s profits and losses are allocated to the Company and NLV in accordance with their respective ownership interests. As of both June 30, 2019 and December 31, 2018, the Company and NLV each owned 50.0% of the LLC equity interests of SLF. As of June 30, 2019, SLF had $100,000 in equity commitments from its members (in the aggregate), of which $70,150 was funded. As of December 31, 2018, SLF had $100,000 in commitments from its members (in the aggregate), of which $54,400 was funded.

 

As of both June 30, 2019 and December 31, 2018, the Company had committed to fund $50,000 of LLC equity interest subscriptions to SLF. As of June 30, 2019 and December 31, 2018, $35,075 and $27,200 of the Company’s LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall, respectively.

 

For the three and six months ended June 30, 2019, the Company received dividend income of $875 and $1,645 from its LLC equity interest in SLF, respectively. For the three and six months ended June 30, 2018, the Company received dividend income of $350 and $525 from its LLC equity interest in SLF, respectively.

 

SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Capital One, N.A., through its wholly-owned subsidiary MRCC Senior Loan Fund I Financing SPV, LLC (“SLF SPV”), which as of June 30, 2019 allowed SLF SPV to borrow up to $170,000 at any one time, subject to leverage and borrowing base restrictions. On January 9, 2019, the SLF SPV closed a $20,000 upsize to the SLF Credit Facility, bringing the maximum amount the SLF SPV is able to borrow up to the now current $170,000. Borrowings under the SLF Credit Facility bear interest at an annual rate of LIBOR (three-month) plus 2.25%. The maturity date on the SLF Credit Facility is March 22, 2023.

 

SLF does not pay any fees to MC Advisors or its affiliates; however, SLF has entered into an administration agreement with Monroe Capital Management Advisors, LLC (“MC Management”), pursuant to which certain loan servicing and administrative functions are delegated to MC Management. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. For the three and six months ended June 30, 2019, SLF incurred $47 and $93, respectively, of allocable expenses. SLF did not incur any allocable expenses for the three and six months ended June 30, 2018. There are no agreements or understandings by which the Company guarantees any SLF obligations.

 

As of June 30, 2019 and December 31, 2018, SLF had total assets at fair value of $240,757 and $177,122, respectively. As of both June 30, 2019 and December 31, 2018, SLF had zero portfolio company investments on non-accrual status. The portfolio companies in SLF are in industries and geographies similar to those in which the Company may invest directly. Additionally, as of June 30, 2019 and December 31, 2018, SLF had $7,199 and $5,466, respectively, in outstanding commitments to fund investments under undrawn revolvers and delayed draw commitments.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual investments in SLF’s portfolio as of June 30, 2019 and December 31, 2018:

 

		As of
		June 30, 2019				December 31, 2018
Senior secured loans (1)			237,875				174,267
Weighted average current interest rate on senior secured loans (2)			7.5	%			7.6	%
Number of borrowers in SLF			63				50
Largest portfolio company investment (1)			6,895				6,930
Total of five largest portfolio company investments (1)			29,591				27,489

 

(1)

Represents outstanding principal amount, excluding unfunded commitments.

(2)

Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at outstanding principal amount.

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

June 30, 2019

(in thousands)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate (b)				Maturity		Principal				Fair Value
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Aerospace & Defense
IMIA Holdings, Inc.		L+4.50%			6.83	%		10/28/2024			4,298			$	4,324
IMIA Holdings, Inc. (Revolver) (c)		L+4.50%			6.83	%		10/28/2024			680				—
MAG Aerospace Industries, Inc.		L+4.75%			7.15	%		6/6/2025			3,267				3,251
Novaria Holding, LLC		L+4.75%			7.15	%		12/19/2024			4,312				4,312
Trident Maritime SH, Inc.		L+5.50%			7.83	%		6/4/2024			4,435				4,381
Trident Maritime SH, Inc. (Revolver) (c)		L+5.50%			7.83	%		6/4/2024			340				—
											17,332				16,268
Automotive
Innovative Aftermarket Systems		L+5.50%			7.90	%		1/25/2021			1,947				1,945
Wheel Pros, LLC		L+4.75%			7.15	%		4/4/2025			4,957				4,914
											6,904				6,859
Banking, Finance, Insurance & Real Estate
Avison Young (USA) Inc.		L+5.00%			7.33	%		1/30/2026			4,975				4,901
Lightbox Intermediate, L.P.		L+5.00%			7.45	%		5/11/2026			5,000				4,950
Minotaur Acquisition, Inc.		L+5.00%			7.40	%		3/27/2026			2,992				2,950
Nuvei Technologies Corp.		P+3.50%			9.00	%		9/26/2025			4,138				4,108
Nuvei Technologies Corp. (Delayed Draw) (c)		L+4.50%			6.89	%		9/26/2025			837				708
RMS Holding Company, LLC		L+6.00%			8.58	%		11/16/2022			3,991				3,974
Zenith Merger Sub, Inc.		L+5.25%			7.58	%		12/13/2024			4,724				4,702
Zenith Merger Sub, Inc. (Delayed Draw) (c)		L+5.25%			7.58	%		12/13/2024			265				—
											26,922				26,293
Beverage, Food & Tobacco
Il Fornaio (America) Corporation		L+6.50%			8.90	%		11/10/2022			4,840				4,748
SW Ingredients Holdings, LLC		L+4.00%			6.54	%		7/3/2025			3,722				3,722
US Salt, LLC		L+4.75%			7.15	%		1/16/2026			2,743				2,747
											11,305				11,217
Capital Equipment
Analogic Corporation		L+6.00%			8.40	%		6/24/2024			4,963				4,861
											4,963				4,861
Chemicals, Plastics & Rubber
Loparex International B.V.		L+4.25%			6.65	%		4/11/2025			437				437
Peach State Labs, LLC		L+6.50%			8.94	%		6/30/2021			2,836				2,794
											3,273				3,231
Construction & Building
The Cook & Boardman Group, LLC		L+5.75%			8.37	%		10/20/2025			2,985				2,970
											2,985				2,970
Consumer Goods: Durable
International Textile Group, Inc.		L+5.00%			7.44	%		5/1/2024			1,828				1,700
SSH Group Holdings, Inc.		L+4.25%			6.83	%		7/30/2025			2,316				2,305
											4,144				4,005
Consumer Goods: Non-Durable
PH Beauty Holdings III, Inc.		L+5.00%			7.40	%		9/26/2025			2,480				2,465
											2,480				2,465
Containers, Packaging & Glass
Liqui-Box Holdings, Inc. (d)		L+4.50%			6.90	%		6/3/2026			4,333				4,298
Polychem Acquisition, LLC		L+5.00%			7.40	%		3/17/2025			2,993				3,002
Port Townsend Holdings Company, Inc.		L+4.75%			7.15	%		4/3/2024			4,862				4,856
PVHC Holding Corp		L+4.75%			7.08	%		8/5/2024			3,300				3,218
PVHC Holding Corp (Delayed Draw) (c)		L+4.75%			7.08	%		8/5/2024			425				—
											15,913				15,374
Energy: Oil & Gas
Drilling Info Holdings, Inc.		L+4.25%			6.65	%		7/30/2025			4,617				4,599
Drilling Info Holdings, Inc. (Delayed Draw) (c)		L+4.25%			6.65	%		7/30/2025			16				—
Offen, Inc. (d)		L+5.00%			7.40	%		6/22/2026			2,448				2,424
Offen, Inc. (Delayed Draw) (c) (d)		L+5.00%			7.40	%		6/22/2026			885				—
											7,966				7,023
Healthcare & Pharmaceuticals
LSCS Holdings, Inc.		L+4.25%			6.58	%		3/17/2025			2,328				2,316
LSCS Holdings, Inc.		L+4.25%			6.58	%		3/17/2025			601				598
P&L Developments, LLC (d)		L+7.50%			9.90	%		6/28/2024			3,000				2,925
Radiology Partners, Inc.		L+4.75%			7.34	%		7/9/2025			4,975				4,974
Solara Medical Supplies, LLC		L+6.00%			8.40	%		2/27/2024			5,543				5,543
Solara Medical Supplies, LLC (Delayed Draw) (c)		L+6.00%			8.40	%		2/27/2024			1,072				429
Solara Medical Supplies, LLC (Revolver) (c)		L+6.00%			8.40	%		2/27/2024			714				—
											18,233				16,785
High Tech Industries
AQA Acquisition Holding, Inc.		L+4.25%			6.58	%		5/24/2023			3,308				3,292
Corel Corporation		L+5.00%			7.52	%		6/4/2024			3,642				3,642
Corel Corporation (d)		L+5.00%			7.40	%		7/2/2026			2,500				2,394
Datto, Inc.		L+4.25%			6.58	%		4/2/2026			3,333				3,354
Gigamon, Inc.		L+4.25%			6.65	%		12/27/2024			2,955				2,881
LW Buyer, LLC (d)		L+5.00%			7.40	%		12/30/2024			5,000				4,950
Perforce Software, Inc.		L+4.50%			6.93	%		12/27/2024			1,990				1,986
Perforce Software, Inc. (d)		L+4.50%			6.90	%		7/1/2026			3,333				3,333
TGG TS Acquisition Company		L+6.50%			8.93	%		12/12/2025			4,290				4,274
											30,351				30,106
Hotels, Gaming & Leisure
Tait LLC		L+5.00%			7.41	%		3/28/2025			4,231				4,146
Tait LLC (Revolver) (c)		L+5.00%			7.41	%		3/28/2025			769				—
											5,000				4,146
Media: Advertising, Printing & Publishing
Cadent, LLC		L+5.25%			7.63	%		9/11/2023			4,975				4,962
Cadent, LLC (Revolver) (c)		L+5.25%			7.63	%		9/11/2023			167				—
Digital Room Holdings, Inc.		L+5.00%			7.40	%		5/21/2026			4,428				4,318
											9,570				9,280
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC		L+5.50%			8.08	%		12/20/2024			6,895				6,886
Stats Intermediate Holding, LLC (d)		L+5.25%			7.65	%		7/12/2026			5,000				4,950
											11,895				11,836
Services: Business
CHA Holdings, Inc.		L+4.50%			6.83	%		4/10/2025			2,033				2,030
CHA Holdings, Inc. (Delayed Draw) (c)		L+4.50%			6.81	%		4/10/2025			446				428
Eliassen Group, LLC		L+4.50%			6.90	%		11/5/2024			3,040				3,040
Engage2Excel, Inc.		L+6.50%			9.36	%		3/7/2023			4,320				4,286
Engage2Excel, Inc.		L+6.50%			9.12	%		3/7/2023			779				773
Engage2Excel, Inc. (Delayed Draw) (c)		L+6.50%			9.12	%		3/7/2023			500				—
Engage2Excel, Inc. (Revolver) (c)		P+5.50%			11.00	%		3/7/2023			545				159
GI Revelation Acquisition LLC		L+5.00%			7.40	%		4/16/2025			1,386				1,376
North Haven CA Holdings, Inc.		L+4.50%			6.83	%		10/2/2023			4,618				4,618
Orbit Purchaser LLC		L+4.50%			7.19	%		10/21/2024			2,500				2,489
Orbit Purchaser LLC		L+4.50%			7.05	%		10/21/2024			1,931				1,922
Orbit Purchaser LLC		L+4.50%			7.19	%		10/21/2024			565				562
Output Services Group, Inc.		L+4.25%			6.65	%		3/27/2024			4,940				4,470
SIRVA Worldwide, Inc.		L+5.50%			7.90	%		8/4/2025			1,975				1,922
The Kleinfelder Group, Inc.		L+4.75%			7.12	%		11/29/2024			2,488				2,474
											32,066				30,549
Services: Consumer
Cambium Learning Group, Inc.		L+4.50%			7.08	%		12/18/2025			4,975				4,932
LegalZoom.com, Inc.		L+4.50%			6.90	%		11/21/2024			2,735				2,754
WeddingWire, Inc.		L+4.50%			6.90	%		12/19/2025			1,161				1,165
											8,871				8,851
Telecommunications
Intermedia Holdings, Inc.		L+6.00%			8.40	%		7/21/2025			1,824				1,829
Mavenir Systems, Inc.		L+6.00%			8.42	%		5/8/2025			3,960				3,957
											5,784				5,786
Transportation: Cargo
GlobalTranz Enterprises LLC		L+5.00%			7.39	%		5/15/2026			3,312				3,217
GlobalTranz Enterprises LLC (Delayed Draw) (c)		L+5.00%			7.39	%		5/15/2026			855				—
											4,167				3,217
Utilities: Oil & Gas
NGS US Finco, LLC		L+4.25%			6.65	%		10/1/2025			1,741				1,740
											1,741				1,740
Wholesale
AmeriLife Group, LLC		L+4.50%			6.90	%		6/12/2026			2,924				2,929
AmeriLife Group, LLC (Delayed Draw) (c)		L+4.50%			6.90	%		6/12/2026			410				—
BMC Acquisition, Inc.		L+5.25%			7.65	%		12/30/2024			4,925				4,925
HALO Buyer, Inc.		L+4.50%			6.90	%		6/27/2025			4,950				4,901
											13,209				12,755
TOTAL INVESTMENTS														$	235,617

 

(a)

All investments are U.S. companies, except for Loparex International B.V.

(b)

The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at June 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)

All or a portion of this commitment was unfunded as of June 30, 2019. Principal reflects the commitment outstanding.

(d)

Investment position or portion thereof unsettled as of June 30, 2019.

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

 (in thousands)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate (b)				Maturity		Principal				Fair Value
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Aerospace & Defense
IMIA Holdings, Inc.		L+4.50%			7.30	%		10/28/2024			4,320			$	4,341
IMIA Holdings, Inc. (Revolver) (c)		L+4.50%			7.30	%		10/28/2024			680				—
MAG Aerospace Industries, Inc.		L+4.75%			7.27	%		6/6/2025			3,284				3,267
Novaria Holding, LLC (d)		L+4.75%			7.27	%		12/19/2024			4,333				4,290
The KEYW Corporation		L+4.50%			6.89	%		5/8/2024			1,488				1,473
Trident Maritime SH, Inc.		L+5.50%			8.30	%		6/4/2024			4,637				4,623
Trident Maritime SH, Inc. (Revolver) (c)		L+5.50%			8.30	%		6/4/2024			340				—
											19,082				17,994
Automotive
Wheel Pros, LLC		L+4.75%			7.27	%		4/4/2025			3,980				3,920
											3,980				3,920
Banking, Finance, Insurance & Real Estate
Kestra Financial, Inc. (d)		L+4.25%			6.77	%		6/24/2022			3,564				3,537
MTC Intermediate Holdco, Inc.		L+4.50%			7.02	%		1/30/2023			4,963				4,963
Pivotal Payments Inc.		P+3.50%			9.00	%		9/26/2025			2,902				2,873
Pivotal Payments Inc. (Delayed Draw) (c)		L+4.50%			6.98	%		9/26/2025			841				518
Zenith Merger Sub, Inc.		L+5.50%			8.30	%		12/13/2023			3,713				3,701
											15,983				15,592
Beverage, Food & Tobacco
Il Fornaio (America) Corporation		L+6.50%			9.02	%		11/10/2022			4,894				4,847
SW Ingredients Holdings, LLC		L+4.25%			7.05	%		7/3/2025			3,731				3,709
US Salt, LLC		L+4.75%			7.27	%		11/30/2023			3,474				3,474
											12,099				12,030
Capital Equipment
Analogic Corporation		L+6.00%			8.52	%		6/24/2024			4,988				4,786
											4,988				4,786
Chemicals, Plastics & Rubber
Loparex International B.V.		L+4.25%			7.05	%		4/11/2025			498				490
Peach State Labs, LLC		L+6.50%			8.85	%		6/30/2021			2,850				2,825
											3,348				3,315
Construction & Building
Fastener Acquisition, Inc.		L+4.25%			7.05	%		3/28/2025			1,323				1,256
The Cook & Boardman Group, LLC		L+5.75%			8.55	%		10/20/2025			3,000				2,978
											4,323				4,234
Consumer Goods: Durable
International Textile Group, Inc.		L+5.00%			7.35	%		5/1/2024			1,852				1,819
SSH Group Holdings, Inc.		L+4.25%			6.77	%		7/30/2025			2,327				2,240
											4,179				4,059
Consumer Goods: Non-Durable
PH Beauty Holdings III, Inc.		L+5.00%			7.52	%		9/26/2025			1,995				1,925
											1,995				1,925
Containers, Packaging & Glass
Port Townsend Holdings Company, Inc.		L+4.75%			7.27	%		4/3/2024			4,887				4,893
PVHC Holding Corp		L+4.75%			7.57	%		8/5/2024			3,317				3,333
PVHC Holding Corp (Delayed Draw) (c)		L+4.75%			7.57	%		8/5/2024			425				—
											8,629				8,226
Energy: Oil & Gas
Drilling Info Holdings, Inc.		L+4.25%			6.77	%		7/30/2025			4,307				4,296
Drilling Info Holdings, Inc. (Delayed Draw) (c)		L+4.25%			6.77	%		7/30/2025			350				—
											4,657				4,296
Healthcare & Pharmaceuticals
LSCS Holdings, Inc.		L+4.25%			6.77	%		3/17/2025			2,328				2,316
LSCS Holdings, Inc.		L+4.25%			6.96	%		3/17/2025			601				598
Radiology Partners, Inc.		L+4.25%			6.87	%		7/9/2025			4,988				4,900
Solara Medical Supplies, LLC		L+6.00%			8.52	%		5/31/2023			5,571				5,594
Solara Medical Supplies, LLC (Delayed Draw) (c)		L+6.00%			8.52	%		5/31/2023			1,071				—
Solara Medical Supplies, LLC (Revolver) (c)		L+6.00%			8.52	%		5/31/2023			714				—
											15,273				13,408
High Tech Industries
AQA Acquisition Holding, Inc.		L+4.25%			7.05	%		5/24/2023			3,325				3,308
Corel Corporation (d)		L+5.00%			7.71	%		6/4/2024			3,786				3,749
Gigamon, Inc.		L+4.25%			7.05	%		12/27/2024			2,970				2,933
TGG TS Acquisition Company (d)		L+6.50%			9.02	%		12/12/2025			4,400				4,241
											14,481				14,231
Media: Advertising, Printing & Publishing
Cadent, LLC		L+5.25%			7.71	%		9/11/2023			4,988				4,975
Cadent, LLC (Revolver) (c)		L+5.25%			7.71	%		9/11/2023			167				—
											5,155				4,975
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC		L+5.50%			8.02	%		12/20/2024			6,930				6,817
											6,930				6,817
Services: Business
CHA Holdings, Inc.		L+4.50%			7.30	%		4/10/2025			2,043				2,041
CHA Holdings, Inc. (Delayed Draw) (c)		L+4.50%			7.30	%		4/10/2025			446				—
Eliassen Group, LLC		L+4.50%			7.02	%		11/5/2024			2,500				2,475
Engage2Excel, Inc.		L+6.50%			8.93	%		3/7/2023			4,342				4,320
Engage2Excel, Inc. (Revolver) (c)		L+6.50%			8.95	%		3/7/2023			545				155
GI Revelation Acquisition LLC		L+5.00%			7.52	%		4/16/2025			1,393				1,374
North Haven CA Holdings, Inc.		L+4.50%			7.02	%		9/29/2023			5,000				4,972
Orbit Purchaser LLC		L+4.50%			7.17	%		10/21/2024			1,931				1,919
Orbit Purchaser LLC (Delayed Draw) (c)		L+4.50%			7.17	%		10/21/2024			565				—
Output Services Group, Inc.		L+4.25%			6.77	%		3/27/2024			4,965				4,828
SIRVA Worldwide, Inc.		L+5.50%			8.02	%		8/4/2025			2,000				1,965
The Kleinfelder Group, Inc. (d)		L+4.75%			7.27	%		11/29/2024			2,500				2,475
											28,230				26,524
Services: Consumer
Cambium Learning Group, Inc. (d)		L+4.50%			7.02	%		12/18/2025			5,000				4,769
LegalZoom.com, Inc.		L+4.50%			7.00	%		11/21/2024			2,749				2,708
WeddingWire, Inc. (d)		L+4.50%			7.02	%		12/19/2025			1,167				1,149
											8,916				8,626
Telecommunications
Intermedia Holdings, Inc.		L+6.00%			8.52	%		7/21/2025			1,833				1,831
Mavenir Systems, Inc.		L+6.00%			8.39	%		5/8/2025			3,980				3,968
											5,813				5,799
Utilities: Oil & Gas
NGS US Finco, LLC		L+4.25%			6.76	%		10/1/2025			1,750				1,746
											1,750				1,746
Wholesale
BMC Acquisition, Inc.		L+5.25%			8.13	%		12/30/2024			4,950				4,962
Halo Buyer, Inc.		L+4.50%			7.02	%		6/27/2025			3,501				3,431
Halo Buyer, Inc.		L+4.50%			7.02	%		6/27/2025			1,474				1,445
											9,925				9,838
TOTAL INVESTMENTS														$	172,341

 

(a)

All investments are U.S. companies, except for Loparex International B.V.

(b)

The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime Rate (“Prime” or “P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)

All or a portion of this commitment was unfunded as of December 31, 2018. Principal reflects the commitment outstanding.

(d)

Investment position or portion thereof unsettled as of December 31, 2018.

  

 

Below is certain summarized financial information for SLF as of June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018:

 

		June 30, 2019				December 31, 2018
		(unaudited)
Assets
Investments, at fair value		$	235,617			$	172,341
Cash			145				448
Restricted cash			4,159				3,838
Interest receivable			806				456
Other assets			30				39
Total assets		$	240,757			$	177,122
Liabilities
Revolving credit facility		$	143,254			$	101,060
Less: Unamortized deferred financing costs			(1,627	)			(1,625	)
Total debt, less unamortized deferred financing costs			141,627				99,435
Payable for open trades			26,387				21,746
Interest payable			566				457
Accounts payable and accrued expenses			289				216
Total liabilities			168,869				121,854
Members’ capital			71,888				55,268
Total liabilities and members’ capital		$	240,757			$	177,122

 

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
		(unaudited)								(unaudited)
Investment income:
Interest income		$	3,887			$	1,399			$	7,335			$	2,179
Total investment income			3,887				1,399				7,335				2,179
Expenses:
Interest and other debt financing expenses			1,771				605				3,369				649
Organizational costs			—				5				—				11
Professional fees			164				22				340				62
Total expenses			1,935				632				3,709				722
Net investment income (loss)			1,952				767				3,626				1,457
Net gain (loss):
Net change in unrealized gain (loss)			21				454				533				999
Net gain (loss)			21				454				533				999
Net increase (decrease) in members’ capital		$	1,973			$	1,221			$	4,159			$	2,456

 

 

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. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity.

 

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 at the measurement date.

 

·

Level 2 - Valuations based on inputs other than quoted prices in active markets, including quoted prices for similar assets or liabilities, which are either directly or indirectly observable.

 

·

Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement. This includes situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

 

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. All investments, with the exception of investments measured at fair value using net asset value (“NAV”), as of June 30, 2019 and December 31, 2018 were categorized as Level 3 investments.

 

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:

 

	·	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;
	·	the Board 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, but the independent appraisals are generally received quarterly;

 

	·	to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available, the investment will be valued by the MC Advisors investment professional responsible for the credit monitoring;
	·	preliminary valuation conclusions are then documented and discussed with the investment committee of the Company;
	·	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 accompanying consolidated schedules of investments held by the Company consist primarily of private debt instruments (“Level 3 debt”). The Company generally uses the income approach to determine fair value for loans where market quotations are not readily available, 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. This liquidation analysis may include probability weighting of alternative outcomes. The Company generally 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.

 

Under the income 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 income 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.

 

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.

 

In addition, for certain debt investments, the Company may base its valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that the Company and others may be willing to pay. Ask prices represent the lowest price that the Company and others may be willing to accept. The Company generally uses the midpoint of the bid/ask range as its best estimate of fair value of such investment.

 

Foreign Currency Forward Contracts

 

The valuation for the Company’s foreign currency forward contracts is based on the difference between the exchange rate associated with the forward contract and the exchange rate at the current period end. Foreign currency forward contracts are categorized as Level 2 in the fair value hierarchy.

 

Fair Value Disclosures

 

The following table presents fair value measurements of investments and foreign currency forward contracts, by major class, as of June 30, 2019, according to the fair value hierarchy:

 

		Fair Value Measurements
		Level 1				Level 2				Level 3				Total
Investments:
Senior secured loans		$	—			$	—			$	483,682			$	483,682
Unitranche secured loans			—				—				83,343				83,343
Junior secured loans			—				—				18,858				18,858
Equity securities			—				—				8,977				8,977
Investments measured at NAV (1) (2)			—				—				—				35,944
Total investments		$	—			$	—			$	594,860			$	630,804
Foreign currency forward contracts asset (liability)		$	—			$	23			$	—			$	23

 

(1)

Certain investments that are measured at fair value using the NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

(2)

Represents the Company’s investment in LLC equity interests in SLF. The fair value of this investment has been determined using the NAV of the Company’s ownership interest in members’ capital.

 

 

The following table presents fair value measurements of investments, by major class, as of December 31, 2018, according to the fair value hierarchy:

 

		Fair Value Measurements
		Level 1				Level 2				Level 3				Total
Investments:
Senior secured loans		$	—			$	—			$	439,068			$	439,068
Unitranche secured loans			—				—				58,852				58,852
Junior secured loans			—				—				21,154				21,154
Equity securities			—				—				6,913				6,913
Investments measured at NAV (1) (2)			—				—				—				27,634
Total investments		$	—			$	—			$	525,987			$	553,621
Foreign currency forward contracts asset (liability)		$	—			$	16			$	—			$	16

 

(1)

Certain investments that are measured at fair value using the NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

(2)

Represents the Company’s investment in LLC equity interests in SLF. The fair value of this investment has been determined using the NAV of the Company’s ownership interest in members’ capital.

 

Senior secured, unitranche secured 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. Excluding loans on non-accrual, the contractual interest rates on the loans ranged between 7.83% to 16.90% at June 30, 2019 and 7.87% to 17.01% at December 31, 2018. The maturity dates on the loans outstanding at June 30, 2019 range between September 2019 and December 2025.

 

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three and six months ended June 30, 2019:

 

		Investments
		Senior secured loans				Unitranche secured loans				Junior secured loans				Equity securities				Total investments
Balance as of March 31, 2019		$	466,300			$	70,126			$	21,266			$	7,221			$	564,913
Net change in unrealized gain (loss)			(3,821	)			33				(313	)			298				(3,803	)
Purchases of investments and other adjustments to cost (1)			57,438				942				3				—				58,383
Proceeds from principal payments and sales on investments (2)			(23,838	)			(190	)			(640	)			—				(24,668	)
Net realized gain (loss) on investments			35				—				—				—				35
Reclassifications			(12,432	)			12,432				(1,458	)			1,458				—
Balance as of June 30, 2019		$	483,682			$	83,343			$	18,858			$	8,977			$	594,860

 

		Investments
		Senior secured loans				Unitranche secured loans				Junior secured loans				Equity securities				Total investments
Balance as of December 31, 2018		$	439,068			$	58,852			$	21,154			$	6,913			$	525,987
Net change in unrealized gain (loss)			(3,679	)			269				(205	)			346				(3,269	)
Purchases of investments and other adjustments to cost (1)			124,195				1,448				7				260				125,910
Proceeds from principal payments and sales on investments (2)			(52,815	)			(348	)			(640	)			—				(53,803	)
Net realized gain (loss) on investments			35				—				—				—				35
Reclassifications			(23,122	)			23,122				(1,458	)			1,458				—
Balance as of June 30, 2019		$	483,682			$	83,343			$	18,858			$	8,977			$	594,860

 

(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 at fair value that use Level 3 inputs for the three and six months ended June 30, 2018: 

 

		Investments
		Senior secured loans				Unitranche secured loans				Junior secured loans				Equity securities				Total investments
Balance as of March 31, 2018		$	380,115			$	45,976			$	38,578			$	15,032			$	479,701
Net change in unrealized gain (loss)			(1,559	)			109				796				(4,018	)			(4,672	)
Purchases of investments and other adjustments to cost (1)			32,886				5,501				46				889				39,322
Proceeds from principal payments and sales on investments (2)			(23,803	)			(101	)			(10,905	)			—				(34,809	)
Net realized gain (loss) on investments			—				—				—				—				—
Reclassifications			—				—				—				—				—
Balance as of June 30, 2018		$	387,639			$	51,485			$	28,515			$	11,903			$	479,542

 

		Investments
		Senior secured loans				Unitranche secured loans				Junior secured loans				Equity securities				Total investments
Balance as of December 31, 2017		$	387,874			$	40,295			$	38,549			$	17,780			$	484,498
Net change in unrealized gain (loss)			(5,486	)			(27	)			779				(7,026	)			(11,760	)
Purchases of investments and other adjustments to cost (1)			44,910				11,520				93				1,149				57,672
Proceeds from principal payments and sales on investments (2)			(39,659	)			(303	)			(10,906	)			—				(50,868	)
Net realized gain (loss) on investments			—				—				—				—				—
Reclassifications			—				—				—				—				—
Balance as of June 30, 2018		$	387,639			$	51,485			$	28,515			$	11,903			$	479,542

 

(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 total net change in unrealized gain (loss) included in the consolidated statements of operations for the three and six months ended June 30, 2019, attributable to Level 3 investments still held at June 30, 2019, was ($3,803) and ($3,224), respectively. The total net change in unrealized gain (loss) included in the consolidated statements of operations within net change in unrealized gain (loss) on investments for the three and six months ended June 30, 2018, attributable to Level 3 investments still held at June 30, 2018, was ($4,331) and ($10,580), 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, 2019 and 2018.

 

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, 2019 were as follows:

 

								Unobservable		Weighted Average				Range
		Fair Value				Valuation Technique		Input		Mean				Minimum				Maximum
Assets:
Senior secured loans		$	343,889			Discounted cash flow		EBITDA multiples			6.7	x			4.0	x			13.9	x
								Market yields			10.6	%			7.0	%			22.0	%
Senior secured loans			73,556			Discounted cash flow		Revenue multiples			5.6	x			2.4	x			10.0	x
								Market yields			8.1	%			6.5	%			11.5	%
Senior secured loans			17,901			Liquidation		Probability weighting of alternative outcomes			90.5	%			80.8	%			100.0	%
Senior secured loans			15,018			Enterprise value		Tangible book value multiples			1.5	x			1.5	x			1.5	x
Senior secured loans			10,984			Enterprise value		EBITDA multiples			7.3	x			7.0	x			8.5	x
Senior secured loans			7,379			Enterprise value		Revenue multiples			0.4	x			0.4	x			0.4	x
Unitranche secured loans			62,233			Discounted cash flow		EBITDA multiples			7.9	x			4.4	x			10.3	x
								Market yields			10.1	%			8.2	%			15.9	%
Unitranche secured loans			13,249			Enterprise value		EBITDA multiples			4.4	x			4.4	x			7.5	x
Unitranche secured loans			7,861			Discounted cash flow		Revenue multiples			4.7	x			4.7	x			4.7	x
								Market yields			10.3	%			10.3	%			10.3	%
Junior secured loans			813			Liquidation		Probability weighting of alternative outcomes			54.3	%			54.3	%			54.3	%
Junior secured loans			800			Enterprise value		EBITDA multiples			4.4	x			4.4	x			7.5	x
Equity securities			4,528			Enterprise value		EBITDA multiples			8.1	x			4.0	x			13.8	x
Equity securities			3,571			Liquidation		Probability weighting of alterative outcomes			38.4	%			38.4	%			38.4	%
Equity securities			752			Enterprise value		Revenue multiples			3.8	x			2.0	x			4.5	x
Total Level 3 Assets		$	562,534	(1)

 

(1)

Excludes loans of $32,326 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required.

 

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of December 31, 2018 were as follows:

 

								Unobservable		Weighted Average				Range
		Fair Value				Valuation Technique		Input		Mean				Minimum				Maximum
Assets:
Senior secured loans		$	337,840			Discounted cash flow		EBITDA multiples			6.8	x			3.8	x			13.0	x
								Market yields			11.1	%			7.4	%			19.0	%
Senior secured loans			38,183			Discounted cash flow		Revenue multiples			3.5	x			3.1	x			4.5	x
								Market yields			8.1	%			7.7	%			8.5	%
Senior secured loans			17,770			Liquidation		Probability weighting of alternative outcomes			90.0	%			79.4	%			100.0	%
Senior secured loans			13,153			Enterprise value		Tangible book value multiples			1.5	x			1.5	x			1.5	x
Senior secured loans			10,474			Enterprise value		EBITDA multiples			7.5	x			6.5	x			8.3	x
Senior secured loans			8,639			Enterprise value		Revenue multiples			0.4	x			0.4	x			0.4	x
Unitranche secured loans			37,766			Discounted cash flow		EBITDA multiples			7.3	x			4.5	x			8.5	x
								Market yields			12.6	%			10.0	%			20.2	%
Unitranche secured loans			13,134			Enterprise value		EBITDA multiples			4.6	x			4.5	x			8.5	x
Unitranche secured loans			7,952			Enterprise value		Revenue multiples			4.5	x			4.5	x			4.5	x
Junior secured loans			2,292			Liquidation		Probability weighting of alternative outcomes			78.5	%			78.5	%			78.5	%
Junior secured loans			1,260			Enterprise value		EBITDA multiples			4.5	x			4.5	x			4.5	x
Equity securities			4,583			Liquidation		Probability weighting of alternative outcomes			59.0	%			59.0	%			59.0	%
Equity securities			1,465			Enterprise value		EBITDA multiples			7.2	x			4.5	x			10.5	x
Equity securities			650			Enterprise value		Revenue multiples			3.7	x			2.0	x			4.5	x
Total Level 3 Assets		$	495,161	(1)

 

(1)

Excludes loans of $30,826 at fair value where valuation (unadjusted) is obtained from a third-party pricing service for which such disclosure is not required.

 

 

The significant unobservable inputs used in the income approach of fair value measurement of the Company’s 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. 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.

 

The significant unobservable inputs used in the market approach of fair value measurement of the Company’s 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 or revenue 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 or revenue of the portfolio company (or other meaningful measure). 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.

 

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. As of June 30, 2019, the 2023 Notes were trading on The Nasdaq Global Select Market for $25.25 per unit at par value. The par value at underwriting for the 2023 Notes was $25.00 per unit. Based on this Level 1 input, the fair value of the $109,000 in principal outstanding 2023 Notes was $110,090. As of December 31, 2018, the 2023 Notes were trading on The Nasdaq Global Select Market for $23.50 per unit at par value. Based on this Level 1 input, the fair value of the $69,000 in principal outstanding 2023 Notes was $64,860. SBA 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 both June 30, 2019 and December 31, 2018, the fair value of the Company’s SBA debentures using Level 3 inputs were estimated at $115,000, 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 interest of 5% or more of its voting securities. A controlled affiliate company is a company in which the Company has an ownership interest of more than 25% of its voting securities. Please see the Company’s consolidated schedule of investments for the type of investment, principal amount, interest rate including the spread, and the maturity date. Transactions related to the Company’s investments with affiliates for the six months ended June 30, 2019 and 2018 were as follows:

 

Portfolio Company		Fair value at December 31, 2018				Transfers in (out)				Purchases (cost)				Sales and paydowns (cost)				PIK interest (cost)				Discount accretion				Net realized gain (loss)				Net unrealized gain (loss)				Fair value at June 30, 2019
Non-controlled affiliate company investments:
American Community Homes, Inc.		$	6,596			$	—			$	—			$	—			$	505			$	15			$	—			$	(914	)		$	6,202
American Community Homes, Inc.			3,997				—				—				—				421				8				—				(582	)			3,844
American Community Homes, Inc.			499				—				—				—				39				1				—				(70	)			469
American Community Homes, Inc.			400				—				—				—				30				2				—				(56	)			376
American Community Homes, Inc.			215				—				—				—				23				1				—				(32	)			207
American Community Homes, Inc.			1,446				—				—				—				115				—				—				(198	)			1,363
American Community Homes, Inc.			—				—				3,333				—				89				—				—				(865	)			2,557
American Community Homes, Inc. (warrant to purchase up to 22.3% of the equity)			—				—				—				—				—				—				—				—				—
			13,153				—				3,333				—				1,222				27				—				(2,717	)			15,018
Curion Holdings, LLC			3,592				—				—				—				273				4				—				(267	)			3,602
Curion Holdings, LLC (Revolver)			244				—				77				—				17				—				—				(3	)			335
Curion Holdings, LLC (Junior secured loan)			—				—				—				—				—				—				—				—				—
Curion Holdings, LLC (Junior secured loan)			—				—				—				—				—				—				—				—				—
Curion Holdings, LLC (58,779 shares of common stock)			—				—				—				—				—				—				—				—				—
			3,836				—				77				—				290				4				—				(270	)			3,937
Incipio, LLC			12,830				—				—				—				—				28				—				83				12,941
Incipio, LLC			3,573				—				—				—				—				—				—				(5	)			3,568
Incipio, LLC			1,518				—				—				—				—				—				—				12				1,530
Incipio, LLC			—				—				656				—				—				—				—				(3	)			653
Incipio, LLC (Junior secured loan)			1,260				—				—				—				—				—				—				(460	)			800
Incipio, LLC (Junior secured loan)			—				—				—				—				—				—				—				—				—
Incipio, LLC (1,774 shares of Series C common units)			—				—				—				—				—				—				—				—				—
			19,181				—				656				—				—				28				—				(373	)			19,492
Luxury Optical Holdings Co.			4,334				—				—				—				255				10				—				(253	)			4,346
Luxury Optical Holdings Co. (Delayed Draw)			622				—				—				—				—				—				—				1				623
Luxury Optical Holdings Co. (Revolver)			200				—				—				—				11				—				—				(11	)			200
Luxury Optical Holdings Co. (86 shares of common stock)			—				—				—				—				—				—				—				—				—
			5,156				—				—				—				266				10				—				(263	)			5,169
Millennial Brands LLC (10 preferred units)			—				—				—				—				—				—				—				—				—
Millennial Brands LLC (75,502 common units)			—				—				—				—				—				—				—				—				—
			—				—				—				—				—				—				—				—				—
New England College of Business and Finance, LLC (Revolver) (1)			—				—				150				—				—				—				—				—				150
New England College of Business and Finance, LLC (20.8% of units) (1)			—				1,458				—				—				—				—				—				1,136				2,594
			—				1,458				150				—				—				—				—				1,136				2,744
SHI Holdings, Inc.			2,598				—				—				(14	)			139				4				—				(47	)			2,680
SHI Holdings, Inc. (Revolver)			3,342				—				137				—				185				(5	)			—				(51	)			3,608
SHI Holdings, Inc. (24 shares of common stock)			307				—				—				—				—				—				—				(205	)			102
			6,247				—				137				(14	)			324				(1	)			—				(303	)			6,390
Summit Container Corporation			3,034				—				—				—				—				—				—				(8	)			3,026
Summit Container Corporation (Revolver)			6,660				—				16,800				(18,145	)			—				—				—				(10	)			5,305
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)			—				—				—				—				—				—				—				—				—
			9,694				—				16,800				(18,145	)			—				—				—				(18	)			8,331
Total non-controlled affiliate company investments		$	57,267			$	1,458			$	21,153			$	(18,159	)		$	2,102			$	68			$	—			$	(2,808	)		$	61,081
Controlled affiliate company investments:
MRCC Senior Loan Fund I, LLC		$	27,634			$	—			$	7,875			$	—			$	—			$	—			$	—			$	435			$	35,944
			27,634				—				7,875				—				—				—				—				435				35,944
Total controlled affiliate company investments		$	27,634			$	—			$	7,875			$	—			$	—			$	—			$	—			$	435			$	35,944

 

 

Portfolio Company		Fair value at December 31, 2017				Transfers in (out)				Purchases (cost)				Sales and paydowns (cost)				PIK interest (cost)				Discount accretion				Net  realized gain (loss)				Net  unrealized gain (loss)				Fair value at June 30, 2018
Non-controlled affiliate company investments:
American Community Homes, Inc.		$	7,441			$	—			$	—			$	(331	)		$	—			$	22			$	—			$	183			$	7,315
American Community Homes, Inc.			4,329				—				—				(165	)			99				10				—				57				4,330
American Community Homes, Inc.			542				—				—				—				13				1				—				(1	)			555
American Community Homes, Inc.			431				—				—				—				—				2				—				11				444
American Community Homes, Inc.			224				—				—				—				5				2				—				2				233
American Community Homes, Inc. (Delayed Draw)			—				—				—				—				—				—				—				—				—
American Community Homes, Inc. (Delayed Draw)			—				—				—				—				—				—				—				—				—
American Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)			353				—				—				—				—				—				—				(192	)			161
			13,320				—				—				(496	)			117				37				—				60				13,038
Luxury Optical Holdings Co.			3,697				—				—				—				214				9				—				(17	)			3,903
Luxury Optical Holdings Co. (Delayed Draw)			741				—				—				(118	)			—				—				—				(1	)			622
Luxury Optical Holdings Co. (Revolver)			170				—				—				—				10				—				—				—				180
Luxury Optical Holdings Co. (86 shares of common stock)			—				—				—				—				—				—				—				—				—
			4,608				—				—				(118	)			224				9				—				(18	)			4,705
Millennial Brands LLC			—				—				—				—				—				—				—				—				—
Millennial Brands LLC			—				—				—				—				—				—				—				—				—
Millennial Brands LLC			—				—				—				—				—				—				—				—				—
Millennial Brands LLC			550				—				—				—				—				—				—				(362	)			188
Millennial Brands LLC			—				—				—				—				—				—				—				—				—
Millennial Brands LLC (10 preferred units)			—				—				—				—				—				—				—				—				—
Millennial Brands LLC (75,502 common units)			—				—				—				—				—				—				—				—				—
			550				—				—				—				—				—				—				(362	)			188
Rockdale Blackhawk, LLC			10,594				—				—				—				—				110				—				2,049				12,753
Rockdale Blackhawk, LLC (Capex)			533				—				—				—				—				—				—				108				641
Rockdale Blackhawk, LLC (Revolver)			1,797				—				—				—				—				—				—				362				2,159
Rockdale Blackhawk, LLC (Revolver)			3,145				—				—				—				—				—				—				633				3,778
Rockdale Blackhawk, LLC (Revolver)			—				—				2,288				—				—				—				—				384				2,672
Rockdale Blackhawk, LLC – LLC Units (22.7% of the LLC interest) (2)			5,673				—				—				—				—				—				—				(5,673	)			—
			21,742				—				2,288				—				—				110				—				(2,137	)			22,003
SHI Holdings, Inc.			2,625				—				—				(13	)			—				6				—				(7	)			2,611
SHI Holdings, Inc. (Revolver)			2,226				—				614				—				—				3				—				(4	)			2,839
SHI Holdings, Inc. (24 shares of common stock)			786				—				—				—				—				—				—				(230	)			556
			5,637				—				614				(13	)			—				9				—				(241	)			6,006
Summit Container Corporation			3,421				—				—				—				37				13				—				24				3,495
Summit Container Corporation			1,507				—				—				(1,523	)			15				—				—				1				—
Summit Container Corporation (Revolver)			—				—				7,253				(2,366	)			—				—				—				—				4,887
Summit Container Corporation (warrant to purchase up to 19.5% of the equity)			—				—				—				—				—				—				—				—				—
			4,928				—				7,253				(3,889	)			52				13				—				25				8,382
TPP Operating, Inc. (3)			—				—				—				—				—				—				—				—				—
TPP Operating, Inc. (3)			3,373				724				63				(42	)			—				—				—				(4,118	)			—
TPP Operating, Inc. (3)			4,593				(724	)			467				(47	)			—				—				—				(4,289	)			—
TPP Operating, Inc. (24 shares of common stock) (3)			—				—				—				—				—				—				—				—				—
TPP Operating, Inc. (16 shares of common stock) (3)			—				—				—				—				—				—				—				—				—
			7,966				—				530				(89	)			—				—				—				(8,407	)			—
Total non-controlled affiliate company investments		$	58,751			$	—			$	10,685			$	(4,605	)		$	393			$	178			$	—			$	(11,080	)		$	54,322
Controlled affiliate company investments:
MRCC Senior Loan Fund I, LLC		$	9,640			$	—			$	17,850			$	(9,500	)		$	—			$	—			$	—			$	703			$	18,693
			9,640				—				17,850				(9,500	)			—				—				—				703				18,693
Total controlled affiliate company investments		$	9,640			$	—			$	17,850			$	(9,500	)		$	—			$	—			$	—			$	703			$	18,693

  

(1)

During the three months ended June 30, 2019, the Company participated in a credit bid to acquire the assets of New England College of Business (“NECB”), which was a subsidiary of Education Corporation of America (“ECA”). As a result, the Company obtained a 20.8% equity stake in NECB in exchange for a $1,458 reduction of secured loan position in ECA. The Company also provided a follow-on revolver commitment to NECB.

(2)

The Company provided a follow-on investment to Rockdale Blackhawk, LLC (“Rockdale”) during the six months ended June 30, 2018. In conjunction with the follow-on investment, the Company also received an additional 4.6% of the equity of Rockdale, increasing total equity ownership to 22.7%. On July 20, 2018, the Company put back its 22.7% equity investment in Rockdale in advance of a bankruptcy filing and therefore it is no longer an affiliated investment.

(3)

In December 2017, the Company transferred 16.0% of the equity interest in TPP Operating, Inc. (“TPP”) shares to a wholly-owned entity, MCC Holdco Equity Manager I, LLC (“MCC Holdco”), which has an independent manager who has full control over the operations of MCC Holdco, including the right to vote the shares of TPP Holdco LLC, the holding company which owns the Company’s equity interest in TPP. As a result, the Company then only controlled 24.0% of the voting interests in TPP, which is presented as a non-controlled affiliate company investment. During the year ended December 31, 2018, TPP ceased operations and the Company, along with the other owners, appointed an assignee and pursuant to Delaware state law completed a General Assignment for the Benefit of Creditors to the assignee. The purpose of the assignment was to wind down the TPP business and distribute the assets to its creditors. The assignee has informed the Company that it will have de minimis assets, if any, to distribute to its creditors. As a result, the Company fully realized a loss on TPP of $24,503 during the year ended December 31, 2018.

 

 

		For the six months ended June 30,
		2019												2018
Portfolio Company		Interest income				Dividend income				Fee income				Interest income				Dividend income				Fee income
Non-controlled affiliate company investments:
American Community Homes, Inc.		$	517			$	—			$	—			$	568			$	—			$	—
American Community Homes, Inc.			427				—				—				426				—				—
American Community Homes, Inc.			40				—				—				54				—				—
American Community Homes, Inc.			32				—				—				35				—				—
American Community Homes, Inc.			24				—				—				23				—				—
American Community Homes, Inc.			94				—				—				—				—				—
American Community Homes, Inc.			92				—				—				—				—				—
American Community Homes, Inc. (Warrant)			—				—				—				—				—				—
			1,226				—				—				1,106				—				—
Curion Holdings, LLC			291				—				—				n/a				n/a				n/a
Curion Holdings, LLC (Revolver)			20				—				—				n/a				n/a				n/a
Curion Holdings, LLC (Junior secured loan)			—				—				—				n/a				n/a				n/a
Curion Holdings, LLC (Junior secured loan)			—				—				—				n/a				n/a				n/a
Curion Holdings, LLC (Common Stock)			—				—				—				n/a				n/a				n/a
			311				—				—				n/a				n/a				n/a
Incipio, LLC			768				—				—				n/a				n/a				n/a
Incipio, LLC			196				—				—				n/a				n/a				n/a
Incipio, LLC			85				—				—				n/a				n/a				n/a
Incipio, LLC			15				—				—				n/a				n/a				n/a
Incipio, LLC (Junior secured loan)			—				—				—				n/a				n/a				n/a
Incipio, LLC (Junior secured loan)			—				—				—				n/a				n/a				n/a
Incipio, LLC (Common Stock)			—				—				—				n/a				n/a				n/a
			1,064				—				—				n/a				n/a				n/a
Luxury Optical Holdings Co.			263				—				—				222				—				—
Luxury Optical Holdings Co. (Delayed Draw)			44				—				—				44				—				—
Luxury Optical Holdings Co. (Revolver)			12				—				—				10				—				—
Luxury Optical Holdings Co. (Common Stock)			—				—				—				—				—				—
			319				—				—				276				—				—
Millennial Brands LLC (Preferred Units)			—				—				—				—				—				—
Millennial Brands LLC (Common Units)			—				—				—				—				—				—
			—				—				—				—				—				—
New England College of Business and Finance, LLC (Revolver)			—				—				—				n/a				n/a				n/a
New England College of Business and Finance, LLC (20.8% of Units)			—				—				—				n/a				n/a				n/a
			—				—				—				n/a				n/a				n/a
Rockdale Blackhawk, LLC			n/a				n/a				n/a				920				—				—
Rockdale Blackhawk, LLC (Capex)			n/a				n/a				n/a				41				—				—
Rockdale Blackhawk, LLC (Revolver)			n/a				n/a				n/a				137				—				—
Rockdale Blackhawk, LLC (Revolver)			n/a				n/a				n/a				240				—				—
Rockdale Blackhawk, LLC (Revolver)			n/a				n/a				n/a				104				—				—
Rockdale Blackhawk, LLC (LLC interest)			n/a				n/a				n/a				—				—				—
			n/a				n/a				n/a				1,442				—				—
SHI Holdings, Inc.			173				—				—				165				—				—
SHI Holdings, Inc. (Revolver)			223				—				—				155				—				—
SHI Holdings, Inc. (Common Stock)			—				—				—				—				—				—
			396				—				—				320				—				—
Summit Container Corporation			172				—				—				304				—				83
Summit Container Corporation			—				—				—				108				—				—
Summit Container Corporation (Revolver)			304				—				—				23				—				—
Summit Container Corporation (Warrant)			—				—				—				—				—				—
			476				—				—				435				—				83
TPP Operating, Inc.			n/a				n/a				n/a				—				—				—
TPP Operating, Inc.			n/a				n/a				n/a				—				—				—
TPP Operating, Inc.			n/a				n/a				n/a				—				—				—
TPP Operating, Inc. (Common Stock)			n/a				n/a				n/a				—				—				—
TPP Operating, Inc. (Common Stock)			n/a				n/a				n/a				—				—				—
			n/a				n/a				n/a				—				—				—
Total non-controlled affiliate company investments		$	3,792			$	—			$	—			$	3,579			$	—			$	83
Controlled affiliate company investments:
MRCC Senior Loan Fund I, LLC		$	—			$	1,645			$	—			$	—			$	525			$	—
			—				1,645				—				—				525				—
Total controlled affiliate company investments		$	—			$	1,645			$	—			$	—			$	525			$	—

 

 

Note 6. Transactions with Related Parties

 

The Company has entered into an investment advisory and management agreement with MC Advisors, (the “Investment Advisory Agreement”), 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 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, which includes assets financed using leverage) and is payable in arrears. Base management fees for the three and six months ended June 30, 2019 were $2,723 and $5,244, respectively. Base management fees for the three and six months ended June 30, 2018 were $2,202 and $4,365, 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 pre-incentive fee net investment income will be payable except to the extent that 20% 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 (the “Incentive Fee Limitation”). 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 pre-incentive fee net investment income for such calendar quarter exceeds the 2% 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 pre-incentive fee net investment income, realized gains and losses and unrealized gains and losses 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.

 

The composition of the Company’s incentive fees was as follows:

 

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
Part one incentive fees (1)		$	1,592			$	1,780			$	3,270			$	3,625
Part two incentive fees (2)			—				—				—				—
Incentive Fee Limitation			(424	)			(790	)			(502	)			(1,874	)
Incentive fees, excluding the impact of the incentive fee waiver			1,168				990				2,768				1,751
Incentive fee waiver (3)			(285	)			—				(566	)			—
Total incentive fees, net of incentive fee waiver		$	883			$	990			$	2,202			$	1,751

 

(1)

Based on net investment income.

(2)

Based upon net realized and unrealized gains and losses, or capital gains. 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 gain (loss) plus net unrealized gain (loss) 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 gain (loss) plus net unrealized gain (loss).

(3)

Represents part one incentive fees waived by MC Advisors.

 

The Company has entered into an administration agreement with MC Management (the “Administration Agreement”), 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, 2019, the Company incurred $876 and $1,739, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, of which $319 and $666, 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, 2018, the Company incurred $849 and $1,656, respectively, in administrative expenses (included within Professional fees, Administrative service fees and General and administrative expenses on the consolidated statements of operations) under the Administration Agreement, of which $322 and $646, respectively, was related to MC Management overhead and salary allocation and paid directly to MC Management. As of June 30, 2019 and December 31, 2018, $319 and $342, respectively, 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 has the right to use the “Monroe Capital” name at no cost, subject to certain conditions, for so long as MC Advisors or one of its affiliates remains its investment adviser. Other than with respect to this limited license, the Company has no legal right to the “Monroe Capital” name or logo.

 

 

Note 7. Borrowings

 

On June 20, 2018, the Company’s stockholders approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act to the Company. As a result of this approval, the Company is now permitted to borrow amounts such that its asset coverage ratio, as defined in the 1940 Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of June 30, 2019 and December 31, 2018, the Company’s asset coverage ratio based on aggregate borrowings outstanding was 183% and 223%, respectively.

 

Revolving Credit Facility: On March 1, 2019, the Company amended and restated its revolving credit facility (as amended and restated and further amended on March 20, 2019, the “Amended Credit Agreement”) with ING Capital LLC, as agent. Among other things, the Amended Credit Agreement increased the size of the facility from $200,000 to $255,000 (with an accordion feature that permits the Company, under certain circumstances, to increase the size of the facility up to $400,000), extended the period during which the Company may make draws under the revolving credit facility from expiring on December 14, 2019 to expiring on March 1, 2023, extended the final maturity date from December 14, 2020 to March 1, 2024, lowered the interest rate margins (a) for LIBOR loans (which may be one, three or six month, at the Company’s option), from 2.75% to 2.375% and (b) for alternate base rate loans, from 1.75% to 1.375%, reduced the asset coverage covenant from 2.1 to 1 to 1.5 to 1, replaced the consolidated interest coverage ratio with a minimum senior debt coverage ratio of 2 to 1 (in addition to the asset coverage ratio noted above), and increased the advance rate against certain types of assets in the Company’s portfolio. The Company incurred expenses of $1,751 in conjunction with the amendment which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

As of June 30, 2019, the maximum amount the Company was able to borrow was $255,000 and this borrowing can be increased to $400,000 pursuant to an accordion feature (subject to maintaining 150% asset coverage, as defined by the 1940 Act). 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 may make draws under the revolving credit facility to make or purchase additional investments through March 1, 2023 and for general working capital purposes until March 1, 2024, the maturity date of the revolving credit facility.

 

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 72.5% 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 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 total net assets at least equal to $175,000 plus 65% of the net proceeds to the Company from sales of its equity securities after March 1, 2019; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 1.5 to 1; and (3) a senior debt coverage ratio of at least 2 to 1. The revolving 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 Monroe Capital Corporation 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 revolving 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 revolving credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain the Company’s status as a RIC.

 

As of June 30, 2019, the Company had U.S. dollar borrowings of $169,850 and non-U.S. dollar borrowings denominated in Great Britain pounds of £14,800 ($18,790 in U.S. dollars) under the revolving credit facility. As of December 31, 2018, the Company had U.S. dollar borrowings of $117,150 and non-U.S. dollar borrowings denominated in Great Britain pounds of £14,800 ($18,876 in U.S. dollars) under the revolving credit facility. The borrowings denominated in Great Britain pounds may be positively or negatively affected by movements in the rate of exchange between the U.S. dollar and the Great Britain pound. These movements are beyond the control of the Company and cannot be predicted. The borrowings denominated in Great Britain pounds are translated into U.S. dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign currency borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions in the Company’s consolidated statements of operations and totaled $502 and $86 for the three and six months ended June 30, 2019 and $795 and $353 for the three and six months ended June 30, 2018, respectively.

 

Borrowings under the revolving credit facility bear interest, at the Company’s election, at an annual rate of LIBOR (one-month, three-month or six-month at the Company’s discretion based on the term of the borrowing) plus 2.375% or at a daily rate equal to 1.375% 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 35% 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 35% of the then available maximum borrowing. As of June 30, 2019 and December 31, 2018, the outstanding borrowings were accruing at a weighted average interest rate of 4.7% and 5.0%, respectively.

 

 

2023 Notes: On September 12, 2018, the Company closed a public offering of 2,760,000 units of senior unsecured notes at a public offering price of $25.00 per unit, resulting in aggregate principal and gross proceeds of $69,000. Aggregate underwriters’ discounts and commissions were $2,156 and deferred financing costs were $450, resulting in net proceeds of approximately $66,394. On March 20, 2019, the Company closed a registered direct offering of 1,600,000 units of 2023 Notes at an offering price of $24.75 per unit, resulting in additional aggregate principal of $40,000 and gross proceeds of $39,600. Placement agent fees were $530 and deferred financing costs were $754, resulting in net proceeds of approximately $38,316. The 2023 Notes mature on October 31, 2023. Interest on the 2023 Notes is paid quarterly on January 31, April 30, July 31, and October 31, at an annual rate of 5.75%. The Company may redeem the 2023 Notes in whole or in part at any time or from time to time on or after October 31, 2020. The 2023 Notes are general, unsecured obligations and rank equal in right of payment with all of the Company’s existing and future unsecured indebtedness. The 2023 Notes are listed on The Nasdaq Global Select Market under the trading symbol MRCCL.

 

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 Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013.

 

The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA 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, 2019, MRCC SBIC had $23,884 in cash and $148,131 in investments at fair value. As of December 31, 2018, MRCC SBIC had $13,982 in cash and $161,014 in investments at fair value.

 

SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $175,000 when it has at least $87,500 in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also limits a related group of SBICs (commonly referred to as a “family of funds”) to a maximum of $350,000 in total borrowings.

 

As of both June 30, 2019 and December 31, 2018, MRCC SBIC had $57,624 in leverageable capital and the following SBA debentures outstanding:

 

Maturity Date		Interest Rate				Amount
September 2024			3.4	%		$	12,920
March 2025			3.3	%			14,800
March 2025			2.9	%			7,080
September 2025			3.6	%			5,200
March 2027			3.5	%			20,000
September 2027			3.2	%			32,100
March 2028			3.9	%			18,520
September 2028			4.2	%			4,380
Total						$	115,000

 

On October 2, 2014, the Company was granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the asset coverage test under the 1940 Act. The receipt of this exemption for this SBA debt increases flexibility under the asset coverage test.

 

Components of interest expense: The components of the Company’s interest expense and other debt financing expenses, average outstanding balances and average stated interest rates (i.e. the rate in effect plus spread) were as follows:

 

		Three months ended June 30,
		2019				2018
Interest expense – revolving credit facility		$	2,092			$	1,551
Interest expense – 2023 Notes			1,566				—
Interest expense – SBA debentures			981				970
Amortization of deferred financing costs			468				315
Total interest and other debt financing expenses		$	5,107			$	2,836
Average outstanding balance		$	390,293			$	238,110
Average stated interest rate			4.7	%			4.2	%

 

		Six months ended June 30,
		2019				2018
Interest expense – revolving credit facility		$	3,987			$	3,108
Interest expense – 2023 Notes			2,622				—
Interest expense – SBA debentures			1,951				1,838
Amortization of deferred financing costs			901				596
Total interest and other debt financing expenses		$	9,461			$	5,542
Average outstanding balance		$	364,659			$	237,567
Average stated interest rate			4.7	%			4.2	%

 

 

Note 8. Derivative Instruments

 

The Company enters into foreign currency forward contracts from time to time to help mitigate the impact that an adverse change in foreign exchange rates would have on future interest cash flows from the Company’s investments denominated in foreign currencies. As of June 30, 2019 and December 31, 2018, the counterparty to these foreign currency forward contracts was Bannockburn Global Forex, LLC. Net unrealized gain or loss on foreign currency forward contracts are included in net change in unrealized gain (loss) from foreign currency forward contracts and net realized gain or loss on forward currency forward contracts are included in net realized gain (loss) from foreign currency forward contracts in the accompanying consolidated statements of operations.

 

Certain information related to the Company’s foreign currency forward contracts is presented below as of June 30, 2019 and December 31, 2018.

  

		As of June 30, 2019
		Notional Amount to be Sold				Settlement Date		Gross Amount of Unrealized Gain				Gross Amount of Unrealized Loss				Balance Sheet location of Net Amounts
Foreign currency forward contract		£	41			7/1/2019		$	1			$	—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			8/30/2019			3				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	105			10/1/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			11/29/2019			3				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	104			1/2/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	231			2/28/2020			3				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	103			4/1/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	102			5/5/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			5/29/2020			3				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			8/28/2020			3				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	229			11/30/2020			3				—			Unrealized gain on foreign currency forward contracts
Total		£	1,835					$	23			$	—

  

		As of December 31, 2018
		Notional Amount to be Sold				Settlement Date		Gross Amount of Unrealized Gain				Gross Amount of Unrealized Loss				Balance Sheet location of Net Amounts
Foreign currency forward contract		£	107			1/2/2019		$	1			$	—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	228			2/28/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	106			4/1/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	229			5/31/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	106			7/1/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			8/30/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	105			10/1/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			11/29/2019			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	104			1/2/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	231			2/28/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	103			4/1/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	102			5/5/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			5/29/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	230			8/28/2020			1				—			Unrealized gain on foreign currency forward contracts
Foreign currency forward contract		£	229			11/30/2020			2				—			Unrealized gain on foreign currency forward contracts
Total		£	2,570					$	16			$	—

 

For the three and six months ended June 30, 2019, the Company recognized net change in unrealized gain (loss) on foreign currency forward contracts of $72 and $7, respectively. For the three and six months ended June 30, 2019, the Company recognized net realized gain (loss) on foreign currency forward contracts of $2 and ($6), respectively. There were no derivatives outstanding during the three and six months ended June 30, 2018.

 

 

Note 9. Distributions

 

The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2019 and 2018:

 

 

Date Declared		Record Date		Payment Date		Amount Per Share				Cash Distribution				DRIP Shares Issued				DRIP Shares Value				DRIP Shares Repurchased in the Open Market				Cost of DRIP Shares Repurchased
Six months ended June 30, 2019:
March 5, 2019		March 15, 2019		March 29, 2019		$	0.35			$	7,156				—			$	—				27,498			$	342
May 31, 2019		June 14, 2019		June 28, 2019			0.35				7,156				—				—				30,802				363
Total distributions declared						$	0.70			$	14,312				—			$	—				58,300			$	705
Six months ended June 30, 2018:
March 1, 2018		March 16, 2018		March 30, 2018		$	0.35			$	7,084				—			$	—				23,908			$	301
June 1, 2018		June 15, 2018		June 29, 2018			0.35				6,786				22,308				301				—				—
Total distributions declared						$	0.70			$	13,870				22,308			$	301				23,908			$	301

 

Note 10. Stock Issuances and Repurchases

 

Stock Issuances: On May 12, 2017, the Company entered into its current at-the-market (“ATM”) securities offering program with JMP Securities LLC (“JMP”) and FBR Capital Markets & Co. (“FBR”) (the “ATM Program”). During the six months ended June 30, 2018, the Company sold 17,140 shares at an average price of $14.21 per share for gross proceeds of $243 under the ATM program. Aggregate underwriter’s discounts and commissions were $3 and offering costs were $31, resulting in net proceeds of approximately $209. There were no stock issuances during the six months ended June 30, 2019.

 

Note 11. Commitments and Contingencies

 

Commitments: As of June 30, 2019 and December 31, 2018, the Company had $56,767 and $56,041, respectively, in outstanding commitments to fund investments under undrawn revolvers, capital expenditure loans and delayed draw commitments. As described in Note 3, the Company had unfunded commitments of $14,925 and $22,800, respectively, to SLF, as of June 30, 2019 and December 31, 2018 that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee. Drawdowns of the commitments to SLF require authorization from one of the Company’s representatives on SLF’s board of managers. Management believes the Company’s available cash balances and/or ability to draw on the revolving credit facility provide sufficient funds to cover its unfunded commitments as of June 30, 2019.

 

Indemnifications: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these agreements is unknown, as these involve future claims that may be made against the Company but that have not occurred. The Company expects the risk of any future obligations under these indemnifications to be remote.

 

Concentration of credit and counterparty risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of the contract. In the event that the counterparties do not fulfill their obligations, the Company may be exposed to risk. The risk of default depends on the creditworthiness of the counterparties or issuers of the instruments. It is the Company’s policy to review, as necessary, the credit standing of each counterparty.

 

Market risk: The Company’s investments and borrowings are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments and borrowings are traded.

 

Legal proceedings: In the normal course of business, the Company may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company is not currently aware of any such proceedings or disposition that would have a material adverse effect on the Company’s consolidated financial statements.

 

 

Note 12. Financial Highlights

 

The following is a schedule of financial highlights for the six months ended June 30, 2019 and 2018:

 

		June 30, 2019				June 30, 2018
Per share data:
Net asset value at beginning of period		$	12.66			$	13.77
Net investment income (1)			0.69				0.81
Net gain (loss) (1)			(0.13	)			(0.53	)
Net increase in net assets from operations (1)			0.56				0.28
Stockholder distributions - income (2)			(0.70	)			(0.70	)
Net asset value at end of period		$	12.52			$	13.35
Net assets at end of period		$	255,888			$	270,708
Shares outstanding at end of period			20,444,564				20,279,405
Per share market value at end of period		$	11.54			$	13.48
Total return based on market value (3)			27.26	%			3.38	%
Total return based on average net asset value (4)			4.43	%			2.07	%
Ratio/Supplemental data:
Ratio of net investment income to average net assets (5)			11.93	%			12.69	%
Ratio of total expenses, net of incentive fee waiver, to average net assets (5) (6)			13.77	%			9.21	%
Portfolio turnover (7)			9.06	%			12.17	%

 

(1)	Calculated using the weighted average shares outstanding during the periods presented.
(2)	Management monitors available taxable earnings, including net investment income and realized capital gains, to determine if a tax return of capital may occur for the year. To the extent the Company’s taxable earnings fall below the total amount of the Company’s distributions for that fiscal year, a portion of those distributions may be deemed a tax return of capital to the Company’s stockholders. The tax character of distributions will be determined at the end of the fiscal year. However, if the character of such distributions were determined as of June 30, 2019 and 2018, none of the distributions would have been characterized as a tax return of capital to the Company’s stockholders; this tax return of capital may differ from the return of capital calculated with reference to net investment income for financial reporting purposes.
(3)	Total return based on market value is calculated assuming a purchase of common shares at the market value on the first day and a sale at the market value on the last day of the periods reported. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the Company’s DRIP. Total return based on market value does not reflect brokerage commissions. Return calculations are not annualized.
(4)	Total return based on average net asset value is calculated by dividing the net increase in net assets from operations by the average net asset value. Return calculations are not annualized.
(5)	Ratios are annualized. Incentive fees included within the ratio are not annualized.
(6)	The following is a schedule of supplemental ratios for the six months ended June 30, 2019 and 2018. These ratios have been annualized unless otherwise noted.

 

		June 30, 2019				June 30, 2018
Ratio of interest and other debt financing expenses to average net assets			7.40	%			4.08	%
Ratio of total expenses (without incentive fees) to average net assets			12.92	%			8.57	%
Ratio of incentive fees, net of incentive fee waiver, to average net assets (7) (8)			0.85	%			0.64	%

 

(7)	Ratios are not annualized.
(8)	The ratio of waived incentive fees to average net assets was 0.22% and zero for six months ended June 30, 2019 and 2018, respectively.

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Except as otherwise specified, references to “we,” “us” and “our” refer to Monroe Capital Corporation and its consolidated subsidiaries; MC Advisors refers to Monroe Capital BDC Advisors, LLC, our investment adviser and a Delaware limited liability company; MC Management refers to Monroe Capital Management Advisors, LLC, our administrator and a Delaware limited liability company; and Monroe Capital refers to Monroe Capital LLC, a Delaware limited liability company, and its subsidiaries and affiliates. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing in our annual report on Form 10-K (the “Annual Report”) for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission (“SEC”) on March 5, 2019. The information contained in this section should also be read in conjunction with our unaudited consolidated financial statements and related notes and other financial information appearing elsewhere in this quarterly report on Form 10-Q (the “Quarterly Report”).

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to future events or our future performance or future financial condition. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our company, our industry, our beliefs and our assumptions. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties, including statements as to:

 

•

our future operating results;

 

•

our business prospects and the prospects of our portfolio companies;

 

•

the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

•

the impact of a protracted decline in the liquidity of credit markets on our business;

 

•

the impact of increased competition;

 

•

the impact of fluctuations in interest rates on our business and our portfolio companies;

 

•

our contractual arrangements and relationships with third parties;

 

•

the valuation of our investments in portfolio companies, particularly those having no liquid trading market;

 

•

actual and potential conflicts of interest with MC Advisors, MC Management and other affiliates of Monroe Capital;

 

•

the ability of our portfolio companies to achieve their objectives;

 

•

the use of borrowed money to finance a portion of our investments;

 

•

the adequacy of our financing sources and working capital;

 

•

the timing of cash flows, if any, from the operations of our portfolio companies;

 

•

the ability of MC Advisors to locate suitable investments for us and to monitor and administer our investments;

 

•

the ability of MC Advisors or its affiliates to attract and retain highly talented professionals;

 

•

our ability to qualify and maintain our qualification as a regulated investment company and as a business development company; and

 

•

the impact of future legislation and regulation on our business and our portfolio companies.

 

We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks,” “plans,” “estimates,” “targets” and similar expressions to identify forward-looking statements. The forward-looking statements contained in this Quarterly Report involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth in “Part I-Item 1A. Risk Factors” in our Annual Report and “Part II-Item 1A. Risk Factors” in this Quarterly Report.

 

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be inaccurate. Important assumptions include our ability to originate new loans and investments, certain margins and levels of profitability and the availability of additional capital. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved.

 

 

We have based the forward-looking statements included in this Quarterly Report on information available to us on the date of this Quarterly Report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this Quarterly Report, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we may file in the future with the SEC, including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and current reports on Form 8-K.

 

Overview

 

Monroe Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, we have elected to be treated as a regulated investment company (“RIC”) under the subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). We are a specialty finance company focused on providing financing solutions primarily to lower middle-market companies in the United States and Canada. We provide customized financing solutions focused primarily on senior secured, junior secured and unitranche secured (a combination of senior secured and junior secured debt in the same facility in which we syndicate a “first out” portion of the loan to an investor and retain a “last out” portion of the loan) debt and, to a lesser extent, unsecured subordinated debt and equity, including equity co-investments in preferred and common stock, and warrants.

 

Our shares are currently listed on the NASDAQ Global Select Market under the symbol “MRCC”.

 

Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured, unitranche secured and junior secured debt and, to a lesser extent, subordinated debt and equity investments. We seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured, unitranche secured and junior secured debt of middle-market companies. Our investments will generally range between $2.0 million and $18.0 million each, although this investment size may vary proportionately with the size of our capital base. As of June 30, 2019, our portfolio included approximately 76.7% senior secured debt, 13.2% unitranche secured debt, 3.0% junior secured debt and 7.1% equity securities, compared to December 31, 2018, when our portfolio included approximately 79.3% senior secured debt, 10.6% unitranche secured debt, 3.8% junior secured debt and 6.3% equity securities. We expect that the companies in which we invest may be leveraged, often as a result of leveraged buy-outs or other recapitalization transactions, and, in certain cases, will not be rated by national ratings agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor’s system) from the national rating agencies.

 

While our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private U.S. companies, we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in high-yield bonds, distressed debt, private equity or securities of public companies that are not thinly traded, and securities of middle-market companies located outside of the United States. We expect that these public companies generally will have debt securities that are non-investment grade.

 

On February 28, 2014, our 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 Act of 1958. MRCC SBIC commenced operations on September 16, 2013. See “SBA Debentures” below for more information.

 

On September 12, 2018, we closed a public offering of $69.0 million in aggregate principal amount of senior unsecured notes (“2023 Notes”). On March 20, 2019, we completed a registered direct offering of $40.0 million in additional aggregate principal amount of our 2023 Notes. See “2023 Notes” below for more information.

 

Investment income

 

We generate interest income on the debt investments in portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, unitranche secured or junior secured debt, typically have an initial term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investment based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. In some cases, our investments provide for deferred interest of payment-in-kind (“PIK”) interest. In addition, we may generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums and prepayment gains (losses) on loans as interest income. As the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains (losses) may fluctuate significantly from period to period, the associated interest income recorded may also fluctuate significantly from period to period. Interest and fee income is recorded on the accrual basis to the extent we expect to collect such amounts. Interest 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. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from limited liability company (“LLC”) and limited partnership (“LP”) investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. The frequency and volume of the distributions on common equity securities and LLC and LP investments may fluctuate significantly from period to period.

 

 Expenses

 

Our primary operating expenses include the payment of base management and incentive fees to MC Advisors, under the investment advisory and management agreement (the “Investment Advisory Agreement”), the payment of fees to MC Management for our allocable portion of overhead and other expenses under the administration agreement (the “Administration Agreement”) and other operating costs. See Note 6 to our consolidated financial statements and “Related Party Transactions” below for additional information on our Investment Advisory Agreement and Administration Agreement. Our expenses also include interest expense on our various forms of indebtedness. We bear all other out-of-pocket costs and expenses of our operations and transactions.

 

Net gain (loss)

 

We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments, foreign currency forward contracts, foreign currency and other transactions within net change in unrealized gain (loss) in the consolidated statements of operations.

 

Portfolio and Investment Activity

 

During the three months ended June 30, 2019, we invested $31.0 million in six new portfolio companies and $29.5 million in 21 existing portfolio companies and had $24.7 million in aggregate amount of sales and principal repayments, resulting in net investments of $35.8 million for the period.

 

During the six months ended June 30, 2019, we invested $67.2 million in 14 new portfolio companies and $63.4 million in 29 existing portfolio companies and had $53.8 million in aggregate amount of sales and principal repayments, resulting in net investments of $76.8 million for the period.

 

During the three months ended June 30, 2018, we invested $13.6 million in five new portfolio company and $26.7 million in 14 existing portfolio companies and had $34.8 million in aggregate amount of sales and principal repayments, resulting in net investments of $5.5 million for the period.

 

During the six months ended June 30, 2018, we invested $18.5 million in six new portfolio company and $54.3 million in 19 existing portfolio companies and had $60.4 million in aggregate amount of sales and principal repayments, resulting in net investments of $12.4 million for the period.

 

The following table shows portfolio yield by security type:

 

		June 30, 2019								December 31, 2018
		Weighted Average Annualized Contractual Coupon Yield (1)				Weighted Average Annualized Effective Yield (2)				Weighted Average Annualized Contractual Coupon Yield (1)				Weighted Average Annualized Effective Yield (2)
Senior secured loans			10.0	%			10.0	%			10.2	%			10.2	%
Unitranche secured loans			9.7				10.1				10.3				10.8
Junior secured loans			10.7				10.7				9.0				9.0
Preferred equity securities			0.5				0.5				0.5				0.5
Total			9.9	%			9.9	%			10.0	%			10.0	%

 

(1)

The weighted average annualized contractual coupon yield at period end is computed by dividing (a) the interest income on debt investments and preferred equity investments (with a stated coupon rate) at the period end contractual coupon rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual within this metric as management believes this disclosure provides a better indication of return on invested capital. This exclusion impacts only the junior secured loans and total disclosed above. The weighted average contractual coupon yield including debt investments acquired for no cost in a restructuring on non-accrual status was 6.1% for junior secured loans and 9.7% in total as of June 30, 2019. The weighted average contractual coupon yield including debt investments acquired for no cost in a restructuring on non-accrual status was 5.6% for junior secured loans and 9.8% in total as of December 31, 2018.

(2)

The weighted average annualized effective yield on portfolio investments at period end is computed by dividing (a) interest income on debt investments and preferred equity investments (with a stated coupon rate) at the period end effective rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual within this metric as management believes this disclosure provides a better indication of return on invested capital. This exclusion impacts only the junior secured loans and total disclosed above. The weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 6.1% for junior secured loans and 9.7% in total as of June 30, 2019. The weighted average effective yield including debt investments acquired for no cost in a restructuring on non-accrual status was 5.6% for junior secured loans and 9.8% in total as of December 31, 2018. The weighted average annualized effective yield on portfolio investments is a metric on the investment portfolio alone and does not represent a return to stockholders. This metric is not inclusive of our fees and expenses, the impact of leverage on the portfolio or sales load that may be paid by investors.

 

 

The following table shows the composition of our investment portfolio (in thousands):

 

		June 30, 2019								December 31, 2018
Fair Value:
Senior secured loans		$	483,682				76.7	%		$	439,068				79.3	%
Unitranche secured loans			83,343				13.2				58,852				10.6
Junior secured loans			18,858				3.0				21,154				3.8
LLC equity interest in SLF			35,944				5.7				27,634				5.0
Equity securities			8,977				1.4				6,913				1.3
Total		$	630,804				100.0	%		$	553,621				100.0	%

 

Our portfolio composition remained relatively consistent with December 31, 2018. The slight decrease in total contractual and effective yields on the portfolio during the six months ended June 30, 2019 was primarily attributed to general decreases in LIBOR combined with market spread compression, as new portfolio investments were at a slightly lower average spread than the average spread in the existing portfolio.

 

The following table shows the portfolio composition by industry grouping (in thousands):

 

		June 30, 2019								December 31, 2018
Fair Value:
Automotive		$	7,727				1.2	%		$	7,878				1.4	%
Banking, Finance, Insurance & Real Estate			65,700				10.4				55,839				10.1
Beverage, Food & Tobacco			16,092				2.6				15,544				2.8
Chemicals, Plastics & Rubber			14,786				2.3				14,971				2.7
Construction & Building			35,013				5.6				29,791				5.4
Consumer Goods: Durable			22,632				3.6				25,212				4.5
Consumer Goods: Non-Durable			21,482				3.4				19,181				3.5
Containers, Packaging & Glass			8,331				1.3				9,694				1.8
Energy: Oil & Gas			6,727				1.1				2,516				0.4
Environmental Industries			12,631				2.0				12,195				2.2
Healthcare & Pharmaceuticals			58,151				9.2				52,769				9.5
High Tech Industries			80,540				12.8				77,954				14.1
Hotels, Gaming & Leisure			20,246				3.2				20,264				3.7
Investment Funds & Vehicles			35,944				5.7				27,634				5.0
Media: Advertising, Printing & Publishing			21,079				3.3				21,908				4.0
Media: Broadcasting & Subscription			5,676				0.9				4,483				0.8
Media: Diversified & Production			10,611				1.7				5,000				0.9
Retail			30,242				4.8				31,866				5.8
Services: Business			105,679				16.7				73,336				13.2
Services: Consumer			20,772				3.3				17,846				3.2
Wholesale			30,743				4.9				27,740				5.0
Total		$	630,804				100.0	%		$	553,621				100.0	%

 

 

Portfolio Asset Quality

 

MC Advisors’ portfolio management staff closely monitors all credits, with senior portfolio managers covering agented and more complex investments. MC Advisors segregates our capital markets investments by industry. The MC Advisors’ monitoring process and projections developed by Monroe Capital both have daily, weekly, monthly and quarterly components and related reports, each to evaluate performance against historical, budget and underwriting expectations. MC Advisors’ analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance. When necessary, MC Advisors will update our internal risk ratings, borrowing base criteria and covenant compliance reports.

 

As part of the monitoring process, MC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below, which we refer to as MC Advisors’ investment performance rating. For any investment rated in grades 3, 4 or 5, MC Advisors, through its internal Portfolio Management Group (“PMG”), will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions. The PMG is responsible for oversight and management of any investments rated in grades 3, 4, or 5. MC Advisors monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with our valuation process, MC Advisors reviews these investment ratings on a quarterly basis, and our board of directors (the “Board”) reviews and affirms such ratings. A definition of the rating system follows:

 

Investment Performance Risk Rating		Summary Description
Grade 1		Includes investments exhibiting the least amount of risk in our portfolio. The issuer is performing above expectations or the issuer’s operating trends and risk factors are generally positive.
Grade 2		Includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination. The issuer is generally performing as expected or the risk factors are neutral to positive.
Grade 3		Includes investments performing below expectations and indicates that the investment’s risk has increased somewhat since origination. The issuer may be out of compliance with debt covenants; however, scheduled loan payments are generally not past due.
Grade 4		Includes an issuer performing materially below expectations and indicates that the issuer’s risk has increased materially since origination. In addition to the issuer being generally out of compliance with debt covenants, scheduled loan payments may be past due (but generally not more than six months past due).
Grade 5		Indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination. Most or all of the debt covenants are out of compliance or payments are substantially delinquent. Investments graded 5 are not anticipated to be repaid in full.

 

Our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments.

 

In the event of a delinquency or a decision to rate an investment grade 4 or grade 5, the PMG, in consultation with the investment committee, will develop an action plan. Such a plan may require a meeting with the borrower’s management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance, as well as amendments and waivers that may be required. In the event of a dramatic deterioration of a credit, MC Advisors and the PMG will form a team or engage outside advisors to analyze, evaluate and take further steps to preserve our value in the credit. In this regard, we would expect to explore all options, including in a private equity sponsored investment, assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us. The PMG and the investment committee have extensive experience in running debt work-out transactions and bankruptcies.

 

The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of June 30, 2019 (in thousands):

 

Investment Performance Risk Rating		Investments at Fair Value				Percentage of Total Investments
1		$	—				—	%
2			517,797				82.1
3			73,159				11.6
4			39,848				6.3
5			—				—
Total		$	630,804				100.0	%

 

 

The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of December 31, 2018 (in thousands):

 

Investment Performance Risk Rating		Investments at Fair Value				Percentage of Total Investments
1		$	—				—	%
2			452,549				81.8
3			57,741				10.4
4			43,331				7.8
5			—				—
Total		$	553,621				100.0	%

 

As of June 30, 2019, we had five borrowers with loans or preferred equity securities on non-accrual status (Curion Holdings, LLC (“Curion”) promissory notes, Education Corporation of America (“ECA”), Incipio, LLC (“Incipio”) third lien tranches, Millennial Brands LLC (“Millennial”), and Rockdale Blackhawk, LLC (“Rockdale”) pre-petition debt), and these investments totaled $14.0 million in fair value, or 2.2% of our total investments at fair value. As of December 31, 2018, we had five borrowers with loans or preferred equity securities on non-accrual status (Curion promissory notes, ECA, Incipio third lien tranches, Millennial, and Rockdale pre-petition debt), and these investments totaled $16.8 million in fair value, or 3.0% of our total investments at fair value. The Curion promissory notes and the Incipio third lien tranches were obtained in restructurings during the year ended December 31, 2018 for no cost. 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.

 

Results of Operations

 

Operating results were as follows (in thousands):

 

		Three months ended June 30,
		2019				2018
Total investment income		$	16,719			$	14,820
Total expenses, net of incentive fee waiver			9,646				6,914
Net investment income			7,073				7,906
Net realized gain (loss) on investments			35				—
Net realized gain (loss) on foreign currency forward contracts			2				—
Net realized gain (loss) on foreign currency and other transactions			(1	)			(9	)
Net realized gain (loss)			36				(9	)
Net change in unrealized gain (loss) on investments			(3,691	)			(4,412	)
Net change in unrealized gain (loss) on foreign currency forward contracts			72				—
Net change in unrealized gain (loss) on foreign currency and other transactions			502				795
Net change in unrealized gain (loss)			(3,117	)			(3,617	)
Net increase (decrease) in net assets resulting from operations		$	3,992			$	4,280

 

		Six months ended June 30,
		2019				2018
Total investment income		$	32,878			$	29,770
Total expenses, net of incentive fee waiver			18,731				13,399
Net investment income			14,147				16,371
Net realized gain (loss) on investments			35				—
Net realized gain (loss) on foreign currency forward contracts			(6	)			—
Net realized gain (loss) on foreign currency and other transactions			(2	)			3
Net realized gain (loss)			27				3
Net change in unrealized gain (loss) on investments			(2,834	)			(11,057	)
Net change in unrealized gain (loss) on foreign currency forward contracts			7				—
Net change in unrealized gain (loss) on foreign currency and other transactions			86				353
Net change in unrealized gain (loss)			(2,741	)			(10,704	)
Net increase (decrease) in net assets resulting from operations		$	11,433			$	5,670

 

 

Investment Income

 

The composition of our investment income was as follows (in thousands):

 

		Three months ended June 30,
		2019				2018
Interest income		$	14,026			$	12,376
Payment-in-kind interest income			1,261				327
Dividend income (1)			888				615
Fee income			60				666
Prepayment gain (loss)			91				312
Accretion of discounts and amortization of premium			393				524
Total investment income		$	16,719			$	14,820

 

		Six months ended June 30,
		2019				2018
Interest income		$	27,240			$	24,673
Payment-in-kind interest income			2,315				656
Dividend income (2)			1,671				1,050
Fee income			629				1,390
Prepayment gain (loss)			204				445
Accretion of discounts and amortization of premium			819				1,556
Total investment income		$	32,878			$	29,770

 

	(1)	Includes PIK dividends of $13 thousand and $265 thousand, respectively.
	(2)	Includes PIK dividends of $26 thousand and $525 thousand, respectively.

 

The increase in investment income of $1.9 million and $3.1 million during the three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018, respectively, is primarily the result of an increase in interest income (including payment-in-kind interest income) due to an increase in average outstanding loan balances and an increase in dividend income from our investment in SLF, partially offset by a decrease in fee income and prepayment gain (loss).

  

Operating Expenses

 

The composition of our operating expenses was as follows (in thousands):

 

		Three months ended June 30,
		2019				2018
Interest and other debt financing expenses		$	5,107			$	2,836
Base management fees			2,723				2,202
Incentive fees, net of incentive fee waiver (1)			883				990
Professional fees			272				302
Administrative service fees			319				322
General and administrative expenses			285				225
Excise taxes			17				—
Directors’ fees			40				37
Total expenses, net of incentive fee waiver		$	9,646			$	6,914

 

		Six months ended June 30,
		2019				2018
Interest and other debt financing expenses		$	9,461			$	5,542
Base management fees			5,244				4,365
Incentive fees, net of incentive fee waiver (1)			2,202				1,751
Professional fees			561				609
Administrative service fees			666				646
General and administrative expenses			512				401
Excise taxes			10				11
Directors’ fees			75				74
Total expenses, net of incentive fee waiver		$	18,731			$	13,399

 

(1)

During the three and six months ended June 30, 2019, MC Advisors waived part one incentive fees (based on net investment income) of $285 thousand and $566 thousand, respectively. During the three and six months ended June 30, 2018, no incentive fees were waived. Incentive fees during the three and six months ended June 30, 2019 were limited by $424 thousand and $502 thousand, respectively, due to the Incentive Fee Limitation. During the three and six months ended June 30, 2018, incentive fees were limited by $790 thousand and $1,874 thousand, respectively, due to the Incentive Fee Limitation. See Note 6 in our attached consolidated financial statements for additional information on the Incentive Fee Limitation.

 

 

The composition of our interest and other debt financing expenses, average outstanding balances and average stated interest rates (i.e. the rate in effect plus spread) were as follows (in thousands): 

 

		Three months ended June 30,
		2019				2018
Interest expense – revolving credit facility		$	2,092			$	1,551
Interest expense – 2023 Notes			1,566				—
Interest expense – SBA debentures			981				970
Amortization of deferred financing costs			468				315
Total interest and other debt financing expenses		$	5,107			$	2,836
Average outstanding balance		$	390,293			$	238,110
Average stated interest rate			4.7	%			4.2	%

 

		Six months ended June 30,
		2019				2018
Interest expense – revolving credit facility		$	3,987			$	3,108
Interest expense – 2023 Notes			2,622				—
Interest expense – SBA debentures			1,951				1,838
Amortization of deferred financing costs			901				596
Total interest and other debt financing expenses		$	9,461			$	5,542
Average outstanding balance		$	364,659			$	237,567
Average stated interest rate			4.7	%			4.2	%

 

The increase in expenses of $2.7 million and $5.3 million during the three and six months ended June 30, 2019, as compared to the three and six months ended June 30, 2018, respectively, is primarily due to an increase in interest expense as a result of additional borrowings (primarily the 2023 Notes and revolving credit facility) to support the larger average portfolio size and an increase in base management fees due to the growth in invested assets.

 

 Net Realized Gain (Loss)

 

During the three months ended June 30, 2019 and 2018, we had sales of investments of $0.7 million and zero, respectively, resulting in $35 thousand and zero of net realized gain (loss), respectively. During the six months ended June 30, 2019 and 2018, we had sales of investments of $0.7 million and zero, respectively, resulting in $35 thousand and zero of net realized gain (loss), respectively.

 

We may enter into foreign currency forward contracts to reduce our exposure to foreign currency exchange rate fluctuations. During the three months ended June 30, 2019 and 2018, we had $2 thousand and zero of net realized gain (loss) on foreign currency forward contracts, respectively. For the six months ended June 30, 2019 and 2018, the Company recognized net realized gain (loss) on foreign currency forward contracts of ($6) thousand and zero, respectively. During the three months ended June 30, 2019 and 2018, we had ($1) thousand and ($9) thousand of net realized gain (loss) on foreign currency and other transactions, respectively. During the six months ended June 30, 2019 and 2018, we had ($2) thousand and $3 thousand of net realized gain (loss) on foreign currency and other transactions, respectively. 

 

Net Change in Unrealized Gain (Loss)

 

For the three months ended June 30, 2019 and 2018, our investments had ($3.7) million and ($4.4) million of net change in unrealized gain (loss), respectively. The net change in unrealized gain (loss) includes both unrealized gain on investments in our portfolio with mark-to-market gains during the period and unrealized loss on investments in our portfolio with mark-to-market losses during the period. For the three months ended June 30, 2019 and 2018, our foreign currency forward contracts had $0.1 million and zero of net change in unrealized gain (loss), respectively. For the three months ended June 30, 2019 and 2018, our foreign currency borrowings had $0.5 million and $0.8 million of net change in unrealized gain (loss), respectively.

 

 

For the six months ended June 30, 2019 and 2018, our investments had ($2.8) million and ($11.1) million of net change in unrealized gain (loss), respectively. The net change in unrealized gain (loss) includes both unrealized gain on investments in our portfolio with mark-to-market gains during the period and unrealized loss on investments in our portfolio with mark-to-market losses during the period. For the six months ended June 30, 2019 and 2018, our foreign currency forward contracts had $7 thousand and zero of net change in unrealized gain (loss), respectively. For the six months ended June 30, 2019 and 2018, our foreign currency borrowings had $0.1 million and $0.4 million of net change in unrealized gain (loss), respectively.

 

Net Increase (Decrease) in Net Assets Resulting from Operations

 

For the three months ended June 30, 2019 and 2018, the net increase (decrease) in net assets from operations was $4.0 million and $4.3 million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended June 30, 2019 and 2018, our per share net increase (decrease) in net assets resulting from operations was $0.20 and $0.21, respectively. The $0.3 million decrease during the three months ended June 30, 2019 as compared to the three months ended June 30, 2018, is primarily the result of a decrease in net investment income, partially offset by a decrease in net unrealized mark-to-market losses on investments in the portfolio.

  

For the six months ended June 30, 2019 and 2018, the net increase (decrease) in net assets from operations was $11.4 million and $5.7 million, respectively. Based on the weighted average shares of common stock outstanding for the six months ended June 30, 2019 and 2018, our per share net increase (decrease) in net assets resulting from operations was $0.56 and $0.28, respectively. The $5.7 million increase during the six months ended June 30, 2019 as compared to the six months ended June 30, 2018, is primarily the result of a decrease in net unrealized mark-to-market losses on investments in the portfolio, partially offset by a decrease in net investment income.

 

Liquidity and Capital Resources

 

As of June 30, 2019, we had $3.0 million in cash, $23.9 million in cash at MRCC SBIC, $188.6 million of total debt outstanding on our revolving credit facility, $109.0 million in 2023 Notes and $115.0 million in outstanding SBA debentures. We had $66.4 million available for additional borrowings on our revolving credit facility. See “Borrowings” below for additional information.

 

Cash Flows

 

For the six months ended June 30, 2019 and 2018, we experienced a net increase (decrease) in cash and restricted cash of $9.1 million and ($0.2) million, respectively. For the six months ended June 30, 2019, operating activities used $65.8 million, primarily as a result of purchases of portfolio investments, partially offset by principal repayments on portfolio investments. For the six months ended June 30, 2018, operating activities used $0.4 million, primarily as a result of purchases of portfolio investments, partially offset by principal repayments on portfolio investments. During the six months ended June 30, 2019, we generated $75.0 million from financing activities, primarily as a result of net proceeds from net borrowings on our revolving credit facility and 2023 Notes, partially offset by distributions to stockholders. During the six months ended June 30, 2018, we generated $0.2 million from financing activities, primarily as a result of net proceeds from net borrowings on our revolving credit facility and SBA debenture borrowings, partially offset by distributions to stockholders.

 

Capital Resources

 

As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. We intend to generate additional cash primarily from future offerings of securities, future borrowings and cash flows from operations, including income earned from investments in our portfolio companies. On both a short-term and long-term basis, our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders.

 

As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value per share of our common stock if our Board, including independent directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders have approved such sales. On June 19, 2019 our stockholders voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year, subject to certain limitations. As of June 30, 2019 and December 31, 2018, we had 20,444,564 and 20,444,564 shares outstanding, respectively.

 

On June 24, 2015, our stockholders approved a proposal to authorize us to issue warrants, options or rights to subscribe to, convert to, or purchase our common stock in one or more offerings. This is a standing authorization and does not require annual re-approval by our stockholders.

 

On June 20, 2018, our stockholders approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result of this approval, we are now permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of June 30, 2019 and December 31, 2018, our asset coverage ratio based on aggregate borrowings outstanding was 183% and 223%, respectively.

 

Stock Issuances: On May 12, 2017, we entered into our current at-the-market (“ATM”) securities offering program with JMP Securities LLC (“JMP”) and FBR Capital Markets & Co. (“FBR”) (the “ATM Program”). During the six months ended June 30, 2018, we sold 17,140 shares at an average price of $14.21 per share for gross proceeds of $0.2 million under the ATM. Aggregate underwriter’s discounts and commissions were $3 thousand and offering costs were $31 thousand, resulting in net proceeds of approximately $0.2 million. There were no stock issuances during the six months ended June 30, 2019.

 

 

Borrowings

 

Revolving Credit Facility: On March 1, 2019, we amended and restated our revolving credit facility (as amended and restated and further amended on March 20, 2019, the “Amended Credit Agreement”) with ING Capital LLC, as agent. Among other things, the Amended Credit Agreement increased the size of the facility from $200.0 million to $255.0 million (with an accordion feature that permits us, under certain circumstances, to increase the size of the facility up to $400.0 million), extended the period during which we may make draws under the revolving credit facility from expiring on December 14, 2019 to expiring on March 1, 2023, extended the final maturity date from December 14, 2020 to March 1, 2024, lowered the interest rate margins (a) for LIBOR loans (which may be one, three or six month, at the Company’s option), from 2.75% to 2.375% and (b) for alternate base rate loans, from 1.75% to 1.375%, reduced the asset coverage covenant from 2.1 to 1 to 1.5 to 1, replaced the consolidated interest coverage ratio with a minimum senior debt coverage ratio of 2 to 1 (in addition to the asset coverage ratio noted above), and increased the advance rate against certain types of assets in our portfolio. We incurred expenses of $1.8 million in conjunction with the amendment which have been capitalized within unamortized deferred financing costs and are amortized into interest expense over the estimated average life of the borrowings.

 

As of June 30, 2019, the maximum amount we are able to borrow was $255.0 million and this borrowing can be increased to $400.0 million pursuant to an accordion feature (subject to maintaining 150% asset coverage, as defined by the 1940 Act). The revolving credit facility is secured by a lien on all of our assets, including cash on hand, but excluding the assets of our wholly-owned subsidiary, MRCC SBIC. We may make draws under the revolving credit facility to make or purchase additional investments through March 1, 2023 and for general working capital purposes until March 1, 2024, the maturity date of the revolving credit facility.

 

Our ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits us to borrow up to 72.5% of the fair market value of our portfolio company investments depending on the type of the investment we hold and whether the investment is quoted. Our ability to borrow is also subject to certain concentration limits, and continued compliance with the representations, warranties and covenants given by us under the facility. The revolving credit facility contains certain financial and restrictive covenants, including, but not limited to, our maintenance of: (1) a minimum consolidated total net assets at least equal to $175.0 million plus 65% of the net proceeds to us from sales of our equity securities after March 1, 2019; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 1.5 to 1; and (3) a senior debt coverage ratio of at least 2 to 1. The revolving credit facility also requires us 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 Monroe Capital Corporation and MC Advisors, failure to comply with financial and negative covenants, and failure to maintain our relationship with MC Advisors. If we incur an event of default under the revolving credit facility and fail 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 our liquidity, financial condition, results of operations and cash flows.

 

Our revolving credit facility also imposes certain conditions that may limit the amount of our distributions to stockholders. Distributions payable in our common stock under the DRIP are not limited by the revolving credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain our status as a RIC.

 

As of June 30, 2019, we had U.S. dollar borrowings of $169.8 million and non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.8 million in U.S. dollars) under the revolving credit facility. As of December 31, 2018, we had U.S. dollar borrowings of $117.1 million and non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.9 million in U.S. dollars) under the revolving credit facility. The borrowings denominated in Great Britain pounds may be positively or negatively affected by movements in the rate of exchange between the U.S. dollar and the Great Britain pound. These movements are beyond our control and cannot be predicted. The borrowings denominated in Great Britain pounds are translated into U.S. dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign currency borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions on our consolidated statements of operations and totaled $0.5 million and $0.1 million for the three and six months ended June 30, 2019, and $0.8 million and $0.4 million for the three and six months ended June 30, 2018, respectively.

 

Borrowings under the revolving credit facility bear interest, at our election, at an annual rate of LIBOR (one-month, three-month or six-month at our discretion based on the term of the borrowing) plus 2.375% or at a daily rate equal to 1.375% 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, we are 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 35% 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 35% of the then available maximum borrowing. As of June 30, 2019 and December 31, 2018, the outstanding borrowings were accruing at a weighted average interest rate of 4.7% and 5.0%, respectively.

 

 

2023 Notes: On September 12, 2018, we closed a public offering of 2,760,000 units of senior unsecured notes at a public offering price of $25.00 per unit, resulting in aggregate principal and gross proceeds of $69.0 million. Aggregate underwriter’s discounts and commissions were $2.2 million and deferred financing costs were $0.4 million, resulting in net proceeds of approximately $66.4 million. On March 20, 2019, we closed a registered direct offering of 1,600,000 units of 2023 Notes at an offering price of $24.75 per unit, resulting in additional aggregate principal of $40.0 million and gross proceeds of $39.6 million. Placement agent fees were $0.5 million and deferred financing costs were $0.8 million, resulting in net proceeds of approximately $38.3 million. The 2023 Notes mature on October 31, 2023. Interest on the 2023 Notes is paid quarterly on January 31, April 30, July 31, and October 31, at an annual rate of 5.75%. We may redeem the 2023 Notes in whole or in part at any time or from time to time on or after October 31, 2020. The 2023 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness. The 2023 Notes are listed on The Nasdaq Global Select Market under the trading symbol MRCCL.

 

SBA Debentures: On February 28, 2014, our 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 Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013.

 

The SBIC license allows MRCC SBIC to obtain leverage by issuing SBA debentures, subject to the issuance of a leverage commitment by the SBA and other customary procedures. SBA debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten-year maturity. The principal amount of SBA debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA 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 our stockholders in the event we liquidate MRCC SBIC, or the SBA exercises its remedies upon an event of default. As of June 30, 2019, MRCC SBIC had $23.9 million in cash and $148.1 million in investments at fair value. As of December 31, 2018, MRCC SBIC had $14.0 million in cash and $161.0 million in investments at fair value.

 

SBA regulations currently limit the amount that an individual SBIC may borrow to a maximum of $175.0 million when it has at least $87.5 million in regulatory capital, receives a leverage commitment from the SBA and has been through an audit examination by the SBA subsequent to licensing. The SBA also limits a related group of SBICs (commonly referred to as a “family of funds”) to a maximum of $350.0 million in total borrowings.

 

As of both June 30, 2019 and December 31, 2018, MRCC SBIC had $57.6 million in leverageable capital and the following SBA debentures outstanding (in thousands):

 

Maturity Date		Interest Rate				Amount
September 2024			3.4	%		$	12,920
March 2025			3.3	%			14,800
March 2025			2.9	%			7,080
September 2025			3.6	%			5,200
March 2027			3.5	%			20,000
September 2027			3.2	%			32,100
March 2028			3.9	%			18,520
September 2028			4.2	%			4,380
Total						$	115,000

 

On October 2, 2014, we were granted exemptive relief from the SEC for permission to exclude the debt of MRCC SBIC guaranteed by the SBA from the asset coverage test under the 1940 Act. The receipt of this exemption for this SBA debt increases flexibility under the asset coverage test.

   

Distributions

 

Our Board will determine the timing and amount, if any, of our distributions. We intend to pay distributions on a quarterly basis. In order to avoid corporate-level tax on the income we distribute as a RIC, we must distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, on an annual basis out of the assets legally available for such distributions. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually out of the assets legally available for such distributions. Distributions to stockholders for the three and six months ended June 30, 2019, totaled $7.1 million ($0.35 per share) and $14.3 million ($0.70 per share), respectively. Distributions to stockholders for the three and six months ended June 30, 2018, totaled $7.1 million ($0.35 per share) and $14.2 million ($0.70 per share), respectively. The tax character of such distributions is determined at the end of the fiscal year. However, if the character of such distributions were determined as of June 30, 2019 and 2018, no portion of these distributions would have been characterized as a tax return of capital to stockholders.

 

We have adopted an “opt out” dividend reinvestment plan (“DRIP”) for our common stockholders. As a result, if we declare a distribution, our stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes.

 

 

MRCC Senior Loan Fund I, LLC

 

We co-invest with NLV Financial Corporation (“NLV”), in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF is capitalized as underlying investment transactions are completed, taking into account available debt and equity commitments available for funding these investments. All portfolio and investment decisions in respect to SLF must be approved by the SLF investment committee, consisting of one representative of each of us and NLV. SLF may cease making new investments upon notification of either member but operations will continue until all investments have been sold or paid-off in the normal course of business. Investments held by SLF are measured at fair value using the same valuation methodologies as described below. Our investment is illiquid in nature as SLF does not allow for withdrawal from the LLC or the sale of a member’s interest unless approved by the board of members of SLF. The full withdrawal of a member would result in an orderly wind-down of SLF.

 

 SLF’s profits and losses are allocated to us and NLV in accordance with the respective ownership interests. As of both June 30, 2019 and December 31, 2018, we and NLV each owned 50.0% of the LLC equity interests of SLF. As of June 30, 2019, SLF had $100.0 million in equity commitments from its members (in the aggregate), of which $70.2 million was funded. As of December 31, 2018, SLF had $100.0 million in equity commitments from its members (in the aggregate), of which $54.4 million was funded.

 

As of both June 30, 2019 and December 31, 2018, we have committed to fund $50.0 million of LLC equity interest subscriptions to SLF. As of June 30, 2019 and December 31, 2018, $35.1 million and $27.2 million of our LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall, respectively.

 

For the three and six months ended June 30, 2019, we received $0.9 million and $1.7 million of dividend income from our LLC equity interest in SLF, respectively. For the three and six months ended June 30, 2018, we received $0.3 million and $0.5 million of dividend income from our LLC equity interest in SLF, respectively.

 

SLF has entered into a senior secured revolving credit facility (as amended, the “SLF Credit Facility”) with Capital One, N.A., through its wholly-owned subsidiary MRCC Senior Loan Fund I Financing SPV, LLC (“SLF SPV”), which as of June 30, 2019 allowed SLF SPV to borrow up to $170.0 million at any one time, subject to leverage and borrowing base restrictions. On January 9, 2019, the SLF SPV closed a $20.0 million upsize to the SLF Credit Facility, bringing the maximum amount the SLF SPV is able to borrow up to the now current $170.0 million. Borrowings under the SLF Credit Facility bear interest at an annual rate of LIBOR (three-month) plus 2.25%. The maturity date on the SLF Credit Facility is March 22, 2023.

 

SLF does not pay any fees to MC Advisors or its affiliates; however, SLF has entered into an administration agreement with MC Management, pursuant to which certain loan servicing and administrative functions are delegated to MC Management. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. For the three and six months ended June 30, 2019, SLF incurred $47 thousand and $93 thousand respectively, of allocable expenses. SLF did not incur any allocable expenses for the three and six months ended June 30, 2018. There are no agreements or understandings by which we guarantee any SLF obligations.

 

As of June 30, 2019 and December 31, 2018, SLF had total assets at fair value of $240.8 million and $177.1 million, respectively. As of June 30, 2019 and December 31, 2018, SLF had zero and zero portfolio company investments on non-accrual status, respectively. The portfolio companies in SLF are in industries and geographies similar to those in which we may invest directly. Additionally, as of June 30, 2019 and December 31, 2018, SLF had commitments to fund various undrawn revolvers and delayed draw loans to its portfolio companies totaling $7.2 million and $5.5 million, respectively.

 

Below is a summary of SLF’s portfolio, followed by a listing of the individual investments in SLF’s portfolio as of June 30, 2019 and December 31, 2018: 

 

		As of
		June 30, 2019				December 31, 2018
Senior secured loans (1)			237,875				174,267
Weighted average current interest rate on senior secured loans (2)			7.5	%			7.6	%
Number of borrowers in SLF			63				50
Largest portfolio company investment (1)			6,895				6,930
Total of five largest portfolio company investments (1)			29,591				27,489

 

(1)	Represents outstanding principal amount, excluding unfunded commitments. Principal amounts in thousands.
(2)	Computed as the (a) annual stated interest rate on accruing senior secured loans divided by (b) total senior secured loans at outstanding principal amount.

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

June 30, 2019

(in thousands)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate (b)				Maturity		Principal				Fair Value
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Aerospace & Defense
IMIA Holdings, Inc.		L+4.50%			6.83	%		10/28/2024			4,298			$	4,324
IMIA Holdings, Inc. (Revolver) (c)		L+4.50%			6.83	%		10/28/2024			680				—
MAG Aerospace Industries, Inc.		L+4.75%			7.15	%		6/6/2025			3,267				3,251
Novaria Holding, LLC		L+4.75%			7.15	%		12/19/2024			4,312				4,312
Trident Maritime SH, Inc.		L+5.50%			7.83	%		6/4/2024			4,435				4,381
Trident Maritime SH, Inc. (Revolver) (c)		L+5.50%			7.83	%		6/4/2024			340				—
											17,332				16,268
Automotive
Innovative Aftermarket Systems		L+5.50%			7.90	%		1/25/2021			1,947				1,945
Wheel Pros, LLC		L+4.75%			7.15	%		4/4/2025			4,957				4,914
											6,904				6,859
Banking, Finance, Insurance & Real Estate
Avison Young (USA) Inc.		L+5.00%			7.33	%		1/30/2026			4,975				4,901
Lightbox Intermediate, L.P.		L+5.00%			7.45	%		5/11/2026			5,000				4,950
Minotaur Acquisition, Inc.		L+5.00%			7.40	%		3/27/2026			2,992				2,950
Nuvei Technologies Corp.		P+3.50%			9.00	%		9/26/2025			4,138				4,108
Nuvei Technologies Corp. (Delayed Draw) (c)		L+4.50%			6.89	%		9/26/2025			837				708
RMS Holding Company, LLC		L+6.00%			8.58	%		11/16/2022			3,991				3,974
Zenith Merger Sub, Inc.		L+5.25%			7.58	%		12/13/2024			4,724				4,702
Zenith Merger Sub, Inc. (Delayed Draw) (c)		L+5.25%			7.58	%		12/13/2024			265				—
											26,922				26,293
Beverage, Food & Tobacco
Il Fornaio (America) Corporation		L+6.50%			8.90	%		11/10/2022			4,840				4,748
SW Ingredients Holdings, LLC		L+4.00%			6.54	%		7/3/2025			3,722				3,722
US Salt, LLC		L+4.75%			7.15	%		1/16/2026			2,743				2,747
											11,305				11,217
Capital Equipment
Analogic Corporation		L+6.00%			8.40	%		6/24/2024			4,963				4,861
											4,963				4,861
Chemicals, Plastics & Rubber
Loparex International B.V.		L+4.25%			6.65	%		4/11/2025			437				437
Peach State Labs, LLC		L+6.50%			8.94	%		6/30/2021			2,836				2,794
											3,273				3,231
Construction & Building
The Cook & Boardman Group, LLC		L+5.75%			8.37	%		10/20/2025			2,985				2,970
											2,985				2,970
Consumer Goods: Durable
International Textile Group, Inc.		L+5.00%			7.44	%		5/1/2024			1,828				1,700
SSH Group Holdings, Inc.		L+4.25%			6.83	%		7/30/2025			2,316				2,305
											4,144				4,005
Consumer Goods: Non-Durable
PH Beauty Holdings III, Inc.		L+5.00%			7.40	%		9/26/2025			2,480				2,465
											2,480				2,465
Containers, Packaging & Glass
Liqui-Box Holdings, Inc. (d)		L+4.50%			6.90	%		6/3/2026			4,333				4,298
Polychem Acquisition, LLC		L+5.00%			7.40	%		3/17/2025			2,993				3,002
Port Townsend Holdings Company, Inc.		L+4.75%			7.15	%		4/3/2024			4,862				4,856
PVHC Holding Corp		L+4.75%			7.08	%		8/5/2024			3,300				3,218
PVHC Holding Corp (Delayed Draw) (c)		L+4.75%			7.08	%		8/5/2024			425				—
											15,913				15,374
Energy: Oil & Gas
Drilling Info Holdings, Inc.		L+4.25%			6.65	%		7/30/2025			4,617				4,599
Drilling Info Holdings, Inc. (Delayed Draw) (c)		L+4.25%			6.65	%		7/30/2025			16				—
Offen, Inc. (d)		L+5.00%			7.40	%		6/22/2026			2,448				2,424
Offen, Inc. (Delayed Draw) (c) (d)		L+5.00%			7.40	%		6/22/2026			885				—
											7,966				7,023
Healthcare & Pharmaceuticals
LSCS Holdings, Inc.		L+4.25%			6.58	%		3/17/2025			2,328				2,316
LSCS Holdings, Inc.		L+4.25%			6.58	%		3/17/2025			601				598
P&L Developments, LLC (d)		L+7.50%			9.90	%		6/28/2024			3,000				2,925
Radiology Partners, Inc.		L+4.75%			7.34	%		7/9/2025			4,975				4,974
Solara Medical Supplies, LLC		L+6.00%			8.40	%		2/27/2024			5,543				5,543
Solara Medical Supplies, LLC (Delayed Draw) (c)		L+6.00%			8.40	%		2/27/2024			1,072				429
Solara Medical Supplies, LLC (Revolver) (c)		L+6.00%			8.40	%		2/27/2024			714				—
											18,233				16,785
High Tech Industries
AQA Acquisition Holding, Inc.		L+4.25%			6.58	%		5/24/2023			3,308				3,292
Corel Corporation		L+5.00%			7.52	%		6/4/2024			3,642				3,642
Corel Corporation (d)		L+5.00%			7.40	%		7/2/2026			2,500				2,394
Datto, Inc.		L+4.25%			6.58	%		4/2/2026			3,333				3,354
Gigamon, Inc.		L+4.25%			6.65	%		12/27/2024			2,955				2,881
LW Buyer, LLC (d)		L+5.00%			7.40	%		12/30/2024			5,000				4,950
Perforce Software, Inc.		L+4.50%			6.93	%		12/27/2024			1,990				1,986
Perforce Software, Inc. (d)		L+4.50%			6.90	%		7/1/2026			3,333				3,333
TGG TS Acquisition Company		L+6.50%			8.93	%		12/12/2025			4,290				4,274
											30,351				30,106
Hotels, Gaming & Leisure
Tait LLC		L+5.00%			7.41	%		3/28/2025			4,231				4,146
Tait LLC (Revolver) (c)		L+5.00%			7.41	%		3/28/2025			769				—
											5,000				4,146
Media: Advertising, Printing & Publishing
Cadent, LLC		L+5.25%			7.63	%		9/11/2023			4,975				4,962
Cadent, LLC (Revolver) (c)		L+5.25%			7.63	%		9/11/2023			167				—
Digital Room Holdings, Inc.		L+5.00%			7.40	%		5/21/2026			4,428				4,318
											9,570				9,280
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC		L+5.50%			8.08	%		12/20/2024			6,895				6,886
Stats Intermediate Holding, LLC (d)		L+5.25%			7.65	%		7/12/2026			5,000				4,950
											11,895				11,836
Services: Business
CHA Holdings, Inc.		L+4.50%			6.83	%		4/10/2025			2,033				2,030
CHA Holdings, Inc. (Delayed Draw) (c)		L+4.50%			6.81	%		4/10/2025			446				428
Eliassen Group, LLC		L+4.50%			6.90	%		11/5/2024			3,040				3,040
Engage2Excel, Inc.		L+6.50%			9.36	%		3/7/2023			4,320				4,286
Engage2Excel, Inc.		L+6.50%			9.12	%		3/7/2023			779				773
Engage2Excel, Inc. (Delayed Draw) (c)		L+6.50%			9.12	%		3/7/2023			500				—
Engage2Excel, Inc. (Revolver) (c)		P+5.50%			11.00	%		3/7/2023			545				159
GI Revelation Acquisition LLC		L+5.00%			7.40	%		4/16/2025			1,386				1,376
North Haven CA Holdings, Inc.		L+4.50%			6.83	%		10/2/2023			4,618				4,618
Orbit Purchaser LLC		L+4.50%			7.19	%		10/21/2024			2,500				2,489
Orbit Purchaser LLC		L+4.50%			7.05	%		10/21/2024			1,931				1,922
Orbit Purchaser LLC		L+4.50%			7.19	%		10/21/2024			565				562
Output Services Group, Inc.		L+4.25%			6.65	%		3/27/2024			4,940				4,470
SIRVA Worldwide, Inc.		L+5.50%			7.90	%		8/4/2025			1,975				1,922
The Kleinfelder Group, Inc.		L+4.75%			7.12	%		11/29/2024			2,488				2,474
											32,066				30,549
Services: Consumer
Cambium Learning Group, Inc.		L+4.50%			7.08	%		12/18/2025			4,975				4,932
LegalZoom.com, Inc.		L+4.50%			6.90	%		11/21/2024			2,735				2,754
WeddingWire, Inc.		L+4.50%			6.90	%		12/19/2025			1,161				1,165
											8,871				8,851
Telecommunications
Intermedia Holdings, Inc.		L+6.00%			8.40	%		7/21/2025			1,824				1,829
Mavenir Systems, Inc.		L+6.00%			8.42	%		5/8/2025			3,960				3,957
											5,784				5,786
Transportation: Cargo
GlobalTranz Enterprises LLC		L+5.00%			7.39	%		5/15/2026			3,312				3,217
GlobalTranz Enterprises LLC (Delayed Draw) (c)		L+5.00%			7.39	%		5/15/2026			855				—
											4,167				3,217
Utilities: Oil & Gas
NGS US Finco, LLC		L+4.25%			6.65	%		10/1/2025			1,741				1,740
											1,741				1,740
Wholesale
AmeriLife Group, LLC		L+4.50%			6.90	%		6/12/2026			2,924				2,929
AmeriLife Group, LLC (Delayed Draw) (c)		L+4.50%			6.90	%		6/12/2026			410				—
BMC Acquisition, Inc.		L+5.25%			7.65	%		12/30/2024			4,925				4,925
HALO Buyer, Inc.		L+4.50%			6.90	%		6/27/2025			4,950				4,901
											13,209				12,755
TOTAL INVESTMENTS														$	235,617

 

(a)	All investments are U.S. companies, except for Loparex International B.V.

(b)

The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. The Company has provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at June 30, 2019. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)	All or a portion of this commitment was unfunded as of June 30, 2019. Principal reflects the commitment outstanding.

(d)	Investment position or portion thereof unsettled as of June 30, 2019.

 

 

MRCC SENIOR LOAN FUND I, LLC

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2018

 (in thousands)

 

Portfolio Company (a)		Spread Above Index (b)		Interest Rate (b)				Maturity		Principal				Fair Value
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Aerospace & Defense
IMIA Holdings, Inc.		L+4.50%			7.30	%		10/28/2024			4,320			$	4,341
IMIA Holdings, Inc. (Revolver) (c)		L+4.50%			7.30	%		10/28/2024			680				—
MAG Aerospace Industries, Inc.		L+4.75%			7.27	%		6/6/2025			3,284				3,267
Novaria Holding, LLC (d)		L+4.75%			7.27	%		12/19/2024			4,333				4,290
The KEYW Corporation		L+4.50%			6.89	%		5/8/2024			1,488				1,473
Trident Maritime SH, Inc.		L+5.50%			8.30	%		6/4/2024			4,637				4,623
Trident Maritime SH, Inc. (Revolver) (c)		L+5.50%			8.30	%		6/4/2024			340				—
											19,082				17,994
Automotive
Wheel Pros, LLC		L+4.75%			7.27	%		4/4/2025			3,980				3,920
											3,980				3,920
Banking, Finance, Insurance & Real Estate
Kestra Financial, Inc. (d)		L+4.25%			6.77	%		6/24/2022			3,564				3,537
MTC Intermediate Holdco, Inc.		L+4.50%			7.02	%		1/30/2023			4,963				4,963
Pivotal Payments Inc.		P+3.50%			9.00	%		9/26/2025			2,902				2,873
Pivotal Payments Inc. (Delayed Draw) (c)		L+4.50%			6.98	%		9/26/2025			841				518
Zenith Merger Sub, Inc.		L+5.50%			8.30	%		12/13/2023			3,713				3,701
											15,983				15,592
Beverage, Food & Tobacco
Il Fornaio (America) Corporation		L+6.50%			9.02	%		11/10/2022			4,894				4,847
SW Ingredients Holdings, LLC		L+4.25%			7.05	%		7/3/2025			3,731				3,709
US Salt, LLC		L+4.75%			7.27	%		11/30/2023			3,474				3,474
											12,099				12,030
Capital Equipment
Analogic Corporation		L+6.00%			8.52	%		6/24/2024			4,988				4,786
											4,988				4,786
Chemicals, Plastics & Rubber
Loparex International B.V.		L+4.25%			7.05	%		4/11/2025			498				490
Peach State Labs, LLC		L+6.50%			8.85	%		6/30/2021			2,850				2,825
											3,348				3,315
Construction & Building
Fastener Acquisition, Inc.		L+4.25%			7.05	%		3/28/2025			1,323				1,256
The Cook & Boardman Group, LLC		L+5.75%			8.55	%		10/20/2025			3,000				2,978
											4,323				4,234
Consumer Goods: Durable
International Textile Group, Inc.		L+5.00%			7.35	%		5/1/2024			1,852				1,819
SSH Group Holdings, Inc.		L+4.25%			6.77	%		7/30/2025			2,327				2,240
											4,179				4,059
Consumer Goods: Non-Durable
PH Beauty Holdings III, Inc.		L+5.00%			7.52	%		9/26/2025			1,995				1,925
											1,995				1,925
Containers, Packaging & Glass
Port Townsend Holdings Company, Inc.		L+4.75%			7.27	%		4/3/2024			4,887				4,893
PVHC Holding Corp		L+4.75%			7.57	%		8/5/2024			3,317				3,333
PVHC Holding Corp (Delayed Draw) (c)		L+4.75%			7.57	%		8/5/2024			425				—
											8,629				8,226
Energy: Oil & Gas
Drilling Info Holdings, Inc.		L+4.25%			6.77	%		7/30/2025			4,307				4,296
Drilling Info Holdings, Inc. (Delayed Draw) (c)		L+4.25%			6.77	%		7/30/2025			350				—
											4,657				4,296
Healthcare & Pharmaceuticals
LSCS Holdings, Inc.		L+4.25%			6.77	%		3/17/2025			2,328				2,316
LSCS Holdings, Inc.		L+4.25%			6.96	%		3/17/2025			601				598
Radiology Partners, Inc.		L+4.25%			6.87	%		7/9/2025			4,988				4,900
Solara Medical Supplies, LLC		L+6.00%			8.52	%		5/31/2023			5,571				5,594
Solara Medical Supplies, LLC (Delayed Draw) (c)		L+6.00%			8.52	%		5/31/2023			1,071				—
Solara Medical Supplies, LLC (Revolver) (c)		L+6.00%			8.52	%		5/31/2023			714				—
											15,273				13,408
High Tech Industries
AQA Acquisition Holding, Inc.		L+4.25%			7.05	%		5/24/2023			3,325				3,308
Corel Corporation (d)		L+5.00%			7.71	%		6/4/2024			3,786				3,749
Gigamon, Inc.		L+4.25%			7.05	%		12/27/2024			2,970				2,933
TGG TS Acquisition Company (d)		L+6.50%			9.02	%		12/12/2025			4,400				4,241
											14,481				14,231
Media: Advertising, Printing & Publishing
Cadent, LLC		L+5.25%			7.71	%		9/11/2023			4,988				4,975
Cadent, LLC (Revolver) (c)		L+5.25%			7.71	%		9/11/2023			167				—
											5,155				4,975
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC		L+5.50%			8.02	%		12/20/2024			6,930				6,817
											6,930				6,817
Services: Business
CHA Holdings, Inc.		L+4.50%			7.30	%		4/10/2025			2,043				2,041
CHA Holdings, Inc. (Delayed Draw) (c)		L+4.50%			7.30	%		4/10/2025			446				—
Eliassen Group, LLC		L+4.50%			7.02	%		11/5/2024			2,500				2,475
Engage2Excel, Inc.		L+6.50%			8.93	%		3/7/2023			4,342				4,320
Engage2Excel, Inc. (Revolver) (c)		L+6.50%			8.95	%		3/7/2023			545				155
GI Revelation Acquisition LLC		L+5.00%			7.52	%		4/16/2025			1,393				1,374
North Haven CA Holdings, Inc.		L+4.50%			7.02	%		9/29/2023			5,000				4,972
Orbit Purchaser LLC		L+4.50%			7.17	%		10/21/2024			1,931				1,919
Orbit Purchaser LLC (Delayed Draw) (c)		L+4.50%			7.17	%		10/21/2024			565				—
Output Services Group, Inc.		L+4.25%			6.77	%		3/27/2024			4,965				4,828
SIRVA Worldwide, Inc.		L+5.50%			8.02	%		8/4/2025			2,000				1,965
The Kleinfelder Group, Inc. (d)		L+4.75%			7.27	%		11/29/2024			2,500				2,475
											28,230				26,524
Services: Consumer
Cambium Learning Group, Inc. (d)		L+4.50%			7.02	%		12/18/2025			5,000				4,769
LegalZoom.com, Inc.		L+4.50%			7.00	%		11/21/2024			2,749				2,708
WeddingWire, Inc. (d)		L+4.50%			7.02	%		12/19/2025			1,167				1,149
											8,916				8,626
Telecommunications
Intermedia Holdings, Inc.		L+6.00%			8.52	%		7/21/2025			1,833				1,831
Mavenir Systems, Inc.		L+6.00%			8.39	%		5/8/2025			3,980				3,968
											5,813				5,799
Utilities: Oil & Gas
NGS US Finco, LLC		L+4.25%			6.76	%		10/1/2025			1,750				1,746
											1,750				1,746
Wholesale
BMC Acquisition, Inc.		L+5.25%			8.13	%		12/30/2024			4,950				4,962
Halo Buyer, Inc.		L+4.50%			7.02	%		6/27/2025			3,501				3,431
Halo Buyer, Inc.		L+4.50%			7.02	%		6/27/2025			1,474				1,445
											9,925				9,838
TOTAL INVESTMENTS														$	172,341

 

(a)	All investments are U.S. companies, except for Loparex International B.V.

(b)

The majority of investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly or semiannually. We have provided the spread over LIBOR or Prime and the current contractual rate of interest in effect at December 31, 2018. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)	All or a portion of this commitment was unfunded as of December 31, 2018. Principal reflects the commitment outstanding.

(d)	Investment position or portion thereof unsettled as of December 31, 2018.

 

 

Below is certain summarized financial information for SLF as of June 30, 2019 and December 31, 2018 and for the three and six months ended June 30, 2019 and 2018 (in thousands):

 

		June 30, 2019				December 31, 2018
		(unaudited)
Assets
Investments, at fair value		$	235,617			$	172,341
Cash			145				448
Restricted cash			4,159				3,838
Interest receivable			806				456
Other assets			30				39
Total assets		$	240,757			$	177,122
Liabilities
Revolving credit facility		$	143,254			$	101,060
Less: Unamortized deferred financing costs			(1,627	)			(1,625	)
Total debt, less unamortized deferred financing costs			141,627				99,435
Payable for open trades			26,387				21,746
Interest payable			566				457
Accounts payable and accrued expenses			289				216
Total liabilities			168,869				121,854
Members’ capital			71,888				55,268
Total liabilities and members’ capital		$	240,757			$	177,122

 

		Three months ended June 30,								Six months ended June 30,
		2019				2018				2019				2018
		(unaudited)								(unaudited)
Investment income:
Interest income		$	3,887			$	1,399			$	7,335			$	2,179
Total investment income			3,887				1,399				7,335				2,179
Expenses:
Interest and other debt financing expenses			1,771				605				3,369				649
Organizational costs			—				5				—				11
Professional fees			164				22				340				62
Total expenses			1,935				632				3,709				722
Net investment income (loss)			1,952				767				3,626				1,457
Net gain (loss):
Net change in unrealized gain (loss)			21				454				533				999
Net gain (loss)			21				454				533				999
Net increase (decrease) in members’ capital		$	1,973			$	1,221			$	4,159			$	2,456

 

 

Related Party Transactions

 

We have a number of business relationships with affiliated or related parties, including the following:

 

·

We have an Investment Advisory with MC Advisors, an investment advisor registered with the SEC, to manage our day-to-day operating and investing activities. We pay MC Advisors a fee for its services under the Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee. See Note 6 to our consolidated financial statements and “Significant Accounting Estimates and Critical Accounting Policies - Capital Gains Incentive Fee” for additional information.

 

·

We have an Administration Agreement with MC Management to provide us with the office facilities and administrative services necessary to conduct our day-to-day operations. See Note 6 to our consolidated financial statements for additional information.

 

·

SLF has an administration agreement with MC Management to provide SLF with certain loan servicing and administrative functions. SLF may reimburse MC Management for its allocable share of overhead and other expenses incurred by MC Management. See Note 3 to our consolidated financial statements and “Liquidity and Capital Resources - MRCC Senior Loan Fund I, LLC” for additional information.

 

·

Theodore L. Koenig, our Chief Executive Officer and Chairman of our Board is also a manager of MC Advisors and the President and Chief Executive Officer of MC Management. Aaron D. Peck, our Chief Financial Officer and Chief Investment Officer, serves as a director on our Board and is also a managing director of MC Management.

 

·

We have a license agreement with Monroe Capital LLC, under which Monroe Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name “Monroe Capital” for specified purposes in our business.

 

In addition, we have adopted a formal code of ethics that governs the conduct of MC Advisors’ officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and Maryland General Corporation Law.

  

Commitments and Contingencies and Off-Balance Sheet Arrangements

 

Commitments and Contingencies

 

As of June 30, 2019, and December 31, 2018, we had outstanding commitments to fund investments, excluding investments in SLF, totaling $56.8 million and $56.0 million, respectively. As of June 30, 2019, and December 31, 2018, we had unfunded commitments to SLF of $14.9 million and $22.8 million, respectively, that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee. Drawdowns of the commitments to SLF require authorization from one of our representatives on SLF’s board of managers. Additionally, we have entered into certain contracts with other parties that contain a variety of indemnifications. Our maximum exposure under these arrangements is unknown. However, we have not experienced claims or losses pursuant to these contracts and believe the risk of loss related to such indemnifications to be remote.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Market Trends

 

We have identified the following trends that may affect our business:

 

Target Market: We believe that small and middle-market companies in the United States with annual revenues between $10.0 million and $2.5 billion represent a significant growth segment of the U.S. economy and often require substantial capital investments to grow. Middle-market companies have generated a significant number of investment opportunities for investment funds managed or advised by Monroe Capital, and we believe that this market segment will continue to produce significant investment opportunities for us.

 

Specialized Lending Requirements: We believe that several factors render many U.S. financial institutions ill-suited to lend to U.S. middle-market companies. For example, based on the experience of our management team, lending to U.S. middle-market companies (1) is generally more labor intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of information for such companies, (2) requires due diligence and underwriting practices consistent with the demands and economic limitations of the middle-market and (3) may also require more extensive ongoing monitoring by the lender. 

 

Demand for Debt Capital: We believe there is a large pool of uninvested private equity capital for middle-market companies. We expect private equity firms will seek to leverage their investments by combining equity capital with senior secured loans and mezzanine debt from other sources, such as us.

 

 

Competition from Other Lenders: We believe that many traditional bank lenders, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital market transactions. In addition, many commercial banks face significant balance sheet constraints as they seek to build capital and meet future regulatory capital requirements. These factors may result in opportunities for alternative funding sources to middle-market companies and therefore drive increased new investment opportunities for us. Conversely, there has been a significant amount of capital raised over the past several years dedicated to middle market lending which has increased competitive pressure in the BDC and investment company marketplace for senior and subordinated debt which could result in lower yields and weaker financial covenants for new assets.

 

Pricing and Deal Structures: We believe that the volatility in global markets over the last several years and current macroeconomic issues including changes in bank regulations for middle-market banks has reduced access to, and availability of, debt capital to middle-market companies, causing a reduction in competition and generally more favorable capital structures and deal terms. Recent capital raises in the BDC and investment company marketplace have created increased competition; however, we believe that current market conditions may continue to create favorable opportunities to invest at attractive risk-adjusted returns.

 

Significant Accounting Estimates and Critical Accounting Policies

 

Revenue Recognition

 

We record interest and fee income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities if we have reason to doubt our ability to collect such interest. Loan origination fees, original issue discount and market discount or premium are capitalized, and then we amortize such amounts using the effective interest method as interest income over the life of the investment. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt securities as interest income when we receive such amounts. Interest 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. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recognized as fee income in the period the service has been completed.

 

Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies. Each distribution received from LLC and LP investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.

 

Valuation of Portfolio Investments

 

As a BDC, we generally invest in illiquid securities including debt and, to a lesser extent, equity securities of middle-market companies. Under procedures established by our Board, we value investments for which market quotations are readily available and within a recent date at such market quotations. When doing so, we determine whether the quote obtained is sufficient in accordance with generally accepted accounting principles in the United States of America (“GAAP”) to determine the fair value of the security. Debt and equity securities that are not publicly traded or whose market prices are not readily available or whose market prices are not regularly updated are valued at fair value as determined in good faith by our Board. Such determination of fair values may involve subjective judgments and estimates. Investments purchased within 60 days of maturity are valued at cost plus accreted discount, or minus amortized premium, which approximates fair value.

  

Our Board is ultimately and solely responsible for determining the fair value of the portfolio investments that are not publicly traded, whose market prices are not readily available on a quarterly basis in good faith or any other situation where portfolio investments require a fair value determination. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by our Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

 

 

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

 

·

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

 

·

the Board 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, but the independent appraisals are generally received quarterly;

 

·

to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available, the investment will be valued by the MC Advisors investment professional responsible for the credit monitoring;

 

·

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

 

·

the audit committee of our 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

 

·

our 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 Board generally uses the income approach to determine fair value for loans where market quotations are not readily available, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, we 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. This liquidation analysis may also include probability weighting of alternative outcomes. We generally consider our 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 and is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, we consider 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, we 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.

 

Under the income approach, we utilize discounted cash flow models to determine the present value of the future cash flow streams of our debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the income approach, we also consider 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.

 

Under the market approach, we typically use 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 we derive a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, we analyze 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.

 

In addition, for certain debt investments, we may base our valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that we and others may be willing to pay. Ask prices represent the lowest price that we and others may be willing to accept. We generally use the midpoint of the bid/ask range as our best estimate of fair value of such investment.

 

Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss 

 

We measure realized gain or loss by the difference between the net proceeds from the sale and the amortized cost basis of the investment, without regard to unrealized gain or loss previously recognized. Net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gain or loss, when gain or loss is realized. Additionally, we do not isolate the portion of the change in fair value resulting from foreign currency exchange rate fluctuations from the changes in fair values of the underlying investment. All fluctuations in fair value are included in net change in unrealized gain (loss) on our consolidated statements of operations. We report changes in the fair value of secured borrowings that are measured at fair value as a component of the net change in unrealized gain (loss) on secured borrowings in the consolidated statements of operations. The impact resulting from changes in foreign exchange rates on the revolving credit facility borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions.

 

 

Capital Gains Incentive Fee

 

Pursuant to the terms of the Investment Advisory with MC Advisors, the incentive fee on capital gains earned on liquidated investments of our portfolio is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory and Administrative Agreement). This fee equals 20% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.

 

While the Investment Advisory Agreement with MC Advisors neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to MC Advisors if our entire portfolio was liquidated at its fair value as of the balance sheet date even though MC Advisors is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.

 

During the three and six months ended June 30, 2019 and 2018, we did not have any further reductions in accrued capital gains incentive fees as they were already at zero, primarily as a result of accumulated realized and unrealized losses on the portfolio.

 

New Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The primary objective of ASU 2018-13 is to improve the effectiveness of the disclosure requirements for fair value measurements in the notes to the financial statements. ASU 2018-13 is effective for interim and annual reporting periods beginning after December 15, 2019, although early adoption is permitted. We are currently evaluating the impact these changes will have on our consolidated financial statements and disclosures.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are subject to financial market risks, including changes in interest rates. The majority of the loans in our portfolio have floating interest rates, and we expect that our loans in the future may also have floating interest rates. These loans are usually based on a floating LIBOR and typically have interest rate re-set provisions that adjust applicable interest rates under such loans to current market rates on a monthly or quarterly basis. The majority of the loans in our current portfolio have interest rate floors which will effectively convert the loans to fixed rate loans in the event interest rates decrease. In addition, our revolving credit facility has a floating interest rate provision, whereas our SBA debentures and the 2023 Notes have fixed interest rates until maturity. We expect that other credit facilities into which we may enter in the future may have floating interest rate provisions.

 

Assuming that the consolidated statement of assets and liabilities as of June 30, 2019 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (in thousands):

 

		Increase  (decrease) in				Increase  (decrease) in				Net increase  (decrease) in net
Change in Interest Rates		interest income				interest expense				investment income
Down 25 basis points		$	(1,423	)		$	(472	)		$	(951	)
Up 100 basis points			5,261				1,886				3,735
Up 200 basis points			11,362				3,773				7,589
Up 300 basis points			17,103				5,659				11,444

 

Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of the assets in our portfolio and other business developments, including borrowing under the credit facility or other borrowings that could affect net increase in net assets resulting from operations, or net income. Accordingly, we can offer no assurances that actual results would not differ materially from the analysis above.

 

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted under the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates or interest rate floors.

 

We may also have exposure to foreign currencies (currently the Great Britain pound) related to certain investments. Such investments are translated into U.S. dollars based on the spot rate at each balance sheet date, exposing us to movements in the exchange rate. In order to reduce our exposure to fluctuations in exchange rates, we generally borrow in Great Britain pounds under our revolving credit facility to finance such investments. As of June 30, 2019, we have non-U.S. dollar borrowings denominated in Great Britain pounds of £14.8 million ($18.8 million U.S. dollars) outstanding under the revolving credit facility. We may also enter into foreign currency forward contracts to mitigate foreign currency exposure. As of June 30, 2019, we had foreign currency forward contracts in place for £1.8 million associated with future interest payments on certain investments.

 

 

ITEM 4. CONTROLS AND PROCEDURES

 

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that, at the end of the period covered by our Quarterly Report on Form 10-Q, our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Notwithstanding the foregoing, a control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that it will detect or uncover failures within the Company to disclose material information otherwise required to be set forth in the Company’s periodic reports.

 

No change occurred in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the three months ended June 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II

 

OTHER INFORMATION

Item 1. Legal Proceedings

 

Neither we nor our investment adviser are currently subject to any material legal proceedings.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 5, 2019, which could materially affect our business, financial condition and/or operating results. The risks described in our Annual Report on Form 10-K are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. Other than as set forth below, there have been no material changes during the three months ended June 30, 2019 to the risk factors discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Recently-enacted legislation allows us to incur additional leverage, which could increase the risk of investing in us.

 

The 1940 Act generally prohibits us from incurring indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our total assets). However, on March 23, 2018, the Small Business Credit Availability Act (the “SBCAA”) was signed into law, which included various changes to regulations under the federal securities laws that impact BDCs. The SBCAA amended the 1940 Act to allow BDCs to decrease their asset coverage requirement from 200% to 150% (i.e. the amount of debt may not exceed 66.7% of the value of our total assets), if certain requirements are met. Under the SBCAA, BDCs are allowed to reduce their asset coverage requirement to 150%, and thereby increase leverage capacity, if stockholders representing at least a majority of the votes cast, when quorum is met, approve a proposal to do so. If a BDC receives stockholder approval, it would be allowed to reduce its asset coverage requirement to 150% on the first day after such approval. Alternatively, the SBCAA allows the majority of a BDCs independent directors to approve the reduction in its asset coverage requirement to 150%, and such approval would become effective after one year. In either case, a BDC would be required to make certain disclosures on its website and in SEC filings regarding, among other things, the receipt of approval to reduce its asset coverage requirement to 150%, its leverage capacity and usage, and risks related to leverage.

 

On March 27, 2018, our board of directors unanimously approved the application of the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the SBCAA. On March 27, 2018, our board of directors also recommended the submission of a proposal for stockholders to approve the application of the 150% minimum asset coverage requirements at our annual meeting of stockholders held on June 20, 2018. At the annual meeting, our stockholders approved this proposal, and we became subject to the 150% minimum asset coverage ratio, effective June 21, 2018.

 

Leverage is generally considered a speculative investment technique and increases the risk of investing in our securities. Leverage magnifies the potential for loss on investments in our indebtedness and on invested equity capital. As we use leverage to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets increases, then leveraging would cause the net asset value attributable to our common stock to increase more sharply than it would have had we not leveraged. Conversely, if the value of our assets decreases, leveraging would cause net asset value to decline more sharply than it otherwise would have had we not leveraged our business. Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage, while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed. Such a decline could negatively affect our ability to pay distributions, scheduled debt payments or other payments related to our securities. The effects of leverage would cause any decrease in net asset value for any losses to be greater than any increase in net asset value for any corresponding gains. If we incur additional leverage, you will experience increased risks of investing in our common stock. 

 

We maintain a revolving credit facility and use other borrowed funds to make investments or fund our business operations, which exposes us to risks typically associated with leverage and increases the risk of investing in us.

 

We maintain a revolving credit facility, have issued debt securities and may borrow money, including through the issuance of additional debt securities or preferred stock, to leverage our capital structure, which is generally considered a speculative investment technique. As a result:

 

•

our common stock is exposed to an increased risk of loss because a decrease in the value of our investments would have a greater negative impact on the value of our common stock than if we did not use leverage;

 

•

if we do not appropriately match the assets and liabilities of our business, adverse changes in interest rates could reduce or eliminate the incremental income we make with the proceeds of any leverage;

 

 

•

our ability to pay distributions on our common stock may be restricted if our asset coverage ratio, as provided in the 1940 Act, is not at least 150% and any amounts used to service indebtedness or preferred stock would not be available for such distributions;

 

•

any credit facility is subject to periodic renewal by its lenders, whose continued participation cannot be guaranteed;

 

•

our revolving credit facility with ING Capital LLC, as agent, is, and any other credit facility we may enter into would be, subject to various financial and operating covenants, including that our portfolio of investments satisfies certain eligibility and concentration limits as well as valuation methodologies;

 

•

such securities would be governed by an indenture or other instrument containing covenants restricting our operating flexibility;

 

•

we bear the cost of issuing and paying interest or distributions on such securities, which costs are entirely borne by our common stockholders; and

 

•

any convertible or exchangeable securities that we issue may have rights, preferences and privileges more favorable than those of our common stock.

 

The following table illustrates the effect of leverage on returns from an investment in our common stock assuming various annual returns, net of expenses. The calculations in the table below are hypothetical and actual returns may be higher or lower than those appearing in the table below.

 

		Assumed Return on Our Portfolio (Net of Expenses) (1)
		-10%				-5%				0%				5%				10%
Corresponding return to common stockholder (2)(3)			-28.11	%			-16.91	%			-5.71	%			5.50	%			16.70	%

 

(1)

The assumed return on our portfolio is required by regulation of the SEC to assist investors in understanding the effects of leverage and is not a prediction of, and does not represent, our projected or actual performance.

(2)

Assumes $579.8 million in total assets, $321.0 million in debt outstanding, of which $205.0 million is senior securities outstanding, $258.8 million in net assets and an average cost of funds of 4.60%, which was the weighted average interest rate of borrowing on our revolving credit facility, SBA debentures and 2023 Notes as of December 31, 2018. The interest rate on our revolving credit facility is a variable rate. Actual interest payments may be different.

(3)

In order for us to cover our annual interest payments on indebtedness, we must achieve annual returns on our December 31, 2018 total portfolio assets of at least 2.55%.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.

Defaults Upon Senior Securities

 

None.

 

Item 4.

Mine Safety Disclosures

 

None.

 

Item 5.

Other Information

 

None.

 

 

Item 6. Exhibits

 

Exhibit
Number		Description of Document
3.1		Amended and Restated Articles of Incorporation of Monroe Capital Corporation (Incorporated by reference to Exhibit (a)(1) of the Registrant’s Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)
3.2		Bylaws of Monroe Capital Corporation (Incorporated by reference to Exhibit (b)(1) of the Registrant’s Pre-Effective Amendment No. 8 to the Registration Statement on Form N-2 (File No. 333-172601) filed on October 18, 2012)
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: August 6, 2019	By	/s/ Theodore L. Koenig
		Theodore L. Koenig
		Chairman, Chief Executive Officer and Director
		(Principal Executive Officer)
		Monroe Capital Corporation
Date: August 6, 2019	By	/s/ Aaron D. Peck
		Aaron D. Peck
		Chief Financial Officer, Chief Investment Officer and Director
		(Principal Financial and Accounting Officer)
		Monroe Capital Corporation

 

 

 

Exhibit 31.1

 

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Theodore L. Koenig, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Monroe Capital Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2019
	/s/ Theodore L. Koenig
	Theodore L. Koenig
	Chairman, Chief Executive Officer and Director
	(Principal Executive Officer)
	Monroe Capital Corporation

 

 

Exhibit 31.2

 

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

 

I, Aaron D. Peck, certify that:

 

1.

I have reviewed this Quarterly Report on Form 10-Q of Monroe Capital Corporation;

 

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: August 6, 2019
	/s/ Aaron D. Peck
	Aaron D. Peck
	Chief Financial Officer, Chief Investment Officer and Director
	(Principal Financial and Accounting Officer)
	Monroe Capital Corporation

 

 

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Quarterly Report on Form 10-Q of Monroe Capital Corporation (the “Company”) for the quarterly period ended June 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Theodore L. Koenig, Chief Executive Officer of the Company, and I, Aaron D. Peck, Chief Financial Officer of the Company, each certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to our knowledge:

 

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

 

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: August 6, 2019
	/s/ Theodore L. Koenig
	Theodore L. Koenig
	Chairman, Chief Executive Officer and Director
	(Principal Executive Officer)
	Monroe Capital Corporation
	/s/ Aaron D. Peck
	Aaron D. Peck
	Chief Financial Officer, Chief Investment Officer and Director
	(Principal Financial and Accounting Officer)
	Monroe Capital Corporation