CGBD - Monroe Capital: 13% Yield Likely Safe Fundamentals Show Signs Of Deterioration

2024-06-20 06:30:00 ET

Summary

• Monroe Capital has underperformed peers in share price appreciation due to credit quality issues and tighter dividend coverage, in my opinion.
• Latest quarterly earnings showed a decline in net investment income and total investment income, with an increase in non-accruals.
• Despite solid balance sheet and ability to cover dividend, NAV erosion and potential headwinds from non-accruals may impact future performance.
• The discount to NAV makes the 13% yield attractive, but investors should proceed with caution before investing in Monroe Capital.
• I think the 13% yield is likely safe for the medium term, but current investors should keep a close eye on further rises in non-accruals, which could ultimately impact their financials in the coming quarters.

Introduction

Many Business Development Companies have done well since the rapid rise of interest rates starting in 2022 until now. One reason is a result of their business structures, lending to lower and middle-market companies, thus gaining extra income from their borrowers during times like now....

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