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MC

MONROE CAPITAL Corp (MRCC)·Q3 2025 Earnings Summary

Executive Summary

  • Q3 2025 was soft: NII fell to $1.8M ($0.08/sh) on total investment income (TII) of $8.21M as lower average invested assets and the SLF distribution being treated as return of capital reduced income; NAV/share declined to $7.99 from $8.29 QoQ .
  • Results missed consensus: NII/share $0.08 vs $0.205 consensus (−$0.125); revenue $8.21M vs $8.84M consensus; both represent notable shortfalls, driven by decreased interest/dividend income and SLF-related dynamics; management maintained the $0.25 dividend using spillover income (est. $0.25/share remaining) (bold = significant) . NII/share: $0.08 vs $0.205*; Revenue: $8.21M vs $8.84M*.
  • Leverage ticked up to 1.23x (weighted avg 1.18x) with stable portfolio yields (contractual 9.9%, effective 8.8%); non‑accrual remained low at 3.5% of FV .
  • Strategic catalysts: management “currently anticipate[s]” closing the NAV‑for‑NAV merger with Horizon Technology Finance (HRZN) in Q1 2026; SLF wind‑down advanced with $14.5M return of capital on Oct 31, potentially improving balance sheet flexibility into the merger; dividend held at $0.25 for Q3 (paid Sep 30) (bold = catalysts) .

Note: Consensus values marked with “*” retrieved from S&P Global.

What Went Well and What Went Wrong

  • What Went Well

    • Maintained dividend continuity ($0.25/share paid on Sep 30) while preserving spillover income cushion (est. $0.25/share remaining) ahead of the proposed HRZN merger; CEO: merger “will unlock meaningful value” and “benefit from meaningful synergies and operating leverage” .
    • Portfolio credit metrics steady: non‑accrual at 3.5% of FV; portfolio marks only slightly lower (avg mark −0.3 ppt QoQ to 88.3% of amortized cost) .
    • Liquidity intact: $3.5M cash, $82.8M on revolver, $130.0M notes; ~$92.2M revolver availability (subject to borrowing base) .

  • What Went Wrong

    • Income pressure: TII fell to $8.21M (from $9.87M); NII/share dropped to $0.08 (from $0.15) as lower interest income from a smaller asset base and SLF distribution treated as return of capital weighed on results .
    • Continued unrealized losses: net loss $(3.0)M (vs $(5.2)M$ in Q2), driven by mark‑to‑market declines in certain portfolio companies and SLF .
    • NAV decline to $7.99 (from $8.29) as dividend exceeded current NII and unrealized losses persisted .

Financial Results

MetricQ1 2025Q2 2025Q3 2025Q3 2025 Consensus
Total Investment Income (“Revenue”) ($USD Millions)$11.64 $9.87 $8.21 $8.84*
Net Investment Income ($USD Millions)$4.09 $3.30 $1.81 —
NII per share ($)$0.19 $0.15 $0.08 $0.205*
Adjusted NII ($USD Millions)$4.21 $3.26 $1.88 —
Adjusted NII per share ($)$0.19 $0.15 $0.09 —
Net gain (loss) ($USD Millions)$(3.55) $(5.17) $(2.95) —
Net inc. (dec.) in net assets from operations ($USD Millions)$0.53 $(1.87) $(1.14) —
NAV per share ($)$8.63 $8.29 $7.99 —
NII Margin % (NII/TII)35.1% (4.086/11.638) 33.4% (3.298/9.873) 22.1% (1.813/8.206) —
  • Estimate miss highlights: EPS $0.08 vs $0.205 consensus (bold miss); Revenue $8.21M vs $8.84M consensus (bold miss). Drivers: lower average invested assets; SLF distribution treated as return of capital; reduced prepayment gains .

Note: Consensus values marked with “*” retrieved from S&P Global.

Segment/Portfolio Mix and Yields

MetricQ1 2025Q2 2025Q3 2025
Weighted Avg Contractual Yield—9.9% 9.9%
Weighted Avg Effective Yield9.2% 8.8% 8.8%
Non‑accrual (% of FV)3.4% 3.6% 3.5%
First lien (% FV)77.3% 74.1% 74.0%
Junior secured (% FV)7.5% 8.6% 8.7%
Equity investments (% FV)15.2% 17.3% 17.3%
# of portfolio investments85 80 79
Investments at fair value ($USD Millions)$430.57 $367.70 $360.65

KPIs, Leverage, and Liquidity

KPIQ1 2025Q2 2025Q3 2025
Debt‑to‑equity (period‑end)1.45x 1.17x 1.23x
Debt‑to‑equity (weighted avg)—1.22x (prior quarter) 1.18x
Cash & cash equivalents ($USD Millions)$6.46 $2.43 $3.53
Revolver debt outstanding ($USD Millions)$141.2 $80.3 $82.8
2026 Notes outstanding ($USD Millions)$130.0 $130.0 $130.0
Revolver availability ($USD Millions)$113.8 $174.7 $92.2
Spillover income per share (est.)$0.53 $0.42 $0.25

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per shareQ3 2025$0.25 paid in Q2 2025 $0.25 declared and paid Sep 30, 2025 Maintained
Merger with HRZN (NAV‑for‑NAV)Close timingAnnounced Aug 7, 2025 (no timing in Q2 PR) Anticipated closing in Q1 2026 New timeline disclosed
SLF Joint VentureStrategic posturePortfolio deleveraging/rundown underway Wind‑down agreed; active sales; $14.5M ROC on Oct 31 Accelerated wind‑down

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 2025, Q2 2025)Current Period (Q3 2025)Trend
HRZN mergerAnnounced Aug 7; strategic value creation highlighted Close anticipated Q1 2026 Firm timeline set
Dividend sustainabilitySupported via spillover; $0.53/share spillover at Q1; management open to fee waivers Maintained $0.25; spillover est. $0.25/share remaining Cushion declining
SLF JVNot constructive; allowing delever/rundown ; mark pressure Wind‑down; no Q3 dividend from SLF; ROC $0.6M in Q3, $14.5M on Oct 31 Wind‑down accelerating
Leverage/liquidity1.45x at Q1; ample revolver capacity 1.23x at Q3; weighted avg 1.18x; $92.2M revolver availability Slightly higher point‑in‑time leverage
Tariffs/macroPortfolio relatively insulated; services‑weighted Not discussed in Q3 PRNeutral/unchanged

Note: No Q3 2025 earnings call transcript was available; themes reflect Q3 press release and prior calls and -.

Management Commentary

  • “We believe that MRCC’s previously announced merger with [HRZN]… will unlock meaningful value for our shareholders… We currently anticipate the closing of the merger to occur during the first quarter of 2026… we have continued to support the quarterly dividend of $0.25 per share through utilizing the spillover income…” — Theodore L. Koenig, CEO .
  • “Total investment income… decreased by $1.7 million, driven by declines in dividend income, prepayment gain (loss) and interest income… [SLF] quarterly distribution… [was] a return of capital… SLF is… winding‑down in advance of the closing of the proposed merger” .
  • “As of September 30, 2025, the Company had… $82.8 million [revolver], $130.0 million [2026 Notes]… approximately $92.2 million [revolver] availability…” .
  • “As part of the continued wind‑down of SLF, on October 31, 2025, the Company received an additional $14.5 million return of capital distribution from SLF” .

Q&A Highlights

  • Dividend trajectory: Management reiterated dividend support via spillover; acknowledged current NII below dividend in near term .
  • Capital allocation/buybacks: With leverage considerations, priority remains supporting portfolio companies; buybacks remain a strategic option but not a focus historically .
  • Fee waivers: Adviser emphasized ongoing support; incentive fees waived historically and could continue, alongside use of spillover .
  • SLF strategy: Not constructive on upper‑middle‑market credit; allowing portfolio to delever/runoff rather than relever .
  • Strategic evolution/Wendel partnership: Platform aims to find strategic ways to create value; broader platform resources post‑Wendel partnership support long‑term positioning .

Note: No Q3 2025 call transcript available; highlights reflect Q1 2025 Q&A -.

Estimates Context

  • Q3 2025 actual vs S&P Global consensus: EPS (NII/share) $0.08 vs $0.205 consensus (−$0.125); Revenue $8.21M vs $8.84M consensus. Misses driven by reduced average invested assets, lower dividend/prepayment income, and SLF distribution classification; portfolio marks and SLF unrealized losses also pressured bottom line . EPS cons: $0.205*; Rev cons: $8.84M*.
  • Estimate implications: With SLF distributions moving to return of capital, advancing wind‑down, and smaller asset base weighing on interest income, forward consensus may need to reflect a lower income runway absent redeployment or merger‑driven synergies .

Note: Consensus values marked with “*” retrieved from S&P Global.

Key Takeaways for Investors

  • Earnings quality weakened QoQ as TII and NII declined; absent SLF dividend and with a smaller portfolio, income is likely constrained near term until redeployment or merger benefits materialize .
  • Dividend is being actively supported by spillover income ($0.25/share est. remaining), which limits downside to near‑term cash payouts but reduces cushion going into 2026 (watch for sustainability post‑merger) .
  • The SLF wind‑down is a double‑edged sword: it removes a source of mark/volatility and dividend income; ROC inflows ($14.5M on Oct 31) can bolster liquidity and repositioning pre‑merger .
  • Credit profile remains contained: non‑accruals low (3.5% FV) and yields stable (contractual 9.9%, effective 8.8%); watch marks and any idiosyncratic credits referenced in unrealized losses .
  • Leverage ticked up to 1.23x (weighted 1.18x), still manageable with $92.2M of revolver capacity; funding runway supports operations and select redeployment .
  • Stock‑moving catalysts: definitive merger timeline (Q1 2026 target), SLF monetization progress, and any clarity on dividend policy/fee waivers ahead of merger close .

S&P Global disclaimer: Values marked with “*” are retrieved from S&P Global (consensus estimates).