KBRA Assigns Preliminary Ratings to Monroe Capital ABS Funding II, LP

KBRA assigns preliminary ratings to four classes of debt issued by Monroe Capital ABS Funding II, LP ("MCAF 2024-1"), a securitization backed by a portfolio of recurring revenue and middle market corporate loans. This transaction is a reset of the Monroe Capital ABS Funding II, LP, which originally closed in February 2023.

MCAF 2024-1 is a $528.4 million securitization managed by Monroe Capital Management Advisors, LLC (“Monroe” or the “Collateral Manager”), an affiliate of Monroe Capital LLC. The securitization consists of $125.0 million of Class A-L-R floating-rate debt, $178.8 million of Class A-1-R fixed-rate debt, $44.9 million of Class B-R fixed-rate notes, $43.6 million of Class C-R fixed-rate notes (collectively the “rated Notes”), and $136.1 million of subordinated notes, which expect to receive payments from a portfolio of recurring revenue loans (“RRLs”) and middle market loans (“MMLs”). This transaction will reset the terms of the original transaction, including the stated maturity, non-call period, reinvestment period, note interest rates and notional balances. Proceeds from the issuance of the new notes will be used to redeem the outstanding notes in full and to purchase new assets ($150 million upsize).

The collateral in MCAF 2024-1 may contain up to 75% RRLs. Monroe’s recurring revenue lending strategy focuses on first-lien senior secured loans to business-to-business software and technology companies with a minimum level of recurring revenue and low loan-to-value ratios. Despite the low level of earnings, the obligors in the portfolio usually have strong liquidity profiles and loan covenants. The portfolio presented to KBRA contains exposures to 72 obligors and has an overall K-WARF of 3303, which equates to a weighted average portfolio assessment around B-.

Monroe is an affiliate of Monroe Capital LLC established in 2004, with $15.9 billion of committed and managed capital under management as of June 2023. Monroe currently manages $9.7 billion in middle market CLOs across approximately 13 outstanding transactions. Since its founding, Monroe has invested $8.6 billion within its Software, Technology, & Recurring Revenue (“S.T.A.R.R.”) strategy. The senior management team averages over 24 years of collective industry experience.

Kroll Bond Rating Agency’s (KBRA) ratings on the Class A-L-R, A-1-R (together the “Class A-R Debt"), and Class B-R Note considers timely payment of interest and ultimate payment of principal by the applicable stated maturity date. Kroll Bond Rating Agency’s (KBRA) ratings on the Class C-R Note considers ultimate payment of interest and principal by the applicable stated maturity date.

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