Hello and welcome to Monroe Capital Corporation’s First Quarter 2020 Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain certain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results or cash flows particularly in light of COVID-19 pandemic. Although we believe these statements are reasonable based on management’s estimates, assumptions and projections as of today, May 11, 2020, 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 or other factors, including, but not limited to the risk 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. Sir you may begin.

Good morning and thank you to everyone who has joined us on our call today. Welcome to our first quarter 2020 earnings conference call. I’m joined by Aaron Peck, our CFO and Chief Investment Officer. Friday evening, we issued our first quarter 2020 earnings press release and filed our 10-Q with the SEC. First and foremost, I hope you and your families are healthy and safe. This is a very difficult time for our country and the world and we at Monroe Capital Corporation, BDC and the broader Monroe Capital organization, have those that have been most affected by the COVID-19 pandemic in our thoughts and best wishes. We also want to thank the brave men and women, the essential workers who put themselves at personal risk every day to help the rest of us get through this pandemic. Our employees remain safe as a firm. We have seamlessly navigated the transition to a remote working environment. Technology has allowed us to maintain close contact with all of our teams and we have been able to maintain highly collaborative in-approach, which we believe is very important to navigating the challenging economic environment we are facing as a result of the pandemic. We do not know for sure when we will be able to return to our offices, but we look forward to the day that we can return to a more normal working environment. As you all know, the uncertainty associated with the COVID-19 pandemic has created concerns related to the economy, as well as specific unanticipated challenges for many companies due to business interruptions and the slowdown in business activity. This uncertainty has caused negative implications across the financial markets, with the S&P 500 down almost 20% in the first quarter of 2020. Significant price declines were also seen…

Thank you, Ted. During the quarter we funded a total of $71 million in investments consisting of $41 million in loans to new borrowers and $30 million in new fundings to existing borrowers. Including $21 million in revolver draws and $9 million and add ons and delayed draw fundings. As we discussed earlier in the call, many of our borrowers drew on their revolvers in order to increase liquidity on their balance sheets, due to the uncertainty related to COVID-19. This portfolio growth was partially offset by sales and repayments on portfolio assets, which aggregated $53 million during the quarter including four full payoffs, one asset sale and partial sales and paydowns. All investments in new borrowers were made earlier in the quarter prior to the market dislocation and spread widening that occurred late in the quarter related to the pandemic. At March 31st, we had total borrowings of $416 million, including $192 million outstanding under our revolving credit facility, $109 million of our 2023 notes and SBA debentures payable of $115 million. We are currently mostly focused on our portfolio and we are not expecting material new investment growth in the immediate term. Any future portfolio growth, revolver draws or advances through existing borrowers will predominantly be funded by the availability remaining under our revolving credit facility, subject to borrowing based capacity and the uninvested cash held in our SBIC subsidiary. Turning to our results. For the quarter ended March 31st, adjusted net investment income a non-GAAP measure was $6.8 million or $0.33 per share, a decrease from the prior quarter’s adjusted NII of $7.7 million or $0.37 per share. The decrease was primarily as a result of declines in interest income as a result of overall declines in LIBOR, placing additional assets on non-accrual status and a reduction…

Thanks, Aaron. In closing, we find ourselves in an unprecedented economic environment, which is likely to cause rising default rates and the potential for an extended recession. Despite these challenges, we remain optimistic that we can weather the storm and emerge strong as we did as a firm after the great recession of 2008 and 2009. The key of our optimism is our conservative underwriting and purposeful defensive portfolio and our access to a large and very experienced portfolio management team with experience managing through multiple economic cycles and workouts. We have a defensively positioned portfolio with solid loan documentation and a lot of control over our own destiny in terms of risk management. As such, we continue to believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders, as evidenced by the substantial amounts of recent insider buying in March by members of our Board, our extensive management team and the senior management team at Monroe Capital. We are committed to navigating successfully through this economic crisis, and are confident that we have the skills and experience necessary to manage through on behalf of all of our lending partners, bondholders, JV partners and shareholders. We believe that MRCC is affiliated with a best in class external manager, which has decades of experience, 135 highly skilled employees and approximately $9.3 billion in assets under management which provides us the stability to steer the ship towards calmer waters. We would like to thank our shareholders for their loyalty and confidence in us through these difficult times. I would also like to thank the entire team at the Monroe Capital organization for their hard work and dedication. Thank you for all of your time today. And this concludes our prepared remarks. I'm going to ask the operator to open the call now for questions. Thank you.

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

Good morning Ted and Aaron. Good to hear your voice and you're doing well. Appreciate the moves you’ve announced here this morning, and I think they're appropriate. I guess the biggest question, the hardest question to the tall is the marks that you've taken on the portfolio and the economy -- the economic trends, I mean how confident are you? And I know it's impossible to forecast the next several quarters. But how confident are you in the current markets that you have excluding the spreads -- changes in spreads and credit quality of the portfolio? How many of those companies have -- are on a watch list and were maybe not there three months ago because of COVID. So just some commentary around your comfort there would be helpful?

Thanks for the question, Bob. That's a great question. We like all BDCs -- we hope like all BDCs attempt to do an in-depth internal analysis and review each of our marks every quarter. We look at 100% of our portfolio. We have outside third parties that come in and look at 100% of our marks, not review management marks, not review 25% of our portfolio on a rolling basis but 100% of the portfolio top to bottom. So, from a credibility standpoint, which is our, at Monroe, one of our guiding principles, both not only for publicly traded BDCs but for also our privately managed funds, we try to do the best we can and we bring in outside parties to do the best they can to provide us with the most accurate information we have at the time. We took some significant marks this quarter. Hopefully as time goes on, some of those marks will turn around. Some of it was -- 57% of those marks were based on spread widening and some factors that were beyond our control as a company. So from our perspective, at management's, we're hoping that this thing -- this crisis cools and within another quarter or two goes away and we can get back to business as usual. But we feel that we've done the very best job we could under the circumstances with the information we have and taking these marks. Aaron, do you have anything to add?

Yes, just quickly. To the other part of your question, Bob, we've been pretty aggressive in rerating our credits based on their impact of COVID and how that implies on a credit rating basis, movements that need to make. So we've definitely seen an increase in 3 rated credits as a result of the pandemic because some of our borrowers are more directly affected than others. And so you'll see when you look at the aggregation in the 10-Q that there's more 3 rated credits than there were last period. And that's what you would expect. And we're very carefully looking at all of the deals in the portfolio across the entire Monroe platform. Our credit teams are meeting multiple times a day on every deal, particularly the ones that are impacted by it. And the one of the real benefits of having real scale in our investment teams is that when the new deal activity is less -- is lighter which it is now due to low M&A activity, we have so many people available to make sure we're as on top of this portfolio as any firm could be. So we feel really good about where we stand with regards to being able to manage through the crisis.

And just one follow-up question and congratulations on Rockdale, that's a great outcome. But this is a probably a great environment to make good loans at attractive terms. And I know you talked about not growing the portfolio. You hope to get I guess the recovery from Rockdale. But how many -- what do you feel like the opportunity is to make new loans in this environment given your current leverage?

You know me Bob, as well as others, we're going to play offense here. We did it after the crisis and we're going to do it now. We see some great opportunities across the firm. We have funds that we've raised for this very purpose. We've got plenty of room across the firm and we're going to do everything we can to create some availability at MRCC. And as Aaron mentioned, some of this is going to turnaround. We're going to get our leverage where we want it to be. Again, for the COVID pandemic with the spread widening and everything else, we'd be in much better shape. But again, post quarter that's already started to reverse. So we will be playing offense in this environment and we will be taking the best opportunities we can in the market and generating return for our shareholders.

Thank you. Our next question comes from the line of Tim Hayes with B. Riley. Your line is open.

Hey, good morning everyone. Thanks for taking my questions. Hope you're doing well. My first one here, just to follow up on Bob's. In the pipeline what you're seeing today, what the leverage multiple and spreads look like. And are there any other characteristics that are a little bit different than what kind of your normal pipeline looks like based on the circumstances?

Yes, good question. If you look across the environment, just from the publicly reported LSG data, there's been a couple of hundred basis points of spread widening across the more broad, the syndicated and traded names, you're worst seeing in our markets deals that we're getting done at [O5] and [O550], now at L800, L850, L900. We're quoting term sheets today at L800 to L1000 on deals in terms of rates, we're seeing that. We're seeing leverage that used to be in the 5s down in the low 4s, sometimes in the mid 3s. So if you look at, what we're seeing in a pipeline basis, we're seeing leverage, 3.5 turns to 4 turns where we used to see 5 to 6 terms and the biggest opportunity I think that we have, which is unique to the Monroe platform, so we have a substantial opportunistic financially business, which is a different strategy than lending to PE firms and leverage buyouts. Our opportunistic business is a combination of secondary purchasing business where we’re requiring good performing loans at less than par, substantially less than par in these very often. We're doing asset based, asset backed type financing where we're lending against pools of performing assets. We're doing bridge type of lending against bridged situations, sometimes real estate, sometimes other assets. And we're doing portfolio NAV type loan purchases and portfolio acquisitions. So we've got substantial capital available for that. And that is probably the lowest hanging fruit today in terms of generating double-digit yields for investors, is this opportunity for strategy that we've been running for the last 10 years. So we've been looking forward to a time when the economy cools and we can start deploying some alternative strategies to generate return for investors. I was just hoping it didn't cool this much and this fast, but I think that you're going to see Monroe come out of this pretty much stronger as an organization both our private funds as well as MRCC and our high net worth retail funds trust as we did after the financial crisis in 2008 and 2009.

Thanks, Ted. That's a good point and good color. And then if you can give us an update on kind of credit trends so far in the second quarter. I know you said that in 1Q about over 97% of the portfolio was current, but how has that trended with scheduled payments in the second quarter? How many companies would you say in your portfolio have requested some type of forbearance and how have you satisfied those requests?

Good question. I will tell you that I think we've done a really good job in Q1, over our companies. And because of that, we've got an exceptionally high rate of performance. I think it's too early to tell you in Q2 what happens because we are way early in the quarter and the effects of this COVID-19 I think are really going to play out in Q2 for many companies. As I mentioned in our prepared remarks, we've been extraordinarily lucky. And I think some of that luck was just based on good historical practice. And we pulled out our playbook that we ran in the great financial crisis in ‘08 and ‘09. We've avoided industries in a significant manner that are going to get decimated in the next quarter or two. And those are autos, airlines cruise, leisure, health club type things, oil and gas and minerals and mining, energy. And if you look across the spectrum of private credit and other BDCs, you're going to see a drastically different type of portfolio in MRCC, and in the Monroe organization in general. Because historically, we haven't had the expertise to lend into some of these specialized energy industries. And we’ve stayed away from aviation, we’ve stayed away from autos, because we didn't like what happened the last time when the economy got overheated. So, all things being equal, we should come out of this in much better shape than our peers. And as I mentioned in my prepared remarks, we're not afraid to own companies. I mean, we've got a number of companies that we've taken over historically. And we've generated some pretty darn good results by replacing management teams, bringing some of our resources to bear, some of our professional staff, some of our outside professionals, consultants, combining businesses. We can do a fair amount. We got 508 companies in our portfolio across the firm. So that's 508 CEOs, CFOs, Boards of Directors, professionals contacts. So we take over a company or we put the Monroe brands to bear in a situation just like we did with Rockdale Blackhawk. That was a hospital, if you recall that was close. It was a closed hospital that basically went out of business. We brought the resources to bear necessary to file a bankruptcy and purchased claims in that bankruptcy to require the entire rights to manage the credit out of that bankruptcy. And then we proceeded against what we felt was a party that longed the company, one of the insurance carriers. And we received a substantial recovery on that way in excess of our loan. And we've got a number of other situations that are in the portfolio that we're proceeding now with similar type strategies. And I would expect once this crisis passes to get into a much better position vis-à-vis the market and the portfolio versus other private credit managers.

That's helpful, Ted. And yes congrats again on a successful outcome there with Rockdale. Definitely very positive and demonstrates the resources you guys have there. But just poking on the kind of the part B of that questionnaire a little bit more was, I'm just curious if you’ve done anything like reducing covenants or deferring principal or interest payments or anything to satisfy forbearance requests at this point. I am just trying to be maybe size the magnitude of that versus the companies that haven't any requests at this point?

Yes, listen, we're dialoguing, as I mentioned in our prepared remarks with every company. To date, we've been lucky. And as I said, since we're not in the high-risk industries, this hasn't been something that across the portfolio has been a significant undertaking like others. And we're mostly in business services. We're in software, we're in IT. We're in businesses that are in business, which is good. We look at this, that if we can be a solution provider right now, that's our that's our number one goal is to stand up and protect our companies, our management teams our private equity sponsors. So we’re there as more of a support system for them right now. As Aaron mentioned in his remarks, we've been able to fund revolvers for companies. And as I told a lot of the companies, it's kind of silly, companies were taking revolvers when they didn't need them just because they were afraid that for lenders weren't going to be there to fund capital requirements in the future. We funded everything once our borrowers saw that Monroe was a strong counterparty here. We're actually seeing an interesting trend over the last two weeks. We're seeing our revolver usages start to come down again, not go up. They peaked and we're heading down. And I think that's going to be a continued trend in the future, which is going to help us in a number of fronts, as Aaron I mentioned with -- as we get back on the side with what we want to be with our target leverage. So to specifically answer your question, we feel pretty good that we're dialoguing with our clients, we're supporting them on a revolver basis, but across the portfolio, we're not seeing rampant needs to make drastic changes here. And that's all a function of where we are and what the assets we have.

That's good color. Thanks, Ted, appreciated. And then is one more since you brought up the revolvers there, just a little bit more maybe context around unfunded commitments right now. How much of unfunded commitment is approved and kind of readily available for borrowers to draw down on versus if any of that is achievement or milestone based or needs approval?

Well, I will tell you, I am going to make a comment and I’m going to turn it over to Aaron for further. But I will tell you that, we have reserved 100% of all revolver capacity for clients and unlike others, we run our business on a much more conservative basis. And we make sure that we have revolver commitments. Now that said, we're probably -- we'll probably always get to 50% or 60% in terms of our usage on the revolvers. As I also said, we're coming down now because now that companies know that they've got the ability to contact Monroe, and Monroe, we'll fund where we need to, there's no reason for borrowers to borrow it on the revolver, put the money in bank accounts that we control where we have leans on and pay us excess interest that they don't need to pay. Just think about as I have told a lot of our companies are silly. We're not going anywhere. We’ve got $9.3 billion at Monroe as an organization. We're not going anywhere. We're unlike a bank that folded in the last crisis. We're strong from a firm liquidity standpoint. So they borrow money and take down revolvers that you don't need and pay us interest is not a really good use of a thought process. And Aaron do you have any other thoughts?

Yes, just to your question around milestones and things like that, for the delayed draws, most of the committed delayed draws are set up for a very specific uses. A lot of them are things like acquisitions. And so as you might imagine M&A activity is pretty light right now because most companies are moving to buy someone, in this market would need to put up substantial equity and it's a hard thing for sponsors to want to do right now until they sort of see things normalize. So, I think, our total unfunded amount is something like $22 million is delayed draw, a lot of that we would not expect to fund at least in the near term. And then the remaining, I think it's around $18 million is remaining unfunded revolver availability, which is subject to covenant compliance and things like that is available. So that's how we look at it.

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

A couple of questions to begin on senior loan funds. Aaron, in your prepared comments you said you are in compliance with SLF credit facility, but can you just update on those financial covenants with cap one?

Yes, I mean they're pretty standard things, Chris. I think the thing that most people would be concerned about in a credit facility is the mark-to-market aspect of it. That's the -- that would be in a market like now would be the number one sort of triggering concern if you had marked to market calls on something like that, that's pretty highly leveraged. That's unfortunately that that credit facility is not a pure mark-to-market fund. There are certain things that have to occur in the underlying borrowers to allow the lender there to look at a reevaluation. So there's something called reevaluation events for the SLF credit facility and that's what would create any issues in that fund would be if that were to occur. And so far we're in pretty good shape and we’ve modeled out some, obviously gone through all the names and looked at what could happen and model that out. And in between all of that, we feel like we should be in a manageable situation where we continue to monitor it.

Okay. So just to be clear, no minimum equity covenants are in that facility?

There are other covenants, I have to get back to you on the specifics. I don't have them in front of me, but that facility just to be clear is non-recourse to the parent. So there's nothing that creates a scenario that would come back to the parent, but they've got significant equity in the SLF that we want to preserve and we expect we'll be able to do that. But I'd have to get back to you on the specific covenants at the SLF credit facility. I don't have them all in front of me.

Okay. And then, two follow ups, how much unfunded commitments exist in SLF? And then secondly, do you expect to fund your remaining equity or do you expect it to be drawn in SLF?

So, we don't have a lot of unfunded commitments in the SLF, I don't have the exact number in front of me, but these are very small. We don't do a lot of revolvers in there. We don't do a lot of delayed draws in there, just a handful. And so, there isn't a lot of unfunded risk in SLF. We do still have the ability to call some capital in order to deal with any issues that might happen in that fund. They're strong funded commitments in terms of equity under the original commitments. But at this point, there's no current expectation at this moment that we would need to fund any of those. And right now we're not growing the assets in there. So, we are believe it or not, seeing from time to time natural payouts in that funds even in this environment. So, so far, so good. I think there's definitely less than 1 million in revolvers at the SLF, I think it’s about 800,000 of revolver, maybe something like under 2 million of delayed draws I think. And as I said, those are very similar to the ones that we hold on the balance sheet in terms of some of the specific uses of proceeds for delayed draw, most of which is predominant right now.

Very helpful. The DTLs would be very small, but just wanted to confirm. Ted, I heard your comments about wanting to play offense and I know you have the desire to be opportunistic, but how can Monroe or MRCC participate in that from a funding perspective, given your leverage is above your target and then marginal capacity could be needed to support the portfolio companies?

A good question. As we mentioned that our prepared remarks, Chris, as a firm, we're going to be playing offense as there are lots of different pockets of capital to do that. MRCC we're very focused making sure that we're taking a conservative approach to managing our liquidity, to managing our leverage ratios. We think that based upon the things that Aaron mentioned, the spread widening changes the valuations of assets coming down. We're going to see unnatural progression of reduction our leverage rates. And then as we continue to payoffs, obviously we’re going to recycle capital. That's a normal occurrence for us. And we're going to do the best we can to generate to increase rerisked deals. Every time we talk to sponsors, or companies about waiving covenants, and about making modifications to covenants, that's an opportunity for us as a firm to on a continual basis rerisk and reprice the portfolio. And we're taking advantage of that opportunity to make sure that our portfolio was reflecting current market conditions across the board, when companies and sponsors are asking us to assist them.

And just to reiterate what I thought I heard. So pay-downs would be the principal funding mechanism to be opportunistic. And then alternatively, no other capital planning or exogenous events would drive the funding?

Not today. Not today. Again, we're always looking our thoughts here. And we're looking at taking advantage of market conditions when we can. But right now it’s stay the course. It's run our business, it's be conservative, you're looking to see what we've done here in terms of valuations. And I think we've taken a conservative view here, number two, on liquidity and our plan going forward. We have taken a conservative view on what we're doing with our leverage. And number three, our dividend action that we've taken a very conservative view again to make sure that we're acting decisively. We're doing the right thing by our shareholders. And we're preparing here for the long-term. This opportunity isn't a matter of days or weeks. This opportunity is going to last for a while. And we want to make sure that MRCC is positioned to be the price maker and to be the firm that can take advantage of this the best and this lower end of the middle market. This is a very fragmented market. And when you look across the board, Monroe, MRCC has always been one of the strongest players in this part of the markets. And we're making sure we're taking whatever action we can to ensure that MRCC will continue to be one of the very strongest players in this segment of the market.

Great. And those are all good points. Moving on, just a couple housekeeping items. In regards to the new non-accrual loans, when did you stop accruing interest? And then how much interest was not recognized in the quarter from those new accruals?

Yes, so when we announced to you that loans are going on non-accrual for the quarter, they go all the way back to the beginning of the quarter. So it's not that -- the part of the quarter. So in other words, the first quarter will not include any income from the new non-accrual assets that we announce.

Got it, very helpful. Okay.

I don't have a specific number for each of the three in front of me in terms of the amount of interest that would have been recognized. But there's nothing you need to back out of the first quarter because it wasn't recognized in the quarter for those.

Yeah, my thought process is that you stopped accruing maybe at March, right?

Yes. We don't do it that way. We just take it out for the whole quarter.

Okay. And then on TooJay's, I know you addressed it there. But is that investment still accruing interest today?

It's still accruing and still paying.

Yes. That's never gone non-pay just to Chris, as a matter and the way that works in bankruptcy, I don't know for those that may not be as familiar with bankruptcy is your loan is either deemed to be collateralized in bankruptcy or not. If it's collateralized, the bankruptcy or “over secured” you are entitled to adequate protection payments, which are your interest payments. If it's deemed to be not adequately secured, then there's an adjustment. We expect TooJay's to continue to pay us. We feel we're in a good leverage position and we're within the enterprise value, and the company has stated that when they’re filings in the court proceedings.

Just to be clear on that Chris, a lot of times in the bankruptcy there's a bit of a fight between the estate and the senior lender over this issue and there has been no fight on this particular situation. The company didn't even ask us. They absolutely said right out of the gates that they believe we were over collateralized, they intended to keep us current.

I just know some BDCs have different non-accrual policies, so recognizing that TooJay's opinion is helpful. Last one is just on CPK. You took a mark there. I think it’s relevant to investment. Another peer put it on non-accrual as an abundance of caution. I know it’s above its syndicated loan. Do you feel pretty good about your evaluation there? And I know there's a lot of uncertainty over the next couple of quarters, but relative to how others are thinking about it, just curious on your updates?

Yes, look, I mean I think we'll continue to look at it very carefully going to the successive quarters and we determine that we think that there's high probability of us not receiving interest. We will make the same determination. We haven't made that determination as of March 31st but we're watching it closely. We hold this across a few different funds and we're keeping very close watch on the situation and it's one that we're going to be real careful about going forward in terms of growth steps.

Thank you. Next question comes from the line Chris Kotowski from Oppenheimer. Your line is open.

You actually guided my question a little bit on the last one, was just kind of when we see these triangulating back and forth between where we see the marks. You see, right, California Pizza Kitchen at $0.50 and Forman Mills at $0.60, and often you see the non-accruals at similar kinds of marks. And I think you said you put things on non-accrual on a proactive basis., I guess what philosophically makes you keep some of these other heavily marked names on accrual status, is there just visibility to some interest payments there?

Yes, good question. So like in a normal environment there is definitely some correlation between something being marked down a considerable amount and it being on non-accrual status. And that's definitely a signaling effect that we also look at when we re-examine every name. And we do them independently, we look at individual credits and how they're performing and think about non-accrual. And then we also look at where the marks are coming in and think about non-accrual. So it isn't lost on us that you might look at a name like Forman Mills and say marked in the 60s, it should that be on the accrual status or not. But you’d have to look at it as we're in an environment where assets that aren't performing as completely performing high quality performance during COVID, are taking pretty aggressive marks right now, even if there is some visibility that they will improve. And informing those is a really good example. I mean, coming into COVID-19 for Monroe seems to have significant improvement in same-store sales, it’s outperforming its budgets. But it was forced to shut down all of its stores as a result of COVID. And so that's the issue with that company but given the nature of what they do, it's a pretty countercyclical business. Historically it's a company that's done really well in times of economic cycles. So when those stores reopen, that company should do really well. And so we do think, and we believe that the mark there should not be permanently down in this level. And should recover once the stores open up because of the nature of what that company does, which is, low price off price retail.

Okay. And then unrelated issue, can you just remind us again how the limitation on your incentive fee works because we were reading that definition of the pre-incentive fee income and we are -- is the definition of the incentive fee, does it include the base management fee or does it exclude that? The 12 quarter look back.

Right. I'll try my best with this description and then if you need to follow up we can do that. Because it is complicated. So our part one is going to be calculation which is based on NII, restructured with this shareholder friendly clause that has a limitation in place to ensure that we don't pay a significant amount of incentive fees based on NII during periods when there has been a significant amount of realized or unrealized losses on the portfolio, right? So the way it works is, is that the part one incentives are limited to the extent that our incentive fees for the last 11 quarters exceed 20% of GAAP earnings excluding just incentive fees for the last 12 quarters. So to the extent unrealized losses that we've had here it's going to limit our incentive fees fully until we earn a lot of that back. But it looks at 20% of GAAP earnings excluding the incentive fees. That's what it compares to.

Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Your line is now open.

Hey guys. Can you give as an indication as to where you think the leverage ratios were going down? I mean where are you targeting, the 1.25 or lower?

Good question, Chris. I mean, I think right now we're just targeting lower than where we are. I think we'd like to see ourselves below that kind of 1.2 to 1.3 level that we talked about in the past I think. So that's a reasonable level for us to get to. And we'll see how we get -- as we move along, we'll see how the market deals. Everything we do is really based on our view of the market and where the opportunities lie and what the risks are in the portfolio. So, getting the Rockdale money in hopefully coming up here in the next couple of months will help leverage us a little bit. And then, we'll take a hard look at where things stand in the market and with our names and wherever we see risk and we'll make a final decision about kind of where leverage should be. But as a general matter, I think between 1.2 and 1.3 still seems like a reasonable place to be, particularly when a lot of our reasonably good quality names are marked low and we think we'll recover. And I would argue that we don't need to be at even lower leverage because there's so much mark already in the names. And so some of this is really artificial, but we have to look at it because it's based on fair value to that.

And Aaron, on the credit facility, what sort of advance, has the advanced rate changed at all in terms of the value -- the fair market value of the assets up against the borrowings?

So the advances are based on fair market value. So the advances themselves don't change. The only time that advances change is in terms of how you categorize an asset. So, the certain performance an asset that was historically counted as a first-lien might have a portion if the leverage goes up and the underlying asset might have a portion that's considered second lean. And then you do a bifurcation of the asset into two buckets when you look at advanced rate, but the entries themselves are advanced rates on fair market value. So obviously, if fair market value comes down the amount that is advanced come down in terms of the borrowing base. But that doesn't mean that the advanced rate moves.

Thank you. Our next question comes from the line of Robert Dodd with Raymond James. Your line is open.

First a housekeeping one then a couple of these questions. On Rockdale Blackhawk, I mean Ted, in you prepared remarks you expect that settlement to be paid in I think the coming quarter, does that mean the second quarter or the third quarter just for clarity?

Good question, Robert. First of all, I'm glad you're safe and everything's good. I think it'll get paid in Q2 is our plan right now. We know our lawyers are telling us that this money should be in the Q2. So that's what we've been planning for.

Can you give us any column what percentage of your portfolio is say a cash monthly interest payout versus quarterly? And all of those, how many of them made the payment in April?

Good question. I will tell you that most of our portfolio is quarterly paid. I don't have the specifics in front of me now. But we can certainly get that for you. But we set up our system, again across our entire firm to be mostly quarterly pays. And as Aaron mentioned in his prepared remarks, we've got a 97% or a higher number paid, our March payments. So, we don't anticipate hopefully much fall off, but it's early yet. This is, we're in May. We got another six weeks or so to go for the end of the quarter. I can tell you that we're dialoguing with our companies on a regular basis, a weekly basis. And because of the loan documentation that we have with companies in this part of the market, we're able to get real time information very often, weekly financial information from the companies. And very high percentage of our companies also applied for and were successful in getting the PPP loans. That's another thing that you will -- sometimes people overlook. But in our segment of the market because of our infrastructure we were very, very active in helping and assisting our companies with this whole PPP program. And that's going to I think pay dividends to us in more ways than one with stability and liquidity as well as performing -- borrowers performing.

And then one more if I can. On the recovery process, I mean, there's going to be recovery processes as we go through this, obviously. I mean, how are you going to allocate or what's the approach to maybe allocating time. It's going to be quiet an intensive process and in some cases obviously in lockdown, very good recovery. The Picture People, if we go back, not so good recovery, you spend a lot of time on that one. So how's the allocation of resources done to be decided, if it's only 3% of portfolio it’s not that bad but we don’t know how things are going to turn out. So how is that allocation being of [headcount], your time on some percent being allocated across the more stressed portfolio right now?

That's a very good question. I will tell you that given the size of our platform, we've got some inherent advantages and not only that, we've learned a few lessons over the years and sometimes the best lessons you learn are from less than positive outcomes. The Picture People transaction was not a great result for us. We put forth some efforts into that and we believed that we were making progress. And we didn't have the right people in the right spots there and learned some lessons at the time. This time is different. We have eight people that we brought on to the firm over the last three, four years that are solely focused on workouts restructuring, equity optimization. We have an equity group now at the firm that's led by a fellow named Brad Bernstein, who's an old guy like the rest of us. And he's been in the business for over 30 years. And he has a team of eight people that are all 15, 20 year experienced people, of buying companies, managing companies, running companies. And what we've done is we've basically taken our high risk companies and we're monitoring them two different ways. One on behalf of as a lender, but also two, as an equity owner, because these are businesses that we could end up owning. We've looked at Rockdale the same way. We went in and we bought up the debt there with the intention of either operating or filing and making a claim, in that instance we chose to make a claim. Now other instances, we took over companies and I'll tell you one that we have in our portfolio, the maintenance repair operation, which is an airline company that does maintenance and repair. We took over that company years ago with the broader Monroe Capital platform and we were able to restructure that, bring people in, run that business. And it's not part of the MRCC portfolio today, but what it is, is a situation where we brought the right resources to bear and that company is going to get sold for a high multiple of earnings. So with respect to MRCC specifically, most BDCs that cover the lower part of the middle market don't have the resources, eight equity workouts dedicated workout people. So the good news is with MRCC, it's getting the benefit of being part of the Monroe platform, and all of the infrastructure, all the resources to run those companies to take them over if we need to. And to manage those processes out now so that we can focus on our entire -- our day jobs of running MRCC and doing the right thing on a conservative basis for our shareholders.

Thank you. Our next question comes from the line of Troy Ward with Ares Management. Your line is open.

Thank you. Good morning Ted and Aaron and thanks for the call and hope your team is staying safe and healthy. First we'd just like to commend you on the detail you provided. The breakout of the unrealized marks related to credit versus spread widening is your word. That's extremely helpful, for us to understand the move in NAV and what we might expect in the future and the coming months and quarters. And as you correctly laid out, the spreads tightening and some amortization and some portfolio cash flow, should see natural occurrence. I think Ted, as you used to get back into a lower leverage perspective, but kind of to follow up on. I feel like a lot of the questions I've been revolving around is really kind of the ability to put attractive capital out in the near term without pushing that leverage back up. So Ted, if you could speak to kind of the conversations you're having maybe directly with the companies, but maybe the companies and their ability to access any potential government programs that could help because you're on the lower side, but also the private equity ability or willingness to put in additional capital and also the relaxation of some of the co-investment rules. Is there an opportunity for other capital to come in and protect the investments at MRCC from the broader Monroe platform? So any commentary around that would be really helpful.

Yeah, good choice. I'm glad you asked that question actually since it’s a thoughtful one. The most people don't really understand, in our market and the lower part of the middle market, there's opportunities to play offense while you're playing off offense but there’s also opportunity to play offense while you're playing defense. And the neat thing about our market is companies don't have the ability to go out and do bond offerings and do unsecured notes. In our part of the market, what we try to look for is ways to assist companies. It can be through a revolver draw. It could be through a relaxation of a covenant. It could be introducing the company to a mezzanine debt provider to put additional capital in and reprice our loan. It can be leading on the private equity sponsor to do something. If we do something, then we ask them to do something. Very often, when we make a covenant waiver or we make a accommodation for our borrower, it's because we're doing that in concert with something else. The private equity sponsor is stepping up additional equity. The sponsor is guaranteeing a part of our loan, the sponsor is committing to put forth capital in the future into the company. As I mentioned earlier in my remarks, we've taken a very active program in assisting our companies PPP money. We have 53 banks and our credit facilities across the Monroe platform. The first thing that we did as a firm is we've identified the banks that were most likely to assist each one of our portfolio companies. And then we made the appropriate introductions to make sure that that process was set up appropriately. And then we monitored the effect of this or that and the staging of the…

Now that's very insightful and very helpful. One last thing. I think you mentioned, the broader Monroe platform as upwards of $9 billion of AUM. Can you speak to the kinds of dry powder if you're willing that you have available to step in and put capital to work where needed?

Sure. I will tell you that going into this crisis situation, on March 1st, we had about a $1.4 billion neighborhood of dry powder available at our -- at the Monroe Capital level. And as you know, we've got SEC co-investment capability that we can do across with our funds. So we were feeling pretty good. We've been aggressively raising additional capital at low level. We have a number of funds in the market. We have private credit funds in the market. We have opportunistic funds. We have retail funds, high net worth funds. And we've been using this as a -- really as an opportunity to continue to raise capital from both institutional investors, sovereign wealth funds, pensions, endowments, foundations, retail, high net worth retail and others that are looking for yield. When the S&P drops 20%, when bonds get hit, when LIBOR goes down, when U.S. Treasuries are 30 basis points for 10 years, investors don't really have anywhere to hide and the best place to hide is in the private credit space generally. And within the private credit space, what investors are realizing is that you turn to the very best managers. The ones that have been around the longest that have a track record for a very, very long period of time. We've been doing this business 20 years now. We've gone through four down cycles, two crisises, the dotcom crash in 2000, and the great financial crisis in 2008, what will likely be the third crisis that people will look back to as the 2020 COVID pandemic. So, we've got a playbook for dealing with this. We've got the infrastructure, we've got the capital, and in each of the last downturns and crisises if you look at our track record, we've done very well in that vintage period during and right after that crisis. I think that 2020, ‘21 and very much into ‘22 are going to be very strong periods for private credit and the firms that are set up and have the capital and the infrastructure to manage and to be active in these periods. I think we will do very well. And the other side of that coin is the firms that are more one dimensional that you don't have one product or a very highly concentrated set of investors or don't have the scale to have the same power over the next few quarters are not going to do as well. And quality always rises to the top and I'm confident that the infrastructure and the organization that we’ve built at Monroe will continue to deliver outsized returns, during this crisis, after this crisis, just as in the last two crises that we've experienced.

Thank you. I'm not showing any further questions. I will now turn the call back over to Ted Koenig for closing remarks.

I want to thank everyone today for joining the call. I know it ran a little bit longer than our prior calls. I think there are a lot of good questions. Again, we don't take decisions and actions lightly and we've put forth I think a thoughtful and decisive manner in which we're managing MRCC. We've made some hard decisions at MRCC, which are going to be in the long-term best interest of our shareholders. And we continue to see value where we are today as evidenced by a lot of the insider purchases that have been made in our company. And we wish everyone health, be safe. And we will all talk to you again next quarter sometime in early August. So with that, any follow-up questions that anyone has, as always, we endeavor to be as transparent as we can. Please contact Aaron offline and I'm sure we can give more information as requested. So thank you and everyone have a good day.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.