Welcome to Monroe Capital Corporation's Second Quarter 2017 Earnings Conference Call. Before we begin, I would like to take a moment and 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 reasonably based on management's estimates, assumptions and projections as of today, August 9, 2017, 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, uncertainty or 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 would now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital.

Hello and thank you to everyone who has joined us on our call today. I'm with Aaron Peck, our CFO and Chief Investment Officer. Last evening we issued our second quarter 2017 earnings press release and filed our 10-Q with the SEC. I will first provide an overview of the quarter before turning the call over to Aaron to go through the results in more detail. He will then turn the call back to me to provide some closing remarks, after that we will take questions. We are very pleased to have announced another strong quarter of financial results. For the quarter, we generated adjusted net investment income and net investment income of $0.35 per share equal to our second quarter dividend of $0.35 per share. This represents the 13th consecutive quarter we have covered our dividend. Our book value per share decreased to $14.05 per share as of June 30, primarily due to unrealized mark-to-market valuation declines during the quarter on one asset in our portfolio and dividends paid in excess of net investment income in the quarter as a result of the late second quarter timing of our most recent equity raise. The largest impact came from and unrealized mark-to-market reduction in the fair value of our equity position in Rockdale Blackhawk. As a reminder we received this equity in Rockdale for free. As part of a senior secured debt financing and therefore we did not make any cash investments in the equity. This period reduction in the fair value of the Rockdale equity of $6.8 million is the reduction of the previous unrealized gain on this equity position. The debt investment on Rockdale continues to be fair value marked at near par. At quarter-end, our highly diversified portfolio had a fair value of $445.6 million and was…

Thank you, Ted. Our investment portfolio continued to grow in the quarter and as of June 30; the portfolio was at $445.5 million at fair value, an increase of approximately $27.4 million since the prior quarter end. During the quarter, we funded a total of $73.4 million, which was due to eight new deals and several add-on and revolver fundings on existing deals. This growth was partially offset by complete pre-payments on six deals and partial repayments on other portfolio assets, which aggregated $41.6 million during the quarter. At June 30, we had total borrowings of $93.8 million under our revolving credit facility and SBA debentures payable of $85.6 million. The increase in SBA debentures are the result of portfolio growth and the reduction in borrowings under the revolver are the result of the capital raise we completed in June. We applied the proceeds of that capital raised to the revolver then began redrawing on the facility to fuel portfolio growth. As of June 30, our net asset value was $284.3 million, which increased significantly from the $239.6 million in net asset value as of March 31, primarily as a result of our June equity offering. Our NAV per share decreased from $14.34 at March 31 to $14.05 per share as of June 30. This was driven primarily by two discrete events. The first is due to a reduction in the equity valuation for Rockdale Blackhawk, as Rockdale has again reduced its projected EBITDA due to the reduction in reimbursement rates from certain payers and has had to address some liquidity strain due to non-payment of certain accounts receivable with the same payer. As a reminder, we received the equity in Rockdale for free in connection with the senior debt financing and they have no cash outlay for the equity.…

Thanks Aaron. Since going public with our IPO in 2012, we have generated a 40% cash-on-cash return for our shareholders, based on changes in NAV and dividends paid since our IPO, assuming no reinvestment of dividends. Based on the closing price of our shares on August 8, investors that purchased stock in our IPO in 2012 have received a 38.3% cash-on-cash return, again assuming no reinvestment of dividends. On an annualized basis, this represents approximately 8.5%, annual return for our stockholders since 2012. We believe that these returns compare very favorable to those achieved by our peers and puts MRCC in a very small and elite group of BDCs that have delivered this level of performance for shareholders over a consistent period of time. Based on our pipeline of both committed and anticipated deals, we expect to maintain our new investment momentum for the remainder of this quarter as well as into the third quarter. And as Aaron mentioned, based on the availability under our revolving credit facility and the additional SBA debentures we feel we have solid liquidity for up coming – to addressable upcoming pipeline. With our stock trading at a dividend yield around 10% now fully supported by adjusted net investment income and a best-in-class external manager, we believe that Monroe Capital Corporation provides a very attractive investment opportunity for our shareholders and other investors. Thank you all for your time today. And with that, I'm going to ask the operator to open the call for questions now.

Thank you. [Operator Instructions] Our first question is from Bob Napoli of William Blair. Your line is open.

Thank you. Good morning.

Hey Bob.

Hey, Aaron. The competitive environment, I mean you say it's very competitive, but is it incrementally more competitive? What are the yields on the loans here, I mean obviously you guys still have a very strong origination business and capability relative to others, but are these loans – are you having to take at the margin more credit risk and are you getting the same yields?

Good question. If the market is no more competitive Bob and it was three months ago or six months ago. Today thanks to traditional banks continue to be out of the market for leverage lending which is most of what we do. We see the same players everyone seems to have found relative equilibrium in terms of pricing today because everyone has the same needs, the public BDC have to return generate returns sufficient to pay dividends to private farms have to return sufficient amounts to pay a market competitive return to LPs. So the good news I think the market has found some equilibrium in pricing in our space when I say our space I refer to the $30 million EBITDA sized companies and below. So I think it will - I don't see anything on the horizon that will change that going forward for the rest of the year.

Just add one thing Bob, one of things we’ve been saying consistently in prior calls which is happening in our portfolio and we are seeing our weighted average yield come down a little bit and that's really because we're able to participate and even lower risk deals in our SBIC subsidiary due to the excess leverage. So rather than put in higher yielding, high risk deals and putting extra leverage on those we're able to we believe take the risk down in the portfolio and slightly reduced our weighted average effective yield without impacting ROE which is our strategy with regards to using the SBIC.

Thanks that’s very helpful. And just one follow-up question on Rockdale Blackhawk is that overall and I guess has $6.5 million of equity left in the debt. Are you is did you changed the rating on the debt at all in the quarter and how secure I mean it seems like the business is going in a wrong direction a bit if you would. What is your comfort level with the second half million equity do you have marked in the debt?

Sure, good question. So as of June 30, the risk rating is not changed from the debt for Rockdale and remains the two. We're very confident on the debt fees in terms of its kind it's frankly we believe that asset coverage based on a larger receivable balance. So that part of the story remains very strong for us and we believe there's still a long-term equity story to be had here, the company has with a little slow to work that business strategy but have now done that and is on track to improve it situation and so I don't know what will happen in terms of next quarter but the long-term estimates for us continue to be strong in terms of an equity story here. And so obviously the fair value is what we believe the equity is worth at the end of June and we really - reach that conclusion in concert with a third-party valuation firm. And in the future we still believe remains bright for Rockdale for the…

What percent to that company the loan?

To date between Monroe, the BDC and another fund we own 25%, the percentage it’s owned by the BDC I believe it around 11% to 12%. I don’t to get back to the specific.

Great. Thank you. Appreciate it.

Thank you. Our next question is from Leslie Vandegrift of Raymond James. Your line is open.

Hi, good day, guys. Thank you for taking my questions.

Hello, Leslie.

First question on the waiver this quarter I know you discussed in the prepared remarks of waving to make the quarterly dividend on adjusted and I for the quarter and was curious for the outlook for that for the rest of the year if you see that being used that there's a specific calculation other than just making adjusted NII equal to the quarterly if it's not?

Thanks Leslie. We didn't that in Q2 as we felt it was the appropriate thing to do. We got a strong alignment. Management has a strong alignment here with shareholders and continue to believe that's one of the things of separates our firm apart from others. I think that's really going to be a quarter-by-quarter call. This was I think the right thing to do in Q2 when you know what we've examine that in the future from time-to-time.

Okay. And on the origination for the quarter, I know you discussed using the SBIC debentures to be able to move down and are up and a more secure first lien investments on these that are paying some of the lower yields one of the new ones at least this quarter was destination media. That one specifically is paying LIBOR for 6.50 and we've seen a couple of those before although this one's on the larger side for that lower yield and just trying to see if that's an outlier on that lower yield or that were moving with the debenture funded.?

I think that was more of an outlier. That was a good deal. Our team liked it across the firm. Again, our goal was to generate the best risk adjusted return we can. We treat the BDC as we treat each of our other forms. We have exemptive relief. We have lots of investments in each deal. From time-to-time, we're going to identify deals that are less yielding perhaps than some others. I can tell you that we've got a pipeline of about $450 million right now in underwriting in the firm, and we’ve looking at probably close to an 8.5% to 9% yield across the board on those deals. And nothing's ever done until it's closed, but these are deals where we have term sheets signed, deposits in hand and we're moving down the road in diligence and documentation. So don't view one transaction I think as a trend here. I think that what we would – you can view though is there's a firm; we're focused on the senior secured part of the market here. From a portfolio standpoint, as we said in our remarks earlier over 90% of our portfolio is first lien senior secured. And I think we've just taken a view since we've been doing this now 14 years, I started the firm in 2004, so we have a good perspective here kind of pre-crisis, current crisis, post-crisis and everything in between. I think the market is a – it's fully formed right now, multiples are high, there's lots of capital. And at this point in the cycles, as a firm we like to be at the top of the capital stack. And I think you can expect us for the remainder of the year to say added near the very top of the capital stack with 90%-ish or more first lien senior secured.

And just building on what Ted said. We are managing a portfolio and you can’t take anyone asset and assume that's a trajectory for the entire portfolio. And as we also said in our remarks, we have less than $30 million of SBIC debentures left today. So LIBOR for 650 is not likely to be a long-term asset that we would hold outside our SBIC subsidiary. And so once we're done putting the SBIC assets to work and we're only ramping in the BDC proper then you won't see those types of yields for assets that are held on our balance sheet outside of the SBIC.

Okay. And then on that part, on the non-SBIC backed investments there and how long do you guys expect to take to get back up to regulatory leverage and previous target is about 70%, because I know the focus on the SBA recently has kept you lower levered and then the equity deal this summer lowered that leverage again, but how long do you see that ramp taking?

Right. So what we've always told the market is when we go out and look to do an equity raise, our hope and expectation is that we can put those assets or can get close to our targeted regulatory leverage within about two quarters. That's always our target. And so it's very much dependent on what we see on the prepayment side. On the asset side, we certainly have enough assets that are appropriate to ramp, so the portfolio within that timeframe and then just a matter of what comes back to us in terms of the net funding. But that would be our expectation. And what we're never going to do is meet that goal, got to meet that goal. We don't see assets that make sense that we don't think are a good fit. We're not going to do something stupid to try to hit a goal of getting something done in two quarters, but sitting here today, my expectation is that we could meet that goal based on what I see in front of me.

For example, Leslie a couple of years back, lots of our peers were rushing into this oil and gas space because it was easy to put deals to work there. We may have sacrificed some originations. We did zero in that entire oil and gas exploration space, two to three years ago when lot of our colleagues were playing there because that was an easy place to put assets to work. So we're very disciplined. We're going to run our business the same way we’ve been running it and we're going to take our time and we're going to find the right assets to generate the risk adjusted returns.

Okay. Thank you for answering my questions today.

Thank you.

Our next question is from Christopher Nolan of Ladenburg. Your line is open.

Hey guys.

Hey Chris.

RocketDock is the write-downs that related to Amazon or any color you can give on that?

Yes, RocketDock’s write-down frankly was more because the company has continued to need new funding and we have chosen not to participate in that funding. So we've allowed some debt to come into the Company, which is changed sort of the mark-to- market on our assets. The outlooks about the same on the company is a long and slow turnaround. The answer to your question about Amazon, I mean I don't know if it's Amazon, but clearly online. It’s become a much bigger part of the world even for shoes and RocketDock has tried and is being successful in participating in that online sales market. But certainly they have a lot of exposure to a lot of brick and mortar retailers that have struggled and that is definitely impact of the Company's performance. But that's not something that specific to one quarter that's been sort of the story for the last several quarters or years even at the price of the RocketDock investment.

And then given that you only have about $30 billion remaining in SBA capacity, any possibility could increase the SBA capacity for the BDC?

If you could go to Washington, and convince them to increase the family of funds limit again, then yes, but outside of that happening unfortunately with that additional debentures will be at the family of funds limit under the new upside family of funds limit. And as you recall, once they upsize that we allocated all of the additional capacity to the BDC, but unfortunately that's although allows today. But Chris, go down there and knock on the door and tell Trump to start increasing limit again that we some more in the BDC.

It sounds good. Final question given the comments you had to the previous caller in terms of putting your capital to work, should we look for a ramp up in the pace of portfolio growth over the next let's say three or four quarters, a material ramp up?

That's a good question Chris. I think the best thing to do is for to be conservative, because that's the way we kind of view our business here and you've seen us know over the last five years, and when you seen us in the last 12 months, I think that from your purpose we should probably assume – we're going to have in that consistent manner, and then what the markets determine whether there was more opportunities for us.

Okay. Thanks for the word Ted. Thanks Aaron.

Our next question is from Chris Kotowski of Oppenheimer and Company. Your line is open.

Yes, good afternoon. You mentioned that you were a truth to LIBOR floors now and just about all the loans and I'm wondering that we've had four rated hikes, since late 2015. Has any of that been benefit or has so far all the rate hike just been to get through the floor? And then looking forward at the next potential rate hikes? How should we think about that in terms of your – the benefit from that?

Yes, good question Chris. So generally I would tell you that going forward increases from here in one and three-month LIBOR should by and large accrued for the benefit of the portfolio. In that we really only have a small number of assets and small dollar numbers – fixed assets of the small dollar number of assets that are sort of not through their floors. In terms of what happened in a prior quarter, I haven't set down to quantify it, but I would think that your gut is probably right in that we've probably only benefited the small amount in prior quarters of increases in LIBOR, because the majority of our library floors were around 1% and so LIBOR is above 1% for a portion of the quarter depending on one-month and three-month. So there is more I think benefit to come than what we've seen in prior quarters.

Yes, I mean and so I guess if I think about quantifying the impact of let’s say 100 basis point rate impact. Can I just take like assume your equity base and the SBA debentures are kind of fixed rate and that's like $370 million or thereabouts together and if you had 100 basis points that you're loans would already price up 100 basis points, you'd get an extra $3.7 million in industrial income?

It is the good news Chris. We've done the hard work for you on Page 48 of our 10-Q. We shot the portfolio for 100, 200, and 300 basis point change in interest rates.

Thank you.

So we've done that work – but you are looking at it the right way, which is you could take as ING facility, revolver that's floating with no floor, SBA debentures are fixed the assets are by and large 100% - I think our 100% floating today I don't think we have any fixed rate assets any more maybe one very small dollar number and you can look through the SOI. So the way you're thinking about it is right and we can give you - we give you all that sensitivity back on Page 48 of our most recent 10-Q.

Right, but the dynamic is right that you have the fixed ones.

Correct.

And then last for me is can you give us a sense into in terms of the subsequent events you know where nearly halfway through the third quarter paydown versus new loans since quarter end.

And fortunately that’s not something we’ve disclose.

Okay.

We are going you could assume that we're continuing to look to ramp the portfolio and that we've had positive momentum on the asset growth but I can't quantified and for the period of time.

Okay. That's it for me then thank you.

Thank you, Chris.

Thank you. Our next question from Christopher Testa of National Securities. Your line is open.

Hi, good afternoon, guys. Thank you for taking my questions. Just with the eight new deals you’d mentioned during the quarter. Just wondering if you could give me the volume of those deals are rather than the just account and if you can give some color on some new sort of capital whether they were given and recap acquisition et cetera.

When you say volume how much of the 73.4 was eight new deals…

Yes, that’s correct.

Yes, the new deals here with one second. It's all get back to the specifics, but it’s low 60-ish million so most of it is from new deals about 60 million, 63 million is my upper top of my head but I can call at the specific. But most of it is from new deals.

Okay. Got it and the use of capital from most of those if you just have that off the top of your head, Aaron?

I'm sorry the number was 62.5 and what was your question.

Just the use of capital whether it was growth acquisitions, dividend recap et cetera just what you’re seeing most with the revenue portfolio company?

Let me see here ones, it looks like I believe most of it was acquisition. One a couple of small refinancing, one deals was a dividend, I am sorry with the minority equity buyout. So I don’t think any of this quarter was dividend. I think all of it was either merger and acquisition or refinancing and most of it was acquisition.

Got it. And could you just provide us an update on what the sponsor and non-sponsor mixes of the portfolio and whether you are seeing more in the pipeline in terms of non-sponsor relatively to sponsor for the next couple quarters.

Yes, unfortunately that's not something we've broken out or disclose in terms of the portfolio mix what sponsor versus non-sponsor historically we've ranged in a portfolio basis around 60% to 70% sponsored and we are seeing our pipeline filled with a lot of non-sponsor deals and we've been closing significant number of non-sponsor deals. So the mix continues to sort of be similar and may start to move a little bit more of it’s non-sponosred but we’re really usually somewhere around 60% sponsor versus 40% non-sponsor, but I don’t have and that’s for the firm for the platform and fortunately don’t have a breakout of that for the BDC specifically, but I wouldn’t think it will be materially different.

Okay. Appreciate that. And just how much your deal flow on just in estimate is eligible for the SBIC?

Yes. It’s a good question. I’d say on a dollar basis it's probably between 20% and 30% of our deal flow that SBIC eligible which is fine for – at the platform level which is actually very good for the BDC, because the BDC and SBIC is one of the only portfolios that have capacity remaining. So the BDC benefits, if SBIC benefits nicely from that, but it’s probably 20% to 30% right now. And once they get full then we don’t sort of really think about it in terms of going and finding SBIC eligible deals. It just so happens, the significant portions of the deals we originate are SBIC eligible which is good.

Okay. That’s fair. I know you had mentioned in your remarks earlier that you're putting more lower yield and credit spend than would otherwise be in the portfolio within the SBIC, so I was just trying to get feel for how long I should expect the remaining debentures to take to ramp?

Yes. It’s a good question. I do think we'll be able to – borrowing significant prepayment activity. I do think we should be able to ramp the SBIC more quickly than that two quarters we talked about as the target for the equity raise capital.

Okay, great. That’s all for me. Thanks for taking my questions.

Thank you, Chris.

Thank you. Our next question is from Robert Brock of West Family Investments. Your line is open.

Good morning and thank you for taking the question. Good quarter guys. But I have one question for you or maybe, it's a suggestion. Your decision to issue shares week before the X date is clearly an economic to existing shareholders and a lot of BDCs do it in a kind of crisis that’s here, just curious have you talked about considering changing that policy just not issuing shares a week before the X date? Thanks.

Hey Robert. Thanks for the question. This is Ted. I'd like to tell you that we go through and we identify this on a day-by-day or an hour-by-hour basis, but we try to do what's in the best long-term interests of the company. And we don't manage this business MRCC or any of our funds on a quarter-to-quarter basis or a week-by-week basis. We're looking at what's in the best interest, long-term interest of our shareholders. So once in a while we may have an equity issuance late in the quarter. I will tell you that just as likely there could be an equity issuance in the beginning of the quarter. And don't take that to mean that we're not focused on it, but at the end of the day – we're not trying here and I don't manage this firm on a short-term quarter-to-quarter view. The nice thing is that you can be assured that I've got a long-term vision for the shareholders, as I am a significant shareholder, very significant shareholder in MRCC just as others are. So thanks for the question.

Thank you for the good answer.

Our next question is from Bill James with [indiscernible]. Your line is open.

Hi. Ted when you look across $4 billion portfolio and $450 million portfolio and you look at EBITDA growth, is this just kind of an average? Is it just kind of moving sideways? It maybe 1% or 2%. Are you seeing areas where there's real EBITDA growth? And then the second question is when you look at investment CapEx, what kind of hurdle rates are you seeing, internal rates return or the marginal EBIT CapEx that spend. Is it the returns that have 20%, 30%, 15%? Can you just give us some color on that? And I have one more question

Okay. That's a really good question Bill. We have in our portfolio about 240 companies, middle market companies across the entire firm that's about $5 billion of AUMs today. And we get lots and lots of requests by data sources to share our portfolio information and our portfolio intelligence, because we have a pretty good window into the middle market. So what I’m going to do is I’m going to share with you something we haven’t shared in the market in general. And I would tell you that if you look at our current portfolio today and take a snapshot of it across the firm. And this is not in the BDC. This is across the entire $5 billion of portfolio and 235 companies. I would tell you that average EBITDA of our portfolio today is around $17.5 million. That same statistics I just gave this yesterday to our institutional investor and one of our clients is up about $3 million from where it was about two and a half, three years ago. So if you look at that as a – just a general trend and others biased because these are companies that we have in our portfolio as opposed to the general market. There is bias in the fact that we've got a – I think a higher quality underwriting, system in place that others do in our area. But generally if you look at our portfolio with a snapshot, there's been an increase in EBITDA of about $3 million over the last few years in our portfolio. So that was your first question I think. The second question was IRR in CapEx, I think it's hard to generalize on that and the reason why it's hard to generalize is I think you have to really focus that was – by an industry, because manufacturers have different kept that hurdles, investment hurdles and distributors, the new technology companies, and healthcare companies, now some industries are growing very, very quickly for example lot of the behavioral whole from the specialty finance area that we're investing in. So there maybe a lower threshold for CapEx in those industries that are growing so quickly than there maybe in other industries, so I just – I don't want to give you any misleading information on the CapEx side of it. But as a general matter, I think that the IRR or the EBITDA growth, I think that was something that you can generalize across our entire portfolio.

Okay, thanks for the color. Appreciate it. End of Q&A

Thank you. At this time, there is no other questions in queue. I’ll turn to Mr. Koenig for closing remarks.

Thank you very much everyone for joining us on our call today. We greatly appreciate the support and the work that the analyst too in this industry, it's very hard to distinguish platforms. It's hard to distinguish funds. I spend most of my time on the road throughout the world speaking to limited partners and it's very, very hard for them to distinguish among different platforms like greatly understand and appreciate what you go through to try and distinguish firms. I will tell you that we've been doing this for 14 years. We're going to do this for a long portion more than the next 14 years. We've got I believe a best-in-class group of people that work here including Aaron and Karina and the rest that they work on the BDC. What we’ve continued to add to our best-in-class platform of people. That’s kind of my job. Recently we brought in a fellow named Cesar Gueikian, who was a Founder of an Asset Management Firm in New York to help us with our special situations platform. I think that will also greatly contribute to some of the BDC investment opportunities in the coming year. So I will tell you that rest assured that I am very, very focused on protecting shareholder value and increasing shareholder value by bringing best-in-class people to the platform and continuing to originate differentiated assets, loan assets that provide us with the best possible risk adjusted return. So with that everyone enjoy the rest of the summer, what's left of it and hopefully you'll be able to take a week or two off in August to enjoy the weather. Thank you for the call and we look forward to speaking to you again in the next quarterly call and there is always to the extent, any of you have questions or would like further detail, any information, intra quarter, we try to maintain a very transparent philosophy here. So don’t hesitate to pickup the phone and call Aaron. Thanks everyone and have a good day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.