Welcome to the Monroe Capital Corporation’s Fourth Quarter and Full Year 2018 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, strategy, 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 6, 2019, these statements are guarantees of future -- 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 will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. You may begin.

Good morning, and thank you to everyone who has joined us on our call today. As always I’m joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening we issued our fourth quarter and full year 2018 earnings press release and filed our 10-K with the SEC. For the fourth quarter we have had both an exciting and boring quarter in one. We again generated adjusted net investment income of $0.38 per share exceeding our fourth quarter dividend of $0.35 per share. This represents the 19th consecutive quarter we have covered our dividend with adjusted net investment income. We are very proud to been able to maintain a $0.35 per share dividend fully covered by adjusted net investment income. This is a testament to the overall Monroe Capital firm platform scale, our unique origination capabilities and our credit underwriting and portfolio management process. At quarter-end, our investment portfolio had a fair value of $553.6 million, a $71.3 million or a 15% increase from the prior quarter, and included investments in 74 companies across 23 different industry classifications. The increase in the size of the portfolio was primarily due to an increase in new deal fundings during the quarter, including a large level of fundings occurring very late in the quarter. In the quarter, we had $115.5 million of investment fundings, partially offset by $38.3 million of sales repayments and prepayment activity. We have continued the new deal momentum into the early part of 2019, with net fundings of an additional $37.6 million through March 4. This new deal momentum and asset growth is the direct result of our proprietary deal origination team located in six offices throughout the US and our broad industry vertical coverage of the following areas, including, business services, healthcare, technology, software, specialty finance and…

Thank you, Ted. During the quarter, we funded a total of $113.5 million in loan investments. Additionally we funded $2 million in equity to the SLF. This growth was offset by sales and complete prepayments on five deals and partial repayments on other portfolio assets which aggregated $38.5 million during the quarter. As Ted mentioned, since quarter end, we have grown the portfolio by a net $37.6 million investing in eight new companies and experiencing a pay-off on one company. At December 31, we had total borrowings of $320 million including a $136 million outstanding under our revolving credit facility, $69 million of our 2023 notes and SBA debentures payable of a $115 million. Future portfolio growth will be predominantly funded by the substantial availability remaining under our revolving credit facility which was recently increased due to the amendment and extension we closed on March 1 and announced yesterday evening. As of December 31, our net asset value was $258.8 million, which was down marginally from the $264.8 million in net asset value as of September 30. Our NAV per share decreased from $12.95 per share at September 30, to $12.66 per share as of December 31. This decrease was primarily as a result of unrealized mark-to-market valuation adjustments. There was significant short-term widening of credit spreads at the end of December. This widening of spreads caused the valuations to decline temporarily for most of the positions in our portfolio. We estimate that nearly half of our per share NAV decline in the quarter occurred as a result of the widening of spreads. As it stands today, based on the year-to-date tightening of general credit spreads, we would expect to see a partial reversal of fourth quarter's unrealized losses related to credit spread widening in the first quarter. Outside of…

Thank you, Aaron. Since going public with our IPO in 2012, we have generated a 45% cash-on -cash return for our shareholders based on changes in NAV and dividends paid since our IPO, assuming no reinvestment of dividends. We believe that this performance compares very favorably to our peers and puts MRCC in a small group of BDCs that have delivered this level of performance for our shareholders. Based on our pipeline of both committed and anticipated deals, we expect to continue our new investment momentum for the remainder of the year with growth in both our core portfolio and within the SLF. We believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders and other investors for the following reasons. One, our stock pays a current dividend rate of over 11%. Two, our dividend is fully supported by consistent adjusted net investment income coverage for the last 19 straight quarters. Three, we have a very friendly shareholder external advisor management agreement in place that limits incentive management fees payable in periods where there is any material decline in our net asset value. And four, we are affiliated with a best in class external manager with six offices throughout the U.S. over 100 employees and over $7 billion in assets under management. MRCC is one of the few BDCs that has access to distinct proprietary deal flow which should result in differentiated returns and an increase in shareholder value over the long term. Thank you all for your time today. And with that I'm going to ask the operator to open the call up for questions.

Thank you. [Operator Instructions] Our first question comes from Chris Kotowski of Oppenheimer and Company. Your line is open.

Yeah, good morning. First on the SLF, I was wondering if I looked at their balance sheet, it looked levered roughly 2.2 to 1. And what is the leverage limit on that and when do you have to put in more capital, and -- I guess start with that?

Yeah, good question Chris. So I mean there technically isn't an express leverage limitation in the SLF, but there are clearly going to be reasonable limitations on what you could generate in terms of leverage from a credit facility. And so typically, credit facilities for assets like those sort of cap out around 70ish, 72% advance rate on first lien middle market loans. So that will be probably the most leverage we could get. So it really shouldn't get considerably above 2 to 1 or 2.2 to 1. That's probably realistically about the leverage limitation given the asset mix today that we would expect to see there.

Okay, great. And then secondly, just the incentive fee this quarter, it's not a waiver it's that just under the terms as I understand it right, under the terms of your agreement, you didn't earn it because of the NAV erosion earlier. When I try to use your formula to calculate when you might be back, kind of fully accruing it I got second or third quarter of this year. Am I thinking about that roughly correctly?

I wish I could give you a real answer to the question. It has everything to do with where the NAV of the portfolio is in any given quarter and the performance on NII and dividends paid to shareholders. So it just depends on what happens each quarter going forward. And it's a formulaic, as you said it's formulaic. And so it's difficult for me to predict today with any uncertainty where incentive fees would be on. And as you probably know it's not a binary trigger either. They could be on it partially, or they could be on fully. It just depends on where we are with regards to NAV.

Okay. Well I guess I was assuming NAV stabilizes from here.

It's possible, there could be some incentive fee earned. In the first quarter, NAV was flat. I wouldn't expect we'd be in a position to earn an entire incentive fee. And I would think that everything else was equal than probably in the second quarter is when you could start seeing an incentive [ph] fee payable all things being equal.

Okay. All right, that's it for me. Thank you.

Thank you.

Thank you. Our next question comes from Christopher Nolan of Landenberg Thalmann. Your line is open.

Hey guys. High-tech industry has increased to around 31% of the portfolio if I'm reading it correctly from 19%. Should we expect further growth there?

Yeah, Chris it's Ted. We've been very lucky in that we have become one of the go to lenders in the software industry. That's a great place to put assets to work today because it's very high yielding cash flow. And we've been very focused on using our knowledge base as well as our industry vertical experience to continue to grow that. That said, I think we're probably at or near in the spot we want to be there from a concentration standpoint.

Well I just add, Chris. Because I don't know where you saw 30%, we don't have anywhere near 30% of portfolio. It's about 16.9% of the portfolio at the end of the quarter, is my understanding when I'm looking here at the industry mix. So that's what the high-tech industry's vertical looks like today in terms of percentage of the portfolio. It could go up a little bit, it would never be at 30%.

Got you. It could be okay. And then on Incipio, is Incipio's non-accrual -- was it non-accrual last quarter? Just it wasn't clear in the Q?

So let me be clear on this, because this generates a lot of confusion. The entire Incipio credit is not on non-accrual. As part of restructuring of Incipio we acquired a tranche of Incipio debt. It’s a third lien tranche of basically very little value and because we didn’t pay for that tranche, we put that on non-accrual. The rest of the -- and it was on -- that tranche was on non-accrual last period as well. The rest of the Incipio debt is on accrual status and we expect to be fully paid on that, on the rest of Incipio debt. So I just want to make sure that that’s clear.

So it’s a part with the zero cost and $1.2 million of fair value or so if I am reading…?

Yes, just the third lien tranche.

Great, and then final question, Rockdale, I missed have in your comments there. You don’t expect the resolution on this in 2019, right.

We don't have a resolution in 2019, we just don’t have one yet. We would expect sometime in the second half of the year based on what we have been hearing is when we would expect a resolution.

Okay. Thank you for taking my questions guys.

Thanks Chris.

Thank you. Our next question comes from Tim Hayes, B. Riley FBR. Your line is open.

Hey everyone, thank you for taking my questions. I guess it really just kind of have one and just maybe an update on some of your watchlist credits, and if you could just remind us what is currently rated for, and there there’s a few credits like Blue Stem are worth that are currently marked at pretty hefty discounts to par and decreased a little bit during the quarter. Not sure if those were company specific or volatility related, if you can just give us an idea of maybe some of the credits that you’re keep an eye on than maybe aren't on non-accrual yet, but be appreciated.

Yeah, so Blue Stem is one, that's a traded name. So some of the weakness in the quarter I suspect is related to just kind of spread widening but that’s also been a name that has been slow to recover although we still expect a recovery there, but it's not that we are an agent, we are just a participant in that deal specifically. There is not really any real update. We haven’t - didn’t have any real changes in the quarter with regards to movement between categories. So it was a pretty benign credit quarter with regards to where things moved in terms of our risk rating. We continue to have -- the obvious names ECA and Rockdale are names that are four rated. One other name that’s in the four rating category is Luxury Optical which is the name that we’re seeing some positive momentum on with the credit spreads potential resolution and I think the other two are Curion [ph] which really hasn't seen much change but we also expect a good recovery on and expect that to turn around over time. I think the other is Summit. Those are the four rated names. The only five rated name is Morneo [ph] Brands and frankly at this point, we don’t expect any recovery on what we hold there but it hasn’t -- we do technically still hold the piece of paper that has employed [indiscernible].

Got it, that’s helpful. Appreciate that. And then I guess I was -- I haven’t done the math to see what the difference between the write up in cost versus fair value was but I guess maybe I wouldn’t be a little surprise that the senior loan fund was in mark-down a little more since its little bit more upper middle market or just broader middle market versus lower middle market, just wondering if you know maybe why the market was in more negative there.

Sure, so just to be clear, I mean the way that the equity gets marked on that JV is that every single asset is a traded asset and they all get marked based on the actual market level of trading at the end of the year. So it does reflect a full change in value based on the marks of the individual assets and it's a little probably difficult to follow in our financial because we increased the equity. And so I see how it's going to be difficult to follow exactly what the effect was on the individual asset. But it is one of the benefits of playing in sort of the middle market, more syndicated middle market versus the broadly syndicated market which is it tends to be a little bit less volatile than the general market and then we tend to choose names that we think are very high quality and on average they tend to move a little bit less than the market in general because there is the better name. And so all I can tell you it fully reflects a complete marking of every single asset and I think if you look through and do the math, it looks like it’s about a point on the portfolio down from sort of a par mark on average to around 99 mark. And about I’d say greater than two-thirds of that portfolio is priced by pricing service that reflects actual market trading levels and then the rest will be marked by pricing, independent pricing and provide like we do with the rest of the portfolio.

That’s helpful. Thanks for that comments there.

Sure. Thank you.

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

Hi, good morning. Thanks for taking my questions. Could you guys give us a sense of how many -- what the composition of the portfolio originated in 2015 and before is, just a rough estimate if you have it?

That's a tough one. The best way to try to figure that out, on average we typically write a five year loan. And so if you look at maturities, and you can sort of do a little bit of math and most of the time you'd be right but not all the time because you know things change and they have re-pricings and extensions. So that's a difficult question for me to answer off line, right on the line here. I just don't know the answer to that. That's something we could try to follow up in the future on, but today I don't have a good answer for you.

Okay, no, that's fair and I know you guys have upsized and successfully amended the credit facility. Just wondering maybe looking a little further out what are your thoughts on different sources of financing, especially given you guys kind of have a brand name and middle market CLOs potentially doing a securitization or something like that, that could potentially be done at really attractive rates.

Yeah. That's a good question Christopher. We've looked at -- we’ve lot of inbound interest and we're obviously talking to people all the time about bonds, baby bonds, converts securitization. I think when the time comes that we feel it's in the best interests of the shareholders and we get the right type of structure we'll certainly look at that. I think the securitization is a good thought. I think we need a little more scale to do that but once we get that scale, don't be surprised if you see us executing there.

Got it, okay. And with the only thing I guess that would kind of persuade you not to do that be the consideration of replenishing assets in that, or is there more to it than that, that kind of you know might put the brakes on that.

No I think it's been a good tool for those that have used it. And I think that once we have more scale I think it makes sense for us as well.

I mean it's difficult [indiscernible] Chris would have you know at least $300 million of assets potentially larger and given our current asset base. I think the thought process is it's probably too large of a percentage of the assets to be in one financing vehicle like that. You know if we had a lot bigger asset base then it would start to make more and more sense if we diversify funding sources.

Right. OK, that makes sense Aaron. And just curious I know you guys have mentioned in one of the earlier responses you know the SLF is levered a bit over two times obviously of the SBIC that's levered roughly two times. Just wondering how you think about this in the context of overall economic leverage as you guys are now permitted to go beyond one time on a regulatory basis.

Yeah. Good question. So you know as you'll see when you look at our balance sheet today we have regulatory levers at the end of the year around 0.7 or 0.8. So considerably below the limit of what's allowed but considerably higher leverage than what we had the quarter before. So we're still on a path to try to increase our leverage to a reasonable level. Total leverage on a non regulatory basis is about 1.25 times. And so the way we're thinking about it today is you know we still would like to see our regulatory leverage get above 1 to 1 and we'll reassess once we're there. I think we just want to see sort of where we -- getting there is the first step and then from there we will have to see where the portfolio is what the market looks like. And then we can address whether we want to go out and push the leverage higher. I don't think any of us ever expect to take complete and full advantage of the new regulatory limits and be at that limit but we certainly can push higher than where we are in terms of leverage and we intend to do that. And then as I said we'll reassess at that point.

Got it. So you're comfortable with the regulatory leverage being potentially over 1 times even if total leverage is, I don't know back of a napkin, 1.4 times on an all in basis.

Yeah I mean we're obviously always looking at both of those things. And so you know we'll be always looking at total leverage and regulatory leverage based on where we are today, yes we would be comfortable pushing regulatory leverage above 1 to 1.

Okay great. Those are all my questions. Thanks for your time today.

Thanks Chris.

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

Good morning guys. Tom Rankin [ph] this morning for Chris York. Thanks for taking my questions. Most of them have been answered but I got a few and just plans for 2019 with the increase in leverage recently, do you guys plan on doing any sort of share buybacks in 2019.

I'm not sure what the leverage how that's related to the idea of doing a share buyback but at this point we have not discussed with our board the idea of doing a share buyback given that we're trading relatively close to book value at this point.

Got it. And talking about the JV, have you guys considered or maybe have any conversations about consolidating the JV on the balance sheet.

Yeah. So it's a good question. Obviously they've been the few BDCs that have announced their attention to consolidate their JV with the change in the asset coverage ratio rule. At this time, we haven't made any decisions regarding changing the SLF JV. But having said that we're consistently selling all opportunities to grow MRCC and to create shareholders' value. So we'll continue to study this. And if we think it's the right thing to do for shareholders to make the change we'll do it. We'll let you know, but at this point, we haven't made any decisions like that.

Got it. Okay. Good color. That's it for me, thanks guys.

Okay, thanks.

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

Good morning, Ted and Aaron. Question, the SLF what would you hope to have that deliver to the earnings at the company, I guess the ROE, I were to see three to five years -- over the next three to five years?

Yeah, good question Bob. We've already sort of targeted that to generate kind of low double digit ROE. That's our hope and plan for it, around 10% to 11% is kind of where we're targeting and hoping that we can do that. And so far we're on track to do that as we continue to make better use sufficient use to leverage there. So that's how we think about it. We don't have any final decisions on but we would do with regards to growing it once we get pass our original commitment which is $50 million from each party to $100 million of equity. And so overtime, we'll have to make some decisions that we want to increase it or do other things with it, but at this point that's kind of how we're thinking about it.

Great. Thank you. And then the growth that you've seen in the fourth quarter and continued into the first quarter, pretty good acceleration. Why -- what has driven the acceleration in the growth and how what is your view of the competitive environment today and the U.S. economy maybe?

Okay, that's just a number of questions rolled into one. So I'll try and hit each one of them. The market is good. I will tell you that from a strategic industry standpoint, this is a really good time to be in our business. Default rates are low, companies are generally performing. Christmas came early to a lot of companies in borrowers with the tax cut legislation last year. There is a lot of extra free cash flow that wasn't really anticipated in anybody's 3 to 5 year plan with tax cuts accelerated depreciation. Purchase price multiples are high, they continue to stay high. And there is lots of capital slogging around in the system whether its PE, money that has been raised in the form of dry powder or whether its guys in the BDC world or in the private credit world with plenty of liquidity. So the transaction market is good. And PE firms are taking this opportunity I think to rotate out and sale, because they're able to realize nice long term returns as well as go back and set their track records and raise new funds. That makes business good for people in our industry as lenders. Because when purchase price multiples are 9, 10, 11, 12 times is what we are seeing in kind of the middle market space. If you look at our portfolio and the whole on a weighted average basis, we're less than four turns of EBITDA in our loans. So we're lending it four turns and companies are trading at 9, 10, 11, 12 turns. That's a really good arbitrage. And we should be able to do pretty well if we're -- from minding the store in our business. We've been lucky as a platform. Our platform as a whole has…

Thanks. And the economy, Ted, your view looking at I mean your mix of businesses has changed a lot towards, more towards technology, less retail. But you view the U.S. economy as stable or mixed or are you seeing increasing pockets of strength or weakness?

Yeah I think the one word is stable. I think there is pockets of strength, I mean pockets of strength are in software in healthcare, that's more dynamic healthcare and that commodity type healthcare, business services, technology, digital. I think those are areas that are dynamic and will be growing. I think that the U.S. economy have some challenges and that's in retail, brick and mortar retail in somewhat retail distribution in areas of commodity type of healthcare like imaging and in testing, where there is a big push by insurance companies and by payers to bring cost down. We're very, very focused on watching areas of high simplicity. I think autos, we're going to see some challenges there going forward. It was announced that either sales were down, and that ripples through the industry. I think that home sales are down, so you're going to see things that are tied to home sales. And so I think commodities, metals, mining those areas continue to cautious there. So I think that part of the advantage that we have and kind of where I sit is we got 350 companies throughout our platform. And we're in all 30 at the Moody's Industry classes. And there is a bunch of those industry classes that I think were green lighting. And there is several that are yellow lighting and there is a handful that are red light for us right now. So I think in general I'm happy with where we are in the economy. I think 2019 is going to be a very, very good year for Monroe Capital in general and I think also for MRCC. As we get into 2020, mid-2020 I think we'll be very cautious because that's the time period that I'm thinking is going to be more challenging for this environment.

Thanks I appreciate it. Thanks Aaron.

Thank you.

Thank you. And this concludes our Q&A portion for today. I'd like to turn the call back to Mr. Ted Koenig for closing comments.

Thank you very much. We greatly appreciate everyone joining us on our call this morning. We're very thankful for the coverage we've received or the efforts that all of you put forth. And we will continue to work hard and do our jobs to generate returns for our shareholders and for the overall Monroe platform investors as well. So thanks again, enjoy the day. And come visit us in Chicago this is the ideal time to visit, because the weather is nice and tolls are cheap. So have a nice day everyone.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Everyone have a wonderful day.