Monroe Capital Corporation

03/05/2026 | Press release | Distributed by Public on 03/05/2026 16:02

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our audited consolidated financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. In addition to historical information, the following discussion and other parts of this Annual Report on Form 10-K contain forward-looking information that involves risks and uncertainties.
Please see "Risk Factors" and "Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements.
Overview
Monroe Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, for U.S. federal income tax purposes, we have elected to be treated as a regulated investment company ("RIC") under Subchapter M of the U.S. Internal Revenue Code of 1986, as amended (the "Code"). We currently qualify and intend to continue to qualify annually to be treated as a RIC for U.S. federal income tax purposes.
We are a specialty finance company that is focused on providing financing solutions primarily to lower middle-market companies in the United States and Canada. We provide customized financing solutions focused primarily on senior secured, junior secured and unitranche secured (a combination of senior secured and junior secured debt in the same facility in which we syndicate a "first out" portion of the loan to an investor and retain a "last out" portion of the loan) debt and, to a lesser extent, unsecured subordinated debt and equity, including equity co-investments in preferred and common stock, and warrants.
Our shares are currently listed on the Nasdaq Global Select Market under the symbol "MRCC".
Our investment objective is to maximize the total return to our stockholders in the form of current income and capital appreciation through investment in senior secured, unitranche secured and junior secured debt and, to a lesser extent, unsecured subordinated debt and equity investments. We seek to use our extensive leveraged finance origination infrastructure and broad expertise in sourcing loans to invest in primarily senior secured, unitranche secured and junior secured debt of middle-market companies. Our investments will generally range between $2.0 million and $40.0 million each, although this investment size may vary proportionately with the size of our capital base. As of December 31, 2025, our portfolio included approximately 78.6% senior secured loans, 0.7% unitranche secured loans, 10.5% junior secured loans and 10.2% equity investments, compared to December 31, 2024, when our portfolio included approximately 78.3% senior secured loans, 0.8% unitranche secured loans, 6.5% junior secured loans and 14.4% equity investments. The companies in which we invest may be leveraged, often as a result of leveraged buyouts or other recapitalization transactions, and, in many cases, will not be rated by national ratings agencies. If such companies were rated, we believe that they would typically receive a rating below investment grade (between BB and CCC under the Standard & Poor's system) from the national rating agencies.
While our primary focus is to maximize current income and capital appreciation through debt investments in thinly traded or private U.S. companies, we may invest a portion of the portfolio in opportunistic investments in order to seek to enhance returns to stockholders. Such investments may include investments in real estate, specialty finance, litigation finance, fund finance, high-yield bonds, distressed debt, private equity or securities of public companies that are not thinly traded and securities of middle-market companies located outside of the United States. We expect that these public companies generally will have debt investments that are non-investment grade.
Merger Agreement with Horizon Technology Finance Corporation
On August 7, 2025, we entered into an Agreement and Plan of Merger (the "Merger Agreement") with Horizon Technology Finance Corporation, a Delaware corporation ("HRZN"), HMMS, Inc., a Maryland corporation and wholly owned subsidiary of HRZN ("Merger Sub"), MC Advisors, and Horizon Technology Finance Management LLC, a Delaware limited liability company and investment adviser to HRZN. The Merger Agreement provides that, subject to the conditions set forth in the Merger Agreement, immediately following the Asset Sale (as defined below) and at the effective time of the Merger, Merger Sub will merge with and into us, with us continuing as the surviving company and as a wholly-owned subsidiary of HRZN and, immediately thereafter, we will merge with and into HRZN, with HRZN continuing as the surviving company (collectively, the "Merger"). See "Note 6. Transaction with Related Parties-Merger Agreement with Horizon Technology Finance Corporation" in the notes to our consolidated financial statements in this Annual Report on Form 10-K for a description of the terms of the Merger Agreement and the transactions contemplated by the Merger Agreement.
Asset Purchase Agreement with Monroe Capital Income Plus Corporation
On August 7, 2025, we entered into an Asset Purchase Agreement (the "Asset Purchase Agreement") with Monroe Capital Income Plus Corporation, a Maryland corporation ("MCIP"), and MC Advisors, pursuant to which, subject to the satisfaction or waiver of the closing conditions set forth in the Asset Purchase Agreement, on the closing date of the transactions contemplated by the Asset Purchase Agreement (the "Closing Date"), MCIP will acquire our investment assets at fair value, as determined shortly before the Closing Date, for cash (the "Asset Sale" and together with the Merger, the "Transactions"). Under the Asset Purchase Agreement, the Asset Sale is contingent upon, and will become effective immediately prior to the effectiveness of, the Merger.
Following the Asset Sale, our only assets will be the net cash proceeds from the sale after giving effect to the receipt of proceeds from the Asset Sale, repayment of liabilities, transaction costs and distribution of undistributed net investment income. Pursuant to and subject to the terms and conditions of the Merger Agreement, subsequent to the closing of the Asset Sale, which is currently anticipated to occur near the end of the first quarter or early in the second quarter of this year, we will merge with HRZN. See "Note 6. Transactions with Related Parties-Asset Purchase Agreement with Monroe Capital Income Plus Corporation" in the notes to our consolidated financial statements in this Annual Report on Form 10-K for a description of the terms of the Asset Purchase Agreement and the transactions contemplated by the Asset Purchase Agreement.
On January 20, 2026, we filed a definitive joint proxy statement/prospectus with the SEC in connection with the Transactions, and we have scheduled a special meeting of stockholders for March 13, 2026 to seek stockholder approval of the proposals described therein.
Investment income
We generate interest income on the debt investments in portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, unitranche secured or junior secured debt, typically have an initial term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. In some cases, our investments provide for deferred interest of payment-in-kind ("PIK") interest. In addition, we may generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums and prepayment gains (losses) on loans as interest income. As the frequency or volume of the repayments which trigger these prepayment premiums and prepayment gains (losses) may fluctuate significantly from period to period, the associated interest income recorded may also fluctuate significantly from period to period. Interest and other income is recorded on the accrual basis to the extent we expect to collect such amounts. Interest 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. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recorded as other income in the period the service is completed.
Dividend income on preferred equity investments is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies. Each distribution received from limited liability company ("LLC") and limited partnership ("LP") investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. The frequency and volume of the distributions on common equity investments and LLC and LP investments may fluctuate significantly from period to period.
Expenses
Our primary operating expenses include the payment of base management and incentive fees to MC Advisors, under the Second Amended and Restated Investment Advisory and Management Agreement (the "Amended Investment Advisory Agreement"), the payment of fees to MC Management for our allocable portion of overhead and other expenses under the administration agreement (the "Administration Agreement") and other operating costs. See Note 6 to our consolidated financial statements and "Related Party Transactions" below for additional information on our Amended Investment Advisory Agreement and Administration Agreement. Our expenses also include interest expense on indebtedness. We bear all other out-of-pocket costs and expenses of our operations and transactions.
Net gain (loss)
We recognize realized gains or losses on investments, foreign currency forward contracts and foreign currency and other transactions based on the difference between the net proceeds from the disposition and the cost basis without regard to unrealized gains or losses previously recognized within net realized gain (loss) on the consolidated statements of operations. We record current period changes in fair value of investments, foreign currency forward contracts, foreign currency and other transactions within net change in unrealized gain (loss) on the consolidated statements of operations.
Portfolio and Investment Activity
During the year ended December 31, 2025, we invested $7.6 million in one new portfolio company, received distributions-in-kind of 11 new portfolio companies for $10.2 million in conjunction with the wind-down of SLF, and invested $24.4 million in 75 existing portfolio companies and had $156.9 million in aggregate amount of sales and principal repayments, resulting in a net decrease in investments of $114.7 million for the year.
During the year ended December 31, 2024, we invested $30.4 million in seven new portfolio companies and $57.2 million in 53 existing portfolio companies and had $115.0 million in aggregate amount of sales and principal repayments, resulting in a net decrease in investments of $27.4 million for the year.
During the year ended December 31, 2023, we invested $21.7 million in seven new portfolio companies and $41.2 million in 48 existing portfolio companies and had $103.0 million in aggregate amount of sales and principal repayments, resulting in a net decrease in investments of $40.1 million for the year.
The following table shows portfolio yield by investment type as of December 31, 2025 and December 31, 2024:
December 31, 2025 December 31, 2024
Weighted Average
Annualized
Contractual
Coupon
Yield (1)
Weighted
Average
Annualized
Effective
Yield (2)
Weighted Average
Annualized
Contractual
Coupon
Yield (1)
Weighted
Average
Annualized
Effective
Yield (2)
Senior secured loans 9.9 % 8.7 % 10.7 % 10.7 %
Unitranche secured loans 10.2 11.7 11.4 14.5
Junior secured loans 8.4 8.4 7.5 7.5
Equity investments 2.5 2.5 2.8 2.8
Total 9.4 % 8.4 % 10.2 % 10.2 %
________________________________________________________
(1)The weighted average annualized contractual coupon yield at period end is computed by dividing (a) the interest income on our debt investments and preferred equity investments (with a stated coupon rate) at the period end contractual coupon rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual status within this metric as management believes this disclosure provides a better indication of return on invested capital. As of both December 31, 2025 and December 31, 2024, there were no loans excluded from the weighted average contractual coupon yield.
(2)The weighted average annualized effective yield on portfolio investments at period end is computed by dividing (a) interest income on our debt investments and preferred equity investments (with a stated coupon rate) at the period end effective rate for each investment by (b) the par value of our debt investments (excluding debt investments acquired for no cost in a restructuring on non-accrual status) and the cost basis of our preferred equity investments. We exclude loans acquired for no cost in a restructuring on non-accrual status within this metric as management believes this disclosure provides a better indication of return on invested capital. As of both December 31, 2025 and December 31, 2024, there were no loans excluded from the weighted average effective yield. The weighted average annualized effective yield on portfolio investments is a metric on the investment portfolio alone and does not represent a return to stockholders. This metric is not inclusive of our fees and expenses, the impact of leverage on the portfolio or sales load that may be paid by stockholders.
The following table shows the composition of our investment portfolio at fair value as a percentage of our total investments at fair value (in thousands) as of December 31, 2025 and December 31, 2024:
December 31, 2025 December 31, 2024
Fair Value:
Senior secured loans $ 263,219 78.6 % $ 357,994 78.3 %
Unitranche secured loans 2,183 0.7 3,862 0.8
Junior secured loans 35,180 10.5 29,634 6.5
LLC equity interest in SLF - - 32,730 7.2
Equity investments 34,273 10.2 32,828 7.2
Total $ 334,855 100.0 % $ 457,048 100.0 %
Changes in the composition of our portfolio as of December 31, 2025, primarily driven by investment sales, principal repayments, loan payoffs, and the wind-down of SLF and the associated in-kind distributions during the year. As of December 31, 2025, portfolio yields decreased compared to December 31, 2024, primarily due to declining base rates, lower spreads on certain assets, and the payoff of certain higher yielding assets during the year.
The following table shows our portfolio composition by industry at fair value and as a percentage of our total investments at fair value (in thousands) as of December 31, 2025 and December 31, 2024:
December 31, 2025 December 31, 2024
Fair Value:
Aerospace & Defense $ 1,646 0.5 % $ - - %
Automotive 19,701 5.9 16,267 3.6
Banking 6,479 2.0 7,861 1.7
Beverage, Food & Tobacco 2,875 0.9 6,027 1.3
Capital Equipment 4,982 1.5 4,853 1.1
Chemicals, Plastics & Rubber 3,911 1.2 4,864 1.1
Construction & Building 10,544 3.1 10,334 2.3
Consumer Goods: Durable 7,526 2.2 8,263 1.8
Consumer Goods: Non-Durable 1,745 0.5 2,467 0.4
Containers, Packaging & Glass 2,023 0.6 - -
Environmental Industries 87
0.0 *
520 0.1
FIRE: Finance 8,629 2.6 12,789 2.8
FIRE: Real Estate 93,604 28.0 83,037 18.2
Healthcare & Pharmaceuticals 47,332 14.2 79,784 17.5
High Tech Industries 37,484 11.3 41,240 9.0
Hotels, Gaming & Leisure 142
0.0 *
144
0.0 *
Investment Funds & Vehicles - - 32,730 7.2
Media: Advertising, Printing & Publishing 10,143 3.0 12,035 2.6
Media: Broadcasting & Subscription 697 0.2 1,156 0.3
Media: Diversified & Production 22,826 6.8 43,717 9.6
Retail 1,068 0.3 2,036 0.4
Services: Business 28,900 8.6 51,175 11.2
Services: Consumer 18,171 5.4 24,113 5.3
Telecommunications 1,820 0.5 5,586 1.2
Transportation: Cargo 2,396 0.7 5,890 1.3
Wholesale 124
0.0 *
160
0.0 *
Total $ 334,855 100.0 % $ 457,048 100.0 %
_______________________________________________________
*Represents an amount less than 0.1%
Portfolio Asset Quality
MC Advisors' portfolio management staff closely monitors all credits, with senior portfolio managers covering agented and more complex investments. MC Advisors segregates our capital markets investments by industry. The MC Advisors' monitoring process and projections developed by Monroe Capital both have daily, weekly, monthly and quarterly components and related reports, each to evaluate performance against historical, budget and underwriting expectations. MC Advisors' analysts will monitor performance using standard industry software tools to provide consistent disclosure of performance. When necessary, MC Advisors will update our internal risk ratings, borrowing base criteria and covenant compliance reports.
As part of the monitoring process, MC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal proprietary system that uses the categories listed below, which we refer to as MC Advisors' investment performance risk rating. For any investment rated in Grades 3, 4 or 5, MC Advisors, through its internal Portfolio Management Group ("PMG"), will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions. The PMG is responsible for oversight and management of any investments rated in Grades 3, 4, or 5. MC Advisors monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with our valuation process, MC Advisors reviews these investment performance risk ratings on a quarterly basis. The investment performance risk rating system is described as follows:
Investment
Performance
Risk Rating
Summary Description
Grade 1 Includes investments exhibiting the least amount of risk in our portfolio. The issuer is performing above expectations or the issuer's operating trends and risk factors are generally positive.
Grade 2 Includes investments exhibiting an acceptable level of risk that is similar to the risk at the time of origination. The issuer is generally performing as expected or the risk factors are neutral to positive.
Grade 3 Includes investments performing below expectations and indicates that the investment's risk has increased somewhat since origination. The issuer may be out of compliance with debt covenants; however, scheduled loan payments are generally not past due.
Grade 4 Includes an issuer performing materially below expectations and indicates that the issuer's risk has increased materially since origination. In addition to the issuer being generally out of compliance with debt covenants, scheduled loan payments may be past due (but generally not more than six months past due).
Grade 5 Indicates that the issuer is performing substantially below expectations and the investment risk has substantially increased since origination. Most or all of the debt covenants are out of compliance or payments are substantially delinquent. Investments graded 5 are not anticipated to be repaid in full.
Our investment performance risk ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or reflect or represent any third-party assessment of any of our investments.
In the event of a delinquency or a decision to rate an investment Grade 4 or Grade 5, the PMG, in consultation with the investment committee, will develop an action plan. Such a plan may require a meeting with the borrower's management or the lender group to discuss reasons for the default and the steps management is undertaking to address the under-performance, as well as amendments and waivers that may be required. In the event of a dramatic deterioration of a credit, MC Advisors and the PMG will form a team or engage outside advisors to analyze, evaluate and take further steps to preserve our value in the credit. In this regard, we would expect to explore all options, including in a private equity sponsored investment, assuming certain responsibilities for the private equity sponsor or a formal sale of the business with oversight of the sale process by us. The PMG and the investment committee have extensive experience in running debt work-out transactions and bankruptcies.
The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of December 31, 2025 (in thousands):
Investment Performance Risk Rating Investments at
Fair Value 		Percentage of
Total Investments
1 $ - - %
2 238,146 71.1
3 78,048 23.3
4 14,150 4.2
5 4,511 1.4
Total $ 334,855 100.0 %
The following table shows the distribution of our investments on the 1 to 5 investment performance risk rating scale as of December 31, 2024 (in thousands):
Investment Performance Risk Rating Investments at
Fair Value 		Percentage of
Total Investments
1 $ - - %
2 370,573 81.0
3 65,711 14.4
4 15,935 3.5
5 4,829 1.1
Total $ 457,048 100.0%
As of December 31, 2025, there were 14 borrowers with debt or preferred equity investments on non-accrual status and these investments totaled $13.4 million at fair value, or 4.0% of our total investments at fair value at December 31, 2025. As of December 31, 2024, there were ten borrowers with debt or preferred equity investments on non-accrual status and these investments totaled $15.7 million at fair value, or 3.4% of our total investments at fair value at December 31, 2024.
Results of Operations
Operating results were as follows (in thousands):
Year ended December 31,
2025 2024 2023
Total investment income $ 37,875 $ 60,527 $ 64,297
Total operating expenses
26,246 35,543 40,242
Net investment income before income taxes 11,629 24,984 24,055
Income taxes expense, including excise taxes
223 452 806
Net investment income 11,406 24,532 23,249
Net realized gain (loss) on investments
(16,667) 1,431 (38,769)
Net realized gain (loss) on foreign currency forward contracts
- - 1,756
Net realized gain (loss) on foreign currency and other transactions - - (135)
Net realized gain (loss) (16,667) 1,431 (37,148)
Net change in unrealized gain (loss) on investments 139 (16,259) 15,777
Net change in unrealized gain (loss) on foreign currency forward contracts
- - (1,507)
Net change in unrealized gain (loss) 139 (16,259) 14,270
Net increase (decrease) in net assets resulting from operations $ (5,122) $ 9,704 $ 371
Investment Income
The composition of our investment income was as follows (in thousands):
For the Years Ended December 31,
2025 2024 2023
Interest income $ 26,217 $ 44,283 $ 49,779
PIK interest income 7,651 9,161 9,407
Dividend income (1)
2,096 4,292 4,188
Other income (2)
516 1,324 (679)
Prepayment gain (loss) 603 531 553
Accretion of discounts and amortization of premiums 792 936 1,049
Total investment income $ 37,875 $ 60,527 $ 64,297
________________________________________________________
(1)During the years ended December 31, 2025, 2024 and 2023, dividend income includes PIK dividends of $456, $457 and $477, respectively.
(2)During the year ended December 31, 2023 there was a reversal of $1,559 of previously accrued other income associated with our former loan investment in IT Global Holding, LLC ("IT Global").
Total investment income decreased by $22.6 million during the year ended December 31, 2025, compared to the year ended December 31, 2024, primarily due to lower interest income, PIK interest income, and dividend income. Interest and PIK interest income declines were primarily as a result of the decline in weighted average invested assets and lower effective rates driven by the decline in base rates. The reduction in dividend income was primarily driven by declines in dividend income from the Company's investment in SLF.
The decrease in investment income of $3.8 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to lower interest income and PIK interest income. The reduction in interest income and PIK interest income was driven by a decrease in average invested assets and the placement of additional portfolio companies on non-accrual status. Lower effective rates on the portfolio resulting from the declining interest rate environment during the second half of the year ended December 31, 2024 also contributed to the decrease in both interest income and PIK interest income. The decrease in interest income and PIK interest income was partially offset by an increase in other income, primarily driven by the reversal of $1.6 million in previously accrued fees related to the former loan investment in IT Global, which was recognized during the year ended December 31, 2023.
Operating Expenses
The composition of our operating expenses was as follows (in thousands):
For the Years Ended December 31,
2025 2024 2023
Interest and other debt financing expenses $ 15,867 $ 21,917 $ 22,847
Base management fees 6,821 8,056 8,603
Incentive fees(1)
- 2,449 5,812
Professional fees 1,022 902 719
Administrative service fees 1,483 1,011 940
General and administrative expenses 800 964 1,174
Directors' fees 253 244 147
Total operating expenses
$ 26,246 $ 35,543 $ 40,242
________________________________________________________
(1)There were no incentive fees during the year ended December 31, 2025. Incentive fees during the years ended December 31, 2025 and 2024 were limited by $251 and $2,947, respectively, due to the Incentive Fee Limitation. Incentive fees during the year ended December 31, 2023 were not limited by the Incentive Fee Limitation. See Note 6 in our attached consolidated financial statements for additional information on the Incentive Fee Limitation.
The composition of our interest and other debt financing expenses, average outstanding balances and average stated interest rates (i.e., the rate in effect plus spread) were as follows (in thousands):
For the Years Ended December 31,
2025 2024 2023
Interest expense - revolving credit facility $ 8,020 $ 14,380 $ 15,319
Interest expense - 2026 Notes 6,220 6,220 6,220
Amortization of debt issuance costs
1,627 1,317 1,308
Total interest and other debt financing expenses $ 15,867 $ 21,917 $ 22,847
Average debt outstanding $ 228,881 $ 302,211 $ 318,884
Average stated interest rate 6.2 % 6.8 % 6.7 %
The decrease in operating expenses of $9.3 million during the year ended December 31, 2025, compared to the year ended December 31, 2024, was primarily due to a decrease in interest and other debt financing expenses from lower average debt outstanding and a reduced interest rate environment. Additionally, decreases in incentive fees resulting from lower pre-incentive fee net investment income and base management fees resulting from lower invested assets contributed to the decrease in operating expenses.
The decrease in operating expenses of $4.7 million during the year ended December 31, 2024, compared to the year ended December 31, 2023, was primarily due to a decrease in incentive fees resulting from the $2.9 million in Incentive Fee Limitations during the year ended December 31, 2024. Additionally, decreases in interest expense primarily from lower average debt outstanding and base management fees from lower invested assets during the current year contributed to the decrease in operating expenses.
Income Taxes, Including Excise Taxes
We have elected to be treated, currently qualify, and intend to continue to qualify annually, as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the U.S. federal income tax treatment available to RICs. To maintain qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements and distribute to stockholders, for each taxable year, at least 90% of our "investment company taxable income," which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses.
Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income in excess of current year dividend distributions from such current year taxable income into the next year and pay a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income may exceed estimated current year dividend distributions, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned. For the years ended December 31, 2025, 2024 and 2023, we recorded a net expense on the consolidated statements of operations of $0.1 million, $0.5 million, and $0.5 million, respectively, for U.S. federal excise tax.
Certain of our consolidated subsidiaries are subject to U.S. federal and state corporate-level income taxes. For the years ended December 31, 2025, 2024 and 2023, we recorded a net tax expense (benefit) on the consolidated statements of operations of $0.1 million, $(4) thousand and $0.3 million, respectively, for these subsidiaries.
Net Realized Gain (Loss)
During the years ended December 31, 2025, 2024 and 2023, we had sales or dispositions of investments resulting in $(16.7) million, $1.4 million and $(38.8) million of net realized gain (loss) on investments, respectively. The net realized losses during the year ended December 31, 2025 were primarily related to the realization of the previously recorded unrealized losses on our investments in SLF and INH Buyer, Inc. The net realized losses for the year ended December 31, 2024 were primarily related to the gain on the disposition of the equity of SoundHound AI, Inc. (fka Amelia Holding II, LLC), partially offset by the realization of the previously recorded unrealized losses on our investments in Seran BioScience, LLC and AdTheorent, Inc. The net realized losses for the year ended December 31, 2023 were primarily related to the realization of the previously recorded unrealized losses on our investment in Vinci Brands LLC, California Pizza Kitchen, Inc. and Forman Mills.
We may enter into foreign currency forward contracts to reduce our exposure to foreign currency exchange rate fluctuations. For the years ended December 31, 2025 and 2024, we had no foreign currency forward contracts and no foreign currency borrowings. During the year ended December 31, 2023, we had $1.8 million of net realized gain (loss) on foreign currency forward contracts and $(0.1) million of net realized gain (loss) on foreign currency and other transactions.
Net Change in Unrealized Gain (Loss)
For the years ended December 31, 2025, 2024 and 2023 our investments had $0.1 million, $(16.3) million and $15.8 million of net change in unrealized gain (loss), respectively. The net change in unrealized gain (loss) includes both unrealized gain on investments in our portfolio with mark-to-market gains during the periods and unrealized loss on investments in our portfolio with mark-to-market losses during the periods.
During the year ended December 31, 2025, the net change in unrealized gain on investments was primarily the result of the reversal of previously recognized unrealized losses on the realization of SLF and INH Buyer, partially offset by mark-to-market losses from certain portfolio companies that have underlying credit performance concerns resulting in a risk rating of Grade 3, 4 or 5 on our investment performance risk rating scale that were still held as of December 31, 2025.
During the year ended December 31, 2024, the net change in unrealized loss on investments was primarily attributable to mark-to-market losses from certain portfolio companies facing credit performance concerns that were still held as of December 31, 2024 and a certain real estate investment where the timing horizon for the realization extended which caused a reduction in expected fair value of this asset which is valued via a discounted cash flow model. These unrealized losses were partially offset by mark-to-market gains in the rest of the portfolio, driven by spread tightening in the direct lending markets during the year.
During the year ended December 31, 2023, the net change in unrealized gain on investments was primarily attributable to the reversal of previously recorded unrealized losses upon the disposition of certain assets during the period. The net change in unrealized gains during the year ended December 31, 2023 was primarily attributable to the realization of previously recorded unrealized losses upon the disposition of certain assets during the year. Excluding the $29.0 million reversal of previously recognized unrealized losses on our investments due to realizations during the year, we estimate approximately $12.9 million in net unrealized mark-to-market losses were primarily attributable to portfolio companies that have underlying credit performance concerns resulting in a risk rating of Grade 3, 4 or 5 on our investment performance risk rating scale that were still held as of December 31, 2023 and $2.4 million in net unrealized mark-to-market losses on our investment in SLF, SLF's underlying investments, which are loans to traditional upper middle-market borrowers, experienced higher volatility in valuation than the rest of the portfolio.
For the years ended December 31, 2025 and 2024, we had no foreign currency forward contracts and no foreign currency borrowings. For the year ended December 31, 2023, our foreign currency forward contracts had $(1.5) million of net change in unrealized gain (loss) and, we had no foreign currency borrowings of net change in unrealized gain (loss), respectively.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the years ended December 31, 2025, 2024 and 2023, the net increase (decrease) in net assets resulting from operations was ($5.1) million, $9.7 million and $0.4 million, respectively. Based on the weighted average shares of common stock outstanding for the years ended December 31, 2025, 2024 and 2023, our per share net increase (decrease) in net assets resulting from operations was $(0.24), $0.45 and $0.02, respectively.
The $14.8 million decrease in net assets resulting from operations during the year ended December 31, 2025, was primarily the result of lower net investment income due to the significant reduction in the size of the portfolio and a reduction in the interest rate environment. The $9.3 million increase during the year ended December 31, 2024, was primarily the result of lower net losses on the portfolio.
Liquidity and Capital Resources
As of December 31, 2025, we had $1.9 million in cash and cash equivalents, $62.0 million of total debt outstanding on our revolving credit facility and $130.0 million on the 2026 Notes. We had $113.0 million available for additional borrowings on our revolving credit facility, subject to borrowing base availability. See "Borrowings" and "Recent Developments" below for additional information.
In accordance with the 1940 Act, we are permitted to borrow amounts such that our asset coverage ratio, as defined in the 1940 Act, is at least 150% after such borrowing. As of December 31, 2025 and December 31, 2024, our asset coverage ratio based on aggregate borrowings outstanding was 187% and 165%, respectively.
Cash Flows
For the year ended December 31, 2025, we experienced a net decrease in cash and cash equivalents of $7.1 million. During the same period, operating activities provided $115.9 million primarily as a result of proceeds from principal payments and sales of investments and net investment income, partially offset by purchases of portfolio investments. During the same period, we used $123.0 million in financing activities primarily as a result of net repayments on our revolving credit facility and distributions to stockholders.
For the year ended December 31, 2024, we experienced a net increase in cash and cash equivalents of $4.1 million. During the same period, operating activities provided $36.0 million primarily as a result of principal repayments and sales of portfolio investments and net investment income, partially offset by purchases of portfolio investments. During the same period, we used $31.9 million in financing activities primarily as a result of distributions to stockholders and net repayments on our revolving credit facility.
For the year ended December 31, 2023, we experienced a net decrease in cash and cash equivalents of $0.5 million. During the same period, operating activities provided $51.7 million primarily as a result of sales of and principal repayments on portfolio investments, partially offset by purchases of portfolio investments. During the same period, we used $52.2 million in financing activities primarily as a result of distributions to stockholders and net repayments on our revolving credit facility.
Capital Resources
As a BDC, we distribute substantially all of our net income to our stockholders and have an ongoing need to raise additional capital for investment purposes. We intend to generate additional cash primarily from future offerings of securities, future borrowings and cash flows from operations, including income earned from investments in our portfolio companies. On both a short-term and long-term basis, our primary use of funds will be to invest in portfolio companies and make cash distributions to our stockholders. We may also use available funds to repay outstanding borrowings.
As a BDC, we are generally not permitted to issue and sell our common stock at a price below net asset value ("NAV") per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current NAV per share of our common stock if our board of directors ("Board"), including our independent directors, determines that such sale is in the best interests of us and our stockholders, and if our stockholders have approved such sales. On June 17, 2025, our stockholders once again voted to allow us to sell or otherwise issue common stock at a price below net asset value per share for a period of one year, subject to certain limitations. As of both December 31, 2025 and December 31, 2024, we had 21,666,340 shares outstanding.
On June 24, 2015, our stockholders approved a proposal to authorize us to issue warrants, options or rights to subscribe to, convert to, or purchase our common stock in one or more offerings. This is a standing authorization and does not require annual re-approval by our stockholders.
Stock Issuances: On May 12, 2017, we entered into at-the-market ("ATM") equity distribution agreements with each of JMP Securities LLC ("JMP") and FBR Capital Markets & Co. ("FBR") (the "ATM Program") through which we can sell, by means of ATM offerings, from time to time, up to $50.0 million of our common stock. On May 8, 2020, we entered into an amendment to the ATM Program to extend its term. All other material terms of the ATM Program remain unchanged. There were no stock issuances through the ATM Program during each of the years December 31, 2025, 2024 and 2023.
Borrowings
Revolving Credit Facility: We have a revolving credit facility with ING Capital LLC, as agent. On August 20, 2025, we reduced the aggregate commitments available under the revolving credit facility from $255 million to $175 million. The revolving credit facility has an accordion feature which permits us, under certain circumstances, to increase the size of the facility up to $400.0 million. The revolving credit facility is secured by a lien on all of our assets, including cash on hand. We may make draws under the revolving credit facility to make or purchase additional investments through December 27, 2026 and for general working capital purposes until December 27, 2027, the maturity date of the revolving credit facility. On February 27, 2025 and September 26, 2025, we amended our revolving credit facility to provide additional flexibility for us to refinance the 2026 Notes, including, among other things, by modifying the borrowing base treatment of the 2026 Notes and allowing for new indebtedness to be incurred to refinance the 2026 Notes.
Our ability to borrow under the revolving credit facility is subject to availability under the borrowing base, which permits us to borrow up to 72.5% of the fair market value of our portfolio company investments depending on the type of investment we hold and whether the investment is quoted. Our ability to borrow is also subject to certain concentration limits, and continued compliance with the representations, warranties and covenants given by us under the facility. The revolving credit facility contains certain financial covenants, including, but not limited to, our maintenance of: (1) minimum consolidated total net assets at least equal to $150.0 million plus 65% of the net proceeds to us from sales of our equity securities after March 1, 2019; (2) a ratio of total assets (less total liabilities other than indebtedness) to total indebtedness of not less than 1.5 to 1; and (3) a senior debt coverage ratio of at least 2 to 1. Additionally, the revolving credit facility contains provisions for inclusion of a portion of the 2026 Notes the definition of indebtedness requiring borrowing base coverage. This required inclusion is $20.0 million through January 15, 2026, with an increase in the required inclusion level leading up to the maturity of the 2026 Notes. The revolving credit facility also requires us to undertake customary indemnification obligations with respect to ING Capital LLC and other members of the lending group and to reimburse the lenders for expenses associated with entering into the credit facility. The revolving credit facility also has customary provisions regarding events of default, including events of default for nonpayment, change in control transactions at both Monroe Capital Corporation and MC Advisors, failure to comply with financial and negative covenants, and failure to maintain our relationship with MC Advisors. If we incur an event of default under the revolving credit facility and fail to remedy such default under any applicable grace period, if any, then the entire revolving credit facility could become immediately due and payable, which would materially and adversely affect our liquidity, financial condition, results of operations and cash flows.
Our revolving credit facility also imposes certain conditions that may limit the amount of our distributions to stockholders. Distributions payable in our common stock under the dividend reinvestment plan ("DRIP") are not limited by the revolving credit facility. Distributions in cash or property other than common stock are generally limited to 115% of the amount of distributions required to maintain our status as a RIC.
As of December 31, 2025 and December 31, 2024, we had U.S. dollar borrowings of $62.0 million and $163.9 million, respectively, and no borrowings denominated in a foreign currency as of either date. Any borrowings denominated in a foreign currency may be positively or negatively affected by movements in the rate of exchange between the U.S. dollar and the respective foreign currency. These movements are beyond our control and cannot be predicted. Borrowings denominated in a foreign currency are translated into U.S. dollars based on the spot rate at each balance sheet date. The impact resulting from changes in foreign currency borrowings is included in net change in unrealized gain (loss) on foreign currency and other transactions on our consolidated statements of operations.
Borrowings under the revolving credit facility bear interest, at our election, at an annual rate of SOFR (one-month or three-month at our discretion based on the term of the borrowing) plus 2.625% or at a daily rate equal to 1.625% per annum plus the greater of 1.5%, the prime interest rate, the federal funds rate plus 0.5% or SOFR plus 1.0%, with a SOFR floor of 0.5%. In addition to the stated interest rate on borrowings under the revolving credit facility, we are required to pay a commitment fee and certain conditional fees based on usage of the expanded borrowing base and usage of the asset coverage ratio flexibility. A commitment fee of 0.5% per annum on any unused portion of the revolving credit facility if the utilized portion of the facility is greater than 35% of the then available maximum borrowing or a commitment fee of 1.0% per annum on any unused portion of the revolving credit facility if the utilized portion of the facility is less than or equal to 35% of the then available maximum borrowing. As of December 31, 2025 and 2024, the outstanding borrowings were accruing at a weighted average interest rate of 6.5% and 7.1%, respectively.
As of December 31, 2025 and 2024, we were in compliance with all covenants and other requirements of the revolving credit facility. See "Recent Developments" for discussion of a subsequent event related to an amendment to the revolving credit facility.
2026 Notes:As of December 31, 2025 and 2024, we had $130.0 million in aggregate principal amount of senior unsecured notes (the "2026 Notes") outstanding that mature on February 15, 2026. The 2026 Notes bear interest at an annual rate of 4.75% payable semi-annually on February 15 and August 15. We may redeem the 2026 Notes in whole or in part at any time or from time to time at our option at par plus a "make-whole" premium, if applicable. The 2026 Notes are general, unsecured obligations and rank equal in right of payment with all of our existing and future unsecured indebtedness.
As of December 31, 2025 and 2024, we were in compliance with all covenants and other requirements of the 2026 Notes. See "Recent Developments" for discussion of a subsequent event related to the amendment and pay-off of the 2026 Notes.
Distributions
Our Board will determine the timing and amount, if any, of our distributions. We intend to pay distributions on a quarterly basis. In order to avoid corporate-level tax on the income we distribute as a RIC, we must distribute to our stockholders at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, on an annual basis out of the assets legally available for such distributions. In addition, we also intend to distribute any realized net capital gains (i.e., realized net long-term capital gains in excess of realized net short-term capital losses) at least annually out of the assets legally available for such distributions. Distributions to stockholders totaled $20.1 million ($0.93 per share) for the year ended December 31, 2025 and $21.7 million ($1.00 per share) for both the years ended December 31, 2024 and 2023, none of which represented a return of capital. The tax character of such distributions is determined at the end of the fiscal year. See Note 9 to our consolidated financial statements for information on the tax character of our distributions.
In October 2012, we adopted an "opt out" DRIP for our common stockholders. When we declare a distribution, our stockholders' cash distributions will automatically be reinvested in additional shares of our common stock unless a stockholder specifically "opts out" of our DRIP. If a stockholder "opts out", that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes.
MRCC Senior Loan Fund I, LLC
We previously co-invested with Life Insurance Company of the Southwest ("LSW") in senior secured loans through SLF, an unconsolidated Delaware LLC. SLF was capitalized as underlying investment transactions were completed, taking into account available debt and equity commitments available for funding those investments. All portfolio and investment decisions in respect to SLF were approved by the SLF investment committee, consisting of one representative of each of us and LSW. Investments held by SLF were measured at fair value using the same valuation methodologies as described below. Our investment was illiquid in nature as SLF did not allow for withdrawal from the LLC or the sale of a member's interest unless approved by the board members of SLF. The full withdrawal of a member would result in an orderly wind-down of SLF. On December 10, 2025, SLF's Board of Managers, pursuant to SLF's Limited Liability Agreement, dated October 31, 2017 (as amended, the "LLC Agreement"), adopted resolutions approving the wind-down and dissolution of SLF. As of December 31, 2025, SLF completed its wind-down of SLF's remaining portfolio investments and distributed in-kind the remaining unsold investments.
As of December 31, 2024, we had made net capital contributions to SLF of $42.7 million, with a fair value of $32.7 million. During the year ended December 31, 2025, we recorded return of capital distributions totaling $28.9 million (including $10.2 million received as distribution-in-kind of investments previously held by SLF). During the year ended December 31, 2025, we recorded net realized losses of $13.8 million and net change in unrealized gain (loss) of $9.9 million on our investment in SLF.
For the years ended December 31, 2025, 2024 and 2023, we received $1.6 million, $3.6 million, and $3.6 million respectively, of dividend income from our LLC equity interest in SLF.
SLF's profits and losses were allocated to us and LSW in accordance with the respective ownership interests. As of December 31, 2024, the Company and LSW each owned 50.0% of the LLC equity interests of SLF. As of December 31, 2024, SLF had $100.0 million in equity commitments from its members (in the aggregate), of which $85.3 million was funded. Additionally, as of December 31, 2024, we had committed to fund $50.0 million of LLC equity interest subscriptions to SLF, and $42.7 million of our LLC equity interest subscriptions to SLF had been called and contributed, net of return of capital distributions subject to recall.
As of December 31, 2024, SLF had total assets at fair value of $104.2 million, respectively. As of December 31, 2024, SLF had four portfolio company investments on non-accrual status with a fair value of $5.2 million. The portfolio companies in SLF were in industries and geographies similar to those in which we may invest directly. Additionally, as of December 31, 2024, SLF had $1.6 million in outstanding commitments to fund investments under undrawn revolvers and delayed draw commitments.
On September 18, 2025, SLF fully repaid its senior secured revolving credit facility (as amended, the "SLF Credit Facility") with Capital One, N.A., which was held through its wholly-owned subsidiary MRCC Senior Loan Fund I Financing SPV, LLC ("SLF SPV"). As of December 31, 2024, the aggregate commitment and principal amounts outstanding was $38.2 million. Borrowings on the SLF Credit Facility bore interest at an annual rate of SOFR (three-month) plus 2.10% and the SLF Credit Facility has a maturity date of November 23, 2031. As of December 31, 2024, the SLF Credit Facility was accruing a weighted average interest rate of 6.9%.
SLF did not pay any fees to MC Advisors or its affiliates; however, SLF had entered into an administration agreement with Monroe Capital Management Advisors, LLC ("MC Management"), pursuant to which certain loan servicing and administrative functions were delegated to MC Management. SLF reimbursed MC Management for its allocable share of overhead and other expenses incurred by MC Management. For the years ended December 31, 2025, 2024 and 2023, SLF incurred $0.2 million of allocable expenses, respectively. There are no agreements or understandings by which we guaranteed any SLF obligations.
Below is a summary of SLF's portfolio, followed by a listing of the individual investments in SLF's portfolio as of December 31, 2024:
December 31, 2024
Secured loans (1)
101,624
Weighted average current interest rate on secured loans (2)
9.3%
Number of portfolio company investments in SLF 36
Largest portfolio company investment (1)
4,900
Total of five largest portfolio company investments (1)
23,901
________________________________________________________
(1)Represents outstanding principal amount, excluding unfunded commitments. Principal amounts in thousands.
(2)Computed as the (a) annual stated interest rate on accruing secured loans divided by (b) total secured loans at outstanding principal amount.
MRCC SENIOR LOAN FUND I, LLC
CONSOLIDATED SCHEDULE OF INVESTMENTS
December 31, 2024
(in thousands)
Portfolio Company (1)
Footnotes
Index (2)
Spread (2)
Interest Rate (2)
Maturity Principal Fair Value
Non-Controlled/Non-Affiliate Company Investments
Senior Secured Loans
Aerospace & Defense
Trident Maritime Systems, Inc. SF 7.65 %
9.98% Cash/ 2.00% PIK
2/26/2027 3,145 $ 3,096
Trident Maritime Systems, Inc. SF 7.60 %
9.96% Cash/ 2.00% PIK
2/26/2027 137 135
Trident Maritime Systems, Inc. (Revolver) (4) SF 7.65 %
10.01% Cash/ 2.00% PIK
2/26/2027 319 -
3,601 3,231
Automotive
Accelerate Auto Works Intermediate, LLC SF 4.90 % 9.41 % 12/1/2027 1,344 1,323
Accelerate Auto Works Intermediate, LLC SF 4.90 % 9.49 % 12/1/2027 384 378
Accelerate Auto Works Intermediate, LLC (Revolver) (4) SF 4.90 % 9.41 % 12/1/2027 132 44
1,860 1,745
Beverage, Food & Tobacco
SW Ingredients Holdings, LLC SF 5.60 % 9.96 % 7/8/2027 3,506 3,503
3,506 3,503
Capital Equipment
MacQueen Equipment, LLC SF 5.51 % 9.84 % 1/7/2028 2,032 2,032
MacQueen Equipment, LLC SF 5.51 % 9.84 % 1/7/2028 445 445
MacQueen Equipment, LLC (Revolver) (4) P 4.25 % 11.75 % 1/7/2028 296 20
2,773 2,497
Chemicals, Plastics & Rubber
Phoenix Chemical Holding Company LLC SF 7.11 % 11.47 % 10/3/2025 1,137 677
TJC Spartech Acquisition Corp. SF 4.75 % 9.41 % 5/5/2028 4,167 3,026
5,304 3,703
Consumer Goods: Durable
Runner Buyer INC. SF 5.61 % 10.11 % 10/23/2028 2,910 1,382
2,910 1,382
Consumer Goods: Non-Durable
PH Beauty Holdings III, INC. SF 5.00 % 10.17 % 9/26/2025 2,342 2,333
2,342 2,333
Containers, Packaging & Glass
Polychem Acquisition, LLC SF 5.26 % 9.85 % 3/17/2025 2,828 2,463
PVHC Holding Corp SF 6.90 %
10.43% Cash/ 0.75% PIK
2/17/2027 1,891 1,869
4,719 4,332
Energy: Oil & Gas
Offen, Inc. SF 5.11 % 9.47 % 6/22/2026 2,249 2,209
Offen, Inc. SF 5.11 % 9.47 % 6/22/2026 850 835
3,099 3,044
FIRE: Finance
TEAM Public Choices, LLC SF 5.11 % 9.47 % 12/17/2027 2,895 2,914
2,895 2,914
FIRE: Real Estate
Avison Young (USA) Inc. (3)(5) SF 6.36 % 10.70 % 3/12/2028 601 606
601 606
Healthcare & Pharmaceuticals
LSCS Holdings, Inc. SF 4.61 % 8.97 % 12/15/2028 1,791 1,805
Natus Medical Incorporated SF 5.60 % 9.96 % 7/20/2029 4,900 4,827
6,691 6,632
MRCC SENIOR LOAN FUND I, LLC
CONSOLIDATED SCHEDULE OF INVESTMENTS - (continued)
December 31, 2024
(in thousands)
Portfolio Company (1)
Footnotes
Index (2)
Spread (2)
Interest Rate (2)
Maturity Principal Fair Value
High Tech Industries
Corel Inc. (3) SF 5.10 % 9.61 % 7/2/2026 3,200 $ 2,706
Lightbox Intermediate, L.P. SF 5.11 % 9.44 % 5/11/2026 4,725 4,725
TGG TS Acquisition Company SF 6.61 % 10.97 % 12/12/2025 2,445 2,460
10,370 9,891
Hotels, Gaming & Leisure
Excel Fitness Holdings, Inc. SF 5.25 % 9.58 % 4/27/2029 4,309 4,301
Excel Fitness Holdings, Inc. (Revolver) (4) SF 5.25 % 9.58 % 4/28/2028 625 -
North Haven Spartan US Holdco, LLC SF 5.75 % 10.18 % 6/5/2026 2,227 2,227
7,161 6,528
Media: Diversified & Production
STATS Intermediate Holdings, LLC SF 5.51 % 10.03 % 7/10/2026 4,750 4,698
TA TT Buyer, LLC SF 4.75 % 9.08 % 3/30/2029 3,267 3,281
8,017 7,979
Services: Business
Eliassen Group, LLC SF 5.75 % 10.08 % 4/14/2028 3,186 3,118
Eliassen Group, LLC SF 5.75 % 10.26 % 4/14/2028 229 224
Secretariat Advisors LLC SF 4.86 % 9.22 % 12/29/2028 1,659 1,657
Secretariat Advisors LLC SF 4.86 % 9.22 % 12/29/2028 265 264
SIRVA Worldwide Inc. (Delayed Draw) (4) SF 8.00 % 12.35 % 2/20/2029 381 241
5,720 5,504
Services: Consumer
Laseraway Intermediate Holdings II, LLC SF 5.75 % 10.66 % 10/14/2027 2,156 2,075
McKissock Investment Holdings, LLC SF 5.00 % 9.80 % 3/9/2029 2,431 2,420
4,587 4,495
Telecommunications
Mavenir Systems, Inc. SF 5.01 % 9.53 % 8/18/2028 1,621 1,150
Sandvine Corporation (5) SF 9.00 % 13.25 % 10/3/2025 72 72
Sandvine Corporation (5) SF 9.00 % 13.25 % 10/3/2025 372 374
Sandvine Corporation (Delayed Draw) (4)(5) SF 9.00 % 13.25 % 10/3/2025 144 -
2,209 1,596
Transportation: Cargo
Keystone Purchaser, LLC SF 5.86 % 10.22 % 5/7/2027 4,854 4,836
4,854 4,836
Wholesale
HALO Buyer, Inc. SF 4.60 % 8.96 % 6/30/2025 4,672 4,456
4,672 4,456
Total Non-Controlled/Non-Affiliate Senior Secured Loans 87,891 81,207
Junior Secured Loans
Consumer Goods: Durable
Elevate Textiles, Inc. (5) SF 6.65 % 11.24 % 9/30/2027 790 622
790 622
Healthcare & Pharmaceuticals
Radiology Partners, Inc. SF 5.26 %
8.28% Cash/ 1.50% PIK
1/31/2029 4,252 4,213
4,252 4,213
FIRE: Real Estate
Avison Young (USA) Inc. (3)(5) SF 8.26 %
6.15% Cash/ 6.50% PIK
3/12/2029 1,492 1,178
Avison Young (USA) Inc. (3)(5) SF 8.26 %
6.15% Cash/ 6.50% PIK
3/12/2029 510 299
2,002 1,477
MRCC SENIOR LOAN FUND I, LLC
CONSOLIDATED SCHEDULE OF INVESTMENTS - (continued)
December 31, 2024
(in thousands)
Portfolio Company (1)
Footnotes
Index (2)
Spread (2)
Interest Rate (2)
Maturity Principal Fair Value
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC SF 5.76 % 10.29 % 10/15/2028 4,467 $ 4,181
4,467 4,181
Services: Business
Output Services Group, Inc. (5) SF 6.68 % 11.11 % 11/30/2028 1,042 1,042
SIRVA Worldwide Inc. SF 8.00 %
7.52% Cash/ 5.00% PIK
8/20/2029 1,171 1,160
2,213 2,202
Telecommunications
Sandvine Corporation (5) n/a n/a 2.00 % 6/28/2027 1,602 381
1,602 381
Total Non-Controlled/Non-Affiliate Junior Secured Loans 15,326 13,076
Equity Investments (6)(7)(8)
Consumer Goods: Durable
Elevate Textiles, Inc. (fka International Textile Group, Inc.) (25,524 shares of common units)
- - - - - 86
86
Chemicals, Plastics & Rubber
Polyventive Lender Holding Company LLC (0.84% of the equity)
- - - - - -
-
FIRE: Real Estate
Avison Young (USA) Inc. (1,605,312 Class A preferred shares)
(3)(5) n/a n/a
12.50% PIK
n/a - 610
Avison Young (USA) Inc. (1,199 Class F common shares)
(3) - - - - - -
610
Healthcare & Pharmaceuticals
Cano Health, Inc. (79,030 shares of common units)
- - - - - 692
Cano Health, Inc. (warrant to purchase up to 2,682 shares of common units)
- - - 6/28/2029 - 2
694
Media: Diversified & Production
Research Now Group, Inc. and Survey Sampling International, LLC (61,590 shares of common units)
- - - - - 1,093
1,093
Services: Business
SIRVA Worldwide Inc. (2,252 Class A common shares)
- - - - - 547
SIRVA Worldwide Inc. (518 Class A preferred shares)
- - - - - 25
Output Services Group, Inc. (51,370 Class A units)
- - - - - 613
1,185
Telecommunications
Sandvine Corporation (40 shares of Class A units)
- - - - - -
-
Total Non-Controlled/Non-Affiliate Equities 3,668
TOTAL INVESTMENTS $ 97,951
MRCC SENIOR LOAN FUND I, LLC
CONSOLIDATED SCHEDULE OF INVESTMENTS - (continued)
December 31, 2024
(in thousands)
________________________________________________________
(1)All investments are U.S. companies unless otherwise noted.
(2)The majority of investments bear interest at a rate that may be determined by reference to the Secured Overnight Financing Rate ("SOFR" or "SF") or Prime ("P") which reset daily, monthly, quarterly or semiannually. We have provided the spread over SOFR or Prime and the current contractual rate of interest in effect at December 31, 2024. Certain investments may be subject to an interest rate floor or cap. Certain investments contain a Payment-in-Kind ("PIK") provision.
(3)The headquarters of this portfolio company is located in Canada.
(4)All or a portion of this commitment was unfunded as of December 31, 2024. As such, interest is earned only on the funded portion of this commitment. Principal reflects the commitment outstanding.
(5)This position was on non-accrual status as of December 31, 2024, meaning that we have ceased accruing interest income on the position.
(6)Represents less than 5% ownership of the portfolio company's voting securities.
(7)Ownership of certain equity investments may occur through a holding company partnership.
(8)Investments without an interest rate are non-income producing.
Below is certain summarized financial information for SLF as of December 31, 2025 (liquidation date) and 2024, and for the years ended December 31, 2025, 2024 and 2023 (in thousands):
December 31, 2025 December 31, 2024
Assets
Investments, at fair value $ - $ 97,951
Cash and cash equivalents 696 1,488
Restricted cash and cash equivalents - 3,673
Receivable for unsettled trades 21,943 -
Interest receivable 145 1,047
Other assets
8 -
Total assets $ 22,792 $ 104,159
Liabilities
Revolving credit facility $ - $ 38,214
Less: Unamortized debt issuance costs - -
Total debt, less unamortized debt issuance costs - 38,214
Interest payable
- 272
Distributions payable 22,557 -
Accounts payable and accrued expenses 235 212
Total liabilities 22,792 38,698
Members' capital - 65,461
Total liabilities and members' capital $ 22,792 $ 104,159
For the Years Ended December 31,
2025 2024 2023
Investment income:
Interest income $ 5,646 $ 13,012 $ 18,362
Total investment income 5,646 13,012 18,362
Expenses:
Interest and other debt financing expenses 976 5,173 8,847
Professional fees and other expenses 544 640 757
Total expenses 1,520 5,813 9,604
Net investment income 4,126 7,199 8,758
Net gain (loss):
Net realized gain (loss) (23,361) 82 (5,119)
Net change in unrealized gain (loss) 14,831 (862) (1,216)
Net gain (loss) (8,530) (780) (6,335)
Net increase (decrease) in members' capital $ (4,404) $ 6,419 $ 2,423
Related Party Transactions
We have a number of business relationships with affiliated or related parties, including the following:
•On March 31, 2025, in connection with the change of control transaction where an affiliate of Wendel SE, acquired 75% of the outstanding equity interests of certain affiliates of Monroe Capital, including MC Advisors (the "Wendel Transaction"), we entered into the Amended Investment Advisory Agreement with MC Advisors. The Amended Investment Advisory Agreement was approved by our stockholders at a meeting of stockholders held on February 21, 2025. The terms of the Amended Investment Advisory Agreement, including the fee structure and services to be provided, remained the same as the terms of the former investment advisory and management agreement between us and MC Advisors, dated November 4, 2019 (the "Original Investment Advisory Agreement"). The Original Investment Advisory Agreement terminated pursuant to its terms as a result of the Wendel Transaction in accordance with the requirements of the 1940 Act. Under the terms of the Amended Investment Advisory Agreement, MC Advisors, subject to the overall supervision of the Board, continues to provide investment advisory services to us. We pay MC Advisors a fee for its services under the Amended Investment Advisory Agreement consisting of two components - a base management fee and an incentive fee. See Note 6 to our consolidated financial statements and "Significant Accounting Estimates and Critical Accounting Policies - Capital Gains Incentive Fee" for additional information.
•We have an Administration Agreement with MC Management to provide us with the office facilities and administrative services necessary to conduct our day-to-day operations. See Note 6 to our consolidated financial statements for additional information.
•On August 7, 2025, we entered into the Merger Agreement with HRZN, the Merger Sub, Monroe Capital BDC Advisors, LLC, and Horizon Technology Finance Management LLC. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" for additional information about the Merger.
•On August 7, 2025, we entered into an Asset Purchase Agreement with MCIP and MC Advisors. See "Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" for additional information about the Asset Sale.
•SLF had an administration agreement with MC Management to provide SLF with certain loan servicing and administrative functions. SLF reimbursed MC Management for its allocable share of overhead and other expenses incurred by MC Management. The agreement was terminated in connection with the wind-down of SLF, effective December 31, 2025. See Note 3 to our consolidated financial statements and "Liquidity and Capital Resources - MRCC Senior Loan Fund I, LLC" for additional information.
•Theodore L. Koenig, our Chief Executive Officer and Chairman of our Board, is also a manager of MC Advisors and the Chief Executive Officer of MC Management. Lewis W. Solimene, Jr., our Chief Financial Officer and Chief Investment Officer, is also a managing director of MC Management.
•We have a license agreement with Monroe Capital LLC, under which Monroe Capital LLC has agreed to grant us a non-exclusive, royalty-free license to use the name "Monroe Capital" for specified purposes in our business.
In addition, we have adopted a formal code of ethics that governs the conduct of MC Advisors' officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and Maryland General Corporation Law.
Contractual Obligations and Off-Balance Sheet Arrangements
Contractual Obligations
The following table shows our significant contractual payment obligations for repayment as of December 31, 2025 (in thousands):
Total Less than
1 year 		1 - 3 years 3 - 5 years More than
5 years
Revolving credit facility $ 62,000 $ - $ 62,000 $ - $ -
2026 Notes 130,000 130,000 - - -
Unfunded commitments (1)
20,473 20,473 - - -
Total contractual obligations $ 212,473 $ 150,473 $ 62,000 $ - $ -
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(1)Unfunded commitments represent all amounts unfunded as of December 31, 2025. These amounts may or may not be funded to the borrowing party now or in the future. The unfunded commitments relate to loans or equity investments with various maturity dates, but we are showing this amount in the less than one year category as this entire amount was eligible for funding to the borrowers as of December 31, 2025.
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized on the consolidated statements of assets and liabilities. As of December 31, 2025 and December 31, 2024, we had outstanding commitments to fund investments under undrawn revolvers, delayed draw commitments and subscription agreements, excluding unfunded commitments in SLF, totaling $20.5 million and $38.5 million, respectively. As of December 31, 2024, we had unfunded commitments to SLF of $7.3 million that may be contributed primarily for the purpose of funding new investments approved by the SLF investment committee. Prior to its wind-down, drawdowns of the commitments to SLF required authorization from one of our representatives on SLF's board of managers. Additionally, we have entered into certain contracts with other parties that contain a variety of indemnifications. Our maximum exposure under these arrangements is unknown. However, we have not experienced claims or losses pursuant to these contracts and believe the risk of loss related to such indemnifications to be remote.
Off-Balance Sheet Arrangements
Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any off-balance sheet financings or liabilities.
Market Trends
We have identified the following general trends that may affect our business:
Target Market: We believe that small and middle-market companies in the United States with annual revenues between $10.0 million and $2.5 billion represent a significant growth segment of the U.S. economy and often require substantial capital investments to grow. Middle-market companies have generated a significant number of investment opportunities for investment funds managed or advised by Monroe Capital, and we believe that this market segment will continue to produce significant investment opportunities for us.
Specialized Lending Requirements: We believe that several factors render many U.S. financial institutions ill-suited to lend to U.S. middle-market companies. For example, based on the experience of our management team, lending to U.S. middle-market companies (1) is generally more labor intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of information for such companies, (2) requires due diligence and underwriting practices consistent with the demands and economic limitations of the middle-market and (3) may also require more extensive ongoing monitoring by the lender.
Demand for Debt Capital: We believe there is a large pool of uninvested private equity capital for middle-market companies. We expect private equity firms will seek to leverage their investments by combining equity capital with senior secured loans and mezzanine debt from other sources, such as us.
Competition from Other Lenders: We believe that many traditional bank lenders, in recent years, de-emphasized their service and product offerings to middle-market businesses in favor of lending to large corporate clients and managing capital market transactions. In addition, many commercial banks face significant balance sheet constraints as they seek to build capital and meet future regulatory capital requirements. These factors may result in opportunities for alternative funding sources to middle-market companies and therefore drive increased new investment opportunities for us. Conversely, there has been a significant amount of capital raised over the past several years dedicated to middle market lending which has increased competitive pressure in the BDC and investment company marketplace for senior and subordinated debt, which in turn could result in lower yields and weaker financial covenants for new assets.
Pricing and Deal Structures: We believe that the volatility in global markets over the last several years and current macroeconomic issues including changes in bank regulations for middle-market banks has reduced access to, and availability of, debt capital to middle-market companies, causing a reduction in competition and generally more favorable capital structures and deal terms. Sizable recent capital raises in the private debt marketplace have created significantly increased competition over the last few years, reducing available pricing and creating less favorable capital structures; however, we believe that current market conditions for our target market may continue to create favorable opportunities to invest at attractive risk-adjusted returns.
Market Environment:We believe middle market investments are attractive in volatile market environments such as the current market environment where there is uncertainty around the overall direction of the economy and interest rates. Directly originated middle market loans have demonstrated the ability to outperform competing markets through varying economic cycles including downturns and prior periods of monetary policy tightening. Through the global financial crisis, the higher interest rate environment in 2005-2006, market bottom in 2008 and the subsequent recovery period, as well as throughout the COVID-19 pandemic, these investments have historically generated considerable yield premium with more favorable capital structures for lenders, resulting in higher returns when compared to the market for U.S. high yield bonds and U.S. traded loans.(1)Middle market direct lending also offers a natural hedge to higher interest rates with floating rate structures that benefit from higher interest rates, while providing broad diversification in an environment where there is a risk of increased default rate activity. We believe that direct lending volumes will continue outpacing syndicated loan transaction volumes due to capital requirements and liquidity constraints faced by banks. In 2025, the overall middle market experienced spread compression and leverage and loan-to-value attachments points have decreased nominally. Further, interest coverage ratios have increased well above 2024 levels, indicating that the earnings power of borrowers continue to sufficiently satisfy their debt service obligations with increased cushion. Direct lending volume increased in 2025 driven by significant growth in LBO activity and recapitalizations, which offset a double digit decrease in M&A activity over the same time period.(2)Underlying market fundamentals continue to support increased deal activity throughout 2026. Throughout 2025, new money volumes hit a record high on annual basis as they continued to account for the largest of overall direct lending volumes. This dynamic has been primarily driven by a rise in refinancing activity, as borrowers often will seek to lower their cost of capital in an environment where spreads have compressed.(2)Loan documentation and structures, more notably in the lower middle market, continue to be lender favorable due to market uncertainty stemming from the potential tariffs implemented by the current U.S. administration, market headline sentiment, and concurrent market volatility and uncertainty. We believe this makes for an attractive opportunity for middle market direct lenders to selectively deploy capital in assets that have relatively attractive pricing and lower risk structures, resulting in an attractive vintage with strong risk-adjusted returns. That said, we note that a softening macroeconomic environment and lingering impact of inflationary pressures could result in increased default rates. If default rates become more prevalent, we would expect to experience decreased net interest income, lower yields and increased risk of credit loss. However, we believe that our portfolio is well insulated from the potential risks associated with tariffs and lingering inflation. Further, Monroe Capital's scale, product suite, diversification, and strong historical recovery rate track record will continue to allow us to find attractive investment opportunities and navigate this uncertain market environment. ________________________________________________________
(1)Private Credit total return performance measured by the Cliffwater Direct Lending Index total return, US high yield measured by the ICE BofA US High Yield Index, Leveraged Loans by Morningstar LSTA US Leveraged Loan Index - December 2025.
(2)LSEG LPC's 4Q25 Sponsored Middle Market Private Deals Analysis - January 2026.
Recent Developments
On January 14, 2026, we entered into Amendment No. 9 (the "Amendment") to our Second Amended and Restated Senior Secured Revolving Credit Agreement with certain lenders party thereto and ING Capital LLC, as administrative agent. The Amendment amends our revolving credit facility to, among other things, establish a temporary "Borrowing Base Flex Period" that adjusts certain borrowing base mechanics, concentration limits and related calculations; establish financing arrangements tied to the 2026 Notes, including a loan funded on the Amendment effective date and a subsequent "2026 Loan Increase" to refinance the 2026 Notes; increase applicable interest margins by 0.75% (to 2.375% for ABR loans and 3.375% for SOFR/Eurocurrency/RFR loans); and enhance mandatory prepayment provisions, including 100% prepayments of specified proceeds received during the Borrowing Base Flex Period, subject to customary timing and limited exceptions.
The revolving credit facility continues to be secured by substantially all of our assets (excluding, among other things, our investments held in and by certain subsidiaries). The credit agreement and related agreements governing the revolving credit facility require us to, among other things, (i) make representations and warranties regarding the collateral as well as our business and operations, (ii) agree to certain indemnification obligations and (iii) comply with various affirmative and negative covenants, reporting requirements and other customary requirements for similar revolving credit facilities. These include covenants related to: (A) limitations on the incurrence of additional indebtedness and liens, (B) limitations on certain investments, (C) limitations on certain asset transfers and restricted payments, (D) maintaining minimum levels of asset coverage, senior debt coverage and net worth, and (E) limitations on the creation or existence of agreements that prohibit liens on certain of our properties and certain of our subsidiaries. During the Borrowing Base Flex Period, certain covenants and mechanics operate in their amended form as described in the Amendment. The credit agreement and related documents also include customary events of default, including failure to make timely payments, the occurrence of a change in control and the failure by us to materially perform under the credit agreement and related agreements governing the facility. If not complied with, such events could accelerate repayment under the facility and materially and adversely affect our liquidity, financial condition and results of operations.
In addition to the asset coverage and senior debt coverage ratios noted above, borrowings under the revolving credit facility (and the incurrence of certain other permitted debt) continue to be subject to compliance with a borrowing base that applies different advance rates to different types of assets in our portfolio, with certain mechanics and limits adjusted during the Borrowing Base Flex Period as described in the Amendment.
Borrowings under the revolving credit facility remain subject to the facility's various covenants and the leverage restrictions contained in the 1940 Act, as amended.
On January 15, 2026, we completed the redemption of all of our outstanding 2026 Notes in an aggregate principal amount of $130.0 million, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest.
Our Board declared its first quarter of 2026 distribution of $0.09 per share, payable on March 31, 2026 to stockholders of record on March 16, 2026.
Significant Accounting Estimates and Critical Accounting Policies
Revenue Recognition
We record interest and fee income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt investments with contractual PIK interest, we do not accrue PIK interest if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt investments if we have reason to doubt our ability to collect such interest. We may make exceptions to this policy and partially record interest if the loan has sufficient collateral value or is in process of collection and there is the expectation of collection of principal and a portion of the contractual interest. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized into interest income over the contractual life of the respective investment using the effective interest method. Upon the prepayment of a loan or debt investment, any unamortized premium or discount or loan origination fees are recorded as interest income. We record prepayment premiums on loans and debt investments as interest income when we receive such amounts. Interest 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. We record fees on loans based on the determination of whether the fee is considered a yield enhancement or payment for a service. If the fee is considered a yield enhancement associated with a funding of cash on a loan, the fee is generally deferred and recognized into interest income using the effective interest method if captured in the cost basis or using the straight-line method if the loan is unfunded and therefore there is no cost basis. If the fee is not considered a yield enhancement because a service was provided, and the fee is payment for that service, the fee is deemed earned and recorded as other income in the period the service is completed.
Dividend income on preferred equity investments is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies. Each distribution received from LLC and LP investments is evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs and LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
Valuation of Portfolio Investments
Pursuant to Rule 2a-5 of the 1940 Act, the Board has designated MC Advisors as our valuation designee (the "Valuation Designee"). The Board is responsible for oversight of the Valuation Designee. The Valuation Designee has established a valuation committee to determine in good faith the fair value of our investments, based on input of the Valuation Designee's management and personnel and independent valuation firms which are engaged at the direction of the valuation committee to assist in the valuation of certain portfolio investments lacking a readily available market quotation. The valuation committee determines fair values pursuant to a valuation policy approved by the Board and pursuant to a consistently applied valuation process.
Under the valuation policy, the Valuation Designee values investments for which market quotations are readily available and within a recent date at such market quotations. When doing so, the Valuation Designee determines whether the quote obtained is sufficient in accordance with generally accepted accounting principles in the United States of America ("GAAP") to determine the fair value of the security. Debt and equity investments that are not publicly traded or whose market prices are not readily available or whose market prices are not regularly updated are valued at fair value as determined in good faith by the Valuation Designee. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by our Valuation Designee using a documented valuation policy and a consistently applied valuation process. Such determination of fair values may involve subjective judgments and estimates. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize amounts that are different from the amounts presented and such differences could be material.
With respect to investments for which market quotations are not readily available, the Valuation Designee 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 the Valuation Designee responsible for the credit monitoring of the portfolio investment;
•our Valuation Designee engages independent valuation firms to conduct independent appraisals of a selection of investments for which market quotations are not readily available. We will consult with an independent valuation firm relative to each portfolio company at least once in every calendar year, but the independent appraisals are generally received quarterly for each investment;
•to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available in a particular quarter, the investment will be valued by the Valuation Designee;
•preliminary valuation conclusions are then documented and discussed with the valuation committee of the Valuation Designee;
•the valuation conclusions are approved by the valuation committee of the Valuation Designee; and
•a report prepared by the Valuation Designee is presented to the Board quarterly to allow the Board to perform its oversight duties of the valuation process and the Valuation Designee.
The Valuation Designee generally uses the income approach to determine fair value for loans where market quotations are not readily available, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, the Valuation Designee 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. This liquidation analysis may also include probability weighting of alternative outcomes. The Valuation Designee generally considers our debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner, the loan is in covenant compliance and the loan is otherwise not deemed to be impaired. In determining the fair value of the performing debt, the Valuation Designee 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 debt instrument is not performing, as defined above, the Valuation Designee will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the debt instrument.
Under the income approach, discounted cash flow models are utilized to determine the present value of the future cash flow streams of our debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the income approach, the Valuation Designee also considers the following factors: applicable market yields and leverage levels, recent transactions, 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.
Under the market approach, the enterprise value methodology is typically utilized 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 Valuation Designee derives a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, the Valuation Designee 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.
In addition, for certain investments, the Valuation Designee may base its valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that we and others may be willing to pay. Ask prices represent the lowest price that we and others may be willing to accept. The Valuation Designee generally use the midpoint of the bid/ask range as our best estimate of fair value of such investment.
As of December 31, 2025, our Valuation Designee determined, in good faith, the fair value of our investment portfolio in accordance with GAAP and our valuation procedures based on the facts and circumstances known by us at that time, or reasonably expected to be known at that time.
Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss
We measure realized gain or loss by the difference between the net proceeds from the sale and the amortized cost basis of the investment, without regard to unrealized gain or loss previously recognized. Net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized gain or loss, when gain or loss is realized. Additionally, we do not isolate the change in fair value resulting from foreign currency exchange rate fluctuations from the changes in the fair values of the underlying investment. All fluctuations in fair value are included in net change in unrealized gain (loss) on investments on our consolidated statements of operations. The impact resulting from changes in foreign exchange rates on revolving credit facility borrowings denominated in foreign currencies is included in net change in unrealized gain (loss) on foreign currency and other transactions.
Capital Gains Incentive Fee
Pursuant to the terms of the Amended Investment Advisory Agreement with MC Advisors, the incentive fee on capital gains earned on liquidated investments of our portfolio is determined and payable in arrears as of the end of each calendar year (or upon termination of the Amended Investment Advisory Agreement). This fee equals 20% of our incentive fee capital gains (i.e., our realized capital gains on a cumulative basis from inception, calculated as of the end of the applicable period, net of all realized capital losses and unrealized capital depreciation on a cumulative basis), less the aggregate amount of any previously paid capital gains incentive fees. On a quarterly basis, we accrue for the capital gains incentive fee by calculating such fee as if it were due and payable as of the end of such period.
While the Amended Investment Advisory Agreement with MC Advisors neither includes nor contemplates the inclusion of unrealized gains in the calculation of the capital gains incentive fee, pursuant to an interpretation of an American Institute for Certified Public Accountants Technical Practice Aid for investment companies, we include unrealized gains in the calculation of the capital gains incentive fee expense and related accrued capital gains incentive fee. This accrual reflects the incentive fees that would be payable to MC Advisors if our entire portfolio was liquidated at its fair value as of the balance sheet date even though MC Advisors is not entitled to an incentive fee with respect to unrealized gains unless and until such gains are actually realized.
During the years ended December 31, 2025, 2024 and 2023, we did not have any further reductions in accrued capital gains incentive fees as they were already at zero, primarily as a result of accumulated realized and unrealized losses on the portfolio.
New Accounting Pronouncements
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740)("ASU 2023-09"), which updates income tax disclosure requirements related to rate reconciliation, income taxes paid and other disclosures. We adopted ASU 2023-09 effective December 31, 2025 and concluded that the application of this guidance did not have any material impact on our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures("ASU 2024-03"), which requires disaggregated disclosure of certain costs and expenses, including purchases of inventory, employee compensation, depreciation, amortization and depletion, within relevant income statement captions. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026, and interim periods beginning with the first quarter ended March 31, 2028. Early adoption and retrospective application are permitted. We are currently evaluating the impact of adopting ASU 2024-03.
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