KBRA Affirms Ratings for Monroe Capital Income Plus Corporation
6 Sep 2024 | New York
KBRA affirms the issuer and senior unsecured debt ratings of BBB- for Monroe Capital Income Plus Corporation ("MCIP" or "the company"). The rating Outlook is Stable.
Key Credit Considerations
The ratings are supported by MCIP’s ties to the $19.5 billion Monroe Capital private credit platform, along with SEC exemptive relief to co-invest in all directly negotiated loans among Monroe Capital affiliated funds. Monroe Capital’s solid management team has a long track record working within the private credit markets, with each member of the executive management team having ~40 years of experience. The Monroe Capital platform provides a 20-year history of strong credit performance through economic cycles. Also supporting ratings is MCIP’s well-diversified investment portfolio comprised largely of senior secured first lien loans (~92%, including unitranche) to 218 portfolio companies across 27 sectors, most operating in the lower middle market with EBITDA up to $35 million. The top three portfolio sectors are less cyclical and are Business Services (20.2%), Healthcare & Pharmaceuticals (15.9%), and High Tech Industries (10.4%).
The company has a diversified funding profile comprised of a secured revolving bank facility, SPV asset facilities, unsecured senior debt, and securitizations. At 2Q24, the ratio of secured debt to gross assets was 39% (pro forma including the recent $204 million unsecured note issuance subsequent to quarter end); while above rated peers, we anticipate that this will continue to decline as the company plans to issue additional unsecured debt as the market permits. The additional unsecured debt will also increase financial flexibility and unencumber collateral for the benefit of unsecured noteholders. The company does not have a planned liquidity event but rather maintains a quarterly share repurchase program for its shareholders, offering up 5% of its outstanding common stock quarterly. Since inception through August 2024, the company raised $1.83 billion of equity and repurchased just $75.4 million of stock. As of June 30, 2024, the company had liquidity of $91.8 million in available credit lines and $91.5 million of cash set against $635.4 million of unfunded commitments and no near-term debt maturities. As mentioned, in July, $204 million of senior unsecured debt was issued, and in August, a $350 million SPV asset facility was added, together shoring up liquidity. In addition, a portion of the unfunded commitments is tied to covenants and transactions are not expected to be drawn while additional equity capital is issued quarterly. As of June 30, 2024, the company’s gross leverage was 1.04x, which is near the company's conservative target leverage range of 0.9x-1.0x. Asset coverage is solid at 196% when considering its 150% regulatory asset coverage, providing the company a 31% cushion and the ability to withstand some additional market volatility in a less favorable economic environment.
In addition to higher levels of secured debt to gross assets, counterbalancing the strengths are the potential risks related to MCIP’s illiquid assets, retained earnings constraints as an RIC, and uncertain economic environment with high base rates, inflation, and geopolitical risks.
MCIP is an externally managed, closed-end, non-diversified investment management company that has elected to be treated as a Business Development Company (BDC) under the 1940 Act and as an 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 $19.5 billion of assets under management, as of June 30, 2024. Monroe Capital LLC focuses almost exclusively on private credit.
Rating Sensitivities
Given the Stable Outlook, a rating upgrade is not expected in the medium term. However, positive rating momentum could be achieved in time if there is little or no credit deterioration in the company's investment portfolio, leverage remains near the target range, senior secured first lien loans remain a high proportion of the company's total investments, and if additional unsecured debt is added. Negative rating pressure is possible if a prolonged downturn in the U.S. economy has a material impact on performance, including increased non-accruals and a significant rise in leverage. An increased focus riskier investments or a change in the current management structure and/or a change in strategy and risk management that negatively impact credit metrics could also pressure ratings.
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