Edgar Filing: MONROE CAPITAL Corp

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2015

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 814-00866

MONROE CAPITAL CORPORATION

(Exact Name of Registrant as Specified in its Charter)

Maryland	27-4895840
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

311 South Wacker Drive, Suite 6400 Chicago, Illinois	60606
(Address of Principal Executive Office)	(Zip Code)

(312) 258-8300

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of November 6, 2015, the registrant had 12,863,472 shares of common stock, $0.001 par value, outstanding.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		3

Item 1.	Consolidated Financial Statements	3

	Consolidated Statements of Assets and Liabilities as of September 30, 2015 (unaudited) and December 31, 2014	3

	Consolidated Statements of Operations for the three and nine months ended September 30, 2015 (unaudited) and 2014 (unaudited)	4

	Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2015 (unaudited) and 2014 (unaudited)	5

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 (unaudited) and 2014 (unaudited)	6

	Consolidated Schedules of Investments as of September 30, 2015 (unaudited) and December 31, 2014	7

	Notes to Consolidated Financial Statements (unaudited)	12

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48

Item 4.	Controls and Procedures	49

PART II. OTHER INFORMATION		50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50

Item 3.	Defaults upon Senior Securities	50

Item 4.	Mine Safety Disclosures	50

Item 5.	Other Information	50

Item 6.	Exhibits	51

Signatures		52

Part I. Financial Information

Item 1. Consolidated Financial Statements

Monroe Capital Corporation

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(in thousands, except per share data)

	September 30, 2015			December 31, 2014
	(unaudited)
ASSETS
Investments, at fair value:
Non-controlled/non-affiliate company investments	$	286,716		$	210,318
Non-controlled affiliate company investments		34,656			16,596
Controlled affiliate company investments		8,359			6,621
Total investments, at fair value (cost of: $330,480 and $234,098, respectively)		329,731			233,535
Cash		9,109			5,737
Interest receivable		1,580			952
Deferred financing costs, net		2,603			2,479
Other assets		481			882
Total assets		343,504			243,585

LIABILITIES
Revolving credit facility		116,200			82,300
SBA debentures payable		40,000			20,000
Secured borrowings, at fair value (proceeds of: $2,935 and $4,134, respectively)		2,843			4,008
Interest payable		386			244
Management fees payable		1,371			1,050
Incentive fees payable		1,124			1,140
Accounts payable and accrued expenses		1,712			1,105
Total liabilities		163,636			109,847
Net assets	$	179,868		$	133,738

Commitments and contingencies (See Note 10)

ANALYSIS OF NET ASSETS
Common stock, $0.001 par value, 100,000 shares authorized, 12,661 and 9,518 shares issued and outstanding, respectively	$	13		$	10
Capital in excess of par value		179,410			134,803
Undistributed net investment income (accumulated distributions in excess of net investment income)		1,104			(639	)
Accumulated net realized gain (loss) on investments		-			-
Accumulated net unrealized appreciation (depreciation) on investments and secured borrowings		(659	)		(436	)
Total net assets	$	179,868		$	133,738

Net asset value per share	$	14.21		$	14.05

See Notes to Consolidated Financial Statements.

Monroe Capital Corporation

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

	Three months ended September 30,						Nine months ended September 30,
	2015			2014			2015			2014
Investment income:
Interest income
Non-controlled/non-affiliate company investments	$	7,808		$	7,469		$	23,512		$	20,760
Non-controlled affiliate company investments		1,069			199			2,521			470
Controlled affiliate company investments		295			-			739			-
Total investment income		9,172			7,668			26,772			21,230

Operating expenses:
Interest and other debt financing expenses		1,434			1,100			3,788			3,182
Base management fees		1,370			1,058			3,626			3,041
Incentive fees		1,124			849			3,434			2,433
Professional fees		226			366			657			855
Administrative service fees		279			250			828			668
General and administrative expenses		241			235			703			597
Total expenses		4,674			3,858			13,036			10,776
Net investment income		4,498			3,810			13,736			10,454

Net gain (loss) on investments and secured borrowings:
Net realized gain (loss) on investments:
Non-controlled/non-affiliate company investments		167			94			167			299
Net realized gain (loss) on investments		167			94			167			299

Net change in unrealized appreciation (depreciation) on investments:
Non-controlled/non-affiliate company investments		(511	)		(540	)		(474	)		(1,508	)
Non-controlled affiliate company investments		1,904			(87	)		2,885			298
Controlled affiliate company investments		(1,275	)		-			(2,599	)		-
Net change in unrealized appreciation (depreciation) on investments		118			(627	)		(188	)		(1,210	)

Net change in unrealized (appreciation) depreciation on secured borrowings		(43	)		96			(35	)		164

Net gain (loss) on investments and secured borrowings		242			(437	)		(56	)		(747	)

Net increase (decrease) in net assets resulting from operations	$	4,740		$	3,373		$	13,680		$	9,707

Per common share data:
Net investment income per share - basic and diluted	$	0.36		$	0.40		$	1.22		$	1.09

Net increase in net assets resulting from operations per share - basic and diluted	$	0.38		$	0.35		$	1.21		$	1.01

Weighted average common shares outstanding - basic and diluted		12,545			9,527			11,286			9,623

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

(in thousands, except per share data)

	Common Stock					Capital in excess of par			Undistributed net investment income (accumulated distributions in excess of net investment			Accumulated net realized gain (loss) on			Accumulated net unrealized appreciation (depreciation) on investments and
	Number of shares			Par value		value			income)			investments			secured borrowings			Total net assets

Balances at December 31, 2013		9,918		$	10	$	140,038		$	(2,985	)	$	-		$	1,029		$	138,092
Net increase (decrease) in net assets resulting from operations		-			-		-			10,454			299			(1,046	)		9,707
Stockholder distributions paid - income distributions		-			-		-			(9,493	)		(299	)		-			(9,792	)
Repurchases of common stock		(400	)		-		(5,235	)		-			-			-			(5,235	)
Balances at September 30, 2014		9,518		$	10	$	134,803		$	(2,024	)	$	-		$	(17	)	$	132,772

Balances at December 31, 2014		9,518		$	10	$	134,803		$	(639	)		-		$	(436	)	$	133,738
Issuance of common stock, net of offering and underwriting costs		3,143			3		44,607			-			-			-			44,610
Net increase (decrease) in net assets resulting from operations		-			-		-			13,736			167			(223	)		13,680
Stockholder distributions paid - income distributions		-			-		-			(11,993	)		(167	)		-			(12,160	)
Balances at September 30, 2015		12,661		$	13	$	179,410		$	1,104		$	-		$	(659	)	$	179,868

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands, except per share data)

	Nine months ended September 30,
	2015			2014

Cash flows from operating activities:
Net increase (decrease) in net assets resulting from operations	$	13,680		$	9,707
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used in) operating activities:
Net change in unrealized (appreciation) depreciation on investments		188			1,210
Net change in unrealized appreciation (depreciation) on secured borrowings		35			(164	)
Net realized (gain) loss on investments		(167	)		(299	)
Payment-in-kind interest income		(1,494	)		(621	)
Net accretion of discounts and amortization of premiums		(787	)		(480	)
Proceeds from principal payments and sales of investments		68,790			76,839
Purchases of investments		(162,726	)		(103,386	)
Amortization of deferred financing costs		553			418
Changes in operating assets and liabilities:
Interest receivable		(628	)		(268	)
Other assets		401			(174	)
Payable for open trades		-			6,122
Interest payable		142			(121	)
Management fees payable		321			213
Incentive fees payable		(16	)		(74	)
Accounts payable and accrued expenses		607			588
Net cash provided by (used in) operating activities		(81,101	)		(10,490	)

Cash flows from financing activities:
Borrowings on credit facility		120,400			72,300
Repayments of credit facility		(86,500	)		(57,500	)
SBA debentures borrowings		20,000			13,650
Payments of deferred financing costs		(677	)		(607	)
Repayments on secured borrowings		(1,200	)		(1,873	)
Proceeds from shares sold, net of underwriting costs		44,610			-
Repurchases of common stock		-			(5,794	)
Stockholder distributions paid		(12,160	)		(9,792	)
Net cash provided by (used in) financing activities		84,473			10,384

Net increase (decrease) in cash		3,372			(106	)
Cash, beginning of period		5,737			14,603
Cash, end of period	$	9,109		$	14,497

Supplemental disclosure of cash flow information:
Cash interest paid during the period	$	2,879		$	2,496

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

(unaudited)

September 30, 2015

(in thousands, except for units)

Portfolio Company ^(a)	Industry	Spread Above Index ^(b)	Interest Rate	Maturity	Principal		Amortized Cost		Fair Value ^(c)		% of Net Assets ^(d)
Senior Secured Loans
Alora Pharmaceuticals, LLC ^(e)	Healthcare & Pharmaceuticals	L+7.50%	8.50%	9/13/2018		11,483	$	11,364	$	11,512		6.5	%
Alora Pharmaceuticals, LLC (Revolver) ^(f)	Healthcare & Pharmaceuticals	L+7.50%	8.50%	9/13/2018		1,336		401		401		0.2	%
American Community Homes, Inc.^(g)	Banking, Finance, Insurance & Real Estate	L+8.00%	9.50%	7/22/2019		7,667		7,502		7,364		4.1	%
American Community Homes, Inc.^(g)	Banking, Finance, Insurance & Real Estate	L+12.50%	9.50% Cash/4.50% PIK	7/22/2019		3,983		3,901		3,910		2.2	%
Answers Corporation	High Tech Industries	L+5.25%	6.25%	10/1/2021		2,925		2,822		2,152		1.2	%
BCC Software, LLC ^(h)	High Tech Industries	L+8.00%	9.00%	6/20/2019		2,836		2,802		2,792		1.6	%
BCC Software, LLC (Revolver) ^(f)	High Tech Industries	L+8.00%	9.00%	6/20/2019		469		-		-		0.0	%
Bluestem Brands, Inc.	Consumer Goods: Non-Durable	L+7.50%	8.50%	11/6/2020		2,960		2,931		2,922		1.6	%
BookIt Operating LLC ⁽ⁱ⁾	Hotels, Gaming & Leisure	L+12.50%	14.00%	1/10/2019		2,168		2,129		2,168		1.2	%
Cali Bamboo, LLC	Construction & Building	L+8.50%	9.00%	7/10/2020		4,190		4,108		4,158		2.3	%
Cali Bamboo, LLC (Revolver) ^(f)	Construction & Building	L+8.50%	9.00%	7/10/2020		1,624		43		43		0.0	%
Cornerstone Detention Products, Inc. ^(j)	Construction & Building	L+10.50%	10.50% Cash/1.00% PIK	4/8/2019		4,330		4,266		4,192		2.3	%
Cornerstone Detention Products, Inc. (Revolver) ^(f)	Construction & Building	L+9.50%	10.50%	4/8/2019		400		-		-		0.0	%
Cyalume Technologies Holdings, Inc.^(h)	Aerospace & Defense	L+9.00%	10.00%	5/18/2020		5,431		5,290		5,510		3.1	%
Cyalume Technologies Holdings, Inc. (Delayed Draw) ^{(f) (k)}	Aerospace & Defense	L+9.00%	10.00%	5/18/2020		455		455		462		0.3	%
Cyalume Technologies Holdings, Inc. (Revolver) ^(f)	Aerospace & Defense	L+9.00%	10.00%	5/18/2020		1,528		611		611		0.3	%
Cytovance Biologics, Inc. ^(h)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		2,000		1,960		2,060		1.1	%
Cytovance Biologics, Inc. (Revolver)^(f)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		1,143		929		929		0.5	%
Cytovance Biologics, Inc. (Capex)^(f)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		1,143		1,143		1,177		0.7	%
Diesel Direct Holdings, Inc. ^(h)	Energy: Oil & Gas	L+9.00%	10.00%	2/17/2020		5,397		5,320		5,445		3.0	%
EB Employee Solutions, LLC ^(h)	Services: Business	L+8.50%	10.00%	2/28/2019		3,495		3,427		3,462		1.9	%
G&M Opco LLC ^(h)	Construction & Building	L+7.50%	8.00%	6/23/2020		3,209		3,132		3,205		1.8	%
InMobi Pte, Ltd.	Media: Advertising, Printing & Publishing	n/a	10.50%	9/1/2018		10,000		4,731		4,672		2.6	%
Intelius, Inc.	Services: Consumer	L+5.50%	6.50%	7/1/2020		5,000		4,891		5,038		2.8	%
Intelius, Inc.	Services: Consumer	L+11.50%	12.50%	7/1/2020		5,000		4,890		4,985		2.8	%
Intelius, Inc. (Revolver) ^(f)	Services: Consumer	L+8.50%	9.50%	7/1/2020		354		-		-		0.0	%
Landpoint, LLC	Energy: Oil & Gas	L+12.75%	12.00% Cash/2.25% PIK ^(q)	12/20/2018		3,906		3,837		3,873		2.2	%
Landpoint, LLC (Revolver) ^(f)	Energy: Oil & Gas	L+10.50%	12.00%	12/20/2018		313		-		-		0.0	%
L.A.R.K. Industries, Inc.	Construction & Building	L+7.00%	8.00%	9/3/2019		6,776		6,640		6,739		3.7	%
Luxury Optical Holdings Co.	Retail	L+9.00%	9.00% Cash/1.00% PIK	9/12/2019		4,075		4,008		4,055		2.3	%
Luxury Optical Holdings Co. (Revolver) ^(f)	Retail	L+8.00%	9.00%	9/12/2019		272		-		-		0.0	%
Miles Media Group LLC	Hotels, Gaming & Leisure	L+8.00%	9.00%	9/12/2019		3,895		3,830		3,883		2.2	%
Miles Media Group LLC (Delayed Draw) ^{(f) (k)}	Hotels, Gaming & Leisure	L+8.00%	9.00%	9/12/2019		1,600		-		-		0.0	%
Miles Media Group LLC (Revolver) ^(f)	Hotels, Gaming & Leisure	L+8.00%	9.00%	9/12/2019		320		-		-		0.0	%
O'Brien Industrial Holdings, LLC	Metals & Mining	L+11.50%	11.00% Cash/2.00% PIK	5/13/2019		6,667		6,540		6,330		3.5	%
O'Brien Industrial Holdings, LLC (Revolver) ^(f)	Metals & Mining	L+9.50%	11.00%	5/13/2019		2,844		1,219		1,219		0.7	%
PD Products, LLC	Consumer Goods: Non-Durable	L+13.00%	12.00% Cash/2.50% PIK	10/4/2018		12,873		12,755		13,208		7.3	%
PD Products, LLC (Revolver) ^(f)	Consumer Goods: Non-Durable	L+13.00%	12.00% Cash/2.50% PIK	10/4/2018		2,500		1,250		1,250		0.7	%
Precision Toxicology, LLC ^(h)	Healthcare & Pharmaceuticals	L+8.00%	8.00% Cash/1.00% PIK	3/24/2020		5,460		5,361		5,449		3.0	%
Precision Toxicology, LLC (Revolver) ^(f)	Healthcare & Pharmaceuticals	L+8.00%	8.00% Cash/1.00% PIK	3/24/2020		635		-		-		0.0	%
Rockdale Blackhawk, LLC ^(g)	Healthcare & Pharmaceuticals	L+11.00%	12.00%	3/31/2020		12,529		11,405		12,466		6.9	%
Rockdale Blackhawk, LLC (Revolver) ^{(f) (g)}	Healthcare & Pharmaceuticals	L+11.00%	12.00%	3/31/2020		2,305		789		788		0.4	%
Rockdale Blackhawk, LLC (Capex) ^{(f) (g)}	Healthcare & Pharmaceuticals	L+11.00%	12.00%	3/31/2020		1,849		239		238		0.1	%
Rocket Dog Brands LLC ^(g)	Consumer Goods: Non-Durable	n/a	10.00%	5/2/2019		1,007		1,007		1,007		0.6	%
SHI Holdings, Inc. ^(h)	Healthcare & Pharmaceuticals	L+9.25%	9.44%	7/10/2019		2,794		2,740		2,778		1.5	%
SHI Holdings, Inc. (Revolver) ^(f)	Healthcare & Pharmaceuticals	L+9.25%	9.44%	7/10/2019		818		573		573		0.3	%
SNI Companies ^(l)	Services: Business	L+10.00%	11.00%	12/31/2018		7,195		7,073		7,256		4.0	%
SNI Companies (Revolver) ^(f)	Services: Business	L+10.00%	11.00%	12/31/2018		1,250		250		250		0.1	%
Summit Container Corporation ^{(g) (h)}	Containers, Packaging & Glass	L+9.00%	11.00%	1/6/2019		3,650		3,581		3,528		2.0	%
The Sandbox Group LLC ^(h)	Media: Advertising, Printing & Publishing	L+10.00%	9.00% cash/2.00% PIK	2/23/2020		5,429		5,308		5,128		2.9	%
The Sandbox Group LLC (Revolver) ^(f)	Media: Advertising, Printing & Publishing	L+10.00%	9.00% cash/2.00% PIK	2/23/2020		1,250		1,012		956		0.5	%
TRG, LLC	Hotels, Gaming & Leisure	L+17.92%	11.00% cash/7.92% PIK ^(r)	12/23/2019		3,052		2,999		3,081		1.7	%
TRG, LLC (Revolver) ^(f)	Hotels, Gaming & Leisure	L+12.00%	13.00%	12/23/2019		131		-		-		0.0	%
TRG, LLC (Delayed Draw) ^{(f) (k)}	Hotels, Gaming & Leisure	L+12.00%	13.00%	12/23/2019		-		-		-		0.0	%
TRG, LLC (CapEx) ^(f)	Hotels, Gaming & Leisure	L+12.00%	11.00% Cash/2.00% PIK	12/23/2019		918		454		457		0.3	%
TTM Technologies, Inc.	High Tech Industries	L+5.00%	6.00%	5/31/2021		1,333		1,288		1,247		0.7	%
Vacation Innovations, LLC	Hotels, Gaming & Leisure	L+9.00%	9.50%	8/20/2020		6,250		6,127		6,225		3.5	%
Vacation Innovations, LLC (Revolver) ^(f)	Hotels, Gaming & Leisure	L+9.00%	9.50%	8/20/2020		342		-		-		0.0	%
West World Media, LLC	Media: Diversified & Production	L+11.00%	9.00% Cash/3.00% PIK	5/8/2019		7,805		7,672		7,782		4.3	%
Yandy Holding, LLC	Retail	L+9.00%	10.00%	9/30/2019		6,500		6,418		6,500		3.6	%
Yandy Holding, LLC (Revolver) ^(f)	Retail	L+9.00%	10.00%	9/30/2019		907		-		-		0.0	%
Total Senior Secured Loans						209,976		183,423		185,436		103.1	%

Unitranche Loans
Accutest Corporation	Services: Business	L+9.50%	11.00%	6/5/2018		6,798		6,641		6,349		3.5	%
Collaborative Neuroscience Network, LLC ^(m)	Healthcare & Pharmaceuticals	L+11.50%	13.00%	12/27/2017		7,308		7,211		7,055		3.9	%
Fabco Automotive Corporation	Automotive	L+9.25%	10.25%	4/3/2017		8,344		8,296		4,902		2.7	%
Gracelock Industries, LLC	Wholesale	L+12.05%	11.00% Cash/2.55% PIK ^(s)	5/7/2019		5,282		5,169		4,867		2.7	%
Incipio Technologies, Inc. ⁽ⁿ⁾	Consumer Goods: Non-Durable	L+6.00%	7.00%	12/26/2019		15,000		14,651		14,948		8.3	%
MooreCo, Inc.	Consumer Goods: Durable	L+13.50%	12.50% Cash/2.50% PIK	12/27/2017		4,259		4,208		4,259		2.4	%
Output Services Group, Inc.	Services: Business	L+9.00%	9.50% cash/1.00% PIK	12/17/2018		6,637		6,529		6,624		3.7	%
Output Services Group, Inc.	Services: Business	L+9.00%	9.50% cash/1.00% PIK	12/17/2018		7,408		7,272		7,412		4.1	%
Playtime, LLC ^(m)	Hotels, Gaming & Leisure	L+7.50%	9.00%	12/4/2017		5,827		5,770		5,332		3.0	%
TPP Acquisition, Inc. ^(o)	Retail	L+11.00%	10.50% Cash/2.00% PIK	12/17/2017		6,800		6,727		4,798		2.7	%
TPP Acquisition, Inc. (Revolver) ^(o)	Retail	L+3.00%	4.50%	12/17/2017		2,000		2,000		2,000		1.1	%
TPP Acquisition, Inc. (Delayed Draw) ^{(k) (o)}	Retail	L+11.00%	10.50% Cash/2.00% PIK	12/17/2017		2,212		2,212		1,561		0.9	%
Total Unitranche Loans						77,875		76,686		70,107		39.0	%

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

(unaudited)

September 30, 2015

(in thousands, except for units)

Portfolio Company ^(a)	Industry	Spread Above Index ^(b)	Interest Rate	Maturity	Principal		Amortized Cost		Fair Value ^(c)		% of Net Assets ^(d)
Junior Secured Loans
Confie Seguros Holdings II Co.	Banking, Finance, Insurance & Real Estate	L+9.00%	10.25%	5/8/2019		5,594		5,553		5,584		3.1	%
CSM Bakery Supplies LLC	Beverage, Food & Tobacco	L+7.75%	8.75%	7/3/2021		5,792		5,663		5,532		3.1	%
Education Corporation of America	Services: Consumer	L+11.00%	11.33%	12/31/2018		6,250		6,097		6,094		3.4	%
Hyland Software Inc.	High Tech Industries	L+7.25%	8.25%	7/1/2023		2,000		1,990		1,991		1.1	%
Mergermarket USA, Inc.	Media: Broadcasting & Subscription	L+6.50%	7.50%	12/19/2021		4,500		4,380		4,160		2.3	%
Micro Holding Corp.	High Tech Industries	L+7.50%	8.50%	7/8/2022		3,000		2,978		2,962		1.6	%
Mud Pie, LLC	Consumer Goods: Non-Durable	n/a	10.00% Cash/1.50% PIK	11/4/2020		10,062		9,873		10,263		5.7	%
New NSI Holdings, Inc.	Chemicals, Plastics & Rubber	L+8.25%	9.25%	7/28/2022		4,000		3,940		3,990		2.2	%
Pre-Paid Legal Services, Inc. (Legal Shield)	Services: Consumer	L+9.00%	10.25%	7/1/2020		3,000		2,984		3,007		1.7	%
Physiotherapy Corporation	Healthcare & Pharmaceuticals	L+8.50%	9.50%	6/3/2022		5,000		4,951		5,000		2.8	%
Rocket Dog Brands LLC ^(g)	Consumer Goods: Non-Durable	n/a	15.00% PIK	5/2/2020		1,613		1,612		1,164		0.6	%
Sterling Infosystems, Inc.	Services: Business	L+7.75%	8.75%	6/19/2023		5,000		4,951		4,988		2.8	%
SCP TPZ Acquisition, Inc.	Media: Diversified & Production	L+8.25%	9.25%	5/29/2022		5,000		4,927		4,992		2.8	%
Total Junior Secured Loans						60,811		59,899		59,727		33.2	%

Equity Securities
American Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)^(g)	Banking, Finance, Insurance & Real Estate	-	-	10/9/2024		-		-		292		0.2	%
BookIt Operating LLC (warrant to purchase up to 3.0% of the equity) ^(p)	Hotels, Gaming & Leisure	-	-	12/21/2023		-		-		587		0.3	%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.67 LLC units) ^(p)	Healthcare & Pharmaceuticals	-	-	12/27/2022		-		-		145		0.1	%
Cyalume Technologies Holdings, Inc. - Series D Preferred Stock (3.06 shares)^(p)	Aerospace & Defense	-	-	-		-		-		228		0.1	%
Education Corporation of America - Series G Preferred Stock (8,333 shares) ^(p)	Services: Consumer	n/a	12.00%	-		-		8,125		8,125		4.4	%
InMobi Pte, Ltd. (represents the right to purchase 0.42% of the equity) ^(p)	Media: Advertising, Printing & Publishing	-	-	9/18/2025		-		-		-		0.0	%
O'Brien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company)^(p)	Metals & Mining	-	-	5/13/2024		-		-		-		0.0	%
Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock) ^(p)	Services: Business	-	-	12/17/2022		-		-		607		0.3	%
Playtime, LLC - Preferred Units (8,665 units) ^(p)	Hotels, Gaming & Leisure	-	-	-		-		200		141		0.1	%
Rocket Dog Brands LLC - Common Units (75,502 units) ^(g)	Consumer Goods: Non-Durable	-	-	-		-		-		-		0.0	%
Rocket Dog Brands LLC - Preferred Units (10 units) ^(g)	Consumer Goods: Non-Durable	-	15.00% PIK ^(t)	-		-		967		-		0.0	%
Rockdale Blackhawk, LLC - LLC Units (11.56% of the LLC interest)^(g)	Healthcare & Pharmaceuticals	-	-	-		-		1,093		3,899		2.2	%
Summit Container Corporation (warrant to purchase up to 19.50% of the equity) ^(g)	Containers, Packaging & Glass	-	-	1/6/2024		-		-		-		0.0	%
The Sandbox Group LLC (warrant to purchase up to 1.0% of the equity) ^(p)	Media: Advertising, Printing & Publishing	-	-	-		-				273		0.2	%
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)^(p)	Retail	-	-	-		-		86		110		0.1	%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units) ^(p)	Retail	-	-	-		-		1		-		0.0	%
TPP Acquisition, Inc. (829 shares of common stock) ^(o)	Retail	-	-	-		-		-		-		0.0	%
West World Media, LLC - Class A Membership Units (representing 0.385% of the diluted equity) ^(p)	Media: Diversified & Production	-	-	-		-		-		54		0.0	%
Total Equity Securities						-		10,472		14,461		8.0	%
TOTAL INVESTMENTS							$	330,480	$	329,731		183.3	%

(a)

All of our investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940 except for InMobi Pte, Ltd. which is an international company. All investments are non-controlled/non-affiliate company investments, unless otherwise noted.

(b)

The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at September 30, 2015. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)

Because there is no readily available market value for these investments, the fair value of these investments is determined in good faith by our board of directors as required by the Investment Company Act of 1940. (See Note 4 in the accompanying notes to the consolidated financial statements.)

(d)

Percentages are based on net assets of $179,868 as of September 30, 2015.

(e)

A portion of this loan (principal of $4,739) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(f)

All or a portion of this commitment was unfunded at September 30, 2015. As such, interest is earned only on the funded portion of this commitment.

(g)

As defined in the 1940 Act, the Company is deemed to be an "Affiliated Person" of the portfolio company as it owns five percent or more of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions in which the issuer was an Affiliated Person (but not a portfolio company that the Company is deemed to control).

(h)

All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(i)

A portion of this loan (principal of $1,127) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(j)

A portion of this loan (principal of $2,598) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(k)

This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.

(l)

A portion of this loan (principal of $4,615) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(m)

The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 — Transfers and Servicing, and therefore, the entire unitranche loan asset remains in the Consolidated Schedule of Investments.

(n)

A portion of this loan (principal of $5,500) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility.

(o)

As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and "Control" this portfolio company as it owns more than 25% percent of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.

(p)

Represents less than 5% ownership of the portfolio company's voting securities.

(q)

The PIK portion of the interest rate for Landpoint, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 2.25% per annum and is subject to a minimum payment upon termination of $338.

(r)

A portion of the PIK interest rate for TRG, LLC is structured as a guaranteed fee paid upon the termination of the commitment. The fee accrues at 5.92% per annum and is subject to an estimated minimum payment upon termination of $891.

(s)

The PIK portion of the interest rate for Gracelock Industries, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 2.55% per annum.

(t)

This position includes a PIK dividend and is currently on non-accrual status.

n/a - not applicable

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2014

(in thousands, except for units)

Portfolio Company ^(a)	Industry	Spread Above Index ^(b)	Interest Rate	Maturity	Principal		Amortized Cost		Fair Value ^(c)		% of Net Assets ^(d)
Senior Secured Loans
Alora Pharmaceuticals, LLC ^(e)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	9/13/2018	$	11,282	$	11,082	$	11,277		8.4	%
Alora Pharmaceuticals, LLC (Revolver) ^(f)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	9/13/2018		1,336		-		-		0.0	%
American Community Homes, Inc. ^(g)	Banking, Finance, Insurance & Real Estate	L+8.00%	9.50%	7/22/2019		6,667		6,506		6,577		4.9	%
American Community Homes, Inc. ^(g)	Banking, Finance, Insurance & Real Estate	L+12.50%	9.50% Cash/4.50% PIK	7/22/2019		3,366		3,286		3,404		2.5	%
BCC Software, LLC ^(h)	High Tech Industries	L+8.00%	9.00%	6/20/2019		2,962		2,922		2,973		2.2	%
BCC Software, LLC (Revolver) ^(f)	High Tech Industries	L+8.00%	9.00%	6/20/2019		469		-		-		0.0	%
BookIt Operating LLC ⁽ⁱ⁾	Hotels, Gaming & Leisure	L+14.50%	14.00% Cash/2.00% PIK	1/10/2019		5,655		5,525		5,477		4.1	%
Cornerstone Detention Products, Inc. ^(j)	Construction & Building	L+9.50%	9.50% Cash/1.00% PIK	4/8/2019		4,663		4,581		4,633		3.5	%
Cornerstone Detention Products, Inc. (Revolver) ^(f)	Construction & Building	L+8.50%	9.50%	4/8/2019		400		-		-		0.0	%
Cytovance Biologics, Inc. ^(h)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		2,000		1,952		1,995		1.5	%
Cytovance Biologics, Inc. (Revolver) ^(f)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		1,143		286		286		0.2	%
Cytovance Biologics, Inc. (Capex)^(f)	Healthcare & Pharmaceuticals	L+9.00%	10.00%	10/24/2019		1,143		-		-		0.0	%
EB Employee Solutions, LLC ^(h)	Services: Business	L+8.50%	10.00%	2/28/2019		3,950		3,860		3,930		2.9	%
Fineline Technologies, Inc.	Consumer Goods: Non-Durable	L+6.75%	8.00%	5/6/2017		5,188		5,186		5,234		3.9	%
Landpoint, LLC	Energy: Oil & Gas	L+12.75%	12.00% Cash/2.25% PIK ^(p)	12/20/2018		4,750		4,650		4,698		3.5	%
Landpoint, LLC (Revolver) ^(f)	Energy: Oil & Gas	L+10.50%	12.00%	12/20/2018		313		-		-		0.0	%
L.A.R.K. Industries, Inc.	Construction & Building	L+10.00%	11.50%	9/3/2019		6,993		6,827		7,004		5.2	%
Luxury Optical Holdings Co.	Retail	L+9.00%	9.00% Cash/1.00% PIK	9/12/2019		4,002		3,926		4,000		3.0	%
Luxury Optical Holdings Co. (Revolver) ^(f)	Retail	L+8.00%	9.00%	9/12/2019		273		-		-		0.0	%
Miles Media Group LLC	Hotels, Gaming & Leisure	L+8.50%	9.50%	9/12/2019		3,980		3,904		3,996		3.0	%
Miles Media Group LLC (Delayed Draw) ^{(f) (k)}	Hotels, Gaming & Leisure	L+8.50%	9.50%	9/12/2019		1,600		-		-		0.0	%
Miles Media Group LLC (Revolver) ^(f)	Hotels, Gaming & Leisure	L+8.50%	9.50%	9/12/2019		320		160		160		0.1	%
O'Brien Industrial Holdings, LLC	Metals & Mining	L+11.50%	11.00% Cash/2.00% PIK	5/13/2019		6,567		6,420		6,563		4.9	%
O'Brien Industrial Holdings, LLC (Revolver)^(f)	Metals & Mining	L+9.50%	11.00%	5/13/2019		2,844		-		-		0.0	%
Pacific Labs, LLC ^(h)	Healthcare & Pharmaceuticals	L+10.50%	11.50%	10/28/2019		5,466		5,346		5,493		4.1	%
Pacific Labs, LLC (Delayed Draw) ^(k)	Healthcare & Pharmaceuticals	L+10.50%	11.50%	10/28/2019		1,833		-		-		0.0	%
PD Products, LLC	Consumer Goods: Non-Durable	L+10.50%	12.00%	10/4/2018		13,126		12,979		13,093		9.8	%
PD Products, LLC (Revolver)^(f)	Consumer Goods: Non-Durable	L+10.50%	12.00%	10/4/2018		2,500		1,225		1,224		0.9	%
Rocket Dog Brands LLC ^(g)	Consumer Goods: Non-Durable	n/a	10.00%	5/2/2019		1,007		1,007		1,007		0.8	%
SHI Holdings, Inc. ^(h)	Healthcare & Pharmaceuticals	L+9.25%	9.42%	7/10/2019		2,925		2,858		2,919		2.2	%
SHI Holdings, Inc. (Revolver)^(f)	Healthcare & Pharmaceuticals	L+9.25%	9.42%	7/10/2019		818		355		355		0.3	%
SNI Companies ^(l)	Services: Business	L+8.00%	9.00%	12/31/2018		6,072		5,953		6,075		4.5	%
SNI Companies (Revolver) ^(f)	Services: Business	L+8.00%	9.00%	12/31/2018		1,250		750		750		0.6	%
Summit Container Corporation ^{(g) (h)}	Containers, Packaging & Glass	L+9.00%	11.00%	1/6/2019		3,800		3,712		3,838		2.9	%
TRG, LLC	Hotels, Gaming & Leisure	L+17.92%	11.00% Cash/7.92% PIK ^(q)	12/23/2019		3,010		2,950		2,950		2.2	%
TRG, LLC (Revolver) ^(f)	Hotels, Gaming & Leisure	L+10.00%	11.00%	12/23/2019		131		-		-		0.0	%
TRG, LLC (Delayed Draw) ^{(f) (k)}	Hotels, Gaming & Leisure	L+10.00%	11.00%	12/23/2019		790		-		-		0.0	%
West World Media, LLC	Media: Diversified & Production	L+11.00%	9.00% Cash/3.00% PIK	5/8/2019		7,743		7,599		7,747		5.8	%
Yandy Holding, LLC	Retail	L+9.00%	10.00%	9/30/2019		6,500		6,406		6,503		4.9	%
Yandy Holding, LLC (Revolver)^(f)	Retail	L+9.00%	10.00%	9/30/2019		907		-		-		0.0	%
Total Senior Secured Loans						139,744		122,213		124,161		92.8	%

MONROE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS – (continued)

December 31, 2014

(in thousands, except for units)

Portfolio Company ^(a)	Industry	Spread Above Index ^(b)	Interest Rate	Maturity	Principal		Amortized Cost		Fair Value ^(c)		% of Net Assets ^(d)
Unitranche Loans
Accutest Corporation	Services: Business	L+7.50%	9.00%	6/5/2018		7,435		7,243		6,952		5.2	%
Collaborative Neuroscience Network, LLC ⁽ⁿ⁾	Healthcare & Pharmaceuticals	L+11.50%	13.00%	12/27/2017		8,057		7,936		7,602		5.7	%
Conisus, LLC	Media Advertising, Printing & Publishing	L+7.00%	8.25%	12/27/2017		10,660		10,412		10,628		7.9	%
Consolidated Glass Holdings, Inc.	Capital Equipment	L+12.50%	11.50% Cash/2.00% PIK	4/17/2017		3,645		3,645		3,665		2.7	%
Escort Holdings Corp.	Consumer Goods: Durable	L+9.00%	9.50%	10/7/2018		14,711		14,487		14,630		10.9	%
Fabco Automotive Corporation	Automotive	L+9.25%	10.25%	4/3/2017		8,062		8,005		5,482		4.1	%
FTJFundChoice, LLC	Banking, Finance, Insurance & Real Estate	L+10.00%	11.50%	7/17/2017		3,000		3,000		3,060		2.3	%
Gracelock Industries, LLC	Wholesale	L+12.05%	11.00% Cash/2.55% PIK ^(r)	5/7/2019		5,604		5,466		5,624		4.2	%
Incipio Technologies, Inc. ^(h)	Consumer Goods: Non-Durable	L+6.00%	7.00%	12/26/2019		5,500		5,363		5,362		4.0	%
MooreCo, Inc.	Consumer Goods: Durable	L+13.50%	12.50% Cash/2.50% PIK	12/27/2017		4,605		4,532		4,651		3.5	%
Output Services Group, Inc.	Services: Business	L+10.00%	10.50% cash/1.00% PIK	12/17/2018		11,929		11,696		11,911		8.9	%
Playtime, LLC ⁽ⁿ⁾	Hotels, Gaming & Leisure	L+7.50%	9.00%	12/4/2017		6,277		6,197		5,540		4.1	%
The Tie Bar Operating Company, LLC	Retail	L+8.50%	9.75%	6/25/2018		5,100		4,995		5,108		3.8	%
TPP Acquisition, Inc. ^(m)	Retail	L+13.00%	12.50% Cash/2.00% PIK	12/17/2017		6,698		6,603		6,420		4.8	%
Total Unitranche Loans						101,283		99,580		96,635		72.1	%

Junior Secured Loans
Confie Seguros Holdings II Co.	Banking, Finance, Insurance & Real Estate	L+9.00%	10.25%	5/8/2019		3,594		3,569		3,593		2.7	%
CSM Bakery Supplies LLC	Beverage, Food & Tobacco	L+7.75%	8.75%	7/3/2021		3,000		2,990		2,900		2.2	%
Pre-Paid Legal Services, Inc. (Legal Shield)	Services: Consumer	L+8.50%	9.75%	7/1/2020		3,000		2,973		2,940		2.2	%
Rocket Dog Brands LLC ^(g)	Consumer Goods: Non-Durable	n/a	15.00% PIK	5/2/2020		1,444		1,444		1,370		1.0	%
Total Junior Secured Loans						11,038		10,976		10,803		8.1	%

Equity Securities
American Community Homes, Inc. (warrant to purchase up to 9.0% of the equity)^(g)	Banking, Finance, Insurance & Real Estate	-	-	10/9/2024		-		-		182		0.1	%
BookIt Operating LLC (warrant to purchase up to 4.2% of the equity) ^(o)	Hotels, Gaming & Leisure	-	-	12/21/2023		-		-		436		0.3	%
Collaborative Neuroscience Network, LLC (warrant to purchase up to 1.67 LLC units) ^(o)	Healthcare & Pharmaceuticals	-	-	12/27/2022		-		-		2		0.0	%
Monte Nido Residential Center, LLC - Class A Units Common Units (1,762 units) ^(o)	Services: Consumer	-	-	-		-		74		74		0.1	%
O'Brien Industrial Holdings, LLC (warrants to purchase up to 2.44% of certain affiliated entities of the company)^(o)	Metals & Mining	-	-	5/13/2024		-		-		-		0.0	%
Output Services Group, Inc. (warrant to purchase up to 3.89% of the common stock) ^(o)	Services: Business	-	-	12/17/2022		-		-		617		0.5	%
Playtime, LLC - Preferred Units (8,665 units) ^(o)	Hotels, Gaming & Leisure	-	-	-		-		200		96		0.1	%
Rocket Dog Brands LLC - Common Units (75,502 units) ^(g)	Consumer Goods: Non-Durable	-	-	-		-		-		-		0.0	%
Rocket Dog Brands LLC - Preferred Units (10 units) ^(g)	Consumer Goods: Non-Durable	-	15.00% PIK ^(s)	-		-		967		77		0.1	%
Summit Container Corporation (warrant to purchase up to 19.50% of the equity) ^(g)	Containers, Packaging & Glass	-	-	1/6/2024		-		-		141		0.1	%
The Tie Bar Operating Company, LLC - Class A Preferred Units (1,275 units)^(o)	Retail	-	-	-		-		87		110		0.1	%
The Tie Bar Operating Company, LLC - Class B Preferred Units (1,275 units) ^(o)	Retail	-	-	-		-		1		-		0.0	%
TPP Acquisition, Inc. (829 shares of common stock) ^(m)	Retail	-	-	-		-		-		201		0.0	%
Total Equity Securities						-		1,329		1,936		1.4	%
TOTAL INVESTMENTS							$	234,098	$	233,535		174.4	%

(a)

All of our investments are issued by eligible U.S. portfolio companies, as defined in the Investment Company Act of 1940. All investments are non-controlled/non-affiliate company investments, unless otherwise noted.

(b)

The majority of the investments bear interest at a rate that may be determined by reference to London Interbank Offered Rate (“LIBOR” or “L”) or Prime (“P”) which reset daily, monthly, quarterly, or semiannually. For each the Company has provided the spread over LIBOR or Prime and the current contractual interest rate in effect at December 31, 2014. Certain investments are subject to a LIBOR or Prime interest rate floor.

(c)

(d)

Percentages are based on net assets of $133,738 as of December 31, 2014.

(e)

A portion of this loan (principal of $4,656) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.

(f)

All or a portion of this commitment was unfunded at December 31, 2014. As such, interest is earned only on the funded portion of this commitment.

(g)

(h)

All of this loan is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.

(i)

A portion of this loan (principal of $2,939) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.

(j)

A portion of this loan (principal of $2,798) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.

(k)

This delayed draw loan requires that certain financial covenants be met by the portfolio company prior to any fundings.

(l)

A portion of this loan (principal of $3,238) is held in the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP and is therefore not collateral to the Company’s revolving credit facility discussed in Note 7 in the accompanying notes to the consolidated financial statements.

(m)

As defined in the 1940 Act, the Company is deemed to be both an "Affiliated Person" of and to "Control" this portfolio company as it owns more than 25% percent of the portfolio company's voting securities. See Note 5 in the accompanying notes to the consolidated financial statements for additional information on transactions which the issuer was both an Affiliated Person and a portfolio company that the Company is deemed to Control.

(n)

The sale of a portion of this loan does not qualify for sale accounting under ASC Topic 860 — Transfers and Servicing, and therefore, the entire unitranche loan asset remains in the Consolidated Schedule of Investments. (See Note 7 in the accompanying notes to the consolidated financial statements.)

(o)

Represents less than 5% ownership of the portfolio company’s voting securities.

(p)

(q)

(r)

The PIK portion of the interest rate for Gracelock Industries, LLC is structured as a fee paid upon the termination of the commitment. The fee accrues at 2.55% per annum.

(s)

This position includes a PIK dividend and is currently on non-accrual status.

n/a – not applicable

See Notes to Consolidated Financial Statements.

MONROE CAPITAL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(in thousands, except share and per share data)

Note 1. Organization and Principal Business

Monroe Capital Corporation (“Monroe Capital” and together with its subsidiaries, the “Company”) was formed in February 2011 to act as an externally-managed nondiversified, closed-end management investment company and has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). The Company had no substantive operating activities prior to October 24, 2012, the date of its initial public offering. Monroe Capital’s investment objective is to maximize the total return to its stockholders in the form of current income and capital appreciation through investment in senior secured, junior secured and unitranche (a combination of senior secured and junior secured debt in the same facility) debt and, to a lesser extent, unsecured subordinated debt and equity investments. Monroe Capital is managed by Monroe Capital BDC Advisors, LLC (“MC Advisors”), a registered investment adviser under the Investment Advisers Act of 1940, as amended. In addition, for U.S. federal income tax purposes, Monroe Capital has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).

On February 6, 2015, the Company entered into an at-the-market (“ATM”) securities offering program with MLV & Co. LLC and JMP Securities LLC through which the Company may sell, by means of ATM offerings from time to time, up to $50,000 of the Company’s common stock. The Company has sold $4,823 (325,927 shares) under the ATM program through September 30, 2015. On April 20, 2015, the Company closed a public offering of 2,450,000 shares of its common stock at a public offering price of $14.85 per share, raising approximately $36,383 in gross proceeds. On May 18, 2015, the Company sold an additional 367,500 shares of its common stock, at a public offering price of $14.85 per share, raising approximately $5,457 in gross proceeds pursuant to the underwriters’ exercise of the over-allotment option. See Note 9 for additional information on share issuances.

On February 28, 2014, the Company’s wholly-owned subsidiary, Monroe Capital Corporation SBIC, LP (“MRCC SBIC”), a Delaware limited partnership, received a license from the Small Business Administration (“SBA”) to operate as a Small Business Investment Company (“SBIC”) under Section 301(c) of the Small Business Investment Company Act of 1958, as amended. MRCC SBIC commenced operations on September 16, 2013. As of September 30, 2015, MRCC SBIC had $20,000 in regulatory and leveragable capital and $40,000 in SBA-guaranteed debentures outstanding.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The accompanying consolidated financial statements of the Company and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6 or 10 of Regulation S-X. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC Topic 946”).

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Consolidation

As permitted under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries, MRCC SBIC and its wholly-owned general partner MCC SBIC GP, LLC, in its consolidated financial statements beginning with the commencement of their operations in September 2013.

Fair Value of Financial Instruments

The Company applies fair value to substantially all of its financial instruments in accordance with ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC Topic 820”). ASC Topic 820 defines fair value, establishes a framework used to measure fair value, and requires disclosures for fair value measurements, including the categorization of financial instruments into a three-level hierarchy based on the transparency of valuation inputs. See Note 4 to the consolidated financial statements for further discussion regarding the fair value measurements and hierarchy.

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Company’s revolving credit facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. The Company believes that the carrying value of its revolving credit facility approximates the fair value.

Revenue Recognition

The Company’s revenue recognition policies are as follows:

Investments and related investment income: Interest and dividend income is recorded on the accrual basis to the extent that the Company expects to collect such amounts. Interest and dividend income is accrued based upon the outstanding principal amount and contractual terms of debt and preferred equity investments. Interest is accrued on a daily basis. All other income is recorded into income when earned. The Company records prepayment fees and amendment fees on loans as interest income in the period earned. For the three and nine months ended September 30, 2015, interest income included $117 and $1,242 of prepayment and amendment fees, respectively. For the three and nine months ended September 30, 2014, interest income included $387 and $792 of prepayment and amendment fees, respectively. Dividend income is recorded as dividends when declared or at the point an obligation exists for the portfolio company to make a distribution. Distributions of earnings from portfolio companies are evaluated to determine if the distribution is income or a return of capital.

Loan origination fees, original issue discount and market discount or premiums are capitalized, and the Company then amortizes such amounts using the effective interest method as interest income over the life of the investment. Unamortized discounts and loan origination fees totaled $6,047 and $4,002 as of September 30, 2015 and December 31, 2014, respectively. Upfront loan origination and closing fees received for the three and nine months ended September 30, 2015 totaled $1,102 and $2,650, respectively. For the three and nine months ended September 30, 2015, interest income included $308 and $787 of accretion of loan origination fees, original issue discounts and market discounts or premiums, respectively. For the three and nine months ended September 30, 2014, interest income included $169 and $480 of accretion of loan origination fees, original issue discounts and market discounts or premiums, respectively. Upon the prepayment of a loan or debt security, any unamortized premium or discount or loan origination fees are recorded as interest income. For the three and nine months ended September 30, 2015, interest income included $159 and $930 of unamortized discount or loan origination fees recorded as interest income upon prepayment of a loan or debt security, respectively. For the three and nine months ended September 30, 2014, interest income included $223 and $595 of unamortized discount or loan origination fees recorded as interest income upon prepayment of a loan or debt security, respectively.

The Company has certain investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision, which represents contractual interest or dividends that are added to the principal balance and recorded as income. For the three and nine months ended September 30, 2015, interest income included $453 and $1,494 of PIK interest, respectively. For the three and nine months ended September 30, 2014, interest income included $292 and $621 of PIK interest, respectively. The Company stops accruing PIK interest when it is determined that PIK interest is no longer collectible. To maintain RIC tax treatment, and to avoid corporate tax, substantially all of this income must be paid out to stockholders in the form of distributions, even though the Company has not yet collected the cash.

Investment transactions are recorded on a trade-date basis. Realized gains or losses on portfolio investments are calculated based upon the difference between the net proceeds from the disposition and the amortized cost basis of the investment, without regard to unrealized gains and losses previously recognized. Realized gains and loss are recorded within net realized gain (loss) on investments in the consolidated statements of operations. Changes in the fair value of investments from the prior period, as determined by the Company’s board of directors (the “Board”) through the application of the Company’s valuation policy, are included within net change in unrealized appreciation (depreciation) on investments in the consolidated statements of operations.

Non-accrual: Loans or preferred equity securities are placed on non-accrual status when principal, interest or dividend payments become materially past due, or when there is reasonable doubt that principal, interest or dividends will be collected. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal, interest or dividends are paid and, in management’s judgment, are likely to remain current. During the nine months ended September 30, 2015 and 2014, no loans were on non-accrual status. During the nine months ended September 30, 2014, the Company’s investments in one portfolio company was restructured and as part of the restructuring the Company received preferred units with a stated PIK interest rate. These preferred units were placed on non-accrual status at the time of the restructuring and remain on non-accrual status. There were no other portfolio company investments on non-accrual status for three and nine months ended September 30, 2015 and 2014.

Partial loan sales: The Company follows the guidance in ASC Topic 860 — Transfers and Servicing (“ASC Topic 860”), when accounting for loan participations and other partial loan sales. Such guidance requires a participation or other partial loan sale to meet the definition of a “participating interest,” as defined in the guidance, in order for sale treatment to be allowed. Participations or other partial loan sales which do not meet the definition of a participating interest remain on the Company’s consolidated statements of assets and liabilities and the proceeds are recorded as a secured borrowing until the definition is met. For these partial loan sales, the interest earned on the entire loan balance is recorded within “interest income” and the interest earned by the buyer in the partial loan sale is recorded within “interest and other debt financing expenses” in the accompanying consolidated statements of operations. Changes in the fair value of secured borrowings from the prior period, as determined by the Board through the application of the Company’s valuation policy, are included as changes in unrealized appreciation (depreciation) on secured borrowings in the consolidated statements of operations. See Note 7 “Secured Borrowings” for additional information.

Distributions

Distributions to common stockholders are recorded on the record date. The amount, if any, to be distributed is determined by the Board each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed at least annually, although the Company may decide to retain such capital gains for investment.

The determination of the tax attributes for the Company’s distributions is made annually, based upon its taxable income for the full year and distributions paid for the full year. Ordinary dividend distributions from a RIC do not qualify for the preferential tax rate on qualified dividend income from domestic corporations and qualified foreign corporations, except to the extent that the RIC received the income in the form of qualifying dividends from domestic corporations and qualified foreign corporations. The tax attributes for distributions will generally include both ordinary income and capital gains, but may also include qualified dividends or return of capital.

The Company has adopted a dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends on behalf of its stockholders, unless a stockholder has elected to receive dividends in cash. As a result, if the Company declares a cash dividend, the Company’s stockholders who have not “opted out” of the DRIP at least three days prior to the dividend payment date will have their cash dividend automatically reinvested into additional shares of the Company’s common stock. The Company has the option to satisfy the share requirements of the DRIP through the issuance of new shares of common stock or through open market purchases of common stock by the DRIP plan administrator. Newly issued shares are valued based upon the final closing price of the Company’s common stock on a date determined by the Board. Shares purchased in the open market to satisfy the DRIP requirements will be valued based upon the average price of the applicable shares purchased by the DRIP plan administrator, before any associated brokerage or other costs. See Note 8 regarding distributions for additional information.

Earnings per Share

In accordance with the provisions of ASC Topic 260 — Earnings per Share (“ASC Topic 260”), basic earnings per share is computed by dividing earnings available to common shareholders by the weighted average number of shares outstanding during the period. The weighted average shares outstanding utilized in the calculation of earnings per share take into account share issues under the ATM program on the issuance date and the Company’s repurchases of its common stock on the repurchase date. See Note 9 for additional information on the Company’s share issuances and repurchases. For the periods presented in these consolidated financial statements, there were no potentially dilutive common shares issued.

Segments

In accordance with ASC Topic 280 — Segment Reporting, the Company has determined that it has a single reporting segment and operating unit structure.

Cash

The Company deposits its cash in a financial institution and, at times, such balances may be in excess of the Federal Deposit Insurance Corporation insurance limits.

Deferred Financing Costs

Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. As of September 30, 2015 and December 31, 2014, the Company had deferred financing costs of $2,603 and $2,479, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the estimated average life of the borrowings. Amortization of deferred financing costs for the three and nine months ended September 30, 2015 was $185 and $553, respectively. Amortization of deferred financing costs for the three and nine months ended September 30, 2014 was $149 and $418, respectively.

Offering Costs

Offering costs include, among other things, fees paid in relation to legal, accounting, regulatory and printing work completed in preparation of equity offerings. Offering costs are charged against the proceeds from equity offerings within the consolidated statements of changes in net assets. As of September 30, 2015 and December 31, 2014, other assets on the consolidated statements of assets and liabilities included $286 and $341, respectively, of deferred offering costs which will be charged against the proceeds from further equity offerings when received.

Income Taxes

The Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment available to RICs. To maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and asset diversification requirements and distribute to shareholders, for each taxable year, at least 90% of the Company’s “investment company taxable income,” which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company qualifies as a RIC and satisfies the annual distribution requirement, the Company will not have to pay corporate-level federal income taxes on any income that the Company distributes to its shareholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible federal excise taxes if the Company does not distribute at least 98% of net ordinary income, 98.2% of any capital gain net income, if any, and any recognized and undistributed income from prior years for which it paid no federal income taxes. To the extent that the Company determines that its estimated current year annual taxable income may exceed estimated current year dividend distributions, the Company accrues excise tax, if any, calculated as 4% of the estimated excess taxable income as taxable income is earned. For the three and nine months ended September 30, 2015, zero and $3 was recorded within general and administrative expenses for U.S. federal excise tax, respectively. For the three and nine months ended September 30, 2014, no amount was recorded within general and administrative expenses for U.S. federal excise tax, respectively.

The Company accounts for income taxes in conformity with ASC Topic 740 — Income Taxes (“ASC Topic 740”). ASC Topic 740 provides guidelines for how uncertain tax positions should be recognized, measured, presented and disclosed in the consolidated financial statements. ASC Topic 740 requires the evaluation of tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. There were no material uncertain income tax positions through September 30, 2015. The 2014, 2013 and 2012 tax years remain subject to examination by U.S. federal and state tax authorities.

Recent Accounting Pronouncements

In February 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-02, Consolidation (ASC Topic 810): Amendments to the Consolidation Analysis (“ASU 2015-02”). ASU 2015-02 significantly changes the consolidation analysis required under GAAP and ends the deferral granted to investment companies from applying the variable interest entity guidance. ASU 2015-02 is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. ASU 2015-03 is effective for fiscal years that begin after December 15, 2015 and early adoption is permitted. Management is currently evaluating the impact these changes will have on the Company’s consolidated financial statements and disclosures.

Note 3. Investments

The following table shows the composition of the investment portfolio, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

	September 30, 2015				December 31, 2014
Amortized Cost:
Senior secured loans	$	183,423	55.5	%	$	122,213	52.2	%
Unitranche loans		76,686	23.2			99,580	42.5
Junior secured loans		59,899	18.1			10,976	4.7
Equity securities		10,472	3.2			1,329	0.6
Total	$	330,480	100.0	%	$	234,098	100.0	%

	September 30, 2015				December 31, 2014
Fair Value:
Senior secured loans	$	185,436	56.2	%	$	124,161	53.2	%
Unitranche loans		70,107	21.3			96,635	41.4
Junior secured loans		59,727	18.1			10,803	4.6
Equity securities		14,461	4.4			1,936	0.8
Total	$	329,731	100.0	%	$	233,535	100.0	%

The following table shows the composition of the investment portfolio by geographic region, at amortized cost and fair value (with corresponding percentage of total portfolio investments). The geographic composition is determined by the location of the corporate headquarters of the portfolio company, which may not be indicative of the primary source of the portfolio company’s business:

	September 30, 2015				December 31, 2014
Amortized Cost:
West	$	109,749	33.2	%	$	76,642	32.7	%
Southeast		68,069	20.6			55,136	23.6
Northeast		56,171	17.0			26,077	11.1
Midwest		44,089	13.4			45,434	19.4
Southwest		41,030	12.4			23,566	10.1
Mid-Atlantic		6,641	2.0			7,243	3.1
International		4,731	1.4			—	—
Total	$	330,480	100.0	%	$	234,098	100.0	%

	September 30, 2015				December 31, 2014
Fair Value:
West	$	105,417	32.0	%	$	73,055	31.3	%
Southeast		69,666	21.1			56,164	24.1
Northeast		57,307	17.4			27,178	11.6
Midwest		43,693	13.3			46,348	19.8
Southwest		42,627	12.9			23,838	10.2
Mid-Atlantic		6,349	1.9			6,952	3.0
International		4,672	1.4			—	—
Total	$	329,731	100.0	%	$	233,535	100.0	%

The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value (with corresponding percentage of total portfolio investments):

	September 30, 2015				December 31, 2014
Amortized Cost:
Healthcare & Pharmaceuticals	$	50,159	15.2	%	$	29,814	12.7	%
Consumer Goods: Non-Durable		45,046	13.6			28,170	12.0
Services: Business		36,143	10.9			29,502	12.6
Services: Consumer		26,987	8.2			3,048	1.3
Hotels, Gaming & Leisure		21,509	6.5			18,936	8.1
Retail		21,452	6.5			22,017	9.4
Construction & Building		18,189	5.5			11,409	4.9
Banking, Finance, Insurance & Real Estate		16,956	5.1			16,361	7.0
Media: Diversified & Production		12,599	3.8			7,599	3.3
High Tech Industries		11,880	3.6			2,922	1.2
Media: Advertising, Printing & Publishing		11,051	3.4			10,412	4.5
Energy: Oil & Gas		9,157	2.8			4,650	2.0
Automotive		8,296	2.5			8,005	3.4
Metals & Mining		7,759	2.3			6,420	2.7
Aerospace & Defense		6,356	1.9			—	—
Beverage, Food & Tobacco		5,663	1.7			2,990	1.3
Wholesale		5,169	1.6			5,466	2.3
Media: Broadcasting & Subscription		4,380	1.3			—	—
Consumer Goods: Durable		4,208	1.3			19,020	8.1
Chemicals, Plastics & Rubber		3,940	1.2			—	—
Containers, Packaging & Glass		3,581	1.1			3,712	1.6
Capital Equipment		—	—			3,645	1.6
Total	$	330,480	100.0	%	$	234,098	100.0	%

	September 30, 2015				December 31, 2014
Fair Value:
Healthcare & Pharmaceuticals	$	54,470	16.5	%	$	29,929	12.8	%
Consumer Goods: Non-Durable		44,762	13.5			27,367	11.7
Services: Business		36,948	11.2			30,235	12.9
Services: Consumer		27,249	8.3			3,014	1.3
Hotels, Gaming & Leisure		21,874	6.6			18,655	8.0
Retail		19,024	5.8			22,342	9.6
Construction & Building		18,337	5.5			11,637	5.0
Banking, Finance, Insurance & Real Estate		17,150	5.2			16,815	7.2
Media: Diversified & Production		12,828	3.9			7,747	3.3
High Tech Industries		11,144	3.4			2,973	1.3
Media: Advertising, Printing & Publishing		11,029	3.3			10,628	4.5
Energy: Oil & Gas		9,318	2.8			4,698	2.0
Metals & Mining		7,549	2.3			6,563	2.9
Aerospace & Defense		6,811	2.1			—	—
Beverage, Food & Tobacco		5,532	1.7			2,900	1.2
Automotive		4,902	1.5			5,483	2.3
Wholesale		4,867	1.5			5,624	2.4
Consumer Goods: Durable		4,259	1.3			19,281	8.3
Media: Broadcasting & Subscription		4,160	1.3			—	—
Chemicals, Plastics & Rubber		3,990	1.2			—	—
Containers, Packaging & Glass		3,528	1.1			3,979	1.7
Capital Equipment		—	—			3,665	1.6
Total	$	329,731	100.0	%	$	233,535	100.0	%

Note 4. Fair Value Measurements

Investments

The Company values all investments in accordance with ASC Topic 820. ASC Topic 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

ASC Topic 820 establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

•

Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.

•

Level 2 — Valuations based on inputs other than quoted prices in active markets, which are either directly or indirectly observable.

•

Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The inputs into the determination of fair value may require significant management judgment or estimation. Such information may be the result of consensus pricing information or broker quotes which include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimer would result in classification as Level 3 information, assuming no additional corroborating evidence.

With respect to investments for which market quotations are not readily available, the Company’s Board undertakes a multi-step valuation process each quarter, as described below:

•

the quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of MC Advisors responsible for the portfolio investment;

•

preliminary valuation conclusions are then documented and discussed with the investment committee of the Company;

•

the Board also engages one or more independent valuation firm(s) to conduct independent appraisals of a selection of investments for which market quotations are not readily available. The Company will consult with independent valuation firm(s) relative to each portfolio company at least once in every calendar year, and for new portfolio companies, at least once in the twelve-month period subsequent to the initial investment;

•

the audit committee of the Board reviews the preliminary valuations of MC Advisors and of the independent valuation firm(s) and responds and supplements the valuation recommendations to reflect any comments; and

•

the Board discusses these valuations and determines the fair value of each investment in the portfolio in good faith, based on the input of MC Advisors, the independent valuation firm(s) and the audit committee.

The availability of valuation techniques and observable inputs can vary from investment to investment and is affected by a wide variety of factors including the type of investment, whether the investment is new and not yet established in the marketplace, and other characteristics particular to the transaction. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Because of the inherent uncertainty of valuation, those estimated values may be materially higher or lower than the values that would have been used had a ready market for the securities existed. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement.

Fair value is a market-based measure considered from the perspective of a market participant rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, assumptions utilized in the valuation are set to reflect those that market participants would use in pricing the asset or liability at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many securities. This condition could cause an investment to be reclassified to a lower level within the fair value hierarchy.

The accompanying consolidated schedules of investments held by the Company consist primarily of private debt instruments (“Level 3 debt”). Management generally uses the yield approach to determine fair value, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, the Company may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. The Company considers its Level 3 debt to be performing loans if the borrower is not in default, the borrower is remitting payments in a timely manner; the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Company considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Company will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

Senior, unitranche and junior secured loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating, and are based on current market conditions and credit ratings of the borrower. The contractual interest rates on the loans ranged between 4.50% and 18.92% at September 30, 2015 and 7.00% and 18.92% at December 31, 2014. The maturity dates on the loans outstanding at September 30, 2015 range between April 2017 and July 2023. Management evaluates the collectability of the loans on an ongoing basis based upon various factors including, but not limited to, the credit history of the borrower, its financial status and its available collateral.

Under the yield approach, the Company uses discounted cash flow models to determine the present value of the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the yield approach, the Company also considers the following factors: applicable market yields and leverage levels, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made. This evaluation will be updated quarterly for Level 3 debt instruments that are performing and are not performing, respectively, and more frequently for time periods where there are significant changes in the investor base or significant changes in the perceived value of the underlying collateral. The collateral value will be analyzed on an ongoing basis using internal metrics, appraisals, third-party valuation agents and other data as may be acquired and analyzed by the Company.

Under the market approach, the Company typically uses the enterprise value methodology to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which the Company derives a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, the Company analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio company’s historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public. Typically, the enterprise values of private companies are based on multiples of earnings before interest, income taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues, or in limited cases, book value.

Under the income approach, the Company prepares and analyzes discounted cash flow models based on projections of the future free cash flows (or earnings) of the portfolio company. In determining the fair value under the income approach, the Company considers various factors including, but not limited to, the portfolio company’s projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public.

Secured Borrowings

The Company has elected the fair value option under ASC Topic 825 — Financial Instruments (“ASC Topic 825”) relating to accounting for debt obligations at their fair value for its secured borrowings which arose due to partial loan sales which did not meet the criteria for sale treatment under ASC Topic 860. The Company reports changes in the fair value of its secured borrowings within net change in unrealized (appreciation) depreciation on secured borrowings in the consolidated statements of operations. The net gain or loss reflects the difference between the fair value and the principal amount due on maturity.

Due to the absence of a liquid trading market for these secured borrowings, they are valued by calculating the net present value of the future expected cash flow streams using an appropriate risk-adjusted discount rate model. The discount rate considers projected performance of the related loan investment, applicable market yields and leverage levels, credit quality, prepayment penalties and comparable company analysis. The Company consults with an independent valuation firm relative to the fair value of its secured borrowings at least once in every calendar year.

Fair Value Disclosures

The following table presents fair value measurements of investments and secured borrowings, by major class, as of September 30, 2015, according to the fair value hierarchy:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investments:
Senior secured loans	$	—	$	—	$	185,436	$	185,436
Unitranche loans		—		—		70,107		70,107
Junior secured loans		—		—		59,727		59,727
Equity securities		—		—		14,461		14,461
Total Investments	$	—	$	—	$	329,731	$	329,731

Secured borrowings	$	—	$	—	$	2,843	$	2,843

The following table presents fair value measurements of investments and secured borrowings, by major class, as of December 31, 2014, according to the fair value hierarchy:

	Fair Value Measurements
	Level 1		Level 2		Level 3		Total
Investments:
Senior secured loans	$	—	$	—	$	124,161	$	124,161
Unitranche loans		—		—		96,635		96,635
Junior secured loans		—		—		10,803		10,803
Equity securities		—		—		1,936		1,936
Total Investments	$	—	$	—	$	233,535	$	233,535

Secured borrowings	$	—	$	—	$	4,008	$	4,008

The following tables provide a reconciliation of the beginning and ending balances for investments and secured borrowings that use Level 3 inputs for the three and nine months ended September 30, 2015:

	Investments
	Senior secured loans			Unitranche loans			Junior secured loans			Equity securities			Total investments			Secured borrowings
Balance as of June 30, 2015	$	163,434		$	65,207		$	49,841		$	4,031		$	282,513		$	3,450
Net change in unrealized appreciation (depreciation) on investments		(373	)		(1,590	)		(300	)		2,381			118			—
Net realized gain (loss) on investments		—			—			—			167			167			—
Purchases of investments and other adjustments to cost ⁽¹⁾		30,484			7,412			10,592			8,123			56,611			—
Proceeds from principal payments and sales on investments ⁽²⁾		(8,109)			(922)			(406	)		(241	)		(9,678	)		—
Net change in unrealized appreciation (depreciation) on secured borrowings		—			—			—			—			—			43
Proceeds from secured borrowings		—			—			—			—			—			—
Repayments on secured borrowings		—			—			—			—			—			(650	)
Balance as of September 30, 2015	$	185,436		$	70,107		$	59,727		$	14,461		$	329,731		$	2,843

	Investments
	Senior secured loans		Unitranche loans		Junior secured loans			Equity securities			Total investments		Secured borrowings
Balance as of December 31, 2014	$	124,161	$	96,635	$	10,803		$	1,936		$	233,535	$	4,008
Net change in unrealized appreciation (depreciation) on investments		65		(3,634)		(1	)		3,382			(188)		—
Net realized gain (loss) on investments		—		—		—			167			167		—
Purchases of investments and other adjustments to cost ⁽¹⁾		90,182		16,277		49,331			9,217			165,007		—
Proceeds from principal payments and sales on investments ⁽²⁾		(28,972)		(39,171)		(406	)		(241	)		(68,790)		—
Net change in unrealized appreciation (depreciation) on secured borrowings		—		—		—			—			—		35
Proceeds from secured borrowings		—		—		—			—			—		—
Repayments on secured borrowings		—		—		—			—			—		(1,200)
Balance as of September 30, 2015	$	185,436	$	70,107	$	59,727		$	14,461		$	329,731	$	2,843

⁽¹⁾

Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

⁽²⁾

Represents net proceeds from investments sold and principal paydowns received.

	Investments
	Senior secured loans			Unitranche loans			Junior secured loans			Equity securities		Total investments			Secured borrowings
Balance as of June 30, 2014	$	121,127		$	89,756		$	25,417		$	1,360	$	237,660		$	6,527
Reclassifications⁽¹⁾		—			—			—			—		—			—
Net change in unrealized appreciation (depreciation) on investments		276			(961	)		(114	)		172		(627	)		—
Net realized gain (loss) on investments		72			—			22			—		94			—
Purchases of investments and other adjustments to cost ⁽²⁾		31,998			113			639			—		32,750			—
Proceeds from principal payments and sales on investments ⁽³⁾		(15,661	)		(9,102	)		(10,457	)		—		(35,220	)		—
Net change in unrealized appreciation (depreciation) on secured borrowings		—			—			—			—		—			(96	)
Proceeds from secured borrowings		—			—			—			—		—			—
Repayments on secured borrowings		—			—			—			—		—			(525	)
Balance as of September 30, 2014	$	137,812		$	79,806		$	15,507		$	1,532	$	234,657		$	5,906

	Investments
	Senior secured loans			Unitranche loans			Junior secured loans			Equity securities		Total investments			Secured borrowings
Balance as of December 31, 2013	$	88,963		$	96,217		$	22,335		$	405	$	207,920		$	7,943
Reclassifications⁽¹⁾		(2,276	)		—			1,309			967		—
Net change in unrealized appreciation (depreciation) on investments		2,063			(3,352	)		(81)			160		(1,210	)		—
Net realized gain (loss) on investments		169			—			130			—		299			—
Purchases of investments and other adjustments to cost ⁽²⁾		90,493			933			13,061			—		104,487			—
Proceeds from principal payments and sales on investments ⁽³⁾		(41,600	)		(13,992	)		(21,247	)		—		(76,839	)		—
Net change in unrealized appreciation (depreciation) on secured borrowings		—			—			—			—		—			(164	)
Proceeds from secured borrowings		—			—			—			—		—			—
Repayments on secured borrowings		—			—			—			—		—			(1,873	)
Balance as of September 30, 2014	$	137,812		$	79,806		$	15,507		$	1,532	$	234,657		$	5,906

⁽¹⁾

Represents reclassifications due to restructuring of the investments in portfolio companies.

⁽²⁾

Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

⁽³⁾

Represents net proceeds from investments sold and principal paydowns received.

The total change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2015, attributable to Level 3 investments still held at September 30, 2015, was $118 and $560, respectively. The total change in unrealized appreciation (depreciation) included in the consolidated statements of operations within net change in unrealized appreciation (depreciation) on investments for the three and nine months ended September 30, 2014, attributable to Level 3 investments still held at September 30, 2014, was ($380) and ($755), respectively. The total change in unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the three and nine months ended September 30, 2015, attributable to Level 3 investments still held at September 30, 2015, was ($43) and ($35), respectively. The total change in unrealized (appreciation) depreciation included in the consolidated statements of operations within net change in unrealized (appreciation) depreciation on secured borrowings for the three and nine months ended September 30, 2014, attributable to Level 3 investments still held at September 30, 2014, was $96 and $164, respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 during the three and nine months ended September 30, 2015 and 2014.

Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner. The tables below are not intended to be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Company.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets and liabilities as of September 30, 2015 were as follows:

									Range
	Fair Value			Valuation Technique	Unobservable Input	Mean			Minimum			Maximum
Assets:
Senior secured loans	$	167,103		Discounted cash flow	EBITDA multiples		6.6	x		2.3	x		11.5	x
					Market yields		12.3	%		6.5	%		21.0	%
Senior secured loans		1,007		Enterprise value	Revenue multiples		0.5	x		0.5	x		0.5	x
Unitranche loans		56,846		Discounted cash flow	EBITDA multiples		6.3	x		4.8	x		7.5	x
					Market yields		15.2	%		11.0	%		24.1	%
Unitranche loans		4,902		Combination of discounted cash flow and enterprise value	EBITDA multiples		4.3	x		4.0	x		4.5	x
					Market yields		28.1	%		25.2	%		31.0	%
Unitranche loans		8,358		Enterprise value	EBITDA multiples		4.3	x		4.0	x		4.5	x
Junior secured loans		14,253		Discounted cash flow	EBITDA multiples		8.4	x		7.3	x		9.5	x
					Market yields		11.2	%		10.0	%		12.6	%
Junior secured loans		1,164		Enterprise value	Revenue multiples		0.5	x		0.5	x		0.5	x
Equity securities		6,226		Enterprise value	EBITDA multiples		6.4	x		2.3	x		11.5	x
Total Level 3 Assets	$	259,859	⁽¹⁾

Liabilities:
Secured borrowings	$	2,843		Discounted cash flow	Market yields		7.1	%		3.4	%		10.9	%

⁽¹⁾

Excludes loans of $69,872 fair value where valuation is obtained from a third-party pricing service for which such disclosure is not required.

The valuation techniques and significant unobservable inputs used in recurring Level 3 fair value measurements of assets as of December 31, 2014 were as follows:

Range

Fair Value

Valuation
Technique

Unobservable Input

Mean

Minimum

Maximum

Assets:

Senior secured loans

120,204

Discounted cash flow