KBRA Assigns Ratings to Monroe Capital Income Plus Corporation
7 Sep 2023 | New York
KBRA assigns issuer and senior unsecured debt ratings of BBB- to Monroe Capital Income Plus Corporation ("MCIP" or "the company"). The rating Outlook is Stable.
The ratings and Stable Outlook are supported by MCIP's ties to Monroe Capital LLC's $17.2 billion private credit lending platform, along with SEC exemptive relief to co-invest among affiliated companies, and its diversified $1.8 billion investment portfolio of 171 middle market companies with the majority of investments senior secured first lien loans (86.7%), as of June 30, 2023. The portfolio companies span 27 sectors that are generally less cyclical. MCIP specializes in lower middle market lending (66% of the investment portfolio), or loans considered traditional financing, with average EBITDA of $30 million. Approximately 23% of investments are in recurring revenue loans and 11% to opportunistic asset-backed financing. MCIP focuses primarily on sponsor-backed companies that provide significant equity cushion with low LTVs, moderate leverage (average 4x), and solid interest coverage. At 2Q23, the top four portfolio sectors were Healthcare & Pharmaceuticals (14.5%), Business Services (13.0%), High Tech Industries (11.1%), and Media Advertising, Printing & Publishing (8.1%). The ratings also consider MCIP’s solid management team that has a long track record of working within the private debt markets with executives each having nearly 40 years of industry experience. MCIP, as a perpetual, private BDC, raises capital each quarter mostly from high net worth investors and offers quarterly share repurchases of up to 5% of outstanding shares rather than a planned liquidity event. MCIP maintains appropriate leverage (debt/equity) of 0.94x with a prudent target range of 0.90x to 1.00x, which is comparable to peers. Asset coverage was 207% with a 38% cushion, which KBRA considers solid, allowing MCIP to absorb increased market volatility as well as a potential increase in non-accruals as we enter a potential recessionary period with high interest rates and inflation. MCIP had one portfolio company on non-accrual status as of 2Q23; however, the company’s portfolio is seasoned only four years, with the portfolio doubling in size in 2022. Despite the potential for adverse credit headwinds, KBRA believes the company is well positioned to weather a more difficult credit environment based on management’s long-term experience, solid underwriting with 100% of its directly originated loans with at least one financial covenant, and 75% of investments where MCIP is the sole lender.
The rating strengths are counterbalanced by the potential risks related to the company’s relatively illiquid investments, fully secured funding profile, retained earnings constraints as a Regulated Investment Company (RIC), and an uncertain macro-environment. The company plans to issue senior unsecured debt in the near term which will diversify funding sources, increase financial flexibility, and unencumber assets for the benefit of the unsecured noteholders.
MCIP is an externally managed, closed-end, non-diversified investment management company that elected to be treated as a Business Development Company (BDC) under the 1940 Act and as a RIC, which, among other things, must distribute to its shareholders at least 90% of the company’s investment company taxable income. The company was formed as a Maryland corporation in January 2019 when it commenced operations. The company is managed by Monroe Capital BDC Advisors, LLC, an affiliate of Monroe Capital LLC, which had $17.2 billion of assets under management, as of June 30, 2023. Monroe Capital LLC focuses almost exclusively on private credit.
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