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Monroe Capital: IIQ 2020 Results – First Look

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The August 5, 2020 MRCC IIQ 2020 results were undeniably GOOD by most of the metrics that we apply. Much of that may be ascribed to a one-time benefit booked: the resolution of the RockDale Blackhawk litigation which boosted Net Investment Income Per Share by $0.36 over the recurring level of $0.25. This settlement also aided book value per share by $0.07 in the period, but a net $0.26 also came from higher asset values, as experienced by almost every other BDC.   Also worth noting – and nothing to do with Rockdale Blackhawk – MRCC took deliberate measures to de-leverage its balance sheet in the period, which involved shrinking the investment portfolio. Debt to equity dropped from 1.47x to 1.16x – a very material drop. By doing so, MRCC – caught flat footed by the impact of Covid-19 and substantially above its “target leverage” of 1.2x-1.3x at the end of the IQ 2020 – fell back into its self imposed line. Still, let’s not forget that “regulatory” leverage. MRCC also has SBIC debentures outstanding and its GAAP leverage remains on the high side: 1.7x as of June 2020, down from just 2.0x in March. De-leveraging also boosted liquidity by increasing availability under its secured debt, which now stands in excess of $100mn. This accounts for the BDC Reporter re-rating the BDC’s Liquidity status from FAIR to GOOD.

However, MRCC is not out of the woods. The credit picture remains concerning with 10 companies on non accrual out of 83. Underperformers – by the BDC’s own rating system – amount to almost $100mn or 17% of the total portfolio. Given that recurring Net Investment Income is $0.25 – equal to the recently reduced dividend and there is little room for portfolio growth with leverage close to its target – there is little margin for error at MRCC. The analysts are predicting $0.28 in NIIPS next quarter and $1.11 next year versus that $1.00 payout. Any kind of “second wave” of credit problems – a not inconceivable possibility – and MRCC would see its leverage number increase and dividend coverage threatened. The BDC Reporter maintains a Long Term Outlook of FAIR. Since the beginning of the year, MRCC has seen its stock drop (40%) and its dividend by (29%). 

For all the First Look reviews of IIQ 2020 BDC results, check out the BDC Data Table. We are constantly adding new updates as results come in and we undertake an initial survey. Besides these reports, we are also filling in NAV Per Share and investment portfolio size data to compare with prior periods; adding company or BDC Credit Reporter generated data on underperforming companies and assets and affirming or amending our earlier assessments of every BDC’s Liquidity, Credit, Dividend and Long Term Outlook

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