KBRA Assigns Rating to Monroe Capital Income Plus Corporation's $204 Million Senior Unsecured Notes due 2029

NEW YORK-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

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.

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