Theodore Koenig - Chief Executive Officer Aaron Peck - CFO and Chief Investment Officer.

Mickey Schleien - Ladenburg Thalmann & Company Bob Napoli - William Blair Chris York - JMP Securities Bryce Rowe - Robert W. Baird Chris Nolan - FBR & Company Christopher Testa - National Securities.

Good morning and welcome to Monroe Capital Corporation’s Fourth Quarter and Full Year 2015 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 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, March 04, 2016, 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 risks, uncertainties and other factors, including, but not limited to the factors described from 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..

MRCC is a best-in-class BDC with a strong credit platform and a focus on the top of the capital stack providing a fully covered 11% dividend with a stable NAV performance.

We strongly believe the current stock price presents an attractive entry point for investors as the stock’s current 90% of NAV valuation is heavily discounted by historic standards due to current overall market conditions and those concerned about the credit cycle should receive downside protection and comfort from Monroe’s senior secured loan portfolio.

In addition, MRCC maintains a shareholder-friendly structure, strong asset quality and scale through the resources of Monroe Capital, an award-winning leader in middle-market lending with nine offices located throughout the US and Canada.

More specifically, here are the top five reasons to consider an investment in MRCC; number one, we offer a strong dividend coverage from our largely senior secured first lien portfolio which should create confidence for investors owning this name in a volatile credit environment.

We have paid dividends for 12 consecutive quarters, each quarter since our IPO in late 2012, the current annual cash dividend is a 11%, one of MRCC’s consistent strengths is its strong dividend coverage, which in the most recent quarter was approximately 114% when calculated with adjusted NII.

It is among the best covered dividends in the entire BDC industry with many BDCs realizing losses and reducing the size of their interest earning portfolios, MRCC’s stability and dividend coverage are unique and distinguishable in this industry.

Reason number two, MRCC’s focus on the top-end of the capital structure with first lien loans continues to be a benefit as our per share NAV increased year-over-year as our portfolio was relatively stable and our earnings in excess of dividends led to NAV growth.

NAV increased from $14.05 per share as of December 31,2014, to $14.19 per share as of December 31, 2015 when a great majority of the other BDCs experienced negative NAV trends in the last year.

In fact, of the 30 other BDCs that we track that have reported earnings so far in this fourth quarter, 25 of those BDCs have reported a decrease in per share NAV since the end of 2014. MRCC has zero exposure to commodities, metals, mining, and oil and gas exploration industries, all of which have suffered declines.

Reason number three, MRCC investors benefit from Monroe Capital’s best-in-class platform to source attractive and proprietary deal flow. Monroe Capital specializes in lending to both private equity sponsored and non-sponsored companies in the lower end of the middle-market with EBITDA in the range of $3 million to $30 million.

This segment of the market is not competitive with most of the larger BDCs and it’s highly fragmented. In 2015, Monroe Capital reviewed over 1700 investment opportunities generated by its 18 new business origination professionals located throughout nine offices in the US and Canada.

Of those, MRCC invested in 24 new loan transactions in 2015, a testament to the selectivity and credit-focused nature of the Monroe Capital management team. Reason number four, MRCC investors benefit from Monroe Capital’s award-winning investment platform.

Monroe Capital has been recognized by Global M&A Network as the 2015, 2014 and 2013 small, middle-market’s lender of the year, by Private Debt Investor as the 2015 lower middle-market lender of the year, the 2014 senior lender of the year, and the 2013 unitranche lender of the year and finally, the US Small Business Administration, as the 2015 small business investment company of the year.

Reason number five. The recent increase in the family of funds cap on SBICs has the potential to materially benefit MRCC. This year’s Omnibus Bill passed by Congress on December 18, 2015 included several stipulations that will benefit BDCs including an expansion to the small business investment company program.

One change comes with increasing the family of funds, cap on SBA guaranteed debentures from $225 million to $350 million for an affiliated group of SBICs.

As SBA guaranteed debentures do not counts against the BDC regulatory leverage limitation of one to one, this additional capacity could materially benefit a BDC that is able to receive an increase in its debenture cap.

MRCC has recently submitted a commitment application to the SBA for an $80 million increase in additional SBA debentures which would allow MRCC to grow its portfolio significantly. There is no assurance that the SBA will grant this request or the time period in which this request will be granted.

However, we believe that MRCC’s solid track record of performance and Monroe Capital’s recognition as the SBIC of the year by the SBA in 2015 makes MRCC’s SBIC sub a very good candidate to receive these additional debentures. I am now going to turn the call over to Aaron who is going to discuss the financial results in more detail. .

Thank you, Ted. Our investment portfolio continued to grow in the quarter and we have continued to generate high-yielding opportunities, which has allowed us to maintain a high level of weighted average yields in the portfolio.

As of December 31, the portfolio was at $341.1 million at fair value, an increase of approximately $11 million since the prior quarter end. At December 31, we had total borrowings of $123.7 million under our revolving credit facility and SBA debentures payable of $40 million.

The increase in outstandings under the revolver are the result of portfolio growth. During the quarter, we also announced an amendment on our credit facility which increased the capacity under our revolver to $160 million, a $25 million increase and increased the accordion feature of the credit facility to $300 million to allow for future growth.

We’ve reduced pricing on the facility by 25 basis points and extended the maturity by three additional years. As of December 31, our net asset value was $184.5 million, which increased slightly from the $179.9 million in net asset value as of September 30, primarily as a result of capital raises under our ATM program during the quarter.

On a per share basis, our NAV per share was stable decreasing very slightly from $14.21 at September 30 to $14.19 per share as of December 31. When compared to December 31, 2014, our NAV per share increased by $0.14 per share. As Ted mentioned in his remarks, we are one of a very small group of BDCs that can point to per share NAV growth in 2015.

On an NAV basis, including dividends but not assuming reinvestments, we’ve returned approximately 11% to shareholders during 2015, a record we are very proud of in a challenging market environment.

Turning to our results for the quarter ended December 31; adjusted net investment income, a non-GAAP measure, was $5.1 million or $0.40 per share, an increase of $0.05 per share when compared to the prior quarter. At this level, we continue to comfortably cover our quarterly dividend of $0.35 per share.

Additionally, this quarter we generated net income of $4.2 million or approximately $0.33 per share, a decrease from the net income in the prior quarter of $0.38 per share.

The increase in per share adjusted NII from the third quarter was primarily due to the increase in interest and dividend income in the quarter as the portfolio continued to grow, as well as the increase in prepayment fees and pay down gains during the quarter, as repayment activity in the prior quarter was minimal.

Striping out fee income and paydown gains, our per share core net investment income was still higher than the prior quarter and covered the dividend.

As we have discussed in prior calls, we generally have a robust level of prepayment activity in the portfolio which is additive to earnings and returns, but quarter-to-quarter, this activity can be volatile and unpredictable.

While the fourth quarter prepayment activity was greater than the prior quarter, it was still lower than our recent historical average level. Looking to our statement of operations, total investment income for the quarter was $10.1 million, compared to $9.2 million in the prior quarter.

The increase in investment income is primarily as a result of the growth in the portfolio as well as prepayment fees and paydown gains.

Total expenses of $5.1 million included $1.6 million of interest and other debt financing expenses, $1.5 million of base management fees, $1.3 million in incentive fees and $755,000 in general administrative and other expenses.

Of the $1.6 million in interest and other debt financing expense, approximately $1.4 million was cash interest expense with the remainder representing non-cash amortization of the upfront cost associated with establishing our credit facility and our SBA debentures, as well as the interest expense associated with the secured borrowings recorded under ASC 860.

As for our liquidity, as of December 31, we had approximately $36 million of capacity under our revolving credit facility while our SBIC debentures were fully drawn at $40 million at the end of the quarter, we did had $8.6 million of restricted cash available in our SBIC’s subsidiary due to recent repayments.

As Ted mentioned in his remarks, Congress passed a bill in December of 2015, which increases the family of funds limit on SBA debentures from $225 million to $350 ,million as SBA debentures are disregarded for the purposes of a BDCs leverage test, this additional capacity could materially benefit a BDC that is able to receive an increase in its debenture cap.

MRCC recently submitted its commitment application to the SBA for $80 million in additional SBA debentures, which approved would bring MRCC to a total of $120 million in debentures.

While there is no assurance that the SBA will grant this request, our manager which was named as the 2015 SBIC of the year, has a very strong track record which we believe makes our SBIC a very good candidate to receive additional debenture capacity. I will now turn the call back to Ted for some closing remarks before we open the line for questions..

Thanks, Aaron. In 2015, we provided investors an 11% return based on the growth of our NAV and dividends paid to stockholders. We believe this puts MRCC in a very small and select group of BDCs that have delivered this level of performance for its shareholders.

We cannot reconcile this performance as to how our stock traded at the end of 2015 or in early 2016. This makes no sense to me and us. We are comfortably covering our dividend with NII. We have grown our per share NAV since the beginning of 2015 and paid out $1.40 in dividends in 2015.

On every single metric, under our control, we have delivered for shareholders and we intend to continue to do so.

With our stock trading at a 10% discount to our most recent NAV, and a dividend yield of around 11%, fully supported by net investment income and a stable book value, we believe that Monroe Capital Corporation provides a very attractive investment opportunity for shareholders and other investors. Thank you all for your time today.

We appreciate you joining us on this call and with that, I am going to ask the operator to open the call for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Mickey Schleien with Ladenburg. Your line is open..

Good morning, Ted and Aaron. First, congratulations on a very good year. I completely agree with your remarks regarding your performance relative to most of the BDCs that I cover.

I wanted to first ask about the third SBIC license, if you were fortunate enough to be approved, could you give us an idea of how much total leverage you would be willing to run the balance sheet at?.

Sure, I mean, Mickey, we’ve always focused more on the regulatory leverage side and so, when we think about leverage, we are comfortable going above one-to-one on a total leverage basis and we look at regulatory leverage anywhere from 0.7 to 0.8 depending on the mix of the portfolio and that’s really where we focus. .

Thank you. Couple more questions. The Rockdale Blackhawk equity was marked up pretty significantly in the quarter.

What drove that? And was that valued by a third-party or did you guys evaluate yourself?.

I’ll answer the second question, first. It was a 100% valued by a third-party as what every asset on our balance sheet and it’s been done so on a quarterly basis.

As you can imagine, I cannot get into a lot of specifics as to an individual credit, but the reason that it was marked up is because the company is executing very well on its plans and continues to grow its EBITDA performance and its valuation..

Okay. Just a couple of more.

On the other hand, TPP acquisition and the unitranche loans that TPP and the Rocket Dog Junior were marked down, was that’s a – was that in relation to wider spreads or are there issues at these companies that you are dealing with?.

Yes, good question. As you’d probably recall, TPP and Rocket Dog are two of our names that have had some challenges that we’ve talked about in prior calls as well. TPP had a fairly difficult fourth quarter.

We are working on a strategy for that name to improve its cash flow and its performance and we are hoping that in the future, we can see a turnaround in that. But it’s subject to what was a very weak mall-based retail environment in the fourth quarter and unfortunately that’s where that company is located in the malls.

Rocket Dog is a pretty small holding at this point. I think it’s just the turnaround, they are just been a little slower than we anticipated, but, we saw a good hope for that company to recover and to generate some value for us in the future. .

Okay and my last question, just curious how Landpoint is doing, its mark has deteriorated and if I recall correctly, they do surveys for oil and gas companies.

So what are they doing that that is sort of insulating them from all they have it that we are in that sector?.

Yes, so Landpoint is a surveying company and they do have a number of oil and gas-related clients, but they are not a 100% oil and gas.

They have exposure to other parts of the general market, general commercial construction and civil construction and they have been undergoing a strategy to expand that part of their business over the last year or two.

And so, while they certainly have seen declines in their oil and gas pipeline related surveying work and their oil and gas exploration and production work, it hasn’t gone away.

There is a several quarter lag, in some cases, several year lag between the time a well is drilled and the time that it’s finally connected to the pipeline and so they thought some work that’s coming as a result of that. And the most important reason that that name wasn’t marked down heavily is because of the way that we structure that loan.

As Ted talked about in his remarks, we’ve always shied away with companies that have exposure to commodities and oil and gas prices and so we structured that loan in a way that we knew we could withstand any movement in commodity prices. And so, we had a very, very low leveraged loan when we started with them.

The leverage has increased slightly, of course, as their performance has deteriorated slightly due to the oil and gas declines, but our total leverage on that name is still in the mid-twos, on a two times leveraged basis. So, very comfortable that they are able to service all their debt and the management is very strong there.

They are taking market share in all sectors and they are continuing to grow, and so, we are very comfortable that we are in a very good position with regards to that name. .

Thank you for that, Aaron and again, congratulations on a good year, Ted and Aaron. .

Thanks, Mickey. .

Those are all my questions..

Thank you. Our next question comes from the line of Bob Napoli with William Blair. Your line is open..

Thank you. I would second the motion on, congratulations on a nice job. Ted, the – I wanted to – looking for some comments from your viewpoint in how the economy is doing as it relates to your portfolio as we look out into the credit performance in 2016.

You seem to be in some of the right places where the economy is doing better, not so much in industrial, obviously not oil and gas, but I was wondering, Ted, I’d like to get some comments on where you think the economic outlook is?.

That’s always a hard question, Bob, because it’s a crystal ball. The good thing is that, we’ve got a little over 200 companies in our portfolio here at Monroe. So it gives us some insight into the overall economy.

And I will tell you that, the place where we play primarily is in that $3 million to $25 million EBITDA size company probably average somewhere in the $5 million to $15 million EBITDA size company, generally and that space has been the most resilient part of the overall economy in this current cycle.

As it was in the last cycle, I mean, there is no – it’s not a secret while we play in the space and why I am very focused on this sub $20 million EBITDA area, this market segment.

In the crisis years, 2007, 2008, 2009, that was the area that suffered the least and the reason why it suffers the least is because, very few of the revenues in companies in that segments are generated by export sales, or by overseas relationships with vendors or customers, suppliers or distribution channels.

We tend to finance US concentric companies that have US concentric suppliers and distribution channels and we tend to stay away, as I mentioned in my remarks, from industries that are highly correlated with commodity prices, or with agriculture or with things that the weather can affect or things that are extracted from the ground in terms of minerals, things that tend to be very focused on cyclical economic swings.

So I will tell you while I am not bullish on the large cap market, I am not bullish on the, necessarily, the retail segments of our economy. I am not bullish on the oil and gas materials mining, minerals extraction.

I am, relatively happy with lower middle-market companies that have a reason to exist and have been around through several cycles and have a diversified customer base and generates decent cash flow.

Those companies are going to be around and of the nine offices that we have and almost 20 originators, when I talk to them, weekly about where, what ponds and what pools we should be fishing in, that’s where I tell them to fish because I think that, in 2016, we are going to have another extraordinary year at Monroe in that space. .

Great, that’s very helpful. Just one more question. The Blackhawk investment, I mean, that obviously you guys have a good one there.

But just some thoughts on equity and how much equity you would like to hold in? Is there any increased focus at the margin on having more equity investments tied to your debt or – and then how long would you hold an investment like Blackhawk and not sell the equity?.

Sure. So, we are focused, as you know, primarily on debt. That’s what we do. We are a middle-market lender. There will some time where due to opportunity, we will have the ability to either get equity as a part of our investment or purchased at a very low price, little bit of equity in conjunction with our investment.

It’s not something that we have increased our focus on, it’s not something that we lead with, it’s not our primary focus. And so, we don’t have a pre-disposition to increasing our equity investment. The reason our equity investments have increased is because of valuation. It’s not because of a change in focus.

So, that’s the answer to the first part of the question. As for the plans with this particular investment, we are not a majority owner. We don’t control what the company does or doesn’t do and it’s not a liquid company. So, it’s not like, it would be easy for us to find someone to buy our equity as we chose to monetize it.

As it is, in this particular instance, we think there is material upside to our valuation long-term. And so, I really don’t have any interest in selling our equity today even if there was a buyer for that.

But, we will end up monetizing that equity when the company decides it’s time for them to monetize their equity or bring on the strategic partner or sell to a private equity investor or strategic, we are sort of – while we are certainly involved with the company and they talk to us regularly. We are more of a passenger than a driver on that car. .

Great. Thank you..

Thank you. Our next question comes from the line of Chris York with JMP Securities. Your line is open..

Good afternoon, Ted and Aaron. So, we recently heard a large BDC state that it is better to be more active in ABL deals to traditional retailers.

Now, you guys are to the space last year along with the consumer products, so, I’d like to get an update on product, the progress you’ve made in vertical and the opportunity you guys seen there?.

Yes, I also believe, obviously, that’s why we are in it, is that there is an opportunity in this space. The retail market is undergoing a significant change here in the US.

Brick and mortar retailers for all practical purposes have trended lower year-over-year in the last couple of years and that’s because of the increased competition from the online retailers in the non-brick and mortar providers of consumer goods. So, whenever that happens, there is going to be a change that takes place.

We’ve – I’ve been following this space quite a bit. I mean, we’ve been doing this business since 2000 and you guys may not recall, but from about 2000 or about 2004, we’ve ran a lending group that focused on lending to retailers.

And that was about 15 years ago and we did probably a dozen different loans to retailers and I really stopped doing that around 2004, 2005, because I didn’t believe the risk return in that space, justified the investment.

Now, there has been lots of consolidation in that space, in the lending space, you’ve got a couple of very, very large lenders that are focused on the investment grade aspects of the retails space, and you’ve got many other players that have left the space entirely. Now, this is an area that is a very, very, very difficult area to lend into.

You need lots of experience, you need lots of expertise. You need to understand appraisals, you need to understand liquidations, you need to understand how retail and consumer goods gets sold in a consumer liquidation process, otherwise, you are going to get hurt and lots of lenders have gotten hurt in this space over the years.

We have that expertise. We did that, as I said about 15 years ago and we hired, what I consider to be a couple of guys that are as good as anyone in this space in terms of generating opportunities and in terms of understanding how to structure and win these deals.

We have a best-in-class platform when it comes to credit and underwriting and our loss history is enviable for everybody in this industry.

So I think when you combine the Monroe historical experience in the space with our strong, strong credit skills and what’s going on in the economy in general, I think there is going to be a lot of opportunity in this space.

The challenge is going to be only picking the ones that are in the fair way and that’s what I am focused on in not taking undue risk here in this space which others will. .

Makes a lot of sense. Thanks for all that color.

Switching gears, so it looks like a couple of the unitranche loans that we've already talked about were marked down a little bit, and I am curious, are you guys worried in the event of bankruptcy how the Court would rule on any of your agreement among lenders?.

The short answer is no. I am not worried. There were some of these loans that have been marked down, but a lot of these loans are marked due to either some performance, a couple of them are performance issues that Aaron mentioned, but mostly, we are in a general market here where we’ve seen lower discount rates, more stressed generally.

So, what we do with our portfolio is, we have a 100% of our portfolio reviewed every quarter by a third-party, several third-parties unlike some of our peers, we don’t rotate, we don’t pick and choose certain names. We have a 100% of our portfolio reviewed. So, you are going to see some volatility quarter-to-quarter in the unrealized markdowns.

Now, what – you asked about specifically is in the bankruptcy court, we’ve been in bankruptcy in a number of cases. We’ve been in bankruptcy in over the years in first lien. We’ve been in bankruptcy in second lien. We’ve been in bankruptcy in unitranche. We probably do more unitranche than any other player in our space.

As I said, we’ve been doing this for 15 years. We think we’ve got a pretty good formula. It’s been blessed and it hasn’t been affected in several bankruptcies that we’ve been involved in and we think we’ve got a pretty good formula for how to attack this. We tend to control the credit in all these aspects. We tend to be the agents.

We tend to determine what kind of reserves. We tend to determine how we’ve run the bankruptcy and we are the senior secured lender.

So, other than, normal bankruptcy risks, like whether you are unsecured, whether you’ve got first day orders, whether you’ve got cash collateral discussions, I mean, all those impact, every bankruptcy there is, and as the senior secured creditor here in the first position, not the unitranche lender in the second position, we feel we are in a pretty darn good position with respect to our documentation in the bankruptcy law process.

.

I’ll just add one other thing, Chris, which is when you think about a first out, last out loans in the larger part of the market, you are probably used to seeing guys push first out leverage to three and four times and have small last out leverage behind that a couple of turns.

That’s not traditionally and typically how, how our unitranche first outs are structured. We are usually much more conservative in terms of the first out leverage. It averages between one and two times in most cases at the time we originate the loan.

And so we are not talking about a first out lender that’s as close to potential impairment when trouble happens and we are also talking about first out lenders that have normally received significant amortization that’s gotten much lower in terms of their attachment point.

So, we are usually pretty aligned with our first out lenders in situations where there is stress and we usually control and they just come along for the ride. .

Makes sense, yes, that clarification and distinction makes a big difference.

Lastly, so, it looked like balance sheet leverage in the – we’re relatively unchanged during the quarter, but hoping if you could provide us an update on how you’re thinking about balance sheet leverage and liquidity in the current environment? And then, the potential desire for additional equity, in excess of just using the ATM?.

Yes, so, and I mentioned this a little bit earlier, we tend to think about leverage on a regulatory basis and we tend to think of leverage as sort of a target between 0.7 to 0.8 on a regulatory basis, depending on the mix of the portfolio.

One of the reasons we don’t focus as much on the total leverage is, because we know based on the number of SBA debentures that will be available to us in the future, that that – that non-regulatory that books leverage number is never going to get so high that it gets to a point where we would have concerns.

Where we’d be comfortable with our portfolio with our portfolio mix of having total leverage if there was no regulatory cap well above 1 to1. The SBA itself 2 to 1 debt-to-equity leverage on loans and we think that’s perfectly acceptable leverage. And so, we could never really get to 2 to 1 leverage on a book basis in our portfolio.

So, we are not at all concerned about where our leverage would go in terms of total leverage. We are focused more on making sure there is enough buffer between our regulatory leverage and the cap, so that we have room for whatever might happen in the future with regards to market movements and unrealized marks and things like that.

We like to keep a buffer there. So that we can control our own destiny and so that’s really what we are focused on when we think about leverage. Now, for your other question about the capital raising, clearly, we have tons of opportunities and the BDC is very close to capacity to that.

And so, we would love to be in a fortunate enough position, so that we could go after and accretively raise equity both through the ATM and through an underwritten offering. As everyone knows, by looking at our stock price today, we are not there and I don’t know when we will be there. We think we should be there. But we are not.

And so, when the stock gets to a healthy premium to book value as we hope is sooner than later, we certainly would consider equity raises outside of the ATM, but with our stocks trading below NAV today, which we all scratch our heads at here, we are out of the equity market today. .

Great. That’s it for me. Thanks, Aaron and Ted and congrats again on a good year and all the wedding accolades..

Thanks, Chris..

Thank you. Our next question comes from the line of Bryce Rowe with Baird. Your line is open..

Thanks, good afternoon. Want to just clarify on the SBA request for additional commitments. Ted and Aaron, do you guys have three licenses in fact, within the Monroe family and so, the question is, did you apply for a third license? And if not, just curious, did other parts of Monroe, the Monroe organization also request commitments. Thanks..

Thanks, Bryce. We do in fact have three licenses in the Monroe family. One license is a license that we obtained several years ago and that right now is full up with $150 million of debentures and then we had a second license and a third license – the second and third were split evenly between the BDC and another fund.

What we did is, we made application only for $80 million thus far for the BDC sub. So we did not make any other applications at this time for additional SBA debentures. Our view is right now, we were SBIC of the year last year.

We believe we have best-in-class performance with our BDC and we wanted to take advantage of that and make the application now that we are able to for additional SBA debentures in the BDC SBIC and we did that. As I mentioned in my remarks, and we made an application for an additional $80 million of debentures. .

Okay, that’s helpful, Ted and just a follow-up to that, have you had some interactions with the SBA and they’ve given you any indication in terms of the timing Is it a three month process, six months process? What are your expectations?.

Well, I will tell you that we made the application. We have not received any response back on the application yet, which is very typical and I will also tell you that we are the absolute first applicant for the increase in the SBA debentures. So, right now, the process has no historical precedence at the SBA.

I think that’s there over – at the SBA there determining how they are going to run this process and what they are going to do. So, I can’t give you, unfortunately, any real guidance on how long it may take or when it maybe done, but I will tell you that, I hope it soon.

But, all I can tell you is that based on past experience, we are dealing with the SBA and they move at their own pace. But we are the first in line which is the good thing. .

Understood. All right. That’s helpful. Thanks, Ted. .

Thank you. Our next question comes from the line of Chris Nolan with FBR & Company. Your line is open..

Hey guys.

Aaron, what was the yield on new investments please?.

I am looking at Ted, and I don’t know, if we’ve typically disclosed that. So, it’s not an item that we disclose, I will tell you that it tends to be somewhat flat. I think it was somewhat flat the last quarter, it’s going to be high single – low double-digit kind of yields is what you’d expect.

I think it’s reasonable that you would expect that the loans that we make today are by and large at a lower yield than the loans we made when we launched the BDC, because in that market, we are able to really drive higher yields.

But, the loans that we are making now are supportive of our core NII and don’t dilute at that and so, you could go through and look at the new names and origination.

In the fourth quarter, it was a handful of names, while I am just looking at the new names, one was 10%, the other was 10%, it’s going to be around 10% and change if you just look at them..

Yes, okay, great.

And then, as a follow-up, during 2015, it looks like Junior secured loans was a category of lending that really jumped a lot and given all the turmoil that’s happening in the market during 2015, what was the thinking behind going down the capital stack in terms of increasing exposure to them?.

Yes, I think that, we looked at – first of all, we are a credit chop, right? So, everything we do is based first and foremost on what credit risks are we taking and are we comfortable with the risk reward of that credit risk.

And so, we look all across the market all the time and have access to both originated assets, as well as assets that are available in the club deal market as well as the syndicated market.

So, originally, when we put some money to work in senior secured, it was because we had some raised some capital through the last underwritten offering last year and we are looking for ways to get that capital work fairly quickly and we found some opportunities in the market that we like that we knew that could underwrite through our process that we thought were good risks.

And so, at that time, the yield on first lien liquid assets was not high enough and we didn’t think it’s correctly priced, but we did think there were opportunities in the second lien market to buy some really nice assets. We don’t go out buy the market. We go out and buy individual credits and we’ve found credits we liked.

Now, you will note that some of those names have taken some unrealized marks since the time that we put them on the book and we certainly aren’t happy about that, but we don’t look at that as an answer. We look at it as an opportunity.

And so, as we go forward and look at all those names and when there is dislocation, we selectively will look to potentially add to those portfolios and you may see some of that in the future. But, the thinking was, is it the very best credit for the return and does it meet our investment thesis? And the answer for those names was, yes, it does.

And it wasn’t taking us up to a unreasonable level of second lien exposure overall for the portfolio..

Yes, and Christopher, one other comment on that is that, we manage our business here for the long-term and for the long-term benefit of the shareholders. I don’t manage this on a quarter-to-quarter basis based on marks. In Q3 and Q4, second lien paper gapped out unreasonably. So, what we did is, we did at an opportunistic basis.

We took advantage of some of those gaps and some names that we knew and understood and liked. To the extent that happens again in 2016, I would do the same thing. It’s just a function of the opportunity quarter-to-quarter and what happens with the overall market.

I mean, if you look back at Q4 just for an example, first lien liquid names traded down from a 98 to 99 to 95, 96. And that happened because all of a sudden a CLO market went away in late Q4 and those names weren't worth any less.

They were actually just as good as they were the quarter before, but, four, five points of value were able to be picked up by investors that were sophisticated and we did the same thing in the second lien market in Q3 and Q4. .

And then, as a follow-up to Chris York’s question on debt leverage. When you are talking about the 0.7 to 0.8 range, correct me if I am wrong, but in the past, you sort of hedged a little bit saying you have to go up to 0.85 if the book is a little more weighted to senior secure loans.

The fact that you are not talking about a 0.85 should be – you’d be looking at that in terms of you are seeing more opportunities in the junior secured second lien?.

Yes, good question. Good question. The answer is, the only reason I am not talking about 0.85 is, because we’ve already made a slightly larger debt in the junior secured market than we had. So, it isn’t a signal that we are going to necessarily do anything different going forward, it’s just as you pointed out, our second lien exposure has grown.

So, as it grew a little bit this year, the top end of that range took down a little, if we put on a lot more first lien opportunities in the future, we might then talk about 0.85 again depending on what we see in the horizon, what we see in the economy, what we see in the finance market.

I mean, the good news is, is for us, we have a really nice bank facility led by ING. We just redid it to push up the maturity longer. And so, people worry about and we expanded it and put an accordion in, that’s large that we got we grow with it.

And so, sometimes when people get worried about those facilities, what they worry about it is that they have a maturity at a time when things are not going as well and in the general economy and the level of loan trading. So, they don’t want to get too high on their leverage, because they might have a maturity. For us, that’s not an issue.

We’ve got a long tail on our maturity there. And so we’ve got some flexibility. So, I wouldn’t read too much into the fact that I am not saying 0.85 and I am saying, 0.8 now. It’s really more of the customers that where the portfolio is today, but that could change..

Okay. Thanks for taking the questions. .

Thanks, Chris..

Thank you. And our last question comes from the line of Christopher Testa with National Securities. Your line is open. .

Good afternoon, Aaron and Ted. Thanks for taking my questions. Just with the unitranche portfolio, trying pretty significantly this year the originations were light.

I just want to know if that’s more of a concerted effort on your part or whether the volume is just like there, I know it’s the sponsor financed instrument mostly and if the structure is reflective of the market conditions or whether sponsors are still wanting too much leverage?.

A couple of questions embedded in there, Christopher. So, there is plenty of opportunities for us that we are looking at. The challenge is, is again, Aaron mentioned, we tend to be very credit-focused. The market took up leverage a little bit in Q2, Q3 last year and we just didn’t want to play at some of the leverage levels in the unitranche.

In Q4, we saw the leverage stabilize and in the first quarter this year, we are seeing it actually a reverse and come down.

So, I would anticipate that you will see probably more unitranche, but again, our job is to make money for shareholders and we do that depending upon where we are in the current credit cycle and where kind of the market is pegging risk return. So….

Got it..

I tell you, hang loose on that, more to come. .

Okay and I know, you opened another office up in Toronto.

I was just wondering if you could give any color on whether there is any specific vertical to that office will focus on? Just any thoughts there?.

As you know, as I mentioned before, we have several verticals throughout the firm. We have a strong healthcare. We have a strong media, and telecom. We have a strong retail, ABL retail business that we’ve developed and we have a strong media vertical as well.

In addition to that, we have nine overall offices, Toronto, specifically is a great market for our middle-market and lower middle-market and we anticipate utilizing that office now and selling all of our verticals through that office in Toronto and throughout Canada. .

Got it. I just wasn’t sure if there was a specific focus for that one. And just shifting to the vertical, I know you guys have the bulk of the portfolio in healthcare. Just we are seeing a lot of credits at other lenders in healthcare get either marked down or experiencing problems with reimbursement risk.

How much of the healthcare portfolio would you characterize as having some sort of reimbursement risk pivot?.

Good question. I think, the realities in the healthcare market along with the healthcare segment has reimbursement risk. I think the key to reimbursement risk is having professionals in your vertical that specialize in healthcare and know how to analyze and think about the reimbursement risk element.

It is by far the number one underwrite that we go through when we think about a deal and we almost always go out and commission some sort of reimbursement study with some of the experts out there that know how to look and think about reimbursement. And so, it is a big focus of the underwrite.

Now, having said that, not every piece of healthcare deals that we will do will have that sort of exposure. But, it’s very credit-specific. The funny thing about healthcare, there is some industries, that when you think about that industry, all the companies in an industry are very similar. Healthcare is not one of those industries.

Healthcare can be behavioral health, it can be hospital-based, it can be lab services, it can be technology that’s around healthcare. And so, it’s a very broad category.

And even though we have a big exposure there, it’s pretty diversified amongst types of companies in that industry and it’s actually still lower than the healthcare is in terms of its percentage of our GDP in the economy. So, it is an area we like. It is an area that we think is important.

It is an area that we think has a lot of safety because demand never goes away for healthcare, but the things you are thinking about are the things that I can assure you, we think about and in for some rate, over each time we look at a deal. And the reimbursement is a big part of that on that assessment, it’s a big part of the risk we price. .

Great, and just, last one from me would just be, given the earnings have – you are really out on the dividend on an adjusted NII basis, what level would you have to get at ex, I guess, you call lumpy fees that are embedded in there before you think increasing distributions?.

It’s a great question. It’s a question that our Board and management discuss each and every quarter when we meet, which is, what is our earning outlook. Where our earnings today.

What’s the long-term plan and what do you want to do with the dividend and it’s true that we are on a $0.40 on an adjusted NII basis this quarter, we are paying a $0.35 dividend. I think that when we think about our business, we think about our core income.

And we think about what is something we can something we can bank on, what money in the bank for us on a quarter-to-quarter basis. And we think about the dividend based on that and we will look at the end of the year, as to whether there is additional income that we want to distribute or not distribute.

But, we are not looking at $0.40 when we think about our runrate for what we do, because, as you could tell by what we disclosed our core income is close to $0.36. and so, that’s really what we think about when we think about our earning potential in the portfolio.

We don’t want to every rely on and I don’t think you should be relying on, on when you are thinking about our name, those higher prepayment fees things like that.

We are really thinking about $0.36 and so when we look at a dividend of $0.35, we are glad we can cover it with all the extra stuff that we do in the quarter and we do have those from quarter-to-quarter.

But we are really focused on that core income and that was $0.36 in the quarter and that's what we think about when we think about the earning assets of the portfolio and the return. And that’s what we think you should be focused on. .

Great. Thanks for taking my questions and congrats on a great year. .

Thanks, Chris..

Thank you. And this concludes our Q&A session for today. I would now like to turn the call back over to Ted Koenig for closing remarks..

Good and thank you all for taking the call this afternoon. As Aaron mentioned, we focus our business here long-term for the benefit of our shareholders.

In the short-term, we want to make sure that we are covering our dividends with core earnings and as Aaron said, we focus on $0.36 as our core earnings and that’s what quarter-to-quarter we manage our business to the rest of the stuff that comes in, may or may not happen. It’s highly episodic and we don’t count on that to run our business.

So, in 2015, we provided our investors with a 11% return based on growth of our NAV and dividends paid to our stockholders. We believe this puts us in a very small mid group of just a couple of BDCs that have delivered to this level of performance for shareholders.

As I told you earlier, I can’t reconcile our performance to the stock price in 2015 and I’d probably won’t be able to do it in 2016. This makes no sense to me, but all we can focus here on is our business and in fact, we are comfortably covering our dividends. We’ve grown our per share NAV year-over-year. We paid out $1.40 in dividends in 2015.

So every metric under our control, we’ve delivered on and we intend to continue to do so and that’s important.

With our stock trading at a 10% discount to our most recent NAV, and a dividend yield of 11%, fully supported by net investment income, a solid book value, I believe that Monroe Capital provides a very attractive investment opportunity for our shareholders and other investors.

We greatly appreciate all of you that take the time to cover us and talk to us from time-to-time. I hope that we are able to add a little value in how you look at the middle-market and understand, particularly the lower middle-markets since its highly fragmented. So with that, I thank you for all your time today.

I want to wish you an enjoyable weekend. And we will speak to you again next quarter. .

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day..