KBRA Assigns Rating to Monroe Capital Income Plus Corporation's $204 Million Senior Unsecured Notes due 2029
23 Julio 2024 - 6:28PM
Business Wire
KBRA assigns a rating of BBB- to Monroe Capital Income Plus
Corporation's (“MCIP” or “the company”) $204 million 7.47% senior
unsecured notes due 2029. The notes comprise a $156 million tranche
and a $48 million tranche with maturities of July 24, 2029, and
September 18, 2029, respectively. The $156 million and $48 million
tranches are expected to fund on July 24, 2024, and September 18,
2024, respectively. The rating Outlook is Stable. The proceeds will
be used for the paydown of revolving secured debt.
Key Credit Considerations
The rating and Stable Outlook are supported by MCIP's ties to
Monroe Capital LLC's $18.8 billion (4/1/2024) private credit
lending platform, along with SEC exemptive relief to co-invest
among affiliated companies, and its diversified $2.8 billion
investment portfolio of 208 middle market companies with the
majority of investments senior secured first lien loans (86.5%) as
of March 31, 2024. The portfolio companies span 27 sectors that are
generally less cyclical in nature. MCIP specializes in lower middle
market lending, or loans considered traditional financing, with
average EBITDA of ~$31 million. Approximately 19% of investments
are in recurring revenue loans and 10% are to opportunistic
asset-backed financing. MCIP focuses primarily on sponsor-backed
companies that provide significant equity cushion with low LTVs,
moderate leverage (average 4.3x), and solid interest coverage. At
1Q24, the top three portfolio sectors at fair value were Business
Services (17.7%), Healthcare & Pharmaceuticals (13.9%), and
High Tech Industries (8.0%). 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 ~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 0.79x at March 31, 2024, with
a prudent target range of 0.90x to 1.00x, which is comparable to
peers. Asset coverage was 226%, providing a solid cushion to the
150% regulatory ratio, allowing MCIP to absorb increased market
volatility as well as a potential increase in non-accruals given a
higher-for-longer interest rate environment and a generally
uncertain economic outlook. MCIP had six portfolio companies on
non-accrual status as of 1Q24, accounting for 0.6% and 0.8% of
investments at fair value and cost, respectively. The company’s
portfolio is seasoned five years, with the portfolio doubling in
size in 2022 and increasing 70% in 2023. Despite the potential for
adverse credit headwinds, KBRA believes that 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.
The company's $204 million issuance of senior unsecured debt
diversifies its funding sources, increases financial flexibility,
and unencumbers assets for the benefit of the unsecured
noteholders. The issuance will result in pro forma unsecured debt
to total debt of 28% calculated as of March 31, 2024. Pro forma
liquidity, including cash and available credit lines, is $580.3
million with no near-term unsecured debt maturities and unfunded
commitments of $397.2 million.
The rating strengths are counterbalanced by the potential risks
related to the company’s relatively illiquid investments, retained
earnings constraints as a Regulated Investment Company (RIC), and
an uncertain economic environment with high base rates, inflation,
and geopolitical risk.
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 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 $18.8 billion of assets under management, as of March 31,
2024. Monroe Capital LLC focuses almost exclusively on private
credit.
Rating Sensitivities
Given the Stable Outlook, a rating upgrade is not expected in
the next one to two years. The Outlook could be revised to
Negative, or the rating could be downgraded, 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 on 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.
To access rating and relevant documents, click here.
Methodologies
- Financial Institutions: Finance Company Global Rating
Methodology
- ESG Global Rating Methodology
Disclosures
A description of all substantially material sources that were
used to prepare the credit rating and information on the
methodology(ies) (inclusive of any material models and sensitivity
analyses of the relevant key rating assumptions, as applicable)
used in determining the credit rating is available in the
Information Disclosure Form(s) located here.
Information on the meaning of each rating category can be
located here.
Further disclosures relating to this rating action are available
in the Information Disclosure Form(s) referenced above. Additional
information regarding KBRA policies, methodologies, rating scales
and disclosures are available at www.kbra.com.
About KBRA
Kroll Bond Rating Agency, LLC (KBRA) is a full-service credit
rating agency registered with the U.S. Securities and Exchange
Commission as an NRSRO. Kroll Bond Rating Agency Europe Limited is
registered as a CRA with the European Securities and Markets
Authority. Kroll Bond Rating Agency UK Limited is registered as a
CRA with the UK Financial Conduct Authority. In addition, KBRA is
designated as a designated rating organization by the Ontario
Securities Commission for issuers of asset-backed securities to
file a short form prospectus or shelf prospectus. KBRA is also
recognized by the National Association of Insurance Commissioners
as a Credit Rating Provider.
Doc ID: 1005036
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Analytical Contacts
Kevin Kent, Director (Lead Analyst) +1 301-960-7045
kevin.kent@kbra.com
Teri Seelig, Managing Director +1 646-731-2386
teri.seelig@kbra.com
Joe Scott, Senior Managing Director +1 646-731-2438
joe.scott@kbra.com
Business Development Contact
Constantine Schidlovsky, Senior Director +1 646-731-1338
constantine.schidlovsky@kbra.com