Monroe Capital Finally Launches BDC At $75M

  • Nineteen months after initial filing
  • New vehicle for leveraged lending
  • First downsized, then upsized

The final offering was half the size that Monroe Capital had planned when it announced its plan in March 2011 to launch the BDC. “It’s a tough market,” Theodore L. Koenig, the president and chief executive officer of the firm, told Buyouts. “A lot of other guys have tried to do it but couldn’t get it done.”

The BDC’s shares began trading Thursday on Nasdaq under the ticker symbol MRCC. The initial move of the stock was lower, as the shares trended toward the net asset value of its underlying portfolio of loans. Koenig said that Monroe Capital launched the BDC with $67 million of loans from its other funds to provide a foundation for portfolio development.

Monroe Capital Corp. plans to use the proceeds to repay its parent company for the loans that Monroe Capital LLC provided and to use the rest to make new loans. The BDC already has announced its intention to pay a 9 percent dividend on the stock, starting with the Dec. 31 quarter, based on the $15 IPO price.

Monroe Capital LLC, founded in 2004, has $700 million in assets under management, according to the firm’s Web site. In addition to the BDC, the firm launched a small business investment company last year, along with its other lending vehicles. Koenig has said the firm plans to manage its portfolio behind the scenes, allocating loans to the vehicle where they are most appropriate.

Business development companies are closed-end investment funds that typically are publicly traded on stock exchanges. Designed to provide capital to privately owned businesses, BDCs can provide both equity and debt financing. Historically providers of mezzanine financing for LBO deals, they typically lend to businesses with annual revenue of less than $500 million. Monroe Capital LLC has said it plans to focus the BDC on a mix of senior secured loans, unitranche and junior secured debt.

After a couple of hot years, formation of new BDCs has slowed in 2012, a consequence of a lackluster economy and a difficult IPO market, according to St. Louis-based investment bank Stifel Nicolaus & Co. Monroe Capital Corp. was only the second to launch this year, following TCP Capital Corp., an affiliate of the Santa Monica, Calif.-based hedge fund Tennenbaum Capital Partners LLC, which went public in April. By contrast, seven BDCs had IPOs in 2011 and five in 2010.

Demand should be strong for BDCs’ services, Stifel Nicolaus analysts Troy Ward and Greg Mason said in a recent presentation. By their calculations, private equity firms have some $435 billion of dry powder to be put to work in the next three or four years. Of that, about $100 billion is estimated to be in mid-market buyout funds.

“If we assume that just the $100 billion in middle market PE will be deployed into new transactions using normal leverage points, it would require about $25-$50 billion of middle market mezzanine debt to fund it,” Ward and Mason said in the presentation.

Monroe Capital LLC has followed a long and winding road to launch its BDC. After initially announcing its plans in March 2011, the firm saw the United States lose its AAA credit rating and a series of crises wrack the Euro zone, Koenig said. Monroe Capital, LLC viewing market conditions, downsized the offering to $65 million in March. But as the IPO neared, the firm saw that it was nearly twice oversubscribed, so it upsized the offering to the final $75 million, Koenig said.

Robert W. Baird & Co. Inc., William Blair & Co. LLC and Janney Montgomery Scott LLC were joint book-running managers for the MRCC IPO. BB&T Capital Markets, a division of Scott & Stringfellow, LLC and Stephens Inc. are serving as co-lead managers, and Ladenburg Thalmann & Co. Inc. and Wunderlich Securities Inc. were co-managers of the IPO.