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Edited Transcript of MRCC earnings conference call or presentation 7-Nov-19 3:00pm GMT

Q3 2019 Monroe Capital Corp Earnings Call

Chicago Nov 11, 2019 (Thomson StreetEvents) -- Edited Transcript of Monroe Capital Corp earnings conference call or presentation Thursday, November 7, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Aaron D. Peck

Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director

* Theodore L. Koenig

Monroe Capital Corporation - Chairman, President & CEO

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Conference Call Participants

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* Christopher Whitbread Patrick Nolan

Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research

* Matthew Alan Tjaden

Raymond James & Associates, Inc., Research Division - Research Associate

* Robert Paul Napoli

William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology

* Timothy Paul Hayes

B. Riley FBR, Inc., Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to Monroe Capital Corporation's Third Quarter 2019 Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain certain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results or cash flows. Although we believe these statements are reasonable based on management's estimates, assumptions and projections as of today, November 7, 2019, these statements are not guarantees of future performance.

Further, time-sensitive information may no longer be accurate as of the time of any replay or listening. Actual results may differ materially as a result of risk, uncertainty or other factors, including, but not limited to, factors described from the time to time in the company's filings with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements.

I will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. Please go ahead.

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [2]

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Good morning, and thank you to everyone who has joined us on our call today. I am joined by Aaron Peck, our CFO and Chief Investment Officer.

Last evening, we issued our third quarter 2019 earnings press release and filed our 10-Q with the SEC.

For the third quarter, we generated adjusted net investment income of $0.35 per share, in line with our quarterly dividend of $0.35 per share. This represents the 22nd consecutive year we have covered our dividend with adjusted net investment income.

We have grown our investment portfolio in the last quarter by $28.9 million on a net basis. This growth was attributable to $49.5 million of new senior secured first lien investments, $900,000 of new equity investments and $7.1 million contributed to the equity in our Senior Loan Fund JV, as Aaron will describe in more detail later.

Approximately $28.4 million of this new loan growth was attributable to existing portfolio company expansion. Given the competitive market dynamics, our own loan portfolio has provided us with an ample opportunity to fund proprietary investments.

Turning to the market, we continue to believe that overall business conditions remain solid in the lower part of the middle market, which we define as companies generating $35 million of EBITDA and below. Despite seeing some limited signs of market weakness, we tend to be more industry and sector specific, which -- I'm sorry, which tend to be more industry and sector specific, we remain aware that we are likely in the later innings of a long cycle of expansion in the U.S. economy.

In addition, we have the added uncertainty of what will likely be a divisive 2020 presidential election campaign. As a defensive measure, over the past several quarters, we have continued to focus our origination efforts on industries and companies that we believe are less cyclical, and we have been careful not to follow the larger market in pushing average leverage up and structuring deals with either no covenants or extremely loose covenants.

We've remained disciplined in our origination and underwriting and continue to structure deals with strong covenant packages, which we believe is important.

Our ability to maintain this discipline and remain selective in the deals we close is the direct result of our proprietary deal origination team, which consists of 23 origination professionals located in multiple offices throughout the U.S. and our broad industry vertical coverage teams in the following areas: business services, health care, technology, media, software, specialty finance, real estate and of course, the middle market private equity community.

We are pleased to announce that effective as of the beginning of the third quarter of 2019, we have made an adjustment to our investment advisory fee agreement, which reduces base management fees for our shareholders. For gross invested assets that result in regulatory leverage above 1:1, we have reduced base management fees to 1% per annum, a significant reduction from our current agreement, which allows for base management fees of 1.75% of gross invested assets regardless of leverage.

This amendment was initiated by management and was approved by our independent directors in the most recent Board meeting. This change, coupled with a history of voluntarily waiving incentive fees in order to ensure consistent net investment income coverage of our dividend, demonstrates MRCC's management's continued strong alignment with our shareholders.

Despite our consistent investment growth and continued dividend coverage, we are not happy with the recent small declines in our per share NAV. At the end of the third quarter, our per share NAV was $12.34 per share, a 1.4% decline from the end of the prior quarter.

Monroe Capital has a 15-year operating history in direct lending. And over that period of time, investors have enjoyed very low defaults and strong recoveries in Monroe Capital direct loans.

Our recent NAV experience is not consistent with the firm's long-term successful investment history. While we do believe that many of our recent unrealized mark-to-market declines are related to specific idiosyncratic credit issues with a few select borrowers, our senior management team has spent a significant amount of time analyzing these credits and our workout strategies with respect thereto. We are singularly focused on realizing recovery on these assets that have been marked down.

We also continue to analyze and improve our credit and portfolio management process. This is our #1 focus today at Monroe. Despite the recent NAV marks, we are very bullish on the long-term prospects for MRCC as well as the rest of the Monroe Capital platform.

MRCC enjoys a very strong strategic advantage in being affiliated with the best-in-class middle market private credit asset management firm with over $9 billion in current assets under management. Monroe Capital will continue to devote whatever resources are necessary to improve the NAV performance of MRCC going forward.

I'm now going to turn the call over to Aaron, who is going to walk through our financial results.

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [3]

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Thank you, Ted. During the quarter, we funded a total of $50.6 million in investments, consisting of $21.3 million in loans to new borrowers, $0.9 million in new equity investments, $10.8 million in new fundings to existing borrowers and $17.6 million in fundings under existing revolving lines of credit and existing delayed draw term loans. Additionally, we funded $7.1 million in equity to the SLF. This growth was offset by partial sales and repayments on portfolio assets, which aggregated $28.8 million during the quarter.

At September 30, we had total borrowings of $440.6 million, including $216.6 million outstanding under our revolving credit facility, $109 million of our 2023 notes and SBA debentures payable of $115 million. Any future portfolio growth will predominantly be funded by the substantial availability remaining under our revolving credit facility and the uninvested cash held in our SBIC subsidiary.

As of September 30, our net asset value was $252.4 million, which was down slightly from the $255.9 million in net asset value as of June 30. Our NAV per share decreased 1.4% from $12.52 per share at June 30 to $12.34 per share as of September 30. This decrease was primarily as a result of unrealized mark-to-market valuation adjustments.

Turning to our results. For the quarter ended September 30, adjusted net investment income, a non-GAAP measure, was $7.2 million or $0.35 per share, slightly higher than the prior quarter's results. At this level, per share adjusted NII covered our quarterly dividend of $0.35 per share.

Looking to our statement of operations. Total investment income increased during the quarter, primarily as a result of an increase in interest income, principally due to portfolio growth. Fee income during the quarter remained lower than our historical average levels, driven primarily by only a small amount of prepayment activity during the quarter. Interest income growth was partially offset by the decline in LIBOR and an increase in loans placed on nonaccrual status during the quarter.

During the quarter, we put our positions in Curion, Luxury Optical and Worth on nonaccrual status. As a reminder, the Curion promissory notes were already on nonaccrual status prior to this quarter. While we continue to expect positive credit resolutions for all of these names, given that the fair value of these assets is significantly below par, it was prudent to stop accruing interest.

Moving over to the expense side. Total expenses for the quarter increased, primarily driven by an increase in interest and other debt financing expenses, as a result of growth in our borrowings, to support the growth of the portfolio. As in recent prior quarters, we made the decision to waive a portion of the incentive fees payable to the manager in order to ensure dividend coverage with NII.

Regarding liquidity, as of September 30, we had approximately $38 million of capacity under our revolving credit facility. As of the end of the quarter, we had fully drawn all of our available $115 million in SBA debentures.

At the end of the quarter, our regulatory leverage was approximately 1.29 debt to equity. This is nearing the top end of the targeted leverage range we have guided you to on prior quarters. This higher level of leverage was temporary as we were aware of a couple of portfolio paydowns that were expected to close shortly after quarter end, which have since occurred.

Since quarter end, both total assets as well as our total leverage have decreased, with total repayments of $38.6 million received since September 30. We would expect to reinvest a portion of these prepayments in the fourth quarter of 2019.

As of September 30, the SLF had investments in 64 different borrowers, aggregating $236.6 million at fair value with a weighted average interest rate of approximately 7.2%. The SLF had borrowings under our nonrecourse credit facility of $148.5 million and $21.5 million of available capacity under this credit facility. At this level of funding, the equity in the SLF is generating a dividend yield of over 10% to MRCC and our JV partner.

Regarding Rockdale Blackhawk, as you know from prior calls, there is a pending private arbitration of an accounts receivable claim with a large health care insurance payer with a material amount in dispute. That amount is collateral for the MRCC loan to Rockdale Blackhawk. The underlying arbitration proceedings were completed in mid-August and final trial briefs were due and submitted to the arbitrator in late September. While there is no formal deadline for the arbitrator to render a decision, we have been informed by counsel that they expect an order sometime in the fourth quarter, but we can make no assurance that this will be the case.

While we continue to believe that there will be a positive resolution of our claim for recovery via the arbitration process, it is important to note that it's not possible to predict the outcome of this proceeding like any other litigation. If there are any other material updates that could have an effect on the value of this position, either positive or negative, we will update the shareholders at the appropriate time.

I will now turn the call back to Ted for some closing remarks, before we open the line for questions.

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [4]

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Thank you, Aaron. We continue to believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders and other investors for the following reasons: number one, our stock pays a current dividend rate of around 12%; number two, our dividend is fully supported by adjusted net investment income coverage for the last 22 straight quarters; number three, we have a very shareholder-friendly external advisory management agreement in place that limits incentive fees payable in periods where there is any material decline in our net asset value and base management fees have been reduced at higher leverage points; and number four, we are affiliated with the best-in-class external manager with offices located throughout the U.S., over 120 employees and approximately $9 billion in assets under management as of September 30, 2019.

I want to thank you all for your time today. And with that, I'm going to ask the operator to open the call for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Tim Hayes with B. Riley FBR.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [2]

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My first one, or actually, maybe the first 2 are around credit. I guess on -- we'll start with -- on the 3 new nonaccruals, can you touch on what triggered moving these companies to nonaccrual status, this quarter specifically? Did any stop paying cash interest or anything else that, I guess, triggered that specifically?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [3]

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Yes. Good question, Tim. As is always, when considering nonaccrual status, what you have to consider is your likelihood of being able to be repaid your full principal amount plus any interest that is due. And when you look at a name and look at its potential for recovery and look at its fair value, and that fair value starts to migrate down below par more than a significant amount, you have to then be very thoughtful about how likely you are to recover that amount. And we do that every quarter, as you know, on a name-by-name basis based on what we know about that individual credit. And so it isn't necessarily tied directly to whether we're receiving cash payments from a borrower in any period, it really has a lot more to do with our internal assessment of the likelihood of being able to receive all that accrued interest, if it's not being paid currently at the outcome of a -- or a resolution of a deal.

Now the reality is, is that can change. I mean, we could put something on nonaccrual status and it ends up getting a full recovery, including any unpaid and accrued interest. But it's really just a judgment call based on what we know at the time that we're making that assessment.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [4]

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Okay. Understood. And then on Worth and Luxury, what were the ratings on those 2 credits at the end of last quarter?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [5]

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They -- let me see here, Worth is a -- was a 3-rated credit, which has not changed. And Curion is a 4-rated credit, which has not changed. And Luxury Optical's also a 4-rated credit, which has not changed.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [6]

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Okay. Got it. Okay. And then you say a lot of these issues are idiosyncratic in a handful of companies. And correct me if I'm wrong, sorry, if I've read this -- read the SOI incorrectly, but it seems like the bulk of the unrealized depreciation this quarter doesn't seem to be from existing or new nonaccruals or some of these familiar repeat offenders. Can you just maybe spend some time talking about why you don't view this trend to be indicative of weakness more broadly across the portfolio? Yes, I'll leave it there.

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [7]

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Yes. I mean look, we look at the portfolio and we look at every individual name in a very specific way, and we monitor and work on these names on a very regular basis and in constant contact with management. And so it's absolutely the case that there's lots of little movements in individual deals. And a lot of them are relatively minor in terms of their movement, but in aggregate basis, they might be -- they might add up to some movement. And so you look at it and try to determine whether we think that there is anything that we see that's broad, that we think is an issue, either with our underwriting process or in the economy or -- and we just make that assessment based on looking at each of these individual names, and we can point to what we believe are some fairly specific explanations for a lot of the movers and a lot of the difficult names that are associated with things that are, sort of, what we consider idiosyncratic. And we talked about what caused the issues at Rockdale, that's fairly idiosyncratic and something that's difficult to underwrite.

We talk about ECA. And their issues were much more idiosyncratic and very difficult to underwrite issues. That's not to say that we're perfect and that there weren't things that we could have done better in underwriting. Obviously, there always are. But that's really why we make that statement. It's much more about trying to look at, sort of, what we see across the portfolio and determine whether there's specific weakness related to more specific things in the economy or general industry weakness. So we aren't seeing that.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [8]

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Okay. Got it, appreciate the comments there. And then this one -- it might be tough to quantify, but how much of the yield degradation this quarter was due to lower LIBOR versus the new nonaccruals?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [9]

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Yes. I don't know if I have a specific answer, but I'd say more of it is related to nonaccrual, I believe, than LIBOR shifts. I can try to get back to you with the numbers, but definitely, they were -- they're both contributors.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [10]

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Okay. And I guess just to follow-up on that. How have spreads trended as LIBOR has continued to decline? And how do you view the trend of yields going forward, especially as you target some safer, lower-yielding credits?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [11]

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Yes. Look, I think, generally, we've seen in the last quarter or so, spreads start to moderate. The spread compression we've seen for most of the earlier part of the year and late last year, I think we're starting to see that across the entire portfolio, not just what's held in MRCC, but what's held across the Monroe platform. We're seeing that moderate and firm. So I don't think a lot of what we've seen recently has been related to continued spread tightening.

I think spreads have moderated. And I do think you're seeing a bit of a floor on spread show up in our market as LIBOR has gone down. I think LIBOR was down about 40 basis points in the quarter. So that's -- we are seeing some of that moderate. And -- but we are and have rotated into lower spread assets intentionally as we've taken the leverage up in the portfolio, as we've rotated into what we believe are safer, more secure first lien assets. And you'll also notice a trend here generally that the position sizes in MRCC are moderating versus what we used to have. So we've made some fairly intentional moves in the portfolio to get a little bit more diverse and to, we hope and we believe, take down the risk in the portfolio and put a little bit extra leverage on lower spread assets in order to generate the yield.

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Timothy Paul Hayes, B. Riley FBR, Inc., Research Division - Analyst [12]

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Okay. Great. And then just one quick follow-up, and I'll hop back in the queue. Just -- are you putting interest rate floors on all new originations? And are they being put on in spot LIBOR?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [13]

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Yes, we do tend to put floors on virtually every deal that we do. It's very different name by name as to what that floor will look like. It's not necessarily tied to spot LIBOR. It's more of a market decision and what we want to do in a competitive process. And as you might imagine, there's a lot of levers you can pull when you're trying to win a deal that you like. And you may move the LIBOR floor but keep your spread where you had it before. You may change the upfront fees but put in a LIBOR floor. So a lot of things move around. That's very deal specific. So I can't tell you that there's a specific trend to what we're doing on LIBOR floor. But we are trying to get LIBOR floors in our -- and most deals getting a LIBOR floor.

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Operator [14]

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Your next question comes from the line of Bob Napoli with William Blair.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [15]

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I really appreciate the move on the management fee, that's very shareholder-friendly thing to do and much appreciated. The -- Ted, what is your view right now on the overall credit environment? And then, I mean, with the increase in nonaccruals and -- what do you think would be the timing and resolution? And just thoughts on the economic environment and credit environment?

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [16]

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Good question. The -- we're starting to see a few cracks in credit more on an industry basis, Bob, as opposed to general. I mean, generally the portfolio is in pretty good shape. We've -- the names that we've taken some medicine on here this quarter are the same names we've been dealing with internally here in workouts, the names rated 3s and 4s. First of all, because we've put things on nonaccrual, that doesn't mean that we're not comfortable where the market is, we're not comfortable we're going to recover, it's just that most of these names were generating pick interest. And once we believe that it's unlikely to continue to receive -- that we'll receive the interest levels, it doesn't make any sense for it to continue to accrue pick interest, so that's number one.

Number two, as a general matter, the economy is in pretty good shape. I don't see any signs of decline on a broad basis. Interest rates continue to come down. We're going to get some tariff relief here it sounds like soon from everything that I've been reading in the last couple of days, which has been a problem, frankly, over the last 120 days with a lot of companies. Because early on, when these tariffs went into place at the beginning of the year, most of the companies did not pass-through the cost of these tariffs because the companies believed this to be a short-term issue. So because of that most of the companies that were in manufacturing or distribution or companies that were in the tariff sites tried to hold the line on pricing. And what happened was margins got compressed. And you saw a couple of blips, I think, in the economy here over the summer and the fall. And I think that if indeed these tariffs get relaxed, a lot of those companies, I think, will go back to kind of a normalized level of performance.

I'm pretty comfortable on where we are today. We've taken some marks here, and we've put some assets on nonaccrual, and we're trying to get out ahead of the -- any concerns here. Because like our investors, I'm a big investor in the company in MRCC, and I want to see this whole NAV thing get stabilized, and we're going to turn this around. We got a lot of resources here in the firm. Actually, we have a tremendous amount of resources, unlike some other of our colleagues. And we're going to devote those resources to getting this resolved and going forward.

So I view this as a good time to, kind of, clean up some things and move forward. We've got -- as Aaron mentioned, we've got a couple of things that are really holding us back, and that's this Rockdale Blackhawk. We've got investment that is based on a secured account receivable claim that makes no sense that wasn't paid. And you can argue about everything all day long, but we have an account receivable that we lent on, and we're going to get that paid. And once that gets paid, that's going to generate a fair amount of money that we're going to be able to redeploy into interest-earning assets. Plus, we've got a fair amount of cash on our balance sheet in our SBIC sub. And when that money gets deployed, which it will, that's going to generate some good interest-earning assets. So I think MRCC, frankly, is probably undervalued today and is in a good position relative to some of the nonearning assets that we're going to redeploy. And that's really -- my focus right now is MRCC in getting those assets that are not being utilized, properly redeployed and generating interest-earning loans.

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [17]

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Let me just clarify about one thing that Ted said, as it applies to Rockdale, we think we have a very good case, and the outcome will be what the outcome is. So I -- Ted, I know said we're going to get that paid. That's our intention. And we expect the arbitrator -- yes...

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [18]

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(inaudible) desire and intensity...

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [19]

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I just needed to say that for the record.

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Robert Paul Napoli, William Blair & Company L.L.C., Research Division - Partner and Co-Group Head of Financial Services & Technology [20]

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Just one quick follow-up, this big picture-wise, with the NAV having come down, and I know you may get some of that back, but does it make sense to take the dividend down $0.05? Or are you -- is that the last thing that you -- that'll be done? I mean, if you took the dividend down slightly, it helps you to sustain that book value per share, combined with the reduction in the management fee, it probably gives you a lot of breathing room.

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [21]

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Yes. Listen, there's lots of things that we can do here to make things easy. The goal is not to necessarily make things easy. The goal is to do whatever is the right thing to do for the company. And we'd like to see how some of these things play out here on the asset side before we go to our Board and start talking about other ways to deal with the issues. So I think that's -- those are all those things, Bob, which we're thinking about. But right now I think that's premature.

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Operator [22]

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Your next question comes from the line of Matt Tjaden with Raymond James.

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Matthew Alan Tjaden, Raymond James & Associates, Inc., Research Division - Research Associate [23]

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First question on both Luxury Optical and Worth. In addition to the marks on Bluestem Brands, are you seeing some stress specific to the retail space? Or would you say, the marks on those 3 assets are idiosyncratic?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [24]

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Yes. I mean look, retail is tough. There's no question about that. And we've been pretty purposeful in how we've approached retail, thinking that we were able to generate some opportunities that wouldn't be as closely tied to retail as some other things in the market. And when you think about what some of these companies do, we thought we had a pretty good strategy for that. When you think about Bluestem, which frankly is a traded name in the marketplace, and so we feel actually really good about Bluestem and the trajectory of the market just hasn't caught up with it yet in terms of where it's trading. But that was a company that did a lot of online retail. It wasn't a big storefront retail. And so that was one that we thought shouldn't have the same retail pressures. And we do think some of the issues there are relatively credit specific in regards to some things that are going on with that business that aren't necessarily indicative of their retail market.

When you think about Worth, Worth was a ladies fashion company that was selling to professional women on a face-to-face basis, not through a store or anything like that, which we thought would also hold up. And their issues were more about getting the fashion trend wrong and missing the market with regards to what they offer to their customers. And customers were buying less, they didn't like what they were selling, which they fixed, we think. And we're starting to see some benefits from that and some turnaround there. So when you think about what we're looking at, we have been really defensive in terms of what we've done in retail. We've started at pretty relatively, I'd say, comfortable leverage positions. And in these cases, we're working with sponsors that see it the way we do. I mean the sponsors in, particularly, when you think about both Luxury Optical historically but in these days in Worth have been supporting this business -- these businesses by putting additional liquidity into the company and continuing to invest. So we think those are positive signs. But I don't think that these particular issues are showing anything about retail specifically because we purposely have stayed away from some of the problems that you see in retail, in the storefront retail space.

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Matthew Alan Tjaden, Raymond James & Associates, Inc., Research Division - Research Associate [25]

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Great. Okay. Secondly, I guess, on American Community Homes, slight uptick on the marks. Is that primarily a function of valuation? Or should we be reading into that at all?

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [26]

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I mean it is a function of valuation because it's a fair value. So clearly, when we -- with our independent third-party value of the company this quarter, there was a belief that we shared that the company is improving and the valuation, therefore, on a fair value basis increased. The company has got a new management team in place. They are -- they're in the mortgage origination and mortgage servicing business for residential mortgages. So they're impacted clearly in a negative way by the decline in rates as it applies to their MSR book, which is effectively an interest rate IO. But they benefit from an increase in refi volume on the origination side. So this company has a bit of a natural hedge.

And they've taken advantage of the market and their turnaround strategy by bringing over additional teams, in most cases, at no cost into their origination engine, which drives both origination volume, therefore, fee income as well as additional mortgage servicing rights, which have value that are valuable and can trade. So we're just seeing some benefits, some trends that are positive. Their company's doing better. And that's why this company's mark went up, and that's why this company is still on accrual status. And that's why this company we think should continue to generate a positive recovery for us. And we're bullish about the long-term future of American Community Homes.

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Matthew Alan Tjaden, Raymond James & Associates, Inc., Research Division - Research Associate [27]

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Great. And then, kind of, a similar question on Education Corp of America, any guidance you're willing to offer on that asset? It looks like the preferred equity piece has marked up quite a bit from the previous quarter.

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Aaron D. Peck, Monroe Capital Corporation - CIO, CFO, Corporate Secretary & Director [28]

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Yes. So when you think about ECA, you have to remember that ECA basically got split into 2 different companies in prior quarters. And so ECA -- what used to be ECA is now ECA and NECB. And so there were some movements in both names, one going up and one going down. And frankly, on a net basis, it ended up around flat, when you think about the 2 pieces. And it really just had to do with some -- in the case of NECB, there was some buying interest in the company, which faded a little bit, which impacted the value negatively. And as it applies to the ECA, it gets into a little bit of specifics, but there was a change in, sort of, how we calculated the recovery based on some negotiations with the trustee in that case, which impacted the value a little bit. But I think what we said in the past, which we continue to believe, is we don't expect there to be much resolution on this case for some period of time because a lot of the recovery, particularly as it applies to ECA, is related to some longer-term legal settlements that could be occurring.

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Operator [29]

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Your next question comes from the line of Christopher Nolan with Ladenburg Thalmann.

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Christopher Whitbread Patrick Nolan, Ladenburg Thalmann & Co. Inc., Research Division - EVP of Equity Research [30]

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Just following up on the dividend question earlier. Given all the headwinds, particularly the interest rate headwinds, do you think that the business model can sustain the current dividend? And management is willing to do whatever it takes to support the dividend through waivers and all that other stuff?

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [31]

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As I told Bob when he asked the question, it's really the same response, Chris. We're going to look at everything here. But at the end of the day, we're going to try and do what we can to generate the best overall returns for our shareholders, both in terms of dividends, NAV, value accretion. And we've got a great core business here. And we've got a couple of things that we're going to work on in the next quarter. And I think we'll be in a much better position to respond to that question at the following quarter. So I guess, just hold on to that.

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Operator [32]

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At this time, I am currently showing no further questions in queue. I will now turn the conference back over to the company.

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Theodore L. Koenig, Monroe Capital Corporation - Chairman, President & CEO [33]

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Good. Well, I want to thank you all for joining us today. I want to thank our directors for working with us to make that reduction happen on the shareholder -- for our shareholders on behalf of reducing our management fee, I think that's an important step. I think that and continuing to waive some incentive fees really shows an alignment of interest here, and our goal is to do whatever we can to benefit our shareholders. So I look forward to working with our directors and our shareholders going forward, our management team. We're going to clean up some things internally. Hopefully, we'll have some announcements to make by the next quarter, if not sooner.

And I encourage all of you on the phone that if you have any questions or follow-up questions you want to talk about anything, feel free to call Aaron or myself, we're always willing to do that. And then thank you, and have a good day.

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Operator [34]

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Ladies and gentlemen, thank you for participating. You may now disconnect.