Monroe Capital Corp (MRCC) 2018 Q4 法說會逐字稿

Welcome to Monroe Capital Corporation's Fourth Quarter and Full Year 2018 Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during today -- this call today may contain forward-looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results or cash flows.

Although we believe statements are reasonably based on management's estimates, assumptions and projections as of today, March 6, 2019, these statements are guarantees of future -- are not guarantees of future performance. Further time-sensitive information may no longer be accurate as of the time of any replay or listening.

Actual results may differ materially as a result of risks, uncertainty or other factors, including, but not limited to, the factors described, from time to time, in the company's filings with the SEC. Monroe Capital takes no obligation to update or revise these forward-looking statements.

I will now turn the conference over to Ted Koenig, Chief Executive Officer of Monroe Capital Corporation. You may begin.

Good morning, and thank you, everyone, who has joined us on our call today. As always, I'm joined by Aaron Peck, our CFO and Chief Investment Officer. Last evening, we issued our fourth quarter and full year 2018 earnings press release and filed our 10-K with the SEC.

For the fourth quarter, we have had both an exciting and boring quarter in one. We, again, generated adjusted net investment income of $0.38 per share, exceeding our fourth quarter dividend of $0.35 per share. This represents the 19th consecutive quarter we have covered our dividend with adjusted net investment income.

We are very proud to have been able to maintain a $0.35 per share dividend fully covered by adjusted net investment income. This is a testament to the overall Monroe Capital firm platform scale, our unique origination capabilities and our credit, underwriting, and portfolio management process.

At quarter-end, our investment portfolio had a fair value of $553.6 million, a $71.3 million or a 15% increase from the prior quarter end and included investments in 74 companies across 23 different industry classifications. The increase in the size of the portfolio was primarily due to an increase in new deal fundings during the quarter, including a large level of fundings occurring very late in the quarter.

In the quarter, we had a $115.5 million of investment fundings, partially offset by $38.3 million of sales, repayments and prepayment activity. We have continued the new deal momentum into the early part of 2019 with net fundings of an additional $37.6 million through March 4. This new deal momentum and asset growth is the direct result of our proprietary deal origination team located in 6 offices throughout the U.S. and our broad industry vertical coverage of the following areas, including business services, healthcare, technology, software, specialty finance and of course, the middle-market private equity community.

In addition, on March 1, we completed an amendment and extension of our revolving credit facility with ING Capital as agents, which increased the maximum amount of borrowings under the facility from $200 million to $255 million, extended the maturity to March 2024, reduced our required asset coverage ratio covenant from 1.5 to 1 -- to 2 to 1 and decreased pricing from LIBOR plus 2.75% to LIBOR plus 237.5 (sic - see press release, "2.375%"). We believe that this amendment will give us ample room to continue our portfolio growth in order to increase our regulatory leverage and drive improved returns for our shareholders.

As of December 31, our largest position, not including investments in our MRCC Senior Loan Fund joint venture, which we refer to as our SLF, represented 3.7% of the portfolio; and our 10 largest positions, excluding our investment in the SLF, were 30.3% of the portfolio. Our portfolio was heavily concentrated in senior secured loans and specifically first lien secured loans. 93.7% of our portfolio consists of secured loans and approximately 90% is first lien secured.

We are pleased with the construction, diversity and the senior secured nature of our investment portfolio at this point in the credit cycle.

As of the end of the fourth quarter, our SLF had experienced portfolio growth to $172.3 million in fair value, a 28% increase from the $134.9 million at fair value at the end of the prior quarter.

The weighted average yield in the SLF portfolio increased to 7.6% from 7.4% at the end of the prior quarter.

As of quarter end, the SLF had outstanding at its leverage facility, $101 million -- $101.1 million at a rate of approximately 5% or LIBOR plus 2.25%.

As we have discussed in the past, Monroe Capital Corporation, MRCC, is well positioned for future interest rate increases. Most all of our loan portfolio is invested in floating rate debt with rate floors. Given the current LIBOR level, we have surpassed the level of the LIBOR floors on all of our loans, and therefore, MRCC is situated to meaningfully benefit from any increase in short-term interest rates going forward.

In addition, we have $115 million outstanding in fixed rate debt from our SBA debentures and $69 million outstanding in fixed rate debt from the recently issued 2023 notes, which will allow a significant interest rate arbitrage on any interest -- increase in interest rates in the future.

We have worked purposefully to create approximately $184 million of fixed rate liabilities going into this next credit cycle. The recent amendment and upsize of our revolving credit facility provides us with both a significant amount of additional borrowing capacity and the flexibility to take advantage of the reduced asset coverage ratio requirement so that we may implement the regulatory relief from the Small Business Credit Availability Act.

I am now going to turn the call over to Aaron, who is going to discuss the financial results in more detail.

Thank you, Ted. During the quarter, we funded a total of $113.5 million in loan investments. Additionally, we funded $2 million in equity to the SLF. This growth was offset by sales and complete prepayments on 5 deals and partial repayments on other portfolio assets, which aggregated $38.5 million during the quarter.

As Ted mentioned, since quarter end, we have grown the portfolio by a net $37.6 million investing in 8 new companies and experiencing a payoff on one company. At December 31, we had total borrowings of $320 million, including $136 million outstanding under our revolving credit facility, $69 million of our 2023 notes and the SBA debentures payable of $115 million.

Future portfolio growth will be predominantly funded by the substantial availability remaining under our revolving credit facility, which was recently increased due to the amendment and extension we closed on March 1 and announced yesterday evening.

As of December 31, our net asset value was $258.8 million, which was down marginally from the $264.8 million in net asset value as of September 30.

Our NAV per share decreased from $12.95 per share at September 30 to $12.66 per share as of December 31. This decrease was primarily as a result of unrealized mark-to-market valuation adjustments. There was significant short-term widening of credit spreads at the end of December. This widening of spreads caused valuations to decline temporarily for most of the positions in our portfolio. We estimate that nearly half of our per share NAV decline in the quarter occurred as a result of the widening of spreads.

As it stands today, based on the year-to-date tightening of general credit spreads, we would expect to see a partial reversal of fourth quarter's unrealized losses related to credit spread widening in the first quarter.

Outside of general spread widening, in the fourth quarter, we took an unrealized markdown on the preferred equity investment in Education Corporation of America or ECA. In our role as lender and preferred equity holder, we have no part in managing ECA, formulating any strategy or executing that strategy.

As part of an attempt to restructure the business and to exit unprofitable locations, the company and its management chose to file for federal court receivership. The U.S. Department of Education denied ongoing access to regular federal student aid and the company could not sustain working capital and was forced to liquidate its assets. This was an unexpected outcome. The company continues to maintain assets, including ownership of a chain of for-profit schools, which continues to operate and is presently being marketed for sale.

At this time, we believe that the remaining debt that we hold in ECA is covered by assets of the estate. While we took a significant write-down on our ECA preferred equity, we believe that there are avenues to pursue some future value for this holding and that belief is reflected in the current valuation. However, due to the uncertainty over the timing and the amount of recovery on our ECA investments, we place them on nonaccrual status in the fourth quarter.

Turning to our results. For the quarter ended December 31, adjusted net investment income, a non-GAAP measure, was $7.8 million or $0.38 per share, a slight increase when compared to the prior quarter. At this level, per share adjusted NII comfortably exceeded our quarterly dividend of $0.35 per share.

We believe that the full quarter impact of portfolio investments made during the fourth quarter, coupled with continued portfolio growth this quarter, should increase our corporate share NII. We continue to believe that our adjusted NII can cover our dividend assuming no other material changes in our portfolio.

Looking to our statement of operations. Total investment income for the quarter was $14.8 million compared to $13.8 million in the prior quarter. The increase in total investment income for the quarter was primarily a result of an increase in interest income, primarily -- principally due to portfolio growth, an increase in fee income and increased dividend income from the SLF, partially offset by a decrease in dividend income as a result of placing the ECA preferred equity on nonaccrual.

While we experienced prepayment activity in the quarter, due to the older vintage of many of these loans, there was no appreciable amount of prepayment penalty due.

Moving over to the expense side. Total expenses for the quarter of $7 million included $3.8 million of interest and other debt financing expenses, $2.3 million in base management fees and $0.9 million in general, administrative and other expenses. Total expenses increased by $1 million during the quarter, primarily driven by an increase in interest and other debt financing expenses, again, primarily as a result in our borrowings growth to support the growth of the portfolio.

Our fourth quarter incentive fees were again reduced due to the total return requirement in our shareholder-friendly management agreement. As for our liquidity. As of December 1, we had approximately $64 million of capacity under our revolving credit facility. As of the end of the quarter, we had fully drawn all of our available $115 million in SBA debentures.

As previously discussed, we have recently increased our availability under our revolving credit facility with ING Capital, which increases our borrowing capacity.

As of September 31, the SLF -- as of December 31, the SLF had investments in 50 different borrowers aggregating $174.3 million at fair value, with a weighted average interest rate of approximately 7.6%. SLF had borrowings under our nonrecourse credit facility of $101.1 million. As of January 9, 2019, SLF closed an amendment to increase the commitments under its credit facility from $150 million to $170 million. We would expect the SLF to continue to grow over the next few quarters.

I will now turn the call back to Ted for some closing remarks before we open the line for questions.

Thank you, Aaron. Since going public with our IPO in 2012, we have generated a 45% cash-on-cash return for our shareholders based on changes in NAV and dividends paid since our IPO assuming no reinvestment of dividends. We believe that this performance compares very favorably to our peers and puts MRCC in a small group of BDCs that have delivered this level of performance for shareholders. Based on our pipeline of both committed and anticipated deals, we expect to continue our new investment momentum for the remainder of the year, with growth in both our core portfolio and within the SLF.

We believe that Monroe Capital Corporation provides a very attractive investment opportunity to our shareholders and other investors for the following reasons: One, our stock pays a current dividend rate of over 11%; two, our dividend is fully supported by consistent adjusted net investment income coverage for the last 19 straight quarters; three, we have a very friendly shareholder external adviser management agreement in place that limits incentive management fees payable in periods where there's any material decline in our net asset value; and four, we are affiliated with a best-in-class external manager with 6 offices throughout the U.S., over 100 employees and over $7 billion in assets under management.

MRCC is one of the few BDCs that has access to distinct proprietary deal flow, which should result in differentiated returns and an increase in shareholder value over the long term.

Thank you all for your time today. And with that, I'm going to ask the operator to open the call up for questions.

(Operator Instructions) Our first question comes from Chris Kotowski of Oppenheimer & Co.

First, on the SLF, I was wondering, if I looked at their balance sheet, it looked levered roughly 2.2 to 1. And what is the leverage limit on that? And how might -- when do you have to put in more capital? And I guess, I'll start with that?

Yes, good question, Chris. So I mean, there technically isn't an expressed leverage limitation on the SLF, but there are clearly going to be reasonable limitations on what you could generate in terms of leverage from a credit facility. And so typically, credit facilities for assets like those sort of cap out around a 70-ish, 72% advance rate on first lien middle-market loans. So that would be probably the most leverage we could get. So it really shouldn't get considerably above 2 to 1 or 2.2 to 1. That's probably realistically about the leverage limitation given the asset mix today that we would expect to see there.

Okay. Great. And then secondly, just the incentive fee for this quarter, it's not a waiver, it's just under the terms of the -- as I understand it, right, they're under the terms of the -- your agreement. You didn't earn it because of the NAV erosion earlier. When I tried to use your formula to calculate when you might be back kind of fully accruing it, I got second or third quarter of this year. Am I thinking about that roughly correctly?

I wish I could give you a real answer to the question. It has everything to do with where the NAV of the portfolio is in any given quarter, and the performance on NII and dividends paid to shareholders. So it just depends on what happens each quarter going forward, and then it's formulaic -- as you said, it's formulaic. And so it's difficult for me to predict today with any certainty, when incentive fees would be on. And as you probably know, it's not a binary trigger either and they could be on in partially or they could be on fully, it just depends on where we are with regards to NAV.

Okay. Yes, well, I guess, I was assuming NAV stabilizes from here?

It's possible there could be some incentive fee earned in the first quarter if NAV was flat. I wouldn't expect we'd be in a position to earn an entire incentive fee. And I would think, if everything else was equal, then probably in the second quarter is when you could start seeing a full incentive fee payable, all things being equal.

Our next question comes from Christopher Nolan of Ladenburg Thalmann.

High-tech industries increased to around 31% of the portfolio, if I'm reading it correctly from 19%. Should we expect further growth there?

Yes, Chris, it's Ted. We've been very lucky in that we've become one of the go-to lenders in the software industry. That's a great place to put assets to work today because it's very high yielding cash flow. And we've been very focused on using our knowledge base as well as our industry vertical experience to continue to grow that. That said, I think we're probably at or near the spot we want to be there from a concentration standpoint.

Well, I'll just add. Chris, I don't know where you saw 30%. We don't have anywhere near 30% of the portfolio. It's about 16.9% of the portfolio at the end of the quarter is my understanding when I'm looking here at the industry mix. So that's what the high-tech industry's vertical looks like today in terms of percentage of portfolio. It could go up a little bit, it would never be at 30%.

Got you. Okay. And then on Incipio. Is -- Incipio is nonaccrual. Was it nonaccrual last quarter? Just it wasn't clear in the Q?

Yes. So let be clear on this because this generates a lot of confusion. The entire Incipio credit is not on nonaccrual. As part of a restructuring of Incipio, we acquired tranche of Incipio debt. It's a third lien tranche for basically very little value. And because we didn't pay for that tranche, we put that on nonaccrual. The rest of the -- and it was on -- that tranche was on nonaccrual last period as well. The rest of the Incipio debt is on accrual status and we expect to be fully paid on that on the rest of the Incipio debt. So I just want to make sure that that's clear.

Okay. So it's the part with the 0 cost and the $1.2 million fair value or so, if I'm reading correctly?

Yes, just the third lien tranche.

Great. And then final question, Rockdale. I might have missed it in your comments, Aaron. You don't expect a resolution on this in 2019, right?

We may have a resolution in 2019. We just don't have one yet. We would expect sometime in the second half of the year based on what we've been hearing is when we would expect a resolution.

Our next question comes from Tim Hayes from B. Riley FBR.

I guess, I really just kind of have one and just maybe an update on some of your watchlist credits and maybe you could just remind us what is currently rated for? And then, there's a few credits like Bluestem or Worth that are currently marked at pretty hefty discounts to par and they decreased a little bit during the quarter, not sure if those were company-specific or volatility-related? If you could just give us an idea of maybe some of the credits that you're keeping an eye on that maybe aren't on nonaccrual yet would be appreciated.

Yes. So Bluestem is one that's a traded name. And so some of the weakness in the quarter, I suspect, is related to just general spread widening. But that's also been a name that has been slow to recover, although we still expect a recovery there, but it's not a name that we agent, we are just a participant in that deal, specifically.

There's not really any real updates. We haven't -- didn't have any real changes in the quarter with regards to movements between categories. So it was a pretty benign credit quarter with regards to where things moved in terms of our risk rating. We continue to have -- the obvious names ECA and Rockdale are names that are 4 rated. One other name that's in a 4 rating category is Luxury Optical, which is a name that we're seeing some positive momentum on with regards to potential resolution.

And then, I think, the other 2 are Curion, which really hasn't seen much change, but we also expect a good recovery on and expect that to turn around over time. And I think the other is Summit. Those are the 4-rated names. The only 5-rated name is Millennial Brands and frankly, at this point, we don't expect any recovery on what we hold there, but it hasn't -- we do technically still hold the piece of paper that hasn't been fully resolved.

Got it. That's helpful. Appreciate that. And then, I guess, I was -- I haven't done the math to see what the difference between the write-up in costs versus fair value was. I guess, maybe I would be a little surprised that the Senior Loan Fund wasn't marked down a little bit more since it's a little bit more upper middle market or just broader middle market versus lower middle market. I was just wondering if -- maybe why the market wasn't more negative there?

Sure. So just to be clear, I mean, the way that the equity gets marked on that JV is that every single asset is a traded asset and they all get marked based on the actual market level of trading at the end of the year. So it does reflect a full change in value based on the marks of the individual assets.

And it's a little probably difficult to follow in our financials because we increased the equity and so I see how it's -- could be difficult to follow exactly what the effect is -- effect was on the marks and the individual assets. But it is one of the benefits of playing in sort of the middle market more clubby syndicated middle market versus the broadly syndicated market, which is it tends to be a little bit less volatile than the general market and then we tend to choose names that we think are very high quality and on average they tend to move a little bit less than the market in general because there's a better name.

And so all I can tell you is that it fully reflects a complete marking of every single asset. And I think if you look through and do the math, it looks like it's about 1 point on the portfolio down from sort of a par mark on average to around a 99 mark. And about, I'd say, greater than 2/3 of that portfolio is priced by a pricing service that reflects actual market trading levels and then the rest would be marked by a pricing -- independent pricing provider like we do with the rest of the portfolio.

Our next question comes from Christopher Testa from National Securities Corp.

Could you guys give us a sense of how many -- what the composition of the portfolio originated in 2015 and before is? Just a rough estimate if you have it?

That's a tough one. The best way to try to figure that out, on average, we typically write a 5-year loan. And so if you look at maturities and you can sort of do a little bit of math and most of the time you'd be right, but not all the time because things change and they have repricing and extensions. So that's a difficult question for me to answer off-line, right on the line here, I just don't know the answer to that. That's something we could try to follow up in the future on, but today, I don't have a good answer for you.

Okay. That's fair. And I know you guys have upsized and successfully amended the credit facility. Just wondering maybe looking a little further out, what your thoughts are on different sources of financing especially given you guys kind of have a brand name in middle market CLOs potentially doing a securitization or something like that, that could potentially be done at really attractive rates?

Yes, that's a good question, Christopher. We've looked at -- we've had a lot of inbound interest and we're, obviously, talking to people all the time about bonds, baby bonds, converts, securitization. I think when the time comes, that we feel it's in the best interest of the shareholders and we get the right type of structure, we'll certainly look at that. I think the securitization is a good thought. I think we need a little more scale to do that, but once we get that scale, don't be surprised if you see us executing that.

Got it. Okay. And with the only thing, I guess, that would kind of persuade you not to do that be the consideration of replenishing assets in that? Or is there more to it than that kind of might put the brakes on that?

No, I think, it's a -- it's been a good tool for those that have used it, and I think that once we get a little more scale, I think, it makes sense for us as well.

Yes, I mean a typical CLO, Chris, would have at least $300 million of assets and potentially larger. And given our current asset base, I think the thought process is it's probably too large of a percentage of the assets to be in one financing vehicle like that. If we had a lot bigger asset base, then it would start to make more and more sense as we diversify funding sources.

Right. Okay. That makes sense, Aaron. And just curious, I know you guys have mentioned in one of the earlier responses, the SLF has levered a bit over 2x. Obviously, you have the SBIC that's levered roughly 2x. Just wondering how you think about this in the context of overall economic leverage as you guys are now permitted to go beyond 1x on a regulatory basis?

Yes. Good question. So as you'll see when you look at our balance sheet, today, we have regulatory leverage at the end of the year around 0.79 or 0.88, so considerably below the limit of what's allowed and -- but it's considerably higher leverage than what we had in the quarter before. So we're still on a path to try to increase our leverage to a reasonable level. Total leverage on a non-regulatory basis is about 1.25x.

And so the way we're thinking about it today is, we still would like to see our regulatory leverage get above 1 to 1, and we'll reassess once we're there. I think we just want to see sort of where we -- getting there is the first step and then from there we'll have to see where the portfolio is, what the market looks like and then we can address whether we want to go out and push the leverage higher.

I don't think any of us ever expect to take complete and full advantage of the new regulatory limits and be at that limit, but we certainly can push higher than where we are in terms of leverage and we intend to do that and then, as I said, we'll reassess at that point.

Got it. So you're comfortable with the regulatory leverage being potentially over 1x even if total leverage is, I don't know, back of the napkin, 1.4x on an all-in basis?

Yes. I mean, we're, obviously, always looking at both of those things. And so we'll be always looking at total leverage and regulatory leverage. But based on where we are today, yes, we would be comfortable pushing regulatory leverage above 1 to 1.

Our next question comes from Chris York of JMP Securities.

Tom Wenk in this morning for Chris York. Most of them have been answered, but I got a few on just plans for 2019. With the increase in leverage recently, do you guys plan on doing any sort of share buybacks in 2019?

I'm not sure what the leverage -- how that's related to the idea of doing a share buyback. But at this point, we have not discussed with our board the idea of doing a share buyback given that we're trading relatively close to book value at this point.

Got it. And talking about the JV, have you guys considered or maybe had any conversations about consolidating the JV on to the balance sheet?

Yes. So it's a good question. Obviously, there've been a few BDCs that have announced their intention to consolidate their JV with the change in the asset coverage ratio rule. At this time, we haven't made any decisions regarding changing the SLF JV, but having said that, we're constantly setting our opportunities to grow MRCC and to create shareholder value. So we'll continue to study this. And if we think it's the right thing to do for shareholders to make the change, we'll do it, we'll let you know. But at this point, we haven't made any decisions like that.

Our next question comes from Bob Napoli of -- with William Blair.

Question -- the SLF, what do you -- what would you hope to have that deliver to the earnings of the company, I guess, ignore the ROE, I would say, 3 to 5 year -- over the next 3 to 5 years?

Yes, good question, Bobby. We've always sort of targeted that to generate kind of a low-double digit ROE. That's the hope and plan for it. Around 10% to 11% was kind of where we're targeting and hoping that we can do that. And so far, we're on track to do that as we continue to make better use of -- efficient use of the leverage there. So that's how we think about it.

We don't have any final decisions on what we would do with regards to growing it once we get past our original commitment, which was $50 million from each party, $100 million of equity. And so over time, we'll have to make some decisions if we want to increase it or do other things with it, but at this point, that's kind of how we're thinking about it.

Great. And then, the growth that you've seen in fourth quarter and continued into the first quarter, pretty good acceleration. Why -- what has driven the acceleration in the growth? And then, how -- what is your view of the competitive environment today and the U.S. economy, maybe?

Okay. That's a number of questions rolled into one. So I'll try and hit each one of them. The market is good. I will tell you that. From a strategic industry standpoint, this is a really good time to be in our business. The default rates are low. Companies are generally performing. Christmas came early to a lot of companies and borrowers with the tax cut legislation last year. There's a lot of extra free cash flow that wasn't really anticipated in anybody's 3- to 5-year plan, with tax cuts, accelerated depreciation.

Purchase price multiples are high. They continue to stay high, and there's lots of capital slogging around in the system whether it's PE money that has been raised in the form of dry powder or whether it's guys in the BDC world or in the private credit world with plenty of liquidity. So the transaction market is good.

And PE firms are taking this opportunity I think to rotate out and sell because they're able to realize nice long-term returns as well as go back and set their track records and raise new funds. That makes business good for people in our industry as lenders, because when the purchase price multiples are 9x, 10x, 11x, 12x, is what we're seeing in kind of the middle-market space. If you look at our portfolio on the whole, on a weighted average basis, we're less than 4 turns of EBITDA in our loans. So when we're lending at 4 turns and companies are trading at 9, 10, 11, 12 turns, that's a really good arbitrage, and we should be able to do pretty well if we're minding the store in our business.

We've been lucky as a platform. Our platform as a whole has grown at a 30% CAGR in the last 10 years. That's 30% compounded per year and 2018 was no different and 2019, I'm planning for the same 30% growth in our portfolio as a whole as a firm.

Now the advantage that MRCC has is it accounts for about 10% of our total firm AUMs probably about 8.5% exactly. And that means that because we allocate pro-rata across the board, MRCC gets a disproportionate benefit to all that origination pool and all that proprietary deal flow without having to put forth the infrastructure, the staff and all the overhead fixed cost to do that because the firm -- platform is driving that flow in the product.

So when you look at our 15% increase in AUMs quarter-over-quarter, last quarter and this quarter is off to another really strong start. MRCC is getting the benefit of being affiliated with the Monroe Capital platform and that's the challenge when you look at the market in general today and in our industry, the firms, the few firms that have a significant platform, where the BDC is just one element of that platform. Generally, those BDCs are performing well. And when you look at the BDCs that are standalone BDCs, that's a compete with a platform like ours or other large platforms.

It's very difficult to hire and pay what you need to pay in the market for the origination professionals, the underwriting professionals, the credit professionals, the portfolio management professionals, treasury, accounting, finance, in the back office. And our back offices accounts for roughly 50% of our employees.

So you start to see the economies of scale and why there really, I think, is going to be a further differentiation of firms like MRCC in 2019 and from the pack. So that's a short, long answer to your 3 questions.

And the economy, Ted, your view looking at -- I mean, your mix of businesses has changed a lot towards -- more towards technology, less retail, but you view the U.S. economy as stable or mixed? Are you seeing -- where are you seeing pockets of strength or weakness?

Yes. I think the one word is stable. I think there's pockets of strength. I mean, the pockets of strength that are in software, in healthcare, that's more dynamic healthcare and not commodity type healthcare, business services, technology, digital, I think those are areas that are dynamic and will be growing.

I think that, that U.S. economy has some challenges and that's in retail, brick-and-mortar retail, in somewhat retail distribution, in areas of commodity type healthcare like imaging and in testing, where there's a big push by insurance companies and by payors to bring cost down. We're very, very focused on watching areas of high cyclicity.

I think autos, we're going to see some challenges there. Going forward, it was announced that unit sales were down and that ripples through the industry. I think that home sales are down. So you're going to see things that are tied to home sales. So I think, commodities, metals, mining, those areas continue to -- we're cautious there.

So I think that part of the advantage that we have and kind of where I sit, is we've got 350 portfolio companies throughout our platform, and we're in all 30 of the Moody's industry classes. And there's a bunch of those industry classes that I think are -- we're green lighting. And there's several that are yellow lighting and there's a handful that are red lighting for us right now.

So I think, in general, I'm happy with where we are in the economy. I think 2019 is going to be a very, very good year for Monroe Capital, in general, and I think also for MRCC. As we get into 2020, mid-2020, I think, we're being very cautious because that's the time period that I'm thinking is going to be more challenging for the environment -- for the business climate.

And this concludes our Q&A portion for today. I'd like to turn the call back to Mr. Ted Koenig for closing comments.

Thank you very much. We greatly appreciate everyone joining us on our call this morning. We're very thankful for the coverage we've received, for the efforts that all of you put forth. And we will continue to work hard and do our jobs to generate returns for our shareholders and for the overall Monroe platform investors as well.

So thanks, again. Enjoy the day, and come visit us in Chicago. This is the ideal time to visit because the weather is nice and the hotels are cheap. So have a nice day, everyone.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Everyone have a wonderful day.